<PAGE> 1
________________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
------ OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
OR
------ TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From................. to.................
Commission File Number 1-8287
RIO GRANDE, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 74-1973357
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10101 REUNION PLACE, SUITE 210, SAN ANTONIO, TEXAS 78216-4156
(Address of Principal Executive Office) (Zip Code)
ISSUER'S TELEPHONE NUMBER INCLUDING AREA CODE: 210-308-8000
__________________
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 .
----- -----
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
At September 14, 1995 there were 5,552,760 shares of the registrant's
common stock outstanding.
________________________________________________________________________________
<PAGE> 2
RIO GRANDE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Combined Balance Sheets
ended July 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Combined Statements of Operations
Three Months and Six Months
Ended July 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Combined Statements of Cash Flows
Six Months Ended July 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RIO GRANDE, INC. AND SUBSIDIARIES
CONDENSED COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31,
1995
ASSETS ---------
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 359
Receivables: Trade and other 545
Prepaid expenses and other 69
---------
Total current assets 973
PROPERTY AND EQUIPMENT, AT COST 7,812
Less accumulated depreciation, depletion and amortization 2,904
---------
NET PROPERTY AND EQUIPMENT 4,908
OTHER ASSETS 1,079
---------
$ 6,960
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable 252
Accrued expenses 105
Current installments of long-term debt 544
---------
TOTAL CURRENT LIABILITIES 901
Accrued platform abandonment expense 951
Minority interest combined limited partnership 1,016
Long-term debt, excluding current installments 1,390
---------
TOTAL LIABILITIES 4,258
SHAREHOLDERS' EQUITY 2,702
---------
$ 6,960
=========
</TABLE>
See accompanying notes to combined condensed financial statements.
-3-
<PAGE> 4
ITEM 1- FINANCIAL STATEMENTS (CONTINUED)
RIO GRANDE, INC. AND SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JULY 31, JULY 31,
------------------------ ------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas leases $ 900 985 1,928 1,921
---------- --------- --------- ---------
TOTAL REVENUES 900 985 1,928 1,921
---------- --------- --------- ---------
COSTS AND EXPENSES:
Lease operating and other production expense 506 373 985 650
Dry hole costs - 7 - 7
Depreciation, depletion and amortization 329 255 677 548
Provisions for abandonment 45 30 90 88
General and administrative 344 262 648 433
---------- --------- --------- ---------
TOTAL COSTS AND EXPENSES 1,224 927 2,400 1,726
---------- --------- --------- ---------
EARNINGS (LOSS) FROM OPERATIONS (324) 58 (472) 195
---------- --------- --------- ---------
OTHER INCOME (EXPENSES):
Interest expense (65) (32) (143) (45)
Interest income 15 10 16 19
Gain on sale of assets 1,197 60 1,202 102
Other (net) (3) 10 (10) 23
Minority interest in earnings of combined
limited partnership (212) (73) (209) (139)
---------- --------- --------- ---------
TOTAL OTHER INCOME(EXPENSES) 932 (25) 856 (40)
---------- --------- --------- ---------
Earnings (loss) from continuing operations 608 33 384 155
State income and franchise taxes 2 2 4 7
---------- --------- --------- ---------
NET EARNINGS (LOSS) 606 31 380 148
========== ========= ========= =========
Net earnings per common and common equivalent
share 0.10 0.01 0.06 0.02
========== ========= ========= =========
Weighted average common and common equivalent
shares outstanding 5,927,760 6,029,293 5,927,760 6,020,038
========== ========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
-4-
<PAGE> 5
ITEM 1- FINANCIAL STATEMENTS (CONTINUED)
RIO GRANDE, INC. AND SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JULY 31,
------------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings from continuing operations $ 380 148
Adjustments to reconcile earnings from continuing
operations to net cash used in operating activities:
Depreciation and other amortization 32 13
Depletion of oil and gas producing properties 645 535
Gain on sale of assets (1,202) -
Minority interest in equity of limited partnerships 209 139
(Increase) decrease in accounts and notes receivable 215 -
(Increase) decrease in prepaids and other assets (39) (260)
Increase (decrease) in accounts payable and accrued expenses (30) 281
-------- --------
Net cash provided by (used in) continuing operating activities 210 856
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) disposition of oil and gas producing properties (152) (3,702)
(Purchase) of other property and equipment - -
(Additions to) deletions from platform abandonment fund
net of deferred liability (160) 22
(Additions to) other assets - (36)
Proceeds from sale of property and equipment 1,766 -
-------- --------
Net cash provided by (used in) investing activities 1,454 (3,716)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings - 2,766
Repayment of long-term borrowings (1,084) (295)
Distribution to limited partners (416) 467
-------- --------
Net cash provided by (used in) financing activities (1,500) 2,938
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 164 78
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 195 340
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 359 418
======== ========
</TABLE>
See accompanying notes to combined financial statements.
-5-
<PAGE> 6
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
RIO GRANDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Accounting Policies
The accounting policies of Rio Grande, Inc. and Subsidiaries as set
forth in the notes to the Company's audited financial statements in the
Form 10-K Report filed for the year ended January 31, 1995, are
incorporated herein by reference. Refer to those notes for additional
details of the Company's financial condition, results of operations and
cash flows. All material items included in those notes have not changed
except as a result of normal transactions in the interim, or any items
which are disclosed in this report.
As a result of the Company's eighty percent (80%) ownership interest
in Rio Grande Offshore, Ltd. ("Offshore"), Offshore's financial statements
are combined with the Company. The minority interests of the limited
partners are set out in the balance sheet and the statement of operations
of the Company.
In the opinion of management, the condensed combined financial
statements reflect all adjustments which are necessary for a fair
presentation of the financial position and results of operations.
Adjustments made for the six months ended July 31, 1995 are considered
normal and recurring in nature.
The Company adopted the successful efforts method of accounting for
the oil and gas properties purchased. Under this method of accounting,
the acquisition costs of the oil and gas properties applicable to proved
reserves are amortized on the unit-of-production method as produced.
Future development costs or exploratory costs applicable to purchased
properties are capitalized and amortized on the unit-of-production method
if proved reserves are discovered or expensed if the well is a dry hole.
Per share computations are based on the weighted average number of
shares and dilutive common stock equivalents outstanding during the
respective periods. Fully dilutive earnings per share is the same as
earnings per common and common equivalent shares.
(2) Statement of Financial Accounting Standards No. 109 ("Statement 109")
The Company adopted Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, effective February 1, 1993. Statement
109 requires a change from the deferred method of accounting for income
taxes under APB Opinion 11 to the asset and liability method. Under the
asset and liability method, deferred income taxes are recognized for the
tax consequences resulting from "temporary differences" by applying
enacted statutory tax rates applicable to future years. These "temporary
differences" are associated with differences between the financial
statement amounts and the tax basis of existing assets and liabilities. A
valuation allowance is utilized to reduce deferred tax assets to their
expected realizable amount. A valuation allowance has been established to
decrease total gross deferred tax assets to the amount of the total gross
tax liabilities due to the uncertainties involved in the ultimate
realization of the deferred tax assets.
-6-
<PAGE> 7
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
(3) Statement of Financial Accounting Standards No. 121 ("Statement 121")
Statement 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. Statement 121 is effective
for financial statements for fiscal years beginning after December 15,
1995, although earlier application is recommended. The Company
anticipates that the implementation of Statement 121 will be on an annual
basis upon the receipt of the annual estimate of reserves from the
independent petroleum reserve engineers retained by the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
1. Material Changes in Financial Condition.
There were no material changes in the financial condition of
the Company for the period from the fiscal year ended January 31, 1995
through the six months ended July 31, 1995, except for the sale of
certain oil and gas properties and the reduction of bank debt as
described below.
2. Material Changes in Results of Operations.
Oil and Gas Production Segment
For the quarter and six months ended July 31, 1995, revenues
from oil and gas production were approximately $900,000 and
$1,928,000, respectively, as compared to $985,000 and $1,921,000 for
the quarter and six months ended July 31, 1994. Production operating
expenses for the quarter and six months ended July 31, 1995 were
approximately $506,000 and $985,000, respectively, as compared to the
operating expense of $373,000 and $650,000 for the same periods ended
July 31, 1994. The increase in operating expenses results from
additional expenses incurred by the addition of oil and gas properties
acquired in 1994. Revenues did not increase commensurate with
expenses due principally to lower gas prices during the first six
months of 1995. The average price of gas sold during the period ended
July 31, 1995 was $1.65 per MCF as compared to $2.23 per MCF during
the period ended July 31, 1994.
The Company utilizes the successful efforts method of
accounting for its oil and gas properties. Amortization expenses for
the quarter and six months ended July 31, 1995 based on the
unit-of-production method were approximately $313,000 and $645,000,
respectively, for 480 and 989 MMCF equivalent units of production.
Amortization expenses for the quarter and six months ended July 31,
1994, were approximately $248,000 and $555,000 for 403 and 796 MMCF
equivalent units of production, respectively.
Interest expense for the quarter and six months ended July 31,
1995 was approximately $65,000 and $143,000, respectively. Interest
expense for the quarter and six months ended July 31, 1994 was
approximately $32,000 and $45,000, respectively. Interest expense
increased due to the additional debt incurred with the acquisition of
oil and gas properties in 1994.
-7-
<PAGE> 8
In May 1995, Rio Grande Offshore, Ltd. sold its interest in a
certain oil and gas property located offshore Louisiana. The
consolidated revenues generated by this property were $95,000 for the
six months ended July 31, 1995 and $324,000 for the comparable period
ended July 31, 1994. The related direct operating expenses for the
respective periods were $4,000 and $25,000. In July, 1995, Rio Grande
Offshore, Ltd. sold additional oil and gas properties located in West
Texas. The consolidated revenues generated by these properties were
$38,000 for the six months ended July 31, 1995 and $27,000 for the six
months ended July 31, 1994. The related direct operating expenses for
the respective periods were $16,000 and $15,000.
Rio Grande Drilling Company, as an eighty percent (80%)
partner, received cash distributions of $1,032,000 and $184,000 from
the sale of these oil and gas properties. From the proceeds of these
sales, $800,000 and $170,000, respectively, applied to reduce bank
indebtedness. The interest expense applicable to the $970,000
reduction in bank debt for the six months ended July 31, 1995 and 1994
was $40,000 and $60,000, respectively. The amortization of leasehold
costs applicable to those oil and gas properties for the six months
ended July 31, 1995 and 1994 was $26,000 and $52,000, respectively.
Pro Forma Statements of Operations for the six months ended July 31,
1995 and 1994 which exclude the revenues and expenses applicable to
the oil and gas properties sold have been included as Exhibit 99(a)
the Form 10-QSB.
General and administrative expenses for the quarter and six
months ended July 31, 1995 were approximately $344,000 and $648,000,
respectively, as compared to $262,000 and $433,000 for the quarter
and six months ended July 31, 1994. The increase in general and
administrative expenses is the result of the addition of office space
and employees necessary to operate the additional oil and gas
properties acquired in 1994. As the operator of these oil and gas
properties, the Company charges participating working interest owners,
including an affiliated limited partnership, for overhead based on the
Council of Petroleum Accountants Societies ("COPAS") monthly rates.
COPAS overhead rates are charged on an individual well basis to
reimburse the operator for general costs of executive and
administrative functions incurred by the corporate office for
operating wells. General and administrative expenses were not reduced
significantly by charges to other working interest owners since the
Company is the majority owner of the operated oil and gas properties.
Liquidity and Capital Resources
In May 1995, Rio Grande Offshore, Ltd. sold its interest in a
certain oil and gas property located offshore of Louisiana. Proceeds
from the sale of this property were approximately $1,290,000, which
resulted in a gain on sale to the partnership of approximately
$1,129,000. Rio Grande Drilling Company, as an eighty percent (80%)
partner, received a cash distribution of approximately $1,032,000 from
the sale of which $800,000 was applied as a principal payment on the
Company's outstanding debt. In July 1995, Rio Grande Offshore, Ltd.
sold its interest in certain oil and gas properties located in West
Texas. Proceeds from the sale of these properties were approximately
$184,000 to the Company of which $170,000 was applied as a reduction
to the Company's debt. The Company's bank lender restructured the
Company's monthly principal and interest payments through May 31, 1996
as a result of the $970,000 reduction in bank debt. The restructured
monthly payments of principal and interest are $50,000 through August
1995, $55,000 through December 1995 and $61,000 through May 1996, the
maturity date for the bank debt. The bank, at its sole discretion,
has the option to renew or extend the maturity date of the
-8-
<PAGE> 9
Company's bank indebtedness. It is expected that the principal balance
remaining on the bank indebtedness will be approximately $1.4 million
at May 31, 1996, the current maturity date. No assurances can be
given that the Bank will agree to renew, extend or restructure the
Company's bank debt.
Lower gas prices are the primary reason for the decline in the
Company's financial performance during the quarter and six months
ended July 31, 1995. Approximately seventy percent (70%) of the
Company's sales production volume is from gas. The average gas price
for the first six months of 1995 was approximately fifty-eight cents
per MCF less than the average for the first six months of 1994. The
Company's ability to meet its current financial commitments and to
have access to additional working capital to operate and develop its
existing oil and gas properties is dependent on the market prices for
oil and natural gas and the production levels of the specific
properties. The production levels of the existing oil and gas
properties have remained relatively stable. At current levels of
production, if market prices, particularly natural gas prices, decline
materially from current levels, no assurances can be given that the
Company will be able to meet its current obligations or secure
additional working capital for development of existing properties or
acquisition of additional properties.
The Company is not obligated to provide a fixed or
determinable quantity of oil or gas in the future under any existing
contracts, agreements or any hedge or swap arrangements.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On August 7, 1995, the Company commenced selling through a
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM, 11.50% SUBORDINATED
NOTES and WARRANTS to purchase Class A Common Stock, par value
$.01 of the Company's common stock at $.40 per share. The
Company is offering a minimum of 60 units for a total of
$1,500,000 and a maximum of 80 units for a total of $2,000,000
in principal amount of subordinated notes. A minimum of
979,860 and a maximum of 1,388,160 shares of Common Stock
shall be subject to the Warrants. The Company is offering the
Subordinated Debt and Warrants to finance a development
program on certain oil and gas properties in which the Company
has an interest.
-9-
<PAGE> 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
E-2 Exhibit 10(v) - Purchase and Sale Agreement
dated May 24, 1995, between Newfield
Exploration Company and Rio Grande Offshore,
Ltd. for the sale of Ewing Bank Blocks
947/903 and Ship Shoal Block 356 at a sales
price of $1,200,000.
E-21 Exhibit 10(w) - Consulting Agreement dated
August 10, 1995, between Hobby A. Abshier and
Rio Grande, Inc.
E-23 Exhibit 99(a) - Pro Forma Condensed Combined
Statements of Operations for the six months
ended July 31, 1994 and 1995.
(b) Reports on Form 8-K
None.
-10-
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the issuer has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
RIO GRANDE, INC.
Date: September 14, 1995 By: /s/ Guy R. Buschman
-------------------------
Guy R. Buschman, President
Date: September 14, 1995 By: s/ Gary Scheele
-------------------------
Gary Scheele, Secretary
and Treasurer
(principal financial officer)
-11-
<PAGE> 12
INDEX TO EXHIBITS
The following exhibits are numbered in accordance with Item 601 of Regulation
S-B.
Exhibit 10(v) - Purchase and Sale Agreement dated May 24, 1995,
between Newfield Exploration Company and Rio Grande Offshore, Ltd. for
the sale of Ewing Bank Blocks 947/903 and Ship Shoal Block 356 at a
sales price of $1,200,000.
Exhibit 10(w) - Consulting Agreement dated August 10, 1995, between
Hobby A. Abshier and Rio Grande, Inc.
Exhibit 99(a) - Pro Forma Condensed Combined Statements of Operations
for the six months ended July 31, 1994 and 1995.
<PAGE> 1
EXHIBIT 10(v)
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT, made and entered into this 24th day of May 1995, by
and between Newfield Exploration Company, whose address is 363 N. Sam Houston
Parkway East, Suite 2020, Houston, Texas, 77060, hereinafter referred to as
(Buyer) and Rio Grande Drilling Company ("Rio Grande Drilling") and Rio Grande
Offshore, Ltd. ("Offshore") whose address is 10101 Reunion Place, Suite 210,
San Antonio, Texas 78216-4156, hereinafter collectively referred to as
(Seller).
ARTICLE 1
PURCHASE AND SALE
1.01 PURCHASE AND SALE. Subject to the terms of this Agreement,
Seller agrees to sell the Interests to Buyer and Buyer agrees to purchase the
Interests from Seller.
1.02 INTERESTS. The following shall be referred to as the
Interests:
(a) The interest in the oil and gas leases and lands
described in Exhibit A and in the wells described in Exhibit A,
including, without limitation, working, leasehold, mineral, royalty,
overriding royalty, net revenue, net profits, reversionary and any
other interests of a similar nature including without limitation the
undivided interest in Operating Rights in the lease expressed as a
percentage on Exhibit A hereof ("Leases");
(b) All of Seller's right, title and interest in all
wells, equipment, fixtures, platforms, personal property and
improvements (including, without limitation, materials, plants,
pipelines, gathering and processing systems and salt water disposal
systems) which are located on, appurtenant to or used in connection
with the Leases now, as of the Effective Time or as of the Closing
Date ("Equipment");
(c) All of Seller's right, title and interests in all
contracts, escrowed funds for the abandonment of the Interest,
agreements, instruments, payout balances, commitments, licenses,
permits, easements, rights- of-way and other rights of Seller relating
to the items described in this Section 1.02, together with all of
Seller's rights, claims and causes of action under such items arising
after the Effective Time ("Contracts");
(d) All of Seller's right, title and interest in oil,
gas, condensate, related hydrocarbons and other minerals produced from
the Leases after the Effective Time ("Substances");
(e) All accounts including Seller's share of the
abandonment escrow account, instruments, general intangibles, liens
and security interests arising from the sale or other disposition of
the items described in this Section 1.02 on or after the Effective
Time ("Accounts").
E-2
<PAGE> 2
(f) All of Seller's information relating to the
Interests, reservoir, land, operation and production files and other
data including geological, engineering and proprietary geophysical
data (both "2-D" and "3-D"), maps, logs, core analysis, formation
tests, production records; legal, title, accounting and contract
files.
1.03 EFFECTIVE TIME. The purchase and sale of the Interests shall
be effective for all purposes on April 1, 1995, at 7:00 a.m., Central Standard
Time ("Effective Time").
ARTICLE 2
PURCHASE PRICE
2.01 PURCHASE PRICE. The purchase price for the Interests is one
million two hundred thousand dollars ($1,200,000) ("Purchase Price").
2.02 ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be
adjusted as provided in this Section 2.02 and the resulting amount shall be
referred to as the "Adjusted Purchase Price". Not less than three (3) days
prior to the Closing Date, Seller shall deliver to Buyer a Preliminary Closing
Statement, substantially in the form attached hereto as Schedule 2.02, setting
forth adjustments to the Purchase Price using the best information then
available and prepared in accordance with customary accounting principles used
in the oil and gas industry.
(a) The Purchase Price shall be increased by the following:
(1) an amount equal to the quantity of merchantable oil
produced from the Leases in storage at the Effective Time, and not
sold or disposed of prior to Closing, multiplied by the posted price
for such oil at the Effective Time, net of all taxes and gravity
adjustments and transportation expenses necessary to market such
production.
(2) the amount of the operating and capital expenditures
together with any lease operating expenses charged under applicable
operating agreements and general and administrative costs charged
as overhead charges under applicable operating agreements, that
are (i) attributable to the Interests during the period between
the Effective Time and Closing, (ii) incurred and paid by Seller,
including without limitation capital expenditures approved in
accordance with Section 4.01 or otherwise made in compliance with this
Agreement. There shall be no upward adjustment for Seller's general
and administrative expenses and overhead except to the extent
chargeable under the terms of an operating agreement covering the
Leases.
E-3
<PAGE> 3
(3) taxes paid by Seller for assessments based on
ownership of the interests after the Effective Time, the production of
hydrocarbons therefrom, or the receipt of proceeds attributable
thereto (excluding income taxes) after the Effective Time.
(4) an amount equal to all prepaid expenses attributable
to the Interests paid by Seller and attributable to the period from
and after the Effective Time, including without limitation prepaid
insurance and prepaid ad valorem, property, production and other taxes
accruing to the benefit of Buyer subsequent to the Effective Time.
(b) The Purchase Price shall be decreased by the following:
(1) The amount of net proceeds or other value received by
Seller for the sale of disposition of Substances, as defined herein,
including net proceeds from the sale of liquids and other constituents
removed in gas plants or other processing facilities for production
occurring after the Effective Time;
(2) the amount of proceeds or other value received by
Seller for the sale or disposition after the Effective Time of any
portion of the Interests;
(3) an amount equal to the value of all uncured Title
Defects as determined under Section 5.06; and
(4) the amount of all unpaid taxes and assessments based
on the ownership of property, the production of hydrocarbons or the
receipt of proceeds, excluding income taxes, accruing to the Interests
prior to the Effective Time and for the payment of which Buyer assumes
liability subsequent to Closing. If possible, this adjustment shall
be computed using the tax rate and values for the tax period in
question. If this is not possible, the adjustment shall be based on
the taxes assessed for the immediately preceding tax period. If taxes
assessed for the preceding tax period are determined to be more or
less than the actual taxes, the difference shall be a Post-Closing
Adjustment or Subsequent Adjustment under Sections 9.01 and 9.02.
2.03 PAYMENT OF ADJUSTED PURCHASE PRICE. At Closing, Buyer shall
pay Seller an amount equal to the Adjusted Purchase Price in immediately
available funds. Such amount shall be referred to as the "Closing Amount".
E-4
<PAGE> 4
ARTICLE 3
REPRESENTATIONS AND DISCLAIMERS
3.01 SELLER'S REPRESENTATIONS. Seller represents to Buyer that:
(a)(i) Rio Grande Drilling is a corporation organized,
existing and in good standing under the laws of the State of Texas and
is qualified to do business and is in good standing under the laws of
the States of Louisiana and Texas. Rio Grande Drilling is qualified
under applicable law and regulation to own the Interests. With
respect to all persons claiming by through or under Rio Grande
Drilling but not otherwise, Rio Grande Drilling has, and will convey
to Buyer, Defensible Title (as defined in Section 5.01 below) to the
Interests. Rio Grande Drilling warrants and agrees to defend title to
the Interests against the lawful claims of all persons claiming by,
through or under Rio Grande Drilling, but not otherwise.
(a)(ii) Offshore is a limited partnership organized, existing
and in good standing under the laws of the State of Texas. With
respect to all persons claiming by through or under Offshore, but not
otherwise, Offshore has, and will convey to Buyer Defensible Title as
defined in Section 5.01 below) to the Interests. Offshore, agrees to
defend title to the Interest against the lawful claims of all persons
claiming by through or under Offshore but not otherwise.
(b) Seller has the authority to carry on its business as
presently conducted, to enter into this Agreement and to perform its
obligations under this Agreement.
(c) The execution and delivery of this Agreement have
been authorized by all necessary action, corporate and otherwise, on
the part of Seller. Execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by this
Agreement will not, violate or be in conflict with any agreement,
instrument, judgment, order, decree, law or regulation by which Seller
is or the Interest s bound.
(d) Subject to laws and equitable principles affecting
the rights of creditors, this Agreement is a binding obligation of
Seller enforceable according to its terms.
(e) No suit, claim, demand or investigation is pending
or, to the best of Seller's knowledge, threatened that might result in
impairment or loss or diminution of Seller's title to the Interests
or otherwise adversely affect the Interests in any material respect.
There are no bankruptcy or reorganization proceedings pending or
threatened against Seller.
(f) To the best of Seller's knowledge, Contracts which
burden or will burden or encumber or are otherwise material to the
ownership, use or operation of the Interest are described on Schedule
3.01(f) hereof, were entered into in the ordinary course of
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business and, if executed by Seller, were duly executed and delivered
by Seller or its predecessors, and are in force according to their
terms. Neither Seller, nor any other party to Seller's knowledge, is
in breach of any obligation which might adversely affect the Interests
in any material respect.
(g) To the best of Seller's knowledge, all rentals,
royalties, shut-in royalties, overriding royalties and other payments
due pursuant to or with respect to the Leases have been properly paid.
(h) To the best of Seller's knowledge (i) the Leases
have been drilled, completed, operated, developed and produced in
compliance with all applicable judgments, orders, laws, rules and
regulations; (ii) all necessary certificates, consents, permits,
licenses and other governmental authorizations affecting the Interests
have been obtained and are in force; (iii) there are no violations of
any applicable regulations, rules or orders of the Federal Energy
Regulatory Commission, the Department of Energy, the Minerals
Management Service or any other regulatory agency with respect to the
Interests.
(i) To the best of Seller's knowledge, the Leases are not
obligated, under a take-or-pay or similar arrangement, and Seller is
not obligated by virtue of an election to non-consent, or not
participate in a past or current operation on the Leases pursuant to
applicable operating agreements, to produce Substances, or allow
Substances to be produced, without receiving full payment at the time
of delivery in an amount that corresponds to the net revenue interest
in Substances described on Exhibit A.
(j) To the best of Seller's knowledge taxes based on or
measured by the ownership of property, the production or removal of
hydrocarbons and the receipt of proceeds which are due and relating to
the Interests have been properly paid, subject to possible adjustment
for volume or price corrections.
(k) Seller is timely receiving its share of proceeds from
the sale of hydrocarbons produced from the Leases without suspense,
counterclaim or set-off. To the best of Seller's knowledge, there has
been no production of hydrocarbons from the Leases in excess of the
allowable production established pursuant to applicable state or
federal law or regulation that would result in a restriction on
production from the Leases subsequent to the Effective Time.
(l) To the best of Seller's knowledge, except for
Casualty Losses covered by Section 5.03, there has been no material
adverse change in the condition of any of the Leases or Equipment
after the Effective Time except depletion through normal production
within authorized allowables, changes in rates of production that
occur in the ordinary course of operation and depreciation of
Equipment through ordinary wear and tear.
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(m) Seller has incurred no liability for brokers' or
finders' fees related to the transactions contemplated by this
Agreement for which Buyer shall be liable.
(n) To the best of Seller's knowledge, there are no
outstanding authorities for expenditures or any oral or written
commitments or proposals to conduct operations on the Leases which are
required to be approved by non-operators under the terms of the
applicable joint operating agreement.
(o) To the best of Seller's knowledge, the Leases and
Equipment have been operated in compliance with all applicable laws,
regulations, orders, judgments, licenses and permits concerning the
prevention, abatement or elimination of pollution and the protection
of the environment and there is no circumstance which might (i)
materially interfere with continued compliance, (ii) give rise to
material liability, (iii) form the basis for any material claim, suit,
relief or investigation or (iv) require a material change in the
present condition or operation of any Lease.
3.02 BUYER'S REPRESENTATIONS. Buyer represents to Seller as
follows:
(a) Buyer is a corporation organized, existing and in
good standing under the laws of the State of Delaware and is qualified
to do business and is in good standing under the laws of the State of
Louisiana and Texas. Buyer is qualified under applicable law and
regulation to own the Interests.
(b) Buyer has the authority to carry on its business as
presently conducted, to enter into this Agreement and to perform its
obligations under this Agreement.
(c) The execution and delivery of this Agreement has been
authorized by all necessary action, corporate and otherwise, on the
part of Buyer. Execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated by this Agreement
will not, violate or be in conflict with any agreement, instrument,
judgment, order, decree, law or regulation by which Buyer is bound.
(d) Subject to laws and equitable principles affecting
the rights of creditors, this Agreement is a binding obligation of
Buyer enforceable according to its terms. There are no bankruptcy nor
reorganization proceedings pending or, to Buyer's knowledge,
threatened against Buyer.
(e) Buyer has incurred no liability for brokers' or
finders' fees related to the transactions contemplated by this
Agreement for which Seller shall be liable.
3.03 DISCLAIMER.
EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT,
SELLER MAKES NO WARRANTIES, EXPRESS OR IMPLIED,
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INCLUDING THE WARRANTY OF MERCHANTABILITY AND THE IMPLIED WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, REGARDING THE WELLS, FIXTURES,
FACILITIES, EQUIPMENT, IMPROVEMENTS, MATERIALS AND OTHER LIKE PERSONAL
PROPERTY LOCATED ON OR INCLUDED IN THE INTERESTS, AND THE SAME ARE TO
BE SOLD ON AN "AS IS, WHERE IS" BASIS AND CONDITION.
ARTICLE 4
COVENANTS
4.01 SELLER'S COVENANTS. Seller agrees with Buyer as follows:
(a) Following execution of this Agreement and until
Closing, Seller shall (i) use its best efforts to cause the Leases to
be operated in a good and workmanlike manner and in substantially the
same manners previously operated; (ii) maintain insurance now in force
with respect to the Interests; (iii) notify Buyer of any suit, claim
or demand within Seller's knowledge which might adversely affect the
Interests; (iv) pay or cause to be paid all costs, taxes and expenses
which Seller is obligated to pay in connection with the Interests as
they become due (v) pay or cause to be paid all rentals and other
payments necessary to maintain the Leases in force according to their
terms and comply with all express and implied covenants contained in
the Leases or Contracts; (vi) exercise due diligence in safeguarding
the Interests and maintaining the confidentiality of all data and
other confidential or proprietary materials relating to the Interests;
(vii) promptly notify Buyer of all significant operations which are
proposed with respect to the Interests; and (viii) use best efforts
(without any obligation to pay money) to obtain any consents, waivers
(including waiver of preferential purchase rights) and approvals
required of third parties or governmental authorities in connection
with consummation of the transactions contemplated by this Agreement.
Buyer acknowledges that Seller owns undivided interests in the Leases
and that acts or omissions of other owners of undivided interests in
the Leases shall not be a breach of any covenant in this Agreement
unless such other undivided interest owners' acts or fails to act on
behalf of Seller. Seller shall not be obligated to perform any act
which would be in breach of a provision in, or its duties under, a
Lease, Contract or applicable law, rule or regulation.
(b) Following execution of this Agreement, Seller shall
not, without Buyer's consent; (i) abandon any well capable of
commercial production; (ii) release all or a portion of a Lease; (iii)
commence or consent to an operation estimated to cost an amount in
excess of the amount an operator is entitled to expend without
non-operator approval under the applicable operating agreement(s)
(excluding emergency operations and operations undertaken to avoid a
penalty or forfeiture provision of any applicable agreement or order);
(iv) create a lien, security interest or other encumbrance on the
Interest; (v) sell or dispose of the Interest (except in connection
with preferential rights
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to purchase) other than Interests sold, consumed or produced in the
ordinary course of business; (vi) amend a Lease or amend a Contract or
Account or enter into new contracts affecting the Interest other than
in the ordinary course of business; (vii) waive, compromise or settle
any claim that diminishes or adversely burdens an Interest.
(c) Following the execution of this Agreement and until
Closing, Seller will provide Buyer and its attorneys, employees,
accountants, engineers, consultants and agents (collectively
"representatives"), at Buyer's sole expense, risk and cost, reasonable
access, during reasonable business hours, to the Contracts, insofar
as the same are in Seller's possession or control, or insofar as
Seller has access to the same, and to the extent in each case that
Seller may do so without violating legal constraints or any legal
obligation. Seller agrees to cooperate with Buyer in attempting to
obtain waivers of any obligations of confidentiality by Seller to a
third party. Seller shall not be obligated to furnish any updated
abstracts, title opinions or additional title information which are
not in Seller's or its attorney's possession, but shall cooperate
with Buyer in Buyer's efforts to obtain (at Buyer's expense) such
additional title information as Buyer may reasonably deem prudent.
(d) Following the execution of this Agreement and until
Closing, subject to the consent and cooperation of operators and other
third parties, Seller shall provide Buyer and its representatives
access to the Interests and the right to observe operations and
inspect any and all of the Interests, equipment, improvements and
fixtures included in the Interests, to the extent that Seller has the
legal right to grant such access and right.
4.02 BUYER'S COVENANTS. Buyer agrees with Seller as follows:
Except as required by applicable law, Buyer and Seller and
their respective agents, consultants and advisors shall keep
confidential all terms and provisions of the Agreement, the
transaction contemplated by this Agreement, and all information and
data concerning the Interests, Seller's and Buyer's business,
financial condition, operations, strategies and prospect
("Information"). This Section 4.02(a) shall not apply to Information
which (i) is publicly available (other than Information made public by
a breach of this Agreement) or (ii) obtained independently without
obligation or confidentiality. Except with respect to information
concerning each party's business, financial conditions, operations
strategies and prospects, this confidentiality requirement shall
terminate upon Closing if Closing occurs.
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ARTICLE 5
TITLE
5.01 DEFENSIBLE TITLE.
(a) "Defensible Title" means such right, title or
interest held by Seller that (i) will entitle Buyer, as Seller's
successor, to receive not less than the net revenue interests
described in Exhibit A of all oil, gas condensate, related
hydrocarbons and other minerals produced under the terms of the Leases
(or other property denominated in Exhibit A); (ii) will obligate
Buyer, as Seller's successor to bear a percentage of costs and
expenses related to the maintenance, operation and development of the
Leases (or other property denominated in Exhibit A) not greater than
the working interest shown in Exhibit A, unless the circumstances
causing the working interest to be greater will cause the
corresponding net revenue interest to increase in the same proportion;
and (iii) is free of all liens, security interests, encumbrances and
defects, except for Permitted Encumbrances.
(b) "Permitted Encumbrances" are:
(1) lessor's royalties, overriding royalties,
production payments, net profits, interests, reversionary
interests and similar burdens on production that does not, and
will not, reduce Buyer's net revenue interest, as Seller's
successor in title, below the net revenue interest shown in
Exhibit A or increase Buyer's working interest, as Seller's
successor in title, above the working interest shown in
Exhibit A (unless the circumstance causing the working
interest to increase will cause the corresponding net revenue
interest to increase in the same proportion);
(2) preferential rights to purchase and third
party consents with respect to which, prior to Closing, (i)
waivers or consents are obtained from the appropriate parties
or (ii) the time for asserting such rights has expired without
exercise;
(3) mechanics', materialmen's, operators', tax
and similar liens or charges arising in the ordinary course of
business related to an interest if such liens secure payments
not yet due;
(4) All consents from, notices to, approvals by
or other actions by governmental authority in connection with
sale or transfer of properties such as the Interests if such
matters are customarily and appropriately obtained after the
sale or transfer;
(5) liens, security interests or other
encumbrances to be released at or prior to Closing;
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(6) rights of a governmental entity to control or
regulate the Interests, together with all applicable laws,
rules and regulations;
(7) easements, rights-of-way, surface leases and
other surface use restrictions if such restrictions will not
materially adversely affect the use, value or operation of the
Interests;
(8) title matters waived or deemed to be waived
by Buyer and described on Schedule 5.01(b)(8).
5.02 TITLE DEFECTS. "Title Defect" means any encumbrance,
irregularity or defect in Seller's title to an Interest which , alone or in
combination with other defects, causes Seller's title to be less than
Defensible Title. Title Defects shall include a Casualty Loss treated as a
Title Defect under Section 5.03.
5.03 CASUALTY LOSS. If, prior to Closing, all or any portion of an
Interest is destroyed or taken under the right of eminent domain ("Casualty
Loss"), Buyer may elect (i) to treat the Casualty Loss as a Title Defect or
(ii) purchase the affected Interest notwithstanding the Casualty Loss. If
Buyer elects to purchase the affected Interest, there shall be no reduction of
the Purchase Price and Seller shall, at Closing, pay to Buyer all sums paid to
Seller which are associated with the Casualty Loss and shall assign to Buyer
all of Seller's interest in any unpaid payments or causes of action associated
with the Casualty Loss. Prior to Closing, Seller shall not compromise or
settle a Casualty Loss without Buyer's consent.
5.04 NOTICE OF TITLE DEFECT. As soon as possible after discovery,
but in no event later than one (1) day prior to Closing Date Buyer shall notify
Seller in writing of any Title Defect. Buyer's notice (a "Defect Notice")
shall include (i) a description of the Interest affected by the Title Defect,
(ii) an explanation of the basis for the Title Defect and (iii) the amount by
which Buyer believes the value of the affected Interest has been reduced by the
Title Defect. Buyer's failure to give notice of a Title Defect within the
time and in the manner required by this Section 5.04 shall be a waiver by Buyer
of the Title Defect and the Title Defect shall be treated as a Permitted
Encumbrance.
5.05 REMEDIES FOR TITLE DEFECT. Upon notice of a Title Defect,
Seller shall have the right, but not the obligation, to attempt to cure the
Title Defect. If Seller is unable or elects not to cure the Title Defect prior
to Closing, the Purchase Price shall be reduced pursuant to Section 5.06.
5.06 VALUE OF TITLE DEFECTS. The value of a Title Defect shall
never be greater than the Purchase Price. If Seller is unable or elects not to
cure a Title Defect prior to Closing, the Purchase Price shall be adjusted as
follows. After Seller's receipt of a Defect Notice, the
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parties, if necessary, shall promptly meet and negotiate to reach an agreement
as to the value of each Title Defect. If the parties' negotiations fail to
result in an agreement as to the value of any Title Defect prior to Closing,
then either Party may terminate this Agreement by written notice to the other.
ARTICLE 6
CONDITIONS TO CLOSING
6.01 SELLER'S CONDITIONS. Seller's obligations at Closing are
subject to the satisfaction at or prior to Closing of the following conditions:
(a) Buyer's representations under Section 3.02 shall be
true in all material respects on the date of this Agreement and as of
Closing.
(b) Buyer shall have performed in all material respects
the covenants and agreements which Buyer was required to perform or
satisfy at or prior to Closing.
(c) Except for matters not customarily and appropriately
obtained prior to Closing, Seller has received evidence, in form
reasonably satisfactory to its counsel, that all permits, consents,
approvals, licenses, qualifications and orders required by
governmental authority, or the terms of the Interests, to be obtained
prior to Closing have been obtained or waived.
(d) There is no action or proceeding pending or
threatened before a court, arbitrator or governmental authority
seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement or to obtain substantial damages from
Seller related to this Agreement.
6.02 BUYER'S CONDITIONS. Buyer's obligations at Closing are
subject to the satisfaction at or prior to Closing of the following conditions:
(a) Seller's representations under Section 3.01 shall be
true in all material respects on the date of this Agreement and as of
Closing.
(b) Seller shall have performed in all material respects
the covenants and agreements which Seller was required to perform or
satisfy at or prior to Closing.
(c) Except for matters not customarily and appropriately
obtained prior to Closing, Buyer has received evidence, in form
reasonably satisfactory to its counsel, that all permits, consents,
approvals, licenses, qualifications and orders required by
governmental authority, or the terms of the Interests, to be obtained
prior to Closing have been obtained or waived.
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(d) There is no action or proceeding pending or
threatened before a court, arbitrator or governmental authority
seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement or to obtain substantial damages from
Buyer related to this Agreement.
(e) Except for Casualty Losses covered by Section 5.03,
since the Effective Time, there shall have been no material adverse
change in the condition of the Leases, except depletion through normal
production within authorized allowables, changes in rates of
production that occur in the ordinary course of operation of the
leases, depreciation of equipment through ordinary wear and tear .
ARTICLE 7
CLOSING
7.01 CLOSING DATE. Subject to the terms of this Agreement, the
consummation of the transactions contemplated by this Agreement ("Closing"),
shall occur at Buyer's office listed above (or at such other place and time as
the Parties may agree) on or before June 15, 1995, at 10:00 a.m. ("Closing
Date").
7.02 CLOSING OBLIGATIONS. At Closing, the following shall occur,
each being a condition precedent to the others and each being deemed to have
occurred simultaneously:
(a) Seller shall execute and deliver to Buyer assignments
conveying the Interests to Buyer in the forms attached to this
Agreement as Exhibit B-1 and B-2. Seller shall also execute and
deliver such other assignments on appropriate forms as may be required
by governmental authority, subject to the terms of the assignment
attached as Exhibit B.
(b) Seller and Buyer shall execute and deliver to each
other the Preliminary Closing Statement.
(c) Buyer shall deliver the Closing Amount to Seller by
direct bank or wire transfer, as directed by Seller.
(d) Seller shall deliver to Buyer possession of the
Interests.
(e) Seller shall execute transfer orders or
letters-in-lieu on forms prepared by Buyer and reasonably satisfactory
to Seller directing purchasers of production to make payment to Buyer
as contemplated by this Agreement.
(f) Seller shall deliver releases of all liens, security
interests and encumbrances affecting the interests to be released at
Closing.
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(g) Seller shall deliver an affidavit signed by an
authorized corporate officer containing the following:
(1) Seller's U.S. Taxpayer Identification Number
and business address;
and
(2) a statement that Seller is not a foreign
person within the meaning of Sections 1445 and 7701 of the
Internal Revenue Code of 1986, as amended.
ARTICLE 8
TERMINATION
8.01 TERMINATION. This Agreement and the transactions contemplated
by this Agreement may be terminated in the following situations:
(a) by Seller or Buyer if Closing does not occur on or
before the Closing Date provided, however, that a party cannot so
terminate if it is in breach of this agreement.
(b) by Seller if the conditions contained in Section 6.01
are not satisfied or waived as of the Closing Date;
(c) by Buyer if the conditions contained in Section 6.02
are not satisfied or waived as of the Closing Date;
(d) by Seller or Buyer pursuant to Section 5.06.
8.02 LIABILITIES UPON TERMINATION.
If this Agreement is terminated for any reason or is breached,
nothing contained herein shall be construed to Unit Seller's or Buyer's legal
or equitable remedies, including damages for the breach of failure of any
representation, warranty covenant or agreement contained herein and the right
to enforce specific performance of this Agreement.
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ARTICLE 9
OBLIGATIONS AFTER CLOSING
9.01 POST-CLOSING ADJUSTMENTS. Seller and Buyer acknowledge that
the amount of all adjustments under Section 2.02 may not be available prior to
Closing. As soon as practicable after Closing, Seller shall prepare and submit
to Buyer a statement containing adjustments contemplated by Section 2.02 that
were not finally determined as of Closing ("Final Settlement Statement").
Seller shall promptly notify Buyer of any changes Seller proposes and the
parties shall negotiate in good faith to agree on these adjustments within
ninety (90) days after the Closing Date. Payment to the appropriate party
shall be made within five (5) days after agreement is reached ("Final
Settlement Date").
9.02 SUBSEQUENT ADJUSTMENTS. Seller and Buyer recognize that
either party may receive funds or pay expenses after the Final Settlement Date
which are properly the property or obligation of the other party. Upon receipt
of net proceeds or net expenses due to or payable by the other party, whichever
occurs first, such party shall submit a statement showing the items of income
and expense. Payment by the appropriate party shall be made within ten (10)
days of receipt of the statement.
9.03 RESERVATION OF CLAIMS. Except as provided in this Agreement,
Seller is entitled to all claims related to the Interests prior to the
Effective Time regardless of when payment is made. Except as provided in this
Agreement, Buyer is entitled to all claims related to the Interests which arise
after the Effective Time.
9.04 FILES AND RECORDS. Upon Closing, Seller shall permit Buyer,
at Buyer's expense, to take possession of originals of all files, records and
data in Seller's possession relating to the Interests. Seller shall retain a
copy of all such files, records and data. From time to time prior to Closing
requested by Seller, Buyer shall make the files, records and data available to
Seller for inspection and copying during normal business hours.
9.05 FURTHER ASSURANCES. After Closing, Seller and Buyer agree to
execute and deliver such instruments and take such other action as may be
necessary or advisable to carry out their obligations under this Agreement.
9.06 SURVIVAL AND INDEMNITY.
(a) The representations, covenants, agreements and
indemnities of or by Seller and Buyer shall survive the Closing.
(b) Allocation of Liability.
(i) Liabilities. Buyer agrees to
assume, pay, perform, fulfill, discharge and be
liable for all Assumed Liabilities, and Seller agrees
to
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retain, pay, perform, fulfill, discharge and be and
remain liable for all Retained Liabilities.
(ii) Definitions. The term "Assumed
Liabilities" shall mean and include:
(x) all costs, expenses,
liabilities and obligations assumed or
otherwise agreed to be paid by Buyer pursuant
to the terms of this Agreement; and
(y) all costs, expenses,
liabilities, claims and obligations arising
out of, in connection with, or resulting
directly or indirectly from the ownership or
operation of the Interest including plugging
and abandonment liabilities for existing
wells, platforms, facilities, or pipelines
arising out of, in connection with, or
resulting directly or indirectly from the
ownership or operation of the Interests but
excluding Retained Liabilities.
The term "Retained Liabilities" shall mean and include:
(x) all costs, expenses,
liabilities and obligations assumed or
otherwise agreed to be paid by Seller
pursuant to the terms of this Agreement; and
(y) all costs, expenses,
liabilities, claims and obligations (except
plugging and abandonment related costs,
expenses, liabilities, claims and
obligations) arising out of, in connection
with, or resulting directly or indirectly
from production or sale of hydrocarbons
attributable to the Interest or the proper
accounting or payment to parties for their
interest therein insofar as such claims
relate to periods of time prior to the
Effective Time.
(c) Indemnification. In the event that the Closing
occurs, (i) Buyer shall protect, defend, indemnify and hold Seller
harmless from any and all damages, claims, losses, demands, fines,
penalties, judgments (including interest), costs, expenses,
environmental liabilities, and other liabilities, direct, contingent,
or otherwise, including consulting and attorneys' fees and costs of
court ("Damages") arising or accruing with respect to the Assumed
Liabilities and (ii) Seller shall protect, defend, indemnify and hold
Buyer harmless from any Damages arising or accruing with respect to
the Retained Liabilities. The term "Damages," as used herein, shall
not include (i) any amount which was taken into account as an
adjustment to the Purchase Price pursuant to this Agreement or (ii)
either party's costs and expenses as described in Section 10.02.
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9.07 ALLOCATION OF PROCEEDS. Seller shall receive all proceeds
from the sale of Substances physically produced or allocable to the Interest
prior to the Effective Date. Buyer shall receive all proceeds from the sale of
Substances physically produced or allocable to the Interest on or after the
Effective Date. The Purchase Price will be adjusted by any Imbalance extant as
of the Effective Date. For purposes of this Agreement, "Imbalance" means any
gas or other hydrocarbons production, transportation, gathering or processing
imbalance existing as of the Effective Date with respect to the Interest,
together with any related rights or obligations as to future cash and/or gas or
product balancing, including, without limitation, buy down, buy outs or any
such rights or obligations related to an Imbalance resulting from payments to
royalty and overriding royalty interest owners made on the basis of Sellers net
revenue interest in a well or unit and total production from a well or unit for
periods during which a percentage of total production greater or less than
Sellers net revenue interest may actually have been produced and sold for
Sellers account.
ARTICLE 10
MISCELLANEOUS
10.01 NOTICES. All notices required or permitted under this
Agreement shall be effective upon receipt if personally delivered, if mailed by
registered or certified mail, postage prepaid, or if delivered by telegram,
telecopy or facsimile if directed to the parties as follows:
TO SELLER:
Rio Grande Drilling Company
10101 Reunion Place
Suite 210
San Antonio, Texas 78216-4156
Telephone: (210)308-8000
Fax: (210)308-8111
Attn: Gary Scheele
TO BUYER:
Newfield Exploration Company
363 N. Sam Houston Pkwy. E.
Suite 2020
Houston, Texas 77060
Telephone: (713)847-6000
Fax: (713)847-6006
Attn.: Tracy Price
Any party may give written notice of a change in the address or individual to
whom delivery shall be made.
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10.02 EXPENSES. Except as otherwise provided in this Agreement, all
fees, costs and expenses incurred by the parties in negotiating this Agreement
or in consummating the transactions contemplated by this Agreement shall be
paid by the party incurring them.
10.03 AMENDMENT. This Agreement may not be altered or amended, nor
any rights waived, except by a written instrument executed by the party to be
charged with the amendment or waiver. No waiver of any provision of this
Agreement shall be construed as a continuing waiver of the provision.
10.04 ASSIGNMENT. Buyer shall not have the right to assign its
rights and delegate its duties under this Agreement without written consent of
Seller.
10.05 CONDITIONS. The inclusion in this Agreement of Conditions to
Seller's and Buyer's obligations at Closing shall not, in and of itself, be a
covenant of either party to satisfy the conditions to the other party's
obligations at Closing.
10.06 HEADINGS. The headings are for convenience only and do not
limit or otherwise affect the provisions of this Agreement.
10.07 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and which, taken together, shall constitute
the same instrument.
10.08 REFERENCES. References, including use of a pronoun, shall
include, where applicable, masculine, feminine, singular or plural individuals
or legal entities.
10.09 GOVERNING LAW. This Agreement and the transactions
contemplated by this Agreement shall be governed and construed in accordance
with the internal laws of the State of Texas without giving effect to any
principles of conflicts of laws.
10.10 ANNOUNCEMENTS. Except as otherwise provided for herein or as
required by law, prior to Closing, neither Seller nor Buyer shall announce or
otherwise publicize this Agreement or the transactions contemplated by this
Agreement without the prior written consent of the other party.
10.11 ENTIRE AGREEMENT. This Agreement is the entire understanding
between Seller and Buyer concerning the subject matter of this Agreement. This
Agreement supersedes all negotiations, discussions, representations, prior
agreements and understandings, whether oral or written.
10.12 PARTIES IN INTEREST. This Agreement is binding upon and shall
inure to the benefit of Seller and Buyer and, except where prohibited, their
heirs, successors, representatives and assigns. No other party is intended to
have any benefits, rights or remedies under this Agreement. There are no
third-party beneficiaries.
E-18
<PAGE> 18
10.13 EXHIBITS. All exhibits attached to this Agreement are
incorporated into this Agreement for all purposes.
10.14 SEVERANCE. If any provision of this Agreement is found to be
illegal or unenforceable, the other terms of this Agreement shall remain in
effect and this Agreement shall be construed as if the illegal or unenforceable
provision had not been included.
SELLER:
RIO GRANDE DRILLING COMPANY
BY: /s/ GARY SCHEELE
ITS: VICE PRESIDENT
SELLER:
RIO GRANDE OFFSHORE, LTD.
BY: RIO GRANDE DRILLING COMPANY,
GENERAL PARTNER
BY: /s/ GARY SCHEELE
ITS: VICE PRESIDENT
BUYER:
NEWFIELD EXPLORATION COMPANY
BY: /s/ T. W. RATHERT
ITS: VICE PRESIDENT
E-19
<PAGE> 19
EXHIBIT "A"
Attached to and made a part of that certain Purchase and Sale Agreement among
RIO GRANDE DRILLING COMPANY, et al. as "Seller" to NEWFIELD EXPLORATION COMPANY
as "Buyer".
SHIP SHOAL BLOCK 356
Lease No. OCS-G 5206:
That certain Oil and Gas Lease, bearing Serial No. OCS-G 5206, between the
United States of America and Shell Offshore Inc., effective January 1, 1983 and
covering all of Block 356, Ship Shoal Area, OCS Leasing Map, Louisiana Map No.
5A, INSOFAR AND ONLY INSOFAR as said Lease covers depths down to 8,600' TVD.
Interest Conveyed
3.11640% Operating Rights Interest
2.17629% Net Revenue Interest
EWING BANK BLOCKS 947/903
Lease No. OCS-G 5803
That certain Oil and Gas Lease, bearing Serial No. OCS-G 5803, between the
United States of America and Shell Offshore Inc., effective July 1, 1983, and
covering all of Blocks 903 and 947, Ewing Bank Area, OCS Official Protraction
Diagram, NG 15-12, INSOFAR AND ONLY INSOFAR as said Lease covers depths down to
8,600' TVD.
Interest Conveyed
3.11640% Operating Rights Interest
2.17629% Net Revenue Interest
E-20
<PAGE> 1
Exhibit 10(w)
August 10, 1995
Mr. Hobby A. Abshier
4901 Spicewood Springs
Suite 200
Austin, Texas 78759
RE: Consulting Agreement
Dear Hobby:
This letter confirms the agreement between you and Rio Grande, Inc.
(the "Company") reached in September 1994 relating to your engagement as a
financial advisor to the Company. At that time you and I agreed that you would
act as a financial advisor in consulting with the Company, its management and
board of directors with regard to financial matters, including advising the
Company with regard to advantageous financial transactions involving joint
venture partners, investors and other sources of financing, either in the form
of debt or equity. You have also consulted with us and will continue to do so
with regard to the development and ongoing revision of a formal business plan
and at our request, in discussions with potential partners and/or acquisition
candidates.
It is our desire that you be compensated in accordance with our
agreement for the services you have rendered to date and for the services we
anticipate you will continue to render in the future. In that regard, the
proposed total compensation will be $50,000, with $15,000 due and payable upon
your execution of this Agreement, $10,000 due and payable in October 1995 and
$5,000 per month payable from November 1995 thru March 1996. We acknowledge
that you
E-21
<PAGE> 2
Mr. Hobby A. Abshier Page 2
are engaged in activities other than activities of the Company and that you
will not be expected or required to devote your full time to the affairs of the
Company. As we discussed, you will provide these services as an independent
contractor and not as an employee of the Company.
Thank you for your continuing assistance.
Very truly yours,
Guy Bob Buschman
President
AGREED TO:
BY: __________________________________________
Hobby A. Abshier
Dated: ______________________________
E-22
<PAGE> 1
EXHIBIT 99(a)
RIO GRANDE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31, 1994
------------------------------
HISTORICAL
----------------------------------------- PRO PRO
RIO FORMA FORMA
GRANDE PYRAMID BCS ADJ. BALANCE
----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $1,921,308 823,470 123,020 (a) (460,901) 2,406,897
COSTS AND EXPENSES:
Operating expenses 656,782 620,259 68,222 (a) (114,090) 1,231,173
Depreciation, depletion
and amortization 548,074 - - (b) 305,131 853,205
Provision for abandonment 87,900 - - - 87,900
expense
General and administrative 433,320 - - (c) 193,232 626,552
---------- -------- -------- -------- ---------
TOTAL COSTS AND EXPENSES: 1,726,076 620,259 68,222 384,273 2,798,830
---------- -------- -------- -------- ---------
EARNINGS (LOSS) FROM
OPERATIONS 195,232 203,211 54,798 (845,174) (391,933)
---------- -------- -------- -------- ---------
OTHER INCOME (EXPENSE):
Interest expense (45,159) - - (d) (42,563) (87,722)
Other 143,620 - - - 143,620
Minority interest of
limited partners (138,795) - - (e) 78,787 (60,008)
---------- -------- -------- -------- ---------
TOTAL OTHER INCOME (40,334) - - 36,224 (4,110)
---------- -------- -------- -------- ---------
EARNINGS (LOSS) BEFORE
INCOME TAXES 154,898 203,211 54,798 (808,950) (396,043)
INCOME TAXES 6,760 - - - 6,760
---------- -------- -------- -------- ---------
NET EARNINGS (LOSS) $ 148,138 203,211 54,798 (808,950) (402,803)
========== ======== ======== ======== =========
NET EARNINGS (LOSS) PER
COMON AND COMMON
EQUIVALENT SHARE $ 0.02 (0.07)
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 6,029,293 6,029,293
</TABLE>
NOTES TO THE PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(a) To eliminate the revenues and direct operating expenses for BCS and
Pyramid which occurred after their acquisition and the revenues and
direct operating expenses applicable to the sales of certain oil and
gas properties located in Texas and Offshore Louisiana.
(b) To provide for depreciation, depletion and amortization of the oil and
gas properties and other assets acquired or sold based on their
production during the respective periods after giving effect to the
purchase price.
(c) To provide for the additional personnel, facilities and other
administrative expenses resulting from the acquisitions, net of
overhead fees charged.
(d) To provide for the additional interest expense for the $2,900,000 bank
debt incurred in the acquisition and the decrease in interest expense
applicable to the $970,000 reduction in bank debt as a result of the
sale of certain oil and gas properties in West Texas and Offshore
Louisiana.
(e) To adjust the minority interests of the limited partners in the
combined limited partnerships as a result of the acquisitions,
dispositions and the related pro forma adjustments.
E-23
<PAGE> 2
EXHIBIT 99(A)
RIO GRANDE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31, 1995
------------------------------
HISTORICAL
-------------
PRO PRO
RIO GRANDE FORMA FORMA
ADJ. BALANCE
------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 1,928,225 (a) (133,177) 1,795,048
COSTS AND EXPENSES:
Operating expenses 984,253 (a) (20,499) 963,754
Depreciation, depletion and amortization 677,308 (b) (26,198) 651,110
Provision for abandonment expense 90,000 - 90,000
General and administrative 648,573 - 648,573
----------- --------- --------
TOTAL COSTS AND EXPENSES: 2,400,134 (46,697) 2,353,437
----------- --------- --------
EARNINGS (LOSS) FROM OPERATIONS (471,909) (86,480) (558,389)
----------- --------- --------
OTHER INCOME (EXPENSE):
Interest expense (142,748) (c) 39,600 (103,148)
Other 1,207,753 - 1,207,753
Minority interest of limited partners (209,253) (d) 17,296 (191,957)
----------- --------- --------
TOTAL OTHER INCOME 855,752 56,896 912,648
----------- --------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES 383,843 (29,584) 354,259
INCOME TAXES 3,560 - 3,560
----------- --------- --------
NET EARNINGS (LOSS) $ 380,283 (29,584) 350,699
=========== ======== ========
NET EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.06 0.06
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 5,927,760 5,927,760
</TABLE>
NOTES TO THE PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(a) To eliminate the revenues and direct operating expenses relative to
the dispositions of certain oil and gas properties located in Texas
and Offshore Louisiana.
(b) To provide for depreciation, depletion and amortization of the oil and
gas properties sold during the first six months of 1995 based on their
production during the respective periods.
(c) To provide for the interest expense applicable to the $970,000
reduction in bank debt.
(d) To adjust the minority interests of the limited partners in the
combined limited partnerships as a result of the dispositions of oil
and gas properties and the related pro forma adjustments.
E-24
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) FORM
10Q-SB FOR 6 MONTHS ENDED JULY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH, (B) FORM 10Q-SB.
</LEGEND>
<CIK> 000035964
<NAME> RIO GRANDE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<EXCHANGE RATE> 1
<CASH> 359
<SECURITIES> 0
<RECEIVABLES> 545
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 973
<PP&E> 7,812
<DEPRECIATION> 2,904
<TOTAL-ASSETS> 6,960
<CURRENT-LIABILITIES> 901
<BONDS> 1,390
<COMMON> 56
0
0
<OTHER-SE> 2,646
<TOTAL-LIABILITY-AND-EQUITY> 6,960
<SALES> 1,928
<TOTAL-REVENUES> 1,928
<CGS> 0
<TOTAL-COSTS> 1,752
<OTHER-EXPENSES> (1,647)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> 384
<INCOME-TAX> 4
<INCOME-CONTINUING> 380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 380
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
