SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-9268
GEOKINETICS INC.
(Exact name of small business issuer as specified in its charter)
Delaware 94-1690082
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5555 San Felipe, Suite 780
Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 850-7600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value
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 [_].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $813,024.
As of December 31, 1996, 4,953,288 shares of the Registrant's Common
Stock were outstanding, and the aggregate market value of the Common Stock held
by non-affiliates was approximately $2,585,581 based on the last reported sales
price of such stock on that date.
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference: None.
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GEOKINETICS INC.
FORM 10-KSB
YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business..................................... 1
Item 2. Description of Properties................................... 15
Item 3. Legal Proceedings........................................... 19
Item 4. Submission of Matters to a Vote of Security Holders......... 19
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.... 19
Item 6. Management's Discussion and Analysis or Plan of Operation... 20
Item 7. Financial Statements........................................ 21
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 21
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act........... 22
Item 10. Executive Compensation...................................... 23
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................. 27
Item 12. Certain Relationships and Related Transactions.............. 29
Item 13. Exhibits and Reports on Form 8-K............................ 30
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CERTAIN DEFINITIONS
As used in this Form 10-KSB, "Mcf" means thousand cubic feet, "MMcf"
means million cubic feet, "Bcf" means billion cubic feet, "Bbl" means barrel,
"MBbls" means thousand barrels, "MMBbls" means million barrels, "BOE" means
barrels of oil equivalent and "MBOE" means thousand equivalent barrels of oil.
Unless otherwise indicated in this Form 10-KSB, gas volumes are stated at the
legal pressure base of the state or area in which the reserves are located and
at 60 degrees Fahrenheit. Barrels of oil equivalent are determined using the
ratio of six Mcf of gas to one Bbl of crude oil, condensate or natural gas
liquids. The term "gross" refers to the total acres or wells in which the
Company has a working interest. The term "net" refers to gross acres or wells
multiplied by the percentage working interest owned by the Company. Unless the
context requires otherwise, all references to the "Company" include Geokinetics
Inc. and its consolidated subsidiaries.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
HISTORICAL DEVELOPMENT OF BUSINESS
The predecessor corporation of Geokinetics Inc. ("Geokinetics" or the
"Company") was organized in 1969 under the laws of California. The Company was
incorporated in Delaware in April, 1980, and the California corporation was
merged into the Company. During its initial years, the Company concentrated on
exploration for deposits of nonferrous metals. Historically, the Company was
primarily engaged in research and development of processes to extract shale oil
from oil shale deposits, and in related activities. The Company conducted these
activities by maintaining proprietary positions in oil shale technology and oil
shale leases, primarily on lands in the State of Utah. During the three years
prior to the 1994 acquisition transaction, however, the Company substantially
downsized its organization and scope of activities in order to conserve its
assets.
During 1994, the Company refocused its business strategy and completely
phased out its synthetic fuels and oil shale business by entering into the
businesses of oil and gas exploration, development, and production. The oil and
gas operations were commenced following the Company's acquisition of certain oil
and gas properties from two independent oil and gas companies located in
Houston, Texas, effective August 1, 1994. The Company completed these
acquisitions by means of a merger of HOC Operating Co., Inc. and Hale
Exploration Company, each Texas corporations, into two newly-formed subsidiaries
of the Company. The Company now conducts oil and gas development, production,
and exploration through two of its wholly-owned subsidiaries: HOC Operating Co.,
Inc. and Geokinetics Production Co., Inc.
On November 18, 1994, the Company formed Quantum Geophysical, Inc. as a
wholly-owned subsidiary to conduct three dimensional ("3-D") seismic data
acquisition operations. The Company spent 1995 and 1996 preparing for the
commencement of seismic operations. On March 5, 1996, the Company completed
financing arrangements for Quantum Geophysical, Inc.
During fiscal 1997, the Company intends to develop and diversify its
seismic contracting operations through a series of planned acquisitions. The
Company is currently negotiating with several financing sources to fund these
acquisitions. The Company's ability to continue its operations and complete the
planned acquisitions depends upon obtaining additional equity and/or debt
financing.
The Company's corporate headquarters is located in Houston, Texas. The
Company's address is 5555 San Felipe, Houston, Texas 77056 and its telephone
number is (713) 850-7600.
Unless the context otherwise requires, all references herein to the
Company include the Company, its subsidiaries and their predecessors,
collectively.
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CURRENT BUSINESS OF THE COMPANY
GENERAL
The Company has adopted a business strategy of becoming a technology
integrator within the petroleum industry. Over the past decade meaningful oil
and gas reserves have become more difficult to find, particularly onshore United
States where the Company's efforts are focused. In addressing this situation,
many companies, particularly the major oil companies, have increasingly used
technology to improve drilling success. The Company's initial step in utilizing
high technology was the formation of Quantum Geophysical, Inc. ("Quantum") which
will provide state-of-the-art 3-D seismic acquisition services for Geokinetics
and third parties.
By utilizing 3-D seismic technology, the Company believes it can improve
the probability of success for both its exploration and in-field development
wells. The Company expects that the use of 3-D seismic technology can lead to
(i) as much as a 60-70% exploration success ratio (versus 15- 20% utilizing 2-D
seismic data), (ii) greater per well recovery rates as a result of strategically
placing wells in optimum locations, and (iii) lower overall drilling costs as a
result of drilling fewer dry holes. Additionally, 3-D seismic technology can
identify previously undetected hydrocarbons in geologically complex features in
mature producing fields. The Company believes that these factors will offset the
cost of originating, acquiring and interpreting 3-D seismic surveys.
By providing this technology to third parties, the Company will have the
opportunity to enter joint venture partnerships that may significantly increase
its current reserve base with minimal additional capital requirements. Because
Quantum will operate its own crew and data acquisition system, the Company
believes that it will have a distinct advantage over other companies that must
purchase their 3-D acquisition services from third parties. The Company's
control of each project, from design through processing, should result in
uncompromised, high quality data. The resulting benefits to Quantum's customers
will include the immediate availability of a high-tech crew and direct oversight
of quality control.
The Company's management believes that information technology, an
integral component within major oil companies, has become a necessary tool for
independent oil and gas explorers and producers. Many independents are realizing
that they are technologically deficient and lack the necessary infrastructure
and financial resources to adopt these technologies. The Company believes that
the technological deficiencies of many independent oil and gas companies will
provide significant business opportunities for companies possessing superior
technological capabilities. The formation of Geoscience Software Solutions is
the Company's next step towards capitalizing on this opportunity. Geoscience
Software Solutions will work to provide and apply information technology to the
Company's core oil and gas business while operating as an independent provider
of software technology to the entire industry.
OIL AND GAS OPERATIONS
The Company's oil and gas operations consist of the acquisition,
exploration, exploitation and development of producing and non-producing oil and
gas properties. The Company's oil and gas
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properties are located in the State of Texas and exploration is conducted in the
United States Gulf Coast region. The Company believes its primary strengths in
this field will be long-lived oil and gas reserves, the experience of its
management, and the expertise of its technical staff.
As of December 31, 1996, the Company, through its wholly-owned
subsidiary, HOC Operating Co., Inc., served as the operator of 23 producing
wells, all of which were located in the State of Texas.
The Company's oil and gas reserves are principally in long-lived fields
with well established production histories. As of December 31, 1996, the
Company's pro forma estimated proved oil and gas reserves totaled 532,724 Bbls
of oil and 3,438,495 Mcf of natural gas, or a total of 1,105,807 BOE. During the
fiscal year ended December 31, 1996, the Company's gross production averaged
approximately 80 Bbls of oil and 288 Mcf of gas per day and was sold at prices
averaging $20.67 per Bbl of oil and $2.55 per Mcf of natural gas. Substantially
all of the Company's oil and gas production is sold at market responsive prices.
The Company, through its subsidiaries, HOC Operating Co., Inc. and
Geokinetics Production Co., Inc., continues to pursue a program focused on
increasing its reserves, cash flow and profitability by the indirect
participation in drilling of moderate risk exploratory wells, acquiring and
enhancing producing oil and gas properties and by maintaining a low cost
operating structure. The Company will continue to focus its efforts on the Gulf
Coast region of the United States where management feels it can best exploit its
experience.
Management will actively seek future equity and debt financing in order
to expand the Company's exposure to drilling and acquisition opportunities,
thereby continuing to accelerate the growth of the Company. As a result of the
pervasive need for capital to finance oil and gas operations, however, the
Company may reevaluate the scope of its oil and gas operations in the event the
Company is unable to secure such financing on acceptable terms or as other
conditions warrant.
EXPLORATION STRATEGIES
The Company pursues exploration projects that meet its evaluation
criteria. The Company's objective is to acquire, drill and operate oil and gas
prospects that have geological and economic merit as determined by the Company's
management. Prospects are offered on a partial working interest basis to
industry partners and investment groups knowledgeable in oil and gas operations.
While the Company does not limit its operations to a particular
geographic area, its primary concentration has been the Texas and Louisiana Gulf
Coast. These areas have proven to contain prolific hydrocarbon deposits with
wells resulting in shorter-term payouts and substantial accumulations of
reserves.
The Company's exploration philosophy is the result of years of
continuous analysis of the various selection processes used within the oil and
gas industry and the economic results derived therefrom. The Company
concentrates its efforts on controlled exploratory prospects that tend to fall
within the one-in-two to one-in five risk range, utilizing strong well control
and subsurface
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geological and geophysical data and techniques. This combination of economics
and science tends to minimize the risk inherent in oil and gas exploration. Most
prospects are in proven trend areas and in many cases have production or shows
of hydrocarbons adjacent to the prospect acreage. By concentrating primarily in
the Texas and Louisiana Gulf Coast, the Company attempts to encounter prospects
with multiple pay potentials that are characteristically inherent to those
areas.
The Company selects its prospects from in-house generated research and
analysis, independent oil and gas companies and generating geologists. By
reviewing prospects from multiple sources, the Company benefits from a wider
exposure to prospect ideas and selection of prospects, while maximizing its
resources. Historically, less than five percent of the prospects reviewed meet
the Company's criteria.
In addition to the use of start-of-the-art geological and geophysical
techniques for evaluating prospects, the Company subjects each prospect to
statistical risk analysis as a part of the decision making process. This
analysis allows the Company to eliminate drilling prospects that are uneconomic
even when completions result.
The Company has entered into several prospect ventures with established
independent generating geologists. Through each venture, the Company has a
preferential right of acquiring each prospect generated by the geologist. In
return, the Company, at its sole risk and expense, acquires the oil and gas
leasehold rights and such other rights and interests as may be necessary to
assemble, package and market the prospect to potential industry participants.
The geologist markets the prospect with the assistance of the Company. The
benefits or proceeds from the sale of each prospect are ratably shared between
the Company and the geologist. This relationship allows the Company to maintain
a constant inventory of exploration prospects while reducing the overhead
associated with generating and marketing each prospect.
The Company has established a "Lease Bank" to fund the acquisition of
oil and gas prospects for sale to third party participants. The Lease Bank is
essentially a revolving credit facility whereby third parties provide funds to
the Company to acquire, package and sell oil and gas prospects. Lease Bank funds
used by the Company to acquire, package and sell each prospect are refunded to
the Lease Bank at the time each prospect is sold to third party participants and
prior to any well being drilled on the prospect. Accordingly, the return of
Lease Bank funds used for any particular prospect is in no way dependent on the
success or failure of drilling on the particular prospect, but instead is solely
dependent on the Company's ability to sell the prospect to third party
participants.
ACQUISITION AND EXPLOITATION STRATEGIES
The Company's general acquisition parameters and criteria for producing
properties are described below.
(i) The Company seeks producing properties with relatively stable
production rates, long reserve lives and the potential for exploitation
and development. The Company believes that future production and
ultimate reserve recoveries can be more accurately estimated for such
properties. In order to facilitate exploitation and development of
acquired
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properties, the Company will give preference to property interests that
can provide the Company with the ability to operate or influence
operations. The Company pursues a low cost operating strategy and
believes it maintains substantially lower overhead than many similarly
sized oil and gas operators. The Company will concentrate on
acquisitions that it believes provide opportunities to increase
production and reserves through the implementation of mechanical and
operational improvements, 3-D seismic surveys, workovers, behind-pipe
recompletions, new development wells and other exploitation techniques.
(ii) The Company generally seeks producing properties that are
long-lived, with a reserve-to-production index of at least five years.
The Company believes such properties have a more predictable future
production performance, provide a better opportunity to benefit from
price increases, often provide opportunities for production acceleration
or reserve enhancement, and may provide residual values not reflected in
the purchase prices of such properties.
(iii) The Company's management and technical staff have
substantial experience in the major producing areas in the United States
Gulf Coast region. The Company intends to continue to focus its
acquisition efforts in the Gulf Coast region, but may acquire properties
meeting its acquisition criteria in other geographic areas.
(iv) The Company may seek to acquire facilities related to the
production, marketing and transportation of oil and gas, including
gathering, transportation, and pipeline systems and gas processing
plants. These related facility acquisitions may be made in conjunction
with producing property acquisitions or separately.
There can be no assurances that producing properties or facilities
meeting the foregoing criteria will be available on terms acceptable to the
Company. The Company may reevaluate its adherence to the criteria listed above
as conditions warrant.
SEISMIC OPERATIONS
In November of 1994, the Company formed Quantum as a wholly-owned
subsidiary to perform 3-D seismic acquisition services for the energy industry
in the United States. Oil and gas companies utilize seismic data in determining
suitable locations for drilling exploratory wells, in the development of oil and
gas reserves and, increasingly, in reservoir management. In March, 1996, the
Company obtained a loan of approximately $5,000,000 from an unaffiliated lender
to finance Quantum's initial operations.
Quantum, on a contract basis, will acquire 3-D seismic data for energy
and oil and gas companies, which companies will typically have exclusive
ownership of the data. Management believes that there is a significant current
demand for providing contract land 3-D seismic acquisition services. The Company
will attempt to build Quantum's reputation in the southern regions of the United
States, targeting the smaller, independent oil and gas companies. Quantum will
utilize geophysical equipment and technically skilled crews, both of which are
significant requirements to
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qualify as a provider of 3-D seismic services. In response to the demand for
technologically advanced equipment, the Company has purchased an Input/Output,
Inc. ("I/O") System Two ("SYSTEM TWO(R)"). SYSTEM TWO(R) employs a 24 bit
analog-to-digital converter using advanced delta sigma technology, which reduces
error, in data interpretation. Less errors in data interpretation by the
exploration geophysicists means higher success rates for oil and gas exploration
companies. Management believes that the SYSTEM TWO(R) data acquisition
technology will allow the Company to achieve a share of the independent oil and
gas company market. Outside contractors will be utilized to perform operations
such as surveying, drilling, and permitting.
SEISMIC CREW
Once full-scale operations of Quantum are established, Quantum will be
capable of staffing a seismic crew consisting of a supervisor, crew chief,
assistant crew chief and general laborers who will supervise and conduct all
field operations. A fully staffed seismic crew reasonably consists of twenty to
thirty persons. Quantum expects that such seismic crews will be staffed
according to specific client requirements.
SEASONALITY
Quantum generally will have the opportunity to generate its highest
revenues during the Company's third fiscal quarter (July 1 through September
30), primarily because this period typically provides for more recording hours
due to longer days and less curtailment of operations due to poor weather.
Although certain seasons during the year generally provide better working
conditions, adverse conditions may impact revenues at any time throughout the
year.
SEISMIC CONTRACTS
Quantum's seismic operations will be conducted pursuant to contracts
with customers who typically retain exclusive ownership of the acquired seismic
data. Contracts, which are awarded on a competitive bid basis, will generally be
either "turn-key" contracts which provide for a fixed fee to be paid to Quantum
upon the completion of each job or "term" contracts which provide for a fixed
fee per square mile of data acquired during the term of the project. Turn-key
contracts generally can provide more profit potential for Quantum, but involve
more risks because of potential down time for weather and other types of delays.
JOINT VENTURES
The Company expects to pursue certain joint venture opportunities where
the 3-D seismic acquisition crew and expertise of Quantum can be contributed on
a reduced cost basis to earn an equity interest in certain projects being shot.
In pursuing such joint ventures, the Company will work to identify exploration
and production projects that work on a low cost, low risk basis and produce high
drilling success rates. From this strategy, rapid growth reserves, production,
revenues, earnings and stockholders' value should be realized.
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PERSONNEL/MANAGEMENT
The Company believes that its ability to attract and obtain qualified
personnel and management will be a significant factor in the success of
Quantum's operations. Historically, the geophysical industry has had high
turnover of personnel due to lack of employee benefits and excessive down time.
Consequently, highly qualified personnel and management are usually difficult to
find. Quantum, however, will attempt to address these issues by providing
continuous and ongoing formal and on-the-job training as well as attractive
benefits. Management believes that its personnel will be among the most highly
qualified and technically skilled in the industry.
ACQUISITION OF SIGNATURE GEOPHYSICAL SERVICES, INC.
On March 5, 1997, the Company entered into a Letter of Intent to acquire
100% of the issued and outstanding capital stock of Signature Geophysical
Services, Inc., a Houston-based provider of 3-D geophysical surveys for the oil
and gas industry, with particular emphasis on contract seismic work in the
Atchafalaya Swamp Basin of Louisiana. The Company is currently negotiating a
definitive agreement concerning this acquisition which is expected to close in
the second quarter of fiscal 1997.
GEOSCIENCE OPERATIONS
During fiscal 1997, the Company is considering diversifying its
operations by entering into the geoscience technology business. On February 28,
1996, the Company formed a new wholly-owned subsidiary called Geoscience
Software Solutions, Inc. ("GSS") to conduct these operations. It is contemplated
that GSS will develop and utilize geoscience technology not only for its own
account in the acquisition of oil and gas assets but also by providing
technological applications and services to third parties engaged in oil and gas
exploration. The Company previously reported that it had entered into a Letter
of Intent to acquire 80% of the outstanding capital stock of Green Mountain
Geophysics, Inc., a Boulder, Colorado based manufacturer of specialized software
for the petroleum industry. The Letter of Intent has expired and the Company's
management is not certain whether the Company will further pursue the Green
Mountain acquisition.
COMPETITION
OIL AND GAS OPERATIONS
Competition in the oil and gas industry is intense. The Company
encounters strong competition from major oil companies and independent operators
in acquiring properties and leases for exploration for crude oil and natural
gas. The principal competitive factors in the Company's oil and gas operations
include the staff, technology, and data necessary to identify and investigate
prospective leases, and the financial resources necessary to acquire and develop
such leases. In seeking to acquire producing properties and in marketing oil and
gas, the Company faces competition both from major and independent oil and gas
companies, and from numerous individuals. Many of the Company's competitors have
financial resources, staffs and facilities substantially greater than those of
the Company.
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Increases in worldwide energy production capability have brought about
surpluses in energy supplies in recent years. This, in turn, has resulted in
substantial competition in markets historically served by domestic natural gas
from alternative sources of energy, such as residual fuel oil, and among
domestic natural gas suppliers. Changes in government regulations (described
under "Regulation" below) relating to the production, transportation and
marketing of natural gas have also resulted in significant changes in the
historical marketing patterns of the industry. Generally, these changes have
resulted in the abandonment by many pipelines of long-term contracts for the
purchase of natural gas, the development by natural gas producers of their own
marketing programs to take advantage of new regulations requiring pipelines to
transport natural gas for regulated fees, and the emergence of various types of
marketing companies and other aggregations of gas supplies. As a consequence,
natural gas prices, which were once effectively determined by government
regulations, are now largely established by competition. Competitors of the
Company in this market include other producers, natural gas pipelines and their
affiliated marketing companies, independent marketers and providers of alternate
energy supplies, such as residual fuel oil.
Exploration for and production of oil and gas is affected by the
availability of pipe, casing and other tubular goods and certain other oil field
equipment and services, including drilling rigs and tools. The Company is
dependent upon independent drilling contractors to furnish rigs, equipment and
tools to drill the wells they operate. The Company has not experienced and does
not anticipate difficulties in obtaining supplies, materials, drilling rigs,
equipment, tools or any attendant services. Higher prices for oil and gas
production, however, may cause competition for these items to increase and may
result in increased costs of operations.
SEISMIC OPERATIONS
The acquisition of seismic data for the oil and gas exploration industry
is also highly competitive. Although reliable comparative figures are not
available, the Company believes that its principal competitors have more
extensive and diversified operations and also have financial, operating and
other resources substantially in excess of those available to the Company.
The Company's principal competitors in the seismic area are those
companies that offer 3-D capabilities accommodating smaller surveys and smaller
independent oil and gas companies. Examples include Grant Geophysical, Inc.,
Solid State Geophysical, Inc., Dawson Geophysical Incorporated, Universal
Seismic Associates Incorporated, Compagni Generale de Geophysique and Veritas -
DGC. Competitive factors include the type and capability of equipment used to
conduct seismic surveys and that equipment's availability. In addition to price,
the performance and dependability of a crew significantly affect a potential
customer's decision to award a contract to a company or one of its competitors.
REGULATION
ENVIRONMENTAL REGULATION
Operations of the Company are subject to numerous federal, state, and
local laws and regulations governing the discharge of materials into the
environment or otherwise relating to
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environmental protection. These laws and regulations may require the acquisition
of a permit before drilling commences; restrict or prohibit types, quantities
and concentration of substances that can be released into the environment in
connection with the drilling and production activities; prohibit drilling
activities on certain lands lying within wetlands or other protected areas; and
impose substantial liabilities for pollution resulting from drilling and
production operations. Moreover, state and federal environmental laws and
regulations may become more stringent in the future. These environmental laws
and regulations may affect the Company's operations and costs as a result of
their effect on oil and gas development, exploration and production operations.
OIL AND GAS REGULATION
Complex regulations concerning all phases of energy development at the
local, state and federal levels apply to the Company's present operations in the
oil and gas business, and often require interpretation by the Company's
professional staff or outside advisors. The federal government and various state
governments have adopted numerous laws and regulations regarding the production,
transportation, marketing and sale of oil and natural gas. Regulation by state
and local governments usually covers matters such as the spacing of wells,
allowable production rates, environmental protection, pollution control,
taxation and other related matters. Any federal leases acquired by the Company
will be subject to various federal statutes and the rules and regulations of
federal administrative agencies. Moreover, future changes in local, state or
federal laws or regulations could adversely affect the operations of the
Company.
Domestic exploration for, and production and sale of, oil and gas are
extensively regulated at both the federal and state levels. Legislation
affecting the oil and gas industry is under constant review for amendment or
expansion, frequently increasing the regulatory burden. Numerous departments and
agencies, both federal and state, are also authorized by statute to issue, and
have issued, rules and regulations binding on the oil and gas industry that are
often costly to comply with and that carry substantial penalties for
noncompliance. In addition, production operations are affected by changing tax
and other laws relating to the petroleum industry, by constantly changing
administrative regulations, and possible interruption or termination by
governmental authorities. The regulatory burden on the oil and gas industry
increases its cost of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such regulations.
EXPLORATION AND PRODUCTION REGULATION
Exploration and production operations of the Company are subject to
various types of regulation at the federal, state and local levels. Such
regulation includes requiring drilling permits, requiring the maintenance of
bonds in order to drill or operate wells, and regulating the location of wells,
the method of drilling and casing wells, the surface use and restoration of
properties upon which wells are drilled and the plugging and abandoning of
wells. The Company's operations are also subject to various conservation
regulations, including regulation of the size of drilling and spacing units or
proration units, the density of wells which may be drilled and the unitization
or pooling of oil and gas properties. In this regard, some states allow the
forced pooling or integration of lands and
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leases to facilitate exploration, while other states rely on voluntary pooling
of lands and leases. In addition, state conservation laws establish maximum
rates of production from oil and gas wells, generally prohibit the venting or
flaring of gas and impose certain requirements regarding the ratability of
production. These regulations limit the amounts of crude oil and natural gas the
Company can produce from its wells as well as the number of wells or the
locations that can be drilled.
Effective July 1, 1992, the Texas Railroad Commission, which is the
state agency that regulates oil and gas production in Texas (the "TRC"), enacted
regulations that can limit the rate at which oil and gas may be produced from
the Company's Texas properties. Under these Texas regulations, the TRC relies
upon certain information filed monthly by well operators, in addition to using
historical production data for each well during comparable past periods, to
arrive at a production allowable. This is in contrast to the TRC's historic
reliance on forecasts of upcoming months' takes filed by purchasers of natural
gas in formulating allowables, a procedure which had resulted in substantial
excess allowables over volumes actually produced. These Texas regulations and
legislation should not have a significant impact on the Company's operations.
The Company cannot predict whether other states will adopt similar regulations
or legislation. However, the effect of such legislation and regulations may be
to decrease the allowable daily production and the revenues from gas properties,
including properties that produce both oil and gas. It is also possible that
such legislation and regulations may result in a decrease in natural gas
production in such states, which could exert upward pressure on the price of
natural gas.
NATURAL GAS SALES AND TRANSPORTATION REGULATION
Federal legislation and regulatory controls have historically affected
the price of the gas produced and sold by the Company and the manner in which
such production is marketed. Historically, the transportation and sale for
resale of gas in interstate commerce have been regulated pursuant to the Natural
Gas Act of 1938 (the "NGA"), the Natural Gas Policy Act of 1978 (the "NGPA") and
the regulations promulgated thereunder by the Federal Energy Regulatory
Commission (the "FERC"). Since 1978, maximum selling prices of certain
categories of natural gas sold in so-called "first sales" (which include the
types of sales made by the Company), whether sold in interstate or intrastate
commerce, were regulated pursuant to the NGPA. The NGPA established various
categories of natural gas and provided for graduated deregulation of price
controls of several categories of natural gas and the deregulation of sales of
certain categories of natural gas. Most "first sale" price deregulation
contemplated under the NGPA occurred by mid-1987. Moreover, on July 26, 1989,
the Natural Gas Wellhead Decontrol Act of 1989 was enacted. This act amended the
NGPA by removing both price and non-price controls from natural gas sold in
"first sales" on the earlier of the termination of the applicable contract or
January 1, 1993. In addition, in December 1992, the FERC issued Order 547,
which, since January 7, 1993, has constituted a blanket certificate of public
convenience and necessity pursuant to Section 7 of the NGA authorizing any
company which is not an interstate natural gas pipeline or an affiliate thereof
to make sales for resale at negotiated rates in interstate commerce of any
category of gas that is subject to the FERC's NGA jurisdiction. As a result,
since January 7, 1993, none of the Company's natural gas production has been
subject to federal price controls. Under current market conditions, deregulated
natural gas
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prices under recently negotiated contracts tend to be substantially lower than
most regulated price ceilings that were previously prescribed by the NGPA.
Historically, interstate pipeline companies have generally acted as
wholesale merchants by purchasing natural gas from producers and reselling the
gas to local distribution companies and large end-users. Under the NGA and NGPA,
the transportation and sale of natural gas by interstate pipeline companies have
been subject to extensive regulation, and the construction of new pipelines, the
extension of existing pipelines and the commencement and cessation of sales or
transportation services by interstate pipeline companies generally have required
prior FERC authorization.
Commencing in 1985, the FERC promulgated a series of orders and
regulations adopting changes that significantly affect the transportation and
marketing of natural gas. These changes were intended to foster competition in
the natural gas industry by, among other things, inducing or mandating that
interstate pipeline companies provide nondiscriminatory transportation services
to producers, distributors and other shippers (so-called "open access"
requirements). The FERC has also sought to expedite the certification process of
new services, facilities and operations of those pipeline companies providing
"open access" services. The FERC's actions in these areas have been subject to
extensive judicial review and have generated significant industry comment and
proposals for modifications to existing regulations.
In April 1992 (and clarified in August 1992 and finalized in November
1992), the FERC issued Order 636, which has had a major impact on natural gas
pipeline operations, services and rates. Among other things, Order 636, and the
amendments thereto (collectively, "Order 636"), requires each interstate
pipeline company to "unbundle" its traditional wholesale services and create and
make available on an open and nondiscriminatory basis numerous constituent
services (such as gathering services, storage services, firm and interruptible
transportation services, and stand-by sales services) and to adopt a new rate
making methodology to determine appropriate rates for those services. To the
extent the pipeline company or its sales affiliate makes gas sales as a merchant
in the future, it will do so in direct competition with all other sellers
pursuant to private contracts; however, pipeline companies are not required to
remain "merchants" of gas, and many of the interstate pipeline companies have or
will become transporters only. The FERC requires each pipeline company to
develop the specific terms of service in individual proceedings and submit to
pending court challenges by numerous parties. In addition, upon completion of
the individual pipeline restructuring proceedings, appeals are usually filed.
The Company cannot predict whether and to what extent juridical review will
affect these matters. Although Order 636 and the implementing regulations do not
directly regulate natural gas producers such as the Company, the availability of
non-discriminatory transportation services and the ability of pipeline customers
to modify or terminate their existing purchase obligations under these
regulations have greatly enhanced the ability of producers to market through
interstate natural gas pipelines, and have increased the marketing activities of
the Company. The Company has access to several natural gas pipelines which serve
interstate markets in each of its principal areas of operations. See "Geographic
Concentration under _Business Strategy._"
As a result of Order 636, a number of interstate pipeline companies are
trying to unbundle their gathering systems and have pending before the FERC
applications to (i) "spin down" their gathering systems from regulated pipeline
transportation companies to unregulated affiliates, (ii) spin-
11
<PAGE>
off gathering systems to non-related entities, and/or (iii) "refunctionalize"
portions of their pipeline facilities from transmission to gathering. In
response to these applications, the FERC is continually examining its policies
regarding not only pipeline and pipeline-affiliate gathering rates, but also
gathering system capacity, competition and production area rates. A consequence
of this divestiture of gathering facilities could be separate, and higher,
gathering fees. In addition, other aspects of Order 636 may have an impact on
the Company's gas marketing activities including, but not limited to, the
responsibility on pipeline customers to closely monitor delivery volumes so as
to avoid pipeline penalties for imbalances, and capacity allocation conditions
imposed by pipelines under operational flow orders (OFOs) as part of a
pipeline's terms and conditions. Although the Company does not expect that the
above issues will have a material effect on the Company's gas marketing
activities, these issues are continually monitored by the FERC and the Company
cannot predict with certainty how any future modification or implementation of
Order 636 will affect the Company's operations.
With respect to oil pipeline rates subject to the FERC's jurisdiction,
in October 1993 the FERC issued Order 561 in order to fulfill the requirements
of Title XVIII of the Energy Policy Act of 1992. Order 561, and the subsequent
FERC orders related thereto, establish an indexing system, effective January 1,
1995, under which oil pipelines will be able to readily change their rates to
track changes in the Producer Price Index for Finished Goods (PPI-FG), minus one
percent. This index will establish ceiling levels for rates. Order 561 also
permits cost-of-service proceedings to establish just and reasonable rates for
initial rates for new service. Cost-of-service review may also be invoked when
an oil pipeline company claims it is significantly under-recovering its costs,
or when customers claim the pipeline's rates are excessive in relation to actual
costs. Order 561 does not alter the right of a pipeline to seek FERC
authorization to charge market-based rates. However, until the FERC makes the
finding that the pipeline does not exercise significant market power, the
pipeline's rates cannot exceed the applicable index ceiling level or a level
justified by the pipeline's cost of service. In conjunction with this order and
market rates, the FERC issued a notice of inquiry soliciting suggestions for and
comments on streamlining market power determinations and establishing standards
to be used in determining whether an oil pipeline lacks significant market
share, which procedures and standards became effective January 1, 1995. Finally,
Order 561 retains the FERC's policy of encouraging settlement of rate issues at
any stage of a proceeding.
SUPPLIERS
The Company's seismic operations are dependent on I/O for additions to
and replacements for its SYSTEM TWO(R) seismic data gathering equipment. Because
this equipment represents proprietary technology, in the event any system is
substantially changed, or should a significant failure occur, or should I/O be
unwilling or unable to furnish replacement parts, the Company would probably be
unable to obtain replacements from other sources. Under such circumstances the
Company would be required to obtain other equipment that may be less
technologically advanced or make a substantial investment in new or used
equipment to perform its seismic services. Management believes that its
relationship with I/O is satisfactory. There are a number of suppliers providing
new and used 3-D equipment.
12
<PAGE>
OCCUPATIONAL HAZARDS AND INSURANCE
The operations of the Company are subject to all risks inherent in the
exploration for, and development and production of, oil and gas, including such
natural hazards as blowouts, cratering and fires, which could result in damage
or injury to, or destruction of drilling rigs and equipment, formations,
producing facilities or other property, or could result in personal injury, loss
of life or pollution of the environment. Any such event could result in
substantial cost to the Company which could have a material adverse effect upon
the financial condition of the Company in the event is not fully insured against
such risk. The Company carries insurance against certain of these risks, but, in
accordance with standard industry practice, the Company is not fully insured for
all risks, either because such insurance is unavailable or because the Company
elects not to obtain insurance coverage because of cost. Although such
operational risks and hazards may to some extent be minimized, no combination of
experience, knowledge and scientific evaluations can eliminate the risk of
investment or assure a profit to any company engaged in oil and gas operations.
MARKETING ACTIVITIES
The natural gas production of the Company is sold primarily on the spot
market to a variety of purchasers, including intrastate and interstate
pipelines, their marketing affiliates, independent marketing companies and other
purchasers. Because an insignificant amount of its gas is committed under
long-term fixed price contracts, the Company is positioned to take advantage of
rising prices for natural gas, but is also subject to gas price reductions. All
of the Company's crude oil and condensate production is currently sold at posted
prices under short-term contracts, which terms are customary in the industry.
The availability of a market for oil and gas produced by the Company is
dependent upon a number of factors beyond its control which at various times
cannot be accurately predicted. These factors include the proximity of wells to,
and the available capacity of, natural gas pipelines, the extent of competitive
domestic production and imports of oil and gas, the availability of other
sources of energy, fluctuations in seasonal supply and demand, and governmental
regulation. In addition, there is always the possibility that new legislation
may be enacted which would impose price controls or additional excise taxes upon
crude oil or natural gas, or both. In the event a productive gas well is
completed in an area that is distant from existing gas pipelines, the Company
may allow the well to remain shut-in until a pipeline is extended to the well or
until additional wells are drilled to establish the existence of sufficient
producing reserves to justify the cost of extending existing pipelines to the
area. The United States may experience an oversupply of natural gas which may
cause delays, restrictions or reductions of natural gas production. In addition,
increased imports of natural gas, primarily from Canada, have occurred and are
expected to continue. Oversupplies of natural gas can be expected to recur from
time to time and may result in the gas producing wells of the Company being
shut-in on a temporary basis.
Since the early 1970's, the market price for crude oil has been
significantly affected by policies adopted by the member nations of OPEC.
Members of OPEC establish prices and production quotas among themselves for
petroleum products from time to time with the intent of manipulating the global
supply and price levels for crude oil. In addition, Canada recently amended its
tax laws and other
13
<PAGE>
laws affecting the exportation of its natural gas to the United States, and such
amendments are expected to increase competition and may adversely affect the
price of natural gas in certain areas of the United States. The Company is
unable to predict the effect, if any, which OPEC or the Canadian legislation
will have on the amount of, or the prices received for, oil and natural gas
produced and sold from the Company's wells.
Changes in oil and natural gas prices significantly affect the revenues
and cash flow of the Company and the value of its oil and gas properties.
Significant declines in the prices of oil and natural gas could have a material
adverse effect on the business and financial condition of the Company. The
Company is unable to predict accurately whether the prices of oil and natural
gas will rise, stabilize or decline in the future.
EMPLOYEES
At December 31, 1996, the Company employed 6 people in its Houston
offices whose functions were associated with management, operations, accounting
and oil and gas marketing. The Company primarily uses independent contractors as
field personnel for operating wells. Management believes that its relations with
its employees are excellent.
FACILITIES
The Company is leasing approximately 5,298 square feet of office space
at its new corporate headquarters located at 5555 San Felipe, Suite 780,
Houston, Texas 77056. The lease provides for a base rent of $24,104 per year,
plus operating expenses. In 1996, the Company's total rental expenses under this
lease (including base rent) were $60,268. The lease expires June 30, 1998. The
Company believes that its present space is sufficient for the foreseeable future
and that it will be able to negotiate a favorable renewal of its lease or find a
suitable replacement facility without substantial difficulty.
ITEM 2. DESCRIPTION OF PROPERTIES.
ACQUISITION AND EXPLOITATION OF PROPERTIES
The Company owns working interests in 23 producing oil and gas wells
located in Texas. The Company is also the operator of each of these 23 wells.
All of the Company's wells were originally drilled and have been continuously
operated by current management and their predecessor companies.
OIL AND GAS SALES PRICES AND PRODUCTION COSTS
The following table sets forth for the Company, its subsidiaries and
their predecessors, the pro forma average sales prices per Bbl of oil (including
condensate) and per Mcf of gas produced, and the production costs (including
taxes on production and property and transportation charges) per BOE produced
for each of the last three fiscal years:
14
<PAGE>
Company, Subsidiaries and their Predecessors
<TABLE>
<CAPTION>
Year Ended Transition Period(1) Year Ended
September 30 10/1/94 to 12/31/94 December 31
---------- -------------
1994 1994 1995 1996
---------------- -------------------- ---------- -------------
<S> <C> <C> <C> <C>
Weighted average sales price per
Bbl of oil produced ............ $15.22 $16.00 $16.72 $20.67
Weighted average sales price per
Mcf of gas produced ............ $ 2.19 $ 1.75 $ 1.71 $ 2.55
Weighted average production cost
per BOE ........................ $ 4.18 $ 5.05 $ 6.65 $ 5.22
================================ ====== ====== ====== ======
</TABLE>
(1) Transition period resulting from the Company's change of its fiscal
year end from September 30 to December 31 of each year.
RESERVES
The following table sets forth, as of December 31, 1996, certain
information about the pro forma estimated developed and undeveloped proved
reserves of the Company's subsidiaries and their predecessors:
Company Subsidiaries
Pro Forma
December 31, 1996
Proved developed:
Oil (Bbls) ....................................... 323,020
Gas (Mcf) ........................................ 1,060,565
Proved undeveloped:
Oil (Bbls) ....................................... 209,704
Gas (Mcf) ........................................ 2,377,930
Total proved:
Oil (Bbls) ....................................... 532,724
Gas (Mcf) ........................................ 3,438,495
Estimated future net cash
flows, before income taxes ............................... $16,004,000
Present value of estimated
future net cash flows, before
income taxes, discounted
at 10% ................................................... $ 7,091,700
15
<PAGE>
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the Company. The
reserve data set forth in the above table represent only estimates. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact manner, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geologic interpretation and judgment. As a result, estimates by
different engineers often vary, sometimes significantly. In addition, physical
factors, such as the results of drilling, testing and production subsequent to
the date of an estimate, as well as economic factors, such as an increase or
decrease in product prices that renders production of such reserves more or less
economic, may justify revision of such estimates. Accordingly, reserve estimates
are different from the quantities of oil and gas that are ultimately recovered.
PRODUCTIVE WELLS AND ACREAGE
During the fiscal year ended December 31, 1996, neither the Company nor
its subsidiaries and their predecessors drilled or completed any productive or
non-productive wells. The following table sets forth the approximate number of
gross productive wells and net productive wells owned by the Company as of
December 31, 1996:
Gross Net
---- ----
Texas Panhandle ............... 15 1.15
Texas Upper Gulf
Coast ......................... 5 2.57
Texas Lower Gulf
Coast ......................... 3 1.75
Total .......... 23 5.47
---- ----
The following table shows, by geologic region, the approximate leasehold
acreage and royalty and mineral acreage of the Company as of December 31, 1996:
16
<PAGE>
<TABLE>
<CAPTION>
Region Leasehold Acreage Royalty and Mineral Acreage
- --------------------------------------------------------------------------------------------------
Producing Non-Producing/ Producing Non-Producing/
Undeveloped Undeveloped
Acreage(1) Acreage(1)
- --------------------------------------------------------------------------------------------------
Gross Net Gross Net Gross Net Gross Net
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Texas
Panhandle 5,152 317 - - - - - -
Texas Upper 150(2) 12
Gulf Coast 2,520 1,360 354 354 - - 765(3) 765
Texas Lower
Gulf Coast 440 215 1571 1571 - - 1,045(4) 785
Total 8,112 1,892 1,925 (5) 1,925 (5) - - 1,960 1,562
==================================================================================================
</TABLE>
(1) Undeveloped Acreage is considered to be those lease acres on which
wells have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas regardless of whether or not
such acreage contains proved reserves.
(2) Mineral Fee.
(3) The Company owns an approximate 1.50% overriding royalty interest
and a 6.125% after payout working interest under 765 net acres.
(4) The Company owns an approximate 2.70% overriding royalty interest
under 785 net acres.
(5) Reflects Undeveloped Acreage.
17
<PAGE>
DRILLING ACTIVITIES
In the fourth quarter of 1994, the Company participated in an
exploration drilling prospect in North Dakota. The initial well resulted in a
dry hole, and the Company no longer owns an interest in the project.
Other than the above-described North Dakota project, neither the Company
nor any of its subsidiaries (or their predecessors) has engaged in any drilling
activities during each of the last three fiscal years and the three-month
transition period. The Company did not acquire any reserves associated with
properties on which any drilling was occurring when the Company acquired the oil
and gas properties from the Haber/Hale entities on August 1, 1994.
PRESENT DRILLING ACTIVITIES
Neither the Company nor any of its subsidiaries is currently involved in
any drilling activities.
TITLE TO PROPERTIES
The Company believes that the title to its oil and gas properties is
good and defensible in accordance with standards generally accepted in the oil
and gas industry, subject to exceptions which, in the opinion of the Company,
are not so material as to detract substantially from the use or value of such
properties. The Company's properties are typically subject to one or more of the
following: royalties and other burdens and obligations, express or implied,
under oil and gas leases; overriding royalties and other burdens created by the
Company or its predecessors in title; a variety of contractual obligations
(including, in some cases, development obligations) arising under operating
agreements, farmout agreements, production sales contracts and other agreements
that may affect the properties or their titles; liens that arise in the normal
course of operations, such as those for unpaid taxes, statutory liens securing
obligations to unpaid suppliers and contractors and contractual liens under
operating agreements; pooling, unitization and communitization agreements,
declarations and orders; and easements, restrictions, rights-of-way and other
matters that commonly affect property. To the extent that such burdens and
obligations affect the Company's rights to production revenues, they have been
taken into account in calculating the Company's net revenue interests and in
estimating the quantity and value of the Company's reserves. The Company
believes that the burdens and obligations affecting its properties are
conventional in the industry for properties of the kind owned by the Company.
SEISMIC EQUIPMENT
To conduct its seismic operations, the Company has purchased the I/O
SYSTEM TWO(R) data acquisition system and related seismic acquisition hardware
and software. The I/O SYSTEM TWO(R) employs a 24-bit analog to digital converter
using advanced Delta Sigma technology. Owning and operating the SYSTEM TWO(R)
affords the Company advantages over other companies that must purchase 3-D
acquisition services from third parties. In addition, management believes that
the Company's ability to exercise direct control of each project, from design to
processing, will lead to higher quality 3-D seismic data for the Company as well
as its seismic customers.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
As of this date, neither the Company nor either of its subsidiaries is a
party to any pending legal proceedings. Moreover, the Company is not aware of
any such legal proceedings that are contemplated by governmental authorities
with respect to the Company, any of its subsidiaries, or any of their respective
properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock, $.20 par value per share (the "Common
Stock") is traded in the "pink sheets" of various NASD broker-dealers under the
trading symbol GEOK. As of December 31, 1996, the Company had 355 stockholders
of record.
The following table sets forth the range of high and low bid and asked
prices for the Common Stock during the Company's last two fiscal years as
reported by the National Association of Security Dealers. These quotations
reflect prices between dealers, without adjustment for retail markups, markdowns
or commissions, and may not necessarily reflect actual transactions.
Bid Ask
-------------- --------------
LOW HIGH LOW HIGH
--- ----- ----- -----
Fiscal 1995 (ended 9/30/94)
1st quarter 1 1 7/8 1 7/8 2 3/4
2nd quarter 13/16 1 3/4 1 7/8 2 3/4
3rd quarter 1 1/4 1 5/8 1 5/8 3
4th quarter 7/8 1 7/16 1 1/2 3
Fiscal 1996 (ended 12/31/96)
1st quarter 1 3 1/8 1 1/2 3 3/4
2nd quarter 1 1/8 2 5/8 1 3/8 3 1/8
3rd quarter 3/4 2 1/4 1 1/16 2 5/8
4th quarter 1/2 2 1/8 3/4 2 1/2
The Company has not paid any dividends to holders of Common Stock during
its last two fiscal years and does not anticipate paying any such dividends in
the foreseeable future.
19
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
At December 31, 1996, the Company's financial position primarily reflects
(i) the Company's ongoing oil and gas operations, (ii) startup costs relating to
the seismic operations being conducted by Quantum, and (iii) the development of
the Company's geoscience technologies and software development capabilities. The
financial requirements of the oil and gas business and the startup costs
incurred in diversifying the Company's business activities have required that
the Company utilize a substantial portion of its current assets and incur
additional indebtedness in order to acquire additional operating assets. The
Company expects that it will be required to raise substantial additional funds
during 1997 from the sale of equity and debt securities in order to finance the
operations of Quantum and GSS.
The Company is currently working to complete the Company's audit for the
fiscal year ended December 31, 1996 and expects that the 1996 audited financial
statements will be completed within sixty (60) days of this filing. The Company
intends to supplement the foregoing discussion of the Company's financial
condition upon receipt of such audited financial statements by amendment to this
Form 10-KSB.
ITEM 7. FINANCIAL STATEMENTS.
The Company is currently working to complete the Company's audited
financial statements for the fiscal year ended December 31, 1996. Such financial
statements will be provided by amendment to this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
20
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND OFFICERS
Set forth below are the names, ages and positions of the directors and
executive officers of the Company. Each of the directors and executive officers
were elected at the 1996 Annual Meeting of the Company's Stockholders for a term
of one year and will serve until their successors are elected.
Office
Name Age Position With The Company Held Since
---- --- ------------------------- ----------
Jay D. Haber 51 President, Chief Executive Officer 1994
and Director
Michael D. Hale 39 Vice President, Secretary and 1994
Director
William H. Murphy 56 Director 1994
Herbert H. Hedick 66 Director 1995
There are no family relationships between any of the directors or
executive officers of the Company.
JAY D. HABER, age 51, has served as a director and as the Company's
President and Chief Executive Officer since August 1, 1994, when the Company
acquired the Haber/Hale oil and gas properties. For more than the past five
years, Mr. Haber has served as the President of certain privately-owned oil and
gas exploration and production companies, including Haber Oil Company, Inc.,
Haber Resources Corporation and HOC Operating Co., Inc.
MICHAEL D. HALE, age 39, was elected to the Board of Directors as of
August 1, 1994, and has served as Vice President for the Company since that
time. On April 4, 1995, Mr. Hale was appointed Secretary of the Company and
continues to serve as the Secretary for the Company. For more than the past five
years, Mr. Hale has served as the Vice President of certain privately-owned oil
and gas exploration and production companies, including Haber Oil Company, Inc.,
Haber Resources Corporation, HOC Operating Co., and as President of Hale
Exploration Corporation.
21
<PAGE>
WILLIAM H. MURPHY, age 56, has been a member of the Board of Directors
since August 1, 1994. For more than the past five years, Mr. Murphy has been the
President and sole shareholder of Wm. H. Murphy & Co., Inc., an investment
banking and financial advisory concern located in Houston, Texas.
HERBERT H. HEDICK, age 66, has been a member of the Board of Directors
since April 4, 1995. In 1990, Mr. Hedick founded Long Distance Services, Inc., a
low cost communications provider, and has served as its President since that
time.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company under Rule 16(a)-3(d) during the fiscal year ended
December 31, 1996 and Form 5 and amendments thereto furnished to the Company
with respect to such period, the Company is not aware of any director, officer,
or beneficial owner of more 10% of any class of equity securities of the Company
registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act") that has failed to file on a timely basis, as disclosed in the
above forms, reports required by Section 16(a) of the Exchange Act during the
Company's most recent fiscal year or prior years.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table reflects all forms of compensation for each of the
Company's last three completed fiscal years (including the three-month
transition period ended 12/31/94), for Mitchell A. Lekas' services to the
Company prior to August 1, 1994, as well as the compensation paid to Jay D.
Haber for his services since August 1, 1994, and Michael Hale for his services
since January 1, 1995. No other director or executive officer had salary and
bonus which exceeded $100,000 during such periods.
<TABLE>
<CAPTION>
Annual compensation Long term compensation
----------------------------------- ------------------------------------------------------
Awards Payouts
----------------------- ----------------------------
Other Restricted Securities
Name and annual Stock underlying All other
principal position Year Salary Bonus compensation Awards options/SARs LTIP payouts compensation
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jay D. Haber, ..... 1996 $140,000 $ 0 -- -- 50,000(1) -- --
President and Chief
Executive Officer
Michael Hale, ..... 1996 $ 98,000 $ 0 -- -- 50,000(1) -- --
Secretary and Vice
President
Jay D. Haber, ..... 1995 $140,000 $31,994(2) $ __ $ __ 15,000 $ __ $ __
President and Chief
Executive Officer
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Annual compensation Long term compensation
----------------------------------- ------------------------------------------------------
Awards Payouts
----------------------- ----------------------------
Other Restricted Securities
Name and annual Stock underlying All other
principal position Year Salary Bonus compensation Awards options/SARs LTIP payouts compensation
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Hale, 1995 $98,000 $31,994 (2) $ __ $ __ 15,000 (1) $ __ $ __
Secretary and Vice
President
Jay D. Haber, 1994 (from $23,333 $ 2,456 (2) $ __ $ 0 15,000 (1) $ -- $ --
President, Chief 8/1/94,
Executive Officer including
3-month
transition
period
ended
12/31/94(3)
Mitchell A. Lekas,
President and Chief 1994 (until
Executive Officer 8/1/94) $12,000 $ -- $ -- $ -- __ $ -- $ --
============================================================================================================================
</TABLE>
(1) Refers to non-incentive stock options to purchase 15,000 shares of the
Company's Common Stock granted to Messrs. Haber and Hale under the 1995 Stock
Option Plan adopted by the Company's stockholders at the 1995 Annual Meeting of
Stockholders. Messrs. Haber and Hale are each entitled to receive such options
pursuant to their respective employment agreements (described under "Employment
Contracts" below) with the Company. In addition, Messrs. Haber and Hale were
each awarded incentive stock options to purchase 35,000 shares as compensation
in connection with the successful funding of the loan obtained by Quantum
Geophysical, Inc.
(2) Bonus reflects share of net proceeds from sales of oil and gas prospects.
Messrs. Haber and Hale are entitled to this bonus pursuant to their respective
employment agreements (described under "Employment Contracts" below) with the
Company.
(3) Transition period resulting from the Company's change of its fiscal year end
from September 30 to December 31.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of
securities Percent of total
underlying options/SARs
options/SARs granted to Exercise or
granted employees in base price Market Price Expiration
Name (#) fiscal year ($/Sh) at date of date
(a) (b) (c) (d) Grant (e)
==============================================================================================
<S> <C> <C> <C> <C> <C>
15,000(1) $1.03125(3) $1.03125 July 31, 2001
Jay D. Haber 35,000(2) 42.5% $1.7875(4) $1.625 March 5, 2001
15,000(1) $1.03125(3) $1.03125 July 31, 2001
Michael Hale 35,000(2) 42.5% $1.7875(4) $1.625 March 5, 2001
==============================================================================================
</TABLE>
23
<PAGE>
(1) Messrs. Haber and Hale are each entitled to receive non-incentive stock
options under the 1995 Stock Option Plan pursuant to their respective employment
agreements (described under "Employment Contracts" below) with the Company.
(2) Messrs. Haber and Hale were each awarded incentive stock options to purchase
35,000 shares of the Company's Common Stock as compensation in connection with
the successful funding of the loan obtained by Quantum Geophysical, Inc.
(3) The price of the stock covered by the options equals the average of the
closing high bid and low asked quotations for the Company's Common Stock on the
first day of each twelve months of employment.
(4) The exercise price of their incentive stock options is equal to 110% of the
fair market value of the Company's Common Stock on the date such options were
granted.
The Company entered into employment agreements dated as of August 1,
1994, with its President, Jay D. Haber and its Vice President and Secretary,
Michael Hale (See "Employment Contracts" below). Under the terms of the
Employment Agreements, Mr. Haber and Mr. Hale are each entitled to receive
grants of non-incentive stock options covering 15,000 shares of the Company's
Common Stock on August 1 of each year of service rendered to the Company.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
During the fiscal year ended December 31, 1996, none of the Company's
executive officers exercised any options. The Company had not issued any SARs
during the fiscal year ended December 31, 1996.
24
<PAGE>
<TABLE>
<CAPTION>
Estimated Future Payouts under
Non-Stock Price-Based Plans
------------------ ---------------- ---------------
(a) Name (b) Number (c) (d) Threshold (e) Target (f) Maximum
of shares, ($ or #) ($ or #) ($ or #)
units or Performance or
other rights other period
(#) until
maturation or
payout
- --------------- --------------- ------------------- ------------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Jay D. Haber 15,000(1) The options are N/A N/A N/A
exercisable
after August 1,
1997.
- --------------- --------------- ------------------- ------------------ ---------------- ---------------
35,000(2) The options are N/A N/A N/A
currently
exercisable and
expire on
March 5, 2001.
- --------------- --------------- ------------------- ------------------ ---------------- ---------------
Michael Hale 15,000(1) The options are N/A N/A N/A
exercisable
after August 1,
1997.
- --------------- --------------- ------------------- ------------------ ---------------- ---------------
The options are
currently
exercisable and
expire on
35,000(2) March 5, 2001 N/A N/A N/A
=============== =============== =================== ================== ================ ===============
</TABLE>
(1) Messrs. Haber and Hale each received non-incentive stock options
covering 15,000 shares of the Company's Common Stock under the terms of their
respective Employment Agreements with the Company (See "Employment Contracts"
below). The exercise price of the options is equal to the average of the closing
high bid and low asked quotations for the Company's Common Stock on the date the
options were granted.
(2) Messrs. Haber and Hale were each awarded incentive stock options to
purchase 35,000 shares of the Company's Common Stock as compensation in
connection with the successful funding of the loan obtained by Quantum
Geophysical, Inc. The exercise price of their incentive stock options is equal
to 110% of the fair market value of the Company's Common Stock on the date such
options were granted.
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees receive $2,500 per year
for their services as directors. Directors also receive $250 per meeting
attended. Directors, who are not employees or officers of the Company, are
reimbursed for their actual expenses incurred in attending meetings of the Board
of Directors.
25
<PAGE>
EMPLOYMENT CONTRACTS
Effective August 1, 1994, the Company entered into an Employment
Agreement with Jay D. Haber, pursuant to which Mr. Haber serves as the President
and Chief Executive Officer of the Company. The compensation payable to Mr.
Haber under his Employment Agreement consists of: (i) a base salary of $140,000
per year, (ii) an incentive cash bonus from profits derived from the Company's
sales of oil and gas prospects, (iii) the Company's agreement to grant on August
1 of each year of Mr. Haber's services, non-incentive stock options covering
15,000 shares of the Company's Common Stock under the 1995 Stock Option Plan,
and (iv) eligibility to participate in the Company's employee benefit plans
which may be adopted. The Employment Agreement has a term of three years and is
terminable by the Company upon its good faith determination that there has been
a willful violation of the terms of the agreement. In 1996, Mr. Haber did not
receive a bonus from the Company.
Effective August 1, 1994, the Company entered into an Employment
Agreement with Michael Hale, pursuant to which Mr. Hale serves as Vice President
of the Company. Mr. Hale also serves as Secretary of the Company. The
compensation payable to Mr. Hale consists of (i) a base salary of $98,000 per
year, (ii) an incentive cash bonus from profits derived from the Company's sales
of oil and gas prospects, (iii) the Company's agreement to grant, on August 1 of
each year of Mr. Hale's services non-incentive stock options covering 15,000
shares of the Company's Common Stock under the 1995 Stock Option Plan, and (iv)
eligibility to participate in the Company's employee benefit plans which may be
adopted. Mr. Hale's employment agreement has a term of three years and is
terminable by the Company upon its good faith determination that there has been
a willful violation of the terms of the agreement. In 1996, Mr. Hale did not
receive a bonus from the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 31, 1997, the number of
shares of the Company's Common Stock beneficially owned by (i) each person known
by the Company (based on filings under Section 13(d) or 13(g) of the Exchange
Act) to be the holder of more than five percent of its voting securities, (ii)
each director or nominee for election as a director, and (iii) all of the
Company's directors and officers as a group. Unless otherwise indicated, each
holder has sole voting and investment power with respect to the shares of Common
Stock owned by such holder.
Name and Address
of Beneficial Owner Amount and Nature of Percent of
or Group Beneficial Ownership Class (1)
-------- -------------------- ---------
Jay D. Haber (2) 1,124,602 shares (2) 15.70 %
5555 San Felipe, Suite 780
Houston, TX 77056
Michael D. Hale (3) 832,054 shares (3) 11.62%
5555 San Felipe, Suite 780
Houston, TX 77056
26
<PAGE>
Name and Address
of Beneficial Owner Amount and Nature of Percent of
or Group Beneficial Ownership Class (1)
-------- -------------------- ---------
Henry H. Patton 600,000 shares 8.38%
1308 The Great Road
Princeton, NJ 08540
William H. Murphy 284,149 shares (4) 3.97%
2200 Post Oak Boulevard,
Suite 514
Houston, TX 77056
Herbert H. Hedick 33,119 shares (5) .46%
Box 249, 720 Town Hill
New Hartford, CT 06057
Robert M. Stafford(6) 607,834 shares (6) 8.49%
c/o Stafford Capital
Management
222 Kearny Street,
Suite 204
San Francisco, CA 94108
James W. Harpel
c/o Harpel Advisory Co., Inc
237 Park Avenue 566,666 shares (7) 7.91%
Suite 952
New York, NY 10017
All Directors and
Executive Officers
as a group
(four persons) 2,273,924 shares 31.75%
(1) These percentages are calculated on the basis of 4,953,288 shares of
Common Stock outstanding at March 31, 1997, plus 2,209,610 shares of Common
Stock currently purchasable pursuant to options, warrants, conversion privileges
or other rights.
(2) Includes 65,000 shares of Common Stock purchasable pursuant to
options granted to Mr. Haber under the 1995 Stock Option Plan.
(3) Includes 65,000 shares of Common Stock purchasable pursuant to
options granted to Mr. Hale under the 1995 Stock Option Plan.
(4) Refers to warrants entitling Mr. Murphy to purchase 147,764 shares
of Common Stock. These warrants are exercisable (i) after the earlier of (a)
July 31, 1997 or (b) 30 days after the Company has deducted and utilized the
federal income tax net operating loss carryforwards in existence as of August 1,
1994, and (ii) before July 31, 1999. The exercise prices range from $1.00 to
$1.75 per share. In addition, the Company has granted Mr. Murphy warrants to
purchase 136,385 shares of Common Stock. These warrants are currently
exercisable at $1.25 per share and expire December 31, 1997.
27
<PAGE>
(5) Refers to warrants entitling Mr. Hedick to purchase 33,119 shares of
Common Stock. Such shares may be issued upon the exercise of such warrants which
are exercisable before September 30, 1999 at a purchase price of $1.50 per
share.
(6) Refers to 458,167 shares owned by Robert M. Stafford and certain
affiliated entities and warrants entitling Mr. Stafford and such affiliated
entities to purchase an aggregate of 149,667 shares of Common Stock.
(7) Refers to 83,333 shares owned by James W. Harpel and warrants
entitling Mr. Harpel to purchase an aggregate of 483,333 shares of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
POST-CLOSING ADJUSTMENT.
The Company entered into a Post-Closing Adjustment Agreement dated as of
August 31, 1995 by and among the Company, Jay D. Haber and Michael Hale (the
"Post-Closing Agreement"), pursuant to which the Company issued 107,532 shares
of the Company's Common Stock to Mr. Haber and 77,868 shares of the Company's
Common Stock to Mr. Hale as an adjustment to the consideration paid to Messrs.
Haber and Hale in connection with the Company's August 1, 1994 acquisition of
the Haber/Hale oil and gas properties. Mr. Haber currently serves as President
of the Company and is a member of the Board of Directors. Mr. Hale is the
Company's Secretary and Vice President and is also a member of the Board of
Directors. The Post-Closing Adjustment Agreement was approved unanimously by the
disinterested members of the Board of Directors of the Company.
OFFICER ADVANCES
During the fiscal years ended December 31, 1995 and December 31, 1996,
the Company received working capital advances aggregating $141,722 from Jay D.
Haber, the Company's President and a member of the Company's Board of Directors.
These advances are payable on demand. Interest on such advances is based on the
prime rate as of the first day of each fiscal quarter, plus four per cent (4%)
and is payable quarterly.
FINANCIAL ADVISORY COMPENSATION
On October 23, 1996, the Company issued a promissory note in the
principal amount of $104,521 to William H. Murphy, a member of the Company's
Board of Directors. The note was issued as compensation to Mr. Murphy as a
result of the termination of the Financial Advisory Agreement, dated May 12,
1994, between the Company and Wm. H. Murphy & Co., Inc. The principal balance of
this note is payable in full on June 30, 1997. Interest accrues based on the
prime rate as of February 1, 1997, plus four percent (4%) and is payable monthly
until maturity.
28
<PAGE>
LOAN FROM DIRECTOR.
On October 23, 1996, the Company received a working capital advance of
$65,960 from William H. Murphy, a member of the Company's Board of Directors.
This loan is evidenced by a promissory note payable to Mr. Murphy. The principal
balance of this note is payable in full on June 30, 1997. Interest accrues based
on the prime rate as of February 1, 1997, plus four percent (4%) and is payable
monthly until maturity.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
The following documents are included as exhibits to this Form 10-KSB.
Exhibits incorporated by reference are indicated as such by the information
supplied thereafter. Exhibits being filed herewith are identified in the
parenthetical appearing after each such exhibit.
(a) EXHIBITS.
3.1 Certificate of Incorporation of the Company. Reference is made
to Exhibit 3(a) to Amendment No. 1 to the Company's Registration
Statement on Form S-3, filed with the Securities and Exchange
Commission on March 25, 1980.
3.2 Certificate of Amendment of Certificate of Incorporation of the
Company. Reference is made to Exhibit 3.2 to Form 10-KSB filed
with the Securities and Exchange Commission on April 24, 1996.
3.3 Bylaws of the Company. Reference is made to Exhibit 3(b) to
Amendment No. 1 to the Company's Registration Statement on Form
S-3, filed with the Securities and Exchange Commission on March
25, 1980.
8.1 Tax Opinion of David E. Hammer, P.C. concerning the
deductibility of the Company's net operating loss carryforwards
following the Company's acquisition of certain oil and gas
properties effective August 1, 1994. Reference is made to
Exhibit 8.1 to Form 10-KSB filed with the Securities and
Exchange Commission on May 19, 1995.
10.1 Agreement and Plan of Merger dated as of August 1, 1994, between
the Company, HOC Acquisition Corp., HLX Acquisition Corp., HOC
Operating Co., Inc., Hale Exploration Corporation, Jay D. Haber,
and Michael Hale. Reference is made to Exhibit 1 to Form 8-K
filed with the Securities and Exchange Commission on August 15,
1994.
10.2 Four common stock warrants issued to Wm. H. Murphy & Co., Inc.,
entitling the holder to purchase an aggregate of 443,492 shares
of the Company's common stock par value $.20 per share, for
purchase prices ranging from $1.00 to $1.75 per share. Reference
is made to Exhibit 10.2 to Form 10-KSB filed with the Securities
and Exchange Commission on May 19, 1995.
29
<PAGE>
10.3* Employment Agreement dated as of August 1, 1994 between the
Company and Jay D. Haber. Reference is made to Exhibit 10.2 to
Form 10-KSB filed with the Securities and Exchange Commission on
May 19, 1995.
10.4* Employment Agreement dated as of August 1, 1994 between the
Company and Michael Hale. Reference is made to Exhibit 10.2 to
Form 10-KSB filed with the Securities and Exchange Commission on
May 19, 1995.
10.5 Lease Agreement dated April 29, 1988, between Marathon Oil
Company and Lexington Oil Co., Inc. concerning office space
leased in Houston, Texas. Reference is made to Exhibit 10.2 to
Form 10-KSB filed with the Securities and Exchange Commission on
May 19, 1995.
10.6 Post-Closing Adjustment Agreement dated as of August 31, 1995
between the Company, Jay D. Haber and Michael Hale. Reference is
made to Exhibit 10.7 to Form 10-KSB filed with the Securities
and Exchange Commission on April 24, 1996.
22 List of the Company's Subsidiaries.
- ----------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
(b) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF THE PERIOD COVERED
BY THIS FORM 10-KSB.
None.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GEOKINETICS INC.
Date: March _____, 1997 By: ___________________________
Jay D. Haber, President
(Principal Executive Officer)
By: ___________________________
Paul Miles
(Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities* and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
Director and President March , 1997
Jay D. Haber
Director, Vice President March , 1997
Michael D. Hale and Secretary
William H. Murphy Director March , 1997
Herbert H. Hedick Director March , 1997
- ------------
* The Registrant does not have a Principal Financial or Accounting Officer.
31
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Certificate of Incorporation of the Company. Reference is made
to Exhibit 3(a) to Amendment No. 1 to the Company's Registration
Statement on Form S-3, filed with the Securities and Exchange
Commission on March 25, 1980.
3.2 Certificate of Amendment of Certificate of Incorporation of the
Company. Reference is made to Exhibit 3.2 to Form 10-KSB filed
with the Securities and Exchange Commission on April 24, 1996.
3.3 Bylaws of the Company. Reference is made to Exhibit 3(b) to
Amendment No. 1 to the Company's Registration Statement on Form
S-3, filed with the Securities and Exchange Commission on March
25, 1980.
8.1 Tax Opinion of David E. Hammer, P.C. concerning the
deductibility of the Company's net operating loss carryforwards
following the Company's acquisition of certain oil and gas
properties effective August 1, 1994. Reference is made to
Exhibit 8.1 to Form 10-KSB filed with the Securities and
Exchange Commission on May 19, 1995.
10.1 Agreement and Plan of Merger dated as of August 1, 1994, between
the Company, HOC Acquisition Corp., HLX Acquisition Corp., HOC
Operating Co., Inc., Hale Exploration Corporation, Jay D. Haber,
and Michael Hale. Reference is made to Exhibit 1 to Form 8-K
filed with the Securities and Exchange Commission on August 15,
1994.
10.2 Four (4) common stock warrants issued to Wm. H. Murphy & Co.,
Inc., entitling the holder to purchase an aggregate of 443,492
shares of the Company's common stock par value $.20 per share,
for purchase prices ranging from $1.00 to $1.75 per share.
Reference is made to Exhibit 10.2 to Form 10-KSB filed with the
Securities and Exchange Commission on May 19, 1995.
10.3* Employment Agreement dated as of August 1, 1994 between the
Company and Jay D. Haber. Reference is made to Exhibit 10.2 to
Form 10-KSB filed with the Securities and Exchange Commission on
May 19, 1995.
10.4* Employment Agreement dated as of August 1, 1994 between the
Company and Michael Hale. Reference is made to Exhibit 10.2 to
Form 10-KSB filed with the Securities and Exchange Commission on
May 19, 1995.
10.5 Lease Agreement dated April 29, 1988, between Marathon Oil
Company and Lexington Oil Co., Inc. concerning office space
leased in Houston, Texas. Reference is made to Exhibit 10.2 to
Form 10-KSB filed with the Securities and Exchange Commission on
May 19, 1995.
<PAGE>
10.6 Post-Closing Adjustment Agreement dated as of August 31, 1995
between the Company, Jay D. Haber and Michael Hale. Reference is
made to Exhibit 10.2 to Form 10-KSB filed with the Securities
and Exchange Commission on April 24, 1996.
22 List of the Company's Subsidiaries.
- ----------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
EXHIBIT 22
Following is a list of the Company's Subsidiaries:
Other Name Under
Which Subsidiary Jurisdiction of
Name Of Subsidiary Conducts Business Incorporation
- ------------------ ----------------- -------------
HOC Operating Co., Inc. None Texas
(formerly HOC Acquisition
Corp.)
Geokinetics Production Co., Inc. None Texas
(formerly HLX Acquisition
Corp.)
Quantum Geophysical, Inc. None Texas
Geoscience Software Solutions,
Inc. None Texas
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
[FINANCIAL DATA SCHEDULE GOES HERE]
</TABLE>
