SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NO. 1-12334
FORTUNE PETROLEUM CORPORATION
(Exact Name of Registrant as specified in its charter)
Doing business in Texas and Louisiana as
FORTUNE NATURAL RESOURCES CORPORATION
Delaware 95-4114732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Green, 515 W. Greens Rd.,
Suite 720, Houston, Texas 77067
(Address of Principal Executive Offices) (Zip Code)
713-872-1170
Issuer's telephone number
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
11,462,707 as of July 31, 1996
<PAGE>
FORTUNE PETROLEUM CORPORATION
BALANCE SHEETS
ASSETS
(Unaudited) (Audited)
June 30, 1996 December 31, 1995
------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents ................... $ 2,024,000 $ 1,888,000
Accounts receivable ......................... 357,000 1,035,000
Oil and gas properties held for sale ........ -- 1,180,000
Prepaid expenses and oil inventory .......... 80,000 127,000
------------ ------------
Total Current Assets ...................... 2,461,000 4,230,000
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas properties, accounted for
using the successful efforts method ....... 19,593,000 18,960,000
Automotive, office and other ................ 332,000 227,000
------------ ------------
19,925,000 19,187,000
Less--accumulated depletion, depreciation
and amortization ......................... (8,376,000) (7,821,000)
------------ ------------
11,549,000 11,366,000
------------ ------------
OTHER ASSETS:
Materials, supplies and other ............... 199,000 62,000
Bond issuance costs (net of accumulated
amortization of $209,000 and $180,000) .... 80,000 109,000
Restricted cash ............................. 3,108,000 3,230,000
------------ ------------
3,387,000 3,401,000
------------ ------------
TOTAL ASSETS .................................. $ 17,397,000 $ 18,997,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1996 December 31, 1995
------------- -----------------
CURRENT LIABILITIES:
Current portion of long term debt ........... $ 1,700,000 $ 3,208,000
Accounts payable ............................ 195,000 280,000
Accrued expenses ............................ 37,000 96,000
Royalties and working interests payable ..... 14,000 94,000
Accrued interest ............................ 104,000 119,000
------------ ------------
Total Current Liabilities ............... 2,050,000 3,797,000
------------ ------------
LONG-TERM DEBT, net of current portion ....... 1,676,000 1,689,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value:
Authorized--2,000,000 shares
Issued and outstanding--None .............. -- --
Common stock, $.01 par value :
Authorized--40,000,000 shares
Issued and outstanding-- 11,431,665 and
11,139,709 shares at June 30, 1996 and
December 31, 1995, respectively ........... 113,000 111,000
Capital in excess of par value .............. 28,102,000 27,228,000
Accumulated deficit ......................... (14,544,000) (13,828,000)
------------ ------------
NET STOCKHOLDERS' EQUITY .................... 13,671,000 13,511,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .. $ 17,397,000 $ 18,997,000
============ ============
See accompanying notes to financial statements.
2
<PAGE>
FORTUNE PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
For the six months ended
-----------------------------
June 30, 1996 June 30, 1995
------------- -------------
REVENUES
Sales of oil and gas, net of royalties ........ $ 1,819,000 $ 1,355,000
Gain on sale of oil and gas properties, net ... 260,000 --
Other income .................................. 118,000 79,000
------------ -----------
2,197,000 1,434,000
============ ===========
COSTS AND EXPENSES
Production and operating .................... 780,000 638,000
Exploration ................................. 142,000 23,000
Dryhole ..................................... 32,000 --
Provision for depletion, depreciation
and amortization .......................... 518,000 668,000
Impairment to oil and gas properties ........ 37,000 --
General and administrative .................. 1,061,000 566,000
Office relocation and severance ............. 110,000 --
Interest .................................... 233,000 378,000
------------ -----------
2,913,000 2,273,000
------------ -----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES ............................ (716,000) (839,000)
PROVISION FOR INCOME TAXES .................... -- --
------------ -----------
NET INCOME (LOSS) ............................. $ (716,000) $ (839,000)
============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ................... 11,210,001 3,503,251
============ ===========
NET INCOME (LOSS) PER COMMON SHARE ............ $ (0.06) $ (0.24)
============ ===========
See accompanying notes to financial statements
3
<PAGE>
FORTUNE PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
-------------------------------
June 30, 1996 June 30, 1995
------------- -------------
REVENUES
Sales of oil and gas, net of royalties ...... $ 594,000 $ 645,000
Other income ................................ 54,000 65,000
------------ -----------
648,000 710,000
------------ -----------
COSTS AND EXPENSES
Production and operating .................. 495,000 227,000
Exploration ............................... 40,000 23,000
Provision for depletion, depreciation
and amortization ........................ 235,000 325,000
General and administrative ................ 535,000 372,000
Office relocation and severance ........... 5,000 --
Interest .................................. 113,000 193,000
------------ -----------
1,423,000 1,140,000
------------ -----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES .......................... (775,000) (430,000)
PROVISION FOR INCOME TAXES .................. -- --
------------ -----------
NET INCOME (LOSS) ........................... $ (775,000) $ (430,000)
============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ................. 11,250,922 4,079,811
============ ===========
NET INCOME (LOSS) PER COMMON SHARE .......... $ (0.07) $ (0.10)
============ ===========
See accompanying notes to financial statements
4
<PAGE>
FORTUNE PETROLEUM CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Common Stock Capital in Excess Accumulated
Shares Amount of Par Value Deficit Net
----------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 ................. 2,644,032 $ 26,000 $ 11,253,000 $ (7,614,000) $ 3,665,000
=========== ======== ============ ============ ============
Common stock returned to
treasury ............................. (12) -- -- -- --
Common stock issued for
exercise of stock options ............ 202,481 2,000 500,000 -- 502,000
Common stock issued for
directors' fees ...................... 14,445 -- 39,000 -- 39,000
Common stock issued for
stock offerings ...................... 6,569,117 65,000 11,729,000 -- 11,794,000
Common stock issued for
merger ............................... 1,200,000 12,000 2,480,000 -- 2,492,000
Common stock and warrants
issued for payment of
investment banking services .......... 100,000 2,000 263,000 -- 265,000
Common stock issued for
warrant conversion ................... 115,479 1,000 392,000 -- 393,000
Common stock issued for
note conversion ...................... 294,167 3,000 572,000 -- 575,000
Net Loss .................................. -- -- -- $ (6,214,000) (6,214,000)
----------- -------- ------------ ------------ ------------
BALANCE, December 31, 1995 ................ 11,139,709 $111,000 $ 27,228,000 $(13,828,000) $ 13,511,000
----------- -------- ------------ ------------ ------------
Common stock issued for
exercise of stock options ............ 46,150 -- 114,000 -- 114,000
Common stock issued for
exercise of warrants ................. 245,638 2,000 786,000 -- 788,000
Common stock issued for
director's fees ....................... 1,395 -- 4,000 -- 4,000
Common stock cancelled and
stock issuance cost .................. (1,227) -- (30,000) -- (30,000)
Net income (loss) ......................... -- -- -- (716,000) (716,000)
----------- -------- ------------ ------------ ------------
BALANCE, June 30, 1996 ................... 11,431,665 $113,000 $ 28,102,000 $(14,544,000) $ 13,671,000
=========== ======== ============ ============ ============
(Unaudited)
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
FORTUNE PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
-----------------------------
June 30, 1996 June 30, 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................ $ (716,000) $ (839,000)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Common stock issued for directors' fees ...... 4,000 19,000
Depletion, depreciation and amortization ..... 518,000 668,000
Exploration and dry hole cost ................ 174,000 23,000
Gain on disposition of assets ................ (260,000) --
Amortization of deferred financing cost ...... 36,000 --
Impairment of oil and gas assets ............. 37,000 --
Provision for executive severance ............ -- (17,000)
Changes in assets and liabilities:
Accounts receivable ....................... 678,000 (99,000)
Prepaids and oil inventory ................ 47,000 (26,000)
Accounts payable and accrued expenses ..... (144,000) (102,000)
Payment of executive severance ............ -- (91,000)
Royalties and working interest payable .... (80,000) 4,000
Accrued interest .......................... (15,000) (1,000)
Other ..................................... -- 168,000
----------- -----------
Net cash provided by (used in)
operating activities ......................... 279,000 (293,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties ...... (1,154,000) (3,175,000)
Exploration and dry hole costs ............... (174,000) --
Restricted cash used ......................... 122,000 --
Proceeds from sale of properties
and equipment .............................. 1,961,000 --
Expenditures for other property and
equipment and other assets ................. (244,000) (5,000)
----------- -----------
Net cash provided by (used in)
investing activities ....................... 511,000 (3,180,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long term debt .................. (1,529,000) (876,000)
Proceeds from issuance of common stock ....... 902,000 8,079,000
Expenditures for offering cost ............... (27,000) (320,000)
----------- -----------
Net cash provided by (used in)
financing activities ....................... (654,000) 6,883,000
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ......................... 136,000 3,410,000
----------- -----------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .......................... 1,888,000 398,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....... $ 2,024,000 $ 3,808,000
=========== ===========
Supplemental information:
Interest paid in cash ....................... $ 197,000 $ 378,000
Non-cash transactions:
Common stock issued or issuable as
directors' fees ............................ 4,000 19,000
Common Stock issued for payment of
executive severance ........................ -- 43,000
Common Stock issued to acquire LEX ........... -- 2,492,000
See accompanying notes to financial statements
6
FORTUNE PETROLEUM CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(1) LINE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
PROCEDURES
The condensed financial statements at June 30, 1996, and for the six months
and three months then ended included herein have been prepared by the Company,
without audit, pursuant to the Rules and Regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such Rules and
Regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's latest annual report on Form 10-KSB. In
the opinion of the Company, the financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of Fortune Petroleum Corporation as of June 30, 1996 and
December 31, 1995, the results of its operations for the three months and six
months ended June 30, 1996 and June 30, 1995, and cash flows for the six months
ended June 30, 1996 and June 30, 1995. The results of the operations for such
interim periods are not necessarily indicative of the results for the full year.
(2) LONG TERM DEBT
At June 30, 1996, a summary of long-term debt is as follows:
June 30, December 31,
1996 1995
---------- ------------
Convertible Subordinated Debentures of
$1,725,000 (net of discount of $49,000 and
$57,000) due December 31, 1997, including
interest of 10-1/2% per annum paid
semi-annually ................................... $1,676,000 $1,668,000
Bank One credit facility due July 1, 1997
including interest at 1-1/2% over Bank One,
Texas, NA's prime rate payable monthly .......... 1,700,000 3,200,000
Other debt with interest ranging from 0% to
9-1/4% per annum due through 1998 ............... -- 29,000
---------- ----------
Total long-term debt ............................... 3,376,000 4,897,000
Less current installments .......................... 1,700,000 3,208,000
---------- ----------
Long-term debt, excluding current installments ..... $1,676,000 $1,689,000
========== ==========
The 10-1/2% Convertible Subordinated Debentures due December 31, 1997 bear an
effective interest rate of 12.13% and are convertible into shares of the
Company's common stock, after April 1, 1994, at a conversion price of $6.32 per
share or 158 shares per $1,000 principal amount of debenture. Therefore, if all
$1,725,000 were converted, the number of the Company's common shares then
outstanding would increase by 272,981 shares.
7
The Company has a $10,000,000 credit facility with Bank One, Texas, N.A.
under which it has the ability to borrow amounts up to an available borrowing
base as defined in the credit agreement. The amount the Company may borrow under
the Credit Facility is determined by the borrowing base as calculated by the
Bank semi-annually on the basis of the Company's oil and gas reserves. This
borrowing base was $3,200,000 at December 31, 1995. The credit facility contains
various financial covenants, is secured by all of the Company's oil and gas
producing properties, and currently requires monthly principal payments of
$75,000. At December 31, 1995, and June 30, 1996, the Company was not in
compliance with its cash flow coverage ratio covenant in the credit agreement.
Under the terms of credit agreeement, the bank has the right to demand repayment
of the entire loan balance in the event of covenant defaults. The Company has
obtained a waiver of this covenant from the bank as of December 31, 1995 and is
in discussions with the bank concerning a waiver as of June 30, 1996. During
February 1996, the Company made a principal reduction of $1,100,000, primarily
from the proceeds of the sale of its California properties. Because of the
breach in the cash flow covenant, the Company is not able to borrow any
additional amounts under the credit facility at this time.
The Company's maturities of long-term debt over the next two years are as
follows:
Year Long-term debt maturity
---- -----------------------
1996 $ 450,000
1997 2,926,000
---------
$3,376,000
==========
(3) INCOME TAX EXPENSE
No provision for income taxes was required for the three months and six
months ended June 30, 1996.
At June 30, 1996, the Company estimates it had cumulative net operating loss
carryforwards for federal income tax purposes of $9,484,000 which is
significantly restricted under IRC Section 382, and is available to offset
future federal taxable income, if any, with various expirations through 2008.
The Company is uncertain as to the recoverability of the above deferred tax
assets and has therefore applied a 100% valuation allowance.
The Company has available IRC Section 29 Tax Credits that may be used to
reduce or eliminate any corporate taxable income in future years. It is
uncertain at this time to what extent the Company will be able to utilize these
federal tax credits, as their utilization is dependent upon the amount, if any,
of future federal income tax incurred, after application of the Company's net
operating loss carryforwards.
(4) LEGAL PROCEEDINGS
There are no pending material legal proceedings involving any of the
Company's properties or that involves a claim for damages which exceeds 10% of
the Company's current assets.
On June 13, 1996, lawsuits between Fortune and EnRe were settled with an
agreement by each party to drop all of their respective claims. Fortune had been
served with a lawsuit in March 1995, by EnRe Corporation, in which EnRe, as
operator of the Company's New Mexico properties, sought recovery of
approximately $438,000 allegedly owed by Fortune for the drilling of certain
wells on such properties. Fortune had answered EnRe's lawsuit in March 1995, and
filed a counterclaim against EnRe for damages suffered by Fortune as the result
of EnRe's actions.
On March 26, 1996, Fortune was served with a lawsuit which had been filed in
the Federal District Court in Delaware by one of the purchasers of Fortune
common stock in an offering in December 1995 under Regulation S. Under the terms
of the subscription agreement, the plaintiff was entitled to receive additional
shares of Fortune stock if the market price fell below a stated level during a
specified period following the 40- day holding period prescribed by Regulation
S. Plaintiff's complaint alleges that the price during the relevant interval did
fall below the level necessary for plaintiff to receive additional shares, but
that Fortune has failed to issued the stock.
8
Fortune has responded, admitting the essential allegations of the complaint,
but has pled, by way of affirmative defense, that suspicious trading activity in
Fortune stock occurred immediately prior to and during the time period in which
the additional-share allocation was computed. Fortune requested, and the
American Stock Exchange commenced, an investigation into such trading
irregularities. That investigation is continuing; Fortune does not intend to
issue any additional shares to plaintiff pending the outcome of the
investigation. Fortune has also commenced, and intends to aggressively pursue,
discovery in an attempt to determine whether any action of the purchasers in
this offering contributed to its share price fluctuation.
On April 16, 1996, Fortune was advised that similar suits had been filed in
Federal District Court in New York by two other buyers in the same offering. The
allegations parallel those contained in the earlier suit filed in Delaware, and
Fortune intends to respond in the same manner.
(5) COMPUTATION OF EARNINGS (LOSS) PER SHARE
Primary earnings per common share are computed by dividing net income (loss)
by the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares are shares which may be issuable upon
exercise of outstanding stock options and warrants; however, they are not
included in the computation for the six month period ended June 30, 1996 since
they would not have a dilutive effect on earnings per share.
Fully diluted earnings per common share are not presented, since the
conversion of the Company's 10- 1/2% Convertible Subordinated Debentures would
have an anti-dilutive effect.
(6) ACQUISITIONS
On April 17, 1996 the Company entered into a non-binding Letter of Intent
with Texoil, Inc. ("Texoil") pursuant to which Texoil would have been acquired
through merger by Fortune in a tax-free transaction. On May 2, 1996, Texoil
advised Fortune that the agreed deadline for completion of a definitive merger
agreement had expired and that Fortune should regard the merger negotiations as
ended. Consequently, this proposed transaction was terminated. On August 1,
1996, Texoil paid Fortune $35,000 in liquidated damages arising out of their
letter of intent.
(7) SUBSEQUENT EVENTS
On July 1, 1996, the Company sold all of its interest in the Ainsworth Lease
in Scurry County, Texas for $76,500 to a third party. Any gain or loss recorded
on this transaction will not be material.
In late July 1996, the Company received invoices from Ampolex (USA), Inc.,
the operator of the Company's New Mexico properties, billing Fortune for
$232,805 of outstanding accounts receivable attributable to two other working
interest owners in the properties which the operator failed to collect from such
owners. The Company is reviewing this matter.
9
FORTUNE PETROLEUM CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISONS OF THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 TO THE THREE
MONTHS AND SIX MONTHS ENDED JUNE 30, 1995.
During the three months and six months ended June 30, 1996, Fortune had net
losses of $775,000 and $716,000 compared to net losses of $430,000 and $839,000
for the three months and six months ended June 30, 1995.
Net revenues from sales of oil and gas increased $464,000 (34%) in the six
months ended June 30, 1996, compared to the same 1995 period. The increase
resulted primarily from higher natural gas prices, increased production from the
addition of South Timbalier Block 76 which was acquired in December 1995, and
low 1995 production resulting from shutting in the Company's Hopper Canyon oil
field for 5-1/2 months due to storm damage. Oil and gas revenues decreased
$51,000 (8%) in the three months ended June 30, 1996, compared to the same 1995
period however. Revenues for the second quarter of 1996 were adversely affected
by a down hole mechanical failure at the Company's South Timbalier Block 76
well. The well was shut in on April 29, 1996, because of an apparent failure in
the tubing hanger. Because of the current shortage of rigs in the Gulf of
Mexico, the remedial workover operation did not begin until June 15, 1996. The
well came back on line on July 6, 1996 flowing at approximately 16 million cubic
feet per day of gas and 1,100 barrels of condensate per day. Fortune has a
9.375% net revenue interest in the well. The workover cost the company
approximately $270,000, most of which was incurred in June 1996.
Natural gas prices averaged $2.66 and $2.61 per MCF for the three months and
six months ended June 30, 1996 as compared to $ 1.30 and $ 1.41 per MCF for the
same 1995 period. Oil prices averaged $21.37and $18.40 per barrel compared to
$16.47 and $16.13 per barrel for the three months and six months period ended
June 30, 1995.
In the three months and six months ended June 30, 1996 other income consisted
primarily of interest income.
Production and operating expenses increased by $268,000 (118%) and $142,000
(22%) in the three months and six months ended June 30, 1996 compared to the
same 1995 period primarily because of the South Timbalier workover discussed
above.
In the three months and six months ended June 30, 1996, Fortune's general and
administrative expenses increased by $163,000 (44%) and $495,000 (87%) over the
same 1995 period. The increase was due primarily to increased legal fees
resulting from the Regulation S shareholder litigation and the increased
acquisition and disposition activity; increased shareholder reporting expense;
and increased personnel expense. The company also incurred non-recurring office
relocation and severence cost of $110,000 in the first six months of 1996 in
connection with the move to Houston. Interest expense decreased by $80,000 (41%)
and $145,000 (38%) for the three months and six months ended June 30, 1996 over
the same 1995 period due to the lower debt balance. The lower depletable
property balance, resulting from the year-end 1995 impairment write-off, led to
a decrease in the Company's provision for depletion, depreciation and
amortization of $90,000 (28%) and $150,000 (22%) in the three months and six
months ended June 30, 1996 as compared to 1995.
LIQUIDITY AND CAPITAL RESOURCES
Fortune's operating cash flow increased for the three months and six months
ended June 30, 1996 to $12,000 and $279,000 as compared to operating cash flow
deficits of $275,00 and $293,000 for the same 1995 periods. This increase in
cash flow was a result of higher natural gas prices and higher production in
1996 as discussed above. Shutting in the South Timbalier Block 76 well and the
resulting workover had a significant adverse effect on cash flow in the second
quarter of 1996.
10
Fortune's internal liquidity and capital resources in the near term will
consist of working capital derived from its oil and gas operations and the
proceeds received from the exercise of outstanding warrants. Due to the breach
in the cash flow covenant, the Company is not able to borrow any additional
amounts under its credit facility, discussed in Note 2 to the Company's
financial statements, at this time.
Capital expenditures for the three months and six months ended June 30, 1996
were $669,000 and $1,154,000 as compared to $4,779,000 and $5,517,000 for the
same 1995 period. The significantly higher 1995 capital expenditures are
attributed to the acquisition of Lagniappe Exploration, Inc. and the Company's
funding of a substantial portion of the $ 4,850,000 budget of the Zydeco 3D
Venture during the second quarter of 1995. Fortune's capital expenditures for
1996 are currently estimated to be approximately $3.0 million for its
exploration and development activities, including completion and development of
the Company's recent exploratory success at East Bayou Sorrel, Lafourche Parish,
Louisiana. The Company intends to provide for these expenditures with its
available cash and either the exercise of outstanding warrants, the recovery of
prospect costs advanced by the Company, or a private placement of equity. Should
such funds not be available to the Company as required for timely drilling, the
Company can reduce its working interest participation in the wells, farm-out
additional interests or, with respect to the Zydeco joint venture projects, put
its interest back to Zydeco for an overriding royalty and after-payout working
interest. Should the Company's working interest in exploration projects be
reduced, the Company would not derive as great a benefit in the event of an
exploration success.
Conditions outside of the control of Fortune influence the price Fortune
receives for oil and gas. As of August 6, 1996, the Company was receiving
approximately $21.00 per barrel as an average price for its oil production and
$2.40 per MCF as an average price for its gas production.
11
FORTUNE PETROLEUM CORPORATION
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. Description
----------- -----------
99.1 Notes to Financial Statements included in the
Registrant's Form 10-KSB filed for the fiscal year ended
December 31, 1995 incorporated herein by reference.
99.2 Notes to Financial Statements included in the
Registrant's Form 10-QSB filed for the three month
period ended March 31, 1996 incorporated herein by
reference.
(b) REPORTS ON FORM 8-K / 8K-A
A report on Form 8K-A was filed with the Commission on May 20, 1996, to
report that the previously announced non-binding Letter of Intent with Texoil,
Inc. had expired and the proposed transaction had terminated.
12
FORTUNE PETROLEUM CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FORTUNE PETROLEUM CORPORATION
Date: August 13, 1996
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
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0
0
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</TABLE>
