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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-7406
PRIMEENERGY CORPORATION
(Exact name of Small Business Issuer in its charter)
DELAWARE 84-0637348
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE LANDMARK SQUARE
STAMFORD, CONNECTICUT 06901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 358-5700
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
(Title of Class)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Registrant's revenues for its most recent fiscal year were
$18,059,000.
The aggregate market value of the voting stock of the Registrant held
by non-affiliates, computed on the average bid and asked prices of such stock
in the over-the-counter market, as of March 15, 1996, was $4,048,270.
The number of shares outstanding of each class of the Registrant's
Common Stock as of March 15, 1996, was: Common Stock, $0.10 par value,
5,229,199.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement to be furnished to
stockholders in connection with its Annual Meeting of Stockholders to be held
in June, 1996, are incorporated by reference in Part III hereof.
Transitional Small Business Disclosure Format (check one) Yes No X
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PRIMEENERGY CORPORATION
FORM 10-KSB ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
PrimeEnergy Corporation (the "Company") was organized in March, 1973,
under the laws of the State of Delaware.
The Company is engaged generally in the oil and gas business through
the acquisition, development, and production of crude oil and natural gas, and
to a much lesser degree, exploratory drilling operations. The Company's
properties are located primarily in Oklahoma, Texas, West Virginia, New Mexico,
Montana and Wyoming. The Company's wholly-owned subsidiary, PrimeEnergy
Management Corporation ("PEMC"), acts as the managing general partner in 51
exploration and development limited partnerships, joint ventures and asset and
income fund limited partnerships (the "Partnerships") of which six are publicly
held, and acts as the managing trustee of two asset and income business trusts
(the "Trusts"). The Company, through its wholly-owned subsidiaries, Prime
Operating Company and Eastern Oil Well Service Company, acts as operator and
provides well servicing support operations for many of the oil and gas wells in
which the Partnerships, the Trusts and the Company have an interest, primarily
in West Virginia, Oklahoma and Texas. In addition, through a subsidiary,
Southwest Oilfield Construction Company, the Company provides site preparation
and construction services for oil and gas drilling and re-working operations,
both in connection with the Company's activities and providing contract
services for third parties. The Company is also active in the acquisition of
producing oil and gas properties through joint ventures with industry partners
and private investors.
THE PARTNERSHIPS AND TRUSTS
A substantial portion of the assets and revenues of PEMC are derived
from the interests of PEMC in the oil and gas properties acquired by the
Partnerships and Trusts. As the managing general partner in each of the
Partnerships and managing trustee of the Trusts, PEMC receives approximately
from 5% to 12% of the net revenues of each Partnership and Trust as a carried
interest in the Partnership's and Trust's properties.
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Since 1975, PEMC has sponsored a total of 59 limited partnerships, 22
of which were offered publicly and 37 of which were offered in private
placements and two Delaware business trusts, both of which were offered
publicly. The aggregate number of limited partners in the Partnerships and
beneficial owners in the Trusts now administered by PEMC is about 10,221. The
Partnership and Trust interests were sold by broker-dealers which are members
of the National Association of Securities Dealers, Inc. through a managing
dealer. The total funds contributed to the Partnerships and Trusts was about
$157,550,000.
A significant portion of the Company's business is now conducted
through the Partnerships and Trusts, either through its ownership of interests
in various properties derived through the Partnerships and Trusts, or as
operator of oil and gas wells in which the Partnerships and Trusts have
interests.
PEMC, as managing general partner of the Partnerships, and managing
trustee of the Trusts, is responsible for all Partnership and Trust activities,
including the review and analysis of oil and gas properties for acquisition,
the drilling of development wells and the production and sale of oil and gas
from productive wells. PEMC also provides administration, accounting and tax
preparation for the Partnerships and Trusts. PEMC is liable for all debts and
liabilities of the Partnerships and Trusts, to the extent that the assets of a
given limited partnership or trust are not sufficient to satisfy its
obligations.
JOINT VENTURES
PEMC organizes and the Company participates in various joint ventures
formed for the purpose of acquiring and developing oil and gas assets. The
Company receives varying interests in the net revenues of each joint venture as
a carried interest in the joint venture properties.
Since 1987, PEMC has organized approximately $13 million of joint
venture capital. The Company's participation in the joint ventures varies from
none to approximately 50%. The Company's carried interest ranges from 5 to 10%
depending on the proportion of funds contributed by outside investors.
WELL OPERATIONS
The Company's operations are conducted through a central office in
Houston, Texas, and district offices in Houston and Midland, Texas, Oklahoma
City, Oklahoma, and Charleston, West Virginia. The Company currently operates
about 1,635 oil and gas wells, 369 through the Houston office, 241 through the
Midland office, 519 through the Oklahoma City office and 506 through the
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Charleston, West Virginia office. Substantially all of the wells operated by
the Company are wells in which the Company, the Partnerships, the Trusts or the
joint ventures have an interest.
The Company operates wells pursuant to operating agreements which
govern the relationship between the Company as operator and the other owners of
working interests in the properties, including the Partnerships, Trusts and
joint venture participants. For each operated well, the Company receives
monthly fees which are competitive in the areas of operations and also is
reimbursed for expenses incurred in connection with well operations.
EXPLORATION AND ACQUISITION ACTIVITIES; OTHER MATTERS
The Company's focus is on the acquisition and development of producing
oil and gas properties. To a lesser extent, the Company will continue to engage
in exploratory operations and will continue to engage in development drilling
of properties in which it has an interest. The Company attempts to assume the
position of operator in all acquisitions of producing properties.
RECENT ACTIVITIES
In January, 1995, the Company purchased an interest in four gross (2.6
net) wells in Crockett County, Texas. The Company plans further development of
the property.
During 1995, the Company participated in six gross (1.56 net) well
recompletions in various counties of Oklahoma. All six recompletions were
successful in establishing commercial production. On average, the initial
production from each of the six wells was approximately 200 (52 net) Mcf of gas
per day.
During 1995, the Company also participated in certain infield
development activities in the Eola-Robberson field of Garvin County, Oklahoma.
A total of seven gross (0.7 net) wells were drilled. Six wells were successful
in establishing commercial production. On average, the initial gross production
rate for the wells was approximately 16 (1.4 net) barrels of oil per day.
In July, 1995, the Company participated in the drilling of an infield
development well in Zavala County, Texas. The Company owns a net 22.5 percent
interest in this well. The well was successfully completed as a gas well with
an initial production rate of approximately 600 Mcf per day.
In September, 1995, the Company purchased 2 (1.5 net) producing wells
located in Wood County, Oklahoma. These wells are located on a gathering system
which is operated by the Company and owned by a joint venture managed by PEMC.
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In October, 1995, the Company took over the drilling operation of a
well located in Dimmit County, Texas, and completed the well as an oil
producer. The Company has a forty percent net ownership in the well. The well
was completed with an initial production of 20 (8 net) barrels of oil per day
and 80 (32 net) Mcf of gas per day.
In late 1995, the Company obtained commitments of $3 million to
finance the purchase and the initial development of two oil and gas projects
(1995 Development Joint Venture). One project includes the shooting of 3D
Seismic and the drilling of at least one well. The other project includes the
purchase of 44 gross (44 net) wells and the recompletion of nine or more of
those wells. The Company agreed to invest $1.25 million in the 1995 Development
Joint Venture and will have a 41.7% interest. Each investor owns a proportional
interest in each prospect equal to the amount invested as a percentage of the
total raised. The Company retains a 10% carried interest in the net reserves
attributable to the projects, excluding the Company's direct interest.
During 1995, the Company participated in the drilling, completion or
workover operations of 17 gross (0.51 net) wells operated by other companies.
The Company spent a total of approximately $185,000 on these projects. At
year-end, nine gross (0.13 net) wells were successfully completed as producers,
four were unsuccessful and three were either drilling or waiting on completion.
The successfully completed wells had an aggregate initial production rate of
approximately 725 (18 net) barrels of oil per day and 9,083 gross (63 net) Mcf
of gas per day.
Since January 1, 1996, and to the date of this Report, the Company
participated in the drilling of one dry hole in Victoria County, Texas, and has
not participated in the acquisition of any material producing oil and gas
properties. The Company is actively engaged in negotiations with acquisition
candidates. In some cases acquisitions are in various stages of due diligence
review. Management cannot predict with certainty which, if any, of these
transactions will ultimately close.
The Company will continue to evaluate prospects for leasehold
acquisitions and for exploration and development operations in areas in which
it owns interests and is actively pursuing the acquisition of producing
properties.
In order to diversify and broaden its asset base, the Company will
consider acquiring the assets or stock in other entities and companies in the
oil and gas business. The main objective of the Company in making any such
acquisitions will be to acquire incomeproducing assets so as to increase the
Company's net worth and increase the Company's oil and gas reserve base.
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The Company presently owns producing and non-producing properties
located primarily in Colorado, Kansas, Oklahoma, Louisiana, Mississippi,
Montana, New Mexico, Texas, West Virginia and Wyoming. The Company does not own
any properties other than its leasehold, mineral and royalty interests and
related pipeline and gas gathering systems, and does not own any drilling
equipment or refinery or marketing facilities. All of the Company's oil and gas
properties and interests are located in the continental United States.
During the recent past, the supply of gas has exceeded demand on a
cyclical basis, and the Company is subject to a combination of shut-in and/or
reduced takes of gas production during summer months. Prolonged shut-ins could
result in reduced field operating income from properties in which the Company
acts as operator.
Exploration for oil and gas requires substantial expenditures
particularly in exploratory drilling in undeveloped areas, or "wildcat
drilling". As is customary in the oil and gas industry, substantially all of
the Company's exploration and development activities are conducted through
joint drilling and operating agreements, with others engaged in the oil and gas
business.
Summaries of the Company's oil and gas drilling activities, oil and
gas production, and undeveloped leasehold, mineral and royalty interests are
set forth under Item 2., "Description of Property," below. Summaries of the
Company's oil and gas reserves, future net revenue and present value of future
net revenue are also set forth under Item 2., "Description of Property --
Reserves" below.
REGULATION
The Company's oil and gas operations are subject to a wide variety of
federal, state and local regulations. Administrative agencies in such
jurisdictions may promulgate and enforce rules and regulations relating to,
among other things, drilling and spacing of oil and gas wells, production
rates, prevention of waste, conservation of natural gas and oil, pollution
control, and various other matters, all of which may affect the Company's
future operations and production of oil and gas. The Company's natural gas
production and prices received for natural gas are regulated by the Federal
Energy Regulatory Commission ("FERC"), the Natural Gas Act of 1938 ("NGA") and
the Natural Gas Policy Act of 1978 ("NGPA") and various state regulations. The
Company is also subject to state drilling and proration regulations affecting
its drilling operations and production rates.
The FERC continues to regulate interstate natural gas pipeline
transportation rates and service conditions pursuant to the NGA and NGPA.
Federal regulation of interstate transporters affects the marketing of natural
gas produced by the Company as well as the
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revenues received by the Company for sales of such natural gas. Since the
latter part of 1985, through its Order Nos. 436, 500 and 636 rulemakings, the
FERC has endeavored to make natural gas transportation accessible to gas buyers
and sellers on an open and non-discriminatory basis. The FERC's efforts have
significantly altered the marketing and pricing of natural gas. No prediction
can be made as to what additional legislation may be proposed, if any,
affecting the competitive status of a gas producer, restricting the prices at
which a producer may sell its gas, or the market demand for gas, nor can it be
predicted which proposals, including those presently under consideration, if
enacted, might be effective.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any
such proposals might become effective, or their effect, if any, on the
Company's operations. The natural gas industry historically has been very
heavily regulated; therefore, there is no assurance that the less stringent
regulatory approach recently pursued by the FERC and Congress will continue
indefinitely into the future.
In the event the Company conducts operations on federal, state or
Indian oil and gas leases, such operations must comply with numerous regulatory
restrictions, including various nondiscrimination statutes, and certain of such
operations must be conducted pursuant to certain on-site security regulations
and other appropriate permits issued by the Bureau of Land Management ("BLM")
or Minerals Management Service ("MMS") or other appropriate federal or state
agencies.
The Mineral Leasing Act of 1920 ("Mineral Act") prohibits direct or
indirect ownership of any interest in federal onshore oil and gas leases by a
foreign citizen of a country that denies "similar or like privileges" to
citizens of the United States. Such restrictions on citizens of a
"non-reciprocal" country include ownership or holding or controlling stock in a
corporation that holds a federal onshore oil and gas lease. If this restriction
is violated, the corporation's lease can be canceled in a proceeding instituted
by the United States Attorney General. Although the regulations of the BLM
(which administers the Mineral Act) provide for agency designations of
non-reciprocal countries, there are presently no such designations in effect.
The Company owns interests in federal onshore oil and gas leases. It is
possible that Common Stock could be acquired by citizens of foreign countries,
which at some time in the future might be determined to be non-reciprocal under
the Mineral Act.
TAXATION
The Company's oil and gas operations are affected by federal income
tax laws applicable to the petroleum industry. The Company
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is permitted to deduct currently, rather than capitalize, intangible drilling
and development costs incurred or borne by it. As an independent producer, the
Company is also entitled to a deduction for percentage depletion with respect
to the first 1,000 barrels per day of domestic crude oil (and/or equivalent
units of domestic natural gas) produced by it, if such percentage depletion
exceeds cost depletion. Generally, this deduction is computed based upon the
lesser of 100% of the net income, or 15% of the gross income from a property,
without reference to the basis in the property. The amount of the percentage
depletion deduction so computed which may be deducted in any given year is
limited to 65% of taxable income. Any percentage depletion deduction disallowed
due to the 65% of taxable income test may be carried forward indefinitely.
The Company is entitled to credits for producing fuel from a
non-conventional source under Section 29 of the Internal Revenue Code,
primarily from certain of the Company's operations in West Virginia.
The Company has been subject to the alternative minimum tax in each of
its taxable years since 1988. The primary factors which have caused it to be
subject to this tax in prior years were the former preference for percentage
depletion in excess of the cost basis of an oil and gas property, the former
adjusted current earnings adjustment for intangible drilling costs, and the
limitation of the Section 29 credits allowable to the excess of regular tax
over tentative alternative minimum tax. The Company is subject to alternative
minimum tax in the current year primarily due to the Company's Section 29
credits. The Company is allowed a credit carry forward for the amount of
alternative minimum tax paid. This credit, which may be used to offset regular
tax liability in years where it exceeds the tentative alternative minimum tax,
can be carried forward indefinitely.
The Comprehensive National Energy Policy Act of 1992 contained changes
relating to the alternative minimum tax treatment of independent oil and gas
producers which are highly favorable to the Company, primarily the repeal of
the alternative minimum tax preference for percentage depletion, and the
adjusted current earnings adjustment for intangible drilling costs. These
changes were effective for the Company's 1993 tax year.
See Notes 1 and 10 to the consolidated financial statements included
in this Report for a discussion of accounting for income taxes and availability
of federal tax net operating loss carryforwards.
COMPETITION AND MARKETS
The business of acquiring producing properties and nonproducing leases
suitable for exploration and development is highly
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competitive. Competitors of the Company in its efforts to acquire both
producing and non-producing properties include oil and gas companies,
independent concerns, income programs and individual producers and operators,
many of which have financial resources, staffs and facilities substantially
greater than those available to the Company. Furthermore, domestic producers of
oil and gas must not only compete with each other in marketing their output,
but must also compete with producers of imported oil and gas and alternative
energy sources such as coal, nuclear power and hydroelectric power. Competition
among petroleum companies for favorable oil and gas properties and leases can
be expected to increase.
The availability of a ready market for any oil and gas produced by the
Company at acceptable prices per unit of production will depend upon numerous
factors beyond the control of the Company, including the extent of domestic
production and importation of oil and gas, the proximity of the Company's
producing properties to gas pipelines and the availability and capacity of such
pipelines, the marketing of other competitive fuels, fluctuation in demand,
governmental regulation of production, refining, transportation and sales,
general national and worldwide economic conditions, and pricing, use and
allocation of oil and gas and their substitute fuels. There is no assurance
that the Company will be able to market all of the oil or gas produced by it or
that favorable prices can be obtained for the oil and gas production.
The Company does not currently own or lease any bulk storage
facilities or pipelines other than adjacent to and used in connection with
producing wells and the interests in certain gas gathering systems. The Company
deals with a number of purchasers of its oil and gas production. While the
Company is not dependent on any one or a few purchasers of its production, oil
and gas sales for 1995 to Valero Gas Transmission, L.P. and Phibro Energy Corp.
represented about 17% and 21% respectively, of the Company's total revenue from
oil and gas sales. The sales to Phibro were not made under any contractual
arrangements, however the Company believes that the purchaser will continue to
purchase oil and gas products and, if not, could be replaced by other
purchasers. Sales to Valero were made under a gas purchasing agreement that
expired in 1996 at prices substantially in excess of current spot prices.
Effective March 1, 1996, this contract has been replaced with a month-to-month
contract at current spot prices.
ENVIRONMENTAL MATTERS
Over the past 20 years, the petroleum industry has been affected by a
wide variety of environmental issues. Throughout the 1970's and 1980's federal
and state environmental regulations have been enacted that affect all aspects
of the Company's operations. These regulations have primarily focused on
correcting existing
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environmental concerns and implementing preventive controls to reduce future
pollution.
The Company's activities are subject to existing federal, state and
local laws and regulations governing environmental quality and pollution
control. It is anticipated that, occurrence of an extraordinary event,
compliance with existing federal, state and local laws, rules and regulations
regulating the release of materials in the environment or otherwise relating to
the protection of the environment will not have a material effect upon the
operations, capital expenditures, earnings or the competitive position of the
Company. The Company cannot predict what effect additional regulation or
legislation, enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from the
Company's operations or ownership of its property could have on its activities.
Activities of the Company with respect to natural gas facilities,
including the operation and construction of pipelines, plants and other
facilities for transporting, processing, treating or storing natural gas and
other products, are subject to stringent environmental regulation by state and
federal authorities including the Environmental Protection Agency ("EPA"). Such
regulation can increase the cost of planning, designing, installing and
operating such facilities. In most instances, the regulatory requirements
relate to water and air pollution control measures. Although the Company
believes that compliance with environmental regulations will not have a
material adverse effect on it, risks of substantial costs and liabilities are
inherent in natural gas facility operations, and there can be no assurance that
significant costs and liabilities will not be incurred. Moreover, it is
possible that other developments, such as stricter environmental laws and
regulations, and claims for damages to property or persons resulting from
operation of natural gas facilities, would result in substantial costs and
liabilities to the Company.
The Company currently owns or leases, and has in the past owned or
leased, numerous properties that have been used for production of oil and gas
for many years. Although the Company has utilized operating and disposal
practices that were standard in the industry at the time, hydrocarbons or other
wastes may have been disposed of or released on or under the properties owned
or leased by the Company. In addition, many of these properties have been
operated by third parties over whom the Company had no control as to such
entities' treatment of hydrocarbons or other wastes and the manner in which
such substances may have been disposed of or released. State and federal laws
applicable to oil and gas wastes and properties have gradually become more
strict. Under these new laws, the Company could be required to remove or
remediate previously disposed wastes (including wastes disposed of or released
by prior owners or operators) or property contamination
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(including groundwater contamination) or to perform remedial plugging
operations to prevent future contamination.
The Company may generate wastes, including hazardous wastes, that are
subject to the Federal Resource Conservation and Recovery Act and comparable
state statutes. The EPA has limited the disposal options for certain hazardous
wastes and is considering the adoption of stricter disposal standards for
nonhazardous wastes. Furthermore, certain wastes generated by the Company's
oil and gas operations that are currently exempt from treatment as "hazardous
wastes" may in the future be designated as "hazardous wastes," and therefore be
subject to more rigorous and costly operating and disposal requirements.
In addition, legislation has been proposed in Congress from time to
time that would reclassify certain oil and gas exploration and production
wastes as "hazardous wastes," which would make the reclassified wastes subject
to much more stringent handling, disposal and clean-up requirements. If such
legislation were to be enacted, it could have a significant impact on the
operating costs of the Company, as well as the oil and gas industry in general.
Initiatives to further regulate the disposal of oil and gas wastes are also
pending in certain states, and these various initiatives could have a similar
impact on the Company.
The Federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes joint and
several liability, without regard to fault or the legality of the original
conduct, on certain classes of persons with respect to the release of a
"hazardous substance" into the environment. These persons include the current
owner and operator of a site and persons that disposed of or arranged for the
disposal of the hazardous substances found at a site. CERCLA also authorizes
the EPA and, in some cases, third parties to take actions in response to
threats to the public health or the environment and to seek to recover from the
responsible classes of persons the costs of such action. In the course of its
operations, the Company may have generated and may generate wastes that fall
within CERCLA's definition of "hazardous substances." The Company may also be
an owner of sites on which "hazardous substances" have been released by
previous owners or operators. The Company may be responsible under CERCLA for
all or part of the costs to clean up sites at which such wastes have been
released. Neither the Company nor, to its knowledge, its predecessors has been
named a potentially responsible person under CERCLA nor does the Company know
of any prior owners or operators of its properties that are named as
potentially responsible parties related to their ownership or operation of such
property.
The Company has a proactive environmental policy that management feels
benefits the Company through increased operating profits, improved landowner
relations and an overall enhanced
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Company image. To this end, the Company has also adopted a stringent
environmental evaluation prior to purchasing a property. This pre-acquisition
assessment, usually referred to as an Environmental Site Assessment, typically
consists of a historical review of the property combined with a site inspection
and limited testing, when necessary. The objective of this pre-acquisition
assessment is to document conditions at the time of acquisition and to assign
liability to the seller for past operations.
EMPLOYEES
At March 15, 1996, the Company had 153 full-time and 9 part-time
employees, 31 of whom were employed by the Company at its principal offices in
Stamford, Connecticut, 29 in Houston, Texas, at the offices of Prime Operating
Company and Eastern Oil Well Service Company, and 102 employees who were
primarily involved in the district operations of the Company in Houston and
Midland, Texas, Oklahoma City, Oklahoma and Charleston, West Virginia.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices and of PEMC, are located at One
Landmark Square, Stamford, Connecticut, in leased premises of about 11,500
square feet. The executive offices of Prime Operating Company and Eastern Oil
Well Service Company are located in leased premises in Houston, Texas, and the
offices of Southwest Oilfield Construction Company are in Oklahoma City,
Oklahoma.
The Company maintains district offices in Houston and Midland, Texas,
Oklahoma City, Oklahoma, and Charleston, West Virginia, all in leased space.
The Company has no other facilities other than its leased offices, and other
than its oil and gas properties and related equipment, the Company owns no
physical properties.
Substantially all of the Company's oil and gas properties are subject
to a mortgage given to collateralize indebtedness of the Company, or are
subject to being mortgaged upon request by the Company's lender for additional
collateral.
The information set forth below concerning the Company's properties,
activities, and oil and gas reserves include the Company's interests in the
Partnerships, Trusts and joint ventures.
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OIL AND GAS DRILLING ACTIVITIES
The following table sets forth the exploratory and development
drilling experience with respect to wells in which the Company participated
during the five years ended December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
GROSS NET GROSS NET GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- --- ----- --- ----- ----
><S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory:
. . . . . . . . . Oil -- -- 1 .009 -- -- -- --
. . . . . . . . . Gas -- -- 3 .375 -- -- -- --
. . . . . . . . . Dry -- -- 2 .150 1 .178 3 2.8
Development:
. . . . . . . . . Oil 8 1.046 4 .346 3 .600 6 .762 18 2.04
. . . . . . . . . Gas 3 .235 2 .121 13 .257 -- -- 1 0.003
. . . . . . . . . Dry 2 .350 4 .215 1 .090 -- -- --
Total:
. . . . . . . . . Oil 8 1.046 4 .346 4 .609 6 .762 18 2.04
. . . . . . . . . Gas 3 .235 2 .121 16 .632 -- -- 1 0.003
. . . . . . . . . Dry 2 .350 4 .215 3 .240 1 .178 3 2.80
-- ---- -- ---- -- ----- -- ---- -- -----
13 1.631 10 .682 23 1.481 7 .94 22 4.84
== ===== === ==== == ===== == ==== == =====
</TABLE>
OIL AND GAS PRODUCTION
As of December 31, 1995, the Company had ownership interests in the
following numbers of gross and net producing oil and gas wells and gross and
net producing acres(1).
<TABLE>
<CAPTION>
GROSS NET
----- ---
<S> <C>
Producing wells (2):
Oil Wells . . . . . . . . . . . . . . . . . . . 1,483 179.46
Gas Wells . . . . . . . . . . . . . . . . . . . 1,311 160.90
Producing Acres . . . . . . . . . . . . . . . . . 204,141 25,199
</TABLE>
- --------------
(1) A gross well or gross acre is a well or an acre in which a working
interest is owned. A net well or net acre is the sum of the fractional
revenue interests owned in gross wells or gross acres. Wells are
classified by their primary product. Some wells produce both oil and
gas.
(2) Includes the Company's interest in 64 gross multiple completion wells.
The following table shows the Company's net production of crude oil
and natural gas for each of the five years ended December 31, 1995. "Net"
production is net after royalty interests of others are deducted and is
determined by multiplying the gross production volume of properties in which
the Company has an
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interest by percentage of the leasehold, mineral or royalty interest owned by
the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Oil (barrels) . . . . . . 155,000 143,000 149,000 180,000 134,000
Gas (Mcf) . . . . . . . . 1,952,000 1,408,000 1,332,000 1,689,000 700,000
</TABLE>
The following table sets forth the Company's average sales price per
barrel of crude oil and average sales prices per one thousand cubic feet
("Mcf") of gas, together with the Company's average production costs per unit
of production for the five years ended December 31, 1995.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average sales price
per barrel . . . . . . . . . . . . . . . . $ 16.53 15.22 16.30 18.30 18.98
Average sales price
per mcf . . . . . . . . . . . . . . . . . $ 1.85 2.36 2.51 2.64 1.88
Average production
costs per net equivalent
barrel (1) . . . . . . . . . . . . . . . . $ 8.92 10.14 10.70 7.93 6.98
</TABLE>
(1) Net equivalent barrels are computed at a rate of 6 Mcf per barrel.
UNDEVELOPED ACREAGE
The following table sets forth the approximate gross and net
undeveloped acreage in which the Company has leasehold, mineral and royalty
interests as of December 31, 1995. "Undeveloped acreage" is that acreage on
which wells have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas, regardless of whether or
not such acreage contains proved reserves.
<TABLE>
<CAPTION>
LEASEHOLD MINERAL ROYALTY
INTERESTS INTERESTS INTERESTS
--------- --------- ---------
GROSS NET GROSS NET GROSS NET
STATE ACRES ACRES ACRES ACRES ACRES ACRES
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Colorado . . . . . . . . . 9,926 899 799 23 -- --
Louisiana . . . . . . . . . 401 401 -- -- -- --
Mississippi . . . . . . . . 800 20 -- --
Montana . . . . . . . . . . -- -- 14,304 61 786 5
Nebraska . . . . . . . . . -- -- 2,533 331 -- --
Oklahoma . . . . . . . . . 187 79 320 1 -- --
Texas . . . . . . . . . . . 336 3 640 3 -- --
Wyoming . . . . . . . . . . 1,000 125 5,043 35 140 35
------ ----- ------ --- --- --
TOTAL . . . . . . . . . . . 11,850 1,507 24,459 474 926 40
====== ===== ====== === === ==
</TABLE>
13
<PAGE> 15
RESERVES
The Company's interests in proved developed and undeveloped oil and
gas properties have been evaluated by Ryder Scott Company for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995. All of the Company's reserves are
located within the continental United States. The following table summarizes
the Company's oil and gas reserves at each of the respective dates (figures
rounded):
<TABLE>
<CAPTION>
RESERVE CATEGORY
----------------
PROVED DEVELOPED PROVED UNDEVELOPED TOTAL
---------------- ------------------ -----
AS OF OIL GAS OIL GAS OIL GAS
12-31 (BBLS) (MCF) (BBLS) (MCF) (BBLS) (MCF)
----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1991 . . . . . . 1,044,000 11,418,000 81,000 1,099,000 1,125,000 12,517,000
1992 . . . . . . 863,000 7,934,000 72,000 821,000 935,000 8,755,000
1993 . . . . . . 512,000 8,351,000 76,000 922,000 588,000 9,273,000
1994 . . . . . . 799,000 9,675,000 2,000 129,000 801,000 9,804,000
1995 . . . . . . 905,000 13,549,000 -- 52,000 905,000 13,601,000
</TABLE>
The estimated future net revenue (using current prices and costs as of
those dates, exclusive of income taxes) and the present value of future net
revenue (at a 10% discount for estimated timing of cash flow) for the Company's
proved developed and proved undeveloped oil and gas reserves at the end of each
of the five years ended December 31, 1995, are summarized as follows (figures
rounded):
<TABLE>
<CAPTION>
PROVED DEVELOPED PROVED UNDEVELOPED TOTAL
---------------- ------------------ -----
PRESENT PRESENT PRESENT
VALUE OF VALUE OF VALUE OF
FUTURE FUTURE FUTURE FUTURE FUTURE FUTURE
AS OF NET NET NET NET NET NET
12-31 REVENUE REVENUE REVENUE REVENUE REVENUE REVENUE
----- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1991 . . . $ 18,768,000 12,855,000 1,537,000 911,000 20,305,000 13,766,000
1992 . . . $ 12,219,000 7,727,000 1,503,000 999,000 13,722,000 8,726,000
1993 . . . $ 11,307,000 6,576,000 460,000 221,000 11,767,000 6,797,000
1994 . . . $ 10,396,000 6,839,000 156,000 75,000 10,552,000 6,914,000
1995 . . . $ 15,727,000 9,530,000 39,000 18,000 15,766,000 9,548,000
</TABLE>
"Proved developed" oil and gas reserves are reserves that can be
expected to be recovered from existing wells with existing equipment and
operating methods. "Proved undeveloped" oil and gas reserves are reserves that
are expected to be recovered from new wells on undrilled acreage, or from
existing wells where a relatively major expenditure is required for
recompletion.
Since January 1, 1995, the Company has not filed any estimates of its
oil and gas reserves with, nor were any such estimates included in any reports
to, any federal authority or agency, other than the Securities and Exchange
Commission, except Form EIA-23, Annual Survey of Domestic Oil and Gas Reserves,
filed with The Energy Information Administration of the U.S. Department of
Energy.
14
<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property the subject
of, any legal proceedings, actual or threatened involving any claim for damages
which exceed 10 percent of the Company's current assets.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
ended December 31, 1995, to a vote of the Company's security holders through
the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the NASDAQ Stock Market,
trading symbol "PNRG". The high and low bid quotations for each quarterly
period during the two years ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
1995 HIGH LOW 1994 HIGH LOW
---- ---- --- ---- ---- ---
<S> <C> <C> <C> <C> <C>
First Quarter . . . . . . . 2.19 2.19 First Quarter . . . . . . . . 2.88 2.06
Second Quarter . . . . . . 2.19 2.19 Second Quarter . . . . . . . . 2.50 1.63
Third Quarter . . . . . . . 2.50 2.19 Third Quarter . . . . . . . . 2.50 1.75
Fourth Quarter . . . . . . 2.38 2.38 Fourth Quarter . . . . . . . . 2.19 2.06
</TABLE>
The above quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions, and may not represent actual transactions.
The approximate number of record holders of the Company's Common Stock
as of March 15, 1996, was 1,339.
No dividends have been declared or paid during the past two years on
the Company's Common Stock. There are no present restrictions on the Company's
present or future ability to pay dividends. Such dividends may be declared out
of funds legally available therefore, when and as declared by the Company's
Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This discussion should be read in conjunction with the Financial
Statements of the Company, the Notes thereto and the Supplementary Information
contained in this Report.
15
<PAGE> 17
INDUSTRY AND BUSINESS ENVIRONMENT
After four years of decline, the average U.S. wellhead price of crude
rose 11% in 1995 to an estimated $14.66/bbl. The price averaged $20.03/bbl in
1990, then fell to $16.54/bbl in 1992, $14.25/bbl in 1993, and $13.19/bbl in
1994. Despite the modest improvements in oil prices, U.S. crude oil output is
projected to drop 2% in 1996. Except for a modest increase in 1991, the year of
the Persian Gulf war, U.S. production has fallen at an average rate of 240,000
bbl/day per year since 1985. Falling U.S. oil production and rising demand will
result in increased petroleum imports again in 1996. Imports are expected to
represent a record high 52.6% of demand in 1996. World crude supply was more
than adequate in 1995 and the same should remain true for 1996. Iraq's eventual
return to the market will bolster world supply and may weaken oil prices.
The average U.S. wellhead price of natural gas fell in 1995 to an
estimated $1.68/Mcf from $1.83/Mcf in 1994 and $2.03/Mcf in 1993. Prior to
that, the average gas prices had been relatively steady for 6 years: $1.67/Mcf
in 1987, $1.69/Mcf in 1988 and 1989, $1.71/Mcf in 1990, $1.64/Mcf in 1991, and
$1.74/Mcf in 1992. Over that period, imports increased rapidly while demand
growth was relatively slow. The current rise in demand is being met by both
increased U.S. production and rising imports. Natural gas prices started 1996
much higher than they have been recently because of cold weather in the U.S.
Prices may subside once cold weather ends, although the effect will be
moderated by the need to replenish inventories.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital. At December 31, 1995 the Company had working capital
of $2,541,000, as compared to $2,708,000 at December 31, 1994. The decrease in
working capital is due to, among other things, the Company's reduction of long-
term debt.
The Company believes that it has the ability to generate sufficient
amounts of cash through operations to meet long-term liquidity needs, as well
as debt service. The Company expects to generate increased cash flows by
increasing its reserve base through continued acquisition and development of
oil and gas properties at acceptable rates of return at existing oil and gas
prices. By increasing its reserve base, the Company's borrowing ability is
increased due to additional properties available as collateral.
The Company's total cash and cash equivalents of $1.7 million
decreased by $1.9 million compared to 1994. Included in cash and cash
equivalents at December 31, 1995 were "restricted" amounts of approximately
$467,000 which relates primarily to unclaimed royalty and revenue interest
payments, and $246,000 raised from private investors as part of the Company's
1994-I and 1995 Development
16
<PAGE> 18
Programs (see notes 2 and 13 to the consolidated financial statements).
Capital Resources. Cash flow is supplemented by funds provided by a
$12.5 million borrowing base, as defined, available under the Company's
long-term line of credit agreement with Bank One Texas, NA ("Bank One") and Den
norske Bank AS, a Norwegian bank. The agreement, which extends to July 1998,
contains various covenants that limit, among other things, indebtedness,
dividends, capital expenditures, sale of assets, and certain other
transactions, and requires the Company to meet certain financial tests.
Borrowings under the loan agreement are collateralized by the Company's oil and
gas properties, accounts receivable, and field equipment.
Capital Expenditures and Commitments. In keeping with the Company's
business strategy, approximately $2.1 million was spent during 1995 on oil and
gas property acquisitions and development, including $486,000 paid by PEMC
primarily to repurchase limited partnership interests during the year. In
addition, $1,057,000 was spent on purchases of treasury stock. These activities
were funded by internally generated cashflow.
The Company plans to invest approximately $1.25 million in the 1995
Development Program. The Company will have a 41.7% interest in the acquisition
and drilling prospects and recompletions in this Program.
Most of the Company's capital spending is discretionary and the
ultimate level of spending will be dependent on the Company's assessment of the
gas and oil business environment, the number of oil and gas prospects, and gas
and oil business opportunities in general. The Company plans to continue with
is recompletion and development program on existing properties, while pursuing
the Company's primary objective of increasing reserves through the acquisition
and development of new properties.
In addition to property acquisitions and development, the Company
spent approximately $427,000 on new field equipment and trucks and $125,000 on
computer related equipment and software.
The Company's operations and financial condition over the past several
years have been affected by a very volatile domestic and foreign market for
crude oil and gas. Price declines shorten the economic life of properties, and,
as a result, some properties may not be economical to operate if price
deterioration should occur. Other properties might not warrant major
expenditures under such conditions. Anticipated capital expenditures are
throughly scrutinized and evaluated to reasonably ensure the economic viability
of a project.
The Company is subject to a combination of shut-in and/or reduced
takes of gas production during summer months. Prolonged
17
<PAGE> 19
shut-ins could result in reduced field operating income from properties in
which the Company acts as operator.
RESULTS OF OPERATIONS
1995 Compared to 1994
Net income declined slightly between 1994 and 1995 from $577,000 to
$527,000, as the effect of significantly lower gas prices was partially offset
by lower payroll and related costs and profit related to properties acquired
later in 1994. Due to lower weighted average shares outstanding, caused by
significant purchases of treasury stock during the year, net income per share
remained constant at 9 cents per share.
Oil and gas sales of $6 million increased 16% compared to 1994 due to
increases in both oil and gas production offset by the decline in gas prices.
Average oil prices received increased from $15.22 per barrel in 1994 to $16.53
per barrel in 1995, while average gas prices received declined from $2.36 per
Mcf to $1.85 per Mcf. Oil production was up 8.5% and gas production was up
38.6% reflecting the production from acquisitions the Company made at the end
of 1994.
Approximately 17% of the Company's 1995 oil and gas sales were made
under a fixed price gas contract which expired in March of 1996. Under this
contract, which covered production from one field, the Company received an
average price which was approximately 75 cents per mcf greater than the spot
price which the Company is currently receiving. The Company will take steps to
control operating expenses on this property to minimize, to the extent
possible, the effect of the decline in revenue on net income.
District operating income of $9.7 million increased 3% compared to
1994. Income is derived through the operation of wells owned by the Company as
well as those owned by the Partnerships. The district offices of the Company
are responsible for the operation and maintenance of these properties. The
increase in revenue compared to 1994 is largely due to a full year of revenues
from the 1994 Excelco acquisition partially offset by declines in revenue from
the Appalachian district.
Administrative revenue represents the Company's reimbursement of
general and administrative overhead expended on behalf of the Partnerships (see
Note 12 to the consolidated financial statements). Administrative revenues
received in both 1995 and 1994 from certain Partnerships are substantially less
than the amounts allocable to those Partnerships under the Partnership
agreements. The lower amounts reflect PEMC's efforts to limit costs, both
incurred and those allocated to the Partnerships.
18
<PAGE> 20
Reporting and management fees are earned from providing the accounting
and reporting functions for certain of the Partnerships. Overall fees declined
5% compared to 1994 due to PEMC's efforts to control costs incurred by the
Partnerships.
Interest and other income decreased by approximately $34,000 compared
to 1994. This decrease is primarily due to lower balances available for
investment during 1995 as the Company utilized excess working capital for debt
reduction.
Lease operating expenses increased 14% compared to 1994. This increase
reflects the full year of operating expenses on the Excelco and Walker
properties acquired in 1994. Average lifting costs, (lease operating expenses
per equivalent unit of production) decreased from $10.14 per equivalent unit in
1994 to $8.92 per equivalent unit in 1995 primarily due to lower lifting costs
on recent acquisitions.
The Company receives reimbursement for costs incurred related to the
evaluation and acquisition of properties on behalf of its related partnerships
and other joint venture partners. To the extent that these property acquisition
costs are expended at the district level, the reimbursements are recorded as a
reduction of total district operating expenses. When expenses are incurred at
the PEMC level, such reimbursements are recorded as a reduction of total
general and administrative expenses. During 1995 and 1994, the Company's total
reimbursements for property acquisition costs were approximately $1.6 million
and $1.5 million respectively.
District operating expenses of $7.4 million increased $372,000, or 5%
compared to 1994. This increase is largely the result of the growth of the
Company's operating and well servicing businesses, and is relatively consistent
with the increase in district operating income. Reimbursement of property
acquisition costs at the district level decreased from $425,000 in 1994 to
$300,000 in 1995. Management believes that the Company is now positioned such
that significant additions may be made to operated wells without significant
cost increases within existing district offices.
General and administrative expenses of $2.9 million decreased $515,000
or 15% compared to 1994. This decrease is primarily related to the increase in
reimbursement of property acquisition costs at the corporate level, from $1.1
million in 1994 to $1.3 million in 1995, as well as overall lower payroll
related expenses. Additionally, the Company discontinued sponsoring public
investment vehicles in 1994 and accordingly, expenses in 1994 included a charge
of $90,000 related to prepaid marketing fees. No such charge was incurred in
1995.
Depreciation and depletion of oil and gas properties of $2.4 million
increased 31% compared to 1994 due to primarily a full year
19
<PAGE> 21
of production from properties acquired at the end of 1994, partially offset by
the effect of higher year-end oil and gas prices lowering depletion rates.
Exploration costs increased from $17,000 in 1994 to $50,000 in 1995 as
a result of dry hole costs incurred during 1995. The 1994 costs relate to dry
hole costs incurred on the 1994-I Development Program. In the first quarter of
1996, the Company incurred approximately $130,000 of costs for the drilling of
a dry hole.
Interest expense increased 31% compared to 1994 due to additional
amounts borrowed at the end of 1994 to finance acquisition activity.
Income tax expense for the year of $69,000 resulted in an effective
rate of 11.6%. This low rate is primarily due to the utilization of net
operating loss and percentage depletion deduction carryforwards.
RESULTS OF OPERATIONS
1994 Compared to 1993
Oil and gas sales of $5.2 million decreased 7% compared to 1993
primarily due to price declines. Average oil prices received declined from
$16.30 per barrel in 1993 to $15.22 per barrel in 1994, and average gas prices
received declined from $2.51 per Mcf to $2.36 per Mcf. Oil production in 1994
from directly owned properties was comparable to 1993, with natural declines
being offset by production related to properties acquired during 1994. Gas
production was up 16% compared to 1993, again with natural declines being
offset by production from the 1994 acquisitions. Management's carried interest
in the oil and gas sales of the Partnerships decreased approximately 26%
compared to 1993. The decrease is primarily due to lower gas prices received by
the partnerships, as well as a lower carried interest in certain partnerships
due to lower net cash flows.
District operating income of $9.4 million increased 10% compared to
1993. Income is derived through the operation of wells owned by the Company as
well as those owned by the Partnerships and Trusts. The district offices of the
Company are responsible for the operation and maintenance of these properties.
The increase in revenue compared to 1993 is largely due to the 1994
acquisitions which added approximately $473,000 in district revenue, coupled
with an overall expansion of field activities in all districts. The Midland,
Texas district contributed an additional $230,000 in revenue related to
equipment purchased during the latter part of 1993 and early 1994, and SOCC
contributed an additional $66,000, an increase of about 13% compared to 1993.
20
<PAGE> 22
Administrative revenue represents the Company's reimbursement of
general and administrative overhead expended on behalf of the Partnerships (see
Note 12 to the consolidated financial statements). Administrative revenues
received in both 1994 and 1993 from certain Partnerships are substantially less
than the amounts allocable to those Partnerships under the Partnership
agreements. The lower amounts reflect PEMC's efforts to limit costs incurred
and those allocated to the Partnerships and Trusts.
Reporting and management fees were historically earned from sponsoring
new public limited partnerships and trusts, as well as providing the accounting
and reporting for certain of the Partnerships. Overall fees declined 6%
compared to 1993 due to the Company's decision not to offer additional trust or
limited partnership investment vehicles in the foreseeable future. Management
fees in 1993 included $82,000 related to the sponsorship of the PrimeEnergy
Asset and Income Trust ("PAIT") A-2.
Interest and other income decreased by approximately $196,000 compared
to 1993. This decrease is due primarily to a reimbursement in 1993 of
approximately $220,000 of costs incurred by the Company in settlement of two
environmental claims brought in 1992. Such costs were originally charged to
general and administrative expenses when incurred as the Company was unable to
estimate the amount recoverable through insurance coverage. The large increase
was partially offset by higher interest income due to higher rates received on
short term investments.
Lease operating expenses decreased 6% compared to 1993. Expenses on
directly owned properties were relatively consistent with 1993 decreases being
offset by expenses on the 1994 acquired properties. Expenses related to the
Company's carried interest in the Partnerships decreased $188,000, or 22%.
Average lifting costs lease operating expenses per equivalent unit of
production) decreased from $10.70 per equivalent unit in 1993 to $10.14 per
equivalent unit in 1994 primarily due to lower lifting costs on recent
acquisitions.
The Company receives reimbursement for costs incurred related to the
evaluation and acquisition of properties on behalf of its related Partnerships,
Trusts and other joint venture partners. To the extent that these property
acquisition costs are expended at the district level, the reimbursements reduce
total district operating expenses. Reimbursement for expenses incurred by PEMC
reduce total general and administrative expenses. During 1994 and 1993, the
Company's total reimbursements for property acquisition costs were
approximately $1.5 million and $1.6 million respectively.
District operating expenses of $7.0 million increased $720,000, or 11%
compared to 1993. This increase is largely the result of the growth of the
Company's operating and well servicing
21
<PAGE> 23
businesses, and is comparable to the increase in district operating income.
Reimbursement of property acquisition costs at the district level decreased
from $651,000 in 1993 to $425,000 in 1994. Management believes that the Company
is now positioned such that significant additions may be made to operated wells
without significant cost increases within existing district offices.
General and administrative expenses of $3.5 million decreased $551,000
or 14% compared to 1993. General and administrative expenses in 1993 included a
one time charge of $350,000 related to the repurchase of stock options from the
Company's former Chairman (see note 9 to the consolidated financial
statements). Expenses in 1993 also included approximately $220,000 in costs
associated with the offering of PAIT A-2. Since the Company has discontinued
such offerings, no comparable costs were incurred in 1994. Additionally, since
no such offerings are intended to be made in the future, expenses in 1994
include $90,000 that was previously recorded as a prepaid asset relating to
marketing agreement fees paid in prior years to the Company's president. As
more fully described in Note 9 to the consolidated financial statements, the
fees covered a period which ends in December, 1996. Since the Company does not
intend to offer any additional public investment funds, the remaining prepaid
asset was charged to expenses.
Depreciation and depletion of oil and gas properties of $1.9 million
decreased 15% compared to 1993 due to a lower depletable cost base as a result
of significant depletion charges in 1993, coupled with higher year-end oil
prices resulting in lower depletion rates.
Exploration costs decreased from $140,000 in 1993 to $17,000 in 1994
as a result of dry hole costs incurred during 1993 primarily related to the
exploratory drilling project on the Waggoner Ranch and the La Paloma 1-66 well.
The 1994 costs relate to dry hole costs incurred on the 1994-I Development
Program.
Interest expense increased 31% compared to 1993 due to additional
borrowings to finance acquisition activity and higher interest rates.
Income tax expense for the year of $61,000 resulted in an effective
rate of 9.6%. This low rate is primarily due to the utilization of net
operating loss and percentage depletion deduction carryforwards.
ITEM 7. FINANCIAL STATEMENTS.
Included on pages F-1 through F-26 of this Report. The Index to
Financial Statements is at page 26 of this Report.
22
<PAGE> 24
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information relating to the Company's Directors, nominees for
Directors and executive officers is included in the Company's definitive proxy
statement relating to the Company's Annual Meeting of Stockholders to be held
in June, 1996, which will be filed with the Securities and Exchange Commission
within 120 days of December 31, 1995, and which is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION.
Information relating to executive compensation is included in the
Company's definitive proxy statement relating to the Company's Annual Meeting
of Stockholders to be held in June, 1996, which will be filed with the
Securities and Exchange Commission within 120 days of December 31, 1995, and
which is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information relating to security ownership of certain beneficial
owners and management is included in the Company's definitive proxy statement
relating to the Company's Annual Meeting of Stockholders to be held in June,
1996, which will be filed with the Securities and Exchange Commission within
120 days of December 31, 1995, and which is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain transactions by Directors and
executive officers of the Company is included in the Company's definitive proxy
statement relating to the Company's Annual Meeting of Stockholders to be held
in June, 1996, which will be filed with the Securities and Exchange Commission
within 120 days of December 31, 1995, and which is incorporated herein by
reference.
23
<PAGE> 25
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Exhibits:
NO.
---
<S> <C> <C>
3.1 -- Certificate of Incorporation as amended, of PrimeEnergy Corporation. (Incorporated herein by
reference to Exhibit 3.1 of PrimeEnergy Corporation Form 10-KSB for the year ended December 31,
1994)
3.2 -- Bylaws of PrimeEnergy Corporation. (Incorporated herein by reference to Exhibit 3.2 of
PrimeEnergy Corporation Form 10-KSB for the year ended December 31, 1994)
10.1 -- PrimeEnergy Corporation 1983 Incentive Stock Option Plan (Incorporated herein by reference to
Exhibit 10.1 of PrimeEnergy Corporation Form 10-KSB for the year ended December 31, 1994) (1)
10.3 -- Massachusetts Mutual Flexinvest 401 (k) Plan as amended and restated. (Incorporated herein by
reference to Exhibit 10.3 of PrimeEnergy Corporation Form 10-KSB for the year ended December 31,
1994) (1)
10.7 -- Credit Agreement dated April 26, 1995, between PrimeEnergy Corporation, PrimeEnergy Management
Corporation and Bank One, Texas, National Association. (Incorporated herein by reference to
Exhibit 10.7 to PrimeEnergy Corporation Form 8-K dated April 26, 1995)
10.7.1 -- First Amendment to Credit Agreement Among PrimeEnergy Corporation and PrimeEnergy Management
Corporation, as Borrowers, Bank One, Texas, National Association, as Agent, and the Lenders
Signatory Hereto, effective as of October 6, 1995. (filed herewith)
10.8 -- Mortgage, Deed of Trust, Indenture, Security Agreement, Financing Statement and Assignment of
Production dated May 27, 1994, as ratified and amended April 26, 1995, between PrimeEnergy
Corporation, PrimeEnergy Management Corporation and Bank One, Texas, National Association.
(Incorporated herein by reference to Exhibit 10.8 to PrimeEnergy Corporation Form 8-K dated April
26, 1995)
10.15 -- Employment Agreement between K.R.M. Petroleum Corporation and Charles E. Drimal, Jr.
(Incorporated herein by reference to Exhibit 10.15 of PrimeEnergy
</TABLE>
24
<PAGE> 26
Corporation Form 10-KSB for the year ended December 31, 1994) (1)
<TABLE>
<S> <C> <C>
10.17 -- Amended Marketing Agreement between PrimeEnergy Management Corporation and Charles E. Drimal, Jr.
(Incorporated herein by reference to Exhibit 10.17 of PrimeEnergy Corporation Form 10-KSB for the
year ended December 31, 1994) (1)
10.18 -- Composite copy of Non-Statutory Option Agreements. (Incorporated herein by reference to Exhibit
10.18 to PrimeEnergy Corporation Form 10-KSB for the year ended December 31, 1994) (1)
22 -- Subsidiaries. (filed herewith)
24 -- Consent of Ryder Scott Company. (filed herewith)
27 -- Financial Data Schedule. (filed herewith)
</TABLE>
(1) Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-KSB.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the fourth
quarter of the year covered by this Report.
25
<PAGE> 27
INDEX TO FINANCIAL STATEMENTS
Financial Statements (Included herein at pages F-1 through
F-26):
Report of Independent Public Accountants, F-1
Financial Statements:
Consolidated Balance Sheets -- December 31, 1995 and
1994, F-2
Consolidated Statements of Operations -- for the years
ended December 31, 1995 and 1994, F-3
Consolidated Statements of Stockholders' Equity --
for the years ended December 31, 1995 and 1994, F-4
Consolidated Statements of Cash Flows -- for the years
ended December 31, 1995 and 1994, F-5
Notes to Consolidated Financial Statements, F-6
Supplementary Information:
Capitalized Costs Relating to Oil and Gas
Producing Operations, December 31, 1995 and
1994, F-20
Costs Incurred in Oil and Gas Property
Acquisition, Exploration and Development
Activities, years ended December 31, 1995 and
1994, F-20
Standardized Measure of Discounted Future Net
Cash Flows Relating to Proved Oil and Gas
reserves, years ended December 31, 1995 and
1994, F-21
Standardized Measure of Discounted Future Net
Cash Flows and Changes Therein Relating to
Proved Oil and Gas Reserves, years ended
December 31, 1995 and 1994, F-22
Reserve Quantity Information, years ended
December 31, 1995 and 1994, F-23
Results of Operations from Oil and Gas
Producing Activities, years ended December
31, 1995 and 1994, F-24
Notes to Supplementary Information, F-25
26
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf of the undersigned, thereunto duly authorized, on the 21st day of
March, 1995.
PrimeEnergy Corporation
By: /s/ CHARLES E. DRIMAL, JR.
----------------------------------------------
Charles E. Drimal, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and the capacities indicated on the 21st day of March, 1995.
NAME AND CAPACITY
/s/ Charles E. Drimal, Jr. Director and President; the Principal
- ------------------------------- Executive Officer
Charles E. Drimal, Jr.
/s/ Beverly A. Cummings Director, Executive Vice President, and
- ------------------------------- Treasurer; the Principal Financial and
Beverly A. Cummings Accounting Officer
/s/ Bennie H. Wallace, Jr. Director and Vice President
- -------------------------------
Bennie H. Wallace, Jr.
/s/ Samuel R. Campbell Director
- -------------------------------
Samuel R. Campbell
/s/ Charles E. Drimal, Sr. Director
- -------------------------------
Charles E. Drimal, Sr.
/s/ Matthias Eckenstein Director
- -------------------------------
Matthias Eckenstein
/s/ H. Gifford Fong Director
- -------------------------------
H. Gifford Fong
/s/ Thomas S.T. Gimbel Director
- -------------------------------
Thomas S.T. Gimbel
/s/ Clint Hurt Director
- -------------------------------
Clint Hurt
Director
- -------------------------------
Robert de Rothschild
/s/ Jarvis J. Slade Director
- -------------------------------
Jarvis J. Slade
/s/ Jan K. Smeets Director
- -------------------------------
Jan K. Smeets
/s/ Gaines Wehrle Director
- -------------------------------
Gaines Wehrle
/s/ Michael Wehrle Director
- -------------------------------
Michael Wehrle
27
<PAGE> 29
PRIMEENERGY CORPORATION AND SUBSIDIARIES
____________
Consolidated Financial Statements
December 31, 1995 and 1994
____________
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
____________
To the Board of Directors and Stockholders of
PrimeEnergy Corporation:
We have audited the accompanying consolidated balance sheets of PrimeEnergy
Corporation and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PrimeEnergy
Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York
March 20, 1996
F-1
<PAGE> 31
PRIMEENERGY CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, December 31, 1995 and 1994
_________________
<TABLE>
<CAPTION>
ASSETS: 1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,009,000 $ 2,361,000
Restricted cash and cash equivalents 713,000 1,257,000
Accounts receivable, net 2,311,000 2,093,000
Due from related parties (less allowance for doubtful accounts of
$725,000 in 1995 and 1994) (Note 12) 2,939,000 2,420,000
Other current assets 597,000 201,000
Prepaid expenses 151,000 109,000
Deferred income taxes 198,000 144,000
------------- -------------
Total current assets 7,918,000 8,585,000
------------- -------------
Property and equipment, at cost:
Oil and gas properties (successful efforts method):
Developed 25,024,000 24,282,000
Furniture, fixtures and equipment, including leasehold improvements 4,696,000 4,507,000
------------- -------------
29,720,000 28,789,000
Less, Accumulated depreciation and depletion (17,766,000) (16,134,000)
------------- -------------
Net property and equipment 11,954,000 12,655,000
------------- -------------
Other assets (Note 12) 487,000 462,000
Due from related parties (Note 12) 325,000 325,000
------------- -------------
Total assets $ 20,684,000 $ 22,027,000
============= =============
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of other long-term obligations $ 202,000 $ 224,000
Accounts payable 2,691,000 3,941,000
Accrued liabilities:
Taxes 26,000 24,000
Interest and other 1,139,000 793,000
Due to related parties (Note 12) 1,319,000 895,000
------------- -------------
Total current liabilities 5,377,000 5,877,000
------------- -------------
Long-term bank debt 7,400,000 7,742,000
Other long-term obligations 507,000 546,000
Deferred income taxes 333,000 265,000
Commitments and contingencies (Notes 7 and 8)
Stockholders' equity:
Preferred stock, $.10 par value; authorized, 10,000,000 shares, none issued -
Common stock, $.10 par value; authorized, 15,000,000 shares,
issued, 7,597,970 shares in 1995 and 1994 760,000 760,000
Additional paid-in capital 10,888,000 10,888,000
Accumulated deficit (992,000) (1,519,000)
------------- -------------
10,656,000 10,129,000
------------- -------------
Treasury stock, at cost, 2,361,961 common shares in 1995
and 1,919,038 common shares in 1994 (3,589,000) (2,532,000)
------------- -------------
Total stockholders' equity 7,067,000 7,597,000
------------- -------------
Total liabilities and stockholders' equity $ 20,684,000 $ 22,027,000
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE> 32
PRIMEENERGY CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of OPERATIONS
for the years ended December 31, 1995 and 1994
_________________
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
Revenue (Note 12):
Oil and gas sales $ 6,024,000 $ 5,209,000
District operating income 9,675,000 9,373,000
Administrative revenue from related parties 1,866,000 1,904,000
Reporting and management fees from related parties 356,000 375,000
Interest and other income 138,000 173,000
------------- ------------
18,059,000 17,034,000
------------- ------------
Costs and expenses:
Lease operating expense 4,100,000 3,597,000
District operating expense 7,367,000 6,996,000
General and administrative expense 2,940,000 3,456,000
Depreciation and depletion of oil and gas properties 2,430,000 1,852,000
Exploration costs 50,000 17,000
Interest expense 675,000 514,000
------------- ------------
17,562,000 16,432,000
------------- ------------
Income from operations 497,000 602,000
Other income:
Gain on sales of properties and equipment 99,000 36,000
------------- ------------
Income before provision for income taxes 596,000 638,000
Provision for income taxes 69,000 61,000
------------- ------------
Net income $ 527,000 $ 577,000
============= ============
Net income per common share $.09 $.09
==== ====
Weighted average number of shares of common stock
and common stock equivalents outstanding 5,975,903 6,366,820
============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 33
PRIMEENERGY CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of STOCKHOLDERS' EQUITY
for the years ended December 31, 1995 and 1994
_________________
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In Accumulated
Shares Amount Capital Deficit
--------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 7,597,970 $760,000 $10,888,000 ($2,096,000)
Purchased 174,999 shares of common stock - - - -
Amortization of encumbered treasury stock - - - -
Amortization of deferred compensation - - - -
Net income - - - 577,000
--------- -------- ----------- ------------
Balance, December 31, 1994 7,597,970 760,000 10,888,000 (1,519,000)
Purchased 442,923 shares of common stock
Net income 527,000
--------- -------- ----------- ------------
Balance, December 31, 1995 7,597,970 $760,000 $10,888,000 ($ 992,000)
========= ======== =========== ============
<CAPTION>
Encumbered
Treasury Total
Treasury Stock Stockholders'
Stock and Other Equity
----------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1993 ($1,999,000) ($140,000) $7,413,000
Purchased 174,999 shares of common stock (397,000) - (397,000)
Amortization of encumbered treasury stock (136,000) 136,000 -
Amortization of deferred compensation - 4,000 4,000
Net income - - 577,000
----------- ---------- ----------
Balance, December 31, 1994 (2,532,000) - 7,597,000
Purchased 442,923 shares of common stock (1,057,000) (1,057,000)
Net income 527,000
----------- ---------- ----------
Balance, December 31, 1995 ($3,589,000) $ - $7,067,000
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 34
PRIMEENERGY CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
for the years ended December 31, 1995 and 1994
_________________
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 527,000 $ 577,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization 3,190,000 2,527,000
Gain on sale of properties (99,000) (36,000)
Provision for deferred income taxes 14,000 9,000
Amortization of deferred compensation - 4,000
Changes in assets and liabilities
Decrease (increase) in accounts receivable (218,000) 499,000
(Increase) in due from related parties (519,000) (1,363,000)
(Increase) decrease in other assets (421,000) 137,000
(Increase) decrease in prepaid expenses (42,000) 72,000
Decrease in accounts payable (276,000) (229,000)
Increase in accrued liabilities 348,000 90,000
Increase (decrease) in due to related parties 1,002,000 (458,000)
----------- -----------
Net cash provided by operating activities 3,506,000 1,829,000
----------- -----------
Cash flows from investing activities:
Proceeds from sale of properties and equipment 248,000 82,000
Additions to property and equipment (3,068,000) (4,462,000)
----------- -----------
Net cash used in investing activities (2,820,000) (4,380,000)
----------- -----------
Cash flows from financing activities:
Purchase of stock for treasury (1,057,000) (533,000)
Repayment of long-term bank debt and other long-term obligations (13,970,000) (788,000)
Increase in long-term bank debt and other long-term obligations 13,569,000 4,667,000
Distributions to related parties (580,000) (2,837,000)
----------- -----------
Net cash provided by (used in) financing activities (2,038,000) 509,000
----------- -----------
Net (decrease) in cash (1,352,000) (2,042,000)
Cash and cash equivalents, beginning of year 2,361,000 4,403,000
----------- -----------
Cash and cash equivalents, end of year $ 1,009,000 $ 2,361,000
=========== ===========
Supplemental disclosures:
Income taxes paid during the year $ 53,000 $ 83,000
Interest paid during the year $ 684,000 $ 491,000
</TABLE>
Supplemental information of noncash investing and financing activities:
During 1994, the Company recorded additional capital lease obligations in
the amount of $81,000 related to computer equipment and software.
At December 1994, the Company closed on the acquisition of additional
interest in oil and gas properties as described in Note 2. However,
$430,000 was not distributed to certain sellers until January 1995,
therefore, the amount was treated as a non-cash transaction in 1994.
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 35
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
_________________
1. DESCRIPTION OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations:
PrimeEnergy Corporation, a Delaware corporation ("PEC"), was organized in
March 1973. PrimeEnergy Management Corporation ("PEMC"), a wholly-owned
subsidiary, acts as the managing general partner, providing
administration, accounting and tax preparation services for 53 private
and publicly-held limited partnerships and trusts (the "Partnerships").
PEC owns Eastern Oil Well Service Company ("EOWSC") and Southwest
Oilfield Construction Company ("SOCC"), both of which perform oil and gas
field servicing. PEC also owns Prime Operating Company ("POC") which
serves as operator for most of the producing oil and gas properties owned
by the Company and affiliated entities. PrimeEnergy Corporation and its
wholly-owned subsidiaries are herein referred to as the "Company".
The Company is engaged in the development, acquisition and production of
oil and natural gas properties. The Company owns leasehold, mineral and
royalty interests in producing and non-producing oil and gas properties
across the continental United States, including Colorado, Kansas,
Louisiana, Mississippi, Montana, Nebraska, Nevada, New Mexico, North
Dakota, Oklahoma, Texas, Utah, West Virginia and Wyoming. The Company
operates approximately 1,600 wells and owns nonoperating interests in
approximately 1,200 additional wells. Additionally, the Company provides
well-servicing support operations, site-preparation and construction
services for oil and gas drilling and re-working operations, both in
connection with the Company's activities and providing contract services
for third parties. The Company is publicly traded on the NASDAQ under
the symbol "PNRG."
The markets for the Company's products are highly competitive, as oil and
gas are commodity products and prices depend upon numerous factors beyond
the control of the Company, such as economic, political and regulatory
developments and competition from alternative energy sources.
Principles of Consolidation:
The consolidated financial statements include the accounts of PrimeEnergy
Corporation and its wholly-owned subsidiaries. All material intercompany
accounts and transactions between these entities have been eliminated.
Oil and gas properties include ownership interests in the Partnerships.
The statement of operations includes the Company's proportionate share of
revenue and expenses related to oil and gas interests. Certain prior
year amounts have been reclassified to conform to the current year's
presentation.
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles, which require management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses for the reporting periods.
Actual results for future periods could differ from those estimates.
Estimates of oil and gas reserves, as determined by independent petroleum
engineers, are continually subject to revision based on price, production
history and other factors.
F-6
<PAGE> 36
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
_________________
Property and Equipment:
The Company follows the "successful efforts" method of accounting for its
oil and gas properties. Under the successful efforts method, costs of
acquiring undeveloped oil and gas leasehold acreage, including lease
bonuses, brokers' fees and other related costs are capitalized.
Provisions for impairment of undeveloped oil and gas leases are based on
periodic evaluations. Annual lease rentals and exploration expenses,
including geological and geophysical expenses and exploratory dry hole
costs, are charged against income as incurred. Costs of drilling and
equipping productive wells, including development dry holes and related
production facilities are capitalized. Costs incurred by the Company
related to the acquisition of producing oil and gas properties on behalf
of related partnerships, trusts, or joint ventures are deferred and
charged to the related entity upon the completion of the acquisition. To
the extent that the Company acquires an interest in the property, an
appropriate allocation of internal costs are capitalized as part of the
depletable base of the property.
All other property and equipment are carried at cost. Depreciation and
depletion of oil and gas production equipment and properties are
determined using the unit-of-production method based on estimated proved
recoverable oil and gas reserves. Depreciation of all other equipment is
determined under the straight-line method using various rates based on
useful lives. The cost of assets and related accumulated depreciation is
removed from the accounts when such assets are disposed of, and any
related gains or losses are reflected in current earnings.
Income Taxes:
Income taxes are provided using the asset and liability approach to
accounting for income taxes, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns.
Deferred tax liabilities or assets are established for temporary
differences between financial and tax reporting bases and are
subsequently adjusted to reflect changes in tax rates expected to be in
effect when the temporary differences reverse. A valuation allowance is
established for any deferred tax asset for which realization is not
likely.
The Company uses the flow-through method of accounting for investment tax
credits.
General and Administrative Expenses:
General and administrative expenses represent costs and expenses
associated with the operation of the Company. Certain partnerships and
trusts sponsored by the Company reimburse general and administrative
expenses incurred on their behalf.
F-7
<PAGE> 37
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
_________________
Income Per Common Share:
Income per common share has been computed based on the weighted average
number of common shares and common stock equivalents outstanding during
the respective periods.
Statements of Cash Flows:
For purposes of the consolidated statements of cash flows, the Company
considers short-term, highly liquid investments with original maturities
of less than 90 days to be cash equivalents.
Concentration of Credit Risk:
The Company maintains significant banking relationships with financial
institutions in the State of Texas. The Company limits its risk by
periodically evaluating the relative credit standing of these financial
institutions. The Company's oil and gas production purchases consist
primarily of independent marketers and major gas pipeline companies.
Recently Issued Accounting Standards:
In March 1995, FAS Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" was
issued, effective January 1, 1996. FAS No. 121 requires that in the
event certain facts and circumstances indicate an asset may be impaired,
an evaluation of recoverability must be performed to determine whether or
not the carrying amount of the asset is required to be written down.
While it is not possible to quantify with certainty the potential impact
of adoption in the first quarter of 1996, management estimates that
compliance with FAS No. 121 will result in an impairment loss of
approximately $100,000.
In October 1995, FAS Statement No. 123, "Accounting for Stock-Based
Compensation" was issued, effective January 1, 1996. The Company will
continue to measure compensation costs for its employee stock
compensation as prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and comply with the disclosure requirements of FAS
Statement No. 123 rather than record compensation expense in accordance
with the new standard.
F-8
<PAGE> 38
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
_________________
2. SIGNIFICANT ACQUISITIONS AND DISPOSITIONS
The Company's strategy is to increase its oil and gas reserves through
the acquisition of producing oil and gas properties, and properties with
the potential for future development. During 1995 and 1994, the Company
acquired/disposed of the following properties:
1995
During 1995, PEMC obtained commitments of $3.0 million, primarily from
outside investors, to be used to finance the development of several
acquisition, drilling and recompletion prospects (1995 Development
Program). The Company will invest approximately $1.25 million in the
program and has a 41.7% interest. Each investor owns a proportional
interest in each prospect equal to the amount invested as a percentage of
the total raised. PEMC retains a 10% carried interest in the net
revenues attributable to the prospects, excluding PEC's direct interest.
As more fully described in Note 8, PEMC is committed to offer to
repurchase the interests of the limited partners and trust unitholders in
certain managed limited partnerships and trusts. During 1995, PEMC
purchased such interests in an amount totaling $486,000.
1994
In May 1994, the Company completed the acquisition of various interests
in 203 wells from Excelco Energy Inc. for a total acquisition cost of
$1.88 million. The Company serves as operator for 140 of these wells.
All of the properties are located in the state of Oklahoma. Also during
1994, additional interests were acquired in the Excelco Properties for
approximately $112,000.
During 1994 PEMC obtained commitments of $2.9 million, primarily from
outside investors, to be used to finance the development of seven
identified proved drilling prospects (1994-I Development Program). The
Company invested $177,000 in the program and has a 6.2% interest. Each
investor owns a proportional interest in each prospect equal to the
amount invested as a percentage of the total raised. PEMC retains a 10%
carried interest in the net revenues attributable to the prospects,
excluding PEC's direct interest.
In December 1994, the Company purchased additional interests in
approximately 60 wells originally acquired from the Walker Corporation
for a total acquisition cost of $1.15 million.
As more fully described in Note 8, PEMC is committed to offer to
repurchase the interests of the limited partners and trust unitholders in
certain managed limited partnerships and trusts. During 1994, PEMC
purchased such interests in an amount totaling $242,000.
F-9
<PAGE> 39
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
_________________
3. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
---- ----
<S> <C> <C>
Joint interest billings $ 918,000 $ 912,000
Trade receivables 98,000 115,000
Oil and gas sales 994,000 794,000
Other 399,000 372,000
---------- ----------
2,409,000 2,193,000
Less, allowance for doubtful accounts (98,000) (100,000)
---------- ----------
$2,311,000 $2,093,000
========== ==========
</TABLE>
4. LONG-TERM BANK DEBT
During 1994, the Company entered into a $4.8 million revolving line of
credit with the bank which refinanced an existing outstanding loan to
PEC. In May of 1994, the line was increased to $4.99 million and
increased again in November to $8.0 million to facilitate the
acquisitions described above in Note 2. The borrowing base, as defined,
under the new agreement at December 31, 1994 was $7.9 million.
On April 26, 1995, the Company entered into a new credit agreement with
the same bank, extending the borrowing base to a non-reducing $12.5
million and syndicating 25% of the borrowing to a second bank. The new
agreement provides for interest at 1/2% over the bank's base rate, as
defined, and is payable monthly (9.0% at December 31, 1995), or 2-3/4%
over the London Inter-Bank Offered Rate (LIBOR) for the interest period
requested, payable at the end of the interest period (8.69% at December
31, 1995). During 1995, the average interest rates paid on outstanding
borrowings were 9.52% (the bank's base rate plus 1/2%) and 8.67% (the
LIBOR rate plus 2-3/4%). As of December 31, 1995, the total outstanding
borrowings were $7,400,000 of which $4,700,000 was elected to accrue
interest at the LIBOR rate option. Borrowings under the agreement are
due at maturity on July 1, 1998.
Advances pursuant to the agreement are limited to the borrowing base as
defined in the agreement. Most of the Company's oil and gas properties
as well as certain receivables and equipment were pledged as collateral
under this agreement. Under the Company's credit agreement, the Company
is required to maintain, as defined, a minimum current ratio, tangible
net worth, debt coverage ratio and interest coverage ratio. The
agreement also prohibits the Company from the payment of dividends.
F-10
<PAGE> 40
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
_________________
5. OTHER LONG-TERM OBLIGATIONS
Other long-term obligations at December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Subordinated debentures due
December 31, 1998, 10%, 9.25%, 6.5%
interest in 1994, 1995, and 1996, respectively
and 1% above year end money market
rates thereafter $225,000 $225,000
Installment notes payable
Due 1996 through 1997 with interest rates
ranging from 5% to 10%. 321,000 310,000
Capital lease obligations 163,000 235,000
-------- --------
709,000 770,000
Less, current portion 202,000 224,000
-------- --------
$507,000 $546,000
======== ========
</TABLE>
The debentures are held by affiliated limited partnerships in which PEMC
is a general partner.
6. ENCUMBERED TREASURY STOCK
In December 1991, the Company purchased 340,000 shares of the Company's
common stock from the former Chairman of the Board at $1.15 per share in
exchange for a 4% note. The shares were held in escrow until payment of
the note. The shares were considered encumbered treasury stock on the
balance sheet and were unencumbered in proportion to the repayment of the
note. As of December 31, 1994, the note was fully paid and all shares
were removed from escrow.
7. COMMITMENTS
Employment Agreement:
The Company has an employment agreement with a key employee which expires
in November 1996. The agreement provides for a minimum annual salary of
$125,000 and a discretionary expense allowance of $1,200 per month with
reimbursement for all reasonable expenses incurred in connection with the
business of the Company in excess of the discretionary allowance.
F-11
<PAGE> 41
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
_________________
Operating Leases:
The Company has several noncancelable operating leases, primarily for
rental of office space and equipment, that have a term of more than one
year. Future minimum lease payments under operating leases are as
follows:
<TABLE>
<S> <C>
1996 $ 407,000
1997 373,000
1998 339,000
Thereafter 4,000
----------
$1,123,000
==========
</TABLE>
8. CONTINGENT LIABILITIES
PEMC, as managing general partner and managing trustee of the affiliated
Partnerships, is responsible for all partnership activities, including
the review and analysis of oil and gas properties for acquisition, the
drilling of development wells and the production and sale of oil and gas
from productive wells. PEMC also provides administration, accounting and
tax preparation services for the Partnerships and is reimbursed for such
work performed. PEMC is liable for all debts and liabilities of the
affiliated Partnerships, to the extent that the assets of a given
Partnership are not sufficient to satisfy its obligations.
The Company is subject to environmental laws and regulations. Management
believes that future expenses, before recoveries from third parties, if
any, will not have a material effect on the Company's financial
condition. This opinion is based on expenses incurred to date for
remediation and compliance with laws and regulations which have not been
material to the Company's results of operations.
As a general partner and managing trustee, PEMC is committed to offer to
purchase the limited partners' and trust unitholders' interests in
certain of its managed partnerships at various annual intervals. Under
the terms of the Partnership agreements, PEMC is not obligated to
purchase an amount greater than 10% of any Partnership interest
outstanding. In addition, PEMC will be obligated to purchase interests
tendered by the limited partners and trust unitholders only to the extent
of 150% of the revenues received by it from such partnership or trust in
the previous year. Purchase prices are based upon annual reserve reports
of independent petroleum engineering firms discounted by a risk factor.
As of December 31, 1995, based upon historical production rates and
prices, management estimates that if all such offers were to be accepted,
the maximum annual future purchase commitment would be approximately
$500,000.
F-12
<PAGE> 42
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
_________________
9. STOCK OPTIONS AND OTHER COMPENSATION
In May 1989, nonstatutory stock options were granted by the Company to
four key executive officers for the purchase of shares of common stock.
In each case, such options are for a term of ten years ending May 15,
1999, and are exercisable, on a cumulative basis, as to 20% of the shares
subject to option in each year, beginning one year after the granting of
the option. At December 31, 1995 and 1994, options on 802,500 shares
were outstanding and exercisable at prices ranging from $1.00 to $1.25
per share.
On January 27, 1983, the Company adopted the 1983 Incentive Stock Option
Plan. At December 31, 1995 and 1994, options on 124,000 and 134,000
shares, respectively, were outstanding and exercisable at $1.50 per share
and no additional shares were available for granting.
PEMC has marketing agreements with the Company's former Chairman and
current President, to provide assistance and advice to PEMC in connection
with the organization and marketing of oil and gas partnerships and joint
ventures and other investment vehicles of which PEMC is to serve as
general or managing partner. The agreements are for a term ending
December 31, 1996. Each individual is entitled to a percentage of the
Company's carried interest depending on total capital raised and annual
performance of the Partnerships. In 1994 and 1995, due to the performance
of the partnerships, no amounts were paid or accrued related to the
marketing agreement.
10. INCOME TAXES
The components of the provision for income taxes for the years ended
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Federal:
Current $24,000 $34,000
Deferred - -
State:
Current 32,000 18,000
Deferred 13,000 9,000
------- -------
$69,000 $61,000
======= =======
</TABLE>
F-13
<PAGE> 43
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
_________________
The components of net deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
----------- -----------
<S> <C> <C>
Current assets:
Compensation and benefits $ 90,000 $ 105,000
Allowance for doubtful accounts 29,000 39,000
Other accrued liabilities 79,000 -
----------- -----------
198,000 144,000
----------- -----------
Noncurrent assets:
Due from related parties reserve 286,000 296,000
Net operating loss carryforwards 871,000 996,000
Percentage depletion carryforwards 1,142,000 1,214,000
Alternative minimum tax credits 705,000 682,000
Less, Valuation allowance (1,715,000) (1,860,000)
----------- -----------
1,289,000 1,328,000
----------- -----------
Noncurrent liabilities:
Basis differences relating to limited partnerships (901,000) (1,001,000)
Depletion (558,000) (469,000)
Depreciation (163,000) (123,000)
----------- -----------
(1,622,000) (1,593,000)
----------- -----------
Net deferred tax liabilities ($ 135,000) ($ 121,000)
=========== ===========
</TABLE>
The total provision for income taxes for the years ended December 31,
1995 and 1994 varies from the federal statutory tax rate as a result of
the following:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Expected statutory tax rate 34.0% 34.0%
State income tax, net of federal benefit 7.6% 4.2
Effect of utilizing net operating loss carryforwards (6.4%) (4.6)
Percentage depletion (23.6%) (23.4)
Other, net - (0.6)
------ -----
11.6% 9.6%
====== =====
</TABLE>
F-14
<PAGE> 44
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
_________________
At December 31, 1995, the Company had federal tax net operating loss
carryforwards for both regular income tax purposes and alternative
minimum tax ("AMT") purposes of $2,562,000. Due to the change in control
of the Company on October 7, 1987, the Company is limited in utilizing
its tax net operating loss carryforwards. Based on the current ownership
and IRS statutes, the annual amount available to the Company is
approximately $366,000. Net loss carryforwards expire beginning in 1996
through 2002. This limitation also applies to the alternative minimum
tax net operating loss carryforwards, which can be used to offset 90% of
AMT income in future years. The Company has percentage depletion
carryforwards of $2,890,000 for regular tax purposes and $2,769,000 for
alternative minimum tax purposes. The Company has approximately $706,000
in alternative minimum tax credit carryforwards.
Both the percentage depletion deductions and the alternative minimum tax
credits may be carried forward indefinitely for tax purposes.
11. SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company operates in one industry - oil and gas exploration,
development and operation. The Company's oil and gas activities are
entirely in the continental United States.
The Company deals with a number of purchasers of its oil and gas
production. While the Company is not dependent on any one or a few
purchasers of its production, oil and gas sales in 1995 and 1994 to one
purchaser represented approximately 21% of the Company's total revenue
from oil and gas sales. These sales were not made under any contractual
arrangements, however, the Company believes that these purchasers will
continue to purchase oil and gas products and, if not, could be replaced
by other purchasers. Sales to another purchaser representing
approximately 17% of total revenue from oil and gas sales for 1995 were
made under a gas purchasing agreement which expired at the end of
February 1996 at prices in excess of current spot prices. Based on March
1996 spot prices, the expected reduction in gross oil and gas revenue
approximates 2.4%.
12. RELATED PARTY TRANSACTIONS
PEMC is a general partner in several oil and gas partnerships in which
certain directors have limited and general partnership interests.
Substantially all of the assets and revenues of PEMC are derived from its
sponsorship of the partnerships and the interests of PEMC in the oil and
gas properties acquired by the partnerships. As the managing general
partner in each of the partnerships, PEMC receives approximately 5% to
12% of the net revenues of each partnership as a carried interest in the
partnership's properties.
F-15
<PAGE> 45
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
________________
The Partnership agreements allow PEMC to receive reimbursement for
various services to the partnerships as well as a reimbursement for
property acquisition costs incurred on behalf of the partnerships and
general and administrative overhead. Reimbursement for general and
administrative overhead is reported in the statements of operations as
administrative revenue from related parties. The reimbursement of
property acquisition costs is accounted for as a reduction of District
operating expense and general and administrative expense.
Due to related parties primarily represent receipts collected by the
Company, as agent, from oil and gas sales net of expenses. The amount of
such receipts due the affiliated partnerships was $1,319,000 and $895,000
at December 31, 1995 and 1994, respectively.
Due from related parties consist of reimbursable general and
administrative costs, production costs and reimbursements for property
acquisition and development costs.
District operating income includes amounts related to PEC's working
interests.
The Company has loaned approximately $325,000 at 12% interest to a real
estate limited partnership of which a Company director and officer is a
general partner. This loan is collateralized by a second mortgage on the
underlying real estate in the partnership. In addition, the Company has
a 23% equity participation in the partnership. The loan agreement
provides for interest payments on a quarterly basis. If the cash flow
from operations of the limited partnership is insufficient to pay
interest for the quarter, the accrued interest is added to the principal.
Amounts due, included in other assets, were $425,000 and $392,000 at
December 31, 1995 and 1994, respectively.
13. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash includes $467,000 and $413,000 at December 31, 1995 and
1994, respectively, of cash primarily pertaining to unclaimed royalty and
revenue interest payments. There are corresponding accounts payable
recorded at December 31, 1995 and 1994 for these liabilities.
Also included in restricted cash are deposits relating to the 1994-I and
1995 Development Programs. Although these funds are committed for future
use on specific development programs, they are available to satisfy any
working capital needs of the Company. Restricted cash at December 31,
1995 and 1994 included $246,000 and $844,000, respectively, of deposits
relating to the 1994-I and 1995 Development Programs.
F-16
<PAGE> 46
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
________________
14. SALARY DEFERRAL PLAN
The Company maintains a salary deferral plan (the "Plan") in accordance
with Internal Revenue Code Section 401(k), as amended. The Plan provides
for discretionary and matching contributions by the Company on behalf of
participating employees. Discretionary and matching contributions
approximated $197,000 and $185,000 in 1995 and 1994, respectively.
15. ACCOUNTS PAYABLE
A summary of accounts payable at December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deposits - 1995 Development Program $ 150,000 $ -
Deposits - 1994-I Development Program 96,000 844,000
Payables to unaffiliated interests 2,365,000 3,040,000
Overdraft payable to bank 27,000 -
Other 53,000 57,000
---------- ----------
$2,691,000 $3,941,000
========== ==========
</TABLE>
The Deposits - 1995 and 1994-I Development Programs represent funds
raised which are committed to the development of certain properties
identified in the programs (see Note 13).
F-17
<PAGE> 47
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
________________
16. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended
December 31, Fourth Third Second First
1995 Quarter Quarter Quarter Quarter
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue $18,059,000 $4,812,000 $4,357,000 $4,521,000 $4,369,000
Operating income 497,000 14,000 87,000 192,000 204,000
Net income 527,000 57,000 83,000 151,000 236,000
Net income per common
share $.09 $.01 $.01 $.03 $.04
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, Fourth Third Second First
1994 Quarter Quarter Quarter Quarter
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue $17,034,000 $4,378,000 $4,507,000 $4,128,000 $4,021,000
Operating income 602,000 92,000 126,000 88,000 296,000
Net income 577,000 77,000 130,000 92,000 278,000
Net income per common
share $.09 $.01 $.02 $.01 $.04
</TABLE>
F-18
<PAGE> 48
PRIMEENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
_______
(UNAUDITED)
F-19
<PAGE> 49
PRIMEENERGY CORPORATION and SUBSIDIARIES
CAPITALIZED COSTS RELATING to OIL and GAS PRODUCING ACTIVITIES
December 31, 1995 and 1994
________________
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Developed oil and gas properties $25,024,000 $24,120,000
Undeveloped oil and gas properties - 162,000
----------- -----------
25,024,000 24,282,000
Accumulated depreciation, depletion and valuation allowance 14,956,000 13,745,000
----------- -----------
Net capitalized costs (1) $10,068,000 $10,537,000
=========== ===========
</TABLE>
(1) Includes $177,000 in 1995 and $167,000 in 1994 related to the net cost of
gas gathering facilities.
COSTS INCURRED in OIL and GAS PROPERTY ACQUISITION,
EXPLORATION and DEVELOPMENT ACTIVITIES
Years ended December 31, 1995 and 1994
_________________
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Acquisition of properties:
Developed $1,128,000 $3,549,000
Undeveloped - 162,000
Exploration costs, excluding valuation allowance 50,000 17,000
Development costs 935,000 440,000
</TABLE>
See accompanying notes to supplementary information.
F-20
<PAGE> 50
PRIMEENERGY CORPORATION and SUBSIDIARIES
STANDARDIZED MEASURE of DISCOUNTED FUTURE
NET CASH FLOWS RELATING to PROVED OIL and GAS RESERVES
years ended December 31, 1995 and 1994
_________________
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Future cash inflows $41,946,000 $29,749,000
Future production and development costs (26,181,000) (19,198,000)
Future income tax expenses (837,000) (171,000)
----------- -----------
Future net cash flows 14,928,000 10,380,000
10% annual discount for estimated timing of cash flow (5,794,000) (3,607,000)
----------- -----------
Standardized measure of discounted
future net cash flow $ 9,134,000 $ 6,773,000
=========== ===========
</TABLE>
See accompanying notes to supplementary information.
F-21
<PAGE> 51
PRIMEENERGY CORPORATION and SUBSIDIARIES
STANDARDIZED MEASURE of DISCOUNTED FUTURE
NET CASH FLOWS and CHANGES THEREIN RELATING
to PROVED OIL and GAS RESERVES
years ended December 31, 1995 and 1994
_________________
(Unaudited)
The following are the principal sources of change in the standardized measure
of discounted future net cash flows during 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Sales of oil and gas produced, net of production costs ($1,925,000) ($1,612,000)
Net changes in prices and production costs 409,000 (1,411,000)
Extensions, discoveries and improved recovery,
less recovery costs 335,000 204,000
Revisions of previous quantity estimates 2,272,000 (61,000)
Reserves purchased, net of development costs 883,000 1,913,000
Net change in development costs 125,000 601,000
Reserves sold (15,000) -
Accretion of discount 677,000 669,000
Net change in income taxes (209,000) (7,000)
Other (191,000) (213,000)
---------- ----------
Net change 2,361,000 83,000
Standardized measure of discounted future net cash flow:
Beginning of year 6,773,000 6,690,000
---------- ----------
End of year $9,134,000 $6,773,000
========== ==========
</TABLE>
See accompanying notes to supplementary information.
F-22
<PAGE> 52
PRIMEENERGY CORPORATION and SUBSIDIARIES
RESERVE QUANTITY INFORMATION
years ended December 31, 1995 and 1994
_________________
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
-------------------------- -----------------------------
Gas Oil Gas Oil
(Mcf) (bbls.) (Mcf) (bbls.)
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Proved developed and undeveloped
reserves:
Beginning of year 9,804,000 801,000 9,273,000 588,000
Extensions, discoveries
and improved recovery 544,000 18,000 239,000 28,000
Revisions of previous
estimates (1) 3,646,000 137,000 (1,241,000) 187,000
Sales - (5,000) - -
Purchases 1,558,000 109,000 2,941,000 141,000
Production (1,952,000) (155,000) (1,408,000) (143,000 )
---------- -------- ---------- --------
End of year 13,600,000 905,000 9,804,000 801,000
========== ======== ========== ========
Proved developed reserves 13,549,000 905,000 9,675,000 799,000
========== ======== ========== ========
</TABLE>
(1) Revisions during 1994 and 1995 relate primarily to changes in prices.
See accompanying notes to supplementary information.
F-23
<PAGE> 53
PRIMEENERGY CORPORATION and SUBSIDIARIES
RESULTS of OPERATIONS from OIL and GAS PRODUCING ACTIVITIES
years ended December 31, 1995 and 1994
_________________
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenue:
Oil and gas sales $6,024,000 $ 5,209,000
---------- -----------
Costs and expenses:
Lease operating expense 4,100,000 3,597,000
Exploration costs 50,000 17,000
Depreciation and depletion 2,430,000 1,852,000
Income tax (benefit) expense (64,000) (24,000)
---------- -----------
6,516,000 5,442,000
---------- -----------
Results of operations from producing activities
(excluding corporate overhead and interest costs) ($ 492,000) ($ 233,000)
========== ===========
</TABLE>
See accompanying notes to supplementary information.
F-24
<PAGE> 54
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to SUPPLEMENTARY INFORMATION
________________
(Unaudited)
1. PRESENTATION OF RESERVE DISCLOSURE INFORMATION
Reserve disclosure information is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 69 ("SFAS
69"), "Disclosures About Oil and Gas Producing Activities."
2. DETERMINATION OF PROVED RESERVES
The estimates of the Company's proved reserves were determined by an
independent petroleum engineer in accordance with the provisions of SFAS
69. The estimates of proved reserves are inherently imprecise and are
continually subject to revision based on production history, results of
additional exploration and development and other factors. Estimated
future net revenues were computed by applying current prices of oil and
gas received by the Company to estimated future production of reserves,
less estimated future development and production costs based on current
costs.
3. RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
The results of operations from oil and gas producing activities were
prepared in accordance with the provisions of SFAS 69. General and
administrative expenses, interest costs and other unrelated costs are not
deducted in computing results of operations from oil and gas activities.
4. STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves and the changes of standardized measure of
discounted future net cash flows relating to proved oil and gas reserves
were prepared in accordance with the provisions of SFAS 69.
Future cash inflows are computed as described in Note 2 by applying
current prices to year-end quantities of proved reserves.
Future production and development costs are computed by estimating the
expenditures to be incurred in developing and producing the proved oil and
gas reserves at year-end, based on year-end costs and assuming
continuation of existing economic conditions.
F-25
<PAGE> 55
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to SUPPLEMENTARY INFORMATION, Continued
_________________
(Unaudited)
Future income tax expenses are calculated by applying the year-end U.S.
tax rate to future pre-tax net cash flows relating to proved oil and gas
reserves, less the tax basis of properties involved. Future income tax
expenses give effect to permanent differences and tax credits and
allowances relating to the proved oil and gas reserves.
Future net cash flows are discounted at a rate of 10% annually (pursuant
to SFAS 69) to derive the standardized measure of discounted future net
cash flows. This calculation does not necessarily represent an estimate
of fair market value or the present value of such cash flows since future
prices and costs can vary substantially from year-end and the use of a 10%
discount figure is arbitrary.
F-26
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation as amended, of PrimeEnergy Corporation. (Incorporated herein by
reference to Exhibit 3.1 of PrimeEnergy Corporation Form 10-KSB for the year ended December 31,
1994)
3.2 -- Bylaws of PrimeEnergy Corporation. (Incorporated herein by reference to Exhibit 3.2 of
PrimeEnergy Corporation Form 10-KSB for the year ended December 31, 1994)
10.1 -- PrimeEnergy Corporation 1983 Incentive Stock Option Plan (Incorporated herein by reference to
Exhibit 10.1 of PrimeEnergy Corporation Form 10-KSB for the year ended December 31, 1994) (1)
10.3 -- Massachusetts Mutual Flexinvest 401 (k) Plan as amended and restated. (Incorporated herein by
reference to Exhibit 10.3 of PrimeEnergy Corporation Form 10-KSB for the year ended December 31,
1994) (1)
10.7 -- Credit Agreement dated April 26, 1995, between PrimeEnergy Corporation, PrimeEnergy Management
Corporation and Bank One, Texas, National Association. (Incorporated herein by reference to
Exhibit 10.7 to PrimeEnergy Corporation Form 8-K dated April 26, 1995)
10.7.1 -- First Amendment to Credit Agreement Among PrimeEnergy Corporation and PrimeEnergy Management
Corporation, as Borrowers, Bank One, Texas, National Association, as Agent, and the Lenders
Signatory Hereto, effective as of October 6, 1995. (filed herewith)
10.8 -- Mortgage, Deed of Trust, Indenture, Security Agreement, Financing Statement and Assignment of
Production dated May 27, 1994, as ratified and amended April 26, 1995, between PrimeEnergy
Corporation, PrimeEnergy Management Corporation and Bank One, Texas, National Association.
(Incorporated herein by reference to Exhibit 10.8 to PrimeEnergy Corporation Form 8-K dated April
26, 1995)
10.15 -- Employment Agreement between K.R.M. Petroleum Corporation and Charles E. Drimal, Jr.
(Incorporated herein by reference to Exhibit 10.15 of PrimeEnergy Corporation Form 10-KSB for the
year ended December 31, 1994) (1)
</TABLE>
<PAGE> 57
<TABLE>
<S> <C> <C>
10.17 -- Amended Marketing Agreement between PrimeEnergy Management Corporation and Charles E. Drimal, Jr.
(Incorporated herein by reference to Exhibit 10.17 of PrimeEnergy Corporation Form 10-KSB for the
year ended December 31, 1994) (1)
10.18 -- Composite copy of Non-Statutory Option Agreements. (Incorporated herein by reference to Exhibit
10.18 to PrimeEnergy Corporation Form 10-KSB for the year ended December 31, 1994) (1)
22 -- Subsidiaries. (filed herewith)
24 -- Consent of Ryder Scott Company. (filed herewith)
27 -- Financial Data Schedule. (filed herewith)
</TABLE>
(1) Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-KSB.
<PAGE> 1
- --------------------------------------------------------------------------------
FIRST AMENDMENT TO CREDIT AGREEMENT
AMONG
PRIMEENERGY CORPORATION
AND
PRIMEENERGY MANAGEMENT CORPORATION,
AS BORROWERS,
BANK ONE, TEXAS, NATIONAL ASSOCIATION,
AS AGENT,
AND
THE LENDERS SIGNATORY HERETO
Effective as of October 6, 1995
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Terms Defined Above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Terms Defined in Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.04 Articles and Sections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.05 Number and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II AMENDMENTS TO CREDIT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.01 Amendment of Section 1.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.02 Amendment of Section 6.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.01 Receipt of Loan Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.02 Accuracy of Representations and Warranties; No Default or Event of Default . . . . . . . . . . . . . . 3
3.03 Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.04 Matters Satisfactory to Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.05 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.01 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.02 Valid and Binding Obligations of Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.03 Representations and Warranties in Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.04 No Default or Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.05 Ratification and Confirmation of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.01 Survival Upon Unenforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.02 Rights of Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.03 Amendments or Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.04 Ratification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.05 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.06 ENTIRE AGREEMENT; NO ORAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.07 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.08 JURISDICTION AND VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
i
<PAGE> 3
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"),
effective as of October 6, 1995, is entered into by and among PRIMEENERGY
CORPORATION, a Delaware corporation ("PEC"), PRIMEENERGY MANAGEMENT
CORPORATION, a New York corporation ("PEMC," with PEC and PEMC being
individually referred to as a "Borrower" and collectively as the "Borrowers"),
BANK ONE, TEXAS, N.A., a national banking association ("Bank One"), and DEN
NORSKE BANK AS, a Norwegian bank ("DNB," with Bank One, DNB, and each other
lender that becomes signatory, individually, together with its successors and
assigns, a "Lender" and, collectively, together with their respective successors
and assigns, the "Lenders"), and Bank One, as agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Agent").
WITNESSETH:
WHEREAS, the Borrowers and the Lenders are parties to the
Credit Agreement dated as of April 26, 1995 (the "Credit Agreement"); and
WHEREAS, the Borrowers and the Lenders desire to amend the
Credit Agreement as provided hereinbelow;
NOW THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties herein set forth and for other good
and valuable consideration, the Borrowers and the Lenders hereby agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.01 Terms Defined Above. As used in this Amendment, each
of the terms "Agent," "Amendment," "Bank One," "Borrower," "Borrowers,"
"Credit Agreement," "DNB," "Lender," "Lenders," "PEC," and "PEMC" shall have
the meaning assigned to such term hereinabove.
1.02 Terms Defined in Credit Agreement. Each term defined
in the Credit Agreement and used herein without definition shall have the
meaning assigned to such term in the Credit Agreement, unless expressly
provided herein to the contrary.
1.03 References. References in this Amendment to Article
or Section numbers shall be to Articles and Sections of this Amendment, unless
expressly stated herein to the contrary. References in this Amendment to
"hereby," "herein," "hereinabove," "hereinafter," "hereinbelow," "hereof," and
"hereunder" shall be to this Amendment in its entirety and not only to the
particular Article or Section in which such reference appears.
<PAGE> 4
1.04 Articles and Sections. This Amendment, for
convenience only, has been divided into Articles and Sections, and all rights,
powers, privileges, duties, and other legal relations of the parties hereto
shall be determined from this Amendment as an entirety and without regard to
such divisions into Articles and Sections and without regard to headings
prefixed to such Articles and Sections.
1.05 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and
neuter, when such construction is appropriate; and specific enumeration shall
not exclude the general but shall be construed as cumulative. Definitions of
terms defined in the singular and plural shall be equally applicable to the
plural and singular, as the case may be.
ARTICLE II
AMENDMENTS TO CREDIT AGREEMENT
2.01 Amendment of Section 1.2. The following definitions
set forth in Section 1.2 of the Credit Agreement are hereby amended to read as
follows:
"'Commitment Termination Date' shall mean July 1, 1998."
"'Final Maturity' shall mean July 1, 1998."
2.02 Amendment of Section 6.8. Section 6.8 of the Credit
Agreement is hereby amended to read in its entirety as follows:
"6.8 Dividends and Distributions. Declare, pay, or make,
whether in cash or other Property, any dividend or distribution on any
share of any class of the capital stock of either Borrower, or
purchase, redeem, or otherwise acquire for value any share of any
class of capital stock of either Borrower other than the purchase by
PEC of the capital stock of PEC for an amount not exceeding $1,250,000
in any fiscal year provided that no Default or Event of Default exists
or will occur as the result of such purchase and provided further that
the Lender has received written notice of any such purchase for an
amount exceeding $100,000."
2
<PAGE> 5
ARTICLE III
CONDITIONS
The obligation of the Agent and the Lenders to amend the
Credit Agreement as provided herein is subject to the fulfillment of the
following conditions president:
3.01 Receipt of Loan Documents. The Agent shall have
received multiple counterparts, as requested by the Agent, of this Amendment,
executed by the Borrowers, which shall be in form and substance satisfactory to
the Agent.
3.02 Accuracy of Representations and Warranties: No
Default or Event of Default. The representations and warranties contained in
Article IV of this Amendment shall be true and correct in all material
respects; and no Default or Event of Default shall have occurred and be
continuing.
3.03 Payment of Fees and Expenses. The Agent shall have
received reimbursement from the Borrowers, or special legal counsel for the
Agent shall have received payment from the Borrowers, for all reasonable fees
and expenses of counsel to the Lenders for which the Borrowers are responsible
pursuant to applicable provisions of this Amendment and the Credit Agreement
for which invoices have been presented as of or prior to the date hereof.
3.04 Matters Satisfactory to Lenders. All matters incident
to the consummation of the transactions hereby contemplated shall be reasonably
satisfactory to the Lenders.
3.05 No Material Adverse Effect. No event or circumstance
shall have occurred since June 30, 1995, that could reasonably be expected to
have a Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this
Amendment and amend the Credit Agreement as provided herein, the Borrowers
represent and warrant to the Agent and each Lender that:
4.01 Due Authorization. The execution and delivery by the
Borrowers of this Amendment and the performance of its obligations hereunder
are within the power of the Borrowers, are duly authorized by all necessary
action on behalf of the Borrowers, and do not and will not (a) require the
consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law or the articles or certificate of incorporation, bylaws, or
other organizational or governing documents of the Borrowers, (c) contravene or
conflict with any indenture, instrument or other agreement to which either
Borrower is a party or by which its Property may be presently bound or
encumbered, or (d) result in or require the creation or
3
<PAGE> 6
imposition of any Lien upon any of the properties or assets of either Borrower
under any such indenture, instrument or other agreement other than the Loan
Documents.
4.02 Valid and Binding Obligations of Borrowers. This
Amendment, when duly executed and delivered, will be the legal, valid and
binding obligation of the Borrowers, enforceable in accordance with its terms
(subject to any applicable bankruptcy, insolvency or other laws of general
application affecting creditors' rights and judicial decisions interpreting any
of the foregoing).
4.03 Representations and Warranties in Credit Agreement.
As of the date hereof, all representations and warranties set forth in the
Credit Agreement are true and correct in all material respects, except to the
extent such representations and warranties relate solely to an earlier date.
4.04 No Default or Event of Default. No Default or Event
of Default exists.
4.05 Ratification and Confirmation of Liens. The Borrowers
hereby ratify and confirm all Liens created under the Security Instruments and
acknowledge and agree that all such Liens secure all Obligations.
ARTICLE V
MISCELLANEOUS
5.01 Survival Upon Unenforceability. In the event any one
or more of the provisions contained in this Amendment shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision hereof.
5.02 Rights of Third Parties. All provisions herein are
imposed solely and exclusively for the benefit of the Agent, the Lenders and
the Borrowers, and their successors and permitted assigns. No other Person
shall have any right, benefit, priority, or interest hereunder or as a result
hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms.
5.03 Amendments or Modifications. Neither this Amendment
nor any provision hereof may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.
5.04 Ratification. Except as expressly amended by this
Amendment and the documents executed in connection herewith, the Credit
Agreement and all other Loan Documents shall remain in full force and effect.
The Credit Agreement, as hereby amended, and all rights
4
<PAGE> 7
and powers created thereby or thereunder and under such other Loan Documents
are in all respects ratified and confirmed.
5.05 Expenses. The Borrowers shall pay to the Agent for
the benefit of the Lenders promptly upon request all expenses incurred in
connection with this Amendment and the documents executed in connection
herewith.
5.06 ENTIRE AGREEMENT; NO ORAL AGREEMENTS. THIS AGREEMENT
CONSTITUTES THE ENTIRE AGREEMENT OF THE PARTIES HERETO WITH RESPECT TO THE
SUBJECT HEREOF AND SUPERSEDES ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO,
WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF. THIS WRITTEN AGREEMENT
AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL
AGREEMENT AMONG THE PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
5.07 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING
EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW); PROVIDED, HOWEVER,
THAT VERNON'S TEXAS CIVIL STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL
NOT APPLY.
5.08 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS
WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF,
RELATED TO OR FROM THIS AMENDMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND
ELECTION OF THE AGENT, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS.
EACH BORROWER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL
COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT
MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION
BROUGHT AGAINST IT BY THE AGENT IN ACCORDANCE WITH THIS SECTION.
5.09 Counterparts. This Amendment may be signed in any
number of counterparts and by different parties in separate counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
5
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective duly authorized officers on the date first
hereinabove written.
BORROWER:
PRIMEENERGY CORPORATION
By: /s/ BEVERLY A. CUMMINGS
----------------------------------
Beverly A. Cummings
Executive Vice President, Treasurer
and Chief Financial Officer
BORROWER:
PRIMEENERGY MANAGEMENT
CORPORATION
By: /s/ BEVERLY A. CUMMINGS
----------------------------------
Beverly A. Cummings
Executive Vice President, Treasurer
and Chief Financial Officer
AGENT AND LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: /s/ KELLY L. ELMORE, III
----------------------------------
Kelly L. Elmore, III
Vice President
6
<PAGE> 9
LENDER
DEN NORSKE BANK AS
By: /s/ THEODORE S. JADICK, JR.
----------------------------------
Name: Theodore S. Jadick, Jr.
-------------------------------
Title: Senior Vice President
-------------------------------
By: /s/ FRAN MEYERS
----------------------------------
Name: Fran Meyers
-------------------------------
Title: Vice President
-------------------------------
7
<PAGE> 1
EXHIBIT 22
Subsidiaries:
PrimeEnergy Management Corporation, a New York corporation
100% owned by PrimeEnergy Corporation
Prime Operating Company, a Texas corporation
100% owned by PrimeEnergy Corporation
Eastern Oil Well Service Company, a West Virginia corporation
100% owned by PrimeEnergy Corporation
Southwest Oilfield Construction Company, an Oklahoma corporation,
100% owned by PrimeEnergy Corporation
PrimeEnergy Depositary Corp., a New York corporation
100% owned by PrimeEnergy Corporation
<PAGE> 1
[RYDER SCOTT COMPANY LETTERHEAD]
CONSENT OF RYDER SCOTT COMPANY
We consent to the use on the form 10-KSB of PrimeEnergy Corporation of
our reserve report and all schedules, exhibits, and attachments thereto
incorporated by reference of Form 10-KSB and to any reference made to us on
Form 10-KSB as a result of such incorporation.
Very Truly Yours,
/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Denver, Colorado
March 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Prime Energy
Corporation Form 10-KSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,722
<SECURITIES> 0
<RECEIVABLES> 2,409
<ALLOWANCES> 98
<INVENTORY> 0
<CURRENT-ASSETS> 7,918
<PP&E> 29,720
<DEPRECIATION> 17,766
<TOTAL-ASSETS> 20,684
<CURRENT-LIABILITIES> 5,377
<BONDS> 8,109<F1>
<COMMON> 760
0
0
<OTHER-SE> 6,307<F2>
<TOTAL-LIABILITY-AND-EQUITY> 20,684
<SALES> 0
<TOTAL-REVENUES> 18,059
<CGS> 0
<TOTAL-COSTS> 16,887
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 675
<INCOME-PRETAX> 596
<INCOME-TAX> 69
<INCOME-CONTINUING> 527
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>
F/S summer Source
CURRENT PORTION LT DEBT 202 CFS
<F2>
F/S summer Source
ACCUM. DEFICIT 992 CFS
TREASURY STOCK 3,589 CFS
</FN>
</TABLE>
