U.S. Securities and Exchange Commission
Washington. D. C. 20549
Form 10-KSB
Annual Report Under Section 13 or 15(d)
of the
Securities Exchange Act of 1934
for the fiscal year ended
December 31, 1995
Commission File Number: 1-10425
Wichita River Oil Corporation
(Name of Small Business Issuer in its Charter)
Delaware 13-3544163
(State of Incorporation) (IRS Employer Identification Number)
3500 N. Causeway Blvd.. Suite 410, Metairie, Louisiana 70002
(Address of Principal Executive Office) (Zip Code)
(504) 831-0381
(Issuer's Telephone Number, including Area Code)
Securities registered under Section 12(b) of The Exchange Act:
Title of Each Class Name of Exchange on which Registered
Common Stock, $0.01 par value None
Securities registered under Section 12(g) of The Exchange Act: None
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 __
Check X if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference either in Part
III or in any amendment to this Form 10-KSB.
Issuer's revenues for its most recent fiscal year were approximately
$3,200,000.
The aggregate market value of the voting stock held by non-affiliates as of
April 12, 1996, was $350,000. For purposes of the preceding sentence, all
directors and executive officers of the registrant are presumed to be
affiliates.
As of April 12, 1996, approximately 7,974,000 shares of Common Stock,
$0.01 par value per share, were issued and outstanding.
Documents Incorporated By Reference: Certain sections of the registrant's
Proxy Statement to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days of the registrant's fiscal year on
December 31, 1995 are incorporated by reference is not Part III hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Wichita River Oil Corporation (a Delaware corporation and its subsidiaries -
the "Company") owns and operates oil and gas properties in Louisiana. The
Company was formed in Wichita Falls, Texas in 1917. During the past five years,
the Company's property development has consisted primarily of repairing and
recompleting existing wells in two fields in Louisiana.
On October 1, 1995, a $2.7 million payment ($2.0 million of principal and
$0.7 million of accrued interest) was due on the Company's $21.3 million
senior-secured debt. The Company was unable to pay the $2.7 million,
and the lender's remedies for nonpayment include acceleration of the loan
and initiation of foreclosure proceedings. Immediately prior to October 1,
1995, the original lender transferred the debt to a new note holder.
Subsequently, the new note holder and the Company have discussed various debt
amendment ideas as well as various recapitalization and/or refinancing
alternatives. The discussions and negotiations that have occurred to date
have not resulted in formalized conclusions. On April 11, 1996, the note
holder delivered to the Company a notice of default and declared the debt
due and payable.
A failure to bring these negotiations between the Company and the new note
holder to a successful conclusion may result in foreclosure efforts by the
new note holder. Substantially, all of the Company's oil and gas properties
are pledged as security for the debt. In the event that foreclosure efforts
are initiated by the new note holder, such efforts may jeopardize the Company's
ability to continue operations without availing itself the protection afforded
by federal bankruptcy laws.
Under the present circumstances, the Company's balance sheet as of December 31,
1995, includes the entire amount of senior-secured debt in current liabilities,
resulting in deficit working capital of $25.7 million, including $21.3 million
of principal and an additional $1.3 million of accrued interest. On October 2,
1995, the new note holder verbally notified the Company that the note had been
transferred. The new note holder verbally agreed to forgive $732,625 of
interest accrued under the loan through September 30, 1995, and to reschedule
the $2.0 million principal payment due on October 1, 1995.
A written document to forgive the interest and to reschedule the principal
payment was prepared by the Company and delivered to the new note holder
but was not executed by the new note holder. Due to the lack of any executed
agreement between the Company and the new note holder, the $732,625 of
forgiven interest has been included in the $1.3 million of accrued interest
described above.
The Company's independent auditors, Arthur Andersen LLP, do not express an
opinion on the Company's financial statements as of December 31, 1995. The
auditors requested the note holder to return an ordinary audit debt
confirmation. The note holder refused to confirm the debt terms and
maturities. The auditors further stated that there is "substantial doubt
that the Company's ability to continue as a going concern". Consequently, the
auditors stated "we do not express an opinion on the financial statements...".
Management believes that anticipated cash flows from operations will be
adequate to meet the Company's foreseeable financial obligations provided
the Company's properties can be fully developed. The Company's ability to
continue the development of its properties during the near future is subject
to market conditions for and availability of external capital. If the Company
is unable to develop its properties in the near future, there can be no
assurance that the Company will be able to meet its foreseeable financial
obligations.
As of December 31, 1995, the capitalized cost of the Company's oil and gas
properties was less than the cost ceiling established by the Company's proved
reserves. However, uncertainty regarding the Company's ability to fund
development of its proved undeveloped reserves in the near future may limit
the cost ceiling to the value of the Company's proved developed reserves. By
limiting its property value to the cost ceiling established by proved developed
reserves, a writedown of $9.2 million for impairment of the Company's stated
property value was recorded during the fourth quarter of 1995.
The Company's executive office is located at 3500 North Causeway Boulevard,
Suite 410, Metairie, Louisiana, 70002, The Company's telephone number is
(504) 831-0381 and fax number is (504) 837-9426. The Company's common stock
is traded on the bulletin board under the symbol "WROC". Prior to October
2, 1995, the Company's stock was traded on the American Stock Exchange under
the symbol "WRO". Trading on the AMEX was halted on October 2, 1995 and did
not resume prior to the stock being delisted on March 8, 1996.
1
<PAGE>
ITEM 1. GENERAL - continued
OBJECTIVE AND STRATEGY
Subject to resolving its debt problems (described on the previous page and
in Part II, Item 6, the Company's operating objectives are to increase its
developed oil and gas reserves and its current production of oil and gas.
Further development of the Company's properties involves additional
production enhancement activities and requires that new wells be drilled.
Consequently, the Company must find external sources of capital due to the
increased risks associated with development drilling. The Company's strategy
is to find alternative sources of capital and to pursue development drilling
opportunities within the Company's existing property base.
The Company's objectives and strategy are subject to modification and
possible significant change based on general changes in conditions within
the oil industry, and within the general economy. The Company's objectives
and strategy are in competition with a number of other independent oil
companies. Accordingly. there can be neither assurances that the Company
will be capable of achieving its objectives nor assurances that the
Company's strategy will be successful.
OIL AND GAS PRODUCTION OPERATIONS
The Company's oil and gas properties are located in two fields in Louisiana.
The Little Lake Field is in Jefferson Parish approximately fifteen miles south
of New Orleans. and the Saint Gabriel Field is in Iberville Parish approximately
forty miles northwest of New Orleans. The Company, owns essentially all the
working interest in and is operator for all its properties. The following
table provides information regarding the Company's oil and gas wells and
production and reserves as of year-end l995. The Company is not required to
provide it's oil and gas reserve information to any other government agency
or authority. The Company's oil and gas reserves as of December 31, 1995 were
determined by an independent petroleum engineering firm, Forrest A. Garb &
Associates, Inc.
<TABLE>
<CAPTION>
Proved Net Reserves
Daily Net Production Rates In Thousands
No. Oil Gas BOE Oil Gas BOE Pretax
Field Wells Barrels MCF Barrels Barrels MCF Barrels PV10
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Little Lake 17 276 1,479 522 1,138 6,708 2,256 13,178
Saint Gabriel 3 44 804 178 565 13,820 2,868 17,090
Totals 20 320 2,283 700 1,703 20,528 5,124 30,268
</TABLE>
The Pretax PVIO indicated in the previous table is calculated before income
taxes because the Company cannot allocate corporate income taxes by field.
Note 9 for the financial statements provides the after-tax PV10 calculation,
which totals $28.4 million and consists of the future net revenue from proved
reserves, discounted at 10% per annum.
Oil and gas production for each of the last three years is depicted in the
following table, which also includes the average prices received for oil and
gas sold during each year. During the past three years, the Company has
acquired and sold various property interests. Accordingly, the following tables
depicting results for producing operations include results from properties that
the Company no longer owns and does not include results for property interests
that the Company presently owns.
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Production
Oil - barrels 117.0 172.1 231.3
Gas- mcf 883 1,058 1,160
BOE - barrels 255.8 348.4 424.6
BOE/Day 700 955 1,163
Prices
Oil (per barrel) $ 15.40 $ 15.23 $ 17.44
Gas (per mcf) $ 1.68 $ 2.06 $ 2.36
BOE (per barrel) $ 12.52 $ 13.59 $ 15.94
<FN>
<F1>
All data is in thousands except for BOE/Day and Prices. BOE is barrels of oil
and equivalent natural gas utilizing a 6,000:1 conversion ratio for natural
gas to oil.
</FN>
</TABLE>
2
<PAGE>
ITEM 1. BUSINESS - continued
OIL AND GAS PRODUCTION OPERATIONS - continued
<TABLE>
<CAPTION>
The following table depicts selected operating and financial information for
each of the three years ended December 31, 1995.
Years ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Revenues
Oil sales $ 1,796 $ 2,551 $ 4,036
Gas sales 1,403 2,196 2,731
Revenues 3,199 4,747 6,767
Operating & Admin. Expenses:
Production taxes 370 501 697
Operating costs 362 527 542
Administration costs 1,106 1,565 1,339
Operating & Admin. Exp. 1,838 2,593 2,578
Operating Cash Flow $ 1,361 2,154 4,189
Operating Cost per BOE $ 1.41 $ 1.51 $ 1.28
Operating Cash Flow per BOE $ 5.32 $ 6.18 $ 9.86
<FN>
<F2>
All data is in thousands except for BOE/Day and Prices. BOE is barrels of
oil and equivalent natural gas utilizing a 6,000:1 conversion ratio for
natural gas to oil.
</FN>
</TABLE>
OIL AND GAS LEASES AND ACREAGE
All of the Company's oil and gas producing operations are located on leases
held by the Company for as long as production is maintained on each lease.
The Company's Little Lake Field consists of 2,277 acres (gross and net to
the Company's interest.) on leases from the State of Louisiana. The Company's
Saint Gabriel Field consists of 831.8 gross acres and 777.8 acres that are net
to the Company's ownership interest on leases from a number of private land
owners. The Company believes that title to its property is good and in
accordance with standard generally accepted in the oil and gas industry, subject
to such exceptions which, in the opinion of counsel in Louisiana, are not so
material as to detract from the property. The oil and gas properties are
subject to royalty, and other interests customary in the industry, including
liens incident to operating agreements current taxes, development obligations
and other encumbrances, easements and restrictions. The Company does not
believe that any of these burdens will materially interfere with the use of
the property.
OPERATING CONDITIONS
The Company operates all its properties and supervises the activities of various
oil field service companies as those companies provide services and equipment
for the Company. The Company adheres to stringent environmental and personal
safety policies and sound operating procedures. The Company maintains insurance
customary in the industry.
Oil and gas exploration and production is hazardous by its nature and may
result in unavoidable personal injury and property damage and environmental
impairment. Such hazards may result in an unforeseeable event which could
have a material adverse effect on the Company's financial position or
results from operations.
MARKET CONDITIONS
Revenues generated from oil and gas operations of the Company will be highly
dependent on future prices for oil and gas. Various factors beyond the
control of the Company affect such prices, including worldwide and domestic
supplies relative to demand. Supplies are significantly affected by positions
adopted by the Organization of Petroleum Exporting Countries and changes in the
political stability for certain petroleum exporting countries. Any significant
decline in prices for oil and gas would adversely affect the Company's revenues
and other financial results and financial position.
3
<PAGE>
ITEM 1 BUSINESS - continued
MARKET CONDITIONS - continued
The Company does not currently employ hedging or any similar strategies in an
attempt to mitigate the effects of price fluctuations for oil and gas.
Significantly lower prices would result in a writedown for the carrying value
of the Company's oil and gas properties, may reduce the fair market value for
the Company's oil and gas reserves and may result in a default under the
Company's bank credit agreement, jeopardizing the Company's ability to
continue operations without availing itself the protection afforded by federal
bankruptcy laws. (See page 1 and Part II, Item 6 for discussion of the
Company's debt status).
OIL AND GAS DELIVERY COMMITMENTS
The Company sells all its oil and gas production under evergreen monthly
sales agreements at prices that are adjusted periodically based on spot
prices less gathering, transportation, marketing and production quality
adjustments. The principal markets for the Company's production are
customers with pipeline or other transportation facilities near the Company's
operations. While the transportation infrastructure is extensive in the
Company's areas of operation in South Louisiana, there can be no assurance
as to the continuance of current markets for the Company's oil and gas
production (See Note 8 to the financial statements for information regarding
purchases of more than 10% of the Company's production.)
COMPETITION
The oil and gas industry is intensely competitive in the sector in which the
Company operates. The Company considers itself to be a minor competitive
factor in its sector of the industry and encounters strong competition from
other companies, many of which have greater resources than the Company.
The oil and gas industry also competes with other industries in supplying
the energy requirements of industrial, commercial and individual consumers.
SEASONALITY
The Company has been able to market all its production regardless of season.
EMPLOYEES
As of April 12, 1996, the Company had twelve employees. The Company's
relations with its employees are satisfactory. None of the Company's
employees are covered by a collective bargaining agreement.
GOVERNMENTAL REGULATION
The Company is required to comply with federal and state laws and regulations
relating to environmental matters and personal safety. The Company has expended
managerial and financial resources and technology to comply with these laws and
regulations and anticipates continuing to do so in the future. Such laws and
regulations may substantially increase the cost of operations and may prevent
or delay the commencement or continuance of a future operation. Although the
Company believes that it is in compliance with such laws, there can be no
assurance that present and future regulation of the oil and gas industry will
not adversely affect the operations of the Company. The Company is not
required to provide oil and gas reserve information to any other government
agency or authority.
ITEM 2. PROPERTIES
Information as to properties of the Company is set forth above in "Item 1.
Business".
ITEM 3. LEGAL PROCEEDINGS
Wichita River Oil Corporation and the Company's subsidiary, Equitable Petroleum
Corp., are defendants in various lawsuits arising in the ordinary course of
business. The Company believes it has meritorious defenses to the lawsuits
and will defend against them. Based on its evaluation of such claims, as
discussed with its outside legal counsel, Company management is of the opinion
that the ultimate resolution of such matters will not have a material adverse
effect on the Company's financial position or results of operations and that
such matters are not material for an investment decision regarding the
Company's securities.
The Company is involved currently in an action styled John H. Hauberg, et al v.
Wichita River Oil Corporation, et al, No. 54,837, 23rd JDC, Ascension Parish,
La. in which the royalty owners of a lease that is operated by the Company are
seeking approximately $300,000 in unpaid royalties plus penalties and interest
and attorney's fees. The Company has acknowledged the $300,000 liability for
unpaid royalties but has denied the claim for penalties, which exceeds $600,000.
The Company believes it has meritorious defenses against the claim for
penalties, including the failure of certain royalty owners to prove their
royalty ownership interest.
The Company owns approximately 75% working interest in the lease in question.
Other working interest owners and royalty owners who had been involved directly
in the case mentioned above have filed recently claims and cross-claims and
counterclaims both with and against the Company for reimbursement for any
penalties which may result from this litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) Market Information. The Company's common stock was listed on the
American Stock Exchange ("AMEX") under the symbol "WRO" until March 8, 1996.
Trading in the Company's stock on the AMEX was suspended from October 2, 1995
until the stock was delisted. Presently, the stock is traded on the bulletin
board under the symbol "WROC" at approximately $0.03 bid and $0.10 per share.
<TABLE>
<CAPTION>
The following table sets forth for the periods indicated the high and low
sales prices of the Common Stock and the volume of WRO shares traded as
reported on the AMEX Composite Tape.
1995 1994 1993
High Low Vol. High Low Vol. High Low Vol.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $1.125 $0.750 696,400 $1.875 $1.062 796,700 $2.000 $1.500 273,000
Second Quarter $0.500 $0.250 746,400 $1.938 $1.000 493,500 $1.750 $1.062 198,300
Third Quarter $0.375 $0.250 687,700 $1.375 $0.875 314,600 $1.375 $0.938 261,100
Fourth Quarter $ - - $ - - - - $1.375 $0.813 481,600 $2.125 $1.000 786,900
______ ______ _________ ______ ______ _________ ______ ______ _________
Year to Date $1.125 $0.250 2,130,500 $1.938 $0.813 2,086,400 $2.125 $0.938 1,519,300
</TABLE>
(b) Holders. The number of record holders of Common Stock of the Company on
April 12, 1996 was approximately 800.
(c) Dividends. No dividends have been paid by the Company. The Company
intends to continue following a policy of reinvesting its cash flow to increase
its oil and gas reserves and production. Any payments of cash dividends in
the future will depend upon the financial condition, capital requirements and
earnings of the Company, as well as other factors the Board of Directors may
deem relevant. Prior to paying any dividends on its Common Stock, the Company
would be required to seek a waiver of a dividend covenant in its senior-secured
debt agreement.
5
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On October 1, 1995, a $2.7 million payment ($2.0 million of principal and
$0.7 million of accrued interest) was due on the Company's $21.3 million senior-
secured debt. The Company was unable to pay the $2.7 million, and the note
holder's remedies for nonpayment include acceleration of the loan and initiation
of foreclosure proceedings. Immediately prior to October 1, 1995, the
Company's original lender transferred the debt to a new note holder.
Subsequently the new note holder and the Company have discussed various
debt amendment ideas as well as various recapitalization and/or refinancing
alternatives. The discussions and negotiations that have occurred to date
have not resulted in formalized conclusions. On April 11, 1996 the note
holder delivered to the Company a notice of default and declared the debt
due and payable.
A failure to bring negotiations between the Company and the new note holder to
a successful conclusion may result in foreclosure efforts by the new note
holder. Substantially all of the Company's oil and gas properties are pledged
as security for the bank loan. In the event that foreclosure efforts are
initiated by the new note holder such efforts may jeopardize the Company's
ability to continue operations without availing itself the protection
afforded by federal bankruptcy laws.
Under the present circumstances, the, Company's balance sheet as of December
31, 1995, includes the entire amount of senior-secured debt in current
liabilities, resulting in deficit working capital of $25.7 million,
including $21.3 million of principal and an additional $1.3 million of
accrued interest. On October 2, 1995, the new note holder verbally notified
the Company that the note had been transferred. The new note holder verbally
agreed to forgive $732,625 of interest accrued under the note through
September 30, 1995, and to reschedule the $2.0 million principal payment
due on October 1, 1995.
A written document to forgive the interest and to reschedule the principal
payment was prepared by the Company and delivered to the new note holder
but was not executed by the new note holder. Due to the lack of any
executed agreement between the Company and the new lender, the $732,625 of
forgiven interest has been included in the 1.3 million of accrued interest
described above.
The Company's independent auditors, Arthur Andersen LLP, do not express an
opinion on the Company's financial statements as of December 31, 1995. The
auditors requested the note holder to return an ordinary audit debt
confirmation. The note holder refused to confirm the debt terms and
maturities. The auditors further stated that there is "substantial doubt about
the Company's ability to continue as a going concern". Consequently, the
auditors stated "we do not express an opinion on the financial statements...".
Management believes that anticipated cash flows from operations will be adequate
to meet the Company's foreseeable financial obligations provided the Company's
properties can be fully developed. The Company's ability to continue the
development of its properties during the near future is subject to market
conditions for and availability of external capital. If the Company is unable
to develop its properties in the near future, there can be no assurance that the
Company will be able to meet its foreseeable financial obligations.
As of December 31, 1995, the capitalized cost of the Company's oil and gas
properties was less than the cost ceiling established by the Company's proved
reserves. However, uncertainty regarding the Company's ability to fund
development of its proved undeveloped reserves in the near future may limit the
cost ceiling to the value of the Company's proved developed reserves. By
limiting its property value to the cost ceiling established by proved
developed reserves, a writedown of $9.2 million for impairment of the
Company's stated property value was recorded during the fourth quarter
of 1995.
Net cash provided by operating activities during 1995 was $1,050,000, including
an operating loss of $855,000. Comparable figures for l994 were cash
provided by operating activities of $1,135,000, including operating cash flow
of $241,000. Net cash used in investing activities during 1995 was $1,218,000
for capital expenditures compared to net cash used in investing activities in
1994 of $l,111,000 for capital expenditures. There were no financing activities
during 1995 compared to net cash used in financing activities of $150,000 during
1994.
Wichita River Oil Corporation and the Company's subsidiary, Equitable
Petroleum Corp., are defendants in various lawsuits arising in the ordinary
course of business. The Company believes it has meritorious defenses to
the lawsuits and will defend against them. Based on its evaluation of such
claims, as discussed with its outside legal counsel, Company management is
of the opinion that the ultimate resolution of such matters will not have a
material adverse effect on the Company's financial position or results of
operations and that such matters are not material for an investment decision
regarding the Company's securities.
6
<PAGE>
ITEM 6. FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
RESULTS OF OPERATIONS
1995 COMPARED TO 1994. When compared to a year earlier, oil and gas sales
were 33% lower due primarily to a 27% decrease in daily production volumes
(700 BOE v. 955) and an 8% decrease in average prices ($12.52 per BOE v.
$13.59). Production expenses were 29% lower in 1995 than in 1994 due primarily
to the 27% decrease in production volumes and to reduced average operating
expenses. Operating expenses, exclusive of production taxes, averaged $1.42
per BOE in 1995 compared to $1.51 in 1994.
General and administrative expenses for 1995 were 29% lower than in 1994, due
primarily to a $308,000 charge for settlement of litigation during 1994.
Interest expense in 1995 was 16% higher due to a higher amount of interest-
bearing debt outstanding, which was partially offset by lower interest rates.
Depreciation, depletion and amortization costs were 8% lower in 1995 due
primarily to lower production volumes. The average depletion rate in 1995 was
$6.20 per BOE v. $5.75 in 1994.
FIRST QUARTER OF 1995 COMPARED TO FIRST QUARTER OF 1994. When compared to a year
earlier, oil and gas sales were 26% lower due primarily to a 16% decrease in
daily production volumes (835 BOE v. 995) and a 12% decrease in average prices
($12.26 per BOE v. $13.93), primarily because natural gas prices during 1995
were lower ($1.61 per mcf compared to $2.54 during 1994). Production expenses,
exclusive of production taxes, were 24% lower in 1995 when compared to 1994.
Average operating expenses per BOE in 1995 were $1.20 compared to $1.32 in 1994.
Production taxes were 23% lower than in 1994, despite higher oil prices ($15.45
per barrel compared to $12.55 in 1994), due primarily to lower production
volumes.
General and administrative expenses in 1995 were 66% lower when compared to
1994, due primarily to $308,000 charge for settlement of litigation during
1994. Interest expense in 1995 was 43% higher due to higher interest rates
of 10.3% in 1995 compared to 7.5% in 1994, which was partially offset by a
reduced amount of interest-bearing debt outstanding. Depreciation, depletion
and amortization costs were 10% lower in 1995 despite 16% lower production
volumes. The average depletion rate in 1995 was $5.54 per BOE v. $5.17 in 1994.
SECOND QUARTER OF 1995 COMPARED TO SECOND QUARTER OF 1994. When compared to a
year earlier, oil and gas sales were 29% lower due to a 26% decrease in daily
production volumes (733 BOE v. 996). Prices were 3% lower ($13.68 per BOE v.
$14.16). Production expenses, exclusive of taxes, were 49% lower in 1995 when
compared to 1994. Average operating expenses per BOE in 1995 were $1.16
compared to $1.66 in 1994. Production taxes were 19% lower than in 1994 despite
higher oil prices ($16.30 per barrel compared to $15.89 in 1994).
General and administrative expenses in 1995 were 27% lower when compared to
1994 due to austerity measures. Interest expense in 1995 was 24% higher due
to higher interest rates. Depreciation, depletion and amortization costs
were 18% lower in 1995 despite 21% lower production volumes. The average
depletion rate in 1995 was $5.55 per BOE v. $4.98 in 1994.
FIRST HALF OF 1995 COMPARED TO FIRST HALF OF 1994. When compared to a year
earlier, oil and gas sales were 28% lower due to 21% lower daily production
volumes (783 BOE v. 995.) and 8% lower prices ($12.93 per BOE v. $14.05).
Production expenses, exclusive of taxes were 38% lower in 1995 when compared
to 1994. Average operating expenses per BOE in 1995 were $1.18 compared to
$1.49 in 1994. Production taxes in 1995 were 21% lower than in 1994 despite
higher oil prices ($15.85 per barrel compared to $14.23 in 1994).
General administrative expenses in 1995 were 53% lower when compared to 1994
and 32% lower excluding a $308,000 charge for settlement of litigation during
the first quarter of 1994. Interest expense in 1995 was 33% higher due to
higher interest rates. Depreciation, depletion and amortization costs were
14% lower in 1995 despite 21% lower production volumes. The average depletion
rate in 1995 was $5.55 per BOE v. $5.07 in 1994.
THIRD QUARTER OF 1995 COMPARED TO THIRD QUARTER OF 1994. When compared to a
year earlier, oil and gas sales were 39% lower due to a 27% decrease in daily
production volumes (698 BOE v. 961) and a 15% decrease in average prices ($11.45
per BOE v. $13.54). Production expenses, exclusive of taxes were 51% lower in
1995 when compared to 1994. Average operating expenses per BOE in 1995 were
$1.29 compared to $1.91 in 1994. Production taxes were 23% lower than in 1994,
reflecting lower oil prices ($15.17 per barrel compared to $15.78 in 1994).
7
<PAGE>
ITEM 6. FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
RESULTS OF OPERATIONS - continued
General and administrative expenses in 1995 were 12% higher when compared to
1994 due to costs associated with refinancing efforts. Interest expense in
1995 was unchanged from 1994 levels. Depreciation, depletion and amortization
costs were unchanged in l995 despite 27% lower production volumes. The average
depletion rate in l995 was $6.50 per BOE v. $4.73 in 1994.
FIRST NINE MONTHS OF 1995 COMPARED TO FIRST NINE MONTHS OF 1994. When compared
to a year earlier, oil and gas sales were 31% lower due to 23% lower daily
production volumes. (754 BOE v. 984) and 10% lower prices ($12.47 per BOE v.
$13.88). Production expenses, exclusive of taxes were 43% lower in 1995 when
compared to 1994. Average operating expenses per BOE in 1995 were $1.21
compared to $1.63 in 1994. Production taxes in 1995 were 22% lower than in
1994, reflecting lower volumes despite higher oil prices ($15.63 per barrel
compared to $14.75 in 1994).
General and administrative expenses in l995 were 38% lower when compared to
l994 and l9% lower excluding a $308,000 charge for settlement of litigation
during the first quarter of 1994. Interest expense in 1995 was 19% higher due
to higher interest rates. Depreciation, depletion and amortization costs were
10% lower in 1995 despite 23% lower production volumes. The average depletion
rate in 1995 was $5.84 per BOE v. $4.96 in 1994.
Fourth Quarter of 1995 Compared to Fourth Quarter of 1994. When compared to
a year earlier oil and gas sales were 38% lower due to a 39% reduction in
daily production volumes (539 BOE v. 881) offset slightly by a 1% increase for
average prices ($12.72 per BOE v. $12.57). Production expenses were 12% lower
in l995 than in l994 due primarily to lower production volumes. Operating
expenses, exclusive of production taxes, averaged $2.25 per BOE in 1995
compared to $1.10 in 1994, reflecting the loss of some economies of scale.
General and administrative expenses were 14% higher in 1995 than in 1994.
Interest expense in 1995 was 7% higher due to a higher amount of interest-
bearing debt outstanding. Depreciation, depletion and amortization costs were
44% lower in 1995 due primarily to lower production volumes in 1995. The
depletion rate in 1995 was $7.67 per BOE compared to $8.38 in 1994.
1994 Compared to 1993. When compared to a year earlier oil and gas sales were
30% lower due primarily to a 18% decrease in daily production volumes (958
barrels of oil equivalent natural gas("BOE") v. 1,163) and a 15% decrease in
average prices ($I3.58 per BOE v. $15.94). The 1993 production volumes include
production from properties which were sold during 1993. Production expenses
were 17% lower in 1994 than in 1993 due primarily to lower production taxes,
which are directly related to lower oil prices ($14.83 per barrel compared to
$17.44 in 1993). Operating expenses, exclusive of production taxes averaged
$1.51 per BOE in 1994 compared to $1.28 in 1993, reflecting the loss of some
economics of scale.
Included in general and administrative expense for 1994 is $308,000 for
settlement of litigation. Had this one time charge not occurred. general and
administrative expense for 1994 would have been 6% lower than in 1993.
Interest expense in 1994 was higher due to higher interest rates, which were
partially offset by a lower amount of interest-bearing debt outstanding.
Inflation has not had a material impact during the periods described above
and is not expected to have any material impact in the near future. The
prices received by the Company for oil and gas and the costs incurred by the
Company for operations in the recent past and for the foreseeable future have
been affected more by supply and demand factors and other general conditions
than by inflation.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements of the Company and the Notes and Schedules thereto
contained herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information called for by Items 9, 10, 11 and 12 reference is made to
the Company's definitive Proxy Statement for its 1996 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after December 31,
1995 and which is incorporated herein by reference.
Item 13. Exhibits. Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements. (See Index to the Company's Consolidated
Financial Statement on page 11 for financial statements filed with this
Report.)
(2) Financial Statement Schedules. All schedules are omitted as the
required information is not applicable, or is not significant, or is included
in the Consolidated Financial Statements, or related Notes thereto.
(3) Exhibits.
3.1 Restated Certificate of Incorporation of the Company and
Certificate of Amendment as filed March 1, 1990 (filed as Exhibit 3.1 to the
Company's Form 10-K for the year ended December 31, 1991, and incorporated
herein by reference).
3.2 By Laws of the Company as amended through March 26, 1992 (filed as
Exhibit 3.1 to the Company's Form 10-K for the year ended December 31, 1991,
and incorporated herein by reference).
10.2 Amend and Restated Credit Agreement ("Amended and Restated Credit
Agreement") dated as of February 1, 1992 among the Company, the banks named
there to and Manufacturers Hanover Trust Company, as agent (filed as Exhibit
10.2 to the Company's Form 10-K for the year ended December 31, 1991, and
incorporated herein by reference).
10.3 First Amendment to the Amended and Restated Credit Agreement dated
November 16, 1992 (filed as Exhibit 10.3 to the Company's Form 10-KSB for the
year ended December 3l, 1992, and incorporated herein by reference).
10.4 Second Amendment to the Amended and Restated Credit Agreement dated
April 9, 1993 (filed as Exhibit 10.4 to the Company's Form 10-KSB for the year
ended December 3l, 1992, and incorporated herein by reference).
10.5 Third Amendment to the Amended and Restated Credit Agreement dated
April 14, 1993 (filed as Exhibit 10.5 to the Company's Form 10-KSB for the year
ended December 3l, 1992, and incorporated herein by reference).
10.6 Fourth Amendment to the Amended and Restated Credit Agreement dated
April 14, 1993, (filed as Exhibit 10.6 to the Company's Form 10-KSB for the year
ended December 3l, 1993, and incorporated herein by reference).
10.7 Fifth Amendment to the Amended and Restated Credit Agreement dated
August 12, 1994 (filed as Exhibit 10.7 to the Company's Form 10-KSB for the year
ended December 3l, 1994, and incorporated herein by reference).
10.8 Sixth Amendment to the Amended and Restated Credit Agreement dated
April 12, 1995 (filed as Exhibit 10.8 to the Company's Form 10-KSB for the year
ended December 3l, 1994, and incorporated herein by reference).
10.9 Seventh Amendment to the Amended and Restated Credit Agreement dated
August 11, 1995 (filed herewith).
11.0 Statement of Re-Computation of Per Share Earnings (filed herewith).
22.1 Subsidiaries of the Company (filed as Exhibit 22.1 to the Company's
Form 10-KSB for the year ended December 3l, 1992, and incorporated herein by
reference).
23.1 Consent of Arthur Andersen LLP (filed herewith).
23.2 Consent of Forrest A. Garb & Associates, Inc. (filed herewith).
(b) Reports on Form 8-K:
None.
9
<PAGE>
SIGNATURES
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 in Metairie,
State of Louisiana on April 12, 1996.
Wichita River Oil Corporation
By: /s/ Michael L. McDonald
Michael L. McDonald
Chairman and President
POWER OF ATTORNEY
We, the undersigned, directors and officers of Wichita River Oil Corporation
(the "Company"), do hereby severally constitute and appoint Michael L. McDonald
and James P. McGinnis and each or either of them, our true and lawful attorneys
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995 and to file the same with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys and agents, and each or any of them,
full power and authority to do so and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys and agents, and each of them, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act f 1934, this report
has been signed below by, the following persons on behalf of the registrant and
in the capacities and on April 12, 1996.
By: /s/ Michael L. McDonald Chairman and President and Director
Michael L. McDonald (Principal Executive Officer)
By: /s/ James P. McGinnis Controller
James P. McGinnis (Principal Accounting Officer)
By: /s/ William E. Logan Treasurer
William E. Logan (Principal Financial Officer)
By: /s/ James M. Blane Director
James M. Blane
By: /s/ George H. Burmann Director
George H. Burmann
By: /s/ Richard Mandel Director
Richard Mandel
By: /s/ Hugo A. Ruiz Director
Hugo A. Ruiz
By: /s/ Ronald D. Jeancon Director
Ronald D. Jeancon
10
<PAGE>
<TABLE>
<CAPTION>
Wichita River Oil Corporation and Subsidiaries
Selected Historical Financial Data
In Thousands Except for Per Share Data
Years Ended December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues 3,199 4,747 6,767 6,034 3,851
Income (loss) cummulative
effect of accounting change $(12,023) (10,738) 170 100 (2,870)
Per Share $ (1.51) (1.60) 0.03 0.01 (0.51)
Net Income (Loss) $(12,023) (10,738) (1,430) 100 (3,902)
Per Share $ (1.51) (1.51) (0.22) 0.01 (0.69)
Operating Cash Flow * $ 1,361 2,154 4,189 3,564 1,450
Per Share $ 0.17 0.32 0.62 0.55 0.26
Total Assets $ 16,743 26,763 40,192 43,441 39,762
Total Debt $ 22,635 21,350 21,500 22,000 15,000
Total Liabilities $ 26,665 24,662 28,375 30,319 26,741
Stockholders' Equity (Deficit) $ (9,922) 2,101 11,817 13,122 13,021
Per Share $ (1.24) 0.26 1.76 2.04 2.02
Year-end number of shares
outstanding 7,974 7,974 6,716 6,440 6,433
<FN>
<F3>
* Revenues less production expenses and general administrative expenses.
</FN>
</TABLE>
Wichita River Oil Corporation and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Public Accountants 12
(filed as Exhibit 23.1 herewith)
Consolidated Balance Sheets at December 31. 1995 and 1994 13
Consolidated Statements of Operations for the years ended
December 31. 1995, 1994 and 1993 14
Consolidated Statements of Stockholders' Equity, for
the years ended December 31, 1995, 1994 and 1993 14
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 15
Notes to Consolidated Financial Statements 16
All schedules are omitted as the required information is not applicable or
is not significant or is included in the Consolidated Financial Statements
or related Notes thereto.
11
<PAGE>
Report of Independent Public Accountants
(filed as Exhibit 23.1 herewith)
12
<PAGE>
<TABLE>
<CAPTION>
Wichita River Oil Corporation and Subsidiaries
Consolidated Balance Sheets
December 31,
1995 1994
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 28,000 $ 196,000
Accounts receivable 919,000 821,000
___________ ___________
Total Current Assets 947,000 1,017,000
Property and Equipment:
Oil and gas properties (full cost method) 53,815,000 52,597,000
Less - Accumulated depletion and
writedown of oil and gas properties (38,019,000) (27,219,000)
___________ ___________
Net Property and Equipment 15,796,000 25,378,000
Other Assets:
Debt issuance costs, net of amortization - - 368,000
___________ ____________
Total Assets $ 16,743,000 $ 26,763,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,323,000 $ 818,000
Undistributed production receipts 1,954,000 1,570,000
Accrued liabilities 753,000 743,000
Accrued interest 1,285,000 181,000
Current maturities of long-term debt 21,350,000 2,000,000
___________ __________
Total Current Liabilities 26,665,000 5,312,000
Long-Term Debt - - 19,350,000
___________ ___________
Total Liabilities 26,665,000 24,662,000
Stockholders' Equity:
Common stock, voting, $.Ol par value, shares
authorized 10,000,000, shares outstanding
7,974,000 and 7,974,000, respectively 81,000 81,000
Additional paid-in capital 12,987,000 12,987,000
Subscriptions receivable (319,000) (319,000)
Retained earnings (deficit) (22,671,000) (10,648,000)
___________ ____________
Total Stockholders' Equity (9,922,000) 2,101,000
___________ ____________
Total Liabilities and
Stockholders' Equity $16,743,000 $26,763,000
<FN>
<F4>
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Wichita River Oil Corporation and Subsidiaries
Consolidated Statements of Operations
Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Revenues:
Oil and gas sales $3,199,000 $4,747,000 $6,767,000
Expenses:
Production expenses 732,000 1,028,000 1,239,000
General and administrative 1,106,000 1,565,000 1,339,000
Interest expense 2,216,000 1,913,000 1,662,000
Depreciation, depletion and
amortization 1,952,000 2,129,000 2,265,000
Writedown of oil and gas properties 9,216,000 12,288,000 - -
__________ __________ __________
Total expenses 15,222,000 18,923,000 6,505,000
Income (loss) before income taxes (12,023,000) (14,176,000) 262,000
Income tax benefit - - 3,438,000 (92,000)
__________ __________ __________
Net Income (Loss) before
cumulative effect
of accounting change (12,023,000) (10,738,000) 170,000
Cumulative effect of account change - - - - (1,600,000)
___________ __________ __________
Net Income (Loss) $(12,023,000) $(10,738,000) $(1,430,000)
Earnings (Loss) Per Share
Before accounting change $ (1.51) $ (1.60) $ 0.03
Cumulative effect of accounting
change - - - - (0.25)
___________ __________ _________
Net Earnings (Loss)Per Share $ (1.51) $ (1.60) $ (0.22)
Weighted average number of
shares outstanding 7,974,000 6,719,000 6,478,000
</TABLE>
<TABLE>
<CAPTION>
Wichita River Oil Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Additional Stock
Common Stock Paid-In Subscriptions Retained
Shares Amount Capital Receivable Earnings
Balance of December 31, 1992
<S> <C> <C> <C> <C> <C>
6,440,219 $ 65,000 $11,537,000 $ - - $1,520,000
Shares issued in exercise
of warrants 124,000 1,000 154,000 (129,000) - -
Shares issued to vendor 151,781 2,000 99,000 - - - -
Fractional shares repurchased - - - - (2,000) - - - -
Net loss - - - - - - - - (1,430,000)
_________ ________ __________ _________ ___________
Balance of December 31, 1993 6,716,000 68,000 11,788,000 (129,000) 90,000
Shares issued in exercise
of warrants 41,000 400 51,000 51,400 - -
Shares canceled (41,000) (400) (51,000) (51,400) - -
Shares issued to vendors
and others 1,258,000 13,000 1,200,000 (190,000) - -
Fractional shares repurchased - - - - (1,000) - - - -
Net loss - - - - - - - - (10,738,000)
_________ ________ __________ _________ ____________
Balance on December 31, 1994 7,974,000 81,000 12,987,000 (319,000) (10,648,000)
Net loss - - - - - - - - (12,023,000)
_________ _________ ___________ __________ _____________
Balance on December 31, 1995 7,974,000 $81,000 $12,987,000 $(319,000) $(22,671,000)
<FN>
<F5>
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Wichita River Oil Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net inome (loss) $(12,023,000) $(10,738,000) $(1,430,000)
Adjustment to reconcile net income (loss) to
net cash from operating activities:
Depreciation, depletion and amortization 1,952,000 2,129,000 2,265,000
Deferred income taxes - - (3,438,000) 92,000
Writedown of oil and gas properties 9,216,000 12,288,000
Cumulative effect of accounting change - - - - 1,600,000
_________ ________ _________
Operating Cash Flow (Loss) (855,000) 241,000 2,527,000
Changes in assets and liabilities
Decrease (increase) in accounts receivable
and other assets (98,000) (3,000) 1,131,000
Increase (decrease) in accounts payable
and other liabilites 2,003,000 897,000 (2,872,000)
__________ __________ ___________
Net cash provided by
operating activites $1,050,000 $1,135,000 $786,000
Cash Flows from Investing Activities:
Capital expenditures $(1,293,000) $(1,111,000) $(3,867,000)
Proceeds from sale of properties 75,000 - - 3,219,000
Decrease in drilling advances - - - - (116,000)
_____________ ___________ ____________
Net cash (used in) investing activities $(1,218,000) $(1,111,000) $ (764,000)
Cash Flows from Financing Activities:
Debt proceeds $ - - $ - - $ 500,000
Retirement of debt - - (150,000) (1,000,000)
Debt issuance costs - - - - (141,000)
Issuance of common stock - - - - 125,000
____________ ____________ ____________
Net cash used in financing activities $ - - $ (150,000) $ (516,000)
Cash and Cash Equivalents:
At beginning of period $ 196,000 $ 322,000 $ 816,000
Net increase (decrease) during period (168,000) (126,000) (494,000)
____________ __________ ___________
At end of period $ 28,000 $ 196,000 $ 322,000
Supplemental Cash Flow Information:
Cash paid during period for interest $ 1,112,000 $1,584,000 $1,651,000
Cash paid during period for income taxes $ -- $ - - $ - -
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities
During 1994, the Company issued 1,258.000 shares of common stock to creditors
and to various third parties, receiving, as consideration, notes and reduction
of certain current liabilities.
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
15
<PAGE>
WICHITA RIVER OIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR 1995, 1994 AND 1993
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Wichita River Oil Corporation and its wholly owned subsidiaries
(collectively referred to as the "Company"). The Company's wholly owned
subsidiaries are Equitable Petroleum and WRO Operating Company. The Company
is an oil and gas exploration, development and production company. As a result
of a sale in 1993, the composition of the Company's subsidiary group changed.
All material intercompany accounts and transactions are eliminated in
consolidation.
CASH EQUIVALENTS: The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. The Company
uses the "full cost" method of accounting for oil and gas properties.
Accordingly, costs incurred in the acquisition, exploration and development
of oil and gas properties are capitalized. Under the full cost method,
intangible drilling costs, dry hole costs, geologic costs and certain internal
costs related to exploration and development efforts are included as part of
oil and gas properties. Proceeds from the sale of oil and gas properties reduce
property and equipment and no gains or losses are normally recognized under the
full cost method. As the Company becomes aware of costs to be incurred for site
restoration, dismantlement and/or abandonment, it records the liability. To
date, no such liability has been recorded.
Depreciation, depletion and amortization of proved oil and gas properties is
computed using the units of production method based on total proved oil and
gas reserves. Depreciation of other fixed assets, primarily office equipment,
is determined using the straight-line method over their estimated useful lives.
Upon abandonment or disposal of depreciable assets, the cost and accumulated
allowance for depreciation are eliminated from the accounts and any gain or
loss is reflected in results of operations. (See Note 8 for policy regarding
impairment.)
INCOME TAXES: Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"), which requires the Company to use an asset and liability
approach to accounting for income taxes. Deferred tax assets or liabilities
are measured by applying the provisions of enacted tax laws to differences
between the tax basis of assets and liabilities and amounts reported on the
Company's balance sheet. A valuation allowance must be established for any
portion of a deferred income tax asset, if it is more likely than not that a
tax benefit will not be realized.
The Company recognized a non-cash cumulative effect of adopting the new
standard, resulting in a charge to income of $1.6 million primarily
because SFAS 109 does not permit recognition of statutory depletion from
future oil and gas revenues. The adoption of SFAS 109 has been reflected
as a cumulative effect of accounting change in the accompanying 1993
consolidated statement of operations.
RECLASSIFICATIONS: Certain prior years' amounts have been reclassified to
conform with the 1995 presentation.
EARNINGS (LOSS) PER SHARE: The weighted average number of shares of common
stock outstanding during the periods is used to compute earnings (loss) per
share. Stock options and warrants are considered common stock equivalents
to the extent they have a dilutive effect on earnings (loss) per share.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 2 COMPANY REORGANIZATION
On June 28, 1993 the core properties of Rio Bravo Oil Company, a then wholly
owned subsidiary, were sold to a third party for $3,000,000 with an effective
date of transfer of June 1, 1993. On June 30, 1993, the Company sold all the
outstanding stock of Rio Bravo Oil Company (acquired in 1991) and Energy Corp.
of America (acquired in 1990) to a third party. There was no gain or loss
recognized as a result of these sales.
16
<PAGE>
Wichita River Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements for 1995, 1994, and 1993
NOTE 3 CURRENT MATURITIES OF LONG-TERM DEBT
On February 1, 1992, the Company entered into a long-term credit agreement
("1992 Credit Agreement") with a bank providing a borrowing capacity of
$20,000,000, which was immediately drawn. The proceeds were used primarily
to retire the $15,000,000 loan under an existing credit agreement and the
remainder of a production payable incurred in a 1991 merger.
In April of 1993, the 1992 Credit Agreement was amended and outstanding
borrowings were increased to $22.5 million. Outstanding borrowings, which
were reduced to $21.5 million in August of 1993, under the loan are secured
by a first security interest in the oil and gas properties of the Company.
On December 31, 1993, the outstanding balance of the revolving credit facility
converted to a term note. In August of 1994, the credit facility was amended
to provide for the following principal reductions: monthly payments of $50,000
per month for three months beginning October 1, 1994, $1,850,000 on January 1,
1995, $2,000.000 each payable July 1, 1995, January 1, 1996, and January 1,
1997 and the balance on January 1, 1998.
In April of 1995, the credit facility as amended to provide for the following
principal reductions: $2.0 million payable July 1, 1995, $4.0 million payable
April 1, 1996, $2.0 million payable semiannually commencing on July 1, 1996
and the balance on January 1, 1998. The credit facility accrues interest,
which is payable monthly, at the original lender's prime rate plus 1.25
percent (10.0% on December 31, 1995). In August of 1995, the credit facility
was amended to provide for the following principal reductions: $2.0 million
payable October 1, 1995, $4.0 million payable April 1, 1996. $2.0 million
payable semiannually commencing on July 1, 1996 and the balance on January
1, 1998. Also, in August of 1995, the credit facility was amended to provide
for the payment on October 1, 1995 of interest accrued during the months of
June 1995 through August 1995. Payment of interest for September 1995 had
been scheduled previously for payment on October 1, 1995.
On October 1, 1995, a $2.7 million payment ($2.0 million of principal and $0.7
million of accured interest) was due on the Company's $21.3 million senior-
secured debt. The Company was unable to pay the $2.7 million, and the note
holder's remedies for nonpayment include acceleration of the loan and initiation
of foreclosure proceedings. Immediately prior to October 1, 1995, the Company's
original lender transferred the debt to a new holder. Subsequently, the note
holder and the Company have discussed various debt amendment ideas as well as
various recapitalization and/or refinancing alternatives. The discussions and
negotiations that have occurred to date have not resulted in formalized
conclusions. On April 11, 1996, the note holder delivered to the Company a
notice of default and declared the debt due and payable.
A failure to bring negotiations between the Company and the note holder to a
successful conclusion may result in foreclosure efforts by the note holder.
Substantially all of the Company's oil and gas properties are pledged as
security for the debt. In the event that foreclosure efforts are initiated by
the note holder, such efforts may jeopardize the Company's ability to continue
operations without availing itself the protection afforded by federal bankrucpty
laws.
Under the present circumstances, the Company's balance sheet as of December 31,
1995, includes the entire amount of senior-secured debt in current liabilities,
resulting in deficit working capital of $25.7 million, including $21.3 million
of principal and an additional $1.3 million of accured interest.
Management believes that anticipated cash flows from operations will be adequate
to meet the Company's foreseeable financial obligation provided the Company's
properties can be fully developed. The Company's ability to continue the
development of its properties during the near future is subject to market
conditions for and availability of external capital. If the Company is
unable to develop its properties in the near future, there can be no
assurance that the Company will be able to meet its foreseeable financial
obligations.
In 1990, 250,000 warrants, each exerciseable to purchase one share of Company
common stock for $1.00 per share, were issued to the bank and were exercisable
through September 30, 1995. In 1991, the Company reduced the warrant price to
$0.01 per share. In connection with the 1992 Credit Agreement, the Company
granted an additional 100,000 warrants to the bank at an exercise price equal
to $0.01 per share and extended the exercise period for all warrants through
February 1997. Additionally, the Company paid an initial commitment fee to the
bank in the amount of $400,000.
The 1992 Credit Agreement, as amended, requires that the Company maintain
financial covenants related to tangible net worth, current ratio, coverage of
fixed charges and capital expenditures, which the Company has not maintained,
and to fund extraordinary principal payment from any cash flows in excess of
ordinary operating expenses and interest.
17
<PAGE>
Wichita River Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements for 1995, 1994 and 1993
NOTE 4 COMMON STOCK
During 1994, the Company issued 1,258,000 shares of common stock and
stockholders' equity was increased by $1,023,000. Although the stock
certificates were delivered subsequent to year-end 1994, the Company considered
the share issued and oustanding as of December 31, 1994. Included were 237,729
shares with a market value of $259,000 for settlement of litigation, 250,000
shares to a consultant to the Company for a subscription receivable of $190,000,
and the balance of 770,000 shares for reducing the Company's current liabilities
by $764,000. The Company had incurred the current liabilities primarily as a
result of capital expenditures associated with production enhancement
operations.
The Company has options outstanding to purchase 24,000 shares which were granted
to certain officers and directors prior to 1990 at prices not less than the
quoted market price at the date of grant.
In November 1991, the Board of Directors approved a plan (the "1991 Stock
Warrant Plan") to issue warrants to purchase an aggregate of 300,000 shares of
the Company's common stock, exercisable through November 14, 1996, commencing
May 14, 1992, at an exercise price equal to the quoted market value of the
Company's common stock on the date of grant ($1.25 per share). The warrants
were granted to directors, officers and employees of the Company.
In October 1993, 124,000 warrants subject to the 1992 Stock Warrant Plan were
exercised. Consideration for 103,000 of the exercised warrants was in the form
of demand notes receivable, classified as stock subscriptions receivable,
as reflected in the accompanying consolidated balance sheets.
During 1994, 55,000 warrants were forfeited by employees due to terminations.
The Board of Directors subsequently reallocated all but 8,000 of the forfeited
warrants to directors, officers and employees.
The following table identifies the changes during the past two years for the
Company's stock purchase warrants and stock options as well as the issued and
outstanding warrants and options as of December 31, 1995.
<TABLE>
<CAPTION>
Number Price Number Price
of Warrants Per Share of Options Per Share
<S> <C> <C> <C> <C>
Outstanding December 31, 1992 650,000 $0.01 - 1.25 48,000 $1.56 - 6.25
Forfeited during 1993 - - - - (8,000) 1.56
Exercised during 1993 (82,500) 1.25 - - - -
________ ____________ _______ ____________
Outstanding December 31, 1993 567,500 $0.01 - 1.25 40,000 $1.56 - 6.25
Forfeited during 1994 - net (8,000) -- - - - -
Exercised during 1994 (41,000) 1.25 - - - -
________ _____________ _______ ____________
Outstanding December 31, 1994 518,500 $0.01 - 1.25 40,000 $1.56 - 6.25
Forfeited during 1995 - net (12,000) - - (16,000) 6.25
Exercised during 1995 - - - - - - - -
________ ____________ _______ _____________
Outstanding December 31, 1995 506,500 $0.01 - 1.25 24,000 $1.56 - 6.25
Consisting of:
350,000 $0.01 20,800 $1.56
156,500 1.25 3,200 6.25
</TABLE>
In 1994 two directors forfeited 41,500 warrants of which 41,000 were
subsequently allocated to and exercised by two new Company directors.
As of December 31, 1995, a total of 550,500 shares of Company common stock
were reserved for issuance (1) under stock option plans (24.000 shares); (2)
pursuant to the 1992 and 1990 Credit Agreements for warrants exercisable by,
the Company's former bank (350,000 shares) and (3) under the 1991 Stock Warrant
Plan (156,500 shares). There were 20,000 unissued warrants under the 1991 Stock
Warrant Plan as of December 31, 1995.
18
<PAGE>
Wichita River Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements for 1995. 1994 and 1993
NOTE 5 INCOME TAXES
On December 31, 1995, the Company had approximately $23.4 million of tax net
operating loss carry forwards which expire in varying amounts from the years
2000 through 2010. Utilization of the net operating loss carry forwards will
be limited in each year for which they are available, pursuant to IRC Section
382, because of Company's ownership changes in 1990. The Company also has
available a percentage depletion carryover of approximately $6.0 million.
Deferred income taxes result from temporary differences in the recognition of
expenses relating primarily to intangible drilling and development costs,
which are capitalized for financial reporting purposes and expensed for
tax purposes.
As of December 31. 1995 and 1994, the deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred Liabilities
Difference between remaining book and
tax basis for oil and gas properties $ (4,126,000) $ (7,241,000)
Deferred Tax Assets
Net operating loss carryforward 7,956,000 6,670,000
Percentage depletion carryforward 2,040,000 2,369,000
___________ ___________
5,870,000 1,798,000
Valuation allowance (5,870,000) (1,798.000)
___________ ____________
Net deferred tax liability $ - - $ - -
</TABLE>
<TABLE>
<CAPTION>
In management's opinion it is more likely than not that the Company will
realize the gross deferred tax asset to the extent of the deferred tax
liability. The provision (benefit) for income taxes consists of the following:
Years Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Current $ - - - - - -
Deferred - - (3,438,000) 92,000
__________ ___________ __________
$ - - $(3,438,000) $ 92,000
</TABLE>
<TABLE>
<CAPTION>
The following summary reconciles taxes at the Federal statutory tax rate to
the effective tax rate.
Years Ended December 31, 1995 1994 1993
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Income tax provision
(benefit) at the
statutory rate $(4,088,000) (34.0) % $(4,820,000) (34.0) % $89,000 34.0 %
Effect of deferred
tax asset 4,088,000 34.0 1,798,000 13.0 - - - -
valuation
Other - - - - (416,000) (3.0) 3,000 1.0
__________ ____ __________ ____ ______ ____
Income tax provision
(benefit) $ - - - - $(3,438,000) (24.0) % $ 92,000 35.0 %
</TABLE>
NOTE 6 COMMITMENTS AND CONTINGENCIES
The Company occupies office space under a non-cancelable lease expiring in
1997, which provides for minimum annual rental payments plus certain expenses.
Minimum annual rental payments are $24,000 in 1996 and $4,000 in 1997. Rent
expense for the three years ended December 31, 1995, 1994 and 1993 was
approximately $33.000, $85,000. and $225,000. respectively.
A third party agreed during 1993 to assume $350,000 of the Company's current
liabilities in exchange for the Company issuing to the third party 350,000
shares of common stock. The Company has a contingent liability to these
creditors should the third party, not fulfill its obligations. The Company
believes that any liability resulting from the above will not have a material
effect on the Company's consolidated financial position or results of
operations.
19
<PAGE>
NOTE 6 COMMITMENTS AND CONTINGENCIES - continued
The Company has not made payments timely and is not current for all oil and
gas royalties to the State of Louisiana and to private landowners. As of
December 31, 1995, the Company had undistributed production receipts of
approximately $2.0 million. Wichita River Oil Corporation and the Company's
subsidiary, Equitable Petroleum Corp, are defendants in various lawsuits
arising in the ordinary course of business. The Company believes it has
meritorious defenses to the lawsuits and will defend against them. Based on
its evaluation of such claims, as discussed with its outside legal counsel,
Company management is of the opinion that the ultimate resolution of such
matters will not have a material adverse effect on the Company's financial
position or results of operations.
NOTE 7 RELATED PARTY TRANSACTIONS
Warrants to purchase 103.000 shares of the Company's common stock were
exercised during 1993 by all the directors other than' Mr. McDonald in
consideration for demand notes receivable by the Company. Mr. McDonald
exercised warrants for 21,000 shares during 1993 for cash. In 1994, two
directors forfeited 41,500 warrants of which 41,000 were subsequently
allocated to and exercised by two new Company directors.
NOTE 8 OIL AND GAS ACTIVITIES
The Company is an oil and gas producing company operating in the United
States. Its activities involve the acquisition of mineral interests and the
exploration, development and production of crude oil and natural gas. The
large number of purchasers of oil and gas ensure the Company has ready
markets for its oil and gas production. Customers who purchased more than
10% of the Company's oil an gas production for the last three years are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Gateway Oil & Gas, Inc. 32% Natural Gas Clearinghouse, Inc. 47% Natural Gas Clearinghouse, Inc. 40%
WRO Trading Company* 27 Texaco Trading & Trans., Inc. 30 Texaco Trading & Trans., Inc. 37
1803 Corporation 24 Scurlock Permian Corporation 23 Scurlock Permiam Corporation 15
Natural Gas Clearinghouse,Inc. 16 -- --
___ ___ ___
100 % 100 % 92 %
<FN>
<F6>
* Share common ownership.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Costs incurred in oil and gas property acquisition, exploration and development
activities, including drilling arrangement costs, are as follows:
1995 1994 1993
<S> <C> <C> <C>
Acquisition of Proved Property $ -- $ -- $ 310,000
Exploration $ -- $ -- 459,000
Development $1,293,000 $1,111,000 $3,098,000
</TABLE>
Approximately $884,000, $870,000, and $1,770,000 in 1995, 1994 and 1993,
respectively is attributable to employee compensation. professional fees and
related costs incurred in connection with oil and gas property acquisition
and development efforts. The results of operations for oil and gas producing
activities (excluding general and administrative expenses and interest costs)
for the years ended December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Production revenues $ 3,199,000 $ 4,747,000 $ 6,767,000
Expenses:
Production 732,000 1,028,000 1,239,000
Depletion 1,584,000 2,026,000 2,089,000
Writedown of oil and gas
properties 9,216,000 12,288,000 - -
Income taxes (benefit) at federal
statutory rate - - (3,602,000) 1,169,000
_____________ ___________ __________
Total expenses 11,532,000 11,740,000 4,497,000
_____________ ___________ __________
Net results $ (8,333,000) $(6,993,000) $2,270,000
</TABLE>
20
<PAGE>
Wichita River Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements for 1995, 1994 and 1993
NOTE 8 OIL AND GAS ACTIVITIES - continued
Under the full cost method of accounting. net oil and gas properties less
deferred income taxes are generally not permitted to be carried at an amount
in excess of the SEC prescribed "cost ceiling". The cost ceiling is the net
of the present value (discounted at 10% per annun) of future net revenues from
estimated production of proved reserves less the income tax effects related to
difference between the book basis and the tax basis of the properties involved.
As of December 31, 1995. the capitalized cost of the Company's oil and gas
properties was less than the cost ceilin established by the Company's
proved reserves. However, uncertainty regarding the Company's ability to
fund development of its proved undevelop reserves in the near future may limit
the cost ceiling to the value of the Company's proved developed reserves. By
limiting its property value to the cost ceiling established by proved developed
reserves, a writedown of $9.2 for impairment of the Company's stated property
value was recorded during the fourth quarter of 1995.
As of December 31, 1994, the capitalized cost of the Company's oil and gas
properties exceeded the cost ceiling by $12,288.00, which was charged (as a
non-cash writedown of oil and gas properties) to operating expense during
the fourth quarter of 1994. Depletion per BOE (barrel of oil and equivalent
natural gas) was $6.20, $5.79, and $4.92 for 1995, 1994, and 1993, respectively.
Capitalized costs relating to oil and gas producing activities are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Proved properties $53,815,000 $52,597,000 $51,486,000
Subject to amortization
Unproved properties - - - - - -
Not subject to amortization
___________ ___________ __________
53,815,000 52,597,000 51,486,000
Less writedown of
oil and gas properties (9,216,000) (12,288,000) - -
Less accumulated depreciation,
depletion and amortization (28,803,000) (14,931,000) (12,920,000)
____________ ____________ ____________
$15,796,000 $25,378,000 $38,566,000
</TABLE>
NOTE 9 UNAUDITED SUPPLEMENTAL OIL AND GAS RESERVES INFORMATION
Approximately half of the Company's oil and gas reserves are undeveloped.
The Company's ability to continue the development of its properties is subject
to market conditions for and availability of capital from external sources.
Negotiations regarding the Company's senior-secured debt are described in
management's discussion and analysis of financial condition and results of
operations and in Note 3 to the financial statements. A failure to bring
these negotiations between the Company and the Company's note holder to a
successful conclusion may result in foreclosure efforts by the note holder.
In the event that foreclosure efforts are initiated by the new note holder,
such efforts may jeopardize the Company's ability to continue operations
without availing itself the protection afforded by federal bankruptcy laws.
The Company's independent auditors, Arthur Andersen LLP, have stated that
the Company may not be able to continue as a going concern. Accordingly,
there is substantial uncertainty regarding the future development of the
Company's undeveloped oil and gas reserves.
Uncertainty regarding the Company's ability to fund the development of its
proved undeveloped reserves in the near future (the basis for the property
value writedown in 1995) prompts disclosure of the Company's proved reserves,
as determined by an independent engineering firm in two ways: total proved
reserves (including proved undeveloped reserves) and proved developed reserves.
The determination of oil and gas reserves is complex and highly interpretive.
Assumptions used to estimate reserve information may significantly increase or
decrease such reserves in future periods. The estimates of reserves are
subject to continuing changes, and therefore, an accurate determination of
reserves may not be possible for many years because of the time needed for
development, drilling, testing and studies of the reservoirs. In addition,
it is uncertain if the Company will be able to fund all future development costs
from future cash flows of oil and gas reserves. It should be emphasized that
such conditions continually change; therefore, such information should not
serve as a basis in making any judgment of the potential value of the
Company's recoverable reserves or in estimating future results of operations.
21
<PAGE>
Wichita River Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements for 1995, 1994 and 1993
NOTE 9 UNAUDITIED SUPPLEMENTAL OIL AND GAS RESERVES INFORMATION - continued
The estimated net quantities of proved oil and gas reserves (oil quantities
are stated in thousands of barrels and natural gas quantities are stated in
millions of cubic feet) for the Company for the year ended December 31, 1995,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Proved Reserves
Years Ended December 31, 1995 1994 1993
Oil Gas Oil Gas Oil Gas
<S> <C> <C> <C> <C> <C> <C>
Proved Developed and
Undeveloped Reserves:
Begininning of the year 2,014 22,423 4,041 38,103 4,069 20,394
Purchase of minerals in place - - - - - - - - - - - -
Sale of reserves in place - - - - - - - - (392) (1,724)
Revisions of previous
estimates* (194) (1,062) (1,855) (14,622) 595 20,593
Production (117) (833) (172) (1,058) (231) (1,160)
_____ ______ _____ ______ ______ ______
End of the year 1,703 20,528 2,014 22,423 4,041 38,103
<FN>
<F7>
* Revisions reflect changes in previous geological and geophysical
interpretations and in certain economic assumptions.
</FN>
</TABLE>
The estimated net quantities of proved developed oil and gas reserves (oil
quantities are stated in thousands of barrels and natural gas quantities are
stated in millions of cubic feet) for the Company for the years ended December
31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Proved Developed Reserves
Years Ended December 31, 1995 1994 1993
Oil Gas Oil Gas Oil Gas
<S> <C> <C> <C> <C> <C> <C>
Proved Developed and
Undeveloped Reserves:
Begininning of the year 1,336 9,195 3,201 17,570 3,430 17,329
Purchase of minerals in place - - - - - - - - - - - -
Sale of reserves in place - - - - (1,693) (7,317) (392) (1,724)
Revisions of previous estimates* (190) (1,098) - - - - 394 3,125
Production (117) (833) (172) (1,058) (231) (1,160)
End of the year 1,029 7,264 1,336 9,195 3,201 17,570
<FN>
<F8>
* Revisions reflect changes in previous geological and geophysical
interpretations and in certain economic assumptions.
</FN>
</TABLE>
22
<PAGE>
Wichita River Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements 1995, 1994 and 1993
NOTE 9 UNAUDITIED SUPPLEMENTAL OIL AND GAS RESERVES INFORMATION - continued
All the Company's reserves are located in Lousiana. The Standardized Measure
of Discounted Future Net Cash Flows for the years ended December 31, 1995, 1994
and 1993 for the Company's proved reserves are as follows (in thousands except
for prices and PV10 per BOE):
<TABLE>
<CAPTION>
Proved Reserves
December 31, 1995 1994 1993
<S> <C> <C> <C>
Future production revenues $80,707 $70,060 $139,570
Future development costs (7,059) (6,365) (11,382)
Future production costs (13,027) (14,169) (29,616)
Future income taxes (6,259) (9,524) (18,077)
Future net cash flows 54,362 40,002 80,495
Effect of discount @ 10 % per yr. (25,913) (18,564) (37,266)
Standardized Measure of Discounted
Future Net Cash Flows $28,449 $21,438 $43,229
_______ _______ _______
Year-end Prices Employed
Oil (per barrel) $17.25 $15.30 $13.70
Natural gas (per mcf) $ $ 2.50 $ 1.75 $ 2.21
BOE (per barrel) $ $15.75 $12.18 $13.43
PV10 per BOE $ 5.55 $ 3.73 $ 4.16
</TABLE>
The Standardized Measure of Discounted Future Net Cash Flows for the years
ended December 31, 1995, 1994 and 1993 for the Company's proved reserves are
as follows (in thousands except for prices and PV10 per BOE):
<TABLE>
<CAPTION>
Proved Developed Reserves
December 31, 1995 1994 1993
<S> <C> <C> <C>
Future production revenues $35,917 $36,539 $93,818
Future development costs (917) (622) (2,748)
Future production costs (8,543) (9,816) (23,439)
Future income taxes - - - - (9,401)
_______ _______ _______
Future net cash flows 26,457 26,101 58,230
Effect of discount @10 % per yr. (10,661) (10,287) (26,559)
________ ________ ________
Standardized Measure of Discounted
Future Net Cash Flows $15,796 $15,814 $31,671
________ ________ ________
Year-end Prices Employed
Oil (per barrel) $17.25 $15.30 $13.70
Natural gas (per mcf) $ 2.50 $ 1.75 $ 2.21
BOE (per barrel) $15.77 $12.18 $13.43
PV10 per BOE $ 5.53 $ 3.73 $ 4.16
</TABLE>
The estimate of future income taxes (shown in the table above) is based on
the future net cash flows from proved reserves adjusted for the tax basis of
the oil and gas properties. For standardized measure purposes future income
taxes are estimated using the year-by-year method. However, for ceiling test
purposes future income taxes are estimated using the "short-cut" method.
23
<PAGE>
Wichita River Oil Corporation and Subsidiaries
Note to Consolidated Financial Statements for 1995, 1994 and 1993
NOTE 9 UNAUDITIED SUPPLEMENTAL OIL AND GAS RESERVES INFORMATION - continued
The Company's 1995 and 1994 proved developed and proved undeveloped reserves
were determined by an independent petroleum engineering firm, Forrest A.
Garb & Associates, Inc. In 1993, the Company's proved developed and
undeveloped reserves were determined by an independent engineer as of
October 1, 1993 and updated to December 31,1993 by the Company.
A summary of changes in the Standardized Measure of Discounted Future Net
Cash Flows for the years ended December 31, 1995, 1994 and 1993 is as follows
(in thousands):
<TABLE>
<CAPTION>
Proved Reserves
1995 1994 1993
<S> <C> <C> <C>
Changes in sales prices and production costs $9,778 (4,433) $(9,256)
Changes in estimated future development costs 6,887 6,936 (5,775)
Net effect of purchases and sales of mineral in place - - - - (4,524)
Revisions of previous quantity estimates* (2,506) (21,979) 21,469
Sales of oil and gas, net of production costs and taxes (2,467) (3,719) (5,528)
Accretion of discount 2,537 5,196 4,953
Other changes, net ** (9,333) (8,585) 1,097
Net changes in future income taxes 2,115 5,761 1,052
______ ________ _______
Total Changes in Standardized Measure of Discounted
Future Net Cash Flows $ 7,011 (20,833) $3,488
<FN>
<F9>
* Revisions reflect changes in previous geological and geophysical
interpretations and in certain economic assumptions.
** Other changes represent primarily the effect for timing of future
production.
</FN>
</TABLE>
A summary of changes in the Standardized Measure of Discounted Future Net
Cash Flows for the years ended December 31, 1995, 1994 and 1993 is as follows
(in thousands):
<TABLE>
<CAPTION>
Proved Developed Reserves
1995 1994 1993
<S> <C> <C> <C>
Changes in sales prices and production costs $4,591 $(2,881) $ (23,969)
Changes in estimated future development costs 5,064 4,872 4,488
Net effect of purchases and sales of mineral in place - - - - (4,524)
Revisions of previous quantity estimates** (2,762) (17,107) 41,518
Sales of oil and gas, net of production costs and taxes (2,467) (3,719) (5,528)
Accretion of discount 1,581 3,483 4,451
Other changes, net ** (6,025) (3,662) (26,115)
Net changes in future income taxes - - 7,108 9,126
______ ________ _________
Total Changes in Standardized Measure of Discounted
Future Net Cash Flows $(18) $(11,906) $ (553)
<FN>
<F10>
* Revisions reflect changes in previous geological and geophysical
interpretations and in certain economic assumptions.
** Other changes represent primarily the effect for timing of future
production.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Wichita River Oil Corporation and Subsidiaries
Statement of Re-Computation of Per Share Earnings (Loss) for 1995,
1994 and 1993
Twelve Months Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Net Income (Loss) $(12,023,000) (10,738,000) (1,420,000)
Weighted Average Shares Outstanding 7,974,000 6,719,000 6,478,000
Net Income (Loss) Per Share Outstanding $(1.51) $(1.60) $(0.22)
</TABLE>
Report of Independent Public Accountants
To Wichita River Oil Corporation:
We have audited the accompanying consolidated balance sheet of Wichita River
Oil Corporation (a Delaware corporation) and subsidiaries as of December 31,
1994, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the two years in the period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wichita
River Oil Corporation and subsidiaries as of December 31, 1994, and the
results of their operations and their cash flow for each of the two years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
We were engaged to audit the accompanying consolidated balance sheet of Wichita
River Oil Corporation and subsidiaries as of December 31, 1995, and the related
consolidated statement of operations, stockholders' equity (deficit) and cash
flows for the year ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management.
The Company's senior-secured bank loan was transferred from the original
lender to a new note holder on October 2, 1995. We requested, but were
unable to obtain, confirmation of the terms and maturities of the Company's
senior-secured debt from the new note holder. Accordingly, we were unable
to satisfy ourselves as to the amounts and terms of the senior-secured debt
as of December 31, 1995, presented in the accompanying financial statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's failure to pay
principal and interest when due in October 2, 1995 and subsequently gives
the note holder the right to accelerate payments due under the loan. The
note holder has given the Company a notice of default and has declared the
debt due and payable. Because the loan is secured by substantially all of
the Company's oil and gas properties, the note holder has the right to initiate
foreclosure proceedings, as well. As discussed in Note 3, all recorded but
unconfirmed amounts due under the loan have been classified as current
liabilities, which raises substantial doubt about the Company's ability to
continue as a going concern. Additionally, the Company has recorded losses
from operations and has a significant net capital deficiency as of December
31, 1995 that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are discussed
in Note 3.
Because of the significance of the matters discussed in the two preceding
paragraphs, we are unable to express, and do not express, an opinion on the
1995 consolidated financial statements referred to above.
Arthur Andersen LLP
Denver, Colorado
April 12, 1996
FORREST A. GARB & ASSOCIATES, INC.
PETROLEUM CONSULTANTS
5310 HAVEST HILL ROAD, SUITE 160 - LB 152
DALLAS, TEXAS 75230 - 5805
(214) 788-1110 Telefax 991-3160
April 12, 1996
CONSENT OF INDEPENDENT PETROLEUM CONSULTANTS
As independent petroleum consultants, Forrest A. Garb & Associates, Inc.
hereby consents to (1) the inclusion on Form 10-KSB for Wichita River Oil
Corporation of the report entitled "Estimate of Reserves and Future Revenue
as of January 1, 1996 Net To Certain Interests Owned by Wichita River Oil
Corporation in Louisiana (Escalated and SEC Cases)" and (2) all references
to our firm as experts.
Forrest A. Garb & Associates, Inc.
Dallas, Texas
April 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 28,000
<SECURITIES> 0
<RECEIVABLES> 919,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 947,000
<PP&E> 53,815,000
<DEPRECIATION> 38,019,000
<TOTAL-ASSETS> 16,743,000
<CURRENT-LIABILITIES> 26,665,000
<BONDS> 0
0
0
<COMMON> (9,922,000)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,743,000
<SALES> 0
<TOTAL-REVENUES> 3,199,000
<CGS> 732,000
<TOTAL-COSTS> 732,000
<OTHER-EXPENSES> 3,058,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,216,000
<INCOME-PRETAX> (12,023,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,023,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,023,000)
<EPS-PRIMARY> (1.51)
<EPS-DILUTED> 0
SEVENTH AMENDMENT
SEVENTH AMENDMENT dated as of August 11, 1995 (this"Amendment"), to (i) the
Amended and Restated Credit Agreement, dated as of February 1, 1992, as amended
by the First Amendment thereto dated as of November 16, 1992, as amended by the
Second Amendment thereto dated as of April 9, 1993, as amended by the Third
Amendment thereto dated as of April 14, 1993, as amended by the Fourth
Amendment thereto dated as of April 15, 1994, as amended by the Fifth
Amendment dated as of August 12, 1994, as amended by the Sixth Amendment thereto
dated as of April 12, 1995, (as so amended, the "Credit Agreement") among
Wichita River Oil Corporation, a Delaware corporation (the "Company"), the
several banks and other financial institutions from time to time parties to
the Credit Agreement (the "Banks") and Chemical Bank, a New York banking
corporation (the "Agent") and (ii) the Revolving Credit Note under and as
defined in the Credit Agreement.
WITNESSETH
WHEREAS, the Company, the Banks and the Agent are parties to the Credit
Agreement and the Revolving Credit Note;
WHEREAS, the company, the Banks and the Agent have agreed to amend the
Credit Agreement and the Revolving Credit Note in certain respects;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and to induce the Banks to enter into this Agreement, the
Company, the Banks and the Agents agree as follows:
1 Amendment to the Credit Agreement
1.1 Amendment to Subsection 2.3. Subsection 2.3 is hereby amended by
deleting clause (y) therefrom in its entirety and substituting, in lieu thereof,
the following:
"(y) be stated to mature in (i) three monthly installments of $50,000
each payable on October 1, 1994, November 1, 1994, and December 1, 1994; (ii)
one payment of $2,000,000 payable on October 1, 1995, (iii) one payment of
$4,000,000 payable on April 1, 1996, (iv) three payments of $2,000,000 each
payable on July 1, 1996, January 1, 1997 and July 1, 1997, and (v) a final
installment of the then outstanding principal amount of the total Loans of
such Bank payable on January 1, 1998 and"
1.2 Amendment to Subsection 2.9(d). Subsection 2.9(d) is hereby
amended by inserting the following sentence at the end of each Subsection:
"Notwithstanding anything to the contrary contained in this Subsection
2.9(d), payment of interest for the months of June 1995 through August 1995
will be deferred until October 1, 1995. Such deferred interest shall bear
interest as provided herein."
1.3 Amendment to Subsection 6.1(b). Subsection 6.1(b) is hereby
amended and restated in its entirety as follows:
"(b) Maintenance of Current Ratio. Permit the ratio of Consolidated
Current Assets to Consolidated Current Liabilities at any time to less than
1.0 to 1.0, provided, however, that during each of the periods specified
below, the ratio shall at no time be less than following:
PERIOD RATIO
December 31, 1992 - March 31, 1993 0.40 to 1.0
April 1, 1993 - June 30, 1993 0.25 to 1.0
July 1, 1993 - September 30, 1993 0.35 to 1.0
October 1, 1993 - December 31, 1993 0.35 to 1.0
January 1, 1994 - March 31, 1994 0.30 to 1.0
April 1, 1994 - June 30, 1994 0.25 to 1.0
July 1, 1994 - September 30, 1994 0.25 to 1.0
October 1, 1994 - December 31, 1994 0.25 to 1.0
January 1, 1995 - March 31, 1995 0.25 to 1.0
April 1, 1995 - December 31, 1995 0.20 to 1.0"
1.4 Amendment to Schedule VIII. Schedule VIII to the Credit Agreement is
hereby amended by deleting such Schedule in its entirety and substituting,
in lieu thereof, Exhibit A hereto.
2 Amendment to Revolving Credit Note. The Amended and Restated Revolving
Credit Note dated February 1, 1992 executed by the Company payable to the
order of Chemical Bank in the original principal sum of $22,500,000 is
hereby amended by deleting the sentence beginning on the sixteenth line of
the first page and substituting, in lieu thereof, the following:
"The principal amount of this Revolving Credit Note outstanding on the
Conversion Date shall be paid in (i) three monthly installments of $50,000
each payable on October 1, 1994, November 1, 1994, and December 1, 1994;
(ii) one payment of $2,000,000 payable on October 1, 1995, (iii) one payment
of $4,000,000 payable on April 1, 1996,(iv) three payments of $2,000,000
each payable on July 1, 1995, January 1, 1997 and July 1, 1997, and (v) a
final installment of the then outstanding principal amount hereof payable
on January 1, 1998."
3 Conditions Precedent. The amendments provided for in this Amendment
shall not be effective until the following conditions precedent shall have
been satisfied:
(a) the Agent shall have received this Amendment, executed and delivered
by a duly authorized officer of the Company, the Agent and each of the Banks;
(b) the Agent shall have received the Consent and Acknowledgment attached
hereto executed and delivered by a duly authorized officer of each of the
Credit Parties to the Security Documents; and
(c) the Agent shall have received such other corporate documents and other
instruments and evidence of corporate proceedings as it may reasonably request.
4 Representations and Warranties. To induce the Banks to enter into this
Amendment, the Company represents and warrants to the Agent and to each Bank
that:
(a) Power; Authorization. Each Credit Party has the corporate power and
authority, and the legal right to make, deliver and perform this Amendment
and/or the Consent and Acknowledgment attached hereto, as the case may be,
and has taken all necessary corporate action to authorize the execution,
delivery and performance of this Amendment and/or the Consent and Acknowledg-
ment attached hereto, as the case may be.
(b) Enforceable Obligations. This Amendment and/or the Consent and
Acknowledgment attached hereto, as the case may be constitutes the legal,
valid and binding obligation of each Credit Party, enforceable against each
Credit Party in accordance with its terms, except as enforceability may be
limited by applicably bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors, rights generally and by
general equitable principles (whether enforcement is sought by proceedings
in equity or at law).
(c) Credit Agreement Representations and Warranties. The representations
and warranties of the company contained in the Credit Agreement were true and
correct on and as of the dates when made and the Company hereby confirms such
representation and warranty as of the date hereof with the same effect as if
set forth in full herein.
The foregoing representations and warranties shall be deemed to be
representations and warranties made in the credit Agreement.
5 Continuing Effect. Except as expressly amended hereby, the Credit
Agreement shall continue to be and shall remain in full force and effect in
accordance with its terms, and nothing contained herein shall be construed
as a general waiver of any defaults under the Credit Agreement.
<PAGE>
6 Expenses. The Company agrees to pay and reimburse the Banks and the Agent
for all their reasonable out-of-pocket expenses in connection with the
negotiation, preparation, execution and delivery of this Amendment, including
the fees and expenses of counsel to the Agent.
7 Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the
same instrument. A set of the copies of this Amendment signed by all parties
shall be lodged with the Company and the Agent.
8 GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. THE COMPANY, THE AGENT
AND EACH BANK EXPRESSLY AGREE THAT ARTICLE 15.01 ET SEQ TITLE 70, REVISED
CIVIL STATUTES OF TEXAS, 1925, AS AMENDED (ARTICLE 5069-15.01 ET SEQ.,
VERNONS CIVIL STATUTES) SHALL NOT BE APPLICABLE TO THE TRANSACTIONS
CONTEMPLATED HEREBY AND BY THE OTHER LOAN DOCUMENTS.
9 Defined Terms. Terms defined in the Credit Agreement are used herein
with the meaning set forth in the Credit Agreement unless otherwise defined
herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused. this Amendment to be
duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
WICHITA RIVER OIL CORPORATION
By: /s/ William E. Logan
Name: William E. Logan
Title: Treasurer
CHEMICAL BANK, as Agent
By: /s/ Charles O. Freedgood
Name: Charles O. Freedgood
Title: Vice-President
5
<PAGE>
CONSENT AND ACKNOWLEDGEMENT
The undersigned, as parties to the Security Documents (as def ined in the
Amended and Restated Credit Agreement dated as of February 1, 1992, as
amended (the "Agreement"), among WICHITA RIVER OIL CORPORATION, the banks
parties thereto and CHEMICAL BANK, as Agent) hereby acknowledge receipt of,
and consent to, the Seventh Amendment (as defined in the Agreement), and
hereby confirm and agree that the Security Documents are, and shall continue
to be, in full force and effect and are hereby confirmed and ratified in all
respects, and acknowledge that all the obligations arising under the Agreement,
as modified by the Seventh Amendment constitute obligations and indebtedness
of the Company under the Credit Agreement and are "Obligations" under the
Guarantees, the Pledge Agreements and the Security Agreements, as such term
is defined therein and "Indebtedness" under the Mortgages, as such term is
defined therein, secured and regrant, ratify and confirm the grant of the Liens
pursuant to the provisions of the Security Documents as security for the
repayment of all Obligations, including without limitation the Revolving
Credit Note issued on the effective date of the Second Amendment.
WICHITA RIVER OIL CORPORATION
By: /s/ William E. Logan
Title: Treasurer
EQUITABLE PETROLEUM CORPORATION
By: /s/ William E. Logan
Title Vice President
EXHIBIT A TO SEVENTH AMENDMENT
DATED AUGUST 11, 1995
Dates of Interest and Principal Payments
1994
September 1, 1994 (Interest)
October 1, 1994 (Interest and Principal)
November 1, 1994 (Interest and Principal)
December 1, 1994 (Interest and Principal)
1995
January 1, 1995 (Interest)
February 1, 199S (Interest)
March 1, 1995 (Intereat)
April 1, 1995 (Interest)
May 1, 1995 (Interest)
June 1, 1995 (Interest)
October 1, 1995 (Interest and Principal)
November 1, 1995 (Interest)
December 1, 1995 (Interest)
1996
January 1, 1996 (Interest)
February 1, 1996 (Interest)
March 1, 1996 (Interest)
April 1, 1996 (Interest and Principal)
May 1, 1996 (Interest)
June 1, 1996 (Interest)
July 1, 1996 (Interest and Principal)
August 1, 1996 (Interest)
September 1, 1996 (Interest)
October 1, 1996 (Interest)
November 1, 1996 (Interest)
December 1, 1996 (Interest)
1997
January 1, 1997 (Interest and Principal)
February 1, 1997 (Interest)
March 1, 1997 (Interest)
April 1, 1997 (Interest)
May 1, 1997 (Interest)
June 1, 1997 (Interest)
July 1, 1997 (Interest and Principal)
August 1, 1997 (Interest)
September 1, 1997 (Interest)
October 1, 1997 (Interest)
November 1, 1997 (Interest)
December 1, 1997 (Interest)
1998
January 1, 199 (Interest and Principal)
