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UNITED STATES
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
February 28, 1997
Date of Report (Date of earliest event reported)_______________________________
MAGNUM PETROLEUM, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 1-12508 87-0462881
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
600 East Las Colinas Boulevard, Suite 1200, Irving, Texas 75039
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 401-0752
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
On February 28, 1997, Magnum Petroleum, Inc., ("Magnum")executed a
definitive Purchase and Sale Agreement with subsidiaries of Burlington Resources
Inc., to acquire certain oil and gas properties located in West Texas and
Southeast New Mexico (hereinafter referred to as the "Permian Basin Properties")
for $143,500,000, with a January 1, 1997 effective date.
There are a total of 25 field areas in West Texas and 21 field areas in
Southeast New Mexico containing 3,100 oil and gas completions in the Permian
Basin Properties. At Closing, Gruy Petroleum Management Co., a wholly-owned
subsidiary of Magnum, will assume operations on approximately 85% of the Permian
Basin Properties. Daily net production during 1996 averaged over 2,500 barrels
of oil per day and 26.7 million cubic feet of natural gas.
Magnum's in-house petroleum engineers have estimated that as of January 1,
1997, the Permian Basin Properties contain total reserves (proved, probable and
possible) of 26.7 million barrels of oil and 124.5 billion cubic feet of natural
gas for a total of 284.7 Bcfe of gas equivalents. Proved reserves are estimated
at 24.6 million barrels of oil and 102 billion cubic feet of natural gas. The
total proved Bcfe of gas equivalents of 249.6 is approximately 88% of total
reserves. On a barrel of oil equivalent basis, the acquisition represents a
purchase at $3.03 per barrel for all categories of reserves and $3.45 per barrel
for total proved reserves only. On a gas equivalent basis, the acquisition
represents a purchase at $0.50 per mcfe for all categories of reserves and $0.57
per mcfe for total proved reserves only.
The estimated future net revenue from the Permian Basin Properties is
$374.2 million for all categories of reserves, and the present worth discounted
at 10% utilizing unescalated oil and gas prices is $167.2 million. The present
worth of the Permian Basin Properties discounted at 10% for proved reserves only
is estimated at $147.9 million, of which 82% is proved producing. The total
proved reserve mix of the Permian Basin Properties is approximately 60% oil and
40% gas.
The primary producing formations include the Yates, Seven Rivers, and Queen
in Lea and Eddy Counties, New Mexico. The key producing formation in the Brunson
Ranch Field area located in Loving County, Texas is the Atoka. The Westbrook
Field located in Mitchell County, Texas primarily produces from the Clearfork
formation. The San Andres formation is the primary producer in the
Levelland/Slaughter field area in Cochran County, Texas and the Canyon Sand is
the primary producing formation in the Sutton County, Texas properties. The
gross mineral acreage holdings included in this acquisition total 114,810
acres of which 82,175 are net mineral acres.
Magnum has made a performance deposit of $10,000,000 with Burlington until
Closing of the transaction is completed, presently anticipated on or before
April 30, 1997. In addition to the customary conditions of closing for
transactions of this type, the sale is subject to the approval of the Board of
Directors of Burlington Resources Inc. Additionally, Magnum will be conducting a
complete due diligence review which will include accounting, title and
environmental inspection. Funding of the transaction will be from a combination
of senior bank loans from Magnum's commercial bank group as well as a private
placement of securities under Rule 144(a) to certain institutional investors.
The privately placed securities will not be or have not been registered under
the Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
Commenting on this significant acquisition, Mr. Gary C. Evans, President
and CEO of Magnum stated "The material impact of the cash flow anticipated from
this high quality group of oil and gas properties will benefit our company and
shareholders for many years to come. This acquisition fits strategically within
the company's long term plans to build a premier oil and gas exploration and
production company. The geographic location of these properties can be
efficiently managed under the leadership of our existing team of professionals.
This acquisition will increase the total assets of Magnum to approximately $250
million and increase pro-forma annual revenues to over $50 million. The
historical cash flow from the Permian Basin Properties has exceeded $26.6
million for the twelve month period ended October 1996 with an average oil price
of $18.82 per barrel and an average gas price of $2.03 per mcf. We appreciate
the confidence that management of Burlington has placed in Magnum, this being
our second significant acquisition from Burlington in less than a year. After
Closing, Magnum will initiate a complete geological evaluation to determine the
development and exploration potential in the significant acreage position
acquired with the Permian Basin Properties."
Magnum Petroleum, Inc. is an exploration and development company which, in
combination with the recently acquired Hunter Resources, Inc. subsidiaries, is
now engaged in four principal activities: the acquisition, production and sale
of crude oil, condensate and natural gas; the gathering, transmission and
marketing of natural gas; the managing and operating of producing oil and
natural gas properties for interest owners; and providing consulting and U.S.
export services to facilitate Latin American trade in energy products.
The information in this report includes certain forward-looking statements
that are based on assumptions that in the future may prove not to have been
accurate. Those statements, and Magnum Petroleum, Inc.'s business and prospects,
are subject to a number of risks, including volatility of oil and gas prices,
the need to develop and replace reserves, the substantial capital expenditures
required to fund its operations, environmental risks, drilling and operating
risks, risks related to exploration and development drilling, uncertainties
about estimates of reserves, competition, government regulation, and the ability
of the company to implement its business strategy. These and other risks are
described in the company's reports that are available from the SEC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MAGNUM PETROLEUM, INC.
/s/ Gary C. Evans
BY:____________________________
Gary C. Evans
President and CEO
Dated: March 3, 1997
