SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 0-610
EQUITY OIL COMPANY
[Exact name of registrant as specified in its charter]
Colorado 87-0129795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 West Broadway, Suite 806 84101
Salt Lake City, Utah (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 521-3515
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 (par value, $1 per share)
[Title of class]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No
As of February 21, 1996, 12,711,100 common shares were outstanding, and the
aggregate market value of voting stock held by non-affiliates of the registrant
was approximately $53,070,677.
Documents Incorporated by Reference
1. Definitive proxy statement to be filed in connection with Issuer's Annual
Stockholders' Meeting to be held on May 8, 1996 and more particularly the
information contained on pages 2 through 5 are incorporated by reference into
Part III of this report.
Total Pages 63
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Equity Oil Company ("Equity" or "the Company") was originally incorporated in
the state of Utah in 1923. In 1958, it was merged into its subsidiary, Weber Oil
Company, a Colorado corporation. The surviving company adopted the name Equity
Oil Company.
Equity is an independent oil and gas exploration and production company,
currently conducting its business in ten states and two Canadian provinces.
Equity is also a 50% shareholder in Symskaya Exploration, Inc., which has
operations in Russia. Headquartered in Salt Lake City, Utah, the Company also
maintains an exploration office in Denver, Colorado, and a field office in
Vernal, Utah. The Company has 17 full-time employees.
More than 90% of the Company's revenues come from the sale of crude oil and
natural gas. Accordingly, the Company continually seeks to increase its oil and
gas reserves through exploration, development of existing properties, and/or the
purchase of existing producing properties.
The Company's exploration office in Denver is responsible for the generation and
review of exploration prospects, and the planning, where necessary, to drill the
prospects. These include prospects developed in-house, as well as those
presented by independent third parties. The general drilling practice of the
Company is to participate in projects on a 25% to 50% working interest basis.
Participation varies with each prospect depending on location and the attendant
financial and technical risk.
In addition to its exploration ventures, the Company works in conjunction with
other working interest owners in producing properties to identify and develop
projects that will enhance and expand the productive capacities of existing
wells and fields. The Company also investigates opportunities to purchase
interests in properties with existing production.
A discussion of the Company's activities during 1995 is set forth below in ITEM
2. Properties, under the caption Present Activity.
<PAGE>
NARRATIVE DESCRIPTION OF BUSINESS
PRINCIPAL PRODUCTS AND MARKETS
The Company produces crude oil and natural gas. During the last five years,
revenues from the sales of these products have accounted for more than 90% of
the total revenues of the Company, while remaining revenues have come from other
sources, including interest income on invested funds, partnership income,
operating overhead reimbursements, and the sales of various undeveloped
properties.
The Company's crude oil production is sold under short-term contracts at current
posted prices for each geographic area, less applicable quality or
transportation tariffs plus negotiated bonuses. Prices are set by oil
purchasers, and their methods of determining prices are not within the knowledge
of the registrant, but it is assumed they are influenced by regional, national
and international factors relating to oil supply and demand. (See discussion
under Major Customers)
The bulk of the Company's natural gas production is sold in the Gulf Coast of
Texas, in the Canadian province of Alberta, and in Wyoming. In addition to these
areas, the Company expects to see an increase in gas production during 1996 in
California.
In the Gulf Coast of Texas, the majority of the Company's gas production is sold
on the spot market. Contracts are typically of short duration, and prices
received vary in concert with the futures markets. While the areas in Texas
where the Company has its major gas reserves are characterized by large reserves
of other companies, the Company has historically been able to sell all of its
productive capacity, and expects to be able to continue to do so in the near
future.
The majority of the natural gas produced in Alberta is taken in kind and sold on
the spot market under short term contracts. The Company's contracts do not
provide for minimum production amounts; however, the Company has historically
been able to produce most of the wells at or near capacity, and has been able to
sell all of the gas produced.
The majority of gas sold in Wyoming is marketed under a contract at an index
price that is subject to renegotiation on a monthly basis. The Company expects
to sell gas produced in California on the spot market, where prices also vary on
a monthly basis.
<PAGE>
SEASONALITY
The Company experiences some seasonality in gas sales revenues. Net sales prices
tend to rise during the winter months compared to the rest of the year. However,
since over 80% of the Company's oil and gas revenues come from the sale of oil,
the seasonal impact on gas sales is not significant.
MAJOR CUSTOMERS
All oil and gas produced in the U.S. or Canada is sold to unaffiliated pipeline,
refining, or crude oil purchasing companies. These companies are often the
operators of the fields where the product is produced, or owners of the
pipelines which transport the products. A change of ownership or a change in
operator has not resulted in an interruption of production or transportation,
and consequently has not had a material adverse effect on the business of the
Company.
Approximately 60% of the Company's total oil production comes from the Rangely
Weber Sand Unit in Rangely, Colorado. This production accounted for
approximately 51% of the Company's total revenues in 1995. The Company currently
sells its share of oil from the Rangely field through a crude oil marketing
company to Phillips Petroleum (Phillips). The Company does not believe that the
loss of Phillips as a customer would have any material impact on the Company, as
oil production from the Rangely field could readily be sold to other crude oil
purchasers. No other customer accounts for more than 10% of the Company's sales.
COMPETITION
Equity is part of a highly competitive industry composed of many companies that
are significantly larger and possess greater resources than the Company. These
include major oil companies as well as large independent exploration and
production companies. Their size and resources may allow these parties to
operate at a greater competitive advantage than Equity.
During 1995 the Company did not experience any competitive factors which
impaired its production or sale of oil and gas, nor did it experience any
difficulties in contracting for drilling and related equipment.
<PAGE>
GOVERNMENT REGULATION
Drilling activities of the Company are regulated by several governmental
agencies in the United States, both federal and state, including the
Environmental Protection Agency, Forest Service, Department of Wildlife, and
Bureau of Land Management, as well as state oil and gas commissions for those
states in which the Company has operations. Canadian operations are subject to
similar requirements.
The Company believes that it is currently in compliance with all federal, state,
and local environmental regulations, both domestically and abroad. Further, the
Company does not believe that any current environmental regulations will have a
material impact on its capital expenditures or earnings, nor will they result in
any competitive disadvantage to the Company.
FINANCIAL INFORMATION ABOUT FOREIGN OPERATIONS
Foreign operations of the Company are currently conducted in the Canadian
provinces of Alberta and British Columbia. Financial information concerning
these operations can be found in Footnotes 5 and 6 to the financial statements.
For financial reporting purposes, the Company does not allocate any general and
administrative expenses to its Canadian operations, nor are they burdened with
indirect exploration overhead expenses. Direct exploration expenses are charged
to the geographic area in which they occur. Because the majority of the
Company's exploration efforts occur in the United States, very little
exploration expenses are allocated to the Canadian operations. As a result of
these and other factors, the operating profit of the Canadian operations is
significantly greater than the operating profit in the United States. The
Company does not believe that its Canadian operations are attended with any more
risk than those in the United States.
Symskaya Exploration, Inc., in which the Company owns a 50% interest, is
conducting operations in Russia. Further discussion of this venture is found in
ITEM 2. Properties, under the caption Present Activity, and in Footnotes 6 and 9
in the financial statements.
<PAGE>
ITEM 2. PROPERTIES
The principal properties of the Company consist of developed and undeveloped oil
and gas leasehold interests. Developed leases are comprised of properties with
existing production, where lease terms continue as long as oil and/or gas is
produced. Undeveloped leases include unproven acreage on both public and private
lands. The leases have set terms and terminate at the time specified in each
lease unless oil and gas in commercial quantities are discovered prior to that
time.
The Company also has a fee interest in 3,968 net acres of oil shale lands in
Colorado. These properties have not generated significant revenue for the
Company. In 1994, the Company entered into a lease agreement with another
company for a five year oil and gas lease on these lands.
RESERVES
The information found in Footnote 9 to the financial statements concerning
proved reserves represents the Company's best estimate of product quantities
expected to be produced from the properties based on geologic and engineering
data, as well as current economic and operating conditions. The presentation is
made in accordance with Securities and Exchange Commission guidelines, and is
based on prices and costs in effect on December 31, 1995.
The calculation of future net cash flows relating to proved oil and gas reserves
is sensitive to price variations, and is based on the prices in effect at a
specific point in time. The weighted average net prices used for the 1995
reserve calculation were $18.02 per barrel of oil and $1.38 per Mcf of natural
gas, which compares to $16.87 and $1.52 in 1994.
No estimates of reserves have been filed with or included in any report to any
other federal agency during 1995.
<PAGE>
PRODUCTION
The following table sets forth the Company's production, average sales prices,
and average lifting costs by geographic area for 1995, 1994, and 1993:
<TABLE>
<CAPTION>
1995 1994 1993 1995 1994 1993
Area Oil Oil Oil Gas Gas Gas
Production (Bbls) (Bbls) (Bbls) (MMCF) (MMcf) (MMcf)
<S> <C> <C> <C> <C> <C> <C>
Colorado 373,766 387,919 435,845 84 27 22
Texas 32,861 42,603 52,045 356 439 574
Montana 23,385 17,889 19,744 9 - 1
Utah 10,069 12,216 11,996 - - -
Wyoming 44,283 22,956 24,129 422 398 195
North Dakota 5,869 5,370 11,161 2 1 1
Oklahoma 640 664 631 - - -
California - - - 5 - -
Other States 6 30 39 2 15 2
Total U.S. 490,879 489,647 555,590 880 880 795
Alberta 116,252 108,466 112,907 568 238 215
B.C. 12,249 11,430 7,881 3 2 2
Total Canada 128,501 119,896 120,788 571 240 217
Grand Total 619,380 609,543 676,378 1,451 1,120 1,012
Average Price
U.S. $17.44 $15.88 $16.47 $1.67 $2.18 $2.13
Canada $15.49 $14.30 $13.07 $ .74 $1.57 $1.24
Total $17.00 $15.57 $15.87 $1.31 $2.05 $1.94
Lifting Costs
U.S. $ 7.75 $ 6.60 $ 7.30 $ .74 $ .91 $ .94
Canada $ 3.75 $ 4.32 $ 3.44 $ .19 $ .46 $ .31
Total $ 6.85 $ 6.15 $ 6.61 $ .53 $ .81 $ .81
</TABLE>
<PAGE>
PRODUCTIVE WELLS AND ACREAGE
The location and quantity of Equity's productive wells and acreage as of
December 31, 1995 are as follows:
Productive Wells: Gross Net
Oil:
United States 729 52.909
Canada 244 12.125
Gas:
United States 55 13.289
Canada 11 2.327
Total Productive Wells 1,039 80.650
Developed Acreage
United States 122,592 9,161
Canada 128,880 3,402
Total Developed Acreage 251,472 12,563
UNDEVELOPED ACREAGE
The following table sets forth the Company's undeveloped oil and gas lease
acreage as of December 31, 1995 by geographic area:
Gross Net
Area Acreage Acreage
Colorado 8,520 7,605
Texas 4,362 1,207
Montana 27,572 5,550
Utah 6,760 784
Wyoming 19,705 7,872
California 23,352 5,224
North Dakota 4,998 3,379
Other States 280 38
Total U.S. 95,549 31,659
Alberta 37,040 4,533
Total Canada 37,040 4,533
Grand Total 132,589 36,192
Through its 50% ownership in Symskaya Exploration, Inc., the Company also has an
indirect interest in an additional 550,000 net acres in Russia. Further
discussion of this venture is found in ITEM 2. Properties, under the caption
Present Activity, and in Footnotes 6 and 9 to the financial statements.
<PAGE>
DRILLING ACTIVITY
During 1995, the Company participated in the drilling of 20 gross wells,
including 3 drilled under farmout agreements. Of this total, 16 were completed
as producing oil and gas wells and 4 were plugged and abandoned as dry holes.
Gross exploratory wells drilled: Status 1995 1994 1993
United States Productive 8 7 8
Dry 4 6 7
Canada Productive - - -
Dry - - -
Gross development wells drilled:
United States Productive 3 5 3
Dry - - 3
Canada Productive 5 2 -
Dry - - -
Net exploratory wells drilled:
United States Productive 1.05 1.10 1.13
Dry 1.08 1.48 1.86
Canada Productive - - -
Dry - - -
Net development wells drilled:
United States Productive 1.30 .80 .88
Dry - - .85
Canada Productive 2.14 .90 -
Dry - - -
<PAGE>
PRESENT ACTIVITY
In 1994, the Company announced the adoption of a corporate strategy to replace
the oil and natural gas reserves of the Company. The four elements of that
strategy are:
*Focused exploration drilling in North America
*Development drilling and exploitation in North America
*Acquisition of proved reserves in North America
*International exploration in Russia
Following is background information concerning the Company's current and
expected activities as they relate to this strategy:
EXPLORATION
Much of the first part of 1995 was devoted to the development and evaluation of
exploration prospects. In the second half of 1995, the Company participated in
the drilling of twelve exploratory wells, resulting in five gas completions,
three oil completions, and four dry holes. Two wells approved at year-end 1995
have both been completed in 1996 as gas wells.
The most significant event of the 1995 exploration program was the drilling of
the first four wells on the 41.5 square mile Orion 3-D seismic survey in the
Sacramento Basin of Northern California. The survey was completed in the spring
of 1995, and following processing and evaluation of the survey data, drilling on
the survey began in the fourth quarter. Five of the first six wells drilled were
completed as gas wells, including two in 1996. All of the Orion wells will be on
production in the first quarter of 1996, and the Company currently has plans to
drill an additional nine wells on this survey in 1996.
Equity has a 25% working interest in this project.
The Company will participate in four additional 3-D seismic surveys in the
Sacramento Basin in 1996 that may result in the drilling of additional
exploratory wells during the year.
Exploration activities in the Rocky Mountains in 1995 resulted in one dry hole;
however, considerable work was done in prospect generation and development that
may result in nine prospects being drilled in 1996. The Company currently has
three active prospects in Wyoming, two in Montana, two in Colorado, and two in
North Dakota.
Included in the Rocky Mountain exploration prospects is a Lodgepole reef test
that will be drilled, following a twenty five square mile 3-D seismic program,
on a 21,500 acre lease block in Dawson County, Montana. The 3-D survey is
scheduled to begin in the first quarter of 1996, and drilling should begin in
the third quarter of the year. Equity generated and operates this prospect and
has been reimbursed by its partners for 85% of its acreage cost in the prospect
and will be carried at no cost for its 15% working interest in the 3-D survey
and the first well.
DEVELOPMENT DRILLING
In 1995, Equity participated in the drilling of eight development wells
resulting in four gas wells and four oil wells. In addition to the conversion of
1.37 BCF of gas from proved undeveloped reserves to proved developed reserves,
this drilling resulted in the addition of 198,000 barrels and .47 BCF of proved
developed reserves to the Company's reserve base.
<PAGE>
Development drilling during the year focused on the Cessford field in Alberta,
Canada and the Siberia Ridge field in Sweetwater County, Wyoming. At Cessford,
four wells were completed as oil wells, bringing the total producing wells in
this 50% owned property to twenty. Present plans call for the drilling of one
additional development well in the field in 1996 and the continuation of the
work on a waterflood feasibility study.
At the Siberia Ridge field, the Company participated in the drilling of three
wells in 1995. Two of the wells were drilled under a farmout agreement at no
cost to the Company. Equity will back in for a 40% working interest in the two
wells after they payout and will have a 5% royalty interest until that time.
These wells are now on production at a combined rate of 700 MCF per day. The
third well has been placed on production at a daily rate of 300 MCF per day.
Equity has a 50% interest in this well. Present plans call for the drilling of
three wells in the Siberia Ridge Field in 1996, one of which will be under a
farmout agreement, and two in which Equity will have a 50% working interest.
Development drilling and exploitation work in 1996 will begin to focus on
certain of the properties purchased in 1995. The most significant of those
properties, the Sage Creek Field in Big Horn County, Wyoming, will see the
drilling of a well that will test the productive limits of the Madison
formation. Equity has a 24% working interest in the field.
ACQUISITIONS
In Equity's first year as an acquiror of producing properties, the Company
purchased a total of approximately 761,000 barrels of oil and 1.29 Bcf of
natural gas reserves for a total purchase price of $3.1 million dollars, or
$3.18 per BOE. The purchases were made using funds from the $20 million
borrowing base revolving credit facility established by the Company in March of
1995. The specific purchases included:
The purchase of an average 30% working interest in seven fields and fifty wells
from Mountain Oil and Gas of Wyoming and Mountain Oil and Gas of Montana for a
total purchase price of $2.2 million This acquisition added proved developed
reserves of approximately 700,000 barrels of oil and 197 million cubic feet of
natural gas, equivalent to 733,000 BOE's, at a purchase price of $3.01 per BOE.
The purchase was effective July 1, 1995.
The purchase of an additional 5% interest in the Cessford field in Alberta,
Canada, effective May 1, 1995, added 72,000 barrels of oil and 127.5 million
cubic feet of natural gas, equivalent to 93,000 BOE's, at a purchase price of
$412,000, or $4.42 per BOE.
The purchase of a 25% average working interest in three gas wells in the
Meteetsee field in Park County, Wyoming from Exxon for $494,000. Proved
developed reserves associated with the wells total 938 million cubic feet of
natural gas for an acquisition cost of $.52 per MCF.
The purchase was effective on December 1, 1995.
Each of the properties acquired have upside potential in the form of infill
development drilling, additional exploration, equipment upgrades, and/or
possible waterflooding In 1996, the Company will continue to focus its producing
property acquisition efforts in Wyoming, Montana and Alberta, and will continue
to investigate and pursue appropriate corporate acquisition opportunities.
<PAGE>
INTERNATIONAL EXPLORATION
The drilling of the Lemok No. 1 well by Symskaya Exploration, Inc. on its 1.1
million acre License area in Eastern Siberia, is continuing. Although recent
drilling problems related to deviation control of the borehole have slowed the
drilling process, evaluation of the drilling results to date are encouraging.
As reported previously, oil shows were encountered in the well between 6,890 and
6,985 feet in a dolomite section of probable Cambrian age. The cores taken in
this interval, and the western logs run from 2,460 to 8,793 feet, the point at
which intermediate casing has been set, have been evaluated. Evaluation of log
and sample data to date indicates that, in addition to the zone previously
reported, at least two other zones between 7,760 and 8,793 feet may be
potentially productive. The core and log data is inferential only, and the
extent and productivity of any of the zones must await testing, which will
follow the completion of drilling in the well. The well has continued to
encounter periodic hydrocarbon shows in the drill cuttings below the
intermediate casing depth of 8,793 feet. All shows are in dolomites of probable
Cambrian age. The well is now expected to reach total estimated depth of 14,500
feet during the first quarter of 1996.
The License area is located in a country that may be considered economically and
politically unstable. As a result, the Symskaya project is subject to all the
risks of an exploratory well in addition to the economic and political risks
associated with the Russian Federation and local government, including but not
necessarily limited to the cancellation or renegotiation of contracts,
expropriation, tax and royalty increases, foreign exchange controls, import and
export regulations, environmental regulations and other laws that may have an
adverse impact on the operation. There are also increased logistical problems
and costs associated with exploration activities in such a remote region.
Further information concerning the Company's investment in Symskaya Exploration,
Inc. may be found in Footnote 6 to the financial statements.
DELIVERY COMMITMENTS
The Company is not obligated to provide any fixed or determinable quantity of
oil or gas in the future under any existing contracts or agreements.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matters
were submitted to the security holders for a vote, and no proxies were
solicited.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED MATTERS
The Company's stock is traded on the over-the-counter market and quoted over the
NASDAQ National Market System using the symbol EQTY. High and low prices for
1995 and 1994 are as follows:
Quarter High Low
1995 - 4th 6 1/8 3 3/4
3rd 7 1/8 4
2nd 4 5/8 3 1/8
1st 4 3 3/8
1994 - 4th 5 3/8 3 7/8
3rd 5 5/8 3 1/2
2nd 4 1/4 3 1/2
1st 4 3/4 3 7/8
The approximate number of stockholders of the Company as of February 22, 1996 is
2,250.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
Net Sales $12,259,739 $11,713,498 $12,729,899 $15,222,887 $15,286,707
Other Income 457,837 196,431 43,096 277,289 148,388
Lease Operating
Costs 5,093,782 4,658,115 5,293,628 5,481,102 7,505,337
DD&A 3,843,442 5,011,155 5,090,744 4,868,084 4,108,950
Impairment of
Proved Oil and
Gas Properties 2,471,146 -0- -0- -0- -0-
Property
Writedowns -0- -0- 3,292,624 -0- -0-
3-D Seismic 237,604 -0- -0- -0- -0-
Exploration
Expense 1,633,612 1,718,339 1,737,923 2,459,873 1,927,424
General and
Administrative 1,908,778 1,560,675 1,607,892 1,939,682 1,752,816
Income (Loss) Before
Cumulative Effect
of Accounting
Changes (1,254,812) (360,830) (2,476,631) 801,440 314,444
Income (Loss) Per
Common Share Before
Cumulative Effect of
Accounting Changes (.10) (.03) (.20) .07 .03
Total Assets 53,947,050 51,908,336 53,322,749 58,154,880 56,832,462
Long Term Debt 4,918,830 460,000 920,000 1,380,000 1,840,000
Cash dividends
per share .00 .00 .05 .20 .20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ADOPTION OF SFAS NO 121. As discussed in Note 2 to the financial statements, the
Company adopted SFAS No. 121, Accounting for the Impairment of Long Lived Assets
and Assets Held for Disposal, effective July 1, 1995. The adoption of this new
accounting standard resulted in non-cash charges for the impairment of proved
oil and gas properties in the amount of $2,471,146 ($1,557,563 after tax).
Primarily as a result of this charge, the Company recorded a net loss for 1995
in the amount of $(1,254,812), or $(.10) per share, on revenues of $13,250,556.
This compares to a net loss of $(360,830), or ($.03) per share, on revenues of
$12,460,204 for 1994. This is a non-cash financial statement event only. There
has been no decrease in the quantity or expected future net revenue from the
Company's reserves, nor is there any impact on the Company's cash flows.
OIL AND GAS RESERVES. In February of 1995, the Company announced a new
growth strategy aimed at replacing and increasing the reserve base of the
Company which encompassed a balanced approach in four areas. Those areas
included 1) focused exploration drilling in North America, 2) development
drilling and exploitation in North America, 3) acquisition of proved reserves in
North America, and 4) international exploration in Russia.
As a result of the implementation of this new growth strategy, in 1995 the
Company added 1.06 million barrels of oil and 2.26 billion cubic feet of natural
gas reserves, equivalent to 171% of 1995 oil production, and 156% of 1995 gas
production. When natural gas is converted at a ratio of 6 million cubic feet per
barrel the reserve replacement totaled 1.44 million barrels of oil equivalent
(BOE) or 167% of 1995 production.
Year end 1995 proved reserves of oil increased to 7.75 million barrels, an
increase of 6% over year end 1994 reserves of 7.31 million barrels. Natural gas
proved reserves at year end 1995 were 18.02 billion cubic feet, 5% higher than
at year end 1994. Barrel equivalent reserves of 10.75 million barrels were 6%
higher on a year to year basis.
RESULTS OF OPERATIONS
COMPARISON OF 1995 WITH 1994
OIL AND GAS PRODUCTION AND SALES. The Company recorded increases in oil and gas
production and sales during 1995. Oil production rose 2%, from 609,543 barrels
in 1994 to 619,380 barrels in 1994. Gas production rose 30%, from 1.12 Bcf in
1994 to 1.45 Bcf in 1995. The production increases were a direct result of the
Company's successful development drilling and acquisition programs. While
increased gas production was offset by falling gas prices, oil prices rose
slightly during the year. The Company's average gas price received during 1995
was $1.31, down 36% from $2.05 received during 1994. Conversely, oil prices
increased 9% from $15.57 in 1994 to $17.00 in 1995. The increases in production
and oil prices were able to more than offset lower gas prices, resulting in an
increase of 5% in oil and gas sales for 1995. Net oil and gas sales for the year
were $12,259,739, compared to $11,713,498 in 1994. Further details of production
and pricing are found in Item 2. Properties, under the caption Production.
Other income. Other income in 1995 includes the recognition of $178,553 of lease
revenue deferred in 1994. In addition, the Company has begun to operate a
greater number of properties, and 1995 figures include increased overhead fees.
LEASE OPERATING COSTS. Lease operating costs increased 9% over 1994 levels. The
increase was directly attributable to the increases in production discussed
above, along with a greater number of wells on production. Through it's
successful acquisition and drilling programs, the Company acquired interests in
more than 50 additional wells, most of which were added as of July 1, 1995.
DEPRECIATION, DEPLETION, AND AMORTIZATION (DD&A). Decreased DD&A charges in 1995
are a direct reflection of the adoption of SFAS No. 121 discussed above. The
Company removed almost $2.5 million from its depletion base effective July 1,
1995, most of which was associated with high cost, marginally economic wells.
<PAGE>
IMPAIRMENT OF PROVED OIL AND GAS PROPERTIES. As discussed previously, included
in the Statement of Operations for 1995 is a non-cash charge for the impairment
of proved oil and gas properties in the amount of $2,471,146 ($1,557,563 after
tax), which results from the Company's adoption of SFAS No. 121, effective July
1, 1995. SFAS No, 121 requires successful efforts companies to evaluate the
recoverability of the carrying costs of their proved oil and gas properties at a
field level, rather than on a company-wide level as previously allowed by the
Securities and Exchange Commission. The SFAS No. 121 test compares the expected
undiscounted future net revenues from each producing field with the related net
capitalized costs at the end of each period. When the net capitalized costs
exceed the undiscounted future net revenues, the cost of the property is written
down to fair value, which is determined using discounted future net revenues
from the producing field.
3-D SEISMIC AND EXPLORATION EXPENSES. Total exploration expenses increased 9%
from 1994 levels due mainly to Company's participation in its 3-D seismic
programs in California. These expenses are charged to operations in the period
incurred. During 1995, the Company incurred $237,000 of 3-D seismic costs, while
no such costs were incurred in 1994. Exploration expenses decreased due to fewer
dry holes. The Company drilled 4 dry holes in 1995, compared to 6 in 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company recorded increases in insurance
expenses, research expenses, and legal fees associated with its increased
activities during 1995, causing general and administrative expenses to increase
22% over 1994 levels.
INCOME TAX EXPENSE. The Company's income tax benefit is a function of the loss
in 1995. Details concerning the components of the tax benefit can be found in
Footnote 3 to the financial statements.
COMPARISON OF 1994 WITH 1993
OIL AND GAS PRODUCTION AND SALES. Lower oil prices and production in 1994 offset
increases in both gas prices and production, causing an 8% decline in oil and
gas sales from 1993 levels. Oil production decreased 10% to 609,543 barrels,
down from 676,378 barrels in 1993. Gas production increased 11%, to 1,120 MMCF,
compared to 1,012 MMCF in the prior year.
INTEREST AND OTHER INCOME. Increases in interest income in 1994 are attributable
to the Note Receivable from Symskaya Exploration, Inc. discussed in Footnote 7
to the financial statements. In addition, the Company recognized income in 1994
from the sale of various undeveloped leasehold interests to other oil and gas
companies.
LEASEHOLD OPERATING COSTS. Lower production and lower product prices combined
with unanticipated refunds of prior years production taxes to produce a 12% drop
in lease operating costs from 1993 to 1994. A significant amount of these costs
are value-based production taxes, which vary with product prices.
DEPRECIATION, DEPLETION, AND AMORTIZATION. Decreased DD&A charges reflect lower
production volumes and the positive impact on reserve volumes of the somewhat
higher year-end product prices used for the reserve valuation as of December 31,
1994. Lower year-end oil prices in 1993 produced abnormally high DD&A charges
for that year.
PROPERTY WRITEDOWNS. Included in the net loss of $(2,476,631) for 1993 is a
non-cash writedown for oil and gas properties in the amount of $3,292,624
($2,085,130 after tax). As a result of the severely depressed oil prices in
1993, the Company wrote down the costs of certain properties whose carrying
value was no longer considered recoverable. These properties consisted of older
wells, drilled between the 1950's and the early 1980's.
INCOME TAX EXPENSE. The Company's income tax benefit is a function of the loss
in 1994. Details concerning the components of the tax benefit can be found in
Footnote 3 to the financial statements.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
1995 1994 1993
- ----------------------------------------------------------------
Cash, cash equivalents,
and temporary cash
investments $1,467,219 $ 2,830,070 $ 5,194,013
Working capital 3,721,049 4,841,243 6,533,528
Cash provide by
operating activities 4,143,390 3,747,669 4,081,193
Cash used in
investing activities 8,414,086 8,092,488 4,473,456
Cash provided by (used in)
financing activities 4,418,606 (485,852) 329,844
CASH AND WORKING CAPITAL. Total cash balances dropped by 48% from 1994, as a
result of a combination of several events discussed in the following paragraphs.
Working capital decreased by 21%. The Company's ratio of current assets to
current liabilities was 3.26 to 1 at December 31, 1995. The Company believes it
has adequate resources to properly fund all currently contemplated exploration,
development, and/or acquisition projects.
CASH FLOW FROM OPERATING ACTIVITIES. Higher oil and gas sales, which were mainly
a function of increased oil and gas production, were the principal factor behind
an 11% increase in cash flow from operating activities. Cash flow from operating
activities during 1995 was $4,143,390, up from $3,747,669 during 1994. Lower oil
revenues, resulting from depressed oil prices, and decreases in oil production
caused the decline in cash flow from operating activities from 1993 to 1994. The
Company is unable to accurately predict future cash flows because of oil and gas
price fluctuations.
CASH FLOWS FROM INVESTING ACTIVITIES. Primarily as a result of the Company's new
acquisition program, 1995 capital expenditures increased 78% over 1994 levels to
$7,179,528. While capitalized exploration and development spending remained
constant from 1993 to 1995, the Company spent approximately $3.1 million on
proved property acquisitions in 1995. Funds advanced to Symskaya Exploration
increased from $1,696,261 in 1994 to $2,745,319 in 1995, an increase of 62%,
which represents the increased level of drilling activity in Russia. Funds
advanced to Symskaya were $582,479 in 1993.
CASH FLOWS FROM FINANCING ACTIVITIES. The Company paid a dividend amounting to
$.05 per share in 1993. In October of 1993, the Company announced that following
a careful review of anticipated costs in connection with its Russian exploration
project and the demands of domestic exploration, the Company's Board of
Directors determined it would be prudent to suspend the payment of a cash
dividend. The payment of any future dividends will be the subject of review at
the Company's regularly scheduled Board meetings. The Company did not pay a
dividend in 1995 or 1994.
<PAGE>
During 1995, current and former employees of the Company exercised both
Incentive and Non-Qualified Stock Options for 171,000 shares of common stock
under the Company's Incentive Stock Option Plans. These exercises generated
$681,525 in cash for the Company. There were no option exercises in 1994.
Similar option exercise generated $1.4 million in cash during 1993.
In March of 1995, the Company obtained a $20 million Borrowing Base Credit
Facility (the Facility), with an initial commitment of $10 million. The Facility
calls for interest payments only, at the lower of prime or LIBOR plus 2%, for 2
years, at which time it converts to a 3 year term note. An unused commitment fee
of 3/8% will be charged to the Company based on the average daily unused portion
of the Facility. The Facility is collateralized by all assets of the Company.
The Company used proceeds from the Facility to retire its previous outstanding
Note Payable in the amount of $920,000. During 1994 and 1993, the Company made
principal payments on this Note Payable of $460,000. As of December 31, 1995 the
outstanding balance under the Facility was $4,918,830. Further information on
the Facility can be found in Footnote 7 to the financial statements.
COMMITMENTS. Under the terms of Symskaya's License and Production Sharing
Contract (PSC), Equity is committed to advance Symskaya a minimum of $6 million
during the first 5 contract years, representing 50% of the minimum expenditures
called for in the License and PSC, with the remainder being funded by Leucadia
National Corporation, Symskaya's other 50% shareholder. The first contract year
began November 15, 1993. The amounts spent by Equity and Leucadia in 1994 and
1995 more than equal the minimum commitments for expenditures under the License
and PSC for the first three contract years. Further discussion of this venture
is found under Item 2, Properties under the caption Present Activity.
OTHER ITEMS. The Company has reviewed all recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on the results
of operations or financial position of the Company. Based on that review, except
for SFAS No. 121, which was adopted early in 1995, the Company believes that
none of these pronouncements will have any significant effects on current or
future earnings or operations. The Company expects to use the disclosure method
when it adopts SFAS No. 123, Accounting for Stock-Based Compensation in 1996.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Stockholders and Board of
Directors of Equity Oil Company:
We have audited the financial statements of Equity Oil Company as listed in Item
14(a) of this Form 10-K. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Equity Oil Company as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, in 1995 the Company changed
its method of measuring impairment of proved oil and gas properties.
Salt Lake City, Utah
January 12, 1996
<PAGE>
EQUITY OIL COMPANY
BALANCE SHEET
December 31, 1995 and 1994
ASSETS 1995 1994
---- ----
Current assets:
Cash and cash equivalents $ 511,252 $ 363,342
Temporary cash investments 955,967 2,466,728
Accounts receivable 2,620,865 2,475,351
Operator advances 633,000 959,604
Federal, state and foreign income
taxes receivable 264,300 293,440
Deferred income taxes - 48,281
Other current assets 378,594 389,613
------------- ------------
Total current assets 5,363,978 6,996,359
------------ -----------
Property and equipment, at cost (successful efforts method):
Unproved oil and gas properties 2,468,412 2,369,478
Proved oil and gas properties:
Developed leaseholds 8,622,146 6,235,344
Intangible drilling costs 62,346,421 61,799,689
Equipment 25,127,047 24,052,203
Other property and equipment 678,728 591,791
----------- -----------
99,242,754 95,048,505
Less accumulated depreciation,
depletion and amortization (57,549,855) (54,236,588)
----------- ----------
41,692,899 40,811,917
----------- ----------
Other assets:
Investment in Raven Ridge Pipeline
Partnership 540,220 684,937
Investment in and note receivable
from Symskaya Exploration 6,160,442 3,415,123
Other assets 189,511
---------- ----------
6,890,173 4,100,060
---------- ----------
Total assets $53,947,050 $51,908,336
========== ==========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
---- ----
Current liabilities:
Accounts payable $ 1,182,877 $ 1,156,611
Accrued liabilities 145,422 151,948
Federal, state and foreign income
taxes payable 155,063 50,931
Accrued profit-sharing contribution 148,771 157,073
Current portion - note payable - 460,000
Deferred income taxes 10,796 -
Deferred lease rental revenue - 178,553
---------- ----------
Total current liabilities 1,642,929 2,155,116
---------- ----------
Note payable - 460,000
Revolving credit facility 4,918,830 -
Deferred income taxes 8,654,698 10,088,189
---------- ----------
13,573,528 10,548,189
---------- ----------
Commitments (Note 6)
Stockholders' equity:
Common stock, $1 par value:
Authorized: 25,000,000 shares
Issued: 12,711,100 shares in 1995
and 12,593,631 shares in 1994 12,711,100 12,593,631
Paid in capital 3,485,487 2,934,792
Retained earnings 22,534,006 23,788,818
---------- ----------
38,730,593 39,317,241
Less treasury stock, at cost - (112,210)
---------- ----------
38,730,593 39,205,031
---------- ----------
Total liabilities and
stockholders' equity $53,947,050 $51,908,336
========== ==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
EQUITY OIL COMPANY
STATEMENT OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Revenues:
Oil and gas sales $12,259,739 $11,713,498 $12,729,899
Partnership income 311,960 306,221 304,821
Interest 221,020 244,054 138,476
Other income 457,837 196,431 43,096
---------- ---------- ----------
13,250,556 12,460,204 13,216,292
---------- ---------- ----------
Expenses:
Oil and gas leasehold operating costs 5,093,782 4,658,115 5,293,628
Depreciation, depletion and
amortization 3,843,442 5,011,155 5,090,744
Impairment of proved oil and gas
properties 2,471,146
Property writedowns 3,292,624
Leasehold abandonments 30,597 60,545 87,867
3-D seismic 237,604
Exploration 1,633,612 1,718,339 1,737,923
General and administrative 1,908,778 1,560,675 1,607,892
Interest, net of interest capitalized
of $70,000 at December 31, 1995 72,625 87,308 102,728
---------- ---------- ----------
15,291,586 13,096,137 17,213,406
---------- ---------- ----------
Loss before income taxes (2,041,030) (635,933) (3,997,114)
Benefit from income taxes (786,218) (275,103) (1,520,483)
----------- --------- ----------
Net Loss $ (1,254,812) $ (360,830) $(2,476,631)
=========== ========== ==========
Net loss per common share $(0.10) $(.03) $(.20)
===== ==== ====
Weighted average shares outstanding 12,597,238 12,540,594 12,317,119
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
EQUITY OIL COMPANY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Common Stock Paid in Retained Treasury Stock
Shares Amount Capital Earnings Shares Cost
---------- ---------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 12,583,631 $12,583,631 $ 2,401,352 $27,238,210 344,871 $(1,081,997)
Net loss (2,476,631)
Cash dividends paid on common
stock, $.05 per share (611,931)
Treasury stock purchased,
$3.95 per share 4,600 (18,173)
Treasury stock issued on exercise
of incentive stock options,
$3.34 per share 406,135 (303,540) 1,013,812
Income tax benefit from exercise
of incentive stock options 97,305
---------- ---------- --------- ---------- ------- ---------
Balance at December 31, 1993 12,583,631 12,583,631 2,904,792 24,149,648 45,931 (86,358)
Net loss (360,830)
Treasury stock purchased,
$4.24 per share 6,100 (25,852)
Common stock issued for services,
$4.00 per share 10,000 10,000 30,000
----------- ---------- --------- ---------- ------- ---------
Balance at December 31, 1994 12,593,631 12,593,631 2,934,792 23,788,818 52,031 (112,210)
Net loss (1,254,812)
Treasury stock purchased,
$3.79 per share 13,500 (51,181)
Common stock issued for services,
$3.88 per share 12,000 12,000 34,500
Treasury stock canceled,
$2.49 per share (65,531) (65,531) (97,860) (65,531) 163,391
Common stock issued on exercise
of stock options 171,000 171,000 510,525
Income tax benefit from exercise
of incentive stock options 103,530
---------- ---------- --------- ---------- --------- ----------
Balance at December 31, 1995 12,711,100 $12,711,100 $ 3,485,487 $22,534,006 - $ -
========== ========== ========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
EQUITY OIL COMPANY
STATEMENT OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,254,812) $ (360,830) $(2,476,631)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Impairment of proved oil and gas properties 2,471,146
Property writedowns 3,292,624
Depreciation, depletion and amortization 3,843,442 5,011,155 5,090,744
Partnership distributions in excess of income 144,717 137,023 142,852
Property dispositions 43,227 60,545 270,684
Change in other assets 21,057
Decrease in deferred income taxes (1,374,414) (474,950) (1,745,280)
Common stock issued for services 46,500 40,000
Increase (decrease) from changes in:
Accounts receivable and operator advances 133,624 (471,691) 145,004
Other current assets (784) (78,015) (6,629)
Accounts payable and accrued liabilities 11,438 (368,649) (386,493)
Deferred lease rental revenue (178,553) 178,553
Income taxes payable/receivable 236,802 74,528 (245,682)
--------- --------- ---------
Net cash provided by operating activities 4,143,390 3,747,669 4,081,193
--------- --------- ---------
Cash flows from investing activities:
Sale of temporary cash investments 1,510,761
Purchase of temporary cash investments (2,466,728)
Advances to Symskaya Exploration (2,745,319) (1,696,261)
Capital expenditures (7,179,528) (4,027,752) (4,532,669)
Proceeds from sale of property 98,253 59,213
--------- --------- ---------
Net cash used in investing activities (8,414,086) (8,092,488) (4,473,456)
--------- --------- ---------
Cash flows from financing activities:
Exercise of incentive stock options 681,525 1,419,948
Increase in other assets (210,568)
Purchase of treasury stock (51,181) (25,852) (18,173)
Borrowings under revolving credit facility 4,918,830
Payments on note payable (920,000) (460,000) (460,000)
Payment of dividends (611,931)
--------- --------- ---------
Net cash provided by (used in)
financing activities 4,418,606 (485,852) 329,844
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 147,910 (4,830,671) (62,419)
Cash and cash equivalents at beginning of year 363,342 5,194,013 5,256,432
--------- --------- ---------
Cash and cash equivalents end of year $ 511,252 $ 363,342 $ 5,194,013
========= ========= =========
Cash, cash equivalents and temporary
cash investments at end of year $ 1,467,219 $ 2,830,070 $ 5,194,103
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 355,993 $ 103,745 $ 384,000
Interest 142,625 87,308 102,728
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
A. Equity Oil Company (the Company) is a Colorado corporation engaged in
oil and gas exploration, development and production in the United States, Canada
and Russia.
B. Principles of Consolidation:
The 1993 financial statements include the financial statements of the
Company and an 80% owned subsidiary (see Note 6). The Company's investment in
the Raven Ridge Pipeline Partnership is carried on the equity basis.
C. Temporary Cash Investments and Cash Equivalents:
Temporary cash investments consist of U.S. Treasury Notes stated at cost
which approximates market. The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
D. Accounting for Oil and Gas Operations:
The Company reports using the "successful efforts" method of accounting for
oil and gas operations. The use of this method results in capitalization of
those costs identified with the acquisition, exploration, and development of
properties that produce revenue or, if in the development stage, are anticipated
to produce future revenue. Costs of unsuccessful exploration efforts are
expensed in the period in which it is determined that such costs are not
recoverable through future revenues. Geological and geophysical costs are
expensed as incurred. The costs of development wells are capitalized whether
productive or nonproductive.
The Company annually assesses undeveloped oil and gas properties for
impairment. The annual impairment represents management's estimate of the
decline in realizable value experienced during the year. The costs of proved
properties which management determines are not recoverable are written down in
the period such determination is made.
The provision for depreciation, depletion and amortization of proved oil
and gas properties is computed using the units of production method, based on
proved oil and gas reserves. Estimated dismantlement, restoration, and
abandonment costs are expected to be offset by estimated residual values of
lease and well equipment. Thus, no accrual for such costs has been recorded.
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES, continued:
The net capitalized costs of proved oil and gas properties are measured for
impairment in accordance with SFAS No. 121 (see Note 2).
E. Concentration of Credit Risk:
Substantially all of the Company's accounts receivable are within the oil
and gas industry, primarily from purchasers of oil and gas (see Note 6).
Although diversified within many companies, collectibility is dependent upon the
general economic conditions of the industry. The receivables are not
collateralized and, to date, the Company has experienced minimal bad debts. The
majority of the Company's cash, cash equivalents and temporary cash investments
is held by three financial institutions located in Salt Lake City, Utah.
F. Equipment:
The provision for depreciation of equipment (other than oil and gas
equipment) is based on the straight-line method using asset lives as follows:
Office equipment 10 years
Automobiles 3 years
When equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the statement of operations.
G. Foreign Operations:
Operations and investments in Canada have been translated into U.S. dollar
equivalents at the average rate of exchange in effect at the transaction date.
Foreign exchange gains or losses during 1995, 1994 and 1993 were not material.
Through December 31, 1995, the Company's investment in Russia was composed
of U.S. dollar expenditures (see Note 6).
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES, continued:
H. Income (Loss) Per Common Share:
Net income (loss) per common share is computed based on the weighted
average number of common shares and common share equivalents outstanding duting
the year. Primary and fully diluted net income (loss) per common share are
essentially the same
I. Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
J. Reclassifications:
Certain balances in the December 31, 1994 and 1993 financial statements
have been reclassified to conform with the current year presentation. These
changes had no effect on the previously reported net loss, total assets,
liabilities or stockholders' equity.
2. IMPAIRMENT OF PROVED OIL AND GAS PROPERTIES:
Included in the Statement of Operations for 1995 is a non-cash charge for
the impairment of proved oil and gas properties in the amount of $2,471,146
($1,557,563 after tax), which results from the Company's adoption of SFAS
No.121, Accounting for the Impairment of Long Lived Assets and for Assets Held
for Disposal (SFAS No. 121), effective July 1, 1995. SFAS No.121 requires
successful efforts companies to evaluate the recoverability of the net
capitalized costs of their proved oil and gas properties at a field level,
rather than on a company-wide level as previously allowed by the Securities and
Exchange Commission. The SFAS No.121 impairment test compares the expected
undiscounted future net revenues from each producing field with the related net
capitalized costs at the end of each period. When the net capitalized costs
exceed the undiscounted future net revenues, the cost of the property is written
down to fair value, which is determined using discounted future net revenues
from the producing field.
<PAGE>
3. INCOME TAXES:
The benefit for income taxes consists of the following:
1995 1994 1993
---- ---- ----
Currently payable (receivable):
U.S. income taxes (including
alternative minimum tax) $ (188,666) $ (92,726) $ (43,661)
State income taxes 26,262 36,058 35,862
Canadian income taxes 373,268 256,515 232,596
Deferred tax benefit (1,374,414) (474,950) (1,745,280)
---------- ----------- -----------
$ (786,218) $ (275,103) $ (1,520,483)
=========== =========== ===========
The Company accounts for income taxes in accordance with SFAS No. 109.
Deferred income taxes are provided on the difference between the tax basis of an
asset or liability and its reported amount in the financial statements that will
result in taxable or deductible amounts in future years when the reported amount
of the asset or liability is recovered or settled, respectively.
The components of the net deferred tax liability as of December 31, 1995
and 1994 were as follows:
1995 1994
---- ----
Deferred tax assets:
AMT credit and ITC carryforwards $ 670,771 $ 458,667
State income taxes 9,709 13,330
Deferred compensation - 55,455
Geological and geophysical costs 181,989 -
Other 43,253 -
Foreign tax credit (FTC) carryforward 442,942 88,279
---------- ----------
1,348,664 615,731
Valuation allowance for FTC carryforward (442,942) (88,279)
---------- ----------
Total deferred tax asset $ 905,722 $ 527,452
========== ==========
Deferred tax liabilities:
Deferred income 20,505 20,505
Property and equipment 9,420,819 10,363,513
Pipeline partnership 129,892 183,342
---------- ----------
Total deferred tax liability 9,571,216 10,567,360
---------- ----------
Net deferred tax liability $ 8,665,494 $10,039,908
========== ==========
<PAGE>
3. INCOME TAXES, continued:
The net deferred tax liability as of December 31, 1995 and 1994 is
reflected in the balance sheet as follows:
Current deferred tax liability $ 10,796 -
Current deferred tax asset - $ (48,281)
Long-term deferred tax liability 8,654,698 10,088,189
--------- ----------
$8,665,494 $10,039,908
========= ==========
The benefit for income taxes differs from the amount that would be provided
by applying the statutory U.S. Federal income tax rate to the loss before income
taxes for the following reasons:
1995 1994 1993
---- ---- ----
Federal statutory tax benefit $ (693,948) $ (216,217) $(1,357,697)
Increase (reduction) in taxes
resulting from:
State taxes (net of federal benefit) (68,376) (11,161) (118,599)
Canadian taxes (net of foreign
tax credits) 287,670 169,300 74,282
Excess allowable percentage depletion (166,509) (186,418) (104,129)
Investment tax and other credits (145,055) (30,607) (14,340)
----------- ----------- ------------
Benefit for income taxes $ (786,218) $ (275,103) $(1,520,483)
=========== ========== ===========
At December 31, 1995, the Company had approximately $122,000 of investment
tax credit carryforwards that will expire in 2001, approximately $549,000 of
alternative minimum tax credit carryforwards which can be carried forward
indefinitely, and approximately $443,000 of foreign tax credit carryforwards
which expire in 1996, 1999 and 2000.
4. EMPLOYEE BENEFIT PLANS:
The Company has a contributory profit-sharing plan for the benefit of its
full-time employees as defined. There are no benefits under this plan which
require funding. The Company's contributions to the plan were $148,771,
$157,073, and $152,550 for 1995, 1994 and 1993, respectively.
The Company has an Incentive Stock Option Plan with 1,400,000 shares of
common stock reserved for issuance to employees. Options are granted at market
price at the date of grant and are exercisable upon issuance. Options terminate
ten years from the date of issuance. Transactions under this plan are as
follows:
<PAGE>
4. EMPLOYEE BENEFIT PLANS, continued:
Number of Weighted Average
Options Price Per Share
Outstanding December 31, 1992 691,690 $ 5.10
Granted 141,000 3.56
Exercised (303,540) 4.69
Expired (92,150) 7.17
----------
Outstanding December 31, 1993 437,000 4.38
Granted 125,000 4.25
Expired (5,000) 3.56
----------
Outstanding December 31, 1994 557,000 4.22
Granted 60,500 3.63
Exercised (132,000) 4.11
Expired (90,000) 4.68
---------- ----
Outstanding December 31, 1995 395,500 $4.31
========== ====
Under the terms of the Incentive Stock Option Plan, the Company may also
grant non-qualified stock options and tandem stock appreciation rights, either
of which, but not both, may be exercised at the end of required vesting periods,
which vary from 1 to 6 years. During 1995, 39,000 non-qualified options were
exercised by former employees of the Company. At December 31, 1995, there were
509,000 non-qualified stock options outstanding, at an average exercise price of
$4.11 per share. There were also 159,500 tandem stock appreciation rights
outstanding, at an average exercise price of $3.81.
In 1992, the Company's Compensation Committee voted to increase the
deferred compensation payable to the Company's President from $33,333 to
$300,000. One-half of this amount was paid in 1994. The remaining amount was
paid during 1995.
5. GEOGRAPHIC SEGMENT INFORMATION:
The Company has oil and gas operations in the U.S. and Canada. Through
December 31, 1993, the Company had oil and gas operations in Russia through an
80% owned subsidiary (see Note 6). Operating profit is total revenue less
operating expenses. In computing operating profit, general and administrative
expenses and interest expense have not been deducted.
Identifiable assets are those assets of the Company that are identifiable
with the operations of each geographical area.
<PAGE>
5. GEOGRAPHIC SEGMENT INFORMATION, continued:
Revenue from a major U.S. oil company accounted for approximately 51
percent of total revenues in 1995, 50 percent of total revenues in 1994, and 56
percent of total revenues in 1993.
Information about the Company's operations in the U.S., Canada and
Russia for the years ended December 31, 1995, 1994, and 1993 is as follows:
United
1995: States Canada Russia Total
---------- --------- --------- ----------
Revenues 10,819,553 $2,431,003 $13,250,556
========== ========= ==========
Operating profit (loss)$(1,391,469) $1,331,842 $ (59,627)
General and administrative
expenses (1,908,778) (1,908,778)
Interest expense (72,625) (72,625)
---------- ---------- ----------
Loss before
income taxes $(3,372,872) $1,331,842 $(2,041,030)
========== ========= =========
Identifiable assets at
December 31, 1995 $43,512,850 $4,273,758 $6,160,442 $53,947,050
========== ========= ========= ==========
Additions to property and
equipment $ 6,127,455 $1,052,073 $ 7,179,528
========== ========= ==========
Depreciation, depletion and
amortization $ 3,406,947 $ 436,495 $ 3,843,442
========== ========= ==========
United
1994: States Canada Russia Total
---------- --------- --------- ----------
Revenues $10,414,683 $2,045,521 $12,460,204
========== ========= ==========
Operating profit (loss) $ (38,477) $1,050,527 $ 1,012,050
General and administrative
expenses (1,560,675) (1,560,675)
Interest expense (87,308) (87,308)
---------- --------- ----------
Income (loss) before
income taxes $(1,686,460) $1,050,527 $ (635,933)
========== ========= ==========
Identifiable assets at
December 31, 1994 $45,066,213 $3,427,000 $3,415,123 $51,908,336
========== ========= ========= ==========
Additions to property and
equipment $ 3,576,119 $ 451,633 $ 4,027,752
========== ========= ==========
Depreciation, depletion and
amortization $ 4,668,497 $ 342,658 $ 5,011,155
========== ========= ==========
<PAGE>
5. GEOGRAPHIC SEGMENT INFORMATION, continued:
United
1993: States Canada Russia Total
---------- --------- --------- ----------
Revenues $11,563,666 $1,652,626 $13,216,292
========== ========= ==========
Operating profit (loss)$(3,000,346) $ 713,852 $(2,286,494)
General and administrative
Expenses (1,607,892) (1,607,892)
Interest expense (102,728) (102,728)
---------- --------- ----------
Income (loss) before
income taxes $ (4,710,966) $ 713,852 $ (3,997,114)
========== ========= ==========
Identifiable assets at
December 31, 1993 $48,204,538 $3,399,349 $1,718,862 $53,322,749
========== ========= ========= ==========
Additions to property and
equipment $ 3,789,594 $ 160,596 $ 582,479 $ 4,532,669
========== ========= ========= ==========
Depreciation, depletion and
amortization $ 4,658,829 $ 431,915 $ 5,090,744
========== ========= ==========
6. SYMSKAYA EXPLORATION:
On December 18, 1994, Symskaya Exploration, Inc. (Symskaya) commenced
drilling the Lemok #1, an exploratory well, in the Krasnoyarsk Krai in the
Russian Federation. The well is being drilled pursuant to a License which grants
Symskaya the exclusive right to explore, develop and produce hydrocarbons on a
contract area totaling approximately 1,100,000 acres in the Yenisysk District.
The License has a primary term of twenty five (25) years.
The work to be performed and the obligations and rights of Symskaya are set
forth in a License Agreement and a Production Sharing Contract (PSC) which are
integral parts of the License. Under the License and PSC, Symskaya will provide
funding for all exploration and development and will recover these costs from
80% of hydrocarbon production after payment of an 8% royalty. The remaining 20%
of the hydrocarbon production, net of royalty, will be shared by Symskaya and
the Russian government based on the rate of production.
Minimum expenditures required under the License and PSC total $12,000,000
during the first five years of the License term, which began on November 15,
1993. As of December 31, 1995, Symskaya had satisfied the minimum expenditures
required for the contract years ending November 15, 1994 and 1995, and has
already exceeded the amount required for the contract year ending November 15,
1996. Symskaya has the right to relinquish all acreage under the
<PAGE>
6. SYMSKAYA EXPLORATION, continued:
contract at the end of any contract year, thereby canceling the
obligation for minimum payments in subsequent years.
Prior to January 1, 1994, Symskaya was an eighty (80%) percent owned
subsidiary of the Company. The other twenty (20%) percent was owned by Coastline
Exploration, Inc., a Texas corporation (Coastline). Coastline introduced the
Symskaya project to the Company in the latter part of 1991. Under the initial
agreement with Coastline, the Company was required to advance all funds in
connection with the project. These initial funds are evidenced by a Loan
Agreement between the Company and Symskaya in the amount of $1,740,519. Amounts
advanced by the Company under the Loan Agreement are to be repaid to the Company
by Symskaya out of one hundred (100%) percent of Symskaya's proceeds, if any,
resulting from the sale, exploration, development and/or production of oil and
gas from the Symskaya project. The agreement also provided that upon payment of
the loan amount, Coastline was entitled to an additional 15% stock interest in
Symskaya.
In the early part of 1994, the Company acquired all of Coastline's interest
in Symskaya in exchange for a ten (10) year option to purchase two hundred
thousand (200,000) shares of the Company's common stock at Five Dollars ($5.00)
per share, and a one (1%) percent royalty on the Company's share of gross
revenues on production from the Symskaya project, net of all Russian royalties
and taxes. There was no value assigned to the stock option or royalty. During
1995, the Company repurchased 100,000 of Coastline's option for a total price of
$120,000.
Following the purchase of Coastline's shares, the Company sold fifty
percent (50%) of its stock in Symskaya to Leucadia National Corporation, a New
York based company (Leucadia), in exchange for their commitment to spend up to
$6,000,000, in an amount equal to that spent by the Company, towards the
Symskaya project through the drilling, completion and/or plugging and
abandonment of the Lemok #1 well. No gain or loss was recognized on the sale of
Symskaya stock to Leucadia. Pursuant to a Shareholders' Agreement, Leucadia is
not required to pay any part of the amounts advanced by the Company under the
Loan Agreement with Symskaya, with the exception of one-half (1/2) of the
interest on the $1,740,519 loan between the Company and Symskaya. The interest
rate on the loan was fixed by the Company and Leucadia at prime plus two percent
(2%), with a cap of twelve percent (12%) from and after January 1, 1994. The
interest rate in effect at December 31, 1995 was 10.5%. Amounts advanced by the
Company and Leucadia after January 1, 1994 will be treated as interest-bearing
advances or equity, as mutually agreed upon by the respective
<PAGE>
6. SYMSKAYA EXPLORATION, continued:
companies. The agreement with Leucadia also requires that Leucadia share
equally in the payment of the one (1%) percent royalty obligation in favor of
Coastline on future revenues from the Symskaya project. The Company's President
,erves on Leucadia's Board of Directors.
As a result of the Company's change of ownership in Symskaya from eighty
percent (80%) to fifty percent (50%), the investment in Symskaya is being
accounted for using the equity method of accounting effective January 1, 1994.
Accordingly, as of December 31, 1995 and 1994, the Company's investment in
Symskaya is reflected on the balance sheet as an investment in and note
receivable from Symskaya, rather than as undeveloped leaseholds.
Summarized financial information concerning Symskaya Exploration, Inc. Is
as follows:
As of As of
December 31, 1995 December 31, 1994
----------------- -----------------
Current assets $550,258 $311,263
Non-current assets 10,329,991 5,274,234
Total assets 10,880,249 5,584,497
Current Liabilities 334,573 336,621
Non-current liabilities 10,018,204 4,722,158
Retained earnings (128,205) (126,911)
Total liabilities and equity $10,880,249 $5,584,497
For the year ended For the year ended
December 31, 1995 December 31, 1994
----------------- -----------------
Gross revenues $69,423 $5,663
Net income (loss) $(1,294) $ (605)
The Company's policy with respect to impairment of proved oil and gas
properties is to evaluate the recoverability of a property's net capitalized
costs based on the undiscounted future net revenues from the related property.
As of December 31, 1995, Symskaya's first well was still in progress. If
Symskaya discovers proved reserves, any impairment of the Company's investment
in Symskaya would be calculated in accordance with the Company's policy. If
Symskaya does not discover any proved reserves, or is unable for whatever other
reason to realize any future revenues from its project, the Company's entire
investment in Symskaya will be charged to expense in the period such a
determination is made. At December 31, 1995, the Company had $6,160,442 invested
in the project.
<PAGE>
7. NOTE PAYABLE:
In March of 1995, the Company obtained a $20 million Borrowing Base Credit
Facility (the Facility), with an initial commitment of $10 million. The Facility
calls for interest payments only, at the lower of prime or LIBOR plus 2%, for 2
years, at which time it converts to a 3 year term note. An unused commitment fee
of 3/8% will be charged to the Company based on the average daily unused portion
of the Facility. The Facility is collateralized by all assets of the Company.
The Company used proceeds from the Facility to retire its previous outstanding
Note Payable in the amount of $920,000. As of December 31, 1995 the outstanding
balance under the Facility was $4,918,830 at an average interest rate of 7.47%.
Future maturities on the Facility as of December 31, 1995 are as follows:
1996 $ -
1997 1,229,708
1998 1,639,610
1999 1,639,610
2000 409,902
---------
$4,918,830
=========
The Facility contains provisions relating to maintenance of certain
financial ratios, as well as restrictions governing its use. Under covenants
contained in the Facility, the Company has agreed, among other things, not to
advance any proceeds from the Facility to Symskaya, not to pay dividends, and
not to merge with or acquire any other company without the prior approval of the
bank.
As of December 31, 1995, the Company was in compliance with all covenants
contained in the Facility. Facility fees, which are reflected as other assets in
the accompanying Balance Sheet, are being amortized on a straight line basis
over 60 months.
<PAGE>
8. QUARTERLY FINANCIAL DATA (Unaudited):
Quarterly financial information for the years ended December 31, 1995 and
1994 is as follows:
1995 Quarter Ended: December 31 September 30 June 30 March 31
----------- ------------ -------- --------
Net revenues $ 3,230,759 $ 3,062,833 $ 3,180,505 $ 3,097,602
Gross margin 148,738 (1,594,099) 469,916 236,961
Net income (loss) (168,165) (1,258,857) 62,105 110,105
Net income (loss) per
common share $(.01) $(.10) $.00 $.01
==== ==== === ===
Note: Third quarter gross margin includes the effects of the adoption of
SFAS No. 121, which was adopted as of July 1, 1995. See Note 2.
1994 Quarter Ended: December 31 September 30 June 30 March 31
----------- ------------ -------- --------
Net revenues $ 3,217,446 $ 3,096,350 $ 3,009,181 $ 2,696,742
Gross margin 84,712 144,415 312,760 29,678
Net income (loss) (274,228) 126,141 24,215 (236,958)
Net income (loss) per
common share $(.02) $.01 $.00 $(.02)
==== === === ====
<PAGE>
9. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES:
Capitalized Costs:
United
1995: States Canada Russia Total
- ---- ------ ------ ------ -----
Unproved oil and gas properties $ 2,378,122 $ 90,290 $2,468,412
Proved oil and gas properties 87,200,659 8,894,955 96,095,614
---------- ---------- ----------
89,578,781 8,985,245 98,564,026
Accumulated depreciation, depletion
and amortization (51,531,172)(5,601,882) (57,133,054)
---------- ---------- ----------
Net capitalized costs $ 38,047,609 $3,383,363 $41,430,972
========== ========== ==========
Symskaya, equity method (see note 6) $6,160,442 $ 6,160,442
========= ==========
1994:
Unproved oil and gas properties $ 2,270,014 $ 99,464 $ 2,369,478
Proved oil and gas properties 84,234,955 7,852,281 92,087,236
---------- --------- ----------
86,504,969 7,951,745 94,456,714
Accumulated depreciation, depletion
and amortization (48,686,141)(5,174,561) (53,860,702)
---------- ---------- ----------
Net capitalized costs $37,818,828 $2,777,184 $40,596,012
========== ========== ===========
Symskaya, equity method (See Note 6) $3,415,123 $ 3,415,123
========= ===========
1993:
Unproved oil and gas properties $ 2,006,943 $ 99,464 $1,718,862 $ 3,825,269
Proved oil and gas properties 82,600,757 7,401,184 90,001,941
---------- ---------- --------- ----------
84,607,700 7,500,648 1,718,862 93,827,210
Accumulated depreciation, depletion
and amortization (45,498,789)(4,832,439) (50,331,228)
---------- ---------- --------- ----------
Net capitalized costs $39,108,911 $2,668,209 $1,718,862 $43,495,982
========== ========== ========= ===========
<PAGE>
9. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES, Continued:
Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development Activities:
United
1995: States Canada Russia Total
- ---- ------ ------ ------ -----
Acquisition of properties:
Proved $2,654,651 $405,410 $3,060,061
Unproved 674,146 674,146
Exploration costs 1,654,022 30,969 1,684,991
Development costs 2,709,192 835,415 3,544,607
Symskaya, equity method $2,745,319 2,745,319
1994:
Acquisition of properties:
Proved $ 2,791 $ 2,791
Unproved 601,836 601,836
Exploration costs 1,568,654 $439,805 2,008,459
Development costs 2,803,694 174,639 2,978,333
Symskaya, equity method $1,696,261 1,696,261
1993:
Acquisition of properties:
Proved
Unproved $ 296,632 $ 582,479 $ 879,111
Exploration costs 2,328,936 $ 29,195 2,358,131
Development costs 2,821,023 193,927 3,014,950
RESULTS OF OPERATIONS, (UNAUDITED):
1995: United States Canada Total
---------- --------- ---------
Oil and gas sales $ 9,803,677 $ 2,456,062 $12,259,739
Production costs (4,455,069) (638,713) (5,093,782)
Exploration expenses, including leasehold
abandonments and 3-D seismic (1,877,840) (23,973) (1,901,813)
Depreciation, depletion and amortization (3,406,947) (436,495) (3,843,442)
Impairment of proved oil and gas
properties (2,471,146) (2,471,146)
---------- ---------- ----------
(2,407,325) 1,356,881 (1,050,444)
Imputed income tax benefit (expense) 1,056,755 534,319 522,436
---------- ---------- ----------
Results of operations from producing
activities $(1,350,570) $ 822,562 $ (528,008)
========== ========= ==========
<PAGE>
RESULTS OF OPERATIONS (UNAUDITED), continued:
1994: United States Canada Total
---------- --------- ---------
Oil and gas sales $ 9,648,390 $ 2,065,108 $11,713,498
Production costs (4,031,030) (627,085) (4,658,115)
Exploration expenses, including leasehold
rentals and abandonments (1,753,632) (25,252) (1,778,884)
Depreciation, depletion and amortization (4,668,497) (342,658) (5,011,155)
----------- ---------- -----------
(804,769) 1,070,113 265,344
Imputed income tax benefit (expense) 625,718 (476,200) 149,518
----------- ---------- -----------
Results of operations from producing
activities $ (179,051) $ 593,913 $ 414,862
=========== ========== ===========
1993:
Oil and gas sales $11,077,273 $ 1,652,626 $12,729,899
Production costs (4,810,946) (482,682) (5,293,628)
Exploration expenses, including leasehold
rentals and abandonments (1,801,613) (24,177) (1,825,790)
Depreciation, depletion and amortization (4,658,829) (431,915) (5,090,744)
Property writedowns (3,292,624) (3,292,624)
----------- ---------- -----------
(3,486,739) 713,852 (2,772,887)
Imputed income tax benefit (expense) 1,365,693 (276,369) 1,089,324
----------- ---------- -----------
Results of operations from producing
activities $(2,121,046) $ 437,483 $(1,683,563)
=========== ========== ===========
The imputed income tax benefit (expense) is hypothetical and determined without
regard to the Company's deduction for general and administrative and interest
expense.
<PAGE>
RESERVES AND FUTURE NET CASH FLOWS (UNAUDITED):
Estimates of Proved Oil and Gas Reserves
The following tables present the Company's estimates of its proved oil and gas
reserves. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of producing
oil and gas properties. Accordingly, the estimates are expected to change as
future information becomes available. Reserve estimates are prepared by the
Company, and audited by the Company's independent petroleum reservoir engineers,
Fred S. Reynolds and Associates, who have issued a report expressing their
opinion that the reserve information in the following tables complies with the
applicable rules promulgated by the Securities and Exchange Commission and the
Financial Accounting Standards Board. The volumes presented on the following
pages are in thousands of barrels for oil and thousands of mcf for gas.
United States Canada Total
----------- ------ -----
December 31, 1995: Oil Gas Oil Gas Oil Gas
- ----------------- --- --- --- --- --- ---
Proved developed and undeveloped
reserves:
Beginning of year 6,252 13,673 1,055 3,539 7,307 17,212
Revisions of previous estimates 98 (23) 4 (189) 102 (213)
Acquisition of minerals in place 701 1,129 61 152 762 1,281
Extensions and discoveries 3 920 196 274 198 1,195
Production (491) (880) (129) (571) (619) (1,451)
------ ------ ------ ------ ------ ------
End of year 6,563 14,819 1,187 3,205 7,750 18,024
====== ====== ====== ====== ====== ======
Proved developed reserves:
Beginning of year 6,185 8,490 1,042 3,539 7,227 12,029
End of year 6,527 11,238 1,139 3,068 7,666 14,306
December 31, 1994:
Proved developed and undeveloped
reserves:
Beginning of year 6,644 12,969 958 3,798 7,602 16,767
Revisions of previous estimates 80 (482) 139 (131) 219 (613)
Acquisition of minerals in place 56 56
Extensions and discoveries 18 2,010 78 112 96 2,122
Production (490) (880) (120) (240) (610) (1,120)
------ ------ ------ ------ ------ ------
End of year 6,252 13,673 1,055 3,539 7,307 17,212
====== ====== ====== ====== ====== ======
Proved developed reserves:
Beginning of year 6,584 8,374 919 3,798 7,503 12,172
End of year 6,185 8,490 1,042 3,539 7,227 12,029
December 31, 1993:
Proved developed and undeveloped
reserves:
Beginning of year 8,010 13,809 945 3,848 8,955 17,657
Revisions of previous estimates (179) (544) 134 167 (45) (377)
Revisions to improved recovery
reserves (740) (740)
Extensions and discoveries 109 499 109 499
Production (556) (795) (121) (217) (677)(1,012)
------ ------ ------ ------ ------ ------
End of year 6,644 12,969 958 3,798 7,602 16,767
====== ====== ====== ====== ====== ======
Proved developed reserves:
Beginning of year 7,963 9,215 926 3,848 8,889 13,063
End of year 6,584 8,374 919 3,798 7,503 12,172
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES(UNAUDITED):
Thousands of Dollars
---------------------------------------
1995: United States Canada Total
--------- ------- ------
Future cash inflows $148,257 $20,381 $168,638
Future production and development costs (76,234) (4,705) (80,939)
Future income taxes (16,654) (6,033) (22,687)
-------- ------- --------
Future net cash flows 55,369 9,643 65,012
10% annual discount for estimated timing
of cash flows ($10,361 related to
future income taxes) (30,540) (4,025) (34,565)
-------- ------- --------
Standardized measure of discounted future
net cash flows $ 24,829 $ 5,618 $ 30,447
======== ======= ========
1994:
Future cash inflows $132,638 $20,304 $ 152,942
Future production and development costs (75,306) (5,476) (80,782)
Future income taxes (12,531) (5,887) (18,418)
-------- -------- --------
Future net cash flows 44,801 8,941 53,742
10% annual discount for estimated timing
of cash flows ($8,567 related to
future income taxes) (25,688) (3,832) (29,520)
-------- ------- --------
Standardized measure of discounted future
net cash flows $ 19,113 $ 5,109 $ 24,222
======== ======= ========
1993:
Future cash inflows $110,305 $15,635 $ 125,940
Future production and development costs (72,992) (6,334) (79,326)
Future income taxes (6,790) (3,714) (10,504)
--------- -------- --------
Future net cash flows 30,523 5,587 36,110
10% annual discount for estimated timing
of cash flows ($5,083 related to
future income taxes) (17,585) (2,120) (19,705)
-------- -------- --------
Standardized measure of discounted future
net cash flows $ 12,938 3,467 $ 16,405
======== ======== ========
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES(UNAUDITED), continued:
Future net cash flows were computed using year-end prices and costs, and
year-end statutory tax rates with consideration of future tax rates already
legislated (adjusted for permanent differences that related to proved oil and
gas reserves).
Principal sources of change in the standardized measure of discounted future net
cash are as follows:
(Thousands of Dollars)
--------------------
1995 1994 1993
---- ---- ----
Sales and transfers of oil and gas produced,
net of production costs $(7,166) $(7,055) $(7,436)
Net changes in prices and production costs 3,147 6,363 (17,606)
Extensions, discoveries, and improved recovery,
less related costs 1,274 1,016 388
Purchases of minerals in place 3,804 18
Changes in estimated future development costs (203) 6,126 596
Revisions of previous quantity estimates 369 592 (2,088)
Accretion of discount 3,409 2,192 4,418
Net change in income taxes (1,969) (1,812) 14,214
Changes in production rates (timing) and other 3,561 377 (7,295)
------ ------ ------
$ 6,226 $ 7,817 $ (14,809)
====== ====== ======
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES:
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF COMPANY:
The information contained under the headings Election of Directors and
Continuing Directors and Executive Officers contained on pages 2 and 3 in the
definitive proxy statement to be filed in connection with the Company's annual
meeting on May 8, 1996 is incorporated herein by reference in answer to this
item.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading Executive Compensation on pages 2
through 3 in the definitive proxy statement to be filed in connection with the
Company's annual meeting on May 8, 1996 is incorporated herein by reference in
answer to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The information contained under the headings Security Ownership of Management
and Voting Securities & Principal Holders Thereof, contained on pages 4 and 11
in the definitive proxy statement to be filed in connection with the Company's
annual meeting on May 8, 1996 is incorporated herein by reference in answer to
this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K:
Page
(a) (1) Financial Statements:
Report of Independent Accountants 19
Financial Statements: 20
Balance Sheet as of December 31, 1995 and 1994 20
Statement of Operations for the years ended
December 31, 1995, 1994 and 1993 22
Statement of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993 23
Statement of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 24
Notes to Financial Statements 25
(3) Exhibits
(3) (i) Restated Articles of Incorporation. 45
(ii) By-Laws. 50
(21) Subsidiaries. 61
(23) Consent of Experts. Consent of Coopers & Lybrand L.L.P. regarding
Form S-8 Registration 62
(27) Financial Data Schedule 63
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EQUITY OIL COMPANY
By /s/Paul M. Dougan
President
Chief Executive Officer
By /s/Clay Newton
Treasurer
Chief Financial Officer
Principal Accounting Officer
Date: February 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/Josepch C. Bennett /s/Douglas W. Brandrup
------------------- -------------------
Signature Signature
------------------- -------------------
Director Director
------------------- -------------------
Title Title
March 8, 1996 March 8, 1996
------------------- -------------------
Date Date
/s/Mirvin B. Borthick /s/William D. Forster
------------------- -------------------
Signature Signature
------------------- -------------------
Director Director
------------------- -------------------
Title Title
March 8, 1996 March 8, 1996
------------------- -------------------
Date Date
RESTATED
ARTICLES OF INCORPORATION
OF
EQUITY OIL COMPANY
Pursuant to the laws of Colorado, the undersigned corporation, Equity Oil
Company hereby adopts the following Restated Articles of Incorporation and
certifies (1) that the Articles of Incorporation restated herein correctly set
forth the provisions of the Articles of Incorporation as heretofore amended and
supersede the original Articles of Incorporation of the corporation and all
amendments thereto, and (2) the Articles of Incorporation as restated herein
were duly adopted by the board of directors of the corporation on January 25,
1996. Shareholder approval was not required:
ARTICLE I
The name of the corporation shall be Equity Oil Company.
ARTICLE II
The purpose for which the corporation is organized shall be the transaction
of all lawful business for which corporations may be incorporated pursuant to
the Colorado Corporation Code. It is the express intent of the stockholders and
Directors that the business purposes of this corporation shall not be limited
except as provided by Colorado law. By way of example, and not in any way
limiting the purpose of the corporation, it may engage in the business of
exploration, development, research, production and marketing of oil, gas, and
minerals, in all their natural or artificial forms and any and all products and
by-products derived therefrom.
ARTICLE III
The authorized capital of this corporation shall be $25,000,000 consisting
of 25,000,000 shares of the par value of One ($1.00) Dollar per share. The stock
of this corporation shall be non-assessable. Cumulative voting shall not be
allowed in the election of Directors and preemptive rights of the stockholders
are denied.
ARTICLE IV
The term of existence of this corporation is perpetual.
ARTICLE V
a. Number, election and terms. The business and affairs of the Corporation
shall be managed by a Board of Directors consisting of not less than six nor
more than nine persons. The exact number of directors within the minimum and
maximum limitations specified in the preceding sentence shall be fixed from time
to time by the Board of Directors pursuant to a resolution adopted by a majority
of the entire Board of Directors. At the 1983 Annual Meeting of Shareholders,
the directors shall be divided into three classes, as nearly equal in number as
possible, with the term of office of the first class to expire at the 1984
Annual Meeting of Shareholders, the term of office of the second class to expire
at the 1985 Annual Meeting of Shareholders and the term of office of the third
class to expire at the 1986 Annual Meeting of Shareholders. At each Annual
Meeting of Shareholders following such initial classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office to expire at the third succeeding Annual Meeting of
Shareholders after their election. b. Newly created directorships and vacancies.
Vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
by a majority vote of the directors then in office, though less than a quorum of
the Board of Directors. A director elected by the Board to fill a vacancy shall
be elected for the unexpired term of his predecessor in office. Subject to the
rights of the holders of any series of preferred stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors shall be filled by the affirmative vote of a majority of the directors
then in office or by an election at an annual meeting or at a special meeting of
shareholders called for that purpose. A director chosen to fill a position
resulting from an increase in number of directors shall hold office until the
next annual meeting of stockholders and until his successor has been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director. c. Removal. Subject
to the rights of the holders of any series of Preferred Stock then outstanding,
any director, or the entire Board of Directors, may be removed from office at
any time, but only by the affirmative vote of the holders of at least 80% of the
voting power of all the shares of the Corporation entitled to vote for the
election of directors. d. Amendment, repeal, etc. Notwithstanding anything
contained in these Articles of Amendment to the contrary, the affirmative vote
of the holders of at least 80% of the voting power of all the shares of the
Corporation entitled to vote for the election of directors shall be required to
amend, modify or repeal, this Article V.
ARTICLE VI
This corporation shall maintain an office as its principal place of
business in Salt Lake City, Utah.
ARTICLE VII
To the full extent permitted by the laws of Colorado, as the same exist or
may hereafter be amended, a director of the corporation shall not be personally
liable to the corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or modification of this Article by the
shareholders of the corporation shall be prospective only and shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
ARTICLE VIII
SECTION 1. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
A. Higher Vote for Certain Business Combinations. In addition to any
affirmative vote required by law or these Articles of Incorporation, and except
as otherwise expressly provided in section 2 of this Article VIII:
(i) any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with (a) any Interested Stockholder (as hereinafter
defined) or (b) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) of $1,000,000 or more; or
(iii) the issuance or transfer of by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of $1,000,000
or more; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested Stockholder; or
(v) any reclassification of securities (including any reverse stock split),
or recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving an Interested Stockholder) which has the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested Stockholder; Shall
require the affirmative vote of the holders of at least 80% of the voting power
of the then outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock"), voting
together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
B. Definition of "Business Combination". The term "Business Combination" as
used in this Article VIII shall mean any transaction or series of transactions
which is referred to in any one or more of clauses (i) through (v) of paragraph
A of this section 1.
SECTION 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section 1 of
this Article VIII shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law and any other provision of these Articles of
Incorporation, if all of the conditions specified in either of the following
paragraphs A and B are met:
A. Approval by Continuing Directors. The Business Combination shall have
been approved by a majority of the Continuing Directors (as hereinafter
defined).
B. Price and Procedure Requirements. All of the following conditions shall
have been met.
(i) The aggregate amount of the cash and the Fair Market Value (as
hereinafter defined) as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share by holders
of Common Stock in such Business Combination shall be at least equal to the
highest of the following:
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the Interested
Stockholder for any shares of Common Stock acquired by it (1) within the
two-year period immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested Stockholder, whichever is higher;
(b) the Fair Market Value per share of Common Stock on the day after the
Announcement Date or on the date on which the Interested Stockholder became an
Interested Stockholder (such latter date is referred to in this Article VIII as
the "Determination Date"), whichever is higher;
(c) (if applicable) the price per share equal to the Fair Market Value per
share of Common Stock determined pursuant to paragraph B(i)(b) above, multiplied
by the ratio of (1) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the Interested
Stockholder for any shares of Common Stock acquired by it within the two-year
period immediately prior to the Announcement Date to (2) the Fair Market Value
per share of Common Stock on the first day in such two-year period upon which
the Interested Stockholder acquired any shares of Common Stock.
(ii) The aggregate amount of the cash and the Fair Market Value as of the
date of the consummation of the Business Combination of consideration other than
cash to be received per share by holders of shares of any other class of
outstanding Voting Stock (other than Institutional Voting Stock, as hereinafter
defined) shall be at least equal to the highest of the following (it being
intended that the requirements of this paragraph B(ii) shall be required to be
met with respect to every class of outstanding Voting Stock (other than
Institutional Voting Stock), whether or not the Interested Stockholder has
previously acquired any shares of a particular class of Voting Stock):
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the Interested
Stockholder for any shares of such class of Voting Stock acquired by it (1)
within the two-year period immediately prior to the day after the Announcement
Date or (2) in the transaction in which it became an Interested Stockholder,
whichever is higher;
(b) (if applicable) the highest preferential amount per share to which the
holders of shares of such class of Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(c) the Fair Market Value per share of such class of Voting Stock on the
day after the Announcement Date or on the Determination Date, whichever is
higher; and
(d) (if applicable) the price per share equal to the Fair Market Value per
share of such class of Voting Stock determined pursuant to paragraph B(ii)(c)
above, multiplied by the ratio of (1) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of such class of Voting Stock acquired by
it within the two-year period immediately prior to the Announcement Date to (2)
the Fair Market Value per share of such class of Voting Stock on the first day
in such two-year period upon which the Interested Stockholder acquired any
shares of such class of Voting Stock.
(iii) The consideration to be received by holders of a particular class of
outstanding Voting Stock (including Common Stock) shall be in cash or in the
same form as the Interested Stockholder has previously paid for shares of such
class of Voting Stock. If the Interested Stockholder has paid for shares of any
class of Voting Stock with varying forms of consideration, the form of
consideration for such class of Voting Stock shall be either cash or the form
used to acquire the largest number of shares of such class of Voting Stock
previously acquired by it.
(iv) After such Interested Stockholder has become an Interested Stockholder
and prior to the consummation of such Business Combination: (a) except as
approved by a majority of the Continuing Directors, there shall have been no
failure to declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on the outstanding Preferred Stock, if
any; (b) there shall have been (1) no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the Continuing Directors, and
(2) an increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless the failure so to
increase such annual rate is approved by a majority of the Continuing Directors;
and (c) such Interested Stockholder shall have not become the beneficial owner
of any additional shares of Voting Stock except as part of the transaction which
results in such interested Stockholder becoming an Interested Stockholder.
(v) After such Interested Stockholder has become an Interested Stockholder,
such Interested Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange Act
of 1934 and the rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to public stockholders
of the Corporation at lease 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is required to
be mailed pursuant to such Act or subsequent provisions).
SECTION 3. CERTAIN DEFINITIONS. For the purposes of this Article VIII:
1. A "person" shall mean any individual, firm, corporation or other entity.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of more than 10% of
the voting power of the outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and at any time within the two-year
period immediately prior to the date in question was the beneficial owner,
directly or indirectly, of 10% or more of the voting power of the then
outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of Voting
Stock which were at any time within the two-year period immediately prior to the
date in question beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the meaning of the
Securities Act of 1933. C. A person shall be a "beneficial owner" of any Voting
Stock: (i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or (ii) which
such person or any of its Affiliates or Associates has (a) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement, arrangement or
understanding; or (iii) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock. D. For the purposes
of determining whether a person is an Interested Stockholder pursuant to
paragraph B of this Section 3, the number of shares of Voting Stock deemed to be
outstanding shall include shares deemed owned through application of paragraph C
of this Section 3 but shall not include any other shares of Voting Stock which
may be issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise. E. "Affiliate"
or "Associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on January 1, 1983. F. "Subsidiary" means any corporation of
which a majority of any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in paragraph B of this section 3,
the term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the Corporation.
G. "Continuing Director" means any member of the Board of Directors of the
Corporation (the "Board") who is unaffiliated with the Interested Stockholder
and was a member of the Board prior to the time that the Interested Stockholder
became an Interested Stockholder and is recommended to succeed a Continuing
Director by a majority of Continuing Directors then on the Board. H. "Fair
Market Value means: (i) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a share
of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks,
or, if such stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the principle
United States securities exchange registered under the Securities Exchange Act
of 1934 on which such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc., Automated Quotations System or any
system then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined by a
majority of the Continuing Directors; and (ii) in the case of property other
than cash or stock, the fair market value of such property on the date in
question as determined by a majority of the Continuing Directors. I.
"Institutional Voting Stock" shall mean any class of Voting Stock which was
issued to and continues to be held solely by one or more insurance companies,
pensions funds, commercial banks, savings banks or similar financial
institutions or institutional investors. J. In the event of any Business
Combination in which the Corporation survives, the phrase "other consideration
to be received" as used in paragraphs B(i) and (ii) of Section 2 of this Article
VIII shall include the shares of Common Stock and/or the shares of any other
class of outstanding Voting Stock retained by the holders of such shares.
SECTION 4. CERTAIN POWERS OF THE CONTINUING DIRECTORS. A majority of the
Continuing Directors of the Corporation shall have the power and duty to
determine for the purposes of this Article VIII, on the basis of information
known to them after reasonable inquiry, (A) whether a person is an Interested
Stockholder, (B) the number of shares of Voting Stock beneficially owned by any
person, (C) whether a person is an Affiliate or Associate of another, (D)
whether a class of Voting Stock is Institutional Voting Stock, (E) whether a
transaction or a series of transactions constitutes a Business Combination, and
(F) whether the assets which are the subject of any Business Combination have,
or the consideration to be received for the issuance or transfer of securities
by the Corporation or any Subsidiary in any Business Combination has, an
aggregate Fair Market Value of $1,000,000 or more.
SECTION 5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED STOCKHOLDERS.
Nothing contained in this Article VIII shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
SECTION 6. AMENDMENT, REPEAL, ETC. Notwithstanding any other provisions of
these Articles of Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, these
Articles of Incorporation or the By-Laws of the Corporation), the affirmative
vote of the holders of 80% or more of the voting power of the shares of the then
outstanding Voting Stock, voting together as a single class, shall be required
to amend or repeal, or adopt any provisions inconsistent with, this Article VIII
of these Articles of Incorporation. DATED this 25th day of January, 1996.
EQUITY OIL COMPANY
By: /S/ CLAY NEWTON
CLAY NEWTON, Secretary
BYLAWS
OF
EQUITY OIL COMPANY
ARTICLE I
SHAREHOLDERS
1.01 Annual Meeting. The corporation shall hold an annual meeting of
the shareholders on the second Wednesday of May of each year, at such time and
place as designated by the board of directors for the purpose of electing
directors and for the transaction of such other business as may properly come
before the meeting. If the annual meeting cannot be held on the day designated
as provided herein for any reason or at any adjournment thereof, the board of
directors shall cause such meeting to be held as soon thereafter as convenient.
1.02 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, may be called by the president or the chairman of the
board, if there be one, or by the board of directors. The corporation shall also
hold a special meeting of the shareholders in the event it receives one or more
written demands for the meeting stating the purpose or purposes for which it is
to be held, signed and dated by the holders of shares representing at least ten
percent of all the votes entitled to be cast on any issue proposed to be
considered at the meeting. Special meetings shall be held at the principal
office of the corporation or at such other place as the board of directors,
president or chairman of the board, if there be one, may determine.
1.03 Notice of Meeting. Except as otherwise required by law, the
articles of incorporation or these bylaws, notice of each meeting of
shareholders stating the date, time and place of the meeting shall be given (and
shall be effective), in accordance with Section 6.03, to each shareholder of
record entitled to vote at such meeting not less than ten nor more than sixty
days before the date of the meeting, except that if the authorized capital stock
is to be increased, at least thirty days notice shall be given. Notice of each
meeting and, if required by law, of each annual meeting of shareholders shall
include a description of the purpose or purposes for which the meeting is
called. If a meeting is adjourned to another date, time or place, notice need
not be given of the new date, time or place if the new date, time or place is
announced at the meeting at which the adjournment is taken. If after the
adjournment a new record date is or must be fixed under Section 1.05 for the
adjourned meeting, notice of the adjourned meeting shall be given to each
shareholder of record entitled thereto as of the new record date.
1.04 Waiver of Notice. A shareholder may waive any notice required by
law, the articles of incorporation or these bylaws before, at or after the date
or time stated in the notice as the date or time when any action will occur or
has occurred. Any such waiver must be in writing, signed by the shareholder
entitled thereto and delivered to the corporation for inclusion in the minutes
or filing with the corporate records, but such delivery and filing shall not be
conditions to its effectiveness. By attending a meeting, a shareholder (a)
waives objection to lack of notice or defective notice of such meeting unless
the shareholder, at the beginning of the meeting, objects to the holding of the
meeting or the transacting of business at the meeting because of lack of notice
or defective notice, and (b) waives objection to consideration at such meeting
of a particular matter not within the purpose or purposes described in the
notice of such meeting unless, when the matter is presented for consideration,
the shareholder objects to its consideration.
1.05 Record Date. In order to make a determination of shareholders
entitled to notice of or to vote at any meeting of shareholders, entitled to
demand a special meeting of shareholders pursuant to Section 1.02, entitled to
take any other action, entitled to receive a distribution or payment of a share
dividend, or for any other purpose, the board of directors may fix a future date
as the record date for any such determination of shareholders, except that the
record date for determining shareholders entitled to take action without a
meeting pursuant to Section 1.12 shall be determined as provided in such
Section. A record date fixed under this Section shall be not more than seventy
and, in the case of a meeting of shareholders, not less than ten (thirty if the
authorized stock is to be increased) days before the meeting or action requiring
the determination of shareholders. Unless otherwise specified when the record
date is fixed, any such determination of shareholders shall be made as of the
corporation's close of business on the record date.
If a record date is not otherwise fixed under this Section, the record
date shall be (a) for the determination of shareholders entitled to notice of or
to vote at a meeting, the day before the first notice of the meeting is given to
shareholders, (b) for the determination of shareholders entitled to demand a
special meeting pursuant to Section 1.02, the date of the earliest of any of the
demands pursuant to which the meeting is called or the date that is sixty days
before the date the first of such demands is received by the corporation,
whichever is later, (c) for the determination of shareholders entitled to a
distribution, payment of a share dividend or for any other purpose determined by
the board of directors, the date the board of directors authorized the
distribution, payment or action; and (d) for the determination of shareholders
for any other purpose, the date the action requiring such determination is first
taken.
A determination of shareholders entitled to be given notice of or to
vote at any meeting of shareholders made as provided in this Section is
effective for any adjournment thereof unless the board of directors fixes a new
record date, which it must do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
1.06 Shareholders' List for Meeting. Prior to each meeting of
shareholders, the corporation shall prepare a list of the names of the
shareholders who are entitled to be given notice of the meeting. The list shall
be arranged by voting groups, if there be voting groups, and within each voting
group by class or series of shares, shall be alphabetical within each class or
series and shall show the address of, and the number of shares of each class and
series that are held by, each shareholder. This list shall be kept on file at
the corporation's principal office or at a place identified in the notice of the
meeting in the city where the meeting will be held beginning the earlier of ten
days before the meeting for which the list was prepared or two business days
after notice of the meeting is given and continuing through the meeting, and any
adjournment thereof. Subject to any restrictions and conditions imposed or
allowed by law, any shareholder or such shareholder's agent or attorney, on
written demand, may inspect or copy the shareholders' list for any purpose
reasonably related to the shareholder's interest as a shareholder during regular
business hours and during the period it is available for inspection. The
corporation shall make the shareholders' list available at the meeting and,
notwithstanding the foregoing, any shareholder or agent or attorney of a
shareholder may inspect the list at any time during the meeting or any
adjournment.
1.07 Voting Entitlement of Shares. Except as otherwise provided by law
or the articles of incorporation and subject to the provisions of Sections 1.05
and 1.09, each outstanding share, regardless of class, is entitled to one vote
on each matter submitted to a vote of shareholders.
1.08 Quorum. Except as otherwise provided by law or the articles of
corporation, at all meetings of shareholders, a majority of the votes entitled
to be cast on a matter shall constitute a quorum for action on such matter. Once
a share is represented for any purpose at a meeting, including the purpose of
determining that a quorum exists, it is deemed present for quorum purposes for
the remainder of the meeting and for any adjournment of that meeting, unless
otherwise provided in the articles of incorporation or unless a new record date
is or must be fixed for that adjourned meeting as provided in Section 1.05. If a
quorum does not exist the presiding officer or any shareholder or proxy that is
present at the meeting may adjourn the meeting to a different date, time or
place, and (subject to the next sentence) notice need not be given of the new
date, time or place if the new date, time or place is announced at the meeting
before adjournment. If a new record date for the adjourned meeting is or must be
fixed pursuant to Section 1.05, notice of the adjourned meeting shall be given
pursuant to Section 1.03 to persons that are shareholders as of the new record
date. At any adjourned meeting at which a quorum exists, any matter may be acted
upon that could have been acted upon at the meeting originally called; provided,
however, if new notice is given of the adjourned meeting, then such notice shall
state the purpose or purposes of the adjourned meeting sufficiently to permit
action on such matter.
1.09 Manner of Acting. If a quorum is present at a meeting of
shareholders as required by Section 1.08, action on a matter is approved if the
votes favoring the action exceed the votes opposing the action, unless a greater
number of affirmative votes, is required by law or the articles of
incorporation. Notwithstanding the foregoing and unless the articles of
incorporation provide otherwise, in the election of directors each shareholder
entitled to vote at such election shall have the right to vote the number of
shares owned by such shareholder for as many persons as there are directors to
be elected, and for whose election the shareholder has the right to vote. Those
candidates receiving the highest number of votes cast in their favor (equal to
the number of directors to be elected) are elected to the board of directors.
Cumulative voting is not allowed.
1.10 Proxies. Subject to applicable provisions of law, a shareholder
may vote by proxy appointed by a writing signed by the shareholder or by the
shareholder's duly authorized attorney-in-fact or otherwise appointed as allowed
by law. An appointment of a proxy is effective against the corporation when
received by the corporation in any manner permitted by law. An appointment is
effective for 11 months, unless otherwise provided in the appointment form.
1.11 Organization. The president shall act as chairman of all meetings
of shareholders. In the absence of the president, the chairman of the board, if
there be one, shall act as chairman. In the absence of the chairman of the
board, the vice president, if there be one, shall act as chairman of such
meeting. In the absence of the president, chairman of the board, and vice
president, any stockholder or the proxy of any stockholder may call the meeting
to order and a chairman shall be elected.
The secretary of the corporation shall act as secretary of all meetings
of the stockholders, but in his absence the chairman of the meeting may appoint
any person to act as secretary thereof.
ARTICLE II
BOARD OF DIRECTORS
2.01 General Powers. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, a board of directors, except as otherwise
provided by law, the articles of incorporation or these bylaws.
2.02 Number, Tenure and Qualifications. The number of directors of the
corporation shall be not less than six nor more than nine, as may be fixed from
time to time within such range by resolution of the board of directors.
Directors shall be elected at each annual meeting of shareholders and hold
office for staggered terms as provided in the Articles of Incorporation. Each
director shall hold office until the director's successor shall have been
elected and qualified, or until the director's earlier death, resignation or
removal. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Directors must be the holders of
record of at least one share of stock in the company and natural persons
eighteen years of age or older.
2.03 Removal and Resignation. Subject to the rights of the holders of
any series of preferred shares then outstanding, any director or the entire
board, director, may be removed from office at any time, but only by its
affirmative vote of the holders of at least 80% of the voting power of all of
the shares of the corporation entitled to vote for the election of directors.
Any director may resign at any time by giving written notice of resignation to
the chairman of the board, if there be one, any other director or (if the
director is not also that officer) to the president or the secretary. Such
resignation shall be effective when it is received by the chairman, other
director, the president or the secretary, as the case may be, unless the notice
of resignation specifies a later effective date. Unless otherwise specified in
the notice of resignation, acceptance of such resignation shall not be necessary
to make it effective.
2.04 Vacancies. Any vacancy occurring on the board of directors,
including a vacancy resulting from an increase in the number of directors, may
be filled by the directors as provided in the articles of incorporation or by
the shareholders at an annual meeting or at a special meeting of shareholders
called for that purpose. If the directors remaining in office constitute fewer
than a quorum, they may fill the vacancy by the affirmative vote of a majority
of all of those remaining.
2.05 Meetings. The board of directors may hold regular or special
meetings, in or out of Colorado. The board of directors may provide, by
resolution, the time and place for holding regular meetings without other notice
than such resolution. Special meetings may be called by or at the request of the
chairman of the board, if there be one, or by the president or by two or more
directors and shall be held at the principal office of the corporation unless
otherwise specified in the notice of the meeting.
2.06 Notice. Notice of each meeting of the board of directors (except
those regular meetings for which notice is not required) stating the place, date
and time of the meeting shall be given (and shall be effective) in accordance
with Section 6.03, to all directors at least three days before the date of the
meeting. The method of notice need not be the same for each director. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
2.07 Waiver of Notice. A director may waive any notice of a meeting
required by these bylaws before, at or after the date or time of the meeting
stated in the notice. Except as provided in the next sentence, any such waiver
must be in writing, signed by the director entitled thereto and delivered to the
corporation for filing with the corporate records, but such delivery and filing
shall not be conditions to its effectiveness. A director's attendance at or
participation in a meeting waives any required notice to such director of the
meeting unless, at the beginning of the meeting or promptly upon the director's
later arrival, the director objects to holding the meeting or transacting
business at the meeting because of lack of notice or defective notice and does
not thereafter vote for or assent to action taken at the meeting.
2.08 Quorum and Manner of Acting. Except as otherwise may be required
by law, the articles of incorporation or these bylaws, a majority of the
directors fixed in accordance with Section 2.02, present in person, shall
constitute a quorum for the transaction of business at any meeting of the board
of directors. Except as otherwise required by law, the act of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors. No director may vote or act by proxy or power of
attorney at any meeting of directors.
2.09 Presumption of Assent. A director who is present at a meeting of
the board of directors at which action on any corporate matter is taken is
deemed to have assented to all action taken at the meeting unless the director
(a) objects at the beginning of the meeting, or promptly upon the director's
arrival, to holding the meeting or transacting business at the meeting and does
not thereafter vote for or assent to any action taken at the meeting; (b)
contemporaneously requests that his or her dissent or abstention as to any
specific action taken be entered in the minutes of the meeting; or (c) causes
written notice of such dissent or abstention as to any specific action to be
received by the presiding officer of the meeting before adjournment of the
meeting or by the corporation promptly after adjournment of the meeting. The
right of dissent or abstention pursuant to this Section as to specific action is
not available to a director who votes in favor of the action taken.
2.10 Meetings by Telecommunication. One or more directors may
participate in any meeting of the board by, or the meeting may be conducted
through the use of, any means of communication by which all directors
participating can hear each other during the meeting. Such participation shall
constitute presence in person at the meeting.
2.11 Director Action without a Meeting. Any action required or
permitted to be taken at a meeting of the board of directors may be taken
without a meeting if all members of the board consent to such action in writing.
The action shall be deemed to have been so taken by the board at the time the
last director signs a writing describing the action taken, unless, before such
time, any director has revoked his or her consent by a writing signed by the
director and received by the president or secretary or any other person
authorized by the board of directors to receive such a revocation. Such action
shall be effective at the time and date it is taken unless the directors
establish a different effective time or date. Such action has the same effect as
action taken at a meeting of directors and may be described as such in any
document.
2.12 Committees. The Company shall have an executive committee, audit
committee, compensation committee, and nominating committee as provided in these
bylaws. Subject to applicable provisions of law, the board of directors, by
resolution adopted by a majority of all directors then in office, may create
other committees and appoint one or members of the board of directors to serve
on them. The provisions of these bylaws governing meetings, action without
meetings, notice, waiver of notice and quorum and voting requirements of the
board of directors shall apply to any committees so created or established under
these bylaws and to the members appointed thereto. Each committee created by the
board or established under these bylaws shall have and may exercise the
authority of the board of directors to the extent specified in the resolution
creating such committee, except that no such committee shall have authority to:
(a) Declare dividends or distributions;
(b) Approve or recommend to shareholders actions or
proposals required by Colorado law to be approved
by shareholders;
(c) Fill vacancies on the board of directors or any of
its committees;
(d) Adopt, amend or repeal by-laws;
(e) Approve a plan of merger not requiring shareholder
approval;
(f) Authorize or approve reacquisition of shares
except according to a formula or method prescribed
by the board of directors; and
(g) Authorize or approve the issuance or sale of shares or a
contract for the sale of shares or determine the designation and
relative rights preferences and class or series of shares; except that
the board of directors may authorize a committee or an officer to do so
within the limits specifically prescribed by the board of directors.
(h) Any other action prohibited under the Colorado
Corporation Act as the same may be amended from time to time.
2.13 Executive Committee.
The executive committee shall consist of the president, chairman of the
board, if there be one, and such other directors as the board may determine. The
president shall act as chairman of the committee. The executive committee shall
have and may exercise all authority of the board of directors subject to such
limitations, if any, as may be prescribed by resolution of the board and by-laws
of the corporation, and except as provided by law.
2.14 Audit Committee.
The board of directors shall, by resolution or resolutions, designate
three or more of its independent outside directors to serve on the audit
committee of the board. The board shall designate one person from the members so
selected to act as chairman of the committee. The audit committee shall
implement and support the oversight function of the board by reviewing on a
periodic basis the corporation's processes for producing financial data, its
internal controls, and the independence of the corporation's external auditor.
In addition, it shall:
(a) Recommend the firm to be employed as the
corporation's external auditor and review the
proposed discharge of any such firm;
(b) Review the external auditor's compensation and the
proposed terms of its engagement;
(c) Review the appointment and replacement of the chief
financial officer of the company;
(d) Serve as a channel of communication between the
external auditor and the board and between the
chief financial officer of the company, and
the board;
(e) Review the results of each external audit of the
corporation and any recommendations made by the
external auditor and the responses of management
to such recommendations; and
(f) Such other matters as the audit committee, in its
sole discretion, deems advisable and necessary.
2.15 Compensation Committee.
The compensation committee shall be comprised of all of the independent
outside directors of the company. Each year following the annual meeting of
shareholders, the board of directors shall appoint a chairman of the
compensation committee. The compensation committee shall:
(a) Review and recommend to the board, or determine,
the annual salary, bonus, stock options, and other benefits, direct
and indirect, of the officers of the company;
(b) Review new executive compensation programs; review on a
periodic basis the operation of the corporation's executive
compensation programs to determine whether they are properly
coordinated; establish and periodically review policies for the
administration of executive compensation programs; and take steps to
modify any executive compensation programs that yield payments and
benefits that are not reasonably related to executive performance;
(c) Establish and periodically review policies in the
area of management perquisites;
(d) Be responsible for insuring that a proper
system of compensation is in place to provide performance oriented
incentives to management; and
(e) Evaluate the president and chief financial
officer's performance for incentive purposes.
2.16 Nominating Committee. The whole board of directors shall
act as a nominating committee for the election of new directors of
the company. The nominating committee shall:
(a) By February 1 of each year, nominate candidates
for all directorships to be filled by the shareholders or the board;
(b) Consider, in making its selection, candidates for
directorships proposed by the chief executive officer, the chairman of
the board, if any, and within the bounds of practicability, by any
other senior executive or any director or shareholder;
(c) In selecting a candidate, consideration should be given
to the skills and characteristics required of board members in the
context of the current makeup of the board and the business of the
company. The assessment should include, but not be limited to, issues
of diversity, age and skills such as an understanding of exploration,
production, marketing, finance, regulation, public and international
markets;
(d) Each proposed nominee shall provide the corporation with
such information concerning himself as is required under law, to be
included in the corporation's proxy statement soliciting proxies for
his election as director; and
(e) Substitution of Nominees. In the event that a person is
validly designated as a nominee in accordance with paragraph (b) hereof
and shall thereafter become unable or unwilling to stand for the
election to the board of directors may designate a substitute nominee.
2.17 Compensation. The members of the board of directors shall be
entitled to reasonable compensation for their personal services as such, and
shall be paid such compensation as the directors may from time to time
determine. However, no director who is also a salaried, full time officer of the
corporation shall receive compensation for his services as a director.
2.18 Extra Services.
If any director performs extra services for the corporation at the
request of the board of directors, the corporation may remunerate the director
for so doing in such manner as may be determined by the board including the
payment of expenses incurred in connection with such extra services.
ARTICLE III
OFFICERS
3.01 General. The corporation shall have as officers a president, a
secretary, and a treasurer, who shall be appointed by the board of directors.
The board of directors may designate and appoint a chairman and other officers
of the board. The board of directors may also designate, as additional offices,
those of vice presidents, assistant secretaries, assistant treasurers, and such
other offices as it may deem necessary or appropriate; and the board of
directors, the president, and such other officers as the board of directors may
authorize, acting singly, may make appointments to such offices. The officers of
the corporation shall exercise such authority and perform such duties as shall
be determined by these by-laws or the board of directors. Any two or more
offices may be held by the same person. The officers of the corporation shall be
natural persons at least eighteen years old.
3.02 Term of Office. The officers of the corporation shall be appointed
by the board of directors at each annual meeting of the board of directors held
after each annual meeting of the shareholders. If the appointment of officers is
not made at such meeting, or if an officer or officers are to be appointed by
another officer or officers of the corporation, such appointments shall be made
as soon thereafter as convenient . Except as otherwise provided in Section 3.03,
each officer shall hold office for the term specified in the officer's
appointment and, if applicable, until the officer's successor shall have been
appointed and qualified, or until the officer's earlier death, resignation or
removal.
3.03 Removal and Resignation. Any officer appointed by the board of
directors may be removed at any time by the board of directors. Any officer
appointed by the president or other person may be removed at any time by the
board of directors or by the appointing person. Any officer may resign at any
time by giving written notice of resignation to any director (or to any director
other than the resigning officer if the officer is also a director), to the
president, to the secretary, or to the officer who appointed. Acceptance of such
resignation shall not be necessary to make it effective, unless the notice so
provides.
3.04 Compensation. Officers shall receive such compensation for their
services as may be fixed by the board of directors or by any officer authorized
by the board of directors to fix compensation of other officers. No officer
shall be prevented from receiving compensation by reason of the fact that he or
she is also a director of the corporation. Appointment as an officer shall not
of itself create a contract or other right to compensation for services
performed by such officer.
3.05 Chairman of the Board. The board of directors may elect from its
number a chairman of the board. The chairman of the board, if there be one,
shall be an independent outside director and shall preside at all meetings of
the board of directors. The chairman shall act in a non-executive capacity;
shall have access to all corporate information; monitor officers' performance;
aid and consult with the president; assist the president in setting board
meeting agendas; facilitate communications among other members of the board as
the president and chairman mutually agree. He shall have such other powers and
duties as may be prescribed by these by-laws and by the board of directors from
time to time.
3.06 President. Subject to the direction and control of the board of
directors, the president shall be the chief executive officer of the corporation
and as such shall have general and active control of its affairs and business
and general supervision of its officers, agents and employees and shall see that
all orders and resolutions of the board of directors are carried into effect.
The president may negotiate, execute, and deliver such contracts, deeds, and
other instruments on behalf of the corporation as are necessary and appropriate
to the conduct of the business and affairs of the corporation or as are approved
by the board of directors. The president shall preside at all meetings of
shareholders, and the executive committee. The president shall also preside at
all meetings of the board of directors unless the board of directors has
appointed a chairman of the board. The president shall have such additional
authority and duties as are appropriate and customary for the office of
president and chief executive officer, except as the same may be expanded or
limited by the board of directors from time to time.
3.07 Vice Presidents. The vice president, if any (or if there is more
than one, then each vice president), shall assist the president and shall
perform such duties as may be assigned by the president or the board of
directors. The vice president, if there is one (or if there is more than one,
then the vice president designated by the board of directors, or if there is no
such designation, then the vice presidents in the order of their appointment)
shall, at the request of the president, or in the president's absence or
inability or refusal to act, have the powers and perform the duties of the
president.
3.08 Secretary. The secretary shall, except to the extent delegated by
the board of directors to another officer or officers: (a) be responsible for
the preparation and maintenance of the minutes of the proceedings of the
shareholders, the board of directors and any committees of the board and of the
other records and information required to be kept by the corporation under
Section 7-116-101 of the Colorado Business Corporation Act, or any successor
provision, and for authenticating records of the corporation ; (b) see that all
notices to the shareholders and directors are duly given in accordance with the
provisions of these bylaws or as required by law; (c) have charge of the
corporate seal and authority to affix the corporate seal to any instrument
requiring it and attest to such affixment; (d) be responsible for the
maintenance of other corporate records and files and for the preparation and
filing of reports to governmental agencies (other than tax returns), except to
the extent any of such duties is delegated to another officer or agent of the
corporation; and (e) perform all other duties incident or customary to the
office of secretary and such other duties as from time to time may be assigned
by the president or the board of directors. Assistant secretaries, if any, shall
have the same duties and powers, subject to supervision by the secretary.
3.09 Treasurer. The treasurer shall: (a) be the principal financial
officer of the corporation and have the care and custody of all funds,
securities, evidences of indebtedness and other personal property of the
corporation and deposit the same in accordance with the instructions of the
board of directors; (b) subject to any limits imposed by the board of directors,
receive and give receipts and acquittances for moneys paid in on account of the
corporation, and pay out of the funds on hand all bills, payrolls, and other
just debts of the corporation of whatever nature upon maturity; (c) be the
principal accounting officer of the corporation; (d) prescribe and maintain the
methods and systems of accounting to be followed; (e) keep complete books and
records of account; (f) prepare and file all local, state and federal tax
returns; (g) prepare and furnish to the president and the board of directors
statements of account showing the financial position of the corporation and the
results of its operations; and (h) perform all other duties incident or
customary to the office of treasurer and such other duties as may be from time
to time prescribed by the president or the board of directors. Assistant
treasurers, if any, shall have the same powers and duties, subject to
supervision by the treasurer.
ARTICLE IV
SHARES
4.01 Issuance of Shares. The issuance or sale by the corporation of any
shares of its authorized capital stock of any class shall be made only upon
authorization of the board of directors. No shares shall be issued until full
consideration has been received therefor. Every issuance of shares shall be
recorded on books maintained for such purpose by or on behalf of the
corporation.
4.02 Certificates. Shares of stock issued by the corporation shall be
represented by certificates. Certificates shall be consecutively numbered, shall
be signed, either manually or by facsimile, in the name of the corporation by
the president or a vice president and by the secretary or an assistant secretary
or by such other officer or officers as may be designated by the board of
directors, and shall otherwise be in such form and contain such information,
consistent with law, as shall be prescribed by the board of directors.
Certificates may, but need not be, sealed with the seal of the corporation, or
with a facsimile thereof. In case any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the corporation
with the same effect as if he or she were such officer at the date of its issue.
4.03 Consideration for Shares. Shares shall be issued for such
consideration, expressed in dollars, as shall be fixed from time to time by the
board of directors. Such consideration may consist, in whole or in part, of any
tangible or intangible property or benefit to the corporation, including cash,
promissory notes, services performed and other securities of the corporation.
Future services shall not constitute payment or partial payment for shares. The
promissory note of a subscriber or an affiliate of a subscriber shall not
constitute payment or partial payment for shares unless the note is negotiable,
with recourse against the maker and secured by collateral, other than the
shares, having a fair market value at least equal to the principal amount of the
note.
4.04 Lost Certificates. In case of the alleged loss, destruction or
mutilation of a certificate of stock, the board of directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as it may prescribe. Before issuing a new certificate, the
board of directors may in its discretion require a bond in such form and amount
and with such surety as it may determine.
4.05 Transfer of Shares. Upon surrender to the corporation or to a
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, payment of all transfer taxes, if any, and the satisfaction of any
other requirements of law, including without limitation evidence of compliance
with all applicable securities laws, the corporation shall issue a new
certificate to the person entitled thereto, and cancel the old certificate.
Every such transfer of stock shall be entered on the books of the corporation
maintained for such purpose by or on behalf of the corporation. The corporation
or the corporation's transfer agent may require a signature guaranty or other
reasonable evidence that any signature is genuine and effective before making
any transfer. Transfers of uncertificated shares shall be made in accordance
with applicable provisions of law.
4.06 Holders of Record. Except to the extent the corporation otherwise
provides pursuant to Section 4.07, and except for the assertion of dissenters'
rights to the extent permitted in the Colorado Business Corporation Act, the
corporation shall be entitled to treat the registered holder of any shares of
the corporation as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to, or interest in, the shares on the
part of any other person, whether or not the corporation shall have notice of
such claim or interest.
4.07 Recognition Procedure for Beneficial Owners. The board of
directors may establish, by resolution, a procedure by which the beneficial
owner of shares that are registered in the name of a nominee is recognized by
the corporation as the shareholder. The procedure established pursuant to this
Section may set forth the types of nominees to which it applies, the rights or
privileges that the corporation recognizes in a beneficial owner (which may
include rights or privileges other than voting), the manner in which the
procedure may be used by the nominee, the information that must be provided by
the nominee when the procedure is used, the period for which the nominee's use
of the procedure is effective, and any other aspects of the rights and duties
created thereby.
ARTICLE V
INDEMNIFICATION
5.01 Right to Indemnification. The corporation shall indemnify, to the
fullest extent permitted by law (including without limitation in circumstances
in which, in the absence of this Section 5.01, indemnification would be
discretionary under the laws of Colorado or limited or subject to particular
standards of conduct under such laws), each of its directors and officers
(hereinafter, for purposes of this Article V, individually referred to as a
"party") against all expenses, liabilities and losses (including without
limitation expenses of investigation and preparation, fees and disbursements of
counsel, accountants and other experts, judgments, fines and amounts paid in
settlement) incurred in, relating to or as a result of any action, suit or
proceeding (collectively referred to herein as a "proceeding") to which such
person may be involved or made a party by reason of serving or having served as
a director or officer of the corporation or, at the request of the corporation,
as a director, officer, manager, member, partner, trustee, employee, fiduciary,
functionary or agent of any other corporation, limited liability company,
partnership, joint venture, trust, association, employee benefit plan or other
entity or enterprise.
5.02 Advance of Expenses. In the event of any proceeding in which a
party is involved or which may give rise to a right of indemnification under
Section 5.01, following written request to the corporation by the party, the
corporation shall pay to the party, to the fullest extent permitted by law
(including without limitation in circumstances in which, in the absence of this
Section 5.02, advance of expenses would be discretionary under the laws of
Colorado or limited or subject to particular standards of conduct under such
laws), amounts to cover expenses incurred by the party in, relating to or as a
result of such proceeding in advance of its final disposition.
5.03 Settlements. The corporation shall not be liable under this
Article for any amounts paid in settlement of any proceeding effected without
its written consent. The corporation shall not settle any proceeding in any
manner that would impose any personal penalty or limitation on a party without
the party's written consent. Consent to a proposed settlement of any proceeding
shall not be unreasonably withheld by either the corporation or the party.
5.04 Burden of Proof. If under applicable law the entitlement of a
party to be indemnified or advanced expenses pursuant to this Article depends
upon whether a standard of conduct has been met, the burden of proof of
establishing that the party did not act in accordance with such standard shall
rest with the corporation. A party shall be presumed to have acted in accordance
with such standard and to be entitled to indemnification or advance of expenses
(as the case may be) unless, based upon a preponderance of the evidence, it
shall be determined that the party has not met such standard. Such determination
and any evaluation as to the reasonableness of amounts claimed by a party shall
be made by the board of directors or such other body or persons as may be
permitted by law.
5.05 Notification and Defense of Claim. Promptly after receipt by a
party of notice of the commencement of any proceeding, the party shall, if a
claim for indemnification in respect thereof may or will be made against the
corporation under this Article, notify the corporation in writing of the
commencement thereof; provided, however, that delay in so notifying the
corporation shall not constitute a waiver or release by the party of any rights
under this Article. With respect to any such proceeding: (a) the corporation
shall be entitled to participate therein at its own expense; (b) any counsel
representing the party to be indemnified in connection with the defense or
settlement thereof shall be counsel mutually agreeable to the party and to the
corporation; and (c) if the corporation admits that such party would be entitled
to indemnification under this Article in connection with such proceeding, the
corporation shall have the right, at its option, to assume and control the
defense or settlement thereof, with counsel satisfactory to the party. If the
corporation assumes the defense of the proceeding, the party shall have the
right to employ its own counsel, but the fees and expenses of such counsel
incurred after notice from the corporation of its assumption of the defense of
such proceeding shall be at the expense of the party unless (i) the employment
of such counsel has been specifically authorized by the corporation, (ii) the
party shall have reasonably concluded that there may be a conflict of interest
between the corporation and the party in the conduct of the defense of such
proceeding, or (iii) the corporation shall not in fact have employed counsel to
assume the defense of such proceeding. Notwithstanding the foregoing, if an
insurance carrier has supplied directors and officers liability insurance
covering a proceeding and is entitled to retain counsel for the defense of such
proceeding, then the insurance carrier shall retain counsel to conduct the
defense of such proceeding unless the party and the corporation concur in
writing that the insurance carrier's doing so is undesirable.
5.06 Payment Procedures; Enforcement. The corporation shall promptly
act upon a party's written request for indemnification or advance of expenses.
The right to indemnification and advance of expenses granted by this Article
shall be enforceable in any court of competent jurisdiction if the corporation
denies the claim, in whole or in part, or if no disposition of such claim is
made within sixty days after the written request for indemnification or advance
of expenses is made. If successful in whole or in part in such suit, the party's
expenses incurred in bringing and prosecuting such claim shall also be paid by
the corporation.
5.07 Other Payments. The corporation shall not be liable under this
Article to make any payment in connection with any proceeding against or
involving a party to the extent the party has otherwise actually received
payment (under any insurance policy, agreement or otherwise) of the amounts
otherwise indemnifiable hereunder. A party shall repay to the corporation the
amount of any payment the corporation makes to the party under this Article in
connection with any proceeding against or involving the party, to the extent the
party has otherwise actually received payment (under any insurance policy,
agreement or otherwise) of such amount. In the event of any payment under this
Article, the corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of the indemnified party, who shall execute all
papers and do everything that may be necessary to assure such rights of
subrogation to the corporation.
5.08 Liability Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
fiduciary or agent of the corporation or who is or was serving at the request of
the corporation as a director, officer, manager, member, partner, trustee,
employee, fiduciary, functionary or agent of any other corporation, limited
liability company, partnership, joint venture, trust, association, employee
benefit plan or other entity or enterprise against any liability asserted
against and incurred by such person in any such capacity or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article.
5.09 Other Rights and Remedies. The rights to indemnification and
advance of expenses provided by this Article shall be in addition to, and shall
not be in limitation of, any other rights a party may have or hereafter acquire
under any law, provision of the articles of incorporation, any other or further
provision of these bylaws, vote of the shareholders or directors, agreement or
otherwise. The corporation shall have the right, but shall not be obligated, to
indemnify or advance expenses to any employee, fiduciary or agent of the
corporation not otherwise covered by this Article to the fullest extent
permitted by law. Unless otherwise provided in any separate indemnification
arrangement, any such indemnification or advance of expenses shall be made only
as authorized in the specific case by the board of directors.
5.10 Applicability; Effect. The rights to indemnification and advance
of expenses provided by this Article shall be applicable to acts or omissions
that occurred prior to the adoption of this Article, shall continue as to any
party entitled to indemnification under this Article during the period such
party serves in any one or more of the capacities covered by this Article, shall
continue thereafter so long as the party may be subject to any possible
proceeding by reason of the fact that the party served in any one or more of the
capacities covered by this Article, and shall inure to the benefit of the estate
and personal representatives of each such person. Any repeal or modification of
this Article or of any Section or provision hereof shall not adversely affect
any rights or obligations then existing. All rights to indemnification under
this Article shall be deemed to be provided by a contract between the
corporation and each party covered hereby.
5.11 Severability. If any provision of this Article shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Article shall
not in any way be affected or impaired thereby, and (b) to the fullest extent
possible, the remaining provisions of this Article shall be construed so as to
give effect to the intent of this Article that each party covered hereby is
entitled to the fullest protection permitted by law.
5.12 Expenses as a Witness. The Corporation may pay or reimburse
expenses incurred by a director, officer, employee, fiduciary, or agent in
connection with an appearance as a witness in a Proceeding at a time when he or
she has not been made a named defendant or respondent in the Proceeding.
5.13 Notice to Shareholders. If the corporation indemnifies or advances
Expenses to a director under this Article in connection with a Proceeding by or
in the right of the corporation, the corporation shall give written notice of
the indemnification for advance to the shareholders with or before the notice of
the next shareholder's meeting. If the next shareholder action is taken without
a meeting at the instigation of the board of directors, such notice shall be
given to the shareholders at or before the time the first shareholder signs a
writing consenting to such action.
ARTICLE VI
MISCELLANEOUS
6.01 Corporate Seal. The corporate seal of the corporation shall be
circular in form and shall contain the name of the corporation and the words
"Seal, Colorado." The seal may be used by causing it or a facsimile thereof to
be impressed, affixed, manually reproduced or rubber stamped with indelible ink.
6.02 Fiscal Year. The fiscal year of the corporation shall
be on a calendar year basis or as otherwise established by resolution of the
board of directors.
6.03 Manner of Giving Notice; Effectiveness. Whenever notice is
required by law, the articles of incorporation or these bylaws to be given to
any shareholder or director, such notice shall be in writing (unless oral notice
is reasonable under the circumstances) and may be given in person or by
telephone, telegraph, teletype, electronically transmitted facsimile or other
form or wire or wireless communication, first class, certified or registered
mail, private courier or in any other manner permitted by law. If written,
notice shall be effective as to each such shareholder or director, as the case
may be may, as follows: (a) in the case of notice mailed by the corporation to
the shareholders, upon deposit in the United States mail, addressed to the
shareholder at the address as it appears in the corporation's current record of
shareholders and with first class postage prepaid; and (b) in all other cases,
the earliest of (i) the date received, (ii) five days after deposit in the
United States mail (properly addressed and with first class postage prepaid),
and (iii) the date shown on the return receipt, if mailed by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee. Oral notice is effective when communicated. If three
successive notices (whether with respect to a meeting of shareholders or
otherwise) are given by the corporation to a shareholder and are returned as
undeliverable, no further notices to such shareholder shall be necessary until
another address for the shareholder is made known to the corporation.
6.04 Receipt of Notices by the Corporation. Except as otherwise
expressly provided herein, notices, shareholder writings consenting to action
and other documents and writings shall be deemed to be received by the
corporation when they are actually received: (a) at the registered office of the
corporation addressed to the registered agent; (b) at the principal office of
the corporation (as that office is designated in the most recent document filed
by the corporation with the Colorado Secretary of State providing such
information) addressed to the corporation or to the secretary; (c) by the
president or the secretary wherever that officer may be found; or (d) by any
other person authorized from time to time by the board of directors, the
president or the secretary to receive such writings, wherever such person is
found.
6.05 Amendments. The board of directors or shareholders may make, amend
and repeal the bylaws of the corporation at any time and from time to time as
provided by law.
6.06 Voting of Securities by the Corporation. Unless otherwise provided
by resolution of the board of directors, on behalf of the corporation, the
president or any vice president shall, unless otherwise directed by the board or
directors, attend in person or by substitute appointed by him or her, or shall
execute on behalf of the corporation written instruments appointing a proxy or
proxies to represent the corporation at, all meetings of the shareholders or
members of any other corporation or entity in which the corporation holds an
interest, and may, on behalf of the corporation, in person or by substitute or
by proxy, execute written waivers of notice and consents with respect to any
such meetings. At all such meetings or otherwise, the president or any vice
president, in person or by substitute or by proxy, may vote and execute written
consents and other instruments with respect to such interest and may exercise
any and all rights and powers incident to the ownership of such interest,
subject, however, to the instructions, if any, of the board of directors.
The undersigned, being the duly elected and acting secretary of Equity
Oil Company, hereby certifies that the foregoing bylaws were adopted as the
bylaws of the corporation by the board of directors on January 25, 1996.
/S/ CLAY NEWTON
CLAY NEWTON, Secretary
Subsidiaries
Symskaya Exploration, Inc, a Texas corporation, is owned 50% each by Equity
Oil Company and Leucadia National Corporation.
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statment
of Equity Oil Company on Form S-8 of our report dated January 12, 1996, on our
audits of the financial statements of Equity Oil Company as of December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand, L.L.P.
- -----------------------------
Signature
Salt Lake City, Utah
March 8, 1996
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