As Filed: November 20, 1996 SEC File No. 333-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Registration Statement on
Form S-3
Under the Securities Act of 1933
FX ENERGY, INC.
(Exact name of registrant as specified in its charter)
Nevada 1070 87-0504461
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code Number)
3006 Highland Drive, Suite 206,
Salt Lake City, Utah 84106,
Telephone (801) 486-5555
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
David N. Pierce,
3006 Highland Drive, Suite 206,
Salt Lake City, Utah 84106,
Telephone (801) 486-5555
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
James R. Kruse, Esq.
KRUSE, LANDA & MAYCOCK, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Telephone: (801) 531-7090
Telecopy: (801) 531-7091
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.[ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.[x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.[ ]
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount Proposed Maxi- Proposed Amount of
Securities Being to be mum Offering Maximum Registration
Registered Registered Price Per Unit(1) Aggregate Fee
Offering
Price
Common Stock(2) 764,072 $ 9.00 $6,876,648 $ 2,084
(1) Bona fide estimate of maximum offering price solely for the purpose of
calculating the registration fee. The offering price for the common stock
being sold by selling stockholders is based on the average of the closing
sales price for the Registrant's Common Stock on the Nasdaq National Market
of $ as of November 18, 1996 (rule 457(c)).
(2) Consists of shares held by selling stockholders and shares to be held on
exercise of common stock purchase warrants and options. Pursuant to rule
416, there are also being registered such additional securities as may
become issuable as a result of the antidilution provisions of the warrants
and options.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said section
8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION--PRELIMINARY PROSPECTUS DATED NOVEMBER , 1996
764,072 Shares
FX ENERGY, INC.
Common Stock
All 764,072 shares of common stock, par value $0.001 per share (the "Common
Stock"), of FX Energy, Inc. (the "Company"), are being offered by certain
selling stockholders (the "Selling Stockholders"). See "SELLING STOCKHOLDERS"
and "DESCRIPTION OF SECURITIES" below.
The Selling Stockholders will offer their Common Stock through or to
securities brokers or dealers designated by them in the over-the-counter market,
in other transactions negotiated by the Selling Stockholders, or pursuant to
Rule 144 or another exemption from registration. Any such sale of Common Stock
by Selling Stockholders must be accompanied by, or follow the delivery of, a
prospectus filed with a current registration statement relating to the Common
Stock being offered, unless a Selling Stockholder elects to rely on Rule 144 or
another exemption from the registration requirements in connection with a
particular transaction. The Selling Stockholders and any broker, dealer, or
agent that participates with the Selling Stockholders in the sale of the Common
Stock offered hereby may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
or discounts received by them and any profit on the resale of the Common Stock
purchased by them may be deemed to be underwriting commissions under the
Securities Act. See "SELLING STOCKHOLDERS" and "PLAN OF DISTRIBUTION" below.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "FXEN." On November 18, 1996, the last reported price for the
Company's Common Stock on the Nasdaq National Market was $9.00 per share. See
"CERTAIN RECENT EVENTS."
THE COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" on page 7
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER REGULATORY AUTHORITY, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER REGULATORY AUTHORITY
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Offering Proceeds to
Public(1) Commissions(2) Selling Stockholders
By Selling Stockholders
Per Share $9.00 -- $9.00
Total $6,876,648 -- $6,876,648
(1)The price per share for the securities offered by the Selling Stockholders
is estimated at $9.00, the last reported price for the Common Stock on
November 18, 1996. The Common Stock may be offered at the current market
price, which may vary through the period during which the securities may be
offered, or at such other prices as may be negotiated by a Selling
Stockholder and purchaser at the time of sale.
(2)The securities to be sold by Selling Stockholders may be sold by them
through or to securities brokers or dealers, which sales may involve the
payment of commissions by the Selling Stockholders. There is no agreement
between the Company and any broker or dealer respecting such sales.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
The date of this Prospectus is , 1996.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders. In connection with this offering, the Company
estimates that it will incur costs of approximately $30,000 for legal,
accounting, printing, and other costs. Any separate costs of the Selling
Stockholders will be borne by them. Commissions or discounts paid in connection
with the sale of securities by the Selling Stockholders will be determined by
negotiations between them and the broker-dealer through or to which the
securities are to be sold and may vary depending on the broker-dealer's
commission or mark up schedule, the size of the transaction, and other factors.
See "PLAN OF DISTRIBUTION" below.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's following reports are hereby incorporated by reference into
this Prospectus:
. Annual report on Form 10-KSB for the fiscal year ended December 31, 1995
("1995 Form 10-KSB");
. Quarterly reports on Form 10-QSB for the fiscal quarters ended March 31,
1996, June 30, and September 30, 1996 ("September 30, 1996 Form 10-
QSB");
. Current reports on Form 8-K dated May 3, May 21, October 1, and October
9, 1996; and
. Proxy Statement related to the 1996 annual meeting of the Company's
stockholders.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
All documents subsequently filed by the Company pursuant to sections 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934 prior to termination
of the offering shall be deemed to be incorporated by reference into this
Prospectus. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated by reference into this Prospectus, other than certain exhibits to
such documents. Requests for such copies should be directed to Stockholder
Relations, FX Energy, Inc., at 3006 Highland Drive, Suite 206, Salt Lake City,
Utah 84106, telephone number (801) 486-5555. In addition, such material and
other reports and information filed by the Company with the Securities and
Exchange Commission (the "Commission") can be inspected at or copies obtained
from certain regional offices of the Commission or the Public Reference Section
of the Commission, Washington, D.C. 20549, at the prescribed rates. See
"ADDITIONAL INFORMATION" below.
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PROSPECTUS SUMMARY
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The following summary is qualified in its entirety by the detailed
information and financial statements and the notes thereto appearing elsewhere
in this prospectus or incorporated herein by reference.
Unless otherwise indicated, all information herein relating to oil and gas
reserves has been calculated in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC").
This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. When
used in this document, the words "anticipate," believe," "estimate," expect,"
and "intend" and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. Such
statements reflect the current view of the Company respecting future events and
are subject to certain risks, uncertainties, and assumptions, including the
risks and uncertainties noted. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected, or intended.
The Company
The Company is engaged in the exploration, development, and production of
oil and gas properties in the western United States and Poland. The Company
currently produces oil from fields in Montana and Nevada and explores for oil
and gas primarily in Poland. In August 1995, the Company was one of the first
independent energy companies to secure oil and gas exploration rights in Poland
(the "Baltic Concession"). The Baltic Concession covers approximately 2.4
million acres in northern Poland and is part of a geological region (the "Baltic
Platform") which reportedly has produced in excess of 150 million barrels of oil
("MMBbl") from four fields located approximately 50 miles to the northeast in
the Kaliningrad district of Russia. In May 1996, the Company also entered into
a joint study agreement with the Polish Oil and Gas Company ("POGC") to
reprocess and reinterpret geological and geophysical data collected from a 6.25
million acre area in the Carpathian region of southeastern Poland (the
"Carpathian JSA"). Management believes that the Company's principal strengths
are its existing prospects in Poland, its access to previously collected
geological and geophysical data, its established network of strategic alliances
and its inventory of domestic properties.
The Company has identified several potential drilling prospects in the
Baltic Concession through the reprocessing and reevaluation of previously
collected seismic and drilling data. The Company intends to explore and, if
warranted, develop these prospects with RWE-DEA AG ("RWE-DEA"), a subsidiary of
RWE AG, Germany's fifth largest industrial company. The Company and RWE-DEA
recently completed a 360 kilometer seismic survey on selected portions of the
Baltic Concession. The results of this survey were used in the selection of the
site of the first exploratory well scheduled to be commenced in late 1996. A
second well is planned for early 1997 in coordination with the completion of
such additional seismic surveys as the Company may deem warranted. Subject to
the results of initial drilling, the Company intends to continue with a
progressive drilling program in 1997, building on the accumulated exploration
data with the results from new wells drilled and additional seismic surveys that
may be completed. In the Carpathian JSA, the Company and POGC are conducting a
technical evaluation of a target area and, if warranted, will apply for an
exploration concession. The Company has budgeted approximately $8.4 million for
exploration and development activities in Poland through 1997 and, as noted
below, has recently completed a public offering of Common Stock to fund such
activities.
The Company currently produces oil exclusively in the United States. At
December 31, 1995, the Company had estimated proved reserves of 5.3 MMBbl with
estimated future net revenues, discounted at 10% and calculated without regard
to future tax expenses ("PV-10 Value"), of approximately $23.8 million.
Approximately 78% of the Company's production and 96% of its reserves are
concentrated in northern Montana's Cut Bank field. To enhance production in
this field, the Company intends to expand its current infill drilling program
which was initiated in late 1994. The Company is also evaluating several
exploration prospects in the western United States and has recently plugged and
abandoned an exploratory well on a prospect in Nevada. The Company has budgeted
approximately $6.9 million for exploration and development activities in the
United States through 1997.
On October 1, 1996, the Company was granted rights to explore for gold and
other associated minerals in a 71,000-acre block in the Sudety region of
southwestern Poland (the "Sudety Exploration Area"). The Company has entered
into an agreement with Homestake Mining Company ("Homestake"), an international
gold mining company with substantial gold mining operations and exploration
activities, primarily in the United States, Canada, and Australia. Under the
agreement, the Company and Homestake will jointly develop a plan for studying
the Sudety Exploration Area. Subject to the results of the reconnaissance, the
two companies may elect to negotiate a subsequent agreement, in which case,
Homestake would likely take over operations with the Company retaining a working
interest or royalty. The Company has agreed not to negotiate with any other
company regarding the Sudety Exploration Area for a period of 14 months.
Common Stock Offering
In August 1996, the Company sold 3,450,000 shares of Common Stock in a
public offering at $5.75 per share for net proceeds to the Company of
approximately $17.9 million. The net offering proceeds are allocated to repay
bank debt, to fund the Company's capital expenditure program, which includes
exploration and potential development in the onshore Baltic Platform and
Carpathian regions of Poland and development and exploration in the western
United States, and for general corporate purposes.
The managing underwriters of the offering were Oppenheimer & Co., Inc., and
Hanifen, Imhoff, Inc.
Business Strategy
The Company explores and develops oil and gas prospects potentially
containing recoverable reserves in excess of 25 MMBOE for international
properties and 10 MMBOE for domestic properties. This strategy includes the
following key elements:
. Focus on Poland. The Company believes that the Baltic Concessionand the
Carpathian JSA provide it with a foundation upon which to build a significant
exploration and development operation in Poland. The Company believes this
foundation will allow it to capitalize on Poland's attractive combination of
significant reserve potential, underexplored acreage and favorable operating
environment. Beginning in 1989, Poland initiated a number of market-based
reforms which have resulted in the country's economy becoming one of the
fastest growing in Europe. Important elements of this transition have
included the introduction of both a broad-based privatization program and an
internationally competitive tax and royalty structure. Partially as a result
of these initiatives, Poland attracted approximately $6.8 billion in direct
foreign investment between 1989 and 1995, according to reports from the
Polish State Foreign Investment Agency published by the Polish embassy.
Several international oil companies, including Texaco, Inc., Tenneco Co.,
Exxon Corp., and Shell Oil Co., have either secured, or obtained the
exclusive right to negotiate for, exploration rights.
. Access existing geological and geophysical data. The Company focuses on
areas where it can reevaluate previously collected geological and geophysical
data. Between 1950 and 1993, state-sponsored agencies in Poland gathered
hundreds of line miles of seismic data and drilled 15 test wells in the
Baltic Concession to the same formation that is productive in established
fields in the Baltic Platform. While a majority of these wells indicated the
presence of hydrocarbons in that formation, none was completed for production
due, in management's opinion, to the outdated equipment and poor techniques
used to locate, drill and test the wells. The Company, with the assistance
of consultants that included Halliburton Energy Services, Ryder Scott Company
and Western Atlas, Inc., reevaluated seismic and well data generated by
earlier exploration efforts in the Baltic Concession. As a result of this
effort, the Company believes that it has identified potential oil reservoirs
in two structures that had previously been drilled and over a dozen undrilled
structures.
. Capitalize on strategic alliances. The Company seeks to form strategic
alliances to reduce its financial exposure and to gain additional technical
and operational expertise. This strategy is exemplified by the Company's
alliances with RWE-DEA covering the Baltic Concession, with POGC in the
Carpathian JSA, and with Homestake covering the Sudety Exploration Area.
RWE-DEA, formerly Deutsche Texaco AG, is an established producer, refiner and
marketer of oil and gas in Europe and currently produces oil in the Baltic
Sea off Germany's northern coast. Pursuant to an agreement with the Company,
RWE-DEA will earn a 50% interest in the Baltic Concession by paying the
Company $250,000, by providing up to $2.1 million for a seismic survey now
completed and a planned exploratory well, and by funding 50% of the cost of a
second exploratory well. The Company will operate all wells it drills
jointly with RWE-DEA. In the Carpathian JSA, the Company is evaluating
existing geological and geophysical data contributed by POGC in order to
determine the hydrocarbon potential of a target area. The Company and POGC
may apply for exploration rights covering such target area upon the
completion of this analysis. The Company and Homestake will jointly develop
a plan for studying the Sudety Exploration Area. Subject to the results of
such studies, the Company and Homestake may then undertake joint activities
for the exploration of the Sudety Exploration Area.
. Exploit domestic reserve base and prospects. The Company believes that its
existing domestic properties have significant development and exploration
potential. The Company recently completed an infill drilling program on a
1,000 acre tract of the Cut Bank field which, based on preliminary results,
the Company believes will increase production over the next two to three
years. The Company has begun expansion of this program in order to include
approximately 4,000 additional acres in the Cut Bank field. The Company also
has an ongoing program of prospect generation and exploration in the western
United States.
The Company's executive offices are located at 3006 Highland Drive, Suite
206, Salt Lake City, Utah 84106, telephone number (801) 486-5555. The Company's
Montana field office is located at the corner of Central and Main, Oilmont,
Montana 59466, telephone number (406) 337-2050. The registered address of
Frontier Poland Exploration and Producing Company Sp. z o.o ("FX Poland"), a
Polish subsidiary of the Company, is Wal Miedzesynski 646, 03-994 Warszawa,
Poland.
The Offering
Securities offered by Selling Stockholders..764,072 shares of Common Stock(1)
Common Stock outstanding before offering.... 12,457,547 shares
Common Stock outstanding after offering..... 12,759,075 shares
Common Stock reserved for issuance.......... 3,047,500 shares(2)
Fully diluted Common Stock ................. 15,806,575 shares
Nasdaq Symbol...............................FXEN
(1) Includes 462,544 shares of Common Stock currently issued and outstanding
and 301,528 shares issuable on the exercise of Common Stock purchase
warrants and options and to be sold pursuant to this Prospectus.
(2) In addition to the 301,528 shares of Common Stock reserved for issuance on
exercise of options and warrants currently held by Selling Stockholders,
1,480,000 shares of Common Stock are reserved for issuance on the exercise
of outstanding options and warrants, all of which are exercisable, at
exercise prices ranging from $1.50 to $5.75 with a weighted average
exercise price of $3.32 per share, 800,000 shares are reserved for issuance
on the exercise of options previously granted but not yet exercisable at
$3.00 per share, 150,000 shares are reserved for issuance on the exercise
of underwriter's warrants issued in connection with the Company's recent
public offering that have an exercise price of $6.90 per share, 150,000
shares are reserved for issuance on the satisfaction of certain contractual
conditions relating to oil production levels from the Company's producing
properties in Montana and Nevada, and 467,500 shares are reserved for
issuance on the exercise of options recently granted that have an exercise
price of $8,875 per share, including options to purchase 145,000 shares
that are not yet exercisable.
No Net Proceeds
The Company will receive no proceeds from the sale of Common Stock by the
Selling Stockholders, but will incur costs of approximately $30,000 in
connection with such offering.
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RISK FACTORS
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The purchase of Common Stock involves a high degree of risk. Prospective
investors should consider, in addition to the negative implications of all other
information and financial data set forth herein or incorporated herein by
reference, the following factors before making an investment in the Common
Stock. Certain portions of this Prospectus and the materials incorporated
herein by reference contain forward-looking information concerning the Company,
its plans and other future events. These statements should be read in
conjunction with the risks and uncertainties set forth below, which could cause
actual results to differ materially from such forward-looking statements.
Factors Relating to the Company
History of Operating Losses
From its inception in January 1989 through September 30, 1996, the Company
incurred cumulative losses of $5.7 million and, because of its continued
exploration activities, expects that it will continue to incur losses and that
its accumulated deficit will increase. The Company reported losses of $1
million and $2.5 million for the years ended December 31, 1994 and 1995,
respectively, and a loss of $1.5 million for the nine months ended September 30,
1996. The Company anticipates that it will incur losses through 1996 and
possibly beyond, depending on whether exploration of the Baltic Concession
results in the commencement of production in quantities sufficient to cover
related operating expenses and whether the infill drilling program in the Cut
Bank field results in significant and sustained increased production. See "ITEM
7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" and "ITEM 6. MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" in the 1995 Form 10-KSB and "ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" in the most
recent Form 10-QSB.
Dependence on Activities in Poland
The Company's success will depend to a high degree on its activities in
Poland. This dependence is likely to be reflected in both the short-term
performance of the Common Stock and the Company's long-term financial results.
The Company currently intends to drill one exploratory well in Poland in late
1996 and to continue exploratory drilling in 1997. The market price of the
Common Stock may experience significant fluctuations based on the outcome of
individual wells and the Company's other exploration efforts in Poland. These
fluctuations may be exacerbated by the fact that the Common Stock, in
management's opinion, currently trades to a significant degree on the potential
of the Company's current and planned activities in Poland. See "Development
Risks" and "Exploration Risks" below. The success of the Company's efforts in
Poland will depend, in addition to the risks normally associated with the
exploration for oil, on its ability to maintain its relationships with its
exploration partners and the Polish government and a number of other risks
associated with conducting operations in a foreign country. See "Factors
Relating to Activities in Poland" below. If the Company's activities in Poland
are unsuccessful, the price of the Common Stock would likely suffer a material
decline, and investors would face the possible loss of a substantial portion of
their investment. Because of the preliminary stage of the Company's activities
in Poland, no assurance can be given that such activities will be successful.
See "CERTAIN RECENT EVENTS" below and "ITEM 1. BUSINESS: Poland--Onshore Baltic
Concession" in the 1995 Form 10-KSB.
Volatility of Common Stock
The market price for the Common Stock has been volatile in the past and
could fluctuate significantly in response to the results of specific exploration
drilling tests, variations in quarterly operating results and changes in
recommendations by securities analysts. Further, the trading volume of the
Common Stock is relatively small, and the market for the Common Stock may not be
able to efficiently accommodate significant trades on any given day.
Consequently, sizable sales or purchases of the Common Stock have in the past,
and may in the future, cause volatility in the market price of the Common Stock
to a greater extent than in other more actively traded securities. Until more
trading volume develops, larger transactions may not be able to be closed at the
then current market price for the Common Stock. In addition, the securities
markets regularly experience significant price and volume fluctuations that are
often unrelated or disproportionate to the results of operations of particular
companies. These broad fluctuations may adversely affect the market price of
the Common Stock. See "ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS" in the 1995 Form 10-KSB.
Dependence on RWE-DEA Strategic Alliance
The Company has budgeted $7 million for exploration and potential
development of the Baltic Concession through 1997 based, to a significant
degree, on the participation of RWE-DEA. If RWE-DEA elects to terminate its
participation in the Baltic Concession for any reason, the Company could, at the
discretion of management, either seek a replacement partner or proceed as
planned with a substantially increased budget, subject to available funds.
Although the Company believes it would be able to locate an alternative
strategic partner, there can be no assurance that the Company would be
successful in obtaining the participation of another partner, that the terms of
any such arrangement would be favorable to the Company or that such efforts
would not delay the Company's exploration and development of the Baltic
Concession.
Dependence on Polish Government Consent to RWE-DEA Assignment
Under the terms of its agreement with RWE-DEA, the Company is required to
assign to RWE-DEA 50% of its beneficial interest in its exploration and
exploitation agreement covering the Baltic Concession. RWE-DEA and the Company
are applying for approval of such assignment from the appropriate government
authorities. Although the Company believes, based on informal discussions among
representatives of the Company, RWE-DEA and the Polish government, that such
consent will be granted, there is no assurance that such consent will actually
be obtained. If the government does not consent to such assignment and if the
Company is not able to negotiate some other arrangement with RWE-DEA, the
Company will be required to reimburse RWE-DEA for all of its Baltic Concession
expenditures.
Dependence on Government Approval
Should the Company's exploration efforts discover hydrocarbons in the
Baltic Concession, the Company will be required to engage in negotiations with
national and local government officials of Poland regarding certain of the terms
and conditions of the required exploitation licenses. These negotiations would
include the determination of a development/exploitation fee within the range of
0.001% to 0.05% of the market value of the economically recoverable reserves
estimated to be in place, payable in five equal annual installments. In
addition, the granting of an exploitation license requires the consent of the
local governments having jurisdiction over the production area. Although the
Company has the exclusive right to receive an exploitation license in the Baltic
Concession and the local governments will receive 60% of royalties paid, the
Company could be subject to significant delays in obtaining the consents of
local authorities or satisfying other governmental requirements prior to
obtaining an exploitation license. Finally, the granting of an exploitation
license would require the Company to comply with certain environmental
regulations and may require the preparation of an environmental impact
statement. See " CERTAIN RECENT EVENTS" below and "ITEM 1. BUSINESS" in the
1995 Form 10-KSB.
Exploration Risks
The Company's oil and gas exploration activities involve significant risks.
There can be no assurance that the use of technical expertise as applied to
geophysical or geological data will ensure that any well will encounter
hydrocarbons. Further, there is no way to know in advance of drilling and
testing whether any prospect encountering hydrocarbons will yield oil or gas in
sufficient quantities to be economically viable. Several test wells are
typically required to explore each prospect or exploration area. The Company
may continue to incur exploration costs in specific areas, including the Baltic
Concession and the Carpathian region in Poland, even if initial test wells are
plugged and abandoned or, if completed for production, do not result in
production in commercial quantities. To date, the Company has participated in
seven exploratory test wells in the western United States, none of which has
resulted in the establishment of commercial production or reserves. The Company
has yet to drill a well in Poland; and all of the wells drilled previously by
third parties in the Baltic Concession were plugged and abandoned. Through
1997, the Company has allocated approximately $8.4 million of its capital budget
for its activities in Poland. There can be no assurance that the Company's
efforts will be successful. Many of the Company's exploration decisions are
based on third-party scientific data, some of which was gathered in the 1960s
and 1970s. Although the Company has reprocessed such data, there can be no
assurance that such data is as reliable as data gathered either using modern
technology or under the Company's supervision. See "CERTAIN RECENT EVENTS"
below and "ITEM 1. BUSINESS" in the 1995 Form 10-KSB.
Possible Changes in Royalty Rate
The Company's activities in Poland are subject to the risk of changes in
the royalty rate to be paid on production. Poland's Council of Ministers sets a
base royalty rate for the extraction of each mineral. The base royalty rate for
oil is currently 6%, but could be increased unilaterally up to 10% (the current
maximum base royalty rate) by the Council of Ministers. In addition, the Polish
government can set the royalty rate for any particular oil and gas field in a
range between 50% and 150% of the base royalty rate, depending on the economic
viability of such field. See "CERTAIN RECENT EVENTS" below and "ITEM 1.
BUSINESS--Poland: Onshore Baltic Concession" in the 1995 Form 10-KSB.
No Assurance of Commercial Production from the Baltic Concession
There has not been any commercial production of oil or gas from the Baltic
Concession. Various agencies of the Polish government have drilled seven
exploratory wells and eight stratigraphic wells in the Baltic Concession to the
same formation that is productive in established fields in the Baltic Platform.
None of these wells has been completed for production. Notwithstanding the
substantial data available regarding the Baltic Concession from these previous
drilling efforts and other exploration programs, the Company believes that
several exploration tests may be required to appraise the potential of any
structure that the Company identifies. There can be no assurance that such
tests will be successful. Although the Company has identified certain
structures within the Baltic Concession that it believes contain oil reservoirs,
there can be no assurance that oil is present in commercial quantities or that
the first exploratory well, the location of which will be determined by RWE-DEA,
will be drilled on one of these identified structures. Further, there can be no
assurance that the porosity, permeability or other characteristics of any
reservoir formation will support the production of oil in commercial quantities.
Similarly, although the Company believes that it has identified a number of
structures that have the potential to contain hydrocarbons, there can be no
assurance that such structures actually contain hydrocarbons. See "CERTAIN
RECENT EVENTS" below and "ITEM 1. BUSINESS--Poland--Onshore Baltic Concession"
in the 1995 Form 10-KSB.
No Assurance of Commercial Production from the Carpathian JSA
The exploration activity in the Carpathian JSA is in its initial stages and
no assurance can be given that it will result in any commercial production.
Although there is currently limited hydrocarbon production from certain shallow
formations in the Carpathian JSA, there has never been any commercial production
from the depths which the Company has the right to evaluate with POGC.
Dependence on Officers and Key Employees
The Company is dependent upon Mr. David N. Pierce, President, Mr. Andrew W.
Pierce, Operations Vice President, and other key personnel for its various
activities. The loss of the services of any of these individuals may materially
and adversely affect the Company. In addition, with respect to its activities
in Poland, the Company is dependent on Mr. Jerzy B. Maciolek, an executive
officer and director, and Eva K. Sokolowska, both Polish nationals, who have
been instrumental in assisting the Company in establishing its operations in
Poland, and the loss of the services of either person may materially and
adversely affect the Company's activities in Poland. The Company has entered
into employment agreements with Mr. David N. Pierce, Mr. Andrew W. Pierce, Mr.
Maciolek, and Ms. Sokolowska. The Company does not maintain key man insurance
on any of its employees. See "ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT--
Executive Officers and Directors" in the 1995 Form 10-KSB.
Risks Associated with Growth
The Company has had limited operations and, if its activities in Poland are
successful, may experience rapid growth. The Company's ability to manage this
growth will depend, in part, upon its ability to attract and retain quality
management and technical personnel. No assurance can be given that the Company
will be able to attract or retain such employees or otherwise manage any
potential expansion of its business. The likelihood of the success of the
Company must be considered in light of the expenses, difficulties, complications
and delays frequently encountered in connection with the early stages of an oil
and gas company. In particular, the Company's operations in Poland to date have
focused primarily on the evaluation of prospects, and the Company has little or
no experience in Poland regarding exploration, development, production and
marketing and has not yet drilled a well in Poland. Although the Company does
have experience in these activities in the United States, there can be no
assurance that such experience will assist in its activities in Poland.
Possible Future Need for Additional Capital
If exploration of either the Baltic Concession or the Carpathian JSA is
successful in proving substantial oil reserves, the Company may require
significant amounts of additional capital for a development program, oil storage
and handling facilities, oil transportation assets, or other assets required to
support production. In addition, the Company might require additional capital to
accelerate the infill drilling program in the balance of its Cut Bank field
property. The Company has no arrangement for any such additional financing, but
might seek funds from project financing, strategic alliances or other sources,
all of which may dilute the interest of the Company in the specific project
financed. In addition, the Company might seek funds through the sale of
additional debt or equity securities, which could significantly dilute the
ownership of the Company's existing shareholders. There can be no assurance
that additional funds could be obtained or, if obtained, would be obtained on
terms favorable to the Company. See "ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS" in the most recent Form 10-QSB.
Risk of Impairment of Recorded Value of Unproved Properties
The Company capitalizes costs related to unproved oil and gas properties
and recognizes expenses for costs to drill exploratory wells that do not result
in proved reserves at the time the well is plugged or abandoned. In addition,
the Company reviews its unproved properties periodically to assess whether an
impairment allowance should be recorded. At September 30, 1996, the Company had
capitalized costs related to the acquisition of unproved oil and gas properties
in the amount of $1.5 million, the substantial majority of which is related to
the Company's Lake Valley, Nevada, exploration prospect. Should future events
such as the drilling of dry holes or management's decision to focus the
Company's exploration efforts and resources elsewhere show that an impairment of
recorded value has taken place, the adverse impact on the Company's results of
operations for the relevant period could be significant. As a result of the
foregoing, the results of operations of the Company for any particular period
may not be indicative of the results that could be expected over longer periods.
See "ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" in the
most recent Form 10-QSB.
Risks of Adverse Weather
A significant portion of the Company's exploration and development
activities are subject to periodic interruptions due to weather conditions that
may be quite severe in the areas where such activities are conducted. Heavy
precipitation may make travel to exploration sites or drilling locations
difficult or impossible. Extremely cold temperatures may delay or interrupt
drilling, well servicing and production. The foregoing may reduce production
volumes or increase production costs.
Shares Eligible for Future Sale
Substantially all of the approximately 12.5 million shares of Common Stock
currently issued and outstanding either (i) were sold in a registered offering,
(ii) have been held for in excess of two years and are eligible for resale under
Rule 144, promulgated under the Securities Act, (iii) are registered for resale
in previously filed registration statements, or (iv) are registered for resale
pursuant to this Prospectus. The resale of 1.1 million of such shares owned by
officers and directors of the Company is subject to contractual restrictions and
certain volume and other restrictions under Rule 144. The possible resale of
the remaining 11.4 million shares may have a depressive effect on the public
trading market for the Common Stock. See "ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS" in the 1995 Form 10-KSB and "DESCRIPTION OF
SECURITIES--Covenant to Register Common Stock" below.
Substantial and Immediate Dilution
Persons purchasing Common Stock will suffer a substantial and immediate
dilution below the purchase price to the net tangible book value of their
shares. See "DILUTION" below.
Lack of Due Diligence Review
No securities broker-dealer or other person has been engaged to perform any
due diligence or similar review of this offering or the Company on behalf of the
Selling Stockholders, persons who may purchase Common Stock in this offering, or
any other person.
Control of the Company by Management
The current executive officers and directors of the Company hold sole or
shared voting and dispositive power over 1.1 million issued and outstanding
shares of Common Stock, which constitutes approximately 8.8% of the 12.5 million
shares of Common Stock currently issued and outstanding. Giving effect only to
the exercise of all options held by officers and directors, including options
not yet completely vested, current executive officers and directors would own a
total of 3.5 million shares, or approximately 23.5% of the 14.9 million shares
that would be issued and outstanding. As a result of such ownership, such
persons are able to substantially influence the election of all of the directors
of the Company and the outcome of other matters submitted to the stockholders
for consideration. See "ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" in the 1995 Form 10-KSB, the most recent Form 10-QSB, and
"DESCRIPTION OF SECURITIES" below.
Substantial Warrants and Options Outstanding
The Company has issued and outstanding warrants and options to purchase an
aggregate of up to 3.2 million shares of Common Stock at exercise prices ranging
from $1.10 to $8.875 with a weighted average exercise price of $4.11 per share,
including options and warrants to purchase up to 301,528 shares of common stock
held by Selling Stockholders. Of those warrants and options, 2,381,000 shares
of Common Stock are issuable on the exercise of options held by officers and
directors of the Company at exercise prices ranging from $1.50 to $8.875 per
share, including options to purchase 865,000 shares that are not fully vested.
The existence of such warrants and options may prove to be a hindrance to future
financings by the Company, and the exercise of such warrants and options may
further dilute the interests of all other stockholders. The possible future
resale of Common Stock issuable on the exercise of such warrants and options
could adversely affect the prevailing market price of the Common Stock.
Further, the holders of options and warrants may exercise them at a time when
the Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company. See "DESCRIPTION OF SECURITIES--Preferred Stock,
Warrants, and Options Outstanding" below and "ITEM 11. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the 1995 Form 10-KSB and the most
recent Form 10-QSB.
Caution Respecting Forward-Looking Information
This Prospectus contains certain forward-looking information, including
discussions of the uncertainties of certain terms to be determined in the future
relating to the Baltic Concession, the Carpathian JSA, and the Sudety
Exploration Area; uncertainties regarding future political, economic,
regulatory, fiscal, taxation and other policies in Poland; the future results of
various exploration and development activities; future events that may result in
the need for additional capital; future drilling and other exploration schedules
and sequences for various wells and other activities; the future ability of the
Company to attract drilling participants to share the costs of exploration and
development; and similar matters. Such information is based on present
circumstances and on the Company's predictions respecting events that have not
occurred, which may not occur or which may occur with different consequences
from those now assumed or anticipated. No assurance can be given that actual
events may not be different than the assumptions on which such forward-looking
information is based. See "CERTAIN RECENT EVENTS" below and "ITEM 2.
PROPERTIES" in the 1995 Form 10-KSB.
Factors Relating to the Oil and Gas Industry
Uncertainty of Reserve Estimates and Future Net Revenues
There are numerous uncertainties inherent in estimating quantities of
proved oil reserves. The estimates in the 1995 Form 10-KSB which are
incorporated into this Prospectus are based on various assumptions relating to
rates of future production, timing and amount of development expenditures, oil
prices and the results of planned development work. Actual future production
rates and volumes, revenues, taxes, operating expenses, development expenditures
and quantities of recoverable oil reserves may vary substantially from those
assumed in the estimates. Any significant change in these assumptions,
including changes that result from variances between projected and actual
results, could materially and adversely affect future reserve estimates. In
addition, such reserves may be subject to downward or upward revision based upon
production history, results of future development, prevailing oil prices and
other factors. See "ITEM 2. PROPERTIES--Producing Properties" and "ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS--Liquidity and
Capital Resources" in the 1995 Form 10-KSB.
Development Risks
The Company's infill drilling program in the Cut Bank field in Montana is
based on the engineering model used in a similar program conducted on a portion
of the Company's property by a previous owner. There can be no assurance that
the Company's development program will achieve the results of the engineering
model on which it is based, significantly increase production or reserves or
result in a financial return to the Company. Whether or not the development
program is successful, no assurance can be given that the Company will be able
to discover, develop or purchase properties sufficient to replace its current
reserve base. See "ITEM 1. BUSINESS--Western United States" in the 1995 Form
10-KSB.
Volatility of Commodity Prices and Markets
Oil prices have increased materially during 1996, but there can be no
assurance that such prices will continue. Oil and gas prices have been and are
likely to continue to be volatile and subject to wide fluctuations in response
to any of the following factors: relatively minor changes in the supply of and
demand for oil and gas; market uncertainty; political conditions in
international oil producing regions; the extent of domestic production and
importation of oil; the level of consumer demand; weather conditions; the
competitive position of oil or gas as a source of energy as compared with coal,
nuclear energy, hydroelectric power, and other energy sources; the refining
capacity of prospective oil purchasers; the effect of federal and state
regulation on the production, transportation and sale of oil; and other factors,
all of which are beyond the control or influence of the Company. In addition to
its direct impact on the prices at which oil or gas may be sold, adverse changes
in the market or regulatory environment would likely have an adverse effect on
the Company's ability to obtain funding from lending institutions, industry
participants, the sale of additional securities, and other sources.
Operating Hazards and Uninsured Hazards
Oil and gas drilling involves hazards such as fire, explosions, blow-outs,
pipe failures, casing collapses, unusual or unexpected formations and pressures
and environmental hazards such as oil spills, gas leaks, ruptures and discharges
of toxic gases, any one of which may result in environmental damage, personal
injury and other harm that could result in substantial liabilities to third
parties and losses to the Company. The Company maintains insurance against
certain risks which it believes are customarily insured against in the oil and
gas industry by companies of comparable size and scope of operations. The
insurance that the Company maintains does not cover all of the risks involved in
oil exploration, drilling and production and if coverage does exist, it may not
be sufficient to pay the full amount of such liabilities. For example, the
Company does not maintain insurance against risks related to violations of
environmental laws. The Company may not be insured against all losses or
liabilities which may arise from all hazards because such insurance is
unavailable at economic rates, because of limitations in the Company's insurance
policies or because of other factors. Any uninsured loss could have a material
and adverse effect on the Company. See "ITEM 1. BUSINESS--Operational Hazards
and Insurance" in the 1995 Form 10-KSB.
Intense Competition in Oil and Gas Industry
The oil and gas industry is highly competitive. Most of the Company's
current and potential competitors have greater financial resources and a greater
number of experienced and trained managerial and technical personnel than the
Company. There can be no assurance that the Company will be able to compete
effectively with such firms.
United States Governmental Regulation, Taxation and Price Control
Oil and gas exploration and production are subject to comprehensive
federal, state and local laws and regulations controlling the exploration for
and production and sale of oil and gas and the possible effects of such
activities on the environment. Present, as well as future, legislation and
regulations could cause additional expenditures, restrictions and delays in the
Company's business, the extent of which cannot be predicted and which may
require the Company to limit substantially, delay or cease operations in some
circumstances. From time to time, regulatory agencies have proposed or imposed
price controls and limitations on production by restricting the rate of flow of
oil and gas wells below actual production capacity in order to conserve supplies
of oil and gas. Because energy and taxation policies are unclear and are
subject to constant revisions, no prediction can be made as to the ultimate
effect of such governmental policies and controls. See "ITEM 1. BUSINESS--
Government Regulation" in the 1995 Form 10-KSB.
Factors Relating to Activities in Poland
Political Uncertainties
The exploration, development and production of oil and gas in Poland will
be subject to ongoing uncertainties and risks, including risks of political
instability and changes in government, expropriation or nationalization of
private enterprises, export and transportation tariffs, local and national tax
requirements and other risks arising out of foreign government sovereignty over
the exploration area. The terms of the agreements with governmental agencies are
subject to administration by government officials and are, therefore, subject to
changes in government personnel, the development of new administrative policies
and practices and political changes in Poland. There can be no assurance that
the laws, regulations and policies applicable to the Company will not change,
that the laws and regulations will be applicable in any particular circumstance
or that the Company will be able to enforce its rights in Poland. The Company
anticipates that it will be required to demonstrate, to the satisfaction of the
Polish authorities, the Company's compliance with the concession terms
respecting exploration expenditures, results of exploration, environmental
protection matters and other factors. Although the exploration and exploitation
rights of the Company may be canceled by the Company at any time, the Company
would likely not be able to recover previous payments made under the rights or
any other costs incurred respecting the rights upon such cancellation. There can
be no assurance that the Company will be able to take measures to provide
adequate protection against any of the political uncertainties discussed above.
See "CERTAIN RECENT EVENTS" below and "ITEM 1. BUSINESS--Poland--Onshore Baltic
Concession" in the 1995 Form 10-KSB.
Currency Risks
The Company will be subject to a variety of currency risks, including the
risks that currencies will not be convertible at satisfactory rates, that the
official conversion rates between United States and Polish currencies may not
accurately reflect the relative value of goods and services available or
required in Poland and that inflation will lead to the devaluation of the Polish
Zloty.
Repatriation of Earnings
The Company may be restricted as to the amount, manner or timing of the
repatriation to the United States of earnings from activities in Poland. The
Company conducts its activities in Poland through Polish entities owned by the
Company, alone or jointly with the strategic partner participating with the
Company in the project. The Company anticipates that the Polish entity will be
funded by proceeds from the issuance of shares to the Company and its other
owners, if any, and from shareholder loans. Currently, there are no
restrictions on the ability of a Polish entity to repay debt to a foreign parent
corporation or to pay fair market compensation to a foreign parent corporation
for legitimate services. However, Polish entities are limited in their ability
to pay dividends. Dividends can be paid only once annually and are limited in
amount to the extent of profits, as determined in compliance with Polish
accounting and regulatory requirements and as verified by an audit satisfying
Polish professional standards. In addition, the payment of dividends by the
Polish subsidiary is subject to a 5% withholding tax. Although the Company is
entitled to a credit against its United States tax obligations equal to the
Polish withholding tax, the Company may not be able to use this credit unless
the Company owes taxes in the United States. See "CERTAIN RECENT EVENTS" below
and "ITEM 1. BUSINESS--Poland--Onshore Baltic Concession" in the 1995 Form 10-
KSB.
Lack of Exploration and Development Infrastructure
There can be no assurance that the Company will be able to conduct an
effective and efficient exploration program in Poland. Further, the Company is
subject to certain risks which could substantially increase the cost of
exploration, development and production activities and reduce potential
financial returns, including the limited availability of certain modern
exploration, drilling and production equipment, supplies and services and the
lack of availability or limited capacity of oil and gas gathering, storage,
transportation and processing facilities.
Lack of Transportation and Marketing Arrangements
The Company has no transportation, refining or marketing arrangements
relating to future oil production in Poland. Instead, the Company is relying
primarily on a continuous increase in international demand for oil products and
the fact that Poland reportedly imports over 95% of its oil as the basis for its
belief that an available market exists for any oil that may be discovered.
Subject to obtaining appropriate approval, the Company is not precluded from
exporting oil, but the Company presently has no such arrangements. There can be
no assurance that the Company will be able to establish transportation, refining
or marketing arrangements to sell any oil discovered and produced in Poland on
terms favorable to the Company or that the Company will be able to make
arrangements for the exportation of oil in the event such exportation is
desirable to the Company. See "CERTAIN RECENT EVENTS" below and "ITEM 1.
BUSINESS--Poland--Onshore Baltic Concession" in the 1995 Form 10-KSB.
Poland's Governmental Regulation
The Company's activities in Poland are subject to certain laws and
regulations relating to the exploration for, and development, production,
marketing, transportation and storage of, oil, including measures relating to
the protection of the environment. The regulatory regime governing these
activities was recently promulgated and is relatively untested. Therefore,
there is no enforcement history or established practice that can aid the Company
in evaluating how the regulatory regime will affect the Company's operations.
Although management believes that the regulatory infrastructure currently in
place and now being further developed in Poland is generally consistent with the
government's stated purpose of encouraging both foreign investment and the
development of Poland's natural resources, there can be no assurance that such
governmental policy will not change or that new laws and regulations,
administrative practices or policies or interpretations of existing laws and
regulations will not materially and adversely affect the Company's activities in
Poland.
Poland's Environmental Regulations
The Company's operations are subject to environmental laws and regulations
in Poland. Poland's environmental laws and regulations may provide for
restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with oil exploration and development.
Additionally, if significant quantities of gas are produced in conjunction with
the Company's production of oil, regulations prohibiting the flaring of gas and
the absence of a gas gathering and delivering system may restrict production or
may require significant expenditures by the Company to develop such a system
prior to the production of oil. Certain aspects of the Company's proposed
operations may require the submission and approval of environmental impact
assessments to governmental authorities in Poland prior to commencing
production.
The Company has only completed field activities in connection with its
seismic program and has not incurred material environmental remediation costs to
date. Management believes that the Company is currently in material compliance
with all applicable laws and regulations. However, there can be no assurance of
such compliance or that applicable regulations or administrative policies or
practices will not be changed by the Polish government. The cost of compliance
with current regulations or any changes in environmental regulations could
require significant expenditures, and breaches of such regulations may result in
the imposition of fines and penalties, any of which may be material. There can
be no assurance that these environmental costs will not have a material adverse
effect on the Company's financial condition or results of operations in the
future.
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NO NET PROCEEDS
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The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders. In connection with this offering, the Company
estimates that it will incur costs of approximately $30,000 for legal,
accounting, printing, and other costs. Any separate costs of the Selling
Stockholders will be borne by them.
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DILUTION
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Purchasers of shares of Common Stock from Selling Stockholders will likely
suffer substantial and immediate dilution in the adjusted net tangible book
value per share of the Common Stock they purchase below the purchase price for
such shares. As of September 30, 1996, without giving effect to the subsequent
exercise of options and warrants to purchase an aggregate of 243,000 shares of
Common Stock, the Company had a net tangible book value of approximately $23.6
million, with 12.2 million shares of Common Stock issued and outstanding, or
approximately $1.93 per share, which represents dilution of $7.07 per share
below $, the last sales price for the Common Stock on , 1996.
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CERTAIN RECENT EVENTS
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Common Stock Offering
In August 1996, the Company sold 3,450,000 shares of Common Stock in a
public offering at $5.75 per share for net proceeds to the Company of
approximately $17.9 million. The net offering proceeds are allocated to repay
bank debt, to fund the Company's capital expenditure program, which includes
exploration and potential development in the onshore Baltic Platform and
Carpathian regions of Poland and development and exploration in the western
United States and for general corporate purposes. The managing underwriters of
the offering were Oppenheimer & Co., Inc., and Hanifen, Imhoff, Inc.
Exploration Activities in Poland
The Company believes that Poland offers an attractive environment in which
to explore for and develop oil and gas prospects that meet the Company's
established criteria of potentially containing recoverable reserves in excess of
25 MMBOE for international prospects. By applying modern interpretive
techniques to previously collected seismic, geological, and well data, the
Company believes that it will be able to capitalize on the combination of
Poland's hydrocarbon potential and its relatively new policies to encourage the
development of the country's domestic energy resources. In August 1995, the
Company was granted an exclusive right to explore and potentially develop the
Baltic Concession, an onshore 2.4 million acre undeveloped area extending
approximately 50 miles southward from the Baltic Sea in northern Poland. In
addition, the Company recently completed a geological review of selected oil and
gas prospect areas in Poland and, as a result of this review, in May 1996,
entered into an agreement with POGC to reevaluate and reprocess existing
geophysical and geological data regarding the Carpathian region of southeastern
Poland. If warranted, the Company and POGC may apply for a formal concession in
a limited target area of the Carpathian JSA in the first half of 1997. The
Company and POGC may also elect to jointly evaluate other areas of Poland in the
future.
The Republic of Poland
The Republic of Poland is bordered on the north by the Baltic Sea, on the
west by Germany, on the south by the Czech Republic and Slovakia, and on the
east by Lithuania, Belorussia, Ukraine, and the Kaliningrad district of Russia.
Poland is comprised of approximately 121,000 square miles, with a population of
approximately 40 million people. Between 1945 and 1989, Poland's political and
economic systems were directly influenced by the former Soviet Union. In 1989,
Poland peacefully asserted its independence, adopted a new constitution which
established a parliamentary democracy and began the transition to a market-based
economy.
Poland has one of the fastest growing economies in Europe. According to a
report published in the June 15, 1996, issue of The Economist, Poland's gross
domestic product grew by an estimated 7% in 1995, compared to 5% for the Czech
Republic, 1.5% for Hungary, and negative 4% for Russia. One of the most
important elements of Poland's economic growth has been the country's
development of an entrepreneurial private sector. In 1993, private enterprises
employed 58.9% of Poland's work force as compared to 33.3% in 1989. Poland's
international trade has also undergone significant change since Poland gained
its independence. For example, in 1986, the former Soviet Union accounted for
33% of Poland's imports and 28% of its exports. By 1993, these figures had
decreased to 4.6% and 5.5%, respectively, while the countries of the European
Union purchased 71.3% of Poland's exports and provided 63.9% of its imports.
Foreign investment in Poland between 1989 and 1995 was $6.8 billion.
Between the 1850s, when oil was first commercially produced in the
Carpathian region of southeastern Poland, and 1945, Poland produced
approximately 61.4 MMBbl of oil and 303 billion cubic feet of natural gas. War
damage and overproduction following the 1939 invasions of Poland by Germany and
the Soviet Union severely restricted oil and gas production. Over the last
several decades, the exploration for and the development of Poland's oil and gas
resources have been hindered by a combination of limited financial resources,
political difficulties, and a lack of modern exploration technology. Poland
currently imports over 95% of its oil, primarily from the countries of the
former Soviet Union and the Middle East.
The Baltic Concession
The Baltic Concession is part of a geological region known as the Baltic
Platform which covers the southeastern portion of the Baltic Sea and portions of
the bordering onshore areas of Poland, the Kaliningrad district of Russia,
Lithuania, and Latvia. The B-3 oilfield, located off Poland's Baltic coast and
first placed into production in 1992, produced over 1.2 MMBbl through 1994,
according to a POGC publication. Onshore, approximately 34 fields have been
discovered in the Baltic Platform in an area that extends approximately 50 to
100 miles to the northeast of the Baltic Concession in the Kaliningrad district
of Russia. Four of the largest fields in this region reportedly have produced
an aggregate of over 150 MMBbl through 1994. Oil produced from the Baltic
Concession is generally of high quality with an average API gravity of
approximately 40. and contains insignificant amounts of sulfur, heavy metals, or
similar contaminants. See "RISK FACTORS--Exploration Risks."
Between 1950 and 1993, various agencies of the Polish government explored
the Baltic Concession, gathering hundreds of line miles of seismic data and
drilling seven exploratory wells and eight stratigraphic survey wells to the
same formation that is productive in established fields in the Baltic Platform.
Although none of these wells was completed for production, the majority
indicated the presence of hydrocarbons. The Company, in conjunction with
consultants that included Halliburton Engineering, Western Atlas, Inc., and
Ryder Scott Company, was able to apply modern reprocessing techniques to
reevaluate a significant portion of the seismic and well log data obtained from
these wells. This information has enabled the Company to identify two drilled
structures (as indicated by the Gladysze-1 and Gladysze-2 wells) and more than a
dozen undrilled structures in the Baltic Concession that, in management's
opinion, are similar in structural type and contain the same formations as
productive wells in other regions of the Baltic Platform.
At the Company's request, Halliburton Engineering completed a detailed log
analysis of the 15 wells described above, including the Gladysze-1 and Gladysze-
2 wells. Halliburton reported that both Gladysze wells appear to have
encountered movable hydrocarbons, with 8% or more effective porosity and
calculated water saturations of less than 30%. While there is no guarantee that
Halliburton's interpretation of these relatively old Russian-style well logs
accurately reflects actual downhole conditions, the Company believes
Halliburton's interpretation is consistent with other geological and geophysical
data reviewed by the Company. This information includes contemporaneous
drilling reports and core sample descriptions. Based on the foregoing, the
Company has concluded that both Gladysze wells encountered reservoirs of movable
oil.
Although the Company believes that the Gladysze-1 and Gladysze-2 were the
only wells drilled on geological structures, neither of these wells was
completed for production. The Company attributes this fact primarily to the
outdated equipment and poor techniques used to locate, drill, and test the
wells. Both wells were drilled with very heavy drilling mud, a common practice
in eastern Europe and the Soviet Union at the time. The heavy drilling mud
likely caused formation damage by sealing off porous reservoir rocks. The short
periods during which the wells were tested were, in management's estimation,
probably insufficient for the formations to recover from the damage to permit an
accurate test.
There can be no assurance that wells drilled on any structure, including
the Gladysze structures, will encounter oil reservoirs or that the porosity,
permeability, or other characteristics of any reservoir formations encountered
will support production of oil in commercial quantities. Notwithstanding the
substantial data available respecting the Baltic Concession, the Company
believes that several exploration tests may be required to appraise the
potential of the identified structures. There can be no assurance that any of
such tests will be successful.
Exploration, Development, and Production Plans
The Company has begun to develop a comprehensive exploration and
development program for the Baltic Concession. Between May and October 1996,
the Company, in partnership with RWE-DEA, completed a 360 kilometer seismic
program, which was analyzed with previously collected data to assist in the
determination of the initial drillsite for an exploratory well from among
several identified structures. The Company and RWE-DEA had originally
identified three structures, but identified additional structures based on data
from the recently completed seismic program. The Company currently intends to
commence its first exploratory well to a target depth of approximately 9,500
feet in late 1996 at a site to be selected by REW-DEA, with a second exploratory
test planned for early 1997 in coordination with the completion of such
additional seismic surveys as the Company may deem warranted. Ultimately, the
Company intends to drill exploratory wells on additional structures as the
results from initial drilling and additional seismic surveys warrant. If one or
more of these wells is found to have commercial production, the Company will
prepare a long-term field development plan in conjunction with RWE-DEA. See
ITEM 2. "MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION" in the
September 30, 1996 Form 10-QSB The Company has budgeted $7 million for its
share of exploration and development expenditures on the Baltic Concession
through 1997.
The crude oil produced from existing fields on the Baltic Platform is
generally of high quality with an average API gravity of approximately 40. and
contains no significant amounts of sulfur, heavy metal, or similar contaminants.
There are two nearby refineries in Gdansk and Plock, Poland, both of which the
Company believes could process crude oil produced in the Baltic Concession.
RWE-DEA also has an ownership interest in a refinery in Schwedt, Germany, on the
Polish border. This refinery might purchase crude produced from the Baltic
Concession. Under current Polish law, the Company may, upon obtaining
appropriate approval, export oil produced in the country.
The Company currently has no agreement or arrangement for the sale,
delivery, or refining of any oil that may be produced in Poland. The Company
believes, however, that it would be able to sell any oil produced from the
Baltic Concession in the spot market. The Baltic Concession contains a well-
developed infrastructure of hard surface roads and railways over which oil could
probably be delivered for sale. The Company may incur expenditures for the
construction and operation of crude oil transportation and handling facilities
if substantial oil production were established. Poland currently imports over
95% of its crude oil requirement, principally from the countries of the former
Soviet Union and the Middle East.
Strategic Alliance With RWE-DEA
In May 1996, the Company entered into a strategic alliance with RWE-DEA for
joint operations on the Baltic Concession. RWE-DEA currently produces oil in
the Baltic Sea off Germany's northern coast and is a member of a consortium of
German and Russian oil companies that has been established to develop an
offshore oilfield in the Kaliningrad district of Russia, north of the Baltic
Concession. RWE-DEA, formerly Deutsche Texaco AG, is a subsidiary of RWE AG,
the fifth largest industrial enterprise in Germany. RWE-DEA is a fully
integrated major oil and gas company with 1995 fiscal year revenue of U.S. $15.9
billion from worldwide energy and chemical businesses. The Company selected
RWE-DEA as its partner in the Baltic Concession because of its established oil
producing, refining, and distribution business throughout Europe, including
limited gasoline marketing within Poland, and its international exploration and
production experience, particularly its expertise respecting Baltic Platform
exploration, development and production generally. In addition, RWE-DEA's
parent has business activities in Poland outside of the oil and gas industry,
including construction and power generation. The relationship with RWE-DEA
should provide the Company with additional technical and operational expertise.
Under its agreement with the Company, RWE-DEA will earn a 50% interest in
the Baltic Concession by paying the Company $250,000, by providing up to $2.1
million for a seismic survey now completed and a planned exploratory well, and
by funding 50% of the costs of a second exploratory well. All costs in excess
of the amounts indicated above, in addition to the cost of any subsequent
exploration and development activity, will be borne equally by the Company and
RWE-DEA. If RWE-DEA does not participate in a second well, RWE-DEA's interest
in the Baltic Concession will terminate. The Company will be the operator for
all joint operations. The assignment of a 50% interest in the Baltic
Concession, to be effected through joint ownership by the Company and RWE-DEA of
the Polish entity holding the concession, is subject to approval by the Polish
government. The Company expects that such approval will be obtained based on
discussions among representatives of the Company, RWE-DEA, and the Polish
government. If such approval is not obtained, the Company will reimburse RWE-
DEA for its direct expenditures related to the Baltic Concession. The Company
has agreed to pay a fee of $125,000 to an unaffiliated party for activities
related to the search for an international joint venture partner, which resulted
in the Company forming a strategic alliance with RWE-DEA.
Strategic Alliance With POGC
The Polish government has granted to POGC exclusive rights to explore for
and develop hydrocarbons in areas covering a substantial portion of Poland. In
January 1996, the Company and POGC initiated a limited review of Poland's
hydrocarbon potential. The purpose of this review was to select a region on
which to undertake a detailed joint study program.
Carpathian Region
On May 21, 1996, the Company entered into a joint study agreement with POGC
in order to identify drillable hydrocarbon prospects in a selected area of the
Carpathian JSA in southeastern Poland. Oil was first discovered in the
Carpathian Mountains in the 1850s and has been produced there continuously from
several fields, including discoveries in the 1960s.
The initial goal of the joint study agreement is to identify a promising
target area in the Carpathian JSA (the "Carpathian Target Area"), primarily
through the review of existing geological and geophysical data. Thereafter, the
Company and POGC will conduct a more detailed analysis of existing seismic and
other data contributed by POGC, supplemented by limited reprocessing of such
data to assess the Carpathian Target Area's hydrocarbon potential and to
generate drillable oil and gas prospects. The Company and POGC will each
contribute technical personnel to participate in the study. The Company will
fund approximately $100,000 of the initial technical research and analysis
costs, including seismic data reprocessing, third-party data purchases, and
laboratory analysis.
In the first half of 1997, the Company, if warranted, plans to submit with
POGC an application to the appropriate Polish authorities for exploration rights
or concessions over designated portions of the Carpathian Target Area. The
Company and POGC will share equally in new exploration rights that are obtained
through this arrangement, except that if one party elects not to proceed with an
application for an exploration license over designated portions of the
Carpathian Target Area, the other party may do so independently. Upon obtaining
an exploration license or concession, the Company will gather additional seismic
or other geophysical data to further define exploration targets and to develop a
specific exploration drilling program in conjunction with POGC. The exploration
drilling program may be undertaken by the Company and POGC on an equal basis or
the Company could elect to decrease its interest in a project, with the consent
of the POGC, by sharing its ownership with a third party. The Company has
budgeted $1.4 million through 1997 for exploration activities in the Carpathian
JSA.
Sudety Exploration Area/ Strategic Alliance with Homestake
The Sudety Exploration Area is a 71,000-acre block in the Sudety region of
southwestern Poland. Under its agreement with Poland's Ministry of
Environmental Protection, Natural Resources and Forestry, effective October 1,
1996, the Company, through a Polish subsidiary, has the right to explore for
gold and other associated minerals in the Sudety Exploration Area. The
agreement provides for a four-year exploration term with the possibility of a
three-year extension. The Company has an exclusive right to apply for an
exploitation license covering any mineral deposits discovered in the exploration
phase. The Company and Homestake have signed a reconnaissance and standstill
agreement covering the Sudety Exploration Area. Pursuant to such agreement, the
parties will jointly develop a plan for the geological, geochemical, and
geophysical reconnaissance of the Sudety Exploration Area to be carried out over
the next year. Subject to the results of the reconnaissance, the two companies
may elect to negotiate a subsequent agreement, in which case Homestake would
likely take over operations with the Company retaining a working interest or
royalty. The Company has agreed not to negotiate with any company other than
Homestake regarding the Sudety Exploration Area for 14 months.
Government Regulation--Poland
The Company's activities in Poland are subject to political, economic, and
other uncertainties, including the adoption of new laws, regulations, or
administrative policies that may adversely affect the Company or the terms of
its exploration or production rights; political instability and changes in
government or public or administrative policies; export and transportation
tariffs and local and national taxes; foreign exchange and currency restrictions
and fluctuations; repatriation limitations; inflation; environmental regulations
and other matters. The Company's operations in Poland are subject to the
Geological and Mining Law as well as the Act of January 31, 1980, Concerning the
Protection and Management of the Environment, which are the primary statutes
governing environmental protection. The agreements between the Company and the
government of Poland relating to the Baltic Concession also create certain
standards to be met by the Company regarding environmental protection. The
Company generally is required to adhere to good international petroleum industry
practices, including practices relating to the protection of the environment.
The Company is required to prepare and submit to the appropriate agency of state
geological administration for its approval, a geological work plan, with
specific attention to environmental matters, prior to engaging in field
operations, such as seismic acquisition, exploratory drilling, and field-wide
development. Poland's regulatory framework respecting environmental protection
is not as fully developed and detailed as that which exists in the United
States. The Company intends that its operations in Poland will be designed to
meet good international petroleum industry practices and, as they develop,
Polish requirements. See "RISK FACTORS--Factors Relating to Activities in
Poland."
Financial Plan
In August 1996, the Company completed the issuance of 3,450,000 shares
of common stock through a public offering, resulting in net proceeds of
approximately $17.9 million. On August 7, 1996, the Company used proceeds from
the public offering to pay off its bank debt in the amount of $3.6 million. The
Company will maintain its borrowing agreement with the bank, which had a
borrowing base of $3.2 million as of November 1996. The remainder of the net
proceeds from the offering, together with cash available under the Company's
continuing bank credit facility and potentially available from operations, will
be used to fund the Company's 1996 and 1997 capital expenditure budget of $15.3
million and for general corporate purposes. The Company's planned capital
expenditures through December 31, 1997, are as follows: (i) approximately $7.0
million for exploration and potential development activities related to the
Baltic Concession, (ii) approximately $1.4 million for the review and evaluation
of available geological and geophysical data and the potential initiation of
exploratory activities in the Carpathian JSA, (iii) approximately $6.1 million
for in-fill development drilling in the Cut Bank field in Montana and (iv)
approximately $800,000 for exploration activities in the western United States.
The allocation of the Company's capital among the categories of anticipated
expenditures is discretionary and will depend upon future events that cannot be
predicted. Such events include the actual results and costs of future
exploration and development drilling activities. Consistent with previous
practice, the Company may obtain partial funding for its exploration and
potential development activities through strategic arrangements with industry or
financial partners.
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DESCRIPTION OF SECURITIES
- ------------------------------------------------------------------------------
The Company is authorized to issue 20,000,000 shares of Common Stock,
$0.001 par value; and 5,000,000 shares of preferred stock, $0.001 par value.
Preferred Stock
Under the Company's Articles of Incorporation, the Company's Board of
Directors is authorized, without shareholder action, to issue preferred stock in
one or more series and to fix the number of shares and rights, preferences and
limitations of each series. Among the specific matters that may be determined
by the Board of Directors are the dividend rate, the redemption price, if any,
conversion rights, if any, the amount payable in the event of any voluntary
liquidation or dissolution of the Company and voting rights, if any. The
Company has no outstanding preferred stock.
Common Stock
As of the date of this Prospectus, the Company had 12,457,547 shares of
Common Stock issued and outstanding. The holders of Common Stock are entitled
to one vote per share on each matter submitted to a vote at any meeting of
stockholders. Holders of Common Stock do not have cumulative voting rights, and
therefore, a majority of the outstanding shares voting at a meeting of
stockholders are able to elect the entire Board of Directors, and if they do so,
minority stockholders would not be able to elect any members to the Board of
Directors. The Company's bylaws provide that a majority of the issued and
outstanding shares of the Company constitutes a quorum for stockholders'
meetings, except with respect to certain matters for which a greater percentage
quorum is required by statute.
Stockholders of the Company have no preemptive rights to acquire additional
shares of Common Stock or other securities. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. In the event of
liquidation of the Company, the shares of Common Stock are entitled to share
equally in corporate assets after satisfaction of all liabilities and the
payment of any liquidation preferences.
Holders of Common Stock are entitled to receive such dividends as the Board
of Directors may from time to time declare out of funds legally available for
the payment of dividends. The Company seeks growth and expansion of its
business through the reinvestment of profits, if any, and does not anticipate
that it will pay dividends on the Common Stock in the foreseeable future.
The Company has reserved for issuance an aggregate of 3,349,028 shares of
Common Stock, including 301,528 shares reserved for issuance on exercise of
options and warrants held by Selling Stockholders, consisting of 2,254,028
shares on the exercise of outstanding options and warrants at exercise prices
ranging from $1.10 to $8.875 with a weighted average exercise price of $4.20 per
share, 800,000 shares on the exercise of options previously granted but not yet
exercisable at $3.00 per share, 145,000 shares on the exercise of options
recently granted but not yet exercisable at $8.875 per share, and 150,000 shares
issuable on the satisfaction of certain contractual conditions relating to oil
production levels from the Company's producing properties in Montana.
Certain Article and Bylaw Provisions
The Company's Articles of Incorporation divide the members of the Board of
Directors into three classes of directors, with each class to be as nearly equal
in number of directors as possible, serving staggered, three-year terms. See
"ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS" in the
1995 Form 10-KSB. The Company's Articles of Incorporation also provide that
directors may be removed, with or without cause, by a two-thirds majority of the
shareholders at a meeting called for that purpose and that any resulting
vacancies can be filled by only a vote of a majority of the directors remaining
in office.
The Company's bylaws permit stockholders to nominate a person for election
as a director or bring other matters before a stockholder meeting only if
written notice of such intent is provided to the Company at least 30 days prior
to the meeting. Such notice of intent to nominate a person for election as a
director is required to set forth the same kind of information respecting such
nominee as would be required under the proxy rules of the SEC, including the
written consent of the nominee to serve as a director, if elected, and the name
and address of the stockholder making the nomination as well as the number of
shares of stock owned by such stockholder. In the case of other proposed
business, the notice must set forth a brief description of each matter proposed,
the name and address of the stockholder proposing the matter, the number of
shares of stock owned by such stockholder and any material interest of such
stockholder in such matter.
Nevada law provides that a merger or consolidation, sale or similar
transaction involving all or substantially all of the Company's assets, the
issuance of securities having an aggregate value equal to 5% or more of the
aggregate market of all outstanding shares of the corporation or the
reclassification, recapitalization or similar transaction involving an
"interested stockholder" (as defined), within three years after the stockholder
became interested, cannot be completed unless such transaction is approved by
the Board of Directors of the Company. After the expiration of three years
after a person becomes an interested stockholder, a transaction cannot be
completed with the interested stockholder unless it is approved by the Board of
Directors or a majority of the outstanding voting power not beneficially owned
by the interested stockholder, unless certain "fair price" provisions are met.
Such fair price provisions generally require that the amount of cash and the
market value of the consideration of the cash to be received per share by all
holders of the outstanding Common Stock of the Company not beneficially owned by
the interested stockholder be at least equal to the higher of the price per
share paid by the interested stockholder or the market value on the date of
announcement of the proposed combination. For purposes of these provisions, an
interested stockholder is one who beneficially owns, directly or indirectly, 10%
or more of the voting power of the outstanding stock of the corporation.
The foregoing provisions may tend to deter any potential unfriendly offers
or other efforts to obtain control of the Company that are not approved by the
Board of Directors and thereby deprive the stockholders of opportunities to sell
shares of Common Stock at prices higher than the prevailing market price. On
the other hand, these provisions may tend to assure continuity of management and
corporate policies and to induce any person seeking control of the Company or a
business combination with the Company to negotiate on terms acceptable to the
then elected Board of Directors.
Indemnification of Officers and Directors; Limitation of Liability
The Company's articles of incorporation and bylaws provide for
indemnification of the Company's officers and directors to the fullest extent
permitted by the Nevada corporation law, which provides for indemnification for
damages, including costs and attorney's fees, incurred in any pending or
completed action by reason of the fact that such person was an officer or
director of the Company if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company. The Company's articles of incorporation contain a provision that
limits the personal liability of the Company's directors or officers for damages
for breach of fiduciary duty as a director or officer, except for damages
resulting from acts or omissions that involve intentional misconduct, fraud or
knowing violations of law or the payment of dividends in violation of statute.
The effect of this provision is to eliminate the rights of the Company and its
stockholders to recover money damages against a director or officer for breach
of fiduciary duty of care except in certain circumstances. This provision does
not limit or eliminate the rights of the Company or any stockholder to seek non-
monetary relief such as an injunction or rescission in the event of a breach of
fiduciary duty. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provision, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Registrar and Transfer Agent
The registrar and transfer agent of the Company's securities is Fidelity
Transfer Company, 1800 South West Temple, Suite 301, Salt Lake City, Utah 84115,
telephone (801) 484-7222.
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SELLING STOCKHOLDERS
- ------------------------------------------------------------------------------
The following table provides certain information, as of the date of this
prospectus, respecting the Selling Stockholders, the shares of Common Stock to
be sold by them and to be held by them following the offering, assuming the sale
of all offered shares.
<TABLE>
<CAPTION>
Securities Owned
Securities Owned Prior to After
the Offering(1) the Offering
--------------------------- ----------------
Shares to
Common be
Selling Stockholders Stock Warrants Options Offered Amount Percent
--------- --------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Alpine Securities Co. - 2,500 - 2,500 - -
Robert Detwiler 15,000 20,000 - 30,000 5,000 *
Marc W. Eller 33,042 - - 32,000 1,042 *
Richard Fechtor - 15,000 - 15,000 - -
Sheldon M. Fechtor - 15,000 - 15,000 - -
Laurence B. Flood - 100,000 - 100,000 - -
Jack Kusaba 1,500 - - 500 1,000 *
Sanford J. Lewinthal, as agent 1,093 - - 1,093 - -
Lawrence W. McGary 4,000 59,000 - 59,000 4,000 *
MML Management, Ltd. 319,325 43,194 - 43,194 319,325 2.50%
Iwao Nakatani 28,000 - - 4,000 24,000 *
National Australia Trustees 374,864 36,500 - 36,500 374,864 2.94%
Denny Nestripke 1,500 - - 1,500 - -
Petresearch International, Inc. 5,951 - - 5,951 - -
Rumsey Royalty Trust(2) 25,000 - - 25,000 - -
Thair Schneiter 6,000 - - 2,000 4,000 *
Walter E. Uhlman 47,800 - - 12,000 35,800 *
Westergaard Publishing 3,000 - - 3,000 - -
The Wood River Trust(2) 365,000 - - 365,000 - -
Kelly Hoa Yang 800 - - 500 300 *
L. G. Zangani - - 10,334 10,334 - -
--------- -------- ------- -------- ------- ------
TOTAL 1,231,875 291,194 10,334 764,072 769,331 6.02%
* Less than one percent.
(1) Shares owned prior to the offering include all shares of Common Stock and
underlying securities convertible or exercisable into shares of Common Stock
owned by the Selling Stockholder. Shares owned after the offering assume
the sale of all shares of Common Stock offered pursuant to this offering.
Percentage figures respecting the securities owned after the offering give
effect to the exercise of all warrants and options by the Selling
Stockholders. The warrants and options held by the Selling Stockholders must
be exercised to purchase shares of Common Stock before the resale of the
Common Stock offered by the Selling Stockholders pursuant to this offering.
(2) The Wood River Trust and Rumsey Royalty Trust are affiliates of Sunshine
Pacific.
- --------------------------------------------------------------------------------
PLAN OF DISTRIBUTION
- --------------------------------------------------------------------------------
General
This Prospectus relates to the public offer and sale by the Selling
Stockholders of an aggregate of 764,072 shares of Common Stock of the Company
consisting of 462,544 shares now held by the Selling Stockholders and 301,528
shares issuable on the exercise of Common Stock purchase options and warrants at
exercise prices ranging from $1.50 to $3.00 per share. See "SELLING
STOCKHOLDERS" and "DESCRIPTION OF SECURITIES" above.
Sale of Common Stock
The Common Stock to be sold by the Selling Stockholders may be sold by
them, from time to time, in the over-the-counter market through or to securities
brokers or dealers that may receive compensation in the form of discounts,
concessions, or commissions from the Selling Stockholders and/or the purchasers
of Common Stock for whom they may act as agent, directly to purchasers in
transactions negotiated by the Selling Stockholders or pursuant to Rule 144 or
another exemption from registration. Any such sale of Common Stock by Selling
Stockholders must be accompanied by, or follow the delivery of, a prospectus
filed with a current registration statement relating to the Common Stock being
offered, unless a Selling Stockholder elects to rely on Rule 144 or another
exemption from the registration requirements in connection with a particular
transaction. The Selling Stockholders, and any dealers or brokers that
participate in the distribution of the Common Stock, may be deemed to be
"underwriters" as that term is defined in the Securities Act, and any profit on
the sale of Common Stock by them and any discounts, commissions, or concessions
received by any such dealers or brokers may be deemed to be underwriting
discounts and commissions under the Securities Act.
The Common Stock may be sold by the Selling Stockholders from time to time
in one or more transactions at a fixed offering price, which may be changed, or
at prices that may vary through the period during which the securities may be
offered, or at such other prices as may be negotiated by the Selling Stockholder
and the purchaser at the time of sale. The Company will pay expenses of this
offering incident to the offering and sale of the Common Stock to the public,
other than commissions and discounts of dealers or brokers. The Company does
not intend to enter into any arrangement with any securities dealer concerning
solicitation of offers to purchase the Common Stock.
Effect of Offering on Market
The trading volume of the Common Stock in the over-the-counter market is
limited. The sale or potential for sale of the 764,072 shares of Common Stock
to be sold in this offering may have a depressive effect on the trading price
for such securities. See "ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS" in the 1995 Form 10-KSB.
- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------
The consolidated financial statements of the Company and its subsidiaries
as of December 31, 1995, and for the year then ended incorporated by reference,
have been audited by Coopers & Lybrand L.L.P., certified public accountants, as
stated in their report appearing in the 1995 Form 10-KSB, and have been included
therein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of the Company for the year ended December 31,
1994, incorporated by reference, have been audited by Barker & Folsom, certified
public accountants, as stated in their report appearing in the 1995 Form 10-KSB,
and have been included therein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The estimates of oil and gas reserves of the Company respecting its
properties are incorporated herein by reference in reliance upon the authority
of Larry D. Krause, petroleum engineering consultant, Billings, Montana, in
reliance upon his authority as an expert in petroleum engineering.
The opinion based on the detailed log analysis of the Gladysze-1 and
Gladysze-2 wells is incorporated herein by reference in reliance upon the
authority of Halliburton Energy Services as an expert in oil well log
interpretation.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended.
For the purposes hereof, the term "Registration Statement" means the original
Registration Statement and any and all amendments thereto. This prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, to which reference hereby is made. Each statement made in
this prospectus concerning a document filed as an exhibit to the Registration
Statement is qualified in its entirety by reference to such exhibit for a
complete statement of its provisions. Any interested party may inspect the
Registration Statement and its exhibits, without charge, at the public reference
facilities of the Commission at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional
offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and 7 World Trade Center, Suite 1300, New York,
New York 10048. Any interested party may obtain copies of all or any portion of
the Registration Statement and its exhibits at prescribed rates from the Public
Reference Section of the Commission at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. In addition, the SEC
maintains an internet site that contains reports, proxy and information
statements and other information regarding the Company and other registrants
that file electronically with the SEC at http://www.sec.gov.
- --------------------------------------
TABLE OF CONTENTS FX ENERGY, INC.
- --------------------------------------
Section Page
Prospectus Summary...................3
Risk Factors.........................7
Capitalization......................15
No Net Proceeds.....................15
Dilution............................15
Certain Recent Events...............16 764,072 Shares of Common Stock
Description of Securities...........20
Selling Stockholders................23
Plan of Distribution................23
Experts.............................24
Additional Information..............25
No dealer, salesman, or other
person has been authorized in
connection with this offering to give
any information or to make any
representation other than as PROSPECTUS
contained in this prospectus and, if
made, such information or
representation must not be relied on
as having been authorized by the
Company. This prospectus does not
constitute an offer to sell or the
solicitation of an offer to buy any November , 1996
securities covered by this prospectus
in any state or other jurisdiction to
any person to whom it is unlawful to
make such offer or solicitation in
such state or jurisdiction.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
- ------------------------------------------------------------------------------
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
- ------------------------------------------------------------------------------
The following are the estimated expenses in connection with the securities
being registered:
Securities and Exchange Commission
registration fee $ 2,084
Attorneys' fees 15,000
Accountants' fees 5,000
State "blue sky" fees and expenses
(including attorneys' fees) 2,000
Printing expenses 2,000
Miscellaneous 3,916
-------
Total $30,000
=======
All expenses with the exception of the Securities and Exchange Commission
registration fee are estimates.
- ------------------------------------------------------------------------------
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
- ------------------------------------------------------------------------------
Sections 78.037 and 78.751 of the Nevada Revised Statutes and Article VI of
the Registrant's Articles of Incorporation provide for indemnification of the
Registrant's directors in a variety of circumstances, which include liabilities
under the Securities Act of 1933, as amended.
- ------------------------------------------------------------------------------
ITEM 27. EXHIBITS
- ------------------------------------------------------------------------------
Exhibits
The following exhibits are included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document Location
Item 3. Articles of Incorporation and Bylaws
3.01 3 Restated and Amended Articles of Incorporated
Incorporation by
Reference(1)
3.02 3 Bylaws Incorporated
by
Reference(1)
Item 4. Instruments Defining the Rights of
Security Holders
4.01 4 Specimen Stock Certificate Incorporated
by
Reference(1)
4.02 4 Designation of Rights, Privileges, and Incorporated
Preferences of 1993 Series Preferred Stock by
of Frontier Oil Exploration Company Reference(1)
Item 5. Opinion Regarding Legality
5.01 5 & 23 Opinion of Kruse, Landa & Maycock, L.L.C. Initial Filing
Item 10. Material Contracts
10.01 10 Purchase and Sale Agreement between B&B Incorporated
Production Company and FX Producing by
Company, Inc., dated April 1, 1994, Reference(1)
regarding purchase of B&B/JRB Assets
10.02 10 Purchase and Sale Agreement between J.R. Incorporated
Bacon Drilling, Inc., and The Supply Store by
Company and FX Drilling Company, Inc., Reference(1)
regarding purchase of B&B/JRB Assets
10.03 10 Real Property Exchange Agreement between Incorporated
Frontier Oil Exploration Company, FX by
Drilling Company, Inc., FX Producing Reference(1)
Company, Inc., and B&B Production and J.R.
Bacon Drilling, Inc., dated June 8, 1994,
regarding purchase of B&B/JRB Assets
10.04 10 Exchange Escrow Agreement between FX Incorporated
Producing Company, Inc., and B&B by
Production, Inc., and First State Bank of Reference(1)
Shelby, dated June 8, 1994, regarding
escrow of cash and FX Producing preferred
stock in relation to the purchase of
B&B/JRB Assets
10.05 10 Addendum dated July 21, 1994, to the Incorporated
Exchange Escrow Agreement dated June 8, by
1994 Reference(1)
10.06 10 Loan Agreement dated June 7, 1994, by and Incorporated
between Bank One, Texas, N.A., and FX by
Producing Company, Inc. Reference(1)
10.07 10 Promissory Note dated June 7, 1994, in the Incorporated
original principal amount of $5,000,000 by
payable by FX Producing Company, Inc., to Reference(1)
Bank One, Texas, N.A.
10.08 10 Guaranty dated June 7, 1994, by Frontier Incorporated
Oil Exploration Company for the benefit of by
Bank One, Texas, N.A., relating to the Reference(1)
Bank Loan
10.09 10 Stock Pledge Agreement dated June 7, 1994, Incorporated
between Frontier Oil Exploration Company by
and Bank One, Texas, N.A., relating to Reference(1)
pledge of common stock of FX Producing
Company, Inc.
10.10 10 Deed of Trust, Security Agreement, Incorporated
Financing Statement and Fixture Filing by
dated June 7, 1994, between FX Producing Reference(1)
Company, Inc., as grantor, Arthur R.
Gralla, as trustee, and Bank One, Texas,
N.A., as grantee, relating to Nevada
properties
10.11 10 Deed of Trust, Mortgage, Security Incorporated
Agreement, Financing Statement, and by
Assignment of Production dated June 7, Reference(1)
1994, between FX Producing Company, Inc.,
as mortgagor and debtor, Arthur R. Gralla,
as trustee, and Bank One, Texas, N.A., as
mortgagee and secured party, relating to
Montana properties
10.12 10 Transfer Order Letter executed June 7, Incorporated
1994, between FX Producing Company, Inc., by
and Bank One, Texas, N.A., relating to Reference(1)
production from producing properties of FX
Producing Company, Inc.
10.13 10 Promissory Note dated June 7, 1994, in the Incorporated
original principal amount of $1,385,000 by
payable by Frontier Oil Exploration Reference(1)
Company to FX Producing Company, Inc.
10.14 10 Collateral Transfer of Note dated June 7, Incorporated
1994, by FX Producing Company, Inc., and by
Bank One, Texas, N.A., relating to Reference(1)
transfer of promissory note of Frontier
Oil Exploration Company
10.15 10 Form of Employment Agreement between R.L. Incorporated
Brown, J.R. Bacon, and L. Bacon and by
Frontier Oil Exploration Company Reference(1)
10.16 10 Exchange Agreement between Charles C. Incorporated
Rumsey, Sunshine Pacific Corporation, A&C by
Associates, the Rumsey Royalty Trust, and Reference(1)
the Wood River Trust dated June 7, 1994,
regarding issuance of 500,000 shares of
Common Stock in exchange for interests in
the Basin & Range Project
10.17 10 Assignment and Assumption dated June 7, Incorporated
1994, between Charles C. Rumsey, Jr., by
Sunshine Pacific Corp., A&C Associates, Reference(1)
The Rumsey Royalty Trust, The Wood River
Trust and Frontier Oil Exploration Company
10.18 10 Investor's Rights Agreement dated June 7, Incorporated
1994, between Frontier Oil Exploration by
Company , Charles C. Rumsey, Jr., Sunshine Reference(1)
Pacific Corp., A&C Associates, The Rumsey
Royalty Trust, and The Wood River Trust
10.19 10 Warrant to purchase 150,000 shares of Incorporated
Common Stock at $1.10 issued to George E. by
Dullnig & Co. Reference(1)
10.20 10 Form of Warrant to Purchase Shares of Incorporated
Common Stock at $1.65 with related by
schedule of optionees Reference(1)
10.21 10 Employment Agreements between Frontier Oil Incorporated
Exploration Company and each of David by
Pierce and Andrew Pierce, effective Reference(1)
January 1, 1995 *
10.22 10 Form of Stock Option with related schedule Incorporated
(D. Pierce, A. Pierce, and Others) * by
Reference(1)
10.23 10 1994 Employee Incentive Plan * Incorporated
by
Reference(1)
10.24 10 Form of Stock Option granted to D. Pierce Incorporated
and A. Pierce* by
Reference(1)
10.25 10 Crude Oil Purchase Contract dated March Incorporated
16, 1994 between Petro Source Partners, by
Ltd., and B&B Production Company Reference(1)
10.26 10 Amended Crude Oil Purchase Contract dated Incorporated
August 15, 1994, between FX Drilling by
Company, Inc., and Petro Source Partners, Reference(1)
Ltd.
10.27 10 Agreement effective May 1, 1994 between Incorporated
J.R. Bacon Drilling, Inc. and Crysen by
Refining, Inc. Reference(1)
10.28 10 Amended Agreement Letter dated June Incorporated
30,1994, between FX Drilling Company, Inc. by
and Crysen Refining, Inc. Reference(1)
10.29 10 Agreement dated July 8, 1994 between FX Incorporated
Drilling Company, Inc. and CENEX, Inc., by
regarding Crude Oil Purchase Contract. Reference(1)
10.30 10 Agreements between FX Producing and each Incorporated
of Jerry R. Bacon and Roy Brown dated by
December 2, 1994 Reference(1)
10.31 10 Preliminary Agreement between Frontier Oil Incorporated
Exploration Company and the Ministry of by
Environmental Protection, Natural Reference(1)
Resources and Forestry dated February 10,
1995, with translation thereof
10.32 10 Agreement between Frontier Oil Exploration Incorporated
Company and Roy L. Brown, Jerold R. Bacon, by
and Laura A. Bacon dated February 7, 1995 Reference(1)
10.33 10 Supplemental Agreement between FX Incorporated
Producing, Frontier Oil Exploration by
Company, Roy L. Brown, and Jerold R. Bacon Reference(1)
dated February 27, 1995
10.34 10 Mining Usufruct Agreement between the Incorporated
State Treasury of the Republic of Poland by
and Frontier Poland Exploration and Reference(3)
Producing Company, Sp.z o.o. dated August
22, 1995
10.35 10 Amendment No. 1 to Mining Usufruct Incorporated
Agreement by
Reference(4)
10.36 10 Frontier Oil Exploration Company 1995 Incorporated
Stock Option and Award Plan* by
Reference(4)
10.37 10 Form of Non-Qualified Stock Option with Incorporated
related schedule* by
Reference(4)
10.38 10 Non-Qualified Stock Option granted to Incorporated
Robert I. Coward* by
Reference(4)
10.39 10 Letter Agreement dated effective August 3 Incorporated
, 1995, between Lovejoy Associates, Inc., by
and Frontier Oil Exploration Company re: Reference(4)
Financial Consulting Engagement*
10.40 10 Loan Agreement between Thomas B. Lovejoy Incorporated
and Frontier Oil Exploration Company by
Reference(4)
10.41 10 Letter Agreement dated effective August 3, Incorporated
1995, between Lovejoy Associates, Inc., by
and Frontier Oil Exploration Company re: Reference(4)
Indemnification
10.42 10 Non-Qualified Stock Option granted to Incorporated
Thomas B. Lovejoy* by
Reference(4)
10.43 10 Form of Amendment No. 1 to Loan Agreement Incorporated
dated June 7, 1994, by and between FX by
Producing Company, Inc., and Bank One, Reference(5)
Texas, N.A.
10.44 10 Amendment No. 2 to Loan Agreement dated Incorporated
June 7, 1994, by and between FX Producing by
Company, Inc., and BankOne, Texas, N.A. Reference(5)
10.45 10 Form of Concession dated December 20, Incorporated
1995, relating to concessions granted by
pursuant to the Mining Usufruct Agreement, Reference(5)
with related schedule
10.46 10 Agreement dated April 16, 1996, between Incorporated
Frontier Poland Exploration and Producing by
Company Sp. Z o o. and RWE-DEA Reference(6)
Aktiengesellschaft fur Mineraloel und
Chemie, including exhibits, relating to
Poland Concession
10.47 10 Joint Study Agreement dated May 21, 1996, Incorporated
between FX Energy, Inc. (Frontier Oil by
Exploration Company) and the Polish Oil Reference(7)
and Gas Company, including appendix,
relating to joint study of area of
interest.
10.48 10 Amendments to Employment Agreements Incorporated
between Frontier Oil Exploration Company by
and each of David Pierce and Andrew Reference(8)
Pierce, effective May 30, 1996 *
10.49 10 Employment Agreement between Frontier Oil Incorporated
Exploration Company and Jerzy M. Maciolek by
Reference(8)
10.50 10 Amendment No. 3 to Loan Agreement dated Incorporated
June 7, 1994, by and between FX Producing, by
Inc., and Bank One, Texas, N.A. Reference(8)
10.51 10 Joint Operating Agreement dated effective Incorporated
April 16, 1996, between Frontier Poland by
Exploration and Producing Company Sp. Z o Reference(8)
o. and RWE-DEA Aktiengesellschaft fur
Mineraloel und Chemie
10.52 10 Agreement dated effective October 1, 1996, Incorporated
between Sudety Mining Company Sp. zo.o., by
and the State Treasury of the Republic of Reference(9)
Poland for the establishment of a mining
usufruct for the purpose of gold
exploration
Item 23. Consents of Experts and Counsel
23.01 23 Consent of Barker & Folsom, previous This Filing
Company auditors
23.02 23 Consent of Coopers & Lybrand L.L.P., This Filing
Company certified public accountants
23.03 23 Consent of Kruse, Landa & Maycock, Initial Filing
L.L.C., counsel to the Company (See Item 5)
23.04 23 Consent of Larry D. Krause, Petroleum Initial Filing
Engineer
23.05 23 Consent of Halliburton Energy Services, This Filing
experts in well log interpretation
Item 24. Power of Attorney
24.01 24 Power of Attorney Initial Filing
(See Signature
Page)
* Identifies each management contract or compensatory plan or arrangement
required to be filed as an exhibit.
(1) Incorporated by reference from the registration statement on Form SB-2, SEC
File No. 33-88354-D.
(2) Incorporated by reference from the current report on Form 8-K dated August
16, 1995.
(3) Incorporated by reference from the current report on Form 8-K dated August
22, 1995.
(4) Incorporated by reference from the quarterly report on Form 10-Q for the
quarter ended September 30, 1995.
(5) Incorporated by reference from the annual report on Form 10-KSB for the
year ended December 31, 1995.
(6) Incorporated by reference from the current report on Form 8-K dated May 3,
1996.
(7) Incorporated by reference from the current report on Form 8-K dated May 21,
1996.
(8) Incorporated by reference from the registration statement on Form S-1, SEC
File No. 333-05583.
(9) Incorporated by reference from the current report on Form 8-K dated October
1, 1996.
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ITEM 17. UNDERTAKINGS
- ------------------------------------------------------------------------------
Filings Incorporating Subsequent Exchange Act Documents by Reference (Regulation
S-K, Item 512(b))
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Incorporated Annual and Quarterly Reports (Regulation S-K, Item 512(e))
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of rule 14a-3 or rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
article 3 of regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Rule 415 Offerings: Post-Effective Amendments (Regulation S-K, Item 512(a))
The undersigned Registrant will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to include any
additional or changed material information in the plan of distribution.
(2) For the purpose of determining liability under the Securities
Act, treat each such post-effective amendment as a new registration
statement of the securities offered, and the offering of such securities at
that time to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the termination of the offering.
Indemnification (Regulation S-K, Item 512(h))
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer, or controlling person of the small business issuer
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
- ------------------------------------------------------------------------------
SIGNATURES
- ------------------------------------------------------------------------------
In accordance with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), the registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements of filing on Form S-3
and authorized this registration statement to be signed on its behalf by the
undersigned in the city of Salt Lake City, state of Utah, on the 5th day of
November, 1996.
FX ENERGY, INC.
(Registrant)
By /s/ David N. Pierce, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David N. Pierce with power of substitution, as
his attorney-in-fact for him, in all capacities, to sign any amendments to this
Registration Statement and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact or his
substitutes may do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
stated on the 5th day of November, 1996.
/s/
David N. Pierce, Director and President
(Principal Executive and Financial Officer)
/s/
Andrew W. Pierce, Director, Vice-President, and Secretary
(Principal Operaions Officer)
/s/
Thomas B. Lovejoy, Director
/s/
Peter L. Raven, Director
/s/
Scott J. Duncan, Director
Jerzy B. Maciolek, Director
/s/
Jay W. Decker, Director
/s/
James A. Giauque, III, Controller
</TABLE>
KRUSE, LANDA & MAYCOCK, L.L.C.
EIGHTH FLOOR, BANK ONE TOWER
50 WEST BROADWAY (300 SOUTH)
SALT LAKE CITY, UTAH 84101-2034
TELEPHONE: (801) 531-7090
ATTORNEYS AT LAW TELECOPY: (801) 359-3954
(801) 531-9892
November 19, 1996
Board of Directors
Frontier Oil Exploration Company
3006 Highland Drive, Suite 206
Salt Lake City, Utah 84106
Re: Frontier Oil Exploration Company
Registration Statement on Form S-3
Gentlemen:
We have been engaged by Frontier Oil Exploration Company (the "Company") to
render our opinion respecting the legality of certain securities to be offered
and sold pursuant to the registration statement on form S-3 being filed by the
Company with the Securities and Exchange Commission (the "Registration
Statement"). Capitalized terms used but not defined herein have the same
meanings as set forth in the Registration Statement.
In connection with this engagement, we have examined the following:
1. Articles of incorporation of the Company;
2. Bylaws of the Company;
3. The Registration Statement; and
4. Unanimous consents of the Company's board of directors.
We have examined such other corporate records and documents and have made
such other examination as we deemed relevant.
Based upon the above examination, we are of the opinion that the Common
Stock to be sold pursuant to the Registration Statement will be, when sold in
accordance with the terms set forth in the Registration Statement, legally
issued, fully paid, and nonassessable under the Nevada Revised Statutes, as
amended.
This firm consents to being named in the Prospectus included in the
Registration Statement as having rendered the foregoing opinion and as having
represented the Company in connection with the Registration Statement.
Sincerely,
/s/
KRUSE, LANDA & MAYCOCK, L.L.C.
.
BARKER & FOLSOM
CERTIFIED PUBLIC ACCOUNTANTS
Thomas G. Barker, Jr., CPA, P.C. Randy K. Parker, CPA
M. Bradley Folsom, CPA, P.C. Nikki J. Thon
Member of APCPA Division of Firms
Member of SEC Practice Section
CONSENT OF INDEPENDENT AUDITORS
Frontier Oil Exploration Company and Subsidiaries
Barker & Folsom do hereby consent to (a) the incorporation by reference into the
Registration Statement on Form S-3 of Frontier Oil Exploration Company (the
"Company") of our opinion dated February 24, 1995, relating to the financial
statements as of December 31, 1994 and for the year then ended, as such report
is included in the Company's annual report on form 10-K for its fiscal year
ended December 31, 1995, and (b) the reference to us under the heading "Experts"
in such Registration Statement.
/s/ Barker & Folsom
Ogden, Utah
November 6, 1996
2655 KIESEL AVENUE/OGDEN, UTAH 84401
(801) 621-0390/FAX (801) 392-7729
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 of our report dated March 29, 1996, on our audit of the financial
statements of FX Energy, Inc. We also consent to the reference to our firm
under the caption "Experts."
COOPERS & LYBRAND, L.L.P.
/s/
Salt Lake City, Utah
November 19, 1996
CONSENT OF PETROLEUM ENGINEERING CONSULTANT
I hereby consent to (i) the incorporation by reference into the registration
statement on Form S-3 of Frontier Oil Exploration Company (the "Company") of my
report as of December 31, 1995, respecting the estimated oil reserve information
for the Montana and Nevada producing properties of the Company, as such report
is referred to in the Company's annual report on form 10-K for its fiscal year
ended December 31, 1995; and (ii) the reference to me under the heading
"Experts" in such Registration Statement.
/s/ Larry D. Krause
Billings, Montana
November 7, 1996
HALLIBURTON
HALLIBURTON ENERGY SERVICES
410 17th Street, Suite 900/Denver, CO 80202/Tel:303-899-4700/Fax:303-573-7856
November 5, 1996
David Pierce
FX Energy, Inc.
3006 Highland Drive, Suite 206
Salt Lake City, UT 84106
Dear Mr. Pierce:
We hereby consent to the use of our name as having completed a detailed log
analysis of the Gladysze #1 and Gladysze #2 wells and having reported that both
wells appear to have encountered movable hydrocarbons, with eight percent or
more effective porosity and calculated water saturations of less than 30%.
This was based on the available log data. We hereby consent to being named as
experts respecting such matters in the Registration Statement on Form S-3 to
be filed by FX Energy, Inc., (formerly Frontier Oil Exploration Company)
November 1996.
Halliburton Energy Services does not guarantee the accuracy of any
interpretation of the log data which may be given by Halliburton personnel.
Any user of such data, interpretations or recommendations agrees that
Halliburton is not responsible except where due to gross negligence or willful
misconduct for any loss, damages, or expenses resulting from the use thereof.
Sincerely,
/s/ Michael J. Mullen, P.E.
Technical Advisor
