UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
(X)ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For Fiscal Year Ended December 31, 1997
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-9965
QUESTA OIL & GAS CO.
(Exact name of registrant as specified in its charter)
COLORADO 84-0846588
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7030 South Yale Ave.
Suite 700
Tulsa, Oklahoma 74136-5718
(Address of principal executive offices)
Registrant's telephone number,including area code: (918) 494-6055
Securities registered pursuant to Section 12(b) of
the Act: NONE Securities registered pursuant to
Section 12(g) of the Act:
Common Stock
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 17, 1998, the Company had 966,777 shares of Common Stock issued
and outstanding. The aggregate market value of voting stock held by
nonaffiliates ofthe Company as of February 17,1998 was approximately $3,600,000.
Documents Incorporated By Reference: None
<PAGE>
PART I
Item 1 - Business
Questa Oil & Gas Co. (the "Company") was incorporated in Colorado on
February 24, 1981 as Trinity Oil & Gas, Inc. The Company's name was changed to
Questa Oil & Gas Co. on March 31, 1986. The Company is engaged in the oil and
gas business in the continental United States. Its activities include the
acquisition and exploration of oil and gas property interests and selling,
developing, operating and otherwise dealing in oil and gas property interests of
all types.
On March 31, 1986, the shareholders of the Company approved an
agreement to acquire Questa Oil & Gas Co. ("Old Questa"). In connection with
this acquisition, the shareholders of the Company approved a reverse split of
the outstanding common stock on a one share-for-125 shares basis which reduced
the number of shares outstanding at that time to 1,253,614 shares of common
stock. The shareholders also approved the issuance of 11,500,000 shares of
common stock in return for all of the issued and outstanding shares of Old
Questa. On February 5, 1988, the shareholders of the Company approved a proposal
to reverse split the outstanding shares of the Company's common stock such that
each ten shares of the Company's issued and outstanding common stock
automatically converted into one share of common stock.
On February 18, 1998 the Company had two special shareholders
meetings. The first approved a 1-for-10 reverse split and the second meeting
approved a 20-for-1 forward split of its common stock.The net of the splits
doubled the number of common shares of stock outstanding in the Company. The
Company will pay shareholders with factional shares, after the first reverse
split, at a $8.75 per share basis. The total number of shares retired as
factional shares will be approximately 6,483 shares at the $8.75 basis. This
results as a liabilty of approximately $57,000 to the Company. The number of
shareholders affectived by the reverse split is approximately 1,300
shareholders.
On June 22, 1990, the Company's common stock was listed on NASDAQ.
The Company's common stock trades on The NASDAQ Small Cap Market under the
symbol "QUES." The stock splits approved in February, 1998 kept the Company in
compliance with NASDAQ's recently adopted listing requirements.
The Company's headquarters are located in Tulsa, Oklahoma. The office
lease in Tulsa is for approximately 2,350 square feet, term of the lease is
three years and expires December 31, 1999. Currently the Company's staff
supervises, manages and monitors 8 drilling partnerships and approximately 270
producing wells. At December 31, 1997 the Company employed six persons on a full
time basis.
The Company evaluates undeveloped oil and gas prospects and
participates in drilling activities on those prospects which in the opinion of
management are favorable for the production of oil or gas. Drilling activities
are financed by entering into joint ventures or other arrangements under which
the Company acquires oil and gas acreage, performs basic geologic work on the
prospect, and obtains the necessary equipment to complete a well if it is
successful. There is no assurance that any such arrangements will result in the
discovery of oil or gas or the generation of income to the Company. The Company
also acquires interests in oil and gas leases for the purposes of either selling
the leases subject to an overriding royalty or other retained interest, or
entering into farmout, joint venture, or other arrangements, primarily with
industry participants, for exploration of the leases.
The Company's activities during its fiscal year ended December 31,
1997, are summarized in Item 2 of this report. The Company's principal line of
business is oil and gas exploration, development and production. The Company is
faced with strong competition from many other companies and individuals engaged
in the oil and gas business, many are very large, well established energy
companies with substantial capabilities and established earnings records. The
Company may be at a competitive disadvantage in acquiring oil and gas prospects
since it must compete with these individuals and companies, many of which have
greater financial resources and larger technical staffs. It is nearly impossible
to estimate the number of competitors; however, it is known that there are a
large number of companies and individuals in the oil and gas business.
The Company's business is not dependent on a single customer or a few
customers and management does not believe that it will be in the foreseeable
future since oil and gas purchasers are readily available in today's markets.
See Note 10 of Notes to Financial Statements.
<PAGE>
Oil and gas may be considered raw materials essential to the
Company's business. The Company's search for oil and gas is concentrated in the
continental United States. However, the acquisition, exploration, development,
production and sale of oil and gas are subject to many factors which are outside
the Company's control. These factors include worldwide and domestic economic
conditions; oil import quotas; availability of drilling rigs, casing and other
supplies; proximity to pipelines; the supply and price of other fuels and the
regulation of prices, production, transportation and marketing by Federal and
State government authorities. The oil and gas industry has at times been faced
with shortages in tubular steel, increased prices in used steel casing and a
shortage of drilling rigs which have in the past delayed drilling activities by
oil and gas operators. Pumping units and other wellhead equipment have also been
in short supply from time to time.
The Company is engaged in a facet of exploiting natural resources. It
is subject to various federal, state and local laws and regulations regarding
environmental and ecological matters. Hence, environmental laws may necessitate
significant capital outlays, which may materially affect the Company's earnings
potential and could cause material changes in the Company's proposed business.
At the present time, however, environmental laws have not materially hindered
nor adversely affected the Company's business.
Working capital is needed in the oil and gas industry to finance the
drilling and completion of wells, to acquire undeveloped leasehold interests,
the acquisition of proved producing properties, and to fund lease operating
expenses and general and administrative expenses. At present, the Company is
generating sufficient revenue from operations and has sufficient credit lines to
supply current working capital requirements. See Notes 2 and 3 of Notes to
Financial Statements.
The Company has never been a party to any bankruptcy, receivership,
reorganization, readjustment or similar proceeding. No material changes have
been made in the mode of conducting business. Since the Company is engaged in
the oil and gas business, it does not allocate funds to product research and
development in the conventional sense. The Company has no material patents,
trade-marks, licenses, franchises or concessions. Backlog is not material to an
understanding of the Company's business. The Company's business is not subject
to renegotiation of profits or termination of contracts or subcontracts at the
election of federal government.
Item 2 - Oil and Gas Properties
The following sets forth information with respect to the Company's
oil and gas interests. This information is as of December 31, 1997, unless
otherwise indicated. The Company owns interests in wells located in Kansas,
North Dakota, Colorado, Oklahoma and Texas:
Gross Net
Total Developed leasehold acreage 56,871 acres 10,730 acres
============ ============
Total Oil Gas
Gross productive wells 287.00 117.00 170.00
Net productive wells 83.90 17.60 66.30
1997 1996 1995 1994
Oil production (BBL) 41,798 40,114 39,339 47,519
Gas production (MCF) 1,179,299 1,078,857 955,435 869,555
Average Sales Price
Oil (per BBL) $19.05 $19.52 $16.10 $14.92
Gas (per MCF) $ 2.69 $ 2.29 $ 1.58 $ 1.93
Average Production Cost per
Equivalent unit of oil and gas $ 4.46 $ 4.28 $ 3.76 $ 4.16
<PAGE>
The Company's reserves were calculated using two pricing
scenarios, Schedule I uses the prices in effect at December 31, 1997, $16.48/BBL
for oil and $2.45/MCF for gas.
Proved reserves
OIL (BBLS) 465,222
GAS (MCF) 14,350,862
Estimated future net revenues
from oil and gas reserves $19,999,000
Present value of estimated
future net revenues $10,999,000
Wells drilled: Total Oil Gas Dry
1997 12 2 8 2
1996 9 3 4 2
1995 11 3 3 5
1994 18 1 14 3
Type of Wells Drilled: 1997 1996 1995 1994
Net productive development 1.91 1.71 2.42 4.41
Net dry development .23 1.63 1.54 .16
Item 3 - Legal Proceedings
The Company is not engaged in any legal proceedings and to the
knowledge of management, no such legal proceedings are threatened.
Item 4 - Submission of Matters to a Vote of Security Holders
There were no resolutions submitted to the Company's shareholders
for a vote during the last quarter of 1997.
PART II
Item 5 -Market for Registrant's Common Stock and Related Security Holder Matters
The Company's common stock is listed on the NASDAQ system. The
Company's trading symbol is QUES. The following table sets forth the high and
low bid prices for the Company's common stock for each quarter for the past two
fiscal years. The bid prices represent prices between dealers, do not include
retail markups, markdowns, or commissions, and may not represent actual
transactions.
Bid Price
High Low
1997
First Quarter $ 7.25 $5.50
Second Quarter 11.13 6.63
Third Quarter 16.63 8.25
Fourth Quarter 16.50 8.50
1996
First Quarter $7.88 $4.13
Second Quarter 5.50 4.25
Third Quarter 6.25 4.88
Fourth Quarter 6.25 5.00
Holders of common stock are entitled to receive such dividends as
may be declared legally by the Board of Directors. The Company has not paid any
dividends on its common stock.
<PAGE>
The following sets forth the approximate number of record holders
of the Company's equity securities as of February 17, 1998:
Number of
Title of Class Record Holders
Common Stock, $.01 par value 1,872
Item 6 - Selected Financial Data
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
Total Assets $9,426,000 $8,336,000 $6,580,000 $6,865,000
Total Liabilities 3,374,000 3,316,000 2,265,000 2,803,000
Working Capital 103,000 684,000 (177,000) 415,000
Stockholders' Equity 6,052,000 5,020,000 4,315,000 4,062,000
Operating Revenues 4,582,000 3,778,000 2,658,000 2,924,000
Net Profit 1,151,000 821,000 94,000 552,000
Profit per share (Primary) 1.17 .83 .10 .59
Profit per share
(Fully Diluted) 1.17 .83 .09 .54
</TABLE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
At December 31, 1997, the Company had current assets of $998,000
compared to current liabilities of approximately $895,000 resulting in positive
working capital of $103,000. This represents a decrease of approximately
$581,000 in the Company's working capital position at December 31,1996. The
primary source of liquidity to the Company is oil and gas revenues.The principal
reasons for the decrease in working capital were 1) one million dollars spent
in the acquisition of an additional 25 to 75 percent of the Company's six
drilling partnerships that are currently managed by Questa and 2) the
expenditure of just over three quarters of a half million dollars in acquiring
working interests and over-riding royalty interest in 30 producing properties.
Due to the increased ownership in the drilling partnerships the
Company's reserves are increased by an additional 2,000,000 MCFs of gas and
48,000 BBLS of oil. These volumes are in addition to the reserves in the
audited Notes to Financial Statements and the reserve totals on page 4.
The Company received $40,000 on a factoring company note that was
written off in a previous period. In 1995 Questa decided to reserve $190,000 of
a note from a local factoring company, the factoring company has continued to
make payments on the principal outstanding amount. The Company has recorded this
as an unusual item due to the reserve taken in 1995.
The Company has a line of credit and a term loan with a local bank.
The aggregate borrowing of the loans are $3,100,000 ($2,100,000 term loan and
$1,000,000 line of credit). Interest on the loans are New York prime. At
December 31, 1997 the Company's balance on the term loan was $1,650,000 and zero
has been borrowed on theline of credit. The loan is secured by certain of the
Company's interest in oil and gas properties. The Company also has two
automobile loans with the bank. The loans are for 60 months at an interest rate
of 7.5% and 7.75%, with final payment due September, 2002.
Results of Operations 1997 Compared to 1996
Oil and gas sales for 1997 increased from $3,276,000 in 1996 to
$4,004,000, this increase was due to steady gas prices and increases in
production volumes. The Company's average gas price increased by 17% in 1997 and
gas volumes increasedby 10%. Questa' income from drilling partnerships
increased in 1997 by 228%(from $49,000 in 1996 to $163,000 in 1997).
Production costs increased from $1,003,000 to $1,161,000, this
increase was the result of acquisitions made in late 1996 and 1997. And
production tax expense increased due to the increase in product sales volume
and prices. General and administrative expenses increased due toincreases in
bonuses, salaries, office rent, and related employee expenses. Interest expense
increased slightly due to higher borrowing base.
Net income for 1997 increased due to the increases in sales
volumes and gas prices, increase in drilling partnership income, and a decrease
in dry hole expenses. Questa also had a positive unusual item in 1997.
<PAGE>
Results of Operations 1996 Compared to 1995
Oil and gas sales for 1997 increased from $2,130,000 in 1995 to
$3,229,000, this increase was due to price increases and steady production
volumes. The Company's average oil price in 1997 increased by 21% over 1995
prices ($19.52 per barrel in 1997 compared to $16.10 per barrel in 1995).
Questa's average gas price increased by 44% in 1997 ( $2.29 per MCF in 1997
compared to $1.58 per MCF in 1995).
The lease operating expenses increased from $627,000 to $843,000,
this increase was the result of several workovers and recompletions in 1997.
Production tax expense increased due to the increase in product prices. General
and administrative expenses remained stable and interest expense increased
slightly higher due to new borrowing base.
Net income for 1997 increased due to the increase in product
prices and a steady increase in production while maintaining overhead costs.
Results of Operations 1995 Compared to 1994
Gross revenues in 1995 decreased by $267,000 compared to 1994
revenues. The decrease was the result of decreased oil and gas sales and the
decrease in interest income. No interest was accrued on the factoring company
note in 1995.
The decrease in the gas sales price ( 1995 average price of $ 1.58
verses 1994 average price of $ 1.93) was the major factor in the decrease in
1995 revenues. Administrative charges and interest income were down. "Other"
revenues were up due to the acquisition of additional interest in the Company's
partnership programs.
Production expenses for 1995 decreased by $159,000 from the prior
year due to lower production taxes on the lower prices and a general decrease in
the cost of operations of wells due to better management of costs. Dry hole and
exploration costs in 1995 increased by $270,000 from 1994 due to the write off
of several wells deemed uneconomical and the drilling of five dry holes.
General and administrative expenses remained stable and interest
expense increased slightly due to higher interest rates in 1995.
<PAGE>
Item 8 - Financial Statements and Supplementary Data
See the financial statements appended to this report.
Item 9 - Change in and Disagreements With Accountants
No changes or disagreements.
PART III
Item 10 - Directors and Executive Officers of the Company
The following sets forth certain information concerning the
officers and directors of the Company. Each director was elected for a one-year
term which expires at the next annual meeting of the Company's shareholders. All
officers serve at the pleasure of the Company's Board of Directors. No annual
meeting was held during 1995 and the same directors remained in office for
another year.
Year elected as
Officer and/or
Name Age Position Director
Warren L. Meeks 71 President,Director 1986
Alan W. Meeks 44 Vice President,Director 1986
Lowell C. Sund 77 Secretary,Director 1986
Bruce L. Sturdevant 75 Director 1986
Donald A. Towner 44 Controller/Treasurer 1989
Warren Meeks, Alan Meeks and Donald Towner devote their full time
to the affairs of the Company. Mr. Sund devotes such time as is necessary to the
affairs of the Company.
The following sets forth certain background information concerning
the Company's officers and directors:
Warren L. Meeks has been President and a Director of Questa Oil &
Gas Co. since 1981. Mr. Meeks was Treasurer of Brent Exploration, Inc. in
Denver, Colorado from 1978 to 1981. From 1975 to 1978, he was Treasurer of
Anderson Petroleum, Inc. and Anderson Resources, Inc. Prior to his association
with Anderson Petroleum and Anderson Resources, Mr. Meeks served for 18 years in
various capacities with Apache Corporation. Mr. Meeks received his Bachelor of
Science degree in business administration from the University of Tulsa.
Alan W. Meeks has served as an officer and director of Questa Oil & Gas
Co. since 1981. He was employed as an exploration and development geologist for
Indian Wells Oil Company in Tulsa, Oklahoma from 1979 to 1981. From 1977 to
1979, he was an exploration and development geologist for Apache Corporation.
Mr. Meeks received his Bachelor of Science degree in geology from the University
of Tulsa. Alan W. Meeks is the son of Warren L. Meeks.
Lowell C. Sund has served as an officer and director of Questa Oil & Gas
Co. since 1981. In 1982, Mr. Sund retired as Director, Executive Vice-President
and Secretary of Adolph Coors Company where he had been employed since 1947.
Bruce L. Sturdevant has been a Director of Questa Oil & Gas Co. since
1984. Mr. Sturdevant is a Partner Emeritus of the consulting engineering firm
of R.W. Beck & Associates, Denver, Colorado since 1969. From 1948 to 1969, he
was employed by Stanley Consultants, Inc., rising to the position of Vice-
President and Director. Mr. Sturdevant received his Bachelor of Science degree
in mechanical engineering from the University of Iowa.
Donald A. Towner has been Controller/Treasurer for Questa Oil & Gas Co.
since September 1989. Mr. Towner was the Accounting Manager for Utica National
Bank and Trust Co. in Tulsa, Oklahoma from 1987 to 1989. Prior to that he was
Revenue Accounting Manager for Cotton Petroleum Corporation in Tulsa, Oklahoma.
<PAGE>
Mr. Towner received his Bachelor of Science degree in Accounting from California
State University, Fresno.
Item 11 - Executive Compensation
The Following table sets forth information relating to cash
compensation paid by the Company to the Chief Executive Officer and any Highly
Compensated Executive Officers.
[A]Name and Principal Position,[B]Fiscal Year,[C]Salary, [D]Bonus,[E]Other
Annual Compensation,[F]Restricted Stock Awards, [G]Options Granted,[H]LTIP
Payout,[I]All Other Compensation
[A] [B] [C] [D] [E] [F] [G] [H] [I]
[1] [2] [3] [4] [5] [6] [7]
Warren Meeks 1997 104,820 20,000 4,709 N/A N/A N/A 12,496
President 1996 99,240 -0- 1,781 N/A N/A N/A 11,800
Director 1995 94,740 5,000 2,681 N/A N/A N/A 11,489
Alan Meeks 1997 100,200 20,000 2,335 N/A N/A N/A 11,981
Vice-President 1996 94,800 -0- 1,279 N/A N/A N/A 11,306
Director 1995 90,300 5,000 2,999 N/A N/A N/A 10,973
[1] The dollar value of base salary (cash and non-cash) received. [2] The dollar
value of bonus (cash and non-cash) received. [3] Any other annual compensation
not property categorized as salary or bonus: auto usage and auto allowance [4]
During the period covered by the Table, the shares of stock issued as
compensation for services. As of December 31, 1997, Warren Meeks owned 295,407
shares of Company's common stock, which has a value of approximately $2,806,000
(closing price of $9.50). As of December 31, 1997, Alan Meeks owned 234,625
shares of Company's common stock, which has a value of approximately $2,229,000
(closing price of $9.50). [5] The shares of Common Stock to be received upon the
exercise of all stock options granted during the period covered by the Table.
[6] "LTIP" is an abbreviation for "Long-Term Incentive Plan." An LTIP is any
plan that is intended to serve as an incentive for performance to occur over a
period longer then one fiscal year. [7] All other compensation received that the
Company could not properly report in any other column of the Table including
annual Company contributions or other allocations to vested defined contribution
plans, and the dollar value of any insurance premiums paid by, or on behalf of,
the Company with respect to term life insurance for the benefit of the named
executive officer, and the full dollar value of the remainder of the premiums
paid by, or on behalf of, the Company. In the case of Warren Meeks, the amount
represents Company contributions to a 401(k) pension plan ($9,289-1995,
$9,400-1996, $10,096-1997) and directors fees ($2,200-1995,$2,400-1996,
$2,400-1997).In the case of Alan Meeks, the amount represents Company
contributions to a 401(k) pension plan ($8,773-1995,$8,906-1996,$9,581-1997)
and directors fees ($2,200-1995,$2,400-1996,$2,400-1997).
Stock Options
The Company does not have any stock option or stock bonus plans.
The Company has not granted any stock options, stock appreciation rights or any
similar security to any current officer of the Company. During the years ended
December 31, 1995,1996 and 1997, no current or former officer or director has
exercised any stock options.
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
<PAGE>
Employee Pension, Profit Sharing or Other Retirement Plans
Effective August 1, 1992, by action of the Board of Directors,
the Company adopted a defined contribution profit sharing plan with a 401(k)
provision. The plan calls for discretionary contribution to be made by the
employer.The plan also allows elective deferrals by plan participants of up
to 10 percent of their annual salary. Elective deferrals are being matched with
Company contributions of up to 6 percent of each participant's compensation.
Contributions to this plan and plan expenses totaled approximately $31,000 for
1995,1996 and 1997.Other than the 401(k) Plan described above, the Company does
not have a defined benefit, pension plan, profit sharing or retirement plan.
Compensation of Directors
Standard Arrangements. The Company pays each director $300 for
each meeting of the Board of Directors which the director personally attends
and a quarterly retainer fee of $300. The Company has no standard agreement
pursuant to which directors of the Company are otherwise compensated for any
service provided as a director or for committee participation or special
assignment.
Other Arrangements. During the year ended December 31, 1997, and
except as disclosed above, no director of the Company received any form of
compensation from the Company.
Compensation Committee Interlocks and Insider Participation
During the year ending December 31, 1997, the Company did not have
a compensation committee. During the year ending December 31, 1997, the
following officers participated in deliberations of the Company's Board of
Directors concerning executive compensation:
Warren L. Meeks President
Alan W. Meeks Vice President
Lowell L. Sund Secretary
Bruce Sturdevant Director
During the year ended December 31, 1997, no director of the
Company was also an executive officer of another entity, which had an executive
officer of the Company serving as a director of such entity or as a member of
the compensation committee of such entity.
Employment Agreements
The Company does not have an employment agreement with any of its
executive officers.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the shareholdings of the Company's
officers and directors of the Company's $0.01 par value common stock, its only
class of outstanding equity securities as of February 17, 1998. Unless otherwise
specified, the shares owned reflect both record and beneficial ownership.
Name and Address of Beneficial Number of Percent of
Owner Shares Class
Warren L. Meeks 295,407 30.5%
8629 So. Darlington
Tulsa, OK 74137 (1)
Alan W. Meeks 234,625 24.3%
11020 S. Richmond
Tulsa, OK 74137 (2)
<PAGE>
Lowell C. Sund 18,000 1.9%
3087 Owens Court
Lakewood, CO 80215
Bruce L. Sturdevant 10,200 1.0%
505 Wrangler Road
Castle Rock, CO 80104
Donald A. Towner 2,875 0.3%
1517 E. 34th Street
Tulsa, OK 74105
All Officers and Directors
as a group 561,107 58.0%
(1)Includes 136,250 shares owned of record by Faith J. Meeks, the wife of Warren
L. Meeks, and 13,057 shares owned by American Petro Management, Inc. for which
Warren L. Meeks is deemed to be the beneficial owner.
(2) Includes 10,625 shares owned by minor children of Alan W. Meeks.
Item 13 - Certain Relationships and Related Transactions
Certain directors and principal shareholders of the Company have
purchased limited partnership interests in partnerships sponsored and managed
by the Company. Also certain directors and principal shareholders of the Company
have purchased working interests in prospects developed by the Company. In each
case, the director or principal shareholder acquired the limited partnership
interest,participated and paid, when due, all of their obligations to the
partnership or to the Company. No officer or director paid more than $60,000
during the year ending December 31, 1997 for interests in limited partnerships
sponsored by the Company or for working interests in wells in which the Company
also had an interest.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements Schedules (See attached Index to Financial
Statements)
(2) Exhibits:
Number Description Page Number
(3) Articles of Incorporation(as amended) and Bylaws (1)(4)(5)
(4) Instruments defining rights of Security Holders (1)
(10) Material Contracts (1)(2)(3)
(1) Incorporated by reference to a Registration Statement filed on Form S-2 with
the Securities and Exchange Commission, 1993 Act Registration Number 2-71990
(2)The Agreement relating to the acquisition of all the outstanding shares of
Rival Resources, Inc. by the Registrant is incorporated by reference to Exhibit
2 to a Registration Statement filed on Form S-14 with the Securities andExchange
Commission, 1933 Act Registration No. 33-1342.
(3) The Agreement relating to the acquisition of all the outstanding shares of
Questa Oil & Gas Co. by the Registrant is incorporated by reference to Exhibit 2
to a Registration Statement filed on Form S-14 with the Securities and Exchange
Commission, 1933 Act Registration No. 33-1342.
(4) Incorporated by reference from the same Exhibit filed with the Company's
annual report on Form 10-K for the year ending December 31, 1986.
(5) Incorporated by reference from the same Exhibit filed with the Company's
annual report on Form 10-K for the year ending December 31, 1987.
(b) Reports on Form 8-K - No Reports on Form 8-K have been filed by the Company
for the last quarter of its fiscal year ending December 31, 1995
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized:
QUESTA OIL AND GAS CO.
By /s/ Warren L. Meeks
Warren L. Meeks, President
and Chief Executive Officer
By /s/ Donald A. Towner
Donald A. Towner
Principal Financial Officer
and Chief Accounting Officer
Dated: March 30,1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on March 30, 1998:
By /s/ Warren L. Meeks
Warren L. Meeks, Director
By /s/ Lowell C. Sund
Lowell C. Sund, Director
By /s/ Alan W. Meeks
Alan W. Meeks, Director
By /s/ Bruce L. Sturdevant
Bruce L. Sturdevant, Director
<PAGE>
QUESTA OIL AND GAS CO.
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULES
FINANCIAL STATEMENTS (SUBMITTED IN RESPONSE TO PART II, ITEM 8), AND SCHEDULES
(SUBMITTED IN RESPONSE TO PART IV, ITEM 14):
Independent Auditors' Report F-2
Balance Sheets - December 31, 1997 and 1996 F-3
Statement of Operations -
For the Years Ended December 31, 1997,1996 and 1995 F-4
Statement of Changes in Stockholders' Equity -
For the Years Ended December 31, 1997,1996 and 1995 F-6
Statement of Cash Flows -
For the Years Ended December 31, 1997,1996 and 1995 F-7
Notes to Financial Statements F-8
The Following Financial Statement Schedules are Filed with this Report:
Independent Auditors' Report on
Financial Statement Schedules F-19
Schedule V - Property and Equipment for the Years
Ended December 31, 1997,1996 and 1995 F-20
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property and Equipment for the
Years Ended December 31, 1997,1996 and 19954 F-21
All other schedules are omitted because the required information is not
present in amounts sufficient to require submission of the schedule or
because the information required is included in the Consolidated Financial
Statements and Notes thereto.
F-1
<PAGE>
Magee Rausch & Shelton, L.L.P.
Certified Public Accountants
1856 East 15th Street
Tulsa, OK 74159
To the Board of Directors and Stockholders
Questa Oil & Gas Co.
Tulsa, Oklahoma
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Questa Oil & Gas Co. as of
December 31, 1997 and 1996 and the related statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
Questa Oil & Gas Co.and 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Financial statements referred to above present fairly, in
all material respects, the financial position of Questa Oil & Gas Co. as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Magree Rausch & Shelton
March 17, 1998
F-2
<PAGE>
QUESTA OIL AND GAS CO.
<TABLE>
<CAPTION>
BALANCE SHEETS
<S> <C> <C>
DECEMBER 31,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalent $ 490,388 $ 1,027,793
Accounts receivable:
Joint interest owners 167,922 170,050
Oil and gas revenues 302,097 382,250
Other 17,285 8,178
Short term notes receivable 0 100,000
Equipment inventory 16,793 14,794
Other current assets 3,495 7,333
------------- ------------
Total current assets 997,398 1,710,398
------------- ------------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and automobiles 149,260 132,772
Oil and gas properties, using the
successful efforts method:
Proved properties 13,045,317 10,501,701
Undeveloped properties 190,326 148,372
------------- ------------
13,384,903 10,782,845
Less accumulated depreciation,
depletion and amortization 4,956,893 4,157,726
------------- ------------
8,428,010 6,625,119
$ 8,335,517 $ 6,579,921
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 308,504 $ 320,0186
Accounts payable trade and
accrued expenses 334,093 410,542
Advances from drilling partners 13,513 33,832
Undistributed revenue 218,066 232,430
Payable to affiliates 20,854 29,482
------------- ------------
Total current liabilities 895,030 1,026,304
------------- ------------
OTHER LONG-TERM LIABILITIES 84,137 84,137
LONG-TERM DEBT, Less current portion 1,379,963 1,655,367
DEFERRED INCOME TAXES 1,015,000 550,000
STOCKHOLDERS EQUITY:
Common stock, $.01 par value; authorized
50,000,000 shares; 1,358,328 issued
and outstanding 13,583 13,583
Capital in excess of par value 1,098,050 1,098,050
Retained earnings 5,892,548 4,741,207
------------- ------------
7,004,181 5,852,840
Less treasury stock, at cost, 391,836 shares
in 1997 and 379,232 shares in 1996 (952,321) (833,131)
------------- -------------
Total Stockholders' equity 6,051,860 5,019,709
------------- ------------
$ 9,425,990 $ 8,335,517
============= =============
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
QUESTA OIL AND GAS CO.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
1997 1995 1994
REVENUES:
Oil and gas sales $ 4,004,137 $ 3,275,782 $ 2,151,792
Gas contract settlement 15,596 0 62,589
Administrative charges 280,267 282,064 263,328
Management fees 57,600 57,600 57,600
Gain (loss) on sale of assets 8,143 97,146 22,975
Interest and dividend income 53,634 15,944 24,953
Other 162,612 49,501 74,315
------------- ------------- ------------
4,581,989 3,778,037 2,657,552
COSTS AND EXPENSES:
Production costs 1,160,609 1,002,622 718,336
Dry hole and exploration 65,096 399,618 375,144
Depreciation,depletion
and amortization 821,993 560,595 636,547
General and administrative 705,133 599,769 594,340
Interest 157,817 139,070 130,084
------------- ------------- ------------
2,910,648 2,701,674 2,454,451
INCOME BEFORE INCOME TAXES AND
UNUSUAL ITEM 1,671,341 1,076,363 203,101
UNUSUAL ITEM 40,000 0 (190,000)
INCOME BEFORE INCOME TAXES 1,711,341 1,076,363 13,101
------------- ------------- ------------
PROVISION FOR INCOME TAXES:
Current 95,000 45,000 0
Deferred expense (benefit) 465,000 210,000 (81,151)
------------- ------------- -------------
560,000 255,000 (81,151)
NET INCOME $ 1,151,341 $ 821,363 $ 94,252
============= ============= =============
See accompanying notes to financial statements.
F-4
<PAGE>
QUESTA OIL AND GAS CO.
STATEMENT OF OPERATIONS (Continued)
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
EARNINGS PER COMMON SHARES:
Primary:
Net income per common share
and common share equivalent $ 1.18 $ .83 $ .10
Fully Diluted:
Net income per common share
and common share equivalent $ 1.18 $ .83 $ .09
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING:
Primary 977,740 988,559 995,019
Fully diluted 977,740 988,559 1,009,144
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
QUESTA OIL AND GAS CO.
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH DECEMBER 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Common Stock Treasury
Capital in
Par Excess of Retained
Shares Value Par Value Earnings Shares Cost
BALANCES,
JANUARY 1,1995 1,275,328 $ 12,753 $ 849,880 $ 3,825,592 339,147 $ 626,618
Issuance of common
stock by exercise
of warrants 83,000 830 248,170 0 0 0
Purchase of
treasury stock 0 0 0 0 18,775 90,005
Net income 0 0 0 94,252 0 0
BALANCES,
DECEMBER 31,1995 1,358,328 $ 13,583 $1,098,050 $ 3,919,844 357,922 $ 716,623
Purchase of
treasury stock 0 0 0 0 21,310 116,508
Net Income 0 0 0 821,363 0 0
BALANCE,
DECEMBER 31, 1996 1,358,328 $ 13,583 $1,098,050 $ 4,741,207 379,232 $ 833,131
Purchase of
treasury stock 0 0 0 0 12,604 119,190
Net Income 0 0 0 1,151,341 0 0
BALANCE,
DECEMBER 31, 1997 1,358,328 $ 13,583 $1,098,050 $ 5,892,548 391,836 $ 952,321
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
QUESTA OIL AND GAS CO.
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
<S> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income $ 1,151,341 $ 821,363 $ 94,252
Plus adjustments to reconcile
net income to net cash flows from
operating activities:
Loss (gain) on sale of assets (8,143) (97,146) (22,975)
Depreciation, depletion
and amortization 821,993 560,595 636,547
Provision for deferred income
taxes,net 465,000 210,000 (82,531)
Changes in operating assets and
liabilities:
Receivable 73,174 (187,713) (35,943)
Equipment inventory (1,999) 7,905 8,703
Other current assets 3,838 1,424 19,911
Accounts payable trade and
accrued expenses (74,737) 159,169 (207,807)
Advances from drilling partners (20,319) 33,832 (16,415)
Undistributed revenue (14,364) 93,358 (81,555)
Advances from affiliates (8,628) 10,385 19,097
Unusual item (40,000) 0 190,000
------------- ------------- ------------
Net cash provided (used in)
by operating activities 2,347,156 1,613,172 521,284
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase and development of
property and equipment:
Oil and gas properties (2,585,570) (1,931,678) (1,114,849)
Furniture, fixtures
and automobiles (16,488) (6,739) (8,200)
Proceeds from sales of property
and equipment 23,605 532,017 62,984
(Increase) decrease in note
receivable 100,000 100,000 60,000
------------- ------------- -------------
Net cash used in investing
activities (2,478,453) (1,306,400) (1,000,065)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in note
payable - bank (300,000) (200,000) 200,000
Proceeds from borrowing 48,990 1,950,000 0
Payment of debt (35,908) (1,056,003) (305,015)
Purchase of treasury stock (119,190) (116,508) (90,005)
Issuance of common stock 0 0 249,000
------------- ------------- ------------
Net cash provided by (used in)
financing activities (406,108) 577,489 53,980
NET INCREASE (DECREASE) IN CASH (537,405) 884,261 (424,801)
CASH AND CASH EQUIVALENTS,
beginning of year 1,027,793 143,532 568,333
------------- ------------- ------------
CASH AND CASH EQUIVALENTS,
end of year $ 490,388 $ 1,027,793 $ 143,532
SUPPLEMENTAL INFORMATION ============= ============= =============
Cash paid during the year
for interest $ 157,817 $ 139,070 $ 130,084
Cash paid during year for ============= ============= =============
income taxes $ 45,000 $ 0 $ 0
============= ============= =============
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operational Activities - The Company's primary business is acquiring, exploring
and developing oil and gas properties. All properties owned by the Company are
located in the United States.
Inventory - Inventory is comprised primarily of used oil and gas wellhead
equipment and gas production units recorded at the lower of cost or market,
using the specific identification method.
Oil and Gas Properties - The Company uses the successful efforts method of
accounting for its oil and gas activities. Cost of drilling oil and gas
properties are deferred until drilling and completion results are evaluated. At
such time, cost of wells with economically recoverable oil and gas reserves and
development dry hole are capitalized as developed oil and gas properties, and
cost of unsuccessful or uneconomical wells (other than development dry holes)
are expensed. Exploration costs, including geological and geophysical and cost
of carrying and retaining unproved properties, are charged to operations as
incurred. Depreciation, depletion and amortization of the Company's capitalized
costs of undeveloped oil and gas properties are computed using the
unit-of-production method based upon recoverable reserves as determined by Lee
Keeling and Associates (independent petroleum engineers). Cost are not
capitalized in an amount which exceed estimated future undiscounted net revenues
of the Company's proved reserves. Questa is managing general partner of a total
of eight oil and gas limited partnerships. These partnership interests, which
represent interests in producing properties,have been included in developed oil
and gas properties. The Company's share of partnership revenue and expenses is
in the statement of operations. As general partner, Questa makes and receives
advances to the partnerships, which are recorded as receivables from affiliates
and advances from affiliates in the accompanying balance sheets.
Furniture and Fixtures - Furniture and fixtures are depreciated using
accelerated methods over their useful lives of five years. Maintenance and
repair costs are expensed when incurred, while major improvements are
capitalized. Gains or losses on retirement or replacement of furniture and
fixtures are included in operations.
Income Taxes and Change in Accounting Policy - The Company computes income tax
expenses using Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". SFAS No. 109, requires the measurement of
deferred tax assets for deductible temporary differences and operating loss
carry forwards and of deferred tax liabilities for taxable temporary
differences. Measurement of current and deferred tax liabilities and assets is
based on provisions of enacted law; the effects of future changes in tax laws or
rates are not anticipated. Deferred tax assets primarily result from net
operating loss carryforwards and unused minimum tax and tight sand gas credits
and deferred tax liabilities from the recognition of depreciation,depletion and
amortization in different periods for financial reporting purposes.
F-8
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:(Continued)
Concentrations of Credit Risk - The Company's primary business is exploration
and development of oil and gas properties primarily in Texas and Oklahoma. The
Company grants credit to outside Joint interest owners who are located
throughout the United States.
Cash and Cash Equivalents - The Company defines cash and cash equivalents to be
cash on hand, cash in checking accounts, certificates of deposit, cash in money
market accounts and certain investments with short-term maturities.
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 amount of assets and liabilities and
disclosure of contingent asset 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.
2. NOTE PAYABLE:
The Company has a line-of-credit with a local bank. This line of credit allows
maximum borrowing of $1,000,000, with a maturity date of June 30,1998, bears
interest at prime (8.5 percent at December 31, 1997), and is secured by certain
of the Company's oil and gas interest. At December 31, 1997 the Company has not
borrowed on the line-of-credit.
3. LONG-TERM DEBT:
Long-term debt consists of the following:
1997 1996
Note payable to a local bank bearing interest at 6.39%
per annum payable in 60 monthly installments of $394
including interest,secured by automotive equipment.
$ 0 $ 10,202
Note payable to a local bank interest at prime (8.5
percent at December 31,1997),payable in quarterly
installments of $75,000, with all remaining principal
and accrued interest due at maturity on June 30, 2001,
secured by certain of the Company's oil and gas interests.
$ 1,650,000 $ 1,950,000
Note payable to a finance company bearing interest at
3.5% per annum payable in monthly installments of $217
secured by automotive equipment.
$ 0 $ 15,183
Note payable to a local bank bearing interest at 7.57%
per annum payable in 60 monthly installments of $304
including interest,secured by automotive equipment.
$ 14,522 $ 0
Note payable to a local bank bearing interest at 7.75%
per annum payable in 60 monthly installments of $539
including interest,secured by automotive equipment.
$ 23,945 $ 0
$ 1,688,467 $ 1,975,385
Less current maturities 308,504 320,018
------------ -------------
$ 1,379,963 $ 1,655,367
============ =============
F-9
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
3. LONG-TERM DEBT: (continued)
The annual principal repayment requirements are as follows:
1998 $308,504
1999 307,979
2000 308,612
2001 759,296
2002 4,076
4. STOCKHOLDER'S EQUITY:
On March 31, 1986, the stockholders of Questa and the stockholders of Trinity
Oil and Gas, Inc.(Trinity) approved an agreement whereby Questa acquired all of
the outstanding common stock of Trinity in exchange for 125,361 shares of
Questa's common stock (as adjusted for the stock split in 1988).The transaction
was accounted for as a purchase of Trinity by Questa. The fair value of the net
assets of Trinity on the purchase date was determined to be $222,532 by Questa's
Board of Directors. The common stock of Questa issued to Trinity stockholders
was valued at this amount.The agreement also provided that former stockholders
of Trinity would receive an additional 12,000 shares of Questa's common stock
(as adjusted for the stock in 1988) when and if net production from certain
Trinity properties reaches a specific level. This level was not reached as of
December 31, 1997.
During 1991, the Company issued certain stock warrants entitling holders of
these warrants to purchase up to 83,000 shares of Questa common stock at an
exercise price of $3.00 per share. During 1995 all of these warrants were
exercised and the Company received $249,000 and issued 83,000 new shares of
stock.
5. NET EARNINGS PER SHARE
Primary net earnings per share are computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
during the period. Common stock equivalents for primary earnings per share
include shares issuable upon the exercise of the company's outstanding stock
warrants.
For fully diluted net earnings per share the weighted average number of shares
includes common stocks and common stock equivalents which include shares
issuable upon the exercise of the Company's outstanding stock warrants assuming
they were exercised at the beginning of the year.
F-10
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
6. EMPLOYEE RETIREMENT PLAN:
During 1992, by action of the Board of Directors, the Company adopted a defined
contribution profit sharing plan with a 401(K) provision effective August 1,
1992. The plan calls for discretionary contribution to be made by the employer.
The plan also allows elective deferrals by plan participants of up to 10 percent
of their annual salary. These elective deferrals are being matched with company
contributions of up to six percent of each participant's compensation.
Contributions to this plan and plan expenses totaled approximately $30,000,
$31,000 and $31,000 for 1997, 1996 and 1995.
7. ADMINISTRATIVE CHARGES AND MANAGEMENT FEES:
Administrative charges represent amounts charged to joint interest owners for
services performed in administering joint operations.Amounts charged to related
partnerships for the years ended December 31, 1997, 1996,and 1995 were $45,100,
$40,300 and $36,000 respectively.Management fees are amounts charged to limited
partnerships for services performed by the Company as managing general partner.
8. INCOME TAXES
The net deferred tax liability in the accompanying balance sheet includes the
following amounts of deferred tax assets and liabilities:
1997 1996 1995
Deferred tax assets $ 50,000 $ 404,600 $ 150,000
Valuation allowance 0 0 0
Net deferred tax asset 50,000 404,600 150,000
Deferred tax liability 1,065,000 954,600 490,000
Net deferred tax liability $1,015,000 $ 550,000 $ 340,000
The deferred tax liability results primarily from deducting intangible drilling
costs for tax purposes. The deferred tax asset results from net operating loss
carry forwards and alterative minimum tax credit carry forwards. The components
of income tax expense (benefit)related to continuing operations are as follows:
1997 1996 1995
Federal
Current $ 95,000 $ 45,000 $ 0
Deferred (benefit) 465,000 210,000 (81,151)
$ 560,000 $ 255,000 $ (81,151)
F-11
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES: (Continued)
Questa's income tax expense differed from the statutory federal rate of 34% as
follows:
1997 1996 1995
Statutory rate applied to earnings
before income taxes $ 582,000 $ 366,000 $ 7,500
Increase (decrease) in income taxes
resulting from:
Note receivable write-off 14,000 0 (64,600)
Deduction of intangible
drilling costs (177,000) (100,000) 0
Use of tight sands tax credit (20,000) (11,000) 0
Other 161,000 0 (24,051)
Income tax expense (benefit) $ 560,000 $ 255,000 $ (81,151)
========== ========== ==========
9. MAJOR CUSTOMERS:
Oil and gas purchasers, individually, accounted for more than 10% of the total
revenues in each of the three years as follows:
Purchaser 1997 1996 1995
A 15% 17% 18%
B 12% 10% 10%
C 36% 37% 27%
F-12
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCY:
The Company is obligated under operating leases for rental of its office
facilities during future years ending December 31 as follows:
1998 $ 26,390
1999 27,050
Rent expense for the years ended December 31, 1997, 1996, 1995, was $25,483,
$15,228, and $23,889, respectively.
11. FINANCIAL INSTRUMENTS:
The Company's financial instruments subject to credit risk include accounts
receivable and cash on deposit at various banks.
12. NOTES RECEIVABLE:
In January of 1994, Questa made loans totaling $450,000 to an accounts
receivable factoring company. The accounts receivable factoring company is not
a related party. The loans are generally unsecured.
In July of 1997 the Company restructured these loans.The note bears interest at
9% per annum, called for principal payments of $130,000 in 1996 and monthly
payments in 1997 of $20,000 per month with a balloon payment due in December
1997. This loan continues to be unsecured.
Based on the financial status of the factoring company and other factors,Questa
has decided not to record accrued interest on the note and to reserve the
$150,000 outstanding balance as of December 31, 1997. The balance is reported
as follows:
1997 1996
Notes receivable $ 150,000 $ 290,000
Less reserve 150,000 190,000
$ 0 $ 100,000
Short term $ 0 $ 100,000
Long term $ 0 $ 0
The recording of the reserve for this note and partial subsequent collection
has been recorded as an unusual item in 1995 and 1997 due to the receivable
not occurring from Questa's normal course of business.
F-13
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
13. GAS CONTRACT SETTLEMENT:
During 1995,the Company recognized income of $62,589 relating to a gas contract
settlement received in a prior year. The Company's ownership of this portion of
the settlement was uncertain until 1995. Upon advice from legal counsel the
Company moved the amount from liabilities to income. During 1997, the Company
recognized an additional $15,596 relating to this settlement.
14. RELATED PARTY TRANSACTIONS:
During 1995 Questa purchased 4,600 shares of its own stock from the Vice
President, Director of the Company. The purchase price was $20,700.
During 1997 Questa purchased certain oil and gas properties from the Vice
President, Director of the Company. The purchase price was $10,000.
15. SUBSEQUENT EVENT:
On February 18, 1998, the Stockholders authorized a 10-for-1 reverse stock
split and a 20-to-1 forward stock split. As a result of the reverse stock
split, the Company has decided to pay cash for factional shares. This resulted
in a liability of approximately $57,000.
16. SUPPLEMENTARY OIL AND GAS INFORMATION (Unaudited):
Capitalized Costs - Capitalized costs relating to the Company's oil and gas
producing activities as of December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
Oil and gas properties $ 10,510,388 $ 8,149,586 $ 7,035,189
Well and related equipment 2,725,255 2,500,487 2,197,667
$ 13,235,643 $ 10,650,073 $ 9,232,856
Accumulated depreciation,
depletion and amortization (4,877,483) (4,059,019) (3,590,413)
$ 8,358,160 $ 6,591,054 $ 5,642,443
============= ============= =============
Cost incurred in Oil and Gas Property Acquisition, Exploration and Development
Activities - Costs incurred in oil and gas property acquisition,exploration and
development activities, including capital expenditures, are summarized as
follows for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
Property acquisition cost:
Proved $ 2,063,266 $ 768,785 $ 475,128
Unproved 71,993 108,816 41,110
Exploration and development costs 578,279 1,054,077 598,611
$ 2,713,538 $ 1,931,678 $ 1,114,849
============= ============= =============
F-14
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
16. SUPPLEMENTARY OIL AND GAS INFORMATION (Unaudited):(Continued)
Oil and Gas Reserve Quantities - The estimates of proved reserves and related
valuations were determined by Lee Keeling and Associates (independent petroleum
engineers) in accordance with the rules of the Securities and Exchange
Commission. Estimates of proved reserves are inherently imprecise and are
continually subject to revision based on production history, results of
additional exploration and development and other factors.
Proved reserves are reserves judged to be economically producible in future
years from known reservoirs under existing economic and operating conditions,
i.e., prices and costs as of the date the estimate is made and assuming
continuation of current regulatory practices using conventional production
methods and equipment. Proved developed reserves are expected to be recovered
through existing wells, equipment and operating methods.
Following is a summary of the changes in estimated proved developed reserves
of the Company, all of which are located in the continental United States, for
the years ended December 31, 1997, 1996 and 1995. For these years,the Company's
proved undeveloped reserves were immaterial in relation to total reserves and
are not presented below.
OIL (BBLS)
1997 1996 1995
Proved developed reserves:
Beginning year 460,451 464,017 328,911
Revisions of previous estimates (5,803) 14,584 102,999
Purchases of minerals in place 24,956 23,227 68,109
Extension and discoveries 27,416 2,034 3,337
Sales of mineral in place 0 (3,297) 0
Production (41,798) (40,114) (39,339)
End of year 465,222 460,451 464,017
========= ========= =========
GAS (MCF)
1997 1996 1995
Proved developed reserves:
Beginning year 15,910,802 13,481,897 8,762,173
Revisions of previous estimates (1,881,311) 1,101,029 2,791,556
Purchases of minerals in place 1,102,672 2,148,249 2,155,140
Extension and discoveries 397,998 406,799 728,463
Sales of mineral in place 0 (148,314) 0
Production (1,179,299) (1,078,858) (955,435)
End of year 14,350,862 15,910,802 13,481,897
============ ============ ============
F-15
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
16. SUPPLEMENTARY OIL AND GAS INFORMATION (Unaudited):(Continued)
Standardized Measure of Discounted Future Net Cash Flows and Changes Relating to
Proved Developed Oil and Gas Reserves - Statement of Financial Accounting
Standards No. 69 prescribes guidelines for computing a standardized measure of
future net cash flows and changes therein relating to estimated proved reserves.
The Company has followed these guidelines which are briefly discussed in the
following paragraphs.
Future cash inflows and future production and development costs are determined
by applying year-end prices and costs to the estimated quantities of oil and gas
to be produced. Estimated future income taxes are computed by using year-end
statuary income tax rates including consideration for previously legislated
future statuary depletion rates. The resulting future net cash flows are reduced
to present value amount by applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed by
the Financial accounting Standard Board and, as such, do not necessarily reflect
the Company's expectations of actual revenues to be derived from those reserves
or their present worth. The limitations inherent in the reserve quantity
estimate process, as discussed previously, are equally applicable to the
standardized measure computations since these estimates are the basis for the
valuation process.
Presented below is the standardized measure of discounted future net cash flows
relating to proved developed reserves as of:
DECEMBER 31,
1997 1996 1995
Future cash inflows $ 40,426,000 $ 70,821,000 $ 31,562,000
Future production and
development costs (13,761,000) (17,970,000) (11,432,000)
Future income tax expense (6,666,000) (13,213,000) (5,033,000)
Future net cash flows 19,999,000 39,638,000 15,097,000
10% annual discount for estimated
timing of cash flows (9,000,000) (18,888,000) (6,977,000)
Standardized measure of discounted
future net cash flows $ 10,999,000 $ 20,750,000 $ 8,120,000
============== ============== ==============
F-16
<PAGE>
QUESTA OIL AND GAS CO.
NOTES TO FINANCIAL STATEMENTS
15. SUPPLEMENTARY OIL AND GAS INFORMATION (Unaudited):(Continued)
The following are the principal sources of changes in the standardized measure
of discounted future net cash flows for the years ended December 31, 1997, 1996
and 1995:
1997 1996 1995
Standardized measure -
beginning of year $ 20,750,000 $ 8,120,000 $ 5,465,000
Sale and transfers of oil and gas
produced, net of production costs (2,844,000) (2,275,000) (1,435,000)
Extensions, discoveries and
improved recovery,less related costs 1,426,000 1,676,000 1,437,000
Net change due to quantity revisions (4,705,000) 4,755,000 6,220,000
Net change in prices and
production costs (23,875,000) 26,794,000 (2,750,000)
Purchases of minerals in place 3,173,000 9,152,000 4,965,000
Net change in income taxes 6,547,000 (8,180,000) (2,157,000)
Net change in future
development costs (65,000) 82,000 191,000
Accretion of discount 10,592,000 (19,375,000) (3,816,000)
Net increase ( decrease) (9,751,000) 12,630,000 2,655,000
Standardized measure - end of year $ 10,999,000 $ 20,750,000 $ 8,120,000
============= ============= ==============
F-17
<PAGE>
SUPPLEMENTARY INFORMATION
F-18
<PAGE>
Magee Rausch & Shelton, L.L.P.
Certified Public Accountants
1856 East 15th Street
Tulsa, OK 74159
To the Board of Directors and Stockholders
Questa Oil & Gas Co.
Tulsa, Oklahoma
INDEPENDENT AUDITORS' REPORT
ON SUPPLEMENTARY INFORMATION
Our audit was made for the purpose of forming an opinion on the basis financial
statements take as a whole. The schedules to the financial statements referred
to in the accompanying index are presented for the purposes of additional
analysis and are not a required part of the basic financial statements. Such
information for the years ended December 31, 1997, 1996 and 1995 has been
subjected to the auditing procedures applied in the audits of the basic
financial statements. In our opinion, such information for the years ended
December 31, 1997, 1995 and 1994 are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Magree Rausch & Shelton
March 17, 1998
F-19
<PAGE>
QUESTA OIL AND GAS CO.
<TABLE>
<CAPTION>
SCHEDULE V - PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<S> <C> <C> <C> <C> <C>
Other
Balance Changes Balance at
Beginning Additions Add End of
Classification of Period At Cost Retirement (Deduct) Period
Year Ended December 31, 1997:
Furniture, fixtures
and automobiles $ 132,772 $ 67,838 $ (51,350) $ 0 $ 149,260
Oil and gas properties:
Producing Properties 10,501,701 2,529,671 0 13,945 * 13,045,317
Unproved properties 148,372 55,899 0 (13,945)* 190,326
$10,782,845 $2,653,408 $ (51,350) $ 0 $13,384,903
=========== ========== =========== ========== ===========
Year Ended December 31, 1996:
Furniture, fixtures
and automobiles $ 126,033 $ 6,739 $ 0 $ 0 $ 132,772
Oil and gas properties:
Producing Properties 9,161,409 1,822,862 (510,216) (27,646 * 10,501,701
Unproved properties 71,447 108,816 (4,245) (27,646)* 148,372
$ 9,358,889 $ 1,938,417 $ (514,461) $ 0 $10,782,845
=========== =========== =========== ========= ===========
Year Ended December 31, 1995:
Furniture, fixtures
and automobiles $ 110,073 $ 27,160 $ 11,200 $ 0 $ 126,033
Oil and gas properties:
Producing Properties 8,217,872 1,073,739 145,437 15,235 * 9,161,409
Unproved properties 45,572 41,110 0 (15,235)* 71,447
$ 8,373,517 $1,142,009 $ 156,637 $ 0 $ 9,358,889
=========== ========== ========== ========== ===========
<FN>
</FN>
</TABLE>
* Reclassification from unproved to producing properties.
F-20
<PAGE>
QUESTA OIL AND GAS CO.
<TABLE>
<CAPTION>
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<S> <C> <C> <C> <C> <C>
Other
Balance Changes Balance at
Beginning Additions Add End of
Classification of Period At Cost Retirement (Deduct) Period
Year Ended December 31, 1997:
Furniture, fixtures
and automobiles $ 98,707 $ 3,528 $ (22,825) $ 0 $ 79,410
Oil and gas properties:
Producing Properties 4,059,019 818,464 0 0 4,877,483
$4,157,726 $ 821,992 $ (22,825) $ 0 $ 4,956,893
========== ========== =========== ========== ===========
Year Ended December 31, 1996:
Furniture, fixtures
and automobiles $ 86,308 $ 12,399 $ 0 $ 0 $ 98,707
Oil and gas properties:
Producing Properties 3,590,413 548,196 (79,590) 0 4,059,019
$3,676,721 $ 560,595 $ (79,590) $ 0 $ 4,157,726
========== ========== =========== ========== ===========
Year Ended December 31, 1995:
Furniture, fixtures
and automobiles 78,717 8,018 (427) 0 86,308
Oil and gas properties:
Producing Properties 3,078,085 628,529 (116,201) 0 3,590,416
$3,156,802 $ 636,547 $ (116,628) $ 0 $ 3,676,721
========== ========== =========== ========== ===========
</TABLE>
F-20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 490388
<SECURITIES> 0
<RECEIVABLES> 497304
<ALLOWANCES> 10000
<INVENTORY> 16793
<CURRENT-ASSETS> 997980
<PP&E> 13384903
<DEPRECIATION> 4956893
<TOTAL-ASSETS> 9425990
<CURRENT-LIABILITIES> 895030
<BONDS> 0
0
0
<COMMON> 13583
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9425990
<SALES> 4004137
<TOTAL-REVENUES> 4581989
<CGS> 1160609
<TOTAL-COSTS> 2910648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157817
<INCOME-PRETAX> 1671341
<INCOME-TAX> 560000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 40000
<CHANGES> 0
<NET-INCOME> 1151341
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
