UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITY EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR
15(d)
OF THE
SECURITY EXCHANGE ACT OF 1934
For the transition period from
....................
to.....................
Commission File No. 1-8523
MSR Exploration Ltd.
(Exact name of Registrant as specified in its charter)
Delaware 75-2695071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
612 Eighth Avenue, Fort Worth, Texas 76104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 877-3151
Securities registered pursuant to Section 12(b) of the
Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Shares, United States
$0.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities
Exchange Act during the past 12 months and (2) has been
subject to such filing requirement for the past 90 days.
Yes [ X ] No [ ]
Check whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or
15(d) of the Exchange Act after distribution of
securities under a plan confirmed by a Court. Yes [ ]
No [ X ] because there was no distribution of securities
under the Registrant's confirmed plan.
Common Shares outstanding at September 30, 1998: 25,777,014
Transitional Small Business Disclosure Format: Yes or No X ]
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
MSR Exploration Ltd. and Subsidiaries
Fort Worth, Texas
We have reviewed the accompanying condensed
consolidated balance sheet of MSR Exploration Ltd. and
subsidiaries (the Company) as of September 30, 1998, and
the related condensed consolidated statements of
operations for the three month and nine month periods
and cash flows for the nine month period then ended.
These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with
standards
established by the American Institute of Certified
Public Accountants. A review of interim financial
information consists principally of applying analytical
procedures to financial data and of making
inquiries of persons
responsible for financial and accounting matters. It
is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any
material modifications that should be made to such
condensed consolidated financial statements for them
to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with
generally accepted auditing standards, the consolidated
balance sheet of the Company as of December 31, 1997,
and the related consolidated statement of operations,
stockholders' equity and cash flows for the period from
inception March 7, 1997 to December 31, 1997 (not
presented herein); and in our report dated March 25,
1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1997 is
fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has
been derived.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
November 10, 1998
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
MSR Exploration Ltd. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands
September 30, December 31,
ASSETS 1998 1997
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $277 $528
Time deposits 63 59
Accounts receivable 432 507
Inventories 257 248
Prepaid expenses 4 32
Total current assets 1,033 1,374
PROPERTIES, PLANT AND EQUIPMENT - NET
("full cost") 23,842 24,234
OTHER ASSETS 339 355
$25,214 $25,963
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $48 $88
Accounts payable 1,035 652
Accrued liabilities 288 592
Total current liabilities 1,371 1,332
LONG-TERM DEBT 10,874 10,560
DEFERRED INCOME TAXES 636 1,001
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value
Authorized 50,000,000 shares,
issued and outstanding 25,777,014 258 258
Paid in capital in excess of par value 12,812 12,812
Foreign currency translation adjustment (43) (30)
Retained earnings (deficit) (694) 30
12,333 13,070
$25,214 $25,963
See Notes to Condensed Consolidated Financial Statements
3
MSR Exploration Ltd. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS In thousands,
except for per share data (UNAUDITED)
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1998
REVENUE
Oil sales $545 $1,775
Gas sales 339 1,178
Interest and other income 16 50
Total revenues 900 3,003
EXPENSES
Operating expenses 556 1,382
Production taxes 65 250
Depletion and depreciation 306 974
General and administrative 328 827
Interest 218 644
Total expenses 1,473 4,077
Loss before income taxes (573) (1,074)
Income tax benefit 180 350
Net loss ($393) ($724)
Basic and diluted loss per share ($0.02) ($0.03)
Basic weighted average number of shares
outstanding for the periods 25,777 25,777
Diluted weighted average number of shares
outstanding for the periods 25,777 25,777
See Notes to Condensed Consolidated Financial Statements
4
MSR Exploration Ltd. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
In thousands except for per share data
From Combined
Three Months Predecessor Inception Nine Months
Ended January 1, March 7, to Ended
September 30, to March 7,September 30,September 30,
1997 1997 1997 1997
REVENUE
Oil sales $ 0 $ 0 $ 0 $ 0
Gas sales 46 57 96 153
Interest and
other income 1 0 1 1
Total revenues 47 57 97 154
EXPENSES
Operating expenses 0 0 0 0
Production taxes 22 10 6 19
Depletion and
and depreciation 0 0 0 0
General and
administrative 0 0 0 0
Interest 10 0 10 10
Total expenses 38 17 53 70
Loss before
income taxes 9 40 44 84
Income tax benefit (3) (1) (1) (29)
Net income $ 6 $ 26 $ 2 $ 55
Basic and diluted
earnings per share $0.00 $0.00 $0.00 $0.00
Basic weighted
number of shares
outstanting for
the periods 12,000 12,000 12,000 12,000
Diluted weighted
average number
of shares
outstanding for
the periods 12,000 12,000 12,000 12,000
See Notes to Condensed Consolidated Financial Statements
MSR Exploration Ltd. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
Nine Months Ended September 30, 1998
In thousands
(UNAUDITED)
OPERATING ACTIVITIES
Net loss ($724)
Charges and credits to net loss not affecting cash
Depletion and depreciation 974
Deferred income taxes (365)
Changes in assets and liabilities
Time deposits and receivables 71
Inventory, prepaid expenses and other 22
Accounts payable and accrued liabilities 79
NET CASH FROM (USED FOR) OPERATING ACTIVITIES 57
INVESTING ACTIVITIES
Acquisition of properties and equipment (582)
NET CASH FROM (USED FOR) INVESTING ACTIVITIES (582)
FINANCING ACTIVITIES
Notes payable, bank proceeds 350
Principal payments on long-term debt (76)
NET CASH FROM (USED FOR) FINANCING ACTIVITIES 274
NET INCREASE (DECREASE) IN CASH (251)
CASH AT BEGINNING OF PERIOD 528
CASH AT END OF PERIOD $277
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest expense $626
See Notes to Condensed Consolidated Financial
Statements
5
MSR Exploration Ltd. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Nine Months Ended September
30, 1998 (Unaudited)
Note 1. ACCOUNTING POLICIES AND DISCLOSURES
In the opinion of management of MSR Exploration, Ltd.
(the "Company"), the Company's Condensed Consolidated
Financial Statements contain all adjustments
(consisting of only normal recurring accruals)
necessary to present fairly the financial position of the
Company as of September 30, 1998, and the results of
its operations for the three and nine months ended
September 30, 1998 and its cash flows for the nine months
ended September 30, 1998.
Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested
that these consolidated financial statements be read
in conjunction with the
consolidated financial statements and notes thereto
included in the Form 10-KSB for the year ended December
31, 1997. The results of operations for the nine month
period ended September 30, 1998 are not necessarily
indicative of the operating results to be expected for
the full fiscal year.
Business Formation and Merger
MSR Exploration Ltd. ("the Company") formerly
Mercury Montana, Inc. was organized on March 7, 1997 for
the purpose of acquiring from Mercury Exploration Company
(Mercury) and thereafter exploring, developing and
operating all of the Company's oil and natural gas
properties located in Montana (the "Mercury
Properties"). Upon formation of the Company, Mercury
conveyed to the Company the Mercury Properties and
associated debt in exchange for a majority of the
then outstanding Company Common Stock and warrants to
purchase additional shares of Company Common Stock.
The Mercury
Properties included approximately 75 crude oil
producing wells which were subject to a prior
production payment, forward-sale agreement between
Mercury and a third party covering a period from
October 1996 through December 1997. The agreement was
the obligation of Mercury; consequently the oil
revenue and associated expenses from these
properties belonged to Mercury through December 31,
1997, and started accruing to the Company on January 1,
1998.
On March 26, 1997, MSR Exploration Ltd., ("Old MSR"),
an
Alberta, Canada corporation entered into an agreement
with the Company, then known as Mercury Montana, Inc.
and its majority shareholder at that time, Mercury,
both of Fort Worth, Texas, to combine all of the
Company's oil and gas assets in Montana with all the oil
and gas assets of Old MSR by way of a merger of the
Company and Old MSR. The Company was the surviving
corporation in the merger and changed its name to MSR
Exploration Ltd. after the merger was effective on October
31, 1997. The merger was accounted for under the purchase
method of accounting.
Financial Statement Presentation
Statements of operations and cash flows for the Company
from its inception, March 7, 1997, through the date of the
merger with Old MSR, October 31, 1997, are considered
immaterial and are not presented in this report. Most
of the revenue and associated expenses from the Mercury
Properties did not begin to accrue to the Company until
January 1, 1998.
Pro forma unaudited condensed consolidated statement
of operations presented elsewhere in this report, assumes
the merger of the Company and Old MSR was consummated on
January 1, 1997 and included revenues and expenses from
the Mercury Properties which were subject to
the production
payment/forward sales agreement. Pro forma revenues for
the three and nine months ended September 30, 1997, would
have been approximately $1,601,000 and $4,966,000,
respectively; loss before income taxes would have
been approximately $164,000 and $378,000 respectively;
and the net loss would have been approximately $108,000
and $249,000 respectively. The pro forma results are not
necessarily indicative of what would have occurred had
the merger actually taken place on January 1, 1997.
MSR Exploration Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2. NOTES PAYABLES AND LONG-TERM DEBT
September 30, December31,
1998 1997
Long-term debt consists of:
Note payable to a bank
(7.5% at September 30, 1998) $10,848,000 $10,498,000
Various pre-petition claims at
interest rates ranging
From 6% to 10%, due in monthly,
quarterly and
Annual installments, including
interest 74,000 150,000
10,922,000 10,648,000
Less current maturities
48,000 88,000
$10,874,000 $10,560,000
On October 31, 1997 the Company restructured the Old MSR
revolving credit facility and entered into a new credit
agreement with a bank. Proceeds from the new facility were
used to repay the $4.0 million of debt guaranteed by the
Company and repay $6.0 million of debt owed by Old MSR.
The closing of the loan was subject to the successful
completion of the Company's merger with Old MSR. The new
agreement is for a $25 million senior secured revolving
credit facility with a current borrowing base of $12
million, which matures in five years. The Company can
designate the interest rate on amounts outstanding at
either the London Interbank Offered Rate (LIBOR) +
1.75%, or bank prime plus 0.125%. The collateral for
this loan agreement consists
of
substantially all of the existing assets of the Company
and any future reserves acquired. The loan agreement
contains certain restrictive covenants, which, among
other things, require the maintenance of a minimum
current ratio, net worth, debt service ratio and certain
dividend restrictions. For the period ended September 30,
1998, the Company is in compliance with all of the
covenants except for the interest coverage ratio set at 2
to 1. The bank has waived the requirements for the period
ended September 30, 1998 and for the remainder of 1998.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
This Quarterly Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements.
The following discussion and analysis should be read in
conjunction with the Company's condensed consolidated financial
statements and notes thereto for the nine month period ended
September 30, 1998 and with the Company's audited financial
statements and notes thereto for the fiscal year ended December
31, 1997.
The Company was organized on March 7, 1997. The founders of the
Company contributed approximately 75 crude oil producing wells in
northwest Montana, constituting the Mercury Properties in
exchange for Company common stock and common stock warrants.
These properties were subject to a forward sale of production and
consequently the revenues and expenses from the properties did
not begin to accrue to the Company until January 1, 1998.
On March 26, 1997, Old MSR, entered into an agreement with the
Company, then known as Mercury Montana, Inc., and its majority
shareholder at that time, Mercury, both of Fort Worth, Texas, to
combine all of the Company's oil and gas assets in Montana with
all the oil and gas assets of Old MSR by way of the Merger. The
Company was the surviving corporation in the Merger and changed
its name to MSR Exploration Ltd. The merger was effective
October 31, 1997.
Comparison of Historical Results of Operations
Due to the limited existence of the Company, comparisons between
current periods and prior years historical data may not be
meaningful. The following discussion will center on trends and
specific results, which have occurred during the periods
presented. The large increases in 1998 compared to 1997 were due
to (1) the merger with Old MSR, which was effective October 31,
1997and (2) the inclusion of the results of operations from the
Mercury properties since January 1, 1998, which were subject to a
foreward sale/production payment for all of 1997. Unless stated
otherwise, all of the increases discussed below relating to these
two items will not be repeated below.
Comparisons of the Third Quarter Ended September 30, 1998 to the
Third Quarter Ended September 30, 1997.
Revenue. Total revenues for the three months ended September 30,
1998 were $900,000 compared to $47,000 for the same period last
year. Oil revenues for the 1998 period were $545,000, from the
sale of 53,600 barrels at an average sales price of $10.17 per
barrel a 38 percent price decline compared to 1997. During the
same period last year the average selling price of oil was
approximately $16.50 per barrel. Gas revenues for the 1998
quarter were $339,000 from the sale of 190,000 Mcf of gas at an
average sales price of $1.78 per Mcf. The 1997 gas sales were
$46,000 at an average sales price of approximately $2.00 per Mcf.
Expenses. Total expenses for the three months ended September
30, 1998 were $1,473,000 compared to $38,000 for the same period
in 1997. Operating expenses for the 1998 period totaled $556,000
and averaged $6.52 per barrel of oil equivalent. Production
taxes of $65,000 in the 1998 quarter averaged approximately 7.2
percent of sales. Depletion and depreciation expense for the
1998 quarter was $306,000 at an average of $3.59 per barrel of
oil equivalent. General and administrative expenses were
$328,000 for the 1998 period and include $81,000 of pre-merger
costs. Interest expense for the 1998 period totaled $218,000.
The interest rate on the Company's debt averaged approximately
7.5 percent. Income taxes were calculated using statutory rate
of 34 percent.
Net Income (loss). For the third quarter ended September 30,
1998 the net loss was $393,000 compared to $6,000 of net income
for the 1997 period. The 1998 loss was primarily the result of
the sharp decline in oil prices.
Comparison of the Nine Months Ended September 30, 1998 to
September 30, 1997.
Revenue. Total revenues for the nine months ended September 30,
1998 were $3,003,000 compared to $154,000 for the 1997 period.
Oil revenues for the 1998 period were $1,775,000 from the sale of
161,200 barrels of oil at an average sales price of $11.01 per
barrel a price decline of 38 percent compared to 1997. Average
oil prices during the same period last year were approximately
$17.68 per barrel. Gas sales in the first nine months of 1998
were $1,178,000 from the sale of 581,000 Mcf of gas at an average
sales price of $2.03 per Mcf, an approximate 12% decline compared
to average prices last year of $2.30.
Expenses. Total expenses for the nine months ended September 30,
1998 were $4,077,000 compared to $70,000 for 1997 period.
Operating expenses totaled $1,382,000 or approximately $5.36 per
barrel of oil equivalent. Production taxes for 1998 were
$250,000 and averaged 8.3 percent of sales. Depletion and
depreciation expense for 1998 was $974,000 at approximately $3.77
per barrel of oil equivalent. General and administrative
expenses for the first nine months of 1998 totaled $827,000 and
included $166,000 of pre-merger costs. Interest expense was
$644,000 for the 1998 period. The interest rate on the Company's
debt averaged approximately 7.5 percent in 1998. Income taxes
were calculated using the statutory rate of 34 percent.
Net Income (loss). For the nine months ended September 30, 1998
the Company had a loss of $724,000 compared to $55,000 of income
for the same period last year. The 1998 loss was due primarily
to the decline in both crude oil and natural gas prices.
Comparison of Historical Results of Operations for 1998 to
Adjusted Financial Data for 1997
Due to the Company's limited existence the unaudited statement of
operations for the three and nine months ended September 30, 1998
will be compared to the statements of financial data for the
three and nine months ended September 30, 1997, which are
presented and explained following these comparisons.
Comparison of the Third Quarter Ended September 30, 1998 to the
Third Quarter Ended September 30, 1997.
Revenue. Total revenues for the three months ended September 30,
1998 were $900,000, a 44% decrease compared to $1,601,000 of as
adjusted financial data revenues for the same period in 1997.
Oil sales for the 1998 period were $545,000, a decrease of 42%
compared to third quarter 1997 financial data sales of $932,000.
This decrease was due primarily to a 38% decrease in average
price per barrel sold by the Company. Average crude oil prices
were $10.17 per barrel during the three months ended September
30, 1998 compared to financial data 1997 price of $16.48. Oil
sales volumes decreased 5% from financial data barrels of 56,600
in 1997 to 53,600 for the third quarter of 1998. The decrease in
oil sales volumes was primarily the result of natural production
declines. Gas sales for the third quarter of 1998 were $339,000,
a 48% decline compared to $654,000 of financial data sales during
the same quarter in 1997. The reduction in gas sales revenues
was primarily the result of lower production volumes and a
decrease in the average gas prices the Company received for its
gas. In the 1998 quarter, the Company sold its gas at an average
price of $1.78 per mcf as compared to the 1997 financial data
price of $2.34 per mcf, a 24% decrease. Gas sales volumes for
the three months ended September 30, 1998 were 190,000 mcf, a
decrease of 32% compared to 1997 pro forma of 279,000 mcf. Most
of the reduction in gas sales volumes can be attributed to the
Company's gas plant in northwest Montana, by contract were shut-
ins all summer and natural production declines.
Expenses. Total expenses for the three months ended September
30, 1998 were $1,473,000, a 17% decrease compared to as adjusted
financial data expenses of $1,765,000 for the same period in
1997. Management believes a significant portion of the decrease
in operating expenses can be attributed to efficiencies gained as
a result of the merger of the Company and Old MSR. Comparing
actual operating expenses for the third quarter of 1998 to
financial data expenses for the same period in 1997 indicates
that 1998 operating expenses of $556,000 decreased 16%; 1998
production taxes of $65,000 decreased 45%, primarily due to
reduced sales; 1998 depletion and depreciation expense of
$306,000 was down 38%, the result of lower sales volumes and a
reduced depletion rate and general and administrative expenses of
$328,000 for 1998 increased 55%. General and administrative
expenses for the 1998 quarter includes $81,000 of cost associated
with the proposed merger with Quicksilver Resources Inc. If the
merger costs had not been incurred G&A expenses would have
increased 16%. Interest expense of $218,000 for 1998 reflected a
decrease of 23% due to a reduced interest rate on the Company's
long-term debt.
Net Loss. For the third quarter ended September 30, 1998, the
net loss was $393,000 ($0.02 per share) compared to as adjusted
financial data financial data net loss of $108,000 for the 1997
period. The 1998 third quarter loss was primarily the result of
the extreme decline in crude oil and gas prices, reduced sales
volumes, and also include $81,000 of merger expenses.
Comparison of the Nine Months Ended September 30, 1998 to Nine
Months Ended September 30, 1997.
Revenues. Revenues for the first nine months of 1998 were
$3,003,000, a 40% decrease compared to as adjusted financial data
revenues for the same period in 1997, due primarily to the lower
price from oil and gas production. Oil sales for the 1998 period
were $1,775,000, 44% lower than the 1997 financial data oil sales
of $3,169,000. During the 1998 period the Company sold its crude
oil for an average price of $11.01 per barrel compared to a 1997
average of $17.68, a decrease of 38%. Oil sales volumes were
161,200 barrels for the first nine months of 1998, a decrease of
10% compared to the 1997 period and was due to natural production
declines and the result of shutting-in uneconomic wells. Gas
sales for the first nine months of 1998 were $1,178,000 or
$550,000 (32%) less than 1997 financial data sales of $1,728,000.
The average price per mcf sold was $2.03 in 1998 compared to
$2.33 in 1997. Gas volumes decreased from 745,400 financial data
mcf of sales in 1997 to 581,000 mcf in 1998 primarily due to
declines in production and lower gas plant sales.
Expenses. Total expenses for the nine months ended September 30,
1998, were $4,077,000, a decrease of 24% over the as adjusted
financial data for 1997 of $5,344,000. As stated previously,
management believes the overall reduction in operating expenses
is the result of efficiencies gained from the merger of the
Company and Old MSR. Operating expenses of $1,382,000 in 1998
decreased $689,000 or 33%. Production taxes were $250,000 in
1998, a decrease of 31% due primarily to reductions in product
sales. Depletion and depreciation expense in the 1998 period was
$974,000 or 28% less than financial data 1997 of $1,354,000
primarily due to reduced sales volumes and a lower depletion
rate. General and administrative expenses for the 1998 period
were $827,000 an increase of 15% compared to $721,000 in 1997.
If merger costs totaling $166,000 had not been included, G&A
expenses would have decreased 8%. Interest expense decreased 23%
primarily due to a reduction of interest rates on long-term debt.
Net Loss. The first nine months of 1998 results of operations
shows a net loss of $724,000 ($0.03 per share) compared to an as
adjusted financial data net loss for the same period in 1997 of
$249,000 ($0.01 per share). During 1998 the Company reduced
expenses 24%, which was not sufficient to overcome the sharp
decline in crude oil prices and a decrease in production.
CONSOLIDATED STATEMENTS OF FINANCIAL DATA
The following consolidated statements of financial data for
the three and nine months ended September 30, 1997, combine the
historical information of the Company adjusted to give effect to
the merger with Old MSR as if the merger had been consummated on
January 1, 1997. The Company's oil revenues and associated
operating expenses from the Mercury Properties included in the
statements were subject to a prior production payment/ forward
sales agreement between Mercury and a third party for the period
of October 1996 through December 31, 1997.
The Mercury Property oil revenues and associated expenses
were excluded from the Company's statements of operations for the
year ended December 31, 1997, however the revenues and expenses
are included in these statements to provide comparative
information about the Company for 1998 and beyond. Forward
sale/production payment revenues and expenses for the three
months ended September 30, 1997 were $529,000 and $504,000
respectively, and for the nine months ended September 30, 1997
were $1,742,000 and $1,769,000, respectively. The oil revenues
and associated expenses of the Mercury Properties began accruing
to the Company on January 1, 1998.
These statements are provided for comparative purposes only and
should be read in conjunction with the historical consolidated
financial statements of the Company included elsewhere in the
report. The financial information presented is not necessarily
indicative of the combined financial results as they may be in
the future or as they might have been for the periods indicated
had the merger been consummated as of January 1, 1997
MSR Exploration Ltd. and Subsidiaries
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1997
REVENUE
Oil sales $932 $3,169
Gas sales 654 1,728
Interest and other income 15 69
Total revenues 1,601 4,966
EXPENSES
Operating expenses 659 2,071
Production taxes 119 363
Depletion and depreciation 493 1,354
General and administrative 212 721
Interest 282 835
Total expenses 1,765 5,344
Loss before income taxes (164) (378)
Income tax benefit 56 129
Net loss ($108) ($249)
Basic and diluted loss per share $0.00 $(0.01)
Basic and diluted weighted average number
of shares outstanding for the periods 25,777 25,777
10
Liquidity and Capital Resources
The Company finances its operations primarily through a third
party credit facility and cash from operations. Net cash from
operations was $57,000 for the nine months ended September 30,
1998. The Company believes that its cash from operations and
funds available under its existing credit facility will be
sufficient to fund foreseeable working capital requirements of
its operations. However, the Company's capital expenditure
programs, principally the drilling of development wells, will be
dependent on crude oil pricing in the coming months.
Cash used in investing activities for the nine months ended
September 30, 1998 totaled $582,000. Capital expenditures
includes costs incurred for geological and geophysical of
$181,000, maintaining leases $140,000, plugging wells $95,000 and
the remainder for various other equipment expenditures.
Cash from financing activities for the nine months ended ended
September 30, 1998 was $274,000. The Company borrowed an
additional $350,000 using its credit facility and repaidd other
loans in the amount of $76,000.
On October 31, 1997 the Company restructured the Old MSR
revolving credit facility and entered into a new credit agreement
with a bank. Proceeds from the new facility were used to repay
the $4.0 million of debt guaranteed by the Company and repay $6.0
million of debt owed by Old MSR. The closing of the loan was
subject to the successful completion of the Company's merger with
Old MSR. The agreement is for a $25 million senior secured
revolving credit facility with a current borrowing base of $12
million, which matures in five years. The Company can designate
the interest rate on amounts outstanding at either the London
Interbank Offered Rate (LIBOR) + 1.75%, or bank prime plus
0.125%. At September 30, 1998 there was a total of $10,848,000
outstanding under the credit agreement, all of which constituted
long-term debt.
For the nine months ended September 30, 1998 the Company had
EBITDA of $544,000. EBITDA is calculated by
adding interest, income taxes, and depreciation, depletion and
amortization to net income. Interest includes interest expense
accrued and amortization of deferred financing costs. EBITDA is
presented here not as a measure of operating results, but rather
as a measure of the Company's operating performance and ability
to service debt. EBITDA should not be considered as an
alternative to earnings, or operating earnings, as defined by
generally accepted accounting principles, as an indicator of the
Company's financial performance, as an alternative to cash flow
as a measure of liquidity or as being comparable to other
similarly titled measures of other companies.
Year 2000 Issue
MSR has been evaluating and assessing the business risks and
exposures related to the Year 2000. This evaluation and
assessment of the extent of the risks and exposures related to
MSR's information systems, including embedded logic devices, and
related to MSR's customers, suppliers, financial institutions,
and other constituencies should be substantially completed during
1998. Since 1995, MSR and its predecessors have replaced all
major information systems with Year 2000 compliance as a
criterion, therefore, MSR does not currently expect to incur any
material amount of expense associated with the remediation of its
major information systems.
With respect to the risks and exposures related to MSR's
customers, partners, suppliers, financial institutions, and other
constituencies and the resulting potential impact on MSR's
business operations and financial condition, MSR has initiated
formal communications with its customers, suppliers, financial
institutions and other constituencies to mitigate or prevent such
risks and exposures.
Prospective Business Combination.
Effective September 8, 1998, the Company entered into an
Agreement and Plan of Merger and Reorganization to merge with
Quicksilver Resources Inc. (Quicksilver), a company affiliated
with Mercury Exploration Company and the Darden family of Fort
Worth, Texas. MSR will merge with and into Quicksilver, with
Quicksilver as the surviving corporation. As a result of the
merger, MSR stockholders will receive one share of Quicksilver
common stock for each 10 shares of MSR common stock.
Following completion of the merger, Quicksilver would own
interests in 1,200 wells (672 net), with a lease inventory of
almost 600,000 gross acres (330,000 net) located in Michigan,
Montana, Wyoming, Texas, and Canada. The company's net proved
reserves would be in excess of 285 billion cubic feet of gas
equivalent (BCFE), having a present value discounted at ten
percent (PV-10) of approximately $148 million, based on reserve
reports dated January 1, 1998. Separately, Quicksilver has
reported revenues for the nine months ended September 30, 1998 of
approximately $49.4 million, with operating cash flow of
approximately $19.8 million and net income of approximately $4.7
million.
Quicksilver is primarily owned by Mercury Exploration Company,
Trust Company of the West and an affiliate of Enron Corp.
Quicksilver expects to make application to the American Stock
Exchange to list its shares including the shares to be issued to
the MSR shareholders in the merger. Upon consummation of the
merger, the MSR shareholders would receive shares of common stock
of Quicksilver in exchange for each of their MSR shares,
representing approximately 20% of the shares of Quicksilver to be
outstanding after the merger.
The merger is subject to approval of the shareholders of MSR and
Quicksilver, certain regulatory filings and other customary
conditions. If approved, the merger is expected to be completed
in the fourth quarter of 1998.
MSR Exploration Ltd. and Subsidiaries
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings: None
ITEM 2. Changes in Securities: None
ITEM 3. Defaults Upon Senior Securities: None
ITEM 4. Submission of Matters to a Vote of Security
Holders: None
ITEM 5. Other Information: None
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K:
On September 8, 1998, the Company filed a Form 8-K
Current Report, which announced that effective September
8, 1998, MSR Exploration Ltd., a Delaware corporation
("MSR"), and Quicksilver Resources Inc.
(Quicksilver), a Delaware corporation, entered into
an Agreement and Plan of Merger and Reorganization
(the "Merger Agreement") pursuant to which MSR will
merge with and into Quicksilver as the surviving
corporation.
MSR EXPLORATION LTD.
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.
Dated: November 13, 1998
Ammended, December 24, 1998
MSR Exploration Ltd.
By: /s/ Glenn M. Darden
Glenn M. Darden
President and Chief Operating Officer
By: /s/ Howard N. Boals
Howard N. Boals, Vice President of Finance
Chief Accounting Officer
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