GOLDEN OIL COMPANY
44
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [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]
For the transition period from ______________ to ___________________.
Commission File No. 0-9946
GOLDEN OIL COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 84-0836562
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 POST OAK BOULEVARD, SUITE 550, HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 622-8492
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
----
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(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. [X]
As of February 9, 1996, there were outstanding 1,424,291 shares of the
Registrant's Common Stock, $.01 par value, and the aggregate market value held
by non-affiliates was approximately $630,146.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 10, 11, 12 and 13 is
incorporated herein by reference to the Registrant's definitive Proxy Statement
to be filed in connection with the Registrant's 1996 Annual Meeting within 120
days from the end of the fiscal year.
PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Golden Oil Company (the "Company") is a diversified business whose
current operations emphasize oil and gas production and development. Since 1988
the Company has increased the size and scope of its oil and gas operations
through a number of corporate transactions, primarily involving asset purchases
and mergers. Transactions also have been considered in other business sectors,
such as real estate and financial services, and transactions have been
undertaken in the commercial real estate sector. The Company continues to
actively consider transactions involving further diversification outside the
energy sector.
During September 1989 the Company acquired two public oil and gas
exploration and production companies, Regal Petroleum, Ltd. and the former
Golden Oil Company, (now named Golden Resources, Inc.) by merging them into
Company subsidiaries. At the Company's Annual Meeting held during December 1989,
stockholders approved a change of the parent company's name to Golden Oil
Company. During 1992 the Company purchased the oil and gas related assets of
Cobb Resources Corporation ("Cobb"). The Company's stock is traded on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
under the symbol "GOCO".
Within the oil and gas production and development sector, the Company's
primary objectives are to increase its net reserves, cash flow and scope of
operations through acquisitions and the development of working interests in
Company operated properties. The Company believes that factors including price
volatility and other unfavorable economic conditions in the oil and gas industry
have encouraged consolidation of smaller independent operators in recent years
and that such conditions are likely to continue.
Pursuant to stockholder approval, on July 15, 1993 the Company effected
a 1:50 reverse stock split of its Common Stock, and subsequently declared a six
share dividend on each share of the Company's post-split Common Stock and Class
B Common Stock. The effect of these transactions approximates a 1:7 reverse
stock split. All share and per share amounts used herein have been adjusted to
reflect the reverse split and share dividend.
The Company was incorporated in Colorado during 1980 as Pinnacle
Petroleum, Inc. Following approval by its stockholders in 1986, the Company
implemented proposals to reincorporate in Delaware, to approve issuance of a new
class of Common Stock ("Class B Common") and to declare a warrant dividend on
its shares of Common Stock ("Common Stock"). The Class B Common has certain
enhanced voting rights compared to the Common Stock. As of December 31, 1995 the
Company had outstanding 1,424,291 shares of Common Stock and 22,254 shares of
Class B Common.
2
Since 1988 the size and scope of the Company's operations have
increased. The Company's estimated proved reserves of oil increased from 152,200
barrels at December 31, 1988 to 1,298,300 barrels at December 31, 1995 primarily
due to acquisitions. Reflecting price declines for natural gas as well as the
effects of production and dispositions in excess of acquisitions of properties,
estimated reserves of natural gas have declined from 1,040,200 Mcf of gas at
December 31, 1988 to 880,200 Mcf of gas at December 31, 1995.
Currently the Company's principal production areas are in the San Juan
Basin, New Mexico and Osage County, Oklahoma. The Company is focusing on
controlling and enhancing the operating performance of its properties, and on
development of its waterflood project in its South Dog Creek field in Osage
County, Oklahoma. Since initial discovery and development by the Company, the
South Dog Creek field has produced approximately 5,000,000 barrels of primary
production. Field work necessary to develop the field's secondary production
potential has been undertaken. The Company has obtained permits from the
Environmental Protection Agency ("EPA") necessary for water injection throughout
this field. During 1995 the Company initiated Phase II of the waterflood
injection program for this field. The program involves converting certain
marginally producing wells to water injectors and water supply wells and the
rework of other producing wells and well equipment to increase the wells' fluid
volume capacity. All of the Company's joint working interest owners have elected
to join in such development. Although preliminary production response is
anticipated in 1997, the Company does not expect significant increases in
production volumes until further development occurs. The timing and extent of
development of the waterflood injection project is subject to, among other
factors, the results of production response from the Phase II development, the
availability of additional financing to the Company and changes in oil and gas
prices. A substantial portion (approximately $7,000,000 of pretax estimated
discounted future net revenues) of the Company's proved reserves are comprised
of proved undeveloped reserves related to the waterflood project.
In recent years, the volatility in product prices has caused the
projected value of the Company's estimated future net revenues from oil and gas
production to fluctuate. In the opinion of management, one result of such
fluctuations has been to diminish the general attractiveness of exploratory
drilling relative to alternative uses of capital. Other factors, such as
governmental tax and environmental policies also have had a negative impact.
Accordingly, management has curtailed or eliminated "wildcat" exploration
drilling by the Company on unproven acreage, while emphasizing development and
extension of proven reserves and oil field operations. The adverse economic
factors impacting the oil and gas sector also have had the effect of increasing
the relative attractiveness of diversification away from the independent oil and
gas sector.
DESCRIPTION OF BUSINESS
OIL AND GAS OPERATIONS. As part of its business activities the Company
owns, acquires and sells oil and gas leases and other mineral interests and
produces oil and gas. In addition the Company conducts exploration and
development activities for its own account as well as for joint venture or
partnership accounts. In order to spread the risks inherent in oil and gas
activities, the Company generally attempts to include third party drilling
participants in exploration ventures.
3
GOVERNMENT REGULATION. The domestic production and sale of oil and gas
are subject to regulation by the Department of Energy. Rates of production have
for many years been subject to federal and state conservation laws, and the
petroleum industry has been subject to federal tax laws dealing specifically
with the industry. The Company is subject to various federal, state and local
regulations regarding, among other things, environmental and ecological matters.
While environmental laws may potentially require significant capital outlays, to
date these laws and related regulations have not materially adversely affected
the Company's business.
EMPLOYEES. As of December 31, 1995, the Company had 9 full time
employees, including field personnel. The Company also regularly employs part
time personnel and retains outside professionals who provide accounting, legal,
engineering and other services.
COMPETITION. The Company faces intense competition in the search for
and the acquisition of oil and gas reserves, in the marketing of oil and gas and
in the raising of funds to explore for oil and gas. The Company's competitors
include major oil companies, independent oil companies and individuals, many of
which have financial resources, staffs and facilities substantially greater than
those of the Company.
Despite negative factors such as product price fluctuations,
competition remains intense for acquisition of oil and gas prospects and
properties. The Company's ability to sustain or increase its position in the
future depends primarily on its ability to develop its present properties but
also includes its ability to develop or acquire suitable prospects for
exploratory drilling whether directly or through corporate transactions.
Competitive conditions in the marketing of the Company's products are
influenced by factors including the volume of production of other domestic crude
oil and of crude oil imports; the proximity of pipelines to producing
properties; the regulation by states of allowable rates of production; and the
regulation by federal authorities of the marketing of oil and natural gas. All
of the foregoing are variable factors which are influenced by economic and
political forces beyond the Company's control and which cannot be predicted with
assurance.
ADDITIONAL INFORMATION. The Company's business does not presently
require expenditure of substantial funds for research and development. Sales of
natural gas tend to be influenced by factors including local demand, the
availability of gas transportation and seasonal weather conditions, with
increased sales during the colder winter months. The Company does not believe
that any other material aspects of its business are significantly seasonal in
nature. During 1995 sales to three purchasers accounted for approximately 55%,
28% and 14%, respectively, of the Company's total revenues. Sales to three
purchasers accounted for approximately 45%, 23%, and 14% for the year ended
December 31, 1994 and 42%, 20%, and 18% for the year ended December 31, 1993 of
the Company's total revenues. No other customer accounted for more than ten
percent of the Company's total revenues during those periods. In the opinion of
management, if the Company should lose any of its present customers, other
customers for the Company's oil and gas production would be available on terms
substantially similar to those available from its major customers at this time.
Due to volatility in oil prices in 1993 and 1994, the Company entered into fixed
price oil contracts in February and March 1995 with two unrelated purchasers for
the majority of its oil production through March 1996 at an average net price of
approximately $17.00 per barrel. During 1996, the Company has entered into
similar fixed price arrangements for approximately 50% of its estimated 1996 oil
production at an average net price at the wellhead of $17.01 through December
31, 1996.
4
ITEM 2. PROPERTIES.
OFFICE FACILITIES
The Company's headquarters office is located in a commercial office
building at 550 Post Oak Boulevard, Suite 550, Houston, Texas 77027. The Company
holds an interest of approximately twenty-three percent (23%) of a limited
partnership which owns its headquarters building. The Company leases
approximately 3,950 square feet of office space of a total in the building of
approximately 53,000 square feet under a three year lease through December 31,
1996. Upon expiration, the Company presently expects to renew the lease under
similar terms.
ESTIMATED OIL AND GAS RESERVE INFORMATION
Steven A. Hiraoka & Associates, an independent petroleum engineering
firm based in Golden, Colorado, prepared the estimated reserve information for
the Company and its wholly owned subsidiaries for the year ended December 31,
1995. The presentation conforms with Securities and Exchange Commission ("SEC")
reporting regulations, which require projection of estimated future net revenues
based on the prices in effect at the close of the most recent fiscal year. The
reserve projections at December 31, 1995 were prepared using an oil price
ranging from $17.00 to $17.25 per barrel and gas prices ranging from $1.00 to
$1.30 per Mcf, which prices approximate actual year end levels. Estimates of
proved reserves based on prices in effect at December 31, 1995 have not been
filed previously by the Company with, or included in reports to, any federal
authority or agency.
Reserve estimates and estimated rates of production are inherently
uncertain and imprecise. Accordingly, all reserve data presented is subject to
continued evaluation and revision as additional information becomes available.
In this regard, it should be noted that since 1985 the petroleum industry has
experienced significant volatility in prices obtainable for its oil and gas
production and that such price volatility directly affects the estimated
quantities of oil and gas reserves that are economically recoverable.
Based on the use of prices prevailing on the closing day of each
respective year, the tables below set forth the Company's estimated net
quantities of proved and proved developed oil and gas reserves as of the close
of the fiscal years indicated.
<TABLE>
<CAPTION>
Proved
PROVED RESERVES DEVELOPED RESERVES
AS OF OIL (BBLS) GAS (MCF) OIL (BBLS) GAS (MCF)
------------------------------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1995 1,298,253 (1) 880,158 (1) 432,133 880,158
December 31, 1994 1,477,446 (2) 1,209,079 (2) 611,326 1,209,079
December 31, 1993 1,601,749 (3) 2,722,202 (3) 672,437 2,525,020
</TABLE>
(1) Amounts determined using oil prices ranging from $17.00 to $17.25 per
barrel and gas prices ranging from $1.00 to $1.30 per Mcf.
(2) Amounts determined using an oil price of $17.00 per barrel and gas
prices ranging from $1.30 to $1.50 per Mcf.
(3) Amounts determined using an oil price of $13.00 per barrel and gas
prices ranging from $1.30 to $2.00 per Mcf.
5
PRESENT VALUE OF ESTIMATED FUTURE NET REVENUES
The present value of estimated future net revenues before income taxes
of proved reserves (including reserves attributable to secondary production) of
the Company at the dates indicated below was computed according to SEC reporting
requirements by discounting the aggregate estimated future net revenues by 10%
per year. For additional information see the supplemental unaudited oil and gas
information. The present value of estimated future net revenues is not believed
to represent the fair market value of the reserves either as of year end or as
of the date hereof.
<TABLE>
<CAPTION>
Pretax Estimated Discounted
Future Net Revenues
------------------------------------------------------------------
As Of Total Proved Proved Developed Proved
Reserves Producing Undeveloped
-------------- --------------- --------------
<S> <C> <C> <C>
December 31, 1995 (1) $ 9,089,704 $ 1,924,304 $ 7,165,400
December 31, 1994 (2) $ 10,058,290 $ 2,892,890 $ 7,165,400
December 31, 1993 (3) $ 8,589,085 $ 3,430,817 $ 5,158,268
</TABLE>
(1) Amounts determined using oil prices ranging from $17.00 to $17.25 per
barrel and gas prices ranging from $1.00 to $1.30 per Mcf.
(2) Amounts determined using an oil price of $17.00 per barrel and gas
prices ranging from $1.30 to $1.50 per Mcf.
(3) Amounts determined using an oil price of $13.00 per barrel and gas
prices ranging from $1.30 to $2.00 per Mcf.
SECONDARY RECOVERY
Additional secondary recovery of oil and gas reserves projected to be
obtainable through fluid injection or other enhanced recovery techniques for
supplementing primary recovery are included as proved undeveloped reserves only
after testing by a pilot project or after the operation of an installed program
has confirmed through production response that increased recovery will be
achieved. The Company's proved reserves as set forth above include reserve
volumes and values attributable to secondary recovery.
PRODUCTIVE WELLS AND ACREAGE
As of December 31, 1995, the Company owned working interests in 234
gross (109.4 net) wells of which there were 219 gross (99.3 net) oil wells and
15 gross (10.1 net) gas wells. Additionally the Company held approximately
11,710 gross (5,213 net) producing acres.
UNDEVELOPED ACREAGE
As of December 31, 1995, the Company held certain undeveloped oil and
gas leaseholds in New Mexico which covered approximately 4,520 gross and 4,140
net acres. The undeveloped acreage is held pursuant to leases from landowners or
governmental entities.
6
PRODUCTION, UNIT PRICES AND COSTS
Information with respect to production volumes, average unit prices and
costs for the dates indicated are set forth below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1995 1994 1993
------------------- -------------------- -------------------
Oil Gas Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf)
<S> <C> <C> <C> <C> <C> <C>
Production 58,626 232,655 71,931 322,986 94,909 369,425
Average Price $17.12 $ 0.97 $15.84 $ 1.33 $16.85 $ 1.62
</TABLE>
The average production costs per unit of production (with oil and gas
converted to a common unit of measure based on six Mcf of gas to one barrel of
oil) were $8.37, $8.51 and $8.87 for the years ended December 31, 1995, 1994 and
1993, respectively.
DRILLING ACTIVITY
The Company did not participate in the drilling of any exploratory or
development wells for the years ended December 31, 1995, 1994 and 1993.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor any of its properties is presently a party to
any material litigation. Management knows of no material litigation which is
threatened presently against the Company or any of its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to vote by security holders during the fourth
quarter of 1995.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded through the facilities of the
National Association of Securities Dealers, Inc. ("NASDAQ"). The ranges of
reported high and low bid quotations for the Company's Common Stock for each
quarterly period within the two years ended December 31, 1995 are set forth
below. Quotations are as reported by NASDAQ which maintains a market in the
Company's shares. Such quotations represent prices between dealers without
retail markup, markdown or commissions and do not necessarily represent actual
transactions.
HIGH LOW
QUARTER ENDED BID BID
------------------- ---------- ----------
1995
----
December 31 $0.88 $0.25
September 30 1.00 0.88
June 30 1.00 0.94
March 31 1.31 0.81
1994
----
December 31 $2.00 $0.50
September 30 2.13 1.50
June 30 2.75 1.25
March 31 2.25 1.00
As of February 9, 1996 there were approximately 3,806 stockholders of
record of the Company's Common Stock.
The Company has not paid any cash dividends on its Common Stock and
does not expect to do so in the foreseeable future.
8
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial information has been derived from, and
is qualified by reference to and should be read in conjunction with, the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
herein; except that the data relating to the year ended December 31, 1992 and
1991 has been derived from previously published financial statements.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues ....................... $ 1,279,501 $ 1,612,917 $ 2,218,740 $ 2,484,383 $ 1,703,586
Net loss ....................... (573,177) (1,307,407) (1,077,143) (568,107) (639,250)
Net loss per
common share .............. (0.40) (0.93) (0.77) (0.42) (0.63)
Total assets ................... 3,943,770 4,601,419 6,212,368 7,119,532 5,872,844
Long-term debt
(including current
maturities) ............... 208,619 389,237 642,237 549,000 790,000
Stockholders' equity ........... $ 2,287,089 $ 2,840,266 $ 4,164,479 $ 5,345,048 $ 4,361,798
</TABLE>
ITEM7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Golden Oil Company (the "Company") is a diversified business whose
current operations emphasize oil and gas production and development. Since 1988
the Company has substantially increased the size and scope of its oil and gas
operations through a number of corporate transactions, primarily involving asset
purchases and mergers. Corporate transactions also have been considered in other
business sectors, such as real estate and financial services, and limited
transactions have been undertaken. The Company continues to actively consider
possible transactions involving further diversification outside the energy
sector.
9
Between December 1988 and December 1995, using oil prices currently
available of $17.00 to $17.25 per barrel, the estimated value of the Company's
undiscounted future net revenues before taxes attributable to proved developed
and undeveloped reserves was estimated by the Company's independent petroleum
engineers to have increased from $4,700,000 to $15,100,000. The Company's
current strategy in the oil and gas sector is to expand operations primarily
through acquisitions and the development of proved reserves.
Based on currently prevailing oil prices, the Company expects to
generate cash flows from operations during 1996 sufficient to meet its operating
and capital requirements. However, in order to complete development of its
proved undeveloped reserves and to further its business plan, including the
refinancing or reduction of indebtedness or liabilities due currently or to
become due within 1996, the Company is required to make new financing
arrangements. The Company expects to use proceeds from the additional borrowings
to pay bank indebtedness and other payables due currently, to purchase
additional interests in Company operated properties which have been offered to
the Company, and to provide working capital.
Prevailing prices for oil and gas are dependent on numerous factors
outside of the Company's control including political, economic and regulatory
developments and competition from other sources of energy. The energy markets
are historically volatile and there can be no assurance that oil and gas prices
will not be subject to significant fluctuations in the future as they have been
in the past. Regardless of whether oil or gas prices decline, the Company may
elect to divest oil and gas properties or interests, dispose of interests in its
headquarters office building or borrow or recapitalize in order to fund its
working capital requirements, to further develop its waterflood plan, to pursue
diversificaton outside the oil and gas sector, or as otherwise planned or
required.
During the first quarter of 1996 the Company entered into fixed price
oil contracts for approximately 50% of its oil production through December 31,
1996 at an average price at the wellhead of approximately $17.01 per barrel in
order to reduce the Company's exposure to possible declines in oil prices. The
Company does not anticipate nonperformance by the counterparties.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations during 1995 and 1994 were funded primarily
through existing working capital, borrowings under its credit facilities, sales
of scattered, non-strategic oil and gas properties and internally generated
funds from operating activities. Management anticipates that the Company may
arrange new financing through joint ventures, additional borrowings, asset
sales, or other means. However, there can be no assurance as to the
availability, timing or amount of additional financings to further the Company's
objectives.
10
Cash flow from operating activities was $195,389 for 1995 versus
($333,123) during 1994. The increase primarily reflects reductions in field
operating expenses and reductions in general and administrative expenses
partially offset by corresponding reduced production revenues due to and the
effect of substantial and extended declines in gas prices and sales of
scattered, non-strategic properties. Cash flow was also increased by changes in
working capital components of assets and liabilities. At December 31, 1995 the
Company had a working capital deficit of $973,000 and a current ratio of .34 to
1.00 compared to a working capital deficit of $1,102,000 and a current ratio of
.36 to 1.00 as of December 31, 1994. The decrease in the working capital deficit
is due primarily to reductions in and extensions of notes payable.
During 1995 the Company repaid a remaining principal balance of
$169,500 due under its credit arrangement with a commercial bank in Tulsa,
Oklahoma. The original principal amount of such credit arrangement was $525,000.
The Company also maintained a $100,000 line of credit with the same bank and had
borrowed $70,000 under such line of credit. In March 1996, the Company began
reducing the principal amount under such line by $5,000 each month. No
additional credit is currently available under this line of credit.
During 1995 the Company maintained an additional $150,000 line of
credit with a commercial bank in Albuquerque, New Mexico. In April 1995, the
Company extended the maturity date of the line of credit until November 1995 at
which time the Company began making monthly payments, including principal and
interest, of approximately $7,000 each month scheduled through November 1997.
Subsequent to the close of the 1995 year, such bank advised that it would
increase the amount available under the credit arrangement to $400,000 and
extend the maturity schedule of the credit arrangement to four years, subject to
certain conditions. One condition was that the Company obtain an independent
guarantee and source of repayment in full satisfaction to the bank from a
principal officer of the Company. The Company's management and the bank were
concerned about the Company's lack of liquidity, the current working capital
deficit of approximately one million dollars, and the possible repeat of an oil
price collapse as occurred in the first half of 1994. The Board of Directors
also was concerned that the Company was not in a position to pay a guarantee fee
in cash, and that out of necessity the Company would instead offer only
unregistered shares of its stock. On March 29, 1996 the Board of Directors
approved execution by the Company of the new credit agreement and the payment
and delivery to the guarantor noncash compensation for the purchase of 250,000
unregistered shares of common stock through April 2006 for an exercise price of
$0.20 per share. Prior to approval of the new credit arrangement and guarantee
arrangement, the Board of Directors obtained a report, analysis, and written
opinion as to the fairness of the guarantee fee from an independent oil and gas
investment banking firm familiar with the Company's operations. In the regular
course of its business, the investment banking firm renders advice on mergers,
valuations, sales of assets and share values for small capital oil and gas
companies. Proceeds from the additional financing will provide funds to
refinance short-term debt currently outstanding, to acquire additional interests
in Company-operated properties and to pay certain liabilities. On April 12, 1996
the Company executed the new credit arrangement but had not yet expended any
funds available.
11
As more fully discussed in Note 3 to Consolidated Financial Statements,
during the fourth quarter of 1993 the Company entered into an agreement to
purchase proved producing reserves in oil and gas properties in New Mexico's San
Juan Basin. Under the agreement the Company was obligated to close the
transaction or give up a nonrefundable deposit of $42,000 on the properties. Due
to existing oil and gas prices, environmental and operational factors related to
these prospective acquisitions which arose subsequent to the initial agreement
to purchase these properties, the Company elected not to close on the
transaction. Accordingly, in the third quarter of 1995, the Company charged
approximately $24,000 of acquisition-related costs and the $42,000 deposit to
current year operations.
In March 1993, an agreement was reached between the Company and Calumet
Oil Company, the other principal operators in the South Dog Creek, Oklahoma
field, aimed at enhancing and extending the producing life of the field by
injection of water into the Mississippian formation in ten wells covering four
separate quarter section leases. The operators filed for a water injection
permit with the EPA and during October 1993, a field-wide water injection permit
was granted by the EPA to Calumet Oil and the Company. The total estimated cost
of the initial phase of the waterflood project is estimated to be $135,000 of
which the Company's share would be approximately $100,000 which the Company is
funding with cash flow from operations. During the fourth quarter of 1995
through the use of internally generated funds and joint interest Authorization
for Expenditure ("AFE") billings to outside working interest owners, the Company
initiated Phase II of the waterflood project on one of the Company-operated
leases which demonstrated the highest engineering potential for success. Work on
the affected wells to convert certain wells to water injectors and rework
producing wells and well equipment has been substantially completed. The Company
is now preparing to gradually increase the injection of water into the formation
pursuant to the waterflood plan. Although preliminary production response is
anticipated in late 1997, the Company does not expect significant increases in
production volumes until further development occurs. If Phase II is successful,
the Company will pursue a full implementation of the waterflood plan subject to,
among other things, the availability of additional financing. Assuming full
implementation of the waterflood plan on a fieldwide basis, the Company's share
of the total revised estimated costs of the waterflood project are approximately
$750,000.
Due to factors including certain changes in tax law, adverse changes in
the economics of exploration drilling and the availability to the Company of
alternative uses of capital, during the late 1980s the Company curtailed
exploration activities. If the Company undertakes further exploration programs
in the future, it intends to continue its policy of sharing exploration risks
with third party drilling participants. Certain of the Company's oil and gas
leases require ongoing drilling arrangements for periodic development of proved
reserves. The Company's principal development obligations under such agreements
have been suspended pending clarification of title assignments on certain
federal leases. The Company expects to obtain drilling participation from
industry partners so as to reduce the amount of the Company's future required
drilling commitments. Capital expenditures for development of properties other
than the South Dog Creek field have been curtailed pending additional financing.
The Company has budgeted approximately $25,000 to Golden's interests for capital
expenditures in 1996 related to the completion of Phase II of the waterflood
plan.
12
The production and sale of oil and gas are subject to a variety of
federal, state and local government regulations, including regulations
concerning the prevention of waste, the discharge of materials into the
environment, the conservation of natural gas and oil, pollution, permits for
drilling operations, drilling bonds, reports concerning operations, the spacing
of wells, the unitization of pooling of properties and various other matters.
Many jurisdictions have at various times imposed limitations on the production
of gas and oil by restricting the rate of flow for gas and oil wells below the
actual capacity to produce. The Company believes it is in substantial compliance
with current applicable environmental and other government laws and regulations.
However, governmental laws and regulations have continued to impose increasingly
strict requirements on companies for water and air pollution control and solid
waste management. As a result, it is likely that the Company will incur
increasing costs for compliance with such regulations in the future.
13
RESULTS OF OPERATIONS
1995 COMPARED TO 1994. For the year ended December 31, 1995 oil and gas
revenues from production totaled $1,245,986 compared to $1,589,302 for the
previous year, a net decrease of $343,316 or approximately 21.6%. The decrease
in oil and gas revenues is primarily attributable to sales of scattered
non-strategic oil and gas properties in 1994 after the sharp decline during the
first half of 1994 in average oil price postings. As oil prices began to recover
in mid 1994, gas prices dropped sharply and remained depressed throughout the
second half of 1994 and the entire year of 1995.
The Company took action during 1994 to obtain fixed prices on the
majority of its oil production at prices sufficient to generate positive cash
flows from operations. The Company entered into fixed price contracts in the
first quarter of 1995 at an average net price of approximately $17.00 per barrel
for the majority of its oil production for a period through March 1996. In
February 1996, the Company extended such fixed price contracts for approximately
50% of its oil production at an average net price of $17.01 through December 31,
1996.
Oil production volumes declined to 58,626 barrels during 1995 compared
to production volumes of 71,931 barrels in 1994, a decline of 18.5%. Gas
production volumes decreased to 232,655 Mcf compared to 322,986 Mcf during 1994,
a decrease of 28.0%. The decreases in both oil and gas production are
attributable to the sales of scattered properties throughout 1994 and natural
production decline.
Production costs totaled $814,841 during 1995 compared to $1,070,306 in
1994, a decrease of $255,465 or approximately 23.9%. The decrease is primarily
attributable to sales of non-strategic, marginal producing properties throughout
1994 and a reorganization and reduction of field operations including closing
the Company's Tulsa office in late 1994.
During 1995 the Company's depreciation, depletion and amortization
expense decreased to $508,745 compared to $542,367 for the prior year. The
decrease is primarily attributable to a reduction in depletion expense due to
fewer properties owned by the Company as a result of sales of non-strategic
properties in 1994. Depletion expense per equivalent unit of production
increased to $4.83 per barrel from $3.98 per barrel in 1994.
During 1995 general and administrative expenses were $431,701 compared
to $737,870 for the prior year, a decrease of $306,169 or approximately 41.5%.
The decrease is attributable to reductions in personnel and corporate overhead.
Such reductions were acheived through the elimination of administrative costs
associated with the maintenance and reporting requirements of the marginal
properties sold during 1994, the elimination of substantial professional fees to
outside parties and the streamlining of personnel and corporate overhead costs.
The Company reported a net gain on the disposition of oil and gas
properties, equipment, inventory and other assets of $12,576 during 1995
compared to a net loss on dispositions of $532,208 during 1994. The 1994 loss
arose from the sale of non-strategic properties which the Company elected to
sell due to marginal production or limited development potential.
Interest expense decreased to $31,416 in 1995 compared to $46,844 in
1994 due to reductions in principal amounts outstanding.
14
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of". SFAS No. 121 is effective for fiscal years beginning after December 15,
1995, and requires that long-lived assets, including proved oil and gas
properties, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company is currently evaluating the impact of adopting SFAS No.
121 and does not know the amount, if any, of an impairment that may be
recognized in connection with the adoption of this accounting standard.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" which encourages, but does not require, employers to
adopt a fair value method of accounting for employee stock-based compensation,
and requires increased disclosures if expense recognition is not adopted. The
Company does not intend to elect expense recognition for stock options and
therefore implementation of SFAS No. 123 in fiscal 1996 will have no effect on
the Company's operating results or financial condition.
Primarily reflecting the factors discussed above, the Company reported
a net loss for the year ended December 31, 1995 of $573,177 compared to a net
loss of $1,307,407 for the prior year.
15
1994 COMPARED TO 1993. For the year ended December 31, 1994 oil and gas
revenues from production totaled $1,589,302 compared to $2,200,874 for the
previous year, a net decrease of $611,572 or approximately 27.8%. The decrease
in oil and gas revenues is directly attributable to the sharp decline during the
first half of 1994 in average oil price postings. Due to price declines the
Company temporarily suspended operations of numerous wells, which further
decreased production volumes and revenues. As oil prices began to recover in mid
1994, gas prices dropped sharply and remained depressed throughout the second
half of 1994.
The Company took action during 1994 to obtain fixed prices on the
majority of its oil production at prices sufficient to generate positive cash
flows from operations. The Company entered into fixed price contracts in the
first quarter of 1995 at an average net price of approximately $17.00 per barrel
for the majority of its oil production through March 1996.
Oil production volumes declined to 71,931 barrels during 1994 compared
to production volumes of 94,909 barrels in 1993, a decline of 24.2%. Gas
production volumes decreased to 322,986 Mcf compared to 369,425 Mcf during 1993,
a decrease of 12.6%. The decreases in both oil and gas production are
attributable to depressed prices in both commodities and the temporary shut-in
of certain price sensitive oil and gas properties during 1994. In addition,
production volumes declined due to the sale in 1994 of certain scattered,
non-strategic oil and gas properties and to disruption of gas deliveries due to
a fire at a purchaser's plant facility.
Production costs totaled $1,070,306 during 1994 compared to $1,388,721
in 1993, a decrease of $318,415. The decrease is primarily attributable to sales
of non-strategic, marginal producing properties in 1994 and a reorganization and
reduction of field operations including closing the Company's Tulsa office in
late 1994.
During 1994 the Company's depreciation, depletion and amortization
expense decreased to $542,367 compared to $709,567 for the prior year. The
decrease is primarily attributable to a reduction in depletion expense due to
fewer properties owned by the Company as a result of sales of non-strategic
properties in 1994. Depletion expense per equivalent unit of production
decreased to $3.98 per barrel from $4.18 per barrel in 1993.
During 1994 general and administrative expenses were $737,870 compared
to $864,149 for the prior year, a decrease of $126,279 or 14.6%. The decrease is
attributable to reductions in personnel and corporate overhead. Additional
reductions were made in late 1994 and the first quarter of 1995 to further
reduce general and administrative expenses in future periods.
The Company reported a net loss on the disposition of oil and gas
properties, equipment, inventory and other assets of $532,208 during 1994
compared to a net gain on dispositions of $45,541 during 1993. The 1994 loss
arose from the sale of certain non-strategic properties which the Company
elected to sell due to marginal production and limited development potential.
Interest expense remained relatively unchanged despite substantial
reductions in 1994 in outstanding borrowings reflecting lower average borrowings
outstanding for 1994 compared to 1993 offset by increases in interest rates
under the Company's credit agreements.
Primarily reflecting the factors discussed above, the Company reported
a net loss for the year ended December 31, 1994 of $1,307,407 compared to a net
loss of $1,077,143 for the prior year.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE
----
Report of Independent Accountants 18
Consolidated Balance Sheets 19
Consolidated Statements of Operations 21
Consolidated Statements of Stockholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 26
17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Golden Oil Company:
We have audited the consolidated financial statements and financial statement
schedule of Golden Oil Company as listed in Item 14(a) of this Form 10-K. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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 consolidated financial position of Golden Oil Company
as of December 31, 1995 and 1994, and the consolidated 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. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Houston, Texas
April 15, 1996
18
GOLDEN OIL COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994
------------ ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 67,599 $ 92,609
Short-term investments 24,264 23,528
Accounts receivable:
Oil and gas sales 228,844 255,876
Drilling and operations 88,327 108,018
(including an allowance for
doubtful accounts of $73,118
and $89,363 for 1995 and
1994, respectively)
Affiliates and other 71,524 97,725
Prepaid expenses and other 29,227 44,183
------------ ------------
Total current assets 509,785 621,939
------------ ------------
Property and equipment, at cost:
Oil and gas properties
(using the successful efforts
method of accounting)
Producing properties 5,847,201 5,994,169
Undeveloped leasehold costs 105,000 105,000
------------ ------------
Total oil and gas properties 5,952,201 6,099,169
Pipeline, field and other well
equipment 267,743 280,982
Other property and equipment 461,125 455,610
------------ ------------
6,681,069 6,835,761
Less accumulated depreciation,
depletion and amortization (3,454,413) (3,085,838)
------------ ------------
Net property and equipment 3,226,656 3,749,923
------------ ------------
Investment in office building 205,848 228,076
Other assets 1,481 1,481
------------ ------------
$ 3,943,770 $ 4,601,419
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
19
GOLDEN OIL COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Notes payable and current portion of long-term debt $ 122,079 $ 389,237
Accounts payable:
Drilling and operations 986,732 953,442
Production and other 247,742 268,975
Accrued expenses 126,375 112,285
------------ ------------
Total current liabilities 1,482,928 1,723,939
------------ ------------
Long-term debt 86,540 --
Other liabilities 87,213 37,214
Commitments and contingencies (Notes 7 and 8)
Stockholders' equity:
Preferred stock, par value $.01;
authorized 10,000,000 shares,
none issued -- --
Common stock, par value $.01;
authorized 15,000,000 shares,
issued and outstanding 1,424,291
shares in 1995 and 1,404,291 in 1994 14,243 14,043
Class B convertible common stock,
par value $.01; authorized 3,500,000
shares; issued and outstanding 22,254
shares in 1995 and 1994 223 223
Additional paid-in capital 13,839,479 13,819,679
Accumulated deficit (11,566,856) (10,993,679)
------------ ------------
Total stockholders' equity 2,287,089 2,840,266
------------ ------------
$ 3,943,770 $ 4,601,419
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
20
GOLDEN OIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1995 1994 1993
----------- ----------- -----------
Revenues:
<S> <C> <C> <C>
Oil and gas production .................................. $ 1,245,986 $ 1,589,302 $ 2,200,874
Other ................................................... 33,515 23,615 17,866
----------- ----------- -----------
Total revenues ........................................ 1,279,501 1,612,917 2,218,740
----------- ----------- -----------
Costs and expenses:
Production costs ........................................ 814,841 1,070,306 1,388,721
Depreciation, depletion and
amortization .......................................... 508,745 542,367 709,567
General and administrative .............................. 431,701 737,870 864,149
----------- ----------- -----------
Total costs and expenses .............................. 1,755,287 2,350,543 2,962,437
----------- ----------- -----------
(475,786) (737,626) (743,697)
Gain (loss) on sale of property,
equipment and other assets .............................. 12,576 (532,208) 45,541
Equity in net loss of investments .......................... (22,228) -- --
Property acquisition costs ................................. (66,142) -- --
Financing expenses ......................................... -- -- (344,958)
Interest income ........................................... 1,092 -- 15,243
Interest expense ........................................... (31,416) (46,844) (46,188)
Other income (expense) ..................................... 8,727 9,271 (3,084)
----------- ----------- -----------
Net earnings (loss) ........................................ $ (573,177) $(1,307,407) $(1,077,143)
----------- ----------- -----------
Net earnings (loss) per common
shares .................................................. $ (0.40) $ (0.93) $ (0.77)
----------- ----------- -----------
Weighted average number of
common shares and common
share equivalents outstanding .............................. 1,424,291 1,404,291 1,404,291
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
21
GOLDEN OIL COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
------------------- --------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,1992 .............. 1,404,291 $14,043 22,254 $223 $13,819,679 $ (8,488,897) $ 5,345,048
Net earnings (loss) ...................... -- -- -- -- -- (1,077,143) (1,077,143)
Property dividend ........................ -- -- -- -- -- (103,426) (103,426)
--------- ------- ------ ---- ----------- ------------ -----------
Balance at December 31,1993 .............. 1,404,291 14,043 22,254 223 13,819,679 (9,669,466) 4,164,479
Net earnings (loss) ...................... -- -- -- -- -- (1,307,407) (1,307,407)
Property dividend ........................ -- -- -- -- -- (16,806) (16,806)
--------- ------- ------ ---- ----------- ------------ -----------
Balance at December 31,1994 .............. 1,404,291 14,043 22,254 223 13,819,679 (10,993,679) 2,840,266
Net earnings (loss) ...................... -- -- -- -- -- (573,177) (573,177)
Common stock issued to
Directors ............................. 20,000 200 -- -- 19,800 -- 20,000
--------- ------- ------ ---- ----------- ------------ -----------
Balance at December 31,1995 .............. 1,424,291 $14,243 22,254 $223 $13,839,479 $(11,566,856) $ 2,287,089
--------- ------- ------ ---- ----------- ------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements
22
GOLDEN OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1995 1994 1993
--------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings (loss) ....................................... $(573,177) $(1,307,407) $(1,077,143)
Adjustments to reconcile net
loss to net cash provided
by (used in) operating activities:
Depreciation, depletion
and amortization ........................................ 508,745 542,367 709,567
Equity in net loss of investments ......................... 22,228 -- --
Charge for deferred property
acquisition costs ....................................... 66,142 -- --
(Gain) loss on sale of
property, equipment and
other assets ............................................ (12,576) 532,208 (45,541)
Financing expenses ........................................ -- -- 344,958
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable, net .............................. 72,924 (5,379) 64,596
(Increase) decrease in
prepaid expenses and other ............................ 14,956 (913) 4,632
Increase (decrease) in
accounts payable ...................................... 12,057 (88,006) 174,607
Increase (decrease) in other
liabilities ........................................... 50,000 (2,067) (26,720)
Increase (decrease) in
accrued expenses ...................................... 34,090 (3,926) 32,280
--------- ----------- -----------
Net cash provided by (used in)
operating activities .................................. $ 195,389 $ (333,123) $ 181,236
--------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
23
GOLDEN OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1995 1994 1993
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of
<S> <C> <C> <C>
property and equipment ................................... $ 27,579 $ 401,358 $ 116,758
Proceeds from the sale of
investments .............................................. -- 30,084 33,136
Increase in short-term
investments .............................................. (736) (962) (566)
Additions of oil and gas
properties ............................................... (59,344) -- (121,113)
Additions of other property and
equipment ................................................ (7,280) (14,301) (42,300)
--------- --------- ---------
Net cash provided by (used in)
investing activities ................................. (39,781) 416,179 (14,085)
--------- --------- ---------
Cash flows from financing activities:
Financing costs ............................................ -- -- (332,134)
Proceeds from issuance of
short-term debt .......................................... -- 25,000 224,737
Proceeds from issuance of
long-term debt ........................................... 86,540 -- 125,000
Payment of debt ............................................ (267,158) (278,000) (256,500)
--------- --------- ---------
Net cash used in
financing activities ................................. (180,618) (253,000) (238,897)
--------- --------- ---------
Net decrease in cash and
cash equivalents ......................................... (25,010) (169,944) (71,746)
Cash and cash equivalents at
beginning of year ........................................ 92,609 262,553 334,299
--------- --------- ---------
Cash and cash equivalents at
end of year .............................................. $ 67,599 $ 92,609 $ 262,553
--------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
24
GOLDEN OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental Disclosure of Cash Flow Information:
As more fully discussed in Note 7 to the Consolidated Financial
Statements in 1993 the Company settled certain net amounts due from another
company which shares office facilities with the Company (and which has one
common officer and director but no ownership of the Company) in the amount of
$77,000 and from an officer of the Company in the amount of $226,000. In payment
the Company received ownership interests in the Company's headquarters office
building in Post Oak Park, Houston, Texas. Also, in 1993 the Company recognized
a noncash charge totaling approximately $85,000 in settlement of its obligation
to reimburse an officer for costs incurred on its behalf for periods prior to
1989. At December 31, 1994 accounts receivable from an affiliate in the amount
of $45,000 were exchanged for an additional ownership interest in the Company's
headquarters office building.
In accordance with established Company policy, during 1995 the Company
paid Directors' fees of $20,000 by issuing shares of the Company's Common Stock
in lieu of cash payment.
Cash paid for interest amounted to $37,762, $42,952 and $33,473 for
1995, 1994 and 1993, respectively. No cash was paid for income taxes in 1995,
1994 or 1993.
25
GOLDEN OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Golden Oil Company (the
"Company") include its wholly owned subsidiaries Regal Petroleum, Ltd.
("Regal"); Spur Petroleum, Inc. ("Spur"); Golden Oil Holding Corporation
("Holding"); and Golden Resources, Inc. ("GRI"). Effective January 1, 1995 the
Company began accounting for its investment in its headquarters office building
under the equity method of accounting. All significant intercompany accounts and
transactions have been eliminated in consolidation.
OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting for its
oil and gas properties. Under the successful efforts method, costs associated
with the acquisition, drilling and equipping of successful exploratory wells and
all developmental costs, including developmental dry holes, are capitalized and
amortized using the unit-of-production method. Geological and geophysical costs,
delay rentals and drilling costs of unsuccessful exploratory wells are charged
to expense as incurred.
Proceeds from the sale of an interest in an oil and gas property are
credited to the asset account until all capitalized costs are recovered relative
to that property.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of". SFAS No. 121 is effective for fiscal years beginning after December 15,
1995, and requires that long-lived assets, including proved oil and gas
properties, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company is currently evaluating the impact of adopting SFAS No.
121 and does not know the amount, if any, of an impairment that may be
recognized in connection with the adoption of this accounting standard.
PROPERTY AND EQUIPMENT
Property and equipment are being depreciated over their estimated
useful lives which range from three to ten years using the straight line method.
Expenditures for maintenance and repairs which do not improve or extend the
useful lives are charged to operations as incurred, while expenditures for major
renewals and betterments are capitalized. Dispositions of assets are reflected
at their historical cost less accumulated depreciation, with the resulting net
gain or loss reflected in operations currently.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PER SHARE DATA
Pursuant to stockholder approval, on July 15, 1993 the Company effected
a 1:50 reverse stock split on its Common Stock, and subsequently declared a six
share dividend on each share of the Company's post-split Common Stock and Class
B Common Stock. The effect of these transactions approximates a 1:7 reverse
stock split. All share and per share amounts used herein have been adjusted to
reflect the reverse split and share dividend.
Earnings per share of Common Stock are computed by dividing net
earnings by the weighted average number of shares of Common Stock and common
share equivalents outstanding during each period. Options to acquire shares of
Common Stock are included in the computation of earnings per share of Common
Stock to the extent that they are dilutive. Fully diluted earnings per share is
not presented because such data would not be significantly different from the
amounts shown.
FINANCING COSTS
In accordance with Securities and Exchange Commission ("SEC")
guidelines, in 1993 the Company had deferred certain costs associated with
ongoing financing arrangements. Costs related to specific financing alternatives
which are not completed are charged to operations in the period that management
determines the financing alternative either is no longer under consideration or
that SEC guidelines require recognition of such costs. In 1993, the Company
charged to operations all remaining amounts previously deferred in the third
quarter of 1993.
INCOME TAXES
The Company and its wholly owned subsidiaries join in filing a
consolidated federal income tax return. Investment tax credits are accounted for
by the flow-through method.
The Company recognizes deferred income tax assets and liabilities based
on the expected future tax consequences of temporary differences between the
income tax and financial reporting carrying amounts of assets and liabilities.
CASH EQUIVALENTS
For purposes of financial statement presentation, highly liquid
instruments purchased with an original maturity of three months or less are
shown as cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company includes fair value information in the notes to
consolidated financial statements when the fair value of its financial
instruments are different from the book value. The carrying value of cash and
cash equivalents, receivables and accounts payable approximate fair value due to
the short term maturities of these instruments. The carrying value of the
Company's credit agreements approximate fair value because the rate on such
instruments are variable, based on current market.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities ("SFAS 115") effective January 1, 1994. There was no impact resulting
from the adoption of this standard as aggregate cost of investments approximated
market value. The Company's short-term investments at December 31, 1995 and 1994
consisted of a 12 month certificate of deposit held by a federally insured bank
for which cost approximated fair market value.
Prior to the adoption of SFAS 115, investment securities were carried
at the lower of average cost or market.
USE OF 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 liabilties 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. See
Supplemental Oil and Gas Information (Unaudited).
RECLASSIFICATIONS
Certain amounts from prior periods have been reclassified to conform to
the presentation format for the 1995 consolidated financial statements with no
effect on reported results of operations.
(2) OIL AND GAS PRODUCING ACTIVITIES
Shown below are the historical net capitalized costs and related
accumulated depreciation, depletion and amortization for the Company's oil and
gas properties at the dates indicated. The Company's oil and gas operations are
conducted entirely in the United States.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------
1995 1994 1993
------------------- ---------------- ----------------
Oil and gas properties:
<S> <C> <C> <C>
Producing $ 5,847,201 $ 5,994,169 $ 8,195,623
Non-producing 105,000 105,000 105,000
------------------- ---------------- ----------------
5,952,201 6,099,169 8,300,623
Less accumulated depreciation,
depletion and amortization (2,957,112) (2,626,913) (3,436,223)
------------------- ---------------- ----------------
Net oil and gas
properties $ 2,995,089 $ 3,472,256 $ 4,864,400
------------------- ---------------- ----------------
</TABLE>
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Costs incurred in the Company's oil and gas operations and related
accumulated depletion, depreciation and amortization per equivalent unit of
production are shown below. For purposes of determining the equivalent unit of
production, six Mcf of gas production is assumed to be equivalent to production
of one barrel of oil.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------
1995 1994 1993
------- ------- --------
Property acquisition costs:
<S> <C> <C> <C>
Producing .......................... $ -- $ -- $ 66,863
Non-producing ...................... -- -- --
------- ------- --------
-- -- 66,863
======= ======= ========
Exploration costs ..................... -- -- 18,042
======= ======= ========
Development costs ..................... 59,344 -- 19,911
======= ======= ========
Depletion ............................. 470,369 500,424 653,738
======= ======= ========
Depletion per
equivalent unit of production ...... $ 4.83 $ 3.98 $ 4.18
======= ======= ========
</TABLE>
At present, the Company is engaged primarily in the development and
operation of oil and gas properties in Oklahoma and New Mexico. At December 31,
1995 and 1994 the Company's accounts receivable, which generally are not
collateralized, were primarily from entities and individuals involved in the oil
and gas industry. The Company sells its oil and gas production on currently
available markets and pursuant to contracts with various purchasers. The
purchasers of the Company's production volumes are principally established oil
and gas and industrial companies. The Company does not anticipate nonperformance
by the counterparties. In 1995, the Company entered into fixed price
arrangements for the majority of its oil production with two of its three
significant purchasers through March 1996 at an average net price of
approximately $17.00 per barrel. During 1995 sales to three purchasers accounted
for approximately 55%, 28% and 14%, respectively, of the Company's total
revenues. For each of the two previous years, sales to three purchasers
accounted for approximately 45%, 23%, and 14% for the year ended December 31,
1994 and 42%, 20%, and 18% for the year ended December 31, 1993 of the Company's
total revenues. No other customer accounted for more than ten percent of the
Company's total revenues during those periods.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) AGREEMENTS TO PURCHASE OIL AND GAS PROPERTIES
As more fully discussed in Note 3 to Consolidated Financial Statements,
during the fourth quarter of 1993 the Company entered into an agreement to
purchase proved producing reserves in oil and gas properties in New Mexico's San
Juan Basin. Under the agreement the Company was obligated to close the
transaction or give up a nonrefundable deposit of $42,000 on the properties. Due
to existing oil and gas prices, environmental and operational factors related to
these prospective acquisitions which arose subsequent to the initial agreement
to purchase these properties, the Company elected not to close on the
transaction. Accordingly, in the third quarter of 1995, the Company charged
approximately $24,000 of acquisition-related costs and the $42,000 deposit to
current year operations.
(4) INDEBTEDNESS
During 1995, the Company repaid the remaining principal balance of
$169,500 due under its credit arrangement with a commercial bank in Tulsa,
Oklahoma. The original principal amount of such credit arrangement was $525,000.
The Company also maintained a $100,000 line of credit with the same bank and had
borrowed $70,000 under such line of credit. In March 1996, the Company began
reducing the principal amount borrowed under this line of credit by $5,000 each
month. The credit arrangement provides for an interest rate of 2% above the
bank's prime rate (10.5% at December 31, 1995 and 8.5% at December 31, 1994). No
additional credit is currently available under this line of credit.
During 1995 the Company maintained an additional $150,000 line of
credit with a commercial bank in Albuquerque, New Mexico. In April 1995, the
Company extended the maturity date of the line of credit until November 1995 at
which time the Company began making monthly payments, including principal and
interest at 1% over the bank's prime rate (9.75% at December 31, 1995), of
approximately $7,000 each month scheduled through November 1997. Subsequent to
the close of the 1995 year, such bank advised that it would increase the amount
available under the credit arrangement to $400,000 and extend the maturity
schedule of the credit arrangement to four years, subject to certain conditions.
One condition was that the Company obtain an independent guarantee and source of
repayment in full satisfaction to the bank from a principal officer of the
Company. The Company's management and the bank were concerned about the
Company's lack of liquidity, the current working capital deficit of
approximately one million dollars, and the possible repeat of an oil price
collapse as occurred in the first half of 1994. The Board of Directors also was
concerned that the Company was not in a position to pay a guarantee fee in cash,
and that out of necessity the Company would instead offer only unregistered
shares of its stock. On March 29, 1996 the Board of Directors approved execution
by the Company of the new credit agreement and the payment and delivery to the
guarantor noncash compensation for the purchase of 250,000 unregistered shares
of common stock through April 2006 for an exercise price of $0.20 per share.
Prior to approval of the new credit arrangement and guarantee arrangement, the
Board of Directors obtained a report, analysis, and written opinion as to the
fairness of the guarantee fee from an independent oil and gas investment banking
firm familiar with the Company's operations. In the regular course of its
business, the investment banking firm renders advice on mergers, valuations,
sales of assets and share values for small capital oil and gas companies.
Proceeds from the additional financing will provide funds to refinance
short-term debt currently outstanding, to acquire additional interests in
Company-operated properties and to pay certain liabilities.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 12, 1996 the Company executed the new credit arrangement which
bears interest at 2% above the bank's prime rate (11.25% at April 12, 1996), but
had not yet expended any funds available. Assuming all funds available under the
credit arrangement are expanded, the Company will be required to make monthly
payments, including principal and interest, beginning in May 1996 of
approximately $10,400.
(5) CAPITAL STOCK
STOCK OPTIONS. The Company has a stock option plan for key employees
(the "Employee Plan "). The Employee Plan is administered by the Stock Option
Committee which is appointed by the Board of Directors. During 1989 the Stock
Option Committee granted options covering 147,000 shares to the Company's
Chairman at an exercise price (market price at the date thereof) of $1.79 per
share which may be exercised in whole or in part through December 21, 1999.
During 1990 the Stock Option Committee granted 49,000 options to other eligible
employees at an exercise price (market price at the date thereof) of $1.79 per
share which may be exercised in whole or in part through April 16, 2000. Options
for 4,760 shares expired during 1992 pursuant to the terms of the Employee Plan.
There were no options exercised or granted during the years 1995, 1994 or 1993.
The Company also has a stock option plan covering 14,000 shares for the
Company's non-employee directors (the "Directors' Plan"). Under the Directors'
Plan, each non-employee director will be granted 1,400 shares per year, subject
to prior approval by the Board of Directors, at the market price on the date of
grant. Options offering such shares may be exercised at any time from the date
of grant with the balance exercisable after the first anniversary of the date of
grant and all optioned shares must be exercised within five years from the date
of grant. Options for 4,200 shares were granted on December 22, 1989 (which have
now expired) at an exercise price of $1.79 per share and options for 2,800
shares were granted on January 2, 1991 at an exercise price of $4.46 per share.
No options were granted or exercised during the year ended December 31, 1995,
1994 or 1993.
CLASS B COMMON STOCK. During 1986 the stockholders of the Company
approved the issuance of a new class of common stock designated Class B Common
Stock ("Class B Common"). The holders of Class B Common, voting as a separate
class, have the right to elect a simple majority of the Board of Directors and
vote as a separate class on major corporate transactions. Holders of the Class B
Common also vote share-for-share with holders of the Common Stock. Class B
Common shares are not publicly traded, and are only transferable to persons
within defined categories of "permitted transferees", but may be converted into
Common Stock at any time on a share-for-share basis.
PREFERRED STOCK. The Company also has an authorized class of Preferred
Stock, par value $.01, of which there are currently 10,000,000 shares
authorized, with none currently issued or outstanding.
31
NOTES TO FINANCIAL STATEMENTS
(6) INCOME TAXES
At December 31, 1995 the Company had aggregate net operating loss
carryforwards of approximately $11,020,000 which expire at various dates through
the year 2010 and net investment tax credit carryforwards of approximately
$303,000 which expire at various dates through the year 2001. In connection with
ownership changes resulting from certain transactions, the utilization of the
net operating loss and net investment tax credit carryforwards are limited under
Sections 382 and 383 of the Internal Revenue Code to a maximum of approximately
$6,115,000. The utilization of such operating loss carryforwards is subject to
certain annual limitations of approximately $379,000 within the statutory
period. Certain other restrictions may also exist as to the utilization of such
carryforwards. At December 31, 1995 the Company also has available federal
statutory depletion and capital loss carryforwards.
The components of the Company's deferred tax assets and liabilities at December
31, 1995 and 1994 are as follows:
Deferred Tax
Assets (Liabilities)
------------------------------------
1995 1994
---------------- ----------------
Accounts receivable $ 24,860 $ 11,900
Accrued expenses (1,190) (6,188)
Oil and gas properties (net) (378,565) (391,723)
Investment in office building 40,880 40,880
Net operating losses 3,746,594 3,640,590
Capital losses 326,257 326,257
Investment tax credit 102,962 122,649
Percentage depletion 1,067,025 1,088,759
Valuation allowance (4,928,823) (4,833,124)
---------------- ----------------
Net deferred tax assets
(liabilities) $ -- $ --
================ ================
The Company's valuation allowance increased by approximately $96,000,
$442,000, and $371,000 for 1995, 1994 and 1993, respectively.
(7) CERTAIN TRANSACTIONS
In 1993 the Company settled certain net amounts due from
another company which shares office facilities with the Company (and which has
one common officer and director but no ownership of the Company) in the amount
of $77,000 and from an officer in the amount of $226,000. In payment the Company
received ownership interests constituting a 20% interest in the Company's
headquarters office building, a 55,000 square foot mid-rise commercial structure
in Post Oak Park, Houston, Texas. At December 31, 1994 accounts receivable in
the amount of $45,000 were exchanged for an additional ownership interest in the
Company's headquarters office building. The Company's interest in the building
is approximately 23% after such exchange and as a result, the Company changed
its method of accounting for this investment to the equity method beginning on
January 1, 1995. The Company leases approximately 3,950 square feet of office
space in such building of a total of approximately 53,000 square feet under a
three year lease through December 31, 1996. The building is approximately 40%
owned by such officer with the balance held by unrelated parties.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with establishment of a new electronic data processing
and management reporting system, the Company is jointly and severally liable for
a computer hardware and software lease together with a related party that is
also jointly and severally liable for the lease obligation. The lease has a term
of five years and provides for monthly payments of $3,050, of which one-half
will be paid by the Company. The Company anticipates that it will share use of
the hardware and additional software throughout such term.
(8) COMMITMENTS AND CONTINGENCIES
At December 31, 1995 the aggregate future minimum lease payments under
the Company's noncancellable operating leases are:
1996 $ 66,055
1997 18,000
1998 18,000
1999 1,500
2000 --
---------------
Total $ 103,555
===============
END OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
33
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
The following quantity and discounted estimates of future net cash
flows are based on prices as of the respective year ends. No price escalation
was assumed except for gas sales made under terms of contracts which include
fixed and determinable escalation. Operating costs, production taxes, royalties
and estimated future capital expenditures to complete development of the proved
reserves were deducted in determining the quantity and discounted estimates of
future net cash flows. Such costs were estimated based on current costs and were
not adjusted to anticipate increases due to inflation or other factors. No
deductions were made for general overhead, depreciation or other indirect costs.
The following table reflects estimated quantities of proved oil and gas
reserves. These reserves have been reduced for royalty interests owned by
others. These reserves are all located in the United States and have been
estimated by the Company's petroleum engineers. The Company considers such
estimates to be reasonable; however, due to inherent uncertainties, estimates of
underground reserves are imprecise and subject to change over time as additional
information becomes available.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN PROVED RESERVES
Years Ended December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993
------------------------ ---------------------------- -----------------------
Oil Gas Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf)
PROVED DEVELOPED AND
UNDEVELOPED RESERVES:
<S> <C> <C> <C> <C> <C> <C>
Beginning of year ............... 1,477,446 1,209,079 1,601,749 2,722,202 2,057,731 3,706,957
Revisions of previous estimates . (120,367)(4) (96,266) 34,619 (469,511) (340,558) (562,917)
Sales of minerals in place ...... (200) -- (86,991) (720,626) (20,515) (52,413)
Extensions, discoveries and other
additions .................... -- -- -- -- -- --
Production ...................... (58,626) (232,655) (71,931) (322,986) (94,909) (369,425)
Purchase of minerals in place ... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
End of year ..................... 1,298,253(1) 880,158(1) 1,477,446(2) 1,209,079(2) 1,601,749(3) 2,722,202(3)
========== ========== ========== ========== ========== ==========
PROVED DEVELOPED
RESERVES:
Beginning of year ............... 611,326 1,209,079 672,437 2,525,202 940,872 2,957,816
========== ========== ========== ========== ========== ==========
End of year ..................... 432,133(1) 880,158(1) 611,326(2) 1,209,079(2) 672,437 2,525,020
========== ========== ========== ========== ========== ==========
</TABLE>
(1) Amounts computed using oil prices ranging from $17.00 to $17.25 per
barrel and gas prices ranging from $1.00 to $1.30 per Mcf. In March
1993, an agreement was reached between the two principal operators in
the South Dog Creek field (Calumet Oil and the Company ) to enhance and
extend the producing life of the field by injection of water into the
Mississippian formation in ten wells covering four separate quarter
section leases. Calumet Oil and the Company filed for a water injection
permit with the EPA and during October 1993, a field-wide water
injection permit was granted by the EPA to Calumet Oil and the Company.
The total estimated cost of the initial phase of the waterflood project
is estimated to be $135,000 of which the Company's share will be
approximately $100,000. After full implementation the Company's share
of the total costs of the waterflood project are expected to be
approximately $750,000. The Company funded its initial share of the
waterflood project costs incurred during 1995 using cash from
operations.
(2) The Company used an oil price of $17.00 per barrel and gas prices
ranging from $1.30 to $1.50 per Mcf.
(3) Amounts determined using an oil price of $13.00 per barrel and gas
prices ranging from $1.30 to $2.00 per Mcf.
(4) In 1995, the Company made certain revisions to estimated future lease
operating expenses.
34
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS AND CHANGES THEREIN
The standardized measure of discounted future net cash flows and
changes therein relating to proved oil and gas reserves is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C> <C>
Future cash inflows .................................. $ 23,201,780 $ 26,877,040 $25,748,070 (3)
Future production and
development costs ................................. (8,143,653) (9,677,222) (11,493,870)
Future income tax expenses ........................... (3,161,915) (3,735,514) (1,850,297)
------------ ------------ ------------
Future net cash flows ................................ 11,896,212 13,464,304 12,403,903
10% annual discount for
estimated timing of
cash flows ...................................... (4,690,122) (5,364,457) (4,878,452)
------------ ------------ ------------
Standardized measure of
discounted future net
cash flows ................................... $7,206,090 (1)(4) $8,099,847 (2) $ 7,525,451
============ ============ ============
</TABLE>
Future net cash flows were computed using year-end prices and costs,
and year end statutory tax rates that relate to existing proved oil and gas
reserves.
(1) Amounts computed using oil prices ranging from $17.00 to $17.25 per
barrel and gas prices ranging from $1.00 to $1.30 per Mcf.
(2) Amounts computed using an oil price of $17.00 per barrel and gas prices
ranging from $1.30 to $1.50 per Mcf.
(3) Amounts computed using an oil price of $13.00 per barrel and gas prices
ranging from $1.30 to $2.00 per Mcf.
(4) The realization of the discounted cash flows associated with the
Company's proved undeveloped reserves in the South Dog Creek field are
dependent on, among other things, the availability of financing to
complete development and the success of the waterflood injection
program.
35
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
---------------- ----------------- ---------------
Standardized measure of
discounted future net
cash flows, beginning
<S> <C> <C> <C>
of year ................................. $ 8,099,847 $ 7,525,451 $ 12,714,920
Sale of oil and gas
produced, net of
production costs .......................... (413,988) (499,928) (812,153)
Net changes in prices and
production costs ............................ (443,613) 2,257,584 (3,552,060)
Purchases of minerals in
place ....................................... -- -- --
Sales of minerals in place ..................... (2,339) (847,690) (143,719)
Extensions and discoveries ..................... -- -- --
Revisions of previous quantity
estimates ................................... (1,051,461) (57,470) (3,281,541)
Net change in income taxes ..................... 207,659 (1,030,645) 1,328,512
Accretion of discount .......................... 809,985 752,545 1,271,492
---------- ----------- ------------ ---------
Standardized measure of
discounted future net
cash flows, end of year ................... $ 7,206,090 $ 8,099,847 (2) $ 7,525,451
=========== =========== ============
</TABLE>
Future net cash flows were computed using year end prices and costs,
and year end statutory tax rates that relate to existing proved oil and gas
reserves.
(1) Amounts computed using oil prices ranging from $17.00 to $17.25 per
barrel and gas prices ranging from $1.00 to $1.30 per Mcf.
(2) Using an oil price of $17.00 per barrel and gas prices ranging from
$1.30 to $1.50 per Mcf.
(3) Using an oil price of $13.00 per barrel and gas prices ranging from
$1.30 to $2.00 per Mcf. The relatively low oil prices experienced at
December 31, 1993 resulted in the significant revision of previous
quantity estimates to reflect certain wells which are not economical at
such price ranges.
ITEM9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The definitive Proxy Statement in connection with the 1996 Annual
Meeting of Stockholders to be filed by the Company pursuant to Regulation 14A of
the Securities Exchange Act of 1934 is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The definitive Proxy Statement in connection with the 1996 Annual
Meeting of Stockholders to be filed by the Company pursuant to Regulation 14A of
the Securities Exchange Act of 1934 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The definitive Proxy Statement in connection with the 1996 Annual
Meeting of Stockholders to be filed by the Company pursuant to Regulation 14A of
the Securities Exchange Act of 1934 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The definitive Proxy Statement in connection with the 1996 Annual
Meeting of Stockholders to be filed by the Company pursuant to Regulation 14A of
the Securities Exchange Act of 1934 is incorporated herein by reference.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
PAGE
(A) 1. The following consolidated financial statements
are included in Part II, Item 8:
Report of Independent Accountants....................... 18
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1995
and 1994................................................ 19
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993............. 21
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995, 1994 and
1993..................................................... 22
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993.... 23
Notes to Consolidated Financial Statements...... 26
2. FINANCIAL STATEMENT SCHEDULES:
Schedule II Valuation and Qualifying Accounts... 41
All other schedules are omitted because they are not
applicable or the information is included in the financial
statements and notes included herewith.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the Company's last
fiscal quarter of 1995.
(C) EXHIBITS
The following exhibits are filed as part of this
report. Where such filing is made by incorporation by
reference to a previously filed statement or report,
such statement or report is identified in
parenthesis.
3. ARTICLES OF INCORPORATION AND BYLAWS
3.1 Articles of Incorporation (incorporated by reference
to Exhibit 3 of Form 10-K for the year ended December
31, 1985).
38
3.2 Bylaws (incorporated by reference to Exhibit 3 of
Form 10-K for the year ended December 31, 1985).
10. MATERIAL CONTRACTS
10.1 Pinnacle Petroleum, Inc. Amended and Restated Employees' Stock
Option Plan (incorporated by reference from Exhibit I to
Pinnacle Petroleum, Inc. Proxy Statement dated November 29,
1989).
10.2 Directors' Stock Option Plan (incorporated by reference from
Exhibit II to Pinnacle Petroleum, Inc. Proxy Statement dated
November 29, 1989).
10.3 Agreement and Plan for Merger by and between Golden Oil
Company, Golden Oil Holding Corporation and Cobb Resources
Corporation dated November 28, 1990 (incorporated by reference
from Exhibit 1 to Form 8-K dated November 28, 1990).
10.4 Stock Option Agreement between Golden Oil Company and Cobb
Resources Corporation dated November 28, 1990 (incorporated by
reference from Exhibit 2 to Form 8-K dated November 28, 1990).
10.5 Directors Agreement among George O. Lotspeich, B. W. Miller,
Malcolm G. Colberg, William J. Mayhew, Frank J. Yeager, Ralph
T. McElvenny, Jr., Anthony B. Petrelli and Golden Oil Company
dated November 28, 1990 (incorporated by reference from
Exhibit 4 to Form 8-K dated November 28, 1990).
10.6 Asset Purchase Agreement, dated April 5, 1991, by and between
Golden Oil Company, Cobb Resources Corporation and Chace Oil
Company, Inc. (incorporated by reference from Exhibit 10.13 to
Cobb Resources Corporation Form 10-K for the year ended June
30, 1991).
10.7 Shareholders Agreement, dated as of April 5, 1991, between
Golden Oil Company, Cobb Resources Corporation, Horace F.
McKay, Jr. George O. Lotspeich and Frank J. Yeager
(incorporated by reference from Exhibit 10.15 to Cobb
Resources Corporation Form 10-K for the year ended June 30,
1991).
10.8 Amendment No. 1 to Directors Agreement, dated as of April 5,
1991, between Golden Oil Company and Malcolm G. Colberg,
George O. Lotspeich, William J. Mayhew, Ralph T. McElvenny,
Jr., B. W. Miller, Anthony B. Petrelli and Frank J. Yeager
(incorporated by reference from Exhibit 10.17 to Cobb
Resources Corporation Form 10-K for the year ended June 30,
1991).
10.9 Amendment No. 1 to Asset Purchase Agreement, dated June 25,
1991, by and between Golden Oil Company, Cobb Resources
Corporation and Chace Oil Company, Inc. (incorporated by
reference from Exhibit 10.14 to Cobb Resources Corporation
Form 10-K for the year ended June 30, 1991).
10.10 Amendment No. 2 to Asset Purchase Agreement, dated as of
September 30, 1991, by and between Golden Oil Company, Cobb
Resources Corporation and Chace Oil Company, Inc.
(incorporated by reference from Exhibit 10.18 to Cobb
Resources Corporation 10-K for the year ended June 30, 1991).
39
10.11 Stock Purchase Agreement, dated October 16, 1992, by and
between Golden Oil Company, Cobb Resources Corporation, and
Charles Cobb IV (incorporated by reference from Exhibit 10.11
to Form 10-K for the year ended December 31, 1992).
22.1 SUBSIDIARIES OF THE COMPANY (filed herewith).
40
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Additions Charged to
Balance at Charged to Other Balance
Beginning Costs and Accounts Deductions at End of
Description Of Period Expenses Describe Describe (1) Period
----------- --------- -------- -------- ------------ ------
Year Ended December 31, 1993
Allowance for doubtful
<S> <C> <C> <C> <C> <C>
accounts ...................... $37,840 14,523 -- -- $52,363
======= ======= ======= ======= =======
Year Ended December 31, 1994
Allowance for doubtful
accounts ...................... $52,363 37,000 -- -- $89,363
======= ======= ======= ======= =======
Year Ended December 31, 1995
Allowance for doubtful
accounts ...................... $89,363 -- -- (16,245) $73,118
======= ======= ======= ======= =======
</TABLE>
_______________
(1) Accounts written off, net of recoveries and allowance adjustment.
41
GOLDEN OIL COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GOLDEN OIL COMPANY
Date: By:
-------------------------------------
Ralph T. McElvenny, Jr., Director
Chief Executive Officer
By:
------------------------------------
Jeffrey V. Houston
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date: By:
------------------------------------
Darryl L. Emmert, Director
Date: By:
-------------------------------------
Ralph T. McElvenny, Jr., Director
Date: By:
-------------------------------------
Frank J. Yeager, Director
42
GOLDEN OIL COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GOLDEN OIL COMPANY
Date: April 15, 1995 By: /S/RALPH T. MCELVENNY, JR.
---------------------------
Ralph T. McElvenny, Jr., Director
Chief Executive Officer
By: /S/ JEFFREY V. HOUSTON
---------------------------
Jeffrey V. Houston
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date: April 15, 1995 By: /S/ DARRYL L. EMMERT
---------------------------------
Darryl L. Emmert, Director
Date: April 15, 1995 By: /S/ RALPH T. MCELVENNY, JR.
---------------------------------
Ralph T. McElvenny, Jr., Director
Chief Executive Officer
Date: April 15, 1995 By: /S/ FRANK J. YEAGER
-----------0---------------------
Frank J. Yeager, Director
43
Exhibit 22.1
GOLDEN OIL COMPANY
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------ ----------------------
Golden Oil Holding Corporation Delaware
Golden Resources, Inc. Delaware
Regal Petroleum, Ltd. Delaware
Spur Petroleum, Inc. Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 67,559
<SECURITIES> 24,264
<RECEIVABLES> 388,695
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 509,785
<PP&E> 6,681,069
<DEPRECIATION> (3,454,413)
<TOTAL-ASSETS> 3,943,770
<CURRENT-LIABILITIES> 1,482,928
<BONDS> 0
0
0
<COMMON> 14,466
<OTHER-SE> 2,272,623
<TOTAL-LIABILITY-AND-EQUITY> 3,943,770
<SALES> 1,245,986
<TOTAL-REVENUES> 1,279,501
<CGS> 814,841
<TOTAL-COSTS> 1,755,287
<OTHER-EXPENSES> 65,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,416
<INCOME-PRETAX> (573,177)
<INCOME-TAX> 0
<INCOME-CONTINUING> (573,177)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (573,177)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
