<PAGE>
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) August 18, 1998
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VINTAGE PETROLEUM, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-10578 73-1182669
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
4200 One Williams Center, Tulsa, Oklahoma 74172
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (918) 592-0101
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Not applicable
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(Former name or former address, if changed since last report)
<PAGE>
Item 1. Changes in Control of Registrant.
Not applicable.
Item 2. Acquisition or Disposition of Assets.
Not applicable.
Item 3. Bankruptcy or Receivership.
Not applicable.
Item 4. Changes in Registrant's Certifying Accountant.
Not applicable.
Item 5. Other Events.
Effective January 1, 1998, Vintage Petroleum, Inc. (the "Company")
elected to change its accounting method for oil and gas properties from
the full cost method to the successful efforts method. Management
believes that the successful efforts method of accounting is preferable
and that the accounting change will more accurately present the results
of the Company's exploration and development activities, minimize asset
write-offs caused by temporary declines in oil and gas prices and
reflect an impairment in the carrying value of the Company's oil and
gas properties only when there has been a permanent decline in their
fair value.
As a result of this change in accounting, all prior year financial
statements have been retroactively restated to give effect to this
change in accounting method. The effect, net of income taxes, was a
reduction of retained earnings as of December 31, 1997, of $46.0
million, primarily resulting from a reduction of net property, plant
and equipment of $74.7 million and a reduction of the deferred income
tax liability of $28.7 million. The change in accounting method
decreased net income by $17.3 million ($0.33 per diluted share), $8.0
million ($0.16 per diluted share) and $1.9 million ($0.05 per diluted
share) for 1997, 1996 and 1995, respectively.
The following restated financial statements and related data of the
Company are included as part of this Form 8-K:
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Page
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Summary Financial and Operating Data (As Restated) 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations (As Restated) 5-13
Report of Independent Public Accountants 14
Financial Statements:
Consolidated Balance Sheets as of December 31, 1997
and 1996 (As Restated) 15
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 (As Restated) 16
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1997, 1996
and 1995 (As Restated) 17
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 (As Restated) 18
Notes to Consolidated Financial Statements (As Restated) 19-44
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<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 (a) 1996 (a) 1995 (a) 1994 (a) 1993 (a)
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(In thousands, except per share amounts and operating data)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Income Statement Data:
Oil and gas sales $ 355,113 $ 258,368 $160,254 $141,357 $113,259
Gathering revenues 18,063 20,508 12,380 14,635 7,861
Gas marketing revenues 45,981 31,920 20,912 27,285 36,175
Total revenues 416,590 312,147 195,215 185,751 160,709
Operating expenses 172,676 138,438 95,121 96,549 85,205
Exploration costs 12,667 10,192 3,834 3,012 1,372
Depreciation, depletion
and amortization 96,307 66,861 48,336 39,341 31,889
Interest 36,762 30,109 20,178 12,002 6,943
Income before cumulative
effect of accounting change (b) 54,954 33,188 9,449 14,389 15,839
Net income 54,954 33,188 9,449 14,389 17,564
Earnings per share before effect
of accounting change (b):
Basic 1.07 .69 .23 .36 .40
Diluted 1.05 .68 .22 .34 .38
Earnings per share:
Basic 1.07 .69 .23 .36 .44
Diluted 1.05 .68 .22 .34 .42
Dividends declared per share .065 .0525 .0425 .0325 .0225
---------- ---------- -------- -------- --------
Balance Sheet Data (end of year):
Total assets $ 915,394 $ 766,816 $613,397 $377,010 $352,966
Long-term debt, less current portion 451,096 372,390 315,846 186,548 174,164
Stockholders' equity 337,578 236,406 203,265 137,210 124,149
---------- ---------- -------- -------- --------
OPERATING DATA
Production:
Oil (MBbls) 15,457 11,939 7,608 6,657 4,785
Gas (MMcf) 42,691 32,366 30,610 28,884 22,504
---------- ---------- -------- -------- --------
Average Sales Prices:
Oil (per Bbl) $ 17.02 $ 16.73 $ 15.26 $ 13.53 $ 14.14
Gas (per Mcf) 2.16 1.81 1.46 1.78 2.03
---------- ---------- -------- -------- --------
Proved Reserves (end of year):
Oil (MBbls) 187,768 178,296 147,871 70,789 63,277
Gas (MMcf) 552,163 382,846 310,762 281,638 273,142
---------- ---------- -------- -------- --------
Present value of estimated future
net revenues before income taxes
discounted at 10 percent (in thousands):
Oil and gas properties $1,222,560 $1,807,137 $894,249 $446,987 $359,978
Gathering systems 5,940 10,364 10,641 9,215 8,105
Standardized measure of discounted
future net cash flows (in thousands) 1,016,645 1,392,841 736,546 385,721 339,701
---------- ---------- -------- -------- --------
</TABLE>
Significant acquisitions of producing oil and gas properties during 1997, 1995
and 1993 affect the comparability between the Financial and Operating Data for
the years presented above. Earnings per share and dividends declared per share
amounts have been adjusted to give effect to the Company's two-for-one common
stock split effected on October 7, 1997.
(a) Restated for change in accounting method. See Note 1 to the Company's
financial statements included elsewhere in this Form 8-K.
(b) Represents results before the cumulative effect on prior years of adopting
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(AS RESTATED)
CHANGE IN ACCOUNTING METHOD
Effective January 1, 1998, the Company elected to convert from the full
cost method to the successful efforts method of accounting for its investments
in oil and gas properties. The Company believes that the successful efforts
method of accounting is preferable, as it will more accurately present the
results of the Company's exploration and development activities, minimize asset
write-offs caused by temporary downward oil and gas price movements and reflect
an impairment in the carrying value of its oil and gas properties only when
there has been a permanent decline in their fair value. Accordingly, the Company
has retroactively restated its previously issued financial statements to conform
with successful efforts accounting. The effect, net of income taxes, was to
reduce December 31, 1997, retained earnings by $46.0 million primarily resulting
from a reduction of net property, plant and equipment of $74.7 million and a
reduction of the deferred income tax liability of $28.7 million.
In addition to the impact from acquisition, exploitation and exploration
activities, the Company anticipates several changes due to the adoption of the
successful efforts accounting method. DD&A expense may be somewhat lower on a
per BOE basis relative to what it was under the full cost method principally
because the aggregate restated costs subject to amortization are lower. General
and administrative expense per BOE of production is likely to be higher as the
cost of exploration and acquisition related overhead is expensed rather than
capitalized and amortized. In addition, the Company's earnings will have an
exploration expense component associated with the recognition of certain
exploration expenditures, including geological and geophysical costs and
exploratory dry hole costs, which are expensed in the period incurred rather
than capitalized and amortized as was the case under the full cost method.
RESULTS OF OPERATIONS
The Company's results of operations have been significantly affected by its
success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation and exploration activities.
Fluctuations in oil and gas prices have also significantly affected the
Company's results. Principally through acquisitions, the Company has achieved
significant increases in its oil and gas production. The following table
reflects the Company's average oil and gas prices and its oil and gas production
for the periods presented:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1997 1996 1995
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<S> <C> <C> <C>
AVERAGE PRICES:
Oil (per Bbl) -
U.S........................... $ 17.23 $ 17.19 $ 15.44
Argentina..................... 16.67 15.91 13.98
Bolivia....................... 16.52 - -
Total......................... 17.02 16.73 15.26
Gas (per Mcf) -
U.S........................... $ 2.33 $ 1.81 $ 1.46
Bolivia....................... 1.10 - -
Total......................... 2.16 1.81 1.46
PRODUCTION:
Oil (MBbls) -
U.S........................... 9,692 7,694 6,647
Argentina..................... 5,630 4,245 961
Bolivia....................... 135 - -
Total......................... 15,457 11,939 7,608
Gas (MMcf) -
U.S........................... 36,623 32,366 30,610
Bolivia....................... 6,068 - -
Total......................... 42,691 32,366 30,610
Total MBOE........................ 22,573 17,333 12,710
</TABLE>
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<PAGE>
Average U.S. oil prices received by the Company fluctuate generally with
changes in the West Texas Intermediate ("WTI") posted prices for oil. The
Company's Argentina oil production is sold at WTI spot prices less a specified
differential. The Company experienced a two percent increase in its average oil
price in 1997 compared to 1996. During 1997, the impact of Argentina oil hedges
reduced the Company's overall average oil price 24 cents to $17.02 per Bbl and
its average Argentina oil price was reduced 66 cents to $16.67 per Bbl.
Approximately 49 percent of the 1997 Argentina oil production was covered by
hedges. Oil hedges reduced the Company's overall 1996 average oil price $2.00 to
$16.73 per Bbl. The Company's 1996 average U.S. oil price was reduced $1.47 to
$17.19 per Bbl while its average Argentina oil price was reduced $2.96 to $15.91
per Bbl. Overall, average realized oil prices in 1996 exceeded 1995 by 10
percent. Before the impact of oil hedges, the Company's average realized oil
prices for 1997, 1996 and 1995 were approximately 84 percent, 85 percent and 82
percent of the average NYMEX reference price, respectively.
Average U.S. gas prices received by the Company fluctuate generally with
changes in spot market prices, which may vary significantly by region. The
Company's Bolivia average gas price is tied to a long-term contract for which
the base price is adjusted for changes in specified fuel oil indexes. The
Company's average gas price for 1997 was 19 percent higher than 1996 while its
1996 average gas price exceeded 1995 by 24 percent. Average realized gas prices
for 1996 were negatively impacted by five cents per Mcf as a result of certain
gas hedges that were in place for 40,000 Mcf of gas per day for the period
January through March 1996.
The Company has previously engaged in oil and gas hedging activities and
intends to continue to consider various hedging arrangements to realize
commodity prices which it considers favorable. Currently, there are no oil or
gas hedges in place.
Relatively modest changes in either oil or gas prices significantly impact
the Company's results of operations and cash flow. However, the impact of
changes in the market prices for oil and gas on the Company's average realized
prices may be reduced from time to time based on the level of the Company's
hedging activities. Based on 1997 oil production, a change in the average oil
price realized by the Company of $1.00 per Bbl would result in a change in net
income and cash flow before income taxes for the year of approximately $11.4
million and $15.0 million, respectively. A 10 cent per Mcf change in the average
price realized by the Company for gas would result in a change in net income and
cash flow before income taxes for the year of approximately $2.6 million and
$4.1 million, respectively, based on 1997 gas production.
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<PAGE>
PERIOD TO PERIOD COMPARISONS
During 1995, 1996 and 1997, the Company made various acquisitions which
significantly impacted the period to period comparisons. Acquisitions made
during 1995 (the "1995 Acquisitions") include the purchase of certain oil and
gas properties from Texaco Exploration and Production, Inc. ("Texaco") (the
"Texaco Properties") in May 1995, the acquisition of a controlling interest in
Cadipsa, S.A., an Argentina oil and gas exploration company which was publicly
traded until September 26, 1996 ("Cadipsa"), in July 1995, the acquisition of
Vintage Oil Argentina, Inc., formerly BG Argentina, S.A. ("Vintage Argentina"),
in September 1995, and the acquisition of certain Argentina oil and gas
properties from Astra Compania Argentina de Petroleo S.A. and Shell Compania
Argentina de Petroleo S.A. (collectively, the "Astra/Shell Properties") in
November 1995 and December 1995, respectively. Acquisitions made during 1996
(the "1996 Acquisitions") include the purchase of certain oil and gas properties
and facilities from Exxon Company, U.S.A. in November 1996 and the acquisition
of Vintage Petroleum Boliviana Ltd., formerly Shamrock Ventures (Boliviana) Ltd.
("Vintage Boliviana"), from affiliates of Diamond Shamrock, Inc. and
Austrofueguina, S.A. in December 1996. In April 1997, the Company purchased
certain oil and gas properties and facilities from subsidiaries of Burlington
Resources Inc. (the "Burlington Properties").
The Company's consolidated revenues and expenses for 1995, 1996 and 1997
include the consolidation of 100 percent of Cadipsa from the date of acquisition
under the purchase method of accounting. The minority interest in income (loss)
of subsidiary reflects the portion of Cadipsa's income (loss) attributable to
the minority ownership for the years ended December 31, 1995, 1996 and 1997.
Effective July 1, 1997, the operations of Cadipsa were merged into Vintage
Argentina and Cadipsa became inactive and is awaiting governmental approval of
formal dissolution.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net income was $54.9 million for the year ended December 31, 1997, up 66
percent from $33.2 million in 1996. Increases in the Company's oil and gas
production of 30 percent on an equivalent barrel basis, an increase of 19
percent in natural gas prices, and an increase of two percent in oil prices are
primarily responsible for the increase in net income. The production increases
primarily relate to the acquisition of the Burlington Properties, exploitation
activities in Argentina, exploration activities in the Galveston Bay area, and
the 1996 Acquisitions.
Oil and gas sales increased $96.7 million (37 percent), to $355.1 million
for 1997 from $258.4 million for 1996. A 29 percent increase in oil production
and a two percent increase in average oil prices combined to account for $63.3
million of the increase. A 32 percent increase in gas production and a 19
percent increase in average gas prices contributed to an additional $33.4
million increase.
Other income (expense) decreased $3.9 million, to an expense of $2.5
million for 1997 from income of $1.4 million for 1996, due primarily to a $5.5
million charge in 1997 related to an adverse judgement in a lawsuit involving
the handling of proceeds received by the Company from a 1992 gas contract
termination. The charge was partially offset by a $1.6 million gain recognized
on the sale of a gas gathering system.
Lease operating expenses, including production taxes, increased $22.4
million (24 percent), to $114.3 million for 1997 from $91.9 million for 1996.
The increase in lease operating expenses is due primarily to costs associated
with the Burlington Properties, the 1996 Acquisitions, and an increase in
severance taxes due to higher oil and gas sales. Lease operating expenses per
equivalent barrel produced decreased to $5.07 in 1997 from $5.30 for 1996.
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<PAGE>
Exploration costs increased $2.5 million (24 percent) to $12.7 million for
1997 from $10.2 million for 1996. The Company's 1997 exploration costs included
$6.6 million for unsuccessful exploratory drilling, $5.6 million for the
acquisition of seismic data and $0.5 million in lease impairments. The Company's
1996 exploration costs included $6.9 million for the acquisition of seismic
data, $3.2 million for unsuccessful exploratory drilling and $0.1 million in
lease impairments.
Impairments of oil and gas properties of $8.8 million were recognized in
1997, compared to no impairments in 1996, due primarily to the decline in oil
prices which took place in the last quarter of 1997. The Company reviews its
proved properties for impairment on a field basis and recognizes an impairment
whenever events or circumstances (such as declining oil and gas prices) indicate
that the properties' carrying value may not be recoverable. The impairment
provision is based on the excess of carrying value over fair value.
General and administrative expenses increased $4.5 million (19 percent), to
$27.4 million for 1997 from $22.9 million for 1996, due primarily to the
acquisition of Vintage Boliviana, the addition of personnel as a result of
the acquisition of the Burlington Properties and additional costs associated
with unsuccessful acquisition activities.
Depreciation, depletion and amortization increased $29.4 million (44
percent), to $96.3 million for 1997 from $66.9 million for 1996, due primarily
to the 30 percent increase in production on an equivalent barrel basis. The
Company's average DD&A rate per equivalent barrel produced for 1997 was $4.14
compared to $3.73 for 1996.
Interest expense increased $6.7 million (22 percent), to $36.8 million for
1997 from $30.1 million for 1996, due primarily to a 29 percent increase in the
Company's total average outstanding debt as a result of the acquisition of the
Burlington Properties on April 1, 1997, and the acquisitions made late in 1996.
The increase was partially offset by a decrease in the Company's overall average
interest rate from 8.36% in 1996 to 8.01% in 1997.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net income was $33.2 million for the year ended December 31, 1996, up 251
percent from $9.4 million in 1995. Increases in the Company's oil and gas
production of 36 percent on an equivalent barrel basis, an increase of 24
percent in natural gas prices, and an increase of 10 percent in oil prices are
primarily responsible for the increase in net income. The production increases
primarily relate to the 1995 Acquisitions.
Oil and gas sales increased $98.1 million (61 percent), to $258.4 million
for 1996 from $160.3 million for 1995. A 57 percent increase in oil production
and a 10 percent increase in average oil prices combined to account for $83.7
million of the increase. A six percent increase in gas production and a 24
percent increase in average gas prices contributed to an additional $14.4
million increase.
Lease operating expenses, including production taxes, increased $25.1
million (38 percent), to $91.9 million for 1996 from $66.8 million for 1995.
The increase in lease operating expenses is due primarily to the 1995
Acquisitions. Lease operating expenses per equivalent barrel produced increased
one percent to $5.30 in 1996 from $5.25 for 1995.
Exploration expenses increased $6.4 million (168 percent) to $10.2 million
for 1996 from $3.8 million for 1995. The Company's 1996 exploration costs
included $6.9 million for the acquisition of seismic data, $3.2 million for
unsuccessful exploratory drilling and $0.1 million in lease impairments. The
Company's 1995 exploration costs included $2.5 million for the acquisition of
seismic data, $1.1 million for unsuccessful exploratory wells and $0.2 million
in lease impairments.
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<PAGE>
General and administrative expenses increased $7.4 million (48 percent), to
$22.9 million for 1996 from $15.5 million for 1995, due primarily to the
acquisitions of Cadipsa and Vintage Argentina in the last half of 1995 and
additional costs associated with unsuccessful acquisition activities.
Depreciation, depletion and amortization increased $18.5 million (38
percent), to $66.8 million for 1996 from $48.3 million for 1995, due primarily
to the 36 percent increase in production on an equivalent barrel basis. The
Company's average DD&A rate per equivalent barrel produced for 1996 was $3.73
compared to $3.61 for 1995.
Interest expense increased $9.9 million (49 percent), to $30.1 million for
1996 from $20.2 million for 1995, due primarily to a 24 percent increase in the
Company's total average outstanding debt related primarily to the 1995
Acquisitions.
CAPITAL EXPENDITURES
During 1997, the Company's domestic oil and gas capital expenditures
totaled $193.8 million. Acquisitions of domestic producing oil and gas
properties totaled $133.5 million, the largest being the April 1997 acquisition
of the Burlington Properties for $102.7 million. Funds for these acquisitions
were provided by advances under the Company's revolving credit facility. During
1997, the Company's international oil and gas capital expenditures of $64.8
million included $52.8 million in Argentina, primarily on exploitation and
exploration activities.
During 1996, the Company's domestic oil and gas capital expenditures
totaled $108.0 million of which $50.5 million were for acquisitions of producing
oil and gas properties. The largest of these acquisitions was approximately
$28.5 million for producing oil and gas properties located in south Alabama
acquired from Exxon Company, U.S.A. Funds for these acquisitions were provided
by advances under the Company's revolving credit facility. The Company's 1996
international oil and gas capital expenditures of $88.8 million included
approximately $48.0 million in Argentina, primarily for exploitation activities,
and $37.0 million in Bolivia related to the acquisition of Vintage Boliviana.
Funds for the purchase were provided by advances under the Company's revolving
credit facility.
The Company is committed to perform 17,728 work units related to its
concession rights in the Naranjillos field in Santa Cruz Province, Bolivia
awarded in late 1997. The work unit commitment is guaranteed by the Company
through an $88.6 million letter of credit; however, the Company anticipates that
it will fulfill this three-year work unit commitment through approximately $50
to $60 million of various seismic and drilling capital expenditures. In
addition, the Company's commitment to perform 1,400 work units related to an
exploration program within the Chaco Block in Bolivia was fulfilled during 1998
through acquisitions of 3-D seismic and the drilling of two wells. Under the
Company's exploration contract on Block 19 in Ecuador, the Company is required
to participate in the drilling of one additional well. The Company expects to
drill the well during 1999 at a cost of approximately $4.0 million.
The Company is also committed to spend approximately $11.0 million in the
Republic of Yemen over the next two and one-half years beginning July 28, 1998.
The expenditures will include the acquisition and interpretation of over 150
square kilometers of seismic and the drilling of three exploration wells. At
the end of the first two and one-half years, the Company has the option to
extend the work program for a second two and one-half year period with similar
work and capital commitments required.
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<PAGE>
Except for the commitments discussed above, the timing of most of the
Company's capital expenditures is discretionary with no material long-term
capital expenditure commitments. Consequently, the Company has a significant
degree of flexibility to adjust the level of such expenditures as circumstances
warrant. The Company primarily uses internally generated cash flow to fund
capital expenditures other than significant acquisitions and anticipates that
its cash flow, net of debt service obligations, coupled with advances under its
revolving credit facility, will be sufficient to fund its planned $185 million
of non-acquisition capital expenditures during 1998. The Company's planned 1998
non-acquisition capital expenditure budget is currently allocated 60 percent to
exploitation activities, including development and infill drilling, and
approximately 40 percent to exploration activities. The Company does not have a
specific acquisition budget since the timing and size of acquisitions are
difficult to forecast. The Company is actively pursuing additional acquisitions
of oil and gas properties. In addition to internally generated cash flow and
advances under its revolving credit facility, the Company may seek additional
sources of capital to fund any future significant acquisitions (see "--
Liquidity").
The Company's recent oil and gas capital expenditure history is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Acquisition of oil and gas reserves.................. $139,749 $ 91,282 $207,658
Drilling............................................. 71,069 51,175 21,343
Workovers and recompletions.......................... 32,856 33,482 18,313
Acquisition of undeveloped acreage and seismic data.. 10,349 14,847 7,684
Acquisition and construction of gathering systems.... 1,209 724 234
Other................................................ 4,638 5,945 1,462
--------- --------- ---------
Total............................................... $259,870 $197,455 $256,694
========= ========= =========
</TABLE>
LIQUIDITY
Internally generated cash flow and the borrowing capacity under its
revolving credit facility are the Company's major sources of liquidity. In
addition, the Company may use other sources of capital, including the issuance
of additional debt securities or equity securities, to fund any major
acquisitions it might secure in the future and to maintain its financial
flexibility.
In the past, the Company has accessed the public markets to finance
significant acquisitions and provide liquidity for its future activities. In
conjunction with the purchase of substantial oil and gas assets in 1990, 1992
and 1995, the Company completed three public equity offerings, as well as a
public debt offering in 1995, which provided the Company with aggregate net
proceeds of approximately $272 million.
On February 5, 1997, the Company completed a public offering of 3,000,000
shares (after giving effect to the Company's two-for-one common stock split
effected on October 7, 1997) of common stock, all of which were sold by the
Company. Net proceeds to the Company of approximately $47 million were used to
repay a portion of existing indebtedness under the revolving credit facility.
Also on February 5, 1997, the Company issued $100 million of its 8 5/8%
Senior Subordinated Notes Due 2009 (the "8 5/8% Notes"). Net proceeds to the
Company of approximately $96 million were used to repay a portion of existing
indebtedness under the revolving credit facility.
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<PAGE>
The 8 5/8% Notes are redeemable at the option of the Company, in whole or
part, at any time on or after February 1, 2002. The 8 5/8% Notes mature on
February 1, 2009, with interest payable semiannually on February 1 and August 1
of each year.
The 8 5/8% Notes and the Company's 9% Senior Subordinated Notes Due 2005,
which were issued in 1995 (collectively, the "Notes"), are unsecured senior
subordinated obligations of the Company, rank subordinate in right of payment to
all senior indebtedness (as defined) and rank pari passu with each other. Upon
a change in control (as defined therein) of the Company, holders of the Notes
may require the Company to repurchase all or a portion of the Notes at a
purchase price equal to 101 percent of the principal amount thereof, plus
accrued and unpaid interest. The indentures for the Notes contain limitations
on, among other things, additional indebtedness and liens, the payment of
dividends and other distributions, certain investments and transfers or sales of
assets.
The Company's unsecured revolving credit facility under the Amended and
Restated Credit Agreement dated December 8, 1997 (the "Credit Agreement"),
establishes a borrowing base (currently $500 million) determined by the banks'
evaluation of the Company's oil and gas reserves.
Outstanding advances under the Credit Agreement bear interest payable
quarterly at a floating rate based on Bank of Montreal's alternate base rate (as
defined) or, at the Company's option, at a fixed rate for up to six months based
on the eurodollar market rate ("LIBOR"). The Company's interest rate increments
above the alternate base rate and LIBOR vary based on the level of outstanding
senior debt to the borrowing base. As of July 31, 1998, the Company had elected
a fixed rate based on LIBOR for a substantial portion of its outstanding
advances, which resulted in an average interest rate of approximately 6.8
percent per annum. In addition, the Company must pay a commitment fee ranging
from 0.25 to 0.375 percent per annum on the unused portion of the banks'
commitment.
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's oil and gas reserves. If the sum
of outstanding senior debt exceeds the borrowing base, as redetermined, the
Company must repay such excess. Any principal advances outstanding under the
Credit Agreement at December 1, 2000, will be payable in 12 equal consecutive
quarterly installments commencing March 1, 2001, with maturity at December 1,
2003.
The unused portion of the Credit Agreement was approximately $93 million at
July 31, 1998. The unused portion of the Credit Agreement and the Company's
internally generated cash flow provide liquidity which may be used to finance
future capital expenditures, including acquisitions. As additional acquisitions
are made and properties are added to the borrowing base, the banks'
determination of the borrowing base and their commitments may be increased.
INFLATION
In recent years inflation has not had a significant impact on the Company's
operations or financial condition.
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<PAGE>
INCOME TAXES
The Company incurred a current provision for income taxes of approximately
$5.2 million for 1997, $2.6 million for 1996, and a current benefit for income
taxes of $1.0 million for 1995. The total provision for U.S. income taxes is
based on the Federal corporate statutory income tax rate plus an estimated
average rate for state income taxes. Earnings of the Company's foreign
subsidiary, Vintage Boliviana, are subject to Bolivia income taxes. Earnings of
the Company's foreign subsidiary, Vintage Argentina, are subject to Argentina
income taxes.
As of December 31, 1997, the Company had estimated net operating loss
carryforwards of $35.4 million for Argentina income tax reporting purposes which
can be used to offset future taxable income in Argentina. The carryforward
amount includes certain Argentina net operating loss carryforwards which were
acquired in a purchase business combination and are recorded at cost, which is
less than the calculated value under the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. These unrecorded net
operating loss carryforwards will reduce the Company's foreign income tax
provision for financial purposes in future years by approximately $4.5 million
when their benefit is realized. No U.S. deferred tax liability will be
recognized related to the unremitted earnings of these foreign subsidiaries as
it is the Company's intention, generally, to reinvest such earnings permanently.
The Company has a U.S. Federal alternative minimum tax ("AMT") credit
carryforward of approximately $2.9 million which does not expire and is
available to offset U.S. Federal regular income taxes in future years, but only
to the extent that U.S. Federal regular income taxes exceed the AMT in such
years.
FOREIGN OPERATIONS
A significant portion of the Company's foreign operations are located in
Argentina. The Company believes Argentina offers a relatively stable political
environment and does not anticipate any significant change in the near future.
The current democratic form of the government has been in place since 1983 and,
since 1989, has pursued a steady process of privatization, deregulation and
economic stabilization and reforms involving the reduction of inflation and
public spending. Argentina's 12-month trailing inflation rate measured by the
Argentine Consumer Price Index declined from 200.7 percent as of June 1991 to
1.01 percent as of June 1998.
The Company believes that its Argentine operations present minimal currency
risk. All of the Company's Argentine revenues are U.S. dollar based, while a
large portion of its costs are denominated in Argentine pesos. The Argentina
Central Bank is obligated by law to sell dollars at a rate of one Argentine peso
to one U.S. dollar and has sought to prevent appreciation of the peso by buying
dollars at rates of not less than 0.998 peso to one U.S. dollar. As a result,
the Company believes that should any devaluation of the Argentine peso occur its
revenues would be unaffected and its operating costs would not be significantly
increased. At the present time, there are no foreign exchange controls
preventing or restricting the conversion of Argentine pesos into dollars.
Since the mid-1980's, Bolivia has been undergoing major economic reform,
including the establishment of a free-market economy and the encouragement of
foreign private investment. Economic activities that had been reserved for
government corporations were opened to foreign and domestic private investments.
Barriers to international trade have been reduced and tariffs lowered. A new
investment law and revised codes for mining and the petroleum industry, intended
to attract foreign investment, have been introduced.
-12-
<PAGE>
On February 1, 1987, a new currency, the Boliviano ("Bs"), replaced the
peso at the rate of one million pesos to one Boliviano. The exchange rate is set
daily by the Government's exchange house, the Bolsin, which is under the
supervision of the Bolivian central bank. Foreign exchange transactions are not
subject to any controls. The US$:Bs exchange rate at June 30, 1998, was US$1:Bs
5.52. The Company believes that any currency risk associated with its Bolivian
operations would not have a material impact on the Company's financial position
or results of operations.
YEAR 2000
The Year 2000 issue represents a potentially serious information systems
problem because many software applications and operational systems written in
the past may not properly recognize calendar dates beginning in the Year 2000.
This problem could force computers to either shut down or provide incorrect data
or information. In consultation with its software and hardware providers, the
Company began the process of identifying the changes required to its major
financial/administrative systems and hardware in early 1997. Software upgrades
designed to correct the Year 2000 issue for its U.S. financial systems were
implemented in mid-1998 and testing is scheduled for completion by year end
1998. A replacement financial system has been selected for the Company's
international locations and implementation has commenced in Bolivia with
conversion of other international locations scheduled prior to April 1, 1999.
The Company is currently in the process of assessing the potential impact
that the Year 2000 issue will have on its field operating equipment and systems
and has not yet determined the impact that the Year 2000 issue will have on such
equipment and systems. In addition, the Company is also uncertain how it will
be indirectly affected by the impact that the Year 2000 issue will have on the
companies with which it conducts business. The Company does not believe that
costs to address the Year 2000 issue will have a material adverse impact on its
business, financial condition or results of operation.
FORWARD-LOOKING STATEMENTS
This Form 8-K includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements in this Form 8-K, other than
statements of historical facts, that address activities, events or developments
that the Company expects, believes or anticipates will or may occur in the
future, including future capital expenditures (including the amount and nature
thereof), the drilling of wells, reserve estimates, future production of oil and
gas, future cash flows, future reserve activity and other such matters are
forward-looking statements. Although the Company believes the expectations
expressed in such forward-looking statements are based on reasonable assumptions
within the bounds of its knowledge of its business, such statements are not
guarantees of future performance and actual results or developments may differ
materially from those in the forward-looking statements.
Factors that could cause actual results to differ materially from those in
forward-looking statements include: oil and gas prices; exploitation and
exploration successes; continued availability of capital and financing; general
economic, market or business conditions; acquisition opportunities (or lack
thereof); changes in laws or regulations; risk factors listed from time to time
in the Company's reports filed with the Securities and Exchange Commission; and
other factors. The Company assumes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
-13-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Vintage Petroleum, Inc.:
We have audited the accompanying consolidated balance sheets of Vintage
Petroleum, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 Vintage Petroleum, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company has given retroactive effect to the change in accounting for oil and gas
properties from the full cost method to the successful efforts method.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
August 11, 1998
-14-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(RESTATED, IN THOUSANDS, EXCEPT SHARES
AND PER SHARE AMOUNTS)
A S S E T S
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
---------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 5,797 $ 2,774
Accounts receivable -
Oil and gas sales........................................ 60,878 68,219
Joint operations......................................... 6,358 4,445
Deferred income taxes...................................... 4,206 -
Prepaids and other current assets.......................... 12,443 9,252
---------- --------
Total current assets................................... 89,682 84,690
---------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, successful efforts method.......... 1,158,749 913,245
Oil and gas gathering systems.............................. 12,943 13,489
Other...................................................... 8,420 8,438
---------- --------
1,180,112 935,172
Less accumulated depreciation, depletion and amortization.. 373,225 271,147
---------- --------
806,887 664,025
---------- --------
OTHER ASSETS, net............................................ 18,825 18,101
---------- --------
$ 915,394 $766,816
========== ========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Revenue payable............................................ $ 27,085 $ 24,746
Accounts payable - trade................................... 21,088 20,355
Other payables and accrued liabilities..................... 31,504 26,595
Current portion of long-term debt.......................... - 6,629
Acquisition costs payable.................................. - 35,051
---------- --------
Total current liabilities................................ 79,677 113,376
---------- --------
LONG-TERM DEBT, less current portion above................... 451,096 372,390
---------- --------
DEFERRED INCOME TAXES........................................ 43,135 39,220
---------- --------
OTHER LONG-TERM LIABILITIES.................................. 3,908 5,424
---------- --------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY, per accompanying statements:
Preferred stock, $.01 par, 5,000,000 shares authorized,
zero shares issued and outstanding....................... - -
Common stock, $.005 par, 80,000,000 shares authorized,
51,558,886 and 48,138,224 shares issued and outstanding.. 258 241
Capital in excess of par value............................. 202,008 152,200
Retained earnings.......................................... 135,312 83,965
---------- --------
337,578 236,406
---------- --------
$ 915,394 $766,816
========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-15-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(RESTATED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Oil and gas sales................................... $355,113 $258,368 $160,254
Oil and gas gathering............................... 18,063 20,508 12,380
Gas marketing....................................... 45,981 31,920 20,912
Other income (expense).............................. (2,567) 1,351 1,669
---------- --------- ---------
416,590 312,147 195,215
---------- --------- ---------
COSTS AND EXPENSES:
Lease operating, including production taxes......... 114,346 91,916 66,771
Exploration costs................................... 12,667 10,192 3,834
Impairment of oil and gas properties................ 8,785 - -
Oil and gas gathering............................... 14,932 16,985 9,511
Gas marketing....................................... 43,398 29,537 18,839
General and administrative.......................... 27,361 22,902 15,505
Depreciation, depletion and amortization............ 96,307 66,861 48,336
Interest............................................ 36,762 30,109 20,178
---------- --------- ---------
354,558 268,502 182,974
---------- --------- ---------
Income before income taxes and minority interest.. 62,032 43,645 12,241
---------- --------- ---------
PROVISION (BENEFIT) FOR INCOME TAXES:
Current............................................. 5,235 2,610 (955)
Deferred............................................ 1,640 7,365 4,566
---------- --------- ---------
6,875 9,975 3,611
---------- --------- ---------
MINORITY INTEREST IN (INCOME)
LOSS OF SUBSIDIARY.................................. (203) (482) 819
---------- --------- ---------
NET INCOME............................................ $ 54,954 $ 33,188 $ 9,449
========== ========= =========
EARNINGS PER SHARE:
Basic............................................... $ 1.07 $ 0.69 $ 0.23
========== ========= =========
Diluted............................................. $ 1.05 $ 0.68 $ 0.22
========== ========= =========
Weighted Average Common Shares Outstanding:
Basic............................................... 51,178 48,090 41,555
========== ========= =========
Diluted............................................. 52,026 48,654 42,081
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-16-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(RESTATED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Capital
Common Stock In Excess
------------------ of Par Retained
Shares Amount Value Earnings Total
------ -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994, as
previously reported............................... 40,326 $ 202 $ 91,100 $ 64,691 $155,993
Cumulative effect of change in accounting
principle retroactively applied................ - - - (18,783) (18,783)
Net income....................................... - - - 9,449 9,449
Issuance of common stock......................... 5,606 28 55,176 - 55,204
Exercise of warrants............................. 588 3 1,465 - 1,468
Exercise of stock options and
resulting tax effects.......................... 802 4 1,865 - 1,869
Cash dividends declared ($.0425 per share)....... - - - (1,935) (1,935)
------ -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995....................... 47,322 237 149,606 53,422 203,265
Net income....................................... - - - 33,188 33,188
Exercise of warrants............................. 612 3 1,529 - 1,532
Exercise of stock options and
resulting tax effects.......................... 204 1 1,065 - 1,066
Cash dividends declared ($.0525 per share)....... - - - (2,645) (2,645)
------ -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996....................... 48,138 241 152,200 83,965 236,406
Net income....................................... - - - 54,954 54,954
Issuance of common stock......................... 3,000 15 46,978 - 46,993
Exercise of stock options and
resulting tax effects.......................... 421 2 2,830 - 2,832
Cash dividends declared ($.0650 per share)....... - - - (3,607) (3,607)
------ -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997....................... 51,559 $ 258 $202,008 $135,312 $337,578
====== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-17-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(RESTATED, IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 54,954 $ 33,188 $ 9,449
Adjustments to reconcile net income to cash
provided by operating activities -
Depreciation, depletion and amortization.................. 96,307 66,861 48,336
Exploration costs......................................... 12,667 10,192 3,834
Impairment of oil and gas properties...................... 8,785 - -
Provision for deferred income taxes....................... 1,640 7,365 4,566
Minority interest in income (loss) of subsidiary.......... 203 482 (819)
--------- --------- ---------
174,556 118,088 65,366
Decrease (increase) in receivables.......................... 5,428 (24,614) (11,836)
Increase (decrease) in payables and accrued liabilities..... 7,187 14,619 (1,012)
Other....................................................... (569) 2,493 (1,805)
--------- --------- ---------
Cash provided by operating activities..................... 186,602 110,586 50,713
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -
Oil and gas properties.................................... (257,275) (156,133) (138,004)
Gathering systems and other............................... (2,275) (1,430) (3,256)
Proceeds from sales of oil and gas properties............... 360 1,291 604
Purchase of companies, net of cash acquired................. (38,788) (9,160) (45,886)
Other....................................................... (2,670) (3,233) 2,777
--------- --------- ---------
Cash used by investing activities......................... (300,648) (168,665) (183,765)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock........................................ 47,910 2,528 51,191
Sale of 8 5/8% Senior Subordinated Notes Due 2009........... 96,270 - -
Sale of 9% Senior Subordinated Notes Due 2005............... - - 145,137
Advances on revolving credit facility and other borrowings.. 192,521 149,014 178,264
Payments on revolving credit facility and other borrowings.. (216,335) (90,720) (237,679)
Dividends paid.............................................. (3,297) (2,514) (1,747)
--------- --------- ---------
Cash provided by financing activities..................... 117,069 58,308 135,166
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... 3,023 229 2,114
CASH AND CASH EQUIVALENTS, beginning of year................. 2,774 2,545 431
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year....................... $ 5,797 $ 2,774 $ 2,545
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-18-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
Vintage Petroleum, Inc. is an independent energy company with operations
primarily in the exploration and production, gas marketing and gathering
segments of the oil and gas industry. Approximately 99 percent of the Company's
operations are within the exploration and production segment based on 1997
operating income. Its core areas of exploration and production operations
include the West Coast, Gulf Coast, East Texas and Mid-Continent areas of the
United States, the San Jorge Basin of Argentina and, beginning in 1997, the
Chaco Basin in Bolivia. Argentina exploration and production operations
commenced in 1995 as a result of the acquisitions discussed in Note 7.
The consolidated financial statements include the accounts of Vintage
Petroleum, Inc. and its wholly- and majority-owned subsidiaries (collectively,
the "Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CHANGE IN ACCOUNTING METHOD
Effective January 1, 1998, the Company elected to change its accounting
method for oil and gas properties from the full cost method to the successful
efforts method. Management believes that the successful efforts method of
accounting is preferable and that the accounting change will more accurately
present the results of the Company's exploration and development activities,
minimize asset write-offs caused by temporary declines in oil and gas prices and
reflect an impairment in the carrying value of the Company's oil and gas
properties only when there has been a permanent decline in their fair value.
-19-
<PAGE>
As a result of this change in accounting, all prior year financial
statements have been retroactively restated to give effect to this change in
accounting method. The effect, net of income taxes, was a reduction of retained
earnings as of December 31, 1997 of $46.0 million, primarily resulting from a
reduction of net property, plant and equipment of $74.7 million and a reduction
of deferred income tax liability of $28.7 million. The change in accounting
method decreased net income by $17.3 million ($0.34 per diluted share), $8.0
million ($0.17 per diluted share) and $1.9 million ($0.05 per diluted share) for
1997, 1996 and 1995, respectively.
-20-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OIL AND GAS PROPERTIES
Under the successful efforts method of accounting, the Company capitalizes
all costs related to property acquisitions and successful exploratory wells, all
development costs and the costs of support equipment and facilities. All costs
related to unsuccessful exploratory wells are expensed when such wells are
determined to be non-productive; other exploration costs, including geological
and geophysical costs, are expensed as incurred. The Company recognizes gain or
loss on the sale of properties on a field basis.
Unproved leasehold costs are capitalized and are reviewed periodically for
impairment. Costs related to impaired prospects are charged to expense.
Costs of development dry holes and proved leaseholds are amortized on the
unit-of-production method based on proved reserves on a field basis. The
depreciation of capitalized drilling costs is based on the unit-of-production
method using proved developed reserves on a field basis. Estimated abandonment
costs, net of salvage value, are included in the depreciation and depletion
calculation.
The Company reviews its proved oil and gas properties for impairment on a
field basis. For each field, an impairment provision is recorded whenever
events or circumstances indicate that the carrying value of those properties may
not be recoverable. The impairment provision is based on the excess of carrying
value over fair value. Fair value is defined as the present value of the
estimated future net revenues from production of oil and gas reserves over the
economic life of the reserves. The Company recorded an impairment provision
related to its proved oil and gas properties of $8.8 million in 1997. No
impairment provision was required for 1996.
Prior to the adoption of 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"), on January 1, 1996, the Company
determined the impairment of oil and gas properties on a world-wide basis. The
Company would record an impairment provision based on the excess of capitalized
costs over the undiscounted net revenues from proved reserves using period-end
prices. No such impairment provision was required in 1995. The impact of
implementing SFAS No. 121 was not significant.
REVENUE RECOGNITION
Natural gas revenues are recorded using the sales method. Under this
method, the Company recognizes revenues based on actual volumes of gas sold to
purchasers. The Company and other joint interest owners may sell more or less
than their entitlement share of the natural gas volumes produced. A liability is
recorded and revenue is deferred if the Company's excess sales of natural gas
volumes exceed its estimated remaining recoverable reserves.
-21-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
HEDGING
The Company periodically uses hedges (swap agreements) to reduce the impact
of oil and natural gas price fluctuations. Gains or losses on swap agreements
are recognized as an adjustment to sales revenue when the related transactions
being hedged are finalized. Gains or losses from swap agreements that do not
qualify for accounting treatment as hedges are recognized currently as other
income or expense. The cash flows from such agreements are included in
operating activities in the consolidated statements of cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement. Companies
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999,
however, companies may implement the statement as of the beginning of any fiscal
quarter beginning June 16, 1998. SFAS No. 133 cannot be applied retroactively
and must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the company's election,
before January 1, 1998).
The Company has not yet quantified the impact of adopting SFAS No. 133 on
its financial statements and has not determined the timing of or method of the
adoption of SFAS No. 133. However, as of December 31, 1997, the Company had no
outstanding derivative instruments.
DEPRECIATION
Depreciation of property, plant and equipment (other than oil and gas
properties) is provided using both straight-line and accelerated methods based
on estimated useful lives ranging from three to ten years.
INCOME TAXES
Deferred income taxes are provided on transactions which are recognized in
different periods for financial and tax reporting purposes. Such temporary
differences arise primarily from the deduction of certain oil and gas
exploration and development costs which are capitalized for financial reporting
purposes and differences in the methods of depreciation.
-22-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
STATEMENTS OF CASH FLOWS
Cash equivalents consist of highly liquid money-market mutual funds and
bank deposits with initial maturities of three months or less.
During the years ended December 31, 1997, 1996 and 1995, the Company made
cash payments for interest totaling $33.2 million, $29.6 million and $21.6
million, respectively, and cash payments for U.S. income taxes of $5.3 million,
$1.3 million and $0.5 million, respectively. Cash payments of $0.1 million were
made during 1996 for foreign tax withholdings. No cash payments were made
during 1997 or 1995 for foreign income taxes.
During 1995, the Company purchased a majority interest in Cadipsa (see Note
7). The value of the non-cash consideration is not reflected in the Company's
1995 Consolidated Statement of Cash Flows. Such non-cash consideration
consisted of $5.7 million of the Company's common stock, $3.2 million cash paid
in 1996, and approximately $58.1 million of net liabilities and a $7.9 million
minority interest added through consolidation of Cadipsa.
In December 1995, the Company purchased certain oil and gas properties
from Shell (see Note 7). Deferred payments valued at $5.1 million represent
non-cash consideration and are not reflected in the Company's 1995 Consolidated
Statement of Cash Flows.
In November 1996, the Company agreed to acquire 100 percent of the
outstanding common stock of Shamrock Ventures (Boliviana) Ltd. (subsequently
renamed Vintage Petroleum Boliviana Ltd.). Acquisition costs of $35.1 million
were unpaid at December 31, 1996, and are reflected in the accompanying balance
sheet as of such date as acquisition costs payable. These acquisition costs
were paid in 1997 and are reflected in the Company's 1997 Consolidated Statement
of Cash Flows.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share ("SFAS No. 128"), establishing new standards for
computing and presenting earnings per share. The provisions of SFAS No. 128 are
effective for earnings per share calculations for periods ending after December
15, 1997. The Company has adopted SFAS No. 128 effective December 31, 1997, and
all earnings per share amounts disclosed herein have been calculated under the
provisions of SFAS No. 128. The adoption of SFAS No. 128 did not have a
material effect on previously reported earnings per share or on 1997 earnings
per share. Basic earnings per common share were computed by dividing net income
by the weighted average number of shares outstanding during the period. Diluted
earnings per common share were computed assuming the exercise of all dilutive
options, as determined by applying the treasury stock method.
GENERAL AND ADMINISTRATIVE EXPENSE
The Company receives fees for operation of jointly-owned oil and gas
properties and records such reimbursements as reductions of general and
administrative expense. Such fees totaled approximately $3.4 million, $2.3
million and $2.9 million in 1997, 1996 and 1995, respectively.
-23-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
REVENUE PAYABLE
Amounts payable to royalty and working interest owners resulting from sales
of oil and gas from jointly-owned properties and from purchases of oil and gas
by the Company's marketing and gathering segments are classified as revenue
payable in the accompanying financial statements.
ACCOUNTS RECEIVABLE
The Company's oil and gas, gas marketing and gathering sales are to a
variety of purchasers, including intrastate and interstate pipelines or their
marketing affiliates, independent marketing companies and major oil companies.
The Company's joint operations accounts receivable are from a large number of
major and independent oil companies, partnerships, individuals and others who
own interests in the properties operated by the Company.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("SFAS No. 130"), establishing standards for
reporting and display of comprehensive income and its components in financial
statements. SFAS No. 130 defines comprehensive income as the total of net
income and all other non-owner changes in equity. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. SFAS No. 130 has no significant
effect on the Company since the Company has no non-owner changes in equity.
2. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Revolving credit facility........................... $202,200 $200,800
Senior subordinated notes-
9% Notes due 2005, less unamortized discount...... 149,674 149,633
8 5/8% Notes due 2009, less unamortized discount.. 99,222 -
Subsidiary debt -
International Finance Corporation notes........... - 25,986
Other subsidiary debt............................. - 2,600
-------- --------
451,096 379,019
Less - Current portion of long-term debt............ - 6,629
-------- --------
$451,096 $372,390
======== ========
</TABLE>
The Company has no long-term debt maturities prior to March 1, 2001.
Aggregate maturities of long-term debt for each of the years ending December 31,
2001, through December 31, 2003, are $67.4 million, $67.4 million and $67.4
million, with $248.9 million thereafter. The Company had $4.9 million and $2.3
million of accrued interest payable related to its long-term debt at December
31, 1997 and 1996, respectively, included in other payables and accrued
liabilities.
-24-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
REVOLVING CREDIT FACILITY
The Company has available an unsecured revolving credit facility under the
Amended and Restated Credit Agreement dated December 8, 1997, (the "Credit
Agreement"), between the Company and certain banks. The Credit Agreement
establishes a borrowing base (currently $500 million) based on the banks'
evaluation of the Company's oil and gas reserves.
Outstanding advances under the Credit Agreement bear interest payable
quarterly at a floating rate based on Bank of Montreal's alternate base rate (as
defined) or, at the Company's option, at a fixed rate for up to six months based
on the eurodollar market rate ("LIBOR"). The Company's interest rate increments
above the alternate base rate and LIBOR vary based on the level of outstanding
senior debt to the borrowing base. In addition, the Company must pay a
commitment fee ranging from 0.25 to 0.375 percent per annum on the unused
portion of the banks' commitment. Total outstanding advances at December 31,
1997, were $202.2 million at an average interest rate of approximately 6.8
percent.
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's oil and gas reserves. If the sum
of outstanding senior debt exceeds the borrowing base, as redetermined, the
Company must repay such excess. Any principal advances outstanding at December
1, 2000, will be payable in 12 equal consecutive quarterly installments
commencing March 1, 2001, with maturity at December 1, 2003.
The terms of the Credit Agreement impose certain restrictions on the
Company regarding the pledging of assets and limitations on additional
indebtedness. In addition, the Credit Agreement requires the maintenance of a
minimum current ratio (as defined) and tangible net worth (as defined) of $275
million plus 75 percent of the net proceeds of any future equity offerings.
SENIOR SUBORDINATED NOTES
On December 20, 1995, the Company issued $150 million of its 9% Senior
Subordinated Notes Due 2005 (the "9% Notes"). The 9% Notes are redeemable at
the option of the Company, in whole or in part, at any time on or after December
15, 2000. The 9% Notes mature on December 15, 2005, with interest payable
semiannually on June 15 and December 15 of each year.
On February 5, 1997, the Company issued $100 million of its 8 5/8% Senior
Subordinated Notes Due 2009 (the "8 5/8% Notes"). The 8 5/8% Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after February 1, 2002. The 8 5/8% Notes mature on February 1, 2009, with
interest payable semiannually on February 1 and August 1 of each year.
-25-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The 9% Notes and 8 5/8% Notes (collectively, the "Notes") are unsecured
senior subordinated obligations of the Company, rank subordinate in right of
payment to all senior indebtedness (as defined) and rank pari passu with each
other. Upon a change in control (as defined) of the Company, holders of the
Notes may require the Company to repurchase all or a portion of the Notes at a
purchase price equal to 101 percent of the principal amount thereof, plus
accrued and unpaid interest. The indentures for the Notes contain limitations
on, among other things, additional indebtedness and liens, the payment of
dividends and other distributions, certain investments and transfers or sales of
assets.
3. CAPITAL STOCK
On May 13, 1997, the Company's stockholders approved an increase in the
number of authorized shares of common stock, $.005 par value per share, from 40
million to 80 million.
On September 12, 1997, the Company's Board of Directors approved a two-for-
one stock split of its common stock effective October 7, 1997, to stockholders
of record on September 26, 1997. All references to the number of shares and per
share amounts in the financial statements and notes thereto have been restated
to reflect the stock split.
PUBLIC OFFERINGS AND OTHER ISSUANCES
On July 5, 1995, the Company issued 605,616 shares of common stock valued
at $5.7 million as partial consideration to acquire a controlling interest in
Cadipsa (see Note 7).
On December 20, 1995, the Company completed a public offering of 5,587,400
shares of common stock, of which 5,000,000 shares were sold by the Company and
587,400 shares were sold by a stockholder. Net proceeds to the Company were
approximately $49.5 million. The net proceeds were used to repay advances made
under the revolving credit facility to fund the acquisition of a portion of the
Astra/Shell Properties (see Note 7) and to finance a substantial portion of the
acquisition of the remaining portion of the Astra/Shell Properties.
A portion of a stock subscription warrant was exercised on December 20,
1995, for the purchase of 587,400 shares of the Company's common stock at an
exercise price of $2.50 per share yielding net proceeds to the Company of
approximately $1.5 million. The remaining portion of the stock subscription
warrant was exercised on January 4, 1996, for the purchase of 612,600 shares of
the Company's common stock at an exercise price of $2.50 per share yielding net
proceeds to the Company of approximately $1.5 million. The Company had no stock
subscription warrants outstanding as of December 31, 1997.
On February 5, 1997, the Company completed a public offering of 3,000,000
shares of common stock, all of which were sold by the Company. Net proceeds to
the Company of approximately $47 million were used to repay a portion of
existing indebtedness under the Company's revolving credit facility.
-26-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
STOCK PLANS
The Company has three fixed plans which reserve shares of common stock for
issuance to key employees and non-management directors. The Company accounts
for these plans under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB No. 25") and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("SFAS No. 123"). Accordingly, no compensation
cost has been recognized. Had compensation cost for these plans been determined
consistent with the provisions of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- ----------
(Restated, In thousands,
except per share amounts)
<S> <C> <C> <C>
Net income - as reported......................... $54,954 $33,188 $9,449
Net income - pro forma........................... 54,005 32,777 9,408
Earnings per share - as reported:
Basic........................................... 1.07 .69 .23
Diluted......................................... 1.05 .68 .22
Earnings per share - pro forma:
Basic........................................... 1.06 .68 .23
Diluted......................................... 1.04 .67 .22
</TABLE>
The pro forma effect on net income for 1997, 1996 and 1995 may not be
representative of the pro forma effect on net income in future years because
SFAS No. 123 has not been applied to options granted prior to January 1, 1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The weighted average assumptions used
for options granted in 1997 include a dividend yield of 0.4 percent, expected
volatility of approximately 28.9 percent, a risk-free interest rate of
approximately 6.3 percent, and expected lives of 4.2 years. The weighted
average assumptions used for options granted in 1996 include a dividend yield of
0.4 percent, expected volatility of approximately 29.5 percent, a risk-free
interest rate of approximately 6.2 percent, and expected lives of 4.2 years.
The weighted average assumptions used for options granted in 1995 include a
dividend yield of 0.4 percent, expected volatility of approximately 31.3
percent, a risk-free interest rate of approximately 5.9 percent, and expected
lives of 4.2 years.
Under the 1983 Stock Option Plan, as amended (the "1983 Plan"), incentive
stock options were granted to key employees of the Company. Generally, options
granted under the 1983 Plan were exercisable for a two to seven year period
beginning three years from the date granted. As of December 31, 1997, all
available options have been granted and exercised under the 1983 Plan.
-27-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Under the 1990 Stock Plan, as amended (the "1990 Plan"), a total of up to
4,500,000 shares of common stock are available for issuance to key employees of
the Company. The 1990 Plan permits the granting of any or all of the following
types of awards: (a) stock options, (b) stock appreciation rights, and (c)
restricted stock. As of December 31, 1997, awards for a total of 750,000 shares
of common stock remain available for grant under the 1990 Plan.
The 1990 Plan is administered by the Board of Directors of the Company (the
"Board"). Subject to the terms of the 1990 Plan, the Board has the authority to
determine plan participants, the types and amounts of awards to be granted and
the terms, conditions and provisions of awards. Options granted pursuant to the
1990 Plan may, at the discretion of the Board, be either incentive stock options
or non-qualified stock options. The exercise price of incentive stock options
may not be less than the fair market value of the common stock on the date of
grant and the term of the option may not exceed 10 years. In the case of non-
qualified stock options, the exercise price may not be less than 85 percent of
the fair market value of the common stock on the date of grant. Any stock
appreciation rights granted under the 1990 Plan will give the holder the right
to receive cash in an amount equal to the difference between the fair market
value of the share of common stock on the date of exercise and the exercise
price. Restricted stock under the 1990 Plan will generally consist of shares
which may not be disposed of by participants until certain restrictions
established by the Board lapse.
Under the Non-Management Director Stock Option Plan (the "Director Plan"),
60,000 shares of common stock are available for issuance to the outside
directors of the Company. Each outside director receives an initial option to
purchase 5,000 shares of common stock during the director's first year of
service to the Company. Annually thereafter, options to purchase 1,000 shares
of common stock are to be granted to each outside director. Options granted
pursuant to the Director Plan are non-qualified stock options with terms not to
exceed 10 years and the option exercise price must equal the fair market value
of the common stock on the date of grant. As of December 31, 1997, options for
a total of 24,000 shares of common stock remain available for grant under the
Director Plan.
-28-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following is an analysis of all option activity under the 1983 Plan,
the 1990 Plan and the Director Plan for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ --------------------- --------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- ----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Beginning stock options
outstanding............... 2,688,904 $ 8.13 2,266,204 $7.41 2,914,000 $ 5.82
Stock options granted....... 810,000 15.53 630,000 9.71 196,000 10.12
Stock options canceled...... - - (4,000) 9.69 (40,000) 9.07
Stock options exercised..... (438,582) 4.99 (203,300) 4.94 (803,796) 2.24
------------ --------- ---------
Ending stock options
outstanding............... 3,060,322 $10.53 2,688,904 $8.13 2,266,204 $ 7.41
============ ====== ========= ===== ========= ======
Ending stock options
exercisable............... 1,406,757 $ 8.15 1,198,774 $6.93 683,592 $ 5.58
============ ====== ========= ===== ========= ======
Weighted average fair
value of options granted.. $4.92 $3.17 $3.38
============ ========= =========
</TABLE>
Of the 3,060,322 options outstanding at December 31, 1997: (a) 1,320,322
options have exercise prices between $3.50 and $9.41, with a weighted average
exercise price of $7.94 and a weighted average contractual life of 6.1 years
(1,252,715 of these options are exercisable at a weighted average price of
$7.90); (b) 1,740,000 options have exercise prices between $9.69 and $17.31,
with a weighted average exercise price of $12.50 and a weighted average
contractual life of 8.5 years (154,042 of these options are exercisable at a
weighted average price of $10.19).
All of the outstanding options are exercisable at various times in years
1998 through 2007. All incentive stock options and non-qualified options were
granted at fair market value on the date of grant. As of December 31, 1997, no
awards other than incentive and non-qualified stock options have been granted
under the 1990 Plan. Generally, options granted under the 1990 Plan have a 10-
year term and provide for vesting after three years.
At December 31, 1997, a total of 3,834,322 shares of the Company's common
stock are reserved for issuance pursuant to the 1990 Plan and the Director Plan.
PREFERRED STOCK
Preferred stock at December 31, 1997, consists of 5,000,000 authorized but
unissued shares. Preferred stock may be issued from time to time in one or more
series, and the Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rates and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking fund and any other rights, preferences, privileges and restrictions
applicable to each series of preferred stock.
-29-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES
The Company is committed to perform 17,728 work units related to its
concession rights in the Naranjillos field in Santa Cruz Province, Bolivia
awarded in late 1997. The work unit commitment is guaranteed by the Company
through an $88.6 million letter of credit; however, the Company anticipates that
it will fulfill this three-year work unit commitment through approximately $50
to $60 million of various seismic and drilling capital expenditures. In
addition, the Company's commitment to perform 1,400 work units related to an
exploration program within the Chaco Block in Bolivia was fulfilled in 1998
through acquisitions of 3-D seismic and the drilling of two wells.
The Company has $101.8 million in letters of credit (including the $88.6
million letter of credit discussed above) outstanding at December 31, 1997.
These letters of credit relate primarily to various obligations for acquisition
and exploration activities in South America and bonding requirements of various
state regulatory agencies for oil and gas operations.
Under the Company's exploration contract on Block 19 in Ecuador, the
Company is required to participate in the drilling of one additional well. The
Company expects to drill this well during 1999 at a cost of approximately $4.0
million.
The Company is also committed to spend approximately $11.0 million in the
Republic of Yemen over the next two and one-half years beginning July 28, 1998.
The expenditures will include the acquisition and interpretation of over 150
square kilometers of seismic and the drilling of three exploration wells. At
the end of the first two and one-half years, the Company has the option to
extend the work program for a second two and one-half year period with similar
work and capital commitments required.
Rent expense was $1.2 million, $1.0 million and $0.8 million for 1997, 1996
and 1995, respectively. The future minimum commitments under long-term
noncancellable leases for office space are $1.3 million, $1.1 million, $1.0
million, $1.0 million and $0.1 million for the calendar years 1998 through 2002,
respectively.
On November 5, 1996, the Province of Santa Cruz, Argentina brought suit
against Cadipsa in the Corte Suprema de Justicia de la Nacion (the Supreme Court
of Justice of the Argentine Republic, Buenos Aires, Argentina), Dossier No. s-
1451, seeking to recover approximately $10.6 million (which sum includes
interest) allegedly due as additional royalties on four concessions granted in
1990 in which the Company currently owns a 100 percent working interest. The
Company and its predecessors in title have been paying royalties at an eight
percent rate; the Province of Santa Cruz claims the rate should be 12 percent.
The amount of such claim will increase at the differential of these royalty
rates until this claim is resolved. With respect to the 50 percent interest in
the two concessions that the Company acquired from British Gas, plc (see Note
7), the Company believes that it is entitled to indemnification by British Gas,
plc for any loss sustained by the Company as a result of this claim. Such
indemnification equals approximately $4.4 million of the $15.1 million claim as
of December 31, 1997. The Company has no indemnification from its predecessors
in title with respect to the payment of royalties on the other two concessions.
Although the Company cannot predict the outcome of this litigation, based upon
the advice of counsel, the Company does not expect this claim to have a material
adverse impact on the Company's financial position or results of operations.
-30-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company is a defendant in various other lawsuits and is a party in
governmental proceedings from time to time arising in the ordinary course of
business. In the opinion of management, none of the various other pending
lawsuits and proceedings should have a material adverse impact on the Company's
financial position or results of operations.
5. FINANCIAL INSTRUMENTS
PRICE RISK MANAGEMENT
The Company periodically uses hedges (swap agreements) to reduce the impact
of oil and natural gas price fluctuations on its operating results and cash
flows. These swap agreements typically entitle the Company to receive payments
from (or require it to make payments to) the counterparties based upon the
differential between a fixed price and a floating price based on a published
index. The Company's hedging activities are conducted with major investment and
commercial banks which the Company believes are minimal credit risks.
At December 31, 1997, the Company was not a party to any swap agreements.
At December 31, 1996, the Company was a party to oil price swap agreements for
calendar 1997 covering 2.738 MMBbls at an average NYMEX reference price of
$19.26 per Bbl.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company values financial instruments as required by Statement of
Financial Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments. The Company estimates the value of the Notes based on
quoted market prices. The Company estimates the value of its other long-term
debt based on the estimated borrowing rates currently available to the Company
for long-term loans with similar terms and remaining maturities. The estimated
fair value of the Company's long-term debt at December 31, 1997 and 1996, was
$463.6 million and $383.9 million, respectively, compared with a carrying value
of $451.1 million and $379.0 million, respectively.
The fair value of commodity swap agreements is the amount at which they
could be settled, based on quoted market prices. At December 31, 1996, the
Company would have been required to pay approximately $9.2 million to terminate
its swap agreements. The Company had no swap agreements in place at December
31, 1997.
The carrying value of other financial instruments approximates fair value
because of the short maturity of those instruments.
-31-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. INCOME TAXES
Income before income taxes and minority interest is composed of the
following:
1997 1996 1995
--------- -------- --------
(Restated, In thousands)
Domestic.. $31,919 $27,999 $12,405
Foreign... 30,113 15,646 (164)
--------- -------- --------
$62,032 $43,645 $12,241
========= ======== ========
The total provision for income taxes consists of the following:
1997 1996 1995
-------- -------- ------
(Restated, In thousands)
Current:
Domestic.. $ 4,277 $ 2,610 $ (955)
Foreign... 958 - -
Deferred:
Domestic.. 6,003 8,431 4,816
Foreign... (4,363) (1,066) (250)
--------- -------- ------
$ 6,875 $ 9,975 $3,611
========= ======== ======
A reconciliation of the Federal statutory income tax rate to the effective
rate is as follows:
1997 1996 1995
----- ----- ----
Statutory income tax rate..... 35.0% 35.0% 35.0%
State income tax.............. 3.9 3.9 3.9
Federal income tax credits.... (3.0) (4.0) (9.4)
Foreign operations............ 0.6 (10.6) 1.7
Valuation allowance reversal.. (23.4) - -
Other......................... (2.0) (1.4) (1.7)
----- ----- ----
11.1% 22.9% 29.5%
===== ===== ====
-32-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The components of the Company's net deferred tax liability as of December
31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
(Restated, In thousands)
<S> <C> <C>
Deferred Tax Liabilities:
Differences between book and tax
basis of property............. $45,890 $ 44,345
Other........................... 619 778
------------ ----------
46,509 45,123
------------ ----------
Deferred Tax Assets:
Argentina net operating loss
carryforwards................. 4,206 14,472
Alternative minimum tax
credit carryforward........... 2,949 5,403
Other........................... 425 500
------------ ----------
7,580 20,375
Valuation allowance............. - (14,472)
------------ ----------
7,580 5,903
------------ ----------
Net deferred tax liability... $38,929 $ 39,220
============ ==========
</TABLE>
Earnings of the Company's foreign subsidiary, Vintage Oil Argentina, Inc.
(see Note 7), are subject to Argentina income taxes. Earnings of the Company's
foreign subsidiary, Vintage Petroleum Boliviana Ltd., are subject to Bolivia
income taxes. No U.S. deferred tax liability will be recognized related to the
unremitted earnings of these foreign subsidiaries, as it is the Company's
intention, generally, to reinvest such earnings permanently.
As of December 31, 1997, the Company has a U.S. Federal alternative minimum
tax ("AMT") credit carryforward of approximately $2.9 million. The AMT credit
carryforward does not expire and is available to offset U.S. Federal regular
income taxes in future years, but only to the extent that U.S. Federal regular
income taxes exceed the AMT in such years.
As of December 31, 1997, the Company has estimated net operating loss
carryforwards for Argentina income tax reporting purposes of approximately $35.4
million which can be used to offset future taxable income in Argentina. The
carryforward amount includes certain Argentina net operating loss carryforwards
which were acquired in a purchase business combination and are recorded at cost,
which is less than the calculated value under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. These
unrecorded net operating loss carryforwards will reduce the Company's foreign
income tax provision in future years by approximately $4.5 million when their
benefit is realized.
-33-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. SIGNIFICANT ACQUISITIONS
In May 1995, the Company acquired certain U.S. oil and gas properties from
Texaco Exploration and Production, Inc. for approximately $26.7 million cash
(the "Texaco Acquisition").
Through a series of transactions during the last six months of 1995, the
Company purchased approximately 71.6 percent of the outstanding common stock of
Cadipsa S.A. ("Cadipsa"), a publicly-traded Argentine oil and gas exploration
and production company, for 605,616 shares of the Company's common stock (valued
at $5.7 million) and $12.4 million cash (the "Cadipsa Acquisition").
Approximately $58.1 million of net liabilities and a $7.9 million minority
interest resulted from the consolidation of Cadipsa as of the acquisition date.
Effective December 26, 1996, Cadipsa was delisted with the Argentina Stock
Exchange and is no longer a publicly-traded company. Effective July 1, 1997,
the operations of Cadipsa were merged into Vintage Oil Argentina, Inc. and
Cadipsa became inactive and is awaiting Argentina governmental approval of
formal dissolution.
On September 29, 1995, the Company purchased 100 percent of the outstanding
common stock of BG Argentina, S.A. ("BG Argentina") from British Gas, plc for
$37 million cash (the "BG Acquisition"). BG Argentina was subsequently renamed
Vintage Oil Argentina, Inc.
On November 3, 1995, the Company purchased a 35 percent interest in certain
Argentina oil and gas properties (the "Astra/Shell Properties") from Astra
Compania Argentina de Petroleo S.A. for $17.9 million cash. On December 28,
1995, the Company purchased the remaining 65 percent interest in the Astra/Shell
Properties from Shell Compania Argentina de Petroleo S.A. for $32.8 million cash
and deferred payments valued at $5.1 million.
The Company accounted for these acquisitions under the purchase method.
The consolidated statements of income include the operating results of the above
acquisitions since their acquisition date.
The Company completed on December 20, 1995, a public offering of 5,587,400
shares of the Company's common stock (the "Common Stock Offering"), of which
5,000,000 shares were sold by the Company and 587,400 shares were sold by a
stockholder (see Note 3). The net proceeds to the Company of approximately $49.5
million were used to fund a substantial portion of the purchase of the
Astra/Shell Properties.
-34-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company's unaudited pro forma revenues, net income and earnings per
share for the year ended December 31, 1995, presented below have been prepared
assuming the Common Stock Offering, the Texaco Acquisition, the Cadipsa
Acquisition, the BG Acquisition and the acquisition of the Astra/Shell
Properties had been consummated as of January 1, 1995. However, such pro forma
information is not necessarily indicative of what actually would have occurred
had the transactions occurred on such date.
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Revenues (in thousands)........ $245,339
Net income (in thousands)...... 17,120
Earnings per share:
Basic........................ .36
Diluted...................... .36
</TABLE>
On April 1, 1997, the Company acquired certain producing oil and gas
properties and facilities located in the Gulf Coast area of Texas and Louisiana
from subsidiaries of Burlington Resources Inc. for approximately $102.7 million
in cash (the "Burlington Acquisition"). Funds for this acquisition were
provided by advances under the Company's revolving credit facility.
If the Burlington Acquisition had been consummated as of January 1, 1996,
the Company's unaudited pro forma revenues, net income and earnings per share
for the years ended December 31, 1997 and 1996, would have been as shown below;
however, such pro forma information is not necessarily indicative of what
actually would have occurred had the transaction occurred on such date.
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenues (in thousands)........ $431,306 $376,207
Net income (in thousands)...... 57,565 44,334
Earnings per share:
Basic........................ 1.12 .92
Diluted...................... 1.11 .91
</TABLE>
8. SEGMENT INFORMATION
The Company operates in the oil and gas exploration and production industry
in the United States and South America. Operations in the gathering and gas
marketing industries are in the United States. The following is industry segment
data for the years ended December 31, 1997, 1996 and 1995:
-35-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ---------
(Restated, In thousands)
<S> <C> <C> <C>
REVENUES:
Exploration and production -
U.S.................................... $252,353 $190,839 $146,819
Argentina.............................. 93,864 67,529 13,435
Other international.................... 8,896 - -
Gas marketing............................. 110,450 62,851 49,775
Gathering................................. 34,171 34,917 22,289
Other income (expense).................... (2,567) 1,351 1,669
Elimination of intersegment sales......... (80,577) (45,340) (38,772)
----------- ---------- ---------
$416,590 $312,147 $195,215
=========== ========== =========
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST:
Exploration and production -
U.S.................................... $ 78,927 $ 64,961 $ 39,881
Argentina.............................. 45,707 30,601 4,578
Other international.................... 1,131 (3,907) (733)
Gas marketing............................. 2,584 2,383 2,073
Gathering................................. 3,388 2,186 1,568
Other income (expense).................... (4,184) 1,351 1,668
----------- ---------- ---------
Operating income.......................... 127,553 97,575 49,035
Corporate expenses........................ (28,759) (23,821) (16,616)
Interest expense.......................... (36,762) (30,109) (20,178)
----------- ---------- ---------
$ 62,032 $ 43,645 $ 12,241
=========== ========== =========
IDENTIFIABLE ASSETS:
Exploration and production -
U.S.................................... $567,279 $455,547 $397,516
Argentina.............................. 237,544 228,559 180,954
Other international.................... 50,887 40,674 536
Gas marketing............................. 12,427 8,422 5,431
Gathering................................. 8,564 10,249 11,084
Corporate................................. 38,693 23,365 17,876
----------- ---------- ---------
$915,394 $766,816 $613,397
=========== ========== =========
DEPRECIATION, DEPLETION AND AMORTIZATION:
Exploration and production -
U.S.................................... $ 66,798 $ 48,969 $ 42,411
Argentina.............................. 23,333 15,636 3,513
Other international.................... 3,418 - -
Gathering................................. 1,360 1,337 1,301
Corporate................................. 1,398 919 1,111
----------- ---------- ---------
$ 96,307 $ 66,861 $ 48,336
=========== ========== =========
CAPITAL ADDITIONS:
Exploration and production -
U.S.................................... $193,816 $107,976 $ 84,244
Argentina.............................. 52,819 48,028 170,947
Other international.................... 12,026 40,727 1,269
Gathering................................. 1,209 724 234
Corporate................................. 1,799 706 3,023
----------- ---------- ---------
$261,669 $198,161 $259,717
=========== ========== =========
</TABLE>
-36-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During 1997, 1996 and 1995, sales to one crude oil purchaser represented
approximately 10 percent, 15 percent and 17 percent, respectively, of the
Company's total revenues (exclusive of eliminations of intersegment sales and
the impact of hedges).
9. DETAIL OF PREPAIDS AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
1997 1996
-------- -------
(In thousands)
<S> <C> <C>
Value added tax receivable......... $ 5,494 $3,510
Other prepaids and current assets.. 6,949 5,742
--------- ------
$12,443 $9,252
========= ======
</TABLE>
10. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1997 and 1996, as restated:
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------
March 31 June 30 Sept. 30 Dec. 31
---------- --------- ---------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1997
Revenues............. $99,234 $99,843 $104,387 $113,124
Operating income..... 37,658 29,364 33,067 27,463
Net income........... 17,863 10,900 13,526 12,665
Earnings per share:
Basic............. .36 .21 .26 .25
Diluted........... .35 .21 .26 .24
1996
Revenues............. $71,340 $76,043 $ 75,952 $ 88,812
Operating income..... 21,339 25,415 21,071 29,890
Net income........... 6,104 7,972 7,065 12,047
Earnings per share:
Basic............. .13 .17 .15 .25
Diluted........... .13 .16 .15 .25
</TABLE>
Revenues and operating income for the quarter ended December 31, 1997, were
decreased by a $4.4 million charge resulting from an adverse judgement against
the Company in a lawsuit involving a 1992 gas contract termination and increased
by $1.6 million from a gain on the sale of a gas gathering system. Operating
income for the quarter ended December 31, 1997, was decreased by $8.8 million
resulting from impairment of oil and gas properties. The net impact of these
items reduced net income for the quarter ended December 31, 1997, by $7.1
million, or 14 cents per basic and diluted share.
-37-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
The following sets forth certain information with respect to the Company's
results of operations from oil and gas producing activities for the years ended
December 31, 1997, 1996 and 1995. The Company began operations in Argentina
through various acquisitions in the last two quarters of 1995 (see Note 7) and
its Bolivia operations began in January 1997.
<TABLE>
<CAPTION>
1997
--------------------------------------------------
U.S. Argentina Bolivia Other Total
--------- ---------- -------- ------- --------
(Restated, In thousands)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $252,353 $93,864 $8,896 $ - $355,113
Production (lifting) costs.................. 89,069 24,129 1,148 - 114,346
Exploration costs........................... 8,774 695 130 3,068 12,667
Impairment of proved properties............. 8,785 - - - 8,785
Depreciation, depletion and amortization.... 66,798 23,333 3,401 18 93,550
---------- --------- ------- ------- --------
Results of operations before income taxes... 78,927 45,707 4,217 (3,086) 125,765
Income tax expense (benefit)................ 30,703 - 1,433 (1,193) 30,943
---------- --------- ------- ------- --------
Results of operations (excluding corporate
overhead and interest costs).............. $ 48,224 $45,707 $2,784 $(1,893) $ 94,822
========== ========= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------
U.S. Argentina Other Total
--------- ------------ -------- ---------
(Restated, In thousands)
<S> <C> <C> <C> <C>
Revenues.................................... $190,839 $67,529 $ - $258,368
Production (lifting) costs.................. 70,991 20,925 - 91,916
Exploration costs........................... 5,918 367 3,907 10,192
Depreciation, depletion and amortization.... 48,969 15,636 - 64,605
---------- --------- ------- ----------
Results of operations before income taxes... 64,961 30,601 (3,907) 91,655
Income tax expense (benefit)................ 23,256 - (1,360) 21,896
---------- --------- ------- ----------
Results of operations (excluding corporate
overhead and interest costs).............. $ 41,705 $30,601 $(2,547) $ 69,759
========== ========= ======= ==========
</TABLE>
-38-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1995
-----------------------------------------
U.S. Argentina Other Total
--------- ------------ ------ ---------
(Restated, In thousands)
<S> <C> <C> <C> <C>
Revenues.................................... $146,819 $13,435 $ - $160,254
Production (lifting) costs.................. 61,565 5,206 - 66,771
Exploration costs........................... 2,962 138 733 3,833
Depreciation, depletion and amortization.... 42,411 3,513 - 45,924
----------- --------- ------ ---------
Results of operations before income taxes... 39,881 4,578 (733) 43,726
Income tax expense.......................... 12,443 - (249) 12,194
----------- --------- ------ ---------
Results of operations (excluding corporate
overhead and interest costs).............. $ 27,438 $ 4,578 $(484) $ 31,532
=========== ========= ====== =========
</TABLE>
CAPITALIZED COSTS AND COSTS INCURRED RELATING TO OIL AND GAS PRODUCING
ACTIVITIES
The Company's net investment in oil and gas properties at December 31, 1997
and 1996, was as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------
U.S. Argentina Bolivia Other Total
--------- ----------- --------- ------- ---------
(Restated, In thousands)
<S> <C> <C> <C> <C> <C>
Unproved properties not being amortized.. $ 9,491 $ - $ - $477 $ 9,968
Proved properties being amortized........ 832,529 270,395 45,857 - 1,148,781
----------- --------- -------- ----- ----------
Total capitalized costs................ 842,020 270,395 45,857 477 1,158,749
Less accumulated depreciation,
depletion and amortization............. 314,699 42,621 3,401 - 360,721
----------- --------- -------- ----- ----------
Net capitalized costs.................. $527,321 $227,774 $42,456 $477 $ 798,028
=========== ========= ======== ===== ==========
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------
U.S. Argentina Bolivia Other Total
---------- ---------- --------- ------- --------
(Restated, In thousands)
<S> <C> <C> <C> <C> <C>
Unproved properties not being amortized.. $ 10,304 $ - $ - $448 $ 10,752
Proved properties being amortized........ 646,975 218,470 37,048 - 902,493
----------- --------- -------- ----- ----------
Total capitalized costs................ 657,279 218,470 37,048 448 913,245
Less accumulated depreciation,
depletion and amortization............. 239,117 19,226 - - 258,343
----------- --------- -------- ----- ----------
Net capitalized costs.................. $418,162 $199,244 $37,048 $448 $654,902
=========== ========= ======== ===== ==========
</TABLE>
-39-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following sets forth certain information with respect to costs incurred
(exclusive of general support facilities) in the Company's oil and gas
activities during 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997
---------------------------------------------------
U.S. Argentina Bolivia Other Total
----------- ---------- -------- ----- ---------
(Restated, In thousands)
<S> <C> <C> <C> <C> <C>
Acquisitions:
Undeveloped properties.. $ 7,138 $ - $ 560 $ 75 $ 7,773
Producing properties.... 133,548 - 6,201 - 139,749
Exploratory............... 16,463 3,971 - 2,983 23,417
Development............... 36,667 48,848 2,148 59 87,722
----------- -------- ------- ------- ---------
Total costs incurred.. $193,816 $52,819 $8,909 $3,117 $258,661
=========== ======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------
U.S. Argentina Bolivia Other Total
--------- ----------- --------- ------- ---------
(Restated, In thousands)
<S> <C> <C> <C> <C> <C>
Acquisitions:
Undeveloped properties.. $ 9,868 $ 2,080 $ - $3,679 $ 15,627
Producing properties.... 50,480 3,754 37,048 - 91,282
Exploratory............... 6,502 1,383 - - 7,885
Development............... 41,126 40,811 - - 81,937
----------- --------- -------- ------- ---------
Total costs incurred.. $107,976 $48,028 $37,048 $3,679 $196,731
=========== ========= ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------
U.S. Argentina Other Total
--------- ---------- ------- ---------
(Restated, In thousands)
<S> <C> <C> <C> <C>
Acquisitions:
Undeveloped properties.. $ 6,415 $ - $1,269 $ 7,684
Producing properties.... 38,896 168,762 - 207,658
Exploratory............... 2,037 - - 2,037
Development............... 36,896 2,185 - 39,081
---------- --------- ------- ---------
Total costs incurred.. $84,244 $170,947 $1,269 $256,460
========== ========= ======= =========
</TABLE>
-40-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES (UNAUDITED)
Proved reserves are estimated quantities of crude oil, natural gas and
natural gas liquids 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 reserves are
those which are expected to be recovered through existing wells with existing
equipment and operating methods. The following is an analysis of the Company's
proved oil and gas reserves which are located in the United States, Argentina
and Bolivia as estimated by the Company's independent petroleum consultants,
Netherland, Sewell & Associates, Inc.
<TABLE>
<CAPTION>
U.S. Argentina Bolivia Total
------------------ --------- ----------------- ------------------
Oil Gas Oil Oil Gas Oil Gas
(MBbls) (MMcf) (MBbls) (MBbls) (MMcf) (MBbls) (MMcf)
-------- -------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Proved reserves at December 31, 1994......... 70,789 281,638 - - - 70,789 281,638
Revisions of previous estimates.............. 7,160 18,405 2,952 - - 10,112 18,405
Extensions, discoveries and other additions.. 338 2,015 - - - 338 2,015
Production................................... (6,647) (30,610) (961) - - (7,608) (30,610)
Purchase of reserves-in-place................ 8,840 39,486 65,653 - - 74,493 39,486
Sales of reserves-in-place................... (253) (172) - - - (253) (172)
-------- -------- ------- ------- -------- -------- --------
Proved reserves at December 31, 1995......... 80,227 310,762 67,644 - - 147,871 310,762
Revisions of previous estimates.............. 13,382 21,834 12,449 - - 25,831 21,834
Extensions, discoveries and other additions.. 458 5,445 308 - - 766 5,445
Production................................... (7,694) (32,366) (4,245) - - (11,939) (32,366)
Purchase of reserves-in-place................ 8,095 20,787 2,849 4,953 57,758 15,897 78,545
Sales of reserves-in-place................... (130) (1,374) - - - (130) (1,374)
-------- -------- ------- ------- -------- -------- --------
Proved reserves at December 31, 1996......... 94,338 325,088 79,005 4,953 57,758 178,296 382,846
Revisions of previous estimates.............. (9,693) (18,045) 7,065 607 28,414 (2,021) 10,369
Extensions, discoveries and other additions.. 345 29,451 1,211 - - 1,556 29,451
Production................................... (9,692) (36,623) (5,630) (135) (6,068) (15,457) (42,691)
Purchase of reserves-in-place................ 24,653 62,253 - 758 111,212 25,411 173,465
Sales of reserves-in-place................... (17) (1,277) - - - (17) (1,277)
-------- -------- ------- ------- -------- -------- --------
Proved reserves at December 31, 1997......... 99,934 360,847 81,651 6,183 191,316 187,768 552,163
======== ======== ======= ======= ======== ======== ========
Proved developed reserves at:
December 31, 1995.......................... 63,791 270,427 36,928 - - 100,719 270,427
======== ======== ======= ======= ======== ======== ========
December 31, 1996.......................... 79,250 289,464 46,582 1,007 51,276 126,839 340,740
======== ======== ======= ======= ======== ======== ========
December 31, 1997.......................... 79,494 316,306 47,806 1,502 140,124 128,802 456,430
======== ======== ======= ======= ======== ======== ========
</TABLE>
-41-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED
OIL AND GAS RESERVES (UNAUDITED)
The Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves ("Standardized Measure") is a disclosure requirement
under SFAS No. 69. The Standardized Measure does not purport to present the
fair market value of proved oil and gas reserves. This would require
consideration of expected future economic and operating conditions which are not
taken into account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future cash
inflows were reduced by estimated future production, development and abandonment
costs based on year-end costs to determine pre-tax cash inflows. Future income
taxes were computed by applying the statutory tax rate to the excess of pre-tax
cash inflows over the Company's tax basis in the associated proved oil and gas
properties. Tax credits and permanent differences were also considered in the
future income tax calculation. Future net cash inflows after income taxes were
discounted using a 10 percent annual discount rate to arrive at the Standardized
Measure.
Set forth below is the Standardized Measure relating to proved oil and gas
reserves at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997
--------------------------------------------------
U.S. Argentina Bolivia Total
------------- ----------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Future cash inflows................. $2,321,760 $1,138,154 $357,767 $3,817,681
Future production costs............. 1,005,407 448,262 32,321 1,485,990
Future development and
abandonment costs................ 177,792 150,544 27,985 356,321
------------- ----------- --------- -----------
Future net cash inflows before
income tax expense................ 1,138,561 539,348 297,461 1,975,370
Future income tax expense........... 281,019 99,588 97,739 478,346
------------- ----------- --------- -----------
Future net cash flows............... 857,542 439,760 199,722 1,497,024
10 percent annual discount for
estimated timing of cash flows.... 253,026 142,735 84,618 480,379
------------- ----------- --------- -----------
Standardized Measure of discounted
future net cash flows............. $ 604,516 $ 297,025 $115,104 $1,016,645
============= =========== ========= ===========
</TABLE>
-42-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1996
--------------------------------------------------
U.S. Argentina Bolivia Total
------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
(In thousands)
Future cash inflows................. $3,110,810 $1,743,483 $188,211 $5,042,504
Future production costs............. 1,063,823 575,101 51,578 1,690,502
Future development and
abandonment costs................ 133,243 134,219 14,804 282,266
------------- ----------- --------- -----------
Future net cash inflows before
income tax expense................ 1,913,744 1,034,163 121,829 3,069,736
Future income tax expense........... 611,554 229,649 38,268 879,471
------------- ----------- --------- -----------
Future net cash flows............... 1,302,190 804,514 83,561 2,190,265
10 percent annual discount for
estimated timing of cash flows.... 484,288 285,896 27,240 797,424
------------- ----------- --------- -----------
Standardized Measure of discounted
future net cash flows............. $ 817,902 $ 518,618 $ 56,321 $1,392,841
============= =========== ========= ===========
</TABLE>
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING
TO PROVED OIL AND GAS RESERVES (UNAUDITED)
The following is an analysis of the changes in the Standardized Measure
during 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ---------
<S> <C> <C> <C>
(In thousands)
Standardized Measure - Beginning of year...... $1,392,841 $ 736,546 $385,721
Increases (decreases) -
Sales, net of production costs.............. (240,767) (166,452) (93,483)
Net change in sales price, net of
production costs.......................... (824,264) 644,367 131,697
Discoveries and extensions, net of related
future development and production costs... 56,334 20,085 4,585
Changes in estimated future development
costs..................................... (89,637) (69,433) (31,210)
Development costs incurred.................. 77,127 77,174 37,600
Revisions of previous quantity estimates.... 3,508 251,736 59,319
Accretion of discount....................... 180,714 88,411 44,699
Net change in income taxes.................. 215,131 (248,427) (86,296)
Purchase of reserves-in-place............... 240,658 149,900 311,449
Sales of reserves-in-place.................. (2,518) (1,859) (661)
Timing of production of reserves and other.. 7,518 (89,207) (26,874)
------------- ----------- ---------
Standardized Measure - End of year............ $1,016,645 $1,392,841 $736,546
============= =========== =========
</TABLE>
-43-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. RESTATED FINANCIAL STATEMENTS -- FIRST QUARTER 1998 (UNAUDITED)
As a result of the change in the method of accounting for oil and gas
properties, as discussed in Note 1, certain financial information for the three
months ended March 31, 1998 and 1997 has been restated, as detailed below.
<TABLE>
<CAPTION>
BALANCE SHEET DATA
As of March 31,
1998 1997
-------------------- ---------------------
Reported Restated Reported Restated
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Assets
Current Assets $ 71,202 $ 71,202 $ 67,314 $ 67,314
Property, Plant and
Equipment, net 893,332 827,567 730,131 677,892
Other Assets 25,059 25,059 32,121 32,121
---------- --------- --------- ---------
$989,593 $923,828 $829,566 $777,327
========== ========= ========= =========
Liabilities and Stockholders'
Equity
Current Liabilities $ 78,324 $ 78,324 $ 70,530 $ 70,530
Long-term Debt 467,924 467,924 357,156 357,156
Deferred Income Taxes 63,041 37,836 62,722 42,578
Other Long-term
Liabilities 3,617 3,572 3,124 3,124
Minority Interest - - 1,945 1,901
Stockholders' Equity 376,687 336,172 334,089 302,038
---------- --------- --------- ---------
$989,593 $923,828 $829,566 $777,327
========== ========= ========= =========
</TABLE>
INCOME STATEMENT DATA
For the three months ended March 31,
<TABLE>
<CAPTION>
1998 1997
-------------------- ---------------------
Reported Restated Reported Restated
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues $ 90,103 $89,994 $99,234 $99,234
Costs and Expenses 101,629 93,273 71,259 76,364
---------- --------- -------- ---------
Pretax Income (11,526) (3,279) 27,975 22,870
Income Taxes (4,934) (1,697) 6,869 4,889
Minority Interest - - (117) (117)
---------- --------- -------- ---------
Net Income (Loss) $ (6,592) $(1,582) $20,989 $17,864
========== ========= ======== =========
Earnings Per Share:
Basic $ (.13) $ (.03) $ .42 $ .36
Diluted $ (.13) $ (.03) $ .41 $ .35
</TABLE>
-44-
<PAGE>
Item 6. Resignation of Registrant's Directors.
Not applicable.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
The following is a list of all exhibits filed as a part of this Form
8-K:
23. Consent of Independent Public Accountants.
27.1 Restated Financial Data Schedule for fiscal 1997 and fiscal
1997 interim periods.
27.2 Restated Financial Data Schedule for fiscal 1996 and fiscal
1996 interim periods.
Item 8. Change in Fiscal Year.
Not applicable.
Item 9. Sales of Equity Securities Pursuant to Regulation S.
Not applicable.
-45-
<PAGE>
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.
VINTAGE PETROLEUM, INC.
By: /s/ Michael F. Meimerstorf
-------------------------------
Michael F. Meimerstorf
Vice President and Controller
Date: August 18, 1998
-46-
<PAGE>
Exhibit Index
The following is a list of all exhibits filed as a part of this Form 8-K.
Exhibit
Number Description
- ------ ----------------------------------------------
23. Consent of Independent Public Accountants.
27.1 Restated Financial Data Schedule for fiscal 1997 and fiscal 1997
interim periods.
27.2 Restated Financial Data Schedule for fiscal 1996 and fiscal 1996
interim periods.
-47-
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated August 11, 1998, included in this Form 8-K, into the Company's
previously filed Registration Statements on Form S-8 (File Nos. 33-37505 and
333-09205).
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
August 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 8-K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997
<CASH> 3,858 3,008 9,125 5,797
<SECURITIES> 0 0 0 0
<RECEIVABLES> 53,436 55,867 60,022 67,236
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 67,314 73,648 79,214 89,682
<PP&E> 969,788 1,100,729 1,129,224 1,180,112
<DEPRECIATION> 291,897 316,767 340,329 373,225
<TOTAL-ASSETS> 777,327 878,354 888,374 915,394
<CURRENT-LIABILITIES> 70,530 75,360 69,154 79,677
<BONDS> 357,156 445,983 447,868 451,096
0 0 0 0
0 0 0 0
<COMMON> 258 258 258 258
<OTHER-SE> 302,006 313,101 325,787 337,320
<TOTAL-LIABILITY-AND-EQUITY> 777,327 878,354 888,374 915,394
<SALES> 99,115 199,415 303,419 419,157
<TOTAL-REVENUES> 99,234 199,077 303,464 416,590
<CGS> 41,107 86,899 133,521 185,343
<TOTAL-COSTS> 41,107 86,899 133,521 185,343
<OTHER-EXPENSES> 27,079 58,952 90,557 132,453
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 8,178 17,952 27,455 36,762
<INCOME-PRETAX> 22,869 35,274 51,931 62,032
<INCOME-TAX> 4,889 6,308 9,440 6,875
<INCOME-CONTINUING> 17,863 28,763 42,288 54,954
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 17,863 28,763 42,288 54,954
<EPS-PRIMARY> .36 .57 .83 1.07
<EPS-DILUTED> .35 .55 .81 1.05
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 8-K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 3,697 5,569 5,339 2,774
<SECURITIES> 0 0 0 0
<RECEIVABLES> 47,828 50,136 48,635 72,664
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 61,656 64,945 67,510 84,690
<PP&E> 775,652 801,059 833,402 935,172
<DEPRECIATION> 220,426 236,776 253,691 271,147
<TOTAL-ASSETS> 627,081 639,689 657,977 766,816
<CURRENT-LIABILITIES> 60,574 62,258 62,644 113,376
<BONDS> 321,541 323,752 336,380 372,390
0 0 0 0
0 0 0 0
<COMMON> 240 240 240 241
<OTHER-SE> 210,588 218,299 224,642 236,165
<TOTAL-LIABILITY-AND-EQUITY> 627,081 639,689 657,977 766,816
<SALES> 70,876 146,859 222,676 310,796
<TOTAL-REVENUES> 71,340 147,383 223,335 312,147
<CGS> 34,136 68,607 106,824 148,630
<TOTAL-COSTS> 34,136 68,607 106,824 148,630
<OTHER-EXPENSES> 21,426 43,695 66,084 89,763
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 7,319 14,737 22,467 30,109
<INCOME-PRETAX> 8,459 20,343 27,960 43,645
<INCOME-TAX> 2,352 6,080 6,476 9,975
<INCOME-CONTINUING> 6,105 14,077 21,142 33,188
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 6,105 14,077 21,142 33,188
<EPS-PRIMARY> .13 .29 .44 .69
<EPS-DILUTED> .13 .29 .43 .68
</TABLE>
