<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 0-9207
HARKEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2841597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5605 N. MACARTHUR BLVD., SUITE 400 75038
IRVING, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 753-6900
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class: Name of each exchange on which registered:
<S> <C>
COMMON STOCK, PAR VALUE $0.01 PER SHARE AMERICAN STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
The number of shares of Common Stock, par value $0.01 per share,
outstanding as of May 1, 1995 was 61,642,853 net of 5,983,655 Treasury Shares.
================================================================================
<PAGE> 2
HARKEN ENERGY CORPORATION
INDEX TO QUARTERLY REPORT
MARCH 31, 1994 AND 1995
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flow . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART II. OTHER INFORMATION
Notes Concerning Other Information . . . . . . . . . . . . . . . . . . . . . 21
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
3
<PAGE> 4
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
----------------- -----------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and temporary investments . . . . . . . . . . . . . . . $ 2,828,000 $ 5,192,000
Accounts receivable, net . . . . . . . . . . . . . . . . . . 543,000 373,000
Investment in former subsidiary held for resale . . . . . . 2,898,000 --
Prepaid expenses and other current assets . . . . . . . . . 571,000 1,037,000
---------------- ----------------
Total Current Assets . . . . . . . . . . . . . . . . . 6,840,000 6,602,000
Property and Equipment, net . . . . . . . . . . . . . . . . . . 20,177,000 21,019,000
Investments in Former Subsidiaries . . . . . . . . . . . . . . 1,219,000 1,219,000
Notes Receivable from Related Parties, including interest . . . 474,000 474,000
Other Assets, net . . . . . . . . . . . . . . . . . . . . . . . 250,000 318,000
---------------- ----------------
$ 28,960,000 $ 29,632,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Trade payables . . . . . . . . . . . . . . . . . . . . . . $ 492,000 $ 1,070,000
Accrued liabilities and other . . . . . . . . . . . . . . . 2,464,000 2,031,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . 900,000 400,000
Revenues and royalties payable . . . . . . . . . . . . . . . 1,277,000 1,482,000
---------------- ----------------
Total Current Liabilities . . . . . . . . . . . . . . 5,133,000 4,983,000
Commitments and Contingencies (Note 11)
Redeemable Preferred Stock . . . . . . . . . . . . . . . . . . 1,868,000 1,868,000
Stockholders' Equity:
Common stock, $0.01 par value; authorized
100,000,000 shares; issued 66,426,508 and
67,026,508 shares, respectively . . . . . . . . . . . . . 664,000 670,000
Additional paid-in capital . . . . . . . . . . . . . . . . . 132,572,000 133,223,000
Retained deficit . . . . . . . . . . . . . . . . . . . . . . (90,520,000) (90,355,000)
Treasury stock, 5,983,655 shares held . . . . . . . . . . . (20,757,000) (20,757,000)
---------------- -----------------
Total Stockholders' Equity . . . . . . . . . . . . . . 21,959,000 22,781,000
---------------- ----------------
$ 28,960,000 $ 29,632,000
================ ================
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
4
<PAGE> 5
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1994 1995
---------------- ----------------
<S> <C> <C>
Revenues:
Oil and gas operations . . . . . . . . . . . . . . . . . . $ 1,009,000 $ 1,173,000
Interest income . . . . . . . . . . . . . . . . . . . . . . 23,000 35,000
Other income . . . . . . . . . . . . . . . . . . . . . . . 131,000 391,000
--------------- --------------
1,163,000 1,599,000
--------------- --------------
Costs and Expenses:
Oil and gas operating expenses . . . . . . . . . . . . . . 361,000 422,000
General and administrative expenses, net . . . . . . . . . 689,000 774,000
Depreciation and amortization . . . . . . . . . . . . . . . 504,000 531,000
Interest expense and other . . . . . . . . . . . . . . . . 39,000 11,000
--------------- --------------
1,593,000 1,738,000
--------------- --------------
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . (430,000) (139,000)
Income tax expense . . . . . . . . . . . . . . . . . . . . . . -- --
--------------- --------------
Income (loss) from continuing operations . . . . . . . . . (430,000) (139,000)
Discontinued Operations (Note 7):
Loss from operations of discontinued well servicing
and contract drilling segment . . . . . . . . . . . . . . (138,000) --
Gain on sale of contract drilling rigs . . . . . . . . . . 272,000 --
--------------- --------------
134,000 --
--------------- --------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (296,000) $ (139,000)
=============== ==============
Income (loss) per common share:
Continuing operations . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.00)
Discontinued operations . . . . . . . . . . . . . . . . . . 0.00 --
--------------- --------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.00)
=============== ==============
Weighted average shares outstanding . . . . . . . . . . . . . . 59,482,853 60,642,853
=============== ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
5
<PAGE> 6
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL DEFICIT STOCK
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 . . . . . $ 654,000 $ 131,052,000 $ (81,986,000) $ (20,757,000)
Issuance of common stock, net . . . 10,000 1,520,000 -- --
Adjustment for unrealized gains (losses)
on available-for-sale securities . -- - (100,000) --
Net loss . . . . . . . . . . . . . . -- -- (8,434,000) --
------------- --------------- ---------------- ---------------
Balance, December 31, 1994 . . . . . 664,000 132,572,000 (90,520,000)(A) (20,757,000)
Issuance of common stock, net . . . 6,000 651,000 -- --
Adjustment for unrealized gains (losses)
on available-for-sale securities . -- -- 304,000 --
Net loss . . . . . . . . . . . . . . -- -- (139,000) --
------------- --------------- --------------- ---------------
Balance, March 31, 1995 . . . . . . . $ 670,000 $ 133,223,000 $ (90,355,000)(A) $ (20,757,000)
============= =============== ================ ===============
</TABLE>
_______________
(A) Includes, as a component of Retained Deficit, net unrealized gains
(losses) on available-for-sale securities of ($100,000) and $204,000 as
of December 31, 1994 and March 31, 1995, respectively.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
6
<PAGE> 7
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1994 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations . . . . . . . . . . . . . . . . . . . $ (430,000) $ (139,000)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 504,000 531,000
Dividend income on investments in former subsidiaries . . . . . . . . (120,000) --
Forgiveness of related party note receivable . . . . . . . . . . . . . 232,000 --
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . 6,000 --
(Gain) loss on sales of assets and other . . . . . . . . . . . . . . . (9,000) (195,000)
Income (loss) from discontinued operations . . . . . . . . . . . . . . . 134,000 --
Adjustment to reconcile income (loss) to net cash used in operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 89,000 --
Gain on sales of assets . . . . . . . . . . . . . . . . . . . . . . . (272,000) --
Change in assets and liabilities:
Decrease in accounts receivable . . . . . . . . . . . . . . . . . . . . 44,000 170,000
Increase (decrease) in trade payables and other . . . . . . . . . . . . (992,000) 20,000
-------------- -------------
Net cash provided by (used in) operating activities . . . . . . . . . (814,000) 387,000
-------------- -------------
Cash flows from investing activities:
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . 1,067,000 2,744,000
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . (776,000) (1,424,000)
-------------- --------------
Net cash provided by investing activities . . . . . . . . . . . . . . 291,000 1,320,000
------------- -------------
Cash flows from financing activities:
Proceeds from issuances of common stock . . . . . . . . . . . . . . . . . -- 657,000
------------- -------------
Net cash provided by financing activities . . . . . . . . . . . . . . -- 657,000
------------- -------------
Net increase (decrease) in cash and temporary investments . . . . . . . . . . (523,000) 2,364,000
Cash and temporary investments at beginning of period . . . . . . . . . . . . 3,299,000 2,828,000
------------- -------------
Cash and temporary investments at end of period . . . . . . . . . . . . . . . $ 2,776,000 $ 5,192,000
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,000 $ 11,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Significant non-cash transactions:
Increase from acquisition activity
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . $ 400,000 $ --
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (400,000) --
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
7
<PAGE> 8
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 AND 1995
(unaudited)
(1) MANAGEMENT'S REPRESENTATIONS
In the opinion of Harken Energy Corporation ("Harken"), the accompanying
unaudited consolidated financial statements contain all adjustments necessary
to present fairly its financial position as of December 31, 1994 and March 31,
1995 and the results of its operations and changes in its cash flows for all
periods presented as of March 31, 1994 and 1995. These adjustments represent
normal recurring items. Certain prior year amounts have been reclassified to
conform with the 1995 presentations.
The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to these rules
and regulations, although Harken believes that the disclosures made are
adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in Harken's Form 10-K for
the year ended December 31, 1994.
The results of operations for the three month period ended March 31,
1995 are not necessarily indicative of the results to be expected for the full
year.
(2) ACQUISITIONS
In October 1994, Harken acquired additional joint venture interests in
the CHAP Joint Venture ("CHAP") which was formed for the exploration and
production of oil and gas on the Navajo Indian Reservation ("the Reservation").
This acquisition resulted in Harken increasing its ownership in the Reservation
reserves, exploration acreage, development drilling locations and the Aneth Gas
Plant. The acquisition of the sellers' interest raised Harken's total interest
in CHAP from 50% to approximately 70% and increased Harken's share of daily
production by approximately 40% over its previous interest. As consideration
for this acquisition, Harken issued a total of 960,000 shares of restricted
Harken common stock to the sellers, assumed certain liabilities of the sellers
relating to the properties, and the sellers in turn retained responsibility for
certain contingent operational and environmental liabilities related to the
interests as well as retaining certain distributions made by CHAP prior to the
actual date of closing. The acquisition of the additional interest in CHAP has
been accounted for under the purchase method of accounting.
In November 1994, Harken announced the signing of a Merger Agreement
with Search Exploration Company ("Search"). Search is primarily engaged in the
domestic exploration for, and development and production of oil and gas
reserves. Pursuant to the Merger Agreement, upon the consummation of the
Merger, (a) each outstanding share of Search common stock will be converted
into the right to receive that number of shares of Harken common stock
determined by dividing $0.8099 by the average of the closing sales price of a
share of Harken common stock on the American Stock Exchange over the 30 days
immediately preceding the date that is five trading days prior to the
consummation of the merger, subject to certain restrictions ("the Average
Trading Price"); (b) each outstanding share of Search Series 1993 Redeemable
Preferred Stock will be converted into the right to receive that number of
shares of Harken common stock determined by dividing $1.00 by the Average
Trading Price and (c)
8
<PAGE> 9
certain promissory notes to be issued by Search will, by their terms, be
converted into the right to receive that number of shares of Harken common
stock determined by dividing the principal amount of each note by the Average
Trading Price. In addition, the holders of Search common stock, certain notes
and overriding royalty interests in certain properties of Search will receive a
non-transferable right to receive additional shares in the future, if any, of
Harken common stock or, under certain circumstances, cash, based upon the
increase that may subsequently be realized in the value of a group of
undeveloped leases and properties of Search. Under the terms of the Merger
Agreement, certain contingencies must be satisfied by Search prior to closing,
unless waived by Harken. The Registration Statement covering the shares of
Harken common stock to be issued pursuant to the merger with Search was
approved by the Securities and Exchange Commission in April 1995, and Search
has scheduled a meeting of its stockholders on May 22, 1995 to vote on the
potential merger. Upon closing, the merger with Search would be accounted for
under the purchase method of accounting.
As of December 31, 1994, Search had proved reserves of approximately
19,000 barrels of oil and 1,298,000 mcf of gas with a net present value of
approximately $1,513,000 and had gross revenue interests in 42 productive
wells, none of which were operated by Search.
(3) INVESTMENTS IN FORMER SUBSIDIARIES
E-Z Serve Preferred Stock -- Prior to March 1995, Harken held 79,754
shares of E-Z Serve $6.00 Convertible Preferred Stock, Series C ("E-Z Serve
Series C Preferred") which it acquired at a cost of $100 per share. The E-Z
Serve Series C Preferred was to pay a cumulative dividend of $6.00 per share
per annum, payable semi-annually as declared by the E-Z Serve Board of
Directors, and payable in legally available cash or in additional shares of E-Z
Serve Series C Preferred. Each share of E-Z Serve Series C Preferred was
convertible at the option of either E-Z Serve or Harken into 52.63 common
shares of E-Z Serve, such rate to be adjusted under certain conditions. The
E-Z Serve Series C Preferred was subordinated to all E-Z Serve bank credit
facilities.
During 1994, Harken converted a portion of its shares of E-Z Serve
Series C Preferred into E-Z Serve common shares and sold certain of its E-Z
Serve common shares. During the fourth quarter of 1994, Harken also began
reviewing the potential for a sale to other parties of some or all of its
remaining investment in E-Z Serve Series C Preferred and related accrued
dividends. Based on the terms and consideration of these potential
transactions, the current market price of E-Z Serve common shares, the
conversion terms and limited marketability of the E-Z Serve Series C Preferred
and the current overall capital structure of E-Z Serve, Harken deemed that a
decline in value that was other than temporary had occurred with respect to its
investment in E-Z Serve Series C Preferred. Accordingly, Harken reclassified
its investment in E-Z Serve Series C Preferred and its related accrued
dividends receivable from E-Z Serve to current assets at December 31, 1994, at
a total estimated realizable value of $2,898,000. Such amount is reflected as
Investment in Former Subsidiary Held for Resale in the accompanying
consolidated balance sheet. In connection with this determination, Harken
recorded a decline in value of $5,831,000 at December 31, 1994. In March 1995,
Harken sold its investment in E-Z Serve Series C Preferred and its related
accrued dividends receivable from E-Z Serve. Harken was paid consideration in
cash of approximately $2,744,000, an amount approximately equal to Harken's
recorded value.
Harken recorded dividend income of $120,000 during the three months
ended March 31, 1994 related to the E-Z Serve Series C Preferred and has
included such dividends in Other Income in the accompanying financial
statements. No dividend income was recorded during the three months ended
March 31, 1995.
9
<PAGE> 10
Tejas Preferred Stock -- Harken holds 1,000 shares of Tejas Power
Corporation Series B Preferred Stock, $.01 par value per share ("Tejas
Preferred Stock"), which it acquired at a purchase price of $1,200,000. Harken
accepted these shares of Tejas Preferred Stock as full and complete payment for
certain expenses and as a result of Tejas agreeing to waive certain of the
provisions under the terms of the Harken Series C Preferred held by Tejas and
pledging all 186,760 shares of the Harken Series C Preferred to Harken.
(4) MARKETABLE EQUITY SECURITIES
In May 1993 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting For Certain Investments
in Debt and Equity Securities", ("SFAS 115") effective for fiscal years
beginning after December 15, 1993. Under the new rules, all marketable equity
securities are classified as available-for-sale or trading and are carried at
fair value. Unrealized holding gains and losses on securities classified as
available-for-sale are carried as a component of stockholders' equity.
Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in other income.
Unrealized holding gains and losses on securities classified as trading are also
reported in earnings. The cost of securities sold is based on the average cost
method.
Harken carries an investment in the common stock of E-Z Serve,
including shares of E-Z Serve common stock resulting from the conversion of
certain shares of E-Z Serve Series C Preferred in June 1994 and January 1995.
Harken's investment in E-Z Serve Series C Preferred is not accounted for
pursuant to SFAS 115, as it is not a readily marketable security. Beginning in
1994 pursuant to SFAS 115, Harken classifies its investment in E-Z Serve common
stock as available for sale. The following is a summary of Harken's marketable
equity securities, which are included in Prepaid Expenses and Other Current
Assets in the accompanying balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
AVAILABLE-FOR-SALE 1994 1995
------------------ ----------------- ---------------
<S> <C> <C>
Cost $ 210,000 $ 458,000
Gross Unrealized Gains -- 204,000
Gross Unrealized Losses 100,000 --
Estimated Fair Value 110,000 662,000
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
AVAILABLE-FOR-SALE 1994 1995
------------------ --------------- --------------
<S> <C> <C>
Gross Realized Gains $ 27,000 $ 14,000
Gross Realized Losses -- --
</TABLE>
An unrealized holding gain (loss) on available-for-sale securities of
($100,000) and $204,000 was recognized at December 31, 1994 and March 31, 1995,
respectively, and is included as a component of stockholders' equity. Such
amount has been included in Retained Deficit in the accompanying consolidated
financial statements.
10
<PAGE> 11
(5) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
---------------- --------------
<S> <C> <C>
Oil and gas properties --
Evaluated . . . . . . . . . . . . . . . . . . . . . . . . $ 13,944,000 $ 14,689,000
Unevaluated . . . . . . . . . . . . . . . . . . . . . . . 7,446,000 8,062,000
Gas plants and other property . . . . . . . . . . . . . . . . 6,646,000 6,657,000
Less accumulated depreciation
and amortization . . . . . . . . . . . . . . . . . . . . (7,859,000) (8,389,000)
-------------- -------------
$ 20,177,000 $ 21,019,000
============== =============
</TABLE>
(6) NOTES PAYABLE
In March 1994, a lawsuit was settled whereby a Harken subsidiary
executed a non-interest bearing note payable for a $500,000 payment which was
paid to the subsidiary's former stockholder on January 5, 1995. This
obligation is included in Notes Payable in the accompanying December 31, 1994
balance sheet.
Further, under the terms of this March 1994 agreement, the subsidiary
purchased the former stockholder's 3% working interest in the wells drilled by
Harken Southwest Corporation ("HSW"), a wholly-owned subsidiary, as well as all
rights he held to participate in future wells drilled by HSW on the Navajo
Reservation, effective January 1, 1994. As consideration for such purchase,
the subsidiary issued a 10% note payable in the amount of $400,000 which is due
and payable to the subsidiary's former stockholder on or before January 3,
1996. This note is included in Notes Payable in the accompanying balance
sheets. The balance is included as a current liability as HSW is obligated
under this agreement to pay 75% of the monthly net cash flow (as defined) from
the acquired interest to an escrow account which will serve as collateral for
the above notes payable until the notes are fully paid.
(7) DISCONTINUED OPERATIONS
In May 1994, Harken announced that it had discontinued its well
servicing operations which it had conducted through Supreme Well Service
Company ("Supreme"), a wholly-owned subsidiary. Harken has sold the equipment
assets of Supreme and has utilized the proceeds toward developing Harken's
exploration and production operations, both domestically and internationally.
As a result of this decision, Harken has reflected the revenues and expenses of
Harken's well servicing and contract drilling segment as discontinued
operations in the accompanying financial statements. Such discontinued
operations include revenues of $837,000 as of March 31, 1994. This revenue
amount includes $272,000 of gain on the sale of Harken's contract drilling
assets which occurred during the first quarter of 1994.
(8) STOCKHOLDERS' EQUITY
Common Stock - Harken currently has authorized 100,000,000 shares of
$.01 par common stock. At December 31, 1994 and March 31, 1995, Harken had
issued 66,426,508 and 67,026,508 shares, respectively and held 5,983,655
shares as treasury stock at a cost of $20,757,000.
Acquisition of CHAP Interest -- In October 1994, Harken acquired an
additional interest of approximately 20% in CHAP in exchange for, among other
consideration, 960,000 shares of restricted Harken common stock.
11
<PAGE> 12
Registration of Outstanding Shares -- Pursuant to the request of certain
former CHAP partners, and in accordance with the terms of the above mentioned
purchase by Harken of an additional interest in CHAP, Harken filed a
registration statement with the Securities and Exchange Commission covering
960,000 restricted shares of its currently outstanding common stock that was
approved and made effective in April 1995.
(9) PER SHARE DATA
Per share data has been computed based on the weighted average number of
common shares outstanding during each period.
(10) INCOME TAXES
At March 31, 1995, Harken had available for federal income tax reporting
purposes, net operating loss (NOL) carryforward for regular tax purposes of
approximately $58,000,000 which expires in 1997 through 2010, alternative
minimum tax NOL carryforward of approximately $47,000,000 which expires in 1997
through 2010, investment tax credit carryforward of approximately $863,000
which expires in 1995 through 2002, contribution carryforward of approximately
$57,000 which expires in 2000 through 2009, statutory depletion carryforward of
approximately $1,150,000 which does not have an expiration date, jobs tax
credit carryforward of approximately $118,000 which expires in 1995 and a net
capital loss carryforward of approximately $542,000 which expires in 2007.
Approximately $14,000,000 of the net operating loss carryforward has been
acquired with the purchase of subsidiaries and must be used to offset future
income from profitable operations within those subsidiaries.
Total deferred tax liabilities and total deferred tax assets as of March
31, 1995, computed under the provisions of the Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes", were approximately
$5,100,000 and $20,640,000, respectively. The total net deferred tax asset is
offset by the valuation allowance of approximately $15,540,000 at March 31,
1995.
(11) COMMITMENTS AND CONTINGENCIES
Colombian Operations-Alcaravan Contract-During the third quarter of
1992, Harken, through a subsidiary, Harken de Colombia, Ltd., was awarded the
exclusive right to explore for, develop and produce oil and gas throughout
approximately 350,000 acres within the Alcaravan area ("Alcaravan") of
Colombia. Alcaravan is located in Colombia's Llanos Basin and is located
approximately 140 miles east of Santafe De Bogota. Harken and Empresa
Colombiana de Petroleos ("Ecopetrol") have entered into an Association Contract
("Alcaravan Contract") which requires Harken to conduct a seismic and
exploratory drilling program in the Alcaravan area ("work program") over the
initial six (6) years. At the end of each of the six years in the work
program, Harken has the option to withdraw from the Alcaravan Contract or to
commit to the next year's work requirements, and Harken has committed to the
second year of the work program under this contract. If Harken makes a
commercial discovery of oil and/or gas which is approved by Ecopetrol, the
standard terms of the Alcaravan Contract will apply. Such terms provide for
Ecopetrol to reimburse Harken for 50% of its successful well costs expended up
to the point of commercial discovery and to receive a 20% royalty interest and
for both Ecopetrol and Harken to each have a 50% working interest. The term of
the Alcaravan Contract will extend twenty-two years from the date of any
commercial discovery of oil and/or gas. Harken reprocessed in excess of 200
kilometers of seismic on the Alcaravan area and completed the acquisition of 52
kilometers of new seismic data over prospective areas in mid-February 1994.
In September 1994, Harken announced that Huffco Group, Inc. ("Huffco")
of Houston, Texas joined Harken in the drilling of its first exploratory well
under the Alcaravan Contract. Under the terms of this joint venture agreement,
which was approved by Ecopetrol, Harken serves as operator and retained a 50%
interest in the well. The well, the Alcaravan #1, was spudded in early
February 1995 and was drilled to a projected depth of 10,550
12
<PAGE> 13
feet to test for commercial quantities of oil in the oil prone zones prevalent
in the Llanos Basin; the Carbonera, Mirador, Guadalupe and the basal Cretaceous
formations. In April 1995, Harken announced that the Alcaravan #1 well failed
to produce commercial quantities of oil. In addition, Huffco elected to not
participate in the further development of the Alcaravan acreage, therefore,
Harken will seek a new partner for the continued development of the Alcaravan
acreage.
Bocachico Contract - In January 1994, Harken announced that Harken de
Colombia, Ltd. had signed its second Association Contract ("Bocachico
Contract") with Ecopetrol, covering the Bocachico contract area. Under the
Bocachico Contract, Harken has acquired the exclusive rights to conduct
exploration activities and drilling on this area, which covers approximately
192,000 acres in the Middle Magdalena Valley of Central Colombia.
During the first year of the Bocachico Contract, Harken will conduct
seismic activities on the land covered by this contract including reprocessing
of at least 250 kilometers of existing seismic data and the acquisition of at
least 35 kilometers of new seismic data. During each of the 2nd through the
6th contract years, Harken may elect to continue the contract by committing to
the drilling of at least one well during each contract year. During this
initial six year term, called the Exploration Period under the Bocachico
Contract, if Harken has discovered the existence of commercial production in
the Bocachico Contract area, the Bocachico Contract will be further extended
for a period of 22 years from the date of any commercial discovery of oil
and/or gas. If Harken makes a commercial discovery of oil and/or gas which is
approved by Ecopetrol, the standard terms of the Bocachico Contract will apply.
Such terms provide for Ecopetrol to reimburse Harken for 50% of its successful
well costs expended up to the point of commercial discovery and to receive a
20% royalty interest and for both Ecopetrol and Harken to each have a 50%
working interest.
In addition to reprocessing and acquiring seismic data during the first
contract year of the Bocachico Contract, Harken intends to also conduct
engineering studies to evaluate the potential for recovering existing oil
reserves in the Rio Negro area, which is located in the northern portion of the
Bocachico Contract area. Three wells were drilled over 30 years ago in this
area by another contractor who produced and subsequently abandoned the wells.
Well information and data, including production rates, well logs and pressure
tests, has been utilized by Harken in its studies to evaluate the feasibility
of applying modern production and recovery techniques in this area. Harken
will also acquire a minimum of 35 kilometers of seismic data on the Bocachico
Contract area in 1995.
On January 19, 1995, after completing the engineering feasibility study,
Harken notified Ecopetrol of Harken's commitment to drill a well under the
Bocachico Contract, and thereby extended the contract into its second year.
Harken currently anticipates that a well site will be selected and drilling
will commence by mid-1995.
Playero Contract - In December 1994, Harken announced that Harken de
Colombia, Ltd. had signed its third Association Contract ("Playero Contract")
with Ecopetrol, covering the Playero contract area. Under the Playero
Contract, Harken has acquired the exclusive rights to conduct exploration
activities and drilling on this area, which covers approximately 10,000 acres
in the Llanos Basin of Colombia, contiguous to Harken's Alcaravan Contract
area.
During the first year of the Playero Contract, Harken will acquire at
least 12 kilometers of new seismic data in the Playero Contract area. During
each of the 2nd through the 6th contract years, Harken may elect to continue
the contract by committing to the drilling of at least one well during each
contract year. During this initial six year term, called the Exploration
Period under the Playero Contract, if Harken has discovered the existence of
commercial production in the Playero Contract area, the Playero Contract will
be further extended for a period of 22 years from the date of termination of
the Exploration Period with a total term not to exceed 28 years. If Harken
makes a commercial discovery of oil and/or gas which is approved by Ecopetrol,
the standard terms of the Playero Contract will apply. The Playero Contract
was granted by Ecopetrol under a new form of Association Contract
13
<PAGE> 14
which has modified various standard terms from the previous form of Association
Contract which was used on the Alcaravan and Bocachico Contracts. Such terms
provide for Ecopetrol to reimburse Harken for 50% of its successful well costs
expended up to the point of a commercial discovery and to receive a 20% royalty
interest. Although both Ecopetrol and Harken each would have a 50% working
interest, production net of royalty would be allocated 50% to each party until
accumulated production from the Playero Contract area reaches a cumulative
total of 60 million barrels of oil. After that cumulative production level is
achieved, production net of royalty is allocated at rates to Harken from 50% to
25% based upon the relative profitability of the project with Ecopetrol
receiving the remaining complementary 50% to 75% of such additional production.
Bahrain Operations - In May 1994, Harken announced a new seismic
reprocessing program covering 500 kilometers of seismic lines in the vicinity
of the Jarim Reef, pursuant to its production sharing agreement with the
Bahrain National Oil Company ("BANOCO"). At present Harken holds approximately
500,000 acres under its production sharing agreement. Unless commercial
production is found or an extension to the production sharing agreement is
obtained, this acreage expires in July 1995. In January 1995, Harken completed
its reprocessing of approximately 500 kilometers of seismic data and has
reviewed the results of that work with BANOCO. Unless Harken obtains a joint
venture partner, Harken will not proceed to either acquire additional seismic
data or drill another well. If a joint venturer is located, it will be
necessary to obtain an extension of one year or more from July 1995 to complete
work necessary with a joint venturer.
Other - The exploration, development and production of oil and gas are
subject to various Navajo, federal and state laws and regulations designed to
protect the environment. Compliance with these regulations is part of Harken's
day-to-day operating procedures. Infrequently, accidental discharge of such
materials as oil, natural gas or drilling fluids can occur and such accidents
can require material expenditures to correct. Harken maintains levels of
insurance customary in the industry to limit its financial exposure. Management
is unaware of any material capital expenditures required for environmental
control during the next fiscal year.
Harken has accrued approximately $991,000 at March 31, 1995 relating to
other operational or regulatory liabilities. Harken and its subsidiaries
currently are involved in various lawsuits and other contingencies, including
the guarantee of certain lease obligations, which in management's opinion, will
not result in significant loss exposure to Harken.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
15
<PAGE> 16
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected Harken's earnings and balance sheet
during the periods included in the accompanying consolidated financial
statements. Consolidated results of operations were consistent with
management's expectations for the three month period ended March 31, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
EXPLORATION AND PRODUCTION 1994 1995
-------------------------- -------------- ----------------
OPERATIONS
----------
<S> <C> <C>
REVENUES
--------
Oil sales revenues $ 557,000 $ 792,000
Oil volumes in barrels 40,000 44,000
Oil price per barrel $ 13.93 $ 18.00
Gas sales revenues $ 231,000 $ 196,000
Gas volumes in mcf 97,000 146,000
Gas price per mcf $ 2.38 $ 1.34
Gas plant revenues $ 221,000 $ 185,000
OTHER REVENUES
--------------
Interest income $ 23,000 $ 35,000
Other income $ 131,000 $ 391,000
</TABLE>
OVERVIEW
In October 1994, Harken acquired additional joint venture interests in
the CHAP Joint Venture ("CHAP") which was formed for the exploration and
production of oil and gas. This acquisition resulted in Harken increasing its
ownership in the Navajo Indian Reservation reserves, exploration acreage,
development drilling locations and the Aneth Gas Plant. The acquisition of the
sellers' interest raised Harken's total interest in CHAP from 50% to
approximately 70% and increased Harken's share of daily production by
approximately 40% over its previous interest. As consideration for this
acquisition, Harken issued a total of 960,000 shares of restricted Harken
common stock to the sellers, assumed certain liabilities of the sellers
relating to the properties, and the sellers in turn retained responsibility for
certain contingent operational and environmental liabilities related to the
interests as well as retaining certain distributions made by CHAP prior to the
actual date of closing. The acquisition of the additional interest in CHAP has
been accounted for under the purchase method of accounting.
Oil and gas revenues, primarily from HSW's operations, reflect the low
price for oil experienced during the first quarter of 1994 compared to a
stronger oil price during the first quarter of 1995, as well as the increased
production volumes from the above acquired interest. Harken drilled two wells
during the first quarter of 1995 and plans to drill six to ten wells later this
year on acreage it holds in the Paradox Basin area, in an effort to offset the
production declines typically experienced in the region and increase revenues
and cash flow from its oil and gas operations. Gas revenues declined during
the first quarter of 1995 compared to 1994, despite the increase in CHAP
ownership, due to the sharp decrease in gas prices experienced during the first
quarter of 1995. Gas plant revenues decreased compared to the prior period due
to a reduction from the prior year in CHAP's ownership in the Aneth Gas Plant
as calculated based on each owner's throughput volume.
16
<PAGE> 17
Other income increased during the first quarter of 1995 compared to the
prior year due to an approximately 189,000 gain on the sale of Harken's
investment in E-Z Serve Series C Preferred Stock during March 1995.
In May 1994, Harken announced the discontinuance of its well servicing
operations which it had conducted through Supreme Well Service Company
("Supreme"), a wholly-owned subsidiary. As a result of this decision, Harken
has reflected the revenues and expenses of its well service and contract
drilling segment as discontinued operations in the accompanying financial
statements.
OTHER COSTS AND EXPENSES
General and administrative expenses increased from $689,000 for the
first quarter of 1994 to $774,000 for the first quarter of 1995, primarily as a
result of owning an increased share of CHAP's administrative costs and due to
the addition of an executive officer during the second quarter of 1994.
At December 31, 1993, Harken included in notes receivable from related
parties a loan to an officer in the amount of $520,000, plus accrued interest.
Subsequent to December 31, 1993, an agreement was reached with the officer
whereby the note, together with accrued interest, is scheduled to be forgiven
equally over three installments dated April 1994, July 1995 and December 1996
with each installment of such forgiveness contingent upon the officer's
continued employment through the date of each such installment. Harken has
included the first installment of this forgiveness totalling $232,000 in
general and administrative expenses during the first quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1995, cash and temporary investments
increased by $2,364,000 primarily from $2,744,000 of cash proceeds received
from the sale of Harken's investment in E-Z Serve Series C Preferred and
approximately $387,000 of cash provided by operating activities. In addition,
Harken generated approximately $657,000 from an issuance of its common stock
during the first quarter. Capital expenditures during the quarter totalled
approximately $1,424,000 related to drilling activities both domestically and
in Colombia. Harken has taken steps to appropriately reduce overhead costs and
additional capital expenditures will be incurred only to the extent that cash
flow from operations or additional funds are available. Harken believes that
cash flow from operations will be sufficient to meet its operating cash
requirements in 1995. Amounts required to fund international activities,
including Colombia and Bahrain, as well as domestic drilling costs and other
capital expenditures will be funded from existing cash balances, asset sales,
stock or debt issuances, operating cash flows and potentially from industry
partners. Harken plans to drill six to ten wells this year on acreage it holds
in the Paradox Basin area. Any acreage on the Navajo Indian Reservation which
is not held by production as of July 31, 1995, will expire unless extended by
Harken and the Navajo Nation by subsequent agreement.
In November 1994, Harken announced the signing of a Merger Agreement
with Search Exploration Company ("Search"). Search is primarily engaged in the
domestic exploration for, and development and production of oil and gas
reserves. Pursuant to the Merger Agreement, upon the consummation of the
Merger, (a) each outstanding share of Search common stock will be converted
into the right to receive that number of shares of Harken common stock
determined by dividing $0.8099 by the average of the closing sales price of a
share of Harken common stock on the American Stock Exchange over the 30 days
immediately preceding the date that is five trading days prior to the
consummation of the merger, subject to certain restrictions ("the Average
Trading Price"); (b) each outstanding share of Search Series 1993 Redeemable
Preferred Stock will be converted into the right to receive that number of
shares of Harken common stock determined by dividing $1.00 by the Average
Trading Price and (c) certain promissory notes to be issued by Search will, by
their terms, be converted into the right to receive that number of shares of
Harken common stock determined by dividing the principal amount of
17
<PAGE> 18
each note by the Average Trading Price. In addition, the holders of Search
common stock, certain notes and overriding royalty interests in certain
properties of Search will receive a non-transferable right to receive
additional shares in the future, if any, of Harken common stock or, under
certain circumstances, cash, based upon the increase that may subsequently be
realized in the value of a group of undeveloped leases and properties of
Search. Under the terms of the Merger Agreement, certain contingencies must be
satisfied by Search prior to closing, unless waived by Harken. The
Registration Statement covering the shares of Harken common stock to be issued
pursuant to the merger with Search was approved by the Securities and Exchange
Commission in April 1995, and Search has scheduled a meeting of its
stockholders on May 22, 1995 to vote on the potential merger. Upon closing,
the merger with Search would be accounted for under the purchase method of
accounting.
Upon completion of the merger of Search, Harken plans to use cash flow
generated by Search oil and gas properties to fund capital requirements of
certain prospects in which Search has retained a working interest. Most of
such prospects have been farmed-out to other industry partners thereby
requiring such partners to pay for such initial drilling costs under various
contractual arrangements.
As a result of the decrease in demand for its drilling services
domestically, and upon obtaining a production sharing agreement discussed below
between Harken and the Bahrain National Oil Company in January 1990, Harken
management has increased its focus on pursuing international opportunities in
all areas of Harken's operations, including oil and gas exploration and
development. Harken considers that the opportunities to profitably deploy
Harken's expertise and assets internationally are generally greater than those
available domestically. Harken continues to pursue other international
opportunities during 1995, such as the Colombian opportunities discussed below,
through its wholly-owned subsidiary, Harken International, Ltd.
Colombian Operations-Alcaravan Contract - During the third quarter of
1992, Harken, through a subsidiary, Harken de Colombia, Ltd., was awarded the
exclusive right to explore for, develop and produce oil and gas throughout
approximately 350,000 acres within the Alcaravan area ("Alcaravan") of
Colombia. Alcaravan is located in Colombia's Llanos Basin and is located
approximately 140 miles east of Santafe De Bogota. Harken and Empresa
Colombiana de Petroleos ("Ecopetrol") have entered into an Association Contract
("Alcaravan Contract") which requires Harken to conduct a seismic and
exploratory drilling program in the Alcaravan area ("work program") over the
initial six (6) years. At the end of each of the six years in the work
program, Harken has the option to withdraw from the Alcaravan Contract or to
commit to the next year's work requirements, and Harken has committed to the
second year of the work program under this contract. If Harken makes a
commercial discovery of oil and/or gas which is approved by Ecopetrol, the
standard terms of the Alcaravan Contract will apply. Such terms provide for
Ecopetrol to reimburse Harken for 50% of its successful well costs expended up
to the point of commercial discovery and to receive a 20% royalty interest and
for both Ecopetrol and Harken to each have a 50% working interest. The term of
the Alcaravan Contract will extend twenty-two years from the date of any
commercial discovery of oil and/or gas. Harken reprocessed in excess of 200
kilometers of seismic on the Alcaravan area and completed the acquisition of 52
kilometers of new seismic data over prospective areas in mid-February 1994.
In September 1994, Harken announced that Huffco Group, Inc. ("Huffco")
of Houston, Texas joined Harken in the drilling of its first exploratory well
under the Alcaravan Contract. Under the terms of this joint venture agreement,
which was approved by Ecopetrol, Harken serves as operator and retained a 50%
interest in the well. The well, the Alcaravan #1, was spudded in early
February 1995 and was drilled to a projected depth of 10,550 feet to test for
commercial quantities of oil in the oil prone zones prevalent in the Llanos
Basin; the Carbonera, Mirador, Guadalupe and the basal Cretaceous formations.
In April 1995, Harken announced that the Alcaravan #1 well failed to produce
commercial quantities of oil. In addition, Huffco elected not to participate
in the further development of the Alcaravan acreage, therefore, Harken will
seek a new partner for the continued development of the Alcaravan acreage.
18
<PAGE> 19
Bocachico Contract - In January 1994, Harken announced that Harken de
Colombia, Ltd. had signed its second Association Contract ("Bocachico
Contract") with Ecopetrol, covering the Bocachico contract area. Under the
Bocachico Contract, Harken has acquired the exclusive rights to conduct
exploration activities and drilling on this area, which covers approximately
192,000 acres in the Middle Magdalena Valley of Central Colombia.
During the first year of the Bocachico Contract, Harken will conduct
seismic activities on the land covered by this contract including reprocessing
of at least 250 kilometers of existing seismic data and the acquisition of at
least 35 kilometers of new seismic data. During each of the 2nd through the
6th contract years, Harken may elect to continue the contract by committing to
the drilling of at least one well during each contract year. During this
initial six year term, called the Exploration Period under the Bocachico
Contract, if Harken has discovered the existence of commercial production in
the Bocachico Contract area, the Bocachico Contract will be further extended
for a period of 22 years from the date of any commercial discovery of oil
and/or gas. If Harken makes a commercial discovery of oil and/or gas which is
approved by Ecopetrol, the standard terms of the Bocachico Contract will apply.
Such terms provide for Ecopetrol to reimburse Harken for 50% of its successful
well costs expended up to the point of commercial discovery and to receive a
20% royalty interest and for both Ecopetrol and Harken to each have a 50%
working interest.
In addition to reprocessing and acquiring seismic data during the
first contract year of the Bocachico Contract, Harken intends to also conduct
engineering studies to evaluate the potential for recovering existing oil
reserves in the Rio Negro area, which is located in the northern portion of the
Bocachico Contract area. Three wells were drilled over 30 years ago in this
area by another contractor who produced and subsequently abandoned the wells.
Well information and data, including production rates, well logs and pressure
tests, has been utilized by Harken in its studies to evaluate the feasibility
of applying modern production and recovery techniques in this area. Harken
will also acquire a minimum of 35 kilometers of seismic data on the Bocachico
Contract area in 1995.
On January 19, 1995, after completing the engineering feasibility study,
Harken notified Ecopetrol of Harken's commitment to drill a well under the
Bocachico Contract, and thereby extended the contract into its second year.
Harken currently anticipates that a well site will be selected and drilling
will commence by mid-1995.
Playero Contract - In December 1994, Harken announced that Harken de
Colombia, Ltd. had signed its third Association Contract ("Playero Contract")
with Ecopetrol, covering the Playero contract area. Under the Playero
Contract, Harken has acquired the exclusive rights to conduct exploration
activities and drilling on this area, which covers approximately 10,000 acres
in the Llanos Basin of Colombia, contiguous to Harken's Alcaravan Contract
area.
During the first year of the Playero Contract, Harken will acquire at
least 12 kilometers of new seismic data in the Playero Contract area. During
each of the 2nd through the 6th contract years, Harken may elect to continue
the contract by committing to the drilling of at least one well during each
contract year. During this initial six year term, called the Exploration
Period under the Playero Contract, if Harken has discovered the existence of
commercial production in the Playero Contract area, the Playero Contract will
be further extended for a period of 22 years from the date of termination of
the Exploration Period with a total term not to exceed 28 years. If Harken
makes a commercial discovery of oil and/or gas which is approved by Ecopetrol,
the standard terms of the Playero Contract will apply. The Playero Contract
was granted by Ecopetrol under a new form of Association Contract which has
modified various standard terms from the previous form of Association Contract
which was used on the Alcaravan and Bocachico Contracts. Such terms provide
for Ecopetrol to reimburse Harken for 50% of its successful well costs expended
up to the point of a commercial discovery and to receive a 20% royalty
interest. Although both Ecopetrol and Harken each would have a 50% working
interest, production net of royalty would be allocated 50% to each party until
accumulated production from the Playero Contract area reaches a cumulative
total of 60 million barrels of oil. After that cumulative production level is
achieved, production net of royalty is
19
<PAGE> 20
allocated at rates to Harken from 50% to 25% based upon the relative
profitability of the project with Ecopetrol receiving the remaining
complementary 50% to 75% of such additional production.
Bahrain Operations - In May 1994, Harken announced a new seismic
reprocessing program covering 500 kilometers of seismic lines in the vicinity
of the Jarim Reef, pursuant to its production sharing agreement with the
Bahrain National Oil Company ("BANOCO"). At present Harken holds approximately
500,000 acres under its production sharing agreement. Unless commercial
production is found or an extension to the production sharing agreement is
obtained, this acreage expires in July 1995. In January 1995, Harken completed
its reprocessing of approximately 500 kilometers of seismic data and has
reviewed the results of that work with BANOCO. Unless Harken obtains a joint
venture partner, Harken will not proceed to either acquire additional seismic
data or drill another well. If a joint venturer is located, it will be
necessary to obtain an extension of one year or more from July 1995 to complete
work necessary with a joint venturer.
Other - The exploration, development and production of oil and gas are
subject to various Navajo, federal and state laws and regulations designed to
protect the environment. Compliance with these regulations is part of Harken's
day-to-day operating procedures. Infrequently, accidental discharge of such
materials as oil, natural gas or drilling fluids can occur and such accidents
can require material expenditures to correct. Harken maintains levels of
insurance customary in the industry to limit its financial exposure. Management
is unaware of any material capital expenditures required for environmental
control during the next fiscal year.
Harken has accrued approximately $991,000 at March 31, 1995 relating to
other operational or regulatory liabilities. Harken and its subsidiaries
currently are involved in various lawsuits and other contingencies, including
the guarantee of certain lease obligations, which in management's opinion, will
not result in significant loss exposure to Harken.
20
<PAGE> 21
HARKEN ENERGY CORPORATION
NOTES CONCERNING OTHER INFORMATION
MARCH 31, 1994 AND 1995
(1) Items 1, 2, 3, 4 and 5 as required by Part II of Form 10-Q are not
applicable for the quarter ended March 31, 1995.
(2) Item 6, Exhibits and Reports on Form 8-K
(a) Exhibits-EDGAR Financial Data Schedule
(b) Reports on Form 8-K
January 3, 1995-Amendment on Form 8-K/A amending the Form 8-K
dated November 4, 1994, and including pro forma information
and financial statements of CHAP Joint Venture as of
December 31, 1993.
April 27, 1995-Disclosure of results of Alcaravan #1 well
drilled in Colombia.
21
<PAGE> 22
HARKEN ENERGY CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Harken Energy Corporation
(Registrant)
Date: May 10, 1995 By: /s/ Bruce N. Huff
Bruce N. Huff, Senior Vice President and
Chief Financial Officer
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 5,192,000
<SECURITIES> 662,000
<RECEIVABLES> 841,000
<ALLOWANCES> 468,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,602,000
<PP&E> 29,408,000
<DEPRECIATION> 8,389,000
<TOTAL-ASSETS> 29,632,000
<CURRENT-LIABILITIES> 4,983,000
<BONDS> 0
<COMMON> 670,000
1,868,000
0
<OTHER-SE> 22,121,000
<TOTAL-LIABILITY-AND-EQUITY> 29,632,000
<SALES> 1,173,000
<TOTAL-REVENUES> 1,599,000
<CGS> 422,000
<TOTAL-COSTS> 422,000
<OTHER-EXPENSES> 1,305,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,000
<INCOME-PRETAX> (139,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (139,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,000)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
