<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
(AMENDMENT NO. 2)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1999
(DATE OF REPORT) (DATE OF EARLIEST EVENT REPORTED)
VENUS EXPLORATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-14334 13-3299127
(COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
1250 N.E. LOOP 410
SUITE 1000
SAN ANTONIO, TEXAS 78209
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (210) 930-4900
- --------------------------------------------------------------------------------
<PAGE> 2
The undersigned registrant hereby amends the following Item 7.
Financial Statements and Exhibits of its Form 8-K/A filed on September 7, 1999,
dated June 30, 1999. The Company has determined that after discussion with the
Securities and Exchange Commission to revise its accounting for its investment
in EXUS. The Company had originally accounted for its investment under the
proportional consolidation method of accounting. Under proportional
consolidation an investor reports its percentage share of the assets,
liabilities, revenues and expenses of the investee. With this amendment the
method of accounting is being changed to the equity method. Under the equity
method the Company will report its net investment in EXUS on its balance sheet
(the Company's share of EXUS' assets are netted with the Company's share of
EXUS' liabilities) and its share of the net earnings of EXUS is reported in
other income in the statement of operations. In addition, the Pro Forma
Financial Information has been adjusted to give effect to restated non-cash
impairment estimates for the year ended December 31, 1998, and related 1999
revised provisions for depreciation, depletion and amortization.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
Audited Statements of Operating Revenues and Direct Operating
Expenses for Venus' share of the Jackson Parish Properties for
the years ended December 31, 1996, 1997, and 1998, and
Unaudited Statements of Operating Revenues and Direct
Operating Expenses for the six months ended June 30, 1999 and
1998, together with report of independent auditors Ernst &
Young LLP.
(b) Pro Forma Financial Information.
Pro Forma Combined Financial Statements of Venus Exploration,
Inc. for the year ended December 31, 1998 and the six months
ended June 30, 1999.
(c) Exhibits.
Number Document
10.1 Purchase and Sale Agreement between Apache
Corporation as seller, and Venus
Exploration, Inc., buyer, dated May 13,
1999, previously filed as an exhibit to
Venus' Form 8-K filed July 15, 1999 and
incorporated by reference herein.
10.2 Credit Agreement among EXUS Energy, LLC, as
borrower, NationsBank, N.A., as
administrative agent, and financial
institutions listed on Schedule I, dated
June 30, 1999, previously filed as an
exhibit to Venus' Form 8-K filed July 15,
1999 and incorporated by reference herein.
10.3 Limited Liability Company Agreement of EXUS
Energy, LLC, dated June 30, 1999, previously
filed as an exhibit to Venus' Form 8-K filed
July 15, 1999 and incorporated by reference
herein.
1
<PAGE> 3
10.4 Convertible Promissory Note made by Venus
Exploration, Inc. in favor of EXCO
Resources, Inc., dated June 30, 1999,
previously filed as an exhibit to Venus'
Form 8-K filed July 15, 1999 and
incorporated by reference herein.
10.5 Pledge Agreement made by Venus Exploration,
Inc. for the benefit of EXCO Resources,
Inc., dated June 30, 1999, previously filed
as an exhibit to Venus' Form 8-K filed July
15, 1999 and incorporated by reference
herein.
10.6 Registration Rights Agreement between EXCO
Resources, Inc. and Venus Exploration, Inc.,
dated June 30, 1999, previously filed as an
exhibit to Venus' Form 8-K filed July 15,
1999 and incorporated by reference herein.
10.7 Agreement Among Members between EXCO
Resources, Inc. and Venus Exploration, Inc.,
dated June 30, 1999, previously filed as an
exhibit to Venus' Form 8-K filed July 15,
1999 and incorporated by reference herein.
2
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
VENUS EXPLORATION, INC.
By: /s/ PATRICK A. GARCIA
---------------------------------
Patrick A. Garcia
Chief Financial Officer
Dated: December 20, 1999
3
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Venus Exploration, Inc.
We have audited the accompanying statements of operating revenues and direct
operating expenses of the Jackson Parish Properties (as defined in Note 1 to the
accompanying statements) acquired by Venus Exploration, Inc. for the years ended
December 31, 1996, 1997 and 1998. These statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 audits to obtain
reasonable assurance about whether the statements of operating revenues and
direct operating expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of operating revenues and direct operating expenses. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement presentation. We
believe our audits provide a reasonable basis for our opinion.
The accompanying statements of operating revenues and direct operating expenses
were prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and are not intended to be a complete
presentation of revenues and expenses of the Jackson Parish Properties.
In our opinion, the statements of operating revenues and direct operating
expenses referred to above present fairly, in all material respects, the results
of operations of the share of the Jackson Parish Properties acquired by Venus
Exploration, Inc. for the years ended December 31, 1996, 1997, and 1998 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Dallas, Texas
August 17, 1999
4
<PAGE> 6
JACKSON PARISH PROPERTIES
STATEMENTS OF OPERATING REVENUES
AND DIRECT OPERATING EXPENSES
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Oil and natural gas sales ............................. $ 7,248 $ 7,310 $ 5,624 $ 3,084 $ 2,162
Direct operating expenses ............................. 582 930 1,044 446 392
---------- ---------- ---------- ---------- ----------
Excess of revenues over direct operating expenses .... $ 6,666 $ 6,380 $ 4,580 $ 2,638 $ 1,770
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE> 7
JACKSON PARISH PROPERTIES
NOTES TO STATEMENTS OF OPERATING REVENUES
AND DIRECT OPERATING EXPENSES
1. Basis of Presentation
On June 30, 1999, EXUS Energy, LLC, a Delaware limited liability company
(EXUS), owned 50% by Venus Exploration, Inc. (Venus), and 50% by EXCO Resources,
Inc. (EXCO) completed the acquisition from Apache Corporation of certain oil and
natural gas properties located in Jackson Parish, Louisiana (the Jackson Parish
Properties). The Jackson Parish Properties include 17 gross (14.25 net)
producing wells. EXCO is the named operator of the Jackson Parish Properties and
assumed operations of all 17 wells acquired in the transaction. The Jackson
Parish Properties include 6,411 gross (5,672 net) developed acres and 1,532
gross (1,148 net) undeveloped acres. The purchase price, before closing
adjustments, was approximately $28.5 million, and after adjustments was $27.6
million cash.
EXUS funded the acquisition with $14 million drawn under a new credit
facility it established with NationsBank, N.A., and $14 million of EXUS equity
capital which consisted of $7 million cash contributions each by Venus and EXCO.
Venus' capital was funded by a $7 million convertible promissory note in favor
of EXCO dated June 30, 1999.
The accompanying statement of operating revenues and direct operating
expenses is for the total interests in the Jackson Parish Properties that were
acquired by EXUS. Venus will have a 50% equity interest in these properties
through its 50% equity interest in EXUS. Presentation of complete historical
financial statements for the years ended December 31, 1996, 1997, and 1998 is
not practicable because the Jackson Parish Properties were not accounted for as
a separate entity by Apache; and therefore, such statements are not available.
The operating revenues and direct operating expenses for the periods presented
may not be representative of future operations.
Revenues in the accompanying statements of operating revenues and direct
operating expenses are recognized on the entitlement method. Direct operating
expenses are recognized on an accrual basis.
In management's opinion, the accompanying interim statements contain all
adjustments (consisting solely of normal recurring accruals) necessary to
present fairly the consolidated interest acquired by EXUS in the operating
revenues and direct operating expenses of the Jackson Parish Properties for the
six month periods ended June 30, 1998 and 1999.
The results of operations for the six months ended June 30, 1999, are not
necessarily indicative of the results expected for the full year.
6
<PAGE> 8
2. SUPPLEMENTAL OIL AND NATURAL GAS RESERVE AND STANDARDIZED MEASURE INFORMATION
(UNAUDITED)
OIL AND NATURAL GAS OPERATIONS
During the years ended December 31, 1996, 1997, and 1998 the development
costs incurred for the interest acquired by EXUS were $4.0 million, $4.8 million
and $50,000, respectively. No exploration or incremental general and
administrative costs were incurred.
RESERVE QUANTITY INFORMATION
The following table presents EXUS' estimate of the proved oil and natural
gas reserves as of December 31, 1998. All reserves are located in the United
States. Venus emphasizes that reserve estimates are inherently imprecise and
that estimates of new discoveries are more imprecise than those of producing oil
and natural gas properties. Accordingly, the estimates are expected to change as
future information becomes available.
<TABLE>
<CAPTION>
Oil (Mbbls) Gas (Mmcf) Mboe*
----------- ----------- -----------
<S> <C> <C> <C>
Proved Reserves ..................................................... 2 69,558 11,596
=========== =========== ===========
Proved developed reserves .......................................... 2 43,432 7,240
=========== =========== ===========
</TABLE>
- ------------------
* Mboe - Thousand barrels of oil equivalent calculated 6 Mmcf of natural gas to
1 Mbbl of oil.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves ("Standardized Measure") is a disclosure requirement
under Statement of Financial Accounting Standards No. 69. The Standardized
Measure does not purport to be, nor should it be interpreted to present, the
fair value of the oil and natural gas reserves of the Jackson Parish Properties.
An estimate of fair value would also take into account, among other things, the
recovery of reserves not presently classified as proved, the value of unproved
properties, and consideration of expected future economic and operating
conditions.
Under the Standardized Measure, future cash flows are estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future cash flows
are reduced by estimated future production costs, based on period-end costs, and
projected future development costs to determine net cash inflows. The Jackson
Parish Properties are not a separate tax paying entity. Accordingly, the
Standardized Measure for the Jackson Parish Properties is presented before
deduction of income taxes. Future net cash flows are discounted using a 10%
annual discount rate to arrive at the Standardized Measure.
7
<PAGE> 9
The Standardized Measure of discounted future net cash flows relating to
proved oil and natural gas reserves of EXUS at December 31, 1998 follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Future cash inflows ............................................. $ 136,362
Future production costs ......................................... 42,846
Future development costs ........................................ 15,872
----------
Future net cash flows ........................................... 77,644
Discount of future net cash flows at 10% per annum .............. 52,268
----------
Discounted future net cash flows before income taxes ............ $ 25,376
==========
</TABLE>
The future cash flows shown above include amounts attributable to
non-producing reserves requiring approximately $15.8 million of future
development costs. If these reserves are not developed, the Standard Measure of
discounted future net cash flows as of December 31, 1998, shown above would be
reduced significantly.
Estimates of economically recoverable oil and natural gas reserves and of
future net revenues are based upon a number of variable factors and assumptions,
all of which are to some degree speculative and may vary considerably from
actual results. Therefore, actual production, revenues, taxes, development and
operating expenditures may not occur as estimated. The reserve data are
estimates only, are subject to many uncertainties and are based on data gained
from production histories and on assumptions as to geologic formations and other
matters. Actual quantities of natural gas and oil may differ materially from the
amounts estimated.
The weighted average prices of oil and natural gas at December 31, 1998
used in the calculation of the Standardized Measure were $9.75 per barrel and
$1.96 per Mcf, respectively.
8
<PAGE> 10
VENUS EXPLORATION, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
As discussed in Item 2. Acquisition or Disposition of Assets, of Venus'
Form 8-K filed on July 15, 1999 dated June 30, 1999, EXUS Energy, LLC (EXUS), a
Delaware limited liability company, owned 50% by Venus Exploration, Inc. (Venus)
and 50% by EXCO Resources, Inc. (EXCO) completed the acquisition of the Jackson
Parish Properties on June 30, 1999. The acquisition was funded through
borrowings made under the EXUS credit facility with NationsBank, N.A. (the
Borrowings), and capital contributions made by the Company and EXCO. Venus'
capital contribution was funded by a $7 million loan from EXCO.
The accompanying pro forma combined financial statements are based on the
historical financial statements of Venus for the year ended December 31, 1998,
and the six months ended June 30, 1999. The pro forma combined financial
statements are also based, in part, on Venus' share of the historical net income
of the Jackson Parish Properties acquired by EXUS on June 30, 1999, reduced by
the operating revenues and direct operating expenses of properties sold by Venus
in early 1999. On January 27, 1999, Venus sold its interests in oil and gas
properties located in the state of West Virginia (West Virginia Properties) and
on February 12, 1999, Venus sold its interests in oil and gas properties located
in Freestone County, Texas (H. E. White Unit). The statements of operating
revenues and direct operating expenses of the Jackson Parish Properties are
included elsewhere herein. The Company's investment in EXUS has been accounted
for under the equity method.
The Pro Forma Combined Statement of Operations for the year ended
December 31, 1998, and the six months ended June 30, 1999, have been prepared
assuming the acquisition of the Jackson Parish Properties by EXUS and the
related borrowings, and the sale of the West Virginia Properties and the H. E.
White Unit had been consummated on January 1, 1998.
The pro forma adjustments are based upon available information and
assumptions that management of Venus believes are reasonable. The pro forma
combined condensed financial statements do not purport to represent the
financial position or results of operations of Venus which would have occurred
had such transactions been consummated on the dates indicated or Venus'
financial position or results of operations for any future date or period.
9
<PAGE> 11
VENUS EXPLORATION, INC
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
DISPOSITION OF
PROPERTIES
----------------- VENUS
WEST VIRGINIA AND SHARES OF
VENUS H.E. WHITE UNIT EXUS PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ----------------- ---------- ----------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
OIL AND GAS REVENUES $ 2,805 $ (431) $ -- $ -- $ 2,374
-------- -------- -------- -------- --------
COST OF OPERATIONS:
Production expense 1,610 (218) -- -- 1,392
Exploration expense,
including dry holes 1,261 -- -- -- 1,261
Impairment of oil and
gas properties 2,803 (374) -- -- 2,429
Depletion, depreciation and
Amortization 1,775 (164) -- -- 1,611
General and administrative 3,174 -- -- -- 3,174
-------- -------- -------- -------- --------
Total expenses 10,623 (756) -- -- 9,867
-------- -------- -------- -------- --------
Operating profit (loss) (7,818) 325 -- -- (7,493)
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (568) -- -- (692)(2)(3) (1,260)
Gain on sale of properties 30 -- -- -- 30
Equity in earnings of EXUS
Energy, LLC -- -- 2,290 (1,406)(4) 884
Interest income and other 32 -- -- -- 32
-------- -------- -------- -------- --------
(506) -- 2,290 (2,098) (314)
-------- -------- -------- -------- --------
Net income (loss) before
Extraordinary item $ (8,324) $ 325 $ 2,290 $ (2,098) $ (7,807)
======== ======== ======== ======== ========
Basic and diluted loss per
share before extraordinary
Item $ (.84) $ (.79)
======== ========
Common shares and equivalents
outstanding, basic and diluted 9,934 9,934
======== ========
</TABLE>
10
<PAGE> 12
VENUS EXPLORATION, INC
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
DISPOSITION OF
PROPERTIES
----------------- VENUS
WEST VIRGINIA AND SHARES OF
VENUS H.E. WHITE UNIT EXUS PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ----------------- ---------- ----------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
OIL AND GAS REVENUES $ 819 $ (37) $ -- $ -- $ 782
-------- -------- -------- -------- --------
COST OF OPERATIONS:
Production expense 413 1 -- -- 414
Exploration expense,
Including dry holes 361 -- -- -- 361
Impairment of oil and
Gas properties -- -- -- -- --
Depletion, depreciation and
Amortization 273 -- -- -- 273
General and administrative 1,069 -- -- -- 1,069
-------- -------- -------- -------- --------
Total expenses
2,116 1 -- -- 2,117
-------- -------- -------- -------- --------
Operating profit (loss) (1,297) (38) -- -- (1,335)
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (220) -- -- (407)(2)(3) (627)
Gain on sale of properties 804 -- -- (785)(1) 19
Equity in earnings of EXUS
Energy, LLC -- -- 885 (624)(4) 261
Interest income and other 8 -- -- -- 8
-------- -------- -------- -------- --------
592 -- 885 (1,816) (339)
-------- -------- -------- -------- --------
Net income (loss) $ (705) $ (38) $ 885 $ (1,816) $ (1,674)
======== ======== ======== ======== ========
Basic and diluted loss per share $ (0.06) $ (0.15)
======== ========
Common shares and equivalents
Outstanding, basic and diluted 10,982 10,982
======== ========
</TABLE>
11
<PAGE> 13
VENUS EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
A. PRO FORMA ADJUSTMENTS FOR THE SALE OF WEST VIRGINIA PROPERTIES AND H.
E. WHITE UNIT
The accompanying unaudited Pro Forma Combined Statement of Operations for
the year ended December 31, 1998 and the six months ended June 30, 1999 have
been prepared as if the sale of the West Virginia Properties and H. E. White
Unit had been consummated on January 1, 1998 and reflect the following
adjustments:
(1) To eliminate gain on sale of the West Virginia Properties and H. E.
White Unit.
(2) To reduce interest expense due to the reduction in the note retired by
the sale of the West Virginia Properties and H. E. White Unit.
Interest expense was reduced by $148,000 in 1998 and $13,000 in 1999.
B. PRO FORMA ADJUSTMENTS FOR INVESTMENT IN EXUS
The accompanying unaudited Pro Forma Combined Statement of Operations for
the year ended December 31, 1998 and the six months ended June 30, 1999 have
been prepared as if EXUS' acquisition of the Jackson Parish Properties and the
related borrowings had been consummated on January 1, 1998 and reflects the
following adjustments:
(3) To record EXUS pro forma adjustments as follows: record interest
expense on the borrowing of $7.0 million, based on a 12% per annum
interest rate. Under the EXCO note the interest rate for the first
year is 10%, for the second year, 11% for the third year, 12% for the
fourth year, 13%; and for the fifth year, 14%. In accordance with
Emerging Issues Task Force (EITF) 86-15, the Company will record
interest expense based on the interest method. The average interest
rate over the term of the EXCO note is 12%. Interest expense of
$840,000 is included in 1998 and $420,000 in 1999.
(4) To record adjustments required to appropriately reflect the Company's
share of the net income of EXUS is as follows:
<TABLE>
<CAPTION>
Twelve Months Six Months
Ended Ended
December 31, 1998 June 30, 1999
----------------- -----------------
<S> <C> <C>
Nations Bank revolving credit facility, 6.8% per
Annum $ 476,000 $ 238,000
Amortization of deferred financial costs 12,000 6,000
Depreciation, depletion and amortization 918,000 380,000
----------------- -----------------
Equity in Earnings of EXUS $ 1,406,000 $ 624,000
================= =================
</TABLE>
Total deferred financing costs of $36,000 are being amortized over three
years, the term of the note.
The Company's investment in EXUS has been accounted for under the equity method.
12
<PAGE> 14
VENUS EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
C. INCOME TAXES
No adjustment to income tax expense or benefit has been reflected in the
unaudited pro forma statements of Operations due to the net operating losses and
the uncertainty of realizing deferred tax benefits.
D. PRO FORMA COMBINED SUPPLEMENTAL OIL AND NATURAL GAS RESERVE AND STANDARDIZED
MEASURE INFORMATION
RESERVE QUANTITY INFORMATION
The following table presents Venus' estimate of the pro forma combined
proved oil and natural gas reserves of Venus after giving effect to the sale of
the West Virginia Properties and the H.E. White Unit and Venus' share of its
equity investment in EXUS. Separately presented is Venus' share of its 50%
equity interest in EXUS. All reserves are located in the United States. Venus
emphasizes that reserve estimates are inherently imprecise and that estimates of
new discoveries are more imprecise than those of producing oil and natural gas
properties. Accordingly, the estimates are expected to change as future
information becomes available.
<TABLE>
<CAPTION>
OIL (MBBLS) GAS (MMCF) MBOE*
<S> <C> <C> <C>
Proved reserves ............................................ 707 5,158 1,567
=========== =========== ===========
Proved developed reserves .................................. 467 3,681 1,082
=========== =========== ===========
Company's proportional interest in proved reserves of
Jackson Parish Properties accounted for by the equity
method ..................................................... 1 34,779 5,798
=========== =========== ===========
</TABLE>
- -----------
* Mboe - Thousand barrels of oil equivalent by converting 6 Mmcf of natural gas
to 1 Mbbl of oil.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND NATURAL GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Natural Gas Reserves ("Standardized Measure") is a disclosure
requirement under Statement of Financial Accounting Standards No. 69. The
Standardized Measure does not purport to be, nor should it be interpreted to
present, the fair value of Venus' oil and natural gas reserves. An estimate of
fair value would also take into account, among other things, the recovery of
reserves not presently classified as proved, the value of unproved properties,
and consideration of expected future economic and operating conditions.
Under the Standardized Measure, future cash flows are estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future cash inflows
are reduced by estimated future production costs, based on period-end costs, and
projected future development costs to determine pre-tax cash inflows. Future
income taxes are computed by applying the statutory rate (based on the current
tax law adjusted for permanent differences and tax credits) to the excess of
pre-tax net cash flows over Venus' income tax basis of its oil and natural gas
properties and giving effect to net operating loss carryforwards, tax credits
and allowances relating to such properties. Future net cash flows are discounted
using a 10% annual discount rate to arrive at the Standardized Measure.
13
<PAGE> 15
VENUS EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The pro forma Standardized Measure of discounted future net cash flows
relating to Venus' proved oil and natural gas reserves at December 31, 1998,
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Future cash inflows ............................................. $ 18,941
Future production costs ......................................... 7,084
Future development costs ........................................ 1,506
----------
Future net cash flows ........................................... 10,351
Discount of future net cash flows at 10% per annum .............. 4,725
----------
Pro forma Standardized Measure of discounted future net
cash flows ...................................................... $ 5,626
==========
Company's share of equity method EXUS standardized
measure of discounted future net cash
flows ........................................................... $ 10,756
==========
</TABLE>
The future cash flows shown above include amounts attributable to
non-producing reserves requiring approximately $1.5 million of future
development costs attributable to Venus' reserves and $7.9 million attributable
to Venus' share of its interest in EXUS. . If these reserves are not developed,
the Standardized Measure of discounted future net cash flows as of December 31,
1998, shown above would be reduced significantly.
Estimates of economically recoverable oil and natural gas reserves and of
future net reserves are based upon a number of variable factors and assumptions,
all of which are to some degree speculative and may vary considerably from
actual results. Therefore, actual production, revenues, taxes, development and
operating expenditures may not occur as estimated. The reserve data are
estimates only, are subject to many uncertainties and are based on data gained
from production histories and on assumptions as to geologic formations and other
matters. Actual quantities of oil and natural gas may differ materially from the
amounts estimated.
The weighted average prices of oil and natural gas at December 31, 1998
used in the calculation of the Standardized Measure were $10.31 per barrel and
$2.26 per Mcf, respectively, and $9.75 per barrel and $2.00 per Mcf for the EXUS
Properties.
14
