FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 1-12108
GULFWEST OIL COMPANY
(Exact name of Registrant as specified in its charter)
Texas 87-0444770
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
2644 Sherwood Forest Plaza
Suite 229
Baton Rouge, Louisiana 70816
(Address of principle executive offices) (zip code)
(504) 293-1100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(D) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
NO YES X
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date, August 13, 1996, was 1,286,182 shares
of Class A Common Stock, $.001 par value.
<PAGE>
<TABLE>
GULFWEST OIL COMPANY
FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1996
<CAPTION>
Page of
Form 10-Q
<S> <C>
Part I: Financial Statements
Item 1. Financial Statements
Balance Sheets, June 30, 1996,
and December 31, 1995 3
Statements of Operations-for the three months
and six months ended June 30, 1996, and 1995 5
Statements of Cash Flows-for the six
months ended June 30, 1996, and 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on 8-K 12
Signatures 13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
GULFWEST OIL COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<CAPTION>
June 30, December 31,
1996 1995
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 190,753 $ 10,548
Accounts Receivable - Trade 209,958 153,619
Accounts and Notes Receivable - Related Parties 9,700 15,100
Prepaid Expenses 26,862 37,592
------------ ------------
Total Current Assets 437,273 216,859
Oil & Gas Properties, Using the Successful Efforts Method of Accounting:
Undeveloped Properties 37,910 37,910
Developed Properties 3,667,002 3,340,419
Gathering Systems 20,048 20,048
Other Property and Equipment 312,304 278,864
Less - Accumulated Depreciation, Depletion,
and Amortization (969,128) (783,375)
----------- -----------
Net Oil and Gas Properties and
Other Property and Equipment 3,068,136 2,893,866
Long-Term Notes Receivable - Related Party, Net 139,321 98,675
------------ --------------
Total Assets $3,644,730 $3,209,400
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
<TABLE>
GULFWEST OIL COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<CAPTION>
June 30, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current Portion of Long-Term Debt $ 694,320 $ 59,906
Current Portion of Long-Term Debt - Related Parties 202,433 -
Notes Payable 5,800 87,675
Accounts Payable - Trade 426,051 329,495
Accrued Expenses 58,255 66,489
----------- -----------
Total Current Liabilities 1,386,859 543,565
Long-Term Debt, Net of Current Portion 865,470 1,451,938
Long-Term Debt, Related Parties - 226,101
Commitments and Contingencies - -
Stockholders' Equity:
Preferred Stock, Par Value at $.01, 10,000,000 Shares
Authorized, 600 and -0- Shares Issued and Outstanding
In 1996 and 1995, respectfully 300,000 -
Common Stock, Par Value at $.001, 20,000,000 Shares
Authorized, 1,286,182 and 1,086.125 Shares Issued and Outstanding
in 1996 and 1995, respectively 1,286 1,086
Additional Paid-in Capital 4,177,989 3,596,514
Retained Deficit (3,086,874) (2,609,804)
----------- -----------
Total Stockholders' Equity 1,392,401 987,796
----------- -----------
Total Liabilities and Stockholders'
Equity $3,644,730 $3,209,400
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
<TABLE>
GULFWEST OIL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
-------------- ------------- -------------- --------
Revenues:
Oil and Gas Sales $ 272,090 $ 105,756 $ 474,597 $ 237,852
Gathering System Income 1,768 13,997 2,971 18,943
Prospect Generation Fees - - - 30,000
Management Fees 44,096 - 82,441 -
------------ ---------------- ------------ ------------
Total Revenues 317,954 119,753 560,009 286,795
------------ ------------ ------------ ------------
Costs and Expenses:
Lease Operating Expenses 116,795 77,144 211,177 168,180
Lease Abandonments 77,518 - 85,696 -
Depreciation and Depletion 91,538 65,790 181,752 134,963
General and Administrative 236,784 219,660 458,508 443,862
------------ ------------ ------------ ------------
Total Costs and Expenses 522,635 362,594 937,133 747,005
------------ ------------ ------------ ------------
Income (Loss) From Operations (204,681) (242,841) (377,124) (460,210)
Other Income and Expense:
Interest Income 8,600 17,173 15,617 34,277
Interest Expense (55,855) (21,126) (115,563) (35,284)
------------ ------------ ----------- ------------
Total Other Income and Expense (47,255) (3,953) (99,946) (1,007)
------------ ------------- ------------ -------------
Net Income (Loss) Before Taxes (251,936) (246,794) (477,070) (461,217)
Income Tax Provision - - - -
---------------- ---------------- --------------- ------------
Net Income (Loss) $ (251,936) $ (246,794) $ (477,070) $ (461,217)
=========== =========== =========== ===========
Earnings Per Share and Common Stock
Equivalents $ (.23) $ (.25) $ (.44) $ (.46)
Weighted Average Number of Shares 1,098,644 1,000,000 1,092,681 1,000,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
<TABLE>
GULFWEST OIL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
1996 1995
------------- ----------
<S> <C> <C>
Cash Flows Provided (Used) By Operating Activities:
Net Income (Loss) $ (477,070) $ (461,218)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Depreciation, Depletion, and Amortization 181,752 134,963
Lease Abandonments 85,696 -
(Increase) Decrease in Accounts Receivable - Other, Net (56,339) (30,080)
Decrease in Prepaid Expenses 10,730 4,653
Increase (Decrease) in Accounts Payable - Other 96,556 75,778
Increase (Decrease) in Accrued Expenses (8,234) 26,902
------------ -----------
Net Cash Provided (Used) By Operating Activities (166,909) (249,002)
---------- ----------
Cash Flows Provided (Used) By Investing Activities:
Purchase of Oil and Gas Properties (412,279) (16,427)
Sale of Oil and Gas Properties - 35,125
Purchase of Other Equipment (33,440) -
------------ ----------
Net Cash Provided (Used) By Investing Activities (445,719) 18,698
----------- -----------
Cash Provided (Used) By Financing Activities:
Amortization Prepaid Interest 16,667 -
(Payments) on Notes Payable -Related Parties (23,668) -
(Increase) Decrease in Notes Receivable - Related Party (31,245) 148,853
(Increase) Decrease in Other Assets - (31,128)
Proceeds From Long-Term Debt 122,875 -
(Payments) on Long-Term Debt (85,796) (2,976)
Proceeds From Notes Payable - Related Parties - 75,000
Proceeds From Notes Payable - Other - 225,000
(Payment) on Notes Payable - Other (87,675) (102,066)
Proceeds From Sale of Common Stock 81,675 -
Proceeds From Sale of Preferred Stock 800,000 -
----------- ----------
Net Cash Provided (Used) By Financing Activities 742,833 307,683
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 180,205 77,379
Cash and Cash Equivalents, Beginning of Period 10,548 30,861
------------ -----------
Cash and Cash Equivalents, End of Period $ 190,753 $ 108,240
========== =========
Cash Interest Paid $ 82,734 $ 24,489
=========== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
GULFWEST OIL COMPANY AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(UNAUDITED)
1. During interim periods, GulfWest Oil Company ("the Company") follows
the accounting policies set forth in its Annual Report on Form 10-K
filed with the Securities and Exchange Commission. Users of financial
information produced for interim periods are encouraged to refer to the
footnotes contained in the Annual Report when reviewing interim
financial results.
In management's opinion, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, the
results of operations, and the statements of cash flows of GulfWest Oil
Company for the interim periods.
2. As of June 30, 1996, the Company had receivables from Williams
Southwest Drilling Company ("Williams") in the amount of $274,000,
offset by reserves of $203,000 or a net receivable of $71,000. Williams
is currently negotiating the sale of a drilling rig under a lease
purchase contract. When the sale is completed, the Company should
receive a payment in an amount approximating the net receivable.
The Company also has two note receivables from The Holifield Companies
("Holifield") in the gross amount of $184,000 and a net amount of
$13,000. Management is currently in negotiations with Holifield to
settle one note for the transfer of an asset valued at $130,000. After
this transaction is completed, management intends to negotiate a
settlement for the remaining note.
3. On January 23, 1996, the Company received $100,000 as final funding of
a $150,000 note payable to an individual due in July 1997. The initial
funding of $50,000 was received in December 1995. At the completion of
the funding, the individual received warrants to purchase 15,000 shares
of common stock at a price of $1.00 per share. The warrants were
exercised during March 1996.
4. On January 25, 1996, the Company issued warrants to purchase 175,000
shares of common stock at $1.50 per share to a financial advisor for
assistance in arranging additional financing for the Company. Also, on
February 5, 1996, the Company issued warrants to purchase 40,000 shares
of common stock at $2.25 per share to a public relations consultant.
None of these warrants has been exercised to date.
5. On March 1, 1996, the Company issued a private placement offering of
cumulative convertible Class A Preferred Stock with a stated dividend
rate of 10%, payable quarterly as declared. During the first quarter,
1,000 shares of the preferred stock were sold for $500,000. In June
1996, the preferred stock was converted to 142,857 shares of common
stock. (See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Financial Condition and Capital
Resources".)
6. On March 27, 1996, the Company entered into agreements with two of its
officers to convert deferred compensation in the amount of $47,340 to
notes payable due April 1, 1997. Additionally, it entered into
agreements with ten existing note holders to extend the due date on
their notes to April 1, 1997 and pay accrued interest of $28,450 on
that date.
7
<PAGE>
7. During the second quarter, the Company sold 30,000 shares of restricted
common stock at a net price of $1.58 per share in a private offering.
Subsequent to the end of the quarter, an additional 50,000 shares were
sold at the same price. The holders were also issued a warrant to
purchase one share of common stock at an exercise price of $1.75 for
each two shares of common stock purchased.
8. In May 1996, the Company sold $1,000,000 of 9% cumulative convertible
Class AA Preferred Stock, with dividends payable quarterly as declared,
to a group of private investors. Funding of $300,000 was received
during the second quarter and was used to purchase interests in oil and
gas properties. The remainder of the funds will be drawn as needed to
purchase additional oil and gas interests, or to enhance properties the
Company currently owns. In addition to dividends, the preferred share-
holders are entitled to a distribution of up to 25% of the Company's
net profits from the properties purchased with their funds, with the
combined return on their investment not to exceed 20%. The preferred
shareholders were also issued a warrant to purchase 50,000 shares of
common stock at $5.75 per share.
9. During the second quarter, the Company entered into an agreement to
purchase working interests in a group of oil properties in West Texas
for $3,100,000 and tendered a non-refundable deposit of $200,000. The
closing of this purchase is scheduled for October 1996.
10. During the second quarter, the Company also issued 11,000 shares of
common stock and warrants to purchase 175,000 shares of common stock at
$1.50 per share, 75,000 shares of common stock at $2.00 per share, and
50,000 shares of common stock at $5.00 per share to various financial
consultants for assistance in raising additional capital.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
GulfWest Oil Company ("GulfWest" or the "Company") is an independent oil and gas
company primarily engaged in the acquisition of producing oil and gas properties
with proved reserves which have the potential for increased value through
continued development and enhanced recovery technology. Its objective is to
significantly increase the production of such properties through workovers of
the wells, horizontal drilling from existing wellbores, development drilling or
other enhancement operations. At June 30, 1996, the Company owned working
interests in 65 gross producing oil and gas wells and royalty interests in 2
additional wells.
The Company's subsidiary, WestCo Producing Company ("WestCo"), currently
operates approximately one-half of the properties in which the Company owns
interests. As the Company continues to grow through acquisitions, it intends to
purchase a significant working interest in each property so that WestCo can
become the operator.
On July 17, 1995, the Company acquired from Sikes Producing, Inc. ("SPI"),
beneficial ownership of an additional 42.5% of the working interests in 31
proved producing oil and gas properties located in the Madisonville Field,
Texas. Under a Restructuring Agreement, GulfWest contributed its 37.5% ownership
in a gas pipeline gathering system and assumed a $640,000 nonrecourse note as
payment for the working interests. GulfWest also purchased certain additional
working interests in Madisonville from SPI for a purchase price of $100,000,
with $20,000 paid in cash at closing and a promissory note for $80,000 which was
subsequently paid in full in 1996. It was also agreed that the Company's
subsidiary, WestCo would assume operations of the 31 wells, effective August 1,
1995. These actions increased the Company's proved reserves by 44% over December
31, 1994 and provided additional operating income to the subsidiary, in that
WestCo receives a management fee of $500 per month per producing well.
Results of Operations
Comparative results of operations for the periods indicated are discussed below.
Three-Month Period Ended June 30, 1996 compared to Three Month Period Ended June
30, 1995.
Oil and gas sales for the second quarter increased from $105,756 in 1995 to
$272,090 in 1996, due primarily to the acquisition of the additional working
interests from SPI discussed above and increases in the price of oil from $17 to
$20 per barrel and the price of natural gas from $1.26 to $1.85 per Mcf. In
1996, WestCo received $44,096 in management fees for operating the producing
wells.
Lease operating expenses for the period in 1996 increased by 50% over 1995,
while revenues increased 160%. The increase in operating expenses for the newly
acquired interests was offset by decreases due to 1) certain unproductive wells
being plugged and abandoned in 1995; 2) successful workovers and recompletions
on certain wells in 1995; and, 3) cost control and reduction measures
implemented by WestCo following the assumption of operations in August 1995.
Depreciation and depletion increased for the period due to the acquisition of
the additional working interests from SPI.
9
<PAGE>
Interest expense for the second quarter of 1996 compared to 1995 increased due
to the issuance of $500,000 in debentures with an annual interest rate of 9
1/2%, a $150,000 note payable to an individual with an annual interest rate of
7%, and the assumption of a $640,000 nonrecourse note with an annual interest
rate of 8% in conjunction with the purchase of the interests from SPI.
Six-Month Period Ended June 30, 1996 compared to Six Month Period Ended June 30,
1995.
Oil and gas revenues increased by $236,852 in the first six months of 1996
compared to the same period in 1995 due to the acquisition of the additional
working interests and the increase in oil and gas prices discussed above.
Gathering system income declined by $16,000 as a result of the Company's
contributing its interest in the pipeline in exchange for working interests in
the Madisonville wells.
The Company recorded $30,000 of prospect generation fees from the sale of a
partial interest in three producing properties during the first six months of
1995. During 1996, the Company generated $82,441 in revenues from the management
of oil and gas wells, which commenced in the third quarter of 1995.
Lease operating expenses, depreciation and depletion all increased for the
period in 1996 compared to 1995, due to the additional working interests
acquired in August 1995. The increase in lease operating expenses was offset by
decreases due to factors discussed above. Interest expense increased for the
reasons cited above.
Financial Conditions and Capital Resources
During the first half of 1996, the cash needs of the Company have been met by
the receipt of $982,000 in the form of $100,000 as final funding of a $150,000
note payable to an individual, the proceeds from the sale of cumulative
convertible preferred stock for $800,000 and the sale of restricted stock for
$82,000. Of the proceeds received from borrowings and stock sales, the Company
used approximately $215,000 to offset negative operating cash flow, $180,000 to
pay off note holders, $400,000 for the acquisition and enhancement of oil and
gas properties, and the remainder is to be used as a cash reserve while the
Company continues its efforts to increase cash flow. At June 30, 1996, the
Company had total assets of $3,644,730, negative working capital of $949,586 and
shareholders' equity of $1,392,401, compared to December 31, 1995 when the
Company had total assets of $3,209,400, negative working capital of $326,706 and
shareholders' equity of $987,796.
The Company sold preferred stock through two private offerings: In the first
offering the Company sold $500,000 of 10% cumulative convertible Class A
Preferred Stock, $.01 par value, with a purchase/liquidation value of $500 per
share. During the second quarter, the holder converted the preferred stock to
142,857 shares of common stock based on a conversion price of $3.50 per share of
common stock. In the second offering, the Company sold $1,000,000 of 9%
cumulative convertible Class AA Preferred Stock, $.01 par value, with a
purchase/liquidation value of $500 per share. $300,000 was funded during the
second quarter and was used to acquire and enhance oil and gas properties. In
addition to dividends, the holders of the Class AA Preferred Stock are entitled
to receive distributions of up to 25% of the Company's net cash flow from the
properties purchased with the funds, not to exceed a combined return of 20%.
10
<PAGE>
Management's plans for growth and profitability during the remainder of 1996
include taking several measures to increase production and operating revenues:
1) acquiring ownership and operations of additional oil and gas properties; 2)
increasing cash flow from properties currently owned by recompleting and
enhancing certain wells; and, 3) drilling horizontally from existing wellbores
to develop proved reserves. The Company intends to raise the necessary capital
for these projects through the sale of additional shares of preferred and/or
common stock, the arrangement of joint ventures with outside investors, and the
securing of nonrecourse financing. The Company's ability to succeed in these
goals is subject to a number of variables, including production levels, oil and
gas market prices, and the availability of funds. There can be no assurances
that operations and other capital resources will increase sufficiently to allow
the Company to become cash flow positive in 1996.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the shareholders during the
second quarter of 1996.
ITEM 5. OTHER INFORMATION
On April 25, 1996, the Company entered into an agreement with a
financial consultant for the purpose of assisting the Company to acquire equity
capital through the sale of the Company's common stock in private transactions.
To date, the consultant has not assisted the Company in acquiring equity capital
under the agreement.
On September 14, 1995, the Company entered into a Letter of Intent,
subject to definitive agreement and approval by the Board of Directors, to
acquire 100% of the common stock of Petrolinn Oil & Gas, Inc. ("Petrolinn"), a
privately held Delaware corporation, and merge it into a wholly-owned subsidiary
of the Company. After extensive due diligence on all aspects of the proposed
transaction, management has recommended and the Board of Directors agreed on
July 2, 1996 not to enter into a definitive agreement for the acquisition and
merger, in that it would not be in the best interest of the Company and its
shareholders.
On May 7, 1996, the Board of Directors approved entering into an
Employment and Change of Control Agreement with John E. Loehr, effective June 1,
1996, for a period of 5 years. Mr. Loehr will serve as a consultant until he
assumes the duties of Chief Financial Officer, as of January 1, 1997. Under the
Agreement, Mr. Loehr will receive a base annual salary of $150,000, increasing a
minimum of 15% annually, with deferred compensation in the form of cash or stock
as determined by the Board of Directors. Any Common Stock received by Mr. Loehr
under the Agreement shall be based at 60% of the average bid price for the
Company's Common Stock for the 20 days preceding issuance.
In the event of a change of control, as defined in the Agreement, Mr.
Loehr will have the option to continue as an employee of the Company under the
terms of the agreement or receive a lump-sum cash severance payment equal to
300% of his annual base salary for the year following the change of control.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -
20.1 Letter to Shareholders dated August 12, 1996
(b) Form 8-K -
The Company filed a report on Form 8-K dated April 15, 1996
reporting the Company's disagreement with accountants on
accounting and financial disclosure.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
GULFWEST OIL COMPANY
(Registrant)
Date: August 14, 1996 By: /s/ Jim C. Bigham
------------------
Jim C. Bigham
Executive Vice President
and Secretary
Date: August 14, 1996 By: /s/ John F. Bendure
--------------------
John F. Bendure
Vice President of Finance
and Treasurer
13
<PAGE>
EXHIBIT 20.1
August 12, 1996
Dear Fellow Shareholders:
This is an exciting period in the life of our company, and the pace of
recent events may have left some of you with an incomplete picture of what
GulfWest Oil has accomplished and where we are headed. Our progress since the
close of 1995 demonstrates the initial success of our ambitious acquisition
strategy, the growing strength of our financial foundation, and the hard work of
our dedicated management team.
We are pleased to report that shareholders represented at our annual
meeting on July 2, 1996, expressed a strong vote of confidence in the company's
leadership and direction. At the meeting, the five nominees for director listed
in the proxy statement were reelected for a one year term. Of the 1,087,325
shares of common stock outstanding, 773,430 shares (71%) were present in person
or by proxy and entitled to be voted at the meeting. Of the shares voted,
760,237 shares (98%) were cast for each of the nominees for director of the
company. No other matters were presented at the meeting.
Prior to the meeting, a representative of a group of shareholders
presented proxies purportedly representing 370,465 shares which directed him to
nominate and vote for a slate of five directors other than those nominated by
your management. Because the secretary was unable to verify all of the
shareholders as record owners of stock, the company disallowed the proxies
except for 7,391 shares. The representative departed before the meeting was
called to order and therefore did not attempt to nominate or vote for the
directors.
A further indication of confidence in our prospects has been our
ability to secure financing for our acquisition program. Through the efforts of
the chairman, Mr. John Loehr, the company recently sold $1,000,000 of a 10%
Convertible Participating Preferred Stock Offering. To date, $300,000 of these
funds have been drawn and were used to purchase 26 oil wells in Hardin, Polk and
Brazoria Counties, Texas, and to enhance certain wells which the company owns in
the Madisonville Field, Texas. The company's wholly-owned subsidiary, WestCo
Producing Company, operates these wells. Since WestCo assumed operations of the
Madisonville wells in August 1995, oil production from the wells has increased
by one-third.
The company has recently entered into an agreement to purchase for $3.1
million approximately 250 oil wells in Crockett County, Texas which WestCo will
operate. Estimated gross production from the producing wells is currently 220
barrels of oil per day. WestCo plans to place 80-100 of the non-producing wells
back into production by year end, thus increasing
<PAGE>
production to an estimated 420 barrels per day. There is also the potential to
drill 30-50 undeveloped locations and introduce a secondary recovery program for
the development of reserves at a later date.
In his presentation to the shareholders, Mr. Marshall Smith, president,
stated, "Since the acquisition of our core properties in 1993, the company's
proved reserves doubled in 1994 and increased by one-third in 1995. It is now
time to turn our reserves into cash, while continuing to acquire additional
reserves. Our goal is to move forward in securing the necessary capital and
financing for this $3.1 million purchase which will substantially increase our
cash flow and earnings in a short period of time."
On June 24, 1996, ECO2, Inc., the holder of 1,000 shares of the
company's preferred stock, valued at $500,000, converted its stock to 142,857
shares of common stock, based on a price of $3.50 per share of common stock.
Following the conversion, ECO2 owns approximately 11% of the outstanding common
stock of the company. Mr. Charles Ledford, Chairman and CEO of ECO2, was
extended an invitation, which he accepted, to be a director of the Company. On
August 5, 1996, the board of directors held a special meeting at which the board
was increased to 6 members and Mr. Ledford was elected a director. Mr. Ledford
brings considerable experience and business acumen to the board and we believe
he will be an invaluable addition to our team.
In the coming months, we intend to aggressively pursue the acquisition
opportunities that are available to us, while continuing to increase the
production from our existing reserves. We believe this strategy will result in a
stronger and profitable company in the near future. The officers, directors and
employees of GulfWest greatly appreciate your continued confidence and support,
and we are committed to creating value for our shareholders.
John E. Loehr, Chairman of the Board Marshall A. Smith III, President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GULFWEST OIL
COMPANY'S QUARTERLY REPORT FILED ON FORM 10-Q FOR THE QUARTER ENDED JUN-30-96
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000813779
<NAME> 0
<MULTIPLIER> 1
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 190,753
<SECURITIES> 0
<RECEIVABLES> 209,958
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 437,273
<PP&E> 3,724,960
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0
300,000
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</TABLE>
