U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
TATUM PETROLEUM CORPORATION
---------------------------------------------
(Name of small business issuer in its charter)
Delaware 33-0117736
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
667-E Lakeview Plaza Boulevard
Worthington, OH 43085
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (614) 888-3637
----------------
Securities to be registered under Section 12(b) of the Act: None
------
Securities registered under Section 12(g) of the Act: Common Stock, $.01
par value
------------------
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
- --------------------------------
GENERAL
Tatum Petroleum Corporation, (the "Registrant" or "Company") was
incorporated under the laws of Delaware on July 10, 1985 and became
actively engaged in the exploration for and acquisition, development and
production of oil and gas upon the acquisition of its predecessor entities,
Tatum Petroleum Corporation, a California corporation ("Tatum of
California") incorporated November 28, 1984, and Power Ventures, Inc., a
Colorado corporation (and its wholly-owned subsidiary, Midnight Oil
Company, a Colorado corporation) on June 30, 1986. The Company
concentrates its activities in areas in which it has accumulated detailed
geographical knowledge and developed management experience. The
Registrant's oil and gas operations are currently located in California and
Ohio in which the Company owns varying interests in 78 producing wells with
oil constituting 25% of current production and natural gas constituting 75%
of current production (assuming 10 MCF of gas produced equals one barrel of
oil production).
The Registrant investigates potential opportunities to develop, drill
and/or participate in the development of new oil and gas properties
throughout the Midwest region of the United States. Its current activities
on a yearly basis include identifying and drilling from 15 to 25 oil and
gas properties on its own behalf or with partners on an equal promoted
basis. It is likely that any significant expenditures required of the
Registrant in connection with the future expansion of its oil and gas
activities will require additional funding from outside sources in the form
of debt or equity. There can be no assurance such funding is or will be
available to the Registrant for this purpose.
From 1986 to 1991, the Registrant's class of common stock was
registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended (No. 0-14788). In 1991, the Registrant deregistered its securities
under the Securities Exchange Act of 1934 in an effort to lower general
overhead expenses. The Board of Directors has elected to re-register its
shares under the Securities Exchange Act of 1934 in an effort to create a
trading market for its shares and provide a possible source for future
funding activities if a market should develop. No trading market currently
exists for the Registrant's common stock.
The Registrant's corporate offices are located at 667-E Lakeview Plaza
Boulevard, Worthington, OH 43085. Its telephone number at that address is
(614) 888-3637.
BUSINESS STRATEGY
The Company's growth strategy is to increase its annualized cash flow
and oil and gas reserves by drilling and completing, on its own behalf and
with others, from 15 to 25 oil and gas prospects per year. The Company
will develop these prospects each year with a view to taking advantage of
industry advances in seismic and drilling technologies and management's
experience primarily in Ohio. Of the projected new prospects, between two
(2) and five (5) each year will be intended as higher potential, higher
risk prospects. As indicated above, the
2
<PAGE>
Company intends to market its prospects on a basis that will allow the
Company to be able to control its risks on each of these prospects.
OPERATIONS
As of September 30, 1996, the Company was serving as operator for all
of the Company's producing wells and receives a management fee for each
well from the working interest owners. The Company believes that, as
operator, it is in a better position to control costs, safety and
timeliness of work as well as other critical factors affecting the
economics of a well or property. The Company presently operates wells
which represent virtually 100% of the Company's proved reserves.
CUSTOMERS AND MARKETS
Three purchasers each represent in excess of 10% of the Registrant's
total oil and gas revenue for the fiscal years ended March 31, 1996 and
1995. These purchasers are Quaker State, Energy Marketing Services, Inc.
and East Ohio Gas Company. Prices of Registrant's gas are generally set
unilaterally by the individual buyers based upon prevailing market prices
paid to oil and gas producers in that area.
Oil produced from the Registrant's wells are sold and gathered by
Quaker State. The Registrant transports a portion of its gas production
with Sol Ltd., an affiliated entity, over a gas gathering system and a
pipeline owned by that entity that connects to the East Ohio Gas Co. and
Columbia Gas Transmission Corp. pipelines. During the fiscal years ended
March 31, 1996 and 1995 and for the six months ended September 30, 1996 and
1995, the Registrant paid approximately $226,000, $159,000, $111,000, and
$108,000 in gathering fees and $56,000, $34,000, $27,000, and $28,000,
respectively, in compression fees for the Company's share of the gas
transported over these lines to Sol Ltd.
The Registrant's business is not seasonal in nature, except to the
extent that weather conditions at certain times of the year may affect the
Registrant's access to its oil and gas properties and its ability to drill
oil and gas wells. The impact of inflation on the Company's activities is
minimal. While gas prices have historically fluctuated between winter and
summer seasons, changes in the market during the last few years have made
such fluctuations unpredictable. For instance, because local gas utilities
around the country need to refill their gas storage facilities in the
summer, prices may be higher during spring or summer months than during
subsequent winter months when temperatures are warmer than normal.
GAS CONTRACTS
The Registrant sells substantially all of its natural gas pursuant to
four (4) separate gas purchase agreements with Energy Marketing Services,
Inc. and East Ohio Gas Company, both Ohio corporations. The agreement with
Energy Marketing Services, Inc. accounts for approximately 38% of the
Company's production sales with prices based on the spot market price for
gas. This agreement expires in January 1998. The Company's remaining
natural gas is sold to East Ohio Gas Company pursuant to three (3) separate
agreements at prices ranging from $2.25 to $2.70 per MCF. The first two
(2) agreements account for 56% of the Company's
3
<PAGE>
natural gas sales and expire in April 1997. The third agreement with East
Ohio Gas Company accounts for 6% of the Company's gas sales and is based on
a spot market price. This third agreement expires in May 1997.
COMPETITION
The Company competes with numerous other companies and individuals,
including many that have significantly greater resources, in virtually all
facets of its business. Such competitors may be able to pay more for
desirable leases and to evaluate, bid for and purchase a greater number of
properties that the financial or personnel resources of the Company permit.
The ability of the Company to increase reserves in the future will be
dependent on its ability to select and acquire suitable producing
properties and prospects for future exploration and development. The
availability of a market for oil and natural gas production depends upon
numerous factors beyond the control of producers, including but not limited
to the availability of other domestic or imported production, the locations
and capacity of pipelines, and the effect of federal and state regulation
on such production. Domestic oil and natural gas must compete with
imported oil and natural gas, coal, atomic energy, hydroelectric power and
other forms of energy. The Company does not hold a significant competitive
position in the oil and gas industry.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
GENERAL
The Company's exploration and marketing operations are regulated
extensively at the federal, state and local levels. Gas and oil
exploration, development and production activities are subject to various
laws and regulations governing a wide variety of matters. For example,
hydrocarbon-producing states have statutes or regulations addressing
conservation practices and the protection of correlative rights, and such
regulations may affect the Company's operations and limit the quantity of
hydrocarbons the Company may produce and sell. Other regulated matters
include marketing, pricing, transportation, and valuation of royalty
payments.
At the U.S. federal level, the Federal Energy Regulatory Commission
("FERC") regulates interstate transportation of natural gas under the
Natural Gas Act and regulates the maximum selling prices of certain
categories of gas sold in "first sales" in interstate and intrastate
commerce under the Natural Gas Policy Act. Effective January 1, 1993, the
Natural Gas Wellhead Decontrol Act deregulated natural gas prices for all
"first sales" of natural gas, which includes sales by the Company of its
own production. As a result, all sales of the Company's natural gas
produced in the U.S. may be sold at market prices, unless otherwise
committed by contract.
The Company's gas sales are affected by regulation of intrastate and
interstate gas transportation. In an attempt to promote competition, the
FERC has issued a series of orders which have altered significantly the
marketing and transportation of natural gas. The Company believes that
these changes have generally improved the Company's access to
transportation and have enhanced the marketability of its natural gas
production. To date, the Company has not experienced any material adverse
effect on gas marketing as a result of these FERC orders; however, the
Company cannot predict what new regulations may be adopted by the FERC and
4
<PAGE>
other regulatory authorities, or what effect subsequent regulations may
have on its future gas marketing.
The Company also is subject to laws and regulations concerning
occupational safety and health. It is not anticipated that the Company
will be required in the near future to expend amounts that are material in
the aggregate to the Company's overall operations by reason of occupational
safety and health laws and regulations, but inasmuch as such laws and
regulations are frequently changed, the Company is unable to predict the
ultimate cost of compliance.
ENVIRONMENTAL REGULATIONS
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect the operations and costs of the
Company. It is not anticipated that the Company will be required in the
near future to expend amounts that are material in relation to its total
capital expenditure program by reason of environmental laws and
regulations. However, inasmuch as such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of compliance.
STATE REGULATION OF OIL AND GAS PRODUCTION
State statutes and regulations require permits for drilling
operations, drilling bonds and reports concerning operations. Most states
in which the Company owns and operates properties have statutes, rules or
regulations governing conservation matters, including the unitization or
pooling of oil and gas properties, establishing of maximum rates of
production from oil and gas wells and the spacing of such wells. Many
states also restrict production to the market demand for oil and gas. Such
statutes and regulations may limit the rate at which oil and gas could
otherwise be produced from the Company's properties. Some states have
enacted statutes prescribing ceiling prices for gas sold within their
state. The Company's Ohio production is not currently subject to price
regulation. However, the Company is unable to predict whether production
rate limitations or price regulations may be imposed in the future.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary title
examination is conducted at the time properties believed to be suitable for
drilling operations are acquired by the Company. Prior to the commencement
of drilling operations, a thorough title examination of the drill site
tract is conducted by independent attorneys. Once production from a given
well is established, the Company prepares a division order title report
indicating the proper parties and percentages for payment of production
proceeds, including royalties. The Company believes that titles to its
leasehold properties are good and defensible in accordance with standards
generally acceptable in the oil and gas industry.
OFFICE AND OPERATIONS FACILITIES
The Company's corporate offices are located in Worthington, Ohio which
it leases pursuant to a lease which expires in May 1998. Minimum future
lease payments under the non-
5
<PAGE>
cancelable lease for the years ending March 31, 1997, 1998 and 1999 are
$18,000, $18,000 and $3,000, respectively, for a total of $39,000. Total
rental expense charged to operations was $16,400 and $15,000 for the years
ended 1996 and 1995, respectively.
The Company believes its office space is sufficient for the
foreseeable future.
LEGAL PROCEEDINGS
The Company is not engaged in any material pending legal proceedings
to which the Company or its subsidiary is a party or to which any of its
property is subject except as set forth in Part II of this Registration
Statement.
EMPLOYEES
At September 30, 1996, the Company and its subsidiaries employed 5
full time and 1 part time persons. Three (3) of the Registrant's employees
are responsible for field operations.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATIONS.
- ------------------------------------------------------------------
THIS REGISTRATION STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933. SUCH
FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THIS SECTION AND UNDER
"DESCRIPTION OF BUSINESS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OR OPERATIONS" AND "PROPERTIES." ACTUAL EVENTS OR RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS.
SIX MONTH PERIOD ENDED SEPTEMBER 30, 1996 VS. SEPTEMBER 30, 1995
- ----------------------------------------------------------------
RESULTS OF OPERATIONS
The Company had net income for the six month period ended September
30, 1996 totaling $106,000, compared to $232,000 at September 30, 1995.
This decrease of 54.3% in net income was primarily a result of increased
exploration costs along with a reduction of income from sale of working
interest and the accrual for a proposed settlement of a litigation
contingency.
REVENUES
Oil and gas sales for the six month period ended September 30, 1996
totaled $1,425,000 compared to approximated revenues of $1,425,000 for the
six months ended September 30, 1995. Oil production decreased from 16,625
barrels to 15,700 barrels for a net decrease of 925 barrels or 5.6%. Gas
production increased from 508,297 MCFs to 526,204 MCFs for a net increase
of 17,907 MCFs or 3.5%. These changes in revenue and fluctuations in
production have resulted in virtually no difference in total revenue for
the two periods presented.
Drilling arrangement income decreased from $76,000 at September 30,
1995, to $15,000 at September 30, 1996, a reduction of 80%. This decrease
is a result of the Company retaining more working interest in the new wells
being drilled.
Management fee income increased from $47,000 at September 30, 1995, to
$70,000 at September 30, 1996, for a 48.9% increase or $23,000. The
increase in revenue is a result of the Company managing additional wells
that were brought into production during the current period.
COSTS AND EXPENSES
Oil and gas production costs for the six months ended September 20,
1996 totaled $253,000 for a 12.4% (or $28,000) increase over the six month
period ended September 30, 1995 costs of $225,000. The increased costs
were primarily a result of hiring an additional employee in the field along
with salary increases.
General and administrative expenses totaled $305,000 at September 30,
1996 as compared to $280,000 at September 30, 1995 for a total increase of
8.9%. This increase was due to additional legal fees incurred in
connection with the Company's lawsuit with Columbia Gas along with salary
increases.
7
<PAGE>
Depreciation, depletion and amortization costs for the current six
month period totaled $218,000 for an increase of $69,000 (or 46.3%) over
the six month period ended September 30, 1995 costs of $149,000. This
increase is consistent with an increase in the depreciable assets owned by
the Company, as well as adjustments to depletion rates based on year end
reserve quantities.
Exploration costs and dry hole costs increased a total of 6.2% from
$319,000 at September 30, 1995 to $339,000 at September 30, 1996. The
Company's approach to exploration has not changed significantly from the
prior period.
With the proposed settlement of certain litigation, the Company also
realized a gain of $467,000 in a bankruptcy settlement of a company
previously affiliated with the above litigation. These legal transactions
have resulted in a net expense of $99,000 for the period ended September
30, 1996.
OTHER INCOME (LOSS)
Other income (loss) for the six months ended September 30, 1996, was
a loss of $35,000, a decrease of 305% (or $52,000) from the six months
ended September 30, 1995 revenues of $17,000. This decrease was due to the
loss realized during the current period on the plugging of one well which
was not fully depreciated.
LIQUIDITY AND CAPITAL RESOURCES
During the six month period ended September 30, 1996, the Company
experienced a decrease in working capital deficiency from $(411,000) at
March 31, 1996 to $(239,000) in the current period. This increase in
working capital of $172,000 was due to the increase in receivables,
resulting from lower gas prices which averaged 44% less than the March 1996
prices offset by a legal settlement of $467,000, which was previously not
recorded. Cash as of September 30, 1996 was $241,000, a $175,000 decrease
from March 31, 1996. This was due to increased drilling activity and the
purchase of inventory pipe to take advantage of low prices. Cash provided
by operations was $413,000 at September 30, 1996 which is in line with
$414,000 at September 30, 1995. However, management anticipates increased
natural gas prices during the second half of fiscal year 1997 to bring the
annualized September 1996 numbers closer in line with the March 31, 1996
cash provided by operations numbers.
The Company used it's line-of-credit along with advances from industry
investors to facilitate the drilling of 13 wells during the six months
ended September 30, 1996. Four of these wells were dry holes. Of the nine
commercial wells, the Company retained an average of 49.3% working
interest.
The Company anticipates continuing the sale of working interest to
industry related investors and bank borrowings to facilitate its working
capital needs and its drilling activities for the remainder of the fiscal
year.
8
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1996 VS. 1995
- -----------------------------------------
RESULTS OF OPERATIONS
The Company had net income for the year ended March 31, 1996 totaling
$476,000 or $.05 per share of common stock, compared to $145,000 or $.01
per share for the prior year. The increased net income during the current
year was primarily a result of increased drilling success and higher gas
prices.
REVENUES
Oil and gas sales for the current fiscal year totaled $3,083,000
compared to revenues of $2,270,000 for the prior year for an increase of
$813,000 or 35.8%. Oil production decreased from 36,227 barrels to 34,615
barrels for a net loss of 1,612 barrels or 4.5%. Gas production for the
current year totaled 1,039,039 MCFs compared to 673,151 MCFs for the prior
year, a net gain of 364,888 MCFs or 54.2%. The gas production increase was
primarily a result of new wells drilled by the company. In addition, one
exceptional well, drilled close to the prior year end, accounted for 32% of
this year's gas production, compared to 8% of the prior year production.
It should be noted, however, that this exceptional well is expected to have
a short production life. One other reason for the increase in revenue is
due to the unusually high gas prices at year end.
Drilling arrangement income for the current year totaled $95,000, a
decrease of 47.2% (or $85,000) from prior year revenues of $180,000. This
decrease was due to the decrease of outside investors participating in the
current year drilling programs.
Management fee income increased from $107,000 to $114,000, during the
current fiscal year, for a 6.5% increase or $7,000. The increase in
revenue is a result of the Company managing additional wells that were
brought into production during the current fiscal year.
COSTS AND EXPENSES
Oil and gas production costs for the current year totaled $536,000 for
a 4% (or $23,000) decrease over prior year costs of $559,000. The
decreased costs were primarily a result of plugging under performing wells.
In addition, the majority of new wells drilled during the current year were
gas producing wells which require less maintenance than oil producing
wells.
General and administrative expenses totaled $653,000 for the current
year as compared to $554,000 for the prior year for a total increase of
18%. Nine percent of this increase was due to additional legal fees
incurred with regard to the Company's lawsuit with Columbia Gas and
additional geology costs associated with the Columbia Gas bankruptcy claim.
Four percent was due to salary increases and the remaining 5% was a
combination of increased accounting fees, taxes and other expenses.
Depreciation, depletion and amortization costs for the current year
totaled $495,000 for an increase of $92,000 (or 22.8%) over prior year
costs of $403,000. This increase was due
9
<PAGE>
to an increase in depreciable assets owned by the Company, offset by
revisions of reserve quantity estimates, primarily due to the increase in
the price of gas at year end.
Exploration costs and dry hole costs decreased a total of 1.4% from
$908,000 in the prior year to $895,000 during the current year. The
Company's approach to exploration has not changed significantly from the
prior year.
OTHER INCOME
Other income for the current year totaled $63,000, an increase of 425%
(or $51,000) from prior year revenues of $12,000. This increase was due to
the gain realized during the current year on the sale of two fully
depreciated assets, one well and one truck, and the sale of equipment
inventory.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended March 31, 1996, the Company experienced
a decrease in working capital from a deficiency of $(323,000) in the prior
year to $(411,000) in the current year. This decrease of $88,000 was due
in general to the increase in accounts payable at March 31, 1996, resulting
from increased drilling activity at year end. Cash as of March 31, 1996
was $416,000, a $91,000 increase over the prior year of $325,000. This was
primarily due to an increase in cash provided by operations, which
increased from $780,000 for the year ended March 31, 1995 to $1,284,000 for
the year ended March 31, 1996. This was due primarily to the increased
drilling success in the current year and higher gas prices.
The Company used it's line-of-credit along with outside investors to
facilitate the drilling of 18 wells during fiscal year 1996. Four of these
wells were dry holes. Of the fourteen commercial wells, the Company
retained an average of 60.36% working interest.
The Company anticipates continuing the sale of working interests in
its future exploration and bank borrowings to facilitate its working
capital needs and its drilling activities for the next fiscal year.
FISCAL YEAR ENDED MARCH 31, 1995 VS. 1994
- -----------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The Company had net income for the year ended March 31, 1995 totaling
$145,000 or $.01 per share of common stock, compared to net income of
$585,000 or $.06 per share for the prior year. The decreased gain during
the current year was primarily a result of increased seismic costs and the
drilling of numerous dry holes.
REVENUES
Oil and gas sales for the current fiscal year totaled $2,270,000
compared to revenues of $1,899,200 for the prior fiscal year for an
increase of $370,800 or 19.5%. Oil production increased from 27,973
barrels to 36,227 barrels for a net increase of 8,254 barrels or 29.5%.
10
<PAGE>
Gas production for the current year totaled 673,151 MCFs compared to
497,495 MCFs for the prior year, a net increase of 175,656 MCFs or 35.3%.
These increases in production were primarily a result of new wells drilled
by the Company.
Drilling arrangement income for the current year totaled $180,000, an
increase of 11.1% (or $18,000) from prior year revenues of $162,000. This
increase was due to the increased number of drilling programs undertaken by
the Company during the current fiscal year.
Management fee income increased from $83,500 to $107,000, during the
current fiscal year, for a 28.1% increase or $23,500. The increase in
revenue is a result of the Company managing additional wells that were
brought into production during the current fiscal year and an increase in
the monthly management fees charged to other working interest owners.
COSTS AND EXPENSES
Oil and gas production costs for the current year totaled $559,000 for
a 0.6% (or $3,900) decrease over prior year costs of $562,900. The Company
re-evaluated profitability of it's existing wells and shut-in or plugged
and abandoned several wells which were not operating as profitably as
expected. This practice resulted in costs remaining virtually the same in
spite of additional new wells coming on line.
General and administrative expenses totaled $554,000 for the current
year as compared to $564,000 for the prior year for a total decrease of
1.8%. These costs remained fairly consistent as the Company made no
meaningful changes in day to day operations.
Depreciation, depletion and amortization costs for the current year
totaled $403,000 for an increase of $49,700 (or 14.1%) over prior year
costs of $353,300. This increase was due to an increase in depreciable
assets owned by the Company, in addition to recalculations of estimated
reserve quantities.
Exploration and dry hole costs increased a total of 636.4% from
$123,300 in the prior year to $908,000 during the current year. These
costs increased primarily due to the Company purchasing leases in two new
areas of Ohio and increasing its seismic study costs. In addition, a total
of nine dry holes were drilled during the current year, five of which were
drilled in these two areas in the Company's efforts to evaluate the new
leases.
OTHER INCOME
Other income for the current year totaled $12,000, a decrease of 72.5%
(or $31,600) from the prior year of $43,600. This decrease was due to the
gain realized during the prior year on equipment sold from inventory and
the sale of two fully depreciated trucks.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended March 31, 1995, the Company experienced
a decrease in working capital from $321,200 in the prior year to $(322,800)
in the current year. This decrease of $644,000 was due primarily to the
following changes: Fiscal year 1994 had no line-
11
<PAGE>
of-credit liability, had more cash and inventory, and had no advances from
working interest owners at year end.
Cash as of March 31, 1995 was $325,400, a $133,600 decrease from the
prior year of $459,000. This was primarily due to timing of accounts
payable payments which were made prior to March 31, 1995 as opposed to
payments made shortly after the year end for fiscal 1994.
Cash provided by operations decreased from $792,400 for the year ended
March 31, 1994 to $780,000 for the year ended March 31, 1995. This 1.5%
change in cash was due to the offsetting balances of decreased net income
with increased DD&A, inventory and payables for fiscal year 1995.
The Company used it's line-of-credit along with the sale of working
interests to facilitate the drilling of 20 wells during fiscal year 1995.
Nine of these wells were dry holes, however, of the eleven commercial
wells, the Company retained an average of 60.45% working interest.
The Company anticipates continuing the sale of working interest and
bank borrowings to facilitate its working capital needs and its drilling
activities for the next fiscal year.
ITEM 3. DESCRIPTION OF PROPERTY.
- --------------------------------
OIL AND GAS RESERVES
The table below sets forth the Company's quantities of proved
reserves, as estimated by Robert L. Williams, consulting independent
petroleum engineer, all of which are located in the continental U.S., and
the present value of estimated future net revenues from these reserves on
a non-escalated basis discounted by 10 percent per year as of the last two
fiscal years ending March 31, 1995 and 1996 and as updated by the Company
as of September 30, 1995 and 1996. Reserve estimates are inherently
imprecise and are subject to revisions based on production history, results
of additional exploration and development, prices of oil and gas and other
factors outside the Company's control.
Six Months
Ended Year Ended
September 30, March 31,
--------------- ----------------
1996 1995 1996 1995
Estimated Proved Gas
Reserves (MCF) 3,592,000 2,646,000 3,218,000 1,814,000
Estimated Proved Oil
Reserves (Bbls) 94,000 117,000 99,000 130,000
Present Value of Future Net
Revenues (before future
income tax expense) 9,650,000 6,672,000 8,087,000 4,666,000
Reference should be made to Supplemental Oil and Gas Information on
pages F-12 - F-13 of this Registration Statement for additional information
pertaining to the Company's proved oil and gas reserves. During fiscal
1996 the Company did not file any reports that include estimates
12
<PAGE>
of total proved net oil or gas reserves with any federal agency other than
the Securities and Exchange Commission.
13
<PAGE>
PRODUCTION
The following table sets forth the Company's net oil and gas
production for the last two fiscal years and for the second quarter for the
last two fiscal years.
Six Months
Ended Year Ended
September 30, March 31,
--------------- ----------------
1996 1995 1996 1995
Natural Gas (MCF) 526,000 496,000 1,039,000 673,000
Crude Oil & Condensate
(Bbls) 16,000 17,000 35,000 35,000
AVERAGE SALES PRICES AND PRODUCTION COSTS
The following table sets forth the average gross sales price and the
average production cost per unit of oil and gas produced, including
production taxes, for the last two fiscal years and for the second quarter
of the last two fiscal years. For purposes of calculating production cost
per equivalent MCF, barrels of oil have been converted at a ratio of six
MCF of gas for each barrel of oil:
Six Months
Ended Year Ended
September 30, March 31,
---------------- ----------------
1996 1995 1996 1995
Average Sales Price
Gas (per MCF) $2.63 $2.26 $2.50 $2.37
Oil (per Bbl) $20.00 $17.00 $17.00 $16.00
Average Production Cost Per
Equivalent MCF $0.37 $0.34 $0.39 $0.55
PRODUCING WELLS AND DEVELOPMENT ACREAGE
The following table sets forth, as of September 30, 1996, the
approximate number of gross and net producing oil and gas wells and their
related developed acres owned by the Registrant. Productive wells are
producing wells and wells capable of production, including shut-in wells.
Developed acreage consists of acres spaced or assignable to productive
wells.
PRODUCING WELLS DEVELOPED ACRES
------------------------------------ ----------------
OIL GAS GROSS NET
---------------- ---------------- ------ ------
GROSS NET GROSS NET
26 16.9 52 33.8 4,032 2,737
UNDEVELOPED ACREAGE
At September 30, 1996, the Registrant held undeveloped acreage as set
forth below:
14
<PAGE>
UNDEVELOPED ACRES
---------------------
LOCATION GROSS NET
Ohio 21,399 21,399
The following table sets forth the expiration dates of the gross and
net acres subject to its oil and gas leases summarized in the table of
undeveloped acreage.
ACRES EXPIRING
---------------------
GROSS NET
Twelve Months Ending:
March 31, 1997 3,073 3,073
March 31, 1998 5,698 5,698
March 31, 1999 2,175 2,175
March 31, 2000 and later 10,453 10,453
DRILLING ACTIVITIES
The Company's drilling activities for the years ended March 31, 1996
and 1995 are set forth below:
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
GROSS NET GROSS NET
Exploratory:
Productive 0 0 0 0
Dry 0 0 0 0
Development:
Productive 9 4.44 7 4.23
Dry 4 2.01 3 2.20
MARCH 31, MARCH 31,
1996 1995
------------------ ------------------
GROSS NET GROSS NET
Exploratory:
Productive 0 0 0 0
Dry 2 1.47 2 1.47
Development:
Productive 14 8.45 11 6.65
Dry 2 1.50 7 5.13
The Company's drilling activities are conducted on a contract basis
with independent drilling contractors.
15
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ----------------------------------------------------------------------
(a)(b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of September 30, 1996 the ownership
of the Registrant's Common Stock by (i) each Director of the Registrant,
(ii) all Executive Officers and Directors of the Registrant as a group, and
(iii) all persons known by the Registrant to own more than 5% of the
Registrant's Common Stock.
Beneficial Ownership (1)
------------------------
Name Number of Shares Percentage
---- ---------------- ----------
Zachary T. Tatum 5,566,622 (2) 53.0%
667-E Lakeview Plaza Blvd.
Worthington, OH 43085
John E. Reynolds 88,056 Nil
11711 Woodruff Ave.
Downey, CA 90241
Charles R. Tatum 1,087,190 10.0%
625 Hotel Circle
San Diego, CA 92108
Lori J. Powell 0 0
667-E Lakeview Plaza Blvd.
Worthington, OH 43085
All Directors and Officers 5,654,678 54.3%
as a Group (3 persons)
_________________________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule
13d-3(d), shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
are deemed outstanding for the purpose of calculating the number and
percentage owned by such person, but are not deemed outstanding for
the purpose of calculating the percentage owned by each other person
listed.
(2) Includes 1,447,592 shares held by Tatum Petroleum Ohio, 356,872 shares
held by Energy Exploration Corporation, 490,959 shares held by Strata
Exploration Corporation and 13,781 shares held by Devonian
Exploration, Inc., all or which may be deemed to be beneficially owned
by Zachary T. Tatum.
(c) CHANGES IN CONTROL.
No understandings, arrangements or agreements are known by management
at this time which would result in a change in control of the Registrant.
16
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
- --------------------------------------------------------------------
(a)(b) IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND
SIGNIFICANT EMPLOYEES.
The following sets forth certain information with respect to the
officers and directors of the Registrant.
Name Age Position
Zachary T. Tatum 43 President, Chief Financial Officer,
Chief Executive Officer and a
Director since 1985
Lori J. Powell 37 Secretary, Treasurer and a Director
since 1995
John E. Reynolds 61 Director since 1985
The directors of the Registrant are elected to hold office until the
next annual meeting of shareholders and until their respective successors
have been elected and qualified. Officers of the Registrant are elected by
the Board of Directors and hold office until their successors are elected
and qualified.
The Registrant has no audit or compensation committee.
Biographical information concerning each director and executive
officer, including business experience for the past five years is as
follows:
ZACHARY T. TATUM graduated from California State University at
Fullerton in 1975 with a degree in business/marketing. After graduation,
he was employed part-time by Allison Drilling Company and worked in Eastern
Colorado. In 1977, he acquired a producing property in the Pyramid Hills
Oil Field, Kings County, California, which he operated until the property
was sold in May, 1985. From 1979 to the present, he has been involved in
sponsoring limited partnerships and joint ventures to drill oil and gas
wells in the States of California, Ohio and West Virginia. Mr. Tatum is
also president and a director of the following inactive corporations:
Energy Exploration Corp., a Nevada corporation, of Strata Exploration,
Inc., an Ohio corporation, and of Tatum Petroleum Ohio, Inc., an Ohio
corporation. Mr. Tatum devotes full time to the Registrant.
LORI J. POWELL has been the Registrant's controller since 1991 and a
Director since 1995. She is responsible for the Registrant's financial
statements, filings, contracts and day to day accounting matters. Ms.
Powell obtained a B.S. degree from Azusa Pacific University in 1983 and
devotes full time to the Registrant.
JOHN E. REYNOLDS is the president of Keyline Sales, Inc., Downey,
California, which sells plumbing supplies to the wholesale trade. Mr.
Reynolds is also an investor in other oil and gas ventures.
17
<PAGE>
(c) FAMILY RELATIONSHIPS.
There are no family relationships between or among any officer and
director.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
No officer, director, significant employee, promoter or control person
of the Registrant has been involved in any event of the type described in
Item 401(d) of Regulation S-B during the past five years.
ITEM 6. EXECUTIVE COMPENSATION.
- -------------------------------
(a) GENERAL.
The Registrant's President, Mr. Zachary T. Tatum, is the only officer
whose total compensation exceeds $100,000 during the Registrant's most
recent fiscal year.
(b) SUMMARY COMPENSATION TABLE.
The following table sets forth certain information regarding the
compensation paid or accrued by the Registrant to or for the account of the
Chief Executive Officer and each of the Officers of the Registrant whose
total annual compensation exceeded $100,000 during the fiscal years ended
March 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
--------------------------------------------- --------------------------------
Name and Restricted
Principal Other Annual Stock Options/ LTIP All Other
Position Year Salary Bonuses($) Compensation Awards SARS Payouts($) Compensation
-------- ---- ------ ---------- ------------ ------ ---- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Zachary T. Tatum 1996 $300,000 -0- $ -0- -0- -0- -0- -0-
President and 1995 $300,000 -0- $ -0- -0- -0- -0- -0-
Chief Executive 1994 $ 85,000 -0- $ -0- -0- -0- -0- -0-
Officer
</TABLE>
(c) OPTION/SAR GRANTS TABLE.
Not applicable.
(d) AGGREGATED OPTION/SAR EXERCISE AND FISCAL YEAR-END OPTION/SAR
VALUE TABLE.
Not applicable.
(e) TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE.
Not applicable.
18
<PAGE>
(f) COMPENSATION OF DIRECTORS.
STANDARD ARRANGEMENTS. The Registrant pays its directors $100 per
meeting of the Board of Directors attended. Directors also receive
reimbursement for out-of-pocket expenses incurred by them in connection
with the business of the Registrant.
OTHER ARRANGEMENTS. The Registrant has no other arrangements pursuant
to which any director of the Registrant was compensated during the year
ended March 31, 1996, for services as a director.
(g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS.
None.
(h) REPORTING ON REPRICING OF OPTIONS/SARS.
Not Applicable.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------------------------------------------------------
(a)(b) TRANSACTIONS WITH MANAGEMENT AND OTHERS.
The Registrant transports a portion of its gas production over a gas
gathering system and a pipeline which are owned by Sol Ltd., a company
owned by the wife of the Registrant's president, Mr. Zachary T. Tatum.
During the years ended March 31, 1996 and 1995, the Registrant paid
approximately $226,000 and $159,000 in gathering fees and $56,000 and
$34,000 in compression fees for the Registrant's share of gas transported
over these lines to the entity.
On April 1, 1993, the Company sold its natural gas pipeline which is
separate from the gas gathering system and pipeline discussed above, to Sol
Ltd. for $250,000. For financial statement purposes, the Company realized
a loss on this transaction of approximately $86,000. Additional fees for
Registrant gas transported over this pipeline in the amount of $34,000 and
39,000 in 1996 and 1995, respectively, have been forgiven for
administration services the Registrant provides the pipeline.
In 1995 Sol LTD. provided seismic data with a value of approximately
$421,000 in return for a working interest ownership in certain wells. The
value was based on amounts paid by the related party to third parties, and
has been expensed in the Company's 1995 financial statements.
The Company's Board of Directors and its officers are subject to
certain provisions of Delaware law which are designed to eliminate or
minimize the effects of certain potential conflicts of interest. In
addition, the Board of Directors has adopted a policy that provides that
any transaction between the Company and an interested party must be fully
disclosed to the Board of Directors, and that a majority of the directors
not otherwise interested in the transaction
19
<PAGE>
(including a majority of disinterested directors) must make a determination
that such transaction is fair, competitive and commercially reasonable and
on terms and conditions not less favorable to the Company than those
available from unaffiliated third parties.
(c) PARENTS OF THE REGISTRANT.
Zachary T. Tatum may be deemed to be the parent of the Registrant.
See Item 4 above for information concerning the basis of control and
percentage of voting securities owned by Mr. Tatum.
(d) TRANSACTIONS WITH PROMOTERS.
Information required by Item 404 of Regulation S-B is not required to
be presented inasmuch as the Registrant has been organized for more than
five years.
ITEM 8. DESCRIPTION OF SECURITIES.
- ----------------------------------
COMMON STOCK
The Registrant is authorized to issue up to 15,000,000 shares of
Common Stock, $.01 par value. On September 30, 1996, there were 10,418,855
shares of Common Stock issued and outstanding. All shares of Common Stock
have equal voting rights and, when validly issued and outstanding, have one
vote per share in all matters to be voted upon by shareholders. The shares
of Common Stock have no preemptive, subscription, conversion or redemption
rights and may be issued only as fully paid and non-assessable shares.
Cumulative voting in the election of directors is not allowed, which means
that the holders of a majority of the outstanding shares represented at any
meeting at which a quorum is present will be able to elect all of the
directors if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any directors. On liquidation
of the Registrant, each common shareholder is entitled to receive a pro
rata share of the Registrant's assets available for distribution to common
stockholders.
DIVIDEND POLICY
Dividends are payable on Common Stock when, as, and if declared by the
Board of Directors out of funds legally available to pay dividends. The
Registrant has paid no cash dividends to date and it does not anticipate
payment of cash dividends in the foreseeable future.
STOCK TRANSFER AGENT
American Securities Transfer and Trust, Denver, Colorado is the
Transfer Agent for the Common Stock.
20
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
- ------------------------------------------------------------------------
AND OTHER SHAREHOLDER MATTERS.
- -----------------------------
(a) MARKET INFORMATION.
Since 1991, when the Registrant deregistered its securities with the
Securities and Exchange Commission, there has been no public market for the
Registrant's shares of common stock. Prior to 1991, the Registrants common
stock had traded only sporadically in the over-the-counter market. To the
Registrant's knowledge, such transactions as did occur may have been
isolated agency trades, or inter-dealer transactions, neither of which
represent the existence of a customary trading market.
(b) HOLDERS.
The number of record holders of the Registrant's common stock on
September 30, 1996 was approximately 398.
(c) DIVIDENDS.
The Registrant has never paid dividends with respect to its common
stock and currently does not have any plans to pay cash dividends in the
future as it intends to retain future earnings to finance the growth of the
business. There are no contractual restrictions on the Registrant's present
or future ability to pay dividends. Future dividend policy is subject to
the discretion of the Board of Directors and is dependent upon a number of
factors, including future earnings, capital requirements and the financial
condition of the Registrant.
ITEM 2. LEGAL PROCEEDINGS.
- --------------------------
The lawsuit entitled COLUMBIA NATURAL RESOURCES, INC. V. TATUM
PETROLEUM CORPORATION, ET AL., assigned Case No. 5:93-CV-0234 in the United
States District Court for the Northern District of Ohio was originally
commenced on February 3, 1993. The plaintiff is Columbia Natural
Resources, Inc., and the defendants are Zachary Tatum, Tatum Petroleum
Corporation, Strata Exploration, Inc., Tatum Petroleum Ohio, Inc. and
Shannon Tatum.
In its complaint, Columbia Natural Resources ("Columbia") claims that
various leases were improperly acquired, that its lease rights were
defeated as a result, and that various defendants conspired to defraud the
plaintiff. In particular, the plaintiff alleges that the defendants
breached contractual duties reportedly arising under three farmout
agreements and, further, allegedly used fraudulent means to conceal the
alleged breaches of contract. The plaintiff has requested damages in
excess of ten million dollars and an award of punitive and treble damages,
with attorney's fees.
In this same case, the defendants, including Tatum Petroleum
Corporation, have asserted a counterclaim against Columbia Natural
Resources for damages. The counterclaim alleges claims for abuse of
process, slander of title to real property, tortious interference with
business
21
<PAGE>
and contractual relations, and fraud and extortion, among others. The
counterclaim seeks damages in excess of ten million dollars, together with
a treble and punitive damage award, and the recovery of attorney's fees.
The litigation pending in the Holmes County, Ohio Common Pleas Court
entitled YODER V. STOCKER & SITLER OIL CO., ET AL., being Case No. 44-14987,
involves a third-party complaint filed by Columbia Natural Resources
against Tatum Petroleum Corporation and others for indemnity, which was
first commenced on May 29, 1991. This case originally involved an action
by landowners to cancel a lease, and after trial the landowners prevailed
and obtained judgment against Columbia Natural Resources and Stocker &
Sitler, which was appealed but eventually settled. The third-party action
is between third-party plaintiff, Columbia Natural Resources, Inc., and
third-party defendants Tatum Petroleum Corporation, Strata Exploration,
Inc. and Tatum Petroleum Ohio, Inc.
In the third-party complaint, Columbia Natural Resources alleges that
the third-party defendants breached contractual duties reportedly arising
under a farmout agreement and, further, the third-party defendant, Tatum
Petroleum Corporation, in producing a breach of the farmout agreement which
created the landowners claim against third-party plaintiff. On that basis,
the third-party complaint seeks indemnity for the amount paid in settlement
to the landowners, together with attorney's fees.
In connection with the third-party action pending in the Holmes
County, Ohio Common Pleas Court litigation, the third-party defendants have
filed a counterclaim. In their counterclaim, the third-party defendants,
including Tatum Petroleum Corporation, seek the recovery of damages for
abuse of process, tortious interference with business dealings and
relationships and deceptive trade practices, among others, and the
counterclaim seeks damages in excess of $25,000.00, punitive damages and
attorney's fees.
In the YODER V. STOCKER & SITLER OIL COMPANY, ET AL. Case, a Holmes
County, Ohio common Pleas Court jury held in favor of the plaintiff
landowners for $300,000.00 on compensatory damages and, further, ruled that
the plaintiffs were entitled to punitive damages against the defendants,
Stocker & Sitler and Columbia Natural Resources, Inc. That verdict was
entered on March 18, 1994. Thereafter, on May 6, 1994 the court awarded
the plaintiffs the sum of $600,000.00 in punitive damages against the
defendants. The court of appeals reversed the punitive damage award, and
during the course of further appeal, the parties reportedly reached a
settlement for a lump sum of approximately $600,000.00, and Columbia
Natural Resources claims that it incurred an additional sum of
approximately $600,000.00 in attorney's fees and expenses relating to the
landowners' claims.
The Company is unable to predict the outcome of the above-referenced
litigation. However, subsequent to September 30, 1996, the Company has
entered into settlement negotiations with Columbia in order, among other
things, to avoid additional costs of continued litigation. A tentative
understanding has been reached, however, a signed release by all parties
has not yet been formalized, but in the opinion of the Company's counsel
the likelihood of consummating the settlement is excellent. Based on this
understanding, the Company has accrued the net present value of the
proposed settlement as of September 30, 1996, which is $34,000 per month to
be paid over eighteen months commencing at the execution of an
22
<PAGE>
agreement. If the settlement is formalized the above cases will be
resolved, at least at they relate to the Company. If the parties are
unable to formalize a settlement based upon the terms of the proposed
agreement, the Company intends to aggressively pursue its counterclaim and
vigorously defend itself against these actions.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
- ------------------------------------------------------
During the last three fiscal years, the Registrant's independent
accountants have not resigned, been dismissed or declined to stand for
reelection.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
- ------------------------------------------------
The Registrant has not sold any unregistered securities during the
past three years.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- --------------------------------------------------
Section 16 of the Registrant's Bylaws provides for the indemnification
of directors and officers of the Registrant as to all expenses incurred or
imposed upon them as a result of actions, suits or proceedings if they act
in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of the Registrant. The Securities and
Exchange Commission does not recognize any as limitations on management's
liability to the extent any such liability may arise from a violation of
the federal securities laws.
23
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . 25
BALANCE SHEETS - March 31, 1996 and September 30, 1996 (Unaudited) . . 26
STATEMENTS OF OPERATIONS - For the Years Ended March 31, 1996
and 1995 and the Six Months Ended September 30, 1996
and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . 27
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - For the Period
from April 1, 1994 to September 30, 1996 (Unaudited) . . . . . . . 28
STATEMENTS OF CASH FLOWS - For the Years Ended March 31, 1996
and 1995 and the Six Months Ended September 30, 1996
and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . 29
NOTES TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . 30
24
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Tatum Petroleum Corporation
Worthington, Ohio
We have audited the accompanying balance sheet of Tatum Petroleum
Corporation as of March 31, 1996, and the related statements of operations,
stockholders' equity, and cash flows for the years ended March 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tatum Petroleum
Corporation as of March 31, 1996, and the results of its operations and its
cash flows for the years ended March 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
June 18, 1996
25
<PAGE>
TATUM PETROLEUM CORPORATION
BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
1996 1996
-------- --------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 416,000 $ 241,000
Receivables:
Oil and gas 642,000 279,000
Joint interest owners 42,000 139,000
Other - 467,000
Inventory 19,000 185,000
---------- ----------
Total current assets 1,119,000 1,311,000
PROPERTY AND EQUIPMENT, at cost:
Oil and gas producing properties
(using the successful efforts method
of accounting):
Proved 6,135,000 6,557,000
Unproved 475,000 583,000
Other equipment 132,000 142,000
---------- ----------
6,742,000 7,282,000
Less accumulated depreciation,
depletion, amortization and
impairment (3,464,000) (3,662,000)
---------- ----------
3,278,000 3,620,000
OTHER ASSETS 20,000 17,000
---------- ----------
TOTAL ASSETS $4,417,000 $4,948,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable $ 360,000 $ 375,000
Accounts payable 230,000 342,000
Related party payable - 54,000
Revenue and ad valorem taxes payable 515,000 497,000
Advances from working interest owners 322,000 47,000
Accrued liabilities 83,000 235,000
Income tax payable 20,000 -
---------- ----------
Total current liabilities 1,530,000 1,550,000
DEFERRED TAX LIABILITY 280,000 345,000
ACCRUED LITIGATION SETTLEMENT - 338,000
COMMITMENT AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
15,000,000 shares,
10,418,855 shares issued and outstanding 104,000 104,000
Additional paid-in capital 4,877,000 4,877,000
Accumulated deficit (2,374,000) (2,266,000)
---------- ----------
Total stockholders' equity 2,607,000 2,715,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,417,000 $4,948,000
========== ==========
See accompanying notes to these financial statements.
26
<PAGE>
TATUM PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDING MONTHS ENDING
MARCH 31, SEPTEMBER 30,
---------------------- ---------------------
1996 1995 1996 1995
--------- -------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES:
Oil and gas sales $3,083,000 $2,270,000 $1,425,000 $1,425,000
Drilling arrangement
income 95,000 180,000 15,000 76,000
Operating fees 114,000 107,000 70,000 47,000
---------- ---------- ---------- ----------
3,292,000 2,557,000 1,510,000 1,548,000
COSTS AND EXPENSES:
Oil and gas production
costs 536,000 559,000 253,000 225,000
General and
administrative expenses 653,000 554,000 305,000 280,000
Depreciation, depletion
and amortization 495,000 403,000 218,000 149,000
Exploration costs 587,000 574,000 339,000 319,000
Dry hole costs 308,000 334,000 88,000 218,000
Legal settlements, net - - 99,000 -
---------- ---------- ---------- ----------
2,579,000 2,424,000 1,302,000 1,191,000
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE) 63,000 12,000 (35,000) 17,000
---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES 776,000 145,000 173,000 374,000
---------- ---------- ---------- ----------
INCOME TAX EXPENSE:
Current (20,000) - - -
Deferred (280,000) - (65,000) (142,000)
---------- ---------- ---------- ----------
(300,000) - (65,000) (142,000)
---------- ---------- ---------- ----------
NET INCOME $ 476,000 $ 145,000 $ 108,000 $ 232,000
========== ========== ========== ==========
NET INCOME PER SHARE $ .05 $ .01 $ .01 $ .02
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 10,418,855 10,418,855 10,418,855 10,418,855
========== ========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
27
<PAGE>
TATUM PETROLEUM CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 1, 1994 THROUGH SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, April 1, 1994 10,418,855 $ 104,000 $4,877,000 $(2,995,000) $1,986,000
Net income - - - 145,000 145,000
---------- --------- ---------- ---------- ----------
BALANCES, March 31, 1995 10,418,855 104,000 4,877,000 (2,850,000) 2,131,000
Net income - - - 476,000 476,000
---------- --------- ---------- ---------- ----------
BALANCES, March 31, 1996 10,418,855 104,000 4,877,000 (2,374,000) 2,607,000
Net income (unaudited) - - - 108,000 108,000
---------- --------- ---------- ---------- ----------
BALANCES, September 30, 1996
(Unaudited) 10,418,855 $ 104,000 $4,877,000 $(2,266,000) $2,715,000
========== ========= ========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
28
<PAGE>
TATUM PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDING MONTHS ENDING
MARCH 31, SEPTEMBER 30,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $476,000 $ 145,000 $ 108,000 $ 232,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation, depletion
and amortization 495,000 403,000 218,000 149,000
Deferred income taxes 280,000 - 65,000 142,000
Gain (loss) on disposal
of equipment (46,000) - 43,000 (10,000)
Changes in operating assets
and liabilities:
Receivables (317,000) (112,000) (201,000) (309,000)
Inventory (9,000) 92,000 (166,000) (5,000)
Prepaid expenses and
other - (24,000) 3,000 (1,000)
Payables 360,000 295,000 112,000 255,000
Accrued liabilities 45,000 (19,000) 231,000 (39,000)
---------- ---------- ---------- ----------
Net cash provided by
operating activities 1,284,000 780,000 413,000 414,000
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property and
equipment (1,370,000) (1,174,000) (621,000) (604,000)
Proceeds from sale of
property and equipment 77,000 - 18,000 10,000
---------- ---------- ---------- ----------
Net cash used in
investing activities (1,293,000) (1,174,000) (603,000) (594,000)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings on line-of-credit 1,400,000 335,000 1,180,000 710,000
Repayments on line-of-credit (1,300,000) (75,000) (1,165,000) (580,000)
---------- ---------- ---------- ----------
Net cash provided by
financing activities 100,000 260,000 15,000 130,000
NET INCREASE (DECREASE) IN CASH 91,000 (134,000) (175,000) (50,000)
CASH, beginning of period 325,000 459,000 416,000 325,000
---------- ---------- ---------- ----------
CASH, end of period $ 416,000 $ 325,000 $ 241,000 $ 275,000
========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for interest $ 19,000 $ 12,000 $ 12,000 $ 12,000
========== ========== ========== ==========
Seismic data received for
working interest in
producing properties $ - $ 421,000 $ - $ -
========== ========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
29
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
NATURE OF OPERATIONS - Tatum Petroleum Corporation (Tatum) was
incorporated in 1984, and is a Delaware corporation. The Company's
principal operations include the acquisition, exploration and
development of oil and gas properties.
INVENTORY - Inventory represents oil field equipment recorded at the
lower of cost or market, and valued using the specific identification
method.
OIL AND GAS PROPERTIES - The Company's investment in oil and gas
properties is accounted for under the successful efforts method of
accounting. Under this method all costs associated with property
acquisition, successful exploratory wells and all developmental wells
are capitalized. Items charged to expense include geological and
geophysical costs, property carrying costs, costs of unsuccessful
exploratory wells and oil and gas production costs. Oil and gas
properties are assessed periodically by management of the Company to
determine whether impairment has occurred. Capitalized costs of proved
properties are amortized using the unit-of-production method on the
basis of estimated proved oil and gas reserves. Costs of exploratory
wells in progress are capitalized and excluded from depletion until
such time as proved reserves are established or impairment is
determined, generally not greater than one year from completion of
drilling. Gains on the sale of unproved properties and on drilling
arrangement income are recognized on the cost recovery method whereby
proceeds are first applied to recover all related property and
drilling costs before any gain is recognized. In addition, for
exploratory wells, a portion of the gain may be deferred to offset
estimated future drilling costs on an interest retained in the related
property. Income from drilling arrangements is recognized under the
completed contract method.
ENVIRONMENTAL COSTS - The Company believes that the cost to plug and
abandon its wells will be offset by the salvage value of the equipment
on those wells. Consequently, cost to plug and abandon wells are not
accrued for over the lives of the related wells.
OTHER PROPERTY AND EQUIPMENT - Depreciation of other equipment is
computed using the straight-line method over the estimated useful
lives of the assets of three to five years. Expenditures for
maintenance and repairs are expensed as incurred, whereas expenditures
for improvements, replacements and major renewals are capitalized.
Gains and losses from retirement or replacement of other property and
equipment are included in operations.
IMPAIRMENT OF LONG-LIVED ASSETS - Effective July 1, 1996, the Company
adopted Financial Accounting Standards Board Statement 121 (FAS 121).
In the event that facts and circumstances indicate that the cost of
assets or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset
would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required.
Adoption of FAS 121 had no effect on the unaudited September 30, 1996
financial statements.
30
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
OPERATING FEES - As operator of oil and gas properties, the Company
receives management fees from oil and gas partnerships for the service
provided. These fees are recorded as income when earned.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in these financial statements and the accompanying notes.
The actual results could differ from those estimates.
The Company's provisions for depreciation and depletion of capitalized
costs of developed oil and gas properties is determined based upon the
estimated quantities of proved oil and gas reserves. The Company's
reserve estimates are determined by an independent petroleum
engineering firm. However, management emphasizes that reserve
estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, these estimates are expected to change as
future information becomes available.
The Company periodically evaluates the carrying value of its developed
oil and gas properties for impairment by comparison to the ceiling for
such properties. In addition to the uncertainties inherent in the
reserve estimation process, the ceiling is affected by historical and
projected prices for oil and natural gas which have typically been
volatile.
It is reasonably possible that the Company's oil and gas reserve
estimates will change in the near term.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair values of
financial instruments under SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS, are determined at discrete points in time
based on relevant market information. The Company believes that the
fair value of its financial instruments approximate the book value.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash
flows, the Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
STOCK-BASED COMPENSATION - In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for
Stock-Based Compensation" (FAS 123), which the Company adopted effective
July 1, 1996. FAS 123 encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options, and
other equity instruments to employees based on fair value. Companies
that do not adopt the fair value accounting rules must disclose the
impact of adopting the new method in the notes to the financial
statements. Transactions in equity instruments with non-employees for
goods or services must be accounted for on the fair value method. The
Company has elected not to adopt the fair value accounting prescribed
by FAS 123 for employees, but is subject to the disclosure
requirements prescribed by FAS 123.
NET INCOME PER SHARE - Net income per share is based on the weighted
average number of shares outstanding, including common stock
equivalents outstanding during the periods.
31
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
UNAUDITED INFORMATION - The balance sheet as of September 30, 1996 and
the statements of operations for the six months ended September 30,
1995 and 1996 were taken from the Company's books and records without
audit. However, in the opinion of management, such information
includes all adjustments (consisting only of normal recurring
accruals) which are necessary to properly reflect the financial
position of the Company as of September 30, 1996 and the results of
operations for the six months ended September 30, 1995 and 1996. The
interim information is not necessarily indicative of results of
operations expected for the year.
2. INCOME TAXES:
------------
The Company follows the policy of expensing all intangible drilling
and development costs for income tax purposes, whereas such costs are
capitalized for successful wells for financial reporting purposes.
Other timing differences relate to depreciation and depletion methods
used for tax and financial reporting.
The Company has adopted the liability method of accounting for income
taxes as prescribed by Statement of Financial Accounting Standards No.
109 (SFAS 109). Under SFAS 109, the Company reports differences
between book and tax income as deferred tax assets or liabilities.
At March 31, 1996, the Company had available, subject to applicable
limitations, tax net operating loss carryforwards (NOL's) of
approximately $1,018,000 to reduce future taxable income. These
NOL's, if not utilized, will expire in the years 2003 through 2010.
Deferred tax assets and liabilities consist of the following:
MARCH 31,
---------
1996
---------
Deferred assets (liabilities):
Net operating loss carryforward $ 380,000
Property and equipment basis differences (660,000)
----------
Net deferred tax liability $ (280,000)
==========
At March 31, 1995, the Company had a valuation allowance of $45,000
which offset a net deferred tax asset. Due to the use of net
operating loss carryforwards to offset current year taxable income,
the valuation allowance decreased by $45,000 in fiscal 1996.
32
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
Total income tax expense differed from the amounts computed by
applying the Federal statutory tax rates to pretax income as follows:
1996 1995
---- ----
Total expense computed by applying
the U.S. statutory rate 34% 34%
State taxes 4% -%
Use of net operating loss carryforwards (2%) (34%)
Effect of alternative minimum tax and other 3% -%
--- ---
39% $ -%
=== ===
3. NOTE PAYABLE:
------------
The Company has a line of credit for $400,000, subject to a borrowing
base equal to 75% of the Company's receivables which are less than 90
days past due, with interest at prime plus 1.5% (total of 9.75% at
March 31, 1996 and September 30, 1996). As of March 31, 1996, there
was $360,000 outstanding under the line-of-credit. The line-of-credit
expires in September 1997 and is collateralized by the accounts
receivable and a negative pledge covering all the Company's assets.
4. COMMITMENT AND CONTINGENCIES:
----------------------------
The Company leases its office space, which expires May 1997. Minimum
required future lease payments under this noncancellable lease for the
years ending March 31 are as follows:
1997 $ 18,000
1998 18,000
1999 3,000
---------
$ 39,000
=========
Total rental expense charged to operations was $16,400 and $15,800 for
the years ended March 31, 1996 and 1995, respectively.
CONCENTRATIONS OF CREDIT RISK - Credit risk represents the accounting
loss that would be recognized at the reporting date if counterparties
failed completely to perform as contracted. Concentrations of credit
risk (whether on or off balance sheet) that arise from financial
instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability
to meet contractual obligations to be similarly effected by changes in
economic or other conditions described below. In accordance with FASB
Statement No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL
INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH
33
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
CONCENTRATIONS OF CREDIT RISK, the credit risk amounts shown do not
take into account the value of any collateral or security.
The Company operates in one industry segment, oil and gas. A
geographic concentration exists because the Company's customers are
generally located in the Eastern United States. Approximately 80% of
the Company's 1996 oil and gas revenues are from gas production, which
is primarily purchased by two customers. The Company does not believe
it is dependent upon either customer, due to the nature of its
production. Financial instruments that subject the Company to credit
risk consist principally of accounts receivable.
During the year, the Company also maintained an uninsured money market
account with a financial institution. At year-end, the Company had
approximately $400,000 deposited in this account.
LITIGATION - The Company is currently involved in a lawsuit entitled
COLUMBIA NATURAL RESOURCES, INC. (COLUMBIA) V. TATUM PETROLEUM
CORPORATION, ET AL. in the United States District Court for the
Northern District of Ohio. The action involves claims by Columbia
that various leases were improperly acquired, that its rights were
defeated, and that the various defendants conspired to defraud the
plaintiff. Likewise, the defendants, including the Company, have
asserted a counterclaim against Columbia for damages. The case and
claims of Columbia had originally been dismissed, but on appeal to the
United States Court of Appeals the decision was reversed and remanded
for further proceedings. The prayer for relief in the second amended
complaint seeks an accounting, recovery of actual and punitive
damages, and RICO-enhanced damages, which is successfully asserted
against the Company would be substantial, and most likely would impair
the Company's ability to continue operations. The prayer of the
counterclaim by the Company and others also seeks significant damages
against Columbia. It is the belief of counsel that a reasonable
chance exists for summary judgment on the complaint of Columbia, and
a dismissal of same, given that the same Court previously had
dismissed the complaint of Columbia, and the legal defenses available
to the Company are supported by sufficient and demonstrable evidence.
Subsequent to September 30, 1996, the Company has entered into
settlement negotiations with Columbia in order, among other things, to
avoid additional costs by continued litigation. A tentative
understanding has been reached, however, a signed release by both
parties has not yet been formalized, but in the opinion of the
Company's counsel the likelihood of consummating the settlement is
excellent. Based on this understanding, the Company has accrued the
net present value of the proposed settlement as of September 30, 1996,
which is $34,000 per month to be paid over eighteen months commencing
at the execution of an agreement. If the parties are unable to
formalize a settlement based upon the terms of the proposed agreement,
the Company intends to aggressively pursue its counterclaim and
vigorously defend itself against Columbia's action.
34
<PAGE>
Bankruptcy Settlement - In October 1996, the Company received from a
prior affiliate of Columbia a bankruptcy settlement of approximately
$467,000 which was recorded as a receivable as such amount was agreed
to prior to September 30, 1996.
5. RELATED PARTY TRANSACTIONS:
--------------------------
The Company transports a portion of its gas production over a gas
gathering system and a pipeline which are owned by an entity
affiliated with the president. During the years ended March 31, 1996
and 1995 and the six months ended September 30, 1996 and 1995, the
Company paid approximately $226,000, $159,000, $111,000, and $108,000
in gathering fees and $56,000, $34,000, $27,000, and $28,000,
respectively, in compression fees for the Company's share of gas
transported over these lines to the entity. These activities resulted
in a net payable to the affiliated entity of $54,000 at September 30,
1996. Additional fees for company gas transported over another
pipeline previously owned by the Company of approximately $34,000,
$39,000, $23,000, and $16,000, respectively, have been forgiven in
exchange for administration services the Company provides the
pipeline. In addition in 1995, a party related to the Company
provided seismic data with a value of approximately $421,000 in return
for a working interest ownership in certain wells. The value was
based on amounts paid by the related party to third parties, and has
been expensed in the accompanying financial statements.
6. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES:
--------------------------------------------------
All oil and gas operations of the Company are conducted in the United
States. Capitalized costs relating to oil and gas producing
activities are as follows:
MARCH 31,
---------------------
1996 1995
-------- --------
Proved oil and gas producing
properties $5,681,000 $5,286,000
Wells in progress 454,000 364,000
Unproved properties 475,000 376,000
---------- ----------
6,610,000 6,026,000
Accumulated depreciation, depletion
and amortization (3,400,000) (3,639,000)
---------- ----------
$3,210,000 $2,387,000
========== ==========
35
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
Costs incurred in oil and gas producing activities, whether
capitalized or expensed, during the years ended March 31, 1996 and
1995 are as follows:
1996 1995
-------- --------
Acquisition costs $ 148,000 $ 271,000
========== ==========
Exploration costs $1,863,000 1,537,000
========== ==========
The Company had no development cost, as each new well was drilled on
a new reservoir.
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES (UNAUDITED) -
Proved oil and gas reserves are the estimated quantities of crude oil,
which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed
oil and gas reserves are those expected to be recovered through
existing wells with existing equipment and operating methods.
However, reserve information should not be construed as the current
market value of the Company's oil and gas reserves or the costs that
would be incurred to obtain equivalent reserves. Reserve calculations
involve the estimation of future net recoverable reserves of oil and
gas and the timing and amount of future net revenues to be received
therefrom. These estimates are based on numerous factors, many of
which are variable and uncertain. Accordingly, it is common for the
actual production and revenues to vary from earlier estimates.
36
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
The Company has elected to disclose only proved developed reserves, as
the ultimate recovery of proved undeveloped reserves is uncertain.
Reserve estimates for recently drilled wells are subject to
substantial upward or downward revisions after production history
obtained. Hence, reserve estimates and estimates of future net
revenues from production may be subject to substantial revision from
year to year. Reserve information presented herein is based on
reports prepared by independent petroleum engineers for 1996 and 1995.
Set forth below is the unaudited summary of the changes in the net
quantities of the Company's proved oil and gas reserves (in equivalent
MCF's) as of March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------------------- --------------------
Oil Gas Oil Gas
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Proved developed
reserves, beginning
of year 99,000 3,218,000 130,000 1,814,000
Production (35,000) (1,039,000) (35,000) (673,000)
Discoveries,
extensions and
other additions 26,000 773,000 49,000 2,379,000
Revisions of
previous
estimates 7,000 260,000 (45,000) (302,000)
---------- ---------- ---------- ----------
Proved developed
reserves, end
of year 97,000 3,212,000 99,000 3,218,000
========== ========== ========== ==========
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED) -
Statement of Financial Accounting Standards No. 69 prescribes
guidelines for computing a standardized measure of future net cash
flows and changes therein relating to estimated proved reserves. The
Company has followed these guidelines which are briefly discussed
below.
Future cash inflows and future production and development costs are
determined by applying year-end prices and costs to the estimated
quantities of oil and gas to be produced. As of year-end, the Company
believes gas prices were unusually high, which has increased the
reserve value for gas not under fixed price long-term contracts.
Estimated future income taxes are computed using current statutory
income tax rates including consideration for estimated future
statutory depletion and tax credits. The resulting future net cash
flows are reduced to present value amounts by applying a 10% annual
discount factor.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such,
do not necessarily reflect the Company's expectations for actual
revenues to be derived from those reserves nor their present worth.
The limitations inherent in
37
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
the reserve quantity estimation process, as discussed previously, are
equally applicable to the standardized measure computations since
these estimates are the basis for the valuation process.
MARCH 31,
----------------------
1996 1995
-------- --------
Future cash inflows $16,638,000 $9,474,000
Future production costs (3,023,000) (2,338,000)
Future income tax expense (4,046,000) (1,831,000)
---------- ----------
Future net cash flows 9,569,000 5,305,000
10% annual discount for estimated
timing of cash flows (3,862,000) (1,538,000)
---------- ----------
Standardized measure of discounted
future net cash flows $5,707,000 $3,767,000
========== ==========
The following are the principal sources of change in the standardized
measure of discounted future net cash flows for the year ended March
31, 1996:
Standardized measure, March 31, 1995 $3,767,000
Sales of oil and gas, net of
production costs (2,546,000)
Extensions, discoveries and
other, net 3,155,000
Net change due to revisions
in quantity estimates 547,000
Net change due to changes in
prices and production costs 2,620,000
Net change in income taxes (2,214,000)
Accretion of discount 378,000
----------
Standardized measure, March 31, 1996 $5,707,000
==========
38
<PAGE>
PART III
ITEMS 1 AND 2. INDEX AND DESCRIPTION OF EXHIBITS.
- -------------------------------------------------
Number Description
------ -----------
2.1 Certificate of Incorporation, dated July 10, 1985*
2.2 By-laws*
10.1 Natural Gas Purchase Agreement between Registrant and
Energy Marketing Services, Inc. dated December 14,
1994*
10.2 Gas Purchase Agreements between the Registrant and East
Ohio Gas Company #10164, #10811 and #11286.*
24.1 Consent of Robert L. Williams, Consulting Geologist*
24.2 Consent of Hein + Associates LLP dated January 13, 1997
* Previously filed
39
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
TATUM PETROLEUM CORPORATION
Date: February 7, 1997 By /s/ Zachary T. Tatum
---------------------------------
Zachary T. Tatum, President, Chief
Executive Officer, Principal
Financial and Accounting Officer
Date: February 7, 1997 By /s/ Lori Powell
---------------------------------
Lori Powell, Controller and Treasurer
40
EXHIBIT 24.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration Statement on Form 10-SB of
Tatum Petroleum Corporation of our reports dated June 18, 1996
accompanying the financial statements of Tatum Petroleum Corporation
contained in such Registration Statement.
/s/ Hein + Associates LLP
- -----------------------------
HEIN + ASSOCIATES LLP
Denver, Colorado
February 7, 1997
