<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Nine-Month Period Ended December 31, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From ___________ to ___________
COMMISSION FILE NUMBER 0-10077
EVERGREEN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0834147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 WRITER SQUARE
1512 LARIMER STREET
DENVER, COLORADO 80202
(Address of principal executive offices) (Zip Code)
(303) 534-0400
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE PER SHARE
Title of Class
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days /X/ Yes / / No
Indicate by check mark if there are no delinquent filers to
disclose herein pursuant to Item 405 of Regulation S-K, and there will not be
any delinquent filers to disclose, 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 March 20, 1997, the Registrant had 9,392,220 common shares
outstanding, and the aggregate market value of the common shares held by
non-affiliates was approximately $48,000,000, based upon the closing price of
$8.00 per share for the common stock on March 20, 1997 reported by NASDAQ.
DOCUMENTS INCORPORATED BY REFERENCE: DEFINITIVE PROXY MATERIALS FOR 1997
ANNUAL MEETING OF STOCKHOLDERS - PART III, ITEMS 10,11,12, AND 13.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
------ ----
<S> <C>
Item 1. Business........................................................ 3
Item 2. Properties...................................................... 11
Item 3. Legal Proceedings............................................... 15
Item 4. Submission of Matters to a Vote of Security Holders............. 15
PART II
-------
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.......................... 16
Item 6. Selected Financial Data......................................... 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 17
Item 8. Financial Statements and Supplementary Data..................... 21
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................... 21
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.............. 21
Item 11. Executive Compensation.......................................... 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................... 21
Item 13. Certain Relationships and Related Transactions.................. 21
PART IV
-------
Item 14. Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K............................... 21
Signatures................................................................ 22
</TABLE>
Quantities of natural gas are expressed in this report in terms of
thousand cubic feet (Mcf), million cubic feet (Mmcf) or billion cubic feet
(Bcf). Oil is quantified in terms of barrels (bbls), thousands of barrels
(Mbbls) and million of barrels (MMbbls). Oil is compared to natural gas in
terms of equivalent thousand cubic feet (Mcfe). One barrel of oil is the
energy equivalent of six Mcf of natural gas.
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Evergreen Resources, Inc. ("Evergreen" or "the Company"), is a
Colorado corporation organized on January 14, 1981. Evergreen was formed to
engage in exploration for, and acquisition, development, production and sale
of, oil and gas. Evergreen maintains its principal executive offices at Suite
1000, 1512 Larimer Street, Denver, Colorado 80202, and its telephone number
is (303) 534-0400.
Evergreen Operating Corporation, a wholly owned subsidiary,
presently is designated Operator for 170 oil and gas wells for Evergreen and
also for other owners.
Evergreen Resources (UK) Ltd., a wholly owned subsidiary, holds
extensive exploration licenses onshore in the United Kingdom and 2% interest
in a group exploring offshore in the Falkland Islands.
The authorized capitalization of the Company is 50,000,000 shares of
no par value common stock of which 9,392,220 shares were issued and
outstanding at March 21, 1997. Evergreen has an authorized capital of
25,000,000 shares of $1.00 par value Preferred Stock, 6,000,000 of which were
issued and outstanding at March 21, 1997.
Virtually 100% of the Company's proved reserves, production and
revenues are attributable to natural gas.
RECENT DEVELOPMENTS
FISCAL YEAR
Effective with the period ended December 31, 1996, the Company
elected to begin utilizing a December 31 fiscal year end. Therefore, the
period ended December 31, 1996 represents a nine-month short period as
compared to the twelve month fiscal years ended March 31, 1996, 1995, and
1994.
CHILE
On March 18, 1997 the Government of Chile awarded an oil and gas
exploration contract to Evergreen on two 5,000 square kilometer (1.2 million
acre) blocks in Northern Chile.
Evergreen has 75% working interest in the blocks and will serve as
Operator. Empresa Nacional del Petroleo (ENAP), the State-owned energy
company, holds the remaining 25% working interest. The Chilean government
will initially receive a 10% royalty on production up to 10,000 barrels per
day.
Evergreen and ENAP will share the following work commitments
proportionately, stated as Exploration Periods for each block:
<TABLE>
<CAPTION>
Period Term Work Commitment
- ------ ---- ---------------
<S> <C> <C>
1 1 Year Geologic mapping, aeromagnetic and gravity surveys
2 2 Years 200 km seismic
3 2 Years 1 exploratory well
4-9 1 year each 1 exploratory well
</TABLE>
3
<PAGE>
Evergreen and ENAP may relinquish up to 100% of the blocks at the
end of each exploration period. If the blocks go into production, the
contracts will last 35 years.
SANGRE DE CRISTO UNIT
In January, 1997, the Bureau of Land Management designated
approximately 33,000 acres of Evergreen's Raton Basin oil and gas leases as a
new Federal Unit called the Sangre de Cristo Unit. Evergreen has been named
Unit Operator. Evergreen's Unit obligation is to drill and attempt completion
of two new wells in the Unit during 1997. The previously formed 67,000 acre
Spanish Peaks Unit combined with the new Sangre de Cristo Unit represent
approximately 83% of Evergreen's 120,000 gross acres in the Raton Basin.
PREFERRED CONVERSION
As of December 1, 1996, 1,500,000 shares of the Preferred were
converted to 230,770 shares of common stock and 250,000 five-year stock
purchase warrants. 100,000 of the warrants are exercisable at $7.80 per share
and 150,000 are exercisable at $7.00 per share.
PBI ACQUISITION
Effective August 1, 1996, Evergreen acquired 100% of the outstanding
common stock of Powerbridge, Inc. and the limited partnership interests of
Energy Investor Funds I and II (collectively "PBI").
Evergreen acquired approximately 37 BCF of proved natural gas
reserves, approximately 24 BCF of which are developed, together with a 25%
working interest in 120,000 gross acres and a 50% interest in an associated
gas gathering and marketing system. All of these assets are located on
Evergreen's present acreage position in the Raton Basin. Evergreen issued
1,162,266 restricted shares of Evergreen Common Stock and assumed $3.6
million of long term bank debt owed to Hibernia National Bank.
The acquisition of these assets increased Evergreen's interest to
100% in all leases, reserves, production, and associated gathering facilities
on the Company's 120,000 gross acres in the Raton Basin.
UNDERWRITING
On October 28, 1996, the Company completed a public offering of its
common shares, whereby it sold 2,000,000 shares at $5.75 per share. Total
proceeds, net of underwriters' commissions, were approximately $10.3 million.
CIG AGREEMENT
On September 5, 1996, Evergreen (through its wholly owned subsidiary
Primero Gas Marketing Company) entered into a firm transportation agreement
for a ten-year term with Colorado Interstate Gas Company ("CIG"). The firm
transportation agreement, effective January 1, 1997, at CIG's current tariff
rates, allows the Company to transport gas to Dumas, Texas. Evergreen will be
obligated to transport at least 10,000 MMBtu per day, and will be allowed to
transport an additional 15,000 MMBtu per day at a fixed charge. The
transportation agreement provides Evergreen access to Midwest markets and the
Company believes that this will improve gas marketing options.
FALKLAND ISLANDS
Evergreen has a net 2% working interest in a consortium which has
recently been awarded an exploration license for Tranche A in the First
Offshore Falkland Islands Licensing Round.
Amerada Hess (Falklands Islands) Limited is Operator of the
consortium, which includes Fina Exploration Atlantic BV, Murphy South
Atlantic Oil Company, Teikoku Oil Co. Ltd., and Argos Evergreen Limited.
4
<PAGE>
Argos Evergreen Limited, a 5% working interest holder in the
consortium, is a joint venture company formed in the Falkland Islands and
owned 60% by Argos Resources Limited and 40% by Evergreen Resources (UK)
Limited, the UK subsidiary of Evergreen Resources Inc.
The license covers 626 square miles and lies approximately 225 miles
to the north of the islands in water depths ranging up to 1,575 feet. This
area incorporates part of a major unexplored sedimentary basin which has not
yet been tested by drilling. It therefore represents a rare opportunity to be
involved during the early phase of exploration in an unexplored basin.
FOCUS
The Company intends to dedicate the majority of its resources for
the foreseeable future on development of Evergreen's coalbed methane project
in the Raton Basin of Colorado.
At December 31, 1996, the Raton Basin represented 97% of the
Company's total proved reserves on both a unit and value basis.
As of mid-March 1997, the Raton Basin represented approximately 95%
of Evergreen's net daily production of natural gas.
Since December 1991, Evergreen has acquired oil and gas leases
covering over 120,000 gross acres in the Raton Basin, Las Animas County in
Southeastern Colorado. This acreage position will support over 500 wells on
160 acre spacing. Independent engineering estimates indicate reserve
potential of approximately 1.5 - 2.0 billion cubic feet of gas per well.
Since first test drilling and evaluation, begun in August 1993, 54
wells have been drilled, 52 of which are presently on production. Combined
daily gross production from the 52 producing wells now exceeds 17.5 million
cubic feet per day.
Evergreen management believes that the Company's Raton Basin Project
is worthy of full scale development for these reasons:
- DRILLING RESULTS ON TARGET -- The first 52 producing wells now
exceed 17.5 million cubic feet of combined gross daily gas
production -- higher than Evergreen's original forecasts.
- LOW FINDING AND DEVELOPMENT COSTS -- Wells drilled, completed and
hooked-up for gas sales to date in the Raton Basin have an average
cost per well of approximately $300,000. Independent engineering
estimates indicate that the wells have average proved reserves of
1.8 Bcf of gas per well. Average finding cost for the period
August 1, 1993 through December 31, 1996 was $0.21 per Mcf.
- LOW LIFTING COSTS -- Lifting costs were approximately $0.33 per
MCF during the nine months ended December 31, 1996. Additional
economies of scale may be achievable in the future as more wells
are developed.
- LARGE ACREAGE POSITION -- Evergreen has over 120,000 gross acres
under lease in the Raton Basin, 100,000 of which are presently
held by two Federal Units. This acreage will support a multi-year
development project of over 500 wells.
- IMPROVED GAS PRICES -- Recent higher gas volumes have permitted
access to new gas markets and improved gas prices.
The Company plans to drill approximately 50 wells in 1998. During
1999 and 2000, the Company plans to drill approximately 160 wells and expand
its gathering and compression facilities. The Company's capital budget for
this three year drilling and expansion program is approximately $80 million.
The Company expects to utilize its operating cash flow and available
borrowings under its credit facility to finance the proposed drilling and
expansion program. The Company will also seek to obtain additional debt or
equity capital from the capital markets.
COALBED METHANE VERSUS TRADITIONAL NATURAL GAS
Methane is the primary commercial component of the natural gas
stream produced from traditional gas wells. Methane also exists in its
natural state in seams or deposits in coalbeds. Natural gas produced from
traditional wells also contains, in varying amounts, other hydrocarbons.
However, the natural gas produced from coalbeds generally contains only
methane, and after simple dehydration, is pipeline-quality gas. During the
last ten years, new technology has led to the development of substantial new
reserves of coalbed methane gas in the United States.
5
<PAGE>
Coalbed methane production is similar to traditional natural gas
production in terms of the physical producing facilities and the product
produced. However, the subsurface mechanisms that allow the gas to move to
the wellbore and the producing characteristics of coalbed methane wells are
very different from traditional natural gas production. Unlike conventional
gas wells which require a porous and permeable reservoir, hydrocarbon
migration and a natural structural or stratigraphic trap, the coalbed methane
gas is trapped in the molecular structure of the coal itself until released
by pressure changes resulting from the removal of insitu water.
Methane is a common component of coal, though coals vary in their
methane content per ton. Rather than being limited to open spaces in the coal
structure, methane is adsorbed into the inner coal surfaces. When the coal is
fracture stimulated and exposed to lower pressures through the de-watering
process, the gas leaves (desorbs from) the coal. Whether a coalbed will
produce commercial quantities of methane gas depends on its original content
of gas per ton of coal, the thickness of the coal beds, the reservoir
pressure and the existence of natural fractures (permeability) through which
the released gas can flow to the wellbore. Frequently, coalbeds are partly or
completely saturated with water. As the water is produced, internal pressures
on the coal are released, allowing the gas to desorb from the coal and flow
to the wellbore. Contrary to traditional gas wells, new coalbed methane wells
often produce water for several months and then, as the water production
decreases, natural gas production increases because the coal seams are being
de-watered and the resultant pressure on the coal decreases.
In order to establish commercial gas production rates, a permanent
conduit between the individual coal seams and the wellbore must be created.
This is accomplished by hydraulically creating and propping open with special
quality sand artificial fractures within the coal seams so the pathway for
gas migration to the wellbore is enhanced. These fractures are filled
(propped) with coarse sand and become the conduits for coalbed methane to
reach the well. The ability of gas to move through the coal or rocks to the
wellbore from its place of origination in the formation is the key
determinant of the rate at which a well will produce.
OTHER ACTIVITIES
The Company continues to hold discussions with various funding
sources, including potential Industry Partners, for the purpose of resuming
evaluation and development of Evergreen's onshore UK licenses.
The Company continually reviews opportunities for the acquisition of
oil and gas properties, particularly in areas in which Evergreen presently
operates properties or has developed technical and operational expertise.
The Company also continually reviews opportunities for exposure to
substantial reserves through participation in domestic and international
exploration projects at prudent levels of risk and capital expenditure for a
Company of Evergreen's size.
CUSTOMERS AND MARKETS
Substantially all of the Company's production is sold at the well
site as it is produced. The principal markets for oil and gas are refineries,
gas marketing and transmission companies which have facilities near the
Company's producing properties.
Evergreen's business is not seasonal in nature, except to the extent
that weather conditions at certain times of the year may affect supply and
demand for natural gas as well as Evergreen's access to its properties and
its ability to drill gas wells. The impact of inflation on the Company's
activities is minimal.
Evergreen had three major customers for the sale of oil and gas as
of December 31, 1996, who purchased approximately 59% (Natural Gas
Transmission Services, Inc.), 12% (AIG Trading Corporation) and 12% (Aquila
Energy Corporation) of the Company's oil and gas production respectively. The
loss of these customers would not have a material adverse effect on
Evergreen's business.
6
<PAGE>
COMPETITION
The Company competes with numerous other companies and individuals,
including many that have significantly greater resources, in virtually all
facets of its business. Such competitors may be able to pay more for
desirable leases and to evaluate, bid for and purchase a greater number of
properties than the financial or personnel resources of the Company permit.
The ability of the Company to increase reserves in the future will be
dependent on its ability to select and acquire suitable producing properties
and prospects for future exploration and development. The availability of a
market for oil and natural gas production depends upon numerous factors
beyond the control of producers, including but not limited to the
availability of other domestic or imported production, the locations and
capacity of pipelines, and the effect of federal and state regulation on such
production. Domestic oil and natural gas must compete with imported oil and
natural gas, coal, atomic energy, hydroelectric power and other forms of
energy. The Company does not hold a significant competitive position in the
oil and gas industry.
EMPLOYEES
At March 21, 1997, the Company had 33 employees.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
GENERAL. The Company's business is affected by numerous
governmental laws and regulations, including energy, environmental,
conservation, tax and other laws and regulations relating to the energy
industry. Changes in any of these laws and regulations could have a material
adverse effect on the Company's business. In view of the many uncertainties
with respect to current and future laws and regulations, including their
applicability to the Company, the Company cannot predict the overall effect
of such laws and regulations on its future operations.
The Company believes that its operations comply in all material
respects with all applicable laws and regulations and that the existence and
enforcement of such laws and regulations have no more restrictive effect on
the Company's method of operations than on other similar companies in the
energy industry.
The following discussion contains summaries of certain laws and
regulations and is qualified in its entirety by the foregoing.
FEDERAL REGULATION OF THE SALE AND TRANSPORTATION OF OIL AND GAS.
Various aspects of the Company's oil and natural gas operations are regulated
by agencies of the Federal government. The FERC regulates the transportation
and sale for resale of natural gas in interstate commerce pursuant to the
Natural Gas Act of 1938 ("NGA") and the
7
<PAGE>
Natural Gas Policy Act of 1978 ("NGPA"). In the past, the Federal government
has regulated the prices at which oil and gas could be sold. While "first
sales" by producers of natural gas, and all sales of crude oil, condensate
and natural gas liquids can currently be made at uncontrolled market prices,
Congress could reenact price controls in the future. Deregulation of
wellhead sales in the natural gas industry began with the enactment of the
NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol
Act (the "Decontrol Act"). The Decontrol Act removed all NGA and NGPA price
and nonprice controls affecting wellhead sales of natural gas effective
January 1, 1993.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A,
636-B and 636-C ("Order No. 636"), which require interstate pipelines to
provide transportation services separate, or "unbundled," from the pipelines'
sales of gas. Also, Order No. 636 requires pipelines to provide open access
transportation on a nondiscriminatory basis that is equal for all natural gas
shippers. Although Order No. 636 does not directly regulate the Company's
production activities, the FERC has stated that it intends for Order No. 636
to foster increased competition within all phases of the natural gas
industry. It is unclear what impact, if any, increased competition within
the natural gas industry under Order No. 636 will have on the Company's
activities. Although Order No. 636, assuming it is upheld in its entirety,
could provide the Company with additional market access and more fairly
applied transportation service rates, Order No. 636 could also subject the
Company to more restrictive pipeline imbalance tolerances and greater
penalties for violation of those tolerances. Order 636 and subsequent FERC
orders issued in individual pipeline restructuring proceedings have been the
subject of appeals, the results of which have generally supported the FERC's
open-access policy. Last year, the United States Court of Appeals for the
District of Columbia Circuit largely upheld Order No. 636. Because further
review of certain of these orders is still possible and other appeals remain
pending, it is difficult to predict the ultimate impact of the orders on the
Company and its production efforts.
The FERC has announced several important transportation-related
policy statements and proposed rule changes, including the appropriate manner
in which interstate pipelines release capacity under Order No. 636 and, more
recently, the price which shippers can charge for their released capacity.
In addition, in 1995, FERC issued a policy statement on how interstate
natural gas pipelines can recover the costs of new pipeline facilities. In
January 1996, the FERC issued a policy statement and a request for comments
concerning alternatives to its traditional cost-of-service rate making
methodology. A number of pipelines have obtained FERC authorization to
charge negotiated rates as one such alternative. In February 1997, the FERC
announced a broad inquiry into issues facing the natural gas industry to
assist the FERC in establishing regulatory goals and priorities in the
post-Order No. 636 environment. While these changes would affect the
Company only indirectly, they are intended to further enhance competition in
the natural gas markets. The Company cannot predict what action the FERC
will take on these matters, nor can it predict whether the FERC's actions
will achieve its stated goal of increasing competition in natural gas
markets. However, the Company does not believe that it will be treated
materially differently than other natural gas producers and markets with
which it competes.
Commencing in October 1993, the FERC issued a series of rules (Order
Nos. 561 and 561-A) establishing an indexing system under which oil
pipelines will be able to change their transportation rates, subject to
prescribed ceiling levels. The indexing system, which allows or may require
pipelines to make rate changes to track changes in the Producer Price Index
for Finished Goods, minus one percent, became effective January 1, 1995. The
Company is not able at this time to predict the effects of Order Nos. 561
and 561-A, if any, on the transportation costs associated with oil
production. The effects, if any, of these policies on the Company's
operations are uncertain.
The FERC has also recently issued numerous orders confirming the
sale and abandonment of natural gas gathering facilities previously owned by
interstate pipelines and acknowledging that if the FERC does not have
jurisdiction over services provided thereon, then such facilities and
services may be subject to regulation by state authorities in accordance with
state law. A number of states have either enacted new laws or are
considering the adequacy of existing laws affecting gathering rates and/or
services. Other state regulation of gathering facilities generally includes
various safety, environmental, and in some circumstances, nondiscriminatory
take requirements, but does not generally entail rate regulation. Thus,
natural gas gathering may receive greater regulatory scrutiny of state
agencies in the future. The Company's gathering operations could be
adversely affected should they be subject in the future to increased state
regulation of rates or services, although the Company does not believe that
it would be affected by such regulation any differently than other natural
gas producers or gatherers. In addition, FERC's approval of transfers of
previously-regulated gathering systems to independent or pipeline affiliated
gathering companies that are not subject to FERC regulation may affect
competition for gathering or natural gas marketing services in areas served
by those systems and thus may affect both the costs and the nature of
gathering services that will be available to interested producers or shippers
in the future.
8
<PAGE>
The Company owns certain natural gas pipeline facilities that it
believes meet the traditional tests the FERC has used to establish a
pipeline's status as a gatherer not subject to the FERC jurisdiction.
Whether on state or federal land or in offshore waters subject to the Outer
Continental Shelf Land Act ("OCSLA"), natural gas gathering may receive
greater regulatory scrutiny in the post-Order No. 636 environment.
The Company conducts certain operations on federal oil and gas
leases, which are administered by the Minerals Management Service (the
"MMS"). The MMS issued a notice of proposed rule making in which it proposes
to amend its regulations governing the calculation of royalties and the
valuation of crude oil produced from federal leases. This proposed rule
would modify the valuation of procedures for both arm's length and non-arm's
length crude oil transactions to decrease reliance on oil posted prices and
assign a value to crude oil that better reflects market value, establish a
new MMS form for collecting value differential data, and amend the valuation
procedure for the sale of federal royalty oil. Similar rule making regarding
natural gas royalties have also been considered by the agency, but there is
no current proposed rule on this issue for natural gas. The Company cannot
predict what action the MMS will take on this matter, nor can it predict at
this stage of the rule making proceeding how the Company might be affected by
this amendment to the MMS' regulations.
Additional proposals and proceedings that might affect the oil and
gas industry are pending before Congress, the FERC, the MMS, state
commissions and the courts. The Company cannot predict when or whether any
such proposals may become effective. In the past, the natural gas industry
has been heavily regulated. There is no assurance that the regulatory
approach currently pursued by various agencies will continue indefinitely.
Notwithstanding the foregoing, the Company does not anticipate that
compliance with existing federal, state and local laws, rules and regulations
will have a material or significantly adverse effect upon the capital
expenditures, earnings or competitive position of the Company or its
subsidiaries. No material portion of Evergreen's business is subject to
re-negotiation of profits or termination of contracts or subcontracts at the
election of the Federal government.
STATE REGULATION - UNITED STATES. The Company's operations are also
subject to regulation at the state level. Such regulation includes requiring
permits for the drilling of wells, maintaining bonding requirements in order
to drill or operate wells and regulating the location of wells, the method of
drilling and casing wells, the surface use and restoration of properties upon
which wells are drilled, the plugging and abandoning of wells and the
disposal of fluids used in connection with operations. The Company's
operations are also subject to various conservation laws and regulations.
These include the size of drilling and spacing units or proration units and
the density of wells which may be drilled and the unitization or pooling of
oil and gas properties. In addition, state conservation laws establish
maximum rates of production from oil and gas wells, generally prohibit the
venting or flaring of gas and impose certain requirements regarding the
ratability of production. To the extent any of the Company's natural gas
gathering facilities are subject to state regulation, regulation of gathering
facilities generally includes various safety, environmental, and in some
circumstances, nondiscriminatory take requirements, but does not generally
entail rate regulation. These regulatory burdens may affect profitability,
and the Company is unable to predict the future cost or impact of complying
with such regulations.
ENVIRONMENTAL MATTERS. Extensive federal, state and local laws
affecting oil and natural gas operations, including those carried on by the
Company, regulate the discharge of materials into the environment or
otherwise protect the environment. Numerous governmental agencies issue
rules and regulations to implement and enforce such laws which are often
difficult and costly to comply with and which carry substantial penalties for
failure to comply. Some laws, rules and regulations relating to the
protection of the environment may, in certain circumstances, impose "strict
liability" for environmental contamination, rendering a person liable for
environmental damages, cleanup costs and, in the case of oil spills in
certain states, consequential damages without regard to negligence or fault
on the part of such person. Other laws, rules and regulations may restrict
the rate of oil and natural gas production below the rate that would
otherwise exist or even prohibit exploration or production activities in
environmentally sensitive areas. In addition, state laws often require some
form of remedial action to prevent pollution from former operations, such as
closure of inactive pits and plugging of abandoned wells. Legislation has
been proposed in Congress from time to time that would reclassify certain oil
and gas exploration and production wastes as "hazardous wastes," which would
make the reclassified wastes subject to much more stringent handling,
disposal and clean-up requirements. If such legislation were to be enacted,
it could have a significant impact on the operating costs of the Company, as
well as the oil and gas industry in general. Initiatives to further regulate
the disposal of oil and gas wastes are also pending in certain states, and
these various initiatives could have a similar impact on the Company. The
regulatory burden on the oil and natural gas industry increases its cost of
doing business and consequently affects its profitability.
Compliance with these environmental requirements, including
financial assurance requirements and the costs associated with the cleanup of
any spill, could have a material adverse effect upon the capital
expenditures, earnings or
9
<PAGE>
competitive position of the Company and its subsidiaries. The Company
believes that it is in substantial compliance with current applicable
environmental laws and regulations and that continued compliance with
existing requirements will not have a material adverse impact on the Company.
Nevertheless, changes in environmental law have the potential to adversely
affect the Company's operations. For example, the U.S. Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), also known
as the "Superfund" law, imposes liability, without regard to fault or the
legality of the original conduct, on certain classes of persons with respect
to the release of a "hazardous substance" into the environment. These
persons include the owner or operator of the disposal site or sites where the
release occurred and companies that disposed or arranged for the disposal of
the hazardous substances found at the site. Persons who are or were
responsible for releases of hazardous substances under CERCLA may be subject
to joint and several liability for the costs of cleaning up the hazardous
substances that have been released into the environment and for damages to
natural resources, and it is not uncommon for neighboring landowners and
other third parties to file claims for personal injury or property damages
allegedly caused by the hazardous substances released into the environment.
At least two federal courts have held that certain wastes associated with the
production of crude oil may be classified as hazardous substances under
CERCLA. In addition, the Company generates or has generated in the past
wastes, including hazardous wastes, that are subject to the federal Resource
Conservation and Recovery Act ("RCRA") and comparable state statutes. The
U.S. Environmental Protection Agency and various state agencies have
promulgated regulations that limit the disposal options for certain hazardous
and non-hazardous wastes.
The Company has in the past owned or leased several properties that
for many years have been used to store and maintain equipment that was
regularly used to explore for and produce oil and gas. In particular,
current and prior operations of the Company included oil and gas production
in the Rocky Mountain states and the portion of the Permian Basin within the
State of New Mexico. Although the Company utilized operating and disposal
practices that were standard for the industry at the time, hydrocarbons or
other wastes may have been disposed of or released on or under the properties
owned or leased by the Company or on or under other locations where such
wastes have been taken for disposal. In addition, many of these properties
have from time to time been operated by third parties whose treatment and
disposal or release of hydrocarbons or other wastes was not under the
Company's control. These properties and the waste disposed thereon may be
subject to CERCLA, RCRA, and analogous state laws. Under such laws, the
Company could be required to remove or remediate previously disposed wastes
(including wastes disposed of or released by prior owners or operators) or
property contamination (including groundwater contamination).
In connection with its coalbed methane gas production, the Company
from time to time conducts production enhancement techniques, including
various activities designed to fracture the coalbed formation. While
production enhancement techniques are performed by the Company in substantial
compliance with the requirements set forth by the State of Colorado, neither
Colorado nor the U.S. Environmental Protection Agency ("EPA") regulates this
coalbed formation fracturing as a form of underground injection. On August
7, 1997, the Eleventh Circuit Court of Appeals held, in a case brought by a
citizens environmental organization, that hydraulic fracturing performed in
coalbed methane gas production in Alabama falls within the definition of
"underground injection" as defined in the federal Safe Drinking Water Act
and, therefore, EPA is required to regulate this activity. As a consequence
of this holding, the Eleventh Circuit also granted a petition filed by the
plaintiff in the case to review EPA's refusal to initiate proceedings that
would withdraw federal approval of Alabama's UIC program. It is not known
whether EPA will apply the court's ruling in this decision outside of the
Eleventh Circuit (Alabama, Georgia, and Florida). Nevertheless, it is
possible that hydraulic fracturing of coalbeds for methane gas production
will become regulated within the United States as a form of underground
injection, resulting in the imposition of stricter performance standards
(which, if not met, could result in diminished opportunities for methane gas
production enhancement) and increased administrative and operating costs for
the Company. Management of the Company cannot predict at this time whether
regulation of hydraulic fracturing as a form of underground injection will
have an adverse material effect on the Company's operations or financial
position. However, such regulation is not expected to be any more burdensome
to the Company than it will be to other similarly situated companies involved
in coalbed methane gas production or tight gas sands production within the
United States.
Although the Company maintains insurance against some, but not all,
of the risks described above, including insuring the costs of clean-up
operations, public liability and physical damage, there is no assurance that
such insurance will be adequate to cover all such costs, that such insurance
will continue to be available in the future or that such insurance will be
available at premium levels that justify its purchase. The occurrence of a
significant event not fully insured or indemnified against could have a
material adverse effect on the Company's financial condition and operations.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary
title examination is conducted at the time properties believed to be suitable
for drilling operations are acquired by the Company. Prior to the
commencement of drilling operations, a thorough title examination of the
drill site tract is conducted. The Company believes that the title to its
leasehold properties is good and defensible in accordance with standards
generally acceptable in the oil and gas industry.
CERTAIN RISKS
Natural gas prices are likely to continue to be volatile. Prices are
affected by, among other things, market supply and demand factors. These
factors are beyond the control of the Company. To the extent that oil and gas
prices decline, the Company's revenues, cash flows, earnings and operations
would be adversely impacted. The Company is unable to accurately predict
future natural gas prices.
10
<PAGE>
The oil and gas business involves a variety of operating risks,
including the risk of fire, explosions and blow-outs, as well as risks
associated with production, marketing and general economic conditions. The
Company maintains insurance against some, but not all, of these risks, any of
which could result in substantial losses to the Company. There can be no
assurance that insurance will be adequate to cover losses or exposure to
liability or whether insurance will continue to be available at premium
levels that justify its purchase.
The Company's largest source of operating income is from sales of
its natural gas production. Therefore, the levels of the Company's revenues
and earnings are affected by prices at which natural gas is being sold. As a
result, the Company's operating results for any prior period are not
necessarily indicative of future operating results because of the
fluctuations in gas prices and the lack of predictability of those
fluctuations as well as changes in production levels.
There are numerous uncertainties inherent in estimating natural gas
and oil reserves and their estimated values, including many factors beyond
the control of the producer. Reservoir engineering is a subjective process of
estimating underground accumulations of natural gas and oil that cannot be
measured in an exact manner. The accuracy of any reserve estimate is a
function of the quality of available data and of engineering and geological
interpretation and judgment. Estimates of reserves are subject to revision
based upon actual production, results of future development and exploration
activities, prevailing gas and oil prices, operating costs and other factors,
which revisions may be material. Accordingly, reserve estimates are often
different from the quantities of natural gas and oil that are ultimately
recovered. The Company's reserve values remain sensitive to gas prices in the
current environment of fluctuating commodities prices.
In general, the volume of production from gas properties owned by
the Company declines as reserves are depleted. Except to the extent the
Company acquires additional properties containing proved reserves or conducts
successful exploration and development activities, or both, the proved
reserves of the Company will decline as reserves are produced. Volumes
generated from future activities of the Company are therefore highly
dependent upon the level of success in acquiring or finding additional
reserves and the costs incurred in doing so.
ITEM 2. PROPERTIES
PROPERTY CONSOLIDATION
In August 1994, Management decided to focus the Company's domestic
efforts and resources on development of the Raton Basin of Colorado. The
number of states in which Evergreen owns or operates oil and gas properties
has now been reduced from twelve to two states, with no material impact on
the Company's reserves or financial condition.
OPERATIONS
The Company's wholly owned subsidiary, Evergreen Operating
Corporation (EOC), is primarily responsible for drilling, evaluation and
production activities associated with various properties and for negotiating
the sales of oil and gas production from the properties. As of March 21,
1997, EOC was serving as operator for approximately 170 producing wells owned
by the Company and also by other affiliated and unaffiliated third parties.
The Company believes that, as operator, it is in a better position
to control costs, safety, and timeliness of work as well as other critical
factors affecting the economics of a well or a property, including
maintaining good community relations.
EOC presently operates wells which represent 100% of Evergreen's
proved reserves.
11
<PAGE>
OIL AND GAS RESERVES
The table below sets forth the Company's quantities of proved
reserves, as estimated by independent petroleum engineers, all of which were
located in the continental U.S., and the present value of estimated future
net revenues from these reserves on a non-escalated basis discounted by 10
percent per year as of the end of each of the last three fiscal years and the
nine months ended December 31, 1996. There has been no major discovery or
other favorable or adverse event that is believed to have caused a
significant change in estimated proved reserves subsequent to December 31,
1996.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31 FISCAL YEARS ENDING MARCH 31
----------- -------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Estimated Proved Gas Reserves (Mcf) 150,719,700 80,926,100 57,882,100 51,588,100
Estimated Proved Oil Reserves (Bbls) 2,600 4,800 842,900 1,643,100
Present Value of Future Net Revenues
(before future income tax expense) $70,498,500 $30,163,400 $23,312,300 $32,443,800
</TABLE>
Reference should be made to Supplemental Oil and Gas Information
beginning on page F-20 of this report for additional information pertaining
to the Company's proved oil and gas reserves. During fiscal 1996 the Company
did not file any reports that include estimates of total proved net oil or
gas reserves with any federal agency other than the Securities and Exchange
Commission.
PRODUCTION
The following table sets forth the Company's net oil and gas
production for the nine months ended December 31, 1996 and for the years
ended March 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31 YEAR ENDED MARCH 31
----------- -------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Natural Gas (Mcf) 2,104,400 941,200 782,000 637,900
Crude Oil & Condensate (Bbls) --- 9,700 36,600 57,500
</TABLE>
AVERAGE SALES PRICES AND PRODUCTION COSTS
The following table sets forth the average gross sales price and the
average production cost per unit of oil and of gas produced, including
production taxes, for the nine months ended December 31, 1996 and for the
years ended March 31, 1996, 1995 and 1994. For purposes of calculating
production cost per equivalent Mcf, barrels of oil have been converted at a
BTU equivalent ratio of six Mcf of gas for each barrel of oil:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31 YEAR ENDED MARCH 31
----------- -------------------------------------------
1996 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Sales Price
Gas (per Mcf) $ 1.66 $ 1.29 $ 1.70 $ 2.15
Oil (per Bbl) --- 18.40 15.96 14.50
Average Production Cost $ 0.33 $ 0.65 $ 0.99 $ 0.81
Per Equivalent Mcf
</TABLE>
PRODUCING WELLS AND DEVELOPED ACREAGE
12
<PAGE>
The following table sets forth, as of March 21, 1997, the
approximate number of gross and net producing gas wells and their related
developed acres owned by the Company. Productive wells are producing wells
and wells capable of production, including shut-in wells. Developed acreage
consists of acres spaced or assignable to productive wells.
"Gross" refers to the total acres or wells in which the Company has
a working interest, and "Net" refers to gross acres or wells multiplied by
the percentage of working interest owned by the Company.
<TABLE>
<CAPTION>
PRODUCING GAS WELLS DEVELOPED ACRES
- ------------------- -------------------
GROSS NET GROSS NET
- ------ ----- ----- -----
<S> <C> <C> <C>
75 69.75 26,775 20,018
</TABLE>
UNDEVELOPED ACREAGE
At March 21, 1997, Evergreen held undeveloped acreage as set forth
below:
<TABLE>
<CAPTION>
UNDEVELOPED ACRES
-------------------------------
LOCATION GROSS NET
- -------- --------- ---------
<S> <C> <C>
Colorado 115,165 93,100
New Mexico 320 320
--------- ---------
TOTAL 115,485 93,420
United Kingdom 630,480 630,480
Falkland Islands 400,640 8,012
Chile 2,400,000 1,800,000
</TABLE>
The following table sets forth the expiration dates of the gross and
net acres subject to Colorado leases summarized in the table of undeveloped
acreage.
<TABLE>
<CAPTION>
Acres Expiring
-----------------------
Twelve Months Ending: Gross Net
----- ---
<S> <C> <C>
December 31, 1997................................. 9,298 7,041
December 31, 1998................................. 3,693 3,388
December 31, 1999................................. 3,290 2,209
December 31, 2000 and later....................... 1,862 1,862
</TABLE>
DRILLING ACTIVITIES
The Company's drilling activities for the nine months ended December
31, 1996 and for the years ended March 31, 1996 and 1995 are set forth below:
<TABLE>
<CAPTION>
Nine Months
Ended
December 31 Years Ended March 31
--------------- -----------------------------------
1996 1996 1995
--------------- --------------- ---------------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive....................... 0 0.00 0 0.00 0 0.00
Dry.............................. 0 0.00 0 0.00 0 0.00
0 0.00 0 0.00 0 0.00
Development Wells:
Productive....................... 26 26.00 22 15.75 6 3.00
Dry.............................. 0 0.00 0 0.00 0 0.00
26 26.00 22 15.75 6 3.00
</TABLE>
PRINCIPAL PROPERTIES
The following are brief descriptions of Evergreen's principal
properties:
RATON BASIN
13
<PAGE>
Since December 1991, Evergreen has acquired oil and gas leases
covering over 120,000 gross acres in the Raton Basin, Las Animas County in
Southeastern Colorado. This acreage position will support over 500 wells on
160 acre spacing. Independent engineering estimates indicate reserve
potential of approximately 1.5 -2.0 billion cubic feet of gas per well.
Since Fall 1993 Evergreen has drilled 54 coalbed methane gas wells
in the Vermejo coals at depths of 1,000 to 2,100 feet. Evergreen has a 100%
interest in these wells, 52 of which are in production - one of which is
awaiting hook-up, and one to be re-drilled.
Gas sales began in January 1995 and have improved as new wells have
been drilled to a present level of 17.5 million cubic feet per day gross.
In March 1995, the Bureau of Land Management designated
approximately 67,000 acres of Evergreen's Raton Basin oil and gas leases as a
Federal Unit called the Spanish Peaks Unit. Evergreen has been named Unit
Operator. Formation of the Unit allows Evergreen to base development
decisions within the Unit on technical, geologic and geophysical data rather
than the fulfillment of term lease obligations. Evergreen's remaining Unit
commitment is to drill and evaluate one new unit obligation well by December
31, 1997.
In January, 1997, the Bureau of Land Management designated
approximately 33,000 acres of Evergreen's Raton Basin oil and gas leases as a
new Federal Unit called the Sangre de Cristo Unit. Evergreen has been named
Unit Operator. Evergreen's Unit obligation is to drill and attempt completion
of two new wells in the Unit during 1997. The previously formed 67,000 acre
Spanish Peaks Unit combined with the new Sangre de Cristo Unit represent
approximately 83% of Evergreen's 120,000 gross acres in the Raton Basin.
On March 10, 1997, drilling commenced on 18 new development wells
and 4 exploratory wells. All wells will be drilled to the Vermejo coal
intervals at depths ranging from 900 feet to 3100 feet.
Three groups of six development wells will be drilled, completed and
placed into production in approximately 45-day intervals. These 18 wells will
be located in the Southern portion of the Spanish Peaks Unit.
Two of the exploratory wells will be drilled in the Northern portion
of the Spanish Peaks Unit, and the other two exploratory wells will be
drilled in the central portion of the Sangre de Cristo Unit. The exploratory
wells are being drilled in order to test production levels, provide
additional geologic control, and also to fulfill Unit obligations.
Evergreen plans continual development of the Raton Basin acreage,
including drilling of 40-50 new wells every year.
SAN JUAN BASIN
Effective June 1, 1996, Evergreen sold its working interests in six
producing wells in the San Juan Basin, Rio Arriba County, New Mexico. The
wells qualify for the IRS Code Section 29 tax credit. The working interests
were sold to a limited partnership owned and controlled by Banque Paribas.
Evergreen received $53,000 cash and a volumetric production payment
under which Evergreen will receive 99% of the cash flow from the wells until
approximately 1.1 billion cubic feet of gas have been produced and sold net
to the well interests.
In addition to the production payment, Evergreen will receive
monthly payments based on production from the wells through 2002.
Evergreen has the option to repurchase the interests at any time
between December 31, 2002, and January 1, 2008, and will automatically revert
to 75% ownership in the interests if and when approximately 1.8 BCF have been
produced net to the wells.
Evergreen owns varying interests in sixteen additional wells in the
San Juan Basin, the majority of which are shut-in at present because of low
production volumes.
UNITED KINGDOM
14
<PAGE>
In 1991 and 1992 the Company's wholly owned subsidiary, Evergreen
Resources (U.K.) Ltd.("ERUK"), was awarded seven onshore U.K. hydrocarbon
Exploration Licenses for the development of coalbed methane gas and
conventional hydrocarbons (the "Licenses").
The Licenses provide ERUK with the largest onshore acreage position
in the U.K., and cover substantially all of six distinct onshore U.K. basins.
Over 400,000 acres are considered prospective specifically for coalbed
methane.
Selection of the Licensed areas was made after evaluating extensive
geological, geophysical, petrophysical and measured methane gas content data
bases. The majority of the original data base was acquired through technology
sharing agreements with British Coal Corporation, who shared all relevant
available data on the six basins and granted use of this data to ERUK. ERUK
has augmented this data with proprietary seismic and coalbed methane well
data and also geologic data from the British Geologic Survey, and other
sources.
During the period 1992 to 1994, Evergreen conducted seismic work and
drilled three wells on two of the Licenses. The wells encountered 30' to 80'
of gross coal. Two of the wells were hydraulically fracture stimulated and
one was tested for permeability. Following extensive production testing, none
of the three wells produced gas in economic quantities. The three wells are
presently shut-in.
Under a new onshore Licensing regime implemented by the UK
Department of Trade and Industry (DTI), Evergreen has converted its existing
onshore Exploration Licenses to new onshore Licenses, called Petroleum
Exploration and Development Licenses.
These new Licenses will provide up to a 30 year term with optional
periodic relinquishment of portions of the licenses, subject to future
development plans. There are no royalties or burdens encumbering the Licenses.
Work commitments on the former and new Licenses have been fulfilled
through 1997 as a result of Evergreen's prior UK activity. By June 30, 1997,
Evergreen will notify the DTI of the Company's intention regarding
relinquishment of portions of the acreage presently licensed. Work
commitments for acreage retained will include remote sensing studies,
additional seismic studies and the drilling of three wells, one per year
beginning in 1999.
ERUK believes that a major resource is in place within the License
areas. Further evaluation will be required to determine the economic
viability of extracting this resource - License by License - since success or
lack of success on one License may not be translated to similar results on
other Licenses or separate geologic basins.
Evergreen is continuing to hold discussions with various funding
sources, including potential industry partners, for the purpose of resuming
evaluation and development of the Licenses.
ITEM 3. LEGAL PROCEEDINGS
The Company is not engaged in any material pending legal proceedings
to which the Company or its subsidiaries are a party or to which any of its
property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
15
<PAGE>
PART II
ITEM 5. MARKET FOR EVERGREEN'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
PRINCIPAL MARKET OR MARKETS
The Company's common stock is traded on the NASDAQ National Market
System under the symbol "EVER". The range of high and low prices for each
quarterly period during the two most recent years ended December 31, 1996, as
reported by NASDAQ is as follows :
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter $ 6.00 $ 4.00
Second Quarter 5.75 4.25
Third Quarter 5.50 4.00
Fourth Quarter 5.37 3.50
1996
First Quarter $ 6.16 $ 5.00
Second Quarter 7.25 5.75
Third Quarter 7.22 5.75
Fourth Quarter 8.75 5.50
</TABLE>
On March 20, 1997, the closing price for the common stock as reported by
NASDAQ was $8.00 per share.
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of Evergreen's no par value common stock at
March 21, 1997, was approximately 4,000.
DIVIDENDS
Holders of common stock are entitled to receive such dividends as
may be declared by Evergreen's Board of Directors. The Company has not paid
any cash dividends since its inception. The Company anticipates that future
earnings will be retained for the development of its business and that no
cash dividends will be declared in the foreseeable future.
PREFERRED STOCK
On December 8, 1994, the Company received $3.75 million through the
private placement, with Institutional Investors, of 3,750,000 shares of ten
year term 8% Convertible Preferred Stock, $1.00 par value ("the Preferred").
The Company received an additional $3.75 million on July 26, 1995 by issuing
an additional 3,750,000 shares. All proceeds were used for development of the
Company's oil and gas leases in the Raton Basin of Colorado.
As of December 1, 1996, 1,500,000 shares of the Preferred were
converted to 230,770 shares of common stock and 250,000 five-year stock
purchase warrants. 100,000 of the warrants are exercisable at $7.80 per share
and 150,000 are exercisable at $7.00 per share.
The remaining Preferred is convertible into common stock at a
conversion price of $6.50 per share. Annual cash dividends of 8% are payable
quarterly. Evergreen may call the Preferred at any time in whole or in part
prior to the mandatory redemption (minimum call being 20% of original issue),
at par value, plus accrued dividends.
Evergreen can require the conversion of all of the Preferred into
common stock provided the common stock has traded at not less than $16 per
share for 30 consecutive days.
16
<PAGE>
Mandatory repayments of $1,000,000 are due annually commencing in
December 1999. All outstanding shares of Preferred must be redeemed by
Evergreen in ten years (2005) at par value, plus accrued dividends.
Evergreen has issued warrants which will be triggered and will
become exerciseable for 10 years at $6.50 per share if Evergreen exercises
all or part of its call option (up to 923,077 warrants).
The Preferred carries antidilution provisions, registration rights
and, under certain circumstances, voting rights.
ITEM 6. SELECTED FINANCIAL DATA
Effective with the period ended December 31, 1996, the Company
elected to begin utilizing a December 31 fiscal year end. Therefore, the
period ended December 31, 1996 represents a nine-month short period as
compared to the twelve month fiscal years ended March 31, 1996, 1995, 1994
and 1993.
This information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and Management's discussion and
analysis of Financial Condition and Results of Operations. Certain
reclassifications have been made to prior financial statements to conform
with current presentation.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31 YEARS ENDED MARCH 31
----------- -------------------------------------------------
1996 1996 1995 1994 1993
(in $ thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 4,228 $ 2,935 $ 3,351 $ 4,342 $ 4,947
Net Income (Loss) 675 (607) (705) 44 726
Per common share 0.10 (0.10) (0.13) 0.01 0.15
Total Assets 68,244 44,172 39,140 32,880 31,125
Long Term Bank Debt 1,173 191 -- -- --
Other Long-term Obligations 3,724 2,400 1,687 448 290
Redeemable Preferred Stock 6,000 7,500 3,750 -- --
Stockholders' Equity 52,364 31,589 32,202 30,413 30,026
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On August 14, 1996, Evergreen acquired, effective as of August 1,
1996, approximately 37 BCF of proved natural gas reserves, approximately 24
BCF of which are developed, together with a 25% working interest in 120,000
gross acres and a 50% interest in an associated gas gathering and marketing
system. All of these assets are located on Evergreen's present acreage
position in the Raton Basin. Evergreen issued 1,162,266 restricted shares of
Evergreen Common Stock and assumed $3.6 million of long term bank debt owed
to Hibernia National Bank.
The acquisition of these assets increased Evergreen's interest to
100% in all leases, reserves, production, and associated gathering facilities
on the Company's 120,000 gross acres in the Raton Basin.
Evergreen currently has a $15.0 million revolving line of credit
with Hibernia National Bank of New Orleans with interest at the Bank's prime
rate. Advances pursuant to this line of credit are limited to the borrowing
base, which is presently $15.0 million. There are no restrictions associated
with advances under the line. An annual fee of one half of one percent is
paid quarterly for any unused portion of the credit line. The borrowing base
is redetermined semi-annually by the bank based upon reserve evaluations of
the Company's oil and gas properties. The Company used a portion of the
proceeds of the underwriting to retire $2.5 million outstanding under the
line of credit and the $3.6 million assumed in the PBI acquisition. As of
March 15, 1997, the Company had utilized $1.7 million of the line.
17
<PAGE>
The Company has a $4.0 million equipment lease line with Hibernia
National Bank with interest at prime plus .25% (8.5% at December 31, 1996)
for a term of five years and include options to purchase the equipment at a
nominal amount at the end of the lease term. The Company primarily leases
compressors for the Raton Basin gas gathering system and other related
production equipment. It is anticipated that the Company will require
additional leases of approximately $1.5 - $2.0 million during 1997 for
additional compressors and other equipment.
The Company and its subsidiaries are contingently liable
individually and jointly with others as guarantors of a $2.5 million line of
credit and an obligation related to leased equipment. The contingent
obligations amounted to $1.1 million at December 31, 1996.
The Company anticipates drilling approximately 40 wells and
expanding and upgrading gas gathering facilities during fiscal 1997. Capital
requirements for fiscal 1997 are estimated to be approximately $16 million.
The Company believes that cash flow from operations and the availability of
funds under its line of credit will be sufficient to fulfill the 1997
development objectives.
Leases expiring in fiscal 1997 are not material and do not require
significant drilling expenditures.
Cash flows provided by operating activities were $1,524,000 for the
nine months ended December 31, 1996 as compared to cash provided by operating
activities of $1,130,000 during the twelve months ended March 31, 1996. The
significant increase in the cash flows provided by operating activities is
due primarily to improved operating results as a result of higher gas
production, higher gas prices, the PBI acquisition and the monetization of
the San Juan Basin section 29 tax credits.
Cash flows used by investing activities were $8,600,000 during the
nine months ended December 31, 1996 versus $2,800,000 during the twelve
months ended March 31, 1996. The increase in cash flows used by operating
activities was primarily due to the continued development of the Raton Basin
which included the drilling of an additional 26 wells along with the
associated gas gathering costs and an upgrade to the gas gathering mainline
system during the nine months ended December 31, 1996.
Cash flows provided by financing activities were $6,000,000 during
the nine months ended December 31, 1996 as compared to $3,439,000 during the
twelve months ended March 31, 1996. The increase in cash provided by
financing activities was due to the sale of 2,000,000 shares of common stock
at $5.75 per share in a public offering which was completed on October 28,
1996. The Company received proceeds, net of expenses, of $10.3 million. The
proceeds from the public offering were used to pay down the Company's line of
credit of $2.5 million and pay off the debt assumed in the PBI acquisition of
$3.6 million. During the year ended March 31, 1996 the Company received
approximately $3.75 million from the sale of preferred stock.
The Company's production from its San Juan basin properties has not
met the minimum volume requirements under its transportation agreements with
El Paso Field Services ("El Paso"). As of December 31, 1996, the cumulative
obligation of the Company to El Paso resulting from this shortfall was
$2,231,000. At current rates of production, this liability would increase to
over $3 million by the end of the contract term in July 1998. The Company is
currently in discussions with El Paso concerning alternative resolutions to
the shortfall, including the purchase by the Company of a portion of El
Paso's pipeline system. However, there is no assurance that an alternative
agreement will be reached.
RESULTS OF OPERATIONS - NINE-MONTH FISCAL PERIOD ENDED DECEMBER 31, 1996
COMPARED TO THE FISCAL YEAR ENDED MARCH 31, 1996
The Company reported net income of $674,900 or $0.10 per common
share for the nine months ended December 31, 1996, compared to a net loss of
$606,800 or $0.10 per common share for the year ended March 31, 1996.
Natural gas revenues were $3,500,000 during the nine months ended
December 31, 1996, compared to $1,392,700 for the fiscal year ended March 31,
1996.
The Company has no significant oil reserves, production or revenues.
The significant increase in natural gas revenue during the nine
months ended December 31, 1996, as compared to the year ended December 31,
1996, is attributable to substantially higher Raton
18
<PAGE>
Basin production volumes, sharply higher natural gas prices, the PBI
acquisition and the monetization of the San Juan Basin tax credit.
During the nine months ended December 31, 1996, Raton Basin gas
production represented over 88% of the Company's total gas production,
compared to 51% for the year ended March 31, 1996. At December 31, 1996,
there were 42 producing Raton Basin wells compared to 21 producing wells at
March 31, 1996.
Production costs and taxes (lifting costs) for the nine months ended
December 31, 1996, were $700,900 compared to $656,900 for the twelve months
ended March 31, 1996. On an equivalent Mcf basis (Mcfe), lifting costs
declined from $0.65 per Mcf during the twelve month fiscal year ended March
31, 1996 to $0.33 per Mcf in the current period. The decrease in the average
production cost of $0.32 per Mcfe was due to the sale or shut-in of
uneconomical oil and gas properties with high lifting costs during the year
ended March 31, 1996. Additionally, the significant increase in production in
the Raton Basin over the prior year contributed to the decrease in production
costs.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
December 31, March 31,
----------------- -----------
1996 1996
<S> <C> <C>
Gas Production (Mcf) 2,104,400 941,200
Gas Revenues $3,500,000 $1,392,700
Avg. Price per Mcf $1.66 $1.29
Production Cost per Mcfe $0.33 $0.65
</TABLE>
Oil and gas service revenues and cost of oil and gas services are
attributable to the Company's wholly owned subsidiary Evergreen Operating
Corporation (EOC), which is primarily responsible for drilling, evaluation
and production activities associated with various properties and for
negotiating the sales of oil and gas production from the properties. As of
March 15, 1997, EOC was serving as Operator for approximately 170 producing
wells owned by the Company and also by other unaffiliated third parties.
During the nine months ended December 31, 1996, oil and gas service
revenues were $545,000, versus $779,000 for the twelve months ended March 31,
1996, a 30% decrease. Costs of oil and gas services during the nine months
ended December 31, 1996 were $621,500 vs. $727,100 for the prior twelve month
fiscal year. The decrease in both oil and gas service revenues and cost of
oil and gas services expense is due primarily to a nine month reporting
period versus a twelve month reporting period.
Depreciation, depletion and amortization expense for the nine months
ended December 31, 1996 was $966,000 compared to $590,000 in the prior twelve
month fiscal year. The increase is due to the significantly higher gas
production in the Raton Basin.
General and administrative expenses were $504,500 during the nine
months ended December 31, 1996 as compared to $818,800 during the twelve
months ended March 31, 1996, or a decrease of $314,300. The decrease of
$314,300 is due to expenses incurred during a nine month reporting period
versus a twelve month reporting period and also reductions in administrative
personnel and related salary expense.
Interest income for the nine months ended December 31, 1996 was
$142,500 compared to $206,700 for the twelve months ended March 31, 1996. The
decrease in interest income is due primarily to the nine month reporting
period versus a twelve month reporting period.
Interest expense for the nine months ended December 31, 1996 was
$192,700 versus $36,600 during the twelve months ended March 31, 1996. The
$156,100 increase is due to the debt assumed by the Company as a result of
the PBI acquisition, the interest on the line of credit borrowings, and the
interest on the capital lease obligations.
The Company reported $37,900 of other income during the nine months
ended December 31, 1996, compared to $556,200, which was primarily due to the
sale of the Company's interest in ANGI, Ltd., during the twelve months ended
March 31, 1996.
19
<PAGE>
RESULTS OF OPERATIONS - FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO THE
FISCAL YEAR ENDED MARCH 31, 1995
The Company reported a net loss of $606,800 or $.10 per common share
for the year ended March 31, 1996, compared to a net loss of $704,700 or $.13
per share for the year ended March 31, 1995.
Production revenues during 1996 were $1,392,700 as compared to
$1,916,300 in 1995, a decrease of $523,600 or 27%. The decrease in production
revenues is due primarily to lower gas prices and the sale of oil and gas
properties. Gas production increased to 941,200 Mcf in 1996 from 782,000 Mcf
in 1995. However, average gas prices decreased approximately $.41 per Mcf to
$1.29 per Mcf in 1996 as compared to $1.70 during 1995. The decrease in gas
prices more than offset the increased production and reduced gas revenues to
$1,211,000 in 1996 from $1,331,000 in 1995 for a reduction of $120,000 or 9%.
Oil revenues decreased to $178,000 in 1996 versus $584,000 in 1995 for a
reduction of $406,000 or 70%. This reduction is due to the sale of
substantially all oil properties.
Cost of production and operations was $656,900 for the year ended
March 31, 1996 versus $993,800 for the same period in 1995. The decrease in
cost of production and operations of $336,900 or 34% is due primarily to the
sale or shut-in of uneconomical oil and gas properties with high lifting
costs. The average production cost per Mcfe was $.65 in 1996 as compared to
$0.99 in 1995. During the year ended March 31, 1996 the lifting costs have
continued on a downward trend.
Oil and gas service revenues and cost of oil and gas services are
attributable to the Company's wholly owned subsidiary Evergreen Operating
Corporation (EOC), which is primarily responsible for drilling, evaluation
and production activities associated with various properties and for
negotiating the sales of oil and gas production from the properties. As of
March 31, 1996, EOC was serving as operator for approximately 150 producing
wells owned by the Company, unaffiliated third parties and affiliated parties.
Oil and gas service revenues during 1996 were $779,100 versus
$858,300 in the same period during 1995. The $79,000 decrease was primarily
due to non-recurring special service fees of approximately $201,000, which
were offset by increased operating fees of approximately $111,000 in 1996.
Interest and dividend income was $206,800 during the year ended
March 31, 1996 as compared to $116,300 during the year ended March 31, 1995.
The increase in interest and dividends of $90,500 is due to an increase in
cash from the proceeds of the preferred stock offering.
Other income was $556,200 during the year ended March 31, 1996
versus $460,000 for the same period in 1995. In 1996 the Company sold its
interest in ANGI Ltd., to an unaffiliated entity for $580,000 which resulted
in a gain of $525,000.
Costs of oil and gas services were $727,100 during the year ended
March 31, 1996 as compared to $789,800 during the year ended March 31, 1995.
The decrease of $62,700 or 8% was primarily due to a reduction in personnel
and related salary expense.
Depreciation, depletion and amortization was $590,000 during the
year ended March 31, 1996 as compared to $709,000 in 1995. While there was no
significant change in total production from the prior year the decrease in
depreciation, depletion and amortization is due primarily to the increase in
estimated reserves of approximately 30%.
General and administrative expenses were $818,800 during the year
ended March 31, 1996 as compared to $850,100 during the same period in 1995.
The decrease of $31,300 was due to general overhead reductions.
INCOME TAXES AND NET OPERATING LOSSES
As discussed in Note 4 in the accompanying consolidated financial
statements, the Company has net operating loss carry forwards for income tax
purposes of approximately $14,000,000, certain of which are limited due to
stock issuances in 1988 and 1990. A valuation allowance of $2,885,000 has
been recorded for the net deferred tax asset arising from the loss carry
forward in excess of the deferred tax liability resulting from depreciation
and amortization differences. The valuation allowance was recorded as the
Company was unable to determine that these tax benefits are more likely than
not to be realized.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants..................... F-1
Consolidated Balance Sheets, December 31, 1996 and March 31, 1996...... F-2 and F-3
Consolidated Statements of Operations for the Nine Months Ended
December 31, 1996 and for the Years Ended March 31, 1996, and 1995..... F-4
Consolidated Statements of Stockholders' Equity for the Nine Months
Ended December 31, 1996 and the Years Ended March 31, 1996, and 1995... F-5
Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 1996 and the Years Ended March 31, 1996, and 1995......... F-6
Notes to Consolidated Financial Statements............................. F-7 to F-27
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Since the Company's inception, there has not been any Form 8-K filed
under the Securities and Exchange Act of 1934 reporting a change in
accountants in which there was a reported disagreement on any matter of
accounting principles or practices or financial statement disclosure.
PART III
The information required by Part III of Form 10-K is incorporated herein by
reference to Registrant's definitive Proxy Statement previously filed in
connection with the Annual Meeting of Shareholders to be held on May 28, 1997
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) See Index to Consolidated Financial Statements at Item 8.
(a)(2) All other schedules have been omitted because the required
information is inapplicable or is shown in the notes to the
financial statements.
(a)(3) EXHIBITS:
22 Reserve Report prepared by Resource Services International, Inc.
27 Financial Data Schedule
(b) A report on Form 8-K was filed by the Company during the last
quarter of the fiscal year ended December 31, 1996 - describing
the change in the Company's fiscal year.
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Evergreen Resources, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Evergreen
Resources, Inc. and subsidiaries as of December 31, 1996 and March 31, 1996 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the nine month period ended December 31, 1996 and for each of the
two years in the period ended March 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Evergreen Resources,
Inc. and subsidiaries as of December 31, 1996 and March 31, 1996 and the results
of their operations and their cash flows for the nine month period ended
December 31, 1996 and for each of the two years in the period ended March 31,
1996, in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
March 18, 1997
F-1
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DECEMBER 31, March 31,
1996 1996
- -----------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 2,640,300 $ 3,702,511
Accounts receivable:
Oil and gas sales 1,182,635 237,178
Joint interest billings and other 727,283 897,142
Other current assets 113,964 132,446
- -----------------------------------------------------------------------------
Total current assets 4,664,182 4,969,277
- -----------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (Notes 2 and 15):
Proved oil and gas properties, based on
full-cost accounting 49,323,572 36,378,828
Unevaluated properties not subject to
amortization 8,579,220 7,792,739
Gas gathering equipment 13,952,381 4,415,439
Support equipment 1,422,955 595,656
- -----------------------------------------------------------------------------
73,278,128 49,182,662
Less accumulated depreciation, depletion
and amortization 12,578,205 11,558,516
- -----------------------------------------------------------------------------
Net property and equipment 60,699,923 37,624,146
DESIGNATED CASH (Note 3) 1,493,114 770,076
OTHER ASSETS 1,386,376 808,218
- -----------------------------------------------------------------------------
$68,243,595 $44,171,717
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-2
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DECEMBER 31, March 31,
1996 1996
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,223,047 $ 1,204,378
Amounts payable to oil and gas
property owners 1,068,532 1,123,465
Accrued expenses and other 691,096 162,127
Total current liabilities 4,982,675 2,489,970
PRODUCTION TAXES PAYABLE (Note 3) 1,493,114 770,076
OBLIGATION UNDER CAPITAL LEASE (Note 14) 1,173,500 191,956
LONG-TERM LIABILITIES (Note 10) 2,230,798 1,630,878
- -----------------------------------------------------------------------------
Total liabilities 9,880,087 5,082,880
- -----------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK (Note 5) 6,000,000 7,500,000
COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY (Notes 6 and 7):
Common stock, $.01 stated value; shares
authorized, 50,000,000; shares issued
and outstanding, 9,336,320 and 5,899,736 93,636 58,998
Additional paid-in capital 61,369,368 41,822,026
Accumulated deficit (9,198,780) (9,873,715)
Foreign currency translation adjustment 99,284 (418,472)
- -----------------------------------------------------------------------------
Total stockholders' equity 52,363,508 31,588,837
- -----------------------------------------------------------------------------
$68,243,595 $44,171,717
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-3
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NINE MONTHS ENDED
DECEMBER 31 YEARS ENDED MARCH 31,
----------------- ---------------------
1996 1996 1995
- -------------------------------------------------------------------------------
REVENUES:
Oil and gas production (Note 8) $3,502,385 $1,392,695 $1,916,262
Oil and gas services (Note 12) 545,079 779,146 858,298
Interest and dividends 142,521 206,769 116,320
Other (Note 11) 37,953 556,221 459,948
- -------------------------------------------------------------------------------
TOTAL REVENUES 4,227,938 2,934,831 3,350,828
- -------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of production and operations 700,875 656,899 993,838
Gas gathering costs 110,363 218,644 237,831
Cost of oil and gas services 621,521 727,121 789,778
Depreciation, depletion and
amortization 965,794 589,936 709,008
General and administrative expenses 504,456 818,805 850,088
Interest expense 192,685 36,620 29,688
Other 17,309 (10,997) 351,158
- -------------------------------------------------------------------------------
Total costs and expenses 3,113,003 3,037,028 3,961,389
- -------------------------------------------------------------------------------
NET INCOME (LOSS) 1,114,935 (102,197) (610,561)
Preferred stock dividends (Note 5) 440,000 504,620 94,167
- -------------------------------------------------------------------------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCK $ 674,935 $ (606,817) $ (704,728)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $ 0.10 $ (.10) $ (.13)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 7,043,141 5,800,036 5,446,741
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NINE MONTHS ENDED DECEMBER 31, 1996 AND
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
Common Stock
----------------- Foreign
$.01 Stated Value Additional Currency Total
----------------- Paid-In Accumulated Translation Stockholders'
Shares Amount Capital Deficit Adjustment Equity
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1994 5,058,501 $50,585 $39,434,048 $(8,562,171) $(509,323) $30,413,139
Issuance of common stock for well
interests (Note 6) 501,040 5,010 1,748,630 - - 1,753,640
Issuance of common stock (Note 6) 81,368 813 158,688 - - 159,501
Exercise of stock purchase warrants
(Note 6) 31,250 313 77,813 - - 78,126
Foreign currency translation - - - - 502,183 502,183
Preferred stock dividends - - - (94,167) - (94,167)
Net loss - - - (610,560) - (610,560)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1995 5,672,159 56,721 41,419,179 (9,266,898) (7,140) 32,201,862
Exercise of stock purchase
warrants (Note 6) 159,059 1,592 302,315 - - 303,907
Common stock issued to ESOP 10,000 100 19,900 - - 20,000
Issuance of common stock for
services 55,000 550 116,840 - - 117,390
Other 3,518 35 (36,208) - - (36,173)
Preferred stock dividends - - - (504,620) - (504,620)
Foreign currency translation - - - - (411,332) (411,332)
Net loss - - - (102,197) - (102,197)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1996 5,899,736 58,998 41,822,026 (9,873,715) (418,472) 31,588,837
Issuance of common stock pursuant to
public offering (Note 6) 2,000,000 20,000 10,226,780 - - 10,246,780
Issuance of common stock for acquisition
of PBI and limited partnership interests
(Note 1) 1,162,266 11,623 7,688,377 - - 7,700,000
Issuance of common stock in exchange for
redeemable preferred stock (Note 5) 230,770 2,308 1,497,692 - - 1,500,000
Issuance of common stock for preferred stock
dividend payment 3,077 307 19,693 - - 20,000
Common stock issued to ESOP 10,000 100 28,700 - - 28,800
Issuance of common stock for services 30,000 300 86,100 - - 86,400
Other 471 - - - - -
Preferred stock dividends - - - (440,000) - (440,000)
Foreign currency translation - - - - 517,756 517,756
Net income - - - 1,114,935 - 1,114,935
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 9,336,320 $93,636 $61,369,368 $(9,198,780) $ 99,284 $52,363,508
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED
DECEMBER 31, Years Ended March 31,
----------------- ------------------------
1996 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $1,114,935 $(102,197) $(610,561)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation, depletion and amortization 965,794 589,936 708,933
Gain on sale of subsidiaries -- (525,287) (330,856)
Writedown of investments -- -- 217,438
Loss on sale of marketable securities -- -- 113,074
Stock issued for services 86,400 31,555 50,837
Changes in operating assets and liabilities:
Accounts receivable (184,957) 106,209 770,058
Other current assets 82,712 (56,520) 82,881
Accounts payable (645,908) 1,010,077 (633,403)
Accrued expenses 105,012 76,178 39,228
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,523,988 1,129,951 407,629
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Sale of marketable securities -- -- 2,014,708
Investment in property and equipment (8,342,545) (3,988,233) (6,844,206)
Proceeds from sale of oil and gas assets and
support equipment 420,549 540,413 1,324,390
Proceeds from sale of subsidiary -- 580,000 --
Designated cash (723,038) (177,052) (144,307)
Change in production taxes payable 723,038 177,052 144,307
Change in other assets (636,868) 104,058 546,843
- --------------------------------------------------------------------------------------------------
Net cash used by investing activities (8,558,864) (2,763,762) (2,958,265)
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of redeemable preferred
stock, net -- 3,714,736 3,685,532
Dividends paid on preferred stock (420,000) (504,620) (94,167)
Proceeds from issuance of common stock, net 10,246,780 303,904 77,584
Principal payments on capital lease obligations (118,705) (46,526) --
Principal payments on long-term debt (3,596,000) -- --
Debt issue costs (79,149) (49,037) (57,541)
Change in cash held from operating oil and gas
properties (54,933) (89,880) 23,964
- --------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,977,993 3,328,577 3,635,372
- --------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,328) (30,412) 23,148
- --------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,062,211) 1,664,354 1,107,884
CASH AND CASH EQUIVALENTS, beginning of period 3,702,511 2,038,157 930,273
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $2,640,300 $3,702,511 $2,038,157
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-6
<PAGE>
EVERGREEN RESOURCES, INC.
SUMMARY OF ACCOUNTING PRINCIPLES
- --------------------------------------------------------------------------------
CONSOLIDATION The financial statements include the accounts
of Evergreen Resources, Inc. (ERI) and its
wholly-owned subsidiaries (the "Company");
Evergreen Operating Corporation (EOC) and
Evergreen Resources (UK) Ltd., Powerbridge, Inc.,
and Primero Gas Marketing Co., formerly known as
Primero Gas Gathering Co., (Primero).
The companies are engaged in the operation,
acquisition, exploration and development of oil
and gas properties and also the marketing of
natural gas. All significant intercompany
balances and transactions have been eliminated
in consolidation.
CHANGE IN FISCAL YEAR Effective with the period ended December 31, 1996,
the Company elected to begin utilizing a
December 31 year end. Therefore, the period ended
December 31, 1996 represents a nine month short
period and the years ended March 31, 1996 and 1995
represent twelve month periods.
CONCENTRATIONS OF The Company's financial instruments that are
CREDIT RISK exposed to concentrations of credit risk consist
primarily of cash equivalents.
The Company's cash equivalents are cash investment
funds which are placed with a major financial
institution.
USE OF The preparation of financial statements in
ESTIMATES conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the consolidated financial statements and the
reported amounts of revenues and expenses during
the reporting period. Actual results could differ
from those estimates.
OIL AND GAS The Company follows the full-cost method of
PROPERTIES accounting for oil and gas properties. Under this
method, all productive and nonproductive costs
incurred in connection with the exploration for
and development of oil and gas reserves are
capitalized. Such capitalized costs include lease
acquisition, geological and geophysical work,
delay rentals, drilling, completing and equipping
oil and gas wells and other related costs. If the
net investment in oil and gas properties exceeds an
amount equal to the sum of (1) the standardized
measure of discounted future net cash flows from
proved reserves (see Note 15), and (2) the lower
of cost or fair market value of properties in
process of development and unexplored acreage,
the excess is charged to expense as
F-7
<PAGE>
EVERGREEN RESOURCES, INC.
SUMMARY OF ACCOUNTING PRINCIPLES
- --------------------------------------------------------------------------------
additional depletion. Normal dispositions of
oil and gas properties are accounted for as
adjustments of capitalized costs, with no gain or
loss recognized.
Depreciation and depletion of proved oil
and gas properties is computed on the
units-of-production method based upon estimates
of proved reserves with oil and gas being
converted to a common unit of measure based on
their relative energy content. Unproved oil
and gas properties, including any related
capitalized interest expense, are not
amortized, but are assessed for impairment
either individually or on an aggregated basis.
GAS GATHERING AND Gas gathering and support equipment are stated
SUPPORT EQUIPMENT at cost. Depreciation and amortization for the
Raton Basin gas gathering system is computed
on the units-of-production method based upon
estimated gas production over a twenty-year life.
Certain gas gathering system components and other
support equipment are depreciated using the
straight-line method over the estimated useful
lives of the assets of 3 to 20 years.
AMOUNTS PAYABLE TO Amounts payable to oil and gas property owners
OIL AND GAS consist of cash calls from working interest owners
PROPERTY OWNERS to pay for development costs of properties being
currently developed, production revenue that
the Company, as operator, is collecting and
distributing to revenue interest owners and
production revenue taxes that the Company, as
operator, has withheld for timely payment to
the tax agencies.
INCOME TAXES The Company accounts for income taxes in
accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for
Income Taxes" which requires the use of the
"liability method". Accordingly, deferred tax
liabilities and assets are determined based on
the temporary differences between the financial
statement and tax bases of assets and
liabilities, using enacted tax rates in effect
for the year in which the differences are
expected to reverse.
OPERATOR FEES Income from operating wells for third parties is
recognized pursuant to the applicable operating
agreements when the services are performed.
NET INCOME (LOSS) Net income (loss) per common share has been
PER SHARE computed by dividing net income (loss), after
reduction for preferred stock dividends, by the
weighted average number of common shares and
common share equivalents outstanding during
each of the
F-8
<PAGE>
EVERGREEN RESOURCES, INC.
SUMMARY OF ACCOUNTING PRINCIPLES
- --------------------------------------------------------------------------------
periods presented. Options and warrants to
purchase stock are included as common stock
equivalents when dilutive. Common stock
equivalents are not utilized for the years
ended March 31, 1996 and 1995 as their effect
is antidilutive.
CASH EQUIVALENTS The Company considers all highly liquid investments
with an original maturity of three months or less
to be cash equivalents.
FINANCIAL INSTRUMENTS Unless otherwise specified, the Company believes
the book value of the financial instruments
approximates their fair value.
STOCK PLAN OPTIONS The Company applies APB Opinion 25, Accounting
for Stock Issued to Employees, and related
Interpretations in accounting for all stock
option plans. Under APB Opinion 25, no
compensation cost has been recognized for stock
options granted as the option price equals or
exceeds the market price of the underlying
common stock on the date of grant.
SFAS No. 123, Accounting for Stock-Based
Compensation, requires the Company to provide
pro forma information regarding net income as
if compensation cost for the Company's stock
option plans had been determined in accordance
with the fair value based method prescribed in
SFAS No. 123. To provide the required pro
forma information, the Company estimates the
fair value of each stock option at the grant
date by using the Black-Scholes option-pricing
model.
FOREIGN CURRENCY The functional currency for the Company's foreign
TRANSLATION operations is the applicable local currency. The
translation of the applicable foreign currency
into U.S. dollars is performed for balance
sheet accounts using current exchange rates in
effect at the balance sheet date and for
revenue and expense accounts using a weighted
average exchange rate during the period. The
gains or losses resulting from such translation
are included in stockholders' equity.
RECLASSIFICATIONS Certain items included in prior years financial
statements have been reclassified to conform to
current year presentation.
F-9
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. ACQUISITION Effective August 1, 1996, the Company acquired
AGREEMENT the limited partnership interests of Energy
Investors Fund, LP and Energy Investors Fund
II, LP in PBI Fuels, LP and 100% of the common
stock of Powerbridge Inc. for a purchase price
of $11.3 million. The purchase price is
comprised of 1,162,266 shares of restricted
common stock valued at $7.7 million and the
assumption of $3.6 million of long-term debt.
The assets acquired included 37.0 billion cubic
feet (BCF) of proved natural gas reserves,
approximately 24 BCF of which are developed,
together with 25% working interest in 120,000
gross acres and 50% interest in an associated
gas gathering and marketing system. All of
these assets are located on the Company's
present acreage position in the Raton Basin,
Las Animas County, Colorado. The acquisition
has been accounted for under the purchase
method of accounting.
Assuming the Company's acquisition as discussed
above had been completed at the beginning of
the periods below, pro forma results of
operations for such periods would have been:
<TABLE>
Nine Months
Ended Year Ended
December 31, 1996 March 31, 1996
----------------- --------------
<S> <C> <C>
Revenues $4,599,000 $3,210,400
Net income (loss) 1,201,170 (389,900)
Net income (loss)
attributable to
common stock 761,170 (894,600)
Income (loss) per
share of common
stock $0.11 $(0.13)
</TABLE>
The pro forma information is not necessarily
indicative of the combined results of
operations that would have occurred had the
acquisition been completed for such periods.
2. FINANCING The Company has a $15,000,000 revolving line of
AGREEMENTS credit with a bank. Interest on any borrowings
outstanding is at the bank's prime rate and is
paid monthly. The line of credit matures in
July 1998. There are no restrictions
associated with advances under the line. An
annual facility fee of one-half of one percent
is charged quarterly for any unused portion of
the credit line. The agreement is
collateralized by oil and gas properties and
also contains certain net worth and ratio
requirements. No amounts were outstanding
under the line of credit at December 31, 1996
and March 31, 1996.
F-10
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. DESIGNATED Designated cash represents the cash withheld
CASH AND RELATED for payment of production taxes from the
PRODUCTION TAXES Company and third party revenue interest
PAYABLE owners. The non-current portion of production
taxes payable relates to ad valorem taxes
collected for production through December 1996
which is not payable until fiscal 1998 or
later. The related cash collected from the
Company and third party revenue interest owners
designated for payment of non-current ad
valorem taxes is reflected as a non-current
asset.
4. INCOME TAXES Due primarily to the availability of net
operating loss carryovers, the Company had no
significant taxable income during the nine
months ended December 31, 1996 and the years
ended March 31, 1996 and 1995.
A reconciliation of the effective tax rates and
the statutory U.S. federal income tax rates is
as follows:
<TABLE>
Nine Months Ended Years Ended
December 31, March 31,
----------------- ------------------
1996 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C>
Percent of pre-tax
income tax at U.S.
federal statutory rates 34.0% (34.0%) (34.0%)
State income taxes, net
of federal tax benefit 3.3 (3.3) (3.3)
Expenses not deductible
for taxes - 2.2
Expenses deductible for
taxes (37.3) - -
Increase in deferred tax
asset valuation
allowance - 37.3 35.1
--------------------------------------------------------------------
Effective tax rate -% -% -%
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
The components of the net deferred income
tax in the accompanying balance sheets are
as follows:
December 31, March 31,
1996 1996
------------ -----------
Deferred tax assets $ 2,885,000 $ 2,064,000
Valuation allowance (2,885,000) (2,064,000)
Net deferred tax asset $ - $ -
---------------------------------------------------
---------------------------------------------------
F-11
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company recorded a valuation allowance at
December 31, 1996 equal to the excess of
deferred tax assets over deferred tax
liabilities as it is unable to determine that
these tax benefits are more likely than not to
be realized.
The components of the net deferred tax assets
and liabilities are shown below:
<TABLE>
December 31, March 31,
----------- -----------
1996 1996
------------------------------------------------------
<S> <C> <C>
Net operating loss
carryforward $ 5,371,000 $ 4,551,000
Revenues and other 150,000 201,000
------------------------------------------------------
Total gross deferred
tax assets 5,521,000 4,752,000
Valuation allowance (2,885,000) (2,064,000)
------------------------------------------------------
Net deferred tax asset 2,636,000 2,688,000
Deferred tax liability -
depreciation, depletion
and amortization (2,636,000) (2,688,000)
------------------------------------------------------
Net deferred taxes $ - $ -
------------------------------------------------------
------------------------------------------------------
</TABLE>
As of December 31, 1996, the Company has net
operating loss carryforwards for tax purposes
of approximately $14,000,000. Issuances of
common stock and common stock equivalents
during 1988 and 1990 limits a portion of this
amount to approximately $330,000 per year
(additional amounts would be available to
offset gains on the sale of assets) through
2003.
5. REDEEMABLE On December 8, 1994, the Company received $3.75
PREFERRED STOCK million through the private placement, with
Institutional Investors, of 3,750,000 shares of
ten year term 8% Convertible Preferred Stock,
$1.00 par value ("the Preferred"). The Company
received an additional $3.75 million on July
26, 1995, by issuing an additional 3,750,000
shares. All proceeds were used for development
of the Company's oil and gas leases in the
Raton Basin of Colorado.
F-12
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of December 1, 1996, 1,500,000 shares of the
Preferred were converted to 230,770 shares of
common stock and 250,000 five-year stock
purchase warrants. 100,000 of the warrants are
exercisable at $7.80 per share and 150,000 are
exercisable at $7.00 per share.
The remaining Preferred is convertible into
common stock at a conversion price of $6.50 per
share. Annual cash dividends of 8% are payable
quarterly. Evergreen may call the Preferred at
any time in whole or in part prior to the
mandatory redemption (minimum call being 20% of
original issue), at par value, plus accrued
dividends.
Evergreen can require the conversion of all of
the Preferred into common stock provided the
common stock has traded at not less than $16
per share for 30 consecutive days.
Mandatory repayments of $1,000,000 are due
annually commencing in December 1999. All
outstanding shares of Preferred must be
redeemed by Evergreen in ten years (2005) at
par value, plus accrued dividends.
Evergreen has issued warrants which will be
triggered and will become exercisable for 10
years at $6.50 per share if Evergreen exercises
all or part of its call option (up to 923,077
warrants).
The Preferred carries anti-dilution provisions,
registration rights and, under certain
circumstances, voting rights.
Cumulative annual cash dividends of 8% are
payable quarterly. During the nine months
ended December 31, 1996, and the year ended
March 31, 1996, the Company paid $440,000 and
$504,620 in dividends.
F-13
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. STOCKHOLDERS' On October 28, 1996, the Company completed a
EQUITY public offering of its common shares, whereby
it sold 2,000,000 shares at $5.75 per share.
Proceeds, net of underwriters' commissions and
their expenses of $1,253,220, were $10,246,780.
During the year ended March 31, 1996, pursuant
to the exercise of certain stock purchase
warrants, 71,250 shares of common stock were
issued at $2.50 per share, in exchange for
30,941 shares of common stock currently issued
and outstanding with a market value of
approximately $5.50. In addition, 118,750
shares of common stock were issued under terms
of warrants previously granted, resulting in
proceeds to the Company of $303,907. During
the nine months ended December 31, 1996 and the
year ended March 31, 1996, the Company issued
common stock valued at $86,400 and $117,390 as
a bonus to certain employees.
During the year ended March 31, 1995, 31,250
shares of common stock were issued under terms
of warrants previously granted, yielding
proceeds to the Company of $78,126.
Additionally, the Company issued common stock
valued at $168,000 as a bonus to employees and
$50,000 as payment in lieu of salary.
In August 1994, the Company issued 501,040
shares of common stock valued at $1,753,640 in
exchange for certain working interests in wells
in the San Juan Basin in a non-cash transaction.
F-14
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. STOCK OPTIONS Under the terms of its Key Employee Equity
Plan, options and/or warrants are granted to
key employees at not less than the market price
of the Company's common stock on the date of
grant. During the nine months ended December
31, 1996, the Company granted 170,500 warrants
to officers and directors at exercise prices
ranging from $5.75 to $7.00. In connection
with the 1996 public offering, the Company
issued 200,000 warrants to the underwriters at
an exercise price of $6.90 per share. The
presently outstanding warrants expire in 1997
to 2001.
<TABLE>
December 31, March 31,
1996 1996
--------------------------- ---------------------------
Weighted
Range of Average Range of Exercise
Shares Exercise Price Shares Prices
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding,
beginning of year 327,300 $7.47 497,300 $ 2.50 - 9.50
Granted 620,500 7.08 20,000 4.25
Exercised - - (190,000) 2.50
-------- ----- -------- --------------
Outstanding,
end of year 947,800 7.21 327,300 3.625 - 9.50
-------- ----- -------- --------------
-------- ----- -------- --------------
Options and warrants
exercisable, end of
year 947,800 7.21 327,300 3.625 - 9.50
-------- ----- -------- --------------
-------- ----- -------- --------------
Weighted average fair
value of options and
warrants granted
during the year $ 1.51 $ -
-------- --------
-------- --------
</TABLE>
FASB Statement 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), requires the
Company to provide pro forma information
regarding net income and net income per share
as if compensation costs for the Company's
stock option plans and other stock awards had
been determined in accordance with the fair
value based method prescribed in SFAS No. 123.
The Company estimated the fair value of each
stock award at the grant date by using the
Black-Scholes option-pricing model with the
following weighted-average assumptions used for
grants in the nine months ended December 31,
1996: dividend yield of 0 percent for all
years; expected volatility of 9 percent;
risk-free interest rate of 6.6 percent; and
expected lives of five years for the warrants.
F-15
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Under the accounting provisions for SFAS No. 123, the
Company's net income and net income per share would have
been adjusted to the following pro forma amounts:
<TABLE>
Nine Months
Ended Year Ended
December 31, 1996 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net income (loss)
As reported $674,500 $(606,800)
Pro forma 597,500 (606,800)
Net income (loss) per share
As reported $.10 ($.10)
Pro forma .08 (.10)
</TABLE>
8. MAJOR During the nine months ended December 31, 1996 and the
CUSTOMERS years ended March 31, 1996 and 1995, the Company made
sales to unrelated entities which individually comprised
greater than 10% of total oil and gas sales. The
following is a table summarizing the percentage provided
by each customer:
--------------------------------------------------------
Customer A B C D E F
--------------------------------------------------------
--------------------------------------------------------
Nine months ended
--------------------------------------------------------
December 31, 1996 59% 12% 12% -% -% -%
Years Ended
--------------------------------------------------------
March 31,1996 - - - 41 11 25
March 31,1995 - - - 35 10 -
9. SUPPLEMENTAL Cash paid during the nine months ended December 31, 1996,
DISCLOSURES and for the years ended March 31, 1996 and 1995, for
OF CASH FLOW interest were approximately $192,700, $37,000, and
INFORMATION $22,000. During the nine months ended December 31, 1996,
the Company incurred capital lease obligations of
$841,000 in connection with the master lease agreement to
acquire equipment. Included in accounts payable at
December 31, 1996 is approximately $2,251,000 for gas
gathering construction costs.
During the year ended March 31, 1995, approximately
$1,978,000 of common stock was issued for services and
acquisition of well interests. Also in 1995, the Company
assumed approximately $267,000 in liabilities for the
acquisition of certain equipment. See Notes 1, 6 and 10
for additional noncash transactions at December 31, 1996,
and at March 31, 1996 and 1995.
F-16
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
10. COMMITMENTS The Company leases its primary office space for
approximately $12,800 a month under a lease expiring in
March 1998. The Company has the option to cancel the
lease at any time subsequent to March 31, 1996. Rental
expense, net of sublease income, for all facilities was
approximately $99,900, $143,000, and $177,000 for the
nine months ended December 31, 1996 and the years ended
March 31, 1996 and 1995.
The Company had leased additional office space from an
affiliated entity under a month-to-month operating lease
which is now cancelled. Rent expense was approximately
$2,300 and $28,000 for this facility for the years ended
March 31, 1996 and 1995.
The Company has an Employee Stock Ownership Plan (ESOP),
with contributions to the ESOP determined at the
discretion of the Company. For nine months ended December
31, 1996 and the years ended March 31, 1996 and 1995, the
Company contributed $28,800, $20,000, and $0 to the plan.
Under the terms of certain gas gathering and tie-in
agreements, EOC is committed to meeting certain minimum
volume levels during the term of the agreement. Through
December 31, 1996 and March 31, 1996, volume levels have
been below the required minimums and EOC has accrued
approximately $2,231,000 and $1,831,000 for this
shortfall, which is included with long-term liabilities.
Such amount is refundable if future volumes exceed the
minimums and EOC is currently having discussions with the
owner of the system concerning obtaining additional
volumes or other possible alternatives which includes the
purchase of a portion of the system.
The Company and its subsidiaries are contingently liable
individually and jointly with others as guarantors for an
aggregate amount of a $2.5 million for a line of credit
and an obligation related to leased equipment. The
contingent obligations amount to $1.1 million at December
31, 1996.
F-17
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
11. OTHER
INCOME Other income consisted of the following:
Nine Months Ended
December 31, Year Ended March 31,
1996 1996 1995
------------------------------------------------------------------
Gain on sales of
subsidiaries/assets $ - $525,287 $330,856
Other 37,953 30,934 129,092
------------------------------------------------------------------
$37,953 $556,221 $459,948
------------------------------------------------------------------
------------------------------------------------------------------
In September 1995, the Company sold its interest in ANGI
Limited for $580,000 which resulted in a gain of approximately
$525,000.
In December 1994, the Company sold certain assets and its 100%
interest in JCI which had been acquired in March 1993. Prior
to the consummation of the sale, oil and gas properties with a
cost of approximately $300,000 were transferred into JCI. The
sales price was $1,000,000 cash and a gain of approximately
$331,000 was recognized from the transaction. Included in the
group acquiring these properties and JCI, was an affiliate of
the Company, which represented approximately 39% of the group.
12. RELATED EOC provides well services to a former affiliated entity for
PARTIES which it receives fees pursuant to written operating
agreements. For the nine months ended December 31, 1996 and
the years ended March 31, 1996 and 1995, such fees totalled
approximately $340,000, $575,600 and $316,000. Additionally,
EOC provides non-operating services to the former affiliate,
as requested by them for engineering, evaluation, acquisition
and similar services for which EOC was compensated $24,000 and
$229,000 during the years ended March 31, 1996 and 1995. As
of December 31, 1996 and March 31, 1996, approximately
$272,900 and $50,500 was payable to EOC from the former
affiliate for fees and other services.
F-18
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
13. SECTION 29 Effective June 1, 1996, the Company sold its
TAX CREDITS working interests in six producing wells in
the San Juan Basin. The wells qualify for
the Section 29 tax credit.
The Company received $53,000 cash and
receives a volumetric production payment of
99% of the cash flow from the wells until
approximately 1.1 billion cubic feet of gas
have been produced and sold net to the well
interests.
In addition to the production payment,
Evergreen receives monthly payments based on
production from the wells through 2002.
14. CAPITAL LEASE The Company has a $4.0 million equipment
OBLIGATIONS lease line with Hibernia National Bank with
interest at prime plus .25% (8.5% at
December 31, 1996) for a term of five years,
including options to purchase the equipment
at a nominal amount at the end of the lease
term. The Company primarily leases
compressors for the Raton Basin gas
gathering system and other related
production equipment.
Future minimum lease payments are as follows:
Years ending December 31:
1997 $ 387,900
1998 387,900
1999 387,900
2000 387,900
2001 219,200
----------
Total future minimum lease
payments 1,770,800
Less amount representing interest 322,000
----------
Present value of minimum lease
payments 1,448,800
Less current portion 275,300
----------
Capital lease obligation less
current portion $1,173,500
----------
----------
F-19
<PAGE>
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Included in fixed assets are the following
assets under capital leases:
<TABLE>
December 31, March 31,
1996 1996
------------------------
<S> <C> <C>
Gas gathering equipment $1,652,196 $531,800
Less accumulated amortization 92,113 37,986
------------------------
$1,560,083 $493,814
------------------------
------------------------
</TABLE>
15. SUPPLEMENTAL The Company's oil and gas activities are
INFORMATION OF conducted in the United States and the
OIL AND GAS United Kingdom. The following costs were
PRODUCING incurred in oil and gas acquisition,
ACTIVITIES exploration, development, gas gathering and
producing activities at:
<TABLE>
United United
States Kingdom Total
--------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Acquisition costs:
Proved $7,215,400 $ - $7,215,400
Unproved 600,000 - 600,000
Gas gathering 3,484,600 - 3,484,600
Exploration - - -
Development 4,229,900 96,000 4,325,900
Gas gathering 5,452,400 - 5,452,400
MARCH 31, 1996
-----------------
Acquisition costs:
Proved $ - - $ -
Unproved - - -
Exploration 155,000 - 155,000
Development 3,476,700 516,700 3,993,400
Gas gathering 223,000 - 223,000
MARCH 31, 1995
-----------------
Acquisition costs:
Proved $1,753,600 $ - $1,753,600
Unproved - - -
Exploration 317,700 - 317,900
Development 1,565,700 1,842,000 3,407,700
Gas gathering 2,560,700 - 2,560,700
</TABLE>
F-20
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Aggregate capitalized costs and related accumulated
depreciation, depletion and amortization relating to oil
and gas producing activities are as follows:
<TABLE>
United United
States Kingdom Total
--------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1996
Proved properties $49,323,572 $ - $ 49,323,572
Unproved properties 1,086,629 7,492,591 8,579,220
--------------------------------------------------------------------
50,410,201 7,492,591 57,902,792
Accumulated
depletion,
depreciation and
amortization (11,867,582) - (11,867,582)
--------------------------------------------------------------------
Net capitalized costs $38,542,619 $ 7,492,591 $ 46,035,210
--------------------------------------------------------------------
--------------------------------------------------------------------
MARCH 31, 1996
Proved properties $36,378,828 $ - $ 36,378,828
Unproved properties 896,301 6,896,438 7,792,739
--------------------------------------------------------------------
37,275,129 6,896,438 44,171,567
Accumulated depletion,
depreciation and
amortization (11,169,882) - (11,169,882)
--------------------------------------------------------------------
Net capitalized costs $26,105,247 $6,896,438 $ 33,001,685
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
F-21
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Costs of oil and gas properties excluded from the
amortization base, at December 31 and March 31, are
as follows:
<TABLE>
United United
States Kingdom Total
--------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1996
Leasehold costs $1,086,629 $2,460,560 $3,547,189
Development costs - 5,032,031 5,032,031
--------------------------------------------------------
$1,086,629 $7,492,591 $8,579,220
--------------------------------------------------------
--------------------------------------------------------
MARCH 31, 1996
Leasehold costs $ 896,301 $2,232,588 $3,128,889
Development costs - 4,663,850 4,663,850
--------------------------------------------------------
$ 896,301 $6,896,438 $7,792,739
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
Depreciation and depletion per equivalent MCF
was $.33, $.39, and $.51 for the nine months
ended December 31, 1996, and the years ended
March 31, 1996 and 1995.
Results of operations from United States
production activities for the nine months ended
December 31, 1996 and the years ended March 31,
1996 and 1995 are presented in accordance with
Financial Accounting Standards No. 69,
"Disclosures About Oil and Gas Activities,"
which excludes consideration of general and
administrative, and interest expense. There
was no production activity in the United
Kingdom.
F-22
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
Nine Months
Ended
December 31, Years Ended March 31,
----------- -----------------------
1996 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
Oil and gas sales $3,502,385 $1,392,695 $1,916,262
---------------------------------------------------------
Cost of production
and operations 700,875 656,899 993,838
Gas gathering costs 110,363 218,644 237,831
Depreciation and
depletion 697,700 393,581 510,538
---------------------------------------------------------
1,508,938 1,269,124 1,742,207
---------------------------------------------------------
Results of
operations from
producing activities
(excluding corporate
overhead and
interest costs) $1,993,447 $ 123,571 $ 174,055
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
OIL AND GAS RESERVE INFORMATION (UNAUDITED)
The estimates of the Company's proved reserves
and related future net cash flows that are
presented in the following tables are based
upon estimates made by independent petroleum
engineering consultants for the United States
only. The Company is in the process of
developing properties in the United Kingdom and
is unable to prepare reserve information in
this area. The Company's reserve information
was prepared as of December 31, 1996 and March
31, 1996 and 1995. The Company cautions that
there are many inherent uncertainties in
estimating proved reserve quantities,
projecting future production rates, and timing
of development expenditures. Accordingly, these
estimates are likely to change as future
information becomes available.
Proved oil and gas reserves are the estimated
quantities of crude oil, condensate, natural
gas and natural gas liquids which geological
and engineering data demonstrate with
reasonable certainty to be recoverable in
future years from known reservoirs under
existing economic and operating conditions.
F-23
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
OIL AND GAS RESERVE INFORMATION - CONTINUED (UNAUDITED)
Proved developed reserves are those reserves
expected to be recovered through existing wells,
with existing equipment and operating methods.
Estimated quantities of proved reserves and proved
developed reserves of crude oil and natural gas
(all of which are located within the United
States), as well as the changes in proved reserves,
are as follows:
Oil and
Natural Natural Gas
Gas Liquids
Proved Reserves (mcf) (bbls)
-----------------------------------------------------------
-----------------------------------------------------------
<S> <C> <C>
At April 1, 1994 51,588,100 1,643,100
Revisions of previous
estimates (12,474,600) (609,300)
Extensions and discoveries 18,441,300 -
Sales of reserves (3,891,100) (154,300)
Purchases of reserves 5,000,000 -
Production (781,700) (36,600)
-----------------------------------------------------------
At March 31, 1995 57,882,000 842,900
Revisions of previous
estimates (3,482,000) -
Extensions and discoveries 31,163,500 -
Sales of reserves (3,696,300) (828,400)
Production (941,200) (9,700)
-----------------------------------------------------------
At March 31, 1996 80,926,000 4,800
Revisions of previous
estimates 4,625,400 (2,200)
Extensions and discoveries 30,109,100 -
Sales of reserves - -
Purchases of reserves 37,163,600 -
Production (2,104,400) -
-----------------------------------------------------------
At December 31, 1996 150,719,700 2,600
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
F-24
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
OIL AND GAS RESERVE INFORMATION - CONTINUED (UNAUDITED)
Oil and
Natural Natural Gas
Gas Liquids
Proved Developed Reserves (mcf) (bbls)
-------------------------------------------------------
<S> <C> <C>
December 31, 1996 88,751,500 2,600
March 31, 1996 41,359,700 4,800
March 31, 1995 18,007,300 289,800
</TABLE>
The following table sets forth a standardized
measure of the estimated discounted future net
cash flows attributable to the Company's proved
oil and gas reserves. Estimated future cash
inflows were computed by applying period-end
prices of oil and gas to the estimated future
production of proved oil and gas reserves at
December 31, 1996 and March 31, 1996 and 1995.
The future production and development costs
represent the estimated future expenditures to
be incurred in developing and producing the
proved reserves, assuming continuation of
existing economic conditions. Future income
tax expense was computed by applying statutory
income tax rates to the difference between
pretax net cash flows relating to the Company's
proved oil and gas reserves and the tax basis
of proved oil and gas properties and available
operating loss and excess statutory depletion
carryovers, reduced by investment tax and
Section 29 credits.
At March 31, 1995, the Company determined that
the likelihood of paying income tax in the
future was minimal due to net operating losses
and future drilling plans. As such, the
effects of income taxes were excluded from this
calculation.
During the nine months ended December 31, 1996
and the year ended March 31, 1996, future
income taxes were included in the standardized
measure of the future net cash flows due to the
increase in future cash inflows which are the
result of additional reserves.
F-25
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
OIL AND GAS RESERVE INFORMATION - CONTINUED (UNAUDITED)
Nine Months
Ended
December 31, Years Ended March 31,
------------ ----------------------------
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Future cash inflows $242,761,200 $121,049,400 $ 86,666,340
Future cash outflows:
Production costs (58,542,800) (30,640,700) (20,671,010)
Development costs (11,790,300) (7,389,400) (9,460,563)
---------------------------------------------
Future net cash flows
before future income
taxes 172,428,100 83,019,300 56,534,767
Future income taxes (34,865,300) (13,789,400) -
---------------------------------------------
Future net cash flows 137,562,800 69,229,900 56,534,767
Effect of discounting
future annual net cash
flows at 10% (81,319,200) (44,076,600) (33,222,467)
---------------------------------------------
Standardized measure of
discounted future
net cash flows $ 56,243,600 $ 25,153,300 $ 23,312,300
---------------------------------------------
---------------------------------------------
</TABLE>
F-26
<PAGE>
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
OIL AND GAS RESERVE INFORMATION - CONTINUED (UNAUDITED)
The following summarizes the principal factors
comprising the changes in the standardized measure
of discounted future net cash flows for the nine
months ended December 31, 1996 and for the years
ended March 31, 1996 and 1995.
Nine Months
Ended
December 31, Years Ended March 31,
----------- ---------------------------
1996 1996 1995
-----------------------------------------------------------------------
<S> <C> <C> <C>
Standardized measure,
beginning of period $25,153,300 $23,312,300 $25,708,900
Sales of oil and gas,
net of production
costs (2,691,200) (517,100) (684,600)
Extensions and discoveries 10,546,000 10,500,400 6,110,500
Net change in sales
prices, net of
production costs 4,434,700 2,866,900 (9,124,600)
Purchase of reserves 20,122,700 - 2,073,700
Sale of reserves - (5,542,300) (2,901,100)
Revisions of quantity
estimates 2,478,000 (1,567,000) (9,536,000)
Accretion of discount 3,016,300 1,664,300 3,244,400
Net change in income taxes (9,244,800) (5,010,100) 6,735,500
Changes in future
development costs 4,212,800 2,293,900 3,628,100
Changes in rates
of production and
other (1,784,200) (2,848,000) (1,942,500)
-----------------------------------------------------------------------
Standardized measure,
end of period $56,243,600 $25,153,300 $23,312,300
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
F-27
<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.
EVERGREEN RESOURCES, INC.
Date: March 21, 1997 By: /S/ MARK S. SEXTON
------------------------------------------
Mark S. Sexton, President and Chief
Executive Officer
Date: March 21, 1997 By: /S/ KEVIN R. COLLINS
------------------------------------------
Kevin R. Collins, Vice President - Finance
CFO and Treasurer
Principal Accounting Officer
SIGNATURES
Date: March 21, 1997 By: /S/ ALAIN BLANCHARD
------------------------------------------
Alain Blanchard, Director
Date: March 21, 1997 By: /S/ DENNIS R. CARLTON
------------------------------------------
Dennis R. Carlton, Director
Date: March 21, 1997 By: /S/ LARRY D. ESTRIDGE
------------------------------------------
Larry D. Estridge, Director
Date: March 21, 1997 By: /S/ JOHN J. RYAN III
------------------------------------------
John J. Ryan III, Director
Date: March 21, 1997 By: /S/ MARK S. SEXTON
------------------------------------------
Mark S. Sexton, Director
Date: March 21, 1997 By: /S/ SCOTT D. SHEFFIELD
------------------------------------------
Scott D. Sheffield, Director
Date: March 21, 1997 By: /S/ JAMES S. WILLIAMS
------------------------------------------
James S. Williams, Director
22
<PAGE>
RESOURCE
-SERVICES-
March 5, 1997
Evergreen Resources, Inc. [LOGO]
1000 Writer Square
1512 Larimer Street 1580 LINCOLN STREET #1110
Denver, Colorado 80202 DENVER, COLORADO 80203
TELEPHONE (303)830-9377
FAX (303)830-9427
[email protected]
Gentlemen:
We have reviewed and compiled the estimates, prepared by Evergreen
Resources, Inc. ("Evergreen"), and Resource Services, International, Inc.
(RSII), of the extent and value of the proved reserves of crude oil, natural
gas, and natural gas liquids for certain leases owned by Evergreen, as of
December 31, 1996. The appraised properties are located in Colorado and New
Mexico.
Due to significant drilling and completion activity conducted by Evergreen
during the first quarter of 1997, reserve estimates and values reflect activity
through February 1, 1997. Evergreens' estimates of proved reserves, future net
revenue, and present value of net proved reserves summarized in this report are
intended to be submitted to the Securities and Exchange Commission ("SEC") as
part of Evergreen's annual report filed on Form 10-K. The reserve estimates are
prepared according to applicable SEC rules and utilize conventional and
generally accepted engineering methods.
Our review of Evergreen's reserve estimates are based upon a study of
Evergreen's properties. During this investigation, we consulted with the
officers and employees of Evergreen and were given access to such accounts,
records, geological and engineering reports, and other data as were desired for
examination. We previously have prepared studies of oil and gas properties in
areas where Evergreen's properties are located. Property interests owned,
production from such properties, current prices for production, agreements
relating to current and future operations and sale of production, gas tax credit
sales agreements, and various other information and data were furnished to RSII
by Evergreen and are accepted as factual without independent verification of
such facts. We did not make a field examination of the operations or physical
condition of the appraised properties.
Crude oil, natural gas, and natural gas liquid reserves included in this
report are classified as proved and are judged to be economically producible in
future years from known reservoirs under existing economic and operating
conditions, assuming continuation of the current regulatory practices, and using
conventional production methods and equipment.
Definitions of proved reserves used in this evaluation are those set forth
in Rule 4-10(a) of Regulation S-X, as adopted by the SEC:
"PROVED OIL AND GAS RESERVES. Proved oil and gas reserves are the
estimated quantities of crude oil, natural gas, and natural gas liquids
which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic
<PAGE>
Evergreen Resources, Inc.
March 5, 1997
Page 2
and operating conditions, i.e., prices and costs as of the date the
estimate is made. Prices include consideration of changes in existing
prices provided only by contractual arrangements, but not on
escalations based upon future conditions."
"(i) Reserves are considered proved if economic producibility is
supported by either actual production or conclusive formation tests.
The area of a reservoir considered proved includes (A) that portion
delineated by drilling and defined by gas-oil and/or oil-water
contacts, if any, and (B) the immediately adjoining portions not yet
drilled, but which can be reasonably judged as economically productive
on the basis of available geological and engineering data. In the
absence of information on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the
reservoir."
(ii) Reserves which can be produced economically through
application of improved recovery techniques (such as fluid injection)
are included in the 'proved' classification when successful testing by
a pilot project, or the operation of an installed program in the
reservoir, provides support for the engineering analysis on which the
project or program was based."
(iii) Estimates of proved reserves do not include the following:
(A) oil that may become available from known reservoirs but is
classified separately as 'indicated additional reserves'; (B) crude oil,
natural gas, and natural gas liquids, the recovery of which is subject
to reasonable doubt because of uncertainty as to geology, reservoir
characteristics, or economic factors; (C) crude oil, natural gas, and
natural gas liquids, that may occur in undrilled prospects; and (D)
crude oil, natural gas, and natural gas liquids, that may be recovered
from oil shales, gilsonite and other such sources."
"PROVED DEVELOPED OIL AND GAS RESERVES. Proved developed oil and
gas reserves are reserves that can be expected to be recovered through
existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application
of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery
should be included as 'proved developed reserves' only after testing
by a pilot project or after the operation of an installed program has
confirmed through production response that increased recovery will be
achieved."
"PROVED UNDEVELOPED OIL AND GAS RESERVES. Proved undeveloped oil
and gas reserves are reserves that are expected to be recovered from
new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves
on undrilled acreage shall be limited to those drilling units
offsetting productive units that are reasonably certain of production
when drilled. Proved reserves for other undrilled units can be
claimed only where it can be demonstrated with certainty that there is
continuity of production from the existing productive
<PAGE>
Evergreen Resources, Inc.
March 5, 1997
Page 3
undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated unless such techniques have been proved effective by actual
tests in the area and in the same reservoir."
Natural gas volumes are expressed at standard conditions of temperature and
pressure applicable in the area the gas is purchased. Condensate reserves
estimated are those obtained from normal separator recovery. Crude oil and
natural gas liquids are stated as standard barrels of 42 U.S. gallons per
barrel.
Estimated net proved reserves of crude oil, natural gas, and natural gas
liquids, as of December 31, 1996, and based on activity through February 1, 1997
are:
NATURAL
GAS LIQUIDS NATURAL GAS
----------- -----------
BARRELS MCF
Total Proved Developed Producing Reserves 2,611 87,368,600
Total Proved Developed Non-Producing Reserves 0 1,382,840
Total Proved Undeveloped Reserves 0 61,968,220
----- -----------
TOTAL PROVED RESERVES 2,611 150,719,700
----- -----------
----- -----------
*ROUNDING MAY OCCUR DUE TO COMPUTER CALCULATIONS
Value of net proved reserves is expressed in terms of estimated future net
revenue and present value of future net revenue. Future net revenue is
calculated by deducting estimated operating expenses, future development costs,
and severance and ad valorem taxes from the future gross revenue.
Present value of future net revenue is calculated by discounting the future
net revenue at the arbitrary rate of 10 percent per year compounded monthly over
the expected period of realization. Present value, as expressed herein, should
not be construed as fair market value since no consideration has been given to
many factors which influence the prices at which petroleum properties are
traded, such as taxes on operating profits, allowance for return on the
investment, and normal risks incident to the oil business.
Evergreen hedges natural gas prices, and as a result, natural gas prices
included in this appraisal reflect Evergreen's expected prices as of December
31, 1996. Gas prices used in the Raton Basin are based on existing gas sales
contracts. Gas prices used in the Rosa Unit reflect income from Evergreen's
sale of their tax credits for coal bed methane reserves. Current average
operating costs are used to estimate future costs required to operate the
properties.
<PAGE>
Evergreen Resources, Inc.
March 5, 1997
Page 4
Estimated future net revenue and net present value of future net revenue
from proved crude oil, natural gas, and natural gas liquid reserves, as of
December 31, 1996, follow:
10% DISC.
FUTURE NET FUTURE NET
REVENUE REVENUE
------------- ------------
Total Proved Developed Producing Reserves $105,816,900 $52,796,720
Total Proved Developed Non-Producing Reserves $ 537,800 $ 345,519
Total Proved Undeveloped Reserves $ 66,073,370 $17,356,260
------------- ------------
TOTAL PROVED RESERVES *$172,428,100 *$70,499,500
------------- ------------
------------- ------------
*ROUNDING MAY OCCUR DUE TO COMPUTER CALCULATIONS
The estimates of reserves, future net revenue, and net present value are
determined according to our understanding of applicable regulations of the
Securities and Exchange Commission. These estimates have not been filed with
any other federal authority or agency.
Resource Services International, Inc. and its principals are unrelated to
Evergreen, its officers, shareholders, and properties evaluated in this report.
We do not own a direct or indirect financial interest in Evergreen or its
properties.
Submitted,
Resource Services International, Inc.
RESOURCE SERVICES INTERNATIONAL, INC.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2640300
<SECURITIES> 0
<RECEIVABLES> 1909918
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4664182
<PP&E> 73278128
<DEPRECIATION> (12578205)
<TOTAL-ASSETS> 68243595
<CURRENT-LIABILITIES> 4982675
<BONDS> 0
6000000
0
<COMMON> 93636
<OTHER-SE> 52269872
<TOTAL-LIABILITY-AND-EQUITY> 68243595
<SALES> 4047464
<TOTAL-REVENUES> 4227938
<CGS> 0
<TOTAL-COSTS> 2903009
<OTHER-EXPENSES> 17309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 192685
<INCOME-PRETAX> 1114935
<INCOME-TAX> 0
<INCOME-CONTINUING> 1114935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 674935<F1>
<EPS-PRIMARY> .10<F2>
<EPS-DILUTED> 0
<FN>
<F1>Net income attributable to common stock after Preferred Stock dividends of
$440,000
<F2>Per common share, after cash dividends paid on Preferred Stock
</FN>
</TABLE>
