SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 Commission File No. 2-71175
Double River Oil & Gas Co.
(Exact name of registrant as specified in its charter)
Texas 75-1729359
State or other jurisdiction of incorporation (I.R.S. Employer or I.D.#)
organization)
9319 LBJ, Frwy., #205, Dallas, Tx 75243
(Address of principal executive (Zip Code)
offices)
Company's telephone number, including area code: (214) 644-2581
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock-No par value
(Title of Class)
Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
As of March 29, 1996, 18,301,158 shares of the Company's common stock were
issued and outstanding, and the aggregate market value of the voting stock held
by non-affiliates of the company as of that date is not determinable since no
significant public trading market has been established for the Company's common
stock.
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PART I
Item 1. Business
(a) General Business Development
Double River Oil & Gas Co. is engaged in domestic exploration, development and
production of oil and natural gas. The Company is currently seeking financing to
obtain necessary permits and licenses to operate in Kazakhstan, and continues to
conduct engineering and feasibility studies on its Kazakhstan projects and other
possible ventures in Kazakhstan and other former Russian countries. Beginning in
1995, the Company has concentrated its efforts on oil and natural gas projects
in the Republic of Kazakhstan. Unless the context requires otherwise, as used
herein the term "Company" refers to Double River Oil & Gas Co., its subsidiary,
Perm Corporation and/or its previous subsidiary, Loch Exploration, Inc. (Loch).
The Company's principal executive office is located at 9319 LBJ Freeway, Suite
205, Dallas, Texas 75243. The telephone number is (214) 644-2581.
Background
The Company is a Texas Corporation and was originally incorporated in Texas as
Melton Drilling and Exploration Company on October 20, 1980. The Company was
later reorganized under Chapter 11 of the Bankruptcy Code, the Bankruptcy Court
approving the plan of reorganization on December 19, 1988. The name was changed
to Double River Oil & Gas Co. at that time. The Plan of Reorganization was
proposed and funded by Paul E. Cash.
On March 22, 1989, the Company entered into an agreement to acquire controlling
interest in Loch upon Loch's reorganization under Chapter 11 of the United
States Federal Bankruptcy Code. The Loch reorganization plan was confirmed by
the bankruptcy court on December 31, 1989. The Company acquired approximately
49,790,000 common shares of Loch in exchange for $35,000 in cash and rental
equipment valued at $50,000. Loch's total assets, after completion of the
reorganization, consisted primarily of the $85,000 in cash and equipment
contributed by the Company.
Recent Developments
In February 1994, Mr. Cash purchased all of the shares of Loch owned by the
Company for $40,000, and Loch ceased to be a subsidiary of the company.
In February, 1994, Mr. Cash purchased from the Company all of its shares held in
treasury (513,333 shares) for the original cost to the Company of $17,494.
Concurrently, Mr. Cash also purchased 2,153,333 shares of the Company's
previously unissued common stock for $64,600.
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Effective March 1, 1994 Mr. Cash, who was the majority shareholder of the
Company (owning more than 80% of the outstanding common shares) sold control of
Double River Oil & Gas Co. to Mr. Paul M. O'Connor (Mr. O'Connor) in return for
Mr. O'Connor tendering an executed protocol for an oil and gas project in The
Commonwealth of Independent States ("CIS"), having a potential minimum oil
recovery of twenty-five million barrels. The CIS is made up of countries that
were formerly part of the Soviet Union (Russia).
The Company arranged a shareholders meeting on May 2, 1994, to recapitalize the
Company. Items approved at the shareholders meeting included a one for thirty
reverse split of the common shares outstanding; authorization of 50,000,000
shares of no par value common stock and amendment of the by-laws to allow for a
maximum of ten members on the Board of Directors. During 1995, the Company's
efforts were concentrated on seeking additional financing for its international
projects, and revising its development plans in Kazakhstan. In consultation with
Kazakhstan representatives, it was decided to end the Karazambas field project,
and instead attempt to finance and build a refinery on the eastern side of the
Caspian Sea. Plan of Operation
The Company has recently changed its plan of operation, and now intends to
concentrate on oil and gas development projects in International areas,
particularly in countries that were formerly part of the Soviet Union. At
present, the Company and its subsidiary, Perm Corporation, are pursuing plans to
finance and develop one major and one minor oil fields in the Republic of
Kazakhstan. As part of its Kazakhstan development program, the Company is also
investigating the possibility of moving an oil refinery to Kazakhstan.
The Company believes that there are a number of existing opportunities to
exploit previously discovered oil or gas reservoirs in the former Soviet Union,
but that the projects generally require large amounts of outside capital,
improvements to, or creation of local infrastructure, and the application of
western countries technology and "Know How". The Company believes that it can
attract the necessary capital to successfully exploit a number of these
opportunities, beginning with the ones it is currently pursuing in Kazakhstan.
Preliminary capital requirements for the Buzachi and Zhelankabak projects total
approximately $20,000,000 and $3,000,000, respectively and the Company's
ultimate success will be entirely dependent on its ability to raise such funds.
The Company has experienced difficulty in locating and obtaining a feasible
market outlet for any large amounts of crude oil that might be produced from a
large Kazakhstan oil development project. Mangistaumanaigaz, a Kazakhstan
regional oil company, has indicated in late 1995 negotiations that the Company's
large development project (Buzachi Field) may not go forward until a solution is
found for the oil market outlet problem. Accordingly, the Company has now
proposed that a small to medium sized oil refinery be acquired, transported to
and erected in the general area of proposed operations. The Company has recently
entered into an agreement with a Houston-based engineering firm to locate and
assist in such a project. Financing such a refinery and moving it to Kazakhstan
for erection and operation may require as much as $75,000,000 to $100,000,000.
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The Company is presently pursuing a number of possible sources of capital needed
to complete engineering work and begin early development of some of its
international projects. At present, negotiations are being conducted with a
major New York Investment Banking Firm who has expressed an interest in
partially financing such projects. There is no assurance that such negotiations
will be successful, or that sufficient funds will be raised to completely carry
out the proposed Kazakhstan projects.
If additional financing can be obtained, the Company intends to continue some
domestic oil and gas exploration and production through exploration and
development of leases it owns and will acquire. The Company will attempt to
increase domestic production and reserves through exploration and development as
well as reworking existing wells, but this part of the Company's operation is
expected to be relatively small in relation to its overall operations.
(b) Financial information relating to Industry Segments
Prior to 1994, the company had three identifiable business segments:
exploration, development and production of oil and natural gas; oil field
equipment rental; and marketing of natural gas. Footnote 13 to the Consolidated
Financial Statements filed herein sets forth the relevant information regarding
revenues, income from operations and identifiable assets for these segments.
The Company sold its gas compression equipment and discontinued its gas
marketing business during 1994. For the immediate future, the Company does not
anticipate that it will have revenues or earnings from equipment rentals or gas
marketing sales.
(c) Narrative Description of Business
The Company is presently engaged in the exploration, development and production
of domestic oil and natural gas, but the company is currently concentrating its
efforts on financing in order to develop one or more of its oil field projects
in the Republic of Kazakhstan as discussed under plan of operation.
(i) Principal Products, Distribution and Availability.
The principal domestic products currently marketed by the Company are crude oil
and natural gas which are sold to major oil and gas companies, brokers,
pipelines and distributors, and oil and gas properties which are acquired and
sold to oil and gas development entities. Reserves of oil and gas are depleted
upon extraction, and the Company is in competition with other entities for the
discovery of new prospects.
The Company anticipates that its principal products from Kazakhstan operations,
if successful, will continue to be crude oil, and to a lesser extent natural
gas. The Company believes that such products will be sold to international or
major oil and gas companies, brokers, pipelines, and distributors. Some products
may be sold to Government entities, Government owned pipelines, Governmental
marketing agencies, or used in operations. The Company is also exploring
alternative transportation plans or routes to move its expected volumes of
production to markets outside Kazakhstan or Russia. Recently, the Company has
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entered into an agreement with a Houston-based engineering firm to form a joint
venture which will seek to establish an oil refinery on the Western side of the
Caspian Sea in Kazakhstan, near the Company's proposed oil development area.
(ii) Patents, Licenses and Franchises.
Domestic oil and gas leases of the Company are obtained from the owner of the
mineral estate. The leases are generally for a primary term of 1 to 5 years, and
in some instances as long as 10 years, with the provision that such leases shall
be extended into a secondary term and will continue during such secondary term
as long as oil and gas are produced in commercial quantities or other operations
are conducted on such leases as provided by the term of the leases. It is
generally required that a delay rental be paid on an annual basis during the
primary term of the lease unless the lease is producing. Delay rentals are
normally $1.00 to $5.00 per net mineral acre.
The Company's Kazakhstan operations will be conducted pursuant to joint venture
agreements with appropriate Kazakhstan Government oil and gas agencies that
currently have jurisdiction. The Company has previously entered into "Protocol
Agreements" with these agencies, and is currently seeking Governmental approval
for the necessary permits and licensing required to operate a production sharing
arrangement with the appropriate oil and gas production agencies in Kazakhstan.
The Company expects that the ventures will be conducted pursuant to a
"production sharing" agreement, whereby the company recovers its initial capital
investment out of production revenues, and thereafter will receive a portion of
the proceeds or profits from production. The Company's permits and licenses will
be expected to set forth in detail amounts of taxes, fees, and other deductions
to be paid to Kazakhstan agencies and/or taxing authorities.
(iii) Seasonality.
The Company's domestic oil and gas activities generally are conducted on a year
round basis with only minor interruptions caused by weather.
Temperatures in the Kazakhstan area of operation range from over 100 degrees in
summer to well below freezing in winter months; portions of the Caspian Sea and
Navigable river ways in the area freeze up in winter, and may cause the
Company's operations to be curtailed, particularly if the Company transports oil
to market by barge or small ship.
(iv) Working Capital Items.
Historically, the Company has financed the majority of its operations, including
the purchase of oil and gas leases, the development of wells, the construction
of pipelines and acquisition of oil field rental equipment from its internal
working capital as well as borrowings.
The Company plans to conduct large scale operations in Kazakhstan as soon as
financing is available to begin development of one or more of its planned
projects. A number of possible sources of financing are presently being pursued,
and negotiations are currently being conducted with a major New York investment
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banking firm who has expressed an interest in investing in the Company and/or
its proposed projects in Kazakhstan. The Company would also require additional
capital to completely fund the proposed development projects in Kazakhstan.
Needed capital is expected to be in the range of $3,000,000 to $23,000,000 for
the first oil development project, and $75,000,000 to $100,000,000 for a
refinery. Such funds would have to be provided from the sales of additional
securities, borrowings, the sale of interests in one or more of the Kazakhstan
projects, or similar methods.
(v) Dependence on Customers.
The following is a summary of significant purchasers of the oil and natural gas
produced by the Company for the three year period ended December 31, 1995:
<TABLE>
<CAPTION>
Purchaser December 31,
Percent (1)
------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Lone Star Gas Company and
Affiliates -% 48% 37%
Texas Utilities Fuel Co. 36 36 16
Empire Pipeline Corporation 12 -- 5
Mitchell Marketing Co. 25 -- --
Tristar Gas Company 21 -- --
U.S. Gypsum Company -- -- 20
</TABLE>
(1) Percent of total oil and gas revenues
The Company heretofore has had term gas sale contracts with Lone Star Gas
Company. These contracts did not provide that the purchaser take any minimum
quantities of gas produced. To the extent that Lone Star has not been able to
take all of the gas produced, the Company has sold such excess gas to Enserch
Gas Co., an affiliate of Lone Star, or others under special marketing programs
or on the spot market. The Lone Star contracts expired on March 30, 1995, and
the Company has contracted to sell such gas under new contracts with two
different purchasers for periods ranging from nine months to three years. New
contract prices range from $1.66 per MMBTU to $1.75 MMBTU
Sales of natural gas to Texas Utilities Fuel Company ("TUFCO") are pursuant to
contracts expiring in 1994 through 1999. Such contracts are take or pay
contracts which require the purchaser to take minimum quantities of natural gas,
or pay for such minimum quantities not actually taken. TUFCO has in the past
purchased at least such minimum quantities.
The Company has not yet fully determined what its marketing arrangements will be
for its expected production in Kazakhstan.
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(vi) Competition.
Numerous entities and individuals, many of whom have far greater financial and
other resources than the Company, are active in the exploration for and
production of oil and gas. Substantial competition exists for leases, prospects
and equipment, all of which are necessary for successful operations. Domestic
competition is focused primarily on the discovery of new prospects which can be
developed and made productive, whereas international competition is active in
every phase of the business; exploration, production, and marketing.
The market prices received for the Company's products depend on a number of
factors beyond the control of the Company, including consumer demand, worldwide
availability of similar and competitive products, availability and costs of
transportation facilities, and United States and foreign government regulation
of exports, imports, production and prices. Fluctuating prices for oil and gas
have a direct effect on the profitability of the Company's operations.
(vii) Development Activities.
Historically, the Company's primary oil and gas prospect acquisition and
development efforts have been in known producing areas in the United States with
emphasis devoted to Texas. It is now expected that these domestic operations
will become a minor part of the Company's future development activity.
Exploration for oil and gas within the United States is normally conducted with
the Company acquiring undeveloped oil and gas prospects, and carrying out
exploratory drilling on the prospect with the Company retaining an interest in
the prospect. Also, portions may be sold to third parties with the Company
retaining an overriding royalty interest, carried working interest, or
reversionary interest. A prospect is a geographical area designated by the
Company for the purpose of searching for oil and gas reserves and reasonably
expected by it to contain at least one oil or gas reservoir. The Company
heretofore has utilized its own funds or loans to acquire oil and gas leases
covering the lands comprising the prospects. These leases are selected by the
Company and are obtained directly from the landowners, as well as from landmen,
geologists, other oil companies, some of whom may be affiliated with the
Company, and by direct purchase, farm-in, or option agreements. After an initial
test well is drilled on a property, any subsequent development of such prospect
will normally require the Company's participation for the development of the
discovery.
Double River Oil and Gas Company's current business strategy is now to develop
and operate oil and gas fields in the former Soviet Union and to establish
itself as a leading independent oil and gas operator in the former Soviet Union.
As soon as financing becomes available and subject to a number of other factors,
the Company plans to initiate development drilling activities in the Severne
Buzachi oil field or Zhelankabank oil fields in Kazakhstan. Major factors
affecting these activities are: the necessity of raising large amounts of
capital, the continuance of a favorable political climate in the CIS, the
international price of oil and gas, the availability of trained personnel and
equipment, successful conclusion of engineering studies, licensing and
permitting in Kazakhstan and the establishment of a feasible market outlet for
any large amounts of crude oil that
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might be produced.
The Company has recently entered into agreement with a small Kazakhstan joint
stock company to initially develop a much smaller oil field in the Zhelenkabak
Field, located in the Atyray Region of the Republic of Kazakhstan (an area north
of the Caspian Sea). Such development is expected to cost in the range of
$2,500,000 to $3,000,000, and would allow the Company to begin operations in
Kazakhstan on a much smaller basis than would be required to develop one or more
bigger projects. The Company has not yet secured the necessary financing for
this project, and only preliminary work has been done on reserves, engineering,
and other important factors.
(viii) Environmental Regulation.
The Company's domestic oil and gas exploration and production activities are
subject to Federal, State and local environmental quality and pollution control
laws and regulations. Such regulations restrict emission and discharge of wastes
from wells, may require permits for the drilling of wells, prescribe the spacing
of wells and rate of production, and require prevention and clean-up of
pollution.
The Company expects that its Kazakhstan operations will also be subject to
various Kazakhstan or other international pollution control laws and regulations
that may be similar to domestic laws and regulations.
Although the Company has not in the past incurred substantial costs in complying
with such laws and regulation, future environmental restrictions or requirements
may materially increase the Company's capital expenditures, reduce earnings, and
delay or prohibit certain Company activities. However, such restrictions and
requirements would also apply to the Company's competitors, and it is unlikely
that compliance by the Company would adversely affect the Company's competitive
position.
(ix) Additional Government Regulation.
In addition to environmental regulations, the domestic production and sale of
oil and gas is subject to regulation by Federal, State and local governmental
authorities and agencies. Such regulations encompass matters such as the
location and spacing of wells, the prevention of waste, the rate of production,
the sale price of certain oil and gas, conservation, and safety.
The Company's international operations will be subject to even more regulation
than its domestic operations. The Company's entire plan of operations,
financing, drilling, producing, marketing, and division of profits will be
subject to extremely close regulation by various Kazakhstan governmental
agencies. Marketing and transportation of products is expected to be through
other CIS countries, including Russia, and each of these separate countries may
regulate prices, tariffs, taxes, transportation, and similar items.
(x) Tax Provisions.
See Footnote 4 to Consolidated Financial Statements
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(xi) Employees.
The Company currently employs only Mr. O'Connor, who is a full-time employee.
(d)Financial information about foreign and domestic operations and export sales.
All of the Company's business is currently conducted domestically, with no
export sales. In 1996 or 1997, the Company expects that a majority of its
business will consist of oil and gas sales from the Republic of Kazakhstan to
world markets outside of Kazakhstan, or to local consumers within Kazakhstan.
Item 2. Properties.
Domestic Oil and Gas Properties.
The following table sets forth pertinent data with respect to the Company-owned
oil and gas properties, all located within the continental United States, as
estimated by the Company:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Gas and Oil Properties (net) (1):
Proved Developed Gas
Reserves-Mcf (2) 148,000 131,000 376,000
Proved Undeveloped Gas
Reserves-Mcf (3) 40,000 39,000 106,000
Total Proved Gas
Reserves-Mcf 188,000 170,000 482,000
Proved Developed Crude
Oil and Condensate
Reserves-Bbls (2) 1,000 1,000 19,000
Proved Undeveloped Crude
Oil and Condensate
Reserves-Bbls (3) -- -- --
Total Proved Crude
Oil and Condensate
Reserves-Bbls 1,000 1,000 19,000
</TABLE>
(See footnotes on Page 11)
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<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Present Value of
Estimated
Future Net Revenues
From Proved Reserves
(4) (5):
Developed $109,000 $ 96,000 $282,000
Developed and
Undeveloped $127,000 $111,000 $338,000
Productive Wells (6):
Gas Wells:
Gross 34 34 92
Net 7.14 7.14 19.51
Oil Wells:
Gross 1 1 63
Net .15 .15 2.75
Acreage:
Developed Acres
(Producing):
Gross 3,258 3,258 17,821
Net 824 824 3,425
Undeveloped
Acres:
Gross -- -- --
Net -- -- --
</TABLE>
(See footnotes on Page 11 following)
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Footnotes:
(1) The estimate of the net proved oil and gas reserves.
(2) "Proved Developed Oil and Gas Reserves" are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods.
(3) "Proved Undeveloped Reserves" are reserves that are expected to be recovered
from new wells on un-drilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion.
(4) "Estimated Future Net Revenue" is computed by applying current prices of oil
and gas, less the estimated future expenditures (based on current costs) to be
incurred in developing and producing the proved reserves.
(5) "Present Value of Estimated Future Net Revenues" is computed by discounting
the Estimated Future Net Revenues at the rate of ten percent (10%) per year in
accordance with the Securities and Exchange Commission Rules and Regulations.
(6) Wells having multiple completions are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
Gross Net Gross Net Gross Net
------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gas 8 2.98 8 2.98 8 1.37
Oil -0- -0- -0- -0- -0- -0-
</TABLE>
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The following tables set forth additional data with respect to production from
Company-owned oil and gas properties, all located within the continental United
States:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Oil and Gas Production
(net):
Gas-Mcf 34,623 38,296 53,000
Crude Oil and
Condensate - Bbls 183 245 1,000
Average Sales Price Per
Unit Produced:
Gas - per Mcf 2.48 2.48 1.85
Crude Oil and
Condensate - per Bbl 16.80 15.82 16.58
Average Production Cost
Per equivalent barrel
(1) (2) 10.75 11.60 11.99
</TABLE>
(1) Includes severance taxes and ad valorem taxes.
(2) Gas production is converted to equivalent barrels at the rate of six
mcf per barrel, representing the estimated relative energy content of natural
gas to oil.
The Company owns producing royalties and overriding royalties under
properties located in Texas. The revenues from these properties are not
significant.
Current Activities - March 29, 1996.
Gross Wells in Process of Drilling -0-
Net Wells in Process of Drilling -0-
Waterfloods in Process of Installation -0-
Pressure Maintenance Operations -0-
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The Company is not aware of any major discovery or other favorable or adverse
event that is believed to have caused a significant change in the estimated
proved domestic reserves since December 31, 1995, except for the sale with
option to repurchase of two of the companies gas properties in early 1996. See
item 13(a)
International Oil and Gas Projects
The Company has recently acquired or entered into "Protocol Agreements" with
appropriate oil and gas agencies of the Kazakhstan government to develop and
operate the Buzachi oil field on the eastern edge of the Caspian Sea in Western
Kazakhstan. There have been limited engineering studies performed for the
Buzachi field project.
(a) Severne Buzachi Field:
A consultant for the Company has examined certain preliminary information
furnished by Kazakhstan oil and gas agencies and has made preliminary estimates
of oil and gas reserves for the Severne Buzachi project. The Company believes
that it will ultimately receive a portion of the proceeds from the reserves and
production from this field, and preliminary estimates of the Company's interest
is based on this assumption. Over 100 exploratory wells have been drilled to
test this field, and Kazakhastan agencies and the Company's consultant have
indicated oil in place may approximate 1.54 billion barrels. Rough estimates of
gross recoverable oil are 185,000,000 barrels by primary means, with an
additional 185,000,000 barrels that may be recoverable by secondary recovery
methods.
(b) Karazhanbas Field:
In early 1995, the Company also entered into an agreement to develop the
Karazhanbas field (south of the Buzachi field), but by mutual agreement with
Kazakhstan oil agencies, it has now been decided to discontinue the Company's
efforts to develop this field.
(c) Zhelankabak Field
The Company has entered into a preliminary agreement with a private oil company
in Kazakhstan to develop a small shallow onshore oilfield. The Zhelankabak field
is licensed and registered to a Kazakh company, "SANAKO", whose principals are
former managers of Kazakh oil production enterprises. The field is represented
to have an export license and export quota which provides access to the limited
export pipeline capacity. Development of the field is estimated to cost
approximately $2,500,000 to $3,000,000. The field currently has 12 wells and
will need approximately 40 more wells for full development.
The Company is currently reviewing well data and evaluating the reserves and
licenses before committing to this project. Preliminary information indicates
that the field may have as much as 9,000,000 barrels of recoverable reserves.
The Company does not currently have sufficient financing in place to complete
this project.
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Oil Field Production Equipment
The Company owned oil field rental equipment, which was sold to Mr. Cash upon
change in control in 1994. The equipment was located on oil and gas properties
in which the company owned a working interest. The rental fees were charged as
lease operating fees to each property and each owner.
The Company does not own any production equipment on the Kazakhstan properties.
Item 3. Legal Proceedings
Neither the Company nor its subsidiary nor any officers or directors is a party
to any material pending legal proceedings nor are any of their properties
subject to any such proceedings.
Item 4. Results of Votes of Security Holders
In May, 1994, the company's shareholders approved the following actions:
(1) The company's authorized capital was changed to 50,000,000 shares of
no par value common stock.
(2) A 1 for 30 reverse stock split was approved.
(3) Ratification of the agreement with Paul M. O'Connor, and the
issuance of additional shares of stock to Mr. O'Connor upon
successful acquisition of an international oil venture in excess of
25,000,000 barrels, and approved the employment agreement with Mr.
O'Connor.
(4) Approval of the sale of controlling interest in Loch to Paul E.Cash.
(5) Approved the sale of the Company's gas compressor and certain
leasehold interests to Paul E. Cash.
(6) Election of new directors for the company.
The Company did not have a meeting of shareholders during 1995.
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PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters.
(a) Market Information.
No significant public trading market has been established for the Company's
common stock. The common stock of the Company is traded on an occasional basis
by dealers in the over the counter market, the terms of which are not completely
available to the Company. The Company does not believe that listings of bid and
asking prices for its stock in the pink sheets are indicative of the actual
trades of its stock, since trades are made infrequently. There is no amount of
common stock which is subject to outstanding options or warrants to purchase, or
securities convertible into, common stock of the Company.
(b) Holders
The approximate number of record holders of the Company's Common Stock on March
29, 1996, was 1,965.
(c) Dividends
The Company has not paid any dividends since its organization and it is not
contemplated that it will pay any dividends on its common stock in the immediate
future. Future dividend policies will be determined by the Board of Directors,
and will be based on earnings, if any, and resources available at that time.
(d) Stock Transfers
The Company currently serves as its own stock transfer agent and registrar.
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Item 6. Selected Financial Data
The selected financial information presented should be read in conjunction with
the consolidated financial statements and related notes thereto:
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total
Revenue $ 90,000 $ 99,000 $ 161,000 $ 157,000 $ 167,000
Loss from
continuing
operations (6,000) (18,000) (102,000) (101,000) (78,000)
Loss from
continuing
operations
per common
share .000 .000 .000 .000 .000
At End of
Period
- ------
Total Assets $ 107,000 $ 100,000 $ 348,000 $ 275,000 $ 271,000
Long-term
Debt -- -- 135,000 35,000 --
</TABLE>
Item 7. Management's discussion and analysis of financial condition and results
of operations.
Liquidity and Capital Resources
The Company's primary source of liquidity and capital resources has previously
consisted of cash flow provided by operating activities and by borrowings. The
Company will be required to raise additional capital to fund significant
expenditures. The Company will not be able to fund its proposed international
operations unless it is successful in offering shares of its common stock, other
securities or unless interests can be sold to other oil companies or investors
in such project(s) in amounts sufficient to fund proposed operations. The
Company is currently seeking financing from investors, investment bankers, or
third parties to finance its proposed international activities.
1995 Compared to 1994
Lease operating expenses decreased due to the sale of one well and an overall
decrease in operating expenses.
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1994 Compared to 1993
Oil and gas revenues and production expenses decreased due to sale of
majority-owned subsidiary.
General and administrative expenses decreased in 1994 primarily due to sale of
subsidiary and the one employee of the Company in 1993 resigned effective March
1, 1994.
1993 Compared to 1992
Oil and gas revenues increased $16,000 in 1993. This increase was primarily
attributable to acquisition of oil and gas properties in 1993.
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements, see index at page 24.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
The accountants for the Company are Farmer, Fuqua, Hunt and Munselle, P.C.
Certified Public Accountants, who have prepared the audit report for the year
ended December 31, 1993, and Ernst & Young LLP who have prepared the audit
reports for the years ended December 31, 1994 and 1995.
There have been no disagreements between the Company and Farmer, Fuqua, Hunt and
Munselle, P.C., or Ernst & Young, LLP, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
17
<PAGE>
Part III
Item 10. Directors and Executive officers of the Company
The present Directors and Executive Officers of the Company and certain
information concerning them is set forth below:
Name Age Position Position Held Since
- ----- ----- ---------- -------------------
Paul M. O'Connor 52 President and 3/94
Director
Paul E. Cash 63 Vice President 3/94
Secretary and
Director
Christopher S. Young 48 Vice President 3/96
Chief Operating
Officer
Dennis P. McGrath 48 Vice President 2/95
Finance
William H. Lang, Jr. 63 Vice President 2/95
Exploration
Paul M. O'Connor, Chairman of the Board, and President/CEO of the Company. Mr.
O'Connor attended Louisiana Tech University majoring in Business Administration.
His background includes extensive U.S. and international experience as both
executive and/or owner of a drilling business and oil and gas exploration and
production ventures. He started his career in the offshore drilling business in
1969 with Reading & Bates and in 1984 he entered in the upstream oil and gas
business in the Gulf Coast Area. He has also served on the Board of Directors of
a regional investment banking firm. O'Connor co-founded and served as President
and Director of O'Connor and Young Drilling Company and was a co-founder and
Director of Siberian American Limited Liability Co. and served as Chairman of
the Russian Joint Enterprise, one of the early oil joint ventures in Russia.
Since 1990, Mr. O'Connor has specialized in joint oil ventures which seek to
develop and produce oilfields in republics of the former Soviet Union.
Paul E. Cash, Vice President, Secretary, and Director of the Company. Mr. Cash,
a Certified Public Accountant, is a graduate of the University of Texas with a
B.B.A. in Accounting. He has been active in the oil and gas industry for over
thirty years, during which time he has served as president or financial officer
for a number of publicly owned companies. During the past 25 years, Mr. Cash has
also been an officer and part owner of a number of private oil and gas companies
and/or partnerships. He is currently serving as president and director of
Spindletop Oil and Gas Company, and is also an officer and director of Loch
Exploration, Inc.
Christopher S. Young, Vice President and Chief Operating Officer of the Company.
Mr. Young is a graduate of the University of Texas with an MBA in Finance and a
BS in Mechanical Engineering. Mr. Young was formerly President and Chief
Executive Officer of Siberian American Limited Liability Company, the American
partner in a Russian Joint Enterprise engaged in oil and gas development in
18
<PAGE>
Western Siberia. He began his career in the oil industry in 1971 as a drilling
engineer with SEDCO, Inc. From 1974 until 1977, Mr. Young was engaged in
international contract drilling and oil and gas development with Field
International Drilling Company. In 1977, he co-founded O'Connor & Young Drilling
Company, serving as Chairman and CEO of that company until 1987. Recognizing the
impending opportunities in the Soviet Union, Mr. Young joined Scott European
Corp. a trading company representing U.S. companies doing business in the Soviet
Union, in 1987 as an oil industry specialist. He co-founded SIAMCO in 1991, and
eventually sold his interest to Pennzoil Company.
Dennis P. McGrath, Vice President of Finance. Mr. McGrath is a Certified Public
Accountant with 19 years of accounting and managerial experience in the oil and
gas industry with both major and independent companies.For the last eight years
he has been a partner in a Houston public accounting firm with a significant
number of oil and gas industry clients. He graduated with a B.S. Degree in
Accounting and an M.B.A. in Accounting and Taxation from Fairleigh Dickinsan
University. Mr. McGrath is a member of the American Institute of Certified
Public Accountants and the Texas Society of Certified Public Accountants.
William H. Lang, Jr., Vice President of Exploration. After graduating from the
Colorado School of Mines with a degree in Geological Engineering in 1954, Mr.
Lang served in the U.S. Army Corps of Engineers. His career in oil and gas
exploration, production, and evaluation was spent with a number of major and
large independent oil and gas companies. They include:Cities Service, Belco
Petroleum, Union Oil Company of California, Superior Oil Company, and Texas
Eastern. Responsibilities included petrophysical and geological exploration and
evaluations along the Texas and Louisiana Gulf Coast, California, Rocky
Mountains, Alaska, Peru, Indonesia, Thailand, Australia, Nigeria, and Dahomey.
From 1987 through 1993, Mr. Lang was Vice President of Exploration for O'Connor
and Young Drilling Company and Siberian American. Experience includes field
development in Western Siberia and extensive geological evaluations in other
parts of Russia, Turkmenistan, Uzbekistan, and Kazakhstan. He is the author of
numerous professional papers. Mr. Lang is a member of the American Association
of Petroleum Geologists and of the Society of Professional Well Log Analysts.
Item 11. Executive Compensation
(a) Cash compensation
For the year ended December 31, 1995 and 1994, none of the Company's executive
officers were paid cash compensation at an annual rate in excess of $60,000.
(See information about deferred compensation to Paul M. O'Connor below).
(b) Compensation pursuant to plan
On April 13, 1989, the Company and Paul E. Cash entered into an Employment and
Compensation Agreement with Kyle D. Wood. The agreement provided Mr. Wood with
compensation for attaining various performance clauses. This agreement was
terminated in May 1993.
In March 1994, the Company entered into an employment agreement with Mr.
19
<PAGE>
O'Connor. The agreement provides for a five year term of employment, with
provisions for extension and cancellation, and for annual compensation of
$180,000, plus discretionary bonuses. Additionally, the Company has agreed to
provide a life insurance policy for Mr. O'Connor in the amount of $1,000,000
when sufficient working capital is available to pay such premiums.
Mr.O'Connor's salary is deferred and will not be earned or paid unless and until
the company successfully completes a significant financing plan for its proposed
Kazakhstan operations. At December 31, 1995, Mr. O'Connor's contingent salary
amount was $330,000.
(c) Other compensation
Mr. O'Connor will be permitted to participate in any existing or future pension,
profit-sharing, stock option or similar plan adopted by the Company.
(d) Compensation of Directors.
Directors are not currently compensated for their services on the board.
(e) Termination of Employment and Change of Control Arrangement.
There are no plans or arrangements for payment to officers or directors upon
resignation or a change in control of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) and (b) Security ownership of certain beneficial owners and management:
The following table sets forth information as of March 29, 1996, with respect to
any person who is known to management of the Company to be the beneficial owner
of more than five percent (5%) of the Company's outstanding Common Stock, the
shares of the Common Stock beneficially owned by each of the Company's Directors
and by all of the Company's Officers and Directors as a group.
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF
OWNER BENEFICIAL OWNERSHIP OF CLASS PERCENT
Paul E. Cash
9319 LBJ FRWY #205
Dallas, Texas 75243 1,277,685 7%
Paul M. O'Connor
4530 Oakshire
Houston, Texas 77027 12,261,000 67%
William Lang
1423 Devon
Houston, Texas 77058 1,830,000 10%
All officers and directors as a
group 15,734,685 86%
20
<PAGE>
(c) Changes in control.
Other than the change in control as discussed in Item 1., the Company is not
aware of any arrangements or pledges with respect to its securities which may
result in a change in control of the Company.
Item 13. Certain Relationship and Related Transactions
(a) Transactions with management and others.
The officers and employees of the Company may participate in the development of
leases owned by the Company. In the event such participation occurs it shall be
on the basis of the actual cost incurred by The Company.
The Company's domestic oil and gas properties are operated by Spindletop Oil and
Gas Co. Mr. Cash also owns substantial interests in these properties, and is an
officer, director, and controlling shareholder of Spindletop.
In July 1992, the Company entered into a Gas Purchase Agreement with Spindletop,
whereby the Company was entitled to purchase natural gas from Spindletop at a
price equal to 99% of the Company's resale price under certain sales contracts
between the Company and three independent purchasers. The agreement, which
contained provisions for early termination, was assigned effective March 1,
1994, to a related party.
Effective March 1, 1996, the Company entered into an agreement with Spindletop
Oil and Gas Co. and transferred ownership of two of its domestic oil and gas
properties to Spindletop for $14,000 in cash. These funds were used to pay
certain accrued expenses. Reserves attributable to these properties at December
31, 1995, were approximately 25% of the company's proved producing domestic gas
reserves.
The Company has the option, for a period of six months from March 1, 1996 to
repurchase such properties for $15,400.
(b) Certain business relationships.
Paul E. Cash is the majority owner, president and board member of Spindletop Oil
& Gas Co., (Spindletop) a publicly owned oil and gas company.
(c) Indebtedness of Management. None
21
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Report
1. All Financial Statements
Independent Auditors' Reports
Consolidated Balance Sheets at December 31, 1995 and 1994 Consolidated
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1995, 1994 and 1993 Consolidated Statements of
Cash Flows for the years
ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules required to be filed by Item 8 and
Paragraph (d) of this Item 14 All schedules have been omitted because
they are not applicable or required under the rules of Regulation S-X
or the information has been supplied in the consolidated financial
statements or notes thereto.
3. The Exhibits are listed in the index of Exhibits Required by Item 601
of Regulation S-K at Item (c) below and included at page 46.
(b) The Company filed a Form 8-K on October 24, 1994. This Form 8-K described
the acquisition of Development rights to the Severne Buzachi Oil field in the
Republic of Kazakhstan. The Form also described the estimated oil reserves in
such field, and the consideration to be paid to Perm Corporation (a Texas
corporation) and its investors for such acquisition.
The Form also disclosed that the escrow agreement with Mr. Paul M. O'Connor
had been fulfilled, and shares of the Company's common stock due to Mr.
O'Connor were delivered to him under terms of the escrow agreement.
(c) The Index of Exhibits is included following the Financial Statements
beginning at page 46.
(d) The Index to Consolidated Financial Statements is included following
the signatures beginning at page 24 of this Report.
22
<PAGE>
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.
DOUBLE RIVER OIL & GAS CO.
Dated: April 14, 1996
By Dennis P. McGrath
Dennis P. McGrath
Vice President - Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following on behalf of the Company and in the
capacities and on the dates indicated.
Signatures Capacity Date
Principal Executive Officers:
Paul M, O'Connor Chief Executive Officer April 14, 1996
------------------
Paul M. O'Connor President, Director
Paul E. Cash April 14, 1996
------------------
Paul E. Cash Vice-President, Secretary,
Director
Principal Financial Officer:
Dennis P. McGrath Vice President - Finance April 14, 1996
- --------------------
Dennis P. McGrath
23
<PAGE>
DOUBLE RIVER OIL & GAS CO. AND SUBSIDIARY
Index to Consolidated Financial Statements and Schedules
Page
------
Independent Auditors' Reports...........................................25
Consolidated Balance Sheets - December 31, 1995
and 1994..............................................................28
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993..........................30
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1995, 1994 and
1993..................................................................31
Consolidated Statements of Cash Flows for
the years ended December 31, 1995, 1994 and 1993......................32
Notes to Consolidated Financial Statements..............................33
All schedules have been omitted because they are not applicable, not required,
or the information has been supplied in the consolidated financial statements or
notes thereto.
24
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Double River Oil & Gas Co.
We have audited the accompanying consolidated balance sheets of Double River Oil
& Gas Co. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Double
River Oil & Gas Co. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
April 1, 1996
Houston, Texas
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Double River Oil & Gas Co.
We have audited the accompanying consolidated statements of operations, changes
in shareholders' equity and cash flows of Double River Oil & Gas Co. (a Texas
corporation) and subsidiary for the year ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the financial
statements of Loch Exploration, Inc., a majority-owned subsidiary, which
statements reflect total revenues of approximately $110,000 for the year ended
December 31, 1993. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for Loch Exploration, Inc., is based solely on the report of the other
auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidates financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated results of operations and cash flows of
Double River Oil & Gas Co. and subsidiary for the year ended December 31, 1993
in conformity with generally accepted accounting principles.
26
<PAGE>
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
index of consolidated financial statements are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. The schedules for the year ended
December 31, 1995 has been subjected to the auditing procedures applied in the
audit of the basic, consolidated financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
Successor to the practice of Carter, Munselle & Morrow, P.C.
Dallas, Texas
March 24, 1994
27
<PAGE>
DOUBLE RIVER OIL & GAS CO. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
ASSETS 1995 1994
---------- -----------
<S> <C> <C>
Current Assets
Cash $ 8,000 $ 7,000
Receivable from affiliate 2,000 3,000
--------- ---------
Total Current Assets 10,000 10,000
--------- ---------
Property and Equipment
Oil and gas properties (full cost
method) 148,000 135,000
Unevaluated projects in Kazakhstan 43,000 37,000
--------- ---------
191,000 172,000
Accumulated depreciation and
amortization (94,000) (82,000)
--------- ---------
97,000 90,000
--------- ---------
TOTAL ASSETS $ 107,000 $ 100,000
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE>
DOUBLE RIVER OIL & GAS CO. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS-Continued
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
----------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
liabilities $ 30,000 $ 19,000
Payable to affiliate 3,000 1,000
--------- ---------
Total Current Liabilities 33,000 20,000
--------- ---------
Shareholder loans 16,000 16,000
Commitments and contingencies -- --
Shareholders' Equity
Common stock, no par value;50,000,000
shares authorized;18,301,158
issued at December 31, 1995 and 1994,
respectively 206,000 206,000
Accumulated deficit (148,000) (142,000)
--------- ---------
58,000 64,000
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 107,000 $ 100,000
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE>
DOUBLE RIVER OIL & GAS CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Oil and gas revenues $ 90,000 $ 99,000 $ 151,000
Lease operating income -- -- 2,000
Other -- -- 8,000
------------ ------------ -----------
90,000 99,000 161,000
------------ ------------ -----------
Expenses
Severance tax 6,000 6,000 6,000
Lease operating expenses 58,000 71,000 110,000
Depreciation and amortization 12,000 16,000 24,000
Interest expense -- -- 4,000
General and administrative 20,000 24,000 127,000
------------ ------------ -----------
96,000 117,000 271,000
------------ ------------ -----------
Loss before minority interest (6,000) (18,000) (110,000)
Minority interest in loss of
consolidated subsidiary -- -- 8,000
------------ ------------ -----------
LOSS FROM CONTINUING OPERATIONS (6,000) (18,000) (102,000)
Discontinued Operations:
Income from operations of
discontinued equipment rental
and gas marketing segments -- 10,000 58,000
------------ ------------ -----------
NET LOSS $ (6,000) $ (8,000) $ (44,000)
============ ============ ===========
LOSS FROM CONTINUING OPERATIONS
PER COMMON SHARE $ .000 $ .000 $ .000
============ ============ ===========
NET LOSS PER COMMON SHARE $ .000 $ .000 $ .000
============ ============ ===========
Weighted average shares
outstanding 18,301,158 12,293,938 2,318,151
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements
30
<PAGE>
DOUBLE RIVER OIL & GAS CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In
Shares Amount Capital
<S> <C> <C> <C>
Balance December 31, 1992 2,832,790 $ 85,000 $ 36,000
Change in investment in Loch Exploration, Inc. -- -- 7,000
Net Loss -- -- --
---------- -------- --------
Balance December 31, 1993 2,832,790 85,000 43,000
Common stock issued-prior to reverse split 2,153,333 65,000 --
Treasury stock issued -- -- --
Common stock issued after reverse split 13,315,035 13,000 --
Effect of change to no par value stock -- 43,000 (43,000)
Net Loss -- -- --
---------- -------- --------
Balance December 31, 1994 18,301,158 206,000 --
Net Loss -- -- --
---------- -------- --------
Balance December 31, 1995 18,301,158 $206,000 $ --
========== ======== ========
Accumulated Treasury
Deficit Stock
--------- ---------
<S> <C> <C>
Balance December 31, 1992 $ (90,000) $(17,000)
Change in investment in Loch Exploration, Inc. -- --
Net Loss (44,000) --
--------- ---------
Balance December 31, 1993 (134,000) (17,000)
Common stock issued-prior to reverse split -- --
Treasury stock issued -- 17,000
Common stock issued after reverse split -- --
Effect of change to no par value stock -- --
Net Loss (8,000) --
---------- --------
Balance December 31, 1994 (142,000) --
Net Loss (6,000) --
---------- --------
Balance December 31, 1995 $(148,000) $ --
========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
DOUBLE RIVER OIL & GAS CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
Cash Flows from Operating Activities 1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Net loss $ (6,000) $ (8,000) $ (44,000)
Reconciliation of net loss to net cash
provided(used) by operating activities
Depreciation and amortization 12,000 16,000 31,000
Loss on sale of subsidiary -- 8,000 --
Minority interest -- -- (8,000)
Decrease in accounts receivable 1,000 8,000 4,000
Increase (decrease) in accounts payable,
accrued liabilities and payable
to affiliates 13,000 2,000 (8,000)
Disposition of net assets of subsidiary -- (49,000) --
-------- -------- ---------
Cash provided (used) by operating
activities 20,000 (23,000) (25,000)
-------- -------- ---------
Cash Flows from Investing Activities
Capitalized acquisition, and development
costs (18,000) (11,000) (84,000)
Proceeds from sale of oil and gas
properties 5,000 -- --
Capitalized Kazakhstan project costs (6,000) (24,000) --
Proceeds from sale of subsidiary -- 40,000 --
Rental equipment -- -- (3,000)
-------- -------- ---------
Cash provided (used) by investing
activities (19,000) 5,000 (87,000)
-------- -------- ---------
Cash Flows from Financing Activities
Advances from shareholders -- -- 5,000
Repayment of shareholder loans -- (40,000) --
Proceeds from debentures -- -- 128,000
-------- -------- ---------
Cash provided (used) by financing
activities -- (40,000) 133,000
-------- -------- ---------
Increase (decrease) in cash 1,000 (58,000) 21,000
Cash at beginning of year 7,000 65,000 44,000
-------- -------- ---------
Cash at end of year $ 8,000 $ 7,000 $ 65,000
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
DOUBLE RIVER OIL & GAS CO.AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization and Reorganization
Double River Oil & Gas Co. (the Company), formerly called Melton Drilling and
Exploration Company (Melton), was originally organized as a Texas corporation on
October 20, 1980.
On January 15, 1988, Melton filed a voluntary petition under Chapter 7 of the
United States Bankruptcy Code (the Code) and on June 6, 1988, filed to convert
the case to a reorganization pursuant to Chapter 11 of the Code. On June 14,
1988, the Company filed its proposed plan of reorganization (the Plan) and,
effective December 19, 1988, the Plan was confirmed by the Bankruptcy Court for
the Western District of Texas. The Company's name was changed to Double River
Oil & Gas Co. at the time of reorganization.
In connection with the Plan, 2,493,333 shares of the Company's newly authorized
no par value common stock were issued to Mr. Paul E. Cash (Mr. Cash) in exchange
for $35,000 in cash, plus other assets valued at $50,000. In addition, 226,667
shares of the Company's no par value common stock were issued to the Company's
unsecured creditors in full satisfaction of their claims against the Company,
and a total of approximately 4,500 shares which are eligible to be issued to the
Company's prior public shareholders, to be exchanged as follows: one share of
the Company's no par value common stock for each 25 shares of Melton's pre-
reorganization common stock. Melton shareholders owning less than 83 shares of
common stock did not receive stock in the reorganized company. Instead, they
received a small amount of cash and their old Melton shares were canceled.
In February 1994, Mr. Cash purchased all of the shares of Loch owned by the
Company for $40,000. Additionally, in February 1994, Mr. Cash purchased, from
the Company,all of its shares held in treasury (513,333 shares) for its original
cost to the Company of $17,494. Concurrently, Mr. Cash purchased 2,153,333
shares of the Company's previously unissued common stock for $64,600.
Effective March 1, 1994 Mr. Cash, who was the majority shareholder of the
Company (owning more than 80% of the outstanding common stock) sold control of
Double River Oil & Gas Co. to Mr. Paul M. O'Connor (Mr. O'Connor) in return for
Mr. O'Connor tendering an executed protocol for an oil and gas project in
Commonwealth of Independent States ("CIS"), having a potential minimum oil
recovery of twenty-five million barrels.
33
<PAGE>
On May 2, 1994 the Company held a special shareholders meeting. Actions that
were approved at the meeting included; approval of a 1 for 30 reverse split of
the Company's then outstanding $.001 par value common stock; authorized an
amendment to the articles of incorporation which would change the Company's
authorized capital stock to 50,000,000 shares of no par value common stock;
ratification and approval of the issuance of 2,666,666 shares of the Company's
no par value common stock to Paul E. Cash in exchange for the cancellation of
$80,000 of indebtedness to Mr. Cash and ratification and approval of the above
agreement with Mr. O'Connor. The financial statements have been restated to
reflect the effects of the 1 for 30 reverse split.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
Consolidation
The consolidated financial statements for December 31, 1993 include the accounts
of Double River Oil & Gas Co. and its majority-owned subsidiary, Loch
Exploration, Inc. (Loch) The Company's subsidiary was sold in February 1994, to
Mr. Cash. The consolidated financial statements for December 31, 1995 and 1994
include the accounts of Perm Corporation, a wholly owned subsidiary established
September 8, 1994 for purposes of operating the Kazakhstan project. All
significant intercompany accounts and transactions have been eliminated.
Oil and Gas Properties
The Company follows the full cost method of accounting for its oil and gas
properties. Accordingly, all costs associated with acquisition, exploration and
development of oil and gas reserves are capitalized and accounted for in cost
centers, on a country-by-country basis. If unamortized costs within a cost
center exceed the cost center ceiling (as defined), the excess is charged to
expense during the year in which the excess occurs.
Depreciation and amortization for each cost center is computed on a composite
unit-of-production method, based on estimated proved reserves attributable to
the respective cost center. All costs associated with oil and gas properties are
included in the base for depreciation and amortization except for the Kazakhstan
project discussed below. Such costs include all acquisition, exploration and
development costs. All of the Company's oil and gas reserves are located within
the Continental United States.
Gains and losses on sales of oil and gas properties are treated as adjustments
of capitalized costs. Gains or losses on sales of property and equipment, other
than oil and gas properties, are recognized as part of operations. Expenditures
for renewals and improvements are capitalized, while expenditures for
maintenance and repairs are charged to operations as incurred.
34
<PAGE>
DOUBLE RIVER OIL & GAS CO.AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Rental and other Equipment
Rental equipment was leased to Spindletop Oil & Gas Co., a related oil and gas
operator on a month-to-month basis. The rental equipment was sold to Mr. Cash
effective August 1, 1994.
Depreciation of rental and other equipment is provided in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives (7 to 22 years). The straight-line method of depreciation is used for
financial reporting purposes, while accelerated methods are used for tax
purposes.
Investment in Kazakhstan Projects
All costs associated with the Company's efforts to register and license the
Company and its two proposed joint ventures with the Republic of Kazakhstan are
capitalized.
The December 31, 1994 balance is composed of $19,285 of legal and accounting
fees, $5,000 of finder's fees and $13,318 of common stock for shares issued to
Mr. Paul O'Connor in exchange for obtaining a protocol on the Buzachi Field in
Kazakhstan. The December 31, 1995 balance includes an additional $6,000 of
capitalized costs.
The Company is contingently liable for additional Kazakhstan project costs of
approximately $1,221,282. Payment is due only after the required Kazakhstan
permits are obtained for the Buzachi joint venture and when significant future
financing is obtained to drill and develop this oil field. (See note 9)
Income Taxes
In 1992, the Company adopted the method of accounting for income taxes pursuant
to Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities, using enacted tax rates in effect in the years in which
the differences are expected to reverse. These temporary differences primarily
relate to depreciation, depletion and intangible drilling costs. The Company has
not recognized the benefit of any net operating loss carryforwards as the result
of adopting SFAS 109, and no deferred tax assets have been recorded in the books
of the Company due to the uncertainty as to the Company's ability to utilize the
loss carryforwards. The adoption SFAS 109 had no material effect on the Company.
35
<PAGE>
Use of Estimates and Uncertainties
The preparation of the 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 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.
The Company is presently pursuing a number of possible sources of capital needed
to complete engineering work and begin early development of some of its
international projects. At present, negotiations are being conducted with a
major New York Investment Banking Firm who has expressed an interest in
partially financing such projects. There is no assurance that such negotiations
will be successful, or that sufficient funds will be raised to completely carry
out the proposed Kazakhstan projects.
3. RELATED PARTY TRANSACTIONS
The Company utilizes the offices of Spindletop Oil & Gas Co. (Spindletop), a
related company. Spindletop provides various personnel, office space, supplies
and other administrative services to the Company for a fee of $575 per month.
Shareholder loans at December 31, 1995 and 1994 of $16,000 are due to Mr. Cash.
Mr. Cash has agreed that the balance due at December 31, 1995 will not be
collected out of the Current Assets of the Company and are therefore classified
as long-term. The Company plans to pay such balance out of funds which may be
available in the future. It was not practicable to estimate the fair value of
the loan, due to lack of established payment terms and maturity date.
In July 1992, the Company entered into a Gas Purchase Agreement with Spindletop,
whereby the Company was entitled to purchase natural gas from Spindletop at a
price equal to 99% of the Company's resale price under certain sales contracts
between the Company and three independent purchasers. The agreement, which
contained provisions for early termination, as well as extension of the term,
had an expiration date in March 1995. The Gas Purchase agreement was assigned to
Prairie Pipeline Co., a subsidiary of Spindletop, at the time control of Double
River changed.
Mr. Paul E. Cash was the majority shareholder of the Company until March 1994,
when he sold control of Double River to Mr. Paul M. O'Connor, an unrelated
person. Mr. Cash remains an officer and director of Double River.
36
<PAGE>
In February 1994, Mr. Cash purchased all of the shares of Loch Exploration, Inc.
owned by the Company for $40,000.
The Company purchased natural gas for resale from Spindletop, as follows:
Year ended
December 31, Amount
- ------------------------------------ ----------------
1995 $ -
1994 143,000
1993 828,000
Included in accounts receivable at December 31, 1995 and 1994 is approximately
$2,000 and $3,000, respectively, from Spindletop.
In February 1994, $80,000 of the Company's payable to Spindletop Oil & Gas Co.
was assigned to Mr. Cash, individually.
In March 1994, the Company sold its gas compressor to Mr. Cash for $20,000.
Included in accounts payable and accrued liabilities at December 31, 1995 and
1994 is approximately $3,000 and $1,000, respectively, payable to Spindletop.
The oil and gas properties owned by the Company are operated by Spindletop. Mr.
Cash also owns substantial interests in most of these properties.
In June 1993, Spindletop Drilling Company (SDC), a subsidiary of Spindletop Oil
& Gas Co., entered into an agreement with Loch, whereby the parties agreed to
combine their talents and resources to evaluate and acquire producing and
non-producing oil and gas properties at various auctions. Any such properties
acquired under the terms of this agreement were to be acquired by initial
assignment to SDC. SDC agreed to provide Loch with a recordable assignment of
its interest, and such interest was to be determined by the proportionate share
of monies expended for the acquisition of said properties. All costs were to be
borne by SDC and Loch in the same proportions as their respective ownership
interests. SDC served as administrator for properties acquired in connection
with this agreement, and was to be entitled to an overhead reimbursement for
properties for which SDC served as operator. This agreement had an initial term
of six months, and continues month to month thereafter, until canceled by either
party. As discussed above, Loch was sold to Mr. Cash in February 1994.
Loch leased its compressors to Spindletop Oil & Gas Co., as operator. Spindletop
paid Loch $42,000 in the period ended December 31, 1993 in connection with the
leased equipment.
37
<PAGE>
4. INCOME TAXES
In 1992, the Company adopted the method of accounting for income taxes pursuant
to Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 utilizes the liability method of computing deferred
income taxes.
For federal income tax purposes $133,000 net operating loss carryovers are
available to Double River and expire at various dates through 2009, but are
subject to limitations due to the change in control.
5. CASH FLOW INFORMATION
The Company would consider any investments with a maturity of three months or
less to be cash equivalents.
Interest payments were approximately, $-0- in 1995 and $-0- in 1994 and $4,000
in 1993.
Excluded from the Consolidated Statements of Cash Flows were the effects of
certain non-cash investing and financing activities, as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Shareholder assumption of note payable $ -- $ -- $ 3,000
Discount on Loch's debentures -- -- 13,000
Additional paid-in capital from sale of
Loch treasury stock -- -- 7,000
Sale of equipment, in exchange for
cancellation of indebtedness -- 20,000 --
Issuance of common stock to Mr. Cash, in
exchange for cancellation of indebtedness -- 80,000 --
Issuance of common stock to Mr. O'Connor -- 13,000 --
</TABLE>
6. LOSS PER SHARE
Loss per common share are based on the weighted average number of shares
outstanding during each year.
38
<PAGE>
7. SHAREHOLDERS' EQUITY
Information related to shares of common stock and related amounts included in
the accompanying consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Par value of common stock $ no par $ no par
Authorized shares of common stock 50,000,000 50,000,000
Issued shares of common stock 18,301,158 18,301,158
</TABLE>
In February 1994,Mr. Paul E. Cash purchased, from the Company, all of its shares
held in treasury (513,333 shares) for their original cost to the Company of
$17,494. Concurrently, Mr. Cash purchased 2,153,333 shares of the Company's
previously unissued common stock for $64,600. In each case, the purchase price
was paid by reducing the amount owed by the Company to Mr. Cash.
In March 1994, the Company's Board of Directors approved by shareholder vote a
one-for-30 reverse stock split, and to authorize a recapitalization of the
Company with a newly authorized 50,000,000 shares of no par value common stock.
The financial statements have been restated to reflect the effects of the 1 for
30 reverse stock split.
Upon shareholder approval of the above-mentioned recapitalization, the Company
issued 13,315,035 shares of no par common stock to Mr. Paul M. O'Connor, the
Company's Chairman of the Board since the change in control.
8. COMMITMENTS AND CONTINGENCIES
In March 1994, the Company entered into an employment agreement with Mr.
O'Connor. This agreement provides for a five year term of employment, with
provisions for extension and cancellation. Annual compensation of $180,000 and
$150,000 were earned for 1995 and 1994, respectively. Additionally, the Company
has agreed to provide a life insurance policy for Mr. O'Connor in the amount of
$1,000,000. Payment of either the annual compensation or the life insurance
premium is contingent on obtaining the required Kazakhstan permits for the
Buzachi joint venture and on receiving significant future financing to drill and
develop the field.
The Company will purchase the protocol rights to the Severne Buzachi Field from
a third party for a contingent payment of $1,000,000 and a 5% net profits
interest out of the Company's distributable profits from the Buzachi joint
venture. The $1,000,000 payment is due only after the required Kazakhstan
permits are obtained for the Buzachi joint venture and when significant future
financing is obtained to drill and develop this oil field.
The Company is committed to make contingent payment to certain of its directors,
officers and a related party company for travel and/or administrative expenses
of approximately $146,000 that were incurred on behalf of the Company and to
make payment on a promissory note for finder's fees of $10,000 after the
required
39
<PAGE>
Kazakhstan permits on at least one of the two proposed joint ventures is
obtained and upon receiving significant future financing to drill and develop
the permitted oil field.
9. CONCENTRATIONS OF CREDIT RISK
The Company's accounts receivable are primarily from a related oil and gas
operator located in Dallas, Texas, and represent the Company's share of revenues
generated from sales of oil and gas produced by wells in which the Company has
an interest. Historically, the Company has not incurred any significant credit-
related losses.
10. LOCH EXPLORATION, INC. EQUITY
In connection with a private placement offering of its 1993-A 12% Secured
Convertible Debentures (debentures) issued May 1, 1993, Loch acquired 640,000
shares of its $.001 par value common stock as treasury stock by donation from
two of its shareholders. The shares were sold as units with the debentures in
the offering with a minimum unit consisting of $5,000 debentures and 25,000
shares of the company's $.001 par value common stock. Loch recorded $12,800 as
additional paid-in capital pursuant to the allocation presented in the private
placement memorandum and a discount of an equal amount was applied to the
debentures and will be amortized over their life. The debentures were
convertible into shares of the Loch's $.001 par value common stock at escalating
prices from $.025 per share to $.05 per share during the first three years and
thereafter at the higher of $.05 per share or market value. The proceeds of the
offering were used to acquire producing oil and gas properties at auction
pursuant to a joint venture agreement with a related party.
11. SUBSEQUENT EVENTS
Effective March 1, 1996, the Company entered into an agreement with Spindletop
Oil & Gas Co. and transferred ownership of two of its domestic oil and gas
properties to Spindletop for $14,000 in cash. These funds were used to pay
certain accrued expenses. Reserves attributable to these properties at December
31, 1995, were approximately 25% of the Company's proved producing domestic gas
reserves.
The Company has the option, for a period of six months from March 1, 1996 to
repurchase such properties for $15,400.
40
<PAGE>
12. ADDITIONAL OPERATIONS AND BALANCE SHEET INFORMATION
Certain information about the Company's operations for the years ended December
31, 1995, 1994 and 1993 follows.
Significant Oil and Gas Purchasers
The Company's oil sales are made on a day to day basis at approximately the
current area posted price. The loss of any oil purchaser would not have an
adverse effect upon operations. The Company generally contracts to sell its
natural gas to purchasers pursuant to both short-term and long-term contracts.
Additionally, some of the Company's natural gas not under contract is sold at
the prevailing "spot" price on a month to month basis. Following is a summary of
significant oil and gas purchasers during the three year period ended December
31, 1995.
Purchaser
<TABLE>
<CAPTION>
December 31,
(Percent) (1)
-------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Lone Star Gas Company and affiliates - % 48% 37%
Texas Utilities Fuel Company 36 36 16
Empire Pipeline Corp. 12 -- 5
Mitchell Marketing Co. 25 -- --
Tristar Gas Company 21 -- --
U.S. Gypsum Company -- -- 20
</TABLE>
(1) Percent of oil and gas revenues
41
<PAGE>
DOUBLE RIVER OIL & GAS CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
12. ADDITIONAL OPERATIONS AND BALANCE SHEET INFORMATION - CONTINUED
Capitalized costs relating to oil and gas
producing activities:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
---------- ----------
<S> <C> <C>
Unevaluated property - Kazakhstan $ 43,000 $ 37,000
Proved Properties 148,000 135,000
--------- --------
Total capitalized costs 191,000 172,000
Accumulated amortization (94,000) (82,00)
--------- --------
$ 97,000 $ 90,000
========= ========
</TABLE>
Cost incurred in oil and gas property Year Ended December 31, acquisition,
exploration and development:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Acquisition of properties $ -- $ -- $81,000
Unevaluated property-Kazakhsta 6,000 37,000 --
Development costs 13,000 11,000 3,000
------- ------- --------
$19,000 $48,000 $84,000
======= ======= ========
</TABLE>
Results of operations from producing
activities:
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Sales of oil and gas $90,000 $ 99,000 $151,000
--------- --------- ---------
Production Costs 64,000 77,000 116,000
Amortization of oil and gas 12,000 16,000 20,000
------- --------- ---------
properties
76,000 93,000 136,000
------- -------- --------
$14,000 $ 6,000 $ 15,000
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Sales price per equivalent Mcf $2.52 $2.49 $2.59
======= ======= =======
Production cost per equivalent Mcf 1.79 1.94 2.00
======= ======= =======
Amortization per equivalent Mcf .34 .40 .34
======= ======= =======
</TABLE>
42
<PAGE>
DOUBLE RIVER OIL & GAS CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. BUSINESS SEGMENTS
The Company's business segments were oil and gas exploration and production and
equipment rental. The following is a summary of selected information for these
segments for the three year period ended December 31, 1995.
Revenues:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Oil and gas exploration and
production $90,000 $99,000 $153,000
========= ========= =========
Income from continuing operations 14,000 6,000 17,000
Income from discontinued operations -- 10,000 58,000
--------- --------- ---------
-- 16,000 75,000
Corporate and other (1) (20,000) (24,000) (119,000)
--------- --------- ---------
Consolidated net loss $ 6,000) $ (8,000) $(44,000)
========= ========= =========
Identifiable assets:
Oil and gas exploration and
production $ 97,000 $ 90,000 $ 171,000
Equipment rental -- -- 67,000
--------- --------- ---------
97,000 90,000 238,000
Corporate and other (2) 10,000 10,000 110,000
--------- --------- ---------
$ 107,000 $ 100,000 $ 348,000
========= ========= =========
</TABLE>
(1) Corporate and other includes general and administrative expenses, other
non-operating income and expense and income taxes.
(2) Corporate and other includes cash and accounts receivable, other property
and equipment and other assets.
43
<PAGE>
DOUBLE RIVER OIL & GAS CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Charged Directly to Expense
-----------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Maintenance and repairs $ -- $3,000 $5,000
Production taxes 6,000 6,000 6,000
Taxes, other than payroll and
income taxes -- 1,000 3,000
</TABLE>
15. SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
The Company's net proved oil and gas reserves as of December 31, 1995, 1994 and
1993 have been estimated by Spindletop personnel in accordance with guidelines
established by the Securities and Exchange Commission. Accordingly, the
following reserve estimates were based on existing economic and operating
conditions. Oil and gas prices in effect at December 31 of each year were used.
Operating costs, production and ad valorem taxes and future development costs
were based on current costs with no escalation.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact. Moreover, the present values should
not be construed as the current market value of the Company's oil and gas
reserves or the costs that would be incurred to obtain equivalent reserves.
Changes in Estimated Quantities of Proved Oil and Gas Reserves
<TABLE>
<CAPTION>
Bbls Mcf
-------- ---------
<S> <C> <C>
Proved reserves
Balance December 31, 1992 1,000 398,000
Acquired properties 19,000 111,000
Revisions of previous estimates -- 26,000
Production (1,000) (53,000)
------- --------
Balance December 31, 1993 19,000 482,000
Sales of minerals in place (18,000) (243,000)
Revisions of previous estimates -- (31,000)
Production -- (38,000)
------- --------
Balance December 31, 1994 1,000 170,000
Revisions of previous estimates 1,000 53,000
Production (1,000) (35,000)
------- --------
Balance December 31, 1995 1,000 188,000
======= ========
Proved Developed Reserves
Balance December 31, 1993 19,000 376,000
Balance December 31, 1994 1,000 131,000
Balance December 31, 1995 1,000 148,000
</TABLE>
44
<PAGE>
DOUBLE RIVER OIL & GAS. CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
15. SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued
Standardized Measure of Discounted Future Net Cash Flows and
Changes Therein Relating to Proved Oil and Gas Reserves
(Unaudited)
The Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves ("Standardized Measure") does not
purport to present the fair market value of a company's oil and gas properties.
An estimate of such value should consider, among other factors, anticipated
future prices of oil and gas, the probability of recoveries in excess of
existing proved reserves, the value of probable reserves and acreage prospects,
and perhaps different discount rates. It should be noted that estimates of
reserve quantities, especially from new discoveries, are inherently imprecise
and subject to substantial revision.
Future net cash flows were computed using the contract price which was not
escalated. Future production costs include operating costs and taxes. No
deduction has been made for interest, general corporate overhead, depreciation
or amortization. The annual discount of estimated future net cash flows is
defined, for use herein, as future cash flows discounted at 10% per year, over
the expected period of realization.
<TABLE>
<CAPTION>
December 31,
----------------------------------
<S> <C> <C> <C>
Standardized Measures of Discounted 1995 1994 1993
---------- --------- ----------
Future Net Cash Flows:
Future production revenue $ 395,000 $ 372,000 $1,256,000
Future production and development (224,000) (228,000) (750,000)
--------- --------- -----------
costs
Future net cash flows before Federal
income tax 171,000 144,000 506,000
Future Federal income tax -- -- (76,000)
--------- --------- ----------
Future net cash flows 171,000 144,000 430,000
Effect of discounting 10% per year (44,000) (33,000) (92,000)
--------- --------- ----------
$ 127,000 $ 111,000 $ 338,000
========= ========= ===========
</TABLE>
45
<PAGE>
15. SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued
Change Relating to the
Standardized Measures of
Discounted Future Net Cash
Flows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Beginning balance $ 111,000 $ 338,000 $ 265,000
Oil and gas sales, net of
production costs (26,000) (22,000) (35,000)
Net change in prices, net
of production costs 6,000 (10,000) 29,000
Purchase of reserves in
place -- -- 104,000
Sales of reserves in place -- (204,000) --
Revisions of quantity
estimates 46,000 (29,000) 30,000
Net change in income taxes -- -- (8,000)
Accretion of discount 11,000 34,000 27,000
Other (21,000) 4,000 (74,000)
--------- --------- ---------
$ 127,000 $ 111,000 $ 338,000
========= ========= =========
</TABLE>
Index to Exhibits
PAGE
---------
22. Subsidiary of the Registrant..................................see below
Subsidiary of the Registrant
Perm Corporation, incorporated September 8, 1994, under the laws of the
State of Nevada, is a wholly - owned subsidiary of Registrant as of December 31,
1995.
46
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<EXCHANGE-RATE> 1
<CASH> 8,000
<SECURITIES> 0
<RECEIVABLES> 2,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,000
<PP&E> 191,000
<DEPRECIATION> 94,000
<TOTAL-ASSETS> 107,000
<CURRENT-LIABILITIES> 33,000
<BONDS> 0
0
0
<COMMON> 206,000
<OTHER-SE> 148,000
<TOTAL-LIABILITY-AND-EQUITY> 107,000
<SALES> 90,000
<TOTAL-REVENUES> 90,000
<CGS> 0
<TOTAL-COSTS> 76,000
<OTHER-EXPENSES> 20,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
