SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 24, 1997
PEASE OIL AND GAS COMPANY
(Exact name of registrant as specified in its charter)
Nevada 0-6580 84-0285520
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(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation Identification No.
751 Horizon Court, Suite 203, Grand Junction, Colorado 81506-8718
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (970) 245-5917
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Item 5. OTHER EVENTS
As discussed in the Registrant's quarterly report on Form 10-QSB at
September 30, 1997, the Registrant began exploring the possibility of selling
all its Rocky Mountain oil and natural gas assets, including the gas plant,
service and supply operations, and the oil and gas properties, late in the third
quarter of 1997. In order to explore this possibility, the Registrant engaged,
on a best efforts basis, a divestment specialist firm to develop and distribute
a package to potential purchasers. The divestment package was completed and
distributed in November 1997. Today, the Registrant has entered into
negotiations to sell all the Rocky Mountain assets to a single purchaser. The
closing of this contemplated transaction is subject to several contingencies,
including, but not limited to, due diligence, future commodity prices and the
execution of a mutually agreeable Purchase and Sale Agreement.
Because the potential purchaser intends to hedge the acquired production,
the purchase price of this transaction will be subject to the future commodity
prices at the time a Purchase and Sale Agreement is executed. With the recent
volatility in the commodities market, the Registrant cannot determine at this
time what the ultimate purchase price may be. However, based on current oil and
gas prices the expected purchase price will be substantially below the carrying
value of the corresponding assets and the Registrant expects a fourth quarter
charge between $5.5 and $6.5 million associated with this transaction. Should
the transaction close within the first quarter of 1998, as expected, an
impairment loss would be recognized in the fourth quarter of 1997. If these
assets are sold, the future of the Registrant will be dependent on the success
of its planned Gulf Coast exploration program and the ability of the Registrant
to raise the necessary capital to complete that program.
The Registrant believes that the potential loss on the contemplated
sale is a result of certain recent events and circumstances that have transpired
in the Rocky Mountain region and throughout the entire oil and gas industry. In
particular, the Denver-Julesburg Basin ("DJ Basin"), where most of the
Registrant's Rocky Mountain assets are held, has recently experienced several
significant divestitures from major producers in that area. The Registrant
believes that these major divestitures, compounded with the recent drop in oil
and gas prices, have depressed both the marketability of the assets and the
current potential selling price.
However, the Registrant has decided to pursue the sale of its Rocky
Mountain assets in light of its focus on expanding its operations through an
aggressive exploration program in the Gulf Coast. Even if the contemplated sale
falls through, it is still reasonably likely that the Rocky Mountain assets will
be sold sometime within the next year. Therefore, should the contemplated sale
fall through, the Company will complete an evaluation of the ultimate
recoverability of all the Rocky Mountain assets pursuant to Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of ("SFAS No. 121").
When certain events or changes in circumstances indicate that the carrying
amount of an asset (or group of assets) that an entity expects to sell may not
be fully recoverable, SFAS No. 121 requires impairment to be recognized to the
extent the carrying amount exceeds the estimated fair value. Accordingly, the
Registrant would likely recognize a similar impairment charge on the Rocky
Mountain assets during the fourth quarter of 1997 even if the assets are not
sold in the contemplated transaction since it believes the carrying value of
those assets is not likely to be recovered before they are ultimately disposed
of.
The loss on the contemplated sale (or the potential impairment charge)
will represent a significant portion of the expected net loss in 1997. Should a
formal Purchase and Sale Agreement be executed in the future, the Registrant
will then file the appropriate Pro-forma Financial Statements and Exhibits as
required by Item 2 of Form 8-K.
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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 hereunto duly authorized.
Date: December 24, 1997
PEASE OIL AND GAS COMPANY
By:_________________________________
Willard H. Pease, Jr., President
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