SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 1-13162
EMPIRIC ENERGY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2455467
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8201 Preston Road, Suite 580
Dallas, Texas 75225
(Address of principal executive offices) (Zip Code)
(214) 265-8392
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
As of March 31, 1997, there were 5,010,137 shares of the registrant's
stock, $.01 par value outstanding.
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
March 31
1997 December 31,
(Unaudited) 1996
Current assets
Cash $ 184 $ 1,084
Accounts receivable 86,109 69,217
Note Receivable-Texoil 31,000 31,000
Total current assets 117,293 101,301
Oil and gas properties, using full
cost accounting
Properties being amortized 3,921,117 3,894,172
Less accumulated depreciation, depletion,
amortization and impairment 1,540,110 1,535,833
Net oil and gas properties 2,381,007 2,358,339
Other assets
Other property and equipment, at cost,
less accumulated depreciation 3,801 4,133
Other 2,076 2,742
Total other assets 5,877 6,875
TOTAL ASSETS $2,504,177 $2,466,515
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1997 1996
(Unaudited)
Current liabilities
Accounts payable $ 196,394 $ 257,713
Due to stockholders 29,393 22,627
Short-term notes payable 84,789 174,850
Total current liabilities 310,576 455,190
Stockholders' equity
Preferred stock, $100 par value;
authorized 2,000,000 shares;
none outstanding at 3/31/97,
4,488 outstanding at 12/31/96 - 448,803
Common stock, $0.01 par value;
authorized 20,000,000 shares;
issued 5,010,137 shares and
4,307,003, respectively 50,101 43,307
Additional paid-in capital 4,216,965 3,579,342
Retained deficits (2,073,465) (2,060,127)
Total stockholders' equity 2,193,601 2,011,325
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,504,177 $2,466,515
STATEMENTS OF OPERATIONS
Three Months Ended
March 31, (unaudited)
1997 1996
Revenues
Oil and gas sales $ 31,885 $ 20,567
Expenses
Production 16,958 14,544
Depreciation, depletion,
and amortization 4,277 25,321
Interest 3,796 7,688
General and administrative 61,206 26,808
Total expenses 86,237 74,361
Other Income
Dividend income 11,250 11,250
Interest income - -
Total other income 11,250 11,250
Loss before provision for income
taxes and extraordinary items (43,103) (42,543)
Provision for income taxes - -
Loss before extraordinary item (43,103) (42,543)
Extraordinary item:
Gain from debt restructuring 29,764 -
NET LOSS $ (13,339) $ (42,543)
Primary earnings per share
before extraordinary items $ (0.009) $ (0.009)
Primary earnings per share after
extraordinary items $ (0.003) $ 0.009
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1997 1996
Cash flows from operating activities
Net loss $(13,338) $ (42,545)
Adjustments to reconcile net loss to net
cash provided by operating activities
DD&A 4,277 25,321
Depreciation and amortization 1,729 1,729
(Increase) decrease in:
Accounts receivable-trade (16,890) -
Other assets (731) -
Increase (decrease) in:
Accounts payable and accrued
expenses (9781) (40,954)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 34,734 25,459
Cash flows from investing activities
Capital expenditures (26,945) (20,146)
NET CASH USED BY INVESTING
ACTIVITIES (26,945) (20,146)
Cash flows from financing activities
Short-term notes payable (90,061) (4,699)
Long-term debt retired - -
Proceeds from issuance of common and
preferred stock 150,840 -
NET CASH PROVIDED BY INVESTING
ACTIVITIES 60,779 (4,699)
NET INCREASE IN CASH AND CASH
EQUIVALENTS (900) 614
Cash and cash equivalents, at beginning
of period 1,084 3,198
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 184 $ 3,812
NOTES TO FINANCIAL STATEMENTS
See notes to financial statements included in the Company's 1996
Annual Report on Form 10-KSB.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
BACKGROUND HISTORY
THE COMPANY FROM INCEPTION, SEPTEMBER 1992 TO PRESENT
The Company, founded in September 1992, is an independent oil and
gas exploration and production company operating in the Panhandle Field,
north of Amarillo, Texas, and in eastern central Pennsylvania. The
Company also owns one gas well in Holmes County, Mississippi, which is
temporarily shut-in due to technical problems. During 1992 and 1993, the
Company participated in a 20 well drilling program on leases in Moore and
Potter Counties, resulting in wells producing oil 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.
In October 1993, the Company acquired a 100 percent working interest
in approximately 7,000 gross acres on leases on the Brent Ranch in Moore
County, Texas. In October 1994 and June 1995, the Company drilled three
wells on the Brent Ranch which were determined to be non-commercial.
Soon thereafter, the Company and the Brent Ranch lessors became engaged
in disagreements relative to the Company's requirement to drill additional
wells within certain time periods. These disagreements resulted in the
filing of a lawsuit in July 1993 against the Company by the lessors for
termination of the lease and damages due to alleged failure to timely drill
additional wells and other lease non-performance claims. The legal matter
was then settled fully by the Company who agreed to terminate the lease,
plug and abandon six inactive wells and pay $25,000, $10,000 of which
was later recovered by the Company retaining and selling the gas rights to
certain of the properties.
After acquiring the properties in the Texas Panhandle area, the
Company continued its program of actively seeking the acquisition of
promising oil and gas properties directly or through the acquisition of
and/or business combinations with other energy companies. In brief
summary, these activities resulted in the following events:
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 9,000 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, 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. 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.
Depending on available financing, the Company and Texoil may
continue to develop the 9000 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 26 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 38 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, a
$35,000 Note and 20,000 shares of its Common Stock.
In February 1996, the Company agreed to acquire from Taureaux
Corporation ("Taureaux"), an affiliate of Lyon, a 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 is considering the possibility of instituting a program to
repair and re-establish production on all the wells on the Lyon acreage.
The Company is also considering the economic feasibility of completing the
Lower Ellenberger level and continuing to investigate the gas production
possibilities of the two wells on the Taureaux acreage. These opportunities
may be explored further if adequate working capital becomes available.
WESTAR JOINT VENTURE - PENNSYLVANIA
In March 1996, Empiric entered into an agreement with Westar Energy,
Inc. ("Westar") for an approximate 100 well infill drilling program (later
reduced to 88 wells) in Indiana and Westmoreland Counties, Pennsylvania.
The wells will be drilled in segments, the size of which to be mutually
determined. Permits have already been obtained for approximately 50 infill
drilling locations. All locations selected to date are surrounded by
producing wells drilled some twenty years ago with initial potential ranging
from 750 to 3,000 Mcfpd. Empiric has contracted for up to a 75 percent
working interest (60 percent Net Revenue Interest). Westar will drill the
wells for a total fixed turnkey cost of $180,000 per well, of which
Empiric's 75 percent working interest will cost a fixed amount of $135,000
per completed well. Of this amount, $45,000 of Empiric's cost will be in
the form of 15,000 shares of Empiric Common Stock which will be
guaranteed by Empiric at a price of $3.00 per share, which will become
effective after the completion of the last well in each drilling segment.
Through this date, eight wells have been drilled (three segments of
3, 3 and 2 wells, respectively) with seven producing wells confirmed and
the eighth well scheduled to be producing by May 20, 1998. The total
proven reserves are estimated to be 6.6 Bcf of gas, approximately 2.5 Bcf
to Empiric's Net Revenue Interest after all royalties, backins and other
outside carried interests.
The Company's financed its investment in the first eight wells by
attracting outside investors who will receive approximately 50 percent
working interest in the wells and 80 percent of the initial cash revenues
applicable to its interest (with Empiric receiving 20 percent) until the
investors receive up to 117 percent of their total investment. Thereafter,
all remaining revenues will be shared equally (50/50) with Empiric for the
life of the revenue stream. As an inducement to make the investment on
this basis, the investors also received approximately 80,000 shares of the
Common Stock of Empiric and a substantial portion of the intangible cost
related tax benefits.
The Company plans to raise working capital for the remaining 80 wells
in the Westar program so that Empiric will own 75 percent working
interest. The Company also has other plans to strengthen its financial
growth and some have reached the discussion and preliminary negotiation
stage. However, no firm and binding agreements have been reached.
FINANCIAL RESULTS FOR FIRST QUARTER OF 1997 - PERIOD
ENDED MARCH 31, 1997
Financial results of Empiric Energy, Inc. for the three month period
ended March 31, 1997, disclosed revenues of $31,885 and a net loss of
$13,338 as compared with revenues of $20,587 and a net loss of $42,543,
respectively, for the similar three month period ended March 31, 1996.
Revenues were principally from the Texas Panhandle properties and were
somewhat greater than the comparable three month period of the preceding
year, due to increases in the price received for oil. There were no revenues
received in the prior year for gas from the Texas properties until the last
three month period ended March 31, 1996. There were no sales of gas
recorded from the Pennsylvania properties through March 31, 1997. Such
revenues will begin to be received during the second three month period
ended June 30, 1997.
During the three month period ended March 31, 1997, the holders of
4,488 shares of the Company's Series B Preferred Stock ($5.00 par
value/$1.00 liquidation value per share) exchanged all the shares of
Preferred Stock for 448,800 shares of Common Stock.
FINANCIAL CONDITION DISCUSSION
As of March 31, 1997, the Company had a net worth of $2,193,601 as
compared to a net worth of $2,011,325 at year ended December 31, 1996,
caused principally by the debt reduction and elimination program in which
principal shareholders and other debtholders converted outstanding debt to
equity. The working capital deficit as of March 31, 1997 was $193,283 as
compared with a deficit of $253,889 as of December 31, 1996. This
continuing working capital deficit position highlights the Company's need
for working capital.
STRATEGY, BUSINESS PLANS AND NEED FOR
THE INFUSION OF CAPITAL
All of the Company's plans to strengthen its financial capability for
development and growth involve the need for the infusion of capital funds.
Sources of financing, involving the issuance of debt and equity securities
as well as acquisitions and business combinations with companies in the
related energy business, are being investigated. Similarly, sale of Company
acreage and production assets are being considered with the objective of
utilizing the proceeds to obtain improved financial returns.
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.
Date: May 13, 1997
EMPIRIC ENERGY, INC.
By:_____Clyde E. Skeen______________
Clyde E. Skeen
Chief Financial Officer
By:_____James J. Ling________________
James J. Ling
President
