FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED
For the transition period from _______________ to ____________
Commission File Number: 0-9500
MOUNTAINS WEST EXPLORATION, INC.
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(Exact of small business issuer in its charter)
New Mexico 85-0280415
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) identification no.)
616 Central, S.E., Suite 213, Albuquerque, New Mexico 87102
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 505-243-4949
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$0.001 Par Value Common Stock
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes[ X ] No[ ].
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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 ]
State issuer's revenues for its most recent fiscal year. $183,616
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act).
$1,545,105 (based on an estimated market value of $0.08 per share)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: $0.001 par value common stock, its
only class of equity securities, as of March 15, 1997 was: 37,034,270.
PART I
Item 1. Description of Business.
The Company
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Mountains West Exploration, Inc. (the "Company") was incorporated under the laws
of the State of New Mexico on September 17, 1979.
The Company, is an independent oil and gas company engaged in the acquisition,
exploration and development of oil and gas leases and concessions located in
Colorado and North Dakota. Recent and more important exploratory efforts have
been centered in Australia, Papua New Guinea, Central America and South America.
The Company is aggressively pursuing its major objective of increasing its oil
and gas reserves and production. During the past several years, the Company has
been establishing itself as a foreign exploration company. With most of the oil
and gas industry concentrating in foreign countries, the Company is now in an
excellent position to take advantage of the experience of its management and its
foreign concession and license interests.
For the past several years, as resources have permitted, the Company has been
increasing its activities and oil and gas production is rising, but it has yet
to obtain significant oil or gas income. Management's time and the limited
Company resources have been used to maintain the properties held, to acquire
additional properties and to participate to the extent possible in the
development of its properties. (See Item 2. Properties).
Domestic Exploration and Production
The Company owns small interests in seven oil and gas wells in the
Denver-Julesburg basin in Eastern Colorado. These wells have been producing from
the "J" and Codel sandstones and are believed by Company Management to have
reached their economic limits. Small undeveloped reserves are behind the pipe in
most of these wells and will be developed in the near future, but are no longer
considered to have any value to the Company.
The Company has small interests in three wells in North Dakota, but the revenue
from these wells is insubstantial and Management considers these interests of no
value.
The Company has approximately 2,312 net acres of mineral rights in the Raton
Basin of South Central Colorado. One gas well was drilled on these interests by
Evergreen Resources, Inc. in 1995 and that well was completed in the Raton coal
beds at depths ranging from 1,000 feet to 1,200 feet, with an initial potential
of 478 MCF per day. The Company owns a 6 1/4 percent interest in the well. The
well has been connected to a pipeline to market the gas.
Infinity, Inc. , has staked 28 locations to the north and southwest of these
interests. This is in addition to 4 wells drilled by Montana-Dakota to the south
of the interests. Development of the Company's 1,770 acres will be a priority
during 1997. In February of 1997, the Company sold its interest in these
properties to Rabalais Oil and Gas Interests for $60 per acre.
Access to all domestic properties in which the Company owns any interest is
readily available from state and county highways and roads on a year round
basis.
Foreign Exploration.
Activities Related to Previously Reported Papua New Guinea Oil Interests
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In 1984, the Company acquired Papua New Guinea Petroleum Prospecting Permit
number PPL 56, which after several farmouts of interest became owned by the PPL
56 Joint Venture Group, that was formed to conduct exploration activities on the
License. In 1991, a significant oil discovery was made on the License with the
#1 S.E. Gobe well which production tested for 4,250 barrels of oil per day from
the Jurassic Iagifu sandstone. Also in 1991, the #2 S.E. Gobe well was drilled
approximately one mile to the Southeast of the #1 well and tested 8,907 barrels
of oil per day, which was one of the biggest flows of oil ever recorded in Papua
New Guinea. In 1992, the #3 S.E. Gobe well was drilled and competed for 6,300
barrels of oil and 22.1 million cubic feet of gas per day. These three wells
established a gross vertical oil column in excess of 330 feet on the License.
The area upon which these wells are located is known as the Southwest Gobe Oil
Field. The Company owns a 2 1/2% interest in the PPL 56 Joint Venture Group that
owns the Southwest Gobe Oil Field. In 1995, the Chevron PPL 161 Group moved
approximately 1 mile northwest of the Southeast Gobe Field and made an oil
discovery which increased the Company's oil reserves of the Southeast Gobe field
by approximately 108,500 barrels
The Southeast Gobe Oil Field and the Gobe Main oil field, upon which there are
located 5 oil wells belonging to the Southeast Gobe Unit have now been unitized
with Chevron being elected to be the operator for all projects related to the
fields. The entire producing area is now over 12 miles long. The field is
located in mountainous country of the Papuan Fold Belt. Eight miles to the
south, Chevron has established and is operating a pipe line through which it is
presently transporting approximately 100,000 barrels of oil per day from its
fields in the Kutubu area located several miles northwest of the Southeast Gobe
and Gobe Main oil fields. The Group is making engineering studies to place the
Group's wells on production and connect them to Chevron's pipeline. At the
present time, Chevron is predicting that the first oil production will be in
March of 1998.
There are no roads in the area of the Southeast Gobe Oil Field except a road
which the Chevron Group built paralleling its pipeline. A road from the Chevron
Group's pipeline road to the Joint Venture's production facilities may be
constructed to permit access to the Joint Ventures production and maintenance
facilities. In the absence of any roads, all access to the field and the Joint
Ventures facilities has been by helicopter.
During 1996, PPL 56 expired of its own terms. PPL 56 was refiled into two new
licenses. The southern part of PPL 56 was refiled as PPL 189. The northern part
of PPL 56 was refiled as PPL 190. The Southeast Gobe Field Unit was refiled as
Petroleum Development License No. 3. The Company's interest in the unitized
fields, after the exercise by the government to acquire a 22 % interest in the
fields, is approximately .8718%. After a realignment of interests in the two new
exploration licenses, The Company now has a 5.051% interest in PPL 189 and a
3.763% interest in PPL 190. The increase in the Company's share of the new
licenses greatly increases the Company's gas reserves in Papua New Guinea.
Activities Related to New Papua New Guinea Gas Interests
- --------------------------------------------------------
PPL 189 which contains the Barikewa gas field has other prospects located on it.
A huge NW-SE surface structure, the Orie Anticline, was drilled several years
ago but failed to encounter any sand development. The structure remains
prospective to the west along the upper crest of the anticline and along the
south western flanks of the high where large stratigraphic traps could exist.
New studies indicate Tertiary reefs are present in the area which are known to
produce to the east and southeast.
PPL 190 has numerous anticlines located on it. The most important ones are as
follows:
1. MASAKA STRUCTURE. This is a northwest southeast trending anticline parallel
to and located about six miles north of the Gobe Structure. This feature is
larger than the Gobe anticline. The #1 Makas well was drilled on the structure
as a discovery well. High pressures in two upper zones, as yet not known to
produce, prevented this well from being completed as a commercial well. The
structure extends over into PPL 190 trending eastward for several miles. The
Company has a 3.763% interest in this feature.
2. WASUMA STRUCTURE. This structure is located between the Masaka structure on
the north and the Gobe structure on the south. Most of the anticline lies in PPL
190. Plans are to drill this structure in the future.
3. ANESI STRUCTURE. The Anesi anticline was tested by the Beaver #1 well drilled
during 1996. The well was a dry hole but encountered sufficient shows of oil and
gas to indicate that the western one half of the structure which lies in PPL 190
is still very prospective.
New discoveries such as the #1 Makas and a new Chevron discovery, #1 Moran, are
finding new reserves in quantities far exceeding those found to date in the
existing fields.
Prior to 1984, two discoveries of gas were made(the expired PPL 56 License), the
Iehi gas field, which is now located on PPL 190 License and the Barikewa gas
field, now located on PPL 189 License. Both fields are awaiting development as
soon as a pipeline is available. Three separate groups of companies have
announced that they are conducting feasibility studies for liquefied natural gas
plants to be constructed in Papua New Guinea. The Company has been told that a
feasibility study of a methenol plant is also being done. Chevron has announced
its intention to lay a pipeline from Papua New Guinea to northern Australia with
an anticipated completion date for the pipeline of 2001. The Iehi and Barikewa
fields are primary targets for feedstock for any LNG and methanol plants that
might eventually be constructed. Preliminary proven reserve calculations
indicate that there are 163 to 450 billion cubic feet of gas for the Barikewa
field and 23.5 to 88 billion cubic feet of gas for the Iehi field. Using the
average of each field, the Company will own reserves of approximately 9 BCF in
the two fields.
During 1995, the Beaver #1 wildcat well was drilled and abandoned by the PPL 56
Group on the Anesi anticline located approximately 15 miles east of the S.E.
Gobe Filed. The Company understands that this drilling attempt encountered good
oil shows in three zones but the PPL 56 Group has not announced whether or not
it intends to conduct additional exploration of this License at this time.
In 1995, all of the Company's interest in PPL Licenses number 174 and 143 were
sold to Gedd, Inc. for $200,000 with the proceeds of the sale to be used to
cover the costs of the work program of PPL 165, the newest New Guinea
prospecting license acquired by the Company. On April 24, 1996, the Company sold
PPL 165 to Gedd, Inc. subject to approval of the Papua New Guinea Department of
Mines and Petroleum, which on the date of this Form 10-KSB had not occurred.
Under the terms of the agreement with Gedd, Inc., Gedd, Inc. is to fund the
third and fourth years work program established for the license. Both Gedd, Inc.
and the Company anticipate that the license will eventually be farmed out to a
third party or parties. The Company is to receive 25% of the proceeds to GEDD
from any sale of the property and the Company may elect to reacquire 25% of any
interest retained by GEDD in the License. It is anticipated that any farmout
will require that if a drillable structure is confirmed, any company to which
the license will be farmed out will be required to drill at least one well to
test the structure.
Competitive Factors
The petroleum industry is volatile and highly competitive. Earnings from oil and
gas production are primarily dependent upon prices of crude oil and natural gas.
The costs and prices of crude oil, natural gas and refined products have
fluctuated substantially in recent years, often in a divergent fashion.
Competition exists in every aspect of oil and gas operations, including the
acquisition, exploration, discovery and development of new oil and gas reserves,
as well as purchasing, gathering, transporting, refining and marketing of crude
oil, natural gas and petroleum products.
Many companies and individuals are engaged in the oil and gas business in both
the U.S. and foreign markets. Many such companies are very large and well
established with substantial capabilities and long earnings records. The Company
has, and will continue, to encounter strong competition in acquiring oil and gas
leases, licenses and concessions from these and other companies. In most
instances the Company is not able to compete with these other more adequately
capitalized companies in meeting price, exploration and bonding requirements
established by the land owners or foreign governments. The Company has, however,
had success in acquiring more adequately capitalized partners with whom it has
joined to acquire properties and conduct operations thereon leading to the
discovery of commercial quantities of oil and gas.
The acquisition, exploration, development, production and sale of oil and gas
interests are subject to many factors which are outside the Company's control.
These factors include worldwide and United States economic conditions, oil
import and export quotas, availability of drilling rigs and pipelines, weather
conditions, supply and price of other fuels, and the regulation of production,
transportation and marketing by both domestic and foreign governmental agencies.
Foreign Governmental preferences for major international oil companies over
small independent companies may also have an adverse effect on the Company's
ability to compete with such major companies, even if it otherwise has the
capital to do so.
Environmental Regulations
On a worldwide basis, environmental laws and regulations vary greatly. In the
United States compliance with State and Federal laws may require significant
capital expenditure and will effect decisions regarding acquisition of certain
properties, methods of production and distribution of the oil and gas and the
Company's earning potential from any property. The managing partner of the PPL
56 Joint Venture has not informed the Partners in the Joint Venture of any
environmental laws, rules or regulations established by Papua New Guinea that
might be expected to have any unusual or adverse impact upon the operations of
the Joint Venture or the production of oil and gas from its license interests.
Governmental Regulations
United States.
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In the United States, the production of oil and gas is subject to regulation by
the various state regulatory authorities. In general, these regulatory
authorities are empowered to make and enforce regulations to prevent waste of
oil and gas, and to fix allowable production rates for oil and gas within the
limits of maximum rates of production and reasonable market demands for oil and
gas. In addition, the Company will be required to comply with spacing and other
conservation rules of the various states within which the Company owns oil and
gas leases upon which exploration activities are conducted. Also, with respect
to United States leases, the Company will be required to comply with
requirements established for exploration and development by the United States
Geological Survey and the Bureau of Land Management.
Natural gas production and prices are regulated by the Federal Energy Regulatory
Commission and are subject to the Natural Gas Policy Act. New natural gas, some
onshore gas production and interstate gas were deregulated effective January 1,
1985.
The Company will also be subjected to varying taxes that are or may be
established on producers of oil and gas relating to prices received in excess of
certain established norms.
Papua New Guinea.
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The managing partner of the PPL 56 Joint Venture has not informed the Partners
in the Joint Venture of any production limits, pricing procedures or other laws,
rules or regulations established by Papua New Guinea that might be expected to
have any unusual or adverse impact upon the operations of the Joint Venture or
the production of oil and gas from its concession.
Personnel.
The Company has one full time employee, that being its President, Robert A.
Doak, Jr. The Company has retained the services of outside parties for legal,
accounting, drafting, geological, and lease acquisition services to the extent
that it has been able to afford such expenses.
Item 2. Description of Properties.
Offices.
The Company rents its offices at 616 Central, N.W., Albuquerque, New Mexico
87102, under a month-to-month lease at a monthly rental of $546. The suite
consists of approximately 728 sq. feet, which Management believes will be
adequate for the Company's need for the foreseeable future. Approximately one
half of the space is sub-let to another party for a monthly rent of $245.
Productive Wells and Acreage.
The following table reflects the approximate total gross and net productive oil
and gas wells and approximate total gross and net developed acreage at December
31, 1996:
Productive Wells
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Oil Wells Gas Wells
Gross (1) Net (2) Gross (1) Net (2)
------------------- -------------------
Colorado - - 3 .3125
PNG (Unit) 5 .044 - -
----- ------ ----- -----
Totals 5 .044 3 .3125
===== ====== ===== =====
Developed Acreage Gross Net
----- ---
Colorado 240 30
PNG 2,000 50
________
1. Gross well or acres is a well or acre in which a working interest is owned.
Not included are wells in Billings County, North Dakota, in which the Company
holds overriding royalty interest aggregating less than one percent.
2. A net well or acre is deemed to exist when the sum or the fractional
ownership working interests in gross wells or acres equal one. As a working
interest holder, the Company, along with other working interest holders, pay
100% of production costs.
Oil and Gas Properties.
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Capitalized costs related to the Company's oil and gas activities as of
December 31, 1996 were as follows:
Oil and Gas Properties $2,642,285
Mineral Interests 40,083
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$2,682,368
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In 1984, the Company acquired a 2-1/2% interest in the Petroleum Prospecting
License #56 in Papua, New Guinea. In 1991 and 1992, three wells were completed
and shut in pending availability of gathering system, pipeline and processing
facilities. The Company's share of costs in the Venture has been loaned to the
Company by its Venture partners, including interest at 8%, to be repaid from the
proceeds of production. accordingly, the Company has recorded the liability to
its partners and the related asset at December 31, 1996, in the amount of
$2,576,730.
1996 Production
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Oil Avg. Sales Avg. Lifting
(Bbls) Price (Bbl) Costs (Bbl)
------ ----------- -----------
121 $18.00 $6.30
Gas Avg. Sales Avg. Lifting
(MCF) Price (MCF) Costs (MCF)
------ ----------- -----------
22,994 $0.95 $0.45
Drilling Activities.
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Exploratory Wells: Productive Dry
Gross Net Gross Net
----- --- ----- ---
1995 1 .0625 - -
1996 - - 1 .025
----- ----- ----- ------
Totals 1 .0625 1 .025
====== ===== ===== ======
Development Wells: Productive Dry
Gross Net Gross Net
----- --- ----- ---
1995 1 .0625 1 .025
1996 - - - -
----- ----- ----- -----
Totals 1 .0625 1 .025
===== ===== ===== =====
Undeveloped Properties
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At December 31, 1996, the Company held approximately the following gross
and net undeveloped oil and gas acreage:
Leases Gross Acres Net Acres (1) (2)
------ ----------- ---------
Colorado Mineral Interests 2,494 2,072
PNG PPL 56 (3) 903,000 22,575
PNG PPL 189 480,000 24,245
PNG PPL 190 460,000 17,309
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Totals 1,053,494 172,647
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(1) Computed using the Company's net revenue interest. Net Acres include working
interests and overriding royalty interests.
(2) The Company has the present right to acquire 25% of the interest owned by
GEDD, Inc. in the PPL 165 License. If that right were exercised, gross acres
would increase by 148,000 acres and net acres would increase by 37,000 acres.
(3) Of these totals, 168,000 gross, 4,200 net, acres are held by production.
Reserves
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The Company has not filed any reports containing oil or gas reserves estimates
with any Federal or foreign government or authority or agency within the past 12
months. Neither the Company nor the PPL 56 Joint Venture Manager has prepared or
had prepared for them any reserve reports related to the properties discussed
herein except those that are included with this Report.
Item 3. Legal Proceedings.
Insofar as is known to the Company's management, there are no legal proceedings
now pending, threatened, or contemplated, or unsatisfied judgments outstanding
which have not been provided for in any court or agency to which the Company or
any of its officers or directors, in such capacity, are or may be a party,
except as discussed below.
In 1987, the Company's former independent auditors, Arthur Andersen obtained a
judgment against the Company for unpaid audit fees in the amount of
approximately $6,000. This judgment remains outstanding at the date of this
Report.
Item 4. Submission of Matters to a Vote of Securities Holders.
No matters were submitted to a vote of shareholders during the fourth quarter of
the company's fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's common stock is traded over-the-counter. Prior to November 1983,
the Company's common stock was traded on the Nasdaq system under the symbol
MWEX. Since that time, the Company's common stock has been listed by the
National Daily Quotation Bureau, Inc. in its Pink Sheets and the OTC Bulletin
Board. The high and low bid prices during each quarter of 1995 and 1996 are as
follows
Bid Prices Bid Prices
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High Low High Low
---- --- ---- ---
March 31, 1996 .07 .0625 March 31, 1995 .03 .01
June 30, 1996 .0625 .03125 June 30, 1995 .03 .01
September 30, 1996 .0625 .03125 September 30, 1995 .045 .01
December 31, 1996 .0625 .03 December 31, 1995 .09 .01
There were approximately 2,000 holders of the Company's common stock on March
15, 1997.
The Company has never paid dividends on its common stock.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operations
During the year ended December 31, 1996, oil and gas sales were $24,129,
compared to $12,352 for the same period in the prior year. Significant increases
in such revenues are not anticipated by management to occur during the remainder
of the current fiscal year or until there is production from the Southeast Gobe
Oil and Gas Field.
During the current quarter certain transactions involving the Company's Papua
New Guinea operations occurred that will have a material effect on the Company
in future quarters and years. The original Petroleum Prospecting License No. 56
(PPL 56) expired in early December 1996. The partners in that License have taken
following the actions relating to that License, which have been approved by the
government.
a. The three oil wells in which the Company has an interest have been included
in an application for a Petroleum Development License (PDL). The oil wells and
certain lands within PPL 56 included within the PDL will be unitized with
Chevron Oil Company's existing PDL to the north. The two new PDLs will be
developed into the Southeast Gobe Oil and Main Gobe Fields. Development of these
fields is well under way with an anticipated first production scheduled shortly
after the first of 1998. The Company's interest in the unitized PDLs, after
exercise by the government of its right to acquire a 22 1/2% interest in the
fields, will be a net 0.88% interest which will result in an anticipated initial
production to the Company's interest of approximately 200 barrels of oil per
day. The Company's expenses in this unit is to be carried until production from
the wells existing on PPL 56 is sold. The costs of getting the oil from the unit
to sale has been estimated at more than $175,000,000, none of which will be
borne by the Company until after the first sale of production. After that time,
all of the money realized from the sale of the oil will be devoted to repayment
of the carried cost of the project, now estimated to be approximately
$300,000,000, which, at the production rate of 200 barrels per day to the
Company's interest will take approximately 36 months to pay out after production
begins.
b. The southern part of PPL 56 has been reissued as Forland PPL 189 Application,
which contains approximately 483,661 acres (24,429 net acres to the Company's
interest.) As a result of a reallocation of interests, the Company's interest in
this License has been increased from 2.5% to 5.051%. This license has the
Barikewa shut-in gas field located on it. The Barikewa field has gas reserves
estimated from 163 billion cubic feet to as high as 1590 billion cubic feet.
Further evaluation will be made to more precisely define the true reserves of
this field. Plans to build at least one LNG plant near Port Moresby has been
announced and Chevron has announced plans to build a gas pipeline from Papua New
Guinea into Northern Australia. Either an LNG plant or the proposed pipeline
should greatly increase the value of the gas reserves at Barikewa. The Company
will have to fund most of the work program of this license which calls for an
expenditure of approximately $6,250,000 over a period of six years, with
approximately $56,000 of that amount to be paid over the next year.
c. The northern part of PPL 56 has been reissued as Fold Belt PPL 190
Application. This block of approximately 462,632 acres (17,409 net to the
Company's interest) has many very prospective surface structures located on it.
One of these structures will be drilled during the first two years of the
license. A reallocation of interests has increased the Company's interest in
this license from 2.5% to 3.763%. During the first few months of the new License
existence, the Company will have to fund its share of a new seismic program
which is estimated to cost approximately $1,000,000. The Iehi shut-in gas field
lies on this license but the reserves are insignificant at this time. The
Company will have to fund most of the work program of the license which calls
for an expenditure of $13,500,000 over the next six years. Of the total costs
that must be incurred by the Company on this new License, 2.5% are subject to
the carried interest granted in PPL 56, therefore, the Company is obligated to
pay only 1.263% of the total costs incurred prior to production from any of the
properties originally encompassed by PPL 56. Management estimates that the
Company's cost in this new concession over the next year will be approximately
$200,000.
d. Petroleum Prospecting License No. 165, owned by the Company and Gedd PNG is
being evaluated at this time. An aeromagnetic survey has been completed and the
Company is awaiting the results of the survey which will determine if there is
one or more drillable structures on the license. Gedd is funding the work
program of this license.
With the increased activity and development in Papua New Guinea, the Company is
now seeking funds to carry forward the programs which are currently under way.
With oil production only a little over a year away and the gas reserves in Papua
New Guinea currently being studied for early development, the Company should be
able to acquire the necessary funds, either through borrowing or through sale of
equity, to meet its payment obligations under each of the licenses. However, the
Company does not presently have the liquidity that may be necessary to meet any
call for payment of expenses and the Company has no present assurance of the
availability of any of the funds that may be needed at the time needed. The
failure of the Company to meet any cash call made on it for its share of the
expenses incurred on any concession could result it its losing its interest in
the concession.
Changes in Financial Condition
The Company has experienced a decline in cash but has increased total assets
through the first nine months of the current fiscal year. The Company's primary
liability is a continually developing carried interest in certain New Guinea oil
and gas rights. Total liabilities aside from this obligation are approximately
$40,000. It is Management's belief that the Company will be able to continue to
meet its financial commitments during the coming fiscal year.
Item 7. Financial Statements.
Report of Independent Certified Public Accountants
Board of Directors
Mountains West Exploration, Inc.
We have audited the accompanying balance sheet of Mountains West Exploration,
Inc. (a New Mexico corporation) (MWEX) as of December 31, 1996, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1996, and 1995. These financial statements are the
responsibility of MWEX's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
Except as discussed in the following paragraphs, we conducted our audits in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
We were unable to obtain information pertaining to the discounted future net
cash flows relating to MWEX's interest in an oil and gas property as described
in Note 3 to the financial statements; nor were we able to satisfy ourselves as
to the carrying value of the oil and gas property by other auditing procedures.
We were also unable to determine MWEX's portion of revenues and expenses of the
partnership investment described in Note 10; therefore, no revenues and expenses
are recorded in the statement of operations for this investment for the year
ended December 31, 1996, and the investment recorded on the balance sheet as of
December 31, 1996 has not been adjusted for MWEX's portion of the revenues and
expenses of the partnership.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to examine the evidence
regarding the discounted future net cash flows and carrying value of an oil and
gas property and had the financial information necessary to determine MWEX's
portion of the revenues and expenses of the partnership investment been
available to properly record this investment, the financial statements referred
to above present fairly, in all material respects, the financial position of
Mountains West Exploration, Inc. as of December 31, 1996, and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
ERICKSON ALLEN, P.C.
Albuquerque, New Mexico
March 4, 1997
Mountains West Exploration, Inc.
Balance Sheet
December 31, 1996
Assets
Current assets
Cash (Note 11) ........................................... $ 38,876
Accrued interest receivable (Note 4) ..................... 6,424
-----------
Total current assets ................................... 45,300
-----------
Furniture and equipment
Furniture and equipment, at cost ......................... 17,119
Less accumulated depreciation ............................ (9,174)
-----------
Net furniture and equipment ............................ 7,945
-----------
Oil and gas properties, using the
successful efforts method (Note 3) ....................... 2,642,285
Less accumulated depreciation, depletion,
amortization, and valuation allowance .................... (14,779)
-----------
Net oil and gas properties ............................. 2,627,506
-----------
Other assets
Term deposit account - restricted (Note 9) ............... 53,042
Investment in partnership (Note 10) ...................... 15,000
Note receivable - officer (Note 4) ....................... 100,000
Mineral interests (Note 5) ............................... 40,083
-----------
Total other assets ..................................... 208,125
-----------
Total assets ........................................... $ 2,888,876
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ............................................ $ 16,002
Accrued liabilities ......................................... 56
Advances (Note 11) .......................................... 24,363
Accounts payable - officer (Note 4) ......................... 206
Notes payable - officer (Note 4) ............................ 16,900
Due to affiliates (Note 6) .................................. 2,576,730
-----------
Total current liabilities ................................. 2,634,257
Commitments (Notes 3, 11, and 12) ............................. --
Stockholders' equity (Note 7)
Common stock of $.001 par value per share, authorized
50,000,000 shares; issued 37,103,770 shares;
outstanding, 37,034,270 shares ............................ 37,035
Capital in excess of par value .............................. 1,608,757
Accumulated deficit ......................................... (1,391,173)
-----------
Total stockholders' equity ................................ 254,619
-----------
Total liabilities and stockholders' equity ................ $ 2,888,876
===========
The accompanying notes are an integral part of these financial statements.
Mountains West Exploration, Inc.
Statements of Operations
For Years Ended December 31,
1996 1995
------------ ------------
Revenues
Oil and gas sales .............................. $ 24,129 $ 12,352
Sale of interests in oil and gas property
(Note 4) ..................................... 159,487 200,000
------------ ------------
Total revenues ............................... 183,616 212,352
------------ ------------
Expenses
Production costs ............................... 5,107 4,949
Exploration costs .............................. 121,809 21,180
Depreciation, depletion and valuation allowance 3,991 5,158
Consulting ..................................... 753 955
General and administrative ..................... 142,776 114,867
------------ ------------
Total expenses ............................... 274,436 147,109
------------ ------------
(Loss) earnings from operations ................ (90,820) 65,243
------------ ------------
Other income (expense)
Interest income ................................ 8,783 8,432
Interest expense ............................... (14) (973)
------------ ------------
Total other income (expense) ................. 8,769 7,459
------------ ------------
Net (loss) earnings ............................ $ (82,051) $ 72,702
============ ============
(Loss) earnings per common share (Note 2)
Net (loss) earnings per common share ........ $ (0.002) $ 0.002
============ ============
Weighted average number of shares
outstanding .................................. 36,683,233 36,618,470
============ ============
(Loss) earnings per common share - assuming
full dilution (Note 2)
Net (loss) earnings per common share ........ $ (0.002) $ 0.002
============ ============
Weighted average number of shares
outstanding .................................. 36,683,233 36,618,470
============ ============
The accompanying notes are an integral part of these financial statements.
Mountains West Exploration, Inc.
Statements of Stockholders' Equity
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Capital in Total
Excess of Stock Accumulated Treasury Stockholders'
Common Stock Par Value Warrants Deficit Stock Equity
-------------------------- ----------- ----------- ----------- ----------- -----------
Shares Amount
----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 36,635,720 $ 36,636 $ 1,562,538 $ 46,687 $(1,376,373) $ -- $ 269,488
Purchase of treasury stock . (49,500) -- -- -- -- (3,480) (3,480)
Net earnings for the year
ended December 31, 1995 .. -- -- -- -- 72,702 -- 72,702
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1995 36,586,220 36,636 1,562,538 46,687 (1,303,671) (3,480) 338,710
Retirement of common stock . (20,000) (20) -- -- (2,020) -- (2,040)
Retirement of treasury stock -- (49) -- -- (3,431) 3,480 --
Common stock issued (Note 7) 468,050 468 46,219 (46,687) -- -- --
Net loss for the year ended
December 31, 1996 .. -- -- -- -- (82,051) -- (82,051)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1996 37,034,270 $ 37,035 $ 1,608,757 $ -- $(1,391,173) $ -- $ 254,619
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Mountains West Exploration, Inc.
Statements of Cash Flows
For the Years Ended December 31,
1996 1995
--------- ---------
Cash flows from operating activities
Cash received from customers ......................... $ 194,129 $ 212,352
Cash paid to suppliers and employees ................. (271,609) (135,544)
Interest received .................................... 6,658 4,133
Interest paid ........................................ (14) (973)
--------- ---------
Net cash (used in) provided by
operating activities ............................. (70,836) 79,968
--------- ---------
Cash flows from investing activities
Purchase of partnership interest ..................... (15,000) --
Purchases of furniture and equipment ................. (285) (4,829)
Purchases of oil and gas properties
and mineral interests .............................. (28,432) (2,208)
Proceeds from advances ............................... 95,150 10,000
Purchases related to oil and gas
venture ............................................ (71,910) (8,877)
--------- ---------
Net cash (used in)
investing activities ....................... (20,477) (5,914)
--------- ---------
Cash flows from financing activities
Proceeds from notes payable - officer ................ 16,900 --
Repurchase of common stock ........................... (2,040) (3,480)
--------- ---------
Net cash provided by (used in)
financing activities ............................. 14,860 (3,480)
--------- ---------
Net (decrease) increase in cash ...................... (76,453) 70,574
Cash, beginning of year .............................. 115,329 44,755
--------- ---------
Cash, end of year .................................... $ 38,876 $ 115,329
========= =========
Reconciliation of net (loss) earnings to cash flows
from operating activities
Net (loss) earnings .................................. $ (82,051) $ 72,702
Adjustments
Depreciation, depletion, amortization,
and valuation allowance .......................... 3,991 5,158
Adjustment to oil and gas sales .................... 10,513 --
Decrease in income taxes receivable ................ -- 2,430
Increase in due to officer ......................... 206 --
Decrease in deposit ................................ -- 5,000
Increase in accrued interest receivable ............ (2,125) (4,299)
Decrease increase in accounts payable .............. -- (2)
Decrease in accrued liabilities .................... (1,370) (1,021)
--------- ---------
Net cash (used in) provided by
operating activities ........................... $ (70,836) $ 79,968
========= =========
Noncash investing and financing activities
MWEX was loaned $713,274 and $325,305 in 1996 and 1995, respectively, which was
invested in its oil and gas property in Papua, New Guinea (Note 3).
MWEX retired 69,500 shares of its common stock in 1996, of which 49,500 shares
were purchased in 1995 for $5,520.
During 1996, 468,050 shares of common stock were issued to previous warrant
holders who elected not to exercise their warrants (Note 7).
The accompanying notes are an integral part of these financial statements.
Mountains West Exploration, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
1) Organization
Mountains West Exploration, Inc. (MWEX) was organized for the purpose of
acquiring interests in undeveloped oil and gas and mineral leases,
reselling all or part of its interest in these leases to other companies in
the oil and gas industry and engaging in other oil and gas activities. MWEX
operates in the United States and in several foreign countries.
2) Summary of Significant Accounting Policies
Furniture and equipment
-----------------------
Furniture and equipment are capitalized at acquisition cost and depreciated
utilizing the straight-line method over its estimated useful life of five
years. Maintenance, repairs and minor renewals are charged to operations as
incurred. Major renewals and betterments which substantially extend the
useful life of the property and equipment are capitalized.
Oil and gas properties
----------------------
MWEX uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire interests in oil and gas properties,
to drill and equip exploratory wells that find proved reserves, and to
drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, geological and
geophysical costs, and costs of carrying and retaining unproved properties
are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at
the time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on MWEX's experience of successful drilling
and average holding period. Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement and abandonment costs
and estimated salvage values, are depreciated and depleted by the
unit-of-production method.
Income recognition on sale of oil and gas leases
------------------------------------------------
Sales of interests in undeveloped oil and gas leases are accounted for
utilizing the cost recovery method. Accordingly, for financial reporting
purposes, gain on sales of interests in such leases is recognized only to
the extent that total proceeds of the sale exceed MWEX's original cost in
the leases. Gain is not recognized on sales in which a substantial
obligation for future performance exists.
Net earnings (loss) per share of common stock
---------------------------------------------
Net earnings (loss) per common share has been computed based on the
weighted average number of shares outstanding during each year. Stock
warrants were not included in the full dilution computation for 1995, as
they were antidilutive. During 1996, warrant holders elected not to
exercise their options (Note 7).
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual amounts could differ from
those estimates.
3) Oil and Gas Properties
Capitalized costs using the successful efforts method related to MWEX's oil
and gas activities as of December 31, 1996, are as follows:
1996
----------
Proved developed properties $ 14,779
Proved shut-in property 2,627,506
----------
2,642,285
Accumulated depreciation,
depletion, and amortization,
and valuation allowances (14,779)
----------
Net capitalized costs $2,627,506
==========
Costs incurred, whether capitalized or expensed, related to MWEX's oil and
gas activities as of December 31, 1996, are as follows:
Papua
United New
States Guinea Total
---------- ---------- ----------
Acquisition of properties
- Proved $ 14,779 $ - $ 14,779
- Proved - shut-in - 2,627,506 2,627,506
---------- ---------- ----------
Total $ 14,779 $2,627,506 $2,642,285
========== ========== ==========
Exploration costs $ - $ 121,809 $ 121,809
========== ========== ==========
Development costs $ 3,991 $ - $ 3,991
========== ========== ==========
In 1984, MWEX acquired a 2.5% interest in the Petroleum Prospecting License
(PPL) #56 Joint Venture (the "Joint Venture") in Papua New Guinea. The
Joint Venture owns three oil wells in the Southeast Gobe Field and the Gobe
Main oil field. The remaining oil wells in these fields are owned by the
Chevron PPL#161 Group in which MWEX owns no interest. The PPL#56 license
expired in December 1996. Upon the expiration of the license, the Joint
Venture petitioned the New Guinea government to issue new licenses to
replace the old license. New licenses were issued by the government
subsequent to December 31, 1996 (Note 12).
The Joint Operating Agreement between the PPL#56 Joint Venture owners
provides that the owners will advance for MWEX's benefit all the costs
associated with the operation of the Joint Venture until such time as oil
or gas is produced and sold from the concession. This obligation accrues
interest at eight percent (8%) per annum. In addition to the amount loaned,
accrued interest of $134,213 and $79,518 has been capitalized during 1996
and 1995, respectively, and is included in the total proved shut-in
property category. If production is established on the property, MWEX will
be required to pay for its share of costs to that date and also will be
required to participate financially in any further drilling and development
or risk the loss of its working interest in future wells.
Information pertaining to the discounted future cash flows from the Papua
New Guinea property was not available at December 31, 1996 and 1995.
In April 1996, MWEX finalized its agreement to sell PPL#165 to Gedd, Inc.,
a related party (Note 4). At the time of execution of the agreement, MWEX
has expended approximately $127,000 for application fees and costs related
to the development of a two year work program related to PPL#165. Gedd,
Inc. paid $170,000 for the license, resulting in a gain of $159,487 for
MWEX, and agreed it would pay MWEX 25% of the total net revenue from any
subsequent sale by Gedd, Inc. to a third party. In addition, the agreement
provides MWEX will receive 25% of any interest retained by Gedd, Inc. in
the license. The letter agreement of PPL#165 has been submitted to the New
Guinea government for approval during 1996. This approval had not been
obtained as of December 31, 1996.
During 1995, MWEX sold its interests in PPL#143 and PPL#174 to Gedd, Inc.
for a gain of $200,000.
4) Related Party Transactions
MWEX reimburses its president, Robert A. Doak, Jr., for various
expenditures made on behalf of MWEX consisting mainly of travel expenses.
In addition, the President of MWEX was paid $78,000 and $80,000 during the
years ended December 31, 1996 and 1995, respectively. Amounts due from and
to the President of MWEX at December 31, 1996, are as follows:
Note receivable due May 15, 1998, interest
at 4% per annum, mortgage on real estate
and 3,000,000 shares of Mountains West
Exploration, Inc. common stock are
pledged as collateral $ 100,000
==========
Accrued interest - note receivable $ 6,024
==========
Note payable on demand, interest at 13%,
uncollateralized $ 12,500
Note payable on demand, interest at 17%,
uncollateralized 4,400
----------
Total notes payable - officer $ 16,900
==========
Accounts payable $ 206
==========
Robert A. Doak, Jr. owned 10,480,548 and 11,400,198 of MWEX's common stock
at December 31, 1996 and 1995, respectively. These shares represent 28% and
31% of the total common stock shares outstanding at December 31, 1996 and
1995, respectively. The wife of Robert A. Doak, Jr., Frances Doak, owned
255,000 shares of these shares.
The President of Gedd, Inc. is also on the Board of Directors of MWEX.
During 1996, MWEX sold PPL#165 to Gedd, Inc. and sold two other PPL's to
Gedd, Inc. in 1995 (Note 3).
5) Mineral Interest
MWEX owns various mineral deeds of property in Las Animas County, Colorado.
The property is subject to a previous deed which reserved to a prior owner
any coal located on the property.
6) Due to Affiliates
Amounts due to affiliates include the following at December 31, 1996:
Due to owners of PPL#56 joint venture,
interest 8% per annum, payable from
future production $ 2,576,730
===========
7) Stock Warrants
During 1991, MWEX sold 1,556,234 warrants to purchase its $.001 par value
common stock for $.03 per share. Each warrant granted the owner the option
to purchase one share of $.001 par value common stock for $.10 per share.
During 1996, all the warrant holders elected not to exercise their warrants
and received shares of common stock of MWEX equal to their option fee
divided by $.10. A total of 468,050 shares of common stock were issued in
1996 to the previous warrant holders.
8) Income Taxes
MWEX had approximately $1,323,700 and $1,244,700 of federal net operating
loss carryforwards at December 31, 1996 and 1995, respectively. The federal
net operating loss carryforwards on December 31, 1996, expire on various
dates between 1999 and 2011. MWEX also had approximately $1,189,100 and
$1,161,200 of state net operating loss carryforwards at December 31, 1996
and 1995, respectively. The state net operating loss carryforwards on
December 31, 1996, expire on various dates between 1999 and 2011.
Temporary differences under SFAS 109 result from differences in bases of
assets and liabilities for book and tax purposes. MWEX had the following
temporary differences at December 31:
1996 1995
--------- ----------
Intangible drilling costs $ - $ 2,525
Accumulated depreciation 1,147 1,623
---------- ----------
$ 1,147 $ 4,148
========== ==========
A reconciliation of differences between the effective tax rate of MWEX and
the U.S. federal statuary rate for 1996 is as follows:
1996 1995
--------- ---------
Federal statutory rate 19% 18%
Use of net operating loss (15)% (14)%
State income tax benefit (4)% (4)%
--------- ---------
- -
========= =========
MWEX's deferred tax assets and deferred tax liabilities are as follows:
December 31, 1996 December 31, 1995
----------------------- ----------------------
Deferred Deferred
Income Income
Tax Asset Tax Asset
Amount (Liability) Amount (Liability)
------ ----------- ------ -----------
Federal net operating
loss carryforwards $ 1,323,652 $ 450,000 $ 1,244,665 $ 423,200
State net operating
loss carryforwards 1,189,138 59,500 1,161,248 58,100
Intangible drilling
costs ............. -- -- 2,525 (985)
Accumulated
depreciation ...... 1,147 (500) 1,623 (615)
----------- -----------
509,000 479,700
Deferred income tax
asset valuation
allowance ......... (509,000) (479,700)
----------- -----------
Net deferred income
tax asset ......... $ -- $ --
=========== ===========
9) Term Deposit Account - Restricted
MWEX has $53,042 of cash in a term deposit account that is restricted for
the purpose of guaranteeing a performance bond related to PPL#165. The
performance bond was acquired in 1995 to guarantee that exploratory
procedures would be performed on the property. The ownership of this cash
remains with MWEX even though PPL#165 was sold Gedd, Inc. (Note 3).
10) Investment in Partnership
During 1996, MWEX obtained a .75% interest in the Urubamba Placer Mining
Company (A Limited Partnership) for a cost of $15,000. This partnership was
formed to mine and sell the minerals in the Urubamba and Yanatili rivers in
Peru. The profits and losses of the partnership are to be shared in
proportion to the ownership percentages of the partners.
11) Cash and Advances
During 1996 and 1995, participants in a project known as the Peru Oriente
Project (the "Project") advanced $22,150 to MWEX for current and future
costs related to the Project. MWEX is required to spend these funds only on
costs related to the Project. As of December 31, 1996, costs incurred
related to the Project amounted to $17,373. Cash in the amount of $4,777 at
December 31, 1996, is restricted for future Project expenses.
In addition, as part of MWEX's agreement with Gedd, Inc. related to the
sale of PPL#165 (Note 3), MWEX received $83,000 from Gedd, Inc. during 1996
for costs related to PPL#165. As of December 31, 1996, $63,414 had been
spent on costs related to PPL#165. Cash in the amount of $19,586 at
December 31, 1996, is restricted for future PPL#165 expenses.
12) Subsequent Events
As noted in Note 3, upon the expiration of PPL#56 in December 1996, the
Joint Venture petitioned the New Guinea government to issue new licenses.
In February 1997, the New Guinea government authorized three new licenses,
Petroleum Development License (PDL) #3, PPL# 189, and PPL#190. The oil
wells previously located on PPL#56 are now located on PDL#3 which has been
unitized with other PDL's that include oil wells owned by the Chevron
PPL#161 Group. The name of the new unit is the Southeast Gobe Unit (the
"Unit"). The government of New Guinea has issued an intent to exercise an
option which would allow them to acquire a working interest in the Unit,
which would result in MWEX having a .8718% interest in the Unit. If the
government exercises their option, they would pay for their percentage of
costs since inception, some of which had been paid by the PPL#56 Joint
Venture. This reduction of costs to the PPL#56 Joint Venture would also
reduce MWEX's liability to the other PPL#56 Joint Venture owners, as well
as the asset that has been capitalized by MWEX.
The gas wells previously located on PPL#56, are now located on PPL#189 and
PPL#190. One of the owners of the former PPL#56 elected not to continue its
full interest in the new licenses, which resulted in MWEX's interests in
the new licenses increasing from 2.5% to a 5.051% interest in PPL#189 and
to a 3.763% interest in PPL#190. The other owners of the PPL#56 Joint
Venture will still pay MWEX's 2.5% share of costs as stated in Note 3, and
MWEX will be required to pay for the costs related to the differences
between their new ownership percentages and the 2.5% interest.
MWEX also entered into an agreement in January 1997 to sell an 80% net
revenue interest assignment of oil and gas leases located in Las Animas
County, Colorado for a total of $60 per mineral acre, or $144,600. The
agreement requires the purchaser to drill or cause to be drilled one well
each six months beginning no later than July 1, 1997. A total of 15 drilled
wells will satisfy the purchaser's obligation. At the end of the
purchaser's drilling obligation and at such time as the purchaser has
recovered all costs of drilling and operation incurred, the purchaser will
assign MWEX a one-eighth working interest in the lease, wells, and
production equipment. This sale was the result of efforts of a third party.
The sales commission to this party will be paid from the sales proceeds.
13) Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about the
Fair Value of Financial Instruments, requires disclosure of fair value
information of financial instruments. MWEX has a number of financial
instruments, none of which are held for trading purposes. The following
methods and assumptions were used to estimate the fair values of each class
of financial instruments for which it is practicable to estimate the
values:
Cash - the carrying amount approximates fair value.
Note receivable, accrued interest receivable, and short-term borrowings
- the carrying amount approximates fair value because of the short
periods to maturities.
Advances - the carrying amount approximates fair value.
Investment in partnership - carrying amount approximates fair value
because the investment was purchased during the year ended December 31,
1996 and it is estimated that the fair value would not have
significantly fluctuated from the date of purchase to December 31, 1996.
It was not practicable to estimate the fair value of the Due to Affiliates
liability in the amount of $2,576,730 at December 31, 1996. This liability
is to be paid from production of the oil and gas property (Note 3). Because
of the difficulty in estimating the amount, sales prices, and timing of
future oil and gas production of this property, an estimate of the timing
and amounts of payments of this liability cannot be reasonably determined.
Mountains West Exploration, Inc.
Supplementary Information
Oil and Gas Producing Activities
at December 31, 1996, and 1995
(Unaudited)
Standardized measure of discounted future net cash flows
and changes therein relating to proved oil and gas reserves
United States
-----------------------
1996 1995
-------- --------
Future cash inflows .............................. $ -- $ 22,688
Future production and development costs .......... (176) (15,332)
Future income tax expenses ....................... -- (2,269)
-------- --------
Future net cash flows ............................ (176) 5,087
10% annual discount for estimated timing
of cash flows .................................. -- (1,308)
Standardized measure of discounted future
net cash flows ................................. $ (176) $ 3,779
======== ========
Future net cash flows during the years ended December 31:
1996 1995
-------- --------
Standardized measure, beginning of year ............ $ 3,779 $ 12,728
Sales and transfers of oil and gas produced,
net of production costs .......................... (19,022) (7,403)
Net changes in prices and production costs ......... -- (1,758)
Extensions, discoveries, and improved recovery,
less related costs ......................... -- --
Development costs incurred during the period ....... -- --
Revisions of previous quantity estimates ........... 15,067 212
Accretion of discount .............................. -- --
Net change in income taxes ......................... -- --
Other .............................................. -- --
-------- --------
Standardized measure, end of year .................. $ (176) $ 3,779
======== ========
<TABLE>
<CAPTION>
Reserve quantity information
1996
--------------------------------------------------------------------------------
United Papua
States New Guinea Total
-------------------------- --------------------- --------------------------
Oil (bbl) Gas (Mcf) Oil (bbl) Gas (Mcf) Oil (bbl) Gas (Mcf)
----------- ----------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped
reserves
Beginning of year ........................... 459 392,735 711,000 5,862,500 711,459 6,255,235
Purchases of minerals in place .............. -- -- -- -- -- --
Extensions and discoveries, shut-in ......... -- -- -- -- -- --
Production .................................. (121) (22,994) -- -- (121) (22,994)
Revision of previous estimates .............. (338) 5,259 -- 4,454,935 (338) 4,460,194
Sales of minerals in place .................. -- -- -- -- -- --
----------- ----------- ------- ----------- ----------- -----------
End of year ................................. -- 375,000 711,000 10,317,435 711,000 10,692,435
=========== =========== ======= =========== =========== ===========
Proved developed reserves
Beginning of year ............................ 459 17,735 -- -- 459 17,735
=========== =========== ======= =========== =========== ===========
End of year .................................. -- -- -- -- -- --
=========== =========== ======= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------------------
United Papua
States New Guinea Total
-------------------------- ----------------------- ------------------------
Oil (bbl) Gas (Mcf) Oil (bbl) Gas (Mcf) Oil (bbl) Gas (Mcf)
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped
reserves
Beginning of year ............................. 831 393,093 602,500 5,662,500 603,331 6,055,593
Purchases of minerals in place ................ -- -- -- -- -- --
Extensions and discoveries, shut-in ........... -- -- -- -- -- --
Production .................................... (145) (14,353) -- -- (145) (14,353)
Revision of previous estimates ................ (227) 13,995 108,500 200,000 108,273 213,995
---------- ---------- ---------- ---------- ---------- ----------
End of year ................................... 459 392,735 711,000 5,862,500 711,459 6,255,235
========== ========== ========== ========== ========== ==========
Proved developed reserves
Beginning of year ............................. 831 18,093 -- -- 831 18,093
========== ========== ========== ========== ========== ==========
End of year ................................... 459 17,735 -- -- 459 17,735
========== ========== ========== ========== ========== ==========
</TABLE>
The foregoing tables present MWEX's estimated proved oil and gas reserves as of
December 31, 1996, and 1995. Reserve quantities of oil and gas are presented in
barrels and thousands of cubic feet (Mcf), respectively. Reserve estimates are
inherently imprecise and may not reflect realizable values or fair market values
of the oil and gas ultimately extracted and recovered. Estimates of new
discoveries are more imprecise than those of producing oil and gas properties
and, accordingly, the estimates are expected to change as future information
becomes available. The estimate of reserve quantities was prepared by
independent petroleum engineers in accordance with rules adopted by the
Securities and Exchange Commission.
As used in the foregoing tabulation, proved oil and gas reserves are the
estimated quantities of crude oil, natural gas and natural gas liquids which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. The proved reserves are further classified as developed
and undeveloped.
Proved developed oil and gas reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Mountains West Exploration, Inc.
Supplementary Information
Results of Operations for Producing Activities
For the Years Ended December 31, 1996, and 1995
(Unaudited)
United States
---------------------
1996 1995
------- -------
Revenues
Sales ............................................ $24,129 $12,352
------- -------
Expenses
Production costs ................................. 5,107 4,949
Depreciation, depletion, and valuation
allowance ...................................... 2,525 4,055
------- -------
Total expenses ................................. 7,632 9,004
------- -------
Results of operations from producing
activities (excluding corporate
overhead and interest costs) ................... $16,497 $ 3,348
======= =======
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
No principal independent accountant resigned (or declined to stand for
re-election) or was dismissed during the Company's two most recent fiscal years
or any later interim period.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The following individuals are the Company's directors and executive officers:
Name age Positions held with Company
- ---- --- ---------------------------
Robert A. Doak, Jr. 69 Director, President and Treasurer
David G. Shier 56 Vice President, Secretary and Director
James M. Harmon 71 Director
Background information about each director and executive officer is as follows:
Robert A. Doak, Jr., was an organizer of the Company and became a director of
the Company at its organizational meeting in 1979. He has served as the
President and a Director of the Company since 1979. Prior to becoming employed
by the Company, Mr. Doak was self-employed as a consulting geologist in
Trinidad, Colorado and Santa Fe, New Mexico from 1969 to 1979.
David G. Shier, became a Company director and the Company's Vice President and
Secretary in 1981 and has held those positions continuously since that time. Mr.
Shier has been self-employed in real estate sales and real estate investments in
Trinidad, Colorado from 1977 to present; executive Vice President of Trinidad
National Bank from 1974 to 1977.
James M. Harmon, was appointed to the Company's Board of Directors on January
17, 1992. From 1986 to the present, Mr. Harmon has been the President and a
director of GEDD, Inc., Bloomfield Hills, Michigan, a company engaged in the oil
and gas business. From 1972 to 1986, Mr. Harmon was the President of Pounder &
Harmon, Ltd., London, Ontario, Canada, a geologic consulting firm, and from 1962
to 1972 he was a partner in the geologic consulting firm of Beard and Harmon, in
Michigan. Mr. Harmon is a graduate of the University of Oklahoma (1949), and is
the past president of Ontario Petroleum Institute (OBI).
No director, officer or beneficial owner of more than 10% of the Company's
common stock, its only equity securities, or any other person subject to Section
16 of the Exchange Act failed to file reports required by Section 16(a) of the
Exchange Act during the most recent fiscal year or prior fiscal years.
There are no family relationships among the members of the Board of Directors
and Management.
Item 10. Executive Compensation.
The following table sets forth certain information concerning the remuneration
paid by the Company for the fiscal year ended December 31, 1996.
number of
Capacities in persons Salaries and Insurance other forms of
Which Served in group Directors fees (1) Benefits Remuneration
- ------------ -------- -------------- -------- ------------
Directors 3 -0- -0- -0-
Executive
Officers 1 $78,000 (2) -0- -0-
All Officers
and Directors
as a group 3 $78,000 (1)(2) -0- -0-
_________
(1) Directors are to be paid $300 per meeting attended by such director. Other
than the remuneration discussed above, the Company has no retirement, pension,
profit sharing, stock option or similar program for the benefit of its officers,
Directors or employees.
(2) Effective January 1, 1994, the President's salary was established at $6,500
per month, to the extent of funds being available for such payment. Any payment
of salary not made in any month is carried forward, without interest, to be paid
from the first otherwise uncommitted and available funds.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 15, 1996, the beneficial ownership
of Common Stock by each person who is known by the Company to own beneficially
more than 5% of the issued and outstanding Common Stock and the shares of Common
Stock owned by each nominee and all officers and Directors as a group. Each
person has sole voting and investment power as to all shares unless otherwise
indicated.
Directors.
- ---------
(2) (3)
(1) Name and address Amount and nature (4)
Title of of of Percent
Class Beneficial owner Beneficial ownership of class
----- ---------------- -------------------- --------
$0.001 par value Robert A. Doak, Jr. 10,480,548 (1) 28.30%
common stock 616 Central, S.E., Suite 213 direct
Albuquerque, NM 87102
$0.001 par value David G. Shier 312,511 (2) 0.85%
common stock 259 N. Commercial St. direct
Trinidad, Colorado 81082
$0.001 par value James M. Harmon 5,590,800 (3) 15.10%
common stock 1820 The 600 Building indirect
600 Leopard Street 99,633 (4) 0.269%
Corpus Christi, Texas 78473 direct
All Directors and officers as a group(1)(2)(3)(4) 10,892,262 29.41%
direct
5,590,800 (3) 15.10%
indirect
___________
(1) Includes 255,000 shares owned by Mr. Doak's wife.
(2) Includes 1,000 shares owned by Mr. Shier's wife.
(3) Shares are owned by GEDD, Inc., a Michigan corporation with offices at 1400
North Woodward Avenue, Suite 270, Bloomfield Hills, Michigan, of which Mr.
Harmon is a director and President.
(4) Mr. Harmon acuired these shares as a result of the Company authorizing that
shares be issued to holders of certain options. See Item 12. Certain
Relationships and Related Transactions.
Beneficial Owner
(2) (3)
(1) Name and address Amount and nature (4)
Title of of of Percent
Class Beneficial owner Beneficial ownership of class
$0.001 par value GEDD, Inc. 5,590,800 Direct 15.28%
common stock 1400 North Woodward Ave.
Suite 270
Bloomfield Hills, Michigan
Item 12. Certain Relationships and Related Transactions.
1. Effective January 1, 1994, Mr. Doak's salary was increased from $6,000 to
$6,500 per month, to the extent of funds being available for such payment. Any
payment of salary not made in any month is to be carried forward, without
interest, to be paid from the first funds otherwise uncommitted.
2. As discussed earlier in Item 1, in 1995, all of the Company's interest in PPL
Licenses number 174 and 143 were sold to Gedd, Inc. for $200,000 to cover the
costs of the work program of PPL 165. In April of 1996, a sale of PPL License
165 was sold to GEDD, Inc., subject to approval by the New Guinea government,
which has not yet occurred. Gedd, Inc. and the Company agreed that if PPL
License 165 is sold, the Company will receive 25% of all proceeds paid to GEDD,
Inc. If GEDD, Inc. retains any interest in the License, the Company has the
right to acquire 25% of such retained interest. At the present time GEDD, Inc.
owns 100% of the License and the Company could elect to acquire a 25% interest
in the License.
3. During 1996 the Company's President began discussions with certain persons
holding options to purchase the Company's shares to determine whether those
options would be exercised. Each of the option holders is a member of the
management of Gedd, Inc., and each person paid $0.03 per share for the options
when initially granted. It was agreed between the Company and the option holders
that if the options were not exercised the Company would issue each option
holder shares of the Company's stock, valued at $0.10 per share, for the money
paid by the holders for their options. The shares, totaling 468,050 shares, were
issued to the option holders at the end of the fiscal year. Mr. Harmon, a
Company Director, received 99,633 shares through this transaction.
Item 13. Exhibits and Reports on Form 8-K.
(a) Documents filed as a part of this report:
-----------------------------------------
(1) Financial Statements.
Independent Auditors' report
Balance Sheets at December 31, 1996 .
Statements of Operations for the years ended December 31, 1996
and 1995.
Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1995.
Statements of Cash Flows for the years ended December 31, 1996
and 1995.
Notes to Financial Statements at December 31, 1996 and 1995.
Supplementary Information, Oil and Gas Producing Properties at
December 31, 1996 and 1995
(b) Reports on Form 8-K:
-------------------
The Registrant filed no reports on Form 8-K during the last quarter of the
period covered by this Report:
(c) Exhibits:
---------
(1) The Registrant's Articles of Incorporation and Bylaws are incorporated
herein by reference to SEC file No. 2-69024, filed September 2, 1980.
(11) Statement re computation of per share earnings. See Note 2 to the financial
statements.
There are no other exhibits specified in Item 601 of Regulation S-B to be
included with this filing.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MOUNTAINS WEST EXPLORATION, INC.
Robert A. Doak, Jr. Date: March 27, 1997
- ----------------------------------------
Robert A. Doak, Jr., President and Chief
Executive Officer and
Chief Financial Officer
In accordance with the Exchange Act,, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Robert A. Doak, Jr. Date: March 27, 1997
- -----------------------------
Robert A. Doak, Jr., Director
David G. Shier Date: March 27, 1997
- -----------------------------
David G. Shier, Director
James M. Harmon Date: March 27, 1997
- ----------------------------
James M. Harmon, Director
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