<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K / A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: March 26, 1997 / February 20, 1997
QUEEN SAND RESOURCES, INC.
(Exact name of registrant as specified in charter)
Delaware 0-21179 75-2615565
Jurisdiction of Commission File I.R.S. Employer
Incorporation Number Identification
Number
3500 Oak Lawn, Suite 380, LB #31, Dallas, TX 75219-4398
(Address of principal executive offices)
Registrant's telephone number: (214) 521-9959
ITEM 7. FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements
b) Proforma Financial 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 hereunto duly authorized.
QUEEN SAND RESOURCES, INC.
By: /s/ Edward J. Munden
Edward J. Munden
President and Chief Executive Officer
<PAGE> 2
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Combined Condensed Financial Statements (unaudited):
Pro Forma Combined Condensed Balance Sheet at December 31, 1996 ............ F-4
Pro Forma Combined Condensed Statement of Operations for the
year ended December 31, 1996 ........................................... F-5
Pro Forma Combined Condensed Statement of Operations for the
six months ended December 31, 1996 ..................................... F-6
Notes to Pro Forma Combined Condensed Financial Statements ................. F-7
Financial Statements of Businesses Acquired:
Core Properties:
Report of Ernst & Young LLP, Independent Auditors ...................... F-11
Statements of Operating Revenues and Direct Operating Expenses for the
year ended June 30, 1996 and the six months ended
December 31, 1996 (unaudited) ....................................... F-12
Notes to Statements of Operating Revenue and Direct Operating Expenses.. F-13
</TABLE>
F-1
<PAGE> 3
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
On February 5, 1997 Queen Sand Resources, Inc. ("the Company") acquired from
unaffiliated vendors 60 gross productive wells (48.4 net productive wells) and
two developmental properties located in Mississippi, Louisiana and Texas (the
"Core Properties"). The adjusted purchase price consisted of cash of
approximately $1,700,000, four notes payable totaling $2,400,000 (the
"Acquisition Notes"), secured by a first lien on the properties, and 659,000
shares of restricted common stock of the Company ("Common Stock"). Two of these
notes, totaling $400,000, bear no interest and are due not earlier than June 5,
1997 and not later than August 4, 1997. The remaining two notes are payable not
later than February 4, 2000. Such notes bear no interest for the first two years
and 9% for the final year payable in Common Stock to be calculated at a value
equivalent to 75% of the average closing bid price of the Common Stock over the
30 days preceding the maturity date. These remaining two notes are repayable
commencing on the first anniversary of the notes and semi-annually thereafter,
at the option of the holder and on 60 days written notice, in the amount of
$400,000. In the event that the holder exercises his rights to defer payment of
the semi-annual installment, he may, on 120 days written notice, demand payment
of not more than two such installments. These notes are convertible to shares of
Common Stock, at the option of the holder, for an amount not less than that
required to convert to not less than 100,000 shares of Common Stock and on 15
days notice, at a value equivalent to 75% of the average closing bid price of
the Common Stock over the 30 days preceding the notice to convert.
On March 13, 1997, the Company acquired one gross productive well (0.3375 net
productive wells) located in Louisiana (the "Intercoastal Property"). The
purchase price consisted of cash of $562,500 and 578,500 shares of restricted
Common Stock.
The cash portion of these acquisitions was funded through the sale of
1,060,000 shares of Common Stock pursuant to Regulation S, resulting in net
proceeds to the Company of $2,385,000 ("the Equity Private Placements").
The accompanying pro forma combined condensed financial statements are based on
the historical financial statements of the Company included in Amendment No. 1
to its Registration Statement on Form 10-SB dated January 23, 1997, and its
Quarterly Report on Form 10-QSB for the quarterly period ended December 31,
1996. The pro forma combined condensed financial statements are also based, in
part, on the historical statements of operating revenues and direct operating
expenses of the Core Properties. Such statements of operating revenues and
direct operating expenses are included elsewhere herein.
F-2
<PAGE> 4
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Pro Forma Combined Condensed Balance Sheet as of December 31, 1996 assumes
the acquisitions of the Core Properties and the Intercoastal Property and the
Equity Private Placements had been consummated on that date. The Pro Forma
Combined Condensed Statements of Operations for the year ended June 30, 1996 and
the six months ended December 31, 1996 have been prepared assuming the
acquisitions of the Core Properties and the Intercoastal Property and the Equity
Private Placements had been consummated on July 1, 1995.
The pro forma adjustments are based upon available information and assumptions
that management of the Company believes are reasonable. The pro forma combined
condensed financial statements do not purport to represent the financial
position or results of operations of the Company which would have occurred had
such transactions been consummated on the dates indicated or the Company's
financial position or results of operations for any future date or period. These
pro forma combined condensed financial statements and notes thereto should be
read in conjunction with the historical financial statements and notes thereto
described above.
F-3
<PAGE> 5
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 906,388 $ 2,385,000 (1) $ 1,028,888
(1,700,000)(2)
(562,500)(3)
Accounts receivable and other assets 481,447 -- 481,447
------------ ------------ ------------
Total current assets 1,387,835 122,500 1,510,335
Net property and equipment 11,080,441 4,075,002 (2) 16,007,193
851,750 (3)
------------ ------------ ------------
$ 12,468,276 $ 5,049,252 $ 17,517,528
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other $ 640,835 $ -- $ 640,835
Revolving credit agreement 4,857,993 -- 4,857,993
Current portion of notes payable 567,962 613,617 (2) 1,181,579
Current portion of capitalized lease obligation 60,010 -- 60,010
------------ ------------ ------------
Total current liabilities 6,126,800 613,617 6,740,417
Long-term obligations, net of current portion 2,602,387 1,431,885 (2) 4,034,272
------------ ------------ ------------
Total liabilities 8,729,187 2,045,502 10,774,689
------------ ------------ ------------
Stockholders' equity:
Common Stock, $.0015 par value 41,742 1,590 (1) 45,188
989 (2)
867 (3)
Additional paid-in capital 6,186,569 2,383,410 (1) 9,186,873
328,511 (2)
288,383 (3)
Accumulated deficit (2,489,222) -- (2,489,222)
------------ ------------ ------------
Total stockholders' equity 3,739,089 3,003,750 6,742,839
------------ ------------ ------------
$ 12,468,276 $ 5,049,252 $ 17,517,528
============ ============ ============
1,060,000 (1)
Shares of Common Stock outstanding 27,828,000 659,000 (2) 30,125,500
============ ============
578,500 (3)
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-4
<PAGE> 6
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
CORE INTERCOASTAL
COMPANY PROPERTIES PROPERTY PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
$
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 2,079,413 $ 1,912,955 $ 254,408 $ -- $ 4,246,776
Interest and other 71,629 -- -- -- 71,629
------------ ------------ ------------ ------------ ------------
2,151,042 1,912,955 254,408 -- 4,318,405
------------ ------------ ------------ ------------ ------------
Expenses:
Oil and gas production
expenses 1,175,639 1,015,501 12,045 -- 2,203,185
Depreciation, depletion and
amortization 630,000 -- -- 600,000 (4) 1,230,000
General and
administrative 1,113,146 -- -- -- 1,113,146
Interest and financing
expense 420,790 -- -- 173,821 (5) 594,611
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (1,188,533) $ 897,454 $ 242,363 $ (773,821) $ (822,537)
============ ============ ============ ============ ============
Loss per common share $ (.05) $ (0.03)(6)
============ ============
Weighted average number of
common and shares
outstanding 26,003,479 2,297,500 (6) 28,300,979
============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-5
<PAGE> 7
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
CORE INTERCOASTAL PRO FORMA
COMPANY PROPERTIES PROPERTIES ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL HISTORICAL $ COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Oil and gas sales $ 1,779,843 $ 1,127,601 $ 466,344 $ -- $ 3,373,788
Expenses:
Oil and gas production
expenses 983,811 441,691 86,661 -- 1,512,163
Depreciation, depletion
and amortization 457,000 -- -- 340,000 (4) 797,000
General and administrative 549,018 -- -- -- 549,018
Interest and financing expense 403,510 -- -- 67,402 (5) 470,912
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (613,496) $ 685,910 $ 379,683 $ (407,402) $ 44,695
============ ============ ============ ============ ============
Loss per common share $ (0.02) $ (0.00)(6)
============ ============
Weighted average number of
common and shares
outstanding 27,204,761 2,297,500 (6) 29,502,261
============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F-6
<PAGE> 8
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
A. PRO FORMA ADJUSTMENTS FOR THE ACQUISITIONS OF THE CORE PROPERTIES AND THE
INTERCOASTAL PROPERTY
The accompanying Pro Forma Combined Condensed Balance Sheet has been prepared as
if the acquisitions of the Core Properties and the Intercoastal Property and the
Equity Private Placements had been consummated on December 31, 1996 and reflects
the following adjustments:
(1) To record the sale of 1,060,000 shares of Common Stock pursuant to the
Equity Private Placements, resulting in net proceeds to the Company of
$2,385,000.
(2) To record the acquisitions of the Core Properties in exchange for
aggregate consideration of approximately $1,700,000 in cash, the
Acquisition Notes and 659,000 shares of Common Stock valued at $0.50 per
share. The Acquisition Notes, which have a principal amount of $2,400,000,
have been discounted using a 9% interest rate, resulting in a present
value at the date of issuance of $2,045,502.
(3) To record the acquisition of the Intercoastal Property in exchange for
aggregate consideration of $562,500 in cash and 578,500 shares of Common
Stock valued at $0.50 per share. The determination of the fair value of
the consideration is preliminary and is subject to adjustment. The
aggregate purchase price has been allocated to the proved oil and gas
properties acquired.
The accompanying Pro Forma Combined Condensed Statements of Operations have been
prepared as if the acquisitions of the Core Properties and the Equity Private
Placements had been consummated on July 1, 1995 and reflect the following
adjustments:
(4) To record incremental depletion expense as a result of the acquisitions of
the Core Properties.
(5) To record interest expense on the Acquisition Notes based on a 9% interest
rate.
(6) To adjust the weighted average number of common shares outstanding as a
result of the issuance of 1,237,500 shares of Common Stock in the
acquisitions of the Core Properties and the sale of 1,060,000 shares of
Common Stock pursuant to the Equity Private Placements. The pro forma loss
per common share data is computed by dividing the pro forma net loss by
the pro forma weighted average number of common shares outstanding.
F-7
<PAGE> 9
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
B. PRO FORMA COMBINED SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE
INFORMATION
RESERVE QUANTITY INFORMATION
The following table presents the Company's estimate of the pro forma combined
proved oil and gas reserves of the Company, all of which are located in the
United States. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, the estimates are expected to
change as future information becomes available. The estimates have been prepared
by independent petroleum engineers and by the Company's in-house petroleum
reservoir engineers based on reports prepared by independent petroleum reservoir
engineers.
<TABLE>
<CAPTION>
Oil Gas
(Bbls) (Mcf)
----------- -----------
<S> <C> <C>
Proved reserves:
Balance at June 30, 1995 6,882,838 3,430,017
Purchases of reserves in place 787,531 12,781,385
Extensions, discoveries and other
additions -- 3,445,680
Revisions of previous estimates 126,786 (18,738)
Production (177,844) (597,468)
----------- -----------
Balance at June 30, 1996 7,619,311 19,040,876
=========== ===========
Proved developed reserves:
Balance at June 30, 1995 2,479,761 2,323,526
Balance at June 30, 1996 2,952,473 11,985,418
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves ("Standardized Measure") is a disclosure requirement under
Statement of Financial Accounting Standards No. 69.
The Standardized Measure does not purport to be, nor should it be interpreted to
present, the fair value of the Company's oil and gas reserves. An estimate of
fair value would also take into account, among other things, the recovery of
reserves not presently classified as proved, the value of unproved properties,
and consideration of expected future economic and operating conditions.
F-8
<PAGE> 10
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
B. PRO FORMA COMBINED SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE
INFORMATION (CONTINUED)
Under the Standardized Measure, future cash flows are estimated by applying
year-end prices, adjusted for fixed and determinable escalations, to the
estimated future production of year-end proved reserves. Future cash inflows are
reduced by estimated future production and developed costs based on period-end
costs to determine pre-tax cash inflows. Future income taxes are computed by
applying the statutory rate (based on the current tax law adjusted for permanent
differences and tax credits) to the excess of pre-tax cash flows over the
Company's income tax basis of its oil and gas properties. Future net cash flows
are discounted using a 10% annual discount rate to arrive at the Standardized
Measure.
The pro forma Standardized Measure of discounted future net cash flows relating
to the Company's proved oil and gas reserves at June 30, 1996 follows:
<TABLE>
<S> <C>
Future cash inflows $ 192,805,616
Future production and development costs (104,733,390)
Future income taxes (25,057,497)
-------------
Future net cash flows 63,014,729
10% annual discount for estimated timing of cash
flows (30,829,965)
-------------
Pro forma Standardized Measure $ 32,184,764
=============
</TABLE>
Changes in the pro forma Standardized Measure of discounted future net cash
flows for the year ended June 30, 1996 are as follows:
<TABLE>
<S> <C>
Balance at beginning of period $ 16,343,783
Sales of oil and gas produced, net of production
expenses (2,043,591)
Net changes in prices and production costs 12,978,253
Purchase of reserves in place 12,247,552
Extensions, discoveries and other additions 1,427,508
Revisions of previous estimates (5,369,349)
Net change in income taxes (5,328,057)
Accretion of discount 1,928,664
------------
Balance at end of period $ 32,184,764
============
</TABLE>
The future cash flows shown above include amounts attributable to proved
undeveloped reserves requiring approximately $33,017,000 of future development
costs. If these reserves are not
F-9
<PAGE> 11
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
B. PRO FORMA COMBINED SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE
INFORMATION (CONTINUED)
developed, the standardized measure of discounted future net cash flows as of
June 30, 1996 shown above would be reduced significantly.
Estimates of economically recoverable oil and gas reserves and of future net
revenues are based upon a number of variable factors and assumptions, all of
which are to some degree speculative and may vary considerably from actual
results. Therefore, actual production, revenues, taxes, development and
operating expenditures may not occur as estimated. The reserve data are
estimates only, are subject to many uncertainties and are based on data gained
from production histories and on assumptions as to geologic formations and other
matters. Actual quantities of gas and oil may differ materially from the amounts
estimated.
The weighted average prices of oil and gas at June 30, 1995 and 1996 used in the
calculation of the pro forma Standardized Measure were $16.15 and $19.38 per
barrel and $1.55 and $2.38 per Mcf, respectively.
F-10
<PAGE> 12
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors
Queen Sand Resources, Inc.:
We have audited the accompanying statements of revenues and direct operating
expenses of the Core Properties (as defined in Note 1 to the accompanying
statements) for the year ended June 30, 1996. This statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and direct operating expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of revenues and
direct operating expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statement of revenues and direct operating expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and is not intended to be a complete
presentation of revenues and expenses of the Core Properties.
In our opinion, the statement of revenues and direct operating expenses referred
to above presents fairly, in all material respects, the revenues and direct
operating expenses of the Core Properties for the year ended June 30, 1996 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
April 15, 1997
F-11
<PAGE> 13
CORE PROPERTIES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,
JUNE 30, 1996 1996
---------- ----------
(unaudited)
<S> <C> <C>
Oil and gas sales $1,912,955 $1,127,601
Direct operating expenses 1,015,501 441,691
---------- ----------
Excess of revenues over direct operating expenses $ 897,454 $ 685,910
========== ==========
</TABLE>
See accompanying notes to statements of revenues and direct operating expenses.
F-12
<PAGE> 14
CORE PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION
On February 5, 1997 Queen Sand Resources, Inc. ("the Company") acquired from
unaffiliated vendors 60 gross productive wells (48.4 net productive wells) and
two developmental properties located in Mississippi, Louisiana and Texas (the
"Core Properties"). The purchase price consisted of cash of approximately
$1,700,000, four notes payable totaling $2,400,000, secured by a first lien on
the properties, and 659,000 shares of restricted common stock of the Company
("Common Stock"). Two of these notes, totaling $400,000, bear no interest and
are due not earlier than June 5, 1997 and not later than August 4, 1997. The
remaining two notes are payable not later than February 4, 2000. Such notes bear
no interest for the first two years and 9% for the final year payable in Common
Stock to be calculated at a value equivalent to 75% of the average closing bid
price of the Common Stock over the 30 days preceding the maturity date. These
remaining two notes are repayable commencing on the first anniversary of the
notes and semi-annually thereafter, at the option of the holder and on 60 days
written notice, in the amount of $400,000. In the event that the holder
exercises his rights to defer payment of the semi-annual installment, he may, on
120 days written notice, demand payment of not more than two such installments.
These notes are convertible to shares of Common Stock, at the option of the
holder, for an amount not less than that required to convert to not less than
100,000 shares of Common Stock and on 15 days notice, at a value equivalent to
75% of the average closing bid price of the Common Stock over the 30 days
preceding the notice to convert.
The cash portion of the acquisition was funded through the sale of shares of
Common Stock pursuant to Regulation S.
The accompanying financial statements present the revenues and direct operating
expenses of the Core Properties. The operating revenues and direct operating
expenses presented herein relate only to the interest in the producing oil and
gas properties acquired and do not represent all of the oil and gas operations
of the sellers. Direct operating expenses include the actual costs of
maintaining the producing properties and their production, but do not include
charges for depletion, depreciation, and amortization; federal and state income
taxes; interest; or general and administrative expenses. Presentation of
complete historical financial statements for the year ended June 30, 1996 and
the six months ended December 31, 1996 is not practicable because the Core
Properties were not accounted for as a separate entity; and therefore, such
statements are not available. The operating revenues and direct operating
expenses for the periods presented may not be representative of future
operations.
F-13
<PAGE> 15
CORE PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES (CONTINUED)
1. BASIS OF PRESENTATION (CONTINUED)
Revenues in the accompanying statements of revenues and direct operating
expenses are recognized on the sales method. Direct operating expenses are
recognized on an accrual basis.
The financial information for the six months ended December 31, 1996 is
unaudited. However, in the opinion of management, the statement of revenues and
direct operating expenses for the six months ended December 31, 1996 includes
all the necessary adjustments to fairly present the results of the period.
2. SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE INFORMATION
(UNAUDITED)
RESERVE QUANTITY INFORMATION
The following table presents the Company's estimate of the proved oil and gas
reserves of the Core Properties, all of which are located in the United States.
The Company emphasizes that reserve estimates are inherently imprecise and that
estimates of new discoveries are more imprecise than those of producing oil and
gas properties. Accordingly, the estimates are expected to change as future
information becomes available. The estimates have been prepared by the Company's
in-house petroleum reservoir engineers based on reports prepared by independent
petroleum reservoir engineers.
<TABLE>
<CAPTION>
Oil Gas
(Bbls) (Mcf)
---------- ----------
<S> <C> <C>
Proved reserves:
Balance at June 30, 1995 662,661 2,011,026
Extensions, discoveries and
other additions -- 3,445,680
Revisions of previous estimates 74,888 209,798
Production (73,047) (360,824)
---------- ----------
Balance at June 30, 1996 664,502 5,305,680
========== ==========
Proved developed reserves:
Balance at June 30, 1995 662,661 2,011,026
Balance at June 30, 1996 664,502 1,860,000
</TABLE>
F-14
<PAGE> 16
CORE PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES (CONTINUED)
2. SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE INFORMATION
(UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves ("Standardized Measure") is a disclosure requirement under
Statement of Financial Accounting Standards No. 69.
The Standardized Measure does not purport to be, nor should it be interpreted to
present, the fair value of the oil and gas reserves of the Core Properties. An
estimate of fair value would also take into account, among other things, the
recovery of reserves not presently classified as proved, the value of unproved
properties, and consideration of expected future economic and operating
conditions.
Under the Standardized Measure, future cash flows are estimated by applying
year-end prices, adjusted for fixed and determinable escalations, to the
estimated future production of year-end proved reserves. Future cash flows are
reduced by estimated future production and developed costs based on period-end
costs to determine net cash inflows. The Core Properties are not a separate tax
paying entity. Accordingly, the Standardized Measure for the Core Properties is
presented before deduction of income taxes. Future net cash flows are discounted
using a 10% annual discount rate to arrive at the Standardized Measure.
The Standardized Measure of discounted future net cash flows relating to proved
oil and gas reserves of the Core Properties at June 30, 1996 follows:
<TABLE>
<S> <C>
Future cash inflows $ 23,253,960
Future production and development (10,076,255)
------------
Future net cash flows before income taxes 13,177,705
10% annual discount for estimated timing
of cash flows (4,960,771)
------------
Standardized Measure $ 8,216,934
============
</TABLE>
F-15
<PAGE> 17
CORE PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES (CONTINUED)
2. SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE INFORMATION
(UNAUDITED)
Changes in the Standardized Measure of discounted future net cash flows for the
year ended June 30, 1996 are as follows:
<TABLE>
<S> <C>
Balance at beginning of period $ 5,084,768
Sales of oil and gas produced, net of
production expenses (897,454)
Net changes in prices and production costs 2,416,769
Extensions, discoveries and other additions 1,194,823
Accretion of discount 418,028
-----------
Balance at end of period $ 8,216,934
===========
</TABLE>
Estimates of economically recoverable oil and gas reserves and of future net
revenues are based upon a number of variable factors and assumptions, all of
which are to some degree speculative and may vary considerably from actual
results. Therefore, actual production, revenues, taxes, development and
operating expenditures may not occur as estimated. The reserve data are
estimates only, are subject to many uncertainties and are based on data gained
from production histories and on assumptions as to geologic formations and other
matters. Actual quantities of gas and oil may differ materially from the amounts
estimated.
The weighted average prices of oil and gas at June 30, 1995 and 1996 used in the
calculation of the Standardized Measure were $15.34 and $18.51 per barrel and
$1.29 and $2.05 per Mcf, respectively.
F-16
