PART I
FINANCIAL INFORMATION
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments which are, in the opinion of management, necessary to fairly
present such information. Although the Company believes that the disclosures
are adequate to make the information presented not misleading, certain
information and footnote disclosure, including significant accounting policies,
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K.
BALANCE SHEETS
ASSETS
June 30
1996 December
(Unaudited) 1995
Current assets
Cash $ 3,343 $ 3,198
Note Receivable-Texoil 53,500 31,000
Total current assets 56,843 34,198
Oil and gas properties, using full
cost accounting (Note 2)
Properties being amortized 3,626,294 3,601,294
Properties not being amortized 79,496 65,000
3,705,790 3,666,294
Less accumulated depreciation, depletion,
amortization and impairment 1,120,074 1,081,871
Net oil and gas sales 2,585,716 2,584,423
Other assets
Other property and equipment, at cost,
less accumulated depreciation 6,200 8,267
Other 4,822 6,213
Total other assets 11,022 14,480
TOTAL ASSETS $2,653,581 $2,633,101
The Notes to Financial Statements are an integral part of this statement.
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30
1996 December
(Unaudited) 1995
Current liabilities
Current portion of long-term
debt $ - $ -
Accounts payable 332,322 253,036
Due to stockholders 46,177 22,628
N/P Texas Central Bank 100,000 75,000
N/P Lyon Operating Co. 35,000 35,000
Total current liabilities 513,499 385,664
Long-term debt
Senior Secured N/P 267,520 267,520
Total liabilities 781,019 653,184
Stockholders' equity
Preferred stock, $0.05 par value;
authorized 2,000,000 shares;
none issued
Common stock, $0.01 par value;
authorized 20,000,000 shares;
issued 4,055,500 40,555 40,555
Additional paid-in capital 3,508,043 3,508,043
Retained deficits (1,676,036) (1,568,681)
Total stockholders' equity 1,872,562 1,979,917
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,653,581 $2,633,101
The Notes to Financial Statements are an integral part of this statement.
Statements of Operations (Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
Revenues
Oil and gas sales $ 43,231 $ 57,465 $ 22,663 $ 24,417
Total Revenues $ 43,231 $ 57,465 $ 22,663 $ 24,417
Expenses
Production 37,142 27,267 22,598 10,811
Depreciation, depletion,
and amortization 38,203 33,560 12,882 24,773
Full cost ceiling
adjustment - - - -
Interest 15,372 - - -
General and admin 82,369 101,737 57,558 79,941
Total expenses 173,086 162,564 100,389 115,525
Other Income
Dividend income 22,500 - 11,250 -
Interest income - - - -
Total other income 22,500 - 11,250 -
Loss before provision for
income taxes (107,354) (105,099) (66,475) (91,108)
Provision for income taxes - - - -
NET LOSS $(107,354) $(105,099) $(66,475) $(91,108)
Primary earnings per
share (Note 1) $(0.02) $(0.03) $(0.01) $(0.02)
The Notes to Financial Statements are an integral part of this statement.
Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
1996 1995
Cash flows from operating activities
Net loss $(107,355) $ (105,099)
Adjustments to reconcile net loss to net
cash provided by operating activities
DD&A 38,203 33,560
Depreciation and amortization 3,458 5,393
(Increase) decrease in:
Accounts receivable-trade (22,500) (121,250)
Prepaid expenses - -
Other assets 1 (696)
Increase (decrease) in:
Accounts payable and accrued
expenses 102,834 101,325
NET CASH PROVIDED BY OPERATING
ACTIVITIES 14,641 86,767
Cash flows from investing activities
Loan made - -
Capital expenditures (39,496) 115,160
NET CASH USED BY INVESTING
ACTIVITIES (39,496) 115,160
Cash flows from financing activities
Short-term notes payable 25,000 -
Proceeds from issuance of convertible
senior notes - -
Proceeds from issuance of common stock - -
Proceeds from sale of oil/gas properties - -
NET CASH PROVIDED BY INVESTING
ACTIVITIES 25,000 -
NET INCREASE IN CASH AND CASH
EQUIVALENTS 145 28,393
Cash and cash equivalents, at beginning
of period - 2,554
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 145 $ 30,947
The Notes to Financial Statements are an integral part of this statement.
NOTES TO FINANCIAL STATEMENTS
(1) See notes to financial statements included in the Company's 1995
Annual Report on Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW - HISTORY
THE COMPANY
The Company is an independent oil and gas exploration and
production company operating primarily in the Panhandle Field, which
extends from West Texas through Central Oklahoma into Western Kansas.
During 1992 and 1993, the Company participated in a 20 well drilling
program on leases in Moore and Potter Counties, north of Amarillo, Texas
resulting in wells producing from the Red Cave Sandstone Formation. As
a result, the Company earned a 41.5 percent working interest in
approximately 26,755 gross acres covered by oil and casinghead gas leases
(the "Richmond acreage").
In December 1995, the Company acquired 72 percent working interest
in a 1240 acre tract in Clay and Jack Counties, Texas, on which there is one
producing oil well and eleven non-producing wells. The Company intends
to enhance production of the producing well by rework or repair and to re-
establish production on the shut-in wells. In February 1996, the Company
also acquired from the same operator 20 percent net revenue interest in 198.5
acres in Jack County, Texas, which contains two wells, one of which has
been drilled to 8700 feet and is awaiting completion and one which produces
minimal gas at a shallower level. The Company intends to complete the
8700 foot well awaiting completion and to drill to a lower level the producing
well to search for oil.
In October 1993, the Company acquired a 100 percent working
interest in approximately 7,000 gross acres on leases on the Brent Ranch,
adjacent to the Richmond acreage. In October 1994 and June 1995, the
Company drilled three wells on the Brent Ranch which were determined to
be non-commercial. Under the terms of the lease, the Company was
required to drill four additional wells by June 22, 1995 and five additional
wells by October 1995 and to plug and abandon six inactive wells on the
leases which had been drilled by other parties. The lessors of the Brent
Ranch filed a lawsuit in July 1995 against the Company for damages,
termination of the lease, costs and attorneys fees, alleging, among other
things, failure to timely drill the four wells required to be drilled by June
22, 1995. Pursuant to a partial summary judgment proceeding in October 1995,
the Court determined that the Company was liable to the lessors for $200,000
for liquidated damages, costs and attorneys fees. The Company and the
lessors settled the matter in February 1996 upon the following terms: The
Company released all of its interest in the Brent Ranch leases, paid $25,000
in cash and agreed to complete plugging and clean-up of the six inactive
wells drilled by others. The Company was released from its obligation to
drill eight additional wells on the Brent Ranch lease and has the right for 60
days to sell the last well drilled to a third-party who has the gas rights and
keep the sale proceeds. These rights were subsequently sold for $10,000.
The Company plans to develop its existing acreage as funds become
available or through farmout arrangements with other oil and gas operators.
The Company is actively seeking the acquisition of producing oil and
gas leases directly or through the acquisition of and/or business combinations
with other energy companies. The Company has completed or is in the
process of completing the transactions described below.
TEXOIL AGREEMENT
Pursuant to an agreement dated March 23, 1995 between the
Company and Texoil Energy, Ltd. ("Texoil"), a Canadian corporation,
Texoil acquired one-half of the Company's interest in approximately 9,300
acres of oil and casinghead gas leases in Moore and Potter Counties, Texas,
including the 7,000 acres on the Brent Ranch and 225,000 shares of the
Company's Common Stock. In consideration therefor, the Company received
$128,750 cash and a $121,250 note due in July 1995, 1,000,000 shares of
Texoil Common Stock and $750,000 principal amount of 6% preferred stock
(the "6% Preferred Stock"), convertible into 750,000 shares of Texoil
Common Stock. Under the terms of the agreement, Texoil was required to
fulfill the Company's obligation to drill nine wells on the Brent Ranch and
four wells on the Richmond acreage. The proceeds of the $121,250 note
were used to partially fund the Company's obligations under the Texoil
Agreement. Texoil paid two-thirds of the drilling and testing costs and
shared the completion costs equally with Empiric on the two wells drilled on
the Brent Ranch in 1995. Empiric retained 50 percent of its working interest
in the leases and any production therefrom. These leases have been canceled
as a part of the overall settlement with the Brent Ranch Lessors.
The Company and Texoil jointly plan to develop the 9100 acres of the
Richmond acreage. Under the Texoil Agreement, Texoil is required to pay
66 2/3 percent of the drilling and testing costs of eleven new wells at
locations to be mutually agreed upon. Texoil and the Company will share
equally the completion costs of, and revenues from, such wells. Texoil may
also participate with the Company in the enhancement and development of the
Taureaux/Lyon properties described below on mutually agreeable terms.
The Company owns approximately 23 percent of Texoil's outstanding
common stock and 100 percent of the 6% Series A Preferred Stock. If the
6% Series A Preferred Stock were converted into Texoil common stock, the
Company would own approximately 34 percent of Texoil's outstanding
common stock. The Company has no plans to convert the Series A Preferred
Stock into the common stock of Texoil.
The Company has not been able to proceed with the joint development
plans with Texoil since neither company has been able to obtain adequate
working capital, although the opportunities and the drilling site acreage is
still available.
TAUREAUX/LYON AGREEMENTS
Pursuant to an agreement dated December 21, 1995 with Lyon
Operating Co., Inc. ("Lyon"), the Company acquired from Lyon 72 percent
working interest in 1223.2 acres in Clay and Jack Counties, Texas, which
includes one producing oil well and eleven non-producing oil wells. As
consideration for the Lyon acquisition, the Company paid $30,000 cash,
issued its $35,000 8% Note due March 21, 1996 and 20,000 shares of its
Common Stock.
In February 1996, the Company agreed to acquire from Taureaux
Corporation ("Taureaux"), an affiliate of Lyon, for $75,000 cash 20 percent
net revenue interest in 198.5 acres in Jack County, Texas, which contains
two wells, one of which has been drilled to the lower Ellenberger level at
8700 feet and is awaiting completion and one of which produces minimal gas
at a shallower level.
The Company plans to enhance production on the producing well on
the Lyon acreage by rework and repair at an estimated cost of approximately
$20,000 and to re-establish production on the shut-in wells. The cost to re-
establish production is not known and depends on the condition of and ability
to use the downhole equipment.
On the Taureaux acreage, the Company plans to complete the well
which has already been drilled to the 8700 foot Lower Ellenberger depth and
is awaiting completion and to also drill the producing gas well to the Lower
Ellenberger formation to search for oil. The $75,000 original cost of this
transaction includes an acquisition of 20 percent working interest in the wells
and will also pre-pay the Company's portion of the completion costs on such
well.
The Company has not been able to proceed with its plans to develop
the opportunities acquired as a result of the Taureaux/Lyon agreements,
however, the opportunities remain and will be activated just as soon as
working investment capital can be obtained.
WESTAR JOINT VENTURE
Pursuant to a Definitive Agreement dated April 15, 1996, the
Company and Westar Energy, Inc. ("Westar") agreed to jointly participate
in the drilling, completion, equipping and operating of approximately 100 oil
and/or gas wells in Indiana and Westmoreland Counties, Pennsylvania (the
Agreement). Westar currently owns and operates approximately 500 oil and
gas wells in Western Pennsylvania and Northern West Virginia. The
Agreement provides for the drilling and completion of a minimum of twenty
and a maximum of 100 "infill" wells on the subject acreage, to a depth
sufficient to test and obtain production from the Lower Bradford Kane Sands
at approximately 4,000 feet. The First Phase will consist of four segments
of five wells, beginning on or about August 15, 1996. The remaining four
wells of the First Phase will be commenced at the rate of one well each 21
calendar days with the objective of completing all 20 wells by December 31,
1996. The Company has been able to raise only sufficient working capital
to obtain an approximate 30 percent interest in the first 5 well segment,
which should be completed in approximately six weeks, but has the right and
with the infusion of adequate working capital, expects to expand its working
interest to 75 percent as per the complete summary of terms of the Westar
Agreement outlined above. The Company shall have the right, based upon
information provided by Westar, at least 30 days prior to completion of the
last of the five wells in each segment, to evaluate and determine whether it
elects to participate in the drilling of the five wells in the next segment.
If, within 20 days after receiving the Westar information as to the next
segment, the Company elects not to participate in the drilling of any wells
in the Westar proposal, the Agreement will terminate, except as to the wells
in which the Company has theretofore participated.
For the consideration set forth below, the Company will acquire a 75
percent working interest in the leases, wells, equipment and all contractual
rights of Westar pertaining to each well, including contracts for the sale of
production from the wells. Westar agreed to drill, complete, fracture and
equip each well for a fixed cost price of $180,000 to 100 percent of the
working interest or $135,000 per well to the 75 percent working interest of
the Company. If a well is determined to be not capable of commercial
production, Westar will repay or credit the Company against the cost of the
next well the amount of the Company's portion of the unexpended cost in the
non-commercial well. As each well is completed as capable of commercial
production, Westar shall execute an assignment to the Company of 50 percent
of the working interest in the well and deliver to an escrow agent an
additional assignment for 25 percent working interest. The 25 percent
working interest will be held by an escrow agent subject to a Value
Guaranty, described below. Proceeds from the sale of oil and gas
attributable to the 25 percent working interest held in escrow shall be held
in suspense by the oil and/or gas purchaser or by the escrow agent until the
Company's interest in the 25 percent working interest is finally determined
under the Value Guaranty. Westar will reserve a reversionary interest in
each well equal to 15 percent of the working interest conveyed to the
Company (or 11.25 percent of the Company's 75 percent working interest)
which shall become effective as to each well in a five well segment only
when the Company has received proceeds from production from all five wells
in a segment equal to 110 percent of the Company's cost of drilling,
completing, equipping, reworking and operating all five wells in the segment,
plus all taxes attributable to production (except income taxes).
Following completion of the First Phase, subject to Westar's ability
to identify additional mutually agreeable drilling locations, the parties intend
to drill up to an additional 80 wells, in 20 well phases, in 1997 and 1998.
Provided the Company has participated in the drilling of all 20 wells in the
First Phase, the Company will have the right to participate in subsequent
phases on substantially the same terms and conditions as in the First Phase.
With regard to the Company's 75 percent share of the turnkey cost of
drilling, completing and equipping each of the 20 wells in the First Phase,
the Company shall pay Westar $135,000 per well, $90,000 of which shall be
paid in cash prior to commencement of the well, which shall represent
payment for 50 percent of the working interest in such well. The remaining
$45,000 cost per well for the 20 wells in the First Phase shall be paid by
delivery to an escrow agent of 300,000 shares of the Company's Common
Stock (15,000 shares per well) (the "Shares") which shall constitute payment
for the remaining 25 percent of the working interest in the wells. The
Company will agree to register the Shares under the Securities Act of 1933
to enable Westar to sell such Shares in an underwritten offering or from time
to time in the open market. Pursuant to a Value Guaranty in the Agreement,
Westar will receive $900,000 from the sale of its 300,000 shares. In the
event the sale of the 300,000 Shares is not completed by December 31, 1996
or Westar does not receive $900,000 from the sale of the Shares, the
Company must compensate Westar for the difference between the Value
Guaranty and the net consideration, if any, received by Westar (the
"Shortfall"): (i) by purchasing from Westar all or any part of the Shares not
sold by Westar or arranging for the purchase by others, or (ii) by issuing to
Westar additional shares to make up the Shortfall, or (iii) by reconveying to
Westar a portion of the 25 percent working interest in the wells in the First
Phase based on the amount of the Shortfall or (iv) if the Shortfall is
satisfied by any means other than the issuance of additional shares of Common
Stock, all of the unsold Shares held by the escrow agent shall be retransferred
to the Company. In the event that the Company elects not to participate in all
20 wells in the First Phase, the Value Guaranty shall be proportionately
reduced by $45,000 or 15,000 shares per well.
Under the Agreement, the Company has the right until December 31,
1996, to request Westar to sell any part of the Shares in escrow, but not less
than 100,000 shares, to any party designated by the Company. In such
event, the total sales price will be credited against the Value Guaranty,
whether or not Westar elects to sell such Shares.
For its assistance in identifying and participating in the
negotiations of the Westar transaction, the Company has agreed to assign to an
unaffiliated third party 6.25 percent working interest from its 50 percent
working interest in each of the wells acquired by the Company, but not from
the 25 percent working interest, which was acquired subject to the value
guaranty described above.
The Company has been able to raise only sufficient working capital
to obtain an approximate 30 percent interest in the first 5 well segment,
which should be completed in approximately six weeks, but has the right and
with the infusion of adequate working capital, expects to expand its working
interest to 75 percent as per the complete summary of terms of the Westar
Agreement outlined above.
FINANCIAL RESULTS FOR FISCAL YEAR 1995 - FIRST QUARTER
ENDED MARCH 31, 1996
Revenues of $85,282 for fiscal year ended December 31, 1995
resulted in a loss from operations of $245,636 as compared with revenues of
$138,012 and an operating loss of $998,929 for the preceding fiscal year
ended December 31, 1994. The loss of $998,929 for the fiscal year ended
December 31, 1994 included a special "non-cash" charge of $830,969 of
depletion/amortization to adjust the value of oil and gas properties to the
discounted value of oil and gas reserves at December 31, 1994, as
determined by independent engineering reserve evaluations.
Revenues of $22,663 for the three month period ended June 30, 1996
produced an operating loss of $53,593 as compared with revenues of $24,417
and a corresponding loss of $13,991 for the similar three month period ended
June 30, 1995. The general trend of declining revenues and increasing
operating losses as described for the periods set forth above has been caused
in substantial part by the fact that the decline in production from the
producing wells has not been offset by the discovery of additional production,
due to the lack of development funds. This downward trend will continue
until expanded drilling programs and/or acquisition of production and
reserves can be successfully achieved. Such programs will require additional
financing, as will be discussed later.
FINANCIAL CONDITION DISCUSSION
As of June 30, 1995, the Company had a net worth of $2,120,455 and
a working capital deficit of $276,600.
As of June 30, 1996, the Company had a net worth of $1,870,895 and
a working capital deficit of $456,223. The decrease in net worth and the
increase in the working capital deficit at June 30, 1996 as compared to June
30, 1995 was caused by the operating losses sustained during the period.
STRATEGY AND BUSINESS PLANS
The Company's business strategy is to increase its cash flow and oil
and gas reserves through exploratory and development drilling and the
acquisition of all or a portion of producing properties or energy-related
companies. In implementing this strategy the Company plans to do the
following:
- - Initiate the infill drilling and completion program in the
Westar Joint Venture;
- - Develop the Richmond acreage by drilling development wells
and infill location wells. Certain of the Richmond acreage
will be developed in conjunction with Texoil;
- - Continue the development and enhancement of the
Taureaux/Lyon properties; and,
- - Actively pursue business combinations with or the acquisition
of producing properties or other energy companies with
producing properties. Although the Company is continually
seeking business combinations and producing properties for
acquisition, no such transactions have been finalized as of the
date of this Prospectus.
NEED FOR THE INFUSION OF CAPITAL
Each of the Company's business strategy objectives delineated above
will require investments in excess of capital funds now available to the
Company. These funds must be generated from financial institutions through
the placement or sale of Empiric's equity or indebtedness. In this regard, the
Company made a revised filing of a Registration Statement on April 12, 1996
with the Securities and Exchange Commission seeking to register 1,500,000
shares of the Company's Common Stock for ultimate sale and the infusion
of up to $4.5 million, less offering expenses of new equity funds. This
Registration Statement has not been approved by the Securities and Exchange
Commission. The Company is currently planning to file a revised statement
to reflect its proposed method of obtaining needed financing on favorable
terms. An underwriter has not been obtained as yet.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
There were no reports filed.
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EMPIRIC ENERGY, INC.
Date: August 14, 1996 By:_____Clyde E. Skeen______________
Clyde E. Skeen
Chief Financial Officer
