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Registration Statement No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FORTUNE PETROLEUM CORPORATION
(Exact Name of Registrant as specified in its charter)
DELAWARE 95-4114732
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Tyrone J. Fairbanks
Fortune Petroleum Corporation
30101 Agoura Court, Suite 110 30101 Agoura Court, Suite 110
Agoura Hills, California 91301 Agoura Hills, California 91301
(818) 991-0526 (818) 991-0526
(Address, including zip code, and (Name, address including zip code,
telephone number, including area code, and telephone number, including area
of registrant's principal executive code of agent for service)
offices)
COPIES TO:
Bruce L. Ashton, Esq. Dean W. Drulias, Esq.
Reish & Luftman Burris, Drulias & Gartenberg
11755 Wilshire Blvd., 10th Floor 1755 Wilshire Blvd., Suite 1230
Los Angeles, California 90025 Los Angeles, California 90025
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /X/
CALCULATION OF REGISTRATION FEE
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Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to be to be Offering Price Aggregate Offering Registration
Registered Registered Per Share(1) Price Fee
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<S> <C> <C> <C> <C>
Common Stock 1,317,503 $3.75(2) $4,940,636 $1,704
$.01 par value shares (2)
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(2) Pursuant to Rule 457(c) of the General Rules and Regulations under the
Securities Act of 1933 as amended, the proposed maximum offering price per share
is based upon the average of the high and low price quoted on the American Stock
Exchange as of September 26, 1995.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
This Registration Statement is comprised of 19 pages.
The Exhibit Index appears on Page 13.
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CROSS REFERENCE SHEET
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ITEM IN FORM S-3 LOCATION IN PROSPECTUS
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ITEM 1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus . . . . . . . . . . . . . . . . . . . . . . Cover Page, Cross-Reference Sheet,
Outside Front Cover of Prospectus
ITEM 2. Inside Front and Outside Back Cover Pages of Prospectus . . . . . . . . . . Inside Front and Outside Back Cover
Pages of Prospectus
ITEM 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges . Prospectus Summary, Cover Page, Risk
Factors, Selected Financial Data
ITEM 4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds
ITEM 5. Determination of Offering Price . . . . . . . . . . . . . . . . . . . . . . Not Applicable
ITEM 6. Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
ITEM 7. Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . Plan of Distribution
ITEM 8. Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan of Distribution
ITEM 9. Description of Securities to be Registered . . . . . . . . . . . . . . . . Incorporation of Information by
Reference
ITEM 10. Interests of Named Experts and Counsel . . . . . . . . . . . . . . . . . . Experts
ITEM 11. Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Company, Recent Develop-ments,
Business and Properties
ITEM 12. Incorporation of Certain Information by Reference . . . . . . . . . . . . . Incorporation of Information by
Reference
ITEM 13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities . . . . . . . . . . . . . . . . . . . . . . Plan of Distribution
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(ii)
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1,317,503 S H A R E S
FORTUNE PETROLEUM CORPORATION
Common Stock
($.01 par value)
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The shares of the Common Stock, $.01 par value (the "Common Stock")
covered by this prospectus may be offered from time to time by certain
shareholders (the "Selling Shareholders") of Fortune Petroleum Corporation
("Fortune" or the "Company"). The Company will not receive any proceeds from
the sale of shares by the Selling Shareholders.
The Selling Shareholders include persons or entities who received shares
of common stock in connection with the acquisition of assets, as compensation
for services rendered to the Company and in various other transactions. The
Selling Shareholders also include outside directors of the Company who received
shares in lieu of cash in payment of director fees. This Prospectus covers a
total of 10,836 such shares. See "Plan of Distribution."
The expenses incurred in registering the Shares, including legal and
accounting fees, will be paid by the Company. To the knowledge of the Company,
the Selling Shareholders have made no arrangement with any brokerage firm for
the sale of the Shares. The Selling Shareholders may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended
(the "Act"). Any commissions received by a broker or dealer in connection with
resales of the Shares may be deemed to be underwriting commissions or discounts
under the Act. The Common Stock is listed on the American Stock Exchange. On
September 26, 1995, the closing price of the Common Stock on such Exchange was
$3.75.
The shares of Common Stock have not been registered for sale under the
securities laws of any state or other jurisdiction as of the date of this
Prospectus. Brokers or dealers effecting transactions in the Common Stock
should confirm the registration of the Common Stock under the securities laws
of states in which such transactions occur or the existence of an exemption
from such registration, or should cause such registration to occur in
connection with any offer or sale of the Common Stock.
Investment in the Common Stock entails certain risks. See "Risk Factors".
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Public Underwriting Discount Proceeds to Company (1)
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Per Share ................................................. $ N/A N/A $ N/A
Total ..................................................... $ N/A N/A $ N/A
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(1) None. All proceeds will be received by the Selling Shareholders, who will
bear all commissions payable to brokers or dealers in connection with the sale
of shares. The Company will bear all costs of the offering estimated at
$15,000.
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The date of this Prospectus is _________, 1995
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ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy and information statements filed
by the Company with the Commission pursuant to the informational requirements
of the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission, at Room 1024, Judiciary Plaza
Building, 450 Fifth Street, N.W. Washington, D.C. 20549, and the Regional
offices of the Commission: Seven World Trade Center, Suite 1300, New York, New
York 10048, and Kluczynski Federal Building, 230 South Dearborn Street, Room
3190, Chicago, Illinois 60604. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission at Room
1025, Judiciary Plaza Building, 450 Fifth St., N.W. Washington, D.C. 20549. In
addition, reports and other information concerning the Company can be inspected
at the offices of the American Stock Exchange, Inc., 86 Trinity Place, New
York, New York 10006-1881, on which the Common Stock is listed.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Act"), with respect to the Common Stock offered hereby. This Prospectus,
filed as part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement and to the exhibits and schedules thereto, which
may be inspected at the Commission's offices without charge or copies of which
may be obtained from the Commission upon payment of the prescribed fees.
Statements made in the Prospectus as to the contents of any contract, agreement
or document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, and each such statement is qualified in
its entirety by such reference.
INCORPORATION OF INFORMATION BY REFERENCE
There is hereby incorporated by reference in this Prospectus and made a
part hereof (1) the Company's Annual Report on Form 10- KSB for the year ended
December 31, 1994, (2) Quarterly Reports on Form 10-QSB for the periods ending
March 31, and June 30, 1995, and (3) Current Reports on Form 8-K filed on
January 10, 1995, February 13, 1995 and August 3, 1995.
There is also hereby incorporated by reference in this Prospectus and made
a part hereof the Company's Registration Statement on Form 8-A filed on
September 13, 1993, which describes the Common Stock.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Common Stock shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or to be incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein modifies, supersedes or replaces such statement. Any
statements modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.
No person is authorized to give any information or make any
representations other than those contained in the Prospectus and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
registered shares to which it relates or an offer to sell or a solicitation of
an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
its date.
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THE COMPANY
Fortune is an independent public oil and natural gas company whose primary
focus is on exploration for and development of domestic oil and natural gas
properties. The Company has recently acquired an interest in the Zydeco
Projects which will enable it to participate in exploration for oil and natural
gas in the shallow Gulf Coast waters of Louisiana in a strategic partnership
with Zydeco Exploration, Inc. referred to as the Zydeco 3D Venture. At the
date of this Prospectus, the Zydeco Projects are at various stages of
preparation for drilling. Leases have been acquired on all of the Zydeco
Projects. While management believes that the Zydeco 3D Venture has the
potential to add materially to the Company's reserves and, ultimately, its
revenues, no assurance can be given that the drilling of exploratory wells on
any of the Zydeco Projects will occur or will result in the discovery of
commercial quantities of oil or natural gas, or that the Company will be able
to successfully explore for oil and gas reserves or ever produce such reserves.
The Zydeco 3D Venture utilizes advanced three dimensional (3D) seismic and
computer-aided exploration ("CAEX") technology in its exploration efforts.
Zydeco has blended existing 3D seismic and CAEX technology, production data and
characteristics of wells in a particular geographic area and advanced
interpretation techniques (as well as traditional two-dimensional (2D)
seismic), to identify the initial Zydeco Projects. The Company believes that
the use of 3D seismic and CAEX technology provides more accurate and
comprehensive geological data for evaluation of drilling prospects than 2D and
traditional evaluation methods. Similarly, the Company believes that the
techniques used by Zydeco in combining existing 3D seismic and CAEX technology
will provide the Zydeco 3D Venture and Fortune with a competitive advantage by
increasing the likelihood of finding commercial quantities of oil and gas and
achieving lower average reserve finding costs. See "Risk Factors."
The Company's principal executive offices are located at 30101 Agoura
Court, Suite 110, Agoura Hills, California 91301 and its telephone number at
that address is (818) 991-0526.
BUSINESS STRATEGY
The Company has sought to add reserves in the most cost efficient and
effective manner. The Company previously focused its efforts on the
acquisition of producing properties in an effort to take advantage of what it
believed to be competitive prices for proved reserves with development
potential in relation to the cost of reserves discovered through exploration
activities. In mid- 1994, the Company made a strategic decision to shift its
emphasis away from the acquisition of producing properties to exploration for
oil and natural gas reserves. This decision was prompted by increasing price
competition for attractive producing properties (caused by larger and better
capitalized companies moving into the acquisition market) and a general
tightening in available financing for acquisitions.
The Company's decision to shift its emphasis to exploration was further
influenced by several factors which Fortune believes create new opportunities
for exploration. These factors include increased availability of 3D seismic
and CAEX technology at competitive prices and the reallocation of exploration
budgets by major oil companies from domestic activity to international
exploration. This move by the major oil companies resulted in increased access
to geological and geophysical information relating to potential prospects, new
opportunities to enter into farmout agreements with respect to prospects held
by the major oil companies and less demand and price competition for domestic
acreage. To help facilitate its exploration strategy and focus its efforts,
the Company is intends to begin efforts to sell all of its California producing
properties and prospects and retiring the debt secured by such properties from
the proceeds of such sale. Fortune has not taken any significant actions with
respect to disposing of such properties. The Company also intends to relocate
its headquarters to the greater Houston, Texas area within the next six to 12
months.
The Company would expect to continue to review acquisition opportunities
which may be presented to it and to conclude acquisitions which further its
business objectives. Of course, no assurance can be given that any such
opportunities will present themselves or that the Company will be able to
conclude any transactions if they arise. The Company is not now in discussions
with any other party regarding and has no arrangements or agreements respecting
any potential acquisition.
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RISK FACTORS
Investors should consider the following risk factors, among others, in
connection with an investment in the Common Stock:
RISKS ASSOCIATED WITH THE COMPANY
Working Capital Deficiency. At December 31, 1994, the Company had a
working capital deficit of $4,576,000. The working capital needs of the
Company have increased since its inception. To date, the Company has satisfied
substantially all of its working capital needs through oil and gas revenues,
the public and private sale of common stock and debentures, the Credit Facility
and other borrowings. On June 30, 1995, the Company completed a public
offering of 4,600,000 shares of Common Stock (including the underwriters'
overallotment option), the net proceeds of which were used to pay down debt,
including reductions in the principal balance of the Company's credit facility
with Bank One, Texas and invest in the Zydeco 3D Venture. While such offering
provided the Company with sufficient capital to meets its obligations through
mid-1996, the Company does not currently have sufficient capital or cash flow
to meet all of its projected capital needs under the Zydeco 3D Venture or other
projects. Substantially all of the Company's producing oil and gas properties
are pledged to secure the Credit Facility, and the Company does not have any
additional borrowing capacity under the Credit Facility at the date hereof.
Need for Additional Financing. The Company has incurred net losses for the
years ended December 31, 1992, 1993 and 1994, and the first half of 1995, and
may continue to do so in the future. No assurance can be given that the
Company will be able to meet its working capital needs out of its cash flow
from operations. There can be no assurance that Fortune can attain a
sufficient level of revenues to fund such requirements or that unbudgeted costs
will not be incurred. Future events, including the problems, delays, expenses
and difficulties frequently encountered by similarly situated companies, as
well as changes in economic, regulatory and competitive conditions, may lead to
cost increases that could make the net proceeds of the Offering and cash flow
from operations insufficient to fund the Company's capital requirements for the
next 12 months. The Company may require additional outside financing for the
foreseeable future to fund capital expenditures deemed desireable by
management. No assurance can be given that any such financing will be
available on terms acceptable to the Company, if at all. Additional financings
may result in dilution for then current stockholders.
Need to Replace Reserves. Producing oil and gas reservoirs are, in
general, characterized by declining production rates. This decline rate
depends on reservoir characteristics, and varies from the steep decline rate
characteristic of the prolific reservoirs in the Gulf of Mexico to the
relatively slow decline rate characteristic of the long-lived (but less
prolific) fields on the Company's California properties. The Company's future
oil and natural gas reserves and production, and thus cash flow and income, are
highly dependent on the Company's ability in finding or acquiring additional
reserves. During the three years ended December 31, 1994, the Company replaced
95.16% of reserves depleted through production. Without adding new reserves in
the future, the Company's oil and gas reserves and production will decline over
the long term. There can be no assurance that the Company will be able to find
and develop or acquire additional reserves.
Limited Short-term Impact of Zydeco 3D Venture. It is anticipated that
wells may be drilled on one or two of the Zydeco projects in late 1995 or early
1996, though no assurance can be given that any wells will be drilled. Even if
such wells are drilled and are successful, it is extremely unlikely that
Fortune would receive any revenues from wells drilled on any of these projects
until mid-1996. Therefore, investors should be aware that the Zydeco 3D
Venture will not have any impact on the Company's revenues or cash flow during
1995; and any impact during 1996 will be limited to the second half of the
year. No assurance can be given that Fortune will ever receive any revenues
from any of the Zydeco projects.
Properties Pledged to Secure Debt. Substantially all of the Company's
properties (other than its interest in the 13 Zydeco Projects) are pledged to
secure the Credit Facility. A failure to pay the principal or interest or
breaches of financial covenants under the Credit Facility could cause the
Company to lose all or part of its interest in its principal producing
properties currently pledged to secure the Credit Facility. The entire
principal balance of the Credit Facility is due July 1, 1996, and the Company
does not currently have the financial resources necessary to repay the Credit
Facility in full at that time without selling certain assets. While management
intends to seek an extension of the payment date for the principal balance of
the Credit Facility, no assurance can be given that Fortune will be able to
obtain such extension from Bank One or alternative financing. It is,
therefore, possible that substantially all of Fortune's productive properties
could be seized by the Bank through a foreclosure. See Notes 3 and 5 of
Notes to Financial Statements, incorporated herein by reference.
Financial Impairments. The Company uses the successful efforts method of
accounting. Due to depressed gas prices at the end of 1994, the Company was
required to take an impairment of approximately $1.0 million against its oil
and gas assets as a charge against earnings. Similarly, the Company took a
$2.7 million impairment at the end of 1993 due to depressed oil prices.
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Dependence on Key Officer. The Company depends to a large extent on the
abilities and continued participation of its key employee, Tyrone J. Fairbanks,
President, Chief Executive and Chief Financial Officer. The loss of Mr.
Fairbanks could have a material adverse effect on the Company. In an effort to
reduce the risk, the Company has entered into an employment agreement with Mr.
Fairbanks which expires December 31, 1997. The Company intends to apply for up
to $500,000 of key man life insurance on the life of Mr. Fairbanks.
RISKS ASSOCIATED WITH OIL AND GAS INDUSTRY
Risks Related to Current Oil and Gas Markets. There is substantial
uncertainty as to the prices at which oil and gas produced by the Company may
be sold, and it is possible that if product prices decline to a low enough
level, the cost of operating some or all of the Company's properties may not be
economical. The availability of a ready market for oil and gas and the prices
obtained for such oil and gas depend upon numerous factors beyond the control
of the Company, including competition from other oil and gas suppliers, and
national and international economic and political developments. The price for
oil of equal gravity in California is generally lower than in the
mid-continent. Substantially all of the Company's oil reserves are in
California. The Company is not subject to any natural gas price controls.
Uncertainty of Estimates of Proved Reserves and Future Net Revenues. There
are numerous uncertainties inherent in estimating quantities of proved reserves
and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the producer. The
reserve data set forth in this Prospectus represent only estimates. Estimating
quantities of proved reserves is inherently imprecise. Such estimates are
based upon certain assumptions about future production levels, future natural
gas and crude oil prices and future operating costs made using currently
available geologic engineering and economic data, some or all of which may
prove to be incorrect over time. As a result of changes in these assumptions
that may occur in the future, and based upon further production history,
results of future exploration and development, future gas and oil prices and
other factors, the quantity of proved reserves may be subject to upward or
downward adjustment. In addition, the estimates of future net revenues from
proved reserves of the Company and the present value thereof are based on
certain assumptions about future production levels, prices, and costs that may
not prove to be correct over time. The rate of production from oil and gas
properties declines as reserves are depleted. Except to the extent the Company
acquires additional properties containing proved reserves, conducts successful
exploration and development activities or, through engineering studies,
identifies additional behind-pipe zones or secondary recovery reserves, the
proved reserves of the Company will decline as reserves are produced. Future
oil and gas production is, therefore, highly dependent upon the Company's level
of success in acquiring or finding additional reserves.
Volatility of Oil and Gas Prices. Oil and gas prices have been and may be
expected to continue to be quite volatile. This volatility depends on numerous
factors, including steps taken by OPEC, tensions in the Middle East and weather
conditions. The average gas prices received by the Company were $2.39, $2.28,
$2.17 and $1.41 per Mcf in 1992, 1993 and 1994 and for the six months ended
June 30, 1995, respectively. The average oil prices received by the Company
were $17.57, $14.10, $12.88 and $16.13 per Bbl in 1992, 1993 and 1994 and for
the six months ended June 30, 1995, respectively. At September 11, 1995, the
Company was receiving an average of $1.56 per Mcf for its gas production and
$15.47 per Bbl for its oil production.
Drilling Risks. Drilling for oil and natural gas involves numerous risks,
including the risk that no commercially productive hydrocarbon reservoirs will
be encountered. The cost of drilling, completing and operating wells is often
uncertain and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, including unexpected drilling conditions,
equipment failures or accidents and adverse weather conditions. The Company's
future drilling activities may not be successful and if unsuccessful, such
failure will have an adverse effect on the Company's future results of
operations and financial condition.
Operating Hazards. The Company's operations are subject to all of the
risks normally incident to the operation and development of oil and gas
properties and the drilling of oil and gas wells, including encountering
unexpected formations or pressures, blowouts, cratering and fires, which could
result in damage or injury to, or destruction of, formations, producing
facilities or other property or could result in personal injuries, loss of life
or pollution of the environment. Any such event could result in substantial
loss to the Company which could have a material adverse effect on the Company's
financial condition. Operations on its California properties are also subject
to the risk of direct or incidental damage caused by earthquakes. In addition,
because of the Company's strategy of acquiring interests in underdeveloped oil
and gas fields that have been operated by others for many years, the Company
may be liable for any damage or pollution caused by any prior operations on
such oil and gas fields. Although such operational risks and hazards may to
some extent be minimized, no combination of experience, knowledge and
scientific evaluation can eliminate the risk of investment or assure a profit
to any company engaged in oil and gas operations.
Uninsured Risks. Under the terms of operating agreements entered into with
the operator of wells in which the Company has an interest, it is anticipated
that the operators will carry insurance against certain risks of oil and
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gas operations. The Company would normally be required to pay its
proportionate share of the premiums for such insurance and be named as an
additional insured under the policy. However, the Company may not be fully
insured against all risks, either because such insurance is not available or
because of premium costs.
Weather Hazards. Weather conditions, including severe rains and winter
conditions, have adversely impacted the Company's oil and gas operations.
Heavy rains during the winter of 1995 washed out a road to the Company's Hopper
Canyon, California property, which required the producing wells on the property
to be shut in. Severe winter conditions on the San Juan Basin, New Mexico
property caused a curtailment of operations, including attempts to complete
wells which have been drilled. The inability to produce existing wells and to
complete wells which may yield commercial quantities of oil or gas has an
adverse impact on the Company's cash flow and financial condition. Further,
weather conditions in the future, including hurricanes in the Gulf of Mexico,
could interrupt or prevent exploration drilling activities on the Zydeco
Projects and, if such projects prove to be productive of oil and natural gas,
could interrupt production activities by damaging surface facilities needed to
produce the wells.
Environmental Hazards. Oil and gas operations present risks of
environmental contamination from drilling operations and leakage from oil field
storage or transportation facilities. The Company has never experienced a
significant environmental mishap, but spills of oil could occur which could
create material liability to the Company for clean-up expenses. Environmental
contamination has occurred on the San Juan Basin, New Mexico property prior to
the Company's acquisition of its interest but has been cleaned up at no cost to
the Company. Although there can be no assurance of any third party recovery in
the event of a material liability, the Company generally seeks an indemnity
from the Seller against claims for environmental hazards on properties acquired
through its acquisition program. In addition, the Company carries $2,000,000
of primary environmental insurance per occurrence with a $2,500 deductible plus
umbrella liability coverage for an additional $4,000,000 per occurrence with a
$10,000 deductible to cover potential liability.
Competition. The oil and gas exploration, production and acquisition
business is highly competitive. A large number of companies and individuals
engage in acquiring properties or drilling for oil and gas, and there is a high
degree of competition for desirable oil and gas properties. There is also
competition between the oil and gas industries and other industries in
supplying the energy and fuel requirements of industrial, commercial,
residential and other consumers. Many of the Company's competitors have
greater financial and other resources than does the Company, and no assurance
can be given that the Company will be able to compete successfully in acquiring
desirable properties.
Government Regulation. The Company's business is regulated by certain
federal, state and local laws and regulations relating to the development,
production, marketing and transmission of oil and gas, as well as environmental
and safety matters. There is no assurance that laws and regulations enacted in
the future will not adversely affect the Company's exploration for, or the
production and marketing of, oil and gas. From time to time, proposals are
introduced in Congress or by the Administration which could affect the
Company's oil and gas operations.
RISKS ASSOCIATED WITH INVESTMENT IN THE COMMON STOCK
Market Price Volatility. The market price of the Common Stock and the
Company's warrants may be subject to significant fluctuations in response to
drilling results in the Zydeco 3D Venture, the San Juan Basin or other
properties owned by the Company and the financial results of operations.
Developments affecting the oil and gas industry generally, including national
and international economic conditions and government regulation, could also
have a significant impact on the market price of the Common Stock and warrants.
In addition, the stock market in recent years has experienced significant price
and volume fluctuations that often have been unrelated or disproportionate to
the operating performance of companies, and the price of the Common Stock and
warrants could be affected by such fluctuations.
Securities Market Factors. The markets for equity securities have been
volatile and the price of the Company's Common Stock has in the past been, and
could in the future be, subject to wide fluctuations in response to quarter to
quarter variations in operating results, news announcements, trading volume,
general market trends and other factors. There can be no assurance that the
Common Stock sold in this offering will trade in the future at market prices in
excess of the public offering price of this offering.
Absence of Dividends. The Company has not paid dividends since its
inception, and it does not anticipate paying dividends on its Common Stock in
the foreseeable future. Under the Credit Facility, the Company may not pay
dividends on its capital stock without the prior written consent of the bank.
In addition, the indenture under which the Company's outstanding debentures
were issued restricts the payment of dividends.
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Shares Eligible for Future Sale. Sales of substantial amounts of the
Common Stock in the public market could adversely affect the market price of
the Company's Common Stock. At September 21, 1995, the Company had outstanding
options and warrants to purchase an aggregate of 5,648,752 shares of Common
Stock which are currently exercisable, and 272,943 shares of Common Stock
issuable upon conversion of the Company's outstanding Debentures and 187,500
shares of Common Stock issuable upon conversion of the Klein Note. Included in
such amount are the shares registered hereby. At September 21, 1995, there
were 9,356,973 shares of Common Stock outstanding, of which 6,972,741 shares
are freely tradeable and 2,384,232 shares are restricted from sale by lockup
agreement or under Rule 144 adopted by the Commission under the Act. In
connection with the Company's recently concluded offering of Common Stock, all
of the Company's directors and certain principal stockholders of the Company
entered into "lockup" agreements with the Representatives of the Underwriters
not to dispose of any shares of Common Stock held by them until July 31, 1996,
without the prior consent of the Representatives. At the conclusion of such
"lockup" period, approximately 1,388,000 currently outstanding shares of Common
Stock will become eligible for sale subject to Commission Rule 144.
In connection with the Company's acquisition of its interest in the Zydeco
3D Venture, Fortune issued 1,200,000 shares of Common Stock and 1,200,000 five
year stock purchase warrants exercisable at $4.75 per share. Pursuant to court
order, Fortune has placed in escrow 400,000 shares of Common Stock and 400,000
warrants due to the stockholders of LEX until a dispute which has arisen among
them is resolved. Additionally, even if such dispute is resolved, an
additional 200,000 shares and 200,000 warrants will remain in escrow pending
the satisfaction of certain conditions. See "Plan of Distribution-Table,"
footnote (2). Financing of subsequent contributions to the Zydeco 3D Venture
and funding of the Company's share of drilling costs on the Zydeco Projects
could require the issuance of additional securities.
Anti-Takeover Provisions. Section 203 of the Delaware General Corporation
Law could have the effect of delaying, deferring or preventing a change of
control of the Company. Section 203 prevents an "interested stockholder"
(generally, any person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) for three years
following the date such person became an interested stockholder unless certain
exceptions are met. In addition, the Company has a substantial amount of
authorized but unissued Common Stock and preferred stock. The Commission has
indicated that the use of authorized but unissued shares of voting stock,
including both common stock and preferred stock the terms of which may be
established by the board of directors, could have an anti-takeover effect.
USE OF PROCEEDS
The shares which are the subject of this Prospectus may be offered and sold
from time to time by the Selling Shareholders, and the Company will not receive
any of the proceeds of such sales. The Company agreed to bear all expenses of
registering such shares, including legal, accounting and printing costs
estimated at $15,000.
PLAN OF DISTRIBUTION
Selling shareholders may offer and sell shares pursuant to this Prospectus
from time to time on the American Stock Exchange or through individually
negotiated transactions or in other ways. The Company is not aware of any
agreements which may have been entered into by any Selling Shareholder with
brokers, dealers or third parties for the offer or sale of any shares. Except
as noted below, the Company will not be a party to any such agreements nor will
it participate in the negotiation or consummation of any such agreements or the
offer and sale of any of the shares covered by this Prospectus.
Sales of shares by affiliates of the Company (including members of
management or more than 5% shareholders of the Company) will be subject to the
restrictions of Rule 144 under the Securities Act of 1933, as amended (which,
among other things, limits the amount of shares which may be disposed of in any
calendar quarter to 1% of the Company's outstanding shares or currently about
93,000 shares each quarter). Such persons are also subject to other
restrictions on trading in the Company's stock under the Securities Exchange
Act of 1934, as amended, as well as certain reporting requirements under such
Act. Affiliates who hold shares covered by this Prospectus include BSR
Investments, Ltd., a principal shareholder, and Charles A. Champion, Dean W.
Drulias, Graham S. Folsom, William T. Walker, Jr., Barry Feiner, Gary Gelman
and William D. Forster, all of whom are directors of the Company.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
7
<PAGE> 10
The table below sets forth data on the number of shares (including
shares issuable upon exercise of options, warrants or convertible securities)
held by each of the Selling Shareholders:
<TABLE>
<CAPTION>
SECURITIES SECURITIES PERCENTAGE
OWNED BEFORE IN OF CLASS
NAME POSITION OFFERING OFFERING OWNED
- ---- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
William D. Forster Director 1,096,666(2)(3) 515,000 11.1%
BSR Investments, Ltd. Principal 1,030,000(2) 515,000 10.4%
Shareholder
Estate of Jack Farber Shareholder 445,867 106,667 4.7%
William T. Walker, Jr. Director 152,635 2,357 1.8%
The Alana Group Shareholder 140,000 70,000 1.5%
Charles A. Champion Chairman of the Board 84,059 1,255 (1)
and Director
Gail Forster Shareholder 66,666 33,333 (1)
John McConnaughy Shareholder 66,666 33,333 (1)
Graham S. Folsom Director 58,027 2,357 (1)
Dean W. Drulias Director 49,183 2,357 (1)
Peter Dixon Trust Shareholder 33,334 16,667 (1)
Palmer Dixon Trust Shareholder 33,334 16,667 (1)
Gary Gelman Director 18,755 1,255 (1)
Barry Feiner Director 13,255 1,255 (1)
</TABLE>
- ---------------
(1) Less than 1%.
(2) Forster and BSR are the record holders of these shares. Ensign Financial
Group Limited claims a one-third interest in such shares and the stock purchase
warrants issued in the acquisition. In light of the dispute which has arisen
over the ownership of these shares and warrants, the Company is unable to state
the beneficial ownership of such shares and warrants. If Ensign's position is
upheld by the New York courts and it is awarded one-third of these securities,
to the best of the Company's knowledge, the ownership, including shares
underlying the stock purchase warrants, would be as follows:
<TABLE>
<CAPTION>
Amount and Nature of Percent
Beneficial Ownership of Class
-------------------- --------
<S> <C> <C>
Ensign Financial Group Limited, NY, NY 800,000 8.2%
William D. Forster, New York, NY 696,666(3) 7.2%
BSR Investments, Inc., Paris, France 630,000 6.5%
</TABLE>
(3) Includes 33,333 shares and 33,333 shares issuable upon exercise of common
stock purchase warrants held by Gail Forster, Mr. William D. Forster's mother.
Mr. Forster disclaims any beneficial interest in such shares.
LEGAL MATTERS
Certain legal matters in connection with this Prospectus and the
registration of the Common Stock have been passed upon for the Company by Reish
& Luftman, Los Angeles, California.
EXPERTS
The financial statements of the Company as of and for the years ended
December 31, 1993 and 1994 and for each of the years in the three year period
ended December 31, 1994, have been incorporated herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated herein by reference, and upon the
authority of said firm as experts in accounting and auditing.
The information incorporated herein by reference with respect to net
proved oil and gas reserves of the Company at December 31, 1993 and 1994, was
estimated by Huddleston & Co., Inc., independent petroleum engineers, and at
December 31, 1992, 1993 and 1994, was estimated by Sherwin D. Yoelin, petroleum
engineer, and is incorporated herein on the authority of such engineers as
experts in petroleum engineering.
8
<PAGE> 11
======================================================
TABLE OF CONTENTS
PAGE
Cover Page 1
Additional Information 2
Incorporation of Information
by Reference 2
The Company 3
Risk Factors 4
Use of Proceeds 7
Plan of Distribution 7
Legal Matters 8
Experts 8
======================================================
<PAGE> 12
======================================================
1,317,503 SHARES
COMMON STOCK
($.01 PAR VALUE)
FORTUNE PETROLEUM
CORPORATION
------------
P R O S P E C T U S
------------
_________, 1995
======================================================
<PAGE> 13
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses in connection with the offering
described in the Registration Statement will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee . . . . . . . . . . . . . . . . . . . $ 1,704
Accountants' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,000
Legal Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000
Printing and Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,296
Stock Transfer Agent Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000
--------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits the
indemnification of officers, directors, employees and agents of Delaware
corporations. The Certificate of Incorporation and Bylaws of the Company
provide that the corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware as it may be
amended from time to time, indemnify and hold harmless each person who was or
is a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
whom he or she is a legal representative, is or was a director or officer of
the Company or is or was serving at the request of the Company as director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action or
inaction in an official capacity or in any other capacity while serving as a
director, officer, employee or agent, against all costs, charges, expenses,
liabilities and losses (including attorney's fees, judgments, fines, excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Number Description Page
- ------ ----------- ----
<S> <C> <C>
5.1 Opinion of Reish & Luftman regarding legality of securities (filed herewith). 16
24.1 Consent of Reish & Luftman (included in Exhibit 5.1)
24.2 Consent of KPMG Peat Marwick LLP (filed herewith). 17
24.3 Consent of Huddleston (filed herewith). 18
24.4 Consent of Sherwin Yoellen (filed herewith). 19
25.1 Power of Attorney (included in the signature page of this Registration Statement)
</TABLE>
S-1
<PAGE> 14
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file during any period in which offers or sales are being made, a
post effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement:
Provided however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) (b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriters, and
the terms of any subsequent reoffering thereof. If any public offering by the
underwriters is to be made on terms differing from those set forth on the cover
page of the prospectus, a post effective amendment will be file to set forth
the terms of such offering.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer of controlling
person of the registrant in the successful defense of any action, suit of
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
S-2
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Agoura Hills, State of California, on September 29,
1995.
FORTUNE PETROLEUM CORPORATION
By: s/
-------------------------------------
Tyrone J. Fairbanks, President, Chief
Executive and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Tyrone
J. Fairbanks and Dean W. Drulias, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any or all amendments (including post effective amendments)
to this Registration Statement, and to file the same, with all exhibits hereto,
and other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorney-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agent, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman of the Board September , 1995
- --------------------------- and Director
Charles A. Champion
s/ President, Chief Financial and Chief September 29, 1995
- --------------------------- Accounting Officer, and Director
Tyrone J. Fairbanks
s/ Secretary and Director September 29, 1995
- ---------------------------
Dean W. Drulias
s/ Director September 29, 1995
- ---------------------------
Graham S. Folsom
s/ Director September 29, 1995
- ---------------------------
Barry Feiner
Director September , 1995
- ---------------------------
Gary Gelman
s/ Director September 29, 1995
- ---------------------------
William T. Walker, Jr.
s/ Director September 29, 1995
- ---------------------------
Charif Souki
s/ Director September 29, 1995
- ---------------------------
William D. Forster
</TABLE>
S-3
<PAGE> 1
[REISH & LUFTMAN LETTERHEAD]
September 26, 1995
01967-630(1)
49451.LTR
Fortune Petroleum Corporation
30101 Agoura Court
Suite 110
Agoura Hills, California 91301
Re: REGISTRATION STATEMENT ON FORM S-3
Gentlemen:
At your request, we have examined the Registration Statement
on Form S-3 (the "Registration Statement"), which you (the "Company") have
filed with the Securities and Exchange Commission in connection with the
registration under the Securities Act of 1933, as amended, of 1,317,503 shares
of the Company's common stock, $.01 par value (the "Shares"), in connection
with the possible resale of the Shares by certain selling shareholders.
In rendering this opinion, we have examined the Company's
Certificate of Incorporation, as amended, the Company's By-Laws, as amended,
the minutes of the proceedings of the Company's board of directors at which
resolutions pertaining to the Shares were adopted, and such other materials as
we deemed relevant.
Based on the foregoing and in reliance thereon, we are of the
opinion that the Shares are legally and validly issued, fully paid and
nonassessable.
We hereby consent to the references to this firm in and the
inclusion of this opinion in the Registration Statement and any amendments
thereto.
Respectfully submitted,
EXHIBIT 5.1
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Fortune Petroleum Corporation:
We consent to the use of our report incorporated herein by reference
and to the reference to our firm under the heading "experts" in the prospectus.
Our report dated March 10, 1995 except for Note 8 which is as of April 13,
1995, contains an explanatory paragraph that states that the Company has
suffered recurring losses from operations and has a net working capital
deficiency, which raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of that uncertainty.
KPMG Peat Marwick LLP
Los Angeles, California
September 27, 1995
Exhibit 24.1
<PAGE> 1
HUDDLESTON & CO., INC.
PETROLEUM AND GEOLOGICAL ENGINEERS
1111 FANNIN-SUITE 1700
HOUSTON, TEXAS 77002
(713) 658-0248
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
September 27, 1995
Fortune Petroleum Corporation
30101 Agoura Court, Suite 110
Agoura Hills, California 91301
Dear Sirs:
We hereby consent to the filing of this consent as an exhibit to the
Registration Statement on Form S-3 of Fortune Petroleum Corporation to be filed
with the Securities and Exchange Commission on or about September 29, 1995, to
the use of our name therein, and to the inclusions of or reference to our
reports of estimated future reserves and revenues effective December 31, 1993,
and December 31, 1994.
HUDDLESTON & CO., INC.
/s/ M. Drayton Prator, III
________________________________
M. Drayton Prator, III, P.E.
Exhibit 24.2
<PAGE> 1
SHERWIN D. YOELIN, PETROLEUM ENGINEER INC.
1439 BONNIE JEAN ROAD
LA HABRA HEIGHTS, CALIFORNIA 90631
310/697-3700
September 27, 1995
Fortune Petroleum Corporation
30101 Agoura Court
Suite 100
Agoura Hills, California 91301
Re: Consent of Independent Petroleum Engineer
Gentlemen:
I hereby consent to the incorporation of my January 1, 1993, January 1, 1994
and January 1, 1995, Annual Reserve Reports of the oil and gas reserves of
Fortune Petroleum Corporation dated February 20, 1993, February 15, 1994, and
February 27, 1995, respectively, in the Prospectus constituting part of the
Registration Statement on Form S-3 to be filed on or about September 29, 1995.
Respectfully,
/s/ Sherwin D. Yoelin
________________________________
Sherwin D. Yoelin
Registered Petroleum Engineer
State of California
Certificate No. P 1241
Exhibit 24.3
