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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
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Commission file number 1-12322
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SABA PETROLEUM COMPANY
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(Exact name of Registrant as specified in its charter)
Colorado 47-0617589
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
17512 Von Karman Avenue Irvine, CA 92714
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 724-1112
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
Convertible Senior Subordinated Debentures American Stock Exchange
Common Stock, No Par Value American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ]YES [ ]NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
The Registrant's revenues for its fiscal year ended December 31, 1995 were
$17,694,255. At March 31, 1996, 4,271,590 shares of Common Stock (the
Registrant's only class of voting stock) were outstanding. The aggregate
market value of the Common Stock on that date (based upon the closing price on
the American Stock Exchange on March 31, 1996 of $8.13) held by non-affiliates
was approximately $11,439,000.
Transitional Small Business Disclosure Format. [ ]YES [ X ]NO
Documents incorporated by reference: Certain portions of the Registrant's
definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A- Part III, Items 9, 10, 11, and 12.
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ITEM 1. DESCRIPTION OF BUSINESS
General
Saba Petroleum Company ("Saba" or the "Company") is a Colorado corporation
formed in 1979 as a natural resources company. Saba is an international oil
and gas producer with principal producing properties located in the continental
United States, Canada and Colombia. In fiscal years 1995 and 1994, oil and gas
sales accounted for 95.7% and 93.9%, respectively, of the Company's gross
revenues. Until 1994, all of the Company's principal assets were located in
the United States. In 1994 and 1995, the Company acquired interests in
producing properties in Canada and Colombia, as well as additional properties
in the United States. For the year ended December 31, 1995, approximately 33.3%
of the Company's gross revenues from oil and gas production were derived from
its international operations. Saba's principal oil and gas producing properties
are located in Canada, Colombia, California, Michigan, Texas, Wyoming, New
Mexico and Oklahoma. See "Glossary" for the definition of certain terms used
herein.
Oil and Gas Operations
Saba's business strategy is to increase its oil and gas reserves through the
acquisition of producing oil and gas properties, oil and gas properties with
developmental potential, and through the acquisition of companies with oil and
gas reserves, both domestically and internationally. Saba anticipates that it
will continue to acquire additional producing oil and gas properties, or
properties with significant developmental potential, wherever such
opportunities exist.
At December 31, 1995 and 1994, Saba's proved crude oil reserves were 12,531,000
barrels and 7,136,000 barrels, respectively, and its proved natural gas
reserves were 19,479,000 Mcf and 9,792,000 Mcf, respectively, for a total of
15,778,000 barrels of oil equivalent ("BOE") for 1995 and 8,768,000 BOE for
1994. For the years ended December 31, 1995 and 1994, Saba's net daily
production averaged 3,972 BOE and 2,685 BOE, respectively. As of December 31,
1995, the Company owned working interests in 876 gross (292 net) producing oil
wells and 109 gross (22 net) producing natural gas wells and royalty interests
in 157 wells.
For the period commencing January 1, 1992 and ending December 31, 1995, the
Company expended approximately $24.6 million for the acquisition of producing
properties. As a result of this series of acquisitions, the Company has
established an experienced acquisitions group of employees and consultants with
engineering, accounting, geological and financial expertise, allowing the
Company to respond promptly and efficiently to acquisition opportunities. The
Company's process for evaluating properties includes numerous factors, such as
estimated reserves, projected cash flows from production, estimated future oil
and gas prices, and other considerations affecting the marketing of production.
The following table lists certain properties in which the Company acquired an
interest since 1992. All properties listed below are oil and gas producing
properties except the Company's asphalt refinery located in Santa Maria,
California and the Velasquez-Galan pipeline ("Velasquez-Galan Pipeline")
located in Colombia, South America.
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ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED)
<TABLE>
<CAPTION>
TYPE OF YEAR CONTRACT
DESCRIPTION OF PROPERTY INTEREST ACQUIRED PURCHASE PRICE
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<S> <C> <C> <C>
United States:
North and South Fields (MI) Leasehold 1992 $6,177,000
Richfield East Dome Unit (CA) Leasehold 1992 712,000
North Belridge Field (CA) Leasehold 1992 940,000
Weldon Canyon (CA) Leasehold 1992 25,500
Cat Canyon/Gato Ridge Field (CA) Leasehold/Fee 1993 800,000
Bunker Gas Field (CA) Leasehold 1993 103,000
Various Royalties (CA) Leasehold 1993 50,000
South Mountain Field (CA) Leasehold 1993 73,000
Hill Pool (CA) Leasehold 1993 90,000
Santa Maria Refinery (CA) Fee 1994 1,700,000
Dutch Slough Field (CA) Leasehold 1994 29,000
Casmalia (CA) Leasehold 1994 505,000
Huntington Beach (CA) Leasehold 1994 232,000
Santa Maria Valley (CA) Leasehold/Fee 1995 400,000
Cabot (TX) Leasehold 1995 2,249,000
Mitchell (TX and NM) Leasehold 1995 324,000
Canada:
Wainwright, Sounding Lake, Utikuma,
Craigmyle, (Alberta) Leasehold 1994 3,059,500
Colombia:
Velasquez Field Fee 1995 1,250,000
Teca/Nare Fields and Velasquez-Galan
Pipeline Leasehold 1995 12,250,000
Cocorna Field Leasehold 1995 750,000
</TABLE>
In January 1995, the Company, through a new wholly owned subsidiary, Sabacol,
Inc. ("Sabacol"), acquired a 25% interest in the Velasquez oil field
("Velasquez Field") located in Colombia, South America, at a cost of
$1,250,000, from Omimex de Colombia, Ltd. ("Omimex"), which in turn had
acquired such interests from Texaco Inc.'s Colombian subsidiary, Texas
Petroleum Company (Texaco Inc. and Texas Petroleum Company are referred to
below as "Texaco") in November 1994. The Velasquez Field had proved reserves
of 836,000 barrels of oil at December 31, 1995.
The Velasquez Field is located in the Puerto Boyaca Municipality, State of
Boyaca, in the Middle Magdalena Basin, near the center of Colombia and about 93
miles from Bogota, the capital of Colombia. This field was discovered in 1946
and covers approximately 3,800 acres. A total of 261 wells have been drilled
on the property since inception. There are presently 82 active wells, 61 of
which are oil producers. The Velasquez Field is connected with Empresa
Colombiana de Petroleos' ("Ecopetrol"), the Colombian government-owned oil
company, Barrancabermeja refinery by the 110 mile Velasquez-Galan Pipeline
jointly owned by Sabacol and Omimex, which pipeline was acquired in conjunction
with the transaction described below.
In April 1995, Sabacol and Omimex, as the successful parties in a sealed
bidding process, executed an agreement with Texaco, under which each acquired
one-half of Texaco's 50% interest in the Teca and Nare oil fields in Colombia,
South America (collectively, "Teca/Nare Fields"), one-half of Texaco's 100%
interest in the Velasquez-Galan Pipeline and one-half of Texaco's 100%
interest in the adjacent Cocorna oil field (the "Cocorna Field" and together
with the Teca/Nare Fields and the Velasquez-Galan Pipeline, the "TNC Fields").
Ecopetrol holds the other 50% interest in the Teca/Nare Fields. The Company
completed the Teca/Nare Fields
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ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED)
and Velasquez-Galan Pipeline acquisition in September 1995 and completed the
Cocorna Field acquisition in December 1995, each with an effective date of
January 1, 1995.
The Company's gross acquisition cost for the Teca/Nare Fields and
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 purchase price through
application of a $1.4 million deposit made in April 1995, a loan of $700,000
from Capco Resources Ltd. ("Capco"), a corporation of which Mr. Chaudhary, the
President and Chief Executive Officer of the Company, is the majority
shareholder and which is the majority shareholder of the Company, a loan of
$1.5 million from Capco Resources, Inc. ("CRI"), which, until November 1995 was
a wholly-owned subsidiary of Capco, and a $4.7 million loan from a bank,
guaranteed by Mr. Chaudhary. Of the $700,000 loan from Capco, $600,000 was
subsequently converted into 75,000 shares of Common Stock of the Company in
December 1995 upon the completion of the Company's issuance of its 9%
Convertible Senior Subordinated Debentures due 2005 (the "Debentures"). The
Company's gross acquisition cost for the Cocorna Field was $750,000, which was
reduced by the Company's share of production credits from the property from
January 1, 1995 to the closing date (approximately $217,000), leaving a net
purchase price of $533,000. The Company made a $100,000 deposit with Texaco
and financed the balance of the purchase price by borrowing $433,000 under its
bank credit facility.
In connection with the acquisition of the Teca/Nare Fields, Ecopetrol required
that Omimex, the operator of the TNC Fields, obtain a letter of credit for the
benefit of Ecopetrol in the amount of $3.5 million to secure payments due third
party vendors at the Teca/Nare Fields. Such letter of credit was issued in
November 1995. Under the terms of such letter of credit, which expires in
October 1996, Ecopetrol may draw thereon should Omimex fail to pay such third
party vendors at the Teca/Nare Fields. In connection with the issuance of the
letter of credit, Omimex required that in December 1995 the Company pledge
collateral consisting of a $1.75 million certificate of deposit.
The 110 mile Velasquez-Galan Pipeline which connects the Company's Velasquez
Field to the Colombian government-owned refinery at Barrancabermeja also
transports crude oil produced from the Cocorna Field, the Teca/Nare Fields and
Ecopetrol crude oil used as diluent for the Cocorna and Teca/Nare heavy crude
oil. The pipeline generates revenues through collection of tariffs for use of
the pipeline. Throughput in December, 1995 averaged 23,700 BOPD.
The Company has entered into a joint operating agreement with Omimex under
which Omimex will operate the TNC Fields. The Company currently anticipates
attempting to increase production at the Teca/Nare Fields and, in this regard,
the assets purchased from Texaco include a drilling rig, tubular goods and
related oil field supplies that the Company believes will help facilitate such
an increase. Any such increase will require, among other things, the agreement
of Omimex and Ecopetrol. The Teca/Nare Fields had proved reserves of 4.1
million barrels of oil at December 31, 1995.
The Teca/Nare Fields were initially developed by Texaco in 1981 under
association contracts entered into with Ecopetrol in 1980. The exploitation
period under those association contracts expires in August 2008. Under these
contracts, the Company and Omimex will each receive 20% of the crude oil
produced at the Teca/Nare Fields, Ecopetrol will receive 40% of such production
and 20% will be paid to the Colombian government in royalties.
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ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED)
The Cocorna Field had been operated by Texaco for over 30 years under a
concession contract with Ecopetrol. After paying 7.59% of the oil produced in
kind as a royalty to the Colombian government, the Company and Omimex will
share equally all oil produced from the Cocorna Field through February 1997, at
which time the concession will expire and ownership of the Cocorna Field will
revert to Ecopetrol.
All crude oil produced at the TNC Fields for the Company's interest must be
sold to Ecopetrol at prices established by Ecopetrol. Effective February 1,
1996 a three year oil sales contract was executed with Ecopetrol on essentially
the same terms as the expired contract.
The Company entered into an agreement in April 1995 whereby its wholly owned
Canadian subsidiary Capco Resource Properties Ltd. ("CRPL") acquired Beaver
Lake Energy Corporation ("BLEC"), whose common stock is traded on the Alberta
Stock Exchange, and the Company invested approximately $370,000 in Beaver Lake.
As a result of this acquisition, which was completed in October 1995, and the
investment, which was completed in December 1995, the Company owns
approximately 74% of the outstanding stock of Beaver Lake.
In May 1995 the Company made an acquisition in South Texas through its
subsidiary, Saba Energy of Texas, Incorporated. The closing cost of $2,053,500
was funded by proceeds from the Company's revolving line of credit. The
Company's estimated net production from the acquired interests is 175 BOPD and
1,400 Mcf per day of gas. The acquisition included 2,126 gross (1,112.0 net)
acres and interests in thirteen gross (7.64 net) producing oil and gas wells.
In 1995, the Company participated in the drilling of two gross (0.40 net)
exploratory wells and two gross (0.11 net) development wells in Texas, one
gross (0.06 net) exploratory well and four gross (1.54 net) development wells
in California and one gross (0.09 net) development well in Canada, at a total
cost of $294,000. Two wells were completed as gas producers, four wells were
completed as oil producers and four wells were plugged and abandoned.
Additions to proved reserves attributable to these properties were 97,300
barrels of oil and 136,700 Mcf of gas. The Company was a participant in the
drilling of one gross (0.73 net) exploratory well in Alabama which was in
progress at December 31, 1995. In January 1996, the well was determined to be
non-commercial and it was plugged and abandoned.
In 1994, the Company participated in the drilling of one gross (.06 net)
exploratory well and one gross (0.15 net) development well in Texas, one gross
(0.04 net) development well in Michigan, one gross (0.07 net) exploratory well
in California and three gross (1.0 net) development wells in California, at a
total cost of $248,526. Three wells were completed as gas producers, two wells
were completed as oil producers and two wells were plugged and abandoned.
Additions to proved reserves attributable to these properties were 81,517
barrels of oil and 331,186 Mcf of gas.
See ITEM 2 for additional information concerning the Company's oil and gas
properties and operations.
Other Operations
Asphalt Refinery Operations
In June 1994, in order to increase margins on heavy crude oil from the
Company's oil and gas producing operations in Santa Barbara County, California,
the Company acquired from Conoco Inc. and Douglas Oil Company of California an
asphalt refinery in Santa Maria, California that had been inoperative since
October 1993. The Company refurbished the refinery and, in May 1995, completed
a re-permitting environmental impact review process with Santa Barbara County
and received a Conditional Use Permit to operate the refinery. Under a
processing agreement with Petro Source Refining Corporation ("Petro Source"),
the refinery
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ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED)
Asphalt Refinery Operations (continued)
re-commenced operations in June 1995. Under the terms of the processing
agreement, Petro Source purchases crude oil (including crude oil produced by
the Company), delivers it to the refinery, reimburses the Company's
out-of-pocket costs for refining, markets the asphalt and other products and
generally shares any profits equally with the Company. Throughput at the
refinery is currently 2,600 BOPD. The refinery has the capacity to process
approximately 8,000 BOPD. Pursuant to the terms of the refinery purchase
agreement, the sellers are required to perform certain remediation and other
environmental activities on the refinery property for a period of five years.
Real Estate Activities
The Company from time to time has purchased real estate in conjunction with its
acquisition of oil and gas properties in California and plans to continue this
practice. In connection with the acquisition of oil and gas producing
properties in Santa Maria, California in June 1993, the Company purchased 247
acres in Santa Barbara County for an aggregate purchase price of $65,000 and
also agreed to acquire an additional 1,460 acres in Santa Maria for an
aggregate purchase price of $400,000, the closing of which is subject to
certain conditions and approval of a subdivision map, which is currently
anticipated to occur in the second quarter of 1996. In addition, the Company
entered into an agreement to acquire 385 fee acres in Santa Barbara County in
connection with an acquisition of producing oil and gas properties at a
contract purchase price of $400,000, the closing of which took place in June
1995. In addition, the Company acquired approximately 370 acres of undeveloped
land in Santa Maria, California in June 1994 in connection with the acquisition
of its Santa Maria refinery. The Company plans to retain these real estate
holdings for asset appreciation which may include developmental activities at a
future date.
Competition and Markets
Saba's operations are largely dependent upon its ability to acquire reserves of
oil and gas in commercial quantities. The general competitive conditions in
the oil and gas industry in which the Company operates have been and are
expected to continue to be intense. Saba has experienced, and will continue to
encounter, strong competition from other parties attempting to acquire oil and
gas properties, either directly or through the acquisition of entities owning
mineral resources. Many of the other parties have greater financial resources
than Saba and, therefore, Saba may be at a disadvantage in effecting such
transactions.
Substantially all of Saba's crude oil production is sold at the wellhead at
posted prices under short term contracts, as is customary in the industry. The
Company markets its gas on the spot market or under short term sales contracts.
The prices obtained for oil and gas are dependent on numerous factors beyond
the control of the Company, including domestic and foreign production rates of
oil and natural gas, market demand, political conditions, weather conditions,
governmental regulations, the price of oil set by the Organization of Petroleum
Exporting Countries (OPEC), the price and availability of alternative fuels and
overall economic conditions. The price the Company receives for its oil and
gas also depends greatly on the grade of oil sold; typically, light oil is sold
at a premium, while heavy grades of crude oil are discounted.
Major Customers
For the year 1995, approximately 12.7% and 17.3% of the Company's total oil and
gas revenues (19.0% and 25.9% of U.S. oil and gas revenues) were derived from
sales to two purchasers, Texaco and EOTT Energy, respectively. The Company
believes that the loss of any current purchaser of its production will not
materially affect its ability to sell its oil or gas production. The Company's
Colombian oil production, which can only be sold to Ecopetrol, accounted for
24.0 % of total oil and gas revenues in the year 1995. In 1994, approximately
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ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED)
Major Customers (continued)
18.1% and 30.5% of the Company's oil and gas revenues were derived from sales
to two purchasers, Texaco and Unocal Corporation ("Unocal"), respectively. In
January 1995, Unocal canceled its purchase contract, effective March 1, 1995,
for the Company's production from one of its major properties near Santa Maria,
California, which accounted for approximately 25% of the Company's United
States oil sales in 1994. The Company replaced Unocal with other purchasers on
terms generally as favorable as the terms of the contract with Unocal.
Governmental Regulations
Governmental Regulation Generally
The production and sale of oil and gas are subject to a variety of federal,
state and local governmental regulations, including regulations concerning the
prevention of waste, the discharge of materials into the environment, the
conservation of natural oil and gas, pollution, the issuance of permits for
drilling operations, drilling bonds, reports concerning operations, the spacing
of wells, the unitization and pooling of properties, and various other matters,
including taxes. Many jurisdictions have at various times imposed limitations
on the production of oil and gas by restricting the rate of flow for oil and
gas wells below their actual production capacity. In addition, many states
have raised state taxes on energy sources and additional increases may occur.
Regulations Affecting Colombian Operations
All of the Company's oil production in Colombia is, and, as a practical matter,
can be sold only to Ecopetrol, the government-owned oil company, which also
owns 50% of the Teca/Nare Fields. Ecopetrol has the power to determine the
prices that the Company will receive for all oil produced in Colombia, and it
currently pays widely divergent prices for similar grades of oil and gas based
on a variety of factors. As of February 1, 1996, the Company and its joint-
operating partner Omimex, signed a three year oil sales agreement with
Ecopetrol which provides for substantial continuation of the previous pricing
structure with some minor formula changes.
Environmental Matters
The oil and gas industry is also subject to environmental hazards, such as oil
spills, oil and gas leaks, ruptures and discharges of oil and toxic gases,
which could expose the Company to substantial liability due to environmental
damage. The Company has not obtained environmental compliance surveys,
including so-called Phase I reports, which would disclose matters of public
record and could disclose evidence of environmental contamination requiring
remediation, on producing properties outside of Michigan or California in which
it holds an interest. The Company has had Phase I or more limited
environmental assessments done for substantially all of its California and
Michigan oil and gas properties. These assessments disclose environmental
impacts typical of oil field operations and certain areas of potentially
greater environmental concern, including possible groundwater impact at certain
properties in which the Company has up to a 25% working interest and as to
which the seller is generally responsible for remediation costs in excess of $2
million (up to $500,000 to the Company), that have not been resolved or further
investigated. Generally, the assessments done are not more recent than two or
three years and do not disclose any more recent environmental matters. The
Company's oil and gas properties as to which environmental assessments have not
been performed should also be expected to have environmental concerns typical
of oil field operations generally. Environmental compliance surveys such as
those the Company has had performed are limited in their scope and should not
be expected to disclose all environmental contamination that may exist.
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ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED)
Environmental Matters (continued)
The operation of the TNC Fields has been affected by environmental concerns in
the past and may be so affected in the future. The Colombian Ministry of
Environment issued a resolution (the "Resolution") in June 1995 directing
Texaco, the former owner of the TNC Fields, to correct certain environmental
deficiencies allegedly found at the Nare oil field which is part of the TNC
Fields. The Resolution ordered Texaco to temporarily close one of its five
production modules (surface vessels through which crude is treated to separate
the gas and water from the oil) and any wells whose crude oil was processed in
that module until Texaco provided the Ministry of Environment a written
timetable setting forth Texaco's scheduled implementation of requisite
corrective measures. The requested timetable was delivered to the Ministry of
Environment on July 6, 1995. On August 8, 1995, Texaco received a communication
from the Ministry of Environment requesting certain revisions to the timetable.
The temporary closing of the module has not had a substantial effect on total
production because substantially all of the crude oil which would otherwise
have been processed in the closed module has been diverted to other production
modules. The Resolution also ordered the opening of an environmental
investigation of Texaco's operation of the TNC Fields.
Texaco formally appealed the Resolution and the Ministry of Environment, Texaco
and Omimex, the operator of the TNC Fields, have negotiated an agreement for
Omimex and the Company to implement certain corrective actions over a four to
six month period, at which time (projected to be mid-1996) the closed
production module will be allowed to recommence operations. Texaco had
previously estimated that the costs of compliance with the Resolution
attributable to Saba's interest in the TNC Fields would not exceed $250,000.
Additionally, the Company engaged an independent consultant to perform an
environmental compliance survey of the Nare oil field. That survey estimated
that the costs of environmental compliance attributable to the Company's
interest in the TNC Fields would not exceed $375,000. Omimex has indicated to
the Company that it believes that these cost estimates for the corrective work
are accurate. Under the terms of the Company's agreement with Texaco, however,
the Company takes Texaco's interests "as is" and could be subject to liability
materially greater than the estimated costs. Omimex also estimates that as
much as $250,000 may be expended to upgrade waste water disposal capabilities.
Pursuant to the purchase and sale agreement of the asphalt refinery in Santa
Maria, California, the sellers have agreed to perform certain remediation and
other environmental activities on portions of the refinery property for a
period of five years. In conjunction with this acquisition the Company engaged
an independent consultant to perform an environmental compliance survey for the
refinery. The survey did not disclose required remediation in areas other than
those where the seller is responsible for remediation, but did disclose that it
was possible that all of the required remediation may not be completed in the
five-year period.
The Company is required to plug and abandon well facility sites on its
properties after production operations are completed. The Company has a
significant contingent liability with respect to its obligation to plug and
abandon wells on certain California properties. See Note 13 of Notes to
Consolidated Financial Statements of the Company. No assurance can be given
that the costs of closure of others of the Company's oil and gas properties may
not be materially adverse to the Company. For these and other reasons, there
can be no assurance that material costs for remediation or other environmental
compliance will not be incurred in the future. The incurrence of such
environmental compliance costs could be materially adverse to the Company.
Political Risks
Foreign Operations Generally
An important component of the Company's business strategy is to seek to acquire
foreign oil and gas producing properties. Currently, the Company has
properties in Colombia and Canada.
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ITEM 1. DESCRIPTION OF BUSINESS (CONTINUED)
Foreign Operations Generally (continued)
Risks inherent in foreign operations generally include loss of revenue,
property and equipment from such hazards as expropriation, nationalization,
war, insurrection and other political risks; risks of increases in taxes and
governmental royalties; renegotiation of contracts with governmental entities;
and abrupt changes in governments and in laws and policies governing foreign
operations. Other risks inherent in foreign operations are local currency
instability, the risk of realizing economic currency exchange losses when
transactions are completed in currencies other than United States dollars, and
the ability to repatriate earnings under existing exchange control laws.
Properties in Colombia
The Company's Colombian properties are generally subject to all of the
foregoing risks. Colombia has a history of political instability due to drug
related violence and insurgent guerrilla activity, which has impacted oil
production and pipeline operations in the past. There can be no assurance that
such matters will not affect the TNC Fields (or impact national policy that
affects the TNC Fields) in the future.
Sabacol, Inc., the Company's Colombian subsidiary, maintains a $1 million
general liability and a $10 million umbrella insurance policy, including
insurance against certain environmental pollution, relating to the operations
of the Velasquez Field and TNC Fields. Also included is $2,500,000 of coverage
against terrorism, sabotage, strikes and other civil commotions and $7,500,000
expropriation/nationalization coverage. Additionally, the Company has
business interruption insurance for its Colombian properties in the amount of
$750,000 per month for up to a 90 day period of interruption.
Employees
At March 15, 1996, the Company employed 66 full-time employees, 33 of whom were
administrative employees. The Company has not entered into any collective
bargaining agreements with any unions and believes that its overall relations
with its employees are satisfactory.
Glossary
The definitions below are used in this Report.
Bbl. or barrel. 42 U.S. gallons liquid volume, usually used herein in
reference to crude oil or other liquid hydrocarbons.
BOE or barrels of oil equivalent converts gas to oil at a ratio of
6,000 cubic feet of gas to one barrel of oil, usually. Oil and converted gas
are added together for total BOE.
BOPD. Barrels of oil per day.
BTU. British Thermal Unit.
Depletion. The act of emptying, reducing, or exhausting, such as
depletion of a natural resource like oil and gas. Also means a reduction in
income reflecting the amortization of the cost of mineral deposits.
Developed Acreage. The number of acres of oil and gas leases held by,
or if owned, which are allocated or assignable to, producing wells or wells
capable of production.
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Development Well. A well which is drilled to and completed in a known
producing formation adjacent to a producing well in a previously discovered
field and in a stratigraphic horizon known to be productive.
Exploration. The search for economic deposits of minerals, petroleum
and other natural earth resources by any geological, geophysical, or
geochemical technique.
Field. A geographic area in which a number of oil or gas wells
produce from a continuous reservoir.
GAAP. Generally accepted accounting principles set forth in the
authoritative literature of the American Institute of Certified Public
Accountants, the Financial Accounting Standards Board and the Securities and
Exchange Commission.
Mcf. One thousand cubic feet of natural gas.
Mineral interest. Possessing the right to explore, right of ingress
and egress, right to lease, and right to receive part or all of the income from
mineral exploitation, i.e., bonus, delay rentals and royalties.
Net Acres or Net Wells. A "net acre" or "net well" is deemed to exist
when the sum of fractional ownership working interests in gross acres or gross
wells equals one.
Oil Wells or Gas Wells. Oil wells are those wells which generate
revenue from oil production; gas wells are those wells which generate nearly
all revenue from gas production.
Operator. The person or company actually operating an oil or gas
well.
Proved Reserves. The estimated quantities of crude oil, natural gas
and natural gas liquids which geological and engineering data have demonstrated
with reasonable certainty to be recoverable in future years from known oil and
gas reservoirs under existing economic and operating conditions, on the basis
of prices and costs on the date the estimate is made and any price changes
provided by existing contracts.
Proved Developed Reserves. Proved Reserves which can be expected to
be recovered through existing wells with existing equipment and operating
methods.
Proved Undeveloped Reserves. Proved Reserves which can be expected to
be recovered from new wells on undrilled acreage, or from existing wells where
a relatively major expenditure is required for recompletion.
ITEM 2. DESCRIPTION OF PROPERTY
Oil and Gas Properties
The following is a description of the Company's oil and gas properties. At
December 31, 1995, the Company had various agreements in place for the sale of
oil and gas production from the Velasquez, Teca/Nare and Cocorna Fields in
Colombia to Ecopetrol.
Proved Reserves and Future Net Revenues
Saba's interests in proved developed and undeveloped oil and gas properties
have been evaluated for 1995 and 1994 by the following independent petroleum
engineers: Netherland, Sewell & Associates, Inc. (as to United States and
Colombian reserves) and by Sproule Associates Limited (as to Canadian
reserves). Saba's reserves at December 31, 1995 are located in the continental
United States, Canada and Colombia. Saba's
10
<PAGE> 11
ITEM 2. DESCRIPTION OF PROPERTY (continued)
Proved Reserves and Future Net Revenues (continued)
reserves as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Reserve Category
-------------------------------------------------------
Proved Developed Proved Undeveloped Total
------------------------ ------------------------ ------------------------
1995 Oil (Bbls) Gas (Mcf) Oil (Bbls) Gas (Mcf) Oil (Bbls) Gas (Mcf)
- ---- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. 5,385,856 8,190,986 1,176,739 912,063 6,562,595 9,103,049
Canada 750,500 2,051,000 175,700 8,325,000 926,200 10,376,000
Colombia 4,731,369 - 311,133 - 5,042,502 -
----------- ----------- ----------- ----------- ----------- -----------
Total 10,867,725 10,241,986 1,663,572 9,237,063 12,531,297 19,479,049
=========== =========== =========== =========== =========== ===========
1994 Oil (Bbls) Gas (Mcf) Oil (Bbls) Gas (Mcf) Oil (Bbls) Gas (Mcf)
- ---- ----------- ----------- ----------- ----------- ----------- -----------
U.S. 4,530,148 6,582,511 2,141,193 643,462 6,671,341 7,225,973
Canada 464,390 1,920,800 - 645,000 464,390 2,565,800
----------- ----------- ----------- ----------- ----------- -----------
Total 4,994,538 8,503,311 2,141,193 1,288,462 7,135,731 9,791,773
=========== =========== =========== =========== =========== ===========
</TABLE>
The estimated future net revenues (using current prices and costs at the
respective years end) and the present value of future net revenues (using a
discount factor of 10 percent per annum) before income taxes for Saba's proved
developed and proved undeveloped oil and gas reserves as of December 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
Reserve Category
---------------------------------------------------------
Proved Developed Proved Undeveloped Total
---------------------------- --------------------------- ----------------------------
Present Present Present
value of value of value of
Future net future net Future net future net Future net future net
revenue revenue revenue revenue revenue revenue
------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1995
- ----
U.S. $ 31,693,900 $ 21,302,100 $ 7,996,700 $ 3,370,000 $ 39,690,600 $ 24,672,100
Canada 7,904,692 5,258,798 5,463,343 2,213,343 13,368,035 7,472,141
Colombia 18,695,500 15,101,200 1,771,000 909,700 20,466,500 16,010,900
------------- ------------- ------------- ------------ ------------- -------------
Total $ 58,294,092 $ 41,662,098 $ 15,231,043 $ 6,493,043 $ 73,525,135 $ 48,155,141
============= ============= ============= ============ ============= =============
1994
- ----
U.S. $ 25,746,500 $ 17,733,600 $ 11,441,200 $ 5,932,100 $ 37,187,700 $ 23,665,700
Canada 2,894,635 2,301,042 84,177 47,082 2,978,812 2,348,124
------------- ------------- ------------- ------------ ------------- -------------
Total $ 28,641,135 $ 20,034,642 $ 11,525,377 $ 5,979,182 $ 40,166,512 $ 26,013,824
============= ============= ============= ============ ============= =============
</TABLE>
"Proved developed" oil and gas reserves are reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.
"Proved undeveloped" oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. In recent years,
the market for oil and gas has experienced substantial fluctuations which have
resulted in significant swings in the prices for oil and gas. Saba cannot
predict the future of oil and gas prices or whether future declines in prices
will occur. Any such decline would have an adverse effect on Saba. No major
discovery or other favorable or adverse event is believed to have caused a
material change in the estimated proved reserves since December 31, 1995, other
than as discussed herein.
11
<PAGE> 12
ITEM 2. DESCRIPTION OF PROPERTY (continued)
Reserves Reported to Other Agencies
There have been no reserve estimates filed with any other United States Federal
authority or agency.
Major Properties
The Company's major producing properties for the fiscal year ended December 31,
1995 are:
<TABLE>
<CAPTION>
Name and Location Oil Production (Bbls) Gas Production (Mcf)
- ----------------- --------------------- --------------------
<S> <C> <C>
U.S.
- ----
Richfield East Dome Unit (California) 124,748 -
North and South Fields (Michigan) 101,825 372,602
North Belridge Field (California) 65,586 48,312
Cat Canyon/Gato Ridge Field (California) 208,981 30,157
Canada
- ------
Wainwright, Sounding Lake, Utikuma,
Craigmyle, (Alberta) 44,085 157,815
Colombia
- --------
Velasquez 177,146 -
Teca and Nare (from date of 253,662 -
acquisition, September 1995)
</TABLE>
Net Quantities of Oil and Gas Produced
The net quantities of oil and gas produced by the Company during each of the
last two years are as follows:
<TABLE>
<CAPTION>
Oil (Bbls) Gas (Mcf) BOE
---------- --------- ---
<S> <C> <C> <C>
1995
- ----
U.S. 710,271 938,577 866,701
Canada 85,800 398,616 152,236
Colombia 430,808 - 430,808
--------- --------- ---------
Total 1,226,879 1,337,193 1,449,745
========= ========= =========
1994
- ----
U.S. 658,016 979,893 821,331
Canada 79,947 473,152 158,806
--------- --------- ---------
Total 737,963 1,453,045 980,137
========= ========= =========
</TABLE>
12
<PAGE> 13
ITEM 2. DESCRIPTION OF PROPERTY (CONTINUED)
Average Sales Price and Production Cost
The following table sets forth information concerning average per unit sales
price and production cost for the Company's oil and gas production for the
periods indicated:
<TABLE>
<CAPTION>
Year ended December 31, (1)
---------------------------
1995 1994
---- ----
<S> <C> <C> <C>
Average sales price per barrel of oil equivalent United States $ 13.04 $ 12.67
Canada $ 10.32 $ 11.12
Colombia $ 9.44 $ -
Combined $ 11.69 $ 12.42
Average production cost per barrel of oil
equivalent United States $ 8.57 $ 8.19
Canada $ 5.92 $ 5.19
Colombia $ 5.17 $ -
Combined $ 7.29 $ 7.70
</TABLE>
(1) All amounts are stated in United States dollars.
Productive Wells
The following table sets forth certain information at December 31, 1995
relating to productive wells in which the Company owned a working interest:
<TABLE>
<CAPTION>
Oil Gas Total
--------------- --------------- ---------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
United States 390 154.47 64 12.06 454 166.53
Canada 83 29.33 45 9.99 128 39.32
Colombia 403 107.75 0 0.00 403 107.75
---- ------ ---- ------ ---- ------
876 291.55 109 22.05 985 313.60
==== ====== ==== ====== ==== ======
</TABLE>
(1) Productive wells are producing wells and wells capable of production,
including wells that are shut in.
(2) A gross well is a well in which a working interest is owned.
(3) A net well is the Company's share of a working interest in a well. The
number of net wells is the total of the Company's working interests in
wells.
The Company also held royalty interests in 157 productive wells in the United
States and Canada. The Company does not own any royalty interests in Colombia.
13
<PAGE> 14
ITEM 2. DESCRIPTION OF PROPERTY (CONTINUED)
Acreage
The following table sets forth certain information at December 31, 1995
relating to oil and gas acreage in which the Company owned a working interest.
<TABLE>
<CAPTION>
Developed (1) Undeveloped
------------- ------------
Country Gross Net Gross Net
------- ----- --- ----- ---
<S> <C> <C> <C> <C>
Canada 61,132 14,669.0 38,702 18,456.0
Colombia 6,769 1,785.0 5,719 1,430.0
United States 50,812 13,580.1 16,121 6,494.9
------- -------- ------ --------
Total 118,713 30,034.1 60,542 26,380.9
======= ======== ====== ========
</TABLE>
(1) Developed acreage is acreage assigned to productive wells.
Ownership of a majority of the Company's oil and gas properties is in the form
of mineral leases. As is customary in the oil and gas industry, a preliminary
investigation of title is made at the time of acquisition of undeveloped
properties. Title investigations are generally completed, however, before
commencement of drilling operations or the acquisition of producing properties.
The Company believes that its methods of investigating title to, and
acquisition of, its oil and gas properties are consistent with practices
customary in the industry and that it has generally satisfactory title to the
leases covering its proved reserves.
Drilling Activity
The following table sets forth certain information for the years ended December
31, 1995 and 1994 relating to the Company's participation in the drilling of
exploratory and development wells.
<TABLE>
<CAPTION>
1995 1994
---- ----
Gross Net Gross Net
----- --- ----- ---
<S> <C> <C> <C> <C>
Exploratory
Oil - - - -
Gas - - 1 0.07
Dry 3 0.46 3 0.19
Development
Oil 4 1.51 2 0.65
Gas (1) 2 0.19 2 0.29
Dry 1 0.04 1 0.25
Total
Oil 4 1.51 2 0.65
Gas (1) 2 0.19 3 0.36
Dry 4 0.50 4 0.44
</TABLE>
(1) Includes one gross (0.09 net) well drilled in Canada in 1995; all other
drilling activity was conducted in the United States.
14
<PAGE> 15
ITEM 2. DESCRIPTION OF PROPERTY (CONTINUED)
Present Activities
The Company is the operator of, and owner of a 54.7% working interest in, an
exploratory well in the Black Warrior Basin in Lamar County, Alabama on which
drilling operations began in March 1996. Total depth of 4,720 feet was reached
on March 26, 1996, and the well is currently being completed to begin
production.
A workover of a well in Lea County, New Mexico, which was acquired as part of
the Mitchell Property acquisition in September 1995, has resulted in an
increase in gross production from 150 Mcfd to 2,200 Mcfd. The Company owns a
9.7% working interest in the well. An offsetting location is currently being
evaluated for similar treatment.
Real Estate
The Company from time to time has purchased real estate in conjunction with its
acquisition of oil and gas properties in California and plans to continue this
practice. In connection with the acquisition of oil and gas producing
properties in Santa Maria, California in June 1993, the Company purchased 247
acres in Santa Barbara County for an aggregate purchase price of $65,000 and
also agreed to acquire an additional 1,460 acres in Santa Maria for an
aggregate purchase price of $400,000, the closing of which is subject to
certain conditions and approval of a subdivision map, which is currently
anticipated to occur in 1996. In addition, the Company entered into an
agreement to acquire 385 fee acres in Santa Barbara County in 1995 in
connection with an acquisition of producing oil and gas properties at a
contract purchase price of $400,000, the closing of which took place in June
1995. In addition, the Company acquired approximately 370 acres of undeveloped
land in Santa Maria, California in June 1994 in connection with the acquisition
of its Santa Maria refinery. The Company plans to retain these real estate
holdings for asset appreciation which may include developmental activities at a
future date.
Asphalt Refinery
In June 1994, in order to increase margins on heavy crude oil from the
Company's oil and gas producing operations in Santa Barbara County, California,
the Company acquired from Conoco Inc. and Douglas Oil Company of California an
asphalt refinery in Santa Maria, California, and re-commenced operations in
June 1995. See "Item 1. Description of Business - Other Operations."
Office Facilities
The Company's executive and administrative offices are located in Irvine,
California, with regional operating offices in Santa Maria, California, Edmond,
Oklahoma, Calgary, Alberta and Bogota, Colombia. These offices, consisting of
approximately 15,000 square feet, are leased with varying expiration dates to
October 1998, at an aggregate rate of $11,500 per month. The Company owns its
office facilities, consisting of approximately 1,500 square feet, at the
asphalt refinery in Santa Maria, California.
Delivery Commitments
The Company is not obligated to provide a fixed and determinable quantity of
oil or gas in the future pursuant to existing contracts or agreements.
15
<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain litigation that has arisen in the normal
course of its business and that of its subsidiaries. In the opinion of
management, none of this litigation is likely to have a material effect on the
Company's financial statements or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company submitted one matter to a vote of security holders through the
solicitation of proxies during the quarter ended December 31, 1995. Article IV
of the Company's original Articles of Incorporation, filed with the Colorado
Department of State in 1979, specifically provided that shareholders were not
entitled to preemptive rights. On December 27, 1988, however, the Company
amended and restated Article IV of its Articles of Incorporation to increase
the Company's number of authorized shares of Common Stock. The amended and
restated Article IV inadvertently omitted the provision denying preemptive
rights to shareholders, thus, in effect, possibly entitling shareholders to
preemptive rights in the future. Upon discovery of the error, the Company
submitted to the shareholders for their approval an amendment to its Articles
of Incorporation to restate the omitted provision denying preemptive rights to
shareholders. On October 19, 1995, the shareholders of the Company approved
the amendment at a special shareholders' meeting and the Company thereafter
filed a corrective amendment to the Company's Articles of Incorporation. Of
the total outstanding shares of Common Stock at the time of the shareholder
meeting (4,189,590), 3,225,468, or 77.0% were present in person or by proxy at
the meeting, and the vote in favor of the proposal to amend the Articles of
Incorporation was 3,213,902, or 99.6%.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
The Registrant's Common Stock is traded at the American Stock Exchange
("Amex"). Prior to May 23, 1995, the Common Stock was traded in the Emerging
Company Marketplace at the Amex. The following table sets forth the high and
low bid prices of the Common Stock for the periods indicated. The average
daily trading volume of the Common Stock in 1995 was approximately 7,700
shares.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year Ended December 31, 1995
First Quarter $ 5.25 $ 2.13
Second Quarter 8.19 5.00
Third Quarter 8.25 7.50
Fourth Quarter 8.00 6.88
Year Ended December 31, 1994
First Quarter $ 2.50 $ 1.50
Second Quarter 4.00 1.37
Third Quarter 3.50 2.44
Fourth Quarter 2.63 1.63
</TABLE>
On March 31, 1996, the reported closing price per share was $8.13.
Number of Shareholders
As of March 31, 1996, there were 3,049 holders of record of the Registrant's
Common Stock.
16
<PAGE> 17
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (CONTINUED)
Dividends
The Registrant has never paid any dividends on its Common Stock and does not
have any current plans to pay any dividends in the foreseeable future. The
Company is currently restricted from paying dividends under the terms of its
revolving loan agreement and the indenture governing its Debentures.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the consolidated
financial statements of the Company and notes thereto, included elsewhere
herein.
OVERVIEW
The Company's long-term business strategy is to acquire oil and gas reserves
for current and future production and the enhancement and development of such
reserves. Capital utilized to acquire such reserves has been provided primarily
by secured bank financing, the creation of joint interest operations and
production payment obligations, sale of debentures, and sales of the Company's
equity securities. In pursuit of its business strategy, the Company has made
significant acquisitions of oil and gas producing properties in recent years.
The extent and timing of these acquisitions complicates period to period
comparisons.
The Company's oil and gas producing activities are accounted for using the full
cost method of accounting. Accordingly, the Company capitalizes all costs, in
separate cost centers for each country, incurred in connection with the
acquisition of oil and gas properties and with the exploration for and
development of oil and gas reserves. Such costs include lease acquisition
costs, geological and geophysical expenditures, costs of drilling both
productive and non-productive wells, and overhead expenses directly related to
land acquisition and exploration and development activities. Proceeds from the
disposition of oil and gas properties are accounted for as a reduction in
capitalized costs, with no gain or loss recognized unless such disposition
involves a significant change in reserves, in which case the gain or loss is
recognized.
Depletion of the capitalized costs of oil and gas properties, including
estimated future development costs, is provided using the equivalent
unit-of-production method based upon estimates of proved oil and gas reserves
and production which are converted to a common unit of measure based upon their
relative energy (BTU) content. Unproved oil and gas properties are not
amortized but are individually assessed for impairment. The cost of any
impaired property is transferred to the balance of oil and gas properties being
depleted.
The Company's operating performance is influenced by several factors, the most
significant of which are the price received for its oil and gas and the
Company's production volumes. The world price for crude oil has an overall
influence on the prices that the Company receives for its domestically-produced
oil. The prices received for different grades of oil are based upon the world
price for crude oil, which is then adjusted based upon the particular grade,
such that, typically, light oil is sold at a premium while heavy grades of
crude are discounted. Additional factors influencing operating performance
include production expenses, overhead requirements, the Company's method of
depleting reserves, and cost of capital.
In May 1995, the Company completed the re-permitting and environmental impact
review process of its Santa Maria refinery with the County of Santa Barbara and
in June 1995 re-commenced refinery operations. The Company entered into a
processing agreement with Petro Source, under which Petro Source purchases
crude oil (including crude oil purchased from the Company), delivers it to the
refinery, reimburses the Company's out-of-pocket costs for refining, markets
the asphalt and other products and generally shares any profits equally with
the Company.
17
<PAGE> 18
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
During the year 1995, the Company expended $12.4 million for acquisition
activities and completed acquisitions of producing oil and gas properties in
Canada, Colombia, California, New Mexico and Texas. These acquisitions
increased the Company's proved reserves by 6,961,000 barrels of oil and
1,661,000 Mcf of gas.
RESULTS OF OPERATIONS
Results of the Company's oil and gas activities for the years ended December
31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------
United
Total States Canada Colombia
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Oil and gas sales $ 16,941,247 $ 11,304,023 $ 1,571,380 $ 4,065,844
Production costs $ 10,561,552 $ 7,431,057 $ 901,198 $ 2,229,297
Depletion $ 2,605,419 $ 1,680,765 $ 143,979 $ 780,675
General and administrative expenses $ 2,005,192 $ 1,711,008 $ 243,386 $ 50,798
Production:
Oil volume (Bbl) 1,226,879 710,271 85,800 430,808
Gas volume (Mcf) 1,337,193 938,577 398,616 -
Barrels of oil equivalent (BOE) 1,449,745 866,701 152,236 430,808
Average per BOE:
Sales price $ 11.69 $ 13.04 $ 10.32 $ 9.44
Production costs $ 7.29 $ 8.57 $ 5.92 $ 5.17
Depletion $ 1.80 $ 1.94 $ 0.95 $ 1.81
Proved Reserves:
Oil (Bbls) 12,531,297 6,562,595 926,200 5,042,502
Gas (Mcf) 19,479,049 9,103,049 10,376,000 -
Barrels of oil equivalent (BOE) 15,777,805 8,079,770 2,655,533 5,042,502
</TABLE>
18
<PAGE> 19
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993
---------------------------- ----
United United States
Total States Canada only
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Oil and gas sales $ 12,170,203 $ 10,403,835 $ 1,766,368 $ 10,129,554
Production costs $ 7,547,479 $ 6,722,813 $ 824,666 $ 5,856,947
Depletion $ 1,906,203 $ 1,451,265 $ 454,938 $ 1,765,000
General and administrative expenses $ 1,881,852 $ 1,705,699 $ 176,153 $ 2,502,543
Production:
Oil volume (Bbl) 737,963 658,016 79,947 572,783
Gas volume (Mcf) 1,453,045 979,893 473,152 1,096,294
Barrels of oil equivalent (BOE) 980,137 821,331 158,806 755,499
Average per BOE:
Sales price $ 12.42 $ 12.67 $ 11.12 $ 13.41
Production costs $ 7.70 $ 8.19 $ 5.19 $ 7.75
Depletion $ 1.94 $ 1.77 $ 2.86 $ 2.34
Proved Reserves:
Oil (Bbls) 7,135,731 6,671,341 464,390 3,052,019
Gas (Mcf) 9,791,773 7,225,973 2,565,800 7,012,662
Barrels of oil equivalent (BOE) 8,767,693 7,875,670 892,023 4,220,796
</TABLE>
1995 COMPARED TO 1994
Oil and Gas Sales
Oil and gas sales increased $4.77 million, or 39.2%, to $16.94 million for the
year ended December 31, 1995, from $12.17 million for the same period of 1994.
Increases in the Company's oil and gas production represented $4.57 million of
the increase of oil and gas sales. Of such production increase, $1.30 million
was due to production from the Velasquez Field, which was acquired in January
1995, $2.77 million was due to production from the Teca/Nare Fields, which were
acquired in September 1995, and the remaining $502,000 stemmed from a net
production increase of 39,000 BOE in the United States and Canada, resulting
from acquisitions in the latter part of 1994 and the 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. An increase of 3.0% in the United States of the average
sales price per BOE from $12.67 in the year ended December 31, 1994 to $13.04
for the same period of 1995, resulted in an increase in oil and gas sales of
$325,000 in the United States. A decrease of 7.2% in Canada of the average
sales price per BOE from $11.12 in the year ended December 31, 1994 to $10.32
for the same period of 1995 resulted in a decrease in oil and gas sales of
$122,000.
Other Revenues
Other revenues decreased $31,000, or 4.0%, to $753,000 for the year ended
December 31, 1995, from $784,000 for the same period of 1994. Pipeline tariffs
charged for the Company's share of the Velasquez-Galan Pipeline generated
revenue of $439,000 in 1995. A gain on sale of real estate in 1994 provided
revenue of $428,000. Operator fee income decreased $121,000 as a result of
property dispositions and reduced expenditures on Company-operated properties.
Rental of facilities and agricultural land at the Company's asphalt refinery
produced revenue of $74,000 in 1995.
19
<PAGE> 20
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Production Costs
Production costs increased $3.01 million, or 39.9%, to $10.56 million for the
year ended December 31, 1995, from $7.55 million for the same period of 1994.
Of this increase, $337,000 was the result of an average production cost per BOE
increase of $0.38 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 39,000 BOE in the United States and Canada was
responsible for a cost increase of $337,000 in 1995, compared to the year 1994.
From their acquisition dates of January 31, 1995 and September 12, 1995, the
Velasquez Field and Teca/Nare Fields incurred production costs of $2,229,000 in
the period ended December 31, 1995.
General and Administrative Expenses
General and administrative expenses increased $120,000, or 6.4%, to $2.0
million for the year 1995, from $1.88 million for the year 1994, due
principally to expenses incurred by the Company's refinery subsidiary, which
did not begin refining operations until the second quarter of 1995, expenses
incurred by the Colombian subsidiary which began operations in the first
quarter of 1995, and additional expenses incurred by the Company's Canadian
subsidiary, Beaver Lake Energy Corporation, beginning in the fourth quarter of
1995.
Depletion, Depreciation and Amortization Expenses
Depletion, depreciation and amortization expenses increased $790,000, or 38.7%,
to $2.83 million in the year 1995, from $2.04 million for the year 1994. Oil
and gas depletion expense increased $700,000, or 36.8%, to $2.6 million for the
year 1995, from $1.9 million for the same period of 1994. In the United
States, production of oil and gas increased 45,000 BOE, or 5.5%, to 867,000 BOE
for the year 1995, from 822,000 BOE for the same period of 1994. Depletion
expense in the United States increased $230,000 to $1.68 million, or $1.94 per
BOE, for the year ended December 31, 1995, from $1.45 million, or $1.77 per
BOE, for the same period of 1994, due principally to an increase in the basis
of depletable properties at December 31, 1995. In Canada, production of oil
and gas decreased 6,000 BOE, or 3.8%, to 152,000 BOE for the year 1995, from
158,000 BOE for the same period of 1994. Depletion expense in Canada decreased
$311,000 to $144,000, or $0.95 per BOE, for the year 1995, from $455,000, or
$2.86 per BOE, for the same period of 1994. Depletion expense in Colombia was
$781,000, or $1.81 per BOE, for the year ended December 31,1995. Depreciation
and amortization expense increased $86,000, or 63.7%, to $221,000 for the year
ended December 31, 1995, from $135,000 for the year ended December 31,1994.
Interest Expense
Interest expense increased $726,000, or 114.5%, to $1.36 million for the year
ended December 31, 1995, from $634,000 for the same period of 1994, due
principally to the Company's increased bank borrowings under its revolving line
of credit facility. The average debt balance outstanding under the Company's
revolving line of credit for the year ended December 31, 1995 increased $2.95
million, or 51.9%, to $8.63 million, from $5.68 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 173 basis points, or 21.3%, to 9.84% for the
year ended December 31, 1995 from 8.11% for the same period of 1994. In
addition, the Company incurred interest expense of $150,000 on a term loan
which was taken in connection with a property acquisition in September 1995.
Interest expense incurred by the Company's Canadian subsidiary decreased by
$53,000, or 30.8%, to $119,000 for the year ended December 31, 1995, from
$172,000 for the same period of 1994, due to monthly principal reductions under
that subsidiary's term loan and retirement of a note payable in January 1995.
The Company's refinery subsidiary incurred interest expense of $103,000 in the
year ended December 31, 1995 on financing provided by the seller of the
refinery. The Company incurred interest expense of $99,000 for the year ended
December 31,
20
<PAGE> 21
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Interest Expense (continued)
1995 as a result of short-term advances by affiliated companies.
Other Income (Expense)
Other income (expense) decreased $45,000, or 250.0%, to expense of $27,000 for
the year ended December 31, 1995, from income of $18,000 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. Non-recurring expenses of $23,000
were incurred by the Company in 1995.
Income Tax
The Company's effective tax rate for 1995 was 45%. The effective tax rate for
1994 was 43%.
1994 COMPARED TO 1993
Oil and Gas Sales
Oil and gas sales increased $2.04 million, or 20.1%, to $12.17 million in
fiscal year 1994, from $10.13 million in fiscal year 1993. The increase was
primarily the result of increases in the Company's oil and gas production. An
increase of 225,000 BOE in the Company's oil and gas production in fiscal year
1994 represented $2.7 million of the increase in oil and gas sales. Of such
production increase, $2.24 million (196,500 BOE) was due to the Company's
acquisition of new producing properties in the State of California and in
Alberta, Canada. Offsetting the production increase, the average sales price
per BOE decreased $0.99, or 7.4%, to $12.42 in fiscal year 1994 from $13.41 in
fiscal year 1993. This decrease was primarily due to the increase in production
from the Company's heavy crude oil properties located in the Santa Maria,
California area. The sales price of crude oil from these properties is
generally lower than the sales price of crude oil from other properties held by
the Company.
Other Revenues
Other revenues increased $384,000, or 96.0%, to $784,000 in fiscal year 1994,
from $400,000 in fiscal year 1993. Substantially all of such increase was
attributable to the sale of real estate in Orange County, California in
November 1994. Divestiture of non-strategic and non-profitable properties and
operations in fiscal year 1993 and the first quarter of 1994 resulted in a
decrease in revenues in fiscal year 1994 of $133,000. The remainder of the
change was due to additional fees earned by the Company in its capacity as
operator of producing oil and gas properties.
Production Costs
Production costs increased $1.69 million, or 28.9%, to $7.55 million ($7.70 per
BOE) in fiscal year 1994, from $5.86 million ($7.75 per BOE) in fiscal year
1993. The overall increase was due to higher production levels in fiscal year
1994. On a BOE basis, production costs for properties located in the United
States increased $0.44, due primarily to higher average production costs per
BOE at the Company's North Belridge and Santa Maria properties in California
and the Company's Michigan properties. Production costs for the Canadian
properties were $5.19 per BOE in fiscal year 1994.
21
<PAGE> 22
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
General and Administrative Expenses
General and administrative expenses decreased $621,000, or 24.8%, to $1.88
million in fiscal year 1994, from $2.5 million in fiscal year 1993.
Substantially all of such decrease was attributable to the Company's actions in
the second half of 1993 to consolidate office locations, eliminate duplicative
administrative services and replace contract labor personnel with Company
employees. Cost cutting measures enacted at the end of the first quarter of
fiscal year 1994, including the disposition of non-profitable business
operations, also contributed to the decrease. General and administrative
expenses attributable to the Company's Canadian operations were $176,000 for
fiscal year 1994.
Depletion, Depreciation and Amortization Expenses
Depletion, depreciation and amortization expenses increased approximately
$189,000, or 10.0%, to $2.04 million in fiscal year 1994, from $1.85 million in
fiscal year 1993. Oil and gas depletion expense increased $141,000, or 8.0%, to
$1.9 million in fiscal year 1994, from $1.77 million in fiscal year 1993. In
the United States, production of oil and gas increased 8.7% to 821,000 BOE in
fiscal year 1994, from 755,000 BOE for fiscal year 1993. However, proved
reserves in the United States increased 3.65 million BOE to 7.87 million BOE at
December 31, 1994, from 4.22 million BOE at December 31, 1993, which resulted
in depletion expense in the United States decreasing $314,000 to $1.45 million,
or $1.77 per BOE, in fiscal year 1994, from $1.76 million, or $2.34 per BOE, in
fiscal year 1993. Depletion expense in Canada was $455,000, or $2.86 per BOE,
in fiscal year 1994. Depreciation and amortization expense increased $47,000,
or 53.4%, to $135,000 in fiscal year 1994 from $88,000 in fiscal year 1993. The
increase was due principally to a full year's amortization of costs incurred in
obtaining the Company's revolving credit facility in September 1993.
Interest Expense
Interest expense increased $191,000, or 43.1%, to $634,000 in fiscal year 1994,
from $443,000 in fiscal year 1993. The average amount of applicable
interest-bearing debt in the United States in fiscal years 1993 and 1994 was
$5.28 million and $5.69 million, respectively. The higher amounts outstanding
under the Company's principal credit agreement in 1994 compared to 1993,
partially offset by the lower rate of interest in 1994, resulted in an increase
in U.S. interest expense of $19,000 for 1994 compared to 1993. Interest expense
of the Company's Canadian subsidiary was $172,000 in fiscal year 1994.
Other Income (Expense)
Other income (expense) increased $34,000, or 212.5%, to income of $18,000 in
fiscal year 1994 from net expense of $16,000 in fiscal year 1993. Included for
fiscal year 1994 are net proceeds of $198,000 received in settlement of
litigation with a third party, and expenses of $119,000 attributed to the
Company's sale of its oil and gas environmental services business effective
March 31, 1994.
Income Tax
The Company's effective tax rate for 1994 was 43%. The effective rate for
fiscal year 1993 was (29.6%), resulting in a tax benefit of $37,000 on a pretax
loss of $125,000.
22
<PAGE> 23
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Liquidity and Capital Resources
At December 31, 1995, the Company's total current assets were $9.83 million and
its total current liabilities were $7.36 million. Included in current
liabilities was $505,000 attributable to the current portion of long-term debt,
and a $692,000 obligation due for repayment from future oil production.
Summary cash flow information for the years ended December 31, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 1,736,000 $ 3,346,000
Net cash used in investing activities $(17,060,000) $ (3,930,000)
Net cash provided by financing activities $ 15,153,000 $ 860,000
</TABLE>
The Company's operating activities during the year ended December 31, 1995
provided net cash flow of $1.74 million. Net income of $547,000, adjusted for
non-cash charges (primarily depletion, depreciation and amortization) in the
amount of $2.80 million, was the primary source of cash inflows from
operations. Working capital requirements attributable principally to
operations at the Company's Colombian oil properties were responsible for cash
outflows of $1.55 million. Cash flows from operating activities provided net
cash flow of $3.35 million in fiscal year 1994. Net income of $509,000,
adjusted for non-cash charges (primarily depletion, depreciation and
amortization) in the amount of $2.41 million, was the principal source of the
fiscal year 1994 cash flow.
Investing activities during the year ended December 31, 1995 resulted in a net
cash outflow of $17.06 million. Of this amount, oil and gas property
acquisition, development and exploration expenditures totaled $12.81 million.
An additional $2.66 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.
Investing activities during fiscal year 1994 resulted in a utilization of cash
amounting to $3.93 million. Expenditures for oil and gas property acquisitions
and exploration and development activities totaled $3.69 million. An
additional $798,000 of cash was utilized for other equipment purchases. Sales
of producing oil and gas properties provided cash of $530,000.
Financing activities during the year ended December 31, 1995, which provided
net cash flow of $15.15 million, consisted principally of activity on the
Company's revolving line of credit, Debenture proceeds, net of related costs,
in the amount of $9.15 million, a loan from the Company's parent company of
$1.62 million, and retirement of a $606,000 note payable that was outstanding
at December 31, 1994. Advances from affiliated companies in the amount of
$204,000 were used to partially fund the note payable payoff. Proceeds from
the exercise of options, sale of stock and contributed capital provided cash
inflows in the total amount of $1.07 million in 1995.
Financing activity directed to advances and repayments on the Company's
revolving line of credit resulted in a net debt reduction under that credit
facility of $1.32 million for the fiscal year 1994. A term loan of $2.0
million was used in connection with the acquisition of oil and gas properties
in Canada, of which $535,000 was repaid in fiscal year 1994. Proceeds of
$510,000 were realized from the exercise of options for 200,000 shares of the
Company's Common Stock. Contributed surplus represents capital contributed to
the Company's Canadian subsidiary in fiscal year 1994 by its former parent
company prior to its acquisition by the Company.
23
<PAGE> 24
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Liquidity and Capital Resources (continued)
The Company has expanded its operations through acquisitions of oil and gas
producing properties, and intends to do so in the future by means of additional
financing. The Company funded its acquisition of the Teca/Nare Fields and
Velasquez-Galan Pipeline in part by obtaining loans of $700,000 and $1.5
million, bearing interest at prime plus one percent per annum, from Capco, its
majority shareholder, and CRI, which, until November 1995, was a wholly-owned
subsidiary of Capco, respectively, and in part by borrowing $4.7 million from a
bank, which borrowing was guaranteed by Ilyas Chaudhary, the controlling
shareholder of Capco. Of such $700,000 loan, $600,000 was, at the closing of
the Debenture offering, converted into 75,000 shares of Common Stock of the
Company at a conversion price of $8.00 per share. On December 26, 1995 the
Company closed a public offering of $11,000,000 of 9% Convertible Senior
Subordinated Debentures due December 2005. Net proceeds of the offering were
used primarily to repay outstanding indebtedness, including borrowings incurred
in connection with the acquisition of oil and gas properties in Colombia, South
America. Approximately $1 million of the net proceeds were utilized to reduce
the outstanding balance under the Company's revolving line of credit facility.
The Company has a reducing, revolving line of credit with Bank One, Texas, N.A.
At December 31, 1995, the borrowing base under the credit agreement was $10.1
million, subject to a monthly reduction of $200,000. Outstanding debt at
December 31, 1995 under this revolving line of credit was $9.5 million.
On February 7, 1996, underwriters for the Company's Debenture offering
exercised their over-allotment option, resulting in net proceeds to the Company
of $1.5 million, a portion of which was utilized to reduce the outstanding
balance under the Company's revolving line of credit. Effective March 1, 1996,
the borrowing base under the revolving line of credit was increased to $10.8
million. Effective March 6, 1996, the Company's Canadian subsidiary
renegotiated its term loan and now has available a demand revolving reducing
loan, with an increased borrowing capacity of approximately $860,000. The
Company believes that the borrowing capacity available under its credit
facilities, plus anticipated cash flows from operations, will be sufficient to
fund its presently expected working capital requirements.
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.
Safe Harbor for Forward-Looking Statements
Except for historical information contained herein, the statements in this
report are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements involve known and unknown risks and uncertainties which may
cause the Company's actual results in future periods to differ materially from
forecasted results. These risks and uncertainties include, among other things,
volatility of oil prices, product demand, market competition, risks inherent in
the Company's Colombian operations, including future prices paid by Ecopetrol
for oil produced at the TNC Fields, imprecision of reserve estimates, and the
Company's ability to replace and expand oil and gas reserves. These and other
risks are described elsewhere herein and in the Company's other filings with
the Securities and Exchange Commission.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
which the Company implemented in 1995, with no impact on the Company's
financial position or results of operations.
24
<PAGE> 25
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
New Accounting Standards (continued)
In 1996, the Company will adopt SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company anticipates continuing to account for stock based
compensation to employees under the rules of Accounting Principles Board
Opinion No. 25 and will disclose the proforma impact of SFAS No. 123 in the
notes to the financial statements.
Impact of Inflation
The price the Company receives for its oil and gas has been impacted primarily
by the world oil market and the domestic market for natural gas, respectively,
rather than by any measure of general inflation. Because of the relatively low
rates of inflation experienced in the United States in recent years, the
Company's production costs and general and administrative expenses have not
been impacted significantly by inflation.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements and supplementary data of the Company are
included as part of this Form 10-KSB following the signature page:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-2
Consolidated Statements of Income, years ended December 31,
1995 and 1994 F-3
Consolidated Statements of Stockholders' Equity, years ended
December 31, 1995 and 1994 F-4
Consolidated Statements of Cash Flows, years ended
December 31, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6 - F-23
Supplemental Information About Oil and Gas Producing Activities
(Unaudited) F-24 - F-28
</TABLE>
25
<PAGE> 26
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 9, 1994, the Board of Directors of the Company, pursuant to the
recommendations of the Board's Audit Committee, adopted a resolution dismissing
Jackson & Rhodes, P.C., 8140 Walnut Hill Lane, Suite 800, Dallas, Texas, as the
Company's principal accountant and engaging the accounting firm of Coopers &
Lybrand L.L.P., 350 South Grand Avenue, Los Angeles, California as the
Company's independent accountants. The change in accountants from Jackson and
Rhodes, P.C. to Coopers & Lybrand L.L.P. was effective for fiscal year 1994 and
was not due to any disagreements between the Company and Jackson & Rhodes, P.C.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Incorporated by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 1996 annual
meeting.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 1996 annual
meeting.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 1996 annual
meeting.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 1996 annual
meeting.
26
<PAGE> 27
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibit
Numbers Description
- -------- -----------
<S> <C>
(a) The following documents are filed as a part of this report:
3.1(i) Articles of Incorporation as amended.
3.1(ii) By-Laws (incorporated herein by reference from Form 10-K, Item
13(c)(3.2) of the Company for the year ended December 31, 1982).
4.1 Form of Indenture (including form of Debenture) (filed as Exhibit 4.1
to the Company's Registration Statement on Form SB-2 (file No.
33-94678) and incorporated herein by reference).
10.1 Form of Indemnification Agreement to be entered into with officers and
directors of the Company (filed as Exhibit 10.1 to the Company's
Registration Statement on Form SB-2 (file No. 33-94678) and
incorporated herein by reference).
10.2 Benefit Plans (filed as Exhibit 10.2 to the Company's Registration
Statement on Form SB-2 (file No. 33-94678) and incorporated herein by
reference).
10.3 Employment Agreement with Ilyas Chaudhary (filed as Exhibit 10.3 to
the Company's Registration Statement on Form SB-2 (file No. 33-94678)
and incorporated herein by reference).
10.4 Loan Agreement between the Company and Bank One, Texas, N.A. (filed as
an exhibit to the Company's Form 8-K dated October 1, 1993, and
incorporated herein by reference).
10.5 Stock Purchase Agreement (filed as an exhibit to the Company's Current
Report on Form 8-K dated January 10, 1995 and incorporated herein by
reference).
10.6 Processing Agreement between Santa Maria Refining Company and Petro
Source Refining Corporation (filed as Exhibit 10.6 to the Company's
Registration Statement on Form SB-2 (file No. 33-94678) and
incorporated herein by reference).
10.7 Agreement among Saba Petroleum Company, Omimex de Colombia, Ltd. and
Texas Petroleum Company to acquire Teca and Nare fields (filed as
Exhibit 10.7 to the Company's Registration Statement on Form SB-2
(file No. 33-94678) and incorporated herein by reference).
10.8 Agreement among Saba Petroleum Company, Omimex de Colombia, Ltd. and
Texas Petroleum Company to acquire Cocorna Field (filed as Exhibit
10.8 to the Company's Registration Statement on Form SB-2 (file No.
33-94678) and incorporated herein by reference).
10.9 Agreement among Saba Petroleum Company and Cabot Oil and Gas
Corporation to acquire Cabot Properties (filed as Exhibit 10.9 to the
Company's Registration Statement on Form SB-2 (file No. 33-94678) and
incorporated herein by reference).
10.10 Agreement among Saba Petroleum Company, Beaver Lake Energy Corporation
and Capco Resource Properties Ltd. (filed as Exhibit 10.10 to the
Company's Registration Statement on Form SB-2 (file No. 33-94678) and
incorporated herein by reference).
</TABLE>
27
<PAGE> 28
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (continued)
<TABLE>
<CAPTION>
Exhibit
Numbers Description
- -------- -----------
<S> <C>
10.11 Amendment to Loan Agreement between the Company and Bank One, Texas,
N.A. (filed as Exhibit 10.3 to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1995 and incorporated
herein by reference).
10.12 Amendment to Agreement among the Company, Omimex de Colombia, Ltd. and
Texas Petroleum Company to acquire the Teca and Nare fields (filed as
Exhibit 2.2 to the Company's Current Report on Form 8-K dated
September 14, 1995 and incorporated herein by reference).
10.13 Promissory Notes of the Company (filed as Exhibit 10.13 to the
Company's Registration Statement on Form SB-2 (file No. 33-94678) and
incorporated herein by reference).
10.14 CRI Stock Purchase Termination Agreement (filed as Exhibit 10.14 to
the Company's Registration Statement on Form SB-2 (file No. 33-94678)
and incorporated herein by reference).
10.15 Form of Common Stock Conversion Agreement between Capco and the
Company (filed as Exhibit 10.15 to the Company's Registration
Statement on Form SB-2 (file No. 33-94678) and incorporated herein by
reference).
10.16 Form of Agreement regarding exercise of preemptive rights between
Capco and the Company (filed as Exhibit 10.16 to the Company's
Registration Statement on Form SB-2 (file No. 33-94678) and
incorporated herein by reference).
10.17 Letter Agreement, as amended, between Omimex de Colombia, Ltd. and the
Company (filed as Exhibit 10.17 to the Company's Registration
Statement on Form SB-2 (file No. 33-94678) and incorporated herein by
reference).
16.1 Letter from Jackson & Rhodes, P.C. to the Company (filed as an exhibit
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994 and incorporated herein by reference).
22.1 Subsidiaries of Small Business Issuer are attached hereto.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
<TABLE>
<CAPTION>
Date of Report Item Reported Financial Statements
-------------- ------------- --------------------
<S> <C> <C>
November 14, 1995 Item 2 Proforma Financial Information for the
year ended December 31, 1994 and six
months ended June 30, 1995.
</TABLE>
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SABA PETROLEUM COMPANY
Date: April 12, 1996 By: SIGNED Ilyas Chaudhary
--------------- -----------------------------------
Ilyas Chaudhary, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
SIGNED Ilyas Chaudhary President and Director Date: April 12, 1996
- -------------------------- (Principal Executive Officer)
Ilyas Chaudhary
SIGNED Francis J. Barker Director Date: April 12, 1996
- --------------------------
Francis J. Barker
SIGNED William E. Richards Director Date: April 12, 1996
- --------------------------
William E. Richards
SIGNED William J. Hickey Director Date: April 12, 1996
- --------------------------
William J. Hickey
SIGNED William Hagler Director Date: April 12, 1996
- --------------------------
William Hagler
SIGNED Walton C. Vance Chief Financial Officer Date: April 12, 1996
- -------------------------- and Secretary
Walton C. Vance (Principal Financial and
Accounting Officer)
</TABLE>
29
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Saba Petroleum Company
We have audited the accompanying consolidated balance sheets of Saba Petroleum
Company and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Saba Petroleum
Company and subsidiaries as of December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 29, 1996
F-1
<PAGE> 31
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 640,287 $ 798,984
Restricted certificate of deposit (Note 2) 1,750,000 -
Accounts receivable, net of allowance for doubtful
accounts of $57,000 (1995) and $62,000(1994) 4,444,209 2,428,360
Other current assets 2,995,172 534,993
------------ -----------
Total current assets 9,829,668 3,762,337
------------ -----------
Property and equipment (Note 9):
Oil and gas properties (full cost method) 32,602,571 18,416,330
Land 1,849,313 1,166,938
Plant and equipment 3,240,771 1,260,023
------------ -----------
37,692,655 20,843,291
Less accumulated depletion and depreciation (10,108,845) (7,363,502)
------------ -----------
Total property and equipment 27,583,810 13,479,789
------------ -----------
Other assets:
Deposits on properties 50,000 50,000
Notes receivable, less current portion 9,166 360,290
Deferred financing costs 1,995,458 204,637
Due from affiliates 183,975 129,859
Deposits and other 99,020 121,510
------------ -----------
Total other assets 2,337,619 866,296
------------ -----------
$ 39,751,097 $18,108,422
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 5,619,163 $ 3,222,187
Oil imbalance obligation (Note 2) 692,384 -
Note payable - 606,363
Income taxes payable 541,651 -
Current portion of long-term debt 504,985 2,356,524
------------ -----------
Total current liabilities 7,358,183 6,185,074
Long-term debt, net of current portion 23,543,307 5,322,716
Other liabilities 194,836 62,505
Deferred taxes 321,237 254,800
Minority interest in consolidated subsidiary 485,285 -
------------ -----------
Total liabilities 31,902,848 11,825,095
------------ -----------
Commitments and contingencies (Note 13)
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
4,264,590 (1995) and 4,119,257 (1994) shares 6,796,140 5,772,457
Retained earnings 1,038,129 510,870
Cumulative translation adjustment 22,480 -
Unearned compensation (8,500) -
------------ -----------
Total stockholders' equity 7,848,249 6,283,327
------------ -----------
$ 39,751,097 $18,108,422
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 32
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Revenues:
Oil and gas sales $ 16,941,247 $12,170,203
Other 753,008 783,688
------------ -----------
Total revenues 17,694,255 12,953,891
------------ -----------
Expenses:
Production costs 10,561,552 7,547,479
General and administrative 2,005,192 1,881,852
Depletion, depreciation and amortization 2,826,684 2,041,032
------------ -----------
Total expenses 15,393,428 11,470,363
------------ -----------
Operating income 2,300,827 1,483,528
------------ -----------
Other income (expense):
Interest income 16,924 25,481
Other income (expense) (26,614) 18,397
Interest expense, net of interest capitalized
of $27,369 (1995) and $58,085 (1994) (1,364,110) (634,292)
Gain on issuance of shares of subsidiary 124,773 -
------------ -----------
Total other income (expense) (1,249,027) (590,414)
------------ -----------
Income before income taxes 1,051,800 893,114
Provision for taxes on income (449,636) (383,800)
Minority interest in earnings of consolidated subsidiary (55,632) -
------------ -----------
Net income $ 546,532 $ 509,314
============ ===========
Net earnings per common share $ 0.13 $ 0.13
============ ===========
Weighted average common and common
equivalent shares outstanding 4,371,384 3,997,787
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 33
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Cumulative Total
---------------------- Translation Unearned Retained Stockholders'
Shares Amount Adjustment Compensation Earnings Equity
--------- ---------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 3,597,037 $4,405,335 $ - $ - $ 1,556 $ 4,406,891
Exercise of options 200,000 625,756 625,756
Issuance of common stock for interest in
oil and gas property 22,220 66,660 66,660
Issuance of common stock for acquisition
of subsidiary (Note 2) 300,000 - -
Contributed surplus - 674,706 - 674,706
Net income 509,314 509,314
--------- ---------- ------------ ------------ ---------- -------------
Balance at December 31, 1994 4,119,257 5,772,457 - - 510,870 6,283,327
Minority interest in subsidiary (19,273) (19,273)
Exercise of options 58,333 189,583 189,583
Issuance of common stock for compensation 12,000 25,500 25,500
Issuance of common stock 75,000 600,000 600,000
Cumulative translation adjustment 22,480 22,480
Unearned compensation (8,500) (8,500)
Contributed surplus - 208,600 208,600
Net income 546,532 546,532
--------- ---------- ------------ ------------ ---------- -------------
Balance at December 31, 1995 4,264,590 $6,796,140 $ 22,480 $ (8,500) $1,038,129 $ 7,848,249
========= ========== ============ ============ ========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 34
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 546,532 $ 509,314
Adjustments to reconcile net income to net cash
provided by operations:
Depletion, depreciation and amortization 2,826,684 2,041,032
Amortization of unearned compensation 17,000 -
Deferred tax provision (benefit) (39,000) 254,800
Compensation expense attributable to
non-employee option - 115,756
Minority interest in earnings of consolidated
subsidiary 55,632 -
Gain on issuance of shares of subsidiary (124,773) -
Changes in:
Accounts receivable (1,999,984) 100,820
Other assets (2,452,503) (299,830)
Accounts payable and accrued liabilities 2,906,319 624,584
------------ -----------
Net cash provided by operating activities 1,735,907 3,346,476
------------ -----------
Cash flows from investing activities:
Purchase of restricted certificate of deposit (1,750,000) -
Expenditures for oil and gas properties (12,807,412) (3,694,094)
Expenditures for equipment, net (2,660,120) (797,690)
Sale of oil and gas properties 157,933 529,611
Change in other assets - 32,250
------------ -----------
Net cash used in investing activities (17,059,599) (3,929,923)
------------ -----------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 34,814,900 5,986,266
Principal payments on notes payable and long-term debt (19,136,299) (5,822,026)
Increase in production notes receivable - (445,073)
Proceeds from notes receivable 302,968 74,848
Increase in deferred financing costs (1,854,421) (11,972)
Net change in accounts with affiliated companies (47,120) (107,066)
Net proceeds from exercise of options and issuance of
common stock 789,583 510,000
Increase in contributed surplus 208,600 674,706
Capital subscription of minority interest 74,778 -
------------ -----------
Net cash provided by financing activities 15,152,989 859,683
------------ -----------
Effect of exchange rate changes on cash
and cash equivalents 12,006 -
------------ -----------
Net increase (decrease) in cash and cash equivalents (158,697) 276,236
Cash and cash equivalents at beginning of year 798,984 522,748
------------ -----------
Cash and cash equivalents at end of year $ 640,287 $ 798,984
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 35
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
o GENERAL
Saba Petroleum Company ("Saba" or the "Company") is a Colorado corporation
formed in 1979 as a natural resources company. Saba is an international
oil and gas producer with principal producing properties located in the
continental United States, Canada and Colombia. Until 1994, all of the
Company's principal assets were located in the United States. In 1994 and
1995, the Company acquired interests in producing properties in Canada and
Colombia, as well as additional properties in the United States. For the
year ended December 31, 1995, approximately 33.3% of the Company's gross
revenues from oil and gas production were derived from its international
operations. Saba's principal United States oil and gas producing
properties are located in California, Michigan, Texas, Wyoming, New Mexico
and Oklahoma. As of December 31, 1995, 66.8% of the Company's Common Stock
is owned directly, or indirectly, by the Company's Chief Executive Officer.
o USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
o CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly and majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
o CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with an original maturity of
three months or less to be cash equivalents.
o OIL AND GAS PROPERTIES
The Company's oil and gas producing activities are accounted for using the
full cost method of accounting. Accordingly, the Company capitalizes all
costs, in separate cost centers for each country, incurred in connection
with the acquisition of oil and gas properties and with the exploration for
and development of oil and gas reserves. Such costs include lease
acquisition costs, geological and geophysical expenditures, costs of
drilling both productive and non-productive wells, and overhead expenses
directly related to land acquisition and exploration and development
activities. Proceeds from the disposition of oil and gas properties are
accounted for as a reduction in capitalized costs, with no gain or loss
recognized unless such disposition involves a significant change in
reserves in which case the gain or loss is recognized.
Depletion of the capitalized costs of oil and gas properties, including
estimated future development costs, is provided using the equivalent
unit-of-production method based upon estimates of proved oil and gas
reserves and production which are converted to a common unit of measure
based upon their relative energy content. Unproved oil and gas properties
are not amortized but are individually assessed for impairment. The cost
of any impaired property is transferred to the balance of oil and gas
properties being depleted.
F-6
<PAGE> 36
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
o OIL AND GAS PROPERTIES (CONTINUED)
In accordance with the full cost method of accounting, the net capitalized
costs of oil and gas properties are not to exceed their related estimated
future net revenues discounted at 10 percent, net of tax considerations,
plus the lower of cost or estimated fair market value of unproved
properties.
Substantially all of the Company's exploration, development and production
activities are conducted jointly with others and, accordingly, the
financial statements reflect only the Company's proportionate interest in
such activities.
o PLANT AND EQUIPMENT
Plant, consisting of an asphalt refining facility, is stated at the
acquisition price of $500,000 plus the cost to refurbish the equipment.
Depreciation is calculated using the straight line method over its
estimated useful life. Equipment is stated at cost. Depreciation of
equipment is calculated using the straight line method over the estimated
useful lives of the equipment, ranging from three to fifteen years.
Depreciation expense in 1995 and 1994 was $155,900 and $74,600,
respectively. Normal repairs and maintenance are charged to expense as
incurred. Upon disposition of plant and equipment, any resultant gain or
loss is recognized in current operations.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to
which it relates and is amortized over the asset's estimated useful life.
The implementation in 1995 of Statement of Financial Accounting ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", had no impact on the financial
statements.
o DEFERRED FINANCING COSTS
The costs related to the issuance of debt are capitalized and amortized
using the effective interest method over the original terms of the related
debt. At December 31, 1995, the Company had capitalized costs in the
amount of $299,000 and $1,836,000 relating to its bank credit facilities
and debentures, respectively. Amortization expense in 1995 and 1994 was
$63,600 and $60,000, respectively.
o INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS-109).
SFAS-109 requires the asset and liability method of computing deferred
income taxes. The objective of the asset and liability method is to
establish deferred tax assets and liabilities for the temporary differences
between the financial reporting bases and the tax bases of the Company's
assets and liabilities at enacted tax rates expected to be in effect when
such amounts are realized or settled. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
F-7
<PAGE> 37
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
o FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated at year-end
rates of exchange; income and expenses are translated at the weighted
average rates of exchange during the year. The resultant cumulative
translation adjustments are included as a separate component of
stockholders' equity (immaterial for 1994). Foreign currency transaction
gains and losses are included in net income.
o EARNINGS PER COMMON SHARE
Primary earnings per common share are based on the weighted average number
of shares outstanding during each year plus, when their effect is dilutive,
common stock equivalents consisting of certain shares subject to stock
options. The calculation of fully diluted earnings per common share
additionally assumes the conversion of the 9% convertible senior
subordinated debentures due December 15, 2005, using the conversion price
of $8.75 per common share. In each of 1995 and 1994 primary earnings per
common share equalled fully diluted earnings per common share.
o SALE OF SUBSIDIARY STOCK
The Company accounts for a change in its proportionate share of a
subsidiary's equity resulting from the issuance by the subsidiary of its
stock in current operations in the consolidated financial statements.
o RECLASSIFICATION
Certain previously reported financial information has been reclassified to
conform to the current year's presentation.
2. ACQUISITIONS
In September 1995, the Company acquired a 25% interest in the Teca and Nare
oil fields ("Teca/Nare Fields") and a 50% interest in the Velasquez-Galan
pipeline, all of which are located in Colombia, South America. The
Company's gross acquisition cost for the acquired interests was $12.25
million, which was reduced by the Company's share of net revenue credits
from the properties from the effective date of January 1, 1995 to the
closing date ($3.95 million), leaving a net purchase price of $8.3 million.
In addition, the Company assumed an oil imbalance obligation of
approximately $1.25 million at the closing date. In December 1995, the
Company acquired a 50% interest in the Cocorna oil field in Colombia at a
net acquisition cost of $533,000.
In connection with the acquisition of the Teca/Nare Fields, Ecopetrol
required that Omimex, the operator of the properties, obtain a letter of
credit for the benefit of Ecopetrol in the amount of $3.5 million to secure
payments due third party vendors at the Teca/Nare Fields. Such letter of
credit was issued in November 1995. Under the terms of such letter of
credit, which expires in October 1996, Ecopetrol may draw thereon should
Omimex fail to pay such third party vendors at the Teca/Nare Fields. In
connection with the issuance of the letter of credit, Omimex required that
the Company pledge collateral consisting of a $1.75 million certificate of
deposit.
The acquisition cost of the properties has been assigned to various
accounts in the accompanying balance sheet (primarily oil and gas
properties), and the results of operations of the properties are included
in the accompanying financial statements from the respective dates of
acquisition of each property.
F-8
<PAGE> 38
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
The following unaudited proforma financial information presents the results
of operations of the Company as if the acquisitions had occurred as of the
beginning of the respective periods. The proforma financial information
does not necessarily reflect the results of operations that would have
occurred had the properties been acquired at the beginning of the
respective periods.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
(Dollars in thousands, except per share amounts) 1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
Total revenues $ 27,678 $ 24,470
Total operating expenses, including general and administrative
and depletion, depreciation and amortization (20,036) (18,320)
Interest expense (1,985) (1,447)
Other income (expense) (10) 43
----------- -----------
Income before income taxes 5,647 4,746
Provision for taxes on income 2,767 2,326
----------- -----------
Net income $ 2,880 $ 2,420
=========== ===========
Net income per common share $ 0.66 $ 0.61
=========== ===========
</TABLE>
In October 1995, all of the issued shares of Capco Resource Properties Ltd.
("CRPL"), the Company's 100% owned subsidiary, were exchanged for 13,437,322
voting common shares of Beaver Lake Energy Corporation ("BLEC"), a publicly
traded corporation located in Alberta, Canada.
The net assets of BLEC were deemed to be acquired at their net book value
(which approximated fair market value) at the date of acquisition.
Net assets acquired were as follows:
<TABLE>
<S> <C>
Working capital deficiency $ (105,981)
Oil and gas properties 316,420
------------
$ 210,439
============
</TABLE>
On the same date as the share exchange with the Company, BLEC acquired
interests in certain oil and gas properties in exchange for 1,443,204 shares
of its common stock. Property interests of $399,527 were acquired and
production notes receivable in the amount of $157,311 were deemed to be
paid.
F-9
<PAGE> 39
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
In addition, as part of a private placement of 1,200,000 shares, the
Company purchased 1,000,000 common shares of BLEC at a cost of
approximately $370,000. As a result of these transactions, the Company
owned 74.4% of the outstanding common stock of BLEC at December 31, 1995.
The sale of shares of common stock by the subsidiary resulted in a net gain
in the amount of $124,773 which the Company has reported in current
operations. Deferred income taxes have not been recorded in conjunction
with this transaction as the Company plans to maintain a majority ownership
position in the subsidiary.
On December 30, 1994, the Company acquired 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
financial statements for 1994 include the accounts of CRPL.
3. NOTES RECEIVABLE
Notes receivable are comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
9 1/4% production notes receivable, with monthly installments of
$10,100, plus interest, through December 1996 $ 121,126 $ 445,073
5% note receivable from a former officer of the Company, due
January 1, 1997, with 20,000 shares of Company Common Stock as
collateral - 60,000
9% note receivable from sale of real estate, due July 31, 1995,
with a deed of trust covering real property as collateral - 75,000
6% note receivable from purchaser of personal property, due
November 1997, uncollateralized 10,366 11,698
Other 7,160 7,160
---------- ----------
138,652 598,931
Less current portion (included in other current assets) 129,486 238,641
---------- ----------
$ 9,166 $ 360,290
========== ==========
</TABLE>
F-10
<PAGE> 40
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT
Oil and gas properties, land, plant and equipment at December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
United
States Canada Colombia Total
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
December 31, 1995
-----------------
Oil and gas properties
----------------------
Unevaluated oil and gas properties $ 305,974 $ - $ - $ 305,974
Proved oil and gas properties 20,195,774 3,857,561 8,243,262 32,296,597
------------- ------------ ------------ -------------
Total capitalized costs 20,501,748 3,857,561 8,243,262 32,602,571
Less accumulated depletion
and depreciation 8,538,599 518,304 780,675 9,837,578
------------- ------------ ------------ -------------
Capitalized costs, net $ 11,963,149 $ 3,339,257 $ 7,462,587 $ 22,764,993
============= ============ ============ =============
Other property and equipment
----------------------------
Land $ 1,548,938 $ - $ 300,375 $ 1,849,313
Plant and equipment 1,754,329 62,894 1,423,548 3,240,771
------------- ------------ ------------ -------------
3,303,267 62,894 1,723,923 5,090,084
Less accumulated depreciation 217,270 12,601 41,396 271,267
------------- ------------ ------------ -------------
$ 3,085,997 $ 50,293 $ 1,682,527 $ 4,818,817
============= ============ ============ =============
December 31, 1994
-----------------
Oil and gas properties
----------------------
Unevaluated oil and gas properties $ 339,575 $ - $ - $ 339,575
Proved oil and gas properties 15,017,287 3,059,468 - 18,076,755
------------- ------------ ------------ -------------
Total capitalized costs 15,356,862 3,059,468 - 18,416,330
Less accumulated depletion
and depreciation 6,857,834 380,717 - 7,238,551
------------- ------------ ------------ -------------
Capitalized costs, net $ 8,499,028 $ 2,678,751 $ - $ 11,177,779
============= ============ ============ =============
Other property and equipment
----------------------------
Land $ 1,166,938 $ - $ - $ 1,166,938
Plant and equipment 1,225,363 34,660 - 1,260,023
------------- ------------ ------------ -------------
2,392,301 34,660 - 2,426,961
Less accumulated depreciation 120,180 4,771 - 124,951
------------- ------------ ------------ -------------
$ 2,272,121 $ 29,889 $ - $ 2,302,010
============= ============ ============ =============
</TABLE>
F-11
<PAGE> 41
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT (CONTINUED)
Costs incurred in oil and gas property acquisition, exploration, and
development activities are as follows:
<TABLE>
<CAPTION>
United
States Canada Colombia Total
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
1995
----
Exploration $ 328,322 $ 31,718 $ - $ 360,040
Development 1,453,593 134,883 - 1,588,476
Acquisition of proved properties 3,349,594 802,804 8,243,262 12,395,660
------------ ------------ ------------ -------------
Total costs incurred $ 5,131,509 $ 969,405 $ 8,243,262 $ 14,344,176
============ ============ ============ =============
1994
----
Exploration $ 277,448 $ - $ - $ 277,448
Development 198,851 - - 198,851
Acquisition of proved properties 883,475 3,059,468 - 3,942,943
------------ ------------ ------------ -------------
Total costs incurred $ 1,359,774 $ 3,059,468 $ - $ 4,419,242
============ ============ ============ =============
</TABLE>
Oil and gas depletion expense in 1995 and 1994 was $2,605,419 and
$1,906,203, or $1.80 and $1.94 per barrel of oil equivalent, respectively.
5. Statement of Cash Flows
Following is certain supplemental information regarding cash flows:
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
Interest paid $ 1,388,369 $ 462,639
============ ==========
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.
The acquisition cost of oil and gas properties which were acquired in
September 1995 included an oil imbalance obligation in the amount of
$1,248,866 which was assumed by the Company.
In October 1995 the Company's Canadian subsidiary issued common stock to
acquire a corporation at a recorded net cost of $210,439.
In October 1995, interests in oil and gas properties with a cost of
$399,527 were acquired by the issuance of 1,443,204 shares of common stock
of the Company's Canadian subsidiary and cancellation of notes receivable
in the amount of $157,311.
F-12
<PAGE> 42
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. STATEMENT OF CASH FLOWS (CONTINUED)
The Company realized a gain in the amount of $124,773 as a result of the
issuance of common stock by a subsidiary.
Cumulative foreign currency translation gains in the amount of $18,216 were
recorded during the year ended December 31, 1995.
Funding in the amount of $606,363 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 year ended December
31, 1994.
The Company issued 22,220 shares of Common Stock in December 1994 as
consideration for the acquisition of an oil and gas property at a cost of
$66,660.
Accrued interest in the amount of $58,085 was capitalized in connection
with the refurbishment of the refinery facility during the year ended
December 31, 1994.
The Company incurred a charge to operations, and a credit to Stockholders'
Equity, in the amount of $115,756 resulting from the exercise of stock
options by a consultant during the year ended December 31, 1994.
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at December 31, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Trade accounts payable $ 3,568,400 $ 2,153,567
Undistributed revenue payable 398,519 238,269
Insurance and tax assessments payable 716,597 -
Other accrued expenses 935,647 830,351
------------ ------------
Total $ 5,619,163 $ 3,222,187
============ ============
</TABLE>
F-13
<PAGE> 43
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The components of income (loss) before income taxes for the years ended
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
U.S. $ (523,572) $ 734,396
Canada 134,138 158,718
Colombia 1,385,602 -
------------ ------------
Total $ 996,168 $ 893,114
============ ============
</TABLE>
Components of income tax expense (benefit) for the years ended December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C> <C>
Current:
Federal $ (112,364) $ 19,300
State 45,000 25,700
Foreign 556,000 84,000
------------ -----------
488,636 129,000
============ ===========
Deferred:
Federal (44,350) 164,400
State 5,350 90,400
------------ -----------
(39,000) 254,800
------------ -----------
$ 449,636 $ 383,800
============ ===========
</TABLE>
The provision (benefit) for income taxes differs from the amount that would
result from applying the federal statutory rate for the years ended December
31, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Expected tax provision (benefit) 34.0% 34.0%
State income taxes, net of
federal benefit 3.3 5.9
Effect of foreign earnings (13.0) 3.4
Change in valuation allowance 15.6 (2.2)
Other 5.2 1.9
----- ----
45.1% 43.0%
===== ====
</TABLE>
F-14
<PAGE> 44
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The tax effected temporary differences which give rise to the deferred tax
provision consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Property and equipment $ 337,900 $ 569,600
Effect of state taxes (12,300) (39,500)
Net operating losses 209,500 (212,400)
Foreign tax credits (640,000) -
Alternative minimum tax credits (38,100) (42,600)
Change in valuation allowance 155,000 (19,700)
Other (51,000) (600)
------------ ------------
$ (39,000) $ 254,800
============ ============
</TABLE>
The components of the deferred income tax liability as of December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Property and equipment $ (976,600) $ (638,700)
State taxes 51,800 39,500
Net operating losses 37,200 246,700
Foreign tax credits 640,000 -
Alternative minimum tax credits 135,200 97,100
Other 51,600 600
------------ ------------
(60,800) (254,800)
Valuation allowance (155,000) -
------------ ------------
Net deferred income tax liability $ (215,800) $ (254,800)
============ ============
</TABLE>
At December 31, 1995, $105,400 of current deferred taxes are included in
other current assets.
At December 31, 1995, the Company had net operating loss carryforwards for
federal tax purposes of approximately $109,000, which begin expiring in
2009. In addition, the Company has approximately $1,400,000 of excess
statutory depletion deductions which may be carried over indefinitely.
At December 31, 1995, the Company had approximately $640,000 of foreign tax
credit carryovers which expire in the year 2000. A $155,000 valuation
allowance has been provided for a portion of the foreign tax credits which
are not likely to be realized during the carryforward period. The Company
also has alternative minimum tax credit carryforwards for federal and state
purposes of approximately $92,000 and $43,000, respectively. The credits
carry over indefinitely and can be used to offset future regular tax to the
extent of current alternative minimum tax.
In general, section 382 of the Internal Revenue Code includes provisions
which limit the amount of net operating loss carryforwards and other tax
attributes that may be used annually in the event that a greater than 50%
ownership change (as defined) takes place in any three year period. As of
December 31, 1995, management is not aware of such a change for purposes of
section 382.
F-15
<PAGE> 45
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. NOTE PAYABLE
The note payable at December 31, 1994 represented an obligation by the
Company's Canadian subsidiary which was incurred in connection with an
acquisition of oil and gas properties in February 1994. The obligation was
guaranteed by the Company's parent company and was collateralized by common
stock of that company. The note bore interest at the Canadian prime rate
(8% at December 31, 1994) plus 2%, and was due on December 31, 1994. The
entire indebtedness, including accrued interest, was paid in January 1995.
9. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
9% convertible senior subordinated debentures - due 2005 $ 11,000,000 $ -
Revolving loan agreement with a bank 9,500,000 4,999,000
Demand loan agreement with a bank 1,026,392 1,480,240
Promissory note 900,000 1,200,000
Promissory notes - Capco 1,621,900 -
------------- -------------
24,048,292 7,679,240
Less current portion 504,985 2,356,524
------------- -------------
$ 23,543,307 $ 5,322,716
============= =============
</TABLE>
On December 26, 1995, the Company issued $11,000,000 of 9% convertible
senior subordinated debentures ("Debentures") due December 15, 2005. The
Debentures are convertible into common stock of the Company, at the option
of the holders of the Debentures, at any time prior to maturity at a
conversion price of $8.75 per share, subject to adjustment in certain
events. The Company has reserved 1,500,000 shares of its Common Stock for
the conversion of the Debentures. The Debentures are not redeemable by the
Company prior to December 15, 1997. Mandatory sinking fund payments of 15%
of the original principal are required annually commencing December 15,
2000. The Debentures are uncollateralized and subordinated to all present
and future senior debt, as defined, of the Company and are effectively
subordinated to all liabilities of subsidiaries of the Company. The
principal use of proceeds from the sale of the Debentures was to retire
short-term indebtedness incurred by the Company in connection with its
acquisitions of producing oil and gas properties in Colombia. A portion of
the proceeds was used to reduce the balance outstanding under the Company's
revolving credit agreement. On February 7, 1996, the Company issued an
additional $1,650,000 of Debentures pursuant to the exercise of an
over-allotment option by the underwriting group. Net proceeds to the
Company were approximately $1.5 million and a portion was utilized to reduce
the outstanding balance under the Company's revolving line of credit.
F-16
<PAGE> 46
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
Certain terms of the Debenture contain requirements and restrictions on the
Company with regard to the following limitations on Restricted Payments (as
defined in the Indenture), on transactions with affiliates, and on oil and
gas property divestitures; Change of Control (as defined), which will
require immediate redemption; maintainance of life insurance coverage of
$5,000,000 on the life of the Company's chief executive officer; and
limitations on fundamental changes and certain trading activities, on
Mergers and Consolidations (as defined) of the Company, and on ranking of
future indebtedness.
In September 1993, the Company consummated a Revolving Loan Agreement
("Agreement") with Bank One, Texas, NA. The loan is subject to semi-annual
redeterminations and will be converted to a three year term loan on June 1,
1997. Funds advanced under the facility are collateralized by substantially
all of the Company's U.S. oil and gas producing properties and the common
stock of its U.S. subsidiaries and bear interest at the prime rate (8.75% at
December 31, 1995) plus 1%. The Company is charged a commitment fee equal
to 0.5% of the available, but not used, loan amount.
The initial authorized borrowing base was established at $7,500,000.
Effective September 29, 1995, the borrowing base was increased to
$10,700,000, subject to a monthly reduction of $200,000. In accordance with
the terms of the Agreement, the entire amount outstanding at December 31,
1995 is classified as long-term. The Agreement requires, among other
things, that the Company maintain at least a 1 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 that 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. The Company was in
compliance with the terms of the Agreement at December 31, 1995. Effective
March 1, 1996, the borrowing base was increased to $10.8 million.
Prior to March 5, 1996, BLEC had a demand non-revolving bank loan with
principal repayments of $53,500 on the first day of every month. The loan
provided for interest at a variable rate equal to the Canadian prime rate
(7.5% at December 31, 1995) plus 1-3/4% per annum. Effective March 5, 1996,
BLEC renegotiated its bank loan and now has available a demand revolving
reducing loan of $1,830,000. The maximum principal amount available under
the loan will reduce by $36,650 per month commencing April 1, 1996. Interest
is payable at a variable rate equal to the Canadian prime rate plus 1% per
annum. The loan is collateralized by BLEC's Canadian oil and gas producing
properties, 3,359,331 shares of common stock of BLEC held by the Company and
a limited recourse guarantee from the Company in the amount of $1,100,000.
Terms of the loan agreement require that, based on an annual engineering
report, the discounted net present value of the collateralized properties
exceed 200% of the outstanding loan balance and that estimated annual future
net revenue exceed 175% of that period's debt service. Although the bank can
demand payment in full of the loan at any time, it has provided a written
commitment not to do so except in the event of a default.
The promissory note is due to the seller of an oil refining facility which
was acquired by the Company in June 1994. Payment of the note, which bears
interest at the prime rate in effect on the note anniversary date, plus two
percent (10.75% at December 31, 1995), is due in two annual installments,
each in the amount of $450,000 on June 24, 1996 and 1997. The note is
collateralized by a deed of trust on the acquired assets.
F-17
<PAGE> 47
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
The promissory notes - Capco are due to the Company's parent company, Capco
Resources Ltd. and to Capco Resources, Inc., formerly wholly-owned by Capco
Resources Ltd. and now majority-owned by Capco Resources Ltd. Payment of
the notes, which bear interest at the rate of 9% per annum, is due April 1,
2006. The loan proceeds were utilized by the Company principally in
connection with the acquisition of producing oil and gas properties in
Colombia. The notes are subordinated to the same extent the Debentures are
subordinated.
Maturities of long term debt are as follows:
<TABLE>
<S> <C>
1996 $ 504,985
1997 2,850,000
1998 2,821,554
1999 2,839,883
2000 4,059,970
Thereafter 10,971,900
-------------
$ 24,048,292
=============
</TABLE>
10. Related Party Transactions
Related party transactions are described as follows:
In 1995, the Company charged its affiliates $7,600 and was charged $97,900
by affiliates for interest on short-term advances.
In 1995, the Company received short-term advances from affiliates totaling
$456,800 and provided short-term advances to affiliates totaling $440,700.
In 1995, the Company borrowed $350,000 from a company controlled by a
director of the Company. The entire amount, plus interest at the rate of
10% per annum, was repaid in December 1995.
In 1995, affiliated companies loaned a total of $2,221,900 to the Company,
at an interest rate of 9% per annum, in connection with the acquisition of
producing oil and gas properties in Colombia. Of this amount, $600,000 was
converted to equity by the issuance of 75,000 shares of Common Stock of the
Company. The balance of the borrowings is due April 1, 2006 and is
subordinated to the same extent as the Debentures are subordinated.
In 1995 and 1994, the Company charged its affiliates $92,900 and $105,300,
respectively, for reimbursement of certain general and administrative
expenses.
In 1994, the Company sold certain oil and gas producing properties to an
affiliated company for total consideration of $20,630.
In 1994, the Company charged its affiliates $24,800 for costs related to
property settlements.
In 1994, the Company's parent company and other affiliated companies
advanced $157,938 to the Company.
F-18
<PAGE> 48
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
In 1994, the Company's Canadian subsidiary provided advances totaling
$176,719 to affiliated companies.
11. 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 July 1995, the Company canceled its Incentive and Nonqualified Stock
Option Plans. No options were granted under either plan prior to
cancellation.
During the year ended December 31, 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 year ended
December 31, 1995. In July 1995, the consulting arrangement was terminated
and the balance of the options was canceled.
In 1994, the Company issued 200,000 shares of Common Stock to an independent
consultant upon exercise of nonqualified options for cash consideration of
$510,000. The Company incurred a charge to operations of $115,756 in
recognition of the compensation element of this transaction.
As of December 31, 1995, the Company had outstanding options for 370,000
shares of Common Stock to certain employees of the Company. These options,
which were 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 the fair market value of the Common Stock
at the date of grant.
Information regarding the shares under option for the years ended December
31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Shares under option:
Beginning of year 445,000 150,000
Granted 100,000 295,000
Exercised - -
Cancelled (175,000) -
-------- -------
End of year 370,000 445,000
======== =======
Weighted average option price per share, end of year $ 2.80 $ 2.84
======== =======
Options exercisable 88,000 34,000
======== =======
</TABLE>
F-19
<PAGE> 49
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
In 1996, the Company will adopt SFAS No. 123, "Accounting for Stock-Based
Compensation". The Company anticipates continuing to account for stock
based compensation to employees under the rules of Accounting Principles
Board Opinion No. 25 and will disclose the proforma impact of SFAS No. 123
in the notes to the financial statements.
12. RETIREMENT PLAN
The Company sponsors a defined contribution retirement savings plan ("401(k)
Plan") to assist all eligible U.S. employees in providing for retirement or
other future financial needs. The Company currently provides matching
contributions equal to 50% of each employee's contribution, subject to a
maximum of 4% of employee earnings. The Company's contributions to the
401(k) Plan were $25,745 in 1995 and $3,245 in 1994.
13. COMMITMENTS AND CONTINGENCIES
CONTINGENCIES
The Company is subject to extensive Federal, state, and local environmental
laws and regulations. These requirements, which change frequently, regulate
the discharge of materials into the environment. The Company believes that
it is in compliance with existing laws and regulations.
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
approximate $15,000 per well, for a total of $3,375,000. 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 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.
F-20
<PAGE> 50
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES
The Company leases office space, vehicles and office equipment under
non-cancelable operating leases expiring in the years 1996 through 2000.
Future minimum lease payments under all leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1996 $ 186,500
1997 172,600
1998 120,600
1999 14,800
2000 3,300
-----------
$ 497,800
===========
</TABLE>
Rent expense amounted to $129,470 and $92,349 for the years ended December
31, 1995 and 1994, respectively.
CONCENTRATION OF CREDIT RISK
The Company invests its cash primarily in deposits with major banks. Certain
deposits may, at times, be in excess of federally insured limits ($2,740,655
and $483,259 at December 31, 1995 and December 31, 1994, respectively). The
Company has not incurred losses related to such cash balances.
The Company's accounts receivable result from its activities in the oil and
gas industry. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of joint interest partners
comprising the Company's customer base. Ongoing credit evaluations of the
financial condition of joint interest partners are performed and, generally,
no collateral is required. The Company maintains reserves for potential
credit losses and such losses have not exceeded management's expectations.
Included in accounts receivable at December 31, 1995 and 1994 is $817,904
and $727,461, respectively, which is due from an unaffiliated third party,
who is both an operator of property in which the Company is a joint owner
and a joint owner of property operated by the Company.
F-21
<PAGE> 51
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ENVIRONMENTAL CONTINGENCIES
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 Teca and Nare fields. 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 temporary closing of
the module has not had a substantial effect on total production because
substantially all of the crude oil which would otherwise have been processed
in the closed module has been directed to other production modules. The
resolution also ordered the opening of an environmental investigation of
Texas Petroleum Company's operation of the Teca and Nare fields. 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 $250,000. Texas
Petroleum Company formally appealed the resolution and the Company is
currently awaiting a response from the Ministry of the Environment.
In connection with the acquisition of the Teca and Nare fields, the Company
is required to pledge collateral consisting of either a $1.75 million
certificate of deposit or a commitment of $1.75 million against the
Company's borrowing base under its bank credit facility to the operator of
the fields to secure payments due third party vendors at the Teca and Nare
fields.
F-22
<PAGE> 52
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BUSINESS SEGMENTS AND MAJOR CUSTOMERS
The Company considers that its operations are principally in one industry
segment, that of acquisition, exploration, development and production of oil
and gas reserves. A summary of the Company's operations by geographic area
for the years ended December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Corporate
United and
States Canada Colombia Other Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
----------------------------
Total revenues $ 11,538 $ 1,577 $ 4,505 $ 74 $ 17,694
Production costs 7,431 901 2,229 - 10,561
Other operating expenses 398 243 51 - 692
Depreciation, depletion and
amortization 1,735 156 823 113 2,827
Income tax expense (benefit) 849 147 645 (1,191) 450
------------ ------------ ------------
Results of operations from oil
and gas producing activities $ 1,125 $ 130 $ 757
============ ============ ============
Interest and other expenses (net) 2,617 2,617
------------ ------------
Net income (loss) $ (1,465) $ 547
============ ============
Identifiable assets at
December 31, 1995 $ 19,525 $ 3,963 $ 13,514 $ 2,749 $ 39,751
============ ============ ============ ============ ============
Year ended December 31, 1994
----------------------------
Total revenues $ 10,752 $ 1,766 $ - $ 436 $ 12,954
Production costs 6,722 825 - 7,547
Other operating expenses 481 176 - - 657
Depreciation, depletion and
amortization 1,510 460 - 71 2,041
Income tax expense (benefit) 693 135 (444) 384
------------ ------------ ------------
Results of operations from oil
and gas producing activities $ 1,346 $ 170 $ -
============ ============ ============
Interest and other expenses (net) 1,816 1,816
------------ ------------
Net income (loss) $ (1,007) $ 509
============ ============
Identifiable assets at
December 31, 1994 $ 14,428 $ 3,889 $ - $ (209) $ 18,108
============ ============ ============ ============ ============
</TABLE>
Sales to major unaffiliated customers (customers accounting for 10 percent
or more of gross revenue), all representing purchasers of oil and gas, for
each of the years ended December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Customer A $ 4,066,000 $ 3,713,000
============ ============
Customer B $ 2,926,000 $ 2,198,000
============ ============
Customer C $ 2,150,000 $ -
============ ============
</TABLE>
F-23
<PAGE> 53
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
ESTIMATED PROVED RESERVES
Estimates of the Company's proved developed and undeveloped oil and gas
reserves for its working and royalty interest wells were prepared by
independent engineers. The estimates are based upon engineering principles
generally accepted in the petroleum industry and take into account the
effect of past performance and existing economic conditions. Reserve
estimates vary from year to year because they are based upon judgmental
factors involved in interpreting and analyzing production performance,
geological and engineering data and changes in prices, operating costs and
other economic, regulatory, and operating conditions. Changes in such
factors can have a significant impact on the estimated future recoverable
reserves and estimated future net revenue by changing the economic lives of
the properties. Proved undeveloped oil and gas reserves include only those
reserves which are expected to be recovered on undrilled acreage from new
wells which are reasonably certain of production when drilled, or from
presently existing wells which could require relatively major expenditures
to effect recompletion.
Presented below is a summary of proved reserves of the Company's oil and gas
properties:
<TABLE>
<CAPTION>
United
Year ended December 31, 1995 States Canada (1) Colombia Total
---------------------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Oil (Barrels)
Proved reserves:
Beginning of year 6,671,341 464,390 - 7,135,731
Acquisition, exploration and
development of minerals in place 1,295,876 289,113 5,473,310 7,058,299
Revisions of previous estimates (691,553) 264,497 - (427,056)
Production (710,271) (85,800) (430,808) (1,226,879)
Sales of minerals in place (2,798) (6,000) - (8,798)
--------- ---------- --------- -----------
End of year 6,562,595 926,200 5,042,502 12,531,297
========= ========== ========= ===========
Proved developed reserves, end of year 5,385,856 750,500 4,731,369 10,867,725
========= ========== ========= ===========
Gas (Thousands of cubic feet)
Proved reserves:
Beginning of year 7,225,973 2,565,800 - 9,791,773
Acquisition, exploration and
development of minerals in place 1,333,669 464,028 - 1,797,697
Revisions of previous estimates 1,519,718 7,832,888 - 9,352,606
Production (938,577) (398,616) - (1,337,193)
Sales of minerals in place (37,734) (88,100) - (125,834)
--------- ---------- --------- -----------
End of year 9,103,049 10,376,000 - 19,479,049
========= ========== ========= ===========
Proved developed reserves, end of year 8,190,986 2,051,000 - 10,241,986
========= ========== ========= ===========
</TABLE>
(1) See reference (1) on page F-25
F-24
<PAGE> 54
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
ESTIMATED PROVED RESERVES (CONTINUED)
(1) The proved reserve information at December 31, 1995 includes the
following proved reserve amounts attributable to the approximately 25.6%
minority interest resulting from the CRPL business combination with BLEC in
October 1995. See Note 2 of Notes to Consolidated Financial Statements.
<TABLE>
<S> <C>
Oil (Bbls) 237,237
Gas (Mcf) 2,657,709
Barrels of oil equivalent (BOE) 680,188
Standardized measure of discounted future net cash flows $1,893,643
</TABLE>
<TABLE>
<CAPTION>
United
Year ended December 31, 1994 States Canada Total
---------------------------- ---------- --------- -----------
<S> <C> <C> <C>
Oil (Barrels)
Proved reserves:
Beginning of year 3,052,019 - 3,052,019
Acquisition, exploration and
development of minerals in place 1,095,717 544,337 1,640,054
Revisions of previous estimates 3,307,387 - 3,307,387
Production (658,016) (79,947) ( 737,963)
Sales of minerals in place (125,766) - ( 125,766)
---------- --------- -----------
End of year 6,671,341 464,390 7,135,731
========== ========= ===========
Proved developed reserves, end of year 4,530,148 464,390 4,994,538
========== ========= ===========
Gas (Thousands of cubic feet)
Proved reserves:
Beginning of year 7,012,662 - 7,012,662
Acquisition, exploration and
development of minerals in place 497,684 3,038,952 3,536,636
Revisions of previous estimates 765,069 - 765,069
Production (979,893) (473,152) (1,453,045)
Sales of minerals in place (69,549) - (69,549)
---------- --------- -----------
End of year 7,225,973 2,565,800 9,791,773
========== ========= ===========
Proved developed reserves, end of year 6,582,511 1,920,800 8,503,311
========== ========= ===========
</TABLE>
F-25
<PAGE> 55
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES
The following information has been prepared in accordance with Statement of
Financial Accounting Standards No. 69, which requires the standardized
measure of discounted future net cash flows to be based on sales prices,
costs and statutory income tax rates in effect at the time the projections
are made and a 10 percent per year discount rate. The projections should
not be viewed as estimates of future cash flows nor should the "standardized
measure" be interpreted as representing current value to the Company.
<TABLE>
<CAPTION>
(Dollars in thousands) 1995
------------------------------------------------------------
United
States Canada (1) Colombia Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Future cash inflows $ 100,559 25,411 52,335 178,305
Future production costs (56,871) (8,979) (30,193) (96,043)
Future development costs (3,997) (3,064) (1,675) (8,736)
Future income tax expenses (10,872) (3,204) (5,623) (19,699)
------------ ------------ ------------ ------------
Future net cash flows 28,819 10,164 14,844 53,827
10 percent annual discount for
estimated timing of cash flows (9,585) (2,771) (2,406) (14,762)
------------ ------------ ------------ ------------
Standardized measure of discounted
future net cash flows $ 19,234 $ 7,393 $ 12,438 $ 39,065
============ ============ ============ ============
<CAPTION>
(Dollars in thousands) 1994
------------------------------------------
United
States Canada Total
------------ ------------ ------------
<S> <C> <C> <C>
Future cash inflows $ 92,859 $ 8,821 $ 101,680
Future production costs (49,915) (5,657) (55,572)
Future development costs (5,757) (185) (5,942)
Future income tax expenses (8,455) - (8,455)
------------ ------------ ------------
Future net cash flows 28,732 2,979 31,711
10 percent annual discount for
estimated timing of cash flows (9,953) (631) (10,584)
------------ ------------ ------------
Standardized measure of discounted
future net cash flows $ 18,779 $ 2,348 $ 21,127
============ ============ ============
</TABLE>
(1) See reference (1) on page F-25
F-26
<PAGE> 56
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES (CONTINUED)
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows during 1995 and 1994.
<TABLE>
<CAPTION>
(Dollars in thousands) 1995
------------------------------------------------------
United
States Canada (1) Colombia Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 18,779 $ 2,348 $ - $ 21,127
Acquisitions, discoveries and extensions 6,561 2,123 17,848 26,532
Sales and transfers of oil and gas
produced, net of production costs (3,873) (670) (1,837) (6,380)
Changes in estimated future
development costs 2,329 (2,716) - (387)
Net changes in prices, net of
production costs (1,682) 1,614 - (68)
Sales of reserves in place (11) (115) - (126)
Development costs incurred
during the period 126 - - 126
Changes in production rates and other (3,358) (2,757) - (6,115)
Revisions of previous quantity estimates (1,452) 7,313 - 5,861
Accretion of discount 2,367 332 - 2,699
Net change in income taxes (552) (79) (3,573) (4,204)
------------ ------------ ------------ ------------
Balance at end of year $ 19,234 $ 7,393 $ 12,438 $ 39,065
============ ============ ============ ============
</TABLE>
(1) See reference (1) on page F-25
F-27
<PAGE> 57
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES (CONTINUED)
<TABLE>
<CAPTION>
(Dollars in thousands) 1994
------------------------------------------
United
States Canada Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $ 10,845 $ - $ 10,845
Acquisitions, discoveries and extensions 4,066 3,290 7,356
Sales and transfers of oil and gas
produced, net of production costs (3,681) (942) (4,623)
Changes in estimated future
development costs (3,393) - (3,393)
Net changes in prices, net of
production costs 1,908 - 1,908
Sales of reserves in place (363) - (363)
Development costs incurred
during the period - - -
Changes in production rates and other (191) - (191)
Revisions of previous quantity estimates 12,235 - 12,235
Accretion of discount 1,190 - 1,190
Net change in income taxes (3,837) - (3,837)
------------ ------------ ------------
Balance at end of year $ 18,779 $ 2,348 $ 21,127
============ ============ ============
</TABLE>
F-28
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Numbers Description Page No.
- ------- ----------- --------
<S> <C> <C>
3.1(i) Articles of Incorporation as amended.
3.1(ii) By-Laws (incorporated herein by reference from Form 10-K, Item
13(c)(3.2) of the Company for the year ended December 31, 1982).
4.1 Form of Indenture (including form of Debenture) (filed as Exhibit 4.1
to the Company's Registration Statement on Form SB-2 (file No.
33-94678) and incorporated herein by reference).
10.1 Form of Indemnification Agreement to be entered into with officers and
directors of the Company (filed as Exhibit 10.1 to the Company's
Registration Statement on Form SB-2 (file No. 33-94678) and
incorporated herein by reference).
10.2 Benefit Plans (filed as Exhibit 10.2 to the Company's Registration
Statement on Form SB-2 (file No. 33- 94678) and incorporated herein by
reference).
10.3 Employment Agreement with Ilyas Chaudhary (filed as Exhibit 10.3 to
the Company's Registration Statement on Form SB-2 (file No. 33-94678)
and incorporated herein by reference).
10.4 Loan Agreement between the Company and Bank One, Texas, N.A. (filed as
an exhibit to the Company's Form 8-K dated October 1, 1993, and
incorporated herein by reference).
10.5 Stock Purchase Agreement (filed as an exhibit to the Company's Current
Report on Form 8-K dated January 10, 1995 and incorporated herein by
reference).
10.6 Processing Agreement between Santa Maria Refining Company and Petro
Source Refining Corporation (filed as Exhibit 10.6 to the Company's
Registration Statement on Form SB-2 (file No. 33-94678) and
incorporated herein by reference).
10.7 Agreement among Saba Petroleum Company, Omimex de Colombia, Ltd. and
Texas Petroleum Company to acquire Teca and Nare fields (filed as
Exhibit 10.7 to the Company's Registration Statement on Form SB-2
(file No. 33-94678) and incorporated herein by reference).
10.8 Agreement among Saba Petroleum Company, Omimex de Colombia, Ltd. and
Texas Petroleum Company to acquire Cocorna Field (filed as Exhibit
10.8 to the Company's Registration Statement on Form SB-2 (file No.
33- 94678) and incorporated herein by reference).
</TABLE>
<PAGE> 59
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
Exhibit
Numbers Description Page No.
- ------- ----------- --------
<S> <C> <C>
10.11 Amendment to Loan Agreement between the Company and Bank One, Texas,
N.A. (filed as Exhibit 10.3 to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1995 and incorporated
herein by reference).
10.12 Amendment to Agreement among the Company, Omimex de Colombia, Ltd. and
Texas Petroleum Company to acquire the Teca and Nare fields (filed as
Exhibit 2.2 to the Company's Current Report on Form 8-K dated
September 14, 1995 and incorporated herein by reference).
10.13 Promissory Notes of the Company (filed as Exhibit 10.13 to the
Company's Registration Statement on Form SB-2 (file No. 33-94678) and
incorporated herein by reference).
10.14 CRI Stock Purchase Termination Agreement (filed as Exhibit 10.14 to
the Company's Registration Statement on Form SB-2 (file No. 33-94678)
and incorporated herein by reference).
10.15 Form of Common Stock Conversion Agreement between Capco and the
Company (filed as Exhibit 10.15 to the Company's Registration
Statement on Form SB-2 (file No. 33-94678) and incorporated herein by
reference).
10.16 Form of Agreement regarding exercise of preemptive rights between
Capco and the Company (filed as Exhibit 10.16 to the Company's
Registration Statement on Form SB-2 (file No. 33-94678) and
incorporated herein by reference).
10.17 Letter Agreement, as amended, between Omimex de Colombia, Ltd. and the
Company (filed as Exhibit 10.17 to the Company's Registration
Statement on Form SB-2 (file No. 33-94678) and incorporated herein by
reference).
16.1 Letter from Jackson & Rhodes, P.C. to the Company (filed as an exhibit
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994 and incorporated herein by reference).
22.1 Subsidiaries of Small Business Issuer are attached hereto.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3(1).1
STATE OF COLORADO
DEPARTMENT OF
STATE
CERTIFICATE
I, VICTORIA BUCKLEY, Secretary of State of the State of Colorado
hereby certify that THE ATTACHED IS A FULL, TRUE AND COMPLETE COPY OF
ARTICLES OF INCORPORATION AND ALL AMENDMENTS THERETO OF
SABA PETROLEUM COMPANY
(COLORADO CORPORATION)
AS FILLED IN THIS OFFICE AND ADMITTED TO RECORD.
Dated: NOVEMBER 22, 1995
VICTORIA BUCKLEY
-------------------------------
SECRETARY OF STATE
<PAGE> 2
ARTICLES OF INCORPORATION
OF
BORDEAUX TRADING COMPANY
I, the undersigned natural person of the age of eighteen years or more,
acting as incorporator of a corporation under the Colorado Corporation Act,
adopt the following Articles of Incorporation for such corporation:
ARTICLE I
The name of this corporation shall be:
BORDEAUX TRADING COMPANY
ARTICLE II
The nature of the business of this corporation and the objects and
purposes of be transacted, promoted and carried on by it are all lawful
business for which corporations may be incorporated pursuant to the Colorado
Corporation Code.
ARTICLE III
This corporation shall have perpetual existence.
ARTICLE IV
The amount of authorized capital stock of this corporation is Five
Hundred Thousand Dollars ($500,000), consisting of Fifty Million (50,000,000)
shares of the par value of One Cent ($.01) each, and all shares, when issued,
shall be fully paid and nonassessable; and the private property of
stockholders shall not be liable for corporate debts. Stockholders shall have
no preemptive rights.
ARTICLE V
The initial Board of Directors shall consist of four (4) members, and
the names and addresses of the persons who are to serve as directors until the
first annual meeting of shareholders, or until their successors be elected and
qualify are:
Charles J. Harrington, Ph.D.
800 West Park
Chadron, NE 69337
<PAGE> 3
George R. Wait, Ph.D.
475 Cedar
Chadron, NE 69337
John L. Chaney
9th and Cedar
Chadron, NE 69337
William H. Lovejoy
3831 Loveland Drive
Lincoln, NE 68506
ARTICLE VI
Cumulative voting for the election of directors shall be permitted.
ARTICLE VII
In furtherance, and not in limitation, of the powers hereinbefore
conferred or conferred by the statutes or the by-laws of this corporation, the
Board of Directors shall have the following powers:
1. To make, alter, amend or repeal by-laws for the corporation, but
any by-law so made may be altered, amended or repealed by the stockholders at
any annual or special meeting.
2. From time to time, to fix and determine, and to vary, the amount
for working capital of this corporation, to determine and direct the use and
disposition thereof, to set apart out of any funds of the corporation available
for dividends, a reserve or reserves for any proper purpose and to abolish such
reserves in the manner in which they were created, and to declare dividends
from time to time out of any funds available therefor.
3. To designate by resolution passed by a majority of the whole board,
an executive committee and such other committee as the board shall deem
desirable, each committee to consist of at least two (2) members of the board,
which committee or committees, to the extent provided in such resolution or in
the by-laws, shall have and may exercise the powers of the Board of Directors
in the intervals between meetings of the board, in the management of the
business and affairs of the corporation.
4. By majority vote of the whole Board of Directors, to sell, lease,
or convey any part or all of the property and
-2-
<PAGE> 4
assets of the corporation, including its good will and corporate franchise,
upon such terms and conditions and for such consideration as the Board of
Directors may deem expedient and for the best interests of the corporation;
provided that the sale or disposal of all or substantially all of the property
and assets shall be authorized or ratified by the affirmative vote of the
holders of at least the majority of the capital stock then issued and
outstanding (or of each class of stock, if more than one class), such vote to
be taken at a meeting of stockholders duly called for that purpose as provided
by the Statutes of Colorado.
5. To determine from time to time whether and to what extent and at
what times and places and under what conditions the stock books, account books
and other books and records of the corporation shall be open for inspection by
stockholders, and no stockholder shall have any right to inspect any stock
record, account book, paper or record of this corporation unless the request
therefor shall be made in writing and in good faith and for an honest purpose
and not for the purpose of injuring the corporation or of interfering with its
business.
6. Pursuant to the affirmative vote of the holders of at least
two-thirds (2/3rds) of the stock issued and outstanding having voting power (or
of each class of stock, if more than one class), given at a meeting of the
stockholders duly called for the purpose, the Board of Directors shall have full
power and authority at any meeting, after first paying or having made adequate
provision for the payment of the debts and obligations of the corporation, to
make one or more pro rata distributions of part or all of the assets of the
corporation, in kind, or in cash, or partly in kind and partly in cash, to all
stockholders who shall have first deposited their capital stock with the Board
of Directors or with an agent designated for such purpose, and the Board of
Directors, if it shall so elect, shall have full power and authority to make one
or more pro rata distributions of all
-3-
<PAGE> 5
or part of the assets of the corporation, in kind or in cash or partly in kind
and partly in cash, to a trustee appointed by said Board of Directors to act
for the benefit of all stockholders who shall not have deposited their capital
stock as aforesaid, the rights of said stockholders in all respects to be
governed by the trust agreement under which said assets may be distributed to
said trustee.
ARTICLE VIII
The principal office and place of business of this corporation in the
State of Colorado will be kept in the City and County of Denver. The
corporation may also have an office and own, hold and operate properties in
other counties of the State of Colorado, or elsewhere, as hereinbefore stated.
The original stock books and ledgers and other books and records
required by the Statutes of Colorado to be kept for inspection by stockholders
or creditors, shall be kept at the principal office of the corporation in the
City and County of Denver.
Meetings of the Board of Directors and of the stockholders may be held
from time to time outside of the State of Colorado at such times and places as
may be designated in the by-laws or resolutions of the Board of Directors.
One-third of the shares entitled to vote or such greater percentages as
provided in the by-laws represented in person or by proxy, shall constitute a
quorum at any meeting of the shareholders.
ARTICLE IX
The corporation shall be entitled to treat the person in whose name any
shares of stock are registered on its books as the owner thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not the
corporation shall have notice thereof, except upon presentation of the
certificate or certificates for such shares properly endorsed by the person or
persons appearing upon the face of such certificate, with the sig-
-4-
<PAGE> 6
natures of such endorsement or assignment duly witnessed or guaranteed, or
except as may be otherwise expressly provided by the Statutes of Colorado, or
ordered by a court of competent jurisdiction.
ARTICLE X
This corporation shall indemnify any and all persons who may serve or
who have served at any time as directors or officers, or who at the request of
the Board of Directors of this corporation may serve or at any time have served
as directors or officers of another corporation in which this corporation at
such time owned or may own shares of stock or of which it was or may be a
creditor, and their respective heirs, administrators, successors, and assigns,
against any and all expenses, including amounts paid upon judgments, counsel
fees, and amounts paid in settlement (before or after suit is commenced),
actually and necessarily incurred by such persons in connection with the defense
or settlement of any claim, action, suit, or proceeding in which they, or any of
them, are made parties, or a party, or which may be asserted against them or any
of them, by reason of being or having been directors or officers or a director
or officer of this Corporation, or of such other corporation, except in relation
to matters as to which any such director or officer or other director or officer
or person shall be adjudged in any action, suit, or proceeding to be liable for
his own negligence or misconduct in the performance of his duty. Such
indemnification shall be in addition to any other rights to which those
indemnified may be entitled under any law, by-law, agreement, vote of
stockholders, or otherwise.
ARTICLE XI
The right is expressly reserved to amend these Articles of Incorporation
or any article herein in any manner or respect now or hereafter permitted or
provided by the corporation laws of Colorado, and the rights of all stockholders
are expressly made subject to such power of amendment.
-5-
<PAGE> 7
ARTICLE XII
When, with respect to any action to be taken by shareholders of this
corporation, the Colorado Corporation Code requires (unless a different
percentage is provided in the Articles of Incorporation) the vote or
concurrence of the holders of two-thirds of the outstanding shares, of the
shares entitled to vote thereon, or of any class or series, such action may be
taken by the vote or concurrence of a majority of such shares or class or
series thereof.
ARTICLE XIII
The address of the initial registered office of the corporation is 1776
First National Bank Building, 621 Seventeenth Street, Denver, Colorado 80293,
and the name of the initial registered agent of the corporation at such address
is Jack R. Viders, P.C.
ARTICLE XIV
The name and address of the incorporator is:
Jack R. Viders
1776 First National Bank Building
Denver, Colorado 80293
Executed this 16th day of March, 1979, by the undersigned
incorporator.
/s/ JACK R. VIDERS
-----------------------------
Jack R. Viders, Incorporator
<PAGE> 8
ARTICLES OF AMENDMENT TO
THE ARTICLES OF INCORPORATION OF
BORDEAUX TRADING COMPANY
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The old name of the corporation is BORDEAUX TRADING COMPANY, and
the new name of the corporation is BORDEAUX PETROLEUM COMPANY.
SECOND: The following amendment to the Articles of Incorporation was
adopted by the shareholders of the corporation on August 14, 1980, in the manner
prescribed by the Colorado Corporation Code:
"Article I of the Articles of Incorporation of BORDEAUX TRADING
COMPANY is hereby amended to read as follows:
ARTICLE I.
The name of this corporation shall be:
BORDEAUX PETROLEUM COMPANY
THIRD: The number of shares of the corporation outstanding at the time
of such adoption was 18,260,000; and the number of shares entitled to vote
thereon was 18,260,000.
FOURTH: The number of shares voted for such amendment was 11,915,403,
and the number of shares voted against such amendment was 87,330.
Dated this 9th day of September, 1980.
BORDEAUX TRADING COMPANY
By /s/ CHARLES A. HARRINGTON
--------------------------------
Charles A. Harrington, President
And /s/ CYNTHIA NIXON
--------------------------------
Cynthia Nixon, Asst. Secretary
<PAGE> 9
JACK R. VIDERS, PC
ATTORNEY AND COUNSELOR AT LAW
SUITE 13 OF FIRST INTERSTATE TOWER SOUTH
SEVENTEENTH STREET
DENVER, COLORADO 60293
February 5, 1986
Secretary of State
Office of Corporations
1560 Broadway, Suite 200
Denver, Colorado 80202
Re: Bordeaux Petroleum Company
Gentlemen:
This letter will serve to advise you formally of my resignation as a Registered
Agent and the termination of this office as Registered Office for the above
referenced corporation.
Please return the self-addressed stamped post card, which is enclosed to
confirm your receipt of this letter.
Very truly yours,
/s/ JACK R. VIDERS
Jack R. Viders
JRV/sh
cc: Bordeaux Petroleum Company
Letter sent to:
L. R. Khan
402-1203 Broughton St.
Vancouver, BC
V68 204
2/11/86
<PAGE> 10
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT, OR BOTH
Pursuant to the provisions of the Colorado Corporation Code, the Colorado
Nonprofit Corporation Act and the Colorado Uniform Limited Partnership Act of
1981, the undersigned corporation or limited partnership organized under the
laws of Colorado submits the following statement for the purpose of changing
its registered office or its registered agent, or both, in the state of
Colorado:
First: The name of the corporation or limited partnership is:
Bordeaux Petroleum Company
- -------------------------------------------------------------------------------
Second: the address of its REGISTERED OFFICE is 5600 South Quebec,
Suite 148-B, Englewood, CO 80111
Third: The name of its REGISTERED AGENT is Louis J. Davis
Fourth: The address of its registered office and the address of the
business office of its registered agent, as changed, will be identical.
Fifth: The address of its place of business in Colorado is 5600 South
Quebec - Suite 148-B, Englewood, CO 80111
(Note 1)
--------------------------
By /s/ DENNIS R. STAAL (Note 2)
-----------------------
Its Vice- president
REGISTRANT: PLEASE READ CAREFULLY! -----------
If you are a not-for-profit corporation Its X authorized agent
or a limited partnership, this form -----------
must be notarized. If you are a Its registered agent (Note 3)
business (profit) corporation, no -----------
notarization is required. Its general partner
-----------
STATE OF
--------------------------
COUNTY OF
-------------------------
Subscribed and sworn to before me this day of , 19 .
--- ------------- --
My commission expires
--------------------------------
---------------------------------------
Notary Public (Note 4)
---------------------------------------
Address
Notes: 1. Enter name of corporation or limited partnership making the
statement.
2. Signature and title of officer signing for the corporation must be
president or vice-president; for a foreign corporation without such
officers, the authorized agent; for a limited partnership, must be a
general partner.
3. Regarding profit corporations: This statement may be executed by the
registered agent when it involves only a registered address change.
A copy of this statement has been forwarded to the corporation by
the registered agent.
4. Signature of notary public must be exactly as shown on notarial seal,
and must agree with material documentation.
<PAGE> 11
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendments to its
Articles of Incorporation:
FIRST: The name of the corporation is (note 1) Bordeaux Petroleum
Company
SECOND: The following amendment to the Articles of Incorporation was
adopted on December 16, 1988, as prescribed by the Colorado Corporation Code, in
the manner marked with an X below:
Such amendment was adopted by the board of directors where no
----- shares have been issued.
X Such amendment was adopted by a vote of the shareholders. The
----- number of shares voted for the amendment was sufficient for
approval.
Article IV of the Company's articles of incorporation shall be amended
to read as follows:
"The Company's authorized capital stock shall consist of 150,000,000
shares of common stock with a par value of $.01 per share and
50,000,000 shares of preferred stock with a par value of $1.00 per
share."
THIRD: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
NA
FOURTH: The manner in which such amendment effects a change in the
amount of stated capital, and the amount of stated capital as changed by such
amendment, are as follows:
NA
Bordeaux Petroleum Company (Note 1)
----------------------------------
By /s/ DENNIS R. STAAL
----------------------------------
Its President
and (Note 2)
---------------------------------
Its Secretary
(Note 3)
------------------------------------
Its
<PAGE> 12
STATEMENT OF CHANGE OF
REGISTERED OFFICE OR
REGISTERED AGENTS, OR BOTH
Pursuant to the provisions of the Colorado Corporation Code, the Colorado
Nonprofit Corporation Act, the Colorado Uniform Limited Partnership Act of 1981
and the Limited Liability Company Act, the undersigned organized under the laws
of Colorado submits the following statement for the purpose of changing its
registered office or its registered agent, or both, in the state of Colorado:
First: The name of the corporation, limited partnership or limited
liability company is:
Saba Petroleum Company
- ------------------------------------------------------------------------------
Second: The address of its REGISTERED OFFICE is 511 16th Street,
Suite 400, Denver, Colorado 80202
Third: The name of its REGISTERED AGENT is Dennis R. Staal
Fourth: The address of its registered office and the address of the
business office of its registered agent, as changed, will be identical.
Fifth: The address of its place of business in Colorado is
511 16th Street, Suite 400
--------------------------------
Denver, Colorado 80202 (Note 1)
--------------------------------
By /s/ DENNIS R. STAAL (Note 2)
------------------------------
Its X president
-------------------
Its authorized agent
-------------------
Its X registered agent (Note 3)
-------------------
Its general partner
-------------------
Its manager
-------------------
Notes: 1. Exact name of corporation, limited partnership or limited liability
company making the statement.
2. Signature and title of officer signing for the corporation must be
president or vice president; for a foreign corporation without such
officers, the authorized agent; for a limited partnership, must be
a general partner; for a limited liability company, must be a
manager.
3. Regarding corporations: This statement may be executed by the
registered agent when it involves only a registered address change.
A copy of this statement has been forwarded to the corporation by
the registered agent.
<PAGE> 13
ARTICLE OF AMENDMENT TO
THE ARTICLES OF INCORPORATION OF
SABA PETROLEUM COMPANY
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Article of Amendment to its
Articles of Incorporation:
FIRST: The following amendment to the Articles of Incorporation was
adopted by the shareholders of the corporation on September 25, 1992, in the
manner prescribed by the Colorado Corporation Code:
"Article I of the Articles of Incorporation of Saba Petroleum Company is
hereby amended to read as follows:
ARTICLE V.
The Board of Directors of this corporation shall consist of a minimum of
four (4) members and a maximum of twelve (12) members.
SECOND: The number of shares of the corporation outstanding at the time
of such adoption was 2,821,037; and the number of shares entitled to vote
thereon was 2,821,037.
THIRD: The number of shares voted for such amendment was 2,473,361, and
the number of shares voted against such amendment was 5.
Dated this 25th day of September 1992.
SABA PETROLEUM COMPANY
By: ILYAS CHAUDHARY
------------------------------------
Ilyas Chaudhary, President
By: WILLIAM J. HICKEY
------------------------------------
William J. Hickey, Secretary
<PAGE> 14
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendments to its
Articles of Incorporation.
FIRST: The name of the corporation is SABA PETROLEUM COMPANY.
SECOND: The following amendment to the Articles of Incorporation was
adopted on June 25, 1993, as prescribed by the Colorado Corporation Code, that
is, by a vote of the shareholders. The number of shares voted for the
amendment was sufficient for approval.
Article IV of the corporations Articles of Incorporation shall be amended
to read as follows:
(a) COMMON STOCK AND PREFERRED STOCK. The corporation is authorized to
issue two classes of shares designated "Common Stock" and "Preferred Stock",
respectively. The number of shares of Common Stock authorized to be issued is
150,000,000 shares with no par value. The number of shares of Preferred Stock
authorized to be issued is 50,000,000 shares, with no par value.
(b) RIGHTS, PREFERENCES, PROVISIONS AND RESTRICTIONS. The Board of
Directors will have authority to cause the issuance, from time to time, of
preferred stock and one or more series thereof, for any proper purpose without
further stockholder approval, except where, because of the particular
circumstances under which any of such shares will be issued, stockholder
approval is required by law. Each series of preferred stock is required to be
distinctly titled and shall consist of the number of shares designated by the
Board of Directors. The Board of Directors is expressly vested with the right
to determine with respect to the preferred stock, and each series thereof, the
following: (a) whether such shares shall be granted voting rights, and, if so,
to what extent and upon what terms and conditions; (b) the rates and times at
which, and the terms and conditions on which, dividends (if any) on such shares
shall be paid, and any dividend preferences or rights of accumulation; (c)
whether such shares shall be granted conversion rights, and, if so, upon what
terms and conditions; (d) whether the Company shall have the right to
1
<PAGE> 15
redeem such shares, and, if so, upon what terms and conditions; (e) the
liquidation rights (if any) of such shares, including whether such shares shall
enjoy any liquidation preference over common stock, and, if so, to what extent;
and, (f) the other designations, preferences, relative rights, and limitations
(if any) attaching to such shares.
SABA PETROLEUM COMPANY
BY WILLIAM L. WINELAND
----------------------------------
ITS PRESIDENT
AND WILLIAM JAMES HICKEY
---------------------------------
ITS SECRETARY
2
<PAGE> 16
CERTIFICATE OF DESIGNATION OF POWERS,
PREFERENCES AND RIGHTS OF
PREFERRED STOCK
of
Saba Petroleum Company,
a Colorado corporation
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 7-4-102 OF THE
COLORADO CORPORATION CODE
Saba Petroleum Company, a Colorado corporation (the "Corporation"),
pursuant to Section 7-4-102 of the Corporation Code of the State of Colorado,
certifies that the Board of Directors of the Corporation duly adopted the
resolutions attached hereto as Appendix I providing for the issuance of a
class of stock to be designated Series A Preferred Stock and to consist of
Three Million (3,000,000) shares on December 27, 1993, and that the authorized
number of shares of Preferred Stock is fifty million (50,000,000), none of
which shares have been issued.
The undersigned, William L. Wineland and William James Hickey, Esq., do
hereby certify that they are the duly elected and acting President and
Secretary, respectively, of the Corporation.
IN WITNESS WHEREOF, said Corporation has caused this certificate to be
signed by William L. Wineland, its President, and attested by William James
Hickey, Esq., its Secretary, this 27th day of December, 1993.
Saba Petroleum Company
By: /s/ WILLIAM L. WINELAND
------------------------------
Its: President
ATTEST:
By: /s/ WILLIAM JAMES HICKEY, Esq.
--------------------------------------
Its: Secretary
1
<PAGE> 17
APPENDIX I
WHEREAS, the Articles of Incorporation of the Corporation (i) authorize a
class of stock designated Preferred Stock, no par value (the "Preferred
Stock"), comprising fifty million (50,000,000) shares, (ii) provide that such
Preferred Stock may be issued from time to time in one or more series, and
(iii) authorize the Board of Directors of the Company to fix or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and the number of shares constituting
any such series and the designation thereof;
WHEREAS, the Articles of Incorporation of the Company authorize a class of
stock designated Common Stock, no par value comprising one hundred fifty
million (150,000,000) shares. The term "Common Stock" when used in this
resolution shall mean Common Stock of the Corporation, no par value, and any
stock into which such Common Stock may thereafter have been changed and, when
otherwise used in these resolutions, shall also include stock of the
Corporation of any other class, whether now or hereafter authorized, which
ranks, or is entitled to a participation, as to the distribution of assets
or the payment of dividends, substantially on a parity with such existing
Common Stock or other class of stock into which such Common Stock may have been
changed; and
WHEREAS, the Corporation has not heretofore issued any Preferred Stock and
it is the desire of the Board of Directors to determine the rights,
preferences, privileges, restrictions and other matters relating to an initial
series of Three Million (3,000,000) shares of Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED that the Corporation create and issue a
series of Preferred Stock of the Corporation consisting of Three Million
(3,000,000) shares, and that the Board of Directors does hereby fix and
determine the rights, preferences, privileges, restrictions and other matters
relating to such Preferred Stock as follows:
1. Designation. This initial series of Preferred shares shall be
designated and known as "Series A Preferred Stock." The number of shares
constituting the Series A Preferred Stock shall be Three Million (3,000,000)
shares. The stated value of the Series A Preferred Stock shall be $1.00 per
share.
1
<PAGE> 18
2. Dividends. The holders of shares of Series A Preferred Stock shall
be entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock of this Corporation) on the Common Stock of this
Corporation. Dividends on each share of Series A Preferred Stock shall be at
the rate of nine percent (9%) per annum, payable semi-annually on January 1 and
July 1 of each year out of funds legally available therefor, when and as
declared by the Board of Directors. Commencing on January 1, 1994 such
dividends shall accrue and be deemed to accrue from day to day whether or not
earned or declared, and shall be cumulative so that at any time after January
1, 1994 dividends accrued after that date on the Series A Preferred Stock shall
be paid or declared and set apart for payment before any dividend shall be paid
on or declared or set apart on shares of Common Stock. Any such cumulative but
unpaid dividends on the Series A Preferred Stock shall not bear interest.
3. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, the holders of the shares of the Series A Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any distribution of assets shall be made
with respect to the Common Stock or junior stock, an amount equal to the stated
value per share plus any dividends on the Series A Preferred Stock theretofore
declared and unpaid. If upon liquidation, dissolution or winding-up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Preferred Stock
(including the holders of the Series A Preferred Stock) the full amounts to
which they respectively shall be entitled, then the holders of the Preferred
Stock shall share ratably in any such distribution of assets of the Corporation
according to the respective amounts that would be payable in respect of the
shares of Preferred Stock held by them upon such distribution if all amounts
payable on or with respect to said shares were paid in full.
(b) The merger of the Corporation with another corporation, or
the sale, transfer or lease of all or substantially all of the assets
of the Corporation shall not be deemed a liquidation, dissolution or winding-up
of the Corporation as those terms are used in this Section 3.
2
<PAGE> 19
(c) In the event the Corporation shall propose to take any action of
the types described in subparagraph (a) of this Section 3, the Corporation
shall, within ten (10) days after the date the Board of Directors approves such
action, or twenty (20) days prior to any stockholders' meeting called to approve
such action, whichever is earlier, give each holder of shares of the Series A
Preferred Stock initial written notice of the proposed action. Such initial
written notice shall describe the material terms and conditions of such
proposed action, including a description of the stock, cash and property to be
received by the holders of shares of the Series A Preferred Stock upon
consummation of the proposed action and the date of delivery thereof. If any
material change in the facts set forth in the initial notice shall occur, the
Corporation shall promptly give written notice to each holder of shares of the
Series A Preferred Stock of such material change.
(d) The Corporation shall not consummate any proposed action of the
type described in subparagraph (a) of this Section 3 before the expiration of
thirty (30) days after the mailing of the initial notice or ten (10) days after
the mailing of any subsequent written notice, whichever is later; provided that
any such 30-day or 10-day period may be shortened upon the written consent of
the holders of all of the outstanding shares of the Series A Preferred Stock.
(e) In the event the Corporation shall propose to take any action
of the types described in subparagraph (a) of this Section 3 will involve the
distribution of assets other than cash, the value of the assets to be
distributed to the holders of shares of the Series A Preferred Stock shall be
the fair market value of such assets as determined in good faith by the Board
of Directors.
4. Redemption.
(a) At any time after March 2, 1994, this Corporation may, at the
option of the Board of Directors upon satisfaction of the terms and
conditions as stated herein, from any source of funds legally available
therefor, redeem in whole or in part the Series A Preferred Stock by paying in
cash therefor a sum equal to the per share amounts set forth in Section 3(a) in
the same manner as if there had occurred a liquidation of this Corporation on
the date of the redemption under this Section 4 (such total amount is
hereinafter referred to as the "Redemption Price").
3
<PAGE> 20
right to receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of this Corporation or
be deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Series A Preferred
Stock on any Redemption Date are insufficient to redeem all shares of Series A
Preferred stock designated to be redeemed on such date, those funds that are
legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed. The shares of
Series A Preferred Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
shares of Series A Preferred Stock, such funds will immediately be used to
redeem the balance of the shares that the Corporation has become obligated to
redeem on any Redemption Date, but which it has not redeemed.
(e) If on or prior to the Redemption Date, this Corporation
deposits the Redemption Price of all outstanding shares of Series A Preferred
Stock designated for redemption in the Redemption Notice and not yet redeemed or
converted with a bank or trust company in California as a trust fund for the
benefit of the respective holders of the shares designated for redemption and
not yet redeemed with irrevocable instructions and authority to such bank or
trust company to pay, on and after the date fixed for redemption or prior
thereto, the Redemption Price of the shares of Series A Preferred Stock to the
respective holders upon surrender of their certificates, then from and after
the date of the deposit (although prior to the Redemption Date), the shares so
called shall be redeemed as of, and dividends on those shares shall cease to
accrue after, the Redemption Date. The deposit shall constitute full payment
of the shares to their holders and from and after the date of deposit the
shares shall no longer be outstanding and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with respect
thereto except the right to receive from the bank or trust company payment of
the Redemption Price of the shares without interest, upon the surrender of
their certificates therefor. The balance of any moneys deposited by this
Corporation pursuant to this paragraph remaining unclaimed at the expiration of
one (1) year following the Redemption Date shall thereafter be returned to this
Corporation upon its request expressed in a resolution of its Board of
Directors, after which the holders of shares called for redemption
5
<PAGE> 21
shall be entitled to receive payment of the Redemption Price only, without any
interest, from the Corporation.
(f) Except as provided in this Section 4, the Series A Preferred
Stock shall not be subject to any other right of redemption.
5. Voting Rights. Except as otherwise provided herein or by law, the
shares of the Series A Preferred Stock shall not be entitled to vote with the
shares of the Corporation's Common Stock at any annual or special meeting of
stockholders of the Corporation.
6. Notices. Any notice required by the provisions hereof to be given to
the holders of shares of the Series A Preferred Stock shall be deemed given
when deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Corporation.
7. Protective Provisions. So long as any shares of Series A Preferred
Stock are outstanding, this Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the total number of shares of Series A Preferred Stock
outstanding:
(a) alter or change the rights, preferences or privileges of the
Series A Preferred Stock so as to materially adversely affect the Preferred
Stock; or
(b) increase the authorized number of shares of Series A Preferred
Stock; or
(c) create any new class of shares having preferences over or being
on a parity with the Series A Preferred Stock as to payment of dividends or
distribution of assets, unless the purpose of the creation of such class is,
and the proceeds to be deemed from the sale and issuance thereof are to be used
for, the retirement of all Series A Preferred Stock then outstanding.
8. Redeemed Stock. In the event any of the Series A Preferred Stock
shall be redeemed pursuant to Section 4 hereof, or otherwise acquired by the
Corporation, the shares so redeemed or acquired shall be cancelled, retired and
eliminated from the shares which the Corporation is authorized to issue. The
Articles of Incorporation of this Corporation shall be appropriately amended to
effect the corresponding reduction in the Corporation's authorized capital
stock.
6
<PAGE> 22
ARTICLES OF CORRECTION TO
THE ARTICLES OF INCORPORATION OF
SABA PETROLEUM COMPANY
Pursuant to the provisions of Section 7-101-205 of the Colorado Business
Corporation Act, the undersigned corporation adopts the following Articles of
Correction to its Articles of Incorporation;
FIRST: Saba Petroleum Company, formerly known as Bordeaux Petroleum
Company, (the "Company") filed with the Colorado Secretary of State on December
27, 1988, Articles of Amendment to its Articles of Incorporation, attached
hereto as Exhibit A, changing the number of authorized shares of Saba's capital
stock to 150,000,000 shares of common stock, par value $0.01 per share, and
50,000,000 shares of preferred stock, par value $1.00 per share ("Amendment
1").
SECOND: In adopting Amendment 1, the sentence in Article IV of the
Articles of Incorporation providing that "Stockholders shall have no preemptive
rights," was inadvertently deleted from the Articles of Incorporation and there
was no intent by either the directors or the shareholders that Amendment 1
grant preemptive rights to the shareholders of Saba.
THIRD. Amendment 1 should be corrected to read as follows:
Article IV of the Company's Articles of Incorporation shall be amendment
to read as follows:
"The Company's authorized capital stock shall consist of 150,000,000
shares of common stock with a par value of $0.01 per share and 50,000,000
shares of preferred
<PAGE> 23
stock with a par value of $1.00 per share. Stockholders shall have no
preemptive rights."
FOURTH: The Company also filed Articles of Amendment to the Articles of
Incorporation with the Colorado Secretary of State's Office on August 27, 1993,
attached hereto as Exhibit B, changing the authorized shares of capital stock
to 150,000,000 shares of common stock with no par value, and 50,000,000 shares
of preferred stock with no par value ("Amendment 2").
FIFTH: In adopting Amendment 2, the sentence in Article IV of the Articles
of Incorporation providing that "Stockholders shall have no preemptive rights."
was inadvertently deleted from the Articles of Incorporation and there was no
intent by either the directors or the shareholders that Amendment 2 grant
preemptive rights to the shareholders of Saba.
SIXTH: Amendment 2 should be corrected to read as follows:
Article IV of the Corporation's Articles of Incorporation shall be
amendment to read as follows:
(a) Common Stock and Preferred Stock. The corporation is authorized
to issue two classes of shares designated "Common Stock" and "Preferred
Stock," respectively. The number of shares of Common Stock authorized to
be issued is 150,000,000 shares with no par value. The number of shares of
Preferred stock authorized to be issued is 50,000,000 shares with no par
value. Stockholders shall have no preemptive rights.
(b) Rights, Preferences, Provisions and Restrictions. The Board of
Directors will have authority to cause the issuance, from time to time, of
preferred stock and one or more series thereof, for any proper purpose
without further stockholder approval, except where, because of the
particular circumstances under which any of such shares will be issued,
stockholder approval is required by law. Each series of preferred stock is
required to be distinctly titled and shall consist of the number of shares
designated by the Board of Directors. The Board of Directors is expressly
vested with the right to determine with respect to
<PAGE> 24
(b) the rates and times at which, and the terms and conditions on
which, dividends (if any) on such shares shall be paid, and any dividend
preferences or rights of accumulation; (c) whether such shares shall be
granted conversion rights, and, if so, upon what terms and conditions; (d)
whether the Company shall have the right to redeem such shares, and, if
so, upon what terms and conditions; (e) the liquidation rights (if any) of
such shares, including whether such shares shall enjoy any liquidation
preference over common stock; and, if so, to what extent; and, (f) the
other designations, preferences, relative rights, and limitations (if any)
attaching to such shares.
SABA PETROLEUM COMPANY
By: /s/ ILYAS CHAUDHARY
---------------------------------
Name: Ilyas Chaudhary
Title: President
<PAGE> 25
EXHIBIT A
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendments to its
Articles of Incorporation:
FIRST: The name of the corporation is (note 1) Bordeaux Petroleum
Company
SECOND: The following amendment to the Articles of Incorporation was
adopted on December 16, 1988, as prescribed by the Colorado Corporation Code, in
the manner marked with an X below:
Such amendment was adopted by the board of directors where no
----- shares have been issued.
X Such amendment was adopted by a vote of the shareholders. The
----- number of shares voted for the amendment was sufficient for
approval.
Article IV of the Company's articles of incorporation shall be amended
to read as follows:
"The Company's authorized capital stock shall consist of 150,000,000
shares of common stock with a par value of $.01 per share and
50,000,000 shares of preferred stock with a par value of $1.00 per
share."
THIRD: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
NA
FOURTH: The manner in which such amendment effects a change in the
amount of stated capital, and the amount of stated capital as changed by such
amendment, are as follows:
NA
Bordeaux Petroleum Company (Note 1)
----------------------------------
By /s/ DENNIS R. STAAL
----------------------------------
Its President
and (Note 2)
---------------------------------
Its Secretary
(Note 3)
------------------------------------
Its
<PAGE> 26
EXHIBIT B
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendments to its
Articles of Incorporation.
FIRST: The name of the corporation is SABA PETROLEUM COMPANY
SECOND: The following amendment to the Articles of Incorporation was
adopted on June 25, 1993, as prescribed by the Colorado Corporation Code, that
is, by a vote of the shareholders. The number of shares voted for the
amendment was sufficient for approval.
Article IV of the corporation's Articles of Incorporation shall be amended
to read as follows:
(a) COMMON STOCK AND PREFERRED STOCK. The corporation is authorized to
issue two classes of shares designated "Common Stock" and "Preferred Stock",
respectively. The number of shares of Common Stock authorized to be issued is
150,000,000 shares with no par value. The number of shares of Preferred Stock
authorized to be issued is 50,000,000 shares, with no par value.
(b) RIGHTS, PREFERENCES, PROVISIONS AND RESTRICTIONS. The Board of
Directors will have authority to cause the issuance, from time to time, of
preferred stock and one or more series thereof, for any proper purpose without
further stockholder approval, except where, because of the particular
circumstances under which any of such shares will be issued, stockholder
approval is required by law. Each series of preferred stock is required to be
distinctly titled and shall consist of the number of shares designated by the
Board of Directors. The Board of Directors is expressly vested with the right
to determine with respect to the preferred stock, and each series thereof, the
following: (a) whether such shares shall be granted voting rights, and, if so,
to what extent and upon what terms and conditions; (b) the rates and times at
which, and the terms and conditions on which, dividends (if any) on such shares
shall be paid, and any dividend preferences or rights of accumulation; (c)
whether such shares shall be granted conversion rights, and, if so, upon what
terms and conditions; (d) whether the Company shall have the right to
1
<PAGE> 27
redeem such shares, and, if so, upon what terms and conditions; (e) the
liquidation rights (if any) of such shares, including whether such shares shall
enjoy any liquidation preference over common stock, and, if so, to what extent;
and, (f) the other designations, preferences, relative rights, and limitations
(if any) attaching to such shares.
SABA PETROLEUM COMPANY
BY /s/ WILLIAM L. WINELAND
-----------------------------
ITS PRESIDENT
AND /s/ WILLIAM JAMES HICKEY
----------------------------
ITS SECRETARY
2
<PAGE> 28
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Saba Petroleum Company
SECOND: The following amendment to the Articles of Incorporation was adopted on
October 19, 1995, as prescribed by the Colorado Business Corporation Act, in
the manner marked with an X below:
No shares have been issued or Directors Elected -- Action by
- -------- Incorporators
No shares have been issued or Directors Elected -- Action by
- -------- Directors
XX Such amendment was adopted by the board of directors where shares
- -------- have been issued.
XX Such amendment was adopted by a vote of the shareholders. The number
- -------- of shares voted for the amendment was sufficient for approval.
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: NA
FOURTH: Article IV of the Corporation's Articles of Incorporation are amended
by adding the following after the last sentence of subsection (a) thereof:
"Stockholders shall have no preemptive rights."
If these amendments are to have a delayed effective date, please list that
date: NA
(Not to exceed ninety (90) days from the date of filing)
SABA PETROLEUM COMPANY
By: /s/ WALTON C. VANCE
--------------------------------------------
Walton C. Vance,
Vice President and Chief Financial Officer
<PAGE> 29
CERTIFICATE OF CORRECTION
Pursuant to the Colorado Business Corporation Act, the undersigned
hereby executes the following certificate of correction:
FIRST: The exact name of the corporation is SABA PETROLEUM COMPANY
------------------------------
organized under the laws of COLORADO
---------------------------------------
SECOND: Description of the documents being corrected (i.e. Articles of
Incorporation, Amendment, Merger or other) or an attached copy
of the document: ARTICLES OF CORRECTION TO THE ARTICLES OF
---------------------------------------------------
INCORPORATION
--------------------------------------------------------------------
THIRD: Date document was filed NOVEMBER 7 , 1995
-------------------- ------
FOURTH: Statement of incorrect information:
SEE ATTACHED "EXHIBIT A".
FIFTH: Statement of corrected information:
SEE ATTACHED "EXHIBIT 1".
SABA PETROLEUM COMPANY
By /s/ WALTON VANCE
--------------------------------
Signature and Title
Vice President
--------------------------------
Signature and Title
<PAGE> 30
ARTICLES OF CORRECTION TO
THE ARTICLES OF INCORPORATION OF
SABA PETROLEUM COMPANY
Pursuant to the provisions of Section 7-101-205 of the Colorado Business
Corporation Act, the undersigned corporation adopts the following Articles of
Correction to the Articles of Correction to its Articles of Incorporation filed
on November 7, 1995:
FIRST: Saba Petroleum Company, formerly known as Bordeaux Petroleum
Company, (the "Company") filed with the Colorado Secretary of State on
November 7, 1995, Articles of Correction to its Articles of Incorporation,
attached hereto as Exhibit A (the "Prior Articles of Correction").
SECOND: The Prior Articles of Correction did not contain a correct
statement of the provisions of Article IV of the Company's Articles of
Incorporation. The words "the preferred stock, and each series thereof, the
following: (a) whether such shares shall be granted voting rights, and if so,
to what extent and upon what terms and conditions;" were inadvertently omitted
after the words "with respect to" in line 11 of paragraph (b) of Article IV of
the Company's Articles of Incorporation as set forth in the Prior Articles of
Correction.
Article IV of the Company's Articles of Incorporation
should have read in the Prior Articles of Correction
as follows:
(a) Common Stock and Preferred Stock. The corporation
is authorized to issue two classes of shares designated
"Common Stock" and "Preferred Stock", respectively. The
number of shares of Common Stock authorized to be issued
is 150,000,000 shares with no par value. The number of
shares of Preferred Stock authorized to be issued is
50,000,000 shares with no par value. Stockholders shall
have no preemptive rights.
<PAGE> 31
(b) Rights, Preferences, Provisions and Restrictions.
The Board of Directors will have authority to cause
the issuance, from time to time, of Preferred Stock and
one or more series thereof, for any proper purpose
without further stockholder approval, except where,
because of the particular circumstances under which
any of such shares will be issued, stockholder
approval is required by law. Each series of Preferred
Stock is required to be distinctly titled and shall
consist of the number of shares designated by the
Board of Directors. The Board of Directors is
expressly vested with the right to determine with
respect to the Preferred Stock, and each series
thereof, the following: (a) whether such shares
shall be granted voting rights, and if so, to what
extent and upon what terms and conditions;
(b) the rates and times at which, and the terms and
conditions on which, dividends (if any) on such
shares shall be paid, and any dividend preferences
or rights of accumulation; (c) whether such shares
shall be granted conversion rights, and, if so,
upon what terms and conditions; (d) whether the
Company shall have the right to redeem such shares
and, if so, upon what terms and conditions; (e) the
liquidation rights (if any) of such shares, including
whether such shares shall enjoy any liquidation
preference over Common Stock; and, if so, to what
extent; and, (f) the other designations, preferences,
relative rights, and limitations (if any) attaching
to such shares.
Saba Petroleum Company
By: /s/ WALTON VANCE
--------------------------------
Name: Walton Vance
------------------------------
Title: Vice President
-----------------------------
<PAGE> 32
EXHIBIT A
ARTICLES OF CORRECTION TO
THE ARTICLES OF INCORPORATION OF
SABA PETROLEUM COMPANY
Pursuant to the provisions of Section 7-101-205 of the Colorado
Business Corporation Act, the undersigned corporation adopts the following
Articles of Correction to its Articles of Incorporation:
FIRST: Saba Petroleum Company, formerly known as Bordeaux Petroleum
Company, (the "Company") filed with the Colorado Secretary of State on
December 27, 1988, Articles of Amendment to its Articles of Incorporation,
attached hereto as EXHIBIT A, changing the number of authorized shares of
Saba's capital stock to 150,000,000 shares of common stock, par value $0.01 per
share, and 50,000,000 shares of preferred stock, par value $1.00 per share
("Amendment 1").
SECOND: In adopting Amendment 1, the sentence in Article IV of the
Articles of Incorporation providing that "Stockholders shall have no preemptive
rights." was inadvertently deleted from the Articles of Incorporation and there
was no intent by either the directors or the shareholders that Amendment 1
grant preemptive rights to the shareholders of Saba.
THIRD: Amendment 1 should be corrected to read as follows:
Article IV of the Company's Articles of Incorporation shall
be amended to read as follows:
"The Company's authorized capital stock shall consist of
150,000,000 shares of common stock with a par value of
$0.01 per share and 50,000,000 shares of preferred
stock with a par value of $1.00 per share. Stockholders
shall have no preemptive rights."
<PAGE> 33
FOURTH: The Company also filed Articles of Amendment to the Articles
of Incorporation with the Colorado Secretary of State's Office on August 27,
1993, attached hereto as EXHIBIT B, changing the authorized shares of capital
stock to 150,000,000 shares of common stock with no par value, and 50,000,000
shares of preferred stock with no par value ("Amendment 2").
FIFTH: In adopting Amendmen 2, the sentence in Article IV of the
Articles of Incorporation providing that "Stockholders shall have no preemptive
rights." was inadvertently deleted from the Articles of Incorporation and there
was no intent by either the directors or the shareholders that Amendment 2
grant preemptive rights to the shareholders of Saba.
SIXTH: Amendment 2 should be corrected to read as follows:
Article IV of the Corporation's Articles of Incorporation shall be
amended to read as follows:
(a) Common Stock and Preferred Stock. The corporation is
authorized to issue two classes of shares designated "Common
Stock" and "Preferred Stock", respectively. The number of
shares of Common Stock authorized to be issued is 150,000,000
shares with no par value. The number of shares of Preferred
Stock authorized to be issued is 50,000,000 shares with
no par value. Stockholders shall have no preemptive rights.
(b) Rights, Preferences, Provisions and Restrictions.
The Board of Directors will have authority to cause the
issuance, from time to time, of preferred stock and one
or more series thereof, for any proper purpose without
further stockholder approval, except where, because of
the particular circumstances under which any of such
shares will be issued, stockholder approval is required
by law. Each series of preferred stock is required to
be distinctly titled and shall consist of the number of
shares designated by the Board of Directors. The Board
of Directors is expressly vested with the right to
determine with respect to
<PAGE> 34
(b) the rates and times at which, and the terms and
conditions on which, dividends (if any) on such shares shall
be paid, and any dividend preferences or rights of
accumulation; (c) whether such shares shall be granted
conversion rights, and, if so, upon what terms and
conditions; (d) whether the Company shall have the right
to redeem such shares, and, if so, upon what terms and
conditions; (e) the liquidation rights (if any) of such
shares, including whether such shares shall enjoy any
liquidation preference over common stock; and, if so, to
what extent; and, (f) the other designations, preferences,
relative rights, and limitations (if any) attaching to
such shares.
SABA PETROLEUM COMPANY
By: /s/ ILYAS CHAUDHARY
---------------------------------
Name: Ilyas Chaudhary
-------------------------------
Title: President
------------------------------
<PAGE> 1
EXHIBIT NUMBER 22.1
SUBSIDIARIES OF SMALL BUSINESS ISSUER
The Company conducts its operations through one 74.4% owned and eight wholly
owned active subsidiaries:
<TABLE>
<CAPTION>
Name of Subsidiary/Name Under Which Subsidiary Does Business State of Organization
- ------------------------------------------------------------ ---------------------
<S> <C>
Beaver Lake Energy Corporation* Alberta, Canada
Saba Petroleum, Inc. California
Saba Petroleum of Michigan, Inc. Michigan
Saba Energy of Texas, Incorporated Texas
Sabacol, Inc. Delaware
Saba Offshore, Inc. Delaware
Saba Realty, Inc. California
Santa Maria Refining Company California
Saba Exploration Company California
D&S Industrial Services, Inc.** California
Tank Tec, Inc.** California
</TABLE>
*74.4% owned
**Subsidiaries in dissolution
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Saba Petroleum Company on Form S-3 (SEC File No. 33-71272 and 333-00799) of our
report dated March 29, 1996 on our audits of the consolidated financial
statements of Saba Petroleum Company as of December 31, 1995 and 1994 and for
the years then ended, which report is included in this Annual Report on Form
10-KSB.
COOPERS & LYBRAND L.L.P.
Los Angeles, CA
April 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AT DECEMBER 31, 1995 AND CONSOLIDATED STATEMENT OF INCOME FOR YEAR
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,390,287
<SECURITIES> 0
<RECEIVABLES> 4,501,209
<ALLOWANCES> (57,000)
<INVENTORY> 0
<CURRENT-ASSETS> 9,829,668
<PP&E> 37,692,655
<DEPRECIATION> (10,108,845)
<TOTAL-ASSETS> 39,751,097
<CURRENT-LIABILITIES> 7,358,183
<BONDS> 23,543,307
<COMMON> 6,796,140
0
0
<OTHER-SE> 1,052,109
<TOTAL-LIABILITY-AND-EQUITY> 39,751,097
<SALES> 0
<TOTAL-REVENUES> 17,694,255
<CGS> 0
<TOTAL-COSTS> 15,393,428
<OTHER-EXPENSES> 26,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,364,110
<INCOME-PRETAX> 1,051,800
<INCOME-TAX> 449,636
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 546,532
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0
</TABLE>
