<PAGE> 1
SECURITIES AND EXCHANGE COMMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______TO ______
COMMISSION FILE NUMBER 0-7406
PRIMEENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 84-0637348
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE LANDMARK SQUARE 06901
STAMFORD, CONNECTICUT (Zip Code)
(Address of principal executive offices)
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 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 past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
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 $25,520,000.
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 24, 2000, was $5,147,646.
The number of shares outstanding of each class of the Registrant's Common
Stock as of March 24, 2000 was: Common Stock, $0.10 par value, 4,335,097.
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
May, 2000, 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, 1999
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
This report contains forward-looking statements that are based on
management's current expectations, estimates and projections. Words such as
"expects," "anticipates," "intends," "plans," "believes," "projects" and
"estimates," and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, and are subject to the safe harbors created thereby. These
statements are not guarantees of future performance and involve risks and
uncertainties and are based on a number of assumptions that could ultimately
prove inaccurate and, therefore, there can be no assurance that they will prove
to be accurate. Actual results and outcomes may vary materially from what is
expressed or forecast in such statements due to various risks and uncertainties.
These risks and uncertainties include, among other things, volatility of oil and
gas prices, competition, risks inherent in the Company's oil and gas operations,
the inexact nature of interpretation of seismic and other geological and
geophysical data, imprecision of reserve estimates, the Company's ability to
replace and expand oil and gas reserves, and such other risks and uncertainties
described from time to time in the Company's periodic reports and filings with
the Securities and Exchange Commission. Accordingly, stockholders and potential
investors are cautioned that certain events or circumstances could cause actual
results to differ materially from those projected.
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, exploration, development, and production of crude oil and natural
gas. The Company's properties are located primarily in Texas, Oklahoma, West
Virginia and Louisiana. The Company's wholly-owned subsidiary, PrimeEnergy
Management Corporation ("PEMC"), acts as the managing general partner in 51 oil
and gas limited partnerships (the "Partnerships") of which five 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 Texas, Oklahoma and West Virginia. 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 interest 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.
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
of the Trusts now administered by PEMC is approximately 7,500. 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 interest in the net revenues of each joint venture as a
carried
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interest in the joint venture properties. The Company's participation in the
joint ventures varies from none to approximately 68%. The Company's carried
interest is generally 10% of funds contributed by outside investors. Since 1987,
our joint venture partners have invested $26 million with the Company.
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 1,659 oil and gas wells, 504 through the Houston office, 170 through the
Midland office, 484 through the Oklahoma City office and 501 through the
Charleston, West Virginia office. Substantially all of the wells operated by the
Company are wells in which the Company, the Partnerships, the Trusts or our
joint venture partners 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
that are competitive in the areas of operations and also is reimbursed for
expenses incurred in connection with well operations.
EXPLORATION, DEVELOPMENT AND ACQUISITION ACTIVITIES; OTHER MATTERS
The Company's focus is on the acquisition and development of producing
oil and gas properties. 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 August of 1998, the Company operated and participated in the drilling
of the Francis L. Martin et al No. 1 well on the West Ridge Prospect in
Lafayette Parish, Louisiana. The well reached total depth at 13,200 feet on
October 1, 1998 and has been completed in a sand at 12,850 feet in depth. The
well went on production January 27, 1999 and is producing at a rate of 14,000
Mcf of gas per day and 200 barrels of condensate per day. The Company owns a
12.7% working interest and 9.33% net revenue interest in this property.
In October of 1998, the Company re-entered and sidetracked the Stutes, et
al No. 1 well bore located in the Duson area of Lafayette Parish, Louisiana. The
sidetrack hole reached its total measured depth at 12,717 feet January 29, 1999,
and has been completed in the Upper Stutes sand at 11,800 feet measured depth.
The Company owns a 45.75% working interest, and a 32.94% net revenue interest in
this well, which began producing in May 1999.
In November of 1998, the Company operated and participated in the
drilling of the Hamel No. 3 well in Hamel field of Colorado County, Texas. The
well was successfully completed February 2, 1999 in the Wilcox 9000' sand for
24.7 (11.9 net) barrels of oil per day and 260 (125 net) Mcf of gas per day. In
March 1999, additional perforations in the Upper 9000' sand increased the daily
production to 40 (19.2 net) barrels of oil per day and 260 (125 net) Mcf of gas.
The Company owns a 2.26 % working interest and a 1.78% net revenue interest in
the well.
In December 1998, the Company drilled the State Tract 15159 No. 1 well
to a total depth of 9,680 feet on the Four League Bay area in Terrebonne Parish,
Louisiana. The well did not encounter a hydrocarbon accumulation and has been
temporarily abandoned. Operations continued on the property in January 1999 and
the State Tract 15160 No. 1 well was drilled to a depth of 12,000 feet. This
well was plugged and abandoned. The Company had a 34.5% working interest in this
well.
The Company participated in the drilling of the St. Andrews No. l well
in Ramrod field of Matagorda County, Texas. The well was spud in December of
1998, drilled to a depth of 16,000 feet and was completed in a Tex. Miss. Sand.
Initial production from the well was 1400 Mcf of gas and 42 barrels of
condensate per day. The Company owns a 20.75% working interest and 14.8% net
revenue interest in the well.
In January 1999, the Company participated in the drilling of the
Chandler No. 1 well on the Normana Prospect in Bee County, Texas. The well was
drilled to a total depth of 9,100 feet and encountered several potentially
productive gas sands in the Wilcox Formation. In May, 1999 the well was
completed in the Luling sand and tested 250 (193 net) Mcf of gas per day. The
Company owns a 68.27% working interest and a 52.57 % net revenue interest in the
well.
In February 1999, the Company participated in the drilling of the
Hernandez No. 1 well on the West Judice Prospect in Lafayette Parish, Louisiana.
The well was drilled to a depth of 14,582 feet and plugged and abandoned. The
Company owned a 16.5% working interest in this well.
Also in February of 1999, the Company participated in the drilling of
the St. George No. 2 well on the Ramrod Prospect, of Matagorda County, Texas.
Lower and Middle Frio sands were tested with fracture stimulations. The well was
plugged and abandoned in October 1999. The Company owned a 24.46% working
interest in the well.
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In September of 1999, the Company operated and participated in the
drilling of the Arnett No. 1 well of Midland County, Texas. The well was drilled
to a total depth of 4,323 feet and in November of 1999 was completed in the San
Andres formation for an initial production rate of 26 (7.8 net) barrels of oil
and 39 barrels of water per day. The Company owns a 30% working interest and a
24.4% net revenue interest in the well.
On November 15, 1999, the Company purchased interests in approximately
131 oil and gas wells located in various counties in Oklahoma. The Company
already owned, and was the operator of, the majority of the properties
purchased. The purchase price was $1,813,000, plus possible additional
compensation contingent on the performance of the properties.
In December of 1999, the Company operated and participated in the
drilling of the Wing No. 86 well in Segno field of Polk County, Texas. The well
reached a total depth of 8416 feet and was plugged and abandoned. The Company
owned a 50% working interest in the well.
In January of 2000, the Company drilled the Stroud No. 1 well in
Midland County Texas. The well reached a total depth of 5325 feet in the San
Andres Formation and was plugged and abandoned. The Company owned 100% of the
working interest in this well.
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 income producing assets so as to increase the
Company's net worth and increase the Company's oil and gas reserve base.
The Company presently owns producing and non-producing properties
located primarily in Texas, Oklahoma, West Virginia and Louisiana. The Company
does not own any significant properties other than its leasehold, mineral and
royalty interest 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.
In the 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.
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 1930 ("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
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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 interest 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 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. For certain marginal wells, the net income
limitation does not apply, and the gross income limitation percentage varies
annually based on average prices. 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.
See Notes 1 and 9 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 and alternative minimum tax credit
carryforwards.
COMPETITION AND MARKETS
The business of acquiring producing properties and non-producing leases
suitable for exploration and development is highly 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 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. While the Company is not
dependent on any one purchaser of its production, oil and gas revenue in 1999
generated from sales to Conoco, Inc. and Unimark, LLC represented about 16% and
15%, respectively, of the Company's total revenue from oil and gas sales.
Although there are no long-term gas purchasing agreements with these purchasers,
the Company believes that they will continue to purchase its gas products and,
if not, could be replaced by other purchasers.
ENVIRONMENTAL MATTERS
Over the past 20 year, 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 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, absent the 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
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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 not 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 stricter.
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 (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
non-hazardous 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 by 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 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 24, 2000, the Company had 166 full-time and 15 part-time
employees, 22 of whom were employed by the Company at its principal offices in
Stamford, Connecticut, 25 in Houston, Texas, at the offices of Prime Operating
Company and Eastern Oil Well Service Company, and 134 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 those of PEMC, are located at One
Landmark Square, Stamford, Connecticut, in leased premises of about 8,860 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, and has field offices in
Carrizo Springs and Midland, Texas, Kingfisher, and Marshall, Oklahoma, and
Arnoldsburg and Orma, West Virginia.
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The Company owns several parcels of land in Oklahoma, on which oil and
gas wells it owns and operates are located. These properties were purchased
primarily to simplify operations of these 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.
The following table sets for the exploratory and development drilling
experience with respect to wells in which the Company participated during the
five years ended December 31,1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Gross Net Gross Net Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory:
Oil 1 .300 1 .468 -- -- -- -- -- --
Gas 1 .683 2 .387 2 .8 -- -- -- --
Dry 2 .510 2 .686 2 .509 1 1 -- --
Development:
Oil -- -- 1 .145 5 .796 3 .740 8 1.046
Gas 2 .015 5 .316 5 2.037 17 1.292 3 .235
Dry 2 .745 -- -- 3 1.030 1 .371 2 .350
Total:
Oil 1 .300 2 .613 5 .796 3 .740 8 1.046
Gas 3 .698 7 .703 7 2.837 17 1.292 3 .235
Dry 4 1.255 2 .686 5 1.539 2 1.371 2 .350
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
8 2.253 11 2.002 17 5.172 22 3.403 13 1.631
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
OIL AND GAS PRODUCTION
As of December 31, 1999, 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>
Producing wells (1): Gross Net
------- ------
<S> <C> <C>
Oil Wells ................................... 976 177.16
Gas Wells ................................... 1,205 180.69
Producing Acres ................................. 340,200 62,410
</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 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.
The following table shows the Company's net production of crude oil and
natural gas for each of the five years ended December 31, 1999. "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 interest by percentage of the leasehold, mineral or royalty interest owned by
the Company.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Oil (barrels) ...... 264,000 277,000 277,000 249,000 155,000
Gas (Mcf) .......... 3,289,000 3,621,000 3,901,000 2,888,000 1,952,000
</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, 1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average sales price
per barrel ................ $ 15.41 12.39 19.35 21.11 16.53
Average sales price
Per Mcf ................... $ 2.32 2.19 2.57 2.36 1.85
Average production
costs per net equivalent
barrel(1) ................. $ 7.76 7.60 7.59 8.09 8.92
</TABLE>
- ---------------
(1) Net equivalent barrels are computed at a rate of 6 Mcf per barrel.
6
<PAGE> 8
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, 1999. "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 -- -- 799 23 -- --
Louisiana 16 3 -- -- -- --
Montana -- -- 13,984 59 786 5
Nebraska -- -- 2,553 331 -- --
North Dakota -- -- 640 1 -- --
Oklahoma -- -- 320 1 -- --
Texas 16,085 5,752 680 16 -- --
Wyoming 1,000 125 5,043 35 140 35
------ ------ ------ ------ ------ ------
TOTAL 17,101 5,880 24,019 466 926 40
====== ====== ====== ====== ====== ======
</TABLE>
RESERVES
The Company's interests in proved developed and undeveloped oil and gas
properties have been evaluated by Ryder Scott Company, L.P. for the years ended
December 31, 1995, 1996, 1997, 1998 and 1999. 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>
1995 905,000 13,549,000 -- 52,000 905,000 13,601,000
1996 1,453,000 19,036,000 13,000 29,000 1,466,000 19,065,000
1997 1,364,000 16,661,000 77,000 -- 1,441,000 16,661,000
1998 1,122,000 17,341,000 78,000 -- 1,200,000 17,341,000
1999 2,110,000 22,046,000 -- 156,000 2,110,000 22,202,000
</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, 1999, are summarized as follows (figures
rounded):
<TABLE>
<CAPTION>
Proved Developed Proved Undeveloped Total
-------------------------- ------------------------- -------------------------
Present Value Present Value Present Value
As of Future Net Of Future Future Net Of Future Future Net Of Future
12-31 Revenue Net Revenue Revenue Net Revenue Revenue Net Revenue
- ----- ----------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
1995 $15,727,000 9,530,000 39,000 18,000 15,766,000 9,548,000
1996 $51,077,000 35,025,000 273,000 167,000 51,350,000 35,192,000
1997 $30,056,000 21,306,000 833,000 531,000 30,889,000 21,837,000
1998 $20,839,000 13,444,000 359,000 212,000 21,198,000 13,656,000
1999 $41,103,000 26,057,000 258,000 151,000 41,361,000 26,208,000
</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, 1999, 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.
7
<PAGE> 9
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, 1999, 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, 1999, were as follows:
<TABLE>
<CAPTION>
1999 High Low 1998 High Low
---- ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C>
First Quarter............... $ 5.59 $ 5.32 First Quarter............... $ 8.06 $ 7.79
Second Quarter.............. 4.94 4.74 Second Quarter.............. 7.46 7.08
Third Quarter............... 5.13 5.08 Third Quarter............... 7.00 6.72
Fourth Quarter.............. 4.93 4.82 Fourth Quarter.............. 6.66 6.60
</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 20, 2000 was 1,135.
No dividends have been declared or paid during the past two years on
the Company's Common Stock. Provisions of the Company's line of credit agreement
restrict the Company's 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 and notes thereto. The Company's subsidiaries are
defined in Note 1 of the financial statements. PEMC is the managing general
partner or managing trustee in several Limited Partnerships and Trusts
(collectively, the "Partnerships").
LIQUIDITY AND CAPITAL RESOURCES
During 1998 and 1999, the Company was party to a line of credit
agreement with a bank with a non-reducing borrowing base of $20 million. In
February 1999, the credit agreement was revised to require that the $20 million
borrowing base, reestablished on October 14, 1998, would begin reducing monthly
by $300,000 beginning February 1, 1999. Effective September 22, 1999, the credit
agreement was amended, revising the borrowing base to $23.7 million, reducing
monthly by $350,000 beginning on October 1, 1999. The credit agreement provides
for interest on outstanding borrowings at the bank's base rate, as defined,
payable monthly, or at rates ranging from 1 1/2% to 2% over the London
Inter-Bank Offered Rate (LIBO rate) depending upon the Company's utilization of
the available line of credit, payable at the end of the applicable interest
period.
The average interest rates paid on outstanding borrowings subject to
interest at the bank's base rate during 1999 and 1998 were 7.48% and 8.46%,
respectively. During the same periods, the average rates paid on outstanding
borrowings bearing interest based upon the LIBO rate were 7.34% and 8.04%. As of
December 31, 1999 and 1998, the total outstanding borrowings were $19.2 million
and $16.5 million, respectively, of which $15.5 million and $14.3 million
accrued interest at the LIBO rate option.
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 are pledged as security 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.
On November 15, 1999, the Company purchased interests in approximately
131 oil and gas wells located in various counties in Oklahoma. The Company
already owned, and was the operator of, the majority of the properties
purchased. The Company paid $1,813,000 for the properties, and may owe
additional compensation contingent on the performance of the properties in the
first three years after the purchase.
8
<PAGE> 10
The Company spent $2,095,000 on the Ramrod property in 1999, including
the drilling of new wells and repairs to existing wells. As discussed below, a
large impairment was recorded on the property in 1999.
During 1988, a drilling program was established whereby the Company,
along with several of its joint venture partners, identified six wells to be
drilled. Approximately $3,297,000 in costs were incurred in connection with this
drilling in 1998, and $1,962,000 in 1999, including $1,355,000 and $788,000,
respectively, in dry hole costs.
In total, $8,510,000 was spent on the acquisition and development of
oil and gas properties in 1999, including $1,038,000 spent to repurchase limited
partnership interests from investors in its oil and gas Partnerships.
The Company spent $479,000 on field service equipment in 1999, and an
additional $112,000 on computers, software, and related equipment. In the first
quarter of the year 2000, three service rigs were purchased in Midland Texas for
a total of $441,000, and a backhoe was purchased in Oklahoma for $29,000. The
Company hopes to increase district operating income through the utilization of
this equipment.
The Company spent $547,000 to repurchase shares of its treasury stock
in 1999.
Most of the Company's capital spending is discretionary, and the
ultimate level of expenditures will be dependent on the Company's assessment of
the oil and gas business environment, the number of oil and gas prospects, and
oil and gas business opportunities in general.
RESULTS OF OPERATIONS:
1999 AS COMPARED TO 1998
The Company incurred a loss of $2,138,000 in 1999 as compared to a loss
of $1,692,000 in 1998. The 1999 loss was caused by a $2,703,000 impairment on
the Ramrod Property, located in Matagorda County, Texas. The 1998 loss was
primarily caused by exploration costs of $1,706,000 combined with extremely low
oil and gas prices.
The Company sold 50% of its interest in the Ramrod field and turned
over operations to the purchaser in November 1998. The new operator increased
flow rates on the most significant well on this property, the St. George # 1,
and soon afterwards the well began to experience mechanical problems. Despite
several expensive attempts to repair this well throughout 1999, production rates
are currently about an eighth of what they were before the mechanical problems
began, and the estimated future reserves at January 1, 2000 declined drastically
from the prior year estimates. Additionally, the Company incurred $1,582,000 in
drilling costs on the property in 1999, and while some reserves were found, the
future net revenue associated with these reserves is greatly below the costs
incurred.
Oil and gas sales increased by $409,000, to 11,763,000 in 1999 as
compared to $11,354,000 in 1998, as increased prices more than offset production
declines.
Oil production declined by 13,000 barrels, to 264,000 barrels in 1999
as compared to 277,000 barrels in 1998, due primarily to natural decline curves
on existing properties. Gas production declined by 332,000 Mcf to 3,289,000 Mcf
in 1999 from 3,621,000 Mcf in 1998, as a drop of 561,000 Mcf in production from
the Ramrod property and the natural decline curve of existing properties was
only partially offset by production from additional interests in properties
purchased during the year, and wells which came on line in 1999. The most
significant well to come on line in 1999 was the Francis Martin well, which
began production in January and produced 510,000 Mcf of gas during the year. The
Company's participation in this well was subject to a provision whereby the
Company's interest is reduced when it reaches payout and again upon reaching
200% of payout. These events occurred in August 1999 and February 2000. The
Company's original 13.44% net revenue interest has been reduced to 9.33%.
The Oklahoma properties purchased in November of 1999 produced 72,000
Mcf of gas and 6,800 barrels of oil during the 1 1/2 months the Company owned
these properties in 1999.
The average price received for a barrel of oil increased to $15.41 in
1999 as compared to $12.39 in 1998, and the average gas price received increased
to $2.32 in 1999, as compared to $2.19 in 1998.
Lease operating expenses decreased by $306,000 to $6,305,000 in 1999 as
compared to $6,611,000 in 1998, due to lower volumes produced.
District operating income increased by $462,000, to $11,407,000 in 1999
as compared to $10,945,000 in 1998, as the Company continued to expand its well
servicing operations. The Company hopes to further increase its district
operating in 2000 through the utilization of service rigs and other equipment
purchased in the first quarter of 2000.
Administrative revenue, which represents the reimbursement of general
and administrative overhead expanded on behalf of the Partnerships and the
Company's joint venture partners decreased by $50,000 to 1,673,000 in 1999 as
compared to 1,723,000 in 1998. In both years, amounts received from certain of
the Partnerships were substantially less than the amounts
9
<PAGE> 11
allocable to these Partnerships under the partnership agreements. The lower
amounts reflect PEMC's continuing efforts to reduce costs, both incurred and
allocated to the Partnerships.
Reporting and management fees are earned from providing the accounting
and reporting functions for certain of the Partnerships.
The Company receives reimbursement for costs incurred related to the
evaluation and acquisition of properties on behalf of the 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
corporate headquarters level, such reimbursements are recorded as a reduction of
total general and administrative expenses. During 1999 and 1998 the Company's
total reimbursements for property acquisition costs were approximately
$1,450,000 and $1,690,000 respectively.
Depletion expense decreased by $1,393,000 to $4,581,000 in 1999 as
compared to $5,974,000 in 1998 due to lower volumes produced, and lower
depletion rates on many properties due to increased reserve estimates at
year-end. These increased reserve estimates are partly due to an increase in
prices.
Exploration costs of $869,000 in 1999 consist primarily of dry hole
costs on wells which were part of the Company's 1998 drilling program.
1998 AS COMPARED TO 1997
The Company incurred a loss of $1,692,000 in 1998 as compared to income
of $1,024,000 in 1997. The primary reason for this change was sharply lower
prices received for oil and gas production.
Oil and gas sales of $11,354,000 in 1998 represent a decrease of 26%,
or $4,049,000 over the 1997 sales. The average price received per barrel of oil
for all production was $12.39 as compared to $19.35 in 1997 and the average gas
price was $2.19 in 1998 as compared to $2.58 in 1997. Based on total production
of 3,621,000 Mcf of gas, and 277,000 barrels of oil, the Company would have
received an additional $3,334,000 in gross oil and gas revenue if it had
received the same average prices for oil and gas production in 1998 as it did in
1997.
Oil production in 1998 was roughly equivalent to 1997 production, as
the natural decline curve on existing properties was roughly offset by increased
production related to partnership interests of about 12,000 barrels, due to
additional interests in the Partnerships being purchased during the year.
Gas production declined from 3,895,000 Mcf in 1997 to 3,621,000 Mcf in
1998. The purchase of the South Powderhorn property was subject to a provision
wherein the seller obtains a 25% working interest in the property at such time
as the Company and its joint venture partners have received net cash from the
property equal to 200% of their costs (Payout). This Payout occurred in January
of 1998. Due to this provision, and a high natural decline curve on the
property, the Company's share of production from this property declined from
1,326,000 Mcf in 1997 to 570,000 Mcf in 1998. This was in large part offset by
an increase in production from the Ramrod property due to the Saint George # 1
well coming online in March of 1998. The Ramrod property in total contributed
680,000 Mcf of production in 1998 as compared to 54,000 Mcf in 1997.
Lease operating expenses decreased by 5% in 1998 as compared to 1997.
Per unit costs were approximately $7.60 per barrel of oil equivalent in both
years.
Administrative revenue, which represents the reimbursement of general
and administrative overhead expended on behalf of the Partnerships and the
Company's joint venture partners increased 2% in 1998 as compared to 1997. In
both years, amounts received from certain of the Partnerships are substantially
less than the amounts allocable to these Partnerships under the partnership
agreements. The lower amounts reflect PEMC's continuing efforts to reduce costs,
both incurred and allocated to the Partnerships.
Reporting and management fees are earned from providing the accounting
and reporting functions for certain of the Partnerships.
The Company receives reimbursement for costs incurred related to the
evaluation and acquisition of properties on behalf of the 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
corporate headquarters level, such reimbursements are recorded as a reduction of
the total general and administrative expenses. During 1998 and 1997 the
Company's total reimbursements for property acquisition costs were approximately
$1,690,000 and $1,751,000 respectively.
Exploration costs of $1,706,000 were incurred in 1998. The primary
components of this amount were $845,000 spent on the drilling of a dry hole in
Lafayette Parish, Louisiana, and $510,000 incurred up to December 31, 1998 in
connection with a dry hole in Terrebonne Parish Louisiana. This well completed
drilling in 1999, and approximately $325,000 in costs incurred during 1999 will
be written of as an expense in the first quarter of the year.
10
<PAGE> 12
A tax benefit of $183,000 was recognized in 1998. This includes $72,000
of federal income tax refunds expected to be received due to the filing of net
operating loss carry back claims, with the balance being primarily attributable
to the reversal of deferred tax liabilities previously recognized.
ITEM 7. FINANCIAL STATEMENTS.
Included on pages F-1 through F-24 of this Report. The Index to
Financial Statements is at page F-1 of this Report.
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 May,
2000, which will be filed with the Securities and Exchange Commission within 120
days of December 31, 1999, 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 May, 2000, which will be filed with the Securities
and Exchange Commission within 120 days of December 31, 1999, 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 May, 2000, which
will be filed with the Securities and Exchange Commission within 120 days of
December 31, 1999, 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 May,
2000, which will be filed with the Securities and Exchange Commission within 120
days of December 31, 1999, and which is incorporated herein by reference.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
No.
3.1 Restated Certificate of Incorporation of PrimeEnergy
Corporation. (filed herewith)
3.2 Bylaws of PrimeEnergy Corporation. (filed herewith)
10.1 PrimeEnergy Corporation 1983 Incentive Stock Option Plan
(Incorporated herein by reference to Exhibit 3.2 of
PrimeEnergy Corporation Form 10-KSB for the year ended
December 31, 1994)
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)
11
<PAGE> 13
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. (Incorporated herein by reference to Exhibit 10.7.1 to
PrimeEnergy Corporation Form 10-KSB for the year ended
December 31, 1995)
10.7.2 Second 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 February 6,
1997. (Incorporated by reference to Exhibit 10.7.2 of
PrimeEnergy Corporation Form 10-KSB for the year ended
December 31, 1996)
10.7.3 Third 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 January 2,
1998 (Incorporated by reference to Exhibit 10.7.3 of
PrimeEnergy Corporation Form 10-KSB for the year ended
December 31, 1997)
10.8 Mortgage, Deed or 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 by
reference to Exhibit 10.8 of PrimeEnergy Corporation Form 8-K
dated April 26, 1995)
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 by reference to Exhibit 10.18 of PrimeEnergy
Corporation for 10KSB for the year ended December 31, 1997)(1)
10.19 Purchase and Sale Agreement dated as of May 7, 1996, by and
between Internationale Nederlanden (U.S.) Capital Corporation
and PrimeEnergy Corporation (Incorporated herein by reference
to Exhibit 10.19 to PrimeEnergy Corporation Form 8-K dated May
29, 1996)
10.20 Assignment, Conveyance and Bill of Sale dated as of May 7,
1996, by Saratoga Resources, Inc., a Texas corporation, et
al., to PrimeEnergy Corporation (Incorporated herein by
reference to Exhibit 10.20 to PrimeEnergy Corporation Form 8-K
dated May 29, 1996)
10.21 Purchase and Sale Agreement dated November 16, 1999 between
Southern Pacific Petroleum U.S.A. and PrimeEnergy Corporation
(Incorporated herein by reference to Exhibit 10.21 to
PrimeEnergy Corporation Form 8-K dated November 24, 1999)
21 Subsidiaries. (filed herewith)
23 Consent of Ryder Scott Company, L.P. (filed herewith)
27 Financial Data Schedule. (filed herewith)
- -----------
(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:
A report dated November 24, 1999, was filed on Form 8-K to
report under Item 2. Acquisition or Disposition of Assets, the
acquisition of certain oil and gas and related properties. The
pro forma financial information required to be filed in
connection with that Form 8-K was filed by amendment on
January 14, 2000 under cover of Form 8.
12
<PAGE> 14
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 by the undersigned, thereunto duly authorized, on the 30th day of
March, 2000.
PrimeEnergy Corporation
By: /s/ CHARLES E. DRIMAL, JR.
-------------------------------------
Charles E. Drimal, Jr.
President
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 in the capacities indicated and on the 30th day of March, 2000.
/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 Accounting Officer
Beverly A. Cummings
/s/ SAMUEL R. CAMPBELL Director
- ----------------------------
Samuel R. Campbell
Director
- ----------------------------
James E. Clark
/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 K. SLADE Director
- ----------------------------
Jarvis J. Slade
/s/ JAN K. SMEETS Director
- ----------------------------
Jan K. Smeets
Director
- ----------------------------
Gaines Wehrle
/s/ MICHAEL WEHRLE Director
- ----------------------------
Michael Wehrle
13
<PAGE> 15
INDEX TO FINANCIAL STATEMENTS
Financial Statements (Included herein at pages F-1 through F-24):
<TABLE>
<S> <C>
Report of Independent Public Accountants F-2
Financial Statements:
Consolidated Balance Sheets -- December 31, 1999 and 1998 F-3
Consolidated Statements of Operations -- for the years ended December 31,
1999 and 1998 F-5
Consolidated Statements of Stockholders' Equity -- for the years ended
December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows -- for the years ended December 31,
1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8
Supplementary Information: F-18
Capitalized Costs Relating to Oil and Gas Producing Operations,
December 31, 1999 and 1998 F-19
Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development Activities, years ended December 31, 1999 and 1998 F-19
Standardized Measure of Discounted Future Net Cash Flows Relating
to Proved Oil and Gas reserves, years ended December 31, 1999 and 1998 F-20
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil an Gas Reserves, years ended December 31,
1999 and 1998 F-21
Reserve Quantity Information, years ended December 31, 1999 and 1998 F-22
Results of Operations from Oil and Gas Producing Activities, years ended
December 31, 1999 and 1998 F-22
Notes to Supplementary Information F-24
</TABLE>
F-1
<PAGE> 16
PUSTORINO, PUGLISI, & CO., LLP
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, 1999 and 1998, 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PrimeEnergy
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ PUSTORINO, PUGLISI & CO., LLP
Pustorino, Puglisi & Co., LLP
New York, New York
March 30, 2000
F-2
<PAGE> 17
PRIMEENERGY CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 1,771,000 $ 1,167,000
Restricted cash and cash
equivalents (Note 11) 1,854,000 1,080,000
Accounts receivable, net (Note 3) 3,635,000 2,890,000
Due from related parties (less allowance for
doubtful accounts of $800,000 in 1999
and 1998) (Note 10) 2,844,000 2,952,000
Prepaid expenses 84,000 79,000
Other current assets 204,000 351,000
Deferred income taxes (Notes 1 and 8) -- 18,000
------------ ------------
Total current assets 10,392,000 8,537,000
------------ ------------
Property and equipment, at cost (Notes 1 and 2):
Oil and gas properties (successful
efforts method):
Developed 49,249,000 40,582,000
Undeveloped 235,000 1,284,000
Furniture, fixtures and equipment
including leasehold improvements 6,395,000 6,571,000
------------ ------------
55,879,000 48,437,000
Accumulated depreciation, depletion
and amortization (36,742,000) (29,310,000)
------------ ------------
Net property and equipment 19,137,000 19,127,000
------------ ------------
Other assets (Note 10) 621,000 622,000
Due from affiliates (Note 10) 325,000 325,000
------------ ------------
Total assets $ 30,475,000 $ 28,611,000
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 18
PRIMEENERGY CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable (Note 13) $ 7,900,000 $ 6,315,000
Current portion of other long-term obligations (Note 5) 4,000 --
Accrued liabilities:
Payroll, Benefits and Related Items 798,000 552,000
Taxes (Notes 1 and 8) 53,000 --
Interest and other 626,000 832,000
Due to related parties (Note 10) 943,000 731,000
------------ ------------
Total current liabilities 10,324,000 8,430,000
------------ ------------
Long-term bank debt (Note 4) 19,200,000 16,505,000
Other long term obligations (Note 5) 17,000 --
Deferred income taxes (Notes 1 and 8) -- 57,000
------------ ------------
Total liabilities 29,541,000 24,992,000
------------ ------------
Stockholders' equity:
Preferred stock, $.10 par, authorized
5,000,000 shares in 1999 and 10,000,000 shares
in 1998; none issued -- --
Common stock, $.10 par value, authorized
10,000,000 shares in 1999 and 15,000,000 shares
in 1998; issued 7,607,970 in 1999 and
7,607,970 in 1998 761,000 761,000
Paid in capital 10,902,000 10,902,000
Accumulated deficit (2,859,000) (721,000)
------------ ------------
8,804,000 10,942,000
Treasury stock, at cost, 3,266,063
common shares in 1999 and 3,158,376
common shares in 1998 (7,870,000) (7,323,000)
------------ ------------
Total stockholders' equity 934,000 3,619,000
------------ ------------
Total liabilities and equity $ 30,475,000 $ 28,611,000
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 19
PRIMEENERGY CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of OPERATIONS
for the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Oil and gas sales $ 11,763,000 $ 11,354,000
District operating income 11,407,000 10,945,000
Administrative revenue (Note 10) 1,673,000 1,723,000
Reporting and management fees (Note 10) 319,000 301,000
Interest income 146,000 139,000
Other income 212,000 333,000
------------ ------------
25,520,000 24,795,000
------------ ------------
Costs and expenses:
Lease operating expense 6,305,000 6,611,000
District operating expense 8,671,000 8,265,000
Depreciation and depletion of
oil and gas properties 4,581,000 5,974,000
Impairment of oil and gas properties (Note 1) 2,703,000 64,000
General and administrative expense 3,149,000 2,899,000
Exploration costs 869,000 1,706,000
Interest expense (Note 4) 1,358,000 1,337,000
------------ ------------
27,636,000 26,856,000
------------ ------------
Loss from operations (2,116,000) (2,061,000)
Other income:
Gain on sale and exchange of assets 8,000 186,000
------------ ------------
Loss before (benefit) provision for income taxes (2,108,000) (1,875,000)
(Benefit) provision for income taxes 30,000 (183,000)
------------ ------------
Net loss $ (2,138,000) $ (1,692,000)
============ ============
Basic net loss per common share (Notes 1 and 14) $ (0.48) $ (0.38)
============ ============
Diluted net loss per common share (Notes 1 and 14) $ (0.48) $ (0.38)
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE> 20
PRIMEENERGY CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT of STOCKHOLDERS' EQUITY
for the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid In (Accumulated Treasury
Shares Amount Capital Deficit) Stock Total
--------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 7,597,970 $ 760,000 $10,888,000 $ 971,000 $(6,003,000) $ 6,616,000
Purchased 169,215 shares of
common stock (1,320,000) (1,320,000)
Stock options exercised 10,000 1,000 14,000 15,000
Net loss (1,692,000) (1,692,000)
--------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 7,607,970 761,000 10,902,000 (721,000) (7,323,000) 3,619,000
Purchased 107,687 shares of
common stock (547,000) (547,000)
Net loss (2,138,000) (2,138,000)
--------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 7,607,970 $ 761,000 $10,902,000 ($2,859,000) ($7,870,000) $ 934,000
========= =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE> 21
PRIMEENERGY CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
for the years ended December 31, 1999 and 1998
----------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,138,000) $ (1,692,000)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation, depletion and amortization 5,529,000 6,930,000
Impairment of oil and gas properties 2,703,000 64,000
Dry hole and abandonment costs 818,000 1,606,000
Gain on sale of properties (8,000) (186,000)
Provision (benefit) of deferred income taxes (39,000) (102,000)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (745,000) 1,590,000
(Increase) decrease in due from related parties 108,000 (498,000)
(Increase) decrease in other assets 120,000 (204,000)
(Increase) decrease in prepaid expenses (5,000) 28,000
Increase (decrease) in accounts payable 811,000 (213,000)
Increase in accrued liabilities 311,000 181,000
Increase (decrease) in due to related parties 212,000 (658,000)
------------ ------------
Net cash provided by operating activities 7,677,000 6,846,000
------------ ------------
Cash flows from investing activities:
Proceeds from sale of properties and equipment 59,000 2,349,000
Additions to property and equipment (9,308,000) (7,360,000)
Decrease in notes receivable 28,000 10,000
------------ ------------
Net cash used in investing activities (9,221,000) (5,001,000)
------------ ------------
Cash flows from financing activities:
Purchase of stock for treasury (547,000) (1,320,000)
Repayment of long-term bank debt and other long-term obligations (25,770,000) (33,221,000)
Increase in long-term bank debt and other long-term obligations 28,465,000 30,861,000
Proceeds from exercised stock options -- 15,000
------------ ------------
Net cash provided by (used in) financing activities 2,148,000 (3,665,000)
------------ ------------
Net increase (decrease) in cash 604,000 (1,820,000)
Cash and cash equivalents, beginning of year 1,167,000 2,987,000
------------ ------------
Cash and cash equivalents, end of year $ 1,771,000 $ 1,167,000
============ ============
Supplemental disclosures:
Income taxes paid during the year $ -- $ 46,000
Net income tax refunds received during the year $ 84,000 $ --
Interest paid during the year $ 1,367,000 $ 1,346,000
Supplemental information of noncash investing and financing activities:
In 1999, the Company recorded capital lease obligations in the
amount of $22,000.
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
<PAGE> 22
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
---------
1. DESCRIPTION OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations:
PrimeEnergy Corporation ("PEC"), a Delaware corporation, 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
(collectively, 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 1,659 wells and owns non-operating interests in 843
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.
Certain items on the prior year income statement have been reclassified
to conform with current year classification.
Principles of Consolidation:
The consolidated financial statements include the accounts of
PrimeEnergy Corporation and its wholly-owned subsidiaries. All material
inter-company 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 owned by the Partnerships.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results 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. Depletion expense, which
is computed based on the units of production method, could be
significantly impacted by changes in such estimates. Additionally, FAS
121 requires that if the expected future cash flow from an asset is
less than its carrying cost, that asset must be written down to its
fair market value. As the fair market value of an oil and gas property
will usually be significantly less than the total future net revenue
expected from that property, small changes in the estimated future net
revenue from an asset could lead to the necessity of recording a
significant impairment of that asset.
The Company has significant deferred tax assets which have been fully
reserved against based upon the assumption that at current and expected
future levels of taxable income, and considering the Section 29 credits
the Company expects to generate, the availability of these
carryforwards will not lead to significant reductions in the Company's
tax liability as compared to what it would pay if such carryforwards
did not exist. Increases in estimates of future taxable income could
lead to significant reductions in the amount of this reserve, which
could have a material effect on the net income of the Company.
F-8
<PAGE> 23
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 the Partnerships 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 under the unit-of-production method based on estimated
proved recoverable oil and gas reserves, primarily at a field level.
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.
The net basis of assets are periodically compared to the expected
future net revenue to be generated from the assets, and if the basis
exceeds future net revenue, an impairment is recorded. In 1999 and
1998, the Company recorded noncash impairment charges of $2,703,000 and
$64,000, respectively. The 1999 impairment was recorded on the
Company's Ramrod property, located in Matagorda County, Texas. The most
significant well on this property, the Saint George #1, experienced
significant mechanical difficulties in 1999, and current estimates of
future production from the well are significantly below prior year
estimates. Additionally, significant sums were spent on drilling to
develop this property in 1999, and although reserves were found, the
drilling costs incurred greatly exceed the value of those reserves. The
carrying value of the property was written down to its fair market
value, based on projected discounted future net cash flows, using the
Company's estimates of future commodity prices.
Income Taxes:
The Company records income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." SFAS No. 109 is an 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 the 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.
General and Administrative Expenses:
General and administrative expenses represent costs and expenses
associated with the operation of the Company. Certain of the
Partnerships sponsored by the Company reimburse general and
administrative expenses incurred on their behalf.
Income Per Common Share:
Income per share of common stock has been computed based on the
weighted average number of common shares outstanding during the
respective periods in accordance with SFAS No. 128, "Earnings per
Share".
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 ninety 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 purchasers consist
primarily of independent marketers and major gas pipeline companies.
F-9
<PAGE> 24
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
Hedging:
From time to time, the Company may enter into futures contracts in
order to reduce its exposure related to changes in oil and gas prices.
In accordance with Statement of Financial Accounting Standards No. 80,
any gain or loss on such contracts is treated as an adjustment to oil
and gas revenue. Cash activity related to hedging transactions is
treated as operating activity on the Statements of Cash Flows. The
Company did not have any open hedging transactions at December 31,
1999.
Recently Issued Accounting Standards:
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting
for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either
an asset or liability measured at its fair value. It also requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999 and cannot be applied retroactively. The Company has not yet
quantified the impacts of adopting SFAS No. 133 on its financial
statements. However, SFAS No. 133 could increase volatility in earnings
and other comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income". SFAS No. 130 requires the reporting of
comprehensive income (non-owner changes in equity) and its components
in the financial statements. In 1999, the Company did not have any
equity changes from non-owner sources that would be classified as
comprehensive income.
2. SIGNIFICANT ACQUISITIONS AND DISPOSITIONS
1999
On November 15, 1999, the Company purchased interests in approximately
131 oil and gas wells located in various counties in Oklahoma. The
Company already owned, and was the operator of, the majority of the
properties purchased. The purchase price was $1,813,000, plus possible
additional compensation contingent on the performance of the
properties.
As more fully described in Note 6, the company is committed to offer to
repurchase the interests of the limited partners and trust unitholders
in certain of the Partnerships. During 1999, the Company purchased such
interests in an amount totaling $1,038,000.
1998
Effective October 1, 1998, the Company sold 50% of its interests in the
Ramrod field for $2,075,000. The Company recorded a gain of $150,000 on
the sale.
During 1998, a drilling program was established whereby the Company,
along with several of its joint venture partners, identified six wells
to be drilled. Costs incurred in connection with this program totaled
$3,297,000 in 1998 and $1,962,000 in 1999, including $1,355,000 and
$788,000, respectively, in dry hole costs. The most significant well in
this program was the Francis Martin et al No. 1 well, which began
production in January 1999 and contributed 510,000 Mcf of gas and 8,800
barrels of oil to the Company's production during 1999.
In 1998, the Company spent $831,000 to repurchase interests in the
Partnerships.
3 ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1999 and 1998 consisted of the
following:
F-10
<PAGE> 25
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Joint interest billing $ 1,738,000 $ 1,395,000
Trade receivables 550,000 264,000
Oil and gas sales 1,423,000 1,287,000
Other 61,000 71,000
----------- -----------
3,772,000 3,017,000
Less, allowance for doubtful accounts (137,000) (127,000)
----------- -----------
$ 3,635,000 $ 2,890,000
=========== ===========
</TABLE>
4. LONG-TERM BANK DEBT
During 1998 and 1999, the Company was party to a line of credit
agreement with a bank with a non-reducing borrowing base of $20 million.
In February 1999, the credit agreement was revised to require that the
$20 million borrowing base, reestablished on October 14, 1998, would
begin reducing monthly by $300,000 beginning February 1, 1999. Effective
September 22, 1999, the credit agreement was amended, revising the
borrowing base to $23.7 million, reducing monthly by $350,000 beginning
on October 1, 1999. Under the terms of the loan agreement, the borrowing
base will be redetermined in the first half of 2000. As one of the
criteria for determining the base is the value of the Company's
reserves, and these reserves have increased significantly since the
last determination, the borrowing base will be increased significantly.
Management has therefore classified the entire amount of bank debt as
long term. The credit agreement provides for interest on outstanding
borrowings at the bank's base rate, as defined, payable monthly, or at
rates ranging from 1 1/2% to 2% over the London Inter-Bank Offered Rate
(LIBO rate) depending upon the Company's utilization of the available
line of credit, payable at the end of the applicable interest period.
The average interest rates paid on outstanding borrowings subject to
interest at the bank's base rate during 1999 and 1998 were 7.48% and
8.46%, respectively. During the same periods, the average rates paid on
outstanding borrowings bearing interest based upon the LIBO rate were
7.34% and 8.04%. As of December 31, 1999 and 1998, the total outstanding
borrowings were $19.2 million and $16.5 million, respectively, of which
$15.5 million and $14.3 million accrued interest at the LIBO rate
option.
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 are pledged as security
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.
5. COMMITMENTS
Operating Leases:
The Company has several noncancelable operating leases, primarily for
rental of office space, that have a term of more than one year. Total
rent paid in 1999 was $493,000.
Capital Leases:
The Company has one capital lease for office equipment in other long
term obligations.
F-11
<PAGE> 26
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
Future minimum lease payments under operating and capital leases are as
follows:
<TABLE>
<CAPTION>
Operating Leases Capital Leases
<S> <C> <C>
2000 $ 473,000 $ 5,000
2001 486,000 6,000
2002 432,000 5,000
2003 373,000 6,000
2004 22,000 3,000
Thereafter -- --
---------- -------
Total minimum payments $1,786,000 $25,000
==========
Less Imputed interest (4,000)
-------
Present value of minimum
lease payments $21,000
=======
</TABLE>
6. CONTINGENT LIABILITIES
The Company, as managing general partner 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. The Company also provides the
administration, accounting and tax preparation work for the
Partnerships, and is liable for all debts and liabilities of the
affiliated Partnerships, to the extent that the assets of a given
limited 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, the Company is committed to offer to purchase the
limited partners' interest in certain of its managed Partnerships at
various annual intervals. Under the terms of a partnership agreement,
the Company is not obligated to purchase an amount greater than 10% of
the total partnership interest outstanding. In addition, the Company
will be obligated to purchase interests tendered by the limited
partners only to the extent of one hundred fifty (150) percent of the
revenues received by it from such partnership in the previous year.
Purchase prices are based upon annual reserve reports of independent
petroleum engineering firms discounted by a risk factor. 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.
7. STOCK OPTIONS AND OTHER COMPENSATION
In May 1989, non-statutory stock options were granted by the Company to
four key executive officers for the purchase of shares of common stock.
Such options are exercisable, on a cumulative basis, as to twenty
percent of the shares subject to option in each year, beginning one
year after the granting of the option. At December 31, 1999 and 1998,
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, 1999 and 1998, options on 103,000 and
111,000 were exercisable at $1.50 per share, respectively, and no
additional shares were available for granting.
PEMC has a marketing agreement with its 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 Company had a similar agreement with its former Chairman.
Although that agreement has expired, the former Chairman is still
entitled to receive certain payments relating to partnerships formed
during the time the agreement was in effect. The President is entitled
to a percentage of the Company's carried interest depending on total
capital raised and annual performance of the Partnerships and joint
ventures.
F-12
<PAGE> 27
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
8. INCOME TAXES
The components of the provision for income taxes for the years ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Federal:
Current $ 32,000 $ (89,000)
Deferred -- (11,000)
State:
Current 37,000 7,000
Deferred (39,000) (90,000)
--------- ---------
Total $ 30,000 $(183,000)
========= =========
</TABLE>
The components of net deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Compensation and benefits $ 103,000 $ 120,000
Allowance for doubtful accounts 8,000 9,000
Less, valuation allowance (111,000) (111,000)
----------- -----------
-- 18,000
----------- -----------
Noncurrent assets:
Depreciation 215,000 836,000
Due from related parties reserve 312,000 316,000
Federal net operating loss carryforwards 758,000 862,000
State net operating loss 51,000 --
Percentage depletion carryforwards 1,016,000 1,033,000
Alternative minimum tax credits 716,000 685,000
Less, valuation allowance (1,676,000) (1,670,000)
----------- -----------
1,392,000 2,062,000
----------- -----------
Noncurrent liabilities:
Basis differences relating to limited partnerships (749,000) (812,000)
Depletion (643,000) (1,307,000)
----------- -----------
(1,392,000) (2,119,000)
----------- -----------
Net deferred tax liabilities: $ -- $ (39,000)
=========== ===========
</TABLE>
F-13
<PAGE> 28
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
The total provision for income taxes for the years ended December 31,
1999 and 1998 varies from the federal statutory tax rate as a result of
the following:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Expected tax benefit 717,000 638,000
State income tax, net of federal benefit 2,000 83,000
Overaccrual of prior year refunds receivable (30,000) --
Effect of valuation reserve against tax assets (717,000) (538,000)
-------- --------
Tax benefit (expense) (30,000) 183,000
======== ========
</TABLE>
The Company had a federal net operating loss (NOL) for the tax year
1998, and filed refund claims based on the carryback of this loss. It
was originally estimated that the refunds to be received would total
$72,000. The difference between this amount, which was accrued at
December 31, 1998, and the actual refunds received in 1999 of $40,000
is an expense in the current year.
The Company has a current state tax liability primarily due to the
profitability of its oil and gas producing properties in the state of
Oklahoma, which requires that income from oil and gas activities in
that state be allocated directly.
The Company has approximately $2,229,464 of regular tax, and $1,855,000
of alternative minimum tax net operating loss carryforwards. For both
regular and alternative minimum tax purposes, $365,000 of these
carryforwards will expire in each of the years 2000 through 2002, and
the remainder of which will expire in the years 2013 and 2014. The
Company also has NOL carryforwards in several of the states in which it
does business. The entire amount of the company's net tax assets, both
federal and state, have been fully reserved against as it is not clear
that the Company will have future taxable income to offset with its
various tax assets.
The Company has percentage depletion carryforwards of approximately
$2,811,000 for regular tax purposes and $2,507,000 for alternative
minimum tax purposes. The Company has approximately $685,000 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.
9. SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company operates in one industry - oil and gas exploration,
development, operation and servicing. The Company's oil and gas
activities are entirely in the continental United States.
The Company sells its oil and gas production to a number of purchasers.
While the Company is not dependent on any one purchaser of its
production, oil and gas revenue in 1999 included sales to individual
purchasers of $1,777,000 and $1,103,000 which represented approximately
16 and 15%, respectively of the Company's total revenue from oil and
gas sales in 1999. In 1998, sales to individual purchasers of
$2,061,000 and $1,192,000 represented 18% and 11%, respectively, of the
Company's total oil and gas revenue. The above sales were made under
various contractual arrangements, some of which are month-to-month;
however, the Company believes that these purchasers will continue to
purchase oil and gas products and, if not, could be replaced by other
purchasers.
F-14
<PAGE> 29
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
10. RELATED PARTY TRANSACTIONS
PEMC is a general partner in several oil and gas Partnerships in which
certain directors have limited and general partnership interests. 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 Partnerships' properties.
The Partnership agreements allow PEMC to receive management fees for
various services to the Partnerships as well as a reimbursement for
property acquisition and development costs incurred on behalf of the
Partnerships and general and administrative overhead, which is reported
in the statements of operations as administrative revenue.
In 1991, the Company loaned approximately $325,000 at 12% interest to a
real estate limited partnership in which a company director is a
general partner. This loan is secured by a second mortgage on the
underlying real estate in the partnership and the Company received a
23% equity participation in the partnership. The loan agreement
provides for interest payments on a quarterly basis provided the cash
flow from operations of the limited partnership is sufficient to pay
interest for the quarter. If cash flows are not sufficient, then the
accrued interest is added to the principal. During 1999 and 1998, the
Company received several loan payments from the borrower, and the
amount due under the loan was reduced by approximately $28,000 in 1999
and $10,000 in 1998. Amounts due, included in other non-current assets
on the balance sheet, were $442,000 and $470,000 at December 31, 1999
and 1998, respectively.
Due to related parties at December 31, 1999 and December 31, 1998
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 $943,000 and $731,000 at December 31, 1999
and 1998, respectively. Receivables from related parties consist of
reimbursable general and administrative costs, lease operating expenses
and reimbursements for property acquisitions, development, and related
costs.
In the fourth quarter of 1999, the Company purchased 41,800 shares of
its common stock from the President's brother for an aggregate price of
$209,000.
11. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents includes $1,854,000 and $1,080,000
at December 31, 1999 and 1998, respectively, of cash primarily
pertaining to unclaimed royalty payments. There were corresponding
accounts payable recorded at December 31, 1999 and 1998 for these
liabilities.
12. 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 which
approximated $217,000 and $218,000 in 1999 and 1998, respectively.
F-15
<PAGE> 30
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
13. ACCOUNTS PAYABLE
A summary of accounts payable at December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Payables to unaffiliated interests $7,851,000 $6,266,000
Other 49,000 49,000
---------- ----------
$7,900,000 $6,315,000
========== ==========
</TABLE>
14. EARNINGS PER SHARE
Basic earnings per share are computed by dividing earnings available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflect per
share amounts that would have resulted if dilutive potential common
stock had been converted to common stock. The following reconciles
amounts reported in the financial statements:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
---------------------------------------- ----------------------------------------
Net Number of Per Share Net Number of Per Share
Loss Shares Amount Income Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net loss per
common share $(2,138,000) 4,423,838 $ (0.48) $(1,692,000) 4,471,201 $ (0.38)
Effect of dilutive securities:
Options (1) -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Diluted net loss
per common share $(2,138,000) 4,423,838 $ (0.48) $(1,692,000) 4,471,201 $ (0.38)
=========== =========== =========== =========== =========== ===========
</TABLE>
(1) For the years ended December 31, 1999 and 1998, the number of
options excluded from diluted loss per common share calculations were
706,604 and 771,186, respectively, as the conversion of these would
have had an anti-dilutive effect on net loss per share.
F-16
<PAGE> 31
PRIMEENERGY CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
15. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended
December 31, Fourth Third Second First
1999 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Revenue $ 25,520,000 $ 7,574,000 $ 6,512,000 $ 6,120,000 $ 5,314,000
Operating income (loss) (2,116,000) (1,623,000) -- (3,000) (490,000)
Net income (loss) (2,138,000) (1,691,000) 2,000 1,000 (450,000)
Net income (loss) per common
share $ (0.48) $ (0.38) $ .00 $ .00 $ (.10)
Diluted net income (loss) per
common share $ (0.48) $ (0.38) $ .00 $ .00 $ (.10)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, Fourth Third Second First
1998 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Revenue $ 24,795,000 $ 5,837,000 $ 6,208,000 $ 6,573,000 $ 6,177,000
Operating income (loss) (2,061,000) (2,379,000) 12,000 221,000 85,000
Net income (loss) (1,692,000) (2,037,000) 11,000 207,000 127,000
Net income (loss) per common
share $ (0.38) $ (0.46) $ .00 $ .05 $ .03
Diluted net income (loss) per
common share $ (0.38) $ (0.46) $ .00 $ .04 $ .02
</TABLE>
F-17
<PAGE> 32
PRIMEENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
----------
(UNAUDITED)
F-18
<PAGE> 33
PRIMEENERGY CORPORATION and SUBSIDIARIES
CAPITALIZED COSTS RELATING to OIL and GAS PRODUCING ACTIVITIES
December 31, 1999 and 1998
---------
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Developed oil and gas properties $49,249,000 $40,582,000
Undeveloped oil and gas properties 235,000 1,284,000
----------- -----------
49,484,000 41,866,000
Accumulated depreciation, depletion and valuation allowance 32,342,000 25,077,000
----------- -----------
Net capitalized costs $17,142,000 $16,789,000
=========== ===========
</TABLE>
COSTS INCURRED in OIL and GAS PROPERTY ACQUISITION,
EXPLORATION and DEVELOPMENT ACTIVITIES
Years ended December 31, 1999 and 1998
---------
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Acquisition of properties:
Developed $ 3,042,000 $ 870,000
Undeveloped 189,000 1,310,000
Exploration costs, excluding valuation allowance 806,000 1,484,000
Development costs 4,473,000 2,718,000
</TABLE>
See accompanying notes to supplementary information.
F-19
<PAGE> 34
PRIMEENERGY CORPORATION and SUBSIDIARIES
STANDARDIZED MEASURE of DISCOUNTED FUTURE
NET CASH FLOWS RELATING to PROVED OIL and GAS RESERVES
years ended December 31, 1999 AND 1998
---------
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Future cash inflows $ 100,177,000 $ 49,136,000
Future production and development costs (58,807,000) (27,931,000)
Future income tax expenses (4,229,000) (986,000)
------------- -------------
Future net cash flows 37,141,000 20,219,000
10% annual discount for estimated timing of cash flow (13,281,000) (6,938,000)
------------- -------------
Standardized measure of discounted
future net cash flow $ 23,860,000 $ 13,281,000
============= =============
</TABLE>
See accompanying notes to supplementary information.
F-20
<PAGE> 35
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, 1999 and 1998
---------
(Unaudited)
The following are the principal sources of change in the standardized measure of
discounted future net cash flows during 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Sales of oil and gas produced, net of production costs $ (5,458,000) $ (4,659,000)
Net changes in prices and production costs 3,192,000 (8,728,000)
Extensions, discoveries and improved recovery,
less recovery costs 6,188,000 9,057,000
Revisions of previous quantity estimates 2,178,000 (3,482,000)
Reserves purchases, net of development costs 4,818,000 984,000
Net change in development costs 150,000 (33,000)
Reserves sold -- (3,527,000)
Accretion of discount 1,328,000 2,069,000
Net change in income taxes (1,973,000) 769,000
Other 156,000 138,000
------------ ------------
Net change 10,579,000 (7,412,000)
Standardized measure of discounted future net cash flow:
Beginning of year 13,281,000 20,693,000
------------ ------------
End of year $ 23,860,000 $ 13,281,000
============ ============
</TABLE>
See accompanying notes to supplementary information
F-21
<PAGE> 36
PRIMEENERGY CORPORATION and SUBSIDIARIES
RESERVE QUANTITY INFORMATION
years ended December 31, 1999 and 1998
---------
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
Gas Oil Gas Oil
(Mcf) (bbls.) (Mcf) (bbls.)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Proved developed and undeveloped reserves:
Beginning of year 17,341,000 1,200,000 16,661,000 1,441,000
Extensions, discoveries
and improved recovery 1,732,000 554,000 5,993,000 80,000
Revisions of previous
estimates 1,853,000 346,000 (1,125,000) (103,000)
Sales -- -- (2,047,000) (28,000)
Purchases 4,565,000 274,000 1,480,000 87,000
Production (3,289,000) (264,000) (3,621,000) (277,000)
----------- ----------- ----------- -----------
End of year 22,202,000 2,110,000 17,341,000 1,200,000
=========== =========== =========== ===========
Proved developed reserves 22,046,000 2,110,000 17,341,000 1,122,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to supplementary information
F-22
<PAGE> 37
PRIMEENERGY CORPORATION and SUBSIDIARIES
RESULTS of OPERATIONS from OIL and GAS PRODUCING ACTIVITIES
years ended December 31, 1999 and 1998
---------
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Oil and gas sales $ 11,763,000 $ 11,354,000
------------ ------------
Costs and expenses:
Lease operating expense 6,305,000 6,695,000
Exploration costs 869,000 1,706,000
Depreciation and depletion 4,581,000 6,038,000
Write down of oil and gas properties 2,703,000 --
Income tax (benefit) expense 30,000 (183,000)
------------ ------------
14,488,000 14,256,000
------------ ------------
Results of operations from producing activities
(excluding corporate overhead and interest costs) $ (2,725,000) $ (2,902,000)
============ ============
</TABLE>
See accompanying notes to supplementary information
F-23
<PAGE> 38
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 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 flows relating 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 estimating the
expenditures to be incurred in developing and producing the oil and gas
reserves at year-end, based on year-end costs and assuming continuation
of existing economic conditions.
Future income tax expenses are calculated by applying the year-end U.S.
tax rate to future pre-tax cash inflows 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-24
<PAGE> 39
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of PrimeEnergy Corporation
(filed herewith)
3.2 Bylaws of PrimeEnergy Corporation. (filed herewith)
21 Subsidiaries
23 Consent of Ryder Scott Company, L.P. (filed herewith)
27 Financial Data Schedule (filed herewith)
</TABLE>
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PRIMEENERGY CORPORATION
* * * * * * * * * * * * * * * * * * * * * * *
PrimeEnergy Corporation, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is PrimeEnergy Corporation. The name
under which the corporation was originally incorporated was K. R. M. Petroleum
Corporation. The date of filing of its original Certificate of Incorporation
with the Secretary of State was March 22, 1973.
2. This Restated Certificate of Incorporation restates and integrates
and does not further amend the provisions of the Certificate of the corporation
as heretofore amended or supplemented and there is no discrepancy between those
provisions and the provisions of this Restated Certificate of Incorporation.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated without further amendments or changes
to read as herein set forth in full.
FIRST: The name of the corporation is PrimeEnergy Corporation.
SECOND: Its registered office in the State of Delaware is located at
the Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
The name and address of its registered agent is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
THIRD: The purpose of the corporation is to acquire, own, hold, deal
in, explore, develop and operate oil, gas and other mineral properties and
interests therein of all kinds; to produce, process, transport and sell the
resulting products and to purchase, lease, own, hold, deal in and operate all
equipment, machinery, facilities, systems and plants necessary for such
purposes; and to engage generally in all phases of the oil and gas business and
any lawful act or activity for which corporations may be organized under the
General Law of Delaware.
1
<PAGE> 2
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is Fifteen Million (15,000,000),
consisting of Ten Million (10,000,000) shares of Common Stock, par value $.10
per share, and Five Million (5,000,000) shares of Preferred Stock, par value
$.10 per share, which shares of Preferred Stock shall be issuable in one or more
series.
The relative rights, preferences and limitations of each class of
capital stock, and the designation and relative rights, preferences and
limitations of each series of Preferred Stock are to be fixed as follows:
1. PROVISIONS RELATING TO THE PREFERRED STOCK
A. The Preferred Stock may be issued from time to time in one or more
series, each of such series to have such designation, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof as are stated and expressed herein and in the resolution
or resolutions providing for the issue of such series adopted by the Board of
Directors as hereinafter provided.
B. Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Article FOURTH, to authorize the issue of one
or more series of Preferred Stock and with respect to each series to fix by
resolution or resolutions providing for the issue or such series:
(1) The number of shares to constitute such series and the distinctive
designation thereof;
(2) The dividend rate, if any, on the shares of such series, whether or
not such dividends shall be cumulative, and, if so, the date or dates from which
dividends shall accumulate and the dates on which dividends, if declared shall
be payable;
(3) Whether or not the shares of such series shall be redeemable, the
limitations and restrictions with respect to such redemptions, the manner of
selecting shares of such series for redemption if less than all shares are to be
redeemed, and the premium, if any, over and above the par value thereof and any
accrued dividends thereon which the holders of shares of such series shall be
entitled to received upon the redemption thereof, which premium may vary at
different redemption dates and may be different with respect to shares redeemed
through the operation of any retirement or sinking fund and with respect to
shares otherwise redeemed;
(4) The premium, if any, over and above the par value thereof and any
accrued dividends, if any, thereon which the holders of shares of such series
shall be entitled to received upon the voluntary liquidation, dissolution or
winding up on the corporation, which premium may vary at different dates;
2
<PAGE> 3
(5) Whether or not the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund and, if so, whether such
retirement of sinking fund shall be cumulative or noncumulative, the extent to
and the manner in which such fund shall be applied to the purchase or redemption
of the shares of such series for retirement or to other corporate purposes, and
the terms and provisions relative to the operation thereof;
(6) Whether or not the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or classes, or of any
other series of the same class and, if so convertible or exchangeable, the price
or prices of the rate or rates of conversion or exchange and the method, if any,
of adjusting the same;
(7) The voting powers, if any, of such series in addition to the voting
powers provided in paragraph F of this Section 1; and
(8) Any other preferences and relative, participating, optional or
other special rights and qualifications, limitations, or restrictions thereof as
shall not be inconsistent with this Section 1.
C. All shares of any one series of Preferred Stock shall be identical
with each other in all respects, except that shares of any one series issued at
different times may differ as to the date from which dividends thereon may be
cumulative; and all series shall rank equally and be identical in all respects,
except as permitted by the foregoing provisions of paragraph B of this Section
1.
D. Before any dividends on any class or classes of stock of the
corporation other than the Preferred Stock (other than dividends payable in
shares of any such other class or classes of stock of the corporation) shall be
declared or paid or set apart for payment, the holders of shares of the
Preferred Stock of each series shall be entitled to cash dividends, but only
when and as declared by the Board of Directors out of funds legally available
therefor, at the rate, and no more, fixed by the resolution or resolutions
adopted by the Board of Directors providing for the issue of such series,
payable on such dates as may be fixed in such resolution or resolutions in each
year and, if cumulative, from the date or dates fixed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
series. Dividends in full shall not be declared or paid or set apart for payment
on the Preferred Stock of any one series for any dividend period unless
dividends in full have been declared or paid or set apart for payment of the
Preferred Stock of all series for all dividend periods terminating on the same
or any earlier date. When the stated dividends are not paid in full on all
series of the Preferred Stock, the shares of all series shall share ratably in
the payment of dividends, including accumulations, if any, in accordance with
the sums which would be payable on said shares if all dividends were declared
and paid in full. A "dividend period" is the period between any two consecutive
dividend payment dates (or, when shares are originally issued, the period from
the date
3
<PAGE> 4
from which dividends are cumulative to the first dividend payment date) as fixed
for a particular series. Accruals of dividends shall not bear interest.
E. In the event of any liquidation, dissolution or winding up of the
corporation, before any payment or distribution of the assets of the corporation
shall be made to or set apart for the holders of the shares of the class or
classes of stock of the corporation other than the Preferred Stock, the holders
of the shares of the Preferred Stock shall be entitled to receive payment of ten
cents ($.10) per share, plus an amount equal to all dividends accrued thereon,
if any, to the date of final distribution to such holders, and, in addition
thereto, if such liquidation, dissolution or winding up be voluntary, the amount
of the premium, if any, payable upon such liquidation, dissolution or winding up
as fixed for the shares of the respective series; but they shall be entitled
dissolution or winding up of the corporation, the assets of the corporation, or
proceeds thereof, distributable among the holders of the shares of the Preferred
Stock shall be insufficient to pay in full the preferential amount aforesaid,
then such assets, or the proceeds thereof, shall be distributed among such
holders ratably in accordance with the respective amounts which would be payable
on such shares if all amounts payable thereon were paid in full. For the
purposes of this paragraph E, the sale, conveyance, exchange, or transfer (for
cash, shares of stock, securities, or other consideration) of all or
substantially all of the property or assets of the corporation or a
consolidation or merger of the corporation with one or more corporations shall
not be deemed to be a dissolution, liquidation or winding up voluntary or
involuntary.
F. So long as any of the Preferred Stock is outstanding, the
corporation:
(1) will not declare or pay, or set apart for payment, any dividends
(other than dividends payable in shares of any class or classes of stock of the
corporation other than the Preferred Stock), or make any distribution on any
class or classes of stock of the corporation other than the Preferred Stock, and
will not redeem, purchase or otherwise acquire, directly or indirectly, whether
voluntarily, for a sinking fund, or otherwise, any shares of any class or
classes of stock of the corporation other than the Preferred Stock, if at the
time of making such declaration, payment, setting apart, distribution,
redemption, purchase or acquisition the corporation shall be in default with
respect to any dividend payable on or any obligation to retire shares of the
Preferred Stock; provided that, notwithstanding the foregoing, the corporation
may at any time redeem, purchase, or otherwise acquire shares of stock of any
such other class or otherwise acquire shares of stock of any such other class in
exchange for, or out of the net cash proceeds from the concurrent sale of, other
shares of stock of any such other class;
(2) will not, without the affirmative vote or consent of the holders of
at least a majority of all of the Preferred Stock at the time outstanding, given
in person or by proxy, either in writing or by resolution adopted at a special
meeting called for the purpose, at which the holders of the Preferred Stock,
regardless of series, shall vote separately as a
4
<PAGE> 5
class, amend, alter or repeal (by any means, including, without limitation,
merger or consolidation) any of the provisions of this Section 1 so as adversely
to affect the preferences, rights or powers of the Preferred Stock; and
(3) will not, without the affirmative vote or consent of the holders of
at least a majority of any adversely affected series of the Preferred Stock at
the time outstanding, given in person or by proxy, either in writing or by
resolution adopted at a special meeting called for the purpose (the holders of
such series of the Preferred Stock consenting or voting, as the case may be,
separately as a class), amend, alter or repeal (by any means, including, without
limitation, merger or consolidation) any of the provisions herein or in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series so as adversely to affect the preferences, rights or powers
of the Preferred Stock of such series.
G. If in any case the amounts payable with respect to any obligations
to retire shares of the Preferred Stock are not paid in full in the case of all
series with respect to which obligations exist, the number of shares of each of
such series to be retired pursuant to any such obligations shall be in
proportion to the respective amounts which would be payable on account of such
obligations if all amounts payable in respect to such series were discharged in
full.
2. PROVISIONS RELATING TO THE COMMON STOCK
A. Subject to paragraph F of Section 1 and, except as provided in this
Article FOURTH or by resolution or resolutions Board of Directors providing for
the issue of such series of Preferred Stock, the exclusive voting power for all
purposes shall be vested in the holders of Common Stock.
B. Each share of the Common Stock shall entitle the holder thereof to
one vote, in person or by proxy, at any and all meetings of the stockholders of
the corporation, on all propositions before such meetings.
C. All shares of the Common Stock shall have equal rights of
participation in dividends and in assets of the corporation on any liquidation
after payment to the holders of the Preferred Stock as set forth in paragraph E
of Section 1.
D. The judgment of the Directors as to the consideration of the
issuance of any such warrant, right, privilege or option and the sufficiency
thereof shall be conclusive. The price to be received by the corporation upon
issuance of shares upon the exercise of any such warrant, right, privilege or
option shall not be less than the par value thereof.
E. Without action by the stockholders, the authorized shares of stock
of any class may be issued by the corporation from time to time for such
consideration as may be fixed
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by the Board of Directors, and any and all shares issued, for which all of the
consideration fixed by the Board of Directors shall have been paid or delivered
to the corporation, shall be deemed fully paid and not liable to any further or
assessment thereon, and the holder of such shares shall not be liable for any
further call or assessment thereon whatsoever.
F. The corporation may from time to time create one of more series of
bonds, debentures, notes or other debt securities, bearing such voting rights as
may be determined by action or the Board of Directors upon the creation of such
series; and if such voting rights confer the right to elect one or more
Directors of the corporation, the Board of Directors shall, at the time of
authorizing such series of debt securities, amend the Bylaws of the corporation
to increase the number of Directors by the number so to be elected.
G. No holder of stock of any class of the corporation shall have the
preemptive right to purchase or to subscribe for any additional issues of stock
of any class or of any other securities of the corporation or any warrants,
options or rights to purchase any such stock, or any other securities of the
corporation convertible into or exchangeable for such stock of the corporation.
H. Stockholders of the corporation shall not be entitled to cumulative
voting.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
A. To make, alter or repeal the Bylaws of the corporation.
B. To authorize and cause to be executed mortgages and liens upon the
real and personal property of the corporation.
C. When and as authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding having voting power given at a
stockholders' meeting duly called for that purpose, or when authorized by the
written consent of the holders of a majority of the voting stock issued and
outstanding, to sell, lease, or exchange all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may be in whole or in
part shares of stock in, and/or other securities of, any other corporation or
corporations, as its Board of Directors shall deem expedient and for the best
interests of the corporation.
SIXTH. No Director of the corporation shall be liable to any person on
account of any action undertaken by him as such Director in reliance in good
faith upon the existence of any fact or circumstance reported or certified to
the Board of Directors by any officer of the corporation or by any independent
auditor, engineer or consultant retained or employed as such by the Board of
Directors.
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Any person made a party to any civil or criminal action, suit or
proceeding by reason of the fact that he, his testator or intestate, is or was a
Director, officer of employee of the corporation or any corporation which he
served as such at the request of the corporation, shall be indemnified by the
corporation against the reasonable expenses, including attorneys' fees, and
amounts paid in satisfaction of judgment or in settlement, other than amounts
paid to the corporation by him, actually and necessarily incurred by him or
imposed in connection with or resulting from the Denise of such civil or
criminal action, suit or proceeding, or in connection with any appeal therein,
except in a relation to matters as to which it shall be adjudged in such civil
or criminal action, suit or proceeding that such officer, Director or employee
is liable for negligence or misconduct in the performance of his duties. Neither
a conviction in a criminal action, suit or proceeding, whether based upon a plea
of guilty or nolo contendere or its equivalent, or after trial, nor a settlement
in any civil action, suit or proceeding shall or itself be deemed an
adjudication that such officer, Director or employee is liable for negligence or
misconduct in the performance of his duties to the corporation. Any amount
payable pursuant to this Article SIXTH may be determined and paid, at the option
of the person to be indemnified, pursuant to procedure set forth from time to
time in the Bylaws or by any of the following procedures: (a) order of the court
having jurisdiction of any such civil or criminal action, suit or proceeding,
(b) resolution adopted by a majority of a quorum of the Board of Directors of
the corporation without counting in such majority or quorum any interested
Directors, (c) resolution adopted by the holders of record of a majority of the
outstanding shares of capital stock of the corporation having voting power, or
(d) order of any court having jurisdiction over the corporation. Such right of
indemnification shall not be exclusive of any other right which such officers,
Directors and employees of the corporation, and the corporation, and the other
persons above mentioned, may have such statement, they shall be entitled to
their respective rights of indemnification under any Bylaw, agreement, vote of
stockholders, provisions of law or otherwise as their rights under this Article
SIXTH.
SEVENTH: Meetings of stockholders may be held without the State of
Delaware if the Bylaws so provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be from time to time designated by the
Board of Directors or the Bylaws of the corporation.
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, with the
exception of the preferences, rights and powers of the Preferred Stock which may
only be amended, altered or repealed as provided in paragraph (6) of Section A
of Article FOURTH hereof, in the manner now or hereafter prescribed by statute,
and all rights conferred herein are granted subject to this reservation.
NINTH: No person serving as a Director of the corporation shall have
any personal liability to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a Director, provided that, such
restriction on personal liability shall not eliminate or limit the liability of
a Director (i) for any breach of the Director's duty of loyalty to the
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corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payment of any dividend or unlawful stock purchase or redemption under
Section 174 of the Delaware General Corporation Law; or (iv) for any transaction
from which the Director derived an improper personal benefit.
This Restated Certificate of Incorporation was duly adopted by the
Board of Directors of the corporation in accordance with Section 245 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, PrimeEnergy Corporation has caused this Restated
Certificate of Incorporation to be signed by Charles E. Drimal, Jr., its
president, this _____ day of March, 2000.
PrimeEnergy Corporation
By
-----------------------------
Charles E. Drimal, Jr.
President
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EXHIBIT 3.2
BYLAWS
OF
PRIMEENERGY CORPORATION
ARTICLE I
Meetings of the Holders of Voting Securities
Section 1. Meetings for the Election of Directors. The annual meeting
of the holders of each class of securities entitled to vote shall be held for
the election of Directors and for the transaction of such other business as may
properly come before such meeting on the second Tuesday in May of each year, but
if such day be a legal holiday under the laws of the state where the meeting is
to be held, then on the next succeeding day not a legal holiday under the laws
of such state, at 10:00 A.M., local time, or such annual meeting shall be held
on such date and at such hour, not inconsistent with applicable statutes, as may
be designated by the Board of Directors and specified in the notice of the
meeting.
Section 2. Special Meetings. A special meeting of the holders of any
class of securities entitled to vote may be called by the Chairman of the Board
of Directors or by the President or by resolution of the Board of Directors at
any time, and shall be called by the President or by the Board of Directors
whenever requested in writing so to do by the holders of record of at least one-
third of the issued and outstanding securities of such class.
Section 3. Place of Meeting. All meetings of the security holders shall
be held at the office of the Company in Stamford, Connecticut, or at such other
place as may be from time to time designated by the Board of Directors, as
provided in the notice of the meeting or in any waivers of notice thereof;
provided, however, that the place of meeting for the election of Directors shall
not be changed within sixty (60) days before the day on which the election is to
be held, and at least twenty (20) days before the election is held a notice of
any such change shall be given to each person entitled to vote thereat, in
person or by letter mailed to his address on the securities ledger of the
Company.
Section 4. Notice of Meetings. Except as otherwise provided by law,
notice of the time and place of holding each annual or special meeting of
security holders, and, in the case of a special meeting, stating the purpose for
which such meeting is called, shall be in writing and shall be given personally
to each person entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the time fixed for such meeting; if mailed, such
notice shall be addressed to each such person at his address shown by the
securities ledger of the Company. No notice of an adjourned meeting of security
holders need be given unless expressly required by statute.
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Section 5. Quorum. Except as otherwise provided by law, the holders of
record of a majority in number of the issued and outstanding securities of any
class entitled to vote at a meeting of such holders must be present in person or
by proxy at such meeting to constitute a quorum for the transaction of business.
Whether or not there is a quorum at any meeting of the holders of any class of
securities, the holders of a majority in number of such securities present and
entitled to vote thereat may adjourn the meeting from time to time. At any such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally convened.
Section 6. Voting. At each meeting of stockholders, each holder of
record of shares of the Company having voting power who is present shall be
entitled to one vote for each share held by him and shall not be entitled to
cumulate such votes.
The election of Directors and any other vote of stockholders as may be
provided by law shall be by written ballot unless otherwise provided by the
Certificate of Incorporation. In any vote by ballot, a ballot shall be signed by
the stockholder or proxy voting and shall state the number of shares voted
thereby.
No proxy shall be valid after the expiration of three (3) years from
the date of its execution unless the proxy shall, on its face, name a longer
period for which it is to remain in force.
Shares of its own capital stock belonging to the Company shall not be
voted directly or indirectly, nor be counted for quorum purposes. However,
nothing herein shall be construed as limiting the right of the Company to vote
stock, including, but not limited to, its own stock held by it in a fiduciary
capacity.
Except as otherwise provided by the Certificate of Incorporation, any
action required to be or which may be taken at any annual or special meeting of
the stockholders of the Company, may be taken without a meeting, without prior
notice and without a vote if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action of a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
Section 7. When a Holder of any Security is deemed to be "Present." For
the purpose of determining a quorum or the right to vote or to be heard on any
question, a holder of record of securities of any class having voting power
shall be deemed to be "present" at any meeting of the holders of such securities
if he is present in person or is represented by a proxy appointed by an
instrument in writing subscribed by or on behalf of such security holder or by
his representative thereunto duly authorized and filed with the Secretary of the
meeting.
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ARTICLE II
Board of Directors
Section 1. General Powers. The business of the Company shall, except as
otherwise expressly provided by law or by the Certificate of Incorporation, be
managed by the Board of Directors.
Section 2. Number, Election and Term of Office.
(a) The number of Directors which shall constitute the Board shall be
not less than three nor more than fifteen. The initial Board shall consist of
seven Directors. Thereafter, within the limits above specified, the number of
Directors shall be determined by resolution of the Board, or by the stockholders
at the annual meeting.
(b) Directors need not be stockholders.
(c) Each Director shall, except for the filling of vacancies as
hereinafter provided, hold office from the date of the annual or special meeting
of the security holders who shall have elected him until the next annual or
special meeting of such security holders convened for the election of Directors,
and until his successor shall have been duly elected and qualified, or until his
death, resignation, disqualification or removal.
Section 3. Meetings. Upon the adjournment of the annual meeting of
stockholders, the Board of Directors shall meet as soon as practicable to
appoint officers for the ensuing year and to transact such other business as may
properly come before the meeting.
The Board, by resolution, may provide for the holding of other regular
meetings and may fix the time and place of holding the same.
Special meetings of the Board of Directors shall be held whenever
called by the President or by any two Directors.
Section 4. Place of Meeting. The Board may hold its meetings at such
place or places within or without the State of Delaware as the Board of
Directors may from time to time determine, or as may be designated in the notice
or in waivers of notice thereof signed by all of the Directors.
Section 5. Notice of Meeting. Except as hereinafter provided, notice
need not be given (i) of the regular meeting of the Board of Directors held
immediately following the annual meeting of security holders or (ii) of any
other regular meeting of the Board of Directors if the time and place of meeting
has been specified in a resolution of the Board of Directors adopted at least
twenty (20) days prior to the time of holding such meeting, or (iii) with
respect to any meeting if every member of the Board of Directors is present.
Except as otherwise required by law, notice
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of the time and place of holding each other meeting of the Board of Directors
shall be mailed to each Director, postage prepaid, addressed to him at his
residence or usual place of business, or at such other address as he may have
designated in a written request filed with the Secretary of the Company at least
two (2) days before the day on which the meeting is to be held, or shall be sent
to him at such address by telegram or cablegram or given personally or by
telephone at least twenty-four (24) hours before the time at which such meeting
is to be held. notice shall be deemed to have been given when deposited in the
mail or filed with the telegraph or cable office, properly addressed. Notice of
a meeting of the Board need not state the purposes thereof, except as otherwise
by law or by Article VIII, of these Bylaws expressly provided. No notice of an
adjourned meeting need be given.
Section 6. Quorum and Manner of Acting. At each meeting of the Board a
majority of the total number of Directors must be present to constitute a quorum
for the transaction of business and (except as otherwise provided by law, by the
Certificate of Incorporation or by the Bylaws) the act of a majority of the
Directors so present at a meeting at which a quorum is present shall constitute
the act of the Board; whether or not there is a quorum at any meeting, a
majority of the Directors who are present may adjourn the meeting from time to
time to a day certain. The Directors shall act only as a Board and shall have no
power as individual Directors.
Section 7. Resignations. Any Director may resign at any time by giving
written notice thereof to the Chairman of the Board, the President or to the
Board. Such resignation shall take effect as of is date unless some other date
is specified therein, in which event it shall be effective as of that date. The
acceptance of such resignation shall not be necessary to make it effective.
Section 8. Vacancies. Any vacancy in the Board arising at any time from
any cause, including an increase in the number of Directors by an amendment of
the Bylaws adopted by a majority of the whole Board and including the failure of
the security holders to elect a full Board, may be filled by the vote of a
majority of the Directors remaining in office although such majority is less
than a quorum; or any such vacancy may be filled by the security holders
entitled to vote upon the election of such Directors at any special meeting of
security holders called as provided in Section 2 of Article I. Any Director so
appointed or elected shall hold office until the next annual or special meeting
of the security holders who shall have elected him or his predecessor and until
his successor shall have been duly elected and qualified.
Section 9. Fees. Directors shall not receive any stated compensation
for their services as such, but, subject to such limitations with respect
thereto as may be determined from time to time by the stockholders or by
resolution of the Board, fees in a reasonable amount may be paid (either per
annum or on the occasion of each meeting) to the Directors for attendance at
meetings of the Board or adjournments thereof. By resolution of the Board,
Directors may also be reimbursed for traveling expenses incurred in attending
such meetings or adjournments thereof. Nothing herein contained shall be
construed to preclude any Director from serving the Company in any other
capacity or receiving compensation for such service.
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Section 10. Action Without Meeting. Except as restricted by the
Certificate of Incorporation or these Bylaws, (a) any action required or
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee; and (b) members of the Board or of any committee may participate in a
meeting of the board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting in such manner shall
constitute presence in person at such meeting.
ARTICLE III
Executive and Other Committees
Section 1. Executive Committee, General Powers and Membership. The
Board may, by resolution adopted by a majority of the whole Board, elect from
its members an Executive Committee and/or one or more other committees, each
consisting of one or more members. Unless otherwise expressly provided by law or
by the Certificate of Incorporation of the Company or by resolution of the
Board, the Executive committee shall have and may exercise all the powers
conferred upon it by the Board (except the power to appoint or remove a member
of the Executive Committee or of any other committee and the power to remove an
officer appointed by the Board), and each other committee shall have and may
exercise, when the Board is not in session, such powers as the Board shall
confer. All action by any committee shall be reported to the Board at its
meeting next succeeding such action and, insofar as the rights of third parties
shall not be affected thereby, shall be subject to revision and alteration by
the Board.
Section 2. Organization. Unless otherwise provided by resolution of the
Board, a chairman chosen by each committee shall preside at all meetings of such
committee and the Secretary of the Company shall act as secretary thereof. In
the absence at the meeting of the Secretary, the chairman of such meeting shall
appoint an Assistant Secretary of the Company or, if none is present, some other
person to act as Secretary of the meeting.
Section 3. Meetings. Each committee shall adopt its own rules governing
the time and place of holding and the method of calling its meetings and the
conduct of its proceedings and shall meet as provided by such rules and by
resolution of the Board, and it shall also meet at the call of any members of
the committee. Unless otherwise provided by such rules or by said resolution,
notice of the time and place of each meeting of a committee shall be mailed,
sent or given to each member of such committee in the same manner as provided in
Section 5 of Article II with respect to notices of meetings of the Board.
Section 4. Quorum and Manner of Acting. A majority of the members of
each committee shall be either present in person at, or participating by
telephone in, each meeting of such committee in order to constitute a quorum for
the transaction of business thereat. The act of a
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majority of the members so present at or participating in a meeting at which a
quorum is present or participating shall be the act of such committee. The
members of each committee shall act only as a committee, and shall have no power
as individual members.
Section 5. Removal. Any member of any committee may be removed from
such committee, either with or without cause, at any time, by resolution adopted
by a majority of the whole Board at any meeting of the Board.
Section 6. Vacancies. Any vacancy in any committee shall be filled by
the Board in the manner prescribed by these Bylaws for the original appointment
of the members of such committee.
ARTICLE IV
Officers
Section 1. Appointment and Term of Office. The officers of the Company
shall consist of the President, a Secretary and a Treasurer, and there may be
one or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers, and such other officers as may be appointed by the Board.
One of the Directors may also be chosen Chairman of the Board. Each of such
officers (except such as may be appointed pursuant to the provisions of
paragraph (f) of Section 2 of this Article IV) shall be chosen annually by the
Board at its regular meeting immediately following the annual meetings of
security holders and shall hold office until the next annual election and until
his successor is chosen and qualified. One person may hold and perform the
duties of any two or more of said offices.
Section 2. Powers and Duties. The powers and duties of the officers
shall be those usually pertaining to their respective offices, subject to the
supervision and direction of the Board. The officers of the Company may be as
follows:
(a) Chairman of the Board. The Chairman of the Board (if there be one)
shall preside at all meetings of the Board and shall be ex officio a member of
all committees of the Directors and shall perform such other duties as shall be
assigned to him from time to time by the Board.
(b) President. The President shall be the chief executive officer of
the Company and shall have general supervision of the business of the Company
and over its several officers; subject, however, to the control of the Board. If
there shall be no Chairman of the Board, the President, when present shall
preside at all meetings of the Board and shall be ex officio a member of all
committees of the Directors. He may execute and deliver in the name and on
behalf of the Company deeds, mortgages, leases, assignments, bonds, contracts or
other instruments authorized by the Board, unless the execution and delivery
thereof shall be expressly delegated by these Bylaws or by the Board to some
other officer or agent of the Company. He shall, unless otherwise directed by
the Board or by any committee thereunto authorized, attend in person or by
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substitute or proxy appointed by him and act and vote on behalf of the Company
at all meetings of the stockholders of any corporation in which the Company
holds stock.
(c) Vice Presidents. Vice Presidents shall perform the duties assigned
to them by the Board or delegated to them by the President and, in order of
seniority, at his request or in his absence shall perform as well the duties of
the President's office. Each Vice President shall have power also to execute and
deliver in the name and on behalf of the Company deeds, mortgages, leases,
assignments, bonds, contracts or other instruments authorized by the Board,
unless the execution and delivery thereof shall be expressly delegated by these
Bylaws or by the Board to some other officer or agent of the Company.
(d) The Secretary. The Secretary shall keep the minutes of the meetings
of the Board of Directors, of all committees and of the stockholders and shall
be the custodian of all corporate records and of the seal of the Company. He
shall see that all notices are duly given in accordance with these Bylaws or as
required by law.
(e) The Treasurer. The Treasurer shall be the principal accounting
officer of the Company and shall have charge of the corporate funds and
securities and shall keep a record of the property and indebtedness of the
Company. He shall, if required by the Board, give bond for the faithful
discharge of this duties in such sum and with such surety or sureties as the
Board may require.
(f) Other Officers. The Board may appoint such other officers, agents
or employees as it may deem necessary for the conduct of the business of the
Company. In addition, the Board may authorize the President or some other
officer to appoint such agents or employees as they deem necessary for the
conduct of the business of the Company.
Section 3. Resignations. Any officer may resign at any time by giving
written notice thereof to the President or to the Board. Any such resignation
shall take effect as of its date unless some other date is specified therein, in
which event it shall be effective as of that date. The acceptance of such
resignation shall not be necessary to make it effective.
Section 4. Removal. Any officer may be removed at any time, either with
or without cause, by resolution adopted by a majority of the whole Board at any
meeting of the Board or by the committee or superior officer by whom he was
appointed to office or upon whom such power of removal has been conferred by
resolution adopted by a majority of the whole Board.
Section 5. Vacancies. A vacancy in any office arising at any time from
any cause may be filled by the Board or by the officer or committee authorized
by the Board to appoint to that office.
Section 6. Salaries. Salaries of all officers shall be fixed from time
to time by the Board of Directors or the Executive Committee and no officer
shall be precluded from receiving a salary because he is also a Director of the
Company.
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ARTICLE V
Shares of Stock and their Transfer; Books
Section 1. Forms of Certificates. Shares of the capital stock of the
Company shall be represented by certificates in such form, not inconsistent with
law or with the Certificate of Incorporation of the Company, as shall be
approved by the Board, and shall be signed by the Chairman or Vice-Chairman of
the Board, or the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer. Where any such
certificate is countersigned (1) by a transfer agent other than the Company or
its employee, or, (2) by a registrar other than the Company or its employee, any
other signature upon such certificate may be facsimile, engraved or printed.
Section 2. Transfer of Shares. If one or more holders of the stock of
any class shall, by agreement among themselves or with the Company, restrict the
transfer of any share held by them through the granting of preferential rights
of purchase or otherwise, then any party to such agreement may file an executed
counterpart of the same with the officer of the Company charged with the
maintenance of the stock books of the Company or with any transfer agent or
registrar designated by the Company in respect of the shares of such class.
Following the filing of any such counterpart, each certificate evidencing shares
to which such restriction is or may be applied which shall thereafter be issued
by the Company shall bear an appropriate notice of such restriction, and no
share subject to such restriction shall be transferred until written evidence
satisfactory to the Company of compliance by the transferor with any such
restriction shall have been filed with the Company. Shares of stock of the
Company shall be transferred only on the stock books of the Company by the
holder of record thereof in person or by his duly authorized attorney upon
surrender of the certificate therefor and upon compliance with any restriction
relating to such transfer.
Section 3. Stockholders of Record. Stockholders of record entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or to any allotment of rights or to
exercise the rights in respect of any change or conversion or exchange of
capital stock or for the purpose of any other lawful action shall be determined
according to the Company's record of stockholders and, if so determined by the
Board of Directors in the manner provided by statute, shall be such stockholders
of record at the date (a) fixed for closing the stock transfer books or (b) as
of the date of record.
Section 4. Lost, Stolen or Destroyed Certificates. The Board may direct
the issuance of new or duplicate stock certificates in place of lost, stolen or
destroyed certificates upon being furnished with evidence satisfactory to it of
the loss, theft or destruction and upon being furnished with indemnity
satisfactory to it. The Board may delegate to any committee authority to
administer the provisions of this Section 4.
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Section 5. Closing of Transfer Books and Fixing of Record Date. The
Board shall have power to close the stock transfer books of the Company for a
period not exceeding sixty (60) days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, or for a period not exceeding sixty (60)
days in connection with obtaining the consent of stockholders for any purpose;
or the Board may, in its discretion, fix a date not more than sixty (60) nor
less than ten (10) days before any stockholders' meeting nor more than sixty
(60) days prior to any other action as a record date for the determination of
the stockholders entitled to notice of, and to vote at, any meeting and at any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend, or any
allotment of rights, or to exercise the rights in respect of any change,
conversion or exchange of capital stock, and in such case such stockholders and
only such stockholders as shall be stockholders of record on the date so fixed
shall be entitled to notice and to vote at such meeting and at any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of such dividend, or to exercise such rights, as the case
may be, notwithstanding any transfer of any stock on the books of the Company
after such record date fixed as aforesaid.
Section 6. Regulations. The Board may make such rules and regulations
not inconsistent with the Certificate of Incorporation nor these Bylaws as it
may deem expedient concerning the issuance, transfer and registration of
certificates of stock. It may appoint one or more transfer agents or registrars
of transfers, or both, and may require all certificates of stock to bear the
signature of either or both.
Section 7. Examination of Stockholder List. The officer who has charge
of the stock ledger of the Company shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
ARTICLE VI
Execution of Instruments
Section 1. Contracts, etc. The Board or any committee thereunto
authorized may authorize any officer or officers, agent or agents, to enter into
any contract or to execute and deliver in the name and on behalf of the Company
any contract or other instrument except
9
<PAGE> 10
certificates representing shares of stock of the Company, and such authority may
be general or may be confined to specific instances.
Section 2. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes, acceptances or other evidence of indebtedness
issued by or in the name of the Company shall be signed by such officer or
officers, agent or agents of the Company and in such manner as shall be
determined from time to time by resolution of the Board. Unless otherwise
provided by resolution of the Board, endorsements for deposit to the credit of
the Company in any of its duly authorized depositories may be made by
hand-stamped legend in the name of the Company or by written endorsement of any
officer without countersignature.
Section 3. Loans. No loans shall be contracted on behalf of the Company
unless authorized by the Board, but when so authorized, unless a particular
officer or agent is directed to negotiate the same, may be negotiated up to the
amount so authorized by the President or a Vice President or the Treasurer; and
such officers are hereby severally authorized to execute and deliver in the name
and on behalf of the Company notes or other evidences of indebtedness
countersigned by the President or a Vice President or the Treasurer; and such
officers are hereby severally authorized to execute and deliver in the name and
on behalf of the Company notes or other evidences of indebtedness countersigned
by the President or a Vice President for the amount of such loans and to give
security for the payment of any and all loans, advances or indebtedness by
hypothecating, pledging or transferring any part or all of the property of the
Company, real or personal, at any time owned by the Company.
Section 4. Sale or Transfer of Securities held by the Corporation.
Stock certificates, bonds or other securities at any time owned by the Company
may be held on behalf of the Company or sold, transferred or otherwise disposed
of pursuant to authorization by the Board, or of any committee thereunto duly
authorized, and, when so authorized to be sold, transferred or otherwise
disposed of, may be transferred from the name of the Company by the signature of
the President or a Vice President and the Treasurer or the Assistant Treasurer
or the Secretary or the Assistant Secretary.
ARTICLE VII
Miscellaneous
Section 1. Offices. The Company shall have an office at such place in
the State of Delaware and may have offices at such place or places within or
outside the State of Delaware as the Board shall from time to time determine.
Section 2. Fiscal Year. Until otherwise determined by the Board, the
fiscal year of the Company shall be the calendar year.
10
<PAGE> 11
Section 3. Seal. The corporate seal shall be a device containing the
name of the Company, the year of its organization and the words, "Corporate
seal, Delaware."
Section 4. Waiver of Notice. The giving of any notice of the time,
place or purpose of holding any meeting of stockholders or Directors and any
requirement as to publication thereof, whether statutory or otherwise, shall be
waived by the attendance at such meeting by any person entitled to receive such
notice and may be waived by such person by an instrument in writing executed and
filed with the records of the meeting either before of after the holding
thereof.
Section 5. Form of Notice. Whenever, under the provisions of the
statutes or of the Certificate of Incorporation or of these Bylaws, notice is
required to be given to any Director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the Company, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to Directors may also be given by telegram.
ARTICLE VIII
Amendment of These Bylaws
As provided in the Certificate of Incorporation of the Company, the
Board of Directors of the Company may alter or repeal these Bylaws in whole or
in part at any regular or special meeting of the Board, provided notice of the
proposed change is included in notice of the meeting. In addition, these Bylaws
may be amended or repealed in whole or in part by the affirmative vote of the
holders of a majority in number of the issued and outstanding shares of the
Company having voting power and present at any regular or special meeting of
stockholders, provided notice of the proposed amendment or repeal is included in
the notice of meeting.
11
<PAGE> 1
EXHIBIT 21
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
<PAGE> 1
EXHIBIT 23
[RYDER SCOTT COMPANY LETTERHEAD]
CONSENT OF RYDER SCOTT COMPANY, L.P.
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, L.P.
RYDER SCOTT COMPANY, L.P.
Denver, Colorado
March 20, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,625
<SECURITIES> 0
<RECEIVABLES> 3,772
<ALLOWANCES> 137
<INVENTORY> 0
<CURRENT-ASSETS> 10,392
<PP&E> 55,879
<DEPRECIATION> (36,742)
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0
0
<COMMON> 761
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<TOTAL-LIABILITY-AND-EQUITY> 30,475
<SALES> 11,763
<TOTAL-REVENUES> 25,520
<CGS> 0
<TOTAL-COSTS> 26,278
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<INTEREST-EXPENSE> 1,358
<INCOME-PRETAX> (2,108)
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<F2>RETAINED EARNINGS (2,859), TREASURY STOCK (7,870) AND ADDITIONAL PAID-IN CAPITAL (10,902)
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