As filed with the Securities and Exchange Commission on August 28, 1996
REGISTRATION STATEMENT NO. 333-8051
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM S-3
PRE-EFFECTIVE AMENDMENT NO. 1 TO
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
515 WEST GREENS ROAD, SUITE 720
HOUSTON, TEXAS 77067
(713) 872 1170
(Name, address including zip code, and telephone
number, including area code of agent for service)
515 WEST GREENS ROAD, SUITE 720
HOUSTON, TEXAS 77067
(713) 872 1170
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
COPIES TO:
Bruce L. Ashton, Esq. Dean W. Drulias, Esq.
Reish & Luftman Burris, Drulias & Gartenberg
11755 Wilshire Blvd., 10th Floor 11755 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]
<TABLE>
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CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE(1) AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE PRICE FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 437,931 $3.625 (2) $1,588,000 $548
$.01 PAR VALUE SHARES
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(2) Pursuant to Rule 457(e) 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 July 11, 1996.
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 20 pages. The Exhibit Index
appears on Page 14.
<PAGE>
CROSS REFERENCE SHEET
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ITEM IN FORM S-3 LOCATION IN PROSPECTUS
<S> <C> <C>
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
</TABLE>
(ii)
437,931 S H A R E S
FORTUNE PETROLEUM CORPORATION
COMMON STOCK
($.01 PAR VALUE)
------------------------------
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 acquire shares of
Common Stock upon exercise of stock purchase warrants issued to the
Representatives of the Underwriters in a public offering of the Common Stock in
June 1995 and as compensation to directors and an officer of the Company for
services rendered. 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
August 26, 1996, the closing price of the Common Stock on such Exchange was
$2-13/16.
The shares of Common Stock have not been registered for sale under the
securities laws of any state or other jurisdiction as of the date of this
Prospectus. Brokers or dealers effecting transactions in the Common Stock should
confirm the registration of the Common Stock under the securities laws of states
in which such transactions occur or the existence of an exemption from such
registration, or should cause such registration to occur in connection with any
offer or sale of the Common Stock.
Investment in the Common Stock entails certain risks. See "Risk Factors".
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON
ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PRICE TO PUBLIC UNDERWRITING DISCOUNT PROCEEDS TO COMPANY (1)
Per Share .......$ N/A N/A $ N/A
Total ...........$ N/A N/A $ N/A
- --------------------------------------------------------------------------------
(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 $7,000.
------------------------------
The date of this Prospectus is _________, 1996
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, 1995, (2) the Quarterly Reports on Form 10-QSB for the periods
ending March 31, 1996, and June 30, 1996, and (3) Current Reports on Form 8-K/A
filed on January 5, 1996 and May 20, 1996, and Form 8-K filed on February 23,
1996, March 8, 1996 and April 29, 1996.
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.
2
THE COMPANY
Fortune Petroleum Corporation ("Fortune" or the "Company") 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's principal properties are located onshore and offshore Louisiana, in
the Texas and Louisiana Gulf Coast and New Mexico.
During 1995, the Company implemented a program of exploration for
significant oil and natural gas reserves using state- of-the-art three
dimensional ("3D") seismic and computer-aided exploration ("CAEX") technology.
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 traditional two dimensional ("2D") and evaluation methods. In
furtherance of this exploration program, in February 1995, Fortune formed a
strategic partnership with Zydeco Energy, Inc., (the "Zydeco 3D Venture") and
has since acquired an interest in over 20 exploration projects (the "Zydeco
Projects") in the shallow Gulf Coast waters of Louisiana. Since late 1995, the
Company has also acquired interests in three additional prospects in the
Louisiana Gulf Coast and is continually evaluating other 3D and 2D exploration
projects with other industry partners.
At the same time, the Company seeks to take advantage of attractive
acquisition targets which will enable it to acquire reserves at an attractive
price. In furtherance of that objective, on December 11, 1995, the Company
purchased an interest in a producing oil and gas property located in the Gulf of
Mexico offshore Louisiana for cash.
The Company's principal executive offices are currently located at 515 West
Greens Road, Suite 720, Houston, Texas 77067 and its telephone number at that
address is (713) 872-1170.
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 sold all of its California producing properties and used the proceeds
from such sale to retire debt. The Company relocated its headquarters to
Houston, Texas in February 1996.
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.
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
RECENT CHANGE IN BUSINESS STRATEGY. Fortune has recently changed its
business strategy from the acquisition of producing oil and gas properties with
anticipated development potential to a strategy which primarily stresses
exploratory drilling for oil and natural gas. Such a change means that the
Company will no longer be assured of acquiring producing oil and gas wells when
it expends funds for the acquisition of an interest in property. It also means
that when the Company expends funds to drill a well, the risk that the Company
will drill a dry hole and thus be unsuccessful in finding any oil and gas is
substantially increased. In such event, the Company would receive no return on
its investment. Were such a strategy to be pursued long enough, without success,
it could require the Company ultimately to suspend operations. Further, since
the Company does not have its own internal exploration staff, it is dependent on
outside consultants to find and evaluate exploration projects for it. As a
result, the Company must acquire its interests in projects from third parties,
often on a promoted basis (which means that the Company must pay a larger share
of the costs of exploration than its revenue share in the project).
3
WORKING CAPITAL; NEED FOR ADDITIONAL FINANCING. At June 30, 1996, the
Company had a working capital surplus of $411,000. However, 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
Company's credit facility with Bank One, Texas (the "Credit Facility") and other
borrowings. While the Company currently has sufficient capital or cash flow to
meet all of its projected capital needs for the remainder of 1996, if Zydeco
were to propose an accelerated drilling schedule under the Zydeco 3D Venture,
Fortune may not have sufficient capital or cash flow to participate. Further,
Fortune may not have sufficient capital to pursue other attractive projects not
currently contemplated which might be presented to it. All of the Company's
producing oil and gas properties are pledged to secure the Credit Facility. At
June 30, 1996, the total amount owed in the Credit Facility was $1,700,000, and
the Company does not have any additional borrowing capacity under the Credit
Facility at the date hereof. Furthermore, at June 30, 1996, the Company was not
in compliance with its cash flow covenant in the Credit Facility. Under the
terms of the Credit Facility, Bank One has the right to demand repayment of the
entire loan balance in the event of a covenant default. Bank One is currently
conducting its semi-annual review of the Company's borrowing base. In connection
therewith, the Company is in discussions with Bank One regarding a waiver of the
covenant default.
NET LOSSES INCURRED BY COMPANY. During its last three fiscal years, the
Company has incurred net losses. The losses equalled $3,654,000, $2,943,000 and
$6,214,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
The Company incurred a net loss of $716,000 for the six months ended June 30,
1996 and may continue to incur losses in the future. The exploratory well that
the Company was drilling on the Lirette prospect in Lafourche Parish, Louisiana
was determined to be a dry hole and was plugged and abandoned in August, 1996.
The Company incurred approximately $240,000 in drilling costs associated with
its 10% non-operating working interest in this well which will be expensed as
dry hole costs in the third quarter of 1996. 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 Company's cash flow from operations insufficient
to fund capital requirements for the next 12 months. The Company may require
additional outside financing for the foreseeable future to fund capital
expenditures deemed desirable 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.
LIMITED SHORT-TERM IMPACT OF ZYDECO 3D VENTURE. The first well drilled on
one of the Zydeco Projects (the Aurora prospect) was plugged and abandoned in
January 1996 after the Company determined that the costs of completion made the
well uneconomic. The Company retained a 100% working interest after Zydeco
elected not to participate in the well. The dry hole cost to Fortune of drilling
and plugging and abandoning the well was approximately $832,000. It is
anticipated that other wells may be drilled on one or more of the Zydeco
projects in 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 late 1996 or early 1997. Therefore, investors should be
aware that the Zydeco 3D Venture did not have any impact on the Company's
revenues or cash flow from operations during 1995; and any impact during 1996
will be extremely limited. No assurance can be given that Fortune will ever
receive any revenues from any of the Zydeco projects.
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
California properties which the Company previously owned. 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. 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.
INTENTION TO FARMOUT PROPERTIES. The Company generally does not intend to
retain a full 50% working interest in any of the Zydeco Projects until it has
adequate capital to place at risk. There can be no assurance that the Company
will be able to farmout any portion of its interest in any of the Zydeco
Projects. If the Company is unable to farmout a portion of its interest, it must
either retain its 50% working interest, elect to not participate in the well or
exercise its "put" rights to Zydeco if Zydeco is participating in the well.
Further, Fortune may not be the operator of any of such projects and will thus
be dependent on other oil and gas companies to conduct operations in a prudent
and competent manner. In such a situation, Fortune will have little or no
control over the way in which operations are conducted. If the entity selected
to act as operator proves incompetent, Fortune could be forced to incur
additional costs to conduct remedial procedures and could lose its investment in
a property altogether.
PROPERTIES PLEDGED TO SECURE DEBT. All of the Company's producing
properties 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
4
entire principal balance of the Credit Facility is due July 1, 1997, and the
Company does not currently have the financial resources necessary to repay the
Credit Facility in full without significantly curtailing its operations. Bank
One, Texas has granted extensions of the Credit Facility due date in the past.
While management intends to continue to seek extensions of the payment date for
the principal balance of the Credit Facility, no assurance can be given that
Fortune will be able to obtain any further relief from Bank One in the future.
It is, therefore, possible that Fortune's operating activities could be
significantly curtailed or, in the event that Fortune's financial position
weakens significantly, that substantially all of Fortune's productive properties
could be seized by the Bank through a foreclosure. See "Risk Factors - Working
Capital; Need for Additional Financing" for discussion of noncompliance with the
Credit Facility cash flow covenant.
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. In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"). SFAS 121 is effective for fiscal years beginning
after December 15, 1995. The Company adopted SFAS 121 in the fourth quarter of
1995 and, as a result, recorded a $2,530,000 impairment charge against 1995
operations.
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 and Chief Executive 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 has obtained $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 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 $2.28, $2.09 and
$1.77 per Mcf in 1993, 1994 and 1995, respectively. The average oil prices
received by the Company were $14.33, $14.14 and $14.66 per Bbl in 1993, 1994 and
1995, respectively. At August 26, 1996, the Company was receiving an average of
$2.40 per Mcf for its gas production and $21.00 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.
5
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, corrosive or hazardous substances, mechanical failure of
equipment, 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 such as the
mechanical failure of downhole equipment at the Company's South Timbalier Block
76 well. As a result of this equipment failure, the well was shut in from April
29, 1996 to July 6, 1996 and the remedial workover cost the Company
approximately $270,000. 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 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 production and drilling operations in the Gulf of
Mexico and the coastal counties and parishes of the Gulf Coast and could result
in damaged equipment or facilities.
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
environmental insurance with a $10,000 deductible to cover potential liability
for onshore environmental hazards and $1,000,000 coverage with a $25,000
deductible for offshore hazards.
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.
SHORTAGES OF SUPPLIES AND EQUIPMENT. The Company's ability to conduct its
operations in a timely and cost effective manner is subject to the availability
of oil and gas field supplies, equipment and service crews. The industry is
currently experiencing a shortage of certain types of drilling rigs and work
boats in the Gulf of Mexico. This shortage could result in delays in the
Company's operations as well as higher operating and capital costs. Shortages of
other drilling equipment, tubular goods, drilling service crews and seismic
crews could occur from time to time further hindering the Company's ability to
conduct its operations as planned.
RISKS ASSOCIATED WITH INVESTMENT IN THE COMMON STOCK
NO PROCEEDS TO FORTUNE. Fortune will not receive any proceeds from this
offering. Nevertheless, the Company will be required to pay all expenses of the
offering estimated to be $7,000.
6
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 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 purchase prices.
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.
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 July 31, 1996, the Company had outstanding options
and warrants to purchase an aggregate of 6,250,914 shares of Common Stock which
are currently exercisable. At that date, there were 11,446,101 shares of Common
Stock outstanding, of which 10,107,308 shares are freely tradeable and 1,338,793
shares are restricted from sale under Rule 144 adopted by the Commission under
the Act. The Company has also filed a registration statement under the
Securities Act of 1933 for the issuance of up to an additional 931,500 shares of
Common Stock upon the proposed conversion of the Company's outstanding
Debentures and upon exercise of warrants to be issued in connection with such
conversion.
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. Even if such dispute is resolved, 400,000 shares and warrants
will remain in escrow pending the satisfaction of certain conditions. 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.
"RESET" SHARES. In connection with the acquisition of the South Timbalier
Block 76, the Company issued shares in a Regulation S offering. The shares were
sold subject to "reset" provisions which required the Company to issue
additional shares if the market price of the Common Stock declined during
certain recalculation periods. The price did decline in the first quarter of
1996, and the purchasers have demanded the issuance of an additional 1,266,000
shares. The Company has declined to issue such shares pending completion of an
investigation into whether the price decline was a result of market
manipulation. The purchasers have filed suit to require the issuance of such
shares.
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.
7
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 $7,000.
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.
The Selling Shareholders include persons or entities who acquire shares of
Common Stock upon exercise of stock purchase warrants issued to the
Representatives of the Underwriters in a public offering of the Common Stock in
June 1995 and as compensation to directors and an officer of the Company for
services rendered.
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.
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 as of July 31, 1996:
<TABLE>
<CAPTION>
SECURITIES SECURITIES PERCENTAGE
OWNED BEFORE IN OF CLASS
NAME POSITION OFFERING OFFERING OWNED(1)
- ---- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Barry Blank Shareholder(2)(3) 811,313 100,000 7.0%
Starr Securities Inc. former Underwriter 200,000 200,000 1.7%
Southend Holding Corp. former Underwriter(2) 100,000 100,000 *
William T. Walker, Jr. Director 192,749 256 1.7%
Graham Folsom Director 94,384 721 *
Dean W. Drulias Director & corporate 85,520 721 *
secretary
Gary Gelman Director 55,112 721 *
J. Michael Urban Vice President & CFO 55,000 35,000 *
Barry Feiner Director 49,612 256 *
Charles A. Champion Shareholder and former 38,272 256 *
Chairman of Board
</TABLE>
- ---------------
(1) Less than 1%.
(2) Barry Blank is a Vice President and registered representative with, and
Southend Holding Corp. is the parent company of, Coleman & Company Securities,
Inc., which acted as co-managing underwriter for the Company's June 1995 public
offering. Coleman received Representative's Warrants for 200,000 shares of
Common Stock which it transferred to Southend and Mr. Blank. The shares to be
sold by these Selling Shareholders relate to such Warrants.
(3) Includes 279,200 shares of Common Stock held directly, 432,113 shares of
which are underlying 300,600 publicly traded stock purchase warrants held by Mr.
Blank, exercisable at $3.75 per share and 100,000 shares held pursuant to the
Representative's Warrants referred to in Note 2.
LEGAL MATTERS
Certain legal matters in connection with this Prospectus and the
registration of the Common Stock have been passed upon for the Company by Reish
& Luftman, Los Angeles, California. C. Frederick Reish, a shareholder of such
firm, holds 1,000 shares of the Common Stock.
8
EXPERTS
The financial statements of the Company as of December 31, 1994 and
1995 and for each of the years in the three year period ended December 31, 1995,
and the statements of revenues and direct operating expenses of the oil and gas
property interests acquired from PetroFina S.A. for each of the years in the
three year period ended December 31, 1994 have been incorporated herein by
reference and in the Registration Statement in reliance upon the reports of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated herein
by reference and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1995
financial statements of the Company refers to the adoption of the provisions of
statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," as of
December 31, 1995.
The information incorporated herein with respect to net proved oil and
gas reserves of the Company at December 31, 1993, 1994 and 1995, was estimated
by Huddleston & Co., Inc., independent petroleum engineers, and at December 31,
1993 and 1994 was estimated by Sherwin D. Yoelin, petroleum engineer, and is
included herein on the authority of such engineers as experts in petroleum
engineering.
9
TABLE OF CONTENTS
PAGE
----
Cover Page 1
Additional Information 2
Incorporation of Information
by Reference 2
The Company 3
Risk Factors 3
Use of Proceeds 8
Plan of Distribution 8
Legal Matters 8
Experts 9
437,931 SHARES
COMMON STOCK
($.01 PAR VALUE)
FORTUNE PETROLEUM
CORPORATION
------------
P R O S P E C T U S
------------
SEPTEMBER ___, 1996
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:
Securities and Exchange Commission Registration Fee . . . . . $ 548
Accountants' Fees and Expenses . . . . . . . . . . . . . . . . $ 2,500
Legal Fees and Expenses. . . . . . . . . . . . . . . . . . . . $ 2,500
Printing and Miscellaneous . . . . . . . . . . . . . . . . . . $ 952
Stock Transfer Agent Charges . . . . . . . . . . . . . . . . . $ 500
-------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,000
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
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
5.1 Opinion of Reish & Luftman regarding legality of
securities (previously submitted).
24.1 Consent of Reish & Luftman (included in Exhibit 5.1)
24.2 Consents of KPMG Peat Marwick LLP (filed herewith). S-4, S-5
24.3 Consent of Huddleston (filed herewith). S-6
24.4 Consent of Sherwin Yoelin (filed herewith). S-7
25.1 Power of Attorney (included in the signature page
of this Registration Statement)
S-1
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.
(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
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 authorized this Pre-Effective
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on August 28, 1996.
FORTUNE PETROLEUM CORPORATION
By: /s/ TYRONE J. FAIRBANKS
Tyrone J. Fairbanks
President and Chief
Executive Officer
By: /s/ J. MICHAEL URBAN
J. Michael Urban
Vice President and
Chief Financial and
Accounting Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacities
and on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ TYRONE J. FAIRBANKS President, Chief Executive Officer August 28, 1996
Tyrone J. Fairbanks and Director
/s/ DEAN W. DRULIAS Director August 28, 1996
Dean W. Drulias
/s/ GRAHAM S. FOLSOM Director August 28, 1996
Graham S. Folsom
/s/ WILLIAM T. WALKER, JR. Director August 28, 1996
William T. Walker, Jr.
/s/ BARRY FEINER Director August 28, 1996
Barry Feiner
/s/ GARY GELMAN Director August 28, 1996
Gary Gelman
S-3
Exhibit 24.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Fortune Petroleum Corporation:
We consent to the use of our report on the financial statements of the
Company incorporated herein by reference and to the reference to our firm under
the heading "Experts" in the Prospectus.
Our report dated March 15, 1996 refers to the adoption of the
provisions of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of"
as of December 31, 1995.
KPMG Peat Marwick LLP
Houston, Texas
August 27, 1996
S-4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Fortune Petroleum Corporation:
We consent to the incorporation by reference herein of our report dated
December 20, 1995, with respect to the statements of revenues and direct
operating expenses of the oil and gas property interests acquired from PetroFina
S.A. for each of the years in the three-year period ended December 31, 1994.
KPMG Peat Marwick LLP
Houston, Texas
August 27, 1996
S-5
Exhibit 24.3
HUDDLESTON & CO., INC.
PETROLEUM AND GEOLOGICAL ENGINEERS
1111 FANNIN-SUITE 1700
HOUSTON, TEXAS 77002
-----
(713) 658-0248
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
August 27, 1996
Fortune Petroleum Corporation
One Commerce Green
515 W. Greens Road, Suite 720
Houston, Texas 77067
Dear Sirs:
We hereby consent to the filing of this consent as an exhibit to the
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-3 of
Fortune Petroleum Corporation to be filed with the Securities and Exchange
Commission on or about August 28, 1996, 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, December 31, 1994 and December 31, 1995.
HUDDLESTON & CO., INC.
/s/ PETER D. HUDDLESTON
Peter D. Huddleston, P.E.
S-6
Exhibit 24.4
SHERWIN D. YOELIN, PETROLEUM ENGINEER INC.
1439 BONNIE JEAN ROAD
LA HABRA HEIGHTS, CALIFORNIA 90631
310/697-3700
August 27, 1996
Fortune Petroleum Corporation
One Commerce Green
515 W. Greens Road, Suite 720
Houston, Texas 77067
Re: Consent of Independent Petroleum Engineer
Gentlemen:
I hereby consent to the incorporation of my January 1, 1994 and January 1, 1995,
Annual Reserve Reports of the oil and gas reserves of Fortune Petroleum
Corporation dated February 15, 1994, and February 27, 1995, respectively, in the
Prospectus constituting part of the Pre-Effective Amendment No. 1 of the
Registration Statement on SEC Form S-3 to be filed on or about August 28, 1996.
Respectfully,
/s/ Sherwin D. Yoelin
Sherwin D. Yoelin
Registered Petroleum Engineer
State of California
Certificate No. P 1241
S-7
