SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
_______________
Date of Report (Date of earliest event reported):
December 7, 1999
3TEC ENERGY CORPORATION
Delaware
- --------------------------------------------------------------------------------
State or Other Jurisdiction of Incorporation
000-14745 76-0624573
- --------------------------------------------------------------------------------
(Commission File No.) (IRS Employer Identification No.)
Two Shell Plaza, 777 Walker Street, Ste 2400
Houston, Texas 77002
- --------------------------------------------------------------------------------
Address of Principal Executive Offices Zip Code
713-222-6275
- --------------------------------------------------------------------------------
Registrant's Telephone Number, Including Area Code
N/A
- --------------------------------------------------------------------------------
Former Name or Former Address, if Changed Since Last Report
<PAGE>
Purpose of this Amendment
On December 7, 1999, the registrant filed its Form 8-K for the acquisition
of certain oil and gas properties and interests of Floyd Oil Company (the "Floyd
Oil Properties"). Financial information required under Item 7 and Regulation S-B
Item 310 was not available at the time of the filing. The purpose of this
amendment is to include the required audited financial statements and pro forma
information.
Item 2. Acquisition or Disposition of Assets.
On November 23, 1999, 3TEC Energy Corporation (f/k/a Middle Bay Oil
Company, Inc.) ("3TEC") closed the previously announced transaction to purchase
the Floyd Oil Properties as described in the registrant's Form 8-K filed on
December 7, 1999.
Item 7. Financial Statements and Exhibits.
The financial statement information required under Regulation S-B Item 310
is included after the signature page as follows:
<TABLE>
<CAPTION>
<S> <C>
(a) Financial statements of business acquired:
Floyd Oil Properties Acquisition:
Report of Independent Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Revenues and Direct Operating Expenses for the Years ended December
31, 1998 and 1997 (audited) and the periods ended September 30, 1999 and 1998
(unaudited), with respect to the Acquired Properties. . . . . . . . . . . . . . . . . . . 4
Notes to Statements of Revenues and Direct Operating Expenses . . . . . . . . . . . . . . 5
(b) Pro forma financial information:
3TEC Energy Corporation:
3TEC Energy Corporation Unaudited Pro Forma Condensed Consolidated
Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Unaudited Pro Forma Condensed Consolidated Balance Sheet at September 30, 1999. . . . . . 9
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. . . . . . . . . 12
(c) Exhibits:
2.1 Form of Purchase Agreement (previously filed as Exhibit 2.1 to 3TEC's Form 8-K
filed on December 7, 1999).
99.1 Press Release issued by the Registrant on November 30, 1999 (previously filed as
Exhibit 99.1 to 3TEC's Form 8-K filed on December 7, 1999).
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
3TEC ENERGY CORPORATION
(Registrant)
Date: January 13, 2000 By: /s/ Floyd C. Wilson
------------------------------------
Floyd C. Wilson
President, Chief Executive Officer
and Chairman of the Board
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
3TEC Energy Corporation:
We have audited the accompanying statements of revenues and direct
operating expenses for the years ended December 31, 1998 and 1997, for the
Acquired Properties (as described in Note 1). These financial statements are the
responsibility of 3TEC Energy Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements were prepared as described in Note 2 for the
purpose of complying with certain rules and regulations of the Securities and
Exchange Commission ("SEC") for inclusion in certain SEC regulatory reports and
filings and are not intended to be a complete financial presentation.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the revenues and direct operating expenses of the
Acquired Properties for the years ended December 31, 1998 and 1997, in
conformity with generally accepted accounting principles.
Houston, Texas
December 13, 1999
Arthur Andersen LLP
3
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED PROPERTIES
Statements of Revenues and Direct Operating Expenses
(In thousands)
Unaudited
----------------
Years Ended Nine Months Ended
December 31, September 30,
---------------- ----------------
1997 1998 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Oil revenues $17,713 $10,520 $ 8,349 $ 8,558
Gas revenues 29,458 22,790 17,855 17,563
Plant product revenues 1,391 757 610 652
------- ------- ------- -------
48,562 34,067 26,814 26,773
------- ------- ------- -------
Direct operating expenses:
Lease operating expenses 12,466 12,748 9,624 8,861
Production taxes 2,673 1,869 1,507 1,390
------- ------- ------- -------
Direct operating expenses 15,139 14,617 11,131 10,251
------- ------- ------- -------
Revenues in excess of direct
operating expenses $33,423 $19,450 $15,683 $16,522
======= ======= ======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
ACQUIRED PROPERTIES
Notes to Statements of Revenues and Direct Operating Expenses
1. The Properties
On November 23, 1999, 3TEC Energy Corporation ("3TEC Energy"), formerly
known as Middle Bay Oil Company, Inc., acquired certain oil and gas properties
and interests (the "Acquired Properties") from Floyd Oil Company ("Floyd") and
certain partnerships and other entities managed or sponsored by Floyd
(collectively, the "Sellers") for a purchase price of approximately $87 million
in cash and 1.5 million shares of 3TEC Energy's common stock. The effective
date of the transaction was January 1, 1999. The majority of the Acquired
Properties are located in Texas and Louisiana.
2. Basis of Presentation
During the periods presented, the Acquired Properties were not accounted
for or operated as a separate division by Floyd. Information with respect to
depreciation, depletion and amortization is not available for the Acquired
Properties. General and administrative expenses incurred by Floyd were not
allocated to the Acquired Properties. The Sellers were not taxpaying entities
and, therefore, income tax information with respect to the Acquired Properties
is not available. Accordingly, full separate financial statements prepared in
accordance with generally accepted accounting principles do not exist and are
not practicable to obtain in these circumstances.
Revenues and direct operating expenses included in the accompanying
statements represent the Sellers' net working and royalty interests in the
Acquired Properties and are presented on the accrual basis of accounting.
Depreciation, depletion, and amortization, allocated general and administrative
expenses and income tax expense have been excluded.
The statements presented are not indicative of the future results of
operations of the Acquired Properties due to anticipated changes in various
operating expenses and the omission of other costs as discussed above.
3. Commitments and Contingencies
The management of 3TEC Energy is not aware of any legal, environmental or
other commitments or contingencies that would be materially important in
relation to the revenues and direct operating expenses of the Acquired
Properties.
4. Related Party Transactions
An affiliate of Floyd operated certain oil and gas wells included in the
Acquired Properties. Fees related to such wells in the amount of $442,600 and
$460,000 were charged to the Acquired Properties during the years ended December
31, 1997 and 1998, respectively, and $345,600 and $353,700 for the nine month
periods ended September 30, 1998 and 1999, respectively. These fees are
reflected in direct operating expenses in the accompanying statements.
5. Capital Expenditures (Unaudited)
Direct operating expenses do not include exploration and development
expenditures related to the Acquired Properties which totaled $4.3 million and
$4.1 million for the years ended December 31, 1997 and 1998, respectively and
$2.9 million and $2.6 million for the nine month periods ended September 30,
1998 and 1999, respectively.
6. Supplemental Oil and Gas Reserve Information (Unaudited)
5
<PAGE>
Total proved and proved developed oil and gas reserves of the Acquired
Properties at December 31, 1998 have been estimated based on reserve estimates
prepared by Ryder Scott Company Petroleum Engineers as of September 30, 1999,
adjusted for production from September 30, 1999 to December 31, 1998. Comparable
estimates were not readily available for subsequent or prior periods. Therefore,
reserves for December 31, 1997 and 1998 have been calculated by adjusting the
September 30, 1999 amounts for the respective period's activities and,
consequently, no revisions of previous estimates have been reflected. All
reserve estimates are based on economic and operating conditions existing at
September 30, 1999. The future net cash flows from production of these proved
reserve quantities were computed by applying current prices of oil and gas,
averaging $22.44 per barrel of oil and $2.75 per thousand cubic foot of gas
(with consideration of price changes only to the extent provided by contractual
arrangements) as of September 30, 1999 to estimated future production of proved
oil and gas reserves less the estimated future expenditures (based on current
costs) as of September 30, 1999, to be incurred in developing and producing the
proved reserves. As discussed above, income tax information for the Acquired
Properties is not available and therefore is not presented.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------- Nine Months Ended
1997 1998 September 30, 1999
---------------- ---------------- ----------------
Oil Gas Oil Gas Oil Gas
(Mbbl) (MMcf) (Mbbl) (MMcf) (Mbbl) (MMcf)
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year 9,251 163,255 8,328 151,761 7,477 140,780
Production (923) (11,494) (851) (10,981) (565) (8,078)
------ -------- ------ -------- ------ --------
End of period 8,328 151,761 7,477 140,780 6,912 132,702
====== ======== ====== ======== ====== ========
Proved developed reserves:
Beginning of year 8,802 126,082 7,879 114,588 7,028 103,607
====== ======== ====== ======== ====== ========
End of period 7,879 114,588 7,028 103,607 6,463 95,529
====== ======== ====== ======== ====== ========
</TABLE>
6
<PAGE>
6. Supplemental Oil and Gas Reserve Information (Unaudited) (Continued)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Reserves as of September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Future cash inflows $ 473,020
Future production costs (125,021)
Future development costs (22,519)
----------
Future net inflows before income taxes 325,480
10% discount factor (154,320)
----------
Standardized measure of discounted future
net cash flows before income taxes $ 171,160
==========
</TABLE>
Changes to Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Reserves for the Nine Month Period Ended September 30, 1999
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Standardized measure, beginning of year $175,970
Sales, net of production costs (16,522)
Net change in future development costs 2,612
Accretion of discount 9,100
---------
Standardized measure, end of period $171,160
=========
</TABLE>
7
<PAGE>
3TEC ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited pro forma condensed consolidated balance sheet of the Company
as of September 30, 1999 gives effect to the purchase of the Acquired Properties
(the Purchase) as if it occurred on September 30, 1999. The unaudited pro forma
condensed consolidated statements of operations of the Company for the nine
months ended September 30, 1999 and the year ended December 31, 1998 give effect
to the Purchase as if it had occurred at the beginning of the periods presented.
The unaudited pro forma condensed consolidated financial statements have also
been prepared to give effect to the issuance of 1,055,042 shares of common stock
and warrants to purchase 798,677 shares of common stock for an aggregate
purchase price of $2,373,844 and the issuance of a senior convertible
subordinated note for $2,373,844 under a securities purchase agreement between
The Prudential Insurance Company of America (Prudential) and 3TEC Energy
Corporation (3TEC) on October 19, 1999, as if it had occurred on September 30,
1999 and at the beginning of the periods presented. These unaudited pro forma
condensed consolidated statements of operations also give effect to the August
27, 1999 issuance of 4,755,556 shares of common stock and warrants to purchase
3,600,000 shares of Common Stock for an aggregate purchase price of $10,700,000
and the issuance of a senior convertible subordinated notes for $10,700,000
under the securities purchase agreement with 3TEC Energy Company L.L.C. (3TEC
LLC) as if it had occurred at the beginning of the periods presented. The
Prudential and 3TEC LLC transactions are included in the pro forma condensed
consolidated financial statements as the transactions provided a significant
portion of the financing for the Purchase.
The following unaudited pro forma financial data have been included as
required by the rules of the SEC and are provided for comparative purposes only.
The unaudited pro forma financial data presented are based upon the historical
consolidated financial statements of 3TEC and the historical statements of
revenues and direct operating expenses of the Acquired Properties and should be
read in conjunction with such financial statements and the related notes thereto
which are incorporated herein by reference.
The pro forma financial data are based upon assumptions and include
adjustments as explained in the notes to the unaudited pro forma condensed
consolidated financial statements, and the actual recording of the transactions
could differ. The unaudited pro forma financial data are not necessarily
indicative of the financial results that would have occurred had the Purchase
been effective on and as of the dates indicated and should not be viewed as
indicative of operations in future periods.
8
<PAGE>
<TABLE>
<CAPTION>
3TEC ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1999
PRO FORMA
3TEC COMBINED PRO FORMA
CONSOLIDATED ADJUSTMENTS COMBINED
---------------- --------------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 25,076,465 $ 4,747,688(A)
(27,032,778)(C) $ 2,791,375
Accounts receivable 2,716,165 0 2,716,165
Other current assets 90,567 0 90,567
---------------- --------------- -------------
Total Current Assets 27,883,197 (22,285,090) 5,598,107
Property and equipment (at cost)
Oil and gas properties (successful efforts method) 80,659,521 94,918,548(B) 175,578,069
Other 988,579 85,000(B) 1,073,579
---------------- --------------- -------------
81,648,100 95,003,548 176,651,648
Accumulated depletion, depreciation, and amortization (35,425,362) 0 (35,425,362)
---------------- --------------- -------------
46,222,738 95,003,548 141,226,286
---------------- --------------- -------------
Other assets 637,875 531,250(B)
(87,045)(C) 1,082,080
---------------- --------------- -------------
Total Assets $ 74,743,810 $ 73,162,663 $147,906,473
================ =============== =============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current maturity of long-term debt $ 4,314,318 $(4,314,318)(C) $ 0
Accounts payable - trade 2,822,415 0 2,822,415
Accounts payable - revenue 362,065 0 362,065
Other current liabilities 200,806 0 200,806
---------------- --------------- -------------
Total current liabilities 7,699,604 (4,314,318) 3,385,286
Long-term debt 24,176,249 65,823,751(C) 90,000,000
Convertible subordinated notes 10,850,000 2,373,844(A) 13,223,844
Deferred income taxes 486,353 (30,466)(C) 455,887
Other liabilities 304,404 0 304,404
Minority Interest 1,014,155 0 1,014,155
Stockholders' equity
Convertible preferred stock (Series B) 3,627,000 0 3,627,000
Convertible preferred stock (Series C) 5,235,083 0 5,235,083
Common stock, $.02 par value, issued 13,383,005 267,692 21,101(A)
shares (historical) and 15,948,325 (pro forma) 30,206(C) 318,999
Paid-in-capital 48,137,005 6,962,381(C)
2,352,743(A) 57,452,129
---------------- --------------- -------------
Accumulated deficit (26,985,695) (56,579)(C) (27,042,274)
Less cost of treasury stock, 21,773 shares (68,040) 0 (68,040)
---------------- --------------- -------------
Total stockholders' equity 30,213,045 9,309,852 39,522,897
---------------- --------------- -------------
Total Liabilities and Stockholders' Equity $ 74,743,810 $ 73,162,663 $147,906,473
================ =============== =============
</TABLE>
Note: Accompanying Notes are an integral part of these statements.
9
<PAGE>
<TABLE>
<CAPTION>
3 TEC ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1998
3TEC ACQUIRED COMBINED PRO FORMA
CONSOLIDATED PROPERTIES ADJUSTMENTS COMBINED
------------------------------------------- ------------
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales and plant income $15,011,354 $34,067,434(D) $ 0 $49,078,788
Gain on sale of properties 1,953,362 0 0 1,953,362
Delay rental and lease bonus income 217,404 0 0 217,404
Other 520,458 0 0 520,458
------------------------------------------- ------------
Total Revenues 17,702,578 34,067,434 0 51,770,012
Costs and Expenses
Lease operating, production taxes
and plant costs 7,801,249 14,617,417(D) (681,000)(E) 21,737,666
Geological and geophysical 877,643 0 0 877,643
Depreciation, depletion and amortization 7,116,116 0 7,908,630(F) 15,024,746
Impairments 4,164,184 0 0 4,164,184
Dry-hole 503,444 0 0 503,444
Interest 1,971,595 0 6,580,420(G) 8,552,015
Stock compensation 266,445 0 0 266,445
General and administrative 4,266,727 0 2,135,613(H) 6,402,340
Other 138,855 0 0 138,855
------------------------------------------- ------------
Total Costs and Expenses 27,106,258 14,617,417 15,943,663 57,667,338
Income (loss) before income taxes and minority interest (9,403,680) 19,450,017 (15,943,663) (5,897,326)
Minority interest 15,089 0 0 15,089
Provision for income taxes (benefit) (2,829,762) 0 1,192,160(I) (1,637,602)
------------------------------------------- ------------
Net income (loss) (6,589,007) 19,450,017 (17,135,823) (4,274,813)
Dividends to Preferred Stockholders 67,945 0 0 67,945
------------------------------------------- ------------
Net income (loss) applicable to common stockholders $(6,656,952) $ 19,450,017 $(17,135,823) $(4,342,758)
=========================================== ============
Net income (loss) per share-Basic $ (0.83) $ (0.28)
Net income (loss) per share-Diluted $ (0.83) $ (0.28)
Weighted average common shares outstanding
Basic 8,050,108 7,388,092(J) 15,438,200
Diluted 8,050,108 7,388,092(K) 15,438,200
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
3 TEC ENERGY CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1999
PRO FORMA
3TEC ACQUIRED COMBINED PRO FORMA
CONSOLIDATED PROPERTIES ADJUSTMENTS COMBINED
---------------------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales and plant income $11,328,502 $26,772,564(D) $ 0 $38,101,066
Gain on sale of properties 882,477 0 0 882,477
Delay rental and lease bonus income 64,911 0 0 64,911
Other 691,442 0 0 691,442
---------------------------- ------------- ------------
Total Revenues 12,967,332 26,772,564 0 39,739,896
Costs and Expenses
Lease operating, production taxes
and plant costs 4,450,843 10,251,016(D) (530,000)(E) 14,171,859
Geological and geophysical 188,484 0 0 188,484
Depreciation, depletion and amortization 4,046,546 0 5,607,811(F) 9,654,357
Impairments 1,688,443 0 0 1,688,443
Dry-hole 455,108 0 0 455,108
Interest 1,739,362 0 3,484,787(G) 5,224,149
Stock compensation 729,938 0 0 729,938
Severance payment 284,060 0 0 284,060
Compensation plan payment 292,527 0 0 292,527
General and administrative 3,048,430 0 1,483,252(H) 4,531,682
Other 481,622 0 0 481,622
---------------------------- ------------- ------------
Total Costs and Expenses 17,405,363 10,251,016 10,045,850 37,702,229
Income (loss) before income taxes and minority interest (4,438,031) 16,521,548 (10,045,850) 2,037,667
Minority interest (40,228) 0 0 (40,228)
Provision for income taxes (benefit) (1,242,324) 0 2,201,737(I) 959,413
---------------------------- ------------- ------------
Net income (loss) (3,155,479) 16,521,548 (12,247,587) 1,118,482
Dividends to Preferred Stockholders 428,509 0 0 428,509
---------------------------- ------------- ------------
Net income (loss) applicable to common stockholders $(3,583,988) $ 16,521,548 $(12,247,587) $ 689,973
============================ ============= ============
Net income (loss) per share-Basic $ (0.39) $ 0.04
Net income (loss) per share-Diluted $ (0.39) $ 0.04
Weighted average common shares outstanding
Basic 9,137,784 6,782,566(J) 15,920,350
Diluted 9,137,784 8,824,317(K) 17,962,101
</TABLE>
11
<PAGE>
3TEC ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) To record the issuance of 1,055,042 shares of common stock and 798,677
warrants for an aggregate purchase price of $2,373,844 and the issuance of a
senior convertible subordinated note for $2,373,844 under a securities purchase
agreement to The Prudential Insurance Company of America (Prudential) to provide
partial financing for the acquisition.
(B) To record the purchase of the Acquired Properties and other assets
pursuant to the transaction. The allocation of the purchase price using the
purchase method of accounting is presented below. The allocation of the
purchase price is preliminary and, therefore subject to change. Any future
adjustments to the allocation of the purchase price are not anticipated to be
material to the unaudited pro forma financial statements.
<TABLE>
<CAPTION>
The purchase price entries are as follows:
<S> <C>
Purchase price $96,916,453
Estimated purchase price adjustments, including distributions of cash
flows from the Acquired Properties from the effective date to the
closing date of November 30, 1999 (3,080,905)
Deferred financing costs 531,250
Transaction costs 1,168,000
------------
Total purchase price 95,534,798
============
Purchase price allocation:
Acquisition costs allocated to oil and gas properties 94,918,548
Deferred debt costs 531,250
Furniture and fixtures 85,000
------------
Total purchase allocation 95,534,798
============
</TABLE>
(C) To record the effect of borrowings of $90,000,000 under 3TEC's $250
million credit facility, issuance of 1,510,278 shares of common stock, valued at
$6,992,587, or $4.63 per share, and use of existing cash to finance the Purchase
and repay the outstanding borrowing of $28,490,567 under 3TEC's former revolving
line of credit. In addition, to record the bank facility fee associated with
3TEC's $250 million credit facility, and eliminate $87,045 ($56,579, net of
$30,466 of tax) of net deferred debt costs associated with 3TEC's former
revolving line of credit.
(D) To record the revenues and direct operating expenses related to the
Acquired Properties.
(E) To eliminate overhead charges that will no longer be incurred on a
portion of the acquired properties, as such will be operated by 3TEC and its
subsidiaries.
(F) To adjust depletion, depreciation and amortization to give effect to the
purchase price allocated to the Acquired Properties using the unit of production
method under the successful efforts method of accounting.
(G) To record the net increase in interest expense (at 9.24% and 7.27% for
the year ended December 31, 1998 and the period ended September 30, 1999,
respectively) and amortization of deferred financing costs relating to the
borrowings under 3TEC's $250 million credit facility, and to record interest
expense on convertible subordinated notes issued to EnCap Investments L.L.C.
(EnCap) and Prudential of $1,190,146 and $800,384 for the year ended December
31, 1998 and the period ended September 30, 1999 respectively.
(H) To record additional general and administrative expenses relating to
additional costs anticipated to be incurred due to contractual obligations
incurred in completing the Purchase.
(I) To record income tax expense on the pro forma adjustments based on
3TEC's statutory tax rate of 34%.
12
<PAGE>
3TEC ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
(J) To reflect the impact on basic weighted average common shares
outstanding of 1,510,278 shares of 3TEC common stock issued for the Acquired
Properties, 1,055,042 shares of 3TEC common stock issued to Prudential under
the securities purchase agreement, and 4,822,772 shares of 3TEC common stock
issued to EnCap and related party.
(K) To reflect the impact on diluted weighted average common shares
outstanding of 1,510,278 shares of 3TEC common stock issued for the Acquired
Properties, 1,055,042 shares of 3TEC common stock issued to Prudential under the
securities purchase agreement, and 4,822,772 shares of 3TEC common stock issued
to EnCap and related party, for the nine months ended September 30, 1999. The
weighted average common stock equivalents were not included in 3TEC's diluted
weighted average common shares outstanding for the year ended December 31, 1998,
because their effect would have been antidilutive.
13
<PAGE>
UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURE
The following tables set forth certain unaudited pro forma information
concerning 3TEC's proved oil and gas reserves at September 30, 1999, giving
effect to the acquisition of the Acquired Properties as if they had occurred on
January 1, 1998. There are numerous uncertainties inherent in estimating the
quantities of proved reserves and projecting future rates of production and
timing of development expenditures. The following reserve data represent
estimates only and should not be construed as being exact. The proved oil and
gas reserve information is as of September 30, 1999 and reflects prices and
costs in effect as of such date.
<TABLE>
<CAPTION>
RESERVES:
OIL AND CONDENSATE (MBBLS) NATURAL GAS (MMCF)
--------------------------------------------------------------------------------------
ACQUIRED PRO FORMA ACQUIRED PRO FORMA
3TEC PROPERTIES CONSOLIDATED 3TEC PROPERTIES CONSOLIDATED
-------------------- ---------- -------------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 3,342 7,477 10,819 43,483 140,780 184,263
Extensions and discoveries 13 13 1,286 1,286
Purchase of minerals in-place 97 97 38 38
Revision of previous estimates 319 319 (4,981) (4,981)
Production (369) (565) (934) (2,778) (8,078) (10,856)
Sales of minerals in-place (355) (355) (1,693) (1,693)
-------------------- ---------- -------------------- ---------- -------- --------
Balance at September 30, 1999 3,047 6,912 9,959 35,355 132,702 168,057
==================== ========== ==================== ========== ======== ========
Proved developed reserves 3,040 6,463 9,503 31,034 95,529 126,563
==================== ========== ==================== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
STANDARD MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL &
GAS RESERVES:
ACQUIRED
3TEC PROPERTIES PRO FORMA
(IN THOUSANDS)
---------- --------------- -----------
<S> <C> <C> <C>
Future cash inflows $163,124 $ 473,020 $ 636,144
Future production costs (60,653) (125,021) (185,674)
Future development costs (2,024) (22,519) (24,543)
---------- --------------- -----------
Future net inflows before income taxes 100,447 325,480 425,927
Income taxes (6,982) - (6,982)
---------- --------------- -----------
Future net cash flows 93,465 325,480 418,945
10% discount factor (40,866) (154,320) (195,186)
---------- --------------- -----------
Standardized measure of discounted future net cash flows $ 52,599 $ 171,160 $ 223,759
========== =============== ===========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
CHANGES TO STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVES:
ACQUIRED
3TEC PROPERTIES PRO FORMA
(IN THOUSANDS)
------------ ----------- ---------
<S> <C> <C> <C>
Standardized measure, January 1, 1999 $ 38,894 $ 175,970 $214,864
Sales, net of production costs (6,878) (16,522) (23,400)
Purchases of reserves in place 749 749
Net changes in prices and production costs 21,595 21,595
Net changes in income taxes (3,929) (3,929)
Extensions, discoveries and improved recovery, net of future
production and development costs 2,268 2,268
Changes in estimated future development costs 2,612 2,612
Revisions of quantity estimates (3,030) - (3,030)
Accretion of discount 2,917 9,100 12,017
Sales of reserves in place (1,643) - (1,643)
Changes in production rates and other 1,656 - 1,656
------------ ----------- ---------
Standardized measure, September 30, 1999 $ 52,599 $ 171,160 $223,759
============ =========== =========
</TABLE>
15
<PAGE>
