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): October 30, 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)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Future Petroleum Corporation
Dallas, Texas
We have audited the accompanying historical summaries of revenues and direct
operating expenses of properties acquired in August 1998, for the years ended
June 30, 1998 and 1997. The historical summaries are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
historical summaries based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the historical summaries are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical summaries. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall historical summary presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying historical summaries were prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in the Form 8-K/A of Future Petroleum Corporation) as described in
Note 1 and are not intended to be a complete presentation of the properties'
revenues and expenses.
In our opinion, the historical summaries referred to above present fairly, in
all material respects, the revenues and direct operating expenses of the
properties acquired in August 1998, in conformity with generally accepted
accounting principles.
/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP
October 19, 1998
Dallas, Texas
F-1
<TABLE>
<CAPTION> FUTURE PETROLEUM CORPORATION
HISTORICAL SUMMARIES OF REVENUES AND DIRECT OPERATING EXPENSES
OF PROPERTIES ACQUIRED IN AUGUST 1998
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
-------------- -------------
<S> <C> <C>
OIL AND GAS SALES $ 4,124,470 $ 5,314,285
DIRECT OPERATING EXPENSES 2,412,623 2,863,374
-------------- -------------
NET REVENUE $ 1,711,847 $ 2,450,911
============== =============
</TABLE>
F-2
See Notes to Historical Summaries.
1. BASIS OF PREPARATION
The accompanying historical summaries of revenues and direct operating expenses
relate to the operations of the oil and gas properties ("Properties") acquired
by Future Petroleum Corporation (the "Company") in August 1998 from Bargo Energy
Resources, Ltd. The Properties were acquired for $5,800,000 plus the issuance
of 4,700,000 shares of common stock. In addition, certain existing debt was
restructured in exchange for the issuance of an additional 2,800,000 shares of
common stock in connection with the transaction.
Revenues are recorded when the Properties' share of oil or natural gas and
natural gas liquids are sold. Direct operating expenses are recorded when the
related liability is incurred. Direct operating expenses include lease
operating expenses, ad valorem taxes and production taxes. Depreciation and
amortization of oil and gas properties, general and administrative expenses and
income taxes have been excluded from operating expenses in the accompanying
historical summaries because the amounts would not be comparable to those
resulting from proposed future operations.
The historical summaries presented herein were prepared for the purpose of
complying with the financial statement requirements of a business acquisition to
be filed on Form 8-K/A as promulgated by Regulation S-B Item 3-10 of the
Securities Exchange Act of 1934.
2. MAJOR PURCHASER
Oil Sales for the Properties, which comprised approximately 27% and 36%,
respectively of total sales from the Properties for the years ended June 30,
1998 and 1997, were made predominantly to one purchaser.
3. SUPPLEMENTAL INFORMATION ON OIL AND GAS RESERVES (UNAUDITED)
Proved oil and gas reserves consist of those estimated quantities of crude oil,
natural gas, and natural gas liquids that 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 following estimates of proved reserves have been made by independent
engineers. The estimated net interest 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.
The changes in proved reserves of the properties acquired in August 1998 for the
years ended June 30, 1998 and 1997 are set forth below. All of the reserves are
classified as proved developed.
F-3
FUTURE PETROLEUM CORPORATION
NOTES TO HISTORICAL SUMMARIES OF REVENUES AND DIRECT OPERATING
EXPENSES
OF PROPERTIES ACQUIRED IN AUGUST 1998
<TABLE>
Oil and Natural Gas
Natural Gas (Thousand
Liquids Cubic
(Barrels) Feet)
--------------- -------------
<S> <C> <C>
Reserves at July 1, 1996 1,090,981 11,522,336
Production (111,957) (1,691,598)
--------------- -------------
Reserves at June 30, 1997 979,024 9,830,738
Production (92,824) (1,301,838)
--------------- -------------
Reserves at June 30, 1998 886,200 8,528,900
=============== =============
</TABLE>
The standardized measure of discounted estimated future net cash flows related
to proved oil and gas reserves at June 30, 1998 and 1997 is as follows:
<TABLE>
June 30,
1998 1997
--------------- --------------
<S> <C> <C>
Future cash inflows $ 33,509,100 $ 44,253,783
Future production costs (22,190,500) (26,027,976)
--------------- --------------
Future net cash flows, before income taxes 11,318,600 18,225,807
Future income taxes (1,861,000) (3,999,000)
--------------- --------------
Future net cash flows 9,457,600 14,226,807
10% annual discount (4,411,025) (6,629,692)
--------------- --------------
Standardized measure of discounted future
net cash flows $ 5,046,575 $ 7,597,115
=============== ==============
</TABLE>
The primary changes in the standardized measure of discounted estimated future
net cash flows for the years ended June 30, 1998 and 1997, were as follows:
<TABLE>
Year Ended June 30,
1998 1997
-------------- ---------------
<S> <C> <C>
Beginning of year $ 7,597,115 $ 5,221,400
Sales of oil and gas produced, net of
production costs (1,711,847) (2,450,911)
Effect of change in prices (3,033,419) 5,811,697
Change in income taxes 1,142,000 (1,996,000)
Accretion of discount 759,711 522,140
Other 293,015 488,789
-------------- ---------------
End of year $ 5,046,575 $ 7,597,115
============== ===============
</TABLE>
F-4
FUTURE PETROLEUM CORPORATION
NOTES TO HISTORICAL SUMMARIES OF REVENUES AND DIRECT OPERATING
EXPENSES
OF PROPERTIES ACQUIRED IN AUGUST 1998
Estimated future cash inflows are computed by applying year-end prices of oil
and gas to year-end quantities of proved reserves. Estimated future production
costs are determined by estimating the expenditures to be incurred in producing
the proved oil and gas reserves at the end of the year, based on year-end costs
and assuming continuation of existing economic conditions. Estimated future
income tax expense is calculated by applying year-end statutory tax rates to
estimated future pre-tax net cash flows related to proved oil and gas reserves,
less the tax basis of the properties involved.
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.
FUTURE PETROLEUM CORPORATION
UNAUDITED PRO FORMA FINANCIAL INFORMATION
In August 1998, Future Petroleum Corporation (the Company) acquired interests in
certain producing properties in California in exchange for $5,800,000 and
4,700,000 shares of the Company's common stock. No additional value was
assigned to the common stock because the estimated market value of the
properties acquired approximates the cash consideration and closing costs paid.
The cash portion of the purchase price was financed with a senior note payable.
In addition, $1,760,000 of the Company's existing notes payable were repaid and
the remaining balance restructured in connection with the transaction. In
consideration of the restructuring, the existing note holders were issued
1,800,000 shares of the Company's common stock. The following unaudited pro
forma financial statements have been prepared to demonstrate the effect on the
Company's financial position and results of operations as if the properties had
been acquired on June 30, 1998 (with respect to the pro forma balance sheet) and
at the beginning of the periods (with respect to the pro forma statements of
operations). The pro forma financial statements should be read in conjunction
with the historical summaries of revenues and direct operating expenses of the
properties included herein and with the financial statements of the Company as
filed in their Forms 10-KSB and 10-QSB. The pro forma financial statements
should not be construed as a reflection of the financial position or results of
operations that actually would have occurred if the acquisition would have
occurred on the above dates.
F-5
FUTURE PETROLEUM CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
------
<TABLE>
Historical Pro Forma
Amount Adjustments Pro Forma
---------- ----------- ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 55,974 $ - $ 55,974
Trade accounts receivable 182,515 - 182,515
Current portion of notes receivable 93,177 - 93,177
---------- ---------- ------------
Total current assets 331,666 - 331,666
PROPERTY AND EQUIPMENT:
Oil and gas properties - proved 13,479,058 6,000,000 (1) 19,479,058
Other 49,659 - 49,659
Less accumulated depletion and
depreciation (795,594) - (795,594)
---------- ---------- -------------
Net property and equipment 12,733,123 6,000,000 18,733,123
OTHER ASSETS 173,338 - 173,338
---------- ---------- -------------
Total assets $13,238,127 $6,000,000 $19,238,127
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 26,486 $ - $ 26,486
Accounts payable and accrued expenses 240,917 - 240,917
Oil and gas revenues payable 21,379 - 21,379
----------- ----------- -------------
Total current liabilities 288,782 - 288,782
DEFERRED GAIN ON SALE 40,336 - 40,336
DEFERRED TAX LIABILITY 1,298,650 - 1,298,650
LONG-TERM DEBT,
net of current portion 7,256,223 6,000,000 (1) 13,256,223
STOCKHOLDERS' EQUITY
Preferred stock - - -
Common stock and additional paid-in
Capital 4,661,726 - 4,661,726
Accumulated deficit (307,590) - (307,590)
----------- ---------- ------------
Total stockholders' equity 4,354,136 - 4,354,136
----------- ---------- ------------
Total liabilities and
stockholders' equity $13,238,127 $6,000,000 $19,238,127
</TABLE>
See accompanying notes to pro forma financial statements.
F-6
FUTURE PETROLEUM CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
Future Properties Pro Forma
Petroleum Acquired Adjustments Pro Forma
----------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
REVENUES $1,091,000 $1,796,000 $ - $2,887,000
COSTS AND EXPENSES:
Production expense 643,000 1,034,000 - 1,677,000
Depletion and
Depreciation 202,000 - 602,000(3) 804,000
Interest 282,000 - 297,000(4) 579,000
General and
administrative 221,000 - 25,000(5) 246,000
----------- ----------- --------------- -----------
Total costs and
Expenses 1,348,000 1,034,000 924,000 3,306,000
----------- ------------ --------------- -----------
OTHER INCOME 13,000 - - 13,000
----------- ------------ --------------- -----------
INCOME(LOSS)
BEFORE TAX (244,000) 762,000 924,000 (406,000)
DEFERRED TAX BENEFIT - - 142,000(6) 142,000
----------- ----------- --------------- -----------
NET AND COMPREHENSIVE
INCOME (LOSS) $ (244,000) $ 762,000 $ 782,000 $ (264,000)
=========== =========== =============== ===========
BASIC AND DILUTED EARNINGS PER
SHARE $ (0.04) $ (0.02)
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,033,000 13,571,000
=========== ===========
</TABLE>
See accompanying notes to pro forma financial statements.
F-7
FUTURE PETROLEUM CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998 Pro Forma
Future Properties Pro Forma December 31,
Petroleum Acquired Adjustments 1997
----------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE -
Oil and gas
sales $ 772,000 $4,124,000 $ 1,137,000(2) $6,033,000
COSTS AND EXPENSES:
Production expense 419,000 2,413,000 523,000(2) 3,355,000
Depletion and
depreciation 191,000 - 1,241,000(3) 1,432,000
Interest 69,000 - 530,000(4) 599,000
General and
administrative 154,000 - 50,000(5) 204,000
----------------- ------------- ------------- ----------
Total costs and
expenses 833,000 2,413,000 2,344,000 5,590,000
OTHER INCOME 42,000 - - 42,000
INCOME (LOSS)
BEFORE TAX (19,000) 1,711,000 (1,207,000) 485,000
DEFERRED TAX EXPENSE - - (170,000)(6) (170,000)
NET AND COMPREHENSIVE
INCOME (LOSS) $ (19,000) $1,711,000 $(1,377,000) $ 315,000
=============== ============ =============== =========
BASIC AND DILUTED
EARNINGS PER
SHARE $ - $ .03
=============== ===========
WEIGHTED AVERAGE
SHARES
OUTSTANDING 4,280,000 11,818,000
=============== ===========
</TABLE>
See accompanying notes to pro forma financial statements.
F-8
FUTURE PETROLEUM CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(1) Adjustment to reflect the acquisition of the oil and gas properties for
cash of approximately $6,000,000 (including approximately $200,000 of
directly related costs). The acquisition was financed with long-term
debt.
(2) Adjustment to reflect the change in the acquired properties' revenues
and direct operating expenses from a June 30, 1998 year end to a
December 31, 1997 year end. The adjustment includes adding the results
for the properties for the six month period ended June 30, 1997 and
deducting the results for the six month period ended June 30, 1998, to
the results for the year ended June 30, 1998.
(3) Adjustment to reflect additional depletion and depreciation expense as
if the properties had been acquired at the beginning of the respective
periods.
(4) Adjustment to reflect additional interest expense at 8.5% as if the
properties had been acquired at the beginning of the respective periods.
Adjustment also includes the effect of refinancing $1,760,000 of the
Company's 10% debt with the 8.5% debt.
(5) Adjustment to reflect estimate of additional administrative costs
associated with the acquired properties.
(6) Adjustment to record income taxes.
F-9
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: October 30, 1998 By: /s/ B. Carl Price
B. Carl Price, President,
Principal Financial and Accounting Officer
