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, 1997
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 (IRS Employer
Of incorporation or organization) Identification Number)
5577 South Lewis, Tulsa, Oklahoma 74105
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (918) 745-1010
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
<PAGE>
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 13 or 15(d) of the Securities
Exchange 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________ NO_____X_____
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K 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
nonaffiliate of the Registrant: $63,502 as of November 28, 1997.
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock as of the latest practicable date:
29,000,000 as of November 28, 1997:
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
<PAGE>
OIL CITY PETROELUM, INC.
INDEX
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
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 18
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 acquisitions and disposal of
additional producing oil and gas properties and related assets. The Registrant
operates in two industries segments, the production of oil and gas and the
rental of 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.
<PAGE>
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 Company did not allow for any proved reserve on the
existing oil and gas reserves due to the current economic conditions of the
properties. The Company does plan to complete a engineering study next year to
determine if these properties can be enhanced.
Proved Reserves
As of August 31, 1997
Oil (bbls):
Proved developed - 0 -
Proved undeveloped - 0 -
TOTAL - 0 -
Natural Gas (mcf):
Proved developed - 0 -
Proved undeveloped - 0 -
TOTAL - 0 -
<PAGE>
Acreage - The following table shows the developed and undeveloped
leasehold acreage held by the Registrant as of August 31, 1997:
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, 1997:
Oil Wells Gas Wells Total
(1) Gross (2)Net (1) Gross (2)Net (1)Gross (2)Net
Okla. 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.
<PAGE>
(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.
Production, Price and Cost Data - The following table summarized certain
information relating to the production, price and cost data for the Registrant
for the fiscal years ended, August 31, 1997, 1996, 1995 and 1994.
1997 1996 1995 1994
Oil
Production (bbls) 2,002 2,770 2,424 2,060
Revenue $45,254 $51,261 $41,738 $27,636
Average barrels per day 5.48 7.59 6.64 5.64
Average sales price $22.60 $ 18.51 $ 17.22 $ 13.42
per barrel
Natural Gas:
Production (mcf) -0- 724 642 197
Revenue -0- $ 624 $ 472 $ 189
Average mcf per day -0- 1.98 1.76 .54
Average sales price per mcf -0- $ .86 $ .74 $ .96
Production costs $71,272 $60,111 $54,341 $39,036
Equivalent (bbls) (1) 2,002 2,891 2,531 2,093
Production costs per
equivalent bbl 35.60 20.79 21.47 18.65
Total oil and gas revenues $45,254 $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.
<PAGE>
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% interests
with all principal and accrued interest due on demand. On August 22, 1997, the
Company issued 1,605,806 shares of common stock in cancellation of unsecured
notes and accrued interest payable to National Oil & Gas, Inc. National Oil
& Gas, Inc. is an affiliate controlled by Mr. William G. Moser, Chairman of
the Board of the Registrant. (See Item 13 - Certain Relationships and Related
Transactions.)
The Registrant's office building in Tulsa, Oklahoma is subject to a
mortgage in the principal amount of $147,390 as of August 31, 1997 at 10.5%
interest, and will be fully amortized in March, 2005.
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.
<PAGE>
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
has a significant effect on the Registrant and it's operating results.
State Regulation - The current production operations of the Registrant
are, and any drilling operations of the Registrant would be, subject to
regulation 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
blowouts, cratering, pollution, fires, and theft of equipment. Each of these
incidents could result in damage to, destruction of oil and gas wells,
formations, 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 contingencies,
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 development of
alternative energy sources have had and will continue to have a dramatic effect
on the Registrant's business.
<PAGE>
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 capabilities
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.
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
transportation facilities, the marketing of competitive fuels and other matters
affecting the availability of ready market, such as fluctuating supply and
demand.
The Registrant currently sells a substantial portion of its oil production
to two purchaser, 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 operation.
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.
<PAGE>
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
significant defects remedies before proceeding with operations. A thorough title
examination has been performed by the Registrant or its predecessor in interest
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, overriding
royalty and other interests customary in the industry, liens incident to
operation 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 Registrants own or have
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
PART II
Item 5. MARKET FOR THE REGISTANT'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 though 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.
<PAGE>
High Bid Low Bid
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
1997:
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 6, 1997 were 1/16 and 1/32, respectively. As of November 6,
1997, 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 dividend 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, 1997 (see
"Business - Oil and Gas Producing Activities, Production, Price and Cost
Data").
<TABLE>
For the years ended August 31,
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net revenues $45,254 $51,885 $42,210 $27,825 $31,687
Net loss (597,584) (222,095) (252,945) (196,968) (192,309)
Loss per share ( .04) ( .01) ( .02) ( .01) ( .01)
Long-term debt less
Current portion 133,878 147,390 159,560 170,523 180,398
Total assets 342,771 692,597 714,909 749,584 765,655
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Effective September 2, 1997 the Registrant consummated a merger of
Double Eagle Petroleum Corporation into Oil City Petroleum, Inc., . Double
Eagle Petroleum Oil and Gas Reserves were valued at $4,971.579. Monthly
Operating Income is estimated to be $87,966. On September 19, 1997, Oil City
Petroleum, Inc. and Double Eagle Petroleum Corporation completed a $25,000,000
Secured Oil and Gas Reserve Based Revolving Credit Agreement with Bank One
Texas. On November 14, 1997, Double Eagle Petroleum Corporation, a wholly owned
subsidiary of the Company completed an acquisition of Oil and Gas Properties for
$1,800,000. The monthly operating cash flow from the acquisition is estimated to
be $48,000.
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. The cumulative amount of the debt was converted to equity on
August, 22, 1997.
As a result of a merger and restructuring of Oil City Petroleum
Corporation with Double Eagle Petroleum Corporation. The Registrant should have
the necessary working capital to satisfy all of its general working capital
requirements and future activities.
Fiscal Year 1997 Compared to Fiscal Year 1996
The 1997 net loss of $597,584 was primarily due to a write down of the company's
Oil and Gas Reserves. Oil and Gas Income for 1997 was $45,254, a decrease of
$6,631. This was a result of lower Oil and Gas Prices and a decline in Oil and
Gas Production. Net Income from rental operations was up $6,161 over the prior
year due to a more favorable commercial real estate market.
<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 grassfires. 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 maket for commercial real estate in the Tulsa, Oklahoma
area. Depreciation, depletion and amortization expense decreases 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 a 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 loss
of $30,661.
<PAGE>
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
On January 14, 1998 an 8-K reporting a change of Registrant's Certifying
Accountants was filed.
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:
<PAGE>
(b) The following are newly elected Directors, effective 9/2/97.
Director
Name Principal Occupation Since Age
(a) William G. Moser President of National Oil & Gas, Inc. 1983 63
(a) Herman E. Nichols, Vice President of CN Electronics, Inc. 1985 75
Jr.
(a) Jay D. Kipfer Controller and Secretary of National 1990 62
Oil & Gas, Inc.
- --------------------------------------------------------------------------------
(b) R. A. Sellers, Jr. Chairman/ CEO 1997 62
Oil City Petroleum, Inc.
(b) James G. Borem President/COO/CFO 1997 50
Oil City Petroleum, Inc.
(b) R. A. Sellers, III V. P. Field Operation 1997 40
Oil City Petroleum, Inc.
William G. Moser served as a Vice President of the Registrant from
September, 1982 to December, 1990. In December, 1990 he wa elected Chairman
and Chief Executive Officer. He resigned as Chairman and Chief Executive Officer
effective September 2, 1997. Mr. Moser has been a Director of the Registrant
since Januuary, 1983. For the past seven years, he has served as President of
National Oil & Gas Corporation.
<PAGE>
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. Mr. Nichols resigned on September 2, 1997.
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. Mr. Kipfer resigned on
September 2, 1997.
(c) 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
R. A. Sellers, Jr. 62 Chairman of the Board 1997
And C.E.O.
James G. Borem 50 President and C.O.O. 1997
Bill W. Carter 50 Vice President Operations 1997
<PAGE>
L. C. Cobb 55 Vice President Land
And Acquisitions 1997
R. A. Sellers, III 40 Vice President Field Operations 1997
Faye E. Cobb 53 Controller and Secretary 1997
R.A. Sellers, Jr. Mr. Sellers has been President and Chief Executive Officer
of Double Eagle Petroleum Corp. since its inception (Founder/Owner). During the
past forty (40)years, Mr. Sellers has been responsible for hundreds of wells in
the Drumright area as well as acting as a Geologist and Consultant on thousands
of wells in the 9 or 10 mid-western states. His knowledge of the Central
Oklahoma Area and the Cushing Field is unequaled. Mr. Sellers holds a Bachelor
of Science Degree in Political Science from the University of Oklahoma and a
Bachelor of Arts degree in Geology from Oklahoma City University.
James G. Borem Mr. Borem was President and Chief Operating Officer of LaTex
Resources, Inc. from December 1991 to July 1995. Mr. Borem was founder and
President of Elite Enterprises., Inc. in 1990 and co-founder and President of
Sable Investments Corporation from December 1983 to April 1989 and Manager of
Administration for Andover Oil Company from November 1979 to December 1983. His
responsibilities included oil and gas sales and marketing, regulatory affairs,
risk management, materials purchasing and general office administration. Between
1965 and 1979, Mr. Borem held various supervisory and managerial positions with
Sun Oil Company (Oryx) and Texas Eastern Corporation (International Division).
Bill W. Carter: Mr. Carter is the Founder/Owner of Vector Resources L.L.C.from
May of 1994 to present. The Company was formed to generate oil and gas prospects
in Oklahoma and Texas panhandle as well as evaluating and negotiating the
purchase of producing oil and gas properties. Mr. Carter was Exploration Manager
for Duncan Energy Company from 1991 through 1994. His primary responsibility
was to direct all exploration and development for the Company in the Mid
Continent area. The Company was later merged into Consolidated Oil & Gas Co.
Mr. Carter was Executiv V.P. & General Manager of operations of Dyco
Petroleum Corporation from 1985 to 1991. Mr. Carter was responsible for all
exploration and drilling activities which included a $ 25 million yearly
exploration budget. Between 1968 and 1985 Mr. Carter held various executive and
managerial positions with Anadarko Land & Exploration Company, Davis Oil Company
and Cities Service Oil Company. Mr. Carter holds a Bachelor of Science
degree from Oklahoma State University.
<PAGE>
L. C. Cobb: Mr. Cobb is the Founder/Owner of Jaguar Energy, Inc. from June 1979
to the present. Jaguar was formed to provide third party Oil & Gas operations
and services. Jaguar also deals in Oil & gas prospect generation and project
developmental services. Mr. Cobb was District manager for Go International
Wireline Logging Services responsible for all operations within the northeastern
Oklahoma District from 1979 through 1979. Mr. Cobb was also Founder/Owner of
Computalog, Inc. a start-up business with first year sales in excess of $ 1.25
million. He has held various executive and managerial position within the Oil &
Gas Production & Exploration area from 1971 through 1977, (Northern Petroleum
- -Kentucky Drilling & Operating, Inc. etc.) From 1963, 1971, Mr. Cobb was
Faculty/Staff at the University of Kentucky and Indiana University.
R.A. Sellers, III Mr. Sellers has been involved in the oil and gas arena for
the past 20 years. Mr. Sellers has been the field superintendent for Double
Eagle Petroleum Corporation since 1990. Prior to that Mr. Sellers was the
Founder/Owner of Creek County Well Services, Inc. established in 1979. Creek
County Well Services, Inc. operated some 23 well service and work over rigs from
three separate field yards. Mr. Sellers completed two years of Business
Administration from the University of Oklahoma from 1974 to 1976.
Faye E. Cobb Mrs. Cobb has over 25 years of accounting experience. She has
extensive experience in all phases of oil and gas accounting and SEC reporting
functions. Mrs. Cobb has held various supervisor and managerial positions during
the past 25 years. Mrs. Cobb was the assistant controller for Latex Resources,
Inc. from December 1991 to December 1995. Mrs. Cobb was the accounting manager
for Elite Enterprises from January 1990 to December 1991. Mrs. Cobb was with
Hancock & Company accounting firm from April 1977 to December 1989.
<PAGE>
The Executive Officers of the Registrant are elected annually for terms
terminating at such time as their respective successors are elected and
qualified.
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 $100,000 for any of such periods. The Company has no option plans or
other forms of compensation.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
Annual Compensation
- -------------------------- --------------------------------------------------
Name and Principal Fiscal Year Other Annual
Position Ended Salary Bonus Compensation
August 31 ($) ($) ($) (1)
- -------------------------- --------------------------------------------------
William G. Moser 1997 - - -
Chairman and 1996 - - -
Chief Executive Officer 1995 - - -
1994 - - -
- --------------------------------------------------------------------------------
<PAGE>
(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 BENFICIAL OWNERS AND
MANAGEMENT
(a) The following table sets forth as of November 28, 1997, 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 an investment power with respects to such shares.
<PAGE>
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership Class
Silver Petroleum Corporation (1) 3,423,857 20.73%
409 N. Main
Bluffton, Indiana 46714
Moco Resources, Inc. (1) 1,001,457 6.06%
409 N. Main
Bluffton, Indiana 46714
William G. Moser (1) 1,673,401 10.13%
409 N. Main
Bluffton, Indiana 46714
(1) A member of a group (as defined in Rule 13d-5 of the Securities
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 28, 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.
<PAGE>
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership Class
William G. Moser (1) 6,842,000(2) 82.8%
Herman E. Nichols, Jr. 62,600 0.1%
All Officers and Directors as a Group,
Including Those Named Above
(5 persons) 6,904,600 83.6%
(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).
<PAGE>
(2) Includes 3,423,857 shares owned by Silver Petroleum Corporation, and
1,001,457 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.)
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 1997 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 $151,775, $135,736 and $139,948 were received by
the Registrant from National in 1995, 1996, 1997, respectively. On August 22,
1997, the Company issued 1,605,806 shares of common stock in cancellation of
unsecured notes and accrued interest to National amounting to $1,698,971.
<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, 1997 and 1996 and for the years ended August 31, 1997, 1996 and
1995 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 Stockholders' Equity 25
Statement 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 was one Form 8-K report filed for change in Auditors.
<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.
JANUARY 16, 1997 By:_______________________
James G. Borem
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/ R. A. Sellers, Jr. January 16, 1998
R. A. Sellers, Jr.
Chairman of the Board and
Chief Executive Officer
/s/ James G. Borem January 16, 1998
James G. Borem
President and Director
/s/ R. A. Sellers, III January 16, 1998
R. A. Sellers, III
V.P. Field Operations & Operator
/s/William G. Moser January 16, 1998
William G. Moser
Director
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Oil City Petroleum, Inc.
We have audited the accompanying balance sheet of Oil City Petroleum, Inc. (the
"Company") as of August 31, 1997, and the related statements of operations,
changes in stockholders equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements
based on our audit. The financial statements of the Company as of August 31,
1996 and 1995, were audited by other auditors whose report dated
November 1, 1996, on those statements included an explanatory paragraph
describing conditions that raised substantial doubt about the Company's ability
to continue as a going concern.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Oil City Petroleum, Inc. as of
August 31, 1997 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
In connection with our audit of fiscal 1997 financial statements referred to
above, we audited the 1997 financial statement schedules listed under item 14.
In our opinion, these financial statement schedules, when considered in relation
to the 1997 financial statements taken as a whole present fairly, in all
material respects, the information stated therein.
Tullius Taylor Sartain & Sartain
December 5, 1997
<PAGE>
William T. Zumwalt, Inc.
1729 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
operation, 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 statement 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 result of its operation and its cash flows
for each of the years in the three-year periods 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.
<PAGE>
The accompanying financial statements has 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 reports asset amounts or
the amounts and classification of liabilities that might result from the out-
come of this uncertainty
/s/ William T. Zumwalt, Inc.
Certified Public Accountants
Tulsa, Oklahoma
November 1, 1996
<PAGE>
OIL CITY PETROLEUM, INC.
BALANCE SHEETS
August 31,
1997 1996
----------------------
Assets
Current assets:
Cash $ - $ 311
Short term investment 25,000 25,000
Accounts receivable 27,961 15,119
Crude oil inventory 6,005 4,992
Other current assets 3,275 3,597
----------------------
Total current assets 62,241 49,019
Property and equipment, at cost
Oil and gas properties, successful efforts method 218,885 1,094,018
Field equipment 7,945 7,945
Building, land and office equipment 261,101 254,331
----------------------
487,931 1,356,294
Less accumulated depreciation, depletion and amortization (207,401) (712,716)
----------------------
Net property and equipment 280,530 643,578
----------------------
$ 342,771 $ 692,597
======================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 42,035 $ 14,670
Current portion of long-term debt 13,512 12,171
Notes and accrued interest payable to affiliate - 1,465,807
----------------------
Total current liabilities 55,547 1,492,648
Long-term debt 133,878 147,390
Stockholders' equity:
Common stock, no par value, authorized 30,000,000
shares issued 16,518,298 shares and 14,912,492 shares
at August 31, 1997 and 1996, respectively 5,692,571 5,692,571
Additional paid-in capital 3,265,614 1,567,243
Accumulated deficit (8,804,839) (8,207,255)
Treasury stock, 8,258,998 shares at August 31, 1997
and none at August 31, 1996 - -
----------------------
Total stockholders' equity (deficit) 153,346 (947,441)
----------------------
$ 342,771 $ 692,597
======================
See notes to financial statements
<PAGE>
OIL CITY PETROLEUM, INC.
STATEMENTS OF OPERATIOPNS
Year ended August 31,
1997 1996 1995
----------------------------------------
Revenues:
Oil and gas sales $ 45,254 $ 51,885 $ 42,210
Rental income 43,569 37,408 30,041
Loss on disposal of asset - (2,675) (30,661)
Interest and other income 1,383 1,490 1,357
----------------------------------
90,206 88,108 42,947
Costs and expenses
Oil and gas production and operating
expenses 71,272 60,111 54,341
Write down of oil and gas properties 352,645 - -
Rental expenses 24,922 26,934 24,235
Depreciation, depletion and amortization 20,061 20,513 21,462
Administrative and general 110,093 100,737 101,509
Interest expense - non-affiliates 16,181 17,398 18,511
Interest expense - affiliates 92,616 84,510 75,834
----------------------------------
687,790 310,203 295,892
----------------------------------
Net loss $(597,584) $(222,095) $(252,945)
==================================
Net loss per share $ (.04) $ (.01) $ (.02)
==================================
Average number of shares outstanding 14,912,492 14,912,492 14,912,492
==================================
See notes to financial statements
<PAGE>
<TABLE>
OIL CITY PETROLEUM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended August 31, 1997, 1996 and 1995
<CAPTION>
Common Stock
No Par Value Additional Treasury Stock
------------------------- Paid-In Accumulated --------------------
Shares Amount Capital Deficit Shares Amount Total
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31,1994 14,912,492 $5,692,571 $1,567,243 $(7,732,215) - $ - $(472,401)
Net loss - - - (252,945) - - (252,945)
-----------------------------------------------------------------------------------------------------------
Balance, August 31,1995 14,912,492 5,692,571 1,567,243 (7,985,160) - - (725,346)
Net loss - - - (222,095) - - (222,095)
-----------------------------------------------------------------------------------------------------------
Balance, August 31,1996 14,912,492 5,692,571 1,567,243 (8,207,255) - - (947,441)
Issuance of common stock 1,605,806 1,698,371 1,698,371
Surrender of common stock 8,258,998
Net loss - - - (597,584) - - (597,584)
-----------------------------------------------------------------------------------------------------------
Balance, August 31,1997 16,518,298 $5,692,571 $3,265,614 $(8,804,839) 8,258,998 $ - $ 153,346
===========================================================================================================
</TABLE>
See notes to financial statements
<PAGE>
OIL CITY PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
Years ended August 31,
1997 1996 1995
-------------------------------------
Cash Flows from Operating Activities
Net loss $(597,584) $(222,095) $ (252,945)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation, depletion andamortization 20,061 20,513 21,462
Interest expense - affiliates 92,616 84,510 75,834
Write down of oil and gas properties 352,645 - -
Loss on sale of assets - 2,675 32,655
Change in assets and liabilities:
Increase in accounts receivable (12,842) (2,426) (6,054)
Increase in inventory (1,014) (1,677) (1,827)
Decrease in other current assets 322 360 75
Increase (decrease) in accounts
payable 27,365 (9,501) 536
-------------------------------------
Net cash used in operating activities (118,431) (127,641) (130,264)
Cash Flows from Investing Activities
Expenditures for property and
equipment (9,657) (5,876) (9,208)
Proceeds from sale of assets - 5,090 625
-------------------------------------
Net cash used in investing activities (9,657) (786) (8,583)
Cash Flows from Financing Activities
Borrowings from affiliate 139,948 135,736 151,775
Principal payments of long-term debt (12,171) (10,962) (9,875)
-------------------------------------
Net cash provided by financing activities 127,777 124,774 141,900
-------------------------------------
Net increase (decrease) in cash (311) (3,653) 3,053
Cash, beginning of year 311 3,964 911
-------------------------------------
Cash, end of year
$ - $ 311 $ 3,964
=====================================
Supplemental disclosures:
Interest paid 16,181 17,398 18,511
=====================================
Non-cash investing and financing activities:
Issuance of common stock for
notes payable and accrued interest
$1,698,971 $ - $ -
======================================
See notes to financial statements
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Description of 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 constitute 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.
Cash and cash equivalents
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. Debt securities
with maturities of more than three months, when purchased, which will be held to
maturity, are classified as "short-term investments" in the balance sheet.
Inventories
Crude oil inventory is stated at market value.
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>
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 bulding, 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.
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 August 31, 1997 of the Company's long-term debt
approximates the aggregate carrying amount.
Note 2 - Short-Term Investment
At August 31, 1997 and 1996, 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>
Note 3 - Related Party Transactions
On August 22, 1997, the Company issued 1,605,806 shares of common stock in
cancellation of unsecured notes and accrued interest payable to National Oil &
Gas, Inc., an entity controlled by the Company's chairman and majority
stockholder. The notes payable and accrued interest amounted to $1,698,971.
Interest expense incurred on these notes amounted to $92,616, $84,510 and
$75,834 for the years ended August 31, 1997, 1996, and 1995 respectively.
In addition, on August 22, 1997 certain entities related to the Company's
chairman and majority stockholder surrendered 8,258,998 shares of the Company's
stock so that those shares could be added to the Company's treasury and be
available for reissuance by the Board of Directors of the Company as the Board
determines.
Note 4 - Long-Term Debt
Long-term debt at August 31, 1997 and 1996 consists of an installment mortgage
obligation collateralized by the Company's commercial office building. The
mortgage debt bears interest at 10.5% and is payable in monthly installments of
$2,362 through maturity in March, 2005.
Maturities of long-term debt are as follows:
1998 $ 13,512
1999 15,001
2000 16,654
2001 18,490
2002 20,527
Thereafter 63,206
----------
$147,390
==========
Note 5 - Income Taxes
No provision (benefit) for income taxes was provided for the years ended August
31, 1997, 1996 and 1995 due to the Company's pretax operating losses sustained
for both income tax and financial reporting purposes.
At August 31, 1997, the Company had net operating loss carryforwards available
to offset future taxable income of approximately $6,883,000 expiring in various
years through 2012. The tax benefit of these losses has been offset by a
valuation allowance due to the uncertainty of their realization.
<PAGE>
Note 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 1997, 1996 and 1995. Such sales accounted for 51% and 44%
of oil and gas sales in 1997, 55% and 44% of oil and gas sales in 1996, and 51%
and 48% of oil and gas sales in 1995.
Note 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.
Summarized financial information by industry segment for the years ended
August 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
--------------------------------------
Net operating revenues from sales to
unaffiliated customers:
Oil and gas $ 45,254 $ 49,210 $ 11,549
Real estate 43,569 37,408 30,041
Corporate 1,383 1,490 1,357
======================================
$ 90,206 $ 88,108 $ 42,947
======================================
Operating income (loss);
Oil and gas $(391,763) $ (95,220) $(128,673)
Real estate 11,786 11,346 16,058
--------------------------------------
Operating loss of segments (379,977) (83,874) (112,615)
Corporate revenue (expenses) net (108,810) (13,621) (13,869)
Interest expense (108,797) (101,908) (94,345)
--------------------------------------
Net loss $(597,584) $(199,403) $(220,829)
======================================
Identifiable assets at August 31, : 1997 1996 1995
--------------------------------------
Oil and gas $ 112,805 $ 461,342 $ 472,889
Real estate 204,966 205,944 213,056
Corporate 25,000 25,311 28,964
--------------------------------------
$ 342,771 $ 692,597 $ 714,909
======================================
<PAGE>
Depreciation, depletion, and amortization:
Oil and gas $ 13,200 $ 13,804 $ 14,824
Real estate 6,861 6,709 6,638
Corporate - - -
--------------------------------------
$ 20,061 $ 20,513 $ 21,462
======================================
Capital expenditures:
Oil and gas $ 2,887 $ 5,876 $ 3,208
Real estate 6,770 - 6,000
Corporate - - -
--------------------------------------
$ 9,657 $ 5,876 $ 9,208
======================================
Corporate revenues consist principally of interest income.
Operating profit consists of 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.
Note 8 - Impairment of Long-Lived Assets
At August 31, 1997, the Company determined that certain oil and gas properties
were uneconomic. In accordance with Statement of Financial Accounting Standards
No. 121 - "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" an impairment loss was recognized. Oil and gas
leasehold and intangible drilling costs with a net book value of $352,645 were
written off.
Note 9 - Subsequent Events
Effective September 2, 1997, the Company issued 21,366,620 shares of its common
stock in exchange for all of the issued and outstanding common stock of Double
Eagle Petroleum, Inc. (Double Eagle). Double Eagle is a privately held oil and
gas exploration and production company operating in Oklahoma. The business
combination will be accounted for as a purchase with Double Eagle being
designated the purchasing entity.
<PAGE>
Subsequent to year end, the Company entered into a $25,000,000 line of credit
facility with a bank bearing interest at the bank's base rate plus 1%, with
interest payable monthly. Borrowings under the line of credit are limited to a
borrowing base determined by the bank based upon engineering reports submitted
to the bank. Included in the line of credit facility is a $700,000 term loan
bearing interest at 17%, payable in quarterly installments of $43,750, plus
accrued interest beginning February 28, 1998, with all principal and interest
due November 1999. The line of credit and term loan are collateralized by all
principal producing properties of the Company.
Note 10-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 August 31, 1997 and 1996 were as follows:
1997 1996
-----------------------
Capitalized costs -
proved properties $226,830 $1,102,000
Less accumulated depreciation,
depletion and amortization 139,150 651,000
-----------------------
$ 87,680 $ 451,000
=======================
Costs incurred
Costs (capitalized and expensed) incurred in oil and gas property acquisition,
exploration and development activities for the years ended August 31, 1997, 1996
and 1995 were as follows:
1997 1996 1995
-------------------------------------
Property acquisition costs -
proved properties $2,887 $ - $ -
Development - 6,000 3,000
-------------------------------------
$2,887 $6,000 $3,000
<PAGE>
Results of Operations
The results of operations from oil and gas activities for the years ended
August 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
----------------------------------------
Oil and gas sales $ 44,254 $ 51,885 $ 42,210
Production costs (71,272) (60,111) (54,341)
Depreciation, depletion and
amortization (13,200) (13,531) (13,889)
Write down of oil and gas properties (352,645) - -
========================================
Results of operations from oil and gas
producting activities (excluding
corporate overhead and interest cost) $ (392,863) $ (21,757) $ (26,020)
========================================
Estimated Quantities of Proved Oil and Gas Reserves
The estimates of changes in the Company's net proved developed and undeveloped
oil and natural gas reserves during the year ended August 31, 1997 are based on
management's determination that the remaining oil and natural gas reserves are
uneconomic. The estimates of changes in the Company's net proved developed and
undeveloped oil and natural gas reserves for the year ended August 31, 1996 and
1995 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 and in the State
of Oklahoma. The Company does not have any long-term supply contracts with
foreign governments or reserves of equity investees.
Natural Gas Oil and Condensate
------------------------- -----------------------
(MCF) (Bbls)
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Proved developed and
undeveloped reserves
Beginning of year 5,301 4,432 34,714 74,270 66,158 54,393
Revisions of previous
estimates (4,750) 1,593 4,340 (71,862) 10,822 14,189
Production (551) (724) (642) (2,408) (2,770) (2,424)
Sales of minerals-in-place - - (33,980) - - -
-------------------------- ----------------------
End of year - 5,301 4,432 180 74,210 66,158
========================== =====================
<PAGE>
Proved developed reserves
Beginning of year 5,301 4,432 20,698 38,582 30,470 18,705
End of year - 5,301 4,432 - 38,582 30,470
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 9 - Subsequent Events. There have been no
reports filed with any federal agency or 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 There
in Relating to Proved Oil and Gas Reserves
Estimated future cash flows 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 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>
The standardized measures of discounted future net cash flows as of
August 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
-----------------------------------------------
Fututre cash inflows $ - $1,527,000 $1,082,000
Future production costs - (705,000) (509,000)
Future development costs - (130,000) (100,000)
-----------------------------------------------
Future net cash flows* - 692,000 473,000
10% annual discount for estimated
timing of cash flows - 297,000 202,000
-----------------------------------------------
Standardized measure of
discounted future net cash flows $ - $ 395,000 $ 271,000
===============================================
<PAGE>
* Future net cash flows do not include estimated future net salvage value of
lease and well equipment of $120,000 at August 31, 1997, 1996 and 1995. The
estimated future net 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, 1997, 1996
and 1995:
1997 1996 1995
------------------------------------
Standardized measure, beginning of year $395,000 $271,000 $280,000
Sales and transfers of oil and gas produced,
net of production costs 26,000 8,000 12,000
Net changes in prices and production costs - (25,000) (158,000)
Sales of minerals-in-place - - (23,000)
Revisions of previous quantity estimates (421,000) 118,000 170,000
Accretion of discount - 27,000 27,000
Other, primarily changes in the timing of
production and development - (4,000) (37,000)
-----------------------------------
Standardized measure, end of year $ - $395,000 $271,000
===================================
<PAGE>
OIL CITY PETROLEUM, INC.
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED AUGUST 31, 1997, 1996, AND 1995
Other
Balance at Changes - Balance
Beginning Additions Add at End of
of
Classification Period at Cost Retirements (Deduct) Period
- -------------- ------------ --------- ----------- -------- --------
Year ended
August 31, 1997:
Producing oil and
gas properties $1,094,018 $2,887 $ - $(878,020)(4) $ 218,885
Field equipment 7,945 - - - 7,945
Building, land and
office equipment 254,331 6,770 - - 261,101
-----------------------------------------------------------
$1,356,294 $9,657 $ - $(878,020) 487,931
===========================================================
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(3) - 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(1) $ $1,088,142
Field equipment 58,954 - 51,009(2) - 7,945
Building, land and
office equipment 300,393 6,000 - - 306,393
-----------------------------------------------------------
$1,480,639 $9,208 $87,367 $ $1,402,480
===========================================================
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.
(1) Represents the sale of the Swann gas lease in July, 1995.
(2) Represents write-off of fully depreciated field equipment no longer owned.
(3) Represents sale of warehouse and yard facilities in Oil City, Louisiana in
December, 1995.
(4) Represents write-off of uneconomic properties.
<PAGE>
OIL CITY PETROLEUM, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED AUGUST 31, 1997, 1996, AND 1995
Addition Other
Balance at Charged to Changes - Balance
Beginning of Costs and Add at End of
Classification Period Expenses Retirements (Deduct) Period
- -------------- ------------ --------- ----------- --------- ---------
Year ended August 31, 1997:
Producing oil and
gas properties $643,380 $13,201 $ - $(525,376)(1) $131,205
Field equipment 7,945 - 7,945
Building, land and
office equipment 61,391 6,860 - - 68,251
---------------------------------------------------------
$712,716 $20,061 $ - $(525,376) $207,401
=========================================================
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
=========================================================
(1) Represents write-off of accumulated depreciation, depletion and amortization
of uneconomic properties.
