----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 7, 1997
----------------
MESA INC.
(Exact name of registrant as specified in its charter)
1-10874
Commission File Number
Texas 75-2394500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas (972)444-9001 75039
(Address of Principal (Registrant's (Zip Code)
Executive Offices) Telephone Number)
Not Applicable
--------------
(Former name or former address if changed since last report)
----------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 7, 1997, Mesa Operating Co., a Delaware corporation
("MOC"), entered into a Stock Purchase Agreement with Western Mining
Corporation (USA), a Delaware corporation ("WMC"), pursuant to which MOC
will acquire all of the outstanding equity of Greenhill Petroleum
Corporation ("Greenhill"), a Delaware corporation and a wholly owned
subsidiary of WMC. MOC is a wholly owned subsidiary of MESA Inc. ("MESA")
and owns substantially all of MESA's assets. Pursuant to the Stock Purchase
Agreement, MOC will purchase Greenhill for $270.5 million (the "Greenhill
Acquisition"), subject to adjustment as provided therein. A copy of the
press release regarding the Stock Purchase Agreement is attached hereto as
Exhibit 99 and incorporated herein by reference. The description of the
Stock Purchase Agreement included herein does not purport to be complete and
is qualified in its entirety by reference to the terms of the Stock Purchase
Agreement, a copy of which is attached hereto as Exhibit 10 and incorporated
herein by reference.
Summary Historical and Pro Forma Reserve and Production Data
------------------------------------------------------------
The following table sets forth certain summary historical and pro forma
reserve and production information of MESA as of and for the year ended
December 31, 1996:
<TABLE>
<CAPTION>
MESA Greenhill Pro Forma
Historical Historical Combined
---------- ---------- ---------
(in millions, except per unit data)
<C> <C> <C>
Estimated Proved Reserves (a) (b) (c):
Natural gas (Bcf)................... 1,037.7 41.9 1,079.6
Natural gas liquids (MMBbls)........ 88.1 -- 88.1
Oil and condensate (MMBbls)......... 6.9 23.4 30.3
Natural gas equivalents (Bcfe)..... 1,607.7 182.5 1,790.2
Percentage proved developed........ 95% 85% 94%
Discounted Estimated Future
Net Cash Flows, before tax (b)..... $1,835.6 $ 300.3 $2,135.9
Prices at December 31 (b):
Natural gas (per Mcf).............. $ 3.37 $ 4.03 $ 3.40
Natural gas liquids (per Bbl)....... 25.37 -- 25.37
Oil and condensate (per Bbl)........ 24.10 24.96 24.77
Production Data (d):
Natural gas (Bcf)................... 84.0 6.0 90.0
Natural gas liquids (MMBbls)........ 6.5 -- 6.5
Oil and condensate (MMBbls)......... 0.9 2.5 3.4
Natural gas equivalents (Bcfe)...... 128.4 21.0 149.4
Reserve Life Index (years) (e)........ 12.5 8.7 12.0
Per Mcfe Data:
Total revenue....................... $ 2.43 $ 3.38 $ 2.56
Production costs (f)................ 1.39 2.50 1.56
-------- -------- --------
Gross profit (g).................... 1.04 0.88 1.00
======== ======== ========
</TABLE>
<PAGE>
- -----------------
(a) As of December 31, 1996, the proved oil and gas reserves for
substantially all of MESA's properties and for the Greenhill reserves
were estimated by independent petroleum engineering consultants.
See "Reserves."
(b) Proved reserves and future net cash flows were estimated in accordance
with Securities and Exchange Commission (the "Commission") guidelines,
discounted at 10%. Prices at December 31, 1996 were used in the
calculation of proved reserves and future net cash flows and were held
constant through the periods of estimated production, except as
otherwise provided by contract, in accordance with Commission
guidelines. Estimated reserves at December 31, 1996 do not include
approximately 11 MMBbls MESA acquired from MAPCO, Inc. effective
January 1, 1997.
(c) The following abbreviations are used in this table and elsewhere in
this Form 8-K/A: (i) Bcf - billion cubic feet; (ii) MMBbls - million
barrels; (iii) Bcfe - billion cubic feet of natural gas equivalents;
(iv) Mcf - thousand cubic feet; and (v) Bbl - barrel.
(d) Pro forma production for the year ended December 31, 1996 does not
include any volumes relating to the condensate and natural gas liquids
reserves acquired from Mapco, Inc. The transaction is expected to
result in 850,000 Bbls of additional production in 1997.
(e) The reserve life index is calculated as proved reserves divided by
annual production, both on a Bcfe basis.
(f) Production costs include lease operating expenses, production and
other taxes and depreciation, depletion and amortization.
(g) Gross profit is calculated as total revenue less production costs.
Reserves
--------
The following table summarizes the estimated proved reserves and
estimated future cash flows associated with MESA's oil and gas properties,
by major areas of operation and the Greenhill Acquisition, in each case as
of December 31, 1996, as estimated in accordance with Commission guidelines.
<TABLE>
<CAPTION>
MESA Properties
-----------------------------------------------
West Gulf of Greenhill Pro Forma
Hugoton Panhandle Mexico Other Total Acquisition Combined
------- --------- ------- ----- --------- ----------- -----------
<C> <C> <C> <C> <C> <C>
Proved Reserves:
Natural Gas(MMcf)............. 691,412 288,444 27,332 30,534 1,037,723 41,897
1,079,620
Natural Gas Liquids(MBbls).... 45,418 42,498 120 15 88,051 -- 88,051
Oil and Condensate(MBbls)..... -- 3,971 2,188 704 6,863 23,430 30,293
Natural Gas Equivalents
(Mmcfe)..................... 963,920 567,258 41,180 34,848 1,607,206 182,477 1,789,683
% Developed................... 99.9% 91.8% 82.1% 34.2% 95.2% 84.5% 94.1%
% Natural Gas................. 71.7% 50.8% 66.4% 87.6% 64.6% 23.0% 60.3%
Present value of future net
cash flows, before income
taxes, discounted at 10%
(in millions)............... $1,129.7 $611.4 $67.6 $26.9 $1,835.6 $300.3 $2,135.9
</TABLE>
The estimates of MESA's proved reserves as of December 31, 1996 are based
upon (i) the report of Williamson Petroleum Consultants, Inc. ("Williamson"),
independent reserve engineers, with respect to MESA's reserves in the Hugoton
and West Panhandle fields, which represents approximately 95% of MESA's total
proved reserves, and (ii) the report of MESA's internal reserve engineers with
respect to MESA's Gulf of Mexico and other properties. The Hugoton and West
Panhandle field reserve estimates as of December 31, 1996, are qualified in
their entirety by the summary reserve report of Williamson, which is filed as
an exhibit to MESA's Annual Report on Form 10-K for the year ended
December 31, 1996, and is incorporated herein by reference.
The estimates of Greenhill's proved reserves as of December 31, 1996, are
based upon the report of Miller and Lents, independent reserve engineers. The
Greenhill reserve estimates as of December 31, 1996 are qualified in their
entirety by the summary reserve report of Miller and Lents, which is filed as an
exhibit to this Form 8-K/A and incorporated herein by reference.
Information relating to MESA's proved oil and gas reserves is based upon
engineering estimates. Estimates of economically recoverable oil and gas
reserves and of future net revenues depend upon a number of factors and
assumptions, such as historical production performance, the assumed effects
of regulations by governmental agencies and assumptions concerning future oil
and gas prices, future operating costs, severance and excise taxes,
development costs and workover costs, all of which may in fact vary
considerably from actual future conditions. The accuracy of any reserve
estimate is a function of the quality of the available data, of engineering
and geological interpretation and of subjective judgment. For these reasons,
estimates of the economically recoverable quantities of oil and gas reserves
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of future net revenues
expected therefrom prepared by different engineers or by the same engineers at
different times may vary materially. Actual production, revenues, and
expenditures with respect to MESA's reserves will likely vary from estimates,
and such variances may be material.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
(1) The audited balance sheet of Greenhill as of June 30, 1996,
and the related statements of operations, stockholder's
equity, and cash flows for the year then ended with the
notes thereto follow:<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Greenhill Petroleum Corporation:
We have audited the accompanying balance sheet of Greenhill Petroleum
Corporation as of June 30, 1996, and the related statements of operations,
stockholder's equity, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Greenhill Petroleum
Corporation as of June 30, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
-----------------------------------
Coopers & Lybrand L.L.P.
Houston, Texas
July 26, 1996, except for
Note 12, as to which the
date is August 22, 1996
<PAGE>
GREENHILL PETROLEUM CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF WESTERN MINING CORPORATION (USA))
BALANCE SHEET
June 30, 1996
ASSETS 1996
------------
Current Assets:
Cash and cash equivalents $ 11,871,373
Accounts receivable 7,704,448
Inventories 1,442,539
Prepaid expenses and other 771,716
------------
Total current assets 21,790,076
------------
Oil and gas properties, net 166,810,938
Other property and equipment, net 2,188,395
Other 305,111
------------
Total assets $191,094,520
============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable 1,948,016
Accrued liabilities 9,117,609
Current maturities of long-term debt 290,045
Due to affiliates 183,154
------------
Total current liabilities 11,538,824
Long-Term Debt, Less Current Maturities --
Other Long-Term Liabilities 39,453
Commitments and Contingencies (Note 7)
Stockholder's Equity:
Common stock, $1.00 par value; 10,000
shares authorized; 2,100 shares
issued and outstanding 2,100
Additional paid-in capital 216,000,000
Accumulated deficit (36,485,857)
------------
Total stockholder's equity 179,516,243
------------
Total liabilities and
stockholder's equity $191,094,520
============
(See accompanying notes to financial statements.)
GREENHILL PETROLEUM CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF WESTERN MINING CORPORATION (USA))
STATEMENT OF OPERATIONS
for the year ended June 30, 1996
1996
------------
Revenues:
Oil $ 48,202,016
Gas 14,632,573
Other 897,343
------------
Total revenues 63,731,932
------------
Costs and expenses
Lease operating 15,222,416
Production tax and other 4,966,992
Exploration 6,101,579
Abandonment 453,903
Depreciation and depletion 30,715,708
General and administrative 8,659,908
Other 192,745
------------
Total costs and expenses $ 66,313,251
------------
Loss before federal income taxes (2,581,319)
Benefit for federal income taxes --
------------
Net loss $ (2,581,319)
============
(See accompanying notes to financial statements.)
GREENHILL PETROLEUM CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF WESTERN MINING CORPORATION (USA))
STATEMENT OF Stockholder's EQUITY
for the year ended June 30, 1996
<TABLE>
<CAPTION>
Total
Common Paid-in Accumulated Stockholder's
Stock Capital Deficit Equity
-------- ------------ ------------ -------------
<C> <C> <C> <C>
Balance at June 30, 1995 2,100 216,000,000 (33,904,538) 182,097,562
Net loss -- -- (2,581,319) (2,581,319)
-------- ------------ ------------ ------------
Balance at June 30, 1996 $ 2,100 $216,000,000 $(36,485,857) $179,516,243
======== ============ ============ ============
(See accompanying notes to financial statements.)
GREENHILL PETROLEUM CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF WESTERN MINING CORPORATION (USA))
STATEMENT OF CASH FLOWS
for the year ended June 30, 1996
1996
------------
Cash flows from operating activities:
Net loss $ (2,581,319)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and depletion 30,715,708
Loss (gain) on sale of assets (18,361)
Exploration 6,101,579
Abandonment 453,903
Changes in assets and liabilities:
Accounts receivable, net (1,063,774)
Inventories (355,612)
Prepaid expenses and other assets 147,230
Other noncurrent assets 66,017
Accounts payable (637,089)
Accrued liabilities (797,961)
Due to affiliates 111,676
------------
Net cash provided by operating
activities 32,141,997
------------
Cash flows from investing activities:
Capital expenditures $(35,654,617)
Proceeds from sale of oil and gas assets 28,197
------------
Net cash used in investing activities (35,626,420)
------------
Cash flows from financing activities:
Principal payment of long-term debt $ (74,892)
------------
Net cash used in financing activities (74,892)
------------
Net decrease in cash and
cash equivalents (3,559,315)
Cash and cash equivalents at beginning of year 15,430,688
------------
Cash and cash equivalents at end of year $ 11,871,373
============
(See accompanying notes to financial statements.)
<PAGE>
GREENHILL PETROLEUM CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF WESTERN MINING CORPORATION (USA))
NOTES TO FINANCIAL STATEMENTS
1. Formation and Operations of the Company
=======================================
Greenhill Petroleum Corporation (the "Company") was incorporated as a wholly-owned subsidiary
of Western Mining Corporation (USA)(the "Parent") on May 12, 1987
to explore, develop, acquire and produce oil and gas reserves in the Permian
Basin, Texas and Louisiana Gulf Coast and offshore Gulf of Mexico. Western Mining
Corporation (USA) is ultimately a wholly-owned subsidiary of WMC Limited ("WMC").
2. Summary of Significant Accounting Policies
==========================================
Basis of Presentation
---------------------
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles of the United States of America
("U.S.GAAP").
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with an original maturity
of three months or less when purchased to be cash equivalents.
Inventories
-----------
Inventories consist principally of pipe and tubing, and are recorded at the
lower of cost or market. Cost is determined using the average-cost method.
Oil and Gas Properties and Equipment
------------------------------------
The Company utilizes the successful efforts method of accounting for costs
incurred in the exploration and development of oil and gas properties. Costs
incurred in the acquisition and exploratory drilling of oil and gas properties
are initially capitalized and either subsequently expensed if the properties
are determined not to have proved reserves or reclassified as a producing asset
if proved reserves are discovered. All costs of drilling development wells,
including dry hole costs and the cost of three-dimensional seismic surveys of
proved acreage, are capitalized. Exploratory geological and geophysical costs
and delay rentals are expensed in the period they are incurred.
Proved leasehold costs, development costs, and subsurface equipment costs
are amortized using the units-of-production method based on engineering
estimates of proved reserves for mineral rights and proved developed reserves
for development costs and subsurface equipment costs. Estimated future
dismantlement costs are amortized on the unit-of-production method using proved
reserves. Unproved oil and gas leases are reviewed annually for impairment.
The Company limits the total amount of unamortized capitalized costs to the
aggregate value of future net revenues, based on current prices and costs. In
March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"). Under SFAS No. 121, the unamortized capital costs at a field level are
reduced to fair value if the sum of expected future cash flows to be generated
is less than net book value. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
adopted SFAS No. 121 July 1, 1996.
Costs relating to surface equipment and support facilities are depreciated
using methods and rates designed to amortize the cost of such assets over their
useful life. The expected useful lives of these assets range from five to ten
years.
Other property and equipment is recorded at cost and is depreciated
principally using the straight-line method over the expected useful lives of the
assets ranging from three to thirty years. Expenditures for normal repairs and
maintenance are charged to expense as incurred. Expenditures for major renewals
and improvements that extend the original estimated useful economic lives of the
assets are capitalized. The cost of assets sold or abandoned and the related
accumulated depreciation is eliminated from the accounts and the related gain or
loss is recorded in operations in the year of disposition.
Income Taxes
------------
The Company joins with Parent in filing a consolidated federal income tax
return. Parent has its subsidiaries pay a charge or receive a credit equivalent to
federal income tax, based on the separate taxable income or loss of each
subsidiary.
<PAGE>
3. Detail of Certain Balance Sheet Accounts
========================================
Additional information regarding certain balance sheet accounts at June
30, 1996, is presented below:
1996
------------
Receivables:
Oil and gas revenues $ 5,186,062
Joint interest billings 1,838,918
Other 679,468
------------
Total receivables $ 7,704,448
============
Oil and gas properties:
Producing properties $332,093,944
Undeveloped leasehold costs 780,471
Wells in progress 3,061,918
------------
335,936,333
Less accumulated depletion
and depreciation (169,125,395)
------------
Total oil and gas
properties, net $166,810,938
============
Other property and equipment:
Furniture, equipment, and other $ 5,544,588
Less accumulated depreciation (3,356,193)
------------
Total other property and
equipment, net $ 2,188,395
============
4. Long-Term Debt
==============
Long-term debt consisted of a promissory note with an original principal
amount of $561,910 which was issued in connection with the acquisition of oil
and gas properties. Interest at 6.88% is payable semiannually. The debt is
collateralized by the oil and gas properties acquired and an assignment of
production. The remaining principal of $290,045 is due April 28, 1997 and has
been classified as a current liability as of June 30, 1996.
<PAGE>
5. Income Taxes
============
Deferred tax assets and liabilities are recorded for the estimated future
tax consequences attributable to the differences between the tax basis of
assets and liabilities and their financial reporting amounts. The primary
sources for these differences are intangible drilling costs, depreciation and
depletion and geological and geophysical costs.
The difference between the provision for federal income taxes for the year
ended June 30, 1996, and the amount computed using the statutory federal rate
is primarily due to taxable losses for which no benefit is currently recognized.
Significant components of the Company's net deferred tax asset and
liability at June 30, 1996, is presented below:
1996
------------
Deferred Tax Assets:
Net operating loss carryforward $ 18,542,000
Other, net 311,000
------------
18,853,000
Deferred tax liability:
Oil and gas properties 8,544,000
Less: valuation allowance (10,309,000)
------------
Net deferred tax liability $ -
============
At June 30, 1996, the Company, which files a consolidated tax return with
its Parent, had operating loss carryforwards available for federal income tax
and alternative minimum tax purposes of approximately $52,976,000 and
$51,833,000, respectively, expiring at various dates through 2009.
In accordance with the terms of the Company's tax allocation agreement
with its Parent, the Company is reimbursed for net operating losses utilized by
the Parent.
6. Related Party Transactions
==========================
Subsidiaries of WMC have allocated general and administrative expenses of
approximately $236,000 to the Company for the year ended June 30, 1996.
<PAGE>
7. Commitments and Contingencies
=============================
The Company leases office space and various equipment under operating leases
expiring through 2000. The leases provide for minimum annual rentals, plus in certain
instances, payment for taxes, insurance, maintenance, etc. Certain leases also
contain renewal provisions.
At June 30, 1996, minimum rental commitments under noncancelable operating
leases having terms in excess of one year were as follows:
1997 $ 746,215
1998 722,140
1999 704,944
2000 704,944
2001 587,453
----------
$3,465,696
==========
Minimum payments have not been reduced by minimum sublease rentals of
approximately $92,000 due in the future under noncancelable subleases.
Rental expense for the year ended June 30, 1996, was approximately $547,000.
At June 30, 1996, the Company had open letter of credit agreements in the amount
of $9,775,000. As of June 30, 1996, the Company had no balances outstanding under
these letter of credit agreements.
8. Employee Benefit Plan
=====================
The Company participates in a defined contribution plan sponsored by its Parent
which covers substantially all employees of the Company. Employees are eligible to
participate in the plan after six months of service and upon reaching the age of
twenty-one. Under the plan, the Company makes profit- sharing contributions of 3% of
each participant's compensation. These profit- sharing contributions become fully
vested after a participant has completed 5 years of service. Additionally, the
Company makes a matching contribution of up to 3% of each participant's annual
compensation. These matching contributions vest immediately. The Company's
contributions to the plan was approximately $397,000 for the year ended June 30,
1996.
9. Statement of Cash Flows (Supplemental Disclosure)
=================================================
During the year ended June 30, 1996, the Company paid cash for interest of
approximately $25,000.
<PAGE>
10. Concentration of Credit Risk
============================
The Company and other affiliated companies participate in WMC's cash management
system. The Company's cash balances, which are primarily with major domestic and
international banks, may from time-to-time exceed the banks' insured limits. The
Company also invests in United States treasury notes and treasury bills, which
generally bear minimal risk. The Company has not incurred any losses related to these
investments.
The Company's receivables are primarily due from oil and gas companies located
in the United States. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires collateral from its customers
when necessary.
11. 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. The Company's most
significant financial estimates are based on remaining oil and gas reserves. Actual
results could differ from those estimates.
12. Subsequent Event
================
On August 22, 1996, WMC announced its plan to sell the majority of its petroleum
assets, including the Company. No adjustments have been recorded in the financial
statements to give effect to this proposed transaction.
<PAGE>
Greenhill Petroleum Corporation
(A Wholly-Owned Subsidiary of Western Mining Corporation (USA))
Supplemental Information on Oil and Gas Operations (Unaudited)
The following supplemental unaudited information regarding oil and gas
activities is presented pursuant to the disclosure requirements of the Securities and
Exchange Commission and the Statement of Financial Accounting Standards No. 69. This
represents the Company's position as of and for the year ended June 30, 1996.
Capitalized Costs Relating to Oil and Gas Producing Activities
- --------------------------------------------------------------
The following table sets forth the capitalized costs and related accumulated
depreciation, depletion and amortization, including impairments, relating to the
Company's oil and gas production, exploration and development activities.
As of June 30, 1996 (in thousands)
Proved oil and gas properties $ 335,156
Unproved oil and gas properties 780
Accumulated depreciation, depletion and amortization (169,125)
---------
Net capitalized costs $ 166,811
---------
Costs Incurred in Oil and Gas Property Acquisition, Exploration
and Development Activities
- ---------------------------------------------------------------
The following table sets forth the capitalized costs incurred in oil and gas
producing activities.
For the year ended June 30, 1996 (in thousands):
Acquisition of properties
- -Proved $ 582
- -Unproved 573
Exploration costs 23,356
Development costs 10,404
---------
Total costs incurred $ 34,915
---------
Depreciation, depletion and amortization $ 30,089
---------
<PAGE>
Results of Operations for Producing Activities
- -----------------------------------------------
The following schedule includes revenues and direct cost information relating to
oil and gas exploration and production activities. The income tax expense is
calculated by applying the current statutory tax rates to the revenues after
deducting costs and giving effect to permanent differences and net operating losses.
The results of operations exclude general office overhead and interest expense
attributable to oil and gas production.
For the year ended June 30, 1996 (in thousands)
Oil and Gas Revenues $ 62,835
Production costs 20,195
Exploration expenses 6,527
Depreciation, depletion and amortization 30,089
--------
$ 56,811
Income tax expense 0
--------
Results of operations from producing activities $ 6,024
--------
Quantities of Oil and Gas Reserves
- ----------------------------------
Net proved oil and gas reserve quantities as of June 30, 1996, are based on
estimates by independent petroleum engineering consultants in accordance with
guidelines established by the Securities and Exchange Commission (SEC). All of the
Company's reserves at June 30, 1996, were in the United States. The reserve
estimates were based on economic and operating conditions existing at the end of the
year.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of development
expenditures. The following reserve data represents estimates only and should not be
construed as being exact.
<PAGE>
For the year ended June 30, 1996
Oil Gas
(MBbls) (MMcf)
------- ------
Proved Reserves:
Beginning of year 19,955 30,959
Revisions of previous estimates (1,142) (1,664)
Purchases of minerals in place 406 104
Extensions and discoveries 2,268 7,547
Production (2,566) (6,404)
------- -------
End of year 18,921 30,542
------- -------
Proved Developed Reserves:
Beginning of year 19,590 30,746
End of year 18,598 28,707
<PAGE>
Standardized Measure of Discounted Future Net Cash Flows
- --------------------------------------------------------
Future prices for oil (average $19.73 per barrel) and natural gas (average $2.49
per MCF) were based on market prices received as of June 30, 1996, with no
escalation. Future operating costs, production and ad valorem taxes, and capital
costs were based on current costs with no escalation.
The following table sets forth unaudited information concerning future net cash
flows for oil and gas reserves, net of income tax expense. Income tax expense has
been calculated using expected future tax rates and giving effect to permanent
differences and credits which, under current laws, relate to oil and gas producing
activities. This information should not be construed as the current market value of
the proved oil and gas assets, but does present a standardized disclosure concerning
possible future net cash flows that would result under the assumptions used.
As of June 30, 1996 (in thousands)
Future cash inflows $ 449,350
Future production and development costs (222,931)
Future income tax expense (19,802)
---------
Future net cash flows 206,617
10% annual discount for estimated timing of cash flows (60,314)
---------
Standardized Measure of discounted future net cash flows $ 146,303
---------
Changes in Standardized Measure as of June 30, 1996 (in thousands)
Standardized Measure at beginning of year $ 107,959
Sales and transfers of oil and gas produced,
net of production costs (42,645)
Net changes in prices and production costs 43,790
Extensions, discoveries, and improved recovery,
less related costs 34,740
Development costs incurred during the period 5,114
Revisions of previous quantity estimates (7,853)
Purchases of properties during the period 1,807
Accretion of discount 10,796
Net change in income taxes (8,144)
Change in production rates and other 739
---------
Net changes in Standardized Measure 38,344
---------
Standardized Measure at end of year $ 146,303
---------
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
Quarters Ended
--------------------------------------------------
09/30/95 12/31/95 03/31/96 06/30/96
----------- ----------- ----------- -----------
Revenues $13,843,050 $14,605,351 $17,186,081 $17,200,107
----------- ----------- ----------- -----------
Gross profit (1) $ 874,585 $ 2,209,886 $ 4,722,774 $ 4,122,228
----------- ----------- ----------- -----------
Operating income
(loss) $(1,007,459) $ (227,424) $ 2,325,780 $(4,376,814)
----------- ----------- ----------- -----------
Net Income (loss) $ (788,866) $ (24,391) $ 2,565,092 $(4,333,154)
----------- ----------- ----------- -----------
Net Income (loss) per
common share and
common share
equivalent $ (375.65) $ (11.61) $ 1,221.47 $ (2,063.41)
----------- ----------- ----------- -----------
Notes:
(1) Gross profit consists of oil and gas revenues less lease operating expenses,
production taxes and depreciation and depletion.
<PAGE>
(2) The unaudited balance sheet of Greenhill as of December 31,
1996, and the related statements of operations, stockholder's
equity, and cash flows for the six months then ended with the
notes thereto follow:
<PAGE>
GREENHILL PETROLEUM CORPORATION
(A Wholly-Owned Subsidiary of Western Mining Corporation (USA))
BALANCE SHEET (UNAUDITED)
December 31, 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 8,903,511
Accounts receivable 7,906,672
Inventories 575,301
Prepaid expenses and other 378,314
-------------
Total current assets 17,763,798
-------------
Oil and gas properties, net of
depreciation and depletion of $182,976,699 163,351,734
Other property and equipment,
net of depreciation of $3,168,383 1,998,084
Other 2,500
-------------
Total assets $ 183,116,116
=============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 1,588,534
Accrued liabilities 7,973,944
Current maturities of long-term debt 290,045
Due to Affiliates 272,274
-------------
Total current liabilities 10,124,797
Long-term liabilities 23,291
Commitments and contingencies (Note 6)
Stockholder's equity:
Common stock, $1.00 par value; 10,000
shares authorized; 2,100 shares
issued and outstanding 2,100
Additional paid-in capital 206,000,000
Accumulated deficit (33,034,072)
-------------
Total stockholder's equity 172,968,028
-------------
Total liabilities and stockholder's equity $ 183,116,116
=============
The accompanying notes are an integral part of the unaudited financial
statements.
<PAGE>
GREENHILL PETROLEUM CORPORATION
(A Wholly-Owned Subsidiary of Western Mining Corporation (USA))
STATEMENT OF OPERATIONS (UNAUDITED)
for the six months ended December 31, 1996
Revenues:
Oil $ 28,472,868
Gas 8,084,646
Interest Income 298,718
------------
Total revenues 36,856,232
------------
Costs and expenses:
Lease operating 9,977,190
Production tax 2,682,137
Exploration 747,115
Abandonment 541,942
Depreciation and depletion 14,254,237
General and administrative 4,698,586
Other, net 263,240
------------
Total costs and expenses 33,164,447
------------
Income before provision for federal income taxes 3,691,785
Provision for federal income taxes 240,000
------------
Net Income $ 3,451,785
============
The accompanying notes are an integral part of the unaudited financial
statements.
GREENHILL PETROLEUM CORPORATION
(A Wholly-Owned Subsidiary of Western Mining Corporation (USA))
STATEMENT OF STOCKHOLDER'S EQUITY (UNAUDITED)
for the six months ended December 31, 1996
</TABLE>
<TABLE>
<CAPTION>
Total
Common Paid-in Accumulated Stockholder's
Stock Capital Deficit Equity
------ ------------ ------------- -------------
<C> <C> <C> <C>
Balances at June 30, 1996 $2,100 $216,000,000 $(36,485,857) $ 179,516,243
Capital distribution to Parent -- (10,000,000) -- (10,000,000)
Net Income -- -- 3,451,785 3,451,785
------ ------------ ------------ -------------
Balances at December 31, 1996 $2,100 $206,000,000 $(33,034,072) $ 172,968,028
====== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
<PAGE>
GREENHILL PETROLEUM CORPORATION
(A Wholly-Owned Subsidiary of Western Mining Corporation (USA))
STATEMENT OF CASH FLOWS (UNAUDITED)
for the six months ended December 31, 1996
Cash flows from operating activities:
Net income $ 3,451,785
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and depletion 14,254,237
Loss on sale of assets 219,405
Exploration expense 747,115
Abandonment expense 541,942
Changes in assets and liabilities:
Accounts receivable (202,224)
Inventories 867,238
Prepaid expenses and other 393,402
Other noncurrent assets 302,611
Accounts payable (359,482)
Accrued liabilities (1,143,665)
Due to Affiliates 89,120
Other long-term liabilities (16,162)
-----------
Net cash provided by operating
activities 19,145,322
-----------
Cash flows from investing activities:
Capital expenditures (12,119,255)
Proceeds on sale of oil and gas assets 6,071
-----------
Net cash used in investing activities (12,113,184)
-----------
Cash flows from financing activities:
Capital distribution paid to Parent (10,000,000)
-----------
Net cash used in financing activities (10,000,000)
-----------
Net decrease in cash and cash equivalents (2,967,862)
Cash and cash equivalents at beginning of period 11,871,373
-----------
Cash and cash equivalents at end of period $ 8,903,511
===========
The accompanying notes are an integral part of the unaudited financial
statements.
Greenhill Petroleum Corporation
(A Wholly-Owned Subsidiary of Western Mining Corporation (USA))
Notes to Financial Statements (Unaudited)
December 31, 1996
1. Formation and Operations of the Company
=======================================
Greenhill Petroleum Corporation ("Greenhill" or the "Company") was
incorporated as a wholly-owned subsidiary of Western Mining Corporation (USA)
(the "Parent") on May 12, 1987 to explore, develop, acquire and produce oil
and gas reserves in the Permian Basin, Texas and Louisiana Gulf Coast and
offshore Gulf of Mexico. Western Mining Corporation (USA) is ultimately a
wholly-owned subsidiary of WMC Limited ("WMC").
2. Summary of Significant Accounting Policies
==========================================
Basis of Presentation
---------------------
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles of the United States of America.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Inventories
-----------
Inventories consist principally of pipe and tubing, and are recorded at the
lower of cost or market. Cost is determined using the average-cost method.
Oil and Gas Properties and Equipment
------------------------------------
The Company utilizes the successful efforts method of accounting for costs
incurred in the exploration and development of oil and gas properties. Costs
incurred in the acquisition and exploratory drilling of oil and gas properties
are initially capitalized and either subsequently expensed if the properties are
determined not to have proved reserves or reclassified as a producing asset if
proved reserves are discovered. All costs of drilling development wells,
including dry hole costs and the cost of three-dimensional seismic surveys of
proved acreage, are capitalized. Exploratory geological and geophysical costs
and delay rentals are expensed in the period they are incurred.
Proved leasehold costs, development costs, and subsurface equipment costs
are amortized using the units-of-production method based on engineering
estimates of proved reserves for leasehold costs and proved developed reserves
for development costs and subsurface equipment costs. Estimated future
dismantlement costs are amortized on the unit-of-production method using proved
reserves. Unproved oil and gas leases were reviewed as of December 31, 1996
for impairment.
Effective July 1, 1996, the Company adopted the Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 121
requires that an impairment loss be recognized when the carrying amount of an
asset exceeds the sum of the undiscounted estimated future cash flow of the
asset. Under SFAS No. 121 the Company reviewed the impairment of oil and gas
properties on an economic basis (by field) and determined that there was no
impairment as of December 31, 1996.
Costs relating to surface equipment and support facilities are depreciated
using methods and rates designed to amortize the cost of such assets over their
useful life. The expected useful lives of these assets range from five to ten
years.
Other property and equipment is recorded at cost and is depreciated
principally using the straight-line method over the expected useful lives of
the assets ranging from three to thirty years. Expenditures for normal repairs
and maintenance are charged to expense as incurred. Expenditures for major
renewals and improvements that extend the original estimated useful economic
lives of the assets are capitalized. The cost of assets sold or abandoned and
the related accumulated depreciation is eliminated from the accounts and the
related gain or loss is recorded in operations in the year of disposition.
Income Taxes
------------
The Company joins with Parent in filing a consolidated federal income tax
return. Parent has its subsidiaries pay a charge or receive a credit
equivalent to federal income tax, based on the separate taxable income or loss
of each subsidiary.
3. Current Maturities of Long-Term Debt
====================================
Long-term debt consisted of a promissory note with an original principal
amount of $651,910 which was issued in connection with the acquisition of oil
and gas properties. Interest of 6.88% is payable semiannually. The debt is
collateralized by the oil and gas properties acquired and an assignment of
production. The remaining principal of $290,045 is due April 28, 1997 and has
been classified as a current liability as of December 31, 1996.
4. Income Taxes
============
Deferred tax assets and liabilities are recorded for the estimated future
tax consequences attributable to the differences between the tax basis of
assets and liabilities and their financial reporting amounts. The primary
sources for these differences are intangible drilling costs, depreciation and
depletion and geological and geophysical costs.
The difference between the provision for federal income taxes for the six
months ended December 31, 1996 and the amount computed using the statutory
federal rate is primarily due to the utilization of tax benefits generated by
other members of the consolidated group.
Significant components of the Company's net deferred tax asset and
liability at December 31, 1996 is presented below:
Deferred tax assets:
Net operating loss carryforward $18,428,000
Other, net 696,000
-----------
19,124,000
Deferred tax liability:
Oil and gas properties 10,146,000
Less: valuation allowance (8,978,000)
----------
Net deferred tax liability $ --
==========
At December 31, 1996, the Company, which files a consolidated tax return
with its Parent, estimates operating loss carryforwards available for federal
income tax purposes of approximately $54,000,000, expiring at various dates
through 2009.
In accordance with the terms of the Company's tax allocation agreement
with its Parent, the Company is reimbursed for net operating losses utilized by
the Parent. The Company estimates for the six month period ended December 31,
1996, $240,000 will be due to the Parent for taxable income generated by the
Company. Any taxable income generated by Greenhill is expected to be absorbed
by other entities in the consolidated tax return.
5. Related Party Transactions
==========================
No subsidiaries of WMC have allocated general and administrative expenses
to the Company for the six months ended December 31, 1996.
Greenhill provides medical and long-term disability insurance benefits to
its employees through a plan sponsored and administered by WMC (USA).
Greenhill reimburses WMC (USA) for the actual cost of providing benefits to
Greenhill employees. Accrued liabilities at December 31, 1996 include $261,359
associated with these benefits. Effective January 1, 1997, Greenhill began
providing the same medical and long-term disability insurance benefits to its
employees through a plan sponsored and administered by Greenhill.
6. Commitments and Contingencies
=============================
The Company leases office space and various equipment under operating
leases expiring through 2000. The leases provide for minimum annual rentals,
plus in certain instances, payment for taxes, insurance, maintenance, etc.
Certain leases also contain renewal provisions.
At December 31, 1996, minimum rental commitments under noncancelable
operating leases having terms in excess of one year were as follows:
1997 $ 704,944
1998 704,944
1999 704,944
2000 704,944
2001 234,981
-----------
$ 3,054,757
===========
Minimum payments have not been reduced by minimum sublease rentals of
approximately $50,000 due in the future under noncancelable subleases.
Rental expense for the six months ended December 31, 1996 was approximately
$232,000.
At December 31, 1996, the Company has open letter of credit agreements in
the amount of $11,664,084. As of December 31, 1996, the Company had no balances
outstanding under these letter of credit agreements.
7. Employee Benefit Plan
=====================
The Company participates in a defined contribution plan sponsored by its
Parent which covers substantially all employees of the Company. Employees are
eligible to participate in the plan after six months of service and upon
reaching the age of twenty-one. Under the plan, the Company makes
profit-sharing contributions of 3% of each participant's compensation. These
profit-sharing contributions become fully vested after a participant has
completed 5 years of service. Additionally, the Company makes a matching
contribution of up to 3% of each participant's annual compensation. These
matching contributions vest immediately. The Company's contributions to the
plan were approximately $200,000 for the six months ended December 31, 1996.
Statement of Cash Flows (Supplemental Disclosure)
=================================================
During the six months ended December 31, 1996, the Company paid cash for
interest of approximately $50,218.
9. Concentration of Credit Risk
============================
The Company and other affiliated companies participate in WMC's cash
management system. The Company's cash balances, which are primarily with major
domestic and international banks, may from time-to-time exceed the banks'
insured limits. The Company also invests in United States treasury notes and
treasury bills, which generally bear minimal risk. The Company has not
incurred any losses related to these investments.
The Company's receivables are primarily due from oil and gas companies
located in the United States. The Company performs ongoing credit evaluations
of its customers' financial condition and, generally, requires collateral from
its customers when necessary.
10. 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. The Company's most significant financial estimates are those
based on remaining oil and gas reserves. Actual results could differ from those
estimates.
11. Disposition of the Company
==========================
On August 22, 1996, WMC announced its plan to sell the majority of its
petroleum assets, including the Company. The Company has committed to pay
severance benefits and bonuses to employees that remain with the Company until
the Company is sold. WMC (USA) intends to indemnify the buyer of Greenhill for
the cost of these benefits. No adjustments have been recorded in the financial
statements, including the severance program, to give effect to this proposed
transaction.
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTIOIN>
Quarters Ended
--------------------------
09/30/96 12/31/96
----------- -----------
<C> <C>
Revenues $17,482,588 $19,074,926
----------- -----------
Gross profit (1) $ 3,971,244 $ 5,672,706
----------- -----------
Operating income
(loss) $ 1,908,000 $ 1,748,307
----------- -----------
Net Income (loss) $ 1,923,837 $ 1,527,948
----------- -----------
Net Income (loss) per
common share and
common share
equivalent $ 916.11 $ 727.59
----------- -----------
</TABLE>
Notes:
(1) Gross profit consists of oil and gas revenues less lease operating
expenses, production taxes and depreciation and depletion.
<PAGE>
(b) Pro Forma Financial Information
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma statement of operations for the year ended
December 31, 1996 gives effect to the 1996 recapitalization of MESA's balance
sheet that entailed issuing $265 million in new preferred equity and repaying
and refinancing substantially all of MESA's $1.2 billion of then existing
long-term debt (the "Recapitalization") and the Greenhill Acquisition and
additional borrowings to finance such acquisition, as if these events had
occurred on January 1, 1996. The unaudited pro forma balance sheet as of
December 31, 1996 gives effect to the Greenhill Acquisition as if it had
occurred on December 31, 1996. The Greenhill Acquisition will be accounted for
using the purchase method of accounting.
The unaudited pro forma condensed consolidated financial statements are
based on estimates and assumptions related to the accounting for the proposed
Greenhill Acquisition which are subject to subsequent determination and more
detailed analyses, appraisals and evaluations of the specific assets and
liabilities. The final allocation of the purchase price of the acquisition may
differ from the amounts contained in these unaudited pro forma condensed
consolidated financial statements.
The following unaudited condensed consolidated financial statements should
be read in conjunction with (i) "Management's Discussion and Analysis of
Financial Condition and Results of Operations," (ii) the Consolidated Financial
Statements of MESA and the related notes thereto, which are set forth in its
Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference, and (iii) the Historical Financial Statements
of Greenhill for the fiscal year ended June 30, 1996 and for the six months
ended December 31, 1996 (unaudited) and the related notes thereto, which are
set forth in this Form 8-K/A and incorporated herein by reference.
The pro forma information is not necessarily indicative of the results that
might have occurred had the transactions taken place at the beginning of the
period specified and is not intended to be a projection of future results.
Additionally, future results may vary significantly from the results reflected
in the Unaudited Pro Forma Condensed Financial Statements due to normal
production declines, changes in prices, future transactions and other factors.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Post-
MESA Acquisition Greenhill
Historical Greenhill and Other Pro Forma
Consolidated Historical Adjustments Consolidated
------------ ----------- ----------- ------------
<C> <C> <C> <C>
Assets (a)
- ------
Current Assets:
Cash and cash investments $ 16,681 $ 8,904 (2,100)(b) $ 23,485
Accounts and notes receivable 63,410 7,907 -- 71,317
Other 4,186 953 -- 5,139
---------- -------- -------- ----------
Total current assets 84,277 17,764 (2,100) 99,941
Property, Plant and Equipment:
Oil and gas properties, wells and
equipment using the successful
efforts method of accounting 1,975,684 346,329 (85,445)(c) 2,236,568
Office and other 36,740 5,166 (3,168)(c) 38,738
Accumulated depreciation, depletion
and amortization (966,040) (186,145) 186,145 (c) (966,040)
---------- -------- -------- ----------
1,046,384 165,350 97,532 1,309,266
Other Assets:
Gas balancing receivables 61,204 -- -- 61,204
Other 22,014 2 2,100 (b) 24,116
---------- -------- -------- ----------
Total Assets $1,213,879 $183,116 $ 97,532 $1,494,527
========== ======== ======== ==========
Liabilities and Stockholder's Equity
- ------------------------------------
Current Liabilities 69,500 10,125 79,625
Long-term debt 802,772 270,500 (d) 1,073,272
Deferred revenue 14,977 -- -- 14,977
Other liabilities 61,136 23 -- 61,159
Contingencies
Stockholder's Equity:
Series A preferred stock 604 604
Series B preferred stock 612 612
Common stock 643 2 (2) (c) 643
Additional paid-in capital 656,805 206,000 (206,000) (c) 656,805
Accumulated deficit (393,170) (33,034) 33,034 (c) (393,170)
---------- -------- -------- ----------
Total Liabilities and
Stockholder's Equity $1,213,879 $183,116 97,532 $1,494,527
========== ======== ======== ==========
</TABLE>
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
AS OF DECEMBER 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Adjustments
MESA -----------------------------------
Historical Recapital- Greenhill Acquisition Pro Forma
Consolidated ization Historical Adjustments Consolidated
------------ ---------- -------- ----------- ------------
<C> <C> <C> <C> <C>
(e)
Revenues:
Natural gas 184,595 17,094 201,689
Natural gas liquids 97,561 97,561
Oil and condensate 18,180 53,850 72,030
Other 11,075 11,075
-------- ------- ------ ----------- -------
Total revenues 311,411 70,944 382,355
Costs and expenses:
Lease operating 54,447 17,786 72,233
Production and
other taxes 20,071 5,313 25,384
Exploration charges 5,431 7,341 12,772
General & administrative 31,473 (9,273)(f) 9,543 31,743
Depreciation, depletion
and amortization 103,301 29,355 2,633 (g) 135,289
-------- ------- ------ ----------- -------
Total costs and expenses 214,723 (9,273) 69,338 2,633 277,421
Operating income 96,688 9,273 1,606 (2,633) 104,934
Net interest expense (113,386) 34,530 (h) 729 (18,935)(d) (97,062)
Other income (loss) 25,037 (411) 24,626
-------- ------- ------ ----------- -------
Net income (loss) from
continuing operations (i) 8,339 43,803 1,924 (21,568) 32,498
Dividends on
preferred stock (9,522) (12,358)(j) (21,880)
-------- ------- ------ ----------- -------
Net income (loss) from
continuing operations
attributable to common (1,183) 31,445 1,924 (21,568) 10,618
Net income (loss) per
common share (0.02) 0.16
Common shares 65,129 65,129
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(a) Represents the balances, as of December 31, 1996, of the assets and
liabilities of Greenhill as set forth in the unaudited balance sheet
included in the Greenhill financial statements included in Item 7(a)(2)
of this Form 8-K/A.
(b) Assumes debt issue costs to be incurred in connection with the amendment
of MESA's bank credit facility (the "Credit Facility") of $2.1 million
dollars are funded out of existing cash. Proceeds of the Credit Facility
will be used to fund the Greenhill Acquisition.
(c) Reflects adjustments to (i) eliminate the historical basis of certain
assets and liabilities of Greenhill, (ii) eliminate the book value of
Greenhill's equity and (iii) reflect the adjusted basis of these
items using the purchase method of accounting.
(d) Reflects the assumption that 100% of the acquisition price will be funded
by additional borrowings under the Credit Facility at a 7% annual rate of
interest.
(e) Represents the unaudited Statement of Operations of Greenhill for the
year ended December 31, 1996, derived from the unaudited statement of
operations included in the Greenhill financial statements included in
Item 7(a)(2) of this Form 8-K/A.
(f) In conjunction with the Recapitalization and the concurrent change of
control of the Board of Directors, MESA reduced its staff and eliminated
certain departments and activities. This adjustment reflects the
severance costs associated with the elimination of 86 positions from the
total of 385 at December 31, 1995, and a significant downsizing of MESA's
natural gas vehicle equipment business.
(g) Adjustments to reflect depreciation, depletion and amortization expense
calculated on a unit of production basis applied to the adjusted basis of
the acquired properties and entities (excluding the $82,882,000 of the
purchase price allocated to unproved properties) using the purchase method
of accounting.
(h) Reflects the reduction of interest expense as a result of the
Recapitalization. Interest expense adjustments include the following
(in thousands):
Elimination of interest on former debt 73,335
Additional interest on new debt for full year (38,805)
-------
Total adjustment 34,530
=======
(i) Net income (loss) from continuing operations excludes a $59.4 million
extraordinary loss on debt extinguishment for MESA in 1996 related to the
Recapitalization and a $240,000 provision for federal income taxes for
Greenhill in 1996.
(j) Reflects the pro forma adjustment for an 8% dividend on preferred stock
of MESA payable quarterly in additional shares of preferred stock for at
least the first four years after issuance as if the preferred stock had
been issued January 1, 1996.
(c) Exhibits
(Asterisk indicates exhibits are incorporated by reference herein).
*10 Stock Purchase Agreement, dated February 7, 1997, between
Mesa Operating Co. and Western Mining Corporation (USA)
(Exhibit 10 to MESA's Form 8-K dated February 7, 1997).
*20.1 Summary Report on MESA's Hugoton and West Panhandle field
properties relating to proved oil and gas reserves at
December 31, 1996, as prepared by Williamson Petroleum
Consultants, Inc. (Exhibit 20 to MESA's Form 10-K dated
December 31, 1996).
20.2 Summary Report on Greenhill's properties relating to
proved oil and gas reserves at December 31, 1996, as
prepared by Miller & Lents, Ltd.
*99.1 Press release dated February 10, 1997 (Exhibit 99 to MESA's
Form 8-K dated February 7, 1997).
*99.2 MESA's Annual Report on Form 10-K for the year ended
December 31, 1996.
<PAGE>
SIGNATURE
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, thereunto duly authorized.
MESA Inc.
Date: April 2, 1997 By: /s/ Stephen K. Gardner
-------------------------------------
Stephen K. Gardner, Senior Vice
President and Chief Financial Officer
February 24, 1997
Mesa, Inc.
1400 Williams Square West
5205 N. O'Connor Blvd.
Irving, TX 75039-3746
Re: Greenhill Petroleum Corporation
Reserve and Net Revenue Forecast
As of December 31, 1996
SEC Price Case
Gentlemen:
At your request, we estimated the Proved Reserves and future net
revenue as of December 31, 1996 attributable to the Greenhill Petroleum
Corporation interests in properties located onshore and offshore Louisiana
and onshore Texas and New Mexico. In preparing these estimates, we employed
costs as instructed by Greenhill Petroleum Corporation; we employed prices
as of December 31, 1996 as shown in Table 1. These estimates are designated
as the SEC Price Case.
The results of these evaluations for the Proved Reserves as of December
31, 1996 are as follows:
<TABLE>
<CAPTION>
Proved Proved Proved Proved
Producing Nonproducing Undeveloped Total
Reserves Reserves Reserves Reserves
-------------------------------------------
<C> <C> <C> <C>
Net Oil, MBbls. 14,808 5,591 3,031 23,430
Net Sales Gas, MMcf 21,177 10,635 10,085 41,897
Future Net Revenues
Undiscounted, M$ 262,415 98,703 79,793 440,911
Discounted at 10%, M$ 188,253 58,872 53,134 300,259
<TABLE\>
Proved Reserves and future net revenue were estimated in accordance with
the provisions contained in Securities and Exchange Commission Regulation
S-X, Rule 4-10 as defined in Attachment 1 except that we have no judgment
regarding the instructed costs.
Future net revenues as used herein are defined as the total revenues
attributable to (1) the net working interests less royalties, severance and
ad valorem taxes, operating costs, and future capital expenditures and (2)
the net mineral interests, production payments, or overriding royalty
interests owned by Greenhill Petroleum Corporation. In the projections,
future net revenues were discounted at 10 percent per annum as requested.
Estimates of future net revenues and discounted future net revenues are
not intended to represent our opinion of the fair market values for the
estimated reserves.
We employed the lease and well operating costs, capital costs,
abandonment costs, and the scheduling thereof as provided by Greenhill
Petroleum Corporation. Required future capital expenditures, operating
costs, and state severance and ad valorem taxes were deducted from revenues
as appropriate for each individual property. For offshore and inland water
properties, future capital requirements for abandonment of the wells and
platforms were included. Abandonment costs were included for onshore
properties except in those cases where salvage values exceeded abandonment
costs. Investigations of environmental issues such as the costs, if any, of
restoring properties to satisfy environmental standards were beyond the
scope of this assignment.
The reserves reported herein were based on a detailed review of the
geological and engineering data and were estimated from decline curve
analyses, water-oil ratio trends, material balance calculations,
volumetric calculations, analogous methods, or a combination of these
methods. Reserve estimates from analogies and from volumetric calculations
are often less certain than reserve estimates based on well performance
obtained over a period during which a substantial portion of the reserves
was produced.
The evaluations presented in this report, with the exceptions of those
parameters specified by others, reflect our informed judgments based on
accepted standards of professional investigation but are subject
to those generally recognized uncertainties associated with interpretation
of geological, geophysical, and engineering information. Government
policies and market conditions different from those employed in
this study may cause the total quantity of oil or gas to be recovered,
actual production rates, prices received, or operating and capital costs to
vary from those presented in this report.
In conducting these evaluations we relied upon production histories,
accounting and cost data, and other financial, operating, engineering, and
geological data supplied by Greenhill Petroleum Corporation. To a lesser
extent, data existing in the Miller and Lents, Ltd. files and data obtained
from commercial services were used. We relied upon the Greenhill Petroleum
Corporation representation of the ownership interests. No independent
verifications of these interests were made by Miller and Lents, Ltd.
Very truly yours,
MILLER AND LENTS, LTD.
By /s/
-------------------------------
J. L. Powell
Vice President
JLP/hsd
<PAGE>
TABLE 1
GREENHILL PETROLEUM CORPORATION
-------------------------------
Prices as of
December 31, 1996
</TABLE>
<TABLE>
<CAPTION>
Gas Price Gas Price Oil Price
Field ($/MMBtu) ($/Mcf) ($Bbl)
------------------------------------------------------------------
<C> <C> <C>
Eugene Island Block 208 3.750 4.129 25.13
Timbalier Bay 3.740 4.069 25.14
Grand Bay 3.516 3.829 25.45
Delta Farms 3.740 4.260 25.20
Bully Camp -- -- --
Rich Ranch 3.630 4.320 24.73
Bobcat Run 3.640 3.960 23.95
Linscomb 3.510 4.001 24.26
Lovington San Andres Unit 2.050 2.909 24.23
Lovington Paddock Unit 2.230 3.238 24.23
West Lovington Unit 2.660 4.365 24.23
Midway State Unit 2.650 3.975 24.78
West San Andres Unit 1.100 1.110 23.69
Emma Cowden 2.780 4.167 23.88
Emma San Andres Unit 2.780 4.167 23.88
</TABLE>
<PAGE>
ATTACHMENT 1
Proved Reserves Definitions
In Accordance With
Securities and Exchange Commission Regulation S-X
-------------------------------------------------
Proved Oil and Gas Reserves
---------------------------
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e.,
prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements but not on escalations based upon future conditions.
1. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (a) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any, and
(b) the immediately adjoining portions not yet drilled but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
2. Reserves which can be produced economically through application
of improved recovery techniques (such as fluid injection) are included in
the proved classification when successful testing by a pilot project or the
operation of an installed program in the reservoirs provides support for the
engineering analysis on which the project or program was based.
3. Estimates of proved reserves do not include the following:
a. Oil that may become available from known reservoirs but is
classified separately as indicated additional reserves.
b. Crude oil, natural gas, and natural gas liquids, the
recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics, or
economic factors.
c. Crude oil, natural gas, and natural gas liquids, that may
occur in undrilled prospects.
d. Crude oil, natural gas, and natural gas liquids, that may
be recovered from oil shales, coal, gilsonite, and other
such sources.
Depending upon their status of development, proved reserves are
subdivided into proved developed reserves and proved undeveloped reserves.
Proved Developed Oil and Gas Reserves
-------------------------------------
Proved developed oil and gas reserves are reserves that can be expected
to be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should
be included as proved developed reserves only after testing by a pilot
project or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.
Proved Undeveloped Oil and Gas Reserves
---------------------------------------
Proved undeveloped oil and gas reserves are reserves that are expected
to be recovered from new wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required for recompletion. Reserves
on undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled.
Proved reserves for other undrilled units can be claimed only where it can
be demonstrated with certainty that there is continuity of production from
the existing productive formation. Under no circumstances should estimates
for proved undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual
tests in the area and in the same reservoir.
