UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to ____________
Commission file number 0-8609
Future Petroleum Corporation
(Exact name of small business issuer as specified in charter)
Utah 87-0239185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2351 West Northwest Highway, Suite 2130
Dallas, Texas 75220
(Address of principal executive offices) (Zip Code)
(214)350-7602
(Registrants telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of Class Name of each exchange on which registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $0.01
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. Registrant's revenues for the
most recent fiscal year: $245,000 [x]
The aggregate market value of the Company's voting stock held by
nonaffiliates computed at the closing bid price in the over-the-counter
market as quoted on the National Association of Securities Dealers Electronic
Bulletin Board system on May 21,1996, was approximately $357,255.
As of May 29, 1996, the Company had outstanding 3,426,903 shares of its
common stock, par value $0.01.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the Form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant
to rule 424(b) or (c) under the Securities Act of 1933:
<PAGE>
TABLE OF CONTENTS
Item Number and Caption Page
PART I
1. Business....................................3
2. Properties.................................10
3. Legal Proceedings..........................13
4. Submission of Matters to Vote of Security
Holders....................................14
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters................15
6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................16
7. Financial Statements and Supplementary
Data.......................................17
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.....17
PART III
9. Directors and Executive Officers of the
Registrant.................................18
10. Executive Compensation.....................20
11. Security Ownership of Certain Beneficial
Owners and Management......................23
12. Certain Relationships and Related
Transactions...............................24
13. Exhibits and Reports on Form 8-K...........25
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. BUSINESS
GENERAL HISTORY
Future Petroleum Corporation (the "Company") is engaged through its
subsidiaries and subsidiary partnerships in the development of oil and
natural gas properties located onshore primarily in Texas and Oklahoma.
The Company's strategy has historically been focused on development drilling
and exploration activities in or near established production areas.
The Company intends to continue its emphasis on development drilling and to
augment this strategy with the acquisition of producing oil and gas reserves.
Prior to 1994, the Company, formally known as Intermountain Exploration
Company, was engaged solely in minerals exploration, holding non-producing
mineral properties in the western United States. In view of adverse economic
conditions experienced by small exploration firms whose properties consist
principally of unpatented mining claims, in 1992 the Company made a strategic
decision to reduce its minerals activity and to seek diversification. This
decision was driven in large measure by recent legislation that imposed
substantial annual cash rental fees on unpatented mining claims, thereby
increasing the carrying costs of the Company's properties as it continued
with minimal exploration while it sought joint venture, leases, or
other arrangements with third parties in which they would provide major
exploration funding.
As a result of management's decision, in 1993 the Company acquired all of
the issued and outstanding common stock of a Texas corporation, in
consideration of the issuance of approximately 2,713,000 shares of common
stock of the Company, which represented approximately 85% of the number of
shares of the Company's issued and outstanding common stock after the
transaction.
Effective March 1994, the Company effected a 6 to 1 reverse split of the
issued and outstanding shares of common stock. All shares and per share
amounts in this annual report have been adjusted to give effect to such
reverse split.
During 1995 the Company concentrated on acquiring oil and gas leases and
performing seismic surveys and geological evaluations covering acreage that
was to be acquired or contributed to Future Acquisition 1995, Ltd.
This included 2D seismic acquisition on the Price Ranch Prospect in
anticipation of the drilling of the Marty A-1 well which has been drilled
and completed in the Brown Dolomite Formation. The well is now in a testing
phase while waiting on pipeline connection.
Geological evaluations were performed on the Azalea Field in anticipation
of drilling two wells. These wells have been drilled as of May 14, 1996, and
are now awaiting completion in the Grayburg and San Andres Formations.
<PAGE>
Strategic Developments
In December 1995, the Company's subsidiary Future Petroleum Corporation, a
Texas corporation ("Future-Texas"), contributed a substantial portion of its
oil and gas properties to Future Acquisition 1995, Ltd., a limited
partnership in which Future-Texas is the general partner. The partnership
has two limited partners, which contributed cash to the partnership to be
used in the acquisition and development of oil and gas properties. Revenues,
costs and expenses are generally allocated 15% to the General Partner and 85%
to the Limited Partners until the limited partners have recovered their
investment and a 20% return as defined in the agreement. After that point,
the General Partner is allocated 75% of revenues, costs and expenses.
Certain acquisition and developments costs are allocated 100% to the limited
partners. As operator of the properties the General Partner is entitled
to receive copas overhead charges which will generate income to the General
Partner in addition to the 15% of revenues reserved until the 20% rate of
return has been generated to the Limited Partners, at which time the General
Partner will be allocated 75% of revenues.
Business Strategy
Operating Strategy. The Company's business strategy is to increase its
proved producing reserves by continuing its drilling activities in Texas and
Oklahoma and by pursuing acquisitions of proved oil and gas properties, either
in the form of asset purchases or mergers with other companies. The Company
will focus on producing properties with additional development potential to
augment existing production while also expanding and diversifying its reserve
base. Acquisition criteria will include reserve life, development
opportunity, profit enhancement potential, geographic concentration and
ownership levels permitting operation of acquired properties. Under this
strategy, the Company will initially seek to increase its concentration in
Texas and eventually diversify its interests outside this core area. As of
the date of this Report, the Company has no acquisition commitments but has
implemented an active program for ongoing evaluation of opportunities meeting
its acquisition criteria.
Oil and Gas Activities
Since its organization in 1983, Future Petroleum Corporation has been
engaged primarily in oil and gas exploration, development and acquisition.
It owns and operates oil and gas producing properties as discussed below and
is actively involved in oil and gas exploration, development and the
acquisition of established production. During the preceding three years, the
Company, has developed a number of drilling prospects and acquired lease
rights to these prospects and will drill and complete wells where warranted.
OIL AND GAS HOLDINGS
Properties. The Company's properties are located onshore principally in
Texas. As of January 1, 1996, the Company owned interests in a total of 191
gross (66 net) producing wells, of which 158 wells are operated by the Company.
As of that date, the Company had oil and gas rights in leases comprising
9,510 gross (2,032 net) developed acres and 11,168 gross (1,852 net)
undeveloped acres. Approximately 64% of the Company's proved oil and gas
reserves (on a gas equivalent basis) are natural gas. The average reserve
life of these properties (based on the 1995 producing rate) is estimated to be
13 years as of January 1, 1996.
<PAGE>
Wichita County Regular Field. The Company owns and operates thirty-eight (38)
wells in the Wichita Regular Field in Wichita County, Texas. The
field is on the Bend Arch north of the Fort Worth basin. The pay zones are the
Gunsight sand, the Thomas sand and an unconsolidated 600' sand and is
presently under waterflood. All of these sands are Pennsylvanian in age. The
trap is a combination of statigraphy and structure. The Company is presently
evaluating the potential of recompletion, stimulation and improvement of the
waterflood. Results of these studies will increase oil production, reserves,
cash flow and Company profits.
Panhandle Field. The Company has an interest in and operates one hundred thirty
(130) wells in the Panhandle of Texas. These wells are located in Gray,
Carson, Hutchinson and Roberts Counties, Texas. Most of the wells are located
in the Panhandle Field. This field is on the Amarillo uplift West of the
Anadarko Basin. All of the Company's wells produce from the Wolfcamp Brown
Dolomite of Permian age and the Pennsylvanian granite wash. Production is
primarily oil on the uplift with some gas. The Company's wells on the Western
edge of the Anadarko Basin flanking the uplift are located on anticlines
along a structural ridge. These wells produce gas from the same pay zones
found on the uplift in the big Panhandle Field. The Company recently drilled
the Marty A-1 and completed it in the Brown Dolomite. The well is now
testing. The Company, in order to increase production, reserves and profits,
is now evaluating each well. Some of this work has been completed with a
resulting increase in production.
Azalea Field. The Company has an interest in Fifteen (15) producing wells and
one (1) commercial Salt Water Disposal well in the Azalea Field, located
approximately eight (8) miles Southeast of Midland, Texas in Midland county.
It is in the East central portion of the Midland geological Basin. It is
near the edge of the Grayburg-San Andres shelf as it swings across the basin
from the Central Basin Platform on the West to the Eastern shelf on the East.
The field is an anticlinal dome caused by drape over a carbonate bioherm. The
leases are on or near the crest of the anticline. The potential pays are in the
Grayburg, Permian age sands and carbonates and the San Andres, also Permian,
Carbonates (dolomite and limestone). It is the intention of the Company and
its partner to drill infill wells to both pay zones and to start a
waterflood in order to increase the recovery of oil and gas thus conserving
our natural resources and increasing profits for the Company. Potential
increases in production and reserves will increase the Company's
reserve base substantially. The Company has completed the drilling of two
development wells that are pending completion in the Grayburg and the San
Andres Formations. It is the intention of the Company to drill six (6)
additional wells to develop this lease.
Caddo Field. The Caddo Field, located along the north edge of the Ardmore
Basin, just south of the Arbuckle Mountains was discovered on July 14, 1939,
by The Pure Oil Company. It is located in, Township 3 South Range 1 East,
Carter County, Oklahoma. Production is from the Goddard sandstone, Sycamore
limestone, Woodford shale, Hunton limestone, Viola limestone, and 2nd Bromide
sandstone. It has produced 3.99 MMBO and 29.9 MMMCFG. Caddo Field is
essentially a gas field with a thin oil ring around it. Structurally, the
field is an anticlinal fold on a horst block. The Company has obtained oil
and gas leases within the oil ring that surrounds the Caddo Field.
Development plans consist of drilling five (5) wells on the leases within the
next eighteen (18) months. Industry partners will be utilized in funding
these wells.
<PAGE>
Cumberland Field. The Cumberland Field is located in Township 5 South
Range 7-East in Bryan and Marshall Counties, Oklahoma. The field has a
northwest-southeast orientation and is located on a structural high
associated with the southwest fault block (horst) of a large
northwest-southeast oriented horst and graben fault system. Cumberland field
has produced over 73,000,000 BBLS of oil and over 54,000,000 MCF of gas.
An estimated 150,000,000 BBLS of oil remain. 15,000,000 of these remaining
BBLS of oil should be producible using present day recovery methods
and oil prices. Increases in oil prices and improvements in recovery could
double or triple this number. Proven gas reserves remaining to be produced
are estimated to be at least 30,000,000 MCF. The Arbuckle has never been
completely tested. It holds potentially great untapped reserves. Cumberland
Field was discovered in 1940 by the Pure (Unocal) #100-1 Quintin Little.
Pays range from the Arbuckle Dolomites (Ordovician in age) up through the
Simpson Sands, Viola and Hunton Limestones, Woodford Chert and
Sycamore Siltstones (Pennsylvanian age). The Simpson Sands are the oil
reservoirs. They also hold a large share of the gas as attic gas in their
gas caps. The Company has obtained oil and gas leases on the flanks
of this field. Major oil companies are conducting a extensive 3-D seismic
study of this area with the idea of extending this field and further develop
the remaining reserves. The Company plans on participating in this
further development.
Marketing
Gas Sales. Current marketing arrangements generally provide the Company
with ability to sell a majority of its well deliverability from the Company's
fields to major intrastate pipeline systems under flexible pricing formulas
and to utilize additional transportation systems for marketing the balance of
its production.
Oil Sales. The Company's sales of crude oil, condensate and natural gas
liquids are generally made at posted field prices, which are not subject to
regulations.
COMPETITION
The oil and gas industry is highly competitive. Major oil and gas
companies, independent concerns, drilling and production purchase programs and
individual producers and operators are active bidders for desirable oil and
gas properties, as well as the equipment and labor required to operate those
properties. Many competitors have financial resources substantially greater
than those of the Company. Many competitors also have substantially larger
staffs and facilities than those of the Company. The availability of a ready
market for the Company's oil and gas production depends in part on the cost
and availability of alternative fuels, the level of consumer demand, the
extent of other domestic production of oil and gas, the extent of importation
of foreign oil and gas, the cost of and proximity to pipelines and other
transportation facilities, regulations by state and federal authorities and
the cost of complying with applicable environmental regulations.
Regulation
General. Domestic development, production and transportation of oil and
gas are extensively regulated at both the federal and state levels.
Legislation affecting the oil and gas industry is under constant review for
amendment, frequently increasing the regulatory burden on the industry. Also,
numerous departments and agencies, both federal and state, have issued rules
and regulations binding on the oil and gas industry and its individual members,
compliance with which is often difficult and costly and some of which carry
substantial penalties for noncompliance. The following discussion of oil and
gas industry regulation is summary in nature and is not intended to cover all
regulatory matters that could affect the Company.
<PAGE>
State Regulation. State statutes and regulations require permits for
drilling operations and construction of gathering lines, as well as drilling
bonds and reports concerning operations, often creating delays in drilling,
completing new wells and connecting completed wells. Texas and other states
in which the Company conducts operations also have statutes and regulations
governing conservation matters, including regulation of the size of drilling
and spacing or proration units, the density of wells that may be drilled and
the unionization or pooling of oil and gas properties. In addition, state
conservation laws establish maximum rates of production from oil and gas
wells, generally prohibit the venting or flaring of gas impose certain
requirements on the ratability of production. Many states including Texas,
also have regulatory mechanisms that attempt to match monthly production to
the market demand for oil and gas. Certain existing statutes or regulations
set limits below the rates at which oil and gas is currently produced from
wells in which the Company owns an interest or the prices received for its
production.
Federal Regulation. Since the lifting of federal price controls in
1981, sales of crude oil, condensate and natural gas liquids can be made at
uncontrolled market prices. For many years, the sale and transportation of
natural gas in interstate commerce have been subject to regulation under
various federal laws, including the Natural Gas Act of 1938 ("NGA") and the
Natural Gas Policy Act of 1978 ("NGPA"), both of which are administered by
the Federal Energy Regulatory Commission ("FERC"). The provisions of these
acts and regulations are complex. Under these acts, producers and marketers
have historically been required to obtain from FERC certificates to make so
called "first sales" and abandonment authority to discontinue those sales.
Additionally, first sales have been subject to price regulations. However,
as a result of the enactment of the NGPA and the Natural Gas Wellhead
Decontrol Act of 1989, the remaining regulations imposed by the NGA and the
NGPA on first sales were terminated on January 1, 1993. Thus, sales of
natural gas may currently be made at uncontrolled market prices. FERC
jurisdiction over transportation and sales other than first sales has not
been affected.
Commencing in the mid-1980s, FERC promulgated several orders designed to
enhance competition in natural gas markets by requiring that access to the
interstate transportation facilities necessary to reach those markets be
provided on an open nondiscriminatory basis. FERC has also adopted
regulations intended to make intrastate natural gas transportation
accessible to gas buyers and sellers on an open nondiscriminatory basis
through procedures under which intrastate pipelines may participate in
certain interstate activities without becoming subject to FERC's full NGPA
jurisdiction. These orders have had a profound influence upon natural
gas markets in the United States and, among other things, have fostered the
development of a large short term or spot market for gas. The most
significant of these orders is Order 636.
FERC issued Order 636 in April 1992 to require further restructuring of
the sales and transportation services provided by interstate pipelines that
perform open access transportation. The changes were intended to improve the
competitive structure of the interstate natural gas pipeline industry
and to create a regulatory framework that put gas sellers into more direct
contractual relations with gas buyers. Order 636 required individual
pipeline service restructuring proceedings designed to "unbundle" the
services provided by interstate pipelines so that producers and purchasers of
natural gas may secure transportation and storage services from the most
economical source, whether interstate pipelines or other parties. These
initiatives have substantially reduced or eliminated the interstate pipelines'
traditional role as wholesalers of natural gas in favor of providing only
natural gas storage and transportation services.
Although Order 636 does not actually regulate gas producers, FERC has
stated that Order 636 is intended to foster increased competition within all
phases of the natural gas industry. It is unclear what impact, if any,
increased competition within the natural gas industry under Order 636 will
have on the Company as a producer. Furthermore, because the requirements of
Order 636 were only recently implemented through individual restructuring
proceedings on a pipeline-by-pipeline basis, it is impossible to predict what
effect, if any, Order 636 will have on the Company's gas marketing operations.
The increasing complexity of the energy regulatory environment has
prompted many producers, including the Company, to rely on highly specialized
experts for the conduct of gas marketing operations. The need for these
specialized services is expected to continue.
Energy Policy Act. The Energy Policy Act of 1992 (the "Energy Act") was
enacted to promote vehicle fuel efficiency and the development of renewable
energy sources such as hydroelectric, solar, wind and geothermal energy.
Other provisions of the Energy Act include initiatives for reducing
restrictions on certain natural gas imports and exports and for expanding and
deregulating natural gas markets. While these provisions could have a
positive impact on the Company's natural gas sales on a long term basis, any
positive impact could be offset by measures promoting the use of alternative
energy sources other than natural gas. The impact of the Energy Act on the
Company has not been material.
Environmental. The Company's activities are subject to various federal,
state and local laws and regulations designed to protect the environment. The
Company does not conduct activities offshore. Operations on the Company's
onshore properties may generally be liable for clean-up costs to the federal
government for up to $50 million for each discharge of oil or hazardous
substances under the Federal Clean Water Act, up to $350 million for each
oil discharge under the Oil Pollution Act of 1990 and for up to $50 million
plus response costs for hazardous substance contamination under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(Superfund).
<PAGE>
MINERAL HOLDINGS
General. The Company has interests in a number of properties more fully
described in "ITEM 2. PROPERTIES," none of which is in production. The
Company is seeking arrangements with third parties to sublease, joint
venture, or otherwise obtain third party financing for property holding costs
and ongoing exploration, where warranted.
The Company's exploration activities on each of its properties during
1995 were limited to surface reconnaissance and geology and related work to
satisfy the assessment work obligation to complete work having a value of at
least $100 per claim on the Company's unpatented mining claims as discussed
below. The Company does propose to conduct exploration on these properties
in the future.
Arizona Juno Resources, Inc. On March 31, 1995,the Company transferred
all of its interest in Arizona Juno Resources, inc. ("Arizona Juno") to
Richard V. Wyman, a former officer and director of the Company, which,
together with 67,400 restricted shares of the common stock of the Company, were
transferred in satisfaction of a debt owed to Mr. Wyman. At the same time,
the Company issued 5,000 restricted shares of its common stock to Arizona Juno
in payment of a debt owed to Arizona Juno. (See "ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS".)
Alaska Eldorado Gold Company. Alaska Eldorado Gold Company, a Nevada
corporation is a 100% subsidiary of the Company and holds title to 25
placer claims covering 1,440 acres located northeast of Nome, Alaska. There
is 5000 ounces of gold recoverable from the entire area of interest from
about 450,000 yards of material. The Company plans to do trenching
exploration during the 1996 season to further prove up additional gold reserves.
Great Eastern/Key West Prospects. The Great Eastern Prospect consists
of 8 unpatented claims located approximately 20 road miles south of the
town of Bunkerville, Clark County, Nevada. The prospect contains deposits of
copper, nickel and platinum on which several diamond drill holes were drilled
by the U. S. Bureau of Mines during World War II. These claims adjoin the Key
West patented group which contains a body of copper-nickel-platinum ore and
was a producer of platinum at one time. The Key West deposit has drill
indicated reserves of 233,400 tons. The Company is currently negotiating with
Falconbridge LTD to further explore the properties.
White Basin Gypsum Prospect. The White Basin Gypsum Prospect consists of
12 contiguous unpatented claims forming a 380 acre site and covering
large, high-quality gypsum outcrops. These beds of the Horse Springs formation
are 60 to 120 feet thick estimated to contain over 30 million tons of 85
percent gypsum, including considerable tonnage of 95 percent plus. The
gypsum claims are approximately 40 air miles east of Las Vegas, Nevada, 4
miles from the paved North Shore Road between Henderson and Overton, Nevada.
Another road gives access to Interstate 15 at a point 30 miles northeast of
Las Vegas, which is also on the main line of the Union Pacific Railroad.
<PAGE>
Eldorado Canyon Properties. In March 1994, the Company entered into an
agreement to sell to Nevada Pacific Mining Company, Incorporated, Las Vegas,
Nevada, an unaffiliated entity, the Eldorado Canyon property for a total of
$740,000, payable $50,000 in cash on signing the agreement, $100,000 on
March 1, 1995, $125,000 due and payable on February 15, 1996, $125,000 due
and payable on May 15, 1996, and the balance due by July 1, 1996. The unpaid
balance is secured by a deed of trust on the property.
South Utah Prospect. On April 15, 1994, The Company completed a sale of
the South Utah Prospect to Dotson Exploration, Milford, Utah, for $200,000,
$25,000 of which was paid on closing with $25,000 payable each calendar quarter
beginning January 1, 1995. Dotson Exploration has subsequently merged with
Centurion Mines. Exploration and development continues on these claims.
The South Utah Prospect consists of 37 patented claims which are contiguous and
form a single site containing approximately 720 acres located approximately
10 miles west of Milford, Utah. The prospect contains copper and molybdenum
mineralization. The Company has previously entered into an agreement with
Dotson Exploration, pursuant to which Dotson explored these claims by
sufficient trenching and drilling to interest another company in taking over
the property. This work was completed with 5,000 feet of drill holes. These
transactions were the result of arm's length negotiations.
Rights to Unpatented Mining Claims. Various federal and state laws impose
requirements designed to reduce the impact of exploration and other
field activities on the environment and to require the restoration of the
surface following such activities. Such regulations may restrict access to
certain areas, preclude significant surface disturbances without first
obtaining rights in the property or without first filing a proposed plan of
operations with the United States Bureau of Land Management or similar
application with the state or other authority if it has jurisdiction of the
area, and first obtaining all required consents. There is no assurance that
any requisite approvals can be obtained, that the Company's proposed plans
may not have to be modified in order to obtain the required approvals, or that
delays will not be encountered.
Unpatented mining claims, when properly located, staked, and posted
according to regulation, give the claimant possessory rights only. Possessory
title to an unpatented mining claim, when validly initiated endures unless lost
through abandonment due to failure to perform and file proof of annual
assessment work or through a forfeiture, which results from an examination of
the public record. The continuing validity of these claims is subject to many
contingencies, including the availability of land for location at the time the
location was made, the making of valid mineral discoveries within the boundary
of each claim, compliance with federal and state regulations for locating
claims, the performance of annual assessment work, and the making of required
annual filings with the Bureau of Land Management and the appropriate state
authority in which the claims are located. Failure to perform annual
assessment work subjects the claimant to forfeiture of rights through valid
subsequent locations by others or through cancellation by the government agency
involved.
The Company believes that it has valid possessory title to all of the
unpatented federal mining claims described herein although it has not completed
an in-depth title examination of any of its properties.
A 1993 statutory change authorized the promulgation of regulations
requiring annual assessment work on unpatented mining claims and established a
mandatory annual rental fee of $100 per claim for fiscal years 1994 and 1995
for each mining claim and site in lieu of the current annual assessment work
requirement. Failure to pay the required rental fee by the statutory deadline
constitutes a statutory abandonment of the mining claim or site.
Congress is currently considering various amendments to the 1872 General
Mining Law respecting unpatented mining claims that would impose a
royalty on production from such claims and contain other limitations or
requirements that, if enacted and applicable to the Company's unpatented
mining claims, would have a material adverse impact on the Company.
The foregoing changes in the laws and regulations affecting mining claims
were a major factor in the Company's previous decision to seek diversification
through the reorganization with the Company.
EMPLOYEES
The Company has five employees, including an executive officer and
director, all of whom are associated with the Company's oil and gas activities.
Of the five employees, one is salaried management personnel, two are
administrative, and two are field personnel. The Company also contracts with
two independent contractors for land research and field work.
ITEM 2. PROPERTIES
OIL AND GAS PROPERTIES
The Company's significant oil and gas properties are located in Gray,
Carson, Hutchinson, Roberts, Midland, and Wichita Counties in Texas, and
Bryan, Logan, Marshall, and Carter Counties in Oklahoma. Generally, production
is from depths of less than 4,500 feet. For additional information
about these properties, see financial statements.
In the oil and gas industry and as used herein, the word "gross" well or
acre is a well or acre in which a working interest is owned; the number of gross
wells is the total number of wells in which a working interest is owned. A
"net" well or acre is deemed to exist when the sum of fractional ownership
working interests in gross wells or gross acres equals one. The number of net
wells or acres is the sum of the fractional working interests owned in gross
wells or gross acres.
Well and Acreage
Shown below are tabulations of the productive wells and estimates of the
Company's net interest in total proved reserves of crude oil and condensate
and natural gas as of December 31, 1995, based on information prepared by an
independent petroleum engineer. All wells are located in the United States.
Productive Wells
Gross Net
Gas 5 1
Oil 186 65
Totals 191 66
Oil Gas
(BBLS) (MCF)
Balance, Jan. 1, 1994 23,000 1,495,000
Sale of minerals in place -- (70,000)
Revisions of previous estimates (10,000) (155,000)
Production (3,000) (100,000)
Balance, Dec. 31, 1994 10,000 1,170,000
Purchase of minerals in place 30,000 245,000
Conveyance of minerals in place
to limited partnership (25,000) (796,000)
Revisions of estimates (2,000) (363,000)
Production (2,000) (75,000)
Balance, Dec. 31, 1995 11,000 181,000
Proved developed reserves 11,000 181,000
The following table sets forth developed and undeveloped acreage owned by
the Company as of December 31, 1995.
Developed Acreage Undeveloped Acreage Total
Gross Net Gross Net Gross Net
Texas 6,380.48 1,653.30 9,078 1,684 15,458.48 3,134.30
Oklahoma 1,040 378.62 2,090 168 3,130 546.62
Totals 7420.48 2,031.92 11,168 1,852 18,588.48 3,680.92
Production
The following table summarized the net production owned by the Company and
produced to its interest, less production and royalties due others, for all
properties in which the Company had an interest during the periods indicated.
Year Ended December 31,
1995 1994
Average net daily production
Gas (mcf) 182 381.96
Oil (bbls) 27 4.08
Average sales price
Gas ($ per mcf) $1.59 $1.33
Oil ($ per bbl) $16.63 $15.59
The average production cost per mcf of gas and oil equivalent, which
includes lifting costs (electricity, fuel, water, disposal, repairs,
maintenance, pumper, transportation, and similar items), and production
taxes, were $0.86 for 1995, $0.74 for 1994, and $0.60 for 1993. To facilitate
comparisons, units of production are expressed in common units, with oil
converted to a common unit of gas production on the basis of one barrel of
oil for six mcf of gas.
The Company sells gas on a contract basis to one of several purchasers in
each of the areas in which it has productive gas wells. The Company sells
oil at posted field prices to one of several purchasers in each of the areas in
which it has productive oil wells.
Drilling Activities
The wells drilled by the Company during the periods indicated are
summarized in the following table.
Year Ended December 31,
1995 1994 1993
Geographic Area Gross Net Gross Net Gross Net
Development
Gas (mcf) __ __ 1 0.15 1 0.05
Oil (bbls) __ __ 1 0.12 -- --
Non-productive -- -- -- -- -- --
Totals -- -- 2 0.27 1 0.05
Exploratory
Gas -- -- -- -- -- --
Oil -- -- -- -- -- --
Non-productive -- -- -- -- -- --
Totals -- -- -- -- -- --
Mineral Properties
Summit and Coarse Gold Claims. Alaska Eldorado Gold Company, a Nevada
corporation is a 100% subsidiary of the Company and holds title to 25
placer claims covering 1,440 acres located northeast of Nome, Alaska, the Summit
and Coarse Gold claims. There is 5000 ounces of gold recoverable from the
entire area of interest from about 450,000 yards of material. The Company
plans to do trenching exploration during the 1996 season to further prove up
additional gold reserves.
Eldorado Canyon Properties. In March 1994, the Company sold the Eldorado
Canyon properties, held by the Company and by Arizona Juno.
The Eldorado Canyon Properties consist of 24 1/2 patented, 10 unpatented,
and 5 millsites forming two separate sites: (1) the main grouping consists of
17 1/2 patented, 10 unpatented, and 5 millsites covering approximately 710
acres; (2) 7 patented claims located in the Capital Camp area located 3
miles southeasterly of the main group of claims. All claims are in Clark
County, Nevada, within the Nelson or Eldorado Canyon Mining District,
approximately 25 miles south of Boulder City. Principal minerals produced by
others in the mining district are gold and silver.
The properties are crossed by the gravel road from Nelson to Searchlight,
Nevada. Single-phase electric power is on the property, and the Company owns
a water right to a well in Copper Canyon.
During the past 20 years, exploration has been done over most of the
property. Significant mineralization was found in two places: (1) Copper
Canyon, in which a body of copper mineralization was discovered, and (2) the
Blackhawk and Wall Street claims on which a gold/silver mineral deposit was
discovered. There is estimated to be blocked out surface accessible
gold/silver mineralization estimated at one million tons of a grade 0.06
ounces gold and 0.6 ounces silver per ton.
White Basin Gypsum Prospect. The White Basin Gypsum Prospect consists of
19 contiguous unpatented claims forming a 380 acre site and covering
large, high-quality gypsum outcrops. These beds of the Horse Springs
formation are 60 to 120 feet thick estimated to contain over 30 million tons
of 85 percent gypsum, including considerable tonnage of 95 percent plus.
The gypsum claims are approximately 40 air miles east of Las Vegas,
Nevada, 4 miles from the paved North Shore Road between Henderson and Overton,
Nevada. Another road gives access to Interstate 15 at a point 30 miles
northeast of Las Vegas, which is also on the main line of the Union
Pacific Railroad.
Great Eastern/Key West Prospects. The Great Eastern Prospect now
consists of 8 unpatented claims located approximately 20 road miles south of
the town of Bunkerville, Clark County, Nevada. The prospect contains
deposits of copper, nickel and platinum on which several diamond drill holes
were drilled by the U. S. Bureau of Mines during World War II. These claims
adjoin the Key West patented group which contains a body of copper-nickel-
platinum ore and was a producer of platinum at one time.
The Company formed an agreement with Nevada Nickel & Copper Company,
whose patented Key West group adjoins the Company's claims on the
west, to pool the properties and seek a lessee, with the two companies
splitting the proceeds 50-50.
The Company is currently negotiating an option agreement with
Falconbridge Ltd., of Toronto Canada, to further explore this area and to
possibly sell the properties to Falconbridge.
South Utah Prospect. The South Utah Prospect consists of 37 patented
claims, which are contiguous and form a single site containing approximately
720 acres located approximately 10 miles west of Milford, Utah. The prospect
contains copper and molybdenum mineralization.
On April 15, 1994, the Company completed a sale of the South Utah Prospect
to Dotson for $200,000, $25,000 of which was paid on closing with $25,000
payable each calendar quarter beginning January 1, 1995. The January and April
payments have been received. This transaction was the result of arm's length
negotiation.
Executive Offices
The Company's principal executive offices, consisting of approximately
2,700 square feet of office space located at 2351 West Northwest Highway,
Suite 2130, Dallas, Texas 75220, are rented from an unrelated party at a
current rate of $1,948.00 per month, under a lease expiring December, 31,
1998.
The Company also maintains a field operations office at Pampa, Texas.
ITEM 3. LEGAL PROCEEDINGS
The Company and B. Carl Price, its agent, were named as defendants in a
lawsuit in the United States District Court for the Northern District of
Texas captioned Midcon Gas Services Corporation v. Future Petroleum
Corporation, et al., C.A. 2-94-CV-204.
The general nature of the lawsuit is an allegation that the Company has
been, and continues to produce gas well gas and not casinghead gas from the
Gores Lease. The Company owns the rights and title to the oil and casinghead
gas. The plaintiffs, who purport to own right and title to the gas well gas,
seek to recover loss of revenues, loss of reserves, loss of employee time and
expenses, attorney's fees and to receive injunctive relief to prevent further
conversion of its gas.
The lawsuit was settled with no material effects to either party. The
terms of the settlement are confidential.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the
fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and is
quoted on the OTC Electronic Bulletin Board of the National Association of
Securities Dealers, Inc., under the symbol "FUPT". The following table sets
forth the high and low bid quotations for the Company's Common Stock
as reported on NASDAQ for the periods indicated, based on interdealer bid
quotations, without markup, markdown, commissions or adjustments (which may not
reflect actual transactions). The Company's Common Stock has traded on a very
limited basis during the preceding two years. In March 1994, the issued and
outstanding common stock of the Company was reverse split 6 to 1. All
quotations have been adjusted retroactive to give effect to this reverse split.
Bid Quotation
High Low
1994
Quarter ended March 31 $1.00 $0.125
Quarter ended June 30 $1.00 $0.25
Quarter ended September 30 $0.50 $0.125
Quarter ended December 31 $0.25 $0.125
1995
Quarter ended March 31 $0.25 $0.125
Quarter ended June 30 $0.1875 $0.125
Quarter ended September 30 $0.1875 $0.125
Quarter ended December 31 $0.1875 $0.125
As of May 29, 1996, immediately prior to the date of this report, the
Company's Stock was quoted on the OTC Electronic Bulletin Board at a
closing bid of $0.25.
On May 29, 1996, the Company had approximately 855 shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
General
Prior to August 1993, the Company was engaged primarily in the business
of mining for gold, silver, lead, zinc and gypsum and held several mining
properties. In August 1993, the Company acquired all of the issued and
outstanding stock of Future Petroleum Corporation ("Future"), which was
engaged in the acquisition and production of oil and gas reserves.
Management of the Company has determined to dispose of most of its mining
properties and concentrate on the oil and gas business previously conducted
by Future. The historical financial statements are those of Future combined
with Intermountain beginning in August 1993.
Liquidity and Capital Resources
General
The Company incurred consolidated net income of $58,000, and net income of
$24,000, for the years ended December 31, 1995 and 1994, respectively. At
December 31, 1995, the Company had working capital of $26,000, which was a
$367,000 reduction from the $393,000 working capital that the Company had as
of December 31, 1994. This reduction in working capital was due primarily to
the purchase of oil and gas properties for cash and notes payable.
The Company requires capital to continue with its acquisition of
producing oil and gas properties and drilling prospects as well as to
complete drilling on existing properties and to earn an interest in prospects
developed by others under standard industry farmout arrangements. The Company
has established a financial relationship through the limited partnership it has
formed through its subsidiary Future-Texas. The Company believes that
through the limited partnership it now has the ability to acquire producing
oil and gas properties as well as fund development drilling and uphole
recompletions as required.
The Company anticipates completing a drilling prospect and/or other
explorations during the next 12 months as well as acquiring additional
producing oil and gas properties. The Company believes that these projects
will be funded through the limited partnership it has formed through its
subsidiary Future-Texas.
Operating activities of the Company during 1995 provided net cash of
$3,000. Investing activities in 1995 used net cash of $23,000, primarily for
the purchase of producing oil and gas properties, offset by proceeds from
collection of notes for sale of mining properties.
Operating activities of the Company during 1994 required net cash of
$44,000. Such cash, was primarily related to repayment of accounts payable.
The Company paid $81,000 for the purchase of property and equipment during
1994, which was offset by proceeds from the sale of mining properties and
property and equipment during the year in the amount of $125,000, resulting
in net cash provided by investing activities of $44,000.
Results of Operations
1995 and 1994
Total revenues in 1995 declined to $245,000 from $284,000 in 1994,
primarily due to the reduction in prices received for the products being
sold as well as the sale of properties. Production costs increased slightly.
General and administrative expenses declined to $139,000 from $188,000 in
1994. Net income in 1995 increased to $58,000 from $24,000 in 1994, primarily
due to an increase in gains on sales of mining properties and to interest income
earned of $46,000 on notes receivable on the sales of those properties.
Inflation
The Company's activities have not been, and in the near term are not
expected to be, materially affected by inflation or changing prices in general.
The Company's oil exploration and production activities are generally affected
by prevailing prices for oil, however. (See ITEM 1. BUSINESS.")
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The table of contents of the financial statements and supplementary data
included in this report is contained in "ITEM 14. EXHIBITS REPORTS ON FORM 8-K".
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are no changes or disagreements with accountants on accounting and
financial disclosures.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Executive Officers and Directors
The following table sets forth the name, age and position of each executive
officer and director of the Company.
Name Age Position Term Expires
B. Carl Price 38 President,Secretary, Director 1997
Don Wm. Reynolds 69 Chairman of theBoard, Director 1997
Robert Price 67 Vice-President,Director 1996
D. William Reynolds, Jr. 35 Director 1996
Danny Matthews 34 Vice-President-Land,Director 1998
Charles D. Laudeman 33 Director 1998
The articles of incorporation of the Company provide that the board of
directors shall be divided into three classes of approximately equal size, with
the directors in each class elected for a three year term. Officers serve at
the pleasure of the board of directors. Biographical information for each of
the executive officers and directors is presented below:
B. Carl Price
B. Carl Price, product of the Business School at Oklahoma State University,
founded Future Petroleum Corporation in 1983. Mr. Price is the president, chief
executive officer, director, and largest shareholder in Future. The company
was established shortly after the oil and gas business had reached its peak in
the late 1970's and early 1980's. The intent was to initiate, manage, acquire,
and operate oil and gas ventures and properties, which he did with much
success. Since the company was established, Future has acquired several
producing properties, drilled numerous wells, including directional wells,
and has consummated many exploratory and development properties. His
management skills have enabled him to assemble a team of qualified Board of
Directors each with varied business, management, and political experience.
Together with teamwork, confidence, and knowledge, Carl Price is determined to
continue the rapid growth of Future Petroleum.
Don Wm. Reynolds
Don Wm. Reynolds, Chairman of the Board of Directors, graduated from Ohio
State University in 1952 with a degree in Geology. After several short
stints with Rowan Drilling Company and Geochemical Engineering Company, he
joined Union Oil Company of California in 1953 as a geologist. He retired
from Unocal in 1992 after almost 40 years. He served in various staff and
management positions in West Texas, New Mexico, Alaska, California and the
mid-continent. Mr. Reynolds assembled the second largest block of stock in
Future Petroleum Corporation in the fall of 1992. He joined the Board of
Directors as Chairman in 1993. Mr. Reynolds has been active in his
profession and has served on many local and national committees and held
office in geological societies in West Texas and California. He has been
recognized for his efforts and can be found listed in various editions of
Who's Who in the business world.
Robert Price
Robert Price is vice-president of Future Petroleum and a member of the
Board of Directors. He received a Bachelor's Degree from Oklahoma State
University. Mr. Price owns and operates a working farm and cattle ranch
in the Texas Panhandle near Pampa, Texas. He, like his son Carl Price, has
been active in the oil and gas industry for over ten years. He is a
meticulous man who pays close attention to detail when overseeing many field
operations. His knowledge of the Texas Panhandle area has been crucial for
optimum drilling sights and exploratory developments. Before his success as
an oilman and cattle rancher, Mr. Price was a fighter pilot in the Korean War
where he flew 27 combat missions. He later went on to serve his country as
a United States Congressman and furthered his political career as a Texas
State Senator in Austin, Texas. His civic and social status in the
Oklahoma/Texas region has proved to be both beneficial and advantageous for
Future Petroleum.
D. William Reynolds, Jr.
D. William Reynolds, Jr. a member of the board of directors, is the founder
and president of Intelligent Financial Perspective, Inc. in Austin, Texas.
The corporation is a client server software development and technology
consulting firm specializing in financial applications. Prior to starting his
own business in 1989, Mr. Reynolds was a management consultant for more than
six years. He served on two nationwide consulting firms specializing in the
financial services industry. Mr. Reynolds earned a Bachelor's Degree in
Finance from the University of California at Berkeley. Continuing his
education, he went to The University of Texas at Austin where he earned his
M.B.A. degree in Information Systems Management, and where he now holds a
faculty position in the graduate school of business.
Danny Matthews
Danny Matthews, a member of the board of directors, joined Future
Petroleum as vice president of land in 1991. He graduated from Texas A&M with a
Bachelor of Science Degree. Among his credentials, Mr. Matthews served as an
independent landman for seven years. His territory covered vast regions of
Texas, Oklahoma, and Louisiana. Mr. Matthews specializes in divestments and
acquisitions of producing properties and minerals. His background includes
mineral research for engineering firms, consulting for small public
companies, and investor relations. In addition, he is involved with a family
ranching business. He has been a field director and classifier for top
international breeders. His insight to the oil and gas industry has made him
irreplaceable among colleagues, clientele, and Future Petroleum.
Charles D. Laudeman
Charles D. Laudeman, a member of the board of directors, is presently a
Gas Marketing Manager for Howell Petroleum Corporation, Houston, Texas. His
responsibilities include the direct marketing of Howells' gas and third party
gas, as well as identifying natural gas asset opportunities. He graduated
from Southern California University with a Bachelor of Arts Degree in
International Relations. A key accomplishment that Mr. Laudeman has been
able to provide for Future is market support and analysis of producers,
endusers and marketers of natural gas. He is an affiliate of the Natural Gas
Association of Houston, New Orleans and Oklahoma.
B. Carl Price is the son of Robert Price, and D.William Reynolds, Jr. is
the son of Don Wim. Reynolds.
Compliance with Section 16(a) of the Exchange Act Based solely upon a
review of forms 3, 4 and 5 and amendments thereto, furnished to the Company
during or respecting its last fiscal year, no director, officer, beneficial
owner of more than 10% of any class of equity securities of the Company or any
other person known to be subject to Section 16 of the Exchange Act failed to
file on a timely basis reports required by Section 16(a) of the Exchange Act
for the last fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
Executive Officer Compensation
The following table sets forth, for each of the last two fiscal years,
cash compensation received by any person serving as chief executive officer
of the Company during the last preceding fiscal year and any of the four
remaining most highly compensated other executive officers whose salary and
bonus for all services in all capacities exceeded $100,000 for the most
recent fiscal year.
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h (i)
Other Securities All Other
Annual Restricted Underlying Compen-
Year Compen- Stock Options/ LTIP sation
Name and Ended Salary Bonus sation Award(s) SARs Payouts
Position Dec. 31 ($) ($) ($) ($) (#) ($) ($)
B. Carl Price, 1995 $12,000 -- $35,000(1) -- -- -- --
(CEO)
President, Director
1994 $8,000 -- $31,000(2) -- -- 150,000 --
(1) During 1995, Price Oil & Gas Co., which is a company owned by Mr. Price
was paid $35,000 for consulting services provided to the Company.
(2) During 1994, Mr. Price was paid $31,000 as an independent contractor.
On February 25, 1994, the Company granted to B. Carl Price and Danny
Matthews five year options to purchase 150,000 and 100,000 shares,
respectively, at $0.267 to Mr. Price (at 110% of the market price) and $0.243
per share to Mr. Matthews, based on the approximate market price of the
Company's common stock on the date of grant. On October 17, 1994, Mr. Price
exercised options to acquire 112,280 shares for cancellation of a debt owed
to a company owned by Mr. Price in the amount of $29,979.
Option/SAR Grants in Last Fiscal Year
The following tables sets forth information respecting all individual
grants of options and stock appreciation rights ("SARs") made during the fiscal
year ended December 31, 1995, to the named executive officers of the Company.
(a) (b) (c) (d) (e)
Number of % of Total
Securities Option/SARs
Underlying Granted to Exercise or
Option/SARs Employees During Base Price Expiration
Name Granted (#) Fiscal Year ($/share) Date
B. Carl Price -- -- -- --
No stock options were issued in 1995.
Aggregate Option/SAR Exercises in Last Fiscal Year and Year End
Option/SAR Values
The following table sets forth information respecting the exercise of
options and SARs during the fiscal year ended December 31, 1995, by the named
executive officer of the Company and the fiscal year end values of unexercised
options and SARs.
(a) (b) (c) (d) (e)
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs at
Options/SARS at FY FY End ($)
End (#)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
B. Carl Price -(1)- -- 37,720 --
(1) Options to purchase 150,000 shares of Common Stock at any time
through February 25, 1999, at an exercise price of $0.267 per share, payable
in cash, pursuant to a promissory note, by delivery of shares of the Company
stock, or by the cancellation of options. The terms of these options
were not determined in arm's length negotiations.
Directors Compensation
The Company has no arrangements for compensation of its directors and
does not intend to compensate the directors in the immediate future.
Employment Agreements, Deferred Salary and Benefits
The Company does not have employment contracts, deferred salary or other
benefit arrangements with its officers or directors.
Stock Option and Award Plan
The Company has adopted, and the shareholders have approved, a 1993
Employee Incentive Plan (the "Plan") intended to advance the interests of
the Company by attracting competent executive personnel and other employees,
ensuring the retention of the services of existing executive personnel
and employees, and providing incentives to all of such personnel to devote
the utmost effort and skill to the advancement and betterment of the Company
by permitting them to participate in the ownership of the Company and thereby
permitting them to share in increases in the value of the Company which they
will help to produce.
The Plan is administered by the board of directors or a committee
appointed from time to time by the board of directors. Under the Plan, the
board or duly appointed committee may grant stock options, which may be
incentive stock options ("ISOs") as defined in the Internal Revenue Code (the
"Code"), or options which do not qualify as ISOs, to directors and employees of
the Company who, in the opinion of the board or committee, are expected to
contribute materially to the Company's success in the future. All employees of
the Company are eligible to participated in the Plan. A maximum of 800,000
shares, subject to adjustment for certain events of dilution, are available for
grant under the Plan, provided, however, that in no event may the aggregate
fair market value of shares of the Company's common stock with respect to
which and ISO is exercisable for the first time in any calendar year exceed
$100,000.
The exercise price of options granted under the Plan may not be less than
100% of the fair market value of the Company common stock on the date the option
is granted in the case of ISOs (110% of the fair market value in the case of 10%
stockholders). All ISOs granted under the Plan shall expire not later than ten
years from the date of grant (5 years in the case of ISOs granted to 10%
stockholders), and all nonqualified options shall expire at such date as the
board or a duly appointed committee shall determine. The option price may be
paid by cash or, at the discretion of the board or a duly appointed
committee, by delivery of common stock or options already owned by the
optionee (valued at their fair market value at the date of exercise), or a
combination thereof.
The aggregate number of shares of common stock with respect to which
options may be granted under the Plan, the number of shares thereof covered by
each outstanding option, and the purchase price per share thereof in each
such option, shall be adjusted for any increase or decrease in the number
of issued shares of common stock of the Company resulting from a
recapitalization, reorganization, merger, consolidation, exchange of shares,
stock dividend, stock split, reverse stock split, or other subdivision or
consolidation of shares or other increase or decrease in such shares effected
without receipt by the Company of consideration approved by the board of
directors of the Company (an "Event of Dilution"), in amounts to prevent
substantial dilution or enlargement of rights granted to or available for
eligible employees. In the case of an ISO, the ratio of the option price to
the fair market value of the stock subject to the option immediately after the
change must not be more favorable to the optionee on a share by share
comparison than the ratio of the old option price to the fair market value of
the stock subject to the option immediately before such transaction. All
such adjustments shall be made by the board or a duly appointed committee,
whose good faith determination shall be binding absent manifest error.
The board of directors of the Company may from time to time alter,
amend, suspend, or discontinue the Plan with respect to any shares of common
stock as to which options have not been granted. However, no such alteration
or amendment (unless approved by the stockholders) shall (a) increase (except in
the case of an Event of Dilution) the maximum number of shares for which
options may be granted under the Plan either in the aggregate or to any
eligible employee; (b) reduce (except in the case of an Event of Dilution)
the minimum option prices which may be established under the Plan;
(c) extend the period or periods during which options may be granted or
exercised; (d) materially modify the requirements as to eligibility for
participation in the Plan; (e) change the provisions of the preceding
paragraph relating to Events of Dilution; or (f) materially increase the
benefits accruing to the eligible employees under the Plan.
On February 25, 1994, the Company granted to B. Carl Price and Danny
Matthews five year options to purchase 150,000 and 100,000 shares,
respectively, at $0.267 per share (110% of the approximate market price of
the Company's common stock on the date of grant) to Mr. Price and at
$0.243 per share (100% of the market price of the Company's common stock on
the date of grant) to Mr. Matthews. The company has issued no other options
or stock awards under the Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 29, 1996, the outstanding
Common Stock of the Company owned of record or beneficially by each person
who owned of record, or was known by the Company to own beneficially, more
than 5% of the Company's 3,426,903 shares of Common Stock issued and
outstanding, and the name and share holdings of each officer and director and
all of the officers and directors as a group:
Nature of Number of
Name of Person or Group Ownership(1) Shares Owned Percent
Principal Shareholders
B. Carl Price Direct 1,063,317 31.0%
2351 W. Northwest Highway Options 37,720 1.1%
Suite 2130 Total 1,101,037 32.1%
Dallas, TX 75220
Don Wm. Reynolds Direct 403,289 11.8%
206 Rock Street
Bowie, TX 76230
Maxcine Denton Direct 267,558 7.8%
3114 Classen Boulevard
Oklahoma City, OK 73118
Richard V. & Anne Wyman Direct 192,906 5.6%
Revocable Trust, Dated 8/19/80
P.O. Box 4073
Boulder City, NV 89006
Directors
B. Carl Price --------------------See Above----------------------
Don Wm. Reynolds --------------------See Above-----------------------
Robert D. Price Direct(2) 96,835 2.8%
D. William Reynolds, Jr. Direct 333 0.0%
Danny Matthews Direct 100 0.0%
Options 100,000 2.9%
Total 100,100 2.9%
Charles D. Laudeman Direct 833 0.0%
All Executive Officers Direct 1,564,707 45.6%
and Directors as a Group Options 137,720 4.0%
(6 people) Total 1,702,427 49.6%
(1) Shares owned directly are owned beneficially and of record, and such
record shareholder has sole voting, except as provided herein, investment
and dispositive power.
(2) 15,409 of the shares held by Mr. Price are held jointly with his wife,
Martha Ann Price.
B. Carl Price is the son of Robert Price, and D. William Reynolds, Jr.
is the son of Don Wm. Reynolds.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reverse Stock Split
On March 14, 1994, the Company effected a six-to-one reverse stock split
of the issued and outstanding shares of the Company's common stock.
Immediately prior to the reverse stock split, the Company had 19,146,191
shares of common stock issued and outstanding, which were reduced to
3,191,032 shares after the reverse stock split.
Certain Loans
In March 1994, the Company and Arizona Juno entered into an agreement to
sell the Eldorado Canyon property for a total of $740,000, 60% of which,
or $444,000, is allocable to the Company and 40% of which, or $296,000, is
allocable to Arizona Juno. (See "ITEM 1. BUSINESS: Mineral Holdings:
Arizona Juno Resources, Inc.") Subsequently, on March 31, 1995, the Company
issued 5,000 restricted shares of common stock to Arizona Juno in cancellation
of its debt owed to Arizona Juno and exchanged its interest in Arizona Juno and
issued 67,400 restricted shares of common stock of the Company to Richard V.
Wyman in cancellation of the amounts owed to Mr. Wyman.
Price Lease
In November 1990, the Company entered into a lease with Robert D. Price,
an officer and director of the Company, and Martha Ann Price, his wife,
respecting the Price Ranch prospect, consisting of 8,388 acres on thirteen
tracts of land in Gray, Roberts, Hutchinson and Carson Counties, Texas. The
term of the lease is for 10 years, subject to an extension for an additional
ten years at the option of the Company. A royalty of 1/8 of the oil and gas
produced from the wells drilled on the property is reserved to the lessors,
as well as a shut-in royalty after the expiration of the primary term of
$1.00 per acre subject to the lease if the Company performs no operations on
the property or all wells drilled thereon are shut-in for a period of 90
consecutive days. (See "ITEM 1. BUSINESS: Oil and Gas Holdings: Price
Ranch Prospect".)
ITEM 13. EXHIBITS REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following statements are included in
this report:
Title of Document Page
Independent Auditor's Report F-1
Consolidated Balance Sheet as of December 31, 1995 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1995 and 1994 F-4
Consolidated Statement of Changes in Stockholders' Equity for the
Period from January 1, 1994, through December 31, 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
(a)(3) Exhibits. The following exhibits are included as part of this report.
(See exhibit index in separate exhibit volume):
SEC
Exhibit Reference
Number Number Title of Document Location
Item 2. Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
2.01 2 Acquisition Agreement between the Company, Future Incorporated by
Acquisition Corp., and Future Petroleum Corporation Reference(1)
date July 14, 1993
2.02 2 Articles of Merger of Future Petroleum Corp. with Incorporated by
and into Future Acquisition, Inc. effective Reference(1)
September 16, 1993
Item 3. Articles of Incorporation and Bylaws
3.01 3 Articles of Restatement of the Articles
of Incorporation Incorporated by
Reference(2)
3.02 3 Bylaws Incorporated by
Reference(2)
Item 10. Material Contracts
10.01 10 Oil, Gas and Mineral Lease dated 11/1/90 Incorporated by
between the Company and Robert D. Reference(2)
Price and Martha Ann Price relating to the
lease of the Price Ranch
10.03 10 Acquisition Agreement and related Promissory
Note and Deed of Trust dated March 4, 1994 Incorporated by
related to Eldorado Canyon property Reference(2)
10.05 10 Letter Agreement dated effective March 31, 1994, Incorporated by
between the Company and Richard V. Wyman Reference(2)
relating to the transfer of interest in Arizona
Juno Resources, Inc., and issuance of common
stock in cancellation of indebtedness
10.06 10 Acquisition Agreement dated April 15, 1994,
relating to the sale of the Incorporated by
South Utah prospect Reference(2)
Item 21. Subsidiaries of the Registrant
21.01 21 Schedule of Subsidiaries This Filing
(1) Incorporated by reference from the Company's current report on form 8-K
dated September 16, 1993.
(2) Incorporated by reference from the Company's annual report on form 10-K
for the fiscal year ended December 31, 1994.
* Indicated management contract or compensatory plan or arrangement
required to be filed as an exhibit.
(b) Reports on Form 8-K.
During the last quarter of the fiscal year ended December 31, 1995, the
Company did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, Registrant has duly caused this amendment to its annual report on form
10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized,
this 29th day of May, 1996.
FUTURE PETROLEUM CORPORATION
(Registrant)
By /s/ B. Carl Price
B. Carl Price, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this form 10-KSB was signed by the following persons in the capacities
stated on the 29th day of May, 1996.
/s/ B. Carl Price
B. Carl Price, President, Secretary and Director
(chief executive and principal financial and accounting officer)
/s/ Don Wm. Reynolds
Don Wm. Reynolds, Director (Chairman of the Board)
/s/ Robert D. Price
Robert D. Price, Vice-President, Director
/s/ D. William Reynolds, Jr.
D. William Reynolds, Jr., Director
/s/ Danny Matthews
Danny Matthews, Vice-President-Land, Director
/s/ Charles D. Laudeman
Charles D. Laudeman, Director
Date Filed: May 29, 1996 SEC File No. 0-8609
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
EXHIBITS
TO
ANNUAL REPORT ON FORM 10-KSB
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------
FUTURE PETROLEUM CORPORATION
<PAGE>
EXHIBIT INDEX
SEC
Exhibit Reference
Number Number Title of Document Location
Item 2. Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
2.01 2 Acquisition Agreement between the Company, Incorporated by
Future Acquisition Corp., and Future Reference(1)
Petroleum Corporation date July 14, 1993
2.02 2 Articles of Merger of Future Petroleum Corp Incorporated by
and into Future Acquisition, Inc. with Reference(1)
effective September 16, 1993
Item 3. Articles of Incorporation and Bylaws
3.01 3 Articles of Restatement of the Articles Incorporated by
of Incorporation Reference(2)
3.02 3 Bylaws Incorporated by
Reference(2)
Item 10. Material Contracts
10.01 10 Oil, Gas and Mineral Lease dated 11/1/90 Incorporated by
between the Company and Robert D. Price Reference(2)
and Martha Ann Price relating to the lease
of the Price Ranch
10.03 10 Acquisition Agreement and related Incorporated by
Promissory Note and Reference(2)
Deed of Trust dated March 4, 1994,
related to Eldorado Canyon property
10.05 10 Letter Agreement dated effective
March 31, 1994, between the Company Incorporated by
and Richard V. Wyman relating to Reference(2)
the transfer of interest in Arizona
Juno Resources, Inc., and issuance of
common stock in cancellation of indebtedness
10.06 10 Acquisition Agreement dated April15, 1994,
relating to the sale of the South Utah Incorporated by
prospect Reference(2)
Item 21. Subsidiaries of the Registrant
21.01 21 Schedule of Subsidiaries This Filing
(1) Incorporated by reference from the Company's current report on form 8-K
dated September 16, 1993.
(2) Incorporated by reference from the Company's annual report on form 10-K
for the fiscal year ended December 31, 1994.
* Indicated management contract or compensatory plan or arrangement
required to be filed as an exhibit.
(b) Reports on Form 8-K.
During the last quarter of the fiscal year ended December 31, 1995, the
Company did not file any reports on Form 8-K.
<PAGE>
EXHIBIT 21.01
SCHEDULE OF SUBSIDIARIES
<PAGE>
SCHEDULE OF SUBSIDIARIES
SUBSIDIARY STATE OF ORGANIZATION
ALASKA ELDORADO GOLD COMPANY NEVADA
FUTURE PETROLEUM CORPORATION TEXAS
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Future Petroleum Corporation
We have audited the accompanying consolidated balance sheet of Future
Petroleum Corporation as of December 31, 1995, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
the years ended December 31, 1995 and 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Future Petroleum
Corporation as of December 31, 1995, and the results of its operations and
cash flows for the years ended December 31, 1995 and 1994, in conformity with
generally accepted accounting principles.
HEIN + ASSOCIATES LLP
May 3, 1996
Dallas, Texas
<PAGE>
<TABLE>
FUTURE PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<S>
CURRENT ASSETS: <C>
Notes receivable $ 366,000
Trade accounts receivable, no allowance for doubtful
accounts considered necessary:
Joint interest billings 38,000
Accrued oil and gas sales 90,000
________
Total Current Assets 494,000
PROPERTY AND EQUIPMENT:
Proved oil and gas properties, using the full cost method of
accounting 110,000
Investment in oil and gas partnership 754,000
Other 43,000
________
Total Property and Equipment 907,000
Less accumulated depletion, depreciation,
amortization and impairment (69,000)
--------
Net Property and Equipment 838,000
OTHER ASSETS:
Mining properties held for sale 40,000
Other 2,000
________
TOTAL ASSETS $ 1,374,000
-Continued-
<FN>
</TABLE>
<PAGE>
<TABLE>
FUTURE PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET, continued
DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> CURRENT LIABILITIES: <C>
Trade accounts payable $ 117,000
Accrued oil and gas proceeds payable 80,000
Advances from related party 6,000
Deferred gain 112,000
Note payable and current portion of long-term debt 153,000
__________
Total Current Liabilities 468,000
LONG-TERM DEBT 26,000
COMMITMENT (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 200,000 shares authorized,
no shares issued --
Common stock, $.01 par value, 30,000,000 shares authorized,
3,426,903 shares issued and outstanding 35,000
Additional paid-in capital 1,016,000
Accumulated deficit (171,000)
_________
Total Stockholders' Equity 880,000
_________
Total Liabilities and Stockholders' Equity $ 1,374,000
<FN>
See accompanying notes to these financial statements.
</TABLE>
<TABLE>
FUTURE PETROLEUM CORPORATION
CONSOLIDATED Statement of Operations
YEARS ENDED DECEMBER 31,
1995 1994
REVENUES: <C> <C>
Oil and gas sales $ 167,000 $182,000
Well operation fees 77,000 93,000
Other 1,000 9,000
___________ ________
Total Revenues 245,000 284,000
COSTS AND EXPENSES:
Lease operations and production taxes 145,000 136,000
General and administrative 139,000 188,000
Depletion, depreciation and amortization 66,000 42,000
Interest 1,000 --
__________ ________
Total Expenses 351,000 366,000
OTHER INCOME:
Gain on sale of assets 82,000 58,000
Equity in loss of investee (2,000) --
Interest income 46,000 36,000
Miscellaneous income 38,000 12,000
_________ ________
164,000 106,000
NET INCOME $ 58,000 24,000
NET INCOME PER COMMON SHARE $ 0.02 $ 0.02
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,379,000 3,269,000
See accompanying notes to these financial statements.
<FN>
</TABLE>
<PAGE>
<TABLE>
FUTURE PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1994
THROUGH DECEMBER 31, 1995
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL
------------------ --------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 3,191,032 32,000 827,000
SHARES ISSUED IN PARTIAL
SATISFACTION OF DEBT
RETIREMENT 72,400 1,000 112,000
SHARES ISSUED FOR LIABILITY
RETIREMENT 112,280 1,000 28,000
OTHER 1,191 -- --
NET INCOME -- -- --
------------------- ------------------
BALANCE AT DECEMBER 31, 1994 3,376,903 34,000 967,000
SHARES ISSUED FOR OIL &
GAS PROPERTIES 50,000 1,000 49,000
NET INCOME -- -- --
------------------- ------------------
BALANCE AT DECEMBER 31, 1995 3,426,903 $ 35,000 $1,016,000
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
BALANCE AT JANUARY 1, 1994 (253,000) 606,000
SHARES ISSUED IN PARTIAL
SATISFACTION OF DEBT
RETIREMENT -- 113,000
SHARES ISSUED FOR LIABILITY
RETIREMENT -- 29,000
OTHER -- --
NET INCOME 24,000 24,000
----------- ------------
BALANCE AT DECEMBER 31, 1994 (229,000) 772,000
SHARES ISSUED FOR OIL
AND GAS PROPERTIES -- 50,000
NET INCOME 58,000 58,000
---------- ------------
BALANCE AT DECEMBER 31, 1995 $(171,000) $880,000
<FN>
See accompanying notes to these financial statements.
(/TABLE)
<PAGE>
</TABLE>
<TABLE>
FUTURE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASHFLOWS
YEARS ENDED DECEMBER 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVATES:
Net Income $ 58,000 24,000
Adjustments to reconcile to net cash from
operations:
Depreciation, depletion, and amortization 66,000 42,000
Gain on sale of assets (82,000) (58,000)
Change in trade accounts receivable (90,000) (8,000)
Change in accounts payable and accrued
liabilities 46,000 (42,000)
Change in related party payable 6,000 --
Other (1,000) (2,000)
---------- --------
Net cash provided (used) by operations 3,000 (44,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (200,000) (81,000)
Proceeds from sale of mining properties and
collection of associated notes receivable 185,000 100,000
Additions to mining properties (8,000) --
Proceeds from sale of property and equipment -- 25,000
--------- --------
Net cash provided (used) by investing activities (23,000) 44,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (6,000) --
Increase in overdrafts payable 26,000 --
-------- -------
Net cash provided by financing activities 20,000 --
NET CHANGE IN CASH -- --
CASH AND CASH EQUIVALENTS, beginning of year $ -- $ --
CASH AND CASH EQUIVALENTS, end of year $ -- $ --
SUPPLEMENTAL INFORMATION -
Cash paid during the period for interest $ 1,000 $ --
<FN>
NON-CASH INVESTING AND FINANCING ACTIVATES - In 1995, the Company acquired oil
and gas properties for notes payable of $185,000 and common stock valued
at $50,000.
In 1994, the Company exchanged a liability of $29,000 due a related party for
common stock and also exchanged a note payable of $191,000 for common stock
and an investment in a Company with a $78,000 carrying value.
</TABLE>
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Operations
Future Petroleum Corporation (the Company or FPC) is engaged
primarily in the acquisition, development and production of oil
and gas reserves and operation of oil and gas wells for third
parties.
In August 1993, FPC completed a reverse acquisition of
Intermountain Exploration Corporation (Intermountain) through a
stock exchange in which Intermountain obtained 100% of FPC's
common stock and FPC's stockholders received 85% of
Intermountain's common stock.
The accompanying financial statements include the accounts of the
Company and its wholly-owned subsidiaries Alaska Eldorado Gold
Company and Future Petroleum Corporation of Texas. Intercompany
accounts and transactions are eliminated in consolidation.
Investment in Mining Company
The Company owned 38% of Arizona Juno Resources, Inc. (Arizona
Juno) which was accounted for on the equity method. The
investment in Arizona Juno, which had a carrying value of $78,000
at December 31, 1993, primarily represented mining properties
carried at the lower of cost or market and which were held for
sale. The investment was exchanged for retirement of debt in
1994 as explained in Note 6.
Oil and Gas Properties
The Company uses the full cost method of accounting for its oil
and gas properties. The Company's operations are all located in
the continental United States, primarily Texas and Oklahoma, and
therefore, its costs are capitalized in one cost center. Under
the full cost method, all costs related to the acquisition,
exploration or development of oil and gas properties are
capitalized into the "full cost pool". Such costs include those
related to lease acquisitions, drilling and equipping of
productive wells, dry holes and abandonments, delay rentals,
geological and geophysical work and certain internal costs
associated with the acquisition, exploration or development of
oil and gas properties. During the years ended December 31,
1995, and 1994, internal costs capitalized into the full cost
pool were approximately $94,000 and $60,000 respectively. Upon
the sale or disposition of oil and gas properties, no gain or
loss is recognized, unless such adjustments of the full cost pool
would significantly alter the relationship between capitalized
costs and proved reserves.
The Company has an investment in a partnership, which is
described in Note 4. The investment is accounted for by the
equity method and accordingly the Company adjusts the carrying
value of the investment by its share of the partnership's
earnings or losses. In addition, the Company adjusts the carrying
value of the investment for any contributions or distributions to
or from the partnership. Since the partnership's assets are
predominantly oil and gas properties, the Company includes the
investment with property and equipment on its balance sheet and
includes the investment in the "full-cost ceiling test" described
below.
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the full-cost method of accounting, a "full-cost ceiling
test" is required wherein net capitalized costs of oil and gas
properties cannot exceed the present value of estimated future
net revenues from proved oil and gas reserves, discounted at 10%,
less any related income tax effects.
Depletion, depreciation, and amortization of oil and gas
properties is computed using the unit-of-production method based
on estimated proved oil and gas reserves. Depletion,
depreciation and amortization per equivalent mcf of natural gas
was approximately $.70 and $.32 for the years ended December 31,
1995 and 1994, respectively.
Mining Properties Held for Sale
Mining properties held for sale are recorded at the lower of cost
or estimated net realizable value.
Other Property
Other property and equipment consists of office furniture and
fixtures which are carried at cost. Depreciation is
provided using the straight-line method over estimated useful
lives ranging from five to ten years. Gain or loss on retirement
or sale or other disposition of assets is included in income in
the period of disposition.
Impact of Recently Issued Pronouncements
The Financial Accounting Standards Board (FASB) has issued
Statement No. 121, "Accounting for Impairments of Long-Lived
Assets". The Company intends to adopt this standard in 1996.
Management believes it will not have a material impact on the
Company's financial statements. The FASB has also issued
Statement No. 123, "Accounting for Stock-Based Compensation". The
Company will adopt this standard in 1996, also. At this time,
management anticipates it will continue accounting for stock
based compensation in 1996 under guidance provided by the
existing standard but will provide pro forma disclosures as
allowed by Statement No. 123.
Income Taxes
The Company accounts for its income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". SFAS 109 requires that deferred
income taxes be recorded for the temporary differences between
the tax and financial statement bases of assets and liabilities
and adjusted when new tax rates are enacted.
Net Income Per Common Share
Net income per common share is based on the weighted average
number of common shares outstanding. Common stock equivalents in 1995 and
1994 were anti-dilutive.
Statement of Cash Flows
For purposes of reporting cash flows, the Company considers cash
and unrestricted interest bearing deposits with original
maturities of three months or less to be cash equivalents.
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates and Certain Significant Estimates
The preparation of the Company's financial statements in
conformity with generally accepted accounting principles
requires the Company's management to make estimates and
assumptions that affect the amounts reported in these financial
statements and accompanying notes. Actual results could differ
from those estimates. Significant assumptions are required in the
valuation of proved oil and gas reserves, which as described
above may affect the amount at which oil and gas properties are
recorded. It is at least reasonably possible those estimates
could be revised in the near term and those revisions could be
material.
2. NOTES RECEIVABLE
Notes receivable at December 31, 1995 consisted of the following:
Note receivable from purchaser of mining property,
interest at 8% payable monthly, collateralized by deed
of trust on the property. Payments of $75,000 each
are due on February 15, 1996 and May 15, 1996 with
unpaid principal and interest due July 1, 1996. $ 295,000
Non-interest bearing note receivable from purchaser of
mining property; interest imputed at 10%; collateralized
by deed of trust on the property, quarterly payments
of $25,000 through July 1, 1996. 71,000
$ 366,000
The notes receivable arose from the sale of mining
properties during 1994. Due to the terms of the sales,
gains of $112,000 and $194,000 were deferred and are recorded as
a liability at December 31, 1995 and 1994, respectively.
The gains will be taken into income as the notes are collected.
3. RELATED PARTY TRANSACTIONS
As of December 31, 1995, the Company has trade accounts
receivable and accrued oil and gas proceeds payable of
approximately $21,000 and $61,000, respectively, due from and to
Future Acquisitions 1995, Ltd.
Additionally, as of December 31, 1995, the Company owes a company
owned by the President of the Company approximately
$23,000 for accrued consulting fees and operating advances. The
operating advances of $6,000 are short-term, non-interest
bearing, uncollateralized obligations of the Company.
4. INVESTMENT IN PARTNERSHIP
In December 1995, the Company contributed a substantial portion
of its oil and gas properties to Future Acquisition 1995, Ltd., a limited
partnership in which the Company is the general partner. The partnership has
two limited partners, which contributed cash to the partnership to be used in
the acquisition and development of oil and gas properties.
Revenues and costs and expenses are generally
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
allocated 15% to the Company and 85% to the limited partners until
the limited partners have recovered their investment and a 20% return
as defined in the agreement. After that point, the Company is
allocated 75% of revenues and costs and expenses. Certain
acquisition and development costs are allocated 100% to the
limited partners.
The partnership is required to maintain certain minimum coverage
ratios of proved and proved producing reserves in relation
to the limited partner's investment. If the coverage ratios are
not maintained, the allocation of revenues will be
adjusted, as defined in the agreement, such that the Company's
share of revenues would be reduced to not less than 1%.
The Company accounts for its investment in the partnership on the
equity method as described in Note 1. The contribution
of the oil and gas properties was recorded at book value. The
excess of the carrying value of the Company's investment over the
Company's share of the underlying net assets is accounted for as
oil and gas properties and amortized in relation to the depletion
of the partnership's reserves.
Summarized financial information of the partnership at December
31, 1995 and the period from its inception to December 31,
1995 is as follows:
Current Assets $ 123,000
Oil and gas properties, net 1,815,000
Organization costs 118,000
Total Assets $ 2,056,000
Current Liabilities $ 132,000
Partners' capital 1,924,000
Total Liabilities and Capital $ 2,056,000
Oil and Gas Sales $ 53,000
Expenses (66,000)
Net Loss $ (13,000)
5. NOTES PAYABLE AND LONG-TERM DEBT
During 1995, the Company entered into a note payable in
connection with the acquisition of certain oil and gas
properties. The note bears interest at 8%, requires principal
payments of $70,000 in March and June 1996 and is
collateralized by 140,000 shares of the Company's restricted
common stock. The entire balance of $140,000 is classified as a
current liability at December 31, 1995.
Long-term debt at December 31, 1995 consisted of a note payable
of $39,000 due in monthly installments of $1,421, including
interest at 8% through July 1998. Maturities of long-term debt
for the years ending December 31, are as follows:
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1996 $ 13,000
1997 15,000
1998 11,000
----------
$ 39,000
6. STOCKHOLDERS' EQUITY
The Company has 200,000 shares of preferred stock authorized with
a par value of $.01. No shares were issued or outstanding at
December 31, 1995. The preferred shares may be issued in series
with the relative right and preferences designated by the Company's
board of directors.
In 1995, the Company issued 50,000 shares of common stock valued
at $50,000 in connection with the purchase of certain oil and gas
properties. Additionally, the Company issued warrants to the
seller as part of the transaction of which 25,000 have an exercise price
of 41 and are exercisable until December 1997, 12,500 have an exercise price
of $2 and exercisable until December 2000 and 12,500 have an exercise
price of $3 and are exercisable until December 2000.
In 1995, the Company issued warrants to a limited partner in
Future Acquisition 1995 Ltd. to purchase 250,000 shares
of the Company's common stock for $1.00 per share. The warrants
may be exercised until expiration in December 2000.
The Company adopted a stock option plan in 1993, under which key
employees may be granted options to purchase the Company's
common stock at prices equal to market value at the date of grant
(110% of market value for stockholders with more than
10% of the outstanding stock). No options were granted
under the plan until February 1994 at which time two officers of
the Company were granted options to purchase 150,000 and 100,000
shares, respectively at $0.27 and $0.24 per share, respectively.
During 1994, options to purchase 112,280 shares at $0.27 per share were
exercised as described below. No options were exercised in 1995,
and the remaining options for 137,720 are exercisable through
February 1999.
In 1994, the Company exchanged its interest in Arizona Juno (Note
1) and 72,400 shares of the Company's common stock for
cancellation of approximately $191,000 in debt due to the former
president of Intermountain.
7. INCOME TAXES
The Company has no income tax expense in 1995 and 1994 due to use
of net operating loss carry forwards. The components of the
Company's deferred tax account as of December 31, 1995 are as
follows:
Deferred gain $ 5,000
Depreciation, depletion and impairment (188,000)
Net operating loss carryforward 193,000
Deferred tax asset valuation allowance (10,000)
Net deferred tax asset $ -
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1995, the Company had a net operating loss
carryforward for Federal income tax purposes of approximately
$570,000, which will expire if unused in 2006 and 2008. The
Company also has approximately $1,140,000 of net operating loss
carryforwards attributed to Intermountain. These losses are
subject to substantial limitations under Section 382 of the
Internal Revenue Code.
8. ENVIRONMENTAL MATTERS
Being engaged in the oil and gas exploration and development
business, the Company may become subject to certain
liabilities as they relate to environmental clean up of well
sites or other environmental restoration procedures as they
relate to the drilling of oil and gas wells and the operation
thereof. In the Company's acquisition of existing or
previously drilled well bores, the Company may not be aware of
what environmental safeguards were taken at the time such
wells were drilled or during the time that such wells were
operated. Should it be determined that a liability exists with
respect to any environmental clean up or restoration, the
liability to cure such a violation would most likely fall upon
the Company. In certain acquisitions the Company has
received contractual warranties that no such violations exist,
while in other acquisitions the Company has waived its rights to
pursue a claim for such violations from the selling party. No
claim has been made nor has a claim been asserted, nor is the
Company aware of the existence of any liability which the Company
may have, as it relates to any environmental clean up,
restoration or the violation of any rules or regulations relating
thereto.
9. LEASE COMMITMENT
The Company leases its office space subject to a noncancellable
operating lease agreement which will expire in December 1998.
Future minimum rental payments under the operating lease are
approximately $23,000 per year.
The Company had rent expense of approximately $8,000 and $16,000
for the years ended December 31, 1995, and 1994, respectively.
10. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to credit risk
consist principally of accounts and notes receivable. The
receivables are primarily from companies in extractive industries
or from individual oil and gas investors. These parties are
primarily located in the Southwestern regions of the United
States. No single receivable is considered to be sufficiently
material as to constitute a concentration. The Company does not
ordinarily require collateral for accounts receivable, but in the
case of receivables for joint operations, the Company often has
the ability to offset amounts due against the participant's share
of production from the related property.
Management estimates the market values of notes receivable and
payable based on expected cash flows and believes those
market values approximate carrying values at December 31, 1995.
11. MAJOR CUSTOMERS
Two natural gas purchasers accounted for approximately 39% and
16%, respectively, of the Company's revenues in 1995, and 41% and
21% respectively, of the Company's revenues in 1994.
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. FINANCIAL DATA FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The following table sets forth certain information with respect
to the oil and gas producing activities of the Company:
YEAR ENDED DECEMBER 31,
1995 1994
Costs incurred in oil and gas producing
activities:
Acquisition of proved properties $321,000 $ 29,000
Exploration cost 114,000 32,000
Development costs -- 20,000
Total costs incurred $ 435,000 $ 81,000
Company's share of equity investee's costs of
property acquisition, exploration and
development $ 162,000 $ --
Net capitalized costs related to oil and gas
producing activities:
Proved properties $ 110,000 $1,792,000
Investment in oil and gas partnership 754,000 --
Less accumulated depletion, depreciation
amortization and impairment (36,000) (1,327,000)
Net oil and gas property costs $ 828,000 $ 465,000
Company's share of equity investee's net oil and gas
property costs (1) $ 272,000 $ --
(1) This amount is included in the investment in oil and gas partnership above.
13. OIL AND GAS RESERVE DATA (UNAUDITED)
The following table, based on information prepared by
independent petroleum engineers, summarizes changes in the
estimates of the Company's net interest in total proved reserves
of crude oil and condensate and natural gas, all of which are
domestic reserves:
Oil Gas
(BBLS) (MCF)
Balance, January 1, 1994 23,000 1,495,000
Sale of minerals in place - (70,000)
Revisions of previous estimates (10,000) (155,000)
Production (3,000) (100,000)
Balance, December 31, 1994 (1) 10,000 1,170,000
Purchase of minerals in place 30,000 245,000
Conveyance of minerals in place to limited
partnership (25,000) (796,000)
Revisions of estimates (2,000) (363,000)
Production (2,000) (75,000)
Balance, December 31, 1995 (1) 11,000 181,000
(1) The reserves are all classified as proved developed.
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's proportional interest in the revenues
of investee accounted for by the equity method -
December 31, 1995:
Total 102,000 1,039,000
Proved Developed 83,000 887,000
Proved oil and gas reserves are the estimated quantities of crude
oil, condensate and natural gas which geological and engineering
data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and
operating conditions. Proved developed oil and gas reserves are
reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. The above
estimated net interests in proved reserves are based upon
subjective engineering judgments and may be affected by the
limitations inherent in such estimation. The process of
estimating reserves is subject to continual revision as
additional information becomes available as a result of drilling,
testing, reservoir studies and production history. There can be
no assurance that such estimates will not be materially revised
in subsequent periods.
14. STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES
(UNAUDITED)
The standardized measure of discounted future net cash flows at
December 31, 1995 and 1994 relating to proved oil and gas
reserves is set forth below. The assumptions used to compute the
standardized measure are those prescribed by the Financial
Accounting Standards Board and as such, do not necessarily
reflect the Company's expectations of actual revenues to be
derived from those reserves nor their present worth. The
limitations inherent in the reserve quantity estimation process
are equally applicable to the standardized measure computations
since these estimates are the basis for the valuation process.
YEAR ENDED DECEMBER 31,
1995 1994
Future cash inflows $ 506,000 $2,274,000
Future production costs (345,000) (758,000)
Future income tax expense (27,000) (107,000)
Future net cash flows 134,000 1,409,000
10% annual discount for estimated timing
of cash flows (34,000) (437,000)
Standardized measure of discounted future
net cash flows $ 100,000 $ 972,000
Company's share of equity method investee's
standardized measure of discounted future
net cash flows $ 888,000 $ --
Future net cash flows were computed using year-end prices and
costs, and year-end statutory tax rates (adjusted for permanent
differences) that relate to existing proved oil and gas reserves
at year-end. The following are the principal sources of change
in the standardized measure of discounted future net cash flows:
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31,
1995 1994
Sales of oil and gas produced, net of
production costs $ (22,000) $ (46,000)
Net changes in prices and production costs (133,000) (51,000)
Conveyance of minerals in place to limited
partnership (411,000) -
Sale of minerals in place - (65,000)
Revisions of previous quantity estimates (463,000) (283,000)
Accretion of discount 97,000 92,000
Net change in income taxes 60,000 407,000
Net change (872,000) 54,000
Balance, beginning of year 972,000 918,000
Balance, end of year $ 100,000 $ 972,000
