UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 8 - K/A Number 3
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
December 14, 1999
Abraxas Petroleum Corporation
(Exact name of registrant as specified in its charter)
Nevada
(State of other jurisdiction of incorporation)
0-19118 74-2584033
(Commission File Number) (I.R.S. Employer Identification Number)
500 N. Loop 1604 East, Suite 100
San Antonio, Texas 78232
(Address of principal executive offices)
Registrant's telephone number, including area code:
210-490-4788
<PAGE>
1. Item 7(a) of Abraxas Petroleum Corporation's form 8-k originally filed on
January 29, 1999 and amended on February 26, 199 and March 29, 1999 is herby
further amended, to read in its entirety as follows:
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of business acquired.
New Cache Petroleums Ltd.
Report of Independent Auditors
Balance Sheet as of November 30, 1998
Statement of Loss and Retained Earnings (Deficiency)
for the year ended November 30, 1998
Statement of Cash Flows for the year ended November 30, 1998
Notes to Consolidated Financial Statements
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ABRAXAS PETROLEUM CORPORATION
By: ___________________________________
Chris Williford
Executive Vice President, Chief Financial
Officer and Treasurer
Dated: December 14, 1999
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors ........................................... F-2
Balance Sheet as of November 30, 1998 .................................... F-3
Statement of Loss and Retained Earnings (Deficiency) for the year
ended November 30, 1998 ................................................ F-4
Statement of Cash Flows for the year ended November 30, 1998 ............. F-5
Notes to Consolidated Financial Statements ............................... F-6
F-1
<PAGE>
REPORT OF INDEPENDENT AUDIORS
To the Board of Directors and Shareholders
New Cache Petroleums Ldt.
We have audited the balance sheet of New Cache Petroleums Ltd. as of
November 30, 1998 and the related statements of loss and retained earnings
(deficiency) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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 accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all
material respects, the financial position of the Company as at November 30,
1998 and the results of its operations and its cash flows for the year then
ended in accordance with accounting principles generally accepted in the
United States.
Calgary, Canada ERNST & YOUNG LLP
March 12, 1999 Chartered Accountants
F-2
<PAGE>
<TABLE>
<CAPTION>
New Cache Petroleums Ltd.
Balance Sheet
As at November 30, 1998
$
------------
Assets
<S> <C> <C>
Current
Cash ...................................................... $ 7,455
Accounts receivable
Trade .................................................. 5,154,577
Other .................................................. 204,295 5,358,872
------------ ------------
5,366,327
------------
Fixed assets
Petroleum and natural gas properties ...................... 128,281,750
Less accumulated depletion and depreciation ............... (64,726,771)
------------
63,554,979
------------
68,921,306
============
Liabilities and Shareholders' Equity
Current
Bank production loan ...................................... $ 24,769,475
Accounts payable and accrued liabilities .................. 4,392,481
Large corporations tax payable ............................ 27,894
------------
29,189,850
Deferred income taxes ..................................... 2,105,318
Site restoration liability ................................ 430,091
------------
31,725,259
------------
Shareholders' equity
Share capital, no par value, unlimited number of authorized
shares, 14,185,128 shares issued and outstanding .......... 64,751,866
Cumulative translation adjustment
Opening balance ........................................ (4,591,329)
Translation adjustments for the year ................... (4,546,975)
----------- -------------
Closing balance ........................................ (9,138,304)
Deficiency ................................................ (18,417,515)
-------------
37,196,047
-------------
Contingency
$ 68,921,306
============
</TABLE>
See accompanying notes
F-3
<PAGE>
<TABLE>
<CAPTION>
New Cache Petroleums Ltd.
Statement of Loss and
retained earnings (Deficiency)
Year ended November 30, 1998
$
------------
<S> <C>
Revenue
Oil and gas sales ...................................... $ 20,497,973
Crown royalties ........................................ (2,930,136)
Other royalties ........................................ (671,770)
-----------
16,896,067
Alberta royalty tax credit ............................. 902,002
Interest income ........................................ 6,095
-----------
17,804,164
-----------
Expenses
Production and operating .................................. 6,237,251
General and administration ................................ 2,210,012
Interest on the bank production loan ...................... 1,372,159
Depletion and depreciation ................................ 46,007,667
Provision for site restoration ............................ 216,667
-----------
56,043,756
-----------
Loss before income taxes .................................. (38,239,592)
-----------
Income taxes
Large corporations tax .................................... (189,208)
Deferred tax recovery ..................................... 14,781,557
-----------
14,592,349
-----------
Loss for the year ......................................... (23,647,243)
Retained earnings, beginning of the year .................. 5,229,728
-----------
Deficiency, end of the year ............................... $(18,417,515)
===========
Loss per share
Basic and fully diluted ................................... $ (1.67)
===========
</TABLE>
See accompanying notes
F-4
<PAGE>
<TABLE>
<CAPTION>
New Cache Petroleums Ltd.
Statement of Cash Flows
Year ended November 30, 1998
$
------------
<S> <C>
Operating activities
Loss for the year .............................................. $(23,647,243)
Add items not affecting cash
Depletion and depreciation .................................. 46,007,667
Provision for site restoration .............................. 216,667
Deferred income taxes ....................................... (14,781,557)
-----------
Funds from operations .......................................... 7,795,534
Net change in non-cash working capital items ................... (1,328,724)
-----------
6,466,810
-----------
Investing activities
Acquisition of petroleum and natural gas properties ............ (2,508,458)
Expenditures on petroleum and natural gas properties ........... (15,129,731)
Proceeds on disposal of petroleum and natural gas properties ... 144,147
Expenditures on site restoration and abandonment ............... (25,494)
Net change in non-cash working capital items ................... (4,642,013)
-----------
(22,161,549)
-----------
Financing activities
Shares issued .................................................. 223,626
Share issue costs .............................................. (56,474)
Repurchase of common shares .................................... (112,137)
Bank production loan ........................................... 14,973,041
Decrease in note receivable .................................... 52,330
-----------
15,080,386
-----------
Decrease in cash during the year ............................... (614,353)
Cash, beginning of the year .................................... 621,808
-----------
Cash, end of the year .......................................... $ 7,455
===========
</TABLE>
See accompanying notes
F-5
<PAGE>
New Cache Petroleums Ltd.
Notes to Consolidated Financial Statements
Year Ended November 30, 1998
1. Summary of Significant accounting policies
The financial statements of New Cache Petroleums Ltd. (the "Company") have
been prepared in accordance with accounting principles generally accepted in the
United States. Because a precise determination of many assets and liabilities is
dependent upon future events, the preparation of financial statements
necessarily involves the use of estimates and approximations which have been
made using careful judgment. The financial statements have, in management's
opinion, been properly prepared within reasonable limits of materiality and
within the framework of the accounting policies summarized below.
Incorporation and description of business
The Company is incorporated under the laws of the Province of Alberta,
Canada and is engaged in the production, development and exploration of oil and
natural gas solely in Canada.
Petroleum and natural gas properties
The Company follows the full cost method of accounting for petroleum and
natural gas properties. Under this method, all costs associated with acquisition
of properties and successful as well as unsuccessful exploration and development
activities are capitalized. The Company does not capitalize internal costs.
Depreciation, depletion, and amortization (DD&A) of capitalized crude oil and
natural gas properties and estimated future development costs are based on the
unit-of-production method. Net capitalized costs of crude oil and natural gas
properties are limited to the lower of unamortized cost or the cost ceiling,
defined as the sum of the present value of estimated unescalated future net
revenues from proved reserves discounted at 10 percent, plus the cost of
properties not being amortized, if any, plus the lower of cost or estimated fair
value of unproved properties included in the costs being amortized, if any, less
related income taxes. The provision for depletion and depreciation for the year
ended November 30, 1998 includes an amount of $32,615,786 as a result of a
ceiling test write down.
No gain or loss is recognized upon sale or disposition of crude oil and
natural gas properties, except in unusual circumstances.
Unevaluated properties not currently being amortized included in oil and
gas properties were $9,545,821 at November 30, 1998. The properties represented
by these costs were undergoing exploration activities or are properties on which
the Company intends to commence activities in the future.
Substantially all of the exploration and production activities of the
Company are conducted jointly with others. These financial statements reflect
only the Company's proportionate interest in such activities.
Site restoration
The estimated cost of future site restoration and abandonment, including
the removal of production facilities, net of expected salvage values is based on
current estimates, standards and technology. An annual provision is calculated
on a unit-of-production basis. Actual restoration and abandonment costs are
applied against the liability as incurred.
F-6
<PAGE>
Stock Options
The Company applies the intrinsic value method prescribed by APB Opinion 25
and related interpretations in accounting for share option transactions.
Accordingly, no compensation cost is recognized in the accounts as options are
granted with exercise prices greater than the prevailing market price.
Hedging activity
The Company enters into forward and swap contracts to manage price risk on
anticipated future sales. These contracts are considered speculative for
accounting purposes. The estimated amount required to settle or to be received
on settlement of forward contracts at the year end is recorded as income or
expense.
Financial instruments
Financial instruments of the Company comprise cash, accounts receivable,
bank production loan, accounts payable and accrued liabilities, large
corporations tax payable and the natural gas swap agreement (note 7). As at
November 30, 1998 there are no significant differences between the carrying
values of these amounts and their estimated market values.
Foreign Currency Translation
The reporting currency of these financial statements is the U.S. Dollar.
The Company's functional currency is the Canadian dollar. The Company translates
the functional currency of its balance sheet accounts to U.S. dollars based on
the November 30, 1998 exchange rate. The statement of loss is translated using
the average exchange rate for the year ended November 30, 1998. Translation
adjustments are reflected as Cumulative translation adjustment in Shareholders'
equity.
Measurement uncertainty
The amounts recorded for depletion and depreciation of the petroleum and
natural gas properties and for site restoration and abandonment are based on
estimates of reserves and future costs. By their nature, these estimates and
those related to the future cash flows used to assess impairment, are subject to
measurement uncertainty and the impact on the financial statements of future
periods could be material.
Income taxes
The Company records income taxes under Financial Accounting Standards Board
Statement No. 109 using the liability method. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
2. BANK PRODUCTION LOAN
The Company has arranged a bank production loan of up to Cdn $45,000,000
(US $29,354,207 at November 30, 1998) that will revolve and fluctuate until
April 30, 1999 at which time the lender has the option to call the loan.
Accordingly, the loan has been classified as current in these financial
statements. The loan bears interest at bank prime rate (November 30, 1998 -
6.75%). A fixed and first floating charge debenture of Cdn $50,000,000 (US
$32,615,786 at November 30, 1998) over all assets and a general assignment of
accounts receivable have been pledged as collateral. At November 30, 1998
$24,769,475 was drawn under the loan facility.
The Company paid $1,372,159 in interest during the year.
F-7
<PAGE>
3. SHARE CAPITAL
Authorized
Unlimited common shares without nominal or par value
Number of Consideration
Issued common shares $
------------- -------------
Balance, November 30, 1997 ........................ 14,133,567 $64,696,854
Shares issued for cash on exercise of stock options 77,855 223,626
Repurchase of common shares ....................... (26,294) (112,137)
Share issue costs ................................. -- (56,477)
----------- -----------
Balance, November 30, 1998 ........................ 14,185,128 $64,751,866
=========== ===========
4. STOCK OPTIONS
The Company has reserved 1,320,013 shares for issuance under stock option
agreements with certain directors, officers and employees. The stock options for
officers and employees are vested at the rate of 25% each year on a cumulative
basis and for non-management directors are vested immediately on issuance.
Issued
Balance, beginning of the year .......................... 868,458
Issued .................................................. 494,500
Exercised ............................................... (77,855)
Cancelled ............................................... (70,250)
----------
Balance, end of the year ................................ 1,214,853
==========
The exercise prices of the outstanding options range from $3.15 to $9.50
per share and expiry dates are from December 14, 1998 to January 1, 2003.
Under FAS 123 the effect on loss and loss per share of the value of options
granted computed using the Black-Scholes option pricing model, applying a
risk-free interest rate of 6% for 1998, assuming five year expected option
lives, no dividend yields and a 37% volatility on a weighted average basis would
be an increase of $1,350,000 and $0.09 respectively. These effects are not
necessarily indicative of those to be expected in future years.
F-8
<PAGE>
5. Income taxes
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
$
-----------
Deferred tax liabilities:
Full cost pool, including intangible drilling costs .......... $ 25,818,111
Other ........................................................ 445,458
----------
Total deferred tax liabilities ................................. 26,263,569
----------
Deferred tax assets:
Depletion .................................................... 23,226,849
Net operating losses ......................................... 931,402
----------
Total deferred tax assets ...................................... 24,158,251
----------
Net deferred tax liabilities ................................... $ 2,105,318
==========
At November 30, 1998, the Company had operating losses for income tax
purposes of approximately $2,100,000 which are available for application against
future taxable income and which expire in the years 2000 ($115,000), 2001
($240,000), 2002 ($123,000), 2003 ($162,000) and 2004 ($1,460,000).
The provision for income taxes recorded on the financial statements differ
from the amounts which would be obtained by applying the statutory income tax
rate to loss before income taxes as follows:
$
------------
Computed income taxes at the statutory rate (44.62%) ............ $(17,062,503)
Depletion and depreciation on assets that were acquired without
full tax basis ............................................... 2,448,947
Non-deductible royalties and other payments to the Crown ........ 1,326,437
Alberta Royalty Tax Credits ..................................... (402,473)
Resource allowance .............................................. (1,024,227)
Large corporations tax .......................................... 189,208
Other ........................................................... (67,738)
-----------
$(14,592,349)
===========
Income taxes paid during 1998 were $256,005.
6. Loss per share
For purposes of computing loss per share, the Company's weighted average
shares outstanding during 1998 were 14,179,890. Any potential conversions would
be anti-dilutive.
F-9
<PAGE>
7. FINANCIAL INSTRUMENTS
The Company has entered into a natural gas basis swap contract to hedge
against exposure to variations in the realization, in Canadian Dollars, of
anticipated future natural gas sales. The basis swap outstanding at November 30,
1998 results in the Company receiving NYMEX minus $0.82 /MMBTU in exchange for
paying the AECO C indexed price (denominated in Canadian Dollars) on 2,500
MMBTU/d (approximately 2.3 mmcf/d) until October 31, 2000. The fair value of the
natural gas basis swap agreement at November 30, 1998 is
approximately($393,941).
8. Pending accounting standards
In 1997 Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130") was issued. FAS 130 will be adopted in the
first quarter of fiscal 1999 and the Company will provide the additional
disclosure as required. The sole component of comprehensive income, in addition
to that noted below, will be the change in the cumulative translation account
associated with the Company's Canadian Dollar functional currency.
In 1998, Statement of Financial Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133") was issued. FAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The Company will adopt FAS 133 for its 2000 fiscal year.
Under FAS 133, the gains and losses associated with the Company's swap and
forward contracts will no longer be recorded to income as the estimated fair
value of such contracts changes. Under FAS 133 changes in the estimated fair
values of swap and forward contracts will be recognized in comprehensive income
in the period of the change. These changes will be recorded as adjustments to
the hedged anticipated oil and gas sales in the period the sales occur.
9. Contingency
The Company has been named as defendant, along with a number of other
defendants, in an action filed November 19, 1996. The claim pertains to certain
petroleum and natural gas properties of the Company. It is not possible at this
time to determine the outcome of this claim. The Company believes that there is
very little likelihood that any damages will be incurred as a result of the
claim.
10. Subsequent Event
On January 5, 1999, Canadian Abraxas Petroleum Limited, a subsidiary of
Abraxas Petroleum Corporation acquired all of the Company's issued and
outstanding common shares for cash consideration of $6.50 per common share. As a
result of the acquisition, the Company's share options were cancelled.
F-10
11. Supplemtal Oil & Gas Disclosure (Unaudited)
The following talbe presents information concerning the Company's crude oil and
natural gas producing activities as required by Financial Accounting Standards
69, "Disclosures about Oil and Gas Producing Activities." Capitalized cost
relating to oil and gas producing activities are as follows:
November 30, 1998
(In Thousands)
------------------
Proved crude oil and natural gas properties .................... $ 118,736
Unproved properties ........................................... 9,546
---------
Total ........................................................ 128,282
Accumulated depreciation, depletion , and impairment ........... (64,727)
---------
Net capitalized costs ........................................ 63,555
=========
F-11
<PAGE>
Cost incurred in oil and gas property acquisitions, exploration and development
activities are as follows:
November 30, 1998
(In Thousands)
------------------
Property Acquisition cost
Proved ...................................................... $ 2,508
Unproved .................................................... --
-------
$ 2,508
=======
Property development and acquisition cost ..................... $15,130
=======
Results of operations for oil and gas producing activities are as follows:
November 30, 1998
(In Thousands)
-----------------
Revenues ......................................................... $ 17,798
Production costs ................................................. (6,237)
Depreciation, depletion, and amortization ........................ (13,609)
Proved property impairment ....................................... (32,616)
General and administrative ....................................... (2,210)
Income taxes ..................................................... 14,593
--------
Results of operations from oil and gas producing activities
(excluding corporate overhead and interest costs) ............. $(22,281)
========
Depletion rate per barrel of oil equivalent ...................... $ 8.35
========
F-12
<PAGE>
Estimated Quantities of Proved Oil and Gas Reserves
The following table presents the Company's estimate of its net proved crude oil
and natural gas reserves as of December 31, 1997, and 1998. The Company's
management emphasizes that reserve estimates are inherently imprecise and that
estimates of new discoveries are more imprecise than those of producing oil and
gas properties. Accordingly, the estimates are expected to change as future
information becomes available. The estimates have been prepared by independent
petroleum reserve engineers.
Liquid Natural
Hydrocarbons Gas
------------ ---------
(Barrels) (Mcf)
(In thousands)
-----------------------
Proved developed and undeveloped reserves:
Balance at November30, 1997 ............................ 5,300 63,942
Revisions of previous estimates ................. (1,904) (14,429)
Extensions and discoveries ...................... 229 11,050
Purchase of minerals in place ................... 141 4,863
Production ...................................... (517) (6,671)
Sale of minerals in place ....................... (4) (1,674)
======= =======
Balance at November 30, 1998 ...................... 3,245 57,081
======= =======
Proved developed .................................. 2,994 43,297
======= =======
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves
The following disclosures concerning the standardized measure of future cash
flows from proved crude oil and natural gas reserves are presented in accordance
with Statement of Financial Accounting Standards No. 69. The standardized
measure does not purport to represent the fair market value of the Company's
proved crude oil and natural gas reserves. An estimate of fair market value
would also take into account, among other factors, the recovery of reserves not
classified as proved, anticipated future changes in prices and costs, and a
discount factor more representative of the time value of money and the risks
inherent in reserve estimates.
Under the standardized measure, future cash inflows were estimated by applying
period-end prices at November 30, 1998, adjusted for fixed and determinable
escalations, to the estimated future production of year-end proved reserves.
Future cash inflows were reduced by estimated future production and development
costs based on year-end costs to determine pre-tax cash inflows. Future income
taxes were computed by applying the statutory tax rate to the excess of pre-tax
cash inflows over the tax basis of the properties. Operating loss carryforwards,
tax credits, and permanent differences to the extent estimated to be available
in the future were also considered in the future income tax calculations,
thereby reducing the expected tax expense.
Future net cash inflows after income taxes were discounted using a 10%
annual discount rate to arrive at the Standardized Measure.
Set forth below is the Standardized Measure relating to proved oil and gas
reserves for:
November 30, 1998
(In Thousands)
-------------------
Future cash inflows .............................. $ 127,648
Future production and development costs .......... (47,179)
Future income tax expense ........................ (7,045)
---------
Future net cash flows ............................ 73,424
Discount ......................................... (24,964)
---------
Standardized Measure of discounted future net cash
relating to proved reserves .................... $ 48,460
=========
F-13
<PAGE>
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves
The following is an analysis of the changes in the Standardized Measure:
November 30, 1998
(In thousands)
---------------------
Standardized Measure, beginning of year................. $ 70,257
Sales and transfers of oil and gas produced, net of
production costs...................................... (11,561)
Net changes in prices and development and production
costs from prior year................................. (22,840)
Extensions, discoveries, and improved recovery, less
related costs......................................... 7,866
Purchases of minerals in place.......................... 1,881
Sales of minerals in place.............................. (1,244)
Revision of previous quantity estimates................. (14,052)
Change in future income tax expense..................... 12,174
Other................................................... (1,047)
Accretion of discount.................................. 7,026
--------------------
Standardized Measure, end of year $ 48,460
====================
F-14
