UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 1, 1997
KELLEY OIL & GAS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-25214 76-0447267
(STATE OR OTHER JURISDICTION (COMMISSION (I.R.S. EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
601 JEFFERSON ST.
SUITE 1100
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (713) 652-5200
<PAGE>
The undersigned registrant hereby amends and restates the following
items of its Current Report on Form 8-K, as amended, dated December 1, 1997, and
filed on February 17, 1998, to include the effect of cumulative preferred stock
dividends, whether declared or not, on net loss applicable to common stock and
net loss per common share as shown in the pro forma financial information
contained in this report:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
An index of historical financial statements of the business
acquired included in this report is presented on page 3.
(b) Pro forma financial information.
An index of pro forma financial information included in this
report is presented on page 3.
(c) Exhibits.
None.
FORWARD-LOOKING STATEMENTS
ITEM 7 OF THIS REPORT INCLUDES STATEMENTS THAT ARE FORWARD-LOOKING IN
NATURE AND ARE INTENDED TO BE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALTHOUGH THE
COMPANY BELIEVES THAT THE FORWARD-LOOKING STATEMENTS DESCRIBED HEREIN ARE
REASONABLE, THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM ANY OR ALL ANTICIPATED
RESULTS DUE TO FINANCIAL AND OTHER ECONOMIC CONDITIONS AND OTHER RISKS,
UNCERTAINTIES AND CIRCUMSTANCES PARTLY OR TOTALLY OUTSIDE THE CONTROL OF THE
COMPANY AND NO ASSURANCES ARE GIVEN THAT THEY WILL BE ACHIEVED. REFERENCE IS
MADE TO THE MORE DETAILED CAUTIONARY STATEMENTS, INCLUDING AS TO DISCLOSURES
RELATING TO THE "STANDARDIZED MEASURE", CONTAINED IN THE COMPANY'S 1996 ANNUAL
REPORT ON FORM 10-K. WORDS SUCH AS "ANTICIPATED," "EXPECT," "ESTIMATE,"
"PROJECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS.
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 thereunto duly authorized.
KELLEY OIL & GAS CORPORATION
Date: March 27, 1998 By: /S/ DAVID C. BAGGETT
David C. Baggett,
Senior Vice President &
Chief Financial Officer
(Duly Authorized Officer)
2
<PAGE>
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
I. FINANCIAL STATEMENTS OF THE SPR PRODUCING PROPERTIES PAGE
Independent Auditors' Report .................................................................... 4
Statements of Revenues and Direct Operating Expenses for each of the two years
in the period ended December 31, 1996 and the eleven months ended
November 30, 1997 ............................................................................. 5
Notes to Statements of Revenues and Direct Operating Expenses ................................... 6
II. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
Introduction .................................................................................... 8
Pro Forma Condensed Consolidated Balance Sheets as of September 30, 1997
(unaudited) ................................................................................... 9
Pro Forma Condensed Consolidated Statements of Income for the nine months ended
September 30, 1997 (unaudited) ................................................................ 10
Pro Forma Condensed Consolidated Statements of Loss for the year ended
December 31, 1996 (unaudited) ................................................................. 11
Notes to Pro Forma Condensed Consolidated Financial Statements (unaudited) ...................... 12
</TABLE>
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Kelley Oil & Gas Corporation
We have audited the accompanying statements of revenues and direct operating
expenses of the properties acquired by Kelley Oil & Gas Corporation (the
"Company") from SCANA Petroleum Resources, Inc. ("SPR") (the "SPR Producing
Properties") for each of the two years in the period ended December 31, 1996 and
the eleven months ended November 30, 1997. These statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying statements were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion on Form 8-K of the Company) as described in Note 2 to the statements
and are not intended to be a complete presentation of the Company's interests in
the properties described above.
In our opinion, the statements referred to above present fairly, in all
material respects, the revenues and direct operating expenses of the properties
acquired by the Company from SPR for each of the two years in the period ended
December 31, 1996 and the eleven months ended November 30, 1997, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 6, 1998
4
<PAGE>
KELLEY OIL & GAS CORPORATION
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF THE SPR PRODUCING PROPERTIES
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
AND THE ELEVEN MONTHS ENDED NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- NOVEMBER 30,
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Oil and natural gas revenues .......................... $36,309 $50,653 $36,004
Direct operating expenses ............................. 6,011 6,046 5,134
------- ------- -------
Revenues in excess of direct operating expenses ....... $30,298 $44,607 $30,870
======= ======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
KELLEY OIL & GAS CORPORATION
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING
EXPENSES OF THE SPR PRODUCING PROPERTIES
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
AND THE ELEVEN MONTHS ENDED NOVEMBER 30, 1997
NOTE 1 - OPERATIONS, ORGANIZATION AND BASIS OF PRESENTATION
The accompanying statements represent the interests in the oil and
natural gas revenues and direct operating expenses of the oil and natural gas
producing properties acquired by Kelley Oil & Gas Corporation (the "Company")
from SCANA Petroleum Resources, Inc. ("SPR") on December 1, 1997 for
approximately $110 million. The oil and natural gas producing properties
acquired are located primarily in the Gulf of Mexico and in east Texas. These
properties are referred to herein as the "SPR Producing Properties".
The accompanying statements were derived from the historical accounting
records of SPR. Direct operating expenses include payroll, lease and well
repairs, production taxes, maintenance and other direct operating expenses.
During the periods presented, the SPR Producing Properties were not accounted
for as a separate entity. Certain costs such as depreciation, depletion and
amortization, general and administrative expenses, interest expense and
corporate taxes were not allocated to the SPR Producing Properties.
REVENUE RECOGNITION AND GAS BALANCING. The SPR Producing Properties
recognize oil and natural gas revenue from its interests in producing wells as
it sells oil and gas from those wells ("sales method"). Accordingly, the SPR
Producing Properties use the sales method to account for gas production volume
imbalances that arise when it sells a percentage of gas that differs from its
ownership percentage. Substantially all such gas imbalances were anticipated to
be settled with production in future periods. At December 1, 1997, the Company
owed net future production from the SPR Producing Properties of approximately
759 million cubic feet of gas.
USE OF ESTIMATES. The process of preparing financial statements in
conformity with generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
NOTE 2 - OMITTED HISTORICAL FINANCIAL INFORMATION
Historical financial statements reflecting financial position, results
of operations and cash flows required by generally accepted accounting
principles are not presented as such information is not readily available on an
individual property basis and not meaningful for the properties. Historically,
no allocation of general and administrative, litigation, interest, federal
income tax expense, depreciation, depletion and amortization was made to the SPR
Producing Properties. Accordingly, the statements are presented in lieu of the
financial statements required under Rule 3-05 of Securities and Exchange
Commission Regulation S-X.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company is unaware of any legal, environmental or other
contingencies that would have a material adverse effect in relation to the
statements.
6
<PAGE>
NOTE 4 - SUPPLEMENTAL DISCLOSURES ON OIL AND GAS EXPLORATION, DEVELOPMENT AND
PRODUCTION ACTIVITIES (UNAUDITED)
RESERVES. The following table summarizes the Company's net ownership
interests in estimated quantities of the proved oil and gas reserves of the SPR
Producing Properties at December 1, 1997. Reserve estimates at December 1, 1997
contained below were determined using estimates prepared by H.J. Gruy &
Associates, Inc. ("Gruy"), independent petroleum engineers. Comparable reserve
estimates applicable to the SPR Producing Properties were not available for
prior periods.
OIL GAS
(MBBL) (MMCF)
------- --------
Proved developed reserves........................... 1,282 51,620
Proved undeveloped reserves......................... 69 92
------- --------
Total proved reserves............................... 1,351 51,712
======= ========
After the acquisition date of December 1, 1997 and prior to December 31,
1997, the Company drilled or participated in the drilling of four successful
exploration wells on acreage acquired from SPR. These reserve volume additions
are not included in the above table, but will be included in the Company's
year-end reserves. They amounted to net proved and proved developed reserves of
approximately 160 thousand barrels of oil and 6.4 billion cubic feet of natural
gas based upon estimates prepared by Gruy.
STANDARDIZED MEASURE. The following table displays the Standardized
Measure of Discounted Future Net Cash Flows before future income taxes from
proved oil and gas reserves of the SPR Producing Properties. As prescribed by
the Financial Accounting Standards Board, the amounts shown are based on average
prices and costs at the end of the period and assume continuation of existing
economic conditions. A discount factor of 10% was used to reflect the timing of
future net cash flow. Extensive judgments are involved in estimating the timing
of production and the costs that will be incurred throughout the remaining lives
of the fields. Accordingly, the estimates of future net cash flows from proved
reserves and the present value thereof may not be materially correct when judged
against actual subsequent results. Further, since prices and costs do not remain
static, and no price or cost changes have been considered, and future production
and development costs are estimates to be incurred in developing and producing
the estimated proved oil and gas reserves, the results are not necessarily
indicative of the fair market value of estimated proved reserves, and the
results may not be comparable to estimates disclosed by other oil and gas
producers.
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
1997
------------
<S> <C>
Future cash inflows ........................................................... $ 188,910
Future production costs ....................................................... 37,683
Future development costs ...................................................... 17,995
------------
Future net cash flows before income taxes .................................... 133,232
10% annual discount for estimating timing of cash flows ....................... 42,198
------------
Standardized measure of discounted future net cash flows before income taxes . $ 91,034
============
</TABLE>
7
<PAGE>
KELLEY OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated balance sheet
as of September 30, 1997 and the unaudited pro forma condensed consolidated
statements of income (loss) for the nine months ended September 30, 1997 and for
the year ended December 31, 1996 gives effect to the acquisition of the SPR
Producing Properties as if it occurred on September 30, 1997 and January 1,
1996, respectively.
The unaudited pro forma financial data presented are based upon the
historical consolidated financial statements of the Company and the historical
statements of revenues and direct operating expenses of the SPR Producing
Properties and should be read in conjunction with such financial statements and
related notes thereto which are contained in the Company's 1996 Annual Report on
Form 10-K, the Company's Quarterly Report on Form 10-Q for the nine months ended
September 30, 1997 and this Current Report on Form 8-K, as amended.
The pro forma financial data are based upon assumptions and include
adjustments as explained in the notes to the unaudited pro forma condensed
consolidated financial statements, and the actual recording of the transactions
could differ. The unaudited pro forma financial data are not necessarily
indicative of financial results that would have occurred had the acquisition of
the SPR Producing Properties been effective on September 30, 1997 or January 1,
1996 and should not be viewed as indicative of operations in future periods.
The Company has restated historical and pro forma net loss applicable to
common stock and net loss per common share disclosures on the Pro Forma
Condensed Consolidated Statements of Income (Loss) for the nine months ended
September 30, 1997 and year ended December 31, 1996 to include the effect of
cumulative preferred stock dividends, whether declared or not. These amounts, as
previously reported, included the effect of preferred stock dividends only when
declared. The restatement for the nine months ended September 30, 1997 changes
previously reported historical and pro forma net loss applicable to common stock
from $(4.1) million and $(3.5) million to $(2.9) million and $(2.4) million,
respectively and changes previously reported historical and pro forma net loss
per common share of $(0.04) and $(0.03) to $(0.03) and $(0.02), respectively.
The restatement for the year ended December 31, 1996 changes historical and pro
forma net loss before extraordinary items applicable to common stock from
$(11.9) million and $(9.7) million to $(16.5) million and $(14.3) million,
respectively and changes previously reported historical and pro forma net loss
per common share before extraordinary items of $(0.13) and $(0.08) to $(0.18)
and $(0.12), respectively.
8
<PAGE>
KELLEY OIL & GAS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR SPR
HISTORICAL ACQUISITION PRO FORMA
--------- -------- ---------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents ........................................ $ 81 $ -- $ 81
Accounts receivable .............................................. 20,840 20,840
Prepaid expenses and other current assets ........................ 1,612 185(a) 1,797
--------- -------- ---------
Total current assets ........................................... 22,533 185 22,718
--------- -------- ---------
Property and equipment, net ...................................... 175,967 113,240(b) 289,207
Other non-current assets, net .................................... 1,282 1,335(a) 2,617
--------- -------- ---------
Total assets ................................................... $ 199,782 $114,760 $ 314,542
========= ======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities .............................................. $ 38,363 $ 4,424(c) $ 42,787
Long term debt ................................................... 195,711 83,336(d) 279,047
Stockholders' deficit ............................................ (34,292) 27,000(e) (7,292)
--------- -------- ---------
Total liabilities and stockholders' deficit .................... $ 199,782 $114,760 $ 314,542
========= ======== =========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
9
<PAGE>
KELLEY OIL & GAS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
RESTATED FOR SPR RESTATED
HISTORICAL ACQUISITION PRO FORMA
-------- -------- ---------
<S> <C> <C> <C>
REVENUES:
Oil and gas revenues ................................................... $ 50,482 $ 29,898(f) $ 80,380
Gas marketing revenues, net ............................................ 1,748 -- 1,748
Interest and other income .............................................. 307 -- 307
-------- -------- ---------
Total revenues ....................................................... 52,537 29,898 82,435
-------- -------- ---------
COSTS AND EXPENSES:
Production expenses .................................................... 7,388 4,280(f) 11,668
Exploration expenses ................................................... 2,779 2,779
General and administrative expenses .................................... 5,268 580(g) 5,848
Interest and other debt expenses ....................................... 18,174 4,959(h) 23,133
Depreciation, depletion and amortization ............................... 18,414 19,520(i) 37,934
-------- -------- ---------
Total expenses ....................................................... 52,023 29,339 81,362
-------- -------- ---------
Income before income taxes ............................................... 514 559 1,073
Income taxes ........................................................... -- -- --
-------- -------- ---------
Net income ............................................................... 514 559 1,073
Preferred stock dividends .............................................. (3,436) (3,436)
-------- -------- ---------
Net loss applicable to common stock ...................................... $ (2,922) $ 559 $ (2,363)
======== ======== =========
Loss per share:
Primary and assuming full dilution:
Net loss ............................................................. $ (0.03) -- $ (0.02)
======== ======== =========
Average common and common equivalent shares outstanding:
Primary and assuming full dilution ..................................... 98,400 27,000(e) 125,400
======== ======== =========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
10
<PAGE>
KELLEY OIL & GAS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
RESTATED FOR SPR RESTATED
HISTORICAL ACQUISITION PRO FORMA
-------- ------- ---------
<S> <C> <C> <C>
REVENUES:
Oil and gas revenues ................................................................... $ 59,016 $50,653(f) $ 109,669
Gas marketing revenues, net ............................................................ 1,838 -- 1,838
Interest and other income .............................................................. 1,429 -- 1,429
-------- ------- ---------
Total revenues ....................................................................... 62,283 50,653 112,936
-------- ------- ---------
COSTS AND EXPENSES:
Production expenses .................................................................. 10,709 6,046(f) 16,755
Exploration expenses ................................................................. 5,438 5,438
General and administrative expenses .................................................. 8,953 875(g) 9,828
Interest and other debt expenses ..................................................... 24,401 6,779(h) 31,180
Restructuring expenses ............................................................... 4,276 -- 4,276
Depreciation, depletion and amortization ............................................. 20,440 34,753(i) 55,193
-------- ------- ---------
Total expenses ..................................................................... 74,217 48,453 122,670
-------- ------- ---------
Loss before income taxes and extraordinary items ....................................... (11,934) 2,200 (9,734)
Income taxes ......................................................................... -- -- --
-------- ------- ---------
Net loss before extraordinary items .................................................... (11,934) 2,200 (9,734)
Preferred stock dividends ............................................................ (4,582) -- (4,582)
-------- ------- ---------
Net loss before extraordinary items applicable to common stock ......................... $(16,516) $ 2,200 $ (14,316)
======== ======= =========
Loss per share before extraordinary items : Primary and assuming full dilution:
Net loss before extraordinary items ................................................ $ (0.18) -- $ (0.12)
======== ======= =========
Average common and common equivalent shares outstanding:
Primary and assuming full dilution ................................................... 90,113 27,000(e) 117,113
======== ======= =========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
11
<PAGE>
KELLEY OIL & GAS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(a) To record deferred financing costs associated with the Company's Credit
Facility. Total costs of $1.5 million included $0.2 million that is
classified as a prepaid item. This prepaid amount represents a deposit for
Alabama mortgage taxes. The Company anticipates that the majority of this
amount will be refunded to it. The remainder will be deferred and amortized
over the remaining three year life of the credit agreement.
(b) To record the estimated purchase price allocation of the properties
acquired from SPR in accordance with the purchase method of accounting.
Preliminary allocation of the pro forma purchase price is detailed below
and includes $110.3 million that was paid to SPR, an accrual for repairs to
offshore platforms of $2.2 million and $0.7 million of accrued costs
payable to other third parties for acquisition related costs such as legal,
auditing and reservoir engineering services.
(IN THOUSANDS)
Unproved properties $ 40,000
Proved properties 73,140
Furniture, fixtures & equipment 100
-----------
Total purchase price $ 113,240
===========
(c) In addition to $1.5 million of deferred financing costs discussed in note
(a) above, this amount includes $2.2 million for an accrual of repairs to
offshore platforms and $0.7 million of acquisition related costs payable to
third parties as discussed in note (b) above.
(d) To record the net change in the Credit Facility from debt incurred to fund
the amount paid to SPR for the purchase of the properties acquired ($110.3
million) and funds received from the exercise of the Contour Option ($27
million) that was used to reduce debt.
(e) Exercise by Contour Production Company L.L.C. ("Contour") of its right,
pursuant to its Option Agreement dated February 15, 1996 ("Option
Agreement"), to purchase 27 million shares of the Company's Common Stock at
$1.00 per share, as established in the Option Agreement.
(f) To reflect the historical operations of the SPR Producing Properties. See
"Statements of Revenues and Direct Operating Expenses" of the SPR Producing
Properties included elsewhere herein.
(g) To record general and administrative expenses to reflect the salaries and
related costs associated with additional employees hired as a result of
acquiring the SPR Producing Properties.
(h) To record additional interest expense on the net increase in borrowings
under the Credit Facility as discussed in note (d) above. Interest rates
used were 7.6% and 7.4% for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively.
(i) To record depreciation, depletion and amortization ("DD&A") expense on the
SPR Producing Properties (including a provision for future plugging and
abandonment costs).
12
