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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
March 15, 1996
AMERICAN EXPLORATION COMPANY
(Exact Name of Registrant as Specified in Its Charter)
0-11871
(Commission File Number)
DELAWARE 74-2086890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1331 LAMAR, SUITE 900
HOUSTON, TEXAS 77010
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 756-6000
N/A
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OF ASSETS
On March 15, 1996, the Company, together with a subsidiary of Dominion
Resources, Inc., acquired interests in five offshore blocks in the Gulf
of Mexico from a private company for a purchase price of approximately
$56.0 million (the "March Acquisition"). American owns 25% of the
acquired interests. American's share of the purchase price was funded
through $14.0 million in borrowings under its bank credit facility.
These blocks have estimated proved reserves, net to American's acquired
interest, of 11.3 Bcf of natural gas and 600 MBbls of crude oil.
American will operate the High Island 45, East Cameron 129 and South
Marsh Island 133 blocks which together represent 97% of the total
proved reserves acquired. As of the acquisition date, the developed
properties were producing approximately 5.6 MMcf of gas and 700 Bbls of
crude oil per day, net to American's acquired interest.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements
(a) Financial Statements of Businesses Acquired
Set forth on pages 2 through 6 are the audited statements of
revenues and direct lease operating expenses of the oil and gas
property interests acquired in the March Acquisition.
(b) Pro Forma Financial Information
Set forth on pages 7 and 8 are the unaudited pro forma condensed
consolidated statements of operations (the "Pro Forma Statements")
which give effect to the March Acquisition. The Pro Forma
Statements also give effect to: (i) the sale of the Sawyer Field
in July 1995 for proceeds of $64.0 million, (ii) the 1995 sales of
interests in several other fields for approximately $2.5 million,
and (iii) the portion of the acquisition of investors' interests
in a series of institutional programs (the "APPL Consolidation")
which was completed in the first half of 1995. These three
transactions are collectively referred to as the "1995
Transactions". The Pro Forma Statements for the six months ended
June 30, 1996 and the year ended December 31, 1995 were prepared
assuming that the March Acquisition and the 1995 Transactions
occurred as of January 1, 1995. The nonrecurring $10.6 million
gain on the sale of the Sawyer Field in 1995 has been eliminated
from the Pro Forma Statements.
These Pro Forma Statements do not purport to be indicative of the
results of operations that would have been reported had each of
these transactions occurred as of the date indicated above or
that may be reported in the future.
(c) Exhibits
*10(a) Purchase and Sale Agreement, dated March 15, 1996, by
and among American Exploration Company and Dominion
Resources, Inc., collectively as buyers, and a
private company, as Seller.
*99(a) American Exploration Company and Dominion Resources,
Inc. News Release on the agreement to purchase five
offshore blocks in the Gulf of Mexico from a private
company.
*Previously filed with Form 8-K dated March 15, 1996.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
American Exploration Company:
We have audited the accompanying statements of oil and gas revenues and
direct lease operating expenses attributable to certain oil and gas properties,
acquired by American Exploration Company from Zilkha Energy Company (the Zilkha
I Properties), for each of the years in the three-year period ended December 31,
1995. These statements of oil and gas revenues and direct lease operating
expenses are the responsibility of American Exploration Company's management.
Our responsibility is to express an opinion on these statements of oil and gas
revenues and direct lease operating expenses 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 statements of oil and gas revenues and
direct lease operating expenses are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of oil and gas revenues and direct lease operating
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statements of oil and gas revenues and direct lease
operating expenses. We believe that our audits of the statements of oil and gas
revenues and direct lease operating expenses provide a reasonable basis for our
opinion.
The accompanying statements were prepared as described in note 1 for the
purpose of complying with certain rules and regulations of the Securities and
Exchange Commission (SEC) for inclusion in certain SEC regulatory reports and
filings and are not intended to be a complete financial presentation.
In our opinion, the accompanying statements of oil and gas revenues and
direct lease operating expenses present fairly, in all material respects, the
oil and gas revenues and direct lease operating expenses of the Zilkha I
Properties for each of the years in the three-year period ended December 31,
1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
September 26, 1996
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THE ZILKHA I PROPERTIES
STATEMENTS OF OIL AND GAS REVENUES AND
DIRECT LEASE OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE PERIOD
JANUARY 1, 1996 THROUGH FEBRUARY 29, 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1996 THROUGH
---------------------------- FEBRUARY 29,
1993 1994 1995 1996
---- ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Oil and gas revenues............................... $358 $1,291 $7,513 $1,964
Direct lease operating expenses.................... 35 148 662 109
---- ------ ------ ------
Oil and gas revenues in excess of direct lease
operating expenses............................... $323 $1,143 $6,851 $1,855
==== ====== ====== ======
</TABLE>
See accompanying notes to the Statements of Oil and Gas Revenues and
Direct Lease Operating Expenses.
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THE ZILKHA I PROPERTIES
NOTES TO STATEMENTS OF OIL AND GAS REVENUES AND
DIRECT LEASE OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE PERIOD JANUARY 1, 1996 THROUGH FEBRUARY 29, 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
During March 1996, American Exploration Company (the "Company") purchased
from Zilkha Energy Company ("Zilkha") 25% of Zilkha's working interest in
certain oil and gas properties (the "Zilkha I Properties") located in the Gulf
of Mexico.
The statements of oil and gas revenues and direct lease operating expenses
include only the oil and gas revenues and direct lease operating expenses
attributable to the purchased interest in the Zilkha I Properties and are not
intended to be a complete set of financial statements. Oil and gas revenues and
direct lease operating expenses included herein are not necessarily
representative of future operations.
The accompanying statements of oil and gas revenues and direct lease
operating expenses were derived from the historical accounting records. Direct
lease operating expenses include payroll, lease and well repairs, maintenance
and other direct operating expenses.
In the opinion of management, the unaudited statement of oil and gas
revenues and direct lease operating expenses for the period January 1, 1996
through February 29, 1996 includes all material adjustments, which consist only
of normal recurring adjustments necessary for a fair presentation, and is not
necessarily indicative of the results for the entire year.
Omitted Historical Financial Information
Full historical financial statements, including general and administrative
expenses, interest expense and income tax expense, have not been presented
historically because the above properties were not accounted for or operated as
a separate division. Historical depletion expense has also not been included as
the basis in the properties has been adjusted in the purchase price allocation;
therefore, historical depletion will no longer be relevant.
Gas Imbalances
The sales method is used for accounting for gas imbalances. Under the sales
method, gas revenues are recorded when received; no adjustment is made for any
resulting imbalance positions.
(2) CAPITAL EXPENDITURES (UNAUDITED)
Development expenditures related to the Zilkha I Properties totaled
approximately $116,000 during the period January 1, 1996 through February 29,
1996 and $1,917,000, $16,709,000 and $8,944,000 for the years ended December 31,
1993, 1994 and 1995, respectively.
(3) SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
Oil and Gas Reserves
The following table shows estimates of proved reserves, net of royalty
interests, at December 31, 1993, 1994 and 1995 which were acquired by the
Company from Zilkha during March 1996. The information was compiled from reserve
reports prepared by William M. Cobb & Associates, Inc., Independent Petroleum
Engineering Consultants, as of January 1, 1996. No comparable estimates were
available for prior periods; therefore, reserves for December 31, 1993, 1994,
and 1995 have been calculated by adjusting the January 1, 1996 amounts only for
producing activities. Consequently, no revisions of previous estimates have been
reflected. Management emphasizes that the volumes of reserves shown below are
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THE ZILKHA I PROPERTIES
NOTES TO STATEMENTS OF OIL AND GAS REVENUES AND
DIRECT LEASE OPERATING EXPENSES -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE PERIOD JANUARY 1, 1996 THROUGH FEBRUARY 29, 1996 (UNAUDITED)
estimates, which, by their nature, are subject to revision. The estimates are
made using all available geological and reservoir data as well as production
performance data. These estimates are reviewed annually and revised, either
upward or downward, as warranted by additional performance data. The properties
are located offshore Louisiana.
Estimated Quantities of Oil and Gas Reserves:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1993 1994 1995
------------------- ------------------- ---------------------
OIL (BBL) GAS (MCF) OIL (BBL) GAS (MCF) OIL (BBL) GAS (MCF)
------- -------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year.......... 955,710 8,577,140 955,658 8,405,273 893,973 8,211,033
Production................. (52) (171,867) (61,685) (194,240) (301,229) (1,507,057)
------- --------- ------- --------- ------- ---------
End of year................ 955,658 8,405,273 893,973 8,211,033 592,744 6,703,976
======= ========= ======= ========= ======= =========
Proved developed reserves:
Beginning of year.......... 652,389 7,202,704 652,337 7,030,837 590,652 6,836,597
======= ========= ======= ========= ======= =========
End of year................ 652,337 7,030,837 590,652 6,836,597 289,423 5,329,540
======= ========= ======= ========= ======= =========
</TABLE>
Discounted Future Net Cash Flows
Estimates of future net cash flows from proved reserves were made in
accordance with Statement of Financial Accounting Standards No. 69, "Disclosures
about Oil and Gas Producing Activities." The amounts are shown in the following
table.
Estimated future cash inflows are computed by applying January 1, 1996
prices of oil and natural gas to year-end quantities of proved reserves. Future
price changes are considered only to the extent provided by contractual
arrangements. Estimated future development and production costs are determined
by estimating the expenditures to be incurred in developing and producing the
proved oil and gas reserves at the end of the year, based on January 1, 1996
costs and assuming continuation of existing economic conditions.
Historical supplemental oil and gas reserve information does not include
estimated future income tax expenses as such amounts are not relevant or
indicative of future taxes to be incurred by the Company.
Because of unpredictable variances in expenses and capital forecasts, crude
oil and natural gas price changes, largely influenced and controlled by U.S. and
foreign governmental actions, and the fact that the basis for such estimates
vary significantly, management believes the usefulness of these projections is
limited. Estimates of future net cash flows presented do not represent
management's assessment of future profitability or future cash flow.
Management's investment and operating decisions are based upon reserve estimates
that include proved reserves, and upon different price and cost assumptions from
those used here.
It should be recognized that applying current costs and prices and a ten
percent standard discount rate does not convey absolute value. The discounted
amounts arrived at are only one measure of the value of proved reserves.
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THE ZILKHA I PROPERTIES
NOTES TO STATEMENTS OF OIL AND GAS REVENUES AND
DIRECT LEASE OPERATING EXPENSES -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE PERIOD JANUARY 1, 1996 THROUGH FEBRUARY 29, 1996 (UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows...................................... $ 35,459 $ 34,168 $ 26,655
Future development costs................................. (28,600) (11,891) (2,947)
Future production costs.................................. (3,368) (3,220) (2,559)
-------- -------- --------
Future net cash inflows before income taxes.............. 3,491 19,057 21,149
10% discount factor...................................... (425) (2,320) (2,574)
-------- -------- --------
Standardized measure of discounted future net cash
inflows, before income taxes........................... $ 3,066 $ 16,737 $ 18,575
======== ======== ========
</TABLE>
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of year.................. $ 1,666 $ 3,066 $ 16,737
Changes in future development costs...................... 1,917 16,709 8,944
Sales, net of production costs........................... (323) (1,143) (6,851)
Accretion of discount.................................... 167 307 1,674
Changes in production rates (timing) and other........... (361) (2,202) (1,929)
-------- -------- --------
Standardized measure, end of year........................ $ 3,066 $ 16,737 $ 18,575
======== ======== ========
</TABLE>
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AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
American Adjustments Pro Forma
------------ ----------- ------------
<S> <C> <C> <C>
REVENUES:
Oil and gas sales . . . . . . . . . . . . . . . . $ 33,173 $ 1,964 (a) $ 35,137
Other revenues, net . . . . . . . . . . . . . . . 683 683
------------- ----------- ------------
Total revenues . . . . . . . . . . . . . . . . 33,856 1,964 35,820
------------- ----------- ------------
COSTS AND EXPENSES:
Production and operating . . . . . . . . . . . . . 10,196 109 (a) 10,305
Depreciation, depletion and amortization . . . . . 13,473 728 (a) 14,201
General and administrative . . . . . . . . . . . . 3,183 3,183
Taxes other than income . . . . . . . . . . . . . 2,616 2,616
Exploration . . . . . . . . . . . . . . . . . . . 7,151 7,151
------------- ----------- ------------
Total costs and expenses . . . . . . . . . . . 36,619 837 37,456
------------- ----------- ------------
INCOME (LOSS) FROM OPERATIONS . . . . . . . . . . . . (2,763) 1,127 (1,636)
Other expense, net . . . . . . . . . . . . . . . . . (1,764) (280) (b) (2,044)
------------- ----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . . . (4,527) 847 (3,680)
Preferred stock dividends . . . . . . . . . . . . . . (900) (900)
------------- ----------- ------------
INCOME (LOSS) TO COMMON STOCK BEFORE
EXTRAORDINARY ITEM . . . . . . . . . . . . . . . . $ (5,427) $ 847 $ (4,580)
============= =========== ============
LOSS BEFORE EXTRAORDINARY ITEM PER COMMON SHARE:
Primary and fully diluted . . . . . . . . . . . . $ (0.46) $ (0.39)
============= ============
NUMBER OF COMMON AND EQUIVALENT SHARES:
Primary and fully diluted . . . . . . . . . . . . 11,812 11,812
============= ============
</TABLE>
(a) To reflect the results of operations related to the interests in oil and
gas properties that were acquired by American in the March Acquisition.
(b) To adjust historical interest expense to reflect the $14.0 million
increase in outstanding bank debt to fund the March Acquisition assuming
an annual interest rate of 8% based on the Company's weighted average
interest rate on its outstanding bank debt.
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AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------------------
Historical March 1995
American Acquisition Transactions Pro Forma
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales . . . . . . . . . $ 70,768 $ 7,513 (a) $ (9,450) (c) $ 68,831
Gain (loss) on sales of oil
and gas properties . . . . . . . . 10,230 (10,643) (d) (413)
Other revenues, net . . . . . . . . 936 249 (c) 1,185
----------- ----------- ------------ ----------
Total revenues . . . . . . . . . 81,934 7,513 (19,844) 69,603
----------- ----------- ------------ ----------
COSTS AND EXPENSES:
Production and operating . . . . . . 24,515 662 (a) (3,642) (c) 21,535
Depreciation, depletion
and amortization . . . . . . . . . 30,726 3,506 (a) (2,853) (c) 31,379
General and administrative . . . . . 7,472 56 (c) 7,528
Taxes other than income . . . . . . 5,760 (243) (c) 5,517
Exploration . . . . . . . . . . . . 4,826 4,826
Impairment . . . . . . . . . . . . . 1,822 1,822
----------- ----------- ------------ ----------
Total costs and expenses . . . . 75,121 4,168 (6,682) 72,607
----------- ----------- ------------ ----------
INCOME (LOSS) FROM OPERATIONS . . . . . 6,813 3,345 (13,162) (3,004)
Other expense, net . . . . . . . . . . (5,336) (1,120) (b) 3,013 (e) (3,443)
----------- ----------- ------------ ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM . . . . . . . . . 1,477 2,225 (10,149) (6,447)
Preferred stock dividends . . . . . . . (1,800) (1,800)
----------- ----------- ------------ ----------
INCOME (LOSS) TO COMMON STOCK BEFORE
EXTRAORDINARY ITEM . . . . . . . . . $ (323) $ 2,225 $ (10,149) $ (8,247)
=========== =========== ============ ==========
LOSS BEFORE EXTRAORDINARY ITEM PER
COMMON SHARE:
Primary and fully diluted . . . . . $ (0.03) $ (0.70)
=========== ==========
NUMBER OF COMMON AND EQUIVALENT SHARES:
Primary and fully diluted . . . . . 11,812 11,812
=========== ==========
</TABLE>
(a) To reflect the results of operations related to the interests in oil and
gas properties that were acquired by American in the March Acquisition.
(b) To adjust historical interest expense to reflect the $14.0 million
increase in outstanding bank debt related to the March Acquisition
assuming an annual interest rate of 8% based on the Company's weighted
average interest rate on its outstanding bank debt.
(c) To reflect the impact of the 1995 Transactions on American's results of
operations.
(d) To eliminate the nonrecurring gain on the sale of the Sawyer Field.
(e) To adjust historical interest expense to reflect the repayment of $62.5
million of outstanding bank debt using the proceeds from the sale of the
Sawyer Field and assuming an annual interest rate of 8% based on the
Company's weighted average interest rate on its outstanding bank debt.
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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 hereunto duly authorized.
AMERICAN EXPLORATION COMPANY
Date: September 27 , 1996 By: /s/ CINDY L. GEROW
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Cindy L. Gerow
Vice President and Controller
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