AS FILED: OCTOBER 4, 1996 SEC FILE NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT ON
FORM S-8
UNDER THE SECURITIES ACT OF 1933
FX ENERGY, INC.
(Exact Name of Registrant as Specified in its Charter)
NEVADA 87-0504461
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
3006 SOUTH HIGHLAND DRIVE
SALT LAKE CITY, UTAH 84106
(Address of Principal Executive Offices) (Zip Code)
STOCK COMPENSATION AWARDS
(Full title of the plan)
DAVID N. PIERCE, 3006 SOUTH HIGHLAND DRIVE, SALT LAKE CITY, UTAH 84106
(Name and address of agent for service)
(801) 486-5555
(Telephone number, including area code, of agent for service)
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Amount to Offering Aggregate Amount of
Title of Securities be Price Per Offering Registration
to be Registered Registered Share(1) Price Fee
- ----------------------------- ---------- ---------- ----------- ------------
Common Stock, par value $0.001 200,000 $9.75 $1,950,000 $673
(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 the selling stockholder is based on the closing price for the
Registrant's Common Stock on the Nasdaq National Market of $9.75 as of
October 1, 1996 (rule 457(c)).
<PAGE>
200,000 SHARES
FX ENERGY, INC.
COMMON STOCK
All 200,000 shares of common stock, par value $0.001 per share (the "Common
Stock"), of FX Energy, Inc. (formerly known as Frontier Oil Exploration Company)
(the "Company"), are being offered by a selling stockholder (the "Selling
Stockholder"). See "SELLING STOCKHOLDER" and "DESCRIPTION OF SECURITIES" below.
The Selling Stockholder will offer his Common Stock through or to
securities brokers or dealers designated by him in the over-the-counter market,
in other transactions negotiated by the Selling Stockholder, or pursuant to Rule
144 or another exemption from registration. Any such sale of Common Stock by
the Selling Stockholder 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 the Selling Stockholder elects to rely on Rule 144
or another exemption from the registration requirements in connection with a
particular transaction. The Selling Stockholder and any broker, dealer, or agent
that participates with the Selling Stockholder 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 October 1, 1996, the closing price for the Company's
Common Stock on the Nasdaq National Market was $9.75 per share. See "CERTAIN
RECENT EVENTS."
THE COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6
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.
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Price to Offering Proceeds to
Public(1) Commissions(2) Selling Stockholder
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By Selling
Stockholder
Per Share $9.75 -- $9.75
Total $1,950,000 -- $1,950,000
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(1) The price per share for the securities offered by the Selling Stockholder
is estimated at $9.75, the closing price for the Common Stock on October 1,
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 the Selling Stockholder and
the purchaser at the time of sale.
(2) The securities to be sold by the Selling Stockholder may be sold by him
through or to securities brokers or dealers, which sales may involve the
payment of commissions by the Selling Stockholder. There is no agreement
between the Company and any broker or dealer with respect to such sales.
THE DATE OF THIS PROSPECTUS IS OCTOBER 4, 1996.
<PAGE>
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholder. In connection with this offering, the Company
estimates that it will incur costs of approximately $10,000 for legal,
accounting, printing, and other costs. Any separate costs of the Selling
Stockholder will be borne by him. Commissions or discounts paid in connection
with the sale of securities by the Selling Stockholder will be determined by
negotiations between him 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:
. The definitive prospectus dated August 1, 1996, filed pursuant to Rule
424(b) of the Securities Act; included in the Registration Statement on
Form S-1, Commission file no. 333-05583;
. 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, and June 30, 1996 ("June 30, 1996 Form 10-QSB");
. Current reports on Form 8-K dated May 3, May 21, and October 1, 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").
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 seismic survey on selected portions of the Baltic
Concession. The results of this survey will assist in the selection of the site
of an exploratory well scheduled to be drilled in late 1996. 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 begun drilling an
exploratory well on a prospect in Nevada in partnership with several independent
energy companies. 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,
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 Concession, the
Carpathian JSA, and the Sudety Exploration Area 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., Shell Oil Co. and British
Gas PLC, 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 million for a seismic survey now
being 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 plans to expand this program to approximately 4,000
additional acres in the Cut Bank field beginning in late 1996. 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 the
Selling Stockholder.................200,000 shares of Common Stock
Common Stock outstanding
before offering.....................12,414,547 shares(1)
Common Stock outstanding
after offering......................12,414,547 shares
Common Stock reserved for
issuance............................2,976,528 shares(2)
Fully diluted Common Stock .........15,391,075 shares
Nasdaq Symbol.......................FXEN
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(1) Includes 3,709,951 shares issued subsequent to June 30, 1996, including
3,450,000 shares sold in a public offering.
(2) As of September 30, 1996, adjusted to give effect to the exercise of
options to purchase 200,000 shares of Common Stock by the Selling
Stockholder, an additional 1,826,528 shares of Common Stock are reserved
for issuance on the exercise of outstanding options and warrants at
exercise prices ranging from $1.50 to $5.75 with a weighted average
exercise price of $2.37 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, and 200,000
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.
NO NET PROCEEDS
The Company will receive no proceeds from the sale of Common Stock by the
Selling Stockholder, but will incur costs of approximately $10,000 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, 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 June 30, 1996, the Company
incurred cumulative losses of $5.3 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 $1.1 million for the six months ended June 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.
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 "Risk Factors--
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 "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 not to participate
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 "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
six 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 scientific data gathered by third parties, 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 "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 "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 which 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 which have the potential to contain hydrocarbons, there can be no
assurance that such structures actually contain hydrocarbons. See "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 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, nor does it currently have directors' and officers'
liability insurance. 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 areas 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 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 "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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 June 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 evidence 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
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" in the 1995 Form
10-KSB.
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 12.4 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, (iv) are registered for resale
pursuant to this prospectus, or (v) will be registered for resale pursuant to
registration statements to be filed by the Company. Although the resale of 1.1
million shares which are owned by officers and directors of the Company are
subject to contractual restrictions, the possible resale of the remaining 11.3
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 Stockholder, 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 8.9% of the 12.4 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 3.2 million shares, or approximately 22.1% of the 14.5 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 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 2.8 million shares of Common Stock at exercise prices ranging
from $1.10 to $6.90 with a weighted average exercise price of $2.81 per share.
Of those warrants and options, 2.1 million 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 $5.75 per share, including options to
purchase 800,000 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.
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 and the Carpathian JSA; 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
"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 results of 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 production and exploration 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 "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 has formed a wholly owned Polish subsidiary through which it will
conduct its activities in Poland. 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 "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 "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 recently initiated 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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CAPITALIZATION
- --------------------------------------------------------------------------------
The following table sets forth the actual capitalization of the Company as
of June 30, 1996, and as adjusted to give pro forma effect to the subsequent
issuance of 3,688,951 shares of Common Stock and the receipt of proceeds
therefrom, but without giving any effect to any other changes to the Company
after June 30, 1996.
AS OF JUNE 30, 1996
----------------------
PRO FORMA
ACTUAL AS
ADJUSTED(1)
--------- ------------
(IN THOUSANDS)
Current portion of long-term debt................. $ 28 $ 28
========= =========
Long-term debt, net of current portion............ $ 3,583 $ 18
--------- ---------
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000
shares authorized; 17,500 -- --
issued and outstanding.......................
Common Stock, $0.001 par value; 20,000,000
shares authorized; 9 12
8,704,596 and 12,414,547 shares issued and
outstanding, respectively(1).................
Additional paid-in capital ..................... 11,514 29,880
Accumulated deficit ............................ (5,324) (5,324)
--------- ---------
Total stockholders' equity ..................... 6,199 24,568
--------- ---------
Total capitalization...... $ 9,782 $24,586
========= =========
(1) Subsequent to June 30, 1996, the Company issued 3,450,000 shares in a
public offering, 17,500 shares on conversion of Company preferred stock,
18,000 shares on the exercise of Common Stock purchase warrants, 221,000
shares on the exercise of options granted pursuant to employee benefit
plans, and a net of 3,451 shares for services rendered to the Company.
Does not include an aggregate of 2,976,528 shares issuable upon (i) the
exercise of outstanding options and warrants at September 30, 1996,
adjusted to give effect to the exercise of options to purchase 200,000
shares and (ii) the issuance of shares contingent upon attaining certain
production levels in Montana and Nevada.
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NO NET PROCEEDS
- ------------------------------------------------------------------------------
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholder. In connection with this offering, the Company
estimates that it will incur costs of approximately $10,000 for legal,
accounting, printing, and other costs. Any separate costs of the Selling
Stockholder will be borne by him.
- --------------------------------------------------------------------------------
DILUTION
- --------------------------------------------------------------------------------
Purchasers of shares of Common Stock from the Selling Stockholder 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 June 30, 1996, as adjusted to give pro forma effect to
the subsequent issuance of 3,450,000 shares of Common Stock and the receipt of
proceeds therefrom, the issuance of 17,500 shares on the conversion of Company
preferred stock, the issuance of 18,000 shares on the exercise of Common Stock
purchase warrants, the issuance of 221,000 shares on the exercise of options
granted pursuant to employee benefit plans and the receipt of net proceeds
therefrom, and the issuance of 3,451 net shares for services rendered to the
Company, the Company had a pro forma net tangible book value of approximately
$24.6 million, with 12,414,547 shares of Common Stock issued and outstanding,
or approximately $1.98 per share, which represents dilution of $7.77 per share
below $9.75, the last sales price for the Common Stock on October 1, 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
registered 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 is being analyzed with previously collected data to assist in the
determination of a drillsite for an exploratory well from among five identified
structures. The Company and RWE-DEA had originally identified three structures,
but identified two additional structures while conducting the seismic program.
The Company currently intends to drill its first exploratory well to a target
depth of approximately 9,500 feet in late 1996. Ultimately, the Company intends
to drill exploratory wells on all five identified structures. 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 June 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 form 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. 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
million for a seismic survey now being 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
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 71,170-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 its 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 other company
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
practice, 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 practice 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 $3.6 million as of June 30, 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
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 had 17,500 shares of preferred stock, with an aggregate liquidation
preference of $17,500, issued and outstanding as of June 30, 1996, all of which
have been subsequently converted into shares of Common Stock.
COMMON STOCK
As of the date of this Prospectus, the Company had 12,414,547 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.
As of September 30, 1996, as adjusted to give effect to the exercise of
options to purchase 200,000 shares of Common Stock by the Selling Stockholder,
the Company has reserved for issuance an aggregate of 2,976,528 shares of Common
Stock consisting of 1,976,528 shares on the exercise of outstanding options and
warrants at exercise prices ranging from $1.10 to $6.90 with a weighted average
exercise price of $2.72 per share, 800,000 shares on the exercise of options
previously granted but not yet exercisable at $3.00 per share, and 200,000
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 84111,
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 Stockholder, the shares of Common Stock to be
sold by him and to be held by him following the offering, assuming the sale of
all offered shares.
SECURITIES OWNED PRIOR SECURITIES OWNED AFTER
TO THE OFFERING THE OFFERING
----------------------- -----------------------
COMMON SHARES TO
SELLING STOCKHOLDER STOCK BE OFFERED AMOUNT(1) PERCENT
- ------------------------ ---------- ---------- --------- ----------
Robert I. Coward 200,000 200,000 -- --
(1) Shares owned after the offering assume the sale of all shares of Common
Stock offered pursuant to this offering.
- --------------------------------------------------------------------------------
PLAN OF DISTRIBUTION
- --------------------------------------------------------------------------------
GENERAL
This Prospectus relates to the public offer and sale by the Selling
Stockholder of an aggregate of 200,000 shares of Common Stock of the Company now
held by the Selling Stockholder. See "SELLING STOCKHOLDERS" and "DESCRIPTION OF
SECURITIES" above.
SALE OF COMMON STOCK
The Common Stock to be sold by the Selling Stockholder may be sold by him,
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 Stockholder and/or the purchasers
of Common Stock for whom they may act as agent, directly to purchasers in
transactions negotiated by the Selling Stockholder or pursuant to Rule 144 or
another exemption from registration. Any such sale of Common Stock by the
Selling Stockholder 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 the Selling Stockholder elects to rely on Rule 144
or another exemption from the registration requirements in connection with a
particular transaction. The Selling Stockholder, 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 Stockholder 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 200,000 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.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-8 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 a 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.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
- ------------------------------------------------------------------------------
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
- ------------------------------------------------------------------------------
The following documents filed with the Securities and Exchange Commission
(the "Commission") by FX Energy, Inc., a Nevada corporation (the "Company"),
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the Securities Act of 1933, as amended (the "Securities Act"), are
hereby incorporated by reference in this Prospectus:
(1) The definitive prospectus declared effective August 1, 1996,
filed pursuant to Rule 424(b) of the Securities Act; included in the
Registration Statement on Form S-1, Commission file no. 333-05583;
(2) The annual report of the Company on Form 10-KSB for the year
ended December 31, 1995;
(3) The quarterly reports of the Company on Form 10-QSB for the
quarters ended March 31 and June 30, 1996;
(4) The current reports on Form 8-K dated May 3, May 21, and October
1, 1996;
(5) The Proxy Statement related to the 1996 annual meeting of the
Company's stockholders; and
(6) The description of the Common Stock of the Company contained in
its registration statement on Form 8-A, file no. 0-25386, as declared
effective March 30, 1995, incorporating by reference from the section
entitled "Description of Securities" contained on page 55 of the Company's
registration statement on Form SB-2, Commission file no. 33-88354-D,
declared effective March 30, 1995.
All documents filed by the Company pursuant to sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act after the date of this Registration Statement and
prior to the filing of a post-effective amendment to this Registration Statement
which indicates that all securities offered hereby have been sold, or which
deregisters all such securities remaining unsold, shall be deemed to be
incorporated by reference in this Registration Statement and to be a part hereof
from the date of filing of such documents.
- ------------------------------------------------------------------------------
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
- ------------------------------------------------------------------------------
The following is a brief summary of certain indemnification provisions of
the Company's articles of incorporation and the general corporation law of the
state of Nevada. This summary is qualified in its entirety by reference to the
text thereof.
The articles of incorporation of the Company limit or eliminate the
personal liability of directors for damages for breaches of their fiduciary
duty, unless the director has engaged in intentional misconduct, fraud, or a
knowing violation of law, or paid a dividend in violation of the Nevada Revised
Statutes.
The Company's articles of incorporation further provide for the
indemnification of officers and directors for certain civil liabilities,
including liabilities arising under the Securities Act. In the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1934, and is, therefore,
unenforceable.
- ------------------------------------------------------------------------------
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
- ------------------------------------------------------------------------------
The shares of restricted securities subject to this Registration Statement
were issued pursuant to the exercise of options granted under an employee
benefit plan of the issuer. These securities were issued in reliance on
exemptions from the registration and prospectus delivery requirements of the
Securities Act provided in Section 4(2) thereof. Each of the certificates
representing the restricted securities are stamped with a restrictive legend
prohibiting the transfer of the shares in the absence of an effective
registration or availability of an exemption from the applicable registration
requirements. These restrictions are noted on the issuer's stock transfer
records.
- ------------------------------------------------------------------------------
ITEM 8. EXHIBITS
- ------------------------------------------------------------------------------
SEC
EXHIBIT REFERENCE
NO. NO. DESCRIPTION LOCATION
Item 4. Instruments Defining the Rights of Security
Holders
4.01 4 Specimen certificate for Common Stock Incorporated
by
reference(1)
Item 5. Opinion Regarding Legality
5.01 5 Letter opinion, including consent, of This Filing
Kruse, Landa & Maycock, L.L.C., regarding
legality of Common Stock subject to the
Registration Statement.
Item 23. Consents of Experts and Counsel
23.01 23 Consent of Coopers & Lybrand L.L.P., This Filing
auditors for the Company
23.02 23 Consent of Barker & Folsom, previous This Filing
auditors for the Company
23.03 23 Consent of Larry D. Krause, Petroleum This Filing
Engineer
23.04 23 Consent of Halliburton Energy Services, This Filing
experts in well log interpretation
23.05 23 Consent of Kruse, Landa & Maycock, L.L.C., See Item 5
counsel for the Company above
Item 24. Power of Attorney
24.01 24 Power of Attorney This Filing
(See
signature
page to
Registration
Statement)
(1) Incorporated by reference from the Company's registration statement on Form
SB-2, SEC file number 33-88354-D.
- ------------------------------------------------------------------------------
ITEM 9. UNDERTAKINGS
- ------------------------------------------------------------------------------
REGULATION S-K
POST-EFFECTIVE AMENDMENTS [ITEM 512(A)]
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement, to include
any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE [ITEM
51(B)]
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of any employee benefit plan's
annual report pursuant to section 15(a) of the Exchange Act) 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.
FILING OF REGISTRATION STATEMENT ON FORM S-8 [ITEM 512(H)]
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
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. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction, the question whether such indemnification by it is
against public policy as expressed in the act and will be governed by the final
adjudication of such issue.
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SIGNATURES
- ------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Salt Lake, state of Utah, on the 2nd day of October,
1996.
FX ENERGY, INC.
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 and/or Andrew W. Pierce, and each
of them, 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.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on this 2nd day of October, 1996.
/s/
David N. Pierce, Director and President
(Principal Executive and Financial Officer)
/s/
Andrew W. Pierce, Director, Vice-President,
and Secretary
(Principal Operations Officer)
/s/
Scott J. Duncan, Director
/s/
Thomas B. Lovejoy, Director
/s/
Peter L. Raven, Director
/s/
Jay W. Decker, Director
Jerzy B. Maciolek, Director
/s/
James A. Giauque, III, Controller
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
October 3, 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-8
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-8 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.
KRUSE, LANDA & MAYCOCK, L.L.C.
KL&M
KRUSE, LANDA & MAYCOCK, L.L.C.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-8 of our report dated March 29, 1996, on our audit of the financial
statements of FX Energy, Inc. (formerly known as Frontier Oil Exploration
Company).
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
Salt Lake City, Utah
October 2, 1996
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 the incorporation by reference into the
Registration Statement on Form S-8 of FX Energy, Inc. (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.
/s/ Barker & Folsom
Ogden, Utah
October 2, 1996
2655 KIESEL AVENUE/OGDEN, UTAH 84401
(801) 621-0390/FAX (801) 392-7729
CONSENT OF PETROLEUM ENGINEERING CONSULTANT
I hereby consent to the incorporation by reference into the registration
statement on Form S-8 of FX Energy, Inc. (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, and the discussion of
such report as it is contained in the Company's annual report on form 10-KSB for
its fiscal year ended December 31, 1995.
/s/
LARRY D. KRAUSE
Billings, Montana
October 2, 1996
HALLIBURTON
HALLIBURTON ENERGY SERVICES
410 17th Street, Suite 900/Denver, CO 80202/Tel:303-899-4700/Fax:303-573-7856
September 18, 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 in the registration on form S-8 to be
filed by FX Energy, Inc., 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 in such
registration statement.
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
Michael J. Mullen, P.E.
Technical Advisor
