<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q SB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9933
-----------------------------
AMERAC ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
STATE OF DELAWARE 75-2181442
(State or other incorporation) (I.R.S. Employer
Identification No.)
1201 LOUISIANA, SUITE 3350
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 308-5250
Indicate by check mark whether the registrant (1) has filed all
reports required by section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock, $.05 par value, outstanding on
July 31, 1996 was 41,996,744.
<PAGE>
AMERAC ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
A S S E T S
Current Assets
Cash and cash equivalents $ 144,000 $ 571,000
Receivables
Receivable from Property Sale 1,005,000 ---
Trade Receivables 1,104,000 1,492,000
------------ ------------
Total current assets 2,253,000 2,063,000
------------ ------------
Property and Equipment (using successful efforts accounting)
Oil and gas properties at cost 20,614,000 29,613,000
Less accumulated depreciation, depletion and amortization (12,020,000) (12,371,000)
------------ ------------
Net property and equipment 8,594,000 17,242,000
------------ ------------
Other Assets 347,000 436,000
------------ ------------
TOTAL ASSETS $ 11,194,000 $ 19,741,000
============ ============
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
Current Liabilities
Accrued liabilities and payables $ 606,000 $ 1,078,000
Current portion of Notes Payable Banks --- 3,000,000
------------ ------------
Total current liabilities 606,000 4,078,000
------------ ------------
Long-term Liabilities
Notes Payable Banks 3,547,000 6,490,000
Contract Obligation 641,000 205,000
Other long-term liabilities 406,000 323,000
------------ ------------
Total long-term liabilities 4,594,000 7,018,000
------------ ------------
Contingencies (Note 6)
Stockholders' Equity
Preferred stock, $1 par value 10,000,000 shares authorized
$4.00 Senior Preferred, outstanding 1,867,584 at June 30, 1996
and 1,786,347 at December 31, 1995 1,786,000 1,868,000
Common Stock, $.05 par value; 50,000,000 shares authorized;
outstanding 20,629,416 shares at December 31, 1995 and
25,557,893 at June 30, 1996 1,031,000 1,278,000
Additional paid-in capital 142,211,000 143,446,000
Accumulated deficit (139,034,000) (137,947,000)
------------ ------------
Stockholders' equity 5,994,000 8,645,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,194,000 $ 19,741,000
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
AMERAC ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Oil and gas $ 1,004,000 $ 2,594,000 $ 1,827,000 $ 4,848,000
Other 67,000 19,000 71,000 46,000
----------- ----------- ----------- -----------
1,071,000 2,613,000 1,898,000 4,894,000
----------- ----------- ----------- -----------
EXPENSES
Lease operations 331,000 500,000 531,000 980,000
Exploration 208,000 5,000 215,000 8,000
Depreciation, depletion and amortization 250,000 479,000 525,000 994,000
General and Administrative 386,000 699,000 731,000 1,122,000
Interest Expense 47,000 217,000 102,000 417,000
(Gain) Loss on sale of Properties and Other 42,000 (78,000) (19,000) (125,000)
----------- ----------- ----------- -----------
$ 1,264,000 1,822,000 2,085,000 3,396,000
----------- ----------- ----------- -----------
Income (Loss) before taxes (193,000) 791,000 (187,000) 1,498,000
Provision for taxes --- --- --- ---
----------- ----------- ----------- -----------
NET INCOME (LOSS) (193,000) 791,000 (187,000) 1,498,000
Preferred dividends (199,000) (196,000) (393,000) (411,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ (392,000) $ 595,000 $ (580,000) $ 1,087,000
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON STOCK $ (.02) $ .02 $ (.03) $ .04
=========== =========== =========== ===========
Weighted average Common Stock outstanding 20,433,000 24,070,000 19,578,000 24,421,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AMERAC ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING:
Net Income (Loss) $ (187,000) $ 1,498,000
Adjustments needed to reconcile to net cash flows:
Depreciation, depletion and amortization 525,000 994,000
Amortization of discount 7,000 ---
Exploration Expenses 215,000 ---
Gain on sale of properties (41,000) (125,000)
Stock issued for compensation --- 139,000
Recognition of deferred revenue (76,000) (76,000)
Changes in current items relating to operations:
Oil and gas receivables and other 89,000 (388,000)
Accounts payables (4,000) 112,000
Accrued and other long-term liabilities (130,000) (82,000)
Other --- (72,000)
----------- -----------
NET CASH FLOW PROVIDED BY OPERATIONS 398,000 2,000,000
----------- -----------
CASH FLOW FROM INVESTING:
Proceeds from sale of assets 41,000 1,281,000
Oil and gas expenditures and acquisitions (3,942,000) (9,171,000)
----------- -----------
NET CASH FLOW USED FOR INVESTING (3,901,000) (7,890,000)
----------- -----------
CASH FLOW FROM FINANCING:
Debt Repayments (1,929,000) (1,310,000)
Bank Borrowings 2,347,000 7,253,000
Sale of common stock --- 364,000
Other (79,000) 10,000
----------- -----------
NET CASH FLOW PROVIDED BY FINANCING 339,000 6,317,000
----------- -----------
NET INCREASE(DECREASE)IN CASH AND EQUIVALENTS (3,164,000) 427,000
Cash and equivalents at beginning of period 3,437,000 144,000
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 273,000 $ 571,000
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid during the period $ 95,000 $ 417,000
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING:
Paid dividends in-kind on the Senior Preferred Stock $ 393,000 $ 411,000
Paid compensation in Common Stock $ 15,000 $ 139,000
Common Stock Issued in Fremont Acquisition $ --- $ 640,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AMERAC ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
JANUARY 1, 1996 TO JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
$4.00 SENIOR COMMON SHARES
PREFERRED STOCK ($.05 PAR VALUE)
--------------- --------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
--------- ---------- ----------- ---------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE -
January 1, 1996 1,786,347 $1,786,000 20,629,416 $1,031,000 $142,211,000 $(139,034,000) $5,994,000
Stock Issued for Fremont
Acquisition --- --- 3,293,310 165,000 475,000 --- 640,000
Stock issued for
Compensation --- --- 460,270 23,000 116,000 --- 139,000
Option Exercised --- --- 90,000 5,000 5,000 --- 10,000
$4.00 Senior Preferred
Stock Dividend 81,237 82,000 --- --- 329,000 (411,000) ---
Sale of Common Stock --- --- 1,084,897 54,000 310,000 --- 364,000
Net Income --- --- --- --- --- 1,498,000 1,498,000
--------- ---------- ---------- ---------- ------------ ------------- ----------
BALANCE -
June 30, 1996 1,867,584 $1,868,000 25,557,893 $1,278,000 $143,446,000 $(137,947,000) $8,645,000
========= ========== ========== ========== ============ ============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
Amerac Energy Corporation, ("Amerac" or the "Company") was formed in
1969 and is headquartered in Houston, Texas. The Company is engaged in the
acquisition, exploration, development and enhancement of oil and gas
properties in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The results of operations for the interim periods shown in this
report are not necessarily indicative of results to be expected for the
year. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the
financial position as of June 30, 1996, and the results of operations for
the three and six months ended June 30, 1995 and 1996, and cash flow for
the six months ended June 30, 1995 and 1996. These financial statements and
the notes thereto should be read in conjunction with the Company's annual
report on Form 10-K for the year ended December 31, 1995.
Net income (loss) per share is computed by dividing the net income
or loss attributable to common shareholders by the weighted average number
of shares of Common Stock outstanding. In determining the net income (loss)
attributable per share, the Company decreased income by the preferred stock
dividend and accretion of discount. The stock options and convertible debts
are either not material or are anti-dilutive and were not included in the
average shares outstanding during the periods presented.
From 1991 until 1996, the Company has accounted for its investment
in Petroleum Financial Inc. ("PFI") on the cost method of accounting. PFI
performs accounting, tax, administrative, computer operations and
shareholder relations activities for Amerac. In July 1995, the Company's
interest in PFI increased from 15% to 26%; thus, commencing in 1996, the
Company began accounting for its investment in PFI on the equity method of
accounting.
Certain amounts in the 1995 comparable data have been reclassified
for consistency with the presentation of 1996 data.
3. INDEBTEDNESS
On August 15, 1996, the Company amended its revolving line of credit
agreement with Bank One, Texas National Association ("Bank Credit
Agreement"). The amendment, among other things, increases the Company's
line of credit from $15 million to $30 million and extended the due date to
May 31, 1998. In addition, the Company also executed a $1 million bridge
loan agreement ("Bridge Loan") that the Company will use to fund
acquisitions and development expenditures. The Bridge Loan must be repaid
on the earlier of the date of receipt of any funds from any equity
offerings or February 16, 1997. Both of these agreements are secured by all
of the Company's oil and gas properties, and contain various covenants,
which may, if not met, cause the Company to be in default or reduce its
access to additional borrowings. At August 1, 1996, $9.3 million was
outstanding under the Bank Credit Agreement with a borrowing base of $9.7
million and a mandatory reduction of $250,000 each month. The Bank Credit
Agreement bears interest at the Bank One Texas Base Rate plus three quarter
percent (9%) at June 30, 1996, and the Bridge Loan bears interest at the
Bank One Texas Base Rate plus two and one half percent.
4. SHAREHOLDER'S EQUITY
COMMON STOCK
At the Company's annual meeting of shareholders on July 11, 1996,
the shareholders approved an amendment to convert each share of $4.00
Senior Preferred Stock (the "Senior Preferred") outstanding to
6
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
(UNAUDITED)
nine (9) shares of Common Stock, thus eliminating the Senior Preferred
stock. The shareholders also approved an amendment to the Certificate of
Incorporation that increased the authorized Common Stock to 100 million
shares. In June 1996 the Company completed a private sale of approximately
1.08 million restricted shares of Common Stock at an average price of $.34
per share. As a result, the total outstanding shares of Common Stock were
increased to 41,996,744 at July 31, 1996.
There is no material impact on Earnings Per Share as a result of the
conversion of the Senior Preferred stock
5. ACQUISITION ACTIVITIES
Effective January 1, 1996, the Company acquired the Common Stock of
Fremont Energy Corporation ("Fremont"), an Oklahoma-based oil and gas
company, for $7 million paid in cash and 3.3 million shares of Common Stock
of the Company. Fremont has 131 wells located predominately in central
Oklahoma and Kansas concentrated in three major fields. Fremont's estimated
net proved reserves at December 31, 1995, totaled approximately 13.4
billion cubic feet equivalent ("BCFE").
The pro forma affect of the Fremont acquisition would not have had a
material impact on the results of operations for the six months ended June
30, 1996. The pro forma impact of the Fremont acquisition, the 1995 Cosden
acquisition, and the December 1995 sale of N.W. Arapahoe, assuming the
transactions had occurred at January 1, 1995, would have been as follows
for the six month ended June 30, 1995.
June 30, 1995
-------------
Revenues $ 2,856,000
Net Loss $ (267,000)
Net Loss applicable to Common Share Holders $ (660,000)
Net Loss per share $ (.03)
The Company acquired on August 16, 1996, a majority interest in
sixteen gas wells in the Texan Gardens Field, located in Hidalgo County,
Texas. The field, situated in the heart of the Vicksburg Trend of the Texas
Gulf Coast region, produces gas from multiple sands between depths of 7,700
feet to 9,400 feet. The Company's average working interest in these
properties will approximate 58%, with a net revenue interest of
approximately 40%. Based on a March 1, 1996 effective date, the company
estimates that proved reserves associated with this $1.9 million
acquisition total 4.4 BCFE, of which seventy percent are behind pipe.
The Company acquired on August 19, 1996, a majority interest in 22
producing wells on the McLemore-Drummonds Ranch and the Sloan X's Ranch in
Shackelford, Stephens, Throckmorton, and Haskell Counties of Central Texas
(The "Throckmorton" acquisition). Production in this acreage is
predominantly from the Mississippian at approximately 4,800 feet and the
Caddo at approximately 2,800 feet. Amerac's working interest in the
McLemore-Drummonds Ranch and the Sloan X's Ranch will approximate 76% and
82%, respectively. The net revenue interests in the two ranches will be 57%
and 65%, respectively. Based on a June 1, 1996 effective date, the company
estimates that proved reserves associated with this $1.1 million
acquisition are estimated to total 224,700 barrels of oil equivalent
("BOE"), of which one hundred percent are producing.
The Company also agreed in July 1996 to acquire a producing lease on
the east flank of the Cosden Field for approximately $190,000 (The "Cosden"
acquisition). Based on a July 1, 1996 effective date the Company estimates
the proved reserves associated with this acquisition total 679 MMCFE. In
addition to the production associated with a deep well on this new lease,
the leasehold interests that come with the acquisition include rights to a
behind pipe zone in a currently inactive well already owned by the Company.
After closing this new acquisition, the Company intends to recomplete this
inactive well in the behind pipe zone. Closing is scheduled for August
1996, however, there is no assurance that this acquisition will close.
All acquisitions are accounted for under purchase accounting and the
results of their operations will be consolidated from the date of the
respective consummation.
7
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
(UNAUDITED)
6. CONTINGENCIES
The Shurly Ranch Properties were the subject of litigation related
to the proper settlement of take-or-pay monies received by the Company from
El Paso Natural Gas Company ("El Paso"). The lower courts ruled in favor of
the Company, but this decision was appealed by El Paso to the Texas Supreme
Court. The Texas Supreme Court denied the appeal on December 9, 1993;
however, El Paso had 30 days to request a rehearing on the issue, which they
did not do. Therefore, on January 8, 1994, the aforementioned litigation was
finalized. The Company is obligated under the settlement agreement to allow
El Paso to recover the prepayment by delivering 65% of the monthly gas
production volumes at an imputed price of $3.25 per MMBTU through February
1997. Beginning in March 1997, the Company has the option of 1) continuing
to deliver gas until it is unable to meet the minimum delivery requirement
or 2) pay the remaining unrecovered balance, not to exceed $360,000. Due to
the uncertainty of El Paso's gas requirements, the Company has reviewed, in
conjunction with the annual year end reserve analysis prepared by an
independent petroleum engineering firm, the current economic reserve life
and production capabilities of the properties to determine their ability to
deliver the volumes necessary to satisfy the remaining prepayment. The
Company believes that its current contract obligation of $565,000 is
sufficient to cover any remaining obligation under the settlement agreement
at June 30, 1996. The Company has classified the maximum unrecovered balance
of $360,000 as a current obligation as of June 30, 1996.
The Company is subject to various contingencies which arise
primarily from interpretation of federal and state laws, and regulations
affecting the oil and gas industry. Such contingencies include differing
interpretations as to the prices at which oil and gas sales may be made, the
prices at which royalty owners may be paid for production from their leases
and other matters. Although management believes it has complied with the
various laws and regulations, administrative rulings and interpretations
thereof, adjustment could be required as new interpretations and regulations
are issued. In addition, production rates, marketing and environmental
matters are subject to regulation by various federal and state agencies.
8
<PAGE>
AMERAC ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STRATEGY
The Company focuses on acquisitions where a substantial portion of
the value is in proved developed producing reserves which are currently
generating cash flow. Management is relatively impartial as to the
acquisition of gas versus oil. Although management would prefer
operatorship of the properties, the Company does not pass up any
opportunities for that reason. At this point, the Company has not
restricted itself to seeking acquisitions in specific geographical regions.
Along with the acquisition of properties, the Company looks for
ways to exploit existing and acquired reserves by increasing production
rates, accelerating reserve recoveries and, improving and extending the
economic viability of the properties. Exploitation activities may include
workovers, recompletions, new stimulation technology, development drilling,
horizontal drilling, pressure maintenance projects, and other methods of
enhanced recovery. Although the Company does not participate in rank
exploration, it may participate in exploratory drilling on leases associated
with existing or acquired producing properties.
While the Company is actively pursuing these avenues, there can be
no assurance that it will have successful results in its acquisition,
development, exploitation and exploration efforts. There is a tremendous
amount of competition in the industry and the prices paid for in-place
reserves make it difficult to achieve attractive rates of return.
ACQUISITION ACTIVITIES
The Company has closed three acquisitions in 1996 and one
acquisition is pending. See note 5.
DEVELOPMENT ACTIVITIES
During the first half of 1996 the Company drilled six Company-
operated development wells and also participated in the installation of two
five-well pilot patterns in the Company's Sacatosa Waterflood Project. Five
of the development wells were in West Central Texas and one was in Oklahoma.
The Texas wells include three in the North Blackwell Field and two wells in
the Truby Field. The Oklahoma well is in the Alamo South Field. All six
development wells and the ten wells in Sacatosa (six new wells plus four re-
entries) were on properties acquired by the Company since October 1994.
These wells represent the initial phase of the Company's continuing strategy
of enhancing its acquisitions through exploitation.
The South Timbalier Block 198 Field is located in Federal waters
offshore Louisiana in the Gulf of Mexico. Amerac has a working interest of
23.1% and a net revenue interest of 19.2% in this field. During the third
quarter of 1995, the A-3 and A-5 wells were successfully recompleted. Since
its recompletion, the A-3 well has produced at a sustained rate of 18 MMCF
plus 450 BBL of condensate per day. The A-5 well, which produced at a rate
of 1.5 MMCF per day following the recompletion, has produced at a rate of
3.1 MMCF per day since being put on compression in June 1996. These wells
are the only current producers on the platform. An unsuccessful
recompletion was attempted in July 1996 in the currently inactive A-2 well,
which watered out in the first quarter of 1996 after producing at an average
rate of 1.4 MMCF per day for the quarter.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 compared with Six Months Ended June 30, 1996
Oil and gas revenues increased from $1.8 million in the first six
months of 1995 to $4.8 million during the comparable period in 1996 as a
result of an increase in oil and gas production and prices. Gas production
for the six months increased from approximately 3.3 Mmcf per day in the
first six months of 1995 to approximately 6.8 Mmcf per day for the
comparable period in 1996, oil production increased from approximately 312
barrels per day to 500 barrels per day, respectively, primarily as a result
of the acquisitions. The average prices received for production increased
for oil from $16.75 per Bbl during the first
9
<PAGE>
AMERAC ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS --(CONTINUED)
six months of 1995 to $19.47 per Bbl during the comparable period in 1996
and gas prices increased from an average of $1.61 per Mcf for the first six
months of 1995 production to an average of $2.35 per Mcf for the first six
months of 1996 production.
Lease operating expenses increased from $531,000 in the first six
months of 1995 to $980,000 for the comparable period in 1996 as a result of
the additional wells added through the acquisitions and development
drilling. Depreciation and amortization expense also increased from
$525,000 during the first six months of 1995 to $994,000 for the comparable
period in 1996 as a result of an increase in asset growth from acquisition
and production, and a decline in gas reserves from the Company's offshore
properties.
Administrative expenses increased from $731,000 for the first six
months of 1995 to $1.1 million for the comparable period in 1996 due to the
acquisition activities and related increases in overhead.
Interest expense increased from $102,000 in the first six months
of 1995 to $417,000 for the comparable period in 1996 as a result of the
incurrance of additional bank indebtedness to fund acquisitions and
development drilling.
Three Months Ended June 30, 1995 compared with Three Months Ended June 30,
1996
Oil and gas revenues increased from $1 million in the second
quarter of 1995 to $2.6 million during the comparable period in 1996 as a
result of an increase in oil and gas production and prices. Gas production
for the three months increased from approximately 3.8 Mmcf per day in the
second quarter of 1995 to approximately 6.9 Mmcf per day for the comparable
period in 1996, oil production increased from approximately 295 barrels per
day to 575 barrels per day, respectively, primarily as a result of the
acquisitions. The average prices received for production increased for oil
from $17.99 per Bbl during the second quarter of 1995 to $20.67 per Bbl
during the comparable period in 1996 and gas prices increased from an
average of $1.50 per Mcf for the second quarter of 1995 production to an
average of $2.25 per Mcf for the second quarter of 1996 production.
Lease operating expenses increased from $331,000 in the second
quarter of 1995 to $500,000 in the comparable period in 1996 as a result of
the additional wells added through the acquisitions and development
drilling. Depreciation and amortization expense also increased from
$250,000 during the second quarter of 1995 to $479,000 for the comparable
period in 1996 as a result of an increase in asset growth from acquisition
and production, and a decline in gas reserves from the Company's offshore
properties.
Administrative expenses increased from $386,000 for the second
quarter of 1995 to $699,000 for the comparable period in 1996 due to the
acquisiton activities and related increases in overhead.
Interest expense increased from $47,000 in the second quarter of
1995 to $217,000 for the comparable period in 1996 as a result of the
incurrance of additional bank indebtedness to fund acquisitions and
development drilling.
LIQUIDITY AND CAPITAL RESOURCES
The Company has improved its overall financial condition in the
last three years through restructuring its equity and its financing
capabilities with its bank. The Company however, must continually seek
additional sources of financing in order to support its acquisition and
exploitation activities. The Company, as a result of its acquisition
activities, has improved the overall reserve-to-production ratio of its
properties from 2.8 years to 6.9 years at June 30, 1996. The Company
financed these acquisitions, including the Fremont acquisition, through the
use of working capital, bank borrowings and equity. The Company has
financed the acquisition of Texan Gardens and Throckmorton and expects to
finance the acquisition of Cosden
10
<PAGE>
AMERAC ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS --(CONTINUED)
with increased bank borrowings based on increase in its the enhanced reserve
base resulting from such acquisitions and the Bridge Loan. The Company
currently plans to utilize internally generated cash flows and bank
financing to support future acquisitions together with other types of
financing, which may be more expensive, such as mezzanine, production
payments and additional equity financing. However, there is no assurance
that the Company will be successful in obtaining such additional financing.
In June 1996 the Company completed a private sale of approximately 1.08
million restricted shares of Common Stock at an average price of $.34 per
share. At August 1, 1996, the Company has essentially fully utilized its
bank financing capabilities and, therefore, future bank borrowings will be
limited by its additions to its borrowing base and Bridge Loan. The Company
has revised its Bank Credit Agreement (see note 3).
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets for the Long-Lived Assets to be Disposed Of"
("SFAS 121"), which is effective for fiscal years beginning after December
15, 1995. Effective January 1, 1996, the Company adopted SFAS 121 which
requires that long-lived assets (i.e., property, plant and equipment) held
and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the net book value of the asset may not be
recoverable. The Company did not have a material impact upon adoption of
SFAS 121 in the first quarter of 1996.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 6 - The Consolidated Financial Statements.
ITEM 6. REPORTS ON FORM 8-K DURING THE SECOND QUARTER OF 1996
None
EXHIBITS
--------
10-(12) Agreement with Bentley Securities Corporation dated May 17, 1996,
relating to the private placement of preferred stock.
12
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
AMERAC ENERGY CORPORATION
(Registrant)
By: /s/ JEFFREY L. STEVENS
-----------------------------------------
Jeffrey L. Stevens
Senior Vice President and Chief Financial
Officer
Date: August 19, 1996
13
<PAGE>
EXHIBIT 10.12
BENTLEY SECURITIES CORPORATION
885 Third Avenue
24th Floor
New York, New York 10022
__________
Tel: 212-848-1040
Fax: 212-826-2390
May 17, 1996
Amerac Energy Corporation
700 Louisiana, Suite 3330
Houston, Texas 77002
ATTN: Mr. Jeffrey B. Robinson
President
Chief Executive Officer
Gentlemen:
Bentley Securities Corporation ("Bentley") in conjunction with Nicoletti
& Company Inc. is pleased to assist Amerac Energy Corporation ("Amerac" or the
"Company) in raising Equity Financing through a best efforts private placement.
This letter (the "Agreement") is to confirm our mutual understanding with
respect to this engagement.
I. Proposed Transaction Amerac desires to raise new long-term capital
--------------------
for refinancing, acquisitions and capital expenditures.
II. Services to be Provided. Bentley will provide the following financial
-----------------------
advisory services on behalf of the Company, as the Company may request:
A. Appropriate review and analysis of Amerac's operations, capital
structure, financial information (historical and projected) and business
plan;
B. Appropriate assistance in the preparation of a Private Placement
Memorandum of the Company (the "Financing Memorandum"), including
structuring the proposed financing as may be appropriate;
C. Identifying and contacting appropriate potential institutional and
other "accredited investors," as defined in Regulation D under the
Securities Act of 1933, as amended (the "Investors") and assisting the
Company in the negotiation of appropriate financing arrangements;
Member of the National Association of Securities Dealers (N.A.S.D)
<PAGE>
D. Other appropriate financial advisory assistance to the Company as may
pertain to this Agreement (including advice with regard to its
existing Senior Preferred Stock) and as may be mutually agreed upon
by the Company and Bentley. Any services outside the scope of this
Agreement shall be covered by a separate engagement letter.
III. Definitions. For the purposes of this Agreement:
-----------
A. Equity Financing shall mean the raising of funds by the Company
through the issuance of common stock, preferred stock, and/or other
securities convertible, exchangeable or exercisable into common
stock. No fees, however, will be paid in connection with common stock
sold by the Company to any party or an affiliate of any party who
participated as a purchaser in the purchase of the Company's common
stock from Investment Limited Partnership or the purchase of the
Company's $4.00 Senior Preferred Stock from Snyder Oil Corporation.
B. Financing shall include the availability or commitment of funds
which can be drawn down immediately or otherwise as agreed to by the
Company, whether or not such funds are taken down by the Company. The
Financing Fee shall apply to any or all Financing, whether taken down
or not.
C. The Financing Fee is due and payable pro rata upon the takedown of
--- ----
any portion of the Financing committed pursuant to the terms of any
Financing. The entire balance of the Financing Fee is due at the time
of the final takedown.
IV. Exclusive Financial Advisor. During the Term of this Agreement, Bentley
---------------------------
will serve as exclusive financial advisor to, and private placement
agent, on a best efforts basis for, Amerac in order to identify and help
secure Equity Financing for the Company. During the Term of this
Agreement, any Equity Financing (as defined in Section III above) of the
Company, whether arranged by Bentley or otherwise, shall be considered
as a Equity Financing as to which the Company shall be subject to the
Financing Fees due to Bentley, as provided for below in Section V.
V. Professional Fees. The Company will pay Bentley for its services under
-----------------
this Agreement as provided for below:
A. A non-refundable financial advisory fee for services rendered of
50,000 shares of Amerac Common Stock payable to Bentley or its
designee upon execution of this Agreement.
B. A non-refundable financial advisory fee of $5,000 per month,
payable in Amerac common stock to Bentley or its designee. The
number of shares to be paid in connection with each month's fee
shall be determined by dividing the average of the closing common
stock bid price for each trading day of the month to which the
payment relates into $5,000. For purposes of this Section V.(B.), a
month will begin
<PAGE>
on the date that Amerac requests that Bentley begin work on the
Equity Financing and end one day earlier in the following month.
C. Contingent upon the closing(s) of a Equity Financing, a contingent
fee (the "Financing Fee") in an amount equal to six percent (6%) of
the aggregate dollar amount of all Equity Financing raised.
D. In connection with any Equity Financing provided by Cardinal
Investment Company, Inc. or its principals, Bentley's contingent fee
described in Section V.(C.) above will be three percent (3%). In
connection with certain other Investors, Bentley may, upon the
Company's request, reduce its contingent fee to three percent (3%),
or remit up to one-half of its six percent (6%) contingent fee to
another securities firm.
E. Nicoletti & Company Inc. agrees that simultaneous with closing of an
Equity Financing it will directly, or through an affiliate, purchase
securities identical to those sold to Investors at any such closing.
The dollar amount of such purchase shall equal one-half of the
Equity Financing Fee paid by Amerac to Bentley (less any fee which
Bentley remits to another securities firm) at any given closing.
VI. Non Equity Financing. Should an Investor(s) with whom Bentley holds
--------------------
discussions concerning an Equity Financing provide funds to the Company
in other than an Equity Financing, Bentley and the Company will agree as
to what Financing Fees, if any, are due Bentley in connection with such
non-Equity Financing. In reaching such agreement Bentley and the Company
will consider, among other things, (1) whether or not the Investor was
introduced to Amerac by Bentley, (2) the nature and term of the non-
Equity Financing, and (3) Bentley's role in negotiating the terms of the
Non-Equity Financing. It is understood, however, that the maximum
Financing Fee requested by Bentley under this Section VI will be no
greater than three percent (3%) of the aggregate dollar amount of non-
Equity Financing provided by an Investor(s) with whom Bentley holds
discussions concerning an Equity Financing. Nicoletti & Company Inc.
will not be obligated to purchase securities associated with such non-
Equity Financing(s).
VII. Expenses. In addition to any fees that may be payable to Bentley under
--------
this Agreement and regardless of the result of any of Bentley's efforts,
the Company agrees to reimburse Bentley and/or Nicoletti & Company Inc.
from time to time, upon request, for their reasonable out-of-pocket
expenses associated with their activities contemplated under this
Agreement.
VIII. Use of Information The Company will furnish Bentley with such
------------------
information as Bentley reasonably believes appropriate to this
assignment (and may, in its sole discretion, approve other information
provided by Bentley) (all such information so furnished and/or approved
by the Company being hereinafter referred to as the "Information"). The
Company recognizes and confirms that Bentley (I) will use and rely
primarily on the Information and on information available from generally
recognized public sources in performing the services, and in rendering
any advice contemplated by this Agreement without having independently
verified the same, (ii) does not assume responsibility for the accuracy
or completeness of the Information and
<PAGE>
such other information, and (iii) will not make an appraisal of any
assets of the Company or any party to a transaction with the Company. To
the best of the Company's knowledge, the Information to be furnished by
the Company, when delivered, will be true and correct in all material
respects, and will not contain any material misstatement of fact or omit
to state any material fact necessary to make the statements contained
therein not misleading. The Company will promptly notify Bentley if it
learns of any material inaccuracy or misstatement in, or material
omission from, any Information delivered to Bentley.
IX. Indemnification. It is understood that Bentley is being engaged
---------------
hereunder solely to provide the services described above to the Company
as an independent contractor, and that Bentley is not acting as an agent
or fiduciary of, and shall have no liability to, any party in connection
with its use of any Information. In addition, it is customary for
Bentley and Nicoletti & Company Inc. and their related persons to be
indemnified as provided in Annex A hereto, and the Company hereby so
indemnifies Bentley, Nicoletti & Company Inc. and their related persons
in accordance with the terms of Annex A, which is incorporated herein by
reference.
X. Term.
----
A. This Agreement shall terminate the earlier of completion of the
Equity Financing or six months from the date that Amerac requests that
Bentley begin work on the Equity Financing, unless extended by both
parties in writing. Following the termination of this Agreement, Bentley
will identify in writing to the Company the names of all Investors.
Financing Fees will be due if at any time during an additional eighteen
months after this Agreement is terminated ("Additional Term") Investors
commit to provide Financing to the company.
B. The provisions of this Agreement relating to the payment of fees
and expenses and indemnification will survive any termination of this
Agreement, subject to the following provisions: (I) with regard to the
payment of fees, subject to the provisions noted in Section V above and
in this Section X, (ii) with regard to the payment of expenses noted in
Section VII, only to the extent that the expenses relate to Bentley
activities which occur before this Agreement is terminated or, if during
the Additional Term, only to the extent that the Bentley activities
relate to Investors, or (iii) with regard to indemnification, subject to
the provisions stated in Annex A.
XI. General Provisions. This Agreement may not be amended or modified
------------------
except in writing signed by both parties. This Agreement shall be
governed by and construed in accordance with the laws of the State of
New York, without regard to principles of conflicts of laws. This
Agreement will be binding on and inure to the benefit of the Company,
Bentley, each Indemnified Party and their successors and assigns.
XII. Advertising. The Company acknowledges that, upon conclusion of the
-----------
Financing, Bentley may place at Bentley's own expense, an
announcement(s) in such newspapers and periodicals as Bentley may
choose, stating that Bentley has acted as exclusive financial advisor to
the Company regarding the Financing.
XIII. Company's Authority. Bentley will have no authority under this
-------------------
Agreement to bind the Company in any way to any other party. In
addition, nothing contained in this Agreement will require the Company
to accept the terms of any proposal.
<PAGE>
Please confirm that the foregoing correctly sets forth our Agreement by
signing and dating the enclosed duplicate of this letter Agreement in the space
provided and returning it, whereupon this letter Agreement shall constitute a
binding agreement as of the date of countersignature.
Sincerely,
BENTLEY SECURITIES CORPORATION
By: /s/ William P. Nicoletti
__________________________________
William P. Nicoletti
Senior Advisor
Investment Banking
NICOLETTI & COMPANY INC.
By: /s/ William P. Nicoletti
----------------------------------
William P. Nicoletti
Managing Director
ACCEPTED AND AGREED:
AMERAC ENERGY CORPORATION
By: /s/ Jeffrey B. Robinson
_________________________
Jeffrey B. Robinson
Chief Executive Officer
Date: 5/17/96
<PAGE>
Amerac Energy Corporation
700 Louisiana, Suite 3330
Houston, Texas 77002
INDEMNIFICATION AGREEMENT
-------------------------
May 17, 1996
Bentley Securities Corporation
885 Third Avenue, 24th Floor
New York, NY 10022
Gentlemen:
Amerac Energy Corporation (referred to herein as the "Company") hereby agrees
to indemnify and hold harmless Bentley Associates L.P. and Bentley Securities
Corporation ("Bentley"), Nicoletti & Company Inc., William P. Nicoletti, Oliver
D. Cromwell, and any directors, officers, agents, advisors and employees of
Bentley, (all of the foregoing being referred to herein individually as
"Indemnified Party" or collectively as "Indemnified Parties") from and against
any losses, claims, damages or liabilities, joint or several, (or actions in
respect thereof) to which such Indemnified Party may become subject related to
or arising out of (I) any Company transaction in which Bentley has become
involved or the engagement of Bentley under the letter Agreement to which this
is annexed or (ii) any Indemnified Party's activities in connection therewith,
and will reimburse each Indemnified Party for all expenses (including counsel
fees and expenses) as they are incurred by each Indemnified Party in connection
with investigating, preparing or defending any such action or claim, whether or
not in connection with pending or threatened litigation in which such
Indemnified Party is a party. The Company will not, however, be responsible
under the foregoing indemnification for any losses, claims, damages, liabilities
or expenses to the extent that it is finally judicially determined that the
losses,
<PAGE>
claims, damages, liabilities or expenses resulted primarily from Bentley or any
Indemnified Party's bad faith, willful malfeasance or gross negligence. The
Company also agrees that no Indemnified Party shall have any liability (whether
direct or indirect, in contract or tort or otherwise) to the Company or the
Company's shareholders for or in connection with such engagement except for any
such liability for losses, claims, damages, liabilities or expenses incurred by
the Company or the Company's shareholders to the extent that it is finally
judicially determined that the losses, claims, damages, liabilities or expenses
resulted primarily from Bentley's or any Indemnified Party's bad faith, willful
malfeasance or gross negligence; provided, however, that in no event shall the
aggregate amount of any and/or all liabilities of the Indemnified Parties to the
Company exceed the fees paid or payable to Bentley with respect to the
engagement of Bentley under the letter Agreement to which this is annexed.
The Company and the Indemnified Parties agree that if any indemnification or
reimbursement sought pursuant to the preceding paragraph is finally determined
to be unavailable (except with respect to indemnification unavailable for the
reasons specified in the preceding paragraph), then (whether or not any
Indemnified Party is the person entitled to Indemnification or reimbursement)
the Company and the Indemnified Parties shall contribute to the losses, claims,
liabilities, damages and expenses for which such indemnification or
reimbursement is held unavailable in such proportion as is appropriate to
reflect the relative benefits to the Company, on the one hand, and the
Indemnified Parties on the other, in connection with the transaction
contemplated herein, subject to the limitation that in any event the Indemnified
Parties' aggregate contribution to all losses, claims, liabilities, damages and
expenses with respect to which contribution is available hereunder shall not
exceed the amount of fees actually received by the Indemnified Parties
hereunder. It is hereby agreed that the relative benefits to the Company, on
the one hand, and the Indemnified Parties, on the other, with respect to any
transaction or proposed transaction contemplated herein shall be deemed to be in
the same proportion as (I) the total value of the transaction contemplated
herein, less all payments made by Company for which Indemnity is due hereunder,
bears to (ii) the fee paid to the Indemnified Parties with respect to such
transaction.
The rights accorded to Indemnified Parties hereunder shall be in addition to
any rights that any Indemnified Party may have at common law, by separate
agreement or otherwise.
This agreement shall be governed by and construed in accordance with the laws
of the State of New York applicable to agreements made and to be performed
entirely in such State. Both parties hereby consent, solely for the purpose of
allowing an indemnified party to enforce its rights hereunder, to personal
jurisdiction and service and venue in any court in which any claim for which
indemnification may be sought hereunder is brought against any other indemnified
party.
This agreement may not be amended or otherwise modified except by an
instrument signed by both Bentley and the Company. If any provision hereof
shall be determined to be invalid or unenforceable in any respect, such
determination shall not affect such provision in any other respect or any other
provision of this agreement, which shall remain in full force and effect. If
there is more than one indemnitor hereunder, each indemnifying person agrees
that its liabilities hereunder shall be joint and several.
<PAGE>
The foregoing indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of any Indemnified Party and shall
survive the completion or any termination of the services contemplated in the
letter Agreement to which this is annexed, and shall survive any termination of
the letter Agreement to which this is annexed.
Very truly yours,
AMERAC ENERGY CORPORATION
By: /s/ Jeffrey B. Robinson
____________________________
Mr. Jeffrey B. Robinson
President, Chief Executive Officer
Acknowledged and Agreed to:
BENTLEY SECURITIES CORPORATION
By: /s/ William P. Nicoletti
___________________________
William P. Nicoletti
Senior Advisor
Investment Banking
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