<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
MARCH 31, 1997
Commission File Number 1-12322
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SABA PETROLEUM COMPANY
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 47-0617589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3201 Airpark Drive, Suite 201
Santa Maria, CA 93455
----------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (805) 347-8700
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
At May 9, 1997, 10,640,177 shares of common stock, no par value, were
outstanding.
Transitional Small Business Disclosure Format. [ ] YES [X] NO
<PAGE> 2
SABA PETROLEUM COMPANY
CONTENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 1997 3
Condensed Consolidated Statements of Income for the
three months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis 10-16
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 733,444
Accounts receivable, net of allowance for doubtful
accounts of $68,000 6,893,416
Other current assets 3,073,829
------------
Total current assets 10,700,689
------------
Property and equipment (Note 3):
Oil and gas properties (full cost method) 49,526,856
Land, plant and equipment 6,457,981
------------
55,984,837
Less accumulated depletion and depreciation (16,841,646)
------------
Total property and equipment 39,143,191
------------
Other assets 2,412,301
------------
$ 52,256,181
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 7,246,155
Income taxes payable 2,459,414
Current portion of long-term debt 2,505,000
------------
Total current liabilities 12,210,569
Long-term debt, net of current portion (Note 3) 17,163,865
Other liabilities and deferred taxes 969,085
Minority interest in consolidated subsidiary 812,216
------------
Total liabilities 31,155,735
------------
Commitments and contingencies (Note 5)
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
10,625,321 shares 14,867,961
Retained earnings 6,244,427
Cumulative translation adjustment (11,942)
------------
Total stockholders' equity 21,100,446
------------
$ 52,256,181
============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Oil and gas sales $ 9,668,592 $ 6,962,886
Other (105,118) 424,404
------------ ------------
Total revenues 9,563,474 7,387,290
------------ ------------
Expenses:
Production costs 4,245,210 3,401,990
General and administrative 926,422 703,757
Depletion, depreciation and amortization 1,586,960 1,140,500
------------ ------------
Total expenses 6,758,592 5,246,247
------------ ------------
Operating income 2,804,882 2,141,043
------------ ------------
Other income (expense):
Other 203,439 (60,846)
Interest expense (390,800) (609,087)
------------ ------------
Total other income (expense) (187,361) (669,933)
------------ ------------
Income before income taxes 2,617,521 1,471,110
Provision for taxes on income (1,087,509) (694,000)
Minority interest in earnings of consolidated subsidiary (88,430) (21,622)
------------ ------------
Net income $ 1,441,582 $ 755,488
============ ============
Net earnings per common share:
Primary $ 0.13 $ 0.08
============ ============
Fully-diluted $ 0.12 $ 0.08
============ ============
Weighted average common and common equivalent shares outstanding:
Primary 11,067,999 9,031,868
============ ============
Fully-diluted 12,239,490 11,769,954
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,441,582 $ 755,488
Adjustments to reconcile net income to net cash
provided by operations:
Depletion, depreciation and amortization 1,586,960 1,140,500
Amortization of unearned compensation - 4,250
Minority interest in earnings of consolidated subsidiary 88,430 21,622
Gain on issuance of shares of subsidiary (5,533) -
Changes in:
Accounts receivable 458,035 (741,559)
Other assets 342,980 223,101
Accounts payable and accrued liabilities 2,638,402 (1,381,949)
----------- -----------
Net cash provided by operating activities 6,550,856 21,453
----------- -----------
Cash flows from investing activities:
Expenditures for property and equipment (5,826,396) (921,883)
----------- -----------
Net cash used in investing activities (5,826,396) (921,883)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 4,551,129 4,870,000
Principal payments on notes payable and long-term debt (5,490,159) (4,055,699)
(Increase) decrease in notes receivable 89,223 (9,724)
Increase in deferred loan costs - (250,340)
Net change in accounts with affiliated companies (2,709) (10,821)
Net proceeds from issuance of common stock 130,000 -
----------- -----------
Net cash provided by (used in) financing activities (722,516) 543,416
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (2,536) 352
----------- -----------
Net decrease in cash (592) (356,662)
Cash at beginning of period 734,036 640,287
----------- -----------
Cash at end of period $ 733,444 $ 283,625
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial statements have
been prepared on a basis consistent with the accounting principles and
policies reflected in the financial statements for the year ended December
31, 1996 and should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1996 Form 10-KSB. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals only) necessary to present fairly the Company's consolidated
financial position as of March 31, 1997, and the consolidated results of
operations and cash flows for the three month periods ended March 31, 1997
and 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." Statement
of Financial Accounting Standard No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share and is
effective for financial statements issued for periods ending after December
15, 1997. Management has not yet determined the impact that adoption of
Statement of Financial Accounting Standard No. 128 is expected to have on
the financial statements of the Company.
2. STATEMENTS OF CASH FLOWS
Following is certain supplemental information regarding cash flows for the
three month periods ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Interest paid $313,676 $349,264
======== ========
Income taxes paid $234,459 $255,237
======== ========
</TABLE>
Non-cash investing and financing transactions:
Debentures in the principal amount of $1,992,000 were converted into 455,295
shares of Common Stock during the three months ended March 31, 1997.
Cumulative foreign currency translation gains (losses) in the amount of
($25,760) and $8,156 were recorded during the three month periods ended
March 31, 1997 and 1996, respectively.
In February 1996, the Company issued 14,000 shares of Common Stock to a
director of the Company in settlement of an obligation in the amount of
$42,000.
3. LONG-TERM DEBT
Long-term debt consists of the following at March 31, 1997:
<TABLE>
<S> <C>
9% convertible senior subordinated debentures - due 2005 $ 4,446,000
Revolving loan agreement with a bank 11,860,000
Demand loan agreement with a bank 1,896,265
Promissory note 450,000
Promissory notes - CAPCO 1,016,600
-----------
19,668,865
Less current portion 2,505,000
-----------
$17,163,865
===========
</TABLE>
On December 26, 1995, the Company issued $11,000,000 of 9% convertible
senior subordinated debentures ("Debentures") due December 15, 2005. 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. 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 $4.38 per share,
6
<PAGE> 7
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
subject to adjustment in certain events. The Company has reserved 3,000,000
shares of its Common Stock for the conversion of the Debentures. 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.
Debentures in the amount of $6,212,000 were converted into 1,419,846 shares
of Common Stock during the year ended December 31, 1996. An additional
$1,992,000 of Debentures were converted into 455,295 shares of Common Stock
during the three-month period ended March 31, 1997.
The revolving loan ("Agreement") is subject to semi-annual redeterminations
and will be converted to a three-year term loan on July 1, 1999. 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
principal U.S. subsidiaries. The Agreement also provides for a commitment
("term loan") of as much as $3.4 million with an interest rate of prime plus
4.0% (12.5% at March 31, 1997) which may be borrowed for the purpose of
funding development of oil and gas properties in the United States. At March
31, 1997, the borrowing bases for the revolving loan and term loan were
$13.0 million and $1.4 million, respectively. No amount of debt was
outstanding under the term loan at March 31, 1997. The weighted average
interest rate for borrowings outstanding under the revolving loan at March
31, 1997 was 8.5%. Effective May 1, 1997, the borrowing base for the
revolving loan was increased to $18.6 million, subject to a monthly
reduction of $435,000, beginning June 1, 1997. In addition, interest rate
options were reduced to the bank's prime rate plus 0.25%, or LIBOR plus
2.25%. In accordance with the terms of the Agreement, and after giving
effect to the Company's anticipated capital requirements, $2,055,000 of the
loan balance is classified as currently payable at March 31, 1997. 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 than 20% of revenue, all as
defined in the Agreement. Additionally, the Company is restricted from
paying dividends and advancing funds in excess of specified limits to
affiliates. The Company was in compliance with the terms of the Agreement at
March 31, 1997.
The Company's Canadian subsidiary has available a demand revolving reducing
loan in the face amount of $2.8 million. Reductions to the maximum principal
amount available under the loan will be reviewed on or before July 1, 1997,
with no repayments of the balance outstanding at March 31, 1997 anticipated
in the next twelve months. Interest is payable at a variable rate equal to
the Canadian prime rate plus 0.75% per annum (5.5% at March 31, 1997). The
loan is collateralized by the subsidiary's oil and gas producing properties,
and a first fixed and floating change debenture in the principal amount of
$3.6 million over all assets of the company. 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 default.
4. COMMON STOCK AND STOCK OPTIONS
As of March 31, 1997, the Company had outstanding options to certain
employees of the Company for the purchase of 653,000 shares of Common Stock.
These options become exercisable 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. Options to acquire 89,000 shares of
Common Stock were exercised during the three month period ended March 31,
1997. Options to acquire 269,000 shares of Common Stock were exercisable at
March 31, 1997.
7
<PAGE> 8
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. 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.
ENVIRONMENTAL CONTINGENCIES
Pursuant to the purchase and sale agreement of an asphalt refinery in Santa
Maria, California, the sellers agreed to perform certain remediation and
other environmental activities on portions of the refinery property through
June 1999. Because the purchase and sale agreement contemplates that the
Company might also incur remediation obligations with respect to the
refinery, 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, however, believes that all required remediation will be
completed by the seller within the five year period. 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 as may exist.
The Colombian Ministry of the Environment ("Ministry") 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 certain of the Company's Colombia properties. 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. The temporary closing of the module did not have a
substantial effect on total production because substantially all of the
crude oil which would otherwise have been processed in the closed module was
directed to other production modules. The resolution also ordered the
opening of an environmental investigation of Texas Petroleum Company's
operation of the properties. The document containing the requested timetable
was presented to the Ministry on July 6, 1995. On June 18, 1996, the
Ministry issued a resolution which allowed the current operator of the
properties to reopen the module, while requiring its efforts to finalize
correction of the cited deficiencies.
In accordance with the Articles of Association for the Cocorna Concession,
the concession expired during the first quarter and the property interest
reverted to Ecopetrol. The property is presently under operation by
Ecopetrol. Under the terms of the acquisition of the concession, the
company and the operator were required to perform various environmental
remedial operations, which the operator advises have been substantially, if
not wholly, completed. The company and the operator are awaiting an
inspection of the concession area by Colombian officials to determine
whether the government concurs in the operator's conclusions. Based upon the
advice of the operator, the Company does not anticipate any significant
future expenditures associated with the environmental requirements for the
Cocorna Concession.
8
<PAGE> 9
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In 1993, the Company acquired a producing mineral interest from a major oil
company ("Seller"). At the time of acquisition, the Company's investigation
revealed that the Seller had suffered a discharge of diluent (a light oil
based fluid which is often mixed with heavier grade crudes). The purchase
agreement required the Seller to remediate the area of the diluent spill.
After the Company assumed operation of the property, the Company became
aware of the fact that diluent was seeping into a drainage area, which
traverses the property. The Company took action to eliminate the fluvial
contamination and requested that the Seller bear the cost of remediation.
The Seller has taken the position that its obligation is limited to the
specified contaminated area and that the source of the contamination is not
within the area that the Seller has agreed to remediate. The Company has
commenced an investigation into the source of the contamination to ascertain
whether it is physically part of the area which the Seller agreed to
remediate or is a separate spill area. Investigation and discussions with
the Seller are ongoing. Should the Company be required to remediate the area
itself, the cost to the Company could be significant. The Company has spent
approximately $150,000 to date in remediation activities, and present
estimates are that the cost of complete remediation could approach $1
million. Since the investigation is not complete, an accurate estimate of
cost cannot be made.
In 1995, the Company agreed to acquire, for less than $50,000, an oil and
gas interest on which a number of oil wells had been drilled by the seller.
None of the wells were in production at the time of acquisition. The
acquisition agreement required that the Company assume the obligation to
abandon any wells that the Company did not return to production,
irrespective of whether certain consents of third parties necessary to
transfer the property to the Company would be obtained. The Company has been
unable to secure all of the requisite consents to transfer the property but
nevertheless may have the obligation to abandon the wells. The Company is
evaluating its drilling options and is considering whether to continue to
attempt to secure the transfer consents. A preliminary estimate of the cost
of abandoning the wells and restoring the well sites is approximately
$800,000. The Company is currently unable to assess its exposure to third
parties if the Company elects to plug such wells without first obtaining
necessary consent.
The Company, as is customary in the industry, is required to plug and
abandon wells and remediate facility sites on its properties after
production operations are completed. The cost of such operation will be
significant and will occur, from time to time, as properties are abandoned.
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. No assurance can be given that the costs of closure of any of the
Company's other oil and gas properties would not have a material adverse
effect on the Company.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the condensed
consolidated financial statements of the Company and notes thereto, included
elsewhere herein.
OVERVIEW
The Company is an independent energy company engaged in the acquisition,
exploration and development of oil and gas properties. To date, the Company has
grown primarily through the acquisition of producing properties with significant
exploration and development potential in the United States, Colombia and Canada.
This strategy has enabled the Company to assemble a significant inventory of
properties over the past five years. The Company's strategy has expanded to
emphasize growth through exploration and development drilling.
The Company's revenues are primarily comprised of oil and gas sales attributable
to properties in which the Company owns a majority or substantial interest. The
Company accounts for its oil and gas producing activities under the full cost
method of accounting. Accordingly, the Company capitalizes, in separate cost
centers, all costs incurred in connection with the acquisition of oil and gas
properties and the exploration for and development of oil and gas reserves. The
Company's financial statements have been consolidated to reflect the operations
of its subsidiaries, including the Company's approximate 74% ownership interest
in Beaver Lake Resources Corporation, a Canadian public company.
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 price received by the Company for its oil
produced in North America is influenced by the world price for crude oil, as
adjusted for the particular grade of oil. The oil produced from the Company's
California properties is predominantly a heavy grade of oil, which is typically
sold at a discount to lighter oil. Heavy oil producers, however, have benefited
recently from a decline in the price differential between light and heavy oil
and the rise in oil prices generally. The oil produced from the Company's
Colombian properties is predominantly a heavy grade of oil. The prices received
by the Company for its Colombian produced oil are determined based on formulas
set by Ecopetrol. Additional factors influencing operating performance include
production expenses, overhead requirements, the Company's method of depleting
reserves, and cost of capital.
ACQUISITION, EXPLORATION AND DEVELOPMENT
Two producing property acquisitions were closed during the quarter ended March
31, 1997. Effective January 1, 1997, the Company acquired working interests in
properties located in Michigan in which the Company already owned working
interests. Remaining recoverable reserves attributable to the acquired interests
were estimated by Company engineers to be approximately 102,000 barrels of oil
equivalent. The purchase price of $444,000 was funded from cash flow. In March,
1997, the Company's Canadian subsidiary closed the acquisition of a producing
gas property in Alberta, Canada. Remaining recoverable reserves, net to the
subsidiary's working interest of 56.25%, were estimated at 1.1 billion cubic
feet of natural gas. The subsidiary assumed operations of the property. The
acquisition cost of approximately $527,000 was funded from proceeds available
under the subsidiary's revolving credit facility.
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Drilling activity during the quarter consisted of one gross (.29 net) producing
gas well in Alberta, Canada; the completion of one gross (1.0 net) horizontal
oil well in Santa Barbara County, California which was in progress at December
31, 1996; the drilling of one gross (1.0 net) horizontal oil well in Santa
Barbara County, California; and the drilling and completion of one gross (.50
net) oil well in Lea County, New Mexico, which was in progress at December 31,
1996. In addition, re-work activities were conducted on two oil wells on the
Jefferson Parish, Louisiana property that was acquired by the Company in
November, 1996.
On April 1, 1997, the Company commenced drilling operations on a 100%-owned
prospect in Alberta, Canada. The initial location for a horizontal test oil well
was selected by incorporating 3-D seismic interpretation into geological
evaluations. Permits were secured from the Ministry of the Environment in
Colombia to drill six development wells and one exploratory well. On May 5,
1997, drilling activity commenced on the first development well.
The Company plans to continue drilling activities on its present properties
throughout the remainder of 1997, including as many as 32 horizontal oil wells
in California. In addition to the seven wells permitted in Colombia, the Company
and its working interest partners plan to drill up to 28 additional wells in
1997, if the appropriate permits are obtained from the Ministry of the
Environment.
RESULTS OF OIL AND GAS PRODUCING OPERATIONS
Results of the Company's oil and gas producing activities for the three month
periods ended March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997 United
Total States Canada Colombia
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and gas sales $9,668,592 $5,623,441 $ 737,230 $3,307,921
Production costs $4,245,210 $2,318,381 $ 223,262 $1,703,567
Depletion $1,450,049 $ 855,914 $ 69,102 $ 525,033
General and administrative expenses $ 926,422 $ 788,568 $ 101,672 $ 36,182
Oil volume (Bbls) 534,459 258,609 27,674 248,176
Gas volume (Mcf) 563,630 396,426 167,204 -
Barrels of oil equivalent (BOE) 628,397 324,680 55,541 248,176
Average per BOE:
Sales price $ 15.39 $ 17.32 $ 13.27 $ 13.33
Production costs $ 6.76 $ 7.14 $ 4.02 $ 6.86
Depletion $ 2.31 $ 2.64 $ 1.24 $ 2.12
General and administrative expenses $ 1.47 $ 2.43 $ 1.83 $ .15
</TABLE>
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
- --------------------------------- United
Total States Canada Colombia
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and gas sales $6,962,886 $3,275,511 $ 576,244 $3,111,131
Production costs $3,401,990 $1,964,552 $ 202,129 $1,235,309
Depletion $1,005,119 $ 458,615 $ 58,799 $ 487,705
General and administrative expenses $ 703,757 $ 530,335 $ 131,509 $ 41,913
Oil volume (Bbls) 479,105 182,446 28,619 268,040
Gas volume (Mcf) 415,330 267,012 148,318 -
Barrels of oil equivalent (BOE) 548,327 226,948 53,339 268,040
Average per BOE:
Sales price $ 12.70 $ 14.43 $ 10.80 $ 11.61
Production costs $ 6.20 $ 8.66 $ 3.79 $ 4.61
Depletion $ 1.83 $ 2.02 $ 1.10 $ 1.82
General and administrative expenses $ 1.28 $ 2.34 $ 2.47 $ .16
</TABLE>
RESULTS OF REFINING OPERATIONS
In June 1995, the Company entered into a processing agreement with an
unaffiliated company pursuant to which the latter company purchases crude
(including that produced by the Company), delivers the crude to the refinery,
reimburses the Company's out of pocket costs for refining, then markets the
asphalt and other refinery products. Profits from the refinery operations
(computed after recovery of crude costs and other costs of operations) are
generally shared equally by the Company and the unaffiliated company. The
processing agreement has a term which ends December 31, 1998.
Processing operations for the three month periods ended March 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Sales:
Asphalt (tons) 25,000 6,000
Other products (Bbls) 91,000 84,000
Production:
Asphalt (tons) 32,000 28,000
Other products (Bbls) 105,000 84,000
Crude oil throughput (Bbls) 285,000 243,000
</TABLE>
The Company did not realize any processing fee income in the three month periods
ended March 31, 1997 and 1996. The asphalt refining business is seasonal in
nature.
1997 COMPARED TO 1996
OIL AND GAS SALES
Oil and gas sales increased approximately 38.6% to $9.7 million in 1997 from
$7.0 million in 1996. Average sales price per BOE for in 1997 increased 21.2% to
$15.39 from $12.70 per BOE in 1996, resulting in an increase of $1.7 million in
oil and gas sales.
12
<PAGE> 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS (continued
Total production increased 14.6% to 628 MBOE in 1997 as compared to 548 MBOE in
1996, resulting in an increase of $1.0 million in oil and gas sales. The
increase in oil and gas production was primarily attributable to the Company's
property acquisition in Louisiana in November 1996 and the horizontal drilling
program that began in California in June 1996.
OTHER REVENUES
Other revenues decreased to a net loss of $105,000 in 1997 as compared to
revenue of $424,000 in 1996. This decrease was due primarily to additional
Velasquez-Galan Pipeline operating expenses in the amount of $414,000 which were
invoiced to the Company by the facility's operator.
PRODUCTION COSTS
Oil and gas production costs increased 23.5% to $4.2 million in 1997 as compared
to $3.4 million in 1996. The Company's average production costs per BOE
increased 9.0% to $6.76 in 1997 from $6.20 in 1996, resulting in an increase of
$346,000 in production costs. In Colombia, production costs increased from $1.2
million in 1996 to $1.7 million in 1997, including non-recurring charges in the
amount of $132,000 ($0.53 per BOE). The production volume increase of 80 MBOE
resulted in an increase of $497,000 in production costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $926,000 in 1997 from $704,000
in 1996. The Company's general and administrative expenses per BOE increased
15.7% to $1.47 per BOE in 1997 from $1.27 per BOE in 1996. The overall increase
in general and administrative expenses was due principally to the increase in
employment in the Company's domestic offices to support its planned oil and gas
property development programs.
DEPLETION, DEPRECIATION AND AMORTIZATION EXPENSES
Depletion, depreciation and amortization expenses increased 45.5% to $1.6
million in 1997 from $1.1 million in 1996. Depletion expense increased 50.0% to
$1.5 million ($2.31 per BOE) in 1997 from $1.0 million ($1.83 per BOE) in 1996.
This increase was primarily attributable to the capital costs recorded by the
Company in its full cost pools beginning in the second quarter of 1996 and the
anticipated future development and abandonment costs to be incurred in
connection with the management of its oil and gas properties.
INTEREST EXPENSE
Interest expense decreased to $391,000 in 1997 from $609,000 in 1996. This
decrease was due primarily to the conversion of $8.2 million of Debentures to
Common Stock occurring since April 1, 1996.
The average debt balance outstanding under the Company's principal credit
facility in 1997 increased 20.9% to $11.0 million in 1997 from $9.1 million in
1996, due principally to the use of loan proceeds to fund a property acquisition
in November, 1996. The weighted average interest rate for this credit facility
increased to 9.4% in 1997 from 9.3% in 1996.
13
<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED
OTHER INCOME (EXPENSE)
Other income (expense) increased to income of $203,000 in 1997 as compared to
expense of $61,000 in 1996. The change was due primarily to foreign currency
transaction activity of $220,000 and non-recurring consulting fee income of
$74,000 in 1997.
INCOME TAX EXPENSE
Income tax expense was $1.1 million in 1997, compared to $694,000 in 1996. The
Company's estimated effective tax rates were 43.0% in 1997 and 47.9% in 1996.
NET INCOME
Net income was significantly higher in 1997, increasing 85.4% to $1.4 million
from $755,000 in 1996. The increase in net income reflects the changes in oil
and gas sales, other revenues, production costs, general and administrative
expenses, depletion, depreciation and amortization expenses, interest expense,
other income (expense) and income tax expenses discussed above.
The Company's oil and gas producing business is not seasonal in nature.
LIQUIDITY AND CAPITAL RESOURCES
Since 1991, the Company's strategy has emphasized growth through the acquisition
of producing properties with significant exploration and development potential.
The Company recently expanded its focus to emphasize drilling, enhanced recovery
methods and increased production efficiencies. During the past five years, the
Company financed its acquisitions and other capital expenditures primarily
through secured bank financing, the creation of joint interest operations and
production payment obligations, and sales of Common Stock and the Debentures.
Supplemental cash and working capital are provided through internally generated
cash flows, secured bank financing and debt and equity financing.
During 1997 and 1996, the Company used a combination of secured bank financing,
the proceeds from the sale of the Debentures and internally generated cash flow
to fund its acquisitions and other capital expenditures.
Summary cash flow information for the three month periods ended March 31, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 6,550,000 $ 21,000
Net cash used in investing activities $(5,826,000) $ (922,000)
Net cash provided by (used in) financing activities $ (723,000) $ 543,000
</TABLE>
WORKING CAPITAL
The Company's working capital decreased in 1997 from $2.4 million at December
31, 1996 to a deficit of $1.5 million at March 31, 1997. This decrease was
primarily due to an increase of $2.6 million in accounts payable, due to the
Company's development expenditures at the end of the first quarter, and the
classification of $2.1 million of revolving bank loan indebtedness which may
become payable during the
14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
next twelve months, depending on the Company's future capital requirements and
available funding sources.
OPERATING ACTIVITIES
The Company's operating activities during 1997 provided net cash flow of $6.6
million. Changes in the non-cash components of working capital were responsible
for $3.4 million of this amount. Cash flows from operating activities provided
net cash flow of $21,000 in 1996.
INVESTING ACTIVITIES
Investing activities during 1997, consisting of oil and gas property
acquisition, development and exploration expenditures, resulted in a net cash
outflow of $5.8 million.
Investing activities during 1996, consisting principally of oil and gas property
acquisition, development and exploration expenditures, resulted in a net cash
outflow of $922,000.
FINANCING ACTIVITIES
Financing activities during 1997 resulted in a net cash outflow of $723,000.
Separate from the conversion of Debentures which occurred during the quarter,
reductions to other long-term debt totaled $939,000. Proceeds from the exercise
of options provided cash inflows in the amount of $130,000 during 1997.
Financing activities during 1996, which provided net cash flow of $543,000,
consisted principally of activity on the Company's revolving line of credit and
proceeds from the issuance of Debentures, net of related financing costs, in the
amount of $1.4 million.
CREDIT FACILITIES
In September 1993, the Company established a reducing, revolving line of credit
with Bank One, Texas, N.A. to provide funds for the retirement of a production
note payable, the retirement of other short-term fixed rate indebtedness and for
working capital. At March 31, 1997, the borrowing base under the credit
agreement was $13.0 million, subject to a monthly reduction of $250,000, of
which $11.9 million was outstanding. Effective May 1, 1997, the borrowing base
was increased to $18.6 million, subject to a monthly reduction of $435,000.
The Company also has available from Bank One, Texas, N.A. a commitment for a
term credit facility of as much as $3.4 million to fund development projects in
the United States. The borrowing base for this facility was $1.4 million at
March 31, 1997, of which no amount was outstanding as of March 31, 1997.
The Company's Canadian subsidiary has available a demand revolving reducing loan
in the face amount of $2.6 million. Reductions to the maximum principal amount
available under the loan will be reviewed on or before July 1, 1997. At March
31, 1997, $1.9 million was outstanding.
The Company's budget for capital expenditures for 1997 is $53.9 million. The
expenditures will be made primarily for the development of existing properties.
Additional capital expenditures may be made for acquisitions of producing
properties, both domestically and internationally. The Company is currently in
negotiation with Pertamina, the Indonesia state-owned oil company regarding an
exploration block on the island of Java. The initial commitment including cash
bonus, seismic and drilling costs for a period of up to three years, is $19
million. At this time, the Company has no agreements regarding any other
significant acquisitions. The amount of capital expenditures will change during
future periods depending on market
15
<PAGE> 16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
conditions, results of the Company's development drilling program and other
related economic factors, including the price of oil and natural gas. The funds
available (including those from credit lines) for anticipated capital
expenditures will be affected by prices for oil and natural gas, results of the
Company's development drilling program and other factors beyond the control of
the Company.
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.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Statement of
Financial Accounting Standard No. 128 specifies the computation, presentation,
and disclosure requirements for earnings per share and is effective for
financial statements issued for periods ending after December 15, 1997.
Management has not yet determined the impact that adoption of Statement of
Financial Accounting Standard No. 128 is expected to have on the financial
statements of the Company.
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 international operations, including future
prices paid for oil produced at the Colombian oil properties, 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.
16
<PAGE> 17
SABA PETROLEUM COMPANY
PART II - OTHER INFORMATION
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
o Exhibits filed for the quarter ended March 31, 1997 are as follows:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
10.1 Employment agreement with Burt Cormany
10.2 Office Lease Agreement , 3201 Airpark Drive,
Santa Maria, California
10.3 Beaver Lake Resources Corporation March 1997
Re-Financing Agreement
11.1 Computation of Earnings per Common Share
27.1 Financial Data Schedule
</TABLE>
o No reports were filed under Form 8-K during the quarter ended March 31,
1997.
17
<PAGE> 18
SABA PETROLEUM COMPANY
SIGNATURES
In accordance with the requirements of the Exchange Act, the issuer caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SABA PETROLEUM COMPANY
Date: May 15, 1997 By: /s/ Ilyas Chaudhary
----------------- --------------------------------------
Ilyas Chaudhary
President
(Principal Executive
Officer)
Date: May 15, 1997 By: /s/ Walton C. Vance
----------------- ---------------------------------------
Walton C. Vance
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
<PAGE> 1
Exhibit 10.1
SANTA MARIA REFINING COMPANY
P.O. Box 1260
Santa Maria, CA 93456
EMPLOYMENT AGREEMENT
1. NAME: Burt Cormany
2. NAME OF THE COMPANY: Santa Maria Refining Company (SMRC)
3. LOCATION: Santa Maria, California
4. JOB TITLE: President
5. EFFECTIVE DATE: January 1, 1997
6. MAJOR AREAS OF RESPONSIBILITY:
MANAGEMENT OF
all Refinery operations including
o budgets, cash flow needs and projections
o regulatory compliance
o CUP achievement
o asphalt marketing
7. REPORTING TO: Ilyas Chaudhary, Chairman of SMRC's
Board of Directors
8. COMPENSATION:
A. $110,000 per annum to be paid on a monthly basis. Compensation for
second year of the contract shall be $120,000 per annum
B. Standard medical and 401 (K) Plan benefits
C. Company vehicle for Company usage
D. Bonus at discretion of the management of SPC
E. The company shall indemnify against any claims while holding the
office
F. Options participation as per management program as approved by SPC
Board of Directors
9. TERMINATION NOTICE: 90 days severance upon termination
10. CONTRACT TERM: 2 years from January 1, 1997 to December 31, 998
/s/ BURT CORMANY /s/ ILYAS CHAUDHARY
- -------------------- --------------------------
Burt Cormany Ilyas Chaudhary - Director
Santa Maria Refining Company
1-29-97 1-28-97
- -------------------- ---------------------------
Date Date
<PAGE> 1
Exhibit 10.2
OFFICE BUILDING LEASE
1. PARTIES.
This Lease dated for reference purposes only, January 15, 1997, is made
by and between ELOY RENFROW, an Individual, dba AIRPORT BUSINESS PARK
(herein called "Landlord") and Saba Petroleum Company (herein called
"Tenant").
2. PREMISES
a) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord a portion of the building located at 3201 Skyway Drive, Santa
Maria, California 93455 (the "Building"), specifically Suites 101, 103,
105 on the lst Floor and Suite 201 on the 2nd Floor thereof and shown
hatched in black on the plan attached hereto as Exhibit A ("Premises").
b) Said Lease is subject to the terms, covenants and conditions
herein set forth and Tenant covenants as a material part of the
consideration for this Lease to keep and perform each and all of said
terms, covenants and conditions by it to be kept and performed and that
this Lease is made upon the condition of said performance.
3. TERM.
The term of this Lease shall be for a period of three (3) years,
commencing February 1, 1997 and ending on the 1st day of February, 2000.
Tenant shall have one Option to extend this Lease for a period not to
exceed two (2) years. Tenant shall give Landlord notice of its intent to
exercise said option within ninety (90) days of expiration of the
initial three-year term.
4. POSSESSION.
If Landlord, for any reason whatsoever cannot deliver possession of the
said Premises to the Tenant at the commencement of the term hereof, this
Lease shall not be void or voidable, nor shall Landlord be liable to
Tenant for any loss or damage resulting therefrom. In the event Landlord
is delayed in the completion of the Building of which the Premises are a
part, the beginning and endings dates for each and every term contained
in this lease (Including the dates for giving of notices, exercising
options and parking privileges) and tenants obligation for the payment
of rent shall be extended by the number of days equal to any such delay
so as to provide for a full term of three (3) years from the date from
the date tenant's obligation to pay rent commences.
5. RENT.
Rent shall be due and payable on the first day of each month, commencing
February 1, 1997. Rent is defined as $1.00 gross per square foot. Total
square footage for this lease is: Suite 101: 1360 s.f.; Suite 103: 1570
s.f.; Suite 105: 890 s.f; Suite 201: 3423 s.f., totaling 7243 square
feet.
6. USE.
Tenant shall use the Premises for general office purposes and shall not
use or permit the Premises to be used for any other purpose without the
prior written consent of Landlord. Tenant shall not do or permit
anything to be done in or about the Premises nor bring or keep anything
therein which will In any way increase the existing rate of or affect
any fire or other insurance upon the Building In which the Premises are
located or any of its contents, or cause cancellation of any insurance
policy covering said Building or any part thereof or any of its
contents. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way obstruct or Interfere with the rights
of other tenants or occupants of said Building or injure or annoy them
or use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises.
Tenant shall not prepare any food nor do any cooking, conduct any
restaurant, luncheonette or cafeteria for the sale or service of food or
beverages to its employees or to others, or cause or permit any odors of
cooking or other processes, or any unusual or objectionable odors to
emanate from demised premises. Tenant shall not install or permit the
installation or use of any vending machine or permit the delivery of any
food or beverage to demised premises except by such persons and in such
manner as are approved by Landlord.
<PAGE> 2
7. LEGAL COMPLIANCE.
Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall at its sole cost and
expense, promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which
may hereafter be in force, and with the requirements of any board of
fire insurance underwriters or other similar bodies now or hereafter
constituted, relating to, or affecting the condition, use or occupancy
of the Premises, excluding structural changes not related to or affected
by Tenant's improvements or acts. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord be a party thereto, or not that Tenant has violated any
law, statute, ordinance or governmental rule, regulation or requirement,
shall be conclusive of that fact as between the Landlord and Tenant.
8. ALTERATIONS AND ADDITIONS.
Tenant shall not make or suffer to be made any alterations, additions or
improvements to or of the Premises or any plan thereof without the
written consent of Landlord first had and obtained, and any alterations,
additions or improvements to or of said Premises including, but not
limited to, wall covering, paneling and built-in cabinet work, but
excepting movable furniture and trade fixtures, shall on the expiration
of the term become a part of the realty and belong to the Landlord and
shall be surrendered with the Premises. In the event Landlord consents
to the making of any alterations, additions or improvements to the
Premises by Tenant, the same shall be made by Tenant at Tenant's sole
cost and expense, and any contractor or person selected by Tenant to
make the same must first be approved of in writing by the Landlord. Upon
the expiration or sooner termination of the term hereof, Tenant shall,
upon written demand by Landlord, given at least thirty (30) days prior
to the end of the term, at Tenant's sole cost and expense, forthwith and
with all due diligence remove any alterations, additions, or
improvements made by Tenant, designated by Landlord to be removed, and
Tenant shall, forthwith and with all due diligence at its sole cost and
expense, repair any damage to the Premises caused by such removal or at
Landlord's option, shall pay to Landlord the cost of repairing any
damage caused by such removal.
9. REPAIRS.
(a) By taking possession of the Premises, Tenant shall be deemed to
have accepted the Premises as being in good, sanitary order, condition
and repair. Tenant shall, at Tenant's sole cost and expense, keep the
Premises and every part thereof in good condition and repair, damage
thereto from causes beyond the reasonable control of Tenant and ordinary
wear and tear excepted. Tenant shall upon the expiration or sooner
termination of this Lease hereof surrender the Premises to the Landlord
in good condition, ordinary wear and tear and damage from causes beyond
the reasonable control of Tenant excepted. Except as specifically
provided in an addendum, if any, to this Lease, Landlord shall have no
obligation whatsoever to alter, remodel, improve, repair, decorate or
paint the Premises or any part thereof and the parties hereto affirm
that Landlord has made no representations to Tenant respecting the
condition of the Premises or the Building except as specifically herein
set forth.
(b) Notwithstanding the provisions of Article 9(a) hereinabove,
Landlord shall repair and maintain the structural portions of the
Building, including the basic plumbing, air conditioning, heating, and
electrical systems, installed or furnished by Landlord, unless such
maintenance and repairs are caused In part or In whole by the act,
neglect, fault or omission of any duty by the Tenant, Its agents,
servants, employees or invitees, in which case Tenant shall pay to
Landlord the reasonable cost of such maintenance and repairs. Landlord
shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant. Except as provided in
Article 24 hereof, there shall be no abatement of rent and no liability
of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in
or to fixtures, appurtenances and equipment therein. Tenant waives the
right to make repairs at Landlord's expense under any law, statute or
ordinance now or hereafter in effect, including, but not by way of
limitation sections 1932, 1933, 1941, and 1942 of the Civil Code of the
State of California.
<PAGE> 3
10. LIENS.
Tenant shall keep the Premises and the property in which the Premises
are situated free from any liens arising out off any work performed,
materials furnished or obligations incurred by Tenant.
11. ASSIGNMENT AND SUBLETTING:
Neither Tenant, nor Tenant's legal representatives, successors or
assigns, shall assign, mortgage or encumber this lease, or sublet, or
use or occupy or permit demised premises or any part thereof to be used
or occupied by others, without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Such consent shall not
be required for any assignment to Tenant's corporate subsidiaries and
affiliates. If this lease be assigned, or if demised premises or any
part thereof be sublet or occupied by any party other than Tenant,
Landlord may, after default by Tenant, collect rent from the assignee
subtenant or occupant and apply the net amount collected to the rent
herein reserved, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance
of the assignee, subtenant or occupant as tenant, or a release of Tenant
from the further performance by Tenant of the obligations on the part of
Tenant herein contained. The consent by Landlord to an assignment or
subletting shall not in any way be construed to relieve Tenant, the
assignee or the subtenant from obtaining the express consent in writing
of Landlord to any further assignment or subletting or to release Tenant
from any liability whether past, present or future under this lease or
to release Tenant from any liability under this lease because of
Landlord's failure to give notice of default under or in respect of any
of the terms, covenants, conditions, provisions or agreements of this
lease. Not withstanding the consent of Landlord to such assignment or
subletting, Tenant shall remain liable for the payment of all bills
rendered by Landlord for the charges incurred by the assignee or
subtenant for services and materials supplied to demised premises. A
transfer of control of Tenant shall be deemed an assignment under this
lease and shall be subject to all the provisions of this Article,
including the requirement of obtaining Landlord's prior written consent.
Notwithstanding any contrary provision of this Article, Tenant may
assign this lease upon the following express conditions: that the
proposed assignee shall be subject to the prior written consent of
Landlord, which consent will not be unreasonably withheld but without
limiting the generality of the foregoing, it shall be reasonable for
Landlord to deny such consent if: the use to be made of demised premises
by the proposed assignee is (a) not generally consistent with the
character and nature of all other tenancies in the Building, or (b) a
use which conflicts with any so-called (exclusive) then in favor of, or
for any use which is the same as that stated in any lease to another
tenant of the Building or any of Landlord's then buildings which are in
the same complex as the Building, or (c) a use which would be prohibited
by any other portion of this lease (including but not limited to any
Rules and Regulations then in effect); or the character, moral
stability, reputation and financial responsibility of the proposed
assignee are not reasonably satisfactory to Landlord or in any event not
at least equal to those which were possessed by Tenant as of the date of
execution of this lease; that Tenant shall pay to Landlord Landlord's
then standard processing fee; that the proposed assignee shall execute
an agreement pursuant to which it shall agree to perform faithfully and
be bound by all of the terms, covenants, conditions, provisions, and
agreements of this lease; and that an executed duplicate original of
said assignment and assumption agreement, on Landlord's then standard
form, shall be delivered to Landlord within five days after the
execution thereof, and that such assignment shall not be binding upon
Landlord until the delivery thereof to Landlord and the execution and
delivery of Landlord's consent thereto. Landlord shall have the option
to terminate this Lease rather than approve the assignment hereof.
12. HOLD HARMLESS.
Tenant shall indemnify and hold harmless Landlord against and from any
and all claims arising from Tenant's use of the Premises for the conduct
of its business or from any activity, work, or other thing done,
permitted or suffered by the Tenant in or about the Building, and shall
further indemnify and hold harmless Landlord against and from any and
all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the terms of this
Lease, or arising from any act or negligence of the Tenant, or any
officer, agent, employee, guest, or invitee of Tenant, and from all and
against all cost, attorney's fees, expenses and liabilities incurred in
or about any such claim or any action or proceeding brought thereon,
and, in any case, action or proceeding be brought against Landlord by
reason of any such claim, Tenant upon notice from Landlord shall defend
the same at Tenant's expense by counsel reasonably satisfactory to
Landlord. Tenant as a material part of the consideration to Landlord
hereby assumes all risk of damage to property or injury to persons, in
upon or about the Premises, from any cause other than Landlord's
negligence, and Tenant hereby waives all claims in respect thereof
against Landlord or its agents shall not be liable for any damage to
property entrusted to employees of the building, nor for the loss or
damage to any property by theft or otherwise, nor for any injury to or
damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak from any
part of the Building or from the pipes, appliances or plumbing works
therein or from the roof, street, or subsurface
<PAGE> 4
or from any other place resulting from dampness or any other case
whatsoever, unless caused by or due to the negligence of Landlord, its
agents, servants, or employees. Landlord or its agents shall not be
liable for interference with the light, or loss of business by Tenant,
nor shall Landlord be liable for any latent defect in the Premises or in
the Building. Tenant shall give prompt notice to Landlord in case of
fire or accidents In the Premises or in the Building or of defects
therein or in the fixtures or equipment.
13. SUBROGATION.
As long as their respective Insurers so permit, Landlord and Tenant
hereby mutually waive their respective rights of recovery against each
other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties.
Each party shall obtain any special endorsements, if required by their
insurer in evidence compliance with the aforementioned waiver.
14. LIABILITY INSURANCE.
Tenant shall, at Tenant's expense, obtain and keep in force during the
term of this lease a policy of comprehensive public inability insurance
insuring Landlord and Tenant against any liability arising out of or in
connection with the ownership, use, occupancy, maintenance, repair or
improvement of the Premises and all areas appurtenant thereto. Such
insurance shall provide single limit liability coverage of not less than
$500,000, per occurrence for property damage and $500,000 per occurrence
for bodily injury or death of one person and $1,000,000 for one
accident. The limits of said insurance shall not, however, limit the
liability of Tenant hereunder, and Tenant shall be responsible for
ensuring that the amount of liability insurance carried by Tenant is
sufficient for Tenant's purposes. Tenant may carry said insurance under
a blanket policy, providing however, said insurance by Tenant shall have
a Landlord's protective liability endorsement attached thereto in form
and substance satisfactory to Landlord. If Tenant shall fail to procure
and maintain said insurance, Landlord may but shall not be required to
procure and maintain same, but at the expense of Tenant. Insurance
required hereunder shall be In companies rated A+, AAA or better in
"Best's Insurance Guide." Tenant shall deliver to Landlord prior to
occupancy of the Premises, copies of policies of liability insurance
required herein or certificates evidencing the existence and amounts of
such insurance with evidence satisfactory to Landlord of payment of
premiums. No policy shall be cancelable or subject to reduction of
coverage except after fifteen (15) days prior written notice to
Landlord. Tenant acknowledges and agrees That insurance coverage carried
by Landlord will not cover Tenant's property within the Premises or the
Building and the Tenant shall be responsible, at Tenant's sole cost and
expense, for providing insurance coverage for Tenant's movable
equipment, furnishings, trade fixtures and others personal property in
or upon the Premises, and for any alterations, additions or improvements
to or of the Premises or any part thereof made by Tenant, in the event
of damage or loss thereto from any cause whatsoever.
15. SPECIAL UTILITY NEEDS.
Tenant will not, without written consent of Landlord, use any apparatus
or device in the Premises, including but without limitation thereto,
electronic data processing machines, punch card machines, and machines
using in excess of 120 volts, which will in any way increase the amount
of electricity usually furnished or supplied for the use of the Premises
as general office space; nor connect with electric current except
through existing electrical outlets in the Premises, any apparatus or
device for the purpose of using electric current. If Tenant shall
require water or electric property in excess of that usually furnished
or supplied for the use of the Premises as general office space, Tenant
shall first procure the written consent of Landlord, which Landlord may
refuse, to the use thereof and Landlord may cause a water meter or
electrical current meter to be installed in the Premises, so as to
measure the amount of water and electric current consumed for any such
use. The cost of any such meters and of installation, maintenance and
repair thereof shall be paid for by the Tenant and Tenant agrees to pay
to Landlord promptly upon demand therefore by Landlord for all such
water and electric current consumed as shown by said meters, at the
rates charged for such services by the local public utility furnishing
the same, plus any additional expense incurred in keeping account of the
water and electric current so consumed. If a separate meter is not
installed, such excess cost for such water and electric current will be
established by an estimate made by a utility company or electrical
engineer.
16. OTHER PROPERTY TAXES.
In the event any or all of Tenant's leasehold improvements, equipment,
furniture, fixtures and personal property shall be assessed and taxed
with the Building, Tenant shall pay to Landlord its share of such taxes
within ten (10) days after delivery to Tenant by Landlord of a statement
in writing setting forth the amount of such taxes applicable to Tenant's
property.
<PAGE> 5
17. RULES AND REGULATIONS.
Tenant and Tenant's agents, servants, employees, contractors, visitors
and licensees shall observe faithfully and comply strictly with the
Rules and Regulations attached hereto and made a part hereof, and such
other and further reasonable Rules and Regulations as Landlord or
Landlord's agents may from time to time adopt. Notice of any additional
Rules or Regulations shall be given in such manner as Landlord may
elect in case Tenant disputes the reasonableness of any Rule or
Regulation hereafter made or adopted by Landlord or Landlord's agents,
the parties hereto agree to submit the question of the reasonableness of
such Rule and Regulation for arbitration, in the City of Los Angeles in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, whose determination shall be final and
conclusive upon the parties hereto. No dispute of the reasonableness of
any Rule or Regulation shall be deemed a compliance upon Tenant's part
with the foregoing provisions of this Article unless the same has been
raised by service of a notice in writing upon Landlord within ten days
after notice of the adoption of any such Rule or Regulation has been
served upon Tenant. Landlord shall not be liable to Tenant for violation
of any of said Rules and Regulations, or the breach of any term,
covenant, condition, provision or agreement in any Lease, by any other
tenant or other party in the Building.
18. HOLDING OVER.
If Tenant remains in possession of the Premises or any part thereof
after the expiration of the term hereof, with the express written
consent of Landlord, such occupancy shall be a tenancy from month to
month at a rental in the amount of the last monthly rental, plus all
other charges payable hereunder, and upon all the terms hereof
applicable to a month to month tenancy.
19. ENTRY BY LANDLORD.
Landlord reserves and shall at any and all times have the right to enter
the Premises, inspect the same, supply janitorial services and any other
service to be provided by Landlord to Tenant hereunder, to submit said
Premises to prospective purchasers or tenants, to post notices of
non-responsibility, and to alter, improve or repair the Premises and any
portion of the Building of which the Premises are a part that Landlord
may deem necessary or desirable, without abatement of rent and may for
that purpose erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, always
providing that the entrance to the Premises shall not be blocked
thereby, and further providing that the business of the Tenant shall not
be interfered with unreasonably. Tenant hereby waives any claim for
damages or for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby. For each of the
aforesaid purposes, Landlord shall at all times have and retain a key
with which to unlock all of the doors in, upon and about the Premises,
excluding Tenant's vaults, safes and files and Landlord shall have the
rights to use any and all means which Landlord may deem proper to open
side doors in an emergency, in order to obtain entry to the Premises
without liability to Tenant except for any failure to exorcise due care
for Tenant's property. Any entry to the Premises obtained by Landlord by
any of said means, or otherwise shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a
detainer of, the Premises or an eviction of Tenant from the Premise or
any portion thereof
20. RECONSTRUCTION.
In the event the Premises or the Building of which the Premises are a
part are damaged by fire or other perils covered by extended coverage
Insurance, Landlord agrees to forthwith repair the same; and this Lease
shall remain in full force and effect, except that Tenant shall be
entitled to a proportionate reduction of the rent while such repairs are
being made, such proportionate reduction to be based upon the extent to
which the makings of such repairs shall materially interfere with the
business carried on by the Tenant in the Premises. If the damage is due
to the fault or neglect of Tenant or its employees, there shall be no
abatement of rent. In the event the Premises or the Building of which
the Premises are a part are damaged as a result of any cause other than
the perils covered by fire and extended coverage insurance, then
Landlord shall forthwith repair the same, provided the extent of the
destruction be less than ten (10%) per cent of the then full replacement
cost of the Premises or the Building of which the Premises are a part.
In the event the destruction of the Premises or the Building is to an
extent greater than ten (10%) per cent of the full replacement cost,
then Landlord shall have the option; (1) to repair or restore such
damage, this Lease continuing in full force and effect, but the rent to
be proportionately reduced as hereinabove in this Article provided; or
(2) give notice to Tenant at any time within sixty (60) days after such
damage terminating this Lease as of the date specified in such notice,
which date shall be no less than thirty (30) and no more than sixty (30)
days after the giving of such notice. In the event of giving such
notice, this lease shall expire and all Interest of the Tenant in the
Premises shall terminate on the date so specified in such notice and the
Rent, reduced by a proportionate amount, based upon the extent, if any
to which such damage materially interfered with the business carried on
by the
<PAGE> 6
Tenant In the Premises, shall be paid up to date to said such
termination. Notwithstanding anything to the contrary contained in this
Article, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises when the damage resulting from any
casualty under this Article occurs during the last twelve (12) months of
the term of this Lease or any extension thereof Landlord shall not be
required to repair any injury or damage by fire or other cause, or to
make any repairs or replacements of any panels, decoration, office
fixtures, railings, floor covering, partitions, or any other property
Installed In the Premises by Tenant. The Tenant shall not be entitled to
any compensation or damages from Landlord for loss of the use of the
whole or any part of the premises, Tenant's personal property or any
inconvenience or annoyance occasioned by such damage, repair,
reconstruction or restoration.
21 DEFAULT
The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant. For purposes
hereof the failure of Tenant to operate its business in the Premises for
seven consecutive days shall be deemed an abandonment.
a. The vacating or abandonment of the Premises by Tenant;
b. The failure by Tenant to make any payment of rent or any
other payment required to be made by Tenant hereunder as and when due,
where such failure shall continue for a period of three (3) days after
written notice thereof by Landlord to Tenant.
c. The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or
performed by the Tenant, where such failure shall continue for a period
of thirty (30) days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of Tenant's default is such that
more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such
cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
d. The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against
Tenant of a petition to have Tenant adjudged a bankrupt, or a petition
or reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against Tenant, the same is
dismissed within sixty (60) days); or the appointment of a trustee or a
receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty (30) days; or the
attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where such seizure is not discharged in thirty (30) days.
22. REMEDIES IN DEFAULT.
In the event of any such material default or breach by Tenant, Landlord
may at any time thereafter, with or without notice or demand and without
limiting Landlord in the exercise of a right or remedy which Landlord
may have by reason of such default or breach:
a. Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such an
event Landlord shall be entitled to recover from tenant all damages
incurred by Landlord by reason of Tenant's default including, but not
limited to the cost of recovering possession of the Premises; expenses
off reletting, including necessary renovation and alteration of the
Premises, reasonable attorney's fees, any real estate commissions
actually paid; the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of
such rental loss for the same period that Tenant proves could be
reasonably avoided; that portion of the leasing commission paid by
Landlord and applicable to the unexpired term of this Lease. Unpaid
installments of rent or other sums shall bear interest from the date due
at the maximum rate per annum permitted by law. In the event Tenant
shall have abandoned the Premises, Landlord shall have the option of (a)
taking possession of the Premises and recovering from Tenant the amount
specified in this paragraph, or (b) proceeding under the provisions of
the following Article 23.
b. Maintain Tenant's right to possession in which case this
Lease shall continue in effect whether or not Tenant shall have
abandoned the Premises. In such event Landlord shall be entitled to
enforce all of Landlord's rights and remedies under this Lease,
including the right to recover the rent as it becomes due hereunder.
<PAGE> 7
c. Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decision of the State in which the
premises are located.
23. EMINENT DOMAIN.
If more than twenty-five (25%) per cent of the Premises shall be taken
or appropriated by any public or quasi public authority under the power
of eminent domain, either party hereto shall have the right, at its
option to terminate this Lease, and Landlord shall be entitled to any
and all income, rent, award, or any interest therein whatsoever which
may be paid or made in connection with such public or quasi-public use
or purpose, and Tenant shall have no claim against Landlord for the
value of any unexpired term of this Lease. If either less than or more
than twenty-five (25%) per cent of the Premises is taken, and neither
party elects to terminate as herein provided, the rental thereafter to
be paid shall be equitably reduced. If any part of the Building other
than the Premises may be so taken or appropriated Landlord shall have
the right at its option to terminate this Lease and shall be entitled to
the entire award as above provided.
24. OFFSET STATEMENT.
Tenant shall at any time and from time to time upon not less than ten
(10) days prior written notice from Landlord execute, acknowledge and
deliver to Landlord a statement in writing, (a) certifying that this
Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease
as so modified, is in full force and effect), and the date to which the
rental and other charges are paid in advance, if any, and (b)
acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of the Landlord hereunder, or specifying such
defaults if any are claimed. Any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the
real property of which the Premises are a part.
25. PARKING
Tenant shall have the right to use in common with other tenants or
occupants of the Building, the parking facilities of the Building
subject to the monthly rates, rules and regulations, and any other
charges of Landlord for such parking facilities which may be established
or altered by Landlord at any time or from time to time during the term
hereof
26. AUTHORITY OF PARTIES.
a. Corporate Authority. If Tenant is a corporation each
individual executing this Lease on behalf of said corporation,
represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of said corporation, and that this Lease is
binding upon said corporation in accordance with its terms.
b. Limited Partnerships. If the Landlord herein is a limited
partnership, it is understood and agreed that any claims by Tenant on
Landlord shall be limited to the assets of the limited partnership, and
furthermore, Tenant expressly waives any and all rights to proceed
against the individual partners or the officers, directors or
shareholders of any corporate partner, except to the extent of their
interest in said limited partnership.
27. WAIVER OF TRIAL BY JURY.
The respective parties hereto shall and they hereby do waive trial by
jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on any matter whatsoever arising out of
or in any way connected with this Lease, the relationship of Landlord
and Tenant, Tenant's use or occupancy of the Premises, or any claim of
injury or damage, or the enforcement of any remedy under any statute,
emergency or otherwise.
28. GENERAL PROVISIONS.
(i) Plats and Riders. Clauses, plats and riders, if any, signed
by the Landlord and the Tenant and endorsed on or affixed to this Lease
are a part hereof. Provided, however, that any plan attached hereto and
made a part hereof, except as otherwise specifically provided, is used
solely for the purpose of identifying or designating the premises
demised under the terms of this Lease and any markings, measurements,
dimensions or notes of any kind contained therein have no bearing upon
any of the terms, covenants, conditions, provisions or agreements of
this lease and are not to be considered a part hereof.
<PAGE> 8
(ii) Waiver The waiver by Landlord of any term covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant
of any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of such rent
(iii) Notices. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, postage prepaid, addressed to the Tenant at the Premises, or
to such other place as Tenant may from time to time designate in a notice to the
Landlord all notices and demand by the Tenant to the Landlord shall be sent by
United States Mail, postage prepaid addressed to the Landlord at the Office of
the Building, or to such other person or place as the Landlord may from time to
time designate in a notice to the Tenant.
(iv) Joint Obligations. If there be more than one Tenant the obligations
hereunder imposed upon Tenants shall be joint and several.
(v) Marginal Headings. The marginal headings and Article titles to the
Articles of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(vi) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(vii) Successors and Assigns. The covenants and conditions herein
contained subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto
(viii) Recordation. Neither Landlord nor Tenant shall record this Lease or
a short form memorandum hereto without the prior written consent of the other
party.
(ix) Quiet Possession. Upon Tenant paying the rent reserved hereunder and
observing and performing all of the covenants, conditions and provisions on so
part to be observed and performed hereunder, Tenant shall have quiet possession
of the Premises for the entire term hereof, subject to all the provisions of
this Lease.
(x) Late Charges. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent of other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from Tenant shall not be
received by Landlord or Landlord's designee within ten (10) days after written
notice that said amount is past due, then Tenant shall pay to Landlord a late
charge equal to ten (10%) percent of such overdue amount. The parties hereby
agree that such late charges represent a fair and reasonable estimate of the
cost that Landlord will incur by reason of the late payment by Tenant.
Acceptance of such late charges by the Landlord shall in no event constitute a
waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted hereunder.
(xi) Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this Lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
on any party until fully executed by both parties hereto.
(xii) Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected or because the Landlord is unable to fulfill any
of its obligations hereunder or is delayed in doing so, if such inability or
delay is caused by reason of strike, labor troubles, acts of God, or any other
cause beyond the reasonable control of the Landlord.
(xiii) Arbitration. In the event of any action or disagreement by either
party against the other, under the conditions of this lease and its attachments,
the Lessor and Lessee shall submit the matter to Arbitration, in accordance with
the rules and regulations of the American Arbitration Association.
<PAGE> 9
(xiv) Sale of Premises by Landlord. In the event of any sale of the
Building and assignment of the Master Lease, Landlord shall be and is hereby
entirely freed and relieved of all liability under any and all of its covenants
and obligations contained in or derived from this Lease arising out of any act,
occurrence or omission occurring after the consummation of such sale and
assignment; and the purchaser, at such sale or assignment or any subsequent sale
or assignment of the Premises shall be deemed, without any further agreement
between the parties or their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of the Landlord under this Lease.
(xv) Subordination, Attornment. This lease is subject and subordinate to
all ground or underlying leases, mortgages and deeds of trust which now affect
the real property of which demised Premises forms a part or affect the ground or
underlying leases, and to all renewals, modifications, consolidations,
replacements and extensions thereof. It is further agreed that this lease may,
at the option of Landlord, be made subordinate to any ground or underlying
leases, mortgages, or deeds of trust which may hereafter affect the real
property of which demised Premises forms a part of affect the ground or
underlying leases, and that Tenant, or Tenant's successors in interest, will
execute and deliver upon the demand of Landlord any and all instruments desired
by Landlord subordinating in the manner requested by Landlord this lease to such
lease, mortgage or deed of trust. Landlord is hereby irrevocably appointed and
authorized as agent and attorney-in-fact of Tenant to execute and deliver all
such subordination instruments in the event Tenant fails to execute and deliver
said instruments within five days after notice from Landlord demanding the
execution thereof.
(xvi) Name. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than an
address of the business to be conducted by the Tenant in the Premises.
(xvii) Separability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and such other provision shall remain in full force and effect.
(xviii) Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible be cumulative with all other
remedies at law or in equity.
(xix) Choice of Law. This Lease shall be governed by the laws of the State
of California. (in which the Premises are located).
(xx) Signs and Auctions. Tenant shall not place any sign upon the Premises
or Building or conduct any auction thereon without Landlord's prior written
consent.
29. RENT INCREASE
During the first year of the Term of this Lease, the annual rent shall not
be increased. Thereafter, the annual rent shall be increased 4% commencing
the 13th month upon execution of this, and every 12th month thereafter.
30. LEASEHOLD AND TENANT IMPROVEMENTS
Landlord agrees to provide the space in a clean and orderly manner.
Landlord further agrees that he shall paint the entire space leased under
this agreement at no cost to the tenant. Tenant will provide the requisite
materials and labor to replace the existing carpet. Tenant will
additionally be responsible for any additional improvements made for the
purposes of professional customization.
31. The validity period of this lease is non-commissionable, for the entire
period of this lease.
<PAGE> 10
TENANT
Address: SABA PETROLEUM COMPANY
By:
- -------------------------------- --------------------------------------
By:
- -------------------------------- --------------------------------------
Date:
- -------------------------------- -----------------
LANDLORD
Address: AIRPORT BUSINESS PARK
Eloy Renfrow, Owner
By:
- -------------------------------- --------------------------------------
Eloy Renfrow, Owner
By:
- -------------------------------- --------------------------------------
Date:
- -------------------------------- -----------------
<PAGE> 1
Exhibit 10.3
March 1997
Beaver Lake Resources Corporation
Canadian Western Bank
Re-Financing
MCCAFFERY GOSS
BARRISTERS & SOLICITORS
1800 FIRST CANADIAN CENTRE
350 - 7TH AVENUE S.W.
CALGARY, ALBERTA
T2P 3N9
<PAGE> 2
BEAVER LAKE RESOURCES CORPORATION
CANADIAN WESTERN BANK RE-FINANCING
MARCH 1997
Tab No. Description of Document
1. First Amending Loan Agreement
2. Revolving Credit Agreement
3. First Supplemental Debenture
4. Acknowledgement and Postponement of Claim:
a. Vijay Pharar
b. Qurat-ul-ain Syed
c. Fida Malik
<PAGE> 3
FIRST AMENDING LOAN AGREEMENT
This First Amending Loan Agreement dated March 25, 1997 is made by and between
(i) BEAVER LAKE RESOURCES CORPORATION, an Alberta corporation, as borrower (the
"BORROWER") and (ii) CANADIAN WESTERN BANK, a Canadian chartered bank with a
branch in Calgary, Alberta, as lender (the "BANK").
WHEREAS the parties hereto wish to amend the letter loan agreement dated March
5, 1996 between the Borrower and the Lender (the "LOAN AGREEMENT") in order to
increase the existing revolving credit facility to Cdn. $3,900,000.
NOW THEREFORE, the parties hereto agree as follows:
1. Defined Terms
Terms and expressions defined in the Loan Agreement shall, when used
herein and unless otherwise defined herein, have the same meanings as are
ascribed to them therein.
2. Amendments to Loan Agreement
The Loan Agreement is hereby amended as follows:
a. Section 3 is hereby deleted and substituted with the following:
"Demand revolving reducing loan in the amount of Cdn. $3,900,000 (the
"LOAN") to be drawn down from time to time in multiples of Cdn.
$75,000. The indebtedness of the Borrower under the Loan may increase
and decrease from time to time and the Borrower may borrow, repay and
reborrow the amounts available under the Loan in accordance with the
terms of this Loan Agreement. The maximum principal amount available
under the Loan shall be repaid and automatically reduced in accordance
with Section 9 hereof."
b. The first paragraph of Section 7 is hereby amended by deleting "one
percent (1.00%) per annum" and substituting therefor "three quarters of
one percent (0.75%) per annum".
c. The first paragraph of Section 8 is hereby deleted and substituted with
the following:
"On or before July 1, 1997, the Bank shall establish a principal
repayment and reduction schedule for the Loan (the "SCHEDULED
REDUCTIONS") based upon its review of the Engineering Report, the most
recent financial statements of the Borrower and such other criteria as
the Bank may consider appropriate. The Borrower acknowledges that the
Scheduled Reductions shall be established by the Bank in its sole and
absolute discretion.
The entire amount outstanding hereunder, including all accrued and
unpaid interest and any other amounts owing hereunder, shall be repaid
by the Borrower immediately on demand by the Bank. Until demand,
interest shall be payable on the principal amount of the Loan as
described in Section 7
<PAGE> 4
2
hereof and the principal amount outstanding on the Loan shall be repaid
to ensure that the indebtedness under the Loan does not exceed the
authorized principal amount of the Loan available from time to time
hereunder."
d. Section 13(b)(i)(B) is hereby deleted and substituted with the
following:
"(B) the aggregate estimated net revenue from such proven developed
producing reserves for the next fiscal year must exceed 150%
of all scheduled principal reductions plus interest payable on
the Loan for the corresponding period (on the assumption that
the full amount of the Loan is outstanding). Estimated
interest for each fiscal year will be based upon the average
Prime Rate for the calendar month preceding the start of each
fiscal year plus one and one-half percent (1.5%) per annum;
and"
3. Purpose
The Loan is to be used by the Borrower for general corporate purposes,
including financing day to day operations, capital expenditures and the
acquisition of oil and gas assets.
4. Drawdown
The Bank shall not be obliged to increase the principal amount of the
Loan unless the Bank has received a drawdown notice from the Borrower in
substantially the form of Schedule "A" hereto (the "DRAWDOWN NOTICE") prior to
the date of the initial advance of the Loan extension (the "DRAWDOWN DATE") and
each and every one of the Conditions Precedent (as hereinafter defined) is
satisfied on or prior to the Drawdown Date. A Drawdown Notice given by the
Borrower hereunder is irrevocable and shall oblige the Borrower to take the
action contemplated on the date specified therein.
5. Security
As continuing collateral security for the repayment of the Loan,
interest thereon and all other liabilities of the Borrower to the Bank hereunder
and under the Loan Agreement, the Bank shall be provided with the following
additional security (the "ADDITIONAL SECURITY") in form and substance
satisfactory to the Bank:
a. revolving credit agreement in the principal amount of the Loan;
b. first supplemental debenture (the "FIRST SUPPLEMENTAL DEBENTURE")
creating a first fixed charge over the Borrower's working interest in
the proven developed producing oil and gas properties described in the
reserve and economic evaluation of Sproule Associates Limited dated
March 10, 1997 with effect as of January 1, 1997 and located in the
Gilby Area of Alberta (the "ADDITIONAL PROPERTIES");
c. acknowledgement and postponement of claim from Vijay Pharar,
Qurat-ul-ain Syed and Fida Malik (collectively, the "INVESTORS");
<PAGE> 5
d. evidence of applicable insurance coverage relating to the Borrower and
the Additional Properties; and
e. any other ancillary documentation that the Bank or its counsel may
reasonably require.
Each item of the Additional Security shall be treated as separate
collateral security given in addition to any other item of Security. The
Borrower acknowledges that it continues to be bound by the existing Security,
that such Security continues to secure the obligations of the Borrower to the
Bank under this First Amending Loan Agreement and that the First Supplemental
Debenture is delivered to the Bank pursuant to the Instrument of Pledge dated
March 5, 1996 from the Borrower to the Bank.
The Bank shall also be provided with the following legal opinions:
i. a legal opinion from the Borrower's counsel addressed to the
Bank and its counsel, in form and substance satisfactory to
them, opining among other matters, but specifically as to the
Borrowers ability to borrow the Loan and as to the due
authorization, execution and delivery of this First Amending
Loan Agreement and the Additional Security;
ii. a favourable title opinion from the Borrower's counsel or
special counsel to the Borrower addressed to the Bank and its
counsel, in form and substance satisfactory to them, with
respect to the Additional Properties; and
iii. a legal opinion of the Bank's counsel addressed to the Bank,
in form and substance satisfactory to the Bank, with respect
to the enforceability of the First Amending Loan Agreement and
the Additional Security against the Borrower and the
registration of the Additional Security as a first fixed
charge on the Additional Properties subject only to those
encumbrances which are acceptable to the Bank.
6. Conditions Precedent
The obligation of the Bank to advance the Loan extension is subject to
the fulfilment of each and every one of the following conditions precedent (the
"CONDITIONS PRECEDENT"):
a. the Bank shall have received the Drawdown Notice on or prior to the
Drawdown Date;
b. all loan documentation, legal opinions and the Additional Security as
contemplated herein shall have been executed and delivered to the Bank
and shall have been registered, or arrangements satisfactory to the
Bank to permit such registration following the advance of the Loan
shall have been made, where registration is required or of advantage,
subject only to such encumbrances as are acceptable to the Bank;
c. the representations and warranties of the Borrower contained in the
Loan Agreement, as amended hereby, shall be true and correct as of the
Drawdown Date;
<PAGE> 6
d. on the Drawdown Date there shall exist no condition or event which
constitutes an Event of Default or which, after the giving of notice or
the passing of time, or both, would constitute an Event of Default;
e. the Bank shall have received certified copies of resolutions of the
board of directors of the Borrower authorizing the Loan and the
execution, delivery and performance of this First Amending Loan
Agreement and the Additional Security;
f. the Bank shall have received certified copies of the consenting
documents and by-laws of the Borrower;
g. the Bank and its counsel shall have reviewed and found satisfactory the
documents and transactions related to the Borrower's acquisition of the
Additional Properties; and
h. prior to or contemporaneous with the Drawdown, the Borrower shall have
completed the acquisition of the Additional Properties.
The Conditions Precedent are for the sole and absolute benefit of the
Bank and may be waived in whole or in part by the Bank; provided that any waiver
shall not be binding unless given in writing and shall not derogate from the
right of the Bank to insist on the satisfaction of any condition not expressly
waived in writing or to insist on the satisfaction of any condition waived in
writing which may be requested in the future.
7. Representations and Warranties
Section 16 of the Loan Agreement is hereby incorporated into this First
Amending Loan Agreement, with references to "this Loan Agreement" changed to
"this First Amending Loan Agreement and the Loan Agreement", and the Borrower
acknowledges and confirms that such representations and warranties are true and
correct on the date hereof. In addition, the Borrower represents, warrants and
covenants to and in favour of the Bank as follows:
a. the Borrower is the legal and beneficial owner of the oil and gas
properties described on Schedule "B" hereto, except for the "Investors'
Interest" described in Schedule "B" which is beneficially owned by each
Investor pursuant to a Participation Agreement with the Borrower dated
July 16, 1996; and
b. the Borrower shall at all times comply with the terms of each
acknowledgement and postponement executed by each Investor in favour of
the Bank.
8. Events of Default
The Borrower acknowledges and confirms to the Bank that there does not
exist, on the date hereof, any condition or event which constitutes an Event of
Default or which, after the giving of notice or the passing of time, or both,
would constitute an Event of Default
<PAGE> 7
9. Extended Definitions
The definitions of Loan Agreement, Security and Properties in the Loan
Agreement are hereby amended to include a reference to this First Amending Loan
Agreement, the Additional Security and Additional Properties, respectively.
10. Commitment Fee
The Bank acknowledges having received a non-refundable commitment fee in
the amount of $14,000.
11. Ratification
Save and except as amended pursuant to the terms hereof, the Loan
Agreement is hereby ratified and confirmed.
12. First Amending Loan Agreement Governs
The terms of the Loan Agreement, as amended by this First Amending Loan
Agreement, express and constitute the entire agreement between the parties and
this First Amending Loan Agreement supersedes and replaces the financing
proposals dated February 27, 1997 and March 26, 1997 from the Bank to the
Borrower.
13. Enurement
This First Amending Loan Agreement shall enure to the benefit of and be
binding upon each of the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF the parties hereto have executed this First Amending
Loan Agreement as of the date and year first above written.
BEAVER LAKE RESOURCES CORPORATION
Per: /s/ RANDY DENECKY
-----------------------------------------------
Name: Randy Denecky
Title: Executive V.P.
Per: /s/ GREG ZIEGLER
-----------------------------------------------
Name: Greg Ziegler
Title: Vice President
CANADIAN WESTERN BANK
Per: /s/ A.Y. IWASA
-----------------------------------------------
A.Y. Iwasa
Manager, Energy Lending
<PAGE> 8
SCHEDULE "A"
TO THE FIRST AMENDING LOAN AGREEMENT DATED MARCH 25, 1997 BETWEEN
CANADIAN WESTERN BANK, AS LENDER, AND BEAVER LAKE RESOURCES
CORPORATION, AS BORROWER
DRAWDOWN NOTICE
TO: CANADIAN WESTERN BANK
FROM: BEAVER LAKE RESOURCES CORPORATION
DATE: March X, 1997
1. This Drawdown Notice is delivered to you pursuant to Section 4 of the First
Amending Loan Agreement dated March 25, 1997 (the "Loan Agreement"). All defined
terms set forth in this Drawdown Notice shall have the respective meanings set
forth in the Loan Agreement.
2. We hereby request a Drawdown as follows:
(a) Date of Drawdown: March X, 1997
(b) Amount of Drawdown: $X
(c) Payment Instructions: X
3. No Event of Default has occurred and is continuing, nor will any Event of
Default occur as a result of the aforementioned Drawdown.
Yours very truly,
BEAVER LAKE RESOURCES CORPORATION
Per:
----------------------------------------------
Name:
Title:
<PAGE> 9
REVOLVING CREDIT AGREEMENT
TO: CANADIAN WESTERN BANK (the "BANK")
441 - 5th Avenue S.W.
Calgary, Alberta
T2P 2V1
FROM: BEAVER LAKE RESOURCES CORPORATION (the "BORROWER")
1204, 333 - 7th Avenue S.W.
Calgary, Alberta
T2P 2Z1
RE: Revolving Line of Credit (the "CREDIT")
Credit Limit - $3,900,000 (the "CREDIT LIMIT")
In consideration of the Bank authorizing the Credit subject to the
conditions contained herein, the Borrower acknowledges and agrees as follows:
1. The Borrower covenants to pay to the Bank ON DEMAND all amounts
outstanding under the Credit together with interest thereon at a variable
rate per annum equal to three quarters of one percent (0.75%) above the
Bank's prime lending rate in effect from time to time. The Bank's prime
lending rate is the variable per annum rate of interest published from
time to time by the Bank as its prime lending rate. On the date hereof,
the Bank's prime lending rate is 4.75% per annum. A statement by any
officer of the Bank confirming the Bank's prime lending rate at any time
or times shall be conclusive evidence thereof for all purposes hereunder.
Interest shall be calculated on the daily outstanding balance, shall
accrue from day to day and shall be compounded monthly in arrears and
shall be payable monthly on such day of the month as the Bank may from
time to time require. Interest calculated as aforesaid shall be payable at
the said rate before and after maturity, default and judgment, with
interest on overdue interest at the same rate as on principal.
2. The Bank is authorized but not obliged to advance or readvance funds under
the Credit from time to time by credit to the Borrower's account number
5661673 (the "ACCOUNT") at the Bank's branch at the address noted above.
Advances or readvances, if made, shall be in the minimum amount of $75,000
or a multiple thereof and shall be made as required to meet directions to
pay on or other withdrawals or payments from the Account.
3. Neither the execution of this Agreement or any of the other documents
required by the Bank in connection with the Credit, nor the advance in
part of the Credit, shall bind the Bank to advance or readvance any
portion of the Credit and the Bank may do so in its sole and arbitrary
discretion. The Bank shall not be liable for, and the Borrower agrees that
no action shall lie against the Bank for, refusing to advance further
funds under the Credit at any time or for any reason whatsoever. The Bank
shall have the right to withdraw the Credit at any time without cause or
notice.
4. The Borrower covenants that at no time shall the balance owing under the
Credit exceed the Credit Limit and the Bank shall have no obligation to
honour any request for funds, however submitted, the honouring of which
would have the effect of making the balance owing exceed the Credit Limit.
Notwithstanding the foregoing, if at any time amounts advanced and
outstanding on the Credit exceed the Credit Limit, any such overdraft
which occurs in excess of the Credit Limit shall be governed by the
provisions of this Agreement except that the Bank may, in its sole
decision, impose on the amount of such overdraft, and the Borrower hereby
agrees to pay thereon, a rate of interest equal to the Bank's highest
overdraft interest rate established from time to time and chargeable on
overdraft balances, even though such interest rate may be higher than the
rate set out in paragraph 1 hereof, with interest on overdue interest at
the same rate. A statement by any officer of the Bank confirming the
applicable overdraft interest rate chargeable on any such overdraft shall
be conclusive evidence thereof for all purposes hereunder.
<PAGE> 10
2
5. The Bank is authorized but not obliged to debit the Account as required
from time to time to pay interest, principal, administration fees
chargeable on the Credit as notified to the Borrower or posted in the
Bank's branches from time to time, and other costs (including legal costs
as between a solicitor and his own client on a full indemnity basis)
incurred in respect of the Credit or otherwise payable by the Borrower to
the Bank, including without limitation, costs related to preparation,
perfection and enforcement of this Agreement and any collateral securities
or documents and recovery of amounts outstanding on the Credit, all of
which fees and costs the Borrower agrees to pay on demand with interest
after demand at the rate hereinbefore set forth. Any interest accrued on
any such amounts which is not paid by the next date on which an interest
installment is payable shall be compounded on such date and on all further
installment dates until paid and, as overdue interest, bear interest at
the same rate as on principal. All monies received by the Bank, whether by
way of debit as aforesaid or otherwise, may be applied and allocated by
the Bank to such parts of the outstanding indebtedness (whether interest,
principal, fees or other costs) as the Bank deems best.
6. The Borrower agrees to maintain an average monthly minimum credit balance
in the Account, which may include compensating balances to cover service
fees, reserves and debit float. Such balance shall be an amount agreed to
in writing between the Borrower and the Bank from time to time.
7. In the Bank's sole discretion and for so long as the Bank thinks fit, the
Credit Limit may be reduced by an amount equal to the Borrower's liability
(as determined by the Bank in its sole discretion) on any letters of
credit or guarantee issued by the Bank at the request of the Borrower.
8. The Bank's written statement of the amount owing under the Credit at any
particular time shall, in the absence of manifest error, be conclusively
binding on the Borrower for all purposes.
9. Additional agreements may from time to time exist between the Bank and the
Borrower relating to the Credit and in the event of a conflict between
this Agreement and another agreement relating to the Credit such other
agreement shall prevail; if there is no conflict, this Agreement and such
other agreement shall be read in conjunction with and as supplementary to
each other. This Agreement and any other agreements in relation to the
Credit are in addition to and not in substitution for any other agreements
between the Borrower and the Bank, including but not limited to agreements
related generally to the operation of the Account. Without restricting the
generality of the foregoing, if the Bank at any time or from time to time
takes a promissory note or notes from the Borrower representing any
advances under the Credit, whether in whole or in part and whether in the
case of overdrafts or otherwise, such note or notes shall not extinguish
or pay such advances but shall evidence the same only.
IN WITNESS WHEREOF the Borrower has executed this Agreement on March 25,
1997.
BEAVER LAKE RESOURCES CORPORATION
Per: /s/ RANDY DENECKY
-----------------------------------------------
Name: Randy Denecky c/s
Title: Executive V.P.
Per: /s/ GREG ZIEGLER
-----------------------------------------------
Name: Greg Ziegler
Title: Vice President
<PAGE> 11
FIRST SUPPLEMENTAL DEBENTURE
This First Supplemental Debenture dated March 25, 1997 is made by BEAVER LAKE
RESOURCES CORPORATION, an Alberta corporation (the "BORROWER") in favour of
CANADIAN WESTERN BANK, a Canadian chartered bank (the "BANK").
WHEREAS the Borrower issued and granted a debenture dated March 5, 1996 in
favour of the Bank in the principal amount of Cdn. $5,000,000 (the "DEBENTURE");
AND WHEREAS the Bank has agreed to extend additional credit to the Borrower and
the Borrower has agreed to grant, mortgage and charge to and in favour of the
Bank additional property and assets of the Borrower.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the Borrower, the Borrower hereby covenants
and agrees with the Bank as follows:
1. Terms and expressions defined in the Debenture shall, when used herein,
have the same meanings as are ascribed to them therein.
2. Schedule "A" to the Debenture is hereby amended by adding thereto the
property and assets set forth and described in Schedule "A" attached to
this First Supplemental Debenture and, in order to give full and
further effect to such amendment, the Borrower hereby mortgages,
pledges and charges as and by way of a first fixed and specific
mortgage and charge to and in favour of the Bank all of its right,
title, estate and interest in and to (i) the lands listed and described
on Schedule "A" hereto and (ii) the Oil and Gas Properties relating to
such lands, which shall all constitute Specifically Mortgaged Property.
3. This First Supplemental Debenture is supplemental to the Debenture and
is to form part of and shall have the same effect as though
incorporated into the Debenture.
4. Save and except as amended pursuant to the terms hereof, the Debenture
is hereby ratified and confirmed.
5. This First Supplemental Debenture shall enure to the benefit of the
Bank and its successors and assigns and shall be binding upon the
Borrower and its successors and assigns.
IN WITNESS WHEREOF the Borrower has executed this First Supplemental
Debenture by its duly authorized officer on the date and year first above
written.
BEAVER LAKE RESOURCES CORPORATION
Per: /s/ RANDY DENECKY
-----------------------------------------------
Name: Randy Denecky c/s
Title: Executive V.P.
Per: /s/ GREG ZIEGLER
-----------------------------------------------
Name: Greg Ziegler
Title: Vice President
<PAGE> 12
SCHEDULE "A"
<TABLE>
<CAPTION>
FILE # LESSOR'S NO. TWP/RGE SECTION RIGHTS W.I.% ENCUM. EXPIRY ROFR
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A-1176 39142 40-03W5 E/2 SEC. 36 P&NG TO BASE PEKISKO 56.25 CSS SEC.95 NO
A-1177 113765 40-03W5 W/2 SEC. 36 P&NG TO BASE PEKISKO 56.25 CSS SEC.95 NO
A-1181 PCP 2863 40-03W5 SE/4 SEC. 15 PETROLEUM TO UPPER 37' OF BANFF 100 12.5% LSR (i)(ii) HBP NO
(i) NON-CONV. 3.5% NOR OIL ON 100% PRODUCTION PAID 100% BY PHILLIPS
(ii) NON-CONV. 10.0% GORN OIL ON 100% PRODUCTION PAID 100% BY PHILLIPS
WELLS BATTERY
100/06-36-040-03 W5/00 06-36-040-03 W5
100/11-36-040-03 W5/00
</TABLE>
<PAGE> 13
ACKNOWLEDGEMENT AND POSTPONEMENT OF CLAIM
TO: CANADIAN WESTERN BANK
WHEREAS, Beaver Lake Resources Corporation ("Beaver Lake") is,
subject to the trusts described herein, the legal and beneficial owner of those
lands and interest described in Schedule "A" hereto;
AND WHEREAS pursuant to a trust agreement between Beaver Lake and the
undersigned attached hereto as Schedule "B" (the "Trust Agreement"), Beaver Lake
holds on certain trusts those interests described in Schedule "C" on behalf of
the undersigned;
AND WHEREAS Beaver Lake has existing financing with the Bank and has
applied to the Bank to amend its existing finance arrangements with the Bank;
AND WHEREAS the Bank has agreed to amend the existing finance
arrangements with Beaver Lake subject to the granting of the appropriate loan
and security documents. All loan and security documents previously granted by
Beaver Lake (including its predecessors Beaver Lake Energy Corporation and Capco
Resource Properties Ltd.), to the Bank and all loan and security documents to be
granted by Beaver Lake to the Bank pursuant to the amendments to the financing
arrangements are hereinafter referred to as the "Securities");
AND WHEREAS it is the intention of the undersigned and Beaver Lake
that the Bank be able to deal with Beaver Lake in all respects with respect to
the granting of the Securities without any requirement of approval from the
undersigned;
THEREFORE, in consideration of the Bank amending its existing
financing with Beaver Lake and other good and valuable consideration, the
undersigned acknowledges and agrees as follows:
<PAGE> 14
- 2 -
1. The Trust Agreement, all interests of the undersigned under the Trust
Agreement (including the oil and gas properties described in Schedule "C")
and all indebtedness, obligations and liabilities, present and future, of
Beaver Lake to the undersigned are hereby subordinated and postponed to
the rights and interests of the Bank under the Securities;
2. The Bank shall deal with Beaver Lake and the Securities in the same manner
and as if Beaver Lake was the owner of 100% of the legal and beneficial
owner of the lands and interests described in Schedule "A" and the
undersigned is estopped in any proceeding brought by the Bank with respect
to the Securities from claiming any interest in the lands and interests
described in Schedule "A" in priority to the Bank.
3. Any decrease or increase in the amount advanced or to be advanced to
Beaver Lake, and any amendment, variation or modification of the terms of
the Securities and the granting of time, extensions, renewals,
compromises, indulgences, waivers, releases or other concessions to Beaver
Lake shall not require the agreement or approval of the undersigned.
4. This Acknowledgement and Postponement shall not be affected by the death
or loss or diminution of capacity of the undersigned or by any change in
the name of Beaver Lake by the acquisition of Beaver Lake's business by a
corporation, or by any change whatsoever in the objects, capital structure
or constitution of Beaver Lake, or by Beaver Lake being amalgamated or
otherwise merged with or into any other corporation, but shall
notwithstanding the happening of any such event continue to apply to all
the Securities whether theretofore or thereafter incurred or arising and
in this instrument the word "Beaver Lake" shall include every such
corporation.
5. The term "Securities" as used herein shall include and extend to any
money, loaned or advanced by the Bank to or for the account of Beaver Lake
in
<PAGE> 15
- 3 -
connection with or incidental to the Securities or any amounts owing
pursuant to the Securities, and shall also include and extend to any
renewal of or substitution for the Securities.
6. This Acknowledgement and Postponement shall extend to and enure to the
benefit of the Bank and its successors and assigns, and every reference
herein to the undersigned, is a reference to and shall be construed as
including the undersigned and the heirs, executors, administrators, legal
representatives, successors and assigns of the undersigned or of any of
them, as the case may be, to and upon all of whom this Acknowledgement and
Postponement shall extend and be binding.
7. This Acknowledgement and Postponement of Claim shall be governed by and
construed in accordance with the laws of the Province of Alberta. The
undersigned irrevocably submits to the courts of the Province of Alberta
in any action or proceeding arising out of or relating to this
Acknowledgement and Postponement of Claim, and irrevocably agrees that all
such actions and proceedings may be heard and determined in such courts,
and irrevocably waives, to the fullest extent possible, the defense of any
inconvenient forum.
GIVEN UNDER SEAL at City of Industry this 1st day of April, 1997
SIGNED, SEALED AND DELIVERED IN THE )
PRESENCE OF )
)
)
[SIG] ) /s/ VIJAY PHARAR
- ----------------------------------- ) ----------------------------------------
WITNESS ) VIJAY PHARAR
<PAGE> 16
AFFIDAVIT OF EXECUTION
STATE OF CALIFORNIA ) I, /s/ LEE HAN ROGERS
COUNTY OF LOS ANGELES ) in the city of Industry
TO WIT ) in the state of California
MAKE OATH AND SAY THAT
1. I was personally present and did see VIJAY PHARAR, named in the within
instrument, who is personally known to me to be the person therein, duly sign,
the same for the purposes named therein.
2. The same was executed in the City of Industry of California, and that I am
the subscribing witness thereof.
3. I know the said VIJAY PHARAR, and she is in my belief of the full age of
eighteen years.
SWORN BEFORE ME, at the City of Industry, )
in the State of California, ) [SEAL] LEE HAN ROGERS
this 1st day of April, 1997 ) COMM. #1013906
) Notary Public -- California
/s/ LEE HAN ROGERS ) LOS ANGELES COUNTY
- -------------------------------------- ) My Comm. Expires JAN. 18, 1998
A Notary Public )
in and for the State of California )
<PAGE> 17
SCHEDULE "A"
[96ANNUAL.XLW]LAND.XLS
BEAVER LAKE RESOURCES CORPORATION
LAND HOLDINGS AS AT DECEMBER 31, 1996
Purpose: to split land between Beaver Lake and Investor Group
<TABLE>
<CAPTION>
AMOUNT OF INVESTOR GROUP AND BEAVER LAKE
AS PER LAND RECORDS WHICH INCLUDES THE INVESTOR GROUP LAND HOLDINGS
---------------------------------------------------------------- -------------------------------------------------
Non Non PRODUCING NON-PRODUCING
Producing Producing Producing Producing ------------------------- ----------------------
Total Total Total Total Total Total BLRC+I/G I/G BLRC BLRC+I/G I/G BLRC
gross gross gross net net net net net net net net net
acres acres acres acres acres acres acres acres acres acres acres acres
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alberta
Acheson West GORR 480 480 0 0 0 0 0 0 0 0 0 0
Armada 320 160 160 24 12 12 12 (2) 10 12 (2) 10
Badger 640 640 0 96 96 0 96 (14) 82 0 0 0
Bentz 8,960 2,400 6,560 208 14 194 14 (2) 12 194 (29) 165
Bergen 1,440 1,280 160 108 96 12 96 (14) 82 12 (2) 10
Big Valley 960 640 320 19 17 2 17 (3) 14 2 0 2
Caroline 480 160 320 480 160 320 160 (24) 136 320 (48) 272
Chip Lake 960 320 640 120 0 120 0 0 0 120 (18) 102
Craigmyle 10,240 8,480 1,760 1,532 1,283 249 1,283 (192) 1,091 249 (37) 212
Crimson Lake GORR 160 160 0 0 0 0 0 0 0 0 0 0
Drumhellar South 4,480 2,720 1,760 1,580 505 1,075 505 (76) 429 1,075 (161) 914
Eaglesham CRL 27,040 5,600 21,440 16,693 3,332 13,361 3,332 0 3,332 13,361 0 13,361
East Scandia Farm-in 640 640 0 400 400 0 400 0 400 0 0 0
Elnora 640 640 0 40 40 0 40 (6) 34 0 0 0
Fenn West GORR 720 720 0 0 0 0 0 0 0 0 0 0
Freeman 320 160 160 120 80 40 80 (12) 68 40 (6) 34
Health 800 800 0 120 120 0 120 (18) 102 0 0 0
Healthdale GORR 640 640 0 0 0 0 0 0 0 0 0 0
Highvale 640 640 0 32 32 0 32 (5) 27 0 0 0
Huxley 32,200 3,200 0 427 427 0 427 (64) 363 0 0 0
Jenner GORR 640 640 0 0 0 0 0 0 0 0 0 0
Kiron 640 640 0 428 428 0 428 (64) 364 0 0 0
Lait GORR 640 0 640 0 0 0 0 0 0 0 0 0
Leduc 240 240 0 139 139 0 139 (21) 118 0 0 0
Leedale 1,280 1,280 0 60 60 0 60 (9) 51 0 0 0
Loon South 960 480 480 149 108 41 108 (16) 92 41 (6) 35
Lousana A 160 160 0 160 160 0 160 (12) 148 0 0 0
Malmo CRL 80 80 0 80 80 0 80 0 80 0 0 0
96 136 (20) 116 96 (14) 82
</TABLE>
<PAGE> 18
[96ANNUAL.XLS]LAND.XLS
Beaver Lake Resources Corporation
Land Holdings as at December 31,1996
Purpose: to split land between Beaver Lake and Investor Group
<TABLE>
<CAPTION>
AS PER LAND RECORDS WHICH INCLUDES THE INVESTOR GROUP
Non NON
Producing Producing PRODUCING PRODUCING
Total Total Total Total Total Total
gross gross gross net net net
acres acres acres acres acres acres
<S> <S> <C> <C> <C> <C> <C> <C>
Penhold 160 80 80 160 80 80
Pigeon Lake 800 480 320 18 0 18
Princess 640 640 0 640 640 0
Rainbow East C 640 480 160 192 172 20
Red Earth 160 160 0 53 53 0
Redwater GORR 1,280 640 640 0 0 0
Rumsey 4,480 3,840 640 2,692 2,052 640
Shekille 640 640 0 80 80 0
Simonettle BLEC 320 320 0 3 3 0
Sounding Lake B 1,920 1,430 490 1,178 1,095 83
Three Hills Creek 640 640 0 64 64 0
UtiKuma D 960 640 320 351 221 130
Wainwright 7,840 7,680 160 1,892 1,849 43
Willow Now 1,920 160 1,760 1,584 160 1,424
Winnifred GORR 4,320 1,760 2,560 672 0 672
Zama Farm-in 1,440 480 960 625 69 556
98,640 55,830 42,810 33,688 14,380 19,308
British Columbia
North Pine BLEC 640 160 480 36 12 24
Saskatchewan
Bench West 161 161 0 32 32 0
Elswick Midale GORR 483 483 0 0 0 0
Freda Lake 321 80 241 34 0 34
Gull Lake BLEC 483 0 483 48 0 48
Inglenook GORR 2,817 644 2,173 0 0 0
Rosebank GORR 80 80 0 0 0 0
West Dollard BLEC 2,537 0 2,537 127 0 127
209
</TABLE>
<TABLE>
<CAPTION>
AMOUNT OF INVESTOR GROUP AND BEAVER LAKE LAND HOLDINGS
Producing PRODUCING NON-PRODUCING
BLRC + I/G I/G BLRC BLRC + I/G I/G BLRC
net net net net net net
acres acres acres acres acres acres
<S> <S> <C> <C> <C> <C> <C> <C>
Penhold 80 0 80 80 0 80
Pigeon Lake 0 0 0 18 (3) 15
Princess 640 (96) .544 0 0 0
Rainbow East C 172 (20) 152 20 (3) 17
Red Earth 53 (8) 45 0 0 0
Redwater GORR 0 0 0 0 0 0
Rumsey 2,052 (308) 1,744 640 (96) 544
Shekille 80 (12) 68 0 0 0
Simonettle BLEC 3 0 3 0 0 0
Sounding Lake B 1,095 (122) 973 83 (12) 71
Three Hills Creek 64 (10) 54 0 0 0
Utikuma P 221 (30) 191 130 (18) 112
Wainwright 1,649 (277) 1,572 43 (6) 37
Willow Now 160 0 160 1,424 0 1,424
Winnifred GORR 0 0 0 672 (101) 571
Zama Form-in 69 0 69 556 0 556
14,380 (1,476) 12,904 19,308 (582) 18,726
British Columbia
North Pine BLEC 12 0 12 24 0 24
Saskatchewan
Bench West 32 (5) 27 0 0 0
Elswick Midale GORR 0 0 0 0 0 0
Freda Lake 0 0 0 34 (5) 29
Gull Lake BLEC 0 0 0 48 0 48
Inglenook GORR 0 0 0 0 0 0
Rosebank GORR 0 0 0 0 0 0
West Dollard BLEC 0 0 0 127 (19) 108
12 (5 27 209 (24) 185
</TABLE>
<PAGE> 19
[96ANNUAL.XLW]LAND.XLS
Beaver Lake Resources Corporation
Land Holdings as at December 31, 1996
Purpose: to calculate BLRC lands as actual (remove investor group) where
additional interests acquired
<TABLE>
<CAPTION>
Producing Non-producing
--------------------------------- --------------------------------------
BLRC + BLRC +
I/G I/G BLRC I/G I/G BLRC
--------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A Lousana
origional acquisition Ulster 80.00 (12.00) 68.00 0.00 0.00 0.00
BLRC acquisition of Jolliet 80.00 0.00 80.00 0.00 0.00 0.00
--------------------------------- --------------------------------------
160.00 (12.00) 148.00 0.00 0.00 0.00
================================ ======================================
</TABLE>
<TABLE>
<CAPTION>
Producing Non-producing
--------------------------------- --------------------------------------
BLRC + BLRC +
I/G I/G BLRC I/G I/G BLRC
--------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
B Sounding Lake
origional acquisition Ulster
Section 11 (Pinnacle)
215-MOO1A 17.00000% 23.80000 (3.57000) 20.23000 30.60000 (4.59000) 26.01000
216-M001B 17.00000% 1.70000 (0.25500) 1.44500 52.70000 (7.90500) 44.79500
Section 14 & 15
216-M002B 50.00150% 80.00240 (12.00036) 68.00204 0.00000 0.00000 0.00000
216-M003C 50.00150% 240.00720 (36.00108) 204.00612 0.00000 0.00000 0.00000
216-M004B 73.47000% 117.55200 (17.63280) 99.91920 0.00000 0.00000 0.00000
216-M005B 73.47000% 235.10400 (35.26560) 199.83840 0.00000 0.00000 0.00000
216-M006D 73.47000% 117.55200 (17.63280) 99.91920 0.00000 0.00000 0.00000
Sherrit Gordin Acquisition
216-M002B 7.33300% 11.73280 0.00000 11.73280 0.00000 0.00000 0.00000
216-MO03C 7.33300% 35.19840 0.00000 35.19840 0.00000 0.00000 0.00000
216-MW004B 1.83000% 2.92800 0.00000 2.92800 0.00000 0.00000 0.00000
216-M005B 1.83000% 5.85600 0.00000 5.85600 0.00000 0.00000 0.00000
216-M006D 1.83000% 2.92800 0.00000 2.92800 0.00000 0.00000 0.00000
First Calgary Acquisition
216-MOO28 23.70510% 37.92816 0.00000 37.92816 0.00000 0.00000 0.00000
216-MO03C 23.70510% 113,78448 0.00000 113.78448 0.00000 0.00000 0,00000
216-MOO48 10.70000% 17.12000 0.00000 17.12000 0.00000 0.00000 0.00000
216-MO05B 10.70000% 34.24000 0.00000 34.24000 0.00000 0.00000 0.00000
216-MO06D 10.70000% 17.12000 0.00000 17A2000 0.00000 0.00000 0.00000
-------- ------- -- ---- ------- ------- -------
????? (????????) 972.19580 83.30000 (12.49500) 70.80600
</TABLE>
<PAGE> 20
[96ANNUAL.XLW]LAND.XLS
Beaver Lake Resources Corporation
Land Holdings as at December 31, 1996
Purpose: to calculate BLRC lands as actual (remove investor group)
where additional interests acquired
<TABLE>
<CAPTION>
PRODUCING NON-PRODUCING
------------------------------ -----------------------------
BLRC + BLRC +
C Rainbow East I/G I/G BLRC I/G I/G BLRC
------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
original acquisition Ulster 136.00 (20.40) 115.60 20.00 (3.00) 17.00
Canadian Natural Acquisition 36.00 0.00 36.00 0.00 0.00 0.00
------------------------------ -----------------------------
172.00 (20.40) 161.60 20.00 (3.00) 17.00
============================== =============================
</TABLE>
<TABLE>
<CAPTION>
PRODUCING NON-PRODUCING
------------------------------ -----------------------------
D Utikuma BLRC + (00.00) 000.00 BLRC + (0.00) BLRC
origional acquisition Ulster I/G I/G BLRC I/G I/G BLRC
------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6-30-80-19W5M 120.00 (18.0) 102.0 120.00 (18.0) 102.0
7-30-80-19W5M 80.00 (12.0) 68.0 0.0 0.0 0.0
BLEC 100% lands
8-15-81-9W5M 20.8 0.0 20.8 10.4 0.0 10.4
------------------------------ -----------------------------
220.8 (30.0) 190.8 130.4 (18.0) 112.4
============================== =============================
</TABLE>
Notes: All Ulster Acquisition properties are owned 15% by investor group
All BLEC properties have no investor group participation
All CRL, SEL properties have no investor group participation
All acquisitions made by BLRC have no investor group interest
<PAGE> 21
BEAVER LAKE
RESOURCES CORPORATION
July 16, 1996
MRS. VIJAY PHARAR
23810 Ridgeline Road
Diamond Bar, CA 91765
Dear Mrs. Pharar:
RE: PARTICIPATION AGREEMENT ULSTER PROPERTIES, ALBERTA CANADA
Beaver Lake Resources Corporation (Beaver Lake) is the successor to Capco
Resource Properties Ltd. (CRPL). CRPL acquired certain properties (Ulster
Properties) from Ulster Petroleums in Canada on February 10, 1994. At that time,
an arrangement was made for you to acquire a portion of that interest. Your
interest is now five percent (5%) of the interest of Beaver Lake in and to the
Ulster Properties which are listed on Schedule "A" attached hereto.
The following is therefore intended to provide for the ongoing ownership and
operation of the Ulster properties and to evidence the arrangement between Vijay
Pharar and Beaver Lake Resources Corporation
1) The interests of Pharar and Beaver Lake are set out in Schedule "A" and
such interests shall be operated as between them pursuant to the terms of
any operating agreement which governs the interests of any third party in
those specific parts of the Ulster Properties. In the event any or all of
the Ulster Properties are not subject to a third party Operating Agreement
then they shall be operated pursuant to the terms of the Operating
Agreement attached as Schedule "B". As between the parties hereto, Beaver
Lake shall act as Operator. Under such Operating Agreement or Agreements,
where a response is require or notice must be given to a third party, then
the time prescribed for Pharar to respond or give notice shall be
shortened by two working days so that Beaver Lake will be able to respond
or give proper notice on behalf of the parties. In the event of a conflict
between the terms of this agreement and the Operating Agreement, this
Agreement shall prevail.
2) In addition to Pharar's share of any charges under the Operating
Agreement, Pharar shall pay to Beaver Lake a charge of 1% of Beaver Lake's
administration overhead per month to compensate Beaver Lake for the
additional work required in its capacity as Operator. Beaver Lake shall
not be required to provide its interpretation of any data respecting any
of the Ulster Properties.
1204 Dome Tower, Toronto Dominion Square
333 - 7th Avenue S.W. Calgary, AB 12P 2Z1
Phone (403) 269-5550 * Fax (403) 269-5585
<PAGE> 22
MRS. VIJAY PHARAR
PARTICIPATION AGREEMENT
PAGE 2
JULY 16, 1996
3) The interest of Pharar's in the Ulster Properties and only the interest of
Pharar's shall be subject to Clause 2401 B of the Operating Agreement
attached as Schedule "B" thereby giving Beaver Lake a Right of First
Refusal in the event that Pharar wishes to sell her interest.
4) Pharar's principal balance of the bank loan remaining as at July 1, 1996
is $55,000.00 (Canadian). At this time, principal repayments are not being
made to the Bank by Beaver Lake or Pharar.
If and when Beaver Lake Resources Corporation is requested to make
principal repayments to the bank, then Pharar shall be required to
reimburse Beaver Lake for her proportionate share of such principal
payments. This will be done through deductions from monthly revenues where
such revenues exceed the required payments. Pharar will be invoiced if
required payments exceed monthly revenues.
Interest charged on the principal balance shall be at the same rate as
Beaver Lake is charged by the bank, and will be deducted from monthly
revenues.
5) The rights, duties, obligations and liabilities of the Parties hereunder
shall be separate and not joint or collective, nor joint and several, it
being the express purpose and intention of the parties that their interest
in the Ulster Properties shall be held as tenants in common. Nothing
contained herein shall be construed as creating a partnership, joint
venture or association of any kind.
6) Time shall be of essence in this agreement.
7) This agreement supersedes all previous agreements with CRPL, whether
written or verbal between parties respecting the Ulster Properties.
8) This agreement shall enure to the benefit of, and shall bind the parties
and their respective successors and assigns.
9) This agreement shall for all purposes be construed and interpreted
according to the Laws of the Province of Alberta, Canada.
10) Pharar agrees that she will not use, suffer or permit to be used, directly
or indirectly the name of Beaver Lake for the purpose of, or in connection
with any financing, offering of securities or the formation or promotion
of any business enterprise or for any other purpose.
<PAGE> 23
MRS. VIJAY PHARAR
PARTICIPATION AGREEMENT
PAGE 3
JULY 16, 1996
Should the above be your understanding of the agreement reached between the
parties, please so indicate by signing in the space provided below and return
fully executed copy to the undersigned.
Yours truly
BEAVER LAKE RESOURCE CORPORATION
/s/ HERBERT R. MILLER
Herbert R. Miller,
Vice President
ACKNOWLEDGED AND AGREED TO THIS 12TH DAY OF NOVEMBER, 1996.
/s/ VIJAY PHARAR
- -----------------------------
VIJAY PHARAR
<PAGE> 24
ACKNOWLEDGEMENT AND POSTPONEMENT OF CLAIM
TO: CANADIAN WESTERN BANK
WHEREAS, Beaver Lake Resources Corporation ( "Beaver Lake") is,
subject to the trusts described herein, the legal and beneficial owner of those
lands and interest described in Schedule "A" hereto;
AND WHEREAS pursuant to a trust agreement between Beaver Lake and the
undersigned attached hereto as Schedule "B" (the "Trust Agreement"), Beaver Lake
holds on certain trusts those interests described in Schedule "C" on behalf of
the undersigned;
AND WHEREAS Beaver Lake has existing financing with the Bank and has
applied to the Bank to amend its existing finance arrangements with the Bank;
AND WHEREAS the Bank has agreed to amend the existing finance
arrangements with Beaver Lake subject to the granting of the appropriate loan
and security documents. All loan and security documents previously granted by
Beaver Lake (including its predecessors Beaver Lake Energy Corporation and Capco
Resource Properties Ltd.), to the Bank and all loan and security documents to be
granted by Beaver Lake to the Bank pursuant to the amendments to the financing
arrangements are hereinafter referred to as the "Securities");
AND WHEREAS it is the intention of the undersigned and Beaver Lake
that the Bank be able to deal with Beaver Lake in all respects with respect to
the granting of the Securities without any requirement of approval from the
undersigned;
THEREFORE, in consideration of the Bank amending its existing
financing with Beaver Lake and other good and valuable consideration, the
undersigned acknowledges and agrees as follows:
<PAGE> 25
- 2 -
1. The Trust Agreement, all interests of the undersigned under the Trust
Agreement (including the oil and gas properties described in Schedule "C")
and all indebtedness, obligations and liabilities, present and future, of
Beaver Lake to the undersigned are hereby subordinated and postponed to
the rights and interests of the Bank under the Securities;
2. The Bank shall deal with Beaver Lake and the Securities in the same manner
and as if Beaver Lake was the owner of 100% of the legal and beneficial
owner of the lands and interests described in Schedule "A" and the
undersigned is estopped in any proceeding brought by the Bank with respect
to the Securities from claiming any interest in the lands and interests
described in Schedule "A" in priority to the Bank.
3. Any decrease or increase in the amount advanced or to be advanced to
Beaver Lake, and any amendment, variation or modification of the terms of
the Securities and the granting of time, extensions, renewals,
compromises, indulgences, waivers, releases or other concessions to Beaver
Lake shall not require the agreement or approval of the undersigned.
4. This Acknowledgement and Postponement shall not be affected by the death
or loss or diminution of capacity of the undersigned or by any change in
the name of Beaver Lake by the acquisition of Beaver Lake's business by a
corporation, or by any change whatsoever in the objects, capital structure
or constitution of Beaver Lake, or by Beaver Lake being amalgamated or
otherwise merged with or into any other corporation, but shall
notwithstanding the happening of any such event continue to apply to all
the Securities whether theretofore or thereafter incurred or arising and
in this instrument the word "Beaver Lake" shall include every such
corporation.
5. The term "Securities" as used herein shall include and extend to any
moneys loaned or advanced by the Bank to or for the account of Beaver Lake
in
<PAGE> 26
- 3 -
connection with or incidental to the Securities or any amounts owing
pursuant to the Securities, and shall also include and extend to any
renewal of or substitution for the Securities.
6. This Acknowledgement and Postponement shall extend to and enure to the
benefit of the Bank and its successors and assigns, and every reference
herein to the undersigned, is a reference to and shall be construed as
including the undersigned and the heirs, executors, administrators, legal
representatives, successors and assigns of the undersigned or of any of
them, as the case may be, to and upon all of whom this Acknowledgement and
Postponement shall extend and be binding.
7. This Acknowledgement and Postponement of Claim shall be governed by and
construed in accordance with the laws of the Province of Alberta. The
undersigned irrevocably submits to the courts of the Province of Alberta
in any action or proceeding arising out of or relating to this
Acknowledgement and Postponement of Claim, and irrevocably agrees that all
such actions and proceedings may be heard and determined in such courts,
and irrevocably waives to the fullest extent possible, the defence of any
inconvenient forum.
GIVEN UNDER SEAL at CAMROSE ALBERTA this 7th day of April, 1997.
SIGNED, SEALED AND DELIVERED IN THE )
PRESENCE OF )
)
) /s/ Q SYED
- ------------------------------------ ) -----------------------------------------
WITNESS ) QURAT-UL-AIN-SYED
<PAGE> 27
AFFIDAVIT OF EXECUTION
CANADA ) I, HAMEED SYED of the City of
PROVINCE OF ALBERTA ) CAMROSE in the Province of
TO WIT ) ALBERTA MAKE OATH AND SAY THAT
SAY THAT
1. I was personally present and did see QURAT-UL-AIN SYED, named in the within
instrument, who is personally known to me to be the person named therein, duly
sign, the same for the purposes named therein.
2. The same was executed at the City of Camrose, in the Province of Alberta, and
that I am the subscribing witness thereto.
3. I know the said QURAT-UL-AIN SYED, and she is in my belief of the full age of
eighteen years.
SWORN BEFORE ME, at the City of )
CAMROSE, in the Province of )
ALBERTA, this 7th day of )
April, 1997. ----------------------------------------
/s/ JAONNE FRANCES MICHAUD
- -----------------------------------
A Commission in and for the Province of
Alberta
JAONNE FRANCES MICHAUD
A COMMISSIONER FOR OATHS
COMMISSION EXPIRES JANUARY 25, 1998
<PAGE> 28
SCHEDULE "B"
[BEAVER LAKE LETTERHEAD]
July 16, 1996
MRS. QURAT-UL-AIN SYED
4204 - 70 Street
Camrose, Alberta
T4V 3S5
Dear Mrs. Syed:
RE: PARTICIPATION AGREEMENT ULSTER PROPERTIES, ALBERTA CANADA
Beaver Lake Resources Corporation (Beaver Lake) is the successor to Capco
Resource Properties Ltd. (CRPL). CRPL acquired certain properties (Ulster
Properties) from Ulster Petroleums in Canada on February 10, 1994. At that time,
an arrangement was made for you to acquire a portion of that interest. Your
interest is now five percent (5%) of the interest of Beaver Lake in and to the
Ulster Properties which are listed on Schedule "A" attached hereto.
The following is therefore intended to provide for the ongoing ownership and
operation of the Ulster properties and to evidence the arrangement between
Qurat-ul-ain Syed and Beaver Lake Resources Corporation:
1) The interests of Syed and Beaver Lake are set out in Schedule "A" and such
interests shall be operated as between them pursuant to the terms of any
operating agreement which governs the interests of any third party in
those specific parts of the Ulster Properties. In the event any or all of
the Ulster Properties are not subject to a third party Operating Agreement
then they shall be operated pursuant to the terms of the Operating
Agreement attached as Schedule "B". As between the parties hereto, Beaver
Lake shall act as Operator. Under such Operating Agreement or Agreements,
where a response is required or notice must be given to a third party,
then the time prescribed for Syed to respond or give notice shall be
shortened by two working days so that Beaver Lake will be able to respond
or give proper notice on behalf of the parties. In the event of a conflict
between the terms of this agreement and the Operating Agreement, this
Agreement shall prevail.
2) In addition to Syed's share of any charges under the Operating Agreement,
Syed shall pay to Beaver Lake a charge of 1% of Beaver Lake's
administration overhead per month to compensate Beaver Lake for the
additional work required in its capacity as Operator. Beaver Lake shall
not be required to provide its interpretation of any data respecting any
of the Ulster Properties.
<PAGE> 29
MRS. QURAT-UL-AIN SYED
PARTICIPATION AGREEMENT
PAGE 2
JULY 16, 1996
3) The interest of Syed's in the Ulster Properties and only the interest of
Syed's shall be subject to Clause 2401B of the Operating Agreement
attached as Schedule "B" thereby giving Beaver Lake a Right of First
Refusal in the event that Syed wishes to sell her interest.
4) Syed's principal balance of the bank loan remaining as at July 1, 1996 is
$55,000.00 (Canadian). At this time, principal repayments are not being
made to the Bank by Beaver Lake or Syed.
If and when Beaver Lake Resources Corporation is requested to make
principal repayments to the bank, then Syed shall be required to reimburse
Beaver Lake for her proportionate share of such principal payments. This
will be done through deductions from monthly revenues where such revenues
exceed the required payments. Syed will be invoiced if required payments
exceed monthly revenues.
Interest charged on the principal balance shall be at the same rate as
Beaver Lake is charged by the bank, and will be deducted from monthly
revenues.
5) The rights, duties, obligations and liabilities of the Parties hereunder
shall be separate and not joint or collective, nor joint and several, it
being the express purpose and intention of the parties that their interest
in the Ulster Properties shall be held as tenants in common. Nothing
contained herein shall be construed as creating a partnership, joint
venture or association of any kind.
6) Time shall be of essence in this agreement.
7) This agreement supersedes all previous agreements with CRPL, whether
written or verbal between parties respecting the Ulster Properties.
8) This agreement shall enure to the benefit of, and shall bind the parties
and their respective successors and assigns.
9) This agreement shall for all purposes be construed and interpreted
according to the Laws of the Province of Alberta, Canada.
10) Syed agrees that she will not use, suffer or permit to be used, directly
or indirectly the name of Beaver Lake for the purpose of, or in connection
with any financing, offering of securities or the formation or promotion
of any business enterprise or for any other purpose.
<PAGE> 30
MRS. QURAT-UL-AIN SYED
PARTICIPATION AGREEMENT
PAGE 3
JULY 16, 1996
- -------------------------------------------------------------------------------
Should the above be your understanding of the agreement reached between the
parties, please so indicate by signing in the space provided below and return a
fully executed copy to the undersigned.
Yours truly,
BEAVER LAKE RESOURCES CORPORATION
/s/ HERBERT R. MILLER
Herbert R. Miller,
Vice President
ACKNOWLEDGED AND AGREED TO THIS 16th DAY OF July, 1996.
/s/ Q SYED
- ---------------------
QURAT-UL-AIN SYED
<PAGE> 31
SCHEDULE "B"
[BEAVER LAKE LETTERHEAD]
July 16, 1996
MR. FIDA MALIK
703, 404 - 2811
21 West House, Weir Road
Bacharm London
SWI2 ONF
Dear Mr. Malik:
RE: PARTICIPATION AGREEMENT
ULSTER PROPERTIES, ALBERTA
CANADA
Beaver Lake Resources Corporation (Beaver Lake) is the successor to Capco
Resource Properties Ltd. (CRPL). CRPL acquired certain properties (Ulster
Properties) from Ulster Petroleums in Canada on February 10, 1994. At that time,
an arrangement was made for you to acquire a portion of that interest. Your
interest is now five percent (5%) of the interest of Beaver Lake in and to the
Ulster Properties which are listed on Schedule "A" attached hereto.
The following is therefore intended to provide for the ongoing ownership and
operation of the Ulster properties and to evidence the arrangement between Fida
Malik and Beaver Lake Resource Corporation:
1) The interests of Malik and Beaver Lake are set out in Schedule "A" and
such interest shall be operated as between them pursuant to the terms of
any operating agreement which governs the interests of any third party in
those specific parts of the Ulster Properties. In the event any or all of
the Ulster Properties are not subject to a third party Operating Agreement
then they shall be operated pursuant to the terms of the Operating
Agreement attached as Schedule "B". As between the parties hereto, Beaver
Lake shall act ?? Operator. Under such Operating Agreement or Agreements,
where a response is require??, or notice must be given to a third party,
then the time prescribed for Malik to respond ?? give notice shall be
shortened by two working days so that Beaver Lake will be able to respond
or give proper notice on behalf of the parties. In the event of a conflict
between ?? terms of this agreement and the Operating Agreement, this
Agreement shall prevail.
2) In addition to Malik's share of any charges under the Operating Agreement,
Malik shall pay to Beaver Lake a charge of 1% of Beaver Lake's
administration overhead per month to ?? compensate Beaver Lake for the
additional work required in its capacity as Operator ?? Beaver Lake shall
not be required to provide its interpretation of any data respecting any
the Ulster Properties.
<PAGE> 32
MR. FIDA MALIK
PARTICIPATION AGREEMENT
PAGE 2
JULY 16, 1996
3) The interest of Malik's in the Ulster Properties and only the interest of
Malik's shall ?? subject to Clause 2401B of the Operating Agreement
attached as Schedule "B" there?? giving Beaver Lake a Right of First
Refusal in the event that Malik wishes to sell his interest ??
4) Malik's principal balance of the bank loan remaining as at July 1, 1996 is
$55,000.00 (Canadian). At this time, principal repayments are not being
made to the Bank by Beaver Lake or Malik.
If and when Beaver Lake Resources Corporation is requested to make
principal repayment to the bank, then Malik shall be required to reimburse
Beaver Lake for his proportion?? share of such principal payments. This
will be done through deductions from month?? revenues where such revenues
exceed the required payments. Malik will be invoiced ?? required payments
exceed monthly revenues.
Interest charged on the principal balance shall be at the same rate as
Beaver Lake is char??? by the bank, and will be deducted from monthly
revenues.
5) The rights, duties, obligations and liabilities of the Parties hereunder
shall be separate and not joint or collective, nor joint and several, it
being the express purpose and intention of the parties that their interest
in the Ulster Properties shall be held as tenants in common. Nothing
contained herein shall be construed as creating a partnership, joint
venture association of any kind.
6) Time shall be of essence in this agreement.
7) This agreement supersedes all previous agreements with CRPL, whether
written verbal between parties respecting the Ulster Properties.
8) This agreement shall enure to the benefit of, and shall bind the parties
and their respective successors and assigns.
9) This agreement shall for all purposes be construed and interpreted
according to the L?? of the Province of Alberta, Canada.
10) Malik agrees that he will not use, suffer or permit to be used, directly
or indirectly the name of Beaver Lake for the purpose of, or in connection
with any financing, offering securities or the formation or promotion of
any business enterprise or for any other purp??
<PAGE> 33
MR. FIDA MALIK
PARTICIPATION AGREEMENT
PAGE 3
JULY 16, 1996
Should the above be your understanding of the agreement reached between the
parties, please so indicate by signing in the space provided below and return a
fully executed copy to the undersigned.
Yours truly,
BEAVER LAKE RESOURCES CORPORATION
/s/ HERBERT R. MILLER
Herbert R. Miller
Vice President
ACKNOWLEDGED AND AGREED TO THIS 19TH DAY OF AUGUST, 1996
/s/ FIDA MALIK
- --------------------
Fida Malik
ATTACHMENTS
<PAGE> 1
SABA PETROLEUM COMPANY
Exhibit 11.1
Computation of Earnings Per Common Share
For the Three Months Ended March 31, 1997 jand 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Primary Earnings
Net income before minority interest
in earnings of consolidated
subsidiary 1,530,012 777,110
Minority interest in earnings of
consolidated subsidiary (88,430) (21,622)
----------- -----------
Net income available to Common 1,441,582 755,488
=========== ===========
Primary Shares
Weighted average number of Common
Shares outstanding 10,381,078 8,537,334
Additional shares assuming issuance of
shares underlying options 686,921 494,534
----------- -----------
Primary Shares 11,067,999 9,031,868
=========== ===========
Primary Earnings per Common Share
Net income available to Common $ 0.130 $ 0.084
=========== ===========
Fully Diluted Earnings
Net income before minority interest
in earnings of consolidated
subsidiary 1,530,012 777,110
Minority interest in earnings of
consolidated subsidiary (88,430) (21,622)
Pplus interest expense attributable
Plus interest expense attributable
to Debentures, net of related income
taxes 51,289 167,495
----------- -----------
Net income available to Common 1,492,871 922,983
=========== ===========
Fully Diluted Shares
Weighted average number of Common
Shares outstanding 10,381,078 8,537,334
Additional shares assuming issuance:
Of shares underlying options 686,921 494,534
Of convertible common shares
@ $4.375 per share underlying:
$6,438,000 from 1/1/97 1,471,543 1,257,143
$11,000,000 from 1/1/96 2,514,286
$1,650,000 from 2/7/96 223,800
Less shares actually issued
upon conversions (300,052) 0
----------- -----------
Fully Diluted Shares 12,239,490 11,769,954
=========== ===========
Fully Diluted Earnings per Common Share
Net income $ 0.122 $ 0.078
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997 AND CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS PRESENTED
IN QUARTERLY REPORT FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 733
<SECURITIES> 0
<RECEIVABLES> 6,894
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,486
<PP&E> 55,985
<DEPRECIATION> 16,842
<TOTAL-ASSETS> 52,256
<CURRENT-LIABILITIES> 11,937
<BONDS> 19,219
0
0
<COMMON> 14,868
<OTHER-SE> 6,232
<TOTAL-LIABILITY-AND-EQUITY> 52,256
<SALES> 0
<TOTAL-REVENUES> 9,563
<CGS> 0
<TOTAL-COSTS> 6,759
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 391
<INCOME-PRETAX> 2,618
<INCOME-TAX> 1,088
<INCOME-CONTINUING> 1,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,442
<EPS-PRIMARY> .13
<EPS-DILUTED> .12
</TABLE>
