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As filed with the Securities and Exchange Commission on July 31, 1998
Registration No. 33-________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
-----------------
MIDDLE BAY OIL COMPANY, INC.
(Exact name of Registrant as specified in its charter)
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Alabama 1311 63-1081013
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
1221 Lamar Street, Suite 1020 JOHN J. BASSETT
Houston, Texas 77010 1221 Lamar Street, Suite 1020, Houston, TX 77010
(713) 759-6808 (713) 759-6808
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices) including area code, of agent for service)
Copies to: H. Grady Thrasher, III, Esq.
Thrasher, Whitley, Hampton & Morgan
Five Concourse Parkway, Suite 2150
Atlanta, Georgia 30328
(770) 804-8000
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Approximate date of commencement of public trading of securities: As soon as
practicable after the effective date of this Registration Statement and upon
consummation of the Exchange Offer to Unitholders of Enex Consolidated Partners,
L.P. described herein.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [ ]
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE(2) FEE(2)
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Common Stock 1,427,000 shares $ (2) $ (2) $ 1,683.97
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(1) This Registration Statement relates to securities of the Registrant to be
issued in exchange for partnership interests in Enex Consolidated Partners,
L.P., a New Jersey limited partnership.
(2) Estimated in accordance with Rule 457(f)(2), solely for the purpose of
calculating the registration fee. The proposed maximum offering price is
$5,708,377.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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The statements contained herein that are not historical facts are
forward-looking statements and therefore involve a number of risks and
uncertainties. The actual results of future events described in such
forward-looking statements in this Prospectus, including those regarding Middle
Bay's and the Partnership's financial results, levels of oil and gas production
or revenue, capital expenditures and capital resource activities, could differ
materially from those estimated, anticipated or projected. Among the factors
that could cause actual results to differ materially are: general economic
conditions, competition, government regulations, the timing and extent of
changes in commodity prices for oil and gas, environmental risks, drilling,
producing and operating risks, risks related to exploration and development,
uncertainties about the estimates of reserves and the factors set forth in "Risk
Factors and Material Considerations" included elsewhere herein, as well as the
risks and uncertainties set forth from time to time in the other public reports
filed with the SEC and incorporated by reference herein.
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MIDDLE BAY OIL COMPANY, INC.
CROSS REFERENCE SHEET
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ITEM
NUMBER FORM S-4 CAPTION PROXY STATEMENT/PROSPECTUS CAPTION
- ------ ---------------- ----------------------------------
A. Information About the Transaction:
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1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus................................................... Outside Front; Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus.................... Inside Front and Outside Back Cover Pages
of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges and OtherInformation...... Summary; Risk Factors and Material
Considerations; Summary Selected Financial
Data
4. Terms of the Transaction................................................... Cover Page of Prospectus; Summary; The
Exchange Offer and Proposal
5. Pro Forma Financial Information............................................ Selected Financial Data - Middle Bay;
Management's Discussion and Analysis
6. Material Contacts with the Company Being Acquired.......................... Summary; The Exchange Offer and Proposal
7. Additional Information Required for Reoffering by Persons
and Parties Deemed to be Underwriters...................................... Not applicable
8. Interests of Named Experts and Counsel..................................... Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................................. Not applicable
B. Information About the Registrant:
10. Information with Respect to S-3 Registrants................................ Incorporation of Certain Information by
Reference
11. Incorporation of Certain Information by Reference.......................... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3 Registrants......................... Incorporation of Certain Documents by
Reference; Summary
13. Incorporation of Certain Information by Reference.......................... Not applicable
14. Information with Respect to Registrants Other Than S-3 or S-
2 Registrants.............................................................. Not applicable
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C. Information About the Company Being Acquired:
15. Information with Respect to S-3 Companies.................................. Incorporation of Certain Information by
Reference; Summary
16. Information with Respect to S-2 or S-3 Companies........................... Incorporation of Certain Information by
Reference; Summary
17. Information with Respect to Companies Other Than S-2 or S-
3 Companies................................................................ Not applicable
D. Voting and Management Information:
18. Information if Proxies, Consents or Authorizations are to be Solicited..... Cover Page of Prospectus; Summary; The
Exchange Offer and Proposal; Consent
Procedures; Description of Securities
19. Information if Proxies, Consents or Authorizations are not to
be Solicited or in an Exchange Offer....................................... Cover Page of Prospectus; Summary; The
Exchange Offer and Proposal; Consent
Procedures; Description of Securities
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
DATED JULY ____, 1998
EXCHANGE OFFER
AN AGGREGATE OF ___________ SHARES OF
MIDDLE BAY OIL COMPANY, INC. COMMON STOCK
FOR PARTNERSHIP UNITS IN
ENEX CONSOLIDATED PARTNERS, L.P.
(1,102,631 PARTNERSHIP UNITS)
EXCHANGE VALUE IN COMMON STOCK:
$11.83 PER PARTNERSHIP UNIT
This Prospectus (the "Prospectus") is being furnished to the investors
("Investors" or "Unitholders") in Enex Consolidated Partners, L.P., a New Jersey
limited partnership (the "Partnership"), in connection with the offer by Middle
Bay Oil Company, Inc., an Alabama corporation, the general partner of the
Partnership ("Middle Bay" or "General Partner"), to exchange shares of common
stock, $.02 par value, of Middle Bay ("Common Stock") for all of the right,
title and interest to units of limited partnership interest in the Partnership
("Partnership Units" or "Units") held by Investors, at the exchange value
outlined below (the "Exchange Offer").
Common Stock of Middle Bay is being offered on a proportionate basis to owners
of Partnership Units whereby Unitholders will receive that number of shares of
Middle Bay Common Stock with an aggregate market value of $11.83 in exchange for
each Unit held (the "Exchange Value"). In connection with the Exchange Offer, a
proposal is being submitted to Unitholders in the Partnership to amend the
Partnership Agreement to provide for the transfer of all assets and liabilities
of the Partnership to Middle Bay in exchange for shares of Common Stock and the
pro-rata distribution of the Common Stock on the basis of the Exchange Value for
each Unit in liquidation of the Partnership. EACH INVESTOR IN THE PARTNERSHIP
WHO TENDERS HIS UNITS WILL, BY THAT TENDER, CONSENT TO THE PROPOSAL.
ADOPTION OF THE PROPOSAL REQUIRES THE CONSENT OF INVESTORS OF THE PARTNERSHIP
HOLDING A MAJORITY (IN EXCESS OF 50%) OF THE PARTNERSHIP UNITS. IN ADDITION TO
BEING THE GENERAL PARTNER OF THE PARTNERSHIP, MIDDLE BAY OWNS 620,097 UNITS,
COMPRISING 56.24% OF THE 1,102,631 TOTAL
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PARTNERSHIP UNITS, AND MIDDLE BAY WILL VOTE SUCH UNITS FOR THE PROPOSAL, WHICH
ASSURES THE EXCHANGE OFFER WILL BE CONSUMMATED. UNITHOLDERS WILL RECEIVE THE
CONSIDERATION SET FORTH HEREIN, AND THE PARTNERSHIP WILL BE DISSOLVED. ALL OF
THE INVESTORS IN THE PARTNERSHIP, WHETHER OR NOT THEY TENDER THEIR UNITS AND
THUS VOTE IN FAVOR OF THE EXCHANGE OFFER, WILL RECEIVE THE SAME NUMBER OF SHARES
OF MIDDLE BAY COMMON STOCK AS THEY WOULD HAVE RECEIVED HAD THEY TENDERED THEIR
PARTNERSHIP UNITS, AND THE PARTNERSHIP WILL BE DISSOLVED.
THE EXCHANGE OFFER INVOLVES VARIOUS RISKS THAT SHOULD BE CONSIDERED BY
UNITHOLDERS. SEE "RISK FACTORS AND MATERIAL CONSIDERATIONS" BEGINNING ON PAGE 37
OF THIS PROSPECTUS. IN PARTICULAR, UNITHOLDERS SHOULD CONSIDER THE FOLLOWING
FACTORS:
- UNITHOLDERS HAVE RECEIVED CASH DISTRIBUTIONS FROM THE PARTNERSHIP, BUT
WILL RECEIVE NO CASH DISTRIBUTIONS OR DIVIDENDS IN THE FORESEEABLE
FUTURE FROM MIDDLE BAY.
- THE MARKET PRICE OF MIDDLE BAY COMMON STOCK COULD DECLINE BELOW THE
MARKET PRICE USED FOR CALCULATION OF THE EXCHANGE RATES, EXPOSING
UNITHOLDERS TO A REDUCED RETURN ON THEIR INVESTMENT.
- THE EXCHANGE VALUE OF THE PARTNERSHIP UNITS IS BASED ON A FAIR MARKET
VALUE DETERMINATION BY AN INDEPENDENT ENGINEERING FIRM EMPLOYED BY THE
GENERAL PARTNER; HOWEVER, THERE IS NO ASSURANCE THAT THE EXCHANGE VALUE
REFLECTS THE VALUE OF THE NET ASSETS OF THE PARTNERSHIP IF SUCH WERE
SOLD TO AN UNAFFILIATED THIRD PARTY OR PARTIES IN AN ARM'S-LENGTH
TRANSACTION.
- DETERMINATION OF THE EXCHANGE VALUE WAS BASED PRIMARILY ON THE ESTIMATED
PRESENT VALUE OF THE PARTNERSHIP'S PROVED OIL AND GAS RESERVES, WHICH
INVOLVES MANY UNCERTAINTIES AND COULD HAVE RESULTED IN AN UNDERVALUATION
OF PARTNERSHIP UNITS.
- THE ALTERNATIVES OF CONTINUING THE PARTNERSHIP OR LIQUIDATING ITS ASSETS
COULD POTENTIALLY BE MORE BENEFICIAL TO UNITHOLDERS THAN THE EXCHANGE
OFFER.
- NO INDEPENDENT REPRESENTATIVE WAS ENGAGED TO REPRESENT THE UNAFFILIATED
INVESTORS IN NEGOTIATING THE TERMS OF THE EXCHANGE OFFER, WHICH MAY BE
INFERIOR TO THOSE THAT COULD HAVE BEEN NEGOTIATED BY AN INDEPENDENT
REPRESENTATIVE.
- OWNERSHIP OF MIDDLE BAY COMMON STOCK MAY INVOLVE GREATER RISK THAN AN
INVESTMENT IN THE PARTNERSHIP UNITS BECAUSE OF MIDDLE BAY'S
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BROADER OPERATIONS AND ITS USE OF DEBT TO PARTIALLY FINANCE
ACQUISITIONS.
- FUTURE EQUITY OFFERINGS BY MIDDLE BAY COULD POTENTIALLY BE DILUTIVE TO
INVESTORS HOLDING MIDDLE BAY COMMON STOCK.
Based upon the report of H.J. Gruy and Associates, Inc. dated July 22, 1998 (the
"Gruy Report") relative to the fair market value of the Proved Reserves of the
Partnership, Middle Bay has determined that the Total Exchange Value of all
Units is $13,044,000, or $11.83 per Unit. The number of shares of Common Stock
offered in exchange for Partnership Units will be determined by dividing the
Total Exchange Value by a Common Stock price per share, subject to rounding
adjustments, equal to the average of the closing bid prices of the Common Stock
on the National Association of Securities Dealers, Inc. Small Capitalization
Stock Market ("NASDAQ Small Cap Market") for the five trading days prior to
___________, 1998. On _________, 1998, the last reported bid price of the Common
Stock as reported (Symbol: MBOC) on the NASDAQ Small Cap Market was $______ per
share.
The Exchange Offer may be withdrawn at any time prior to its scheduled
expiration date if Middle Bay determines that a material change affecting the
Partnership has occurred. The assets and liabilities of the Partnership, upon
approval of the Proposal and adoption of the Exchange Offer, will be transferred
to Middle Bay retroactively effective as of July 1, 1998 (the "Effective Date").
THE EXCHANGE OFFER EXPIRES AT 5:00 P.M. CENTRAL TIME
ON __________, 1998 UNLESS EXTENDED
This Prospectus also constitutes the prospectus of Middle Bay with respect to
the shares of Common Stock to be issued as consideration in the Exchange Offer.
Middle Bay has filed a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") with the Securities and
Exchange Commission (the "SEC"), of which this Prospectus forms a part.
THE SHARES OF COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE EXCHANGE HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The approximate date on which this Prospectus will first be mailed to the
Investors of the Partnership is ________, 1998.
THE DATE OF THIS PROSPECTUS IS __________, 1998.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION..............................................................................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................................................
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SUMMARY .........................................................................................................1
Middle Bay Oil Company, Inc..............................................................................1
Enex Consolidated Partners, L.P..........................................................................4
The Exchange Offer and Proposal..........................................................................5
Risk Factors and Material Considerations.................................................................5
Background of the Exchange...............................................................................8
Alternatives to the Exchange.............................................................................8
Reasons for the Exchange Offer; Recommendations of the General Partner...................................9
Summary of Tax Consequences..............................................................................9
Accounting Treatment....................................................................................10
Business of Middle Bay and the Partnership After Consummation of the Exchange...........................10
Comparative Rights of Security Holders..................................................................10
Limited Appraisal/Dissenters' Rights....................................................................10
Resales of Middle Bay Common Stock......................................................................11
Material Advantages and Disadvantages of the Exchange and Proposal......................................11
Method of Determining Exchange Value for the Partnership................................................12
Consent Procedures......................................................................................14
Conditions to Exchange..................................................................................14
Regulatory Approvals....................................................................................14
SELECTED FINANCIAL DATA - MIDDLE BAY.............................................................................15
Middle Bay Historical and Unaudited Pro-Forma Financial Data............................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................................................................17
Results of Operations -- 1997...........................................................................17
Fiscal 1997.............................................................................................17
Fiscal 1996.............................................................................................20
Three Months Ended March 31, 1997 and 1998..............................................................21
Effects of Oil and Gas Price Fluctuations...............................................................23
Seasonality.............................................................................................23
Inflation and Changing Prices...........................................................................24
Capital Resources and Liquidity -- Fiscal 1997 and Fiscal 1996..........................................24
Capital Resources and Liquidity -- Three Months Ended March 31, 1997 and 1998...........................25
General.................................................................................................28
Capital Expenditures -- Fiscal 1997 and Fiscal 1996.....................................................28
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SELECTED FINANCIAL DATA - PARTNERSHIP............................................................................30
Partnership Selected Historical Financial Data..........................................................30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................................................................32
Results of Operations...................................................................................32
Capital Resources and Liquidity.........................................................................34
Three Months Ended March 31, 1997 and 1998..............................................................34
Capital Resources and Liquidity.........................................................................35
Certain Comparative Information.........................................................................36
RISK FACTORS AND MATERIAL CONSIDERATIONS........................................................................37
Risks Related to the Exchange Offer.....................................................................37
Risks Related to Middle Bay.............................................................................40
Risks Related to the Oil and Gas Industry...............................................................41
PRICE RANGE OF COMMON STOCK,
DIVIDENDS AND DISTRIBUTIONS.............................................................................42
THE EXCHANGE OFFER AND PROPOSAL..................................................................................43
Description of the Exchange Offer.......................................................................43
The Proposal............................................................................................44
Timing of Common Stock Issuance.........................................................................44
Conditions..............................................................................................45
Appraisal and Dissenters' Rights........................................................................45
Distribution of Common Stock............................................................................46
Interests of Certain Persons in the Exchange and Proposal...............................................46
Resale of Middle Bay Common Stock ......................................................................46
Fractional Shares.......................................................................................47
Stock Market Listing....................................................................................47
Accounting Treatment....................................................................................47
Closing Date............................................................................................47
Operations After the Exchange...........................................................................47
Expenses; Fees..........................................................................................48
Middle Bay's Dividend Policy............................................................................48
METHOD OF DETERMINING EXCHANGE VALUE.............................................................................48
General.................................................................................................48
Exchange Value Components...............................................................................49
REASONS FOR THE EXCHANGE OFFER...................................................................................51
Recommendation of the General Partner...................................................................51
Alternatives to the Exchange............................................................................53
Benefits of Continued Operations........................................................................55
Benefits of Liquidation.................................................................................56
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Board of Directors of Middle Bay; Middle Bay's Reasons for the Exchange.................................57
Fiduciary Duty of Middle Bay and Enex...................................................................57
Access to Investor List and Program Records.............................................................58
CONSENT PROCEDURES...............................................................................................58
Written Consent and Vote Required.......................................................................58
Consent Tabulation......................................................................................59
Expiration of Exchange Offer............................................................................59
Amount Tendered.........................................................................................59
Revocability of Tenders.................................................................................59
Solicitation of Letters of Transmittal..................................................................59
Acceptance of Tenders...................................................................................60
Special Requirements for Certain Investors..............................................................60
Representations and Covenants...........................................................................60
Validity of Tenders.....................................................................................60
Payments of Fees and Expenses...........................................................................61
Compliance with Tender Offer Practices..................................................................61
CERTAIN FEDERAL TAX CONSEQUENCES.................................................................................62
Tax Consequences of the Exchange........................................................................62
Realization of Suspended Passive Losses.................................................................63
Basis in Stock..........................................................................................63
COMPARATIVE RIGHTS OF SECURITY HOLDERS...........................................................................63
SELECTED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED).................................................................................69
LEGAL MATTERS....................................................................................................77
EXPERTS..........................................................................................................77
GLOSSARY.........................................................................................................77
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AVAILABLE INFORMATION
Middle Bay and the Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
filed by Middle Bay and the Partnership with the SEC can be inspected at the
public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza,
450 Fifth Street NW, Washington, D.C. 20549 and should be available at the SEC's
regional offices at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621. Copies of such material may be obtained from the Public
Reference Section of the SEC at Room 1024, 450 Fifth Street NW, Washington, D.C.
20549 at prescribed rates. The SEC maintains an Internet Website at
http://www.sec.gov/ that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
Such reports, proxy statements and other information filed by Middle Bay may
also be inspected and copied at the offices of the NASDAQ Stock Market, 1735 K
Street NW, Washington, D.C. 20006.
Middle Bay has filed the Registration Statement on Form S-4 with the
SEC under the Securities Act of 1933 (the "Securities Act") with respect to the
Common Stock to be offered in connection with the Exchange. This Prospectus does
not contain all of the information contained in the Registration Statement and
the exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the SEC. For further information with respect to Middle
Bay and the securities offered hereby, reference is made to the Registration
Statement, including the exhibits thereto, which may be inspected at the SEC's
offices, without charge, or copies of which may be obtained from the SEC upon
payment of prescribed fees. Statements contained in this Prospectus or in any
document incorporated in this Prospectus by reference as to the contents of any
contract or document referred to herein or therein are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
Middle Bay will furnish to any Investor, upon written request and
without charge, a current alphabetized listing of the names and addresses of all
Unitholders of the Partnership. Requests should be addressed to Middle Bay Oil
Company, Inc., 1221 Lamar Street, Suite 1020, Houston, Texas 77010, telephone
number (713) 759-6808. Investors also have the right under the Partnership
Agreement to inspect the books and records of the Partnership.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
MIDDLE BAY:
The following documents, heretofore filed by Middle Bay with the SEC
pursuant to the Exchange Act, are hereby incorporated by reference, except as
superseded or modified herein: (i) annual report on Form 10- KSB for the fiscal
year ended December 31, 1997, as amended on Form 10-KSB/A; (ii) quarterly report
on Form 10-QSB for the quarter ended March 31, 1998; (iii) current reports on
Forms 8-K filed on February 11, 1998 and May 6, 1998; (iv) amended current
reports on Form 8-K/A filed June 10, 1998 and July 6, 1998; (v) proxy statement
on Schedule 14A for the annual meeting of stockholders held June 18, 1998; (vi)
the description of Common Stock set forth in Middle Bay's Registration Statement
pursuant to the Exchange Act, and any amendment or report filed for the purpose
of updating any such description; and (vii) Registration
<PAGE> 12
Statement on Form S-4 (effective July 17, 1998) filed with the SEC by Middle Bay
relative to the merger of Enex Resources Corporation into Middle Bay.
PARTNERSHIP:
The following documents, heretofore filed by the Partnership with the
SEC pursuant to the Exchange Act, are hereby incorporated by reference, except
as superseded or modified herein: (i) Registration Statement on Form S-4 filed
by the Partnership with the SEC (effective date March 31, 1997); (ii) annual
report on Form 10-KSB for the fiscal year ended December 31, 1997; (iii)
quarterly report on Form 10-QSB for the quarter ended March 31, 1998; (iv)
current reports on Form 8-K dated August 21, 1997 and September 12, 1997; and
(v) any amendment or report filed for the purpose of updating any such reports.
MIDDLE BAY AND THE PARTNERSHIP:
All documents and reports filed by Middle Bay or the Partnership with
the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the date of consummation of the
transaction and expiration of the Exchange Offer shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
dates of filing of such document or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
TO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER OF UNITS, TO WHOM THIS PROSPECTUS IS DELIVERED, ON WRITTEN OR
ORAL REQUEST TO: MIDDLE BAY OIL COMPANY, INC., 1221 LAMAR STREET, SUITE 1020,
HOUSTON, TEXAS 77010, ATTENTION: CORPORATE SECRETARY; TELEPHONE (713) 759-6808.
IN ORDER TO ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE EXPIRATION OF THE
EXCHANGE OFFER, REQUESTS MUST BE RECEIVED BY ____________, 1998.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized by Middle Bay, the General Partner nor their affiliates. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to purchase, the securities offered by this Prospectus or the solicitation of a
tender from any person in any jurisdiction in which it is unlawful to make such
offer, solicitation of an offer or tender solicitation. Neither the delivery of
this Prospectus nor any distribution of the securities made under this
Prospectus shall, under any circumstances, create an implication that there has
been no change in the affairs of Middle Bay or the Partnership since the date of
this Prospectus, other than as set forth in the documents incorporated herein by
reference.
<PAGE> 13
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Prospectus. This summary is not intended to be a complete
description of the matters covered in this Prospectus and is subject to and
qualified in its entirety by reference to the more detailed information and
financial statements contained elsewhere in this Prospectus, Exhibits hereto and
the documents incorporated herein by reference. Investors are urged to read
carefully the entire Prospectus and Exhibits. See "Glossary" included elsewhere
in this Prospectus for definitions of certain oil and gas terms.
MIDDLE BAY OIL COMPANY, INC.
Prior to August 17, 1998, Middle Bay Oil Company, Inc. ("Middle Bay" or
the "Company") owned 79.2% of Enex Resources Corporation ("Enex"), the former
general partner of the Partnership. On June 17, 1998, Enex and Middle Bay
entered into an Agreement and Plan of Merger pursuant to which Enex was merged
into Middle Bay and Middle Bay became the General Partner of the Partnership on
August 17, 1998. Middle Bay acquired its controlling ownership of the common
stock of Enex in March, 1998 pursuant to a cash tender offer and issued ________
shares of its common stock in connection with the merger of Enex into Middle
Bay.
Middle Bay is primarily engaged in the development and production of
oil and gas properties, and its operations are primarily in the Mid-Continent
and Gulf Coast regions of the contiguous United States. The Company's business
strategy is to seek new reserves principally in areas of low geologic risk and
to exploit underdeveloped existing oil and gas fields, with emphasis on the
following activities:
- Increasing production, cash flow and asset value by acquiring
Producing Properties with stable production rates, long reserve
lives and potential for exploitation and development;
- Building on Middle Bay's existing base of operations by
concentrating its development activities in its primary operating
areas in the Gulf Coast and the Mid-continent Regions;
- Acquiring additional properties with potential for developmental
drilling to maintain a significant inventory of undeveloped
Prospects and to enhance Middle Bay's foundation for future
growth;
- Serving as operator of its wells to ensure technical performance
and reduce costs;
- Expanding its relationships with major and large independent oil
and gas companies to access their undeveloped properties, seismic
data and financial resources;
- Managing financial risk and mitigating technical risk by:
- drilling in known productive trends with multi-horizon
geologic potential;
- diversifying investment over a large number of wells in
Middle Bay's primary operating areas;
- developing properties that provide a balance between short
and long reserve lives; and
- keeping a balanced reserve profile between oil and gas;
and
- Maintaining low general and administrative expenses and
increasing economies of scale to reduce per unit operating costs
and reserve acquisition costs.
- 1 -
<PAGE> 14
In the ordinary course of its business, the Company continues to
evaluate acquisition, joint venture and other opportunities that would enable it
to further its business strategy.
Principal Areas of Activity
The following table shows proved oil and gas reserves by major field
for Middle Bay's largest producing fields at December 31, 1997. The values
represent the present value of estimated future net cash flows before income
taxes, discounted at 10%, assuming unescalated expenses and prices of $16.18/Bbl
and $2.54/MMBtu attributable to proved reserves at December 31, 1997, as
determined by several independent reserve engineers:
<TABLE>
<CAPTION>
Discounted
Present Percentage Oil Gas
Field Name/ Primary Value of Total Reserves Reserves
County/State Operator (Thousands) Present Value (MBbls) (MMcf)
------------ -------- ----------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Spivey Company $9,329 30.9% 993 11,415
Harper/Kingman, KS
Riceville Field Murphy 4,958 16.4% 50 2,244
Vermillion, LA
Hatters Pond Texaco 1,019 3.4% 71 187
Mobile, AL
Wright Field Hilcorp 735 2.4% 96 150
Vermillion, LA
Murphy Lake Amerada Hess 587 1.9% 99 --
St. Martin, LA
Lockhart Crossing Amoco 488 1.6% 10 270
Livingston, LA
Polo Field Lu-Ray 481 1.6% 141 5
Noble, OK
Abbeville Company 473 1.6% 3 279
Vermillion, LA
Okeene N.W. Ricks Expl. 443 1.5% 11 507
Major, OK
N. Frisco City Torch Energy 443 1.5% 33 32
Monroe, AL
Others Various 11,223 37.2% 1,426 3,330
-------- ----- ------ ------
Total $ 30,179 100.0% 2,933 18,419
======== ===== ===== ======
</TABLE>
- 2 -
<PAGE> 15
In 1997, Middle Bay acquired approximately 42,000 net mineral acres,
situated in Terrebonne, Lafourche and St. Mary Parishes in Louisiana pursuant to
a merger agreement with Shore Oil Company. Of the total acreage, 39,769 acres
are non-producing and the remainder is held by production under existing leases.
The nonproducing acreage is located in the following parishes: 20,587 in
Terrebonne (Montegut and Houma areas), 11,128 acres in Lafourche (Raceland and
Valentine areas) and 8,054 acres in St. Mary Parish (Charenton area). The
nonproducing acreage currently under lease and/or option has expiration dates as
follows: 17,835 acres in 1998 and 5,722 acres in 2000. As of December 31, 1997,
16,212 acres were not under lease. Royalty interest in the leases covering the
nonproducing minerals ranges from 20% to 25%. The mineral servitude prescription
dates are estimated by Middle Bay to be as follows: 620 acres prescribed in
1997, 6,226 acres in 1999, 5,286 acres in 2002, 4,145 acres in 2004, 1,121 acres
in 2005, 1,145 acres held in perpetuity and the remaining acreage has
prescription interrupted by production. Effective April 1, 1992, Shore Oil
Company sold the production rights under tracts producing at that time and does
not receive royalty income from the sale of oil or gas on those tracts. Over 80%
of the nonproducing minerals have been covered by 3-D seismic shot by third
parties and provided to Middle Bay at no cost. During the period July 1, 1997
through December 31, 1997, Middle Bay received approximately $975,000 in lease
bonus, delay rental and seismic option income on the acreage. An independent oil
and gas engineering firm valued the acreage as of June 30, 1997 at $3,627,000.
One unsuccessful exploratory well in Lafourche Parish, the Shore Oil Company #1,
was drilled on the fee mineral acreage in 1997 and abandoned in February, 1998.
In Terrebonne Parish, two unsuccessful exploratory wells, the Middle Bay Oil Co.
#1 and Shore Oil Co. #1, were abandoned in February and May, 1998, respectively.
As of June 30, 1998, an exploratory well, the Shore Oil Company #1, was being
drilled in St. Mary Parish, Louisiana.
Productive Wells and Acreage
The following table depicts the number of gross and net producing wells
and related Developed and Undeveloped Acreage in which Middle Bay owned an
interest for the period ended December 31, 1997. Undeveloped Acreage is oil and
gas acreage (including, in certain instances, rights in one or more horizons
which may be penetrated by existing well bores, but which have not been tested)
to which Proved Reserves have not been assigned by independent petroleum
engineers.
Middle Bay's net Developed Acreage is located primarily in Oklahoma,
Texas, Louisiana, Alabama, New Mexico and Kansas. Middle Bay's net Undeveloped
Acreage is located primarily in Kansas.
- 3 -
<PAGE> 16
<TABLE>
<CAPTION>
Acreage
------------------------
Developed Undeveloped
--------- -----------
<S> <C> <C>
Gross Acres 239,646 9,758
Net Acres 20,337 8,643
<CAPTION>
Productive Wells
------------------------
Oil Gas
--- ---
<S> <C> <C>
Gross Wells 797.00 184.00
Net Wells 68.67 30.13
</TABLE>
Excluded from the acreage data are approximately 44,041 net mineral
acres owned by Middle Bay, all of which are considered to have potential for oil
and gas exploration.
Middle Bay was incorporated in Alabama in 1992. Its principal executive
offices are located at 1221 Lamar Street, Suite 1020, Houston, Texas 77010, and
its telephone number is (713) 759-6808.
ENEX CONSOLIDATED PARTNERS, L.P.
Enex Consolidated Partners, L.P. (the "Partnership") was formed under
New Jersey Uniform Limited Partnership Law (1976) on June 30, 1997 from the
combination of thirty-four Enex Oil and Gas limited partnerships, consisting of
Enex Program I Partners, L.P., four partnerships in Enex Oil & Gas Income
Program II, eight partnerships in Enex Oil & Gas Income Program III, six
partnerships in Enex Oil & Gas Income Program IV, five partnerships in Enex Oil
& Gas Income Program V, Enex Oil & Gas Income Program VI - Series 1, L.P., three
partnerships in Enex Income and Retirement Fund, three partnerships in Enex
88-89 Income and Retirement Fund, and three partnerships in Enex 90-91 Income
and Retirement Fund (collectively, the "Predecessor Partnerships"). The
Registration Statement on Form S-4 filed with the SEC pursuant to which the
limited partners of the Predecessor Partnerships approved the combination into
the Partnership is incorporated by reference herein. See "Incorporation of
Certain Documents by Reference."
The Partnership is engaged in the oil and gas business through the
ownership of various interests in producing oil and gas properties, as described
elsewhere herein. The Partnership does not intend to engage in significant
drilling activities except as an incidental part of the management of producing
properties or with a view toward enhancing the value of producing properties. In
no event will the Partnership engage in exploratory drilling. The expenses of
drilling, completing and equipping and operating development wells are allocated
approximately 96% to the limited partners and 4% to the General Partner.
The principal executive office of the Partnership is maintained at 800
Rockmead Drive, Three Kingwood Place, Suite 200, Kingwood, Texas 77339. The
telephone number at this office is (281) 358-8401.
- 4 -
<PAGE> 17
THE EXCHANGE OFFER AND PROPOSAL
Middle Bay is offering to exchange Common Stock for Partnership Units
in the Partnership at the exchange value outlined below (the "Exchange Offer").
Investors who tender their Partnership Units will receive number of that shares
of Common Stock with an aggregate market value at $11.83 in exchange for each
Partnership Unit. Cash will be exchanged in lieu of any resulting fractional
shares of Common Stock. In connection with the Exchange Offer, Middle Bay is
submitting a Proposal to Investors in the Partnership to amend the Partnership
Agreement to provide for the transfer of all of the assets and liabilities of
the Partnership to Middle Bay as of the July 1, 1998 Effective Date in exchange
for Common Stock and the pro-rata distribution of such consideration in
liquidation of the Partnership. Each Investor who tenders his Partnership Units
pursuant to the Exchange Offer will, by that tender, consent to the Proposal. If
the Partnership adopts the Proposal by the consent of a majority of the
Partnership Units, all Investors in the Partnership, whether or not they
tendered their Units in the Exchange Offer, will receive the same amount of
Common Stock they would have received had they tendered their Partnership Units.
ALTHOUGH CONSUMMATION OF THE EXCHANGE OFFER FOR THE PARTNERSHIP IS CONDITIONED
UPON APPROVAL BY THE PARTNERSHIP OF THE PROPOSAL, APPROVAL OF THE PROPOSAL AND
ADOPTION OF THE EXCHANGE OFFER IS ASSURED BECAUSE MIDDLE BAY CONTROLS THE VOTING
RIGHTS OF A MAJORITY OF THE UNITS. See "The Exchange Offer and Proposal."
Unitholders who may be entitled to a fractional share of Common Stock will be
paid cash in lieu of the fractional share.
Common Stock issued in the Exchange will be freely transferable
immediately following issuance. The Exchange Offer may be withdrawn at the
option of Middle Bay if (i) Middle Bay determines, in its sole discretion, that
a material change affecting the Partnership has occurred, or (ii) Unitholders
representing 250,000 or more Units elect to exercise dissenters' rights. See
"The Exchange Offer and Proposal."
In connection with the Exchange Offer, Middle Bay is submitting a
Proposal to Investors in the Partnership to amend the Partnership Agreement to
provide for the transfer of all of the assets and liabilities of the Partnership
to Middle Bay as of the July 1, 1998 Effective Date in exchange for Common Stock
in the amount set forth above and the pro-rata distribution of such
consideration in liquidation of the Partnership. EACH INVESTOR WHO TENDERS HIS
UNITS PURSUANT TO THE EXCHANGE OFFER WILL, BY THAT TENDER, CONSENT TO THE
PROPOSAL. If the Partnership adopts the Proposal by the consent of a majority of
the Units, all Investors in the Partnership, whether or not they tendered their
Units in the Exchange Offer, will receive the same amount of Common Stock they
would have received had they tendered their Units. CONSUMMATION OF THE EXCHANGE
OFFER FOR INVESTORS WHO HAVE TENDERED THEIR UNITS IS CONDITIONED UPON APPROVAL
OF THE PROPOSAL. See "The Exchange Offer and Proposal."
RISK FACTORS AND MATERIAL CONSIDERATIONS
In addition to the information included in this Prospectus, Investors
should carefully consider the following factors in determining whether to accept
the Exchange Offer and consent to the Proposal. The risk factors summarized
below are described in further detail elsewhere in this Prospectus at "Risk
Factors and Material Considerations" beginning on page 37.
- 5 -
<PAGE> 18
Lack of Arm's-Length Negotiations and Uncertainties in the Method
of Determining the Exchange Value. Although the Exchange Value was determined by
Middle Bay based upon a fair market evaluation of the Partnership's Proved
Reserves by H.J. Gruy and Associates, Inc. ("Gruy"), an independent engineering
firm (the "Gruy Report"), dated July 22, 1998, the Exchange Value may not
reflect the actual value of the net assets of the Partnership. The primary
assets of the Partnership considered by Gruy when determining the Exchange Value
were the proved oil and gas reserves of the Partnership (the "Proved Reserves")
and the present value of associated future net cash flows as of July 1, 1998.
There are many uncertainties inherent in estimating quantities of Proved
Reserves, and the present value attributed to the Partnership's Proved Reserves
may be less than the discounted future net cash flows actually received from the
Partnership's interest in its oil and gas properties. In that event, the use of
this valuation methodology will have resulted in an undervaluation of the
Partnership Units. See "Method of Determining Exchange Value."
Potential Decline in Market Price of Common Stock. Access to an
active trading market by exchanging Investors may result in a relatively large
number of shares of Common Stock offered for sale immediately after the Closing
Date. This may tend to lower the market price for the Common Stock. Future
market conditions in the oil and gas industry in general or the effect of the
conditions on Middle Bay in particular could also adversely affect the market
price of the Common Stock. There can be no assurance regarding the potential
appreciation in the market price of the Common Stock. Any decline in the market
price of the Common Stock could reduce a Unitholder's return on investment or
increase the loss on the Unitholder's original investment.
Potential Benefits of Alternatives to the Exchange. The
alternatives to the Exchange Offer are the continuation of the Partnership or
the liquidation of the Partnership's assets and distribution of the liquidation
proceeds to Investors, either of which could potentially be more beneficial to
Investors than the Exchange by avoiding the risks associated with ownership of
Middle Bay Common Stock and, in the case of a liquidation of the Partnership, by
providing an immediate cash return to Investors. See "Reasons for the Exchange
Offer - Recommendation of the General Partner" and "Alternatives to the
Exchange."
Lack of Independent Representatives for Investors; No Fairness
Opinion. No independent representative was selected or hired to represent the
interests of the Investors in negotiating the terms of the Exchange Offer. The
Exchange Value and other terms of the Exchange Offer may therefore be inferior
to those that could have been negotiated by an independent representative.
Middle Bay did not retain an independent third party to render an opinion
regarding the fairness of the terms of the Exchange Offer to Unitholders.
Conflicts of Interest of Middle Bay. Middle Bay, as the General
Partner of the Partnership, has an inherent conflict of interest in the
determination of the Exchange Value. As General Partner, Middle Bay owes a
fiduciary duty to Unitholders in the Partnership. In addition, Middle Bay owes a
duty to its stockholders. While Middle Bay believes that it has fulfilled these
obligations in the determination of the Exchange Value which is supported, in
part, by the Gruy Report, no degree of objectivity or professional competence
can eliminate the inherent conflict of interest. See "Reasons for the Exchange
Offer - Fiduciary Duties of Middle Bay."
- 6 -
<PAGE> 19
Middle Bay Dividend Policy. Middle Bay's policy is to retain its
earnings to support the growth of Middle Bay's business. Accordingly, the Board
of Directors of Middle Bay has never declared cash dividends on its Common Stock
and does not plan to do so in the foreseeable future. Furthermore, the terms of
Middle Bay's debt agreements prohibit Middle Bay from paying cash dividends on
its Common Stock. Thus, upon consummation of the Exchange, Investors will no
longer receive cash distributions, and it is unlikely that cash dividends will
be paid on the Middle Bay Common Stock at any time in the foreseeable future.
No Fractional Shares. No fractional shares will be issued in
connection with the Exchange Offer. A Unitholder who would otherwise be entitled
to a fractional share of Common Stock will be paid cash in lieu of such
fractional share.
Risks Associated with Ownership of Common Stock of Middle Bay. In
addition to the information included in this Prospectus, Investors should
carefully consider the following factors related to Middle Bay in determining
whether to accept the Exchange Offer. The risk factors summarized below are
described in further detail elsewhere in this Prospectus at "Risk Factors and
Material Considerations."
Losses From Middle Bay's Operations. The historical financial data
for Middle Bay reflects a net loss for the year ended December 31, 1997 of
$16,184,052 after incurring a one-time, noncash impairment charge of $21,147,823
required by Financial Accounting Standard #121 which requires that long-lived
assets be reviewed for impairment when events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Fiscal 1997"). Middle Bay's future ability to maintain its
financing arrangements, produce its oil and gas reserves and service its debt
obligations could be adversely affected by a lack of profitability.
Engineers' Estimates of Reserves and Future Net Revenue. This
Prospectus contains, and incorporates by reference, estimates of Middle Bay's
and the Partnership's proved oil and gas reserves and future net revenues
therefrom. In order to estimate the reserves, costs and future cash flows,
reliance has been made in part on geological, engineering and economic data
furnished by Middle Bay to Gruy. Although a best efforts attempt has been made
to acquire all pertinent data and to analyze it carefully with methods accepted
by the petroleum industry, there is no guarantee that the volumes of oil or gas
or the cash flows projected will be realized. The reserve and cash flow
projections referenced in this Prospectus and the Gruy Report may require
revision as additional data become available.
Development of Additional Reserves. Middle Bay's future success
depends significantly upon its ability to find or acquire additional oil and gas
reserves that are economically recoverable. There can be no assurance that
Middle Bay will be able to discover additional commercial quantities of oil and
gas or that Middle Bay will be able to continue to acquire interests in
underdeveloped oil and gas fields and enhance production and reserves therefrom.
- 7 -
<PAGE> 20
Retention and Attraction of Key Personnel. Middle Bay depends to a
large extent on the abilities and continued participation of certain key
employees, the loss of whose services could have a material adverse effect on
Middle Bay's business.
Regulation. The oil and gas industry is subject to broad and
frequently changing regulations that could adversely affect the operations of
Middle Bay.
In spite of the foregoing risks, Middle Bay initiated and proposed the
Exchange Offer and Middle Bay recommends adoption of the Proposal by the
Partnership to enable Middle Bay to acquire the assets and liabilities of the
Partnership and to provide Investors with the potential benefits summarized
below under the caption "Reasons for the Exchange Offer."
BACKGROUND OF THE EXCHANGE
The Partnership has completed its drilling operations and acquisitions.
Enex has received inquiries and concerns from Investors regarding anticipated
production declines and reductions of cash distributions and determined that the
Partnership had reached the stage in its production history where consideration
of the Exchange Offer became appropriate. That determination was based on the
following factors:
Production Declines. Since 1993, the Partnership's oil and gas
production volumes have declined from peak levels reached in 1992. Production
volumes are expected to decline further in subsequent periods due to ongoing
depletion of the Partnership's wells. The decline in production rates due to
depletion of reserves is neither unusual nor unexpected in the oil and gas
industry.
Middle Bay's Acquisition of the Partnership's Properties. Middle
Bay is a natural acquisition candidate for various reasons, including Middle
Bay's (i) interest in reducing the overhead expense involved in administration
of the Partnership as General Partner, (ii) greater diversification and capital
resources enabling Middle Bay to fund contingent liabilities and other expenses
necessary for the continued operation of the Partnership's properties and (iii)
interest in responding to Investor's concerns about the future prospects of the
Partnership. Although the acquisition of the Partnership's assets pursuant to
the Exchange Offer may result in a charge against Middle Bay's income, Middle
Bay does not expect that this one-time charge (if any) will have a significant
adverse affect on the market value of the Middle Bay Common Stock.
ALTERNATIVES TO THE EXCHANGE
Although Middle Bay has considered the continuation of the Partnership
or liquidation of the Partnership as potential alternatives to the Exchange
Offer, these alternatives were rejected for various reasons, including the
following:
Liquidation. Although liquidation would provide an immediate cash
return to the limited partners and would avoid the risks associated with the
ownership of Middle Bay shares, based on its experience in the oil and gas
industry, the General Partner determined that a liquidation of the Partnership
would likely result in lower cash value to the limited partners than the value
represented by the Common Stock. This is
- 8 -
<PAGE> 21
because third-party purchasers of oil and gas properties may pay less than the
net present value, discounted at 10%, of the anticipated cash flows of a
property's proved oil and gas reserves, further adjusted for risks associated
with different types of reserves and other factors, and the administrative and
overhead expenses incurred during the period of liquidation would further reduce
the cash available to the limited partners. The market prices of Middle Bay
Common Stock from time to time may reflect additional value associated with
Middle Bay's success (of which there can be no assurance) as a growth company in
the oil and gas business.
Lack of Partnership Resources and Declining Reserves. Continuation
of the Partnership, while avoiding the risks associated with the Exchange Offer
and the discontinuance of cash distributions, would result in declining
operating results and distribution rates for the Partnership because: (i)
reserves will be depleted in the ordinary course from ongoing production, (ii)
general and administrative expenses will remain the same, regardless of the
operating results of the Partnership, and (iii) the Partnership would have to
incur the cost of plugging and abandoning Partnership wells when they become
uneconomic or any future sale of the Partnership's wells would be at a price
which would reflect the anticipated costs of such plugging and abandonment
expenses.
Management's Conclusions Regarding Liquidation Value of the
Partnership at Comparable Values. Middle Bay has concluded that, while an asset
sale in liquidation might generate limited third-party interest, a sale of the
assets of the Partnership would not provide immediate cash returns to Investors
in excess of the liquidation value of the Partnership and would likely result in
valuations by a third-party bidder or bidders below the Exchange Value of the
Partnership Units. Middle Bay has engaged Gruy to provide an independent
analysis of the current liquidation value of the Partnership. Results of that
liquidation analysis reflect a liquidation value for the Partnership estimated
at $9.82 per Unit, or approximately 17%, less than the Exchange Value. In view
of the uncertainties inherent in the General Partner's analysis of the value,
there can be no assurance that obtaining additional bids for an arm's-length
sale of the Partnership's assets would not result in a valuation that would be
comparable to or higher than the Exchange Value, while also avoiding the risks
associated with ownership of the Common Stock.
REASONS FOR THE EXCHANGE OFFER;
RECOMMENDATIONS OF THE GENERAL PARTNER
The General Partner believes that the Exchange Offer is fair to and in
the best interests of the Partnership and its Unitholders and recommends that
Unitholders consent to the Proposal and accept the Exchange Offer. See
"Background of the Exchange Offer." The recommendation is based on a number of
factors discussed in this Prospectus. If the Exchange is not consummated, the
Partnership will continue to operate its properties, and the General Partner
will review alternatives that may become available from time to time.
SUMMARY OF TAX CONSEQUENCES
Upon consummation of the Exchange, Unitholders will realize gain in an
amount equal to the excess of the fair market value of the Common Stock received
by them over their respective bases in the Partnership
- 9 -
<PAGE> 22
Units they hold. If a Unitholder's Unit has a tax basis greater than the fair
market value of the Common Stock received, such Unitholder would realize a loss
for tax purposes.
Assuming the Investor has held his Interest for more than one year and
assuming his Units have not been held for sale in the ordinary course of the
Investor's trade or business, any gain or loss realized upon the transfer of the
Partnership Units will be taxed as long-term capital gain or loss, except to the
extent that the consideration received is attributable to his allocable share of
substantially appreciated inventory items and unrealized receivables (including
depreciation recapture and excess intangible drilling and development costs) of
the Partnership. The portion of any gain attributable to these items will be
taxed to the Investor as ordinary income.
Investors should read the more detailed discussion of the federal
income tax consequences contained in "Certain Federal Tax Consequences" and are
also urged to consult with their own tax advisors with respect to the tax
consequences to them of the transaction, including the application of state,
local and foreign tax laws.
ACCOUNTING TREATMENT
The Exchange will be accounted for as a purchase by Middle Bay.
Accordingly, the purchase price will be allocated to assets and liabilities
based on their estimated values as of the date of acquisition.
BUSINESS OF MIDDLE BAY AND THE PARTNERSHIP
AFTER CONSUMMATION OF THE EXCHANGE
Middle Bay is an independent oil and gas company engaged in the
acquisition of producing properties and the exploration, development and
production of oil and gas in the contiguous United States, primarily in the
Mid-Continental and Gulf Coast regions. Upon consummation of the Exchange,
Middle Bay will operate the acquired Partnership assets as it operates its oil
and gas properties or may sell such assets to third parties at any time. See
"Background of the Exchange Offer."
COMPARATIVE RIGHTS OF SECURITY HOLDERS
For a comparison of the rights of Middle Bay stockholders under Alabama
law and Middle Bay's Certificate of Incorporation and Bylaws with the rights of
the partners of the Partnership under New Jersey law and the Partnership
Agreement, see "Comparative Rights of Security Holders."
LIMITED APPRAISAL/DISSENTERS' RIGHTS
Unitholders who do not vote in favor of or who oppose the Proposal will
have certain appraisal or dissenters' rights. Unitholders who elect to exercise
their appraisal rights will have the option to receive cash in lieu of the
Common Stock based on the liquidation value of the Partnership's assets
determined in accordance with the Gruy Report, as adjusted in accordance with
the Partnership Agreement. Such rights are not required by New Jersey
partnership law, and the appraisal and limited dissenters' rights afforded
Unitholders are those provided by the Partnership Agreement.
- 10 -
<PAGE> 23
Investors residing in California will be afforded the option to elect
limited dissenters' rights in accordance with the requirements for roll-up
transactions under the California Code. By voting against the Proposal,
Investors in the State of California who choose to exercise their California
dissenters' rights will receive the cash equivalent of the Exchange Value of
their interests. If that cash amount is greater than the liquidation value of
the Units, dissenting California Investors will receive more cash than they
would otherwise receive by electing appraisal rights under the Partnership
Agreement. California Investors hold less than 1% of the interests in the
Partnership, and the impact of the exercise of appraisal rights or dissenters'
rights under California law is not likely to materially affect the number of
shares of Common Stock issued or cash paid pursuant to appraisal or dissenters'
rights by Middle Bay in connection with the Exchange Offer.
RESALES OF MIDDLE BAY COMMON STOCK
The shares of Middle Bay Common Stock that will be issued to
Unitholders in connection with the Exchange and upon liquidation of the
Partnership have been registered under the Securities Act. All shares of Common
Stock received by Unitholders will be freely tradable by those Investors.
MATERIAL ADVANTAGES AND DISADVANTAGES OF
THE EXCHANGE AND PROPOSAL
In considering the Exchange, Middle Bay, as the General Partner, took
into account various advantages and disadvantages of the Exchange to the
Partnership and its Investors. The advantages considered included:
(a) The total consideration to be received by the Partnership
represents a premium over the fair market value of all assets of
the Partnership as determined by an independent engineering firm;
(b) Middle Bay's historical financial results and future prospects;
(c) Middle Bay's assumption of all liabilities of the Partnership,
including any contingent or other liabilities not presently known
to the Partnership;
(d) The consideration to be received by the Partnership in connection
with the Exchange represents consideration to Unitholders in
excess of that which could be expected from continued cash
distributions;
(e) Investors will receive the benefit of any future growth in the
value of their equity interest in Middle Bay rather than receiving
cash distributions from the Partnership, which are likely to
decrease rapidly as the remaining oil and natural gas reserves of
the Partnership are depleted; and
(f) Liquidity of the Common Stock of Middle Bay compared to the lack
of liquidity of the Partnership Units.
Middle Bay also considered certain disadvantages that included:
- 11 -
<PAGE> 24
(a) The possibility that the price of oil and gas could increase,
thereby increasing the value of the Proved Reserves of the
Partnership, which could have a more direct benefit to Unitholders
if owned by the Partnership rather than Middle Bay;
(b) Middle Bay is restricted under certain credit agreements from
paying cash dividends to its stockholders, and Unitholders could
continue to receive cash distributions from the Partnership;
(c) Tax consequences to Unitholders in connection with the Exchange
and liquidation of the Partnership;
(d) The possibility that the reserve estimates for the Partnership
could be undervalued; and
(e) Risks associated with the future market value of Middle Bay Common
Stock.
See "Reasons for the Exchange Offer." For other relevant factors, see also "Risk
Factors and Material Considerations."
METHOD OF DETERMINING EXCHANGE VALUE FOR THE PARTNERSHIP
Components of the Exchange Value
The Total Exchange Value represents the estimated fair market value of
the Partnership's Proved Reserves as determined by the Gruy Report and other
assets, including general intangibles, as determined by Middle Bay. These
components represent all of the assets and liabilities of the Partnership and
were determined by Gruy and Middle Bay as of July 1, 1998, the Economic
Effective Date.
Middle Bay did not instruct Gruy as to pricing, cost or other economic
parameters or methods or the assessment of reserve characteristics, nor did it
limit the scope of Gruy's investigation for purposes of preparing the fair
market value appraisal. Middle Bay provided Gruy with basic evaluation data for
its use in determining the Partnership's Proved Reserves and their value. Gruy
prepared its own reserve estimates of the Partnership's properties. Middle Bay
did not direct Gruy as to the amount of consideration to be paid to the
Partnership for its property interests nor provide any information to Gruy on
amounts to be paid to Unitholders. The amount of consideration to be paid was
determined by Middle Bay's Board of Directors based upon Gruy's estimates of the
fair market value of those interests. Gruy did not opine on the fairness of the
transaction to Unitholders, and Middle Bay has not acquired a separate report or
opinion regarding the fairness to Unitholders of the price at which the
Partnership's assets will be sold to Middle Bay if the Proposal is approved by
Unitholders.
The following unaudited table sets forth (i) the components of the
Exchange Value of the Units and (ii) the Exchange Value per Unit held by an
Investor. This information was compiled by Gruy and Middle Bay from the
Partnership's financial and property records for the year ended December 31,
1997 and such records for the three months ended March 31, 1998:
- 12 -
<PAGE> 25
EXCHANGE VALUE TABLE
<TABLE>
<CAPTION>
Participants Total Exchange Value Per
Exchange Value(1) Partnership Unit(2)
------------------ -------------------
<S> <C> <C>
Components of Exchange Values:
Estimated fair market value of Proved
Reserves as of July 1, 1998(3) $11,444,000 $10.38
Current assets, less current liabilities(4) 1,500,000 1.36
General intangibles 100,000 .09
----------- ------
Total Exchange Value $13,044,000 $11.83
Estimated Number of Shares of Common Stock to be Issued
Per Partnership Unit(5)
----------- ------
</TABLE>
(1) No Exchange Value is attributable to the General Partner's interest.
(2) Obtained by dividing the Total Exchange Value by 1,102,631 Partnership
Units.
(3) Value of estimated future net cash flows from Proved Reserves of the
Partnership as of July 1, 1998, as reflected in the fair market value
report dated July 22, 1998 for the Partnership as of that date issued by
H.J. Gruy and Associates, Inc., independent petroleum engineers.
(4) Estimated net book value of current assets and liabilities at June 30,
1998.
(5) Obtained by dividing the Total Exchange Value by the Common Stock price of
$______, as of August __ 1998 subject to adjustment due to subsequent
stock price fluctuation.
Proved Reserves
Proved Reserves of the Partnership and the estimated future net cash
flows attributable thereto were derived from the fair market value report dated
July 22, 1998 for the Partnership prepared by H.J. Gruy and Associates, Inc.
(the "Gruy Report"). The reserve estimates were prepared in accordance with SEC
regulations concerning reserve categories, with estimated future net cash flows
from Proved Reserves based on prices as of July 1, 1998 with certain escalations
of prices and costs over the estimated life of the reserves and discounted at
10% per annum ("PV 10"). A suitable risk adjustment factor was applied during
the evaluation process utilized by Gruy to obtain the estimated future net cash
flows from the Proved Reserves of the Partnership to account for uncertainties
inherent in projecting future production rates, and, except for price and cost
escalation assumptions used by Gruy, no adjustment was made to take into account
fluctuations in oil and gas prices after July 1, 1998.
General Intangibles
In determining the value attributed to general intangibles, Middle Bay
evaluated the success to date of the Partnership, total consideration paid to
date to Investors and the value to Middle Bay of dissolving and liquidating the
Partnership so that Middle Bay can focus on its current operations and reduce
the administrative burdens associated with operating the Partnership.
- 13 -
<PAGE> 26
From inception through July, 1998, the Partnership has made cash
distributions to Unitholders aggregating $5,154,285, or $4.67 per Unit. Assuming
that an Investor in the Partnership elects to hold his or her shares of Common
Stock and the aggregate market price of the shares of Common Stock received per
Unit remains at or above the Exchange Value of $11.83, Middle Bay believes that
Unitholders will have received consideration in the form of cash distributions
and Common Stock of approximately ___% of the initial investment in the
Partnership, without regard to any tax benefits received by the participants.
Middle Bay believes that Unitholders will not receive any value for the general
intangibles in any alternative to the Exchange.
Uncertainties Inherent in Valuation Methodology
There are numerous uncertainties inherent in estimating quantities and
production rates of hydrocarbons. Estimates of the Partnership's Proved Reserves
by independent petroleum engineers other than Gruy could result in higher or
lower valuations than those determined by Gruy. The Exchange Values may not
reflect the value of the Units or the value of the properties attributable to
the Units if sold to an unaffiliated third party or parties in an arm's-length
transaction.
CONSENT PROCEDURES
To tender Partnership Units in exchange for Common Stock at the
Exchange Rate and thereby consent to the Proposal, each Unitholder should
complete and sign the Letter of Transmittal accompanying this Prospectus (a form
of which is included as Exhibit "C") and return it to Middle Bay during the
30-day period ending at 5:00 p.m. Central Time on _________, 1998 (the
"Expiration Date"). The Expiration Date may be extended for up to an additional
ten-day period, although no extension is presently contemplated. Middle Bay will
not accept tenders of less than all of the Partnership Units held by a
Unitholder. Tenders of Units and consents to the Proposal may be withdrawn upon
written notice to Middle Bay received at any time prior to the Expiration Date.
CONDITIONS TO EXCHANGE
The Exchange Offer is expected to be consummated on the Closing Date,
which shall be no more than five days following the Expiration Date, as
extended. The Exchange Offer to the Partnership is conditioned upon consent of
60% of the Units to the Proposal and the absence of any material adverse
development affecting the Partnership or Middle Bay, as determined by Middle Bay
in its sole discretion. On the Closing Date, subject to satisfaction of these
conditions, Middle Bay intends to accept all Units validly tendered and not
withdrawn pursuant to the Exchange Offer.
REGULATORY APPROVALS
No federal or state regulatory approval is required in connection with
the Exchange Offer or the adoption of the Proposal by the Partnership.
- 14 -
<PAGE> 27
SELECTED FINANCIAL DATA - MIDDLE BAY
MIDDLE BAY HISTORICAL AND UNAUDITED PRO-FORMA FINANCIAL DATA
The following selected consolidated financial data for Middle Bay as of
and for each of the years ended December 31, 1996 and 1997 are derived from
Middle Bay's audited consolidated financial statements. The selected
consolidated financial data for the three months ended March 31, 1998 and 1997
are derived from Middle Bay's unaudited financial statements. In the opinion of
management, such unaudited financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of the financial condition and results of operations as of and for the periods
presented. Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending December 31, 1998. The pro-forma operating data and pro-forma
balance sheet data below give effect to the Exchange Offer as if it had been
completed on January 1, 1997 and March 31, 1998, respectively. The selected
consolidated financial data below should be read in conjunction with Middle
Bay's consolidated financial statements and related notes thereto, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Pro-Forma Financial Information included elsewhere herein or incorporated by
reference herein.
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
Years Ended December 31, March 31,
------------------------ ---------
1996 1997 1997 1998
---- ---- ---- ----
Operating Data (in thousands, except per-share amounts)
<S> <C> <C> <C> <C>
Oil and gas sales $ 4,475 $ 10,213 $ 1,876 $ 2,632
Delay rental and lease bonus income -- 975 -- --
Other 412 245 26 125
------- -------- -------- --------
Total Revenue 4,887 11,433 1,902 2,757
Costs and Expenses
Operating expenses, including production
taxes 1,516 3,849 643 1,184
Exploration costs -- 223 -- 746
Impairment expense 277 21,148 -- --
Dryhole costs 429 1,119 181 469
Depletion, depreciation and amortization 1,185 4,567 479 1,118
Interest 505 671 136 255
Stock compensation expense -- 202 -- 34
General and administrative 662 2,361 422 1,093
Other 32 317 -- --
------- -------- -------- --------
Total Expenses 4,606 34,457 1,861 4,899
Income (loss) before income taxes 281 (23,024) 41 (2,142)
Income tax expense (credit) 75 (7,445) -- (728)
------- -------- -------- --------
Net income (loss) 206 (15,579) 41 (1,414)
Dividends to preferred stockholders -- 605 63 68
------- -------- -------- --------
Net income (loss) available to stockholders $ 206 $(16,184) $ (22) $ (1,482)
======= ======== ======== ========
Net income (loss) per common share
Basic $ 0.15 $ (4.76) $ (0.01) $ (0.22)
Diluted 0.14 (4.76) (0.01) (0.22)
Total assets 13,185 37,253 25,355 61,738
Long-term debt 5,158 9,715 5,290 24,500
Redeemable common stock 421 -- 421 --
Dividends per share -- -- -- --
<CAPTION>
(Unaudited)
At December 31, At March 31, 1998
--------------- -----------------
1996 1997 Historical Pro-Forma
---- ---- ---------- ---------
Balance Sheet Data (in thousands, except per-share amounts)
<S> <C> <C> <C> <C>
Working capital (deficit) 786 1,313 2,475 1,475
Total assets 13,185 37,253 61,738 71,130
Long-term obligations, net of current
portion 5,158 9,715 24,500 30,000
Stockholders' equity 6,037 19,866 18,418 33,384
</TABLE>
- 15 -
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Middle
Bay's Financial Statements and Notes thereto set forth herein.
RESULTS OF OPERATIONS -- 1997
The factors that most significantly affect Middle Bay's results of
operations are (i) the sales price of crude oil and natural gas, (ii) the level
of production volumes, (iii) the level of lease operating expenses, and (iv) the
level of interest rates. Sales of production and level of borrowing are
significantly impacted by Middle Bay's ability to maintain or increase its
production from existing oil and gas properties or through its exploration and
development activities. Sales prices received by Middle Bay for oil and gas have
fluctuated significantly from period to period. The fluctuations in oil prices
during these periods reflect market uncertainty regarding the inability of OPEC
to control the production of its member countries, production from Iraq, as well
as concerns related to the global supply and demand for crude oil. Gas prices
received by Middle Bay fluctuate generally with changes in the spot market price
for gas. Relatively modest changes in either oil or gas prices significantly
impact Middle Bay's results of operations and cash flow and could significantly
impact Middle Bay's borrowing capacity.
The table below details the changes in oil and gas revenues, excluding
plant and other revenues, caused by price and volume changes for the years
ending December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Oil Revenues
Change due to volume $ 2,942,138 $ 32,436 $ 576,865
Change due to price (478,122) 437,285 102,558
Total change 2,464,016 469,271 679,423
Gas Revenues
Change due to volume $ 2,161,383 $ 149,921 $ 277,755
Change due to price 201,483 708,386 (182,391)
Total change 2,362,866 858,307 95,364
</TABLE>
FISCAL 1997
Total revenues for the twelve months ended December 31, 1997, of
$11,433,000, were $6,546,000 higher than the same period in 1996. The increase
in total revenues was due primarily to higher oil and gas revenues of
$4,827,000, consisting primarily of a $2,464,000 increase in oil revenues and a
$2,363,000 increase in gas revenues. Also contributing to the revenue increase
was $920,000 in revenue from gas processing at the gas plant located at the
Spivey Field and $975,000 in lease bonus and delay rental income on the fee
mineral acreage in Louisiana. The gas processing plant was acquired in the
February 28, 1997 Bison
- 16 -
<PAGE> 29
Merger. The increase in oil and gas revenues from 1996 to 1997 was primarily the
result of increases in production which resulted from the Bison and Shore
Mergers. Production from the Bison and Shore Mergers is included from March 1
and July 1, 1997, respectively. Production of oil and gas for the twelve months
ended December 31, 1997, increased 133% and 96%, respectively, over the
comparable period. During the twelve-month period ended December 31, 1997,
Middle Bay sold 254,000 barrels of oil and 1,929,000 Mcf of gas, as compared to
109,000 barrels of oil and 983,000 Mcf of gas for the comparable period. Oil
production for 1997 was 145,000 barrels higher due primarily to a 58,000 barrel
increase from the Bison Merger and a 76,000 barrel increase from the Shore
Merger. Gas production in 1997 was 946,000 Mcf higher due primarily to a 521,000
Mcf increase from the Bison Merger, a 335,000 Mcf increase from the Shore Merger
and a 188,000 Mcf increase from the Riceville Acquisition. The price received on
the gas sold in 1997 of $2.39 per Mcf was slightly higher than the $2.28 per Mcf
received in the comparable period. Oil prices in 1997 of $18.38 per barrel were
9% lower than the $20.26 per barrel received in the comparable period.
Middle Bay received approximately $975,000 in lease bonus and delay
rental income on the fee mineral acreage acquired in the Shore Merger over the
six-month period ending December 31, 1997.
The increase in total revenues of $6,546,000 was less than the increase
in total expenses, before income taxes, of $29,851,000. The principal reasons
for the increase in the overall level of expenses are (1) increased oil and gas
property impairment charge of $20,870,000; (2) increased lease operating and
depletion expenses of $5,715,000 from properties acquired in the Bison and Shore
Mergers which are included with Middle Bay's expenses from March 1 and July 1,
respectively; and (3) increased G&A expenses of $1,699,000 due to increased
number of employees from the Bison and Shore Mergers and higher overall
administrative expenses due to the increased level of activity.
In the fourth quarter of 1997, Middle Bay charged to impairment expense
$21,148,000 versus $278,000 in the comparable period. The impairment expense was
computed applying the guidelines of FAS #121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This statement
requires that long-lived assets be reviewed for impairment when events or
changes in circumstances indicate that the carrying value of such assets may not
be recoverable. This review consists of a comparison of the carrying value of
the asset with the asset's expected future undiscounted cash flows without
interest costs. Expected undiscounted future cash flow is defined as "the future
cash inflows expected to be generated by an asset less the future cash outflows
expected to be necessary to obtain those inflows (undiscounted and without
interest charges)." Independent oil and gas engineers determine the expected
future undiscounted cash flows. To determine the expected future undiscounted
cash flows of each property, the engineers estimated each property's oil and gas
reserves, relied on certain information supplied by Middle Bay regarding the oil
and gas reserves, applied certain assumptions regarding price and cost
escalations, and applied certain discount factors for risk, location, type of
ownership interest, category of reserves, operational characteristics and other
factors. Estimates of expected future undiscounted cash flows are to represent
management's best estimate based on reasonable and supportable assumptions and
projections. If the expected future undiscounted cash flows exceed the carrying
value of the asset, no impairment is recognized. If the carrying value of the
asset exceeds the expected future undiscounted cash flows, impairment exists and
is measured by the excess of the carrying value over the estimated fair value of
the asset. Fair value is defined
- 17 -
<PAGE> 30
in the statement as the "amount at which the asset could be bought or sold in a
current transaction between willing parties."
The impairment expense in the current period of $21,148,000 was
primarily attributable to impairments on three fields--the Esther Field, Spivey
Field and Wellman Field--amounting to $8,394,000, $6,127,000 and $2,257,000,
respectively. The Esther and Wellman Fields were acquired in the Shore Merger,
and the Spivey Field was acquired in the Bison Merger. The impairment on the
Esther Field in Vermilion Parish, Louisiana was due primarily to a change in the
category of reserves from Proved Undeveloped to Probable Undeveloped and changes
in the economics of the development of the reserves. The category of the
reserves was changed due to an abandoned sidetrack attempt in February, 1998 by
the operator on the Proved Undeveloped Reserves. The impairment on the Spivey
Field was due primarily to a decrease in the level of oil prices and changes in
the economics of the Proved Undeveloped Reserves due to information obtained
from the wells drilled in 1997. The impairment on the Wellman Field in Terry
County, Texas was due primarily to decreases in oil prices. Since July 1, 1997,
the posted price of WTI crude oil has fallen from approximately $18.00 per
barrel to $15.00 per barrel at December 31, 1997 or 17%. The total oil
equivalent reserves of the Wellman Field are 95% oil. The remaining impairment
expense of approximately $4,370,000 is attributable to several fields. The
principal reasons for the impairment on these fields are the decrease in oil
prices and the decrease or cessation of oil and gas production.
Lease operating expenses of $3,849,000 increased by $2,333,000. The
increase was due primarily to the Bison and Shore Mergers which increased lease
operating expenses $1,067,000 and $915,000, respectively. Depletion expense of
$4,567,000 increased by $3,382,000. Depletion increased primarily due to the
Bison and Shore Mergers which increased depletion by $1,279,000 and $1,270,000,
respectively. Interest expense of $671,000 increased by $166,000 due to a higher
loan balance. Dry-hole expense of $1,119,000 increased by $690,000 due primarily
to abandonment costs on three unsuccessful Exploratory Wells drilled in
Louisiana--the Shore Oil Company #1, the Sabine #1 and the Middle Bay Oil
Company #1--with dry-hole costs of $311,000, $177,000 and $168,000,
respectively. General and administrative expense of $2,361,000 increased by
$1,699,000, due primarily to higher salary expense of $724,000, higher
professional fees of $347,000, higher office expenses of $128,000, and higher
IRA/SEP/Other Bonus expenses of $123,000. The remaining increase in general and
administrative expenses was over several expense categories and was due
primarily to an increase in the overall level of activity at Middle Bay as a
result of the Bison and Shore Mergers. The increase in salary expense is due to
increases in salaries of existing employees and salaries associated with
employees added in the Bison and Shore Mergers. At the time of the Bison Merger,
seven employees occupied the Wichita, Kansas office. Effective August 1, 1997,
only four employees will be occupying the Wichita, Kansas office--the President
of Bison, an engineer, geologist and secretary. The President of Shore, an
engineer and a secretary were added in the Shore Merger. In addition, Middle Bay
hired a land manager in July to manage Middle Bay's land and mineral records and
an accounting supervisor in October to assist with the increased accounting
workload. Stock compensation expense of $202,000 increased by $202,000 due to
the vesting of 50% of the restricted stock granted to certain Company employees
in February, 1997. The remaining 50% will fully vest on June 30, 1998. Other
expenses of $317,000 increased $285,000 over the comparable period. The primary
reason for the increase was expenses associated with the Bison and Shore
Mergers.
- 18 -
<PAGE> 31
Middle Bay reported an operating loss of $23,024,000 for the year ended
December 31, 1997, as compared to an operating profit of $280,000 in the
comparable period.
Middle Bay reported a deferred tax benefit of $7,451,249 for the year
ended 1997 versus a deferred tax expense of $70,000 in the comparable period.
The primary reason for the deferred tax benefit in 1997 was the oil and gas
reserve impairment on the properties acquired in the Bison and Shore Mergers in
1997 and the NPC Merger in 1996. These three mergers were tax-free mergers, and
the tax basis of the oil and gas properties acquired were carried over on Middle
Bay's books at the merger dates. For accounting purposes, the three mergers were
purchases and the oil and gas properties were recorded on Middle Bay's books at
fair market value on the merger dates. The fair market value was much higher
than the carryover tax basis and a deferred tax liability at the prevailing tax
rate was recorded for the difference. The total deferred tax liability that was
recorded on Middle Bay's books for the Bison, Shore and NPC Mergers was
approximately $12 million. When the impairment reduced the carrying amount of
the oil and gas properties for accounting purposes but not for tax purposes, the
difference between the accounting and tax basis of the properties was reduced
and the deferred tax liability was reduced accordingly, resulting in a deferred
tax benefit.
Middle Bay reported a net loss of $15,579,340 versus net income of
$205,500 for the comparable period. Middle Bay paid preferred dividends of
$605,000 in the current period and reported a net loss to common stockholders of
$16,184,052 versus net income available to common stockholders of $205,000 for
the comparable period. No preferred dividends were paid in 1996.
FISCAL 1996
Total revenues for the twelve months ended December 31, 1996, of
$4,886,000, were $1,348,000 higher than the comparable period. The increase in
total revenues was due primarily to higher oil and gas revenues of $1,236,000,
consisting primarily of a $469,000 increase in oil revenues and a $858,000
increase in gas revenues. Total revenues also increased due to higher other
income of $199,000, due primarily to a gas contract settlement of $263,000. The
increase in oil and gas revenues from 1996 to 1995 was primarily the result of
higher oil and gas prices. Production of oil and gas for the twelve months ended
December 31, 1996, increased 1% and 7%, respectively, over the comparable
period. During the twelve-month period ended December 31, 1996, Middle Bay sold
109,000 barrels of oil and 983,000 Mcf of gas, as compared to 107,000 barrels of
oil and 917,000 Mcf of gas for the comparable period. Oil production for 1996
was 1,600 barrels higher due to a 4,300 barrel increase from the successful
wells in the Brigham Agreement, a 500 barrel increase in existing properties,
and a decrease of 3,200 barrels from properties sold in 1996. Gas production in
1996 was 66,000 Mcf higher due to a 25,000 Mcf increase from the successful
wells in the Brigham Agreement and a 78,000 Mcf increase in existing properties
offset by a decrease of 37,000 Mcf from properties sold in 1996. The price
received on the gas sold in 1996 of $2.28 per Mcf was higher than the $1.52 per
Mcf received in the comparable period. Oil prices in 1996 of $20.26 per barrel
were 25% higher than the $16.17 per barrel received in the comparable period.
The increase in total revenues of $1,348,000 was more than the increase
in total expenses of $646,000. Increases in dry-hole costs and depreciation and
depletion expense accounted for approximately 91% of the total expense increase.
- 19 -
<PAGE> 32
Lease operating expenses of $1,516,000 increased by $79,000 as a result
of higher expenses on existing properties of $138,000 and expenses on successful
wells in the Brigham Agreement of $4,300 offset by reductions due to properties
sold in 1996 of $63,000. Interest expense of $505,000 decreased by $15,000 due
to lower interest rates and payments on principal in 1996. Dry-hole expense
increased by $346,000 due primarily to abandonment costs of $421,000 associated
with the unsuccessful wells drilled in the Brigham Agreement. Depletion expense
of $1,397,000 increased by $256,000. Regular depletion of $1,119,000 increased
by $134,000 due primarily to higher depletion on existing properties. Write-offs
of proven properties in accordance with SFAS #121 of $277,000 increased by
$121,000. Of the total writedown, 75% is from three single well fields in
Louisiana. One of the fields was the Lake Decade Field which was a major
property in 1995. It contributed $91,000 to cash flow in 1996 before it ceased
producing in December 1996, resulting in an impairment expense of $59,000. The
other two fields, which produced very little in 1996, were minor properties
contributing less than $20,000 to cash flow in 1995, and producing impairment
losses of $95,000 and $55,000. The remaining impairment expense resulted from
several properties, none of which were significant properties in terms of
discounted present value and were primarily mature, small properties that did
not contribute significantly to Middle Bay's cash flow in 1996 and 1995.
Depreciation expense of $60,000 decreased $15,000 due to lower depreciation on
lease and well equipment and corporate office furniture and fixtures which are
depreciated on an accelerated method which declines over the useful life of the
asset. General and administrative expenses decreased by $3,900, due primarily to
Middle Bay's lower 1996 SEP/IRA and 1% NPI contributions of $12,000 compared to
the $60,000 in contributions in 1995, lower accounting expenses of $14,000 and
lower miscellaneous expenses of $18,000 which were partially offset by higher
travel and entertainment expenses of $47,000 and higher legal expenses of
$12,000.
Middle Bay reported an operating profit of $280,000 for the year ended
December 31, 1996 as compared to an operating loss of $421,000 in 1995. If the
1996 nonrecurring credits of $303,000 consisting of the gas contract settlement
of $263,000 and lease operating expense credit of $40,000, were offset against
the 1995 nonrecurring expenses of $62,000, the operating loss would have
decreased by $336,000.
Middle Bay reported net income of $205,000 for the year ended December
31, 1996, versus a net loss of $331,000 for the comparable period.
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
Total revenues for the three months ended March 31, 1998 of $2,757,000
were $856,000 higher than the comparable period. The increase in total revenues
was due principally to higher oil and gas revenues of $756,000.
The increase in oil and gas revenues consisted primarily of a $364,000
increase in oil revenues and a $349,000 increase in gas revenues. The increase
in oil and gas revenues was the result of higher oil and gas production.
Production of oil increased 116% and production of gas increased 72% over the
comparable period. The oil production increase of 50,141 barrels and the gas
production increase of 219,034 Mcf were due primarily to the Shore Merger and
the Riceville Acquisition. During the three-month period ended March 31, 1998,
Middle Bay sold 93,260 barrels of oil and 521,556 Mcf of gas, as compared to
43,119 barrels and 302,522 Mcf for the comparable period. The average price
received on the gas sold in 1998 of $2.28 per Mcf
- 20 -
<PAGE> 33
was 18% lower than the $2.77 per Mcf received in the comparable period. The
average price received on the oil sold in 1998 of $13.94 per barrel was 36%
lower than the $21.71 per barrel received in the comparable period.
Total expenses increased by $3,038,000 over the comparable period. Due
to the growth of Middle Bay over the last twelve months, all categories of
expenses increased. Lease operating expenses increased $541,000. The increase
was due principally to the additional expenses on the properties acquired in the
Bison and Shore Mergers. Depletion and depreciation expense increased by
$639,000. Depletion was higher due to depletion on properties acquired in the
Bison and Shore Mergers and the Riceville Acquisition.
General and administrative expenses ("G&A") increased by $671,000. The
increase in G&A consists primarily of a $236,000 increase in salaries, $132,000
in performance bonuses for the previous year and an increase of $247,000 in
engineering, accounting and legal expenses. The increase in salary expense was
due to increases in salaries of existing employees, salaries of new employees
and salaries associated with employees added in the Bison and Shore Mergers. For
the current period, Middle Bay had 17 full-time employees; eight employees were
added through the Bison and Shore Mergers, and the Company hired a land manager
and accountant and lost one employee. In addition, during the comparable period
before the Bison Merger, Middle Bay had eight full-time employees. The
performance bonus was paid to certain key employees upon recommendation by the
Compensation Committee after an appraisal of Middle Bay's performance for the
year ended 1997.
Dryhole expenses increased by $288,000. In the current period, the
dryhole expense of $469,000 consisted principally of $199,000 for the dryhole on
the South Highbaugh Prospect. Additional dryhole expenses of $102,000 on two
dryholes on the Reflection Ridge Prospect and $130,000 on the Middle Bay Oil Co.
#1 were expensed in the current period. The Reflection Ridge wells and the
Middle Bay Oil Co. #1 were drilled and abandoned in the fourth quarter of 1997.
Dryhole expenses in the comparable period consisted principally of costs through
the Brigham Agreement.
Geological and geophysical expenses ("G&G") increased by $746,000. In
the current period, Middle Bay spent approximately $740,000 in G&G expenses on
the Hawkins Ranch Prospect in Matagorda County, Texas. No G&G expenses were
incurred in the comparable period. Stock compensation expense increased by
$33,700 due to the vesting of the restricted stock granted to certain Middle Bay
employees in February, 1997. All of the stock will be vested by June 30, 1998.
Interest expense increased by $120,000, due primarily to a higher loan balance.
Middle Bay reported an operating loss of $2,143,000 for the three
months ended March 31, 1998, versus operating income of $40,000 for the
comparable period. Middle Bay reported a deferred income tax benefit of $728,000
in the current period. No deferred taxes were recorded in the comparable period.
Middle Bay reported a net loss of $1,414,000 for the three months ended March
31, 1998, versus net income of $40,000 for the comparable period. After
considering the preferred stock dividend requirement of $68,000 in the current
period and $63,000 in the comparable period, Middle Bay reported a net loss
available to common shareholders in the current and comparable periods of
$1,482,000 and $22,000, respectively.
- 21 -
<PAGE> 34
EFFECTS OF OIL AND GAS PRICE FLUCTUATIONS
Fluctuations in the price of crude oil and natural gas significantly
affect Middle Bay's operations and the value of its assets. As a result of the
instability and volatility of crude oil and natural gas prices, financial
institutions have become more selective in the energy lending area and have
reduced the percentage of existing reserves that may qualify for the borrowing
base to support energy loans.
Middle Bay's principal source of cash flow is the production and sale
of its crude oil and natural gas reserves which are depleting assets. Cash flow
from oil and gas production sales depends upon the quantity of production and
the price obtained for that production. An increase in prices permits Middle Bay
to finance its operations to a greater extent with internally-generated funds,
allow Middle Bay to obtain equity financing more easily and lessens the
difficulty of attracting financing alternatives available to Middle Bay from
industry partners and nonindustry investors. However, price increases heighten
the competition for Leases and Prospects, increase the costs of exploration and
development activities and increase the risks associated with the purchase of
Producing Properties.
A decline in oil and gas prices (i) reduces the cash flow internally
generated by Middle Bay, which in turn reduces the funds available for servicing
debt and exploring for and replacing oil and gas reserves, (ii) increases the
difficulty of obtaining equity financing, (iii) reduces the number of Leases and
Prospects available to Middle Bay on reasonable economic terms and (iv)
increases the difficulty of attracting financing alternatives available to
Middle Bay from industry partners and nonindustry investors. However, price
declines reduce the competition for Leases and Prospects and correspondingly
reduce the prices paid for Leases and Prospects. Furthermore, exploration and
production costs generally decline, although the decline may not be at the same
rate of decline of oil and gas prices.
Since September, 1997, the price of oil has declined dramatically. The
posted price of WTI crude oil has declined from a high of approximately $20.00
per barrel in October, 1997 to lows in June, 1998 of approximately $9.00 per
barrel. The average posted price of WTI crude oil for the year 1997 was
approximately $18 per barrel. As of May 31, 1998, approximately 40% of Middle
Bay's proved developed producing oil and gas reserves, on a BOE basis, are oil.
If oil prices remain at or near the June, 1998 levels, Middle Bay's revenue and
cash flow will decrease relative to the year ended 1997. Gas prices peaked in
November, 1997, but have declined approximately 20% since December, 1997.
SEASONALITY
The results of operations of Middle Bay are somewhat seasonal due to
seasonal fluctuations in the price for natural gas. Generally, natural gas
prices are higher in the first and fourth quarter of the year due to colder
winter weather and resulting higher demand for natural gas during these months.
Due to these seasonal fluctuations, results of operations for individual
quarterly periods may not be indicative of results on an annual basis.
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<PAGE> 35
INFLATION AND CHANGING PRICES
Inflation principally affects the costs required to drill, complete and
operate oil and gas wells. In recent years, inflation has had a minimal effect
on the operations of Middle Bay. Costs have generally declined over the near
future due to the decrease in drilling activity in the United States. Unless
increasing oil and gas prices spur large increases in industry activities,
management believes costs will remain relatively stable over the next year.
CAPITAL RESOURCES AND LIQUIDITY -- FISCAL 1997 AND FISCAL 1996
Cash flow from operations before working capital changes of $2,925,000
increased $1,225,000 over the comparable period. This increase was due to a
$3,184,000 increase in oil and gas cash flow, an increase of $554,000 in other
income offset by increases in general and administrative costs of $1,654,000,
dry-hole costs of $691,000, interest expense of $166,000 and $1,000 in current
income taxes. Increased oil and gas operations cash flow before working capital
changes was principally the result of increases in oil and gas production. The
other income increase was due primarily to lease bonus and delay rental income
on the minerals acquired in the Shore Merger.
Cash flow from operating activities for the year ending December 31,
1997, of $2,582,000 increased $1,193,000 over the comparable period. Changes in
working capital reduced cash flow by $32,000 over the comparable period.
Differences in the amount and timing of accrual and payment of payables and the
accrual and receipt of revenues account for the changes in working capital.
Additions to oil and gas properties were higher than the comparable
period due to the Bison and Shore Mergers and increased acquisitions and
drilling in the current period. The increase in the amount of cash used for debt
payments was due primarily to the $2,105,000 refinancing of the term note
assumed in the Shore Merger and the $385,000 of payments and refinancing on the
note assumed in the NPC Merger. No principal payments have been required over
the period April 1, 1996 to December 31, 1997 on Middle Bay's $6 million, $15
million and $50 million convertible loans. The increase in the proceeds from
debt issued was due to the refinancing of the notes assumed in the Shore and NPC
Mergers, $3,000,000 issued in the Riceville Acquisition and the financing of the
leasehold and seismic costs in the amount of $385,000 associated with the
Reflection Ridge Prospect. The increase in proceeds from issuance of preferred
stock was due to the preferred stock issued to finance portions of the Bison and
Shore Mergers.
Middle Bay's operating activities provided net cash of $2,582,000 for
the year ending December 31, 1997. During this period, net cash from operations
and cash on hand was used principally for exploratory and developmental drilling
of $2,004,000, workovers of $431,000, exploration prospects of $415,000 and
proved property acquisitions of $921,000. Debt proceeds were used to finance
$3,000,000 of proved property acquisition and $285,000 of prospects. Common
stock was issued for $260,000 of proved property acquisitions, excluding
mergers. Of the $2,004,000 spent on exploratory and developmental drilling,
approximately $420,000 was spent in the Brigham Agreement, $880,000 in the
Spivey Field in Kansas, $100,000 in the Wellman Unit in Texas, and the remainder
was spent on several wells in Louisiana, Mississippi and Oklahoma. Of the
$431,000 spent on workovers, approximately $80,000 was spent at Wild Fork Creek
- 23 -
<PAGE> 36
Field in Alabama, $44,000 at the Wright Field in Louisiana, $30,000 at Magnolia
in Arkansas and $25,000 at Lake Trammel Field in Texas. The remaining amount was
spent on several different properties. The $700,000 total amount spent on
prospects consisted primarily of $286,000 on Reflection Ridge in Kansas,
$232,000 on Hawkins Ranch in Texas, $67,000 on the Sherburne Prospect in
Louisiana, $31,000 on the Quarry Prospect in New Mexico and $55,000 on S.
Highbaugh in Texas. Middle Bay spent $7,140,000 on the Bison Merger. This
includes the $1,446,000 in non-oil and gas assets, which were subsequently sold
for the amount paid. Middle Bay spent $514,000 on the Shore Merger. Amounts
spent on debt retirement consisted principally of the payment in full of the
note assumed in the Shore Merger of $2,105,000, monthly principal payments on
the $385,000 term note assumed in the NPC Merger and the refinancing of the NPC
term note of $274,000. The principal payments on the $6 million convertible loan
were suspended when Middle Bay converted the $5.6 million term note to a $6
million convertible loan on April 3, 1996.
Middle Bay incurred $1,119,000 in dry hole costs consisting principally
of three wells drilled in Louisiana and one well drilled in Oklahoma. The
Louisiana wells were the Shore Oil Company #1, the Sabine #1 and the Middle Bay
Oil Company #1 with dry-hole costs of $311,000, $177,000 and $168,000,
respectively. The Oklahoma well was the Hannah #1 with a dry hole cost of
$301,000.
Middle Bay incurred $223,000 in geological and geophysical costs ("G&G
Costs") which consisted primarily of $130,000 in geological and geophysical
costs on the Reflection Ridge Prospect and $62,000 on the Hawkins Ranch
Prospect. The above discussion of capital costs does not include amounts
expensed as dry hole and geological and geophysical costs.
Middle Bay had current assets of $4,223,000 and current liabilities of
$2,891,000, which resulted in working capital of $1,332,000 at December 31,
1997. This was an increase of $546,000 from working capital of $786,000 at
December 31, 1996. Working capital increased primarily due to increased cash
flow from operations, cash proceeds from stock option exercises, and no monthly
principal payments on the Convertible Loan, offset partially by increased
amounts spent on exploratory and developmental drilling and working capital
changes. The current maturity of long-term debt was higher in 1997 because of
the larger principal balance requiring payment in the following year. In 1997,
the $50 million Convertible Loan requires principal payments beginning April 1,
1998 versus the $6 million Convertible Loan requiring principal payments
beginning October 1, 1997 in the comparable period. Middle Bay's current ratio
of 2.78, calculated under the terms of the Convertible Loan which excludes
stockholder receivables and debt due under the $50 million Convertible Loan, is
in excess of the 0.90 to 1.00 required.
CAPITAL RESOURCES AND LIQUIDITY -- THREE MONTHS ENDED MARCH 31, 1997 AND 1998
Cash flow from operating activities for the three months ended March
31, 1998 of $1,564,000 increased $868,000 over the comparable period. The
increase was due primarily to working capital changes offset by a decrease in
cash flow from higher geological and geophysical expenses, higher dry-hole
expenses and higher general and administrative expenses. Cash flow from oil and
gas properties increased $216,000 over the comparable period. Oil and gas prices
decreased 36% and 18%, respectively, while oil and gas production increased 116%
and 72%, respectively. The change in working capital increased cash flow by
$2,091,000 over the comparable period. The change in working capital was caused
principally by timing
- 24 -
<PAGE> 37
differences in the payment of expenses and receipt of revenues. The cash flow to
debt coverage ratio of 203.62 is greater than the 1.25 required under the $100
million credit facility. There were no required principal payments under the
$100 million credit facility in the current period.
Additions to oil and gas properties were higher than the comparable
period due primarily to the increased drilling activity. The amount spent on
acquisitions is higher due to the Enex acquisition (the "Enex Acquisition")
which closed March 27, 1998. Middle Bay acquired approximately 79% of Enex
common stock for cash in a tender offer that expired March 27, 1998. The
increase in the amount of cash used for debt payments was due to replacement of
the $50 million Convertible Loan, with a principal balance of $10,956,000, with
the $100 million credit facility. No monthly principal payments have been
required over the period April 1, 1997 to March 31, 1998 on Middle Bay's $6
million, $15 million and $50 million Convertible Loans. The increase in the
proceeds from debt issued was due to the proceeds from the $100 million credit
facility which were used to replace the $50 million Convertible Loan and to
finance the Enex Acquisition. No preferred stock was issued in the current
period versus the $6 million issued under the Preferred Stock Agreement with
Kaiser-Francis in the comparable period. Kaiser-Francis converted all of the
Series A Preferred Stock on January 31, 1998.
Middle Bay's operating activities provided net cash of $1,564,000 for
the three-month period ended March 31, 1998. During this period, net cash from
operations and cash on hand was used principally for acquisitions and
exploratory and developmental drilling. Approximately $149,000 was spent to
acquire a well in the Spivey Field. Approximately $650,000 was spent on
exploratory drilling. The principal exploratory wells in the current period were
the S. Highbaugh Prospect well ($199,000), the Sherburne Prospect well
($219,000) and the Middle Bay Oil Co. #1 well ($130,000). Approximately $900,000
was spent on developmental drilling. The principal developmental well drilled in
the current period was the Kuehling #1 sidetrack ($529,000) which was
unsuccessful. Additional developmental drilling was done in the Convis, Custer
City, Lake Trammel, Spivey and Wellman Fields. Middle Bay spent approximately
$15,966,000 on the Enex Acquisition which was financed entirely with debt
proceeds from the $100 million credit facility. Amounts spent on debt retirement
consisted principally of the replacement of the $50 million convertible loan.
Middle Bay had current assets of $9,575,000 and current liabilities of
$7,100,000, which resulted in working capital of $2,475,000 as of March 31,
1998. This was an increase of $1,162,000 from the working capital of $1,313,000
as of December 31, 1997. Working capital increased primarily due to working
capital acquired in the Enex Acquisition. Middle Bay's working capital at March
31, 1998, before the Enex transaction, was $132,000. Middle Bay's current ratio
of 2.07, calculated under the terms of the $100 million credit facility, which
excludes stockholder receivables and debt due under the $100 million credit
facility, was in excess of the 0.90 to 1.00 required.
In general, because natural gas and oil reserves are depleted by
production, Middle Bay's success is dependent upon the results of its
acquisition, development and exploration activities. Middle Bay's strategy is to
acquire and develop proved producing and proved undeveloped properties, enhance
and exploit its existing properties for reserves and to invest in a limited
amount of exploratory and developmental drilling projects. Middle Bay expects to
incur a minimum of $2,300,000 in capital expenditures over the next twelve
months for exploratory and developmental activities. The capital expenditures
for drilling are expected to be allocated to
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<PAGE> 38
recomplete a well in the Esther Field for $400,000, drill a well on the
Sherburne Prospect for $288,000, on the S. Highbaugh Prospect for $150,000, on
the Quarry Prospect for $140,000 and shoot, process and interpret seismic and
acquire leases on the Hawkins Ranch Prospect for $1,300,000. The developmental
and exploratory drilling activities will be funded by internally generated cash
flows. Capital expenditures above $2.3 million will be contingent on a number of
factors including current and expected prices of oil and gas, timing of
completion of 3-D seismic data acquisition on the Hawkins Ranch Prospect,
results of exploration and development drilling and potential additional mergers
and acquisitions Middle Bay is currently evaluating.
As of March 16, 1998, Middle Bay had funded the sidetracking of the
Kuehling #1 well in the Esther Field for $400,000 and a well in the S. Highbaugh
Prospect in Tyler County, Texas for $150,000. The operator abandoned the
recompletion attempt after encountering a split casing, and the well in S.
Highbaugh was a dry hole. In addition, Middle Bay purchased additional interest
and seismic on the Hawkins Ranch Prospect for approximately $250,000.
Under the terms of the Janex Acquisition, Middle Bay has a contingent
obligation to repurchase 142,107 common shares issued in the Janex Acquisition,
upon written notice delivered to Middle Bay, beginning five years after the
closing date and continuing for thirty days thereafter, at a price of $6.00 per
share. This obligation shall terminate if Middle Bay's stock trades at a share
price of $8.00 or greater for twenty consecutive trading days during the
thirty-six month period ending November 1, 1998. At the close of trading on
April 7, 1997, Middle Bay's common stock had traded at an ask price that was
equal to, or exceeded, $8.00 per share for twenty consecutive trading days.
Therefore, the contingent obligation represented by the redeemable common stock
balance on Middle Bay's balance sheet in the amount of $421,179 was reclassified
to additional paid-in capital effective April 7, 1997.
On April 3, 1996, the Bank converted its $5.6 million term note into a
$6.0 million, one-year, revolving line-of-credit (the "$6 million Convertible
Loan"), effective April 1, 1996. The $6 million Convertible Loan required
monthly payments of interest only at prime plus 1.5% and converted into a term
note payable in seventy-one consecutive equal monthly principal and interest
payments at prime plus 1.5%, with the remaining principal and interest payment
due on March 31, 2003. Effective, March 31, 1997, Middle Bay refinanced the $6
million Convertible Loan at its current principal balance of $5,186,596 with a
$15 million Convertible Loan. The $15 million Convertible Loan required monthly
payments of interest only at prime for one year and converts into a term note
payable in seventy-one consecutive equal monthly principal and interest payments
at prime, with the remaining principal and interest payment due on March 31,
2004. The $15 million Convertible Loan also required payment of a commitment fee
equal to an annual rate of three-eighths percent of the excess of the borrowing
base over the principal balance of the convertible note. Effective September 1,
1997, Middle Bay refinanced the $15 million Convertible Loan at its current
principal balance of $5,851,298 with a $50 million Convertible Loan. The $50
million Convertible Loan requires monthly payments of interest only at a fixed
rate of Libor plus 1.75% as long as the principal amount of the loan is less
than 75% of the current borrowing base of $15 million. If the principal amount
of the loan is greater than or equal to 75% of the borrowing base, the rate
increases to Libor plus 2.75%. Middle Bay has the option of switching to a
floating prime rate. The $50 million Convertible Loan converts into a term note
payable in seventy-one consecutive equal monthly principal and interest payments
at prime, with the remaining principal and interest payment due on March 31,
2004. The $50 million Convertible Loan also requires payment of a commitment
- 26 -
<PAGE> 39
fee equal to an annual rate of three-eighths percent of the excess of the
borrowing base over the principal balance of the convertible note. The principal
balance of the $50 million Convertible Loan at December 31, 1997 was
$10,956,298. The $50 million Convertible Loan was refinanced with the previously
discussed $100 million credit facility.
GENERAL
On September 4, 1996, Middle Bay signed a Preferred Stock Agreement
with Kaiser-Francis. The Preferred Stock Agreement provides for the purchase of
1,666,667 shares of Series A by Kaiser-Francis over a five-year period,
beginning September 4, 1996, with minimum incremental investments of $500,000
each. Each issuance is subject to approval by Kaiser-Francis of the use of
proceeds. The Series A was nonvoting and accrued dividends at 8% per annum,
payable quarterly in cash. At December 31, 1997, 100% of the Series A had been
issued to partially finance the NPC, Bison and Shore Mergers, and in January,
1998, Kaiser-Francis converted 100% of the Series A into 3,333,334 shares of
Middle Bay Common Stock.
In connection with the merger with Shore Oil Company effective June 30,
1997, Middle Bay issued 266,667 shares of Series B Preferred Stock ("Series B").
The Series B is nonvoting and pays no dividends. The Series B has a liquidation
value of $7.50 per share and is junior to the Series A Preferred. For a period
of sixty-six months subsequent to June 30, 1997, any holder of the Series B may
convert all or any portion of Series B shares into Middle Bay Common Stock at a
ratio of one share of Common Stock for each Series B share, or at any time on or
after January 1, 1998, the holders may convert a portion of their Series B
shares based on a conversion method whereby a number of convertible Series B
shares are exchanged using the Alternative Conversion Factor, which is
calculated as the increase in value of approximately 40,000 net mineral acres in
South Louisiana owned by Middle Bay at the end of the year divided by $8
million.
The Alternative Conversion Factor is then multiplied by 1,066,000 to
arrive at the potential converted number of common shares received. Upon
expiration of the conversion period, unless Middle Bay has given notice to
redeem the Series B, all of the shares of Series B shall be automatically
converted. In no event shall the aggregate total number of shares of Common
Stock into which the Series B are converted be less than 266,667 shares or
exceed 1,333,333 shares, unless further increased for any anti-dilution
provisions.
Middle Bay's liquidity position and current and anticipated cash flows
from operations remain adequate for its general requirements. However, because
future cash flows and the availability of financing are subject to a number of
variables, such as the level of production and prices received for gas and oil,
there can be no assurance that Middle Bay's capital resources will be sufficient
to maintain planned levels of capital expenditures.
CAPITAL EXPENDITURES -- FISCAL 1997 AND FISCAL 1996
Total capital expenditures, excluding mergers, for oil and gas
properties in fiscal 1997 and 1996 were $7,316,000 and $1,597,000, respectively.
Total capital expenditures for mergers in 1997 and 1996 were $27,586,000 and
$2,618,000, respectively. Total capital expenditures for dry holes and G&G in
1997 and 1996 were $1,341,000 and $429,000, respectively.
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<PAGE> 40
Middle Bay has made and will continue to make substantial capital
expenditures for acquisition, development and exploration of oil and natural gas
reserves. In fact, because Middle Bay's principal natural gas and oil reserves
are depleted by production, its success is dependent upon the results of its
acquisition, development and exploration activities.
Middle Bay, excluding Enex and Service Drilling, expects to incur a
minimum of approximately $1,400,000 in capital expenditures over the next twelve
months. Middle Bay expects that available cash, cash flows from operations and
cash proceeds from asset sales of certain noncore properties will be sufficient
to fund the planned capital expenditures through 1998, in addition to funding
interest and principal requirements on the $100 million credit facility.
However, Middle Bay may require additional borrowings under the $100 million
credit facility or additional equity funding to raise additional capital to fund
any acquisitions.
Because future cash flows and the availability of financing are subject
to a number of variable, such as the level of production and prices received for
gas and oil, there can be no assurance the Middle Bay's capital resources will
be sufficient to maintain planned levels of capital expenditures.
Middle Bay does not anticipate that it will incur any significant
expenditures to address year 2000 issues, nor do year 2000 issues represent a
known material event or uncertainty to Middle Bay. To the extent that Middle Bay
may be adversely affected by year 2000 issues of its suppliers, customers and
other entities, Middle Bay does not believe it will be more adversely affected
than other companies in its industry with similar operations.
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<PAGE> 41
SELECTED FINANCIAL DATA - PARTNERSHIP
PARTNERSHIP SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data for the Partnership as of and for
each of the years in the two-year period ended December 31, 1997 are derived
from the Partnership's audited financial statements. The selected consolidated
financial data for the three months ended March 31, 1997 and 1998 are derived
from the Partnership's unaudited financial statements. In the opinion of
management, such unaudited financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of the financial condition and results of operations as of and for the periods
presented. The balance sheet data for the Partnership as of December 31, 1996
and March 31, 1997 is not available because the Partnership was not formed until
June 30, 1997. All of the operating data for the Partnership prior to June 30,
1997 is a summation of the individual partnerships' selected financial data.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the entire fiscal year ending
December 31, 1998. The selected financial data below should be read in
conjunction with the Partnership's financial statements and related notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Prospectus or incorporated by
reference herein.
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
Years Ended December 31, March 31,
------------------------ ---------
1996 1997 1997 1998
---- ---- ---- ----
Operating Data (in thousands, except per-unit amounts)
- --------------
<S> <C> <C> <C> <C>
Oil and gas sales $12,345 $11,161 $ 3,282 $ 1,796
Gain from sale of property 242 742 6 672
Other revenue 9 94 17 5
------- ------- ------- -------
Total revenue 12,596 11,997 3,305 2,473
Lease operating costs and production
taxes 4,925 4,968 1,286 777
Interest expense 2 -- -- --
Depletion, depreciation and amortization 2,145 1,839 525 477
General and administrative 1,976 1,611 421 380
------- ------- ------- -------
Total expenses 9,048 8,418 2,232 1,634
Net income (loss) 3,548 3,579 1,073 839
======= ======= ======= =======
Net increase (decrease) in cash and
cash equivalents 220 219 318 1,287
Net cash provided by operating activities 3,464 5,122 1,730 1,493
Distributions 2,744 5,152 1,328 1,168
Per-Unit Operating Data
- -----------------------
Net income (loss) 3.22 3.25 0.97 0.76
Distributions of earnings 2.49 4.67 1.20 1.06
Distributions representing a return of
capital -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
------------ ---------
1996 1997 1997 1998
---- ---- ---- ----
Balance Sheet Data (in thousands, except per-unit amounts)
- ------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 924 $ 1,142 $ 1,242 2,429
Total assets at book value 16,960 13,414 16,534 13,590
Total assets at the value assigned for
purposes of roll-up transaction
Total liabilities 2,680 542 2,538 1,048
General and limited partners' equity:
General partner 1,328 71 1,649 80
Limited partners 12,522 12,800 12,346 12,462
Per-Unit Balance Sheet Data
Book value 11.36 11.61 11.20 11.30
Value assigned for purpose of the
roll-up transaction
</TABLE>
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<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Partnership's Financial Statements and Notes thereto set forth herein.
RESULTS OF OPERATIONS
The Company was formed on June 30, 1997 from the combination of
thirty-four limited partnerships. The Consolidation created a new accounting
basis in the carrying value of property. Oil and gas property was written down
by $1,561,322 from the net carrying value of property in the combined
Predecessor Partnerships. The decremental depletion associated with the net
decrease in property was approximately $123,000 for the last six months of 1997.
To facilitate comparisons between periods, results of operations are
presented on both an actual basis for the Enex Consolidated Partnership, L.P.
and the Predecessor Partnerships and on a pro forma basis as if the
Consolidation had taken place at the beginning of each period presented. These
results do not reflect the results which would have been obtained if the
Consolidation had actually occurred on the dates indicated or the results that
may be expected in the future.
The following financial information consists of pro forma data for the
years ended December 31, 1997 and 1996 for the combined partnerships assuming
the consolidation had taken place at January 1, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Oil and gas sales $10,003,768 $11,296,811
Gas plant sales 1,157,068 1,048,688
Gain from sale of property 741,617 242,389
Other revenues 21,000 49
Interest income 73,848 8,800
Total revenues 11,997,301 12,596,737
Expenses:
Depreciation and depletion 1,839,877 2,145,385
Lease operating expenses 3,589,836 3,616,133
Gas purchases and expenses 809,336 670,358
Production taxes 568,321 637,476
General and Administrative:
Allocated from general partner 1,270,556 1,646,201
Direct expense 340,665 329,800
Interest expense -- 2,498
Total expenses 8,418,591 9,047,851
Net Income $ 3,578,710 $ 3,548,886
</TABLE>
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<PAGE> 43
The total combined oil, gas and gas plant sales decreased to
$11,160,836 in 1997 from $12,345,499 in 1996. This represents a decrease of
$1,184,663 or 10%. Oil sales decreased by $1,419,810 or 20%. A 12% decrease in
oil production due to natural production declines caused sales to decrease by
$877,908. A 9% decrease in the average oil sales price decreased oil sales by an
additional $541,902. Gas sales increased by $147,655 or 3%. A 10% increase in
the average gas sales price increased revenues by $388,395. This was offset by a
5% decrease in gas production. Sales of natural gas liquids and gas plant gas
increased by $87,492 or 10%. A 15% increase in the average gas plant products
sales price increased sales by $130,370. This increase was partially offset by a
5% decrease in production of gas plant products. The decreases in oil, natural
gas and gas plant products production were primarily a result of natural
production declines. The decrease in oil sales price corresponds with changes in
the overall market for the sale of oil. The increases in the gas and gas plant
products average sales price correspond with changes in the overall market for
these products.
The total combined lease operating expenses decreased to $3,589,836 in
1997 from $3,616,133 in 1996. The decrease of $26,297 or 1% was primarily due to
the changes in production, noted above.
The total combined depreciation and depletion expense decreased to
$1,839,877 in 1997 from $2,145,385 in 1996. This represents a decrease of
$305,508 or 14%. A 1% decrease in the depletion rate reduced depreciation and
depletion expense by $116,822. The changes in production, noted above, reduced
depreciation and depletion expense by an additional $188,686. The decrease in
the depletion rate was primarily due to relatively higher production from
properties with a relatively lower depletion rate, partially offset by downward
revisions of oil and gas reserves during December 1997.
The total combined general and administrative expenses decreased to
$1,611,221 in 1997 from $1,976,001 in 1996. This represents a decrease of
$364,780 or 18% from 1996 to 1997. This decrease was primarily due to less staff
time being required to manage the Partnership's operations as a result of the
consolidation of the Predecessor Partnerships.
In 1996, the Predecessor Partnerships sold their interests in the Grass
Island, Enexco and Comite acquisitions for $235,000, $64,000 and $55,000,
respectively. Gains of $69,731, $61,648 and $21,649, respectively, were
recognized on these sales. The Predecessor Partnerships also sold their
interests in the E.M. Lane well and the Harper #1 well for $57,970 and $55,000,
respectively. Gains of $31,310 and $44,642, respectively, were recognized on
these sales. The Predecessor Partnerships also sold their interests in three
other wells in 1996 for $59,630. These sales resulted in a net gain of $13,409
to the Predecessor Partnerships. The impact of these sales on current and future
revenues is not expected to be material, as such interests represented less than
10% of historical and future net revenues.
In 1997, the Partnership sold its interest in the North Buck Draw Unit
for $857,120. A gain of $758,969 was recognized on the sale. The Partnership
sold its interest in the Mcbride acquisition for $56,306. A loss of $25,405 was
recognized on the sale. The Partnership also sold its interest in two other
acquisitions for $8,053. A net gain of $8,053 was recognized by the Partnership
from the sales. The impact of these sales on current and future revenues is not
expected to be material, as such interests represented less than 10% of
historical and future net revenues.
- 31 -
<PAGE> 44
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's cash flow provided by operating, financing and
investing activities is a direct result of the amount of net proceeds realized
from the sale of oil and gas production. Accordingly, the changes in cash flow
from 1996 to 1997 are primarily due to the changes in oil and gas sales
described above. It is the General Partner's intention to distribute
substantially all of the Partnership's available net cash flow to the partners.
In 1997 and 1996, the Partnership and its Predecessor Partnerships paid
total combined distributions of $4,593,955 and $2,464,947, respectively, to its
limited partners. The Partnership will continue to recover its reserves and
distribute to the limited partners the net proceeds realized from the sale of
oil and gas production after payment of debt obligations. The Partnership plans
to repay the amount owed to the General Partner in 1998. The payment of future
distributions will depend on the Partnership's earnings, financial conditions,
working capital requirements and other factors, although it is anticipated that
regular quarterly distributions will continue through 1998.
At December 31, 1997, the Partnership had no material commitments for
capital expenditures. The Partnership does not intend to engage in any
significant developmental drilling activity. The Partnership does not intend to
purchase additional properties or fund extensive development of existing oil and
gas properties and ,as such, has no long-term liquidity needs. The Partnership's
projected cash flows from operations are expected to provide sufficient funding
to pay its operating expenses and debt obligations.
In February 1998, Middle Bay Oil Company, Inc., an independent oil and
gas producer, announced a tender offer for all of the outstanding shares of Enex
Resources Corporation ("Enex"), the Partnership's general partner. The tender
offer was accepted by a majority of Enex shareholders. Operations of the
Partnership are not expected to be materially impacted by the purchase of Enex.
The Partnership does not anticipate that it will incur any significant
expenditures to address Year 2000 issues, nor do Year 2000 issues represent a
known material event or uncertainty to the Partnership. To the extent that the
Partnership may be adversely affected by the Year 2000 issues of its suppliers,
customers and other entities, the Partnership does not believe that it will be
more adversely affected than other companies in its industry with similar
operations.
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
Oil and gas sales for the first quarter decreased from $2,926,379 in
1997 to $1,778,885 in 1998. This represents a decrease of $1,147,494 (39%). Oil
sales decreased by $770,584 (46%). An 18% decline in oil production reduced
sales by $306,165. A 34% decrease in the average oil sales price reduced sales
by an additional $464,419. Gas sales decreased by $376,910 (30%). A 30% decrease
in gas production decreased sales by $204,931. A 17% decrease in the average gas
sales price reduced gas sales by an additional $171,979. The changes in the
average oil and gas sales price correspond with lower prices in the overall
market for oil and gas. The decrease in oil production was primarily due to
natural production declines. The decrease in gas
- 32 -
<PAGE> 45
production was due to natural production declines which were especially
pronounced on the Dent and Speary acquisitions.
Sales of gas plant products decreased to $17,733 in the first quarter
of 1998 from $356,528 in the first quarter of 1997. This represents a decrease
of $338,795 or 95%. This decrease was due to the sale of the Dover Hennessey Gas
Plant which was effective January 1, 1998.
Lease operating expenses decreased from $833,137 in the first quarter
of 1997 to $688,638 in the first quarter of 1998. The decrease of $144,499 (17%)
is primarily due to the lower operating costs on the Speary acquisition and sale
of the Mcbride acquisition in 1997.
Depreciation and depletion expense decreased from $524,513 in the first
quarter of 1997 to $476,744 in the first quarter of 1998. This represents a
decrease of $47,769 or (9%). The changes in production, noted above, reduced
depreciation and depletion expense by $132,590. This was partially offset by a
2% increase in the depletion rate. The rate increase was primarily due to the
downward revisions of the oil and gas reserves during December 1997.
Effective January 1, 1998, the Partnership sold its interest in the
Dover Hennessey Gas Plant for $1,000,000. A gain of $671,923 was recognized on
the sale.
General and administrative expenses decreased from $420,649 in the
first quarter of 1997 to $380,919 in the first quarter of 1998. This decrease of
$39,730 (9%) is primarily due to a reduction in staff as a result of the
consolidation of the Partnership in June, 1997.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's cash flow from operations is a direct result of the
amount of net proceeds realized from the sale of oil and gas production.
Accordingly, the changes in cash flow from 1997 to 1998 are primarily due to the
changes in oil and gas sales described above. It is the General Partner's
intention to distribute substantially all of the Partnership's available cash
flow to the partners. The Partnership's "available cash flow" is essentially
equal to the net amount of cash provided by operating, financing and investing
activities. The Partnership will continue to recover its reserves and distribute
to the limited partners the net proceeds realized from the sale of oil and gas
production after the payment of its debt obligations. Distribution amounts are
subject to change if net revenues are greater or less than expected.
Nonetheless, the General Partner believes the Partnership will continue to have
sufficient cash flow to fund operations and to maintain a regular pattern of
distributions.
As of March 31, 1998, the Partnership had no material commitments for
capital expenditures. The Partnership does not intend to engage in any
significant developmental drilling activity.
- 33 -
<PAGE> 46
CERTAIN COMPARATIVE INFORMATION
The following table sets forth certain unaudited comparative per-Unit
and per-share data based on (i) the financial statements of the Partnership and
Middle Bay at and for the three months ended March 31, 1998 (unaudited) and the
year ended December 31, 1997, and (ii) the unaudited pro-forma financial
information for Middle Bay presented elsewhere in this Prospectus. The
equivalent pro-forma information Middle Bay is based on a basic share
computation and assumes that the Partnership will approve the Proposal pursuant
to the terms contained herein.
<TABLE>
<CAPTION>
At and for the Three Months At and for the Year Ended
Ended March 31, 1998 December 31, 1997
-------------------- -----------------
Equivalent Equivalent
Historical Pro-Forma Historical Pro-Forma
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Partnership
- -----------
Book value per Unit 11.30 11.61
Cash distributions per Unit .85 3.07
Net income (loss) per Unit .76 1.77
Middle Bay
- ----------
Book value per common share 1.89 2.84 1.39 2.97
Net income (loss) per share (.22) (.21) (4.76) (1.98)
Dividends per share -- -- -- --
</TABLE>
- 34 -
<PAGE> 47
RISK FACTORS AND MATERIAL CONSIDERATIONS
In addition to the material contained elsewhere herein, the following
factors should be carefully considered.
RISKS RELATED TO THE EXCHANGE OFFER
Elimination of Cash Distributions. The Exchange will result in
the Unitholders holding shares of Common Stock of Middle Bay. Middle Bay has
paid no cash dividends on its Common Stock and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The cash distributions
paid by the Partnership were $3.07 per Unit for 1997 and $.85 per Unit for the
quarter ended March 31, 1998 and $0.75 per Unit for the quarter ended June 30,
1998. Despite the elimination of cash distributions to the Partners in
connection with the Exchange, Middle Bay believes that if the Partnership were
to continue operations, the cash distributions that Investors would receive from
the Partnership would rapidly decline as the reserves of the Partnership are
depleted.
Potential Decline in Market Price of the Common Stock. The
Exchange Value together with the cash distributions paid by the Partnership to
date total $16.50 per Unit compared to an Investor's average initial investment
of $______ per Unit. Investors would be exposed to a loss on their investment if
the market price for the Common Stock declines below the Unit Exchange Price.
The market price for the Common Stock fluctuated during 1997 from a high of $12
per share to a low of $5-1/2 per share, with an average daily trading volume of
2,762 shares, and has fluctuated from a high of $10 per share to a low of $4-5/8
per share during 1998. See "Price Range of Common Stock, Dividends and
Distributions." There may be a large number of shares of Common Stock offered
for sale immediately after the Closing Date for various reasons, including the
liquidity that the Exchange will afford to Investors, who have not had access to
a trading market for the Partnership Units and may wish to liquidate their
investment at the first opportunity. This potentially could lower the market
price for the Common Stock. Continued depressed prices in the oil and gas
industry in general and the effect of those lower prices on Middle Bay in
particular could also adversely affect the market price of the Common Stock. A
downturn in the general economic and stock market conditions or in the drilling
record and production performance of Middle Bay or results of operations for
Middle Bay that are lower than expected by the marketplace could be expected to
have a similar impact on the Common Stock. The estimated number of shares of
Common Stock offered in exchange for Partnership Units has been determined by
dividing the Exchange Value of the assets of the Partnership by the Common Stock
Exchange Price of $______ as of August __, 1998, subject to subsequent
adjustment due to Common Stock price fluctuation prior to the Closing Date. The
Common Stock Exchange Price is based upon the average of the closing bid prices
of the Common Stock for the five trading days prior to the Closing Date and will
not be adjusted to reflect any subsequent increase or decrease in the market
price of the Common Stock after that date, except to the extent required by
dissenters' rights for California residents. See "The Exchange Offer and
Proposal - Dissenters' Rights."
Lack of Arm's-Length Negotiations to Determine Value of
Partnership Units. The Exchange Value of the Partnership Units were determined
by Middle Bay based on the Gruy Report which contains a fair market value
determination based, in part, on the estimated present value of the
Partnership's Proved Reserves and a valuation of the general intangibles of the
Partnership by Middle Bay (as described herein) and, as a
- 35 -
<PAGE> 48
result of Middle Bay's inherent conflict of interests and various uncertainties
involved in estimating reserve quantities and values, may not reflect the value
of the oil and gas properties and other assets of the Partnership if such assets
were sold to an unaffiliated third party in an arm's-length transaction. See
"Uncertainties in the Method of Determining the Exchange Value" and "Valuation
Conflict of Interest" below. While Middle Bay believes that the methodology
employed in determining the Exchange Value is fair to Unitholders, resulting in
valuations that exceed the estimated liquidation value of the Partnership, the
liquidation value was determined by Middle Bay, without an independent audit or
appraisal of such liquidation value.
Uncertainties in the Method of Determining Exchange Value.
While Middle Bay believes that the method of determining the Exchange Value
represents a fair, reasonable and proper method of valuing the Partnership Units
based on the Gruy Report, the method of determining the Exchange Value is
subject to various uncertainties and may have resulted in a valuation that would
differ from offers made by independent bidders. The components of the Exchange
Value and the factors underlying these uncertainties are described below.
Other Assets and Liabilities. The method of determining the
Exchange Value takes into account the estimated value of other assets and
liabilities of the Partnership as of June 30, 1998. In calculating the Exchange
Value, the net book value of current assets and liabilities of the Partnership
was derived from the Partnership's unaudited balance sheet as of June 30, 1998
prepared on an accrual basis. The balance sheet book value of current assets and
liabilities used by Middle Bay in the calculation of fair market value which was
included in the Exchange Value may be higher or lower than the actual fair
market value of those assets and liabilities.
Subsequent Events. The Exchange Value will not be adjusted to
reflect changes in the present value of the estimated future net cash flows
attributable to the Proved Reserves of the Partnership after July 1, 1998,
although oil and gas prices in subsequent periods may differ from the prices
used on the date of the reserve reports.
No Fractional Shares. No fractional shares will be issued in
connection with the Exchange Offer. An Investor who would otherwise be entitled
to a fractional share of Common Stock will be paid cash in lieu of such
fractional shares.
Potential Benefits of Alternatives to the Exchange. Instead of
proposing the Exchange, Middle Bay, as General Partner, could instead continue
to operate the Partnership or, with the approval of Unitholders of the
Partnership, seek to liquidate the Partnership's assets and distribute the
liquidation proceeds in accordance with the provisions of the Partnership
Agreement, enabling Investors to reinvest proceeds from the asset sales in the
case of a liquidation and avoid the market risks associated with the ownership
of Middle Bay Common Stock to be received in the Exchange. Both alternatives
were rejected by Middle Bay based on its analysis of their comparative results
and values. Middle Bay believes that continuation of the Partnership would
result in substantial additional reductions in the cash distribution rates for
the Partnership due primarily to expected production declines from depletion of
reserves. Middle Bay's analysis of continuing the Partnership in light of these
factors, based on average oil and gas prices received in 1998 and reserve data
as of July 1, 1998, reflects declines in projected annual distribution rates per
Unit from $3.07 in 1997 to $2.24
- 36 -
<PAGE> 49
in 1998, $1.04 in 1999 and $.76 in 2000. However, the Partnership's future
performance will depend on actual oil and gas prices, production levels and
operating costs, which could materially affect Middle Bay's continuation
analysis in either direction. This liquidation valuation estimated by Middle Bay
could, however, prove to be incorrect since the estimate is based on various
pricing and other market-related assumptions.
Inherent Uncertainties in Estimating Reserves and Future Net
Cash Flows. The present value of estimated future net cash flows from Proved
Reserves of the Partnership, a significant factor considered in determining the
Exchange Value, cannot be determined with a high degree of certainty. There are
numerous uncertainties inherent in estimating quantities of Proved Reserves and
on projecting future rates of production, future development, recompletion and
workover expenditures, prices to be received upon the sale of oil and gas and
costs to be incurred in production. The data set forth in the Gruy Report,
included in Exhibit "A" to this Prospectus, represent estimates only and may
vary materially from the quantities of oil and gas actually recovered and the
future net cash flows received upon the sale thereof. Middle Bay's use of the
Gruy Report in determining the Exchange Value could, therefore, result in an
undervaluation of the Partnership Units.
Valuation Conflict of Interest. The determination of the
Exchange Value by Middle Bay involves a conflict of interest because of Middle
Bay's and Enex's (prior to its merger with Middle Bay) duties as General Partner
of the Partnership and its purchase of the assets. Accordingly, Middle Bay's
determination may not reflect the value of the Partnership's net assets if all
such assets were sold to an unaffiliated third party or parties in an
arm's-length transaction. As the General Partner of the Partnership, Middle Bay
owes fiduciary duties to the Investors and also owes a duty to the stockholders
of Middle Bay. While Middle Bay believes that it has fulfilled these obligations
in its determination of the Exchange Value, no degree of objectivity or
professional competence can eliminate the inherent conflict of interest.
Lack of Independent Representative; No Fairness Opinion.
Middle Bay did not engage an independent representative to negotiate the terms
of the Exchange Offer on behalf of the Unitholders. As a result, the Exchange
Value and other terms of the Exchange Offer may not be as favorable as the terms
that an independent representative might have obtained. In addition, Middle Bay
did not retain an independent third party to render an opinion with regard to
the fairness of the Exchange Offer to the Investors in the Partnership.
Risks Relating to Certain Federal Income Tax Considerations.
Upon consummation of the Exchange, Investors will recognize gain in the amount
of and to the extent that the fair market value of the Common Stock received by
them exceeds their respective bases in the Partnership Units they hold. Further,
the Internal Revenue Service may seek to recharacterize the transaction as a
transfer of assets by the Partnership in exchange for Common Stock and
subsequent liquidation of the Partnership and distribution of its remaining
assets. Such recharacterization of the transaction may adversely affect the
characterization of income recognized by Investors upon consummation of the
Exchange. In addition, under such circumstances, the tax consequences realized
by an Investor consenting to the Exchange Offer may differ from that realized by
Investors who do not participate in the Exchange but rather receive Common Stock
upon liquidation of the Partnership.
- 37 -
<PAGE> 50
RISKS RELATED TO MIDDLE BAY
Losses From Operations. The historical financial data for
Middle Bay reflect a net loss of $15,579,340 for the year ended December 31,
1997 and net income of $205,500 for the year ended December 31, 1996, a net loss
of $1,414,092 for the three months ended March 31, 1998 and net income of
$40,419 for the three months ended March 31, 1997. Middle Bay had total revenues
of $11,432,995 and $4,886,421 for the years ended December 31, 1997 and 1996,
respectively, and $2,756,890 and $1,901,378 for the three months ended March 31,
1998 and 1997, respectively. The substantial loss for the year ended December
31, 1997 was due primarily to a noncash charge against the carrying value of
certain of Middle Bay's oil and gas properties for impairment of values due to
lower future cash flows expected from such properties attributable to lower oil
and gas prices and other factors. Middle Bay's ability to maintain its financing
arrangements, produce its oil and gas reserves and service its debt obligations
could be adversely affected by a continuing lack of profitability. Any
improvement in profitability of Middle Bay will be dependent upon, among other
factors, improvement in the development of reserves and production therefrom,
results of exploratory drilling and oil and gas pricing, and there can be no
assurance that such improvement will occur.
Engineer's Estimates of Reserves and Future Net Revenue. This
Prospectus contains or incorporates by reference estimates of Middle Bay's oil
and gas reserves and the future net revenues therefrom which have been prepared
by various independent petroleum engineers. Estimates of commercially
recoverable oil and gas reserves and of future net cash flows derived therefrom
are based upon a number of variable factors and assumptions, such as historical
production from the subject properties, comparison with other producing
properties, the assumed effects of regulation by government agencies and
assumptions concerning future operating costs, severance and excise taxes,
abandonment costs, development costs and workover and remedial costs, all of
which may vary considerably from actual results. All such estimates are to some
degree speculative, and various classifications of reserves are only attempts to
define the degree of speculation involved. For these reasons, estimates prepared
by different engineers or by the same engineers at different times of the
commercially recoverable reserves of oil and natural gas attributable to any
particular property or group of properties, the classification, cost and risk of
recovering such reserves and estimates of the future net cash flows expected
therefrom may vary substantially. Therefore, Middle Bay's actual production,
revenues, severance taxes, development expenditures, workover and remedial
expenditures, abandonment expenditures and operating costs with respect to its
reserves will likely vary from such estimates, and such variances may be
material.
In addition, actual future net cash flows will be affected by
factors such as actual production, supply and demand for oil and natural gas,
availability and capacity of gas gathering systems and pipelines, curtailments
in consumption by natural gas purchasers, changes in governmental regulations or
taxation and the impact of inflation on costs. The timing of actual future net
revenues from proved reserves, and thus their actual present value, can be
affected by the timing of the incurrence of expenditures in connection with
development of oil and gas properties. The 10% discount factor, which is
required by the SEC to be used to calculate present value for reporting
purposes, is not necessarily the most appropriate discount factor based on
interest rates in effect from time to time and risks associated with the oil and
gas industry. Discounted present value, no matter what discount rate is used, is
materially affected by assumptions as to the amount and timing of future
production, which may and often do prove to be inaccurate.
- 38 -
<PAGE> 51
Development of Additional Reserves. Middle Bay's future
success may also depend upon its ability to find or acquire additional oil and
gas reserves that are economically recoverable. Except to the extent that Middle
Bay conducts successful exploration or development activities or acquires
properties containing Proved Reserves, the Proved Reserves of Middle Bay will
generally decline as reserves are produced. There can be no assurance that
Middle Bay will be able to discover additional commercial quantities of oil and
gas or that Middle Bay will be able to continue to acquire interests in
underdeveloped oil and gas fields and enhance production and reserves by
conducting workovers and recompletions, drilling replacement wells and drilling
development wells or that Middle Bay will have success drilling productive wells
and acquiring underdeveloped properties at economical prices.
Retention and Attraction of Key Personnel. Middle Bay depends
to a large extent on the abilities and continued participation of certain key
employees, the loss of whose services could have a material adverse effect on
Middle Bay's business. In an effort to minimize the risk, Middle Bay has entered
into employment agreements with certain key employees, including John J.
Bassett, President and Chief Executive Officer. Furthermore, as a result of
Middle Bay's recent growth, Middle Bay is currently seeking additional
accounting and operating personnel. There can be no assurance that Middle Bay
will be able to attract and retain such personnel on acceptable terms, and the
failure to do so could have a material adverse effect on Middle Bay.
RISKS RELATED TO THE OIL AND GAS INDUSTRY
Risk of Oil and Gas Operations. Middle Bay's operations are
subject to all of the risks normally incident to the operation and development
of oil and gas properties and the drilling of oil and gas wells, including
encountering unexpected formations or pressures, blowouts, cratering and fires
and, in horizontal wellbores, the increased risk of mechanical failure and
collapsed holes, the occurrence of any of which could result in personal
injuries, loss of life, environmental damages and other damage to the properties
of Middle Bay or others. In addition, because Middle Bay acquires interests in
underdeveloped oil and gas fields that have been operated by others for many
years, Middle Bay may be liable for any damage or pollution caused by any prior
operations of such oil and gas fields. In accordance with customary industry
practice, Middle Bay is not fully insured against these risks, nor are all such
risks insurable. Accordingly, there can be no assurance that such insurance as
Middle Bay does maintain will be adequate to cover all losses or exposure for
liability.
Current Oil and Gas Industry Conditions. Historically, the
markets for oil and natural gas have been volatile and are likely to continue to
be volatile in the future. Prices for oil and natural gas are subject to wide
fluctuation in response to relatively minor changes in supply of and demand for
oil and natural gas, market uncertainty and a variety of additional factors that
are beyond the control of Middle Bay. These factors include political conditions
in the Middle East and other countries, the foreign supply of oil and natural
gas, the price of foreign imports, the level of consumer product demand, weather
conditions, domestic and foreign governmental regulations, the price and
availability of alternative fuels and overall economic conditions. Lower oil and
natural gas prices also may reduce the amount of Middle Bay's oil and natural
gas that is economic to produce. In addition, the marketability of Middle Bay's
production depends upon the availability and capacity of gas gathering systems
and pipelines.
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<PAGE> 52
Government Regulation; Environmental Risks. Middle Bay's
business is regulated by certain federal, state, and local laws and regulations
relating to the development, production, marketing and transmission of oil and
gas, as well as environmental and safety matters. There can be no assurance that
laws and regulations enacted in the future will not adversely affect Middle
Bay's exploration for, or the production and marketing of, oil and gas.
Oil and gas operations are subject to extensive federal, state
and local laws regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. The regulatory burden on the oil and gas
industry increases its cost of doing business and consequently affects its
profitability. These laws, rules and regulations affect the operations of Middle
Bay. Compliance with environmental requirements generally could have a material
adverse effect upon the capital expenditures, earnings or competitive position
of Middle Bay.
Competition. The oil and gas exploration and production
business is highly competitive. A large number of companies and individuals
engage in the drilling for and production of oil and gas, and there is a high
degree of competition for desirable oil and gas properties suitable for drilling
and for materials and third-party services essential for their exploration and
development. Many of Middle Bay's competitors have greater financial and other
resources than does Middle Bay.
PRICE RANGE OF COMMON STOCK,
DIVIDENDS AND DISTRIBUTIONS
Middle Bay's Common Stock has been on the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ Small Cap Market")
under the symbol "MBOC" since September 29, 1995. As of June 30, 1998, there
were 8,530,592 shares of Middle Bay Common Stock issued and outstanding. There
is no public market for the Partnership Units. The following table sets forth,
for the calendar quarters indicated, the high and low sales prices for the
Common Stock reported on the NASDAQ Small Cap Market:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995:
Third Quarter 4 1/8 3 5/8
Fourth Quarter 4 1/8 2 3/4
1996:
First Quarter 3 1/4 2 3/4
Second Quarter 3 3/8 2 1/2
Third Quarter 4 2 1/2
Fourth Quarter 5 3/4 3
1997:
First Quarter 9 5 1/2
Second Quarter 12 7 3/4
Third Quarter 11 1/4 9
Fourth Quarter 11 1/8 9 3/4
1998:
First Quarter 10 5 3/4
Second Quarter 8 5 1/16
Third Quarter (through July 29) 5 4 5/8
</TABLE>
40
<PAGE> 53
Middle Bay's policy is to retain its earnings and cash flow to support
the growth of Middle Bay's business. Accordingly, the Board of Directors of
Middle Bay has never declared cash dividends on its Common Stock and does not
plan to do so in the foreseeable future. Furthermore, the terms of Middle Bay's
debt agreements prohibit the payment of cash dividends on Middle Bay's Common
Stock.
The Partnership makes cash distributions to Investors from Partnership
cash flow. The following table sets forth the amount of cash distributions paid
per Unit by the Partnership to its Investors during the periods indicated:
<TABLE>
<CAPTION>
1997 1998
---- ----
(through June 30)
<S> <C>
$ 3.07 $ 1.60
</TABLE>
The last distribution made by the Partnership was in July, 1998.
On _______, 1998, the last full trading day preceding the filing of the
Exchange Offer, the closing bid price of Middle Bay's Common Stock on the NASDAQ
Small Cap Market was $______ per share.
Because the market price for Middle Bay's Common Stock is subject to
fluctuation, the total Exchange Value that an Investor will receive in
connection with the Exchange Offer may increase or decrease prior to the
Exchange. Holders of Partnership Units are urged to obtain current market
quotations for the Middle Bay Common Stock.
THE EXCHANGE OFFER AND PROPOSAL
DESCRIPTION OF THE EXCHANGE OFFER
Middle Bay is offering to exchange Common Stock for Partnership Units
in the Partnership (the "Exchange"). Investors who tender their Partnership
Units will receive the number of shares of Common Stock set forth below. In
connection with the Exchange Offer, Middle Bay is submitting a Proposal to
Investors in
- 41 -
<PAGE> 54
the Partnership to amend the Partnership Agreement to provide for the transfer
of all of the assets and liabilities of the Partnership to Middle Bay as of the
July 1, 1998 Effective Date in exchange for Common Stock and the pro-rata
distribution of such consideration in liquidation of the Partnership.
If the Exchange Offer is consummated, each holder of a Unit who tenders
his Units in connection with the Exchange Offer will receive that number of
shares of Common Stock whose value, in the aggregate, is equal to $11.83.
Fractional shares of Common Stock will not be issued in connection with the
Exchange Offer or liquidation of the Partnership. A partner in the Partnership
otherwise entitled to a fractional share of Common Stock will be paid in cash in
lieu of such fractional shares.
THE PROPOSAL
Middle Bay is submitting to Investors in the Partnership the Proposal
to adopt an amendment to the Partnership Agreement annexed as Exhibit "B" to
this Prospectus. The amendment, if adopted by the Partnership in accordance with
amendment procedures in the Partnership Agreement, as amended, will provide for
the following steps:
1) The transfer to Middle Bay, in exchange for the Common Stock
set forth below, of all of the assets of the Partnership and
the assumption by Middle Bay of all liabilities of the
Partnership, effective as of the Effective Date.
2) The dissolution of the Partnership and the distribution to
Investors of the Common Stock allocable to their interests in
liquidation promptly following the Closing Date.
Each Investor who tenders his Partnership Units pursuant to the
Exchange Offer will, by that tender, consent to the proposal for the
Partnership. If the Partnership adopts the Proposal by the consent of a majority
(in excess of 50%) of the Partnership Units in the Partnership, all Investors in
the Partnership, whether or not they tendered their Units in the Exchange Offer,
will receive the same amount of Common Stock as they would have received had
they tendered their Partnership Units. Consummation of the Exchange Offer is
conditioned upon approval by the Partnership of the Proposal. Because Middle Bay
controls Partnership Units in excess of 50% of the total outstanding Units and
because Middle Bay has indicated it will vote to approve the Exchange Offer,
approval of the Proposal is assured. Investors who do not return a completed
Letter of Transmittal will not receive Middle Bay Common Stock until Middle Bay
has distributed and Investors have returned an executed Transfer Application
issuable to them in the Exchange, which may result in a delay in receiving the
Common Stock if the Transfer Application is not properly returned.
TIMING OF COMMON STOCK ISSUANCE
Assuming that the Proposal is adopted and the Exchange Offer is
consummated, Middle Bay will have the benefit of the Partnership's assets and
associated cash flows commencing on the Effective Date. The Common Stock issued
in the Exchange will be freely transferable immediately following issuance.
- 42 -
<PAGE> 55
On the Closing Date, Middle Bay will cause certificates representing
the Common Stock issuable in the Exchange to be registered in the name of the
holders who have accepted the Exchange Offer. Middle Bay will also cause a
certificate representing the shares of Common Stock that will be issued to
participants upon liquidation of the Partnership to be issued in the name of the
Partnership, pending dissolution, liquidation and winding-up of the Partnership.
Immediately thereafter, Middle Bay will cause the shares of Common Stock issued
in the name of the Partnership to be transferred into certificates representing
Common Stock, registered in the names of the individual participants remaining
in the Partnership following liquidation.
CONDITIONS
Middle Bay may, in its sole discretion, at any time on or prior to the
Closing Date, refuse to consummate, abandon or terminate the Exchange Offer and
withdraw the Proposal after the date of this Prospectus if, (1) in the sole
judgment of Middle Bay, a material change shall have occurred or been threatened
(or any development shall have occurred or been threatened involving a
prospective material change) affecting (or likely to affect) the business or
properties of Middle Bay or the Partnership, or (2) Investors representing more
than 250,000 Units elect to pursue appraisal or dissenters' rights, or (3) if
Middle Bay shall have become aware of any facts or circumstances that have or
may have material significance with respect to Middle Bay's operations. If any
event shall occur or any matter shall have been brought to the attention of
Middle Bay that, in the sole judgment of Middle Bay, materially affects the
Partnership, whether adversely or otherwise, or the Exchange Offer for interest
in the Partnership, Middle Bay may refuse to accept tenders of interest in the
Partnership or may modify or amend the Exchange Offer to take the event or
matter into account.
The absence of a material change affecting Middle Bay or the
Partnership and the limitation on the number of dissenters are the only material
conditions to the Exchange Offer. If those conditions have not been fulfilled or
the Exchange Offer is withdrawn by Middle Bay, each Letter of Transmittal
tendering an Interest or consenting to the Proposal will be void, and no Common
Stock will be issued in Exchange for the interests in the Partnership.
APPRAISAL AND DISSENTERS' RIGHTS
Unitholders who do not vote in favor of or who oppose the Proposal will
have certain appraisal and dissenters' rights. Such Investors will have the
option to receive cash in lieu of the Common Stock based on the liquidation
value determined by Middle Bay based on the Gruy Report and assuming an orderly
liquidation of the Partnership's assets over a one-year period. Such rights are
not required by New Jersey partnership law, and the appraisal rights afforded
Investors are those provided by the Partnership Agreement. The liquidation value
per Unit for purposes of those Unitholders electing to receive cash for their
Units has been determined to be $9.82. Such Unitholders shall be entitled to
receive cash payment for their tendered Units within 30 days of the completion
of the Exchange Offer. See the Gruy Report included herewith for a detailed
explanation of the determination of liquidation value.
Unitholders residing in California will be afforded the option to elect
limited dissenters' rights in accordance with the requirements for roll-up
transactions under the California Code. By voting against the Proposal,
Investors in the State of California who choose to exercise their California
dissenters' rights will
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<PAGE> 56
receive the cash equivalent of the Exchange Value of their interests. If that
cash amount is greater than the liquidation value of the Units, dissenting
California Investors will receive more cash than they would otherwise receive by
electing appraisal rights under the Partnership Agreement. California Investors
hold less than 1% of the interests in the Partnership, and the impact of the
exercise of appraisal rights or dissenters' rights under California law is not
likely to materially affect the number of shares of Common Stock issued or cash
paid pursuant to appraisal or dissenters' rights by Middle Bay in connection
with the Exchange Offer.
DISTRIBUTION OF COMMON STOCK
Each Investor who returns a completed Letter of Transmittal, even if he
withholds consent to the Proposal, will thereby have provided to Middle Bay the
necessary information to issue the Common Stock provided the Exchange Offer is
consummated. Assuming that the Proposal is adopted by the Partnership and the
Exchange Offer is consummated, Investors who have returned a completed Letter of
Transmittal will receive the Common Stock issuable to them in the Exchange
promptly after the Closing Date.
An Investor who does not return a completed Letter of Transmittal will
not be eligible to receive the Common Stock after the Closing Date, if the
Exchange and Proposal are approved. Instead, the Common Stock attributable to
that Investor's Partnership Units will be held of record by the Partnership.
Immediately after the Closing Date, Middle Bay will deliver a Transfer Notice to
each Investor who has not returned a Letter of Transmittal. The Transfer Notice
should be completed and returned to Middle Bay promptly. Upon return of the
executed Transfer Notice, Middle Bay will have the Common Stock transferred and
delivered to the Investor.
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE AND PROPOSAL
In considering the recommendation of the General Partner, Investors
should be aware that the General Partner has interests in the Exchange that are
in addition to the interests of the Partnership and the Investors generally.
Middle Bay is the General Partner of the Partnership, and its determination of
the Exchange Value involves an inherent conflict of interest. As General
Partner, Middle Bay owes fiduciary duties to the Investors in the Partnership.
In addition, it owes a duty to its stockholders. While Middle Bay believes that
it has fulfilled these obligations in its determination of the Exchange Value,
which is supported, in part, by a reserve report audited by an independent
petroleum engineer, no degree of objectivity or professional competence can
eliminate the inherent conflict of interest.
RESALE OF MIDDLE BAY COMMON STOCK
Issuance of the Middle Bay Common Stock to be received by Investors who
tender their Partnership Units and the shares to be received by Unitholders in
liquidation of the Partnership has been registered under the Securities Act.
Such shares may be traded freely and without restriction by those Investors of
the Partnership not deemed to be an "affiliate" of the Partnership, as that term
is defined in the rules under the Securities Act. "Affiliates" are generally
defined as persons who control, are controlled by or are under common control
with the Partnership at the time of the Exchange. Accordingly, "affiliates"
generally will include the General Partner and any Investor who owns in excess
of 10% of the Partnership Interests. Middle
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<PAGE> 57
Bay Common Stock received by those Investors who are deemed to be "affiliates"
of the Partnership may be resold without registration as provided by and subject
to the limitations of Rules 144 and 145 of the SEC, or as otherwise permitted
under the Securities Act. This Prospectus does not cover any resales of Middle
Bay Common Stock received by affiliates of the Partnership or by certain family
members or related interests. Any Unitholder who becomes an affiliate of Middle
Bay will be subject to similar restrictions under Rule 144.
FRACTIONAL SHARES
No fractional shares of Middle Bay Common Stock will be issued.
Fractional share interests which would otherwise be issuable shall entitle the
holder thereof to receive, in lieu of such fractional interest, an amount of
cash equal to the product of such fraction multiplied by the price of Middle Bay
Common Stock used in the Exchange Value.
STOCK MARKET LISTING
All of the currently issued and outstanding shares of Common Stock of
Middle Bay are admitted for trading and quoted on the NASDAQ Small Cap Market,
and application has been made to the NASDAQ Stock Market for admission for
trading of the shares of Common Stock to be issued in connection with the
Exchange Offer.
ACCOUNTING TREATMENT
The Exchange will be accounted for as a purchase by Middle Bay.
Accordingly, the purchase price will be allocated to assets and liabilities
based on their estimated fair values as of the date of acquisition.
CLOSING DATE
The Exchange Offer is expected to be consummated on the Closing Date,
which will be no more than five days following the Expiration Date. Middle Bay
may withdraw the Exchange Offer at any time prior to the Expiration Date under
certain circumstances, including the existence of any state or federal statute,
rule, regulation or order or entry of any judicial or administrative order that
would prohibit the transaction contemplated by the Exchange Offer and the
Proposal. The Exchange Offer to the Partnership is conditioned upon consent of a
majority of the Units to the Proposal and the absence of any material adverse
development affecting the Partnership, as determined by Middle Bay in its sole
discretion (see "The Exchange Offer and Proposal - Conditions" herein). On the
Closing Date, subject to satisfaction of these conditions and the condition that
holders of not more than 250,000 Units elect to exercise dissenters' rights,
Middle Bay intends to accept all Units validly tendered and not withdrawn
pursuant to the Exchange Offer.
OPERATIONS AFTER THE EXCHANGE
Middle Bay is an independent oil and gas company engaged in the
acquisition of producing properties and the exploration, development and
production of oil and gas in the contiguous United States, primarily in the
Mid-Continent and Gulf Coast regions. Upon consummation of the Exchange , Middle
Bay will operate
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<PAGE> 58
the acquired Partnership assets as it operates its oil and gas properties or may
sell such assets to third parties at any time.
EXPENSES; FEES
All expenses incurred in connection with the Exchange Offer and the
Proposal and the transaction contemplated thereby will be paid by Middle Bay.
Middle Bay will pay the expenses incurred in connection with the Exchange Offer
and will pay all fees and expenses in connection with this Prospectus, including
fees and expenses payable in connection with the Registration Statement of which
this Prospectus is a part.
MIDDLE BAY'S DIVIDEND POLICY
Middle Bay's policy is to retain its earnings and cash flow to support
the growth of Middle Bay's business. Accordingly, the Board of Directors of
Middle Bay has never declared cash dividends on its Common Stock and does not
plan to do so in the foreseeable future. Furthermore, the terms of its credit
agreement with its principal lender prohibit the payment of cash dividends on
Middle Bay's Common Stock.
METHOD OF DETERMINING EXCHANGE VALUE
GENERAL
H.J. Gruy is the independent petroleum engineering firm most familiar
with the properties in which the Partnership has interests and has prepared the
annual reserve report on the Partnership's reserves since inception of the
Partnership and its Predecessor Partnerships. Gruy is actively involved in the
evaluation of producing oil and gas properties and is widely recognized in its
field. Gruy is an independent consulting firm as provided in the Standards
Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information
promulgated by the Society of Petroleum Engineers.
The Exchange Value has been assigned to the Partnership Units to
determine the number of shares of Common Stock to be offered for Partnership
Units. The Exchange Value was determined by Middle Bay in reliance upon the Gruy
Report and is not the result of negotiations with independent representatives of
the Partnership. Accordingly, the Exchange Value may not reflect the value of
the Partnership Units or the value of the Partnership properties if all the
assets were to be sold to an unaffiliated third party or parties in an arm's-
length transaction. Middle Bay did not seek third-party bids for the sale of the
Partnership's assets. Management of Middle Bay has substantial experience in
evaluating and operating oil and gas properties in the Partnership's production
areas and believes on the basis of that experience that the methodology employed
by Gruy in determining the fair market value of the Proved Reserves of the
Partnership is fair to Investors and is considered in the oil and gas industry
as being favorable to sellers of producing properties.
Middle Bay did not instruct Gruy as to pricing, cost or other economic
parameters or methods or the assessment of reserve characteristics, nor did it
limit the scope of Gruy's investigation for purposes of preparing the fair
market value appraisal. Middle Bay provided Gruy with basic evaluation data for
its use
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<PAGE> 59
in determining the Partnership's reserves and their value. Gruy prepared its own
reserve estimate of the Partnership's properties. Middle Bay did not direct Gruy
as to the amount of consideration to be paid to the Partnership for its property
interests nor provide any information to Gruy on amounts to be paid to
Unitholders. The amount of consideration to be paid was determined by Middle
Bay's Board of Directors based upon Gruy's estimates of the fair market value of
those interests. Gruy did not opine on the fairness of the transaction to
Unitholders, and Middle Bay has not acquired a separate report or opinion
regarding the fairness to Unitholders of the price at which the Partnership's
assets will be sold to Middle Bay if the Proposal is approved by Unitholders.
The number of shares of Common Stock to be issued pursuant to the
Exchange Offer has been determined relative to a Total Exchange Value assigned
to the Partnership Units of $11.83 per Unit. The number of shares of Common
Stock offered in exchange for Partnership Units will be determined by dividing
the Total Exchange Value of the assets of the Partnership by that number of
shares of Common Stock whose aggregate market value is equal to $11.83, subject
to rounding adjustments. The Common Stock price is based upon the average of the
closing bid prices of the Common Stock on the NASDAQ Small Cap Market for the
five trading days prior to the Closing Date and will not reflect any subsequent
increase or decrease in the market price for the Common Stock after that date,
except to the extent required by dissenters' rights for California residents.
The Total Exchange Value reflects the fair market value of Proved
Reserves of the Partnership's oil and gas assets (as determined by Gruy) and all
other assets and liabilities of the Partnership (including probable and possible
reserves). These components reflect (i) the estimated fair market value of
future net cash flows from Proved Reserves of the Partnership as of July 1,
1998, discounted 10% per year and calculated with escalated prices and costs,
(ii) the net book value of current assets and liabilities of the Partnership as
of June 30, 1998 and (iii) the general intangibles of the Partnership. Based on
management's experience in evaluating reserve acquisition opportunities and
transactions in the Partnership's production areas, Middle Bay believes that the
components of the Exchange Value reflect all appropriate valuation criteria for
the Partnership in accordance with industry practice. Each component of the
Exchange Value is presented for the Partnership in the tables and discussions
below.
EXCHANGE VALUE COMPONENTS
The following table sets forth the Exchange Value components, determined
as of July 1, 1998:
<TABLE>
<S> <C>
Fair market value of Proved Reserves
of oil and gas properties(1) $ 11,444,000
Current assets, less current liabilities(2) 1,500,000
General intangibles(3) 100,000
------------
Exchange Value $ 13,044,000
</TABLE>
(1) As determined by Gruy.
(2) Estimated - Based on unaudited June 30, 1998 financial statements prepared
by Middle Bay.
(3) As determined by Middle Bay.
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<PAGE> 60
The net book value of the Partnership as of June 30, 1998 was
$_________ after deducting 1998 distributions aggregating $1,766,586. The
current net assets are based upon the Partnership's June 30, 1998 unaudited
financial statements, respectively, maintained in accordance with applicable
provisions of the Partnership Agreement.
Middle Bay has assigned nominal value to the Partnership's equipment
(comprised of oil and gas production and processing facilities) on the
assumption that its salvage value at the end of the commercial lives of acquired
wells will approximate the cost of plugging and abandoning the wells, contingent
liabilities which Middle Bay is assuming. Middle Bay also believes that valuing
the current assets and liabilities of the Partnership at their book value as of
June 30, 1998 is appropriate to reflect the fair market value of these items in
the stated amounts reflected in the Partnership's unaudited balance sheet as of
that date.
The calculation of the fair market value of the Partnership's Proved
Reserves for the purpose of determining the Exchange Value was estimated using
the income approach as opposed to the market data approach because it is
difficult to identify sales of oil and gas properties that are comparable in net
reserves, product prices, location, operating expenses and operator expertise.
For the proved producing properties, the discounted future net revenue is
reduced to a fair market value by multiplying by a suitable fraction that
accounts for the risk associated with an investment. For proved developed
nonproducing and proved undeveloped reserves, the present value of the required
capital is added to the discounted future net revenue, a suitable risk factor is
applied, and the present value of the capital is subtracted from that value.
This approach assumes that the capital is invested with certainty and the
resulting cash flow stream is burdened with the uncertainty. In all cases, the
payout time and the internal rate-of-return for each fair market value estimate
are computed and compared with that which a rational investor would expect.
The net quantities of Proved Reserves attributable to the Partnership's
interest in its wells, together with the estimated fair market value of those
reserves, were estimated as of July 1, 1998 in the report prepared by Gruy. A
copy of the report, which also sets forth the criteria and assumptions used in
evaluating the Partnership's Proved Reserves, is included herewith in Exhibit
"A."
There are numerous uncertainties inherent in estimating quantities of
Proved Reserves. Gruy prepared the data based on their evaluation of the total
Proved Reserves attributable to all of the wells in which the Partnership had an
interest as of July 1, 1998. Estimates by other independent petroleum engineers
could vary from the Gruy Report's estimates and could result in higher or lower
valuations.
The estimates of the Partnership's future gross revenues attributable
to its estimated Proved Reserves as of July 1, 1998 were calculated based on
natural gas and crude oil prices in effect on that date with certain
escalations. Those prices had a weighted average of $2.72 per Mcf for natural
gas and $16.44 per Bbl for oil.
Future operating and development costs were based on the Partnership's
operating and development costs as of July 1, 1998 and with certain escalations
as described in the Gruy Report. Future severance (production) and ad valorem
(property) taxes were calculated using rates prevailing at July 1, 1998. The
estimated future gross revenues, future operating and development costs and
production taxes were allocated
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to the Partnership in accordance with its interest in oil and gas properties,
taking into account applicable reversionary and overriding royalty interests.
The present values of the estimated net cash flows attributable to the
Partnership's Proved Reserves were calculated by discounting the future net cash
flows to present value at the rate of 10% per year, as adjusted in accordance
with the Partnership Agreement. The discount factor is intended to reflect the
timing of future net cash flows. No further discount or risk adjustment was
applied. Present value, regardless of the discount rate used, is materially
affected by assumptions as to timing of and prices obtained for future
production, which may prove to have been inaccurate.
The Gruy Report is included as Exhibit "A" to this Prospectus.
Estimates of the Partnership's Proved Reserves and of the present value of
future net cash flows from the reserves are estimates only and are based on
numerous assumptions and conditions of those estimates.
In determining the value attributed to general intangibles, Middle Bay
evaluated the success to date of the Partnership, total consideration paid to
date to the participants and the value to Middle Bay of dissolving and
liquidating the Partnership so that Middle Bay can focus on its current
operations and reduce the administrative burdens associated with operating the
Partnership. From inception through July, 1998, the Partnership has made cash
distributions to participants aggregating $5,154,285, or $4.67 per Unit.
The Exchange Value will not be adjusted to reflect changes after July
1, 1998 in the present value of the estimated future net cash flows attributable
to the Partnership's Proved Reserves. No adjustments will be made to the
Exchange Value due to changes in demand for or costs or prices of oil and gas
that differ from the assumptions employed or other market related events after
July 1, 1998, although those could affect the value of the Units.
REASONS FOR THE EXCHANGE OFFER
RECOMMENDATION OF THE GENERAL PARTNER
As the General Partner, Middle Bay initiated and has proposed the
Exchange Offer and has recommended approval of the Proposal. Middle Bay's
decision is based on its conclusion that the Exchange will be more beneficial to
Investors than the alternatives of continuing the Partnership or liquidating all
of the assets of the Partnership and that the terms of the Exchange Offer and
related Proposal, including the method used to determine the Exchange Value and
the procedures involved in the Proposal, are both fair and appropriate.
Middle Bay and Enex, prior to its merger with Middle Bay, acting
together in reaching the conclusion to recommend that each of the Investors
accept the Exchange Offer and approve the Proposal, considered a number of
factors, including, without limitation, the following:
(a) The financial condition, results of operations and cash
flows of Middle Bay and the Partnership, both on a historical and a prospective
basis. In this regard, the General Partner believes that
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<PAGE> 62
Middle Bay historically, and on a pro-forma basis after acquisition of the
Partnership's assets, has been and is likely to continue in the future to be a
strong company, with prospects that could continue to show significant increases
in results of operations and cash flow, resulting in future appreciation in the
price of the Common Stock.
(b) The consideration to be received by the Partnership's
Investors in connection with the Exchange Offer represents a significantly
higher distribution to Investors than could be expected from the present value
of continued total cash distributions or the distributions to Investors in
liquidation. Specifically, the General Partner estimates that cash distributions
for the life of the Partnership, if the Partnership were to continue operations,
would be $11.30 per Unit and would have a present value (using a 10% discount
rate) of $8.37 per Unit.
(c) Current market conditions and historical market prices,
volatility and trading information with respect to the Common Stock of Middle
Bay, compared to the lack of a trading market for the Partnership Units. In this
regard, the potential growth rate and market price to earnings and cash flow
potential of Middle Bay were considered. Middle Bay believes that Investors will
receive the benefit of any future growth in the value of their equity interest
in Middle Bay rather than receiving cash distributions from the Partnership,
which are likely to decrease rapidly as the remaining oil and natural gas
reserves of the Partnership are depleted.
(d) Liquidity of the Common Stock of Middle Bay compared to
the lack of liquidity of the Partnership Units. The Common Stock of Middle Bay
has an active trading market on NASDAQ Small Cap Market. The Partnership Units
have no liquidity, and the Partnership Agreement restricts transfer of the
Partnership Units.
(e) The terms and conditions of the Exchange Offer, including
the amount of consideration to be paid to the Investors and the form of the
consideration, the parties' representations, warranties, covenants and
agreements, and the conditions to their respective obligations set forth in the
Exchange Offer. Middle Bay deemed that the Exchange Offer is favorable to the
Partnership's Investors. In reaching this conclusion, the General Partner noted
the nature of the representations and warranties and the limited number of
conditions in the Exchange Offer. The General Partner believes that in the
absence of extraordinary or unforeseen circumstances, there is a high likelihood
that the transaction will be completed, subject to the requisite approval of the
Partnership's Investors. Accordingly, the General Partner believes that the
Exchange Offer is more favorable to the Investors than purchase and sale
agreements that are customarily entered into.
(f) The review of other alternatives for the Partnership,
including possible sales of Partnership assets to third parties, continued
operation of the Partnership and liquidation of the Partnerships. Middle Bay did
not believe that the sale of all of the assets of the Partnership was as
attractive to the Partnership as the Exchange Offer because of the premium over
the value of the reserves being offered by Middle Bay in the Exchange Offer, the
uncertainty that a third-party purchaser or purchasers could be found for all of
the assets and, if found, whether a purchase and sale agreement could be
negotiated on terms favorable to the Partnership. Middle Bay did not believe
that liquidation of the Partnership was as attractive to the Partnership as the
Exchange Offer because the estimated liquidation value of the Partnership is
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<PAGE> 63
substantially less than the consideration to be received by each of the
Investors under the Exchange Offer. Middle Bay did not believe that the
continued operation of the Partnership was as attractive to the Partnership as
the Exchange Offer because Middle Bay believes that the continued cash
distributions made by the Partnership are likely to decrease rapidly as the
remaining oil and natural gas reserves are depleted.
(g) The uncertainties and risks in the oil and gas industry
and the possibility that changes in the industry or continued volatility of oil
and gas prices could have a significantly greater effect on the Partnership due
to the size of the Partnership compared to Middle Bay and the greater
diversification of oil and gas properties and prospects of Middle Bay. Middle
Bay also considered the possibility that such uncertainties could be
disadvantageous to Middle Bay and advantageous to the Partnership.
(h) Middle Bay is restricted under certain credit agreements
from paying cash dividends to its stockholders and Investors could continue to
receive cash distributions from the Partnership. However, the General Partner
believes that the cash distributions to the Investors from the Partnership will
likely decrease rapidly as the remaining oil and natural gas reserves are
depleted.
(j) The tax consequences to the Partners in connection with
the Exchange Offer and liquidation of the Partnership. Although the tax
consequences to some of the Partners may be unfavorable, Middle Bay believes
that the benefits of the transaction outweigh any such unfavorable consequences,
on balance, for all of the Partners.
In view of the wide variety of factors considered in connection with
its evaluation of the terms of the Exchange, Middle Bay did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
MIDDLE BAY, THE GENERAL PARTNER OF THE PARTNERSHIP, HAS DETERMINED THAT
THE EXCHANGE IS FAIR AND IN THE BEST INTERESTS OF THE PARTNERSHIP AND ITS
PARTNERS AND HAS RECOMMENDED THAT THE PARTNERS OF THE PARTNERSHIP TENDER THEIR
PARTNERSHIP INTERESTS AND CONSENT TO THE PARTNERSHIP PROPOSAL.
ALTERNATIVES TO THE EXCHANGE
Middle Bay's analysis of the most probable results of continuing the
Partnership indicate that, while continuing the Partnership would avoid the
risks associated with the ownership of Common Stock in Middle Bay, Investors
will receive potentially greater values by participating in the Exchange than
the values they would derive from this alternative. Middle Bay estimates that
continuing the Partnership under market and operating conditions prevailing in
1998 would likely generate decreasing annual distributions to Investors of $2.24
per Unit in 1998, $1.04 in 1999, $.76 in 2000 and $.48 in 2001. Middle Bay
estimates that the remaining economic life of the Partnership is five years.
Middle Bay also believes that, while liquidating the Partnership would
provide an immediate cash return and avoid the risks associated with owning
Middle Bay Common Stock, the Exchange will provide
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<PAGE> 64
Investors with greater values than they would likely receive in liquidation of
the Partnership. Middle Bay's liquidation analysis reflects an estimated
liquidation value of approximately $10,824,000, or $9.82 per Unit. For purposes
of determining the general and administrative costs to the Partnership, Middle
Bay estimated that general and administrative expenses would approximate the
general and administrative expenses incurred by the Partnership during the year
ended December 31, 1997 on an annualized basis.
The following tables summarize the results of Middle Bay's liquidation
analysis in comparison to the Exchange Value for the Partnership Units
determined by Middle Bay. The table also includes valuation data derived from
Middle Bay's analysis of continuing the Partnership. Middle Bay did not
undertake its continuation analysis for the purpose of valuing the Partnership,
but solely to illustrate the likelihood of decreasing distributions based on
production declines as projected in the Gruy Report and oil and gas prices at
July 1, 1998. However, because SEC disclosure standards for roll-up transactions
require a comparison of the value of the consideration offered in the
transaction with the value of the consideration estimated for each alternative
to the transaction, the tables also reflect the results of extending Middle
Bay's continuation analysis for the balance of the estimated life of the
Partnership's Proved Reserves, and discounting the projected stream of
distributions to present value at the same 10% discount rate used in Middle
Bay's liquidation analysis to account for the timing of cash flows as well as
production and concentration risks.
<TABLE>
<CAPTION>
Total Investor Value Per
Valuation Method Value(1) Unit
---------------- -------- ----
<S> <C> <C>
Exchange Value $ 13,044,000 $ 11.83
Liquidation value estimated by Middle Bay 10,824,000 9.82
Continuation analysis by Middle Bay,
assuming natural gas prices of $2.29
per Mcf and oil prices of $12.45 per
Bbl for 1998(2) 12,464,223 11.30
</TABLE>
(1) The Exchange Value and liquidation value attribute no value to the
General Partner's interest. The continuation analysis assumes continued
distributions to the General Partner pursuant to the terms of the
Partnership Agreement.
(2) The assumed natural gas and oil prices are the prices used for
preparation of the Partnership's reserve report at July 1, 1998, with
escalation of prices and costs as set forth in the Gruy Report. The
continuation analysis was calculated based upon Middle Bay's estimate
of the remaining economic life of the Partnership, estimated to be five
years.
The actual amount that Investors would receive if the Partnership
continued its operations would depend on production levels and various other
factors (prices, costs, etc.), which cannot be predicted with certainty. In
addition, the actual amount that Investors would receive under either of the
alternatives to the Exchange would depend on future oil and gas prices. To the
extent that future prices for those commodities are materially higher or lower
than the pricing assumptions made by the General Partner, those fluctuations
would likely have a similar effect on the operating results, distribution rates
and market value of the Partnership
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<PAGE> 65
Units, largely negating the effect of price changes on a comparison between the
Exchange and either alternative of continuing the Partnership or liquidating its
assets. In addition, Middle Bay believes that liquidating the Partnership would
deprive Investors of the opportunity to benefit from any future upturn in oil
and gas prices.
BENEFITS OF CONTINUED OPERATIONS
Continuing to operate the Partnership could benefit Investors by
avoiding many of the risks associated with owning Middle Bay Common Stock. In
addition, Middle Bay does not pay cash dividends on its shares of Common Stock
and does not anticipate paying dividends in the foreseeable future. However,
Middle Bay's continuation analysis reflects a present value (using a 10%
discount rate) that is $3.46 per Unit (29%) below the Exchange Value.
Accordingly, Middle Bay believes that Investors are likely to receive less value
if the Partnership continues in its present form than they would receive by
participating in the Exchange. While this conclusion is supported by Middle
Bay's analysis of continuing the Partnership, there can be no assurance that the
Exchange will be more beneficial to Investors than continuing the Partnership.
<TABLE>
<CAPTION>
PARTNERSHIP CONTINUATION ANALYSIS
PV 10%
Year Total Cash Flow(1) Cash Flow Per Unit(2) Cash Flow Per Unit
---- --------------- ------------------ ------------------
<S> <C> <C> <C>
1998 $ 2,469,893 $ 2.24 2.21
1999 1,142,036 1.04 .95
2000 843,009 .76 .63
2001 533,308 .48 .36
2002 134,554 .12 .08
2003 7,341,423 (3) 6.66 4.14
----------- ------ -----
Total(4) $12,464,223 $11.30 $8.37
</TABLE>
(1) Reflects total cash flow allocated to participants of the Partnership,
after allocation of cash flow to the General Partner's interest
pursuant to the terms of the Partnership Agreement.
(2) Obtained by dividing the total cash flow by 1,102,631 Partnership
Units.
(3) Includes estimated net value of remaining assets.
(4) Middle Bay's continuation analysis estimates that the remaining
economic life of the Partnership is five years. This analysis assumes
that total revenues, production taxes and lease operating expenses will
be consistent with those assumptions set forth in the Partnership
reserve report dated July 1, 1998 and that annual general and
administrative expenses will be consistent with actual annualized
general and administrative expenses incurred by the Partnership for the
year ended December 31, 1997.
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<PAGE> 66
BENEFITS OF LIQUIDATION
If the Partnership liquidated its assets and completed a dissolution
upon the sale of its assets for cash, the Investors would benefit by receiving
an immediate cash return without continuing to be subject to the risks of owning
Middle Bay Common Stock and risks of participation in oil and gas operations. In
addition, if the Partnership were liquidated in a cash transaction, Investors
could reinvest the proceeds in similar or different investments. For the reasons
described below, however, Middle Bay believes that liquidating the Partnership
would not provide Investors with greater values than those they would receive in
the Exchange. Although Middle Bay made various assumptions that it believes to
be reasonable in conducting the liquidation analysis supporting this conclusion,
there can be no assurance that those assumptions would ultimately prove to be
correct and that proceeds of a cash sale would not exceed the value of the
Common Stock issuable in the Exchange.
Middle Bay's decision to recommend approval of the Proposal is
supported by Gruy's liquidation analysis, reflecting a liquidation value of
$10,824,000, or $9.82 per Unit. Based on these factors, Middle Bay has concluded
that, while a sale of the Partnership's properties as a whole would provide an
immediate cash return to Investors, it would likely result in valuations by an
unaffiliated bidder or bidders below the Total Exchange Value, and further, any
cash received would likely be equal to or less than the liquidation value after
payment of transaction costs and costs associated with liquidation and
dissolution. Additionally, Middle Bay will assume all contingent and unknown
liabilities of the Partnership, as well as sole responsibility for payment of
all transaction costs associated with the Exchange Offer, allowing distribution
of consideration without deduction for such costs. Middle Bay believes it
extremely unlikely that a third party would offer to purchase the Partnership's
assets and also assume responsibility for payment of transaction costs.
PARTNERSHIP LIQUIDATION ANALYSIS
<TABLE>
<S> <C>
Estimated cash proceeds from sale of oil and gas properties $11,444,000
Working capital(1) 1,500,000
General and administrative expense(2) (1,550,000)
Transaction costs(3) (570,000)
Net Aggregate Liquidation Value $10,824,000
Liquidation Value Per Unit(4) $9.82
</TABLE>
(1) At June 30, 1998, the Partnership had total assets of $_________ and
estimated working capital of $1,500,000.
(2) Estimated expenses to the Partnership in preparing the Partnership
financial statements, tax returns, investor tax statements and similar
administrative matters. This estimate was determined based upon the
annualized actual expenses incurred by the Partnership for general and
administrative expense for the year ended December 31, 1997.
(3) Estimated legal, land, broker, accounting, printing and other costs
associated with the sale of the Partnership's oil and gas properties.
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<PAGE> 67
(4) Individual Unitholders' actual liquidation value per unit may vary
pursuant to the relationship the Unitholders' respective capital accounts
bear to their interests in the Partnership. Please see Section 4.6 of the
Limited Partnership Agreement.
Middle Bay's liquidation analysis assumed that a majority in Interest of the
Investors would approve the sale of all or substantially all of the
Partnership's assets, as required under the Partnership Agreement. Based on this
analysis, the General Partner concluded that Investors would benefit more from
the Exchange than a potential liquidation of the Partnership.
BOARD OF DIRECTORS OF MIDDLE BAY;
MIDDLE BAY'S REASONS FOR THE EXCHANGE
At a meeting held on June 18, 1998, the Board of Directors of Middle
Bay unanimously approved the Exchange Offer and the issuance of Middle Bay
Common Stock in connection with the Exchange. The Alabama Corporation Law does
not require that Middle Bay stockholders approve the Exchange Offer or the
issuance of Middle Bay Common Stock, and no such approval is being sought.
In reaching its conclusion to approve the Exchange Offer, the Board of
Directors of Middle Bay determined that the purchase of Partnership assets by
Middle Bay is consistent with and in furtherance of the long-term business
strategy of Middle Bay. In addition, the Board of Directors believes that the
Exchange Offer provides Investors in the Partnership the opportunity to benefit
from the continued growth of Middle Bay and consideration in excess of the
liquidation value of the Partnership. In addition, the Board believes that
dissolution of the Partnership upon consummation of the Exchange and adoption of
the Proposal by the Partnership will allow Middle Bay to focus its resources on
the core assets and projects of Middle Bay.
FIDUCIARY DUTY OF MIDDLE BAY AND ENEX
Middle Bay's fiduciary duties to Unitholders include legal
responsibilities of loyalty, care and good faith. Middle Bay, as the General
Partner of the Partnership, may not profit by any conduct or transaction in
contravention of its fiduciary obligations to the Investors. Rights of action by
or on behalf of the Investors for any breach of these duties are provided under
most state limited partnership or other laws. Under New Jersey law, which is the
choice of law provided in the Partnership Agreement, a limited partner may bring
action against a general partner, upon a showing of the breach of its fiduciary
duty, to recover his capital contribution or to seek an accounting and
dissolution of the partnership. While a general partner would have the burden of
dispelling all doubts concerning its conduct, simple negligence or an error in
judgment not amounting to a breach of fiduciary duty would constitute a defense
to the limited partner's actions under New Jersey law. Middle Bay believes that
it has complied with its fiduciary duties in the management of the Partnership
and in connection with the Exchange Offer.
Under New Jersey law, except as described below, if a nonconsenting
Investor believes that adoption of the Proposal or consummation of the Exchange
would constitute a breach of the General Partner's fiduciary duties, the
Investor could institute legal action against Middle Bay to enjoin the Exchange
or implementation of the Amendment contemplated by the Proposal or to recover
damages resulting from the consummation of
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<PAGE> 68
the Exchange. In appropriate circumstances, a limited partner may institute a
class action against its general partner on behalf of himself and the other
similarly situated limited partners or a derivative action against a general
partner on behalf of the partnership to recover damages for a breach of a
general partner's fiduciary duties. This is a developing area of the law, and
Investors who have questions concerning the General Partner's duties should
consult with their own legal counsel.
The Partnership Agreement provides that the General Partner and its
affiliates will not be liable to the Partnership or the Investors for errors of
judgment or any acts or omissions that do not constitute negligence or
misconduct. In addition, the Partnership Agreement provides generally that, to
the extent permitted by law, the Partnership will indemnify the General Partner
and its affiliates providing services on behalf of the Partnership against
judgments and amounts paid in settlement, plus costs and expenses (including
reasonable attorneys' fees and expenses) actually and reasonably incurred, if
the indemnitee acted in good faith and in a manner reasonably believed to be in,
or not opposed to, the best interests of the Partnership. In the opinion of the
SEC, indemnification for liabilities arising under the Securities Act is against
public policy and, therefore, unenforceable.
ACCESS TO INVESTOR LIST AND PROGRAM RECORDS
Middle Bay will provide free of charge to any Investor, upon written
request, a current alphabetized listing of all names and addresses of Investors
in the Partnership. Investors are afforded this right under the Partnership
Agreement and federal and state law. Investors also have the right under the
Partnership Agreement to inspect the books and records of the Partnership at all
reasonable times in the offices of the General Partner.
CONSENT PROCEDURES
WRITTEN CONSENT AND VOTE REQUIRED
Investors may tender their Partnership Units or vote against the
Proposal by properly completing and executing the Letter of Transmittal
accompanying this Prospectus and attached as Exhibit "C" in accordance with the
instructions contained therein and delivering it, together with any requisite
supporting documents indicated in the Letter of Transmittal, prior to the
Expiration Date to Middle Bay at the following address:
Middle Bay Oil Company, Inc.
1221 Lamar Street, Suite 1020
Houston, Texas 77010
Telephone: (713) 759-6808
PARTNERSHIP UNITS WILL NOT BE VALIDLY TENDERED UNLESS THE LETTER OF TRANSMITTAL
HAS BEEN COMPLETELY AND FULLY EXECUTED IN ACCORDANCE WITH THE INSTRUCTIONS
THERETO AND ACCOMPANIED BY ALL OTHER REQUIRED DOCUMENTS IN FORM AND SUBSTANCE
SATISFACTORY TO MIDDLE BAY. All questions
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concerning the validity, form and eligibility (including time of receipt) of
tenders will be determined by Middle Bay, whose determination will be final and
binding.
CONSENT TABULATION
All votes consenting to the Proposal and withholding consent, as
directed in the Letter of Transmittal submitted by Investors, will be tabulated
by the Exchange Agent, Bank of Oklahoma, N.A. (the "Bank"). The Bank has agreed
to make the tabulation available to Investors upon request to Middle Bay.
EXPIRATION OF EXCHANGE OFFER
The Exchange Offer will be held open for thirty (30) days from the date
of this Prospectus and will expire at 5:00 p.m. Central Time on the Expiration
Date. The Expiration Date will be ________, 1998, unless extended by Middle Bay
for a period of up to ten (10) days. Notice of extension of the Exchange Offer,
if made, will be given by mail to each Investor. An extension will be effective
upon mailing of notice.
AMOUNT TENDERED
Middle Bay will not accept tenders of less than all of an Investor's
Partnership Units.
REVOCABILITY OF TENDERS
Tenders of Partnership Units and consents to the Proposal may be
revoked at any time prior to the Expiration Date by sending notice of revocation
to Middle Bay at 1221 Lamar Street, Suite 1020, Houston, Texas 77010, Attention:
Stephen W. Herod. The notice should identify the Investors, include the number
of Partnership Units for which he is revoking his tender and indicate an
intention to revoke a prior tender and withhold consent to the Proposal. If this
Prospectus is amended to reflect a material adverse development, the Expiration
Date will be extended, if required, to afford at least twenty (20) days for
Investors to revoke their prior tender of Partnership Units.
SOLICITATION OF LETTERS OF TRANSMITTAL
Middle Bay may enter into one or more agreements with participating
NASD broker/dealers ("Soliciting Dealer") to assist in the solicitation of
Letters of Transmittal for the Exchange Offer. Each Soliciting Dealer who
executes an agreement with Middle Bay will be entitled to receive a fee from
Middle Bay. Total fees paid to all Soliciting Dealers are not expected to exceed
$30,000 in the aggregate.
Middle Bay has agreed to indemnify Soliciting Dealers (if any) against
certain civil liabilities, including liabilities under the Securities Act. The
Soliciting Dealers may be deemed to be underwriters within the meaning of the
Securities Act.
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<PAGE> 70
ACCEPTANCE OF TENDERS
On the Closing Date, subject to the satisfaction or waiver of the
conditions to the Exchange Offer, Middle Bay will accept all Partnership Units
properly tendered pursuant to the Exchange Offer. Middle Bay will then cause the
assets of the Partnership, subject to associated liabilities, to be withdrawn
from the Partnership and contributed to Middle Bay effective as of the Effective
Date in exchange for the Common Stock, which will be issued and delivered
promptly after the Closing Date.
On the Closing Date, Middle Bay will cause certificates representing
the Common Stock issuable in the Exchange to be registered in the name of
holders who have accepted the Exchange Offer. Middle Bay will also cause a
certificate representing the shares of Common Stock that will be issued to
participants upon liquidation of the Partnership to be issued in the name of the
Partnership, pending dissolution, liquidation and winding up of the Partnership.
Immediately thereafter, Middle Bay will cause the shares of Common Stock issued
in the name of the Partnership to be transferred into certificates representing
Common Stock registered in the names of the individual participants remaining in
the Partnership following liquidation.
SPECIAL REQUIREMENTS FOR CERTAIN INVESTORS
Some of the Investors are entities, such as estates, trusts,
corporations, limited partnerships or general partnerships. With respect to a
Partnership Unit tendered by an Investor other than an individual, Middle Bay
may elect, at its option, to require that each Letter of Transmittal be
accompanied by evidence that the Investor has met all requirements of its
governing instrument, such as applicable partnership or joint venture
agreements, and is authorized to tender its Partnership Units under the laws of
the jurisdiction in which the entity was organized. With respect to most trusts,
including individual retirement accounts, Middle Bay expects to require only
that the named trustee (or authorized representative thereof) execute the Letter
of Transmittal.
REPRESENTATIONS AND COVENANTS
Each Investor represents in the Letter of Transmittal that he has, and
will have as of the Closing Date, the right and authority to transfer his
Partnership Unit and that his Partnership Unit is free and clear of all liens,
encumbrances and adverse claims. The Letter of Transmittal also contains a
covenant by the Investor to execute any additional documents and instruments
that may be reasonably required to more effectively transfer to and to vest in
Middle Bay the assets underlying the tendered Partnership Units and a power of
attorney to Middle Bay to permit Middle Bay, as General Partner, to execute on
his behalf any additional documents necessary to consummate the Exchange,
including any documents on behalf of Investors that may be necessary to withdraw
the assets of the Partnership and contribute those assets to Middle Bay.
VALIDITY OF TENDERS
All questions concerning the validity, form, eligibility (including
time of receipt) and acceptance of Partnership Units tendered will be determined
by Middle Bay, whose determination will be final and binding. The interpretation
by Middle Bay of the terms and conditions of the Exchange Offer (including the
instructions
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<PAGE> 71
to the Letter of Transmittal) will also be final and binding. Middle Bay
reserves the right to waive any irregularities or conditions regarding the
manner of tender. Any irregularities in connection with such tenders must be
cured within such time as Middle Bay determines unless waived by Middle Bay.
Tenders will be deemed not to have been made until irregularities have
been cured or waived. Any Letter of Transmittal not properly completed and
executed will be returned by Middle Bay to the tendering Investor as soon as
practicable, unless the irregularities are cured or waived. Middle Bay is under
no duty to give notification of defects in tenders and will not incur liability
for failure to give such notification. Delivery of the Transmittal Letter is at
the risk of the Investor. A tender will be effective only when the Letter of
Transmittal is actually received by Middle Bay. To ensure receipt of the Letter
of Transmittal and all other required documents, if any, when sent by the U.S.
mail, Investors should use certified or registered mail, return receipt
requested.
PAYMENTS OF FEES AND EXPENSES
Fees and expenses incurred in connection with the Exchange Offer will
be paid by Middle Bay, whether or not the Proposal is accepted. Fees and
expenses incident to the Exchange Offer are estimated to be approximately
$_______, all of which will be funded from Middle Bay's working capital. The
estimated fees and expenses for the Exchange Offer are itemized below:
<TABLE>
<S> <C>
SEC registration fee ......................................... $ 1,684
NASD filing fee...............................................
NASDAQ listing fees...........................................
Soliciting Agent fees......................................... 30,000
Legal fees and expenses.......................................
Blue Sky expenses.............................................
Printing costs................................................ 17,000
Engineering fees..............................................
Accounting fees...............................................
Miscellaneous.................................................
Total................................................
</TABLE>
COMPLIANCE WITH TENDER OFFER PRACTICES
In conducting the Exchange Offer, Middle Bay will comply with the
provisions of Rule 14c-1 under the Exchange Act relating to the solicitation of
tenders and the payment of consideration in a tender offer.
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<PAGE> 72
CERTAIN FEDERAL TAX CONSEQUENCES
The following tax discussion summarizes certain federal income tax
consequences of the Exchange. This summary reflects the advice of Thrasher,
Whitley, Hampton & Morgan, counsel to Middle Bay in connection with the
Exchange. It is intended to provide only a general summary and does not include
a complete analysis of the consequences that may vary with or are contingent
upon individual circumstances, such as a taxpayer who is subject to special
provisions of the Internal Revenue Code. This discussion does not address the
federal income tax treatment of other transactions related to the Exchange, any
aspect of state, local or foreign tax laws or any federal laws other than those
pertaining to income tax.
None of the parties have requested a ruling from the Internal Revenue
Service with respect to the federal income tax consequences of the Exchange. No
assurance can be given that future legislation, regulations, administrative
pronouncements or court decisions will not significantly change the law and
materially affect the conclusions expressed herein. Any such change, even though
made after the consummation of the Exchange, could be applied retroactively.
TAX CONSEQUENCES OF THE EXCHANGE
Upon the exchange of Partnership Units for Common Stock, Investors must
recognize gain or loss equal to the difference between the fair market value of
the Common Stock received by them and bases in the Partnership Units exchanged
therefor. The tax consequences to Investors who do not participate in the
Exchange, but rather receive Common Stock upon liquidation of the Partnership,
should be deemed to have transferred their Partnership Units for Common Stock.
The Internal Revenue Service might argue that the transaction
constitutes a transfer of assets of the Partnership to Middle Bay for Common
Stock, with the Common Stock then distributed to Investors not participating in
the Exchange in liquidation of their interests in the Partnership. Under such a
characterization of the transaction, the Partnership would recognize gain or
loss on the disposition of the assets which would be allocated to those
Investors. Such characterization could affect the amount of gain or loss
recognized by them. However, courts evaluating the transfer of all of the assets
of a partnership, followed by a termination of the business of the partnership,
have held, according to a rule known as the "sale of a going business doctrine,"
that such transactions will be characterized as a transfer of partnership
interests in exchange for the assets received rather than a transfer by the
partnership of assets and subsequent liquidation. According to that doctrine,
the treatment afforded Unitholders not consenting to the Exchange should not
differ from the tax treatment realized by Investors who agree to exchange their
Partnership Units for Common Stock. The sale of a going business doctrine has
been implicitly rejected by the Internal Revenue Service, however, and the
doctrine has not been affirmed by any recent court decision.
Assuming the Unitholder has held his Interest as a capital asset for
more than one year and assuming his Interest has not been held for sale in the
ordinary course of the Unitholder's trade or business, any gain or loss realized
upon the transfer of Partnership Units will be taxed as long-term capital gain
or loss, except to the extent that the consideration received is attributable to
his allocable share of appreciated inventory items and unrealized receivables
(including depreciation recapture and excess intangible drilling and development
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<PAGE> 73
costs) of the Partnership. The portion of any gain attributable to these items
will be taxed to the Unitholder as ordinary income. In addition, in the event of
a recharacterization of the transaction as a transfer of assets, additional
ordinary income could be recognized by the Partnership which would be allocable
to Unitholders.
REALIZATION OF SUSPENDED PASSIVE LOSSES
Upon disposition of Partnership Units, Unitholders will have completely
disposed of their Interest in the Partnership. Any Unitholder who has any
suspended passive losses resulting from the ownership of Partnership Units will
be allowed to recognize those suspended passive losses upon consummation of the
Exchange, assuming the Partnership Units constitute the Unitholder's entire
interest in an activity for purposes of the passive loss rules.
BASIS IN STOCK
Upon consummation of the Exchange, the basis of the Common Stock
received by Investors will generally be equal to the fair market value of such
securities as of the date of consummation of the Exchange.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO.
THUS, INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES TO THEM OF THE EXCHANGE, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
COMPARATIVE RIGHTS OF SECURITY HOLDERS
The following comparative information is an accurate summary of the
material differences associated with rights of a holder of Units in the
Partnership versus stockholders in Middle Bay.
THE PARTNERSHIP MIDDLE BAY
Distributions and Dividends
The Partnership Agreement provides for cash distributions in the discretion of
the General Partner in an amount equal to approximately the difference between
revenues allocated to the respective partners and costs charged to the partners.
The Partnership Agreement states that the provisions do not serve as a
limitation on the right of the General Partner to retain, pledge or use so much
of the revenues or other assets of the Partnership to conduct additional
operations, establish reserves for anticipated expenditures or repay any amounts
borrowed by the Partnership to finance the conduct of such operations.
Under Alabama law, dividends may be paid out of the company's surplus or out of
its net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. Although holders of Common Stock are entitled to receive
any dividends declared thereon by Middle Bay's Board of Directors out of legally
available funds, no dividends are expected to be paid on the Common Stock for
the foreseeable future. In addition, Middle Bay's credit agreements restrict its
ability to pay cash dividends.
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Tax Matters
The Partnership is not subject to federal or state income taxes. Each partner is
allocated his pro-rata share of the Partnership's taxable income.
Middle Bay is subject to federal income tax on its consolidated income after
allowable deductions and credits. Stockholders will not be taxed on Middle Bay's
income, but will generally be subject to federal and state income taxes on any
dividends received from the Company.
Voting Rights
Holders of Units in the Partnership are entitled to one vote per Unit on matters
submitted to them for a vote, on any sale of all or substantially all of the
assets, dissolution of the Partnership and removal of the General Partner. Each
of these matters requires the consent of a majority of the outstanding units.
Stockholders of Middle Bay are entitled to one vote per share on all matters
submitted to them for a vote, including the election and removal of directors,
amendments to the Articles of Incorporation, certain mergers and share
exchanges, dissolution and the sale of all or substantially all of the assets of
Middle Bay. These matters require the approval of a majority of the outstanding
Common Stock. Accordingly, the holders of Units will not receive a security
with significantly different voting rights, other than eliminating the right to
compel dissolution and adding the right to participate in annual elections of
directors. However, former holders of Units will own a smaller percentage
interest in Middle Bay than they currently own in the Partnership, resulting in
a corresponding decrease in their voting power.
Right to Call Meetings
Meetings of the partners of the Partnership may be called by the General Partner
or by holders of at least 10% of the outstanding Units. Actions requiring a vote
of the holders of Units may be taken without a meeting upon written consent by
the same percentage of Unitholders required to approve the action at a meeting.
Special meetings of Middle Bay's stockholders may be called by the President,
Board of Directors or by holders of not less than 10% of the Common Stock.
Actions requiring a vote may be taken without a meeting upon written consent by
all stockholders.
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<PAGE> 75
Right to Investor List
Under New Jersey law and the Partnership Agreement, a holder of Units has the
right to examine or copy a listing of the names and addresses and record
ownership positions of the holders of Units.
Middle Bay is required to maintain a list of the names and addresses of all
stockholders at its principal office during normal hours for any proper purpose
and, in certain circumstances, to provide a copy of the list to any stockholder
upon request.
Assessments and Limited Liability
Under the terms of the Partnership Agreement, Unitholders are not subject to
additional assessments. The liability of the Unitholders is generally limited to
their capital contributions and, in certain circumstances, the amount of any
capital distributed or returned to them.
Middle Bay's stockholders will not be subject to assessments or to personal
liability for obligations of the Company.
Associations and Dilution
Under the terms of the Partnership Agreement, the Unitholders pay 95.89% of all
costs of the Partnership, while the General Partner pays 4.11% of such costs.
Middle Bay's Articles of Incorporation authorize the issuance of up to
20,000,000 shares of Common Stock and 10,000,000 shares of preferred stock,
including shares that may be divided into one or more additional series with
rights and preferences to be determined by the Board of Directors without any
stockholder action. An investor's percentage interest in Middle Bay is subject
to dilution upon issuance of additional securities by the Company.
Liquidity
There is no trading market for the Units.
Middle Bay's Common Stock is traded on the NASDAQ Small Cap Market, and the
shares issued pursuant to this Exchange Offer will be freely traded by
nonaffiliates of the Company.
Redemption and Conversion
The Units are not redeemable or convertible into other securities.
Middle Bay Common Stock is not redeemable or convertible.
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<PAGE> 76
Financial Reporting
The Partnership is subject to the reporting requirements of the Exchange Act and
files periodic reports with the SEC, copies or summaries of which are provided
to its Unitholders.
Middle Bay is subject to the reporting requirements of the Exchange Act and
files periodic reports, as well as proxy statements, with the SEC, copies or
summaries of which are provided to its stockholders.
Operating Strategy
The Partnership was formed in 1997 as a consolidation of 34 oil and gas limited
partnerships. The Partnership owns various interests in producing oil and gas
properties located primarily in Texas, Oklahoma and Louisiana. The Partnership
does not intend to engage or participate in any significant drilling activities,
and exploratory drilling is prohibited. Although the Partnership Agreement
permits the General Partner to borrow money on behalf of the Partnership, the
General Partner's policy has been to refrain from financing oil and gas
activities through credit.
Middle Bay is primarily engaged in the exploration, development and production
of oil and gas properties in the contiguous United States. Middle Bay's
operations are focused primarily in the Mid-Continent and Gulf Coast regions.
Middle Bay's general business strategy is to seek new reserves in areas of low
geologic risk and to exploit under developed existing oil and gas properties.
Middle Bay has, and will continue to, finance a portion of its oil and gas
property acquisition through the issuance of equity securities or under credit
arrangements with banks.
Management and Compensation
Middle Bay is the General Partner of the Partnership and, as such, makes all
decisions regarding the business and operations of the Partnership, including
production, development and other activities and any sale of properties. The
General Partner does not receive any management fee or other fees from the
Partnership. The Partnership reimburses the General Partner for operating
expenses, well costs and general and administrative expenses incurred on behalf
of the Partnership.
The stockholders of Middle Bay elect directors annually, and the directors elect
officers of the Company to serve at the discretion of the Board. Officer
salaries and incentive compensation are determined annually by the Compensation
Committee of the Board of Directors of Middle Bay.
Fiduciary Duties
The General Partner's fiduciary duties to Unitholders include legal
responsibilities of loyalty, care and good faith. Middle Bay may not profit from
drilling for itself or on behalf of the Partnership in contravention of its
fiduciary obligation to the partners.
The fiduciary duties owed by the directors to its stockholders under the Alabama
Business Corporation Act and remedies available for a breach of those
responsibilities are similar to those applicable to the Partnership and
Unitholders. Therefore, the Exchange generally will not involve any reduction in
the standard of care owed to investors or in the remedies available for any
breach of those duties. Moreover, the elimination of the dual role of the Board
of Directors as the governing body of Middle Bay with its obligations to
stockholders, as well as obligations and duties owed to Unitholders as the
General Partner, should remove most of the conflicts of interest inherent in the
current structure.
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Limits on Management's Liability
The Partnership Agreement provides that in any threatened, pending or completed
action, suit or proceeding to which the General Partner was or is a party or is
threatened to be made a party by reason of the fact that it was or is General
Partner of the Partnership involving any alleged cause of action for damages or
other activities relative to management and disposition of oil and gas
properties or production from such properties, the Partnership will indemnify
the General Partner against expenses actually and reasonably incurred by it in
connection with such action, suit or proceeding if it acted in good faith and in
a manner it reasonably believed to be in or not opposed to the best interests of
the Partnership, and provided that its conduct does not constitute negligence,
misconduct or a breach of its fiduciary obligations to Unitholders.
Middle Bay's Articles of Incorporation and Bylaws provide for the
indemnification of directors, officers and agents to the full extent permitted
by the Alabama Business Corporation Act. These provisions generally provide for
indemnification in the absence of gross negligence or willful misconduct and
cannot be amended without the affirmative vote of a majority of the outstanding
shares of Common Stock.
Continuation of Existence
The Partnership Agreement provides for a term ending December 31, 2015, or until
an earlier dissolution upon the occurrence of specified events.
Middle Bay has a perpetual term, subject to dissolution upon the occurrence of
specified events.
Anti-Takeover Provisions
There are no anti-takeover provisions in the Partnership Agreement. The
Partnership Agreement does provide for appraisal rights and cash payment in lieu
of accepting securities in exchange for Units in any "roll-up" transaction, as
defined in the Partnership Agreement.
There are no anti-takeover provisions in the Articles of Incorporation or Bylaws
of Middle Bay or under Alabama law.
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Liquidation Rights
In the event of liquidation, the partners are entitled to a distribution in
proportion to their positive capital account balances after the creditors,
including partners who are creditors (to the extent permitted by law), have
been paid. If the liabilities of the Partnership exceed the assets upon
liquidation, or otherwise if the General Partner then has a negative balance in
its capital account, the General Partner must contribute funds to the
Partnership until the negative capital account is eliminated and the liabilities
are satisfied.
In the event of liquidation, holders of Common Stock would be entitled to share
ratably in any assets of Middle Bay remaining after satisfaction of obligations
to its creditors and liquidation preferences on any series of preferred stock of
the Company then outstanding. Middle Bay currently has shares of Series B
preferred stock outstanding, but has no plans to issue additional shares of
preferred stock in the foreseeable future.
Right to Compel Dissolution
The Partnership may be dissolved by the written vote or consent by partners
representing a majority of the outstanding Units.
Under Alabama law, stockholders of Middle Bay may not vote to compel dissolution
of the Company without prior action by its Board of Directors.
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SELECTED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED)
The unaudited pro forma consolidated financial statements have been
prepared to give effect to the Partnership Exchange as if it had taken place on
March 31, 1998 with respect to the unaudited pro forma consolidated balance
sheet, and as of January 1, 1997 with respect to the unaudited pro forma
consolidated statements of operations for the year ended December 31, 1997 and
the three months ended March 31, 1998. The unaudited pro forma consolidated
financial statements have also been prepared to give effect to the merger of
Bison Energy Corporation and Shore Oil Company with Middle Bay during 1997 and
the merger with Enex Resources Corporation and acquisition of substantially all
the assets of Service Drilling Co., LLC during 1998.
The unaudited pro forma adjustments are based upon available financial
information and assumptions that the management of Middle Bay believe are
reasonable. The unaudited pro forma consolidated financial statements included
herein do not purport to represent the financial position or results of
operations which would have occurred had such transactions been consummated on
the dates indicated or Middle Bay's financial position or results of operations
for any future date or period.
The following unaudited pro forma consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and related notes of Middle Bay and the Partnership included
elsewhere in this Prospectus.
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<PAGE> 80
MIDDLE BAY OIL COMPANY, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
SERVICE DRILLING
ENEX AND PARTNERSHIP
PRO FORMA PRO FORMA PRO FORMA
MIDDLE BAY ADJUSTMENTS ADJUSTMENTS COMBINED
------------ ----------- ----------------- ------------
ASSETS
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,947,033 0 (1,000,000)(1) $ 4,947,033
Notes and Accounts receivable -- Trade 2,949,999 0 0 2,949,999
Other current assets 471,317 0 0 471,317
Assets held for resale 206,466 0 0 206,466
------------ ---------- ----------- ------------
Total current assets 9,574,815 0 (1,000,000) 8,574,815
Notes receivable - Stockholder 167,902 0 0 167,902
Property, plant and equipment, at cost
Oil and gas properties (successful efforts method) 82,707,910 (1,349,968)(7) 11,742,372 (1) 93,100,314
Furniture, fixtures and other 834,745 0 0 834,745
------------ ---------- ----------- ------------
83,542,655 (1,349,968) 11,742,372 93,935,059
Accumulated depreciation and depletion (31,754,337) 0 0 (31,754,337)
------------ ---------- ----------- ------------
51,788,318 (1,349,968) 11,742,372 62,180,722
Other assets 206,713 0 0 206,713
------------ ---------- ----------- ------------
61,737,748 (1,349,968) 10,742,372 71,130,152
============ ========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturity of long-term debt 2,602,888 0 0 2,602,888
Accounts payable and accrued expenses 3,392,307 0 0 3,392,307
Oil and gas revenue payable 196,370 0 0 196,370
Other current liabilities 908,055 0 0 908,055
------------ ---------- ----------- ------------
Total current liabilities 7,099,620 0 0 7,099,620
Long-term debt 24,499,568 0 5,500,000 (1) 29,999,568
Deferred income taxes 4,052,056 (3,405,379)(7) 0 (1) 646,677
Minority Interest 7,668,395 (2,124,189)(7) (5,544,206)(1) 0
------------ ---------- ----------- ------------
Total liabilities 43,319,639 (5,529,568) (44,206) 37,745,865
Stockholders' equity:
Preferred stock 3,627,000 0 0 3,627,000
Common stock, $.02 par value 157,059 16,718 (7) 36,153 (1) 209,930
Additional paid-in capital 32,962,632 4,162,882 (7) 10,750,425 (1) 47,875,939
Unearned stock compensation (33,750) 0 0 (33,750)
Accumulated deficit (18,226,792) 0 0 (18,226,792)
Less cost of treasury stock; 21,773 shares (68,040) 0 0 (68,040)
------------ ---------- ----------- ------------
Total stockholders' equity 18,418,109 4,179,600 10,786,578 33,384,287
------------ ---------- ----------- ------------
61,737,748 (1,349,968) 10,742,372 71,130,152
============ ========== ========== ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
- 68 -
<PAGE> 81
MIDDLE BAY OIL COMPANY, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
BISON & COMBINED ENEX
MIDDLE BAY SHORE ADJUSTMENTS RESOURCES
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales and plant income $ 10,213,047 2,519,599 0 9,093,316
Gain on sale of property 7,018 38,241 0 1,925,980
Overhead income 0 93,083 0 0
Management income 0 25,778 (25,778)(11) 0
Lease bonus and delay rental income 975,347 585,630 0 0
Other income 237,583 83,303 0 444,303
------------ ---------- ----------- -----------
11,432,995 3,345,634 (25,778) 11,463,599
Expenses:
Lease operating and production taxes 3,848,627 932,767 0 3,983,129
Geological and geophysical costs 222,608 0 0 0
Gas purchases and operating expenses 0 0 0 791,403
Depletion, depreciation and amortization 4,567,063 581,614 1,163,001 (12) 1,633,771
Impairments 21,147,823 0 0 0
Abandonment expense 1,118,838 1,805 0 0
Interest expense 671,081 160,275 (69,999)(13) 0
Stock compensation expense 202,500 0 0 0
General, administrative and others 2,678,593 603,399 (21,000)(11) 2,061,090
------------ ---------- ----------- -----------
34,457,133 2,279,860 1,072,002 8,469,393
Income (loss) before minority interest, income taxes
and investee earnings (23,024,138) 1,065,774 (1,097,780) 2,994,206
Minority interest 0 0 0 (1,012,449)
Provision for income taxes (benefit) (7,444,798) 302,114 (312,996)(14) 16,082
Equity in net earnings of equity investees 0 36,564 (36,564)(15) 0
------------ ---------- ----------- -----------
Net income (loss) (15,579,340) 800,224 (821,348) 1,965,675
Preferred stock dividend 604,712 0 173,332 (16) 0
Net income (loss) applicable to common stock (16,184,052) 800,224 (994,680) 1,965,675
============ ========== =========== ===========
Income (loss) per share-Basic $ (4.76)
Income (loss) per share-Diluted $ (4.76)
Weighted average common shares outstanding
Basic 3,397,117
Diluted 3,397,117
<CAPTION>
PRO FORMA ENEX PRO FORMA
COMBINED CONSOLIDATED COMBINED PRO FORMA
ADJUSTMENTS PARTNERS ADJUSTMENTS COMBINED
---------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales and plant income 0 5,819,825 3,173,563(2) $ 30,819,350
Gain on sale of property 0 5,940 1,977,179
Overhead income 0 0 93,083
Management income 0 0 0
Lease bonus and delay rental income 0 0 1,560,977
Other income 0 22,265 787,454
---------- --------- ---------- -------------
0 5,848,030 3,173,563 35,238,043
Expenses:
Lease operating and production taxes 0 2,032,422 1,242,373(2) 12,039,318
Geological and geophysical costs 0 0 222,608
Gas purchases and operating expenses 0 439,370 1,230,773
Depletion, depreciation and amortization 335,042 (8) 1,048,413 1,125,372(3) 10,454,276
Impairments 0 0 21,147,823
Abandonment expense 0 0 1,120,643
Interest expense 997,456 (9) 0 423,500(4) 2,182,313
Stock compensation expense 0 0 202,500
General, administrative and others 0 816,647 6,138,729
---------- --------- ---------- -------------
1,332,498 4,336,852 2,791,245 54,738,983
Income (loss) before minority interest, income taxes
and investee earnings (1,332,498) 1,511,178 382,318 (19,500,940)
Minority interest 0 0 1,012,449(5) 0
Provision for income taxes (benefit) 204,666 (10) 0 988,021(6) (6,246,911)
Equity in net earnings of equity investees 0 0 0
---------- --------- ---------- -------------
Net income (loss) (1,537,164) 1,511,178 406,746 (13,254,029)
Preferred stock dividend 0 0 778,044
Net income (loss) applicable to common stock (1,537,164) 1,511,178 406,746 (14,032,073)
========== ========= ========== =============
Income (loss) per share-Basic (1.98)(18)
Income (loss) per share-Diluted (1.98)(18)
Weighted average common shares outstanding
Basic 7,083,296(17)
Diluted 7,083,296(17)
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
- 69 -
<PAGE> 82
MIDDLE BAY OIL COMPANY, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
ENEX COMBINED
MIDDLE BAY RESOURCES ADJUSTMENTS
------------------ ---------------- ---------------------
<S> <C> <C> <C>
Revenues:
Oil and gas sales and plant income $ 2,632,248 2,122,335 0
Gain on sale of property 0 671,923 0
Other income 124,642 9,999 0
------------------ ---------------- ---------------------
2,756,890 2,804,257 0
Expenses:
Lease operating and production taxes 1,184,048 998,654 0
Geological and geophysical costs 745,713 0 0
Gas purchases and operating expenses 0 3,997 0
Depletion, depreciation and amortization 1,118,136 548,028 235,122 (8)
Impairments 468,951 0 0
Interest expense 255,453 0 209,661 (9)
Stock compensation expense 33,750 0 0
General, administrative and others 1,093,403 1,416,407 0
------------------ ---------------- ---------------------
4,899,454 2,967,086 444,783
Income (loss) before minority interest, income taxes
and investee earnings (2,142,564) (162,829) (444,783)
Minority interest 0 (348,190) 0
Provision for income taxes (benefit) (728,472) (86,700) (238,273)(10)
------------------ ---------------- ---------------------
Net income (loss) (1,414,092) (424,319) (206,510)
Preferred stock dividend 67,945 0 0
Net income (loss) applicable to common stock (1,482,037) (424,319) (206,510)
================== ================ =====================
Income (loss) per share-Basic $ (0.22)
Income (loss) per share-Diluted $ (0.22)
Weighted average common shares outstanding
Basic 6,719,656
Diluted 6,719,656
</TABLE>
<TABLE>
<CAPTION>
SERVICE DRILLING
AND PARTNERSHIP
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
---------------------- ----------------
<S> <C> <C>
Revenues:
Oil and gas sales and plant income 515,620(2) $ 5,270,203
Gain on sale of property 671,923
Other income 134,641
---------------------- ----------------
515,620 6,076,767
Expenses:
Lease operating and production taxes 322,670(2) 2,505,372
Geological and geophysical costs 745,713
Gas purchases and operating expenses 3,997
Depletion, depreciation and amortization 255,062(3) 2,156,347
Impairments 468,951
Interest expense 105,875(4) 570,989
Stock compensation expense 33,750
General, administrative and others 2,509,810
---------------------- ----------------
683,607 8,994,929
Income (loss) before minority interest, income taxes
and investee earnings (167,987) 2,918,162
Minority interest 348,190(5) 0
Provision for income taxes (benefit) 61,269(6) (992,175)
---------------------- ----------------
Net income (loss) 118,934 (1,925,987)
Preferred stock dividend 0 67,945
Net income (loss) applicable to common stock 118,934 (1,993,932)
====================== ================
Income (loss) per share-Basic (0.21)(18)
Income (loss) per share-Diluted (0.21)(18)
Weighted average common shares outstanding
Basic 9,363,242 (17)
Diluted 9,363,242 (17)
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
- 70 -
<PAGE> 83
MIDDLE BAY OIL COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND MARCH 31, 1998
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma consolidated financial statements reflect the
effect of the proposed offer to exchange shares of common stock, $.02 par value,
of Middle Bay common stock for Partnership Units held by Investors. The
unaudited pro forma consolidated statement of operations for the year ended
December 31, 1997 also reflects the effect of the February 28, 1997 merger of
Bison Energy Corporation (Bison) and the June 30, 1997 merger of Shore Oil
Company (Shore) with Middle Bay and the operations of Enex Consolidated Partners
for the period prior to its June 30, 1997 formation. The unaudited pro forma
consolidated financial statements also reflect the effect of the purchase of
79.2% of Enex, the subsequent acquisition of the remainder of the outstanding
shares of Enex, and the acquisition of substantially all of the assets of
Service Drilling Co., LLC (Service Drilling). The unaudited pro forma
consolidated financial statements have been prepared to give effect of the
Partnership, Service Drilling, Enex, Bison and Shore mergers as if they had
taken place on March 31, 1998 with respect to the unaudited pro forma
consolidated balance sheet and as of January 1, 1997 with respect to the
unaudited pro forma consolidated statements of operations for the year ended
December 31, 1997 and the three-month period ended March 31, 1998. Each merger
was recorded using the purchase method of accounting.
NOTE 2. PRO FORMA ENTRIES
Pro Forma Adjustments for the Partnership Exchange ("the Offer") and Service
Drilling Acquisition
It is anticipated that during September, 1998, the Company will close
an offer to the Partnership whereby it will issue shares of Middle Bay common
stock in exchange for all of the right, title and interest to the units of
partnership interest held by the Partnership's investors. In connection with the
Offer, all assets and liabilities of the Partnership would be transferred to
Middle Bay in exchange for 1,141,666 shares of common stock.
On April 16, 1998, the Company entered into and closed an Asset
Purchase Agreement with Service Drilling and certain affiliates, whereby the
Company acquired substantially all of the assets of Service Drilling and its
affiliate in exchange for the Company's common stock and cash. Pursuant to the
Agreement, the Company issued 666,000 shares of its common stock and paid
aggregate cash consideration of $6,500,000, $5,500,000 of which was funded
through borrowings on Middle Bay's revolving line of credit.
- 71 -
<PAGE> 84
The accompanying unaudited pro forma combined financial statements
reflect the following adjustments:
(1) To record the acquisition of Service Drilling using the purchase
method of accounting and the exchange of Middle Bay common stock for Partnership
Units. The allocation of the purchase price to the acquired assets and
liabilities is preliminary and, therefore, subject to change. Any future
adjustments to the allocation of the purchase price are not anticipated to be
material to the unaudited pro forma financial statements.
(2) To record the operating income and expenses related to the oil and
gas properties purchased from Service Drilling.
(3) To adjust depreciation, depletion and amortization to reflect
Middle Bay's purchase price allocated to the property and equipment acquired
from Service Drilling and the Partnership using the unit of production method
utilized by Middle Bay.
(4) To record interest expense on the debt incurred as a result of the
Service Drilling acquisition.
(5) To eliminate minority interest related to the Partnership.
(6) To adjust the provision for income taxes for the change in taxable
income as a result of the acquisitions of Service Drilling and the remaining
43.76% of Partnership interest.
Pro Forma Adjustments for the Enex Merger
It is anticipated that during August, 1998, Middle Bay and Enex will
close a Merger Agreement executed June 17, 1998 whereby Middle Bay will purchase
20.8% of Enex, thus increasing its ownership percentage of Enex to 100% from
79.2%. In completing the merger, Middle Bay will exchange shares of Middle Bay
common stock with an aggregate value of $15.00 for each share of Enex common
stock.
On March 27, 1998, in exchange for 79.2% ownership, Middle Bay acquired
1,064,432 shares of the common stock of Enex for $15,960,480 or $15 per share
pursuant to Middle Bay's tender offer (the "tender offer") which began on
February 19, 1998. The Merger was accounted for as a purchase of 79.2% of Enex
and as a result of the purchase method of accounting, Middle Bay's cost of
acquiring the 79.2% of Enex was allocated to the assets and liabilities acquired
based on estimated fair values.
The accompanying unaudited pro forma combined financial statements
reflect the following adjustments related to the acquisition of 79.2% of Enex
and the subsequent 20.8% acquisition of Enex (collectively referred to as the
"Enex Mergers"):
(7) To record the acquisition of the remaining outstanding stock of
Enex using the purchase method of accounting. The allocation of the purchase
price to the acquired assets and liabilities is preliminary and, therefore,
subject to change. Any future adjustments to the allocation of the purchase
price are not anticipated to be material to the unaudited pro forma financial
statements.
- 72 -
<PAGE> 85
(8) To adjust depreciation, depletion and amortization to reflect
Middle Bay's purchase price allocated to the property and equipment acquired in
the Enex Mergers using the unit of production method utilized by Middle Bay.
(9) To record interest expense on the debt incurred as a result of the
Enex Mergers.
(10) To adjust the provision for income taxes for the change in taxable
income as a result of the Enex Mergers.
Pro Forma Adjustments for the Bison and Shore Mergers
Middle Bay and Bison entered into a Merger Agreement whereby Bison was
merged into and continues to exist as a wholly-owned subsidiary of Middle Bay,
effective February 28, 1997.
On June 20, 1997, Middle Bay and Shore entered into a Merger Agreement
whereby Shore was merged into and continues to exist as a wholly-owned
subsidiary of Middle Bay, effective June 30, 1997.
The mergers were accounted for as purchases of Bison and Shore by
Middle Bay and as a result of the purchase method of accounting, Middle Bay's
cost of acquiring Bison and Shore was allocated to the assets and liabilities
acquired based on estimated fair values.
The accompanying Pro Forma Consolidated Statements of Operations for
the year ended December 31, 1997 has been prepared as if the Bison and Shore
mergers had occurred on January 1, 1997 and reflect the following adjustments:
(11) To remove management income for accounting and administrative
functions performed by Bison for other entities. Subsequent to the merger, Bison
no longer performed such accounting and administrative functions.
(12) To adjust depreciation, depletion and amortization to reflect
Middle Bay's purchase price allocated to the property and equipment acquired
from Bison and Shore using the unit of production method utilized by Middle Bay.
(13) To record the reduction in interest expense on the debt retired in
the Shore merger.
(14) To adjust the provision for income taxes for the change in taxable
income as a result of the mergers.
(15) To remove equity in net earnings of equity investees that were not
purchased.
(16) To record the preferred stock dividends paid on the preferred
stock issued for the cash portion of the Bison merger and issued in the Shore
merger.
Pro Forma Adjustments for Combined Mergers:
(17) To reflect the impact on the weighted average common shares
outstanding for the 2,488,889 shares of Middle Bay common stock issued in
conjunction with the Bison and Shore mergers, the 835,920 shares of Middle Bay
common stock issued to Enex common stockholders in conjunction with the purchase
- 73 -
<PAGE> 86
of the additional 20.8% of Enex, the 666,000 shares issued in conjunction with
the Service Drilling acquisition and the 1,141,666 shares issued in conjunction
with the Offer.
(18) To reflect the issuance of 2,488,889 shares of Middle Bay common
stock in conjunction with the Bison and Shore mergers, the issuance of 835,920
shares of Middle Bay common stock in conjunction with the purchase of 100% of
Enex, the 666,000 shares issued in conjunction with the Service Drilling
acquisition as well as the 1,141,666 shares issued in conjunction with the
Offer. Pro forma basic net income (loss) per common share information is
computed by dividing net income (loss), applicable to common stock by the pro
forma weighted average common shares outstanding. Shares issuable upon exercise
of options and upon the conversion of preferred stock are excluded from the
computations of the pro forma dilutive income per common and common equivalent
share because their effect would be anti-dilutive.
- 74 -
<PAGE> 87
LEGAL MATTERS
The validity of the issuance of the securities to be issued pursuant to
the Exchange Offer will be passed upon for Middle Bay and certain federal income
tax matters relating to the Exchange Offer will be passed upon for Middle Bay by
Thrasher, Whitley, Hampton & Morgan, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of Middle Bay for each of the two
years in the period ended December 31, 1997 included in this Prospectus have
been audited by Schultz, Watkins & Company, independent auditors, as stated in
their report appearing herein and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of the Partnership incorporated
in this Prospectus by reference from the Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1997 have been audited by Deloitte &
Touche, LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The information appearing herein with respect to the fair market value
of the proved oil and gas reserves of the Partnership, to the extent stated
herein, was prepared by H.J. Gruy and Associates, Inc., independent petroleum
engineers, and is included herein on the authority of such firm as experts in
petroleum engineering.
GLOSSARY
When the following terms are used in the text of the Registration
Statement, of which this Prospectus is a part, they have the meanings indicated:
"Bbl" - One stock tank barrel or 42 U.S. Gallons liquid
volume, usually used herein in reference to crude oil or other liquid
hydrocarbons.
"Bcf" - One billion cubic feet; expressed, where gas sales
contracts are in effect, in terms of contractual temperature and pressure basis
and, where contracts are nonexistent, at 60 degrees Fahrenheit and 14.65 pounds
per square inch absolute.
"BOE" - Equivalent barrels of oil and, with reference to
natural gas, natural gas equivalents are determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
"Developed Acreage" - The number of acres which are allocated
or assignable to producing wells or wells capable of production.
- 75 -
<PAGE> 88
"Development Well" - A well drilled as an additional well to
the same reservoir as other producing wells on a Lease, or drilled on an offset
Lease not more than one location away from a well producing from the same
reservoir.
"Exploratory Well" - A well drilled in search of a new
undiscovered pool of oil or gas, or to extend the known limits of a field under
development.
"Gross Acres or Wells" - The total acres or wells, as the case
may be, in which an entity has an interest, either directly or through an
affiliate.
"Lease" - Full or partial interests in an oil and gas lease,
oil and gas mineral rights, fee rights or other rights, authorizing the owner
thereof to drill for, reduce to possession and produce oil and gas upon payment
of rentals, bonuses and/or royalties. Oil and gas leases are generally acquired
from private landowners and federal and state governments.
"Mcf" - One thousand cubic feet; expressed, where gas sales
contracts are in effect, in terms of contractual temperature and pressure bases
and, where contracts are nonexistent, at 60 degrees Fahrenheit and 14.65 pounds
per square inch absolute.
"Net Acres or Wells" - A party's interest in acres or wells
calculated by multiplying the number of Gross Acres or Gross Wells in which such
party has an interest by the fractional interest of such party in each such acre
or well.
"Operating Costs" - The expenses of producing oil or gas from
a formation, consisting of the costs incurred to operate and maintain wells and
related equipment and facilities, including labor costs, repair and maintenance,
supplies, insurance, production, severance and other production excise taxes.
"Producing Property" - A property (or interest therein)
producing oil and gas in commercial quantities or that is shut-in but capable of
producing oil and gas in commercial quantities, to which Producing Reserves have
been assigned by an independent petroleum engineer. Interests in a property may
include Working Interests, production payments, Royalty Interests and other
non-Working Interests.
"Prospect" - An area in which a party owns or intends to
acquire one or more oil and gas interests which is geographically defined on the
basis of geological data and which is reasonably anticipated to contain at least
one reservoir of oil, gas or other hydrocarbons.
"Proved Developed Reserves" - Proved Reserves which can be
expected to be recovered through existing wells with existing equipment and
operating methods.
"Proved Reserves" - The estimated quantities of crude oil,
natural gas and other hydrocarbons which, based upon geological and engineering
data, are expected to be produced from known oil and gas reservoirs under
existing economic and operating conditions, and the estimated present value
thereof based
- 76 -
<PAGE> 89
upon the prices and costs on the date that the estimate is made and any price
changes provided for by existing conditions.
"PV 10%" - The discounted future net cash flows for proved oil
and gas reserves computed using prices and costs, at the dates indicated, before
income taxes and a discount rate of 10%.
"Royalty Interest" - An interest in an oil and gas property
entitling the owner to a share of oil and gas production free of the costs of
production.
"Undeveloped Acreage" - Oil and gas acreage (including, in
applicable instances, rights in one or more horizons which may be penetrated by
existing well bores, but which have not been tested) to which Proved Reserves
have not been assigned by independent petroleum engineers.
"Working Interest" - The operating interest under a Lease
which gives the owner the right to drill, produce and conduct operating
activities on the property and a share of production, subject to all Royalty
Interests, and other burdens and to all costs of exploration, development and
operations and all risks in connection therewith.
- 77 -
<PAGE> 90
Exhibit A
H.J. GRUY AND ASSOCIATES, INC.
- --------------------------------------------------------------------------------
1200 Smith Street, Suite 3040, Houston, Texas 77002
FAX (713)739-6112 - (713)739-1000
July 22, 1998
Middle Bay Oil Company, Inc.
1221 Lamar, Suite 1020
Houston, Texas 77339
ESTIMATED FAIR MARKET VALUE
ENEX CONSOLIDATED PARTNERS, L.P.
98-292-101
Gentlemen:
At your request, we have estimated the net reserves, the future net cash flow,
the discounted net cash flow, the liquidation value, and the fair market value
as of July 1, 1998, for the partnership entitled Enex Consolidated Partners,
L.P., the general partner of which is Enex Resources Corporation (Enex). Middle
Bay Oil Company, Inc. (Middle Bay) owns a majority interest in Enex. Our
engagement, and the appraisal performed thereunder, is for the benefit of the
partnership and its partners.
The estimated net reserves, future net cash flow, and discounted net cash flow
as of July 1, 1998, are summarized by reserve category as follows:
<TABLE>
<CAPTION>
Estimated
Estimated Future Net Cash Flow
Net Reserves (Escalated)
------------ --------------------
Discounted
Oil Gas at 10%
(Barrels) (Mcf) Non-discounted Per Year
--------- ----- -------------- ----------
<S> <C> <C> <C> <C>
Proved Developed Producing 863,819 7,449,859 $ 23,516,990 $ 13,281,290
Proved Developed Nonproducing 16,542 2,417,798 $ 6,442,030 $ 2,333,237
------- --------- -------------- -------------
TOTAL PROVED 880,361 9,867,657 $ 29,959,020 $ 15,614,527
Probable 16,075 702,101 $ 1,343,993 $ 641,922
Possible 1,248 178,347 $ 526,384 $ 240,529
</TABLE>
<PAGE> 91
Middle Bay Oil Company, Inc. -2- July 22, 1998
The estimated fair market value of the partnership is $11,444,000.
Fair market value as used herein is the price that a willing buyer will pay and
a willing seller will accept at a given point in time, with neither the buyer
nor the seller under any compulsion to buy or sell, and both having reasonable
knowledge of all the material circumstances.
To estimate the fair market value attributable to the proved developed producing
reserves, the 10 percent discounted future net cash flow was multiplied by a
suitable factor (less than one) to account for the risk associated with the
reserves, operating expenses, prices, and approximate tax consequences. The
internal rate of return and payout time were computed for this quantity and
compared with those at which current acquisitions are completed. Suitable
adjustments were then made to correspond to these two financial indices. Proved
developed nonproducing, probable, and possible reserves require capital
investments and must be treated appropriately. For these cases, the capital is
added to the discounted net cash flow, then multiplied by a suitable risk factor
and the capital then subtracted. This has the effect that capital is spent with
certainty and the operating cash income is burdened with the risk. Internal rate
of return and payout time are calculated for each to establish reasonableness
based upon the risk associated with the reserve category.
The estimated future net cash flow is that cash flow which will be realized from
the sale of the estimated net reserves after deduction of royalties, ad valorem
and production taxes, direct operating costs, and capital expenditures, when
applicable. Surface and well equipment salvage values, and well plugging and
field abandonment costs have not been considered in the cash flow projections.
Future net cash flow as stated in this report is before the deduction of federal
or state income tax.
The following parameters are incorporated in the economic projections referenced
in this report. The base oil price is $12.45 per barrel and is adjusted for
transportation and gravity variances. The base natural gas price is $2.32 per
MMBtu and is adjusted for transportation and Btu content. The base price
escalation schedules used in the cash flow projections were those reported in a
second quarter, 1998 pricing poll of companies actively involved in property
acquisitions and divestitures. The study was conducted by an independent oil and
gas property broker and the results are shown in Table I. Operating expenses are
escalated at an annual rate of 2.0 percent until the primary product reaches its
maximum value. The actual prices that will be received and the associated costs
may be more or less than those projected.
The liquidation value of the partnership was estimated to be $9,320,000. This
estimate assumes the orderly liquidation of partnership assets over a 12-month
period. In connection therewith, it is assumed that the partnership would incur
a total of $1,550,000 in general and administrative fees and approximately five
percent for third party expenses including broker fees, legal and land fees,
printing costs, and miscellaneous expenses.
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713)739-1000
<PAGE> 92
Middle Bay Oil Company, Inc. -3- July 22, 1998
For those wells with sufficient production history, reserve estimates and rate
projections are based on the extrapolation of established performance trends.
Reserves for other producing and nonproducing properties have been estimated
from volumetric calculations and analogy with the performance of comparable
wells. The reserves referenced in this study are estimates only and should not
be construed as exact quantities. Future conditions may affect recovery of
estimated reserves and cash flow, and all categories of reserves may be subject
to revision as more performance data become available. The proved reserves are
estimated in accordance with the definitions included in the Securities and
Exchange Commission Regulation S-X, Rule 4-10(a) except for the price and cost
escalations. The definitions are included in part as Attachment I. The probable
and possible reserves conform to the definitions approved by the Society of
Petroleum Engineers, Inc. These definitions are included as Attachment II.
Extent and character of ownership, oil and gas prices, production data, direct
operating costs, capital expenditure estimates, and other data provided by
Middle Bay have been accepted as represented. The production data available to
us were at least through the month of September 1997, but other producing
properties had data available through February 1998. Interim production through
June 30, 1998, has been estimated. Operating expenses as supplied by Middle Bay
were not audited, but were reviewed for reasonableness. No independent well
tests, property inspections, or audits of operating expenses were conducted by
our staff in conjunction with this study. We did not verify or determine the
extent, character, obligations, status, or liabilities, if any, arising from any
current or possible future environmental liabilities that might be applicable.
In order to estimate the reserves, costs, and future cash flows referenced in
this report, we have relied in part on geological, engineering, and economic
data furnished by our client. Although we have made a best efforts attempt to
acquire all pertinent data and to analyze it carefully with methods accepted by
the petroleum industry, there is no guarantee that the volumes of oil or gas or
the cash flows projected will be realized. The reserve and cash flow projections
referenced in this report may require revision as additional data become
available.
H.J. Gruy and Associates, Inc. is unrelated to Middle Bay or Enex and has no
interest in the properties included in this report. In particular:
1. We do not own a financial interest in Middle Bay or Enex or its oil
and gas properties.
2. Our fee is not contingent on the outcome of our work or report.
3. We have not performed other services for or have any other
relationship with Middle Bay or Enex that would affect our
independence.
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713)739-1000
<PAGE> 93
Middle Bay Oil Company, Inc. -4- July 22, 1998
4. No instructions were given and no limitations were imposed by Middle
Bay or Enex on the scope or methodology to be used by us in preparing
such estimates. We did not accept or incorporate any assumptions from
Middle Bay or Enex, but merely called upon Middle Bay or Enex to the
extent customary in the oil and gas industry to gather and provide
certain background information which we determined to be relevant and
appropriate. We determined what information to use and how and to what
extent such information should be relied upon in estimating the fair
market values shown above.
If investments or business decisions are to be made in reliance on these
estimates by anyone other than our client, such person with the approval of our
client is invited to visit our offices at his expense so that he can evaluate
the assumptions made and the completeness and extent of the data available on
which our estimates are based.
Any distribution or publication of this report or any part thereof must include
this letter in its entirety.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
/s/ James H. Hartsock
-----------------------------------------
[SEAL]
James H. Hartsock, PhD., P.E.
Executive Vice President
/s/ Sylvia Castilleja
-----------------------------------------
Sylvia Castilleja
Senior Reservoir Consultant
JHH:akr
Attachments
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713)739-1000
<PAGE> 94
TABLE I
OIL AND GAS PRICE SCHEDULE
<TABLE>
<CAPTION>
OIL PRICE NATURAL GAS PRICE
YEAR ($/BARREL) ($/MMBTU)
- ----------------- ---------------- ---------------------
<S> <C> <C>
1998 12.45 2.32
1999 13.98 2.38
2000 15.09 2.42
2001 15.60 2.45
2002 16.13 2.49
2003 16.40 2.55
</TABLE>
(1) Beyond 2003, oil prices are escalated at an annual rate of 2.4 percent to a
maximum price of $35.00 per barrel.
(2) Beyond 2003, natural gas prices are escalated at an annual rate of 2.2
percent to a maximum price of $4.50 per MMBtu.
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713)739-1000
<PAGE> 95
ATTACHMENT I
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713)739-1000
<PAGE> 96
DEFINITIONS OF PROVED OIL AND GAS RESERVES(1)
PROVED OIL AND GAS RESERVES
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas, and natural gas liquid 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.
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.
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 reservoir, provides support for the engineering
analysis on which the project or program was based.
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; and (D) crude oil, natural gas, and natural gas liquids, that may be
recovered from oil shales, coal, gilsonite and other such sources.
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 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.
- ------------------------
(1) Contained in Securities and Exchange Commission Regulation S-X,
Rule 4-10(a)
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713)739-1000
<PAGE> 97
ATTACHMENT II
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713)739-1000
<PAGE> 98
PETROLEUM RESERVES DEFINITIONS
SOCIETY OF PETROLEUM ENGINEERS (SPE) AND WORLD PETROLEUM CONGRESS (WPC)(1)
Reserves are those quantities of petroleum which are anticipated to be
commercially recovered from known accumulations from a given date forward. All
reserve estimates involve some degree of uncertainty. The uncertainty depends
chiefly on the amount of reliable geologic and engineering data available at the
time of the estimate and the interpretation of these data. The relative degree
of uncertainty may be conveyed by placing reserves into one of two principal
classifications, either proved or unproved. Unproved reserves are less certain
to be recovered than proved reserves and may be further sub-classified as
probable and possible reserves to denote progressively increasing uncertainty in
their recoverability.
The intent of the SPE and WPC in approving additional classifications beyond
proved reserves is to facilitate consistency among professionals using such
terms. In presenting these definitions, neither organization is recommending
public disclosure of reserves classified as unproved. Public disclosure of the
quantities classified as unproved reserves is left to the discretion of the
countries or companies involved.
Estimation of reserves is done under conditions of uncertainty. The method of
estimation is called deterministic if a single best estimate of reserves is made
based on known geological, engineering and economic data. The method of
estimation is called probabilistic when the known geological, engineering, and
economic data are used to generate a range of estimates and their associated
probabilities. Identifying reserves as proved, probable, and possible has been
the most frequent classification method and gives an indication of the
probability of recovery. Because of potential differences in uncertainty,
caution should be exercised when aggregating reserves of different
classifications.
Reserves estimates will generally be revised as additional geologic or
engineering data become available or as economic conditions change. Reserves do
not include quantities of petroleum being held in inventory, and may be reduced
for usage of processing losses if required for financial reporting.
Reserves may be attributed to either natural energy or improved recovery
methods. Improved recovery methods include all methods for supplementing natural
energy or altering natural forces in the reservoir to increase ultimate
recovery. Examples of such methods are pressure maintenance, cycling,
waterflooding, thermal methods, chemical flooding, and the use of miscible and
immiscible displacement fluids. Other improved recovery methods may be developed
in the future as petroleum technology continues to evolve.
PROVED RESERVES
Proved reserves are those quantities of petroleum which, by analysis of
geological and engineering data, can be estimated with reasonable certainty to
be commercially recoverable, from a given date forward, from known reservoirs
and under current economic conditions, operating methods, and government
regulations. Proved reserves can be categorized as developed or undeveloped.
If deterministic methods are used, the term reasonable certainty is intended to
express a high degree of confidence that the quantities will be recovered. If
probabilistic methods are used, there should be at least a 90% probability that
the quantities actually recovered will equal or exceed the estimate.
Establishment of current economic conditions should include relevant historical
petroleum prices and associated costs and may involve an averaging period that
is consistent with the purpose of the reserve estimate, appropriate contract
obligations, corporate procedures, and government regulations involved in
reporting these reserves.
In general, reserves are considered proved if the commercial producibility of
the reservoir is supported by actual production or formation tests. In this
context, the term proved refers to the actual quantities of petroleum reserves
and not just the productivity of the well or reservoir. In certain cases, proved
reserves may be assigned on the basis of well logs and/or core analysis that
indicate the subject reservoir is hydrocarbon bearing and is analogous to
reservoirs in the same area that are producing or have demonstrated the ability
to produce on formation tests.
The area of the reservoir considered as proved includes (1) the area delineated
by drilling and defined by fluid contacts, if any, and (2) the undrilled
portions of the reservoir that can reasonably be judged as commercially
productive on the basis of available geological and engineering data. In the
absence of data on fluid contacts, the lowest known occurrence of hydrocarbons
controls the proved limit unless otherwise indicated by definitive geological,
engineering or performance data.
- ---------------------------
(1) Approved by the Board of Directors, Society of Petroleum Engineers (SPE),
Inc. on March 7, 1997.
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713)739-1000
<PAGE> 99
Establishment of current economic conditions should include relevant historical
petroleum prices and associated costs and may involve an averaging period that
is consistent with the purpose of the reserve estimate, appropriate contract
obligations, corporate procedures, and government regulations involved in
reporting these reserves.
In general, reserves are considered proved if the commercial producibility of
the reservoir is supported by actual production or formation tests. In this
context, the term proved refers to the actual quantities of petroleum reserves
and not just the productivity of the well or reservoir. In certain cases, proved
reserves may be assigned on the basis of well logs and/or core analysis that
indicate the subject reservoir is hydrocarbon bearing and is analogous to
reservoirs in the same area that are producing or have demonstrated the ability
to produce on formation tests.
The area of the reservoir considered as proved includes (1) the area delineated
by drilling and defined by fluid contacts, if any, and (2) the undrilled
portions of the reservoir that can reasonably be judged as commercially
productive on the basis of available geological and engineering data. In the
absence of data on fluid contacts, the lowest known occurrence of hydrocarbons
controls the proved limit unless otherwise indicated by definitive geological,
engineering or performance data.
Reserves may be classified as proved if facilities to process and transport
those reserves to market are operational at the time of the estimate or there is
a reasonable expectation that such facilities will be installed. Reserves in
undeveloped locations may be classified as proved undeveloped provided (1) the
locations are direct offsets to wells that have indicated commercial production
in the objective formation, (2) it is reasonably certain such locations are
within the known proved productive limits of the objective formation, (3) the
locations conform to existing well spacing regulations where applicable, and (4)
it is reasonably certain the locations will be developed. Reserves from other
locations are categorized as proved undeveloped only where interpretations of
geological and engineering data from wells indicate with reasonable certainty
that the objective formation is laterally continuous and contains commercially
recoverable petroleum at locations beyond direct offsets.
Reserve which are to be produced through the application of established improved
recovery methods are included in the proved classification when (1) successful
testing by a pilot project or favorable response of an installed program in the
same or an analogous reservoir with similar rock and fluid properties provides
support for the analysis on which the project was based, and, (2) it is
reasonably certain that project will proceed. Reserves to be recovered by
improved recovery methods that have yet to be established through commercially
successful applications are included in the proved classification only (1) after
a favorable production response from the subject reservoir from either (a) a
representative pilot or (b) an installed program where the response provides
support for the analysis on which the project is based and (2) it is reasonably
certain the project will proceed.
UNPROVED RESERVES
Unproved reserves are based on geologic and/or engineering data similar to that
used in estimates of proved reserves; but technical, contractual, economic, or
regulatory uncertainties preclude such reserves being classified as proved.
Unproved reserves may be further classified as probable reserves and possible
reserves.
Unproved reserves may be estimated assuming future economic conditions different
from those prevailing at the time of the estimate. The effect of possible future
improvements in economic conditions and technological developments can be
expressed by allocating appropriate quantities of reserves to the probable and
possible classifications.
PROBABLE RESERVES
Probable reserves are those unproved reserves which analysis of geological and
engineering data suggests are more likely than not to be recoverable. In this
context, when probabilistic methods are used, there should be a least a 50%
probability that the quantities actually recovered will equal or exceed the sum
of estimated proved plus probable reserves.
In general, probable reserves may include (1) reserves anticipated to be proved
by normal step-out drilling where subsurface control is inadequate to classify
these reserves as proved, (2) reserves in formations that appear to be
productive based on well log characteristics but lack core data or definitive
tests and which are not analogous to producing or proved reservoirs in the area,
(3) incremental reserves attributable to infill drilling that could have been
classified as proved if closer statutory spacing had been approved at the time
of the estimate, (4) reserves attributable to improved recovery methods that
have been established by repeated commercially successful applications when (a)
a project or pilot is planned but not in operation and (b) rock, fluid, and
reservoir characteristics appear favorable for commercial application, (5)
reserves in an area of the formation that appears to be separated from the
proved area by faulting and the geologic interpretation indicates the subject
area is structurally higher than the proved area, (6) reserves attributable to a
future workover, treatment, re-treatment, change of equipment, or other
mechanical procedures, where such procedure has not been proved successful in
wells which exhibit similar behavior in analogous reservoirs, and (7)
incremental reserves in proved reservoirs where an alternative interpretation of
performance or volumetric data indicates more reserves than can be classified as
proved.
POSSIBLE RESERVES
Possible reserves are those unproved reserves which analysis of geological and
engineering data suggests are less likely to be recoverable than probable
reserves. In this context, when probabilistic methods are used, there should be
a least a 10% probability that the quantities actually recovered will equal or
exceed the sum of estimated proved plus probable plus possible reserves.
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713)739-1000
<PAGE> 100
In general, possible reserves may include (1) reserves which, based on
geological interpretations, could possibly exist beyond areas classified as
probable, (2) reserves in formations that appear to be petroleum bearing based
on log and core analysis but may not be productive at commercial rates, (3)
incremental reserves attributed to infill drilling that are subject to technical
uncertainty, (4) reserves attributed to improved recovery methods when (a) a
project or pilot is planned but not in operation and (b) rock, fluid, and
reservoir characteristics are such that a reasonable doubt exists that the
project will be commercial, and (5) reserves in an area of the formation that
appears to be separated from the proved area by faulting and geological
interpretation indicates the subject area is structurally lower than the proved
area.
RESERVE STATUS CATEGORIES
Reserve status categories define the development and producing status of wells
and reservoirs.
DEVELOPED: Developed reserves are expected to be recovered from existing
wells including reserves behind pipe. Improved recovery reserves are
considered developed only after the necessary equipment has been installed,
or when the costs to do so are relatively minor. Developed reserves may be
sub-categorized as producing or non-producing.
PRODUCING: Reserves subcategorized as producing are expected to be
recovered from completion intervals which are open and producing at
the time of the estimate. Improved recovery reserves are considered
producing only after the improved recovery project is in operation.
NON-PRODUCING. Reserves subcategorized as non-producing include
shut-in and behind-pipe reserves. Shut-in reserves are expected to be
recovered from 1) completion intervals which are open at the time of
the estimate but which have not started producing, (2) wells which
were shut-in for market conditions or pipeline connections (3) wells
not capable of production for mechanical reasons. Behind-pipe reserves
are expected to be recovered from zones in existing wells, which will
require additional completion work or future recompletion prior to the
start of production.
UNDEVELOPED RESERVES: Undeveloped reserves are expected to be recovered:
(1) from new wells on undrilled acreage, (2) from deepening existing wells to a
different reservoir, or (3) where a relatively large expenditure is required to
(a) recomplete an existing well or (b) install production or transportation
facilities for primary or improved recovery projects.
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713)739-1000
<PAGE> 101
EXHIBIT B
THE PROPOSAL
Set forth below is a proposed Amendment No. 1 ("Amendment") to the Amended
Articles of Limited Partnership (the "Partnership Agreement") of Enex
Consolidated Partners, L.P. (the "Partnership"). This Amendment shall be
effective upon the acceptance pursuant to the Exchange Offer of written consents
from Investors holding a majority (greater than 50%) of the interests in the
Partnership. If the Amendment becomes effective, it will become a separate
article of the Partnership Agreement and shall be placed immediately after the
last article contained in the Partnership Agreement.
PROPOSED AMENDMENT NO. 1
Notwithstanding any provisions of this Agreement to the contrary, it is
hereby agreed as follows:
1. DEFINITIONS. Except as defined in the Partnership Agreement or this
Amendment, each capitalized term used herein shall, for the purposes of this
Amendment, have the meaning ascribed to it in the Prospectus dated August __,
1998 of Middle Bay Oil Company, Inc., an Alabama corporation ("Middle Bay").
2. ELIMINATION OF RESTRICTIONS. No provision of this Agreement shall
prohibit, limit or prevent (i) the transfer and conveyance of all the assets and
liabilities of the Partnership to Middle Bay in exchange for common stock of
Middle Bay ("Common Stock") pursuant to and in accordance with the terms of the
Exchange Offer or otherwise, or (ii) the distribution of Common Stock to
partners of the Partnership ("Partners") upon dissolution of the Partnership. In
addition, no consent of the Partnership or any Partner, opinion of counsel or
other procedure shall be required in order to enable any Partner, the
Partnership or Middle Bay to effect any such transfer, Exchange Offer or
distribution.
3. EXCHANGE OF PARTNERSHIP ASSETS AND LIABILITIES FOR COMMON STOCK.
Effective as of the Effective Date, the Partnership shall transfer and convey
all of the Partnership's assets and liabilities to Middle Bay in exchange for
Common Stock pursuant to and in accordance with the terms of the Exchange Offer.
4. ELECTION TO DISSOLVE. Immediately after consummation of the Exchange
Offer, the Partnership shall be dissolved. Upon its dissolution, the business
and affairs of the Partnership shall be terminated and wound up and, as soon as
practicable thereafter, any and all Common Stock held by the Partnership shall
be distributed in kind to the Partners (or their assignees), with each Partner
(or his assignee) to receive such number of whole shares of Common Stock whose
value, in the aggregate, is equal to the Exchange Value multiplied by the number
of Units held by such Partner plus a cash distribution in exchange for any
remaining unaccounted for fractional Interest.
5. AUTHORITY OF GENERAL PARTNER. Middle Bay, in its capacity as general
partner of the Partnership, shall execute, acknowledge, verify, deliver, file
and record, for and in the name of the Partnership, any and all documents and
shall do and perform all acts required by applicable law or that it deems
necessary or desirable in order to give effect to this article and the
transactions contemplated herein, including but not limited to the dissolution,
termination, winding-up and distribution contemplated by paragraph 4 of this
article.
6. THIS ARTICLE CONTROLLING. The provisions of this article shall control
over all other provisions of this Agreement.
Except as herein expressly amended, all other terms and provisions of the
Amended Articles of Limited Partnership shall remain in full force and effect.
<PAGE> 102
EXHIBIT C
MIDDLE BAY OIL COMPANY, INC.
LETTER OF TRANSMITTAL
FOR
INVESTORS IN
ENEX CONSOLIDATED PARTNERS, L.P.
Capitalized terms used but not defined herein have the meanings given to
them in the Prospectus of Middle Bay Oil Company, Inc., as supplemented or
amended (the "Prospectus"). General instructions are included in Part VI.
This Letter of Transmittal must be received by the Exchange Agent on or
before 5:00 p.m. Central Time on __________, 1998 unless the Exchange Offer is
extended. To accept the Exchange Offer or withhold consent to the related
Proposal, please complete this Letter in accordance with the Instructions in
Items IV and VI and send or deliver the completed Letter of Transmittal to the
Exchange Agent. Neither accepting the Exchange Offer nor withholding consent to
the Proposal will prevent an Investor from challenging the fairness of the
Exchange Offer.
Adoption of the Proposal requires consent by Investors holding 60% of the
units in the Partnership. Assuming consummation of the Exchange Offer, all of
the partners of the Partnership, whether or not they tender their Interests,
will receive the same number of shares of Common Stock they would have received
had they tendered their Interests, except that California investors exercising
their limited dissenters' rights or other Investors exercising their contractual
dissenters' rights may receive a higher or lower number of shares. See Parts V
and VI, below, and "The Exchange Offer and Proposal" in the Prospectus.
Exchange Agent: BANK OF OKLAHOMA, N.A.
<TABLE>
<CAPTION>
By Mail: Facsimile Transmission: By Hand or Overnight Courier:
-------- ----------------------- -----------------------------
<S> <C> <C>
Bank of Oklahoma, N.A. (405) 936-3964 Bank of Oklahoma, N.A.
Attn: Cyndi Wilkinson (For Eligible Institutions Only) Commerce Center, Suite 110
P.O. Box 24128 Confirm by Telephone: 9520 North May Avenue
Oklahoma City, OK 73124 (405) 936-3902 Oklahoma City, OK 73120
</TABLE>
Delivery of this Letter is at the risk of the Investor. If sent by U.S.
mail, it is recommended that an Investor use certified mail, return receipt
requested.
C - 1
<PAGE> 103
PART I
NAME AND ADDRESS OF INVESTOR
- ---------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
PART II
DESCRIPTION OF INTERESTS
Set forth below with respect to your Interest are (i) the number of
Partnership Units held of record, (ii) the Exchange Value attributable to your
Interest and (iii) the number of shares of Common Stock offered for your
Interest.
PARTNERSHIP EXCHANGE EXCHANGE
INTERESTS X VALUE $11.83 = SHARES
-------- ------------- ----------
PART III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
POWER OF ATTORNEY
An Investor checking the "Tender and Consent" box and signing Part IV below
("Consenting Investor") hereby (i) accepts the Exchange Offer on the terms and
subject to the conditions set forth in the Prospectus, receipt of a copy of
which is hereby acknowledged, and tenders to Middle Bay Oil Company, Inc.
("Middle Bay") all of his Interest in the Partnership, thereby consenting to the
Proposal, and (ii) subject to acceptance of the tender made hereby, sells,
transfers, contributes and assigns to Middle Bay all right, title and interest
in the Interest tendered hereby. Tenders of Interests are revocable upon written
notice to Middle Bay at any time prior to the Expiration Date.
An Investor checking the "Withhold Consent" box and signing Part IV below
or Part V for California residents ("Non-consenting Investor") hereby (i)
acknowledges receipt of the Prospectus and (ii) assuming adoption of the
Proposal, accepts the Common Stock offered in exchange for all right, title and
interest in the Interest represented by the Partnership Interests set forth
above.
The undersigned Investor represents and warrants to Middle Bay that, as of
the Closing Date, (i) he has not disposed of or agreed to dispose of his
Interest other than pursuant to the Exchange Offer, (ii) upon
C - 2
<PAGE> 104
exchange of his Interest pursuant to the Exchange Offer, Middle Bay will acquire
good and marketable title to the Interest, free and clear of all liens,
encumbrances and adverse claims, (iii) he has full legal right, power and
authority to convey his Interest pursuant to the Exchange Offer, (iv) he has
received and reviewed a copy of the Prospectus and (v) he is qualified to make
decisions with respect to investments presenting an investment decision similar
to that involved in the Exchange Offer. All representations, warranties and
covenants contained herein shall survive the Closing Date and all other
transactions contemplated by this Letter and the Prospectus.
In connection with the solicitation of written consents of Investors in the
Partnership, each Consenting Investor below hereby (i) represents and warrants
to Middle Bay that he has full legal right, power and authority to execute a
written consent with respect to the Proposal and (ii) consents to the adoption
of the Proposal to amend the Partnership Agreement, as described in the
Prospectus.
The undersigned Investor hereby irrevocably appoints Middle Bay or any
designee of Middle Bay, with full power of substitution, as his true and lawful
attorney-in-fact, in his name, place and stead, to execute on behalf of the
Investor any additional documents necessary to consummate the Exchange and the
withdrawal and transfer of the assets underlying his Interest. This power of
attorney shall become effective upon acceptance by Middle Bay of his Interest,
shall be deemed coupled with an interest, shall be irrevocable (except in the
event of a withdrawal of a Consenting Investor's tender of his Interest
following a modification or amendment of the Exchange Offer), is granted in
consideration of the acceptance of his Interest, shall survive the death,
incapacity, dissolution or termination of the existence of the Investor and
shall be binding upon the Investor's heirs, legal representatives or assigns.
The following information must be completed in order to entitle the
Soliciting Dealer to receive a fee in connection with the Exchange Offer.
-------------------------------------
Name of Soliciting Dealer
(Please Print)
-------------------------------------
Name of Account Executive
(Please Print)
-------------------------------------
City and State of Account Executive
C - 3
<PAGE> 105
PART IV
ALL INVESTORS
(NON-CONSENTING CALIFORNIA RESIDENTS, SEE PART V)
(OTHER NON-CONSENTING UNITHOLDERS, SEE PART VI)
CALIFORNIA INVESTORS ELECTING TO EXERCISE DISSENTERS' RIGHTS SHOULD INSTEAD
COMPLETE PART V.
Consent to the Proposal being submitted by Middle Bay to adopt the
Amendment to the Partnership Agreement:
[ ] Tender and Consent [ ] Withhold Consent
SIGNATURE BOX
(NOT FOR NON-CONSENTING CALIFORNIA RESIDENTS -- SEE PART V)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as partner, a general corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
----------------------------------------------
Full Name of Investor (Please Print)
----------------------------------------------
Full Name of Co-owner, if any (Please Print)
----------------------------------------------
Signature of Investor (Please Print)
----------------------------------------------
Signature of Co-owner, if any (Please Print)
Business Telephone: ( )
---- ------------------
Home Telephone: ( )
---- ----------------------
Dated: , 1998
--------------------------------
IF THE INVESTOR FAILS TO INDICATE WHETHER CONSENT TO THE PROPOSAL IS GIVEN OR
WITHHELD, CONSENT WILL BE DEEMED TO BE GIVEN.
C - 4
<PAGE> 106
PART V
NON-CONSENTING CALIFORNIA INVESTORS
(COMPLETE ONLY IF YOU DO NOT WISH TO TENDER YOUR INTEREST PURSUANT TO THE
EXCHANGE OFFER AND WISH TO EXERCISE YOUR DISSENTERS' RIGHTS.)
The non-consenting Investor signing in this Part V represents that
California is the Investor's state of residence and withholds his consent to the
Proposal to approve and adopt the Amendment to the Partnership Agreement. By
withholding consent, a non-consenting California Investor will exercise his
dissenter's rights and will be deemed to have made the representations,
warranties and covenants (other than the consent to the adoption of the
Proposal) set forth in Part III above, and he will receive, pursuant to those
dissenters' rights, the number of shares of Common Stock equal to the Exchange
Value of his Interest divided by the average closing prices of the Units on
NASDAQ Small Cap Market during the twenty trading days immediately after the
Closing Date.
SIGNATURE BOX
(ONLY FOR NON-CONSENTING CALIFORNIA RESIDENTS)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
----------------------------------------------
Full Name of Investor (Please Print)
----------------------------------------------
Full Name of Co-owner, if any (Please Print)
----------------------------------------------
Signature of Investor (Please Print)
----------------------------------------------
Signature of Co-owner, if any (Please Print)
Business Telephone: ( )
---- ------------------
Home Telephone: ( )
---- ----------------------
Dated: , 1998
--------------------------------
C - 5
<PAGE> 107
PART VI
OTHER NON-CONSENTING INVESTORS
(COMPLETE ONLY IF YOU DO NOT WISH TO TENDER YOUR INTEREST PURSUANT TO THE
EXCHANGE OFFER AND WISH TO EXERCISE YOUR CONTRACTUAL DISSENTERS' RIGHTS.)
The non-consenting Investor signing in this Part VI withholds his or her
consent to the Proposal to approve and adopt the Amendment to the Partnership
Agreement. By withholding consent, a non-consenting Investor will exercise his
or her dissenter's rights and will be deemed to have made the representations,
warranties and covenants (other than the consent to the adoption of the
Proposal) set forth in Part III above, and he or she will receive, pursuant to
those contractual dissenters' rights granted under Section 8.10 of the Amended
Articles of Limited Partnership of Enex Consolidated Partners, L.P. a cash
payment equal to the number of units held by the Investor, multiplied by the
percent value of all units as determined by an independent expert instructed to
assume an orderly liquidation of partnership assets over a 12-month period. The
Appraisal Report, including a summary of the appraisal indicating all material
assumptions underlying the appraisal, is included as Appendix "E" to the
Prospectus.
SIGNATURE BOX
(ONLY FOR OTHER NON-CONSENTING INVESTORS)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
----------------------------------------------
Full Name of Investor (Please Print)
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Full Name of Co-owner, if any (Please Print)
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Signature of Investor (Please Print)
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Signature of Co-owner, if any (Please Print)
Business Telephone: ( )
---- ------------------
Home Telephone: ( )
---- ----------------------
Dated: , 1998
--------------------------------
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PART VII
INSTRUCTIONS
1. Previously Transferred Interests. If an Investor has transferred,
whether by sale, gift, death or otherwise, the beneficial ownership of any
Interest of which he has been named a holder of record in the accompanying
Letter of Transmittal without previously notifying Middle Bay or complying with
the procedures set forth in the Partnership Agreement for transferring his
Interest in the Partnership, he or she should notify Middle Bay of that fact and
identify the Interest transferred, the date of transfer and the name, address
and tax identification number of the assignee. Middle Bay will then send the
Investor and the assignee revised Letters of Transmittal and request from the
Investor or assignee such other documents as it may require in order to
facilitate the tender, if desired, of an assignee's interest in the Partnership.
2. Participation in Exchange. To be entitled to receive the Common Stock in
the Exchange, even if consent to the Proposal is withheld, or cash payment if
dissenting under Part IV, an Investor must deliver one originally-executed copy
of the Letter of Transmittal, completed, dated and signed in the Signature Box
in Part IV, or the Signature Box in Part V for non-consenting California
residents, or the Signature Box in Part VI for other non-consenting Investors.
Delivery is at the risk of the Investor. A tender or notice of dissent will be
effective only when the Letter is actually received by the Exchange Agent. The
Letter must be received by the Exchange Agent on or before 5:00 p.m. Central
Time on _________, 1988 unless the Exchange Offer is extended, in which event
the Letter must be received by the latest time and date on which the Exchange
Offer, as so extended, will expire. Middle Bay may revoke, at its sole
discretion, any incomplete or non-conforming Letter of Transmittal.
3. Signatures. The Letter must be signed by the Investor whose name appears
in Part I of the Letter. If the Interest is held in the names of two or more
persons, all such persons must sign the Letter. With respect to Interests held
by entities such as trusts, joint ventures, limited partnerships or general
partnerships, Middle Bay may require that the Letter of Transmittal be
accompanied by evidence acceptable to Middle Bay that the entity has met all
requirements of its governing instruments, such as applicable partnership or
joint venture agreements, and that the person signing the Letter is authorized
to sign for the Investor under the laws of the jurisdiction in which the entity
was organized.
TO PARTICIPATE IN THE EXCHANGE OFFER, AN INVESTOR MUST SIGN IN THE
SIGNATURE BLOCK IN PART IV (OR PART V FOR CALIFORNIA INVESTORS OR PART VI FOR
OTHER DISSENTING INVESTORS), EVEN IF THE INVESTOR OBJECTS TO THE EXCHANGE OFFER
AND ELECTS TO WITHHOLD HIS OR HER CONSENT TO THE PROPOSAL. INVESTORS WILL NOT
RECEIVE SHARES IN THE EXCHANGE UNTIL A SIGNED LETTER OF TRANSMITTAL IS RETURNED.
4. Conditional Tenders. No alternative, conditional or contingent tenders
will be accepted.
5. Withdrawal of Tenders. Tenders of Interests and consents to the Proposal
are revocable at any time prior to the Expiration Date by delivering a notice of
withdrawal to Middle Bay.
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6. Validity of Tenders. All questions on the validity, form, eligibility
(including time of receipt) and acceptance of Interests will be determined by
Middle Bay, and its determination will be final and binding. Interpretation by
Middle Bay of the terms and conditions of the Exchange Offer (including the
instructions to the Letter of Transmittal) will also be final and binding.
Middle Bay reserves the right to waive any irregularities or conditions on the
manner of tender, and the interpretation by Middle Bay of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) shall be final and binding. Any irregularities in connection with
tenders must be cured within such time as Middle Bay shall determine unless
waived by it.
Tenders will be deemed not to have been made until any irregularities have
been cured or waived. Any Letter of Transmittal which is not properly completed
and executed, and as to which irregularities are not cured or waived, will be
returned by Middle Bay to the Investor as soon as practicable. Middle Bay is
under no duty to give notification of defects in tenders and will not incur any
liability for failure to give notification.
Middle Bay will not accept tenders of less than all of an Investor's
Interest in the Partnership.
7. Consents to Proposal. A tender of an Interest constitutes a consent to
the Proposal. Only persons who are holders of record of Partnership Interests on
the date of the Prospectus may vote on the Proposal.
8. Contractual Dissenters' Rights. All investors have limited dissenters'
rights under Section 8.10 of the Amended Articles of Limited Partnership in
connection with the proposed Exchange Offer. By signing Part VI and thereby
withholding consent to the Proposal, an Investor will be deemed to exercise his
dissenter's rights and will receive a cash payment as indicated in Part IV and
as set forth in the Prospectus (please see "The Exchange Offer and Proposal --
Appraisal and Dissenter's Rights").
9. Dissenters' Rights for California Residents. Investors residing in
California have limited dissenters' rights in accordance with the requirements
for roll-up transactions. By signing Part V and thereby withholding consent to
the Proposal, Investors in that state will be deemed to exercise their
dissenters' rights and will receive the number of shares of Common Stock equal
to the Exchange Value of their Interests divided by the average closing prices
of the Units on NASDAQ Small Cap Market during the twenty trading days
immediately after the Closing Date. Each California Investor withholding consent
to the Proposal will also be deemed to have tendered his Interest for that
number of Units and therefore will not be required to separately submit an
executed Transfer Application. If the average price of the Units during the
specified period after the Closing Date is lower than the Exchange Price,
dissenting California Investors will receive more for their Interests than they
would otherwise receive in the Exchange Offer. Any increase in the market price
of the Common Stock during that period relative to the Exchange Price, however,
would reduce the number of shares that dissenting California Investors will
receive in the Exchange Offer.
Although the roll-up requirements for California residents entitle them to
an appraisal in roll-up transactions involving their investments, Investors
residing in California who exercise these dissenters' rights will not be
entitled to a separate appraisal for their Interests because the Exchange Value
of the Common
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Stock determined by Middle Bay exceeds the liquidation value assigned to the
Partnership's net assets in an independent appraisal already performed in
accordance with the Partnership Agreement.
California residents may choose to exercise their dissenters' rights either
under Part V or Part VI (but not both), and such exercise waives all dissenters'
rights not exercised.
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EXHIBIT D
CALIFORNIA CORPORATIONS CODE
SECTION 25014.7. "ELIGIBLE ROLL-UP TRANSACTION"
(a) "Eligible roll-up transaction" means a roll-up transaction in which the
new securities issued are either listed or approved for listing on a national
securities exchange or designated or approved for designation upon notice of
issuance as a national market system security on an interdealer quotation system
by the National Association of Securities Dealers, Inc., where the national
securities exchange and the interdealer quotation system have been certified by
the commissioner under subdivision (o) of Section 25100, if the exchange or
association requires as a condition to listing or designation that the roll-up
transaction be conducted in accordance with procedures to protect the rights of
limited partners.
(b) The rights of limited partners will be presumed to be protected if the
roll-up transaction provides for the right of dissenting limited partners:
(1) To receive compensation for their limited partnership units based
on an appraisal of the limited partnership assets performed by an
independent appraiser unaffiliated with the sponsor or general partner of
the limited partnership and which value the assets as if sold in an orderly
manner in a reasonable period of time, plus or minus other balance sheet
items, and less the cost of sale or refinancing. Compensation to dissenting
limited partners of roll-up transactions may be cash, secured debt
instruments, unsecured debt instruments, or freely tradeable securities;
provided, however, that:
(A) Roll-ups which utilize debt instruments as compensation
provide for a trustee and an indenture to protect the rights of the
debt holders and provide a rate of interest based upon, but not less
than, the then applicable federal rate as determined in accordance
with Section 1274 of the Internal Revenue Code of 1986.
(B) Roll-ups which utilize unsecured debt instruments as
compensation, in addition to the requirements of subparagraph (A) of
paragraph (1), limit total leverage to 70 percent of the appraised
value of the assets.
(C) All debt securities have a term no greater than seven years
and provide for prepayment with 80 percent of the net proceeds of any
sale or refinancing of the assets previously owned by the entity or
any part thereof.
(D) Freely tradeable securities utilized as compensation to
dissenting limited partners must be issued by an issuer whose
securities are listed on a certified national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., for at least one year prior to the transaction, and the number
of securities to be received in return for limited partnership
interests must be determined by an appraisal of limited partnership
assets,
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conducted in a manner consistent with paragraph (1) of subdivision
(b), in relation to the average last sale price of the freely
tradeable securities in the 20-day period following the transaction.
If the issuer of the freely tradeable securities is affiliated with
the sponsor or general partner, newly issued securities to be utilized
as compensation to dissenting limited partners shall not represent
more than 20 percent of the issued and outstanding shares of that
class of securities after giving effect to the issuance. For the
purposes of the preceding sentence, a sponsor or general partner is
"affiliated" with the issuer of the freely tradeable securities if the
sponsor or general partner receives any material compensation from the
issuer or its affiliates in conjunction with the roll-up transaction
or the purchase of the general partner's interest; provided, however,
that nothing herein shall restrict the ability of a sponsor or general
partner to receive any payment for its equity interests and
compensation as otherwise provided by this section.
(2) To receive or retain a security with substantially the same terms
and conditions as the security originally held, provided that the receipt
or retention of that security is not a step in a series of subsequent
transactions that directly or indirectly through acquisition or otherwise
involves future combinations or reorganizations of one or more roll-up
participants. Securities received or retained will be considered to have
the same terms and conditions as the security originally held if:
(A) There is no material adverse change to dissenting limited
partners' rights, including, but not limited to, rights with respect
to voting, the business plan, or the investment, distribution,
management compensation and liquidation policies of the limited
partnership or resulting entity.
(B) The dissenting limited partners receive the same preferences,
privileges, and priorities as they had pursuant to the security
originally held.
The rights set forth in paragraphs (1) and (2) are the only rights of
dissenting limited partners to which the presumption under subdivision (b)
applies. A general partner or sponsor shall file an application for
qualification pursuant to Section 25110 or Section 25120 with respect to any
other rights proposed to be offered to dissenting limited partners.
At the time a registration statement is filed with the Securities and
Exchange Commission with respect to an eligible roll-up transaction, a general
partner or sponsor shall notify, to the maximum extent permitted by the federal
securities laws, each limited partner who has an address in this state by
certified mail of the following: (i) that a registration statement has been
filed with the Securities and Exchange Commission with respect to a roll-up
transaction; (ii) that the general partner or sponsor claims an exemption from
the review process under the law by virtue of Section 25014.7, which defines
"eligible roll-up transaction"; (iii) that the general partner or sponsor has
the burden of proof under the law that the transaction meets the definition of
eligible roll-up transaction; and (iv) that the commissioner does not recommend
or endorse the transaction.
(c) The rights of limited partners shall be presumed not to be
protected if the general partner:
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(1) Converts an equity interest in the limited partnerships
subject to a roll-up for which consideration was not paid and which
was not otherwise provided for in the limited partnership agreement
and disclosed to limited partners, into a voting interest in the new
entity, provided, however, an interest originally obtained in order to
comply with the provisions of Internal Revenue Service Revenue
Proclamation 89-12 may be converted.
(2) Fails to follow the valuation provisions in the limited
partnership agreements of the subject limited partners when valuing
their limited partnership interests.
(3) Utilizes a future value of their equity interest rather than
the current value of their equity interest, as determined by an
appraisal conducted in a manner consistent with paragraph (1) of
subdivision (b), when determining their interest in the new entity.
(d) The rights of limited partners shall be presumed not to be
protected as to voting rights, if:
(1) The voting rights in the entity resulting from a roll-up do
not generally follow the original voting rights of the limited
partnerships participating in the roll-up transaction.
(2) A majority of the interest in an entity resulting from a
roll-up transaction may not, without concurrence by the sponsor,
general partners, board of directors or trustee, depending on the form
of entity, vote to:
(A) Amend the limited partnership agreement, articles of
incorporation or bylaws, or indenture.
(B) Dissolve the entity.
(C) Remove management and elect new management.
(D) Approve or disapprove the sale of substantially all of
the assets of the entity.
(3) The general partner or sponsor proposing a roll-up is not
required to provide each person whose equity interest is subject to
the roll-up transaction with a document which instructs the person on
the proper procedure for voting against or dissenting from the roll-up
transaction.
(4) The general partner or sponsor does not utilize an
independent third party to receive and tabulate all votes and
dissents, and require that the third party make the tabulation
available to the general partner and any limited partner upon request
at any time during and after voting occurs.
(e) The rights of limited partners shall be presumed not to be
protected as to transaction costs if:
(1) Limited partners bear an unfair portion of the transaction
costs of a proposed roll-up transaction that is rejected. For purposes
of this provision, transaction costs are defined as the costs
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of printing and mailing the proxy, prospectus, or other documents;
legal fees not related to the solicitation of votes or tenders;
financial advisory fees; investment banking fees; appraisal fees;
accounting fees; independent committee expenses; travel expenses; and
all other fees related to the preparatory work of the transaction, but
not including costs that would have otherwise been incurred by the
subject limited partnerships in the ordinary course of business, or
solicitation expenses.
(2) Transaction costs of a rejected roll-up transaction are not
apportioned between general and limited partners of the subject
limited partnerships according to the final vote on the proposed
transaction as follows:
(A) The general partner or sponsor bears all roll-up
transaction costs in proportion to the number of votes to reject
the roll-up transaction.
(B) Limited partners bear transactions costs in proportion
to the number of votes to approve the roll-up transaction.
(3) The dissenting limited partnership is required to pay any of
the costs of the roll-up transaction and the general partner or
sponsor is not required to pay the roll-up transaction costs on behalf
of the dissenting limited partnerships in a roll-up in which one or
more limited partnerships determines not to approve the transaction,
but where the roll-up transaction is consummated with respect to one
or more approving limited partnerships.
(f) The rights of limited partners shall be presumed not to be
protected as to fees of general partners and sponsors, if:
(1) General partners and sponsors are not prevented from
receiving both unearned management fees discounted to a present value,
if those fees were not previously provided for in the limited
partnership agreement and disclosed to limited partners, and new
asset-based fees.
(2) Property management fees and other management fees are not
appropriate, not reasonable and greater than what would be paid to
third parties for performing similar services.
(3) Changes in fees which are substantial and adverse to limited
partners are not approved by an independent committee according to the
facts and circumstances of each transaction.
(g) A general partner or sponsor proposing a roll-up transaction shall
pay all solicitation expenses related to the transaction, including all
preparatory work related thereto, in the event the roll-up transaction is
not approved. For purposes of this section, "solicitation expenses" include
direct marketing expenses such as telephone calls, broker-dealer fact
sheets, legal and other fees related to the solicitation, as well as direct
solicitation compensation to brokers and dealers.
(h) A broker or dealer may not receive compensation for soliciting
votes or tenders from limited partners in connection with a roll-up
transaction unless that compensation:
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(1) Is payable and equal in amount regardless of whether the
limited partner votes affirmatively or negatively in the proposed
roll-up.
(2) In the aggregate, does not exceed 2 percent of the exchange
value of the newly created securities.
(3) Is paid regardless of whether the limited partners reject the
proposed roll-up transaction.
(i) As used in this section, the following terms have the following
meanings:
(1) "Limited partnership" includes any entity determined to be a
"partnership" pursuant to Section 14((h)(4)(B) of the Securities
Exchange Act of 1934 or such other entity having a substantially
economically equivalent form of ownership instrument.
(2) "Dissenting limited partner" means a holder or a beneficial
interest in a limited partnership that is the subject of a roll-up
transaction who casts a vote against the roll-up transaction, except
that for purposes of an exchange or tender offer dissenting limited
partner means any person who files a dissent from the terms of the
transaction with the party responsible for tabulating the votes or
tenders, to be received in connection with the transaction during the
period in which the offer is outstanding.
(3) "Management fee" means a fee paid to the sponsor, general
partner, their affiliates, or other persons for management and
administration of the limited partnership.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 10-2A-21 of the Alabama Business Corporation Act provides as
follows:
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative, including appeals (other than an action by or
in the right of the corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, partner, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such claim, action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
claim, action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed claim, action or suit by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, partner, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, notwithstanding that he has not been
successful on any other claim, issue or matter in any such action, suit or
proceeding.
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(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to, or
who have been wholly successful on the merits or otherwise with respect to, such
claim, action, suit or proceeding, or (2) if such a quorum is not obtainable or,
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the shareholders.
(e) Expenses (including attorneys' fees) incurred in defending a civil or
criminal claim, action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such claim, action, suit or proceeding as
authorized in the manner provided in subsection (d) of this section upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if and to the extent that it shall be ultimately determined
that he is not entitled to be indemnified by the corporation as authorized in
this section.
(f) The indemnification authorized by this section shall not be deemed
exclusive of and shall be in addition to any other right (whether created prior
or subsequent to the enactment of this section) to which those indemnified may
be entitled under any statute, rule of law, provisions of articles of
incorporation, bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
Article IX of the Articles of Incorporation of registrant provides as
follows:
"(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
claim, action, suit or proceeding, whether civil, criminal, administrative or
investigative, including appeals (other than an action by or in the right of the
Corporation) by reason of the fact that an individual is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such individual in connection
with such claim, action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
claim, action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo
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contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Corporation and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was lawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
claim, action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, partner, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation, unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Section IX or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, notwithstanding that he has not been
successful on any other claim, issue or matter in any such action, suit or
proceeding.
(d) Any indemnification under subsections (a) and (b) of this Section
IX (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (a) and (b)
of this Section. Such determination shall be made (1) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to,
or who have been wholly successful on the merits or otherwise with respect to,
such claim, action, suit or proceeding, or (2) if such quorum is not obtainable
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the shareholders.
(e) Expenses (including attorneys' fees) incurred in defending a civil
or criminal claim, action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such claim, action, suit or proceeding as
authorized in the manner provided in subsection (d) of this Section upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if and to the extent that it shall be ultimately determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Section.
(f) The indemnification authorized by this Section shall not be deemed
exclusive of and shall be in addition to any other right (whether created prior
or subsequent to the adoption of this Section) to
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which those indemnified may be entitled under any statute, rule of law, bylaw,
agreement, vote of shareholders or disinterested directors, or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(g) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Section."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The Exhibits filed as part of this Registration Statement are as follows:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
3.1 Articles of Incorporation(1)
3.2 Articles of Amendment to Articles of Incorporation reflecting reverse
split(2)
3.3 Articles of Amendment to Articles of Incorporation designating preferences
and rights of Series A Preferred Stock(3)
3.4 Articles of Amendment to Articles of Incorporation designating preferences
and rights of Series B Preferred Stock(4)
3.5 Articles of Amendment to Articles of Incorporation increasing authorized
capital stock(5)
3.6 Articles of Amendment to Articles of Incorporation increasing authorized
capital stock(6)
3.7 Bylaws(1)
5.1 Opinion of Thrasher, Whitley, Hampton & Morgan as to legality of the
common stock registered hereunder (to be filed by Amendment)
8.1 Opinion of Thrasher, Whitley, Hampton & Morgan as to federal income tax
consequences of the merger (to be filed by amendment)
</TABLE>
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<PAGE> 120
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
10.1 Executive Employment Agreement for John J. Bassett dated January 30,
1997(7)
10.2 Executive Employment Agreement for Robert W. Hammons dated
January 30, 1997(7)
10.3 Executive Employment Agreement for Stephen W. Herod dated July 1,
1997(7)
10.4 1995 Stock Option and Stock Appreciation Rights Plan(8)
10.5 Amended and Restated 1995 Stock Option and Stock Appreciation
Rights Plan(5)
10.6 Amendment No. 1 to Amended and Restated 1995 Stock Option and
Stock Appreciation Rights Plan(6)
10.7 Credit Agreement between registrant and Enex Resources Corporation,
as borrower, and Compass Bank, as agent and a lender, Bank of Oklahoma,
N.A., as a lender, and the other lenders signatory thereto, dated
March 27, 1998(9)
10.8 Asset Purchase Agreement among registrant, Service Drilling Co.,
L.L.C. and Diamond S Gas Systems, L.L.C. dated April 16, 1998(10)
10.9 Consulting Agreement between Gerald B. Eckley and registrant dated
April 15, 1998(11)
11.1 Statement regarding computation of per-share earnings(12)
12.0 Middle Bay Oil Company ratio of earnings to fixed charges (to be filed
by amendment)
12.1 Enex Consolidated Partners ratio of earnings to fixed charges (to be filed
by amendment)
21.1 Subsidiaries of registrant
23.1 Consent of Thrasher, Whitley, Hampton & Morgan (to be included in
Exhibit 5.1)
23.2 Consent of Schultz, Watkins & Company, independent accountants
23.3 Consent of Deloitte & Touche, LLP, independent accountants
</TABLE>
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<PAGE> 121
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
23.4 Consent of H.J. Gruy and Associates, Inc., independent petroleum
engineers
24.1 Power of Attorney (included on signature page)
</TABLE>
(1) Incorporated by reference to exhibits to registrant's Registration
Statement on Form S-4 filed October 4, 1993.
(2) Incorporated by reference to exhibit A to registrant's definitive Proxy
Statement filed February 15, 1995.
(3) Incorporated by reference to exhibit 99.2 to registrant's Form 8-K filed
September 19, 1996.
(4) Incorporated by reference to exhibit C to the Agreement and Plan of Merger
among registrant, Shore Acquisition Company, Shore Oil Company and its
shareholders filed as exhibit 2.1 to registrant's Form 8-K filed July 3,
1997.
(5) Incorporated by reference to exhibits to registrant's definitive Proxy
Statement filed May 5, 1997.
(6) Incorporated by reference to exhibits to registrant's definitive Proxy
Statement filed May 15, 1998.
(7) Incorporated by reference to exhibits to registrant's Form 10-KSB filed
March 31, 1998.
(8) Incorporated by reference to exhibit A to registrant's definitive Proxy
Statement filed May 11, 1995.
(9) Incorporated by reference to exhibits to Amendment No. 3 and Final
Amendment to registrant's Schedule 14D-1 filed April 13, 1998.
(10) Incorporated by reference to exhibits to registrant's Form 8-K filed May 6,
1998.
(11) Incorporated by reference to exhibits to registrant's Form S-4 filed
June 18, 1998.
(12) Incorporated by reference to exhibits to registrant's Form 10-KSB/A filed
May 15, 1998.
The registrant agrees to provide to the Commission, upon request, copies of
instruments defining the rights of holders of long-term debt of the registrant
and its consolidated subsidiaries and for any unconsolidated subsidiaries for
which financial statements are required to be filed with the Commission.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
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<PAGE> 122
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of the registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 145, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registration has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(7) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
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<PAGE> 123
(8) The undersigned hereby undertakes to supply, by means of a
post-effective amendment, all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on this 30th day of July, 1998.
MIDDLE BAY OIL COMPANY, INC.
By:/s/ John J. Bassett
-------------------------------------
John J. Bassett
Chairman of the Board of Directors,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Bassett and Stephen W. Herod, jointly and
severally, his attorneys-in-fact, each with power of substitution for him in any
and all capacities, to sign any amendments to this Registration Statement and to
file the same, with the exhibits thereto, and other documents in connection
therewith with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
July 30, 1998 /s/ John J. Bassett
- ------------------------------ -----------------------------------------
Date John J. Bassett
Director, President, Chief Executive and
Operating Officer
July 30, 1998 /s/ C. J. Lett, III
- ------------------------------ -----------------------------------------
Date C. J. Lett, III
Executive Vice President and Director
July 30, 1998 /s/ Stephen W. Herod
- ------------------------------ -----------------------------------------
Date Stephen W. Herod
Vice President and Director
July 30, 1998 /s/ Edward P. Turner, Jr.
- ------------------------------ -----------------------------------------
Date Edward P. Turner, Jr.
Director
July 30, 1998 /s/ Frank E. Bolling, Jr.
- ------------------------------ -----------------------------------------
Date Frank E. Bolling, Jr.
Director
July 30, 1998 /s/ Gary R. Christopher
- ------------------------------ -----------------------------------------
Date Gary R. Christopher
Director
July 30, 1998 /s/ Alvin V. Shoemaker
- ------------------------------ -----------------------------------------
Date Alvin V. Shoemaker
Director
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Middle Bay Production Company, Inc., a Kansas corporation (100% owned)
Enex Resources Corporation, a Delaware corporation (79.2% owned)
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of
those portions of our reports included in this Registration Statement and to the
incorporation by reference in this Registration Statement of our report dated
February 27, 1998 included in Middle Bay Oil Company's Annual Report on Form
10-KSB/A for the year ended December 31, 1997 and to all references to our firm
included in this Registration Statement.
SCHULTZ, WATKINS & COMPANY
Jackson, Mississippi
July 29, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration
Statement of Middle Bay Oil Company, Inc. on Form S-4 of our report dated March
25, 1998, appearing in the Annual Report on Form 10-KSB of Enex Consolidated
Partners, L.P. for the year ended December 31, 1997 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE, LLP
Houston, Texas
July 31, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the inclusion
by reference of our report in this Registration Statement dated July 22, 1998
(the "Report") and to all references to said Report and to our firm included
therein.
H.J. GRUY AND ASSOCIATES, INC.
Houston, Texas
July 29, 1998
