<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ___________________.
Commission File Number 0-9498
BELLWETHER EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 76-0437769
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1331 Lamar, Suite 1455, Houston, Texas 77010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 650-1025
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Title of each class Name of each exchange
------------------- on which registered
---------------------
Common Stock, $0.01 par value NASDAQ/NMS
10 7/8% Senior Subordinated Notes due 2007 None
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months 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-K 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 10-K or any amendment to this Form
10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at September 24, 1997, was approximately $166,635,856.
As of September 24, 1997, the number of outstanding shares of the
registrant's common stock was 13,869,965.
Documents Incorporated by Reference: Portions of the registrant's annual
proxy statement, to be filed within 120 days after June 30, 1997, are
incorporated by reference into Part III.
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I
Item 1. Business.................................................. 3
Item 2. Properties................................................ 12
Item 3. Legal Proceedings......................................... 22
Item 4. Submission of Matters to a Vote of Security Holders....... 22
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters.......................... 23
Item 6. Selected Financial Data................................... 24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 25
Item 8. Financial Statements and Supplementary Data............... 33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 65
PART III
Item 10. Directors and Executive Officers of the Registrant........ 65
Item 11. Executive Compensation.................................... 65
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................... 65
Item 13. Certain Relationships and Related Transactions............ 65
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................. 65
-- Signatures
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
This annual report on Form 10-K includes "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934
("Exchange Act"). All statements other than statements of historical fact
included herein regarding the Company's financial position, estimated quantities
and net present values of reserves, business strategy, plans and objectives for
future operations and covenant compliance, are forward-looking statements.
Although the Company believes that the assumptions upon which such forward-
looking statements are based are reasonable, it can give no assurances that such
assumptions will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations ("cautionary
statements") are disclosed under Risk Factors and elsewhere herein. All
subsequent written and oral forward-looking statements attributable to the
company or persons acting on its behalf are expressly qualified by the
cautionary statements.
General
Bellwether Exploration Company ("Bellwether" or the "Company") is an
independent energy company engaged in the acquisition, exploitation,
development, exploration and production of oil and gas properties and gathering
and processing of natural gas. The Company's principal properties are located in
Texas, Louisiana, Alabama, offshore California and the Gulf of Mexico. At June
30, 1997, the Company's estimated net proved reserves totaled 12.0 MMBbl of oil,
4.0 MMBbl of natural gas liquids ("NGL"), and 127.9 Bcf of natural gas for a
total of 37,353 barrels of oil equivalent ("BOE"). On a BOE basis, approximately
57% of the Company's estimated net proved reserves were natural gas at such
date. In addition, the Company has interests in natural gas processing plants in
California and West Texas and owns a gas gathering system in North Louisiana.
The Company was formed as a Delaware corporation in 1994 to succeed to the
business and properties of its predecessor company pursuant to a merger, the
primary purpose of which was to change the predecessor company's state of
incorporation from Colorado to Delaware. The predecessor company was formed in
1980 from the consolidation of the business and properties of related oil and
gas limited partnerships. References to Bellwether or the Company include the
predecessor company, unless the context requires otherwise.
Oil and Gas Activities
In 1987 and 1988, the Company merged with two independent oil and gas
companies owned by institutional investors and managed by Torch Energy Advisors
Incorporated ("Torch"). Since those mergers, the Company has operated under
management agreements, pursuant to which Torch administers business activities
of the Company.
In August 1994, Bellwether acquired by merger certain of the assets,
liabilities and properties of Odyssey Partners, Ltd. ("Odyssey"), an
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
exploration company specializing in 3-D seismic and computer-aided exploration
("CAEX") technology, in exchange for 0.9 million shares of Common Stock and $5.6
million in cash. The Odyssey merger provided the Company with significant
expertise in 3-D seismic and CAEX technology.
On February 28, 1995, Bellwether acquired Hampton Resources Corporation
("Hampton") by merger for $17.0 million in cash and approximately 1.0 million
shares of Common Stock. Hampton was a publicly held oil and gas company based
in Houston, Texas.
In April 1997, the Company purchased properties from affiliates of Torch
("Partnership Transactions") and $18.0 million of working capital for $188.3
million, plus a contingent payment of $3.4 million, the amount of which was
based on 1997 gas prices. The effective date of the acquisition was July 1, 1996
and the net adjusted purchase price at the April 9, 1997 closing date was $141.8
million plus the contingent payment. The Company financed the cash portion of
the Partnership Transactions and related fees, aggregating $167.4 million,
including repayment of $22.2 million of existing indebtedness, with $34.1
million of the proceeds of a Common Stock offering and $100.0 million of
10 7/8% Senior Subordinated Notes due 2007 (the "Offerings") and $33.3 million
from a new credit facility ("New Credit Facility"). In addition, Torch was
issued 150,000 shares of the Company's common stock valued at $1.2 million and a
warrant to purchase 100,000 shares at $9.90 for advisory services rendered in
connection with the Partnership Transactions. The warrant and shares were valued
at $1.5 million and recorded as a cost of Partnership Transactions.
The Company identified for divestiture non-core properties representing
approximately 10% of the estimated net proved reserves attributable to the
Partnership Transactions as of June 30, 1997. These properties are primarily
small working interests in geographically diverse locations, with generally low
production during fiscal 1997. Such properties were sold in June, 1997 for
$14.8 million. The net proceeds from these divestitures were used to repay
indebtedness.
Gas Plant Activities
In July 1993, the Company acquired an interest in the Snyder and Diamond
M - Sharon Ridge Gas Processing Plants, the operations of which were
subsequently consolidated (collectively, the "Gas Plant"), for $8.45 million. In
December 1993, the Company acquired Associated Gas Resources, Inc. ("AGRI"), a
corporation managed by Torch, for the issuance of approximately 1.4 million
shares of its common stock ("Common Stock") and $0.2 million in cash. AGRI's
assets included additional interests in the Gas Plant. AGRI's assets also
included a Louisiana gathering system, a related long-term gas sales contract,
and interests in oil and gas properties in Louisiana. The Gas Plant acquisition
and AGRI acquisition diversified the Company's asset base and its sources of
cash flow. In March 1996, the Company assumed the purchase obligation of the
long-term gas sales contract and was paid $9.9 million. As a result of this
transaction, the Company recorded a liability to cover estimated future losses
under the contract. Gas gathering operations and net losses from the purchase
and resale of gas produced by third parties are charged to the liability as
incurred.
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
Business Strategy
Bellwether's strategy is to maximize long-term shareholder value through
aggressive growth in reserves and cash flow using advanced technologies,
implementation of a low cost structure and maintenance of a capital structure
supportive of growth. Key elements of this strategy are:
Opportunistic Acquisitions. Bellwether seeks to acquire properties that
have produced significant quantities of oil and gas and have upside potential
which can be exploited using 3-D seismic, CAEX techniques, horizontal drilling,
workovers and other enhanced recovery techniques.
Exploitation and Development of Properties. The Company actively pursues
the exploitation of its properties through recompletions, waterfloods and
development wells, including horizontal drilling.
Exploration Activities. The Company's exploration activities focus on
projects with potential for substantial reserve increases.
Advanced Technology. The Company seeks to improve the efficiency and
reduce the risks associated with its exploration and exploitation activities
using advanced technologies. These advanced technologies include 3-D seismic,
CAEX techniques and horizontal drilling.
Torch Relationship. The Company operates under an administrative services
agreement with Torch. Torch has a staff of 39 geologists, geophysicists,
reservoir engineers and landmen and 59 financial personnel and professionals.
The Company believes that its relationship with Torch provides it with access to
acquisition opportunities and financial and technical expertise that are
generally only available to significantly larger companies. In addition, the
fees payable to Torch tend to decrease on a barrel of oil equivalent basis
as the Company's asset base and production grow.
Low Cost Structure. The Company seeks to maintain a low-cost structure.
Industry Segment Information
For industry segment data, see Note 10 of the Notes to Consolidated
Financial Statements.
Markets
Bellwether's ability to market oil and gas from the Company's wells depends
upon numerous factors beyond the Company's control, including the extent of
domestic production and imports of oil and gas, the proximity of the gas
production to gas pipelines, the availability of capacity in such pipelines, the
demand for oil and gas by utilities and other end users, the availability of
alternate fuel sources, the effects of inclement weather, state and federal
regulation of oil and gas production and federal regulation of gas sold or
transported in interstate commerce. No assurances can be given that Bellwether
will be able to market all of the oil or gas produced by the
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
Company or that favorable prices can be obtained for the oil and gas Bellwether
produces.
In view of the many uncertainties affecting the supply of and demand for
oil, gas and refined petroleum products, the Company is unable to predict future
oil and gas prices and demand or the overall effect such prices and demand will
have on the Company. The marketing of oil and gas by Bellwether can be affected
by a number of factors which are beyond the Company's control, the exact effects
of which cannot be accurately predicted.
Sales to Valero Industrial Gas, L.P. accounted for 18.0% of the Company's
1997 revenues. In 1996, sales to Texas Gas Transmission Corporation, Warren
Petroleum Corporation and Koch Industries Inc. accounted for 32.9% of 1996
revenues. Sales to Texas Gas Transmission Corporation and Warren Petroleum
Corporation accounted for 42% of 1995 revenues. Management of the Company does
not believe that the loss of any single customer or contract would materially
affect the Company's business. There are no other significant delivery
commitments and substantially all of the Company's oil and gas production is
sold at market responsive pricing through a marketing affiliate of Torch. The
Company from time to time may enter into crude oil and natural gas price swaps
or other similar hedge transactions to reduce its exposure to price
fluctuations.
Regulation
Federal Regulations
Sales of Gas. Effective January 1, 1993, the Natural Gas Wellhead
Decontrol Act deregulated prices for all "first sales" of gas. Thus, all sales
of gas by the Company may be made at market prices, subject to applicable
contract provisions.
Transportation of Gas. The Company's sales of natural gas are
affected by the availability, terms and cost of transportation. The rates,
terms and conditions applicable to the interstate transportation of gas by
pipelines are regulated by the Federal Energy Regulatory Commission ("FERC")
under the Natural Gas Act ("NGA"), as well as under section 311 of the Natural
Gas Policy Act ("NGPA"). Since 1985, the FERC has implemented regulations
intended to increase competition within the gas industry by making gas
transportation more accessible to gas buyers and sellers on an open-access, non-
discriminatory basis.
Most recently, in Order No. 636, et seq., the FERC promulgated an
extensive set of new regulations requiring all interstate pipelines to
"restructure" their services. The most significant provisions of Order No. 636
require that interstate pipelines provide firm and interruptible transportation
solely on an "unbundled" basis, separate from their sales service, and convert
each pipeline's bundled firm city-gate sales service into unbundled firm
transportation service and require that pipelines provide firm and interruptible
transportation service on a basis that is equal in quality for all gas supplies,
whether purchased from the pipeline or elsewhere. The
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
order also recognized that the elimination of city-gate sales service and the
implementation of unbundled transportation service would result in considerable
costs being incurred by the pipelines. Therefore, Order No. 636 provided
mechanisms for the recovery by pipelines from present, former and future
customers of certain types of "transition" costs likely to occur due to these
new regulations.
In subsequent orders, the FERC and the appellate court have
substantially upheld the requirements imposed by Order No. 636, although
numerous court appeals in which parties have sought review of separate FERC
orders implementing Order No. 636 on individual pipeline systems are still
pending. In many instances, the result of Order No. 636 and related initiatives
has been to substantially reduce or eliminate the interstate pipelines'
traditional role as wholesalers of natural gas in favor of providing only
storage and transportation services.
The FERC has announced several important transportation-related policy
statements and proposed rule changes, including a statement of policy and
request for comments concerning alternatives to its traditional cost-of-service
ratemaking methodology to establish the rates interstate pipelines may charge
for their services. A number of pipelines have obtained FERC authorization to
charge negotiated rates as one such alternative. While the changes being
considered would affect the Company only indirectly, they are intended to
further enhance competition in natural gas markets. The Company cannot predict
what further action the FERC will take on these matters; however, the Company
does not believe that it will be affected by any action taken materially
differently than other natural gas producers.
Sales and Transportation of Oil. Sales of oil and condensate can be
made by the Company at market prices not subject at this time to price controls.
The price that the Company receives from the sale of these products will be
affected by the cost of transporting the products to market. As required by the
Energy Policy Act of 1992, the FERC has revised its regulations governing the
rates that may be charged by oil pipelines. The new rules, which were effective
January 1, 1995, provide a simplified, generally applicable method of regulating
such rates by use of an indexing system for setting transportation rate
ceilings. In certain circumstances, the new rules permit oil pipelines to
establish rates using traditional cost of service and other methods of rate
making. The effect that these new rules may have on the cost of moving the
Company's products to market cannot yet be determined.
Legislative Proposals. In the past, Congress has been very active in
the area of gas regulation. There are legislative proposals pending in the
state legislatures of various states, which, if enacted, could significantly
affect the petroleum industry. At the present time it is impossible to predict
what proposals, if any, might actually be enacted by Congress or the various
state legislatures and what effect, if any, such proposals might have on the
Company's operations.
Federal, State or Indian Leases. In the event the Company conducts
operations on federal, state or Indian oil and gas leases, such
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
operations must comply with numerous regulatory restrictions, including various
nondiscrimination statutes, and certain of such operations must be conducted
pursuant to certain on-site security regulations and other appropriate permits
issued by the Bureau of Land Management ("BLM") or, in the case of the Company's
OCS leases in federal waters, Minerals Management Service ("MMS") or other
appropriate federal or state agencies. The Company's OCS leases in federal
waters are administered by the MMS and require compliance with detailed MMS
regulations and orders. The MMS has promulgated regulations implementing
restrictions on various production-related activities, including restricting the
flaring or venting of natural gas. In addition, the MMS has proposed to amend
its regulations to prohibit the flaring of liquid hydrocarbons and oil without
prior authorization. Under certain circumstances, the MMS may require any
Company operations on federal leases to be suspended or terminated. Any such
suspension or termination could materially and adversely affect the Company's
financial condition and operations. The MMS has issued a notice of proposed rule
making in which it proposes to amend its regulations governing the calculation
of royalties and the valuation of crude oil produced from federal leases. Among
other matters, this proposed rule would amend the valuation procedure for the
sale of federal royalty oil. The Company cannot predict what action the MMS will
take on this matter, nor can it predict at this stage of the proceeding how the
Company might be affected by this proposed amendment to the MMS' royalty
regulations.
The Mineral Leasing Act of 1920 (the "Mineral Act") prohibits direct
or indirect ownership of any interest in federal onshore oil and gas leases by a
foreign citizen of a country that denies "similar or like privileges" to
citizens of the United States. Such restrictions on citizens of a "non-
reciprocal" country include ownership or holding or controlling stock in a
corporation that holds a federal onshore oil and gas lease. If this restriction
is violated, the corporation's lease can be canceled in a proceeding instituted
by the United States Attorney General. Although the regulations of the BLM
(which administers the Mineral Act) provide for agency designations of non-
reciprocal countries, there are presently no such designations in effect. The
Company owns interests in numerous federal onshore oil and gas leases. It is
possible that the Common Stock will be acquired by citizens of foreign
countries, which at some time in the future might be determined to be non-
reciprocal under the Mineral Act.
State Regulations
Most states regulate the production and sale of oil and gas, including
requirements for obtaining drilling permits, the method of developing new
fields, the spacing and operation of wells and the prevention of waste of oil
and gas resources. The rate of production may be regulated and the maximum
daily production allowable from both oil and gas wells may be established on a
market demand or conservation basis or both.
The Company owns certain natural gas pipeline facilities that it
believes meet the traditional tests the FERC has used to establish a pipeline's
status as a gatherer not subject to FERC jurisdiction under the NGA. State
regulation of gathering facilities generally includes various
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
safety, environmental, and in some circumstances, nondiscriminatory take
requirements, but does not generally entail rate regulation. Natural gas
gathering may receive greater regulatory scrutiny at both state and federal
levels in the post-Order No. 636 environment.
The Company may enter into agreements relating to the construction or
operation of a pipeline system for the transportation of gas. To the extent
that such gas is produced, transported and consumed wholly within one state,
such operations may, in certain instances, be subject to the jurisdiction of
such state's administrative authority charged with the responsibility of
regulating intrastate pipelines. In such event, the rates which the Company
could charge for gas, the transportation of gas, and the construction and
operation of such pipeline would be subject to the rules and regulations
governing such matters, if any, of such administrative authority.
Environmental Regulations
General. The Company's activities are subject to existing federal,
state and local laws and regulations governing environmental quality and
pollution control. Activities of the Company with respect to gas facilities,
including the operation and construction of pipelines, plants and other
facilities for transporting, processing, treating or storing gas and other
products, are also subject to stringent environmental regulation by state and
federal authorities including the Environmental Protection Agency ("EPA").
Risks are inherent in oil and gas exploration and production operations, and no
assurance can be given that significant costs and liabilities will not be
incurred in connection with environmental compliance issues. The Company cannot
predict what effect future regulation or legislation, enforcement policies
issued thereunder, and claims for damages to property, employees, other persons
and the environment resulting from the Company's operations could have on its
activities.
Solid and Hazardous Waste. The Company currently owns or leases, and
has in the past owned or leased, numerous properties that for many years have
been used for the exploration and production of oil and gas. Although the
Company believes it has utilized operating and waste disposal practices that
were standard in the industry at the time, hydrocarbons or other solid wastes
may have been disposed or released on or under the properties owned or leased by
the Company or on or under locations where such wastes have been taken for
disposal. In addition, many of these properties have been owned or operated by
third parties. The Company had no control over such parties' treatment of
hydrocarbons or other solid wastes and the manner in which such substances may
have been disposed or released. State and federal laws applicable to oil and
gas wastes and properties have gradually become stricter over time. Under these
new laws, the Company could be required to remove or remediate previously
disposed wastes (including wastes disposed or released by prior owners or
operators) or property contamination (including groundwater contamination by
prior owners or operators) or to perform remedial plugging operations to prevent
future contamination.
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
The Company generates wastes, including hazardous wastes, that are
subject to the federal Resource Conservation and Recovery Act ("RCRA") and
comparable state statutes. The EPA and various state agencies have limited the
approved methods of disposal for certain hazardous and nonhazardous wastes.
Furthermore, it is possible that certain wastes generated by the Company's oil
and gas operations that are currently exempt from treatment as "hazardous
wastes" may in the future be designated as "hazardous wastes" under RCRA or
other applicable statutes, and therefore be subject to more rigorous and costly
operating and disposal requirements.
Superfund. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability,
without regard to fault or the legality of the original conduct, on certain
classes of persons with respect to the release of a "hazardous substance" into
the environment. These persons include the owner and operator of a disposal
site where a release occurred and any company that disposed or arranged for the
disposal of the hazardous substance released at the site. CERCLA also
authorizes the EPA and, in some cases, third parties, to take actions in
response to threats to the public health or the environment and to seek to
recover from the responsible classes of persons the costs of such action. In
the course of its operations, the Company has generated and will generate wastes
that may fall within CERCLA's definition of "hazardous substances." The Company
may also be an owner of sites on which "hazardous substances" have been
released. The Company may be responsible under CERCLA for all or part of the
costs to clean up sites at which such wastes have been disposed.
Oil Pollution Act. The Oil Pollution Act of 1990 (the "OPA") and
regulations thereunder impose a variety of regulations on "responsible parties"
related to the prevention of oil spills and liability for damages resulting from
such spills in United States waters. A "responsible party" includes the owner
or operator of an onshore facility, vessel or pipeline, or the lessee or
permittee of the area in which an offshore facility is located. The OPA assigns
liability to each responsible party for oil removal costs and a variety of
public and private damages. While liability limits apply in some circumstances,
a party cannot take advantage of liability limits if the spill was caused by
gross negligence or willful misconduct or resulted from violation of a federal
safety, construction or operating regulation. If the party fails to report a
spill or to cooperate fully in the cleanup, liability limits also do not apply.
Few defenses exist to the liability imposed by the OPA. The failure to comply
with OPA requirements may subject a responsible party to civil or even criminal
liability.
The OPA also imposes ongoing requirements on a responsible party,
including proof of financial responsibility to cover at least some costs in a
potential spill. Certain amendments to the OPA that were enacted in 1996
require owners and operators of offshore facilities that have a worst case oil
spill potential of more than 1,000 barrels to demonstrate financial
responsibility in amounts ranging from $10 million in specified state waters to
$35 million in federal OCS waters, with higher amounts, up to $150 million in
certain limited circumstances, where the MMS believes such a level is
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
justified by the risks posed by the quantity or quality of oil that is handled
by the facility. On March 25, 1997, the MMS promulgated a proposed rule
implementing these OPA financial responsibility requirements. The Company
believes that it currently has established adequate proof of financial
responsibility for its offshore facilities. However, the Company cannot predict
whether the financial responsibility requirements under the OPA amendments or
the proposed rule will result in the imposition of substantial additional annual
costs to the Company in the future or otherwise materially adversely affect the
Company. The impact of the financial responsibility requirements is not expected
to be any more burdensome to the Company than it will be to other similarly or
less capitalized owners or operators in the Gulf of Mexico.
Air Emissions. The operations of the Company are subject to local,
state and federal laws and regulations for the control of emissions from sources
of air pollution. Administrative enforcement actions for failure to comply
strictly with air regulations or permits may result in the payment of civil
penalties and, in extreme cases, the shutdown of air emission sources.
OSHA and other Regulations. The Company is subject to the
requirements of the federal Occupational Safety and Health Act ("OSHA") and
comparable state statutes. The OSHA hazard communication standard, the EPA
community right-to-know regulations under Title III of CERCLA and similar state
statutes require the Company to organize and/or disclose information about
hazardous materials used or produced in the Company's operations. The Company
believes that it is in substantial compliance with these applicable
requirements.
Competition
The oil and gas industry is highly competitive in all of its phases.
Bellwether encounters competition from other oil and gas companies in all areas
of the Company's operations, including the acquisition of reserves and producing
properties and the marketing of oil and gas. Many of these companies possess
greater financial and other resources than the Company. Competition for
producing properties is affected by the amount of funds available to the
Company, information about a producing property available to the Company and any
standards established by the Company for the minimum projected return on
investment. Because gathering systems and related facilities are the only
practical method for the intermediate transportation of gas, competition for gas
delivery is presented by other pipelines and gas gathering systems. Competition
may also be presented by alternate fuel sources.
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
ITEM 2. PROPERTIES
Reserves, Productive Wells, Acreage and Production
The Company holds interests in oil and gas properties, all of which are
located in the United States. The Company's principal developed properties are
located in Texas, Louisiana, Alabama, offshore California and the Gulf of
Mexico. Estimated net proved oil and gas reserves at June 30, 1997 increased
approximately 409% over June 30, 1996, primarily as a result of acquisitions of
producing properties. (See Note 3 of the Notes to Consolidated Financial
Statements). The Company has not filed oil or gas reserve information with any
foreign government or Federal authority or agency.
The following table sets forth certain information, as of June 30, 1997,
which relates to the Company's principal oil and gas properties:
<TABLE>
<CAPTION>
Net Proved
Reserves 1997 Net Production*
--------------------------- --------------------------
FIELD OIL & NGL GAS OIL & NGL GAS
(MBBLS) (MMCF) (MBBLS) (MMCF)
<S> <C> <C> <C> <C>
Waddell Ranch field, TX 6,522 8,245 90 175
Point Pedernales field, CA 3,487 3,252 168 -
Blue Creek field, AL - 11,911 - 249
Ship Shoal Blocks 208/230/239, Gulf of Mexico 962 5,191 65 368
High Island Block A-334 field, Gulf of Mexico 220 7,467 12 517
Cove field, TX 14 7,661 9 3,000
Giddings field, TX 317 4,685 58 614
Reddell field, LA 81 4,393 3 136
South Marsh Island Block 269 290 3,514 5 57
Porters Creek field, TX 64 4,614 2 149
La Rica field, TX 4 7,985 - 162
West Chalkley field, LA 20 3,743 1 157
East Cameron Block 17, LA 29 4,044 2 292
Robinson's Bend field, AL - 5,724 - 85
Fort Trinidad field, TX 627 999 35 162
Others 3,393 44,512 404 4,429
------------------------- ------------------------
16,030 127,940 854 10,552
========================= ========================
</TABLE>
* Includes net production from the Partnership Transaction from April 1, 1997
to June 30, 1997.
In general, estimates of economically recoverable oil and natural gas
reserves and of the future net cash flows therefrom are based upon a number of
variable factors and assumptions, such as historical production from the
properties, assumptions concerning future oil and natural gas prices and future
operating costs and the assumed effects of regulation by governmental agencies,
all of which may vary considerably from actual results. All such estimates are
to some degree speculative, and classifications of reserves are only attempts to
define the degree of speculation involved. Estimates of the economically
recoverable oil and natural gas reserves attributable to any
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
particular group of properties, classifications of such reserves based on risk
of recovery and estimates of future net cash flows expected therefrom, prepared
by different engineers or by the same engineers at different times, may vary
substantially. The Company's actual production, revenues, severance and excise
taxes and development and operating expenditures with respect to its reserves
will vary from such estimates, and such variances could be material.
Estimates with respect to proved reserves that may be developed and
produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves.
In accordance with applicable requirements of the Securities and Exchange
Commission ("SEC"), the estimated discounted future net cash flows from
estimated proved reserves are based on prices and costs as of the date of the
estimate unless such prices or costs are contractually determined at such date.
Actual future prices and costs may be materially higher or lower. Actual future
net cash flows also will be affected by factors such as actual production,
supply and demand for oil and natural gas, curtailments or increases in
consumption by natural gas purchasers, changes in governmental regulations or
taxation and the impact of inflation on costs.
Acreage
The following table sets forth the acres of developed and undeveloped oil
and gas properties in which the Company held an interest as of June 30, 1997.
Undeveloped acreage is considered to be those leased 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. A gross acre in the following table refers to the
number of acres in which a working interest is owned directly by the Company.
The number of net acres is the sum of the fractional ownership of working
interests owned directly by the Company in the gross acres expressed as a whole
number and percentages thereof. A net acre is deemed to exist when the sum of
fractional ownership of working interests in gross acres equals one.
Gross Net
------- -------
Developed Acreage............... 512,431 115,753
Undeveloped Acreage............. 41,694 11,726
------- -------
Total......................... 554,125 127,479
======= =======
Bellwether 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 such exceptions which, in the opinion of the Company,
are not so material as to detract substantially from the use or value of such
13
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
properties. The Company's properties are typically subject, in one degree or
another, 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;
back-ins and reversionary interests arising under purchase agreements and
leasehold assignments; 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 oil and gas producing 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 size and value of the Company's reserves. Bellwether believes
that the burdens and obligations affecting the Company's properties are
conventional in the industry for properties of the kind owned by the Company.
Productive Wells
The following table sets forth Bellwether's gross and net interests in
productive oil and gas wells as of June 30, 1997. Productive wells are
producing wells and wells capable of production.
Gross Net
------- -------
Oil Wells....................... 531.00 93.69
Gas Wells....................... 1,454.00 159.15
-------- ------
Total......................... 1,985.00 252.84
======== ======
Production
The Company's principal production volumes during the year ended
June 30, 1997 were from the states of Louisiana and Texas, offshore California
in federal waters and from the Gulf of Mexico in federal and state waters.
Data relating to production volumes, average sales prices, average unit
production costs and oil and gas reserve information appear in Note 13 of the
Notes to Consolidated Financial Statements.
Drilling Activity and Present Activities
During the three-year period ended June 30, 1997, the Company's
principal drilling activities occurred in the continental United States and
offshore Texas, Louisiana and California in federal and state waters.
The Company had nine gross (0.51 net) wells drilling at June 30, 1997.
The following table sets forth the results of drilling activity by the
14
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
Company, net to its interest, for the last three fiscal years. Gross wells, as
it applies to wells in the following tables, refers to the number of wells in
which a working interest is owned directly by the Company. A "net well" is
deemed to exist when the sum of fractional ownership working interests in gross
wells equals one. The number of net wells is the sum of the fractional ownership
of working interests owned directly by the Company in gross wells expressed as
whole numbers and percentages thereof.
EXPLORATORY WELLS
GROSS NET
----------------------------- ----------------------------
DRY DRY
PRODUCTIVE HOLES TOTAL PRODUCTIVE HOLES TOTAL
----------------------------- ----------------------------
1995 3 4(1) 7 .27 .65 .92
1996 1 3 4 .06 .24 .30
1997 2 4 6 .45 .55 1.00
DEVELOPMENT WELLS
GROSS NET
----------------------------- ----------------------------
DRY DRY
PRODUCTIVE HOLES TOTAL PRODUCTIVE HOLES TOTAL
----------------------------- ----------------------------
1995 1 2 3 .30 .18 .48
1996 21 1 22 1.66 .90 2.56
1997 49 2 51 5.47 .63 6.10
(1) Includes well drilled on the Serj Permit in Tunisia.
15
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
Gas Plant and Gas Gathering Facilities
As of June 30, 1997 the Company owned interests in the following gas plant and
gas gathering systems:
1997
Capacity Throughput Ownership
Facility State Operator MMCFD MMCFD Interest
- -------- ----- -------- -------- ---------- ---------
Snyder Gas Torch Energy
Plant TX Marketing Inc. 60 18 11.98%
Diamond M- Exxon Company,
Sharon Ridge U.S.A.
Gas Plant(1) TX (1) (1) (1)
Monroe Gas West Monroe Gas
Gathering Gathering Corp.,
System(2) LA a subsidiary of (2) (2) 100%
the Company
/(1)/The Company has a 35.78% interest in the operations of the former Diamond
M-Sharon Ridge Gas Plant. This plant was dismantled in December 1993, and the
gas is being processed by Snyder Gas Plant pursuant to a processing agreement.
/(2)/The Company owns a gas gathering system in Union Parish, Louisiana. In
March 1996, the liability for a gas purchase contract covering natural gas owned
by the Company and others was assumed by the Company. All operations from that
date are recorded as a reduction to the liability.
Risk Factors
Volatility of Oil and Gas Prices and Markets
The Company's financial condition, operating results, future growth and the
carrying value of its oil and gas properties are substantially dependent on
prevailing prices of oil and gas. The Company's ability to maintain or increase
its borrowing capacity and to obtain additional capital on attractive terms is
also substantially dependent upon oil and gas prices. Prices for oil and gas are
subject to large fluctuations in response to relatively minor changes in the
supply of and demand for oil and gas, market uncertainty and a variety of
additional factors beyond the control of the Company. These factors include
weather conditions in the United States, the condition of the United States
economy, the actions of the Organization of Petroleum Exporting Countries,
governmental regulation, political stability in the Middle East and elsewhere,
the foreign supply of oil and gas, the price of foreign imports and the
availability of alternate fuel sources. Any substantial and extended decline in
the price of oil or gas would have an adverse effect on the Company's carrying
value of its proved reserves, its borrowing capacity, its ability to obtain
additional capital, and its revenues, profitability and cash flows.
16
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
Volatile oil and gas prices make it difficult to estimate the value of
producing properties in connection with acquisitions and often cause disruption
in the market for oil and gas producing properties, as buyers and sellers have
difficulty agreeing on such value. Price volatility also makes it difficult to
budget for and project the return on acquisitions and exploitation, development
and exploration projects.
The availability of a ready market for the Company's oil and natural
gas production also depends on a number of factors, including the demand for and
supply of oil and natural gas and the proximity of reserves to, and the capacity
of, oil and natural gas gathering systems, pipelines or trucking and terminal
facilities. Wells may temporarily be shut-in for lack of a market or due to
inadequacy or unavailability of pipeline or gathering system capacity.
Ability to Replace Reserves
The Company's future performance depends upon its ability to find,
develop and acquire additional oil and gas reserves that are economically
recoverable. The proved reserves of Bellwether will generally decline as
reserves are depleted. The Company therefore must locate and develop or acquire
new oil and gas reserves to replace those being depleted by production. Because
the Company's reserves on a pro forma basis are characterized by relatively
rapid decline rates, without successful exploration, development or acquisition
activities, the Company's revenues will decline rapidly. No assurances can be
given that the Company will be able to find and develop or acquire additional
reserves at an acceptable cost.
Acquisition Risks
The Company's rapid growth in recent years has been attributable in
significant part to acquisitions of oil and gas properties. The Company expects
to continue to evaluate and, where appropriate, pursue acquisition opportunities
on terms management considers favorable to the Company. There can be no
assurance that suitable acquisition candidates will be identified in the future,
or that the Company will be able to finance such acquisitions on favorable
terms. In addition, the Company competes against other companies for
acquisitions, and there can be no assurances that the Company will be successful
in the acquisition of any material property interests. Further, there can be no
assurances that any future acquisitions made by the Company will be integrated
successfully into the Company's operations or will achieve desired profitability
objectives.
The successful acquisition of producing properties requires an assessment
of recoverable reserves, exploration and exploitation potential, future oil and
natural gas prices, operating costs, potential environmental and other
liabilities and other factors beyond the Company's control. In connection with
such an assessment, the Company performs a review of the properties that it
believes to be generally consistent with industry practices. Nonetheless, the
resulting assessments are necessarily inexact and their accuracy inherently
uncertain, and such a review may not reveal all
17
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
existing or potential problems, nor will it necessarily permit the Company to
become sufficiently familiar with the properties to fully assess their merits
and deficiencies. Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily observable even when
an inspection is undertaken. In addition, sellers of properties may be unwilling
or financially unable to indemnify the Company for known liabilities at the time
of an acquisition.
Additionally, significant acquisitions can change the nature of the
operations and business of the Company depending upon the character of the
acquired properties, which may be substantially different in operating and
geologic characteristics or geographic location than existing properties. While
the Company's operations are focused in Texas, Louisiana, Alabama, offshore
California and the Gulf of Mexico, there is no assurance that the Company will
not pursue acquisitions or properties located in other geographic areas.
In connection with the Partnership Transactions, Bellwether assumed or
otherwise became liable for all obligations with respect to operations of the
properties acquired in such transactions, including environmental and
operational liabilities, unknown liabilities, and liabilities arising prior to
the closing date.
Drilling Risks
Drilling activities are subject to many risks, including the risk that
no commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil and
natural gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain and cost overruns are common.
The Company's drilling operations may be curtailed, delayed or canceled as a
result of numerous factors, many of which are beyond the Company's control,
including title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment and services.
Substantial Capital Requirements
The Company makes, and will continue to make, substantial capital
expenditures for the exploitation, exploration, acquisition and production of
oil and gas reserves. Historically, the Company has financed these expenditures
primarily with cash generated by operations, proceeds from bank borrowings and
sales of its Common Stock. The Company believes that it will have sufficient
cash flows provided by operating activities, the proceeds of equity offerings
and borrowings under the Senior Credit Facility to fund such planned capital
expenditures. If revenues or the Company's borrowing base decrease as a result
of lower oil and gas prices, operating difficulties or declines in reserves, the
Company may have limited ability to expend the capital necessary to undertake or
complete future drilling programs. There can
18
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
be no assurance that additional debt or equity financing or cash generated by
operations will be available to meet these requirements.
Significant Leverage and Debt Service
The Company's level of indebtedness has several important effects on its
future operations, including (i) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of interest on its
indebtedness and will not be available for other purposes, (ii) covenants
contained in the Company's debt obligations require the Company to meet certain
financial tests, and other restrictions limit its ability to borrow additional
funds or to dispose of assets and may affect the Company's flexibility in
planning for, and reacting to, changes in its business, including possible
acquisition activities and (iii) the Company's ability to obtain financing in
the future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired. The Company's ability to
meet its debt service obligations and to reduce its total indebtedness will be
dependent upon the Company's future performance, which will be subject to
general economic conditions and to financial, business and other factors
affecting the operations of the Company, many of which are beyond its control.
There can be no assurance that the Company's future performance will not be
adversely affected by such economic conditions and financial, business and other
factors.
Administrative Services Agreement; Reliance on Torch
The Company currently has eight employees. The Company is party to an
Administrative Services Agreement with Torch, pursuant to which Torch performs
certain administrative and technical functions for the Company, including
financial, accounting, legal, geological, engineering and technical support. The
Company believes that its relationship with Torch provides the Company with
access to professional, technical and administrative personnel not otherwise
available to a company of its size. Bellwether believes that if the
Administrative Services Agreement were terminated Bellwether could, over time,
hire experienced personnel and acquire the accounting and reporting systems and
other assets necessary to replace Torch. However, the unanticipated termination
of the Administrative Services Agreement could have a material adverse effect
upon the Company. The Administrative Services Agreement may be terminated by
Bellwether upon one year's prior notice and may not be terminated by Torch prior
to December 31, 1999.
Conflicts of Interest
Torch also renders administrative services to Nuevo Energy Company, a
publicly traded independent oil and gas company ("Nuevo"), and may manage or
render management or administrative services for other energy companies in the
future. These services may include the review and recommendation of potential
acquisitions. It is possible that conflicts may occur between Nuevo and
Bellwether in connection with possible acquisitions or otherwise in connection
with the services rendered by Torch. Although the Administrative Services
Agreement provides for procedures to reconcile conflicts of interest between
19
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
Nuevo and the Company, no assurances can be made that such procedures will fully
protect the Company from losses which may occur if a conflict between the
Company and Nuevo arises. In addition, Nuevo and the Company have a common
director.
Estimates of Oil and Gas Reserves
This document contains estimates of oil and gas reserves owned by the
Company, and the future net cash flows attributable to those reserves. There are
numerous uncertainties inherent in estimating quantities of proved reserves and
cash flows attributable to such reserves, including factors beyond the control
of the Company and the reserve engineers. Reserve engineering is a subjective
process of estimating underground accumulations of oil and gas that cannot be
measured in an exact manner. The accuracy of an estimate of quantities of
reserves, or of cash flows attributable to such reserves, is a function of the
available data, assumptions regarding future oil and gas prices and expenditures
for future development and exploitation activities, and of engineering and
geological interpretation and judgment. Additionally, reserves and future cash
flows may be subject to material downward or upward revisions based upon
production history, development and exploitation activities and prices of oil
and gas. Actual future production, revenue, taxes, development expenditures,
operating expenses, quantities of recoverable reserves and the value of cash
flows from such reserves may vary significantly from the assumptions and
estimates set forth herein. In addition, reserve engineers may make different
estimates of reserves and cash flows based on the same available data. In
calculating reserves on an oil equivalent basis, gas was converted to oil
equivalent at the ratio of six Mcf of gas to one Bbl of oil. While this ratio
approximates the energy equivalency of gas to oil on a Btu basis, it may not
represent the relative prices received by the Company on the sale of its oil and
gas production.
The estimated quantities of proved reserves and the discounted present
value of future net cash flows attributable to estimated proved reserves set
forth herein were prepared in accordance with the rules of the SEC, and are not
intended to represent the fair market value of such reserves.
Hedging of Production
Part of the Company's business strategy is to reduce its exposure to
the volatility of oil and gas prices by hedging a portion of its production. In
a typical hedge transaction, the Company will have the right to receive from the
counterparty to the hedge, the excess of the fixed price specified in the hedge
over a floating price based on a market index, multiplied by the quantity
hedged. If the floating price exceeds the fixed price, the Company is required
to pay the counterparty this difference multiplied by the quantity hedged. In
such case, the Company is required to pay the difference regardless of whether
the Company has sufficient production to cover the quantities specified in the
hedge. Significant reductions in production at times when the floating price
exceeds the fixed price could require the Company to make payments under the
hedge agreements even though such payments are not offset
20
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
by sales of production. Hedging will also prevent the Company from receiving the
full advantage of increases in oil or gas prices above the fixed amount
specified in the hedge.
Operating Hazards, Offshore Operations and Uninsured Risks
Bellwether's operations are subject to risks inherent in the oil and
gas industry, such as blowouts, cratering, explosions, uncontrollable flows of
oil, gas or well fluids, fires, pollution, earthquakes and environmental risks.
These risks could result in substantial losses to the Company due to injury and
loss of life, severe damage to and destruction of property and equipment,
pollution and other environmental damage and suspension of operations. Moreover,
a portion of the Company's operations are offshore and therefore are subject to
a variety of operating risks peculiar to the marine environment, such as
hurricanes or other adverse weather conditions, to more extensive governmental
regulation, including regulations that may, in certain circumstances, impose
strict liability for pollution damage, and to interruption or termination of
operations by governmental authorities based on environmental or other
considerations.
The Company's operations could result in liability for personal injuries,
property damage, oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages. The Company could be liable for
environmental damages caused by previous property owners. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could have a material adverse effect on the
Company's financial condition and results of operations. The Company maintains
insurance coverage for its operations, including limited coverage for sudden
environmental damages, but does not believe that insurance coverage for
environmental damages that occur over time is available at a reasonable cost.
Moreover, the Company does not believe that insurance coverage for the full
potential liability that could be caused by sudden environmental damages is
available at a reasonable cost. Accordingly, the Company may be subject to
liability or may lose substantial portions of its properties in the event of
certain environmental damages.
Environmental and Other Regulation
The Company's operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. These laws and regulations require the acquisition
of a permit before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment in
connection with drilling and production activities, limit or prohibit drilling
activities on certain lands lying within wilderness, wetlands and other
protected areas, and impose substantial liabilities for pollution resulting from
the Company's operations. Moreover, the recent trend toward stricter standards
in environmental legislation and regulation is likely to continue. For instance,
legislation has been proposed in Congress from time to time that would
reclassify certain oil and gas exploration and production wastes as "hazardous
wastes" which would make the reclassified
21
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
wastes subject to much more stringent handling, disposal and clean-up
requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of the Company, as well as the oil and
gas industry in general. Initiatives to further regulate the disposal of oil and
gas wastes are also pending in certain states, and these various initiatives
could have a similar impact on the Company. Management believes that the Company
is in substantial compliance with current applicable environmental laws and
regulations.
The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse impact on the Company.
Competition
The Company operates in the highly competitive areas of oil and gas
exploration, development and production. The Company's competitors include major
integrated oil and gas companies and substantial independent energy companies,
many of which possess greater financial and other resources than the Company.
Shortages of Rigs, Equipment, Supplies and Personnel
There is a general shortage of drilling rigs, equipment and supplies
which the Company believes may intensify. The costs and delivery times of rigs,
equipment and supplies are substantially greater than in prior periods and are
currently escalating. Shortages of drilling rigs, equipment or supplies could
delay and adversely affect the Company's exploration and development operations,
which could have a material adverse effect on its financial condition and
results of operation.
The demand for, and wage rates of, qualified rig crews have begun to
rise in the drilling industry in response to the increasing number of active
rigs in service. Such shortages have in the past occurred in the industry in
times of increasing demand for drilling services. If the number of active
drilling rigs continues to increase, the oil and gas industry may experience
shortages of qualified personnel to operate drilling rigs, which could delay the
Company's drilling operations and adversely effect the Company's financial
condition and results of operations.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor its subsidiaries is a party to any material pending
legal proceedings.
22
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1997.
In July 1997, in a special meeting of stockholders of the Company, the Company's
Certificate of Incorporation was amended to increase the number of authorized
shares of common stock from 15,000,000 to 30,000,000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market System
(NMS) (Symbol: BELW). There were approximately 1,126 stockholders of record as
of September 24, 1997. The Company has not paid dividends on its common stock
and does not anticipate the payment of cash dividends in the immediate future as
it contemplates that cash flows will be used for continued growth in Company
operations. In addition, certain covenants contained in the Company's financing
arrangements restrict the payment of dividends (See Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financing Activities
and Note 8 of the Notes to Consolidated Financial Statements). The following
table sets forth the range of the high and low sales prices, as reported by the
NASDAQ for Bellwether common stock for the periods indicated.
Sales Price
-------------
High Low
---- ---
Quarter Ended:
September 30, 1995................. $ 6.25 $ 5.00
December 31, 1995.................. $ 6.13 $ 4.06
March 31, 1996..................... $ 7.00 $ 5.00
June 30, 1996...................... $ 8.00 $ 5.50
September 30, 1996................. $ 6.88 $ 4.38
December 31, 1996.................. $ 9.00 $ 5.63
March 31, 1997..................... $11.50 $ 7.88
June 30, 1997...................... $10.25 $ 7.25
23
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data with respect to the Company should be
read in conjunction with the Consolidated Financial Statements and supplementary
information included in Item 8 (amounts in thousands, except per share data).
<TABLE>
<CAPTION>
At and For the Years Ended June 30,
----------------------------------------------------------------
1997(3) 1996 1995(1) 1994(2) 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gas revenues................................... $ 24,202 $ 9,856 $ 4,864 $ 2,620 $ 1,807
Oil revenues................................... 14,865 5,810 3,643 1,086 1,708
Gas plant and gas gathering revenues........... 6,652 8,719 10,705 6,930 23
Interest and other income...................... 365 116 97 63 116
--------- -------- -------- --------- ---------
Total revenues............................ 46,084 24,501 19,309 10,699 3,654
Total expenses (including income taxes)........ 41,439 23,519 18,368 9,885 3,613
--------- -------- -------- --------- ---------
Net income..................................... $ 4,645 $ 982 $ 941 $ 814 $ 41
========= ======== ======== ========= ========
Earnings per common and common equivalent
share fully diluted /(4)/(5)/................. $ 0.43 $ 0.11 $ 0.12 $ 0.27 $ 0.02
Total assets................................... $ 222,648 $ 67,225 $ 74,650 $ 35,870 $ 12,480
Long-term debt, net of current maturities...... $ 115,300 $ 13,048 $ 18,525 $ 12,797 $ 1,000
</TABLE>
(1) Reflects operations from Odyssey and Hampton mergers beginning August
1994 and February 1995, respectively.
(2) Includes operations of the Gas Plant and AGRI from dates of acquisition
in July and December 1993, respectively.
(3) Includes operations of the Partnership Transactions from April 1 to
June 30, 1997.
(4) Restated to reflect a 1-for-8 reverse stock split in 1994.
(5) At present, there is no plan to pay dividends. The Company maintains a
policy of reinvesting its discretionary cash flows for continued growth in
company operations (See Note 6 to Notes to Consolidated Financial
Statements).
24
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Bellwether is an independent energy company primarily engaged in the
acquisition, exploitation, development and exploration of oil and gas
properties. The Company has grown and diversified its operations through the
acquisition of oil and gas properties and the subsequent development of these
properties. The Company's results of operations have been significantly affected
by its success in acquiring oil and gas properties and its ability to maintain
or increase production through its exploitation activities. Fluctuations in oil
and gas prices have also significantly affected the Company's results.
The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
in a "full cost pool" as incurred. Oil and gas properties in the pool, plus
estimated future expenditures to develop proved reserves and future abandonment,
site reclamation and dismantlement costs, are depleted and charged to operations
using the unit of production method based on the ratio of current production to
total proved recoverable oil and gas reserves. To the extent that such
capitalized costs (net of depreciation, depletion and amortization) exceed the
discounted future net revenues on an after-tax basis of estimated proved oil and
gas reserves, such excess costs are charged to operations. Once incurred, the
writedown of oil and gas properties is not reversible at a later date even if
oil and gas prices increase. Sharp declines in oil and gas prices may cause
companies who report on the full cost method, such as Bellwether, to write down
their oil and gas properties, thereby decreasing earnings during such period.
The Company periodically uses derivative financial instruments to manage
oil and gas price risk. Settlements of gains and losses on price swap contracts
are generally based upon the difference between the contract price and the
average closing NYMEX or other floating index price and are reported as a
component of oil and gas revenue. Gains or losses attributable to the
termination of swap contracts are deferred and recognized in revenue when the
hedged oil and gas is sold.
Capital Resources and Liquidity
Sources of Capital
The Company and certain third parties were the sellers under a gas purchase
contract whereby another party had an obligation to purchase, until May 31,
1999, gas produced and purchased by the Company and gas produced by third
parties from the West Monroe field in Union Parish, Louisiana at a price of
$4.50 per MMBTU. Bellwether supplied a significant portion of the gas sold
pursuant to the gas purchase contract. In March 1996, in exchange for
Bellwether's agreement to assume the purchase obligation under the gas
25
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
purchase contract, Bellwether was paid $9.9 million. From the proceeds, $9.5
million was repaid on the Company's credit facility.
During fiscal years 1997 and 1996, the Company's net cash flows provided by
operating activities before changes in assets and liabilities were $23.1 million
and $9.1 million, respectively.
Also in fiscal 1997, the Company borrowed $57 million under credit
facilities, and repaid $55 million. As part of the financing of the Partnership
Transactions, the Company issued $100.0 million of 10-7/8% Senior Subordinated
Notes and used net proceeds of $34.1 million from the issuance of 4.7 million
shares of common stock.
Uses of Capital
During the past three fiscal years, the Company's primary uses of its
capital have been to fund the acquisitions of Odyssey, Hampton and the
Partnership Transactions. During fiscal 1997, 1996 and 1995 capital
expenditures of $15.6 million, $6.4 million and $3.4 million, respectively, were
incurred in connection with the development and exploration of the Company's
properties.
Financing Activities
On February 28, 1995, the Company entered into a credit facility with a
commercial bank providing an initial borrowing base of $29.8 million. The
borrowings under the credit facility were secured by the Company's interests in
oil and gas properties, a gathering system and two gas plants. The Credit
Facility was retired in October 1996. In October 1996, the Company entered into
a syndicated credit facility in an amount up to $50.0 million with an initial
borrowing base of $27.0 million, to be re-determined semi-annually. This credit
facility was unsecured with respect to oil and gas assets and was retired in
April 1997.
In April 1997, the Company entered into a senior revolving unsecured credit
facility ("Senior Credit Facility") in an amount up to $90.0 million, with an
initial borrowing base of $90.0 million to be redetermined semi-annually, and a
maturity date of March 31, 2002. Bellwether may elect an interest rate based
either on a margin plus LIBOR or the higher of the prime rate or the sum of 1/2
of 1% plus the Federal Funds Rate. For LIBOR borrowings, the interest rate will
vary from LIBOR plus 0.875% to LIBOR plus 1.25% based upon the borrowing base
usage. In connection with the acquisition of oil and gas properties, $33.3
million was drawn under this facility. As of June 30, 1997, borrowings of $15.3
million were outstanding under the Senior Credit Facility with an average
interest rate of 6.6%.
The Senior Credit Facility contains various covenants including certain
required financial measurements for a current ratio, consolidated tangible net
worth and interest coverage ratio. In addition, the Senior Credit Facility
includes certain limitations on restricted payments, dividends, incurrence of
additional funded indebtedness and asset sales.
In April 1997, the Company issued $100.0 million of 10-7/8% senior
subordinated notes ("Notes") that mature April 1, 2007. Interest on the
26
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
Notes is payable semi-annually on April 1 and October 1 commencing on October 1,
1997. The Notes are guaranteed by the Company and its wholly owned subsidiaries,
Odyssey Petroleum Company, Black Hawk Oil Company and 1989-I TEAI Limited
Partnership. The Notes contain certain covenants, including limitations on
indebtedness by subsidiaries, dividends and other payment restrictions affecting
restricted subsidiaries, issuance and sales of restricted subsidiary stock,
dispositions of proceeds of asset sales and restrictions on mergers, and
consolidations or sales of assets.
Other Matters
Dividends
At present, there is no plan to pay dividends on common stock. The Company
maintains a policy of reinvesting its discretionary cash flows for the continued
growth in Company operations.
Gas Balancing Positions
It is customary in the industry for various working interest partners to
sell more or less than their entitled share of natural gas. The settlement or
disposition of gas balancing positions as of June 30, 1997 is not anticipated to
adversely impact the financial condition of the Company.
Derivative Financial Instruments
The Company periodically uses derivative financial instruments to manage
oil and gas price risk. At June 30, 1997, the Company has entered into
contracts to hedge 300 barrels of oil per day at a price of $22.17 per barrel,
and 56,000 MCF of natural gas per day for July to October 1997 at prices
ranging from $1.98 to $2.69 per MCF.
Financial Accounting Standards Board Statement No. 123
The Company follows the intrinsic value method for stock options granted to
employees. In October 1995, the FASB issued Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation." The Company did
not adopt the fair value method for stock-based compensation plans, but has
provided the pro forma effects on net income and earnings per share that would
have been recognized if the fair value method was used.
Financial Accounting Standards Board Statement No. 128
Effective December 1997, the Company will be required to adopt Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 introduces the concept of basic earnings per share, which represents net
income divided by the weighted average common shares outstanding B without the
dilutive effects of common stock equivalents (options, warrants, etc.). Diluted
earnings per share, giving effect for common stock equivalents, will be reported
when SFAS 128 is adopted in the quarter ending December 1997. The impact of
adopting SFAS 128 is anticipated to be immaterial.
Financial Accounting Standards Board Statement No. 129
Effective December 1997, the Company will be required to adopt Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" ("SFAS 129"). SFAS 129 requires that all entities disclose in
summary form within the financial statements the pertinent rights and privileges
of the various securities outstanding. An entity is to
27
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
disclose within the financial statements the number of shares issued upon
conversion, excerise, or satisfaction of required conditions during at least the
most recent annual fiscal period and any subsequent interim period presented.
Other special provisions apply to prefered and redeemable stock. The Company's
adoption of SFAS 129 in the quarter ending December 1997 is not expected to have
a material impact on reported results.
Financial Accounting Standards Board Statement No. 130
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components. The components of comprehensive income
refer to revenues, expenses, gains and losses that are excluded from net income
under current accounting standards, including unrecognized foreign currency
translation items, minimum pension liability adjustments and unrealized gains
and losses on certain investments in debt and equity securities. SFAS 130
requires that all items that are recognized under accounting standards as
components of comprehensive income be reported in a financial statement
displayed in equal prominence with other financial statements; the total of
other comprehensive income for a period is required to be transferred to a
component of equity that is separately displayed in a statement of financial
position at the end of an accounting period. SFAS 130 is effective for both
interim and annual periods beginning after December 15, 1997, at which time the
Company will adopt the provisions. The Company does not expect SFAS 130 to have
a material effect on reported results.
Financial Accounting Standards Board Statement No. 131
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to shareholders. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. SFAS 131 is effective for periods beginning after December
15, 1997, at which time the Company will adopt the provisions. The Company does
not expect SFAS 131 to have a material effect on its reported results.
Outlook
The Company has adopted a $20.6 million capital budget for fiscal 1998,
primarily for development and exploratory drilling activities. The Company
believes its working capital and net cash flows provided by operating activities
are sufficient to meet these capital commitments. The Company is reviewing
several acquisitions, any one of which could materially exceed the planned
capital expenditure levels. It is anticipated that such acquisitions, if
consummated, would be funded through additional borrowings and/or the issuance
of securities.
28
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
The Company's results of operations and cash flow are affected by changing
oil and gas prices. Increases in oil and gas prices often result in increased
drilling activity, which in turn increases the demand for and cost of
exploration and development. Thus, increased prices may generate increased
revenue without necessarily increasing profitablity. These industry market
conditions have been far more significant determinants of Company earnings than
have macroeconomic factors such as inflation, which has had only minimal impact
on Company activities in recent years. While it is impossible to predict the
precise effect of changing prices and inflation on future Company operations,
the short-lived nature of the Company's gas reserves makes it more possible to
match development costs with predictable revenue streams than would long-lived
reserves. No assurance can be given as to the Company's future success at
reducing the impact of price changes on the Company's operating results.
29
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
Results of Operations
The following table sets forth certain oil and gas production information
of the Company for the periods presented.
Year Ended June 30,
----------------------------
1997 1996 1995
-------- -------- --------
Production
Oil and condensate (MBBLS)..................... 854 334 216
Natural gas (MMCF)............................. 10,552 5,099 2,932
Average sales price /(1)/
Oil and condensate (per barrel)................ $ 17.41 $ 17.81 $ 16.89
Natural gas (per MCF).......................... $ 2.29 $ 2.02 $ 1.66
Average unit production cost per equivalent
barrel (6 MCF equal 1 barrel).................. $ 4.38 $ 4.49 $ 4.05
Average unit depletion rate per equivalent
barrel (6 MCF equal 1 barrel).................. $ 5.62 $ 5.86 $ 5.52
/(1)/ Average sales price is exclusive of the effect of natural gas and crude
oil price swaps.
Operations of the Gas Plant are summarized as follows:
Year Ended June 30,
----------------------------
1997 1996 1995
-------- -------- --------
Product sales volume - (MBBLS) 319 321 382
Average sales price per barrel................... $ 16.77 $ 13.01 $ 11.96
Revenues: ($000)
Product sales.................................. $ 5,351 $ 4,175 $ 4,568
Operating fees................................. 680 690 786
Residual gas sales............................. 621 480 324
-------- -------- --------
Total revenues................................... 6,652 5,345 5,678
Operating expenses ($000)........................ 3,322 2,768 3,004
-------- -------- --------
Operating margin ($000).......................... $ 3,330 $ 2,577 $ 2,674
======== ======== ========
30
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
Operations of the Gathering System, acquired in December 1994, are summarized as
follows:
1997 1996(1) 1995
-------- -------- --------
Net throughput (MMCF per day)............... -- 4.0 4.1
Gas gathering revenues ($000)............... $ -- $ 3,374 $ 5,027
Operating expenses ($000)................... -- 2,417 3,074
-------- -------- --------
Operating margin ($000)..................... $ -- $ 957 $ 1,953
======== ======== ========
(1) Represents operations from July 1995 through February 1996. Subsequent to
February 1996, the Company ceased recognition of such operations following
the Company's assumption of a gas purchase contract and receipt of $9.9
million (See Note 2 of Notes to Consolidated Financial Statements. See Note
10 for industry segment information).
Revenues:
Oil and gas revenues were $39.1 million in fiscal 1997, an increase of 149%
over the fiscal year ended June 30, 1996. This increase is attributable
primarily to increased production in the fourth quarter of fiscal 1997 from the
Partnership Transactions.
Oil and gas revenues for fiscal 1996 were $15.7 million, or 85% higher than
fiscal 1995 oil and gas revenues of $8.5 million. The Company's mergers with
Odyssey and Hampton were responsible for the increased revenues during fiscal
1995 and 1996. During the three year period, the volatility of oil and gas
prices directly impacted revenues. Most significantly, natural gas prices
increased in fiscal 1997 to $2.29 per MCF from $2.02 per MCF in fiscal 1996.
During fiscal 1997, the Company utilized various hedging transactions to manage
a portion of the risks associated with natural gas and crude oil volatility. As
a result of these hedges, oil and gas revenues were reduced by $18,000.
Gas plant revenues were $6.7 million in fiscal 1997, an increase of 26%
over prior year revenues of $5.3 million. Contributing to this increase were
increases in plant liquids prices of 29% over last year. Gas plant revenues
were $5.3 million in fiscal 1996, or 7% lower than fiscal 1995 revenues of $5.7
million due primarily to decreased throughput, partially offset by a 7%
increase in natural gas liquids price.
Gas gathering revenues decreased to $3.4 million in fiscal 1996, or 32%
under fiscal 1995 revenues of $5.0 million due to the Company's agreement to
assume payment obligations under a gas purchase contract and its decision to
cease recognition of income from gas gathering operations.
Expenses:
Production expenses for fiscal 1997 totaled $11.4 million, as compared to
$5.3 million in fiscal 1996 and $2.9 million in fiscal 1995. The 115% increase
in production expenses in fiscal 1997 as compared to fiscal 1996 was
attributable to increased production from the Partnership Transactions. The 83%
increase in fiscal 1996 over fiscal 1995 was attributable primarily to the
Odyssey and
31
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
Hampton mergers. Such mergers were included in operations for ten and four
months, respectively, in fiscal 1995.
Gas plant expenses increased 18% during fiscal 1997 to $3.3 million from
$2.8 million in fiscal 1996, primarily due to increased costs of natural gas
purchases. Gas plant expenses were $2.8 million or 7% lower in fiscal 1996 than
in fiscal 1995 as a result of decreased throughput, offset partially by higher
prices.
Gas gathering expenses in fiscal 1996 of $2.4 million are 23% under the
prior year total of $3.1 million, due to the Company's agreement to accept
assume payment obligations under a gas purchase contract and its decision to
cease gas gathering operations.
Depreciation, depletion and amortization increased 93% to $15.6 million in
fiscal 1997 versus $8.1 million in fiscal 1996. Such increase was attributable
to higher production from the Partnership Transactions, offset by a 4% decrease
in the depletion rate per net equivalent barrel as a result of the Partnership
Transactions.
Depreciation, depletion and amortization of $8.1 million reflects an
increase of 53% for fiscal 1996 over $5.3 million in fiscal 1995. Such increase
reflects a full year of production volumes from the Odyssey and Hampton mergers
and a 6% increase in the depletion rate per net equivalent barrel due to
additional costs associated with dry holes drilled in Fausse Pointe and Cove
fields.
General and administrative expenses totaled $4.0 million, $3.0 million and
$2.7 million for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively. The fees under the Administrative Services Agreement with Torch
accounted for $0.8 million and $0.3 million and $0.6 million of the increase in
general and administrative expenses in fiscal years 1997, 1996, and 1995,
respectively, and is due to the significant growth of assets and cash flows
experienced by the Company.
Interest expense increased to $4.5 million in fiscal 1997 from $1.7 million
in fiscal 1996 and $1.2 million in fiscal 1995. Such increase is due to the
increase in debt which financed a portion of the Partnership Transactions and
the Hampton merger.
The Company recorded a provision for income taxes of $2.6 million in fiscal
1997. Actual payments of $198,000, $126,000 and $9,000 fiscal years 1997, 1996,
and 1995, respectively, relate to alternative minimum tax and state taxes. In
1996 and 1995, net operating loss carry forwards contributed to the low
effective tax rates. Upon merging with Hampton, the Company was required to
record a deferred tax liability of $2.4 million. The Partnership Transaction
required a $120,000 deferred tax liability.
Net Income
Net income of $4.6 million was generated in fiscal 1997, as compared to
$1.0 million and $0.9 million in fiscal 1996 and fiscal 1995, respectively.
32
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
NUMBER
------
Independent Auditors' Report.......................................... 34
Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 and 1996............. 35
Consolidated Statements of Operations for the Years Ended
June 30, 1997, 1996 and 1995........................................ 37
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended June 30, 1997, 1996 and 1995............. 38
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995........................................ 39
Notes to Consolidated Financial Statements........................... 41
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Bellwether Exploration Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Bellwether
Exploration Company and subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended June 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Bellwether Exploration Company and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Houston, Texas
September 29, 1997
34
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in thousands)
JUNE 30, JUNE 30,
1997 1996
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents................................ $ 15,341 $ 783
Accounts receivable and accrued revenues................. 16,795 5,990
Accounts receivable - related parties.................... 1,836 1,417
Prepaid expenses......................................... 1,759 314
--------- ---------
Total current assets................................. 35,731 8,504
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Oil and gas properties (full cost method) including
$4,500 and $13,453 of unproved properties which
are excluded from amortization in 1997 and 1996,
respectively 233,175 76,043
Gas plant facilities..................................... 12,924 12,840
--------- ---------
246,099 88,883
Less accumulated depreciation, depletion and
amortization (65,097) (30,748)
--------- ---------
181,002 58,135
--------- ---------
OTHER ASSETS............................................. 5,915 586
--------- ---------
$ 222,648 $ 67,225
========= =========
See Notes to Consolidated Financial Statements.
35
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in thousands, except share information)
JUNE 30, JUNE 30,
1997 1996
--------- ---------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities................. $ 12,739 $ 2,634
Accounts payable - related parties....................... 209 702
--------- ---------
Total current liabilities........................... 12,948 3,336
--------- ---------
LONG-TERM DEBT........................................... 115,300 13,048
DEFERRED INCOME TAXES.................................... 5,521 2,861
OTHER LIABILITIES........................................ 955 1,383
CONTINGENCIES............................................ --- ---
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued or outstanding................. --- ---
Common stock, $0.01 par value, 15,000,000 shares
authorized, 13,844,965 and 9,075,479 shares issued
and outstanding at June 30, 1997 and 1996,
respectively............................................ 139 91
Additional paid-in capital............................... 78,273 41,639
Retained earnings........................................ 9,512 4,867
--------- ---------
Total stockholders' equity............................... 87,924 46,597
--------- ---------
$ 222,648 $ 67,225
========= =========
See Notes to Consolidated Financial Statements.
36
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Year Ended June 30,
--------------------------------
1997 1996 1995
-------- -------- --------
REVENUES:
Gas revenues............................... $ 24,202 $ 9,856 $ 4,864
Oil revenues............................... 14,865 5,810 3,643
Gas plant revenues......................... 6,652 5,345 5,678
Gas gathering revenues..................... --- 3,374 5,027
Interest and other income.................. 365 116 97
-------- -------- --------
46,084 24,501 19,309
-------- -------- --------
COSTS AND EXPENSES:
Production expenses........................ 11,437 5,317 2,856
Gas plant expenses......................... 3,322 2,768 3,004
Gas gathering expenses..................... --- 2,417 3,074
General and administrative expenses........ 4,042 3,013 2,739
Depreciation, depletion and amortization... 15,574 8,148 5,269
Interest expense........................... 4,477 1,657 1,245
Other expenses............................. 2 153 ---
-------- -------- --------
38,854 23,473 18,187
-------- -------- --------
Income before income taxes and
minority interest.......................... 7,230 1,028 1,122
Provision for income taxes................... 2,585 46 9
Minority interest in gas plant ventures...... --- --- 172
-------- -------- --------
Net income................................... $ 4,645 $ 982 $ 941
======== ======== ========
Net income per share - primary............... $ 0.44 $ 0.11 $ 0.12
======== ======== ========
Net income per share B fully diluted......... $ 0.43 $ 0.11 $ 0.12
======== ======== ========
Weighted average common and common
equivalent shares outstanding - primary.... 10,592 9,052 7,713
======== ======== ========
Weighted average common and common
equivalent shares outstanding - fully
diluted.................................... 10,700 9,052 7,713
======== ======== ========
See Notes to Consolidated Financial Statements.
37
<PAGE>
BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL TREASURY STOCK
--------------- --------------- PAID-IN RETAINED --------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ------ ------ ------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1994............. 3,737 $ 37 --- $ --- $ 15,490 $ 2,944 15 $ (99) $ 18,372
Shares issued in public stock
offering......................... 3,400 34 --- --- 17,204 --- --- --- 17,238
Cancellation of treasury stock.... (15) --- --- --- --- --- (15) 99 99
Shares issued in merger with
Odyssey Partners, Ltd............ 917 9 --- --- 3,944 --- --- --- 3,953
Shares issued in merger with
Hampton Resources Corporation.... 1,006 10 --- --- 4,834 --- --- --- 4,844
Net earnings...................... --- --- --- --- --- 941 --- --- 941
------ ------ ------ ------ -------- -------- ------ ------ --------
Balance June 30, 1995............. 9,045 90 --- --- 41,472 3,885 --- --- 45,447
Stock options exercised........... 30 1 --- --- 167 --- --- --- 168
Net earnings...................... --- --- --- --- --- 982 --- --- 982
------ ------ ------ ------ -------- -------- ------ ------ --------
Balance June 30, 1996............. 9,075 91 --- --- 41,639 4,867 --- --- 46,597
Shares issued in public stock
offering, net of offering costs.. 4,687 47 --- --- 36,169 --- --- --- 36,216
Stock options exercised........... 83 1 --- --- 465 --- --- --- 466
Net earnings...................... --- --- --- --- --- 4,645 --- --- 4,645
------ ------ ------ ------ -------- -------- ------ ------ --------
Balance June 30, 1997............. 13,845 $ 139 --- $ --- $ 78,273 $ 9,512 --- $ --- $ 87,924
====== ====== ====== ====== ======== ======== ====== ====== ========
</TABLE>
See Notes to Consolidated Financial Statements.
38
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Year Ended June 30,
--------------------------------
1997 1996 1995
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................... $ 4,645 $ 982 $ 941
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, depletion and amortization... 16,044 8,273 5,382
Minority interest in gas plant ventures.... --- --- 120
Deferred taxes............................. 2,562 (183) ---
-------- -------- --------
23,251 9,072 6,443
Change in assets and liabilities,
net of acquisition effects:
Accounts receivable and accrued revenues... 2,941 (668) 1,548
Prepaid expenses........................... (638) 25 117
Accounts payable and accrued expenses...... 4,438 84 (2,047)
Due (to) from affiliates................... 5,738 (791) (633)
Other...................................... (6,447) (237) (145)
-------- -------- --------
NET CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES.................................. 29,283 7,485 5,283
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of oil and gas properties,
including working capital...................
Partnership Transactions................... (149,914) --- ---
Odyssey Petroleum.......................... --- --- (5,374)
Hampton Resources.......................... --- --- (18,168)
Additions to oil and gas properties.......... (20,811) (6,934) (3,497)
Proceeds from sales of properties............ 18,775 644 265
Additions to gas plant facilities............ (84) (44) (87)
Additions to gas gathering system............ --- (21) (138)
Proceeds from gas contract assignment........ --- 9,875 ---
Other........................................ (88) 22 (290)
-------- -------- --------
NET CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES....................... (152,122) 3,542 (27,289)
-------- -------- --------
See Notes to Consolidated Financial Statements.
39
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BELLWETHER EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Amounts in Thousands)
Year Ended June 30,
--------------------------------
1997 1996 1995
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings..................... $157,300 $ --- $ 26,773
Net proceeds from issuance of common stock... 35,145 168 17,238
Payments of long-term debt................... (55,048) (11,500) (22,369)
-------- -------- --------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES....................... 137,397 (11,332) 21,642
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................ 14,558 (305) (364)
Cash and cash equivalents at beginning
of year.................................... 783 1,088 1,452
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR..... $ 15,341 $ 783 $ 1,088
======== ======== ========
See Notes to Consolidated Financial Statements.
40
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Bellwether Exploration Company ("the Company") was formed as a Delaware
corporation in 1994 to succeed to the business and properties of its
predecessor company pursuant to a merger, the primary purpose of which was
to change the predecessor company's state of incorporation from Colorado to
Delaware. The predecessor company was formed in 1980 from the
consolidation of the business and properties of related oil and gas limited
partnerships. References to Bellwether or the Company include the
predecessor company, unless the context requires otherwise.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Bellwether
Exploration Company and its wholly-owned subsidiaries. Snyder Gas Plant
Venture and NGL/Torch Gas Plant Venture and their 11.98% and 35.78%
investments in the Snyder and Diamond M-Sharon Ridge Gas Plants have been
pro rata consolidated. Minority interests have been deducted from results
of operations and stockholders' equity in the appropriate period. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Oil and Gas Properties
The Company utilizes the full cost method to account for its investment in
oil and gas properties. Under this method, all costs of acquisition,
exploration and development of oil and gas reserves (including such costs
as leasehold acquisition costs, geological expenditures, dry hole costs and
tangible and intangible development costs and direct internal costs) are
capitalized as incurred. Oil and gas properties, the estimated future
expenditures to develop proved reserves, and estimated future abandonment,
site remediation and dismantlement costs are depleted and charged to
operations using the unit-of-production method based on the ratio of
current production to proved oil and gas reserves as estimated by
independent engineering consultants. Costs directly associated with the
acquisition and evaluation of unproved properties are excluded from the
amortization computation until it is determined whether or not proved
reserves can be assigned to the properties or whether impairment has
occurred. Depletion expense per equivalent barrel of production was
approximately $5.62 in 1997, $5.86 in 1996 and $5.52 in 1995. Dispositions
of oil and gas properties are recorded as adjustments to capitalized costs,
with no gain or loss recognized unless such adjustments would significantly
alter the relationship between capitalized costs and proved reserves of oil
and gas. To the extent that capitalized costs of oil and gas properties,
net of accumulated depreciation, depletion and amortization, exceed the
discounted future net revenues of proved oil and gas reserves net of
deferred taxes, such
41
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
excess capitalized costs would be charged to operations. No such write-down
in book value was required in 1997, 1996 or 1995.
Any reference to oil and gas reserve information in the Notes to
Consolidated Financial Statements is unaudited.
Gas Plants and Gas Gathering System
Gas plant facilities include the costs to acquire certain gas plants and to
secure rights-of-way. Capitalized costs associated with gas plants
facilities are amortized primarily over the estimated useful lives of the
various components of the facilities utilizing the straight-line method.
The estimated useful lives of such assets range from four to fifteen years.
The Company's gas gathering subsidiary and certain third parties were the
beneficiaries of an agreement whereby another party had an obligation to
purchase, until May 31, 1999, the gas produced by the Company and such
third parties from the West Monroe field in Union Parish, Louisiana at a
price of $4.50 per MMBTU. Bellwether owned a large majority of the gas
produced and sold pursuant to the Purchase Agreement. In March 1996, in
exchange for Bellwether's agreement to assume the purchase obligations
under the gas purchase contract, Bellwether was paid $9.9 million. As a
result of this transaction, the Company has written off the remaining book
value of the gas gathering system and has recorded a liability to cover the
estimated future losses under the contract. Gas gathering operations of
the subsidiary and payments to third parties are charged to the liability
as incurred. From the proceeds, $9.5 million was paid on the Company's
credit facility.
Gas Imbalances
The Company uses the sales method of accounting for gas imbalances. Under
this method, gas sales are recorded when revenue checks are received or are
receivable on the accrual basis. The Company had a net imbalance liability,
at fair value, of $596,000 at June 30, 1997. The Company's net imbalance
was immaterial at June 30, 1997 and 1996.
Financial Accounting Standards Board Statement No. 121
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121 is effective
beginning July 1, 1996 and establishes guidelines for determining and
measuring asset impairment and the required timing of asset impairment
evaluations. The impact of implementing SFAS 121 during fiscal 1997 was
immaterial.
42
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial Accounting Standards Board Statement No. 123
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation" which is effective for the
Company beginning July 1, 1996. SFAS 123 permits, but does not require, a
fair-value-based method of accounting for employee stock option plans which
results in compensation expense being recognized in the results of
operations when stock options are granted. The Company plans to continue
to use the current intrinsic-value-based method of accounting for such
plans where no compensation expense is recognized. However, as required by
SFAS 123, the Company has provided pro forma disclosure of net income and
earnings per share in the notes to the consolidated financial statements as
if the fair-value-based method of accounting had been applied.
Natural Gas and Crude Oil Hedging
Commodity derivatives utilized as hedges incude swap contracts. In order
to qualify as a hedge, price movements in the underlying commodity
derivative must be sufficiently correlated with the hedged commodity.
Settlement of gains and losses on price swap contracts are realized
monthly, generally based upon the difference between the contract price and
the average closing New York Mercantile Exchange ("NYMEX") price and are
reported as a component of oil and gas revenues and operating cash flows in
the period realized. Gains and losses attributable to the termination of a
swap contract are deferred on the balance sheet and recognized in revenue
when the hedged crude oil and natural gas is sold. There were no such
deferred gains or losses at June 30, 1997, 1996 or 1995.
Oil and gas revenues were decreased by $18,000 in 1997, and decreased by
$560,000 in 1996 as a result of such hedging activity. There was no hedging
activity in 1995.
Earnings Per Share
Earnings per share calculations are based on the weighted average number of
common shares and common share equivalents and net income. Common share
equivalents include dilutive common stock options. Such options do not
have a material effect in the calculations of earnings per share.
Income Taxes
Deferred taxes are accounted for under the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of
existing assets and liabilities. The effect on deferred taxes
43
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of a change in tax rates is recognized in income in the period the change
occurs.
Statements of Cash Flows
For cash flow presentation purposes, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months
or less to be cash equivalents. Interest paid in cash for 1997, 1996 and
1995 was $1.5 million, $1.6 million and $1.2 million, respectively. Income
taxes paid in cash for 1997, 1996, and 1995 were $198,000, $126,000, and
$9,000 respectively. In 1997, a portion of the purchase price of the
Partnership Transactions included the issuance to Torch of 150,000 shares
of the Company's common stock valued at $1.2 million. Also, Torch was
issued a warrant to purchase 100,000 shares at $9.90 per share of the
Company's common stock for advisory services rendered in connection with
the Partnership Transactions; the warrant was valued at $300,000 and was
recorded as a cost of the Partnership Transactions. During 1995, a portion
of the the mergers, Odyssey Partners, Ltd. ("Odyssey") and Hampton
Resources Corporation ("Hampton"), collectively the ("Mergers") was
financed by assumption of debt of $1.4 million for Odyssey and $4.1 million
for Hampton. Common stock with a value of $4.0 million and $4.8 million was
issued as part of the costs of the Odyssey and Hampton mergers in 1995,
respectively.
Use of estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities as well as reserve information which
affects the depletion calculation and the computation of the full cost
ceiling limitation to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
these estimates.
Reclassifications
Certain reclassifications of prior period statements have been made to
conform with current reporting practices.
3. ACQUISITIONS AND MERGERS
During the last three years, the Company has completed the following
mergers and acquisitions, all of which were recorded using the purchase
method of accounting.
In April 1997, the Company closed acquisitions of oil and gas properties,
totaling $145.2 million, from certain partnerships and other entities
managed or sponsored by Torch Energy Advisors Incorporated ("Torch"). The
acquisitions were financed by the sale of 4.4 million shares of common
stock, the sale of $100.0 million of 10-7/8% senior
44
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
subordinated notes due in 2007 and the use of $33.3 million of a new $90.0
million senior unsecured credit facility (including the repayment of $22.0
million on a then existing credit facility).
On February 28, 1995 the Company acquired Hampton in exchange for $17.0
million in cash and 1,006,458 shares of the Company's common stock. The
Company had paid previous to the merger $2.7 million to acquire common and
preferred stock of Hampton and incurred $1.4 million in expenses in
arranging the merger. The total cost of the Hampton acquisition was $25.9
million, consisting of $21.1 million in cash and $4.8 million in common
stock. Hampton was an energy company engaged in the exploration,
acquisition and production of oil and natural gas, primarily in the onshore
Gulf Coast region and offshore in Texas state waters.
On August 26, 1994 the Company acquired Odyssey in exchange for $5.6
million in cash (funded from a common stock offering which closed on the
same date) and 916,665 shares of the Company's common stock, for a total
cost of $9.6 million. Odyssey is an exploration company which assembles,
exploits and operates oil and gas properties using state-of-the-art 3-D
seismic and computer-aided exploration technology. Odyssey's primary areas
of operation have been the onshore Gulf Coast region and the Permian Basin
area of West Texas and Southeast New Mexico.
The following table presents the unaudited pro forma results of operations
as if the Partnership Transactions had all occurred on July 1, 1995 and
July 1, 1996. The Partnership Transactions were accounted for as purchases,
and their results of operations are included in the Company's results of
operations from the date of acquisition. The Company's pro forma results
are based on assumptions and estimates and are not necessarilly indicative
of the Company's results of operations had the transaction occurred as of
July 1, 1995, or those in the future (in thousands, except earnings per
share).
45
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
------------------------
Year Ended June 30,
------------------------
1997 1996
Revenues $ 120,384 $ 140,969
Expenses 90,024 104,629
--------- ---------
Earnings before income taxes 30,360 36,340
Income taxes 11,143 13,112
--------- ---------
Net earnings $ 19,217 $ 23,228
========= =========
Net earnings per common share and
common shares equivalent, fully diluted $ 1.38 $ 1.71
========= =========
46
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. GUARANTOR FINANCIAL STATEMENTS -
CONSOLIDATING FINANCIAL STATEMENTS OF THE COMPANY AND THE GUARANTOR
SUBSIDIARIES (ODYSSEY PETROLEUM COMPANY, BLACK HAWK OIL COMPANY AND 1989-I
TEAI LIMITED PARTNERSHIP), AS GUARANTORS OF THE COMPANY'S 10 7/8% SENIOR
SUBORDINATED NOTES DUE 2007 ARE AS FOLLOWS:
CONDENSED CONSOLIDATING BALANCE SHEETS - UNAUDITED
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
BELLWETHER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total current assets.......................... $ 30,446 $ 2,069 $ 1,380 $ 1,836 $ 35,731
Net Property, plant and equipment............. 158,407 20,800 25,087 (23,292) 181,002
Total other assets............................ 20,780 346 39 (15,250) 5,915
---------- -------- --------- -------- ---------
Total assets.................................. $ 209,633 $ 23,215 $ 26,506 $(36,706) $ 222,648
========== ======== ========= ======== =========
Total current liabilities..................... $ 12,003 $ 2,383 $ (3,927) $ 2,489 $ 12,948
Long-term debt................................ 115,300 - - - 115,300
Deferred Taxes................................ 5,127 363 31 - 5,521
Other long-term liabilities................... 1,910 - - (955) 955
Total stockholders' equity.................... 75,293 20,469 30,402 (38,240) 87,924
---------- -------- --------- -------- ---------
Total liabilities and stockholders' equity.... $ 209,633 $ 23,215 $ 26,506 $(36,706) $ 222,648
========== ======== ========= ======== =========
</TABLE>
CONDENSED CONSOLIDATING INCOME STATEMENTS - UNAUDITED
FOR THE YEAR ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
BELLWETHER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 32,539 $ 5,260 $ 9,290 $ (1,005) $ 46,084
Expenses...................................... $ 26,153 6,979 7,086 (1,364) 38,854
---------- -------- --------- -------- ---------
Net earnings (loss) before income taxes....... $ 6,386 (1,719) 2,204 359 7,230
---------- -------- --------- -------- ---------
Income taxes.................................. $ 2,610 (57) 8 24 2,585
---------- -------- --------- -------- ---------
Net earnings (loss)........................... $ 3,776 $ (1,662) $ 2,196 $ 335 $ 4,645
========== ======== ========= ======== =========
</TABLE>
47
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS B - UNAUDITED
FOR THE YEAR ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR
BELLWETHER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 3,776 $(1,662) $ 2,196 $ 335 $ 4,645
Non-cash adjustments....................................... 12,527 4,732 1,565 (218) 18,606
Changes in assets and liabilities.......................... 6,064 2,400 (2,315) (117) 6,032
---------------------------------------------------------------------
Net cash provided by operating activities.................. 22,367 5,470 1,446 - 29,283
---------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties........................ (11,946) (7,894) (971) - (20,811)
Acqusition of partnership properties....................... (149,914) - - - (149,914)
Proceeds from sales of properties.......................... 15,408 3,071 296 - 18,775
Additions to properties and other.......................... (137) - (35) - (172)
---------------------------------------------------------------------
Net cash used in investing activities...................... (146,589) (4,823) (710) - (152,122)
---------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings................................... 157,300 - - - 157,300
Payments of long-term debt................................. (55,048) - - - (55,048)
Net proceeds from issuance of common stock................. 35,145 - - - 35,145
---------------------------------------------------------------------
Net cash provided by financing activities.................. 137,397 - - - 137,397
---------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents....... 13,175 647 736 - 14,558
Cash and cash equivalents at beginning of year............. 588 191 4 - 783
---------------------------------------------------------------------
Cash and cash equivalents at end of year................... $ 13,763 $ 838 $ 740 $ - $ 15,341
=====================================================================
</TABLE>
48
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS - UNAUDITED
AS OF JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR
BELLWETHER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Total current assets $ 6,118 $ 887 $ 924 $ 575 $ 8,504
Net Property, plant and equipment 39,317 11,004 15,050 (7,236) 58,135
Total other assets 29,872 25 37 (29,348) 586
-------- -------- -------- -------- --------
Total assets $ 75,307 $ 11,916 $ 16,011 $(36,009) $ 67,225
======== ======== ======== ======== ========
Total current liabilities $ 2,160 $ 1,044 (1,207) $ 1,339 $ 3,336
Long-term debt 13,048 - -- -- 13,048
Deferred Taxes 5,096 407 -- (2,642) 2,861
Other long-term liabilities 2,115 - -- (732) 1,383
Total stockholders' equity 52,888 10,465 17,218 (33,974) 46,597
-------- -------- -------- -------- --------
Total liabilities and stockholders' equity $ 75,307 $ 11,916 $ 16,011 $(36,009) $ 67,225
======== ======== ======== ======== ========
</TABLE>
CONDENSED CONSOLIDATING INCOME STATEMENTS - UNAUDITED
FOR THE YEAR ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR
BELLWETHER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Revenues $ 10,984 $ 3,600 $9,485 $ 432 $ 24,501
Expenses 11,187 2,830 8,671 785 23,473
-------- -------- ------ ----- --------
Net earnings (loss) before income taxes (203) 770 814 (353) 1,028
-------- -------- ------ ----- --------
Income taxes (404) 285 141 24 46
-------- -------- ------ ----- --------
Net earnings $ 201 $ 485 $ 673 $(377) $ 982
======== ======== ====== ===== ========
</TABLE>
49
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - UNAUDITED
FOR THE YEAR ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON GUARANTOR
BELLWETHER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 201 $ 485 $ 673 $ (377) $ 982
Non-cash adjustments 4,851 1,506 1,314 419 8,090
Changes in assets and liabilities 896 (244) 159 (2,398) (1,587)
-------- ------- -------- -------- --------
Net cash provided by operating activities 5,948 1,747 2,146 (2,356) 7,485
-------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (5,432) (1,567) - - (6,999)
Proceeds from sales of properties 644 - - - 644
Proceeds from gas contract assumption 9,875 - - - 9,875
Additions to properties and other (165) - 187 - 22
-------- ------- -------- -------- --------
Net cash provided by (used in) investing activities 4,922 (1,567) 187 - 3,542
-------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings (11,500) - - - (11,500)
Equity contributions - (2,356) 2,356 -
Payments of long-term debt - - - - -
Net proceeds from issuance of common stock 168 - - - 168
-------- ------- -------- -------- --------
Net cash provided by (used in) financing activities (11,332) - (2,356) 2,356 (11,332)
-------- ------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents (462) 180 (23) - (305)
Cash and cash equivalents at beginning of year 1,050 11 27 - 1,088
-------- ------- -------- -------- --------
Cash and cash equivalents at end of year $ 588 $ 191 $ 4 $ - $ 783
======== ======= ======== ======== ========
</TABLE>
50
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS
The Company is a party to an administrative services agreement which
requires Torch to administer the business activities of the Company for a
monthly fee equal to the sum of one-twelfth of 2% of the average of the
book value of the Company's total assets, excluding cash, plus
reimbursement of certain costs incurred on behalf of the Company for the
management of its oil and gas properties, plus 2% of annual operating cash
flows (as defined) during the period in which the services are rendered.
The initial term of this agreement, effective January 1, 1994, was six
years. Thereafter, the agreement renews automatically for successive one-
year periods until terminated by either party in accordance with the
applicable provisions of the agreement. For the years ended June 30, 1997,
1996 and 1995, related fees paid to Torch amounted to $2.3 million, $1.5
million and $1.2 million, respectively. Additionally, in the ordinary
course of business, the Company incurs intercompany balances resulting from
the payment of costs and expenses by affiliated entities on behalf of the
Company. Torch may charge interest on any unpaid balances not paid within
30 days, however, no such interest has been charged by Torch since the
inception of the agreement.
In April, 1997, Torch was issued 150,000 shares of the Company's common
stock and a warrant to purchase 100,000 shares at $9.90 per share for
advisory services rendered in connection with the Partnership Transactions.
The stock was valued at $1.2 million and the warrant was valued at
$300,000. In December 1993, Torch was issued a warrant to purchase 187,500
shares of the Company's common stock at a price of $6.40 per share for its
advisory services in identifying and negotiating a merger; such warrants
were exercised in connection with the Partnership Transactions with total
proceeds to the Company of $684,000.
Torch was also a selling partner in the Partnership Transactions through
its ownership of general partnership and working interests in the
partnerships programs. As a result, Torch was paid $18.4 million for such
interests. Two of the Company's officers are officers of Torch and have an
equity interest in Torch. A director of the Company holds significant
options to purchase stock in Torch, which if exercised would constitute a
substantial equity interest in Torch. Two of the directors of the Company
were formerly officers of Odyssey.
51
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A subsidiary of Torch markets oil and natural gas production from certain
oil and gas properties in which the Company owns an interest. The Company
generally pays fees of 2% of revenues for such marketing services. Such
charges were $646,000, $114,000 and $12,000 in 1997, 1996 and 1995,
respectively.
Costs of the evaluation of potential property acquisitions and due
diligence conducted in conjunction with acquisitions closed are incurred by
Torch at the Company's request. The Company was charged $650,000, $74,000,
and $193,000 for these costs in 1997, 1996, and 1995, respectively.
Torch operates certain oil and gas interests owned by the Company. The
Company is charged, on the same basis as other third parties, for all
customary expenses and cost reimbursements associated with these
activities. Operator's overhead charged for these activities for the years
ended June 30, 1997, 1996 and 1995 was $117,000, $367,000 and $164,000,
respectively.
Torch became the operator of the Gas Plant on December 1, 1993. In fiscal
1997, 1996 and 1995, the fees paid by the Company to Torch were $49,000,
$83,000 and $71,000, respectively.
6. STOCKHOLDERS' EQUITY
Common and Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance of
up to 15,000,000 shares of common stock and 1,000,000 shares of preferred
stock, the terms, preferences, rights and restrictions of which are
established by the Board of Directors of the Company. Certain restrictions
contained in the Company's loan agreements limit the amount of dividends
which may be declared. There is no present plan to pay dividends on common
stock as the Company intends to reinvest its cash flows for continued
growth of the Company.
In July, 1997 in a special meeting of Stockholders of the Company, the
Company's Certificate of Incorporation was amended to increase the number of
authorized shares of Common Stock from 15,000,000 to 30,000,000.
In April, 1997 the Company sold 4.7 million shares of common stock. Of the
net proceeds to the Company, $34.1 million was used in financing the
Partnership Transactions. Also sold in the Offering were 719,264 shares sold
by certain shareholders.
52
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the first quarter of fiscal 1995, the Company consummated the sale
of 3,650,000 shares of common stock. The net proceeds to the Company were
$17.3 million which were used for the Odyssey and Hampton mergers and
general corporate purposes. Of the shares sold, 3,400,000 were newly-issued
by the Company and 250,000 were sold by certain stockholders.
Stock Incentive Plans
The Company has stock option plans that provide for granting of options for
the purchase of common stock to directors, officers and key employees of
the Company and Torch. These stock options may be granted subject to terms
ranging from 6 to 10 years at a price equal to the fair market value of the
stock at the date of grant. At June 30, 1997, options under the plans
available for future grants were 158,500.
A summary of activity in the stock option plans is set forth below:
Number Option
of shares Price Range
--------- ------------------
Balance at June 30, 1994 471,325 $ 3.00 - $ 7.00
Granted 450,000 $ 5.56 - $ 5.94
------------ ------------------
Balance at June 30, 1995 921,325 $ 3.00 - $ 7.00
Granted 27,000 $4.375 - $6.375
Surrendered (10,000) $ 5.75
Exercised (30,000) $5.625
------------ ------------------
Balance at June 30, 1996 908,325 $ 3.00 - $ 7.00
------------ ------------------
Granted 364,500 $ 6.25 - $10.1875
Surrendered (10,000) $7.625
Exercised (82,500) $5.625 - $ 5.75
------------ ------------------
Balance at June 30, 1997 1,192,325 $5.625 - $10.1875
============ ==================
Exercisable at June 30, 1997 1,090,435 $ 3.00 - $ 7.75
============ ==================
Detail of stock options outstanding and options excercisable at
June 30, 1997 follows:
<TABLE>
<CAPTION>
Outstanding Excercisable
------------------------------------------------- ------------------------
Weighted-Average Weighted-Average Weighted-Average
Remaining Life Exercise Excerise
Range of Exercise Prices Number (Years) Price Number Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1988 Plan $3.00 to $ 7.00 131,325 0.74 $ 4.79 108,435 $ 4.78
1994 Plan $4.38 to $ 6.38 705,500 7.28 5.70 705,500 5.70
1996 Plan $6.25 to $10.19 355,500 9.41 7.76 276,500 7.25
--------- ---------
Total 1,192,325 1,090,435
========= =========
</TABLE>
53
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated weighted average fair value per share of options granted during
1997 and 1996 was $3.26 and $2.39 respectively. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: 1997 and 1996 expected
stock price volatility of 35%; risk free interest rate of 6% and an average
expected option life of 5 years. Had compensation expense for stock-based
compensation been determined based on the fair value at the date of grant, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands except share information):
1997 1996
-------- --------
Net Income As reported $ 4,645 $ 982
Pro forma $ 3,853 $ 921
Primary earnings per share As reported $ 0.44 $ 0.11
Pro forma $ 0.36 $ 0.10
Fully diluted earnings per share As reported $ 0.43 $ 0.11
Pro forma $ 0.36 $ 0.10
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company periodically uses derivative financial instruments to manage
oil and gas price risk. While swaps are intended to reduce the Company's
exposure to declines in the market price of oil and gas, they may limit the
Company's gain from increases in the market price. The oil and gas price
swaps qualify as hedges; and as long as they correlate with production
based on engineering estimates, any gains and losses will be recorded when
the related production has been delivered. Should the price swaps cease to
be recognized as a hedge, subsequent changes in value will be recorded in
the statement of operations. As of June 30, 1997, the Company was a party
to oil and gas swap price agreements for July through October, 1997 for
36,900 barrels of crude oil with a price of $22.17 per barrel and 6,888
MMCF of gas at prices ranging from $1.98 to $2.69 per MCF. These contracts
are accounted for as hedges for financial reporting purposes and,
accordingly, gains and losses are deferred and are recorded as adjustments
to oil and gas revenues as the sales are made.
These energy swap agreements expose the Company to counterparty credit risk
to the extent the counterparty is unable to meet its monthly settlement
commitment to the Company.
54
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DETERMINATION OF FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value for cash, short-term investments, receivables and payables
apparoximates carrying value. The following table details the carrying
values and approximate fair values of the Company's other investments,
derivative financial instruments and long-term debt at June 30, 1997
and 1996 (in thousands).
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------------------ ------------------------
Carrying Approximate Carrying Approximate
Value Fair Value Value Fair Value
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Swap Agreements $ -- $(994,000) $ -- $(27,900)
Long-term debt 115,300 120,580 13,048 13,048
(See Note 8)
</TABLE>
8. LONG-TERM DEBT
Long-term debt is comprised of the following at June 30, 1997 and 1996 (in
thousands):
1997 1996
--------- ---------
Bank credit facility............................. $ 15,300 $ 13,048
10-7/8% Senior Subordinated Notes................ $ 100,000 ---
Less current maturities.......................... --- ---
--------- ---------
Long-term debt................................... $ 115,300 $ 13,048
========= =========
Debt maturities by fiscal year are as follows (amounts in thousands):
1998.......................... $ --
1999.......................... --
2000.......................... --
2001.......................... --
2002.......................... 15,300
Thereafter.................... 100,000
--------
$115,300
========
On February 28, 1995, the Company entered into a credit facility ("Credit
Facility") with a commercial bank providing an initial borrowing base of $29.8
million. The borrowings under the Credit Facility were secured by the Company's
interests in oil and gas properties, a gathering system and two gas plants. The
maturity date, as modified in the second quarter of fiscal 1996, was March 31,
2001 and the borrowing base was $20.1 million. The Credit Facility was retired
in October 1996.
55
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In October 1996, the Company entered into a syndicated credit facility
("Existing Credit Facility") in an amount up to $50.0 million with an initial
borrowing base of $27.0 million, to be re-determined semi-annually. At
Bellwether's option, the interest rate varied, based upon borrowing base usage,
from LIBOR plus 7/8% to LIBOR plus 1-1/4%, or the greater of the prime rate or
Federal Funds rate plus 1/2%. The Existing Credit Facility was unsecured with
respect to oil and gas assets and was retired in April 1997.
In April 1997, the Company entered into a senior revolving unsecured credit
facility ("Senior Credit Facility") in an amount up to $90.0 million, with an
initial borrowing base of $90.0 million to be re-determined semi-annually and a
maturity date of March 31, 2002. Bellwether may elect an interest rate based
either on a margin plus LIBOR or the higher of the prime rate or the sum of 1/2
of 1% plus the Federal Funds Rate. For LIBOR borrowings, the interest rate will
vary from LIBOR plus 0.875% to LIBOR plus 1.25% based upon borrowing base usage.
In connection with the acquisition of oil and gas properties, $33.3 million was
drawn under this facility; at June 30, 1997, $15.3 million was outstanding.
The Senior Credit Facility contains various covenants including certain
required financial measurements for a current ratio, consolidated tangible net
worth and interest coverage ratio. In addition, the Senior Credit Facility
includes certain limitations on restricted payments, dividends, incurrence of
additional funded indebtedness and asset sales.
In April 1997, the Company issued $100.0 million of 10-7/8% senior
subordinated notes ("Notes") that mature April 1, 2007. Interest on the Notes
is payable semi-annually on April 1 and October 1 commencing on October 1, 1997.
The Notes will be redeemable, in whole or in part, at the option of the Company
at any time on or after April 1, 2002 at 105.44% which decreases annually to
100.00% on April 1, 2005 and thereafter, plus accrued and unpaid interest. In
the event of Change of Control of the Company, each holder of the Notes will
have the right to require the Company to repurchase all or part of such holder's
Notes at an offer price in cash equal to 100.0% of the aggregate principal
amount thereof, plus accrued and unpaid interest to the date of purchase. The
Notes are guaranteed by the Company and its wholly owned subsidiaries, Odyssey
Petroleum Company, Black Hawk Oil Company and 1989-I TEAI Limited Partnership.
The Notes contain certain covenants, including limitations on indebtedness,
restricted payments, transactions with affiliates, liens, guarantees of
indebtedness by subsidiaries, dividends and other payment restrictions affecting
restricted subsidiaries, issuance and sales of restricted subsidiary stock,
disposition of proceeds of asset sales, and restrictions on mergers, and
consolidations or sales of assets.
56
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (IN THOUSANDS)
Income tax expense is summarized as follows:
Year Ended June 30,
--------------------------------
1997 1996 1995
--------- --------- ---------
Current
Federal............................... $ (12) $ 126 9
State................................. 35 103 ---
Deferred - Federal and State............ 2,562 (183) ---
--------- --------- ---------
Total income tax expense................ $ 2,585 $ 46 $ 9
========= ========= =========
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 1997 and
1996 are as follows:
At June 30,
---------------------
1997 1996
--------- ---------
Net operating loss carryforwards.................... $ 8,668 $ 8,922
Percentage depletion carryforwards.................. 271 271
Alternative minimum tax credit carryforwards........ 114 126
--------- ---------
Total deferred income tax assets.................. 9,053 9,319
--------- ---------
Plant, property and equipment....................... (11,019) (8,840)
State income taxes.................................. (661) (446)
--------- ---------
Total deferred income tax liabilities............... (11,680) (9,286)
Valuation allowances................................ (2,894) (2,894)
--------- ---------
Net deferred income tax liability................... $ (5,521) $ (2,861)
========= =========
The Company files a consolidated federal income tax return. Deferred
income taxes are provided for transactions which are recognized in
different periods for financial and tax reporting purposes. Such
57
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
temporary differences arise primarily from the deduction for tax purposes
of certain oil and gas development costs which are capitalized for
financial statement purposes. Management believes it is more likely than
not that the deferred tax assets, net of the valuation allowances, will be
recovered.
Total income tax differs from the amount computed by applying the Federal
income tax rate to income before income taxes and minority interest.
The reasons for the differences are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Statutory Federal income tax rate.......... 34.0% 34.0 % 34.0 %
Increase (Decrease) in tax rate
resulting from:
State income taxes, net of
federal benefit........................ 1.3% 7.0 % --
Non-deductable travel and entertainment.... 0.5% .3 % 1.2 %
Reduction of valuation allowance due
to utilization of net operating loss
carryforwards............................ --- (36.5)% (34.4)%
---------- ---------- ----------
35.8% 4.8 % 0.8 %
========== ========== ==========
</TABLE>
The Company issued 3,400,000 shares of its common stock on July 20, 1994.
As a result of the common stock issuance, the Company has undergone an
ownership change. Therefore, the Company's ability to use its net operating
loss carryfowards for federal income tax purposes is subject to significant
restrictions.
Section 382 of the Internal Revenue Code significantly limits the amount of
net operating loss carryforwards and investment tax credit carryforwards
that are available to offset future taxable income and related tax
liability when a change in ownership occurs after December 31, 1986.
At June 30, 1997, the Company had net operating loss carryforwards of
approximately $25.5 million which will expire in future years beginning in
1997. Due to provisions of Section 382, the Company is limited to
approximately $4.6 million utilization of NOL per year.
58
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SEGMENT INFORMATION
The Company's operations are concentrated in two segments. The results of
operations of these business segments are as follows (in thousands):
Year Ended June 30,
--------------------------------
1997 1996 1995
--------- --------- ---------
Revenues:
Oil................................... $ 14,865 $ 5,810 $ 4,864
Gas................................... 24,202 9,856 3,643
Gas plants and gas gathering.......... 6,652 8,719 10,705
Other revenues........................ 365 116 97
--------- --------- ---------
Total revenues................... $ 46,084 $ 24,501 $ 19,309
========= ========= =========
Operating profit before income
tax:
Oil and gas........................... $ 12,939 $ 3,416 $ 1,758
Gas plants and gas gathering.......... 2,447 2,319 3,251
--------- --------- ---------
15,386 5,735 5,009
Unallocated corporate expenses.......... 3,679 2,897 2,814
Other expenses.......................... --- 153 ---
Interest expense........................ 4,477 1,657 1,245
--------- --------- ---------
Income before income taxes.............. $ 7,230 $ 1,028 $ 950
========= ========= =========
Identifiable assets:
Oil and gas........................... $ 171,392 $ 47,727 $ 50,442
Gas plants and gas gathering.......... 9,610 10,408 16,753
--------- --------- ---------
181,002 58,135 67,195
Corporate assets........................ 41,646 9,090 7,455
--------- --------- ---------
Total assets............................ $ 222,648 $ 67,225 $ 74,650
========= ========= =========
Capital expenditures:
Oil and gas........................... $ 155,594 $ 6,934 $ 41,676
Gas plants and gas gathering.......... 84 65 225
--------- --------- ---------
$ 155,678 $ 6,999 $ 41,901
========= ========= =========
Depreciation, depletion and
amortization:
Oil and gas........................... $ 14,691 $ 6,933 $ 3,893
Gas plants and gas gathering.......... 883 1,215 1,376
--------- --------- ---------
$ 15,574 $ 8,148 $ 5,269
========= ========= =========
59
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1997, 1996 and 1995, the Company had one customer which accounted for
18% of its revenues, three customers which accounted for 33% of its
revenues and two customers which accounted for 42% of its revenues,
respectively.
11. CONTINGENCIES
The Company has been named as a defendant in certain lawsuits incidental to
its business. Management does not believe that the outcome of such
litigation will have a material adverse impact on the Company.
12. SELECT QUARTERLY FINANCIAL DATA (Amounts In Thousands, Except Per Share
Data) (Unaudited):
Quarter Ended
--------------------------------------------------
September 30, December 31, March 31, June 30,
1996 1996 1997 1997
------------- ------------ --------- --------
Revenues $6,211 $7,567 $8,111 $24,195
Operating Income $ 981 $1,771 $2,303 $ 2,175
Net Income $ 618 $1,116 $1,462 $ 1,449
Earnings per common
equivalent share $ 0.07 $ 0.12 $ 0.16 $ 0.09
September 30, December 31, March 31, June 30,
1995 1995 1996 1996
------------- ------------ --------- --------
Revenues $5,678 $6,444 $6,338 $6,041
Operating Income $ 38 $ 95 $ 542 $ 353
Net Income (loss) $ 13 $ (12) $ 557 $ 424
Earnings per common
equivalent share $ 0.00 $ 0.00 $ 0.06 $ 0.05
13. SUPPLEMENTAL INFORMATION - (Unaudited)
OIL AND GAS PRODUCING ACTIVITIES:
Included herein is information with respect to oil and gas acquisition,
exploration, development and production activities, which is based on
estimates of year-end oil and gas reserve quantities and estimates of
future development costs and production schedules. Reserve quantities and
future production are based primarily upon reserve reports prepared by the
independent petroleum engineering firms of Williamson Petroleum
Consultants, Inc., for fiscal 1996 and 1995, R.T. Garcia & Co. Inc. for
fiscal 1995, and Ryder Scott Company for fiscal 1997. These estimates are
inherently imprecise and subject to substantial revision.
Estimates of future net cash flows from proved reserves of gas, oil,
condensate and natural gas liquids were made in accordance with Statement
of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas
Producing Activities." The estimates are based on prices at year-end.
Estimated future cash inflows are reduced by estimated future development
and production costs based on year-end cost levels, assuming continuation
of existing economic conditions, and by estimated future income tax
expense. Tax expense is calculated by applying the existing statutory tax
rates, including any known future changes, to the pre-tax net cash flows,
less depreciation of the tax basis of the properties and depletion
allowances applicable to the gas, oil, condensate and NGL production. The
results of these disclosures should not be construed to represent the fair
market value of the Company's oil and gas properties. A market value
determination would include many additional factors including: (i)
anticipated future increases or decreases in oil and gas prices and
production and development costs; (ii) an allowance for return on
investment; (iii) the value of additional reserves, not considered proved
at the present, which may be recovered as a result of further exploration
and development activities; and (iv) other business risks.
60
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Costs incurred (in thousands)
The following table sets forth the costs incurred in property acquisition
and development activities:
Year Ended June 30,
--------------------------------
1997 1996 1995
---------- --------- ---------
Property acquisition:
Proved properties..................... $ 138,984 $ 128 $ 25,072
Unproved properties................... 1,002 424 13,233
Exploration............................. 1,576 824 530
Development............................. 14,032 5,558 2,841
---------- --------- ---------
$ 155,594 $ 6,934 $ 41,676
========== ========= =========
Capitalized costs (in thousands)
The following table sets forth the capitalized costs relating to oil and
gas activities and the associated accumulated depreciation, depletion and
amortization:
Year Ended June 30,
--------------------------------
1997 1996 1995
---------- --------- ---------
Proved properties....................... $ 228,675 $ 62,590 $ 56,300
Unproved properties..................... 4,500 13,453 15,125
---------- --------- ---------
Total capitalized costs................. 233,175 76,043 71,425
Accumulated depreciation, depletion
and amortization...................... (61,783) (28,316) (20,983)
---------- --------- ---------
Net capitalized costs................... $ 171,392 $ 47,727 $ 50,442
========== ========= =========
61
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Results of operations for producing activities (in thousands):
Year Ended June 30,
--------------------------------
1997 1996 (1) 1995 (1)
---------- --------- ---------
Revenues from oil and gas producing
activities............................ $ 39,067 $ 15,666 $ 8,507
Production costs........................ 11,437 5,317 2,856
Income tax.............................. 9,892 --- ---
Depreciation, depletion and
amortization.......................... 14,691 6,933 3,893
---------- --------- ---------
Results of operations from producing
activities (excluding corporate
overhead and interest costs).......... $ 3,047 $ 3,416 $ 1,758
========== ========= =========
(1) Net operating loss carryforwards were sufficient to offset income.
Per unit sales prices and costs:
Year Ended June 30,
--------------------------------
1997 1996 1995
---------- --------- ---------
Average sales price:/(1)/
Oil (per barrel)...................... $ 17.41 $ 17.81 $ 16.89
Gas (per MCF)......................... $ 2.29 $ 2.02 $ 1.66
Average production cost per
equivalent barrel..................... $ 4.38 $ 4.49 $ 4.05
Average unit depletion rate per
equivalent barrel..................... $ 5.62 $ 5.86 $ 5.52
/(1)/ Average sales price is exclusive of the effect of natural gas and
crude oil price swaps.
62
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reserves
The Company's estimated total proved and proved developed reserves of oil
and gas are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------------------
Description 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
Oil NGL Gas Oil Gas Oil Gas
(MBBL) (MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
---------- ---------- ---------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Proved reserves at beginning of year 1,808 --- 33,194 2,597 30,159 393 10,671
Revisions of previous estimates 247 2,435 (4,208) (534) 2,853 (61) (988)
Extensions and discoveries 658 52 4,202 89 7,128 724 1,179
Production (854) --- (10,552) (334) (5,099) (216) (2,932)
Sales of reserves in-place (1,158) --- (14,759) (14) (2,023) (1) (3)
Purchase of reserves in place 11,306 1,536 120,063 4 176 --- 163
Reserves added in Mergers --- --- --- --- --- 1,758 22,069
--------- --------- --------- --------- --------- -------- ---------
Proved reserves at end of year 12,007 4,023 127,940 1,808 33,194 2,597 30,159
========= ========= ========= ========= ========= ======== =========
Proved developed reserves -
Beginning of year 1,494 -- 22,696 1,891 23,795 361 9,154
========= ========= ========= ========= ========= ======== =========
End of year 10,162 3,705 117,914 1,494 22,696 1,891 23,795
========= ========= ========= ========= ========= ======== =========
</TABLE>
63
<PAGE>
BELLWETHER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Discounted future net cash flows (in thousands)
The standardized measure of discounted future net cash flows and changes
therein related to proved oil and gas reserves are shown below:
Year Ended June 30,
--------------------------------
1997 1996 1995
---------- --------- ---------
Future cash inflows $ 529,928 $ 113,550 $ 96,738
Future production costs (183,479) (33,117) (34,093)
Future income taxes (59,419) (11,095) ---
Future development costs (32,237) (8,959) (7,738)
---------- --------- ---------
Future net cash flows 254,793 60,379 54,907
10% discount factor (67,300) (15,191) (17,616)
---------- --------- ---------
Standardized measure of discounted
future net cash flows $ 187,493 $ 45,188 $ 37,291
========== ========= =========
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
Year Ended June 30,
--------------------------------
1997 1996 1995
---------- --------- ---------
Standardized measure - beginning of year $ 45,188 $ 37,291 $ 12,044
Sales, net of production costs (27,630) (10,349) (5,651)
Purchases of reserves in-place 151,836 246 162
Reserves received in Mergers --- --- 34,039
Net change in prices and production costs 9,679 11,458 (8,326)
Net change in income taxes (20,265) (2,958) ---
Extensions, discoveries and improved
recovery, net of future production
and development costs 12,555 7,709 5,085
Changes in estimated future development
costs (3,034) 497 (3,148)
Development costs incurred during the
period 9,124 883 629
Revisions of quantity estimates 34,386 (438) (4)
Accretion of discount 4,518 3,729 1,204
Sales of reserves in-place (14,532) (1,614) (5)
Changes in production rates and other 14,332 (1,266) 1,262
---------- --------- ---------
Standardized measure - end of year $ 187,493 $ 45,188 $ 37,291
========== ========= =========
64
<PAGE>
BELLWETHER EXPLORATION COMPANY
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On or about June 18, 1997 the Company replaced the firm of Deloitte and Touche
LLP as its principal independent accountant and auditors to audit all the
Company's financial statements with the firm of KPMG Peat Marwick LLP. The
decision to make this change was influenced by the acquisition of Partnership
properties and interests, which were previously audited by KPMG Peat Marwick
LLP. The Company does not and has not during the past three years had any
disagreements with Deloitte and Touche LLP concerning their audit or the
application of accounting principles according to GAAP.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Proxy Statement for the 1997 Annual Meeting of
Shareholders to be held on November 21, 1997, pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Proxy Statement for the 1997 Annual Meeting of
Shareholders to be held on November 21, 1997, pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Proxy Statement for the 1997 Annual Meeting of
Shareholders to be held on November 21, 1997, pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Proxy Statement for the 1997 Annual Meeting of
Shareholders to be held on November 21, 1997, pursuant to Regulation 14A.
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. and 2. Financial Statements. See index to Consolidated Financial
Statements and Supplemental Information in Item 8, which
information is incorporated herein by reference.
3. Exhibits
3.1 Certificate of Incorporation of Bellwether Exploration Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement No. 33-76570)
65
<PAGE>
BELLWETHER EXPLORATION COMPANY
3.2 Certificate of Amendment to Certificate of Incorporation
3.3 Certificate of Designation, Preferences and Rights of Series A
Preferred Stock
3.4 By-laws of Bellwether Exploration Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement No. 33-76570)
4.1 Speciment Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-1,
File No. 33-76570)
4.2 The Company's 1996 Stock Incentive Plan (incorporated by reference to
Exhibit 10.20 to the Company's Registration Statement on Form S-1,
File No. 33-21813)
4.3 Indenture dated April 9, 1997 among the Company, a Subsidiary
Guarantor and Bank of Montreal Trust Company (incorporated herein by
reference to Exhibit 4.2 to the Company's registration statement on
Form S-1 (Registration No. 333-21813))
4.4 First Supplemental Indenture dated April 21, 1997 among the Company,
Odyssey Petroleum Company, Black Hawk Oil Company, 1989-I TEAI Limited
Partnership and Bank of Montreal Trust Company, as Trustee
(incorporated by reference to Exhibit 99.2 on the Company's Form 8-K
Current Report filed on April 23, 1997)
4.5 Shareholders Rights Agreement between the Company and American Stock
Transfer & Trust Company (incorporated herein by reference to the
Company's Registration Statement on Form 8-A as filed with the
Securities and Exchange Commission on September 19, 1997)
4.6 Warrant to Torch Energy Dated April 9, 1997
10.1 1988 Non-qualified Stock Option Plan (incorporated by reference to
Exhibit 10.37 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1988)
10.2 Stock Option Agreement dated March 25, 1988 between the Company
and J. Darby Sere' (incorporated by reference to Exhibit 10.38 to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1988)
10.3 Administrative Services Agreement with Torch Energy Advisors
Incorporated commencing January 1, 1994 (incorporated by reference to
Exhibit 94-10-3 to the Company's Report on Form 10-Q for the quarter
ended March 31, 1994)
66
<PAGE>
BELLWETHER EXPLORATION COMPANY
10.4 Amended Joint Venture Agreement dated July 29, 1993 between the
Company and NGL Associates (incorporated by reference to Exhibit
10.93.5 to the Company's Report on Form 10-K dated July 29, 1993)
10.5 Amended Joint Venture dated July 15, 1993 between Torch Energy
Marketing, Inc. and NGL Associates (incorporated by reference to
Exhibit 10.93.8 to the Company's report on Form 8-K dated
December 31, 1993)
10.6 Agreement and Plan of Merger dated December 15, 1993 among the
Company, BEC Acquisitions, Inc. and Associated Gas Resources, Inc.
(incorporated by reference to Exhibit 10.93.7 to the Company's
Report on Form 8-K dated December 31, 1993)
10.7 Purchase and Sale Agreement dated December 27, 1993 between Torch
Energy Marketing, Inc. and Associated Gas Resources, Inc.
(incorporated by reference to Exhibit 10.93.9 to the Company's
Report on Form 8-K dated December 31, 1993)
10.8 Registration Rights Agreement dated December 31, 1993 among the
Company and the Stockholders of Associated Gas Resources, Inc.
(incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement No. 33-76570)
10.9 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.9
to the Company's Registration Statement No. 33-76570)
10.10 Amendment dated March 14, 1994 to the Amended Joint Venture
Agreement dated as of July 29, 1993 between the Company and NGL
Associates (incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement No. 33-76570)
10.11 Amendment dated March 14, 1994 to the Amended Joint Venture
Agreement dated as of July 15, 1993 between Torch Energy Marketing,
Inc. and NGL Associates (incorporated by reference to Exhibit 10.12
to the Company's Registration Statement No. 33-76570)
10.12 Asset Purchase and Merger Agreement with Odyssey Partners, Ltd.
dated July 19, 1994 (incorporated by reference to Exhibit 2.1 to the
Company's Registration Statement No. 33-76570)
67
<PAGE>
BELLWETHER EXPLORATION COMPANY
10.13 Registration Rights Agreement among the Company, Allstate Insurance
Company and the former owners of Odyssey Partners, Ltd.
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement No. 33-76570)
10.14 Assignment of gas purchase contract from Texas Gas Transmission
Corporation to Bellwether (incorporated by reference to Exhibit
96-10-4 to the Company's Report on Form 10-Q for the quarter ended
March 31, 1997)
10.15 Credit Agreement among Bellwether Eploration Company as borrower and
The Chase Manhattan Bank as agent (incorporated by reference to
Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter
ended September 30, 1996)
10.16 Acquisition Agreement dated March 31, 1997 among Bellwether
Exploration Company, Program Acquisition Company and the other
parties thereto. (incorporated by reference to Exhibit 2.2 of the
Company's Registration Statement on Form S-1 (Registration No.
333-21813) on April 3, 1997)
10.17 Credit Agreement dated April 21, 1997 among the Company, Odyssey
Petroleum Company, Black Hawk Oil Company, 1989-I TEAI Limited
Partnership, Morgan Guarantee Trust Company of New York, as
administrative Agent, and certain banking institutions (incorporated
by reference to the Company's Form 8-K Current Report as filed with
the Commission on April 23, 1997)
10.18 Purchase and Sale Agreement dated June 9, 1997 among Bellwether
Exploration Company, Black Hawk Oil Company, 1988-II TEAI Limited
Partnership, 1989-I TEAI Limited Partnership, TEAI Oil and Gas
Company, and the other parties thereto as Sellers, and Jay Resources
Corporation as Buyer.
16.1 Letter from predecessor auditors regarding change in certifying
accountant (incorporated by reference to Exhibit 16.1 to the
Company's Form 8K/A-1 dated June 30, 1994)
16.2 Letter from predecessor auditors regarding change in certifying
accountant (incorporated by reference to Exhibit 16-1 to the
Company's Form 8K/A-1 dated July 8, 1997)
21.1 Subsidiaries of Bellwether Exploration Company - Included herewith.
68
<PAGE>
BELLWETHER EXPLORATION COMPANY
23 Consents of experts:
23.1 Consent of Williamson Petroleum Consultants, Inc.
23.2 Consent of R.T. Garcia & Co. Inc.
23.3 Consent of Ryder Scott Company
23.4 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
69
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
BELLWETHER EXPLORATION COMPANY
/S/ J. DARBY SERE'
______________________________________
J. Darby Sere'
Chairman of Board of Directors
and Chief Executive Officer
Dated September 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ J. DARBY SERE'
__________________________ Chairman of Board of Directors September 26, 1997
J. Darby Sere' and Chief Executive Officer
/s/ J.P BRYAN
__________________________ Director September 26, 1997
J.P. Bryan
/s/ CHARLES C. GREEN
__________________________ Director September 26, 1997
Charles C. Green
/s/ MICHAEL B. SMITH
__________________________ Vice President September 26, 1997
Michael B. Smith
/s/ VINCENT H. BUCKLEY
__________________________ Director September 26, 1997
Vincent H. Buckley
/s/ A.K. MCLANAHAN
__________________________ Director September 26, 1997
A. K. McLanahan
/s/ DR. JACK BIRKS
__________________________ Director September 26, 1997
Dr. Jack Birks
/s/ MICHAEL D. WATFORD
__________________________ Director September 26, 1997
Michael D. Watford
/s/ C. BARTON GROVES
__________________________ Director September 26, 1997
C. Barton Groves
/s/ HABIB KAIROUZ
__________________________ Director September 26, 1997
Habib Kairouz
70
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BELLWETHER EXPLORATION COMPANY
Bellwether Exploration Company (the "Company"), a corporation organized and
existing under and by virtue of the Delaware General Corporation Law ("DGCL"),
does hereby certify:
FIRST: That the Board of Directors of the Company, by the unanimous
written consent of its members, duly adopted resolutions setting forth a
proposed amendment to the Company's Certificate of Incorporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the first paragraph of Article Four of the Company's
Certificate of Incorporation be amended in its entirety as follows, with
the remainder of Article Four to remain unamended:
"ARTICLE FOUR
The Corporation shall have authority to issue two classes of stock,
and the total number authorized shall be thirty million (30,000,000)
shares of Common Stock of the par value of one cent ($0.01) each, and
one million (1,000,000) shares of Preferred Stock of the par value of
one cent ($0.01) each. A description of the different classes of
stock of the Corporation and a statement of the designations and the
powers, preferences and rights, and the qualifications, limitations or
restrictions thereof, in respect of each class of such stock are as
follows:"
<PAGE>
SECOND: That thereafter, pursuant to resolution of the Company's Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon written notice to all stockholders pursuant to Section
222 of the DGCL, at which meeting the necessary number of shares as required by
Section 242 of the DGCL were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, the Company has caused this certificate to be signed
by J. Darby Sere, its President and Chief Executive Officer, this ____day of
________________, 1997.
BELLWETHER EXPLORATION COMPANY
By:______________________________
Name: J. Darby Sere
Title: President and Chief
Executive Officer
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "BELLWETHER EXPLORATION COMPANY", FILED IN THIS OFFICE ON THE
NINETEENTH DAY OF SEPTEMBER, A.D. 1997, AT 3:15 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
____________________________________
Edward J. Freel, Secretary of State
AUTHENTICATION: 86661211
DATE: 09-22-97
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES A PREFERRED STOCK
OF
BELLWETHER EXPLORATION COMPANY
PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
I, J. Darby Sere, Chairman and Chief Executive Officer of Bellwether
Exploration Company, a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), in accordance
with the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Corporation, the Board of Directors on
September 12, 1997, adopted the following resolution creating a series of
300,000 shares of Preferred Stock designated as Series A Preferred Stock.
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Certificate of
Incorporation, a series of Preferred Stock of the Corporation is hereby created,
and that the designation and amount thereof and the voting powers, preferences
and relative, participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or restrictions thereof are as
follows:
SECTION 1. DESIGNATION AND AMOUNT. There shall be a series of Preferred
Stock of the Corporation which shall be designated as "Series A Preferred
Stock", par value $1.00 per share, and the number of shares constituting such
series shall be 300,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than that of
the shares then outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the prior and
superior rights of the holders of any shares of any series of Preferred Stock
ranking prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock in preference to
the holders of shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation and any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the first day
of January, April, July, and October in each year (each such date being referred
to herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly
<PAGE>
Dividend Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $.25 (twenty-five cents), or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash and non-cash (payable in kind) dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock, since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share of fraction of a share of Series A Preferred Stock.
In the event the Corporation shall at any time after September 26, 1997 (the
"Record Date") (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $.25 (twenty-five cents) per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date fixed
for the payment thereof.
2
<PAGE>
SECTION 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law, the holders of shares of
Series A Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.
(C) (i) If at any time dividends on any Series A Preferred Stock shall be
in arrears in an amount equal to six (6) quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a period (here called
a "default period") which shall extend until such time when all accrued and
unpaid dividends for all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series A Preferred Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, all holders of Preferred Stock (including holders of the
Series A Preferred Stock) with dividends in arrears in an amount equal to six
quarterly dividends thereon, voting as a class, irrespective of series, shall
have the right to elect two Directors.
(ii) During any default period, such voting right of the holders of Series
A Preferred Stock may be exercised initially at a special meeting called
pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders, provided that
neither such voting right nor the right of the holders of any other series of
Preferred Stock, if any, to increase, in certain cases, the authorized number of
Directors shall be exercised unless the holders of ten percent in number of
shares of Preferred Stock outstanding shall be present in person or by proxy.
The absence of a quorum of the holders of Common Stock shall not affect the
exercise by the holders of Preferred Stock of such voting right. At any meeting
at which the holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the right, voting
as a class, to elect Directors to fill such vacancies, if any, in the Board of
Directors as may then exist up to two Directors or, if such right is exercised
at an annual meeting, to elect two Directors. If the number which may be so
elected at any special meeting does not amount to the required number, the
holders of the Preferred Stock shall have the right to make such increase in the
number of Directors as shall be necessary to permit the election by them of the
required number. After the holders of the Preferred Stock shall have exercised
3
<PAGE>
their right to elect Directors in any default period and during the continuance
of such period, the number of Directors shall not be increased or decreased
except by vote of the holders of Preferred Stock as herein provided or pursuant
to the rights of any equity securities ranking senior to or pari passu with the
Series A Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect Directors, the
Board of Directors may order, or any stockholder or stockholders owning in the
aggregate not less than ten percent of the total number of shares of Preferred
Stock outstanding, irrespective of series, may request, the calling of a special
meeting of the holders of Preferred Stock, which meeting shall thereupon be
called by the President, a Vice President or the Secretary of the Corporation.
Notice of such meeting and of any annual meeting at which holders of Preferred
Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to
each holder of record or Preferred Stock by mailing a copy of such notice to
him at his last address as the same appears on the books of the Corporation.
Such meeting shall be called for a time not earlier than 20 days and no later
than 60 days after such order or request or, in default of the calling of such
meeting within 60 days after such order or request, such meeting may be called
on similar notice by any stockholder or stockholders owning in the aggregate not
less than ten percent of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such
special meeting shall be called during the period within 60 days immediately
preceding the date fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and other classes
of stock of the Corporation if applicable, shall continue to be entitled to
elect the whole number of Directors until the holders of Preferred Stock shall
have exercised their right to elect two Directors voting as a class, after the
exercise of which right (x) the Directors so elected by the holders of Preferred
Stock shall continue in office until their successors shall have been elected by
such holders or until the expiration of the default period, and (y) any vacancy
in the Board of Directors may (except as provided in paragraph (C)(ii) of this
Section 3) be filled by vote of a majority of the remaining Directors
theretofore elected by the holders of the class of stock which elected the
Directors elected by the holders of a particular class of stock shall include
Directors elected by such Directors to fill vacancies as provided in clause (y)
of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right of
the holders of Preferred Stock as a class to elect Directors shall cease, (y)
the term of any Directors elected by the holders of Preferred Stock as a class
shall terminate, and (z) the number of Directors shall be such number as may be
provided for in the Certificate of Incorporation or By-Laws irrespective of any
increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any manner provided
by law or in the Certificate of Incorporation or By-Laws). Any vacancies in the
Board of Directors effected by the provisions of clauses (y) and (z) in the
preceding sentence may be filled by a majority of the remaining Directors.
4
<PAGE>
(D) Except as set forth herein, holders of Series A Preferred Stock shall
have no special voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
SECTION 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or
other dividends or distributions payable on the Series A Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Preferred Stock outstanding shall have been paid in full, the Corporation
shall not:
(i) Declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) Declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) Redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) Purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock or any shares of stock ranking on a parity with
the Series A Preferred Stock except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon
5
<PAGE>
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to the dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received per share, the greater
of $.25 (twenty-five cents) or 100 times the payment made per share of Common
Stock, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment (the "Series A
Liquidation Preference"). Following the payment of the full amount of the
Series A Liquidation Preference, no additional distributions shall be made to
the holders of shares of Series A Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph C below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii),
the "Adjustment Number"). Following the payment of the full amount of the
Series A Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Preferred Stock and Common Stock, respectively,
holders of Series A Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event there are not sufficient assets available to permit
payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Series A Preferred Stock, then such remaining assets shall be
distributed ratably to the holders of such parity shares in proportion to their
respective liquidation preferences. In the event there are not sufficient
assets available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Record Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the Adjustment
Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or
6
<PAGE>
any other property, then in any such case the shares of Series A Preferred Stock
shall at the same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
SECTION 8. REDEMPTION. The shares of Series A Preferred Stock shall not
be redeemable.
SECTION 9. RANKING. The Series A Preferred Stock shall rank junior to all
other series of the Corporation's Preferred Stock as to the payment of dividends
and the distribution of assets, unless the terms of any such series shall
provide otherwise.
SECTION 10. FRACTIONAL SHARES. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
7
<PAGE>
IN WITNESS WHEREOF, I have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this 17th day of
September, 1997.
/s/ J. DARBY SERE
By: _____________________________
Name: J. Darby Sere
Title: Chairman and Chief Executive Officer
Attest:
/s/ ROLAND E. SLEDGE
___________________________
Roland E. Sledge, Secretary
8
<PAGE>
================================================================================
BELLWETHER EXPLORATION COMPANY
a Delaware Corporation
(the "Company")
WARRANT
To Purchase 100,000
Shares of the Company's Common Stock
issued to
Torch Energy Advisors Incorporated,
(the "Warrantholder")
April 9, 1997
This Warrant and any Shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933,
as amended, and may not be transferred, sold or otherwise disposed
of in the absence of such registration or an exemption therefrom
under such Act. This Warrant and such Shares may be transferred
only in compliance with the conditions specified in this Warrant.
================================================================================
<PAGE>
BELLWETHER EXPLORATION COMPANY
Warrant
No. W-001 April 9, 1997
BELLWETHER EXPLORATION COMPANY, a Delaware corporation (the "Company"), for
value received, hereby certifies that Torch Energy Advisors Incorporated, a
Delaware corporation (the "Purchaser"), or its registered assign(s) (along with
Purchaser, each a "holder"), is entitled to purchase from the Company 100,000
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock, $.01 par value (the "Common Stock"), at any time or from time to time
prior to 5:00 p.m., Houston, Texas, time, on the Expiration Date, all subject to
terms, conditions and adjustments set forth in this warrant ("Warrant").
Certain capitalized terms used in this Warrant are defined in Article VII;
unless otherwise specified, references to an "Exhibit" mean one of the exhibits
attached to this Warrant, references to an "Article" mean one of the articles in
this Warrant and references to a "Section" mean one of the sections of this
Warrant. This Warrant is issued pursuant to the letter agreement dated February
5, 1997, between Purchaser and the Company entitling the holder to receive
warrants to purchase an aggregate of 100,000 shares of Common Stock.
ARTICLE I. EXERCISE OF WARRANT
Section 1.1. Manner of Exercise. (a) Subject to Subsection (b) of this
Section 1.1, this Warrant may be exercised by the holder hereof, in whole or in
part, during normal business hours on any Business Day, by surrender of this
Warrant to the Company at its office maintained pursuant to subdivision (a) of
Section 6.2, accompanied by a subscription in substantially the form attached to
this Warrant (or a reasonable facsimile thereof) duly executed by such holder
and accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company in the amount obtained by multiplying (i)
the number of shares of Common Stock (without giving effect to any adjustment
thereof) designated in such subscription by (ii) the Warrant Price, and such
holder shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock (or Other
Securities) determined as provided in Articles II through IV.
(b) In lieu of delivering the number of shares of Common Stock calculated
under subsection (a) of this Section 1.1, The
<PAGE>
Company may, at its election, and shall if requested by the holder of this
Warrant, issue to the holder of this Warrant upon exercise a number of duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
equal to the following, rounded to the nearest whole share: the quotient of (i)
the product of (x) the number of shares of Common Stock to be delivered under
such subsection (a) multiplied by the Market Price of the Common Stock on the
date of exercise minus (y) the amount the holder is required to pay to the
Company under such subsection (a) upon such exercise, divided by (ii) the Market
Price of the Common Stock on the date of exercise. If the Company delivers
shares of Common Stock under this subsection (b), then the holder shall not be
required to make any payment in connection with the exercise of this Warrant.
Section 1.2. When Exercise Effective. Each exercise of this Warrant shall
be deemed to have been effected immediately prior to the close of business on
the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1, and at such time the Person or Persons in
whose name or names any certificate or certificates for shares of Common Stock
(or Other Securities) shall be issuable upon such exercise as provided in
Section 1.3 shall be deemed to have become the holder or holders of record
thereof.
Section 1.3. Delivery of Stock Certificates, etc. As soon as practicable
after each exercise of this Warrant, in whole or in part, and in any event
within five Business Days thereafter, the Company, at its expense (including the
payment by it of any applicable issue taxes), will cause to be issued in the
name of and delivered to the exercising holder hereof, subject to Article V, as
such exercising holder (upon payment by such exercising holder of any applicable
transfer taxes) may direct, the following:
(a) Certificates. A certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such exercising holder shall be
entitled upon such exercise plus, in lieu of any fractional share to which
such exercising holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Closing Price per share on the Business Day
next preceding the date of such exercise.
-2-
<PAGE>
(b) Warrant. In case such exercise is in part only, a new Warrant or
Warrants of like tenor dated the date hereof, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock equal
(without giving effect to any adjustment thereof) to the number of such
shares called for on the face of this Warrant minus the number of such
shares designated by the holder upon such exercise as provided in
Section 1.1.
ARTICLE II. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE
Section 2.1. General; Warrant Price. The number of shares of Common Stock
which the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying the number of shares of Common Stock
which would otherwise (but for the provisions of this Article II) be issuable
upon such exercise, as designated by the holder hereof pursuant to Section 1.1,
by a fraction (a) the numerator of which is the Initial Price and (b) the
denominator of which is the Warrant Price in effect at the effective time of
such exercise (as provided in Section 1.2). The "Warrant Price" shall initially
be the Initial Price, shall be adjusted and readjusted from time to time as
provided in this Article II and, as so adjusted or readjusted, shall remain in
effect until a further adjustment or readjustment thereof is required by this
Article II.
Section 2.2. Adjustment of Warrant Price.
(1) In case the Company shall pay or make a dividend or other distribution
on its Common Stock exclusively in Common Stock (or Other Securities) or shall
pay or make a dividend or other distribution on any other class of capital stock
of the Company which dividend or distribution includes Common Stock (or Other
Securities), the Warrant Price in effect at the opening of business on the day
next following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Warrant Price by a fraction of which the numerator shall be the number of shares
of Common Stock (or Other Securities) outstanding at the close of business on
the date fixed for such determination and the denominator shall be the sum of
such number of shares and the total number of shares constituting such dividend
or other distribution, such reduction to become effective immediately after the
opening of business on the day next following the date fixed for such
determination. For the purposes of this Section 2.2, the number of shares of
Common Stock (or Other Securities) at any time outstanding shall not include
shares held in the treasury of the Company.
-3-
<PAGE>
(2) In case the Company shall pay or make a dividend or other distribution
on its Common Stock (or Other Securities) consisting exclusively of, or shall
otherwise issue to all holders of its Common Stock (or Other Securities),
rights, warrants or options entitling the holders thereof to subscribe for or
purchase shares of Common Stock (or Other Securities) at a price per share less
than the Market Price per share of the Common Stock (or Other Securities) on the
date fixed for the determination of stockholders entitled to receive such
rights, warrants or options, the Warrant Price in effect at the opening of
business on the day following the date fixed for such determination shall be
reduced by multiplying such Warrant Price by a fraction of which the numerator
shall be the number of shares of Common Stock (or Other Securities) outstanding
at the close of business on the date fixed for such determination plus the
number of shares of Common Stock (or Other Securities) which the aggregate of
the offering price of the total number of shares of Common Stock (or Other
Securities) so offered for subscription or purchase would purchase at such
Market Price and the denominator shall be the number of shares of Common Stock
(or Other Securities) outstanding at the close of business on the date fixed for
such determination plus the number of shares of Common Stock (or Other
Securities) so offered for subscription or purchase, such reduction to become
effective immediately after the opening of business on the day following the
date fixed for such determination.
(3) In case outstanding shares of Common Stock (or Other Securities)
shall be subdivided into a greater number of shares of Common Stock (or Other
Securities), the Warrant Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall each be
proportionately reduced, and, conversely, in case outstanding shares of Common
Stock (or Other Securities) shall be combined into a smaller number of shares of
Common Stock (or Other Securities), the Warrant Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(4) Subject to the last sentence of this paragraph (4), in case the
Company shall, by dividend or otherwise, distribute to all holders of its Common
Stock (or Other Securities) evidences of its
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indebtedness, shares of any class of capital stock, securities, cash or property
(excluding any rights, warrants or options referred to in paragraph (2) of this
Section 2.2, any dividend or distribution paid exclusively in cash and any
dividend or distribution referred to in paragraph (1) of this Section 2.2), the
Warrant Price shall be reduced by multiplying the Warrant Price in effect
immediately prior to the effectiveness of the Warrant Price reduction
contemplated by this paragraph (4) by a fraction of which the numerator shall be
the Market Price per share of the Common Stock (or Other Securities) on the date
of such effectiveness less the fair market value (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and shall, in
the case of securities being distributed for which prior thereto there is an
actual or when issued trading market, be no less than the value determined by
reference to the average of the closing prices in such market over the period
specified in the succeeding sentence), on the date of such effectiveness, of the
portion of the evidences of indebtedness, shares of capital stock, securities,
cash and property so distributed applicable to one share of Common Stock (or
Other Securities) and the denominator of which shall be the Market Price per
share of Common Stock (or Other Securities), such reduction to become effective
immediately prior to the opening of business on the day next following the later
of (a) the date fixed for the payment of such distribution and (b) the date 10
days after the notice relating to such distribution is given pursuant to Section
4.3 (such later date of (a) and (b) being referred to as the "Reference Date").
If the Board of Directors determines the fair market value of any distribution
for purposes of this paragraph (4) by reference to the actual or when issued
trading market for any securities comprising such distribution, it must in doing
so consider the prices in such market over the same period used in computing the
Market Price per share. For purposes of this paragraph (4), any dividend or
distribution that includes shares of Common Stock (or Other Securities) or
rights, warrants or options to subscribe for or purchase shares of Common Stock
(or Other Securities) shall be deemed instead to be (a) a dividend or
distribution of the evidences of indebtedness, cash, property, shares of capital
stock or securities other than such shares of Common Stock (or Other Securities)
or such rights, warrants or options (making any Warrant Price reduction required
by this paragraph (4)) immediately followed by (b) a dividend or distribution of
such shares of Common Stock (or Other Securities) or such rights, warrants or
options (making any further Warrant Price reduction required by paragraph (1) or
(2) of this Section 2.2, except (i) the Reference Date of such dividend or
distribution as defined in this paragraph (4) shall be substituted as "the date
fixed for the determination of stockholders entitled to receive
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such dividend or other distribution", "the date fixed for the determination of
stockholders entitled to receive such rights, warrants or options" and "the date
fixed for such determination" within the meaning of paragraphs (1) and (2) of
this Section 2.2 and (ii) any shares of Common Stock (or Other Securities)
included in such dividend or distribution shall not be determined "outstanding
at the close of business on the date fixed for such determination" within the
meaning of paragraph (1) of this Section 2.2).
(5) In case the Company shall, by dividend or otherwise, make a
distribution to all holders of its Common Stock (or Other Securities)
exclusively in cash in an aggregate amount that, together with the aggregate
amount of any other distributions to all holders of its Common Stock (or Other
Securities) made exclusively in cash within the 365 days preceding the date of
payment of such distribution and in respect of which no Warrant Price adjustment
pursuant to this paragraph (5) has been made, exceeds 12.5% of the product of
the Market Price per share of the Common Stock (or Other Securities) on the date
fixed for stockholders entitled to receive such distribution times the number of
shares of Common Stock (or Other Securities) outstanding on such date, the
Warrant Price shall be reduced by multiplying the Warrant Price in effect
immediately prior to the effectiveness of the Warrant Price reduction
contemplated by this paragraph (5) by a fraction of which the numerator shall be
the Market Price per share of the Common Stock (or Other Securities) on the date
of such effectiveness less the amount of cash so distributed applicable to one
share of Common Stock (or Other Securities) and the denominator shall be such
Market Price per share of the Common Stock (or Other Securities), such reduction
to become effective immediately prior to the opening of business on the later of
(a) the day following the date fixed for the payment of such distribution and
(b) the date 10 days after the notice relating to such distribution is given.
(6) The Company may make such reductions in the Warrant Price, in addition
to those required by paragraphs (1), (2), (3), (4), and (5) of this Section, as
it considers to be advisable in order that any event treated for Federal income
tax purposes as a division of stock or stock rights shall not be taxable to the
recipients.
(7) No adjustment in the Warrant Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Warrant
Price; provided, however, that any adjustments which by reason of this paragraph
(7) are not required
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to be made shall be carried forward and taken into account in any subsequent
adjustment.
ARTICLE III. CONSOLIDATION, MERGER, ETC.
Section 3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassifications for which adjustment
in the Warrant Price is provided in Section 2.2), or (e) if permitted by
applicable law, shall effect a statutory share exchange, then, and in the case
of each such transaction, proper provision shall be made so that, upon the basis
and the terms and in the manner provided in this Warrant, the holder of this
Warrant, upon the exercise hereof at any time after the consummation of such
transaction, shall be entitled to receive (at the aggregate Warrant Price in
effect at the time of such consummation for all Common Stock or Other Securities
issuable upon such exercise immediately prior to such consummation), in lieu of
the shares of Common Stock or Other Securities issuable upon such exercise prior
to such consummation, the amount of securities, cash or other property to which
such holder would actually have been entitled as a shareholder upon such
consummation if such holder had exercised the rights represented by this Warrant
immediately prior thereto; provided, however, that if the transaction described
in clauses (a) through (e) hereof provides an election to receive cash, Common
Stock or Other Securities or property, the holder of this Warrant shall, within
10 business days following written request from the Company, notify the Company
of the election such holder would have made had he been a stockholder of the
Company which notice shall govern the consideration to be received upon exercise
of the Warrant, and if no such notice is received within such 10 business days,
the Company in its discretion may determine the consideration to which the
holder of a Warrant is entitled as if the holder had made any of such elections.
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Section 3.2. Assumption of Obligations. Notwithstanding anything contained
in this Warrant to the contrary, the Company will not effect any of the
transactions described in clauses (a) through (d) of Section 3.1 unless, prior
to the consummation thereof, each Person (other than the Company) which may be
required to deliver any stock, securities, cash or property upon the exercise of
this Warrant as provided herein shall assume, by written instrument delivered
to, and reasonably satisfactory to, the holder of this Warrant, (a) the
obligations of the Company under this Warrant (and if the Company shall survive
the consummation of such transaction, such assumption shall be in addition to,
and shall not release the Company from, any continuing obligations of the
Company under this Warrant), and (b) the obligation to deliver to such holder
such shares of stock, securities, cash or property as, in accordance with the
foregoing provisions of this Article III, such holder may be entitled to
receive.
ARTICLE IV. OTHER PROVISIONS CONCERNING DILUTION
Section 4.1. No Impairment. The Company (a) will not permit the par value
of any shares of stock receivable upon the exercise of this Warrant to exceed
the amount payable therefor upon such exercise, (b) will take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock on the
exercise of the Warrant from time to time outstanding, and (c) will not take any
action which results in any adjustment of the Warrant Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of the Warrant would exceed the total number of shares of Common
Stock (or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issuance upon such exercise.
Section 4.2. Accountant's and Company's Report as to Adjustments. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of this Warrant, the Company at its
expense will promptly compute such adjustment or readjustment in accordance with
the terms of this Warrant and cause independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company)
selected by the Company to verify such computation (other than any computation
of the fair value of property as determined in good faith by the Board of
Directors of the Company) and prepare a report setting forth such adjustment or
readjustment and showing in reasonable detail the method of
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calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
by the Company for any securities issued or sold or deemed to have been issued,
(b) the number of shares of Common Stock outstanding or deemed to be
outstanding, and (c) the Warrant Price in effect immediately prior to such issue
or sale and as adjusted and readjusted (if required by Article II) on account
thereof. The Company will forthwith mail a copy of each such report to each
holder of a Warrant and will, upon the written request at any time of any holder
of a Warrant, furnish to such holder a like report setting forth the Warrant
Price at the time in effect and showing in reasonable detail the manner in which
it was calculated.
Section 4.3. Notices of Corporate Action. In the event that any of the
following occurs,
(a) any taking by the Company of a record of the holders of Common
Stock (or Other Securities) for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or
any right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive any
other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
consolidation, merger or statutory share exchange involving the Company and
any other Person or any transfer of all or substantially all the assets of
the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date as of which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
statutory share exchange, transfer, dissolution, liquidation or winding-up is to
take place and the time, if any such time is to be fixed, as of which the
holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for the securities
or other property deliverable upon
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such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at
least 10 days prior to the date therein specified.
Section 4.4. Availability of Information. The Company will cooperate with
each holder of any Warrant, Other Security or Restricted Security in supplying
such information as may be reasonably requested by such holder to complete and
file any information reporting forms presently or hereafter required by the
Commission to report such holders beneficial ownership of Common Stock (or Other
Securities) or as a condition to the availability of an exemption from the
provisions of the Securities Act for the sale of any Restricted Securities.
Section 4.5. Reservation of Stock, etc. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrant, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of the Warrant. All shares of Common Stock
(or Other Securities) issuable upon exercise of the Warrant shall be duly
authorized and, when issued upon such exercise, shall be validly issued and, in
the case of shares, fully paid and non-assessable with no liability on the part
of the holders thereof.
ARTICLE V. RESTRICTIONS ON TRANSFER
Section 5.1. Restrictive Legends. Except as otherwise permitted by
this Article V, each Warrant (including each Warrant issued upon the transfer of
any Warrant) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"This Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933, as
amended, and may not be transferred, sold or otherwise disposed of in
the absence of such registration or an exemption therefrom under such
Act. This Warrant and such shares may be transferred only in compliance
with the conditions specified in this Warrant."
Except as otherwise permitted by this Article V, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or
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otherwise imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred
in the absence of such registration or an exemption therefrom under
such Act."
Section 5.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to
any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act, the holder thereof
will give written notice to the Company of such holder's intention to effect
such Transfer and to comply in all other respects with this Section 5.2. Each
such notice (a) shall describe the manner and circumstances of the proposed
Transfer and (b) shall include an opinion of legal counsel addressed to the
Company, in form and substance reasonably satisfactory to the Company, to the
effect that such Transfer may be effected without registration under the
Securities Act and any applicable state securities laws.
Section 5.3. Termination of Restrictions. The restrictions imposed
by this Article V upon the transferability of Restricted Securities shall cease
and terminate as to any particular Restricted Securities when such securities
shall have been sold pursuant to an effective registration statement under the
Securities Act or otherwise become freely transferable by the holder thereof.
Upon receipt of a certificate executed by the holder of this Warrant or any
shares of Common Stock or Other Securities issued upon exercise of this Warrant,
reciting facts sufficient to establish that such holder is eligible to Transfer
such securities pursuant to Rule 144(k) promulgated under the Securities Act,
the Company shall, upon the request of such holder, issue or cause its transfer
agent to issue (in the case of the Warrant) a new Warrant or (in the case of
Common Stock or Other Securities) a new certificate free, in either case, from
any legend required by Section 5.1 hereof.
Section 5.4. Piggyback Registrations.
(a) Right to Piggyback Registration. Whenever the Company proposes to
register any of its Common Stock or Other Securities ("Common Equity
Securities") in a Qualified Registration, whether or not for sale for its own
account, the Company shall give prompt written notice (the "Piggyback Notice")
to the holders of Registrable Securities of its intention to effect such
registration. Upon written request of any holder of
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Registrable Securities made within 10 days after delivery of any Piggyback
Notice (which request shall specify the Registrable Securities requested to be
included in such Qualified Registration by such holder), the Company shall,
subject to Sections 5.4(b) and 5.4(c), use its reasonable efforts to include in
such Qualified Registration all Registrable Securities that the holders have so
requested be included in such Qualified Registration, to permit the disposition
by such holders of such Registrable Securities; provided, however, that (1) if,
at any time after giving the Piggyback Notice and before the effective date of
the registration statement filed in connection with such Qualified Registration,
the Company determines for any reason not to register such Common Equity
Securities (other than the Registrable Securities requested to be included
therein pursuant to this Section 5.4), the Company, at its election, may give
written notice of such determination to all holders of Registrable Securities
requesting the inclusion of their Registrable Securities therein and, thereupon,
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration (without prejudice, however, to the future
rights of the Holders under this Section 5.4); (2) if, at any time after giving
the Piggyback Notice and before the effective date of the registration statement
filed in connection with such Qualified Registration, the Company determines for
any reason to delay such registration of the Common Equity (other than the
Registrable Securities requested to be included therein pursuant to this Section
5.4), the Company shall be permitted to delay the registration of such
Registrable Securities for the same period as the delay in registering such
other Common Equity Securities; and (3) the Company shall not be required to
effect any registration pursuant to this Section 5.4(a) unless it shall have
received reasonable assurances that the Holders of any Registrable Securities
included therein will pay any expenses required to be paid by them as provided
in Section 5.4(d). As used herein, the term "Piggyback Registration" shall mean
any registration of Registrable Securities requested pursuant to this
Section 5.4(a).
(b) Priority on Piggyback Registrations. If a Piggyback Registration
is an underwritten offering and the managing underwriter thereof advises the
Company in writing that, in its opinion, the number of shares of Registrable
Securities requested or proposed to be included in such offering exceeds the
number that can be sold in such offering without adversely affecting the
offering, including the price of the securities offered, the Company shall
include in such registration, to the extent that such may be included in such
registration without adversely affecting the offering, including the price of
the securities offered, in the opinion of such managing underwriter (1) first,
Common Equity
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Securities proposed to be sold by the Company; and (2) second, any Common Equity
Securities initially proposed to registered by the Company for the accounts of
other persons pursuant to the exercise of demand registration rights if such
securities must be included to prevent a breach of any applicable registration
rights agreement between the Company and any such person, and (3) third, such
Common Securities requested to be included in such registration pursuant to this
Warrant.
(c) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the Company shall have the sole right to select the
managing underwriter or underwriters thereof.
(d) Expenses. The Company shall pay all expenses in connection with
piggyback registrations effected pursuant to this Section, other than the
expenses of counsel to the holder of a Warrant, and discounts, commissions and
other underwriting fees, provided, however, that if the Company is not
registering shares for sale by it, the holder of a Warrant shall pay all such
expenses of registration pro rata with the other persons registering securities
in such Piggyback Registration based upon the number of shares sold in such
Piggyback Registration.
(e) Underwriting Agreement. If requested by the underwriters for any
underwritten offering by holders of registrable Securities, the Company will
enter into an underwriting agreement with such underwriters for such offering,
such agreement to be reasonably satisfactory in form and substance to the
Company, each such holder and the underwriters, and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing and customary in agreements of this type, including,
without limitation, customary indemnifications. The holders of the Registrable
Securities will cooperate with the Company in the negotiation of the
underwriting agreement. The holders of Registrable Securities to be distributed
by such underwriters shall be parties to such underwriting agreement.
ARTICLE VI. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS
Section 6.1. Ownership of Warrants. The Company may treat the person in
whose name any Warrant is registered on the register kept at the office of the
Company maintained pursuant to subdivision (a) of Section 6.2 as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary,
except that, if and when any Warrant is properly assigned in blank, the Company
may (but shall not be obligated to) treat the bearer
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thereof as the owner of such Warrant for all purposes, notwithstanding any
notice to the contrary. Subject to Article V, a Warrant, if properly assigned,
may be exercised by a new holder without a new Warrant first having been issued.
Section 6.2. Office, Transfer and Exchange of Warrants.
(a) Office. The Company will maintain an office where
notices, presentations and demands in respect of this Warrant may be made
upon it. Such office shall be maintained at 1331 Lamar, Suite 1455,
Houston, Texas 77010, until such time as the Company shall notify each
holder of the Warrant of any change of location of such office.
(b) New Warrant. Upon the surrender of any Warrant, properly
endorsed, for registration of transfer or for exchange at the office of the
Company maintained pursuant to subdivision (a) of this Section 6.2, the
Company at its expense will (subject to compliance with Article V, if
applicable) execute and deliver to or upon the order of the holder thereof
a new Warrant or Warrants of like tenor, in the name of such holder or as
such holder (upon payment by such holder of any applicable transfer taxes)
may direct, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the
Warrant or Warrants so surrendered.
Section 6.3. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than Purchaser or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the office of the Company maintained pursuant to subdivision (a)
of Section 6.2, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
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ARTICLE VII. DEFINITIONS
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Business Day: Any day other than a Saturday or a Sunday or a day on
which commercial banking institutions in the State of Texas are authorized by
law to be closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
Closing Price: On any date specified herein, the amount per share of the
Common Stock, equal to (a) the last sale price of such Common Stock, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted to trading, or (b) if such Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown by
the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the over-
the-counter market, the fair value thereof determined in good faith by the Board
of Directors of the Company as of a date which is within 20 days of the date as
of which the determination is to be made.
Commission: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant, such term to
include (i) any stock into which such Common Stock shall have been changed or
any stock resulting from any reclassification of such Common Stock, (ii) all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference and (iii) all stock appreciation rights, phantom stock and similar
contract rights the holders of which are entitled to payments based on or
determined by reference to the value of the Common Stock, dividends
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payable with respect to Common Stock, or liquidating distributions payable with
respect to Common Stock .
Company: As defined in the introduction to this Warrant.
Exchange Act: The Securities Exchange Act of 1934, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Expiration Date: April 9, 2002, unless terminated earlier pursuant to
Article III.
Initial Price: $9.90.
Market Price: The Market Price per share of Common Stock on any date
in question shall mean the average of the daily Closing Prices for the 10
consecutive Trading Days ending on the day before the in question.
NASD: The National Association of Securities Dealers, Inc.
Other Securities: Any stock (other than Common Stock) and other securities
of the Company or any other Person (corporate or otherwise) which the holder of
the Warrant at any time shall be entitled to receive, or shall have received
upon the exercise of the Warrant, in lieu of or in addition to Common Stock.
Person: Any corporation, association, partnership, joint venture, limited
liability company, trust, estate, organization, business, individual, government
or political subdivision thereof or governmental agency.
Purchaser: Torch Energy Advisors Incorporated
Qualified Registration: A registration statement of the Company under
the Securities Act on a form that permits the sale of Registrable Securities,
excluding, however, a registration statement (1) on Form S-4 or S-8 or any
successor or similar form, (2) relating to any capital stock of the Company or
options, warrants of other rights to acquire any such capital stock issued
or to be issued primarily to directors, officers or employees of the Company,
(3) filed pursuant to Rule 145 under the Securities Act or any successor or
similar provision, (4) relating to any employee benefit plan or interests
therein, (5) relating to any preferred stock or debt securities of the Company
or (6) relating to any sale of securities for other than cash.
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Registrable Securities: Common Stock or Other Securities received or
receivable upon exercise of the Warrant.
Restricted Securities: All of the following: (a) any Warrant bearing
the applicable legend or legends referred to in Section 5.1, (b) any shares of
Common Stock (or Other Securities) which have been issued upon the exercise of a
Warrant and which are evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section and (c) unless the
context otherwise requires, any shares of Common Stock (or Other Securities)
which are at the time issuable upon the exercise of a Warrant and which, when so
issued, will be evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section.
Securities Act: The Securities Act of 1933, or any successor federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Trading Day: Any Monday, Tuesday, Wednesday, Thursday or Friday,
other than any day on which securities are not traded on the applicable
securities exchange or in the applicable securities market.
Transfer: Any sale, assignment, pledge or other disposition of any
security, or of any interest therein, which could constitute a "sale" as that
term is defined in section 2(3) of the Securities Act.
Warrant Price: As defined in Section 2.1 of this Warrant.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. No Rights or Liabilities as Stockholder. The holder of this
Warrant and all subsequent holders thereof hereby agree that except to the
extent set forth herein, no provision of this Warrant shall be construed as
conferring upon the holder hereof any rights as a stockholder of the Company or
as imposing any obligation on such holder to purchase any securities or as
imposing any liabilities on such holder as a stockholder of the Company, whether
such obligation or liabilities are asserted by the Company or by creditors of
the Company.
Section 8.2. Notices. All notices and other communications under this
Warrant shall be in writing and shall be mailed by registered or certified mail,
return receipt requested, addressed
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(a) if to any holder of any Warrant, to the registered address of such holder as
set forth in the register kept at the principal office of the Company, or (b) if
the Company, to the attention of its President at its office maintained pursuant
to subdivision (a) of Section 6.2, provided that the exercise of any Warrant
shall be effective in the manner provided in Article I.
Section 8.3. Miscellaneous.
(a) This Warrant may be amended, waived, discharged or terminated
and the Company may take any action herein required to be performed by it,
only if the Company shall have obtained the written consent to such
amendment, action or omission to act, of the holder of this Warrant.
(b) THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
(c) The section headings in this Warrant are for purposes of
convenience only and shall not constitute a part hereof.
BELLWETHER EXPLORATION COMPANY
/s/ J. DARBY SERE
By: ____________________________
Name: J. Darby Sere
Title: President
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<PAGE>
FORM OF SUBSCRIPTION
To ___________________________:
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases _________* shares of
Common Stock of Bellwether Exploration Company, and herewith makes payment of
$___________ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to ___________________________, whose
address is _________________________________________.
Dated: (Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
__________________________________
(Street Address)
__________________________________
(City) (State) (Zip Code)
_______________________________
*Insert the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which
this Warrant is being exercised), in either case without making any
adjustment for additional shares of Common Stock or any other stock or
other securities or property or cash which, pursuant to the adjustment
provisions of this Warrant, may be delivered upon exercise. In the case of
a partial exercise, a new Warrant or Warrants will be issued and delivered,
representing the unexercised portion of the Warrant, to the holder
surrendering the Warrant.
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<PAGE>
FORM OF ASSIGNMENT
[To be executed only upon Transfer of Warrant]
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto _________________ the right
represented by such Warrant to purchase shares of Common Stock of Bellwether
Exploration Company to which such Warrant relates, and appoints
_________________________________ as its duly authorized and empowered attorney-
in-fact to make such transfer on the books of maintained for such purpose, with
full power of substitution in the premises.
Dated: (Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
__________________________________
(Street Address)
__________________________________
(City) (State) (Zip Code)
Signed in the presence of:
_______________________________
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<PAGE>
EXHIBIT 10.22
================================================================================
AGREEMENT FOR PURCHASE AND SALE
by and between
BELLWETHER EXPLORATION COMPANY,
BLACK HAWK OIL COMPANY,
1988-II TEAI LIMITED PARTNERSHIP,
1989-I TEAI LIMITED PARTNERSHIP,
TEAI VIII-A LIMITED PARTNERSHIP,
TEAI OIL & GAS COMPANY
AND
ANDREWS OIL AND GAS, INC.
as Seller
and
JAY RESOURCES CORPORATION
as Buyer
June 9, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. SALE AND PURCHASE OF THE PROPERTIES..................................... 1
1.1. THE PROPERTIES.................................................. 1
1.2. EXCLUDED ASSETS................................................. 2
2. PURCHASE PRICE.......................................................... 3
2.1. BASIC AMOUNT.................................................... 3
2.2. ADJUSTMENTS TO PURCHASE PRICE................................... 3
2.3. DEPOSIT......................................................... 5
2.4. CLOSING STATEMENT............................................... 5
3. REPRESENTATIONS AND WARRANTIES OF SELLER................................ 5
3.1. ORGANIZATION.................................................... 5
3.2. AUTHORITY AND AUTHORIZATION..................................... 5
3.3. ENFORCEABILITY.................................................. 5
3.4. CONFLICTS....................................................... 6
3.5. LITIGATION...................................................... 6
3.6. TOC OPERATED PROPERTIES......................................... 6
4. REPRESENTATIONS AND WARRANTIES OF BUYER................................. 6
4.1. ORGANIZATION.................................................... 6
4.2. AUTHORIZATION AND AUTHORITY..................................... 6
4.3. ENFORCEABILITY.................................................. 7
4.4. CONFLICTS....................................................... 7
4.5. RELIANCE........................................................ 7
4.6. QUALIFIED LEASEHOLDER........................................... 7
4.7. QUALIFIED PURCHASER............................................. 8
4.8. AVAILABLE FUNDS................................................. 8
5. COVENANTS OF SELLER PENDING CLOSING..................................... 8
5.1. CONDUCT OF BUSINESS PENDING CLOSING............................. 8
5.2. ACCESS.......................................................... 9
5.3. ANTITRUST NOTIFICATION.......................................... 9
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6. COVENANTS OF BUYER PENDING CLOSING...................................... 9
6.1. ANTITRUST NOTIFICATION.......................................... 9
6.2. NOTIFICATIONS................................................... 9
6.3. GOVERNMENTAL BONDS.............................................. 10
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER........................ 10
7.1. REPRESENTATIONS AND WARRANTIES.................................. 10
7.2. COMPLIANCE...................................................... 10
7.3. CONSENTS........................................................ 10
7.4. NO PENDING SUITS................................................ 10
7.5. PURCHASE PRICE ADJUSTMENTS...................................... 10
7.6. HSR ACT......................................................... 10
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER....................... 10
8.1. REPRESENTATIONS AND WARRANTIES.................................. 11
8.2. COMPLIANCE...................................................... 11
8.3. CONSENTS........................................................ 11
8.4. NO PENDING SUITS................................................ 11
8.5. PURCHASE PRICE ADJUSTMENTS...................................... 11
8.6. HSR ACT......................................................... 11
8.7. FINANCIAL CONDITION............................................. 11
8.8. TRANSITION OPERATING AGREEMENT.................................. 11
9. CLOSING................................................................. 11
9.1. THE CLOSING..................................................... 11
9.2. DOCUMENTS TO BE DELIVERED AT CLOSING............................ 12
9.3. POSSESSION...................................................... 13
9.4. PAYMENT OF PURCHASE PRICE....................................... 13
10. CASUALTY LOSS........................................................... 13
11. TERMINATION............................................................. 13
11.1. EVENTS OF TERMINATION........................................... 13
11.2. EFFECT OF TERMINATION........................................... 14
12. TAXES, PRORATIONS AND ASSUMPTION OF OBLIGATIONS......................... 15
12.1. TAX PRORATIONS.................................................. 15
12.2. ASSUMPTION BY BUYER............................................. 15
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13. FINAL ACCOUNTING........................................................ 16
13.1. SETTLEMENT STATEMENT............................................ 16
13.2. ARBITRATION OF FINAL SETTLEMENT................................. 16
13.3. PAYMENT......................................................... 17
14. SURVIVAL AND INDEMNIFICATION............................................ 17
14.1. SURVIVAL........................................................ 17
14.2. INDEMNIFICATION BY SELLER....................................... 17
14.3. INDEMNIFICATION BY BUYER........................................ 17
14.4. LIABILITY LIMITATIONS........................................... 18
14.5. WAIVER OF REPRESENTATIONS....................................... 20
14.6. DTPA WAIVER..................................................... 20
15. FURTHER ASSURANCES...................................................... 21
15.1. GENERAL......................................................... 21
15.2. FILINGS, NOTICES AND CERTAIN GOVERNMENTAL APPROVALS............. 21
15.3. LOGOS AND NAMES................................................. 21
16. ACCESS BY SELLER AFTER CLOSING.......................................... 21
17. NOTICES................................................................. 22
18. ASSIGNMENT.............................................................. 22
19. GOVERNING LAW........................................................... 22
20. EXPENSES AND FEES....................................................... 23
21. INTEGRATION............................................................. 23
22. WAIVER OR MODIFICATION.................................................. 23
23. HEADINGS................................................................ 23
24. INVALID PROVISIONS...................................................... 23
26. MULTIPLE COUNTERPARTS................................................... 24
27. PUBLIC ANNOUNCEMENTS.................................................... 24
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28. ARBITRATION...................................................... 24
28.1. BINDING ARBITRATION....................................... 24
28.2. GOVERNING RULES........................................... 25
28.3. ARBITRATORS............................................... 25
28.4. CONDUCT OF ARBITRATION.................................... 25
28.5. COSTS OF ARBITRATION...................................... 25
29. LIABILITY................................................. 25
Annex I - Title to the Properties
Annex II - Environmental and Physical Assessment
Annex III - Certificate of Seller
Annex IV - Certificate of Buyer
Annex V - Assignment and Bill of Sale
Exhibit
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<PAGE>
TABLE OF DEFINED TERMS
Term Section
- ---- -------
AAA................................................................. 28.2
Adjusted Purchase Price............................................. 2.1
Advisor............................................................. 1.2
Agreement........................................................... Page 1
Allocated Value..................................................... Annex I
Assignment.......................................................... Annex V
Business Day........................................................ 17
Buyer............................................................... Page 1
Buyer Indemnified Parties........................................... 14.2
Casualty Loss....................................................... 10
Closing............................................................. 9.1
Closing Date........................................................ 9.1
Closing Period...................................................... 2.2.1
Closing Statement................................................... 2.4
Confidentiality Agreement........................................... 21
Contracts........................................................... 1.1.7
Cure Period......................................................... Annex I
Data................................................................ 1.1.6
Deposit............................................................. 2.3
Dispute............................................................. 28.1
Effective Date...................................................... 1
Environmental Condition............................................. Annex II
Environmental Defect................................................ Annex II
Environmental Defect Amount......................................... Annex II
Environmental Notice Date........................................... Annex II
Equipment........................................................... 1.1.5
Equitable Limitations............................................... 3.3
Excluded Assets..................................................... 1.2
Final Settlement Statement.......................................... 13.1
HSR Act............................................................. 5.3
Liabilities......................................................... 14.2
Liens............................................................... Annex I
Marketable Title.................................................... Annex I
Net Revenue Interest................................................ Annex I
Notice Date......................................................... Annex I
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Oil and Gas Properties............................................... 1.1.1
Permitted Encumbrances............................................... Annex I
Permits.............................................................. 1.1.8
Properties........................................................... 1
Purchase Price....................................................... 2.1
Seller............................................................... Page 1
Seller Indemnified Parties........................................... 14.3
Substances........................................................... 1.1.3
Surface Contracts.................................................... 1.1.4
Title Defect......................................................... Annex I
Title Defect Amount.................................................. Annex I
Title Properties..................................................... Annex I
TOC.................................................................. 3.6
TOC Operated Properties.............................................. 3.6
Wells................................................................ 1.1.2
Working Interest..................................................... Annex I
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<PAGE>
AGREEMENT FOR PURCHASE AND SALE
This Agreement for Purchase and Sale ("Agreement") is made and entered into on
this the 9th day of June, 1997, by and between Bellwether Exploration Company,
Black Hawk Oil Company, 1988-II TEAI Limited Partnership, 1989-I TEAI Limited
Partnership, TEAI VIII-A Limited Partnership, TEAI Oil & Gas Company and Andrews
Oil and Gas, Inc. (collectively, "Seller"), and Jay Resources Corporation or its
designee ("Buyer").
1. SALE AND PURCHASE OF THE PROPERTIES. Subject to the terms and conditions and
for the consideration herein set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller agrees to sell, assign, convey and deliver to Buyer, and Buyer agrees to
purchase and acquire from Seller at Closing, but effective as of 7:00 a.m. at
the location of each of the Oil and Gas Properties on May 1, 1997 (the
"Effective Date"), all of the interest of Seller in and to the following
properties, other than the Excluded Assets ("Properties"):
1.1. THE PROPERTIES.
1.1.1. OIL AND GAS PROPERTIES. All leasehold interests, mineral
interests, net profits interests, overrides or other interests or operating
rights in the oil and gas leases described in the Exhibit (the "Oil and Gas
Properties").
1.1.2. WELLS. All oil, condensate or natural gas wells located on the
Oil and Gas Properties, whether producing, operating, shut-in or temporarily
abandoned (the " Wells").
1.1.3. SEVERED SUBSTANCES. All severed crude oil, natural gas,
casinghead gas, drip gasoline, natural gasoline, petroleum, natural gas liquids,
condensate, products, liquids and other hydrocarbons and other minerals or
materials of every kind and description produced from the Oil and Gas Properties
and either (a) in storage tanks on the Effective Date, (b) in pipelines on the
Effective Date or (c) sold on or after the Effective Date (the "Substances").
1.1.4. SURFACE CONTRACTS. All right-of-way agreements or other
agreements relating to the use or ownership of surface properties that are used
or held for use for flow lines in connection with the production of Substances
from the Oil and Gas Properties (the "Surface Contracts").
1.1.5. EQUIPMENT. All equipment, fixtures and physical facilities of
every type and description located on the Oil and Gas Properties (the
"Equipment").
<PAGE>
1.1.6. INFORMATION AND DATA. All title opinions, lease and land files,
well files, geological and geophysical data and files, filings with and reports
to regulatory agencies, gas and sales contract files, division order files and
other books, files and records to the extent that they are directly related to
Oil and Gas Properties, not proprietary to Seller, and the transfer thereof is
not prohibited by existing contractual obligations (the "Data").
1.1.7. CONTRACTS. All contracts and arrangements that directly relate to
the Properties and the production, storage, treatment, transportation,
processing, purchase, sale, disposal or other disposition of Substances
therefrom and any and all amendments, ratifications or extensions of the
foregoing, to the extent that any of the foregoing relate to periods on or after
the Effective Date (the "Contracts"), and all rights to make claims and receive
proceeds under any insurance policy held by or on behalf of Seller in connection
with the Properties for any claim that arises from the Effective Date through
the Closing Date in connection with the Properties.
1.1.8. PERMITS. All franchises, licenses, permits, approvals, consents,
certificates and other authorizations and other rights granted by governmental
authorities and all certificates of convenience or necessity, immunities,
privileges, grants and other rights, that relate to the Properties or the
ownership or operation of any thereof (the "Permits").
1.2. EXCLUDED ASSETS. As used herein, "Excluded Assets" means (a) Seller's
and Torch Operating Company's operating rights in and to the oil and gas leases
described in the Exhibit; (b) all trade credits and all accounts, instruments
and general intangibles (as such terms are defined in the Texas Uniform
Commercial Code) attributable to the Properties with respect to any period of
time prior to the Effective Date; (c) all claims and causes of action of Seller
(i) arising from acts, omissions or events, or damage to or destruction of
property, occurring prior to the Effective Date, (ii) arising under or with
respect to any of the Contracts that are attributable to periods of time prior
to the Effective Date (including claims for adjustments or refunds), or (iii)
with respect to any of the Excluded Assets; (d) all rights and interests of
Seller (i) under any policy or agreement of insurance or indemnity, (ii) under
any bond, or (iii) to any insurance or condemnation proceeds or awards arising,
in each case, from acts, omissions or events, or damage to or destruction of
property, occurring prior to the Effective Date; (e) all Substances produced and
sold from the Oil and Gas Properties with respect to all periods prior to the
Effective Date, together with all proceeds from or of such Substances; (f)
claims of Seller for refunds of or loss carry forwards with respect to (i)
production or any other taxes attributable to any period prior to the Effective
Date, (ii) income or franchise taxes, or (iii) any taxes attributable to the
Excluded Assets; (g) all amounts due or payable to Seller as adjustments to
insurance premiums related to the Properties with respect to any period prior to
the Effective Date; (h) all proceeds, income or
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revenues (and any security or other deposits made) attributable to (i) the
Properties for any period prior to the Effective Date, or (ii) any Excluded
Assets; (i) all personal computers and associated peripherals and all radio and
telephone equipment; (j) all of Seller's proprietary computer software, patents,
trade secrets, copyrights, names, trademarks, logos and other intellectual
property; (k) all of Seller's interpretations of geological and geophysical
data; (1) all documents and instruments of Seller that may be protected by an
attorney-client privilege; (m) data that cannot be disclosed or assigned to
Buyer as a result of confidentiality arrangements under agreements with persons
unaffiliated with Seller; (n) all audit rights arising under any of the
Contracts or otherwise with respect to any period prior to the Effective Date or
to any of the Excluded Assets; and (o) all (i) agreements and correspondence
between Seller and Torch Energy Advisors Incorporated and any affiliates thereof
(the "Advisor") relating to the transactions contemplated in this Agreement,
(ii) lists of prospective purchasers for such transactions compiled by either
Seller or the Advisor, (iii) bids submitted by other prospective purchasers of
the Properties, (iv) analyses by Seller or the Advisor of any bids submitted by
any prospective purchaser, (v) correspondence between or among Seller or
Advisor, or either of their respective representatives, and any prospective
purchaser other than Buyer, and (vi) correspondence between Seller or Advisor or
any of their respective representatives with respect to any of the bids, the
prospective purchasers, the engagement or activities of the Advisor or the
transactions contemplated in this Agreement.
2. PURCHASE PRICE.
2.1. BASIC AMOUNT. The purchase price for the Properties, subject to
adjustment as provided in Section 2.2, shall be $14,800,000.00 (the "Purchase
Price"). The Purchase Price as adjusted pursuant to Section 2.2 is referred to
in this Agreement as the "Adjusted Purchase Price."
2.2. ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be adjusted as
Provided in this Section 2.2.
2.2.1. The Purchase Price shall be increased by the following amounts
(without duplication):
(a) An amount equal to the costs and expenses that are (i) attributable
to the Properties for the period from the Effective Date to the Closing Date
(the "Closing Period"), whether paid before or after the Effective Date, and
(ii) paid by Seller, including, without limitation, bond and insurance
premiums paid by or on behalf of Seller attributable to coverage during the
Closing Period.
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<PAGE>
(b) An amount equal to the interest of Seller in the quantity of Substances
produced from the Oil and Gas Properties in storage or pipelines on the
Effective Date multiplied by the contract price therefor on the Effective Date,
net of all applicable taxes.
(c) If Seller or Torch Operating Company, with respect to the TOC Operated
Properties, is named as the operator under a joint operating agreement covering
any of the Oil and Gas Properties other than those included in Excluded Assets,
an amount equal to the costs and expenses paid by Seller on behalf of the other
joint interest owners that is attributable to periods after the Effective Date.
(d) An amount equal to $1,000 per day from the Effective Date to the Closing
Date in lieu of any indirect overhead charges.
(e) An amount equal to $1.25 per Mcf of the under position with respect to
any gas production, pipeline, storage, processing or other imbalance
attributable to Substances produced from Oil and Gas Properties as of the
Effective Date under any agreement to the extent the volume of such under
position is greater than zero or an amount equal to $1.25 per Mcf of the over
position with respect to any such imbalance as of the Effective Date under any
such agreement to the extent that the volume of the over position with respect
to any such imbalance is less than zero.
2.2.2. The Purchase Price shall be decreased by the following amounts
(without duplication):
(a) An amount equal to the proceeds received by Seller for the sale during
the Closing Period of Substances, net of all applicable taxes not reimbursed to
Seller by a purchaser of Substances.
(b) An amount equal to all proceeds received by Seller from whatever source
derived that relate to the Properties and are attributable to periods on or
after the Effective Date, other than operator's overhead reimbursements received
by Seller under joint operating agreements in which Seller is designated as the
operator.
(c) The amount of all adjustments determined in accordance with Annex I for
title adjustments for the Oil and Gas Properties to the extent that the
aggregate of all Title Defect Amounts exceeds $100,000.
(d) The amount of all taxes prorated to Buyer in accordance with Section
11.1.
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<PAGE>
(e) An amount equal to $1.25 per Mcf of the over position with respect
to any gas production, pipeline, storage, processing or other imbalance
attributable to Substances produced from Oil and Gas Properties as of the
Effective Date under any agreement to the extent the volume of such over
position is greater than zero or an amount equal to $1.25 per Mcf of the
under position with respect to any such imbalance as of the Effective Date
under any such agreement to the extent that the volume of the under position
with respect to any such imbalance is less than zero.
2.3. DEPOSIT. Contemporaneously with the execution of this Agreement, Buyer
is depositing with Seller an amount equal to ten percent of the Purchase Price
(the "Deposit"). The Deposit shall be applied to the Adjusted Purchase Price to
be paid at Closing or may be returned to Buyer or retained by Seller in
accordance with the terms of this Agreement.
2.4. CLOSING STATEMENT. Seller shall deliver to Buyer not less than two
Business Days before the Closing Date a statement (the "Closing Statement")
setting forth the adjustments to the Purchase Price provided in Section 2.2 and
using Title Defect Amounts that have been agreed by Seller and Buyer prior to
such date or determined by arbitration prior to such date. The Closing
Statement shall be prepared in accordance with customary accounting principles
used in the oil and gas industry.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to
Buyer as follows:
3.1. ORGANIZATION. Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Seller is
qualified to do business in and is in good standing under the laws of each state
in which the Properties are located.
3.2. AUTHORITY AND AUTHORIZATION. Seller has full corporate power and
authority to carry on its business as presently conducted, to enter into this
Agreement and to perform its obligations under this Agreement. The execution and
delivery of this Agreement by Seller have been, and the performance by Seller of
this Agreement and the transactions contemplated hereby shall be at the time
required to be performed hereunder, duly and validly authorized by all requisite
corporate action on the part of Seller.
3.3. ENFORCEABILITY. This Agreement has been duly executed and delivered on
behalf of Seller and constitutes the legal, valid and binding obligation of
Seller enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, reorganization or moratorium statutes, or
other similar laws affecting the rights of creditors generally or equitable
principles (collectively, "Equitable Limitations"). At the
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<PAGE>
Closing all documents and instruments required hereunder to be executed and
delivered by Seller shall be duly executed and delivered and shall constitute
legal, valid and binding obligations of Seller enforceable in accordance with
their terms, except as enforceability may be limited by Equitable Limitations.
3.4. CONFLICTS. The execution and delivery of this agreement by seller does
not, and the consummation of the transactions contemplated by this Agreement
shall not, (a) violate or be in conflict with, or require the consent of any
person or entity under, any provision of Seller's governing documents, (b)
violate any provision of or require any consent, authorization or approval under
any judgment, decree, judicial or administrative order, award, writ, injunction,
statute, rule or regulation applicable to Seller, or (c) result in the creation
of any lien, charge or encumbrance on any of the properties.
3.5. LITIGATION. Except as set forth on the Exhibit, no claim, demand,
filing, hearing, notice of violation, proceeding, notice or demand letter,
investigation, administrative proceeding, civil, criminal or other action, suit
or other legal proceeding is pending or, to the best of Seller's knowledge,
threatened, against Seller relating to, resulting from or affecting the
ownership or operation of the Properties. No notice from any governmental
authority or any other person (including employees) has been received by Seller
as to any claim, demand, filing, hearing, notice of violation, proceeding,
notice or demand letter, relating to, resulting from or affecting the ownership
or operation of the Properties, claiming any violation of any law, statute,
rule, regulation, ordinance, order, decision or decree of any governmental
authority (including, without limitation, any such law, rule, regulation,
ordinance, order, decision or decree concerning the conservation of natural
resources) or claiming any breach of contract or agreement with any third-party.
3.6. TOC OPERATED PROPERTIES. Torch Operating Company ("TOC") operates
certain of the Properties described on the Exhibit on behalf of Nuevo Energy
Company and after consummation of these transactions shall continue to operate
such Properties ("TOC Operated Properties"). The TOC Operated Properties are
described on the Exhibit.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to
Seller that:
4.1. ORGANIZATION. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas.
4.2. AUTHORIZATION AND AUTHORITY. The execution and delivery of this Agree-
ment have been and the performance of this Agreement and the transactions
contemplated hereby shall be at the time required to be performed hereunder,
duly and validly authorized
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<PAGE>
by all requisite corporate action on the part of Buyer. Buyer has full corporate
power and authority to carry on its business as presently conducted, to enter
into this Agreement, to purchase the Properties on the terms described in this
Agreement and to perform its other obligations under this Agreement.
4.3. ENFORCEABILITY. This Agreement has been duly executed and delivered on
behalf of Buyer, and constitutes a legal, valid and binding obligation of Buyer
enforceable in accordance with its terms, except as enforceability may be
limited by Equitable Limitations. At the Closing all documents required
hereunder to be executed and delivered by Buyer shall be duly executed and
delivered and shall constitute legal, valid and binding obligations of Buyer
enforceable in accordance with their terms, except as enforceability may be
limited by Equitable Limitations.
4.4. CONFLICTS. The execution and delivery of this Agreement by Buyer does
not, and the consummation of the transactions contemplated by this Agreement
shall not, (a) violate or be in conflict with, or require the consent of any
person or entity under, any provision of Buyer's Certificate of Incorporation,
bylaws or other governing documents, (b) conflict with, result in a breach of,
constitute a default (or an event that with the lapse of time or notice, or
both, would constitute a default) under any agreement or instrument to which
Buyer is a party or is bound, or (c) violate any provision of or require any
consent, authorization or approval under any judgment, decree, judicial or
administrative order, award, writ, injunction, statute, rule or regulation
applicable to Buyer.
4.5. RELIANCE. Prior to executing this Agreement, Buyer has been afforded an
opportunity to (a) examine the Properties and such materials as it has requested
to be provided to it by Seller, (b) discuss with representatives of Seller such
materials and the nature and operation of the Properties and (c) investigate the
condition, including subsurface condition, of the Oil and Gas Properties and
Surface Contracts and the condition of the Equipment. In entering into this
Agreement, Buyer has relied solely on the express representations and covenants
of Seller in this Agreement, its independent investigation of, and judgment with
respect to, the Equipment and the other Properties and the advice of its own
legal, tax, economic, environmental, engineering, geological and geophysical
advisors and not on any comments or statements of any representatives of, or
consultants or advisors engaged by, Seller or the Advisor.
4.6. QUALIFIED LEASEHOLDER. As soon as possible after Closing, Buyer intends
to satisfy the area-wide bonding and any other bonding requirements of the
Minerals Management Service and other governmental authorities, and, after the
Closing, Buyer anticipates that it will continue to be able to meet such bonding
requirements. As soon as possible after Closing, Buyer shall use its best
efforts to become qualified to own the
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<PAGE>
Properties. The consummation of the transactions contemplated hereby will not
cause Buyer to be disqualified to be an owner of federal, oil, gas, and mineral
leases in the Gulf of Mexico region, or to exceed any acreage limitation imposed
by any law, statute, rule or regulation. Buyer is not aware of any fact that
could reasonably be expected to cause the Minerals Management Service or other
governmental authorities to fail to unconditionally approve the assignment of
the Properties to Buyer.
4.7. QUALIFIED PURCHASER. Buyer is an experienced and knowledgeable investor
and operator in the oil and gas business. Buyer is acquiring the Properties for
its own account and not with a view to, or for offer of resale in connection
with, a distribution thereof, within the meaning of the Securities Act of 1933,
15 U.S.C. (S) 77a et seq., and any other rules, regulations, and laws pertaining
to the distribution of securities.
4.8. AVAILABLE FUNDS. Buyer has arranged to have available by the Closing
Date sufficient funds to enable the payment to Seller by wire transfer, the
Adjusted Purchase Price in accordance with Section 9.4, and to otherwise perform
Buyer's obligations under this Agreement.
5. COVENANTS OF SELLER PENDING CLOSING.
5.1. CONDUCT OF BUSINESS PENDING CLOSING. Seller covenants that from the date
hereof to the Closing Date, except (a) as provided herein, (b) as required by
any obligation, agreement, lease, contract, or instrument referred to on the
Exhibit, or (c) as otherwise consented to in writing by Buyer, Seller will:
5.1.1. Not (i) operate or in any manner deal with, incur obligations
with respect to, or undertake any transactions relating to, the Properties other
than transactions (A) in the normal, usual and customary manner, (B) of a nature
and in an amount consistent with prior practice, and (C) in the ordinary and
regular course of business of owning and operating the Properties; (ii) dispose
of, encumber or relinquish any of the Properties (other than relinquishments
resulting from the expiration of leases that Seller has no right or option to
renew); (iii) waive, compromise or settle any right or claim that would
materially and adversely affect the ownership, operation or value of any of the
Properties after the Effective Date, or (iv) participate in any operation if the
estimated cost exceeds $20,000.00.
5.1.2. Make or give all notifications, filings, consents or approvals,
from, to or with all governmental authorities, and take all other actions
reasonably requested by Buyer, necessary for, and cooperate with Buyer in
obtaining, the issuance, assignment or transfer, as the case may be, by each
such authority of such Permits as may be necessary for
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Buyer to own and operate the Properties following the consummation of the
transactions contemplated in this Agreement.
5.1.3. Notify Buyer of the discovery by Seller that any representation
or warranty of Seller contained in this Agreement is, becomes or will be untrue
in any material respect on the Closing Date.
5.1.4. Maintain in effect insurance providing the same type coverage, in
the same amounts with the same deductibles as the insurance maintained in effect
by Seller or its affiliates on the Effective Date.
5.2. ACCESS. Seller shall afford to Buyer and its authorized representatives
from the date hereof until the Closing Date, during normal business hours,
reasonable access to the Properties operated by Seller and to Seller's title,
contract, and legal materials and operating data and information available as of
the date hereof and that becomes available to Seller at any time prior to the
Closing Date, other than any documents that are protected by an attorney-client
privilege.
5.3. ANTITRUST NOTIFICATION. Seller will file, within five Business Days
after the execution of this Agreement, with the Federal Trade Commission and the
Department of Justice the notification and report form required for the
transactions contemplated hereby and any supplemental information that may be
reasonably requested in connection therewith pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules and regulations promulgated
thereunder (the "HSR Act"), which notification and report form and supplemental
information will comply in all material respects with the requirements of the
HSR Act. Seller will seek early termination of the waiting period.
6. COVENANTS OF BUYER PENDING CLOSING.
6.1. ANTITRUST NOTIFICATION. Buyer will file, within five Business Days after
the execution of this Agreement, with the Federal Trade Commission and the
Department of Justice the notification and report form required for the
transactions contemplated hereby and any supplemental information that may be
reasonably requested in connection therewith pursuant to the HSR Act, which
notification and report form and supplemental information will comply in all
material respects with the requirements of the HSR Act. Buyer will seek early
termination of the waiting period.
6.2. NOTIFICATIONS. Buyer will notify Seller promptly after the discovery by
Buyer that any representation or warranty of Seller contained in this Agreement
is, becomes or will be untrue in any material respect on the Closing Date. In
addition, Buyer will notify Seller
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of the discovery by Buyer that any representation or warranty of Buyer contained
in this Agreement is, becomes or will be untrue in any material respect on the
Closing Date.
6.3. GOVERNMENTAL BONDS. Promptly after Closing, Buyer shall deliver to
Seller evidence of the posting of bonds or other security with the Minerals
Management Service and all other applicable governmental authorities meeting the
requirements of those authorities to own and, where appropriate, operate, the
Oil and Gas Properties.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The obligations of Buyer to
be performed at Closing are subject to the fulfillment, before or at Closing, of
each of the following conditions:
7.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties by
Seller set forth in this Agreement (considered collectively) shall be true and
correct in all material respects on the date of this Agreement and as of the
Closing Date except for changes therein specifically contemplated by this
Agreement.
7.2. COMPLIANCE. Seller shall have performed and complied in all material
respects with each of the covenants and conditions required by this Agreement of
which performance or compliance is required prior to or at the Closing.
7.3. CONSENTS. The necessary consents have been obtained and any applicable
preferential rights have been waived or have expired.
7.4. NO PENDING SUITS. At the Closing Date, no suit, action or other
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit the performance of or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby.
7.5. PURCHASE PRICE ADJUSTMENTS. The aggregate of all adjustments to the
Purchase Price and all adjustments asserted by Buyer in good faith that have not
been resolved prior to the Closing Date shall not exceed 5% of the Purchase
Price less the deductible in Section 2.2.2(c).
7.6. HSR ACT. The waiting period under the HSR Act applicable to the
transactions contemplated in this Agreement shall have expired or been
terminated.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The obligations of Seller
to be performed at Closing are subject to the fulfillments before or at Closing,
of each of the following conditions:
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8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties by
Buyer set forth in this Agreement (considered collectively) shall be true and
correct in all material respects on the date of this Agreement and as of the
Closing Date except for changes therein specifically contemplated by this
Agreement.
8.2. COMPLIANCE. Buyer shall have performed and complied in all material
respects with each of the covenants and conditions required by this Agreement of
which performance or compliance is required prior to or at the Closing.
8.3. CONSENTS. The necessary consents have been obtained and any applicable
preferential rights have been waived or have expired.
8.4. NO PENDING SUITS. At the Closing Date, no suit, action or other
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit the performance of or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby.
8.5. PURCHASE PRICE ADJUSTMENTS. The aggregate of all adjustments to the
purchase price pursuant to Annex I shall not exceed 5% of the Purchase Price
less the deductible in Section 2.2.2(c).
8.6. HSR ACT. The waiting period under the HSR Act applicable to the
transactions contemplated in this Agreement shall have expired or been
terminated.
8.7. FINANCIAL CONDITION. Buyer shall have provided to Seller evidence of
Buyer's financial condition that satisfies Seller, in Seller's sole discretion,
that Buyer can comply with all obligations of Buyer under this Agreement.
8.8. TRANSITION OPERATING AGREEMENT. Buyer shall have executed a Transition
Operating Agreement between Buyer and TOC in the form attached to the Exhibit
and covering the Oil and Gas Properties other than the Excluded Assets, whereby
TOC operates such properties for a period not greater than six (6) months as
determined by Buyer; provided, however TOC shall continue to operate the
applicable Oil and Gas Properties under the Transition Agreement until Buyer
delivers to Seller the information required in Section 6.3.
9. CLOSING.
9.1. THE CLOSING. The assignment and purchase of the Properties pursuant to
this Agreement (the "Closing") shall be consummated in Houston, Texas, at the
offices of the
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Seller before 11:00 p.m. on the later of (a) the third Business Day after the
day that all necessary requirements of the provisions of the HSR Act shall have
been complied with and the applicable waiting period under the HSR Act shall
have expired or been terminated or (b) the 30th day of June, 1997 (the "Closing
Date").
9.2. DOCUMENTS TO BE DELIVERED AT CLOSING.
9.2.1. At the Closing, Seller shall deliver to Buyer the following
instruments, dated the Closing Date, properly executed by authorized officers
and, where appropriate, acknowledged:
(a) Counterparts of an Assignment of Leases and Bill of Sale in the form
of Annex V sufficient to convey to Buyer title in and to the Properties;
(b) Such other instruments as are necessary to effectuate the conveyance
of the Properties to Buyer;
(c) Letters in lieu of division orders addressed to each purchaser of
the Substances;
(d) With respect to any Wells that Seller owns less than all of the
operating rights or leasehold interests and is designated as the operator, other
than the TOC Operated Properties specified in the Exhibit, (i) letters to all
working interest owners in which Seller or Torch Operating Company resigns as
the operator and recommends Buyer as the successor operator and (ii) any forms
promulgated by the appropriate governmental authority and completed by Buyer
designating Buyer as the operator that Seller is required to execute by the
governmental authority. With respect to any Wells that Seller owns all of the
leasehold interests or operating rights and is designated as the operator, any
forms promulgated by the appropriate governmental authority and completed by
Buyer designating Buyer as the operator that Seller is required to execute by
the governmental authority; and
(e) A certificate in the form of Annex III.
9.2.2. At the Closing, Buyer shall deliver to Seller the following
instruments, dated the Closing Date, properly executed by authorized officers
and, where appropriate, acknowledged:
(a) Transition Operating Agreement between Buyer and Torch Operating
Company;
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(b) a certificate in the form of Annex IV dated the Closing Date and
properly executed by an authorized officer; and
(c) A resolution of Buyer's Board of Directors, certified by its
Secretary, authorizing the execution, delivery and performance of this
Agreement, the Assignment and Bill of Sale, and all other actions to be taken by
Buyer hereunder.
9.3. POSSESSION. At the Closing, Seller shall deliver to Buyer possession of
the Properties other than the Data. Within five Business Days after Closing,
Seller shall deliver to Buyer at Seller's offices all of the Data.
9.4. PAYMENT OF PURCHASE PRICE. At the Closing, against delivery of the
documents and materials described in Section 9.2, Buyer shall pay to Seller the
estimated Adjusted Purchase Price, less the amount of the Deposit, by wire
transfer of immediately available funds.
10. CASUALTY LOSS. As used herein, the term "Casualty Loss" shall mean, with
respect to all or any major portion of any of the Properties, any destruction by
fire, blowout, storm or other casualty or any taking, or pending or threatened
taking, in condemnation or expropriation or under the right of eminent domain of
any of the Properties or portion thereof, in each case prior to Closing. Seller
shall promptly notify Buyer of any Casualty Loss of which Seller becomes aware.
If any Casualty Loss occurs during the Closing Period, Seller shall (i) transfer
to Buyer all of the interest of Seller in the Properties other than Excluded
Assets, (ii) transfer to Buyer all unpaid insurance proceeds, claims, awards and
other payments arising out of such Casualty Loss, and (iii) pay to Buyer all
sums paid to Seller as insurance proceeds, awards or other payments arising out
of such Casualty Loss. Seller shall not voluntarily compromise, settle or adjust
any amounts payable by reason of any Casualty Loss without first obtaining the
written consent of Buyer.
11. TERMINATION.
11.1. EVENTS OF TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
11.1.1. By the mutual written consent of Buyer and Seller;
11.1.2. By Seller if Buyer shall (i) fail to perform in any material
respect its covenants contained herein required to be performed by it on or
prior to the Closing Date, or (ii) any of its representations contained herein
shall be incorrect in any material respect on the Closing Date, and such failure
or misrepresentation is not cured within ten days after
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Seller shall have notified Buyer of its intent to terminate this Agreement
pursuant to this Section 11.1.2;
11.1.3. By Buyer if Seller shall (i) fail to perform in any material
respect its covenants contained herein required to be performed by it on or
prior to the Closing Date, or (ii) any of its representations contained herein
shall be incorrect in any material respect on the Closing Date, and such failure
or misrepresentation is not cured within ten days after Buyer has notified
Seller of its intent to terminate this Agreement pursuant to this Section
11.1.3;
11.1.4. By Buyer or Seller if the aggregate of all Environmental
Defect Amounts exceeds 5% of the Purchase Price. Notwithstanding the above,
Seller shall not have the right to terminate this Agreement in the event that
Buyer elects, in its sole discretion, to bear the cost of curing the
Environmental Defects that would otherwise exceed 5% of the Purchase Price;
11.1.5. By Buyer or Seller if the adjustments to the Purchase Price
for Title Defects under Annex I exceed 5% of the Purchase Price. Notwithstanding
the above, Seller shall not have the right to terminate this Agreement in the
event that Buyer elects, in its sole discretion, not to adjust the Purchase
Price by and to bear the cost of curing the Title Defects which otherwise would
result in adjustments to the Purchase Price that exceed 5% of the Purchase
Price;
11.1.6. By Buyer or Seller if the Properties suffer a Casualty Loss
or Casualty Losses after the Effective Date and prior to the Closing Date in the
aggregate that exceed(s) 5% of the Purchase Price; and
11.1.7. By either Seller or Buyer if for any reason the Closing has
not occurred on or before June 30, 1997.
11.2. EFFECT OF TERMINATION.
11.2.1. If the purchase and sale of the Properties is not consummated
as contemplated in this Agreement and either (a) Buyer shall have failed to
perform in any material respect its covenants contained herein required to be
performed by it on or prior to the Closing Date, or (b) any of its
representations contained herein shall be incorrect in any material respect on
the Closing Date, and such failure or misrepresentation is not cured within the
time period provided in Section ll.l, then Seller may elect to retain the
Deposit as liquidated damages or return the Deposit to Buyer and seek such
damages as may be appropriate. Buyer acknowledges that the extent of damages to
Seller occasioned by any
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breach or misrepresentation by Buyer would be impossible or extremely difficult
to ascertain and that the amount of the Deposit is a fair and reasonable
estimate of such damages under the circumstances.
11.2.2. If the purchase and sale of the Properties is not consummated
as contemplated in this Agreement and (a) Buyer shall have performed in all
material respects its covenants contained herein required to be performed by it
on or prior to the Closing Date and (b) all of its representations contained
herein shall be correct in all material respects on the Closing Date, then
Seller shall refund to Buyer the Deposit within three Business Days after the
date of termination of this Agreement.
12. TAXES, PRORATIONS AND ASSUMPTION OF OBLIGATIONS.
12.1. TAX PRORATIONS. Real and personal property taxes for the Properties
shall be prorated between Buyer and Seller as of the Effective Date. If the
actual taxes are not known on the Closing Date, Seller's share of such taxes
shall be determined by using (a) the rates and millage for the year prior to the
year in which the Closing occurs, with appropriate adjustments for any known and
verifiable changes thereto, and (b) the assessed values for the year in which
Closing occurs. When Buyer receives the actual tax statements for the Properties
from the appropriate taxing authorities, Buyer shall deliver to Seller a copy of
such statements, together with the amount, if any, by which Seller's proration
exceeds the proration that would have been made had actual tax statements been
used to calculate Seller's proration. If the proration for Seller that would
have been made using actual tax statements exceeds that made at Closing, Seller
shall pay to Buyer such difference within three Business Days of receipt of such
statement.
12.2. ASSUMPTION BY BUYER. At Closing, Buyer shall assume (a) the obligation
to (i) plug and abandon or remove and dispose of all Wells, platforms,
structures, flow lines, pipelines, and the other equipment now or hereafter
located on the Oil and Gas Properties within such time as required by, in
conformance with, and satisfying the terms and conditions of the oil, gas and
mineral leases comprising part of the Properties, the Contracts and applicable
laws, rules, orders and regulations of any governmental authority having
jurisdiction, (ii) cap and bury all flow lines and other pipelines now or
hereafter located on the Oil and Gas Properties, and (iii) dispose of naturally
occurring radioactive material and all other pollutants, wastes, contaminants,
or hazardous, extremely hazardous, or toxic materials, substances, chemicals or
wastes now or hereafter located on the Oil and Gas Properties; (b) the
obligation to restore the lands covered by or used in connection with the
Properties within such time as required by, in conformance with, and satisfying
the terms and conditions of the oil, gas and mineral leases comprising part of
the Properties the Contracts and applicable laws, rules, orders and regulations
of any governmental authority having
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jurisdiction; and (c) all other costs, obligations and liabilities that relate
to the ownership or operation of the Oil and Gas Properties or arise under the
Contracts or otherwise relate to the Properties and, in each case, arise from or
relate to events occurring or conditions existing whether before, on or after
the Effective Date including, without limitation, (i) all obligations and
liabilities arising from or in connection with any gas production, pipeline,
storage, processing or other imbalance attributable to Substances produced from
Oil and Gas Properties; (ii) any and all claims arising under all federal and
state environmental statues and (iii) all obligations and liabilities arising
from or in connection with any of the litigation described on the Exhibit,
including, without limitation, any claims by other working interest owners
against Seller or Torch Operating Company, where Torch Operating Company resigns
as operator of the Properties pursuant to this Agreement. All such plugging,
replugging, abandonment, removal, disposal, and restoration operations shall be
in compliance with applicable laws and regulations and contracts, and shall be
conducted in a good and workmanlike manner.
13. FINAL ACCOUNTING.
13.1. SETTLEMENT STATEMENT. As soon as practical and, in any event, no later
than ninety calendar days after the Closing Date, Seller shall prepare and
deliver to Buyer a statement (the "Final Settlement Statement") setting forth
the adjustments to the Purchase Price in accordance with Section 2.2. The Final
Settlement Statement shall be prepared in accordance with customary accounting
principles used in the oil and gas industry. The Final Settlement Statement
shall reflect all amounts shown on the Closing Statement and shall deduct all
such amounts from the amounts calculated under the Final Settlement Statement.
Within thirty calendar days after Buyer's receipt of the Final Settlement
Statement (but not earlier than ninety calendar days after the Closing Date),
Buyer and Seller shall endeavor to agree on the final accounting.
13.2. ARBITRATION OF FINAL SETTLEMENT. If Seller and Buyer cannot agree upon
the Final Settlement Statement, the Houston Office of the firm of Ernst & Young
is designated to act as an arbitrator and to decide all points of disagreement
with respect to the Final Settlement Statement, such decision to be binding on
both parties. If such firm is unwilling or unable to serve in such capacity,
Seller and Buyer shall attempt to, in good faith, designate another acceptable
person as the sole arbitrator under this Section. If the parties are unable to
agree upon the designation of a person as substitute arbitrator, then Seller or
Buyer, or both of them, may in writing request the Judge of the United States
District Court for the Southern District of Texas senior in term of service to
appoint the substitute arbitrator. The arbitration shall be conducted under the
Texas General Arbitration Act and the rules of the American Arbitration
Association to the extent such rules do not conflict with the terms of such Act
and the terms hereof. The costs and expenses of the arbitrator, whether the firm
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designated above, or a third party appointed pursuant to the preceding sentence
shall be shared equally by Seller and Buyer.
13.3. PAYMENT. Within five Business Days after the agreement of Seller and
Buyer on the Final Settlement Statement or after the decision of the arbitrator,
Buyer or Seller, as the case may be, shall promptly make a cash payment to the
other equal to the sums as may be found to be due in the Final Settlement
Statement.
14. SURVIVAL AND INDEMNIFICATION.
14.1. SURVIVAL. The liability of Buyer and Seller under each of their
respective representations, warranties, covenants, agreements and indemnities
shall survive the Closing and execution and delivery of the assignments
contemplated hereby.
14.2. INDEMNIFICATION BY SELLER. After the Closing, Seller shall be
responsible for, shall pay on a current basis, and shall indemnify, save, hold
harmless, discharge and release Buyer, all of its affiliates, successors and,
permitted assignees, and all of its and their respective stockholders,
directors, officers, employees, agents and representatives (collectively, "Buyer
Indemnified Parties") from and against any and all payments, charges, judgments,
assessments, liabilities, damages, penalties, fines or costs and expenses paid
or incurred by the person seeking indemnification, including any legal or other
expenses reasonably incurred in connection therewith (collectively,
"Liabilities"), arising from, based upon, related to or associated with (a) any
act or omission by Seller involving or relating to the Excluded Assets whether
occurring before, on or after the Effective Date; and (b) the fees of any
brokers' or finders' fees or commissions arising with respect to brokers or
finders retained or engaged by Seller and resulting from or relating to the
transactions contemplated in this Agreement.
14.3. INDEMNIFICATION BY BUYER. After the Closing, Buyer shall assume, be
responsible for, shall pay on a current basis, and shall indemnify, save, hold
harmless, discharge and release Seller, its affiliates, its and their successors
and permitted assigns, and all of their respective stockholders, directors,
officers, employees, agents and representatives (collectively, "Seller
Indemnified Parties") from and against any and all Liabilities arising from,
based upon, related to or associated with (a) any act, omission, event,
condition or circumstance involving or relating to the Properties whether
occurring on or after the Effective Date; (b) liabilities and obligations
assumed by Buyer pursuant to Section 12; and (c) the failure to obtain any
consent or waiver of any preferential right for the assignment of the Properties
to Buyer; and (d) any brokers' or finders' fees or commissions arising with
respect to brokers or finders retained or engaged by any person other than
Seller and resulting from or relating to the transactions contemplated in this
Agreement.
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14.4. LIABILITY LIMITATIONS.
14.4.1. After the Closing, any assertion by any Buyer Indemnified
Party that Seller is liable (a) for the inaccuracy of any representation or
warranty, (b) for the breach of any covenant, (c) for indemnity under the terms
of this Agreement or (d) otherwise in connection with the transactions
contemplated in this Agreement, must be made by Buyer in writing and must be
given to Seller on or prior to the last preceding Business Day before the first
anniversary of the Closing Date. Nothing in this Section 14.4 shall restrict or
limit the right of any Buyer Indemnified Party to make a claim pursuant to any
express warranty made by Seller in the Assignment and Bill of Sale dated of
even date herewith between Buyer and Seller. The notice shall state the facts
known to Buyer that give rise to such notice in sufficient detail to allow
Seller to evaluate the assertion.
14.4.2. The amount of any Liabilities for which any of the Buyer
Indemnified Parties or Seller Indemnified Parties is entitled to
indemnification or other compensation under this Agreement or in connection
with or with respect to the transactions contemplated in this Agreement shall
be reduced by any corresponding (a) tax benefit created or generated or (b)
insurance proceeds realized or that could reasonably be expected to be realized
by such party if a claim were properly pursued under the relevant insurance
arrangements.
14.4.3. None of the Buyer Indemnified Parties nor the Seller
Indemnified Parties shall be entitled to recover from Seller or Buyer,
respectively, for any losses, costs, expenses, or damages arising under this
Agreement or in connection with or with respect to the transactions
contemplated in this Agreement any amount in excess of the actual compensatory
damages, court costs and reasonable attorney fees, suffered by such party.
Buyer on behalf of each of the Buyer Indemnified Parties and Seller on behalf
of each of the Seller Indemnified Parties waives any right to recover punitive,
special, exemplary and consequential damages arising in connection with or with
respect to the transactions contemplated in this Agreement.
14.4.4. The sole and exclusive remedy of each of the Buyer Indemnified
Parties and the Seller Indemnified Parties with respect to the purchase and
sale of the Properties shall be pursuant to the express provisions of this
Agreement. Any and all (a) claims relating to the representations, warranties,
covenants and agreements contained in this Agreement, (b) other claims pursuant
to or in connection with this Agreement or (c) other claims relating to the
Properties and the purchase and sale thereof shall be subject to the provisions
set forth in this Section 14. Buyer on behalf of each of the Buyer Indemnified
Parties and Seller on behalf of each of the Seller Indemnified Parties is
hereby deemed to have waived, to the fullest extent permitted under applicable
law, any right of contribution against Seller or any of its affiliates or Buyer
or any of its affiliates and any and all rights,
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claims and causes of action it may have against Seller or any of its affiliates
or Buyer or any of its affiliates, respectively, arising under or based on any
federal, state or local statute, law, ordinance, rule or regulation or common
law or otherwise.
14.4.5. No person entitled to indemnification hereunder or otherwise
to damages in connection with or with respect to the transactions contemplated
in this Agreement shall settle, compromise or take any other action with
respect to any claim, demand, assertion of liability or legal proceeding that
could prejudice or otherwise adversely impact the ability of the person
providing such indemnification or potentially liable for such damages to defend
or otherwise settle or compromise with respect to such claim, demand, assertion
of liability or legal proceeding.
14.4.6. Seller and Buyer acknowledge that the payment of money, as
limited by the terms of this Agreement, shall be adequate compensation for
breach of any representation, warranty, covenant or agreement contained herein
or for any other claim arising in connection with or with respect to the
transactions contemplated in this Agreement. As the payment of money shall be
adequate compensation, Buyer and Seller waive any right to rescind this
Agreement or any of the transactions contemplated hereby.
14.4.7. Each person entitled to indemnification hereunder or otherwise
to damages in connection with the transactions contemplated in this Agreement
shall take all reasonable steps to mitigate all losses, costs, expenses and
damages after becoming aware of any event or circumstance that could reasonably
be expected to give rise to any losses, costs, expenses and damages that are
indemnifiable or recoverable hereunder or in connection herewith.
14.4.8. THE INDEMNIFICATION, RELEASE AND ASSUMPTION PROVISIONS
PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE
LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE SOLELY OR IN PART FROM
THE GROSS, ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE, OR OTHER FAULT OF ANY
INDEMNIFIED PARTY. BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES
WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
14.4.9. Neither Seller nor Buyer shall have any obligation or
liability under this Agreement or in connection with or with respect to the
transactions contemplated in this Agreement for (a) any breach,
misrepresentation or noncompliance with respect to any representation,
warranty, covenant or obligation if such breach, misrepresentation or
noncompliance shall have been waived by the other party, or (b) any
misrepresentation or
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breach of warranty if such other party had knowledge of the misrepresentation or
breach of warranty at or before Closing.
14.4.10. The exclusive remedy of Buyer for Environmental Defects and
Environmental Conditions shall be pursuant to Section 11.1.
14.5. WAIVER OF REPRESENTATIONS.
14.5.1. THE EXPRESS REPRESENTATIONS OF SELLER CONTAINED IN THIS
AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF, ANY OTHER REPRESENTATION OR WARRANTY
WITH RESPECT TO THE ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, OR
OTHER CONDITION OF THE PROPERTIES; OR THE OWNERSHIP OR OPERATION OF THE
PROPERTIES OR ANY PART THEREOF.
14.5.2. SELLER EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY
WAIVES, (I) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE QUALITY, QUANTITY
OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS OR OTHER HYDROCARBONS IN OR UNDER
THE OIL AND GAS PROPERTIES; (II) ANY WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, AS TO THE QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
CONFORMITY TO SAMPLES, OR CONDITION OF ANY OF THE PROPERTIES OR ANY PART
THERETO; AND (III) ALL REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, OTHER THAN THE EXPRESS REPRESENTATIONS CONTAINED IN THIS AGREEMENT.
14.5.3. THE ITEMS OF PERSONAL PROPERTY, EQUIPMENT, IMPROVEMENTS,
FIXTURES AND APPURTENANCES CONVEYED AS PART OF THE PROPERTIES ARE SOLD, AND
BUYER ACCEPTS SUCH ITEMS "AS IS, WITH ALL FAULTS."
14.5.4. THERE ARE NO WARRANTIES THAT EXTEND BEYOND THE FACE OF THIS
AGREEMENT.
14.5.5. BUYER ACKNOWLEDGES THAT THE WAIVERS IN THIS SECTION 14.5 ARE
CONSPICUOUS.
14.6. DTPA WAIVER. Buyer hereby waives the provisions of the Texas
Deceptive Trade Practices Act, Chapter 17, Subchapter E, Sections 17.41 through
17.63, inclusive
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(other than Section 17.555, which is not waived), of the Texas Business and
Commerce Code. To evidence its ability to grant such waiver, Buyer represents to
Seller that it (a) is in the business of seeking or acquiring, by purchase or
lease, goods or services for commercial or business use, (b) has assets of $5
million or more according to its most recent financial statement prepared in
accordance with generally accepted accounting principles, (c) has knowledge and
experience in financial and business matters that enable it to evaluate the
merits and risks of the transaction contemplated hereby and (d) is not in a
significantly disparate bargaining position.
15. FURTHER ASSURANCES.
15.1. GENERAL. After the Closing, Seller and Buyer shall execute,
acknowledge and deliver or cause to be executed, acknowledged and delivered such
instruments and take such other action as may be necessary or advisable to carry
out their obligations under this Agreement and under any exhibit, document,
certificate or other instrument delivered pursuant hereto.
15.2. FILINGS, NOTICES AND CERTAIN GOVERNMENTAL APPROVALS. Promptly after
Closing Buyer shall (a) record the assignments of the Properties executed at the
Closing in all applicable real property records, (b) send notices to vendors
supplying goods and services for the Properties of the assignment of the
Properties to Buyer and, if applicable, the designation of Buyer as the operator
thereof, (c) actively pursue the unconditional approval by the Minerals
Management Service and all other applicable governmental authorities of the
assignment of the Properties to Buyer and the designation of Buyer as the
operator thereof, and (d) actively pursue all other consents and approvals that
may be required in connection with the assignment of the Properties to Buyer,
and the assumption of the liabilities assumed by Buyer hereunder, and that shall
not have been obtained prior to Closing. Buyer obligates itself to take any and
all action required by the Minerals Management Service or any other regulatory
agency in order to obtain such unconditional approval, including but not limited
to, the posting of any and all bonds or other security that may be required in
excess of its existing lease, pipeline or area-wide bond.
15.3. LOGOS AND NAMES. As soon as practicable after the Closing, Buyer will
remove or cause to be removed the names and marks used by Seller and all
variations and derivatives thereof and logos relating thereto from the
Properties.
16. ACCESS BY SELLER AFTER CLOSING. After the Closing Date, Seller and its
authorized representatives shall have reasonable access (at Seller's sole cost
and expense) during Buyer's normal business hours to (i) all books and records
of Buyer pertaining to the Properties for periods prior to the Effective Date
and (ii) the Properties for the purpose of prosecuting or
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<PAGE>
defending claims, lawsuits or other proceedings, for audit purposes, or to
comply with legal process, rules, regulations or orders of any governmental
authority. Seller, at its sole expense, may copy such records that it deems
appropriate. Buyer agrees to maintain such books and records for a minimum of
six years after Closing.
17. NOTICES. All notices required or permitted under this Agreement shall be in
writing and, (a) if by air courier, shall be deemed to have been given one
Business Day after the date deposited with a recognized carrier of overnight
mail, with all freight or other charges prepaid, (b) if by telecopier, shall be
deemed to have been given when actually received, and (c) if mailed, shall be
deemed to have been given three Business Days after the date when sent by
registered or certified mail, postage prepaid, addressed as follows:
To Seller: Bellwether Exploration Company
1221 Lamar, Suite 1600
Houston, Texas 77010
Attn: Roland E. Sledge
Telecopier: (713) 655-1866
To Buyer: Jay Resources Corporation
One Houston Center
1221 McKinney, Suite 3100
Houston, Texas 77010
Attn: Reuven Hollo
Telecopier: 759-0360
"Business Day" shall mean a day other than Saturday or Sunday or any legal
holiday for commercial banking institutions under the laws of the State of
Texas.
18. ASSIGNMENT. Neither Seller nor Buyer may assign its rights or delegate its
duties or obligations arising under this Agreement, in whole or in part, by
operation of law or otherwise, before or after Closing, without the prior
written consent of the other party. Buyer may assign its rights and delegate its
duties or obligations to an affiliate of Buyer provided that Buyer provide to
Seller evidence of the affiliate's financial condition, which evidence satisfies
Seller, in Seller's sole discretion, that the affiliate can comply with all
obligations of Buyer under this Agreement.
19. GOVERNING LAW. This Agreement shall be governed and construed in accordance
with the laws of the State of Texas without giving effect to any principles of
conflicts of
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<PAGE>
laws. The validity of the various conveyances affecting the title to real
property shall be governed and construed in accordance with the laws of the
jurisdiction in which such property is situated. The representations and
warranties contained in such conveyances and the remedies available because of a
breach of such representations and warranties shall be governed by and construed
in accordance with the laws of the State of Texas without giving effect to the
principles of conflicts of laws.
20. EXPENSES AND FEES. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay the fees and
expense of its counsel, accountants and other experts incident to the
negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby. Buyer shall be responsible for the cost of all
fees for the recording of transfer documents and any sales, transfer, stamp or
other excise taxes resulting from the transfer of the Properties to Buyer. All
other costs shall be borne by the party incurring such costs.
21. INTEGRATION. This Agreement, including the Exhibit, and the other agreements
to be entered into by the parties under the provisions of this Agreement and the
Confidentiality Agreement dated May 10, 1997, executed by Buyer and the Advisor
(the "Confidentiality Agreement") set forth the entire agreement and
understanding of the parties in respect of the transactions contemplated hereby
and supersede all prior agreements, prior arrangements and prior understandings
relating to the subject matter hereof.
22. WAIVER OR MODIFICATION. This Agreement may be amended, modified, superseded
or cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by a duly
authorized officer of Buyer and Seller, or, in the case of a waiver or consent,
by or on behalf of the party or parties waiving compliance or giving such
consent. The failure of any party at any time or times to require performance of
any provision of this Agreement shall not affect its right at a later time to
enforce such provision. No waiver by any party of any condition, or of any
breach of any covenant, agreement, representation or warranty contained in this
Agreement, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or waiver of any
other condition or of any breach of any other covenant, agreement,
representation or warranty.
23. HEADINGS. The Section headings contained in this Agreement are for
convenient reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
24. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provi-
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<PAGE>
sion shall be fully severable; this Agreement shall be construed and enforced as
if such illegal, invalid or unenforceable provision had never comprised a part
hereof; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
25. WAIVER OF JURY TRIAL. SELLER AND BUYER HEREBY IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED ON, ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN.
26. MULTIPLE COUNTERPARTS. This Agreement may be executed in a number of
identical counterparts, each of which for all purposes is to be deemed an
original, and all of which constitute, collectively, one agreement. In addition,
this Agreement may be executed in a number of counterparts, any one of which may
contain the execution of either Buyer or Seller, and all of such counterparts
taken together shall constitute one completely executed original agreement.
27. PUBLIC ANNOUNCEMENTS. Buyer and Seller agree that prior to making any public
announcement or statement with respect to the transaction contemplated by this
Agreement, the party desiring to make such public announcement or statement
shall consult with the other party hereto and exercise its best efforts to (a)
agree upon the text of a joint public announcement or statement to be made by
both Buyer and Seller or (b) obtain approval of the other party hereto the text
of a public announcement or statement to be made solely by Seller or Buyer, as
the case may be. Nothing contained in this section shall be construed to require
either party to obtain approval of the other party hereto to disclose
information with respect to the transaction contemplated by this Agreement to
any state or federal governmental authority or agency to the extent required by
applicable law or by any applicable rules, regulations or orders of any
governmental authority or agency having jurisdiction or necessary to comply with
disclosure requirements of the applicable stock exchange or any applicable
securities laws.
28. ARBITRATION.
28.1 BINDING ARBITRATION. On the request of any party hereto, whether made
before or after the institution of any legal proceeding, any action, dispute,
claim or controversy of any kind now existing or hereafter arising between any
of the parties hereto in any way arising out of, pertaining to or in connection
with this Agreement (a "Dispute")
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<PAGE>
shall be resolved by binding arbitration in accordance with the terms hereof.
Any party may, by summary proceedings, bring an action in court to compel
arbitration of any Dispute.
28.2. GOVERNING RULES. Any arbitration shall be administered by the American
Arbitration Association (the "AAA") in accordance with the terms of this
Section, the Commercial Arbitration Rules of the AAA, and, to the maximum extent
applicable, the Federal Arbitration Act. Judgment on any award rendered by an
arbitrator may be entered in any court having jurisdiction.
28.3. ARBITRATORS. Any arbitration shall be conducted before one arbitrator.
The arbitrator shall be a practicing attorney licensed to practice in the State
of Texas who is knowledgeable in the subject matter of the Dispute selected by
agreement between the parties hereto. If the parties cannot agree on an
arbitrator within 30 days after the request for an arbitration, then any party
may request the AAA to select an arbitrator. The arbitrator may engage
engineers, accountants or other consultants that the arbitrator deems necessary
to render a conclusion in the arbitration proceeding.
28.4. Conduct of Arbitration. To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within 180 days of the
filing of the Dispute with the AAA. Arbitration proceedings shall be conducted
in Houston, Texas. Arbitrators shall be empowered to impose sanctions and to
take such other actions as the arbitrators deem necessary to the same extent a
judge could impose sanctions or take such other actions pursuant to the Federal
Rules of Civil Procedure and applicable law. At the conclusion of any
arbitration proceeding, the arbitrator shall make specific written findings of
fact and conclusions of law. The arbitrator shall have the power to award
recovery of all costs and fees to the prevailing party. Each party agrees to
keep all Disputes and arbitration proceedings strictly confidential except for
disclosure of information required by applicable law.
28.5. COSTS OF ARBITRATION. All fees of the arbitrator and any engineer,
accountant or other consultant engaged by the arbitrator, shall be paid by Buyer
and Seller equally unless otherwise awarded by the arbitrator.
29. LIABILITY. Each of the representations, warranties and covenants of
Andrews Oil and Gas, Inc. ("Andrews") in this Agreement is made severally and
only by
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<PAGE>
Andrews with respect to itself and its interest in the Properties. The liability
of Andrews under or in connection with this Agreement shall be several and not
joint.
EXECUTED as of the date first set forth above.
BUYER:
JAY RESOURCES CORPORATION
By: /s/ Reuven Hollo
--------------------------
Name: Reuven Hollo
-------------------------
Title: President
------------------------
SELLER:
BELLWETHER EXPLORATION COMPANY
By: /s/ J. Darby Sere
---------------------------
J. Darby Sere, President
BLACK HAWK OIL COMPANY
By: /s/ J. Darby Sere
----------------------------
J. Darby Sere, President
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<PAGE>
1988-II TEAI LIMITED PARTNERSHIP
By: BLACK HAWK OIL COMPANY
Its General Partner
By: /s/ J. Darby Sere
--------------------------------
J. Darby Sere, President
1989-I TEAI LIMITED PARTNERSHIP
By: BLACK HAWK OIL COMPANY
Its General Partner
By: /s/ J. Darby Sere
-------------------------------
J. Darby Sere, President
TEAI VIII-A LIMITED PARTNERSHIP
By: BLACK HAWK OIL COMPANY
Its General Partner
By: /s/ J. Darby Sere
---------------------------------
J. Darby Sere, President
TEAI OIL & GAS COMPANY
By: /s/ J. Darby Sere
---------------------------------
J. Darby Sere, President
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<PAGE>
ANDREWS OIL AND GAS, INC.
By: /s/ J. Darby Sere
-------------------------------
J. Darby Sere, President
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<PAGE>
ANNEX I
TITLE TO THE PROPERTIES
1. DEFINITIONS. This Annex I incorporates the defined terms contained in the
Agreement and also includes the following definitions:
1.1. "Allocated Value" means the value allocated to each Oil and Gas
Property as set forth on the Exhibit, reflecting the portion of the Purchase
Price associated with each Oil and Gas Property.
1.2. "Liens" means any encumbrance, lien, security interest, claim or
burden.
1.3. "Marketable Title" means, for the Title Properties, such title as (a)
will enable Buyer, as Seller's successor in title, to receive from a particular
Title Property at least the "Net Revenue Interest" for the Title Properties set
forth on the Exhibit as being associated with such Title Property, without
reduction, suspension or termination throughout the productive life of Wells
located on such Oil and Gas Properties, except for any reduction, suspension or
termination caused by Buyer, that arises as a result of Permitted Encumbrances
or set forth in the Exhibit; (b) will obligate Buyer, as Seller's successor in
title, to bear no greater "Working Interest" than the Working Interest for each
of the Title Properties identified on the Exhibit as being associated with such
Title Property, without increase throughout the productive life of such Well,
except for any increase caused by Buyer, that arises as result of Permitted
Encumbrances or set forth in the Exhibit; and (c) is free and clear of all
Liens, except for Permitted Encumbrances.
1.4. "Notice Date" means 12:00 noon (Houston time) on June 25, 1997.
1.5. "Permitted Encumbrances" means (a) Liens securing payments to mechanics
and materialmen, payments of taxes or claims arising by statute to secure or
protect any other payment obligation that are, in each case, not yet delinquent
or, if delinquent, are being contested in good faith in the normal course of
business; (b) any matters disclosed on the Exhibit or in any agreement or
instrument disclosed in the Exhibit; (c) Title Defects that Buyer fails to
assert in accordance with the provisions of this Annex prior to the Notice
Date; (d) consents to assignment by a governmental authority that are obtained
by the Closing Date or that are customarily obtained after the consummation of
transactions of the nature contemplated in this Agreement; and (e) other minor
defects or irregularities of title affecting any portion of any Title Property
that individually or in the aggregate do not materially interfere with the
operation, value or use of any Title Property.
<PAGE>
1.6. "Title Defect" means any Lien, other than a Permitted Encumbrance or
matter specifically waived by Buyer in writing, that is identified by Buyer on
or before the Notice Date, and that renders title to a Title Property (or any
portion thereof) less than Marketable Title.
1.7. "Title Defect Amount" means, with respect to any reduction of the Net
Revenue Interest set forth in the Exhibit for any Title Properties, an amount
calculated by multiplying the reduction in Net Revenue Interest by the
Allocated Value of such Oil and Gas Property; with respect to any increase in
the Working Interest set forth in the Exhibit for any Title Properties, an
amount calculated by multiplying the increase in the Working Interest by the
lease operating and capital expense items as shown in the Reserve Report
delivered by Albrecht & Associates as attached to the Letter of Intent over the
life of such Title Properties; and with respect to any Title Defect that does
not cause the Net Revenue Interest set forth in the Exhibit for Title
Properties to decrease or cause the Working Interest set forth in the Exhibit
for any Title Properties to increase, an amount determined by evaluating the
portion of the Title Properties affected by such Title Defect, the legal effect
of the Title Defect, and the potential economic effect of the Title Defect over
the life of the Oil and Gas Property affected. The Title Defect Amount as to
any particular Title Property, however, shall never exceed the Allocated Value
therefor.
1.8. "Title Properties" means those Properties listed on the Exhibit as
Title Properties.
2. TITLE PROCEDURE.
2.1. NOTICE OF TITLE DEFECTS. On or before the Notice Date, Buyer shall
notify Seller of any Title Defect discovered by Buyer affecting a Title
Property. The notice shall be in writing and shall describe the alleged Title
Defect, specify the Title Property affected and set forth Buyer's assessment of
the Title Defect Amount.
2.2. SELLER'S ELECTION TO CURE. Seller may notify Buyer in writing on or
before the Closing Date that it elects to cure the alleged Title Defect. If
Seller has elected to cure the Title Defect, then Seller shall use commercially
reasonable efforts to cure such Title Defect during a period ending sixty days
after Closing (the "Cure Period").
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<PAGE>
2.3. UNCURED TITLE DEFECTS. If at the Closing Date, a Title Defect
identified by Buyer pursuant to Section 2.1 of this Annex I remains uncured and
Seller has not notified Buyer of its election to cure such Title Defect, then
the Purchase Price to be paid at the Closing shall be reduced by an amount
equal to the Title Defect Amount. There shall not be any reduction of the
Purchase Price at Closing for any Title Defects that Seller has elected to cure
or has disputed. If after the Cure Period, a Title Defect that Seller has
elected to cure remains uncured, then the Purchase Price shall be reduced in
the Final Settlement Statement by an amount equal to the Title Defect Amount.
3. DISPUTE RESOLUTION. If a Dispute exists as to whether a matter referred to
in any notice furnished by Buyer to Seller pursuant to Section 2.1 of this
Annex I constitutes a Title Defect, whether a Title Defect has been cured, or
the amount of any Title Defect Amount, either Buyer or Seller may request
arbitration of such dispute pursuant to Section 28 of this Agreement.
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<PAGE>
ANNEX II
ENVIRONMENTAL AND PHYSICAL ASSESSMENT
1.1. DEFINITIONS. This Annex II incorporates the defined terms contained in
the Agreement and also includes the following definitions:
1.1.1. "Environmental Condition" as used herein means any condition
relating to the Properties listed on the Exhibit that involves contamination of
soil, air or water or the generation, storage or transportation of
contaminants, pollutants, hazardous waste or hazardous substances.
1.1.2. "Environmental Defect" means any Environmental Condition that
violates any applicable law, regulation, ordinance, rule or order, and any
material objection to the Physical Condition of the Properties, other than a
matter specifically waived by Buyer in writing, that is identified by Buyer on
or before the Environmental Notice Date.
1.1.3. "Environmental Defect Amount" means the cost estimated in good
faith by Buyer to remediate Environmental Defects.
1.1.4. "Environmental Notice Date" means 12:00 noon (Houston time) on
June 25, 1997.
1.1.5. "Physical Condition" as used herein means any physical condition
relating to the Properties listed on the Exhibit.
1.2. ENVIRONMENTAL PROCEDURE.
1.2.1. ENVIRONMENTAL INSPECTION. (a) Subject to the conditions set
forth herein, Buyer or its designated representative(s) shall have access to
the Properties of any Excluded Assets for the purpose of inspecting the
Properties and conducting such tests, examinations, investigation and
assessments as may be necessary or appropriate in Buyer's opinion to evaluate
the Environmental Condition and the Physical Condition of the Properties. Buyer
shall schedule such tests with Seller at least twenty-four hours prior to any
testing and shall conduct such tests during normal business hours. A
representative of Seller shall be available to Buyer during normal business
hours for scheduled tests to enable Buyer or Buyer's representative(s) to
perform the inspection and assessment of the Environmental
<PAGE>
Condition(s) and Physical Condition. Seller shall have the right to have its
representative accompany Buyer or Buyer's representative(s) during such
activities and shall have the right, at Seller's option, to split any samples
taken by Buyer or Buyer's representative(s) during such activities. Buyer
agrees to promptly provide to Seller all information obtained by Buyer
regarding the Properties, including copies of any environmental assessments,
all reports, data and conclusions whether prepared by the third party
consultant(s) hired by Buyer or otherwise. Until Closing, Buyer and Seller
shall keep any and all data or information acquired by all such examinations
and results of all analyses of such data and information strictly confidential
and shall not disclose same to any person or agency without prior written
approval of the other unless disclosure of such data or information is required
by law or by order of a court or agency, in which case, the party required to
make such disclosure shall notify the other party as soon as reasonably
possible and prior to such disclosure, so that the non-disclosing party may
assert any legal rights to prevent disclosure. In the event Closing does not
occur, the foregoing obligation of confidentiality shall survive Closing and
continue after termination of this Agreement.
1.2.2. NOTICE OF ENVIRONMENTAL DEFECTS. On or before the Environmental
Notice Date, Buyer shall notify Seller of the existence and nature of any
Environmental Defect affecting the Properties discovered by Buyer. The notice
shall be in writing and shall describe the alleged Environmental Defect,
including data and support thereof, and shall set forth Buyer's good faith
assessment of the Environmental Defect Amount.
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<PAGE>
ANNEX III
CERTIFICATE OF SELLER
Pursuant to the Agreement for Purchase and Sale ("Agreement") dated June 9,
1997 by and between Bellwether Exploration Company and Black Hawk Oil Company,
1988-II TEAI Limited Partnership, 1989-I TEAI Limited Partnership, TEAI VIII-A
Limited Partnership, TEAI Oil & Gas Company and Andrews Oil and Gas, Inc.
(collectively, "Seller") and Jay Resources Corporation ("Buyer"), Seller hereby
represents, warrants and affirms to Buyer as follows:
l. Seller has performed and complied in all material respects with each of
the covenants and conditions required by the Agreement to be performed or
complied with by it before or at the time of execution of this Certificate; and
2. Each of the representations and warranties made by Seller under the
Agreement are true and correct as of the date hereof except for (i) changes
specifically contemplated by the Agreement, (ii) inaccuracies in such
representations and warranties deemed to be waived by Buyer pursuant to the
terms of the Agreement and (iii) inaccuracies set forth in the Schedule
attached to this Certificate.
This Certificate is executed this ______ day of _________, 1997.
BELLWETHER EXPLORATION COMPANY
By: _____________________________
J. Darby Sere, President
BLACK HAWK OIL COMPANY
By: _____________________________
J. Darby Sere, President
<PAGE>
1988-II TEAI LIMITED PARTNERSHIP
By: BLACK HAWK OIL COMPANY
Its General Partner
By:
------------------------------
J. Darby Sere, President
1989-I TEAI LIMITED PARTNERSHIP
By: BLACK HAWK OIL COMPANY
Its General Partner
By:
------------------------------
J. Darby Sere, President
TEAI VIII-A LIMITED PARTNERSHIP
By: BLACK HAWK OIL COMPANY
Its General Partner
By:
------------------------------
J. Darby Sere, President
TEAI OIL & GAS COMPANY
By:
------------------------------
J. Darby Sere, President
-2-
<PAGE>
ANDREWS OIL & GAS, INC.
By:
------------------------------
J. Darby Sere, President
-3-
<PAGE>
ANNEX IV
CERTIFICATE OF BUYER
Pursuant to the Agreement for Purchase and Sale ("Agreement") by and between
Bellwether Exploration Company, Black Hawk Oil Company, 1988-II TEAI Limited
Partnership, 1989-I TEAI Limited Partnership, TEAI VIII-A Limited Partnership,
TEAI Oil & Gas Company and Andrews Oil and Gas, Inc. (collectively, "Seller"),
and Jay Resources Corporation ("Buyer"), Buyer hereby represents, warrants and
affirms to Seller as follows:
1. Buyer has performed and complied in all material respects with each of
the covenants and conditions required by the Agreement to be performed or
complied with by it before or at the time of execution of this Certificate; and
2. Each of the representations and warranties made by Buyer under the
Agreemetn are true and correct as of the date hereof except for (i) changes
specifically contemplated by the Agreement, (ii) inaccuracies in such
representations and warranties deemed to be waived by Seller pursuant to the
terms of the Agreement and (iii) inaccuracies set forth in the Schedule attached
to this Certificate.
This Certificate is executed this _____ day of __________, 1997.
JAY RESOURCES CORPORATION
By:
-------------------------------
Authorized Officer
<PAGE>
ANNEX V
ASSIGNMENT AND BILL OF SALE
THE STATE OF TEXAS
COUNTY OF ________
This Assignment and Bill of Sale ("Assignment") is executed and delivered by
Bellwether Exploration Company, a Delaware corporation, Black Hawk Oil Company,
a Delaware corporation, 1988-II TEAI Limited Partnership, a Texas limited
partnership, 1989-I TEAI Limited Partnership, a Texas limited partnership, TEAI
VIII-A Limited Partnership, a Texas limited partnership, TEAI Oil & Gas Company,
a Delaware corporation, and Andrews Oil and Gas, Inc., a ________ corporation
(collectively, "Assignor"), to Jay Resources Corporation, a Texas corporation
("Assignee").
Assignor, for valuable considerations, the receipt and sufficiency of which are
hereby acknowledged, does by these presents GRANT, BARGAIN, SELL, CONVEY,
ASSIGN, TRANSFER, SET OVER and DELIVER unto Assignee all of Assignor's interests
in and to the following properties, other than the Excluded Assets (the
"Properties"):
A. OIL AND GAS PROPERTIES. All leasehold interests, mineral interests, net
profits interests, overrides or other interests or operating rights in the oil
and gas leases as set forth in the Agreement (as herein defined) (the "Oil and
Gas Properties").
B. WELLS. All oil, condensate or natural gas wells and water and other
types of injection wells located on the Oil and Gas Properties, whether
producing, operating, shut-in or temporarily abandoned.
C. SEVERED SUBSTANCES. All severed crude oil, natural gas, casinghead gas,
drip gasoline, natural gasoline, petroleum, natural gas liquids, condensate,
products, liquids and other hydrocarbons and other minerals or materials of
every kind and description produced from the Oil and Gas Properties and either
(a) in storage tanks on the Effective Date, (b) in pipelines on the Effective
Date or (c) sold on or after the Effective Date (the "Substances").
D. SURFACE CONTRACTS. All right-of-way agreements or other agreements
relating to the use or ownership of surface properties that are used or held for
use for flow lines in connection with the production of Substances from the Oil
and Gas Properties. including the rights-of-way agreements and other agreements
described in the Exhibit.
<PAGE>
E. EQUIPMENT. All equipment, fixtures and physical facilities of every type
and description located on the Oil and Gas Properties.
F. INFORMATION AND DATA. All title opinions, lease and land files, filings
with and reports to regulatory agencies, gas and sales contract files, division
order files and other books, files and records to the extent that they are
directly related to Oil and Gas Properties and the transfer thereof is not
prohibited by existing contractual obligations.
G. CONTRACTS. All contracts and arrangements that directly relate to the
Properties and the production, storage, treatment, transportation, processing,
purchase, sale, disposal or other disposition of Substances therefrom and any
and all amendments, ratifications or extensions of the foregoing, to the extent
that any of the foregoing relate to periods on or after the Effective Date (the
"Contracts"), and all rights to make claims and receive proceeds under any
insurance policy held by or on behalf of Assignor in connection with the
Properties for any claim that arises from the Effective Date through the Closing
Date in connection with the Properties.
H. PERMITS. All franchises, licenses, permits, approvals, consents,
certificates and other authorizations and other rights granted by governmental
authorities and all certificates of convenience or necessity, immunities,
privileges, grants and other rights, that relate to the Properties or the
ownership or operation of any thereof, including, without limitation, the
permits described in the Exhibit.
As used herein, "Excluded Assets" means (a) Assignor's and Torch Operating
Company's operating rights in and to the oil and gas leases described in the
Exhibit; (b) all trade credits and all accounts, instruments and general
intangibles (as such terms are defined in the Texas Uniform Commercial Code)
attributable to the Properties with respect to any period of time prior to the
Effective Date; (c) all claims and causes of action of Assignor (i) arising from
acts, omissions or events, or damage to or destruction of property, occurring
prior to the Effective Date, (ii) arising under or with respect to any of the
Contracts that are attributable to periods of time prior to the Effective Date
(including claims for adjustments or refunds), or (iii) with respect to any of
the Excluded Assets; (d) all rights and interests of Assignor (i) under any
policy or agreement of insurance or indemnity, (ii) under any bond, or (iii) to
any insurance or condemnation proceeds or awards arising, in each case, from
acts, omissions or events, or damage to or destruction of property, occurring
prior to the Effective Date; (e)
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<PAGE>
all Substances produced and sold from the Oil and Gas Properties with respect to
all periods prior to the Effective Date, together with all proceeds from or of
such Substances; (f) claims of Assignor for refunds of or loss carry forwards
with respect to (i) production or any other taxes attributable to any period
prior to the Effective Date, (ii) income or franchise taxes, or (iii) any taxes
attributable to the Excluded Assets; (g) all amounts due or payable to Assignor
as adjustments to insurance premiums related to the Properties with respect to
any period prior to the Effective Date; (h) all proceeds, income or revenues
(and any security or other deposits made) attributable to (i) the Properties for
any period prior to the Effective Date, or (ii) any Excluded Assets; (i) all
personal computers and associated peripherals and all radio and telephone
equipment; (j) all of Assignor's proprietary computer software, patents, trade
secrets, copyrights, names, trademarks, logos and other intellectual property;
(k) all of Assignor's interpretations of geological and geophysical data; (l)
all documents and instruments of Assignor that may be protected by an attorney-
client privilege; (m) data that cannot be disclosed or assigned to Assignee as a
result of confidentiality arrangements under agreements with persons
unaffiliated with Assignor; (n) all audit rights arising under any of the
Contracts or otherwise with respect to any period prior to the Effective Date or
to any of the Excluded Assets; and (o) all (i) agreements and correspondence
between Assignor and Torch Energy Advisors Incorporated and any affiliates
thereof (the "Advisor") relating to the transactions contemplated in this
Agreement, (ii) lists of prospective purchasers for such transactions compiled
by either Assignor or the Advisor, (iii) bids submitted by other prospective
purchasers of the Properties, (iv) analyses by Assignor or the Advisor of any
bids submitted by any prospective purchaser. (v) correspondence between or among
Assignor or Advisor, or either of their respective representatives, and any
prospective purchaser other than Assignee, and (vi) correspondence between
Assignor or Advisor or any of their respective representatives with respect to
any of the bids, the prospective purchasers, the engagement or activities of the
Advisor or the transactions contemplated in this Agreement.
TO HAVE AND TO HOLD all and singular the Properties, together with all rights,
titles, interests, estates, remedies, powers and privileges "hereunto
appertaining unto Assignee and their respective successors, legal
representatives and assigns forever, subject to the Permitted Encumbrances (as
defined in the Agreement for Purchase and Sale dated June 9, 1997, between
Assignee and Assignor (the "Agreement")). Assignor hereby binds itself, its
successors, legal representatives and assigns, to warrant and forever defend the
Properties unto Assignee, their respective successors, legal representatives and
assigns, against every
-3-
<PAGE>
person whomsoever lawfully claiming or to claim the same or any part thereof,
by, through or under Assignor, but not otherwise.
In accordance with the terms of the Agreement, Assignee has assumed certain
obligations and liabilities. A complete description of the obligations of
Assignee are contained in the Agreement, and all such obligations are binding on
the successors and assigns of Assignee.
This Assignment may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same Assignment.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be duly
executed on this, the _______ day of ________, 1997. This Assignment shall be
effective at 7:00 a.m. at the location of the Properties on April 1, 1997 (the
"Effective Date").
ASSIGNOR:
BELLWETHER EXPLORATION COMPANY
By:__________________________________________
Name:________________________________________
Title:_______________________________________
BLACK HAWK OIL COMPANY
By:__________________________________________
Name:________________________________________
Title:_______________________________________
-4-
<PAGE>
1988-II TEAI LIMITED PARTNERSHIP
By: BLACK HAWK OIL COMPANY
Its General Partner
By:__________________________________________
Name:________________________________________
Title:_______________________________________
1989-I TEAI LIMITED PARTNERSHIP
By: BLACK HAWK OIL COMPANY
Its General Partner
By:__________________________________________
Name:________________________________________
Title:_______________________________________
TEAI VIII-A LIMITED PARTNERSHIP
By: BLACK HAWK OIL COMPANY
Its General Partner
By:__________________________________________
Name:________________________________________
Title:_______________________________________
-5-
<PAGE>
TEAI OIL & GAS COMPANY
By:__________________________________________
Name:________________________________________
Title:_______________________________________
ANDREWS OIL AND GAS, INC.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
ASSIGNEE:
JAY RESOURCES CORPORATION
By:__________________________________________
Name:________________________________________
Title:_______________________________________
Address of Assignor: Address of Assignee:
1221 Lamar, Suite 1600 1221 McKinney, Suite 3100
Houston, Texas 77010 Houston, Texas 77010
-6-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on _______, 1997, by _______, _______
of Bellwether Exploration Company, a Delaware corporation, on behalf of said
corporation.
__________________________________________
Notary Public in and for
The State of Texas
Name:_____________________________________
My Commission Expires:____________________
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on _______, 1997, by ________,
________ of Black Hawk Oil Company, a Delaware corporation, on behalf of said
corporation.
__________________________________________
Notary Public in and for
The State of Texas
Name:_____________________________________
My Commission Expires:____________________
-7-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on ___________, by ___________,
________ of Black Hawk Oil Company, a Delaware corporation, on behalf of said
corporation, as general partner of 1988-II TEAI Limited Partnership, a Texas
limited partnership.
__________________________________________
Notary Public in and for
The State of Texas
Name:_____________________________________
My Commission Expires:____________________
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on _______________, 1997, by
______________, _________ of Black Hawk Oil Company, a Delaware corporation, on
behalf of said corporation, as general partner of 1989-I TEAI Limited
Partnership, a Texas limited partnership.
__________________________________________
Notary Public in and for
The State of Texas
Name:_____________________________________
My Commission Expires:____________________
-8-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on __________, 1997, by
_______________, __________ of Black Hawk Oil Company, a Delaware corporation,
on behalf of said corporation, as general partner of TEAI VIII-A Limited
Partnership, a Texas limited partnership.
__________________________________________
Notary Public in and for
The State of Texas
Name:_____________________________________
My Commission Expires:____________________
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on _____________, 1997, by _________,
___________ of TEAI Oil & Gas Company, a Delaware corporation, on behalf of said
corporation.
__________________________________________
Notary Public in and for
The State of Texas
Name:_____________________________________
My Commission Expires:____________________
-9-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on __________, 1997, by ________,
____________ of Andrews Oil and Gas, Inc., a Texas corporation, on behalf of
said corporation.
__________________________________________
Notary Public in and for
The State of Texas
Name:_____________________________________
My Commission Expires:____________________
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on____________, 1997, by ________,
______________ of Jay Resources Corporation, a Texas corporation, on behalf of
said corporation.
__________________________________________
Notary Public in and for
The State of Texas
Name:_____________________________________
My Commission Expires:____________________
-10-
<PAGE>
THE EXHIBIT
TO AGREEMENT FOR PURCHASE AND SALE
BY AND BETWEEN
BELLWETHER EXPLORATION COMPANY
AND
JAY RESOURCES CORPORATION
PART I - OIL AND GAS PROPERTIES, WORKING INTERESTS, NET
REVENUE INTERESTS AND ALLOCATED VALUES
PART II - LITIGATION AND CLAIMS
PART IV- TOC OPERATED PROPERTIES
PART V - TITLE PROPERTIES
<PAGE>
EXHIBIT PART I
OIL AND GAS PROPERTIES, WORKING INTERESTS, NET REVENUE INTERESTS AND
ALLOCATED VALUE
30-Jun-97
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
COLUMBIA COUNTY, AR
FIELD-WALKER CREEK
Walker Crk Un Bodcaw 1A 0.0000000 0.0034179 No
Walker Crk Un Bodcaw Un 2 0.0019531 0.0016022 Yes $ l,527.00
Walker Crk Un Bodcaw Un 3 0.0019531 0.0016022 Yes $ 1,743.00
Walker Crk Un Bodcaw Un 4 0.0000000 0.0012417 Yes $ 14.00
Walker Crk Un Burton Es 1 0.1250000 0.1032447 Yes $ 79,898.00
Walker Crk Un Jack Un 1 0.0093750 0.0082031 Yes $ 8,212.00
Walker Crk Un Shirey Un 1 0.0130200 0.0107422 Yes $ 5,662.00
Walker Crk Un Stuart Un 2 0.0774037 0.0646307 Yes $ 63,893.00
LAFAYETTE COUNTY, AR
FIELD-WALKER CREEK
Walker Creek Ut 0.0085518 0.0066014 Yes $ 0.00
Walker Crk Un Boyette 1 0.0452400 0.0375529 Yes $ 3,587.00
Walker Crk Un Burton Un 1 0.0208330 0.0176595 Yes $ 20,097.00
Walker Crk Un Helms Un 1 0.0208330 0.0176595 Yes $ 20,183.00
Walker Crk Un Hughes Un 1 0.0208330 0.0176595 Yes $ 19,060.00
Walker Crk Un Ipco Un 2 0.0140627 0.0123047 Yes $ 11,756.00
Walker Crk Un Kasek Un 1 0.0104767 0.0084237 Yes $ 11,007.00
Walker Crk Un Umphries 1 0.0208330 0.0182295 Yes $ 23,281.00
Walker Crk Un Whitehead l 0.0208330 0.0176595 Yes $ 18,916.00
ACADIA PARISH, LA
FIELD-IOTA
Iota Nonion Struma Sd Un 0.2274898 0.1706364 Yes $123,796.00
CAMERON PARISH, LA
FIELD-CAMERON
Burton WT Ind # 1 0.2143154 0.1553787 No $ 0.00
IBERIA PARISH, LA
FIELD-WEEKS ISL
Myles 28 0.0004677 0.0002830 No $ 0.00
Provost # 4 0.0024592 0.0022895 No $ 18,504.00
Provost # 4D() 0.0024592 0.0022895 No $ 9,627.00
</TABLE>
Page 1 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Provost Cyr # 1 0.0001597 0.0022428 No $ 12,861.00
Provost Cyr # ID() 0.0001001 0.0022895 No $ 699.00
Provost Cyr # 3 0.0037834 0.0022895 No $ 7,855.00
Provost Cyr #3 0.0000194 0.0023055 No $ 7,855.00
Provost Cyr #3D() 0.0024592 0.0022895 No $ 15,147.00
Provost Cyr # 5 0.0024592 0.0022895 No $ 13,818.00
Provost Cyr # 6 0.0024592 0.0022895 No $ 0.00
Provost Cyr #8S 0.0023994 0.0011455 No $ 0.00
Rainold # 2 0.0035918 0.0024190 No $ 0.00
Shell Smith State Un C #7 0.0003011 0.0002066 No $ 0.G0
Shell Smith State Un E #7 0.0000000 0.0000177 No $ 426.00
Smith # 7 SWD 0.0024400 0.0000000 No $ 0.00
Smith Heirs # 2 0.0032196 0.0000000 No $ 0.00
Smith Heirs # 3 0.0035918 0.0028313 No $ 0.00
Smith Heirs # 6 0.0035886 0.0023518 No $ 0.00
Smith State Un C #12 0.0004677 0.0002830 No $ 0.00
JEFFERSON PARISH, LA
FIELD-PONTCHARTRAIN W BLK 41-OB
S/L 4041 # 2D 0.0329690 0.0274740 No $ 0.00
Wlpe Blk 41 0.0250240 0.0208540 No $ 20,889.00
LIVINGSTON PARISH, LA
FIELD-LOCKHART CROSSING
Barnett Heirs # 4 & 4D 0.0895500 0.0701971 No
Buckel Davidson # 1 0.0823887 0.0508313 No $ 0.00
LKTX WX 1 RASU 0.0358570 0.0300028 No $ 40,813.00
Lockhart Crossing Fac 0.0117698 0.0000000 No $ 18,267.00
OFFSHORE PARISH, LA
FIELD-EUGENE ISL BLK 45 (EI 43)
OCS-G-3148 0.1888175 0.1573478 No $ 43,522.00
FIELD-EUGENE ISL SA BLK 273
OCS-G-0987 0.0538282 0.0448570 No
FIELD-S MRSH IS SA BLK 142
OCS-G-1217 SMI 142/143 Un 0.0607690 0.0456439 Yes $300,000.00
OCS-G-1217 SMI 143 Non-Un 0.1178464 0.0982053 No $650,000.00
FIELD-VERMILION BLK 68
OCS-G-8662 # 1 0.0000000 0.0199283 No
FIELD-VERMILION BLK 84
</TABLE>
Page 2 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
OCS-G-3124 #A-1 0.7684643 0.6403867 No $205,254.00
OCS-G-3124 #A-2 0.7684643 0.6403867 No $ 0.00
OCS-G-3124 #A-3 0.7684643 0.6403867 No $ 0.00
OCS-G-3124 #A-4 0.7684643 0.6403867 No $ 0.00
Field-Vermilion SA Blk 277
OCS-G-3398 0.0000000 0.0031954 No
Field-Vermilion SA BLk 287
OCS-G-3137 0.0000000 0.0064330 No $ 36,840.00
Field-W Cameron SA Blk 463
OCS-G4093 0.1297440 0.1081200 No $ 28,270.00
OCS-G4093 #A-2 0.1297440 0.1081200 No
PLAQUEMINES PARISH, LA
Field-Garden Isl Bay
Garden Isl Facility 0.1535912 0.0000000 No $ 0.00
S/L 3942 # 1 0.1358735 0.1039346 Yes $ 83,710.00
S/L 8063 # 1 SWD 0.1518710 0.0000000 No $ 0.00
S/L 8063 # 3 0.1570312 0.1191365 No $ 6,747.00
S/L 8063 # 4 0.1678689 0.1253821 No $ 68,724.00
Field-Stella
Hero # 2 0.4932813 0.3933540 Yes $238,721.00
Hero # 3 0.4932813 0.3933540 Yes $205,704.00
Hero # 4 0.4932813 0.3933540 Yes $105,595.00
Hero SWD # 1 0.5011638 0.0000000 No $ 0.00
Hero SWD # 2 0.5011638 0.0000000 No $ 0.00
ST HELENA PARISH, LA
Field-Greensburg
Carter # 2 0.0212798 0.0154329 No $ 4,583.00
Freiler # 2D 0.0370186 0.0261003 No $ 0.00
H&H Billups # 1A 0.0027403 0.0019182 No $ 0.00
Pritchett # 1 0.0282111 0.0222499 No $ 9,661.00
Riggs # 1 0.0296248 0.0229242 No $ 0.00
Riggs # 2 0.0296248 0.0232988 No $ 0.00
Riggs # 4 0.0296248 0.0000000 No $ 0.00
Riggs # 5 0.0313321 0.0237449 No $ 2,161.00
Riggs Robert # 6 0.0296248 0.0232988 No $ 19,768.00
Stephens # 1 0.0293396 0.0218488 No $ 51.00
Turnipseed Charlotte # 1 0.0320527 0.0245443 No $ 0.00
ST MARY PARISH, LA
</TABLE>
Page 3 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
FIELD-FRANKLIN E
Bailey F F # 1 0.1158416 0.0834059 No $ 90,725.00
TERREBONNE PARISH, LA
FIELD-FOUR LEAGUE BAY
LL&E # 1 0.0946667 0.0658880 Yes $110,117.00
LL&E # Fl 0.0000000 0.0007644 No $ 613.00
S/L 9414 # 1D 0.1264000 0.1011676 No $ 19,219.00
S/L 9414 # 2 D() 0.1175258 0.0851986 No $ 16,016.00
SIL 9414 # 3 0.1246836 0.0915457 No $ 0.00
S/L 9414 # 4 0.1420001 0.1020519 No $ 32,071.00
S/L 9414 # 5 0.1420001 0.1063296 Yes $114,597.00
State Lease 9414 # 3 (SWD) 0.1283000 No $ 0.00
FIELD-HUMPHREYS
Blanchard Joseph # 1 0.0244775 0.0184757 No $ 13,597.00
FIELD-LAKE BOUDREAUX
S/L 13211 # 2 0.2125000 0.1583125 Yes $273,636.00
FIELD-MONTEGUT
MTG TEX W SU Southshore 2 0.0442000 0.0322660 Yes $ 48,094.00
Waterford (MTG TEX W-4 RC SUA) 0.1722500 0.1257425 No
VERMILION PARISH, LA
Field-Parcperdue
Broussard # 2 0.0175784 0.0135900 No $ 0.00
Broussard # 1 0.0234632 0.0197206 No $ 0.00
Duhon # 1D 0.0075698 0.0052620 No $ 0.00
Greene # 1 0.0243175 0.0319358 No $ 0.00
Greene S&K # 3 0.0231794 0.0278939 No $ 835.00
Herpin # 1 0.0190606 0.0149254 No $ 0.00
Leblanc # 1 0.0214633 0.0233623 No $ 27,179.00
Leblanc # 2 0.0215086 0.0151980 No $ 0.00
Leblanc # 3 0.0215086 0.0151980 No $ 0.00
Richard # 1-Vermilion 0.0144914 0.0173612 No $ 0.00
FIELD-WRIGHT
Abshire # 1 0.7684643 0.6355894 Yes $711,892.00
Meaux Eratha Broussard SWD 0.7684643 No $ 0.00
ARENAC, MI
FIELD-AU GRES
Au Gres 1-11A 0.7500000 0.0000000 No $ 0.00
</TABLE>
Page 4 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Au Gres 1-12 0.4926993 0.3668621 No $ 49,568.00
Au Gres 2-12 0.3621933 0.0000000 No $ 0.00
State Sims 1-7 0.5258261 0.3986000 No $ 0.00
State Sims 2-7 0.3562500 0.2700412 No $ 35,994.00
IOSCO, MI
FIELD-NATIONAL CITY
State Sherman 1-16 0.2000000 0.1341549 No $ 9,253.00
HINDS COUNTY, MS
FIELD-UTICA
Caldwell l4-6 # 1 0.1968750 0.1493086 No $ 0.00
Hammond l5-7 # 1 0.1971596 0.1474849 No $ 16,155.00
Morrison 10-16 # 1 0.1974363 0.1479250 Yes $212,355.00
Utica II Gas Plant & Pipe 0.1970000 0.1970000 No $ 11,179.00
LAWRENCE COUNTY, MS
FIELD-TOPEKA
Federal Land Bank 6-1 0.0059418 0.0043451 No $ 869.00
Lambert A E # 1 0.0087786 0.0062626 No $ 3,118.00
LINCOLN COUNTY,.MS
FIELD-HURRICANE LAKE E
Fauver J A Un # 1 0.3531312 0.2976468 Yes $ 78,729.00
RICHLAND COUNTY, MT
FIELD-NOHLY
Cayko # 2 0.0146921 0.0122610 No $ 9,218.00
Cayko # 3 0.0146910 0.0121138 No $ 2,300.00
Cayko 34-41 0.0058771 0.0048624 No $ 2,539.00
Filler 1-26 0.0061021 0.0049325 No $ 7,037.00
Filler 26-13 0.0058770 0.0049040 No $ 2,147.00
Filler 26-32 0.0114460 0.0339851 No $ 8,195.00
Nohly # 1 0.0058770 0.0049040 No $ 3,425.00
Nohly # 2 0.0058771 0.0049046 No $ l,789.00
Nohly # 3F 0.0036272 0.0030701 No $ 784.00
Rasmussen 1-22 0.0000514 0.0000425 No $ 17.00
Rasmussen 1-27 0.0030510 0.0024663 No $ l,482.00
TUSCARAWAS COUNTY, OH
FIELD-FARM E.
Snyder J # 1 0.0000000 0.1250000 No
BEAVER COUNTY, OK
</TABLE>
Page 5 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- ------------------------------------ ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
FIELD-DOMBEY
Cleo B # 1 0.1250000 0.1093750 No $ l,380.00
FIELD-MOCANE-LAVERNE GAS AR
Barby 1-36 0.0078125 0.0056836 No $ 358.00
BECKHAM COUNTY, OK
FIELD-CARTER N
Chandler Cruz 1-4 0.1374610 0.0057417 No
FIELD-ELK CITY
Harmon 1-17 0.0000000 0.0001460 No
Harmon 2-17 0.0249730 0.0003110 No
Harmon 3-17 0.0000000 0.0011180 No
Mikles 1-12 0.0615234 0.0455273 No $ 25,864.00
Music 1-23 0.0468366 0.0351275 No $ 8,417.00
Music 3-24 0.0712448 0.0561255 No $ 19,785.00
BLAINE COUNTY, OK
FIELD-CANTON
Demoss A 1-7 0.1642512 0.1374408 No
Gerlach 1-11 0.2000000 0.1700010 No
Striking 1-18 0.2023913 0.1730446 No
FIELD-CANTON S
Okeene Gas Plant 0.0307850 0.0000000 No $ 2,334.00
CADDO COUNTY, OK
FIELD-ANADARKO
Verma 1-34 0.0054857 0.0045750 No $ 8,401.00
FIELD-EAKLY-WEATHERFORD TREND-O
McGlone 1-35 0.0359420 0.0281443 No
CANADIAN COUNTY, OK
FIELD-UNION CITY
Schieber 1-21 0.3333333 0.2804843 Yes $ 45,656.00
Schieber 2-21 0.3333000 0.2804840 Yes $204.254.00
White Farms A 1-4 & 2-4 0.0466580 0.0429994 No $ 18,183.00
White Farms A 3 0.0491798 0.0467014 No $ 21,081.00
FIELD-WATONGA-CHICKASHA TREND-O
Inez 1-30 0.2343800 0.1794433 Yes $ 13,224.00
Kephart 2-20 0.2999311 0.2509738 No
Kephart 2-20 0.2999311 0.2509738 No $ 0.00
Kephart 1-20 0.2999311 0.2509738 No $ 0.00
</TABLE>
Page 6 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- ------------------------------------ ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Red Sage 1-30 0.2343750 0.1794433 Yes $ 83,286.00
CUSTER COUNTY, OK
FIELD-ANADARKO (STAFFORD NR.)
Snider 1-36 0.5112492 0.3902194 Yes $ 89,863.00
FIELD-CANUTE N
Elliott 1-16 0.0594987 0.0406567 No $ 24,887.00
Elliott 2-16 0.0556484 0.0395547 No $ 15,692.00
Elliott 3-16 0.0925794 0.0663340 No $ 0.00
Kephart 1-17 0.1146048 0.0904388 Yes $ 6,179.00
Kephart 1-20 0.1230780 0.0933820 No $ 25,714.00
Kephart 2-20 0.1250227 0.0955941 No
Kephart 2-20 0.1250227 0.0955941 No $ 0.00
Libby Hoover 1-17 0.1494095 0.1179119 Yes $ 62,015.00
Preston 1-18 0.0389857 0.0306952 No $ 31,131.00
FIELD-INDIANAPOLIS
Schapansky 1-32 0.3378602 0.2505888 Yes $ 33,815.00
Williams 1-31 0.1570802 0.1203523 No $ 0.00
Williams 2-31 0.1570801 0.1203524 No $ 19,049.00
FIELD-MOOREWOOD NE
Broadbent 1-25 0.1261714 0.1077000 Yes $ 58,355.00
Hutcheson 1-22 0.0372255 0.0313875 No $ 5,912.00
Hutcheson 2-22 0.0475771 0.0403875 No $ 7,616.00
Hutcheson 3-22 0.0372260 0.0313875 No $ 5,214.00
Moseley 1-25 0.0987430 0.0837000 No $ 73,009.00
Moseley 2-25 0.0987429 0.0837000 No $ 5,810.00
Moseley 5-25 0.0987430 0.0837000 Yes $ 25,984.00
Moseley 7-25 0.0987430 0.0837000 Yes
Moseley Emma 1-22 0.0372260 0.0313875 No $ 3,851.00
Touchstone 1-14 0.1152000 0.0976501 No $ 10,853.00
Touchstone 2-14 0.1317340 0.1114177 No $ 14,653.00
Touchstone 3-14 0.1477571 0.1246598 Yes $ 29,604.00
FIELD-WEATHERFORD
Frizzell A 1-32 0.0771429 0.0655712 Yes $ 66,833.00
DEWEY COUNTY, OK
Field-Putnam
Craig 1-35 0.1431675 0.1213568 Yes $ 53,283.00
ELLIS COUNTY, OK
</TABLE>
Page 7 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- ------------------------------------ ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
FIELD-HIGGINS S
Fox 1-10 0.0625000 0.0468750 No $ 0.00
GRADY COUNTY, OK
FIELD-MIDDLEBURG SE (AMBER NE)
Crosswhite 1-24 0.2299626 0.1701723 Yes $ 68,945.00
Shockey 2-25 0.1561842 0.1154771 No $ 6,083.00
FIELD-NORGE SW
Methvin 1-12 0.4108255 0.3371687 Yes $ 69,142.00
Methvin 2-12 0.4035628 0.3316088 No $ 273.00
KINGFISHER COUNTY, OK
FIELD-EDMOND W
Koller A # 1 0.1875000 0.1504687 No $ 6,986.00
Tharp 1-29 0.1875000 0.1504687 No $ l,550.00
FIELD-OKARCHE N
Annuschat 1-11 0.0720469 0.0542153 No $ 2,556.00
Ellis 1- 1 0.3047063 0.2498593 Yes $ 53,141.00
Petty 1- 7 0.4422537 0.3307819 No $ 12,745.00
Senn 1-6 0.2502435 0.1876826 No $ 0.00
Snow 1- 5 0.4422537 0.3299128 Yes $ 24.106.00
Vogt Retha 1-11 0.2325469 0.1749924 No $ 8,363.00
FIELD-SOONER TREND
Themer 10-2 0.8717898 0.6974319 Yes $ 40,188.00
LATIMER COUNTY, OK
FIELD-WILBURTON
Hunter Tucker 1-31 0.1101504 0.0931283 No $ 25,830.00
LOGAN COUNTY, OK
FIELD-EDMOND W
Messenbaugh # 2 0.5000000 0.4375000 No $ 8,843.00
MAJOR COUNTY, OK
FIELD-CEDARDALE NE
Barnes D # 4 0.1006016 0.0860145 Yes $ 63,486.00
Barnes Un D 2-23 0.1006016 0.0860145 No $ 14,380.00
Barnes Un G 3-23 0.0000000 0.0107833 No $ l,942.00
Butler 2-20 0.7911483 0.6613098 Yes $448,491.00
Butler 3-20 0.8150000 0.6817028 No $ 71,629.00
Butler 4-20 0.8150000 0.6817028 No $ 75,531.00
Butler Un 1-20 0.7911485 0.6613098 No $ 75,719.00
</TABLE>
Page 8 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- ------------------------------------ ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Culp 1-19 0.7645963 0.6537297 No $ 75,000.00
Culp 2-19 0.8150000 0.6892645 No $ 79,774.00
Culp 3-19 0.8150000 0.6968250 No $ 55,000.00
Foster 2-21(Chester) 0.4444297 0.3736202 Yes $ 78,167.00
Foster 3-21 0.4039427 0.3405956 Yes $ 59,211.00
Kepner 1-29 0.0738589 0.0620029 No $ 204.00
Kepner 4-29 0.0840289 0.0706986 No $ 8,281.00
Schlarb 2-22 0.1141080 0.0974942 No $ 5,895.00
Schlarb 3-22U 0.6056344 0.5157184 Yes $114,581.00
FIELD-RINGWOOD
Cornelson 1-7 0.3309991 0.2830043 No $ 10,410.00
Herbert 1-7 0.0000000 0.0330245 No $ 7,224.00
MHC 1-7 0.0000000 0.0164737 No $ l,363.00
Rexroat 1- 9 0.3000000 0.2565000 Yes $ 33,648.00
Rexroat 2-9 0.3000000 0.2565000 Yes $ 32,219.00
Rexroat 3- 9 0.3000000 0.2565000 Yes $ 14,5,3.00
Rose 1-12 0.1698240 0.1451995 No $ 19,357.00
Rose 2-12 0.1698240 0.1451995 No $ 0.00
Slack C 1- 5 0.3000000 0.2565000 No $ 0.00
Slack C 2- 5 No
Wahl 1-7 0.1279373 0.1093865 No $ 0.00
Warfield Un 1-5 0.6398714 0.4998072 Yes $ 43,798.00
Warfield Un 2-5 0.6398714 0.4998072 Yes $ 24,617.00
FIELD-RINGWOOD (OKEEN, NW)
Weaver Un 5-20 0.1000000 0.0855000 No $ 68.00
FIELD-SEILING NE
Bensch 1-23 0.5074999 0.4047114 Yes $372,431.00
Bensch 2-23 0.5074999 0.4047114 No $ 50,460.00
Louthan Un 1-22 0.3000000 0.2502500 No $ 835.00
MC CLAIN, OK
FIELD-WASHINGTON - OBO - OK
Lucy 1-19 0.2565726 0.2067304 No $ 12,268.00
OKLAHOMA COUNTY, OK
FIELD-EDMOND W
Cargil O A 1.0000000 0.8203125 Yes $ 90,938.00
ROGER MILLS COUNTY, OK
FIELD-CHEYENNE W
Berry 2-12 0.0302083 0.0264323 No $ 0 00
</TABLE>
Page 9 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Field-Dempsey
Walker 1-12 0.0435050 0.0321940 No $ 8,027.00
Field-Strong City District
Harden # 2-25 0.0026563 0.0026563 No $ 0.00
Field-Strong City District (Calvert)
Lone Elk 27-1 0.0878979 0.0706358 No $ 3,936.00
Savage 1-27 0.0878979 0.0696679 No $ 15,252.00
Field-Strong City SE
Morton 1-23 0.0511440 0.0393809 No $ 7,960.00
WASHITA COUNTY, OK
Field-Canute N
Rowlan 1-3 0.2046220 0.1554200 Yes $ 20,565.00
Field-Elk City
Walter J C 3-19 0.0238000 0.0206582 No $ 8,076.00
WOODS COUNTY, OK
Field-Avard
Eggleston 1-36 0.8000000 0.6500000 No $ 33,023.00
Gardner 2-35 0.3979166 0.3401059 No $ 801.00
Hull 1-3 0.3868722 0.3281670 No $ 12,182.00
Hull 2-3 0.3987435 0.3383171 No $ 11,145.00
Oshel 2-30 0.8000000 0.6840000 Yes $ 41,785.00
Field-Oakdale
Dietz A 1-28 0.2000000 0.1600620 No $ 9,831.00
Farris 1-30 0.4509450 0.3814305 No $ 51,228.00
Gisson 2-33L(Mississippi 0.7383100 0.5934588 Yes $816,461.00
Gisson 3-33L(Mississippi 0.4458101 0.3811676 Yes $458,478.00
Gisson 4-33 0.4626925 0.3714772 Yes $232,497.00
Morstain 1-32 0.3000784 0.2565686 No $ 40,000.00
Perkins B 1-28 0.0000000 0.0100624 No $ 42,113.00
Rich 1-32 0.3000785 0.2545749 No $ 67,960.00
Rich 2-32 0.4440280 0.3796440 No $ 40,000.00
Rich 2-32L 0.4440280 0.3796440 No $ 47,292.00
Sagebrush 1-32 0.0000000 0.0340000 No $ 42,965.00
Stewart A 1-28 0.0000000 0.0100624 No $ 40,170.00
Veatch 1-24 0.3874999 0.3217421 No $ 2,471.00
Veatch 2-24 0.3874999 0.3217421 Yes $ 58,971.00
Whiteneck 1-28 0.2000000 0.1600625 No $105,186.00
</TABLE>
Page 10 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Whiteneck B # 1 0.2857144 0.2339956 No $ 96,854.00
Wilt A 1-19 0.3108524 0.2552816 No $ 30,000.00
Wilt A 2-19 0.7557648 0.5890299 Yes $228,743.00
WOODWARD COUNTY, OK
FIELD-CEDARDALE NE
Garvie 3-23 0.8150000 0.6480547 No $ 21,530.00
State 1-24 0.8150000 0.6693665 No $ 0.00
State 2-24L(Oswego) 0.8150000 0.6693661 Yes $ 5,429.00
State 2-24U 0.8150000 0.6693660 Yes $166,614.00
State 3-24 0.8150000 0.6693661 Yes $ 65,677.00
FIELD-CHESTER W
Huffman 2-20 0.8000000 0.6840001 No $ 17,432.00
Huffman 3-20 0.8000000 0.6840001 No $ 0.00
FIELD-FT SUPPLY E
Cooper 1-19 0.2291060 0.0000000 No
BEE COUNTY, TX
FIELD-BURNELL
Burnell Un 0.0107502 0.0094064 No $ 0.00
FIELD-PLUMMER-WILCOX
Borroum B # 1 0.7000000 0.5906250 Yes $ 16,088.00
Dougherty # 2 0.7000000 0.4666667 No $ 0.00
Dougherty Est #1 & #2 0.7000000 0.4666667 No $ 17,192.00
BRAZORIA COUNTY, TX
FIELD-CHOCOLATE BAYOU S
I P Farms # 2U 0.0656275 0.0491061 No $ 21,199.00
I P Farms # 3 0.0684479 0.0000000 No $ 0.00
I P Farms Lease 0.0666667 0.0484175 No $ 4,839.00
FIELD-HASTINGS E
Beers W F 0.0000000 0.0288000 No
Brown Cecil 0.0000000 0.1983000 No
Haden R D 0.0000000 0.0018800 No
Schaeffer A 0.0000000 0.0384000 No
Surface R O 0.0000000 0.0063000 No
Turner B L 0 0000000 0.0041000 No
FIELD-OLD OCEAN N
Texas Gulf Fee # 1 0.0332368 No $ 2,471.00
CHAMBERS COUNTY, TX
</TABLE>
Page 11 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
FIELD-ELWOOD
Colby Claypool # 1 0.0000000 0.0244142 Yes $ 37,829.00
HARDIN COUNTY, TX
FIELD-JOHN VICKERS (VICKERS)
Arco Vickers # 1 1.0000000 0.7250000 Yes $ 81,729.00
HARRISON COUNTY, TX
FIELD-BLOCKER
Daniels A # 1 GU 0.1219880 0.1016623 No $ 13,580.00
FIELD-HALLSVILLE
Deadmon 0.1219880 0.0995596 No $ 5,929.00
HEMPHILL COUNTY, TX
FIELD-MATHERS RANCH
Federal 1-161 0.0265360 0.0219130 No $ 1,363.00
HOCKLEY COUNTY, TX
FIELD-SMYER
Smyer April Harless 0.1874193 0.0000000 Yes $ 0.00
Smyer Lockhart 0.0646246 0.0000000 Yes $ 0.00
Smyer Lockhart A 0.0229561 0.0000000 Yes $ 0.00
Smyer Un NE 0.2750000 0.2255000 Yes $390,091.00
HOPKINS COUNTY, TX
FIELD-BRANTLEY JACKSON
Brantley Jackson Un 0.1869938 0.1510408 Yes $174,067.00
KENT COUNTY, TX
FIELD-ATKINS-FLEMING
Fleming # 1 0.8000000 0.6400000 Yes $ 71,890.00
LIVE OAK COUNTY, TX
FIELD-MIKESKA
Amine Un 0.2499999 0.0000000 No $ 0.00
Bennett State GU # 1 0.2500000 0.2043219 Yes $ 86,041.00
Bennett State GU # 2 0.2499999 0.2043219 No $ 15,455.00
Bennett State GU # 3 0.2499999 0.2043219 No $ 11,707.00
Bennett State GU # 4 0.0000000 0.0159597 No $ 886.00
Bennett State GU # 5 0.2499999 0.2043219 No $ 0.00
LOVING COUNTY, TX
FIELD-HALEY
Harrison Nell 14-1 0.0480470 0.0373050 No $ 6,423 00
Harrison Nell 22-1 0.0393230 0.0298450 Yes $153,552.00
</TABLE>
Page 12 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Harrison Nell 26-1 0.0438200 0.0333940 No $ 3,748.00
Harrison Nell 28-1A 0.0422530 0.0321890 Yes $ 33,667.00
LUBBOCK COUNTY, TX
FIELD-EDMISSON
Broadview Un E 0.3195384 0.2632593 Yes $l,306,987.00
FIELD-IDALOU
Idalou Un 0.2797272 0.2097950 Yes $ 219,722.00
MATAGORDA COUNTY, TX
FIELD-MATAGORDA ISL BLK 485
El Gordo Pipeline 0.0070510 0.0000000 No $ 239.00
S/T 485 L # 1 0.0793197 0.0637204 No $ 9,269.00
S/T 485 L # 3- 0.7905165 0.5290034 No $ 0.00
S/T 485 L # 4 0.4617863 0.3069760 No $ 0.00
S/T 485 L # 5 0.3944985 0.2661222 No $ 4,089.00
S/T 485 L # 6 0.0670124 0.0000000 No $ 0.00
FIELD-MIDDLE BANK REEF
S/T 367 L # 2 0.1931803 0.1558882 No $ 0.00
S/T 367 L # 3 0.2418546 0.1681976 No $ 0.00
S/T 367 L # 3 (Mioc 5880) 0.0000000 0.1978689 No $ 11,639.00
FIELD-MIDDLEBANK REEF
S/T 367 L # 4 0.2876934 0.234691 Yes $ 107,692.00
MC MULLEN, TX
FIELD-A W P
Billings # 1 0.0500000 0.0369245 No $ 2,070.00
Billings # 3 0.0250000 0.0182500 No $ l,010.00
Billings # 5 0.0250000 0.0182500 No $ 0.00
Discher # 9 0.0281250 0.0234560 No $ 2,267.00
Discher # 11 0.0298845 0.0249005 No $ 99.00
Discher A # 4 0.0218242 0.0181889 No $ l,601.00
Discher H A # 1 0.0496875 0.0388809 No $ l,601.00
Discher H A # 1A 0.0281250 0.0234560 No $ 0.00
Discher H A # 2 0.0281250 0.0234560 No $ 0.00
Discher H A # 3 0.0281250 0.0234560 No $ 394.00
Discher H A # 4 0.0348482 0.0575280 No $ 271.00
Discher H A # 7 0.0281250 0.0234560 No $ 49.00
Discher H A # 8 0.0281250 0.0234560 No $ 2,316.00
Dusek H # 1 0.0348500 0.0287640 No $ 788.00
Dusek H # 2 0.0331700 0.0275383 No $ 813.00
</TABLE>
Page 13 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Elliott # 7 0.0700000 0.0507200 No $10,520.00
Elliott # 8 0.0700000 0.0507200 No $ 7,071.00
Elliott # 9 0.0700000 0.0507200 No $ 8,451.00
Elliott # 10 0.0700000 0.0507200 No $11,457.00
Elliott R E # 1 0.0700000 0.0507200 No $ 7,293.00
Elliott R E # 2 0.0700000 0.0507200 No $ 4,607.00
Elliott R E # 3 0.0700000 0.0507200 No $14,241.00
Elliott R E # 4 0.0700000 0.0507200 No $ 5,100.00
Elliott R E # 5 0.0700000 0.0507200 No $ 3,006.00
Elliott R E # 6 0.0700000 0.0507200 No $ 0.00
Henry # 1 0.0500000 0.0369245 No $ 4,952.00
Henry # 2 0.0500000 0.0369250 No $ 5,346.00
Henry # 3 0.0500000 0.0369250 No $ 7,613.00
Henry E G # 1 0.1164365 0.0873274 No $67,261.00
Henry E G # 2 0.1164365 0.0873274 No $ 3,277.00
Henry E G # 3 0.1275726 0.0956795 No $ 8,155.00
Henry E G # 4 0.1164365 0.0873274 No $ 0.00
Henry E G 4 5 0.1164365 0.0873274 No $ 5,962.00
Henry E G # 6 0.1164365 0.0873274 No $ 6,012.00
Henry E G # 7 0.1164365 0.0873274 No $ 2,341.00
Henry E G # 7 0.0512551 0.0384410 No $ 2,341.00
Henry E G # 8 0.1164365 0.0873274 No $ 616.00
Henry E G # 9 0.1164365 0.0873274 No $ 0.00
Henry E G # 10 0.1164365 0.0873274 No $ 6,332.00
Henry E G # 11 0.1164365 0.0873274 No $ l,404.00
Henry E G # 12 0.1164365 0.0873274 No $ 9,091.00
Henry E G # 13 0.1237582 0.0928932 No $19,957.00
Henry E G # 14 0.1591387 0.1200698 No $ 6,455.00
Henry E G Lease 0.1164365 0.0873274 No $ 0.00
Horton # 1 0.0000000 0.0068000 No $ 271.00
Horton # 2 0.0888900 0.0722220 No $ 2,196.00
Horton # 8 0.0500000 0.0369245 No $15,691.00
Horton # 9 0.0500000 0.0369245 No $ 5,445.00
Horton #10 0.0500000 0 0369245 No $ 3,794.00
Horton R P 4-1 0.0500000 0.0354240 No $ 2,242.00
Horton R P # 1 0.0500000 0.0354240 No $ 641.00
Horton R P # 2 0.0500000 0.0354240 No $ 1,577.00
Horton R P # 3 0.0500000 0.0354240 No $ l,552.00
Horton R P # 5 0.0500000 0.0354240 No $ 3,178.00
</TABLE>
Page 14 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Horton R P # 6 0.0500000 0.0354240 No $ 0.00
Horton R P # 7 0.0500000 0.0354250 No $ 123.00
Horton Richard # 1 0.0888900 0.0722220 No $ 7,296.00
Horton Richard # 4 0.0888900 0.0722220 No $ 7,936.00
Horton Richard # 5 0.0888900 0.0722220 No $ 6,162.00
Horton Richard # 6 0.0888900 0.0722220 No $ 0.00
Horton Richard # 7 0.0888900 0.0722220 No $ 9,732.00
Horton Richard # 8 0.0888900 0.0722220 No $ 5,817.00
Horton Richard # 9 0.0888900 0.0000000 No $ 9,190.00
Horton Richard #10 0.0888900 0.0722220 No $ 4,164.00
Horton Richard #ll 0.0888900 0.0722220 No $10,129.00
Horton Richard #12 0.0888900 0.0722220 No $ 7,887.00
Horton Richard #13 0.0888900 0.0722220 No $ 7,736.00
Horton Richard #14 0.0888900 0.0722220 No $ 4,635.00
Horton Richard #16 0.0888900 0.0722220 No $ 7,490.00
Horton Richard #17 0.0888900 0.0722220 No $ 6,064.00
Horton Richard #19 0.0888900 0.0722220 No $ 6,283.00
Horton Richard #21 0.0888900 0.0722220 No $ 6,332.00
Horton Richard #22 0.0888900 0.0000000 No $ 0.00
Horton Richard #23 0.0888900 0.0722220 No $13,948.00
Horton Richard #24 0.0888900 0.0722220 No $ 3,846.00
Horton Richard #25 0.0888900 0.0722220 No $12,423.00
Isbel Clarence H Jr # 1 0.0281250 0.0234560 No $ 764.00
Isbel Clarence H Jr # 2 0.0281250 0.0234560 No $ 1,774.00
Killough B # 1 0.0500000 0.0369245 No $ 2,143.00
Killough B # 2 0.0500000 0.0369245 No $ 6,307.00
Lange # 4 0.0500000 0.0000000 No $ 0.00
Lange E # 1 0.0500000 0.0369245 No $20,003.00
Lange E # 2 0.0500000 0.0369245 No $13,080.00
Lange E # 3 0.0500000 0.0369245 No $11,675.00
Lange Eleanora A # 1 0.0500000 0.0000000 No $ 0.00
Lasiter A L # 1 0.0500000 0.0369245 No $ 5,100.00
Lasiter A L # 2 0.0500000 0.0369245 No $ 246.00
Lasiter A L # 3 0.0500000 0.0369245 No $ 1,848.00
Layton K F # 1 0.0375000 0.0281500 No $ 3,252.00
Morales #ll 0.0500000 0.0369245 No $17,391.00
Morales #14 0.0500000 0.0369245 No $15,223.00
Morales Felix #13 0.0500000 0.0369245 No $15,519.00
Morales Felix H # 2 0 0500000 0.0369245 No $ 1,675.00
</TABLE>
Page 15 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Morales Felix H # 3 0.0500000 0.0369245 No $14,583.00
Morales Felix H # 4 0.0500000 0.0369245 No $ 148.00
Morales Felix H # 5 0.0500000 0.0369245 No $ 2,759.00
Morales Felix H # 6 0.0500000 0.0369245 No $14,829.00
Morales Felix H # 7 0.0500000 0.0369245 No $14,041.00
Morales Felix H # 8 0.0500000 0.0369245 No $15,100.00
Morales Felix H # 9 0.0500000 0.0369245 No $ 4,139.00
Morales Felix H #10 0.0500000 0.0369245 No $ 4,410.00
Morales Felix H #12 0.0500000 0.0369245 No $ 4,435.00
Morales Felix H # 1 0.0500000 0.0369245 No $ 838.00
Morgan # 3 0.0500000 0.0369245 No $ 690.00
Morgan # 4 0.0500000 0.0369245 No $ 0.00
Morgan Et Al # 1 0.0500000 0.0369245 No $ 4,139.00
Morgan Et Al # 2 0.0500000 0.0369245 No $ 0.00
Rutherford W C A # 3 0.0281310 0.0234560 No $ 3,203.00
Rutherford W C A # 4 0.0500000 0.0369245 No $ 4,681.00
Rutherford W C Est # l 0.0500000 0.0369245 No $ 1,651.00
Rutherford W C Est # 2 0.0500000 0.0369245 No $ 4,139.00
Rutherford W C Est # 3 0.0500000 0.0369245 No $ 3,868.00
Rutherford W C Jr A # 1 0.0375000 0.0281500 No $ 3,055.00
Rutherford W C Jr A # 2 0.0281310 0.0234560 No $ 5,199.00
Shenkir # 2 0.0297423 0.0248037 No $ 4,386.00
Shenkir H # 1 0.0281250 0.0234560 No
Shenkir H # 1 0.0281250 0.0234560 No $ 2,710.00
Shenkir H A # 1 0.0281250 0.0234560 No
Shenkir H A # 1 0.0281250 0.0234560 No $ 2,710.00
Taylor # 4 0.0281250 0.0234560 No $ l,404.00
Taylor Harold D # 1 0.0281250 0.0234560 No $ l,971.00
Taylor Harold D # 2 0.0281250 0.0234560 No $ 0.00
Taylor Harold D # 3 0.0281250 0.0234560 No $ 2,168.00
Wheeler # 6 0.0500000 0.0000000 No $ 0.00
Wheeler # 7 0.0500000 0.0369250 No $26,529.00
Wheeler Nora # 1 0.0500000 0.0369245 No $ 4,583.00
Wheeler Nora # 2 0.0500000 0.0369240 No $ 3,080.00
Wheeler Nora # 3 0.0500000 0.0369240 No $ 3,449.00
Wheeler Nora # 4 0.0500000 0.0000000 No $ 0.00
Wheeler Nora # 5 0.0506666 0.0373694 No $ 5,001.00
Williams A # 1 0.0250000 0.0184625 No $ 4,065.00
Williams Grant H # 1 0.0500000 0.0369245 No $ 4,854.00
</TABLE>
Page 16 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Williams Grant H # 2 0.0500000 0.0369250 No $ 3,548.00
Winborn # 1 0.0500000 0.0369245 No $ 862.00
Winborn # 2 0.0500000 0.0369245 No $ 0.00
OFFSHORE COUNTY, TX
FIELD-HIGH ISL SA BLK A448
OCS-G-2359 0.0288410 0.0240341 No $24,800.00
OCS-G-2360 0.1260701 0.1050585 No $71,663.00
OCS-G-2360 #A-9 0.1197493 0.0997917 No $12,711.00
OCS-G-2360 B 0.0949567 0.0791306 No $ 0.00
OCS-G-2361 0.0735408 0.0612840 No
OCS-G-2361 #A-4 0.0735408 0.0612840 No $30,000.00
OCS-G-4579/2360 0.1111259 0.1079132 No $ 460.00
FIELD-HIGH ISL SA BLK A532
OCS-G-2380 0.2206222 0.1838518 No $ 0.00
VICTORIA COUNTY, TX
FIELD-HEYSER
Crabtree # 1 0.9524891 0.7499583 No $85,444.00
Crabtree # 5 0.9137500 0.7194564 No $ l,312.00
FIELD-HEYSER E
Crabtree # 2 0.9524891 0.7499583 No $ 0.00
Crabtree # 4 SWD 0.9137500 0.0000000 No $ 0.00
Crabtree Lease 0.9524891 0.7194564 No $ 0.00
WEBB COUNTY, TX
FIELD-GATO CREEK
Alley # 1 0.1048890 0.0742457 No $ 9,831.00
Alley # 3 0.1048890 0.0742457 Yes $47,839.00
FIELD-MUJERES CREEK
Olmitos Ranch # 1 0.0593878 0.0460966 No $ 3,919.00
Olmitos Ranch # 2 0.0861119 0.0638765 No $ 5,129.00
Olmitos Ranch # 4 0.0861119 0.0638765 No $ 443.00
Olmitos Ranch # 5 0.0861119 0.0638765 No $ 647.00
Olmitos Ranch # 6 0.0807300 0.0597725 No $ 0.00
Olmitos Ranch # 8 0.0861119 0.0638765 No $10,087.00
Olmitos Ranch # 12 0.0861119 0.0638769 No $11,434.00
Olmitos Ranch # 13 0.0861119 0.0638769 No $10,205.00
FIELD-NICHOLSON
Olmitos Ranch # 7 0.0785452 0.0577742 No $11,501.00
</TABLE>
Page 17 of 18
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY ALLOCATED VALUE
- -------------------------------------- ---------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
FIELD-RANCHO VIEJO
Alley # 20 0.1048890 0.0742457 No $33,976.00
Alley # 4 0.1048899 0.0742457 Yes $42,471.00
Alley # 5 0.1049000 0.0742457 Yes $28,578.00
Alley # 6 0.1049000 0.0742457 No $ 0.00
Alley # 7 0.1049000 0.0742457 No $ 4,294.00
Alley # 8 0.1049000 0.0742457 No $19,799.00
Alley # 9 0.1048889 0.0742457 No $ 0.00
Applegate Alley # l GU 0.0157350 0.0112505 No $ 2,811.00
FIELD-THOMPSONVILLE NE
Bruni D GU 0.3333333 0.2708334 Yes $50,136.00
Thompsonville CS & Dehy 0.0914540 0.0000000 No $ 0.00
</TABLE>
Page 18 of 18
<PAGE>
EXHIBIT PART II
Cause No. 10,651; The State of Texas, et al. v. Union Pacific Resources Company,
et al. (including TOC and TEMI); In the 335th Judicial District Court of Lee
County, Texas
Purported class action lawsuit brought by the State of Texas and other working
and/or royalty interest owners regarding the sale of oil and/or gas in Texas at
posted prices verses market price. Torch Energy Advisors Incorporated and Torch
Energy Marketing, Inc. are named parties to the suit, but the claims also run
against the working interest owners for whom the Torch companies operate. This
case has only recently been initiated and no discovery or other pre-trial
activities have taken place. Accordingly, it is impossible at this time to
predict the outcome of this litigation.
Cause No. 423587; State of Louisiana and Department of Taxation v. Torch Energy
Corporation; In the 19th District Court of the Parish of East Baton Rouge,
Louisiana, Div. F
This lawsuit involves a claim by the state of Louisiana that severance taxes
have been underpaid on Torch operated properties in Louisiana. The underpayment
is attributed to the alleged undervaluation of production by Torch in the sale
of oil and gas. All partnerships owning any Louisiana leases could be affected
by this case.
Cause No. 423588; State of Louisiana and Department of Taxation v. Torch
Operating Company; In the 19th District Court of the Parish of East Baton Rouge,
Louisiana, Div. I
This lawsuit involves a claim by the state of Louisiana that severance taxes
have been underpaid on Torch operated properties in Louisiana. The underpayment
is attributed to the alleged undervaluation of production by Torch in the sale
of oil and gas. All partnerships owning any Louisiana leases could be affected
by this case.
Cause No. 96-022435; Rose Marie Mixon v. Nuevo Energy Company; In the 127th
Judicial District Court of Harris County, Texas
Plaintiff filed this suit on May 3, 1996. Plaintiff alleges that she is a
successor to an incremental gas revenue interest in certain off-shore oil and
gas leases. Plaintiff alleges that Nuevo failed to pay all sums due under the
incremental gas revenue interest. Plaintiff claims breach of
<PAGE>
contract, seeking as damages $104,630.00 in alleged underpayment by Nuevo,
together with interest and attorneys' fees. As part of the settlement with
Florida Gas, Nuevo assigned its interest to the 1991 Specified Oil & Gas Program
and Black Hawk Oil Company. Nuevo filed a summary judgment motion which has been
scheduled to be heard on June 13, 1997.
Cause No. 15059; Ronald Harrell, et al. v. Torch Operating Company, et al.; In
the 21st Judicial District Court of the Parish of St. Helena, Louisiana
Plaintiff, an adjacent landowner to the Pritchell Oil Well No. 1 located in St.
Helena Parish, Louisiana, is suing for alleged damages to his property allegedly
caused by well operations and also for noise and odor pollution. This case is
dormant at this time with a tentative settlement offer to the Plaintiff of
$20,000 on the table.
Cause No. 69102-F; Edwin B. Lutgring, Jr., et al. v. Torch Operating Company; In
the 15th Judicial District Court of the Parish of Vermilion, Louisiana
Plaintiffs are leasehold owners in the Herpin No. l well located in Vermilion
Parish, Louisiana. Plaintiffs brought this suit seeking judgment by the Court
that TOC plug and abandon the property, remove all equipment, and restore the
property to its original condition. This case has only recently been initiated
and no discovery or other pre-trial activities have taken place. The well has
already been plugged and abandoned and we are working to satisfy the landowner
concerning the restoration of the surface.
Additional MMS Claims - U.S. Department of Justice Inquiry Letter
Although not yet asserted, there seems to be a movement afoot by the MMS to
challenge the price paid the MMS for production on all MMS managed properties.
While we do not believe the partnerships have paid royalties improperly or face
any exposure in such audits, the partnerships that have interests in federal
leases could be subjected to claims arising out of such audits. On February l2,
1997 the Department of Justice forwarded to Torch Operating Company a request
for information and documents relating to oil and gas royalties on Indian and
MMS lands paid by Torch Operating Company on behalf of the Partnerships, among
others. Torch Operating Company is in the process of analyzing the scope of the
request and has communicated its willingness to fully cooperate in this
information gathering process. At this time it is difficult to predict what
liabilities, if any, could be faced by the Partnerships for any such alleged
underpayment of royalties.
<PAGE>
CLAIMS BY OTHER TAXING AUTHORITIES
Every taxing authority in every state in which the partnerships own properties
could make claims similar to those asserted in the State of Louisiana and
Department of Taxation v. Torch Energy Corporation, above.
Claims by Other Royalty and Mineral Owners
Every royalty and mineral owner in every state in which the partnerships own
properties could make claims similar to those asserted in the State of Texas, et
al. v U.P.R.C., et al.
<PAGE>
===============================================================================
Exhibit Part IV
TOC Operated Properties
30-Jun-97
===============================================================================
<TABLE>
<CAPTION>
FIELD NAME
===============================================================================
<S> <C>
IBERIA PARISH, LA
Weeks Isl Rainold # 2
Weeks Isl Smith Heirs # 2
Weeks Isl Smith Heirs # 3
Weeks Isl Smith Heirs # 6
ST HELENA PARISH, LA
Greensburg Carter # 2
Greensburg Freiler # 2D
Greensburg Pritchett # 1
Greensburg Riggs # 1
Greensburg Riggs # 2
Greensburg Riggs # 4
Greensburg Riggs # 5
Greensburg Riggs Robert E # 6
Greensburg Stephens # 1
Greensburg Turnipseed Charlotte # 1
VERMILION PARISH, LA
Parcperdue Broussard # 2
Parcperdue Broussard # 1
Parcperdue Greene # 1
Paroperdue Greene S & K # 3
Parcperdue Herpin # 1
Parcperdue Leblanc # 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
FIELD NAME
===============================================================================
<S> <C>
Parcperdue Leblanc # 2
Parcperdue Leblanc # 3
HARRISON COUNTY, TX
Blocker Daniels A # 1 GU
Hallsville Deadmon
</TABLE>
<PAGE>
EXHIBIT PART V
TITLE PROPERTIES
30-Jun-97
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY
- ------------------------------------------ ---------------- -------------------- --------------
<S> <C> <C> <C>
COLUMBIA COUNTY, AR
FIELD-WALKER CREEK
Walker Crk Un Bodcaw Un 2 0.0019531 0.0016022 Yes
Walker Crk Un Bodcaw Un 3 0.0019531 0.0016022 Yes
Walker Crk Un Bodcaw Un 4 0.0000000 0.0012417 Yes
Walker Crk Un Burton Es I 0.1250000 0.1032447 Yes
Walker Crk Un Jack Un 1 0.0093750 0.0082031 Yes
Walker Crk Un Shirey Un I 0.0130200 0.0107422 Yes
Walker Crk Un Stuart Un 2 0.0774037 0.0646307 Yes
LAFAYETTE COUNTY, AR
FIELD-WALKER CREEK
Walker Creek Ut 0.0085518 0.0066014 Yes
Walker Crk Un Boyette 1 0.0452400 0.0375529 Yes
Walker Crk Un Burton Un l 0.0208330 0.0176595 Yes
Walker Crk Un Helms Un 1 0.0208330 0.0176595 Yes
Walker Crk Un Hughes Un l 0.0208330 0.0176595 Yes
Walker Crk Un Ipco Un 2 0.0140627 0.0123047 Yes
Walker Crk Un Kasek Un 1 0.0104767 0.0084237 Yes
Walker Crk Un Umphries 1 0.0208330 0.0182295 Yes
Walker Crk Un Whitehead l 0.0208330 0.0176595 Yes
ACADIA PARISH, LA
FIELD-IOTA
Iota Nonion Struma Sd Un 0.2274898 0.1706364 Yes
OFFSHORE PARISH, LA
FIELD-S MRSH IS SA BLK 142
OCS-G-1217 SMI 142/143 Un 0.0607690 0.0456439 Yes
PLAQUEMINES PARISH, LA
FIELD-GARDEN ISL BAY
S/L 3942 # 1 0.1358735 0.1039346 Yes
FIELD-STELLA
Hero # 2 0.4932813 0.3933540 Yes
Hero # 3 0.4932813 0.3933540 Yes
</TABLE>
Page 1 of 5
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY
- ----------------------------------------------- ---------------- -------------------- --------------
<S> <C> <C> <C>
Hero # 4 0.4932813 0.3933540 Yes
TERREBONNE PARISH, LA
FIELD-FOUR LEAGUE BAY
LL#E # 1 0.0946667 0.0658880 Yes
S/L 9414 # 5 0.1420001 0.1063296 Yes
FIELD-LAKE BOUDREAUX
S/L 13211 # 2 0.2125000 0.1583125 Yes
FIELD-MONTEGUT
MTG TEX W SU Southshore 2 0.0442000 0.0322660 Yes
VERMILION PARISH, LA
FIELD-WRIGHT
Abshire # 1 0.7684643 0.6355894 Yes
HINDS COUNTY, MS
FIELD-UTICA
Morrison 10-16 # 1 0.1974363 0.1479250 Yes
LINCOLN COUNTY, MS
FIELD-HURRICANE LAKE E
Fauva J A Un 1 # 1 0.3531312 0.2976468 Yes
CANADIAN COUNTY, OK
FIELD-UNION CITY
Schieber 1-21 0.3333333 0.2804843 Yes
Schieber 2-21 0.3333000 0.2804840 Yes
FIELD-WATONGA-CHICKASHA TREND-O
Inez 1-30 0.2343800 0.1794433 Yes
Red Sage 1-30 0.2343750 0.1794433 Yes
CUSTER COUNTY, OK
FIELD-ANADARKO (STAFFORD N)
Snider 1-36 0.5112492 0.3S02194 Yes
FIELD-CANUTE N
Kephart 1-17 0.1146048 0.0904388 Yes
Libby Hooter 1-17 0.1494095 0.1179119 Yes
Rowlan 1-3 0.2046220 0.1554200 Yes
FIELD-INDIANAPOLIS
Schapansky 1-32 0.3378602 0.2505888 Yes
FIELD-MOOREWOOD NE
Broadbent 1-25 0.1261714 0.1077000 Yes
</TABLE>
Page 2 of 5
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY
- -------------------------------------------- ---------------- -------------------- --------------
<S> <C> <C> <C>
Moseley 5-25 0.0987430 0.0837000 Yes
Moseley 7-25 0.0987430 0.0837000 Yes
Touchstone 3-14 0.1477571 0.1246598 Yes
FIELD-WEATHERFORD
Frizzell A 1-32 0.0771429 0.0655712 Yea
DEWEY COUNTY, OK
FIELD-PUTNAM
Craig 1-35 0.1431675 0.1213568 Yes
GRADY COUNTY, OK
FIELD-MIDDLEBURG SE (AMBER NE)
Crosswhite 1-24 0.2299626 0.1701723 Yes
FIELD-NORGE SW
Methvin 1-12 0.4108255 0.3371687 Yes
KINGFISHER COUNTY, OK
FIELD-OKARCHE N
Ellis 1- 1 0.3047063 0.2498593 Yes
Snow 1- 5 0.4422538 0.3299128 Yes
FIELD-SOONER TREND
Themer 10- 2 0.8717898 0.6974319 Yes
MAJOR COUNTY, OK
FIELD-CEDARDALE NE
Barnes D#4 0.1006016 0.0860145 Yes
Butler 2-20 0.7911483 0.6613098 Yes
Foster 2-21L(Chester) 0.4444297 0.3736202 Yes
Foster3-21 0.4039427 0.3405956 Yes
Schlarb 3-22U 0.6056344 0.5157184 Yes
FIELD-RINGWOOD
Rexroat 1- 9 0.3000000 0.2565000 Yes
Rexroat 2- 9 0.3000000 0.2565000 Yes
Rexroat 3-9 0.3000000 0.2565000 Yes
Warfield Un 1-5 0.6398714 0.4998072 Yes
Warfield Un 2-5 0.6398714 0.4998072 Yes
FIELD-SEILING NE
Bensch 1-23 0.5074999 0.4047114 Yes
OKLAHOMA COUNTY, OK
FIELD-EDMOND W
Cargill O A 1.0000000 0.8203125 Yes
</TABLE>
Page 3 of 5
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY
- ------------------------------------------ ---------------- -------------------- --------------
<S> <C> <C> <C>
WOODS COUNTY, OK
FIELD-AVARD
Oshel 2-30 0.8000000 0.6840000 Yes
FIELD-OAKDALE
Gisson 2-33L(Mississippi 0.7383100 0.5934588 Yes
Gisson 3-33L(Mississippi 0.4458101 0.3811676 Yes
Gisson 4-33 0.4626925 0.3714772 Yes
Veatch 2-24 0.3874999 0.3217421 Yes
Wilt A 2-19 0.7557648 0.5890299 Yes
WOODWARD COUNTY, OK
FIELD-CEDARDALE NE
State 2-24L(Oswego) 0.8150000 0.6693661 Yes
State 2-24U 0.8150000 0.6693660 Yes
State 3-24 0.8150000 0.6693661 Yes
BEE COUNTY, TX
FIELD-PLUMMER-WILCOX
Borroum B # 1 0.7000000 0.5906250 Yes
CHAMBERS COUNTY, TX
FIELD-ELWOOD
Colby Claypool # 1 0.0000000 0.0244142 Yes
HARDIN COUNTY, TX
FIELD-JOHN VICKERS (VICKERS)
Arco Vickers # 1 1.0000000 0.7250000 Yes
HOCKLEY COUNTY, TX
FIELD-SMYER
Smyer April Harless 0.1874193 0.0000000 Yes
Smyer Lockhart 0.0646246 0.0000000 Yes
Smyer Lockhart A 0.0229561 0.0000000 Yes
Smyer Un NE 0.2750000 0.2255000 Yes
HOPKINS COUNTY, TX
FIELD-BRANTLEY JACKSON
Brantley Jackson Un 0.1869938 0.1510408 Yes
KENT COUNTY, TX
FIELD-ATKINS-FLEMING
Fleming # 1 0.8000000 0.6400000 Yes
LIVE OAK COUNTY, TX
</TABLE>
FIELD-MIKESKA
Page 4 of 5
<PAGE>
<TABLE>
<CAPTION>
PROPERTY NAME WORKING INTEREST NET REVENUE INTEREST TITLE PROPERTY
- ------------------------------------- ---------------- -------------------- --------------
<S> <C> <C> <C>
Bennett State GU # 1 0.2500000 0.2043219 Yes
LOVING COUNTY, TX
FIELD-HALEY
Harrison Nell 22-1 0.0393230 0.0298450 Yes
Harrison Nell 28-1A 0.0422530 0.0321890 Yes
LUBBOCK COUNTY, TX
FIELD-EDMISSON
Broadview Un E 0.3195384 0.2632593 Yes
FIELD-LDALOU
Idalou Un 0.2797272 0.2097950 Yes
MATAGORDA COUNTY, TX
FIELD-MIDDLEBANK REEF
S/T 367 L # 4 0.2876934 0.2346491 Yes
WEBB COUNTY, TX
FIELD-GATO CMK
Alley # 3 0.1048890 0.0742457 Yes
FIELD-RANCHO VIEJO
Alley # 4 0.1048899 0.0742457 Yes
Alley # 5 0.1049000 0.0742457 Yes
FIELD-THOMPSONVILLE NE
Bruni D GU 0.3333333 0.2708334 Yes
</TABLE>
Page 5 of 5
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF BELLWETHER EXPLORATION COMPANY
State of Incorporation
----------------------
Bellwether Exploration Company Delaware
Snyder Gas Plant Venture Texas
West Monroe Gas Gathering Corporation Louisiana
NGL - Torch Gas Plant Venture Texas
Odyssey Petroleum Company Delaware
Black Hawk Oil Company Texas
TEAI Oil & Gas Company Texas
<PAGE>
[LETTERHEAD OF WILLIAMSON PETROLEUM CONSULTANTS, INC. APPEARS HERE]
CONSENT OF WILLIAMSON PETROLEUM CONSULTANTS, INC.
As independent oil and gas consultants, Williamson Petroleum Consultants, Inc.
hereby consents to (a) the use of our reserve reports entitled "Evaluation of
Oil and Gas Reserves to the Interests of Bellwether Exploration Company in
Certain Properties, Effective June 30, 1996, for Disclosure to the Securities
and Exchange Commission, Williamson Project 6.8369" dated August 20, 1996 and
"Evaluation of Oil and Gas Reserves to the Interests of Bellwether Exploration
Company in Certain Properties, Effective June 30, 1995, for Disclosure to the
Securities and Exchange Commission, Williamson Project 5.8286" dated August 30,
1995 and b) all references to our firm included in or made a part of the
Bellwether Exploration Company Annual Report on Form 10-K to be filed with the
Securities and Exchange Commission or about September 29, 1997.
/s/ Williamson Petroleum Consultants, Inc.
------------------------------------------
WILLIAMSON PETROLEUM CONSULTANTS, INC.
Houston, Texas
September 29, 1997
<PAGE>
[R.T. GARCIA & CO., INC. LOGO APPEARS HERE]
EXHIBIT 23.2
R.T. GARCIA & CO., INC.
Petroleum Engineering - Management Consulting
September 26, 1997
We do hereby grant consent to Bellwether Exploration Company for the
reference to, or the inclusion of, our Reserve Report for Associated Gas
Resources, Inc. for the fiscal year ending June 30th, 1995, in the Bellwether
Exploration Company Form 10-K annual report.
R.T. GARCIA & CO., INC.
/s/ RAYMOND T. GARCIA
_________________________________
Raymond T. Garcia, P.E.
President
<PAGE>
[RYDER SCOTT COMPANY PETROLEUM ENGINEERS LETTERHEAD APPEARS HERE]
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use in the Prospectus constituting part of this Annual
Report on Form 10-K of our reserve report dated September 25, 1997 relating to
the oil and gas reserves of Bellwether Exploration Company at July 1, 1997. We
also consent to the references to us under the heading "Supplemental
Information" in the Notes to the Consolidated Financial Statements of Bellwether
Exploration Company in such report.
/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
___________________________________
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
September 25, 1997
<PAGE>
EXHIBIT 23.4
Independent Accountants' Consent
The Board of Directors
Bellwether Exploration Company:
We consent to incorporation by reference in the registration statement (No.
33-91320) on Form S-8, registration statement (No. 33-91326) on Form S-8,
registration statement (No. 333-27707) on Form S-8 and registration statement
(No. 333-16231) on Form S-8 of Bellwether Exploration Company of our report
dated September 29, 1997, relating to the consolidated balance sheets of
Bellwether Exploration Company and subsidiaries as of June 30, 1997 and 1996 and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 1997, which report appears in the June 30, 1997 annual report on Form 10-K
of Bellwether Exploration Company.
/s/ KPMG Peat Marwick LLP
Houston, Texas
September 29, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 15,341
<SECURITIES> 0
<RECEIVABLES> 18,631
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,731
<PP&E> 246,099
<DEPRECIATION> (65,097)
<TOTAL-ASSETS> 222,648
<CURRENT-LIABILITIES> 12,948
<BONDS> 100,000
0
0
<COMMON> 139
<OTHER-SE> 87,785
<TOTAL-LIABILITY-AND-EQUITY> 222,648
<SALES> 45,719
<TOTAL-REVENUES> 46,084
<CGS> 30,333
<TOTAL-COSTS> 38,854
<OTHER-EXPENSES> 4,044
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,477
<INCOME-PRETAX> 7,230
<INCOME-TAX> 2,585
<INCOME-CONTINUING> 4,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,645
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.43
</TABLE>
