<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-KA
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 25, 1997
-------------------
MEXCO ENERGY CORPORATION
------------------------
(Exact name of registrant as specified in charter)
Colorado 0-6694 84-0627918
- - ---------------------------- ---------------- -------------------
(State or other jurisdiction (Commission No.) (IRS Employer
of incorporation Identification No.)
214 W. Texas, Suite 1101, Midland, Texas 79701
- - ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (915) 682-1119
----------------
<PAGE>
MEXCO ENERGY CORPORATION
Index
ITEM 2. ACQUISITION.................................................. 3
ITEM 7.(b) PRO FORMA COMBINED FINANCIAL STATEMENTS...................... 4
Pro Forma Combined Balance Sheet as of December 31, 1996..... 5
Pro Forma Combined Statement of Operations for the year
ended March 31, 1996....................................... 6
Pro Forma Combined Statement of Operations for the nine
months ended December 31, 1996............................. 7
Notes to Pro Forma Financial Statements...................... 8
2
<PAGE>
ITEM 2. ACQUISITION
-----------
(a) On February 25, 1997 the Registrant purchased all of the issued and
outstanding 90 shares of common stock of Forman Energy Corporation, a New York
corporation, for cash in the amount of $1,397,000. The value of the stock was
based on the Estimated Fair Market Value Opinion provided by the engineering
firm of T. Scott Hickman & Associates, Inc. of Midland, Texas. Virtually all of
the assets of Forman Energy Corporation consist of oil and gas properties
located in the United States. Funding for the acquisition has been provided by
NationsBank of Texas through a revolving line of credit in the amount of
$1,750,000 collateralized by a deed of trust covering substantially all of the
Registrant's properties and pledge of the stock of Forman Energy Corporation.
(b) Assets of the acquired company include partial interests in lease and
well equipment associated with various working interests in producing oil and
gas properties and interests of approximately 1% to 3% in numerous oil and gas
partnerships. These assets will continue to be used in the same manner.
3
<PAGE>
ITEM 7. (b) PRO FORMA COMBINED FINANCIAL STATEMENTS - UNAUDITED
- - ---------------------------------------------------------------
The following unaudited pro forma financial statements have been prepared
to give effect to the Company's historical financial statements of the
acquisition of Forman Energy Corporation ("Forman") as if the transaction had
been consummated on the balance sheet date for the pro forma combined balance
sheet and at the beginning of the earliest period presented in the pro forma
combined statements of operations. The unaudited pro forma combined financial
statements are not necessarily indicative of the financial results that would
have ocurred if the Company had purchased Forman at the times indicated. In
addition, future results may vary significantly from the results reflected in
the accompanying pro forma combined financial statements because of normal
declines, changes in product prices, and the success of future exploration and
development activities, among other factors.
4
<PAGE>
MEXCO ENERGY CORPORATION
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
December 31, 1996
ASSETS
------
<TABLE>
<CAPTION>
Historical
------------------------- Pro Forma Pro Forma
Mexco Forman Adjustments Combined
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 148,870 $ 362,395 $(362,395) /(b)/ $ 148,870
Accounts receivable 143,040 22,238 (22,238) /(b)/ 143,040
Prepaid assets 450 - 450
----------- ---------- ----------
Total current assets 292,360 384,633 292,360
PROPERTY AND EQUIPMENT
Oil and gas properties-accounted for
under the full cost method 5,802,657 280,705 182,251 /(a)/ 6,265,613
Office furniture and fixtures 2,431 - 2,431
----------- ---------- -----------
5,805,088 280,705 6,268,044
Less accumulated depreciation,
depletion and amortization (2,817,950) (61,850) (2,879,800)
----------- ---------- -----------
Net property and equipment 2,987,138 218,855 3,388,244
INVESTMENTS IN OIL & GAS
PARTNERSHIPS - 844,393 358,924 /(a)/ 1,203,317
OTHER ASSETS - 5,044 (5,044) /(b)/ -
----------- ---------- -----------
TOTAL ASSETS $ 3,279,498 $1,452,925 $ 4,883,921
=========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable-trade $ 372,977 $ 29,294 $ 27,550 /(a)/ $ 400,527
(29,294) /(b)/
Income taxes payable 5,972 - 5,972
----------- ---------- -----------
Total current liabilities 378,949 29,294 406,499
LONG TERM LIABILITIES
Note payable-Nationsbank - - 1,397,000 /(a)/ 1,397,000
DEFERRED INCOME TAXES 94,851 - 179,873 /(d)/ 274,724
----------- ---------- -----------
Total liabilities 473,800 29,294 2,078,223
STOCKHOLDERS' EQUITY
Common Stock 711,614 100 (100) /(b)/ 711,614
Paid in capital 1,975,429 599,921 (599,921) /(b)/ 1,975,429
Retained earnings 118,655 823,610 (823,610) /(b)/ 118,655
---------- ---------- -----------
Total stockholders' equity 2,805,698 1,423,631 2,805,698
---------- ---------- -----------
TOTAL LIABILITIES & EQUITY $3,279,498 $1,452,925 $ 4,883,921
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
MEXCO ENERGY CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For The Years Ended
<TABLE>
<CAPTION>
Historical
------------------------
Mexco Forman
---------- ----------- Pro Forma Pro Forma
3-31-96 12-31-95 Adjustments Combined
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues
Gross revenues from oil and gas production $ 798,589 $ 41,557 $ 840,146
Production costs 272,892 9,173 282,065
---------- -------- ----------
Net revenues from oil and gas production 525,697 32,384 558,081
Distribution from oil and gas partnerships - 268,521 268,521
Administrative service charges and
reimbursements 7,380 - 7,380
---------- -------- ----------
533,077 300,905 833,982
Costs and expenses
Depreciation, depletion and amortization 262,392 23,377 285,739
Depletion and impairment of oil and gas
partnerships - 342,135 342,135
General and administrative 86,484 12,918 99,402
Loss on sale of assets - 222 222
Other income (10,819) - (10,819)
Interest income (17,285) (7,761) (25,046)
Interest expense - - 115,253 /(c)/ 115,253
---------- -------- ----------
320,772 370,891 806,886
Income (loss) before income tax expense 212,305 (69,986) 27,096
Income tax expense 11,699 - (8,989) /(e)/ 2,710
---------- -------- ----------
NET INCOME (LOSS) $ 200,606 $(69,986) $ 24,386
========== ======== ==========
Net income per share $.15 $.02
========== ==========
Weighted average common shares outstanding 1,342,628 1,342,628
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
MEXCO ENERGY CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For The Nine Months Ended December 31, 1996
<TABLE>
<CAPTION>
Historical
------------------------ Pro Forma Pro Forma
Mexco Forman Adjustments Combined
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Gross revenues from oil and gas production $ 888,866 $ 71,737 $ 960,603
Production costs 238,782 14,932 253,714
---------- -------- ----------
Net revenues from oil and gas production 650,084 56,805 706,889
Distribution from oil and gas partnerships - 268,835 268,835
Administrative service charges and
reimbursements 3,757 - 3,757
---------- -------- ----------
653,841 325,640 979,481
Costs and expenses
Depreciation, depletion and amortization 246,633 26,352 272,985
Depletion of oil and gas partnerships - 213,743 213,743
General and administrative 85,813 22,301 108,114
Other income (607) - (607)
Interest income (6,060) (5,302) (11,362)
Interest expense - - 86,439 /(c)/ 86,439
---------- -------- ----------
325,779 257,094 669,312
---------- -------- ----------
Income before income tax expense 328,062 68,546 310,169
Income tax expense 67,509 - (2,374) /(e)/ 65,135
---------- -------- ----------
NET INCOME $ 260,553 $ 68,546 $ 245,034
========== ======== ==========
Net income per share $.18 $.17
========== ==========
Weighted average common shares outstanding 1,423,229 1,423,229
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
MEXCO ENERGY CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
On February 25, 1997, Mexco Energy Corporation (the "Registrant"), purchased
the stock of Forman Energy Corporation ("Forman") for the sum of $1,397,000.
Forman was previously a sub-chapter "S" corporation and as a result of the
purchase Mexco has assumed a deferred tax liability of $179,873. The
accompanying pro forma combined balance sheet has been presented as if the
purchase of Forman ocurred on December 31, 1996 and the accompanying pro forma
combined statements of operations for the year ended March 31, 1996 and the nine
months ended December 31, 1996 have been prepared as if the purchase of Forman
was consummated at the beginning of the periods presented.
NOTE B - PRO FORMA ADJUSTMENTS
Pro forma adjustments are necessary to reflect the balance sheet and
statements of operations of the Registrant assuming the purchase of Forman was
consummated at the beginning of the periods presented. The accompanying pro
forma balance sheet and statements of operations reflect the following
adjustments:
(a) To record the purchase of Forman Energy Corporation for $1,397,000 plus
closing adjustments of $27,550 and deferred tax liability of $179,873.
(b) To eliminate acquisition equity and record shareholder distribution as of
December 31, 1996.
(c) To record interest expense on bank borrowings for the acquisition of
Forman Energy Corporation using the current interest rate of 8.25%.
(d) To record deferred tax liability.
(e) To record estimated income tax expense at consolidated effective rate.
NOTE C - The following tables contain certain oil and gas disclosures reflecting
the pro forma combined oil and gas activities. Estimates for Forman are based on
reserves for the year ended December 31, 1995.
Estimated Quantities of Proved Oil and Gas Reserves (Unaudited)
---------------------------------------------------------------
<TABLE>
<CAPTION>
Oil Gas
(Bbl) (Mcf)
------- ---------
<S> <C> <C>
Proved reserves -
Balance, March 31, 1995 214,000 1,699,000
Revision of previous estimates 11,000 29,000
Purchase of minerals in place 118,000 354,000
Extensions and discoveries 128,000 254,000
Production (30,000) (201,000)
Sales of minerals in place (1,000) (57,000)
------- ---------
Balance, March 31, 1996 440,000 2,078,000
======= =========
</TABLE>
8
<PAGE>
MEXCO ENERGY CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Future oil and gas revenues $ 13,221,000
Future production and development costs (4,917,000)
Future income tax expense (807,000)
------------
Future net cash flows 7,497,000
Discounted at 10% for estimated timing of cash flows (2,926,000)
------------
Standardized measure of discounted future net cash flows $ 4,571,000
============
</TABLE>
Changes in Standardized Measure of Discounted Future Net Cash Flows
Related to Proved Oil and Gas Reserves
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Sales and transfers of oil and gas produced, net
of production costs $ (558,000)
Net changes in prices and production costs 734,000
Extensions and discoveries, less related costs 1,063,000
Revisions of previous quantity estimates 95,000
Accretion of discount 227,000
Net change due to purchases and sales of minerals in place 1,253,000
Net change in income taxes (274,000)
Other (20,000)
----------
Net increase 2,520,000
Balance at beginning of year 2,051,000
----------
Balance at end of year $4,571,000
==========
</TABLE>
The foregoing tables do not include estimates for additional properties acquired
by the Company during the year.
9
<PAGE>
Signatures
- - ----------
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.
MEXCO ENERGY CORPORATION
(A Colorado Corporation)
/s/ Nicholas C. Taylor
---------------------------
Nicholas C. Taylor,
President and Treasurer
Date: May 8, 1997
10
<PAGE>
FORMAN ENERGY CORPORATION
Index
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................ F-2
Financial Statements of Business Acquired - Forman Energy
Corporation..................................................... F-3
Balance Sheets as of December 31, 1996 and 1995................... F-3
Statements of Operations for the years ended December 31, 1996
and 1995........................................................ F-4
Statement of Stockholders' Equity for the years ended
December 31, 1996 and 1995...................................... F-5
Statements of Cash Flows for the years ended December 31, 1996
and 1995........................................................ F-6
Notes to Financial Statements..................................... F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
Forman Energy Corporation
We have audited the accompanying balance sheets of Forman Energy Corporation, as
of December 31, 1996 and 1995, and the related 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 these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Forman Energy Corporation, as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
April 18, 1997
F-2
<PAGE>
FORMAN ENERGY CORPORATION
BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 362,395 $ 231,086
Accounts receivable 22,238 5,533
---------- ----------
Total current assets 384,633 236,619
OIL AND GAS PROPERTIES, using the full cost method of
accounting (notes B and E) 280,705 208,000
Less accumulated depreciation, depletion, and amortization 61,850 26,714
---------- ----------
218,855 181,286
INVESTMENTS IN OIL AND GAS PARTNERSHIPS 844,393 895,080
OTHER ASSETS 5,044 5,044
---------- ----------
$1,452,925 $1,318,029
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 29,294 $ -
STOCKHOLDERS' EQUITY
Common stock, Class A, no par value - authorized, 200 shares; issued
and outstanding, 9 shares at stated value of $1.11 a share 10 10
Common stock, Class B, no par value - authorized, 200 shares; issued
and outstanding, 81 shares at stated value of $1.11 a share 90 90
Additional paid-in capital 599,921 599,921
Retained earnings 823,610 718,008
---------- ----------
1,423,631 1,318,029
---------- ----------
$1,452,925 $1,318,029
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
FORMAN ENERGY CORPORATION
STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revenues
Distributions from oil and gas partnerships $367,686 $268,521
Oil and gas sales 96,871 41,557
Interest 6,603 7,761
-------- --------
471,160 317,839
Costs and expenses
Depletion and impairment of oil and gas partnerships (note C) 284,991 342,135
Depreciation, depletion, and amortization 35,136 23,377
Production 19,665 9,173
General and administrative 25,766 12,918
Loss on sale of stock - 222
-------- --------
365,558 387,825
-------- --------
NET EARNINGS (LOSS) $105,602 $(69,986)
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
FORMAN ENERGY CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common stock
--------------------------------
Class A Class B Additional Total
--------------- --------------- paid-in Retained stockholders'
Shares Amount Shares Amount capital earnings equity
------ ------ ------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 9 $10 81 $90 $599,921 $787,994 $1,388,015
Net loss - - - - - (69,986) (69,986)
--- --- --- --- -------- -------- ----------
Balance at December 31, 1995 9 10 81 90 599,921 718,008 1,318,029
Net earnings - - - - - 105,602 105,602
--- --- --- --- -------- -------- ----------
Balance at December 31, 1996 9 $10 81 $90 $599,921 $823,610 $1,423,631
=== === === === ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
FORMAN ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Distributions from oil and gas partnerships $ 367,686 $ 268,521
Cash received from oil and gas sales 78,944 38,760
Cash paid for oil and gas operating expenses (16,836) (8,989)
Cash paid for general and administrative expenses (25,766) (12,918)
Interest received 6,603 7,761
--------- ---------
Net cash provided by operating activities 410,631 293,135
Cash flows from investing activities
Oil and gas property additions (45,018) (122,104)
Payments for interests in oil and gas partnerships (234,304) (226,825)
Purchase of investments - (7,150)
Proceeds from sale of investments - 16,833
--------- ---------
Net cash used in investing activities (279,322) (339,246)
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 131,309 (46,111)
Cash and cash equivalents at beginning of year 231,086 277,197
--------- ---------
Cash and cash equivalents at end of year $ 362,395 $ 231,086
========= =========
Reconciliation of Net Earnings (Loss) to Net Cash
Provided by Operating Activities
Net earning (loss) $ 105,602 $ (69,986)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities
Depreciation, depletion, and amortization 35,136 23,377
Depletion and impairment of oil and gas
partnerships 284,991 342,135
Loss on sale of investment - 222
Increase in accounts receivable (16,705) (2,613)
Increase in accounts payable 1,607 -
--------- ---------
Net cash provided by operating activities $ 410,631 $ 293,135
========= =========
Noncash Investing and Financing Activities
</TABLE>
During 1996, the Company acquired oil and gas properties of $27,687 through
trade accounts payable.
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
FORMAN ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
The major operations of Forman Energy Corporation (the "Company") consist of
exploration, production, and sale of crude oil and natural gas in the United
States with an area of concentration in Texas.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. Investments in Oil and Gas Partnerships
---------------------------------------
Investments in oil and gas partnerships where the Company has minor partnership
interests (generally 1% to 3%) and has no influence over partnership operating
or financial policies are accounted for using the cost method. Under this
method, all capital calls are recorded as additions to the partnership
investments and partnership distributions are recognized as earnings. Since
the Company does not have estimates of reserves for the interests, these costs
are depleted using an estimated composite rate for the properties and the
investments are subject to an overall impairment test based on estimated future
cash flows of the interests.
2. Oil and Gas Properties
----------------------
The full cost method of accounting is used to account for oil and gas
properties. Under this method of accounting, all costs incident to the
acquisition, exploration, and development of properties (both developed and
undeveloped), including costs of abandoned leaseholds, lease rentals,
unproductive wells, and well drilling and equipment costs, are capitalized.
Costs are amortized using the units-of-production method. The units-of-
production method is based primarily on estimates of reserve quantities. Due
to uncertainties inherent in this estimation process, it is at least reasonably
possible that reserve quantities will be revised significantly in the near
term. If the Company's unamortized costs exceed the cost center ceiling
(defined as the sum of the present value, discounted at 10%, of estimated
unescalated future net revenues from proved reserves, less related income tax
effects), the excess is charged to expense in the year in which the excess
occurs. Generally, no gains or losses are recognized on the sale or
disposition of oil and gas properties.
3. Production Costs
----------------
Production costs include lease operating expenses and production taxes.
4. Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less and money market funds to be cash equivalents.
The Company maintains its cash in bank deposit accounts and money market funds
which, at times, may exceed insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
credit risk.
5. Use of Estimates
----------------
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates based on management's
knowledge and experience. Due to their prospective nature, actual results
could differ from those estimates.
F-7
<PAGE>
FORMAN ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
6. Income Taxes
------------
In accordance with the Company's election under Subchapter S of the Internal
Revenue Code, corporate taxable income is generally treated as passing directly
through to the stockholders and is not subject to income taxes at the corporate
level.
NOTE B - OIL AND GAS COSTS
The costs related to the oil and gas activities of the Company were incurred as
follows:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Property acquisition costs $ 11,086 $ 70,000
Development costs $ 61,619 $ 52,104
</TABLE>
The Company had the following aggregate capitalized costs relating to the
Company's oil and gas property activities at December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Proved oil and gas properties $280,705 $208,000
Less accumulated depreciation,
depletion, and amortization 61,850 26,714
-------- --------
$218,855 $181,286
======== ========
</TABLE>
NOTE C - IMPAIRMENT OF INVESTMENTS
The Company recognized an impairment loss for its investments in oil and gas
partnerships of approximately $86,000 for the year ended December 31, 1995.
The amount of impairment loss was based on the estimated discounted future cash
flows of the partnership interests.
NOTE D - SUBSEQUENT EVENT
On February 25, 1997, the Company was purchased by Mexco Energy Corporation
("Mexco") for approximately $1,397,000. In connection with the sale, the
Company became jointly liable for a revolving line of credit payable from Mexco
to a bank of $1,750,000. Interest is payable monthly at prime rate established
by the bank. The loan is collateralized by oil and gas properties of Mexco and
the Company's common stock and matures July 15, 1998.
NOTE E - OIL AND GAS RESERVE DATA (UNAUDITED)
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 69
and Securities and Exchange Commission ("SEC") rules and regulations, the
following information is presented with regard to the Company's proved oil and
gas reserves, all of which are located in the United States. Information for
oil is presented in barrels ("Bbls") and for gas in thousand cubic feet
("Mcf").
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE E - OIL AND GAS RESERVE DATA (UNAUDITED) - CONTINUED
The SEC has adopted SFAS No. 69, Accounting Guidelines for Oil and Gas
Producers. These rules require the Company to include as a supplement to the
basic financial statements a standardized measure of discounted future net cash
flows relating to proved oil and gas reserves.
The standardized measure, in management's opinion, should be examined with
caution. The basis for these disclosures is an independent petroleum
engineer's reserve study which contains imprecise estimates of quantities and
rates of production of reserves. Revision of prior year estimates can have a
significant impact on the results. Also, exploration costs in one year may
lead to significant discoveries in later years and may significantly change
previous estimates of proved reserves and their valuation. Values of unproved
properties and anticipated future price and cost increases or decreases are not
considered. Therefore, the standardized measure is not necessarily a "best
estimate" of the fair value of the Company's oil and gas properties or of
future net cash flows.
The following summaries of changes in reserves and standardized measure of
discounted future net cash flows were prepared from estimates of proved
reserves developed by independent petroleum engineers and do not include
amounts which may be attributable to the Company's cost basis investments. No
future income tax expenses were calculated as the Company is not a taxpaying
entity.
Summary of Changes in Proved Reserves (Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- --------
Bbls Mcf Bbls Mcf
------- -------- ------- --------
<S> <C> <C> <C> <C>
Proved developed and undeveloped reserves
Beginning of year 15,000 158,000 7,000 132,000
Purchase of minerals in place - - 7,000 2,000
Extensions and discoveries 6,000 1,000 2,000 37,000
Production (3,000) (20,000) (1,000) (13,000)
------ ------- ------ -------
End of year 18,000 139,000 15,000 158,000
====== ======= ====== =======
Proved developed reserves
Beginning of year 10,000 97,000 6,000 124,000
End of year 13,000 120,000 10,000 97,000
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves (Unaudited)
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
Future oil and gas revenues $1,032,000 $ 982,000
Future production and development costs (284,000) (341,000)
---------- ---------
Future net cash flows 748,000 641,000
Discounted at 10% for estimated timing of cash flows (239,000) (205,000)
---------- ---------
Standardized measure of discounted future net cash flows $ 509,000 $ 436,000
========== =========
</TABLE>
F-9
<PAGE>
FORMAN ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE E - OIL AND GAS RESERVE DATA (UNAUDITED) - CONTINUED
Changes in Standardized Measure of Discounted Future Net Cash Flows
Related to Proved Oil and Gas Reserves (Unaudited)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
--------- ----------
<S> <C> <C>
Sales and transfers of oil and gas produced, net of production costs $(77,000) $(32,000)
Extensions and discoveries, less related costs 52,000 109,000
Accretion of discount 44,000 24,000
Net change due to purchases of minerals in place - 103,000
Other 54,000 (9,000)
-------- --------
Net increase 73,000 195,000
Balance at beginning of year 436,000 241,000
-------- --------
Balance at end of year $509,000 $436,000
======== ========
</TABLE>
F-10
