SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Commission file number: 0-12633
TEXOIL, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0177083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 SMITH STREET
SUITE 4000
HOUSTON, TEXAS 77002
(Address of principal executive offices)
(713) 652-5741
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,157,073 shares of common stock,
$.01 par value, issued and outstanding at August 13, 1996.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
1
TEXOIL, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of June 30, 1996........................ 3
Consolidated Statement of Income (Loss) and Retained Earnings
(Deficit) for the six months ended June 30, 1996 and 1995.......... 4
Consolidated Statement of Cash Flows for the six months
ended June 30, 1996 and 1995...................................... 5
Notes to Consolidated Financial Statements........................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................... 9
PART II. OTHER INFORMATION............................................... 12
2
TEXOIL, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
JUNE 30,
1996
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 221,214
Accounts receivable 1,172,922
Other current assets 101,658
-------------
Total current assets 1,495,794 Property and equipment, at cost:
Oil and gas properties, net (on the basis of full cost
accounting) 3,916,701
Other equipment, net 1,472
$ 5,413,967
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,589,054
Note payable to bank
Notes payable to stockholders 2,200,000
Preferred stock dividends payable 69,000
-------------
Total current liabilities 3,858,054
Other long-term liabilities 211,410
Stockholders' equity:
Series A preferred stock, $.01 par; redeemable and convertible with
liquidation preference of $100 per share plus cumulative accrued unpaid
dividends at annual rate of $12 per share; 10,000,000 shares
authorized; 23,000 shares issued and outstanding 2,300,000
Common stock, $.01 par; 50,000,000 shares authorized;
4,157,073 shares issued and outstanding 41,571
Additional paid-in capital 4,615,935
Deficit (5,613,003)
-------------
1,344,503
$ 5,413,967
</TABLE>
The accompanying notes are an integral part of this statement.
Page 3 of 15
TEXOIL, INC.
CONSOLIDATED STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1995 1996 1995 1996
---------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 256,798 $ 240,656 $ 582,128 $ 515,152
---------- ---------- ---------- -----------
Costs and expenses:
Lease operating expenses 81,294 43,719 136,054 90,489
Depreciation, depletion and amortization 123,055 119,423 295,600 260,511
Production taxes 9,120 18,895 27,332 44,075
General and administrative expenses, net 207,049 105,746 415,948 258,640
Other (income) expenses:
Interest expense 35,560 27,489 68,163 67,321
Interest income and other (3,276) (106) (3,933) (490)
---------- ---------- ---------- -----------
452,802 315,166 939,164 720,546
---------- ---------- ---------- -----------
Loss before income taxes (196,004) (74,510) (357,036) (205,394)
Provision for income taxes - - - -
---------- ---------- ---------- -----------
Net loss (196,004) (74,510) (357,036) (205,394)
Dividends on preferred stock (69,000) (69,000) (138,000) (138,000)
---------- ---------- ---------- -----------
Net loss applicable to common stock (265,004) (143,510) (495,036) (343,394)
Retained earnings (deficit), beginning of period (4,497,226) $(5,469,493) (4,267,194) (5,269,609)
---------- ---------- ---------- -----------
Retained earnings (deficit), end of period $(4,762,230)$(5,613,003) $(4,762,230) $(5,613,003)
=========== ============ =========== ===========
Net loss per share of common stock $ (0.06) $ (0.03) $ (0.12) $ (0.08)
========== ========== ========== ===========
Average number of shares outstanding 4,058,648 4,157,073 4,058,648 4,151,774
========== ========== ========== ===========
</TABLE>
Page 4 of 15
TEXOIL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $ (357,036) $ (205,394)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation, depletion and amortization 295,600 260,511
Non-cash compensation expense - 28,860
Decrease (increase) in accounts receivable (114,909) (746,896)
Decrease (increase) in other current assets 35,685 (66,121)
Increase (decrease) in accounts payable (51,112) 910,987
Increase in advances from joint
interest owners 173,150 -
Increase (decrease) in other long-term liabilities 10,921 (100,225)
Net cash provided by (used in) operating activities (7,701) 81,722
----------- -----------
Investing activities:
Capital expenditures (429,789) (634,422)
Proceeds from sales of prospects 172,500 0
----------- -----------
Net cash used in investing activities (257,289) (634,422)
----------- -----------
Financing activities:
Proceeds from borrowings 239,000 1,137,500
Payments on borrowings (25,000) (228,000)
Preferred stock dividends paid (138,000) (138,000)
----------- -----------
Net cash provided by (used in) financing activities 76,000 771,500
----------- -----------
Net increase (decrease) in cash and cash
equivalents (188,990) 218,800
Cash and cash equivalents at beginning of period 200,790 2,414
----------- -----------
Cash and cash equivalents at end of period $ 11,880 $ 221,214
=========== ===========
</TABLE>
Page 5 of 15
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - ACCOUNTING POLICIES:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to interim financial reporting as prescribed
by the Securities and Exchange Commission. All adjustments, which, in the
opinion of management, are necessary for a fair presentation of the results for
the interim periods have been reflected in the accompanying unaudited financial
statements. For further information regarding accounting policies, refer to the
Company's audited financial statements for the years ended December 31, 1994 and
1995 included in its 1995 Annual Report on Form 10-KSB. The average number of
shares outstanding reflected in the net loss per share of common stock for the
six months ended June 30, 1996 gives effect to the 1995 Stock Compensation Plan
(the "1995 Plan"), which provided for the issuance of shares of common stock to
certain employees and consultants whose cash compensation was reduced by 30%
effective April 1, 1995.
NOTE 2 - GOING CONCERN UNCERTAINTY AND MANAGEMENT PLANS:
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
recurring operating losses and cash flow and working capital deficits that raise
substantial doubt about its ability to meet its current and future expenditure
obligations necessary to fully evaluate and develop its oil and gas properties
and to continue as a going concern. Accordingly, management determined that the
Company should seek additional debt and/or equity capital in order to meet its
current working capital requirements and to fully pursue new exploration
opportunities in accordance with its business plan.
In May 1996, four members of the Company's six member board of directors
("Noteholders") loaned $1,100,000 (the "May Notes") to the Company, the proceeds
of which were applied to pay trade and other accounts payable, repay the
Company's loan from its bank, to pay the March 31, 1996 quarterly dividend on
the Series A Preferred Stock, and to fund the Company's share of 3-D seismic
survey costs on the Company's exploration prospects. The May Notes are
structured as 12% convertible promissory notes in the original principal amount
of $1,100,000, and common stock purchase warrants entitling the Noteholders to
purchase from the Company, for a period of five (5) years, 1,100,000 shares of
Texoil, Inc. common stock at an exercise price of $1.3125 per share (the
"Warrants"). The May Notes have a 12 month maturity with interest payable
monthly in arrears and prepayment rights at any time, subject to the right of
the Noteholders to convert the outstanding debt under the May Notes into Texoil,
Inc. common stock at $0.80 per share. The May Notes were collateralized by a
first priority security interest in all the Company's oil and gas reserves of
the Company and the Company's wholly-owned operating subsidiary, Texoil Company.
Recognizing that the net proceeds from the May Notes were insufficient to fund
the Company's share of anticipated land, drilling and completion costs in the
event that the 3-D seismic interpretation successfully results in
recommendations to drill exploratory well(s), the Company continued to undertake
additional capital raising efforts and subsequently entered into a commitment
letter with Resource Investors Management Company ("RIMCO") to finance future
costs of its exploration program (see Note 4 - Subsequent Events).
Page 6 of 15
NOTE 3 - NOTES PAYABLE:
Indebtedness at June 30, 1996, totalling $2,200,000, includes $1,100,000
outstanding under promissory notes ("Bridge Notes") due to two of the Company's
stockholders bearing interest at 2% above prime rate and $1,100,000 outstanding
under the May Notes. These notes have been classified as current in the
accompanying interim financial statements.
The $1,100,000 Bridge Notes represent the unpaid portion of borrowings
aggregating $2,237,500 from a total of nine individuals (five of whom are
stockholders) during 1993, 1994, 1995 and 1996 in order to finance its working
capital needs. In accordance with the terms of the underlying Bridge Notes.
$800,000 was repaid upon closing of the Company's public offering in June 1994
and $337,500 was repaid by the due date, resulting in a balance of $1,100,000 at
June 30, 1996. The lenders agreed to extend the maturity of their notes to the
earlier of the date of execution by the Company of any letter of intent to merge
the Company with another party, or effective control of the Company changes to
another party, or September 1, 1996. One of the two remaining lenders was repaid
$100,000 on July 10, 1996. Management anticipates that additional extensions of
maturity will be obtained from the remaining lender.
The May Notes totalling $1,100,000 are 12% convertible promissory notes maturing
in May, 1997. At the option of the Noteholders all or any part of the May Notes
may be converted at any time into shares of the Company's common stock at a
price of $0.80 per share. The Noteholders also received Warrants to purchase
from the Company, for a period of five (5) years, 1,100,000 shares of common
stock at an exercise price of $1.3125 per share. The May Notes were
collateralized by a first priority security interest in certain of the Company's
oil and gas reserves of the Company and of its wholly owner operating
subsidiary, Texoil Company. As discussed in Note 4-Subsequent Events, the
Noteholders have agreed to restructure the May Notes whereby the Warrants will
be eliminated and the collateral will be assigned to RIMCO upon closing of the
RIMCO financing.
On May 6, 1996, the Company's $240,000 outstanding credit/term loan with a bank
was repaid.
NOTE 4 - SUBSEQUENT EVENTS:
On August 1, 1996, the Company received a commitment from Resource Investors
Management Company ("RIMCO") to provide up to $8,000,000 in two separate
financings to fund the Company's 3-D seismic exploration program. The first
financing, in the form of Senior Secured Convertible General Obligation Notes
issued by the Company in the maximum amount of $3,000,000 (Convertible Notes)
will be used primarily to fund leasehold, drilling and completion costs for the
Company's Greens Lake and Raceland prospects on which 3-D seismic data
acquisition is nearing completion. The second financing, in the form of Senior
Secured General Obligation Notes (the "Senior Notes") issued by the Company in
the maximum amount of $5,000,000 will be used primarily to fund future
leasehold, drilling and completion costs for the Laurel Grove Prospect,
subsequent wells in the Greens Lake and Raceland Prospects, and up-front land
and other costs associated with new 3-D seismic projects. These financings by
RIMCO compliment that $1,100,000 financing previously announced by the Company
in May, 1996 (the "May Notes") by four members of the Company's Board of
Directors ("Noteholders") which was used to fund the Company's share of 3-D
seismic data acquisition costs and for general corporate purposes.
The Company may borrow under the Convertible Notes for a period of one year
after the closing date and the Convertible notes will mature three years after
the closing date. Amounts advanced under the Convertible Notes will accrue
interest at a fixed, annual rate of 10%. Interest will be payable at maturity.
The Convertible Notes are convertible, in whole or in part, into the Company's
Common Stock at a per share price equal to $.80 (which is subject to
adjustment). The Company
Page 7 of 15
has the right to require RIMCO to convert the debt under the Convertible Notes
into the Company's Common Stock on certain terms and conditions. After
$2,800,000 in principal has been advanced under the Convertible Notes, the
Company may borrow under the Senior Notes for a period of three years after the
closing date and the Senior Notes will mature six years after the closing date.
Amounts advanced under the Senior Notes will accrue interest at a fixed, annual
rate of 10%. Interest and principal on the Senior Notes will be paid monthly
from certain revenues generated by the assets pledged to RIMCO to secure the
Senior Notes. Advances under the Senior Notes for future drilling and completion
costs will be contingent upon the Company maintaining an agreed upon borrowing
base.
The Convertible Notes and the Senior Notes will each be secured by all of the
existing and future oil and gas assets of the Company and its operating
subsidiary, Texoil Company. In addition, RIMCO will receive an assignment of a
1.0% of 8/8ths overriding royalty interest, proportionately reduced to the
interest of the Company or Texoil Company, in all wells drilled and/or completed
with proceeds from the Senior Notes
The Noteholders have agreed to restructure the May Notes upon the closing of the
RIMCO financing so that their warrants to purchase 1,100,000 shares of the
Company's Common Stock will be eliminated and all collateral which secures the
May Notes will be released or assigned to RIMCO. Other elements of the Company's
overall corporate debt will also be restructured pending final loan
documentation. Upon closing of the RIMCO financings, neither the Convertible
Notes, the Senior Notes, nor the May Notes will require the Company to issue any
warrants.
Page 8 of 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company uses the full cost method of accounting for its investment in oil
and gas properties. Under the full cost method, all costs of acquisition,
exploration and development of oil and natural gas reserves are capitalized into
a "full cost pool" for each cost center (generally defined as a country). Oil
and gas properties in the pool are depleted and charged to operations using the
unit of production method based on the ratio of current production to total
proved recoverable oil and natural gas reserves. Under the full cost method, to
the extent that capitalized costs (net of depreciation, depletion and
amortization) exceed the future net revenues of estimated proved oil and natural
gas reserves on an after-tax basis, such excess costs are charged to operations
as additional depreciation, depletion and amortization expense. Certain costs
associated with the acquisition and evaluation of unproved properties may,
however, be excluded from amortization until it is determined whether or not
proved reserves can be assigned to the properties.
At June 30, 1996, the Company's estimated discounted future net revenues from
estimated proved reserves on an after-tax basis approximate the net capitalized
costs in the Company's full cost pool. So long as this condition continues, any
excess of the company's full cost pool over the discounted future net revenues
from proved reserves on an after-tax basis may result in charges to the
Company's operations. Such excesses could result from writedowns of proved
reserve quantities or declines in oil and gas prices. Certain events and
conditions that may cause such charges cannot be reasonably predicted by the
Company. Once incurred, a writedown of oil and gas properties cannot be reversed
at a later date even if reserve quantities are subsequently increased or oil and
gas prices subsequently rise.
On May 31, 1996, the Company elected to receive a proportionately reduced 2.5%
overriding royalty interest ("ORRI") on the Texas Meridian Resources Corporation
("TMR") new discovery in the East Cameron 3-D Prospect in Cameron Parish,
Louisiana. The discovery well, C.F. Henry No. 1-27 achieved a rate of 1,766
barrels of oil per day plus 664 thousand cubic feet of gas per day on an 11/64"
choke with a flowing tubing pressure of 6,452 psig. A small portion of the
acreage in which the Company has the right to participate with TMR is being
considered for inclusion in a producing unit for the Abbeville reservoir, which
was found productive in the TMR, C.F. Henry No. 1-27 discovery well and the
subsequently drilled C.F. Henry No. 2 development well. The extent of inclusion
of the Company's participation rights will be determined at a hearing conducted
by the Louisiana Office of Conservation in Baton Rouge and its ORRI
participation will be adjusted proportionately. Accordingly, the Company is
unable to predict with certainty the possible addition of reserves that may
result from its non-operated participation with Texas Meridian Resources
Corporation ("TMR") in the South Louisiana prospects it sold to TMR in an
agreement dated December 31, 1992.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO THREE MONTHS AND SIX
MONTHS ENDED JUNE 30, 1996
The Company recorded net losses of $196,004 and $74,510 in the three months
ended June 30, 1995 and 1996, respectively. Such amounts are included in net
losses of $357,036 and $205,394 in the six month periods ended June 30, 1995 and
1996, respectively. The reductions in these comparative net losses resulted from
the following factors:
Page 9 of 15
<TABLE>
<CAPTION>
DECREASE IN NET LOSS
Three months ended Six months ended
JUNE 30, 1996 JUNE 30, 1996
---------- ----------
<S> <C> <C>
Increase (Decrease) in oil and gas production
income (revenues less lease operating
expenses and production taxes) $ 11,658 $ (38,154)
Decrease in depreciation, depletion and
amortization expense 3,632 35,089
Decrease in net general and
administrative expenses 101,303 157,308
Decrease (Increase) in other, net 4,901 (2,601)
---------- ----------
$ 121,494 $ 151,642
========== ==========
</TABLE>
The increase in oil and gas production income in the three month period ended
June 30, 1996 is primarily attributable to a decrease in lease operating
expenses effected by the shutting-in of the S.L. 12789 No.1 and the S.L. 12503
No.1 in the Main Pass Block 3 field and by having plugged and abandoned the
Murrell No.1 in the Dorcyville field. Both of these are among the areas where
the Company's lease operating expenses are high. The $38,154 decrease in oil and
gas production income for the six month periods ended June 30, 1996 is primarily
attributable to the $49,000 decrease that occurred in the first three months of
1996 compared to the first three months of 1995. That decrease was primarily
attributable to the decrease in production volumes occurring primarily in the
Main Pass Block 3 field and at the non-operated S.W. Lake Beouf field, where
natural decline in the Ariel No. 1 well production is taking effect. The
production tax increases in the three and six months periods ended June 30,
1996, are due to the reinstatement of taxes, as provided for in Act No. 2 of
Louisiana statutory taxation, after the Ariel No. 1 well achieved payout.
The decreases in depreciation, depletion and amortization ("DD&A") expense were
due to the decreases in oil and gas production volumes largely resulting from
the shutting-in of the Main Pass Block 3 field wells. Partially offsetting the
effect of lower production volumes were increases in the Company's DD&A rates
from $8.22 per barrel of oil equivalent ("BOE") in the three months and six
months ended June 30, 1995 to $10.73 per BOE in the three months and six month
periods ended June 30, 1996. The increased DD&A rates in 1996 reflect relatively
higher cost additions associated with a dry hole drilled on the Company's Buras
Landing Prospect in the second and third quarters of 1995 and workover costs on
the S.L. 12503 No.1 in the Main Pass Block 3 field.
The decreases in net general and administrative expenses in both 1996 periods
are comprised primarily of (i) salary reductions due to a reduction in the
number of employees subsequent to March 31, 1995, (ii) the 30% salary reductions
implemented with the 1995 Stock Compensation Plan effective April 1, 1995 and
(iii) $64,000 of overhead reimbursement paid to the Company during the first
half of 1996 by its partners in the Raceland Prospect which were partially
offset by (iv) a $33,000 increase in fees associated with corporate
capitalization efforts.
Page 10 of 15
LIQUIDITY AND CAPITAL RESOURCES
GOING CONCERN UNCERTAINTY AND MANAGEMENT'S PLANS. The Company has suffered
recurring operating losses and cash flow and working capital deficits that raise
substantial doubt about its ability to meet its current and future expenditure
obligations necessary to fully evaluate and develop its oil and gas properties
and to continue as a going concern. Accordingly, management determined that the
Company should seek additional debt and/or equity capital in order to meet its
current working capital requirements and to fully pursue new exploration
opportunities in accordance with its business plan.
On April 17, 1996, the Company entered into a non-binding letter of intent to
merge into Fortune Petroleum Corporation ("Fortune"). The transaction was
subsequently terminated. The letter of intent provided for payment of liquidated
damages in the amount of $50,000 if the board of directors of either party
failed to approve the merger transaction on the terms substantially as set forth
in the letter of intent. Each party claimed that the other owed the liquidated
damages payment and settlement negotiations were initiated. In consideration for
the sum of $35,000 paid by Texoil to Fortune, Texoil and Fortune entered into a
Mutual Release and Settlement Agreement on July 30, 1996.
CASH FLOW FROM OPERATIONS. Texoil's net cash flow from operations resulted in a
deficit of $7,701 and a surplus of $81,722 for the six month periods ended June
30, 1995 and 1996, respectively. The change in the Company's operating cash flow
in the first six months of 1996 is primarily due to a reduction in net loss due
to a reduction in net general and administrative expenses and also to a decrease
in the Company's long-term liabilities when the bank loan was repaid. Lease
operating expenses were also lower in 1996. These improvements were partially
offset by lower oil and gas sales in 1996.
CASH FLOW FROM FINANCING. In May 1996, four members of the Company's six member
board of directors ("Noteholders") loaned $1,100,000 (the "May Notes") to the
Company, the proceeds of which were applied to pay trade and other accounts
payable, repay the Company's loan from its bank, to pay the March 31, 1996
quarterly dividend on the Series A Preferred Stock, and to fund the Company's
share of 3-D seismic survey costs on the Company's exploration prospects. The
May Notes are structured as 12% convertible promissory notes in the principal
amount totalling $1,100,000, and common stock purchase warrants entitling the
Noteholders to purchase from the Company, for a period of five (5) years,
1,100,000 shares of Texoil, Inc. common stock at an exercise price of $1.3125
per share (the "Warrants"). The May Notes have a 12 month maturity with interest
payable monthly in arrears and prepayment rights at any time, subject to the
right of the Noteholders to convert to common stock at $0.80 per share. The May
Notes were collateralized by a first priority security interest in all the
Company's oil and gas reserves.
Page 11 of 15
Recognizing that the net proceeds from the May Notes were insufficient to fund
the Company's share of anticipated land, drilling and completion costs in the
event that the 3-D seismic interpretation successfully results in
recommendations to drill exploratory well(s), the Company continued to undertake
additional capital raising efforts and subsequently entered into a commitment
letter with Resource Investors Management Company ("RIMCO") to finance future
costs of its exploration program.
On August 1, 1996, the Company received a commitment from Resource Investors
Management Company ("RIMCO") to provide up to $8,000,000 in two separate
financings to fund the Company's 3-D seismic exploration program. The first
financing, in the form of Senior Secured Convertible General Obligation Notes
issued by the Company in the maximum amount of $3,000,000 (Convertible Notes)
will be used primarily to fund leasehold, drilling and completion costs for the
Company's Greens Lake and Raceland prospects on which 3-D seismic data
acquisition is nearing completion. The second financing, in the form of Senior
Secured General Obligation Notes (the "Senior Notes") issued by the Company in
the maximum amount of $5,000,000 will be used primarily to fund future
leasehold, drilling and completion costs for the Laurel Grove Prospect,
subsequent wells in the Greens Lake and Raceland Prospects, and up-front land
and other costs associated with new 3-D seismic projects. These financings by
RIMCO compliment that $1,100,000 financing previously announced by the Company
in May, 1996 (the "May Notes") by four members of the Company's Board of
Directors ("Noteholders") which was used to fund the Company's share of 3-D
seismic data acquisition costs and for general corporate purposes.
The Company may borrow under the Convertible Notes for a period of one year
after the closing date and the Convertible notes will mature three years after
the closing date. Amounts advanced under the Convertible Notes will accrue
interest at a fixed, annual rate of 10%. Interest will be payable at maturity.
The Convertible Notes are convertible, in whole or in part, into the Company's
Common Stock at a per share price equal to $.80 (which is subject to
adjustment). The Company has the right to require RIMCO to convert the debt
under the Convertible Notes into the Company's Common Stock on certain terms and
conditions. After $2,800,000 in principal has been advanced under the
Convertible Notes, the Company may borrow under the Senior Notes for a period of
three years after the closing date and the Senior Notes will mature six years
after the closing date. Amounts advanced under the Senior Notes will accrue
interest at a fixed, annual rate of 10%. Interest and principal on the Senior
Notes will be paid monthly from certain revenues generated by the assets pledged
to RIMCO to secure the Senior Notes. Advances under the Senior Notes for future
drilling and completion costs will be contingent upon the Company maintaining an
agreed upon borrowing base.
The Convertible Notes and the Senior Notes will each be secured by all of the
existing and future oil and gas assets of the Company and its operating
subsidiary, Texoil Company. In addition, RIMCO will receive an assignment of a
1.0% of 8/8ths overriding royalty interest, proportionately reduced to the
interest of the Company or Texoil Company, in all wells drilled and/or completed
with proceeds from the Senior Notes
The Noteholders have agreed to restructure the May Notes upon the closing of the
RIMCO financing so that their warrants to purchase 1,100,000 shares of the
Company's Common Stock will be eliminated and all collateral which secures the
May Notes will be released or assigned to RIMCO. Other elements of the Company's
overall corporate debt will also be restructured pending final loan
documentation. Upon closing of the RIMCO financings, neither the Convertible
Notes, the Senior Notes, nor the May Notes will require the Company to issue any
warrants.
Page 12 of 15
FUTURE CAPITAL REQUIREMENTS. The Company anticipates making further capital
expenditures during the remainder of 1996 to complete the acquisition of 3-D
seismic data in its Raceland prospect and to acquire leases by exercising
existing lease options on the Company-operated Raceland prospect and the
non-operated Greens Lake (operated by Burlington Resources) prospects. The
acquisition of the 3-D seismic data is now completed on the Greens Lake prospect
and Raceland is anticipated to be completed in August, 1996. 3-D seismic data
processing and interpretation will follow shortly thereafter. A third prospect,
the Laurel Grove prospect is operated by Phillips Petroleum and field survey
operations are estimated to begin in November, 1996. The Company will continue
to evaluate generating or acquiring new prospects and will continue to evaluate
its participation rights related to the December 31, 1992, agreement with TMR in
its South Louisiana 3-D exploration programs. In the event the 3-D seismic
interpretations result in recommendations to drill exploratory well(s), the
Company anticipates making additional capital expenditures to drill the test
well(s).
Page 13 of 15
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
The Company entered into a letter of commitment with Resources
Investors Management Company ("RIMCO"). See "Managements Discussion
and Analysis of Financial Condition and Results of Operations - Going
Concern Uncertainty and Management's Plans, and Cash Flow from
Financing."
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 10.1 - RIMCO Letter of Commitment
Page 14 of 15
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.
TEXOIL, INC.
Date: AUGUST 13, 1996 By: /S/ RUBEN MEDRANO
Ruben Medrano
President
Page 15 of 15
Exhibit 10.1
July 30, 1996
Texoil, Inc.
1600 Smith, Suite 4000
Houston, TX 77002
Attention: Mr. Ruben Medrano
Gentlemen:
Resource Investors Management Company Limited Partnership ("RIMCO"), on behalf
of RIMCO Partners, L.P., RIMCO Partners, L.P. II, RIMCO Partners, L.P. III and
RIMCO Partners, L.P. IV (the "Purchasers"), hereby agrees to purchase, and
Texoil, Inc. (the "Company"), hereby agrees to sell at private sale, at par, up
to $3.0 million in principal amount of the Company's 10% Senior Secured
Convertible General Obligation Notes and up to $5.0 million in principal amount
of the Company's 10% Senior Secured General Obligation Notes (collectively
referred to as the "Notes").
The Notes will be secured by a first mortgage to all of the right, title and
interest in and to all of the Company's current and future oil, gas and mineral
properties. This agreement to purchase and sell such Notes is contingent upon
the Company having good and marketable title to these properties. This agreement
is also contingent upon the renegotiation of the terms of Company's existing
shareholder debt and completion of appropriate documentation fully satisfactory
in form and substance to each of us and our respective counsel. It is hereby
agreed that such existing shareholder debt and documentation shall contain terms
as described in the attached Summaries of Principal Terms, and in addition,
representations, business covenants and other provisions customary to similar
transactions.
The commitment represented by this letter is made subject to, and in reliance
upon, the accuracy of information previously supplied to RIMCO, and the
understanding that there is no information that has not been supplied to RIMCO
in writing that might have a material adverse affect on the Company's business
or financial condition. The commitment hereunder is further conditioned upon the
absence of any material adverse change prior to closing in the value or
condition of the collateral to be pledged as security for the Notes.
Texoil, Inc.
July 30, 1996
Page 2 of 3
It is understood that the law firm of Andrews & Kurth, L.L.C. will act as
counsel for the Purchasers in this matter. Whether or not the proposed
transaction is consummated, you hereby agree to pay all of the Purchasers'
out-of-pocket expenses in connection with the consummation of the sale and
purchase of the Notes, including without limitation, the reasonable fees and
expenses of the Purchasers' counsel and title consultant.
It is mutually understood and agreed that this letter shall be construed and the
relations between the parties determined in accordance with the law of the state
of Texas. It is also mutually understood and agreed that the Note purchase
agreements and other resulting transaction documents shall be deemed to be
contracts made under and shall be construed in accordance with and governed by
the law of the state of New York. It is further understood and agreed that any
action relating to this letter shall be instituted and prosecuted in the United
States District Court for the Southern District of Texas situated in Harris
County, Texas, to whose jurisdiction the parties hereto agree whatever their
domicile may be.
JURY TRIAL WAIVED. RIMCO and the Company hereby agree that they shall and hereby
do waive trial by jury in any action, proceeding or counterclaim, whether at law
or at equity, brought by either of them, or in any matter whatsoever which
arises out of or is connected in any way with this commitment letter or its
performance.
The commitment represented by this letter shall automatically expire on August
5, 1996 if we have not received a copy of this letter duly executed by you on or
prior to such date. The expiration date of this commitment may not be extended
except by a written instrument executed by a duly authorized officer of RIMCO.
RIMCO shall have the option to immediately terminate this commitment letter by
giving written notice thereof by registered or certified mail to the Company if
the Company fails to satisfy or perform any of the terms, conditions or
provisions of this commitment letter, or supplies RIMCO with any false or
misleading information.
Texoil, Inc.
July 30, 1996
Page 3 of 3
This commitment shall be terminated if the closing of the transaction
contemplated hereby has not been consummated on or before September 30, 1996,
except that your obligation to pay all expenses of the Purchasers' counsel and
title consultant as described above shall survive any such termination.
If all of the foregoing is acceptable to you, please so indicate by signing and
returning one copy of this letter to Gary Milavec c/o RIMCO, 600 Travis, Suite
6875, Houston, TX 77002.
Very truly yours,
RESOURCE INVESTORS MANAGEMENT COMPANY
LIMITED PARTNERSHIP
By: /S/ GARY MILAVEC
Its: Senior Vice President
TEXOIL, INC.
By: /S/ RUBEN MEDRANO
Its: President
Date: AUGUST, 1, 1996
SUMMARY OF PROPOSED TERMS - ISSUE #1
Issue #1: Senior Secured Convertible General
Obligation Notes (the "Convertible
Notes").
Issuer: Texoil, Inc. ("Texoil").
Purchasers: Resource Investors Management
Company, through one or more of its
affiliated entities ("RIMCO").
Interest Rate: 10% per annum, payable monthly.
Commitment Amount: $3,000,000.
Commitment Period: One year.
Maturity: Three years.
Security: All of Texoil's, or its wholly owned
subsidiary's, existing and future
oil and gas assets (the
"Properties").
Use of Proceeds: Primarily to fund Texoil's share of
land costs and drilling and
completion costs for the first wells
to-be-drilled in the Raceland and
Green's Lake 3-D seismic
exploration/ exploitation projects,
to fund Texoil's share of remaining
3-D acquisition costs at Raceland
and to repay $200,000 of existing
shareholder debt.
Payments: Prior to Maturity, payments of
interest will be due and payable
monthly. All outstanding principal
plus any accrued and unpaid interest
will be due and payable at Maturity.
Texoil shall not have the right or
option to prepay, at any time, all
or any part of the Convertible
Notes.
Conversion: The Convertible Notes are
convertible at any time prior to
Maturity, in whole or in part, into
Texoil Common Stock at a per share
price equal to $.80, subject to
adjustment. Should Texoil's Common
Stock close at a price per share
equal to or greater than $3.00 for
any consecutive twenty day period
after $2.8 million of the Commitment
Amount has been funded, Texoil can
force the Purchasers to convert the
Convertible Notes into Common Stock.
If Texoil elects not to force
conversion within 30 days, the 20
day consecutive trading period count
will begin anew.
Registration Rights: The shares subject to issuance upon
conversion of the Convertible Notes
shall be registered under the
Securities Act of 1933 within 45
days of such conversion pursuant to
a Registration Statement which shall
cover the possible resale of such
shares by the Purchasers should they
so elect to do so.
Directors: Issuer will expand its Board by one
and will fill the vacancy so created
with a person specified by the
Purchasers and the Purchasers shall
have the right to nominate the
successor to such director as long
as the Convertible Notes are
outstanding or the Purchasers own at
least 5.0% of the outstanding shares
of Texoil's Common Stock.
SUMMARY OF PROPOSED TERMS - ISSUE #2
Issue #2: Senior Secured General
Obligation Notes (the "Senior
Notes"; the Convertible Notes and
the Senior Notes are collectively
referred to as the "Notes").
Issuer: Texoil, Inc. ("Texoil").
Purchasers: Resource Investors Management
Company, through one or more of its
affiliated entities ("RIMCO").
Interest Rate: 10% per annum, payable monthly.
Commitment Amount: $5,000,000.
Commitment Period: Three years from closing.
Maturity: Six years from closing.
Security: All of Texoil's existing and future
oil and gas assets (the
"Properties").
Use of Proceeds: To fund Texoil's share of future
land costs and drilling and
completion costs for wells to-be-
drilled in the Raceland, Green's
Lake, and Laurel Grove 3-D seismic
exploration/ exploitation projects,
and to fund additional 3-D projects
at the Purchasers' sole discretion.
Fundings: Advances for future drilling and
completion costs will be contingent
on maintaining a Borrowing Base in
excess of 1.3x the outstanding
principal balance of the Notes.
Advances for upfront land costs or
other costs associated with
additional 3-D projects are subject
to the Purchasers' sole discretion
even if the Borrowing Base is in
excess of 1.3x the outstanding
principal balance of the Notes.
In addition, in no event shall
advances under the Senior Notes be
made until $2.8 million principal
amount of the Convertible Notes has
been advanced.
Payments: Payments of accrued interest and
principal on the Senior Notes will
be paid monthly from a minimum of
75% of Net Revenues attributable to
the Properties. Should the
Borrowing Base ever be less than
1.2x the outstanding principal
balance of the Notes, payments will
be made from up to 100% of Net
Revenues, at the Purchasers' sole
discretion. Payments will always be
applied first to accrued interest
and then to the outstanding
principal balance. In any event,
all outstanding principal plus any
accrued and unpaid interest will be
due and payable at Maturity.
Texoil shall have the right or
option to prepay, at any time and
without penalty, all or any part of
the Senior Notes.
Equity Participation: Texoil will assign to the Purchasers
a 1.0% of 8/8ths overriding royalty
interest, proportionately reduced,
in all wells drilled and/or
completed with proceeds from the
Senior Notes.
Directors: Should the aggregate principal
amount of the Notes exceed $5.0
million, the Purchasers reserve the
right to one additional Board seat.
Issuer, at Purchasers' request, will
expand its Board by one and will
fill the vacancy so created with a
person specified by the Purchasers
and the Purchasers shall have the
right to nominate the successor to
such director as long as the
aggregate principal amount of the
Notes is in excess of $2.5 million.
SUMMARY OF PROPOSED TERMS - BOTH ISSUES
Negative Covenants: Without the prior written consent of
RIMCO, Texoil will not:
(a) permit the Borrowing Base to
fall below 1.15x the
outstanding balance of the
Notes commencing with the
reserve report effective as
of December 31, 1997;
(b) permit current assets to be less
than current liabilities
excluding the current portion of
the Notes;
(c) declare or pay any common stock
dividends or redeem any of its
common stock;
(d) declare or pay any dividends on
its preferred stock unless the
Borrowing Base is greater than
150% of the outstanding balance
of the Notes. In no event shall
dividends be permitted until
receipt of the first annual
reserve report, and thereafter
shall only be permitted
quarterly if the Borrowing Base
requirement continues to be met;
(e) make any principal payments on
the "New" Shareholder Debt;
(f) make any principal payments on
the "Bridge" Shareholder Debt 1)
prior to the latter of January
1, 1997 or $2.8 million
principal amount of the
Convertible Secured Notes having
been advanced, 2) with proceeds
from the Notes, and 3) unless
the Company maintains a cash
balance of at least $150,000
after taking into account such
principal payment;
(g) permit any additional liens on
the Properties except in the
ordinary course of business;
(h) incur any debt except for
borrowings under the Notes;
(i) sell or dispose of any of the
Properties unless the Notes are
repaid in full;
(j) merge or consolidate with any
other company unless the Notes
are repaid in full; or
(k) violate such other warranties,
representations and covenants as
are usual and customary.
Non-compliance with any of the above
Negative Covenants or with the
covenants of other debt issues shall
constitute an event of default, in
which case RIMCO may declare the
entire principal amount of the Notes
and accrued and unpaid interest
thereon immediately due and payable.
Definitions: BORROWING BASE: The Borrowing Base
shall be the present worth,
discounted at 10%, of future net
revenues relating to the Properties'
proved developed producing oil and
gas reserves utilizing constant oil
and gas prices. Value is not
ascribed to other categories of
proved reserves, probable reserves,
possible reserves, acreage, or
production equipment. If the
Company's independent reserve
engineer determines a Borrowing Base
value more than 10% greater than the
value determined in good faith by
RIMCO's reserve engineer, then the
two engineers shall choose a third
engineer and the value of the
Borrowing Base shall be determined
by averaging the lowest two values.
Such average shall be the Borrowing
Base until the next redetermination
date.
The Borrowing Base shall be
redetermined at the end of each
calendar year, beginning with the
year ending December 31, 1996, or
more often as reasonably requested
by either RIMCO or the Company, by
an independent engineering firm
acceptable to RIMCO.
The Borrowing Base at all times
shall be redetermined by:
(a) Adjusting reserves for
cumulative production since the
effective date of the last
reserve report;
(b) Adjusting prices to reflect the
average monthly price received
for the previous six months;
(c) Adjusting reserves to reflect
revisions to volume estimates
since the effective date of the
last reserve report; and
(d) Adjusting projected operating
expenses to reflect actual
expense levels incurred since
the effective date of the last
report.
NET REVENUES: Gross production
proceeds attributable to the
Properties less royalties,
overriding royalties, severance
taxes, and direct lease operating
expenses including fixed overhead.
However, such expenses shall not
include leasehold, legal,
recompletion, deepening, drilling,
sidetracking, completion, or
plugging expenses.
Documentation and
Reports: Texoil will supply the following:
(a) Documentation and warranties
acceptable to RIMCO at closing;
(b) An annual reserve report on the
Properties effective as of each
December 31 beginning with the
year ending December 31, 1996,
prepared by an independent
engineering firm acceptable to
RIMCO, within 60 days of year
end;
(c) Annual audited consolidated
financial statements according
to GAAP beginning with the
fiscal year ending December 31,
1996 within 90 days of the
fiscal year end, together with
an auditor's compliance
certificate including the
appropriate computations;
(d) Unaudited quarterly financial
statements within 45 days of the
end of each fiscal quarter
together with an officer's
compliance certificate including
the appropriate calculations and
accounts payable and receivable
aging reports;
(e) Unaudited monthly financial
statements within 20 days of the
end of each month;
(f) A monthly lease operating
statement for each of its
Properties; and
(g) Such other information as RIMCO
shall reasonably request.
Legal Expenses: Fees and expenses of Purchasers
independent legal counsel and title
consultant will be paid by Texoil at
closing.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMARY FINANIAL INFORMATION EXTRACTED FROM
THE cOMPANY'S QUARTERLY REPORT FOR THE THREE MONTHS ENDED mARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 510
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 588
<PP&E> 18,081
<DEPRECIATION> (14,445)
<TOTAL-ASSETS> 4,224
<CURRENT-LIABILITIES> 2,523
<BONDS> 0
0
2,300
<COMMON> 4,658
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<TOTAL-LIABILITY-AND-EQUITY> 4,224
<SALES> 274
<TOTAL-REVENUES> 274
<CGS> 366
<TOTAL-COSTS> 366
<OTHER-EXPENSES> 69
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> (200)
<INCOME-TAX> 0
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