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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K/A
Amendment No. 2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report : October 10, 1997
Commission File Number 0-26662
PANACO, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction or incorporation)
43 - 1593374
(IRS Employer Identification No.)
1050 West Blue Ridge Boulevard, PANACO Building,
Kansas City, MO 64145-1216
(Address of principal executive offices) Zip Code)
Registrant's telephone number, including area code: (816) 942 - 6300
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<PAGE>
Item 2. Acquisition or Disposition of Assets
On July 17, 1997 PANACO, Inc. agreed to acquire Goldking Companies, Inc.
and on July 30, 1997 entered into the Restated Merger Agreement with The Union
Companies, Inc. ("Union"), Leonard C. Tallerine, Jr. and Mark C. Licata,
(together, the "Shareholders"). Prior to the merger, Messrs. Tallerine and
Licata owned all of the capital stock of Union. Union was a holding company
which owned directly or indirectly all of the capital stock of Goldking
Companies, Inc., Goldking Oil and Gas Corp., Goldking Trinity Bay Corp.,
Goldking Production Company, Hill Transportation Co., Inc. and Umbrella Point
Gathering, L.L.C. Union was merged into a newly formed subsidiary of PANACO,
Goldking Acquisition Corp. ("Goldking"). The transaction was closed on July 31,
1997. Goldking will be operated as a wholly owned subsidiary of PANACO. Leonard
C. Tallerine, Jr., will remain as Chairman and CEO of Goldking and become a
Vice-President and a Director of PANACO and Mark C. Licata will become
Vice-President-General Counsel and a Director of PANACO.
Goldking was founded in 1968 and began by exploring for oil and gas along
the Texas and Louisiana Gulf Coast. It grew as an independent oil and gas
company by sponsoring limited partnership drilling funds during the 1970's and
early 1980's, eventually participating in the drilling of over 1,000 wells and
operating over 420 wells during the period of 1981 to 1986. Goldking began
converting the limited partnership interests into working interests in the mid
to late 1980's. It emphasized contract operating activities, while providing
sound operating results and financial conservatism for the working interest
owners. Since the acquisition by the Messrs. Tallerine and Licata in 1991,
Goldking returned to its exploration and production roots as an aggressive
independent explorationist, producer and operator.
With the acquisition PANACO obtained estimated additional proved reserves
of 50 Bcf equivalent as of July 1, 1997 from approximately 178 wells located
throughout the Gulf Coast, along with another estimated 75 Bcf equivalent of
probable and possible reserves. The acquisition included a sizable and
attractive portfolio of exploration prospects developed using 3-D seismic data,
an extensive development program and a seasoned staff of 17 oil and gas
professionals experienced in all aspects of Gulf Coast operations. PANACO
acquired two pipelines as a part of the transaction. The acquisition gives
PANACO a prominent position in the currently very active Lower Frio/Vicksburg
area in Trinity Bay, Chambers County, Texas with existing production,
exploration prospects generated using recent 3-D seismic data and significant
pipeline capacity.
Goldking brings to PANACO a complement of reserves with approximately 43%
of its proved reserves in oil and an average reserve life of over twelve years.
The acquisition also increases PANACO's presence in the onshore and state waters
area of the Gulf Coast, where Goldking has a good reputation, name recognition
and expertise and experience in operations. Over the last eighteen months
Goldking has had a 67% success rate on wells drilled with the support of 3-D
seismic. Over 88% of its reserves are operated, giving the Company control over
its reserves. This has allowed Goldking to increase its proved reserves by more
than five times since 1995 and increase total reserves by more than six times
since 1995.
The purchase price for the transaction consisted of $7,500,000 in cash,
$6,000,000 in notes and 3,154,930 PANACO common shares. Of the cash portion,
$6,500,000 was advanced on PANACO's revolving bank loan. Goldking had
$13,000,000 in net liabilities as of July 31, 1997. A finder's fee was paid to
First Union Capital Markets Corp. with 84,000 PANACO common shares. The
transaction will be accounted for as a purchase, with the value of the PANACO
common shares recorded at $4.45 per share.
<PAGE>
<TABLE>
<CAPTION>
Goldking Oil & Gas Corp.
Well List
Lease Name Field County State Reservoir WI NRI
<S> <C> <C>
CRAWFORD 161 NO. 2 ANGELINA JEFFERSON TX UVIGERINA 27.61 20.83
GREAT RIVER DEEP BASTIAN BAY PLAQUEMINES LA LUBBEN/PRAIRIE 33.33 25.07
S/L 14267 EXTENSION BASTIAN BAY PLAQUEMINES LA G-A (P) SAND 33.33 25.07
S/L 14267 NO. 1 BASTIAN BAY PLAQUEMINES LA 7870' SAND 33.33 25.07
S/L 14267 NO. 2 BASTIAN BAY PLAQUEMINES LA G-A (P) SAND 33.33 25.07
S/L 14267 NO.2(BP1) BASTIAN BAY PLAQUEMINES LA G-C (P) SAND 33.33 25.07
S/L 14267 NO.2(BP2) BASTIAN BAY PLAQUEMINES LA G-B (P) SAND 33.33 25.07
S/L 14267 NO.2(BP3) BASTIAN BAY PLAQUEMINES LA G-III (O) SAND 33.33 25.07
SCHWING NO. 1 BAYOU SORREL IBERVILLE LA CIB HAZ 57.13 40.58
BAYOU TORTILLION LOC. 1 BAYOU TORTILLION PLAQUEMINES LA 9750' SAND 16.67 12.49
SCOTT PAPER GU NO. 2-1 BIG ESCAMBIA ESCAMBIA AL SMACKOVER - 0.10
GIANELLONI NO. 1 BURTVILLE N. E. BATON ROUGE LA 11000' DEEP 89.27 68.56
GIANELLONI NO. 4 TWIN BURTVILLE N. E. BATON ROUGE LA 9650' SAND 89.30 67.48
MIAMI CORP "J" NO. 1 CHENIERE PERDUE CAMERON LA A RA SUA 17.12 14.27
MIAMI CORP "J" NO. 4 CHENIERE PERDUE CAMERON LA E SAND RA SUA 31.05 23.85
MIAMI CORP "J" NO. 5 CHENIERE PERDUE CAMERON LA D SAND 31.05 23.85
MIAMI CORP "J" NO. 6 CHENIERE PERDUE CAMERON LA F SAND 53.86 40.61
MIAMI CORP "O" NO. 3 CHENIERE PERDUE CAMERON LA 9100 40.79 32.71
MIAMI CORP "O" NO. 4 CHENIERE PERDUE CAMERON LA 9100 40.79 32.71
MIAMI CORP "O" NO. 6 CHENIERE PERDUE CAMERON LA 8990' SAND 43.93 31.21
MIAMI CORP "O" NO. 7 CHENIERE PERDUE CAMERON LA B-1 SAND 35.28 28.55
I.P. FARMS NO. 2U CHOCOLATE BAYOU, S. BRAZORIA TX FRIO 12,300 6.56 4.78
I.P. FARMS NO. 4 CHOCOLATE BAYOU, S. BRAZORIA TX FRIO 10,700 6.67 4.78
I.P. FARMS NO. 5 CHOCOLATE BAYOU, S. BRAZORIA TX FRIO "E" SAND 10.00 7.50
I.P. FARMS NO. 6 CHOCOLATE BAYOU, S. BRAZORIA TX FRIO MIDDLE 10.00 7.50
CLEMENS LOC. 2 CLEMENS, SOUTH BRAZORIA TX FRIO SANDS 10.00 7.50
CLEMENS LOC. 3 CLEMENS, SOUTH BRAZORIA TX FRIO SANDS 10.00 7.50
CLEMENS S/T 8 GU #1 CLEMENS, SOUTH BRAZORIA TX FRIO "A" 10.00 7.50
BLACKSTONE MIN. A NO. 1 CLEVELAND LIBERTY TX COCKFIELD A 5.66 4.52
DAVIDSON RANCH CENTRAL
PROCESSING FACILITY
Davidson 15 #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson 15 #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson 15 #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson 15 #4 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson 15 #5 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson 15 #6 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson 15 #7 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson 15 #8 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson 15 #9 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson A #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson A #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson A #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson A #4 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson A #5 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson A #6 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Davidson A #7 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen A #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen A #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen A #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen A #4 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen B #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen B #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen B #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen B #4 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen B #5 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen B #6 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen C #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen C #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen C #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen C #5 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen C #6 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen D #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen D #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
McMullen D #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Meybin A #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Meybin A #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Meybin A #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Meybin A #4 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Meybin B #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Meybin B #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Meybin B #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Meybin B #4 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Meybin B #5 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber A #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber A #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber A #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber A #4 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber A #5 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber A #7 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber B #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber B #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber B #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber B #4 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber B #5 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber B #7 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Scheuber B #8 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Wilkins #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Wilkins #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Wilkins #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Wilkins #4 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Wilkins A #1 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Wilkins A #2 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Wilkins A #3 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Wilkins A #4 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
Wilkins A #6 DAVIDSON RANCH CROCKETT TX PENN 7890 * *
DAVIDSON, C.E. III NO. 3 DAVIDSON RANCH CROCKETT TX PENNSYLVANIAN 7890 1.28 0.91
DAVIDSON, C.E. III NO. 4 DAVIDSON RANCH CROCKETT TX PENNSYLVANIAN 7890 1.28 0.91
DDAVIDSON RANCHOM JR A 12 CROCKETT TX PENNSYLVANIAN 7890 1.28 0.96
DAVIDSON, JOE TOM JR. A 2 DAVIDSON RANCH CROCKETT TX PENNSYLVANIAN 7890 1.28 0.96
DAVIDSON, JOE TOM JR. A 4 DAVIDSON RANCH CROCKETT TX PENNSYLVANIAN 7890 1.28 0.96
DEVILLIER, O.C. ET AL 2 DEVILLIER CHAMBERS TX VICKSBURG 100.00 78.01
DEVILLIER, O.C. ET AL 5 DEVILLIER CHAMBERS TX VICKSBURG 100.00 79.00
DOERING RANCH NO. 2 DOERING RANCH FRIO TX BUDA 0.08 0.05
FRANK DOERING NO. 1 DOERING RANCH FRIO TX BUDA 0.08 0.05
FRANK DOERING NO. 3 DOERING RANCH FRIO TX BUDA 0.08 0.05
R.K. HARLAN NO. 1 DOERING RANCH FRIO TX BUDA 0.01 0.01
R.K. HARLAN NO. 4 DOERING RANCH FRIO TX BUDA 0.01 0.01
NE.TCHENIEREAPERDUE NO. 1 CAMERON LA AMPH B 51.29 39.26
ELAM UNIT NO. 1-A EL CAMPO WHARTON TX YEGUA D-3 - 0.06
MACH NO. 1 EL CAMPO WHARTON TX YEGUA - 0.47
BARTOS NO. 1 EL CAMPO NE WHARTON TX YEGUA - 0.03
PROSEN, R.J. NO. 1 FANT LIVE OAK TX WILCOX 11700 0.99 0.76
DEL VALLE NO. 1 FORT ST. PHILIP PLAQUEMINES LA G SAND 43.33 33.45
FORT ST. PHILIP LOC 1 FORT ST. PHILIP PLAQUEMINES LA G SAND 43.33 33.45
MCLANE TEXAS TRUST E #2 GARWOOD COLORADO TX FRIO 3200 0.09 0.07
WILBERTS "C" NO. 1 GROSS TETE W. BATON ROUGE LA ROWE RA SUA 48.10 37.56
HERBERT-BROUSSARD B-1 GUM ISLAND JEFFERSON TX HACKBERRY 4 0.03 0.02
POINT RAY LOC. 2 HALTER ISLAND TERREBONNE LA UPPER MIOCENE 30.00 22.80
HELIS #1 IBERIA, S.W. IBERIA LA MA - 5 SAND 37.59 23.09
HELIS #4 IBERIA, S.W. IBERIA LA MA-3 36.61 22.49
MCVEA NO. 1 IRENE EAST BATON ROUGE LA TUSC "C" - 1.27
U TUSC RA SU FIELD UNIT IRENE EAST BATON ROUGE LA UPPER TUSC "A" & "B" - 0.11
A L COX ET AL 33-5 #1 JOHNS RANKIN MS SMACKOVER - 0.24
CALEY T JONES 33-10 NO. 2 JOHNS RANKIN MS SMACKOVER - 0.24
E N ROSS UNIT 34-14 NO. 1 JOHNS RANKIN MS SMACKOVER - 0.28
E N ROSS UNIT 34-14 NO. 3 JOHNS RANKIN MS SMACKOVER - 0.28
LLAKECCOMORES. WIDE UNIT JASPER MS SMACKOVER - 0.70
MIAMI CORP "D" NO. 2 LITTLE CHENIERE CAMERON LA 6400' SAND - -
MIAMI CORP "P" NO. 1 LITTLE CHENIERE CAMERON LA 7470' SAND 44.16 30.03
MIAMI CORP "S" NO. 2 LITTLE CHENIERE CAMERON LA 7080 SD - -
BROUGHTON WE 11-6 #1 LOVETTS CREEK MONROE AL SMACKOVER - 2.00
CMONTICELLORBACH NO. 1 LAWRENCE MS SLIGO 10.20 7.85
DALTON LABORDE NO.1 NESSER E. BATON ROUGE LA NS 5500 RASU 80.63 57.61
DALTON LABORDE NO.2 NESSER E. BATON ROUGE LA NS 5500 RASU 57.82 44.46
DALTON LABORDE NO.3 NESSER E. BATON ROUGE LA NS 5500 RASU - -
G-MEN LOC. 1 NUECES BAY NUECES TX MID FRIO 100.00 78.99
BIRDSONG GU NO.1 OAK HILL GREGG TX COTTON VALLEY - 0.02
COLLIER GU NO.1 OAK HILL GREGG TX COTTON VALLEY - -
LAKE CHEROKEE G.U. NO.1 OAK HILL GREGG TX COTTON VALLEY - -
MARY C. ARMSTRONG NO. 2 OVERTON ADAMS MS BARKSDALE 24.82 18.62
MARY C. ARMSTRONG NO. 3 OVERTON ADAMS MS BARKSDALE 24.82 18.62
MARY C. ARMSTRONG NO. 6 OVERTON ADAMS MS BARKSDALE - -
VAUGHEY NO. 1 OWEN CREEK FRANKLIN MS BARKSDALE 36.90 28.86
A. B. LAWRENCE PETKAS CHAMBERS TX FRIO 7650 - -
TROY CASEY LEASE PETKAS CHAMBERS TX FRIO 7650 3.60 2.50
YOCKEY NO. 1 PHASE FOUR WHARTON TX YEGUA 10500 - 0.07
AGNES WEST PLACEDO EAST VICTORIA TX FRIO 6200 0.37 0.28
LEFEBVRE NO. 1 PORT ALLEN W. BATON ROUGE LA DEEP 100.00 75.00
MARTINEZ A NO. 1 RINCON STARR TX 5530' SAND 20.41 14.85
RF FEDERAL NO. 1 ROXIE FRANKLIN MS BENBROOK 36.90 32.83
RF FEDERAL NO. 2 ROXIE FRANKLIN MS MCKITTRICK - -
M. D. D. DUPONT NO. 1 SCOTT LAFAYETTE LA STUTES RB SUA - 3.00
CROSBY SR NO. 1 TAR CREEK NORTH WILKINSON MS MCKITTRICK - -
CROSBY SR NO. 2 TAR CREEK NORTH WILKINSON MS WILSON 30.01 22.51
STATE TRACT 73-3A(RC1) UMBRELLA POINT CHAMBERS TX FRIO F-1 SAND 100.00 85.00
STATE TRACT 74 F-5 UNIT UMBRELLA POINT CHAMBERS TX FRIO F-5 SAND 100.00 83.50
STATE TRACT 74-3A UMBRELLA POINT CHAMBERS TX FRIO F-14 SAND 100.00 83.50
STATE TRACT 74-5 UMBRELLA POINT CHAMBERS TX FRIO F-8 SAND 100.00 83.50
STATE TRACT 74-9 UMBRELLA POINT CHAMBERS TX FRIO F-10 SAND 100.00 83.50
STATE TRACT 87 F-5 UNIT UMBRELLA POINT CHAMBERS TX FRIO F-5 SAND 100.00 83.50
STATE TRACT 87-1(RC1) UMBRELLA POINT CHAMBERS TX FRIO F-1 SAND 100.00 83.50
STATE TRACT 87-10(RC1) UMBRELLA POINT CHAMBERS TX FRIO F-11 SAND 100.00 83.50
STATE TRACT 87-11U(RC1) UMBRELLA POINT CHAMBERS TX FRIO F-8 SAND 100.00 83.50
STATE TRACT 87-12 L UMBRELLA POINT CHAMBERS TX FRIO F-15 SAND 100.00 83.50
STATE TRACT 87-6U UMBRELLA POINT CHAMBERS TX FRIO F-4 SAND 100.00 83.50
STATE TRACT 87-9 UMBRELLA POINT CHAMBERS TX FRIO F-8 - -
STATE TRACT 88 F-15 UNIT UMBRELLA POINT CHAMBERS TX FRIO F-15 100.00 85.00
STATE TRACT 88 F-5 UNIT UMBRELLA POINT CHAMBERS TX FRIO F-5 100.00 85.00
STATE TRACT 88-13B UMBRELLA POINT CHAMBERS TX FRIO F-10 SAND 100.00 85.00
STATE TRACT 88-14B L UMBRELLA POINT CHAMBERS TX FRIO F-5 SAND 100.00 85.00
STATE TRACT 88-5B(RC1) UMBRELLA POINT CHAMBERS TX FRIO F-6/7 SAND 100.00 87.50
STATE TRACT 88-6B(RC1) UMBRELLA POINT CHAMBERS TX FRIO F-1A SAND 100.00 87.50
STATE TRACT 88-7B(RC1) UMBRELLA POINT CHAMBERS TX FRIO F-8 SAND 100.00 87.50
BRIGHT SPOT NO. 1 UMBRELLA POINT DEEP CHAMBERS TX FRIO F-18 100.00 83.50
DEEP LOCATION NO. 1 UMBRELLA POINT DEEP CHAMBERS TX FRIO F-28 100.00 83.50
DEEP LOCATION NO. 2 UMBRELLA POINT DEEP CHAMBERS TX FRIO F-28 100.00 83.50
STRAGO-BYRD 26-13 #2 VOCATION MONROE AL 14000 SMACKOVER 12.50 9.37
SL 750 "A" WHITE POINT FIELD NUECES TX 6000' SAND 50.00 39.00
W. LAKE ARTHUR ST W. LAKE ARTHUR JEFF DAVIS LA MIOCENE 20.00 14.40
WYELLOWLCREEKRWESTUNIT WAYNE MS EUTAW - 0.53
</TABLE>
* Average WI % is 1.5 %, average NRI % is .96% for wells included in the
DAVIDSON RANCH CENTRAL PROCESSING FACILITY.
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
(b) Pro Forma Financial Information.
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.
PANACO, Inc.
Date: October 10, 1997 /s/Todd R. Bart
------------------- ----------------------
Todd R. Bart
Secretary
<PAGE>
Report of Independent Auditors
Board of Directors
Goldking Companies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Goldking
Companies, Inc. and Subsidiaries as of December 31, 1996, and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated 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 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Goldking Companies, Inc. and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
September 2, 1997
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Consolidated Balance Sheets
December 31,
1996 1995
-----------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 896,000 $ 193,000
Restricted cash 1,358,000 802,000
Short-term investments 72,000 72,000
Accounts receivable, net 4,193,000 3,142,000
Advances to affiliates, officers, and shareholders 1,486,000 924,000
Prepaid expenses and other 27,000 -
-----------------------------------------------------
Total current assets 8,032,000 5,133,000
Property and equipment:
Oil and gas properties, full-cost method 23,683,000 17,718,000
Pipeline and ROW 1,682,000 1,681,000
Other property 1,104,000 1,097,000
-----------------------------------------------------
26,469,000 20,496,000
Accumulated depreciation, depletion, and amortization
(Note 9) (12,097,000) (9,852,000)
-----------------------------------------------------
14,372,000 10,644,000
Other assets:
Organization, deferred and other costs (Note 7), net of accumulated
amortization of $144,000 and $39,000 at December 31, 1996 and 1995,
respectively
1,106,000 953,000
-----------------------------------------------------
Total other assets 1,106,000 953,000
-----------------------------------------------------
Total assets $ 23,510,000 $ 16,730,000
-----------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
1996 1995
------------------------------------------------------
Liabilities and stockholders' equity Current liabilities:
<S> <C> <C>
Accounts payable $ 3,491,000 $ 2,876,000
Oil and gas distributions payable 2,810,000 2,484,000
Current maturities of long-term debt (Note 3) 1,243,000 1,342,000
Accrued interest 228,000 226,000
Advances from joint-interest participants 502,000 44,000
Accrued and other liabilities 119,000 403,000
------------------------------------------------------
Total current liabilities 8,393,000 7,375,000
Contingent liabilities (Note 6) 713,000 235,000
Long-term debt, net of discount of $786,000 and $929,000 at
December 31, 1996 and 1995, respectively (Note 3)
11,639,000 7,961,000
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 100,000
Issued and outstanding shares - 10,000 - -
Additional paid-in capital 1,753,000 1,753,000
Retained earnings (deficit) 1,012,000 (594,000)
------------------------------------------------------
Total stockholders' equity 2,765,000 1,159,000
======================================================
Total liabilities and stockholders' equity $ 23,510,000 $ 16,730,000
======================================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Consolidated Statement of Operations
Year Ended December 31,
1996 1995
---------------------------------------------
Revenues:
<S> <C> <C>
Oil and gas revenues $ 7,637,000 $ 4,268,000
Interest income 42,000 41,000
Gain on asset sales 430,000 10,000
Miscellaneous 549,000 49,000
---------------------------------------------
Total revenues 8,658,000 4,368,000
Costs and expenses:
Lease operating expense 1,869,000 2,097,000
Taxes 669,000 491,000
Depreciation, depletion, and amortization 2,245,000 2,453,000
General and administrative expense 813,000 741,000
Interest and amortization of debt discount 1,456,000 818,000
---------------------------------------------
Total costs and expenses 7,052,000 6,600,000
=============================================
Net income (loss) $ 1,606,000 $ (2,232,000)
=============================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Consoidated Statements of Stockholders' Equity
Additional Paid-In
Common Stock Retained Earnings Capital
Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ - $ 1,638,000 $ 1,753,000 $ 3,391,000
Net loss - 1995 - (2,232,000) - (2,232,000)
-------------------------------------------------------------------------
Balance at December 31, 1995 - (594,000) 1,753,000 1,159,000
Net income - 1996 - 1,606,000 - 1,606,000
-------------------------------------------------------------------------
=========================================================================
Balance December 31, 1996 $ - $ 1,012,000 $ 1,753,000 $ 2,765,000
=========================================================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
1996 1995
---------------------------------------------
Operating activities
<S> <C> <C>
Net income (loss) $ 1,606,000 $ (2,232,000)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Amortization of debt discount and deferred costs
247,000 110,000
Depreciation, depletion, and amortization 2,245,000 2,453,000
Interest expense included as debt principal 283,000 259,000
Gain on asset sales (430,000) (10,000)
Changes in operating assets and liabilities:
Restricted cash (556,000) (802,000)
Accounts receivable (1,051,000) (1,430,000)
Due from affiliates, net (562,000) (235,000)
Prepaid costs (27,000) 236,000
Other assets (258,000) (314,000)
Accounts payable 615,000 (642,000)
Oil and gas distributions payable 326,000 1,776,000
Accrued and other liabilities (282,000) 452,000
Advances from joint-interest participants 458,000 (179,000)
Contingent liabilities 478,000 235,000
---------------------------------------------
Net cash provided by (used in) operating activities 3,092,000 (323,000)
Investing activities
Proceeds from sale of property and equipment 550,000 2,865,000
Investments in property, plant, and equipment, net (6,093,000) (10,249,000)
---------------------------------------------
Net cash used in investing activities (5,543,000) (7,384,000)
Financing activities
Proceeds from long-term borrowings 4,629,000 8,903,000
Payments on long-term borrowings (1,475,000) (876,000)
Financing costs - (172,000)
---------------------------------------------
Net cash provided by financing activities 3,154,000 7,855,000
---------------------------------------------
Net increase in cash and cash equivalents 703,000 148,000
Cash and cash equivalents at beginning of year 193,000 45,000
=============================================
Cash and cash equivalents at end of year $ 896,000 $ 193,000
=============================================
See accompanying notes.
</TABLE>
<PAGE>
Goldking Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization
Goldking Companies, Inc. and Subsidiaries, a Delaware corporation, was formed on
October 31, 1996 as a wholly owned subsidiary of The Union Companies, Inc.
("TUCI"), and as the direct parent of Goldking Oil & Gas Corp. ("GKOG"), a Texas
corporation; Goldking Production Company ("GKPC"), a Texas corporation; and Hill
Transportation Co., Inc. ("HTC"), a Louisiana corporation. Goldking Trinity Bay
Corp. ("GKTB"), a Texas corporation, is a wholly owned subsidiary of GKOG and
Umbrella Point Gathering Co., LLC ("UPGC"), a Texas limited liability
corporation, is a wholly owned subsidiary of HTC.
GKOG was formed on June 18, 1990 initially under the name of Union Associates,
Inc. The company became a wholly owned subsidiary of TUCI on May 15, 1992. GKTB
was formed on May 25, 1995 to acquire certain oil and gas properties in Trinity
Bay, Galveston County, Texas. GKPC was formed on January 31, 1992 as a contract
operator of oil and gas wells on the Gulf Coast and adjoining states. HTC was
formed on February 24, 1978 and owns and operates a 13-mile-long gas pipeline in
Louisiana. UPGC was formed on January 25, 1996 as a subsidiary of HTC to assist
in the buying and selling of pipelines, and has a duration of 30 years from the
date of formation.
Goldking Companies, Inc. and Subsidiaries (the "Companies") are independent
energy companies primarily engaged in the acquisition, exploration, development,
and production of crude oil and natural gas.
The formation of the Companies has been treated as a pooling of interest as of
January 1, 1995. On the formation date, Goldking Companies, Inc., exchanged with
TUCI 10,000 shares, $0.001 par value, of common stock for 100% of the
outstanding common stock of GKPC, GKOG, and HTC.
The consolidated financial statements include the accounts of the Companies, and
all significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Companies consider all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
<PAGE>
1. Organization and Summary of Significant Accounting Policies (continued)
Short-Term Investments
As of December 31, 1996, short-term investments consisted of various equity
securities at cost, which approximates fair market values.
Oil and Gas Properties
The Companies utilize the full-cost method to account for investments in oil and
gas properties. Under this method, all direct costs associated with the
acquisition, development, and exploration for oil and gas properties are
capitalized. Included in capitalized costs for the years ended December 31, 1996
and 1995, are internal costs that are directly identified with acquisition,
exploration, and development activities. Oil and gas properties, and estimated
future development and abandonment costs are depleted using the
units-of-production method based on the ratio of current production to estimated
proved oil and gas reserves, as prepared by independent petroleum consultants.
Costs directly associated with the acquisition and evaluation of unproved
properties are excluded from the amortization computation, until it is
determined whether or not impairment has occurred. As of December 31, 1996 and
1995, there were no such exclusions from the amortization computations.
Nominal dispositions of oil and gas properties are recorded as adjustments to
capitalized costs, with no gain or loss recognized unless such adjustments would
alter significantly the relationship between capitalized costs and proved
reserves of oil and gas.
To the extent that capitalized costs of oil and gas properties, net of
accumulated depreciation, depletion, and amortization, exceed the after-tax
discounted future net revenues of proved oil and gas reserves, such excess
capitalized costs would be charged to operations. No such write-down in book
value was required at December 31, 1996 and 1995.
Administrative Overhead Reimbursement
The Companies, as operator of drilling and/or producing properties, was
reimbursed by the nonoperators for administration, supervision, office services,
and warehousing costs on an annually adjusted fixed rate basis per well, per
month. These charges are applied as a reduction of general and administrative
expenses for purposes of the statements of operations.
<PAGE>
1. Organization and Summary of Significant Accounting Policies (continued)
Other Property
Other property and equipment are recorded at cost and are depreciated over an
estimated useful life of five years, using the straight-line method.
Production Imbalances
The Companies follow the sales method of accounting for natural gas revenues.
Under this method, revenues are recognized based on actual volumes of gas sold
to purchasers. The volumes of gas sold, however, may differ from the volumes to
which the Companies are entitled because joint interest owners may take more or
less than their ownership interest of natural gas volumes. Imbalances are
monitored to minimize significant imbalances, and such imbalances were not
significant at December 31, 1996 and 1995.
Revenues
The Companies recognize crude oil and natural gas revenues from their interests
in producing wells, as crude oil and natural gas is sold from those wells.
Revenue from the processing and gathering of natural gas is recognized in the
period the service is performed.
Income Taxes
The Companies file federal income tax returns on a consolidated basis with their
parent and other members of their affiliated group. For financial statement
purposes, income taxes are provided as though the Companies file separate income
tax returns; however, those companies incurring losses or credits are allocated
the tax benefit based on TUCI's ability to utilize such losses or credits.
The Companies account for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income, in the period that includes the
enactment date.
<PAGE>
1. Organization and Summary of Significant Accounting Policies (continued)
Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities, and to the disclosure of contingent assets
and liabilities, to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
2. Income Taxes
No income tax provision was recorded for the year ended December 31, 1996
primarily due to recognizing the benefits of operating loss carryforwards of
approximately $587,000.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1996 and 1995 are as follows:
December 31
Gross deferred tax assets: 1996 1995
------------------------------------
Depreciation, depletion, and amortization $ 1,998,000 $ 1,799,000
Net operating loss carryforwards 1,638,000 1,229,000
Other 20,000 1,000
------------------------------------
Gross deferred tax assets 3,656,000 3,029,000
Valuation allowance (1,341,000) (1,499,000)
------------------------------------
Net deferred tax assets 2,315,000 1,530,000
Gross deferred tax liabilities:
Intangible drilling costs (2,315,000) (1,530,000)
====================================
Net deferred tax liabilities $ - $ -
====================================
At December 31, 1996, the Company had $4,550,000 of net operating losses which
will be carried forward and will expire between 2007 and 2010.
The Companies have a valuation allowance because the Companies believe that some
of the deferred tax assets may not be realizable.
<PAGE>
3. Debt
On January 9, 1996, GKOG entered into a reserve-based $10 million revolving line
of credit agreement with a bank (the "Line of Credit"), which is secured by
GKOG's oil and gas properties. This agreement replaces an existing revolving
line of credit. The amount available to be drawn under the Line of Credit is
determined by a borrowing-base calculation which is redetermined periodically by
the bank. The Line of Credit matures January 9, 1999 and bears interest at prime
plus 0.75% (9% at December 31, 1996). At December 31, 1996, the outstanding
amount advanced on the Line of Credit was $2,656,000.
GKTB entered into a loan agreement (the "Loan") in 1995 with a lending
institution in the amount of $8,772,000 secured by GKTB's properties in Trinity
Bay. Collateralized net book value at December 31, 1996 and 1995 was $8,044,000
and $6,353,000, respectively. The Loan requires quarterly principal and interest
payments beginning January 1, 1996 for a period of nine years with a subsequent
balloon payment. In addition to the scheduled principal payments, commencing
January 1, 1996, the Loan also requires a contingent principal payment equal to
a percentage of the net cash flow (as defined) for the immediately preceding
quarter. At December 31, 1996, the outstanding Loan balance was $7,288,000 and
$5,980,000, respectively. The Loan also provides for an additional payment to
the lender in the amount of $1,000,000, which serves as a discount and is being
amortized into interest expense over the term of the Loan agreement. The
additional amount is to be repaid quarterly beginning January 1, 1996 based on
percentages of the net cash flow for the immediately preceding quarter. All
payments for the additional amount will be applied first to the interest on the
additional amount and then to the principal balance. Interest not paid when due
will be added to the principal balance of the additional amount. GKTB's portion
of oil and gas sales proceeds from the Trinity Bay properties is held in a
restricted cash account by the lending institution for payment of principal and
interest. Interest rates at December 31, 1996 and 1995 were 10.73% and 10.82%,
respectively. The Loan agreement contains, among other things, provisions for
the maintenance of certain financial ratios and covenants. GKTB incurred
financing costs in connection with the Loan of $172,000, which are being
amortized over the term of the Loan. These financing costs (net of amortization)
are included in deferred costs.
During 1995, GKOG entered into an agreement with Tenneco Ventures, Inc.
("Tenneco"), pursuant to which Tenneco purchased from GKOG a Term Overriding
Royalty Interest in certain properties (the "Term Override"). The proceeds of
the Tenneco funding were used by GKOG to finance the drilling and completion of
certain unproved properties, the construction of a pipeline, and for drilling
other specified unproved prospects. The Term Override terminates when Tenneco
has received proceeds from the Term Override equal to the amount advanced by
Tenneco for the purchase of the Term Override plus an annualized internal rate
of return. During 1995, the internal rate of return per the agreement was 25%.
During 1996, the agreement was renegotiated to state an internal rate of return
of 18% retroactively to day one of the agreement. Current year balances have
been adjusted to reflect the change in rates. At December 31, 1996 and 1995,
$2,633,000 and $2,035,000, respectively, were outstanding and reflected as
long-term debt.
3. Debt (continued)
Based on third-party reserve estimates at December 31, 1996, the future revenue
attributable to the Term Override will not be sufficient to pay the 18% rate of
return necessary to terminate the Term Override as described above. There is no
recourse to the Companies if the proceeds from the Term Override are
insufficient to pay the 18% rate of return. The difference between the 18% rate
of return and the amounts paid to Tenneco from the Term Override since September
1996 was $100,000 and is not reflected in the balance sheets of the Companies.
If future revenues are insufficient to allow payment of the principal balance,
reductions to the liability will be applied against the full cost pool. Accrued
interest prior to September 1996 was added to the outstanding principal balance.
Interest paid on outstanding debt during 1996 and 1995 was $1,244,000 and
$301,000, respectively.
Scheduled debt maturities for the next five years and thereafter are as follows:
1997 $ 1,243,000
1998 1,146,000
1999 1,003,000
2000 955,000
2001 955,000
Thereafter 8,366,000
------------------
Total 13,668,000
Less discount 786,000
==================
Net $ 12,882,000
==================
<PAGE>
4. Related Party Transactions
Advances to affiliates are incurred by the Companies in the ordinary course of
business, and include $693,000 and $295,000 advanced to officers of the Company
as of December 31, 1996 and 1995, respectively. Such balances have no terms
related to settlement and do not bear interest. The respective parties' intent
for settlement has been used as a basis for classifying such balances in the
financial statements.
During 1996 and 1995, $21,000 and $2,000, respectively, of legal fees were
incurred by the Companies for services performed by Looper, Reed, Mark & McGraw,
Incorporated, a law firm in which the president of the Companies was associated.
5. Noncash Transactions
During 1995, a debt agreement was entered into which requires a $1,000,000
payment in addition to the actual borrowed amount. The amount, reflected as a
discount to debt, is being amortized over the anticipated life of the agreement.
During 1996 and 1995, interest expense of $283,000 and $259,000, respectively,
was included as principal on outstanding debt balances.
6. Commitments and Contingencies
Litigation
From time to time, the Companies are involved in litigation relating to claims
arising out of their operations in the normal course of business. At December
31, 1996 and 1995, the Companies were not engaged in any legal proceedings that
are expected, individually or in the aggregate, to have a material adverse
effect on the Companies' financial statements.
Contingent Liabilities
The Companies are involved in disputes with several oil companies, acting in
their capacities as the operators of wells in which GKOG owns an interest.
Management believes the operators have made a number of excessive charges in
connection with operating the wells, and the Companies are on record as opposing
those charges and being unwilling to pay them. Pending further negotiations,
these amounts, totaling $713,000 and $235,000 as of December 31, 1996 and 1995,
respectively, have been reclassified from current accounts payable to contingent
liabilities.
Concentration of Credit Risk
Financial instruments which potentially expose the Companies to credit risk
consist principally of trade receivables and crude oil and natural gas price
swap agreements. Accounts receivable are generally from companies with
significant oil and gas marketing activities which would be impacted by
conditions or occurrences affecting that industry (see Note 7).
Leases
For the years ended December 31, 1996 and 1995, the Companies incurred rent
expense of approximately $132,000 and $126,000, respectively. Future minimum
rental payments are as follows at December 31, 1996:
1997 $ 128,000
1998 $ 39,000
1999 $ 10,000
2000 $ 10,000
2001 $ 4,000
Thereafter $ -
<PAGE>
7. Financial Derivatives
The Companies have only limited involvement with derivative financial
instruments and do not use them for trading purposes. They are used to manage
well-defined price risks.
During 1996 and 1995, GKTB entered into a crude oil price swap and oil and gas
put options with third parties. These instruments hedge against potential
fluctuations in future prices for GKTB's anticipated production volumes based on
current engineering estimates. The instruments qualify as hedges; therefore, any
gain and losses will be recorded when related oil or gas production has been
delivered. The cost of entering into the instruments has been recorded as a
deferred cost on the balance sheets and is being amortized over the life of the
instruments. At December 31, 1996 and 1995, the unamortized deferred cost is
$459,000 and $263,000, respectively, which is being amortized to revenues on a
straight-line basis over the terms of the related contracts.
At December 31, 1996, the crude oil swap agreement was for 110,194 barrels at
$17.12 from January 1, 1997 through December 31, 2000. Gas put options were for
an aggregate 529,425 MMBtu at $1.87 from January 1, 1997 through December 31,
2000. Oil put options were for an aggregate 55,112 barrels at $17.62 from
January 1, 1997 through December 31, 2000.
At December 31, 1995, the crude oil swap agreement was for 148,000 barrels at
$17.12 from August 1995 through December 2000. Gas put options were for an
aggregate 730,000 MMBtu at $1.87 from August 1995 through December 2000. Oil put
options were for an aggregate 74,000 barrels at $17.62 from August 1995 through
December 2000.
If a mark-to-market adjustment were recorded at December 31, 1996, these
derivative contracts would result in a net loss of $600,000. However, GKTB
intends to maintain these options through their maturity as long-term hedges of
crude oil and natural gas price risk from producing activities. Therefore, the
losses implied by the mark-to-market calculation have not been recognized.
Oil and gas revenues were decreased by $266,000 in 1996 and increased by $12,000
in 1995 as a result of such hedging activity.
8. Determination of Fair Values of Financial Instruments
Fair value for cash, accounts receivables, investments, payables, and long-term
debt approximates carrying value. The fair market values of advances to
affiliates, officers, and stockholders, and notes receivable, affiliates are not
practicable to determine.
<PAGE>
9. Accumulated Depreciation, Depletion, and Amortization
The balances relating to accumulated depreciation, depletion, and amortization
("DD&A") as of December 31, 1996 and 1995 have changed subsequent to our audit
report issued April 9, 1997. Upon auditing the 1995 amount, which was unaudited
in the April 9, 1997 report. DD&A expense for 1995 was increased $1,121,000 and
accumulated DD&A was increased from $8,731,000 to $9,852,000 as of December 31,
1996. Accumulated DD&A increased from $10,976,000 to $12,097,000 as of December
31, 1996, as a result of this change.
10. Major Customers
The Companies sell their production under contracts with various purchasers,
with certain domestic purchasers accounting for sales of 10% or more per year as
follows:
1996 25%, 18%, 16%
1995 38%
11. Subsequent Event
On July 31, 1997, Goldking was acquired by Panaco, Inc.
<PAGE>
Supplemental Information - Disclosures About Oil and Gas
Producing Activities - Unaudited
The following supplemental information regarding the oil and gas activities of
the Company is presented pursuant to the disclosure requirements promulgated by
the Securities and Exchange Commission and Statement of Financial Accounting
Standards ("SFAS") No. 69, Disclosure About Oil and Gas Activities.
The following estimates of reserve quantities and related standardized measure
of discounted future net cash flow are estimates only, and do not purport to
reflect realizable values or fair market values of the Companies' reserves. The
Companies emphasize that reserve estimates are inherently imprecise and that
estimates of new discoveries are more imprecise than those of producing oil and
gas properties. Additionally, the prices of oil and gas have been very volatile
and downward changes in prices can significantly affect quantities that are
economically recoverable. Accordingly, these estimates are expected to change as
future information becomes available and the changes may be significant. All of
the Companies' proved reserves are located in the United States.
Proved reserves are estimated reserves of crude oil and natural gas that
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those expected to be
recovered through existing wells, equipment, and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, less estimated future income tax expenses. The estimated future net
cash flows are then discounted using a rate of 10% a year to reflect the
estimated timing of the future cash flows.
The Company has not filed any reserve estimates with any federal authorities or
agencies.
<PAGE>
<TABLE>
<CAPTION>
Proved Oil and Gas Reserve Quantities
Oil Gas
reserves reserves
(bbls.) (Mcf)
----------------- ----------------
<S> <C> <C> <C> <C>
Balance December 31, 1994 1,103,817 8,554,300
Revisions of previous estimates 312,639 1,464,600
Purchases of reserves in place 195,209 1,372,000
Sales of reserves in place (232,300) (655,500)
Extensions, discoveries, and other additions 139,704 1,834,900
Production (207,778) (1,342,300)
----------------- ----------------
Balance December 31, 1995 1,311,291 11,228,000
Revisions of previous estimates 111,277 514,300
Purchases of reserves in place 787,600 2,178,700
Sales of reserves in place - -
Extensions, discoveries, and other additions 143,900 6,349,000
Production (144,938) (1,619,100)
================= ================
Balance December 31, 1996 2,209,130 18,650,900
================= ================
Proved developed reserves:
December 31, 1994 1,066,822 7,444,200
December 31, 1995 1,010,644 9,668,100
December 31, 1996 1,396,569 11,741,700
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves
Year ended
December 31, 1996 December 31, 1995
--------------------- ---------------------
<S> <C> <C>
Future cash inflows $ 105,553,000 $ 53,072,000
Future production and development costs (44,132,000) (20,812,000)
Future income tax expenses (16,303,000) (7,545,000)
--------------------- ---------------------
Future net cash flows 45,118,000 24,715,000
10% annual discount for estimated timing of
cash flows (15,021,000) (7,237,000)
--------------------- ---------------------
Standardized measure of discounted future net
cash flows $ 30,097,000 $ 17,478,000
===================== =====================
The following are the principal sources of changes in the standardized measure
of discounted future net cash flows:
Year ended
December 31, 1996 December 31, 1995
--------------------- ---------------------
Beginning balance $ 17,478,000 $ 10,248,000
Changes in future development costs (5,631,000) 531,000
Purchases of reserves in place 8,292,000 2,751,000
Sales of reserves in place - (1,973,000)
Sales of oil and gas produced (4,516,000) (3,509,000)
Net changes in price and production costs (7,014,000) 830,000
Extensions, discoveries, and other additions 12,543,000 4,528,000
Revisions of previous quantity estimates 12,626,000 5,837,000
Accretion of discount 1,874,000 957,000
Net changes in income taxes (5,555,000) (2,722,000)
--------------------- ---------------------
Ending balance $ 30,097,000 $ 17,478,000
--------------------- ---------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves (continued)
Year ended
December 31, 1996December 31, 1995
------------------------------------
Costs incurred
<S> <C> <C>
Property acquisition costs - unproved leases $1,807,000 $1,215,000
Property acquisition costs - proved properties 1,598,000 7,220,000
Exploration costs 135,000 -
Development costs 2,995,000 1,814,000
Year ended December 31,
1996 1995 1994
------------------------------------------------------
Other information
Amortization per dollar of gross sales revenue
0.27 0.53 .38
Average sales price per barrel (oil) 19.35 16.61 15.28
Average sales price per Mcf (gas) 2.19 1.56 1.89
Average sales price per net equivalent barrel*
15.24 12.95 13.68
Average production cost per net equivalent barrel
5.12 7.85 12.10
*Natural gas converted to equivalent barrels using conversion ratio of 6:1.
</TABLE>
<PAGE>
Goldking Companies, Inc. & Subsidiaries
Condensed Financial Statements
June 30, 1997
(Unaudited)
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Condensed Balance Sheets
(Unaudited)
As of As of
June 30, 1997 December 31, 1996
-----------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 341,000 $ 896,000
Restricted cash 401,000 1,358,000
Short-term investments 72,000 72,000
Accounts receivable, net 2,714,000 4,193,000
Advances to affiliates, officers, and shareholders 1,714,000 1,486,000
Prepaid expenses and other 40,000 27,000
-----------------------------------------------
Total current assets 5,282,000 8,032,000
Property and equipment:
Oil and gas properties, full-cost method 27,262,000 23,683,000
Pipeline and ROW 1,682,000 1,682,000
Other property 1,157,000 1,104,000
-----------------------------------------------
30,101,000 26,469,000
Accumulated depreciation, depletion, and amortization
(13,070,000) (12,097,000)
-----------------------------------------------
17,031,000 14,372,000
Other assets:
Organization, deferred and other costs, net of accumulated amortization of
$141,000 and $141,000 at June 30, 1997 and December 31,1996, respectively
1,026,000 1,106,000
-----------------------------------------------
Total other assets 1,026,000 1,106,000
-----------------------------------------------
Total assets $ 23,339,000 $ 23,510,000
-----------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of As of
June 30, 1997 December 31, 1996
-----------------------------------------------
Liabilities and stockholders' equity Current liabilities:
<S> <C> <C>
Accounts payable $ 3,960,000 $ 3,491,000
Oil and gas distributions payable 1,633,000 2,810,000
Current maturities of long-term debt 1,181,000 1,243,000
Accrued Interest 247,000 228,000
Advances from joint-interest participants 112,000 502,000
Accrued and other liabilities 73,000 119,000
-----------------------------------------------
Total current liabilities 7,206,000 8,393,000
Contingent liabilities 654,000 713,000
Long-term debt, net of discount of $714,000 and $786,000 at June 30, 1997 and
December 31, 1996, respectively
13,102,000 11,639,000
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 100,000
Issued and outstanding shares - 10,000 - -
Additional paid-in capital 1,753,000 1,753,000
Retained earnings 624,000 1,012,000
-----------------------------------------------
Total stockholders' equity 2,377,000 2,765,000
===============================================
Total liabilities and stockholders' equity $ 23,339,000 $ 23,510,000
===============================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Statements of Income (Operations)
For the Six Months Ended June 30,
(Unaudited)
1997 1996
---------------------------------------------
Revenues:
<S> <C> <C>
Oil and gas revenues $ 3,531,000 $ 3,176,000
Interest income 53,000 17,000
Miscellaneous 64,000 276,000
---------------------------------------------
Total revenues 3,648,000 3,469,000
Costs and expenses:
Lease operating expense 1,573,000 818,000
General and administrative expense 401,000 457,000
Production and ad valorem taxes 281,000 223,000
Interest 807,000 848,000
Depreciation, depletion, and amortization 974,000 624,000
---------------------------------------------
Total costs and expenses 4,036,000 2,970,000
=============================================
Net income (loss) $ (388,000) $ 499,000
=============================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Statements of Stockholders' Equity
(Unaudited)
Additional Paid-In
Common Stock Retained Earnings Capital
Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances December 31, 1995 $ - $ (594,000) $ 1,753,000 $ 1,159,000
Net Income - 1,606,000 - 1,606,000
---------------------------------------------------------------------
Balance December 31, 1996 - 1,012,000 $ 1,753,000 2,765,000
Net income - (388,000) - (388,000)
=====================================================================
Balance June 30, 1997 $ - $ 624,000 $ 1,753,000 $ 2,377,000
=====================================================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Goldking Companies, Inc. & Subsidiaries
Statements of Cash Flows
Six Months Ended June 30,
(Unaudited)
1997 1996
---------------------------------------------
Operating activities
<S> <C> <C>
Net income (loss) $ (388,000) $ 499,000
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation, depletion, and amortization 974,000 624,000
Changes in operating assets and liabilities:
Restricted cash 957,000 (169,000)
Accounts receivable 1,251,000 (289,000)
Prepaid costs (13,000) (87,000)
Accounts payable 469,000 1,234,000
Oil and gas distributions payable (1,177,000) -
Accrued and other liabilities (417,000) 117,000
Contingent liabilities (59,000) -
Other 80,000 -
---------------------------------------------
Net cash provided by (used in) operating activities 1,677,000 1,929,000
Investing activities
Investments in property, plant, and equipment, net (3,633,000) (3,250,000)
---------------------------------------------
Net cash used in investing activities (3,633,000) (3,250,000)
Financing activities
Net proceeds from long-term borrowings 1,401,000 1,754,000
Net decrease in cash and cash equivalents (555,000) 433,000
Cash and cash equivalents at beginning of period 896,000 193,000
=============================================
Cash and cash equivalents at end of period $ 341,000 $ 626,000
=============================================
See accompanying notes.
</TABLE>
<PAGE>
Goldking Companies, Inc. & Subsidiaries
Condensed Notes to Financial Statements
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position as of
June 30, 1997 and December 31, 1996 and the results of operations and changes in
stockholder's equity and cash flows for the periods ended June 30, 1997 and
1996. Most adjustments made to the financial statements are of a normal,
recurring nature. Although the Companies believe that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures, including significant accounting policies, normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). These
financial statements should be read in conjunction with the Companies' annual
audited financial statements.
On July 30, 1997, PANACO, Inc. acquired the Goldking Companies for a combination
of cash, shareholder notes, PANACO Common Shares and the assumption of debt. The
acquisition by PANACO did not include the Goldking Companies advances receivable
from affiliates or a real estate investment, both owned by the Goldking
Companies. Certain reclassification entries have been made to the Companies'
historical financial statement amounts to provide for accounting and reporting
consistency with PANACO, Inc. For that reason, unaudited pro forma financial
information may not be presented in the same format or amounts may be classified
differently than those contained in these financial statements.
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data are derived from the
Consolidated Financial Statements of the Company and certain historical
financial data with respect to various assets and companies acquired by the
Company. The Unaudited Pro Forma Balance Sheet at June 30, 1997 has been
prepared assuming the Goldking Acquisition had occurred on June 30, 1997. The
Unaudited Pro Forma Statement of Income (Operations) for the six months ended
June 30, 1997 has been prepared assuming the Goldking Acquisition had been
consummated January 1, 1997. The Unaudited Pro Forma Combined Statement of
Income (Operations) for the year ended December 31, 1996 has been prepared
assuming the Goldking Acquisition, the Amoco Acquisition and the Bayou Sorrel
Field sale had all been consummated on January 1, 1996. The Amoco Acquisition
occurred on October 8, 1996 and the Bayou Sorrel Field sale was effective
September 1, 1996.
The unaudited pro forma combined financial data reflects the preliminary
allocation of the Goldking purchase price based on June 30, 1997 Goldking
financial statement amounts. The final allocation of the purchase price,
including the amounts of the increases in consolidated assets and liabilities on
the closing date of July 31, 1997 may differ with a resulting effect on
depletion, depreciation and amortization of expense. Management does not expect
these differences to be material.
The unaudited pro forma combined financial data should be read in conjunction
with the notes thereto and with the Consolidated Financial Statements on the
Company and the notes thereto. This data is not indicative of the financial
position or results of operations of the Company which would actually have
occurred if the transactions described above had occurred at the dates presented
or which may be obtained in the future. In addition, future results may vary
significantly from the results reflected in such statements due to various
factors.
<PAGE>
<TABLE>
<CAPTION>
PANACO, Inc.
Unaudited Condensed Pro Forma Combined Balance Sheet
At June 30, 1997
(Amounts in thousands except number of shares )
Goldking PANACO, Inc.
Acquisition and
PANACO, Inc. Pro Forma Goldking
ASSETS At Adjustments Pro Forma
6/30/97 (a) Combined
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 1,353 8 (b) 1,361
Accounts receivable 6,030 2,688 (b) 8,718
Investment in common stock 1,701 1,701
Prepaid and other 552 847 (b) 1,399
Total Current Assets 9,636 13,179
OIL AND GAS PROPERTIES, AS DETERMINED BY THE
SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
Oil and gas properties 137,734 43,145 (c) 180,879
Less: accumulated depreciation, depletion
and amortization (87,374) - (87,374)
Net Oil and Gas Properties 50,360 93,505
PROPERTY, PLANT AND EQUIPMENT (net) 12,474 1,892 (d) 14,366
OTHER ASSETS
Restricted deposits 1,992 1,992
Other 379 265 (e) 644
Total Other Assets 2,371 2,636
TOTAL ASSETS $ 74,841 $ 123,686
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,033 6,680 (f) $ 12,713
Current portion of long-term debt - 1,181 (f) 1,181
Total Current Liabilities 6,033 13,894
LONG-TERM DEBT 28,000 26,571 (g) 54,571
STOCKHOLDERS' EQUITY
Preferred shares, ($.01 par value, 5,000,000 shares
authorized and no shares issued or
outstanding) - -
Common shares, ($.01 par value, 40,000,000 shares
authorized and 20,382,087 issued and outstanding
and 23,621,017 pro forma issued and
outstanding) 204 32 (a) 236
Additional paid-in capital 53,593 14,381 (a) 67,974
Retained earnings (deficit) (12,989) (12,989)
Total Stockholders' equity 40,808 55,221
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,841 $ 123,686
</TABLE>
<PAGE>
NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
At June 30, 1997
The Unaudited Condensed Pro Forma Combined Balance Sheet presents the combined
effects of the Goldking Acquisition, as if it had been consummated on June 30,
1997. It reflects a preliminary allocation of the purchase price for the
Goldking Acquisition. The final allocation of the purchase price may differ
based on the actual assets and liabilities acquired by the Company on July 31,
1997, however, management does not expect these differences to be material.
(a) The Goldking Acquisition occurred on July 31, 1997. The purchase price
included $7,500,000 in cash, $6,000,000 in Shareholder Notes, 3,154,930 Common
Shares valued at $4.45, and the assumption of debt described in notes (f) and
(g) below. The Company also paid a finder's fee in the amount of 84,000 Common
Shares.
(b) The Company acquired $8,000 in cash, $2,688,000 in accounts receivable
and $847,000 in other current assets, primarily restricted cash and short-term
funds.
(c) Based upon the nature of the assets acquired, the Company has allocated
$37,119,000 to proved oil and natural gas properties and $6,026,000 to unproved
oil and natural gas properties.
(d) The Company acquired furniture and fixtures with a net book value of
$892,000, which approximates market value. The Company also allocated $1,000,000
of the net purchase to pipelines and equipment, based upon the nature of the
assets acquired.
(e) The Company acquired other long-term assets, including capitalized
software costs with a net book value of $265,000, which approximates market
value.
(f) The Company's consolidated current liabilities and current maturities
of long-term debt increased by $6,680,000 and $1,181,000, respectively.
(g) The Company's consolidated long-term debt increased with the Goldking
Acquisition, including Goldking's outstanding debt before the merger in the
amount of $13,071,000. The adjustment also includes $6,000,000 in notes to the
former shareholders of Goldking and borrowing of $7,500,000 under the Company's
Bank Facility to fund the cash portion of the purchase price.
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
Unaudited Pro Forma Combined Statement of Income (Operations)
For the Six Months Ended June 30, 1997
(Amounts in thousands except per share data)
Goldking
Goldking Acquisition PANACO,Inc.
Acquisition Pro Forma Pro Forma
PANACO,Inc. (a) Adjustments Combined
---------------------- -------------------------
REVENUES
<S> <C> <C> <C> <C>
Oil and natural gas sales $ 14,287 $ 3,595 $ - $ 17,882
COSTS AND EXPENSES
Lease operating expense 5,122 962 - 6,084
Depreciation, depletion and amortization 6,184 974 720 (b) 7,878
Exploration expense 67 - - 67
Provision for losses and (gains) on
disposition and write-down of assets - - - -
General and administrative expense 389 1,015 - 1,404
Production and ad valorem taxes 174 282 - 456
---------- ---------- ----------- ---------
Total 11,936 3,233 720 15,889
---------- ---------- ----------- ---------
NET OPERATING INCOME (LOSS) 2,351 362 (720) 1,993
---------- ---------- ----------- ---------
OTHER INCOME (EXPENSE)
Interest expense (net) (1,265) (754) (490) (c) (2,509)
Unrealized gain on investment in common stock 60 - - 60
---------- ---------- ----------- ---------
Total (1,205) (754) (490) (2,449)
NET INCOME (LOSS) BEFORE INCOME TAXES 1,146 (392) (1,210) (456)
INCOME TAXES (BENEFIT) - - - -
---------- ---------- ----------- ---------
NET INCOME (LOSS) $ 1,146 $ (392) $ (1,210) $ (456)
========== ========== =========== =========
EARNINGS (LOSS) PER WEIGHTED AVERAGE SHARE $ 0.07 $ (0.02)
========== =========
Weighted average shares outstanding 18,248 3,239 (d) 21,487
========== =========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENT OF INCOME (OPERATIONS)
For the six months ended June 30, 1997
The Unaudited Pro Forma Combined Statement of Income (Operations) for the six
months ended June 30, 1997 presents the combined effects of the Goldking
Acquisition as if it had been consummated on January 1, 1997. It reflects a
preliminary allocation of the purchase price for the Goldking Acquisition. The
final allocation of the purchase price may differ based on the actual assets and
liabilities acquired by the Company on July 31, 1997, however, management does
not expect these differences to be material.
(a) These amounts represent the actual results of Goldking for the six
months ended June 30, 1997. Certain reclassifications have been made
for consistency.
(b) Goldking accounted for its oil and natural gas properties using full
cost method of accounting. Pro forma entries are required to present
the pro forma information for Goldking as if it had accounted for its
oil and natural gas properties using the successful efforts methods and
using the new basis for its oil and natural gas properties based upon
the purchase on July 31, 1997.
(c) To adjust interest expense for debt incurred in financing the Goldking
Acquisition, which included the $6,000,000 in notes and the borrowing
of the $7,500,000 cash portion of the purchase price under the
Company's Bank Facility.
(d) To adjust the weighted average shares outstanding for the issuance of
Common Shares in connection with the Goldking Acquisition.
<PAGE>
<TABLE>
<CAPTION>
PANACO, INC.
Unaudited Pro Forma Combined Statement of Income (Operations)
For the Year Ended December 31, 1996
(Amounts in thousands except per share data)
Goldking
Goldking Acquisition PANACO, Inc. 1996 PANACO, Inc.
AcquisitionPro Forma Pro Forma Transactions Pro Forma
PANACO, (a) Adjustments Combined (e) Combined
Inc.
--------------------- --------------------------------------------------
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Oil and natural gas sales $ 20,063 8,186 $ - $ 28,249 $ 8,915 $ 37,164
COSTS AND EXPENSES
Lease operating expense 8,477 1,282 - 9,759 1,915 11,674
Depreciation, depletion and
amortization expense 9,022 2,243 1,432 (b) 12,697 6,086 18,783
Exploration expense - - - - - -
Provision for losses and (gains) on
disposition and write-down of
assets - (430) - (430) - (430)
General and administrative expense 772 1,402 - 2,174 - 2,174
Production and ad valorem taxes 559 669 - 1,228 (239) 989
West Delta fire loss 500 - - 500 - 500
--------- ---------- ---------- --------------------------------------
Total 19,330 5,166 1,432 25,928 7,762 33,690
--------- ---------- ---------- --------------------------------------
NET OPERATING INCOME (LOSS) 733 3,020 (1,432) 2,321 1,153 3,474
--------- ---------- ---------- --------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (net) (2,514) (1,414) (979) (c) (4,907) (1,042) (5,949)
Unrealized loss on investment in
common stock (258) - - (258) 258 -
--------- ---------- ---------- --------------------------------------
Total (2,772) (1,414) (979) (5,165) (784) (5,949)
NET INCOME (LOSS) BEFORE INCOME TAXES (2,039) 1,606 (2,411) (2,844) 369 (2,475)
INCOME TAXES (BENEFIT) - - - - - -
--------- ---------- ---------- --------------------------------------
NET INCOME (LOSS) $ (2,039) 1,606 (2,411) (2,844) 369 (2,475)
========= ========== ========== ======================================
EARNINGS(LOSS)PER WEIGHTEDAVERAGE
SHARES $ (0.16) $ (0.18) $ (0.14)
========= ============ ============
Weighted average shares outstanding 12,742 3,239 (d) 15,981 1,540 17,521
========= ============ ============
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENT OF INCOME (OPERATIONS)
For the year ended December 31, 1996
The Unaudited Pro Forma Combined Statement of Income (Operations) for the year
ended December 31, 1996 presents the combined effects of the Goldking
Acquisition, the Amoco Acquisition on October 8, 1996, and the sale of Bayou
Sorrel Field effective September 1, 1996 as if all had consummated on January 1,
1996. It reflects a preliminary allocation of the purchase price for Goldking
Acquisition. The final allocation may differ based on the actual assets and
liabilities acquired on July 31, 1997, however, management does not expect these
differences to be material. The Amoco Acquisition and Bayou Sorrel Field sale
have been summarized as "1996 Transactions" in the pro forma data.
Goldking Acquisition
(a) These amounts represent the actual results of Goldking for the year
ended December 31, 1996. Certain reclassifications have been made for
consistency.
(b) Goldking accounted for its oil and natural gas properties using full
cost method of accounting. Pro forma entries are required to present
the pro forma information for Goldking as if it had accounted for its
oil and natural gas properties using the successful efforts methods and
using the new basis for its oil and natural gas properties based upon
the purchase on July 31, 1997.
(c) To adjust interest expense for debt incurred in financing the Goldking
Acquisition, which included the $6,000,000 in notes and the borrowing
of the $7,500,000 cash portion of the purchase price under the
Company's Bank Facility.
(d) To adjust the weighted average shares outstanding for the issuance of
Common Shares in connection with the Goldking Acquisition.
1996 Transactions
(e) Represents the total adjustments necessary to present the Amoco
Acquisition on October 8, 1996 and the sale of Bayou Sorrel Field
effective September 1, 1996 as if both had occurred on January 1, 1996.
They include the addition of revenues and expenses from a January 1 to
October 7 for the Amoco Acquisition and the reductions of such amounts
for January 1 to August for the sale of Bayou Sorrel Field.
