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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K/A NO. 2
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
AUGUST 29, 1996
(Date Of Earliest Event Reported)
NATIONAL ENERGY GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
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<S> <C>
0-19136 (COMMON STOCK) AND 333-9045 (SENIOR NOTES) 58-1922764
(Commission File Number) (IRS Employer Identification No.)
</TABLE>
4925 GREENVILLE AVENUE 14th FLOOR
DALLAS, TEXAS 75206
(Address Of Principal Executive Offices)
(214) 692-9211
(Registrant's Telephone Number, Including Area Code)
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PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
ITEM 5. OTHER EVENTS
The accompanying Pro Forma Combined Condensed Statements of Operations
reflect the historical financial results of operations of the Company adjusted
for the merger with Alexander Energy Corporation ("Alexander") and related
transactions (as discussed in Note A), and the Lake Boeuf Acquisition. The Pro
Forma Combined Condensed Statements of Operations are based on the historical
financial statements of the Company included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996. The Pro Forma
Combined Condensed Statements of Operations are also based on historical
financial statements of Alexander for the year ended December 31, 1995 included
in the Company's Current Reports on Form 8-K and Form 8-K/A dated August 29,
1996 and certain other unaudited financial information of Alexander.
The pro forma adjustments are based upon available information and
assumptions that management of the Company believes are reasonable. The Pro
Forma Combined Condensed Statements of Operations do not purport to represent
the results of operations which would have occurred had such transactions been
consummated on the dates indicated or the Company's results of operations for
any future date or period. These Pro Forma Combined Condensed Financial
Statements and notes thereto should be read in conjunction with the historical
financial statements and notes thereto described above.
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NATIONAL ENERGY GROUP, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NEG NEG-OK
HISTORICAL HISTORICAL PRO FORMA ADJUSTMENTS
FOR THE FOR ---------------------------
YEAR 242 DAYS FOR THE
ENDED ENDED MERGER FOR THE
DECEMBER 31, AUGUST 29, AND RELATED LAKE BOEUF PRO
1996 1996 TRANSACTIONS ACQUISITION FORMA
------------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales ..................... $ 24,319 $ 12,415 $ (116)(4) $ -- $ 36,618
Well operator and management fees:
Related parties .................... 15 122 -- -- 137
Others ............................. 861 1,191 -- -- 2,052
-------- -------- -------- ------- --------
25,195 13,728 (116) -- 38,807
Cost and expenses:
Lease operating ....................... 3,741 2,460 -- -- 6,201
Oil and gas production taxes .......... 1,285 761 (7)(1) -- 2,039
Depreciation, depletion, and
amortization ....................... 9,795 5,564 (52)(1) -- 15,345
38 (2)
Writedown of oil and gas properties ... 43,497 -- (43,497)(4) -- --
General and administrative ............ 3,034 1,672 -- -- 4,706
-------- -------- -------- ------- --------
61,352 10,457 (43,518) -- 28,291
-------- -------- -------- ------- --------
Operating income (loss) .................. (36,157) 3,271 43,402 -- 10,516
Interest expense:
Stockholder ........................... (30) (239) 200(3) -- (69)
Others ................................ (4,182) (2,332) 684(3) -- (5,830)
Loss on securities ....................... (118) -- -- -- (118)
Interest income and other ................ 426 377 -- -- 803
-------- -------- -------- ------- --------
Income (loss) before income taxes ........ (40,061) 1,077 44,286 -- 5,302
Benefit (provision) for income taxes ..... 14,503 (366) (15,224)(4) -- (1,837)
(750)(5)
-------- -------- -------- ------- --------
Income (loss) before extraordinary item... $(25,558) $ 711 $ 28,312 $ -- $ 3,465
======== ======== ======== ======= ========
Income (loss) before extraordinary
item per common share................ $ (1.33) $ 0.06(8)
======== ========
Weighted average number of common
and common equivalent shares 19,940 12,501 10,422(6) 1,318(7) 44,181
outstanding........................... ======== ======== ======== ======= ========
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See accompanying notes to pro forma combined condensed financial statements.
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NATIONAL ENERGY GROUP, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NEG NEG-OK
HISTORICAL HISTORICAL PRO FORMA ADJUSTMENTS
FOR NINE FOR -----------------------------
MONTHS 242 DAYS FOR THE
ENDED ENDED MERGER FOR THE
SEPTEMBER 30, AUGUST 29, AND RELATED LAKE BOEUF PRO
1996 1996 TRANSACTIONS ACQUISITION FORMA
------------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales .................... $ 13,181 $ 12,415 $ (116)(4) $ -- $ 25,480
Well operator and management fees:
Related parties ................... -- 122 -- -- 122
Others ............................ 314 1,191 -- -- 1,505
-------- -------- -------- -------- --------
13,495 13,728 (116) -- 27,107
Cost and expenses:
Lease operating ...................... 2,096 2,460 -- -- 4,556
Oil and gas production taxes ......... 663 761 (7)(1) -- 1,417
Depreciation, depletion, and
amortization ...................... 5,444 5,564 (52)(1) -- 10,994
38(2)
Writedown of oil and gas properties .. 43,497 -- (43,497)(4) -- --
General and administrative ........... 1,957 1,672 -- -- 3,629
-------- -------- -------- -------- --------
53,657 10,457 (43,518) -- 20,596
-------- -------- -------- -------- --------
Operating income (loss) ................. (40,162) 3,271 43,402 -- 6,511
Interest expense:
Stockholder .......................... (30) (239) 200(3) -- (69)
Others ............................... (1,796) (2,332) 684(3) -- (3,444)
Loss on securities ...................... (118) -- -- -- (118)
Interest income and other ............... 154 377 -- -- 531
-------- -------- -------- -------- --------
Income (loss) before income taxes ....... (41,952) 1,077 44,286 -- 3,411
Benefit (provision) for income taxes .... 15,146 (366) (15,224)(4) -- (1,194)
(750)(5)
-------- -------- -------- -------- --------
Net income (loss) ....................... $(26,806) $ 711 $ 28,312 $ -- $ 2,217
======== ======== ======== ======== ========
Income (loss) per common share........... $ (1.87) $ 0.06 $ 0.03(8)
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding.. 14,693 12,501 15,634(6) 1,758(7) 44,586
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
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NATIONAL ENERGY GROUP, INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- PRO FORMA ADJUSTMENTS FOR THE MERGER AND RELATED TRANSACTIONS
On August 29, 1996, the Company completed the acquisition of Alexander. The
transaction consisted of a merger (the "Merger") of Alexander with and into
National Energy Group of Oklahoma, Inc., formerly known as NEG-OK, Inc., a
wholly-owned subsidiary of the Company ("NEG-OK"). The Merger has been accounted
for using the purchase method of accounting. In completing the Merger, the
Company issued approximately 21.1 million shares of Common Stock in exchange for
all of the issued and outstanding NEG-OK common stock, based on the exchange
ratio of 1.7 shares of the Company's Common Stock for each outstanding share of
NEG-OK Common Stock and the number of shares of NEG-OK Common Stock outstanding
at the effective time of the Merger.
The cost of acquiring NEG-OK was approximately $69.4 million, consisting of
the following (in thousands):
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Fair value of 21.1 million shares of the Company's Common Stock issued......................... $63,404
Cost of 105,740 shares of NEG-OK common stock owned by the Company........................... 288
NEG-OK stock options and warrants assumed...................................................... 340
Estimated fair value of 122,324 shares of the Company's Common Stock and 800,000
warrants issued for services provided by investment advisors................................ 1,322
Other investment advisor, legal and accounting professional fees and other Merger
related costs............................................................................... 4,009
-------
$69,393
=======
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The fair value of the securities issued in connection with the Merger has
been calculated using the price of the Company's Common Stock at the time the
Merger was announced to the public of $3.00 per share.
The accompanying Pro Forma Combined Condensed Statements of Operations
reflect the following adjustments for the Merger:
(1) To conform NEG-OK's method of accounting for natural gas imbalances
with the method utilized by the Company.
(2) To adjust depletion, depreciation, and amortization to reflect the
Company's purchase price allocated to property and equipment using the unit
of production method utilized by the Company.
(3) To adjust interest expense and amortization of loan origination
costs to reflect $65.0 million of initial borrowings under the Credit
Facility and repayment of $67.1 million of certain indebtedness of the
Company and NEG-OK. The calculation of interest expense assumes repayment of
the initial borrowings beginning in January 1996 in accordance with the
terms of the Credit Facility. The interest on borrowings under the Credit
Facility was computed using the applicable bank base rate in effect during
the periods presented. An increase of .125% in the assumed interest rate
would increase pro forma interest expense by $78,000 and $35,000 for the
year ended December 31, 1996 and the nine months ended September 30, 1996,
respectively.
(4) To eliminate the writedown of oil and gas properties resulting from
the Merger and the income tax effect related thereto. Under the full cost
method of accounting, the carrying value of oil and gas properties (net of
related deferred taxes) is generally not permitted to exceed the sum of the
present value (10% discount rate) of estimated future net cash flows, after
tax, from proved reserves, based on current prices and costs, plus the lower
of cost or estimated fair value of unproved properties (the "cost center
ceiling"). Based upon the combined cost center ceiling at August 29, 1996
and the preliminary allocation of the Company's purchase price, the purchase
price allocated to oil and gas properties was in excess of the cost center
ceiling using oil and natural gas prices
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being received by the Company and NEG-OK in August 1996 of $20.75 per Bbl
and $2.21 per Mcf. The amount of such excess ($28.3 million, net of $15.2
million of income tax benefit) was charged to expense in the third quarter
of 1996. See Note 2 of Notes to Consolidated Financial Statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
(5) To adjust the provision for income taxes for the change in financial
taxable income as a result of entries (1), (2) and (3).
(6) To reflect the issuance of 100,000 shares of the Company's Series D
Preferred Stock and 50,000 shares of the Company's Series E Preferred Stock
and the incremental effect of the issuance of shares of the Company's Common
Stock pursuant to the Merger, including 122,324 shares issued for services
provided by investment advisors.
NOTE B -- PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF THE SOUTH LAKE BOEUF
PROPERTIES (THE "LAKE BOEUF ACQUISITION")
In September 1996, the Company completed the Lake Boeuf Acquisition, in
which the Company acquired 87.5% of the working interests in two wells and
certain proved undeveloped reserves in LaFourche Parish, Louisiana. The purchase
price consisted of $1.5 million in cash and 1,758,460 shares of the Company's
Common Stock. The accompanying Pro Forma Combined Condensed Statements of
Operations have been prepared as if the Lake Boeuf Acquisition had been
consummated on January 1, 1996 and reflects the following adjustment:
(7) To reflect the issuance of 1,758,460 shares of the Company's Common
Stock in the Lake Boeuf Acquisition. The historical results of the one
producing well were not significant and are excluded from the pro forma
results of operations.
(8) Pro forma net income (loss) per common share information was
computed by dividing net income (loss), adjusted for preferred stock
dividend requirements of $945,000 for the year ended December 31, 1996 and
$709,000 for the nine months ended September 30, 1996 by the pro forma
weighted average common and common equivalent shares outstanding. Shares
issuable upon exercise of options and warrants and upon the conversion of
preferred stock are included in the computations of pro forma income per
common and common equivalent share if the effect is dilutive.
NOTE C -- PRO FORMA COMBINED SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED
MEASURE INFORMATION
The following is a summary of the pro forma combined quantities of proved
reserves prepared by combining the historical information of the Company and
NEG-OK, derived from estimates prepared by the Company's and NEG-OK's respective
independent engineers, adjusted for the Lake Boeuf Acquisition, and conforming
NEG-OK's method of accounting for natural gas imbalances to the method utilized
by the Company.
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<CAPTION>
OIL GAS
(MBBL) (MMCF)
------- --------
(IN THOUSANDS)
<S> <C> <C>
December 31, 1995 ............................ 7,965 135,265
Purchases of reserves in place ............. 500 2,000
Sales of minerals in place ................. (30) (634)
Extensions, discoveries, and other additions 37 371
Revisions of previous estimates ............ 937 2,673
Production ................................. (606) (10,805)
------ --------
December 31, 1996 ............................ 8,803 128,870
====== ========
Proved developed reserves:
December 31, 1995 .......................... 3,257 78,649
December 31, 1996 .......................... 4,383 77,497
</TABLE>
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The following is a table summarizing principal sources of changes in the pro
forma combined standardized measure of discounted net cash flows related to the
proved crude oil and natural gas reserves of the Company, NEG-OK and those
acquired in the Lake Boeuf Acquisition. For these calculations, estimated future
cash flows from estimated future production of proved reserves were computed
using crude oil and natural gas prices as of the end of each period presented.
Future development and production costs attributable to the proved reserves were
estimated assuming that existing conditions would continue over the economic
lives of the individual leases and costs were not escalated for the future.
Estimated future income tax expenses were calculated by applying future
statutory tax rates (based on the current tax law adjusted for permanent
differences and tax credits) to the estimated future pretax net cash flows
related to proved crude oil and natural gas reserves, less the tax basis of the
properties involved.
The Company cautions against using this data to determine the fair value of
its crude oil and natural gas properties. To obtain the best estimate of fair
value of the crude oil and natural gas properties, forecasts of future economic
conditions, varying discount rates, and consideration of other than proved
reserves would have to be incorporated into the calculation. In addition, there
are significant uncertainties inherent in estimating quantities of proved
reserves and in projecting rates of production that impair the usefulness of the
data.
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<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
--------------
(in thousands)
<S> <C>
Balance at beginning of year................................................. $128,763
Sales and transfers of oil and gas produced, net of production costs......... (28,441)
Net changes in prices and production cost.................................... 137,674
Purchases of reserves in place............................................... 4,000
Extensions and discoveries, less related costs............................... 850
Revisions of previous quantity estimates..................................... 16,576
Sales of reserves in place................................................... (450)
Accretion of discount........................................................ 15,185
Previously estimated development costs incurred during the year and change
future development costs.................................................. 4,885
Net change in income taxes................................................... (41,299)
Change in production rates and other......................................... (7,963)
-----------
Net change................................................................... 101,017
---------
Balance at end of year....................................................... $229,780
========
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATIONAL ENERGY GROUP, INC.
By: /s/ MILES D. BENDER
--------------------------------------
Miles D. Bender
President and Chief Executive Officer
Date: November 24, 1997
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