<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, 1996
[ ] 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
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 3, 1996 was 78,588,687 net of 400,896 Treasury Shares.
================================================================================
<PAGE> 2
HARKEN ENERGY CORPORATION
INDEX TO QUARTERLY REPORT
MARCH 31, 1996
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Condensed Balance Sheets . . . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Operations . . . . . . . . . . . . . . . 5
Consolidated Condensed Statements of Stockholders' Equity . . . . . . . . . . 6
Consolidated Condensed Statements of Cash Flow . . . . . . . . . . . . . . . 7
Notes to Consolidated Condensed Financial Statements . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART II. OTHER INFORMATION
Notes Concerning Other Information . . . . . . . . . . . . . . . . . . . . . 28
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
3
<PAGE> 4
ITEM 1. CONDENSED FINANCIAL STATEMENTS
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
-------------- -------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and temporary investments . . . . . . . . . . . . . . . . . . $ 4,456,000 $ 5,187,000
Cash available in European segregated account . . . . . . . . . . 4,705,000 6,971,000
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . 1,061,000 1,011,000
Prepaid expenses and other current assets . . . . . . . . . . . . 309,000 314,000
--------------- -------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . 10,531,000 13,483,000
Property and Equipment, net . . . . . . . . . . . . . . . . . . . . . 52,142,000 52,237,000
Restricted Cash in European Segregated Account . . . . . . . . . . . 6,173,000 3,232,000
Notes Receivable from Related Parties, including interest . . . . . . 232,000 232,000
Other Assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . 1,716,000 1,560,000
--------------- -------------
$ 70,794,000 $ 70,744,000
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . $ 356,000 $ 441,000
Accrued liabilities and other . . . . . . . . . . . . . . . . . . 2,722,000 2,423,000
Notes payable and current portion of long-term obligations . . . . 868,000 332,000
Revenues and royalties payable . . . . . . . . . . . . . . . . . . 972,000 1,034,000
--------------- -------------
Total Current Liabilities . . . . . . . . . . . . . . . . . 4,918,000 4,230,000
Long-Term Obligations . . . . . . . . . . . . . . . . . . . . . . . . 13,176,000 13,020,000
European Convertible Notes Payable . . . . . . . . . . . . . . . . . 12,550,000 11,000,000
Commitments and Contingencies (Note 10)
Stockholders' Equity:
Common stock, $0.01 par value; authorized 100,000,000
shares; issued 75,913,832 and 76,947,163 shares, respectively . 759,000 769,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 136,435,000 135,458,000
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . (92,047,000) (92,343,000)
Treasury stock, 1,440,896 and 400,896 shares held, respectively . (4,997,000) (1,390,000)
--------------- -------------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . 40,150,000 42,494,000
--------------- -------------
$ 70,794,000 $ 70,744,000
=============== =============
</TABLE>
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
4
<PAGE> 5
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1995 1996
--------------- --------------
<S> <C> <C>
Revenues:
Oil and gas operations . . . . . . . . . . . . . . . . . . $ 1,173,000 $ 1,997,000
Interest and other income . . . . . . . . . . . . . . . . . 426,000 344,000
--------------- --------------
1,599,000 2,341,000
--------------- --------------
Costs and Expenses:
Oil and gas operating expenses . . . . . . . . . . . . . . 422,000 760,000
General and administrative expenses, net . . . . . . . . . 774,000 817,000
Depreciation and amortization . . . . . . . . . . . . . . . 531,000 627,000
Interest expense and other . . . . . . . . . . . . . . . . 11,000 433,000
--------------- --------------
1,738,000 2,637,000
--------------- --------------
Loss before income taxes . . . . . . . . . . . . . . . (139,000) (296,000)
Income tax expense . . . . . . . . . . . . . . . . . . . . . . -- --
--------------- --------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . $ (139,000) $ (296,000)
=============== ==============
Loss per common share:
Net loss . . . . . . . . . . . . . . . . . . . . . . . $ (0.00) $ (0.00)
=============== ==============
Weighted average shares outstanding . . . . . . . . . . . . . . 60,642,853 75,151,824
=============== ==============
</TABLE>
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
5
<PAGE> 6
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED 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, 1994 . . . . . . . . $ 664,000 $ 132,572,000 $ (90,520,000) $ (20,757,000)
Issuance of common stock, net . . . . 79,000 1,740,000 -- 15,760,000
Conversions of European notes payable . 16,000 2,123,000 -- --
Equity adjustment from foreign currency
translation . . . . . . . . . . . . -- -- (2,000) --
Adjustment for unrealized gains (losses)
on available-for-sale securities . -- -- 100,000 --
Net loss . . . . . . . . . . . . . . . -- -- (1,625,000) --
------------- ---------------- --------------- ---------------
Balance, December 31, 1995 . . . . . . . . 759,000 136,435,000 (92,047,000) (4,997,000)
Issuance of common stock, net . . . . . -- (2,318,000) -- 3,607,000
Conversions of European notes payable . 10,000 1,341,000 -- --
Net loss . . . . . . . . . . . . . . . -- -- (296,000) --
------------- ---------------- ---------------- ---------------
Balance, March 31, 1996 . . . . . . . . . . $ 769,000 $ 135,458,000 $ (92,343,000) $ (1,390,000)
============= ================ =============== ===============
</TABLE>
- ---------------
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
6
<PAGE> 7
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (139,000) $ (296,000)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 531,000 627,000
(Gain) loss on sales of assets and other . . . . . . . . . . . . . . (195,000) 19,000
Accretion of note payable . . . . . . . . . . . . . . . . . . . . . . -- 234,000
Amortization of European note issuance costs . . . . . . . . . . . . -- 122,000
Change in assets and liabilities:
Decrease in accounts receivable . . . . . . . . . . . . . . . . . . . 170,000 124,000
Increase (decrease) in trade payables and other . . . . . . . . . . . 20,000 (369,000)
------------- -------------
Net cash provided by operating activities . . . . . . . . . . . . 387,000 461,000
------------- -------------
Cash flows from investing activities:
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . 2,744,000 167,000
Investor advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,000,000
Capital expenditures, net . . . . . . . . . . . . . . . . . . . . . . . . (1,424,000) (1,935,000)
------------- -------------
Net cash provided by (used in) investing activities . . . . . . . 1,320,000 (768,000)
------------- -------------
Cash flows from financing activities:
Transfer from segregated account cash . . . . . . . . . . . . . . . . . . -- 800,000
Proceeds from issuances of common stock, net of issuance costs . . . . . 657,000 1,289,000
Repayment of notes payable and long-term obligations . . . . . . . . . . -- (926,000)
Investment in segregated account cash, net . . . . . . . . . . . . . . . -- (125,000)
------------- -------------
Net cash provided by financing activities . . . . . . . . . . . . 657,000 1,038,000
------------- -------------
Net increase in cash and temporary investments . . . . . . . . . . . . . . . 2,364,000 731,000
Cash and temporary investments at beginning of period . . . . . . . . . . . . 2,828,000 4,456,000
------------- -------------
Cash and temporary investments at end of period . . . . . . . . . . . . . . . $ 5,192,000 $ 5,187,000
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,000 $ 26,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
</TABLE>
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
7
<PAGE> 8
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996
(unaudited)
(1) MANAGEMENT'S REPRESENTATIONS
In the opinion of Harken Energy Corporation ("Harken"), the accompanying
unaudited consolidated condensed financial statements contain all adjustments
necessary to present fairly its financial position as of December 31, 1995 and
March 31, 1996 and the results of its operations and changes in its cash flows
for all periods presented as of March 31, 1995 and 1996. These adjustments
represent normal recurring items. Certain prior year amounts have been
reclassified to conform with the 1996 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, 1995.
The results of operations for the three month period ended March 31,
1996 are not necessarily indicative of the results to be expected for the full
year.
(2) ACQUISITIONS
Acquisition of Texas Properties -- In October 1995, a wholly-owned
subsidiary of Harken acquired certain non- operated interests in producing
properties located in the western region of Texas ("Yellowhouse Properties").
As consideration for the purchase of these interests, Harken issued three
million shares of restricted Harken common stock, one million warrants to
purchase additional shares of restricted Harken common stock at $2 per share,
and assumed $750,000 of short-term notes payable. Harken and the seller made
payments totaling approximately $417,000 on these notes payable at closing and
the remaining balance was paid in monthly installments through March 1996.
Also, Harken issued an additional 82,759 shares of restricted Harken common
stock to a financial advisor as a fee in connection with the acquisition.
Pursuant to the acquisition, if at the expiration of three years, or earlier
upon certain conditions, the aggregate proceeds received by the sellers upon
the sale of all three million shares of Harken common stock issued is less than
$4 million, certain parties have the right to receive from Harken, at their
election, property having a value of, or a promissory note in the principal
amount equal to, the difference between $4 million and the proceeds received by
such parties upon the sale of the three million shares of Harken common stock.
On December 21, 1995, pursuant to the terms of a Purchase and Sale
Agreement (the "Panhandle Purchase and Sale Agreement"), Harken Exploration
Company ("Harken Exploration"), a wholly-owned subsidiary of Harken, acquired
certain interests in producing properties located in the panhandle region of
Texas ("Panhandle Properties"). As consideration for the purchase of these
interests, Harken issued, along with other consideration, 2.5 million shares of
restricted Harken common stock (the "Purchase Shares"), $2.5 million in cash
and a non-recourse note payable by Harken Exploration to the seller for an
initial face amount of $13 million. Harken has the option over the next two
years to repay all or part of this $13 million note with restricted common
stock at
8
<PAGE> 9
conversion rates tied to future trading prices of Harken common stock. The $13
million note matures and becomes payable in two stages, with each maturity
amount subject to certain adjustments. See Note 5 -- Notes Payable and
Long-Term Obligations for further discussion of the $13 million note payable.
The acquisition of the Panhandle Properties has been accounted for under the
purchase method of accounting. Due to the note payable adjustments to be
calculated, some of which are based on the future trading prices of Harken
common stock, the allocation of the purchase price to the assets and
liabilities related to the acquisition of the Panhandle Properties is
preliminary, with further adjustments anticipated upon the maturity dates of
the $13 million note payable.
Current production from the Panhandle Properties is approximately 80%
natural gas and 20% oil. In addition to existing production, the Panhandle
Properties include substantial proved undeveloped reserves which Harken plans
to systematically develop over the next two to four years. The properties
purchased include an area pipeline and gathering system that has capacity and
expansion capability to accommodate the planned development of the properties.
Acquisition of CHAP Venture Interests - In May 1995, Harken acquired an
additional joint venture interest in the CHAP 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
seller's interest raised Harken's total interest in CHAP from approximately 70%
to approximately 82%. As consideration for this acquisition, Harken paid cash
of $300,000 and issued 534,000 shares of restricted Harken common stock to the
seller, assumed certain liabilities of the seller relating to the properties,
and the seller in turn retained responsibility for certain contingent
operational and environmental liabilities related to the interest purchased.
In April 1996, Harken again acquired an additional interest in CHAP,
raising Harken's total interest in CHAP to approximately 93%. The purchase
consideration paid by Harken to the seller consisted of $285,000 cash plus the
issuance of approximately 509,000 shares of restricted Harken common stock.
Harken also assumed certain liabilities of the seller relating to the property
interests. The above acquisitions of the additional interests in CHAP have
been accounted for under the purchase method of accounting.
Merger with Search Exploration, Inc. -- In November 1994, Harken
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Search Exploration, Inc. ("Search"). Search is primarily engaged in the
domestic exploration for, and development and production of Texas oil and gas.
Pursuant to the Merger Agreement, Search merged with and into Search
Acquisition Corp., a wholly-owned subsidiary of Harken ("the Merger"). Upon
the consummation of the Merger, (a) each outstanding share of Search common
stock was 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 was 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 were, by their
terms, 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
received 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. The Merger was consummated
following a vote held at a Search stockholders' meeting on May 22, 1995 and has
been accounted for under the purchase method of accounting due to the above
mentioned contingently issuable shares of Harken common stock.
9
<PAGE> 10
(3) MARKETABLE EQUITY SECURITIES
At December 31, 1994 and during the first three months of 1995, Harken
carried an investment in the common stock of E- Z Serve Corporation, a former
subsidiary ("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 was
not accounted for pursuant to Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), as it was not a readily marketable security. Harken classified its
investment in E-Z Serve common stock as available for sale. The following is a
summary of Harken's activity from marketable equity securities. Harken sold
its investment in the common stock of E-Z Serve during the third quarter of
1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
AVAILABLE-FOR-SALE 1995 1996
------------------ --------------- --------------
<S> <C> <C>
Gross Realized Gains $ 14,000 $ --
Gross Realized Losses -- --
</TABLE>
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
---------------- --------------
<S> <C> <C>
Oil and gas properties --
Unevaluated international properties not being amortized . . $ 4,866,000 $ 5,025,000
Unevaluated domestic properties not being amortized . . . . . 11,117,000 11,033,000
Evaluated domestic properties being amortized . . . . . . . . 39,526,000 39,951,000
Gas plants and other property . . . . . . . . . . . . . . . . . 6,746,000 6,978,000
Less accumulated depreciation
and amortization . . . . . . . . . . . . . . . . . . . . . . (10,113,000) (10,750,000)
-------------- -----------
$ 52,142,000 $ 52,237,000
============== ==============
</TABLE>
(5) NOTES PAYABLE AND LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------- --------------
<S> <C> <C>
Note payable to seller of producing properties (A) $ 12,786,000 $ 13,020,000
Notes payable to investors (B) 132,000 --
Note payable to Tejas Power Corporation (C) 394,000 --
Notes payable to former stockholder of subsidiary (D) 400,000 --
Notes payable to former investors in Search managed
limited partnerships (E) 332,000 332,000
------------- --------------
Total 14,044,000 13,352,000
Less amount classified as current liability (868,000) (332,000)
------------- --------------
Total long-term obligations $ 13,176,000 $ 13,020,000
============= ==============
</TABLE>
10
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(A) As discussed in Note 2 -- Acquisitions, in December 1995 Harken
Exploration issued to the seller of the Panhandle Properties a note payable in
the initial face amount of $13 million (the "Panhandle Note"). The Panhandle
Note bears interest at 5% per annum as to $8,000,000 in principal amount only,
is secured by Harken Exploration's interest in the acquired properties (but is
otherwise a non-recourse note) and has not been guaranteed by Harken. The
Panhandle Note matures and becomes payable in two stages. On October 18, 1996,
$8,000,000 in principal amount of the Panhandle Note, subject to adjustment as
described below, will mature, and become payable ("Maturity I"). The remaining
$5,000,000 in principal amount of the Panhandle Note is non-interest bearing
and, subject to adjustment as described below, will mature and become payable
("Maturity II") on July 15, 1997; provided, however, that if the amount due at
Maturity I is paid in shares of Harken common stock ("Maturity I Shares") as
described below, such principal amount will mature and become payable on the
earlier of (i) the expiration of 270 days following the date upon which the
Securities and Exchange Commission declares effective a registration statement
covering the resale of shares issued at Maturity I or (ii) November 15, 1997.
The recorded amount of the Panhandle Note is equal to the discounted fair value
of the payments to be made at each maturity date, using a market rate of
interest of 6.66%. As Harken's intention is to pay the Panhandle Note with
shares of Harken common stock, the entire Panhandle Note balance has been
included in long-term obligations.
Pursuant to the Panhandle Purchase and Sale Agreement, Harken
Exploration may elect to pay the amounts due at either or both of Maturity I
and Maturity II in shares of Harken common stock, with the number of shares to
be issued at Maturity I to be determined by dividing the amount due at Maturity
I by the average of the closing prices of Harken common stock on the American
Stock Exchange during the period beginning on January 22, 1996 and ending ten
(10) trading days prior to Maturity I (the "Maturity I Average Trading Price")
and the number of shares to be issued at Maturity II to be determined by
dividing the amount due at Maturity II by the average of the closing prices of
Harken common stock on the American Stock Exchange during the period beginning
upon the date which the above mentioned registration statement is declared
effective and ending ten (10) trading days prior to Maturity II.
The principal amount due at Maturity I is subject to adjustment as
follows: (i) the principal amount due will be reduced by an amount equal to (x)
the value of any title, mechanical or environmental defects with respect to the
Panhandle Properties discovered by Harken Exploration after closing and (y) the
amount of costs, expenses, or losses suffered by Harken Exploration as a result
of a breach of the seller's representations and warranties contained in the
Panhandle Purchase and Sale Agreement, up to a maximum of $800,000; (ii) the
principal amount will be adjusted in an amount equal to the difference between
$500,000 and the net revenue received by the seller with respect to the
Panhandle Properties between July 1, 1995 and December 21, 1995, (iii) the
principal amount will be adjusted in an amount equal to the difference between
(x) the greater of the amount realized by the seller upon the sale of the
Purchase Shares or the amount which could have been realized by the seller if
the Purchase Shares were sold at the Maturity I Average Trading Price and (y)
$2.00 per share multiplied by the number of shares of Harken common stock sold
by the seller between December 21, 1995 and Maturity I; (iv) the principal
amount will be increased by a factor calculated at 10% per annum from December
21, 1995 on the weighted average of the daily differences between $5,000,000
and the aggregate proceeds received by the seller upon the sale of the 2.5
million Purchase Shares; and (v) the principal amount will be increased by
$200,000.
The principal amount due at Maturity II is subject to adjustment as
follows: (i) the principal amount will be adjusted by an amount equal to the
difference between (x) the greater of the amount realized by the seller upon
the sale of the shares of Harken common stock issued to the seller at Maturity
I or the amount which could have been realized by the seller if such shares
were sold at the average trading price of Harken common stock during the period
between Maturity I and Maturity II and (y) the Maturity I Average Trading Price
multiplied by the number of shares of Harken common stock sold by the seller
between Maturity I and Maturity II; and (ii) the principal amount will be
increased by a factor calculated at 10% per annum from Maturity I of the
weighted average of the daily differences between $8,000,000 and the aggregate
proceeds received by the seller upon the sale of the shares of Harken common
stock issued to the seller at Maturity I.
11
<PAGE> 12
(B) As discussed in Note 2 -- Acquisitions, a wholly-owned subsidiary
of Harken assumed $750,000 of short-term notes payable in connection with the
acquisition of the Yellowhouse Properties in October 1995. Harken and the
seller made payments totaling approximately $417,000 on these notes payable at
closing and the remaining balance was paid in monthly installments through
March 1996. Such notes bore interest at the rate of 7% per annum.
(C) As part of Harken's December 1995 exchange of its shares of Tejas
Preferred Stock for the shares of Harken Series C Preferred stock held by
Tejas, Harken issued a note payable for $394,000 which was payable in quarterly
installments through September 30, 1997, but was repaid by Harken in March
1996. The note bore interest at a rate of 10% per annum.
(D) Under the terms of a March 1994 agreement, a Harken subsidiary
purchased from its former stockholder its 3% working interest in the wells
drilled by the subsidiary as well as all rights held by the former stockholder
to participate in future wells drilled by the subsidiary 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 was
paid to the subsidiary's former stockholder on January 3, 1996.
(E) As part of the Merger Agreement with Search in May 1995, Harken,
through Search, assumed approximately $442,000 of notes payable to former
partners in certain limited partnerships managed by a subsidiary of Search.
Such notes bore interest at 10% per annum and were payable in semiannual
installments beginning June 30, 1995 through June 30, 1998. Harken repaid
these notes in April 1996. See further discussion of the Search Merger at Note
2 - Acquisitions.
(6) EUROPEAN CONVERTIBLE NOTES PAYABLE
During the second quarter of 1995, Harken issued to qualified
purchasers a total of $15 million in 8% Senior Convertible Notes (the "European
Notes") which mature in May 1998. Interest on these notes is payable
semi-annually in May and November of each year to maturity or until the
European Notes are converted. Such European Notes are convertible at any time
by the holders into shares of Harken common stock at a conversion price of
$1.50 per share ("the Conversion Price"). Such European Notes are also
convertible by Harken into shares of Harken common stock after one year
following issuance, if for any period of thirty consecutive days the closing
price for each day during such period shall have equaled or exceeded 140% of
the Conversion Price (or $2.10 per share of Harken common stock). The
Conversion Price of the European Notes was established as the average of the
daily low and closing market prices of Harken common stock for the three
trading days prior to April 27, 1995, which was the date of the final offering
memorandum for the European Notes, and is subject to adjustment upon the
occurrence of certain events.
The European Notes are collateralized by a negative pledge from Harken
of certain defined categories of assets. Upon closing, all proceeds from the
sale of the European Notes were paid to a paying and conversion agent and are
held in a separate interest bearing bank account (the "Segregated Account") to
be maintained in Harken's name, until the paying and conversion agent is
presented with evidence of sufficient collateral, as defined, held by Harken to
permit an advance of a portion of the proceeds.
Upon a conversion, any proceeds attributable to the European Notes
converted which remain in the Segregated Account will be released and paid to
Harken without regard to the value of any collateral then existing. As of
March 31, 1996, Harken had received notification that holders of European Notes
totaling $4,000,000 had exercised their conversion option and had been issued
2,666,658 shares of Harken common stock. Subsequent to March 31, 1996 and as
of May 14, 1996, additional notifications of exercise of conversion options
have been received from holders of European Notes totaling $4,600,000, which
has resulted in the additional issuance of 3,066,661 shares of Harken common
stock.
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<PAGE> 13
The European Notes were sold strictly to non-U.S. purchasers and are
convertible in $50,000 increments. The European Notes and the Harken common
stock issuable upon conversion of the European Notes have been or will be
issued without registration under the United States Securities Act of 1933 (the
"Securities Act") pursuant to an exemption contained in Regulation S
promulgated under the Securities Act.
In connection with the sale and issuance of the European Notes, Harken
paid approximately $1,750,000 from the European Note proceeds for commissions
and issuance costs. Such costs have been deferred and are included in Other
Assets in the accompanying consolidated balance sheet and are being amortized
to interest expense over the period until conversion or maturity of the
European Notes. As European Notes are converted to Harken common stock, a
pro-rata portion of these deferred costs are charged to additional paid-in
capital. In addition, at closing of the European Notes, Harken issued to the
placement agents certain non-transferable stock purchase warrants to purchase
one million shares of Harken common stock which are currently exercisable by
the holders thereof at any time on or before May 11, 1999 at an exercise price
equal to the Conversion Price described above. Also, Harken paid a fee in the
form of 92,308 shares of Harken common stock to another financial advisor in
connection with the European Notes.
To the extent that proceeds invested in the Segregated Account at the
balance sheet date are available under the above discussed collateral-based
limitations, such cash is included as a current asset in Cash Available in
European Segregated Account in the accompanying consolidated balance sheet.
Segregated Account cash that is not available as of the balance sheet date, due
to the collateral based limitations, is reflected as Restricted Cash in
European Segregated Account in the accompanying consolidated balance sheet, and
is a non-current asset. The initial cash proceeds from the issuance of the
European Notes are not included in the Statement of Cash Flows because the
proceeds are not considered to be cash equivalents. Transfers of proceeds from
the Segregated Account are included in cash flows from financing activities in
the Statement of Cash Flows.
(7) STOCKHOLDERS' EQUITY
Common Stock - Harken currently has authorized 100,000,000 shares of
$.01 par common stock. At December 31, 1995 and March 31, 1996, Harken had
issued 75,913,832 and 76,947,163 shares, respectively, and held 1,440,896 and
400,896 shares, respectively, as treasury stock at a cost of $4,997,000 and
$1,390,000, respectively.
Acquisition of CHAP Interests -- In May 1995, Harken acquired an
additional interest of approximately 12% in CHAP in exchange for, among other
consideration, 534,000 restricted shares of Harken common stock. In April
1996, Harken again acquired an additional interest of approximately 12% in CHAP
primarily in exchange for, among other consideration, 509,000 restricted shares
of Harken common stock. See Note 2 -- Acquisitions for further discussion.
Acquisition of Search Exploration, Inc. -- In May 1995, Harken
consummated the Merger with Search. See Note 2 -- Acquisitions for further
discussion. Pursuant to the terms of the Merger Agreement, a total of
approximately 2.2 million shares of Harken common stock were issued to the
common stockholders of Search, preferred stockholders of Search and certain
note holders of Search. Up to approximately 8.8 million additional shares of
Harken common stock may be issued in connection with the Merger, including (i)
up to 732,771 shares of Harken common stock upon the exercise of certain
warrants issued by Harken, and (ii) up to 8.1 million shares of Harken common
stock ("Contingent Shares"), if any, that may be issued on or about September
30, 1996 to the holders of record at the effective time of the Merger of
certain Search securities issued by Search and overriding royalty interests in
certain properties held by Search, based in part upon the increase that may
subsequently be realized in the value of a group of undeveloped leases and
properties of Search. As of the most recent valuation date required under the
terms of the Merger Agreement, no Contingent Shares would be issuable based
upon the value of this group of undeveloped leases and properties of Search.
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<PAGE> 14
Issuance of European Convertible Notes Payable -- In connection with
the issuance of $15 million in European 8% Senior Convertible Notes in May
1995, Harken issued to the placement agents for the European Notes certain non-
registered non-transferrable stock purchase warrants to purchase one million
shares of Harken common stock which are currently exercisable by the holders
thereof at any time on or before May 11, 1999 at an exercise price of $1.50 per
share. In addition, the European Notes are convertible under certain terms
into a maximum of approximately 10,000,000 shares of Harken common stock. As
of March 31, 1996, Harken had received notification that holders of European
Notes totaling $4,000,000 had exercised their conversion option and had been
issued 2,666,658 shares of Harken common stock. See Note 6 - European
Convertible Notes Payable for further discussion. Subsequent to March 31, 1996
and as of May 14, 1996, additional notifications of exercise of conversion
options have been received from holders of European Notes totaling $4,600,000
which has resulted in the additional issuance of 3,066,661 shares of Harken
common stock. Also, Harken paid a fee of 92,308 shares of Harken common stock
to a financial advisor in connection with the European Notes and the market
value of such shares as of the date issued is included as deferred issuance
costs in Other Assets in the accompanying consolidated balance sheets.
Private Placements of Common Stock -- On March 1, 1995, Harken sold
600,000 shares of newly-issued Harken common stock to an institutional
purchaser in exchange for net proceeds of $657,000. Harken subsequently
entered into an agreement on April 7, 1995 to sell to this same institutional
purchaser an additional 600,000 newly-issued shares of Harken common stock in
exchange for net proceeds of $747,000. In July and August of 1995, Harken
received additional net proceeds of $654,000 and $757,000, respectively,
related to the sale of a combined total of 1,300,000 newly-issued shares of
Harken common stock to certain institutional and/or accredited purchasers. In
November 1995, Harken received an additional $1,633,000 related to the sale of
1,460,000 shares of Harken common stock previously held as treasury stock to a
certain institutional and/or accredited purchaser. In March 1996, Harken
received $1,289,000 related to the sale of 1,040,000 shares of Harken common
stock previously held as treasury stock. In connection with certain of these
placements, Harken issued to certain financial advisors an aggregate total of
410,000 warrants to purchase shares of Harken common stock at an average
exercise price of $1.71 per share.
Acquisition of Texas Properties -- In October 1995, a wholly-owned
subsidiary of Harken paid as consideration three million shares of restricted
Harken common stock previously held as treasury stock in exchange for certain
non- operated interests in producing properties located in the western region
of Texas ("Yellowhouse Properties"). As part of the purchase of these
interests, Harken also issued one million warrants to purchase additional
shares of restricted Harken common stock at $2 per share, and also issued
82,759 shares of restricted Harken common stock previously held as treasury
stock to a financial advisor as a fee in connection with the acquisition.
In December 1995, another wholly-owned subsidiary of Harken acquired
certain interests in producing properties located in the panhandle region of
Texas ("Panhandle Properties") in exchange for, among other consideration, 2.5
million shares of Harken common stock and a $13 million note payable which is
payable, at Harken's option, in shares of Harken common stock. See Notes 2 and
5 -- Acquisitions and Notes Payable and Long-Term Obligations for further
discussion.
(8) PER SHARE DATA
Per share data has been computed based on the weighted average number
of common shares outstanding during each period. Common stock equivalents,
contingently issuable shares and other potentially dilutive securities are not
included in the computation of earnings per share if the effect of inclusion
would be antidilutive. For purposes of calculating earnings per share, the
unconverted European Convertible Notes discussed above are considered not to be
common stock equivalents.
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<PAGE> 15
(9) INCOME TAXES
At March 31, 1996, Harken had available for federal income tax
reporting purposes, net operating loss (NOL) carryforward for regular tax
purposes of approximately $65,000,000 which expires in 1997 through 2010,
alternative minimum tax NOL carryforward of approximately $57,000,000 which
expires in 1997 through 2010, investment tax credit carryforward of
approximately $860,000 which expires in 1996 through 2002, statutory depletion
carryforward of approximately $1,200,000 which does not have an expiration
date, and a net capital loss carryforward of approximately $6,100,000 which
expires in 2007 through 2008. Approximately $16,000,000 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, relating primarily to property and
equipment, as of March 31, 1996, computed under the provisions of the Statement
of Financial Accounting Standard No. 109, "Accounting for Income Taxes", were
approximately $7,528,000. Total deferred tax assets, primarily related to the
net operating loss carryforward, were approximately $22,364,000 at March 31,
1996. The total net deferred tax asset is offset by the valuation allowance of
approximately $14,836,000 at March 31, 1996.
(10) COMMITMENTS AND CONTINGENCIES
Colombian Operations-Alcaravan Contract -- During the third quarter
of 1992, Harken de Colombia, Ltd., a wholly-owned subsidiary of Harken, was
awarded the exclusive right to explore for, develop and produce oil and gas
throughout approximately 350,000 acres within the Alcaravan area of Colombia.
The Alcaravan area 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 (the "Alcaravan Contract") which requires Harken to conduct a seismic
and exploratory drilling program in the Alcaravan area during the initial six
(6) years of the Alcaravan Contract. At the end of each of the first six years
of the Alcaravan Contract, Harken has the option to withdraw from the Alcaravan
Contract or to commit to the next year's work requirements. If during the
initial six years of the Alcaravan Contract, Harken discovers a field capable
of producing oil or gas in quantities that are economically exploitable and
Ecopetrol agrees that such field is economically exploitable (a "commercial
discovery"), the term of the Alcaravan Contract will be extended for a period
of 22 years from the date of such commercial discovery.
Upon a discovery of a field capable of commercial production,
Ecopetrol will reimburse Harken for 50% of its successful well costs expended
up to the point of declaration of a commercial discovery. Production from a
field following a commercial discovery will be allocated as follows: Ecopetrol,
on behalf of the Colombian government, will receive a 20% royalty interest in
all production and all production (after royalty payments) will be allocated
50% to Ecopetrol and 50% to Harken until cumulative production in such field
reaches 60 million barrels of oil, after which Ecopetrol's share of production
will progressively increase and Harken's share will progressively decrease
until cumulative production from the field reaches 150 million barrels of oil,
and thereafter all production will be allocated 70% to Ecopetrol and 30% to
Harken. If more than one field capable of commercial production is discovered
on the Alcaravan acreage, the production sharing percentages applicable to the
field with the greatest cumulative production will be applied to all fields
within the Alcaravan acreage. After declaration of a commercial discovery,
Harken and Ecopetrol will be responsible for all future operating expenses in
direct proportion to their interest in production.
In September 1994, 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 a joint operating agreement, which was approved
by Ecopetrol, Harken served 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 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
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<PAGE> 16
Cretaceous formations. Harken initially determined in April 1995 that the
Alcaravan #1 well failed to produce commercial quantities of oil. Harken
intends to re-enter the well, preferably with a joint venture partner, to
finalize the evaluation of the Alcaravan #1 well's ability to produce
commercial quantities of oil. As a result, the costs incurred on the Alcaravan
#1 well continue to be capitalized at March 31, 1996, as unevaluated oil and
gas properties, pending final determination of the results of the well. In
addition, Huffco elected to not participate in the further exploration and
development of the Alcaravan acreage.
Harken has completed all work requirements for the first and second
year of the Alcaravan Contract, and in May 1996 Harken completed the required
work commitment for the third year of the Alcaravan Contract, the reprocessing
of additional seismic data. Also in May 1996, Harken extended the Alcaravan
Contract an additional year by committing to drill at least one new well, and
if necessary, releasing an agreed-upon portion of the Alcaravan acreage, not to
exceed approximately 40% of the total.
Bocachico Contract -- In January 1994, Harken de Colombia, Ltd. signed
its second Association Contract (the "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 initial six year term of the Bocachico Contract, if Harken
makes a commercial discovery in the contract area, the contract will be further
extended for a period of 22 years from the date of any commercial discovery of
oil and/or gas. The production sharing arrangements under the Bocachico
Contract are substantially similar to those under the Alcaravan Contract.
During the first year of the Bocachico Contract, Harken conducted
seismic activities on the land covered by this contract including the
reprocessing of approximately 250 kilometers of existing seismic data and the
acquisition of approximately 35 kilometers of new seismic data. During each of
the second through the sixth contract years, Harken may elect to continue the
contract by committing to the drilling of at least one well during each
contract year.
Harken has also conducted 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. 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
Bocachico Contract into its second year. Harken has selected the site of its
first well, the Torcaz #2 well, and in April 1996 received the drilling permit
from the Environmental Ministry in Colombia to initiate drilling operations.
Harken anticipates that site preparation and rig mobilization for the Torcaz #2
well will be completed as necessary to spud in early June 1996.
Under the terms of the Bocachico Contract, Harken is required to
complete the first well on the Bocachico acreage by June 5, 1996. Harken
intends to attempt to renegotiate the Bocachico Contract with Ecopetrol to
extend the date by which the first well is required to be completed. Unless an
extension is granted, Ecopetrol would have the right to terminate the Bocachico
Contract after an appropriate notice period, which could have a material
adverse effect on Harken's financial position and results of operation. Harken
believes it will be successful in either obtaining an extension from Ecopetrol
or completing the first well within the prescribed notice period. In addition,
Harken has committed to drilling a second well thereby extending the Bocachico
Contract into its third year, and has filed applications for environmental
permits on two additional well locations within the Bocachico Contract area.
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<PAGE> 17
In October 1995, Harken entered into a Development Finance Agreement
(the "Development Agreement") with Arbco Associates L.P., Offense Group
Associates L.P., Kayne Anderson Nontraditional Investments L.P. and Opportunity
Associates L.P. (collectively, the "Investors"), pursuant to which the
Investors agreed to provide up to $3,500,000 to Harken to finance the drilling
of two wells on the Rio Negro prospect in the Bocachico Contract area in
exchange for the right to receive future payments from Harken equal to 40% of
the net profits that Harken de Colombia, Ltd. may derive from the sale of oil
and gas produced from the Rio Negro prospect (the "Participation") if the
planned drilling on that prospect is successful. Pursuant to the Development
Agreement, Harken has agreed to drill two wells on the Rio Negro prospect. As
of March 31, 1996, Harken had requested and received $1,000,000 pursuant to the
Development Agreement, and has reflected such amount as a reduction to its
investment in Colombian oil and gas properties in the accompanying consolidated
balance sheet.
Pursuant to the Development Agreement, the Investors have the right at
any time prior to October 12, 1997 (the "Commitment Date"), to convert all or
part of the Participation into shares of Series D Preferred Stock of Harken
(the "Preferred Stock"), and Harken likewise has the right, exercisable at the
Commitment Date, to convert up to 75% of the Participation into shares of
Preferred Stock if the Investors have not previously elected to convert all of
such Participation. If Harken exercises its right to convert the Participation
into Preferred Stock, the Investors at that time can elect to receive cash or
Preferred Stock equal to the amount of the balance of the remaining
Participation plus an additional amount computed at a rate of 25% per annum.
In addition, the Investors may then elect to further convert any remaining
portion of the Participation into additional shares of Preferred Stock. The
shares of Preferred Stock which may be issued pay dividends at an annual rate
of 15% and are redeemable by Harken without premium except for accrued unpaid
dividends at any time after the Commitment Date, and must be redeemed by Harken
no later than October 12, 2000. A failure by Harken to timely pay dividends
due under this Preferred Stock for three quarters or to redeem such Preferred
Stock when due would give rise to a right exercisable on behalf of the
Investors to elect one director to Harken's Board of Directors.
Playero Contract -- In December 1994, Harken de Colombia, Ltd. signed
its third Association Contract (the "Playero Contract") with Ecopetrol,
covering the Playero Contract area. Under the Playero Contract, Harken
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 acquired
approximately 12 kilometers of new seismic data in the Playero Contract area.
During each of the second through the sixth contract years, Harken had the
option to continue the contract by committing to the drilling of at least one
well during each contract year. Harken has completed the evaluation of the new
seismic data and has determined that the identified prospect lies exclusively
within the contiguous Alcaravan Contract area and not within the Playero
Contract area. Accordingly, in May 1996, Harken elected not to commit to drill
a well in the Playero Contract area, thereby allowing the Playero Contract to
expire under its own terms. Harken reflected a valuation adjustment during the
first quarter of 1996, representing Harken's total incremental investment in
the Playero Contract. The valuation adjustment, which totals $19,000, is
included in interest and other expense in the accompanying consolidated
statement of operations.
Cambulos Contract -- In September 1995, Harken de Colombia, Ltd.
signed its fourth Association Contract with Ecopetrol, covering the Cambulos
Contract area. Under the Cambulos Contract, Harken has acquired the exclusive
rights to conduct exploration activities in the Cambulos Contract area, which
covers approximately 300,000 acres in the Middle Magdalena Valley of Central
Colombia.
During the first two years of the Cambulos Contract, Harken will
conduct geologic studies on the lands covered by this contract, including
reprocessing of at least 400 kilometers of existing seismic data and the
acquisition of at least 90 kilometers of new seismic data. During each of the
third through the sixth contract years, Harken may elect to continue the
contract by committing to the drilling of at least one well during each
contract year.
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If during the initial six years of the Cambulos Contract, Harken
discovers a field capable of commercial production of oil or gas, the term of
the Cambulos Contract will be extended for a period of 22 years from the date
of such commercial discovery. Upon a commercial discovery, Ecopetrol will
reimburse Harken for 50% of its successful well costs, seismic costs and dry
hole costs expended prior to the point of declaration of a commercial
discovery. Production from a commercial discovery will be allocated as
follows: Ecopetrol, on behalf of the Colombian government, will receive a 20%
royalty interest in all production and all production (after royalty payments)
will be allocated 50% to Ecopetrol and 50% to Harken until cumulative
production from all fields in the Cambulos acreage reaches 60 million barrels
of oil, after which Ecopetrol's share of production will increase progressively
to 75% and Harken's share will decrease progressively to 25% determined by a
formula based on Harken's recovery of its total expenditures under the Cambulos
Contract. After a declaration of a commercial discovery, Harken and Ecopetrol
will be responsible for all future operating expenses in direct proportion to
their interest in production.
Bolivar Contract -- In April 1996, Harken de Colombia, Ltd. signed an
additional Association Contract with Ecopetrol, covering the Bolivar Contract
area. Under the Bolivar Contract, Harken has acquired the exclusive rights to
conduct exploration activities in the Bolivar Contract area, which covers
approximately 250,000 acres in the Middle Magdalena Valley of Central Colombia.
During the first two years of the Bolivar Contract, Harken will
conduct geologic studies on the lands covered by this contract, including
reprocessing of at least 350 kilometers of existing seismic data, an
engineering study on previously productive wells, and the acquisition of at
least 100 kilometers of new seismic data. During each of the third through the
sixth contract years Harken may elect to continue the contract by committing to
the drilling of at least one well during each contract year.
The production sharing arrangements under the Bolivar Contract are
substantially similar to those under the Cambulos Contract.
Bahrain Operations -- In January 1990, Harken, through its
wholly-owned subsidiary, Harken Bahrain Oil Company ("HBOC"), entered into a
production sharing agreement with the Bahrain National Oil Company ("BANOCO")
which gave it the exclusive right to explore for, develop and produce oil and
gas throughout most of Bahrain's Arabian Gulf offshore territories. In 1992
and 1993, HBOC drilled two exploratory wells, neither of which discovered
commercial quantities of oil or gas. In January 1996, the term of the
production sharing agreement expired of its own accord. Harken is currently
negotiating with BANOCO to extend the term of the production sharing agreement
and expand the acreage covered thereby, in order to allow Harken to market the
prospects to interested parties.
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.
The Aneth Gas Plant facility, of which HSW is a co-owner, was in
operation for many years prior to HSW's becoming an owner. The operations at
the Aneth Gas Plant previously used open, unlined drip pits for storage of
various waste products. The plant owners have replaced all of the open ground
pits currently being used with steel tanks. The plant owners are currently in
the process of closing the open ground pits.
Texaco, the plant's operator, received a letter from the EPA dated
July 21, 1991 and a subsequent letter dated June 8, 1992, in which the EPA
requested certain information in order to determine if there had been at the
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<PAGE> 19
Aneth Gas Plant the release of hazardous substances to the environment. Texaco
has advised HSW that certain information was supplied to the EPA pursuant to
this request. Subsequently, core samples in and around certain pit areas were
taken by the EPA and Texaco jointly and a Phase II environmental investigation
was undertaken. A closure plan is currently being negotiated with the EPA.
The prior owner of the Aneth Gas Plant facility has agreed to accept
financial responsibility for a portion of the remediation work. Texaco and the
other current plant owners, including HSW, are presently negotiating a formal
agreement with the prior owner to allocate the costs of the remediation work.
At this time, however, it is impossible for HSW to accurately estimate the
costs of the cleanup at the Aneth Gas Plant facility or the amount of
indemnification the prior owner will provide to the present owners, including
HSW, for the costs of the remediation work. However, as the cost of certain
remediation procedures will be incurred, Harken has accrued a contingency
reserve of $177,000 for management's best estimate of its share of remediation
expenditures.
Harken has accrued approximately $1,154,000 at March 31, 1996 relating
to other operational or regulatory contingent liabilities related to Harken's
domestic operations. 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.
Search Acquisition Corp., a wholly-owned subsidiary of Harken, has
been named as a defendant in a lawsuit by certain parties. On February 28,
1996, the court granted Search Acquisition's motion for summary judgement.
Petrochemical has the right to appeal the decision of the trial court.
Although the ultimate outcome of this litigation is uncertain, Harken believes
that any liability to Harken as a result of this litigation will not have a
material adverse effect on Harken's financial condition.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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HARKEN ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
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, 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
EXPLORATION AND PRODUCTION 1995 1996
-------------------------- -------------- --------------
OPERATIONS (UNAUDITED)
----------
<S> <C> <C>
REVENUES
--------
Oil sales revenues $ 792,000 $ 1,334,000
Oil volumes in barrels 44,000 72,000
Oil price per barrel $ 18.00 $ 18.53
Gas sales revenues $ 196,000 $ 472,000
Gas volumes in mcf 146,000 216,000
Gas price per mcf $ 1.34 $ 2.19
Gas plant revenues $ 185,000 $ 191,000
OTHER REVENUES
--------------
Interest income $ 35,000 $ 183,000
Other income $ 391,000 $ 161,000
</TABLE>
For the quarter ended March 31, 1996 compared with the corresponding prior
period.
OVERVIEW
Harken reported a net loss for the three months ended March 31, 1996 of
$296,000 compared to a net loss of $139,000 for the prior year period. Total
revenues increased from approximately $1.6 million during the first quarter of
1995 to approximately $2.3 million for the first quarter of 1996, primarily due
to four acquisitions consummated during 1995 that increased Harken's producing
properties and oil and gas reserves. Gross profit before depreciation and
amortization, general and administrative and interest expenses totaled
approximately $1.2 million during the three months ended March 31, 1996
compared to approximately $751,000 for the prior year period.
Internationally, Harken announced in April 1996 that it had received
final approval from the Environmental Ministry in Colombia to initiate drilling
operations on the initial well to be drilled on the Bocachico Contract area,
the Torcaz #2 well. Harken anticipates that site preparation and rig
mobilization for the Torcaz #2 well will be completed as necessary to spud in
early June 1996.
21
<PAGE> 22
DOMESTIC OPERATIONS
Gross oil and gas revenues during the first quarter of 1995 and 1996
were generated by Harken's domestic exploration and production operations.
During the first quarter of 1995 these domestic operations consisted primarily
of the operations of Harken Southwest Corporation ("HSW"), which includes
production of oil and gas reserves in the Aneth Field and Blanding Sub-Basin
portions of the Paradox Basin in the Four Corners area of Utah, Arizona and New
Mexico, primarily on the Navajo Indian Reservation. Such operations are
primarily conducted through HSW's interests in the CHAP Venture ("CHAP").
Harken also includes in oil and gas revenues certain gas plant revenues,
primarily from CHAP's plant owner interest in the Aneth Gas Plant which serves
many of the Utah properties.
During the first quarter of 1996, Harken's domestic operations also
include the onshore South Texas production operations of Search Exploration,
Inc. ("Search"), which was merged into a wholly-owned subsidiary of Harken in
May 1995. In addition, 1996 activity includes the October 1995 acquisition of
the Yellowhouse Properties in the western region of Texas as well as the
December 1995 acquisition of the Panhandle Properties located in the panhandle
region of Texas.
Gross oil revenues increased significantly during the first quarter of
1996 compared to 1995 primarily due to the additional production volumes added
as a result of the above mentioned acquisitions and higher oil prices. In
particular, the addition of the Yellowhouse Properties contributed
approximately $475,000 to first quarter 1996 oil revenues, while the Panhandle
Properties contributed approximately $38,000 to first quarter 1996 oil
revenues. In addition, the higher price received per barrel of oil produced
reflects the increasingly strong demand for crude oil, particularly in the Four
Corners region.
Gross gas revenues also increased significantly for the three months
ended March 31, 1996 compared to the prior year period, again due to the
acquisitions consummated during 1995. The Panhandle Properties contributed
approximately $197,000 to first quarter 1996 gas revenues, despite many of the
properties experiencing numerous temporary operational curtailments as a result
of a third party pipeline installation during the first quarter. Harken
believes that the problems have been resolved which should result in the
resumption of normal gas production and increased gas revenues from the
Panhandle Properties in future periods. The gas produced from the Panhandle
Properties, with its associated products, can be sold at approximately a 60%
premium to posted gas prices in the region as a result of the high BTU content
of such gas. Harken received an average of $3.61 per mcf for Panhandle
Property gas during the first quarter of 1996. Harken also recorded
approximately $50,000 of gas revenues from the acquisition of Search. In
addition, Harken received an average of $1.63 per mcf from Harken's Four
Corners gas production during the first quarter of 1996 compared to $1.34 per
mcf received during the first quarter of 1995.
Oil and gas operating expenses consist of lease operating expenses and
gas plant expenses, along with a number of production and reserve based taxes,
including Utah and Texas severance taxes, Utah and Texas property taxes, Utah
conservation taxes and Navajo severance and possessory interest taxes. The
increase in oil and gas operating expenses is as a result of the above
mentioned acquisitions, specifically resulting in approximately $215,000 from
the Yellowhouse Properties, approximately $71,000 from the Panhandle
Properties, and approximately $21,000 from the Search operations.
INTEREST AND OTHER INCOME
Interest and other income decreased during the first quarter of 1996
compared to the prior period despite the inclusion during 1996 of approximately
$135,000 of interest income earned by Harken on proceeds received from the May
1995 issuance of $15 million of European 8% Senior Convertible Notes Payable
(the "European
22
<PAGE> 23
Notes"). Such proceeds, net of European Notes issuance costs and amounts
released and transferred, are maintained and invested in a separate interest
bearing bank account (the "Segregated Account"). In the first quarter of 1995,
Harken included a gain of approximately $189,000 on the March 1995 sale of
Harken's investment in E-Z Serve Corporation Series C Preferred.
OTHER COSTS AND EXPENSES
General and administrative expenses increased slightly from $774,000 for
the first quarter of 1995 to $817,000 for the first quarter of 1996, primarily
as a result of increased personnel and office costs associated with the
acquisitions consummated during 1995.
Depreciation and amortization expense increased during the first quarter
of 1996 compared to the prior year period consistent with the increased
production levels from the acquired oil and gas property interests during 1995.
Depreciation and amortization on oil and gas properties is calculated on a unit
of production basis in accordance with the full cost method of accounting for
oil and gas properties.
Interest expense and other increased significantly during the first
quarter of 1996 compared to the prior year period due to the May 1995 issuance
of the European Notes, which generated interest expense of approximately
$23,000 net of amounts of interest capitalized, and approximately $122,000 of
amortization of issuance costs associated with the European Notes. In December
1995, Harken issued the Panhandle Note for an initial face amount of $13
million in connection with the acquisition of the Panhandle Properties, and the
accretion of interest on such note resulted in $234,000 of interest expense
during the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1995, Harken took significant steps
to strengthen its operating cash flow and available capital resources in order
to implement its overall operating strategy. Such efforts included the issuance
of $15 million of European Notes, the generation of approximately $4.4 million
from private placements of Harken common stock, four separate acquisitions of
domestic oil and gas reserves and the signing of a Development Finance
Agreement with certain investors to provide up to $3.5 million for Colombian
exploration efforts. During the first quarter of 1996, Harken's working
capital increased approximately $3.6 million, primarily due to the availability
of a portion of the cash proceeds from the issuance of the European Notes as
discussed below.
In May 1995, Harken generated net proceeds totaling approximately
$13,250,000 from the sale of a total of $15 million in principal amount of
European Notes, which mature in May 1998. Such European Notes are convertible
at any time by the holders into shares of Harken common stock at a conversion
price of $1.50 per share, and convertible by Harken into shares of Harken
common stock after one year following issuance, if for any period of thirty
consecutive days the closing price of Harken common stock for each day during
such period shall have equaled or exceeded 140% of the conversion price (or
$2.10 per share of Harken common stock). The European Notes are collateralized
by a negative pledge from Harken of certain defined categories of assets. Upon
closing, all proceeds from the sale of the European Notes were paid to a paying
and conversion agent and are held in the Segregated Account to be maintained in
Harken's name.
Upon a conversion, any proceeds attributable to the European Notes
converted which remain in the Segregated Account will be available to be
released and paid to Harken without regard to the Asset Value Coverage Ratio
test (as defined below). As of March 31, 1996, holders of European Notes
totaling $4,000,000 had exercised their conversion option and had been issued
2,666,658 shares of Harken common stock. Subsequent to March 31, 1996 and as
of May 14, 1996, additional notifications of exercise of conversion options
have been received from
23
<PAGE> 24
holders of European Notes totaling $4,600,000, which has resulted in the
additional issuance of 3,066,661 shares of Harken common stock.
Harken must maintain an Asset Value Coverage Ratio equal to or greater
than 1:1. As of March 31, 1996, Harken was in compliance with the Asset Value
Coverage Ratio test. The Asset Value Coverage Ratio is calculated as a ratio
of the sum of 100% of the aggregate amount of Harken's cash on deposit in the
Segregated Account plus 60% of the aggregate amount of Harken's marketable
securities plus 40% of the present value of Harken's unencumbered proved
developed producing reserves located in the U.S. to the aggregate outstanding
principal amount of the Notes.
In order for a specific amount of proceeds to be released from the
Segregated Account, Harken must demonstrate that the Asset Value Coverage Ratio
test would continue to be met after such release of funds and that no Event of
Default with respect to any of the Notes has occurred and is continuing at the
date of such release. Such request must be accompanied by an independent
reserve engineering report or other independent third party valuation of
Harken's unencumbered proved developed producing assets.
The anticipated timing at which funds will be released from the
Segregated Account is dependent upon the timing and magnitude of conversions
into Harken common stock by the individual noteholders, the market price of the
Harken common stock, the amount of Harken's assets which qualify for inclusion
in the Asset Value Coverage Ratio test, and the decision and ability by Harken
to convert the Notes into Harken common stock. Once an amount of proceeds are
available to be released from the Segregated Account, Harken may submit its
request for the transfer of such proceeds at its discretion and according to
its capital resource requirements. Upon maturity date of the Notes, the
Segregated Account cash proceeds then remaining could be used to retire any
remaining unconverted Notes.
To the extent that proceeds invested in the Segregated Account at the
balance sheet date are available under the above collateral-based limitations,
such cash is included as a current asset as it is available to Harken to fund
international and domestic activities including acquisitions, drilling costs
and other capital expenditures or other working capital needs. Interest
incurred on the European Notes is payable semi-annually in May and November of
each year to maturity or until the European Notes are converted. Interest
payments will be funded from cash flow from operations, existing cash balances
or from available proceeds.
As mentioned above, Harken consummated several transactions during 1995
to increase domestic proved oil and gas reserves and monthly cash flow from
domestic operations. Such acquisitions, along with 1995 exploration activity,
increased Harken's total present value of future net revenues from oil and gas
reserves from approximately $11.7 million at December 31, 1994 to approximately
$58.8 million at December 31, 1995, excluding Harken's share of CHAP's interest
in the future cash flows from the Aneth Gas Plant.
The Panhandle Note bears interest at 5% per annum as to $8,000,000 in
principal amount only, is secured by Harken Exploration's interest in the
Panhandle Properties (but is otherwise a non-recourse note) and has not been
guaranteed by Harken. The Panhandle Note matures and becomes payable in two
stages. On October 18, 1996, $8,000,000 in principal amount of the Panhandle
Note, subject to adjustment, will mature, and become payable ("Maturity I").
The remaining $5,000,000 in principal amount of the Panhandle Note, subject to
adjustment, will mature and become payable ("Maturity II") on July 15, 1997;
provided, however, that if the amount due at Maturity I is paid in shares of
Harken common stock as described below, such principal amount will mature and
become payable on the earlier of (i) the expiration of 270 days following the
date upon which the Securities and Exchange Commission declares effective a
registration statement covering the resale of the shares issued at Maturity I
or (ii) November 15, 1997. The amounts payable at Maturity I and Maturity II
are subject to adjustment as described in "Notes to Consolidated Condensed
Financial Statements, Note 5 -- Notes Payable and Long-Term Obligations".
24
<PAGE> 25
Pursuant to the Panhandle Purchase and Sale Agreement, Harken
Exploration may elect to pay the amounts due at either or both of Maturity I
and Maturity II in shares of Harken common stock, with the number of shares to
be issued at Maturity I to be determined by dividing the amount due at Maturity
I by the average of the closing prices of the Harken common stock on the
American Stock Exchange during the period beginning on January 22, 1996 and
ending ten (10) trading days prior to Maturity I (the "Maturity I Average
Trading Price") and the number of shares to be issued at Maturity II to be
determined by dividing the amount due at Maturity II by the average of the
closing prices of the Harken common stock on the American Stock Exchange during
the period beginning upon the date which a registration statement covering the
resale of the shares issued at Maturity I is declared effective by the
Securities and Exchange Commission and ending ten (10) trading days prior to
Maturity II.
Harken does not currently have sufficient cash reserves to repay the $13
million Panhandle Note payable with cash, and Harken does not anticipate that
its cash flow from operations will be sufficient to repay the Panhandle Note.
If Harken does not elect to convert the amounts due under the Panhandle Note
into shares of Harken common stock, Harken anticipates that it will be required
to seek additional sources of financing in order to repay the Panhandle Note.
There can be no assurance that such financing will be available to Harken. In
addition, Harken does not currently have a sufficient number of unissued shares
of Harken common stock which have not previously been reserved for other
purposes available to allow Harken to convert the amount due at Maturity I into
shares of Harken common stock. An amendment to Harken's Certificate of
Incorporation may be required to increase the number of authorized shares of
Harken common stock, which would require approval of Harken's stockholders.
Harken believes, however, that it will have a sufficient number of shares
available to convert the amount due at Maturity I as certain shares currently
reserved for future issuance are not expected to be used for their intended
purpose.
As Harken's intention is to pay the Panhandle Note with shares of Harken
common stock, the entire Panhandle Note balance has been classified as
long-term obligations on Harken's Consolidated Balance Sheet. The recorded
amount of the Panhandle Note on Harken's Consolidated Balance Sheet is equal to
the discounted fair value of the payments to be made at each maturity date,
using a market rate of interest.
In addition to Harken's efforts to acquire domestic oil and gas
reserves, Harken continues to be very active in exploration efforts
internationally, particularly in Colombia. As of March 31, 1996, Harken's net
investment in its Colombian operations has totaled approximately $5 million,
the realizability of which is dependent upon the success of Harken's
exploration efforts. In addition, terms of each of the Association Contracts
entered into between Harken de Colombia, Ltd. and Ecopetrol commit Harken to
perform certain activities in accordance with a prescribed timetable. Failure
by Harken to perform these activities as required could result in Harken losing
its rights under the particular Association Contract, which could potentially
have a material adverse effect on Harken's business. For a detailed discussion
of each of the Association Contracts entered into between Harken de Colombia,
Ltd. and Ecopetrol, see "Notes to Consolidated Condensed Financial Statements,
Note 10 -- Commitments and Contingencies".
Harken anticipates that full development of Colombian reserves in the
Alcaravan contract area of the Llanos Basin and the Bocachico, Cambulos and
Bolivar contract areas of the Middle Magdalena Basin may take several years and
may require extensive production facilities which could require significant
additional capital expenditures. The ultimate amount of such expenditures
cannot be presently predicted. Harken anticipates that amounts required to
fund international activities, including those in Colombia, will be funded from
existing cash balances, asset sales, stock issuances, production payments,
operating cash flows and potentially from industry partners; however, there can
be no assurances that Harken will have adequate funds available to it to fund
its international activities without participation from industry partners or
that industry partners can be obtained to fund such international activities.
In October 1995, Harken entered into a Development Finance Agreement
(the "Development Agreement") with Arbco Associates L.P., Offense Group
Associates L.P., Kayne Anderson Nontraditional Investments L.P. and
25
<PAGE> 26
Opportunity Associates L.P. (collectively, the "Investors"), pursuant to which
the Investors agreed to provide up to $3.5 million to Harken to finance the
drilling of two wells on the Rio Negro prospect in the Bocachico Contract area
in exchange for the right to receive future payments from Harken equal to 40%
of the net profits that Harken, through its wholly-owned subsidiary Harken de
Colombia, Ltd., may derive from the sale of oil and gas produced from the Rio
Negro prospect (the "Participation") if the planned drilling on that prospect
is successful. Pursuant to the Development Agreement, Harken has agreed to
drill two wells on the Rio Negro prospect. As of March 31, 1996, Harken had
requested and received $1,000,000 pursuant to the Development Agreement.
Pursuant to the Development Agreement, the Investors have the right at
any time prior to October 12, 1997 (the "Commitment Date"), to convert all or
part of the Participation into shares of a newly created series of preferred
stock of Harken (the "Preferred Stock"), and Harken likewise has the right,
exercisable at the Commitment Date, to convert up to 75% of the Participation
into shares of Preferred Stock if the Investors have not previously elected to
convert all of such Participation. If Harken exercises its right to convert
the Participation into Preferred Stock, the Investors at that time can elect to
receive cash or Preferred Stock equal to the amount of the balance of the
remaining Participation plus an additional amount computed at a rate of 25% per
annum. In addition, the Investors may then elect to further convert any
remaining portion of the Participation into additional shares of Preferred
Stock. The shares of Preferred Stock which may be issued would be constituted
as the Series D Preferred and would pay dividends at an annual rate of 15% and
are redeemable by Harken without premium except for accrued unpaid dividends at
any time after the Commitment Date, and must be redeemed by Harken no later
than October 12, 2000. A failure by Harken to timely pay dividends due under
this Preferred Stock for three quarters or to redeem such Preferred Stock when
due would give rise to a right exercisable on behalf of the Investors to elect
one director to Harken's Board of Directors.
All of the steps taken by Harken during 1995, including the above
mentioned Development Agreement, provide Harken with additional capital
resources, both internally and externally, to be used toward accomplishing
Harken's exploration and development objectives during 1996. Such capital
expenditures will be incurred only to the extent that cash flows from
operations or additional capital resources are available. Capital expenditures
related to Harken's Colombian operations are expected to total a minimum of
$3.2 million during 1996, with a majority of such costs related to the Rio
Negro prospect on the Bocachico Contract area. Harken has selected the site of
its first well, the Torcaz #2 well, and in April 1996 received the drilling
permit from the Environmental Ministry in Colombia to initiate drilling
operations. Harken anticipates that site preparation and rig mobilization for
the Torcaz #2 well will be completed as necessary to spud in early June 1996.
In addition, Harken plans to expend at least $1 million in 1996 on domestic
drilling activities, primarily related to the development of its Panhandle
Properties. Harken anticipates that such amounts will be funded from existing
cash balances (including available European Segregated Account cash), operating
cash flows and funds provided by the Development Agreement.
During the first quarter ended March 31, 1996, Harken's cash and
temporary investments increased approximately $731,000 consisting primarily of
Harken common stock private placement offering proceeds of approximately $1.3
million, a transfer from the European Segregated Account of $800,000 and the
initial advance pursuant to the Development Agreement of $1 million. Such
activity was sufficient to fund capital expenditures of approximately $1.9
million and repayments of notes payable and long-term obligations of
approximately $926,000. Cash flow provided by operations during the first
quarter of 1996 totaled $461,000.
Harken believes that cash flow from operations will be sufficient to
meet its operating cash requirements in 1996. Harken includes in cash and
temporary investments certain balances which are restricted to use for specific
project expenditures, collateral or for distribution to outside interest owners
and are not available for general working capital purposes.
26
<PAGE> 27
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 $1,154,000 at March 31, 1996 relating
to operational or regulatory contingent liabilities related to Harken's
domestic operations. 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.
27
<PAGE> 28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Search Acquisition Corp. ("Search Acquisition"), a wholly-owned
subsidiary of Harken, has been named as a defendant in a lawsuit
by Petrochemical Corporation of America and Lorken Investments
Corporation (together, "Petrochemical"). This lawsuit arises out
of an attempt by Petrochemical to enforce a judgement entered in
1993 against, among other parties, a group of 20 limited
partnerships known as the "Odyssey limited partnerships". In
1989, Search Exploration, Inc. ("Search") acquired all of the
assets of eight of the 20 Odyssey limited partnerships.
Petrochemical claims that Search is liable for payment of the
judgement as the successor-in-interest to the eight Odyssey
limited partnerships. Search Acquisition was the surviving
corporation in the merger with Search.
On February 28, 1996, the court granted Search Acquisition's
motion for summary judgement. Petrochemical has the right to
appeal the decision of the trial court. Although the ultimate
outcome of this litigation is uncertain, Harken believes that any
liability to Harken as a result of this litigation will not have a
material adverse effect on Harken's financial condition.
Item 2. Changes in Securities.
Not applicable.
Item 3. Default Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBIT INDEX
Exhibit
--------
3.1 Certificate of Incorporation of Harken Energy Corporation
as amended (filed as Exhibit 3.1 to Harken's Annual
Report on Form 10-K for fiscal year ended December 31,
1989, File No. 0-9207, and incorporated by reference
herein).
3.2 Amendment to the Certificate of Incorporation of Harken
Energy Corporation (filed as Exhibit 28.8 to the
Registration Statement on Form S-1 of Tejas Power
Corporation, file No. 33-37141, and incorporated by
reference herein.)
3.3 Amendment to the Certificate of Incorporation of Harken
Energy Corporation (filed as Exhibit 3 to Harken's
Quarterly Report on Form 10-Q for fiscal quarter ended
March 31, 1991, File No. 0-9207, and incorporated by
reference herein.)
3.4 Amendments to the Certificate of Incorporation of Harken
Energy Corporation (filed as Exhibit 3 to Harken's
Quarterly Report on Form 10-Q for fiscal quarter ended
June 30, 1991, File No. 0-9207, and incorporated by
reference herein.)
28
<PAGE> 29
3.5 Bylaws of Harken Energy Corporation, as amended (filed as
Exhibit 3.2 to Harken's Annual Report on Form 10-K for
fiscal year ended December 31, 1989, File No. 0-9207, and
incorporated by reference herein.)
4.1 Form of certificate representing shares of Harken common
stock, par value $.01 per share (filed as Exhibit 1 to
Harken's Registration Statement on Form 8-A, File No.
0-9027, and incorporated by reference herein.)
4.2 Certificate of Designations, Powers, Preferences and
Rights of Series A Cumulative Convertible Preferred
Stock, $1.00 par value, of Harken Energy Corporation
(filed as Exhibit 4.1 to Harken's Annual Report on Form
10-K for the fiscal year ended December 31, 1989, File
No. 0-9207, and incorporated by reference herein).
4.3 Certificate of Designations, Powers, Preferences and
Rights of Series B Cumulative Convertible Preferred
Stock, $1.00 par value, of Harken Energy Corporation
(filed as Exhibit 4.2 to Harken's Annual Report on Form
10-K for the fiscal year ended December 31, 1989, File
No. 0-9207, and incorporated by reference herein).
4.4 Certificate of the Designations, Powers, Preferences and
Rights of Series C Cumulative Convertible Preferred
Stock, $1.00 par value of Harken Energy Corporation
(filed as Exhibit 4.3 to Harken's Annual Report on Form
10-K for fiscal year ended December 31, 1989, File No.
0-9207, and incorporated by reference herein).
4.5 Certificate of the Designations of Series D Preferred
Stock, $1.00 par value of Harken Energy Corporation
(filed as Exhibit 4.3 to Harken's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
1995, File No. 0-9207, and incorporated by reference
herein).
*27 Financial Data Schedules.
(b) REPORTS ON FORM 8-K.
None.
29
<PAGE> 30
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 15, 1996 By: /s/ Bruce N. Huff
------------------- ----------------------------------------
Bruce N. Huff, Senior Vice President and
Chief Financial Officer
30
<PAGE> 31
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,158,000
<SECURITIES> 0
<RECEIVABLES> 1,386,000
<ALLOWANCES> (375,000)
<INVENTORY> 0
<CURRENT-ASSETS> 13,483,000
<PP&E> 62,987,000
<DEPRECIATION> (10,750,000)
<TOTAL-ASSETS> 70,744,000
<CURRENT-LIABILITIES> 4,230,000
<BONDS> 24,020,000
<COMMON> 769,000
0
0
<OTHER-SE> 41,725,000
<TOTAL-LIABILITY-AND-EQUITY> 70,744,000
<SALES> 1,997,000
<TOTAL-REVENUES> 2,341,000
<CGS> 760,000
<TOTAL-COSTS> 760,000
<OTHER-EXPENSES> 1,444,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 433,000
<INCOME-PRETAX> (296,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (296,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296,000)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
