<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 2-70145
SOUTH TEXAS DRILLING & EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2088619
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9310 Broadway, Bldg. I San Antonio, Texas 78217
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 210-828-7689
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None None
Securities registered pursuant to Section 12(g)of the Act:
Common Stock $0.10 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
(X)
State the aggregate market value of the voting stock held by non-affiliates
of the registrant (computed by reference to the closing sales prices on June 2,
2000): $11,923,058
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of June 2, 2000.
Class: Common Stock Shares Outstanding: 10,952,845
Par Value: $0.10
<PAGE> 2
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
South Texas Drilling & Exploration, Inc. and its subsidiaries (the
"Company") are engaged in the business of providing land contract drilling
services for the oil and gas industry in south Texas.
This Form 10-K contains certain "forward-looking" statements as such term is
defined in The Private Securities Litigation Reform Act of 1995 and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect" and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitation, competitive factors, general economic conditions,
customer relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introductions and acceptance, technological change, changes in industry
practices, one-time events and other factors described herein and in other
filings made by the Company with the Securities and Exchange Commission. Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected, or intended. The Company does not intend to
update these forward-looking statements.
CONTRACT DRILLING
At the end of fiscal 2000, the Company owned eight land drilling rigs with
approximate depth capabilities ranging from 7,000 feet to 12,000 feet. In
September, 1999, the Company completed its acquisition of the drilling
operations of Howell Drilling, Inc., a San Antonio, Texas based land drilling
contractor. The purchase included two drilling rigs, a Cabot 900 and a Cabot
750, drill pipe and collars, assorted spare drilling equipment, transportation
equipment and office furniture and fixtures. All of the Company's rigs were
operated during fiscal 2000; however, Rig 4 was out of service for approximately
four months while undergoing refurbishment and Rig 9 was stacked in the
Company's yard for approximately five months due to low rig demand.
Drilling Equipment
A land drilling rig consists of engines, drawworks, mast, pumps to circulate
the drilling mud, blowout preventors, drillstring and related equipment. The
size and type of rig used depends upon well depth and site conditions, among
other factors. A description of the type and capability of the land drilling
rigs operated by the Company during fiscal 2000 is set forth in the following
table:
<TABLE>
<CAPTION>
Approximate Aggregate
Rig Depth Utilization
Number Type Capability During 2000
------ ---- ----------- -----------
<S> <C> <C> <C>
1 IRI Cabot 900 10,500 75%
2 IRI Cabot 750 11,000 62%
4 Skytop Brewster N46 12,000 31%
5 Gardner-Denver 500M 10,000 73%
6 Skytop DH4610 10,500 68%
9 Weiss W-45 9,000 45%
11 Skytop Brewster N46 12,000 62%
14 Skytop Brewster N46 12,000 59%
</TABLE>
Minor repair work on the drilling rigs is performed on-site by the
Company's employees, but major repair work and overhaul of drilling equipment on
a contractual basis are performed by unaffiliated oilfield service companies. In
the event
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SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
of major breakdowns or mechanical problems, the Company's rigs could be subject
to significant idle time and a resulting loss of revenue if such repair services
were not immediately available. The Company engages in periodic maintenance and
improvement of its drilling equipment and believes that its drilling rigs and
other related equipment are in good operating condition. The Company has
experienced no substantial down time as the result of repair or overhaul of its
equipment.
Principal materials, supplies and equipment necessary for drilling
operations are fuels to operate drilling equipment, drilling mud, tubular steel,
cement, drill bits, and other miscellaneous items. Certain of these items were
in short supply from time to time during prior periods of high drilling demand.
At the present time, the Company is not experiencing any significant shortages
of materials, supplies and equipment used in drilling, and does not foresee any
shortages materially affecting its operations.
Contracts
All contracts under which the Company is presently conducting its land
drilling operations provide for rate charges determined on a daywork, footage or
turnkey basis, with rates dependent on the anticipated complexity of drilling
the well, on-site drilling conditions, the type of equipment to be used, the
Company's estimate of the risks involved, the duration of the work to be
performed and competitors' rates among other considerations. Daywork contracts
provide for a fixed charge per day for drilling the well, and the customer
generally bears the major portion of the related costs and risks of drilling.
With certain limitations, contracts entered into on a footage basis provide
for an agreed price per foot drilled regardless of the time required or the
problems involved in drilling the well. Related costs of drilling (i.e., rig
mobilization, labor, fuel usage and other costs) are included in the footage
charge. As compared to daywork contracts, footage contracts involve a higher
degree of risk to the Company.
Contracts entered into on a turnkey basis usually require the Company to
deliver to the operator a completed hole drilled to a specified depth. In
addition to all costs incurred when drilling on a footage basis, the Company is
usually also responsible for drilling fluids, water and other costs. As this
type of contract places a greater degree of risk on the Company than daywork or
footage contracts, the anticipated gross margin on this type of contract is
greater than on daywork or footage contracts.
Drilling contracts are obtained either through competitive bidding or
through direct negotiation. Contracts are usually entered into by the Company
covering the drilling of one well and obligate the Company to advance certain
costs and to assume certain expenses in connection with drilling operations.
During the year ended March 31, 2000, the Company drilled 58 wells with 22% of
contract drilling revenues attributable to daywork contracts, 1% to footage
contracts, and 77% to turnkey contracts. During the year ended March 31, 1999,
the Company drilled 53 wells with 46% of contract drilling revenues attributable
to daywork contracts, 2% to footage contracts, and 52% to turnkey contracts.
In several previous years uncertainty relating to oil and gas prices and
the domestic gas surplus has led to significant reductions in drilling activity
by oil and gas producing companies. Fiscal 1997, however, saw a reversal of the
downward trend of prior years. The increased drilling activity continued through
the third quarter of fiscal 1998, but it weakened considerably during calendar
years 1998 and 1999 due primarily to a substantial decrease in oil prices. In
January, 2000, oil and gas prices began rising and demand for drilling rigs also
increased.
During the year ended March 31, 2000, the Company's three largest
customers, Cody Energy, Inc., Kebo Oil & Gas, Inc. and Titan Resources, Inc.
each accounted for just over 7% of contract drilling revenues. The Company
actively markets its rigs and completed contracts for 38 customers in 2000
compared to 26 customers in 1999 and 37 customers in 1998. The loss of any of
the Company's land drilling customers could have a material adverse effect on
the Company's business, particularly with respect to the time required to find
other users of the rig concerned. See "Competitive, Business and Operational
Risks in Contract Drilling" in Part I.
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SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Competitive, Business and Operational Risks in Contract Drilling
The Company encounters substantial competition in its contract drilling
operations from other drilling contractors. The usual method of competition in
the contract drilling industry is on the basis of price, customer relations, rig
availability and suitability, service, performance and condition of equipment
used. Competition for contract drilling is primarily on a regional basis, and
many of the Company's competitors in south Texas have financial resources,
technical staffs and facilities substantially greater than those of the Company.
Land contract drilling in oil and gas operations is subject to a number of
operational risks and hazards including blowouts, cratering, fires and
explosions. Any one of these events could cause serious damage to equipment,
personnel, property and/or the financial condition of the Company. In addition,
there is a risk that damage to the environment could result from some of the
Company's operations, particularly through oil spillage or extensive,
uncontrolled fires. While the Company believes that it is adequately insured
against normal and foreseeable risks in its operations in accordance with
industry standards, such insurance may not be adequate to protect the Company
against liability from all consequences of well disasters, extensive fire
damage, or damage to the environment. In the event that such insurance was not
adequate, the occurrence of a significant event could have a material adverse
effect on the Company's financial position and results of operations. Under
current conditions, the Company anticipates that its present insurance coverage
will be maintained, but no assurance can be given that insurance coverage will
continue to be available at rates considered reasonable or that certain types of
coverage will be available at any cost.
GOVERNMENTAL REGULATION
Future Legislation
Currently there are many legislative proposals pertaining to regulation of
the oil and gas industry, which may directly or indirectly affect the Company's
activities. No prediction can be made as to what additional energy legislation
may be proposed, if any, or which bills may be enacted or when any such bills,
if enacted, would become effective.
Regulation of the Environment
The exploration, development, production and processing of oil and gas,
including the disposal of produced water, are subject to various federal and
state laws and regulations designed to protect the environment. Compliance with
these regulations is part of the Company's day-to-day operating procedures.
Infrequently, accidental discharge of materials such as oil, natural gas,
drilling fluids or contaminated water can and does occur. Such accidents can
require material expenditures to correct.
Various state and governmental agencies are considering, and some have
adopted, other laws and regulations regarding environmental control which could
adversely affect the business of the Company. Compliance with such measures,
together with any penalties resulting from noncompliance therewith, may increase
the cost of oil and gas development, production and processing operations or may
affect the ability of the Company to complete existing or future activities in a
timely manner.
Compliance with Regulations
The Company believes that it complies with all material legislation and
regulations affecting its operations in the drilling of oil and gas wells and in
controlling the discharge of wastes. Compliance has not, to date, materially
affected the capital expenditures, earnings or competitive position of the
Company, although these measures add to the costs of operating drilling
equipment in some instances, and in others they may operate to reduce drilling
activity. The Company does not expect to incur material capital expenditures in
the next fiscal year in order to comply with current environmental control
regulations. Further legislation or regulation may reasonably be anticipated,
but the effects thereof on operations cannot be predicted.
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SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
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 Environmental Protection Agency "community
right-to-know" regulations under Title III of the Federal Superfund Amendment
and Reauthorization Act and comparable state statutes require the Company to
organize and report certain information about the hazardous materials used in
its operations to employees, state and local government authorities, and local
citizens.
PRINCIPAL CUSTOMERS
During the year ended March 31, 2000, the Company's three largest
customers, Cody Energy, Inc., Kebo Oil & Gas, Inc. and Titan Resources, Inc.
each accounted for just over 7% of contract drilling revenues. The loss of any
of these customers could have a material adverse effect on the Company's
business resulting from rig down time while attempting to find other users of
the Company's rigs. See "Contract Drilling - Contracts" in this Item I.
EMPLOYEES
At May 8, 2000, the Company had 215 full-time employees, of whom 184 were
paid on an hourly basis and were engaged in operating the Company's drilling
rigs or in other operations. Of the total employees, 12 were administrative
employees and 19 were supervisory. None of the employees are represented by any
union or collective bargaining group, and there is no history of strikes, slow
downs, or other material labor disputes. Management believes that the Company's
relations with its employees are satisfactory.
ITEM 2. PROPERTIES
For purposes of property description, see "Contract Drilling - Drilling
Equipment" contained in this Part I. The Company's principal executive office in
San Antonio, Texas is maintained in office space which the Company purchased in
September, 1995. The Company also owns a six-acre tract in Kenedy, Texas
utilized as an operating yard.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in no legal proceedings other than negligence
actions which the Company considers ordinary and routine litigation incidental
to its business and which the Company believes involve risks of liability which
are adequately covered by insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year covered by this report, no matter was submitted to a
vote of the Company's security holders through the solicitation of proxies or
otherwise.
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SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
PART II
ITEM 5. MARKET PRICE OF THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The initial public offering of the Company's Common Stock occurred on
February 4, 1981, and from that date until August 18, 1981, the Common Stock was
traded in the over-the -counter market. From August 19, 1981 until February 10,
1986, the Company's Common Stock was listed on the American Stock Exchange
(AMEX) (Symbol: SDR). On February 10, 1986, trading of the Company's stock was
discontinued on the AMEX as the Company no longer met the net worth requirement
for listing on the AMEX. At the present time, the Company's Common Stock
(Symbol: STXD) is not traded on a stock exchange; however, the Company's Common
Stock is traded in the "pink sheets". Shareholders interested in trading the
Company's Common Stock should contact their stockbroker or the Company for
further information. In fiscal years prior to 1998, the Company's common stock
was lightly traded. Therefore, the Company reported bid and ask prices rather
than actual stock prices. In fiscal 1998, trading activity in the Company's
common stock became more regular and the stocks' high/low prices are now more
relevant. The following table sets forth for the period indicated quotations for
the Company's common stock. The table presents the high and low stock price for
each quarter.
<TABLE>
<CAPTION>
OVER-THE-COUNTER
------------------
2000 Low High
---- -------- ------
<S> <C> <C>
First Quarter $ 0.5310 0.9060
Second Quarter 0.6870 1.1560
Third Quarter 0.6250 1.1870
Fourth Quarter 0.7180 2.5000
1999 Low High
---- -------- ------
First Quarter $ 1.1250 1.6875
Second Quarter 0.6875 1.3125
Third Quarter 0.5625 1.6500
Fourth Quarter 0.3750 0.6875
</TABLE>
The above over-the-counter quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
As of June 2, 2000, there were approximately 1,000 registered stockholders
of Common Stock of the Company.
The Board of Directors has followed a policy of reinvesting the earnings of
the Company in its business and of not distributing any part thereof as
dividends to common shareholders. The Board of Directors has no present
intention to initiate the payment of cash dividends to common shareholders, and
future dividends to common shareholders of the Company will depend upon the
earnings, capital requirements and financial condition of the Company and other
relevant factors. Additionally, the Company's debt facility includes a provision
preventing the Company from issuing dividends except for dividends on the
preferred stock issued in fiscal 1998. In April, 1998, the Company paid $64,000
in dividends to holders of the Company's Series A preferred stock. At March 31,
2000, the Company has accrued $652,565 in dividends to holders of the Company's
Series A and Series B preferred stock.
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SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
March 31,
------------------------------------------------------
2000 1999 1998 1997 1996
-------- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 19,483 12,908 17,091 8,503 7,500
Earnings before taxes, depreciation,
depletion and amortization and
other income (expense) 2,050 725 2,236 1,175 593
Earnings (loss) before income taxes (65) (1,278) 894 597 3
Net earnings (loss) applicable to common
stockholders (384) (1,612) 722 564 3
Earnings (loss) per common share-basic (0.06) (0.27) 0.13 0.11 --
Earnings (loss) per common share-diluted (0.06) (0.27) 0.11 0.10 --
Long-term debt, excluding
current installments 267 2,354 2,697 1,220 554
Shareholders' equity 6,783 5,322 6,816 2,054 1,477
Total assets 15,670 10,007 12,502 5,051 4,286
Capital expenditures 5,069 856 3,561 763 411
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity
During the past fifteen years, drilling activity in the oil and gas
industry has been volatile with periods of high activity and other periods of
low activity. In fiscal 1996, drilling activity began to increase. This
increased activity continued through the third quarter of fiscal 1998 at which
point drilling activity began to decline. The decreased activity continued
through the third quarter of fiscal 2000. During both fiscal 2000 and 1999, the
utilization rate for the Company's rigs was 59 percent. The actual number of
drilling days increased to 1,490 in fiscal 2000 from 1,289 in fiscal 1999.
Drilling rates charged to customers on drilling contracts in fiscal 2000
increased slightly over those charged in fiscal 1999. This increase in drilling
rates, especially during the last quarter of fiscal 2000, reflects the increased
demand for drilling rigs during the period. At March 31, 2000, the Company's
current ratio was 0.62 compared to 1.24 at March 31, 1999. Working capital at
March 31, 2000 was $(3,253,525) compared to $553,063 at March 31, 1999. This
decrease was due primarily to the classification of $3,010,000, principal
amount, of the Company's debt to its lender as short term since the term note
matures on November 1, 2000 and to the Company's use of $539,000 of cash to fund
major capital improvements to its Rig 4.
In September, 1999, the Company incurred $1,750,000 in principal amount of
additional debt under its debt facility with its primary lender to finance a
portion of its acquisition of the drilling operations of Howell Drilling, Inc.
According to the terms of the debt agreement, the loan carries an interest rate
of prime (9.00% at March 31, 2000) plus 1.75%; and is payable in equal monthly
installments of $20,833 in principal, based on a seven-year amortization, plus
interest. The Company's revolving line of credit had no outstanding balance at
March 31, 2000.
The Company's debt to its primary lender matures in November, 2000. The
Company is currently negotiating to refinance the debt in its entirety and
management believes it will be successful in refinancing the debt on or before
its maturity. Although there is no assurance that management will be successful
in refinancing the debt, given the Company's present cash position, its issuance
of $8,000,000 of common stock in a private placement (see discussion in "Changes
in
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SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Financial Condition" below) and its current drilling activity, the Company
believes it will continue to be able to meet its obligations when due.
The ratio of trade accounts receivable, including contract drilling in
progress, to total revenue increased slightly to 10.0% at the end of fiscal 2000
from 9.6% at the end of fiscal 1999. The ratio of the Company's outstanding debt
(vendor and bank notes payable) in relation to shareholders' equity decreased in
fiscal 2000. At March 31, 1999, the ratio of notes payable to shareholders'
equity was .53 to 1. At March 31, 2000, the ratio was .59 to 1.
Changes in Financial Condition
During fiscal 2000, the Company had a net increase in property and
equipment of $3,866,000 before accumulated depreciation, depletion and
amortization. This net increase was comprised of the disposition of $1,570,000
in drilling equipment, the disposition of $34,000 in transportation equipment
and the expenditure of $5,470,000 for major refurbishments and the purchase of
additional equipment. Of this amount, $5,285,000 was attributable to the
purchase or major refurbishment of drilling equipment, $158,000 to the purchase
of transportation equipment, $17,000 to the purchase of furniture and fixtures
and $10,000 to the purchase of telephone equipment. Included in the purchase of
drilling equipment was the Company's acquisition of the drilling operations of
Howell Drilling, Inc., a San Antonio, Texas based land drilling contractor. The
purchase included two drilling rigs, a Cabot 900 and a Cabot 750, drill pipe and
collars, assorted spare drilling equipment, transportation equipment and office
furniture and fixtures. The total expenditure for the Howell operations was
$2,513,000, of which $1,750,000 was financed by the Company's primary lender.
Another component in the increase in drilling equipment was the expenditure of
$539,000 for the refurbishment of one of the Company's drilling rigs.
At March 31, 2000, the current portion of long-term debt was $3,713,000. Of
this amount, $3,687,000 was owed on drilling equipment, $6,000 on transportation
equipment and $20,000 on land and buildings and improvements. Trade accounts
payable at March 31, 2000 were $3,965,000 compared to $1,249,000 at March 31,
1999. At March 31, 2000, long-term debt was $267,000. Of this amount, $85,000
was owed on drilling equipment, $18,000 on transportation equipment and $164,000
on land and buildings and improvements.
In February, 2000, the Company completed a private placement of its common
stock to WEDGE Energy Services, L.L.C. WEDGE paid an aggregate of $1,500,000 to
the Company for 1,153,846 shares of common stock, or $1.30 per share. The funds
were to be used for general corporate purposes and to better position the
Company for future growth.
In May, 2000, subsequent to the end of fiscal 2000, the Company completed
an additional private placement of its common stock to WEDGE Energy Services, L.
L. C. WEDGE paid an aggregate of $8,000,000 to the Company for 3,678,161 shares
of common stock, or $2.175 per share. The Company intends to use these proceeds
to partially fund the construction of two new IRI International Corporation
1600E rigs and to better position itself for future growth.
In May, 2000, the Company ordered the two new IRI International Corporation
1600E Series land drilling rigs. These rigs will be SCR electric rigs with
state-of-the-art technological design. The rigs will be capable of drilling
wells in the depth range of 8,000 to 18,000 feet. The Company expects delivery
of the first rig in December, 2000 while the second rig should be delivered in
April, 2001. As of the report date, the Company has spent $1,100,000 on the
construction of the two rigs. The combined cost of both rigs is not expected to
exceed $15,000,000.
Results of Operations
Rig utilization rates for the years ended March 31, 2000, 1999 and 1998
were 59%, 59% and 76%, respectively. In fiscal 2000, the Company completed 1,490
drilling days while in fiscal 1999, the Company completed 1,289 drilling days,
an increase of 16%. This increase reflects the increased demand during the
period for drilling rigs.
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SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
During fiscal 2000, the Company's drilling margin increased when compared
to fiscal 1999 and decreased when compared to fiscal 1998. In fiscal 2000, the
drilling margin was $2,624,000, while in fiscal 1999 and fiscal 1998 it was
$1,447,000 and $2,690,000, respectively. The increase in fiscal 2000 over fiscal
1999 was principally the result of the 16% increase in the number of drilling
days during fiscal 2000, the higher percentage of jobs drilled under turnkey
contracts and the increase in drilling rates charged on contracts. When compared
to drilling revenue, the drilling margin was 14%, 11% and 16% in fiscal 2000,
fiscal 1999 and fiscal 1998, respectively. Several significant factors had a
negative impact on the drilling margin in fiscal 1999. The first was problems
with a turnkey contract. Because of problems with the well, the Company was
required to re-drill the well for the operator and also incurred additional
costs in attempting to correct the problems on the original job. This resulted
in a loss of approximately $460,000. Another factor affecting the drilling
margin in fiscal 1999 was the decrease of more than $1,500 per day on drilling
rates charged on daywork contracts.
The Company markets its rigs to a number of customers. In fiscal 2000, the
Company drilled for 38 different customers. In fiscal 1999, the Company drilled
for 26 different customers. Of the 38 customers in fiscal 2000, 29 were
customers the Company had not drilled for in fiscal 1999. These 29 customers
accounted for 66% of the Company's drilling revenue in fiscal 2000. In fiscal
1998, two customers accounted for 32% of total drilling revenue. In fiscal 1999,
one customer accounted for 28% of total drilling revenue. In fiscal 2000, three
customers accounted for 22% of total drilling revenue. None of these customers
was the top customer in fiscal 1999. The loss of these customers could have a
material adverse effect on the Company's business resulting from rig down time
while attempting to find other users of the rig concerned.
Depreciation and depletion expense in fiscal 2000 increased to $1,809,000
from $1,730,000 in fiscal 1999. Depreciation expense increased to $1,809,000 in
fiscal 2000 from $1,469,000 in fiscal 1999. This increase was the result of the
combination of increased depreciation expense due to the purchase of the assets
of Howell Drilling, Inc., increased depreciation due to the purchase or major
refurbishment of equipment, and decreased depreciation expense due to the
increase in the estimated useful lives of drilling rigs. The change in estimated
useful lives was implemented in order to more accurately reflect the Company's
historical experience with regard to its drilling rigs. This change in estimated
useful lives reduced depreciation expense in fiscal 2000 by approximately
$144,000 and the loss per common share, basic and diluted, by $0.02. There was
no depletion expense in fiscal 2000 compared to $261,000 in fiscal 1999 due to
the Company's sale of its oil and gas properties in February, 1999.
General and administrative expenses decreased from $804,000 in fiscal 1999
to $658,000 in fiscal 2000. The primary components of the higher costs in fiscal
1999 were legal and professional fees incurred in an unsuccessful merger
transaction and the accrual of a retirement package for the former chairman of
the Company who resigned in November, 1998. The amount of the retirement package
charged to expense in fiscal 1999, discounted due to payments being made in the
future, was approximately $107,000.
The exploration, development, production and processing of oil and gas,
including the disposal of produced water, are subject to various federal and
state laws and regulations designed to protect the environment. Compliance with
these regulations is part of the Company's day-to-day operating procedures. The
Company is not aware of any potential clean-up obligations which would have a
material effect on its financial condition or results of operations.
Forward Looking Information
This Form 10-K contains certain "forward-looking" statements as such term
is defined in The Private Securities Litigation Reform Act of 1995 and
information relating to the Company and its subsidiaries that are based on the
beliefs of the Company's management. When used in this report, the words
"anticipate," "believe," "estimate," "expect" and "intend" and words or phrases
of similar import, as they relate to the Company or its subsidiaries or Company
management, are intended to identify forward-looking statements. Such statements
reflect the current risks, uncertainties and assumptions related to certain
factors including, without limitation, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, seasonality, distribution
networks, product introductions and acceptance, technological change, changes in
industry practices, one-time events and other factors described herein and in
other filings made by the Company with the Securities and Exchange Commission.
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SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Based upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected, or intended. The Company does not intend to
update these forward-looking statements.
Accounting Matters
In June, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a "fair value hedge," a "cash flow hedge," or a hedge
of a foreign currency exposure of a net investment in a foreign operation. The
accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. In June, 1999, the FASB issued SFAS No. 137, which delayed the
adoption of SFAS No. 133 for all fiscal quarters of all fiscal years beginning
after June 15, 2000. Management does not expect that the adoption of SFAS No.
133 will have a material impact on the Company's financial position, results of
operations or liquidity as the Company has no derivative instruments and no
hedging activities.
In March, 2000, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation (FIN) No. 44, "Accounting for Certain Transactions Involving
Stock Compensation." This Interpretation clarifies the application of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," for only certain issues. It does not address any issues related to
the application of the fair value method in FASB No. 123, "Accounting for
Stock-Based Compensation." This Interpretation is effective July 1, 2000.
Management does not expect that the adoption of FIN No. 44 will have a material
impact on the Company's results of operations.
Year 2000
In fiscal 1998, the Company began the process of identifying, evaluating
and implementing changes to computer programs necessary to address the year 2000
issue. This issue affects computer systems that have time-sensitive programs
that may not properly recognize the year 2000. This could result in system
failures or miscalculations. The Company has addressed its internal year 2000
issue with modifications to existing programs and conversions to new programs.
As of the report date, the Company has not experienced any operational or
administrative problems associated with the year 2000 issue.
Market Risk
The Company is subject to market risk exposure related to changes in
interest rates on some of its debt secured by drilling equipment, transportation
equipment, land and improvements and its revolving line of credit. The debt
secured by drilling equipment and transportation equipment has an interest rate
of prime (9.00% at March 31, 2000) plus 1.75%. The debt secured by land and
improvements has an interest rate of prime for this lender (10.00% at March 31,
2000) plus 0.5%. At March 31, 2000, the outstanding debt subject to a variable
interest rate was $3,735,569. An increase or decrease of 1% in the interest rate
would have a corresponding decrease or increase in net income of approximately
$37,000 annually. The revolving line of credit, which had no outstanding balance
at March 31, 2000 and therefore no exposure to a change in interest rates, has
an interest rate of prime (9.00% at March 31, 2000) plus 1.75%.
-10-
<PAGE> 11
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Board of Directors
South Texas Drilling & Exploration, Inc.:
We have audited the accompanying consolidated balance sheets of South Texas
Drilling & Exploration, Inc. and subsidiaries as of March 31, 2000 and 1999 and
the related consolidated statements of operations, shareholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended March 31, 2000. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule
(Schedule II) for each of the years in the three-year period ended March 31,
2000. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of South Texas
Drilling & Exploration, Inc. and subsidiaries as of March 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the years in
the three-year period ended March 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
San Antonio, Texas
June 2, 2000
-11-
<PAGE> 12
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
Assets
------
<TABLE>
<CAPTION>
March 31,
2000 1999
------------ ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,922,457 1,411,493
Securities available for sale 1,003,116 --
Receivables:
Trade 1,174,035 1,021,948
Contract drilling in progress 774,553 221,000
Employees and officers 2,030 75,000
Prepaid expenses 489,952 154,591
------------ ---------
Total current assets 5,366,143 2,884,032
------------ ---------
Property and equipment, at cost:
Drilling rigs and equipment 18,158,193 14,443,187
Transportation, office, land and other 1,442,248 1,290,823
------------ ----------
19,600,441 15,734,010
Less accumulated depreciation, depletion and
amortization 9,296,357 8,611,165
------------ ----------
Net property and equipment 10,304,084 7,122,845
------------ ----------
$15,670,227 10,006,877
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
-12-
<PAGE> 13
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
Liabilities and Shareholders' Equity
------------------------------------
<TABLE>
<CAPTION>
March 31,
------------ -----------
2000 1999
------------ -----------
<S> <C> <C>
Current liabilities:
Current installments of long-term
debt $ 3,713,493 443,565
Accounts payable 3,964,934 1,249,083
Accrued expenses:
Payroll and payroll taxes 96,228 113,137
Dividends payable 652,565 348,565
Other 192,448 176,619
------------ ---------
Total current liabilities 8,619,668 2,330,969
Long-term debt, less current installments 267,067 2,354,205
------------ ---------
Total liabilities 8,886,735 4,685,174
------------ ---------
Shareholders' equity:
Preferred stock, Series A, 8%, cumulative,
convertible, $2.00 redemption and liquidation
value. Authorized 400,000 shares; issued
and outstanding 400,000 shares 800,000 800,000
Preferred stock, Series B, 8%, cumulative,
convertible, $16.25 redemption and liquidation
value. Authorized 184,615 shares; issued and
outstanding 184,615 shares 2,999,994 2,999,994
Common stock, $.10 par value
Authorized 15,000,000 shares; issued
and outstanding 7,274,684 shares at March 31, 2000
and 6,100,784 shares at March 31, 1999
727,468 610,078
Additional paid-in capital 17,723,569 16,324,031
Accumulated deficit (15,796,017) (15,412,400)
Accumulated other comprehensive income-
unrealized gain on securities available for sale 328,478 --
------------ -----------
Total shareholders' equity 6,783,492 5,321,703
------------ -----------
$ 15,670,227 10,006,877
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-13-
<PAGE> 14
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Contract drilling $ 19,391,025 12,659,391 16,655,642
Oil and gas 20,734 165,182 310,630
Administrative overhead and other 71,352 83,433 124,329
------------ ------------ ------------
Total operating revenues 19,483,111 12,908,006 17,090,601
------------ ------------ ------------
Costs and expenses:
Contract drilling 16,766,776 11,212,354 13,965,931
Oil and gas 8,332 167,417 175,983
Depreciation, depletion and
amortization 1,808,557 1,729,920 1,114,866
General and administrative 658,174 803,632 712,485
------------ ------------ ------------
Total operating costs and
expenses 19,241,839 13,913,323 15,969,265
------------ ------------ ------------
Earnings (loss) from operations 241,272 (1,005,317) 1,121,336
------------ ------------ ------------
Other income (expense):
Interest expense (350,606) (319,060) (306,279)
Interest income 85,407 90,558 50,676
Gain (loss) on sale of assets (41,408) (43,831) 27,895
------------ ------------ ------------
Total other income (expense) (306,607) (272,333) (227,708)
------------ ------------ ------------
Earnings (loss) before income taxes (65,335) (1,277,650) 893,628
Income taxes 14,283 29,868 62,688
------------ ------------ ------------
Net earnings (loss) (79,618) (1,307,518) 830,940
Preferred stock dividend requirement 303,999 303,999 108,566
------------ ------------ ------------
Net earnings (loss) applicable to common stockholders $ (383,617) (1,611,517) 722,374
============ ============ ============
Earnings (loss) per common share-Basic $ (0.06) (0.27) 0.13
============ ============ ============
Earnings (loss) per common share - Diluted $ (0.06) (0.27) 0.11
============ ============ ============
Weighted average number of shares
outstanding-Basic 6,242,140 5,935,748 5,714,535
============ ============ ============
Weighted average number of shares
outstanding-Diluted 6,242,140 5,935,748 7,793,207
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-14-
<PAGE> 15
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Amount
------------------ -------------------
Common Preferred Common Preferred
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Balance as of March 31, 1997 5,655,333 235,000 $ 565,533 235,000
Issuance of common stock
as compensation 92,631 -- 9,263 --
Issuance of common stock
for equipment 400,000 -- 40,000 --
Purchase of preferred stock (235,000) (235,000)
Issuance of new series A
preferred stock -- 400,000 -- 800,000
Issuance of series B
preferred stock -- 184,615 -- 2,999,994
Fee paid on preferred stock
transaction -- -- -- --
Issuance of common stock
for exercise of options 24,000 -- 2,400 --
Net earnings -- -- -- --
Preferred stock dividend -- -- -- --
----------- ----------- ----------- -----------
Balance as of March 31, 1998 6,171,964 584,615 617,196 3,799,994
Issuance of common stock for
exercise of warrants 100,000 -- 10,000 --
Issuance of common stock for
exercise of options 168,587 -- 16,859 --
Cancellation of treasury shares (339,767) -- (33,977) --
Net loss -- -- -- --
Preferred stock dividend -- -- -- --
----------- ----------- ----------- -----------
Balance as of March 31, 1999 6,100,784 584,615 610,078 3,799,994
<CAPTION>
Additional Accumulated Other Total
Paid-in Accumulated Treasury Comprehensive Shareholders'
Capital Deficit Stock Income Equity
--------- ------------ -------- ---------------- -------------
Balance as of March 31, 1997 15,914,169 (14,523,257) (136,905) -- 2,054,540
Issuance of common stock
as compensation 45,737 -- -- -- 55,000
Issuance of common stock
for equipment 260,000 -- -- -- 300,000
Purchase of preferred stock 160,000 -- (75,000)
Issuance of new series A
preferred stock -- -- -- -- 800,000
Issuance of series B
preferred stock -- -- -- -- 2,999,994
Fee paid on preferred stock
transaction (55,000) -- -- -- (55,000)
Issuance of common stock
for exercise of options 12,100 -- -- -- 14,500
Net earnings -- 830,940 -- -- 830,940
Preferred stock dividend -- (108,566) -- -- (108,566)
----------- ----------- ---------- ---------- ---------
Balance as of March 31, 1998 16,337,006 (13,800,883) (136,905) -- 6,816,408
Issuance of common stock for
exercise of warrants 5,000 -- -- -- 15,000
Issuance of common stock for
exercise of options 84,953 -- -- -- 101,812
Cancellation of treasury shares (102,928) -- 136,905 -- --
Net loss -- (1,307,518) -- -- (1,307,518)
Preferred stock dividend -- (303,999) -- -- (303,999)
----------- ----------- ----------- ----------- ---------
Balance as of March 31, 1999 16,324,031 (15,412,400) -- -- 5,321,703
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
-15-
<PAGE> 16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(Continued)
<TABLE>
<CAPTION>
Shares Amount
------------- ------------
Common Preferred Common Preferred
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance as of March 31, 1999 6,100,784 584,615 $ 610,078 3,799,994
Comprehensive income:
Net loss -- -- -- --
Net unrealized change in
securities available for -- -- -- --
sale
Total comprehensive income -- -- -- --
Issuance of common stock 1,153,846 -- 115,385 --
Issuance of common stock for
exercise of options 5,000 -- 500 --
Issuance of common stock
as compensation 15,054 -- 1,505 --
Preferred stock dividend -- -- -- --
----------- ----------- ----------- -----------
Balance as of March 31, 2000 7,274,684 584,615 727,468 3,799,994
=========== =========== =========== ===========
<CAPTION>
Additional Accumulated Other Total
Paid-in Accumulated Treasury Comprehensive Shareholders'
Capital Deficit Stock Income Equity
---------- ---------- -------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Balance as of March 31, 1999 16,324,031 (15,412,400) -- -- 5,321,703
Comprehensive income:
Net loss -- (79,618) -- (79,618)
Net unrealized change in
securities available for
sale -- -- -- 328,478 328,478
-----------
Total comprehensive income -- -- -- -- 248,860
Issuance of common stock 1,384,615 -- -- -- 1,500,000
Issuance of common stock for
exercise of options 1,375 -- -- -- 1,875
Issuance of common stock
as compensation 13,549 -- -- -- 15,054
Preferred stock dividend (303,999) -- -- (303,999)
----------- ----------- ----------- ----------- -----------
Balance as of March 31, 2000 17,723,570 15,796,017 -- 328,478 6,783,493
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-16-
<PAGE> 17
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------
2000 1999 1998
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (79,618) (1,307,518) 830,940
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization 1,808,557 1,729,920 1,114,866
Stock issued to directors and
employees 15,054 -- 4,583
Gain (loss) on sale of assets 41,408 43,492 (27,895)
Changes in current assets and
liabilities:
Receivables (632,670) 88,651 (170,760)
Prepaid expenses (335,361) (40,571) 48,193
Accounts payable 2,715,851 (400,875) 502,976
Accrued expenses (1,076) (207,690) 206,036
----------- ----------- ---------
Net cash provided (used) by
operating activities $ 3,532,145 (94,591) 2,508,939
----------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
-17-
<PAGE> 18
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable $ 1,776,645 -- 171,236
Purchase of preferred stock -- -- (75,000)
Proceeds from preferred stock -- -- 3,744,994
Payment of preferred dividend -- (64,000) --
Proceeds from exercise of options and warrants 1,875 90,375 14,500
Proceeds from common stock 1,500,000 -- --
Payments of debt (593,857) (605,162) (888,257)
------------ ------------ ------------
Net cash provided (used) in financing activities 2,684,663 (578,787) 2,967,473
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (5,069,138) (856,204) (3,561,035)
Purchase of securities available for sale (674,638) -- --
Proceeds from sale of property and
equipment 37,932 354,365 263,578
------------ ------------ ------------
Net cash (used) in investing activities (5,705,844) (501,839) (3,297,457)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 510,964 (1,175,217) 2,178,955
Beginning cash and cash equivalents 1,411,493 2,586,710 407,755
------------ ------------ ------------
Ending cash and cash equivalents $ 1,922,457 1,411,493 2,586,710
============ ============ ============
Supplementary disclosure:
Interest paid $ 351,126 319,596 307,257
Notes payable issued for equipment and oil and gas
properties -- -- 1,438,458
Common stock issued for accrued compensation -- 26,437 55,000
Common stock issued for San Patricio Corporation
acquisition -- -- 300,000
Notes payable issued for San Patricio Corporation
acquisition -- -- 1,200,000
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE> 19
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies
Business and Principles of Consolidation
The Company provides land contract drilling services for the oil and
gas industry, primarily in south Texas. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The financial statements have been prepared in accordance with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the balance sheets
and income and expenses for the periods. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant changes in the near term relate to the determination
of depreciation, depletion and amortization expense.
Income Taxes
The Company files a consolidated Federal income tax return with its
subsidiaries using a December 31 year-end.
Pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", the Company follows the asset and liability
method of accounting for income taxes under which deferred tax assets and
liabilities are recognized for the 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 expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Earnings (Loss) Per Common Share
The Company computes and presents earnings (loss) per common share in
accordance with FAS No. 128 "Earnings per Share." This standard requires dual
presentation of basic and diluted earnings (loss) per share on the face of the
statement of operations. For fiscal 2000 and 1999, the effect of securities such
as warrants, options and preferred stock on loss per common share was not
included as it was antidilutive.
The following table presents a reconciliation of the numerators and
denominators of the basic EPS and diluted EPS comparisons as required by FAS
128:
<TABLE>
<CAPTION>
Year Ended
March 31, 2000
-------------------------------------------------
Weighted Avg.
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Net loss $ (79,618)
Less: Preferred stock dividends 303,999
----------
Loss applicable to common stockholders-basic
and diluted $ (383,617) 6,242,140 $ (0.06)
========== ========== ==========
</TABLE>
-19-
<PAGE> 20
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Year Ended
March 31, 1999
-------------------------------------------------
Weighted Avg.
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Net loss $(1,307,518)
Less: Preferred stock dividends 303,999
-----------
Loss applicable to common stockholders-basic
and diluted (1,611,517) 5,935,748 $ (0.27)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
March 31, 1999
-----------------------------------------------
Weighted Avg.
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Net earnings $ 830,940
Less: Preferred stock dividends 108,566
----------
Income available to common stockholders-basic 722,374 5,714,535 $ 0.13
==========
Effect of dilutive securities
Warrants 123,306
Options 1,008,686
Preferred stock 108,566 946,680
---------- ----------
Income available to common stockholders and assumed
conversions-diluted $ 830,940 7,793,207 $ 0.11
========== ========== ==========
</TABLE>
Stock-Based Compensation
On April 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This SFAS allows a Company to adopt a fair value
based method of accounting for a stock-based employee compensation plan or to
continue to use the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has chosen to continue to account for stock-based
compensation under the intrinsic value method. Under this method, the Company
records no compensation expense for stock options granted when the exercise
price of options granted is equal to the fair market value of the Company's
common stock on the date of grant. The pro forma effects of adoption of SFAS No.
123 are disclosed in Note 4.
In March, 2000, the FASB issued FASB Interpretation (FIN) No. 44,
"Accounting for Certain Transactions Involving Stock Compensation." This
Interpretation clarifies the application of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," for only certain
issues. It does not address any issues related to the application of the fair
value method in FASB No. 123. This Interpretation is effective July 1, 2000.
Management does not expect that the adoption of FIN No. 44 will have a material
impact on the Company's results of operations.
Contract Drilling in Progress
Contract drilling revenues are earned on footage, daywork and turnkey
contracts and such revenues and related costs are included in the determination
of earnings as work progresses. Contract drilling in progress consists of
revenues earned on contracts which have not yet been billed.
-20-
<PAGE> 21
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Prepaid Expenses
Prepaid expenses, which include items such as insurance and licenses,
are routinely expensed in the normal course of business over the periods of
benefit.
Property and Equipment
Depreciation of drilling, transportation and other equipment is
provided using the straight-line method over estimated useful lives ranging from
three to twelve years. During the current fiscal year, the estimated useful
lives of drilling rigs was increased to reflect the Company's historical
experience with regards to its drilling rigs. The change in estimated useful
lives reduced depreciation expense in fiscal 2000 by approximately $144,000 and
the loss per common share, basic and diluted, by $0.02.
Maintenance and repairs are charged to operations; renewals and
betterments are charged to appropriate property and equipment accounts.
Long-lived assets and intangible assets are reviewed for impairment
whenever events or circumstances provide evidence that suggests that the
carrying amount of the asset may not be recovered. In performing the review for
recoverability, the future cash flows expected to result from the use of the
asset and its eventual disposition are estimated. If the sum of the expected
future cash flows is less than the carrying amount of the asset, an impairment
loss is recognized.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Investment Securities
The Company carries its available for sale investment securities at
fair value. Investment securities consist of common stock. As of March 31, 2000,
securities had an aggregate cost of $674,638, a gross unrealized gain of
$328,478 and fair value of $1,003,116.
Comprehensive Income
Comprehensive income consists of net income and net unrealized gain
(loss) on securities available for sale and is presented in the Consolidated
Statements of Shareholders' Equity and Comprehensive Income.
Derivative Instruments and Hedging Activities
In June, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a "fair value hedge," a "cash flow hedge," or a hedge
of a foreign currency exposure of a net investment in a foreign operation. The
accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. In June, 1999, the FASB issued SFAS No. 137, which delayed the
adoption of SFAS No. 133 for all fiscal quarters of all fiscal years beginning
after June 15, 2000. Management does not expect that the adoption of SFAS No.
133 will have a material impact on the Company's financial position, results of
operations or liquidity as the Company has no derivative instruments and no
hedging activities.
-21-
<PAGE> 22
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Notes Payable and Long-term Debt
Notes payable and long-term debt of the Company are described below:
<TABLE>
<CAPTION>
March 31,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Note payable, secured by drilling equipment, transportation
equipment, land and improvements, due in monthly payments of
$30,655 plus interest at prime (9.00% at March 31, 2000)
Plus 1.75%, due November, 2000. (Note a) $ 2,023,214 2,391,071
Note payable, secured by drilling equipment, due in monthly
payments of $20,833 plus interest at prime (9.00% at
March 31, 2000) plus 1.75%, due November, 2000. (Note a) 1,604,167 --
Note payable to bank, secured by land and improvements, due in
monthly payments of $1,900 including interest at the bank's
prime rate (10.00% at March 31, 2000) plus 0.5%, due in September, 2005 84,442 98,187
Note payable to Small Business Administration, secured by
second lien on land and improvements, due in monthly payments
of $921 including interest at 6.713% due in November, 2015 99,991 103,512
Note payable to bank, secured by vehicle,
due in monthly payments of $654 including interest at the
prime rate (9.00% at March 31, 2000), due in September, 2002 23,746 --
Note payable to seller, secured by drilling equipment, due in
monthly installments of $5,000 plus interest at 10%, due in
June, 2002 145,000 205,000
----------- -----------
3,980,560 2,797,770
Less current installments 3,713,493 443,565
----------- -----------
$ 267,067 2,354,205
=========== ===========
</TABLE>
Long-term debt maturing each year subsequent to March 31, 2000 is as
follows: 2001 - $3,713,493; 2002 - $87,871; 2003 - $55,379; 2004 - $29,083; 2005
-$16,901 and thereafter- $77,833.
At March 31, 2000, the Company was in compliance with or had obtained
waivers for non-compliance with all covenants on its note payable secured by
drilling equipment, transportation equipment and land and improvements. Such
covenants included the maintenance of a net worth of at least $1,500,000, a debt
to net worth ratio of less than 2.0 to 1.0, total capital expenditures of less
than $1,500,000, and a total debt service coverage ratio of greater than 1.0 to
1.0, at the end of each calendar quarter.
Note a: In November, 1998, the Company refinanced its outstanding debt
consolidating several notes into one note which matures in October, 2000. As
part of the refinancing, the lender also reduced the interest rate on the
$500,000 revolving line of credit secured by the Company's trade accounts
receivable to prime (9.00% at March 31, 2000) plus 1.75%. The revolving line of
credit had no outstanding balance at March 31, 2000 and matures in November,
2000. In September, 1999, the Company incurred additional debt with its lender
to partially fund the purchase of the drilling assets of Howell Drilling, Inc.
This debt, in the amount of $1,750,000, is payable in monthly installments of
$20,833 in principal, based on a seven-year amortization, plus interest. The
debt has an interest rate of prime (9.00% at March 31, 2000) plus
-22-
<PAGE> 23
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1.75% and is due in November, 2000. The Company is currently negotiating to
refinance this debt in its entirety and, although there are no assurances that
the debt will be refinanced, management believes it will be successful in
refinancing this debt on or before maturity.
(3) Income Taxes
In fiscal years 2000 and 1999, the expected tax benefit computed by
applying the Federal statutory rate of 34% to income (loss) before income taxes
differs from income tax expense (benefit) principally due to the valuation
allowance, expiration of net operating losses and state income tax. The Company
has also accrued a $14,283 liability for state franchise taxes for fiscal 2000
and a $29,868 liability for fiscal 1999.
At March 31, 2000, for Federal income tax purposes the Company had a
net operating loss carryforward of approximately $12,324,000 and investment tax
credit carryforwards of approximately $2,000 available to offset future taxable
income and taxes which, unless utilized, will expire as follows:
<TABLE>
<CAPTION>
Net Investment
Fiscal Operating Tax
Year Loss Credits
------------- ------------ ------------
<S> <C> <C>
2001 $ 10,161,000 2,000
2002 565,000 --
2003 83,000 --
2007 401,000 --
2014 948,000 --
2015 166,000 --
------------ ------------
$ 12,324,000 2,000
============ ============
</TABLE>
The Company issued common stock in fiscal years 2000 and 1999. Also,
subsequent to fiscal year 2000, the Company completed an additional private
placement of its common stock. The issuance of common stock may have resulted in
a substantial change of ownership as defined in Internal Revenue Code section
382. In accordance with section 382, the change in ownership may have caused a
limitation on the use of the Company's net operating loss and investment credit
carryovers.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
2000 and 1999 are presented below:
<TABLE>
<CAPTION>
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Investment tax credit carryforwards $ 2,000 38,000
Property and equipment, principally due to
differences in depreciation 95,000 46,000
Net operating loss carryforwards 4,212,000 4,843,000
----------- -----------
Total gross deferred tax assets 4,309,000 4,927,000
Less valuation allowance (4,187,000) (4,927,000)
----------- -----------
Deferred tax assets 122,000 --
----------- -----------
Deferred tax liabilities:
Unrealized gain on securities available for sale 122,000 --
----------- -----------
Total deferred tax liabilities 122,000 --
----------- -----------
Net deferred tax asset $ -- --
=========== ===========
</TABLE>
A valuation allowance has been established to decrease deferred tax
assets to the amount of the total gross deferred tax liabilities due to the
uncertainties involved in the ultimate realization of the deferred tax assets.
The valuation allowance
-23-
<PAGE> 24
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
for deferred tax assets at March 31, 1999 was $4,927,000 and at March 31, 2000
was $4,187,000. The net change in total valuation allowance for the year ended
March 31, 2000 was a decrease of $740,000 due to the change in the corresponding
gross deferred tax assets and liabilities.
(4) Stock Options, Warrants and Stock Option Plan
On March 12, 1999, the Board of Directors issued an option to Mr.
Little to purchase 650,000 shares of the Company's common stock at $.75 per
share, all of which were subsequently canceled. Therefore, none of these options
are outstanding as of March 31, 2000.
On December 13, 1999, the Board of Directors issued Mr. Little,
Chairman and Chief Executive Officer, an option to purchase 650,000 shares of
the Company's common stock at $.75 per share, none of which has been exercised
as of March 31, 2000.
Under the Company's stock option plan, employee stock options become
exercisable over a five year period and all options expire 10 years after the
date of grant. All of the Company's options shall be granted at the fair market
value of the Company's common stock on the date of grant. Accordingly as
discussed in Note 1, no compensation expense relating to these options is
recognized in the Company's results of operations.
Information relating to stock options outstanding at March 31 is
summarized as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------- -------------------------- --------------------------
Exercise Exercise Exercise
Price per Price per Price Per
Options Option Options Option Options Option
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Outstanding
Beginning of year 1,686,000 $ .375-1.50 1,353,500 $ .375-1.50 1,272,500 $ .375-.47
Granted 720,000 $ .625-1.50 795,000 $ .75-1.438 165,000 $ 1.38-1.50
Exercised (5,000) $ 0.375 (168,587) $ .375-1.38 (24,000) $ .375-1.38
Canceled (650,000) $ 0.75 (293,913) $.375-1.438 (60,000) $ 0.375
----------- ----------- ----------- ----------- ----------- -----------
Balance Outstanding
End of year 1,751,000 $ .375-1.50 1,686,000 $.375-1.50 1,353,500 $ .375-1.50
=========== =========== =========== =========== =========== ===========
Options Exercisable
End of year 1,167,500 854,000 681,500
=========== =========== ===========
</TABLE>
At March 31, 2000, the weighted average price of options outstanding
was $0.64 per share and the weighted average price of exercisable options was
$0.57 per share.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123) "Accounting for
Stock-Based Compensation." Accordingly, no compensation has been recognized for
the stock option plan. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
SFAS No. 123, net earnings (loss) and net earnings (loss) per share would have
been reduced to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ---------- -------
<S> <C> <C> <C>
Net earnings-as reported $ (79,618) (1,307,518) 830,940
Net earnings-pro forma (232,664) (1,372,858) 774,797
Net earnings per share-as reported-basic (0.06) (0.27) 0 13
Net earnings per share-as reported-diluted (0.06) (0.27) 0.11
Net earnings per share-pro forma-basic (0.09) (0.28) 0.12
Net earnings per share-pro forma-diluted (0.09) (0.28) 0.10
Weighted-average fair value of options,
granted during the year 0.47 0.31 0.63
</TABLE>
-24-
<PAGE> 25
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options-pricing model. The model assumed expected
volatility of 72%, 70% and 65%, weighted average risk-free interest rates
of 6.0%, 5.1% and 6.3% for grants in 2000, 1999 and 1998, respectively, and
an expected life of five years. As the Company has not declared dividends
since it became a public entity, no dividend yield was used. Actual value
realized, if any, is dependent on the future performance of the Company's
common stock, and overall stock market conditions. There is no assurance
the value realized by an optionee will be at or near the value estimated by
the Black-Scholes model.
(5) Business Segments and Supplementary Earnings Information
The Company is engaged in contract drilling of oil and gas wells and
until fiscal 1999, in oil and gas exploration, development and production.
The oil and gas operations contributed an immaterial amount towards the
Company's gross revenues in fiscal 2000, fiscal 1999 and fiscal 1998 and
constituted an insignificant amount of its total assets, therefore,
disclosure of fiscal 2000, fiscal 1999 and fiscal 1998 oil and gas
information has been omitted.
In fiscal 2000, no customer accounted for 10% or more of contract
drilling revenue.
In fiscal 1999, only one customer accounted for 10% or more of
contract drilling revenues. The revenue attributed to that customer was
$3,555,284.
In fiscal 1998, two customers each accounted for 10% or more of
contract drilling revenues. The revenue attributed to those customers was
$2,968,694 and $2,326,773.
(6) Fair Value of Financial Instruments
Cash and cash equivalents, trade receivables and payables and
short-term debt:
The Company holds cash and cash equivalents, trade receivables and
payables and short-term debt. The carrying amount of these instruments
approximates fair value due to the short maturity of the instruments.
Long-term debt:
The carrying amount of the Company's long-term debt approximates fair
value due to the recent issuance of the debt and the variable interest
rate.
(7) Commitments and Contingencies
The Company is involved in no legal proceedings other than negligence
actions which the Company considers ordinary and routine litigation
incidental to its business and which the Company believes involve risks of
liability which are adequately covered by insurance.
(8) Benefit Plan
During October, 1999, the Company adopted a 401(k) retirement plan in
which eligible employees of the Company may elect to participate. The
Company may contribute, on a discriminatory basis, a percentage of the
employee's annual contribution, determined annually by the Company. The
Company's contribution for the year ended March 31, 2000, was approximately
$18,000.
(9) Acquisition
In September, 1999, the Company completed its acquisition of the
drilling operations of Howell Drilling, Inc., a San Antonio, Texas based
land drilling contractor. The purchase price was allocated based on the
fair market value of the assets at the date of acquisition. The purchase
included two drilling rigs, a Cabot 900 and a Cabot 750, drill pipe and
collars, assorted spare drilling equipment, transportation equipment and
office furniture and fixtures. The total expenditure for the Howell assets
was $2,513,000, of which $1,750,000 was financed by the Company's primary
lender. The transaction was
-25-
<PAGE> 26
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
accounted for as a purchase and the results of operations have been
included in the Statement of Operations since the acquisition date.
The following pro forma financial information for the years ended
March 31, 2000 and 1999 gives effect to the above acquisition as though it
were effective at the beginning of each period. The information reflects
historical data from both Howell and the Company for the year ended March
31, 1999. For the year ended March 31, 2000, historical information of
Howell from April 1, 1999 through September 30, 1999 was combined with the
historical data of the Company for the year ended March 31, 2000. The pro
forma information may not be indicative of the results that would have
occurred had the acquisition been in effect on April 1, 1998 or of the
results that may be obtained in the future. The pro forma information
should be read in conjunction with the consolidated financial statements
and notes thereto of the Company.
<TABLE>
<CAPTION>
Pro-Forma (Unaudited)
Years Ended March 31,
----------- ----------
2000 1999
----------- ----------
<S> <C> <C>
Total Revenues $24,904,924 21,629,262
Net earnings (loss) 1,245,936 (1,911,125)
Net earnings (loss) applicable
to common stockholders 941,937 (2,215,124)
Earnings (loss) per common share-Basic 0.15 (0.37)
Earnings (loss) per common share - Diluted 0.14 (0.37)
</TABLE>
(10) Subsequent Events
In May, 2000, the Company completed an additional private placement of
its common stock to WEDGE Energy Services, L.L.C. WEDGE paid an aggregate
of $8,000,000 to the Company for 3,678,161 shares of common stock, or
$2.175 per share. The Company intends to use these proceeds to partially
fund the construction of two new IRI International Corporation 1600E rigs
and to better position itself for future growth.
Also in May, 2000, the Company ordered the two new IRI International
Corporation 1600E Series land drilling rigs. These rigs will be SCR
electric rigs with state-of-the-art technological design. The rigs will be
capable of drilling wells in the depth range of 8,000 to 18,000 feet. The
Company expects delivery of the first rig in December, 2000 while the
second rig should be delivered in April, 2001. Concurrent with the
execution of the contract for the construction of the rigs, the Company
paid a down payment of $1,100,000. The combined cost of both rigs is not
expected to exceed $15,000,000.
-26-
<PAGE> 27
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the current members of the Board of
Directors and officers of the Company.
MICHAEL E. LITTLE, 45, Chairman of the Board and Chief Executive
Officer since November, 1998. From March 1982 to October, 1998, Mr. Little
served as President, Chief Executive Officer and a director of Dawson Production
Services, Inc., and Chairman of the Board since 1983. From 1980 to 1982, he was
Vice President of Cambern Engineering, Inc., a company that provided drilling
and completion consulting services in the Texas Gulf Coast area. From 1976 to
1980, he was employed by Chevron USA as a drilling foreman in Midland, Texas and
as a drilling engineer in New Orleans, Louisiana. Mr. Little received his
Bachelor of Science degree in Petroleum Engineering in 1978 from Texas Tech
University.
WILLIAM D. HIBBETTS, 51, CPA, a Director since June, 1984. Mr. Hibbetts
is Chief Financial Officer of International Cancer Screening Laboratories, Inc.
since March, 2000. He was Chief Accounting Officer of Southwest Venture
Management Company from July, 1988 to April, 1999. He was Treasurer/Controller
of Gary Pools, Inc. from May, 1986 to July, 1988. He served as an officer of the
Company from January 1, 1982 until May 1, 1986. Mr. Hibbetts served in various
positions as an accountant with KPMG Peat Marwick LLP from June, 1971 to
December, 1981. Mr. Hibbetts served as manager in that accounting firm's audit
group from July, 1978 to December, 1981.
RICHARD PHILLIPS, 69, a Director since June, 1997. From 1981 he has
served as President of San Patricio Corporation in Corpus Christi, Texas, an oil
and gas operator and three-rig drilling contractor which sold its drilling
related assets to the Company in 1997. Mr. Phillips was engaged in petroleum
engineering consulting from 1979 until 1981 when he founded San Patricio
Corporation
WM. STACY LOCKE, 44, a Director since May 1, 1995. Mr. Locke is
President and Chief Operating Officer since November, 1998. He was President and
Chief Executive Officer from May, 1995 to November, 1998. He was Vice President-
Investment Banking with Arneson, Kercheville, Ehrenberg & Associates, Inc. from
January 1, 1993 to April 30, 1995. From 1988-1992, Mr. Locke was Vice
President-Investment Banking with Chemical Banking Corporation, Texas Commerce
Bank. He was Senior Geologist with Huffco Petroleum Corporation from 1982-1986.
From 1979 to 1982 Mr. Locke worked for Tesoro Petroleum Corporation and Valero
Energy as a Geologist.
ERNEST E. BURNS, 71, Vice President-Drilling since September, 1999. Mr.
Burns was President of Howell Drilling, Inc. from February, 1988 through
September, 1999.
CHRIS F. PARMA, 50, CPA, Vice President and Chief Financial Officer
since December, 1995. He has been employed as Controller of the Company since
October, 1990. He served in various accounting positions from Staff Accountant
to Controller from 1972 to 1990 with J. H. Uptmore & Associates, Inc., a real
estate development company. He served as Vice President of Uptmore from 1985 to
1990.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company and its subsidiaries for services performed during the fiscal year ended
March 31, 2000, to the chief executive officer and to the president of the
Company. No other officer was paid total compensation of $100,000 or more.
-27-
<PAGE> 28
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Summary Compensation Table
<TABLE>
<CAPTION>
Other Annual Restricted Warrants/ LTIP All Other
Name and Salary Bonus Compensation Stock Award Options/ SARs Pay-outs Compensation
Principal Position Year $ $ $ $ # $ $
------------------ ---- ------ ----- ------------ ----------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wm. Stacy Locke
President 2000 94,672 -- -- -- -- -- --
President 1999 94,392 -- 993(1) -- -- -- --
CEO 1998 85,730 -- 1,231(1) 55,000(2) -- -- --
Michael E. Little
CEO 2000 40,000 -- -- -- -- -- --
CEO 1999 15,915 -- -- -- -- -- --
</TABLE>
(1) Includes value of personal use of company-provided vehicle.
(2) Includes 12,342 shares paid per employment agreement.
Since April, 1997, outside Directors of the Company receive $1,000
each quarter for their service on the Board and $250 for each meeting
attended.
The following table summarizes as to the chief executive officer of
the Company, the number and terms of stock options granted during the year
ended March 31, 2000:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
% of Total Potential
Number of Options/ Realized Value at
Securities SARs Assumed Annual Rates of
Underlying Granted to Stock Price Appreciation
Options/ Employees Exercise or for Option Term
SARs in Fiscal Base Expiration ---------------------------------
Name Granted (#) Year Price ($/sh) Date 5% ($) 10%($)
----------------- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Little 650,000 90% $ 0.75 12/13/2009 1,100,730 2,041,397
</TABLE>
The following table shows as to the chief executive officer of the
Company the net value realized (market value less exercise price) with
respect to stock options exercisable/unexercisable during the last year:
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($) Unexercisable Unexercisable
----------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Michael E. Little -- -- 130,000 /520,000 97,500/390,000
</TABLE>
-28-
<PAGE> 29
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of June 1,
2000, with respect to each person who is known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock,
the Series A Preferred Stock and the Series B Preferred Stock, each
director of the Company, and all officers and directors of the Company as a
group. Except as otherwise indicated, each person has sole investment and
voting power with respect to the shares shown.
<TABLE>
<CAPTION>
Nature of Percentage
Title of Name and Address of Beneficial Ownership
Class Beneficial Owner Ownership of Class(6)
------- ---------------------------- ---------- -----------
<S> <C> <C> <C>
Preferred Series A T.L.L. Temple Foundation 400,000 100.0%
109 Temple Blvd., Suite 300
Lufkin, Texas 75901-7321
Preferred Series B T.L.L. Temple Foundation 153,915 83.4%
109 Temple Blvd., Suite 300
Lufkin, Texas 75901-7321
Preferred Series B Temple Interests L.P. 30,700 16.6%
109 Temple Blvd, Suite 100
Lufkin, Texas 75901-7321
Common WEDGE Energy Services, L.L.C. 4,832,007 38.2%
1415 Louisiana, Suite 3000
Houston, TX 77002
Common Rowan Companies, Inc. 750,000 5.9%
1900 Post Oak Tower
5051 Westheimer
Houston, TX 77056
Common William D. Hibbetts 126,612(1) 1.0%
13007 Blanche Coker
San Antonio, TX 78216
Common Michael E. Little 883,882(2) 7.0%
9310 Broadway, Bldg. 1
San Antonio, Texas 78217
Common Wm. Stacy Locke 1,170,480(3) 9.3%
9310 Broadway, Bldg. I
San Antonio, Texas 78217
Common Richard Phillips 390,144(4) 3.1%
5701 Agnes Street
Corpus Christi, Texas 78408
All officers and directors as a group 2,658,806(5) 21.0%
(6 persons)
</TABLE>
(1) Includes options issued to Mr. Hibbetts by the Board of Directors to
purchase 10,000 shares .
-29-
<PAGE> 30
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
(2) Includes options issued to Mr. Little by the Board of Directors to purchase
650,000 shares.
(3) Includes options issued to Mr. Locke to purchase 800,000 shares.
(4) Includes 240,144 shares and an option issued to San Patricio Corporation,
which is wholly owned by Richard Phillips, to purchase an additional
150,000 shares, .
(5) Includes options to purchase 1,695,000 shares issued to the officers and
directors by the Board of Directors.
(6) Percentage of class outstanding is calculated assuming all officers and
directors exercise all outstanding options and warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's chairman and chief executive officer, Mr. Michael E.
Little, commenced employment by the Company on November 15, 1998, under a
two year employment agreement calling for a base salary of $40,000 for the
first year of the two year term and no less than $40,000 for year two. Mr.
Little was also granted an option to purchase 100,000 shares of the
Company's common stock at a price of $0.75 per share. This option, which
was scheduled to expire April 1, 1999, was exercised in March, 1999. Mr.
Little was granted another option to purchase 650,000 shares of the
Company's common stock at a price of $0.75 per share. These options were
cancelled in December, 1999 and replaced by an option to purchase 650,000
shares of the Company's common stock at a price of $0.75 per share under
the Company's 1999 Stock Option Plan. These options shall vest at a rate of
20% per year for each 12-month period Mr. Little is employed by the
Company. All of Mr. Little's options would become exercisable upon a change
in control of the Company.
-30-
<PAGE> 31
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Financial Statements and Schedules and Exhibits
1. The following consolidated financial statements of South
Texas Drilling & Exploration, Inc. and its subsidiaries are
included in Part II, Item 8 of this Report:
Independent Auditors' Report.
Consolidated Balance Sheets at March 31, 2000 and 1999.
Consolidated Statements of Operations for the years
ended March 31, 2000, 1999 and 1998.
Consolidated Statements of Shareholders' Equity for the
years ended March 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the years
ended March 31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
Supplementary Income Statement Information is included
in Part IV, Item 14, "Financial Statements and
Supplementary data" of this Report.
Schedule II - Valuation and Qualifying Accounts.
(All other schedules are omitted as inapplicable, not
required, or already covered in the financial
statements and notes thereto).
3. The following exhibits are filed as part of this Report:
Page
- (3) Articles of Incorporation and Bylaws of the Company
(previously filed as an Exhibit to the company's 1981 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(a) Stock Purchase and Options Agreement dated December 28, 1981
between the Company and Rowan Companies, Inc. ("Rowan")
(previously filed as an Exhibit to the Company's 1981 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(b) Amended and Restated Agreement of Sale dated December 28,
1981 between the Company and Rowan relating to acquisition
of the Tender Rigs (previously filed as an Exhibit to the
Company's 1981 Annual Report on Form 10-K, File No.
2-70145).
- (10)(c) Note Purchase and Warrant Agreement between the Company and
Connecticut General Life Insurance Company and Teachers
Insurance and Annuity Association relating to acquisition of
the Tender Rigs (previously filed as an Exhibit to the
Company's 1981 Annual Report on Form 10-K, File No.
2-70145).
- (10)(d) Amendment No. 2 to Warrant Agreement dated April 12, 1984
between the Company and Connecticut General Life Insurance
Company and Teachers Insurance and Annuity Association
(previously filed as an Exhibit to the Company's 1983 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(e) Letter of Basic Terms dated April 12, 1984 between the
Company and Connecticut General Life Insurance Company and
Teachers Insurance and Annuity Association regarding the
recapitalization or reorganization of South Texas Offshore
Drilling
-31-
<PAGE> 32
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
Company (previously filed as an Exhibit to the Company's
1983 Annual Report on Form 10-K, File No. 2-70145).
- (10)(f) Agreement dated April 12, 1984 among the Company and
Connecticut General Life Insurance Company and Teachers
Insurance and Annuity Association of America releasing
certain obligations of the Company (previously filed as an
Exhibit to the Company's 1983 Annual Report on Form 10-K,
File No. 2-70145).
- (10)(g) Loan Agreement dated December 28, 1981 between the Company
and Frost National Bank of San Antonio (previously filed as
an Exhibit to the Company's 1983 Annual Report on Form 10-K,
File No. 2-70145).
- (10)(h) Second Amendment dated April 13, 1984 to the Loan Agreement
dated December 28, 1981 between the Company and Frost
National Bank of San Antonio (previously filed as an Exhibit
to the Company's 1983 Annual Report on Form 10-K, File No.
2-70145).
- (10)(I) Modification of General Guaranty dated April 13, 1984
between the Company and Frost National Bank of San Antonio
modifying the Company's guarantee of the Promissory Note of
South Texas/1200, Ltd. (previously filed as an Exhibit to
the Company's 1983 Annual Report on Form 10-K, File No.
2-70145).
- (10)(j) The Company's 1983 Non-qualified Stock Option Plan
(previously filed as an Exhibit to the Company's 1983
Annual Report on Form 10-K, File No. 2-70145).
- (10)(k) Letter from Hoy M. Booker deferring enforcement of legal
remedies (previously filed as an Exhibit to the Company's
1983 Annual Report on Form 10-K, File No. 2-70145).
- (10)(l) Letter from R. L. Kirkwood deferring enforcement of legal
remedies (previously filed as an Exhibit to the Company's
1983 Annual Report on Form 10-K, File No. 2-70145).
- (10)(m) Modification of Representation and Warranty of Second
Amendment dated April 13, 1984 to the Loan Agreement dated
December 28, 1981 between the company and Frost National
Bank of San Antonio (previously filed as an Exhibit to the
Company's 1984 Annual Report on Form 10-K, File No.
2-70145).
- (10)(n) Agreement and Release dated January 3, 1986, between the
Company and Hoy M. Booker and Robert L. Kirkwood regarding
the assignment of certain oil and gas properties in
satisfaction of certain promissory notes (previously filed
as an Exhibit to the Company's 1985 Annual Report on Form
10-K, File No. 2-70145).
- (10)(o) Debt Cancellation Agreement dated March 24, 1986 between the
company and Frost National Bank of San Antonio (previously
filed as an Exhibit to the Company's 1985 Annual Report on
Form 10-K, File No. 2-70145).
- (10)(p) Amendment #1 To Debt Cancellation Agreement dated March 24,
1986 between the Company and Frost National Bank of San
Antonio (previously filed as an Exhibit to the Company's
1986 Annual Report on Form 10-K, File No. 2-70145).
- (10)(q) Amendment #2 To Debt Cancellation Agreement dated March 24,
1986 between the Company and Frost National Bank of San
Antonio (previously filed as an Exhibit to the Company's
1986 Annual Report on Form 10-K, File No. 2-70145).
- (10)(r) Modification and Extension of Term Note dated April 16, 1986
between the Company and Frost National Bank of San Antonio
(previously filed as an Exhibit to the Company's 1986 Annual
Report on Form 10-K, File No. 2-70145).
-32-
<PAGE> 33
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
- (10)(s) Bill of Sale of Oil and Gas Drilling Rigs dated April 16,
1986 between the Company and Frost National Bank of San
Antonio (previously filed as an Exhibit to the Company's
1986 Annual Report on Form 10-K, File No. 2-70145).
- (10)(t) Convertible subordinated note dated January 1, 1989 between
the Company and Frost Bank (previously filed as an Exhibit
to the Company's 1989 Annual Report on Form 10-K, File No.
2-70145).
- (10)(u) Convertible subordinated note dated November 1, 1988 between
the Company and Larry Temple (previously filed as an Exhibit
to the Company's 1989 Annual Report on Form 10-K, File No.
2-70145).
- (10)(v) Rig Lease and Refurbishing Agreement (Rig 11) dated
September 21, 1990 between the Company and LB Sales and
Leasing, Inc. (previously filed as an Exhibit to the
Company's 1991 Annual Report on Form 10-K, File No.
2-70145).
- (10)(w) Rig Lease and Refurbishing Agreement (Rig 12) dated
September 21, 1990 between the Company and LB Sales and
Leasing, Inc. (previously filed as an Exhibit to the
Company's 1991 Annual Report on Form 10-K, File No.
2-70145).
- (10)(x) Revised and restated rig Lease and Refurbishing Agreement
regarding Rig 11 and Rig 12 dated September 27, 1991 between
the Company and LB Sales and Leasing, Inc. (previously filed
as an Exhibit to the Company's 1992 Annual Report on Form
10-K, File No. 2-70145).
- (10)(y) Settlement Agreement dated November 13, 1991 between the
Company and Frio Drilling Company (previously filed as an
Exhibit to the Company's 1992 Annual Report on Form 10-K,
File No. 2-70145).
- (10)(z) Settlement Agreement dated December 29, 1994 between the
Company and L. B. Sales and Leasing, Inc. ( previously filed
as an Exhibit to the Company's 1995 Annual Report on Form
10-K, File No. 2-70145).
- (10)(aa) Executive Employment Agreement dated May 1, 1995 between the
Company and Wm. Stacy Locke (previously filed as an Exhibit
to the Company's 1995 Annual Report on Form 10-K, File No.
2-70145).
- (10)(bb) Form of Loan and Security Agreement dated May 8, 1996
between the Company and Finova Capital Corporation
(previously filed as an Exhibit to the Company's 1996 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(cc) Form of Schedule to Loan and Security Agreement dated May 8,
1996 between the Company and Finova Capital Corporation
(previously filed as an Exhibit to the Company's 1996 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(dd) Asset Purchase Agreement May 23, 1997 between the Company
and San Patricio Corporation (previously filed as an Exhibit
to the Company's 1996 Annual Report on Form 10-K, File No.
2-70145).
- (10)(ee) Non-Statutory Stock Option Agreement dated June 18, 1997
between the Company and San Patricio Corporation (previously
filed as an Exhibit to the Company's 1996 Annual Report on
Form 10-K, File No. 2-70145).
- (10)(ff) Second Amended Certificate of Designation, Reducing The
Number Of Shares Formerly Designated Series A, Series B and
Series C Preferred Stock to Zero and Designating The Voting
Powers, Preferences and Rights of A New Series A 8%
Convertible Preferred Stock dated April 15, 1997 (previously
filed as an Exhibit to the Company's 1996 Annual Report on
Form 10-K, File No. 2-70145).
-33-
<PAGE> 34
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
- (10)(gg) Third Amended Certificate of Designation, Correcting An
Error In The Second Amended Certificate of Designation and
Designating the Voting Powers, Preferences And Right Of A
New Series B 8% Convertible Preferred Stock dated June 9,
1998 (previously filed as an Exhibit to the Company's 1998
Annual Report on Form 10-K, File No. 2-70145).
- (10)(hh) First Amendment To Loan And Security Agreement dated May 8,
1996 between the Company and Finova Capital Corporation
dated June 18, 1997 (previously filed as an Exhibit to the
Company's 1998 Annual Report on Form 10-K, File No.
2-70145).
- (10)(ii) Second Amendment To Loan and Security Agreement dated May 8,
1996 between the Company and Finova Capital Corporation
(previously filed as an Exhibit to the Company's 1998 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(jj) Third Amendment to Loan and Security Agreement dated May 6,
1996 between the Company and Finova Capital Corporation
dated November 1, 1998 (previously filed as an Exhibit to
the Company's 1999 Annual Report on Form 10-K, File No.
2-70145).
- (10)(kk) Executive Employment Agreement dated November 16, 1998
between the Company and Michael E. Little (previously filed
as an Exhibit to the Company's 1999 Annual Report on Form
10-K, File No. 2-70145).
- (10)(ll) First Amendment to Executive Employment Agreement dated May
1, 1995 between the Company and Wm. Stacy Locke dated
November 16, 1998 (previously filed as an Exhibit to the
Company's 1999 Annual Report on Form 10-K, File No.
2-70145).
37 (10)(mm) Fourth Amendment to Loan and Security Agreement dated May 6,
1996 between the Company and Finova Capital Corporation
dated September 29, 1999.
46 (10)(nn) Asset Purchase Agreement dated September 29, 1999 between
Howell Drilling, Inc., and the Company.
65 (10)(oo) Common Stock Purchase Agreement dated May 11, 2000 between
WEDGE Energy Services, L.L.C., and the Company.
88 (10)(pp) Registration Rights Agreement dated May 10, 2000 between
WEDGE Energy Services, L.L.C., and the Company.
99 (10)(qq) Contract dated May 5, 2000 between IRI International
Corporation and the Company for the purchase of two 1600E
Series Electric Drilling Rigs.
104 (10)(rr) Form of the Company's 1999 Stock Option Plan and Option
Agreement.
- (22) Subsidiaries of the registrant (previously filed as an
Exhibit to the Company's 1992 Annual Report on Form 10-K,
File No. 2-70145).
(27) Financial Data Schedule
-34-
<PAGE> 35
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
SCHEDULE II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance Charged
at to costs Deductions Balance
beginning and from at
of year expenses accounts year end
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended March 31, 1998:
Allowance for doubtful
receivables $ 140,000 -- -- 140,000
========== ========== ========== ==========
Year ended March 31, 1999:
Allowance for doubtful
receivables $ 140,000 -- 140,000 --
========== ========== ========== ==========
Year ended March 31, 2000:
Allowance for doubtful
receivables $ -- -- -- --
========== ========== ========== ==========
</TABLE>
-35-
<PAGE> 36
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, South Texas Drilling & Exploration, Inc. has duly caused
this report to be signed on its behalf by the undersigned, this 23rd day of
June, 2000 thereunto duly authorized.
By /s/ Michael E. Little
--------------------------------
Michael E. Little, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael E. Little Chairman, Chief Executive June 23, 2000
---------------------- Officer and Director
Michael E. Little
/s/ Wm. Stacy Locke President, Chief June 23, 2000
---------------------- Operating Officer and
Wm. Stacy Locke Director
/s/ William D. Hibbetts Director June 23, 2000
----------------------
William D. Hibbetts
/s/ Chris F. Parma Vice President and June 23, 2000
---------------------- Chief Financial Officer
Chris F. Parma
</TABLE>
-36-
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
- (3) Articles of Incorporation and Bylaws of the Company
(previously filed as an Exhibit to the company's 1981 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(a) Stock Purchase and Options Agreement dated December 28, 1981
between the Company and Rowan Companies, Inc. ("Rowan")
(previously filed as an Exhibit to the Company's 1981 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(b) Amended and Restated Agreement of Sale dated December 28,
1981 between the Company and Rowan relating to acquisition
of the Tender Rigs (previously filed as an Exhibit to the
Company's 1981 Annual Report on Form 10-K, File No.
2-70145).
- (10)(c) Note Purchase and Warrant Agreement between the Company and
Connecticut General Life Insurance Company and Teachers
Insurance and Annuity Association relating to acquisition of
the Tender Rigs (previously filed as an Exhibit to the
Company's 1981 Annual Report on Form 10-K, File No.
2-70145).
- (10)(d) Amendment No. 2 to Warrant Agreement dated April 12, 1984
between the Company and Connecticut General Life Insurance
Company and Teachers Insurance and Annuity Association
(previously filed as an Exhibit to the Company's 1983 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(e) Letter of Basic Terms dated April 12, 1984 between the
Company and Connecticut General Life Insurance Company and
Teachers Insurance and Annuity Association regarding the
recapitalization or reorganization of South Texas Offshore
Drilling
</TABLE>
<PAGE> 38
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
Company (previously filed as an Exhibit to the Company's
1983 Annual Report on Form 10-K, File No. 2-70145).
- (10)(f) Agreement dated April 12, 1984 among the Company and
Connecticut General Life Insurance Company and Teachers
Insurance and Annuity Association of America releasing
certain obligations of the Company (previously filed as an
Exhibit to the Company's 1983 Annual Report on Form 10-K,
File No. 2-70145).
- (10)(g) Loan Agreement dated December 28, 1981 between the Company
and Frost National Bank of San Antonio (previously filed as
an Exhibit to the Company's 1983 Annual Report on Form 10-K,
File No. 2-70145).
- (10)(h) Second Amendment dated April 13, 1984 to the Loan Agreement
dated December 28, 1981 between the Company and Frost
National Bank of San Antonio (previously filed as an Exhibit
to the Company's 1983 Annual Report on Form 10-K, File No.
2-70145).
- (10)(I) Modification of General Guaranty dated April 13, 1984
between the Company and Frost National Bank of San Antonio
modifying the Company's guarantee of the Promissory Note of
South Texas/1200, Ltd. (previously filed as an Exhibit to
the Company's 1983 Annual Report on Form 10-K, File No.
2-70145).
- (10)(j) The Company's 1983 Non-qualified Stock Option Plan
(previously filed as an Exhibit to the Company's 1983
Annual Report on Form 10-K, File No. 2-70145).
- (10)(k) Letter from Hoy M. Booker deferring enforcement of legal
remedies (previously filed as an Exhibit to the Company's
1983 Annual Report on Form 10-K, File No. 2-70145).
- (10)(l) Letter from R. L. Kirkwood deferring enforcement of legal
remedies (previously filed as an Exhibit to the Company's
1983 Annual Report on Form 10-K, File No. 2-70145).
- (10)(m) Modification of Representation and Warranty of Second
Amendment dated April 13, 1984 to the Loan Agreement dated
December 28, 1981 between the company and Frost National
Bank of San Antonio (previously filed as an Exhibit to the
Company's 1984 Annual Report on Form 10-K, File No.
2-70145).
- (10)(n) Agreement and Release dated January 3, 1986, between the
Company and Hoy M. Booker and Robert L. Kirkwood regarding
the assignment of certain oil and gas properties in
satisfaction of certain promissory notes (previously filed
as an Exhibit to the Company's 1985 Annual Report on Form
10-K, File No. 2-70145).
- (10)(o) Debt Cancellation Agreement dated March 24, 1986 between the
company and Frost National Bank of San Antonio (previously
filed as an Exhibit to the Company's 1985 Annual Report on
Form 10-K, File No. 2-70145).
- (10)(p) Amendment #1 To Debt Cancellation Agreement dated March 24,
1986 between the Company and Frost National Bank of San
Antonio (previously filed as an Exhibit to the Company's
1986 Annual Report on Form 10-K, File No. 2-70145).
- (10)(q) Amendment #2 To Debt Cancellation Agreement dated March 24,
1986 between the Company and Frost National Bank of San
Antonio (previously filed as an Exhibit to the Company's
1986 Annual Report on Form 10-K, File No. 2-70145).
- (10)(r) Modification and Extension of Term Note dated April 16, 1986
between the Company and Frost National Bank of San Antonio
(previously filed as an Exhibit to the Company's 1986 Annual
Report on Form 10-K, File No. 2-70145).
</TABLE>
<PAGE> 39
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
- (10)(s) Bill of Sale of Oil and Gas Drilling Rigs dated April 16,
1986 between the Company and Frost National Bank of San
Antonio (previously filed as an Exhibit to the Company's
1986 Annual Report on Form 10-K, File No. 2-70145).
- (10)(t) Convertible subordinated note dated January 1, 1989 between
the Company and Frost Bank (previously filed as an Exhibit
to the Company's 1989 Annual Report on Form 10-K, File No.
2-70145).
- (10)(u) Convertible subordinated note dated November 1, 1988 between
the Company and Larry Temple (previously filed as an Exhibit
to the Company's 1989 Annual Report on Form 10-K, File No.
2-70145).
- (10)(v) Rig Lease and Refurbishing Agreement (Rig 11) dated
September 21, 1990 between the Company and LB Sales and
Leasing, Inc. (previously filed as an Exhibit to the
Company's 1991 Annual Report on Form 10-K, File No.
2-70145).
- (10)(w) Rig Lease and Refurbishing Agreement (Rig 12) dated
September 21, 1990 between the Company and LB Sales and
Leasing, Inc. (previously filed as an Exhibit to the
Company's 1991 Annual Report on Form 10-K, File No.
2-70145).
- (10)(x) Revised and restated rig Lease and Refurbishing Agreement
regarding Rig 11 and Rig 12 dated September 27, 1991 between
the Company and LB Sales and Leasing, Inc. (previously filed
as an Exhibit to the Company's 1992 Annual Report on Form
10-K, File No. 2-70145).
- (10)(y) Settlement Agreement dated November 13, 1991 between the
Company and Frio Drilling Company (previously filed as an
Exhibit to the Company's 1992 Annual Report on Form 10-K,
File No. 2-70145).
- (10)(z) Settlement Agreement dated December 29, 1994 between the
Company and L. B. Sales and Leasing, Inc. (previously filed
as an Exhibit to the Company's 1995 Annual Report on Form
10-K, File No. 2-70145).
- (10)(aa) Executive Employment Agreement dated May 1, 1995 between the
Company and Wm. Stacy Locke (previously filed as an Exhibit
to the Company's 1995 Annual Report on Form 10-K, File No.
2-70145).
- (10)(bb) Form of Loan and Security Agreement dated May 8, 1996
between the Company and Finova Capital Corporation
(previously filed as an Exhibit to the Company's 1996 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(cc) Form of Schedule to Loan and Security Agreement dated May 8,
1996 between the Company and Finova Capital Corporation
(previously filed as an Exhibit to the Company's 1996 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(dd) Asset Purchase Agreement May 23, 1997 between the Company
and San Patricio Corporation (previously filed as an Exhibit
to the Company's 1996 Annual Report on Form 10-K, File No.
2-70145).
- (10)(ee) Non-Statutory Stock Option Agreement dated June 18, 1997
between the Company and San Patricio Corporation (previously
filed as an Exhibit to the Company's 1996 Annual Report on
Form 10-K, File No. 2-70145).
- (10)(ff) Second Amended Certificate of Designation, Reducing The
Number Of Shares Formerly Designated Series A, Series B and
Series C Preferred Stock to Zero and Designating The Voting
Powers, Preferences and Rights of A New Series A 8%
Convertible Preferred Stock dated April 15, 1997 (previously
filed as an Exhibit to the Company's 1996 Annual Report on
Form 10-K, File No. 2-70145).
</TABLE>
<PAGE> 40
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
- (10)(gg) Third Amended Certificate of Designation, Correcting An
Error In The Second Amended Certificate of Designation and
Designating the Voting Powers, Preferences And Right Of A
New Series B 8% Convertible Preferred Stock dated June 9,
1998 (previously filed as an Exhibit to the Company's 1998
Annual Report on Form 10-K, File No. 2-70145).
- (10)(hh) First Amendment To Loan And Security Agreement dated May 8,
1996 between the Company and Finova Capital Corporation
dated June 18, 1997 (previously filed as an Exhibit to the
Company's 1998 Annual Report on Form 10-K, File No.
2-70145).
- (10)(ii) Second Amendment To Loan and Security Agreement dated May 8,
1996 between the Company and Finova Capital Corporation
(previously filed as an Exhibit to the Company's 1998 Annual
Report on Form 10-K, File No. 2-70145).
- (10)(jj) Third Amendment to Loan and Security Agreement dated May 6,
1996 between the Company and Finova Capital Corporation
dated November 1, 1998 (previously filed as an Exhibit to
the Company's 1999 Annual Report on Form 10-K, File No.
2-70145).
- (10)(kk) Executive Employment Agreement dated November 16, 1998
between the Company and Michael E. Little (previously filed
as an Exhibit to the Company's 1999 Annual Report on Form
10-K, File No. 2-70145).
- (10)(ll) First Amendment to Executive Employment Agreement dated May
1, 1995 between the Company and Wm. Stacy Locke dated
November 16, 1998 (previously filed as an Exhibit to the
Company's 1999 Annual Report on Form 10-K, File No.
2-70145).
37 (10)(mm) Fourth Amendment to Loan and Security Agreement dated May 6,
1996 between the Company and Finova Capital Corporation
dated September 29, 1999.
46 (10)(nn) Asset Purchase Agreement dated September 29, 1999 between
Howell Drilling, Inc., and the Company.
65 (10)(oo) Common Stock Purchase Agreement dated May 11, 2000 between
WEDGE Energy Services, L.L.C., and the Company.
88 (10)(pp) Registration Rights Agreement dated May 10, 2000 between
WEDGE Energy Services, L.L.C., and the Company.
99 (10)(qq) Contract dated May 5, 2000 between IRI International
Corporation and the Company for the purchase of two 1600E
Series Electric Drilling Rigs.
104 (10)(rr) Form of the Company's 1999 Stock Option Plan and Option
Agreement.
- (22) Subsidiaries of the registrant (previously filed as an
Exhibit to the Company's 1992 Annual Report on Form 10-K,
File No. 2-70145).
(27) Financial Data Schedule
</TABLE>
