U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission File No. 0-6529
DOUBLE EAGLE PETROLEUM AND MINING CO.
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(Name of small business issuer in its charter)
Wyoming 83-0214692
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
777 Overland Trail (P.O. Box 766) Casper, Wyoming 82602
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (307) 237-9330
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
$.10 Par Value Common Stock
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No __
-
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for the fiscal year ended August 31, 1999 were $1,138,028
The aggregate market value of the voting stock held by non-affiliates
computed based on the average of the closing bid and asked prices of such stock
as of November 11, 1999, was $21,146,467.*
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of each of the issuer's classes of common
equity as of November 11, 1999 was as follows:
$.10 Par Value Common Stock 4,765,401
*Without assuming that any of the issuer's directors or executive officers, or
the entity that owns 350,000 shares, is an affiliate, the shares of which they
are beneficial owners have been deemed to be owned by affiliates solely for this
calculation.
<PAGE>
PART I
ITEMS 1 and 2. DESCRIPTION OF BUSINESS AND PROPERTIES
Overview
Double Eagle Petroleum and Mining Co. ( the "Company" or "Double Eagle"),
which was formed on January 13, 1972, explores for, develops, produces and sells
crude oil and natural gas. The Company concentrates its activities in areas in
which it believes it has accumulated detailed geologic knowledge and developed
significant management experience. Current areas of exploration and development
focus for the Company include the Moxa Arch in southwestern Wyoming, the Powder
River Basin in northeastern Wyoming, the Washakie Basin in south central
Wyoming, the Wind River Basin in central Wyoming, and the Christmas Meadows area
in northeastern Utah. The Company owns interests in a total of 283 producing
wells, with oil constituting approximately 26 percent and natural gas
constituting approximately 74 percent of its current production (assuming six
Mcf of gas production equals one barrel of oil production). The Company also
has undeveloped acreage in other basins and is evaluating the possibility of
additional activity in other areas. See "_ Principal Areas Of Oil And Gas
Activity".
Forward-Looking Statements
This Form 10-KSB includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act Of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical fact
included in this Form 10-KSB, are forward-looking statements. These forward-
looking statements include, without limitation, statements located under "ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS_ Financial Condition, Liquidity And Capital Resources", "ITEMS 1 AND
2. DESCRIPTION OF BUSINESS AND PROPERTIES_ Business Strategy", "_ Principal
Areas Of Oil And Gas Activity", "_ Zeolite Mining Activities", and "_ Reserves",
and Note 3 to the Financial Statements located elsewhere herein regarding the
Company's financial position and liquidity, the amount of and its ability to
make debt service payments, its strategies, financial instruments, and other
matters. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed in this Form 10-KSB, including without limitation in conjunction with
the forward-looking statements included in this Form 10-KSB.
The Company's intentions and expectations described in this Form 10-KSB
with respect to possible exploration and other testing activities concerning
properties in which it holds interests may be deemed to be forward-looking
statements. These statements are made based on management's current assessment
of the exploratory merits of the particular property in light of the geological
information available at the time and based on the Company's relative interest
in the property and its estimate of its share of the exploration costs.
Subsequently obtained information concerning the merits of any property as well
as changes in estimated exploration cost and ownership interest may result in
revisions to management's expectations and intentions and thus the Company may
delete one or more of these intended exploration activities. Futher,
circumstances beyond the Company's control may cause such prospects to be
eliminated from further consideration as exploration prospects.
<PAGE>
Business Strategy
The Company's strategy is to increase its cash flow and oil and gas
reserves by developing and marketing oil and gas prospects. Upon marketing a
prospect to another entity, the Company will attempt to receive a promoted or
carried interest in the initial well for the prospect. The Company will then
participate proportionately in the drilling of any development wells on the
prospect. In prior years, the Company had undertaken to assemble a large
acreage position and sell it to others while retaining a royalty position. By
attempting to direct its focus to generation of geologic prospects with a
promoted interest at the exploratory phase and a participating interest at the
development stage, the Company is now utilizing more resources for drilling
rather than for lease acquisition. In this manner, the Company believes that in
a shorter time period it will be exposed to a greater number of opportunities to
increase reserves and cash flow.
During fiscal 1999, the Company attributed time to evaluating oil and gas
producing properties for acquisition. These acquisitions can provide a way for
the Company to grow and these efforts are intended to continue during fiscal
2000. The Company's staff will continue to attempt to balance these efforts
together with its exploration and development plans.
The Company owns varying interests in its oil and gas prospects. These
interests and prospects are described below under "Principal Areas Of Oil And
Gas Activity". They are owned directly by the Company, and the remaining
interests in these prospects are owned by various partners. During fiscal 2000,
the Company intends to develop its prospects utilizing its cash balances
together with cash flow from operations and sales of a portion of the Company's
interests to industry partners. If the Company's available cash from operations
or from sales of interests to industry partners are lower than anticipated, the
Company's activities may be limited to a lower level than planned. The Company
anticipates that any limitations on its activities would include expending
smaller amounts in the Company's principal areas of activity, attempting to sell
a larger portion of the Company's interests in its prospects, and retaining a
royalty interest or a smaller working interest in those prospects than the
Company believes it would be able to retain if the Company were not limited by
its available cash.
The Company has focused its efforts on exploration for and development of
natural gas reserves, which constitutes 80% of the Company's total existing
reserves. This resource has proven to be more stable in price than its crude oil
counterpart and with greater industry popularity, gives the Company more
flexibility in marketing its prospects. Furthermore, the Company's acreage
holdings are located in those Rocky Mountain Basins which, according to the
United States Geological Survey, hold a large percentage of the known
undeveloped natural gas resources in the Continental United States.
Double Eagle has worked to assemble an array of exploration and development
projects that range from offset locations of existing fields to high risk
"wildcat" ventures with enormous potential. The Company intends to use its
available investment dollars on projects having lower risk and to seek to find
industry partners to pay for the development of the higher risk plays. This
strategy is intended to provide the Company and its stockholders with exposure
to virtually all types of plays in the oil and gas business.
Acreage By Wyoming Geologic Basin:
Gross Acres
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Wind River Basin 4,770
Powder River Basin 22,074
Washakie Basin 67,510
Green River Basin 10,796
<PAGE>
Principal Areas Of Oil And Gas Activity:
WIND RIVER BASIN
Located in central Wyoming, the Wind River Basin is home to Wyoming's first
oil production which began in 1884. Since that time numerous fields have been
discovered in the Basin, including two world class natural gas accumulations in
the last five years, the Madden Anticline and the Cave Gulch Fields. The Company
has interests in 4,770 acres of leases in this Basin.
Madden Anticline
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The Madden Anticline encompasses two producing oil and gas fields, The
Madden and Long Butte Fields, 100 miles west of Casper in Central Wyoming.
THE MADDEN FIELD: In general, the Madden Field produces over 200 million
cubic feet of gas per day from seven different formations at depths of 3,000 to
25,000 feet. The Unit's operator, Burlington Resources, is completing its 1999
drilling program which included one Madison well along with 20 Lower Fort Union
and Lance wells. In 1997, the Big Horn #4-36 well, in which Double Eagle has no
interest, was completed in the Madden Field with a capable open flow of over 200
million cubic feet of gas per day from the Madison Formation at a depth of over
24,000 feet. As a result, estimates of proved reserves for the Madison
reservoir exceeded one trillion cubic feet. Burlington's current Madison well,
the Bighorn #5-6, is expected to be at total depth in December 1999. Five more
deep tests are planned by Burlington. Double Eagle does not have a working
interest or royalty interest in any of the Burlington wells or acreage.
On August 26, 1999, Double Eagle spud its Allen #1 Deep Well in the Field.
The well was drilled to a total depth of 12,150 feet in the Lance Formation.
While drilling, the well had excellent gas shows which at one point produced a
40 foot flare. The well was cased on October 6, 1999. Logs from the well look
very encouraging for the completion of a gas well. A completion rig is scheduled
to begin the completion attempt. The Company has leases covering 1,480 acres in
the Field. Should the Allen #1 Deep Well prove productive, the Company will
drill offsets immediately. Double Eagle has 23.53 percent working interest in
the Allen #1 Deep Well and a 36.04 percent working interest in any offsets that
might be drilled.
In addition, Burlington Resources, staked its next Madison Formation well,
the Bighorn #6-27, one mile west of Double Eagle's leasehold. The well is
expected to spud in December 1999. Should the well be productive, the Company
believes that at least half of its acreage position will be proven for the
Madison Formation. At that time, an offset well may be pursued.
LONG BUTTE FIELD: During fiscal 1999, the Long Butte Field Operator, W. A.
Moncrief, began a recompletion attempt on the #2 Unit well. The well has
produced from the deeper Cody Formation since 1978. The recompletion initially
began with the next zone up hole, the Mesaverde, and will continue into other
zones including the Fort Union, which tested 10 million cubic feet of gas while
drilling the well, until a satisfactory production level is established.
Additionally, Moncrief sent another recompletion proposal to the Company for the
#9 Unit well in the Field. This recompletion should begin in mid-December 1999.
Currently the Unit produces only from the Cody and Mesaverde Formations. Double
Eagle owns between 2% and 16% in 2,329 acres of leases and .1% to 9% in 17 gas
wells in the Unit. The Company has a 1.3% working interest in both re-completion
attempts. Because the Long Butte Field borders the Madden Field, development of
the Madison Formation in Madden Field, of which there is no assurance, may cause
a large part of Long Butte Field to be proved productive.
<PAGE>
Cave Gulch Field
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Cave Gulch Field is located 45 miles west of Casper in Natrona County,
Wyoming. The Field, which is only 3 square miles in aerial extent, was
discovered by Barrett Resources in 1994 as Barrett drilled to new formations in
the Waltman Field. Today the Cave Gulch and Waltman Fields have produced over
220 billion cubic feet of natural gas. Barrett's most prolific well, the #1-29
well, blew out after producing more than 6 billion cubic feet of natural gas in
only 7 months on line. Double Eagle has acquired the rights to a farmout and
will drill and earn 2% working interest before payout and 1% working interest
after payout in the Barrett Resources #4-19 well which is a direct offset to the
#1-29. The #4-19 wellbore was used to kill the blow out. Barrett plans to
resume drilling to the 19,780 feet vertical depth objective on the #4-19 in late
1999. Total cost of the #4-19 well is estimated at $8.3 million, and the well
should take about 140 days to drill. Double Eagle will earn its interests in all
depths drilled below the Mesaverde Formation, which includes the Shannon,
Frontier and Muddy Sandstones.
Waltman Field
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Waltman Field is a producing gas field in central Wyoming, approximately 45
miles west of Casper in Natrona County. The Field is adjacent and south of Cave
Gulch Field. Double Eagle owns a 40% working interest in 1,200 gross acres. To
date, Double Eagle has participated in three wells on the leases. The best
success was the Marathon operated Waltman #21-19 Well which was drilled in
January 1997 and continues to produce 1.07 million cubic feet of gas per day.
Double Eagle owns a 20% working interest in the well. Double Eagle also
participated in two other wells on the leases but encountered depleted gas
sands at both sites. The leases still have one drill site left for the shallow
sands and Double Eagle and its partners are evaluating the benefits of drilling
another well.
The leases in the Waltman Field are extended or held by production from the
shallow Fort Union Formation which occurs at 4,500 feet. However, this area is
also thought by many to contain potential in the deeper Muddy and Frontier
Sandstones that are prolific producers in the Cave Gulch Field to the north.
Along those lines, Barrett Resources, the operator of the Cave Gulch Field, is
currently drilling a well two miles north of the Company's leasehold and has
another well staked within one mile of the acreage. These prospects were defined
by an 85 square mile 3-D seismic survey conducted in 1998. The Company also
participated in a portion of this survey. Double Eagle believes that the seismic
identifies several large targets on its acreage, including the prolific Muddy
Trend. Including the Waltman acreage, the Company has an interest in a total of
1,840 acres in this Muddy Trend.
Graham Unit # 2 Well
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Graham Unit # 2 Well is located 90 miles west of Casper, Wyoming. Tom Brown
Inc., is the operator of the Graham Unit. However, Double Eagle owns 100%
working interest and operates the well. In late 1997, the Company re-completed
the well in additional zones of the Lower Fort Union Formation. In 1999, Double
Eagle negotiated an agreement to produce the well through Tom Brown's separation
and compression facilities. In August 1999, the well began producing 230,000
cubic feet of gas per day but was shut in shortly thereafter for winter. Since
the well's flow lines lie partly on the surface, the lines require draining
before winter each year to prevent freezing. The Company is considering burying
the line in order to keep production on year around.
<PAGE>
South Sand Draw
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The South Sand Draw Field is located in the southern portion of the Wind
River Basin approximately 36 miles south of Shoshone, Wyoming. The Company has
been acquiring leases near the Field for five years and currently has 1,500
acres under lease, in which its working interest ranges from 75 percent to 100
percent. In October 1999, the Company and its partner acquired the final lease
and will attempt a recompletion of a shut-in gas well in January 2000. If
successful with the recompletion, the Company plans to drill several wells to
evaluate as many as seven potential zones in the Field which have been
identified by a nine square mile 3-D seismic survey. In the recompletion, Double
Eagle will have a 75% working interest before payout and 63.75% working interest
after payout.
Government Bridge/Tipps/Schrader Flats Fields
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These fields are three producing oil fields approximately 15 miles west of
Casper in Natrona County. On November 24, 1998, Double Eagle and partners
purchased the fields. The Company now owns a 25% working interest in the three
fields' 24 wells (130 gross barrels of oil per day) and 11,500 acres of
surrounding leases. The Company believes this production (32.5 barrels of oil
per day net to the Company) has complemented the Company's production base. Over
the past year, two wells have been recompleted with one previously shut-in well
now producing 14 barrels per day. A secondary recovery plan is still being
considered to raise reservoir pressures and enhance production. The Company and
its partners are evaluating more geological data and interpreting the four
square mile 3-D seismic before initiating any new drilling projects.
WASHAKIE BASIN
Eastern Washakie Basin Coal Bed Methane Project
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This area is a 40 mile trend located north of the town of Baggs in Carbon
County, Wyoming. In the past 30 years this area has seen a good deal of
exploration evaluating zones from 5,000 -10,000 feet in depth. Recently though,
this area has been the scene of the newest coalbed methane play in Wyoming. The
coal seams in this area differ from those found in the Powder River Basin in
that they are thinner zones but with excessive gas content much like the coal
zones found in the Raton Basin of Southeastern Colorado. The Company has
acquired working interests ranging from 25 percent to 100 percent in 39,000
acres in this play. A total of 116 coalbed methane wells have been staked by
other operators in the area. Some of these wells are direct offsets to Double
Eagle's acreage. The Company plans to monitor the performance of the proposed
wells and its planned operations in the Cow Creek and Wild Cow Fields discussed
below before begiining an aggressive development project of its own in the area.
Cow Creek Field
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The Company acquired the Cow Creek Field from KCS Mountain Resources in
April 1999. The Field has three wellbores, one of which is currently producing
gas. The Company operates the wells and owns 100% working interest. The Cow
Creek #1-12 produces 200,000 cubic feet of gas per day from the Dakota Formation
at 8,000 feet. Double Eagle plans to commingle existing gas production with
another gas zone to enhance the well's production. The Company will also attempt
recompletions on the remaining wellbores to establish production from sands or
coal zones generally occurring at depths less then 1,500 feet. The Field sits
atop a closed geological structure which should aid in the development of all
zones especially the coal zones.
<PAGE>
Wild Cow Field
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The Company purchased 22.5% working interest in two sections (1,280 acres)
in the Wild Cow Field in September 1999 from private interests. This acreage has
two producing gas wells which produce 100,000 cubic feet per day from the
Niobrara Formation. The Field's operator, Merit Energy, is developing proposals
to enhance the production. In addition, Double Eagle has entered into
discussions with Merit to initiate a coalbed methane project centering on the
two sections which, like Cow Creek Field, sits atop a closed geological
structure.
Rock Island Unit
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This unit is located 30 miles east of Rock Springs in south central
Wyoming. Double Eagle sold its leases to Yates Petroleum in 1996 and now owns a
5% overriding royalty interest under 688 acres. Union Pacific Resources (UPR),
operator of the Rock Island Unit, pooled a 960 acre participating area, which
included some of Double Eagle's interest, and drilled and completed the #4-H
Well in May 1999 for 12 million cubic feet of gas per day. The well was drilled
to a vertical depth of 15,000 feet before drilling horizontal for another 1,750
feet in the Frontier Formation. Quoting from UPR Chairman's press release on the
well's discovery, "Rock Island is one of the deepest wells of its kind ever
drilled in the world. We achieved some of the best results ever encountered in
this tight-gas formation. We have unlocked what could be a vast new gas resource
in the United States." UPR is currently drilling the Sidewinder #1-H well two
miles east of the #4-H well and should be completed in January 2000. If the
Sidewinder #1-H has a participating area similar in size to the #4-H well,
Double Eagle will have approximately one-half of the ownership percentage it has
in the #4-H well. The Company could see as many as three more wells drilled that
would include some of Double Eagle's acreage in the participating areas. The
royalty interest is proportionately reduced to the size of the participating
area for each well. In the #4-H well the Company's royalty interest was a net
1.25%. Double Eagle has additional royalty interests on trend with the producing
and drilling locations.
Red Creek
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This prospect is 15 miles northwest of Baggs in Carbon County, Wyoming.
Double Eagle owns overriding royalty interests ranging from 1.5 percent to 4
percent in 6,800 acres of leases. The Company also owns working interests
ranging from 30 percent to 100 percent in 1,760 acres. In August 1999, Cabot Oil
and Gas formed the Rio Roho Unit encompassing most of the Company's acreage and
drilled a well on the Company's interest. That well was drilled to a total
depth of 11,200 feet in the Almond Formation. The well was dry, but did extend
the term of the leases bearing the royalty interest for two more years. The
Company still has its working interests ownership. Activity in the area is
brisk, with several companies finding discoveries in the Almond Formation.
Double Eagle is hopeful exploration will continue in the area beyond the efforts
of Cabot.
James Creek
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The Field is a producing gas field 30 miles south of Rock Springs in
Sweetwater County, Wyoming. Double Eagle owns a 25% working interest in two
producing gas wells, a gathering pipeline, a compressor, and over 13,760 acres
<PAGE>
of leases. The Federal #1-6 was drilled and completed by Double Eagle and its
partners in September 1997 for 100,000 cubic feet of gas per gay. The well is a
160 acre offset to the Company's other James Creek producing gas well, the Britz
Federal #1-31. In June, 1998, the well's operator, Credo Petroleum, re-entered
the well and perforated the two upper zones. The well is currently averaging
45,000 cubic feet of gas per day from the newly perforated formations. Double
Eagle believes there are several potential drillsites remaining on the leases.
Additionally, the Company and its partners are being carried on one wildcat well
to be drilled on their leasehold four miles east of the Field. That well is
expected to spud in January 2000.
GREEN RIVER BASIN
Located in southwestern Wyoming, the Greater Green River Basin has been a
prolific gas producing basin for decades. The Company owns an interest in
10,796 acres of leases in this Basin.
Pinedale Anticline - Mesa Unit
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This area is in southwestern Wyoming 10 miles south of the town of
Pinedale. In the late 1960's, a subsidiary of Questar Corporation, Wexpro,
drilled three wells in the Mesa Unit. The wells encountered gas but tight
formations would not yield gas at a commercial rate. The area sat idle until
late 1997 when a new operator, Ultra Petroleum, drilled three wells and used new
fracture/stimulation techniques developed 20 miles southeast in the prolific
Jonah Field. The production rates were substantially greater than prior efforts.
Wexpro's sister company, Questar Exploration, recently took over operations from
Ultra on the former Mesa Unit lands and began an aggressive development project.
Two of the first three wells in this project are being drilled on Double Eagle's
leasehold. The first well drilled by Questar, the Mesa #3 reached a total depth
of 13,055 feet on October 4, 1999 and is currently being completed. Eleven zones
have been targeted for completion attempts. The first zone yielded a rate of 2.6
million cubic feet of gas per day. Completion of the remaining zones is
currently ongoing. The second well to be drilled in the Questar project is the
Mesa #6. That well was drilling at 10,500 feet on November 11, 1999. In this
area, the Company will have between 6.25% and 12.5% working interest, in these
wells, depending on the depths from which the gas is produced, and a 1.56%
overriding royalty.
The Company entered this area in 1991, acquiring working and overriding
royalty interests from Arco. The Company also acquired undeveloped leasehold
which it sold to Ultra in 1997 and kept an override. In September 1998 the
Company acquired additional working interests from KCS Mountain Resources.
Today, the Company has working interests or overriding royalty interests in
5,073 acres.
Moxa Arch
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This area is in southwestern Wyoming near the town of Opal. Double Eagle
owns a .3 % to 15.6 % working interest in 125 gas wells on the Moxa Arch. The
primary fields in this area for the Company are the Whiskey Buttes Field,
operated by Amoco; as well as the Swan South, Four Mile Gulch and Seven Mile
Wash Fields operated by Cabot. The Company is currently participating in a
series of six development wells proposed by Cabot where the Company will have
between 1.6% and 10.7% working interest. The first two wells in this series have
been completed and are flowing gas at rates of 1.92 and 1.34 million cubic
feet of gas per day. The second two wells have been cased and are in different
stages of completion.
<PAGE>
In May 1999, the Company purchased producing working interests in the
Whiskey Buttes Field from KCS Mountain Resources. The Company already had a
working interest in the 100 wells operated by Amoco which make up the Whiskey
Butte Field. By the KCS acquisition, the Company increased its ownership from
.358% to .598%. The average daily production from the Field totals 100 million
cubic feet of gas.
POWDER RIVER BASIN
The Powder River Basin is located in the northeastern part of Wyoming.
Today, the Basin is one of the most prolific basins in the Rocky Mountain Region
for the production of oil. The Basin is also the largest producer of coal in the
United States. In the last year, the Basin has hosted the largest oil and gas
play in North America, the Coal Bed Methane play. Some 15,000 wells are planned
over the next ten years with most wells proposed to drill to depths of 500 to
2,500 feet. Current recovery predictions are as high as 500 million cubic feet
per well and spacing is as tight as one well per 40 acres. The Company owns an
interest in 22,074 acres of leases and 8,080 acres of minerals in the Powder
River Basin.
Buffalo Prospect (Coal Bed Methane)
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Double Eagle has acquired leases covering 10,220 acres in the coal bed
methane play near Buffalo, Wyoming. This play is based on drilling by Texaco
which planned to mine the coal in 1990. Michiwest Energy, J.M. Huber and
Redstone Energy have staked 38 coal bed gas wells near the Company's leasehold
with one directly offsetting the interests. The Company will attempt to either
sell the leases or bring in another company on a promoted basis to drill the
initial test wells and acquire additional acreage.
ROCKY MOUNTAIN OVERTHRUST
The Rocky Mountain Overthrust runs from Canada to Mexico and consists of
many traps created as the Pacific Continental plate was thrust on the
Continental Plate. Traps creating oil and gas fields have been located primarily
in Canada and Wyoming where billion barrel oil equivalent fields have been
discovered since the 1970's. The region is still relatively unexplored because,
despite gigantic reserve potential, exploration in this area is very expensive
and risky, and seismic has not been very reliable.
Christmas Meadows Prospect
- --------- ------- --------
This prospect is on the north slope of the Uinta Mountains in northeastern
Utah, 30 miles south of Evanston, Wyoming. While shooting a regional seismic
grid in the 1970s, Gulf noted a large dome on one of the seismic lines.
Subsequent seismic by Gulf, American Quasar, Amoco, Chevron and others has
defined the dome. Amoco staked a well location to test the structure in 1982
but they gave up trying to get a drilling permit in 1980. Chevron then staked a
well and fought to get the necessary permits until 1994 when they gave up and
turned the project over to Amerac, who designated Double Eagle as its agent.
Double Eagle received a drilling permit in the summer of 1995 and began building
the road to the location with its partners, Prima Oil & Gas and John Lockridge.
Amerac, Chevron and Judy Yates farmed out their interests to Double Eagle, Prima
and Lockridge. One key to getting this well drilled is the resolution by the
United States Forest Service of an unleased 400 acre tract of land next to the
<PAGE>
drillsite. On April 1, 1999, the Interior Board of Land Appeals (IBLA) decided
in favor of Double Eagle and its partners, "that the close proximity of the
unleased tract to the drillsite prevented them from developing the project". As
a result of the IBLA decision, Double Eagle asked for the unleased tract to be
offered for lease. The Company also asked the Forest Service to designate a time
in the year 2000 when the Company could begin final construction of the road and
location. The recent Executive Order by President Clinton affecting Roadless
Areas near the National Forests could actually have a positive impact on the
project as it could precipitate a final decision concerning the unleased tract.
The Company has advocated this position for many years. Double Eagle has a 3.82%
working interest as well as a 25% interest in the Farmout from Chevron, Amerac
and Yates on the lands in this 23,000 acre Table Top Unit. The Company expects
to begin drilling the Project in the fall of 2000. Double Eagle intends to
persevere on this project until it is completed.
Sage Creek Prospect (Southwestern Montana)
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The Company holds a 60% working interest in 8,020 acres of leases in the
southwestern Montana portion of the overthrust belt. This area is thought to
have the potential to contain a giant oil and gas field similar in magnitude to
those fields present in the Wyoming portion of the overthrust belt whose
reserves exceed one billion barrels of oil equivalent. Amoco, Exxon and Marathon
did seismic work and drilled wells in this area during the 1980's but found no
commercial deposits. Double Eagle's main emphasis is directed at testing a well
location that was permitted in 1986 but was never drilled by Amoco. Because of
its close proximity to a Wilderness Study Area, the area is experiencing strict
land use plans by the federal government which could prevent the orderly
development for oil and gas exploration. The Company plans to continue to work
through these obstacles and get a well drilled on its acreage.
MINING ACTIVITIES
Zeolite
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Since 1972, the Company has owned mining claims covering 320 acres of land
in Lander County, Nevada and 640 acres of land in Owyhee County, Idaho, which
because of natural outcrops, other sampling and analysis are believed to overlie
significant deposits of clinoptilolite, which is one of 34 naturally occurring
zeolites. Although the existence of these deposits has been indicated for some
time, no commercially significant mining operations have been conducted on the
Company's property because significant markets for zeolites have not yet been
developed. Zeolites currently are utilized commercially for small consumption
items such as cat litter, deodorant and aquarium filter material, but the amount
of consumption from these markets has not justified large scale production to
date. In 1999 the Company held several discussions with possible markets for
Zeolite including the clean up effort at the Hanford Nuclear Site as a water
filtration component, a Potash mine in Idaho as a bedding for tailing piles and
a swine farm as a feed amendment to enhance the animal's health, digestion
system and reduce odors. We will continue our efforts to find a large industrial
use for our Zeolites.
<PAGE>
Production
The table below sets forth oil and gas production from the Company's net
interests in producing properties for each of its last three fiscal years.
<TABLE>
<CAPTION>
Oil and Gas Production
Year ended, August 31,
1999 1998 1997
<S> <C> <C> <C>
Quantities
Oil (Bbls) 21,530 10,591 17,331
Gas (Mcf) 379,306 284,648 222,628
Average Sales Price
Oil ($/Bbl) $12.95 $14.47 $21.23
Gas ($/Mcf) $1.75 $1.85 $1.19
Average Production Cost $3.34 $3.15 $2.47
($/BOE)
</TABLE>
The Company's oil and gas production is sold on the spot market and the
Company does not have any production that is subject to firm commitment
contracts. During the year ended August 31, 1999, purchases by each of six
customers, Equiva Trading & Transportation, Inc., Summit Energy, Credo Petroleum
Corporation, Marathon Oil Company, Continental Industries and BP Amoco
represented more than 10 percent of total Company revenues. None of these six
customers, or any other customer of the Company, has a firm sales agreement with
the Company. The Company believes that it would be able to locate alternate
customers in the event of the loss of one or more of these customers.
Productive Wells
The following table categorizes certain information concerning the
productive wells in which the Company owned an interest as of August 31, 1999.
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
OIL GAS
Gross Net Gross Net
<S> <C> <C> <C> <C>
COLORADO ----- ----- 2 .059
MISSISSIPPI 2 .0009 ----- -----
MONTANA 2 .096 ----- -----
NORTH DAKOTA 14 .0974 ----- -----
OKLAHOMA ----- ----- 1 -----
UTAH ----- ----- 1 .02
WYOMING 79 5.728 182 4.54
-- ----- --- ----
TOTAL 97 5.9223 186 4.619
</TABLE>
Drilling, Acquisitions And Reserve Replacement Costs
During the three years ended August 31, 1999, the Company added proved
reserves from acquisitions, extensions, discoveries and reserve revisions of
approximately $2,254,005,.resulting inpandaveragedannualtreserveireplacement
cost of approximately $4.45 per BOE over that three year period.
<PAGE>
The Company drilled or participated in the drilling of wells as set forth
in the following table for the periods indicated. In certain of the wells in
which the Company participates, the Company has an overriding royalty interest
and no working interest.
<TABLE>
<CAPTION>
WELLS DRILLED
Year Ended August 31,
1999 1998 1997
Gross Net Gross Net Gross Net
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Oil 0 0 0 0 0 0
Gas 0 0 0 0 0 0
Dry Holes 1 .25 1 .2215 3 .4725
Subtotal 1 .25 1 .2215 3 .4725
Development
Oil 1 .025 0 0 8 .005
Gas 3 .2376 8 .348 4 .21
Dry Holes 0 0 3 1.037 0 0
Subtotal 4 .2626 11 1.385 12 .215
TOTALS 5 .5126 12 1.6065 15 .6875
</TABLE>
All the Company's drilling activities are conducted on a contract basis
with independent drilling contractors.
Reserves
The following reserve related information for the years ended August 31,
1999, 1998, and 1997 is based on estimates prepared by the Company. The
Company's reserve estimates are developed using geological and engineering data
and interests and burdens information developed by the Company. Reserve
estimates are inherently imprecise and are continually subject to revisions
based on production history, results of additional exploration and development,
prices of oil and gas, and other factors. The notes following the table should
be read in connection with the reserve estimates.
<TABLE>
<CAPTION>
Estimated Proved Reserves (1)(2)
At August 31,
1999 1998 1997
<S> <C> <C> <C>
Proved Developed Oil Reserves (Bbls) 152,169 90,911 180,526
Proved Undeveloped Oil Reserves (Bbls) --------- --------- ---------
Total Proved Oil Reserves (Bbls) 152,169 90,911 180,526
Proved Developed Gas Reserves (Mcf) 4,090,010 3,507,986 2,757,188
Proved Undeveloped Gas Reserves (Mcf) --------- --------- ---------
Total Proved Gas Reserves (Mcf) 4,090,010 3,507,986 2,757,188
Total Proved Crude Oil Equivalents (BOE)(3) 833,837 675,575 640,057
Present Value of Estimated Future Net Revenues
before income taxes discounted at 10% $4,791,302 $3,976,153 $3,872,440
<PAGE>
<FN>
(1) The Company's annual reserve reports are prepared as of August 31, which is
the last day of the Company's fiscal year.
(2) The present value of estimated future net revenues as of each date shown
was calculated using oil and gas prices as of that date.
(3) Gas is converted to barrel of oil equivalent at 6,000 cubic feet equals one
barrel.
</TABLE>
Reference should be made to the supplemental oil and gas information
included in this Form 10-KSB for additional information pertaining to the
Company's proved oil and gas reserves as of the end of each of the last three
fiscal years.
Acreage
The following tables set forth the gross and net acres of developed and
undeveloped oil and gas leases in which the Company had working interests and
royalty interests as of August 31, 1999. The category of "Undeveloped Acreage"
in the tables includes leasehold interests that already may have been classified
as containing proved undeveloped reserves.
<TABLE>
<CAPTION>
WORKING INTERESTS
Developed Undeveloped
Acreage (1) Acreage (2) Total
STATE GROSS NET GROSS NET GROSS NET
<S> <C> <C> <C> <C> <C> <C>
MONTANA 29 1 8,020 4,812 8,049 4,813
NORTH DAKOTA 3,176 79 3,176 79
UTAH 637 16 69,693 6,084 70,330 6,100
WYOMING 81,672 7,535 108,430 68,456 190,102 75,991
TOTAL 85,514 7,631 186,143 79,352 271,657 86,983
</TABLE>
<TABLE>
<CAPTION>
ROYALTY INTERESTS
Developed Undeveloped
Acreage (1) Acreage (2) Total
STATE GROSS NET GROSS NET GROSS NET
<S> <C> <C> <C> <C> <C> <C>
COLORADO 155 5 6,448 177 6,603 182
MISSISSIPPI 2 0 2 0
MONTANA 291 15 291 15
NORTH DAKOTA 1,380 67 0 0 1,380 67
OKLAHOMA 11 0 11 0
UTAH 0 0 2,240 90 2,240 90
WYOMING 15,185 386 25,540 979 40,725 1,365
TOTAL 17,024 473 34,228 1,246 51,252 1,719
<PAGE>
<FN>
(1) Developed acreage is acreage assigned to producing wells for the spacing
unit of the producing formation. Developed acreage in certain of the
Company's properties that include multiple formations with different well
spacing requirements may be considered undeveloped for certain formations,
but have only been included as developed acreage in the presentation above.
(2) Undeveloped acreage is lease acreage on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether such acreage contains
proved reserves.
</TABLE>
Substantially all of the leases summarized in the preceding table will
expire at the end of their respective primary terms unless the existing leases
are renewed or production has been obtained from the acreage subject to the
lease prior to that date, in which event the lease will remain in effect until
the cessation of production. The following table sets forth the gross and net
acres subject to leases summarized in the preceding table that will expire
during the periods indicated:
<TABLE>
<CAPTION>
Acres Expiring
Gross Net
Twelve Months Ending: <C> <C>
December 31, 1999 8,036 5,755
December 31, 2000 7,424 5,626
December 31, 2001 3,640 2,256
December 31, 2002 and later 167,043 65,715
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding (nor is the
Company's property subject of a pending legal proceeding) that the Company
believes would have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information. The Company's Common Stock is traded in the over-the-
------------------
counter market and listed on the Nasdaq SmallCap Stock Market under the symbol
"DBLE". The Company's Units, each consisting of one share of Common Stock and
one Warrant, traded from December 1996 until October 1997, when the Units were
separated and the Warrant commenced trading. The range of high and low sales
prices for each quarterly period during the two most recent fiscal years ended
August 31, 1998 and 1999, as reported by Nasdaq, is as follows:
<TABLE>
<CAPTION>
Warrants ("DBLEW") Common Stock ("DBLE")
Fiscal 1998 High Low High Low
<S> <C> <C> <C> <C>
First Quarter 1.00 .53 2.75 1.00
Second Quarter 1.00 .37 2.62 1.25
Third Quarter 1.44 .75 3.47 1.87
Fourth Quarter 1.12 .37 2.87 1.25
Fiscal 1999
First Quarter .75 .43 1.87 1.56
Second Quarter .56 .43 1.62 1.50
Third Quarter .56 .43 1.75 1.50
Fourth Quarter .75 .66 2.75 2.62
Units ("DBLEU")
Fiscal 1998 High Low
First Quarter 2.82 1.25
Second Quarter --- ---
Third Quarter --- ---
Fourth Quarter --- ---
</TABLE>
On November 24, 1999, the closing sales price for the Common Stock as
reported by Nasdaq was $3.625 per share. Also on November 24, 1999, the closing
sales price for the Warrants was $1.2187 per Warrant.
Holders On November 23, 1999, the number of holders of record of common
-------
stock was 1,920 and the number of holders of warrants was 12.
Dividends. The Company has not paid any cash dividends since its inception.
- ---------
The Company anticipates that all earnings will be retained for the development
of its business and that no cash dividends on its Common Stock will be paid in
the foreseeable future.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
This discussion summarizes the significant factors affecting the operating
results, financial condition, and cash flows of Double Eagle Petroleum and
Mining Company, for the three-year period ended August 31, 1999. This
discussion should be read in conjunction with the Letter to Stockholders,
Financial Statements and Notes to Financial Statements included in this Annual
Report on Form 10-KSB.
Overview
During fiscal 1999, the Company experienced an increase in production of
approximately 46% as measured by barrel of oil equivalents. The increase in
production contributed to a substantial reduction in the net loss of the Company
as compared to the net loss of the prior year.
Operating Results
Revenues from oil and gas sales increased from 1998 to 1999, and from 1997
to 1998. The increase in oil and gas sales from 1998 to 1999 measured 26%, the
increase from 1997 to 1998 measured 7%. In each of fiscal 1999 and fiscal 1998,
the Company increased production of oil and gas, as measured by barrel of oil
equivalents (BOE's), over the prior year. Contributing to the increase in BOE's
in 1999 were the producing property acquisitions of the Government Bridge, Wolf
Draw and Cow Creek fields, and acquisitions of increased interests in the Four
Mile Gulch, Whiskey Buttes, Swan South and Mesa Unit fields. However, the
increase in production was offset by a decline in oil and gas pricing.
Sales of nonproducing leases were $224,119 in 1999 as compared to $53,200
in 1998. The Company's strategy is to develop and market oil and gas prospects,
and to participate in the drilling of wells. The Company will continue to sell
nonproducing leases as a means to generate cash flow.
Costs and expenses increased by 5% in 1999 over 1998. If the cost of
impairment of producing properties which the Company experienced in 1998, is not
included, costs and expenses increased by 26% in 1999 over 1998. Production
costs increased 55%, due in part to the increase in production and extensive
workovers performed on the Government Bridge field. Depreciation and depletion
increased 82% as a result of the increase in production and as a result of the
costs of producing property acquisitions in fiscal 1999. General and
administrative expenses decreased by 12% as a result of management's efforts to
reduce or eliminate non-essential expenditures.
Costs and expenses increased by 70% in 1998 over 1997. Contributing to
this increase was the non-cash impairment of producing properties of $208,000,
which occurred as the Company wrote-down the carrying amount of the State 1-36
and the Graham #2 wells. Future revenues anticipated from these wells were not
expected to recover the carrying value of the wells. Also contributing to the
increase in costs and expenses were increases in production costs and production
taxes as a result of the increase in production. General and administrative
expenses increased by $199,000, primarily due to increases in expenditures for
shareholder relations, legal and accounting fees, and for increased personnel
costs.
Overall, the Company experienced pre-tax losses of $(139,794) and
$(465,572) for the fiscal years 1999 and 1998, respectively, and pre-tax income
of $190,982 for fiscal 1997.
<PAGE>
Financial Condition and Liquidity
Double Eagle utilized approximately $584,000 of the proceeds it received
from the issuance of common stock during fiscal year 1999, along with
approximately $500,000 in short-term and long-term borrowings, toward the
purchase and development of producing properties. In addition, the Company
expended $189,000 towards the purchase of nonproducing leases. The acquisitions
decreased working capital by $202,000 at the end of fiscal year 1999 compared to
the end of fiscal 1998.
Operating activities generated cash of $96,000 during fiscal 1999, as
compared to the consumption of cash if $180,000 during 1998, and $37,000 of cash
generated in 1997. Management is engaged in an on-going strategy of eliminating
those expenditures it feels are non-essential.
The Company continued its strategy of increasing its holdings of oil and
gas properties, increasing its capitalized position in those assets by
$1,160,000 in 1999, $597,000 in 1998, and $498,000 in 1997. The increase in
capitalized expenditures was primarily in support of the Company's goal to grow
reserves, production and revenues, through low risk developmental drilling,
workovers, and acquisitions.
The Company utilizes a $500,000 line of credit arrangement in meeting its
short-term operating needs. The Company owed $308,000 and $-0- on this line of
credit at the end of fiscal years 1999 and 1998, respectively. In addition, the
Company owed $201,000 on long term borrowing at the end of 1999. Subsequent to
year end, the Company paid off the balance of the long-term debt and the line of
credit.
Subsequent to fiscal year 1999, the Company issued through private
placement, 400,000 shares of the Company's common stock. This private placement
generated $1,100,000 in cash. Double Eagle's primary financing objective is to
maintain a conservative balance sheet, defined as using appropriate levels of
equity and long-term debt to finance noncurrent assets and permanent working
capital needs.
Year 2000 Compliance
Year 2000 compliance is the ability of computer hardware and software to
respond to the problems posed by the fact that computer programs traditionally
have used two digits rather than four digits to define an applicable year. As a
a consequence, any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
interruption of operations, including temporary inability to perform accounting
functions and to send joint invoices and delays in the receipt of payments from
purchasers of oil and gas production. In October 1999, the Company replaced
three computers and updated the software, which included the computer that may
have had minor Year 2000 issues. The cost to replace the Company's existing
computer systems was $7,189.49.
The Company has sent inquiries to each customer that purchases more than
10% of the Company's production to determine their Year 2000 compliance.
Failure of customers to be Year 2000 compliant may lead to delays in payments to
the Company for production and lost revenue to the Company. The Company
completed its review of customer compliance in the first quarter fiscal 2000.
Although the Company believes its major customers are year 2000 compliant, there
is no assurance that this is the case. In the event of disruptions caused by
the failure of customers to be Year 2000 compliant, the Company believes that
there will be alternative purchasers for the Company's production.
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
ITEM 7. FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
Index
Page
Numbers
-------
(1) Report of Independent Certified Public Accountants F-1
Financial Statements:
Balance Sheets as of August 31, 1999 and 1998 F-2
Statements of Operations for the years ended
August 31, 1999, 1998, and 1997 F-3
Statements of Stockholders' Equity for the years
ended August 31, 1999, 1998, and 1997 F-4
Statements of Cash Flows for the years ended
August 31, 1999, 1998, and 1997 F-5
Notes to Financial Statements F-6 - F-11
(2) Supplemental Oil and Gas Information (Unaudited) F-12 - F-14
F-1(a)
<PAGE>
------------------------------
LOVELETT, HARGENS & SKOGEN, P.C.
------- --------- ------- ------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders and Board of Directors
Double Eagle Petroleum and Mining Company
We have audited the balance sheets of Double Eagle Petroleum and Mining Company
as of August 31, 1999 and 1998, and the related statements of income, changes in
stockholders' equity, and cash flows for the years ended August 31, 1999, 1998
and 1997. 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 amount 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 and
Mining Company as of August 31, 1999 and 1998, and the results of its operations
and its cash flows for the years ended August 31, 1999, 1998 and 1997, in
conformity with generally accepted accounting principles.
/S/ Lovelett, Hargens & Skogen, P.C.
Casper, Wyoming
October 29, 1999
F-1
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, 1999 and 1998 1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 237,755 $ 97,429
Accounts receivable 295,985 156,174
Prepaid expenses 9,369 -
Total Current Assets 543,109 253,603
PROPERTIES AND EQUIPMENT
Undeveloped properties 721,109 602,359
Developed properties 5,091,135 4,051,469
Corporate and other 254,295 253,238
6,066,539 4,907,066
Less accumulated depreciation, depletion and amortization (2,322,360) (2,016,359)
Net Properties and Equipment 3,744,179 2,890,707
0 9
INVESTMENTS AND OTHER ASSETS 70,884 118,902
TOTAL ASSETS $ 4,358,172 $ 3,263,212
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 225,732 $ 70,852
Accrued production taxes 17,289 29,743
Line of credit 307,898 -
Long-term debt _ current portion 41,728 -
Total Current Liabilities 592,647 100,595
LONG-TERM DEBT 158,773 -
Total Liabilities 751,420 100,595
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; 10,000,000 shares authorized; issued
and outstanding 4,365,401 shares in 1999 and 3,932,651 in 1998 436,540 393,262
Capital in excess of par value 2,667,276 2,126,625
Retained earnings 502,936 642,730
Total Stockholders' Equity 3,606,752 3,162,617
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,358,172 $ 3,263,212
<FN>
See accompanying notes to financial statements.
</TABLE>
F-2
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended August 31, 1999, 1998 and 1997 1999 1998 1997
<S> <C> <C> <C>
Revenues
Oil and gas sales $ 854,405 $ 680,734 $ 633,797
Sales of nonproducing leases 224,119 53,200 242,744
Other income 59,504 5,259 16,644
Total Revenues 1,138,028 739,193 893,185
Costs and Expenses
Production costs 183,451 104,429 76,875
Production taxes 99,731 78,113 57,634
Exploration expenses 192,948 183,279 139,776
Write offs and abandonments 54,931 12,115 10,635
General and administrative 409,597 463,869 265,006
Depreciation and depletion 306,002 167,825 135,542
Impairment of producing properties - 208,273 -
Cost of nonproducing leases sold 31,150 4,475 31,942
Total Costs and Expenses 1,277,810 1,222,378 717,410
(Loss) Income from Operations (139,782 ) (483,185 ) 175,775
Other Income (Expenses)
Interest income 8,595 20,147 29,765
Interest expense (8,607 ) (2,534 ) (11,575 )
Other expense - - (2,983 )
( 12 ) 17,613 15,207
(Loss) Income before Income Taxes (139,794 ) (465,572 ) 190,982
Income Tax Expense (Credit) - (45,294 ) 28,155
Net (Loss) Income $ (139,794 ) $ (420,278 ) $ 162,827
(Loss) Income per Common Share _ Basic & Diluted $ (.03 ) $ (.11 ) $ .05
Average Shares Outstanding _ Basic 4,229,874 3,901,024 3,527,546
Average Shares Outstanding _ Diluted 4,309,070 3,901,024 3,527,546
<FN>
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended August 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Additional Total
Outstanding Common Paid In Retained Stockholders'
Shares Stock Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at,
August 31,1996 2,712,401 $ 271,237 $ 886,254 $ 900,181 $ 2,057,672
Net Income - - - 162,827 162,827
Common Stock
Issued 1,168,250 116,825 1,236,196 - 1,353,021
Balance,
August 31, 1997 3,880,651 $ 388,062 $ 2,122,450 $ 1,063,008 $ 3,573,520
Net Loss - - - (420,278 ) (420,278 )
Repurchase of
Common Stock (30,000 ) (3,000 ) (49,500 ) - (52,500 )
Common Stock
Issued 82,000 8,200 53,675 - 61,875
Balance at
August 31, 1998 3,932,651 $ 393,262 $ 2,126,625 $ 642,730 $ 3,162,617
Net Loss - - - (139,794 ) (139,794 )
Common Stock
Issued 432,750 43,278 540,651 - 583,929
Balance at
August 31, 1999 4,365,401 $ 436,540 $ 2,667,276 $ 502,936 $ 3,606,752
<FN>
See accompanying notes to financial statements.
</TABLE>
F-4
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years ended August 31, 1999, 1998 and 1997 1999 1998 1997
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) income $ (139,794 ) $ (420,278 ) $ 162,827
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation, depletion and impairments 306,002 376,099 135,542
Abandonments and loss on investments 56,044 13,310 19,058
Gain on sale of nonproducing leases (192,969 ) (48,725 ) (210,802 )
Deferred taxes - (45,294 ) 28,155
Changes in operating assets and liabilities:
Accounts receivable (66,793 ) 21,257 (57,966 )
Prepaid expenses (9,369 ) - -
Accounts payable 154,880 (76,544 ) (38,078 )
Accrued production taxes (12,454 ) (76,442 ) (1,332 )
Net cash provided by (used in) operating activities 95,547 (179,733 ) 37,404
Cash Flows from Investing Activities
Proceeds from sales of properties 194,119 53,200 242,744
Purchase of investments 5,000 (25,000 ) (34,110 )
Acquisitions of nonproducing properties (205,944 ) (87,188 ) (147,576 )
Acquisitions of producing properties and equipment (665,724 ) (541,538 ) (416,133 )
Net cash (used in) investing activities (672,549 ) (600,526 ) (355,075 )
Cash Flows from Financing Activities
Issuance of common stock 583,929 9,375 1,408,251
Long-term Borrowing 205,000 - -
Repayment of Long-term debt (4,499 ) - -
Purchase of employee stock options - - (13,499 )
Net borrowings (repayments) under line of
credit arrangement (67,102 ) - (250,000 )
Net cash provided by financing activities 717,328 9,375 1,144,752
Increase (Decrease) in Cash and Cash Equivalents 140,326 (770,884 ) 827,081
Cash and cash equivalents at beginning of year 97,429 868,313 41,232
Cash and cash equivalents at end of year $ 237,755 $ 897,429 $ 868,313
Supplemental Disclosures of Cash and Non-Cash
Transactions
Cash paid during the year for Interest $ 8,607 $ 2,534 $ 11,575
Producing properties acquired through debt $ 375,000 $ - $ -
Repurchase and Issuance of Common Stock $ - $ 52,500 $ -
<FN>
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS
1.Summary of Significant Accounting Policies
Nature of Business
Double Eagle was incorporated under Wyoming law in 1972 for the purpose of
exploration, development, and production of oil, gas and other minerals in
the Rocky Mountain region of the United States. Its oil and gas production
is sold to major companies of the petroleum industry under terms requiring
payment within sixty days. The prices received for its oil and gas are very
volatile due to economic conditions within the industry. Income from mineral
production is nominal and received in the form of minimum annual royalties.
Accounting for Oil and Gas Activities
Double Eagle uses the successful efforts method of accounting for oil and gas
producing activities. Under this method, acquisition costs for proved and
unproved properties are capitalized when incurred. Exploration costs,
including geological and geophysical costs, the costs of carrying and
retaining unproved properties and exploratory dry hole drilling costs, are
expensed. Development costs, including the costs to drill and equip
development wells, and successful exploratory drilling costs that locate
proved reserves, are capitalized. In addition, the Company limits the total
amount of unamortized capitalized costs to the value of future net revenues,
based on current prices and costs.
Depreciation, depletion and amortization
Depreciation and depletion of the capitalized costs for producing oil and
gas properties are provided by the unit-of-production method based on proved
oil and gas reserves. Uncompleted wells and equipment are reflected at the
Company's incurred cost and represent costs of drilling and equipping oil and
gas wells that are not completed as of the balance sheet date. The costs of
unproved leases which become productive are reclassified to proved properties
when proved reserves are discovered in the property. Unproved oil and gas
interests are carried at original acquisition costs including filing and
title fees.
Zeolite properties include the original costs to acquire and stake the claims
and the preliminary evaluation and development costs which are necessary
prior to commencement of the mining operations. Subsequent to the time that
zeolite mines reach operational status, all operational expenditures are
charged to expense in the period incurred.
Office facilities and equipment are recorded at cost. Depreciation of office
facilities and equipment is recorded using straight-line and accelerated
methods over the estimated useful lives of 7 to 40 years for office
facilities and 5 to 7 years for office equipment.
Maintenance, repairs and renewals which neither materially add to the value
of the property nor appreciably prolong its life are charged to expense as
incurred.
Cash and Cash Equivalents
For purposes of preparing the statement of cash flows, currency on hand,
demand deposits, money market accounts, treasury bills and certificates of
deposits with short-term maturities are considered to be cash and cash
equivalents.
F-6
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
1.Summary of Significant Accounting Policies (continued)
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management ot make estimates and assumptions
that affect the reported amounts 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.
Income taxes
Income taxes are determined under an asset and liability approach. The
income statement effect is derived from changes in deferred income taxes on
the balance sheet. This approach gives consideration to the future tax
consequences associated with differences between financial accounting and tax
bases of assets and liabilities. These differences relate to items such as
depreciable and depletable properties, exploratory and intangible drilling
costs, and non-producing leases.
Gas Balancing Arrangement
In accordance with EITF 90-22, the gas-balancing arrangement is accounted for
by the entitlements method. The Company has reflected sales revenue and a
corresponding receivable for its proportionate share of the gas sold by
Amoco. The receivable is valued at the lower of the price in effect at the
time of production or the current market value.
Net (Loss) Income per Share
Basic net income per share of common stock is based on the weighted average
number of shares outstanding during the year. Diluted net (loss) income per
share reflects the potential dilution from the exercise of stock options.
Stock-Based Compensation
The Company accounts for stock options using Accounting Principles Board
Opinion No 25 (APB25).
Reclassifications
Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current year financial statements. These reclassifications have no effect on
net income or stockholders' equity.
F-7
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
2.Financial Instruments
The following disclosures on the estimated fair value of financial
instruments are presented in accordance with SFAS 107 "Disclosure about Fair
Value of Financial Instruments". Fair value, as defined in SFAS 107, is the
amount at which the instrument could be exchanged currently between willing
parties. The carrying amounts for trade receivables and payables are
considered to be their fair values. The difference between the carrying
amounts and the estimated fair market values of the Company's other financial
instruments at August 31, 1999 and 1998 were immaterial.
3.Income Taxes
The income tax expense (credit) amounts reported on the income statement are
composed entirely of deferred income taxes. The tax effects of temporary
differences that gave rise to significant portions of the deferred tax
liabilities and deferred tax assets as of August 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Asset impairments $ 31,241 $ 31,241
Net operating loss carryforwards 140,182 122,005
171,423 153,246
Deferred tax liabilities:
Intangible drilling costs $ 134,922 $ 136,702
1st year federal lease rentals 1,161 1,481
136,083 138,183
Net deferred tax assets (liabilities) 35,340 15,063
Valuation allowance: (35,340 ) (15,063 )
Net deferred tax assets (liabilities) $ - $ -
</TABLE>
At August 31, 1999, the Company has a net operating loss carryforward for
regular income tax reporting purposes of $1,050,000, which will begin
expiring in 2007.
F-8
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
4.Impairment of Long-Lived Assets
In accordance with the provisions of SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Live Assets to be Disposed Of, the Company
reviews the carrying values of its long-lived assets whenever events or changes
in circumstances indicate that such carrying values may not be recoverable.
SFAS 121 requires that an impairment loss be recognized when the carrying amount
of an asset exceeds the sum of the undiscounted estimated future cash flows of
the asset. As a result of the provisions of SFAS 121, the Company recognized a
non-cash charge on producing properties during the fourth quarter of fiscal 1998
of $208,273.
5.Common Stock and Stock Options
Stock option plans approved by the stockholders provide for granting of
options to employees for purchase of common stock generally at prices between
the "bid" and "ask" prices at the time of grant. Generally, options granted
expire three years after the date of grant. The changes in the outstanding
stock options during the three years ended August 31, 1999, 1998, and 1997
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Wt. Avg. Wt. Avg. Wt. Avg.
Shares Ex. Pr. Shares Ex. Pr. Shares Ex. Pr.
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 360,000 $ 1.424 285,000 $ 1.590 200,000 $ .917
Granted 273,000 1.570 240,000 1.540 165,000 2.080
Exercised (50,000 ) 1.250 (70,000 ) .750 (50,000 ) .875
Purchased - - - - (30,000 ) .935
Expired (140,000 ) 1.310 (95,000 ) 2.590 - -
End of year 443,000 $ 1.580 360,000 $ 1.424 285,000 $ 1.590
</TABLE>
There were two issues of warrants outstanding as of August 31, 1999. One
issue covering 1,118,250 warrants allows for the purchase of one share of
common stock at a price of $3.00 with each warrant. These warrants expire
December 17, 2001. The second issue covering 474,750 warrants allows for the
purchase of one share of common stock at a price of $1.375 with each warrant.
These warrants expire October 16, 2003.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". As permitted by FAS 123, the Company continues to apply the
recognition and measurement provisions of Accounting Principles Board Opinion
been2determinedtfor stocktoptionsugrantedmino1999,.1998dandm1997,tibasedponse
the fair values at grant dates consistent with SFAS No. 123, the Company's
pro forma 1999 net loss and loss per share - basic and diluted would have
been $(272,514) and $(.06) respectively, and 1998 net loss and loss per share
- basic and diluted would have been $(546,871), and $(.14), respectively, and
1997 net income and earnings per share - basic and diluted would have been
$68,871, and $.02, respectively.
F-9
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
The pro forma amounts were estimated using the Black-Scholes option pricing
model with the following assumptions for 1999, 1998 and 1997:
<TABLE>
1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Weighted average expected life (years) 3.0 3.0 1.9
Expected volatility 53 % 92 % 80 %
Risk free interest rate 5.75 % 5.50 % 5.55 %
Weighted average fair value of options granted $ .95 $ 1.15 $ .48
</TABLE>
6.Short-Term Debt
The company maintains a $500,000 unsecured short-term line of credit with a
interestcrateeonothenlineiofzcreditpistatf.25% over theaWallnStreetrJournale
Prime Rate. There were no amounts outstanding under this line of credit at
August 31, 1998 and 1997. The line of credit is collateralized by producing
properties. The line of credit was paid off in October, 1999.
7. Long-Term Debt
The Company currently owes $200,501 on a loan collateralized by producing
properties. Payments are currently $5,400 per month, including interest at .25%
over the Wall Street Journal Prime Rate. The loan was paid in full in October,
1999.
8. Net (Loss) Income per Share
During fiscal year 1998, the Company adopted SFAS No. 128, "Earnings Per
Share," which requires the reporting of both basic and diluted earnings per
share. Earnings per share - basic is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding for the period. Earnings per share - diluted reflects the
potential dilution that could occur if options or other contracts to issue
common stock were exercised or converted into common stock. Prior periods
have been restated to reflect the new standard.
The following is a reconciliation of net income to net income per share -
basic and diluted for the three years ended August 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
(shares in thousands) 1999 1998 1997
<S> <C> <C> <C>
Net (loss) income in thousands $ (140 ) $ (421 ) $ 163
Average shares outstanding - basic 4,230 3,901 3,500
Dilutive effect of stock options 79 - 28
Diluted shares outstanding 4,309 3,901 3,528
Net (loss) income per share - basic and diluted $ (.03 ) $ (.11 ) $ .05
</TABLE>
F-10
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
9. Concentration of Credit Risk and Major Customers
The Company invests its cash primarily in deposits with major banks. Certain
deposits may, at times, be in excess of federally insured limits ($179,274
and $ 30,406 at August 31, 1999 and 1998, respectively). The Company has not
incurred losses related to such cash balances.
Sales to major unaffiliated customers (customers accounting for 10 percent of
more of gross revenue), all representing purchasers of oil and gas, for each
of the years ended August 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Customer A $ 91,211 $ 120,492 $ 227,299
Customer B - - 84,419
Customer C 107,873 131,394 -
Customer D 93,829 133,663 -
Customer E 98,960 146,904 -
Customer G 146,679 - -
</TABLE>
10.Contingencies
The Company is subject to extensive federal, state, and local environmental
laws and regulations. These requirements, which change frequently, regulate
the discharge of materials into the environment. The Company believes it is
in compliance with existing laws and regulations.
11.Commitments
During the year ended August 31, 1999, the Company purchased certain divided
interests in producing properties. The Company has committed to buy the
remaining interests in those properties if the seller is able to provide proof
of the seller's ownership of those remaining interests. The total purchase
price of the additional interests is $187,375. The commitments to purchase the
remaining interests expire December 14, 1999.
12.Employee Benefit Plan
The Company maintains a Simple Employee Pension Plan covering substantially
all employees meeting minimum eligibility requirements. Employer
contributions are determined solely at management's discretion. Employer
contributions for the years ended August 31, 1999, 1998 and 1997 were
$16,437, $11,035, and $-0-, respectively.
F-11
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Oil and Gas Reserves
The information presented below regarding the Company's oil and gas reserves was
prepared by an outside consulting petroleum engineer. All reserves are located
within the continental United States.
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas, and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
oil and gas reserves are those expected to be recovered through existing wells
with existing equipment and operating methods. The determination of oil and gas
reserves is highly complex and interpretive. The estimates are subject to
continuing changes as additional information becomes available.
Estimated net quantities of proved developed reserves of oil and gas for the
years ended August 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Natural Gas (Thousands of cubic feet) 1999 1998 1997
<S> <C> <C> <C>
Beginning of year 3,507,986 2,757,188 2,082,591
Revisions of prior estimates (199,102) 9,135 (45,610)
Discoveries 157,632 1,026,311 507,710
Purchaseseof reserves in place 1,002,800 - 435,125
Production (379,306) (284,648) (222,628)
End of year 4,090,010 3,507,986 2,757,188
</TABLE>
<TABLE>
<CAPTION>
Oil (Barrels) 1999 1998 1997
<S> <C> <C> <C>
Beginning of year 90,911 180,526 188,580
Revisions of prior estimates 17,796 (79,024) 3,000
Discoveries - - 20
Purchases of reserves in place 64,992 - 6,257
Production (21,530) (10,591) (17,331)
End of year 152,169 90,911 180,526
</TABLE>
Capitalized Costs Relating to Oil and Gas Producing Activities
The aggregate amount of capitalized costs relating to crude oil and natural gas
producing activities and the aggregate amount of related accumulated
depreciation, depletion and amortization at August 31, 1999, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION> 1999 1998 1997
<S> <C> <C> <C>
Proved properties $ 5,091,135 $ 4,051,469 $ 3,528,257
Unproved properties 721,109 602,359 528,481
5,812,244 4,653,828 4,056,738
Accumulated depreciation and depletion 2,176,755 1,884,862 1,521,590
Net capitalized costs $ 3,635,489 $ 2,768,966 $ 2,535,148
</TABLE>
F-12
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Costs incurred in Oil and Gas Property Acquisitions, Exploration and Development
Activities
Costs incurred in property acquisitions, exploration, and development activities
for the years ended August 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Property acquisitions - proved $ 885,680 $ 10,593 $ 132,703
Property acquisitions - unproved 205,944 87,188 147,576
Exploration 247,879 195,394 150,411
Development 153,985 512,619 265,796
Total $ 1,493,488 $ 805,794 $ 696,486
</TABLE>
Results of Operations from Oil and Gas Producing Activities
The results of operations for the Company's oil and gas producing activities for
the years ended August 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating revenues $ 854,405 $ 680,734 $ 633,797
Costs and expenses
Production 283,182 182,542 134,509
Exploration 247,879 195,394 150,411
Depreciation, depletion and impairment 291,894 359,702 119,846
822,955 737,638 404,766
Income (loss) before Income Taxes 31,450 (56,904) 229,031
Income Tax Expense (Benefit) (4,730) (8,536) 28,155
Results of operations $ 26,720 $ (48,368) $ 200,876
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves
The following information has been developed utilizing procedures prescribed by
SFAS 69 "Disclosures About Oil and Gas Producing Activities" and based on
natural gas and crude oil reserves and production volumes estimated by the
Company. It may be useful for certain comparison purposes, but should not be
solely relied upon in evaluating the Company or its performance. Further,
information contained in the following table should not be considered as
representative or realistic assessments of future cash flows, nor should the
Standardized Measure of Discounted Future Net Cash Flows be viewed as
representative of the current value of the Company.
The Company believes that the following factors should be taken into account in
reviewing the following information: (1) future costs and selling prices will
probably differ from those required to be used in these calculations; (2) due to
future market conditions and governmental regulations, actual rates of
production achieved in future years may vary significantly from the rate of
production assumed in these calculations; (3) selection of a 10% discount rate
is arbitrary and may not be reasonable as a measure of
F-13
<PAGE>
DOUBLE EAGLE PETROLEUM AND MINING COMPANY
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves (continued)
the relative risk inherent in realizing future net oil and gas revenues; and (4)
future net revenues may be subject to different rates of income taxation.
Under the Standardized Measure, future cash inflows were estimated by applying
year-end oil and gas prices to the estimated future production of year-end
proved reserves. Futures cash inflows were reduced by estimated future
development and production costs based upon year-end costs in order to arrive at
net cash flow before tax. Future income tax expense has been computed by
applying year-end statutory rates to future pretax net cash flows and the
utilization of net operating loss carryforwards. Use of a 10% discount rate is
required by SFAS 69.
Management does not rely solely upon the following information in making
investment and operating decisions. Such decisions are based upon a wide range
of factors, including estimates of probable as well as proved reserves, and
varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated.
Standardized Measure is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Future cash inflows $ 9,128,106 $ 7,805,256 $ 7,113,621
Futures production and development costs (2,786,245) (2,125,037) (1,581,564)
Future income taxes (1,799,233) (1,580,386) (1,680,979)
Future net cash flows 4,542,628 4,099,833 3,851,078
10% annual discount rate (1,362,788) (1,229,950) (1,155,323)
Discounted future net cash flows $ 3,179,840 $ 2,869,883 $ 2,695,755
</TABLE>
The following is an analysis of the changes in the Standardized Measure:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance, beginning of the year $ 2,869,883 $ 2,695,755 $ 2,449,299
Sales, net of production costs (571,223) (498,192) (499,288)
Net changes in prices and production costs (1,194,246) 437,531 177,501
Discoveries and purchase of reserves in place 2,008,975 1,360,628 851,438
Development costs incurred (153,985) (512,619) (548,910)
Revisions of previous quantity estimates (51,182) (882,795) 20,785
Accretion of discount 286,989 269,575 244,930
Balance, end of the year $ 3,179,840 $ 2,869,883 $ 2,695,755
</TABLE>
F-14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Directors And Executive Officers
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Stephen H. Hollis 49 Chairman Of The Board; President,
Treasurer and Director
D. Steven Degenfelder 43 Vice President
Carol A. Osborne 47 Secretary
Thomas J. Vessels 50 Director
Ken M. Daraie 40 Director
</TABLE>
(1) The Company has agreed to cause Thomas J. Vessels to be elected to the Board
of Directors. See "Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
Stephen H. Hollis has served as the President and Chief Executive Officer of
the Company since January 1994 and previously served as a Vice-President of the
Company from December 1989 through January 1994. Mr. Hollis has served as a
PresidentooftHollispOil &iGas Co.,maesmall9oilMandHgasicompany,rsincesJanuaryce-
1994 and served as the President of Hollis Oil & Gas Co. from June 1986 through
January 1994. Mr. Hollis was a geologist for an affiliate of United Nuclear
Corporation from 1974 to 1977 and a consulting geologist from 1977 to 1979. In
1979, Mr. Hollis joined Marathon Oil Company and held various positions until
1986, when he founded Hollis Oil & Gas Co. Mr. Hollis is a past President of
the Wyoming Geological Association. Mr. Hollis received a B.A. Degree in
Geology from the University of Pennsylvania in 1972 and a Masters Degree in
Geology from Bryn Mawr College in 1974.
Mr. Degenfelder has served as Vice-President of the Company since February
1998. Mr. Degenfelder began his career in the oil and gas business as a
roustabout in the oil fields of southeast New Mexico. After graduating from
college, he held various land positions with Marathon Oil Company from 1979 to
1981, Paintbrush Petroleum Corporation from 1981 to 1985, Tyrex Oil Company from
1985 to 1995 and the Wyoming Office of State Lands and Investments from 1995 to
1997. Mr. Degenfelder is a Certified Professional Landman and received his
degree in Business Administration from Texas Tech University in 1979. He is a
member of the American Association of Professional Landmen and is past president
of the Wyoming Association of Professional Landmen.
<PAGE>
Carol A. Osborne has served as the Secretary of the Company since January 1996
and previously served as the Assistant Secretary of the Company from December
1989 until January 1996. In addition, Ms. Osborne has served as the Company's
Office Manager since 1981.
Thomas J. Vessels has served as a Director of the Company since January
1999. He has served since October 1997 as the Managing Partner of Tundra
Resources, LLC, a Denver, Colorado investment company that invests and
facilitates investments in the Rocky Mountain region. Mr. Vessels served as
Chairman of the Board of Vessels Energy, Inc., formerly Vessels Oil & Gas Co.,
from 1995 until the sale of that company in March 1998. Mr. Vessels also served
as President and Chief Executive Officer of Vessels Energy, Inc. from 1984 until
1995. Vessels Energy Inc. was involved in natural gas and oil production and
exploration as well as gas processing and marketing. Mr. Vessels is on the
Board of the Colorado Oil & Gas Association, a current member of Colorado
Minerals, Energy, Geology Policy Advisory Board, past President of the
Independent Petroleum Association of Mountain States and past President of the
Colorado Petroleum Association. Mr. Vessels received his B.A. degree from
Gonzaga University in Spokane, Washington in 1972.
Ken M. Daraie has served as a Director of the Company since February 1997.
Mr. Daraie began his career with Sun Exploration and Production Co. as a
Petroleum Engineer from 1982 to 1990. In 1990, he joined Conoco, Inc., in
Casper, where he held engineering positions until 1994. From 1994 to 1995, Mr.
Daraie worked for the Fluor Daniel Corporation and Barlow & Haun, Inc. as
Project Manager and General Manager, respectively. In 1995, Mr. Daraie founded
Continental Industries, LC, an independent oil and gas production/service
company, where he currently serves as President. Mr. Daraie is a past Chairman
of the Board of Energy West Federal Credit Union and currently serves on the
Casper Planning and Zoning Commission. Mr. Daraie received a Bachelor's Degree
in Physics from Baylor University in 1979 and a Bachelor of Science Degree in
Petroleum Engineering from the University of Texas in 1982.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 (a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers, and
holders of more than 10% of the Company's Common Stock to file with the
Securities And Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
The Company believes that during the fiscal year ended August 31, 1999, its
officers, directors and holders of more than 10% of its outstanding Common Stock
complied with all Section 16(a) filing requirements. In making these
statements, the Company has relied upon the written representations of its
directors and officers.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth in summary form the compensation received
during each of the Company's last three completed fiscal years by each of the
Company's Chief Executive Officer and President. No employee of the Company
received total salary and bonus exceeding $100,000 during any of the last three
fiscal years.
Annual Compensation
<TABLE>
<CAPTION>
Long-Term Other Annual
Name and Fiscal Year Salary Bonus Compensation- Compen-
Principal Position Ended ($)(1) ($) Options (#) sation ($)
- ------------------ ---------- ------ ----- ----------- ----------
<S> <C> <C> <C> <C> <C>
Stephen H. Hollis, 1999 $65,000 -0- 36,500 -0-
Chief Executive
Officer and 1998 $72,000 $20,100 50,000 -0-
President 1997 $72,700 -0- 50,000 -0-
<FN>
(1) The dollar value of base salary (cash and non-cash) received.
</TABLE>
Option Grants Table
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended August 31, 1999 to the Company's
Chief Executive Officer and President. See "_ Stock Option Plans".
Option Grants For Fiscal Year Ended August 31, 1999
---------------------------------------------------
<TABLE>
<CAPTION>
% of Total
Options Granted
Options to Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ----------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Stephen H. Hollis, 36,500 37.8% $1.328125 1/20/2002
Chief Executive Officer
and President
</TABLE>
<PAGE>
Aggregated Option Exercises And Fiscal Year-End Option Value Table.
The following table sets forth information concerning each exercise of stock
options during the fiscal year ended August 31, 1999 by the Company's Chief
Executive Officer and President, and the fiscal year-end value of unexercised
options held by the Chief Executive Officer and President.
Aggregated Option Exercises
For Fiscal Year Ended August 31, 1999
And Year-End Option Values
<TABLE>
<CAPTION>
Value of
Unexercised
Number of In-The-Money
Unexercised Options at
Options at Fiscal Fiscal Year-End
Year-End (#)(3) ($)(4)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) (1) Realized ($)(2) Unexercisable Unexercisable
- ----- ---------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Stephen H. Hollis, 0 0 136,500/0 $136,523/$0
Chief Executive Officer
and President
<FN>
(1) The number of shares received upon exercise of options during the fiscal
year ended August 31, 1999.
(2) With respect to options exercised during the Company's fiscal year ended
August 31, 1999, the dollar value of the difference between the option
exercise price and the market value of the option shares purchased on the
date of the exercise of the options.
(3) The total number of unexercised options held as of August 31, 1999
separated between those options that were exercisable and those options
that were not exercisable.
(4) For all unexercised options held as of August 31, 1999, the aggregate
dollar value of the excess of the market value of the stock underlying
those options over the exercise price of those unexercised options, based
on the bid price of the Company's Common Stock on August 31, 1999. The
closing bid price for the Company's Common Stock on August 31, 1999 was
$2.50 per share.
</TABLE>
<PAGE>
Stock Option Plans
The 1993 Stock Option Plan. In November 1992, the Board Of Directors of the
--------------------------
Company approved the Company's Stock Option Plan (1993) (the "1993 Plan"), which
subsequently was approved by the Company's stockholders. Pursuant to the 1993
Plan, the Company may grant options to purchase an aggregate of 200,000 shares
of the Company's common stock to key employees of the Company, including
officers and directors who are salaried employees who have contributed in the
past or who may be expected to contribute materially in the future to the
successful performance of the Company. The options granted pursuant to the 1993
Plan are intended to be incentive options qualifying for beneficial tax
treatment for the recipient. The 1993 Plan is administered by an option
committee that determines the terms of the options subject to the requirements
of the 1993 Plan. At August 31, 1999, options to purchase 120,000 shares were
outstanding under the 1993 Plan. As a result, options to purchase an additional
80,000 shares could be granted under the 1993 Plan.
The 1996 Stock Option Plan. In May 1996, the Board of Directors of the
--------------------------
Company approved the Company's 1996 Stock Option Plan (the "1996 Plan"), which
subsequently was approved by the Company's stockholders. Pursuant to the 1996
Plan, the Company may grant options to purchase an aggregate of 200,000 shares
of the Company's common stock to key employees, directors, and other persons who
have or are contributing to the success of the Company. The options granted
pursuant to the 1996 Plan may be either incentive options qualifying for
beneficial tax treatment for the recipient or non-qualified options. The 1996
Plan is administered by an option committee that determines the terms of the
options subject to the requirements of the 1996 Plan. At August 31, 1999,
options to purchase 200,000 shares of Common Stock were outstanding under the
1996 Plan so that no additional options could be granted under the 1996 Plan.
Compensation Of Outside Directors
Directors of the Company who are not also employees of the Company ("Outside
Directors") are paid $400 for each meeting of the Board Of Directors that they
attend. In addition, each Outside Director receives 2,000 shares of Common
Stock each year. Directors also are reimbursed for expenses incurred in
attending meetings and for other expenses incurred on behalf of the Company. In
In January 1999, each Outside Director was granted options to purchase 10,000
shares of Common Stock for $1.328125 per share. These options expire January
20, 2002.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table summarizes certain information as of November 23, 1999
with respect to the beneficial ownership of the Company's common stock (i) by
the Company's directors, (ii) by stockholders known by the Company to own 5% or
more of the Company's common stock, and (iii) by all officers and directors as a
group.
<TABLE>
As Of November 23, 1999
Percentage Of
Class
Name And Address Of Number Of Beneficially
Beneficial Owner Shares Owned
- -------------------- --------------- -----
<S> <C> <C>
Stephen H. Hollis (5) 621,000(1) 13.1%
2037 S. Poplar
Casper, Wyoming 82601
Ken M. Daraie 26,000(2) *
Thomas J. Vessels 356,500(3) 7.5%
Directors and Officers as a group 1,143,700(1)(2) (3) 22.6%
(Five Persons)
Hollis Oil & Gas Co. (4) 350,000 7.7%
</TABLE>
* Less than one percent.
(1) Includes options held by Mr. Hollis to purchase 50,000 shares for $1.375
per share that expire February 24, 2000, options to purchase 50,000 shares
for $1.75 per share that expire January 23, 2001, options to purchase
36,500 shares for $1.328125 per share that expire January 20, 2002 and
Warrants to purchase 21,000 shares for $3.00 per share that expire on
December 17, 2001. In addition to 113,500 shares owned directly by Mr.
Hollis, the table above includes 350,000 shares of the Company's Common
Stock owned by Hollis Oil & Gas Co. Mr. Hollis is an officer, director and
51 percent owner of Hollis Oil & Gas Co.
<PAGE>
(2) Includes options to purchase 10,000 shares for $1.75 per share that
expire January 23, 2001 and options to purchase 10,000 shares for $1.321825
per share that expire January 20, 2002.
(3) Consists of 78,750 shares held by Mr. Vessels, 76,750 shares held by
his wife, 1,000 shares held by a trust for the benefit of Mr. Vessels'
minor children, warrants to purchase 76,750 shares for $1.375 per share
until October 16, 2003 held by Mr. Vessels, warrants to purchase 76,750
shares on the same terms held by Mr. Vessels' wife, warrants to purchase
1,000 shares on the same terms held by the trust for Mr. Vessels' children,
options to purchase 36,500 shares of $1.375 per share until October 16,
2001 held by Mr. Vessels and options to purchase 10,000 shares for
$1.328125 per share until January 20, 2002 held by Mr. Vessels.
(4) In addition to the shares described in footnotes (1), (2) and (3)
above, the shares owned by Directors and Officers as a Group includes 200
shares and options to purchase 20,000 shares for $1.375 per share until
February 24, 2000, options to purchase 20,000 shares for $1.75 per share
until January 23, 2001 and options to purchase 20,000 shares for $1.328125
per share until January 20, 2002 held by Carol Osborne, the Company's
Secretary, and options to purchase 40,000 shares for $1.4375 per share
until February 2, 2001 and options to purchase 40,000 shares for $1.328125
per share until January 20, 2002 held by D. Steven Degenfelder, Vice
President of the Company.
(5) The shares owned by Hollis Oil & Gas Company are shown or included as
beneficially owned three times in the table: once as beneficially owned
by Hollis Oil & Gas Company, again under the beneficial ownership of Mr.
Hollis, and also as a part of the shares beneficially owned by Directors
and Officers as a group.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and certain directors, officers and stockholders of the
Company are joint holders in proved and unproved oil and gas properties.
During the normal course of business, the Company pays or receives monies and
in turn bills or pays the interest holders for their respective shares. These
transactions are immaterial in amount when compared to the Company's total
receipts and expenditures. They are accounted for as part of the normal joint
interest billing function. See also, "ITEMS 1. and 2. DESCRIPTION OF BUSINESS
AND PROPERTIES_Principal Areas Of Oil And Gas Activity_"Moxa Arch",
Washakie Basin_ State 1-36 Well", "_ Wind River Basin_ Madden Anticline", "_
Wind River Basin_ Waltman Field".
<PAGE>
In November 1998, the Company completed a private placement offering of
374,750 units of Common Stock and Common Stock Purchase Warrants for $1.375
per unit. Each unit consists of one share of Common Stock and a warrant to
purchase one share of Common Stock for $1.375 per share until October 16,
2003. The warrants are redeemable by the Company at a price of $.001 per
warrant commencing April 2001 if the Company's Common Stock trades at a price
of at least $3.00 per share for 20 of the 30 trading days preceding the date
on which the Company gives notice of redemption. Thomas J. Vessels and his
wife purchased 153,500 of the units and a trust for the benefit of Mr.
Vessels' minor children purchased 1,000 units. In addition, the Company
entered into a consulting agreement with Mr. Vessels pursuant to which Mr.
Vessels will assist the Company in locating possible oil and gas transactions
in which the Company may participate. This agreement is in effect until
January 30, 2000. The Company agreed to issue to Mr. Vessels options to
purchase 36,500 shares of Common Stock for $1.375 per share until October 16,
2001 and to reimburse Mrs. Vessels for up to $1,000 per month in expenses
incurred in performing services on behalf of the Company. The Company also
agreed to cause Mr. Vessels to be elected to the Board of Directors and to
nominate Mr. Vessels to serve as a director. Pursuant to this agreement Mr.
Vessels was elected as a director at the Annual Meeting of Shareholders held
in January 1999.
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) and (a)(2) Financial Statements And Financial Statement Schedules
See "ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA _ Index" on
page F-1(a)
(a)(3) Exhibits.
--------
Exhibit Index
Exhibit No. Description
----------- -----------
3.1(a) Articles Of Incorporation filed with the Wyoming Secretary Of State
on January 13, 1972 (incorporated by reference from Exhibit 3.1(a) of
the Registrant's Registration Statement on Form SB-2 filed on October
11, 1996, SEC Registration No. 333-14011).
3.1(b) Articles of Amendment of Registrant filed with the Wyoming Secretary
Of State on February 27, 1984 (incorporated by reference from Exhibit
3.1(b) of the Registrant's Registration Statement on Form SB-2 filed on
October 11, 1996, SEC Registration No. 333-14011).
3.1(c) Articles Of Amendment of Registrant filed with the Wyoming Secretary
Of State on July 9, 1996 (incorporated by reference from Exhibit 3.1(c)
of the Registrant's Registration Statement on Form SB-2 filed on
October 11, 1996, SEC Registration No. 333-14011).
3.2 Bylaws (incorporated by reference from Exhibit 3.2 of the Registrant's
Registration Statement on Form SB-2 filed on October 11, 1996, SEC
Registration No. 333-14011).
4.1 Form of Warrant Agreement concerning Common Stock Purchase Warrants
(incorporated by reference from Exhibit 4.3 of the Amendment No. 1 to
the Registrant's Registration Statement on Form SB-2 filed on November
27, 1996, SEC Registration No. 333-14011).
(b) Reports On Form 8-K. During the last quarter of the fiscal year
--------------------
ended August 31, 1999, the Company filed no reports on Form 8-K.
<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.
DOUBLE EAGLE PETROLEUM AND MINING CO.
Date: November 26, 1999 /s/ Stephen H. Hollis
-----------------------
Stephen H. Hollis
Pursuant to the requirements 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.
Date: November 26, 1999 /s/ Stephen H. Hollis
-----------------------
Stephen H. Hollis, Director
Date: November 26, 1999 /s/ Thomas J. Vessels
---------------------
Thomas J. Vessels
Date: November 26, 1999 /s/ Ken M. Daraie
-----------------
Ken M. Daraie, Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 237,755
<SECURITIES> 0
<RECEIVABLES> 295,985
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 543,109
<PP&E> 6,066,539
<DEPRECIATION> 2,322,360
<TOTAL-ASSETS> 4,358,172
<CURRENT-LIABILITIES> 592,647
<BONDS> 0
0
0
<COMMON> 436,540
<OTHER-SE> 3,170,212
<TOTAL-LIABILITY-AND-EQUITY> 4,358,172
<SALES> 1,078,524
<TOTAL-REVENUES> 1,138,028
<CGS> 0
<TOTAL-COSTS> 1,277,810
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,607
<INCOME-PRETAX> (139,794)
<INCOME-TAX> (139,794)
<INCOME-CONTINUING> (139,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,794)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
