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, 1996
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)
(Registrants telephone number, including area code (214)350-7602
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 o
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: $378,000
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 April 14, 1997, was approximately
$2,541,737.
As of April 14, 1997, the Company had outstanding 4,066,779 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>
PREFACE
Caution Respecting Forward-Looking Information
This annual report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the
Company or management as well as assumptions made by and information
currently available to the Company or management. When used in this
document, the words "anticipate, " "believe, " "estimate, " "expect," and
"intend" and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. Such
statements reflec the current view of the Company respecting future events
and are subject to certain risks, uncertainties, and assumptions, including
the risks and uncertainties noted. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. In each instance, forward-looking
information should be considered in light of the accompanying meaningful
cautionary statements herein.
Certain Definitions
All defined terms under rule 4-10(a) of Regulation S-X promulgated by the
Securities and Exchange commission shall have their statutorily prescribed
meanings when used in this report. In addition, the following terms have the
meaning set forth below when used herein.
"API" means American Petroleum Institute.
"Bpd" means barrels of oil per day.
"Bbl" means barrel of oil.
"Bcf" means billion cubic feet of natural gas.
"Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon know to be productive.
"Exploratory well" means a well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
"MBbl" means thousand barrels of oil.
"MMBbl" means million barrels of oil.
"MMBOE" means million barrels of oil equivalent.
"MMBO" means million barrels of oil.
"MCFG" means thousand cubic feet of natural gas.
"MMMCFG" means billions cubic feet of natural gas.
"COPAS" Council of Petroleum Accountants Societies.
"Proved reserves" means the estimated quantities of crude oil, natural gas
and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e, prices and
costs as of the date the estimate is made. "Proved reserves" may be
developed or undeveloped.
"PV-10 Value" means the estimated future net revenue to be generated from
the production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated
production costs and future development costs, using prices and costs in
effect as of a certain date, without escalation and without giving effect to
non-property related expenses such as general and administrative expenses,
debt service, future income tax expense or depreciation, depletion
and amortization
<PAGE>
TABLE OF CONTENTS
Item Number and Caption Page
PART I
1. Business.......................................................4
2. Properties................................................... 10
3. Legal Proceedings............................................ 14
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
ITEM 1. BUSINESS
THE COMPANY
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 principal business strategies include (i) maximizing the
value of its existing high-quality, Long-Life reserves through efficient
operating and marketing practices, (ii) conducting selective exploratory
and development activities, principally in existing areas of operations,
and (iii) marketing acquisitions of producing properties, with exploration
and development potential in areas where the Company has operating
experience and expertise.
As of December 31, 1996, the Company owned approximately 555
million cubic feet of equivalent proved natural gas reserves.
Substantially all of the Company's proved reserves are proved developed
reserves. Quantities stated as equivalent natural gas reserves are based on
a factor of six thousand cubic feet ("MCF") of natural gas per barrel of oil.
See "Reserves."
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
acquisitionand 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.
PROPERTIES
Oil and Gas Holdings. The Company's properties are located onshore
principally in Texas and Oklahoma. As of April 14, 1997, the Company
owns interests in a total of 258 gross (94.84 net) producing wells, of which
213 wells are operated by the Company. As of that date, the Company had
oil and gas rights in leases comprising 17,520 gross (4,721 net) acres.
The average reserve life of these properties (based on the 1996 producing
rate) is estimated to be 26 years as of December 31, 1996.
The majority of the Company's proved reserves are concentrated in the
Panhandle field of Texas. The field is part of a reservoir that extends
from southwest Kansas through the Oklahoma Panhandle and into the
Texas Panhandle. This field which produces oil and gas from depths
of 3500 feet or less, is known for its stable Long-Life production profiles.
The Company's other properties are in the Permian Basin north Texas and
in southern Oklahoma.
Wichita County Regular Field. The Company owns and operates seventy
(70) 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 performing remedial
recompletions, stimulations and improvements to the waterflood.
Panhandle Field. The Company has an interest in and operates one
hundred fifty eight (158) wells in the Panhandle of Texas. These wells
are located in Gray, Carson, Hutchinson, Moore 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 markets its gas through plants in the Panhandle field.
The high liquid content contained in Panhandle gas enables the Company
to participate in two separate markets for its gas thereby allowing the
Company to enhance the market value of the gas stream.
Azalea Field. The Company has an interest in seventeen (17) 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 of 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. Potential increases in production and reserves will increase
the Company's reserve base substantially. The Company has completed the
drilling of two development wells. The results of these wells indicate that
up to 80% of the original oil in place still remains in the reservoir and that
a portion of the remaining oil in place can be recovered by a waterflood.
Therefore, the Company is initiating Phase I of the implementation of
the waterflood by drilling three (3) new producing wells and converting
eight (8) of the existing wells into injectors.
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. One (1) well will initially be drilled to
determine if additional wells on four (4) more locations are warranted.
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 MMBO and
over 54 MMMCFG. A substantial amount of 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 MMMCFG. 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.
<PAGE>
Marketing
Gas Sales. Current marketing arrangements generally provide the
Company with the ability to sell its well deliverability from the Company's
fields to major processing plants operated by KN Energy, GPM Gas
Corporation and Midgard Energy. All of the Company's gas is
processed thereby allowing the Company to participate in the
liquid rich (NGL's) sales from the tailgate of the plants as well
as the residue gas which enhances the value of the full gas stream.
The Company's gas is sold under contracts with unexpired terms up to
five (5) years. The Company has no fixed delivery commitments.
Oil Sales. The Company's sales of crude oil and condensate are
generally made at posted field prices, plus certain bonuses, which are
not subject to regulations. Texaco Trading and Transportation, Total
Petroleum Corporation, Phillips Petroleum Corporation and Diamond
Shamrock are the Company's main crude oil purchasers.
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.
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 unitization 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.
<PAGE>
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.
<PAGE>
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).
MINERAL HOLDINGS
General. The Company has interests in a number of 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.
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 drilled approximately 1000 feet of test holes in the 1996 season and
plans on drilling and trenching to further delineate gold reserves in the
1997 season.
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 241/2 patented, 10 unpatented,
and 5 millsites forming two separate sites: (1) the main grouping consists
of 171/2 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.
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 May 1, 1997, and the balance
due and payable on July 1, 1997. The unpaid balance is secured by a deed of
trust on the property.
<PAGE>
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 currently has entered into an option agreement with
Falconbridge Ltd., of Toronto Canada, to further explore this area
and to 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.
This property has been paid for in full.
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.
<PAGE>
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.
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. Subsequently, the Company
was renamed Future Petroleum Corporation.
<PAGE>
EMPLOYEES
The Company has four employees, including two executive officers
and a director, all of whom are associated with the Company's oil
and gas activities. Of the four employees, two are salaried
management personnel, and two are field personnel. The
Company also contracts with two independent contractors for
engineering, 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, Moore 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, 1996, based on information prepared by
an independent petroleum engineer. All wells are located in the United
States.
Productive Wells
Gross Net
Gas 3 1
Oil 214 65
Totals 217 66
RESERVES
Oil Gas
(BBLS) (MCF)
Balance, Jan. 1, 1994 23,000 1,495,000
Purchase of minerals in place -- (70,000)
Revisions of estimates (10,000) (155,000)
Production (3,000) (100,000)
Balance, Jan. 1, 1995 10,000 1,170,000
Purchase of minerals in place 86,000 573,000
Revisions of estimates 31,000 (89,000)
Conveyance of minerals in place
to limited partnership (11,000) (350,000)
Production (3,000) (84,000)
Balance, Dec. 31, 1995 113,000 1,220,000
Purchase of minerals in place 5,000 --
Abandonment of minerals (3,000) (181,000)
Revisions of previous estimates (56,000) (767,000)
Production (7,000) (29,000)
Balance, Dec. 31, 1996 52,000 243,000
<PAGE>
The following table sets forth developed and undeveloped acreage
owned by the Company as of December 31, 1996.
Developed Acreage Undeveloped Acreage Total
Gross Net Gross Net Gross Net
Texas 5,562.44 2,768.52 8,828 1,406.17 14,390.44 4,174.69
Oklahoma 1,040 378.62 2,090 168 3,130 546.62
Totals 6,602.44 3,147.14 10,918 1,574.17 17,520.44 4,721.31
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. The net production to the Company
declined during 1996, as a result of the transfer of producing
properties to Future Acquisition 1995, Ltd,. (See "ITEM 1. BUSINESS.")
Year Ended December 31, 1996 1995 1994
Average net daily production
Gas (mcf) 79 230 275
Oil (bbls) 19 8 8
Average sales price
Gas ($ per mcf) $ 2.82 $ 1.59 $ 1.33
Oil ($ per bbl) $21.32 $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 $2.63 for 1996, $1.48 for 1995, and $1.15 for 1994.
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,
1996 1995 1994
Geographic Area Gross Net Gross Net Gross Net
Development
Gas (mcf) 1 .15 -- -- 1 0.05
Oil (bbls) 2 .14 -- -- 1 0.12
Non-productive -- -- -- -- -- --
________ ________________________________________
Totals 3 .29 -- -- 2 0.27
<PAGE>
Exploratory
Gas -- -- -- -- -- --
Oil -- -- -- -- -- --
Non-productive -- -- -- -- -- --
_______________________________________________
Totals -- -- -- -- -- --
Mineral Properties
(See ITEM I of this 10KSB for a description of the Company's properties.)
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 $2,006.44 per month, under a lease expiring December, 31, 1998.
The Company also maintains a field operations office at Pampa, Texas.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its property is subject to any
material pending legal proceeding.
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 1996.
<PAGE>
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
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
1996
Quarter ended March 31 $0.1875 $0.125
Quarter ended June 30 $0.25 $0.1875
Quarter ended September 30 $0.25 $0.1875
Quarter ended December 31 $0.1875 $0.15625
As of April 14, 1997, 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 $0.625.
On April 14, 1997, the Company had approximately 855 shareholders.
<PAGE>
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 had consolidated net income of $119,000, and $58,000,
for the years ended December 31, 1996 and 1995, respectively.
At December 31, 1996, the Company had working capital of $112,000,
which was a $86,000 increase from the $26,000 working capital that the
Company had as of December 31, 1995. This increase in working capital
was due primarily to the increase of oil and gas prices and to the decrease
in the current portion of long term debt.
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 1996 provided net cash of $168,000.
Investing activities in 1996 provided net cash of $105,000, primarily due from
the collections of notes receivable. Financing activities in 1996 used net
cash of $159,000 primarily due to the repayment of notes payable.
Operating activities of the Company during 1995 provided net cash of $3,000.
Such cash, was primarily related to oil and gas operations. The Company
paid $200,000 for the purchase of property and equipment during 1995,
which was offset by proceeds from the sale of mining properties and
property and equipment during the year in the amount of $185,000,
resulting in net cash used by investing activities of $23,000.
<PAGE>
Results of Operations
1996 and 1995
Total revenues in 1996 increased to $378,000 from $253,000 in 1995, primarily
due to increased prices and new wells drilled in 1996. Production costs
increased slightly due to workovers performed. General and administrative
expenses declined to $120,000 from $139,000 in 1995. Net income in
1996 increased to $119,000 from $58,000 in 1995, primarily due to an
increase in gains on sales of mining properties and to a increase in
revenues referred to above.
1995 and 1994
Total revenues in 1995 declined to $253,000 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.")
<PAGE>
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 disclosure.
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, Director and Treasurer 1997
Don Wm. Reynolds 69 Chairman of the Board, Director 1997
Robert Price 67 Vice-President, Director 1999
D. William Reynolds,
Jr. 35 Director 1999
Christine Sirera 27 Secretary 1999
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 is the president, chief executive officer, director and largest
shareholder of the Company. He attended Oklahoma State University where
he majored in business. Mr. Price has been a landman since the mid 1980's
where he gained much experience by initiating, managing, acquiring and
operating oil and gas ventures and properties, which he did with much success.
The company was established shortly after the oil and gas business had reached
its peak in the late 1970's and early 1980's. 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, Mr. Price is determined to continue the rapid
growth of Future Petroleum Corporation.
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.
Christie Sirera
Christie Sirera, the corporate secretary, office administrator and shareholder
of the Company. Ms. Sirera jointed the Company in 1994 and was appointed
corporate secretary in 1996. Ms. Sirera attended Tarrant County Junior
College where she majored in business administration. Between 1990 and
1994, Ms. Sirera owned and still operates two small businesses in the
Dallas area.
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 three 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, 1997 -- -- -- -- 200,000(3) -- --
(CEO)
President, 1996 $12,000 -- $21,853(1) -- -- -- --
Director
1995 $12,000 -- $35,000(1) -- -- -- --
1994 $8,000 -- $31,000(2) -- 150,000 -- --
(1) During 1996 and 1995, Price Oil & Gas Co., which is a company owned
by Mr. Price was paid money for consulting services provided to the Company.
(2) During 1994, Mr. Price was paid $31,000 as an independent contractor.
(3) On January 10, 1997, the Company granted 200,000 shares to Mr. Price.
On February 25, 1994, the Company granted to B. Carl Price five year
options to purchase 150,000 shares, respectively, at $0.267 to Mr. Price
(at 110% of the market price), 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 $29,979.
The following table sets forth information respecting the exercise of
options and SARs during the fiscal year ended December 31, 1995, by the named
executive officer of the Company and the fiscal year end values of unexercised
options and SARs.
(a) (b) (c) (d) (e)
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs at
Options/SARS at FY FY End ($)
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.
Employment Agreements, Deferred Salary and Benefits
The Company does not have employment contracts, deferred salary or
other benefit arrangements with its officers or directors.
<PAGE>
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 January 10, 1997, the Company granted to Christie Sirera five
year options to purchase 20,000 shares, respectively, at $0.40, based on
the approximate market price of the Company's common stock on the date of grant.
On January 10, 1997, the Company granted to Robert Price five
year options to purchase 50,000 shares, respectively, at $0.40, based on
the approximate market price of the Company's common stock on the date of grant.
On December 6, 1996, the Company granted to Don Wm. Reynolds five
year options to purchase 200,000 shares, respectively, at $0.15, based on
the approximate market price of the Company's common stock on the date of grant.
On June 30, 1996, the Company granted to Christie Sirera five year options
to purchase 20,000 shares, respectively, at $0.4375, based on the approximate
market price of the Company's common stock on the date of grant.
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.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 14, 1997, 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 4,066,779 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 26.1%
2351 W. Northwest Hwy Options 237,720 5.5%
Suite 2130 Total 1,301,037 30.2%
Dallas, TX 75220
Don Wm. Reynolds Direct 604,039 14.9%
206 Rock Street
Bowie, TX 76230
Maxcine Denton Direct 267,558 6.6%
3114 Classen Boulevard
Oklahoma City, OK 73118
EnCap Equity 1994 LP Direct 200,000 4.9%
Energy Capital Investment Warrants 287,000 6.6%
Co. PLC Total 487,000 11.2%
1100 Louisiana, Ste 3150
Houston, TX 77002
Officers and Directors
B. Carl Price -----------------------------See Above-----------------------
Don Wm. Reynolds -----------------------------See Above---------------------
Robert D. Price Direct(2) 96,835 2.4%
Options 50,000 1.2%
Total 146,835 3.6%
D. William Reynolds, Jr. Direct 333 0.0%
Christine Sirera Direct 8 0.0%
Options 40,000 1.0%
Total 40,008 1.0%
Charles D. Laudeman Direct 833 0.0%
All Executive Officers and Direct 1,765,032 43.4%
Directors as a Group Options 327,720 7.5%
(5 people) Total 2,092,752 47.6%
(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. All share and per share
amounts in this report give effect to such reverse split.
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.
Future Acquisition 1995, Ltd.
The Company is operator of the properties of Future Acquisition 1995, Ltd.
(The Partnership). (See Note 4.) As such, it receives revenues and pays
costs and expenses on behalf of the Partnership. As of December 31, 1996,
the Company has trade accounts receivable and accrued oil and gas proceeds
payable of approximately $51,000 and $185,000, respectively, due from and to
the Partnership. Included in well operation fees in 1996 is $134,000 earned
from operating the wells of the Partnership.
Price Oil & Gas Co.
Additionally, as of December 31, 1996, the Company owes a company owned by
the president of the Company approximately $41,000 for accrued consulting
fees and operating advances. The operating advances of $6,000 are short-term,
non-interest bearing, uncollateralized obligations of the Company.
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, 1996 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995 F-4
Consolidated Statement of Changes in Stockholders' Equity for the
Period from January 1, 1995, through December 31, 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995 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
27.01 27 Financial Data Schedules 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, 1995.
* 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, 1996,
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 14th day of April, 1997.
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 14th day of April, 1997.
/s/ B. Carl Price
B. Carl Price, President and Director
(chief executive and principal financial and accounting officer)
/s/ Christie Sirera
Christie Sirera, Corporate Secretary
/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/ Charles D. Laudeman
Charles D. Laudeman, Director
Date Filed: April 14, 1997 SEC File No. 0-8609
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
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
27.01 27 Financial Data Schedules 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, 1995.
* 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, 1996,
the Company did not file any reports on Form 8-K.Item 2.
<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>.
EXHIBIT 27
FINANCIAL DATA SCHEDULE
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, 1996, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
years ended December 31, 1996 and 1995. 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, 1996, and the results of its operations and cash flows for
the years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles.
HEIN + ASSOCIATES LLP
March 24, 1997
Dallas, Texas
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<S>
CURRENT ASSETS:
<C>
Cash $ 114,000
Note receivable 158,000
Trade accounts receivable, no allowance for doubtful accounts
considered necessary:
Joint interest billings 57,000
Accrued oil and gas sales 190,000
____________
Total Current Assets $ 519,000
PROPERTY AND EQUIPMENT:
Proved oil and gas properties, using the full cost method of
accounting $ 653,000
Other 44,000
____________
Total Property and Equipment $ 697,000
Less accumulated depletion, depreciation, amortization and
impairment (149,000)
____________
Net Property and Equipment 548,000
OTHER ASSETS:
Lease operating rights, net of accumulated
amortization of $21,900 $ 373,000
Mining properties held for sale 40,000
Other 5,000
____________
Total Assets $ 1,485,000
- - Continued -
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET, continued
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<S>
CURRENT LIABILITIES:
<C>
Current portion of long-term debt $ 21,000
Trade accounts payable 82,000
Accrued oil and gas proceeds payable 217,000
Advance from related party 47,000
Deferred gain 40,000
_____________
Total current liabilities $ 407,000
LONG-TERM DEBT 32,000
DEFERRED TAX LIABILITY 32,000
COMMITMENT AND CONTINGENCIES (Notes 4 and 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 200,000 shares authorized, no shares issued
Common stock, $.01 par value; 30,000,000 shares authorized; 3,486,779
shares issued and outstanding 35,000
Additional paid-in capital 1,031,000
Accumulated deficit (52,000)
______________
Total stockholders' equity 1,014,000
Total liabilities and stockholders' equity $ 1,485,000
<FN>
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
<C> <C>
1996 1995
REVENUES:
Oil and gas sales $ 224,000 $ 176,000
Well operation fees 154,000 77,000
_________ _________
Total revenues 378,000 253,000
COSTS AND EXPENSES:
Lease operations and production taxes $ 187,000 $ 151,000
General and administrative 120,000 139,000
Depletion, depreciation and amortization 99,000 70,000
Interest 6,000 1,000
________ ________
Total expenses $ 412,000 $ 361,000
OTHER INCOME:
Gain on sales of assets $ 102,000 $ 82,000
Interest income 42,000 46,000
Miscellaneous income 41,000 38,000
_________ _________
Total other income $ 185,000 $ 166,000
INCOME BEFORE INCOME TAXES $ 151,000 $ 58,000
DEFERRED INCOME TAX EXPENSE 32,000 -
NET INCOME $ 119,000 $ 58,000
NET INCOME PER COMMON SHARE $ .03 $ .02
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,472,000 3,379,000
<FN>
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH DECEMBER 31, 1996
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL
____________________ ____________
<C> <C> <C>
BALANCES, JANUARY 1, 1995 3,376,903 $ 34,000 $ 967,000
Shares issued for oil and gas
properties 50,000 1,000 49,000
Net income - - -
______________________ ____________
BALANCES, DECEMBER 31, 1995 3,426,903 35,000 1,016,000
Shares issued for options
exercised 59,876 - 15,000
Net income - - -
_____________________ ____________
BALANCES, DECEMBER 31, 1996 3,486,779 $ 35,000 $ 1,031,000
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
___________________ _____________
BALANCES, JANUARY 1, 1995 $(229,000) $ 772,000
Shares issued for oil and gas
properties - 50,000
Net income 58,000 58,000
___________________ ______________
BALANCES, DECEMBER 31, 1995 $(171,000) $ 880,000
Shares issued for option
exercised - 15,000
Net income 119,000 119,000
___________________ ______________
BALANCES, DECEMBER 31, 1996 $ (52,000) $1,014,000
<FN>
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<TABLE>
FUTURE PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1996 1995
<C> <C>
<S>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 119,000 $ 58,000
Adjustments to reconcile net income to net cash
from operations:
Depletion, depreciation and amortization 99,000 70,000
Gain on sale of assets (102,000) (82,000)
Change in trade accounts receivable (122,000) (90,000)
Change in accounts payable and accrued
liabilities 98,000 46,000
Change in deferred income taxes 32,000 -
Change in related party payable 41,000 6,000
Other 3,000 (5,000)
___________ _________
Net cash provided by operations 168,000 3,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (166,000) (200,000)
Proceeds from sale of mining properties and collection
of associated notes receivable 244,000 185,000
Proceeds from partnership distributions 27,000 -
Additions to mining properties - (8,000)
___________ _________
Net cash provided (used) by investing activities 105,000 (23,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 28,000 -
Repayments of notes payable (153,000) (6,000)
Change in overdrafts payable ( 34,000) 26,000
___________ _________
Net cash provided (used) by financing activities (159,000) 20,000
NET CHANGE IN CASH AND CASH EQUIVALENTS 114,000 -
CASH AND CASH EQUIVALENTS, beginning of year - -
CASH AND CASH EQUIVALENTS, end of year $ 114,000 $ -
_______ __________
SUPPLEMENTAL INFORMATION -
Cash paid during the year for interest $ 6,000 $ 1,000
NON-CASH INVESTING AND FINANCING ACTIVITIES - In 1996, a related party
exercised options for 59,876 shares of common stock in exchange for the
payment of a liability in the amount of $15,000.
In 1996 and 1995, the Company's oil and gas properties increased $190,000
and $162,000, respectively based on its share of partnership property additions
funded by the limited partner.
In 1995, the Company acquired oil and gas properties for notes payable of
$185,000 and common stock valued at $50,000.
In 1995, the Company contributed $775,000 of oil and gas properties to a
limited partnership in exchange for an interest in that partnership as
described in Note 4.
<FN>
See accompanying notes to these financial statements.
</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. In addition, the financial statements include
the Company's prorata share of the accounts of the oil and gas limited
partnership described in Note 4. Intercompany accounts and transactions
are eliminated in consolidation.
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 well,
dry holes and abandonments, delay rentals, geological and geophysical work and
certain internal costs directly associated with the acquisition, exploration
or development of oil and gas properties. During the years ended December 31,
1996, and 1995, internal costs capitalized into the full cost pool were
approximately $81,000 and $94,000 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.
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 $1.39 and $.70 for the years ended
December 31, 1996 and 1995, respectively.
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 1996 and 1995 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.
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 amounts
at which oil and gas properties and investment in oil and gas partnership are
recorded. It is at least reasonably possible those estimates could be revised
in the near term and those revisions could be material.
Stock-Based Compensation
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123 "Accounting for Stock-Based Compensation", which requires
recognition of the value of stock options and warrants granted based on an
option pricing model. However, as permitted by SFAS No. 123, the Company
continues to account for stock options and warrants granted to directors and
employees pursuant to APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. See Note 7.
Impact of Recently Issued Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement No. 128,
"Earnings Per Share". The Company intends to adopt this new standard in
1997. Management believes it will not have a material impact on the
Company's financial statements.
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. NOTE RECEIVABLE
The Company has a note receivable at December 31, 1996 with a balance of
$158,000. The note bears interest at 8% and is collateralized by a deed of
trust on a mining property. A principal payment of $100,000 is due April 1,
1997 with unpaid principal and interest due June 1, 1997. The note arose
from the sale of mining properties during 1994. Due to the terms of the
sale, the gain was deferred and recorded as a liability, which is amortized
into income as the note is collected. The balance of the deferred gain at
December 31, 1996 is $40,000. The gain associated with this note that was
amortized into income was $26,000 and $21,000 in 1996 and 1995, respectively.
3. RELATED PARTY TRANSACTIONS
The Company is operator of the properties of Future Acquisition 1995, Ltd.
(The Partnership). (See Note 4.) As such, it receives revenues and pays
costs and expenses on behalf of the Partnership. As of December 31, 1996,
the Company has trade accounts receivable and accrued oil and gas proceeds
payable of approximately $51,000 and $185,000, respectively, due from and to
the Partnership. Included in well operation fees in 1996 is $134,000 earned
from operating the wells of the Partnership.
Additionally, as of December 31, 1996, the Company owes a company owned by
the president of the Company approximately $41,000 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. As a result of
entering into the partnership, the Company became the operator of a
majority of the partnership properties. The Company's investment was
recorded at book value and was allocated to oil and gas properties and
lease operating rights based on the relative fair values of those assets.
The limited partner contributed cash, which was used to acquire and
develop oil and gas properties. Revenues and costs and expenses are
generally allocated 15% to the Company and 85% to the limited partner
until the limited partner has recovered its 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 partner. As
general partner, the Company is contingently liable for the actions
of the Partnership.
During the year ended December 31, 1996, the Company began
to account for the investment in the partnership as a prorata
consolidation, whereas it had previously accounted for the
partnership by the equity method . This change resulted from
the Company's ability during 1996 to obtain all information
required to report the investment as a prorata consolidation
and the Company's desire to conform with industry standards.
The change had no effect on reported net income for either 1995
or 1996.
The partnership is required to maintain certain minimum coverage ratios of
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 carrying value of the operating rights are amortized over the
life of the partnership's oil and gas reserves. The amortization was
$22,000 in 1996 and is included in "depletion, depreciation and
amortization" in the accompanying statement of income.
<PAGE>
FUTURE PETROLEUM CORPORATION
5. LONG-TERM DEBT
Long-term debt at December 31, 1996 consisted of the following:
Note payable to an individual, interest at 8%, monthly payments of principal
and interest of $1,421 due until maturity in July 1998. Collateralized by oil
and gas properties. $ 26,000
Note payable to a bank, interest at 11.25%, monthly payments of principal and
interest of $717 are due until maturity in October 2000. Collateralized by
certain oil and gas equipment. $ 27,000
Total 53,000
Less current portion (21,000)
Long-term debt $ 32,000
Maturities of long-term debt for the years ending December 31, are as follows:
1997 $ 21,000
1998 17,000
1999 8,000
2001 7,000
_______
$ 53,000
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1996. The
preferred shares may be issued in series with the relative rights and
preferences designated by the Company's board of directors.
In 1996, the Company issued warrants to the limited partner in Future
Acquisition 1995, Ltd. to purchase 37,500 shares of the Company's common
stock for $1.00 per share. The warrants may be exercised until expiration in
April 2001.
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 purchase 50,000 shares to the
seller as part of the transaction. Warrants to purchase 25,000 shares have
an exercise price of $1 per share and are exercisable until December 1997;
warrants to purchase 12,500 shares have an exercise price of $2 per share and
are exercisable until December 2000; and warrants to purchase 12,500 shares
have an exercise price of $3 per share and are exercisable until December
2000.
In 1995, the Company issued warrants to the 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.
7. STOCK BASED COMPENSATION
Stock Option Plans
The Company has a stock option plan, 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). The options may be exercised anytime
within five years of grant.
The following is a summary of activity under this stock option plan for the
years ended December 31, 1996 and 1995:
<TABLE>
1996 1995
<C> <C>
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
Outstanding, beginning of year 137,720 .25 137,720 .25
Canceled or expired - - - -
Granted 220,000 .18 - -
Exercised (59,876) .24 - -
Outstanding, end of year 297,844 .20 137,720 .25
</TABLE>
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All the options outstanding at December 31, 1996, and those exercised during
1996, were granted to officers of the Company. For all options granted during
1996 and 1995, the market price of the Company's common stock on the grant
date was approximately equal to the exercise price.
If not previously exercised, options outstanding at December 31, 1996 will
expire as follows:
Weighted
Average
Number Exercise
of Shares Price
1999 77,844 .26
2001 200,000 .15
2001 20,000 .44
_______
Total 297,844
Warrants and Other Stock Options
The Company has also granted warrants and other options which are summarized
as follows for the years ended December 31, 1996 and 1995.
1996 1995
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
Outstanding,
beginning of year 300,000 1.13 - -
Granted to:
Seller of oil and
gas properties acquired - - 50,000 1.75
Limited partner of
Future Acquisition
1995, Ltd. 37,500 1.00 250,000 1.00
Expired - - - -
Exercised - - - -
_______ ______ ______ _____
Outstanding, end of
year 337,500 1.12 300,000 1.13
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All outstanding warrants and other options were exercisable at December 31,
1996. If not previously exercised, warrants and other options outstanding
at December 31, 1996 will expire as follows:
Weighted
Average
Number Exercise
of Shares Price
1997 25,000 1.00
2000 250,000 1.00
2000 12,500 2.00
2000 12,500 3.00
2001 37,500 1.00
________
337,500
Presented below is a comparison of the weighted average exercise prices and
market prices of the Company's common stock on the measurement date for the
warrants and other stock options granted during 1996 and 1995:
1996 1995
Number Exercise Market Number Exercise Market
of Shares Price Price of Shares Price Price
Exercise price
greater than
market price 37,500 $1.00 $ 0.25 300,000 $ 1.13 $ 0.19
Pro Forma Stock-Based Compensation Disclosures
As reflected in Note 1, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for grants of options to the employees
since the exercise prices were not lower than the market prices of the
Company's common stock on the measurement date. Had compensation been
determined based on the estimated fair value at the measurement dates for
awards under those plans consistent with the method prescribed by SFAS No.
123, the Company's 1996 net income and earnings per share would have been
changed to the pro forma amounts indicated below. There was no pro forma
effect for 1995.
Net income applicable to common stockholders:
As reported $ 119,000
Pro forma $ 103,000
Net income per common stock:
As reported $ 0.03
Pro forma $ 0.03
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair value of each employee option and warrant granted in 1996
and 1995 was estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted average assumptions:
YEAR ENDED DECEMBER 31,
1996 1995
Expected volatility 62.2% 62.2%
Risk-free interest rate 6.13% to 6.63% 5.25% to 5.80%
Expected dividends - -
Expected terms (in years) 5 2 to 5
8. INCOME TAXES
A reconciliation of income tax expense at the Federal statutory rate of 34%
to income tax expense reported in the accompanying consolidated statements of
income follows:
1996 1995
Income tax at statutory rate $ 51,000 $ 20,000
Utilization of net operating losses - (20,000)
Effect of graduate tax brackets (19,000) -
_________ $_________
$ 32,000 -
The components of the Company's deferred tax liability as of December 31,
1996 are as follows:
Deferred gain $ 7,000
Depreciation, depletion
and impairment (215,000)
Net operating loss and
investment tax credit carryforward 176,000
__________
Net deferred tax liability $ (32,000)
At December 31, 1996, the Company had a net operating loss carryforward
for Federal income tax purposes of approximately $485,000, which
will expire if unused in 2006 through 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.
9. 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
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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.
10. 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 $12,000 and $8,000 for the
years ended December 31, 1996, and 1995, respectively.
11. 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, except for a receivable from
Future Acquisition 1995, Ltd. of $51,000 (see Note 3). 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, 1996.
12. MAJOR CUSTOMERS
One oil purchaser accounted for approximately 25% of the Company's revenues
in 1996 and two natural gas purchasers accounted for approximately 39% and
16%, respectively, of the Company's revenues in 1995.
13. SUBSEQUENT EVENT
In January 1997, the Company granted options to three officers (two
of which are also directors) to purchase a total of 70,000 shares for
$0.40 per share and 200,000 shares for $0.44 per share through the
the year 2002.
In February 1997, the partnership referred to in Note 4 closed a purchase
on various interest percentages in 32 wells located in Moore County, Texas
(Taylor properties). The purchase price of the Taylor properties included
$2,067,000 in cash from the limited partner, $100,000 in cash from
the Company, 180,000 shares of the Company's common stock to the seller and
200,000 shares of the Company's common stock to the limited partner.
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. 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,
1996 1995
Costs incurred in oil and gas producing activities:
Acquisition of proved properties $ 56,000 $ 483,000
Acquisition of unproved properties 44,000 -
Exploration cost - 114,000
Development costs 256,000 -
__________ _________
Total costs incurred $ 356,000 $ 597,000
Net capitalized costs related to oil and gas producing activities:
Proved properties $ 653,000 $ 382,000
Less accumulated depletion, depreciation,
amortization and impairment (111,000) (40,000)
____________ __________
Net oil and gas property costs $ 542,000 $ 342,000
15. 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, 1995 10,000 1,170,000
Purchase of minerals in place 86,000 573,000
Revisions of estimates 31,000 (89,000)
Conveyance of minerals in place to limited
partnership (11,000) (350,000)
Production (3,000) (84,000)
________ ___________
Balance, December 31, 1995 113,000 1,220,000
Purchase of minerals in place 5,000 -
Abandonment of minerals (3,000) (181,000)
Revisions of previous estimates (56,000) (767,000)
Production (7,000) (29,000)
________ ___________
Balance, December 31, 1996 52,000 (243,00)
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The foregoing reserves are all classified as proved developed at
December 31, 1996. At December 31, 1995, 94,000 barrels of oil
and 1,000,000 mcf of gas were classified as proved developed.
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.
16. STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES (UNAUDITED)
The standardized measure of discounted future net cash flows at December 31,
1996 and 1995 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,
1996 1995
Future cash inflows $ 2,038,000 $ 4,316,000
Future production costs (1,022,000) (2,535,000)
Future income tax expense (48,000) (302,000)
Future net cash flows 968,000 1,479,000
10% annual discount for estimated timing of cash
flows (308,000) (491,000)
Standardized measure of discounted future net cash
flows $ 660,000 $ 988,000
<PAGE>
FUTURE PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
YEAR ENDED DECEMBER 31,
1996 1995
Sale of oil and gas produced, net of production
costs $ (37,000) $ (25,000)
Purchase of minerals in place 70,000 717,000
Abandonment of minerals (82,000) -
Net changes in prices and production costs 450,000 (133,000)
Conveyance of minerals in place to limited
partnership - (286,000)
Revisions and other (1,023,000) (208,000)
Accretion of discount 99,000 97,000
Net change in income taxes 195,000 (146,000)
Net change (328,000) 16,000
Balance, beginning of year 988,000 972,000
Balance, end of year $ 660,000 $ 988,000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 114,000
<SECURITIES> 0
<RECEIVABLES> 158,000
<ALLOWANCES> 247,000
<INVENTORY> 0
<CURRENT-ASSETS> 519,000
<PP&E> 697,000
<DEPRECIATION> 149,000
<TOTAL-ASSETS> 1,485,000
<CURRENT-LIABILITIES> 407,000
<BONDS> 0
0
0
<COMMON> 35,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,485,000
<SALES> 0
<TOTAL-REVENUES> 378,000
<CGS> 412,000
<TOTAL-COSTS> 412,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 151,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
