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As filed with the Securities and Exchange Commission on December 19, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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PLAINS RESOURCES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2898764
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1600 SMITH STREET
HOUSTON, TEXAS 77002
(713) 654-1414
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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MICHAEL R. PATTERSON
VICE PRESIDENT AND GENERAL COUNSEL
PLAINS RESOURCES INC.
1600 SMITH STREET
HOUSTON, TEXAS 77002
(713) 654-1414
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
JOHN A. WATSON
FULBRIGHT & JAWORSKI L.L.P.
1301 MCKINNEY, SUITE 5100
HOUSTON, TEXAS 77010-3095
(713) 651-5151
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
Calculation of Registration Fee
======================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER UNIT OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Series D Cumulative Convertible 46,600 shares $500 $23,300,000 $6,874
Preferred
Stock, par value $1.00 per share
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee and
based upon the per share stated value of Series D Cumulative Convertible
Preferred Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
SUBJECT TO COMPLETION, DATED DECEMBER 19, 1997
PROSPECTUS
[PLAINS RESOURCES LOGO APPEARS HERE]
SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK
46,600 SHARES
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This Prospectus has been prepared for use in connection with the proposed sale
by a holder thereof (the "Selling Stockholder") of an aggregate of 46,600 shares
(the "Shares") of Series D Cumulative Convertible Preferred Stock, par value
$1.00 per share (the "Series D Preferred Stock"), of Plains Resources Inc. (the
"Company"). See "Description of Series D Preferred Stock." The Shares may be
sold from time to time by or for the account of the Selling Stockholder in the
over-the-counter market, or otherwise at prices and on terms then prevailing or
at prices related to the then current market price, directly or through agents
designated from time to time, or through dealers or underwriters to be
designated or in negotiated transactions. The Shares may be sold by any one or
more of the following methods: (a) a block trade (which may involve crosses) in
which the broker or dealer so engaged will attempt to sell the securities as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (c)
exchange distributions and/or secondary distributions; (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; or (e)
privately negotiated transactions. To the extent required by applicable law, the
specific Shares to be sold, the names of the Selling Stockholder, the respective
purchase prices and public offering prices, the names of any such agent, dealer
or underwriter and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying Prospectus Supplement. See
"Plan of Distribution."
The Company will receive no portion of the proceeds of the sale of the Shares
offered hereby and will bear certain of the expenses incident to their
registration. See "Plan of Distribution" and "Selling Stockholder."
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SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________, 199__
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the "SEC")
in Washington, D.C., a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered by this Prospectus. Certain of the
information contained in the Registration Statement is omitted from this
Prospectus in accordance with the rules and regulations of the SEC, and
reference is hereby made to the Registration Statement and exhibits and
schedules relating thereto for further information with respect to the Company
and the securities offered by this Prospectus. The Company is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information are available for inspection at, and copies of such
materials may be obtained upon payment of the fees prescribed therefor by the
rules and regulations of the SEC from, the SEC at its principal offices located
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and the Regional Offices of the SEC located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and at 7 World Trade Center, New York, New
York 10048. In addition, such materials filed electronically by the Company
with the SEC are available at the SEC's World Wide Web site at
http://www.sec.gov. The Common Stock is traded on the American Stock Exchange,
and such reports, proxy statements and other information may be inspected at the
offices of the American Stock Exchange, Inc., 86 Trinity Place, New York, New
York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K (Commission file No. 0-9808) for the
fiscal year ended December 31, 1996, the Company's Quarterly Reports on Form 10-
Q for the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997,
and the description of the Company's common stock, par value $.10 per share (the
"Common Stock") contained in its Form 8-A filed on February 2, 1990, are hereby
incorporated by reference in this Prospectus.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of the offering of the securities offered by this Prospectus, shall
be deemed to be incorporated by reference in this Prospectus and be a part
hereof from the date of filing of such documents. Any statement contained in
this Prospectus or in a document incorporated or deemed to be incorporated by
reference in this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained in this
Prospectus, or in any other subsequently filed document that also is or is
deemed to be incorporated by reference, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon written or oral request of any such
person, a copy of any or all of the documents incorporated by reference herein,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to:
Investor Relations Department, 1600 Smith Street, Suite 1500, Houston, Texas
77002, telephone (713) 654-1414.
CERTAIN DEFINITIONS
As used in this Prospectus, "Mcf" means thousand cubic feet, "Bcf" means
billion cubic feet, "Bbl" means barrel, "MMBbl" means million barrels, "BOE"
means net barrel of oil equivalent and "MCFE" means Mcf of natural gas
equivalent. Natural gas equivalents and crude oil equivalents are determined
using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or
natural gas liquids. "Present Value of Proved Reserves" means the present value
(discounted at 10%) of estimated future cash flows from proved oil and natural
gas reserves reduced by estimated future operating expenses, development
expenditures and abandonment costs (net of salvage value) associated therewith
(before income taxes), calculated using product prices in effect on the date of
determination, and "Standardized Measure" is such amount further reduced by the
present value (discounted at 10%) of estimated future income taxes on such cash
flows. "NYMEX" means New York Mercantile Exchange.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes set forth and incorporated by
reference in this Prospectus. As used herein, the terms "Company" and "Plains"
mean Plains Resources Inc. and its subsidiaries, except as the context may
otherwise require. Certain terms used but not defined in the following summary
are defined elsewhere in this Prospectus, including certain terms relating to
the oil and natural gas industry defined under "Certain Definitions".
THE COMPANY
Plains is an independent energy company engaged in the acquisition,
exploitation, development, exploration and production of crude oil and natural
gas and the marketing, transportation, terminalling and storage of crude oil.
The Company's upstream oil and natural gas activities are focused in the Los
Angeles Basin (the "LA Basin") and the Arroyo Grande Field of California, the
Sunniland Trend of South Florida (the "Sunniland Trend"), and the Illinois Basin
in southern Illinois (the "Illinois Basin"). The Company's midstream marketing,
terminalling and storage activities are concentrated in Oklahoma, Texas and the
Gulf Coast area of Louisiana. Plains' upstream operations contributed
approximately 90% of the Company's EBITDA for the fiscal year ending December
31, 1996, while the Company's midstream activities accounted for the remainder.
The Company has experienced significant growth over the last five years. From
December 31, 1991, to December 31, 1996, the Company's proved reserve volumes
increased from 14 million BOE to 122 million BOE, its Present Value of Proved
Reserves increased from $72 million to $765 million and its Standardized Measure
increased from $70 million to $579 million. Over the same period, the Company
has added 136 million BOE of proved reserves at an aggregate average finding and
development cost of $2.24 per BOE ($0.37 per MCFE), replacing production by
approximately 600%. During 1996, the Company's net production averaged
approximately 17,500 BOE per day and its unit gross profit (gross margin less
upstream general and administrative expenses) averaged $8.44 per BOE ($1.41 per
MCFE). EBITDA increased 580% from $9 million in 1991 to $61 million (before
nonrecurring items) in 1996, and cash provided by operating activities before
changes in assets and liabilities increased 670% from $6 million in 1991 to $44
million (before non-recurring items) in 1996.
The Company's significant increase in proved reserves, production and cash
flow from oil and natural gas producing activities is attributable to the
acquisition and subsequent exploitation of its LA Basin, Sunniland Trend and
Illinois Basin properties. These three core areas are comprised primarily of
crude oil properties with established production histories and collectively
account for approximately 98% of the Company's year-end 1996 proved reserves and
99% of its 1996 production. The Company believes these properties include a
significant inventory of exploitation and development opportunities, which are
expected to contribute to the Company's anticipated future growth in production
and reserves. The Company operates and owns a 100% working interest in its
major producing fields in each of these areas, which enables the Company to
control the exploitation of such properties. On a BOE basis, at December 31,
1996, the Company's proved reserves were approximately 95% crude oil and natural
gas liquids, with a proved reserves to production ratio of approximately 19
years. Approximately 74% of the Company's proved reserves at December 31, 1996,
were classified as proved developed.
The Company's marketing effort involves purchasing crude oil from other
producers and marketing it to the refining sector. The Company aggregates these
purchased volumes with its own production at major crude oil interchanges and
trading locations, which enables it to obtain higher prices for its own
production while realizing profits on the production purchased from others. The
Company owns and operates a two million barrel, above ground crude oil storage
and terminalling facility in Cushing, Oklahoma (the "Cushing Terminal"), the
United States' largest inland crude oil interchange and trading location. This
facility enhances the ability of the Company to profit from its marketing
activities by allowing the Company to take advantage of certain time and quality
arbitrage opportunities and make or take physical delivery of crude oil at
Cushing, the NYMEX designated delivery location. The Company's midstream
activities have expanded significantly during the last several years, with
midstream gross margin (revenues less direct expenses of purchases,
transportation, storage and terminalling) having increased approximately 672%
from $1.2 million in 1991 to $9.5 million in 1996.
The Company's upstream and midstream business activities focus on crude oil as
the primary product. As a result of inefficiencies existing in the crude oil
markets and the U.S. pipeline and transportation infrastructure, management
believes its ability to compete is enhanced by the alternatives afforded by its
proprietary access to the Cushing Terminal. The Company's crude oil marketing
expertise allows it to obtain higher prices for the Company's existing
production by reducing quality and location pricing differentials. The Company
believes that such expertise also may provide it with
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a competitive advantage in making acquisitions by enabling it to identify
potential crude oil price enhancements for targeted properties.
BUSINESS STRATEGY
The Company's business strategy is to increase its proved reserves and cash
flow by exploiting and producing oil and natural gas from its existing
properties, acquiring underdeveloped oil properties and exploring for
significant new sources of reserves. The Company concentrates its exploitation
efforts on mature crude oil producing properties that it believes to be
underdeveloped and that meet the Company's other targeted criteria. Generally,
such properties were previously owned by major integrated or large independent
oil and natural gas companies, have produced significant volumes since initial
discovery and have significant estimated remaining reserves in place.
Management believes that it has developed a proven record in acquiring and
exploiting underdeveloped crude oil properties where it believes substantial
reserve additions and cash flow increases can be made through improved
production practices and recovery techniques and relatively low risk development
drilling. An integral component of the Company's exploitation effort is to
increase unit operating margins, and therefore cash flow, by reducing unit
production expenses and increasing wellhead price realizations. The Company
seeks to complement these exploitation efforts by pursuing certain higher risk
exploration opportunities which offer potentially higher rewards. The Company
also seeks to capitalize on midstream opportunities that exist as a result of
inefficiencies within the crude oil markets and the U.S. pipeline and
transportation infrastructure. The Company's marketing of its own crude oil
production takes advantage of the marketing expertise attributable to its
midstream activities. As part of its business strategy, the Company
periodically evaluates, and from time to time has elected to sell, certain of
its mature producing properties that it considers to be nonstrategic or fully
valued. Such sales enable the Company to focus on its core properties, maintain
financial flexibility, control overhead and redeploy the sales proceeds to
activities that have potentially higher financial returns.
Consistent with its strategy of exploiting mature, underdeveloped crude oil
properties, the Company's three core properties were all added since mid-1992,
and the Company has sold substantially all of the producing properties that it
owned prior to such time. Since such time through December 31, 1996, the
Company has expended approximately $185 million of direct capital to acquire and
exploit its three core properties. For this same period, cumulative operating
cash flow and proceeds from minor property sales from these three core areas
aggregated $156 million. At December 31, 1996, the estimated remaining future
net revenues and Present Value of Proved Reserves for these properties were $1.6
billion and $750 million, respectively. The benchmark NYMEX crude oil spot
price ("NYMEX Crude Oil Price") at December 31, 1996, was $25.92 per barrel.
Such price at December 16, 1997, was $18.17 per barrel.
In order to manage its exposure to commodity price risk, the Company routinely
hedges a portion of its crude oil production. For the fourth quarter of 1997,
the Company has entered into various fixed price and floating price collar
arrangements. Such arrangements generally provide the Company with downside
price protection on approximately 14,000 barrels of oil per day at a NYMEX
benchmark price of approximately $19.00 per barrel, but permit the Company to
receive the benefit of increases in the NYMEX benchmark price up to $24.00 per
barrel on 4,000 of such barrels. Thus, based on the Company's average third
quarter 1997 oil production rate, these arrangements generally provide the
Company with downside price protection for 76% of its production and upside
price participation for 46% of its production up to $24.00 per barrel, while 24%
of such production and excess volumes, if any, remain unhedged. In addition,
the Company also has fixed price arrangements on approximately 12,000 barrels
per day for 1998 at a NYMEX benchmark price of approximately $19.80 per barrel.
The hedge prices are before deductions for quality and area differentials.
1997 PROPERTY ACQUISITIONS
In March, 1997, the Company completed the acquisition of Chevron USA's
interest in the Montebello Field for $25 million, effective February 1, 1997.
The assets acquired consist of a 100% working interest and a 99.2% net revenue
interest in 55 producing oil wells and related facilities and also includes
approximately 450 acres of surface fee lands (the "Montebello Acquisition").
The Montebello Field, which is located approximately 15 miles from the Company's
existing LA Basin operations, has produced approximately 108 MMBbls of oil and
100 Bcf of natural gas since its discovery in 1917. As of December 16, 1997,
the field was producing approximately 960 barrels of oil and 700 Mcf of natural
gas per day. The Company's independent reservoir engineers estimate the
property's proved reserves as of the acquisition date, at approximately 23
MMBbls of oil equivalent.
In November, 1997, the Company acquired a 100% working interest and a 94%
revenue interest in the Arroyo Grande Field in San Luis Obispo County,
California (the "Arroyo Grande Acquisition") from the Selling Stockholder and
another subsidiary of Shell Oil Company (collectively "Shell"). The Arroyo
Grande field was discovered in 1906 and has produced approximately 10 MMBbls of
crude oil or approximately 5% of the estimated original oil in place. The assets
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acquired include surface and development rights to approximately 1,000 acres
included in the 1,500 acre unit. The field is under continuous steam injection
and as of the acquisition date was producing approximately 1,600 barrels
(approximately 1,500 barrels net to the Company's interest) of approximately 14
degree API gravity oil per day from 70 wells. The aggregate consideration for
the Arroyo Grande Acquisition consisted of (i) rights to a non-producing
property interest conveyed to Shell, (ii)the issuance of 46,600 shares of Series
D Cumulative Convertible Preferred Stock (the "Series D Preferred Stock") with
an aggregate stated value of $23.3 million, and (iii) a 5 year warrant to
purchase 150,000 shares of Common Stock at $25 per share (the "Warrant"). No
proved reserves had been assigned to the rights to the property interest
conveyed.
The Company intends to aggressively exploit these properties acquired in 1997
to evaluate additional reserve potential which was identified during its
acquisition analyses. In addition, the Company's exploitation plans for these
properties target improving the unit gross margin by decreasing unit production
expenses and increasing production volumes through production enhancement
activities similar to those employed in its other California properties.
RISK FACTORS
Prospective investors should be aware of the effect on the Company of the
risks presented by (i) the volatility of oil and natural gas prices, (ii) the
possible inability of the Company to continue to replace its reserves, (iii) the
costs and uncertainties relating to oil and natural gas exploration and
development and (iv) the substantial capital requirements associated with the
Company's business strategy and the possibility that the Company will not be
able to finance such requirements. See "Risk Factors".
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus includes "forward-looking statements" within the meaning of
various provisions of the Securities Act and the Exchange Act. All statements,
other than statements of historical facts, included in this Prospectus which
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as estimated
future net revenues from oil and natural gas reserves and the present value
thereof, future capital expenditures (including the amount and nature thereof),
business strategy and measures to implement strategy, competitive strengths,
goals, expansion and growth of the Company's business and operations, plans,
references to future success, references to intentions as to future matters and
other such matters are forward-looking statements. These statements are based on
certain assumptions and analyses made by the Company in light of its experience
and its perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate under the
circumstances. However, whether actual results and developments will conform
with the Company's expectations and predictions is subject to a number of risks
and uncertainties, including the risk factors discussed in this Prospectus,
general economic, market or business conditions, the opportunities (or lack
thereof) that may be presented to and pursued by the Company, competitive
actions by other oil and natural gas companies, changes in laws or regulations,
and other factors, many of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Prospectus are
qualified by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected consequences to
or effects on the Company or its business or operations.
SALES BY SELLING STOCKHOLDER
The Selling Stockholder, Shell Land & Energy Company acquired the shares as
part of the consideration for the Arroyo Grande Acquisition. The Company will
not receive any of the proceeds from the sale of the shares.
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RISK FACTORS
Each investor should carefully examine this entire Prospectus and should give
particular attention to the risk factors set forth below.
MARKET CONDITIONS AND VOLATILITY OF OIL AND NATURAL GAS PRICES
The revenues generated by the Company's operations are highly dependent upon
the prices of, and demand for, oil and natural gas. Historically, the prices for
oil and natural gas have been volatile and are likely to continue to be volatile
in the future. The price received by the Company for its oil and natural gas
production and the level of such production are subject to wide fluctuations and
depend on numerous factors beyond the Company's control, including seasonality,
the condition of the United States economy (particularly the manufacturing
sector), foreign imports, political conditions in other oil-producing and
natural gas-producing countries, the actions of the Organization of Petroleum
Exporting Countries and domestic government regulation, legislation and
policies. Decreases in the prices of oil and natural gas have had, and could
have in the future, an adverse effect on the carrying value of the Company's
proved reserves and the Company's revenues, profitability and cash flow. In this
regard, it should be noted that oil prices at December 31, 1996, upon which
estimated proved reserve volumes, the Present Value of Proved Reserves and the
Standardized Measure as of such date are based, were at the highest year-end
level since 1990. At December 31, 1996, the NYMEX Crude Oil Price was $25.92 per
barrel, 33% higher than the $19.55 per barrel price at December 31, 1995. On
December 16, 1997, the NYMEX Crude Oil Price was $18.17 per barrel. Although the
Company is not currently experiencing any significant involuntary curtailment of
its crude oil or natural gas production, market, logistic, economic and
regulatory factors may in the future materially affect the Company's ability to
sell its crude oil and natural gas production.
In order to manage its exposure to price risks in the marketing of its oil and
natural gas, the Company from time to time enters into fixed price delivery
contracts, floating price collar arrangements, financial swaps and oil and
natural gas futures contracts as hedging devices. To ensure a fixed price for
future production, the Company may sell a futures contract and thereafter either
(i) make physical delivery of its product to comply with such contract or (ii)
buy a matching futures contract to unwind its futures position and sell its
production to a customer. These same techniques are also utilized to manage
price risk for certain production purchased from customers of the Company's
marketing subsidiary, Plains Marketing & Transportation Inc. Such contracts may
expose the Company to the risk of financial loss in certain circumstances,
including instances where production is less than expected, the Company's
customers fail to purchase or deliver the contracted quantities of oil or
natural gas, or a sudden, unexpected event materially impacts oil or natural gas
prices. Such contracts may also restrict the ability of the Company to benefit
from unexpected increases in oil and natural gas prices.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to all of the risks normally incident to
the exploration for and the production of oil and natural gas, including
blowouts, cratering, oil spills and fires, each of which could result in damage
to or destruction of oil and natural gas wells, production facilities or other
property, or injury to persons. The relatively deep drilling conducted by the
Company from time to time involves increased drilling risks of high pressures
and mechanical difficulties, including stuck pipe, collapsed casing and
separated cable. The Company's operations in the LA Basin, including
transportation of crude oil by pipelines within the city of Los Angeles, are
especially susceptible to damage from earthquakes and involve increased risks of
personal injury, property damage and marketing interruptions because of the
population density of the area. Although the Company maintains insurance
coverage considered to be customary in the industry, it is not fully insured
against certain of these risks, including, in certain instances, earthquake risk
in the LA Basin, either because such insurance is not available or because of
high premium costs. The occurrence of a significant event that is not fully
insured against could have a material adverse effect on the Company's financial
position.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and plans to continue to make, substantial capital
expenditures for the acquisition, exploitation, development, exploration and
production of oil and natural gas reserves. Historically, the Company has
financed these expenditures primarily with cash generated by operations, bank
borrowings and the sale of subordinated notes, common stock and preferred stock.
The Company believes that it will have sufficient cash provided by operating
activities and borrowings under its revolving credit facility (the "Revolving
Credit Facility") to fund such planned capital expenditures. If revenues or the
Company's borrowing base decrease as a result of lower oil and natural gas
prices, operating difficulties or declines in reserves, the Company may have
limited ability to expend the capital necessary to
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undertake or complete future acquisition and exploitation programs. There can be
no assurance that additional debt or equity financing or cash generated by
operations will be available to meet these requirements.
BUSINESS RISKS
The Company must continually acquire, explore for, develop or exploit new oil
and natural gas reserves to replace those produced or sold. Without successful
drilling, acquisition or exploitation operations, the Company's oil and natural
gas reserves and revenues will decline. Drilling activities are subject to
numerous risks, including the risk that no commercially viable oil or natural
gas production will be obtained. The decision to purchase, explore, exploit or
develop an interest or property will depend in part on the evaluation of data
obtained through geophysical and geological analyses and engineering studies,
the results of which are often inconclusive or subject to varying
interpretations. The cost of drilling, completing and operating wells is often
uncertain. Drilling may be curtailed, delayed or canceled as a result of many
factors, including title problems, weather conditions, compliance with
government permitting requirements, shortages of or delays in obtaining
equipment, reductions in product prices or limitations in the market for
products. The availability of a ready market for the Company's oil and natural
gas production also depends on a number of factors, including the demand for and
supply of oil and natural gas and the proximity of reserves to pipelines or
trucking and terminal facilities. Natural gas wells may be shut in for lack of a
market or due to inadequacy or unavailability of natural gas pipeline or
gathering system capacity.
Substantially all of the Company's LA Basin crude oil and natural gas
production and Illinois Basin oil production are transported by pipelines owned
by third parties. The inability or unwillingness of these pipelines to provide
transportation services to the Company for a reasonable fee could cause the
Company to seek transportation alternatives, which in turn could result in
increased transportation costs to the Company or involuntary curtailment of a
significant portion of its crude oil and natural gas production.
EFFECTS OF LEVERAGE
As of September 30, 1997, the Company's total long-term debt and stockholders'
equity were $283 million and $107 million, respectively. In addition, the
Company may incur additional indebtedness under its credit facilities. The
Company's Revolving Credit Facility currently consists of a $165 million
borrowing base, of which approximately $77.3 million was outstanding as of
November 30, 1997.
The Company's level of indebtedness will have several important effects on its
future operations, including the following: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of interest
on its indebtedness and will not be available for other purposes; (ii) covenants
contained in the Company's debt obligations will require the Company to meet
certain financial tests, and other restrictions will limit its ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its business, including
possible acquisition activities; and (iii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired.
Moreover, future acquisition and exploitation activities may require the Company
to alter its capitalization significantly, which may, in the case of the
issuance of additional securities, be dilutive to holders of Common Stock. The
Company's ability to meet its debt service obligations and to reduce its total
indebtedness will be dependent upon the Company's future performance, which will
be subject to general economic conditions and to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. There can be no assurance that the Company's business will continue to
generate cash flow at or above current levels. If the Company is unable to
generate sufficient cash flow from operations in the future to service its debt,
it may be required to refinance all or a portion of its existing debt or to
obtain additional financing. There can be no assurance that any such refinancing
would be possible or that any additional financing could be obtained.
UNCERTAINTIES IN ESTIMATING RESERVES AND FUTURE NET CASH FLOWS
There are numerous uncertainties inherent in estimating quantities and values
of proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating the recovery
from underground accumulations of oil and natural gas that cannot be measured in
an exact manner, and the accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretation and
judgment. Because all reserve estimates are to some degree speculative, the
quantities of oil and natural gas that are ultimately recovered, production and
operating costs, the amount and timing of future development expenditures and
future oil and natural gas sales prices may all differ from those assumed in the
estimation process. In addition, different reserve engineers may make different
estimates of reserve quantities and cash flows based upon the same available
data. Therefore, the Present Value of Proved Reserves and Standardized Measure
set forth in this Prospectus represent estimates only and should not be
construed as the current
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market value of the estimated oil and natural gas reserves attributable to the
Company's properties. In this regard, it should be noted that oil prices at
December 31, 1996, upon which estimated proved reserve volumes, the Present
Value of Proved Reserves and the Standardized Measure as of such date are based,
were at the highest year-end level since 1990. At December 31, 1996, the NYMEX
Crude Oil Price was $25.92 per barrel, 33% higher than the $19.55 per barrel
price at December 31, 1995. On December 16, 1997, the NYMEX Crude Oil Price was
$18.17 per barrel. In this regard, the information set forth in this Prospectus
includes revisions of certain reserve estimates attributable to proved
properties included in the preceding year's estimates. Such revisions reflect
additional information from subsequent activities, production history of the
properties involved and any adjustments in the projected economic life of such
properties resulting from changes in product prices. Any downward revisions
could adversely affect the Company's financial condition, borrowing base under
the Revolving Credit Facility, future prospects and market value of its
securities.
GOVERNMENT REGULATION
The Company's business is regulated by, and must be conducted in compliance
with, certain federal, state and local laws and regulations relating to the
development, production, marketing, pricing, transportation and storage of oil
and natural gas. The Company's business is also subject to extensive and
changing environmental and safety laws and regulations governing plugging and
abandonment, the discharge of materials into the environment or otherwise
relating to environmental protection. Certain of the Company's properties are
located in environmentally sensitive areas that require special permits to
drill. There can be no assurance that present or future regulation will not
adversely affect the operations of the Company.
COMPETITION
The oil and natural gas industry is highly competitive. The Company's
competitors for the acquisition, exploration, exploitation and development of
oil and natural gas properties, the purchasing and marketing of oil and the
crude oil storage and terminalling business, and for capital to finance such
activities, include companies that have greater financial and personnel
resources available to them than the Company. The Company's ability to acquire
additional properties and to discover reserves in the future will be dependent
upon its ability to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment.
DESCRIPTION OF SERIES D PREFERRED STOCK
At December 1, 1997, the authorized preferred stock of the Company consisted
of 2,000,000 shares of preferred stock, par value $1.00 per share, of which
46,600 shares have been designated as Series D Cumulative Convertible Preferred
Stock. At December 1, 1997, 46,600 shares of Series D Preferred Stock were
issued and outstanding. The following is a brief summary of certain provisions
relating to the Series D Preferred Stock offered hereby which is qualified in
its entirety by the Company's Certificate of Incorporation, as amended, and the
resolutions of the Company's Board of Directors (the "Board") relating to the
Series D Preferred Stock. See Definitions below for the definitions of certain
terms used in the following summary.
Dividend Rights. Holders of Series D Preferred Stock will be entitled to
receive, but only when and as declared by the Board out of funds legally
available therefor, cumulative cash dividends at the annual rate of six percent
on the Stated Value of $500 per share, payable on April 1, July 1, October 1,
and January 1 of each year, commencing April 1, 2000. No dividends shall accrue
prior to January 1, 2000. Dividends shall be cumulative and shall be payable to
holders of record on such record dates as shall be fixed by the Board. Dividends
payable for any period less than a full quarter will be computed on the basis of
the ratio of the number of days in such period to the actual number of days in
such full quarter. No full dividends shall be declared on any Parity Stock or
Junior Stock unless full cumulative dividends have been or contemporaneously are
declared and paid or a sum sufficient for the payment thereof set apart for such
payment on the Series D Preferred Stock for all dividend periods terminating on
or prior to the date of payment of such full cumulative dividends. When
dividends are not paid in full, as aforesaid, upon the shares of Series D
Preferred Stock and of any series of Parity Stock, all dividends declared upon
shares of Series D Preferred Stock and of such other series of Parity Stock
shall be declared pro rata so that the amount of dividends declared per share on
Series D Preferred Stock and such other series of Parity Stock shall in all
cases bear to each other the same ratio that accrued dividends per share on the
shares of Series D Preferred Stock and such other series of Parity Stock bear to
each other. Holders of shares of Series D Preferred Stock shall not be entitled
to any dividend, whether payable in cash, property or stock, in excess of the
full amount of cumulative dividends payable thereon. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payments
on the Series D Preferred Stock that may be in arrears.
Arrearage Exchange. At any time payment of dividends on Series D Preferred
Stock is in arrears ("Arrearage"), such Arrearage is exchangeable, in full only,
at the option of a majority in interest of the record holders thereof, for fully
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paid and nonassessable shares of Common Stock (an "Arrearage Exchange"). The
number of shares of Common Stock to be issued upon an Arrearage Exchange shall
be determined by dividing the total amount of the Arrearage by the Per Share
Market Value of the Common Stock on the date of the Arrearage Exchange.
Conversion Rights. Each share of Series D Preferred Stock is convertible, at
the option of the record holder thereof into Common Stock at any time prior to
redemption, at an initial conversion price of $25 per share (the "Conversion
Price"), each share of Series D Preferred Stock being valued at its Stated Value
of $500 for the purpose of such conversion. Each share of Common Stock issued
upon conversion of shares of Series D Preferred Stock will be fully paid and
nonassessable. The conversion price will be subject to adjustment in certain
events, including (i) the payment of dividends or other distributions payable in
Common Stock on any class of capital stock of the Company, (ii) subdivisions,
combinations, or reclassifications of Common Stock, (iii) the issuance to all
holders of Common Stock of rights or warrants entitling them to subscribe for or
purchase Common Stock at less than the then Per Share Market Value, (iv) the
distribution to all holders of Common Stock of evidences of the Company's
indebtedness or assets, (v) the issuance or sale of Common Stock for a
consideration per share which is less than the Per Share Market Value, and (vi)
the issuance of rights, options or warrants which entitle the holders thereof to
purchase Common Stock at a price per share less than the then Per Share Market
Value. Notwithstanding the foregoing, no adjustment of the Conversion Price will
be made with respect to the issuance of shares of Common Stock or the grant of
options to purchase such shares which are issued or granted to directors,
officers, or employees of the Company, or the Company's 401(k) Plan, unless and
until the aggregate number of such shares so issued or issuable under options
exceeds 750,000 shares. Fractional shares of Common Stock are not to be issued
upon conversion, but in lieu thereof, the Company will either issue one whole
share of Common Stock or pay a cash adjustment based on the Per Share Market
Value.
Liquidation Preference. Upon any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the holders of Series D Preferred
Stock shall be entitled to receive out of the assets of the Company, or proceeds
thereof available for distribution to stockholders, for each share of Series D
Preferred Stock an amount equal to the Stated Value of $500 per share plus the
amount of any accrued and unpaid dividends thereon before any distribution shall
be made to the holders of Junior Stock of the Company, and if the assets of the
Company shall be insufficient to pay in full such amounts, then such assets
shall be distributed among such holders and the holders of any Parity Stock
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. If, in the case of any
complete liquidation, dissolution or winding-up of the Company, the holders of
Series D Preferred Stock shall not be entitled to receive the liquidation price
of such shares held by them until the liquidation price of all Senior Stock
shall have been paid in full.
Redemption. From and after November 12, 1998, the Company may, at its option,
redeem shares of Series D Preferred Stock, in whole or in part at any time or
from time to time, at a cash redemption price per share equal to the amount of
any Arrearage plus (i) the Conversion Price multiplied by (ii) the number of
shares of Common Stock into which a share of Series D Preferred Stock is
convertible as of the date of such redemption, multiplied by (iii) the Agreed
Percentage. Notice of such redemption by the Company shall be given to each
holder of record of the shares to be redeemed not less than 30 days prior to the
redemption date. If fewer than all of the outstanding shares of Series D
Preferred Stock are to be redeemed, the shares to be redeemed shall be
determined by lot or pro rata as may be determined by the Board or by any other
method as may be determined by the Board in its sole discretion to be equitable.
Shares of Series D Preferred Stock redeemed by the Company will be restored to
the status of authorized but unissued shares of preferred stock, without
designation as to series, until such shares are once more designated as part of
a particular series by the Board.
Maturity Date. If any shares of Series D Preferred Stock have not been
redeemed or converted prior to September 1, 2012, (i) such shares shall
automatically be converted into the number of shares of Common Stock determined
by dividing the Stated Value by the Conversion Price in effect at the time of
such conversion, and (ii) the Arrearage (if any) on such shares of Series D
Preferred Stock shall automatically be exchanged for the number of shares of
Common Stock determined by dividing such Arrearage by the Per Share Market Value
of the Common Stock on such date.
Voting Rights. The Series D Preferred Stock has no voting rights except as
otherwise required by law and as set forth in the resolutions of the Board
relating to the Series D Preferred Stock.
So long as any shares of Series D Preferred Stock remain outstanding, the
affirmative vote of the holders of a majority of the shares of such series
outstanding at the time, shall be necessary to permit (i) the authorization,
creation or issuance, or any increase in the authorized or issued amount, of any
class or series of Senior Stock, or (ii) the amendment, alteration or repeal of
any of the provisions of the Company's Certificate of Incorporation, as amended,
which would materially and adversely affect any right, preference, privilege or
voting power of the Series D Preferred Stock or the holders thereof in a manner
disproportionate to the effect thereof on the holders of any other shares of the
Company's
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capital stock. However, the creation and issuance of other series of
Parity Stock or Junior Stock shall not be deemed to materially and adversely
affect such rights, preferences, privileges.
So long as at least 2,000 shares of Series D Preferred Stock remain
outstanding, the holders of such series outstanding at the time shall be
entitled to vote to permit, effect or validate the authorization of a merger or
consolidation of the Company or any compulsory share exchange pursuant to which
the Common Stock is converted into other securities, cash or property. The
holders of shares of Series D Preferred Stock shall be entitled to that number
of votes equal to the aggregate of (i) the number of whole shares of Common
Stock into which all shares of the Series D Preferred Stock held by such holders
could be converted, plus (ii) the number of shares for which outstanding
Arrearage (if any) may be exchanged, at the record date for the determination of
the stockholders entitled to vote on such matters or, if no record date is
established, at the day prior to the date such vote is taken, such votes to be
counted together with all other shares of capital stock having general voting
powers and not separately as a class.
Definitions. For purposes of the foregoing summary:
"Agreed Percentage" means 140%, provided that if the Redemption Threshold
has occurred at any time prior to the date of determination, then "Agreed
Percentage" means 100%.
"Junior Stock" means the Common Stock of the Company and any other stock of
the Company over which shares of this Series has a preference as to distribution
of assets and payment of dividends.
"Parity Stock" means any stock of the Company ranking as to distribution of
assets and payment of dividends on a parity with this Series.
"Per Share Market Value" means on any particular date (a) the last sale
price per share of the Common Stock on such date on the principal stock exchange
on which the Common Stock has been listed or, if there is no such price on such
date, then the last price on such exchange on the date nearest preceding such
date, or (b) if the Common Stock is not listed on any stock exchange, the final
bid price for a share of Common Stock in the over-the-counter market, as
reported by the Nasdaq National Market at the close of business on such date, or
the last sales price if such price is reported and final bid prices are not
available, or (c) if the Common Stock is not quoted on the Nasdaq National
Market, the bid price for a share of Common Stock in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices), or (d)
if the Common Stock is no longer publicly traded, as determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) selected in good
faith by the Board of Directors of the Company, provided, that none of the
transactions related to the foregoing shall include purchases by any "affiliate"
(as such term is defined in the General Rules and Regulations under the
Securities Act of 1933) of the Company.
"Redemption Threshold" means the date on which the Per Share Market Value
first exceeds 140% of the Conversion Price per share of Common Stock for any 20
out of any 30 consecutive Trading Days.
"Senior Stock" means any shares or class of the Company that are by their
terms expressly given priority over this Series as to payment of dividends or
distribution of assets on any liquidation of the Company.
"Stated Value" means $500 for each share of Series D Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is traded on the
principal stock exchange on which the Common Stock has been listed, or (b) if
the Common Stock is not listed on any stock exchange, a day on which the Common
Stock is quoted in the over-the-counter market, as reported by the Nasdaq Stock
Market, or (c) if the Common Stock is not quoted on the Nasdaq Stock Market, a
day on which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices).
SELLING STOCKHOLDER
Pursuant to an Exchange Agreement dated as of November 12, 1997 (the
"Exchange Agreement") the Selling Stockholder acquired beneficial ownership of
the Shares as part of the consideration paid by the Company for the Arroyo
Grande Acquisition. Such consideration consisted of rights to a non-producing
property interest, 46,600 shares of Series D Preferred Stock and the Warrant to
purchase 150,000 shares of Common Stock. Each share of Series D Preferred Stock
is currently convertible, at the holder's option, into 20 shares of Common
Stock. If not previously redeemed or converted,
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on September 1, 2012 each share of Series D Preferred Stock will automatically
convert into 20 shares of Common Stock. Assuming all shares of Series D
Preferred Stock are then outstanding, at the current conversion ratio, such
automatic conversion would result in the issuance of 932,000 shares of Common
Stock to the Selling Stockholder. In addition, at the option of a majority in
interest of the record holders of Series D Preferred Stock, any dividend
arrearage on such preferred stock may be exchanged into shares of Common Stock,
the number of which shall be determined by dividing the total amount of such
dividend arrearage by the per share market price of the Common Stock on the date
of such exchange.
Pursuant to the Exchange Agreement, the Company has agreed to use its best
efforts to keep a shelf registration statement (the "Shelf Registration
Statement") with respect to the Shares continuously effective until such time as
all of the Shares can be resold pursuant to Rule 144(k) under the Securities
Act. The Shelf Registration Statement is intended to permit the Shares to be
resold from time to time by the Selling Stockholder or subsequent transferees
other than by sales pursuant to this Prospectus. Purchasers of the Shares
offered hereby will not be entitled to resell such Shares under the Shelf
Registration Statement and will not have any other registration rights under the
Stock Purchase Agreement. References in this Prospectus to the "Selling
Stockholder" include all investors that are entitled, as described above, to
resell the Shares pursuant to this Prospectus.
The Company may require the Selling Stockholder to temporarily suspend use of
the Shelf Registration Statement to sell Shares upon notice of the occurrence of
an event requiring the preparation of a supplement or amendment to this
Prospectus so that, as thereafter delivered to the purchasers of the Shares,
this Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated in this Prospectus or necessary
to make the statements in this Prospectus not misleading. The Company has agreed
to promptly file with the Commission and make available to the Selling
Stockholder any such supplement or amendment, provided that such obligation is
suspended if the requirement for such supplement or amendment arises from
actions taken by the Company in good faith and for business reasons.
The Exchange Agreement also provides that, if Shell desires to sell all of the
Shares in a public offering or a private offering to a third party who is not an
affiliate of Shell, the Company shall cooperate with Shell and its investment
banking firm to facilitate such offering, including participating in road show
presentations. If, in the written opinion of Shell's investment banker (which
shall be a firm of recognized standing), the gross proceeds from the sale of all
of the Shares in such offering will be less than $23.3 million, the Company
shall amend the Certificate of Designation to increase the annual dividend rate
on the Shares to a percentage reasonably estimated in good faith by such
investment banker to be required to enable Shell to receive $23.3 million of
gross proceeds in such offering; provided however, in no event shall the annual
dividend rate exceed 7.5 percent.
In addition, the Exchange Agreement provides that if Shell receives an offer
to purchase all or any of the Shares (other than in a public offering) from a
non-affiliate which it intends to accept (a "Preferred Stock Offer"), Shell
shall give written notice to the Company, with full information concerning the
Preferred Stock Offer. The Company shall then have the optional prior right,
which may be exercised by written notice to Shell within seven business days
after the notice is received, to purchase the Shares for which the Preferred
Stock Offer is made by payment of 105% of the purchase price proposed in the
Preferred Stock Offer.
This summary of certain provisions of the Exchange Agreement applicable to the
Shares does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Exchange Agreement,
which is incorporated by reference herein.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by or for the account of the
Selling Stockholder pursuant to this Prospectus or pursuant to Rule 144 under
the Securities Act. There is currently no trading market for the Shares, and
none is expected to develop. Accordingly, the ability of the Selling
Stockholder to sell Shares pursuant to Rule 144 or certain of the methods of
distribution listed below may be limited. Sales of Shares pursuant to this
Prospectus may be effected in the over-the-counter market, or otherwise at
prices and on terms then prevailing or at prices related to the then current
market price (in each case as determined by the Selling Stockholder), directly
or through agents designated from time to time, or through dealers or
underwriters to be designated or in negotiated transactions. The Shares may be
sold by any one or more of the following methods: (a) a block trade (which may
involve crosses) in which the broker or dealer so engaged will attempt to sell
the securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) exchange distributions and/or secondary distributions; (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; (e) privately negotiated transactions. To the extent required by
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applicable law, the specific Shares to be sold, the name of the Selling
Stockholder, the respective purchase prices and public offering prices, the
names of any such agent, dealer or underwriter and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement. The Selling Stockholder may effect such
transactions by selling Shares directly to other purchasers, through agents or
through broker-dealers, and any such agents or broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from such Selling Stockholder, from purchasers of Shares for whom they act as
agents, or from both sources (and such compensation may be in excess of
customary commissions). The Selling Stockholder and any broker-dealers that
participate in the distribution of the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales, and any
commissions, and any profit on the resale of Shares, received by the Selling
Stockholders and any such broker-dealers may be deemed to be underwriting
discounts and commissions.
The Company will bear all costs and expenses incurred by it in connection
with the registration of the sale of Shares pursuant to this Prospectus, but
will not be responsible for any commissions, underwriting discounts or similar
amounts payable in respect of any such sale.
LEGAL MATTERS
The validity of the issuance of the shares of Series D Preferred Stock offered
hereby will be passed upon for the Company by Michael R. Patterson, Esq., its
general counsel. Mr. Patterson beneficially owns 138,749 shares of Common Stock
(including vested and unvested options).
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,
1996, have been so incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
RESERVE ENGINEERS
Information relating to the estimated proved reserves of oil and natural gas
and the related estimates of future net revenues and present values thereof for
certain periods included and incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 1996 and in the Notes
to Consolidated Financial Statements of the Company in each Annual Report, has
been prepared by Netherland, Sewell & Associates, Inc., H. J. Gruy and
Associates, Inc., and Ryder Scott Company, independent petroleum engineers and
is incorporated by reference herein in reliance upon the authority of such firms
as experts in petroleum engineering.
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========================= ======================
No dealer, salesman, or other person has
been authorized to give any information or
to make any representations not contained
in this Prospectus, and, if given or made,
such information or representations must 46,600 Shares
not be relied upon as having been
authorized by the Company or any Selling
Stockholder or underwriter. This
Prospectus does not constitute an offer to [PLAINS RESOURCES LOGO
sell, or a solicitation of an offer to APPEARS HERE]
buy, the securities offered hereby in any
jurisdiction where, or to any person to
whom, it is unlawful to make such offer or
solicitation. The delivery of this
Prospectus at any time and any sale made
hereunder does not imply that the
information contained or incorporated by SERIES D CUMULATIVE
reference herein is correct as of any time CONVERTIBLE PREFERRED STOCK
subsequent to its date.
_________________________
______________________
TABLE OF CONTENTS PROSPECTUS
PAGE
Available Information..................... 2 __________________, 199__
Incorporation of Certain Documents........ 2
Certain Definitions....................... 2
Prospectus Summary........................ 3
Risk Factors.............................. 6 ____________________________
Description of Series D Preferred Stock... 8
Selling Stockholder....................... 10
Plan of Distribution...................... 11
Legal Matters............................. 12
Experts................................... 12
Reserve Engineers......................... 12
========================= ======================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses incurred by the Company
in connection with the Common Stock being registered hereby, other than
underwriting discounts and commissions.
Securities and Exchange Commission Registration Fee.. $ 6,874
Legal Fees and Expenses.............................. 1,000
Accounting Fees and Expenses......................... 2,000
Miscellaneous........................................ 1,126
-------
Total.............................................. $11,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Tenth of the Company's Certificate of Incorporation provides that
the Company shall indemnify to the full extent authorized or permitted by law
any person made, or threatened to be made, a party to any action, suit or
proceeding (whether civil, criminal or otherwise) by reason of fact that he, his
testator or intestate, is or was a director or officer of the Company or by
reason of the fact that such director or officer, at the request of the Company,
is or was serving any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, in any capacity. The rights to
indemnification set forth above are not exclusive of any other rights to which
such person may be entitled under any statute, provision of the Company's
Certificate of Incorporation or bylaws, agreements, vote of stockholders or
disinterested directors or otherwise.
Additionally, Article VIII of the Company's Bylaws provides for mandatory
indemnification to at least the extent specifically allowed by Section 145 of
the General Corporation Law of the State of Delaware (the "GCL"). The Bylaws
generally follow the language of Section 145 of the GCL, but in addition specify
that any director, officer, employee or agent may apply to any court of
competent jurisdiction in the State of Delaware for indemnification to the
extent otherwise permissible under the Bylaws, notwithstanding any contrary
determination denying indemnification made by the Board, by independent legal
counsel, or by the stockholders, and notwithstanding the absence of any
determination with respect to indemnification. The Bylaws also specify certain
circumstances in which a finding is required that the person seeking
indemnification acted in good faith, for purposes of determining whether
indemnification is available. Under the Bylaws, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, or, with respect to any criminal
action or proceeding, to have had no reasonable cause to believe his conduct was
unlawful, if his action is based on the records or books of account of the
Company or another enterprise, or on information supplied to him by the officers
of the Company or another enterprise in the course of their duties, or on the
advice of legal counsel for the Company or another enterprise or on information
or records given or reports made to the Company or another enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Company or another enterprise.
Pursuant to Section 145 of the GCL, the Company generally has the power to
indemnify its current and former directors, officers, employees and agents
against expenses and liabilities incurred by them in connection with any suit to
which they are, or are threatened to be made, a party by reason of their serving
in such positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action, they had no reasonable cause
to believe their conduct was unlawful. With respect to suits by or in the right
of the Company, however, indemnification is generally limited to attorneys' fees
and other expenses and is not available if such person is adjudged to be liable
to the Company unless the court determines that indemnification is appropriate.
The statute expressly provides that the power to indemnify authorized thereby is
not exclusive of any rights granted under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise. The Company also has the
power to purchase and maintain insurance for such persons.
The above discussion of the Company's Certificate of Incorporation and
Bylaws and Section 145 of the GCL is not intended to be exhaustive and is
qualified in its entirety by each of such documents and such statute.
The Company has entered into employment agreements containing
indemnification provisions with Mr. Armstrong, its President and Chief Executive
Officer and Mr. Egg, its Senior Vice President. Pursuant to such agreements,
the Company has agreed to indemnify and hold each officer harmless to the
fullest extent permitted by law, from any loss, damage or liability incurred in
the course of his employment. The amount paid by the Company is
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reducible by the amount of insurance paid to or on behalf of each officer with
respect to any event giving rise to indemnification. Each officer's right to
indemnification is to survive his death or termination of employment and the
termination of his employment agreement. The Board has authorized an employment
agreement with Mr. Harry N. Pefanis, Senior Vice President of the Company,
which, as authorized, will have indemnification provisions substantially the
same as those of Messrs. Armstrong's and Egg's agreements described above.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
3.1 - Second Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
3.2 - Bylaws of the Company, as amended to date (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
3.3 - Certificate of Designation, Preferences and Rights of Series D
Cumulative Convertible Preferred Stock (incorporated by reference
to Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997).
4.1 - Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4 to the Company's Form S-1 Registration Statement (Reg.
No. 33-33986)).
4.2 - Warrant dated November 12, 1997, to Shell Land & Energy Company
for the purchase of 150,000 shares of Common Stock (incorporated
by reference to Exhibit 4(d) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
+5 - Opinion of Michael R. Patterson, Esq.
10 - Exchange Agreement dated as of November 12, 1997 among the
Company and Shell Land and Energy Company and Shell Western E&P,
Inc. (incorporated by reference to Exhibit 5 to Shell Oil
Company's Schedule 13D filed November 21, 1997).
+12 - Statement Re Computation of Ratios.
+23.1 - Consent of Michael R. Patterson, Esq. (contained in Exhibit 5).
+23.2 - Consent of Price Waterhouse LLP.
+23.3 - Consent of Netherland, Sewell & Associates, Inc.
+23.4 - Consent of H.J. Gruy and Associates, Inc.
+23.5 - Consent of Ryder Scott Company
+24 - Powers of Attorney (included at page 11-4 of this Registration
Statement as originally filed).
+ Filed herewith.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement; provided, however, that paragraph (a)(1)(i) and
(a)(1)(ii) do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section 15(d) of
the Exchange Act that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Michael R. Patterson and Phillip D.
Kramer, and each of them, either one of whom may act without joinder of the
other, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all pre- and post- effective amendments
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on the 18th day of December,
1997.
PLAINS RESOURCES INC.
By: /s/ Greg L. Armstrong
--------------------------------------------------------
Greg L. Armstrong, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities indicated on the 18th day of December, 1997.
Signature Capacity
--------- --------
/s/ GREG L. ARMSTRONG President, Chief Executive Officer and
- ------------------------------- Director (Principal Executive Officer)
Greg L. Armstrong
/s/ JERRY L. DEES Director
- -------------------------------
Jerry L. Dees
/s/ TOM H. DELIMITROS Director
- -------------------------------
Tom H. Delimitros
/s/ CYNTHIA A. FEEBACK Controller and Principal Accounting
- ------------------------------- Officer (Principal Accounting Officer)
Cynthia A. Feeback
/s/ WILLIAM M. HITCHCOCK Director
- -------------------------------
William M. Hitchcock
II-4
<PAGE>
/s/ PHILLIP D. KRAMER Senior Vice President, Treasurer and
- ------------------------------- Chief Financial Officer (Principal
Phillip D. Kramer Financial Officer)
/s/ DAN M. KRAUSSE Chairman of the Board and Director
- -------------------------------
Dan M. Krausse
/s/ JOHN H. LOLLAR Director
- -------------------------------
John H. Lollar
/s/ ROBERT V. SINNOTT Director
- -------------------------------
Robert V. Sinnott
/s/ J. TAFT SYMONDS Director
- -------------------------------
J. Taft Symonds
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER
- ------
3.1 - Second Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(a) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
3.2 - Bylaws of the Company, as amended to date (incorporated by reference
to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
3.3 - Certificate of Designation, Preferences and Rights of Series D
Cumulative Convertible Preferred Stock (incorporated by reference to
Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
4.1 - Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4 to the Company's Form S-1 Registration Statement
(Reg. No. 33-33986)).
4.2 - Warrant dated November 12, 1997, to Shell Land & Energy Company for
the purchase of 150,000 shares of Common Stock (incorporated by
reference to Exhibit 4(d) to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
+5 - Opinion of Michael R. Patterson, Esq.
10 - Exchange Agreement dated as of November 12, 1997 among the Company
and Shell Land and Energy Company and Shell Western E&P, Inc.
(incorporated by reference to Exhibit 5 to Shell Oil Company's
Schedule 13D filed November 21, 1997).
+12 - Statement Re Computation of Ratios.
+23.1 - Consent of Michael R. Patterson, Esq. (contained in Exhibit 5).
+23.2 - Consent of Price Waterhouse LLP.
+23.3 - Consent of Netherland, Sewell & Associates, Inc.
+23.4 - Consent of H.J. Gruy and Associates, Inc.
+23.5 - Consent of Ryder Scott Company
+24 - Powers of Attorney (included at page II-4 of this Registration
Statement as originally filed).
________
+ Filed herewith
<PAGE>
EXHIBIT 5
December 18, 1997
Plains Resources Inc.
1600 Smith, Suite 1500
Houston, Texas 77002
Gentlemen:
I have acted as counsel for Plains Resources Inc., a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of 46,600 shares of the Company's Series D
Cumulative Convertible Preferred Stock, $1.00 par value (the "Series D Preferred
Stock"), to be offered upon the terms and subject to the conditions set forth in
the Registration Statement on Form S-3 (the "Registration Statement") relating
thereto filed with the Securities and Exchange Commission.
In connection therewith, I have examined originals or copies certified or
otherwise identified to my satisfaction of the Second Restated Certificate of
Incorporation of the Company, the Bylaws of the Company, corporate proceedings
with respect to the issuance and registration of the shares of Series D
Preferred Stock and such other documents and instruments as I have deemed
necessary or appropriate for the expression of the opinions expressed herein.
Based on the foregoing, I am of the opinion that:
1. The Company has been duly organized and is validly existing in good
standing under the laws of the State of Delaware.
2. The 46,600 shares of Series D Preferred Stock proposed to be sold
pursuant to the Registration Statement have been duly and validly
issued and are fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Legal
Matters" in the Prospectus included in the Registration Statement.
Sincerely,
/s/ MICHAEL R. PATTERSON
----------------------------------
Michael R. Patterson
Vice President and General Counsel
MRP/mnc
<PAGE>
EXHIBIT 12
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Nine
Year Ended December 31, Months
----------------------------------------- Ended
1992 1993 1994 1995 1996 9/30/97
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income before taxes (3,308) (20,198) 571 2,652 17,754 16,503
Fixed charges and preferred
stock dividends 5,997 14,379 17,587 18,815 22,177 19,279
Less: Capitalized interest (1,498) (4,303) (2,728) (3,093) (3,613) (2,316)
Less: Pretax preferred dividends (66) (189) (1,171) (879) 0 0
------ ------- ------ ------ ------ ------
Total earnings 1,125 (10,311) 14,259 17,495 36,318 33,466
------ ------- ------ ------ ------ ------
Fixed Charges and preferred stock dividends:
Interest expense 3,776 8,847 12,585 13,606 17,286 15,877
Capitalized interest 1,498 4,303 2,728 3,093 3,613 2,316
Interest portion of rentals 108 118 110 109 102 82
Amortization of debt issue cost 549 922 993 1,128 1,176 1,004
Pretax preferred dividends 66 189 1,171 879 0 0
Total fixed charges and preferred ------ ------- ------ ------ ------ ------
stock dividends 5,997 14,379 17,587 18,815 22,177 19,279
------ ------- ------ ------ ------ ------
Earnings in excess (short) of
fixed charges and preferred
stock dividends (4,872) (24,690) (3,328) (1,320) 14,141 14,187
Ratio of earnings to fixed charges
and preferred stock dividends 0.2 -0.7 0.8 0.9 1.6 1.7
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 10, 1997 appearing on page F-2 of Plains Resources Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1996. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
/s/ PRICE WATERHOUSE LLP
------------------------------------
Price Waterhouse LLP
Houston, Texas
December 18, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our reserve report to the interest of Plains Resources
Inc. and Subsidiary (collectively, the Company) dated January 31, 1997,
relating to the estimated quantities of certain of the Company's proved reserves
of oil and gas and the related estimates of future net revenue and present
values thereof for certain periods, included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, as well as in the Notes to the
Consolidated Financial Statements of the Company in such annual report. We
also consent to the reference to us under the heading "Reserve Engineers" in
such Registration Statement.
NETHERLAND, SEWELL & ASSOCIATES, INC.
/s/ NETHERLAND, SEWELL & ASSOCIATES, INC.
-----------------------------------------
Dallas, Texas
December 17, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
H. J. Gruy and Associates, Inc. hereby consents to the incorporation by
reference in this Registration Statement on Form S-3 of our reserve report dated
February 7, 1997, relating to the estimated quantities of certain of the
Company's proved reserves of oil and gas and the related estimates of future net
revenue and present values thereof for certain periods, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, as
well as in the Notes to the Consolidated Financial Statements of the Company in
such annual report. We also consent to the reference to us under the heading
"Reserve Engineers" in such Registration Statement.
H. J. GRUY AND ASSOCIATES, INC.
/s/ H. J. GRUY AND ASSOCIATES, INC.
-----------------------------------
Houston, Texas
December 15, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our reserve report dated February 4, 1997, relating to
the estimated quantities of certain of the Company's proved reserves of oil and
gas and the related estimates of future net revenue and present values thereof
for certain periods, included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, as well as in the Notes to the Consolidated
Financial Statements of the Company in such annual report. We also consent to
the reference to us under the heading "Reserve Engineers" in such Registration
Statement.
RYDER SCOTT COMPANY PETROLEUM ENGINEERS
/s/ RYDER SCOTT COMPANY PETROLEUM ENGINEERS
-------------------------------------------
Houston, Texas
December 18, 1997
