SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 28, 2000
Commission File Number: 0-25386
FX ENERGY, INC.
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(Exact Name of Registrant as Specified in its Charter)
Nevada 87-0504461
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3006 Highland Drive
Suite 206
Salt Lake City, Utah 84106
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(801) 486-5555
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N/A
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(Former name, former address, and formal fiscal year,
if changed since last report)
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ITEM 5. OTHER EVENTS
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Company Overview
FX Energy is an independent oil and natural gas company focused on exploration,
development and production opportunities in the Republic of Poland. With the
help of our partners, we were the first western company to make an onshore
commercial natural gas discovery in Poland. We hold rights to more oil and
natural gas exploration acreage in Poland than any other western company. Our
ongoing activities are conducted through strategic alliances with the Polish Oil
and Gas Company Gas Company ("POGC") and/or Apache Corporation. These alliances
allow us to utilize the operating and technical personnel of those companies,
gain access to geological and geophysical data, manage our exploration risk and
obtain other necessary support in Poland.
Business Strategy
We have modified our business strategy significantly this year to capitalize on
our participation with POGC in the Fences project. The principal components of
our business strategy are:
o Apply Technical and Financial Leverage. POGC has developed exploration
models based on 3-D seismic, which have been refined since the
mid-1990s for use in the Rotliegendes and Reef trends in Western
Poland. We are using these successful models to explore and develop
our Fences project area without incurring the cost of developing those
models. In addition, we believe the Fences project is well suited to
debt funding. Accordingly, we are seeking to fund the majority of
development costs in the Fences project with debt, although we
currently have no debt facility in place.
o Reduce Our Exploration Risk Profile. Historically, we have managed
exploration risk by limiting capital exposure. Now, we are managing
our exploration risk by focusing on known producing trends. The Fences
project area represents a lower risk drilling opportunity because of
its production history and because we will be able to use successful
exploration models developed by POGC for this area.
o Focus on Poland. We believe Poland is attractive because of its known
productive basins, their limited oil and natural gas exploration and
development and Poland's heavy dependence on oil and natural gas
imports. Poland's industrial infrastructure and fiscal regime
favorable to foreign investment reinforce the attractiveness of
Poland.
Operations Overview
Our principal exploration and development activities are with POGC in the
Permian Basin of western Poland. In and near the Fences area, POGC has developed
and refined two exploration models: one that we have used successfully in the
Rotliegendes trend associated with the Poznan Depression and another that POGC
has used successfully in the Reef trend associated with the Wolsztyn Block. POGC
has developed six natural gas fields in the Reef trend immediately west of the
Fences project area with aggregate estimated recoverable natural gas reserves of
approximately 800 Bcf. In addition, POGC has developed four natural gas fields
in the Rotliegendes trend in or near the Fences project area with aggregate
estimated recoverable natural gas reserves of more than 500 Bcf. We will apply
these two exploration models to test several 3-D defined structures on those
portions of the Rotliegendes and Reef trends located in the Fences project area.
The Kleka 11, our first well in the Fences project area, discovered the Kleka
East reservoir and brings the number of fields in the Rotliegendes trend to
five. The Kleka 11 well tested at a calculated gross open flow rate of 34.3 MMcf
of natural gas per day from a reservoir in the Rotliegendes trend at a depth of
approximately 3,000 meters. We currently are negotiating a natural gas sales
contract. We plan to complete a five-kilometer pipeline connection and commence
delivery of natural gas into existing processing facilities by late 2000.
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In the Fences area we plan to acquire approximately 300 square kilometers of 3-D
seismic data and drill 13 wells, including the just completed Kleka 11, through
the first half of 2002. We estimate the cost of such activities to be
approximately $44.5 million gross ($30.0 million net), which we plan to fund
primarily with debt financing. Under this plan, we have already successfully
completed the Kleka 11 well (August 2000) and started drilling the Mieszkow well
(September 2000). We have also started field acquisition on 200 square
kilometers of 3-D seismic (August 2000).
We also conduct oil and natural gas exploration activities with Apache in other
areas of Poland. Under the Apache Exploration Program, we completed seismic
acquisition in the Pomeranian project area in northwestern Poland and have
selected a location for the first well, the Tuchola 108-2. The Tuchola 108-2
will begin drilling in October 2000, and is expected to test an approximately
15,000 acre feature with Devonian and Permian objectives. In the Warsaw West
project area in central Poland, the first test well on the Annapol prospect is
also scheduled later this year. In addition to carrying 100% of the cost of
drilling these two wells, Apache is required to bear our costs to drill one
additional well and acquire, process and interpret approximately 340 kilometers
of seismic data.
The following table sets forth the details of our current exploration and
development plan. We have already initiated discussions to seek the debt
financing referred to above. Apache is required to pay our share of costs for
planned activities under the Apache Exploration Program. The capital expenditure
estimates included in the table are based on information currently available to
us and are subject to revision as we believe warranted. The amount and timing of
actual capital expenditures may vary significantly from the table below,
depending on various factors, including the ability to complete financing.
<TABLE>
<CAPTION>
Capital Expenditures
Anticipated -------------------------------------
Commencement Gross Net FX Share
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(in thousands)
2000
<S> <C> <C> <C>
Fences Project(1)
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Kleka 11 Well Drilled $ 2,500 $ 2,500
Mieszkow Well (exploratory) Commenced 2,500 2,500
Donatowo 3-D seismic Commenced 2,000 2,000
Zaniemysl 3-D seismic Commenced 2,000 2,000
Apache Exploration Program
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Tuchola 108-2 well (Pomeranian exploratory)(2) October 2000 $ 3,500 $ --
Annapol well (Warsaw West exploratory)(3) Fourth Quarter 2000 3,500 --
2001
Fences Project (subject to planned debt funding)
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Donatowo well (exploratory) 2001 $ 2,500 $ 2,500
Zaniemysl well (exploratory) 2001 2,500 2,500
Boguszyn well (exploratory) 2001 2,500 2,245
Kleka North well (exploratory) 2001 2,500 1,225
Kleka 12 well (development) 2001 2,500 1,225
Lugi 3-D seismic 2001 2,000 980
Lugi well (exploratory) 2001 2,500 1,225
Five development wells, as warranted 2001 12,500 6,125
Facilities and flowlines 2001 6,000 2,940
Apache Exploration Program
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Unspecified well (exploratory) 2001 $ 3,500 $ --
2-D seismic (340 kilometers) 2001 3,500 --
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</TABLE>
(1) Under our agreement with POGC, we must spend the first $16.0 million of
exploration expenditures in the Fences project area to earn a 49% working
interest and a 46% net revenue interest, assuming the current base royalty
rate of 6%. To date, we have spent or advanced approximately $5.6 million
to POGC under this agreement.
(2) We have a 50% working interest and a 47% net revenue interest, assuming the
current base royalty rate of 6%. If POGC exercises its option to
participate in this exploratory well, our interest could be reduced to as
low as a 33 and 1/3% working interest and a 31and 1/3% net revenue
interest.
(3) We have a 50% working interest and a 47% net revenue interest, assuming the
current base royalty rate of 6%.
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The Fences
Our principal exploration and development activities are in the Fences project
area with POGC. The Fences area consists of approximately 300,000 gross acres in
a region of west central Poland encompassing significant portions of two
gas-producing trends. The following description of POGC's prior activity in the
Rotliegendes trend associated with the Poznan Depression and in the Reef trend
associated with the Wolsztyn Block indicates the success POGC has had with
exploration models that we are now using.
The Reef Trend
In the Reef trend, POGC has discovered natural gas in six reef structures in a
35-kilometer stretch along the Wolsztyn Block immediately west of the Fences
project area. POGC estimates these six fields contain recoverable reserves of
approximately 800 Bcf. These fields consist of Koscian, 365 Bcf; Rensko, 247
Bcf; Bonikowo, 35 Bcf; Wielichowo, 85 Bcf; Ruchocice, 57 Bcf; and Racot, 5 Bcf.
When drilling on 3-D seismic data in this Reef trend, every reef prospect POGC
has drilled has contained hydrocarbons, and 24 of 27 wells (89%) have been
completed for production. We believe this success rate is attributable to
specific 3-D processing techniques that POGC has developed to identify areas of
probable porosity within the reefs. The Reef trend runs approximately 45
kilometers inside the Fences project area before continuing to the southeast.
In the Reef trend, we have started field acquisition on a 100 square kilometer
3-D seismic grid in the Donatowo area in the westernmost portion of the Fences
project area. This 3-D seismic grid will cover several Reef buildups identified
by 2-D seismic data acquired by POGC. By year-end 2000, we plan to complete the
Donatowo area 3-D seismic data acquisition and begin interpretation to select a
site for the first test well, which we expect to drill in the first half of
2001. As funding permits, we will acquire additional 3-D seismic along the
Wolsztyn Block in the Fences project area, seeking additional reef prospects.
The Rotliegendes Trend
In the Rotliegendes trend associated with the Poznan Depression, POGC has
discovered four fields that it estimates contain recoverable reserves totaling
more than 500 Bcf. These consist of Kaleje, 49 Bcf; Kleka, 39 Bcf; Radlin, 400
Bcf; and Jarocin, 32 Bcf. Our recent Kleka East discovery brings the number of
fields in this trend to five. The Rotliegendes trend continues for approximately
45 kilometers within the Fences project area. Extensive drilling by POGC shows
that reservoir quality is relatively uniform throughout the Rotliegendes trend.
All structural traps drilled by POGC to date contain gas accumulations, with the
size of the accumulation apparently directly proportional to the size of the
structure. During the last two years, POGC has acquired 3-D seismic over the
entire trend within the Fences area, except for a gap of approximately 100
square kilometers over the Zaniemysl structures, where we are now acquiring 3-D
seismic data. From the interpretation of this seismic data, we have identified
additional structures in the trend that appear large enough to contain
economically significant natural gas accumulations.
Our first structural target in the Fences project area was Kleka East, a 3-D
defined Rotliegendes prospect approximately two kilometers southeast of POGC's
three well Kleka field. Our Kleka 11 well tested at a calculated gross open flow
rate of 34.3 MMcf of natural gas per day from a depth of approximately 3,000
meters. We are permitting a pipeline to deliver natural gas produced from the
Kleka East field approximately five kilometers to existing processing
facilities. We are also negotiating a natural gas sales contract with pricing
expected to be based on the open market natural gas prices in Europe. We expect
first production from the Kleka 11 by late 2000, with first revenue in early
2001.
In August 2000, we started drilling the Mieszkow well, approximately five
kilometers northwest of Kleka, and began field acquisition for the approximately
100 square kilometer Zaniemysl prospect 3-D seismic study.
2000-2001 Exploration and Development Plans
Under our April 2000 agreement with POGC, we expect to earn a 49% working
interest in the Fences project area by spending $16.0 million on exploration
activities. After we complete our commitment, POGC will bear a 51% share of
costs. POGC is the operator of the Fences project area.
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To date, we have spent or advanced $5.6 million toward satisfaction of this
commitment. Our operating plan for the Fences project area consists of acquiring
approximately 300 square kilometers of 3-D seismic data and drilling 13 wells,
including the recently completed Kleka 11, at a total cost of approximately
$44.5 million gross ($30.0 million net), which we plan to fund primarily with
debt financing. In the Rotliegendes trend, we have already successfully
completed the Kleka 11 well (August 2000) and started drilling the Mieszkow well
(September 2000). We have also started (August 2000) field acquisition on 200
square kilometers of 3-D seismic, consisting of the Zaniemysl grid in the
Rotliegendes trend and the Donatowo grid in the Reef trend. We plan to drill the
Donatowo reef in the first half of 2001. We believe the results of our Kleka 11
well, the nature of our plan of development and the data provided by POGC on its
nearby producing fields may support debt funding for our proposed development,
and subject to such funding, we plan to carry out this program.
Apache Exploration Program
Since 1997, we have carried on significant exploration activities in Poland with
Apache, a leading independent exploration and production company with extensive
operations in the United States, Canada, Australia, Egypt, Poland and China. Our
agreements with Apache establish an area of mutual interest covering our current
and future holdings throughout the entire country of Poland, except for the
300,000 gross acre Fences project area and our 900,000 gross acre Baltic project
area. The area of mutual interest covers oil and natural gas exploration,
production, development and acquisition activities through December 2000, or
completion of Apache's exploratory well commitment, whichever comes later. To
date, Apache has paid our share of costs to drill an equivalent of seven
exploratory wells and is committed to covering our share of costs to drill three
additional wells in Poland. Of these seven wells, all drilled in the Lublin
project area, one, the Wilga 2, was an exploration success; the other six were
dry holes.
With Apache, we have completed a seismic acquisition program in the Pomeranian
project area in northwestern Poland and have selected a location for the first
well, the Tuchola 108-2, to begin drilling in October 2000, on a 15,000 acre
feature with Permian and Devonian objectives. The first test well on the Annapol
prospect in the Warsaw West project area in central Poland is also scheduled for
later this year. In addition to carrying the cost of drilling these two wells,
Apache is required to bear our costs to drill one more well and acquire, process
and interpret approximately 340 kilometers of seismic data.
Pomeranian Project Area
The 3.5 million acre Pomeranian project area is located in northwestern Poland
and consists of exploration rights on 2.2 million gross acres held by us and
Apache and options on 1.3 million gross acres controlled by POGC. We and Apache
have an option to participate, with up to a one-third interest each, in the
exploration of the POGC option acreage. In turn, POGC has the option to
participate in the exploration of the acreage we and Apache hold, with up to a
one-third interest, by participating in the first exploratory well on each
250,000 acre block. The Pomeranian project area lies along the under-explored
northern edge of the Permian trend in northwestern Poland. Although POGC has
made a few, mostly small oil and natural gas discoveries in this region, there
still has been relatively little exploration and no significant oil and natural
gas production to date. Geologic survey test wells drilled by the Polish
government have oil and natural gas shows. POGC has made available to us and
Apache the existing seismic data and well logs and cores from the Pomeranian
project area for reprocessing and analysis. We believe portions of the
Pomeranian project area may be geologically similar to the trends we are testing
in the Fences project area.
Since 1997, we and Apache have reprocessed existing seismic data and reviewed
logs and cores made available by POGC. This study resulted in a number of
exploration leads on which we gathered approximately 300 kilometers of
additional 2-D seismic data in early 2000. We have identified and evaluated
several prospects and selected a location for the first test well, the Tuchola
108-2, to test an approximately 15,000 acre feature with Devonian and Permian
objectives. Drilling is expected to begin about October 2000. Apache will pay
our share of the cost of this well to casing point.
Warsaw West Project Area
The 2.9 million acre Warsaw West project area is located adjacent to the
northwest section of our Lublin project area west of the Wilga project area in
central Poland and consists of exploration rights on 2.9 million gross acres
held by
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us and Apache. POGC has no option to participate in the Warsaw West project
area. There has been no oil or natural gas production from the Warsaw West
project area. We and Apache have recently completed gathering approximately 422
kilometers of 2-D seismic data and plan to drill one exploratory well on the
Annapol prospect, beginning in the fourth quarter of 2000. Under terms of the
Apache Exploration Program, Apache will pay our share of costs in the first
exploratory well.
Lublin Project Area/ Wilga Project Area
The Wilga project area is located in the northwest portion of the Lublin project
area. The 5.6 million acre Lublin project area in central southeast Poland
consists of exploration rights on approximately 5.0 million gross acres held by
us and Apache and options to participate in 600,000 acres controlled by POGC. We
and Apache have an option to participate, with up to a one-third interest each,
in the exploration of the POGC option acreage. In turn, POGC has the option to
participate in the exploration of the acreage that we and Apache hold, with up
to a one-third interest, by participating in the first exploratory well on each
250,000 acre block. In the Wilga project area, POGC elected to participate with
a 10% interest, and we and Apache each have a 45% interest.
The first four exploratory wells under the Apache Exploration Program, all
drilled within the Lublin project area south and east of the Wilga project area
during 1999, were nonproductive. In accordance with the terms of the Apache
Exploration Program, Apache covered all of our share of costs for all four
wells. The fifth well, the Wilga 2, was an exploratory success. Initial
production tests indicated a combined gross flow rate of 16.9 MMcf of natural
gas and 570 Bbls of condensate per day from the Carboniferous at a depth of
approximately 2,800 meters. The Wilga 2 well was followed by the Wilga 3 and 4,
which were determined to be dry holes. We and Apache are currently considering
whether to conduct an extended flow test on the Wilga 2 to assess the potential
financial return from further expenditures. Under the terms of our agreement
with Apache and POGC, any party has the right to propose that certain activities
be undertaken, elect to participate in activities proposed by others or elect
not to participate. If a party elects not to participate in specific activities,
the other parties nevertheless have the right to proceed.
Carpathian Project Area
The 2.9 million acre Carpathian project area is located in southern Poland and
comprises exploration rights on 1.4 million gross acres held by us and Apache
and options on 1.5 million gross acres controlled by POGC. We and Apache have an
option to participate, with up to a one-third interest each, in the exploration
of the POGC option acreage. Further, POGC has the option to participate in the
exploration of the acreage that we and Apache own, with up to a one-third
interest, by participating in the first exploratory well on each 250,000 acre
block.
Oil and natural gas were first discovered in the Carpathian area in 1854. A
limited number of deep wells drilled in recent years by POGC evidence additional
possible reservoir potential within the area. Over the past few years, there
have been several new oil and natural gas discoveries in the Carpathian region.
Potential producing horizons within the Carpathian are Jurassic, Miocene,
Cretaceous and Devonian.
During 1999, we elected to participate with a 5% interest in drilling the
Andrychow 6, an exploratory well operated by POGC on its option acreage in
southern Poland. The well tested a Devonian formation and was determined to be a
dry hole during December 1999.
During the second quarter of 1999, we and Apache commenced testing and
recompletion operations on the Lachowice Farm-in, an undeveloped natural gas
discovery on a POGC concession located within the Carpathian project area. Under
terms of the agreement, we and Apache agreed to pay the costs of testing three
shut-in wells and, if warranted, additional wells and production infrastructure
in order to earn a one-third interest each in the project. The test results from
this project did not warrant constructing gathering and processing facilities.
On May 4, 2000, we and Apache turned the project back to POGC and terminated the
Lachowice Farm-in.
We and Apache have identified several new leads in the Carpathian project area
based on reprocessed existing seismic data. Under terms of the Apache
Exploration Program, Apache is required to pay our share of costs to shoot
approximately 340 kilometers of 2-D seismic data.
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Note: Information about the estimated recoverable natural gas reserves
established by POGC in the Rotliegendes and Reef trends in western
Poland is derived from: Karnkowski, Piotr, Oil and Gas Deposits in
Poland, University of Mining and Metallurgy Geosynoptics Society,
Krakow, 1999, and from Mamczur, Stanislaw and Edward Czekanski, "Oil
and Gas Deposit Barnowko-Mostno-Buszewo and Exploration for Hydrocarbon
Deposits in the Koscian-Wielichowo Area," edited by Wojciech Gorecki,
POGC Oil and Gas News from Poland 10 (2000).
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This report contains forward-looking statements. Forward-looking statements are
not guarantees of future drilling or other exploration or development results,
the actual presence or recoverability of estimated reserves, the ability to
establish reserves equal to the potential of exploration targets, production
amounts or revenues, construction costs or schedules or similar matters.
Forward-looking statements are subject to risks and uncertainties outside FX
Energy's control. Actual events or results may differ materially from the
forward-looking statements. For a discussion of additional contingencies and
uncertainties to which information respecting future events is subject, see FX
Energy's 1999 annual report on Form 10-K and other SEC reports.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Dated: September 28, 2000 FX ENERGY, INC.
By /s/ Scott J. Duncan
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Scott J. Duncan
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