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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.
Date of Report (Date of Earliest Event Reported): April 10, 1998
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UNITED STATES EXPLORATION, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 1-13513 84-1120323
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(State of other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1560 BROADWAY, SUITE 1900
DENVER, COLORADO 80202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (303) 863-3550
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Former name or former address if changed since last report:
N/A
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ITEM 5. OTHER EVENTS
On April 10, 1998, United States Exploration, Inc. (the "Company")
agreed to acquire from Union Pacific Resources Company ("UPR"), a subsidiary of
Union Pacific Resources Group, Inc., effective January 1, 1998, all of UPR's
working interests in producing oil and gas wells in 34 oil and gas fields in the
Wattenberg area of the Denver-Julesburg Basin in northeastern Colorado for a
cash purchase price of $41 million, subject to adjustments. At the closing of
the acquisition, presently set for April 30, 1998, US Exploration will also
enter into an Exploration Agreement with UPR giving US Exploration the right to
explore and develop all of UPR's undeveloped acreage in the Wattenberg area,
excluding certain acreage already committed to other agreements.
The producing properties include 336 gross producing wells, which, on
the effective date of the acquisition, were producing 5.5 Mmcf. of gas and 640
barrels of oil per day net to UPR's interest. Proved reserves associated with
the acquired interests are estimated by US Exploration to be 63.6 Bcf. of gas
and 4.5 million barrels of oil, or a total of 90.6 Bcf. of gas equivalents.
Estimated future net cash flows from those proved reserves total $115.8 million,
with a present value, discounted at 10%, of $49.4 million, using constant prices
of $1.92 per Mcf of gas and $17 per barrel of oil. UPR currently acts as
operator of 81 of the producing properties and the Company intends to take over
those operations.
The Company believes that the producing properties contain substantial
additional reserves which have not yet been classified as proved reserves.
There are locations for approximately 175 increased density wells which can be
drilled when the Colorado Oil and Gas Commission approves increased density
drilling. The Colorado Oil and Gas Commission has historically approved
increased density drilling in the Wattenberg Field on a case by case basis. The
additional wells to be drilled will also have reserves attributable to other
zones that produce in the field. No proved reserves have been assigned to these
locations due to the need for regulatory approval for the additional drilling
density.
The Exploration Agreement covers approximately 400,000 gross acres and
will also cover any undeveloped acreage currently committed to another agreement
that reverts to UPR during its term. In order to keep the Exploration Agreement
in effect, US Exploration must drill 15 commitment wells during the first 18
months and 20 commitment wells during each succeeding 12-month period for up to
five 12-month option periods. If US Exploration does not drill the required
number of commitment wells during any period, the Exploration Agreement will
terminate at the end of the period and US Exploration will be required to pay
liquidated damages of $125,000 for each commitment well that was not drilled
during the period. In addition, the Exploration Agreement requires UPR to
transfer to US Exploration any working interests in wells in the subject area
that UPR acquires under existing agreements during the term of the Exploration
Agreement. That requirement covers a number of existing wells in which UPR has
the right to obtain a working interest or convert an overriding royalty interest
into a working interest after payout has been reached and will cover other wells
that may be drilled by operators with whom UPR has existing farm-out or similar
agreements. US Exploration will also have the right to take over wells on the
UPR lands that are required to be offered to UPR prior to abandonment.
In the aggregate, the Company believes that there are over 600
separate drilling, deepening and reworking opportunities on the UPR properties.
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Some of the producing properties are subject to preferential rights to
purchase in favor of other interest owners in the wells. The exercise of those
rights could reduce the number of wells and the associated reserves acquired by
US Exploration, but would also result in a corresponding reduction of the
purchase price. In the case of minerals owned in fee by UPR, US Exploration
will be granted oil and gas leases.
The Company expects to finance the acquisition and subsequent
operations on the properties through a combination of existing capital, new bank
financing and production revenues. Although the Company does not yet have a
binding commitment for the bank financing, it believes that the necessary
funding will be available on acceptable terms. The Company is required to
provide UPR a $4.1 million nonrefundable earnest money deposit, which will be
paid from the Company's existing funds.
SPECIAL NOTE CONCERNING FORWARD LOOKING STATEMENTS
Statements concerning the Company's ability to finance the UPR
transaction, drilling, deepening, recompletion, development, acquisition and
other plans, expectations of drilling success and regulatory approvals,
production or reserve levels, expected production levels, existing or
anticipated reserves, expected efficiencies and all similar statements or
implications are forward looking statements within the meaning of federal
securities laws. Actual results or events may differ materially from these
forward-looking statements, depending upon a variety of factors, including,
without limitation, the following:
Reserve Estimates. The estimates of proved reserves of oil and gas
and future net cash flows therefrom given above are based on various assumptions
and, therefore, are inherently imprecise. Actual future production, revenue,
taxes, development expenditures, operating expenses and quantities of
recoverable oil and gas reserves may be subject to revision based upon
production history, results of future exploration and development, prevailing
oil and gas prices, operating costs and other factors.
Reliance on Key Personnel. The Company is dependent upon its
executive officers and key employees, particularly Bruce D. Benson, its Chief
Executive Officer. The unexpected loss of the services of one or more of these
individuals could have a detrimental effect on the Company. The Company does not
have key person life insurance on any of its officers.
Management of Growth. The acquisition of the UPR properties will
constitute a substantial change in the size and extent of the Company's assets
and operations. In order to accommodate this growth, the Company will have to
expand its staffing, office space and management information systems. Although
the Company expects to be able to assimilate the new properties and manage the
growth within the Company it could experience temporary difficulties in the
course of that process. Any such difficulties could adversely affect the
Company's business, financial condition or results of operations until resolved.
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Availability of Services and Materials. The Company's expanded
operations will require significantly higher levels of third-party services and
materials. The Company does not currently anticipate significant difficulty in
obtaining adequate services and materials. However, such services and materials
have at times been scarce and the unavailability of a sufficient number of
drilling rigs or other goods or services could impede the Company's ability to
achieve its objectives and significantly increase the costs of its operations.
Closing Conditions. The obligations of UPR and the Company to
consummate the purchase and sale of the UPR properties are subject to a number
of conditions, some of which are beyond the control of UPR or the Company. The
non-fulfillment of one or more of these conditions could result in the
termination of the transaction.
Availability of Financing. The Company's ability to consummate the
acquisition of the UPR properties and to pursue the planned development of those
properties is dependent upon the availability of capital. The Company expects
to pay $5 to $10 million of the purchase price with a portion of the remaining
proceeds of its 1996 private placement of Series C Preferred Stock and to fund
the balance of the purchase price with bank borrowings. The Company also
expects to expend substantial additional sums to further develop the UPR
properties and to conduct drilling on the properties covered by the Exploration
Agreement. Although the Company believes that its existing and future cash
flows will ultimately be sufficient to fund this development work, bank
borrowings will be required at least in the near term. Although the Company
does not yet have a binding commitment for the bank financing to effect the
acquisition or to pursue development of the properties following the
acquisition, the Company believes that the necessary financing will be available
on acceptable terms. However, if the financing for the acquisition or
subsequent development work is not obtained, the Company would be unable to
complete the acquisition (and would forfeit its earnest money deposit) or would
be required to modify its plans for development of the properties.
Increased Debt. The Company's ability to service the debt to be
increased in connection with the UPR transaction is in part dependent upon
increasing its cash flows from the UPR properties through further development
work. Although the Company believes that its cash flows will be sufficient to
service the new debt, the higher levels of debt may adversely affect the
Company's ability to obtain additional financing for working capital, capital
expenditures and other purposes, should it need to do so, or to acquire
additional oil and gas properties utilizing new borrowings.
Oil and Gas Prices and Markets. The Company's revenues are dependent
upon prevailing prices for oil and gas. Oil and gas prices can be extremely
volatile. Prevailing prices are also affected by the action of foreign
governments, international cartels and the United States government. Any
significant decline in oil and gas prices would adversely affect the Company's
revenues and operating income and could result in a reduction in the estimated
proved reserves attributable to the Company's properties, with a resulting
decrease in the Company's borrowing ability. In addition, the Company's
revenues depend upon the marketability of production, which
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is influenced by the availability and capacity of gas gathering systems and
pipelines, as well as the effects of federal and state regulation and general
economic conditions.
Government Regulation. The production and sale of oil and gas are
subject to various federal, state and local governmental regulations, which may
be changed from time to time in response to economic or political conditions.
Matters subject to regulation include discharge permits for drilling operations,
drilling bonds, reports concerning operations, the spacing of wells, unitization
and pooling of properties, taxation and environmental protection. From time to
time, regulatory agencies have imposed price controls and limitations on
production by restricting the rate of flow of oil and gas wells below actual
production capacity in order to conserve supplies of oil and gas. Changes in
these regulations or the failure to obtain regulatory approval for planned
increased density drilling on the UPR properties could have a material adverse
effect on the Company and its ability to achieve its objectives with respect to
the UPR properties.
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SIGNATURE
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNITED STATES EXPLORATION, INC.
Date: April 16th, 1998 By: /s/ Bruce D. Benson
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Bruce D. Benson, President, Chief Executive
Officer and Chairman of the Board
(Principal Executive Officer)
