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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e)
of the Securities Exchange Act of 1934)
AMENDMENT NO. 1
ENEX CONSOLIDATED PARTNERS, L.P.
(Name of the Issuer)
MIDDLE BAY OIL COMPANY, INC.
ENEX RESOURCES CORPORATION
(Name of Person(s) Filing Statement)
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class of Securities)
(CUSIP Number of Class of Securities)
Copy to:
JOHN J. BASSETT H. GRADY THRASHER, III
Middle Bay Oil Company, Inc. Thrasher, Whitley, Hampton & Morgan
1221 Lamar Street, Suite 1020 Five Concourse Parkway, Suite 2150
Houston, TX 77010 Atlanta, GA 30328
(713) 759-6808 (770) 804-8000
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation
14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e33(c) [Section
240.13e-3(c)] under the Securities Exchange Act of 1934.
b. [X] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [ ]
CALCULATION OF FILING FEE
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Transaction Valuation* Amount of Filing Fee**
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$11,730,000 $2,346
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* For purposes of calculating the fee only. The filing fee was calculated
pursuant to Rule O-11 of the Securities Exchange Act of 1934 and is
based on the Exchange Value to be paid to the Partnership to purchase
all of its oil and gas assets, as set forth in the Proposal contained
in the Prospectus of Middle Bay Oil Company, Inc. to be submitted to
Unitholders in the Partnership.
** 1/50th of one percent of the estimated aggregate value of the
Partnership's assets.
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[X] Check box if any part of the fee is offset as provided by Rule
O-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number or the Form or Schedule and the date of its filing.
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Amount Previously Paid: $3,460.94
Registration No.: 333-60447
Filing Party: Middle Bay Oil Company, Inc.
Date Filed: July 31, 1998; October 16, 1998
</TABLE>
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This Rule 13e-3 Transaction Statement (the "Schedule 13E-3") is being
filed by Middle Bay Oil Company, Inc., an Alabama corporation ("Middle Bay" or
the "Company"), and Middle Bay's majority-owned subsidiary, Enex Resources
Corporation, a Delaware corporation ("Enex" or the "General Partner"), pursuant
to Section 13(e) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 13e-3 thereunder in connection with the Exchange
Offer and Proposal to be made to limited partners of Enex Consolidated Partners,
L.P. (the "Partnership"). The purpose of the Exchange Offer is to acquire all of
the issued and outstanding units of limited partnership interest ("Units") of
the Partnership and to obtain the consents of the limited partners of the
Partnership to sell substantially all of the Partnership's oil and gas assets to
Middle Bay and liquidate the Partnership (the "Transaction"). Middle Bay filed
Amendment No. 3 to Registration Statement on Form S-4 on November 12, 1998 with
the Securities and Exchange Commission ("SEC"), which includes a Prospectus (the
"Prospectus"). The preceding cross-reference sheet, prepared pursuant to General
Instruction F to Schedule 13E-3, shows the location in the Prospectus of the
information required to be included in response to the items of Schedule 13E-3.
The information contained in the Prospectus, including all exhibits thereto, is
expressly and hereby incorporated herein by reference, and the responses to each
item are qualified in their entirety by reference to such information. The
Company anticipates filing a definitive Prospectus with the SEC
contemporaneously with the filing of this Schedule 13E-3 in final form.
The filing of this Schedule 13E-3 shall not be deemed an admission that
Section 13(e) of the Exchange Act or Rule 13e-3 thereunder is applicable to the
Exchange Offer that is the subject of the Prospectus. Each of the Partnership,
Middle Bay and Enex expressly disclaim that the sale of substantially all of the
assets and the subsequent liquidation of the Partnership under the terms and
conditions set forth in the Prospectus constitutes a "sale of substantially all
of the assets of an issuer to its affiliate or group of affiliates" within the
meaning of Rule 13e-3.
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a) The name of the Issuer and address of its principal executive
office are:
Enex Consolidated Partners, L.P.
1221 Lamar Street, Suite 1020
Houston, TX 77010
(b) The information set forth under the caption "Business of the
Partnership" in the Prospectus is incorporated herein by reference regarding the
title, the amount outstanding and the number of holders of record of units of
limited partnership interests (the "Units").
(c) There is currently no established trading market for the Units.
(d) The information set forth under the caption "Business of the
Partnership - Distribution" in the Prospectus is incorporated herein by
reference.
(e) There has been no offering, registered or exempt, of Units of the
Partnership for cash in the past three years.
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(f) The information regarding the purchase of Units by the General
Partner pursuant to the right of presentment under the Partnership's Limited
Partnership Agreement during the Partnership's fiscal years 1997 and 1998 is set
forth under the caption "Certain Transactions Between the Partnership, Enex and
Middle Bay" in the Prospectus and is incorporated herein by reference. No
executive officer or director of the General Partner and no person controlling
the General Partner have purchased any Units during the periods indicated.
ITEM 2. IDENTITY AND BACKGROUND
(a)-(f) This Statement is being filed by Middle Bay, which is the
parent of Enex, and Enex, which is the General Partner of the Partnership.
Middle Bay is also the proposed purchaser of substantially all the assets of the
Partnership. Middle Bay and Enex are independent oil and gas companies whose
principal businesses are the development, acquisition and operation of oil and
gas properties primarily in the Mid-Continent and Gulf Coast regions of the
contiguous United States. Middle Bay's and Enex's principal executive offices
are located at 1221 Lamar Street, Suite 1020, Houston, Texas 77010. The
information set forth in the Prospectus under the caption "Corporate Governance
of Middle Bay" is incorporated herein by reference. None of the executive
officers or directors of Middle Bay or Enex has, during the last five years,
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or has been a party to a civil proceeding which resulted in a
judgment, decree or final order enjoining further violations or prohibiting
activities subject to federal or state securities laws or finding any violation
of such laws. All of the executive officers and directors of Middle Bay and Enex
are citizens of the United States.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
(a)(b) The information set forth in the Prospectus under the captions
"Reasons for the Exchange Offer - Certain Transactions Between the Partnership,
Enex and Middle Bay" and "Summary - General Background Information Leading Up to
the Tender Offer" is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION
(a) The information set forth in the Prospectus under the captions
"Risk Factors and Material Considerations," "The Exchange Offer and Proposal,"
"Method of Determining Exchange Value" and "Consent Procedures" is incorporated
herein by reference.
(b) There are no terms or arrangements concerning the transaction which
are not identical for the security holders of the same class of securities of
the Partnership.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a)-(b) The information set forth in the Prospectus under the caption
"The Exchange Offer and Proposal" is incorporated herein by reference.
(c) No change in management of the Partnership will occur as the
Partnership will be dissolved if the Proposal is approved. If the Proposal is
approved, the information set forth in the Prospectus under the
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captions "Comparative Rights of Security Holders," "Description of Middle Bay
Securities" and "Corporate Governance of Middle Bay" is incorporated herein by
reference.
(d) The information set forth in the Prospectus under the captions
"Comparative Rights of Security Holders" and "Price Range of Middle Bay Common
Stock; Dividends and Distribution" is incorporated herein by reference.
(e) The information set forth in the Prospectus under the captions "The
Exchange Offer and Proposal" and "Comparative Rights of Security Holders" is
incorporated herein by reference.
(f) If limited partners approve the Proposal and the Partnership is
liquidated and dissolved, the Partnership will become eligible for suspension of
reporting requirements and termination of registration under the Exchange Act.
(g) The Partnership does not currently have an obligation to file
reports pursuant to Section 15(d) of the Exchange Act.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a) The information set forth in the Prospectus under the caption "The
Exchange Offer and Proposal" is incorporated herein by reference.
(b) The information set forth in the Prospectus under the caption "The
Exchange Offer and Proposal - Expenses; Fees" is incorporated herein by
reference.
(c) The information set forth in the Prospectus under the caption "The
Exchange Offer and Proposal - Expenses; Fees" is incorporated herein by
reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
(a) The information set forth in the Prospectus under the captions "The
Exchange Offer and Proposal" and "Reasons for the Exchange Offer" is
incorporated herein by reference.
(b) The information set forth in the Prospectus under the caption
"Reasons for the Exchange Offer" is incorporated herein by reference.
(c) The information set forth in the Prospectus under the captions
"Reasons for the Exchange Offer" and "Summary - Background Information Leading
Up to the Exchange Offer" is incorporated herein by reference.
(d) The information set forth in the Prospectus under the captions
"Risk Factors and Material Considerations," "Material Federal Tax Consequences,"
"The Exchange Offer and Proposal," "Method of
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Determining Exchange Value," "Reasons for the Exchange Offer" and "Comparative
Rights of Security Holders" is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION
(a) The information set forth in the Prospectus under the captions
"Summary - Fairness of the Exchange Value," "Comparison of Exchange Value with
Values Used in 1997 Partnership Roll-up," "Alternatives to the Exchange,"
"Reasons for the Exchange Offer - Recommendations of the General Partner and
Middle Bay" and "Method of Determining Exchange Value" is incorporated herein by
reference. No director of the General Partner dissented to or abstained from
voting on any approval of the actions of the General Partner or Middle Bay in
connection with the matters covered in this Schedule 13E-3.
(b) The information set forth in the Prospectus under the captions
"Summary - Fairness of the Exchange Value," "Comparison of Exchange Value with
Values Used in 1997 Partnership Roll-up," "Alternatives to the Exchange,"
"Reasons for the Exchange Offer - Recommendations of the General Partner and
Middle Bay" and "Method of Determining Exchange Value" is incorporated herein by
reference. No director of the General Partner dissented to or abstained from
voting on any approval of the actions of the General Partner or Middle Bay in
connection with the matters covered in this Schedule 13E-3.
(c) The Transaction was structured so that approval of at least a
majority of unaffiliated security holders is not required.
(d) The information set forth in the Prospectus under the captions
"Risk Factors and Material Considerations - Lack of Arms-Length Negotiation to
Determine Value of Partnership Units," "Risk Factors and Material Considerations
- - Lack of Independent Representative; Fairness Opinion" and "Method of
Determining Exchange Value" is incorporated herein by reference.
(e) The actions taken by the General Partner, acting in that capacity,
in connection with the Transaction covered by this Schedule 13E-3 have been
approved by the General Partner's and Middle Bay's Boards of Directors. A
majority of the nonemployee directors voted in favor of such actions. The
information set forth in the Prospectus under the caption "Reasons for the
Exchange Offer - Approval of the Board of Directors of Middle Bay; Reasons for
the Approval" is incorporated herein by reference.
(f) No firm offers of which the Partnership, the General Partner or
Middle Bay is aware have been made during the preceding 18 months by any
unaffiliated person for (i) the merger or consolidation of the Partnership into
or with such person or such person into or with the Partnership; (ii) the sale
or other transfer of all or any substantial part of the assets of the
Partnership; or (iii) securities of the Partnership which would enable the
holder thereof to exercise control of the Partnership.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a)-(b) The information set forth in the Prospectus under the captions
"Method of Determining Exchange Value" and "Reasons for the Exchange Offer" and
the fair market value opinion of H.J. Gruy and
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Associates, Inc. and the Fairness Opinion of Harris Webb & Garrison attached to
the Prospectus are incorporated herein by reference.
(c) The information set forth in the Prospectus under the captions
"Method of Determining Exchange Value - Exchange Value Components" and "Fairness
Opinion" is incorporated herein by reference. A copy of the fair market value
opinion of H.J. Gruy and Associates, Inc. (the "Gruy Report") and the Fairness
Opinion prepared by Harris Webb & Garrison, Inc. ("HWG") will be delivered to
each limited partner with the Prospectus. A copy of the HWG analysis in support
of the Fairness Opinion is included as Exhibit 17(b) to this Schedule 13E-3. The
HWG analysis included herewith as Exhibit 17(b), as well as each of the Gruy
Report and the Fairness Opinion, are available for inspection at the principal
executive offices of Middle Bay and Enex during their regular business hours by
any interested Unitholder of the Partnership or his or her representative who
has been so designated in writing.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
(a) The information set forth in the Prospectus under the caption
"Business of the Partnership - Number of Equity Security Holders" is
incorporated herein by reference. None of the executive officers or directors of
Middle Bay or the General Partner owns any interests in the Partnership.
(b) No transaction in the securities of the Partnership has taken place
in the last 60 days by any executive officers or directors of the General
Partner or Middle Bay or by the Partnership.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES
Middle Bay is the parent of the General Partner. No contract,
arrangement, understanding or relationship exists between Middle Bay or its
executive officers or directors or Enex or its executive officers or directors
and any person in connection with the Exchange Offer with respect to the
securities of the Partnership.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION
The General Partner owns 56.24% of the outstanding Units of the
Partnership and will vote such Units in favor of adoption of the Proposal. The
information set forth under the captions "Reasons for the Exchange Offer -
Recommendation of the General Partner" and "Approval of the Board of Directors
of Middle Bay; Reasons for the Approval" is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
(a) The information set forth in the Prospectus under the caption "The
Exchange Offer and Proposal - Limited Appraisal and Dissenters' Rights" is
incorporated herein by reference.
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(b) The information set forth in the Prospectus under the captions
"Reasons for the Exchange Offer - Access to Investor Lists" and "Risk Factors
and Material Considerations - Lack of Independent Representative; Fairness
Opinion" is incorporated herein by reference.
(c) The Transaction does not involve the exchange of any debt
securities.
ITEM 14. FINANCIAL INFORMATION
(a) The financial information required by this Item is incorporated
herein by reference to the Prospectus under the captions "Selected Financial
Data - Partnership" and "Index to Financial Statements -Enex Consolidated
Partners, L.P."
(b) Because approval of the Proposal by limited partners will result in
dissolution of the Partnership, pro forma data on the effect of the Transaction
on the Partnership would not be meaningful or material.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) Certain directors, officers and employees of the General Partner
and/or Middle Bay, not especially employed for this purpose, may solicit limited
partners relating to the Proposal, without additional remuneration therefor, by
mail, telephone, telegraph or personal interview. The estimated costs to be
incurred by the Partnership in connection with the proposed dissolution and
liquidation are described in the response to Item 6(b) above. The information
set forth in the Prospectus under the caption "Consent Procedures Solicitation
of Letters of Transmittal" is incorporated herein by reference.
(b) No person, other than those described in the response to Item
15(a), has been or will be retained or compensated to make solicitations or
recommendations in connection with the Proposal.
ITEM 16. ADDITIONAL INFORMATION
No additional material information is necessary to make the required
statements, in light of the circumstances under which they are made, not
materially misleading.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS
(a) There is no loan agreement of the type referred to in Item 6 of
this Schedule.
(b) The fair market value opinion and the reserve reports of H.J. Gruy
and Associates, Inc. are incorporated herein by reference to Exhibit A to the
Prospectus. The Fairness Opinion of Harris Webb & Garrison, Inc. is incorporated
by reference to Exhibit D to the Prospectus. The Fair Market Value Report by
H.J. Gruy and Associates in connection with the April 7, 1997 Enex Consolidated
Partners, L.P. limited partnership roll-up is incorporated by reference to
exhibits to Enex Consolidated Partners, L.P. Form S-4 (registration no.
333-09953) effective April 7, 1997. The HWG analysis in support of the Fairness
Opinion is included herewith as (b)(1) to this Schedule 13E-3. The H.J. Gruy and
Associates, Inc. report of estimated proved reserves and future net cash flows
as of January 1, 1998 is included herein as (b)(2).
(c) There are no contracts, arrangements, understandings or
relationships of the type referred to in Item 11 of this Schedule.
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(d) There are no disclosure materials of the type furnished to security
holders in connection with the Transaction pursuant to Rule 13e-3(d).
(e) The dissenters' and appraisal rights and procedures for exercising
such rights as referred to in Item 13(a) of this Schedule are described in the
Prospectus under the caption "The Exchange Offer and Proposal - Limited
Appraisal and Dissenters' Rights" and the Letter of Transmittal attached as
Exhibit C to the Prospectus, each of which is incorporated herein by reference.
The Prospectus and the Letter of Transmittal will be furnished to each
Unitholder in connection with the Exchange Offer and Proposal.
(f) All solicitation of or recommendations to security holders referred
to in Item 15(b) will not be made by or on behalf of the Partnership.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Transaction Statement, as amended by this
Amendment No. 1, is true, complete and correct.
Dated: November 23, 1998
ENEX CONSOLIDATED PARTNERS, L.P.
By: Enex Resources Corporation, as General
Partner of Enex Consolidated Partners, L.P.
/s/ John J. Bassett
By:
John J. Bassett, President
Dated: November 23, 1998
MIDDLE BAY OIL COMPANY, INC.
/s/ John J. Bassett
By:
John J. Bassett, President
Dated: November 23, 1998
ENEX RESOURCES CORPORATION
/s/ John J. Bassett
By:
John J. Bassett, President
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EXHIBIT (b)(1)
M E M O R A N D U M
TO: File
FROM: G. Clyde Buck
Holden W. Burrow
DATE: October 15, 1998
RE: Logic Memo to Support HWG Fairness Opinion to Partnership
Unitholders of Enex Consolidated, L.P. in Connection with the
Issuance of a New Convertible Redeemable Series C Preferred
Stock by Middle Bay Oil Company, Inc. to the Partnership
Unitholders of Enex Consolidated, L.P.
TABLE OF CONTENTS
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PAGE
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A. BACKGROUND OF MIDDLE BAY OIL COMPANY, INC 3
B. BACKGROUND OF ENEX CONSOLIDATED PARTNERS, L.P. 4
C. SUMMARY OF CRITICAL FACTORS TO SUPPORT
HWG'S FAIRNESS OPINION 6
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1
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EXHIBITS
1. H.J. Gruy Reserve Report as of 10/1/98
2. Reserve Calculations based on SEC Case as of 10/1/98
3. Comparable Convertible Preferred Stocks- Energy Related
4. Comparable Convertible Preferred Stocks - Non-Energy Related
5. Comparable Companies - Selected Data for Five Comparable E & P Companies
2
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A. BACKGROUND OF MIDDLE BAY
Middle Bay Oil Company, Inc. ("Middle Bay") is a Houston-based
independent oil and gas company engaged in exploration, development and
production of oil and natural gas in the Gulf Coast and Mid-Continent
regions. Middle Bay was formed through the reorganization of Bay City
Consolidated Partners, Ltd. and was incorporated in Alabama in 1992.
Middle Bay employs 27 people. Middle Bay is in the process of acquiring
all of the limited partnership interests of Enex Consolidated Partners,
L.P. (the Enex Partnership").
Middle Bay has made six acquisitions in the past two years: NPC Energy
Corporation in 1996; Bison Energy Corporation, Shore Oil Company and
Riceville Field in 1997; Enex Resources Corporation and Service
Drilling, LLC. in 1998. In March 1998, Middle Bay acquired 79.2% of
Enex Resources Corporation, which is the General Partner of the Enex
Partnership. Enex Resources Corporation is the owner of 620,097
partnership units or 56.24% of the 1,102,631 total partnership units of
the Enex Partnership.
The principal assets and liabilities of Middle Bay are shown on page 5.
The objective of Middle Bay is to grow through the addition and
exploitation of reserves via acquisitions and a moderate exploration
program. The primary focus will continue to be on long-life oil and
natural gas reserves in the Gulf Coast and mid-continent regions.
Middle Bay uses successful-efforts accounting for its oil and gas
assets, which is a normal and generally accepted method of accounting,
but which usually does not indicate fair market value of underlying oil
and gas assets as accurately as a reserve report.
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B. BACKGROUND OF THE ENEX PARTNERSHIP
The Enex Partnership was formed through the combination of 34 Enex Oil
and Gas Limited Partnerships on June 30, 1997 under the New Jersey
Uniform Limited Partnership Law. The Enex Partnership is based in
Kingwood, Texas and has no regional offices. Enex Resources Corporation
(the "General Partner") manages the Enex Partnership.
The Enex Partnership is engaged in the oil and gas business with a
primary focus of acquiring ownership interests in producing oil and gas
properties. The Enex Partnership currently owns royalty interests,
overriding royalty interests and working interests in producing
properties located primarily in Texas, Oklahoma and Louisiana. The Enex
Partnership has no intentions to participate in exploratory drilling
and usually will not participate in developmental drilling unless it
believes the drilling will enhance the value of its producing
properties. If developmental drilling is conducted, it is financed
through third party borrowings or funds from operations.
A balance sheet as of 6/30/98 for the Enex Partnership is shown on page
5.
4
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MIDDLE BAY BALANCE SHEET
(In 000's)
AS OF 6/30/98
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Current Assets $ 7,642
Non-Current Assets 170
Oil and Gas Properties, Net 60,231
Other Assets 200
Total Assets $68,243
=======
Current Liabilities 7,241
Long Term Debt 26,629
Deferred Taxes 3,709
Other Liabilities 522
Minority Interest in Enex 7,034
Shareholders' Equity 23,109
Total Liabilities and Equity $68,243
=======
</TABLE>
THE ENEX PARTNERSHIP BALANCE SHEET
(In 000's)
AS OF 6/30/98
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Current Assets $ 2,607
Oil and Gas Properties, Net 9,320
Total Assets $11,927
=======
Current Liabilities 603
Limited Partners' Capital Subject To Redemption 11,314
General Partner Capital 11
Total $11,927
=======
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C. SUMMARY OF CRITICAL FACTORS TO SUPPORT HWG'S FAIRNESS OPINION
The following items are noted to create a record of the critical
factors considered in conjunction with (a) our overall knowledge of
fairness and business transactions from a financial point of view and
(b) our business judgment in rendering a fairness opinion to the Enex
Partnership in October 1998. We define "fair market value" as "the
price agreed upon between a willing buyer and a willing seller with
each having full knowledge of all relevant facts and neither being
under any compulsion to act."
In preparing this memo, with the Enex Partnership's approval, we
performed no audit work, did not prepare appraisals of specific Enex
Partnership assets and did not verify the accuracy or completeness of
information furnished to us by the Enex Partnership and Middle Bay.
HWG's engagement to furnish a fairness opinion in connection with the
Exchange is set forth in an engagement letter agreement between HWG and
Middle Bay dated September 17, 1998. The agreement involves a total fee
of $40,000, reimbursement for reasonable out-of-pocket expenses and
indemnification of HWG. HWG has performed financial advisory services
for Middle Bay in recent months for which it was paid an advisory fee
of $20,000 by Middle Bay. As part of their services, HWG performed a
financial evaluation of Middle Bay. As a result of that evaluation, HWG
issued a research report and buy recommendation with respect to the
Middle Bay common stock.
1. Our primary logic for evaluating the fairness of the Proposed Exchange
to the Partnership Unitholders of the Enex Partnership was to:
(a) estimate a reasonable range for the current fair market value
per Unit of 100% of the partnership units of the Enex
Partnership;
(b) estimate a reasonable range for the current fair market value
of the new convertible preferred stock to be issued by Middle
Bay; and
(c) determine that the range of the value for each Unit being
surrendered was reasonably close to or equal to the value of
the new Middle Bay convertible stock being received for each
Unit.
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We estimated a total exchange value range by first estimating a
reasonable range of the fair market value of the total proved reserves
of the Enex Partnership and then adding an estimated 9/30/98 net
working capital of $1.25 million and general intangibles of $0.1
million. Our range of total exchange value was then divided by the
1,102,631 Units which resulted in a value range per Unit of $9.48 -
$11.84 (see calculation table in next paragraph). We then estimated the
fair market value range for each share of Convertible Preferred and
multiplied by the exchange ratio of 2.128 to get a fair market value
range for the preferred stock being exchanged for each Unit ($8.51 -
$10.64).
Finally, we noted that our two ranges of fair market value overlap
between $9.48 and $10.64 per Unit, which appears to be an ample portion
of the two ranges for the Exchange to be fair to the public Unitholders
(i.e., that the value received is reasonably close to or equal to the
value surrendered).
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Value of Reserves $9.1 - 11.7 mil. (A)
Working Capital 1.25
Other Assets 0.1
Total Assets $10.5 - 13.1
Units Outstanding (in mil.) 1.102631
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Range of Value/ Unit $9.48 - 11.84
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Range of Value of Cv. Pfd / Share $4.00 - 5.00 (B)
Number of Shares of Cv. Pfd Per Unit (in mil.) 2.128
-------------
Range of Value of Cv. Pfd / Unit $8.51 - 10.64
-------------
-------------
Range of Overlap $9.48 - 10.64
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</TABLE>
(A) Based primarily upon H.J. Gruy value of $10.4 million (see
page 9 of this memo) and the uncertainty of any one value.
(B) See page 19 of this memo. Our analysis indicates that $4.00 -
$5.00 is a reasonable range of value.
2. Although H.J. Gruy & Associates ("H.J. Gruy") estimated the fair market
value of the Enex reserves at $10.38 million, we noted that H.J. Gruy
also estimated the orderly liquidation value at $8.86 million after
considering that the Enex Partnership would have significant expenses
and fees during an estimated 12-month liquidation period. Gruy is thus
saying that only $8.86 million will be available from the sale of the
reserves to pay Unitholders.
If this is true, the preceding analysis of value given up vs. value
received in the Exchange might be more accurate if we substituted $8.86
million for the $10.38 million used to start the analysis of a range of
"Value of Reserves." The revised calculations would be as follows:
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Value of Reserves $7.8 - 10.0 mil. (A)
Working Capital 1.25
Other Assets 0.1
Total Assets $9.2 - 11.4
Units Outstanding (in mil.) 1.102631
-------------
Range of Value/ Unit $8.29 - 10.29
-------------
Range of Value of Cv. Pfd / Share $4.00 - 5.00 (B)
Number of Shares of Cv. Pfd Per Unit (in mil.) 2.128
-------------
Range of Value of Cv. Pfd / Unit $8.51 - 10.64
-------------
-------------
Range of Overlap $8.51 - 10.29
-------------
</TABLE>
(A) Based primarily upon H.J. Gruy orderly liquidation value of
$8.86 million (see pages 11-12 of this memo) and the
uncertainty of any one value.
(B) See page 20 of this memo. Our analysis indicates that $4.00 -
$5.00 is a reasonable range of value.
As noted, this revised analysis shows that the value given up in the
Exchange is very nearly equal to the value received. We believe this
clearly indicates the fairness of the Exchange.
3. We noted that the number (i.e., 2.128 shares/Unit) of Series C
Convertible Preferred shares offered in exchange for each Unit was
determined by Middle Bay management by dividing a Total Exchange Value
of $10.64 per Unit by the $5.00 liquidation value per share of Series C
Preferred ($10.64 divided by $5.00 is 2.128 shares/Unit). We noted that
the Exchange will cause a taxable event for Unitholders that are not
exempt from federal income tax.
4. In looking at 100% of the Enex Partnership, we began with the 9/23/98
reserve report as of 10/1/98 prepared by H.J. Gruy and the Enex
Partnership unaudited balance sheet for 6/30/98. The 9/23/98 reserve
report indicated a total proved reserve value of $14.1 million for the
Enex Partnership's oil and gas assets, as noted on the following page.
Assumptions included a 10% per annum discount factor plus certain price
and cost escalations.
9
<PAGE> 10
SUMMARY OF RESERVES AS OF OCTOBER 1, 1998 - ESCALATED CASE FOR CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Present Value at 10% of
Oil (Mbls) Gas (MMcf) Net Cash Flows
<S> <C> <C> <C>
Proved Developed Producing 781 6,543 $11,831
Proved Developed Non Producing 17 2,415 2,309
Total Proved 797 8,958 $14,140
Probable 16 692 $ 628
Possible 1 179 $ 312
</TABLE>
The reserve report was based on the following price escalations:
<TABLE>
<CAPTION>
OIL GAS NGLs
YEAR ($/bbl) ($/Mcf) ($/bbl)
---- ------- ------- -------
<S> <C> <C> <C>
1998 $13.00 $2.50 $8.45
% change 7.7% -8.0% 7.7%
1999 14.00 2.30 9.10
% change 7.1% 0.0% 7.1%
2000 15.00 2.30 9.75
% change 2.5% 2.5% 2.5%
2001 15.38 2.36 9.99
</TABLE>
The initial prices were the average NYMEX prices for oil and natural
gas for the years 1998 through 2000 as of 9/23/98. After the year 2000,
oil prices were escalated at 2.5% per year to a maximum price of $35.00
per barrel. After the year 2000, gas prices were escalated at 2.5% per
year to a maximum price of $4.50 per Mcf (and to $22.75 per barrel for
natural gas liquids). Operating expenses were escalated at an annual
rate of 2 - 5% per year until natural gas reached its maximum value.
All future net cash flows were then discounted at 10% per annum.
We noted that the 9/23/98 report was an update of a report prepared as
of 7/1/98. The 7/1/98 report showed a total proved reserve value of
$15.6 million, 10.6% above the $14.1 million value estimated as of
10/1/98.
The 9/23/98 report estimates the fair market value of the proved
reserves to be $10.38 million as of 10/1/98. This is 26% less than the
aforementioned $14.1 million present value of future net cash flows
discounted at 10% per
10
<PAGE> 11
annum. The fair market value of the reserves was then added to an
estimated $1.25 million net working capital and $0.1 million for
general intangibles at 9/30/98, which management of Middle Bay
determined resulted in a Total Exchange Value of $11.73 million (10.38
+ 1.35) or $10.64 per Unit ($11,730,000 / 1,102,631 Units). The $10.64
per Unit represents the exchange value which management of Middle Bay
has proposed. Middle Bay will issue 2.128 shares of the new Series C
Convertible Preferred Stock for each Unit.
We discussed with representatives of H.J. Gruy the methodology employed
in their estimates. H.J. Gruy estimated the fair market value
attributable to proved developed producing reserves by reducing the 10%
percent discounted future net cash flow to reflect the impact of
federal income tax (e.g., by increasing the discount rate by roughly 5
- 10% depending on payback period). The internal rate of return and
payout time were computed for this quantity and compared with those at
which current acquisitions are completed. H.J. Gruy then made further
suitable adjustments to correspond to these two financial indices when
resulted in H.J. Gruy's estimated fair market value. H.J. Gruy divides
properties into three categories: 1) long-life properties (i.e.,
properties with 20 plus years remaining), 2) short-life properties
(i.e., properties with less than 10 years remaining) and 3)
intermediate-life properties (i.e., properties with lives of 10 - 20
years). Based on H.J. Gruy's experience, recent transactions observed
and general reserve knowledge, buyers expect an IRR of 18 - 20% for
long-life properties and a much higher IRR for shorter life properties
(i.e., 25 - 40%). The engineers at H.J. Gruy also believe that a
long-life property should have a payback period of 3 to 6 years and a
short-life property should have a 1 to 2.5 year payback.
The 9/23/98 report also estimates the orderly liquidation value of the
proved reserves to be $8.86 million. This estimate assumes the orderly
liquidation of
11
<PAGE> 12
the partnership assets over a 12 month period. H.J. Gruy assumed that
the Enex Partnership would incur general and administrative expenses of
$1.0 million plus approximately 5% ($0.5 million) for third party
expenses such as broker fees, legal and land fees, printing costs and
miscellaneous expenses. If we then added this orderly liquidation value
of the proved reserves to an estimated $1.25 million of net working
capital and $0.1 million of general intangibles on 9/30/98, we would
get a revised Total Exchange Value of $10.2 million (8.86 + 1.35) or
$9.26 per Unit ($10,211,000 / 1,102,631 Units).
We surmise that H.J. Gruy recognized that (a) the price escalation
assumptions used by H.J. Gruy might be more optimistic than what a
normal willing buyer might have assumed on 9/30/98 (but a buyer
probably would have assumed some price escalation because prices were
considered by many to be temporarily depressed due to a short-term
oversupply of both oil and gas), (b) if prices were escalated, a
discount rate above 10% (e.g., 13%) might be used and (c) a buyer would
normally evaluate PDP (proved developed producing) reserves more
favorably (i.e., as less risky) than other categories of proved
reserves. On the other hand, a buyer might also consider giving some
value to probable and possible reserves, which are not part of proved
reserves.
In discussions with oil and gas executives currently considering
acquisitions somewhat comparable to the Enex Partnership's primary
assets, we were told that a reasonable fair market value reserve
calculation by a buyer might assume either:
(a) flat current prices and costs plus a 10% discount factor ("SEC
Case"), or
(b) current prices and costs escalating at 3 - 5% per year plus a
10 - 15% discount factor, plus
12
<PAGE> 13
(c) a 30 - 50% "haircut" for proved non-producing proved reserves,
such as proved behind pipe ("PDNP" or "PDBP") and proved
undeveloped ("PUD").
It was also suggested to us that the value of PDNP reserves would be
"haircut" by a buyer by roughly 20% in average or normal circumstances
and that PUD reserves would be haircut 35 - 75%, depending on the
quality of such undeveloped reserves and the likelihood that they would
be developed at current prices for oil and gas.
5. We were also provided an SEC Case reserve calculation prepared by
management of Middle Bay as of 10/01/98 using flat current prices and
costs and a 10% discount factor. We believe this SEC Case approximates
a case with current prices and costs escalating at 3% per year a 13%
discount factor (13% less 3% equals 10%). In the table below, Case A
assumes flat prices and costs at a 10% discount rate. Case B has the
same assumptions except we have applied a 50% haircut to Proved
Developed Non-Producing reserves.
ESTIMATED VALUES - SEC CASE RESERVE VALUES
(In thousands except per unit amounts)
<TABLE>
<CAPTION>
CASE A CASE B
<S> <C> <C>
Net Working Capital (1) $ 1,250 $ 1,250
General Intangibles (2) 100 100
Market Value of Estimated Reserves (AS OF 10/1/98):
Proved Developed Producing 9,658 9,658
Proved Developed Non-Producing 1,736 868
Total Assets 12,694 11,876
Long Term Debt 0 0
Estimated Partnership Value at 10/1/98 $12,694 $11,876
Total Partnership Units 1,103 1,103
Estimated Partnership Value Per Unit $ 11.51 $ 10.77
</TABLE>
(1) Estimated Net Book Value of Current Assets and Liabilities as of 9/30/98.
(2) Estimated as of 9/30/98.
13
<PAGE> 14
Assumptions
Case A: Based on SEC Case (PV 10% and Flat Prices).
Case B: Based on SEC Case (PV 10% and Flat Prices) with a 50% haircut
for PDNP.
6. Cash Yield Comparison
We compared projected cash dividends of $0.50 per share per year to
holders of the new Series C Preferred Stock to related cash
distributions on Units, which are expected to be $1.33 per Unit in
1999, $1.07 per Unit in the year 2000, and $0.81 in the year 2001.
Middle Bay estimates that the remaining economic life of the Enex
Partnership is six years based upon projected production volumes and
cash flows from the Gruy reserve report.
The preferred stockholders will receive a semi-annual dividend of $0.25
per share. Annual dividends of $0.50 per share would be 10% of the
$5.00 face value per share. These annual cash dividends of $0.50 thus
would be $1.06 for the 2.128 preferred shares exchanged for each Unit
and would thus be 1% below an average expected cash distribution per
Unit of $1.07 for 1999 - 2001.
The 1% difference is insignificant and helps show that the "value
received" is fairly close to the "value surrendered" by each
Unitholder.
7. We reviewed historical cash distributions for the Enex Partnership's
limited partners, which from 1996 to 1998 were:
<TABLE>
<CAPTION>
YEAR CASH DISTRIBUTIONS PER UNIT
<S> <C> <C>
1996 $2,464,947 $ 2.24
1997 (a) 2,329,517 2.11
1997 (b) 2,264,438 2.05
1998 (c) 2,063,169 1.87
</TABLE>
14
<PAGE> 15
Distributions paid through 6/30/97.
Distributions paid from 7/1/97 to 12/31/97.
Distributions paid through 6/30/98.
8. Comparable Recent Transactions
We reviewed certain recent transactions, but none were comparable
enough to the Exchange to make our analysis of such transactions more
important than our "value received" vs. "value surrendered" analysis in
Items 1 and 2 of this logic memo.
Triton Transaction
On 8/31/98, Hicks, Muse, Tate & Furst, Inc. reached a definitive
agreement under which an investment affiliate of Hicks Muse will
initially invest approximately $130 million to acquire convertible
preferred shares representing approximately 17% of Triton Energy's pro
forma shares outstanding. The preferred shares will be convertible into
ordinary shares at $17.50 per share and have an 8% dividend yield.
Triton's stock price was $14.50 when the deal was negotiated and was
$11.44 on 8/31/98. We note that this recent convertible preferred
transaction is an example of two sophisticated unrelated parties
negotiating a fair market deal. The 8% dividend is less than Middle
Bay's proposed 10% and a significant indication that Middle Bay's
proposal is fair even though Triton Energy is much larger than Middle
Bay.
Triton Energy Limited (NYSE: OIL) is an international oil and gas
partnership with approximately a $300 million market capitalization.
The company explores and produces through affiliates and subsidiaries.
Triton's properties are located in Columbia, Malaysia, Thailand,
Africa, Asia, Middle East and Europe.
15
<PAGE> 16
Hicks, Muse, Tate & Furst, Inc. is a Dallas based leveraged buyout
firm. Formed in 1989, the firm has completed or currently has pending
more than 230 transactions with a total capital value in excess of $30
billion.
Coho Transaction
On 8/24/98, an affiliate of Hicks, Muse, Tate & Furst, Inc. announced
its intent to acquire 41.7 million newly issued shares of Coho Energy
(NASDAQ: COHO) at $6.00 per share in exchange for 62% ownership. The
$6.00 per share price represents a 28% premium over the 8/23/98 closing
price of $4.69. The proceeds will be used to retire long-term debt and
general working capital purposes. At $6.00 per share, the implied
enterprise value for Coho Energy is $403 million. At 12/31/97, Coho
Energy had 718 BCFE in proved reserves and an SEC PV 10% value of $526
million. Given a $403 million enterprise value, the transaction was
priced at $0.56 per Mcfe, 76% of the 12/31/97 SEC PV 10% value and 9.4
times the trailing twelve month earnings before interest taxes
depreciation and exploration costs ending 6/30/98.
Coho Energy is a publicly-traded exploration and production company
operating primarily in Louisiana and Mississippi.
Costilla Transaction
Enron Capital & Trade Resources Corp., an affiliate of Enron Corp.
(NYSE: ENE) completed its purchase of 50,000 shares of a new series of
cumulative convertible preferred stock at $1,000/share on 6/3/98 of
Costilla Energy, Inc. (NASDAQ: COSE). The dividend rate is 7% for
dividends paid in cash and 8% for dividends paid in shares of common
stock. The convertible preferred stock converts at $12.39 per common
share which is initially equivalent to 80.71 shares of common stock for
each share of
16
<PAGE> 17
preferred stock. At closing on 6/3/98, the conversion premium was
15.3%. As of 10/06/98, the conversion premium had increased to 77%
($12.39/7.00-1). Upon conversion, Enron would own 28.8% of the common
stock of Costilla Energy. At 12/31/97, Costilla Energy had proved
reserves of 241.8 BCFE and an SEC PV 10% value of $196.7 million.
Assuming the conversion valuation of $173.6 (50/0.288) plus the 3/31/98
debt of $195.6 million less 50 million of cash, Costilla had an
enterprise value of $319.2 million. This valuation implies a
transaction multiple of 162% of SEC PV 10% and $1.32 per Mcfe.
Costilla Energy is an independent energy company with an approximately
$70 million market capitalization. It is engaged in the exploration,
development and acquisition of oil and gas properties, primarily in
Texas, New Mexico and the Rocky Mountains region. Pioneer Natural
Resources conducts oil and gas drilling and production operations in
Texas, Kansas, Oklahoma, Louisiana, New Mexico and the Gulf of Mexico.
Enron is engaged in the exploration, production and transportation of
natural gas and crude oil; the generation and transmission of
electricity; and the development and operation of power plants,
pipelines and other energy related assets. Enron has a market
capitalization of approximately $17 billion.
Brigham Exploration Transaction
On 8/25/98, Enron purchased $50 million of debt and equity securities
from Brigham Exploration Company (NASDAQ:BEXP). The Enron financing
transaction includes (i) the sale of $40 million of senior subordinated
notes due 2003, (ii) the issuance of warrants to purchase 1,000,000
shares of BEXP common stock at $10.45 per share and (iii) the sale of
1,052,632 shares of BEXP common stock at a price of $9.50 per share (a
33%
17
<PAGE> 18
premium over the 8/25/98 closing price of $7.13). The subordinated
notes have a 12% interest rate. On 8/25/98, the warrants were priced at
a 47% premium over the closing stock price. The 1,000,000 warrants
represent 7% of Brigham Exploration on a fully diluted basis.
We noted that the 12% rate on the subordinated notes was higher than
the 10% rate on Middle Bay's preferred stock, but the notes were not
convertible and the warrants were only for $10.0 million of common
stock, which is 20% of the $50.0 million face value of the notes.
Brigham Exploration has a $75 million market capitalization and is an
independent exploration and production company that applies 3-D seismic
imaging and other technologies to explore and develop onshore domestic
natural gas and oil provinces.
H S Resources Transaction
On 9/1/98, Universal Resources, Corp., a division of Questar (NYSE:
STR) acquired certain oil and gas properties from H S Resources (NYSE:
HSE). Universal Resources, Corp. paid $155 million for 150 Bcfe of
reserves located in the mid-continent, primarily the Arkoma and
Anadarko Basins. The properties were 80% of gas and 90% of the proved
reserves were currently producing. The transaction value implies a
price of $1.03 per Mcfe of proved reserves. Additionally, included in
the acquisition was 50 BCFE of probable and possible reserves.
Questar has a $1.5 billion market capitalization and is engaged in
energy development and production; gas gathering and processing;
wholesale gas, electricity and hydro-carbon liquids trading; retail
energy services; interstate gas transmission and storage; and retail
gas distribution. H S Resources has a $200 million market
capitalization and is an energy
18
<PAGE> 19
company engaged in the development, acquisition, exploration,
production and marketing of oil and natural gas in the Rocky Mountains,
Mid-Continent and Gulf Coast regions.
Arch Petroleum Transaction
Pogo Producing (NYSE: PPP) completed its acquisition of Arch Petroleum
on 8/17/98. The total consideration was $114 million of which $66.5
million was stock and $47.5 million was assumed debt. Arch Petroleum
had a 12/31/97 SEC PV 10% value of $68.7 million. The total proved
reserves at 12/31/97 were 110.2 Bcfe (68% gas). Of the proved reserves,
over 90% were proved developed producing. Given the enterprise value of
$114 million, Pogo Producing paid $1.03 per Mcfe, 166% of 12/31/97 SEC
PV 10% value and 8.0 times the trailing twelve months earnings before
interest, taxes, depreciation, amortization and exploration costs
ending 3/30/98.
9. In looking at other somewhat comparable transactions, we also noted
that a John S. Herold report for the second quarter of 1998 stated that
16 mergers and acquisitions involving domestic oil and gas reserves
were completed with an implied reserve value of $0.87 per mcfe and a
61% gas mix. Seven deals were completed in the Mid-Continent region
with an implied average reserve value of $0.83 per mcfe of proved
reserves and a 48% gas mix. Three deals were completed in the Gulf
Coast - Onshore region with an implied average reserve value of $1.21
per mcfe of proved reserves and a 66% gas mix. The Enex Partnership's
properties, which are considered to be in both regions, as of 10/01/98
had a PV 10% value of $1.03 per mcfe ($14,140,000 / 13,740,000) and a
65% gas mix. The 9/23/98 reserve report estimated a fair market value
for the Enex Partnership's reserves of $0.76 per mcfe ($10,380,000 /
13,740,000).
If we applied a $0.87 per mcfe value to the Enex Partnership's proved
19
<PAGE> 20
reserves of 13,740,000 mcfe, the result would be a reserve value of
$12.8 million. This calculation is a further indication that the
aforementioned reserve values estimates for the Enex Partnership were
reasonable.
10. Comparable Preferred Stocks
We looked at six convertible preferred stocks in the energy sector and
noted the following: The average yield for the six stocks as of 9/30/98
was 8%, with a high of 12% and a low of 3%. The average conversion
premium as of 9/30/98 was 51%, with a high of 166% and a low of -63%.
We also looked at 16 convertible preferred stocks from other industries
and noted the following: The average yield for the 16 stocks as of
9/30/98 was 10%, with a high of 16% and a low of 6%. The average
conversion premium as of 9/30/98 was 148%, with a high of 543% and a
low of -92%. (See also Exhibits 3 and 4)
The proposed 10% yield and the anticipated conversion premium of 42 -
66% appear to be fair to the public Unitholders when compared to these
publicly traded convertible preferred stocks. We would not expect an
active trading market for the new Middle Bay Preferred to develop, but
we nevertheless estimate that its fair market value would be in a range
of $4.00 - $5.00 per share, which would involve a current yield of 10.0
- 12.5% based upon a dividend of $0.50 per year.
11. We noted that the adoption of the Proposal requires the consent of
investors of the Enex Partnership holding 60% or greater of the Enex
Partnership Units. The General Partner (which is a 79.2% majority-owned
subsidiary of Middle Bay) owns 620,097 Units comprising 56.24% of the
1,102,631 total Partnership Units. Thus, it is highly likely that the
Exchange will be
20
<PAGE> 21
approved.
12. Each Unitholder does not have the option to decline the Exchange offer
and to continue to hold Units. 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 Series C Preferred based
on the liquidation value of the Enex Partnership's assets determined in
accordance with the Gruy Report, as adjusted in accordance with the
Partnership agreement. We understand from Middle Bay management that
this cash value will be approximately $9.17 per Unit.
13. We noted the following risks regarding the Proposal and regarding
ownership of Middle Bay equity securities, as set forth in the Exchange
offer document:
Risks Regarding the Proposal
- Unitholders have received cash distributions from the Enex
partnership based on distributable cash generated from the
partnership's operations. After the Exchange, distributions to
former exchange, distributions to former Unitholders will be
in the form of cash dividends on the Series C Preferred
(approximately 10% per annum on the exchange value, payable
semi-annually).
- The exchange value of the partnership Units determined by
Middle Bay management 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.
21
<PAGE> 22
- Middle Bay, as controlling shareholder of the general partner,
may have a conflict of interest in the determination of the
exchange value.
- Determination of the exchange value by Middle Bay management
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.
- There is no assurance that the alternatives of continuing the
partnership or liquidating its assets would not be more
beneficial to Unitholders than the exchange offer.
- Investors that are not exempt from federal income tax on an
investment in the partnership are required to recognize gain
or loss on the exchange value received by them.
- 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;
however, Middle Bay obtained an opinion as to the fairness of
the transaction to the Unitholders from us.
Risks Regarding Ownership of Middle Bay Equity Securities
- Ownership of Middle Bay Series C Preferred may involve greater
risk than an investment in the Enex Partnership Units because
of Middle Bay's broader operations and its use of debt to
partially finance acquisitions.
- Future equity offerings by Middle Bay could potentially be
dilutive to the value of the Middle Bay common stock into
which the Series C Preferred is convertible.
22
<PAGE> 23
- Middle Bay, as controlling shareholder of the general partner,
may have conflicts of interest in determining the terms of and
recommending acceptance of the proposal.
14. Uncertainty of Oil and Gas Prices
The price of natural gas in the Enex Partnership's area of operations
has ranged from $1.65 per Mcf to $2.63 per Mcf during the past six
months, according to Bloomberg's Mid-Continent Reported average. From a
mid-point value of $2.14 per Mcf, the price of natural gas has thus
fluctuated plus or minus roughly 23% during the past six months.
The price of oil in the Enex Partnership's area of operations has
ranged from $11.61 per Bbl to $16.23 per Bbl during the past six
months, according to Bloomberg's Mid-Continent Reported average. From a
mid-point value of $13.92 per Bbl, the price of oil has thus fluctuated
plus or minus roughly 17% during the past six months.
We noted that the Enex Partnership's revenues, operating results and
future rate of growth are highly dependent upon the prices received for
the Enex Partnership's natural gas and oil. Historically, the markets
for natural gas and oil have been volatile and are likely to continue
to be volatile in the future. Various factors beyond the control of the
Enex Partnership will affect sales prices of its natural gas and oil,
including worldwide and domestic supplies of natural gas and oil, the
ability of the members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls,
political instability or armed conflict in oil-producing regions, the
price and level of foreign imports, the level of consumer demand, the
price and availability of alternative fuels, the availability of
pipeline capacity, the availability and cost of drilling rigs, weather
conditions, domestic and foreign governmental regulations and taxes,
and the overall economic environment. It is impossible to predict
future natural gas and oil price movements with certainty. Declines in
23
<PAGE> 24
natural gas and oil prices may materially adversely affect the Enex
Partnership's business, financial condition and results of operations.
Lower natural gas and oil prices also may reduce the amount of natural
gas and oil that the Enex Partnership can produce economically. Any
significant decline in the price of oil or natural gas would adversely
affect the Enex Partnership's revenues and operating income and may
require a reduction in the carrying value of the Enex Partnership's
natural gas and oil properties. Any volatility in the value of the Enex
Partnership creates comparable volatility in Middle Bay.
15. Uncertainty of Oil and Gas Reserve Values
Considering this volatility and our overall knowledge of the inherent
uncertainties in (a) estimating future oil and gas production, and (b)
in valuing oil and gas assets, we believe that an estimated fair market
value for the Enex Partnership is only accurate within a range of plus
or minus roughly 15%. Therefore, the fair market value per Unit of the
Enex Partnership might reasonably range from roughly $9.04 to $12.22
based upon an Exchange Value of $10.64 per Unit.
24
<PAGE> 25
16. Middle Bay's common shares are publicly traded on the Nasdaq Exchange
under the symbol "MBOC" and have traded near $3.00 - $3.50 per share
recently (See chart below.) The average closing price for MBOC in the
past 30, 60, 90 and 120 days has generally been between $3.50 and
$5.50.
MBOC DAILY PRICE AND VOLUME
[GRAPH]
Historical prices provided by CSI, Inc.
Middle Bay Oil Company, Inc. (MBOC)
Daily prices (3/30/98 to 9/30/98)
<TABLE>
<CAPTION>
DATE VOLUME HIGH LOW CLOSE
<S> <C> <C> <C> <C>
9/30/98 1,900 3.44 3.38 3.44
9/29/98 - 3.44 3.44 3.44
9/28/98 3,300 3.50 3.44 3.44
9/25/98 1,500 3.50 3.50 3.50
9/24/98 14,000 3.88 3.63 3.69
9/23/98 5,000 3.88 3.69 3.69
9/22/98 2,000 3.63 3.63 3.63
9/21/98 1,500 3.63 3.50 3.63
9/18/98 7,000 3.69 3.63 3.63
9/17/98 100 3.50 3.50 3.50
9/16/98 3,500 3.75 3.63 3.75
9/15/98 - 3.63 3.63 3.63
9/14/98 1,000 3.63 3.63 3.63
9/11/98 4,000 3.63 3.50 3.63
9/10/98 - 3.13 3.13 3.13
9/9/98 - 3.13 3.13 3.13
9/8/98 2,000 3.13 3.13 3.13
9/7/98
9/4/98 700 3.38 3.13 3.38
9/3/98 1,000 3.38 3.38 3.38
9/2/98 100 3.38 3.38 3.38
9/1/98 1,500 3.38 3.38 3.38
8/31/98 - 3.00 3.00 3.00
8/28/98 3,500 3.50 3.00 3.00
8/27/98 - 3.75 3.75 3.75
8/26/98 - 3.75 3.75 3.75
8/25/98 - 3.75 3.75 3.75
8/24/98 4,000 3.75 3.75 3.75
8/21/98 21,300 3.75 3.75 3.75
8/20/98 2,400 4.38 3.75 3.88
8/19/98 200 4.00 4.00 4.00
8/18/98 4,300 4.38 4.13 4.13
8/17/98 17,900 4.75 4.00 4.25
8/14/98 5,400 4.00 3.88 3.88
8/13/98 40,300 4.00 3.88 4.00
8/12/98 15,700 4.00 3.88 3.88
8/11/98 500 3.94 3.94 3.94
8/10/98 5,000 3.94 3.88 3.94
8/7/98 71,000 4.13 3.94 4.00
8/6/98 - 4.13 4.13 4.13
8/5/98 27,300 4.50 3.63 4.13
8/4/98 500 5.00 5.00 5.00
8/3/98 - 5.13 5.13 5.13
7/31/98 1,700 5.13 5.13 5.13
7/30/98 2,500 5.13 5.00 5.13
7/29/98 - 4.75 4.75 4.75
7/28/98 500 4.75 4.75 4.75
7/27/98 - 4.63 4.63 4.63
7/24/98 1,900 4.63 4.63 4.63
7/23/98 7,300 5.00 4.88 4.88
7/22/98 - 4.88 4.88 4.88
7/21/98 3,400 4.88 4.88 4.88
7/20/98 - 4.88 4.88 4.88
7/17/98 - 4.88 4.88 4.88
7/16/98 - 4.88 4.88 4.88
7/15/98 2,000 4.88 4.88 4.88
7/14/98 900 4.88 4.88 4.88
7/13/98 1,200 4.88 4.88 4.88
7/10/98 - 5.00 5.00 5.00
7/9/98 - 5.00 5.00 5.00
7/8/98 1,200 5.00 5.00 5.00
7/7/98 1,700 4.94 4.94 4.94
7/6/98 - 5.00 5.00 5.00
7/3/98
7/2/98 1,000 5.00 5.00 5.00
7/1/98 500 5.00 5.00 5.00
6/30/98 1,500 5.25 5.13 5.13
6/29/98 100 5.25 5.25 5.25
6/26/98 1,200 5.25 5.25 5.25
6/25/98 200 5.25 5.25 5.25
6/24/98 - 5.69 5.69 5.69
6/23/98 14,000 6.00 5.36 5.69
6/22/98 5,400 6.00 5.75 6.00
6/19/98 - 5.88 5.88 5.88
6/18/98 - 5.88 5.88 5.88
6/17/98 1,600 6.00 5.88 5.88
6/16/98 - 6.38 6.38 6.38
6/15/98 - 6.38 6.38 6.38
6/12/98 3,000 6.50 6.38 6.38
6/11/98 200 6.63 6.63 6.63
6/10/98 3,500 7.00 6.75 7.00
6/9/98 300 7.00 7.00 7.00
6/8/98 2,300 7.13 7.00 7.13
6/5/98 - 7.63 7.63 7.63
6/4/98 - 7.63 7.63 7.63
6/3/98 - 7.63 7.63 7.63
6/2/98 - 7.63 7.63 7.63
6/1/98 2,100 7.63 7.13 7.63
5/29/98 - 7.50 7.50 7.50
5/28/98 - 7.50 7.50 7.50
5/27/98 - 7.50 7.50 7.50
5/26/98 - 7.50 7.50 7.50
5/25/98
5/22/98 500 7.50 7.50 7.50
5/21/98 2,500 7.63 7.25 7.38
5/20/98 500 7.25 7.25 7.25
5/19/98 - 7.38 7.38 7.38
5/18/98 - 7.38 7.38 7.38
5/15/98 200 7.38 7.38 7.38
5/14/98 1,200 7.75 7.75 7.75
5/13/98 100 7.75 7.75 7.75
5/12/98 2,300 7.75 7.38 7.75
5/11/98 100 7.50 7.50 7.50
5/8/98 3,700 7.75 7.38 7.75
5/7/98 5,600 7.88 7.63 7.88
5/6/98 - 7.88 7.88 7.88
5/5/98 - 7.88 7.88 7.88
5/4/98 - 7.88 7.88 7.88
5/1/98 - 7.88 7.88 7.88
4/30/98 3,500 7.88 7.75 7.88
4/29/98 400 7.75 7.75 7.75
4/28/98 - 8.00 8.00 8.00
4/27/98 500 8.00 8.00 8.00
4/24/98 500 7.75 7.75 7.75
4/23/98 9,000 8.00 7.75 8.00
4/22/98 - 7.63 7.63 7.63
4/21/98 100 7.63 7.63 7.63
4/20/98 100 7.63 7.63 7.63
4/17/98 - 7.63 7.63 7.63
4/16/98 - 7.63 7.63 7.63
4/15/98 - 7.63 7.63 7.63
4/14/98 - 7.63 7.63 7.63
4/13/98 - 7.63 7.63 7.63
4/10/98
4/9/98 500 7.63 7.63 7.63
4/8/98 400 7.63 7.63 7.63
4/7/98 400 7.63 7.63 7.63
4/6/98 - 8.00 8.00 8.00
4/3/98 - 8.00 8.00 8.00
4/2/98 700 8.00 8.00 8.00
4/1/98 200 7.50 7.50 7.50
3/31/98 15,600 8.25 7.75 7.75
3/30/98 1,300 8.00 7.50 7.50
</TABLE>
<TABLE>
<CAPTION>
9/30/98 7 days 30 days 60 days 90 days 120 days
Price Volume Price Volume Price Volume Price Volume Price Volume Price Volume
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3.44 1,900 3.55 3,957 3.51 2,803 4.05 4,929 4.77 3,757 5.49 3,089
</TABLE>
As the table below indicates and because Middle Bay's stock is
thinly-traded, not widely held by institutional investors and not
widely followed by research analysts, we consider the Middle Bay market
price to be somewhat inefficient.
<TABLE>
<CAPTION>
AVERAGE DAILY AVERAGE DAILY
STOCK PRICE VOLUME (SHARES)
<S> <C> <C>
9/30/98 $3.44 1,900
Prior 7 days of trading 3.55 3,957
Prior 30 days of trading 3.51 2,803
Prior 60 days of trading 4.05 4,929
Prior 90 days of trading 4.77 3,757
Prior 120 days of trading 5.49 3,089
</TABLE>
25
<PAGE> 26
17. We discussed with management of the Enex Partnership whether any
material changes in the affairs and values of the Enex Partnership had
taken place since 6/30/98, and management of the Enex Partnership
confirmed that no material changes had occurred.
18. Other reasons for the Exchange being fair and in the best interest of
the Enex Partnership's Unitholders included the following:
(a) the greater number and diversity of properties of Middle Bay
resulting from the Exchange;
(b) the predictable income stream of the Series C Preferred Stock;
(c) the priority of the liquidation preference of the Series C
Preferred Stock
26
<PAGE> 27
with respect to the Middle Bay common stock;
(d) the potential capital appreciation of the Middle Bay common
stock underlying the Series C Preferred Stock;
(e) the possibility for a more liquid security through a potential
thin trading market for the Series C Preferred Stock (there is
no market for the Units).
19. We discussed the nature of the Enex Partnership's reserves with the
Company's outside engineer, H.J. Gruy & Associates. We noted the
following comments from the author of the H.J. Gruy report concerning
the risk and quality of the reserves:
a) He said there is a very low risk level for the estimated
future production of proved developed producing reserves.
b) The value is concentrated in proved producing properties,
which have been producing for over 10 years.
c) The production lives of most of these properties are
short-lived.
d) The properties might not be very attractive to many potential
buyers because they are so short-lived and because they are
small interests in hundreds of wells in a wide range of
locations.
e) Neither Middle Bay nor the Enex Partnership is the operator of
the vast majority of the properties (buyers prefer to purchase
properties where the buyer will become the operator).
20. Comparable Company Analysis
Based on publicly available information, we compared multiples of
certain financial criteria (based on 9/30/98 market prices) for
somewhat comparable companies to the Enex Partnership, as shown in
Exhibit 5. We reviewed five somewhat comparable public exploration and
production companies and noted the three key ratios shown on the
summary page of Exhibit 5. None of this analysis, however, was nearly
as important as the H.J. Gruy reserve report in estimating the fair
market
27
<PAGE> 28
value of the Enex Partnership.
As shown in the table below, normal ratio ranges for these comparable
public companies indicate an overall range of implied values for 100%
of the Enex Partnership's total capitalization from a low of $8.3
million to a high of $22.5 million. We narrowed the range by focusing
on the mean range of implied values for 100% of the Enex Partnership's
total capitalization of $11.6 - $16.3 million (the mean values, as
shown in Exhibit 5, were a) Market Value of Capitalization / EBITDX,
$16.3 million; b) Market Value of Capitalization / Pre Tax SEC PV 10%,
$16.1 million and c) Market Value of Capitalization per Mcfe, $11.6
million). After deducting $0.0 million of debt in the Enex Partnership,
the mean range of implied value for 100% of the Enex Partnership's
equity was $11.6 - $16.3 million or $10.54 - $14.78 per Unit.
Key Normal Comparable Company Ratios
<TABLE>
<CAPTION>
High Low Average
---- --- -------
<S> <C> <C> <C>
Market Value of Capitalization to:
Pre Tax SEC PV 10% 130% 86% 111%
Market Value of Capitalization to EBITDX 8.8x 4.1x 6.4x
Market Value per MCFE $1.06 $0.60 $0.85
</TABLE>
Note: data points deemed to be outside of a reasonable range have been
excluded
The normal ratio ranges for these comparable public companies indicate
an overall range of implied values for 100% of Middle Bay's total
capitalization from a low of $22.3 million to a high of $79.7 million.
We narrowed the range by focusing on the mean range of implied values
for 100% of Middle Bay's total capitalization of $34.6 - $63.4 million
(the mean values, as shown in Exhibit 5, were a) Market Value of
Capitalization / EBITDX, $34.6 million; b) Market Value of
Capitalization / Pre Tax SEC PV 10%, $49.6 million and c) Market Value
28
<PAGE> 29
of Capitalization per Mcfe, $63.4 million). After deducting $27.5
million of debt in Middle Bay as of 9/30/98, the mean range of implied
value for 100% of Middle Bay's equity was $7.1 - $35.9 million or $0.84
- $4.21 per share.
This range is so wide that it is not particularly useful. We assume
that the recent stock market price for Middle Bay's common stock is a
much better and reasonably accurate indicator of the stock's fair
market value.
21. Our review included audited financial statements of the Enex
Partnership prepared by Deloitte & Touche, L.L.P. The financial
statements were found by the auditor to present fairly, in all material
aspects, the results of operations and cash flows for the company. As
noted at the outset of this memo, we have assumed the accuracy and
completeness of all financial and other information provided to us.
22. In the context of HWG's fairness opinion for the Enex Partnership,
"fair" would seem to be comparable to "reasonable," "just" and
"equitable" as those words apply to a business transaction. These
adjectives imply that the transaction shows little or no evidence of
favoritism, bias, undue pressure or lack of objective, informed
negotiating between the parties involved. "Fair" involves not only what
is legal and ethical, but also what is in the best interest of all
parties involved.
"Fair" is not, however, synonymous with "the best possible," especially
in the context of a merger, acquisition or other financial transaction.
"Fair" recognizes that if ten experts were asked to suggest a "fair
market value" for a normal company, ten different values would probably
result. If each expert was well-informed and unbiased, the entire range
of values might be considered "fair" prices for selling or merging the
Company, but only one value would be the "best."
29
<PAGE> 30
EXHIBIT 1
H.J. GRUY RESERVE REPORT AS OF 10/1/98
<PAGE> 31
[H.J. GRUY AND ASSOCIATES, INC. LETTERHEAD]
September 23, 1998
Middle Bay Oil Company, Inc.
1221 Lamar, Suite 1020
Houston, Texas 77339
ESTIMATED FAIR MARKET VALUE
ENEX CONSOLIDATED PARTNERS, L.P.
98-292-102
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 October 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 October 1, 1998, are summarized by reserve category as follows:
<TABLE>
<CAPTION>
Estimated
Estimated Future Net Cash Flow
Net Reserves (Escalated)
------------------------ -----------------------------
Oil & Discounted
Condensate Gas at 10%
(Barrels) (Mcf) Nondiscounted Per Year
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Proved Developed Producing 780,696 6,543,086 $21,234,520 $11,831,910
Proved Developed Nonproducing 16,520 2,414,782 $ 6,354,743 $ 2,309,049
------- --------- ----------- -----------
TOTAL PROVED 797,216 8,957,868 $27,589,263 $14,140,959
Probable 15,771 691,548 $ 1,261,299 $ 627,724
Possible 1,249 178,500 $ 479,406 $ 311,624
</TABLE>
The estimated fair market value of the partnership is $10,380,000.
<PAGE> 32
Middle Bay Oil Company, Inc. -2- September 23, 1998
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 adjusted
to reflect the impact of federal income tax. 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
reserves are treated similarly except that an additional adjustment is made
for the capital expenditure. For probable and possible reserves, the capital is
added to the discounted net cash flow, then multiplied by a suitable factor to
account for category risk 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 production 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. Base oil, natural gas, and natural gas liquids
prices are shown in Table I. These prices are the average NYMEX prices for oil
and natural gas for the years 1998 through 2000. After the year 2000, prices
are escalated at an annual rate of 2.5 percent until the primary product
reaches its maximum. Oil and condensate prices are adjusted for gravity and
transportation charges and natural gas prices are adjusted for BTU content and
transportation. Operating expenses are escalated at an annual rate of 2.5
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 $8,861,000. 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 $1,000,000 in general and administrative fees and approximately five
percent for third party expenses including broker fees, legal and land fees,
printing costs, and miscellaneous expenses.
For those wells with sufficient production history, reserve estimates and rate
projections are based on the extrapolation of established performance trends.
Reserves for other producing and nonproducing properties have been estimated
from volumetric calculations and analogy with the performance of comparable
wells. The reserves referenced in this study are estimates only and
H.J. GRUY AND ASSOCIATES, INC.
1200 Smith Street, Suite 3040, Houston, Texas 77002 - (713) 739-1000
<PAGE> 33
<TABLE>
<CAPTION>
TABLE 1
ESTIMATED FAIR MARKET VALUE BY ACQUISITION
- -------------------------------------------------------------------------------
DISCOUNTED ESTIMATED
RESERVES TYPE OF CASH FLOW CASH FLOW CAPITAL FMV
ACQUISITION CATEGORY INTEREST ($) ($) ($) ($)
===============================================================================
<S> <C> <C> <C> <C> <C> <C>
Arnold PDP WI 557,064 332,573 0 245,000
PDP ORRI 472,070 271,483 0 210,000
Subtotal 455,000
- -------------------------------------------------------------------------------
Barnes PDP WI 330,264 281,638 0 217,000
PNP WI 576,544 289,916 37,075 165,000
Subtotal 382,000
- -------------------------------------------------------------------------------
Binger PDP WI 0 0 0 0
Subtotal 0
- -------------------------------------------------------------------------------
Charlotte PDP WI 0 0 0 0
Subtotal 0
- -------------------------------------------------------------------------------
Choate PDP WI 43,127 29,264 0 21,000
Subtotal 21,000
- -------------------------------------------------------------------------------
Concord PDP WI 967,419 737,435 0 600,000
PDP ORRI 4,496,919 2,260,436 0 1,763,000
PNP WI 46,175 36,724 76 24,000
Subtotal 2,387,000
- -------------------------------------------------------------------------------
Deal PDP ORRI 212,602 100,083 0 70,000
Subtotal 70,000
- -------------------------------------------------------------------------------
Dent PDP WI 463,654 346,134 0 280,000
PDP ORRI 10,400 8,526 0 6,800
PNP WI 573,641 265,282 23,498 150,000
Subtotal 436,800
- -------------------------------------------------------------------------------
<CAPTION>
TABLE 1
ESTIMATED FAIR MARKET VALUE BY ACQUISITION
- -------------------------------------------------------------------------------
PAYOUT
ADJUSTMENT IRR TIME
ACQUISITION FACTOR (%) (YRS) COMMENTS
===============================================================================
<S> <C> <C> <C> <C>
Arnold 0.74 19.7 4.1
0.77 17.5 4.6 Long life (34 yrs)
Subtotal
- -------------------------------------------------------------------------------
Barnes 0.77 31.0 2.1 Short life (8.5 yrs)
0.57 19.4 5.8 Two behind pipe 2003/2007
Subtotal
- -------------------------------------------------------------------------------
Binger -- -- -- No economic production
Subtotal
- -------------------------------------------------------------------------------
Charlotte -- -- -- No economic production
Subtotal
- -------------------------------------------------------------------------------
Choate 0.72 22.0 3.8 Life = 14 yrs
Subtotal
- -------------------------------------------------------------------------------
Concord 0.81 21.1 3.0
0.78 16.5 4.9 Long life reserves
0.65 32.1 2.3 Short life (7.7 yrs)
Subtotal
- -------------------------------------------------------------------------------
Deal 0.70 18.3 5.1 Long life reserves
Subtotal
- -------------------------------------------------------------------------------
Dent 0.81 20.6 3.3
0.80 24.2 2.9 Short life (5.9 yrs)
0.57 23.1 3.8
Subtotal
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
TABLE I
ESTIMATED FAIR MARKET VALUE BY ACQUISITION
- ------------------------------------------------------------------------------------------------------------------------------------
ACQUISITION RESERVES TYPE OF CASH FLOW DISCOUNTED CAPITAL ESTIMATED ADJUSTMENT IRR PAYOUT COMMENTS
CATEGORY INTEREST CASH FLOW FMV FACTOR TIME
($) ($) ($) ($) % (YRS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
East Cameron PDP ORRI 54,308 43,699 0 32,000 0.73 29.7 2.4 Short lived production
(7.1 yrs)
PRB ORRI 440,997 326,006 0 124,000 0.38 66.2 1.9 Short lived production
(8.8 yrs)
Subtotal 156,000
- ------------------------------------------------------------------------------------------------------------------------------------
Esperance PDP ORRI 4,100 3,900 0 0 - - -
Subtotal 0
- ------------------------------------------------------------------------------------------------------------------------------------
FEC PDP WI 476,427 347,507 0 260,000 0.75 22.8 3.4
PNP WI 1,076,029 383,758 26,824 110,000 0.29 27.7 5.1 Multiple behind pipe
reserves
Subtotal 370,000
- ------------------------------------------------------------------------------------------------------------------------------------
HNG PDP ORRI 3,244,389 1,817,921 0 1,418,000 0.78 16.8 4.9
Subtotal 1,418,000
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Cocodrie PDP WI 64,069 52,134 0 36,000 0.69 34.7 2.3 Short lived production
(6-8 yrs)
Subtotal 36,000
- ------------------------------------------------------------------------------------------------------------------------------------
Larto Lake PDP WI 6,774 6,151 0 4,900 0.80 40.0 1.4 Short lived production
(3.0 yrs)
Subtotal 4,900
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan PDP WI 193,086 160,958 0 135,000 0.84 24.2 2.1 Little cash flow after
3.5 yrs
Subtotal 135,000
- ------------------------------------------------------------------------------------------------------------------------------------
Midway PDP WI 1,301,022 660,002 0 475,000 0.72 18.2 5.0 Long life reserves
PNP WI 90,507 5,895 24,956 0 - - -
Subtotal 475,000
- ------------------------------------------------------------------------------------------------------------------------------------
Muldoon PDP WI 1,035,384 626,889 0 460,000 0.73 19.1 4.4
Subtotal 460,000
- ------------------------------------------------------------------------------------------------------------------------------------
Pecan Island PDP ORRI 130,384 110,554 0 87,000 0.79 29.3 2.2 Short lived production
(6.7 yrs)
PNP ORRI 1,083,929 485,928 0 260,000 0.54 20.1 6.3 Three behind pipe
reservoirs
Subtotal 347,000
- ------------------------------------------------------------------------------------------------------------------------------------
RIC PDP WI 325,544 196,825 0 140,000 0.71 20.8 4.0 Long life reserves
Subtotal 140,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 35
TABLE I
ESTIMATED FAIR MARKET VALUE BY ACQUISITION
<TABLE>
<CAPTION>
RESERVES TYPE OF DISCOUNTED ESTIMATED ADJUSTMENT PAYOUT
ACQUISITION CATEGORY INTEREST CASH FLOW CASH FLOW CAPITAL FMV FACTOR IRR TIME COMMENTS
($) ($) ($) ($) (%) (YRS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Second Bayou PDP ORRI 655,465 477,693 0 410,000 0.86 16.4 4.0
PNP 0RRI 1,414,213 283,228 0 50,000 0.18 23.9 10.2 Behind pipe on
production in 2007
PRB ORRI 109,978 5,015 0 0 -- -- -- Production beings
beyond 2012
POS ORRI 479,406 311,624 0 50,000 0.16 >100.0 0.8
Subtotal 510,000
- -----------------------------------------------------------------------------------------------------------------------------------
Seven Sisters,
E PDP ORRI 1,058,522 635,116 0 510,000 0.80 16.1 5.1
PNP ORRI 1,493,702 558,318 0 350,000 0.63 16.8 6.2
Subtotal 860,000
- -----------------------------------------------------------------------------------------------------------------------------------
Shana PDP WI 81,986 71,455 0 53,000 0.74 39.1 1.8 Short life
(4.8 years)
Subtotal 53,000
- -----------------------------------------------------------------------------------------------------------------------------------
Shelf PDP WI 150,544 116,369 0 87,000 0.75 24.8 3.0 Short lived
production
(11 years)
Subtotal 87,000
- -----------------------------------------------------------------------------------------------------------------------------------
Speary PDP WI 239,654 187,693 0 140,000 0.75 26.1 2.9 Short lived
production
(8.9 years)
PRB WI 710,324 296,703 116,991 86,000 0.29 39.8 2.2
Subtotal 226,000
- -----------------------------------------------------------------------------------------------------------------------------------
Wardner Ranch PDP ORRI 4,659,388 1,950,781 0 1,350,000 0.69 17.4 5.6
Subtotal 1,350,000
- -----------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL 10,379,700
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 36
EXHIBIT 2
RESERVE CALCULATIONS BASED ON SEC CASE AS OF 10/1/98
<PAGE> 37
ENEX CONSOLIDATED PARTNERS, L.P.
TOTAL PROVED DATE : 10/01/98
TOTAL ALL ACQUISITIONS TIME : 15:51:19
DBS FILE : MIDDLE
SETUP FILE : MIDDLE
SEQ NUMBER : *****
R E S E R V E S A N D E C O N O M I C S
EFFECTIVE DATE: 10/98
<TABLE>
<CAPTION>
- -END- NUMBER GROSS OIL GROSS GAS NET OIL NET GAS NET OIL NET GAS NET NET
MO-YR GROSS WELLS PRODUCTION PRODUCTION PRODUCTION PRODUCTION PRICE PRICE OIL SALES GAS SALES
- ----- ----------- ----MBBLS--- ----MMCF---- --MBBLS--- ---MMCF--- --$/BBL-- --$/MCF-- ----MS--- ---MS----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12-98 598.1 19640.260 46400.530 33.544 256.432 13.589 2.001 455.818 513.124
12-99 587.5 74548.720 198311.500 118.798 901.852 13.573 2.002 1612.390 1805.321
12-00 568.8 65964.160 189676.500 98.437 801.136 13.564 2.002 1335.220 1604.035
12-01 552.7 59027.870 158595.000 85.797 693.611 13.562 2.004 1163.614 1390.145
12-02 523.4 53495.970 131629.300 73.300 636.896 13.529 1.996 991.664 1271.094
12-03 465.6 47684.860 111401.500 49.691 576.908 13.388 1.988 665.248 1146.819
12-04 411.7 42811.900 96951.890 38.611 609.428 13.365 1.970 515.266 1200.484
12-05 394.1 38894.360 86502.820 30.805 434.908 13.355 2.003 411.414 871.186
12-06 371.8 35138.870 77522.390 25.727 380.953 13.471 2.010 346.571 765.811
12-07 344.0 31782.120 71239.820 23.112 401.529 13.459 1.993 311.067 800.289
12-08 322.8 23203.730 66043.010 17.324 331.480 13.488 2.011 233.670 666.480
12-09 297.5 20123.730 61104.250 14.541 288.584 13.537 2.019 196.836 582.560
12-10 273.3 18501.460 57679.080 12.789 308.588 13.556 2.012 173.372 620.767
12-11 247.7 16926.090 53938.700 11.423 314.464 13.535 2.015 154.601 633.673
12-12 233.0 15587.950 49244.370 10.232 260.606 13.486 2.014 137.992 524.748
$ TOT 403.1 563332.000 1456241.000 644.130 7197.375 13.514 2.000 8704.742 14396.540
AFTER 65.2 134421.700 479040.500 72.061 1668.011 13.525 2.003 974.610 3341.285
TOTAL 185.6 697753.700 1935251.000 716.191 8865.385 13.515 2.001 9679.352 17737.820
</TABLE>
<TABLE>
- -END- TOTAL NET PRODUCTION DIRECT OPER CAPITAL FUTURE NET CUMULATIVE 10.0% CLM
MO-YR NET SALES AD VALOREM TAXES EXPENSE COSTS CASHFLOW CASHFLOW DISC CP
- ----- ---MS---- ----MS---- ----MS---- ----MS----- ---MS-- ----MS---- ----MS---- ---MS----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12-98 983.756 20.084 58.433 242.943 .000 662.297 662.297 654.453
12-99 3473.756 72.564 203.979 850.170 3.008 2314.035 2976.332 2808.912
12-00 2990.537 63.351 175.345 740.444 5.868 2005.529 4981.861 4506.425
12-01 2600.737 54.771 151.050 681.780 .000 1713.137 6654.998 5826.820
12-02 2305.842 47.379 135.235 619.683 8.332 1495.213 8190.210 6870.864
12-03 1851.625 36.808 112.110 411.123 27.250 1264.344 9454.554 7675.535
12-04 1752.110 36.840 110.759 314.890 .000 1289.620 10744.170 8421.141
12-05 1316.056 26.306 79.870 254.531 .000 955.349 11699.520 8923.455
12-06 1143.197 23.266 68.676 215.703 8.130 827.421 12526.940 9319.092
12-07 1139.767 23.395 67.869 175.299 .000 873.204 13400.150 9698.504
12-08 926.369 16.802 54.741 112.570 10.392 731.864 14132.010 9987.627
12-09 798.026 15.196 47.558 87.142 .000 648.130 16780.140 10220.350
12-10 811.641 15.400 49.257 71.323 3.044 672.617 15452.760 10439.870
12-11 804.716 13.351 48.931 59.942 .000 682.492 16135.250 10642.350
12-12 678.187 11.815 41.885 56.423 .000 568.393 16703.640 10795.640
$ TOT 23576.320 477.329 1405.368 4923.956 66.024 16703.640 16703.640 10795.650
AFTER 4459.444 88.514 277.254 442.880 19.346 3631.451 20335.100 11394.100
TOTAL 28035.760 565.842 1682.622 5366.835 85.370 20325.100 20335.100 11394.100
</TABLE>
<TABLE>
<CAPTION>
OIL GAS P.W. % P.W., M$
----------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
GROSS WELLS 583.0 488.0 LIFE, YRS. 40.00 5.00 14568.130
GROSS ULT., MB & MMF 6588552.000 8962843.000 DISCOUNT % 10.00 10.00 11394.330
GROSS CUM., MB & MMF 5890799.000 7027561.000 UNDISCOUNTED PAYOUT, YRS. .00 15.00 9426.452
GROSS RES., MB & MMF 697752.700 1935281.000 DISCOUNTED PAYOUT, YRS. .00 20.00 8095.114
NET RES., MB & MMF 716.191 8865.384 UNDISCOUNTED NET/INVEST. 239.20 25.00 7135.129
NET REVENUE, MS 9679.355 17737.820 DISCOUNTED NET/INVEST. 271.45 30.00 6409.203
INITIAL PRICE, $ 13.914 1.882 RATE-OF-RETURN, PCT. 100.00 40.00 5380.822
INITIAL N.I., PCT. .257 1,029 INITIAL W.I., PCT. .399 60.00 4177.248
80.00 3486.560
100.00 3034.039
</TABLE>
<PAGE> 38
TOTAL PROVED PRODUCING DATE : 10/01/98
TOTAL ALL ACQUISITIONS TIME : 16:51:11
DBS FILE : MIDDLE
SETUP FILE: MIDDLE
SEQ NUMBER: *****
R E S E R V E S A N D E C O N O M I C S
EFFECTIVE DATE: 10/98
<TABLE>
<CAPTION>
- -END- MERGER GROSS OIL GROSS GAS NET OIL NET GAS NET OIL NET GAS
MO. YR GROSS WELLS PRODUCTION PRODUCTION PRODUCTION PRODUCTION PRICE PRICE
- ------ ----------- ----MBBLS---- ----MMCF---- ---MBBLS--- ----MMCF---- ---$/BBL--- ---$/MCF---
<S> <C> <C> <C> <C> <C> <C> <C>
12-98 598.1 19640.260 46400.530 33.544 256.432 13.589 2.001
12-99 586.2 74548.060 176439.100 116.777 888.490 13.573 2.003
12-00 564.2 65933.270 143737.500 98.149 718.035 13.558 2.007
12-01 547.7 58968.050 121777.500 85.285 607.608 13.548 2.005
12-02 517.2 53431.040 108912.800 72.350 513.775 13.512 2.004
12-03 458.5 47613.770 96958.240 48.305 429.480 13.363 2.006
12-04 403.7 42763.310 87512.650 37.008 367.085 13.326 2.009
12-05 386.4 38825.320 79066.690 29.942 327.887 13.295 2.007
12-06 364.0 35064.130 72181.320 24.831 291.269 13.397 2.008
12-07 335.1 31694.130 66184.320 21.646 240.711 13.381 2.014
12-08 314.6 23116.340 60985.210 16.091 214.504 13.377 2.012
12-09 290.4 20043.690 56330.670 13.668 190.597 13.412 2.012
12-10 266.6 18426.240 52243.000 11.955 167.730 13.418 2.013
12-11 239.7 16864.800 58064.690 10.537 146.831 13.396 2.010
12-12 225.0 15544.260 54901.000 9.558 133.083 13.372 2.008
S TOT 396.4 562482.600 1261755.000 631.645 5493.488 13.486 2.007
AFTER 61.4 134292.100 461588.300 68.050 960.557 13.502 1.992
TOTAL 180.8 696774.700 1723343.000 699.695 6454.045 13.488 2.005
</TABLE>
<TABLE>
<CAPTION>
NET NET
OIL SALES GAS SALES
----MS---- ----MS----
<S> <C> <C>
12-98 455.618 513.124
12-99 1612.114 1779.205
12-00 1330.687 1441.056
12-01 1155.392 1220.126
12-02 977.576 1029.743
12-03 645.516 861.289
12-04 493.180 737.395
12-05 398.093 658.146
12-06 332.657 584.958
12-07 289.651 484.692
12-08 215.243 431.634
12-09 183.316 383.563
12-10 160.413 337.628
12-11 141.150 295.181
12-12 127.813 267.185
S TOT 8518.618 11024.930
AFTER 918.828 1913.161
TOTAL 9437.446 12938.090
</TABLE>
<TABLE>
<CAPTION>
- -END- TOTAL NET PRODUCTION DIRECT OPER CAPITAL FUTURE NET CUMULATIVE
MO. YR NET SALES AD VALOREN TAXES EXPENSE COSTS CASH FLOW CASH FLOW
- ------ ----MS---- ----MS---- ----MS---- -----MS----- ----MS---- -----MS----- ----MS----
<S> <C> <C> <C> <C> <C> <C> <C>
12-98 983.786 20.084 58.433 242.943 .000 662.297 662.297
12-99 3447.364 71.874 202.698 878.177 .000 2294.616 2956.913
12-00 2823.025 60.139 166.541 737.013 .000 1859.332 4816.244
12-01 2422.498 52.307 143.065 678.005 .000 1549.122 6365.365
12-02 2050.404 45.375 121.277 609.504 .000 1274.247 7639.613
12-03 1546.364 33.463 94.137 393.888 .000 1024.876 8664.489
12-04 1266.935 27.016 78.259 283.665 .000 877.995 9542.484
12-05 1089.695 23.839 66.805 237.306 .000 761.745 10304.230
12-06 948.429 21.483 58.220 199.587 .000 669.139 10973.370
12-07 802.754 18.128 49.044 144.655 .000 590.926 11564.290
12-08 673.097 15.185 41.923 88.384 .000 527.605 12091.900
12-09 585.509 13.477 36.995 72.807 .000 462.230 12554.130
12-10 515.542 12.136 32.644 62.275 .000 408.487 12962.620
12-11 452.703 11.018 28.871 51.469 .000 361.416 13324.030
12-12 410.444 10.148 26.242 47.950 .000 326.104 13650.140
S TOT 20018.590 435.671 1205.154 4727.625 .000 13650.140 13650.140
AFTER 2975.538 76.366 191.309 349.061 .000 2358.802 16008.540
TOTAL 22994.130 512.037 2396.463 5076.686 .000 16008.940 16008.940
</TABLE>
<TABLE>
<CAPTION>
- -END- 10.0% CUM
MO. YR DISC CF
- ------ ----MS----
<S> <C>
12-98 654.453
12-99 2790.902
12-00 4364.796
12-01 5556.783
12-02 6448.264
12-03 7100.117
12-04 7607.769
12-05 8008.132
12-06 8327.831
12-07 8584.510
12-08 8792.835
12-09 8958.816
12-10 9092.128
12-11 9199.355
12-12 9287.312
S TOT 9287.312
AFTER 9656.223
TOTAL 9658.223
</TABLE>
<TABLE>
<CAPTION>
OIL GAS P.W. % P.W.. MS
----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
GROSS WELLS 583.0 461.0 LIFE, YRS. 40.00 5.00 11951.900
GROSS ULT.. MS & MMF 6587573.000 8750904.000 DISCOUNT % 10.00 10.00 9658.453
GROSS CUM., MS & MMF 5890799.000 7027561.000 UNDISCOUNTED PAYOUT. YRS. .00 15.00 8191.398
GROSS RES.. MS & MMF 696774.700 1723343.000 DISCOUNTED PAYOUT. YRS. .00 20.00 7168.500
NET RES.. MS & MMF 699.695 6454.045 UNDISCOUNTED NET/INVEST. .00 25.00 6411.026
NET REVENUE. MS 9437.446 12938.090 DISCOUNTED NET/INVEST. .00 30.00 5325.145
INITIAL PRICE. S 13.910 1.872 RATE-OF-RETURN, PCT. 100.00 40.00 4973.260
INITIAL N.I., PCT. .247 .728 INITIAL W.I., PCT. .317 60.00 3939.866
80.00 3327.479
100.00 2918.090
</TABLE>
<PAGE> 39
TOTAL PROVED NONPRODUCING DATE : 10/01/98
TOTAL ALL ACQUISITIONS TIME : 15:51:15
DBS FILE : MIDDLE
SETUP FILE : MIDDLE
SEQ NUMBER : *****
R E S E R V E S A N D E C O N O M I C S
EFFECTIVE DATE: 10/96
<TABLE>
<CAPTION>
- -END- NUMBER GROSS OIL GROSS GAS NET OIL NET GAS NET OIL NET GAS NET NET
MO-YR GROSS WELLS PRODUCTION PRODUCTION PRODUCTION PRODUCTION PRICE PRICE OIL SALES GAS SALES
- ----- ----------- ---MBBLS-- ---MMCF--- ---MBBLS-- ---MMCF--- -$/BBL- -$/MCF- ----M$--- ----M$---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12-96 .0 .000 .000 .000 .000 .000 .000 .000 .000
12-99 1.3 .640 21872.470 .021 13.362 13.310 1.955 .276 26.116
12-00 4.6 30.890 45879.060 .288 83.101 15.736 1.961 4.533 162.979
12-01 5.0 59.820 36817.530 .513 86.002 16.036 1.977 8.221 170.027
12-02 6.2 64.930 22716.480 .950 123.121 14.823 1.960 14.088 241.350
12-03 7.2 65.096 14443.310 1.386 147.457 14.240 1.936 19.732 285.529
12-04 8.0 48.587 9439.239 1.603 242.343 13.778 1.911 22.085 463.089
12-05 7.8 69.042 7436.137 .863 107.022 15.435 1.991 13.321 213.040
12-06 7.8 74.737 5341.073 .895 89.684 15.542 2.017 13.914 180.854
12-07 8.9 87.990 5055.500 1.466 160.818 14.611 1.962 21.417 315.597
12-08 8.2 87.389 5057.804 1.234 116.976 14.935 2.008 18.427 234.846
12-09 7.1 80.040 4773.580 .872 97.897 15.500 2.031 13.520 198.997
12-10 6.8 75.219 5436.086 .834 140.859 15.535 2.010 12.960 283.139
12-11 6.0 61.282 5874.006 .886 167.633 15.188 2.019 13.451 338.492
12-12 6.0 63.796 4343.373 .674 127.523 15.094 2.020 10.181 257.562
$ TOT 6.6 849.458 194485.600 12.488 1703.887 14.908 1.979 186.125 3371.608
AFTER 4.5 129.582 17452.270 4.011 707.454 13.906 2.019 95.782 1428.124
TOTAL 5.6 979.040 211937.900 16.496 2411.341 14.664 1.990 241.907 4799.732
</TABLE>
<TABLE>
<CAPTION>
- -END- TOTAL NET PRODUCTION DIRECT OPER CAPITAL FUTURE NET CUMULATIVE 10.0% CUM
MO-YR NET SALES AD VALOREM TAXES EXPENSE COSTS CASHFLOW CASHFLOW DISC CF
- ----- ----MS--- ----MS---- ----MS---- -----MS---- ---MS-- ----MS---- ----MS---- ----MS---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12-98 .000 .000 .000 .000 .000 .000 .000 .000
12-99 26.392 .691 1.281 1.993 3.008 19.419 19.419 18.010
12-00 167.512 3.212 8.804 3.430 5.868 146.197 165.617 141.628
12-01 178.239 2.464 7.985 3.775 .000 164.014 329.631 268.038
12-02 255.438 2.004 13.957 10.179 8.332 220.966 550.597 422.600
12-03 305.261 3.345 17.973 17.225 27.250 239.468 790.065 575.418
12-04 485.175 9.824 32.501 31.225 .000 411.625 1201.690 813.372
12-05 226.361 2.467 13.065 17.225 .000 193.604 1395.294 915.322
12-06 194.768 1.783 10.456 16.117 8.130 158.282 1553.576 991.260
12-07 337.014 5.267 18.824 30.645 .000 282.278 1835.854 1113.994
12-08 253.272 1.617 12.818 24.186 10.392 204.259 2040.213 1194.791
12-09 212.517 1.719 10.563 14.334 .000 185.900 2226.013 1261.536
12-10 296.099 3.265 16.613 9.046 3.044 266.129 2490.143 1347.741
12-11 351.943 2.333 20.060 8.473 .000 321.076 2811.219 1442.988
12-12 267.743 1.667 15.313 8.473 .000 242.289 3053.508 1508.329
$ TOT 3557.733 41.557 200.214 196.330 66.024 3053.508 3053.508 1508.329
AFTER 1483.907 12.148 85.945 93.818 19.346 1272.650 4326.156 1735.874
TOTAL 5041.639 53.806 286.158 290.149 85.370 4326.158 4326.156 1735.874
</TABLE>
<TABLE>
<CAPTION>
OIL GAS P.W. % P.W., M$
------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
GROSS WELLS .0 27.0 LIFE, YRS. 34.58 5.00 2616.235
GROSS ULT., MB & MMF 979.039 211937.900 DISCOUNT % 10.00 10.00 1735.874
GROSS COM., MB & MMF .000 .000 UNDISCOUNTED PAYOUT, YRS. .38 15.00 1235.054
GROSS RES., MB & MMF 979.039 211937.900 DISCOUNTED PAYOUT, YRS. .39 20.00 926.614
NET RES., MB & MMF 16.496 2411.361 UNDISCOUNTED NET/INVEST. 51.68 25.00 724.105
NET REVENUE, M$ 241.907 4799.731 DISCOUNTED NET/INVEST. 42.20 30.00 584.058
INITIAL PRICE, $ 15.628 1.914 RATE-OF-RETURN, PCT. 100.00 40.00 407.561
INITIAL N.I., PCT. 4.151 1.957 INITIAL W.I., PCT. 1.404 60.00 237.382
80.00 159.080
100.00 115.948
</TABLE>
<PAGE> 40
EXHIBIT 3
COMPARABLE CONVERTIBLE PREFERRED STOCKS - ENERGY RELATED
<PAGE> 41
<TABLE>
<CAPTION>
COMPARABLE CONVERTIBLE PREFERRED STOCKS - ENERGY RELATED
PRICE 9/30/98 ANNUAL S&P CONVERSION 9/30/98 CONVERSION
NAME TICKER AT ISSUE PRICE OF PFD PFD DIV. YIELD RATING PRICE OF PFD PRICE OF COMM PREMIUM
- ---------------- ------ -------- ------------ -------- ----- ------ ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Goodrich Petrol GDP $10.00 $7.00 $0.80 11% NA $24.00 $2.88 733%
Howell Corp HWL $50.00 $34.00 $3.50 10% NA $16.50 $6.31 161%
MCN Energy Group MCN $50.00 $35.31 $4.00 12% BBB $35.38 $17.06 107%
Patina Oil & Gas POG $25.00 $21.56 $1.78 9% NA $8.61 $5.00 72%
Williams Cos WMB $50.00 $123.00 $3.50 3% BB+ $10.67 $28.75 -63%
Cross Timber Oil XTO $25.00 $34.88 $1.56 5% B $11.57 $15.06 -23%
- ----------------------------------------------------------------------------------------------------------------------------
Mean 8% 165%
High 12% 733%
Low 3% -63%
Median 9% 90%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 42
EXHIBIT 4
COMPARABLE CONVERTIBLE PREFERRED STOCKS - NON-ENERGY RELATED
<PAGE> 43
Comparable Convertible Preferred Stocks - Non-Energy Related
<TABLE>
<CAPTION>
Price 9/30/98 Annual S&P Conversion 9/30/98 Conversion
Name Ticker at Issue Price of Pfd Pfd Div. Yield Rating Price of Pfd Price of Comm Premium
- ----------------------- ------ -------- ------------ -------- ----- ------ ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beazer Homes USA BZH $25.00 $28.50 $2.00 7% B- $19.05 $20.63 -8%
Cellnet Funding CNDS $25.00 $17.25 $1.75 10% NA $13.64 $6.00 127%
Echostar Communications DISH $50.00 $60.75 $3.38 6% NR $24.38 $24.00 2%
Dura Automotive Systems DRRA $25.00 $24.00 $1.88 8% NA $42.87 $25.88 66%
Environmental Systems ESC $25.00 $17.50 $1.75 10% NR $28.00 $10.81 159%
First Security FSCO $52.50 $30.31 $3.15 10% NA $1.28 $16.75 -92%
Global Thermo GLEAI $2.16 $3.00 $0.22 7% NA $0.54 $0.98 -45%
Hecla Mining Co. HL $50.00 $42.00 $3.50 8% B- $15.55 $5.06 207%
Metromedia Intl MMG $50.00 $22.75 $3.63 16% NR $15.00 $3.88 287%
North Coast Energy NCEB $10.00 $7.75 $1.00 13% NR $1.74 $0.94 85%
Perini Corp PCR $25.00 $17.25 $2.13 12% NR $37.76 $6.94 444%
PDK Labs Inc PDKL $0.00 $4.50 $0.49 11% NA $23.33 $3.63 543%
Reckson Associates RA $25.00 $21.88 $1.91 9% NA $28.51 $23.50 21%
Titan Corp TTN $0.00 $11.94 $1.00 8% NR $30.00 $5.25 471%
USA Biomass Corp. USBC $10.00 $9.75 $0.90 9% NR $5.39 $2.81 92%
US Restaurant Props. USV $25.00 $24.94 $1.93 8% NA $26.64 $25.44 5%
- ----------------------------------------------------------------------------------------------------------------------------
Mean 10% 148%
High 16% 543%
Low 6% -92%
Median 9% 88%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 44
EXHIBIT 5
COMPARABLE COMPANIES - SELECTED DATA FOR FIVE COMPARABLE E&P COMPANIES
<PAGE> 45
THE ENEX PARTNERSHIP
COMPARABLE PUBLIC COMPANY VALUATION ANALYSIS
(AMOUNTS IN MILLIONS, EXCEPT PER UNIT AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
LOW MEAN HIGH FINANCIAL INPUT
RATIO AS RATIO AS RATIO AS FOR
VALUATION RATIOS: MULTIPLIER MULTIPLIER MULTIPLIER ENEX -------------------------------
- ----------------- ---------- ---------- ---------- ---- IMPLIED
ENTERPRISE VALUE
-------------------------------
Market Value of Capitalization / LOW MEAN HIGH
-------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Adjusted EBITDX - 6/30/98* 4.1x 6.4x 8.8x $ 2.6 $10.5 $16.3 $22.5
Pre Tax SEC PV-10% - 10/1/98 86% 111% 130% $14.6 $12.5 $16.1 $19.0
Mcfe $0.60 $0.85 $1.06 13.7 $ 8.3 $11.6 $14.6
Funded Debt $ 0.0 $ 0.0 $ 0.0
</TABLE>
<TABLE>
<CAPTION>
-------------------------------
IMPLIED
EQUITY VALUE
-------------------------------
LOW MEAN HIGH
-------------------------------
<S> <C> <C> <C>
$10.5 $16.3 $22.5
$12.5 $16.1 $19.0
$ 8.3 $11.6 $14.6
</TABLE>
<TABLE>
<CAPTION>
-------------------------------
PER UNIT
-------------------------------
LOW MEAN HIGH
-------------------------------
<S> <C> <C> <C>
$ 9.53 $14.78 $20.37
$11.30 $14.64 $17.23
$ 7.50 $10.54 $13.22
</TABLE>
* Adjusted to exclude non oil and gas sales revenue (i.e.,
revenue from gas plant sales, gain from sale of property,
other revenues and interest income.)
<PAGE> 46
MIDDLE BAY
COMPARABLE PUBLIC COMPANY VALUATION ANALYSIS
(AMOUNTS IN MILLIONS, EXCEPT PER UNIT AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
LOW MEAN HIGH FINANCIAL INPUT
RATIO AS RATIO AS RATIO AS FOR MIDDLE
VALUATION RATIOS: MULTIPLIER MULTIPLIER MULTIPLIER BAY -------------------------------
- ----------------- ---------- ---------- ---------- --- IMPLIED
ENTERPRISE VALUE
-------------------------------
Market Value of Capitalization / LOW MEAN HIGH
-------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDX - 6/30/98 4.1x 6.4x 8.8x $ 5.4 $22.3 $34.6 $47.7
Pre Tax SEC PV 10% - 10/1/98 86% 111% 130% $44.8 $38.3 $49.6 $58.4
Mcfe $0.60 $0.85 $1.06 75.0 $45.2 $63.4 $79.6
Funded Debt as of 9/30/98 $27.5 $27.5 $27.5
</TABLE>
<TABLE>
<CAPTION>
-------------------------------
IMPLIED
EQUITY VALUE
-------------------------------
LOW MEAN HIGH
-------------------------------
<S> <C> <C> <C>
($ 5.2) $ 7.1 $20.2
$10.8 $22.1 $30.9
$17.7 $35.9 $52.1
</TABLE>
<TABLE>
<CAPTION>
-------------------------------
PER SHARE
-------------------------------
LOW MEAN HIGH
-------------------------------
<S> <C> <C> <C>
($0.60) $0.84 $2.37
$1.27 $2.60 $3.62
$2.07 $4.21 $6.10
</TABLE>
<PAGE> 47
THE ENEX PARTNERSHIP COMPARABLE COMPANIES
MARKET, FINANCIAL AND OIL & GAS DATA
(Amounts in millions, except per share and ratios)
<TABLE>
<CAPTION>
ABRAXAS COHO COSTILLA KEY WISER
MARKET DATA AS OF 10/2/98 PETROLEUM ENERGY ENERGY PRODUCTION OIL MEDIAN MEAN
--------- ------ ------ ---------- --- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
STOCK SYMBOL AXAS COHO COSE KP WZR
STOCK PRICE $ 7.00 $ 4.88 $ 7.50 $ 6.75 $ 5.06
52 WEEK HIGH $19.50 $13.00 $16.38 $ 13.19 $18.75
52 WEEK LOW $ 5.31 $ 4.50 $ 5.88 $ 5.88 $ 5.00
% OF 52 WEEK HIGH 35.9% 37.5% 45.8% 51.2% 27.0% 37.5% 39.5%
MARKET VALUE OF EQUITY (MVE) $ 43.8 $124.8 $ 73.9 $ 77.7 $ 45.3 $ 73.9 $ 73.1
MARKET VALUE OF CAPITAL (MVC)(A) $321.0 $532.8 $256.5 $ 116.7 $179.7 $256.5 $281.3
COMMON SHARES OUTSTANDING 6.3 25.6 9.9 11.5 9.0
ANNUAL DIVIDEND $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.12
DIVIDEND YIELD 0.0% 0.0% 0.0% 0.0% 2.4% 0.0% 0.5%
LATEST FISCAL YEAR END (LFY) 12/97 12/97 12/97 12/97 12/97
LATEST 12 MONTHS INCOME STATEMENT:
- ----------------------------------
TOTAL REVENUE $ 68.2 $ 72.9 $ 69.4 $ 41.0 $ 70.0 $ 69.4 $ 64.3
OPERATING EXPENSES 18.1 23.3 30.1 10.8 27.6
OPERATING CASH FLOW (BEFORE G&A) 50.1 49.6 39.3 30.2 42.4
GENERAL & ADMINISTRATIVE 4.8 6.9 10.1 1.8 9.7
OPERATING CASH FLOW (EBITDX) 45.3 42.8 29.2 28.4 32.7
DD&A, IMPAIRMENTS & EXPL/DRY HOLE 34.4 98.3 65.5 15.0 41.4
OPERATING INCOME (EBIT) 10.9 (55.5) (36.3) 13.4 (8.8)
PRETAX INCOME (21.8) (77.3) (52.2) 12.5 (13.8)
NET INCOME FROM CONT. OPS (16.4) (60.8) (52.7) 7.8 (9.1)
NET INCOME (16.4) (60.8) (53.0) 7.8 (9.1)
DISCRETIONARY CASH FLOW (DCF)(B) 18.0 37.5 12.6 22.8 32.3
EARNINGS PER SHARE (FROM CONT. OPS.)(C) ($ 2.92) ($ 2.37) ($ 5.14) $ 0.68 ($ 1.02)
DCF PER SHARE (FROM CONT. OPS.) $ 3.20 $ 1.46 $ 1.22 $ 2.00 $ 3.62
AVERAGE SHARES OUTSTANDING (PRIMARY) 5.6 25.7 10.3 11.4 8.9
LATEST 12 MONTHS ENDED (LTM) 6/98 6/98 6/98 6/98 6/98
LATEST BALANCE SHEET:
- ---------------------
CASH & EQUIVALENTS $ 1.3 $ 1.4 $ 17.1 $ 4.8 $ 0.1
CURRENT ASSETS 12.2 19.1 29.6 12.5 16.8
NET PROPERTY, PLANT & EQUIPMENT 321.4 484.4 199.5 124.6 227.1
ASSETS 343.8 509.8 238.3 138.8 247.8 247.8 295.7
SHORT-TERM DEBT 0.0 0.0 0.1 0.0 0.0
CURRENT LIABILITIES 15.9 19.9 25.3 12.9 14.3
LONG-TERM DEBT 277.2 408.0 182.4 39.0 134.3
TOTAL DEBT 277.2 408.0 182.5 39.0 134.3
LIABILITIES 329.7 431.6 208.0 70.8 159.0
STOCKHOLDERS' EQUITY 14.1 78.2 30.2 68.0 88.7
LIABILITIES & STOCKHOLDERS' EQUITY 343.8 509.8 238.3 138.8 247.8
WORKING CAPITAL (EXCLUDES S.T.-DEBT) (3.8) (0.8) 4.4 (0.5) 2.4
TOTAL CAPITALIZATION 291.3 486.2 212.8 107.0 223.1 223.1 264.1
ADJUSTED TOTAL CAPITALIZATION (SEC10) 238.6 528.1 210.0 81.6 206.1 210.0 252.9
BOOK VALUE PER COMMON SHARE $ 2.26 $ 3.05 $ 3.07 $ 5.91 $ 9.91
BALANCE SHEET DATE 6/98 6/98 6/98 6/98 6/98
</TABLE>
<PAGE> 48
MARKET, FINANCIAL AND OIL & GAS DATA
(Amounts in millions, except per share and ratios)
<TABLE>
<CAPTION>
ABRAXAS COHO COSTILLA KEY WISER
EPS ESTIMATES: PETROLEUM ENERGY ENERGY PRODUCTION OIL MEDIAN MEAN
- -------------- --------- ------ ------ ---------- --- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
EPS FOR FISCAL YEAR END 1998 ($ 3.91) ($ 0.30) ($ 2.72) $ 0.45 ($ 1.95)
EPS FOR FISCAL YEAR END 1999 ($ 2.81) $ 0.46 ($ 1.64) $ 0.76 ($ 1.42)
DCF AND EBITDX ESTIMATES:(D)
- -----------------------------
DCFPS FOR FISCAL YEAR END 1998 $ 2.95 $ 1.04 $ 1.90 $ 2.24 $ 2.27
DCFPS FOR FISCAL YEAR END 1999 $ 4.36 $ 2.09 $ 2.77 $ 2.61 $ 2.49
EBITDX - 1998 $48.12 $55.90 $35.10 NA $34.30
EBITDX - 1999 $61.56 $84.20 $49.40 NA $39.00
VALUATION RATIOS (PRICE TO):
- ----------------------------
EPS FOR LATEST TWELVE MONTHS NM NM NM 9.9 x NM 9.9 x 9.9 x
EPS FOR FISCAL YEAR END 1998 NM NM NM 15.0 x NM 15.0 x 15.0 x
EPS FOR FISCAL YEAR END 1999 NM 10.6 x NM 8.9 x NM 9.7 x 9.7 x
DCFPS FOR LATEST TWELVE MONTHS 2.2 x 3.3 x 6.1 x 3.4 x 1.4 x 3.3 x 3.3 x
DCFPS FOR FISCAL YEAR END 1998 2.4 x 4.7 x 3.9 x 3.0 x 2.2 x 3.0 x 3.2 x
DCFPS FOR FISCAL YEAR END 1999 1.6 x 2.3 x 2.7 x 2.6 x 2.0 x 2.3 x 2.3 x
BOOK VALUE PER COMMON SHARE 3.1 x 1.6 x 2.4 x 1.1 x 0.5 x 1.6 x 1.8 x
VALUATION RATIOS (MVC TO):
- --------------------------
PRETAX SEC PV-10% VALUE 119% 101% 130% 118% 86% 118% 111%
ADJUSTED TOTAL CAPITALIZATION (SEC10) 135% 101% 122% 143% 87% 122% 118%
TOTAL REVENUE 4.7 x 7.3 x 3.7 x 2.8 x 2.6 x 3.7 x 4.2 x
EBITDX (BEFORE G&A) 6.4 x 10.7 x 6.5 x 3.9 x 4.2 x 6.4 x 5.3 x
EBITDX 7.1 x NM 8.8 x 4.1 x 5.5 x 6.3 x 6.4 x
EBITDX - 1998 6.7 x 9.5 x 7.3 x NA 5.2 x 7.0 x 7.2 x
EBITDX - 1999 5.2 x 6.3 x 5.2 x NA 4.6 x 5.2 x 5.3 x
EBIT 29.5 x NM NM 8.7 x NM 19.1 x 19.1 x
VALUATION RATIOS (MVC PER):
- ---------------------------
BARREL OF OIL EQUIVALENT $ 5.87 $ 4.45 $ 6.36 $ 6.55 $ 3.61 $ 5.87 $ 5.37
MCF OF GAS EQUIVALENT $ 0.98 $ 0.74 $ 1.06 NM $ 0.60 $ 0.86 $ 0.85
VALUATION RATIOS (MVE TO):
- --------------------------
NET ASSET VALUE NM 119.5% 98.5% 133.5% 53.1% 109.0% 101.2%
NET INCOME FROM CONT. OPS TO COMMON NM NM NM 10.0 x NM 10.0 x 10.0 x
DISCRETIONARY CASH FLOW TO COMMON 2.4 x 3.3 x 5.9 x 3.4 x 1.4 x 3.3 x 3.3 x
PROFITABILITY MARGINS:
- ----------------------
EBITDX (BEFORE G&A) 73.4% 68.1% 56.7% 73.7% 60.5% 68.1% 66.5%
EBITDX 66.4% 58.7% 42.1% 69.2% 46.6% 58.7% 56.6%
EBIT 15.9% NM NM 32.6% NM 24.3% 24.3%
NET INCOME FROM CONT. OPS NM NM NM 18.9% NM 18.9% 18.9%
DISCRETIONARY CASH FLOW 26.4% 51.4% 18.1% 55.6% 46.2% 46.2% 39.5%
LEVERAGE RATIOS (DEBT TO):
- --------------------------
STOCKHOLDERS' EQUITY 1961.9% 521.8% 604.1% 57.4% 151.4% 521.8% 659.3%
TOTAL CAPITALIZATION 95.2% 83.9% 85.8% 36.5% 60.2% 83.9% 72.3%
MARKET VALUE OF EQUITY 632.3% 326.9% 247.0% 50.2% 296.4% 296.4% 310.6%
MARKET VALUE OF CAPITAL 86.3% 76.6% 71.2% 33.4% 74.8% 74.8% 68.5%
</TABLE>
<PAGE> 49
MARKET, FINANCIAL AND OIL & GAS DATA
(Amounts in millions, except per share and ratios)
<TABLE>
<CAPTION>
ABRAXAS COHO COSTILLA KEY WISER
NET ASSET VALUE CALCULATION: PETROLEUM ENERGY ENERGY PRODUCTION OIL MEDIAN MEAN
- ---------------------------- --------- ------ ------ ---------- --- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
WORKING CAPITAL (EXCL. S-T DEBT) ($ 3.8) ($ 0.8) $ 4.4 ($ 0.5) $ 2.4
PRETAX SEC PV-10% VALUE 268.7 526.3 196.7 99.3 210.1 $210.1 $260.2
NET PP&E ADDED SINCE FYE 10.9 (17.2) 22.6 5.9 5.7
UNDEVELOPED ACREAGE
DOMESTIC ONSHORE ($50/ACRE) 305,108 23,319 607,703 197,000 143,219
DOMESTIC OFFSHORE ($100/ACRE) 0 0
INTERNATIONAL ($25/ACRE) 0
-------- ------- -------- -------- --------
TOTAL UNDEVELOPED ACREAGE 305,108 23,319 607,703 197,000 143,219
TOTAL VALUE OF UNDEVELOPED ACREAGE $ 15.3 $ 1.2 $ 30.4 $ 9.9 $ 7.2
NET NON-OIL & GAS NONCURRENT ASSETS (FYE) 0 6.6 3.8 1.5 4.7
-------- ------- -------- -------- --------
GROSS ASSET VALUE $ 291.1 $ 516.2 $ 257.9 $ 116.0 $ 230.1
LESS: TOTAL DEBT AND PREFERRED 277.2 408.0 182.5 39.0 134.3
LESS: OTHER LONG-TERM LIABILITIES 36.6 3.7 0.3 18.9 10.4
-------- ------- -------- -------- --------
NET ASSET VALUE ($ 22.7) $ 104.5 $ 75.0 $ 58.1 $ 85.4 $ 75.0 $ 60.1
======== ======= ======== ======== ========
NET ASSET VALUE PER SHARE ($ 3.62) $ 4.08 $ 7.61 $ 5.05 $ 9.54
</TABLE>
<PAGE> 50
MARKET, FINANCIAL AND OIL & GAS DATA
(Amounts in millions, except per share and ratios)
<TABLE>
<CAPTION>
ABRAXAS COHO COSTILLA KEY WISER
RESERVE DATA (FYE) (GAS/OIL = 6:1) PETROLEUM ENERGY ENERGY PRODUCTION OIL
- ---------------------------------- --------- ------ ------ ---------- ---
<S> <C> <C> <C> <C> <C>
TOTAL PROVED OIL (MMBbls) 17.8 95.1 15.0 6.2 29.7
TOTAL PROVED GAS (Bcf) 221.3 147.5 152.0 69.5 120.1
------- ------- ------- ------- -------
TOTAL PROVED RESERVES (MMBoe) 54.7 119.7 40.3 17.8 49.7
TOTAL PROVED RESERVES (Bcfe) 328.0 718.0 241.8 106.8 298.4
PERCENT OIL 32.5% 79.5% 37.1% 34.9% 59.8%
PROVED DEVELOPED OIL (MMBbls) 14.3 10.6 6.2 28.2
PROVED DEVELOPED GAS (Bcf) 186.5 86.2 67.8 109.5
------- ------- ------- ------- -------
TOTAL PROVED DEVELOPED (MMBoe) 45.3 84.2 25.0 17.5 46.4
PERCENT OIL 31.4% 0.0% 42.5% 35.4% 60.7%
% PERCENT DEVELOPED 82.9% 70.4% 62.0% 98.3% 93.4%
PRODUCTION DATA (GAS/OIL = 6:1):
LFY OIL PRODUCTION (MMBbls) 1.9 2.8 2.2 0.8 2.8
LFY GAS PRODUCTION (Bcf) 21.1 7.7 14.7 11.0 12.8
------- ------- ------- ------- -------
TOTAL PRODUCTION (MMBoe) 5.4 4.1 4.6 2.7 4.9
PERCENT OIL 35.5% 68.8% 47.0% 31.5% 56.3%
OTHER OIL & GAS DATA:
AVG OIL PRICE (PER Bbl) $ 18.63 $ 16.31 $ 17.77 $ 18.04 $ 15.92
AVG GAS PRICE (PER Mcf) $ 1.79 $ 2.23 $ 2.29 $ 2.38 $ 2.35
ACCOUNTING METHOD FC FC SE FC SE
MAJOR PRODUCING AREAS S. Texas Mississippi Gulf Coast Anadarko Basin Permian Basin
Permian Basin Louisiana Rocky Mountain Rocky Mountain New Mexico
Canada Mid-Continent Gulf Coast Canada
Permian Basin North Central TX
</TABLE>
<TABLE>
<CAPTION>
RESERVE DATA (FYE) (GAS/OIL = 6:1) MEDIAN MEAN
- ---------------------------------- ------ ----
<S> <C> <C>
TOTAL PROVED OIL (MMBbls)
TOTAL PROVED GAS (Bcf)
TOTAL PROVED RESERVES (MMBoe) 49.7 56.4
TOTAL PROVED RESERVES (BCfe) 298.4 338.6
PERCENT OIL 37.1% 48.8%
PROVED DEVELOPED OIL (MMBbls)
PROVED DEVELOPED GAS (Bcf)
TOTAL PROVED DEVELOPED (MMBoe) 45.3 43.7
PERCENT OIL 35.4% 34.0%
% PERCENT DEVELOPED 82.9% 81.4%
PRODUCTION DATA (GAS/OIL = 6:1):
LFY OIL PRODUCTION (MMBbls)
LFY GAS PRODUCTION (Bcf)
TOTAL PRODUCTION (MMBoe) 4.6 4.3
PERCENT OIL 47.0% 47.8%
OTHER OIL & GAS DATA:
AVG OIL PRICE (PER Bbl) $17.77 $17.33
AVG GAS PRICE (PER Mcf) $ 2.29 $ 2.21
ACCOUNTING METHOD
MAJOR PRODUCING AREAS
</TABLE>
FOOTNOTES
- ----------
(A) Market value of capitalization (MVC) is defined as market value of equity,
plus liquidation/market/book value of preferred stock, plus market/book value of
total debt, less excess cash and equivalents.
(B) Discretionary cash flow is defined as net income from continuing operations
plus DD&A, impairments, exploration/dry hole costs and other non-cash items.
(C) Earnings per share (EPS) is defined as net income from continuing operations
less preferred dividends divided by the weighted average shares outstanding.
(D) Obtained 1998 and 1999 EBITDX from company research reports as follows:
Abraxas (Oppenheimer), Coho (Jefferies), Costilla (Oppenheimer), Wiser
(Jefferies)
<PAGE> 51
THE ENEX PARTNERSHIP
<TABLE>
<CAPTION>
12 mths 6 mths 6 mths TTM
12/31/97 6/30/98 6/30/97 6/30/98
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $11,997,301 $ 3,768,515 $ 5,848,030 $ 9,917,786
General & Administrative 1,611,221 606,900 816,647 1,401,474
Operating Costs 4,967,493 1,588,244 2,471,792 4,083,945
----------- ----------- ----------- -----------
EBITDX $ 5,418,587 $ 1,573,371 $ 2,559,591 $ 4,432,367
Adjusted EBITDX * $ 3,425,054 $ 1,045,953 $ 1,911,831 $ 2,559,176
DD&A 1,839,877 932,013 1,048,413 1,723,477
Impairments (write-offs) -- -- -- --
----------- ----------- ----------- -----------
EBIT $ 3,578,710 $ 641,358 $ 1,511,178 $ 2,708,890
Interest -- -- -- --
----------- ----------- ----------- -----------
Net Income $ 3,578,710 $ 641,358 $ 1,511,178 $ 2,708,890
=========== =========== =========== ===========
Gas Plant Sales $ 1,157,068 $ 17,733 $ 619,555 $ 555,246
Gain From Sale of Property 741,617 504,621 5,940 1,240,298
Other Revenue 21,000 1,432 21,000 1,432
Interest Income 73,848 3,632 1,265 76,215
----------- ----------- ----------- -----------
Non Operating Revenues $ 1,993,533 $ 527,418 $ 647,760 $ 1,873,191
=========== =========== =========== ===========
</TABLE>
<TABLE>
<S> <C>
- -----------------------------------------------------------
Cash and Cash Equivalents $1,473,450
Current Assets 2,606,951
Current Liabilities 602,512
- -----------------------------------------------------------
</TABLE>
* Adjusted to exclude non oil and gas sales revenue (i.e., revenue from gas
plant sales, gain from sale of property, other revenues and interest
income.)
<PAGE> 52
MIDDLE BAY
<TABLE>
<CAPTION>
12 mths 6 mths 6 mths TTM
12/31/97 6/30/98 6/30/97 6/30/98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 11,432,995 $ 7,564,994 $ 3,752,786 $ 15,245,203
General & Administrative 2,361,124 2,260,553 953,700 3,667,977
Operating Costs 3,848,627 3,605,015 1,316,681 6,136,961
------------ ------------ ------------ ------------
EBITDX $ 5,223,244 $ 1,699,426 $ 1,482,405 $ 5,440,265
DD&A 4,567,063 3,024,942 1,054,817 6,537,188
Exploration (Geological and Geophysical) 222,608 788,115 115,191 895,532
Abandonment Costs 1,118,838 307,264 235,719 1,190,383
Impairments (Write-offs) 21,147,823 -- -- 21,147,823
Other (Including Stock Compensation) 519,969 67,500 -- 587,469
------------ ------------ ------------ ------------
EBIT $(22,353,057) $ (2,488,395) $ 76,678 $(24,918,130)
Interest 671,081 812,841 259,743 1,224,179
------------ ------------ ------------ ------------
Pretax Income $(23,024,138) $ (3,301,236) $ (183,065) $(26,142,309)
Minority Interest -- (148,686) -- (148,686)
Income Tax (Benefit) Expense (7,444,798) (1,071,867) -- (8,516,665)
------------ ------------ ------------ ------------
Net Income (Loss) $(15,579,340) $ (2,080,683) $ (183,065) $(17,476,958)
============ ============ ============ ============
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Cash and Cash Equivalents $ 2,061,612
Current Assets 7,641,959
Current Liabilities 7,240,951
Current Maturities of LTD 4,091,535
Long Term Debt 26,628,604
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT(b)(2)
H.J. GRUY AND ASSOCIATES, INC.
- -------------------------------------------------------------------------------
1200 Smith Street, Suite 3040, Houston, Texas 77002 - FAX (713)739-6112 -
(713)739-1000
November 23, 1998
Middle Bay Oil Company, Inc.
1221 Lamar, Suite 1020
Houston, Texas 77010
RE: ENEX CONSOLIDATED PARTNERS, L.P.
PROVED RESERVES
98-292-104
Gentlemen:
As your request, we estimated the proved reserves and future net cash flows as
of January 1, 1998, attributable to interest owned by Enex Consolidated
Partners, L.P.(Enex). The estimated net reserves, future net cash flow, and
discounted future net cash flow are summarized by reserve category as follows:
<TABLE>
<CAPTION>
Estimated Estimated
Net Reserves Future Net Cash Flow
------------------------ ---------------------------
Discounted
Oil Gas at 10%
(Barrels) (Mcf) Nondiscounted Per Year
--------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 1,131,460 8,390,451 $23,266,539 $14,937,145
Proved Developed
Nonproducing 18,831 2,691,360 5,318,858 $ 1,783,404
--------- ---------- ----------- -----------
TOTAL PROVED 1,150,291 11,081,811 $28,585,397 $16,720,549
</TABLE>
The discounted future net cash flows summarized in the above table are computed
using a discount rate of 10 percent per annum. Proved reserves are estimated in
accordance with the definitions contained in Securities and Exchange Commission
Regulation S-X, Rule 4-10 (a). The definitions are included in part as
Attachment I.
Future net cash flow as presented herein is defined as the future cash inflow
attributable to the evaluated interest less, if applicable, future direct
operating costs, ad valorem taxes, and future
<PAGE> 2
Middle Bay Oil Company, Inc. -2- November 23, 1998
capital expenditures. Future cash inflow is defined as gross cash inflow less,
if applicable, royalties and severence taxes. Future cash inflow and future net
cash flow as stated in this report exclude consideration of state or federal
income tax. Future costs of abandoning the facilities and wells, and the
possible restoration of producing properties to satisfy environmental
standards are not deducted from cash flow.
Estimates of future net cash flow and discounted future net cash flow are not
to be interpreted to represent the fair market value for the estimated
reserves. The estimated reserves included in this report have not been adjusted
for uncertainty.
For the economic forecasts presented in this report, the oil, condensate,
natural gas liquids, and natural gas sales prices are held constant at the
initial value. Direct operating costs and future capital expenditures are not
escalated and therefore remain constant for the projected life of each property.
In conducting this evaluation, we relied on data supplied by Enex Resources
Corporation. The extent and character of ownership, oil and natural gas sales
prices, direct operating costs, future capital expenditures, historical
production, accounting, geological, and engineering data were accepted as
represented. Historical production data were available at least through the
month of June 1997. Interim production to January 1, 1998, is estimated. No
independent well tests, property inspections, or audits of operating expenses
were conducted by our staff in conjunction with this evaluation. We did not
verify or determine the extent, character, status, or liability, if any, of gas
imbalances or any current or possible future detrimental environmental
conditions.
For wells with sufficient production history, reserve estimates and production
rate forecasts are based on the extrapolation of established performance
trends. Reserve estimates for nonproducing, and some producing properties are
based on volumetric calculations and analogy with the performance of comparable
wells. Reserve estimates from volumetric methods and from analogy comparisons
are often less certain than reserve estimates based on well performance obtained
over a period during which a substantial portion of the ultimate recovery was
produced. The reserves reported herein are estimates only and should not be
construed as exact quantities. Future conditions may affect recovery of
estimated reserves and cash flows, and reserves of all categories may be subject
to revision as more performance data become available.
In order to estimate the reserves, costs, and future cash flows shown 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
presented in this report may required revision as additional data become
available.
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.
H.J. GRUY AND ASSOCIATES, INC. 1200 Smith Street, Suite 3040 Houston, Texas
77002 - (713) 739-1000
<PAGE> 3
Middle Bay Oil Company, Inc. -3- November 23, 1998
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.
by: /s/ James H. Hartsock [SEAL]
------------------------------
James H. Hartsock, PhD, PE
Executive Vice President
by: /s/ Sylvia Castilleja
------------------------------
Sylvia Castilleja
Senior Reservoir Consultant
JHH/SC:akr
Attachment
H.J. GRUY AND ASSOCIATES, INC. 1200 Smith Street, Suite 3040, Houston, Texas
77002 * (713)739-1000
