SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-8490
ALAMCO, INC.
(Exact name of registrant as specified in its charter)
Delaware 55-0615701
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
200 West Main Street, Clarksburg, WV 26301
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (304) 623-6671
- --------------------------------------------------------------------------------
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
The number of shares outstanding of each of the registrant's classes of
common stock as of May 1, 1996, is set forth below:
Class of Stock Number of Shares Outstanding
Common Stock, $.10 par value 4,717,774
PART I. Financial Information Pages
Item 1. Financial Statements
Condensed Consolidated Statements of Income . . . . . . . . . 3
for the three months ended March 31, 1996 and 1995
Condensed Consolidated Balance Sheets as of . . . . . . . . . 4-5
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Cash Flows . . . . . . . 6
for the three months ended March 31, 1996 and 1995
Condensed Consolidated Statements of Stockholders' . . . . . . 7
Equity for the three months ended March 31, 1996 and 1995
Notes to the Condensed Consolidated Financial . . . . . . . . 8
Statements
Item 2. Management's Discussion and Analysis of . . . . . . . . . . . 9-10
Financial Condition and Results of Operations
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 11
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Three Months Ended
March 31,
-----------------
1996 1995
---- ----
Revenues:
Gas and oil sales $ 6,187 $ 3,011
Well tending income 179 249
Other 258 200
------ -------
Total revenues 6,624 3,460
------ -------
Expenses:
Operating 2,073 1,561
General and administrative 711 777
Depreciation, depletion and
amortization 1,078 1,016
Interest 341 299
------- --------
Total expenses 4,203 3,653
------- --------
Income (loss) from operations 2,421 (193)
Other nonoperating income, net 83 64
-------- -------
Income (loss) before income taxes 2,504 (129)
Income tax provision (benefit) 828 (27)
-------- -------
Net income (loss) $1,676 ($ 102)
======== =======
Net income (loss) per share (Note 6) $0.34 ($0.02)
======== ========
Weighted average number of common and
common equivalent shares outstanding 4,865,865 4,653,382
========= ==========
March 31, December 31,
1996 1995
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,243 $ 3,297
Accounts receivable 5,468 3,116
Due from partnerships and programs 57 72
Inventories and other current assets 288 368
------ ------
Total current assets 9,056 6,853
------ ------
Property and equipment:
Gas and oil producing properties
(Successful Efforts Method) 79,530 78,076
Other property and equipment 6,755 5,740
------ -------
86,285 83,816
Less accumulated depreciation,
depletion and amortization 33,153 32,201
------- -------
53,132 51,615
Other assets 1,217 1,294
------- -------
Total assets $63,405 $59,762
======= =======
(Continued)
March 31, December 31,
1996 1995
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligations $ 35 $ 33
Accounts payable 847 1,026
Accrued expenses 1,313 1,545
Due working interest and royalty owners
1,911 3,309
Deferred revenue 7 113
Income tax payable 51 --
------- -------
Total current liabilities 4,164 6,026
------- -------
Long-term debt and capital lease obligations 16,857 13,674
Due working interest and royalty owners 273 325
Deferred revenue 27 29
Deferred taxes 9,572 8,936
Other long-term liabilities 378 429
------- -------
Total liabilities 31,271 29,419
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Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $1.00 per share;
1,000,000 shares authorized; none issued
Common stock, par value $.10 per share;
15,000,000 shares authorized; 4,768,898
and 4,762,898 shares issued and
outstanding, respectively including
treasury stock 477 476
Additional paid-in capital
31,338 31,243
Retained earnings (deficit) 524 (1,152)
-------- -------
32,339 30,567
Less: Treasury stock, at cost, 51,124
and 62,405 shares of common
stock, respectively 205 224
------- -------
Total stockholders' equity 32,134 30,343
-------- -------
Total liabilities and stockholders' equity $ 63,405 $ 59,762
======= =======
Three Months Ended
March 31,
-----------------
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) $ 1,676 ($ 102)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 1,078 1,016
Deferred taxes 636 57
Gains on asset sales (26) (22)
Issuance of stock for employee benefits and
compensation expense 111 70
Other factors, net 1 2
Increase (decrease) in cash from changes in:
Accounts receivable (2,352) 330
Due from partnerships and programs 15 13
Due working interest and royalty owners (1,398) 69
Inventories and other current assets 80 33
Accounts payable & accrued expenses (411) (958)
Deferred revenue (106) 93
Income tax payable 51 --
-------- -------
Net cash (used in) provided by
operating activities (645) 601
-------- -------
Cash flows from investing activities:
Proceeds from disposal of fixed assets 36 233
Capital expenditures (2,566) (1,350)
Investment in limited partnership (21) --
Other assets 59 (9)
-------- -------
Net cash used in investing activities (2,492) (1,126)
-------- -------
Cash flows from financing activities:
Borrowings under line of credit 3,200 750
Payments on line of credit -- (500)
Principal payments on long-term debt and
capital lease obligations (16) (47)
Acquisition of treasury stock (15) (5)
Proceeds from exercise of stock options 19 11
Other liabilities (105) (635)
------- -------
Net cash provided by (used in)
financing activities 3,083 (426)
------- -------
Net decrease in cash and cash equivalents (54) (951)
Cash and cash equivalents - beginning of period 3,297 2,632
------- -------
Cash and cash equivalents - end of period $ 3,243 $ 1,681
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 341 $ 303
Common Stock Additional Retained
Treasury Stock
------------- Paid-in Earnings
--------------
Shares Dollars Capital (Deficit) Shares Dollars
------ ------- -------- -------- ------ -------
Balance
December 31, 1994 4,712,713 $471 $31,039 ($2,847) 63,360 $188
Issuance of treasury
stock -- -- 36 -- (10,370) (34)
Acquisition of
treasury stock -- -- -- -- 795 5
Exercise of stock
options 3,733 1 10 -- -- --
Net loss -- -- -- (102) -- --
--------- ----- ------- -------- -------- -----
Balance
March 31, 1995 4,716,446 $472 $31,085 ($2,949) 53,785 $159
========= ===== ======= ======== ======== =====
Balance
December 31, 1995 4,762,898 $476 $31,243 ($1,152) 62,405 $224
Issuance of treasury
stock -- -- 77 -- (12,929) (34)
Acquisition of
treasury stock -- -- -- -- 1,648 15
Exercise of stock
options 6,000 1 18 -- -- --
Net income -- -- -- 1,676 -- --
--------- ----- ------- -------- -------- -----
Balance
March 31, 1996 4,768,898 $477 $31,338 $ 524 51,124 $205
========= ===== ======= ======== ========= =====
1. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 ("1995 10-K"), which includes additional
information about the Company, its operations and its consolidated financial
statements, and contains a summary of major accounting policies followed by the
Company in preparation of its consolidated financial statements. These
policies were also followed in preparing the quarterly financial statements
included herein. The year-end consolidated balance sheet data contained herein
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
The management of the Company believes that all adjustments necessary to
make a fair statement of the results in these interim periods have been made.
All adjustments reflected in the financial statements are of a normal recurring
nature except as described in the Notes to Condensed Consolidated Financial
Statements. Net results for the three month period ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
The disclosure provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" will be adopted by the
Company in its 1996 annual financial statements.
2. Cash and Cash Equivalents
Cash and cash equivalents totalled $3,243,000 at March 31, 1996. Of this
amount, approximately $2,694,000 was available for general corporate purposes
and the balance was held for third parties, including $392,000 in gas and oil
sales proceeds held for eventual distribution to outside working interest and
royalty owners, $40,000 in drilling advances from other owners and $117,000
withheld from outside working interest owners' distributions to be utilized
for future ad valorem tax payments (Note 3). The Company's cash balance at
March 31, 1996 includes $2,980,000 invested in commercial paper, U.S.
Government and Agency Securities with an annualized 4.97 percent return.
3. Plugging and Ad Valorem Tax Funds
The Company retains a portion of outside investors' monthly gas and oil
production proceeds to be utilized for anticipated future well plugging and
abandonment costs and ad valorem tax payments. The funds, totalling $389,000
at March 31, 1996, are invested in securities issued or guaranteed by the
United States Treasury at BANK ONE, Texas, N.A. ("BANK ONE") in accounts
segregated from those of the Company, of which $272,000 is included in other
assets. Interest earned on the funds accrues to the benefit of the working
interest owners. Amounts corresponding to these assets are recorded in
liabilities.
4. Income Taxes
Income taxes are provided for financial reporting purposes based on
management's best estimate of the effective tax rate expected to be applicable
for the full calendar year. The effective tax rate for first quarter 1996 is
higher than for first quarter 1995 due to decreased effect of percentage
depletion deductions.
5. Common Stock Held In Treasury
The Company contributed 8,750 and 10,370 shares of its common stock held
in treasury to the Company's 401(k) Plan on January 16, 1996 and February 28,
1995.
6. Earnings Per Share
Primary earnings per share is based on the weighted average number of
common and common equivalent shares outstanding. Common equivalent shares are
included in the calculation beginning in 1996. They were not significant in
previous years. Primary and fully diluted earnings per share are the same.
Management's discussion and analysis of changes in the Company's financial
condition, including results of operations and liquidity and capital resources
during the three-month periods ended March 31, 1996 and 1995, respectively, are
presented below.
Results of Operations
The Company recorded net income of $1,676,000 for the three months ended
March 31, 1996, compared to a net loss of $102,000 for the same period in 1995.
Income from operations for the first quarter of 1996 totalled $2,421,000
compared to a loss from operations of $193,000 for the first quarter of 1995.
Total revenues of $6,624,000 in the first three months of 1996 were
$3,164,000 or 91 percent higher than total revenues of $3,460,000 in the first
three months of 1995.
Gas and oil sales totalled $6,187,000 in the first quarter of 1996 and
represented a $3,176,000 increase over the same period last year. Higher
gas prices, higher gas sales volumes and higher oil sales volumes and
prices contributed $2,517,000, $582,000 and $77,000, respectively, to the
increase as compared to the first quarter of 1995. Gas and oil sales
volumes totalled 1,685,700 equivalent thousand cubic feet ("EMCF"), a 21
percent increase over the 1,392,400 EMCF sold during the three month
period ending March 31, 1995. The Company received an average of $3.74
per MCF for gas and $17.31 per barrel ("BBL") for oil for the three month
period ending March 31, 1996, compared to $2.11 per MCF and $16.05 per BBL
in the same period last year.
Well tending income decreased $70,000 due principally to the reduction in
the number of wells the Company operates for outside investors.
Other operating revenue increased $58,000 due primarily to increased
marketing revenue as a result of higher gas and oil sales.
Total expenses in the first quarter of 1996 were $4,203,000, an increase
of $550,000 or 15 percent compared to expenses in the first three months
of 1995 of $3,653,000.
Operating expenses were higher by $512,000 or 33 percent due primarily to
the Company's higher well ownership percentage. First quarter 1996
included higher operating expenses of $48,000 due to snow removal, higher
gas and oil production taxes of $186,000 and higher employee-related
expenses of $169,000.
General and administrative expenses for the first quarter of 1996 were
lower by $66,000 or 8 percent as compared to last year mainly because of
lower employee-related expenses.
Depreciation, depletion and amortization expense was higher by $62,000 in
the first quarter of 1996 due to higher production and property and
equipment levels, partially offset by higher oil and gas reserve levels.
Interest expense for the first three months of 1996 was $341,000, an
increase of $42,000 over the same period last year due primarily to higher
debt balances.
Non-operating income in the first quarter of 1996 totalled $83,000 as
compared to $64,000 in the same period last year due to higher interest income.
The Company recorded an income tax provision of $828,000 in the first
quarter of 1996 as compared to an income tax benefit of $27,000 for the first
quarter of 1995.
Liquidity and Capital Resources
Working Capital. At March 31, 1996, the Company had working capital of
$4,892,000, as compared to $827,000 at December 31, 1995. The $4,065,000
increase in working capital is primarily due to higher accounts receivables
resulting from the higher price received by the Company for gas sales in the
first quarter of 1996 as compared to that received in the fourth quarter of
1995. Because the Bank One credit facility agreement requires the payment of
interest only until July 1, 1998, current liabilities on the Company's March
31, 1996 balance sheet do not include any principal payments for this credit
facility.
Cash and cash equivalents totalled $3,243,000 at March 31, 1996. Of this
amount, approximately $2,694,000 was available for general corporate purposes
and the balance was held for third parties. Operating activities used a net
$645,000 which was negatively impacted by $1.9 million due to the payout of
proceeds to outside owners from the Columbia settlement. Investing activities
used a net $2,492,000 including $2,566,000 in capital expenditures, and
financing activities provided a net $3,083,000.
Revolving Credit Facility. The Company has in place a $30.0 million
revolving credit facility with Bank One. Currently $13.2 million is available
for borrowing by the Company. Interest accrues and is paid monthly at a rate
of Bank One's prime rate plus one-fourth of one percent.
Capital Expenditures and Commitments. In the first quarter of 1996, the
Company's capital expenditures totalled $2,566,000, including approximately
$1,454,000 spent on gas and oil exploration, development and acquisition
activities. The Company's executive offices, approximately 20,000 square feet,
were purchased on January 5, and February 7, 1996 for $568,000 using funds
borrowed from the Bank One credit facility. The remaining capital expenditures
were spent on other property and equipment.
Most of the Company's capital spending is discretionary and the ultimate
level of spending will be dependent, among other things, on the Company's
assessment of the gas and oil business environment, the number of gas and oil
prospects, and gas and oil business opportunities in general. The level of the
Company's 1996 capital expenditures will to a great extent depend upon the gas
prices received by the Company. As of May 6, 1996, the Company has drilled 9
wells this year, 7 of which have been successful, 1 dry hole and 1 well is
still being evaluated. Based on current gas futures prices, Alamco currently
plans to drill up to 30 wells in 1996. Alamco will continue with its
enhancement program on existing wells. The Company plans to continue with its
acreage acquisition strategy and will position itself to increase both
exploratory and development drilling. The Company remains committed to the
acquisition of producing properties at favorable prices.
On April 18, 1996, the Company agreed with the United States Environmental
Protection Agency ("EPA") to settle its outstanding administrative complaint
issued by the EPA for an amount significantly less than the initial proposed
penalty of nearly $124,000. The EPA issued the complaint on May 23, 1994 for
alleged violations of the Clean Water Act resulting from an oil discharge at
Alamco's Days Chapel Field in Claiborne County, Tennessee. The incident
occurred in December 1993 when vandals severed locks securing the valves on
the Alamco storage tanks and discharged approximately 174 barrels of oil into
a local creek. The Company expects that the consent decree finalizing this
matter will be completed and signed before year-end.
Other. Some of the statements contained in this Form 10-Q may be
"forward-looking" statements. Refer to the Company's 1995 10-K for a
discussion of factors that may affect forward-looking statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description Filing
---------- ----------- ------
10.1 Master Gas Purchase Contract Filed herewith
between the Company and
Hope Gas, Inc. dated
April 4, 1996
27 Financial Data Schedule Filed herewith
(b) No current reports on Form 8-K were filed during the quarter ended
March 31, 1996.
Pursuant to the requirements 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.
May 9, 1996 /s/ John L. Schwager
-----------------------------------
John L. Schwager, President,
Chief Executive Officer, and
Principal Financial Officer
Exhibit 10.1
MASTER GAS PURCHASE CONTRACT
ALAMCO, INC.
CONTRACT NO. 9131-C
THIS MASTER GAS PURCHASE CONTRACT ("Agreement") is made and entered
into as of the 4th day of April, 1996, by and between ALAMCO, INC., a Delaware
corporation, ("Seller") with its principal address at 200 West Main Street,
Clarksburg, WV 26301, and HOPE GAS, INC., a West Virginia corporation ("Buyer"),
whose address is P. O. Box 2868, Clarksburg, West Virginia 26302-2868.
WHEREAS, Seller and Buyer are parties to a letter Agreement dated
November 23, 1994; and,
WHEREAS, Seller and Buyer wish to replace said Letter Agreement with
the terms and conditions set forth herein; and,
NOW, THEREFORE, WITNESSETH, in consideration of the mutual covenants
and promises set forth below, and intending to be bound by them, Seller and
Buyer covenant and agree:
ARTICLE I
SALE & PURCHASE OBLIGATIONS
1.01 Seller shall produce and sell to Buyer at the Points of
Delivery listed in Article III herein, and Buyer shall take and pay for, volumes
of natural gas from the wells and MID numbers set forth in Appendix B
(attached), as amended from time to time. Notwithstanding the foregoing, Buyer
shall be under no obligation to purchase any of the production offered by Seller
in the event that Buyer has insufficient pipeline capacity or market demand to
facilitate the sale and/or use of Seller's natural gas. However, Buyer shall
use its best efforts to ensure sufficient pipeline capacity and market demand to
facilitate the sale and/or use of Seller's natural gas. Further, in the event
of a curtailment, Buyer shall not discriminate against the gas described in
Appendix B, and any suspensions of deliveries shall be on a nondiscriminatory
basis.
1.02 Additional wells. Wells accepted by Buyer, under the terms of
this Agreement, shall be added to Appendix B along with their corresponding MID
numbers.
ARTICLE II
TERM
2.01 This Agreement shall be in full force and effect from November
1, 1995, through October 31, 1999, and thereafter unless terminated by either
Buyer or Seller upon sixty (60) days' prior written notification.
ARTICLE III
DELIVERY POINTS
3.01 The Points of Delivery for natural gas purchased hereunder
shall be at existing or future interconnections between the facilities of Buyer
and Seller at those MID numbers listed on Appendix B (attached).
3.02 Termination for low volume. In the event that Seller cannot
deliver to Buyer an average of five thousand (5,000) cubic feet of natural gas
per day at a Point of Delivery, during the period November 1, through April 30,
then Buyer may, in its sole discretion, either terminate the contract as it
relates to such Point of Delivery by giving Seller notice in writing ten (10)
days prior to the effective date of termination or withhold from Seller's
proceeds, or invoice Seller, for any costs imposed upon Buyer by upstream
transporters as a result of Seller's inability to transport certain minimum
quantities.
ARTICLE IV
METER SITE AND FACILITIES
4.01 Buyer's Facilities; Meter Site. All gas sold by Seller to
Buyer shall be measured by a meter owned, installed, maintained, and read by
Buyer upon a site satisfactory to Buyer. Rights-of-way and the related surface
grants for such site shall be furnished by Seller to Buyer free of all costs and
from all claims. In the event Buyer is at any time required to pay for such
rights-of-way or such costs or claims, then the amounts paid therefor and other
expenses related thereto may be deducted from the payments to be made for gas
purchased from Seller and applied to the reimbursement of Buyer for such
payments. Seller warrants generally that title to the rights-of-way and the
related surface grants conveyed hereunder shall be free and clear of all liens,
encumbrances, and claims whatsoever and free of any claim, rightful or
otherwise, of any third person by way of infringement.
4.02 Meter maintenance fee. Seller agrees that should the amount
of gas passing through any meter installed, maintained, and operated hereunder
during any month, be less than a daily average of ten thousand (10,000) cubic
feet, it will pay to Buyer a mutually agreed upon reasonable fee for maintaining
and operating each such meter for each month. Buyer shall render a bill for
such meter operating charge or deduct the amount thereof from the monthly
settlements hereunder.
ARTICLE V
PRICE
5.01 Commodity Rate. The price (per MMBtu) of natural gas
purchased hereunder shall be ninety-eight percent (98%) of the price set forth
in Inside F.E.R.C.'s Gas Market Report "Prices of Spot Gas Delivered to
Pipelines". The specific posting to be used for the pricing of all production
under this Agreement shall be that set forth under the column labeled "Index"
and described as "CNG Transmission Corporation: Appalachia". In the event that
Inside F.E.R.C.'s Gas Market Report ceases to be published, then the parties
will immediately negotiate in good faith to agree upon a substitute publication
or posting.
5.02 Price Renegotiation. Not less than thirty (30) days prior to
October 31, 1998, the parties will have negotiated in good faith to agree on the
price to be paid for gas sold and purchased hereunder for the succeeding year,
or for such other period as may be agreed upon by the parties. If, after good
faith negotiations, Buyer and Seller fail to agree upon the price to be paid for
gas for the succeeding term, either party may terminate this Agreement upon
thirty (30) days written notice. Buyer and Seller expressly agree that the
price to be paid for natural gas purchased through October 31, 1998, is non-
negotiable and that fluctuations in the market will not serve as grounds for
renegotiation.
5.03 Change in Regulation Results in Material Adverse Effect. If
the Public Service Commission of West Virginia or any other successor
governmental agency, whether state or federal, takes any action or issues any
determination that directly or indirectly results in a material adverse change
to any provision of this Agreement, then Buyer may either: (a) continue to
fulfill its obligations under this Agreement as altered by the change in
regulation; or (b) seek to renegotiate the affected terms of this Agreement by
giving notice to Seller within thirty (30) days of the material adverse change.
If Buyer elects to renegotiate the terms of this Agreement, both Parties shall
be obligated to renegotiate in good faith.
ARTICLE VI
STATEMENTS AND PAYMENT
6.01 Statements. On or before the last day of each calendar month,
Buyer shall mail to Seller a statement showing the quantity of natural gas
delivered by Seller to Buyer during the billing period ending with the next
preceding calendar month, Buyer's check in payment for said natural gas, and the
meter charts, if requested. If the meter charts are mailed to Seller, they
shall be returned to Buyer within fifteen days.
6.02 Audits. Buyer shall have the right to audit Seller's
accounting records and other documents relating to volumes of gas delivered by
or on behalf of Seller for Buyer's account for any calendar year within the
forty-eight (48) month period following the end of such calendar year. Buyer
shall also have the right to audit Seller's records relative to Hope's Business
Ethics policy which has been made available to Seller. Seller shall have the
right to audit Buyer's accounting records and other documents relating to
volumes of gas delivered by or on behalf of Seller for Buyer's account for any
calendar year within the forty-eight (48) month period following the end of such
calendar year. This provision shall continue in full force and effect for a
period of forty-eight (48) months from the termination of this Agreement.
6.03 Withholding. If Seller fails to comply with any of the
covenants contained herein, Buyer may immediately withhold all payments due to
Seller under the terms of this Agreement until all necessary actions have been
taken by Seller and all adjustments have been made by Seller so that in Buyer's
opinion Seller is fully complying with all the covenants and terms of this
Agreement.
6.04 Error Correction. In the event an error is discovered in the
amount billed in any statement rendered to Seller, such error shall be adjusted
within thirty (30) days of the determination thereof; provided that claim
therefor shall have been made within sixty (60) days from the date of discovery
of such error, but in any event within forty-eight (48) months from the date
such statement is rendered.
ARTICLE VII
POSSESSION
7.01 Seller shall be deemed to be in possession and control of the
natural gas sold by it hereunder until it shall have been delivered to Buyer at
the Delivery Point(s), after which delivery, as between Buyer and Seller, Buyer
shall be deemed to be in control and possession thereof. Buyer shall have no
responsibility with respect to any natural gas sold to it hereunder until it is
delivered at the Delivery Point(s), and no responsibility therefor because of
anything which may be done or may occur with respect to said natural gas before
delivery to Buyer at the Delivery Point(s). Seller shall have no responsibility
unless the gas does not meet the gas quality provision set forth in Appendix A
because of anything which may be done or may occur with respect to said natural
gas after its delivery to Buyer at such point of delivery.
ARTICLE VIII
WARRANTY, INDEMNIFICATION, WITHHOLDING
8.01 Title and Indemnification. Seller warrants generally the
title to the natural gas sold and delivered hereunder to Buyer and that at the
time of delivery the natural gas is or will be free and clear of all liens,
encumbrances, and claims whatsoever and free of any claim, rightful or
otherwise, of any third person by way of infringement. Seller further warrants
that at the time of delivery Seller will have good right and title to sell the
natural gas to Buyer, and that Seller will indemnify Buyer and save it totally
harmless from all suits, claims, actions, debts, levies, damages, costs, losses,
and expenses of any nature arising from or out of adverse claims of any kind or
nature asserted by anyone whatsoever to said natural gas, including but not
limited to claims, suits, actions, and demands which may arise due to non-
payment of landowner royalties, overriding royalties, or rentals thereof or
therefrom.
8.02 Withholding. In the event of any adverse claim to or against
the proceeds payable under this Agreement is made by any person, Buyer may
withhold payment due Seller under this Agreement or any other contract between
Buyer and Seller or may refuse to accept delivery of such natural gas until the
dispute is settled by contract between Seller and such adverse claimant or by
the final decree of a court of competent jurisdiction. If litigation results
from any such adverse claim, Buyer may pay any money withheld by it hereunder
into court without further liability therefor, or may interplead all claimants,
including Seller. Seller will reimburse Buyer for all costs incurred, including
reasonable attorney's fees, as a result of litigation.
8.03 Payment Correction. In the event Buyer mistakenly overpays or
underpays Seller for natural gas sold and purchased hereunder, which over- or
under-payment is the result of a mistake of fact or law, miscalculation,
coercion, duress, fraud, governmental or regulatory constraint, ignorance or
want of knowledge, then Seller or Buyer, as the case may be, will promptly upon
demand by the other party make appropriate refund or adjustment in such over- or
under-payments, without liability for payment of interest by either party;
provided, however, that the obligation of either party to make restitution
hereunder shall be limited to mistaken payments made within the period
commencing four (4) years prior to the date on which demand for refund or
adjustment shall be made. In the event of Seller's refusal or inability to
refund undisputed over-payments, Buyer may withhold payment for the natural gas
sold and purchased under this agreement between Seller and Buyer in an amount
equivalent to the over-payment, without liability for payment of interest on the
amounts so withheld. Nothing in this Agreement shall be construed as a waiver
or relinquishment by Seller or Buyer of either of its rights to recover such
over-payments.
8.04 Royalties. In no event will Buyer be obligated to make
royalty, overriding royalty, or working interest payments to any party or
payments to any supplier of Seller for natural gas purchased hereunder.
ARTICLE IX
COMMUNICATIONS
9.01 Unless otherwise instructed in writing, all communications
shall be sent to the parties at the following addresses:
Seller: Alamco, Inc.
200 West Main Street
P. O. Box 1740
Clarksburg, WV 26301
Attn: Bridget D. Furbee
Buyer: Hope Gas, Inc.
P. O. Box 2868
Clarksburg, WV 26302-2868
Attn: Manager, Gas Supply
ARTICLE X
GENERAL PROVISIONS
10.01 Labor. Seller covenants and agrees to comply with all the
requirements of the Fair Labor Standards Act of 1938 and the Civil Rights Act of
1964, as amended, with respect to all natural gas produced or sold and delivered
under the terms of this Agreement to the extent that said Acts as now or
hereafter amended are applicable to Seller and Seller's employees.
10.02 Force Majeure. Neither party to this Agreement shall be liable for
any damage or loss that may be due to force majeure as defined herein. In the
event either party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this Agreement, other than to demand payment of
amounts due hereunder, then the obligations of such party, so far as they are
affected by such force majeure, shall be suspended during the continuance of any
inability so caused. However, the party claiming the existence of force majeure
shall use all reasonable efforts to remedy any situation which may interfere
with the performance of its obligations hereunder. The term "force majeure" as
used herein, and as applied to either party hereto, shall mean acts of law, acts
of God, strikes, lockouts or other labor disturbances, acts of the public enemy,
war, blockades, insurrections, riots, epidemics, fires, floods, washouts,
arrests and restraints of rules and people, civil disturbances, explosions or
any other cause, whether of the kind herein enumerated or otherwise, not
reasonably within the control of the party claiming suspension. It is
understood that settlement of strikes, lockouts, or labor disturbances shall be
entirely within the discretion of the party having the difficulty and that the
above requirement that any force majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes, lockouts, or labor
disturbances by acceding to the demands of the opposing party when such course
is inadvisable in the discretion or judgment of the party having the difficulty.
Among other things, the term "Force Majeure" shall not include: (a) any
cause resulting from a Party's negligence or willful misconduct; (b) the
freezing of any wells or pipelines; and (c) lack of funds by either party.
10.03 Tax. In the event any tax is now or hereafter imposed on the
production, severance, delivery to the point of sale, or sale of natural gas, or
upon the business of producing, severing, selling or delivering natural gas to
the point of sale, or if such tax is imposed in any other manner so as to
constitute directly a charge upon the gas delivered to Buyer hereunder, then the
amount of such tax shall be borne by Seller so far as it affects or relates to
or is apportionable to the gas delivered to Buyer hereunder. In the event Buyer
is required to pay such tax, the amount thereof may be deducted from the
payments accruing to Seller under this Agreement.
10.04 Persons Bound. All of the terms, covenants, conditions, and
obligations of this Agreement shall extend to and be binding upon the parties
hereto and their heirs, successors, and assigns. Any sale or assignment by
Seller of its interest in the natural gas delivered hereunder or its interest in
this Agreement or its interest in any property, real or personal, required for
or dedicated to the performance of this Agreement, shall be made expressly
subject to the rights of Buyer hereunder and with provision that the assignee or
purchaser shall assume and covenant to perform all of the Seller's obligations
hereunder. Seller will give notice in writing to Buyer of any sale or
assignment or other disposition of its interest hereunder and will furnish to
Buyer copies of any relevant documents evidencing transfer or assignment of
Seller's interest. Until notice and relevant documents have been given and
furnished to Buyer, Buyer may withhold all payments that may become due
hereunder, without interest.
10.05 Terms and Governing Law. The terms and provisions of this
Agreement are subject to the limitations of orders of courts and the orders,
rules and regulations of all regulatory bodies having jurisdiction. This
Agreement shall be interpreted in accordance with the laws of the State of West
Virginia.
10.06 Captions. The captions of the articles of this Agreement are
inserted for the purpose of convenient reference and are not intended to be a
part of this Agreement nor considered in any interpretation of the same.
10.07 Severability. If any part, term, or provision of this Agreement is
held by any court to be illegal or in conflict with any law of the State of West
Virginia, the validity of the remaining portions or provisions shall not be
affected, and the rights and obligations of the parties shall be construed and
in force as if the Agreement did not contain the particular part, term, or
provision held to be invalid.
10.08 Entire Agreement. This Agreement constitutes the entire agreement
between Seller and Buyer with respect to the subject matter hereof and
supersedes all prior offers, negotiations, and other written or oral agreements,
including the Letter Agreement. This Agreement may only be amended or modified
by written instrument signed by duly authorized representatives of Seller and of
Buyer.
IN WITNESS WHEREOF, Seller and Buyer have duly executed this Agreement as
of the day and year first above written.
ALAMCO, INC.
By /s/ John L. Schwager
Its President & CEO
HOPE GAS, INC.
By /s/ Marc A. Halbritter
Its Secretary
APPENDIX B
GPC #9131
WELL NAME & NO. API NO. MID NO.
L. Giles - 1925 47-061-1174 1091201
Boy Scout - 1926 47-061-1179 1091201
C. Hoke - 1965 47-061-1114 1091201
Paulak - 1969 47-061-1118 1091201
L. Giles - 1970 47-061-1127 1091201
Laurita - 1973 47-061-1122 1091201
Laurita - 1974 47-061-1123 1091201
J. Johnson - 1993 47-061-1132 1091201
Johnson - 2046 47-061-1217 1091201
Ludwig - 2053 47-061-1218 1091201
Forlini -1958 47-061-1113 1093101
Forlini - 1967 47-061-1117 1093101
Martin - 1968 47-061-1177 1093101
Brown - 2032 47-061-1178 1093101
McBee - 2033 47-061-1173 1093101
R. Williams - 2039 47-061-1180 1093101
Herron - 2040 47-061-1182 1093101
Teets - 2042 47-061-1192 1093101
Holt - 2049 47-061-1217 1093101
Britton - 2045 47-061-1193 1097301
Rumble - 2050 47-061-1214 1099401
Bolyard - 2051 47-077-0288 1098901
Frey - 2052 47-077-0289 1098901
White - 1930 47-061-1210 1033001
White - 1935 47-061-1233 1033001
Helms - 2058 47-077-0294 1032501
ACCEPTED AND AGREED TO THIS 9TH DAY
OF APRIL, 1996.
ALAMCO, INC. HOPE GAS, INC.
BY: /s/ JOHN L. SCHWAGER BY: /s/ NANCY M. AUCREMANNE
TYPED NAME: JOHN L. SCHWAGER TITLE: TYPED NAME: NANCY M. AUCREMANNE
TITLE: PRESIDENT & CEO TITLE: MANAGER, GAS SUPPLY
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This summary contains financial information extracted from the statement of
income and balance sheet and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,243
<SECURITIES> 0
<RECEIVABLES> 5,525
<ALLOWANCES> 59
<INVENTORY> 79
<CURRENT-ASSETS> 9,056
<PP&E> 86,285
<DEPRECIATION> 33,153
<TOTAL-ASSETS> 63,405
<CURRENT-LIABILITIES> 4,164
<BONDS> 16,857
0
0
<COMMON> 477
<OTHER-SE> 31,657
<TOTAL-LIABILITY-AND-EQUITY> 63,405
<SALES> 6,187
<TOTAL-REVENUES> 6,624
<CGS> 2,073
<TOTAL-COSTS> 1,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341
<INCOME-PRETAX> 2,504
<INCOME-TAX> 828
<INCOME-CONTINUING> 1,676
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<CHANGES> 0
<NET-INCOME> 1,676
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
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