<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - - -------------------------------------------------------------------------------
FORM 10-QSB
- - - -------------------------------------------------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
SEPTEMBER 30, 1995
Commission File Number 1-12322
- - - -------------------------------------------------------------------------------
SABA PETROLEUM COMPANY
- - - -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 47-0617589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17512 Von Karman Avenue
Irvine, California 92714
(Address of principal executive offices)
Issuer's telephone number, including area code: (714) 724-1112
Not Applicable
- - - -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
----- -----
At November 10, 1995, 4,189,590 shares of common stock, no par value, were
outstanding.
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SABA PETROLEUM COMPANY
CONTENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C>
PART I. - FINANCIAL INFORMATION
- - - -------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 1995 3
Condensed Consolidated Statements of Operations for
the nine and three month periods ended
September 30, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-19
PART II. - OTHER INFORMATION
- - - ----------------------------
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
- - - ----------
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1995
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 159,424
Accounts receivable, net of allowance for doubtful
accounts of $ 71,467 3,700,141
Other current assets 594,829
-----------
Total current assets 4,454,394
-----------
Property and equipment (Note 5):
Oil and gas properties (full cost method) 32,422,505
Land, plant and equipment 4,405,366
-----------
36,827,871
Less accumulated depletion and depreciation (9,272,682)
-----------
Total property and equipment 27,555,189
-----------
Other assets 1,030,299
-----------
$33,039,882
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 4,258,015
Current portion of long-term debt 8,519,743
Oil imbalance obligation 841,552
-----------
Total current liabilities 13,619,310
Long-term debt, net of current portion 11,511,415
Other liabilities and deferred taxes 939,259
-----------
Total liabilities 26,069,984
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock - no par value, authorized
50,000,000 shares; none issued -
Common stock - no par value, authorized
150,000,000 shares; issued and outstanding
4,189,590 shares 6,191,640
Cumulative translation adjustment 50,257
Unearned compensation (12,750)
Retained earnings 740,751
-----------
Total stockholders' equity 6,969,898
-----------
$33,039,882
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30 Ended September 30
-------------------------- -------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 10,976,571 $ 8,964,935 $ 3,959,082 $ 3,420,569
Other 417,286 269,303 302,948 76,749
------------ ----------- ----------- -----------
Total revenues 11,393,857 9,234,238 4,262,030 3,497,318
------------ ----------- ----------- -----------
Expenses:
Production costs 6,923,330 5,490,305 2,555,744 2,046,573
General and administrative 1,406,004 1,317,055 420,579 444,580
Depletion, depreciation and
amortization 1,931,031 1,727,450 712,023 661,201
------------ ----------- ----------- -----------
Total expenses 10,260,365 8,534,810 3,688,346 3,152,354
------------ ----------- ----------- -----------
Operating income 1,133,492 699,428 573,684 344,964
------------ ----------- ----------- -----------
Other income (expense):
Other income (expense) 49,650 93,600 656 (23,510)
Interest expense, net of
interest capitalized of
$27,369 (1995) and
$29,803 (1994) (778,461) (473,129) (341,141) (168,808)
------------ ----------- ----------- -----------
Total other income
(expense) (728,811) (379,529) (340,485) (192,318)
------------ ----------- ----------- -----------
Income before
income taxes 404,681 319,899 233,199 152,646
Provision for taxes on income 174,800 81,930 113,623 38,730
------------ ----------- ----------- -----------
Net income $ 229,881 $ 237,969 $ 119,576 $ 113,916
============ =========== =========== ===========
Net income per common share $ 0.05 $ 0.06 $ 0.03 $ 0.03
============ =========== =========== ===========
Weighted average common and
common equivalent shares
outstanding 4,354,647 3,966,492 4,405,627 4,092,719
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 229,881 $ 237,969
Adjustments to reconcile net income to net cash
provided by operations:
Depletion, depreciation and amortization 1,931,031 1,727,450
Deferred taxes 116,070 26,000
Amortization of unearned compensation 12,750 -
Changes in:
Accounts receivable (1,271,781) (234,428)
Other assets (167,260) (76,177)
Accounts payable and accrued liabilities 1,284,321 604,478
----------- ------------
Net cash provided by operating activities 2,135,012 2,285,292
----------- ------------
Cash flows from investing activities:
Sale of property and equipment 77,062 140,248
Expenditures for property and equipment (15,145,098) (4,286,559)
Expenditures for property deposits (100,000) (104,438)
----------- ------------
Net cash used in investing activities (15,168,036) (4,250,749)
----------- ------------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 20,564,900 3,602,922
Principal payments on notes payable and
long-term debt (8,819,345) (2,682,976)
(Increase) decrease in notes receivable 274,528 (200,551)
Increase in deferred financing costs (407,553) (23,194)
Net change in accounts with affiliated companies 387,251 (24,700)
Net proceeds from issuance of common stock 189,583 510,000
Increase in contributed surplus 204,100 674,706
----------- ------------
Net cash provided by financing activities 12,393,464 1,856,207
----------- ------------
Net decrease in cash (639,560) (109,250)
Cash at beginning of period 798,984 522,748
----------- ------------
Cash at end of period $ 159,424 $ 413,498
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial statements
have been prepared on a basis consistent with the accounting
principles and policies reflected in the financial statements for the
year ended December 31, 1994 and should be read in conjunction with
the consolidated financial statements and notes thereto included in
the Company's 1994 Form 10- KSB. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements
contain all adjustments (consisting of normal recurring accruals only)
necessary to present fairly the Company's consolidated financial
position as of September 30, 1995, and the consolidated results of
operations for the nine and three month periods ended September 30,
1995 and 1994 and the consolidated cash flows for the nine months
ended September 30, 1995 and 1994.
2. RECLASSIFICATION
Certain previously reported financial information has been
reclassified to conform to the current periods' presentation.
3. ACQUISITION
On December 30, 1994, the Company acquired Capco Resource Properties
Ltd. ("CRPL"), a Canadian oil and gas company, from its parent
company, Capco Resources Ltd., in exchange for 300,000 shares of the
Company's Common Stock. The transaction has been accounted for on an
"as if pooled" basis and, accordingly, the consolidated statements of
operations and cash flows for 1994 have been restated to include the
accounts of CRPL.
On September 12, 1995, the Company acquired a 25% interest in the Teca
and Nare oil producing fields and a 50% interest in a 117-mile oil
transmission pipeline in Colombia, South America. The acquisition
cost of $9,223,700, including a previously released deposit of
$1,400,000 and assumption of an oil imbalance obligation of $932,700,
was funded by proceeds from a bank term loan in the amount of
$4,700,000, with additional financing provided by the Company's parent
company through an unsecured loan of $2,191,000.
As part of this transaction, but scheduled to close in the fourth
quarter of 1995, the Company will acquire a 50% interest in an
adjacent oil field, known as the Cocorna Field. The contract price
for this property is $750,000, which will be reduced by the Company's
share of production credits from the property from January 1, 1995 to
the date of closing (approximately $200,000 at September 30, 1995).
The Company has placed a $100,000 deposit with the seller.
The following unaudited pro forma condensed statements of operations
for the year ended December 31, 1994 and for the nine months ended
September 30, 1995, give effect to the acquisition of the Teca and
Nare fields and the Velasquez-Galan Pipeline in Colombia, South
America ("Acquisition") as if it had occurred on January 1, 1994. The
Acquisition has been accounted for using the purchase method of
accounting. Such unaudited pro forma financial information has been
prepared based on estimates and assumptions deemed by the Company to
be appropriate and does not purport to be indicative of the financial
position or results of operations which would actually have been
obtained if the Acquisition had occurred as presented in such
statements or which may be obtained in the future. In addition,
future results may vary significantly from the results reflected in
such statements due to oil and gas production declines, price changes,
future supply and demand, future acquisitions and other factors.
6
<PAGE> 7
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION (CONTINUED)
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts)
Historical Pro forma Pro forma
results adjustments results
----------- ----------- ------------
<S> <C> <C> <C>
Year ended December 31, 1994
----------------------------
Total revenues $ 12,954 $ 11,516 $ 24,470
Total expenses 11,470 6,850 18,320
---------- ---------- -----------
Operating income 1,484 4,666 6,150
Other income (expense) 43 - 43
Interest expense 634 813 1,447
Provision for taxes 384 1,657 2,041
---------- ---------- -----------
Net income $ 509 $ 2,196 $ 2,705
========== ========== ===========
Net income per common share $ 0.13 $ 0.68
========== ===========
Nine months ended September 30, 1995
-------------------------------------
Total revenues $ 11,394 $ 9,793 $ 21,187
Total expenses 10,260 4,839 15,099
---------- ---------- -----------
Operating income 1,134 4,954 6,088
Other income (expense) 50 - 50
Interest expense 779 568 1,347
Provision for taxes 175 1,886 2,061
---------- ---------- -----------
Net income $ 230 $ 2,500 $ 2,730
========== ========== ===========
Net income per common share $ 0.05 $ 0.63
========== ===========
Proved reserves, December 31, 1994
----------------------------------
Oil (Bbls) 7,135,731 5,301,639 12,437,370
========== ========== ===========
Gas (MCF) 9,791,773 - 9,791,773
========== ========== ===========
</TABLE>
4. STATEMENTS OF CASH FLOWS
Following is certain supplemental information regarding cash flows
for the nine months ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest paid $754,421 $425,113
======== ========
Income taxes paid $ - $ -
======== ========
</TABLE>
Non-cash investing and financing transactions:
In January 1995 the Company awarded 12,000 shares of Common Stock
with a fair market value of $25,500 to an employee.
7
<PAGE> 8
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STATEMENTS OF CASH FLOWS (CONTINUED)
The acquisition cost of oil and gas properties which were acquired in
September, 1995 included an oil imbalance obligation in the amount of
$932,700 which was assumed by the Company.
Cumulative foreign currency translation gains in the amount of $50,257 were
recorded during the nine months ended September 30, 1995.
Funding in the amount of $614,873 was provided by the seller in connection
with the acquisition of oil and gas properties in February 1994.
A note in the amount of $24,346, payable to the Company in eight monthly
installments, was received as consideration for the sale of vehicles,
furniture and equipment in March 1994.
Funding in the amount of $1,200,000 was provided by the seller in connection
with the acquisition of a refinery in June 1994.
Property deposits totaling $52,125 were used in partial settlement of oil
and gas property acquisitions which closed during the nine month period
ended September 30, 1994.
Cumulative foreign currency translation gains in the amount of $1,176 were
recorded during the nine month period ended September 30, 1994.
5. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 1995:
<TABLE>
<S> <C>
Revolving loan agreement with a bank $ 10,700,000
Term loan agreement with a bank 4,700,000
Demand loan agreement with a bank 1,209,258
Promissory note 1,200,000
Promissory note - Capco 2,221,900
------------
20,031,158
Less current portion 8,519,743
------------
$ 11,511,415
============
</TABLE>
The revolving loan ("Agreement") is subject to semi-annual borrowing base
redeterminations and revolves to June 1, 1997, at which time it will be
converted to a three year term loan. Effective September 29, 1995, the
borrowing base was increased from $10,200,000 to $10,700,000. On September
7, 1995, the Agreement was amended to provide for a term loan ("Term Loan")
in the amount of $4,700,000, with a maturity date of October 1, 1996.
Amounts outstanding under the Term Loan bear interest at the rate of prime
plus 1% through October 31, 1995, and prime plus 4% thereafter. Required
minimum monthly principal payments are equal to the greater of monthly cash
flow from the Company's Colombian properties, or $300,000. In accordance
with the terms of the Agreement, $7,100,000 of the revolving and term loans
is classified as currently payable at September
8
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SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
30, 1995. The Agreement, as amended, requires, among other things, that the
Company maintain at least a .75 to 1 working capital ratio, stockholders'
equity of $6,250,000, a ratio of cash flow to debt service of not less than
1.25 to 1.0 and general and administrative expenses at a level not greater
than 20% of revenue, all as defined in the Agreement. Additionally, the
Company is restricted from paying dividends and advancing funds in excess of
specified limits to affiliates. For such time that funds remain outstanding
under the Term Loan, the repayment of all amounts outstanding under the
Agreement are guaranteed by Mr. Ilyas Chaudhary.
On September 21, 1995 the payment date for the principal payment of $300,000
due on the $1.2 million promissory note was extended to November 15, 1995.
Amounts outstanding under the note bear interest at the prime rate in effect
on the note anniversary date plus 1.75% (10.75% on September 30, 1995).
The promissory note-Capco is due to the Company's parent company, Capco
Resources Ltd. Payment of the note, which bears interest at the current
prime rate (8.75% at September 30, 1995) plus 1%, is due September 14, 2000.
The loan proceeds were utilized by the Company principally in connection
with the acquisition of producing oil and gas properties in Colombia. Prior
to the completion of a debenture offering, which is expected to close in
December 1995, $600,000 of the loan amount will be converted into 75,000
shares of the Company's Common Stock.
6. COMMON STOCK AND STOCK OPTIONS
In January 1995 the Company awarded 12,000 shares of Common Stock to an
employee pursuant to the terms of an employment agreement. The cost of the
stock award, based on the stock's fair market value at the award date, was
charged to stockholders' equity and is amortized against earnings over the
contract term.
In January 1995, the Company issued options for 100,000 shares of Common
Stock to the Company's Chief Executive Officer. These options, which are
not covered by the Incentive or Nonqualified Option Plans, become
exercisable ratably over a period of five years from the date of issue. The
exercise price of the options is $3.00. No options were exercisable at
September 30, 1995.
During the nine month period ended September 30, 1995, the Company issued
options to an independent consultant for the purchase of 100,000 shares of
the Company's Common Stock. The options had an exercise price of $3.25 and
were exercisable for a period of one year, beginning January 2, 1995.
Options to acquire 58,333 shares of Common Stock were exercised during the
nine month period ended September 30, 1995. In July 1995, the consulting
arrangement was terminated and the balance of the options was canceled.
7. CONTINGENCIES
The Company is subject to extensive Federal, state, local and foreign
environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment. The
Company believes that it is in substantial compliance with existing laws and
regulations.
9
<PAGE> 10
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CONTINGENCIES (CONTINUED)
The Colombian Ministry of the Environment issued a resolution dated June 7,
1995 that set forth a number of measures aimed at correcting certain
deficiencies that the Ministry has allegedly found in environmental aspects
of the Nare oil field in Colombia. Among such measures, the Ministry
ordered the temporary closing of one of five production modules and of any
wells processed in that module until Texas Petroleum Company, the former
owner and operator of the properties, provided a document detailing the
timetable to implement some of the measures described above. This closing
of the module had no effect on total production as crude oil from wells
formerly treated there was diverted to other facilities. The document
containing the requested timetable was presented to the Ministry of the
Environment on July 6, 1995. On August 8, 1995 the Ministry of the
Environment requested certain revisions to the timetable. Texas Petroleum
Company, the previous owner of the property, estimated that the cost of
compliance with the resolution would not exceed US $250,000. Texas
Petroleum Company formally appealed the resolution and the Company is
currently awaiting a response from the Ministry of the Environment.
The Company has a significant contingent liability in connection with the
plugging and abandonment ("P&A") of approximately 225 wells on certain
California property acquired by the Company during 1993. The Company
acquired the mineral rights and fee title to the property. The Company
intends to operate the producing wells on the property as long as
economically feasible and will decide in the future regarding the ultimate
disposition of the land. If the Company chooses to sell the property, it
may decide to sell the land "as is" or incur the P&A costs, thus enhancing
the property's value. The Company estimates that the P&A costs will range
from $20,000 to $25,000 per well, for a total of $4,500,000 to $5,625,000.
Management believes that the fair market value of this land, after
restoration, will exceed the estimated P&A costs.
The Company is a defendant in various legal proceedings and claims which
arise in the normal course of business. Based on discussions with legal
counsel, management does not believe that the ultimate resolution of such
actions will have a significant effect on the Company's financial statements
or operations.
8. SUBSEQUENT EVENTS
In April 1995 the Company announced that it had entered into a definitive
purchase and sale agreement to purchase oil and gas properties (Teca/Nare
Fields and Cocorna Field) and an oil transmission pipeline in Colombia,
South America. Acquisition of the Teca/Nare Fields and the pipeline closed
in September 1995. It is anticipated that the Cocorna Field acquisition
will close in the Fall of 1995. The Company's gross acquisition cost for
this property is $750,000, which will be reduced by the Company's share of
production credits from the property from January 1, 1995 to the date of
closing (approximately $200,000 at September 30, 1995), leaving a net
purchase price of approximately $550,000. The Company has placed a $100,000
deposit with the seller (non-refundable should the transaction fail to close
due to the Company's non-performance) and intends to finance the remainder
of the purchase price through utilization of funds anticipated to be
available from the Company's revolving line of credit.
In October 1995, the Company consummated a reverse merger transaction,
effective April 1, 1995, with an unaffiliated third party, by which CRPL was
merged with the third party. All of the outstanding shares of CRPL were
exchanged for 13,437,322 shares of common stock of the third party. In
addition, the Company will subscribe for 1,000,000 shares of the common
stock of the third
10
<PAGE> 11
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS (CONTINUED)
party at a cost of $350,000, which subscription is expected to close in the
fourth quarter of 1995. As a result of these transactions, the Company will
own approximately 70% of the issued and outstanding shares of common stock
of that company. The merger was effected to expand the funding alternatives
available to CRPL for future acquisition and development activities.
On July 17, 1995, the Company filed a registration statement with the
Securities and Exchange Commission for sale to the public of $12,500,000 of
convertible senior subordinated debentures due 2005 (excluding the
underwriters' over-allotment option of $1,875,000). Proceeds from the
offering, expected to be completed in the fourth quarter of 1995, will be
used to repay indebtedness, including indebtedness incurred for the
acquisition of properties in Colombia, South America.
In October 1995, the Company borrowed $250,000 from Unico, Inc., a company
controlled by a director of the Company, which indebtedness bears interest
at 10% per annum and matures April 15, 1996.
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CURRENT ACTIVITIES
The Company's operating activities during the nine months ended September
30, 1995 provided net cash flow of $2.14 million.
Investing activities resulted in a net cash outflow of $15.17 million. Oil
and gas property acquisition, development and exploration activities
resulted in expenditures totaling $13.17 million. An additional $1.98
million was expended for other assets, consisting principally of an oil
transmission pipeline and related oilfield equipment which were acquired in
connection with a property acquisition in Colombia. A deposit in the amount
of $100,000 was issued in connection with the pending acquisition of oil and
gas properties in Colombia which is scheduled for closing in the fourth
quarter.
Financing activities, which provided net cash flow of $12.39 million,
consisted principally of activity on the Company's revolving line of credit,
a bank term loan of $4.7 million, a loan from the Company's parent company
of $2.2 million and retirement of a $606,000 note payable that was
outstanding at December 31, 1994. Proceeds of $275,000 on collections of
notes receivable, $190,000 from the exercise of stock options and $204,000
of contributed capital were realized during the period. Affiliated
companies provided net proceeds of $387,000 which were used principally to
partially fund the note payable payoff.
In April 1995 the Company received approval from the County of Santa
Barbara, California to commence operations at its asphalt refinery in Santa
Maria, California. Production operations began in June 1995 under the
terms of a processing agreement with Petro Source Corporation ("Petro
Source"). Crude oil and working capital for operating expenses are provided
by Petro Source, with the net results of operations shared equally between
the Company and Petro Source. Operations during the third quarter resulted
principally in the accumulation of inventories. Crude oil throughput
amounted to 196,726 barrels, an average of 2,186 barrels per day.
Processing the crude oil produced 23,400 tons of asphalt and 65,900 barrels
of related products. Quantities sold during the quarter consisted of 11,900
tons of asphalt and 72,700 barrels of other products. Current throughput at
the refinery is approximately 1,500 barrels of oil per day. Sales for the
month of October were approximately 11,600 tons of asphalt and 7,900 barrels
of related products. Throughput for the remainder of the fourth quarter
will vary depending on several factors, including local weather conditions
and market requirements for asphalt during the winter months.
On October 23, 1995, the Company executed a reverse merger agreement,
effective April 1, 1995, with an unaffiliated third party, by which its
Canadian subsidiary, Capco Resource Properties Ltd., ("CRPL"), was merged
with the third party. All of the outstanding shares of CRPL were exchanged
for 13,437,322 shares of common stock of the third party. In addition, the
Company will subscribe for 1,000,000 shares of the common stock of the third
party at a cost of $350,000. As a result of these transactions, the Company
will own approximately 70% of the issued and outstanding shares of common
stock of that company. The merger was effected to expand the funding
alternatives available to CRPL for future acquisition and development
activities.
On July 17, 1995 the Company filed a registration statement with the
Securities and Exchange Commission for sale to the public of $12.5 million
of convertible senior subordinated debentures due 2005 (excluding the
underwriters' over-allotment option of $1.88 million). Proceeds from the
offering
12
<PAGE> 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CURRENT ACTIVITIES (CONTINUED)
will be used to repay indebtedness, including borrowings incurred in
connection with the acquisition of properties in Colombia, South America.
ACQUISITION AND EXPLORATION
On June 30, 1995, drilling operations commenced on a well in Smith County,
Texas to test the Travis Peak Formation at a depth of approximately 8,500
feet. The well was completed at a total depth of 8,700 feet in August and
shut-in on August 29, waiting on gas contract negotiations. In mid-October
negotiations were complete and the well was put on production. Initial
average daily production was 700 Mcf and 47 barrels of condensate. The
Company owns a 10% working interest in the well, with the right to
participate in additional drilling.
On September 7, 1995 drilling operations commenced on the second horizontal
well in the Company's North Belridge Field in Kern County, California. The
well was completed as a commercial producer later that month, with initial
average daily production of 35-40 barrels of oil. The Company owns a 50%
working interest in the North Belridge Field.
On September 12, 1995 the Company acquired from a Texaco Inc. subsidiary in
Colombia one-half of that company's 50% interest in the Teca and Nare oil
fields and one-half of its 100% interest in the Velasquez-Galan pipeline.
The Company's gross acquisition cost for the interests in the Teca and Nare
oil fields and the Velasquez-Galan pipeline was $12.25 million, which was
reduced by the Company's share of production credits from the properties
from January 1, 1995 to the closing date (approximately $3.95 million),
leaving a net purchase price of approximately $8.3 million. The Company
financed the net purchase price in part through a cash payment of $1.4
million previously paid to the seller, a loan of $2.2 million from Capco
Resources Ltd., the majority shareholder of the Company, and a $4.7 million
loan from a bank. In addition, the Company assumed an oil imbalance
obligation in the amount of $932,700 in connection with this acquisition
which was included in the cost of the acquired properties.
The acquired properties consist of approximately 2,598 gross (649 net)
developed acres and 5,719 gross (1,430 net) undeveloped acres and include
310 gross (77.5 net) producing oil wells. The Company estimates that the
acquired properties will increase proved reserves by approximately 4.5
million barrels of oil. In addition, the acquisition includes a 117 mile
long pipeline which connects the Company's producing properties to a
Colombian government-owned refinery. The pipeline also transports third
party crude oil which will provide revenue to the Company in the form of
tariffs for use of the pipeline.
On September 29, 1995, the Company acquired various working interests in
producing oil and gas properties located in west Texas and New Mexico. The
acquired properties consist of approximately 1,926 gross (1,255 net)
developed acres and 378 gross (209 net) undeveloped acres and include 26
gross (4.7 net) producing oil and gas wells. Proved reserves attributable
to the Company's interest at acquisition are estimated to be 26,000 barrels
of oil and 441,000 Mcf of gas. Management believes that the acquisition
presents several development opportunities which will be considered
beginning in the fourth quarter of 1995.
13
<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company's total current assets were $4.45
million and its total current liabilities were $13.62 million. Included in
current liabilities was $8.52 million attributable to the current portion
of long-term debt, and an $842,000 obligation due for repayment from future
oil production in Colombia.
The Company's assets, consisting primarily of oil and gas properties, are
not immediately liquid and are subject to various restrictions on transfer.
The Company is currently experiencing cash flow difficulties caused, in
part, by the delayed receipt of initial oil revenues in Colombia which are
accruing to the Company and the need to currently fund related operating
expenses following its recent acquisition of the Teca/Nare Fields and
Velasquez-Galan Pipeline. The Company has no available borrowing capacity
under its bank credit facility, which facility prohibits the Company from
incurring other indebtedness without the lender's consent. The Company
does not currently have sufficient internally-generated capital resources
to otherwise fund initial working capital requirements for these
properties, but will upon completion of the proposed debenture offering
("Offering"), although completion of the Offering will increase interest
expense of the Company. If the Offering is not completed, the Company
intends to seek additional capital from a variety of potential sources.
However, there can be no assurance that any such additional financing could
be obtained, or obtained on terms that are favorable or acceptable to the
Company.
Upon completion of the offering, after giving effect to the application of
the net proceeds therefrom, the Company anticipates that it will have
approximately $3.2 million of borrowing capacity available under its bank
credit facility. The Company believes that this borrowing capacity plus
cash flows from operations would be sufficient to fund its working capital
requirements.
The Company has expanded its operations through acquisitions of oil and gas
producing properties, and intends to do so in the future by the means of
additional financing. The Company funded its acquisition of the Teca/Nare
Fields and Velasquez-Galan Pipeline in part by obtaining a loan of $2.2
million, bearing interest at prime plus one percent per annum, from Capco,
its majority shareholder and in part by borrowing $4.7 million from a bank,
which borrowing has been guaranteed by Ilyas Chaudhary, the controlling
shareholder of Capco. Of such $2.2 million loan, $600,000 will, prior to
the close of the Offering, be converted into 75,000 shares of Common Stock
of the Company at a conversion price of $8.00 per share. The Company
intends to fund its acquisition of the adjacent Cocorna Field in Colombia,
which is under contract and scheduled to close in the fourth quarter of
1995, through utilization of funds anticipated to be available from the
Company's revolving line of credit, following the close of the Offering.
The Company has a reducing, revolving line of credit with Bank One, Texas,
N.A. At September 30, 1995, the borrowing base under the credit agreement
was $10.7 million, subject to a monthly reduction of $200,000. Outstanding
debt at September 30, 1995 for this credit facility was $10.7 million.
14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Should the Company be unable to obtain equity and/or debt financing in
amounts sufficient to fund projected activities, it may be constrained in
its ability to acquire and/or develop additional oil and gas properties.
RESULTS OF OPERATIONS
The Company reported net income of $230,000 and $120,000 for the nine and
three month periods ended September 30, 1995, respectively, as compared with
net income of $238,000 and $114,000 for the same periods in 1994.
1995 compared to 1994
Results of the Company's oil and gas producing activities for the nine and
three month periods ended September 30, 1995 and 1994 were as follows:
Nine Months Ended September 30, 1995
<TABLE>
<CAPTION>
United
Total States Canada Colombia
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Oil and gas sales $10,976,571 $ 8,354,434 $ 1,156,852 $ 1,465,285
Production costs $ 6,923,330 $ 5,520,635 $ 544,178 $ 858,517
Depletion $ 1,811,839 $ 1,274,660 $ 322,419 $ 214,760
Oil volume (BBL) 745,581 513,019 56,359 176,203
Gas volume (MCF) 1,051,917 686,937 364,980
Barrels of oil equivalent (BOE) 920,901 627,509 117,189 176,203
Average per BOE:
Sales price $ 11.92 $ 13.31 $ 9.87 $ 8.31
Production costs $ 7.51 $ 8.79 $ 4.64 $ 4.87
Depletion $ 1.96 $ 2.03 $ 2.75 $ 1.21
</TABLE>
15
<PAGE> 16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Nine Months Ended September 30, 1994
<TABLE>
<CAPTION>
United
Total States Canada
----------- ----------- -----------
<S> <C> <C> <C>
Oil and gas sales $ 8,964,935 $ 7,717,971 $ 1,246,964
Production costs $ 5,490,305 $ 4,913,701 $ 576,604
Depletion $ 1,612,720 $ 1,296,545 $ 316,175
Oil volume (BBL) 557,528 489,785 67,743
Gas volume (MCF) 1,036,861 744,324 292,537
Barrels of oil equivalent (BOE) 730,338 613,839 116,499
Average per BOE:
Sales price $ 12.28 $ 12.57 $ 10.70
Production costs $ 7.52 $ 8.00 $ 4.95
Depletion $ 2.21 $ 2.11 $ 2.71
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1995
- - - -------------------------------------
United
Total States Canada Colombia
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Oil and gas sales $ 3,959,082 $ 2,770,649 $ 316,215 $ 872,218
Production costs $ 2,555,744 $ 1,832,206 $ 183,072 $ 540,466
Depletion $ 661,223 $ 403,980 $ 81,348 $ 175,895
Oil volume (BBL) 286,620 173,441 18,781 94,398
Gas volume (MCF) 273,741 236,171 37,570
Barrels of oil equivalent (BOE) 332,243 212,803 25,042 94,398
Average per BOE:
Sales price $ 11.91 $ 13.01 $ 12.62 $ 9.23
Production costs $ 7.69 $ 8.60 $ 7.31 $ 5.72
Depletion $ 1.99 $ 1.89 $ 3.24 $ 1.86
</TABLE>
16
<PAGE> 17
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1994
- - - -------------------------------------
United
Total States Canada
----------- ----------- -----------
<S> <C> <C> <C>
Oil and gas sales $ 3,420,569 $ 2,829,331 $ 591,238
Production costs $ 2,046,573 $ 1,765,916 $ 280,657
Depletion $ 614,601 $ 445,280 $ 169,321
Oil volume (BBL) 204,087 172,058 32,029
Gas volume (MCF) 336,373 217,220 119,153
Barrels of oil equivalent (BOE) 260,149 208,261 51,888
Average per BOE:
Sales price $ 13.15 $ 13.59 $ 11.39
Production costs $ 7.87 $ 8.48 $ 5.41
Depletion $ 2.36 $ 2.14 $ 3.26
</TABLE>
In the third quarter of 1995, net income increased by $6,000 (5.3%) to
$120,000 from $114,000 in the third quarter of 1994. Oil and gas sales
increased $540,000, or 15.8%, to $3.96 million for the three months ended
September 30, 1995, from $3.42 million for the same period of 1994, due to
production from the Company's Colombian properties which were acquired in
1995. Production costs increased $510,000, or 24.9%, to $2.56 million for
the third quarter of 1995 from $2.05 million for the same period of 1994,
due to an increase in production of 72,000 barrels of oil equivalent
("BOE"), or 27.7%, to 332,000 BOE in the third quarter of 1995 from 260,000
BOE in the third quarter of 1994. Depletion, depreciation and amortization
increased $51,000, or 7.7%, to $712,000 for the three months ended September
30, 1995 from $661,000 for the three months ended September 30,1994, due
principally to an increase in cost depletion of $47,000 resulting from
increased production. Interest expense increased $172,000, or 101.8%, to
$341,000 for the third quarter of 1995 from $169,000 for the same period of
1994 due principally to an increase in the average balance outstanding under
the Company's revolving line of credit of $5.35 million, or 96.2%, from
$5.56 million to $10.91 million, and an increase in that facility's weighted
average interest rate of 131 basis points, or 15.5%, from 8.46% to 9.77%.
Oil and gas sales increased $2.01 million, or 22.4%, to $10.98 million for
the nine months ended September 30, 1995, from $8.97 million for the same
period of 1994. The increase was primarily the result of an increase of
5.9% in the United States of the average sales price per BOE from $12.57 in
the nine months ended September 30, 1994 to $13.31 for the same period of
1995, and increases in the Company's oil and gas production. Of such
increase, $465,000 was attributable to the average sales price per BOE
increase in the United States. A decrease of 7.8% in Canada of the average
sales price per BOE from $10.70 in the nine months ended September 30, 1994
to $9.87 for the same period of 1995 due to declining gas prices resulted in
a decrease in oil and gas sales of $97,000. Increases in the Company's oil
and gas production represented $1.64 million of the increase of oil and gas
sales. Of such production increase, $974,000 was due to production from the
Velasquez Field, which was acquired in January 1995, $491,000 was due to
production from the Teca and Nare Fields, which were
17
<PAGE> 18
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
acquired in September 1995, and the remaining $177,000 stemmed from a net
production increase of 14,000 BOE in the United States and Canada, resulting
from acquisitions in the latter part of 1994 and first half of 1995, reduced
by property divestitures, normal production declines and production
interruptions resulting from severe weather conditions in California in the
first quarter of 1995.
Other revenues increased $148,000, or 55.0%, to $417,000 for the nine months
ended September 30, 1995, from $269,000 for the same period of 1994, due
principally to fees invoiced to a third party in 1995 for the use of Company
facilities and pipeline tariffs charged by the Company's Colombian
subsidiary.
Production costs increased $1.43 million, or 26.0%, to $6.92 million for the
nine months ended September 30, 1995, from $5.49 million for the same period
of 1994. Of this increase, $498,000 was the result of an average production
cost per BOE increase of $0.79 in the United States, due principally to
operations at the Company's heavy-oil properties in the Santa Maria,
California area. The combined production increase of 14,000 BOE in the
United States and Canada was responsible for a cost increase of $108,000 in
the first nine months of 1995, compared to the same period of 1994. From
their acquisition dates of January 31, 1995 and September 12, 1995, the
Velasquez Field and Teca and Nare Fields incurred production costs of
$583,000 and $275,000, respectively, in the period ended September 30, 1995.
General and administrative expenses increased $90,000, or 6.8%, to $1.41
million for the nine months of 1995, from $1.32 million for the same period
of 1994, due principally to general and administrative expenses incurred by
the Company's refinery and real estate subsidiaries, which did not begin
operations until the third and fourth quarters of 1994, respectively.
Depletion, depreciation and amortization expenses increased $204,000, or
11.8%, to $1.93 million in the first nine months of 1995, from $1.73 million
for the same period of 1994. Oil and gas depletion expense increased
$199,000, or 12.3%, to $1.81 million for the first nine months of 1995, from
$1.61 million for the same period of 1994. In the United States, production
of oil and gas increased 13,000 BOE, or 2.1%, to 627,000 BOE for the first
nine months of 1995, from 614,000 BOE for the same period of 1994.
Depletion expense in the United States decreased $22,000 to $1.28 million,
or $2.03 per BOE, for the first nine months of 1995, from $1.3 million, or
$2.11 per BOE, for the same period of 1994, due principally to an increase
in proved reserves at January 1, 1995. In Canada, production of oil and gas
increased 1,000 BOE, or 0.9%, to 117,000 BOE for the first nine months of
1995, from 116,000 BOE for the same period of 1994. Depletion expense in
Canada increased $6,000 to $322,000, or $2.75 per BOE, for the first nine
months of 1995, from $316,000, or $2.71 per BOE, for the same period of
1994. Depletion expense in Colombia was $215,000, or $1.21 per BOE, for the
first nine months of 1995. Depreciation and amortization expense increased
$5,000, or 4.4%, to $119,000 for the first nine months of 1995, from
$114,000 for the same period of 1994.
Interest expense increased $305,000, or 64.5%, to $778,000 for the nine
months ended September 30, 1995, from $473,000 for the same period of 1994,
due principally to the Company's bank borrowings under its revolving line of
credit facility. The average debt balance outstanding under the Company's
revolving line of credit for the nine months ended September 30, 1995
increased $2.43 million, or
18
<PAGE> 19
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
40.7%, to $8.38 million, from $5.95 million for the same period of 1994, due
principally to the use of proceeds to fund property acquisitions which
closed during 1995. The weighted average interest rate for the Company's
revolving line of credit increased 209 basis points, or 26.9%, to 9.86% for
the nine months ended September 30, 1995 from 7.77% for the same period of
1994. Interest expense incurred by CRPL decreased by $37,000, or 30.3%, to
$85,000 for the nine months ended September 30, 1995, from $122,000 for the
same period of 1994, due to monthly principal reductions under the term loan
and retirement of a note payable in January 1995. The Company's refinery
subsidiary incurred interest expense of $65,000 in the nine month period
ended September 30, 1995.
Other income (expense) decreased $44,000, or 46.8%, to income of $50,000 for
the nine month period ended September 30, 1995, from income of $94,000 for
the same period of 1994. The change was primarily due to non-recurring
expenses of $119,000 in 1994 resulting from the Company's sale of its oil
and gas environmental services business effective March 31, 1994, and
proceeds of $198,000 realized in settlement of litigation in June 1994.
Land rental income of $45,000 was realized in the nine months ended
September 30, 1995.
The Company's oil and gas producing business is not seasonal in nature.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which the
Company will be required to implement in 1996. Management is currently
assessing the impact, if any, which this new accounting standard, when
adopted, will have on the Company.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
o Exhibits filed during the quarter ended September 30, 1995 are as follows:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- - - -------------- -----------
<S> <C>
10.1 Purchase Agreement, filed as Exhibit 2.1 to the Company's current
report on Form 8-K dated September 28, 1995 and incorporated herein by
reference.
10.2 Amendment No. 1 to Purchase Agreement, filed as Exhibit 2.2 to the
Company's current report on Form 8-K dated September 28, 1995 and
incorporated herein by reference.
10.3 Amendment to Loan Agreement between the Company and Bank One, Texas,
N.A.
</TABLE>
o Reports filed under Form 8-K during the quarter ended September 30, 1995 are
as follows:
<TABLE>
<CAPTION>
FORM DATE FILING
- - - ---- ---- ------
<S> <C> <C>
Form 8-K September 28, 1995 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits, including the Purchase Agreement
and Amendment No. 1 to Purchase Agreement with Texas Petroleum
Company.
</TABLE>
20
<PAGE> 21
SIGNATURES
In accordance with the requirements of the Exchange Act, the issuer caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SABA PETROLEUM COMPANY
Date: November 14, 1995 By: /s/ Ilyas Chaudhary
------------------------------
Ilyas Chaudhary
President
(Principal Executive
Officer)
Date: November 14, 1995 /s/ Walton C. Vance
-----------------------------
Walton C. Vance
(Principal Financial
and Accounting Officer)
21
<PAGE> 1
THIRD AMENDMENT
TO
LOAN AGREEMENT DATED SEPTEMBER 20, 1993
BY AND BETWEEN SABA PETROLEUM COMPANY
AND BANK ONE, TEXAS, N.A.
This Third Amendment to the Loan Agreement dated September 20, 1993
(this "Third Amendment") by and between SABA PETROLEUM COMPANY, a Colorado
corporation (the "Borrower"), and BANK ONE, TEXAS, N.A., a national banking
association (the "Bank"), is entered into on this 7th day of September, 1995,
and shall be effective as of that date for all purposes except that as to
Sections 5.20 and 5.21 this Third Amendment shall be effective as of June 30,
1995.
W I T N E S S E T H:
Borrower and Bank entered into a Loan Agreement dated September 20,
1993, and subsequently entered into a First Amendment to said Loan Agreement on
July 22, 1994, effective as of March 31, 1994, followed by a letter amendment
thereto dated January 20, 1995, followed by a Second Amendment thereto dated
effective as of March 31, 1995 (collectively the "Loan Agreement").
Borrower has requested that Bank (i) provide to the Borrower, in
addition to the Revolving Loan, a Term Loan in the amount of $4,700,000.00 to
partially finance the acquisition by Sabacol, Inc. of certain Colombian oil
properties and (ii) amend certain provisions of the Loan Agreement, and the
Bank has agreed to provide a Term Loan and to such amendments to the extent
expressly set forth herein.
NOW, THEREFORE, in consideration of the promises herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
is acknowledged by the Borrower and the Bank, and each intending to be legally
bound hereby, the parties agree as follows:
I. Specific Amendments to Loan Agreement.
Article I is hereby amended by adding, replacing or amending the
following definitions therein:
"BANK ONE Base Rate" means, at any time, the rate of interest per annum
then most recently established by the Bank as its BANK ONE Base Rate, which is
eight and three-quarters percent (8.75%) as of the date of the Third Amendment.
"Cash Flow of Sabacol" means all cash revenues, expressed in United
States Dollar equivalency where such revenues
1
<PAGE> 2
consist of other than United States Dollars, received by Sabacol during a
designated period, including, but not limited to, cash revenues in United
States Dollars and cash revenues in Colombian pesos, minus (i) cash operating
expenses paid by Sabacol during such designated period and (ii) capital
expenditures made by Sabacol during such designated period which were included
in a capital budget for the first fiscal year of Sabacol which has been
approved by the Bank, expressed in United States Dollar equivalency where such
expenses or capital expenditures are paid using other than United States
currency.
"Collateral Documents" means the instruments described or referred to
in Section 3.10 of this Agreement and in subsection 3.14(h) of the Third
Amendment and any and all other instruments or documents hereafter executed in
connection with or as security for the payment of the Notes.
"Colombian Oil Properties" means the interests, properties, licenses
and rights described on Exhibit "A" attached to the Third Amendment.
"Corporate Guarantor(s)" means individually and collectively Saba
Energy of Texas, Incorporated, a Texas corporation, Saba Petroleum, Inc., a
California corporation, Saba Petroleum of Michigan, Inc., a Michigan
corporation, and Sabacol.
"Environmental Laws" means (a) the following federal laws as they may
be cited, referenced and amended from time to time: the Clean Air Act, the
Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Endangered Species Act, the
Resource Conservation and Recovery Act, the Occupational Safety and Health Act,
the Hazardous Materials Transportation Act, the Superfund Amendments and
Reauthorization Act, and the Toxic Substances Control Act; (b) any and all
environmental statutes of the republic of Colombia or of any state in which
property of the Borrower or any of its Subsidiaries is situated, as they may be
cited, referenced and amended from time to time; (c) any rules or regulations
promulgated under or adopted pursuant to the above federal and state laws or
laws of the republic of Colombia; and (d) any other federal, state, local, or
republic of Colombia statute or any requirement, rule, regulation, code,
ordinance or order adopted pursuant thereto, including, without limitation,
those relating to the generation, transportation, treatment, storage,
recycling, disposal, handling or release of Hazardous Substances.
"Guarantor(s)" means individually and collectively the Corporate
Guarantors and the Individual Guarantor.
2
<PAGE> 3
"Guaranty" means, with respect to each Guarantor, the guaranty of such
Guarantor of all of Borrower's Obligations to the Bank, in substantially the
form of Exhibit "E-1," "E-2," and "E-3," respectively, attached hereto, and
Exhibit "D-1" and "D-2", attached to the Third Amendment, but being limited
with respect to certain of the Guarantors to the extent set forth in the
Guaranty for such Guarantor.
"Individual Guarantor" means Ilyas Chaudhary, a natural person, who is
Chairman of Borrower and Sabacol.
"Limitation Period" means any period while any amount remains owing on
the Revolving Note or the Term Note and interest on such amount calculated at
the Floating Rate or the Term Note Floating Rate, respectively, plus any fees
payable hereunder and deemed to be interest under applicable law would exceed
the Maximum Rate.
"Maturity Date" means October 1, 1996.
"Notes" means the Revolving Note, the Amended Note and the Term Note,
and any extension, renewal, or rearrangement of, or substitute for, any of such
Notes. All references to the defined term, "Note," throughout this Agreement
as it existed prior to the Third Amendment, shall be construed to refer to the
Revolving Note, with the exception of the references to the term, "Note," in
the definition of Borrowing Base Oil and Gas Properties in Article I, Sections
2.02, 2.11, 3.10, Article IV, Article V, Article VI, Article VII, and Article
VIII which shall be construed subsequent to the date of the Third Amendment to
refer to the defined term, "Notes," added by the Third Amendment.
"Registration Statement" means the Securities and Exchange Commission
Form SB-2 dated July 17, 1995, filed by Borrower with the Securities and
Exchange Commission relating to the registration of $14,375,000 of Convertible
Senior Subordinated Debentures (inclusive of debentures which the underwriters
have the option to purchase to cover over-allotments) offered by Borrower.
"Revolving Loan" means the Loan made pursuant to Section 2.01 hereof.
"Revolving Note" means the promissory note in the original face amount
of $25,000,000.00 dated of even date herewith made by the Borrower payable to
the order of the Bank, in substantially the form attached hereto as Exhibit
"C-1", together with all deferrals, renewals, extensions, amendments,
modifications or rearrangements thereof, which promissory note shall evidence
certain advances to the Borrower by the Bank pursuant to Section 2.01 hereof,
and which is the same promissory note that defined the term
3
<PAGE> 4
"Note" prior to the Third Amendment. The defined term "Note" in the
singular, is deleted from Article I as of the date of the Third Amendment.
"Sabacol" means Sabacol, Inc., a Delaware corporation, which is a
wholly owned Subsidiary of Borrower.
"Stock Pledge Agreement" means a stock pledge agreement substantially
in the form of Exhibit "H" attached hereto and Exhibit "C" attached to the
Third Amendment covering the stock of the Guarantors (except the Individual
Guarantor), executed by the Borrower, along with the original stock
certificates) representing 100% of the stock of the Guarantors (except the
Individual Guarantor) and stock powers executed by the Borrower.
"Term Loan" means that certain $4,700,000.00 term loan made or to be
made by the Bank to the Borrower pursuant to Section 2.15 hereof.
"Term Note" means the promissory note in the original face amount of
$4,700,000.00 dated September 7, 1995, made by the Borrower payable to the
order of the Bank, in substantially the form attached to the Third Amendment as
Exhibit "B," together with all deferrals, renewals, extensions, amendments,
modifications or rearrangements thereof, which promissory note shall evidence
the advances to the Borrower by the Bank pursuant to Section 2.15 hereof.
"Term Note Floating Rate" means: (a) prior to November 1, 1995, the
BANK ONE Base Rate in effect from time to time plus one percent (1.00%), and
(b) on and after November 1, 1995, the BANK ONE Base Rate in effect from time
to time, plus four percent (4%).
"Third Amendment" means the Third Amendment to this Agreement executed
by Borrower and Bank on September 7, 1995 to be effective as of such date with
the exception of Sections 5.20 and 5.21 which shall be effective as of June 30,
1995.
Section 2.07 is hereby amended in its entirety as follows:
2.07 Provisions Relating to Interest. The Revolving Loan and the
Term Loan outstanding from time to time hereunder shall bear interest at a
daily rate equal to the Floating Rate or the Term Note Floating Rate per annum,
respectively, each such change in the rate of interest charged on the Revolving
Loan or the Term Loan to become effective without notice to the Borrower, on
the effective date of each change in the BANK ONE Base Rate, calculated on the
basis of a year of three hundred sixty-five (365) days from the date of advance
through the date of repayment.
4
<PAGE> 5
Subject to the terms and provisions of this Agreement, interest on the
Revolving Note and, subsequent to the Conversion Date, on the Amended Note,
calculated as aforesaid, shall be due and payable monthly as it accrues
beginning November 1, 1993, and continuing thereafter on the first day of each
succeeding calendar month thereafter while any amount remains owing on the
Revolving Note and, subsequent to the Conversion Date, on the Amended Note, the
interest payment in each instance to be that which has been earned and remains
unpaid.
It is the intention of the parties hereto to comply strictly with the
usury laws of the State of Texas and the United States of America and, in this
connection, there shall never be collected, charged or received on any sums
advanced hereunder interest in excess of the Maximum Rate. Interest on past
due interest and principal on the Revolving Note or the Term Note shall be at a
daily rate equal to the lesser of (a) the Maximum Rate per annum or (b) the
Floating Rate or the Term Note Floating Rate, as applicable, plus three percent
(3%) per annum, calculated on the basis of a year of three hundred sixty-five
(365) days for the number of days elapsed; and if no Maximum Rate exists, all
past due interest and principal shall bear interest at a daily rate equal to
the Floating Rate or the Term Note Floating Rate, as applicable, plus three
percent (3%) per annum, calculated on a year of three hundred sixty-five (365)
days for the number of days elapsed. Notwithstanding anything herein or in the
Revolving Note, the Amended Note or the Term Note to the contrary, during any
Limitation Period, the interest rate to be charged on amounts evidenced by any
of the Notes shall be the Maximum Rate and the obligation of the Borrower for
any fees payable hereunder and deemed to be interest under applicable law shall
be suspended. During any period or periods of time following a Limitation
Period, to the extent permitted by applicable laws of the State of Texas or the
United States of America, the interest rate to be charged hereunder shall
remain at the Maximum Rate until such time as there has been paid to the Bank
(a) the amount of interest in excess of the Maximum Rate that the Bank would
have received during the Limitation Period had the interest rate remained at
the relevant Floating Rate or Term Note Floating Rate, as applicable, and (b)
all interest and fees otherwise due to the Bank but for the effect of such
Limitation Period.
If under any circumstances the aggregate amounts paid on the Revolving
Note, the Amended Note or the Term Note or under this Agreement include amounts
which by law are deemed interest and which would exceed the amount permitted
if the Maximum Rate were in effect, the Borrower stipulates that such payment
and collection will have been and will be deemed to have been, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the result of
5
<PAGE> 6
mathematical error on the part of both the Borrower and the Bank, and the Bank
shall promptly refund the amount of such excess (to the extent only of such
interest payments above the Maximum Rate which could lawfully have been
collected and retained) upon discovery of such error by the Bank or notice
thereof from the Borrower.
Article II is hereby amended to add the following sections:
2.15 Term Loan. Subject to the terms and conditions and relying on
the representations and warranties contained in this Agreement, the Bank agrees
to make the Term Loan to the Borrower in a single advance on or after September
7, 1995.
2.16 The Term Note. The obligation of the Borrower to repay the
Term Loan shall be evidenced by the Term Note.
2.17 Repayment of Term Loan. Interest on the Term Note, calculated
as aforesaid in Section 2.07, shall be repaid by the Borrower in monthly
installments on the first day of each month following the advance from the Bank
to Borrower pursuant to Section 2.15, through and including the Maturity Date.
Beginning November 1, 1995, and continuing on the first day of each month
thereafter, Borrower shall pay to the Bank monthly installments, inclusive of
principal and interest, equal to the greater of:
(a) 100% of the Cash Flow of Sabacol calculated for the
calendar month that ended two months prior to the applicable payment
date, such payment to be applied first to accrued, unpaid interest and
then to principal, or
(b) $300,000.00 of principal plus accrued, unpaid
interest;
until the Maturity Date, when the entire unpaid balance of the Term Note,
inclusive of principal and interest, shall be paid in full.
2.18 Voluntary Prepayment of the Term Note. The Borrower shall
have the right and option to prepay, at any time and without penalty, all or
any part of the balance outstanding on the Term Note. Any such prepayment
received by the Bank shall be applied first to the payment of accrued and
unpaid interest and then to the reduction of principal.
2.19 Mandatory Prepayment of the Term Note. The first proceeds
received by the Borrower from the sale of the Convertible Senior Subordinated
Debentures described in the Registration Statement shall be used by the
Borrower to prepay in full the Term Loan.
6
<PAGE> 7
Article III is hereby amended to add the following Section 3.14.
3.14 Conditions Precedent of Borrower in Connection With
the Third Amendment. The obligation of the Bank to make the Term Loan
referred to in Section 2.15 of this Agreement is subject to
satisfaction of the following conditions precedent:
(a) Receipt of Term Note, Third Amendment and Certificate
of Compliance. The Bank shall have received the Term Note, multiple
counterparts of the Third Amendment, as requested by the Bank, and the
Certificate of Compliance duly executed by an authorized officer for
the Borrower and, as to the Third Amendment, by each Guarantor.
(b) Receipt of Articles of Incorporation and Bylaws. The
Bank shall have received from the Borrower and Sabacol its Articles of
Incorporation certified by the Secretary of State of the state of its
incorporation and bylaws certified by the Secretary or an Assistant
Secretary of such entity.
(c) Receipt of Certified Copy of Corporate Proceedings
and Certificate of Incumbency. The Bank shall have received from the
Borrower and from Sabacol copies of all resolutions of its board of
directors with respect to the transactions set forth in the Third
Amendment and the execution of the Third Amendment, the Term Note (as
to the Borrower only) and those of the Collateral Documents to which
it is a party, such copy or copies to be certified by the secretary or
an assistant secretary as being true and correct and in full force and
effect as of the date hereof. In addition, the Bank shall have
received from the Borrower and from Sabacol a certificate of
incumbency signed by the secretary or an assistant secretary setting
forth (a) the names of the officers executing the Third Amendment, the
Term Note (as to the Borrower only) and those of the Collateral
Documents to which it is a party, (b) the office(s) to which such
Persons have been elected and in which they presently serve and (c) an
original specimen signature of each such person.
(d) Closing of Acquisition of Colombian Oil Properties.
The Bank shall have received evidence satisfactory to it, in its sole
discretion, that Sabacol has unconditionally closed the acquisition of
the Colombian Oil Properties and has become the owner thereof, free
and clear of any liens, claims or encumbrances.
(e) Accuracy of Representations and Warranties and No
Event of Default. The representations and warranties contained in
Article IV of this Agreement shall be true and correct in all material
respects on the date of the making of such Loans or advances with the
same effect as though such representations and warranties had been
made on such date; and
7
<PAGE> 8
no Event of Default shall have occurred and be continuing or will have
occurred at the completion of the making of such Loans or advances,
and the Bank shall have received satisfactory certificates signed by
the President of the Borrower as to all questions of fact involved in
this condition, including, without limitation, a Compliance
Certificate.
(f) Legal Matters Satisfactory to Special Counsel to the
Bank. All legal matters incident to the consummation of the
transactions contemplated by the Third Amendment shall be satisfactory
to the firm of Hutcheson & Grundy, L.L.P., special counsel for the
Bank.
(g) No Material Adverse Change. No material adverse
change shall have occurred since the date of this Agreement in the
condition, financial or otherwise, of the Borrower or the Guarantors.
(h) Collateral Documents. As security for the payment of
the Term Note and the performance of the obligations of the Borrower
and the Guarantors under this Agreement and the respective Guaranties,
the Bank shall have received the duly executed:
(i) Individual Guaranty, a Guaranty from Sabacol
and ratifications of Guaranty in form and substance
satisfactory to the Bank from each of the other Guarantors;
(ii) Stock Pledge Agreement covering the stock of
Sabacol along with a stock power; and
(iii) UCC-1 Financing Statement covering the
collateral described in the Stock Pledge Agreement described
in (ii) above.
(i) UCC Search. The results of a Uniform Commercial Code
search showing all financing statements and other documents or
instruments on file against Borrower and Sabacol, in the Offices of
the Secretaries of State of the States of California and Texas, such
search to be as of a date no more than ten (10) days prior to the date
of the advance of the Term Loan.
(j) Financial Statements. The Bank shall have received
consolidated Financial Statements of the Borrower as of March 31,
1995, showing financial information consistent with that previously
provided to the Bank.
(k) Commitment Fee. The Bank shall have received the
Commitment Fee earned under that certain commitment letter dated July
24, 1995 in the amount of the greater of $75,000.00
8
<PAGE> 9
or two percent (2.0%) of the amount of the Term Note. In the event
the Term Loan transaction is not closed for any reason whatsoever, the
Borrower shall pay to Bank on or before September 15, 1995 the full
amount of the Commitment Fee.
(l) Proof of Insurance. The Bank shall have received
evidence that Sabacol has obtained business interruption insurance in
an amount satisfactory to the Bank.
(m) Capital Budget. The Bank shall have received from
the Borrower a capital budget for Sabacol in form and substance
satisfactory to the Bank and covering the period from the date hereof
through and including the Maturity Date.
Section 4.01 is hereby amended to add the word "Corporate" before the
word "Guarantor" at the beginning of the 2nd line.
Section 4.02 is hereby amended to add the words "with respect to the
Corporate Guarantors," at the beginning of 4.02(a) and (b), and after the word
"or" in 4.02(c)(ii); and the words "such Guarantor" are substituted for the
words "the party" in 4.02(c)(iii).
Section 4.04 is hereby amended to change the word "Guarantors" in the
5th line thereof to read the "Individual Guarantor," and to add the word
"Corporate" before the word "Guarantor" in the 12th line thereof. The phrase
"and the results of operations" in Section 4.04 shall not be applicable to the
Individual Guarantor.
Section 4.05 is hereby amended by adding the word "Corporate" before
"Guarantor" at the beginning of the 4th line thereof, and in the 14th line
thereof and by inserting the phrase "or the Individual Guarantor" after the
phrase "(taken as a whole)" in the 14th line thereof.
Section 4.06 is hereby amended by inserting the word "Corporate" before
the word "Guarantor" in the 1st line, the 11th line, and the 30th line thereof.
Section 4.10 is hereby amended by replacing the words "the Guarantors"
with "its subsidiaries" following the word "and" in the 13th line thereof.
Section 4.11 is hereby amended by adding the phrase "(including
Colombian tax returns)" after the word "returns" in the 3rd line thereof.
Sections 4.12, 4.13 and 4.14 are each amended by inserting the word
"Corporate" prior to the word "Guarantor" in each place where "Guarantor" is
used.
9
<PAGE> 10
Subsection 4.15(a) is hereby amended to add the phrase "or the
Republic of Colombia" after the words "United States" in the 5th line thereof.
Subsection 4.15(d) is hereby amended to insert the following at the
beginning of the subsection:
"Except for the resolution dated June 7, 1995, issued by the
Colombian Ministry of the Environment which sets forth a number of
measures aimed at correcting certain deficiencies that the Ministry
has allegedly found in environmental aspects of the Colombian Oil
Properties".
Section 4.19 is hereby added to the end of Article IV:
4.19 Ownership of Colombian Oil Properties. From and
after the time of the funding of the Term Loan pursuant to Section
2.15, Sabacol has good and indefeasible ownership of the Colombian Oil
Properties, free and clear of any and all liens, claims or
encumbrances, except as expressly disclosed to the Bank on Exhibit
"A" attached to the Third Amendment; and all amounts due and payable
by Sabacol and its predecessors in title to such Colombian Oil
Properties have been duly paid; the obligations relating to such
Colombian Oil Properties have been duly performed; and neither the
Borrower nor Sabacol is aware of any default by any party with respect
to such Colombian Oil Properties.
Section 5.01 is hereby amended in its entirety as follows:
5.01 Use of Funds. Use the proceeds advanced under the
Revolving Loan to finance the working capital needs of the Borrower,
including the acquisition and development of oil and gas properties
and use the proceeds advanced under the Term Loan to finance a portion
of Sabacol's purchase of the Colombian Oil Properties, and furnish the
Bank such evidence as it may reasonably require with respect to such
uses.
Section 5.02 is hereby amended by adding the phrase "and the Colombian
Oil Properties" after the word "Properties" at the end of the 6th line thereof.
Section 5.04 is hereby amended in its entirety as follows:
5.04 Annual Audited Financial Statements. Deliver to the
Bank, on or before the one hundred and twentieth (120th) day after the
close of each fiscal year of the Borrower, a copy of annual audited
Financial Statements of the Borrower and all of its Subsidiaries on a
consolidated basis, together with the report and unqualified opinion
thereon of a firm of independent certified public accountants
acceptable to the Bank at its sole discretion.
10
<PAGE> 11
Section 5.07 is hereby amended by substituting the words "or any of"
for the word "and" in the 4th line thereof.
Section 5.09 is hereby amended by adding "and the Colombian Oil
Properties" after the word "Properties" at the end of that section.
Section 5.11 is hereby amended to insert the word "Corporate" before
the word "Guarantor" in the 1st line thereof.
Section 5.15 is hereby amended to insert "or the Colombian Oil
Properties" after the word "Properties" at the end of that section.
Section 5.16 is hereby amended in its entirety as follows:
Maintenance of Insurance. Continue to maintain, or cause to be
maintained, insurance with respect to the properties and business of
the Borrower and each Corporate Guarantor against such liabilities,
casualties, risks and contingencies and in such amounts as is
customary in the industry, and in addition, maintain, or cause to be
maintained, business interruption insurance on the business activities
of Sabacol in an amount and form, and underwritten by an insurer or
insurers, as are acceptable to the Bank in its sole discretion, and
furnish to the Bank, at the time of execution of the Third Amendment
and annually thereafter, certificates evidencing such insurance.
Section 5.19 is hereby amended to insert the word "Corporate" before
the word "Guarantor" in each place where Guarantor is used.
Section 5.20 is hereby amended in its entirety as follows:
Maintain a total tangible net worth (being total assets of the
Borrower and its Subsidiaries, exclusive of (a) those assets
classified as intangible, including, without limitation, goodwill,
patents, trademarks, trade names, copyrights, franchises and deferred
charges, (b) treasury stock and minority interests in any Person, (c)
cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of
capital stock, (d) to the extent not already deducted from total
assets, allowances for depreciation, depletion, obsolescence and/or
amortization of properties, uncollectible accounts, and contingent but
probable liabilities as to which an amount can be established, (e)
deferred taxes and (f) all assets arising from advances to officers,
former officers or sales representatives of the Borrower and its
Subsidiaries made outside of the ordinary course of business less
total liabilities of Borrower and its Subsidiaries; all of the above
being determined in accordance with GAAP, of not less than
$6,250,000.00 as of June 30, 1995, plus (a) seventy percent (70%) of
net income (excluding losses) of the Borrower and its Subsidiaries
after June 30, 1995, and (b) seventy percent
11
<PAGE> 12
(70%) of any increases in shareholder's equity of the Borrower and its
Subsidiaries resulting from the sale or issuance of any equity
subsequent to June 30, 1995.
Section 5.21 is hereby amended by deleting subparagraph (a) thereof in
its entirety, and replacing it with the following text:
(a) A ratio of Cash Flow to Debt Service of not less than 1.25.
Compliance with this covenant shall begin with the second quarter of
1995, and will thereafter be a cumulative calculation for each of the
next three quarters. Beginning with the second quarter of 1996 and
thereafter, this covenant shall be calculated on a rolling four
quarter basis. For purposes of calculating this ratio:
(i) "Cash Flow" shall be defined as the sum of
net income plus non-cash expenses less non-cash revenues of
the Borrower calculated on a consolidated basis, and
(ii) "Debt Service" shall be defined as the sum of
interest expense and scheduled principal payments of the
Borrower calculated on a consolidated basis.
Section 5.23 is hereby amended by adding "including, but not limited
to, the Colombian Oil Properties" after "Guarantors," at the end of subsection
5.23(a).
Section 5.31 is hereby added to the end of Article V:
5.31 Operation of Colombian Oil Properties. Operate or,
to the extent that the right of operation is vested in others,
exercise its best efforts to require the Operator to operate the
Colombian Oil Properties and all wells drilled thereon and that may
hereafter be drilled thereon, continuously and in a good and
workmanlike manner in accordance with the best usage of the field and
in accordance with all laws of the republic of Colombia, as well as
all rules, regulations and laws of any governmental agency having
jurisdiction to regulate the manner in which the operation of the
Colombian Oil Properties shall be carried on, and comply with any
assignment or contract obligating the Borrower or Sabacol in any way
with respect to the Colombian Oil Properties; but nothing herein shall
be construed to empower the Borrower or Sabacol to bind the Bank to
any contract obligation, or render the Bank in any way responsible or
liable for bills or obligations incurred by the Borrower or Sabacol.
Section 6.01 is hereby replaced with the following text:
6.01 Other Indebtedness. Incur, create, assume or suffer
to exist any Indebtedness, whether by way of loan or
12
<PAGE> 13
the issuance or sale of securities except (a) Loans hereunder, (b)
loans by the Bank under other credit arrangements, (c) Indebtedness
owed to the Bank by any Affiliates of the Borrower, (d) unsecured
accounts payable incurred in the ordinary course of business which are
not more than sixty (60) days overdue or are being contested in good
faith by appropriate proceedings, (e) non-recourse, unsecured loans
not to exceed $50,000.00 for the purchase by Borrower of property or
assets to be owned by the Borrower, (f) letters of credit or
performance bonds required to be obtained by Borrower in the normal
course of its business to assure the proper plugging and abandonment
of oil or gas drilling or production locations, (g) existing
Indebtedness of Santa Maria to the Borrower, (h) subordinated
indebtedness of the Borrower to Capco Resources, Ltd. for money loaned
to the Borrower for a portion of the purchase price of the Colombian
Oil Properties; and (i) subsequent to the payment in full of all of
the Borrower's Obligations under the Term Note, the Convertible Senior
Subordinated Debentures issued pursuant to the Registration Statement.
Section 6.05 is hereby amended by replacing "and Guarantor's operations
when taken as a whole" with "or any Corporate Guarantor's operations" and for
so long as the Term Loan is outstanding, adding "or Colombian Oil Properties"
after the word "Properties" at the beginning of the 6th line thereof.
Section 6.13 is hereby deleted in its entirety and is replaced with the
following text:
6.13 Certain Capital Expenditures. Except as expressly
permitted by Section 5.01, make any capital expenditures for items
other than for the exploration, development or purchase of oil and gas
properties located in the United States, or for the purchase of
equipment to facilitate the production of oil or gas owned by Borrower
or any of its Subsidiaries exceeding $300,000.00 annually, on a
consolidated basis.
Section 7.01(a) is hereby amended by adding "and Section 2.19" after
"2.08" in the 4th line thereof.
Section 7.01 is hereby amended by deleting subparagraph (e) thereof in
its entirety, and replacing it with the following text:
(e) Default shall be made by the Borrower or any
Subsidiary (as principal, guarantor, or other surety) in payment or
performance of any bond, debenture, the Revolving Note, the Amended
Note, the Term Note, or any other note or other evidence of
Indebtedness for borrowed money, or under any of the Collateral
Documents, or any other credit agreement, loan agreement, indenture,
promissory note or similar agreement or instrument executed in
connection with any of the foregoing; and such default shall remain
unremedied
13
<PAGE> 14
for in excess of the period of grace, if any, with respect thereto,
entitling any payee or obligee thereunder to accelerate the maturity
of any such Indebtedness;
II. General Amendments to Loan Agreement.
a. The Bank hereby consents to the issuance by Borrower of up to
$14,375,000.00 (including any underwriter's over allotment) in subordinated
convertible debentures on terms and conditions substantially identical to those
described in the Registration Statement. The provisions of the Loan Agreement,
specifically including, but not limited to, Section 6.01 thereof, are amended
to the extent, but only to the extent, necessary to authorize the issuance of
such subordinated convertible debentures on the terms and conditions stated in
the Registration Statement.
b. The Bank hereby also consents to the acquisition by Sabacol,
using the proceeds of the Term Loan together with other sources of funds as
described in such Registration Statement, to acquire the Colombian Oil
Properties. The provisions of the Loan Agreement, specifically including, but
not limited to, the provisions of Sections 6.09, 6.11 and 6.13 thereof, are
hereby amended to the extent, but only to the extent, necessary to authorize
the acquisition of such Colombian Oil Properties.
C. The Bank hereby also consents to Borrower paying up to
$250,000.00 toward any clean up action required by the Colombian Ministry of
the Environment in connection with the Colombian Oil Properties.
d. The consent and amendments in Section II of this Third
Amendment shall not be deemed to be a consent or amendment by the Bank of any
other covenant, condition or obligation on the part of the Borrower or any of
its Subsidiaries, except as expressly and unambiguously set forth in this Third
Amendment. Any further or broader consents or amendments must be specifically
agreed to in writing in accordance with Section 8.13 of the Loan Agreement.
III. Reaffirmation of Representations and Warranties. To induce
the Bank to enter into this Third Amendment, the Borrower and each Guarantor
hereby reaffirms, as of the date hereof, its representations and warranties
contained in Article IV of the Loan Agreement and in all other documents
executed pursuant thereto, and additionally represents and warrants as follows:
A. The execution and delivery of this Third Amendment
and the performance by the Borrower and each Guarantor of its
obligations under this Third Amendment are within the Borrower's and
each Guarantor's power, have been duly authorized by all necessary
corporate action, have received all necessary governmental approval
(if any shall be required), and do not and will not contravene or
conflict with any provision of law or of the charter or by-laws of the
14
<PAGE> 15
Borrower or any Guarantor or of any agreement binding upon the
Borrower or any Guarantor.
B. The Loan Agreement as amended by this Third Amendment
represents the legal, valid and binding obligations of the Borrower
and each Guarantor, enforceable against each in accordance with their
respective terms subject as to enforcement only to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
the enforcement of creditors' rights generally.
C. No Event of Default or Unmatured Event of Default has
occurred and is continuing as of the date hereof.
IV. Defined Terms. Except as amended hereby, terms used herein
that are defined in the Loan Agreement shall have the same meanings herein.
V. Reaffirmation of Loan Agreement. This Third Amendment shall
be deemed to be an amendment to the Loan Agreement, and the Loan Agreement, as
further amended hereby, is hereby ratified, approved and confirmed in each and
every respect. All references to the Loan Agreement herein and in any other
document, instrument, agreement or writing shall hereafter be deemed to refer
to the Loan Agreement as amended hereby.
VI. Entire Agreement. The Loan Agreement, as hereby further
amended, embodies the entire agreement between the Borrower, the Guarantors and
the Bank and supersedes all prior proposals, agreements and understandings
relating to the subject matter hereof. The Borrower and each Guarantor
certifies that it is relying on no representation, warranty, covenant or
agreement except for those set forth in the Loan Agreement as hereby further
amended and the other documents previously executed or executed of even date
herewith.
VII. Governing Law. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. This Third Amendment has been entered
into in Harris County, Texas, and it shall be performable for all purposes in
Harris County, Texas. Courts within the State of Texas shall have jurisdiction
over any and all disputes between the Borrower and the Bank, whether in law or
equity, including, but not limited to, any and all disputes arising out of or
relating to this Third Amendment or any other Loan Document; and venue in any
such dispute whether in federal or state court shall be laid in Harris County,
Texas.
VIII. Severability. Whenever possible each provision of this Third
Amendment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Third Amendment shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent
15
<PAGE> 16
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Third Amendment.
IX. Execution in Counterparts. This Third Amendment may be
executed in any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument, and any signed counterpart shall be deemed delivered by the party
executing such counterpart if sent to any other party hereto by electronic
facsimile transmission.
X. Section Captions. Section captions used in this Third
Amendment are for convenience of reference only, and shall not affect the
construction of this Third Amendment.
XI. Successors and Assigns. This Third Amendment shall be binding
upon the Borrower, each Guarantor and the Bank and their respective successors
and assigns, and shall inure to the benefit of the Borrower, each Guarantor and
the Bank, and the respective successors and assigns of the Bank.
XII. Non-Application of Chapter 15 of Texas Credit Codes. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to the Loan Agreement as hereby further amended or any of the
other Loan Documents or to the transactions contemplated hereby.
XIII. Notice. THIS THIRD AMENDMENT TOGETHER WITH THE LOAN
AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed as of the day and year first above written.
BORROWER
SABA PETROLEUM COMPANY
By: /s/ ILYAS CHAUDHARY
----------------------------------
Ilyas Chaudhary, Chairman
16
<PAGE> 17
BANK
BANK ONE, TEXAS, N.A.
By: /s/ STEPHEN M. SMITH
----------------------------------
Stephen M. Smith
Vice President
GUARANTORS:
SABA ENERGY OF TEXAS, INCORPORATED
By: /s/ ILYAS CHAUDHARY
----------------------------------
Ilyas Chaudhary, Chairman
SABA PETROLEUM, INC.
By: /s/ ILYAS CHAUDHARY
----------------------------------
Ilyas Chaudhary, Chairman
SABA PETROLEUM OF MICHIGAN, INC.
By: /s/ ILYAS CHAUDHARY
----------------------------------
Ilyas Chaudhary, Chairman
SABACOL, INC.
By: /s/ ILYAS CHAUDHARY
----------------------------------
Ilyas Chaudhary, Chairman
/s/ ILYAS CHAUDHARY
- - - --------------------------------------
Ilyas Chaudhary, Individually
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1995 AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS PRESENTED
IN QUARTERLY REPORT FORM 11-QSB FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 31,
1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 159
<SECURITIES> 0
<RECEIVABLES> 3,772
<ALLOWANCES> 72
<INVENTORY> 0
<CURRENT-ASSETS> 4,454
<PP&E> 36,828
<DEPRECIATION> 9,273
<TOTAL-ASSETS> 33,040
<CURRENT-LIABILITIES> 13,619
<BONDS> 11,511
<COMMON> 6,191
0
0
<OTHER-SE> 778
<TOTAL-LIABILITY-AND-EQUITY> 33,040
<SALES> 0
<TOTAL-REVENUES> 11,394
<CGS> 0
<TOTAL-COSTS> 10,238
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 778
<INCOME-PRETAX> 405
<INCOME-TAX> 175
<INCOME-CONTINUING> 230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
