U. S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB/A
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended June 30, 1996
-------------
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from .......... to ..........
Commission File Number..........1-12508
MAGNUM PETROLEUM, INC.
Exact name of small business issuer as specified in its charter
Nevada 87-0462881
State or other jurisdiction of IRS employer identification No.
Incorporation or organization
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039
Address of principal executive offices
(214) 401-0752
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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.
Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of June 30, 1996.
11,950,220
Transitional Small Business Disclosure Format Yes No X
Page 1 of 12 pages contained in the sequential numbering system.
1
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements of Magnum Petroleum, Inc. ("Magnum" or "Company")
required by Item 310(b) of Regulation S-B follow Item 2. Management's Discussion
and Analysis or Plan of Operation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Magnum's consolidated financial statements and the notes associated with them
contained in its Form 10-KSB for the year ended December 31, 1995. This
discussion should not be construed to imply that the results discussed herein
will necessarily continue into the future or that any conclusion reached herein
will necessarily be indicative of actual operating results in the future. Such
discussion represents only the best present assessment by management of Magnum.
On July 21, 1995, Magnum closed a definitive agreement to combine (the
"Business Combination") with Hunter Resources, Inc. ("Hunter"), subject to
Hunter shareholder approval. Pursuant to the definitive agreement, Magnum issued
to Hunter 2,750,000 shares of newly issued restricted common stock in exchange
for substantially all of the assets of Hunter, subject to its associated
liabilities. Hunter's assets primarily consisted of stock in wholly-owned
subsidiaries and stock ownership interests in limited liability companies
("Hunter Subsidiaries").
On December 19, 1995 to be effective December 22, 1995, Magnum and Hunter
entered into an Agreement and Plan of Reorganization and Plan of Liquidation, as
amended. The amendment was executed on December 19, 1995 by Hunter shareholders
holding over fifty percent (50%) of the common stock of Hunter and provided for
the issuance to Hunter of an additional 2,335,077 shares of newly issued
restricted common stock and 111,825 shares of Series C preferred stock.
Therefore, the total consideration paid by Magnum for the Hunter subsidiaries
was 5,085,077 shares of restricted common stock and 111,825 shares of Series C
preferred stock.
Hunter's shareholders have no dissenter rights. However, Hunter is required
to distribute an Information Statement and hold a special meeting of its
shareholders to formally approve the Agreement. Magnum shares issued in the
Business Combination are held in escrow pending formal shareholder approval of
the Agreement. Subsequent to the Business Combination, Magnum has conducted its
oil and gas operations and energy related acquisitions in conjunction with the
Hunter Subsidiaries. Acquisitions completed by Magnum and Hunter after the
initial agreement, were completed by Magnum Hunter Production, Inc. ("Magnum
Hunter"), a Hunter Subsidiary. Hunter and its subsidiaries were consolidated in
Magnum's financial statements beginning December 31, 1995.
On June 26, 1996, Magnum received a commitment from Wells Fargo Bank, N.A.,
as Agent, and Banque Paribas, as Co-agent, (hereinafter collectively referred to
as "Banks") for a new credit facility for the benefit of Magnum and several
wholly-owned subsidiaries. The purpose of the new line of credit is to 1)
refinance the Company's existing indebtedness with First Interstate Bank of
Texas, N.A. (a wholly-owned subsidiary of Wells Fargo Bank, N.A.), 2) finance
the acquisition of oil and gas reserves including the $35.4 million Panoma
Property acquisition, as discussed below, from Meridian Oil Inc.("Meridian"), a
wholly-owned subsidiary of Burlington Resources, Inc., 3) future property
development, and 4) working capital support and general corporate purposes. The
credit facility is subject to a "Borrowing Base" determination established
2
<PAGE>
from time-to-time by the Banks based upon proven oil and gas reserves and gas
gathering assets owned by Magnum and its subsidiaries. The availability under
the Company's existing credit facility was $16 million and has now been
increased to $48 million based upon the acquisition of the Panoma properties as
discussed below. The new credit facility gives the Company the flexibility to
choose a range of either "LIBOR" or "Prime" based interest rates options.
On June 28, 1996, Magnum closed on the purchase of 469 natural gas wells
and approximately 427 miles of a gas gathering pipeline system from Meridian.
The net purchase price after certain purchase price adjustments was
approximately $35,350,000, funded by a loan from Magnum's principal lending
financial institutions. As the purchase was not completed until the end of the
second quarter of 1996, the Statements of Operations for the 1996 periods do not
include any operating results for the purchased properties. The purchase price
was allocated based on estimated fair market values resulting in the recording
of $29,560,000 as oil and gas properties and $5,790,000 as pipelines. The gas
wells and gas gathering system are located in the Panhandle of Texas and Western
Oklahoma and are more commonly referred to as the "Panoma Properties."
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIODS IN 1996 AND 1995
As discussed above, Magnum completed a business combination with Hunter,
which for accounting purposes, was recorded under the purchase method of
accounting. Hunter's operations were consolidated with those of Magnum beginning
December 31, 1995. As such, the comparison of the increases in the 1996 interim
and six month periods over the comparable 1995 periods are, unless otherwise
stated, the result of the Hunter operating activities.
Magnum incurred an operating profit of $256,000 for the six month period
ended June 30, 1996 versus an operating loss of $427,000 during the previous
year. This $683,000 improvement in operations can be directly attributed to the
acquisition of Hunter completed for accounting purposes as of December 31, 1995,
and improved oil and gas sale prices.
Magnum incurred a net loss after payment of dividends on preferred stock of
$397,000 during the six month period ended June 30, 1996, compared to a net loss
of $653,000 for the same period of the preceding year. The loss per common share
improved to $0.03 from $0.12, partially the result of the increase in the number
of common shares used in the per share calculation, as a result of the Hunter
acquisition.
Total revenues increased 1,313% from $322,000 during the six month period
of 1995 to $4,550,000 during 1996. During the six month period ended June 30,
1996, revenue from oil and gas sales increased 834% to $2,821,000 from total oil
and gas sales of $302,000 for the same period of the prior year. For the first
six months of 1996, Magnum sold 89,838 barrels of oil and 488,154 mcf of gas. In
comparison, during the same six month period of 1995, Magnum sold 16,665 barrels
of oil and 34,541 mcf of gas. The average oil price of $15.73 per barrel in 1995
increased to $19.31 per barrel in the 1996 period. The average gas price of
$2.22 per mcf in 1996 increased from $1.44 per mcf in 1995.
Gas gathering and marketing activities, which have all resulted from the
combination with Hunter, provided revenues of $1,528,000 and a net profit from
these activities of $214,000. Expenses associated with this activity were
$190,000 and $1,124,000, representing pipeline operating expenses and purchase
of natural gas from third parties, respectively.
Revenues from oil field services and commissions were $201,000 in the 1996
period as compared to $20,000 in the 1995 period. Related cost of services
expense of $327,000 and $10,000 for the 1996 and 1995 period, respectively, were
recognized resulting in a net loss in 1996 from these activities of $126,000 as
compared to a net profit in 1995 of $10,000.
3
<PAGE>
Lease operating expenses amounted to $1,126,000 in 1996 as compared to
$93,000 in the 1995 period. On an equivalent barrel basis, the expense was $6.58
per barrel and $4.37 per barrel for the respective 1996 and 1995 periods.
Depreciation and depletion rose to $1,084,000 in 1996 versus $103,000 in 1995
due to the increased oil and gas activities from the combination with Hunter.
General and administrative expense declined $100,000 to $443,000 in the
1996 period as compared to $543,000 in 1995 due to a reduction in professional
and promotional expenses incurred in 1996. A gain on sale of $143,000 related to
the Company's securities previously held for resale was recognized in the second
quarter of 1996.
Interest expense rose to $499,000 in 1996 from $3,000 in 1995 primarily as
a result of commercial bank indebtedness assumed in the combination with Hunter
and additional property acquisitions completed in 1996. Preferred dividends
increased to $340,000 in 1996 from $293,000 in 1995 due to the issuance of
additional Series C preferred stock associated with the combination with Hunter.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS IN 1996 AND 1995
Magnum incurred an operating profit of $121,000 for the three month period
ended June 30, 1996 versus an operating loss of $273,000 during the previous
year. This $394,000 improvement in operations can be directly attributed to the
acquisition of Hunter completed for accounting purposes, as of December 31,
1995.
Magnum incurred a net loss, after payment of dividends on preferred stock,
of $132,000 during the three month period ended June 30, 1996, compared to a net
loss of $401,000 for the same period of the preceding year. The loss per common
share improved to $.01 from $.07, partially due to the increase in the common
shares used in the per share calculation, as a result of the Hunter and other
associated property acquisitions.
Total revenues increased 1,483% from $146,000 during the second quarter of
1995 to $2,311,000 during the second quarter of 1996. During the three month
period ended June 30, 1996, revenue from oil and gas sales increased 944% to
$1,441,000 from total oil and gas sales of $138,000 for the same period of the
prior year. For the three month period of 1996, Magnum sold 45,455 barrels of
oil and 232,406 mcf of gas. In comparison, during the same three month period of
1995, Magnum sold 8,115 barrels of oil and 13,120 mcf of gas. The average oil
price of $14.71 per barrel in 1995 increased to $20.05 per barrel in the 1996
period. The average gas prices increased to $2.28 per mcf in 1996 as compared to
$1.41 per mcf in 1995.
Gas gathering and marketing activities, which have all resulted from the
combination with Hunter, provided revenues of $771,000 and a net profit from
these activities of $101,000. Expenses associated with this activity were
$94,000 and $576,000 representing pipeline operating expenses and purchase of
natural gas from third parties, respectively.
Revenues from oil field services and commissions were $99,000 in the 1996
period as compared to $8,000 in the 1995 period. Related cost of services
expense of $160,000 and $6,000 for the 1996 and 1995 period, respectively, were
recognized resulting in a net loss in 1996 from these activities of $61,000 as
compared to a net profit in 1995 of $2,000.
Lease operating expenses amounted to $561,000 in 1996 as compared to
$36,000 in the 1995 period. On an equivalent barrel basis, the expense was $6.66
per barrel and $3.49 per barrel for the respective 1996 and 1995 periods.
Depreciation and depletion rose to $578,000 in 1996 versus $47,000 in 1995 due
to the increased oil and gas activities from the combination with Hunter.
General and administrative expense decreased $109,000 to $221,000 in the
1996 three month period as compared to $330,000 in the same 1995 period due to a
decrease in professional and promotional expenses in 1996. A gain on sale of
$143,000 related to the Company's securities previously held for resale was
recognized in the second quarter of 1996.
Interest expense rose to $245,000 in 1996 from $1,000 in 1995 primarily
4
<PAGE>
as a result of commercial bank indebtedness assumed in the combination with
Hunter and new indebtedness incurred as a result of additional property
acquisitions. Preferred dividends increased to $168,000 in 1996 from $146,000 in
1995 due to the issuance of additional Series C preferred stock in the
combination with Hunter.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the business combination with Hunter, Magnum's anticipated capital
expenditures for 1996 on its existing properties were not considered significant
and would be financed by existing working capital. However, due to the business
combination with Hunter, Magnum now has a budget of approximately $2 million for
exploration and production activities during 1996. Magnum has already spent
approximately $1.2 million on exploration and production activities. The source
of financing for such projects is a combination of the following: 1) existing
available cash, 2) the Company's bank line of credit, 3) third party investors,
4) seller financing through production payments and 5) new equity capital. At
August 13, 1996, there remained approximately $1.3 million of available
borrowings under the senior bank line of credit. In addition, subsequent to
December 31, 1995, Magnum entered into an exclusive arrangement with an
investment banking firm specialized in raising capital for energy companies for
a private placement of preferred stock for as much as $15 million to be
completed during 1996. Proceeds from the offering would be utilized to develop a
significant portion of Magnum's proved undeveloped reserves predominately
comprised of development drilling and waterflood projects. In the event Magnum
is unsuccessful in raising the new capital from this preferred stock offering,
Magnum will be able to meet its obligations for the remainder of 1996 out of
cash flow from existing operations and funds available from its senior bank line
of credit.
On June 5, 1996, Magnum called for the redemption of 208,333 shares of its
Series C preferred stock at $10.50 per share, as provided by the terms of the
certificate of designations, plus accrued dividends with an extended redemption
date of July 10, 1996. Terms of the preferred stock provide for the option by
the holder to convert the preferred shares into common stock at the rate of
three (3) shares of common stock for each share of Series C preferred stock. At
June 30, 1996, 57,400 shares of the preferred stock had converted into 172,200
shares of Magnum common stock. An additional, 3,527 shares of common stock were
issued for accrued dividends to conversion date. Subsequent to June 30, 1996, an
additional 236,992 shares of the preferred stock were converted for 732,223
shares of common stock including accrued dividends paid in common stock.
Additionally, 8,224 shares of preferred stock were redeemed for cash in the
amount of $86,352 after June 30, 1996.
On July 11, 1996, Magnum called for the redemption the remaining 322,384
shares of its Series C preferred stock. The redemption price is $10.50 per
share, plus accrued dividends of $.141 per share from July 1, 1996 through the
extended redemption date of August 16, 1996, for a total redemption price of
$10.641 per share. The Series C preferred shares may be converted, at the option
of the holder, at any time prior to August 16, 1996 into common stock. As of
August 13, 1996, there remained 39,374 shares of Magnum Series C preferred stock
for which no response had been received. Should any of the remaining Series C
preferred stock be redeemed, Magnum will fund the redemption price in cash from
existing working capital or immediately available funds under its existing bank
credit line.
5
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MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
June 30,
1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,778,000
Accounts receivable
Trade, net of allowance of $134,158 1,609,000
Due from affiliates 162,000
Note receivable from affiliate 148,000
Note receivable 106,000
Other current assets 82,000
Current portion of long-term note receivable 204,000
--------------
TOTAL CURRENT ASSETS 5,089,000
--------------
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, full cost method
Unproved 864,000
Proved 68,280,000
Pipelines 6,882,000
Other property 218,000
--------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 76,244,000
Accumulated depreciation, depletion and impairment (3,002,000)
--------------
NET PROPERTY, PLANT AND EQUIPMENT 73,242,000
OTHER ASSETS
Deposits and other assets 509,000
Long-term notes receivable, net of imputed interest 147,000
==============
TOTAL ASSETS $ 78,987,000
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable and accrued liabilities $ 1,832,000
Dividends payable 156,000
Suspended revenue payable 882,000
Current maturities of long-term debt 2,021,000
--------------
TOTAL CURRENT LIABILITIES 4,891,000
--------------
LONG-TERM LIABILITIES
Long-term debt 46,056,000
Production payment liability 246,000
Other 4,000
Deferred income taxes 3,125,000
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 10,000,000 authorized,
216,000 designated as Series A;
80,000 shares issued and outstanding
925,000 designated as Series B;
41,500 shares issued and outstanding
625,000 designated as Series C;
567,600 shares issued and outstanding
(liquidation preference of $5,676,000 at June 30, 1996) 1,000
Common stock - $.002 par value; 50,000,000 shares authorized,
11,950,220 shares issued and outstanding 24,000
Additional paid-in capital 30,282,000
Accumulated deficit (5,642,000)
Receivable from stockholders -
--------------
TOTAL STOCKHOLDERS' EQUITY 24,665,000
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 78,987,000
==============
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, - June 30,
----------------------------------- ----------------------------------
1996 1995 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Oil and gas sales $ 1,441,000 $ 138,000 $ 2,821,000 $ 302,000
Gas gathering and marketing 771,000 - 1,528,000 -
Oil field services and commissions 99,000 8,000 201,000 20,000
----------------------------------------------------------------------
TOTAL OPERATING REVENUE 2,311,000 146,000 4,550,000 322,000
----------------------------------------------------------------------
OPERATING COSTS AND EXPENSES:
Lease operating 561,000 36,000 1,126,000 93,000
Pipeline operating 94,000 - 190,000 -
Purchases of natural gas 576,000 - 1,124,000 -
Costs of services 160,000 6,000 327,000 10,000
Depreciation and depletion 578,000 47,000 1,084,000 103,000
General and administrative 221,000 330,000 443,000 543,000
----------------------------------------------------------------------
TOTAL OPERATING COSTS & EXPENSES 2,190,000 419,000 4,294,000 749,000
----------------------------------------------------------------------
OPERATING PROFIT (LOSS) 121,000 (273,000) 256,000 (427,000)
Gain (loss) on sale of assets 143,000 (34,000) 143,000 (15,000)
Interest income 14,000 53,000 31,000 85,000
Other income 3,000 - 12,000 -
Interest expense (245,000) (1,000) (499,000) (3,000)
----------------------------------------------------------------------
NET INCOME (LOSS) 36,000 (255,000) (57,000) (360,000)
Dividends Applicable to Preferred Stock (168,000) (146,000) (340,000) (293,000)
----------------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON SHARES $ (132,000) $ (401,000) $ (397,000) $ (653,000)
======================================================================
LOSS PER COMMON SHARE $ (0.01) $ (0.07) $ (0.03) $ (0.12)
======================================================================
Common Shares Used In Per Share Calculation 11,710,065 5,650,936 11,658,958 5,413,989
======================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
----------------------
1996 1995
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (57,000) $ (360,000)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and depletion 1,084,000 103,000
(Gain) loss on sale of assets (143,000) 15,000
Common stock issued for services - 17,000
Change in assets and liabilities
(Increase) decrease in securities available for sale - 23,000
(Increase) decrease in accounts receivable (386,000) (43,000)
(Increase) decrease in notes receivable (93,000) 319,000
(Increase) decrease in other assets (82,000) (11,000)
(Increase) decrease in costs in excess of
billings on uncompleted drilling contracts - 55,000
(Increase) decrease in deposits and other assets (401,000) 1,000
Increase (decrease) in trade accounts payable
and accrued liabilities 549,000 (481,000)
Increase (decrease) in suspended revenue payable 88,000 -
Increase (decrease) in other liabilities (286,000) -
----------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 273,000 (362,000)
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 188,000 73,000
Additions to property and equipment, net (37,301,000) (1,128,000)
----------------------------
NET CASH USED FOR INVESTING ACTIVITIES (37,113,000) (1,055,000)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common and
preferred stock, net of offering costs - 3,332,000
Payments received on notes receivable
from shareholders - 63,000
Proceeds from long-term debt borrowings 54,313,000 -
Payments of principal on notes payable (15,848,000) (167,000)
Payments on production payment liability (42,000) -
(Increase) decrease in segregated funds
for payments of notes payable - 130,000
Dividends paid (349,000) (290,000)
----------------------------
NET CASH PROVIDED BY
(USED FOR) FINANCING ACTIVITIES 38,074,000 3,068,000
----------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,234,000 1,651,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,544,000 1,645,000
----------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,778,000 $ 3,296,000
============================
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
(1) MANAGEMENT'S REPRESENTATION
The consolidated balance sheet as of June 30 1996, the consolidated
statements of operations for the three and six months ended June 30, 1996 and
1995, and the consolidated statements of cash flows for the three and six month
periods then ended are unaudited. In the opinion of management, all necessary
adjustments (which include only normal recurring adjustments) have been made to
present fairly the financial position, results of operations and changes in cash
flows for the three and six month periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the December 31, 1995 annual report on Form 10-KSB for
Magnum Petroleum, Inc. ("Magnum"). The results of operations for the three and
six month periods ended June 30, 1996 are not necessarily indicative of the
operating results for the full year.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. Certain items
have been reclassified to conform with the current presentation. The Company has
changed the presentation format for the consolidated statements of cash flows
from the direct method to the indirect method.
During 1995, Magnum changed its accounting method for oil and gas
activities from the successful efforts method to the full cost method. The
comparable 1995 amounts in the financial statements included herein have been
restated to comply with the full cost method.
(2) RECENT EVENTS
During the three months and six months ended June 30, 1996, 1,000 shares
and 20,550 shares of Series B preferred stock were converted to 500 shares and
10,275 shares of common stock, respectively.
On June 26, 1996, Magnum received a commitment from Wells Fargo Bank, N.A.,
as Agent, and Banque Paribas, as Co-agent, (hereinafter collectively referred to
as "Banks") for a new credit facility for the benefit of Magnum and several
wholly-owned subsidiaries. The purpose of the new line of credit is to 1)
refinance the Company's existing indebtedness with First Interstate Bank of
Texas, N.A. (a wholly-owned subsidiary of Wells Fargo Bank, N.A.), 2) finance
the acquisition of oil and gas reserves including the $35.4 million Panoma
Property acquisition as discussed below from Meridian Oil Inc. ("Meridian"), a
wholly-owned subsidiary of Burlington Resources, Inc., 3) future property
development, and 4) working capital support and general corporate purposes. The
credit facility is subject to a "Borrowing Base" determination established from
time-to-time by the Banks based upon proven oil and gas reserves and gas
gathering assets owned by Magnum and its subsidiaries. The availability under
the Company's existing credit facility was $16 million and has now been
increased to $48 million based upon the acquisition of the Panoma properties as
discussed below. The new credit facility gives the Company the flexibility to
choose a range of either "LIBOR" or "Prime" based interest rates options.
On June 28, 1996, Magnum closed on the purchase of 469 natural gas wells
and approximately 427 miles of a gas gathering pipeline system from Meridian.
The net purchase price after certain purchase price
9
<PAGE>
adjustments was approximately $35,350,000, funded by a loan from Magnum's
principal lending financial institutions. As the purchase was not completed
until the end of the second quarter of 1996, the Statements of Operations for
the 1996 periods do not include any operating results for the purchased
properties. The purchase price was allocated based on estimated fair market
values resulting in the recording of $29,560,000 as oil and gas properties and
$5,790,000 as pipelines. The gas wells and gas gathering system are located in
the Panhandle of Texas and Western Oklahoma and are more commonly referred to as
the "Panoma Properties."
On June 5, 1996, Magnum called for the redemption of 208,333 shares of its
Series C preferred stock at $10.50 per share, as provided by the terms of the
certificate of designations , plus accrued dividends with an extended redemption
date of July 10, 1996. Terms of the preferred stock provide for the option by
the holder to convert the preferred shares into common stock at the rate of
three (3) shares of common stock for each share of Series C preferred stock. At
June 30, 1996, 57,400 shares of the preferred stock had converted into 172,200
shares of Magnum common stock. An additional, 3,527 shares of common stock were
issued for accrued dividends to conversion date. Subsequent to June 30, 1996, an
additional 236,992 shares of the preferred stock were converted for 732,223
shares of common stock, including accrued dividends paid in common stock.
Additionally, 8,224 shares of preferred stock were redeemed for $86,352 after
June 30, 1996.
On July 11, 1996, Magnum called for the redemption the remaining 322,384
shares of its Series C preferred stock. The redemption price is $10.50 per
share, plus accrued dividends of $.141 per share from July 1, 1996 through the
extended redemption date of August 16, 1996, for a total redemption price of
$10.641 per share. The Series C preferred shares may be converted, at the option
of the holder, at any time prior to August 16, 1996 into common stock. As of
August 13, 1996, there remained 39,374 shares of Magnum Series C preferred stock
for which no response had been received.
10
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Reports on Form 8-K
Item No. Items Reported F/S Included Date Filed
Date of Event
5 Execution of Purchase
and Sale Agreement None May 28, 1996
(May 21, 1996)
11
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has
caused this Form 10- QSB Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MAGNUM PETROLEUM, INC.
By s/s Gary C. Evans August 16, 1996
--------------------------
Gary C. Evans
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Name and Signature Title Date
/s/ Gary C. Evans President and
- --------------------------- Chief Executive Officer August 16, 1996
Gary C. Evans
/s/ Steven P. Smart Senior Vice President and August 16, 1996
- --------------------------- Chief Financial Officer
Steven P. Smart
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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0
1,000
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</TABLE>
