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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
JANUARY 7, 1998
Date of Report
(Date of earliest event reported)
LONE STAR INTERNATIONAL ENERGY, INC.
(Exact name of registrant as specified in its charter)
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NEVADA 33-55254-07 87-0434288
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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200 PALO PINTO, SUITE 108
WEATHERFORD, TEXAS 76086
(Address of principal executive offices) (Zip code)
(817) 598-0542
Registrant's telephone number, including area code
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Lone Star International Energy, Inc. (Company) consummated the purchase of a
75% working interest and 61.12% net revenue interest in the Two Medicine Cut
Bank Sand Unit (Cut Bank Unit) from Mont-Mill Operating Company. The Cut Bank
Unit is located in Glacier and Pondera Counties, Montana, consisting of over
10,000 acres of oil & gas leases including Blackfeet Indian Tribal lands, State
of Montana lands, and private lease lands, all of which have been unitized into
a single producing unit. Located within the Cut Bank Unit are approximately 82
wellbores of which all but 10 are currently shut-in. The Cut Bank Unit was
presented to the Company by Prism Corporation of Tulsa, Oklahoma who owns the
remaining 25% working interest, and 20.37% net revenue interest. The Company
and Prism Corporation jointly formed a Montana Limited Liability Company by the
name of Provident Energy Associates of Montana, L.L.C. (Provident), to acquire
the actual title to the Cut Bank Unit, and to serve as the Operator of record.
Ownership of Provident is vested as 75% to the Company, and 25% to Prism
Corporation.
The acquisition of the Cut Bank Unit was made in accordance with an Agreement
dated August 19, 1997, between the Company and Prism Corporation, whereby the
Company agreed to purchase the interest in exchange for $300,000 cash and
restricted Rule 144 shares of Common Stock of the Company. The total
consideration was established at the value of $6 million using a share value of
$3.50 per share for the restricted Common Stock, with the agreement to issue up
to $5.7 million of stock using this formula, with the number of shares being
set at 1,628,571. The Company further agreed to provide all of the funds
necessary to restore the 82 existing wellbores to daily production, with such
funding to take place over an 18 to 24 month basis. The total estimated
restoration budget for the period was $1.1 million.
At the request of the Blackfeet Tribe and the Bureau of Indian Affairs, the
Bureau of Land Management conducted a detailed reserve study of the Cut Bank
Unit in mid 1996. The study concluded that cumulative primary production from
the Cut Bank Unit through 1996 was in excess of 10.5 million barrels of oil,
which represents only about 10% of the recoverable oil. The Bureau of Land
Management report further indicated that in excess of 16 million barrels of
proven recoverable oil in place remained in the Cut Bank Unit, but that a
secondary recovery program was necessary to fully develop the remaining
recoverable reserves. Suggested secondary recovery programs included either a
water flood, or horizontal well technology. Operators of other units within
the massive Cut Bank Field, which extends northward into Canada, are currently
using horizontal secondary with good success.
Closing of the acquisition took place on January 7, 1998, with the effective
date being January 1, 1998. The negotiations and consideration paid were
based upon arms length transactions.
The valuations of the assets acquired by the Company are being audited at this
time. These valuations will be provided in an amended Form 8-K Report to be
filed.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Financial Statements - to be filed by amendment to this 8-K.
Exhibits
10.1 Agreement between Lone Star International Energy, Inc. and
Prism Corporation.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
LONE STAR INTERNATIONAL ENERGY, INC.
(Registrant)
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Date: January 21, 1998 /s/ C. E. Justice
President (Principal Executive Officer)
Date: January 21, 1998 /s/ Michael D. Herrington
Chief Financial Officer, Treasurer
(Principal Accounting Officer)
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INDEX TO EXHIBITS
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Exhibit No. Description
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10.1 Agreement Between Lone Star International Energy, Inc. and Prism Corporation.
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AGREEMENT
This Agreement is entered into this the 19th day of August, 1997, by
and between Lone Star International Energy, Inc., 200 Palo Pinto Street, Suite
108, Weatherford, Texas 76086, (hereinafter referred to as "Lone Star"), and
Prism Corporation, 2526 E. 71st Street, Suite A, Tulsa, Oklahoma 74136,
(hereinafter referred to as "Prism"), to be effective as of this date.
RECITALS
WHEREAS, Lone Star is a public corporation engaged in the oil & gas
exploration and development and other energy related business, and whose shares
are traded on the NASDAQ Bulletin Board under the symbol "LNST"; and,
WHEREAS, Lone Star is interested in the acquisition of proven oil &
gas reserves with development opportunities to add to its current oil & gas
inventory, and wishes to utilize certain of its restricted shares of common
stock whenever possible to secure such acquisitions; and,
WHEREAS, Prism is engaged in the oil & gas exploration, development
and operations industry, and from time to time locates, evaluates and markets
oil & gas properties to other industry partners; and,
WHEREAS, Prism has located and evaluated an oil & gas reserve and
production property known as the Two Medicine Cut Bank Sand Unit (the "Unit"),
and believes that this property meets the requirements of Lone Star and is
available for acquisition through the Bankruptcy Court in the State of Montana;
and,
WHEREAS, the parties desire to work together for the purpose of
acquiring the Unit for their joint accounts.
NOW THEREFORE, in consideration of the mutual benefits to be
obtained, and the terms and conditions as hereinafter stipulated, the Parties
agree as follows:
1. Lone Star and Prism agree to form and file of record a Limited
Liability Company to be known as Provident Energy Associates of
Montana, L.L.C. ("Provident") for the specific purpose of acquiring
title to the Unit and to serve as the Operator of record for the Unit
after closing of the acquisition. Ownership of Provident shall be on
the basis of 75% for Lone Star and 25% for Prism, with ownership of
the underlying assets to be acquired (the Unit), being on the same
percentage basis. Neither party will be restricted from further
transfer of a portion of its respective interest in Provident,
however, such transfer will not relieve the transferring party from
its duties and responsibilities as hereinafter defined. Neither party
shall convey all of its interest in Provident without offering a first
right of refusal to the other party, and the party receiving such
notice shall have 30 days in which to elect to acquire the offered
interest on the same terms being offered to any outside third party.
Failure of the party receiving notice to make its election within the
30 day period will be deemed to be its election not to acquire the
offered interest.
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2. Lone Star agrees to provide total consideration in the sum of Six
Million Dollars ($6,000,000.00) for the acquisition of the Unit on
behalf of Provident. Said consideration to be in the form of cash in
the amount not less than Three Hundred Thousand Dollars ($300,000),
and Restricted Rule 144 shares of Common Stock up to Five Million
Seven Hundred Thousand Dollars ($5,700,000.00) using a share price of
$3.50 per share, or a maximum total of 1,628,571 shares. In the event
the cash portion exceeds $300,000, the stock portion will be
proportionately reduced. It is understood that Prism has, on behalf
of Provident, negotiated a proposed offer to purchase the Unit, and
will submit the offer to the Bankruptcy Trustee. This offer consists
of cash and restricted stock of Lone Star, and a copy thereof is
attached hereto as Exhibit "A". The Parties hereto confirm and agree
that any restricted stock of Lone Star not actually utilized in the
offer to the Bankruptcy Trustee, and required for the acquisition of
the Unit, shall be registered and delivered to Prism Corporation as
part of the agreed purchase price. Prism shall provide a schedule to
Lone Star as to how such shares are to be registered and issued at
closing. In addition, any of the cash portions of the purchase funds
not paid directly to the Bankruptcy Trustee are to be applied as an
expense reimbursement to Prism.
3. Upon closing the acquisition of the Unit, Prism will assume the
operations management of Provident, and in such capacity shall oversee
and be responsible for the day to day field operations on the Unit.
The Parties agree that operations will be conducted in accordance with
the terms of a mutually negotiated and agreed Joint Operating
Agreement to include a COPAS or other form accounting procedure
stipulating among other things, the administrative overhead to be
charged the joint account, and the expenditure authority of the
Operator. The Joint Operating Agreement shall also include the
provision for the removal of the Operator without cause.
4. It is the intent of the Parties to restore to production the 82 wells
currently within the Unit and to evaluate the Unit to determine the
optimum locations for horizontal secondary recovery wells. Lone Star
agrees that it will fund 100% of the costs associated with the
restoration of the existing 82 wells, and will carry the 25% interest
of Prism therein through the restoration activity. The Parties agree
that secondary development through a horizontal drilling program may
be negotiated on a different basis, and other third parties may be
included in such development.
5 Lone Star further agrees to provide the funding and/or security
necessary for the fulfillment of the various bonding requirements of
the Operator of the Unit. These include, but may not be limited to
(a) State of Montana Operators Bond, (b) Bureau of Indian Affairs
Bond, (c) Black Feet Indian Nation Bond, and (d) EPA Bond.
6. Prism as operating manager of Provident agrees to manage the day to
day field operations of the Unit in accordance with the agreed Joint
Operating Agreement. Prism shall have all production revenue paid to
the account of Provident, and shall promptly pay the necessary
operating expenses as provided in accordance with the Operating
Agreement and Accounting Procedure. After payment of said operating
expenses, Prism shall cause Provident to distribute the net revenue
from production to Lone Star and Prism in the percentage of ownership
interest as hereinabove stipulated.
7. All of the Exhibits referred to in this Agreement are hereby
incorporated herein by this reference.
8. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs or successors and assigns.
9. Any notice required or permitted to be given hereunder shall be deemed
to have been properly given (a) three days after deposited in the
United States Mail, with first-class postage affixed, (b) immediately
upon receipt of a telefax, provided that a hard copy is thereafter
received by regular
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mail, by Federal Express or by Express Mail, (c) immediately upon
receipt via Federal Express or by Express Mail, or (d) immediately
upon receipt of Certified or Registered United States Mail, Return
Receipt Requested, all of which shall be addressed to the party to
whom notice is intended at the following address of each party:
Lone Star International Energy, Inc.
200 Palo Pinto
Suite 108
Weatherford, Texas 76086
Prism Corporation
2526 East 7st Street
Suite A
Tulsa, Oklahoma 74136
Or at such other address as may from time to time be designated by the
parties, in writing.
10. This Agreement may not be amended nor any rights hereunder be waived,
except by an instrument in writing signed by the Parties.
11. If any provision of this Agreement shall be held illegal or invalid,
this Agreement shall be construed and enforced as if such illegal or
invalid provision had not been contained herein.
12. The provisions hereof constitute the complete agreement of the parties
with respect to the subject matter hereof and supersede all previous
agreements, understandings and/or negotiations between the parties,
whether written or oral, with respect thereto.
13. This Agreement is made and entered into in, and is governed by the
laws of the State of Texas.
IN WITNESS WHEREOF, this Agreement is executed and shall be effective
as of the date first above written.
LONE STAR INTERNATIONAL ENERGY, INC.
/s/ C. E. JUSTICE
---------------------------------------------
C. E. Justice
President
Prism Corporation
/s/ GARY L. LITTLE
---------------------------------------------
Gary L. Little
President
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[PRISM CORPORATION LETTERHEAD]
August 21, 1997
Mr. Gary S. Deschenes, Esq.
Trustee in Bankruptcy
P.O. Box 3502 Via Fax 406/761-6784
Strain Building, Suite 508
Great Falls, Montana 59403-3502
RE: Mont-Mill Operating Co.
Case No. 96-40645-7
Revised
Dear Gary:
This letter will serve to formalize our discussions regarding our offer to
purchase all of the assets of the above captioned bankruptcy estate. From the
information that has been furnished by you and others, we believe those assets
to be as follows:
1. 100% of the working interest in and to all leases as set forth in
Exhibit "A", attached hereto. Said working interest having a Net
Revenue Interest of 81.50300095%. Said leases comprise 100% of
the leasehold within the Two Medicine Cut Bank Sand Unit, Glacier
and Ponderosa Counties, Montana.
2. 100% of the right, title and interest in and to the following,
(i) all rights with respect to the use and occupation of the
surface of and the subsurface depths under the Leasehold
Interest; (ii) all rights with respect to any pooled,
communitized or unitized acreage by virtue of any Leasehold
Interest being a part thereof, including all production from such
pool or unit allocated to any such Leasehold Interest, and 100%
interest in any wells within the unit or pool associated with
such Leasehold Interest; (iii) all real property, personal
property, equipment, fixtures and improvements now located on or
used in connection with the exploration, development or operation
of the Leasehold Interests, including, without limitation the
equipment described in Exhibit "B" to this letter, "Mont-Mill Cut
Bank Sand Unit." Generalized Inventory; (iv) all rights in and to
all easements, rights-of-way, servitudes, permits, licenses,
franchises and other estates or similar rights and privileges
related to or used in connection with the Leasehold Interests;
(v) all contracts, agreements, leases and other arrangements used
or useful in connection with the Leasehold Interest; and (vi) all
non-confidential and non proprietary, books, records, files,
[illegible] of title, reports and similar documents and materials
that relate to the foregoing interests.
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Mr. Gary S. Deschenes, Esq.
August 21, 1997
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3. Any other real or personal property of the Mont-Mill Operating
Company discovered subsequent to this offer.
All of the above being a more detailed description of the assets described as
"Lot A and Lot B" in the "Trustee's Motion for Order Authorizing Sale of Assets
Free and Clear of All Liens" as approved by the court April 5, 1997.
As we have discussed, we will form a new entity (PROVIDENT ENERGY ASSOCIATES,
LLC.) that will receive the assets of the estate. The total consideration
offered for the above enumerated assets is $1,733,645.41, payable as outlined
in Exhibit "C" to this Offering Letter. We are basically offering to pay all
the third party bills at the actual cost of settlement not to exceed the
amount that is indicated on Exhibit "C" in cash and exchange the insider claims
for Common Stock of Lone Star International Energy, Inc. equal to the value of
those claims, based upon a share price of the greater of $3.50 per share or
$1.00 per share above the closing share price on the date of acceptance of this
offer, (rounded to the nearest full share). The Common Stock delivered at
closing will be restricted Rule 144 Stock that carries a ONE YEAR holding
period under the current Securities Regulations. Said restriction period
expires one year from date of issue.
In order to help you evaluate this offer, please feel free to contact Mr. Don
R. Pyles, General Counsel for Lone Star International Energy, Inc. (817)
598-0542, with any questions you may have about the company.
This offer is subject to:
(i) Clear and unencumbered transfer of all the above described
assets.
(ii) Approval by the appropriate governing authorities of the
transfer and assignment of the unit.
(iii) Ratification by the appropriate governing authority that the Two
Medicine Cut Bank Sand Unit is currently a valid secondary
recovery unit.
Very truly yours,
/s/ GARY L. LITTLE
Gary L. Little
President
