UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 26, 1998
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)
Transitional Small Business Disclosure Format (Check One): Yes No x
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
TABLE OF CONTENTS
Page
(a) Financial statements of business acquired.
Report of Independent Public Accountants 3
Financial Statements & Notes for Future Acquisitions 1995, Ltd. 4
Report of Independent Public Accountants 12
Financial Statements & Notes for BMC Development No. 1 Limited
Partnership 13
(b) Pro Forma financial statements information
Pro Forma Lead-in Narrative 22
Pro Forma Balance Sheet at September 30, 1997 23
Pro Forma Income Statement for the Nine Months Ended September 30, 1997 25
Pro Forma Income Statement for the Year Ended December 31, 1996 27
Notes to Pro Forma Combined Financial Statements 29
Signature Page 30
<PAGE>
Report of Independent Accountants
To the Partners of
Future Acquisition 1995, Ltd.
In our opinion, the accompanying balance sheet and the related
statements of income, of partners' capital and of cash flows
present fairly, in all material respects, the financial position
of Future Acquisition 1995, Ltd. (a Texas limited partnership) at
December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles. These financial statements are
the responsibility of the Partnership's management; our responsibility
is to express an opinion on these financial statements based on our
audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit 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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for the opinion
expressed above.
Future Acquisition 1995, Ltd., as disclosed in Note 4, has extensive
transactions and relationships with related parties.
PRICE WATERHOUSE LLP
April 2, 1997
Houston, Texas
<PAGE>
<TABLE>
FUTURE ACQUISITION 1995, LTD.
(a Texas limited partnership)
BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 360,687 $ 1,003
Due from general partner, net 181,487 157,690
------------ -------------
Total current assets 542,174 158,693
Oil and gas properties, at cost
(successful efforts method) 5,130,554 2,417,053
Less - accumulated depreciation,
depletion and amortization (523,906) (294,160)
------------ -------------
Net property and equipment 4,606,648 2,122,893
------------ -------------
Organization costs, net 22,982 28,746
------------ -------------
$ 5,171,804 $ 2,310,332
============ =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accrued liabilities $ 232 $ 5,357
---------- -------------
PARTNERS' CAPITAL:
General partner 1,086,487 779,566
Limited partners 4,085,085 1,525,409
------------ -------------
5,171,572 2,304,975
------------ -------------
$ 5,171,804 $ 2,310,332
============ =============
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<TABLE>
FUTURE ACQUISITION 1995, LTD.
(a Texas limited partnership)
STATEMENTS OF INCOME
Nine months ended Year ended
September 30, December 31,
(Unaudited)
1997 1996 1996
---------- ----------- ------------
<S> <C> <C> <C>
INCOME:
Oil and gas sales $ 1,596,906 $ 746,078 $ 1,081,161
------------ ----------- ------------
EXPENSES:
Lease operating expense 742,627 432,846 601,245
Severance taxes 103,900 40,948 60,784
Depreciation, depletion
and amortization 235,510 167,306 280,662
General and administrative 107,601 14,180 17,462
----------- ---------- -----------
1,189,638 655,280 960,153
----------- ---------- -----------
OPERATING INCOME 407,268 90,798 121,008
INTEREST INCOME 1,557 3,342 3,461
----------- ---------- ----------
NET INCOME $ 408,825 $ 94,140 $ 124,469
=========== ========== ===========
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<TABLE>
FUTURE ACQUISITION 1995, LTD.
(a Texas limited partnership)
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM DECEMBER 31, 1995 TO SEPTEMBER 30, 1997
General Limited TOTAL
Partner Partner
---------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 760,060 $ 1,163,922 $ 1,923,982
Contributions - 534,100 534,100
Distributions (32,043) (245,533) (277,576)
Net income 51,549 72,920 124,469
----------- ----------- -----------
Balance, December 31, 1996 779,566 1,525,409 2,304,975
Contributions (Unaudited) 337,500 2,848,767 3,186,267
Distributions (Unaudited) (47,242) (681,253) (728,495)
Net income (Unaudited) 16,663 392,162 408,825
----------- ------------ -----------
Balance, September 30, 1997
(Unaudited) $ 1,086,487 $4,085,085 $5,171,572
=========== =========== ===========
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<TABLE>
FUTURE ACQUISITION 1995, LTD.
(a Texas limited partnership)
STATEMENTS OF CASH FLOWS
Nine months ended Year Ended
September 30, December 31,
(Unaudited)
1997 1996 1996
----------- -------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 408,825 $ 94,140 $ 124,469
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation, depletion and
amortization 235,510 167,306 280,662
Increase in amounts due from
general partner (23,797) (55,015) (74,319)
Increase in other assets - (50,000) -
Decrease in accrued liabilities (5,125) (28,582) (77,940)
---------- ---------- -----------
Net cash provided by operating
activities 615,413 127,849 252,872
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment (2,713,501) (506,345) (508,393)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions by partners 3,186,267 584,099 534,100
Distributions to partners (728,495) (144,615) (277,576)
----------- ----------- ----------
Net cash provided by
financing activities 2,457,772 439,484 256,524
----------- ----------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 359,684 60,988 1,003
CASH AND CASH EQUIVALENTS,
beginning of year 1,003 - -
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
end of year $ 360,687 $ 60,988 $ 1,003
=========== ========== ===========
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
FUTURE ACQUISITION 1995, LTD.
(a Texas limited partnership)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 1996 is unaudited.)
1. ORGANIZATION
Future Acquisition 1995, LTD. No. 1 Limited Partnership (the
Partnership), a Texas limited partnership, was formed on December
13, 1995 and is engaged primarily in the exploration, development
and operation of oil and gas properties. The general partner is
Future Petroleum Corporation (Future), a Texas corporation, which
in such capacity is responsible for, among other things, the
management of the affairs of the Partnership. EnCap Equity 1994
Limited Partnership (EnCap), a Texas limited partnership, and Energy
Capital Investment Company PLC (ECIC), an English investment company,
are limited partners.
On April 18, 1996, Future, EnCap and ECIC amended the original
partnership agreement dated December 13, 1995 to specify additional
contribution requirements, for each partner, associated with increased
funding necessary to develop certain fields.
On January 29, 1997, the partners amended and restated the original
partnership agreement to reflect funding and operating changes
resulting from the Partnership's additional property acquisition in
January 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared on the
accrual basis in accordance with generally accepted accounting
principles. Preparation of financial statements in conformity with
generally accepted accounting principles and estimation of oil and
gas reserves require management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Financial Instruments
The carrying amounts of the Partnership's financial instruments,
which include cash, trade accounts receivable and accrued liabilities,
approximate fair value because of their short-term nature.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of all demand deposits
and investments in money market funds with original maturities of
three months or less when purchased, stated at cost which is equivalent
to market value.
Oil and Gas Properties
The Partnership follows the successful efforts method of accounting
for oil and gas acquisition, exploration and development costs. Under
this method, costs of successful exploratory wells, development wells,
lease and well-head equipment and all costs incurred in acquiring
mineral leasehold interests are capitalized. Exploratory dry hole
costs and other exploration costs, including geological and geophysical
costs, delay rentals and production costs are expensed as incurred.
Unproved properties are assessed periodically on a property-by-property
basis and any impairment in value is currently charged to expense.
<PAGE>
Capitalized costs relating to producing properties are depreciated and
depleted on the unit-of-production method. Proved developed reserves
are used in computing unit rates for drilling and development costs,
and total proved reserves are used for depletion of leasehold costs.
Capitalized costs are evaluated for impairment based on an analysis of
future net cash flows in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
Maintenance and repairs are expensed as incurred; major renewals and
improvements are capitalized. Gains and losses arising from sales of
properties are included in income.
Organization Costs
The costs of organizing the Partnership are capitalized and amortized
over a 60-month period.
Placement Fees
Placement fees are charged directly against partners' capital
contributions when paid. During the year ended December 31, 1996,
placement fees of $18,762 and $31,238 were charged to the capital
accounts of ECIC and EnCap, respectively.
Income Taxes
No provision for federal income taxes is included in the accompanying
financial statements. Since the Partnership is not subject to
taxation, the tax effects of its activities accrue to the individual
partners. The Partnership's tax returns are subject to examination
by the federal and state taxing authorities. If such examinations
result in adjustments, the tax liability of the partners, if any,
would accordingly be adjusted.
Unaudited Information
The balance sheet as of September 30, 1997 and the statements of
operations for the nine month periods ended September 30, 1997 and
1996 were taken from the Company's books and records without audit.
However, in the opinion of management, such information includes all
adjustments (consisting only of normal recurring accruals) which are
necessary to properly reflect the financial position of the Company
as of September 30, 1997 and the results of operations for the nine
month periods ended September 30, 1997 and 1996.
3. OIL AND GAS PROPERTIES
In December 1995, the general partner assigned to the Partnership
its rights and obligations in interests in producing properties
located in Carson, Gray and Hutchinson Counties, Texas. The
properties contributed by the general partner to the Partnership
were assigned a value of $765,450. Additionally, the Partnership
purchased further interests in properties located in Carson, Gray
and Hutchinson Counties, Texas and interests in producing properties
located in Midland County, Texas for $610,000 and $440,000,
respectively. The acquisitions were accounted for as purchases.
The results of operations of the properties assigned and acquired
are included in the Partnership's results of operations effective
December 1995.
During January 1997, the Partnership acquired interests in certain
producing properties located in Moore County, Texas for an adjusted
purchase price of $2.1 million. Associated with this acquisition,
EnCap and ECIC made capital contributions of $1,041,382 each. Also,
Future contributed $100,000 cash and 180,000 shares of its restricted
common stock.
<PAGE>
4. RELATED PARTY TRANSACTIONS
Future, as operator of the Partnership's oil and gas properties,
receives revenues and pays costs and expenses associated with the
properties and then allocates such activity as appropriate to the
respective working interest and royalty owners. During the year
ended December 31, 1996, the Partnership received oil and gas revenues
from Future of $1,081,161. As of September 30, 1997 and December 31,
1996, accounts receivable of $329,722 and $218,217, respectively were
due from Future. During the year ended December 31, 1996, Future was
reimbursed $767,738 for operating expenses and capitalized costs
incurred on behalf of the Partnership. Accounts payable due to
Future as of September 30, 1997 and December 31, 1996 were $148,235
and $60,527, respectively.
In connection with the formation of the Partnership in December 1995,
the parent of the general partner issued warrants to EnCap and ECIC
entitling them to purchase 156,192 and 93,808 shares of the parent's
common stock at a specified exercise price. Additionally, to provide
the limited partners additional consideration for agreeing to the
amendment dated April 18, 1996, the parent of the general partner
issued warrants to EnCap and ECIC entitling them to purchase 23,429
and 14,071 shares of the parent's common stock at a specified exercise
price. EnCap and ECIC have not exercised these warrants as the market
price has been below the exercise price for the applicable exercise
period. The value associated with these warrants is not material and
has not been reflected in the respective partners' accounts.
5. ALLOCATION TO PARTNERS
The Partnership agreement provides, among other things, that revenues
and expenses, excluding depletion, depreciation and amortization expense
which generally is allocated to the partners in proportion to each
partner's relative capital contributions, generally are allocated 15%
to the general partner and 85% to the limited partners, except for the
Moore County properties which are allocated 3% to the general partner
and 97% to the limited partners until such time the limited partners
receive a 20% internal rate of return on their investment. After the
limited partners receive a 20% internal rate of return, the revenues
and expenses are allocated 75% to the general partner and 25% to the
limited partners.
The Partnership agreement, as amended, in effect during the year ended
December 31, 1996, provides that the Partnership maintain minimum
ratios of 1.70 to 1 and 1.35 to 1, calculated as discounted projected
net revenues divided by total proved reserves and total proved producing
reserves, respectively. The limited partners have waived this provision
of the Partnership agreement.
The allocation among the limited partners is 62.4768% to EnCap and
37.5232% to ECIC, except for the Moore County properties, which is
50% to each of EnCap and ECIC.
6. MAJOR CUSTOMERS
Oil and gas sales to three customers constitute a significant
percentage of the Partnership's revenues. There are adequate buyers
or purchasers of the Partnership's production such that management
believes the loss of one or more of these customers would not have a
material adverse effect on the results of operations of the Partnership.
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
In the course of its business affairs and operations, the Partnership
is subject to possible loss contingencies arising from federal, state
and local environmental, health and safety laws and regulations and
third-party litigation. There are no matters which, in the opinion of
management, will have a material adverse effect on the financial
position or results of operations of the Partnership.
8. FINANCIAL DATA FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
During the year ended December 1, 1996, the Partnership incurred
development costs of $508,393. The Partnership incurred no
acquisition or exploration costs in 1996.
9. OIL AND GAS RESERVE DATA (UNAUDITED)
The following table, based on information prepared by independent
petroleum engineers, summarizes changes in the Partnership's net
interest in proved reserves of crude oil and condensate and natural
gas, all of which are domestic reserves:
Oil Gas
(BBLS) (MCF)
---------------------------
Balance, January 1, 1996 183,000 1,852,000
Revisions of previous estimates 8,000 (39,000)
Production (27,000) (190,000)
--------- ----------
Balance, December 31, 1996 164,000 1,623,000
========= ==========
Proved developed reserves:
January 1, 1996 143,000 1,573,000
December 31, 1996 164,000 1,623,000
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating
conditions. Proved developed oil and gas reserves are reserves that
can be expected to be recovered through existing wells with existing
equipment and operating methods. The above estimated net interests
in proved reserves are based upon subjective engineering judgments and
may be affected by the limitations inherent in such estimation. The
process of estimating reserves is subject to continual revision as
additional information becomes available as a result of drilling,
testing, reservoir studies and production history. There can be no
assurance that such estimates will not be materially revised in
subsequent periods.
<PAGE>
10.STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES (UNAUDITED)
The standardized measure of discounted future net cash flows at
December 31, 1996 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 Partnership'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
-------------
Future cash inflows $ 9,077,000
Future production costs (3,859,000)
Future development costs (29,000)
--------------
Future net cash flows 5,189,000
10% annual discount for estimated
timing of cash flows (1,734,000)
--------------
Standardized measure of discounted
future net cash flows $ 3,455,000
==============
Future net cash flows were computed using year-end prices and costs
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
--------------
Sales of oil and gas produced,
net of production costs $ (419,000)
Net changes in prices and production
costs 2,303,000
Revisions and other (223,000)
--------------
Net change 1,661,000
Balance, January 1, 1996 1,794,000
--------------
Balance, December 31, 1996 $ 3,455,000
==============
<PAGE>
Report of Independent Accountants
To the Partners of
BMC Development No. 1 Limited Partnership
In our opinion, the accompanying balance sheet and the related
statements of income, of partners' capital and of cash flows
present fairly, in all material respects, the financial
position of BMC Development No. 1 Limited Partnership (a Texas
limited partnership) at December 31, 1996, and the results of
its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an
opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we
plan and perform the audit 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, assessing the accounting principles used
and significant estimates made by management, and evaluating
the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
April 2, 1997
Houston, Texas
<PAGE>
<TABLE>
BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP
(a Texas Limited Partnership)
BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996
(Unaudited)
--------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,287 $ 2,067
Due from general partner, net 46,662 28,234
--------------- -------------
Total current assets 48,949 30,301
Oil and gas properties, at cost
(successful efforts method) 2,378,282 1,797,985
Less - accumulated depreciation,
depletion and amortization (273,824) (131,546)
--------------- -------------
2,104,458 1,666,439
Organization costs, net 4,200 5,100
------------- -------------
Total assets $2,157,607 $ 1,701,840
============= =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accrued liabilities $ 21,798 $ 6,500
------------ ------------
PARTNERS' CAPITAL:
General partner 315,159 336,624
Limited partners 1,820,650 1,358,716
------------ ------------
2,135,809 1,695,340
------------ ------------
Total liabilities and partners'
capital $2,157,607 $ 1,701,840
============ ============
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<TABLE>
BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP
(a Texas Limited Partnership)
STATEMENTS OF INCOME
Period from Period from
Nine Months Inception Inception
Ended (April 4, 1996) (April 4, 1996)
September 30, To September 30 To December 31,
1997 1996 1996
------------ --------------- --------------
(Unaudited)
<S> <C> <C> <C>
INCOME:
Oil and gas sales $ 333,501 $ 250,591 $ 316,734
EXPENSES:
Lease operating expense 124,992 64,537 93,158
Severance taxes 21,520 14,734 18,347
Depreciation, depletion
and amortization 143,178 90,477 132,446
General and administrative 26,282 5,066 10,075
----------- ------------ -----------
315,972 174,814 254,026
----------- ------------ -----------
OPERATING INCOME 17,529 75,777 62,708
INTEREST INCOME 988 238 595
----------- ------------ ----------
NET INCOME $ 18,517 $ 76,015 $ 63,303
=========== ============ ==========
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<TABLE>
BMC DEVELOPMENT NO.1 LIMITED PARTNERSHIP
(a Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
General Limited
Partner Partners Total
---------- ---------- ----------
<S> <C> <C> <C>
Contributions $ 360,295 $1,451,160 $1,811,455
Distributions (26,914) (152,504) (179,418)
Net income for the period
from inception (April 4,
1996) to December 31, 1996 3,243 60,060 63,303
---------- ---------- -----------
Balance, December 31, 1996 336,624 1,358,716 1,695,340
Contributions (Unaudited) - 613,000 613,000
Distributions (Unaudited) (24,700) (166,348) (191,048)
Net income (Unaudited) 3,235 15,282 18,517
---------- --------- ----------
Balance, September 30, 1997
(Unaudited) $ 315,159 $1,820,650 $ 2,135,809
========== ========== ==========
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
<TABLE>
BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP
(a Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
Period from Period from
Nine Months Inception Inception
Ended (April 4, 1996) (April 4, 1996)
September 30, To September 30 To December 31,
1997 1996 1996
------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 18,517 $ 76,015 $ 63,303
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation, depletion
and amortization 143,178 90,477 132,446
Increase in amounts due
from general partner (18,428) (60,324) (28,234)
Increase in accrued
liabilities 15,298 140,117 6,500
------------ ---------- ----------
Net cash provided by
operating activities 158,565 246,285 174,015
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas
properties (580,297) (523,163) (762,690)
Organization costs - (6,000) (6,000)
------------ ----------- ----------
Net cash used for investing
activities (580,297) (529,163) (768,690)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions by partners 613,000 1,226,160 1,451,160
Distributions to partners (191,048) (122,229) (179,418)
Payment of general partner
indebtedness by Partnership - (675,000) (675,000)
------------ ----------- ----------
Net cash provided by
financing activities 421,952 428,931 596,742
------------ ----------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 220 146,053 2,067
CASH AND EQUIVALENTS,
beginning of period 2,067 - -
------------ ----------- ----------
CASH AND EQUIVALENTS,
end of period $ 2,287 $ 146,053 $ 2,067
============ =========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES -
Approximate value of oil and
gas properties contributed
by general partner $ - $ 1,035,295 $ 1,035,295
============ ============ ===========
See accompanying notes to these financial statements.
</TABLE>
<PAGE>
BMC DEVELOPMENT NO 1 LIMITED PARTNERSHIP
(a Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
1. ORGANIZATION
BMC Development No. 1 Limited Partnership (the Partnership),
a Texas limited partnership, was formed on April 4, 1996 and
is engaged primarily in the exploration, development and operation
of oil and gas properties. The general partner is Benson-McCown &
Company (Benson-McCown), a Texas corporation, which in such capacity
was responsible for, among other things, the management of the
affairs of the Partnership. EnCap Equity 1994 Limited Partnership
(EnCap), a Texas limited partnership, and Energy Capital Investment
Company PLC (ECIC), an English investment company, are limited partners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared on the
accrual basis in accordance with generally accepted accounting
principles. Preparation of financial statements in conformity
with generally accepted accounting principles and estimation of
oil and gas reserves require management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
Oil and Gas Properties
The Partnership follows the successful efforts method of
accounting for oil and gas acquisitions, exploration and
development costs. Under this method, costs of successful
exploratory wells, development wells, lease and well-head
equipment and all costs incurred in acquiring mineral leasehold
interests are capitalized. Exploratory dry hole costs and other
exploration costs, including geological and geophysical costs,
delay rentals and production costs are expensed as incurred.
Unproved properties are assessed periodically on a
property-by-property basis and any impairment in value is
currently charged to expense.
Capitalized costs relating to producing properties are depreciated
and depleted on the unit-of-production method. Proved developed
reserves are used in computing unit rates for drilling and
development costs, and total proved reserves are used for depletion
of leasehold costs. Capitalized costs are evaluated for impairment
based on an analysis of future net cash flows in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of".
Maintenance and repairs are expensed as incurred; major renewals
and improvements are capitalized. Gains and losses arising from
sales of properties are included in income.
Organization Costs
The costs of organizing the Partnership are capitalized and
amortized over a 60-month period.
Placement Fees
Placement fees are charged directly against partners' capital
contributions when paid. During the period from inception
(April 4, 1996) to December 31, 1996, placement fees of $12,500
and $12,500 were charged to the capital accounts of ECIC and EnCap,
respectively.
<PAGE>
Financial Instruments
The carrying amount of the Partnership's financial
instruments, which includes cash, trade accounts receivable
and accrued liabilities, approximates fair value because of
the short-term nature of these instruments.
Income Taxes
No provision for federal income taxes is included in the accompanying
financial statements. Since the Partnership is not subject to taxation,
the tax effects of its activities accrue to the individual partners.
The Partnership's tax returns are subject to examination by the federal
and state taxing authorities. If such examinations result in
adjustments, the tax liability of the partners, if any, would
accordingly be adjusted.
Unaudited Information
The balance sheet as of September 30, 1997 and the statements
of operations for the nine month periods ended September 30, 1997
and 1996 were taken from the Company's books and records without
audit. However, in the opinion of management, such information
includes all adjustments (consisting only of normal recurring accruals)
which are necessary to properly reflect the financial position of the
Company as of September 30, 1997 and the results of operations for the
nine month periods ended September 30, 1997 and 1996.
3. OIL AND GAS PROPERTIES
Effective February 1996, Benson-McCown assigned to the partnership
three wells in the Ashby and Dunlop leases in Lubbock, Texas, and
eight wells in Grant County, Oklahoma. At inception (April 4, 1996),
the Partnership recorded these properties at their estimated fair
market value of approximately $1,035,295, adjusted for the operations
between the effective date of February 1, 1996 and the closing date
of April 4, 1996. The results of operations of the properties
assigned are included in the Partnership's results of operations
effective April 4, 1996.
4. RELATED PARTY TRANSACTIONS
Benson-McCown, as operator of the Partnership's oil and gas
properties, receives revenues and pays costs and expenses associated
with the properties and then allocates such activity as appropriate
to the respective working interest and royalty owners. During the
period from inception (April 4, 1996) to December 31, 1996, the
Partnership received oil and gas revenues from Benson-McCown of
$316,734. At September 30, 1997 and December 31, 1996, accounts
receivable of $65,097 and $84,370, respectively were due from
Benson-McCown. During the period from inception (April 4,1 1996)
to December 31, 1996, the general partner was reimbursed $44,356 for
operating expenses and capitalized costs incurred on behalf of the
Partnership. Accounts payable due to Benson-McCown as of September
30, 1997 and December 31, 1996 were $18,435 and $56,136, respectively.
During the period from inception (April 4, 1996) to December 31,
1996, the Partnership paid to a third party on behalf of the general
partner $675,000 of indebtedness associated with the contributed
properties.
<PAGE>
5. ALLOCATION TO PARTNERS
The Partnership agreement provides, among other things, that
revenues and expenses, excluding depletion, depreciation and
amortization expense, which is allocated to the partners in
proportion to each partner's relative capital contributions,
generally are allocated 15% to the general partner and 85% to
the limited partners until such time the limited partners receive
a 20% internal rate of return on their investment. After the
limited partners receive a 20% internal rate of return but prior
to a 25% internal rate of return, the revenues and expenses
generally are allocated 50% to the general partner and 50% to the
limited partners. After the limited partners receive a 25% internal
rate of return, the revenues and expenses are allocated 75% to the
general partner and 25% to the limited partners.
The allocation among the limited partners is 50% to EnCap and 50%
to ECIC.
6. MAJOR CUSTOMERS
Oil and gas sales to three customers constitute a significant
percentage of the Partnership's revenues. There are adequate
buyers or purchasers of the Partnership's production such that
management believes the loss of one or more of these customers
would not have a material adverse effect on the results of
operations of the Partnership.
7. COMMITMENTS AND CONTINGENCIES
In the course of its business affairs and operations, the
Partnership is subject to possible loss contingencies arising
from federal, state and local environmental, health and safety
laws and regulations and third-party litigation. There are no
matters which, in the opinion of management, will have a material
adverse effect on the financial position or results of operations
of the Partnership.
8. 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
------------
Costs incurred in oil and gas producing activities:
Acquisition of proved properties $ -
Acquisition of unproved properties -
Exploration cost -
Development costs 762,690
-------------
Total costs incurred $ 762,690
<PAGE>
9. OIL AND GAS RESERVE DATA (UNAUDITED)
The following table, based on information prepared by
independent petroleum engineers, summarizes changes in the
estimates of the Partnership'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 April 4, 1996 - -
Purchase of minerals in place 553,000 1,289,000
Production (10,000) (75,000)
-------- ----------
Balance, December 31, 1996 543,000 1,214,000
At December 31, 1996, 157,000 barrels of oil and 715,000 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.
10. STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES
(UNAUDITED)
The standardized measure of discounted future net cash flows
at December 31, 1996 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 Partnership'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
---------------
Future cash inflows $ 17,058,000
Future production costs (6,731,000)
Future development costs (2,054,000)
Future net cash flows 8,273,000
10% annual discount for estimated timing
of cash flows (4,416,000)
--------------
Standardized measure of discounted future
net cash flows $ 3,857,000
==============
<PAGE>
Future net cash flows were computed using year-end prices
and costs 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
-------------
Sale of oil and gas produced, net of
production costs $ (205,000)
Purchase of minerals in place 4,062,000
Net change 3,857,000
Balance, April 4, 1996 -
--------------
Balance, December 31, 1996 $ 3,857,000
==============
<PAGE>
Future Petroleum Corporation
Unaudited Pro Forma Financial Statements
The following unaudited pro forma combined financial statements are
derived from the financial statements of Future Petroleum Corporation
(the Company) and Future Acquisition 1995, Ltd. Partnership, BMC
Development Partnership, and the Gecko Booty #1 Partnership. In
November 1997, the Company acquired the partnership interests of the
first two partnerships and substantially all the assets of the third for a
total combined purchase price of $6.6 million in notes and 1,575,000
shares of the company's common stock. The Unaudited Pro Forma Income
Statement for the nine months ended September 30, 1997 and the year ended
December 31, 1996 have been prepared assuming the acquisition had been
consummated as of the beginning of the respective periods.
The Unaudited Pro Forma Balance Sheet as of September 30, 1997
has been prepared as if the acquisition had been consummated on
September 30, 1997.
Oil and gas producing operations of the three partnerships have
been accounted for on the successful efforts method of accounting
in their historical financial statements, while the Company uses
the full cost method. Therefore, the pro forma adjustments
include certain adjustments necessary to place the combined
entity on the full cost method in addition to adjustments
necessary to reflect the acquisitions as if they had occurred
on the dates indicated.
The unaudited combined pro forma financial statements should
be read in conjunction with the notes thereto and with the
financial statements of the Company as included in its Forms
10-QSB and 10-KSB and the financial statements of the
partnerships included herein.
The unaudited combined pro forma financial statements are
not indicative of the financial position or results of
operations of the Company which would actually have occurred
if the acquisition of the partnerships had occurred at the
dates presented or which may be obtained in the future.
In addition, future results may vary significantly from the
results reflected in such statements due to normal oil and
gas production declines, changes in prices paid for oil and
gas, future acquisitions, drilling activity and other factors.
<PAGE>
<TABLE>
FUTURE PETROLEUM CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
Future
Future Acquisition BMC Gecko
Petroleum 1995 Ltd. Develop. Booty
--------- ----------- --------- --------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash
Equivalents 124,674 360,687 2,287 5,000
Current portion of
notes receivable 146,177
Trade Accounts
receivable 431,424 24,490
Due from general
partner, net 181,487 46,662
---------- -------- -------- -------
Total current assets 702,275 542,174 48,949 29,490
---------------------------------------------
Oil and gas properties
at cost (successful
efforts method) 858,335 5,130,554 2,378,282 1,688,948
Lease operating
rights 609,113
Less - accumulated
depreciation,
depletion and
amortization (258,242) (523,906) (273,824) (932,385)
------------------------------------------------
1,209,206 4,606,648 2,104,458 756,563
------------------------------------------------
Other Assets: 50,418 22,982 4,200
------------------------------------------------
1,961,899 5,171,804 2,157,607 786,053
================================================
Liabilities and
Stockholders' or
Partners' Equity
Current liabilities:
Trade accounts
payable 166,837
Current portion
of notes payable 23,382
Accrued oil and gas
proceeds payable 349,771
Accrued liabilities 232 21,798 1,925
Due to general partner
or shareholder 35,000 12,358
--------------------------------------------
574,990 232 21,798 14,283
--------------------------------------------
Deferred tax liability
Long Term
Liabilities: 86,227
Partners' Capital
Common stock and
paid in capital 1,333,577
Partners' Capital 5,171,572 2,135,809 771,770
Accumulated deficit (32,895)
----------------------------------------------
1,300,682 5,171,572 2,135,809 771,770
----------------------------------------------
1,961,899 5,171,804 2,157,607 786,053
==============================================
See accompanying notes to Unaudited Pro Forma Combined Financial Data
</TABLE>
<PAGE>
<TABLE>
FUTURE PETROLEUM CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
Pro Forma Adjustments Pro Forma
DR CR Combined
------------ -- --------- -- -----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash Equivalents 492,648
Current portion of notes
receivable 146,177
Trade Accounts receivable 455,914
Due from general partner, net 181,487 4 46,662
------------ -- --------- -- ---------
Total current assets 181,487 1,141,401
-----------------------------------------
Oil and gas properties
at cost (successful
efforts method) 802,216 1 11,933,335
740,000 2
335,000 3
Lease operating
rights 335,000 3 274,113
Less - accumulated
depreciation,
depletion and
amortization 1,730,115 1 (258,242)
------------------------------------------
3,607,331 335,000 11,949,206
------------------------------------------
Other Assets: 77,600
------------------------------------------
3,607,331 516,487 13,168,207
==========================================
Liabilities and
Stockholders' or
Partners' Equity
Current liabilities:
Trade accounts
payable 166,837
Current portion
of notes payable 412,500 1 435,882
Accrued oil and gas
proceeds payable 181,487 4 168,284
Accrued liabilities 23,955
Due to general partner
or shareholder 47,358
------------------------------------------
181,487 412,500 842,316
------------------------------------------
Deferred tax liability 740,000 2 740,000
Long Term
Liabilities: 6,187,500 1 6,273,727
Partners' Capital
Common stock and
paid in capital 4,011,482 1 5,345,059
Partners' Capital 8,079,151 1 -
Accumulated deficit (32,895)
--------------------------------------------
8,079,151 4,011,482 5,312,164
--------------------------------------------
8,260,638 11,351,482 13,168,207
============================================
See accompanying notes to Unaudited Pro Forma Combined
Financial Data
</TABLE>
<PAGE>
<TABLE>
FUTURE PETROLEUM CORPORATION
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Future
Future Acquisition BMC Gecko
Petroleum 1995 Ltd. Develop. Booty
--------------------------------------------
<S> <C> <C> <C> <C>
Income:
Oil and gas sales 175,696 1,596,906 333,501 275,822
Well operation fees 168,023
--------- ----------- --------- --------
343,719 1,596,906 333,501 275,822
---------------------------------------------
Expenses:
Lease operating
expense and
severance taxes 147,278 846,527 146,512 89,390
Depreciation,
depletion and
amortization 88,040 235,510 143,178 234,273
Interest 4,221
General and admin. 126,547 107,601 26,282 42,871
-------- --------- -------- --------
366,086 1,189,638 315,972 366,534
----------------------------------------------
Operating
income/(loss) (22,367) 407,268 17,529 (90,712)
Other Income: 41,910 1,557 988 86,369
Income (loss) before
taxes 19,543 408,825 18,517 (4,343)
Deferred tax
benefit
---------------------------------------------
Net income/(loss) 19,543 408,825 18,517 (4,343)
=============================================
Income (loss)
per share 0.01
=============================================
Weighted average
shares 3,800,000
==============================================
See accompanying notes to Unaudited Pro Forma Combined Financial Data.
</TABLE>
<PAGE>
<TABLE>
FUTURE PETROLEUM CORPORATION
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Pro Forma Adjustments Pro Forma
DR CR Combined
------------ -- --------- -- -----------
<S> <C> <C> <C> <C> <C>
Income:
Oil and gas sales 90,065 9 2,291,860
Well operation fees 146,180 10 21,843
-----------------------------------------
236,245 2,313,703
-----------------------------------------
Expenses:
Lease operating
expense and
severance taxes 47,744 9 1,035,783
146,180 10
Depreciation,
depletion and
amortization 588,000 5 701,001 6 588,000
Interest 493,000 7 497,221
General and admin. 7,799 9 295,502
-----------------------------------------
1,081,000 902,724 2,416,506
------------------------------------------
Operating
income/(loss) (844,755) (902,724) (102,803)
Other Income 86,369 8 44,221
234 9
Income (loss) before
taxes (758,152) (902,724) (58,582)
Deferred tax
benefit 1,000 11 1,000
---------------------------------------------
Net income/(loss) (758,152) (901,724) (57,582)
=============================================
Income (loss)
per share (0.48) 19 (0.01)
==============================================
Weighted average
shares 1,575,000 19 5,375,000
==============================================
See accompanying notes to Unaudited Pro Forma Combined Financial Data.
</TABLE>
<PAGE>
<TABLE>
FUTURE PETROLEUM CORPORATION
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
Future
Future Acquisition BMC Gecko
Petroleum 1995 Ltd. Develop. Booty
--------- ----------- --------- --------
<S> <C> <C> <C> <C>
Income:
Oil and gas sales 224,000 1,081,161 316,734 707,440
Well operation fees 154,000
--------- ----------- --------- --------
378,000 1,081,161 316,734 707,440
---------------------------------------------
Expenses:
Lease operating
expense and
severance taxes 187,000 662,029 111,505 196,083
Depreciation,
depletion and
amortization 99,000 280,662 132,446 455,912
Interest 6,000
General and admin. 120,000 17,462 10,075 29,329
-------- --------- -------- --------
412,000 960,153 254,026 681,324
----------------------------------------------
Operating
income/(loss) (34,000) 121,008 62,708 26,116
Other Income:
Interest income 42,000 3,461 595
Miscellaneous income 41,000
Gain on sale
of assets 102,000 25,000
-------- -------- -------- --------
185,000 3,461 595 25,000
---------------------------------------------
Income (loss) before
income tax 151,000 124,469 63,303 51,116
Income tax (expense)
benefit (32,000)
---------------------------------------------
Net income/(loss) 119,000 124,469 63,303 51,116
=============================================
Income (loss)
per share 0.03
=============================================
Weighted average
shares 3,472,000
==============================================
See accompanying notes to Unaudited Pro Forma Combined Financial Data
</TABLE>
<PAGE>
<TABLE>
FUTURE PETROLEUM CORPORATION
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
Pro Forma Adjustments Pro Forma
DR CR Combined
------------ -- --------- -- -----------
<S> <C> <C> <C> <C> <C>
Income:
Oil and gas sales 162,000 13 2,167,335
Well operation fees 134,000 12 20,000
------- -- --------- -- -----------
296,000 2,187,335
-----------------------------------------
Expenses:
Lease operating
expense and
severance taxes 134,000 12 923,617
99,000 13
Depreciation,
depletion and
amortization 804,000 14 968,020 15 804,000
Interest 651,000 16 657,000
General and admin. 3,000 13 173,866
-------- -- -------- -- ---------
1,455,000 1,204,020 2,558,483
-------------------------------------------
Operating
income/(loss) (1,159,000) (1,204,020) (371,148)
Other Income:
Interest income 46,056
Miscellaneous income 41,000
Gain on sale
of assets 25,000 17 102,000
-------- -- ---------- -- ---------
25,000 189,056
------------------------------------------
Income (loss) before
income tax (1,134,000) (1,204,020) (182,092)
Income tax (expense)
benefit 96,000 18 64,000
------------------------------------------
Net income/(loss) (1,134,000) (1,108,020) (118,092)
==========================================
Income (loss)
per share (0.72) 19 (0.02)
==========================================
Weighted average
shares 1,575,000 19 5,047,000
==========================================
See accompanying notes to Unaudited Pro Forma Combined Financial Data.
</TABLE>
<PAGE>
Future Petroleum Corporation
Notes to Unaudited Pro Forma Combined Financial Data
1 To record the purchase of the partnerships' properties for
a $6,600,000 note payable and the issuance of 1,575,000 shares
of Future Petroleum Corporation common stock as if the
properties had been acquired on September 30, 1997. The
equity issuance was valued based upon the estimated market
value of the acquired reserves.
2 To record the deferred tax liability, and associated increase
in oil and gas properties, for the difference in the book and
the tax bases of the oil and gas properties purchased.
3 To reclassify lease operating rights associated with the
properties purchased into the Company's oil and gas properties.
4 To eliminate the oil and gas revenue receivable of Future
Acquisition 1995, Ltd. due from the Company.
5 To record the pro forma depletion adjustment to reflect the
Company's depletion expense as if the properties had been
acquired on January 1, 1997.
6 To reverse historical depletion expense recorded by Future
Petroleum Corp. and each partnership for the nine months
ended September 30, 1997.
7 To record interest expense on the $6,600,000 notes payable
that would have been incurred had the properties had been
acquired on January 1, 1997.
8 To eliminate the gain recorded by the Gecko Booty Partnership
on the sale of oil and gas properties, as the gain would be
a reduction of oil and gas properties under full cost accounting.
9 To eliminate the revenues and expenses allocated to the
Company from the Future Acquisition 1995, Ltd. Partnership for
the nine months ended September 30, 1997.
10 To eliminate well operation fees charged to Future
Acquisition 1995, Ltd. Partnership by the Company for the
nine months ended September 30, 1997
11 To record the deferred tax benefit for the nine months
ended September 30, 1997 as if the properties had been
acquired on January 1, 1997.
12 To eliminate well operation fees charged to Future
Acquisition 1995, Ltd. Partnership by the Company for the
year ended December 31, 1996.
13 To eliminate the revenues and expenses allocated to the
Company from the Future Acquisition 1995, Ltd. Partnership
for the year ended December 31, 1996.
14 To record the pro forma depletion adjustment to reflect
the Company's depletion expense as if the properties had
been acquired on January 1, 1996.
15 To reverse historical depletion expense recorded by Future
Petroleum Corp. and each partnership for the year ended December
31, 1996.
16 To record interest expense on the $6,600,000 notes payable
that would have been incurred had the properties been acquired
on January 1, 1996.
17 To eliminate the gain recorded by the Gecko Booty Partnership
on the sale of oil and gas properties, as the gain would be a
reduction of oil and gas properties under full cost accounting.
18 To record the deferred tax benefit for the year ended December
31, 1996 as if the properties had been acquired on January 1, 1996.
19 To record the effect on income/(loss) per share as if the
acquisition had occurred at the beginning of the period.
<PAGE>
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: February 26, 1998 By: /s/ B. Carl Price
B. Carl Price, President,
Principal Financial and Accounting Officer
