UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-8609
Future Petroleum Corporation
(Exact name of small business issuer as specified in charter)
Utah 87-0239185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2351 West Northwest Highway, Suite 2130
Dallas, Texas 75220
(Address of principal executive offices) (Zip Code)
(214)350-7602
(Issuer's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [x ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The Company had approximately 6,047,015 shares of common stock, par value
$0.01 per share, issued and outstanding as of May 20, 1998.
Transitional Small Business Disclosure Format (Check One): Yes No X
Page 1 of 13 Consecutively Numbered Pages
<PAGE>1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. However, in the opinion of
management, all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the financial position and results
of operations for the periods presented have been made. These condensed
consolidated financial statements should be read in conjunction with
financial statements and the notes thereto included in the Company's
Form 10-KSB filing for the year ended December 31, 1997.
<PAGE>2
<TABLE>
FUTURE PETROLEUM CORPORATION
Balance Sheets
March 31, 1998
ASSETS
<S>
CURRENT ASSETS: <C>
Cash and interest-bearing deposits $ 97,247
Notes receivable 93,177
Trade accounts receivable:
Joint interest billings 8,380
Accrued oil and gas sales 204,481
----------
Total Current Assets 403,285
PROPERTY AND EQUIPMENT:
Proved oil and gas properties,
using the full cost method of accounting 12,346,022
Other 44,114
-----------
12,390,136
Less accumulated depletion, depreciation, amortization and
impairment (428,698)
------------
Net Property and Equipment 11,961,438
OTHER ASSETS:
Lease operating rights 106,000
Less accumulated amortization (12,500)
Mining properties held for sale 39,977
Other 24,045
------------
TOTAL OTHER ASSETS 157,522
TOTAL ASSETS $ 1,961,899
============
</TABLE>
<PAGE>3
<TABLE>
FUTURE PETROLEUM CORPORATION
Balance Sheets
March 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES:
Trade accounts payable $ 210,524
Current portion of notes payable 500,364
Advances from shareholder 6,000
Accrued oil and gas proceeds payable 43,520
------------
Total Current Liabilities 760,408
DEFERRED GAIN ON SALE 40,336
DEFERRED TAX LIABILITY 1,258,650
LONG TERM NOTES PAYABLE 6,129,361
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 200,000 shares authorized,
no shares issued --
Common stock, $.01 par value, 30,000,000 shares authorized,
shares issued and outstanding; 5,702,739 at March 31, 1998 and
4,066,779 at March 31, 1997 56,788
Additional paid-in capital 4,413,290
Accumulated deficit (136,588)
------------
Total Stockholders' Equity 4,293,490
Total Liabilities and Stockholders' Equity $ 12,522,245
==============
</TABLE>
<PAGE>4
<TABLE>
FUTURE PETROLEUM CORPORATION
Condensed Statement of Operations and Comprehensive Income
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
REVENUES:
Oil and gas sales $ 494,174 $ 59,244
Well operation fees 22,168 44,616
Other -- --
---------- ----------
Total Revenues 516,342 103,860
COSTS AND EXPENSES:
Lease operations and production taxes 290,728 55,480
General and administrative 77,867 54,881
Interest 165,894 1,720
Depletion, depreciation and
Amortization 101,699 30,345
---------- ----------
Total Expenses 636,188 142,426
OTHER INCOME:
Gain on sale of assets -- --
Income from equity investment -- --
Miscellaneous income 4,406 24,400
Interest income 2,108 824
----------- -----------
Total Other Income 6,514 25,224
DEFERRED TAX BENEFIT 40,000 --
----------- -----------
NET AND COMPREHENSIVE INCOME (LOSS) (73,332) (13,342)
BEGINNING ACCUMULATED DEFICIT (63,256) (52,438)
ENDING ACCUMULATED DEFICIT $ (136,588) $ (65,780)
----------- -----------
NET AND COMPREHENSIVE INCOME
(LOSS) PER COMMON SHARE $ (0.01) $ 0.00
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,679,000 4,066,779
=========== ===========
</TABLE>
<PAGE>5
<TABLE>
FUTURE PETROLEUM CORPORATION
Statements of Cash Flows
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVATES:
Net Income (loss) $ (73,332) $ (13,342)
Adjustments to reconcile to net
cash used in continuing
operations:
Depreciation, depletion, and amortization 101,699 30,345
Deferred tax benefit (40,000) --
Gain on sale of assets -- --
Decrease (increase) in receivables 64,761 (109,888)
(Decrease) increase in accounts
payable and accrued expenses (40,982) 219,395
Other assets 6,845 2,471
Current notes receivable -- --
------------ -----------
Net cash provided by (used in) operations 18,991 128,981
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (211,086) (122,572)
Distribution from partnerships -- --
------------ -----------
Net cash provided by (used in)
investing activities (211,086) (122,572)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock -- 30,000
Collection of notes receivable -- --
Repayment of long-term debt (3,589) (10,047)
------------ -----------
Net cash provided by (used in)
financing activities (3,589) 19,953
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (195,684) 26,362
CASH AND CASH EQUIVALENTS,
beginning of period $ 292,931 $ 114,150
------------ -----------
CASH AND CASH EQUIVALENTS,
end of period $ 97,247 $ 140,512
============ ===========
CASH PAID FOR INTEREST DURING,
the period $ 165,894 $ 1,720
=========== ===========
</TABLE>
<PAGE>6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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, 1997, the Company owned approximately 3,202,166 barrels
of oil equivalent proved reserves. Approximately 59% of the Company's proved
reserves are proved developed reserves. Quantities stated as equivalent barrels
of oil reserves are based on a factor of six thousand cubic feet ("MCF") of
natural gas per barrel of oil. See "Reserves."
Strategic Developments
On November 25, 1997, the Company acquired from EnCap Equity 1994, Ltd, a
Texas limited partnership ("EnCap"), Energy Capital Investment Co., PLC, an
English investment company ("ECIC"), and Gecko Booty 1994 I, Ltd, a Texas
limited partnership ("Gecko Booty") effective as of November 1, 1997, certain
properties and partnerships interests consisting of one (1) field area in west
Texas, one (1) field area in southeast New Mexico (the "Permian Basin
Properties"), three (3) field areas in the Texas Panhandle and one (1) field
area in northern Oklahoma. The acquisition was accomplished by the purchase
from Gecko Booty of the southeast New Mexico properties, the purchase from
EnCap and ECIC of the general and limited partnership interests in BMC
Development No. 1 Limited Partnership, a Texas limited partnership which
owns a portion of the Texas Panhandle and northern Oklahoma properties,
and the purchase from EnCap and ECIC of the limited partnership interests
in Future Acquisition 1995, Ltd., a Texas limited partnership of which the
Company's Subsidiary, Future Petroleum Corporation ("Future Texas"), is the
general partner and which owns the Texas Panhandle and West Texas properties.
The Company formed a new subsidiary created under the laws of the state of
Nevada, Future Energy Corporation, to own the limited partnership interests
acquired. The general partnership interests and the Gecko Booty properties
will be owned by Future Texas. The purchase price for the assets and interests
acquired was $6.6 million and 1,575,000 shares of the Company's common stock.
The primary producing formations include Grayburg, San Andres and Strawn in
the Permian Basin Properties, the Clearfork, Brown Dolomite and Granite Wash
in the Texas Panhandle and Red Fork and Meramecian Chet in northern Oklahoma.
The properties include 206 producing oil and natural gas wells on
approximately 18,740 gross acres (17,749 net acres).
The Company financed the acquisition of the properties by issuing the
sellers promissory notes aggregating $6.6 million and issuing 1,575,000
shares of restricted common stock. Together with the 225,000 shares of the
Company's common stock already held by EnCap and ECIC, EnCap and ECIC now
own in the aggregate 1,800,000 shares of common stock, representing
approximately 30% of the common stock of the Company. The notes carry a 10%
per annum interest rate and mature in five and one half (5 1/2) years.
Under the terms of the notes the Company will make payments of interest
only until June 30, 1998, at which time payments of principal and interest
will begin. The Company may prepay the note at anytime without penalty.
All of the properties and interests acquired, as well as the other assets
of the Company and Future Texas secure the notes.
DEVELOPMENT PROPERTIES
Oil and Gas Holdings. The Company's properties are located onshore
principally in Texas, New Mexico and Oklahoma. As of April 15, 1998,
the Company owns interests in a total of 277 gross (246 net) producing
wells, of which 231 wells are operated by the Company. As of that date,
the Company had oil and gas rights in leases comprising 21,795 gross
(18,762-net) acres.
TEXAS PANHANDLE
The Company's Texas Panhandle properties offer long lived oil and natural
gas reserves and are the core properties of the Company. There are over
30 proved Brown Dolomite, Granite Wash and Moore County Lime development
drilling locations. The gas produced is high in Natural Gas Liquids
(NGL) which enables the Company to receive premium prices for its gas sold.
In addition, the implementation of advanced hydraulic fracturing to new
development wells and refracturing existing wells have proven to recover
additional reserves.
Panhandle Field. The Company has an interest in and operates one hundred
sixty one (161) 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, natural gas liquids and gas on the uplift. 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.
NORTH TEXAS
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.
The Gunsight sand 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.
PERMIAN BASIN
Edmission Clearfork. The Company operates and intends to flood its
Edmission Clearfork project in Lubbock County, Texas. Two (2)
existing floods that have produced more secondary oil from the
waterfloods than they produced under the primary phase of production
directly offset the property. The Company has a 100% working
interest in this field.
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.
Casey Strawn Field. The Company owns a 33% Working Interest in this
field in Lea County, New Mexico which is located on a large Penn Reef
Trend. There are 4 existing wells and one 3-D seismically identified
PUD location.
NORTH CENTRAL OKLAHOMA
Red Fork Trend. The Company owns 1340 proven producing acres on
the trend containing 8 producing wells. A recent uphole
recompletion in the Oread Formation by an offset operator is producing
600 MCF per day. The Company, after reviewing its own logs on its
existing wells, believes that 2 and possibly 4 wells have uphole
recompletion potential in the Oread Formation.
EXPLORATION PROPERTIES
Price Ranch Field. The Price Ranch, located in the Texas Panhandle,
contains 8390 net acres. Three prospective features have been
identified along a producing anticlinal trend using well control
and 2-D seismic. A 3-D seismic survey will be utilized to further
delineate the three features and to pick drilling locations.
Caddo Field. The Pure Oil Company discovered the Caddo Field, located
along the north edge of the Ardmore Basin, just south of the Arbuckle
Mountains on July 14, 1939. It is located in, 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 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 MMBBLS and over 54 MMMCFG. A substantial
amount of remaining BBLS of oil should be producible using present day
recovery methods and oil prices. 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 have
conducted an extensive 3-D seismic study of this area with the idea of
extending this field and further developing the remaining reserves.
The Company is currently participating in a well based on this 3-D seismic
survey. The well is utilizing directional drilling techniques. Currently,
one (1) directional lateral has been completed and drilling is proceeding
on a second lateral.
General
In November 1997, the Company completed a recapitalization of its balance
sheet by issuing new equity and $6.6 million of debt to acquire total
proved reserves with a present value, discounted at 10%, of $14.6 million.
The recapitalization enhances the Company's ability to compete in the oil
and gas industry by substantially increasing its cash flow available for
investment and improving its ability to attract capital. The ability to
redirect cash flow to acquisition, exploitation, and exploration
activities allows the Company to pursue its aggressive growth strategy.
BUSINESS STRATEGY
A primary component of the Company's strategy is to expand its oil and
gas development and exploration activities. In addition to developing
its existing reserves, the Company will attempt to increase its reserve
base, production and operating cash flow by engaging in strategic
acquisitions of oil and natural gas properties.
What the Company needs to complement its developed, long-lived asset
base is a portfolio of properties rich with opportunities for
reinvestment in both exploitation and exploration projects. We have
chosen to focus on domestic producing basins that will establish for us
new core areas of operation. We also desire to operate the properties
we acquire because as the operator, we believe we can control the
timing of projects and receive the highest possible returns.
The Company does not have a specific acquisition budget because of the
unpredictability of the timing and size of forthcoming acquisition
activities. There is no assurance that The Company will be able to
identify suitable acquisition candidates in the future, or that the
Company will be successful in the acquisition of producing properties.
In order to finance any possible future acquisitions, the Company will
either use borrowings or the Company may seek to obtain additional debt
or equity financing in the public or private capital markets. Further,
there can be no assurances that any future acquisitions made by the
Company will be integrated successfully into the Company's operations
or will achieve desired profitability objectives.
Financial Condition
Liquidity and Capital Resources
The Company incurred a consolidated net loss of $73,332, and $13,342,
for the three months ended March 31, 1998 and 1997, respectively. At
March 31, 1998, the Company had negative working capital of approximately
$357,123, which was a $287,932 decrease from the $69,191 working capital
that the Company had as of March 31, 1997. This decrease in working
capital was due primarily to the current portion of long term debt
resulting from the acquisition of proved reserves referred to above.
Management believes cash flow from those reserves will be sufficient to
eliminate the working capital deficit.
CASH FLOW TO OPERATING ACTIVITIES
During the three months ended March 31, 1998, operating activities provided
net cash of approximately $19,000 which, when offset by non-cash expenses
for depreciation, depletion, and amortization, decreases in accounts
payable and decreases in receivables, resulted in a net loss of
approximately $73,332 for the period. In the same period during 1997,
operations provided net cash of approximately $129,000 which, resulted
in a net loss from operations of $13,342. Investing activities required
approximately $211,086 and required $122,572 for the three month period
ended March 31, 1998, and 1997, respectively.
RESULTS OF OPERATIONS
Total revenues for the three months ended March 31, 1998, increased 397%
over revenues for the preceding year, well operation fees decreased by
50% and other income decreased by 74%.
Lease operations and production expenses were higher for the three
months interim period ended March 31, 1998, as compared to the
corresponding period a year earlier as a result of the Company's
increased level of operations. General and administrative expenses
increased by 41% in the three month interim period during 1998, as
compared to a year earlier, due to expenses associated with
acquiring the partnership's properties as well as year end audit fees.
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.
YEAR 2000 ISSUE
The Company has reviewed its current computer software and hardware
systems, and is currently working to resolve the potential problems
associated with the Year 2000 and the processing of date sensitive
information by such systems. Based on preliminary information, the
Company believes that it will be able to implement successfully the
systems and programming changes necessary to address the Year 2000
issues, and does not expect the cost of such changes to have a material
impact on the Company's financial position, results of operations or
cash flows in future periods.
<PAGE>11
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
During the quarter ended March 31, 1998, the Company did not file
any report on Form 8-K.
<PAGE>12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
FUTURE PETROLEUM CORPORATION
(Registrant)
Dated: May 20, 1998 By: /s/ B. Carl Price
B. Carl Price, President,
Principal Financial and Accounting Officer
Dated: May 20, 1998 By: /s/ Christie Sirera
Christie Sirera,
Secretary
<PAGE>13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 97247
<SECURITIES> 0
<RECEIVABLES> 248861
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 403285
<PP&E> 12346022
<DEPRECIATION> 428698
<TOTAL-ASSETS> 11961438
<CURRENT-LIABILITIES> 12522245
<BONDS> 0
0
0
<COMMON> 56788
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12522245
<SALES> 0
<TOTAL-REVENUES> 516342
<CGS> 636188
<TOTAL-COSTS> 636188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73332)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
