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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-2
CURRENT REPORT PURSUANT To SECTION 13 OR 15 (d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 28, 1996
MAGNUM PETROLEUM, INC.
(Exact name of Registrant as specified in its Charter)
Commission file number 1-12508
Nevada 87-0462881
(State of Incorporation) (I.R.S. Employer Identification No.)
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039
(Address of principal executive offices) (Zip Code)
(214) 401-0752
(Registrant's telephone number, including area code)
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Page 1 of 13 pages contained in the sequential numbering system.
1
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Item 2. Acquisition of Assets.
On June 28, 1996, the Registrant purchased 469 natural gas wells and
approximately 427 miles of a gas gathering pipeline system from Meridian Oil
Inc. ("Meridian"), a wholly-owned subsidiary of Burlington Resources, Inc. The
net purchase price after certain purchase price adjustments was approximately
$35 million for all of Meridian's interest in certain gas wells and a gas
gathering system located in the Panhandle of Texas and Western Oklahoma, more
commonly referred to as the "Panoma Properties."
The aforementioned consideration was determined as a result of arm's length
negotiations between Meridian and the Registrant. The principal factors
considered in the determination of the consideration given for the Panoma
Properties include (a) the reserve and pipeline values of the Panoma Properties,
(b) the results of past operations of the Panoma Properties and (c) the expected
future operations and related contributions that the Panoma Properties is
expected to make to the total value of the Registrant.
The current daily production volumes from the acquired wells is approximately 14
million cubic feet per day with total delivery, including third party gas
purchased by the gathering system, of almost 19 million cubic feet per day. The
Registrant has estimated the monthly cash flow from the acquisition of the
Panoma Properties to be approximately $500,000 per month. The existing wells and
gas gathering system are in three fields, the West Panhandle Field, the East
Panhandle Field, and the South Erick Field, all located in Gray, Wheeler,
Collingsworth and Donley Counties, Texas and Beckham and Greer Counties,
Oklahoma. The Registrant's wholly-owned subsidiary, Gruy Petroleum Management
Co., has become the operator of all wells, the gas gathering pipeline system,
and associated assets.
The Registrant funded the acquisition by drawing on its senior bank line of
credit with Wells Fargo Bank, N.A., as Agent, and Banque Paribas, as Co-agent.
Item 7. Financial Statements and Exhibits. Sequentially
Numbered Page
--------------
(a) Financial Statements of the Business Acquired
Independent Auditor's Report 4
Historical Summary of Revenue and Direct Operating Expenses for the
Years Ending December 31, 1994 and 1995 and the Three Months
Ended March 31, 1995 and 1996 5
Notes to Historical Summary of Revenues and Direct Operating Expenses
for the Years Ending December 31, 1994 and 1995 and for the Three
Months Ended March 31, 1995 and 1996 6
(b) Pro Forma financial information:
Pro Forma Consolidated Financial Information (unaudited) 9
Pro Forma Consolidated Balance Sheet (unaudited) as of March 31, 1996 10
Pro Forma Consolidated Statement of Operations (unaudited)
For the Twelve Months Ended December 31, 1995, 11
Pro Forma Consolidated Statement of Operations (unaudited)
For the Three Months Ended March 31, 1996 12
Notes to Unaudited Pro Forma Consolidated Financial Statements 13
(c) Exhibits
2.1 Purchase and Sale Agreement between the Registrant
and Meridian dated May 17, 1996. *
- ----------------------
* Incorporated by reference to Form 8-K dated June 28, 1996, filed July 12,
1996.
2
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAGNUM PETROLEUM, INC.
By: /s/ Gary C. Evans
--------------------
Gary C. Evans
President and CEO
Dated: August 13, 1996
3
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INDEPENDENT AUDITOR'S REPORT
Board of Directors
Magnum Petroleum, Inc.
Irving, Texas
We have audited the accompanying Historical Summaries of Revenue and Direct
Operating Expenses of Properties Acquired June 28, 1996, for the years ended
December 31, 1994 and 1995. The Historical Summaries are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
Historical Summaries based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Historical Summaries are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall Historical Summary presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summaries were prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in the Form 8-K/A of Magnum Petroleum, Inc.) as described in Note 2
and are not intended to be a complete presentation of the properties' revenues
and expenses.
In our opinion, the Historical Summaries referred to above present fairly, in
all material respects, the revenue and direct operating expenses of the
Properties Acquired, June 28, 1996 in conformity with generally accepted
accounting principles.
HEIN + ASSOCIATES LLP
August 2, 1996
Dallas, Texas
4
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MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
PROPERTIES ACQUIRED JUNE 28, 1996
Historical Summary of Revenues and Direct Operating Expenses for the
Years Ending December 31, 1994 and 1995
Three Months Ended March 31, Year Ended December 31,
1996 1995 1995 1994
-----------------------------------------------------
(Unaudited) (Unaudited)
Gas gathering $ 498,000 $ 523,000 $ 2,023,000 $ 2,036,000
Oil and gas sales 1,553,000 891,000 4,229,000 5,885,000
Lease operating expense (388,000) (336,000) (1,481,000) (1,761,000)
Pipeline operating expense (320,000) (415,000) (1,606,000) (1,542,000)
-----------------------------------------------------
Net Revenue $1,343,000 $ 663,000 $ 3,165,000 $ 4,618,000
=====================================================
See Notes to Historical Summary
5
<PAGE>
MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
Properties Acquired June 28, 1996
Notes to Historical Summary of Revenues and Direct Operating Expenses for Years
Ending December 31, 1994 and 1995
1. Basis of Presentation
The accompanying Historical Summary of Revenues and Direct Operating
Expenses relates to the operations of the oil and gas properties and pipeline
gathering system acquired by Magnum Petroleum, Inc. (the "Company") on June 28,
1996 the ("Meridian Properties"). The properties and pipeline gathering system
were acquired in exchange for $35,350,000 in cash, funded by a new senior bank
line of credit. Revenues are recorded when gas is transported through the
gathering system and when oi and gas is sold. Direct operating expenses are
recorded when the related liability is incurred. Direct operating expenses
include pipeline operating expenses, lease operating expenses and production
taxes. Depreciation and amortization of oil and gas properties and general and
administrative expenses have been excluded from operating expenses in the
accompanying historical summary because the amounts would not be comparable to
those resulting from proposed future operations. Sales of natural gas
historically were made to an affiliated entity of Meridian.
2. The Historical Summary presented herein was prepared for the purposes of
complying with the financial statement requirements of a business acquisition to
be filed on Form 8-K/A as promulgated by Regulation S-B Item 3-10 of the
Securities Exchange Act of 1934.
3. Contingencies
Certain owners of a special overriding royalty on certain oil and gas
properties acquired by the Company have filed a claim against Meridian. The
claim involves a dispute over prices paid to the claimants. The Company was
indemnified in the Purchase and Sale Agreement by Meridian against any form of
similar claim in the future. As of March 31, 1996, the asserted claim would be
approximately $621,000.
4. The following estimates of proved oil and gas reserves for the Meridian
properties were prepared by the Company in accordance with guidelines
established by the Securities and Exchange Commission and the Financial
Accounting Standards Board, which require that reserve reports be prepared under
existing economic and operating conditions with no provision for price and cost
escalation except by contractual agreement. The Company emphasizes that reserve
estimates of new discoveries or undeveloped properties are more imprecise than
those of producing oil and gas properties. Accordingly, these estimates are
expected to change as future information becomes available. All of the Meridian
reserves are located onshore in the continental United States.
6
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The following unaudited table sets forth the proved oil and gas reserves for the
Meridian properties at December 31, 1994 and 1995, together with the changes
therein:
Oil and
Condensate Natural Gas
Proved developed and undeveloped reserves: (BBLS) (MCF)
------------------------------------
Balance at January 1, 1994 33,000 58,290,000
Revisions of previous estimates 1,000 451,000
Production (4,000) (4,721,000)
------------------------------------
Balance at December 31, 1994 30,000 54,020,000
Revisions of previous estimates 1,000 1,516,000
Production (2,000) (4,360,000)
------------------------------------
Balance at December 31, 1995 29,000 51,176,000
====================================
Proved developed reserves at:
December 31, 1994 30,000 54,020,000
====================================
December 31, 1995 29,000 51,176,000
====================================
7
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Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Reserves:
December 31,
------------------------
1995 1994
------------------------
(Unaudited) (Unaudited)
Future Cash Flows $82,741,000 $81,326,000
Future Production Costs (34,969,000) (34,450,000)
Future Development Costs - -
------------------------
Future Net Cash Flows, Before Income Tax 47,772,000 46,876,000
Future Income Tax Expenses (4,455,000) (4,141,000)
------------------------
Future Net Cash Flows 43,317,000 42,735,000
10% Discount to Reflect Timing of Net Cash Flows (19,666,000) (19,188,000)
------------------------
Standardized Measure of Discounted
Future Net Cash Flows $23,651,000 $23,547,000
========================
Changes in Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Reserves:
December 31,
----------------------------
1995 1994
----------------------------
(Unaudited) (Unaudited)
Standardized measure, beginning of period $23,547,000 $34,583,000
Revisions:
Net Change in sales price, net of production costs 3,105,000 (19,950,000)
Revisions of quantity estimates 1,251,000 549,000
Accretion of discount 2,355,000 3,458,000
Changes in timing, future development and other (3,686,000) 2,339,000
Sales, net of production costs (2,748,000) (4,124,000)
Net changes in income taxes (173,000) 6,692,000
---------------------------
Standardized measure, end of period $23,651,000 $23,547,000
===========================
8
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MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
The following unaudited pro forma consolidated balance sheet of the Company is
based on the historical consolidated balance sheet as of March 31, 1996,
adjusted to give effect for the acquisition of the Meridian properties acquired
June 28, 1996 as if the acquisition had been consummated at the balance sheet
date. The historical consolidated statements of operations of the Company for
the year ended December 31, 1994 and 1995 have been adjusted to give effect for
the acquisition as if the acquisition had been consummated at the beginning of
each respective period presented.
The pro forma consolidated balance sheet and statements of operations have
been prepared based on estimates and assumptions deemed by management of the
Company to be appropriate and do not purport to be indicative of the results of
operations which would actually have been obtained if the acquisitions had
occurred as presented in such statements, or which may be obtained in the
future. The pro forma consolidated balance sheet and statements of operations
should be read in conjunction with the historical consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995 and the Company's Quarterly Report
on Form 10-QSB for the three months ended March 31, 1996, which have been filed
with the Securities and Exchange Commission.
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MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, Pro Forma Combined
1996 Adjustments Pro Forma
---------------------------------------------------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,408,000 $ $ 1,408,000
Securities available for sale 102,000 102,000
Accounts receivable
Trade, net of allowance of $134,158 1,264,000 1,264,000
Due from affiliates 61,000 61,000
Note receivable from affiliate 152,000 152,000
Note receivable 155,000 155,000
Other current assets 49,000 49,000
Current portion of long-term note receivable 202,000 202,000
---------------------------------------------------------
TOTAL CURRENT ASSETS 3,393,000 3,393,000
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PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, full cost method
Unproved 864,000 864,000
Proved 36,676,000 (A) 29,560,000 66,236,000
Pipelines 1,087,000 (A) 5,790,000 6,877,000
Other property 167,000 167,000
---------------------------------------------------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 38,794,000 35,350,000 74,144,000
Accumulated depreciation, depletion and impairment (2,424,000) (2,424,000)
---------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 36,370,000 35,350,000 71,720,000
OTHER ASSETS
Deposits and other assets 131,000 131,000
Long-term notes receivable, net of imputed interest 172,000 172,000
---------------------------------------------------------
TOTAL ASSETS 40,066,000 35,350,000 75,416,000
=========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable and accrued liabilities $ 1,650,000 $ $ 1,650,000
Dividends payable 172,000 172,000
Suspended revenue payable 794,000 794,000
Current maturities of long-term debt 1,922,000 1,922,000
---------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,538,000 4,538,000
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LONG-TERM LIABILITIES
Long-term debt 7,818,000 (A) 35,350,000 43,168,000
Production payment liability 272,000 272,000
Other 82,000 82,000
Deferred income taxes 3,125,000 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; 42,500 shares issued and outstanding - -
625,000 designated as Series C; 625,000 shares issued and outstanding
(liquidation preference of $6,250,000 at March 31, 1996) 1,000 1,000
Common stock - $.002 par value; 50,000,000 shares authorized,
11,607,958 shares issued and outstanding 23,000 23,000
Additional paid-in capital 29,660,000 29,660,000
Accumulated deficit (5,510,000) (5,510,000)
Receivable from stockholders - -
Unrealized gain(loss) on investments 57,000 57,000
---------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 24,231,000 24,231,000
---------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,066,000 $ 35,350,000 $ 75,416,000
=========================================================
</TABLE>
See notes to Pro Forma Consolidated Financial Statements.
10
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MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Twelve Months Ended December 31, 1995
---------------------------------------------------------------------------------------
Magnum Meridian Pro Forma Combined
Historical Historical Adjustments Pro Forma
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues:
Gas gathering and marketing $ $ 2,023,000 $ $ 2,023,000
Oil and gas sales 617,000 4,229,000 4,846,000
Oil field services and commissions 32,000 32,000
---------------------------------------------------------------------------------------
TOTAL OPERATING REVENUE 649,000 6,252,000 6,901,000
Operating Costs and Expenses:
Lease operating 268,000 1,481,000 1,749,000
Pipeline operating - 1,606,000 1,606,000
Costs of services 26,000 26,000
Depreciation and depletion 421,000 (B) 2,824,000 3,245,000
General and administrative 977,000 (C) 100,000 1,077,000
---------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 1,692,000 3,087,000 2,924,000 7,703,000
---------------------------------------------------------------------------------------
Operating Profit (Loss) (1,043,000) 3,165,000 (2,924,000) (802,000)
Interest income 152,000 152,000
Interest expense (2,000) (D)(2,744,000) (2,746,000)
Loss on sale of assets (75,000) (75,000)
---------------------------------------------------------------------------------------
Net Income (Loss) (968,000) 3,165,000 (5,668,000) (3,471,000)
Dividends Applicable to Preferred Shares 617,000 617,000
---------------------------------------------------------------------------------------
Net Income (Loss) Applicable to Common Shares (1,585,000) $ 3,165,000 (5,668,000) (4,088,000)
=======================================================================================
Loss per Common Share $ (0.28) $ (0.73)
=======================================================================================
</TABLE>
See notes to Pro Forma Consolidated Financial Statements
11
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MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1996
-------------------------------------------------------------------------------
Magnum Meridian Pro Forma Combined
Historical Historical Adjustments Pro Forma
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues:
Gas gathering and marketing $ 757,000 $ 498,000 $ $ 1,255,000
Oil and gas sales 1,380,000 1,553,000 2,933,000
Oil field services and commissions 102,000 102,000
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TOTAL OPERATING REVENUE 2,239,000 2,051,000 4,290,000
------------------------------------------------------------------------------
Operating Costs and Expenses:
Lease operating 565,000 388,000 953,000
Pipeline operating 96,000 320,000 416,000
Purchase of natural gas 548,000 548,000
Costs of services 167,000 167,000
Depreciation and depletion 506,000 (B) 742,000 1,248,000
General and administrative 222,000 (C) 25,000 247,000
------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 2,104,000 708,000 767,000 3,579,000
------------------------------------------------------------------------------
Operating Profit (Loss) 135,000 1,343,000 (767,000) 711,000
Interest income 17,000 17,000
Other income 9,000 9,000
Interest expense (254,000) (D) (703,000) (957,000)
------------------------------------------------------------------------------
Net Income (Loss) (93,000) 1,343,000 (1,470,000) ( 220,000)
Dividends Applicable to Preferred Shares 172,000 172,000
------------------------------------------------------------------------------
Net Income (Loss) Applicable to Common Shares $ (265,000) $ 1,343,000 $ (1,470,000) $ (392,000)
==============================================================================
Loss per Common Share $ (0.02) $ (0.03)
==============================================================================
</TABLE>
See notes to Pro Forma Consolidated Financial Statements
12
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MAGNUM PETROLEUM, INC. AND SUBSIDIARIES
Notes to Unaudited Pro Forma Consolidated Financial Statements
The following adjustments have been reflected in the accompanying Pro Forma
Consolidated Balance Sheet as of March 31, 1996 and Consolidated Statements of
Operations for the year ended December 31, 1995 and the three months ended March
31, 1996, to give effect for the Meridian Acquisition of oil and gas properties
and pipeline gathering system on June 28, 1996.
A) To reflect the acquisition of the Meridian properties for $35,350,000
funded by a loan from the Company's principal lending financial
institutions. The purchase price was allocated to oil and gas properties
and pipeline assets based upon estimated relative fair market values.
B) To reflect additional depletion on oil and gas properties as recalculated
using the full cost method and depreciation of the pipeline assets over a
fifteen year life using the straight-line method.
C) To reflect additional estimated general and administrative costs associated
with the increases in the number of properties and the assumption of
operator's duties on the acquired properties.
D) To reflect interest expense associated with the financed portion of the
Meridian acquisition, using an eight (8) percent interest rate which is
currently in effect for the related debt. A one-eighth (1/8) percent change
in the interest rate would result in an increase or decrease in the
proforma interest adjustment of $44,512 and $11,033 for the year ended
December 31, 1995 and the three months ended March 31, 1996, respectively.
13
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