<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 4, 1994
SEAGULL ENERGY CORPORATION
______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Texas
______________________________________________________________________________
(State or other jurisdiction of incorporation)
1-8094 74-1764876
___________________________________ ________________________________________
(Commission File Number) (IRS Employer Identification No.)
1001 Fannin, Suite 1700, Houston, Texas 77002-6714
______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(713) 951-4700
______________________________________________________________________________
Registrant's telephone number, including area code
Not Applicable
______________________________________________________________________________
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statement of Business Acquired.
See exhibits for historical financial statements of Novalta Resources Inc.
<PAGE> 3
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENT
On January 4, 1994, an indirect wholly owned subsidiary of Seagull Energy
Corporation ("Seagull" or the "Company") acquired all of the outstanding shares
of stock (the "Stock") of Novalta Resources Inc. ("Novalta") and an
intercompany note (the "Note") from Novalta to its parent, Novacor
Petrochemicals Ltd. ("Novacor Petrochemicals"). The Stock and the Note were
acquired for a purchase price of approximately $203 million in cash, subject to
customary post-closing adjustments (the "Seagull Canada Acquisition"). As of
February 1, 1994, the adjusted purchase price was estimated at $200.5 million.
The economic effective date of the Seagull Canada Acquisition was December 31,
1993 (the "Effective Date"). Effective as of the January 4, 1994 Closing Date,
Novalta was amalgamated with one of its subsidiaries along with Seagull Energy
Canada Ltd., the indirect subsidiary of Seagull that acquired Novalta. The
resulting amalgamated company was named Seagull Energy Canada Ltd. ("Seagull
Canada").
The unaudited pro forma condensed balance sheet as of December 31, 1993 and
the unaudited pro forma condensed statement of earnings for the year ended
December 31, 1993 give effect to the Seagull Canada Acquisition, financed
initially under a new $175 million reducing revolving credit facility (the
"Canadian Credit Agreement") as well as borrowings under Seagull's amended
and restated $475 millon revolving credit line (the "Revolver") with a group of
major U.S. and international banks.
The following unaudited pro forma information has been included as required by
the rules of the Securities and Exchange Commission and is provided for
comparative purposes only. The unaudited pro forma information presented is
based on the respective historical consolidated financial statements of Seagull
and Novalta and should be read in conjunction with such financial statements
and the related notes thereto. The historical consolidated financial statements
of Novalta as presented do not reflect the effect of certain transactions
between Novalta and NOVA Corporation of Alberta and its subsidiaries that were
completed prior to the closing of the Seagull Canada Acquisition, such as the
elimination of intercompany debt balances. The effect of such transactions are
reflected in the conforming adjustments to the pro forma unaudited condensed
financial statements. The unaudited pro forma information presented does not
purport to be indicative of actual results, if the combinations had been in
effect on the dates or for the periods indicated, or of future results.
All amounts are in U.S. dollars.
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
As of December 31, 1993
(in thousands)
<TABLE>
<CAPTION>
Seagull Novalta
Energy Resources Conforming Pro Forma
Corporation Inc. Adjustments Combined
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $ 5,572 $ 415 $ -- $ 5,987
Accounts received, net................... 98,734 11,136 -- 109,870
Other.................................... 10,902 688 -- 11,590
---------- -------- -------- ----------
Total.................................. 115,208 12,239 -- 127,447
Property, Plant and Equipment -- at cost... 1,278,701 166,067 (166,067)(A) 1,495,295
216,229 (C)
365 (C)
Accumulated Depreciation, Depletion
and Amortization........................ 345,512 69,038 (69,038)(A) 345,512
---------- -------- -------- ----------
933,189 97,029 119,565 1,149,783
Other Assets.............................. 69,854 3,145 883 (C) 65,424
(8,458)(D)
---------- -------- -------- ----------
Total Assets.............................. $1,118,251 $112,413 $111,990 $1,342,654
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................ $ 84,904 $ 7,060 $ -- $ 91,964
Current maturities of long-term debt.... 1,538 -- -- 1,538
Other................................... 37,724 746 -- 38,470
---------- -------- -------- ----------
Total Current Liabilities........... 124,166 7,806 -- 131,972
Long-Term Debt............................ 459,787 64,316 (64,316)(B) 653,093
193,306 (D)
Other Noncurrent Liabilities.............. 66,785 1,965 (602)(C) 68,148
Deferred Income Taxes..................... 28,134 7,899 (7,899)(B) 50,062
21,928 (C)
Shareholder's Equity...................... 439,379 30,427 (30,427)(B) 439,379
---------- -------- -------- ----------
Total Liabilities and
Shareholders' Equity.................... $1,118,251 $112,413 $111,990 $1,342,654
========== ======== ======== ==========
</TABLE>
<PAGE> 5
NOTES TO UNAUDITED PRO FORMA
CONDENSED BALANCE SHEET
(A) To eliminate Novalta's historical cost of property, plant and equipment
and accumulated depreciation, depletion and amortization.
(B) To eliminate the long-term debt, deferred income taxes and shareholder's
equity of Novalta.
(C) To adjust the assets acquired and liabilities assumed in the Seagull
Canada Acquisition to reflect the allocation of the estimated purchase
price. The adjusted cost of property, plant and equipment was calculated
as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Estimated purchase price.......................... $200,455
Estimated transaction costs....................... 1,309
Less -- other assets acquired:
Current assets............................... (12,239)
Investment in EBOC Energy Ltd. .............. (3,255)
Deferred debt costs.......................... (773)
Other fixed assets........................... (365)
Plus -- liabilities assumed:
Current liabilities.......................... 7,806
Deferred credits............................. 1,363
Deferred income taxes........................ 21,928
--------
$216,229
========
</TABLE>
The purchase price was determined pursuant to arm's length negotiations
between the Company and Novacor Petrochemicals, based on the economic
effective date of December 31, 1993. The purchase price was based
to a large extent on the net present value of oil reserves attributable to
the properties acquired as a result of the Seagull Canada Acquisition.
(D) To record the financing of the Seagull Canada Acquisition.
<PAGE> 6
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1993
(in thousands)
<TABLE>
<CAPTION>
Seagull Novalta
Energy Resources Conforming Pro Forma
Corporation Inc. Adjustments Combined
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues ....................... $377,165 $32,358 $ -- $409,523
Costs of Operations:
Operating Costs............... 184,620 12,973 399 (B) 197,992
Depreciation, depletion and
amortization................ 116,556 9,371 (9,371)(A) 131,772
15,216 (C)
-------- ------- -------- --------
Operating Profit................ 75,989 10,014 (6,244) 79,759
General and Administrative
Expense....................... 11,666 -- -- 11,666
Interest Expense................ 36,753 1,083 (1,083)(A) 48,595
11,842 (D)
Interest Income and other...... (5,708) (3,102) -- (8,810)
-------- ------- -------- --------
Earnings Before Income Taxes.... 33,278 12,033 (17,003) 28,308
Income Taxes.................... 6,080 4,650 (4,650)(A) 6,146
66 (E)
-------- ------- -------- --------
Net Earnings.................... $ 27,198 $ 7,383 $(12,419) $ 22,162
======== ======= ======== ========
Earnings Per Share.............. $ 0.76 $ 0.62
======== ========
Weighted Average Number of
Common Shares Outstanding..... 35,790 35,790
======== ========
</TABLE>
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA
CONDENSED STATEMENTS OF INCOME
(A) To eliminate depreciation, depletion and amortization, interest expense
and income taxes of Novalta.
(B) To adjust general operating expenses to give effect to Seagull's increased
personnel, rent, consultation, professional and other expenses expected
as a result of the Seagull Canada Acquisition.
(C) To adjust depreciation, depletion and amortization to give effect to the
Seagull Canada Acquisition.
(D) To adjust interest expense to give effect to the Seagull Canada
Acquisition initially financed under the Canadian Credit Agreement and
the Revolver and the amortization of loan acquisition costs relating to
the Canadian Credit Agreement. The pro forma interest expense
adjustment was calculated as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
Pro forma average outstanding balance --
Canadian Credit Agreement $151,938
Estimated average interest rate 5.01%
--------
Pro forma interest expense on 7,612
Canadian Credit Agreement
Pro forma additional outstanding balance --
Revolver 49,826
Estimated average interest rate 5.40%
--------
Pro forma interest expense on the
additional Revolver 2,689
Pro forma interest expense on historical
Revolver due to increased interest
rate margin 1,348
Pro forma amortization of loan acquisition
costs relating to the Canadian Credit
Agreement 193
-------
$11,842
=======
</TABLE>
(E) To adjust Revenue Canada and Alberta Province income taxes for the items
discussed in Notes (B) through (D) above.
<PAGE> 8
(c) Exhibits.
<TABLE>
<S> <C>
* 2.1 Consolidated Financial Statements of Novalta Resources Inc.
*24.1 Consent of Ernst & Young.
</TABLE>
* Filed herewith.
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 15, 1994
SEAGULL ENERGY CORPORATION
By: /s/ Rodney W. Bridges
_____________________
Rodney W. Bridges
Vice President and Controller
(Principal Accounting Officer)
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
* 2.1 Consolidated Financial Statements of Novalta Resources
Inc.
*24.1 Consent of Ernst & Young.
</TABLE>
* Filed herewith.
<PAGE> 1
EXHIBIT 2.1
CONSOLIDATED FINANCIAL STATEMENTS
NOVALTA RESOURCES INC.
DECEMBER 31, 1993
<PAGE> 2
AUDITORS' REPORT
To the Directors of
Novalta Resources Inc.
We have audited the consolidated balance sheets of Novalta Resources Inc. as at
December 31, 1993 and 1992 and the consolidated statements of income, deficit
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
1993 and 1992 and the results of its operations and the changes in its
financial position for the years then ended in accordance with accounting
principles generally accepted in Canada.
Calgary, Canada /s/ ERNST & YOUNG
January 21, 1994 Chartered Accountants
<PAGE> 3
Novalta Resources Inc.
(Incorporated under The Business Corporations Act of Alberta)
CONSOLIDATED BALANCE SHEETS
ASSETS
(thousands of dollars)
<TABLE>
<CAPTION>
December 31,
------------
1993 1992
---- ----
<S> <C> <C>
Current Assets
Cash $ 549 $ 170
Accounts receivable (net) {note 9} 12,767 6,475
Due from affiliates {note 3} 1,978 1,529
Other 911 1,076
-------- -------
16,205 9,250
-------- -------
Fixed Assets {note 2}
Petroleum and natural gas properties (successful efforts 217,791 217,976
method of accounting for gas and oil properties)
Other 2,081 3,077
-------- -------
219,872 221,053
Less accumulated depletion, depreciation and amortization 91,406 92,597
-------- -------
128,466 128,456
-------- -------
Investments {note 7} 4,164 -
-------- -------
$148,835 $137,706
======== ========
</TABLE>
<PAGE> 4
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
------------
1993 1992
---- ----
<S> <C> <C>
Current Liabilities
Accounts payable and accrued liabilities {note 10} $ 8,949 $ 5,656
Due to NOVA Corporation of Alberta {note 3} 397 593
Notes payable - 107
Deferred production revenue {note 6} 988 1,393
------- --------
10,334 7,749
------- --------
Deferred credits {note 6} 2,601 2,958
------- --------
Deferred income taxes 12,234 7,431
------- --------
Advance from Novacor Petrochemicals Ltd. {note 3} 85,154 85,154
------- --------
Long-term debt [note 2] - 5,500
------- --------
Shareholder's equity
Share capital
Common shares Class A no par value
Authorized: unlimited
Issued: 100 shares 1 1
Preferred shares Class A, non-voting
Authorized: unlimited
Issued: 55,000 shares 55,000 55,000
Contributed surplus 26,650 26,650
Deficit (43,139) (52,737)
------- --------
38,512 28,914
------- --------
$148,835 $137,706
======== ========
</TABLE>
See accompanying notes
<PAGE> 5
Novalta Resources Inc.
CONSOLIDATED STATEMENTS OF INCOME
(thousands of dollars)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1993 1992
---- ----
<S> <C> <C>
Revenue
Petroleum and natural gas sales $38,849 $34,321
Brokered natural gas sales 933 4,616
Other income 156 223
------- -------
39,938 39,160
------- -------
Expenses
Operating 11,585 10,380
Cost of natural gas sold 524 3,767
Depletion, depreciation and amortization [note 4] 12,088 12,841
Exploration 2,102 1,789
Interest on long-term debt 1,397 6,799
General and administrative 2,524 1,802
(Gain)/loss on dispositions (4,002) 307
------- -------
26,218 37,685
------- -------
Income before income taxes 13,720 1,475
------- -------
Income taxes [note 8]
Current income taxes 1,122 59
Deferred income taxes 4,803 373
Alberta royalty tax credit (1,803) (1,285)
------- -------
4,122 (853)
------- -------
Net income for the year $ 9,598 $ 2,328
======= =======
</TABLE>
See accompanying notes
<PAGE> 6
Novalta Resources Inc.
CONSOLIDATED STATEMENTS OF DEFICIT
(thousands of dollars)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1993 1992
---- ----
<S> <C> <C>
Deficit, beginning of year $52,737 $55,065
Net income for the year 9,598 2,328
------- -------
Deficit, end of year $43,139 $52,737
======= =======
</TABLE>
See accompanying notes
<PAGE> 7
Novalta Resources Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1993 1992
---- ----
<S> <C> <C>
Operating activities
Net income $ 9,598 $ 2,328
Depletion and depreciation 12,088 12,841
Exploration 2,102 1,789
(Gain)/loss on dispositions (4,002) 307
Deferred income taxes 4,803 373
-------- --------
24,589 17,638
-------- --------
Investment income (15) -
Changes in working capital other than cash [note 5] (3,479) 635
-------- --------
21,095 18,273
-------- --------
Investing activities
Petroleum and natural gas properties
Exploration and development (16,774) (4,945)
Acquisitions (3,066) -
Proceeds on dispositions 10,447 568
Other (378) (495)
Investment in EBOC Energy Ltd. [note 7] (4,149) -
-------- --------
(13,920) (4,872)
-------- --------
Financing activities
Payment of long-term debt (5,500) (67,000)
Issue of preferred shares - 55,000
Issue of notes payable - 107
Repayment of notes payable (107) -
Deferred credits [note 6] (1,189) (1,271)
-------- --------
(6,796) (13,164)
-------- --------
Increase in cash 379 237
Cash (bank overdraft), beginning of year 170 (67)
-------- --------
Cash , end of year $ 549 $ 170
======== ========
</TABLE>
See accompanying notes
<PAGE> 8
NOVALTA RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Novalta Resources
Inc. (the "Company") and its subsidiaries. Substantially all of the exploration
and production activities of the Company are conducted jointly with others, and
accordingly, these financial statements reflect only the Company's
proportionate interest in such activities.
All amounts are reported in Canadian dollars.
FIXED ASSETS
Under the successful efforts method of accounting, costs of land acquisition,
costs to drill and equip exploratory wells that find proved reserves, and costs
to drill and equip development wells are capitalized. All other exploration
costs, including costs to drill unsuccessful exploratory wells, geological and
geophysical costs, and the costs of carrying and retaining unproved properties
are expensed as incurred. Acquisition costs of unproved properties are
amortized over the remaining term of the lease or until reserves are proved or
the property is impaired and a loss is recognized at the time of impairment.
Proved properties are carried at the lesser of cost or an ultimate recoverable
amount.
Capitalized costs of proved oil and gas properties are amortized by the
unit-of-production method based on reserve estimates prepared by an independent
consultant using end of the year prices.
Other fixed assets are being depreciated using the declining balance method at
annual rates varying from 10% to 50%, which are designed to amortize the costs
of the assets over their estimated useful lives.
Future removal and site restoration costs for petroleum and natural gas
properties are provided on the unit-of-production method.
INVESTMENTS
Investments are accounted for using the equity method of accounting.
COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted for the current year.
1
<PAGE> 9
NOVALTA RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. LONG-TERM DEBT
<TABLE>
<CAPTION>
At December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Revolving term credit facility $ - $ 5,500
======= =======
</TABLE>
As at December 31, the Company had a Revolving Term Credit Facility (the
facility) with a borrowing base of $75,000,000, subject to annual review. The
principal features of this facility were:
Maturity - December 31, 2000, with the amount available under
the facility being reduced quarterly by $2,750,000
- current repayments were required to the extent
principal amounts outstanding exceed the borrowing
base
Collateral - assignment of proceeds from certain long term
natural gas sales contracts
- $150,000,000 floating charge debenture
- assignment of book debts
- assignment of present and future petroleum and
natural gas properties
Interest - varying rates over the term based on the method of
financing chosen which at December 31, 1992 were
Canadian Dollar Loans at an effective rate of 7.63%
The Revolving Term Credit Facility, at the Company's request, was terminated on
September 16, 1993.
At December 31, 1992, the Company had two interest rate swap agreements
outstanding which had effectively fixed the interest rates on $40,000,000 of
available borrowing at 11.01% and 11.10% for the years 1993 and 1994
respectively. The agreements were terminated during 1993.
3. RELATED PARTY TRANSACTIONS
The Company is an indirect wholly-owned subsidiary of NOVA Corporation of
Alberta ("NOVA"). During 1993, NOVA transferred ownership of the Company to
Novacor Petrochemicals Ltd. ("NPL"). All intercompany amounts disclosed in the
consolidated financial statements relate to companies wholly-owned or
affiliated with NOVA.
2
<PAGE> 10
NOVALTA RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions with related parties are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Sales $ 20,146 $ 17,053
Services purchased from NOVA 1,586 1,152
</TABLE>
Amounts due from affiliates is comprised of the following:
<TABLE>
<CAPTION>
At December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Novacor Chemicals Ltd. $ 1,842 $ 420
PanAlberta Resources Inc. 136 896
Other affiliates - 213
------- ------
$1,978 $1,529
====== ======
</TABLE>
Amounts due from affiliates, due to NOVA, and the advance from NPL have no
specified terms of repayment and are non-interest bearing. NPL has indicated
that it will not require repayment of the advance during the next year.
4. DEPLETION, DEPRECIATION AND AMORTIZATION
Depletion, depreciation and amortization consist of the following:
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Future removal and site restoration costs $ 741 $ 304
Depletion, depreciation and amortization 11,347 12,537
------- -------
$12,088 $12,841
======= =======
</TABLE>
3
<PAGE> 11
NOVALTA RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. CHANGES IN WORKING CAPITAL OTHER THAN CASH
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Accounts receivable $(6,292) $ 821
Due from affiliates (449) (161)
Other 165 57
Accounts payable 3,293 (38)
Due to NOVA (196) (44)
------- ------
$(3,479) $ 635
======= ======
</TABLE>
6. DEFERRED CREDITS
<TABLE>
<CAPTION>
At December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Deferred credits consist of the following:
Deferred production revenue $ 988 $ 2,381
Future site restoration and abandonment costs 2,396 1,970
Other 205 -
------- --------
3,589 4,351
Less current amount of deferred production revenue (988) (1,393)
------- --------
$2,601 $ 2,958
====== =======
</TABLE>
7. INVESTMENT IN EBOC ENERGY LTD.
During the year, the Company transferred petroleum and natural gas properties
having a net book value of $3,958,000 to EBOC Energy Ltd. ("EBOC") in exchange
for 32.25% of the shares of EBOC.
4
<PAGE> 12
NOVALTA RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
Income tax expense varies from amounts computed by applying the Canadian
federal and provincial statutory income tax rates to income before taxes as
shown in the following table:
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Statutory income tax rate 44.3% 44.3%
Income before income taxes $13,720 $ 1,475
Computed income tax expense 6,078 653
Increase (decrease) in taxes resulting from:
Non-deductible crown charges 3,627 2,464
Federal resource allowance (3,431) (2,908)
Federal earned depletion allowance (967) (27)
Other 618 250
------- -------
Income tax expense $ 5,925 $ 432
======= =======
</TABLE>
9. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
At December 31,
1993 1992
<S> <C> <C>
Trade $ 9,228 $ 2,569
Other 4,498 4,618
Allowance for doubtful accounts (959) (712)
------- -------
$12,767 $ 6,475
======= =======
</TABLE>
10. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
At December 31,
1993 1992
<S> <C> <C>
Trade $ 6,607 $ 4,900
Income taxes 697 -
Other 1,645 756
------- -------
$ 8,949 $ 5,656
======= =======
</TABLE>
5
<PAGE> 13
NOVALTA RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SUBSEQUENT EVENTS
On January 4, 1994, NPL, the Company's parent, sold its investment in the
Company to Seagull Energy Canada Ltd., an indirect wholly owned subsidiary of
Seagull Energy Corporation. On the same date, the Company and one of its
subsidiaries, Amber Valley Energy Corporation, amalgamated, under the
provisions of the Alberta Business Corporations Act, with Seagull Energy Canada
Ltd. The resultant entity will operate under the name of Seagull Energy Canada
Ltd.
12. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES OF AMERICA
The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in Canada ("Canadian
basis") which conform to accounting principles generally accepted in the United
States ("US basis") in most areas. The following reconciliations reflect the
differences in these accounting principles, where applicable.
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Net income in accordance with Canadian basis $ 9,598 $ 2,328
Deduct adjustments for income taxes:
Current year (74) (64)
Cumulative change in accounting principles - (6,635)
------- -------
Net income (loss) in accordance with US basis $ 9,524 $(4,371)
======= =======
Deferred income taxes $19,007 $14,130
======= =======
Deficit $49,912 $59,436
======= =======
</TABLE>
SFAS 109 "Accounting for Income Taxes" requires the use of the liability
method under which deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which the temporary
differences are expected to be recovered or settled. Effective January 1, 1992,
the Company adopted the provisions of FAS 109 for US basis accounting purposes.
The cumulative effect of this change in accounting principle is included in the
Company's consolidated net loss for US reporting purposes for the year ended
December 31, 1992.
6
<PAGE> 14
NOVALTA RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The principal temporary difference in calculating deferred income taxes relates
to deductions for tax purposes in respect of plant, property and equipment in
excess of depletion, depreciation and amortization provided for in the
accounts.
Income tax expense varies from amounts computed by applying the Canadian
federal and provincial statutory income tax rates to income before taxes as
shown in the following table:
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Statutory income tax rate 44.3% 44.3%
Income before income taxes $ 13,720 $ 1,475
Computed income tax expense 6,078 653
Increase (decrease) in taxes resulting from:
Non-deductible crown charges 3,627 2,464
Federal resource allowance (3,431) (2,908)
Other (275) 287
-------- -------
Income tax expense $ 5,999 $ 496
======== =======
</TABLE>
ADDITIONAL U.S. DISCLOSURES
a) Summary of Major Customers
The following information is provided solely to comply with FAS 14 "Financial
Reporting for Segments of a Business Enterprise". During the years ended
December 31, 1993 and 1992, sales to the following companies individually
comprised greater than 10% of revenue.
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Novacor Chemicals Ltd. $11,648 $ 3,682
Western Gas Marketing Limited 7,922 5,219
Pan-Alberta Gas Ltd. 4,469 10,643
</TABLE>
7
<PAGE> 15
NOVALTA RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b) Supplementary Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Cash paid during the year for:
Interest $ 1,531 $ 6,511
Income taxes 425 59
------ -------
$ 1,956 $ 6,570
======= =======
</TABLE>
On a U.S. basis, proceeds on dispositions would be reflected net of the
$4,149,000 Investment in EBOC Energy Ltd., and a corresponding amount would be
reflected as non-cash investing activities.
Deferred credits in the amount of $1,189,000 in 1993 ($1,271,000 in 1992),
which are reflected as a component of cash used in financing activities, would
be reflected as a change in working capital other than cash on a U.S. basis. As
a result of this adjustment, cash provided by operating activities would be
$19,906,000 in 1993 ($17,002,000 in 1992) and cash used in financing activities
would be $5,607,000 in 1993 ($11,893,000 in 1992).
c) Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments as at December
31, 1993 and 1992 approximates their carrying value.
8
<PAGE> 16
Novalta Resources Inc.
Unaudited Supplemental Financial Information - Gas and Oil Producing Activities
The following information has been included to comply with the United States
Securities and Exchange Commission regulations and is presented in accordance
with the Financial Accounting Standards Board Statement Statement 69
"Disclosures About Oil & Gas Producing Activities".
CAPITALIZED COSTS RELATING TO GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Proved properties $212,308 $212,528
Unproved properties 5,483 5,448
-------- --------
217,791 217,976
Accumulated depreciation, depletion and amortization 90,107 90,748
-------- --------
$127,684 $127,228
======== ========
</TABLE>
COSTS INCURRED IN GAS AND OIL PROPERTY ACQUISITION, EXPLORATION AND
DEVELOPMENT ACTIVITIES
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Acquisition of properties:
Proved $ 3,066 --
Unproved 2,871 1,012
Exploration costs 5,691 363
Development costs 9,396 1,877
------- ------
$21,024 $3,252
======= ======
</TABLE>
<PAGE> 17
Novalta Resources, Inc.
RESULTS OF OPERATIONS FOR GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Revenues $ 40,652 $ 35,605
Lifting costs (11,585) (10,380)
-------- --------
29,067 25,225
-------- --------
General operating expense (2,472) (1,950)
Exploration charges (2,102) (1,789)
Depreciation, depletion and amortization (12,088) (12,841)
-------- --------
Operating profit 12,405 8,645
Income tax expense (i) (5,357) (2,531)
-------- --------
Results of operations from producing activities $ 7,048 $ 6,114
======== ========
</TABLE>
(i) Income tax expense is calculated by applying the current effective tax rate
to operating profit.
RESERVE QUANTITY INFORMATION (ii)
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992
Gas Oil Gas Oil
(MMcf) (Mbbl) (MMcf) (Mbbl)
<S> <C> <C> <C> <C>
Proved developed and undeveloped reserves:
Beginning of year 244,629 2,771 269,753 2,795
Purchases of reserves in place 8,554 232 1,606 --
Sale of reserves in place (17,400) (257) (1,720) --
Revisions of previous estimates 21,331 431 (7,268) (12)
Extensions and discoverie 18,499 19 993 402
Production (18,231) (413) (18,735) (414)
------- ----- ------- ----
End of year 257,382 2,783 244,629 2,771
======= ===== ======= =====
Proved developed reserves:
Beginning of year 181,963 2,248 198,394 2,091
======= ===== ======= =====
End of year 236,945 2,529 181,963 2,248
======= ===== ======= =====
</TABLE>
(ii) Oil reserves stated in thousands of barrels (Mbbl), gas reserves stated in
millions of cubic feet (MMcf).
<PAGE> 18
Novalta Resources Inc.
The Company's standardized measure of future net cash flows and changes therein
as of December 31, 1993 and 1992 are provided on the present value of future
net revenues from proved gas and oil reserves estimated by independent
petroleum engineers in accordance with the guidelines
established by the Securities and Exchange Commission. These estimates were
computed by applying appropriate current prices for gas and oil to estimated
future production of proved gas and oil reserves over the economic lives of the
reserves assuming continuation of existing conditions. Year end 1993
calculations were made utilizing average prices for gas and oil, condensate and
natural gas liquids that existed at December 31, 1993 of $2.12 per Mcf and
$12.57 per barrel , respectively. Income taxes are computed by applying the
statutory federal and provincial tax rates to the net cash inflows relating to
proved gas and oil reserves less the tax bases of the properties involved and
giving effect to any tax credits and allowances relating to such properties.
The reserve volumes provided by the independent petroleum engineers are
estimates only and should not be construed as being exact quantities. These may
or may not be recovered and may increase or decrease as a result of future
operations of the Company and changes in market conditions.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
At December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Future cash inflows $ 652,822 $ 417,502
Future development costs (29,278) (21,369)
Future production costs (160,767) (141,734)
--------- ---------
Future net cash flows before income taxes 462,777 254,399
10% annual discount (211,953) (116,329)
--------- ---------
Discounted future net cash flows before income taxes 250,824 138,070
Discounted income taxes (82,285) (27,479)
--------- ---------
Standardized measure of discounted future net cash flows $ 168,539 $ 110,591
========= =========
</TABLE>
<PAGE> 19
Novalta Resources Inc.
PRINCIPAL SOURCES OF CHANGES IN THE STANDARDIZED
MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992
(thousands of dollars)
<S> <C> <C>
Standardized measure of discounted future
net cash flows, beginning of year $110,591 $114,442
Purchases of reserves in place 9,639 907
Sale of reserves in place (10,702) (942)
Revisions of previous quantity estimates less
related costs 23,208 (3,950)
Extensions and discoveries less related costs 16,931 1,701
Net changes in prices and production costs 101,659 (1,185)
Development costs incurred during period and
changes in estimated future development costs 17,655 1,698
Sale of gas and oil produced during the period,
net of lifting costs (29,067) (25,225)
Accretion of discount 13,807 14,784
Net change in income taxes (54,806) 5,918
Net change in Alberta royalty tax credit (1,635) (1,800)
Other (28,741) 4,243
-------- --------
57,948 (3,851)
-------- --------
Standardized measure of discounted future
net cash flows, end of year $168,539 $110,591
======== ========
</TABLE>
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the registration
statements of Seagull Energy Corporation listed below of our report dated
January 21, 1994, with respect to the consolidated financial statements of
Novalta Resources Inc. and Subsidiaries as of December 31, 1993 and 1992, and
for each of the years in the two-year period ended December 31, 1993 included
in Amendment No. 1 on Form 8-KA filed February 16, 1994 to the Current Report
on Form 8-K of Seagull Energy Corporation filed January 19, 1994.
a. Form S-8, Seagull Thrift Plan (2-72014).
b. Form S-8, Seagull Energy Corporation 1981 Non-Qualified
and Incentive Stock Option Plan (2-80834)
c. Form S-8, ENSTAR Natural Gas Company Thrift Plan
(33-14463).
d. Form S-8 and Form S-3, Seagull Energy
Corporation 1983 Stock Option
Plan (2-93087)
e. Form S-8 and Form S-3, Seagull Energy Corporation 1986
Stock Option Plan (33-22475)
f. Form S-8, Seagull Energy Corporation 1990 Stock Option
Plan (33-43483)
g. Form S-8, Seagull Energy Corporation
1993 Stock Option Plan (33-50643)
h. Form S-8, Seagull Energy Corporation 1993 Nonemployee
Directors' Stock Option Plan (33-50645)
Calgary, Alberta, Canada /s/ ERNST & YOUNG
February 16, 1994 Chartered Accountants
