<PAGE>
As filed with the Securities and Exchange Commission on September 29, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
Goodrich Petroleum Corporation
(Name of registrant as specified in its charter)
----------------
Delaware 1311 76-0466193
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification No.)
of incorporation or Classification Code
organization) Number)
815 Walker, Suite 1040
Houston, Texas 77002
(713) 780-9494
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------------
Robert C. Turnham, Jr.
Executive Vice President and Chief Operating Officer
815 Walker, Suite 1040
Houston, Texas 77002
(713) 780-9494
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
Copies to:
James M. Prince Rod A. Guerra, Jr.
Vinson & Elkins L.L.P. Skadden, Arps, Slate, Meagher &
1001 Fannin, Suite 2300 Flom LLP
Houston, Texas 77002-6760 300 South Grand Avenue
(713) 758-2222 Los Angeles, California 90071-3144
(213) 687-5000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Title of each class of Maximum Aggregate Amount of
securities to be registered Offering Price(1) Registration Fee
-------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.20 per share..... $29,109,375 $7,684.88
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated , 2000
4,500,000 Shares
[Goodrich Logo appears here]
Common Stock
-----------
We are offering for sale 4,500,000 shares of our common stock.
Our common stock is listed on the New York Stock Exchange under the trading
symbol GDP. On , 2000, the last reported sales price of our common stock
was $ per share.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 9.
-----------
<TABLE>
<CAPTION>
Underwriting
Price Discounts Proceeds
to and to
Public Commissions Goodrich
------- ------------ --------
<S> <C> <C> <C>
Per Share............................... $ $ $
Total................................... $ $ $
</TABLE>
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The underwriter has an option to purchase up to an additional 675,000 shares
to cover over-allotments of shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
We expect to deliver the common stock to purchasers on or about , 2000.
-----------
Jefferies & Company, Inc.
The date of this prospectus is , 2000
<PAGE>
Goodrich Petroleum Corporation
South Louisiana Focus
[Map of our core operating area with detail on our near-term projects]
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 8
Forward-Looking Statements................................................. 16
Use of Proceeds............................................................ 17
Price Range of Common Stock................................................ 17
Dividend Policy............................................................ 18
Capitalization............................................................. 19
Dilution................................................................... 20
Selected Consolidated Financial Data....................................... 21
Pro Forma As Adjusted Financial Data....................................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................ 26
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business and Properties.................................................... 35
Management................................................................. 47
Transactions with our Management and Securityholders....................... 54
Principal Stockholders..................................................... 55
Description of Capital Stock............................................... 58
Underwriting............................................................... 63
Legal Matters.............................................................. 65
Independent Accountants.................................................... 65
Independent Petroleum Engineers............................................ 65
Where You Can Find More Information........................................ 65
Glossary of Technical Terms................................................ 66
Index to Financial Statements.............................................. F-1
</TABLE>
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In this prospectus, the terms "Goodrich," "we," "our" and "us" and other
similar terms refer to Goodrich Petroleum Corporation, including its
consolidated subsidiaries, members of our senior management and, where
appropriate, to our predecessor, Patrick Petroleum Corporation. The term "you"
refers to a prospective investor. We have included definitions of technical
terms important to an understanding of our business under "Glossary of
Technical Terms" on page 66.
You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This prospectus may only be used where it is
legal to sell these securities. The information contained in this prospectus
may only be accurate on the date of this prospectus.
----------------
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. You should
carefully read the entire prospectus, especially the risks of investing in the
common stock discussed under "Risk Factors" and the financial statements and
notes thereto.
The pro forma reserve information that we provide in this prospectus gives
effect, on the date indicated, to our acquisition of interests in the Burrwood
and West Delta 83 fields. Unless otherwise indicated, all financial and
quantitative information that we provide in this prospectus on a pro forma
basis gives effect, on the date and for the periods indicated, to the
completion of this offering and the application of the estimated proceeds
therefrom, the conversion of our subsidiaries' notes, the payment of dividends
on both of our series of preferred stock, our most recent private placement and
the exchange of our Series B preferred stock for shares of our common stock.
Information in this prospectus reflects our one-for-eight reverse stock split
that became effective on March 12, 1998.
Goodrich Petroleum Corporation
We are an independent oil and natural gas company engaged in the
exploration, exploitation, development and production of oil and natural gas
properties in the transition zone of south Louisiana and in north Louisiana,
the Gulf Coast of Texas and East Texas. We have been active in these regions
since 1975 and have established extensive technical and operating expertise in
all of our areas of geographic focus.
We have an inventory of over 100 development, exploitation and exploration
projects that we believe provides us with an opportunity to substantially
increase our production and reserves. Our Burrwood, West Delta and Lafitte
fields account for approximately 85% of our 2001 capital budget of $20.0
million, which is subject to changes due to then prevailing market conditions.
Our 2001 budget includes plans to drill approximately 18 new wells and conduct
15 workovers and recompletions on existing wells. We expect significant
production increases following the successful completion of this offering as a
result of our expanded capital budget and exploitation of our project
inventory. Our capital expenditures for the first six months of 2000 totaled
$6.2 million, of which $1.2 million represents the net purchase price for our
interests in the Burrwood and West Delta fields. Our production has increased
40% to 1.7 Bcfe in the second quarter of 2000 from 1.2 Bcfe in the second
quarter of 1999. We estimate that our third quarter production will be
approximately 2.0 Bcfe, or 23,000 Mcfe per day, an 18% increase from the second
quarter of 2000.
Our principal offices are located at 815 Walker, Suite 1040, Houston, Texas
77002 and our telephone number is (713) 780-9494. We also have offices in
Shreveport, Louisiana. Our website is www.goodrichpetroleum.com. The
information on our website is not part of this prospectus.
Our Strategy
Our principal business strategy is to increase production, cash flow and
reserves through the acquisition and subsequent exploitation and development of
mature properties, complimented by select exploration activities, in our core
areas. We focus on fields that have multiple productive reservoirs with an
established production history and infrastructure in place. Due to depletion,
these fields tend to no longer be the focus of the seller's technical staff. By
conducting our own exhaustive field studies prior to making an offer to acquire
any such properties, we strive to achieve a superior technical understanding of
the target property. Upon completion of an acquisition, we are generally
prepared to implement operations designed to increase production, cash flow and
reserves by drilling new wells and conducting workovers and recompletions of
existing wells. Other elements of our near-term strategy include:
Aggressively Develop Our Burrwood, West Delta and Lafitte Fields. We plan to
spend approximately $31.0 million in our Burrwood, West Delta and Lafitte
fields on 88 development and exploitation projects. This
1
<PAGE>
development and exploitation activity is already underway and will be
accelerated with the liquidity we gain from this offering. In addition, we
expect to receive the results of a 41 square mile 3-D seismic survey over our
Burrwood and West Delta fields by June 2001. We believe that this data will
both further define our proved and developmental projects and allow us to
pursue additional projects and deep prospects that we have not yet identified.
Maintain Our Focus on South Louisiana. We will continue to concentrate our
oil and natural gas activities on our core areas, primarily focusing on the
transition zone of south Louisiana. We have assembled a large inventory of
technical data and expertise over the last 25 years, resulting in an
approximate 70% drilling success rate and the achievement of production in over
70 fields in Louisiana. Over 78% of our proved reserves are in south Louisiana
and over 96% of our 2001 capital budget is dedicated to development and
exploitation activities in the region. South Louisiana is highly attractive to
us due to the availability of mature oil and natural gas properties with an
established operating infrastructure, resulting in multiple opportunities for
significant reserve and production gains through acquisitions and additional
development and exploitation activities. We believe that our region-specific
geological, engineering and production expertise provides us with a competitive
advantage to identify and complete additional acquisitions, development
projects and exploitation projects in our core areas.
Maintain Significant Operatorship. We currently operate 65% of our
properties, providing us with control over the incurrence and timing of many
capital and operating expenditures. As operator of the Burrwood and West Delta
fields, we intend to rapidly utilize the liquidity that we gain from this
offering on development and exploitation projects within these fields, thereby
accelerating those projects and the expected production therefrom.
Repeat Our Recent Acquisition Success. We recently acquired our interests in
the Burrwood, West Delta and Lafitte fields for an aggregate purchase price of
$10.1 million. Based on independent reserve engineering estimates and factoring
in the estimated capital expenditures to develop these reserves, we expect an
all-in finding and development cost of $0.69 per Mcfe. Since closing these
acquisitions, we have increased production of oil and natural gas at Lafitte by
240% to approximately 1,800 gross Boe per day and at Burrwood and West Delta by
204% to approximately 9,200 gross Mcfe per day. These production increases,
when coupled with additional production increases achieved in other fields,
have allowed us to increase net daily production levels from approximately
12,800 Mcfe per day one year ago to approximately 23,000 Mcfe per day
currently.
We believe there will continue to be numerous attractive opportunities to
acquire properties in our core areas as major and large independent oil and
natural gas companies shift their focus and resources from mature properties in
south Louisiana to the development of projects in the deep water Gulf of Mexico
and in foreign countries. We have identified approximately 20 potential
acquisition opportunities, ranging in estimated transaction size from $1.0
million to $20.0 million. The acquisition opportunities that we pursue
generally have the following characteristics:
. located in our core areas, particularly in south Louisiana;
. significant cumulative production histories and low current production
levels;
. multiple productive reservoirs with complex geology and significant 3-D
seismic applicability;
. numerous identified development projects; and,
. significant controlling interests and operatorship.
2
<PAGE>
Recent and Pending Transactions
We have consummated a number of transactions this year and intend to
consummate certain transactions prior to or simultaneously with the completion
of this offering, as follows:
Amendment of Our Credit Agreement. Prior to the closing of this offering, we
will amend our credit agreement with Compass Bank to increase the size of our
credit facility to $50.0 million, with an initial borrowing base of $30.0
million. We expect to repay a substantial portion of the amount currently
outstanding under our credit facility with the proceeds of this offering,
resulting in initial availability of approximately $28.4 million under the
amended facility. We will pledge substantially all of our assets to secure our
amended credit facility.
Payment of Dividend Arrearages and Reinstatement of Dividends on Our
Preferred Stock. On September 29, 2000, we paid an aggregate of approximately
$1.8 million of dividend arrearages and $300,000 of regular quarterly dividends
on our outstanding series of preferred stock. These payments brought us current
on our dividend payments on both of our series of preferred stock. Ongoing
quarterly dividend payments on each of our outstanding series of preferred
stock are subject to the terms and conditions of our bank credit facility.
Private Placement of $5.0 Million of Common Stock. On September 28, 2000, we
received irrevocable commitments to purchase 1,000,000 shares of our common
stock for aggregate gross proceeds of $5.0 million. The placement of the common
stock was arranged by Hambrecht & Quist Guaranty Finance L.L.C. The gross
proceeds from the private placement will be used primarily to expand our
development of the Burrwood and West Delta fields, including the drilling of
two proved undeveloped wells and four workovers and recompletions prior to the
end of the year.
Exchange of Preferred Stock for Common Stock. On September 28, 2000, we
reached agreement with the holders of 88% of our Series B preferred stock to
exchange each share of our Series B preferred stock for 1.8 shares of our
common stock. We expect that all holders of our Series B preferred stock will
accept the proposed exchange offer. The exchange offer is contingent upon, and
is expected to close concurrently with, this offering. It will result in the
issuance of 1,189,510 shares of our common stock. We believe that this
transaction and the payment of dividend arrearages mentioned above, will
strengthen and simplify our balance sheet and improve our shareholder value by
eliminating both the ongoing dividend burden and approximately $7.6 million of
liquidation preference and accrued dividends associated with the Series B
preferred stock as of September 30, 2000.
Conversion of Our Subsidiaries' Notes. On August 17, 2000, holders of all
$12.9 million of outstanding principal and accrued interest on the convertible
notes, issued by two of our subsidiaries in a private placement in September
1999, converted their notes into 3,295,647 shares of our common stock. These
notes were partially secured by our assets and their conversion increased the
pool of collateral available to our bank credit facility with Compass Bank.
Acquisition of Burrwood and West Delta Fields. On March 2, 2000, we
completed the acquisition of working interests in the Burrwood and West Delta
fields for $1.2 million cash, the assumption of the plugging and abandonment
obligations associated with these fields, which we have estimated to be $4.75
million, and the commitment to conduct a 3-D seismic survey by June 2001, which
will cost us $2.4 million. These contiguous fields collectively comprise
approximately 8,600 gross acres in Plaquemines Parish, Louisiana. The Burrwood
and West Delta fields, like the Lafitte field in which we acquired an interest
in 1999, met our acquisition criteria, including cumulative production of 431
Bcfe, 16 productive reservoirs above 10,600 feet, significant existing
infrastructure, immediate development opportunities and potential deep
reservoirs that we believe may
3
<PAGE>
be identified with the use of 3-D seismic technology. The Burrwood and West
Delta fields are near several fields that have yielded substantial production
from wells drilled below 10,600 feet.
Private Placement of $4.5 Million of Common Stock. On February 18, 2000, we
completed a private placement of 1,533,333 shares of our common stock to an
investor group led by H&Q Guaranty. The $4.5 million in gross proceeds were
used for the acquisition of our interests in and initial development of the
Burrwood and West Delta fields and further development of the Lafitte field.
The Offering
<TABLE>
<S> <C>
Common stock offered by us(1)..... 4,500,000 shares.
Common stock outstanding after
this offering(2)................. 19,005,032 shares.
Use of proceeds................... We intend to use the proceeds from this
offering to repay all or a portion of our
borrowings under our bank credit facility
with Compass Bank. We intend to invest our
operating cash flow and reborrow funds
under our bank credit facility as we
accelerate our capital expenditures for our
development and exploitation activities in
south Louisiana, with a particular focus on
our Burrwood, West Delta and Lafitte
fields. See "Use of Proceeds."
NYSE symbol....................... GDP.
</TABLE>
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(1) Does not reflect a 30-day option granted to the underwriters to purchase up
to 675,000 additional shares of common stock to cover over-allotments, if
any.
(2) Includes 12,315,522 shares outstanding at September 15, 2000 plus 1,000,000
shares issued in our most recent private placement, 1,189,510 shares issued
in the exchange of our Series B preferred stock and 4,500,000 shares issued
in this offering. Excludes 791,813 shares of common stock issuable upon
exercise of outstanding options at a weighted average exercise price of
$4.35 per share and 3,387,978 shares issuable upon exercise of outstanding
warrants at a weighted average exercise price of $1.05 per share as of
September 15, 2000.
4
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
The following table sets forth some of our historical and pro forma as
adjusted consolidated financial data. You should read the following data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements included
in this prospectus. The summary financial and other data as of, and for the
years ended, December 31, 1997, 1998 and 1999 has been derived from our audited
financial statements included in this prospectus. The summary financial and
other data as of June 30, 2000 and for the six months ended June 30, 1999 and
2000 has been derived from our unaudited financial statements included in this
prospectus. The summary unaudited pro forma as adjusted statement of operations
and other data illustrates the impact of this offering and the application of
the estimated proceeds therefrom, the conversion of our subsidiaries' notes in
August 2000, the payment of dividend arrearages on our preferred stock, our
most recent private placement and the exchange of our Series B preferred stock,
as if these transactions were consummated as of January 1, 1999, while the
summary unaudited pro forma balance sheet data as of June 30, 2000 gives effect
to such transactions as if they had occurred on such date. The summary
unaudited pro forma financial data is not necessarily indicative of the results
that would have occurred had these transactions been consummated as of the
beginning of the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
-------------------------------------- -----------------------------
Pro Forma Pro Forma
As Adjusted As Adjusted
1997 1998 1999 1999 1999 2000 2000
------- ------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $12,901 $10,592 $14,020 $14,020 $ 5,771 $11,352 $11,352
------- ------- ------- ------- ------- ------- -------
Expenses:
Lease operating
expenses and
production taxes...... 2,316 2,822 3,591 3,591 1,368 3,045 3,045
Depreciation,
depletion and
amortization.......... 4,863 4,094 4,744 4,744 2,467 2,568 2,568
Exploration............ 3,206 6,010 1,656 1,656 822 726 726
Impairment of oil and
natural gas
properties............ 550 1,076 465 465 -- -- --
Interest............... 1,416 1,910 2,811 435 1,082 2,392 137
General and
administrative........ 2,627 2,399 1,990 1,990 1,125 1,197 1,197
Preferred dividend
requirements of a
subsidiary(1)......... -- -- 73 73 -- 38 38
------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............ 14,978 18,311 15,330 12,954 6,864 9,966 7,711
------- ------- ------- ------- ------- ------- -------
Gain (loss) on sale of
assets................ 688 4 (519) (519) (519) 274 274
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (1,389) (7,715) (1,829) 547 (1,612) 1,660 3,915
Income tax
provision(2).......... -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(1,389) $(7,715) $(1,829) $ 547 $(1,612) $ 1,660 $ 3,915
======= ======= ======= ======= ======= ======= =======
Preferred stock
dividends (1999 and
2000 amounts in
arrears)............... 1,205 1,256 1,249 637 628 604 319
------- ------- ------- ------- ------- ------- -------
Net income (loss)
applicable to common
stock.................. $(2,594) $(8,971) $(3,078) $ (90) $(2,240) $ 1,056 $ 3,596
======= ======= ======= ======= ======= ======= =======
Basic income (loss) per
common share........... $ (0.50) $ (1.71) $ (0.58) $ (0.01) $ (0.43) $ 0.13 $ 0.20
======= ======= ======= ======= ======= ======= =======
Diluted income (loss)
per common share....... $ (0.50) $ (1.71) $ (0.58) $ (0.01) $ (0.43) $ 0.10 $ 0.17
======= ======= ======= ======= ======= ======= =======
Average common shares
outstanding--basic..... 5,229 5,243 5,288 15,273 5,255 7,973 17,958
======= ======= ======= ======= ======= ======= =======
Average common shares
outstanding--diluted... 5,229 5,243 5,288 15,273 5,255 11,112 21,097
======= ======= ======= ======= ======= ======= =======
Other Data:
Adjusted EBITDA(3)...... $ 7,958 $ 5,371 $ 8,366 $ 8,366 3,278 $ 7,072 $ 7,072
Net cash provided by
(used in) operating
activities(4).......... 6,633 4,517 1,065 N/A 1,836 3,349 N/A
Net cash provided by
(used in) investing
activities(4).......... (6,007) (14,959) (6,407) N/A (1,286) (5,798) N/A
Net cash provided by
(used in) financing
activities(4).......... (177) 9,744 11,176 N/A (600) 1,473 N/A
Capital
expenditures(5)........ 9,941 15,008 6,657 N/A 1,526 6,224 N/A
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
At June 30, 2000
-------------------
Pro Forma
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 4,952 $ 7,829
Net property and equipment (successful efforts method)
(6)...................................................... 49,031 49,031
Total assets.............................................. 61,862 63,664
Current portion of long-term debt......................... 3,600 --
Long-term debt............................................ 31,713 1,619
Total stockholders' equity................................ 15,741 51,986
</TABLE>
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(1) On February 17, 2000, all of the holders of the preferred units of our
subsidiary converted their preferred units into approximately 1,550,000
shares of our common stock.
(2) We had no income tax provision due to the generation of net operating loss
carry-forwards or the use of available net operating loss carry-forwards to
offset taxable income.
(3) Adjusted EBITDA means earnings before interest, income taxes, depreciation,
depletion and amortization, impairment of oil and natural gas properties,
gains or losses on sales of assets and exploration expense. Adjusted EBITDA
is not a calculation based on generally accepted accounting principles.
Adjusted EBITDA should not be considered as an alternative to net income as
an indicator of our operating performance, or as an alternative to cash
flow as a better measure of liquidity. Adjusted EBITDA measures presented
herein may not be comparable to other similarly titled measures reported by
other companies.
(4) "N/A" means not applicable.
(5) We include our acquisitions of oil and natural gas properties within this
classification. "N/A" means not applicable.
(6) Net of depreciation, depletion and amortization associated with such
property and equipment.
6
<PAGE>
Summary Reserve Information
The table below presents our pro forma summary reserve information as of
January 1, 2000. On a "pro forma" basis gives effect on the date indicated to
the acquisition of the Burrwood and West Delta fields. Estimates of our net
proved reserves are based on the March 29, 2000 reserve report prepared by
Coutret & Associates, Inc., our independent reserve engineers. For additional
information relating to our oil and natural gas reserves, please read "Business
and Properties--Oil and Natural Gas Operations and Properties," "--Oil and
Natural Gas Reserves" and note P of the notes to our consolidated financial
statements included in this prospectus.
<TABLE>
<CAPTION>
Pro Forma
as of
January 1, 2000
---------------
<S> <C>
Estimated net proved reserves:
Natural gas (MMcf)....................................... 26,805
Oil and condensate (MBbls)............................... 6,750
Total (MMcfe).......................................... 67,303
PV-10 Value(1) (in thousands)............................ $106,368
Proved developed reserves as percentage of total proved
reserves................................................ 66%
</TABLE>
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(1) The present value of future net cash flows attributable to our proved
reserves, determined on a pre-tax basis using prices and costs in effect at
December 31, 1999 and discounted at 10% per annum, was calculated by using
the weighted average December 31, 1999 prices received at the wellhead of
$2.63 per Mcf of natural gas and $25.16 per Bbl of oil.
Summary Operating Data
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Production:
Natural gas (MMcf).............. 2,449 2,783 2,931 1,564 1,489
Oil and condensate (MBbls)...... 282 317 394 203 262
Total (MMcfe)................. 4,144 4,683 5,297 2,784 3,061
Average sales price per unit:
Natural gas--
Revenues from production (per
Mcf)......................... $ 2.55 $ 2.18 $ 2.40 $ 1.95 $ 3.25
Effects of hedging activities
(per Mcf).................... -- -- 0.01 -- (0.07)
------- ------- ------- -------- --------
Average price................. $ 2.55 $ 2.18 $ 2.41 $ 1.95 $ 3.18
------- ------- ------- -------- --------
Oil and condensate--
Revenues from production (per
Bbl)......................... $ 18.06 $ 11.88 $ 16.88 $ 12.60 $ 27.70
Effects of hedging activities
(per Bbl).................... -- -- -- -- (3.55)
------- ------- ------- -------- --------
Average price................. $ 18.06 $ 11.88 $ 16.88 $ 12.60 $ 24.15
------- ------- ------- -------- --------
Total revenues from production
(per Mcfe)..................... $ 2.74 $ 2.10 $ 2.58 $ 2.01 $ 3.95
Effects of hedging activities
(per Mcfe)..................... -- -- 0.01 -- (0.34)
------- ------- ------- -------- --------
Total average price (per
Mcfe)........................ $ 2.74 $ 2.10 $ 2.59 $ 2.01 $ 3.61
======= ======= ======= ======== ========
Expenses (per Mcfe):
General and administrative...... $ 0.63 $ 0.51 $ 0.38 $ 0.40 $ 0.39
Lease operating expenses
(excluding production taxes)... 0.40 0.48 0.51 0.37 0.69
Production taxes................ 0.16 0.13 0.17 0.13 0.30
Depreciation, depletion and
amortization-oil and natural
gas properties................. 1.17 0.87 0.89 0.89 0.84
Reserve life index (in
years)(1)...................... 15.0x 10.0x 12.7x N/A N/A
</TABLE>
--------
(1) Calculated by dividing period-end proved reserves by production for the
prior fiscal year. Our 1999 reserves include the Burrwood and West Delta
acquisitions on a pro forma basis. "N/A" means not applicable.
7
<PAGE>
RISK FACTORS
You should carefully consider the following risks and other information in
this prospectus before deciding to invest in our common stock. The risks
described below are not the only ones facing us and may adversely affect your
investment. Additional risks not presently known to us or that we currently
deem immaterial may also impair our business operations.
Risks Related to Our Business
We have a history of losses.
We have had losses from January 1, 1997 through March 31, 2000. As of June
30, 2000, the net losses applicable to common stock from January 1997 totaled
approximately $13.6 million. Our ability in future years to achieve
profitability will depend on our oil and natural gas production, the success of
our projects, commodity prices and expenses. However, no assurance can be made
that we will be profitable in the future.
We may not be able to obtain the funds or additional financing necessary to
meet our substantial capital requirements.
We make, and will continue to make, substantial expenditures for the
acquisition, exploration, exploitation, development and production of oil and
natural gas reserves. We made capital expenditures for exploration and
development activities of $6.7 million in 1999, $15.0 million in 1998, and $9.9
million in 1997. We plan to make capital expenditures of approximately $15.0
million in 2000 and have established a preliminary budget for 2001 of $20.0
million, subject to changes due to then prevailing market conditions.
Management believes that the cash flow provided by operating activities,
borrowings under the bank credit facility and the proceeds of this offering
will be sufficient to fund planned capital expenditures during 2000 and 2001.
However, if revenues or cash flow from operations decrease as a result of lower
oil and natural gas prices, operating difficulties or other factors, many of
which are beyond our control, we may be limited in our ability to expend the
capital necessary to undertake or complete our drilling and exploitation
program, or we may be forced or choose to raise additional debt or equity
proceeds to fund such expenditures. In the future, we may require additional
financing, in addition to cash generated from our operations, to fund our
planned growth. We cannot be certain that additional financing will be
available to us on acceptable terms or at all. In the event additional capital
resources are unavailable, we may curtail our drilling, development and other
activities or be forced or choose to sell some of our assets on an untimely or
unfavorable basis, any of which may have a material adverse affect on our
business, financial condition, results of operations or cash flows. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
We expect to incur substantial debt. If we are unable to service this debt or
if we are restricted by this debt from engaging in certain activities, our
business may be adversely effected.
We have incurred substantial debt, and expect to incur additional debt in
the future, in connection with our capital expenditures. As of September 15,
2000, we had total outstanding indebtedness of $24.2 million, all of which
consisted of funds borrowed under our bank credit facility. Though we intend to
use the proceeds of this offering to repay a substantial portion of such debt,
we also expect to borrow additional funds in the future under our bank credit
facility. Such additional borrowings may severely restrict our exploration and
development activities.
As our level of borrowings increases, such indebtedness may have several
important effects on our operations, including:
. a substantial portion of our cash flow from operations may be dedicated
to the payment of interest and principal on our indebtedness and is not
available for other purposes;
8
<PAGE>
. the covenants contained in our bank credit facility limit our ability to
borrow additional funds or to dispose of assets and may affect our
flexibility in planning for, and reacting to, changes in business
conditions;
. our ability to obtain additional financing in the future for working
capital, capital expenditures (including acquisitions), general
corporate purposes or other purposes may be impaired;
. our leveraged financial position may make us more vulnerable to economic
downturns and may limit our ability to withstand sustained declines in
oil and natural gas prices;
. such borrowings will be subject to variable rates, which may make us
vulnerable to increases in interest rates; and
. our flexibility in planning for or reacting to changes in market
conditions may be limited.
Moreover, future acquisition or development activities may require us to
alter our capitalization significantly. These changes in capitalization may
significantly increase our leverage. Our ability to continue to meet our debt
service obligations and to reduce total indebtedness will be dependent upon our
future performance, which will be subject to general economic conditions,
including oil and natural gas prices, and to financial, business and other
factors affecting our operations, many of which are beyond our control. If we
are unable to generate sufficient cash flow from operations in the future to
service our indebtedness and to meet our other commitments, we will be required
to adopt one or more alternatives, such as refinancing or restructuring our
indebtedness, selling material assets or operations or seeking to raise
additional debt or equity capital. There can be no assurance that any of these
actions could be effected on a timely basis or on satisfactory terms or that
these actions would enable us to continue to satisfy our capital requirements.
The terms of our indebtedness, including the bank credit facility, also may
prohibit us from taking such actions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources--Bank Credit Facility."
We could lose our listing on the New York Stock Exchange.
On June 28, 1999, we were notified by the NYSE that it had revised its
minimum financial criteria for listed companies and the time frame required for
listed companies to become compliant. We were informed that we were not in
compliance with the revised criteria, specifically the NYSE's requirements for
a $50.0 million book and market equity capitalization. We submitted a revised
twelve-month business plan to the NYSE in response to the notice. The business
plan was accepted by the NYSE, and our financial compliance with the plan
continues to be monitored by the NYSE on a quarterly basis. We have undertaken
actions pursuant to our business plan designed to bring us into compliance with
the NYSE continued listing criteria. These actions included the conversion of
our convertible notes into our common stock on August 17, 2000, which increased
our total stockholders' equity by approximately $10.1 million. We are currently
in compliance with the revised requirements for market capitalization but not
yet in compliance with the book capitalization requirement. If this offering
does not raise sufficient funds in order for us to meet the book equity
requirement, then the NYSE may delist our stock.
If we are unable to resolve our dispute with the co-owner of the Lafitte field,
our ability to fully evaluate our participation in the development of this
property will be materially adversely affected.
We jointly acquired our interest in the Lafitte field with Stone Energy
Corporation. We have been in a dispute with Stone regarding our respective
rights and obligations under the agreements associated with the joint
acquisition. We believe that our agreements with Stone provide us with an
opportunity to more fully evaluate the field than we are currently allowed to
do. In February 2000, we filed two lawsuits against Stone alleging misconduct
and violation of the agreements associated with the joint acquisition. Until
this dispute is resolved, our ability to fully evaluate and develop our
interests in new wells could be seriously hindered.
9
<PAGE>
Hedging our production may result in losses or limit our ability to realize
higher prices.
To reduce our exposure to fluctuations in the prices of oil and natural gas,
we have entered into hedging arrangements. By replacing the right to receive
the market price for our production with a right to receive the fixed or
collared hedge price, hedging will prevent us from receiving the full advantage
of increases in oil and natural gas prices above the fixed or collared amount
specified in the hedge. In addition, significant reductions in our production
at times when the market price exceeds the price fixed in the hedge agreements
could require us to make payments under our hedge agreements even though such
payments are not offset by sales of our production. We may also have margin
calls if the market moves in opposite directions from our hedged positions. The
occurrence of any such event could have a material adverse effect on our
business, financial condition, results of operations or cash flows.
If oil and natural gas prices rise, we may not immediately realize the full
potential of increased production revenues because of the limitations imposed
under our hedge positions. We have approximately 50% of our current daily oil
production and 40% of our current daily natural gas production hedged under
certain floors or collars more particularly described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Quantitative and Qualitative Disclosures About Market Risk--Hedging Activity."
There are a substantial number of shares eligible for sale in the future and
this could negatively impact the market price of the common stock and cause you
dilution.
Our certificate of incorporation authorizes us to issue 25,000,000 shares of
common stock, of which 19,005,032 shares would be outstanding after giving
effect to this offering and the other transactions described in this
prospectus. In addition, as of September 15, 2000, we had outstanding the
following additional securities:
. warrants to purchase 3,387,978 shares of common stock at a weighted
average exercise price of $1.05 per share;
. options to purchase 791,813 shares of our common stock at a weighted
average exercise price of $4.35 per share, of which 49,063 are vested
with the remainder subject to a three-year vesting schedule from their
date of grant; and
. an additional 285,937 shares of common stock reserved for issuance upon
exercise of options that may be granted in the future under our benefit
plans.
The shares issuable upon the exercise of outstanding options will become
immediately available for resale in the public market. We, along with our
officers and directors have agreed to not offer, sell, grant any option (except
pursuant to stock option plans) to purchase or otherwise dispose of a total of
4,990,171 shares beneficially held by any of us during the 180 days following
the sale of the shares in the offering without the prior consent of Jefferies &
Company, Inc. Pursuant to SEC short-swing trading rules, H&Q Guaranty is
restricted from selling its directly-owned shares of our common stock prior to
February 2001. Sales of substantial numbers of these shares in the public
market could adversely affect the market price of our common stock.
You will experience immediate and substantial dilution in our book value per
share.
The public offering price of our common stock may be substantially higher
than the net tangible book value per share of our outstanding common stock will
be immediately after this offering. Net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares outstanding. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $3.01 in the net
tangible book value per share of common stock from the price you pay for our
common stock in this offering.
There is limited trading volume in our common stock.
Although our common stock is listed on the New York Stock Exchange, the
public market for our common stock has been relatively small. Stocks with small
markets and limited liquidity may experience fluctuations in their prices due
to imbalances between orders to buy and orders to sell the stock. There can be
10
<PAGE>
no assurance as to when a more active public market for our common stock will
develop, if at all. Because of the lack of a more active market for our common
stock, you may not be able to sell your shares at or above the offering price.
Volatility in our stock price could adversely affect the value of your
investment.
Factors such as announcements of exploration success by us or our
competitors, as well as market conditions generally or in the oil and gas
industry, or changes in earnings estimates by securities analysts may cause the
market price of our common stock to fluctuate significantly. In addition, the
stock market in recent years has experienced significant price and volume
fluctuations which have particularly affected the market prices of equity
securities of many oil and gas exploration companies and which often have been
unrelated to the operating performance of such companies. These market
fluctuations may adversely affect the price of our common stock.
Our success depends on our chief executive officer and other key executive
officers, the loss of whom could disrupt our business operations.
We depend to a large extent on the efforts and continued employment of our
President and Chief Executive Officer, Walter G. Goodrich, and our other
executive officers. If Mr. Goodrich or these other executive officers resigns
or becomes unable to continue in his present role and if such person is not
adequately replaced, our business operations could be materially adversely
affected. Please read "Management" for information regarding Mr. Goodrich and
other key members of our management team.
We are subject to many environmental and safety regulations that may result in
unanticipated costs or liabilities.
Exploration for and development, production and sale of oil and natural gas
in the U.S. are subject to extensive and complex federal, state and local laws
and regulations, including environmental laws and regulations. We may be
required to make large expenditures to comply with environmental and other
governmental regulations. Matters subject to regulation include:
. discharge permits for drilling operations;
. drilling bonds for plugging and abandoning wells;
. reports concerning operations; and
. taxation.
Under these laws and regulations, we could be liable for personal injuries,
property damage, oil spills, discharge of hazardous substances, remediation and
clean-up costs and other environmental damages. We do not believe that full
insurance coverage for all potential environmental damages is available at a
reasonable cost, and we do not have such coverage. Failure to comply with these
laws and regulations also may result in the suspension or termination of our
operations and subject us to administrative, civil and criminal penalties.
Moreover, these laws and regulations could change in ways that substantially
increase our costs. For example, Congress or the U.S. Minerals Management
Service could decide to limit exploratory drilling or natural gas production.
Accordingly, any of these liabilities, penalties, suspensions, terminations or
regulatory changes could materially adversely affect our business, financial
condition, results of operations or cash flows.
The U.S. Environmental Protection Agency has identified us as a potentially
responsible party for the cost of clean-up of hazardous substances at an oil
field waste disposal site in Vermilion Parish, Louisiana. We estimate that the
remaining cost of long-term clean-up of the site will be approximately $3.5
million, with our percentage of responsibility estimated to be approximately
3.05%, which equates to an individual cost of about $107,000. As of June 30,
2000, we had paid $321,000 in costs related to this matter and accrued $122,500
for the remaining liability. These costs have not been discounted to their
present value. The U.S. Environmental Protection Agency and the potentially
responsible parties, including us, will continue to evaluate the site and may
revise estimates for the long-term clean-up of the site.
11
<PAGE>
We cannot be certain that the cost of clean-up and our percentage of
responsibility will not be higher than currently estimated. In addition, under
federal environmental laws, the liability costs for the clean-up of the site is
joint and several among all potentially responsible parties. Therefore, the
ultimate cost of the clean-up to us could be significantly higher than the
amount presently estimated or accrued for this liability.
Oil and natural gas prices are volatile. Low prices could have a material
adverse effect on our business.
Our revenues, profitability and future growth depend substantially on
prevailing prices for oil and natural gas.
Historically, prices for oil and natural gas have been volatile. For
example, oil and natural gas prices declined significantly in 1998 and, for an
extended period of time, remained substantially below prices obtained in
previous years. Among the factors that can cause this fluctuation are:
. level of consumer product demand;
. weather conditions;
. domestic and foreign governmental regulations;
. price and availability of alternative fuels;
. political conditions in oil and natural gas producing regions;
. domestic and foreign supply of oil and natural gas;
. price of foreign imports; and
. overall economic conditions.
Prices for oil and natural gas affect the amount of cash flow available for
capital expenditures and our ability to borrow and raise additional capital.
The amount we can borrow under our bank credit facility is subject to periodic
redetermination based in part on changing expectations of future prices. Lower
prices may also reduce the amount of oil and natural gas that we can
economically produce. Any substantial and extended decline in the price of oil
or natural gas would have a material adverse effect on the carrying value of
our proved reserves, our borrowing capacity, our ability to obtain additional
capacity, and our business, financial condition, results of operations or cash
flows.
Our reserve estimates may prove to be inaccurate. Any material inaccuracies in
these reserve estimates or underlying assumptions will materially affect the
quantities and present value of our estimated reserves.
The process of estimating oil and natural gas reserves is complex and
involves numerous uncertainties. Reservoir engineering is a subjective process
of estimating underground accumulations of oil and natural gas that cannot be
measured in an exact manner. It requires interpretations of available technical
data and various assumptions, including assumptions relating to economic and
other factors beyond our control. Any significant inaccuracies in these
interpretations or assumptions could materially affect the estimated quantities
and present value of reserves shown in this prospectus. See "Business and
Properties--Oil and Natural Gas Operations and Properties."
In order to prepare these estimates we project production rates and timing
of development expenditures. We also analyze available geological, geophysical,
production and engineering data. The extent, quality and reliability of this
data can vary. The process also requires economic assumptions such as oil and
natural gas prices, drilling and operating expenses, capital expenditures,
taxes and availability of funds. Therefore, estimates of oil and natural gas
reserves are inherently imprecise.
Actual future production, oil and natural gas prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and natural gas reserves most likely will vary from our estimates. Any
significant variance could materially affect the estimated quantities and
present value of reserves shown in
12
<PAGE>
this prospectus. In addition, we may adjust estimates of proved reserves to
reflect production history, results of exploration and development,
availability of rigs and other equipment, prevailing oil and natural gas prices
and other factors, many of which are beyond our control. At January 1, 2000,
34% of our proved reserves, on a pro forma basis, were proved undeveloped. Most
of our reserves are calculated using volumetric analysis, and these estimates
could be viewed as more subjective. Any such inaccuracies could have a material
adverse effect on our business, financial condition, cash flows or results of
operations.
You should not assume that the present value of future net cash flows from
our proved reserves referred to in this prospectus is the current market value
of our estimated oil and natural gas reserves. In accordance with SEC
requirements, we generally base the estimated discounted future net cash flows
from our proved reserves on prices and costs on the date of the estimate.
Actual future prices and costs may differ materially from those used in the
present value estimate.
Exploration is a high-risk activity, and the 3-D seismic data and other
advanced technologies we use cannot eliminate exploration risk and require
experienced technical personnel whom we may be unable to attract or retain.
Our future success will depend on the success of our drilling program.
Exploitation and exploration activities involve numerous risks, including the
risk that no commercially productive oil and natural gas reservoirs will be
discovered. In addition, we often are uncertain as to the future cost or timing
of drilling, completing and producing wells. Furthermore, our drilling
operations may be curtailed, delayed or canceled as a result of the additional
exploration, time and expenses associated with a variety of factors, including:
. unexpected drilling conditions;
. pressure or irregularities in formations;
. equipment failures or accidents;
. adverse weather conditions;
. compliance with governmental requirements; and
. shortages or delays in the availability of drilling rigs and the
delivery of equipment.
Even when used and properly interpreted, 3-D seismic data and visualization
techniques only assist geoscientists in identifying subsurface structures and
hydrocarbon indicators. They do no allow the interpreter to know conclusively
if hydrocarbons are present or economically producible. We could incur losses
as a result of these expenditures. Poor results from our exploitation and
exploration activities could have a material adverse effect on our business,
financial condition, cash flows or results of operations.
Our drilling success will depend, in part, on our ability to attract and
retain experienced explorationists and other professional personnel.
Competition for explorationists and engineers with experience is intense. If we
cannot retain our current personnel or attract additional experienced
personnel, our ability to compete could be adversely affected.
The failure to replace our reserves would adversely affect our production and
cash flows.
Our future oil and natural gas production depends on our success in finding
or acquiring additional reserves that are economically recoverable. If we fail
to replace reserves, our level of production and cash flows will be adversely
impacted. In general, production from oil and natural gas properties declines
as reserves are depleted, with the rate of decline depending on reservoir
characteristics. Our total proved reserves decline as reserves are produced
unless we conduct other successful exploration and development activities or
acquire properties containing proved reserves, or both. Our ability to make the
necessary capital investment to maintain
13
<PAGE>
or expand our asset base of oil and natural gas reserves would be impaired to
the extent cash flow from operations is reduced and external sources of capital
become limited or unavailable. We may not be successful in exploring for,
developing or acquiring additional reserves. If we are not successful, our
future production and revenues will be materially adversely affected.
The oil and natural gas business involves many operating risks that can cause
substantial losses.
Our operations are subject to risks inherent in the oil and natural gas
business, including:
. fires;
. explosions;
. blow-outs and surface cratering;
. uncontrollable flows of oil, underground natural gas and formation
water;
. natural disasters;
. pipe or cement failures;
. casing collapses;
. embedded oil field drilling and service tools;
. abnormally pressured formations; and
. environmental hazards such as natural gas leaks, oil spills, pipeline
ruptures and discharges of toxic natural gases.
If any of these events occur, we could incur substantial losses as a result
of:
. injury or loss of life;
. severe damage to and destruction of property, natural resources and
equipment;
. pollution and other environmental damage;
. clean-up responsibilities;
. regulatory investigation and penalties;
. suspension of our operations; and
. repairs to resume operations.
If we experience any of these problems, it could affect well bores,
platforms, gathering systems and processing facilities, which could adversely
affect our ability to conduct operations and have a material adverse effect on
our business, financial condition, results of operations or cash flows.
We do not carry business interruption insurance. For some risks, we may not
obtain insurance if we believe the cost of available insurance is excessive
relative to the risks presented. In addition, pollution and environmental risks
generally are not fully insurable. If a significant accident or other event
occurs and is not fully covered by insurance, it could have a material adverse
effect on our business, financial condition, results of operations or cash
flows.
Our industry is highly competitive.
We operate in a highly competitive environment. We compete with major and
independent oil and natural gas companies for the acquisition of desirable oil
and natural gas properties, as well as for the equipment and labor required to
develop and operate such properties. Many of these competitors have financial,
technical and
14
<PAGE>
other resources substantially greater than ours. The availability of a ready
market for our oil and natural gas production will depend in part on the
following:
. cost and availability of alternative fuels;
. level of consumer demand;
. extent of domestic production of oil and natural gas;
. extent of importation of foreign oil and natural gas;
. cost of and proximity to pipelines and other transportation facilities;
. regulations by state and federal authorities; and
. cost of complying with applicable environmental regulations.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements other
than statements of historical facts contained in this prospectus, including
statements regarding our future financial position, business strategy, budgets,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of such terms or other comparable terminology. There are many
factors that could cause these forward-looking statements to be incorrect,
including the risks described under "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Risks,
uncertainties and assumptions that could cause actual results to differ
materially from the expectations reflected in the forward-looking statements
include:
. drilling of wells;
. timing and amount of future production of oil and natural gas;
. operating costs and other expenses;
. cash flow and anticipated liquidity;
. the risks associated with exploration;
. our ability to find, acquire, market, develop and produce new
properties;
. oil and natural gas price volatility;
. the outcome of our dispute with Stone regarding our Lafitte field
interest;
. uncertainties in the estimation of proved reserves and in the projection
of future rates of production and timing of development expenditures;
. operating hazards attendant to the oil and natural gas business;
. downhole drilling and completion risks that are generally not
recoverable from third parties or insurance;
. potential mechanical failure or under-performance of significant wells;
. climatic conditions;
. availability and cost of material and equipment;
. delays in anticipated start-up dates;
. actions or inactions of third-party operators of our properties;
. our ability to find and retain skilled personnel;
. availability of capital;
. the strength and financial resources of our competitors;
. regulatory developments;
. environmental risks; and
. general economic conditions.
When you consider these forward-looking statements, you should keep in mind
these risk factors and the other cautionary statements in this prospectus.
Although we believe our expectations reflected in these forward-looking
statements are based on reasonable assumptions, we cannot assure you that these
expectations will prove to have been correct. We make no commitment to revise
or update any forward-looking statements in order to reflect events or
circumstances after the date any such statement is made.
16
<PAGE>
USE OF PROCEEDS
We expect our net proceeds from the sale of all of the common stock offered
in this offering to be approximately $23.5 million ($27.2 million if the
underwriters' over-allotment option is exercised in full), after deducting the
underwriting discounts and commissions. We intend to use the proceeds from this
offering to repay a substantial portion of our borrowings under our bank credit
facility with Compass Bank. We intend to invest cash flow from operations and
reborrow funds under our bank credit facility as we accelerate our capital
expenditures for development and exploitation activities in south Louisiana,
with a particular focus on our Burrwood, West Delta and Lafitte fields. The
interest rate on principal outstanding under our amended bank credit facility
will be the Compass Bank prime rate.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the symbol
GDP. At September 15, 2000, there were 12,315,522 shares of our common stock
outstanding. The following table sets forth the range of the high and low
closing sale prices by quarter as reported during 1998, 1999 and 2000.
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
1998:
First Quarter.................................................... $8.00 $5.06
Second Quarter................................................... 7.19 5.25
Third Quarter.................................................... 5.63 2.25
Fourth Quarter................................................... 3.00 1.13
1999:
First Quarter.................................................... $1.50 $0.69
Second Quarter................................................... 1.88 0.94
Third Quarter.................................................... 2.69 0.94
Fourth Quarter................................................... 3.06 2.19
2000:
First Quarter.................................................... $6.25 $2.63
Second Quarter................................................... 5.56 4.25
Third Quarter (through September 28, 2000)....................... 6.25 4.50
</TABLE>
The prices in the table above have been adjusted to give retroactive effect
to our one-for-eight reverse stock split in March 1998.
On September 28, 2000, the last reported sale price for our common stock on
the NYSE was $5.63 per share. At September 15, 2000, the number of holders of
record of our common stock without determination of the number of individual
participants in a security position was 1,209.
17
<PAGE>
DIVIDEND POLICY
We have not paid a cash dividend on our common stock since our formation. We
do not anticipate paying any cash dividends on our common stock because we
intend to retain our cash flow to finance the expansion of our business and for
general corporate purposes. Additionally, our current bank credit facility
prohibits us from paying cash dividends on our common stock and limits our
ability to pay dividends on our preferred stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Bank Credit Facility" for a discussion of our bank credit
facility. Any future determination with respect to the payment of dividends
will be subject to the terms and conditions of our bank credit facility and be
at the discretion of our board of directors who will have the authority to
declare and pay dividends on the common stock and on the preferred stock, as
long as there are funds legally available to do so.
On March 23, 1999, we announced that we had suspended payment of our regular
quarterly cash dividend on both classes of our convertible preferred stock.
This measure was precipitated by a drop in commodity prices and was taken to
conserve cash for corporate and operating purposes. On September 14, 2000, we
announced our reinstatement of the cash dividends on both our Series A and
Series B preferred stock. We paid approximately $1.8 million of dividend
arrearages and approximately $300,000 of regular quarterly dividends on these
series of preferred stock on September 29, 2000. These payments brought us
current on our dividend payments on each of these series.
18
<PAGE>
CAPITALIZATION
The following table illustrates our actual, pro forma and pro forma as
adjusted cash position and capitalization as of June 30, 2000. As shown in the
table below, the pro forma presentation reflects the conversion of our
subsidiaries' notes in August 2000, the payment of dividend arrearages on our
preferred stock, our most recent private placement and the exchange of our
Series B preferred stock, as if they had occurred on June 30, 2000. The pro
forma as adjusted presentation reflects this offering and the application of
the estimated proceeds therefrom, the conversion of our subsidiaries' notes in
August 2000, the payment of dividend arrearages on our preferred stock, our
most recent private placement and the exchange of our Series B preferred stock,
as if they had occurred on June 30, 2000. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and accompanying notes
included in this prospectus. Information in this prospectus reflects our
one-or-eight reverse stock split that became effective on March 12, 1998.
<TABLE>
<CAPTION>
June 30, 2000
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 4,952 $ 7,829 $ 7,829
======== ======== ========
Long-term debt, including current maturities:
Credit facility.............................. $ 25,165 $ 25,165 $ 1,619
Goodrich-Lafitte notes....................... 5,074 -- --
Goodrich-Louisiana notes..................... 5,074 -- --
-------- -------- --------
Total long-term debt, including current
maturities................................ 35,313 25,165 1,619
Stockholders' equity:
Preferred stock, $1.00 par value per share,
10,000,000 shares:
Series A convertible preferred stock; issued
and outstanding 796,318 shares (liquidation
preference of $10.00 per share, aggregating
to $7,963,180).............................. 796 796 796
Series B convertible preferred stock; issued
and outstanding 662,700 shares (liquidation
preference $10.00 per share, aggregating to
$6,627,000)................................. 663 663 --
Common stock, $0.20 par value per share,
25,000,000 shares authorized, 8,985,789
actual shares issued and outstanding,
13,315,522 pro forma shares and 19,005,032
pro forma as adjusted shares (1)............ 1,797 2,656 3,794
Additional paid-in capital................... 25,116 39,804 62,875
Accumulated deficit.......................... (12,631) (15,479) (15,479)
-------- -------- --------
Total stockholders' equity................. 15,741 28,440 51,986
-------- -------- --------
Total capitalization..................... $ 51,054 $ 53,605 $ 53,605
======== ======== ========
</TABLE>
--------
(1) The number of shares of common stock to be outstanding after this offering
assumes 4,500,000 shares of common stock offered but does not include:
. 2,779,980, 290,000, 277,998 and 40,000 shares that may be issuable upon
exercise of outstanding common stock purchase warrants at an exercise
price of $1.00, $0.93, $1.50 and $2.00 per share, respectively;
. 331,826 shares that may be issuable upon conversion of outstanding
Series A preferred stock at a conversion price of $23.91 per share;
. 791,813 shares that may be issued upon exercise of stock options
outstanding as of September 15, 2000, at a weighted average exercise
price of $4.35 per share; and
. 285,937 shares reserved for issuance upon exercise of options that may
be granted in the future under our stock plans.
19
<PAGE>
DILUTION
The net tangible book value of our common stock as of September 15, 2000 was
$28.4 million or approximately $1.96 per share. Net tangible book value per
share represents the amount of our stockholders' equity less intangible assets,
divided by 14,505,032 shares of outstanding common stock (which includes our
most recent private placement and the exchange of our Series B preferred stock
which we expect will occur concurrently with this offering).
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of common stock in
this offering and the pro forma net tangible book value per share of common
stock immediately after completion of this offering. Following:
. our sale of 4,500,000 shares of common stock in this offering at an
initial public offering price of $5.75 per share, and after deducting:
. the estimated underwriting discounts and commissions;
. the estimated offering expenses; and
. the application of the estimated net proceeds from this offering,
our pro forma net tangible book value as of September 15, 2000 would have been
$52.0 million, or $2.74 per share. This represents an immediate increase in net
tangible book value of $0.78 per share to existing stockholders and an
immediate dilution in net tangible book value of $3.01 per share to purchasers
of common stock in this offering. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $5.75
Net tangible book value per share as of September 15,
2000.................................................... $1.96
Increase per share attributable to new investors......... 0.78
-----
Net tangible book value per share after this offering............ 2.74
-----
Dilution per share to new investors.............................. $3.01
=====
</TABLE>
The following table illustrates on a pro forma basis as of September 15,
2000 the difference between the number of shares of common stock purchased from
us, the total consideration paid to us and the average price paid by existing
stockholders and by the new investors purchasing shares of common stock in this
offering, before deduction of estimated discounts and commissions and estimated
offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 14,505,032 76% $28,439,087 55% $1.96
New stockholders........... 4,500,000 24 23,546,000 45 5.23
---------- --- ----------- ---
Total.................... 19,005,032 100% $51,985,087 100%
========== === =========== ===
</TABLE>
The foregoing table excludes:
. options to purchase 791,813 shares of common stock granted through
September 15, 2000 at a weighted average exercise price of $4.35 per
share; if all outstanding options were exercised, dilution to new
investors would equal $2.95 per share;
. 285,937 shares of common stock reserved for issuance as of September 15,
2000 upon exercise of options that may be granted in the future under
our stock plans; and
. warrants to purchase 3,387,798 shares of common stock issued through
September 15, 2000 at a weighted average exercise price of $1.05 per
share; if all outstanding warrants were exercised dilution to new
investors would equal $3.39 per share.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The consolidated financial data set forth below for the five years ended
December 31, 1995, 1996, 1997, 1998 and 1999 are derived from our financial
statements, which have been audited by KPMG LLP, and the financial statements
for the six months ended June 30, 1999 and 2000 have been derived from our
unaudited financial statements. These unaudited financial statements have been
prepared on substantially the same bases as the audited financial statements.
You should read the following data in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements included in this prospectus. Information in
this prospectus reflects our one-for-eight reverse stock split that became
effective on March 12, 1998.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
--------------------------------------------- ----------------
1995 1996 1997 1998 1999 1999 2000
-------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 6,174 $ 9,769 $12,901 $ 10,592 $14,020 $ 5,771 $11,352
-------- ------- ------- -------- ------- ------- -------
Expenses:
Lease operating
expenses and
production taxes...... 1,030 1,615 2,316 2,822 3,591 1,368 3,045
Depreciation,
depletion and
amortization.......... 1,786 3,788 4,863 4,094 4,744 2,467 2,568
Exploration............ 193 1,149 3,206 6,010 1,656 822 726
Impairment of oil and
natural gas
properties............ 157 -- 550 1,076 465 -- --
Interest............... 1,132 828 1,416 1,910 2,811 1,082 2,392
General and
administrative........ 739 2,095 2,627 2,399 1,990 1,125 1,197
Preferred dividend
requirements of a
subsidiary (1)........ -- -- -- -- 73 -- 38
-------- ------- ------- -------- ------- ------- -------
Total costs and
expenses............ 5,037 9,475 14,978 18,311 15,330 6,864 9,966
-------- ------- ------- -------- ------- ------- -------
Gain (loss) on sale of
assets................ -- 88 688 4 (519) (519) 274
-------- ------- ------- -------- ------- ------- -------
Income (loss) before
income taxes (2)....... 1,137 382 (1,389) (7,715) (1,829) (1,612) 1,660
Income tax provision... -- -- -- -- -- -- --
Extraordinary item--
early extinguishment
of debt............... 483 -- -- -- -- -- --
-------- ------- ------- -------- ------- ------- -------
Net income (loss)....... $ 654 $ 382 $(1,389) $ (7,715) $(1,829) $(1,612) $ 1,660
-------- ------- ------- -------- ------- ------- -------
Preferred stock
dividends (1999 and
2000 amounts in
arrears)............... 255 645 1,205 1,256 1,249 628 604
-------- ------- ------- -------- ------- ------- -------
Net income (loss)
applicable to common
stock.................. $ 399 $ (263) $(2,594) $ (8,971) $(3,078) $(2,240) $ 1,056
======== ======= ======= ======== ======= ======= =======
Basic income (loss) per
common share (2)....... $ (0.05) $ (0.50) $ (1.71) $ (0.58) $ (0.43) $ 0.13
======= ======= ======== ======= ======= =======
Diluted income (loss)
per common share (2)... $ (0.05) $ (0.50) $ (1.71) $ (0.58) $ (0.43) $ 0.10
======= ======= ======== ======= ======= =======
Average common shares
outstanding--basic
(2).................... 3,465 5,226 5,229 5,243 5,288 5,255 7,973
======== ======= ======= ======== ======= ======= =======
Average common shares
outstanding--diluted
(2)(3)................. 3,465 5,226 5,229 5,243 5,288 5,255 11,112
======== ======= ======= ======== ======= ======= =======
Other Data:
Adjusted EBITDA (4)..... $ 4,405 $ 6,058 $ 7,958 $ 5,371 $ 8,366 $ 3,278 $ 7,072
Net cash provided by
(used in) operating
activities............. 3,579 4,373 6,633 4,517 1,065 1,836 3,349
Net cash provided by
(used in) investing
activities............. 8,877 (4,163) (6,007) (14,959) (6,407) (1,286) (5,798)
Net cash provided by
(used in) financing
activities............. (12,553) (479) (177) 9,744 11,176 (600) 1,473
Capital expenditures
(5).................... 650 4,226 9,941 15,008 6,657 1,526 6,224
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
At December 31, At
--------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.... $ 613 $ 345 $ 793 $ 96 $ 5,929 $ 4,952
Net property and equipment
(successful efforts
method)(6).................. 14,146 14,318 32,466 39,796 46,048 49,031
Total assets................. 22,383 22,399 37,538 44,037 56,259 61,862
Current portion of long-term
debt........................ -- -- -- 29,500 3,600 3,600
Long-term debt(7)............ 9,750 10,000 18,500 -- 33,353 31,713
Total stockholder's equity... 9,663 9,135 14,333 4,959 6,411 15,741
</TABLE>
--------
(1) On February 17, 2000, all of the holders of the preferred stock of our
subsidiary converted their preferred units into approximately 1,550,000
shares of our common stock.
(2) We did not include a provision for income taxes in the consolidated
statements of operations for the period from January 1, 1995 through August
14, 1995 for the operations of La/Cal Energy Partners, one of our
predecessor companies, due to La/Cal being a partnership and income taxes
were the responsibility of the individual partners of La/Cal. Certain
unaudited pro forma information relating to the Company's results of
operations in 1995 had La/Cal been a corporation, follows:
<TABLE>
<CAPTION>
1995
------
<S> <C>
Pro forma information (unaudited):
Income before extraordinary item and income taxes................. $1,137
Pro forma income taxes............................................ 403
------
734
Extraordinary item--early extinguishment of debt.................. (483)
------
Pro forma net income.............................................. 251
Preferred stock dividends......................................... (255)
------
Pro forma earnings available to common stock...................... $ (4)
======
Pro forma income before extraordinary item per average common
share............................................................. $ 0.14
======
Pro forma extraordinary item per average common share.............. $(0.14)
======
Pro forma basic and diluted earnings (loss) per average common
share............................................................. --
Pro forma average common shares outstanding........................ 3,465
======
</TABLE>
(3) The 2000 period reflects approximately 3,138,843 shares of our common stock
issuable pursuant to dilutive stock warrants and dilutive stock options.
(4) Adjusted EBITDA means earnings before interest, income taxes, depreciation,
depletion and amortization, impairment of oil and natural gas properties,
gains or losses on sales of assets, preferred dividend requirements of a
subsidiary and exploration expense. Adjusted EBITDA is not a calculation
based on generally accepted accounting principles. Adjusted EBITDA should
not be considered as an alternative to net income as an indicator of our
operating performance, or as an alternative to cash flow as a better
measure of liquidity. Adjusted EBITDA measures presented herein may not be
comparable to other similarly titled measures reported by other companies.
(5) We include our acquisitions of oil and natural gas properties within this
classification.
(6) Net of depreciation, depletion and amortization associated with such
property and equipment.
(7) We restructured the debt under our bank credit facility during 1999 to
allow reclassification from current to long-term. This item also includes
$12,000,000 of convertible notes issued by two of our four subsidiaries
during 1999.
22
<PAGE>
PRO FORMA AS ADJUSTED FINANCIAL DATA
(in thousands, except per share data)
The following unaudited condensed pro forma as adjusted financial
information consists of our unaudited condensed pro forma as adjusted
consolidated statement of operations for the year ended December 31, 1999 and
the six months ended June 30, 2000, and our unaudited condensed pro forma as
adjusted consolidated balance sheet as of June 30, 2000. You should read the
following data in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements included elsewhere in this prospectus. The unaudited pro forma as
adjusted information illustrates the adjustments previously described and the
impact of this offering and the application of the estimated proceeds
therefrom. The pro forma information illustrates the impact of the conversion
of our subsidiaries' notes in August 2000, the payment of dividend arrearages
on our preferred stock, our most recent private placement and the exchange of
our Series B preferred stock, each of which is to occur prior to, or
simultaneously with, the offering. These adjustments are reflected as if these
transactions were consummated as of January 1, 1999 for purposes of the
statement of operations data and as of June 30, 2000 for purposes of the
balance sheet data. The pro forma results of operations are not necessarily
indicative of the results that would have occurred had the transactions been
consummated as of the beginning of the periods presented.
Unaudited Condensed Pro Forma As Adjusted Consolidated Statement of Operations
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-------------------------------------------------------
Pro Forma Pro
Pro Forma Pro As Adjusted Forma As
Historical Adjustments Forma Adjustments Adjusted
---------- ----------- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues......... $14,020 $14,020 $14,020
Expenses:
Lease operating
expenses and
production
taxes.......... 3,591 3,591 3,591
Depreciation,
depletion and
amortization... 4,744 4,744 4,744
Exploration..... 1,656 1,656 1,656
Impairment of
oil and natural
gas
properties..... 465 465 465
Interest
expense........ 2,811 $(503)(3) 2,308 $(1,873)(5) 435
General and
administrative.. 1,990 1,990 1,990
Preferred
dividend
requirements of
a subsidiary... 73 73 73
------- ------- -------
Total costs and
expenses....... 15,330 14,827 12,954
------- ------- -------
Gain/(Loss) on
sale of
assets......... (519) (519) (519)
------- ------- -------
Income (loss)
before income
taxes........... (1,829) (1,326) 547
Income tax
provision (1).. -- -- --
------- ------- -------
Net income
(loss).......... $(1,829) $(1,326) $ 547
------- ------- -------
Preferred stock
dividends
(amounts in
arrears)........ 1,249 (612)(4) 637 637
------- ------- -------
Net income (loss)
applicable to
common stock.... $(3,078) $(1,963) $ (90)
======= ======= =======
Basic income
(loss) per
common share.... $ (0.58) $ (0.01)
======= =======
Diluted income
(loss) per
common share.... $ (0.58) $ (0.01)
======= =======
Average common
shares
outstanding--
basic (2)....... 5,288 15,273
======= =======
Average common
shares
outstanding--
diluted (2)..... 5,288 15,273
======= =======
<CAPTION>
Six Months Ended June 30, 2000 (unaudited)
-------------------------------------------------------
Pro
Pro Forma Forma
Pro Forma Pro As Adjusted As
Historical Adjustments Forma Adjustments Adjusted
---------- ------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
Revenues......... $11,352 $11,352 $11,352
Expenses:
Lease operating
expenses and
production
taxes.......... 3,045 3,045 3,045
Depreciation,
depletion and
amortization... 2,568 2,568 2,568
Exploration..... 726 726 726
Impairment of
oil and natural
gas
properties..... -- -- --
Interest
expense........ 2,392 $(1,009)(3) 1,383 $(1,246)(5) 137
General and
administrative.. 1,197 1,197 1,197
Preferred
dividend
requirements of
a subsidiary... 38 38 38
---------- ------- --------
Total costs and
expenses....... 9,966 8,957 7,711
---------- ------- --------
Gain/(Loss) on
sale of
assets......... 274 274 274
---------- ------- --------
Income (loss)
before income
taxes........... 1,660 2,669 3,915
Income tax
provision (1).. -- -- --
---------- ------- --------
Net income
(loss).......... $ 1,660 $ 2,669 $ 3,915
---------- ------- --------
Preferred stock
dividends
(amounts in
arrears)........ 604 (285)(4) 319 319
---------- ------- --------
Net income (loss)
applicable to
common stock.... $ 1,056 $ 2,350 $ 3,596
========== ======= ========
Basic income
(loss) per
common share.... $ 0.13 $ 0.20
========== ========
Diluted income
(loss) per
common share.... $ 0.10 $ 0.17
========== ========
Average common
shares
outstanding--
basic (2)....... 7,973 17,958
========== ========
Average common
shares
outstanding--
diluted (2)..... 11,112 21,097
========== ========
</TABLE>
(notes to pro forma adjustments are on the following page)
23
<PAGE>
Unaudited Condensed Pro Forma As Adjusted Consolidated Balance Sheet as of June
30, 2000
<TABLE>
<CAPTION>
As of June 30, 2000
------------------------------------------------------------
Pro Forma Pro Forma
Pro Forma Pro As Adjusted As
Historical Adjustments Forma Adjustments Adjusted
---------- ----------- -------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets.............. $ 4,650 (6) $ 23,546 (8)
Cash and cash
equivalents.............. $ 4,952 (1,773)(7) $ 7,829 (23,546)(5) $ 7,829
Accounts receivable.......
Trade and other......... 809 809 809
Accrued oil and gas
revenue................ 4,299 4,299 4,299
Prepaid insurance and
other.................... 25 25 25
-------- -------- --------
Total current assets........ 10,085 12,962 12,962
Net property and equipment.. 49,031 49,031 49,031
Restricted cash............. 1,320 1,320 1,320
Other investments and
deferred charges........... 1,426 (1,075)(3) 351 351
-------- -------- --------
Total assets............ $ 61,862 $ 63,664 $ 63,664
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS
EQUITY
<S> <C> <C> <C> <C> <C>
Current liabilities
Current portion of long-
term debt................ $ 3,600 $ 3,600 (3,600)(5) $ --
Accounts payable.......... 2,994 2,994 2,994
Accrued liabilities....... 1,677 1,677 1,677
Current portion other
noncurrent liabilities... 822 822 822
-------- -------- --------
Total current
liabilities............ 9,093 9,093 5,493
Long-term debt.............. 31,713 (10,148)(3) 21,565 (19,946)(5) 1,619
Other non-current
liabilities................ 5,315 (749)(3) 4,566 4,566
Stockholders' equity:
Preferred stock Series A.. 796 796 796
Preferred stock Series B.. 663 663 (663)(4) --
200 (6)
Common stock.............. 1,797 659 (3) 2,656 900 (8) 3,794
238 (4)
Additional paid-in
capital.................. 25,116 10,238 (3) 39,804 22,646 (8) 62,875
4,450 (6) 425 (4)
(1,075)(3)
Accumulated deficit....... (12,631) (1,773)(7) (15,479) (15,479)
-------- -------- --------
Total stockholders'
equity................... 15,741 28,440 51,986
-------- -------- --------
Total liabilities and
stockholders' equity... $ 61,862 $ 63,664 $ 63,664
======== ======== ========
</TABLE>
--------
(1) We have not reflected any provision for income taxes due to the generation
of net operating loss carry forwards or the use of available net operating
loss carry forwards to offset taxable income. Valuation allowances have
been established for the net operating loss carry forwards based on the
evidence considered in the assessment of the likelihood of utilizing the
net operating loss carry forwards.
(2) We computed pro forma basic net income (loss) per common share by dividing
pro forma income applicable to common stock by the pro forma weighted
average shares of common stock outstanding of 15,273,168 for the year ended
December 31, 1999 and 17,958,005 for the six months ended June 30, 2000. We
did not include outstanding warrants and options considered common stock
equivalents in the 1999 calculation because their effect would be
antidilutive. The following table reconciles the weighted-average shares
outstanding used for the computations used in the 1999 and 2000 periods:
<TABLE>
<CAPTION>
Six months
Year ended ended
December 31, June 30,
1999 2000
------------ ----------
<S> <C> <C>
Historical basic method.............................. 5,288,011 7,972,848
Private placement of 1,000,000 shares................ 1,000,000 1,000,000
Exchange of Series B preferred stock................. 1,189,510 1,189,510
Conversion of our subsidiaries' notes................ 3,295,647 3,295,647
Offering............................................. 4,500,000 4,500,000
---------- ----------
Pro forma basic method............................... 15,273,168 17,958,005
Dilutive stock warrants.............................. -- 2,641,459
Dilutive stock options............................... -- 497,384
---------- ----------
Diluted method....................................... 15,273,168 21,096,848
========== ==========
</TABLE>
24
<PAGE>
(3) Our subsidiaries' notes were converted into 3,295,647 shares of common
stock on August 17, 2000, which includes 60,000 shares issued as an
underwriting fee. The balance sheet adjustments reflect the elimination of
the carrying amount of the notes and related accrued interest at June 30,
2000. The balance of related deferred financing costs of $1,075,000 at June
30, 2000 is eliminated with a charge to accumulated deficit. This
$1,075,000 is a one-time charge related to the early retirement of our
subsidiaries' notes, which will be charged to expense as an extraordinary
item in connection with the conversion of the notes and is not reflected in
the pro forma statement of operations. The interest adjustment on the
statement of operations represents the elimination of amortization of
deferred financing costs of $109,088 and $226,178, interest expense of
$251,154 and $498,286, based on the aggregate principal amounts of the
notes of $12.0 million at an annual interest rate of 8.0%, and amortization
of discount on the notes of $142,500 and $285,000, for the 1999 and 2000
periods respectively.
(4) The balance sheet adjustment represents the conversion of the Series B
preferred stock into 1,189,510 shares of common stock based on a conversion
factor of 1.8 shares of common stock for each share of Series B preferred
stock. The adjustment to the statement of operations represents the
elimination of dividends associated with the Series B preferred stock. The
conversion premium in excess of the terms per the original preferred stock
issuance is valued at $2,602,880. We have not made an adjustment in the pro
forma statement of operations for this one-time charge; however, we will
reflect it as preferred stock dividends at the date of conversion to arrive
at net income applicable to common stock.
(5) We will use the net proceeds of the offering to repay $23,546,000 of our
bank credit facility. We made an adjustment to the statement of operations
to reduce interest expense to reflect the repayment of our bank credit
facility based on rates of 8.11% and 9.75% for the 1999 and 2000 periods,
respectively.
(6) This adjustment reflects our most recent private placement of 1,000,000
shares of common stock at $5.00 per share and after payment of
underwriters' fee totaling $350,000.
(7) This adjustment represents the payment of dividends on our Series A and
Series B preferred stock for the period from January 1, 1999 through June
30, 2000.
(8) This adjustment represents proceeds of this offering, based on a price of
$5.75 per share on 4,500,000 shares, and after payment of underwriters' fee
and other costs totaling $2,329,000.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We are an independent oil and natural gas company engaged in the
exploration, exploitation, development and production of oil and natural gas
properties in the transition zone of south Louisiana and in north Louisiana,
the Gulf Coast of Texas and East Texas.
We were created by the combination of Patrick Petroleum Company ("Patrick")
and La/Cal Energy Partners, a partnership in which we had a controlling
interest ("La/Cal"), in August 1995. The combination was a reverse merger in
which our current management gained control of the combined company, renamed it
Goodrich Petroleum Corporation and assumed Patrick's New York Stock Exchange
listing.
We use the successful efforts method of accounting for exploration and
development expenses. Costs of exploratory drilling are initially capitalized,
but if proved reserves are not found, the costs are subsequently expensed. All
other exploratory costs are charged to expense as incurred. Development and
leasehold costs are capitalized, including the costs of unsuccessful
development wells. When proved reserves are found on an undeveloped property,
leasehold cost is reclassified from undeveloped leases to proved oil and
natural gas properties. Significant undeveloped leases are reviewed
periodically and a valuation allowance is provided for any estimated decline in
value. Cost of all other undeveloped leases is amortized over the estimated
average holding period of the leases.
We have adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets to be Disposed Of, in which
an impairment is determined to have occurred and a loss is recognized when the
difference between future cash inflows expected to be generated by an
identifiable long-lived asset and cash outflows expected to be required to
obtain those cash inflows is less than the carrying value of the asset.
Depletion and depreciation of producing oil and natural gas properties is
calculated using the unit-of-production method. Proved developed reserves are
used to compute unit rates for unamortized tangible and intangible development
costs, and proved reserves are used for unamortized leasehold costs. Estimated
dismantlement, abandonment and site restoration costs, net of salvage value,
are considered in determining depreciation and depletion provisions.
The Securities and Exchange Commission, or SEC, has mandated that oil and
natural gas exploration companies quantify their assets by using SEC
methodology, which discounts the present [pre-tax] value of the oil and natural
gas assets at 10% and utilizes constant oil and natural gas prices based on the
prices received at year end. Because we utilize the more conservative
"successful efforts" method of accounting, we believe that a more appropriate
valuation of our oil and natural gas assets is found in the SEC values as
compared to our net book values.
Results of Operations
Six months ended June 30, 2000 versus six months ended June 30, 1999
Total revenues for the six months ended June 30, 2000 amounted to
$11,352,000 and were $5,581,000 higher than the $5,771,000 for the six months
ended June 30, 1999 due to higher oil and natural gas revenues. Oil and natural
gas sales were $5,458,000 higher due primarily to higher oil and natural gas
prices and higher oil production slightly offset by lower natural gas
production. Oil and natural gas sales were reduced by $1,038,000 in the six
months ended June 30, 2000 as a result of the settlement of our outstanding
futures contracts.
26
<PAGE>
The following table reflects the production volumes and pricing information
for the periods presented:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 2000
------------------------ ------------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Natural gas (Mcf).......... 1,564,419 $ 1.95 1,489,061 $ 3.18
Oil (Bbls)................. 203,326 $12.60 262,025 $24.15
</TABLE>
Lease operating expense and production taxes were $3,045,000 for the six
months ended June 30, 2000, versus $1,368,000 for the six months ended June 30,
1999, or $1,677,000 higher due primarily to higher oil and natural gas sales,
additional costs associated with our acquisition of the Lafitte, Burrwood and
West Delta fields and higher lease operating costs associated with certain
older, mature oil and natural gas fields. Depletion, depreciation and
amortization was $2,568,000 for the six months ended June 30, 2000, versus
$2,467,000 for the six months ended June 30, 1999, or $101,000 higher due to
slightly higher depletion rates and higher oil volumes in the first six months
of 2000 versus 1999.
Exploration expense for the six months ended June 30, 2000 was $726,000
versus $822,000 for the same period of 1999, or $96,000 lower due primarily to
seismic costs and prospect depletion of $5,000 and $516,000 for the six months
ended June 30, 2000 versus $73,000 and $564,000 in the same period in 1999.
Interest expense was $2,392,000 in the six months ended June 30, 2000
compared to $1,082,000 in the six months ended June 30, 1999 due to a higher
effective interest rate and higher average debt outstanding for the six months
ended June 30, 2000 as a result of the September 1999 private placement of
notes. The 2000 amount includes $511,000 of non cash expenses associated with
the amortization of financing costs and the discount on the privately placed
notes and amortization of the discount associated with the production payment
liability recorded in connection with the Lafitte field acquisition.
General and administrative expenses amounted to $1,197,000 in the six months
ended June 30, 2000 versus $1,125,000 in the six months ended June 30, 1999.
We recorded a gain on the sale of certain non-core oil and natural gas
properties located in Louisiana and Texas of $274,000 for the three months
ended June 30, 2000. We incurred a loss on the sale of marketable equity
securities of $519,000 for the six months ended June 30, 1999.
No provision for income taxes has been recorded by us for the six months
ended June 30, 2000 and 1999 due to the availability of net operating loss
carry forwards in 2000 and our incurring a net operating loss for the 1999
period. A valuation allowance has been provided for the amount of net operating
losses incurred in 1999.
Beginning in 1999, we suspended dividend payments on our Series A and Series
B preferred stock. Dividends on both classes of our preferred stock are
cumulative, and arrearages amounted to $603,000 and $628,000 for the six months
ended June 30, 2000 and 1999, respectively. Total cumulative arrearages for
both series amounted to $1.9 million at June 30, 2000. Accordingly, undeclared
dividends held in arrears have been considered in computing loss per share
amounts applicable to common stockholders.
27
<PAGE>
Year ended December 31, 1999 versus year ended December 31, 1998
Total revenues in 1999 amounted to $14,021,000 and were $3,429,000 higher
than total revenues in 1998, due primarily to higher oil and natural gas
revenues. Oil and natural gas sales were $3,898,000 higher due to higher oil
and natural gas prices, higher oil and natural gas production volumes and
additional oil volumes associated with the Lafitte field acquisition in
September 1999.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1999
------------------------ ------------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Natural gas (Mcf).......... 2,782,825 $ 2.18 2,930,655 $ 2.41
Oil (Bbls)................. 316,768 $11.88 394,442 $16.88
</TABLE>
Lease operating expense and production taxes were $3,592,000 for 1999
compared to $2,822,000 for 1998, or $770,000 higher substantially due to costs
related to the Lafitte field properties. Depletion, depreciation and
amortization was $4,744,000 in 1999 versus $4,094,000 in 1998, or $650,000
higher due to increased oil and natural gas production, including volumes
associated with the Lafitte field properties.
We incurred $1,656,000 of exploration expense in 1999 compared to $6,010,000
in 1998. Included in the 1999 exploration expense is $120,000 of costs related
to dry holes during the period versus $3,684,000 of such costs related to dry
holes in 1998.
We recorded an impairment in the recorded value of certain oil and natural
gas properties in 1999 in the amount of $465,000 due to the complete depletion
of the reserves on three one-well non-core fields. This compares to an
impairment of $1,076,000 recorded in 1998.
Interest expense was $2,811,000 in 1999 compared to $1,910,000 (47% higher)
in 1998 due to our having higher average debt outstanding as a result of the
September 23, 1999 private placement and a higher effective interest rate in
1999 compared to 1998. The 1999 effective interest rate includes amortization
of financing costs and non-cash expense due to the amortization of the discount
on the 1999 private placement.
General and administrative expenses amounted to $1,990,000 for 1999 versus
$2,399,000 in 1998.
During 1999, no preferred stock dividends were declared; however, dividends
on both of our series of preferred stock did accumulate to an amount equal to
$1,249,000 for 1999. Although our preferred stock dividends are cumulative,
were are prohibited from paying dividends on our preferred stock by our bank
credit facility. In addition, no stock dividends can be paid until all
preferred dividend arrearages are paid. We also accrued non-cash dividends on
the Goodrich-Louisiana Series A preferred units of $73,000, which is reflected
as preferred dividends of subsidiary in the statement of operations for 1999.
Year ended December 31, 1998 versus year ended December 31, 1997
Total revenues in 1998 amounted to $10,592,000 and were $2,309,000 lower
than total revenues in 1997 due to lower oil and natural gas revenues and the
loss of revenues from a pipeline joint venture. Oil and natural gas sales were
$1,515,000 lower due primarily to lower oil and natural gas prices, partially
offset by higher production volumes. We had no revenues from the pipeline joint
venture in 1998 compared to $1,078,000 in 1997 due to the sale of the asset in
the fourth quarter of 1997.
28
<PAGE>
The following table reflects the production volumes and pricing information
for the periods presented:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1998
------------------------ ------------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Natural gas (Mcf).......... 2,449,320 $ 2.55 2,782,825 $ 2.18
Oil (Bbls)................. 282,380 $18.06 316,768 $11.88
</TABLE>
Lease operating expense and production taxes were $2,822,000 for 1998
compared to $2,316,000 for 1997, or $506,000 higher, due primarily to Goodrich
not incurring, in the 1997 period, ad valorem taxes related to the La/Cal II
properties that were the responsibility of the La/Cal II partners.
Additionally, the 1998 period includes eight additional producing wells and
twelve months of lease operating expense and production taxes for the La/Cal II
properties, compared to eleven months for 1997, due to the effective date of
the acquisition being January 31, 1997. Depletion, depreciation and
amortization was $4,094,000 in 1998 versus $4,863,000 in 1997, or $769,000
lower, substantially due to no amortization of the pipeline joint venture in
1998 compared to $741,000 in 1997.
We incurred $6,010,000 of exploration expense in 1998 compared to $3,206,000
in 1997. Included in the 1998 exploration expense is $3,684,000 of costs
related to dry holes during the period versus $2,342,000 of such costs in 1997.
We recorded an impairment in the recorded value of certain oil and natural
gas properties in 1998 in the amount of $1,076,000 due to lower oil prices and
higher than expected depletion rates. This compares to an impairment of
$550,000 recorded in 1997.
Interest expense was $1,910,000 in 1998 compared to $1,417,000 (35% higher)
in 1997 due to our having higher average debt outstanding, slightly offset by a
lower effective interest rate in 1998 compared to 1997.
General and administrative expenses amounted to $2,399,000 for 1998 versus
$2,628,000 in 1997.
Our preferred stock dividends amounted to $1,256,000 for 1998 compared to
$1,205,000 in 1997, or $51,000 higher, due to twelve months of dividends being
paid on our Series B Preferred Stock in the current year versus eleven months
in the prior year.
Liquidity and Capital Resources
Net cash provided by operating activities was $3,349,000 in the six months
ended June 30, 2000 compared to $1,836,000 in the six months ended June 30,
1999. Our accompanying consolidated statements of cash flows identify major
differences between net income and net cash provided by operating activities
for each of the periods presented.
Net cash used in investing activities totaled $5,798,000 for the six months
ended June 30, 2000 compared to $1,285,000 for the comparable period in 1999.
The six months ended June 30, 2000 reflects capital expenditures totaling
$5,026,000, cash paid in connection with the acquisition of oil and gas
properties of $1,199,000, and proceeds from the sale of oil and gas properties
of $426,000. The six months ended June 30, 1999 reflects capital expenditures
totaling $1,526,000 and proceeds from the sales of marketable equity securities
of $240,000.
Net cash provided by financing activities was $1,473,000 for the six months
ended June 30, 2000 as compared to net cash used in financing activities of
$600,000 in the prior year period. The 2000 amount includes proceeds from the
issuance of common stock of $4,500,000 and paydowns by us under our line of
credit of $1,925,000. The 2000 amount includes changes in restricted cash of
$1,320,000, proceeds from the exercise of stock purchase warrants and director
options of $227,000 and the exercise of employee stock options of $191,000. The
2000 amount also includes production payments of $171,000 and payment of debt
financing costs of $30,000. The 1999 amount includes paydowns of $600,000 by us
under our line of credit.
29
<PAGE>
Net cash provided by operating activities was $1,065,000 for the year ended
December 31, 1999 compared to $4,517,000 for the same period in 1998 and
$6,633,000 for the same period in 1997. Our net cash flow provided by operating
activities decreased in 1999 due to the use of part of the proceeds from our
private placement of securities in 1999 to pay down accounts payable by
$5,052,000.
Net cash used in investing activities amounted to $6,407,000 in 1999
compared to $14,959,000 in 1998 and $6,007,000 in 1997. The amount for the year
ended December 31, 1999 is principally composed of cash paid in connection with
the purchase of oil and natural gas properties of $4,100,000 and exploration
and drilling capital expenditures of $2,557,000. On September 23, 1999, we
acquired an approximate 49% working interest in the Lafitte field located in
Jefferson Parish, Louisiana for $2,940,000 in cash plus the assumption of
production payments and plugging and abandonment liabilities. The field
encompasses over 8,000 acres and is located approximately thirty miles south of
New Orleans. Net cash used in investing activities for the year ended December
31, 1998 is principally composed of cash paid for exploration and drilling
capital expenditures of $14,879,000. Net cash used in investing activities for
the year ended December 31, 1997 reflects non-acquisition capital expenditures
of $7,866,000 and cash paid in connection with the purchase of oil and natural
gas properties of $2,075,000. These amounts were offset by proceeds from the
sale of our interest in the pipeline joint venture $3,564,000 and the sale of
certain oil and natural gas properties located in Montana.
Net cash provided by financing activities was $11,176,000 in 1999 and
$9,744,000 in 1998, compared to net cash used in financing activities of
$177,000 in 1997. The 1999 amount includes proceeds from the issuance of
convertible notes of $12,000,000 and proceeds from the issuance of preferred
stock of $3,000,000. The amount also includes debt financing costs of
$1,303,000 and paydowns of $2,409,000 of our bank credit facility. The 1999
period reflects no preferred dividends. The 1998 amount includes the borrowing
of $11,500,000 by us under our line of credit offset by paydowns during the
year of $500,000. Preferred stock dividends in 1998 amounted to $1,256,000
(Series A and Series B). The 1997 amount includes the borrowing of $9,000,000
by us under our line of credit, which was used to pay off the debt assumed in
our acquisition of La/Cal II, L.P. Acquisition and to pay the cash portion of
the purchase price. The 1997 amount also includes other borrowings of
$3,000,000 against our line of credit, offset by paydowns during the year of
$3,500,000 and the payoff of La/Cal II debt of $7,464,000. Preferred stock
dividends in 1997 amounted to $1,205,000 (Series A and Series B).
Bank Credit Facility
Our credit facility with Compass Bank, Houston, Texas currently provides for
a borrowing base of $27,100,000, with continued monthly reductions of $300,000
until July 1, 2001. On June 30, 2000, the amount outstanding under our credit
facility was $25,165,000. We expect to repay a substantial portion of the
amount currently outstanding under our credit facility with the proceeds of
this offering. The maturity date for amounts drawn under our credit facility is
July 1, 2001. Our agreement provides that no borrowing base redeterminations
will be made prior to that date. Interest on our credit facility is at the
Compass Bank Index Rate plus 5/8%, or approximately 10.25% at July 31, 2000.
Substantially all of our assets are pledged to secure our credit facility.
Our credit facility requires the net proceeds of asset sales be used to
extinguish outstanding principal and interest under the borrowing base.
Additionally, under the terms of our credit facility, we may not make any
distributions or pay dividends, including dividends on any class of our
preferred stock without lender approval.
Prior to the closing of this offering, we will amend our credit facility
with Compass Bank to increase its size to $50.0 million of aggregate borrowing
capacity with an initial borrowing base of $28.4 million. The borrowing base
will be subject to at least semi-annual redetermination based upon a review of
our reserves. If our borrowing base is not re-determined by April 1, 2001, then
it will be reduced monthly beginning May 1, 2001. Interest under our credit
facility will accrue at a rate calculated at our option as either the Compass
Bank prime rate, or LIBOR plus an applicable margin that increases as the
amount outstanding under the facility increases.
30
<PAGE>
Substantially all of our assets will be pledged to secure our amended credit
facility. The credit facility will mature on April 1, 2003. Prior to maturity,
no payments of principal are required so long as the borrowing base exceeds the
credit facility balance and interest is payable monthly. Our credit facility
restricts us from declaring or paying dividends on our common stock without our
lender's consent.
Recent and Pending Transactions Affecting Our Capitalization
We have recently completed a number of transactions this year and intend to
complete additional transactions immediately prior to or simultaneously with
the completion of this offering, as follows:
Amendment of Our Credit Agreement. Prior to the closing of this offering, we
will amend our credit agreement with Compass Bank to increase the size of our
credit facility to $50.0 million, with an initial borrowing base of $30.0
million. We expect to repay a substantial portion of the amount currently
outstanding under our credit facility with the proceeds of this offering,
resulting in initial availability of approximately $28.4 million under the
amended facility. We will pledge substantially all of our assets to secure our
amended credit facility.
Payment of Dividend Arrearages and Reinstatement of Dividends on our
Preferred Stock. On September 29, 2000, we paid an aggregate of approximately
$1.8 million of dividend arrearages and $300,000 of regular quarterly dividends
on our outstanding series of preferred stock. These payments brought us current
on our dividend payments on both of our series of preferred stock. Ongoing
quarterly dividend payments on each of our outstanding series of preferred
stock are subject to the terms and conditions of our bank credit facility.
Private Placement of $5.0 Million of Common Stock. On September 28, 2000, we
received irrevocable commitments to purchase 1,000,000 shares of our common
stock for aggregate gross proceeds of $5.0 million. The placement of the common
stock was arranged by Hambrecht & Quist Guaranty Finance L.L.C. The gross
proceeds from the private placement will be used primarily to expand our
development of the Burrwood and West Delta fields, including the drilling of
two proved undeveloped wells and four workovers and recompletions prior to the
end of the year.
Exchange of Preferred Stock for Common Stock. On September 28, 2000, we
reached agreement with the holders of 88% of our Series B preferred stock to
exchange each share of Series B preferred stock for 1.8 shares of our common
stock. We expect that all holders of our Series B preferred stock will accept
the proposed exchange offer. The exchange offer is contingent upon, and is
expected to close concurrently with, this offering. It will result in the
issuance of 1,189,510 shares of our common stock. We believe that this
transaction, and the payment of dividend arrearages mentioned above, will
strengthen and simplify our balance sheet and improve our shareholder value by
eliminating both the ongoing dividend burden and approximately $7.6 million of
liquidation preference and accrued dividends associated with the Series B
preferred stock as of September 30, 2000.
Conversion of Our Subsidiaries' Notes. On August 17, 2000, holders of all
$12.9 million of outstanding principal and accrued interest on the convertible
notes, issued by two of our subsidiaries in a private placement in September
1999, converted their notes into 3,295,647 shares of our common stock. These
notes were partially secured by our assets and their conversion increased the
pool of collateral available to our bank credit facility with Compass Bank.
Private Placement of $4.5 Million of Common Stock. On February 18, 2000, we
completed a private placement of 1,533,333 shares of our common stock to an
investor group led by H&Q Guaranty. The $4.5 million in gross proceeds were
used for the acquisition of our interests in and initial development of the
Burrwood and West Delta fields and further development of the Lafitte field.
31
<PAGE>
Commitments and Contingencies
In connection with the Burrwood and West Delta acquisitions, we secured a
performance bond and established an escrow account to be used for the payment
of obligations associated with the plugging and abandonment of the wells,
salvage and removal of platforms and related equipment, and the site
restoration of the fields. Required escrowed outlays include an initial cash
payment of $750,000 and monthly cash payments of $70,000 beginning June 1, 2000
and continuing until June 1, 2005. In addition, as part of the purchase
agreement, we have agreed to shoot a 3-D seismic survey over the fields by June
30, 2001 or remit payment to the seller in the amount of $3.5 million. The cost
of the seismic study is expected to be approximately $2.4 million and we have
already paid $1.2 million of this amount.
The U.S. Environmental Protection Agency has identified us as a potentially
responsible party for the cost of clean-up of "hazardous substances" at an oil
field waste disposal site in Vermilion Parish, Louisiana. We have estimated
that the remaining cost of long-term clean-up of the site will be approximately
$3.5 million, with our percentage of responsibility to be approximately 3.05%.
As of June 30, 2000, we have paid approximately $321,000 in costs related to
this matter, and $122,500 has been accrued for the remaining liability. These
costs have not been discounted to their present value. The EPA and the
potentially responsible parties will continue to evaluate the site and revise
estimates for the long-term clean-up of the site. There can be no assurance
that the cost of clean-up and our percentage of responsibility will not be
higher than currently estimated. In addition, under the federal environmental
laws, the liability costs for the clean-up of the site is joint and several
among all potentially responsible parties. Therefore, the ultimate cost of the
clean up to us could be significantly higher than the amount presently
estimated or accrued for this liability.
Accounting Changes
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," in June 1997. This
statement established accounting and reporting standards for derivative
instruments and hedging activities. Effective January 1, 2001, we must
recognize the fair value of all derivative instruments as either assets or
liabilities in our consolidated balance sheet. A derivative instrument meeting
certain conditions may be designated as a hedge of a specific exposure;
accounting for changes in a derivative's fair value will depend on the intended
use of the derivative and the resulting designation. Any transition adjustments
resulting from adopting this statement will be reported in net income or other
comprehensive income, as appropriate, as the cumulative effect of a change in
accounting principle. As described under the heading "Quantitative and
Qualitative Disclosures About Market Risk" below, we make use of derivative
instruments to hedge specific market risks. We have not yet determined the
effects that SFAS No. 133 will have on our future consolidated financial
statements or the amount of the cumulative adjustment that will be made upon
adopting this new standard.
Quantitative and Qualitative Disclosures About Market Risk
Debt and Debt-Related Derivatives
We are exposed to interest rate risk on our long-term debt with variable
interest rates. Based on the overall interest rate exposure on our variable
rate debt of $24.2 million at September 15, 2000, a hypothetical 2% increase in
the interest rates would increase our interest expense by approximately
$484,000 per year.
Hedging Activity
We are engaged in futures contracts with respect to certain of our
production. We consider these to be hedging activities and, as such, monthly
settlements on these contracts are reflected in our oil and natural gas sales.
In order to consider these futures contracts as hedges, we must designate
the futures contract as a hedge of future production and the contract must
reduce our exposure to the risk of changes in prices. Changes in the
32
<PAGE>
market value of futures contracts treated as hedges are not recognized in
income until the hedged item is also recognized in income. If the above
criteria are not met, we will record the market value of the futures contract
at the end of each month and recognize a related gain or loss. Proceeds
received or paid relating to terminated futures contracts or futures contracts
that have been sold are amortized over the original contract period and
reflected in oil and natural gas sales. We enter into hedging activities in
order to secure an acceptable future price relating to a portion of future
production. The primary objective of these activities is to protect against
decreases in prices during the term of the hedge.
The futures contract agreements provide for separate contracts tied to the
NYMEX light sweet crude oil and natural gas futures contracts. We have
contracts which contain specific price ranges ("collars") that are settled
monthly based on the differences between the contract price or price ranges and
the average NYMEX prices for each month applied to the related contract
volumes. To the extent the average NYMEX price exceeds the contract price, we
pay the spread, and to the extent the contract price exceeds the average NYMEX
price, we receive the spread.
As of June 30, 2000, our open forward position on our outstanding crude oil
was as follows:
. 350 Bbls of oil per day with a no cost collar of $19.00 and $21.00 per
barrel through December 2000;
. 150 Bbls of oil per day with a no cost collar of $18.20 and $20.20 per
barrel through December 2000;
. 500 Bbls of oil per day with a no cost collar of $21.00 and $29.00 per
barrel beginning May 2000 through September 2000; and
. 500 Bbls of oil per day with a no cost collar of $20.00 and $28.40 per
barrel beginning January 2001 through December 2001.
At June 30, 2000 our open forward position on our outstanding crude oil
hedging contracts was 1,000 barrels per day at an average price of $25.06. The
fair value of the crude oil hedging contracts in place at June 30, 2000 would
result, if not accounted for as hedges, in a liability of $933,000.
Subsequent to June 30, 2000, we entered into additional futures contracts as
follows:
. 500 Bbls of oil per day with a no cost collar of $25.00 to $32.40 per
day beginning October 2000 through December 2000; and
. 300 Bbls of oil per day with a no cost collar of $23.00 and $29.55 per
barrel beginning January 2001 through December 2001.
At September 25, 2000, the average price on our outstanding crude oil
hedging contracts was $27.64. The fair value of the crude hedging contracts in
place at June 30, 2000 as of September 25, 2000 would result, if not accounted
for as hedges, in a liability of $1,103,000.
As of June 30, 2000, the open forward position on our outstanding natural
gas hedging contracts was as follows:
. 5,000 Mcf per day with a floor price of $2.50 per Mcf through October
2000; the cost of the "floor" contract hedge is $0.23 per Mcf over the
"floor" price;
. 6,500 MMBtu of natural gas per day with a no cost collar of $3.70 and
$4.53 per MMBtu beginning October 2000 through December 2000; and
. 5,000 MMBtu of natural gas per day with a no cost collar of $3.05 and
$4.45 per MMBtu beginning January 2001 through December 2001.
33
<PAGE>
At June 30, 2000, the average price on our outstanding natural gas hedging
contracts was $3.90. The fair value of the natural gas hedging contracts in
place at June 30, 2000 would result, if not accounted for as hedges, in a
liability of $113,000.
At September 25, 2000, the average price on our outstanding gas hedging
contracts was $4.43. The fair value of the natural gas hedging contracts in
place at June 30, 2000 as of September 25, 2000 would result, if not accounted
for as hedges, in a liability of $1,041,000.
Price Fluctuations and the Volatile Nature of Markets
Despite the measures we have taken to attempt to control price risk, we
remain subject to price fluctuations for oil and natural gas sold in the spot
market. Prices received for natural gas sold in the spot market are volatile
due primarily to seasonality of demand and other factors beyond our control.
Domestic oil and natural gas prices could have a material adverse effect on our
financial position, results of operations and quantities of reserves
recoverable on an economic basis.
34
<PAGE>
BUSINESS AND PROPERTIES
We are an independent oil and natural gas company engaged in the
exploration, exploitation, development and production of oil and natural gas
properties in the transition zone of south Louisiana and in north Louisiana,
the Gulf Coast of Texas and East Texas. We have been active in these regions
since 1975 and have established extensive technical and operating expertise in
all of our areas of geographic focus.
As of January 1, 2000, we had estimated pro forma proved reserves of
approximately 26.8 Bcf of natural gas and 6.8 MMBbls of oil, or an aggregate of
approximately 67.3 Bcfe. Our proved reserves had a pre-tax PV-10 Value of
$106.4 million at January 1, 2000, based on December 31, 1999 pricing of $25.16
per Bbl of oil and $2.63 per Mcf of natural gas.
We have an inventory of over 100 development, exploitation and exploration
projects that we believe provides us with an opportunity to substantially
increase our production and reserves. Our Burrwood, West Delta and Lafitte
fields account for approximately 85% of our 2001 capital budget of $20.0
million, which is subject to changes due to then prevailing market conditions.
Our 2001 budget includes plans to drill approximately 18 new wells and conduct
15 workovers and recompletions on existing wells. We expect significant
production increases following the successful completion of this offering as a
result of our expanded capital budget and exploitation of our project
inventory. Our capital expenditures for the first six months of 2000 totaled
$6.2 million, of which $1.2 million represents the net purchase price for our
interests in the Burrwood and West Delta fields. Our production has increased
40% to 1.7 Bcfe in the second quarter of 2000 from 1.2 Bcfe in the second
quarter of 1999. We estimate that our third quarter production will be
approximately 2.0 Bcfe, or 23,000 Mcfe per day, an 18% increase from the second
quarter of 2000.
Our principal offices are located at 815 Walker, Suite 1040, Houston, Texas
77002. We also have offices in Shreveport, Louisiana. We have 16 employees. Our
website is www.goodrichpetroleum.com. The information on our website is not
part of this prospectus.
Our Strategy
Our principal business strategy is to increase production, cash flow and
reserves through the acquisition and subsequent exploitation and development of
mature properties, complimented by select exploration activities, in our core
areas. We focus on fields that have multiple productive reservoirs with an
established production history and infrastructure in place. Due to depletion,
these fields tend to no longer be the focus of the seller's technical staff. By
conducting our own exhaustive field studies prior to making an offer to acquire
any such properties, we strive to achieve a superior technical understanding of
the target property. Upon completion of an acquisition, we are generally
prepared to implement operations designed to increase production, cash flow and
reserves by drilling new wells and conducting workovers and recompletions of
existing wells. Other elements of our near-term strategy include:
35
<PAGE>
Aggressively develop our Burrwood, West Delta and Lafitte fields. We plan to
spend approximately $31.0 million in our Burrwood, West Delta and Lafitte
fields within the next two years on 88 development and exploitation projects.
This development and exploitation activity is already underway and will be
accelerated with the liquidity we gain from this offering. In addition, we
expect to receive the results of a 41 square mile 3-D seismic survey over our
Burrwood and West Delta fields by June 2001. The net cost of the seismic study
is expected to be approximately $2.4 million, and we have paid $1.2 million of
these costs, thus far. We believe that this data will both further define our
proved and developmental projects and allow us to pursue additional projects
and deep prospects that we have not yet identified. The following table
contains information with respect to certain near-term projects we have
identified:
<TABLE>
<CAPTION>
Capital Actual/Estimated
Burrwood, West Delta and Number Reserve Expenditures First Production
Lafitte Fields of Projects Classification (in millions)(1)(2) Date(2)
------------------------ ----------- ------------------ ------------------- ----------------
<S> <C> <C> <C> <C>
Proved and 23 Proved Developed $ 3.2 July 2000
Developmental.......... Non-Producing
14 Proved Undeveloped 5.5 September 2000
19 Developmental 11.3 August 2000
--- -----
Subtotal.............. 56 20.0
--- -----
Probable/Possible....... 19 Probable 6.5 November 2000
13 Possible 4.2 March 2001
--- -----
Subtotal.............. 32 10.7
--- -----
Total............... 88 $30.7
=== =====
</TABLE>
--------
(1) Capital expenditures have been increased from those used in the year end
January 1, 2000 reserve report to reflect current estimated costs.
(2) The dates and associated capital expenditures are based upon our present
capital budget. Capital expenditures and commencement of any production
from these projects will occur over an extended period commencing with the
dates shown. Actual numbers of projects, amounts of capital expenditures
and commencement of production will be dependent upon economic conditions
affecting oil and gas prices and production costs as well as the results
of drilling and development.
Maintain our focus on our core areas. We will continue to concentrate our
oil and natural gas activities on our core areas, primarily focusing on the
transition zone of south Louisiana. We have assembled a large inventory of
technical data and expertise over the last 25 years, resulting in an
approximate 70% drilling success rate and the achievement of production in over
70 fields in Louisiana. Over 78% of our proved reserves are in south Louisiana
and over 96% of our 2001 preliminary capital budget is dedicated to development
and exploitation activities in the region. South Louisiana is highly attractive
to us due to the availability of mature oil and natural gas properties with an
established operating infrastructure, resulting in multiple opportunities for
significant reserve and production gains through acquisitions and additional
development and exploitation activities. We believe that our region-specific
geological, engineering and production expertise provides us with a competitive
advantage to identify and complete additional acquisitions, development
projects and exploitation projects in our core areas.
Maintain significant operatorship. We currently operate 65% of our
properties, providing us with control over the incurrence and timing of many
capital and operating expenditures. As operator of the Burrwood and West Delta
fields, we intend to rapidly utilize the liquidity that we gain from this
offering on development and exploitation projects within these fields, thereby
accelerating those projects and the expected production therefrom.
Repeat our recent acquisition success. We recently acquired our interests in
the Burrwood, West Delta and Lafitte fields for an aggregate purchase price of
$10.1 million. Based on independent reserve engineering estimates and factoring
in the estimated capital expenditures to develop these reserves, we expect an
all-in finding cost of $0.69 per Mcfe. Since closing these acquisitions, we
have increased field production of oil and natural gas at Lafitte by 240% to
approximately 1,800 Boe per day and at Burrwood and West Delta by 204% to 9,200
gross Mcfe per day. These production increases, when coupled with additional
production increases
36
<PAGE>
achieved in other fields, have allowed us to increase net daily production
levels from approximately 12,800 Mcfe per day one year ago to approximately
23,000 Mcfe per day currently.
We believe there will continue to be numerous attractive opportunities to
acquire properties in our core areas as major and large independent oil and
natural gas companies shift their focus and resources from their mature
properties in the south Louisiana to the development of projects in the deep
water Gulf of Mexico and in foreign countries. We have identified approximately
20 potential acquisition opportunities, ranging in estimated transaction size
from $1.0 million to $20.0 million. The acquisition opportunities that we
pursue generally have the following characteristics:
. located in our core areas, particularly in south Louisiana;
. significant cumulative production histories and low current production
levels;
. multiple productive reservoirs with complex geology and significant 3-D
seismic applicability;
. numerous identified development projects; and,
. significant controlling interests and operatorship.
Oil and Natural Gas Operations and Properties
The following table provides proved reserve information and PV-10 Values for
our oil and natural gas properties as of January 1, 2000:
<TABLE>
<CAPTION>
Net Proved PV-10 % of Total
Reserves Value (in PV-10
Field (MMcfe) thousands) Value
----- ---------- ---------- ----------
<S> <C> <C> <C>
Louisiana:
Lafitte................................... 19,838 $ 34,835 32.7%
Burrwood and West Delta................... 11,303 13,246 12.5
Second Bayou.............................. 6,262 12,780 12.0
Pecan Lake................................ 4,705 7,709 7.2
Isle St. Jean Charles..................... 3,060 5,315 5.0
Other..................................... 9,317 12,800 12.0
------ -------- -----
Total Louisiana......................... 54,485 86,685 81.4
------ -------- -----
Texas:
Mary Blevins.............................. 3,576 5,228 4.9
Sean Andrew............................... 1,626 4,426 4.2
Other..................................... 6,788 9,045 8.5
------ -------- -----
Total Texas............................. 11,990 18,699 17.6
------ -------- -----
Other....................................... 828 984 1.0
------ -------- -----
Total................................... 67,303 $106,368 100.0%
====== ======== =====
</TABLE>
Louisiana
The majority of our proved natural gas reserves are in the transition zone
of the southern Louisiana producing region. This region refers to the
geographic area which covers the onshore and inland waters of south Louisiana,
lying in the southern half of the state of Louisiana, one of the world's most
prolific oil and natural gas producing sedimentary basins. The region generally
contains sedimentary sandstones, which are of high qualities of porosity and
permeabilities. There is a myriad of types of reservoir traps found in the
region. These traps are generally formed by faulting, folding and subsurface
salt movement or a combination of one or more of these. Salt movement has
resulted in a large number of shallow piercement salt domes, as well as deeper
movements, which have resulted in both large and small anticlinal structures.
The formations found in the southern Louisiana producing region range in
depth from 1,000 to 20,000 feet below the surface. These formations range from
the Sparta and Frio formations in the northern part of the
37
<PAGE>
region to Miocene and Pleistocene formations in the southern part of the
region. Our production comes predominately from Miocene and Frio age
formations.
Lafitte Field. The Lafitte field is located in Jefferson Parish, Louisiana
and was discovered in 1935 by Texaco. The Lafitte field is a large, north-south
elongated salt dome anticline feature. The productive sands are Miocene and
Pliocene age sands ranging in depth from 3,000 feet to approximately 12,000
feet. There are currently 30 active producing wells in the field.
On September 23, 1999, we acquired a 49% interest in the Lafitte field. The
field met all of our acquisition criteria, including being owned by a major oil
and gas company who did not view the field as a core property, over 30 defined
productive reservoirs, a large cumulative production history of 1,890 Bcfe, a
large acreage position of over 8,000 acres and then current production of
approximately 750 Boe per day. After a thorough evaluation of the field, we
identified 45 projects that we believed would increase production. We have
already drilled one new well and performed five workovers and recompletions,
increasing our production from 750 Boe per day to approximately 1,800 Boe per
day currently. We have identified approximately 40 projects remaining to
exploit in the field. Stone Energy operates this field. See "Risk Factors--If
we are unable to resolve our dispute with the co-owner of the Lafitte field,
our ability to evaluate our participation in the development of this property
could be materially adversely affected."
Burrwood and West Delta Fields. The Burrwood and West Delta fields were
discovered in 1955 by Chevron. The fields lie upthrown to a large down-to-the-
southeast growth fault system with the structure striking northeast-southwest
and dipping northwestward in a counter-regional direction. The productive sands
are Miocene and Pliocene age sands ranging in depth from 6,300 feet to
approximately 11,700 feet. There are currently 10 active producing wells in the
fields.
On March 2, 2000, we completed the acquisition of working interests in the
Burrwood and West Delta fields, for $1.2 million cash, the assumption of the
plugging and abandonment obligations associated with these fields, which we
have estimated to be $4.75 million, and the commitment to conduct a 3-D seismic
survey by June 2001, which will cost us $2.4 million. We acquired an
approximate 95% working interest of all rights from the surface to
approximately 10,600 feet and an approximate 47.5% working interest in the deep
rights below 10,600 feet. These contiguous fields collectively comprise
approximately 86,000 gross acres in Plaquemines Parish, Louisiana. The Burrwood
and West Delta fields, like the Lafitte field in which we acquired an interest
in 1999, met our acquisition criteria, including cumulative production of 431
Bcfe, 16 productive reservoirs, significant infrastructure in place, immediate
development opportunities and potential deep reservoirs that we believe may be
identified with the use of 3-D seismic technology. The Burrwood and West Delta
fields are adjacent to several fields that have yielded deep production from
wells drilled below 10,600 feet. We are the operator of this field.
Second Bayou Field. The Second Bayou field is located in Cameron Parish,
Louisiana and was discovered in 1955 by the Sun Texas Company. We are the
operator of nine producing wells, seven of which are dually completed. We have
an average working interest of approximately 29% in 1,395 gross acres. To date,
the field has produced over 423 Bcf of natural gas and 3 MMBbls of oil from
multiple Miocene aged sands ranging in depth from 4,000 feet to 15,200 feet.
Other major operators in the area are Fina Oil and Chemical Company, Texaco
Exploration and Producing, Inc. and Bellwether Exploration Company.
Pecan Lake Field. The Pecan Lake field was discovered in 1944 by the
Superior Oil Company. Geologically, the field is comprised of a relatively low
relief, four-way closure and multiple stacked pay sands. The Pecan Lake field
comprises approximately 870 gross acres in Cameron Parish, Louisiana,
approximately 42 miles southeast of Lake Charles, Louisiana. The field has
produced from over 15 Miocene sands ranging in depths from 7,500 feet to 11,800
feet, which have been predominately natural gas and natural gas condensate
reservoirs. These sand reservoirs are characterized by generally widespread
development and strong waterdrive production mechanisms. The field has produced
in excess of 350 Bcf of natural gas and 717 MBbls of condensate. All of the
field production to date has come from normally pressured reservoirs. We are
the operator of five producing wells, with working interests ranging from
approximately 43% to 47%.
38
<PAGE>
Isle St. Jean Charles Field. The Isle St. Jean Charles field is located in
Terrebonne Parish, Louisiana. The field is a northwest extension of the Bayou
Jean LaCroix field located in the southeastern area of the Parish. These fields
are trapped on a four-way closure, downthrown on a major east-west, trending
down to the south fault. Production is from multiple Miocene-aged sands, which
are normally pressured and range in depth from 9,000 feet to 13,000 feet. The
field was developed primarily in the 1950s by Exxon, and reservoirs have
exhibited both depletion and water drive mechanisms. To date, these fields have
produced in excess of 53 Bcf of natural gas and 6.6 MMBbls of oil and
condensate. There are currently five active wells producing in these fields. We
acquired our working interest in our leasehold of approximately 212 gross acres
through both acreage acquisitions and a farmout from Fina. We are operator of
the field and hold an approximate 34% working interest.
Other. We maintain ownership interests in acreage and wells in several
additional fields in Louisiana, including the Lake Raccourci field, located in
Lafourche Parish; the Kings Ridge field, located in Lafourche Parish; the Ada
field, located in Bienville Parish; the Opelousas field, located in St. Landry
Parish; the Sibley field, located in Webster Parish; the City of Lake Charles
field, located in Calcasieu Parish; the Deep Lake field, located in Lafourche
Parish; the Mosquito Bay field, located in Terrebonne Parish; the South Pecan
Lake Field, located in Cameron Parish and the Charenton field, located in St.
Mary Parish.
Texas
Mary Blevins Field. The Mary Blevins field is located in Smith County,
Texas. It was a new discovery that is fault-separated from the Hitts Lake
field, discovered in 1953 by Sun Oil. Currently there are four producing wells
in the field with Goodrich, as operator, having an approximate 48% working
interest in 782 gross acres.
Sean Andrew Field. The Sean Andrew field in West Texas produces from the
pinnacle Pennsylvania Reef and was discovered by us in 1994, utilizing our 375
square mile 3-D seismic database. There are currently three wells producing
approximately 250 barrels of oil per day, with our working interest averaging
approximately 37%.
Other. We maintain ownership interests in acreage and wells in several
additional fields in Texas including the Midway field, located in San Patricio
County; the Ackerly field, located in Dawson and Howard Counties; the Mathers
Ranch field, located in Hemphill County; the Marholl field, located in Dawson
County; the Lamesa Farms field, located in Dawson County; the Carthage
(Bethany) field, located in Panola County; the N.W. Ackerly field, located in
Dawson County; the East Jacksonville field, located in Cherokee County and the
Mott Slough field, located in Wharton County. Our primary exploration focus in
West Texas is on the western flank of the Horseshoe Atoll area in Dawson and
Gaines Counties.
Oil and Natural Gas Reserves
The table below presents our pro forma summary reserve information as of
January 1, 2000. With respect to reserve information discussed herein, on a
"pro forma" basis gives effect on the date indicated to the acquisition of the
Burrwood and West Delta fields. Estimates of our net proved reserves are based
on the March 29, 2000 reserve report prepared by Coutret & Associates, Inc.,
our independent reserve engineers. For additional information relating to our
oil and natural gas reserves, please read "Business and Properties--Oil and
Natural Gas Operations and Properties" and note P of the notes to our
consolidated financial statements included in this prospectus.
<TABLE>
<CAPTION>
Pro Forma
January 1, 2000
---------------
<S> <C>
Estimated net proved reserves:
Natural gas (MMcf)......................................... 26,805
Oil and condensate (MBbls)................................. 6,750
Total (MMcfe)............................................ 67,303
PV-10 Value (in thousands)................................. $106,368
Proved developed reserves as percentage of total proved
reserves.................................................. 66%
</TABLE>
39
<PAGE>
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of development
expenditures, including many factors beyond our control. Reserve engineering is
a subjective process of estimating underground accumulations of oil, condensate
and natural gas that cannot be measured in an exact manner, and the accuracy of
any reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. The quantities of oil
and natural gas that are ultimately recovered, production and operating costs,
the amount and timing of future development expenditures and future oil and
natural gas sales prices may all differ from those assumed in these estimates.
Therefore, the present value of future net revenues amounts shown above should
not be construed as the current market value of the estimated oil and natural
gas reserves attributable to our properties.
In accordance with the SEC's guidelines, the engineers' estimates of future
net revenues from our properties and the present value of future net revenues
thereof are made using oil and natural gas sales prices in effect as of the
dates of such estimates and are held constant throughout the life of the
properties, except where such guidelines permit alternate treatment, including
the use of fixed and determinable contractual price escalations. The prices as
of December 31, 1999 used in such estimates averaged $2.63 per Mcf of natural
gas and $25.16 per Bbl of oil and condensate.
Title to Properties
We believe that we have satisfactory title to all of our producing
properties in accordance with standards generally accepted in the oil and
natural gas industry, subject to such exceptions as, in our opinion, are not so
material as to detract substantially from the use or value of such properties.
As is customary in the oil and gas industry, we perform only a preliminary
title investigation before leasing undeveloped properties. Accordingly, working
interest percentages and gross and net acreage amounts for undeveloped
properties are preliminary. However, a title opinion is typically obtained
before the commencement of drilling operations and any material defects in
title are remedied prior to the time actual drilling as of a well on the lease
is commenced. We do not aniticpate receiving title opinions on all of our
properties, including our Lafitte field. We are uncertain as to the impact that
failure to obtain a title opinion has on our title to developed properties.
Our properties are subject to customary royalty interests, liens incident to
operating agreements, liens for current taxes, liens of vendors and lenders and
other burdens, which we do not believe materially interfere with the use of or
affect the value of our properties. We have mortgaged substantially all of our
assets, including our properties, to secure our borrowings under our bank
credit facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Bank
Credit Facility" for further discussion.
Productive Wells
The following tables set forth the number of active well bores in which we
maintain ownership interests as of December 31, 1999:
<TABLE>
<CAPTION>
Oil Natural gas Total
--------------- --------------- ---------------
Gross(1) Net(2) Gross(1) Net(2) Gross(1) Net(2)
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
California.................. -- -- 4.00 2.09 4.00 2.09
Colorado.................... -- -- 1.00 0.30 1.00 0.30
Louisiana................... 41.00 18.68 29.00 10.60 70.00 29.28
Michigan.................... 2.00 0.26 5.00 0.05 7.00 0.31
Mississippi................. -- -- 1.00 0.05 1.00 0.05
New Mexico.................. -- -- 1.00 0.03 1.00 0.03
Texas....................... 25.00 11.93 4.00 0.63 29.00 12.56
Wyoming..................... 1.00 0.17 -- -- 1.00 0.17
----- ----- ----- ----- ------ -----
Total Productive Wells.... 69.00 31.04 45.00 13.75 114.00 44.79
===== ===== ===== ===== ====== =====
</TABLE>
--------
(1) Does not include royalty or overriding royalty interests.
(2) Net working interest.
As of September 15, 2000, we had 132 gross and 59.84 net productive wells.
Productive wells consist of producing wells and wells capable of production,
including natural gas wells awaiting pipeline connections. A gross well is a
well in which we maintain an ownership interest, while a net well is deemed to
exist when the sum of the fractional working interests owned by us equals one.
Wells that are completed in more than one producing horizon are counted as one
well. Of the gross wells reported in the table above, eight had multiple
completions.
40
<PAGE>
Acreage
The following table summarizes our gross and net developed and undeveloped
oil and natural gas acreage under lease as of December 31, 1999. Acreage in
which our interest is limited to a royalty or overriding royalty interest is
excluded from the table. As denoted in the following table, gross acreage
refers to acres in which a working interest is owned, while a net acre is
deemed to exist when the sum of the fractional ownership working interests in
gross acres equals one.
<TABLE>
<CAPTION>
Developed Undeveloped
Acreage Acreage
------------ --------------
Gross Net Gross Net
------ ----- ------- ------
<S> <C> <C> <C> <C>
California....................................... 1,280 568 -- --
Colorado......................................... 640 192 -- --
Louisiana........................................ 15,007 6,120 1,069 640
Michigan......................................... 1,920 19 640 50
Texas............................................ 5,358 1,912 2,160 987
Wyoming.......................................... 80 13 -- --
Other............................................ -- -- 98,841 17,306
------ ----- ------- ------
Total.......................................... 24,285 8,824 102,710 18,983
====== ===== ======= ======
</TABLE>
Undeveloped acreage is considered to be those lease acres on which wells
have not been drilled or completed to a point that would permit the production
of commercial quantities of oil or natural gas, regardless of whether or not
such acreage contains proved reserves. As is customary in the oil and natural
gas industry, we can retain our interest in undeveloped acreage by drilling
activity that establishes commercial production sufficient to maintain the
leases or by payment of delay rentals during the remaining primary term of such
a lease. The oil and natural gas leases in which we have an interest are for
varying primary terms; however, most of our developed lease acreage is beyond
the primary term and is held by producing oil wells or natural gas.
Drilling Activities
The following table sets forth our drilling activity for the last three
years. As denoted in the following table, gross wells refer to wells in which a
working interest is owned, while a net well is deemed to exist when the sum of
fractional ownership working interests in gross wells equals one.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
Gross Net Gross Net Gross Net
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Development Wells:
Productive 6.00 2.55 6.00 2.77 1.00 0.49
Non-Productive............................ -- -- 2.00 1.47 -- --
----- ---- ----- ---- ---- ----
Total................................... 6.00 2.55 8.00 4.24 1.00 0.49
===== ==== ===== ==== ==== ====
Exploratory Wells:
Productive................................ 12.00 2.94 7.00 1.49 -- --
Non-Productive............................ 7.00 1.72 8.00 2.87 1.00 0.12
----- ---- ----- ---- ---- ----
Total................................... 19.00 4.66 15.00 4.36 1.00 0.12
===== ==== ===== ==== ==== ====
Total Wells:
Productive................................ 18.00 5.49 13.00 4.26 1.00 0.49
Non-Productive............................ 7.00 1.72 9.00 4.34 1.00 0.12
----- ---- ----- ---- ---- ----
Total................................... 25.00 7.21 22.00 8.60 2.00 0.61
===== ==== ===== ==== ==== ====
</TABLE>
From January 1, 2000 to September 15, 2000, we drilled seven gross (3.82
net) wells and successfully completed five gross (2.70 net) of those wells.
41
<PAGE>
Net Production, Unit Prices and Costs
The following table presents certain information with respect to our oil,
natural gas and condensate production and the revenue derived from the sale of
such production, average sales prices received and average production costs
during each of the years in the three-year period ended December 31, 1999 and
for the first six months of 2000:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Production:
Natural gas (MMcf)................. 2,449 2,783 2,931 1,564 1,489
Oil and condensate (MBbls)......... 282 317 394 203 262
Total (MMcfe).................... 4,144 4,683 5,297 2,784 3,061
Average sales price per unit:
Natural gas--
Revenues from production (per
Mcf)............................ $ 2.55 $ 2.18 $ 2.40 $ 1.95 $ 3.25
Effects of hedging activities
(per Mcf)....................... -- -- 0.01 -- (0.07)
------- ------- ------- -------- --------
Average price.................... $ 2.55 $ 2.18 $ 2.41 $ 1.95 $ 3.18
------- ------- ------- -------- --------
Oil and condensate--
Revenues from production (per
Bbl)............................ $ 18.06 $ 11.88 $ 16.88 $ 12.60 $ 27.70
Effects of hedging activities
(per Bbl)....................... -- -- -- -- (3.55)
------- ------- ------- -------- --------
Average price.................... 18.06 11.88 16.88 12.60 24.15
------- ------- ------- -------- --------
Total revenues from production (per
Mcfe)............................. $ 2.74 $ 2.10 $ 2.58 $ 2.01 $ 3.95
Effects of hedging activities (per
Mcfe)............................. -- -- 0.01 -- (0.34)
------- ------- ------- -------- --------
Total average price (per
Mcfe)......................... $ 2.74 $ 2.10 $ 2.59 $ 2.01 $ 3.61
======= ======= ======= ======== ========
Expenses (per Mcfe):
General and administrative......... $ 0.63 $ 0.51 $ 0.38 $ 0.40 $ 0.39
Lease operating expenses (excluding
production taxes)................. 0.40 0.48 0.51 0.37 0.69
Production taxes................... 0.16 0.13 0.17 0.13 0.30
Depreciation, depletion and
amortization-oil and natural gas
properties........................ 1.17 0.87 0.89 0.89 0.84
Reserve Life Index (in years)(1)... 15.0x 10.0x 12.7x N/A N/A
</TABLE>
--------
(1) Calculated by dividing period-end proved reserves by production for the
prior fiscal year. Our 1999 reserves include the Burrwood and West Delta
acquisitions on a pro forma basis. "N/A" means not applicable.
Capital Expenditures
The following table reflects certain data with respect to oil and natural
gas property acquisitions, exploration and development activities:
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended
----------------------------------- June 30,
1997 1998 1999 2000
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Property acquisition
Proved......................... $17,308,540 $ 129,325 $10,136,298 $1,198,631
Unproved....................... 886,647 2,446,474 498,391 455,876
Exploration...................... 5,535,783 8,718,682 1,634,299 736,758
Development...................... 3,598,177 8,169,741 1,960,371 3,833,175
----------- ----------- ----------- ----------
$27,329,147 $19,464,222 $14,229,359 $6,224,440
=========== =========== =========== ==========
</TABLE>
42
<PAGE>
Oil and Natural Gas Marketing and Major Customers
Marketing
Our natural gas production is sold under spot or market-sensitive contracts
and to various natural gas purchasers under short-term contracts. Our natural
gas condensate is sold under short-term rollover agreements based on current
market prices. Our oil production is marketed to several purchasers based on
short-term contracts.
Customers
Due to the nature of the industry, we sell our oil and natural gas
production to a limited number of purchasers and, accordingly, amounts
receivable from such purchasers could be significant. Revenues from these
sources as a percent of total revenues for the periods presented were as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Seaber Corporation of Louisiana............................... 37% 47% 44%
Equiva Trading................................................ 27 12 11
Texla Energy Management....................................... 10 -- --
Navajo Refining Company....................................... 7 11 --
Mobil Oil Corporation......................................... -- -- 10
Mitchell Marketing Company.................................... -- -- 9
</TABLE>
Competition
The oil and natural gas industry is highly competitive. Major and
independent oil and natural gas companies, drilling and production acquisition
programs and individual producers and operators are active bidders for
desirable oil and natural gas properties, as well as the equipment and labor
required to operate those properties. Many competitors have financial resources
substantially greater than we do, and staffs and facilities substantially
larger than ours. The availability of a ready market for our oil and natural
gas production will depend in part on the cost and availability of alternative
fuels, the level of consumer demand, the extent of domestic production of oil
and natural gas, the extent of importation of foreign oil and natural gas, the
cost of and proximity to pipelines and other transportation facilities,
regulations by state and federal authorities and the cost of complying with
applicable environmental regulations.
Regulations
The availability of a ready market for any oil and natural gas production
depends upon numerous factors beyond our control. These factors include
regulation of oil and natural gas production, federal and state regulations
governing environmental quality and pollution control, state limits on
allowable rates of production by a well or proration unit, the amount of oil
and natural gas available for sale, the availability of adequate pipeline and
other transportation and processing facilities and the marketing of competitive
fuels. For example, a productive natural gas well may be "shut-in" because of
an oversupply of natural gas or the lack of an available natural gas pipeline
in the areas in which we may conduct operations. State and federal regulations
generally are intended to prevent waste of oil and natural gas, protect rights
to produce oil and natural gas between owners in a common reservoir, control
the amount of oil and natural gas produced by assigning allowable rates of
production and control contamination of the environment. Pipelines are subject
to the jurisdiction of various federal, state and local agencies as well.
Federal Regulation of Natural Gas. Historically, the transportation and sale
for resale of natural gas in interstate commerce have been regulated pursuant
to the Natural Gas Act of 1938, the Natural Gas Policy Act of 1978, and the
regulations promulgated thereunder by the Federal Energy Regulatory Commission.
In the past, the federal government has regulated the prices at which natural
gas could be sold. In 1989, Congress enacted the Natural Gas Wellhead Decontrol
Act which removed all Natural Gas Act and Natural Gas Policy Act price and non-
price controls affecting wellhead sales of natural gas effective January 1,
1993. Congress could, however, reenact price controls in the future.
43
<PAGE>
Our sales of natural gas are affected by the availability, terms and cost of
pipeline transportation. The price and terms for access to pipeline
transportation remain subject to extensive federal regulation. Commencing in
April 1992, the Federal Energy Regulatory Commission issued Order No. 636 and a
series of related orders, which required interstate pipelines to provide open-
access transportation on a basis that is equal for all natural gas pipeline
suppliers. The Federal Energy Regulatory Commission has stated that it intends
for Order No. 636 and its future restructuring activities to foster increased
competition within all phases of the natural gas industry. Although Order No.
636 does not directly regulate our production and marketing activities, it does
affect how buyers and sellers gain access to the necessary transportation
facilities and how we and our competitors sell natural gas in the marketplace.
The courts have largely affirmed the significant features of Order No. 636
and the numerous related orders pertaining to individual pipelines, although
some appeals remain pending and the Federal Energy Regulatory Commission
continues to review and modify its regulations regarding the transportation of
natural gas. For example, the Federal Energy Regulatory Commission recently
issued Order Nos. 637, 637-A and 637-B, which, among other things (i) lift the
cost-based cap on pipeline transportation rates in the capacity release market
until September 30, 2002, for short-term releases of pipeline capacity of less
than one year, (ii) permit pipelines to charge different maximum cost-based
rates for peak and off-peak periods, (iii) encourage, but do not mandate,
auctions for pipeline capacity, (iv) require pipelines to implement imbalance
management services, (v) restrict the ability of pipelines to impose penalties
for imbalances, overruns and non-compliance with operational flow orders, and
(vi) implement a number of new pipeline reporting requirements. These orders
also require the Federal Energy Regulatory Commission Staff to analyze whether
the Federal Energy Regulatory Commission should implement additional
fundamental policy changes, including, among other things, whether to pursue
performance-based ratemaking or other non-cost based ratemaking techniques and
whether the Federal Energy Regulatory Commission should mandate greater
standardization in terms and conditions of service across the interstate
pipeline grid. In addition, in February 2000, the Federal Energy Regulatory
Commission implemented regulations governing the procedure for obtaining
authorization to construct new pipeline facilities and has issued a policy
statement, which it largely affirmed in a recent order on rehearing,
establishing a presumption in favor of requiring owners of new pipeline
facilities to charge rates based solely on the costs associated with such new
pipeline facilities. We cannot predict what further action the Federal Energy
Regulatory Commission will take on these matters, nor can we accurately predict
whether the Federal Energy Regulatory Commission's actions will achieve the
goal of increasing competition in markets in which our natural gas is sold.
However, we do not believe that any action taken will affect us in a way that
materially differs from the way it affects other natural gas producers and
marketers.
Commencing in May 1994, the Federal Energy Regulatory Commission issued a
series of orders that, among other matters, slightly narrowed its statutory
tests for establishing gathering status and reaffirmed that, except in
situations in which the gatherer acts in concert with an interstate pipeline
affiliate to frustrate the Federal Energy Regulatory Commission's
transportation policies, it does not generally have jurisdiction over natural
gas gathering facilities and services, and that such facilities and services
located in state jurisdictions are properly regulated by state authorities.
This Federal Energy Regulatory Commission action may further encourage
regulatory scrutiny of natural gas gathering by state agencies. We do not
believe that we will be affected by the Federal Energy Regulatory Commission's
new gathering policy any differently than other producers and marketers.
Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the Federal Energy Regulatory Commission
and the courts. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the Federal Energy Regulatory Commission and
Congress will continue.
Oil Price Controls and Transportation Rates. Sales of crude oil, condensate
and natural gas liquids by us are not currently regulated and are made at
market prices. In a number of instances, however, the ability to transport and
sell such products are dependent on pipelines whose rates, terms and conditions
of service are
44
<PAGE>
subject to Federal Energy Regulatory Commission jurisdiction under the
Interstate Commerce Act. Certain regulations implemented by the Federal Energy
Regulatory Commission in recent years could result in an increase in the cost
of transportation service on certain petroleum products pipelines. However, we
do not believe that these regulations affect us any differently than other
natural gas producers and marketers.
State Regulation of Oil and Gas Production. State statutes and regulations
require permits for drilling operations, drilling bonds and reports concerning
operations. In addition, there are state statutes, rules and regulations
governing conservation matters, including the unitization or pooling of oil and
gas properties, establishment of maximum rates of production from oil and gas
wells and the spacing, plugging and abandonment of such wells. Such statutes
and regulations may restrict the rate at which oil and gas could be produced
from our properties and may restrict the number of wells that may be drilled on
a particular lease or in a particular field.
Environmental Regulation
Numerous and complex federal, state and local laws and regulations covering
the discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect our operations and costs as a result
of their effect on oil and natural gas development, exploration and production
operations. These laws and regulations can restrict or prohibit our activities
that affect the environment in many ways, such as requiring that we acquire a
permit before we begin to drill; restricting the way we can release wastes into
the air, water, or soils; limiting or prohibiting our drilling activities in
sensitive areas such as wetlands; and imposing substantial liabilities on us
for pollution resulting from our operations. Failure to comply with these laws
and regulations may result in the imposition of administrative, civil and
criminal penalties, injunctions, and investigatory and remedial requirements.
It is not anticipated that we will be required in the near future to expend
amounts that are material in relation to our total capital expenditures program
by reason of environmental laws and regulations but, inasmuch as such
regulations are frequently changed by both federal and state entities, we are
unable to predict the ultimate cost of continued compliance.
State statutes and regulations require permits for drilling operations,
drilling bonds and reports concerning operations. In addition, there are state
statutes, rules and regulations governing conservation matters, including the
unitization or pooling of oil and natural gas properties, establishment of
maximum rates of production from oil and natural gas wells and the spacing,
plugging and abandonment of such wells. Such statutes and regulations may limit
the rate at which oil and natural gas could otherwise be produced from our
properties and may restrict the number of wells that may be drilled on a
particular lease or in a particular field.
We could incur liability under the Comprehensive Environmental Response,
Compensation and Liability, Act or CERCLA, also known as "Superfund," and
comparable state laws, regardless of our fault, in connection with the disposal
or other release of hazardous substances, including those arising out of
historical operations of our predecessors. Under CERCLA, we could be subject to
joint and several liability for the costs of cleaning up hazardous substances,
for damages to natural resources, and for the costs of certain health studies.
Moreover, it is not uncommon for neighboring landowners and other third parties
to file claims for personal injury and property damage allegedly caused by the
release of hazardous substances or other pollutants into the environment.
Please see the "Legal and Regulatory Proceedings" section, which discusses our
identification as a potentially responsible party at a Superfund site in
Vermilion Parish, Louisiana.
We currently own or lease properties where hydrocarbons are being or have
been handled for many years. Although we have utilized operating and disposal
practices that were standard in the industry at the time, hydrocarbons or other
wastes may have been disposed of or released on or under the properties owned
or leased by us or on or under other locations where these wastes have been
taken for disposal. In addition, many of these properties have been operated by
third parties whose treatment and disposal or release of hydrocarbons or other
wastes was not under our control. Under various state and federal environmental
laws, we could be required to remove or remediate previously disposed wastes
(including wastes disposed of or released by prior owners or operators), to
clean up contaminated property (including contaminated surface or groundwater)
or to perform remedial plugging operations to prevent future contamination.
45
<PAGE>
In addition, we could incur liability under the Oil Pollution Act with
respect to any spills of oil into navigable waters of the United States.
Responsible parties under the Oil Pollution Act may be subject to strict, joint
and potentially unlimited liability for removal costs and certain other
consequences of such an oil spill. In addition to the Oil Pollution Act, the
Federal Water Pollution Control Act and analogous state laws impose
restrictions and strict controls regarding the discharge of pollutants into
navigable waters, with substantial potential liabilities imposed for the costs
of removal of pollutants and damages to the environment.
Legal and Regulatory Proceedings
The U.S. Environmental Protection Agency has identified us as a potentially
responsible party for the cost of clean-up of hazardous substances at an oil
field waste disposal site in Vermilion Parish, Louisiana. We estimate that the
remaining cost of long-term clean-up of the site will be approximately $3.5
million, with our percentage of responsibility estimated to be approximately
3.05%. As of June 30, 2000, we had paid $321,000 in costs related to this
matter and accrued $122,500 for the remaining liability. These costs have not
been discounted to their present value. The U.S. Environmental Protection
Agency and the potential responsible parties will continue to evaluate the site
and may revise estimates for the long-term clean-up of the site.
While we believe that our current level of involvement with this site will
not have a material adverse effect on our operations, there can be no assurance
that the cost of clean-up or our percentage responsibility will not be higher
than currently estimated. In addition, under CERCLA, the liability costs for
the clean-up of the site is joint and several among all potentially responsible
parties. Therefore, the ultimate cost of the clean-up to us could be
significantly higher than the amount presently estimated or accrued for this
liability.
In connection with our acquisition of an approximate 49% working interest in
the Lafitte field, we became joint owners with Stone Energy Corporation, which
acquired an approximate 51% working interest and is operator of the Lafitte
field. On February 28, 2000, we commenced suit against Stone Energy, alleging
certain items of misconduct and violations of the agreements associated with
the joint acquisition.
We are party to additional lawsuits arising in the normal course of
business. We intend to defend these actions vigorously and believe, based on
currently available information, that adverse results or judgments from such
actions, if any, will not be material to our financial position or results of
operations.
46
<PAGE>
MANAGEMENT
Officers and Directors
Our executive officers and directors and their ages and positions as of
September 15, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Walter G. "Gil" Goodrich.. 42 President, Chief Executive Officer and Director
Robert C. Turnham, Jr..... 42 Executive Vice President and Chief Operating Officer
Roland L. Frautschi....... 42 Senior Vice President, Chief Financial Officer and Treasurer
Henry Goodrich............ 70 Chairman of the board of directors
Sheldon Appel............. 66 Director
Jeff H. Benhard........... 71 Director
Donald M. Campbell........ 60 Director
Patrick E. Malloy, III.... 58 Director
Michael Y. McGovern....... 48 Director
Arthur A. Seeligson....... 42 Director
</TABLE>
Walter G. "Gil" Goodrich has served as our President and Chief Executive
Officer since August 1995. Mr. Goodrich was Goodrich Oil Company's Vice
President of Exploration from 1985 to 1989 and its President from 1989 to
August 1995. He joined Goodrich Oil Company as an exploration geologist in
1980. Gil Goodrich is the son of Henry Goodrich. He has served as one of our
directors since August 15, 1995.
Robert C. Turnham, Jr. has served as our Executive Vice President and Chief
Operating Officer since August 1995. He has held various positions in the oil
and natural gas business since 1981. From 1981 to 1984, Mr. Turnham served as
a financial analyst for Pennzoil USA. In 1984, he formed Turnham Interests,
Inc., to facilitate oil and natural gas investment opportunities. From 1993 to
August 1995, he was a partner in and served as President of Liberty Production
Company, an oil and natural gas exploration and production company.
Roland L. Frautschi has served as our Senior Vice President, Chief
Financial Officer and Treasurer since August 1995. He was employed by Goodrich
Oil Company from 1982 to August 1995. During that time, he served Goodrich Oil
Company in a number of capacities, including internal auditor, controller, and
from 1990 to August 1995, as Vice President of Finance.
Henry Goodrich is the chairman of our board of directors. He is a petroleum
geologist with over 45 years experience in the oil and natural gas industry.
Mr. Goodrich has served as an exploration geologist with the Union Producing
Company and McCord Oil Company. From 1971 to 1975, Mr. Goodrich was President,
Chief Executive Officer and a partner of McCord-Goodrich Oil Company. In 1975,
Mr. Goodrich formed Goodrich Oil Company. He was elected to our board in
August 1995, and elected as Chairman of our board in March 1996. Mr. Goodrich
is also a director of Pan American Life Insurance Company. Henry Goodrich is
the father of Gil Goodrich.
Sheldon Appel has been involved in real estate development and finance
since 1955 when he formed the Sheldon Appel Company. Mr. Appel is a private
investor and a former director of American Consumer Products and Beverly Hills
Savings and Loan, both of which are listed on the NYSE. He has been one of our
directors since August, 1995.
Jeff H. Benhard is the President and Chief Executive Officer of a number of
businesses owned by the Benhard family, including Benhard Grain, Inc., Peoples
Moss Gin Co., Inc. and Louisiana Premium Seafoods, Inc. Mr. Benhard has been
involved in the agriculture and aquaculture businesses since 1949. He is
currently a director of the Pan American Life Insurance Company and the Past
President of the LSU Foundation. Mr. Benhard initially became a director of
Goodrich at its inception in August 1995. He resigned from the board of
directors in December 1996 and was reelected to the board of directors in May
1997.
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<PAGE>
Donald M. Campbell is Chief Executive Officer of Hambrecht & Quist Guaranty
Finance L.L.C. a subsidiary of the Chase Manhattan Corporation following its
acquisition of Hambrecht & Quist. He is also a director of the Moneda Chile
Fund (listed on the Irish Stock Exchange) and Evergreen Forests Ltd. (listed on
the New Zealand and Australian Stock Exchanges), and is the chairman of The New
Zealand Investment Trust (listed on the London Stock Exchange). He has been a
financial officer of two public corporations, and has been a principal in the
formation of four private companies in the United States. He has served as one
of our directors since November 1999, when he was elected by the holders of our
subsidiaries' notes pursuant to our agreement with H&Q Guaranty as noteholder
agent.
Patrick E. Malloy, III is the President and Chief Executive Officer of
Malloy Enterprises, Inc. and Malloy Real Estate, Inc. In addition, Mr. Malloy
serves as a director of North Fork Bancorp (NYSE) and is a past Chairman of the
Board for New York Bancorp (NYSE) (1991-1998). He joined our Board at the
annual meeting in May 2000.
Michael Y. McGovern is currently the Chief Executive Officer for Coho Energy
Resources, Inc., and was the Managing Director for Pembrook Capital
Corporation, Inc. from 1998 to January 2000, which provided advisory services
to parties involved with distressed energy companies. He has also been a
director and founding investor of Greystar Corporation since 1995, which
provides production management services to oil and natural gas companies. He
has served as one of our directors since September 1999, when he was elected by
the holders of our subsidiaries' notes pursuant to our agreement with H&Q
Guaranty as noteholders agent.
Arthur A. Seeligson is currently engaged in the management of his personal
investments. From 1991 to 1993, Mr. Seeligson was a Vice President, Energy
Corporate Finance at Schroder Wertheim & Company, Inc. From 1993 to 1995, Mr.
Seeligson was a Principal, Corporate Finance, at Wasserstein, Perella & Co. He
was primarily engaged in the management of his personal investments from 1995
through 1997. He was a managing director with the investment banking firm of
Harris, Webb & Garrison from 1997 to 2000. He has served as one of our
directors since August 1995.
Board of Directors
Our board of directors currently has eight members. The terms of the office
of the board of directors are divided into three classes: Class I, the members
of which are Messrs. Appel, Benhard and Campbell, whose terms will expire at
the annual meeting of stockholders to be held in 2002; Class II, the members of
which are Messrs. Henry Goodrich and Malloy, whose terms will expire at the
annual meeting of stockholders to be held in 2003; and Class III, the members
of which are Messrs. Gil Goodrich, Seeligson and McGovern, whose terms will
expire at the annual meeting of the stockholders to be held in 2001. The
classification of the board of directors may have the effect of delaying or
preventing changes in our control or in our management. All of our officers
serve at the discretion of the board of directors.
Board Committees
Our board of directors has three standing committees, the membership and
functions of which are described below:
Executive Committee. The members of the Executive Committee are Messrs. Gil
Goodrich and Henry Goodrich. The Executive Committee is delegated the authority
to approve any actions that the board of directors could approve, except to the
extent restricted by law or by our Certificate of Incorporation or Bylaws.
Audit Committee. The members of the Audit Committee are Messrs. Appel,
Benhard and McGovern. Mr. Appel is chairman of the Audit Committee. The
functions of the Audit Committee are to recommend to the board of directors the
firm of independent public accountants to be engaged to audit our financial
statements, meet with the auditors and our financial management to review with
them our significant accounting policies and its internal controls, provide
opportunities for the auditors to meet with the Audit Committee and our
officers, discuss matters discussed at Audit Committee meetings with the full
board of directors, investigate any
48
<PAGE>
matters brought to its attention within the scope of its duties, review and
assess the adequacy of the Audit Committee charter on an annual basis, and have
general responsibility in connection with related matters.
Compensation Committee. Members of the Compensation Committee are Messrs.
Appel, Campbell and Seeligson, with Mr. Appel serving as its chairman. The
Compensation Committee's functions include the general review of our
compensation and benefit plans to ensure that they meet corporate objectives.
In addition, the Compensation Committee makes recommendations to the board of
directors on compensation of all of our officers, granting of awards under and
administering our stock option and other benefit plans, and adopting and
changing our major compensation policies and practices.
Director Compensation
General
For serving as a member of our board of directors, each director who is not
an officer or consultant of our company or our subsidiaries has been paid
$1,000 for each meeting attended. In addition, directors were reimbursed for
their reasonable out-of-pocket expenses incurred in connection with travel to
meetings of our board of directors or committees thereof and received periodic
grants of options to purchase common stock. Directors did not receive
compensation for serving on committees.
Nonemployee Directors Compensation Plan
The Goodrich Petroleum Corporation Directors Compensation Plan (the
"Directors Compensation Plan") provides for both discretionary option and
formula option grants and is administered by our board of directors, which may
delegate all of its power of administration, with the exception of the power to
authorize issuance of options. No director may vote or decide upon any matter
relating solely to such director under the Directors Compensation Plan, nor may
any director vote in any case in which the director's individual right to claim
any benefit under the Directors Compensation Plan is particularly involved.
The Directors Compensation Plan provides for an annual fee of $5,000 (in
cash or common stock) to be paid to each nonemployee director. The Directors
Compensation Plan also provides for the annual issuance of options to purchase
2,000 shares of common stock to each nonemployee director on the date of our
annual meeting of stockholders.
The Directors Compensation Plan also provides for the payment of $1,000 to
each nonemployee director for each board meeting attended in person, and the
reimbursement of reasonable out-of-pocket expenses in connection with travel to
meetings of the board of directors or committees thereof.
The maximum number of shares of common stock that may be issued under the
Directors Compensation Plan is 150,000. Options granted under the Directors
Compensation Plan have a term of 10 years and are subject to earlier
termination if the optionee's membership on the board of directors terminates
for cause. If the optionee's membership on the board of directors is terminated
for any reason other than cause, options may be exercised for up to four years
from the date of such termination, but only as to the number of shares of
common stock such optionee could have purchased on the date of termination from
the board of directors. Discretionary option grants become vested and
exercisable as determined by the board of directors, and formula option grants
are fully vested and exercisable on the date of grant. The exercise price of an
option shall be the closing stock price on the date of grant for both
discretionary option grants and formula option grants.
The Directors Compensation Plan contains provisions whereby the board of
directors may make adjustments to the number of shares of common stock to be
acquired upon exercise of options in the event of a stock split, combination or
stock dividend.
The Directors Compensation Plan may be amended or terminated at any time by
the board of directors. Such amendment or termination will not impair the
rights of a nonemployee director or affect options previously granted and
outstanding under the Directors Compensation Plan.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee is currently, or has been at any
time since our formation, one of our officers or employees. No member of our
compensation committee serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or Compensation Committee.
Executive Compensation and Other Information
The following table summarizes certain information with respect to the
compensation earned by our executive officers for services rendered in all
capacities during the years indicated:
<TABLE>
<CAPTION>
Long-Term
Compensation--
Annual Securities
Compensation(1) Underlying
Name and Principal Fiscal ---------------- Options All Other
Position Year Salary Bonus (Number)(3) Compensation(2)
------------------ ------ -------- ------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Walter G. Goodrich...... 1999 $150,196 -- 87,288 $4,500
President and 1998 150,000 -- 26,800 3,225
Chief Executive Officer 1997 150,000 $30,000 25,000 4,400
Robert C. Turnham, Jr... 1999 $ 97,838 -- 48,310 $2,929
Executive Vice
President and 1998 97,889 -- 16,080 2,929
Chief Operating Officer 1997 94,003 $18,000 -- 1,084
Roland L. Frautschi..... 1999 $ 87,539 -- 51,498 $2,620
Senior Vice President
and 1998 87,589 -- 16,080 2,620
Chief Financial Officer 1997 87,861 $18,000 -- 2,618
</TABLE>
--------
(1) During the years presented, perquisites for the persons named in the
Summary Compensation Table aggregated less than 10% of the total annual
salary and bonus reported for such individual in the Summary Compensation
Table. Accordingly, no such amounts are included in the Summary
Compensation Table.
(2) Amounts represent matching contributions by us to the executive officer's
SIMPLE IRA accounts.
(3) Options granted prior to 1999 were surrendered in February 1999. See "--
Stock Option Exercises and Year End Holdings."
Goodrich Petroleum Corporation 1995 Stock Option Plan ("Goodrich Plan")
The Goodrich Plan provides for the granting of options (either incentive
stock options within the meaning of Section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code"), or options that do not constitute incentive
stock options ("nonqualified stock options"), restricted stock awards, stock
appreciation rights, long-term incentive awards and phantom stock awards, or
any combination thereof. The Goodrich Plan covers an aggregate of 375,000
shares of common stock (subject to certain adjustments in the event of stock
dividends, stock splits and certain other events). No more than 62,500 shares
of common stock, subject to adjustments, may be issued pursuant to grants made
under the Goodrich Plan to any one employee in any one year.
Stock Option Plan
At the March 29, 2000 board of directors meeting, the Compensation Committee
voted to accelerate the vesting schedule on options granted to employees on
February 25, 1999. The vesting period for the applicable options was immediate
and the total number of shares subject to options affected was 235,698.
Administration
The Goodrich Plan is administered by the Compensation Committee. The
Compensation Committee has the power to determine which employees will receive
an award, the time or times when such award will be
50
<PAGE>
made, the type of award and the number of shares of common stock to be issued
under the award or the value of the award. Only persons who at the time of the
grant are our employees or consultants are eligible to receive grants under the
Goodrich Plan.
Options
The Compensation Committee will designate the employees to receive the
options, the number of shares subject to the options and the terms and
conditions of each option granted under the Goodrich Plan. The term of any
option granted under the Goodrich Plan shall be determined by the Compensation
Committee; provided, however, that the term of any incentive stock option
cannot exceed ten years from the date of the grant and any incentive stock
option granted to an employee who possesses more than 10% of the total combined
voting power of all classes of our stock or of our subsidiaries within the
meaning of Section 422(b)(6) of the Code must not be exercisable after the
expiration of five years from the date of grant. The exercise price per share
of common stock granted under the Goodrich Plan as options is determined by the
Compensation Committee; provided, however, that such exercise price cannot be
less than the fair market value of a share of common stock on the date the
option is granted (subject to adjustments). Further, the exercise price of any
incentive stock option granted to an employee who possesses more than 10% of
the total combined voting power of all classes of our stock or of our
subsidiaries within the meaning of Section 422(b)(6) of the Code must be at
least 110% of the fair market value of the shares at the time such option is
granted. The exercise price of options granted under the Goodrich Plan is paid
in full in a manner prescribed by the Compensation Committee.
Restricted Stock Awards
Pursuant to a restricted stock award, shares of common stock will be issued
or delivered to the employee at any time the award is made without any cash
payment to us, except to the extent otherwise provided by the Compensation
Committee or required by law; provided, however, that such shares will be
subject to certain restrictions on the disposition thereof and certain
obligations to forfeit such shares to us as may be determined in the discretion
of the Compensation Committee. The restrictions on disposition may lapse based
upon (1) our attainment of specific performance targets established by the
Compensation Committee, such as
. the price of a share of common stock,
. our earnings per share,
. our revenue,
. the revenue of one of our business units designated by the Compensation
Committee,
. the return on stockholders' equity achieved by us, or
. our pre-tax cash flow from operations;
(2) the grantee's tenure with us; or (3) a combination of both factors. We
retain custody of the shares of common stock issued pursuant to a restricted
stock award until the disposition restrictions lapse. An employee may not sell,
transfer, pledge, exchange, hypothecate or otherwise dispose of such shares
until the expiration of the restriction period. However, upon the issuance to
the employee of shares of common stock pursuant to a restricted stock award,
except for the foregoing restrictions, such employee will have all the rights
of one of our stockholders with respect to such shares, including the right to
vote such shares and to receive all dividends and other distributions paid with
respect to such shares.
Stock Appreciation Rights
A stock appreciation right permits the holder to receive an amount (in cash,
common stock or a combination thereof) equal to the number of stock
appreciation rights exercised by the holder multiplied by the excess of the
fair market value of common stock on the exercise date over the stock
appreciation rights' exercise price. Stock appreciation rights may or may not
be granted in connection with the grant of an option,
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<PAGE>
and no stock appreciation right may be exercised earlier than six months from
the date of grant. A stock appreciation right may be exercised in whole or in
such installments and at such times as determined by the Compensation
Committee.
Long-Term Incentive and Phantom Stock Awards
The Goodrich Plan permits grants of long-term incentive awards ("performance
awards") and phantom stock awards, which may be paid in cash, common stock or a
combination thereof as determined by the Compensation Committee. Performance
awards granted under the Goodrich Plan have a maximum value established by the
Compensation Committee at the time of the grant. A grantee's receipt of such
amount is contingent upon satisfaction by us, or any subsidiary, division or
department thereof, of future performance conditions established by the
Compensation Committee prior to the beginning of the performance period. Such
performance awards, however, shall be subject to later revisions as the
Compensation Committee shall deem appropriate to reflect significant unforeseen
events or changes. A performance award will terminate if the grantee's
employment with us terminates during the applicable performance period. Phantom
stock awards granted under the Goodrich Plan are awards of common stock or
rights to receive amounts equal to share appreciation over a specific period of
time. Such awards vest over a period of time or upon the occurrence of a
specific event(s) (including, without limitation, a change of control)
established by the Compensation Committee, without payment of any amounts by
the holder thereof (except to the extent required by law) or satisfaction of
any performance criteria or objectives. A phantom stock award terminates if the
grantee's employment with us terminates during the applicable vesting period
or, if applicable, the occurrence of a specific event(s), except as otherwise
provided by the Compensation Committee at the time of grant. In determining the
value of performance awards or phantom stock awards, the Compensation Committee
shall take into account the employee's responsibility level, performance,
potential, other awards under the Goodrich Plan and such other consideration as
it deems appropriate. Such payment may be made in a lump sum or in installments
as prescribed by the Compensation Committee. Any payment made in common stock
will be based upon the fair market value of the common stock on the payment
date.
Stock Option Grants in Last Fiscal Year
The following table sets forth information concerning stock options granted
during 1999 to the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Potential
realizable
value at
assumed annual
rates of stock
price
appreciation
Individual grants for option term
------------------------------------------- ---------------
Number of Percent of
securities options Exercise
underlying granted to or base
options employees in price Expiration
Name granted fiscal year ($/Sh) date 5% 10%
---- ---------- ------------ -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Walter G. Goodrich...... 62,288 17% $0.83 02/25/2004 $14,197 $19,961
25,000 7 2.89 12/15/2004 31,373 44,109
Robert C. Turnham, Jr... 30,810 8% $0.75 02/25/2004 $15,985 $31,806
17,500 5 2.63 12/15/2004 26,828 53,380
Roland L. Frautschi..... 35,498 9% $0.75 02/25/2004 $18,418 $30,910
16,000 4 2.63 12/15/2004 29,080 48,805
</TABLE>
52
<PAGE>
Stock Option Exercises and Year-End Holdings
The named executive officers did not exercise any stock options during 1999.
At the February 25, 1999 meeting of the board of directors, the board of
directors approved a surrender/regrant program whereby our employees and
directors could surrender their present options and be regranted options equal
to 75% of their previous number of options. Vesting periods for the regranted
options began with the regrant date and the options will have an exercise price
equal to the closing stock price on the date of declaration by the board of
directors.
The following table sets forth information concerning stock option holdings
and the value of unexercised in-the-money stock options held by our executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options Held at In-the-Money Options Held
December 31, 1999 at December 31, 1999(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Walter G. Goodrich...... -- 87,288 -- $123,638
Robert C. Turnham, Jr... -- 48,310 -- 68,624
Roland L. Frautschi..... -- 51,498 -- 69,045
</TABLE>
--------
(1) Computed based on the difference between aggregate fair market
value and aggregate exercise price. The fair market value of our
common stock on December 31, 1999 was $2.31 per share based on the
closing sales price on the NYSE on such date.
In February 1999, pursuant to the aforementioned stock option
surrender/regrant program, Walter G. Goodrich surrendered stock options
representing 83,050 shares of common stock, and was regranted stock options
representing 62,288 shares of common stock. Such stock options are fully vested
and have an exercise price per share of $0.83. Roland L. Frautschi and Robert
C. Turnham, Jr. surrendered stock options representing 47,330 and 41,080 shares
of common stock, respectively, and were regranted stock options representing
35,498 and 30,810 shares of common stock, respectively. Such stock options are
now fully vested and have an exercise price per share of $0.75.
In May 2000, the board of directors granted options to our executive
officers. Walter G. Goodrich received options exercisable for 145,000 shares of
common stock. Robert Turnham received options exercisable for 70,000 shares of
common stock and Roland Frautschi received options exercisable for 50,000
shares of common stock. Such options have a three year vesting period. Mr.
Goodrich's options have an exercise price per share of $5.36 and Messrs.
Turnham's and Frautschi's options have an exercise price per share of $4.875.
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<PAGE>
TRANSACTIONS WITH OUR MANAGEMENT
AND SECURITYHOLDERS
In connection with a private placement of our and our subsidiaries'
convertible securities in September 1999, we paid a placement fee of $900,000
to affiliates of H&Q Guaranty, which became a significant holder of our
securities as a result of its purchases in this transaction. The convertible
securities consisted of convertible notes issued by two of our subsidiaries,
preferred equity interests issued by one of our subsidiaries and warrants to
purchase our common stock. Concurrently with this transaction, Mr. Donald M.
Campbell, the Chief Executive Officer of H&Q Guaranty, became a member of our
board of directors. Mr. Campbell purchased $600,000 of convertible securities
and H&Q Guaranty purchased $4,000,000 of convertible securities in this private
placement. In addition, in this private placement, Mr. Patrick E. Malloy, III,
who became a director at our 2000 annual meeting, purchased $1,500,000 of
convertible securities, EIC/GDP Investors, LLC, an affiliate of a significant
holder of our securities, purchased $1,000,000 of convertible securities, Alps
Investments, LLC, a significant holder of our securities, purchased $2,400,000
of convertible securities and Mr. Michael D. Fulton and Ms. Katheryn E. Cole,
significant holders of our securities, purchased an aggregate of $1,000,000 of
convertible securities.
In February 2000, we completed a private placement of 1,500,000 shares of
our common stock at $3.00 per share to the same investor group that purchased
the convertible securities in September 1999. In this private placement, Mr.
Campbell purchased 63,135 shares, Mr. Malloy purchased 157,839 shares,
Entrepreneurial Investment Corporation, an affiliate of a significant holder of
our securities, purchased 105,232 shares, Alps Investments, LLC purchased
252,543 shares and Mr. Fulton and Ms. Cole purchased an aggregate 105,231
shares. Also in February 2000, each of Mr. Malloy and Entrepreneurial
Investment Corporation received 12,500 shares of our common stock in
consideration of their agreement to underwrite our call for redemption of the
preferred equity interests issued in the September 1999 private placement.
In August 2000, each of H&Q Guaranty, Entrepreneurial Investment Corporation
and Mr. Malloy were paid 15,000 shares of our common stock in consideration of
their agreement to underwrite our call for redemption of the convertible notes
issued in the September 1999 private placement. In addition, an affiliate of
H&Q Guaranty was paid 15,000 shares as a fee for soliciting the investors with
respect to the redemption. In connection with the stand-by underwriting of the
redemption, each of H&Q Guaranty, Entrepreneurial Investment Corporation and
Mr. Malloy purchased convertible notes and subsequently redeemed them for
74,885 shares of common stock.
Mr. Henry Goodrich, Chairman of our board of directors, is a party to a
consulting agreement with us pursuant to which he received compensation of
$150,000 in 1999 and $112,500 through September 2000. Mr. Goodrich's consulting
agreement expired August 15, 2000. Mr. Walter G. Goodrich, President, Chief
Executive Officer and a member of our board of directors, had an employment
agreement with us that expired August 15, 2000 pursuant to which he was paid an
annual base salary of $150,000.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of September 15, 2000 by:
. each person known by us to beneficially own 5% or more of our common
stock;
. each of the named executive officers and each of our directors; and
. all of our officers and directors as a group.
Percentage of ownership is based on 12,315,522 shares of common stock
outstanding as of September 15, 2000. Beneficial ownership is calculated based
on SEC requirements. Unless otherwise indicated below, each stockholder named
in the table has sole voting and investment power with respect to all shares
beneficially owned, subject to applicable community property laws.
<TABLE>
<CAPTION>
Beneficial
Ownership
-----------------
Beneficial Owner Amount Percent
---------------- --------- -------
<S> <C> <C>
Five Percent Stockholders+
Daniel H. Case, III(1)................................... 3,755,277 26.7
Hambrecht & Quist Guaranty Finance L.L.C.(1)............. 3,045,098 22.3
Alps Investments, LLC(2)................................. 1,531,798 11.9
Duane Roberts(3)......................................... 873,393 7.1
Michael D. Fulton & Katheryn E. Cole(4).................. 660,581 5.3
Named Executive Officers and Directors
Donald M. Campbell(1).................................... 3,547,061 25.5
Patrick E. Malloy, III(5)................................ 1,638,832 12.9
Walter G. Goodrich(6).................................... 1,171,481 9.4
Henry Goodrich(7)........................................ 591,088 4.8
Sheldon Appel(8)......................................... 452,937 3.6
Robert C. Turnham, Jr.(9)................................ 77,454 *
Michael Y. McGovern(10).................................. 77,380 *
Roland L. Frautschi...................................... 75,412 *
Arthur A. Seeligson(11).................................. 32,664 *
Jeff Bernhard(12)........................................ 18,901 *
Directors and Executive Officers as a Group (10
persons)(13)............................................ 7,174,191 48.8%
</TABLE>
--------
*Less than 1%.
+Excluding directors and executive officers.
(1) Includes the following securities held by Hambrecht & Quist Guaranty
Finance L.L.C. on its own behalf: (a) 1,720,350 shares of common stock,
(b) 37,107 shares of common stock issuable upon conversion of 89,050
shares of Series A preferred stock, (c) 127,663 shares of common stock
issuable upon conversion of 114,496 shares of Series B preferred stock,
and (d) warrants to purchase 1,159,978 shares of common stock. Mr.
Campbell is Chief Executive Officer of Hambrecht & Quist Guaranty Finance
L.L.C. and may be deemed to exercise shared voting and investment power
with respect to the shares beneficially owned by H&Q Guaranty. Mr. Case is
Chairman and Chief Executive Officer of Hambrecht & Quist California, the
majority parent of H&Q Guaranty, and of Hambrecht & Quist Group, the
parent of H&Q California, and may be deemed to exercise shared voting and
investment power with respect to the shares beneficially owned by H&Q
Guaranty. In addition to the shares owned directly by H&Q Guaranty, the
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shares beneficially owned by Mr. Case include the following securities:
(a) 377,582 shares of common stock held by Mr. Case on his own behalf, (b)
83,629 shares of common stock held by Stacey Case, Mr. Case's wife, (c)
16,725 shares of common stock issuable upon conversion of 15,000 shares of
Series B preferred stock held by Mr. Case, (d) 12,265 shares of common
stock issuable upon conversion of 11,000 shares of Series B preferred
stock held by Mrs. Case, (e) warrants to purchase 175,989 shares of common
stock held by Mr. Case, and (f) warrants to purchase 43,989 shares of
common stock held by Mrs. Case. In addition to the shares owned directly
by H&Q Guaranty, the shares beneficially owned by Mr. Campbell include the
following securities: (a) 134,130 shares of common stock held by
Mr. Campbell on his own behalf, (b) 132,019 shares of common stock held by
Mr. Campbell in his retirement account, (c) 2,442 shares of common stock
held by a partnership in which Mr. Campbell has an approximate 60%
interest, (d) 6,042 shares of common stock issuable upon conversion of
14,500 shares of Series A preferred stock held by Mr. Campbell on his own
behalf, (e) 3,584 shares of common stock issuable upon conversion of 8,600
shares of Series A preferred stock held by Mr. Campbell in his retirement
account, (f) 44,254 shares of common stock issuable upon conversion of
39,690 shares of Series B preferred stock held by Mr. Campbell on his own
behalf, (g) 44,600 shares of common stock issuable upon conversion of
40,000 shares of Series B preferred stock held by Mr. Campbell in his
retirement account, (h) 892 shares of common stock issuable upon
conversion of 800 shares of Series B preferred stock held by Mr.
Campbell's wife, (i) warrants to purchase 66,825 shares of common stock,
(j) warrants to purchase 65,175 shares of common stock held by Mr.
Campbell in his retirement account, and (k) options to purchase 2,000
shares of common stock. The address of Hambrecht & Quist Guaranty Finance
L.L.C. and Messrs. Case and Campbell is One Bush Street, San Francisco,
California 94104.
(2) Includes the following securities held by Alps Investments, LLC on its own
behalf: (a) 1,003,798 shares of common stock and (b) warrants to purchase
528,000 shares of common stock. The address of Alps Investments, LLC is
650 Tysons Boulevard, McLean, Virginia 22102.
(3) Includes the following securities: (a) 117,500 shares of common stock held
by Mr. Roberts, (ii) 538,276 shares of common stock held by EIC/GDP
Investors, LLC, over which Mr. Roberts exercises shared voting and
investment power, (c) 207,617 shares of common stock held by
Entreprenuerial Investment Corporation, over which Mr. Roberts exercises
shared voting and investment power and (d) 10,000 shares of common stock
held by Mr. Roberts' wife. Mr. Roberts address is 4100 Newport Place,
Suite 400, Newport Beach, California 92660.
(4) Includes the following securities held by Mr. Fulton and Ms. Cole on their
own behalf: (a) 418,270 shares of common stock, (b) warrants to purchase
220,011 shares of common stock, and (c) 22,300 shares of common stock
issuable upon conversion of 20,000 shares of Series B preferred stock. Mr.
Fulton and Ms. Cole's address is 6328 NE 194th Street, Kenmore, Washington
98028.
(5) Includes the following securities held by Mr. Malloy on his own behalf:
(a) 1,294,331 shares of common stock, (b) 12,501 shares of common stock
issuable upon conversion of 30,000 shares of Series A preferred stock, (c)
warrants to purchase 330,000 shares of common stock, and (d) options to
purchase 2,000 shares of common stock. Mr. Malloy's address is Bay Street
at the Waterfront, Sag Harbor, New York 11963.
(6) Includes the following securities held by Walter G. Goodrich on his own
behalf: (a) 269,332 shares of common stock, (b) 1,667 shares of common
stock issuable upon conversion of 4,000 shares of Series A preferred stock
and (c) 47,833 shares of common stock issuable upon the conversion of
42,900 shares of Series B preferred stock. In addition, includes (a)
509,019 shares of common stock held by HGF Partnership, a Louisiana
partnership, in which Walter G. Goodrich owns an indirect general
partnership interest, (b) 282,134 shares of common stock owned by Goodrich
Energy, Inc., a corporation with respect to which Walter G. Goodrich is
the sole stockholder, and (c) 61,496 shares of common stock issuable upon
conversion of 55,153 shares of Series B preferred stock held by Goodrich
Energy. Walter G. Goodrich may be deemed to exercise shared voting and
investment power with respect to the shares held by HGF Partnership.
Walter G. Goodrich exercises sole voting and investment power with respect
to the shares held by Goodrich Energy. Walter G. Goodrich and Henry
Goodrich beneficially own 10.1% of the
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outstanding shares of common stock. Walter G. Goodrich's address is 815
Walker Street, Suite 1040, Houston, Texas 77002.
(7) Includes the following securities: (a) 82,069 shares of common stock held
by Henry Goodrich on his own behalf and (b) 509,019 shares of common stock
held by HGF Partnership. Henry Goodrich may be deemed to exercise shared
voting and investment power with respect to the shares held by HGF
Partnership. Henry Goodrich and Walter G. Goodrich beneficially own 10.1%
of the outstanding shares of common stock. Henry Goodrich's address is 333
Texas St., Suite 1375, Shreveport, Louisiana 71101.
(8) Includes the following securities: (a) 110,136 shares of common stock held
by Mr. Appel on his own behalf, (b) 27,925 shares of common stock issuable
upon conversion of 67,015 shares of Series A preferred stock held by Mr.
Appel and (c) options to purchase 9,250 shares of common stock. In
addition, includes 305,626 shares of common stock issuable upon conversion
of 274,104 shares of Series B preferred stock held by a trust of which Mr.
Appel is the trustee. Mr. Appel's address is 2148 Federal Avenue, Suite A,
Los Angeles, California 90025.
(9) Includes the following securities held by Mr. Turnham on his own behalf:
(a) 52,545 shares of common stock and (b) 1,375 shares of common stock
issuable upon the conversion of 3,300 shares of Series A preferred stock.
In addition, includes the following securities held by Mr. Turnham's wife:
(a) 21,450 shares of common stock and (b) 2,084 shares of common stock
issuable upon conversion of 5,000 shares of Series A preferred stock.
(10) Includes the following securities: (a) 53,369 shares of common stock held
by Mr. McGovern on his own behalf and (b) warrants to purchase 22,011
shares of common stock held by a partnership in which Mr. McGovern has an
approximate 50% interest. In addition, includes options to purchase 2,000
shares of common stock.
(11) Includes for following securities held by Mr. Seeligson on his own
behalf: (a) 20,601 shares of common stock and (b) options to purchase
12,063 shares of common stock.
(12) Includes the following securities: (a) 8,088 shares of common stock held
by Mr. Benhard on his own behalf, (b) options to purchase 8,313 shares of
common stock and (c) 2,500 shares of common stock held by Mr. Benhard's
wife.
(13) The number of shares of common stock beneficially owned by all executive
officers and directors as a group includes the following securities: (a)
92,285 shares of common stock issuable upon conversion of 221,466 shares
of Series A preferred stock, (b) 632,364 shares of common stock issuable
upon exercise of 567,143 shares of Series B preferred stock, (c) warrants
to purchase 1,621,978 shares of common stock and (d) options to purchase
35,626 shares of common stock.
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DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of 25,000,000 shares of common stock,
par value $0.20 per share, and 10,000,000 shares of preferred stock, par value
$1.00 per share, of which 1,375,000 shares are designated as Series A
Convertible Preferred Stock and 750,000 shares are designated as Series B
Convertible Preferred Stock. As of the date of this prospectus, 12,315,522
shares of our common stock, 796,318 shares of our Series A Convertible
Preferred Stock and 660,839 shares of our Series B Convertible Preferred Stock
were issued and outstanding.
The following summary of certain provisions of our capital stock does not
purport to be complete and is subject to and qualified in its entirety by our
articles of incorporation and bylaws and by the provision of applicable law.
Common Stock
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of
common stock do not have the right to cumulate their votes in the election of
directors. Holders of common stock are entitled to receive dividends when, as
and if declared by the board of directors out of funds legally available
therefor, subject to any dividend preferences of any outstanding shares of
preferred stock. In the event of our liquidation, dissolution or winding up,
holders of common stock have the right to share ratably in any assets remaining
after the satisfaction in full of all our liabilities and of all liquidation
preferences on any outstanding shares of preferred stock. Holders of common
stock have no preemptive or preferential rights to purchase or subscribe for
any part of any additional securities or rights to convert their common stock
into other securities and are not subject to future calls or assessments by us.
All outstanding shares of common stock are, and all shares of common stock
offered in connection with the offering and to be issued upon conversion of the
preferred stock upon issuance will be, fully paid and nonassessable.
Preferred Stock
Generally. Our board of directors is authorized, without further action by
the stockholders, to issue up to 10,000,000 shares of preferred stock and to
fix and determine the designations, series, powers, preferences, rights,
qualifications, limitations and restrictions of the preferred stock. The rights
of the holders of common stock will be subject to, and may be adversely
affected by, the rights of the holders of preferred stock. The issuance of a
new series of the preferred stock could have the effect of delaying, deferring
or preventing a change of control of Goodrich.
Series A Convertible Preferred Stock. Our certificate of incorporation
authorizes 1,375,000 shares of Series A Convertible Preferred Stock. The Series
A preferred stock ranks senior to the common stock with respect to dividends
and distributions of assets upon our liquidation, dissolution or winding up.
There are 796,318 shares of Series A preferred stock outstanding as of the date
hereof. The Series A preferred stock has a par value of $1.00 per share, with a
liquidation preference of $10.00 per share. It is convertible at the option of
the holder at any time, unless earlier redeemed, into shares of our common
stock at an initial conversion rate of 0.4167 shares of common stock per share
of Series A preferred stock. The Series A preferred stock will automatically
convert into common stock if the closing price for the Series A preferred stock
exceeds $15.00 per share for ten consecutive trading days.
Holders of shares of Series A preferred stock are entitled to receive, when,
as and if declared by our board of directors, out of any funds legally
available for this purpose, cash dividends at the annual rate of 8% or $0.80
per share, accruing without interest and cumulative from the date of first
issuance. These dividends are payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year. Dividends and distributions
(other than dividends payable solely in junior ranking capital stock) may not
be declared, paid or
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set apart for payment and purchases, redemptions or other acquisitions of
shares of common stock or other junior ranking capital stock unless all accrued
and unpaid dividends on the Series A preferred stock have been paid or declared
and set apart for payment.
We may, at our option, redeem all or part of the shares of Series A
preferred stock then outstanding, subject to the limitations, if any, imposed
by applicable law, at a redemption price of $12.00 per share plus any accrued
and unpaid dividends, whether or not declared. There is no mandatory redemption
or sinking fund obligation with respect to the Series A preferred stock.
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of Goodrich, holders of shares of Series A preferred stock will be
entitled to receive, out of our assets legally available therefor, a sum equal
to $10.00 per share of Series A preferred stock, subject to adjustments for
stock splits or combinations, plus all dividends, if any, accrued and unpaid to
the distribution date.
Holders of shares of Series A preferred stock have no voting rights, except
as required by law, unless dividends payable on the Series A preferred stock
fall into arrears in an amount equal to at least six quarterly dividends,
whether or not consecutive. In such an event, the number of our directors may
be increased by two upon such election by Series A holders, and holders of
shares of Series A preferred stock (voting separately as a class with the
holders of stock ranking on a parity with the Series A preferred stock and with
like voting rights) will be exclusively entitled to elect, at any meeting of
stockholders at which directors are to be elected during the period such
dividends remain in arrears, such two additional directors to serve until all
such dividends have been paid in full or set apart for payment.
So long as any shares of Series A preferred stock are outstanding, we may
not, without the affirmative vote of the holders of at least 66 2/3% of all
outstanding shares of Series A preferred stock, voting separately as a class,
do the following:
. amend, alter or repeal any provision of our Certificate of Incorporation
or Bylaws to adversely affect the rights of the Series A preferred
stock;
. authorize or issue or increase the authorized amount of any additional
class or series of stock ranking senior to the Series A preferred stock;
or
. effect any reclassification of the Series A preferred stock.
So long as any shares of Series A preferred stock are outstanding, we may
not, without the affirmative vote of the holders of at least 50% of all
outstanding shares of Series A preferred stock, voting separately as a class,
do the following:
. authorize or issue or increase the authorized amount of any additional
class or series of stock having dividend or liquidation rights on a
parity with the Series A preferred stock and having the right to vote on
matters as to which the Series A preferred stock is not entitled to
vote; or
. incur indebtedness for money borrowed or authorize or issue stock
ranking on a parity with such Series A preferred stock as to dividends
or liquidation if adjusted stockholders' equity is less than the
liquidation preference of the Series A preferred stock and all stock
ranking senior to or on a parity with the Series A preferred stock.
Upon the occurrence of the first "Ownership Change" with respect to our
company, holders of Series A preferred stock have the right, at the holder's
option, for a period of 45 days following notice of such change to convert all,
but not less than all, of such holder's Series A preferred stock into common
stock with an aggregate Market Value equal to the aggregate Adjusted Value of
the Series A preferred stock for which conversion is elected. In September
1999, such an Ownership Change occurred when a person became the beneficial
owner of more than 30% of our voting stock. Under the terms of our Series A
preferred stock, we were required to send notice of such occurrence within 30
days of such event setting forth the details regarding
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the special conversion right. The board has determined that it is in the best
interests of the company to send such notice, and to offer such conversion
right, to the current holders of Series A preferred stock, granting such
holders a 45 day period in which to elect such conversion at the rate of 0.7813
shares of common stock for each share of Series A preferred stock after the
mailing of a notice.
If a Corporate Change (as defined below) should occur with respect to us,
each holder of Series A preferred stock shall have the right, at the holder's
option, for a period of 45 days after the mailing of a notice by us that a
Corporate Change has occurred, to convert all, but not less than all, of such
holder's Series A preferred stock into Marketable Stock (as defined below) with
an aggregate Market Value (as defined below) equal to the Adjusted Value (as
defined below) of the Series A preferred stock. If following a Corporate Change
no Marketable Stock is outstanding, each holder of Series A preferred stock
will have a special conversion right, if he so elects, to receive an amount of
securities, cash or other property distributed to holders of common stock in
the Corporate Change. The value of such amount will equal the Adjusted Value
per share of the Series A preferred stock. We or our successor, as the case may
be, may, at our/their option, in lieu of providing Marketable Stock, provide
the holder with cash equal to the Adjusted Value of the shares of Series A
preferred stock. If the Series A preferred stock becomes subject to this
special conversion right due to a Corporate Change, the Series A preferred
stock remains convertible into the kind and amount of securities, cash or other
assets that the holders would have owned immediately after the Corporate Change
if the holders had converted the Series A preferred stock immediately before
the effective date of the Corporate Change.
At least 30 days prior to the proposed effective date of a Corporate Change,
we will mail to each holder of Series A preferred stock a notice setting forth
the details of the proposed Corporate Change and the special conversion right.
Within 30 days of the occurrence of a Corporate Change with respect to us, we
will mail to each registered holder of Series A preferred stock a notice of
such occurrence setting forth details regarding the special conversion right of
such Corporate Change. A holder of Series A preferred stock must exercise the
special conversion right within the 45-day period after the mailing of such
notice of occurrence by us or such special conversion right shall expire.
Exercise of such conversion right shall be irrevocable, and dividends on Series
A preferred stock tendered for special conversion shall cease to accrue from
and after the conversion date.
As used herein, a "Corporate Change" with respect to us means:
. the occurrence of any transaction or event in connection with which all
or substantially all of our common stock is exchanged for, converted
into, acquired for or constitutes solely the right to receive cash,
securities, property or other assets; or
. the conveyance, sale, lease, assignment, transfer or other disposal of
all or substantially all of our property, business or assets.
As used herein, the "Adjusted Value" of a share of Series A preferred stock
is an amount equal to the Stated Value; provided, however, that if the
Reference Value of a share of common stock exceeds both the Market Value of a
share of common stock and the Applicable Value, then the Adjusted Value shall
be determined by multiplying the greater of the Market Value of a share of
common stock or the Applicable Value by the quotient of the Stated Value of a
share of Series A preferred stock divided by the Reference Value per share of
common stock.
As used herein, the "Applicable Value" shall be an amount equal to the sum
of the cash, Market Value of Marketable Stock and the value of any other
securities, property or other consideration distributed to holders of common
stock for each share of common stock upon or in connection with a Corporate
Change.
As used herein, "Market Value" of the common stock, or of the common stock
of the corporation that is the successor to all or substantially all of our
business and assets as a result of a Corporate Change, shall be the average of
the closing market price of such common stock or other common stock, as the
case may be, for the five business days ending on the last business day
preceding the date of the Ownership Change or Corporate Change.
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As used herein, the term "Marketable Stock" shall mean our common stock or
the common stock of our successor as a result of a Corporate Change, which in
either case is listed on the NYSE or the American Stock Exchange or approved
for quotation in the Nasdaq National Market or any similar system of automated
dissemination of quotations of securities prices in the United States.
As used herein, "Stated Value" of a share of Series A preferred stock
converted during the 45-day period following the occurrence of a Corporate
Change or an Ownership Change shall mean the price per share we would be
required to pay if we exercised our option to redeem such shares on the
conversion date, plus an amount equal to the amount by which the Market Value
of the common stock exceeds the exercise price of the Warrant.
As used herein, the term "Reference Value" shall initially mean $1.92 per
share; provided, however, that in the event of any adjustment to the conversion
price, the Reference Value shall also be adjusted so that the ratio of the
Reference Value to the conversion price, after giving effect to any such
adjustment, shall always be the same as the ratio of $1.92 to the initial
conversion price.
Series B Convertible Preferred Stock. Our Certificate of Incorporation
authorizes 750,000 shares of Series B Convertible preferred stock. The shares
of the Series B preferred stock constitute a single series of our preferred
stock. The holders of the Series B preferred stock have no preemptive rights
with respect to any shares of our capital stock or any of our other securities.
The Series B preferred stock is not subject to any sinking fund or other
obligation of Goodrich to redeem or retire the Series B preferred stock. The
Series B preferred stock has not been approved for listing on any stock
exchange.
Anti-Takeover Provisions of Our Certificate of Incorporation and Bylaws
Classified board of directors and Limitations on Removal of Directors
Our board of directors is divided into three classes. The directors of each
class are elected for three-year terms, with the terms of the three classes
staggered so that directors from a single class are elected at each annual
meeting of stockholders.
Written Consent of Stockholders
Our certificate of incorporation provides that any action required or
permitted to be taken by our stockholders may be taken at a duly called meeting
of stockholders or by written consent of stockholders owning the minimum number
of shares required to approve such action. Any action by our stockholders must
be taken at an annual or special meeting of stockholders. Special meetings of
the stockholders may be called at any time by the Chairman of the Board, the
President, by a majority of the board of directors, on the written request of
any two directors, or by the Secretary. A special meeting must be called by the
Chairman of the Board, the President or the Secretary when a written request is
delivered to such officer, signed by the holders of at least 10% of the issued
and outstanding stock entitled to vote at such meeting.
Advance Notice Procedure for Stockholder Proposals
Our bylaws establish an advance notice procedure for the nomination of
candidates for election as directors, as well as for stockholder proposals to
be considered at annual meetings of stockholders. In general, notice of intent
to nominate a director must be delivered to or mailed and received at our
principal executive offices as follows:
. with respect to an election to be held at the annual meeting of
stockholders, 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders;
. with respect to an election to be held at a special meeting of
stockholders for the election of directors, not later than the close of
business on the 10th day following the day on which such notice of the
date of the meeting was mailed to stockholders or public disclosure of
the date of the meeting was made, whichever first occurs, and must
contain specified information concerning the person to be nominated.
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Notice of stockholders' intent to raise business at an annual meeting must
be delivered to or mailed and received at our principal executive offices not
less than 90 days prior to the anniversary date of the preceding annual meeting
of stockholders. These procedures may operate to limit the ability of
stockholders to bring business before a stockholders' meeting, including with
respect to the nomination of directors or considering any transaction that
could result in a change in control. These advance notice procedures are not
applicable prior to the trigger date.
Limitation of Liability of Officers and Directors
Our certificate of incorporation provides that no director shall be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability as follows:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law;
. for unlawful payment of a dividend or unlawful stock purchase or stock
redemption (Section 174 of DGCL); and
. for any transaction from which the director derived an improper personal
benefit.
The effect of these provisions is to eliminate the rights of Goodrich and
our stockholders, through stockholders' derivative suits on behalf of Goodrich,
to recover monetary damages against a director for breach of fiduciary duty as
a director, including breaches resulting from grossly negligent behavior,
except in the situations described above.
Delaware Takeover Statute
Under the terms of our certificate of incorporation and as permitted under
Delaware law, we have elected not to be governed by Delaware's anti-takeover
law. This law provides that specified persons who, together with affiliates and
associates, own, or within three years did own, 15% or more of the outstanding
voting stock of a corporation may not engage in certain business combinations
with the corporation for a period of three years after the date on which the
person became an interested stockholder. The law defines the term "business
combination" to encompass a wide variety of transactions with or caused by an
interested stockholder, including mergers, asset sales and other transactions
in which the interested stockholder receives or could receive a benefit on
other than a pro rata basis with other stockholders. With approval of our
stockholders, we could amend our certificate of incorporation in the future to
become governed by the anti-takeover law. This provisions would then have an
anti-takeover effect for transactions not approved in advance by our board of
directors, including discouraging takeover attempts that might result in a
premium over the market price for the shares of our common stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ComputerShare, and
its address is 311 West Monroe Street, Chicago, Illinois 60606 and telephone
number is (312) 588-4700.
Registration Rights
In connection with our private placements of securities in September 1999
and February 2000 we entered into a registration rights agreement for the
benefit of the holders of those securities. The registration rights agreement
provides that holders of more than $500,000 of registrable securities or
holders of at least 50% of those securities can request that we register their
shares for resale by filing a shelf registration statement on their behalf. We
have the right to delay any such request for registration for six months
following the effectiveness of the registration statement of which this
prospectus is a part.
62
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Jefferies & Company, Inc. is acting as representative, the
following respective numbers of shares of our common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Jefferies & Company, Inc...........................................
---------
Total............................................................ 4,500,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, then
the purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase, on a pro
rata basis, up to 675,000 additional shares of our common stock at the public
offering price less the underwriting discounts and commissions. The option may
only be exercised to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock to the public
initially at the public offering price on the cover page of this prospectus and
to dealers at that price less a concession of $ per share. The underwriters
and such dealers may allow a discount of $ per share on sales to other
broker/dealers. After the public offering, the public offering price and
concession and discount to broker/dealers may be changed by the representative.
The following summarizes the compensation and estimated expenses that we
will pay.
<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-Allotment Over-Allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and
commissions.......................... $ $ $
Other compensation(1).................
Expenses payable by us................ $ $ $
</TABLE>
--------
(1) In connection with our most recent private placement, Jefferies & Company,
Inc. will receive a fee in the amount of $100,000.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Jefferies & Company, Inc. for a
period of 180 days after the date of this prospectus, except as previously
consented to by Jefferies & Company, Inc.
Our executive officers and directors and certain of our shareholders have
agreed that they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of
our common stock, enter into a transaction which would have the same effect, or
enter into any swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our common stock,
whether any such aforementioned transaction is to be settled by delivery of our
common stock or such other securities, in cash or otherwise, or publicly
disclose the intention to make any such offer, sale, pledge or disposition, or
to
63
<PAGE>
enter into any such transaction, swap, hedge or other arrangement, without, in
each case, the prior written consent of Jefferies & Company, Inc. for a period
of 180 days after the date of this prospectus.
Pursuant to SEC short-swing trading rules, H&Q Guaranty is restricted from
selling its directly-owned shares of our common stock prior to February 2001.
We have agreed to indemnify the underwriters against certain liabilities
under the Securities Act, or contribute to payments that the underwriters may
be required to make in respect thereof.
In connection with the offering the underwriters may engage in over-
allotment transactions, stabilizing transactions, syndicate covering
transactions, penalty bids and passive market making in accordance with
Regulation M under the Securities Exchange Act of 1934 such as the following:
. Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares, which they may purchase in the over-
allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares in the
open market.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares
through the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option--a naked short
position--that position can only be closed out by buying shares in the
open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the
price of the shares in the open market after pricing that could
adversely affect investors who purchase in the offering.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
. In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to limitations,
make bids for or purchases of the common stock until the time, if any,
at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
common stock or preventing or retarding a decline in the market price of the
common stock. As a result the price of the common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on The New York Stock Exchange or otherwise and, if commenced, may be
discontinued without notice at any time.
64
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Vinson & Elkins L.L.P, Houston, Texas. The underwriters have been represented
by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, California.
INDEPENDENT ACCOUNTANTS
The financial statements of Goodrich Petroleum Corporation and subsidiaries
as of December 31, 1999 and 1998, and for each of the years in the three-year
period ended December 31, 1999, have been included herein and in the
registration statement in reliance upon the report of KPMG, LLP, independent
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
INDEPENDENT PETROLEUM ENGINEERS
Information relating to the estimated proved reserves of oil and natural gas
and the related statements of future cash flows and present values of future
net revenues thereof and other related calculations as of January 1, 2000
included herein and in the notes to our financial statements have been prepared
by Coutret & Associates, Inc., independent petroleum engineers.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-1 that we have
filed with the SEC under the Securities Act with respect to the common stock
offered in this prospectus. This prospectus does not contain all of the
information that is in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the SEC. We refer you to the registration statement for further information
about our company and the securities offered in this prospectus.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Those reports, proxy
statements and other information, as well as the registration statement of
which this prospectus forms a part, can be inspected and copied at the Public
Reference Room maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, DC 20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding us, as well as the registration statement of which
this prospectus forms a part. The reports, proxy and information statements and
other information concerning us also can be inspected and copied at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York
10005, on which our common stock is listed.
65
<PAGE>
GLOSSARY OF TECHNICAL TERMS
The definitions below apply to the technical terms used in this prospectus.
All volumes of natural gas referred to herein are stated at the legal pressure
base of the state or area where the reserves exist and at 60 degrees Fahrenheit
and in most instances are rounded to the nearest major multiple.
After payout. With respect to an oil or gas interest in a property, refers
to the time period after which the costs to drill and equip a well have been
recovered.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Boe. Barrels of oil equivalent, determined using the ratio of six Mcf of
natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Btu or British Thermal Unit. The quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.
Completion. The installation of permanent equipment for the production of
oil or gas or, in the case of a dry hole, the reporting of abandonment to the
appropriate agency.
Developed acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Development well. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon believed to be productive.
Dry hole. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production
exceed production expenses and taxes.
Exploratory well. A well drilled to find and produce oil or gas reserves not
classified as proved, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir or to extend a known reservoir.
Farm-in or farm-out. An agreement whereunder the owner of a working interest
in an oil and natural gas lease assigns the working interest or a portion
thereof to another party who desires to drill on the leased acreage. Generally,
the assignee is required to drill one or more wells in order to earn its
interest in the acreage. The assignor usually retains a royalty or reversionary
interest in the lease. The interest received by an assignee is a "farm-in"
while the interest transferred by the assignor is a "farm-out."
Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
Finding costs. Costs associated with acquiring exploring for and developing
proved oil and natural gas reserves, including all costs involved in acquiring
acreage, geological and geophysical work and the cost of drilling and
completing wells.
Gross acres or gross wells. The total acres or wells, as the case may be, in
which a working interest is owned.
MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.
66
<PAGE>
Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
MMBbls. One million barrels of crude oil or other liquid hydrocarbons.
MMBtu. One million British Thermal Units.
MMcf. One million cubic feet.
MMcf/d. One million cubic feet per day.
MMcfe. One million cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Net acres or net wells. The sum of the fractional working interests owned
in gross acres or gross wells.
Normally pressured reservoirs. Reservoirs with a formation-fluid pressure
equivalent to 0.465 psi per foot of depth from the surface. For example, if
the formation pressure is 4,650 psi at 10,000 feet, then the pressure is
considered to be normal.
Over-pressured reservoirs. Reservoirs subject to abnormally high pressure
as a result of certain types of subsurface formations.
Present value. When used with respect to oil and natural gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development costs, using
prices and costs in effect as of the date indicated, without giving effect to
nonproperty-related expenses such as general and administrative expenses, debt
service and future income tax expense or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.
Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Proved developed non-producing reserves. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.
Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and able to produce to market.
Proved developed reserves. Proved reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.
Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.
Proved undeveloped reserves. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
67
<PAGE>
PV-10 Value. The present value of estimated future revenues to be generated
from the production of proved reserves, calculated in accordance with
Commission guidelines, net of estimated production and future development
costs, using prices and costs as of the date of estimation without future
escalation, without giving effect to non-property related expenses such as
general and administrative expenses, debt service, future income tax expense
and depreciation, depletion and amortization, and discounted using an annual
discount rate of 10%.
Recompletion. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
Reservoir. A porous and permeable underground formation containing a natural
accumulation of producible oil and/or gas that is confined by impermeable rock
or water barriers and is individual and separate from other reservoirs.
Royalty interest. An interest in an oil and natural gas property entitling
the owner to a share of oil or gas production free of costs of production.
3-D seismic data. Three-dimensional pictures of the subsurface created by
collecting and measuring the intensity and timing of sound waves transmitted
into the earth as they reflect back to the surface.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.
Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
Workover. Operations on a producing well to restore or increase production.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets at June 30, 2000 (Unaudited) and December 31,
1999..................................................................... F-2
Consolidated Statements of Operations (Unaudited) Six Months Ended June
30, 2000 and 1999........................................................ F-3
Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June
30, 2000 and 1999........................................................ F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Unaudited) Six Months Ended June 30, 2000 and 1999...................... F-5
Notes to Consolidated Financial Statements June 30, 2000 and 1999
(Unaudited).............................................................. F-6
Independent Auditors' Report.............................................. F-9
Consolidated Balance Sheets at December 31, 1999 and 1998................. F-10
Consolidated Statements of Operations Years Ended December 31, 1999, 1998
and 1997................................................................. F-11
Consolidated Statements of Cash Flows Years Ended December 31, 1999, 1998
and 1997................................................................. F-12
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Year Ended December 31, 1999, 1998 and 1997.............................. F-13
Notes to Consolidated Financial Statements December 31, 1999.............. F-14
</TABLE>
F-1
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................... $ 4,952,434 $ 5,929,229
Accounts receivable
Trade and other, net of allowance................ 808,837 669,741
Accrued oil and gas revenue...................... 4,298,895 1,937,711
Prepaid insurance and other........................ 25,050 53,806
----------- -----------
Total current assets............................. 10,085,216 8,590,487
----------- -----------
PROPERTY AND EQUIPMENT
Oil and gas properties (successful efforts
method)........................................... 71,459,022 65,401,168
Furniture, fixtures and equipment.................. 223,175 213,524
----------- -----------
71,682,197 65,614,692
Less accumulated depletion, depreciation and
amortization...................................... (22,651,070) (19,566,835)
----------- -----------
Net property and equipment....................... 49,031,127 46,047,857
----------- -----------
OTHER ASSETS
Restricted Cash.................................... 1,320,000 --
Other.............................................. 1,425,765 1,620,208
----------- -----------
Total Other Assets............................... 2,745,765 1,620,208
----------- -----------
TOTAL ASSETS................................... $61,862,108 $56,258,552
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt.................. $ 3,600,000 $ 3,600,000
Accounts payable................................... 2,994,107 2,711,746
Accrued liabilities................................ 1,677,391 1,326,995
Current portion other non-current liabilities...... 821,454 1,182,306
----------- -----------
Total current liabilities........................ 9,092,952 8,821,047
----------- -----------
LONG TERM DEBT....................................... 31,712,853 33,353,117
OTHER NON-CURRENT LIABILITIES
Production payment payable......................... 1,342,462 1,630,784
Accrued abandonment costs.......................... 3,223,757 3,108,281
Accrued interest long term debt.................... 749,440 251,154
PREFERRED STOCKHOLDERS EQUITY IN A SUBSIDIARY
COMPANY............................................. -- 2,683,125
STOCKHOLDERS' EQUITY
Preferred stock; authorized 10,000,000 shares:
Series A convertible preferred stock, parvalue
$1.00 per share; issued and outstanding 796,318
shares (liquidation preference $10 per share,
aggregating to $7,963,180)........................ 796,318 796,318
Series B convertible preferred stock, par value
$1.00 per share; issued and outstanding 662,700
and 665,759 shares, respectively (liquidation
preference $10 per share, aggregating to
$6,627,000)....................................... 662,700 665,759
Common stock, par value $0.20 per share; authorized
25,000,000 shares; issued and outstanding
8,985,789 shares.................................. 1,797,158 1,083,434
Additional paid-in capital......................... 25,115,768 18,156,114
Accumulated deficit................................ (12,631,300) (14,290,581)
----------- -----------
Total stockholders' equity..................... 15,740,644 6,411,044
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $61,862,108 $56,258,552
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June
30,
-----------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUES
Oil and gas sales................................... $11,066,051 $ 5,607,822
Other............................................... 285,880 163,404
----------- -----------
Total revenues.................................... 11,351,931 5,771,226
----------- -----------
EXPENSES
Lease operating expense and production taxes........ 3,044,567 1,367,534
Depletion, depreciation and amortization............ 2,568,106 2,466,956
Exploration......................................... 726,187 822,074
Interest expense.................................... 2,391,993 1,082,172
General and administrative.......................... 1,197,257 1,125,260
Preferred dividend requirements of a subsidiary..... 38,364 --
----------- -----------
Total costs and expenses.......................... 9,966,474 6,863,996
----------- -----------
GAIN (LOSS) ON SALE OF ASSETS......................... 273,824 (519,495)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES..................... 1,659,281 (1,612,265)
----------- -----------
Income taxes........................................ -- --
NET INCOME (LOSS)..................................... 1,659,281 (1,612,265)
Preferred stock dividends (2000 and 1999 amounts in
arrears)........................................... 603,552 627,824
----------- -----------
INCOME (LOSS) APPLICABLE TO COMMON STOCK.............. $ 1,055,729 $(2,240,089)
=========== ===========
BASIC INCOME (LOSS) PER AVERAGE COMMON SHARE.......... $ .13 $ (.43)
=========== ===========
DILUTED INCOME (LOSS) PER AVERAGE COMMON SHARE........ .10 (.43)
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING--BASIC.............. 7,972,848 5,254,501
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING--DILUTED............ 11,111,691 5,254,501
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
2000 1999
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................... $ 1,659,281 $ (1,612,265)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depletion, depreciation and amortization....... 2,568,106 2,466,956
Amortization of leasehold costs................ 516,130 563,506
Amortization of deferred debt-financing........ 226,178 --
Accrued interest on private placement
borrowings.................................... 498,286 --
Amortization of detachable stock purchase
warrants...................................... 285,000 --
Amortization of production payment discount.... 121,410 --
Preferred dividends of subsidiary.............. 38,364 --
(Gain) Loss on sale of asset................... (273,824) 519,495
Director stock grant........................... 30,000 30,000
Capital expenditures charged to income......... 4,709 43,922
------------ -------------
5,673,640 2,011,614
Net change in:
Accounts receivable............................ (2,500,280) 1,667,852
Prepaid insurance and other.................... 27,020 (41,669)
Accounts payable............................... 282,361 (1,027,299)
Accrued liabilities............................ 350,396 (774,712)
Other Liabilities.............................. (484,525) --
------------ -------------
Net cash provided by operating activities..... 3,348,612 1,835,786
------------ -------------
INVESTING ACTIVITIES
Proceeds from sales of assets................... 426,050 240,105
Acquisition of oil and gas properties........... (1,198,631) --
Capital expenditures............................ (5,025,809) (1,525,583)
------------ -------------
Net cash used in investing activities......... (5,798,390) (1,285,478)
------------ -------------
FINANCING ACTIVITIES
Proceeds from private placement of common
stock.......................................... 4,500,000 --
Principal payments of bank borrowings........... (1,925,264) (600,000)
Exercise of stock purchase warrants............. 217,511 --
Exercise of employee stock options.............. 191,444 --
Exercise of director stock options.............. 9,875 --
Net change in restricted cash................... (1,320,000) --
Production payments............................. (170,583) --
Payment of debt restructure costs............... (30,000) --
------------ -------------
Net cash provided by (used in) financing
activities................................... 1,472,983 (600,000)
------------ -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS......... (976,795) (49,692)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.. 5,929,229 95,630
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $ 4,952,434 $ 45,938
============ =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Six Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Other
Series A* Series B* Comprehensive
Preferred Stock Preferred Stock Common Stock Loss Unrealized
------------------ ------------------ -------------------- Additional Gain (Loss) on
Number Par Number Par Number Paid-In Accumulated Marketable
of Shares Value of Shares Value of Shares Par Value Capital Deficit Equity Securities
--------- -------- --------- -------- --------- ---------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1998............ 796,318 $796,318 750,000 $750,000 5,247,705 $1,049,541 $15,226,027 $(12,461,598) $(400,900)
Net loss........ -- -- -- -- -- -- -- (1,612,265) --
Realized loss on
sale of
marketable
securities...... -- -- -- -- -- -- -- -- 400,900
Total
Comprehensive
Income (Loss)... -- -- -- -- -- -- -- -- --
Directors stock
grant........... -- -- -- -- 30,000 6,000 24,000 -- --
------- -------- ------- -------- --------- ---------- ----------- ------------ ---------
Balance at June
30, 1999........ 796,318 $796,318 750,000 $750,000 5,277,705 $1,055,541 $15,250,027 $(14,073,863) --
======= ======== ======= ======== ========= ========== =========== ============ =========
Balance at
December 31,
1999............ 796,318 $796,318 665,759 $665,759 5,417,171 $1,083,434 $18,156,114 $(14,290,581) --
Net Income...... -- -- -- -- -- -- -- 1,659,281 --
Total
Comprehensive
Income ......... -- -- -- -- -- -- -- -- --
Issuance of
common stock.... -- -- -- -- 1,533,333 306,667 4,193,333 -- --
Conversion of
preferred stock
of subsidiary to
common stock.... -- -- -- -- 1,547,665 309,533 2,411,956 -- --
Exercise of
director stock
option.......... -- -- -- -- 12,500 2,500 7,375 -- --
Exercise of
common stock
purchase
warrants........ -- -- -- -- 220,011 44,002 173,509 -- --
Exercise of
employee stock
option.......... -- -- -- -- 245,698 49,140 142,304 -- --
Director stock
grant........... -- -- -- -- 6,000 1,200 28,800 -- --
Conversion of
Series B
preferred stock
to common
stock........... -- -- (3,059) (3,059) 3,411 682 2,377 -- --
------- -------- ------- -------- --------- ---------- ----------- ------------ ---------
Balance at June
30, 2000........ 796,318 $796,318 662,700 $662,700 8,985,789 $1,797,158 $25,115,768 $(12,631,300) --
======= ======== ======= ======== ========= ========== =========== ============ =========
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Balance at
December 31,
1998............ $ 4,959,388
Net loss........ (1,612,265)
Realized loss on
sale of
marketable
securities...... 400,900
-------------
Total
Comprehensive
Income (Loss)... (1,211,365)
Directors stock
grant........... 30,000
-------------
Balance at June
30, 1999........ $ 3,778,023
=============
Balance at
December 31,
1999............ $ 6,411,044
Net Income...... 1,659,281
-------------
Total
Comprehensive
Income ......... 1,659,281
Issuance of
common stock.... 4,500,000
Conversion of
preferred stock
of subsidiary to
common stock.... 2,721,489
Exercise of
director stock
option.......... 9,875
Exercise of
common stock
purchase
warrants........ 217,511
Exercise of
employee stock
option.......... 191,444
Director stock
grant........... 30,000
Conversion of
Series B
preferred stock
to common
stock........... --
-------------
Balance at June
30, 2000........ $15,740,644
=============
</TABLE>
----
* Dividends are cumulative and arrearages amounted to $1,852,994 and $627,824
or $.23 and $.12 per share at June 30, 2000 and 1999, respectively.
See notes to consolidated financial statements.
F-5
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
NOTE A--Basis of Presentation
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to rules and regulations of the
Securities and Exchange Commission; however, the Company believes the
disclosures which are made are adequate to make the information presented not
misleading. The financial statements and footnotes included in this
registration statement should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1999.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of the
Company as of June 30, 2000 and the results of its operations for the six
months ended June 30, 2000 and 1999.
The results of operations for the six month period ended June 30, 2000 are
not necessarily indicative of the results to be expected for the full year.
NOTE B--Conversion of Convertible Notes
On July 27, 2000, the Company announced its intention to call and convert
approximately $12,900,000 in principal and interest in convertible notes into
common stock of the Company at $4.00 per share. The Company notified the
holders of the convertible notes that it intends to prepay the principal and
accrued interest, plus a prepayment penalty of ten percent (10%)($645,000), on
the Goodrich Petroleum--Lafitte, LLC portion of the notes, on August 17, 2000.
In lieu of taking cash for the notes, the noteholders have the right to convert
all of their principal and accrued interest into common stock of the Company at
$4.00 per share. The conversion of the notes will increase stockholders equity
by approximately $10,100,000 to approximately $25,841,000.
The Company has secured an underwriting to assist in the purchase of the
notes of any of the noteholders that elect not to convert their principal and
interest into the Company's common stock. Any notes purchased by the
underwriters will be converted into the common stock of the Company at $4.00
per share. Two of the underwriters are, or are affiliates of, members of the
Company's board. Each underwriter will receive 15,000 shares of the Company's
common as compensation for their services. In addition, one of the underwriters
will receive an additional 15,000 shares of common stock for their role as
agent for the noteholders. The underwriters will then convert these notes into
common stock of the Company at $4.00 per share.
NOTE C--Acquisition of Oil and Gas Properties
On March 2, 2000, the Company completed its acquisition of working interests
in the Burrwood and West Delta 83 Fields, comprising approximately 8,600 acres,
in Plaquemines Parish, Louisiana for $1,650,000 and the assumption of the
fields plugging and abandonment obligation estimated at $5,000,000. The Company
acquired an approximate 95% working interest of all rights from the surface to
approximately 10,600' and an approximate 47.5% working interest in the deep
rights below 10,600'. In connection with the acquisition the Company secured a
performance bond and established an escrow account to be used for the payment
of obligations associated with the plugging and abandonment of the wells,
salvage and removal of platforms and related equipment, and the site
restoration of the fields. Required escrowed outlays include an initial cash
payment of $750,000 and monthly cash payments of $70,000 beginning June 1, 2000
and continuing until June 1, 2005 subject to a redetermination at August 1,
2000. In addition, as part of the purchase agreement, the
F-6
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company has agreed to shoot a 3-D seismic survey over the fields by June 30,
2001 or remit payment to the seller in the amount of $3,500,000. The cost of
the seismic study is expected to be approximately $2,500,000 and the Company
has escrowed cash compensating balances of $500,000 with Compass Bank to be
used solely for payments or reimbursements of amounts expended in satisfaction
of the seismic requirement.
NOTE D--Private Placement
On February 18, 2000, the Company completed a private placement of shares of
its common stock resulting in net proceeds to the Company of $4,500,000. The
Company issued 1,533,333 shares of common stock in an offering, which began on
January 28, 2000. The $4,500,000 in offering proceeds, in addition to the
Company's existing working capital and anticipated cash flow from operations,
have been used to assist in the acquisition of and will be used in the
development of the Burrwood and West Delta 83 fields, and to further develop
the Lafitte field purchased in 1999. The Company owns an approximate 49%
working interest in the Lafitte field in Jefferson Parish, Louisiana, which was
acquired in September 1999.
Note E--Conversion of Preferred Units
On January 28, 2000, the Company notified holders of Goodrich Petroleum
Company, LLC's Series A Preferred Units that it intended to call for redemption
all the outstanding units which were convertible into the Company's common
stock at $2.00 per share. On February 17, 2000, all of the holders of the
Preferred Units, representing one hundred percent of the 300,000 of outstanding
Units, converted the Units into approximately 1,550,000 shares of the common
stock of Goodrich Petroleum Corporation. The conversion of the preferred units
and private placement increased the Company's stockholders equity by
approximately $7,200,000.
NOTE F--Lafitte Field Acquisition
On September 23, 1999 the Company acquired an approximate 49% working
interest in the Lafitte Field located in Jefferson Parish, Louisiana for
$2,940,000. The field encompasses over 8,000 acres and is located approximately
thirty miles south of New Orleans. The Company commenced development activities
in the fourth quarter of 1999.
The consideration granted to seller included a production payment to be
satisfied through the delivery of production from the property. In connection
with the transaction, the Company recorded a production payment liability of
approximately $2,200,000, representing the discounted present value of the
estimated production payments necessary to satisfy the obligation.
Additionally, the Company recorded a $3,800,000 liability for its interest
in the estimated plugging and abandonment costs assumed in connection with the
purchase. It is expected that approximately $265,000 of the costs will be
funded within the next 12 months.
NOTE G--Commitments and Contingencies
The U.S. Environmental Protection Agency ("EPA") has identified the Company
as a potentially responsible party ("PRP") for the cost of clean-up of
"hazardous substances" at an oil field waste disposal site in Vermilion Parish,
Louisiana. The Company has estimated that the remaining cost of long-term clean
up of the site will be approximately $3.5 million with the Company's percentage
of responsibility to be approximately 3.05%. As of June 30, 2000, the Company
has paid approximately $321,000 in costs related to this matter and $122,500
accrued for the remaining liability. These costs have not been discounted to
their present value. The EPA and the PRPs will continue to evaluate the site
and revise estimates for the long-term
F-7
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
clean up of the site. There can be no assurance that the cost of clean up and
the Company's percentage responsibility will not be higher than currently
estimated. In addition, under the federal environmental laws, the liability
costs for the clean-up of the site is joint and several among all PRPs.
Therefore, the ultimate cost of the clean up to the Company could be
significantly higher than the amount presently estimated or accrued for this
liability.
NOTE H--Income (Loss) Per Share
Net income (loss) was used as the numerator in computing both basic and
diluted income (loss) per Common share for the three and six months ended June
30, 2000 and 1999. The following table reconciles the weighted-average shares
outstanding used for these computations.
<TABLE>
<CAPTION>
Reconciliation of Shares Outstanding
-----------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Basic Method.......................... 8,892,668 5,261,221 7,972,848 5,254,501
Dilutive Stock Warrants............... 2,822,658 -- 2,641,459 --
Dilutive Stock Options................ 341,960 -- 497,384 --
---------- --------- ---------- ---------
Diluted Method........................ 12,057,286 5,261,221 11,111,691 5,254,501
</TABLE>
The computations of earnings per share in the consolidated Statements of
operations did not consider outstanding convertible notes convertible into
3,187,360 shares of common stock and convertible preferred stock convertible
into 1,070,737 shares of common stock for the three and six months ended June
30, 2000 because the effects of these convertible securities would have
improved the Company's earnings per share.
Beginning in 1999, the Company suspended dividend payments on its Series A
and Series B convertible preferred stock. Dividends on both classes of its
preferred stock are cumulative and arrearages amounted to $603,000 and $628,000
for the six months ended June 30, 2000 and 1999, respectively. Total cumulative
arrearages amounted to $1,853,000 at June 30, 2000. Accordingly, undeclared
dividends held in arrears have been considered in computing per share amounts
applicable to common stockholders.
As of June 30, 2000, the Company had not paid dividends on the Series A
preferred stock for six consecutive quarters. Accordingly, the Series A
preferred holders are entitled to elect two members to the Company's board of
directors.
NOTE I--Stock Option Plan
At the March 29, 2000 board of directors meeting, the Compensation Committee
voted to accelerate the vesting schedule on options granted to employees on
February 25, 1999. The vesting period for the applicable options was immediate
and the total number of options affected was 235,698.
NOTE J--Income Taxes
No provision for income taxes has been recorded for the Company for the six
months ended June 30, 2000 and 1999 due to the availability of net operating
loss carry forwards in 2000 and its incurring a net operating loss for the 1999
period. A valuation allowance has been provided for the amount of net operating
losses incurred in 1999.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Goodrich Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of Goodrich
Petroleum Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for each of the years in the three year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Goodrich
Petroleum Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
Shreveport, Louisiana
March 29, 2000
F-9
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................... $ 5,929,229 $ 95,630
Marketable equity securities....................... -- 358,700
Accounts receivable
Trade and other, net of allowance................ 669,741 2,197,179
Accrued oil and gas revenue...................... 1,937,711 1,089,226
Prepaid insurance.................................. 53,806 184,898
----------- -----------
Total current assets............................. 8,590,487 3,925,633
----------- -----------
PROPERTY AND EQUIPMENT
Oil and gas properties............................. 65,401,168 53,320,832
Furniture, fixtures and equipment.................. 213,524 195,279
----------- -----------
65,614,692 53,516,111
Less accumulated depletion, depreciation and
amortization...................................... (19,566,835) (13,720,009)
----------- -----------
Net property and equipment....................... 46,047,857 39,796,102
----------- -----------
OTHER ASSETS......................................... 1,620,208 314,853
----------- -----------
TOTAL ASSETS..................................... $56,258,552 $44,036,588
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt.................. $ 3,600,000 $29,500,000
Accounts payable................................... 2,711,746 7,763,507
Accrued liabilities................................ 1,326,995 1,813,693
Current portion other noncurrent liabilities....... 1,182,306 --
----------- -----------
Total current liabilities........................ 8,821,047 39,077,200
----------- -----------
LONG TERM DEBT....................................... 33,353,117 --
OTHER NONCURRENT LIABILITIES
Production payment payable......................... 1,630,784 --
Accrued abandonment costs.......................... 3,108,281 --
Accrued interest on long term debt................. 251,154 --
----------- -----------
Total liabilities................................ 47,164,383 39,077,200
----------- -----------
PREFERRED STOCKHOLDERS EQUITY IN A SUBSIDIARY
COMPANY............................................. 2,683,125 --
STOCKHOLDERS' EQUITY
Preferred stock; authorized 10,000,000 shares:
Series A convertible preferred stock, par value
$1 per share; issued and outstanding 796,318
shares (liquidating preference $10 per share,
aggregating to $7,963,180)...................... 796,318 796,318
Series B convertible preferred stock, par value
$1 per share; issued and outstanding 665,759 and
750,000 shares (liquidation preference $10 per
share, aggregating to $6,657,590)............... 665,759 750,000
Common stock, par value $0.20 per share; authorized
25,000,000 shares; issued and outstanding
5,417,171 and 5,247,703 shares.................... 1,083,434 1,049,541
Additional paid-in capital......................... 18,156,114 15,226,027
Accumulated deficit................................ (14,290,581) (12,461,598)
Accumulated other comprehensive income............. -- (400,900)
----------- -----------
Total stockholders' equity....................... 6,411,044 4,959,388
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $56,258,552 $44,036,588
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Oil and gas sales..................... $13,734,691 $ 9,836,863 $11,351,586
Pipeline joint venture................ -- -- 1,078,397
Other................................. 285,883 755,010 471,378
----------- ----------- -----------
Total revenues...................... 14,020,574 10,591,873 12,901,361
----------- ----------- -----------
COSTS AND EXPENSES
Lease operating expense and production
taxes................................ 3,591,427 2,821,515 2,316,006
Depletion, depreciation and
amortization......................... 4,743,608 4,094,447 4,862,754
Exploration........................... 1,656,158 6,010,425 3,205,730
Impairment of oil and gas properties.. 465,465 1,075,853 549,792
Interest expense...................... 2,810,576 1,909,849 1,416,675
General and administrative............ 1,989,703 2,399,332 2,627,672
Preferred dividend requirements of
subsidiary........................... 73,125 -- --
----------- ----------- -----------
Total costs and expenses............ 15,330,062 18,311,421 14,978,629
----------- ----------- -----------
GAIN (LOSS) ON SALES OF ASSETS.......... (519,495) 4,206 688,304
----------- ----------- -----------
LOSS BEFORE INCOME TAXES................ (1,828,983) (7,715,342) (1,388,964)
Income Taxes.......................... -- -- --
----------- ----------- -----------
NET LOSS................................ (1,828,983) (7,715,342) (1,388,964)
Preferred stock dividends (1999
amounts in arrears).................. 1,249,343 1,255,638 1,205,210
----------- ----------- -----------
LOSS APPLICABLE TO COMMON STOCK......... $(3,078,326) $(8,970,980) $(2,594,174)
=========== =========== ===========
BASIC LOSS PER AVERAGE COMMON SHARE..... $ (.58) $ (1.71) $ (.50)
=========== =========== ===========
DILUTED LOSS PER AVERAGE COMMON SHARE... $ (.58) $ (1.71) $ (.50)
=========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING....... 5,288,011 5,243,105 5,229,307
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................... $(1,828,983) $(7,715,342) $(1,388,964)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depletion, depreciation and
amortization......................... 4,743,607 4,094,447 4,862,754
Amortization of leasehold costs....... 1,103,219 1,016,649 288,037
Amortization of deferred debt
financing costs...................... 109,088 -- 27,694
(Gain) Loss on sale of assets......... 519,495 (4,206) (688,304)
Capital expenditures charged to
income............................... 119,800 4,382,514 2,341,954
Impairment of oil and gas properties.. 465,465 1,075,853 549,792
Accrued interest on private placement
borrowings........................... 251,154 -- --
Amortization of detachable stock
purchase warrants.................... 142,500 -- --
Preferred stock dividends of
subsidiary........................... 73,125 -- --
Payment of other liabilities.......... -- (107,625) (321,040)
Director stock grant.................. 30,000 -- --
Other................................. (68,636) (160,518) (87,357)
----------- ----------- -----------
5,659,834 2,581,772 5,584,566
Net change in (exclusive of
acquisition):
Accounts receivable................... 678,953 (289,660) 520,391
Prepaid insurance and other........... 195,975 (71,550) 73,933
Accounts payable...................... (5,051,761) 2,975,821 (157,334)
Accrued liabilities................... (418,092) (679,620) 611,069
----------- ----------- -----------
Net cash provided by operating
activities.......................... 1,064,909 4,516,763 6,632,625
----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of pipeline joint
venture............................... -- -- 3,564,000
Proceeds from sales of assets.......... 249,487 49,091 370,000
Acquisition of oil and gas properties.. (4,099,956) (129,325) (2,074,866)
Capital expenditures................... (2,556,901) (14,878,619) (7,866,173)
----------- ----------- -----------
Net cash used in investing
activities.......................... (6,407,370) (14,958,853) (6,007,039)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from bank borrowings.......... -- 11,500,000 12,000,000
Principal payments of bank borrowings.. (2,409,383) (500,000) (10,963,919)
Proceeds from Private Placement
borrowings............................ 12,000,000 -- --
Proceeds from preferred stock issue.... 3,000,000 -- --
Preferred stock dividends.............. -- (1,255,638) (1,205,210)
Production payments.................... (114,970) -- --
Retirement of preferred stock.......... -- -- (7,650)
Payment of debt financing costs........ (1,303,496) -- --
Exercise of employee stock options..... 3,909 -- --
----------- ----------- -----------
Net cash provided by (used in)
financing activities................ 11,176,060 9,744,362 (176,779)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 5,833,599 (697,728) 448,807
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD.............................. 95,630 793,358 344,551
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 5,929,229 $ 95,630 $ 793,358
=========== =========== ===========
NON CASH INVESTING ACTIVITIES
Costs of private placement............. 355,800 -- --
Acquisition of oil and gas properties
and assumption of related
liabilities........................... 6,036,342 -- --
Accrued Capital Expenditures and
Financing Costs....................... -- 1,981,276 1,290,658
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Accumulated Other
Series A Series B Comprehensive
Preferred Stock* Preferred Stock* Common Stock Income-Unrealized
------------------ ------------------ -------------------- Additional Gain (Loss) on
Number Par Number Par Number Paid-In Accumulated Marketable
of Shares Value of Shares Value of Shares Par Value Capital Deficit Equity Securities
--------- -------- --------- -------- --------- ---------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January
1, 1997........... 801,149 $801,149 -- $ -- 5,225,564 $1,045,113 $ 8,375,282 $ (896,444) $(189,900)
Net loss.......... -- -- -- -- -- -- -- (1,388,964) --
Unrealized Change
in Marketable
Securities........ -- -- -- -- -- -- -- -- 274,300
Total
Comprehensive
Income (Loss).....
Issuance of Series
B Preferred
Stock............. -- -- 750,000 750,000 -- -- 6,750,000 -- --
Preferred stock
dividends
Series A ($.80
per share)...... -- -- -- -- -- -- -- (638,023) --
Series B ($.76
per share)...... -- -- -- -- -- -- -- (567,187) --
Conversion of
preferred stock to
Common Stock...... (3,831) (3,831) -- -- 2,993 599 3,232 -- --
Employee Stock
grants............ -- -- -- -- 3,846 769 24,231 -- --
Retirement of
Series A Preferred
Stock............. (1,000) (1,000) -- -- -- -- (6,650) -- --
------- -------- ------- -------- --------- ---------- ----------- ------------ ---------
Balance at
December 31,
1997.............. 796,318 796,318 750,000 750,000 5,232,403 1,046,481 15,146,095 (3, 490,618) 84,400
------- -------- ------- -------- --------- ---------- ----------- ------------ ---------
Net loss.......... -- -- -- -- -- -- -- (7,715,342) --
Unrealized Change
in Marketable
Securities........ -- -- -- -- -- -- -- (485,300)
Total
Comprehensive
Income (Loss)..... -- -- -- -- -- -- -- -- --
Preferred stock
dividends......... -- -- -- -- -- -- -- (1,255,638) --
Employee and
director stock
grants............ -- -- -- -- 15,302 3,060 79,932 -- --
------- -------- ------- -------- --------- ---------- ----------- ------------ ---------
Balance at
December 31,
1998.............. 796,318 796,318 750,000 750,000 5,247,705 1,049,541 15,226,027 (12,461,598) (400,900)
------- -------- ------- -------- --------- ---------- ----------- ------------ ---------
Net loss.......... -- -- -- -- -- -- -- (1,828,983) --
Realized loss on
sale of marketable
Securities........ -- -- -- -- -- -- -- -- 400,900
Total
Comprehensive
Income (Loss)..... -- -- -- -- -- -- -- -- --
Issuance of Common
Stock Purchase
Warrants with
Preferred Stock... -- -- -- -- -- -- 210,000 -- --
Issuance of Common
Stock Purchase
Warrants for
services.......... -- -- -- -- 40,000 8,000 113,800 -- --
Issuance of Common
Stock Purchase
Warrants as
transaction fee... -- -- -- -- -- -- 234,000 -- --
Issuance of Common
Stock Purchase
Warrants with
debt.............. -- -- -- -- -- -- 2,280,000 -- --
Director Stock
Grants............ -- -- -- -- 30,000 6,000 24,000 -- --
Exercise of
Employee Stock
Options........... -- -- -- -- 5,250 1,050 2,889 -- --
Conversion of
Series B Preferred
Stock to Common
Stock............. -- -- (84,241) (84,241) 94,216 18,843 65,398 -- --
------- -------- ------- -------- --------- ---------- ----------- ------------ ---------
Balance at
December 31,
1999.............. 796,318 $796,318 665,759 $665,759 5,417,171 $1,083,434 $18,156,114 $(14,290,581) --
======= ======== ======= ======== ========= ========== =========== ============ =========
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Balance at January
1, 1997........... $ 9,135,200
Net loss.......... (1,388,964)
Unrealized Change
in Marketable
Securities........ 274,300
-------------
Total
Comprehensive
Income (Loss)..... (1,114,664)
Issuance of Series
B Preferred
Stock............. 7,500,000
Preferred stock
dividends
Series A ($.80
per share)...... (638,023)
Series B ($.76
per share)...... (567,187)
Conversion of
preferred stock to
Common Stock...... --
Employee Stock
grants............ 25,000
Retirement of
Series A Preferred
Stock............. (7,650)
-------------
Balance at
December 31,
1997.............. 14,332,676
-------------
Net loss.......... (7,715,342)
Unrealized Change
in Marketable
Securities........ (485,300)
-------------
Total
Comprehensive
Income (Loss)..... (8,200,642)
Preferred stock
dividends......... (1,255,638)
Employee and
director stock
grants............ 82,992
-------------
Balance at
December 31,
1998.............. 4,959,388
-------------
Net loss.......... (1,828,983)
Realized loss on
sale of marketable
Securities........ 400,900
-------------
Total
Comprehensive
Income (Loss)..... (1,428,083)
Issuance of Common
Stock Purchase
Warrants with
Preferred Stock... 210,000
Issuance of Common
Stock Purchase
Warrants for
services.......... 121,800
Issuance of Common
Stock Purchase
Warrants as
transaction fee... 234,000
Issuance of Common
Stock Purchase
Warrants with
debt.............. 2,280,000
Director Stock
Grants............ 30,000
Exercise of
Employee Stock
Options........... 3,939
Conversion of
Series B Preferred
Stock to Common
Stock............. --
-------------
Balance at
December 31,
1999.............. $ 6,411,044
=============
</TABLE>
* dividends are cumulative and arrearages amounted to $1,249,343 or $0.23 per
share at December 31, 1999
See notes to consolidated financial statements.
F-13
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE A--Description of Business
The Company is in the primary business of the exploration and production of
crude oil and natural gas. The subsidiaries have interests in such operations
in seven states, primarily in Louisiana and Texas. Two of the Company's
subsidiaries also had a minority interest in a natural gas pipeline joint
venture located in the state of Texas until such interest was sold in 1997.
NOTE B--Summary of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements include
the financial statements of Goodrich Petroleum Corporation, its wholly-owned
subsidiaries, and one of its wholly-owned subsidiary's three wholly-owned
subsidiaries. Significant intercompany balances and transactions have been
eliminated in consolidation.
Revenue Recognition--Revenues from the production of natural gas properties
in which the Company has an interest with other producers are recognized on the
entitlements method. Differences between actual production and net working
interest volumes are routinely adjusted. These differences are not significant.
Property and Equipment--The Company uses the successful effort method of
accounting for exploration and development expenditures.
Leasehold acquisition costs are capitalized. When proved reserves are found
on an undeveloped property, leasehold cost is reclassified to proved
properties. Significant undeveloped leases are reviewed periodically, and a
valuation allowance is provided for any estimated decline in value. Cost of all
other undeveloped leases is amortized over the estimated average holding period
of the leases.
Costs of exploratory drilling are initially capitalized, but if proved
reserves are not found, the costs are subsequently expensed. All other
exploratory costs are charged to expense as incurred. Development costs are
capitalized, including the cost of unsuccessful development wells.
The Company follows SFAS No. 121 and recognizes an impairment when the net
of future cash inflows expected to be generated by an identifiable long-lived
asset and cash outflows expected to be required to obtain those cash inflows is
less than the carrying value of the asset. The Company performs this comparison
for its oil and gas properties on a field-by-field basis using the company's
estimates of future commodity prices. The amount of such loss is measured based
on the difference between the discounted value of such net future cash flows
and the carrying value of the asset. The Company recorded such impairments in
1999, 1998 and 1997 in the amounts of $465,000, $1,076,000 and $550,000
respectively. The impairments were generally the result of certain fields
depleting earlier than anticipated.
Depreciation and depletion of producing oil and gas properties are provided
under the unit-of-production method. Proved developed reserves are used to
compute unit rates for unamortized tangible and intangible development costs,
and proved reserves are used for unamortized leasehold costs. Estimated
dismantlement, abandonment, and site restoration costs, net of salvage value,
are considered in determining depreciation and depletion provisions.
Gains and losses on disposals or retirements that are significant or include
an entire depreciable or depletable property unit are included in income. All
other dispositions, retirements, or abandonments are reflected in accumulated
depreciation, depletion, and amortization.
F-14
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
demand deposit accounts and temporary cash investments with maturities of
ninety days or less at date of purchase.
Marketable Equity Securities--The Company has classified its investment in
marketable equity securities as available for sale. Accordingly, unrealized
holding gains and losses are excluded from earnings and are reported as other
comprehensive income until realized. The Company sold its marketable equity
securities in January 1999.
Investment in Pipeline Joint Venture--Prior to its sale in October 1997, the
Company's investment consisted of a 20% interest in an intrastate natural gas
pipeline joint venture. The Company's carrying basis in the investment was
established at August 15, 1995 (fair value) and was being amortized on a basis
which matched the amortization with the monthly maximum average contract
quantities over the estimated remaining term of the joint venture. Amortization
amounted to $741,000 for the year ended December 31, 1997. The Company recorded
its equity in joint venture earnings as revenues in the statement of operations
in the periods when the contract payments were earned.
Income Taxes--The Company follows the provisions of SFAS No. 109, Accounting
for Income Taxes which requires income taxes be accounted for under the asset
and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Earnings Per Share--Basic income per Common share is computed by dividing
net income available for common stockholders, for each reporting period by the
weighted average number of Common shares outstanding during the period. Diluted
income per Common share is computed by dividing net income available for common
stockholders for each reporting period by the weighted average number of Common
shares outstanding during the period, plus the effects of potentially dilutive
Common shares.
Derivative Financial Instruments--The Company utilizes derivative
instruments such as futures, forwards, options, collars and swaps for purposes
of hedging its exposure to fluctuations in the price of crude oil and natural
gas. Gains and losses from derivatives designated as hedges of sales are
reported on the statement of income as an increase or reduction of oil and gas
sales in the period related to the actual sale of product. Premiums paid on
hedging contracts are amortized over the life of the contracts as a reduction
to oil and gas sales.
Accounting Matters--The Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, in June
1997. This statement established accounting and reporting standards for
derivative instruments and hedging activities. Effective January 1, 2001, the
Company must recognize the fair value of all derivative instruments as either
assets or liabilities in its Consolidated Balance Sheet. A derivative
instrument meeting certain conditions may be designated as a hedge of a
specific exposure; accounting for changes in a derivative's fair value will
depend on the intended use of the derivative and the resulting designation. Any
transition adjustments resulting from adopting this statement will be reported
in net income or other comprehensive income, as appropriate, as the cumulative
effect of a change in accounting principle. The Company makes use of derivative
instruments to hedge specific market risks. The Company has not yet determined
the effects that SFAS No. 133 will have on its future consolidated financial
statements or the amount of the cumulative adjustment that will be made upon
adopting this new standard.
F-15
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Based Compensation--The Company uses SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense, over
the vesting period, the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and provide pro forma net income and pro forma earnings per share and other
disclosures for employee stock options grants made in 1995 and future years as
if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the disclosure provisions of SFAS No. 123.
Commitments and Contingencies--Liabilities for loss contingencies, including
environmental remediation costs, arising from claims, assessments, litigation,
fines and penalties, and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment and/or remediation
can be reasonably estimated. Recoveries from third parties, which are probable
of realization, are separately recorded, and are not offset against the related
environmental liability.
Use of Estimates--Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
NOTE C--Private Placement
On September 23, 1999, the Company and two of its subsidiaries, Goodrich
Petroleum Company, L.L.C. ("Goodrich-Louisiana") and Goodrich Petroleum
Company-Lafitte, L.L.C. ("Goodrich-Lafitte"), completed a private placement of
$15 million of convertible securities. As described below the private placement
transaction accomplished the objectives of management's plan as set forth in
the Liquidity and Capital Resources section of the Company's 1998 Annual Report
on Form 10-K.
Goodrich-Louisiana issued convertible notes in the amount of $6,000,000 that
will accrue interest monthly at 8% per annum in arrears until October 1, 2002.
Unless extended or converted, the principal and accrued interest will be
repayable in 24 monthly installments, beginning October 1, 2002. Principal and
accrued interest may be converted by the holder at any time into the common
stock of the Company at the rate of $4 per share. These convertible notes are
secured by various collateral, including a mortgage on Goodrich-Louisiana's oil
and gas properties. The purchasers of these notes received one warrant to
purchase a share of the common stock of the Company at $.9375 (the closing
price on the date the transaction was negotiated) for every $4 of notes issued.
The warrants may be exercised at any time before their expiration on September
30, 2006.
Goodrich-Lafitte is a newly formed Louisiana limited liability company and
is the entity which owns a 49% interest in the Lafitte Field. Goodrich-Lafitte
also issued convertible notes in the amount of $6,000,000 that will accrue
interest at 8% per annum, monthly in arrears, until October 1, 2002. Unless
extended or converted, the principal and accrued interest will be repayable in
24 monthly installments, beginning October 1, 2002. Principal and accrued
interest may be converted by the holder at any time into the common stock of
the Company at the rate of $4 per share. As an alternative conversion right,
the principal and accrued interest under these notes may be converted into
common equity interests in Goodrich-Lafitte, after October 1, 2002, if neither
the common stock of the Company has a closing price of at least $3 per share
nor the net asset value per share of the Company is at least $3. These
convertible notes are secured by various collateral, including a mortgage on
Goodrich-Lafitte's oil and gas properties. The purchasers of these notes
received one warrant to purchase a share of the common stock of the Company at
$.9375 (the closing price on the date the transaction was negotiated) for every
$4 of notes issued. The warrants may be exercised at any time before their
expiration on September 30, 2006.
F-16
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Approximately $3.7 million of the proceeds from the Goodrich-Lafitte
convertible notes were used to purchase the aforementioned interest in the
Lafitte Field. The remaining proceeds are being used for development capital
expenditures and for general corporate and working capital purposes.
Additionally, Goodrich-Louisiana issued $3,000,000 of preferred interests
consisting of 300,000 preferred units with a par value and liquidation
preference of $10 per share. The fair value of the preferred units is recorded
as preferred stockholders' equity in a subsidiary company in the accompanying
financial statements. Distributions on the preferred units will accrue
quarterly in arrears at 8% per annum through September 30, 2002 at which time
the rate increases 2% per year, not to exceed 20%. Goodrich-Louisiana has the
right to redeem the units at any time. The preference amount and accrued
distributions may be converted by the holder at any time into the common stock
of the Company at $2 per share. On February 17, 2000 the holders of the
preferred units exercised their conversion privileges (See Note D). Each
preferred unit holder was also issued one warrant to purchase a share of common
stock of the Company for every $10 of preference value. The warrants are
exercisable at $1.50 per share at any time before their expiration on September
30, 2006.
Approximately $2,500,000 of the proceeds from issuance of the convertible
notes and preferred units was allocated to additional paid in capital as the
fair value of the warrants issued in connection with the securities, based on
the relative fair value of the two securities. $2,300,000 of the proceeds
allocable to additional paid in capital will be amortized as additional
interest cost over the original term of the related notes. The remaining
adjustment to additional paid in capital related to the preferred units will be
recorded as accretion in the value of the preferred stockholders' equity in a
subsidiary company. Transaction costs related to the private placement amounted
to approximately $1,500,000. The transaction costs allocable to the debt issue
of $1,320,000 will be amortized over the life of the convertible debt. The
balance at December 31, 1999 net of amortization was $1,370,000. The remaining
costs of $180,000 were allocated to, and offset against the carrying value of
the preferred units.
Under the terms of the Goodrich-Louisiana Operating Agreement, the holders
of preferred units have no voting rights unless the payment of distributions is
six months or more in arrears, in which event the holders of preferred units
may participate in the election of company managers. Goodrich-Louisiana is
precluded from issuing any new units having preference or priority over the
preferred units as to distributions, liquidation or redemption.
This transaction would normally have required approval of the Company's
shareholders according to the Shareholder Approval Policy of the New York Stock
Exchange (the "Exchange"). Pursuant to an exception to this policy, and based
on a determination by the Company's Audit Committee that the delay necessary in
securing shareholder approval prior to the transaction would seriously
jeopardize the financial viability of the Company, the Company's Audit
Committee approved the Company's omission to seek shareholder approval. The
Exchange accepted the Company's application for use of the exception.
NOTE D--Subsequent Events
Acquisition of Oil and Gas Properties
On March 2, 2000, the Company completed its acquisition of working interests
in the Burrwood and West Delta 83 Fields, comprising approximately 8,600 acres,
in Plaquemine Parish, Louisiana for $1,650,000 and the assumption of the fields
plugging and abandonment obligation estimated at $5,000,000. The Company
acquired an approximate 95% working interest of all rights from the surface to
approximately 10,600 feet and an approximate 47.5% working interest in the deep
rights below 10,600 feet. In connection with the acquisition the Company
secured a performance bond and established an escrow account to be used for the
payment of obligations associated with the plugging and abandonment of the
wells, salvage and removal of platforms and
F-17
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
related equipment, and the site restoration of the fields. Required escrowed
outlays include an initial cash payment of $750,000 and monthly cash payments
of $70,000 until June 1, 2005. In addition, as part of the purchase agreement,
the Company is required to shoot a 3-D seismic survey over the fields by June
30, 2001 or remit payment to the seller in the amount of $3,500,000. The cost
of the seismic study is expected to be approximately $2,500,000 and the Company
has escrowed cash compensating balances of $500,000 with Compass Bank to be
used solely for payments or reimbursements of amounts expended in satisfaction
of the seismic requirement. The Company has identified a number of development
opportunities in the fields which it plans to begin exploiting in the year
2000.
Private Placement
On February 18, 2000, the Company completed a private placement of shares of
its common stock resulting in net proceeds to the Company of $4,500,000. The
Company issued 1,500,000 shares of common stock in an offering, which began on
January 28, 2000. The $4,500,000 in offering proceeds, in addition to the
Company's existing working capital and anticipated cash flow from operations,
will be used to assist in the acquisition and development of the Burrwood and
West Delta 83 fields, and to further develop the Lafitte field purchased in
1999. The Company owns an approximate 49% working interest in the Lafitte field
in Jefferson Parish, Louisiana, which was acquired in September 1999.
Conversion of Preferred Units
On January 28, 2000, the Company notified holders of Goodrich Petroleum
Company, LLC's Series A Preferred Units that it intended to call for redemption
all the outstanding units which were convertible into the Company's common
stock at $2 per share. On February 17, 2000, all of the holders of the
Preferred Units, representing 100% of the $3,000,000 of outstanding Units,
converted the Units into approximately 1,550,000 shares of the common stock of
Goodrich Petroleum Corporation. The conversion of the preferred units and
private placement increased the number of common shares outstanding to
approximately 8,416,000 and increased the Company's stockholders equity by
approximately $7,200,000.
NOTE E--Lafitte Field Acquisition
On September 23, 1999 the Company acquired an approximate 49% working
interest in the Lafitte Field located in Jefferson Parish, Louisiana for
$2,940,000. The field encompasses over 8,000 acres and is located approximately
thirty miles south of New Orleans. The Company commenced development activities
in the fourth quarter of 1999.
The consideration granted to seller included a production payment to be
satisfied through the delivery of production from the property. In connection
with the transaction, the Company recorded a production payment liability of
approximately $2,200,000, representing the discounted present value of the
estimated production payments necessary to satisfy the obligation.
Additionally, the Company recorded a $3,800,000 liability for its interest
in the estimated plugging and abandonment costs assumed in connection with the
purchase. It is expected that approximately $700,000 of the costs will be
funded in 2000.
F-18
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE F--Indebtedness
Indebtedness at December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Bank Debt
Borrowings under credit facility, interest, at Compass
Prime plus 5/8% (see below) (weighted average rate at
December 31, 1999--8.1%); principal due July 1, 2001.. $27,090,617 $29,500,000
Convertible Notes Payable at the Subsidiary Level
Goodrich Petroleum Company, LLC $6,000,000 face amount,
interest at 8% maturing in 2004; (effective interest
rate of 13.0%)........................................ 4,931,250 --
Goodrich Petroleum--Lafitte LLC $6,000,000 face amount,
interest at 8% maturing in 2004; (effective interest
rate of 13.0%)........................................ 4,931,250 --
----------- -----------
36,953,117 29,500,000
Less current portion................................... 3,600,000 29,500,000
----------- -----------
Long-term debt, excluding current portion.............. $33,353,117 $ --
=========== ===========
</TABLE>
Compass Credit Facility
On March 2, 2000 the Company amended its credit agreement with Compass Bank.
The amended facility provides for a Borrowing Base of $27,100,000 with
continued monthly reductions of $300,000, until July 1, 2001. The maturity date
for amounts drawn under the bank credit facility is July 1, 2001 with no
borrowing base redeterminations conducted prior to that date. Interest on the
credit facility is the Compass Bank Index Rate plus 5/8%. Based on these
revised terms, $23,490,000 of the bank debt is classified as long-term debt as
of December 31, 1999.
Substantially all of the Company's assets are pledged to secure this credit
facility.
Interest paid during 1999, 1998 and 1997 amounted to $2,338,840, $1,904,809
and $1,038,221, respectively.
The revised credit facility requires the net proceeds of asset sales be used
to extinguish outstanding principal and interest under the borrowing base.
Additionally, under the terms of the credit facility, the Company may not make
any distributions or pay dividends, including dividends on any class of its
preferred stock without lender approval.
Convertible Notes Payable
Goodrich-Louisiana issued convertible notes in the amount of $6,000,000 that
will accrue interest monthly at 8% in arrears until October 1, 2002. Unless
extended or converted, the principal and accrued interest will be repayable in
24 monthly installments, beginning October 1, 2002. Principal and accrued
interest may be converted by the holder at any time into the common stock of
the Company at the rate of $4 per share. These convertible notes are secured by
various collateral, including a mortgage on Goodrich-Louisiana's oil and gas
properties. The purchasers of these notes received one warrant to purchase a
share of the common stock of the Company at $.9375 (the closing price on the
date the transaction was negotiated) for every $4 of notes issued. The warrants
may be exercised at any time before their expiration on September 30, 2006. The
Company has the right to prepay the Goodrich-Louisiana notes.
F-19
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Goodrich-Lafitte also issued convertible notes in the amount of $6,000,000
that will accrue interest at 8% per annum accruing monthly in arrears until
October 1, 2002. Unless extended or converted, the principal and accrued
interest will be repayable in 24 monthly installments, beginning October 1,
2002. Principal and accrued interest may be converted by the holder at any time
into the common stock of the Company at the rate of $4 per share. As an
alternative conversion right, the principal and accrued interest under the
notes may be converted into common equity interests in Goodrich-Lafitte, after
October 1, 2002, if neither the common stock of the Company has a closing price
of at least $3 per share nor the net asset value per share of the Company is at
least $3. These convertible notes are secured by various collateral, including
a mortgage on Goodrich-Lafitte's oil and gas properties. The purchasers of
these notes received one warrant to purchase a share of the common stock of the
Company at $.9375 (the closing price on the date the transaction was
negotiated) for every $4 of notes issued. The warrants may be exercised at any
time before their expiration on September 30, 2006. The Company can prepay the
Goodrich-Lafitte Convertible notes with a 10% prepayment penalty.
Approximately $2,300,000 of the proceeds from issuance of the convertible
notes was allocated to additional paid in capital as the fair value of the
warrants issued in connection with the securities based on the relative fair
value of the two securities. This amount is being amortized as additional
interest cost over the original term of the notes and amounted to $142,500 for
the period ended December 31, 1999.
The aggregate maturities of indebtedness for each of the five years
subsequent to December 31, 1999 are as follows: 2000, $3,600,000; 2001,
$23,500,000; 2002, $1,907,000; 2003, $7,627,000 and 2004, $5,721,000.
NOTE G--Income Taxes
Income tax expense for the years ending December 31, 1999, 1998 and 1997
consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year Ended December 31, 1999:
U.S. Federal.......................................... $ -- $ -- $--
State................................................. -- -- --
------- -------- ---
-- -- --
======= ======== ===
Year Ended December 31, 1998:
U.S. Federal.......................................... $ -- $ -- $--
State................................................. -- -- --
------- -------- ---
-- -- --
======= ======== ===
Year Ended December 31, 1997:
U.S. Federal.......................................... $14,643 $(14,643) $--
State................................................. -- -- --
------- -------- ---
14,643 (14,643) --
======= ======== ===
</TABLE>
F-20
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a reconciliation of the U.S. statutory income tax rate to
the Company's effective rate on income (loss) before income taxes for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
U.S. Statutory Income Tax Rate......................... (35.0)% (35.0)% (35.0)%
Increase in deductible temporary differences for which
no benefit recorded................................... 35.0 34.6 34.9
Change in the beginning of the year balance of the
valuation allowance allocated to income tax income
expense............................................... -- -- --
Nondeductible expenses................................. -- .4 .1
----- ----- -----
-- -- --
===== ===== =====
</TABLE>
The significant components of deferred income tax expense for the years
ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- -----------
<S> <C> <C> <C>
Deferred tax benefit (exclusive of utilization of net
operating loss carryforwards)......................... -- -- (1,023,016)
Utilization of net operating loss carryforward......... $ -- $-- $ 1,008,373
---- --- -----------
$ -- $-- $ (14,643)
==== === ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1999 and 1998 are presented below.
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Differences between book and tax basis of:
Marketable equity securities...................... $ -- $ 280,471
Contingent liabilities............................ 132,349 158,873
Other............................................... 8,750 65,199
Operating loss carryforwards........................ 13,384,419 13,109,624
Statutory depletion carryforward.................... 5,974,726 5,657,865
AMT Tax credit carryforward......................... 1,477,872 1,477,872
Investment tax credit carryforward.................. 2,108 98,574
------------ ------------
Total gross deferred tax assets..................... 20,980,224 20,848,478
Less valuation allowance............................ (19,784,669) (19,104,959)
------------ ------------
Net deferred tax assets............................. 1,195,555 1,743,519
------------ ------------
Deferred tax liability:
Differences between book and tax basis of:
Property and equipment............................ (1,155,912) (1,703,876)
------------ ------------
Total gross deferred liability...................... (1,155,912) (1,703,876)
------------ ------------
Net deferred tax asset.............................. $ 39,643 $ 39,643
============ ============
</TABLE>
The valuation allowance for deferred tax assets increased $680,000 and
decreased $2,221,000 for the years ended December 31, 1999 and 1998,
respectively. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future
F-21
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based primarily upon the level of projections for
future taxable income generated primarily by the reversal of future taxable
temporary differences over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the existing
valuation allowance at December 31, 1999. The amount of the deferred tax assets
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
The following table summarizes the amounts and expiration dates of operating
loss and investment tax credit carryforwards:
<TABLE>
<CAPTION>
Investment tax credit
Operating loss carryforwards carryforwards
---------------------------- ---------------------
Amount Expires Amount Expires
------ ------- ------ -------
<S> <C> <C> <C>
$ 973,053 2005 2,108 2001
7,093,823 2006
8,860,622 2007
4,285,746 2008
3,247,494 2009
5,480,870 2010
600,706 2011
1,939,496 2012
4,530,029 2018
1,229,359 2019
-----------
$38,241,198
===========
</TABLE>
As a result of the August 15, 1995 business combination, the Company's
annual utilization of its net operating and statutory depletion carryforwards
generated prior to the business combination are limited under Internal Revenue
Code Section 382. Such limitation is determined annually and is comprised of a
base amount of $1,682,797 plus any recognized "built in gains" existing at
August 15, 1995. Such limitation amounted to $19,282,000 in 1998 and is
estimated to be $22,194,000 in 1999.
As a result of the conversion of the preferred units and private placement
(See Note D) in February 2000, the annual limitation of the Company's existing
net operating losses and statutory depletion carryforwards will be
approximately $2,200,000 in 2000 and beyond. The Company's statutory depletion
carryforwards and AMT credit carryovers have no expiration date.
The Company paid income taxes of $4,344 in 1998.
NOTE H--Production Payment Obligation
A production payment was entered into by the Company to assist in the
financing of the Lafitte Field acquisition in September 1999. The original
amount of the production payment obligation was $2,940,000, which was recorded
as a production payment liability of $2,228,000 after a discount to reflect an
effective rate of interest of 11.25%. At December 31, 1999 the remaining
principle amount was $2,825,000 and the recorded liability was $2,113,000.
Under the terms of the production payment the Company must make monthly cash
payments which approximates the Company's 49% share of 10% of monthly gross oil
and gas revenue of the Lafitte Field.
F-22
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's estimate as of December 31, 1999, based on expected production
and prices and expected discount amortization is that projected payments will
decrease the recorded liability as follows: 2000, $482,000; 2001, $817,000 and
2003, $814,000.
NOTE I--Stockholders' Equity
Common Stock--At December 31, 1999 unissued shares of Goodrich common stock
were reserved in the amount of 1,074,147 shares for the conversion of
convertible preferred stock and 463,134 shares for stock option plans. The
Company also has 9,500,000 shares of its common stock reserved for the
conversion of convertible debt, convertible preferred stock and stock warrants
issued in connect with the Private Placement transaction of September 23, 1999
(See Note C).
Preferred Stock
The Series A Convertible Preferred Stock has a par value of $1 per share
with a liquidation preference of $10 per share, and is convertible at the
option of the holder at any time, unless earlier redeemed, into shares of
Common Stock of the Company at an initial conversion rate of .417 shares of
Common stock per share of Series A Preferred. The Series A Preferred Stock also
will automatically convert to Common Stock if the closing price for the Series
A Preferred Stock exceeds $15 per share for ten consecutive trading days. The
Series A Preferred Stock is redeemable in whole or in part, at $12 per share,
plus accrued and unpaid dividends. Dividends on the Series A Preferred Stock
accrue at an annual rate of 8% and are cumulative.
The Company issued 750,000 shares of Series B Convertible Preferred Stock in
connection with its acquisition of the La/Cal II properties on January 31,
1997. The Series B Convertible Preferred Stock has a par value of $1 per share
with a liquidation preference of $10 per share and rank junior to the Series A
Preferred Stock. The shares of Series B Preferred Stock are convertible at the
option of the holder at any time, unless earlier redeemed, into shares of
Common Stock of the Company at the conversion rate of 1.12 shares of Common
Stock per share of Series B Preferred Stock. During 1999 holders of 84,241
shares of Series B preferred stock opted to convert their shares into 94,216
shares of common stock of the Company. The Series B Preferred Stock are not
redeemable by the Company prior to January 31, 2001, and subsequently, are
redeemable at $10 per share. Dividends on the Series B Preferred Stock accrue
at an annual rate of 8.25% and are cumulative.
Stock Option and Incentive Programs--Goodrich currently has two plans, which
provide for stock option and other incentive awards for the Company's key
employees, consultants and directors. The Goodrich Petroleum Corporation 1995
Stock Option Plan allows the board of directors to grant stock options,
restricted stock awards, stock appreciation rights, long-term incentive awards
and phantom stock awards, or any combination thereof to key employees and
consultants. The Goodrich Petroleum Corporation 1997 Director Compensation Plan
provides for the grant of stock and options to each director who is not and has
never been an employee of the Company. Additionally, Goodrich assumed certain
outstanding stock options of Patrick as a result of the business combination in
1995.
The Goodrich plans authorize grants of options to purchase up to a combined
total of 437,500 shares of authorized but unissued common stock. Stock options
are generally granted with an exercise price equal to the stock's fair market
value at the date of grant and all stock options granted under the 1995 Stock
Option Plan generally have ten year terms and three year pro rata vesting.
The per share weighted-average fair value of stock options granted during
1999, 1998 and 1997 was $1.59, $2.17 and $2.57 on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: 1999--expected dividend yield 0%, risk-free interest rate of 7.5%,
and an expected life of six years; 1998--expected dividend yield 0%, risk-free
interest rate of 7.5%, and an expected life of six years; 1997--expected
dividend yield 0%, risk-free interest rate of 7.5%, and an expected life of six
years; expected volatility of stock over expected life of the options--35%.
F-23
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net loss would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss..................... As reported $(1,828,983) $(7,715,342) $(1,388,964)
Pro forma (2,109,357) (7,906,618) (1,452,644)
Loss applicable to........... As reported (3,078,326) (8,970,980) (2,594,174)
common stock................ Pro forma (3,358,700) (9,162,256) (2,657,854)
Basic and diluted loss
per average................. As reported (.58) (1.71) (.50)
common share................ Pro forma (.64) (1.75) (.51)
</TABLE>
Earnings Per Share--Both series of the Company's convertible preferred stock
and its stock options are considered to be potential common stock. Additionally
convertible debt, convertible preferred stock and stock purchase warrants
issued in conjunction with the aforementioned private placement (See Note C)
are also considered potential common stock. No potential common stock amounts
have not been included in the computation of diluted earnings per share because
to do so would have been antidillutive for all periods presented.
Stock option transactions during 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Weighted Weighted Average
Number of Average Remaining
Options Exercise Price Range of Exercise Price Contractual Life
----------------- -------------- ----------------------- -----------------
Patrick Patrick Patrick Patrick
Total Only Total Only Total Only Total Only
-------- ------- ------ ------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding January 1,
1997................... 353,942 157,067 12.48 18.70 $ 6 to $ 24 $16 to $24 5.4 yrs. 2.0 yrs.
Granted--1995 Stock
Option Plan........... 67,500 -- 6.48 --
Granted--1995 Non-
Employee Director
Stock Option Plan..... 6,250 -- 5.52 --
Expiration of Options.. (86,250) (86,250) 18.80 18.78
-------- -------
Outstanding December 31,
1997................... 341,442 70,817 9.60 18.60 $5.50 to $24 $16 to $24 7.4 yrs. 4.2 yrs.
======== =======
Granted--1995 Stock
Option Plan........... 144,000 -- 5.98 --
Granted--1997 Director
Compensation Plan..... 10,000 -- 5.98 --
Expiration of Options.. (62,190) (5,625) 7.88 19.33
-------- -------
Outstanding December 31,
1998................... 433,252 65,192 $5.50 to $24 $16 to $24 7.0 yrs. 3.4 yrs.
======== =======
Granted--1995 Stock
Option................ 374,196 -- 1.37 --
Granted--1997 Director
Stock Option.......... 37,063 -- .80 --
Expiration/Surrender of
Options............... (381,377) (29,567) 7.61 18.00
-------- ------- ------ -----
Outstanding December 31,
1999................... 463,134 35,625 $0.75 to $24 $16 to $24 8.5 yrs. 2.9 yrs.
======== =======
Exercisable December 31,
1997................... 172,317 70,817 $12.13 18.60
Exercisable December 31,
1998................... 208,379 65,192 $10.86 18.54
Exercisable December 31,
1999................... 71,438 35,625 $ 9.95 19.00
</TABLE>
At the February 25, 1999 board of directors meeting, the Compensation
Committee voted to institute a stock option surrender/re-grant program whereby
employees and directors of the Company were able to surrender their present
options and be re-granted a number of options equal to 75% of their previous
number of options. Vesting periods for the re-granted options began with the
re-grant date and the options have a strike price equal to the closing stock
price of the date of declaration by the board of directors.
F-24
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE J--Series A Preferred Stock
The terms of the Company's Series A Preferred Stock provided that the
Company will not incur additional debt at the parent company level after such
time as it reports financial results which show the Company's stockholders'
equity to be less than the liquidation preference of the Series A Preferred
Stock. As of December 31, 1999, the Company's stockholders' equity was
approximately $6.4 million and the liquidation preference on the outstanding
shares of the Series A Preferred Stock was approximately $7.9 million. As a
result, the Company was unable to incur additional debt at the parent company
level under its credit facility or from other sources at the present time. On
February 17, 2000, the Company completed a $4,500,000 private placement
transaction of 1,500,000 shares of common stock, and effected the conversion of
all the outstanding Goodrich Petroleum Company, LLC Series A Preferred Units,
which converted into approximately 1,550,000 shares of the Company's common
stock. The conversion of the preferred units and private placement increased
stockholders equity by approximately $7,200,000, which makes total stockholders
equity exceed the liquidation preference on the Series A Preferred Stock. As a
result, the Company's restriction on funds at the parent Company level has been
eliminated.
NOTE K--Hedging Activities
The Company engages in futures contracts ("Agreements") with certain of its
production. The Company considers these to be hedging activities and, as such,
monthly settlements on these contracts are reflected in oil and gas sales. In
order to consider these futures contracts as hedges, (i) the Company must
designate the futures contract as a hedge of future production and (ii) the
contract must reduce the Company's exposure to the risk of changes in prices.
Changes in the market value of futures contracts treated as hedges are not
recognized in income until the hedged item is also recognized in income. If the
above criteria are not met, the Company will record the market value of the
contract at the end of each month and recognize a related gain or loss.
Proceeds received or paid relating to terminated contracts or contracts that
have been sold are amortized over the original contract period and reflected in
oil and gas sales. The Company enters into hedging activities in order to
secure an acceptable future price relating to a portion of future production.
The primary objective of the activities is to protect against decreases in
price during the term of the hedge.
The Agreements provide for separate contracts tied to the NYMEX light sweet
crude oil and natural gas futures contracts. The Company has contracts which
contain specific contracted prices ("Swaps") or price ranges ("Collars") that
are settled monthly based on the differences between the contract prices or
prices ranges and the average NYMEX prices for each month applied to the
related contract volumes. To the extent the average NYMEX price exceeds the
contract price, the Company pays the spread, and to the extent the contract
price exceeds the average NYMEX price the Company receives the spread.
As of December 31, 1999, the Company's open forward position on its
outstanding crude oil was as follows:
(d) 350 barrels of oil per day with a no cost "collar" of $19 and $21
per barrel through December 2000;
(e) 150 barrels of oil per day with a no cost "collar" of $18.20 and
$20.20 per barrel through December 2000; and
(f) 300 barrels of oil per day on a crude oil "swap" with a price of
$23.98 per barrel through April 2000.
At December 31, 1999 the Company's open forward position on its outstanding
crude oil hedging contracts was 800 bbl per day at an average price of $21.29.
F-25
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999 the Company's open forward position on its outstanding
gas hedging contract was 5,000 Mcf per day with a "floor" price of $2.50 per
Mcf through October 2000. The cost of the "floor" contract hedge is $0.23 per
Mcf over the "floor" price.
The Company is exposed to credit losses in the event of non performance by
the counterparties to its hedging contracts. The Company anticipates, however,
that counterparties will be able to fully satisfy their obligations under the
contracts. The Company does not obtain collateral to support financial
instruments but monitors the credit standing of the counterparties.
Price fluctuations and volatile nature of markets
Despite the measures taken by the Company to attempt to control price risk,
the Company remains subject to price fluctuations for natural gas and oil sold
in the spot market. Prices received for natural gas sold on the spot market are
volatile due primarily to seasonality of demand and other factors beyond the
Company's control. Domestic prices for oil and gas could have a material
adverse effect on the Company's financial position, results of operations and
quantities of reserves recoverable on an economic basis.
NOTE L--Fair Value of Financial Instruments
The following presents the carrying amounts and estimated fair values of the
Company's financial instruments at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial asset--
Marketable equity securities... $ -- -- 358,700 358,700
Financial liabilities--
Long-term debt (including
current maturities)........... $27,090,617 27,090,617 29,500,000 29,500,000
Notes payable.................. $ 9,862,500 9,862,500 -- --
Production payment liability... $ 2,113,000 2,113,000 -- --
Hedges Asset (Liability)--
Oil............................ $ -- (338,398) -- --
Gas............................ $ -- 300,410 -- --
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, accounts receivable, accounts payables and
accrued liabilities: The carrying amounts approximate fair value because of the
short maturity of those instruments. Therefore, these instruments were not
presented in the table above.
Marketable equity securities: Fair value is based on bid prices published in
financial media.
Long term debt and other noncurrent liabilities: The fair value is estimated
using the discounted cash flow method based on the Company's borrowing rates or
similar types of financing arrangements.
NOTE M--Concentrations of Credit Risk and Significant Customers
Due to the nature of the industry the Company sells its oil and natural gas
production to a limited number of purchasers and, accordingly, amounts
receivable from such purchasers could be significant. Additionally,
F-26
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
prior to the sale of the Company's interest in its pipeline joint venture in
1997, it received net monthly payments from its partner, Mitchell Marketing
Company. Revenues from these sources as a percent of total revenues for the
periods presented were as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Seaber Corporation of Louisiana.................................. 37% 47% 44%
Equiva Trading................................................... 27 12 11
Texla Energy Management.......................................... 10 -- --
Navajo Refining Company.......................................... 7 11 --
Mobil Oil Corporation............................................ -- -- 10
Mitchell Marketing Company....................................... -- -- 9
</TABLE>
NOTE N--Commitments and Contingencies
The U.S. Environmental Protection Agency ("EPA") has identified the Company
as a potentially responsible party ("PRP") for the cost of clean-up of
"hazardous substances" at an oil field waste disposal site in Vermilion Parish,
Louisiana. The Company estimates that the remaining cost of long-term clean-up
of the site will be approximately $3.5 million, with the Company's percentage
of responsibility estimated to be approximately 3.05%. As of December 31, 1999,
the Company had paid $321,000 in costs related to this matter and accrued
$122,500 for the remaining liability. These costs have not been discounted to
their present value. The EPA and the PRPs will continue to evaluate the site
and revise estimates for the long-term clean-up of the site. There can be no
assurance that the cost of clean-up and the Company's percentage responsibility
will not be higher than currently estimated. In addition, under the federal
environmental laws, the liability costs for the clean-up of the site is joint
and several among all PRPs. Therefore, the ultimate cost of the clean-up to the
Company could be significantly higher than the amount presently estimated or
accrued for this liability.
On February 8, 2000, the Company commenced a suit against the operator and
joint owner of the Lafitte Field, alleging certain items of misconduct and
violations of the letter agreement associated with the joint acquisition. The
suit is in its early stages and it is too early to predict a likely outcome,
however, as the Company is the plaintiff in this action, this action is not
expected to have a significantly adverse impact on the operations or financial
position of the Company.
The Company is party to additional lawsuits arising in the normal course of
business. The Company intends to defend these actions vigorously and believes,
based on currently available information, that adverse results or judgments
from such actions, if any, will not be material to its financial position or
results of operations.
NOTE O--Natural Gas and Crude Oil Cost Data and Results of Operations.
The following reflects the Company's capitalized costs related to natural
gas and oil activities at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Proved properties...................................... $61,527,593 $49,916,276
Unproved properties.................................... 3,873,575 3,412,897
----------- -----------
65,401,168 53,329,173
Less accumulated depreciation and depletion............ 19,398,287 13,592,827
----------- -----------
Net property and equipment........................... $46,002,881 $39,736,346
=========== ===========
</TABLE>
F-27
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table reflects certain data with respect to natural gas and
oil property acquisitions, exploration and development activities:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Property acquisition
Proved.............................. $10,136,298(a) $ 129,325 $17,308,540(b)
Unproved............................ 498,391 2,446,474 886,647
Exploration......................... 1,634,299 8,718,682 5,535,783
Development........................... 1,960,371 8,169,741 3,598,177
----------- ----------- -----------
$14,229,359 $19,464,222 $27,329,147
=========== =========== ===========
</TABLE>
--------
(a) Primarily Lafitte Field acquisition inclusive of liabilities assumed in
connection with the purchase.
(b) Includes properties acquired in the La/Cal II Acquisition including
portions funded with Serial B Preferred Stock ($7,500,000).
Results of operations for natural gas and oil producing activities follow:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales to unaffiliated customers.......... $13,734,691 $ 9,836,863 $11,351,586
Production costs (lease operating expense
and taxes).............................. 3,591,427 2,821,515 2,316,006
Exploration expenses..................... 1,656,158 6,010,425 3,205,730
Impairment of oil and gas properties..... 465,465 1,075,853 549,792
Depreciation, depletion and
amortization............................ 4,702,240 4,038,547 4,065,998
----------- ----------- -----------
10,415,290 13,946,340 10,137,526
----------- ----------- -----------
Results of operations.................... $ 3,319,401 $(4,109,477) $ 1,214,060
=========== =========== ===========
</TABLE>
No income taxes have been reflected above for the Company due to its net
operating losses.
NOTE P--Supplemental Oil and Gas Reserve Information (Unaudited)
The supplemental oil and gas reserve information that follows is presented
in accordance with SFAS No. 69, Disclosures about Oil and Gas Producing
Activities. The schedules provide users with a common base for preparing
estimates of future cash flows and comparing reserves among companies.
Additional background information follows concerning the schedules.
Schedules 1 and 2--Estimated Net Proved Oil and Gas Reserves
Substantially all of the Company's reserve information related to crude oil,
condensate, and natural gas liquids and natural gas was compiled based on
evaluations performed by Coutret and Associates, Inc. All of the subject
reserves are located in the continental United States.
Many assumptions and judgmental decisions are required to estimate reserves.
Quantities reported are considered reasonable but are subject to future
revisions, some of which may be substantial, as additional information becomes
available. Such additional knowledge may be gained as the result of reservoir
performance, new geological and geophysical data, additional drilling,
technological advancements, price changes, and other factors.
F-28
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Regulations published by the Securities and Exchange Commission define
proved reserves as those volumes of crude oil, condensate, and natural gas
liquids and natural gas that geological and engineering data demonstrate with
reasonable certainty are recoverable from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those volumes
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those volumes expected to
be recovered as a result of making additional investment by drilling new wells
on acreage offsetting productive units or recompleting existing wells.
Schedule 3--Standardized Measure of Discounted Future Net Cash Flows to
Proved Oil and Gas Reserves
SFAS No. 69 requires calculation of future net cash flows using a 10%
annual discount factor and year end prices, costs, and statutory tax rates,
except for known future changes such as contracted prices and legislated tax
rates.
The calculated value of proved reserves is not necessarily indicative of
either fair market value or present value of future cash flows because prices,
costs, and governmental policies do not remain static; appropriate discount
rates may vary; and extensive judgment is required to estimate the timing of
production. Other logical assumptions would likely have resulted in
significantly different amounts. Crude oil prices received for oil and the
price received by well for natural gas, effective at the end of each year,
were used for this calculation, and averaged $25.16 per bbl and $2.63 per Mcf,
respectively as of December 31, 1999; $9.37 per Bbl and $2.24 per Mcf,
respectively as of December 31, 1998, and $16.50 per Bbl and $2.59 per Mcf,
respectively as of December 31, 1997.
Schedule 3 also presents a summary of the principal reasons for change in
the standard measure of discounted future net cash flows for each of the three
years in the period ended December 31, 1999.
Schedule 1--Estimated Net Proved Gas Reserves (Mcf)
<TABLE>
<CAPTION>
Pro
Year Ended December 31, Forma (b)
---------------------------------- ----------
1999 1998 1997 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Proved:
Balance, beginning of period.. 28,144,310 37,570,614 18,184,738
Revisions of previous
estimates.................... (6,069,885) (8,393,772) (1,582,986)
Purchase of minerals in
place........................ 1,705,822 226,778 3,761,481
Extensions, discoveries, and
other additions.............. -- 1,656,200 19,707,712
Production.................... (2,930,655) (2,782,825) (2,449,320)
Sales of minerals in place.... -- (132,685) (51,011)
---------- ---------- ----------
Balance, end of period........ 20,849,592 28,144,310 37,570,614 26,805,069
========== ========== ==========
Proved developed:
Beginning of period........... 21,481,946 16,600,669 13,911,003
End of period................. 13,945,450 21,481,946 16,600,669 19,900,930
</TABLE>
F-29
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Schedule 2--Estimated Net Proved Oil Reserves (Barrels)
<TABLE>
<CAPTION>
Pro
Year Ended December 31, Forma (b)
------------------------------- ---------
1999 1998 1997 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Proved:
Balance, beginning of period...... 3,092,810 4,098,390 1,050,210
Revisions of previous estimates... 106,259 (988,611) 132,327
Purchase of minerals in place..... 3,053,618 -- 1,614,779
Extensions, discoveries, and other
additions........................ -- 299,799 1,685,438
Production........................ (394,442) (316,768) (282,380)
Sale of minerals in place......... -- -- (101,984)
--------- --------- ---------
Balance, end of period............ 5,858,245 3,092,810 4,098,390 6,749,579
========= ========= =========
Proved, developed:
Beginning of period............... 2,266,854 2,292,626 969,868
End of period..................... 3,179,888 2,266,854 2,292,626 4,071,222
</TABLE>
The following table summarizes the Company's combined oil and gas reserve
information on a Mcf equivalent basis. Estimates of reserves were converted
using a conversion ratio of 1.0/6.0 Mcf.
<TABLE>
<CAPTION>
Pro
Year Ended December 31, Forma (b)
-------------------------------- ----------
1999 1998 1997 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Estimated Net Proved Reserves
(Mcfe):
Total Proved.................... 55,999,062 46,701,170 62,160,954 67,302,543
Proved Developed................ 33,024,778 35,083,070 30,356,425 44,328,262
</TABLE>
Schedule 3--Standardized Measure of Discounted Future Net Cash Flows Related to
Proved Oil and Gas Reserves
<TABLE>
<CAPTION>
Pro
Year Ended December 31, Forma (b)
--------------------------- --------
1999 1998 1997 1999
-------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Future cash inflows.................... $184,812 $86,449 $155,542 220,886
Future production and development
costs................................. (45,655) (24,339) (26,906) (67,058)
Future income tax expense(a)........... (22,725) -- (24,177) (26,007)
-------- ------- -------- -------
Future net cash flows.................. 116,432 62,110 104,459 127,821
10% annual discount for estimated
timing of cash flows.................. (37,514) (21,475) (40,456) (38,499)
-------- ------- -------- -------
Standardized measure of discounted
future net cash flows................. $ 78,918 $40,635 $ 64,003 89,322
======== ======= ======== =======
Average year end prices:
Natural gas (per Mcf)................ $ 2.63 $ 2.24 $ 2.59
Crude oil (per Bbl).................. $ 25.16 $ 9.37 $ 16.50
</TABLE>
--------
(a) Taxable income for 1998 period was entirely offset by available net
operating loss carry forwards.
(b) Pro forma amounts include reserve information related to acquisition of
Burrwood/West Delta 83 fields in February 2000 (see Note D).
F-30
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following are the principal sources of change in the standardized
measure of discounted net cash flows for the years shown:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net changes in prices and production costs
related to future production................... $ 32,962 $(31,820) $(32,327)
Sales and transfers of oil and gas produced, net
of production costs............................ (10,144) (7,015) (9,036)
Net change due to revisions in quantity
estimates...................................... (8,993) (12,464) (991)
Net change due to extensions, discoveries and
improved recovery.............................. -- 3,006 37,465
Net change due to purchase and sales of
minerals-in-place.............................. 33,305 82 16,065
Development costs incurred during the period.... 338 2,198 3,598
Net change in income taxes...................... (14,203) 14,093 (4,094)
Accretion of discount........................... 4,064 7,810 5,736
Change in production rates (timing) and other... 953 742 230
-------- -------- --------
$ 38,283 $(23,368) $ 16,646
======== ======== ========
</TABLE>
F-31
<PAGE>
Consolidated Quarterly Income Information
(Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1999
Revenues.............. $2,941,696 $2,829,530 $3,631,762 $4,617,586 $14,020,574
Costs and Expenses.... 3,458,450 3,405,546 3,283,633 5,182,433 15,330,062
Loss on sale of
assets............... (519,495) -- -- -- (519,495)
Net income (loss)..... (1,036,249) (576,016) 348,129 (564,847) (1,828,983)
Preferred stock
dividends............ 313,912 313,912 313,912 307,607 1,249,343
Earnings (loss)
applicable to common
stock................ (1,350,161) (889,928) 34,217 (872,454) (3,078,326)
Basic earnings (loss)
per average
common share......... $ (.26) (.17) .01 (.16) (.58)
Diluted earnings
(loss) per average
common share......... $ (.26) (.17) .01 (.16) (.58)
1998
Revenues.............. $2,433,577 $2,264,397 $2,697,743 $3,196,156 $10,591,873
Costs and Expenses.... 3,446,298 5,215,164 4,813,328 4,836,631 18,311,421
Gain on sale of
assets............... 4,206 -- -- -- 4,206
Net income (loss)..... (1,008,515) (2,950,767) (2,115,585) (1,640,475) (7,715,342)
Preferred stock
dividends............ 313,912 313,902 313,912 313,912 1,255,638
Earnings (loss)
applicable to common
stock................ (1,322,427) (3,264,669) (2,429,497) (1,954,387) (8,970,980)
Basic earnings (loss)
per average
common share......... $ (.25) (.62) (.46) (.38) (1.71)
Diluted earnings
(loss) per average
common share......... $ (.25) $ (.62) $ (.46) $ (.38) $ (1.71)
</TABLE>
The fourth quarter amount includes impairment of oil and gas properties of
$465,000. In addition the fourth quarter of 1999 is impacted by revenue and
expenses associated with the acquisition of the Lafitte field and issuance of
convertible notes payable.
The first, second, third and fourth quarter of 1998 cost and expense amounts
contain costs amounting to $0, $2,107,000, $1,496,000 and $81,000,
respectively, related to dry holes. The fourth quarter amount also contains
impairment of oil and gas properties of $1,076,000.
F-32
<PAGE>
[Goodrich Logo appears here]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $7,684.88
NASD filing fee................................................... $3,410.94
NYSE listing fee.................................................. $
Legal fees and expenses........................................... *
Engineering fees and expenses..................................... *
Accounting fees and expenses...................................... *
Blue Sky fees and expenses (including legal fees)................. *
Printing expenses................................................. *
Transfer Agent fees............................................... *
Miscellaneous..................................................... *
---------
TOTAL........................................................... $
=========
</TABLE>
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* To be provided by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise), against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any
such person serving in any such capacity who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or such other court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
Our certificate of incorporation provides that indemnification shall be to
the fullest extent permitted by the DGCL for all of our current or former
directors or officers.
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<PAGE>
As permitted by the DGCL, the certificate of incorporation provides that our
directors shall have no personal liability to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except (1) for any
breach of the director's duty of loyalty to us or our stockholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (3) under Section 174 of the DGCL or (4) for any
transaction from which a director derived an improper personal benefit.
Item 15. Recent Sales of Unregistered Securities
On September 23, 1999, we and two of our subsidiaries, Goodrich Petroleum
Company, L.L.C. and Goodrich Petroleum Company-Lafitte, L.L.C., completed a
private placement of $15 million of convertible securities. H&Q Guaranty acted
as placement agent for this transaction, for which it received a fee of
$900,000. The following securities were issued:
. Our wholly owned subsidiary, Goodrich-Louisiana, issued convertible
notes in the amount of $6,000,000 to a group of accredited investors.
Principal and accrued interest was convertible by the holder into our
common stock at the rate of $4 per share. The purchasers of these notes
received 1,500,000 warrants to purchase shares of our common stock at
$1.00 per share. The warrants may be exercised at any time before their
expiration on September 30, 2006. The securities were issued in a
transaction exempt pursuant to Section 4(2) of the Securities Act and
Rule 506 of Regulation D;
. Our wholly owned subsidiary, Goodrich-Lafitte, issued convertible notes
in the amount of $6,000,000 to a group of accredited investors.
Principal and accrued interest was convertible by the holder into our
common stock at the rate of $4 per share. As an alternative conversion
right, the principal and accrued interest under these notes was
convertible into common equity interests in Goodrich-Lafitte, after
October 1, 2002, if neither our common stock has a closing price of at
least $3 per share nor our net asset value per share is at least $3. The
purchasers of these notes received 1,500,000 warrants to purchase shares
of our common stock at $1.00 per share. The warrants may be exercised at
any time before their expiration on September 30, 2006. The securities
were issued in a transaction exempt pursuant to Section 4(2) of the
Securities Act and Rule 506 of Regulation D; and
. Additionally, our wholly owned subsidiary Goodrich-Louisiana issued
$3,000,000 of preferred interests to a group of accredited investors
consisting of 300,000 preferred units with a par value and liquidation
preference of $10 per share. Each preferred unit holder was also issued
one warrant to purchase a share of common stock of the Company for every
$10 of preference value. The warrants are exercisable at $1.50 per share
at any time before their expiration on September 30, 2006. Goodrich-
Louisiana has the right to redeem the units at any time. The purchasers
of these preferred interests received 300,000 warrants to purchase
shares of our common stock at $1.50 per share. The preference amount and
accrued distributions were convertible by the holder into our common
stock at $2 per share. The securities were issued in a transaction
exempt pursuant to Section 4(2) of the Securities Act and Rule 506 of
Regulation D.
On February 17, 2000, in a transaction exempt pursuant to Section 3(a)(9) of
the Securities Act, the holders of the preferred units exercised their
conversion privileges. Entreprenurial Investment Corporation and Mr. Malloy
each received 12,500 of our common shares in connection with their underwriting
and assistance in this transaction.
On February 18, 2000, in a transaction exempt pursuant to Section 4(2) of
the Securities Act and Rule 506 of Regulation D, the Company completed a
private placement of 1,500,000 shares of our common stock resulting in net
proceeds to us of $4,500,000. H&Q acted as underwriter, for which it received
8,333 shares of our common stock.
On August 17, 2000, in a transaction exempt pursuant to Section 3(a)(9) of
the Securities Act, holders of all $12.9 million of outstanding principal and
accrued interest on the convertible notes, issued by two of our subsidiaries in
a private placement in September 1999, converted their notes into 3,295,647
shares of our
II-2
<PAGE>
common stock, including 60,000 shares issued to H&Q, Entreprenurial Investment
Corporation and Mr. Malloy in connection with their underwriting and assistance
in this transaction.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<C> <S>
1.1* --Form of Underwriting Agreement
3.1 --Amended and Restated Certificate of Incorporation of the Company dated August 15, 1995, and filed
with the Secretary of State of the State of Delaware on August 15, 1995 (Incorporated by reference
to Exhibit 3.1 of the Company's Quarterly Report filed on Form 10-Q for the three months ended
September 30, 1995) (File No. 33-58631).
3.2 --Certificate of Amendment of Restated Certificate of Incorporation of Goodrich Petroleum
Corporation dated March 12, 1998 (Incorporated by reference to Exhibit 3(i)2 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 01-12719).
3.3 --Bylaws of the Company, as amended and restated (Incorporated by reference to Exhibit 3.2 of the
Company's Quarterly Report filed on Form 10-Q for the three months ended September 30, 1995) (File
No. 33-58631).
4.1 --Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.5 of the Company's
Registration Statement filed February 20, 1996 on Form S-8 (File No. 33-01077)).
4.2 --Series B Convertible Preferred Stock Certificate of Designations. (Incorporated by reference to
Exhibit 4.5 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (File
No. 01-12719)).
5.1* --Opinion of Vinson & Elkins L.L.P.
10.1 --Goodrich Petroleum Corporation 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.21
to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-58631)).
10.2 --Patrick Petroleum Company 1993 Stock Option Plan (Incorporated by reference to Exhibit 10.11 to
the Company's Registration Statement filed June 13, 1995 on Form S-4 (File
No. 33-58631)).
10.3 --Form of Marketing Agreement between the Company and Natural Gas Ventures, L.L.C. (Incorporated by
reference to Exhibit 10.19 to the Company's Registration Statement filed June 13, 1995 on Form S-4
(File No. 33-58631)).
10.4 --Consulting Agreement with U.E. Patrick (Incorporated by reference to Exhibit 10.25 to the
Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-58631)).
10.5 --Consulting Services Agreement between Leo E. Bromberg and Goodrich Petroleum Corporation
(Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report filed on Form 10-Q for
the three months ended September 30, 1995 (File No. 33-58631)).
10.6 --Goodrich Petroleum Corporation 1997 Director Compensation Plan (Incorporated by reference to the
Company's Proxy statement dated May 20, 1998)
10.7 --Form of Subscription Agreement dated September 27, 1999 (Incorporated by reference to Exhibit 4.1
of the Company's Form 8-K filing dated September 23, 1999 (File No. 01-12719)).
10.8 --Registration Rights Agreement (2000 Private Placement)
10.9 --Credit Agreement between Goodrich Petroleum Company, L.L.C. and Compass Bank dated September 23,
1999 (Incorporated by reference to Exhibit 4.1 of the Company's Form 8-K filing dated September 23,
1999 (File No. 01-12719)).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.10 --First amendment to the September 23, 1999 Credit Agreement between
Goodrich Petroleum Company, LLC and Compass Bank dated February 29,
2000. (Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998. (File
No. 01-12719)).
10.11* --Letter Agreement amending Credit Agreement between Goodrich
Petroleum Company, L.L.C. and Compass Bank dated September , 2000.
21.1 --Subsidiaries of the Company:
--Goodrich Petroleum Company, L.L.C.--incorporated in state of
Louisiana
--Goodrich Petroleum Company--Lafitte, L.L.C.
--Subsidiaries of Goodrich Petroleum Company of Louisiana
--Drilling & Workover Company, Inc.--incorporated in state of
Louisiana
--LECE, Inc.--incorporated in the state of Texas
--National Market Company--incorporated in state of Delaware
23.1 --Consent of KPMG LLP
23.2 --Consent of Coutret & Associates, Inc.
23.3* --Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1)
24.1 --Power of Attorney (included in signature page)
27.1 --Financial Data Schedule
</TABLE>
--------
* To be filed by amendment.
(b) Financial Statement Schedule
All schedules are omitted because the information is contained in the
Financial Statements or Notes.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the undersigned registrant pursuant to the foregoing provisions, or otherwise,
the undersigned registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the undersigned registrant of expenses incurred or paid by a
director, officer, or controlling person of the undersigned registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the undersigned registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(b) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the calculation of Registration Fee table
in the effective registration statement; and (iii) to include any additional or
changed material information on the plan of distribution.
II-4
<PAGE>
(c) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the undersigned registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(d) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 29th day of September, 2000.
GOODRICH PETROLEUM CORPORATION
/s/ Walter G. Goodrich
By __________________________________
Walter G. Goodrich
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Walter G. Goodrich and Robert C. Turnham, Jr. or
any of them, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any additional registration
statement pursuant to Rule 462(b), and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Walter G. Goodrich President and Chief Executive September 29, 2000
____________________________________ Officer (Principal Executive
Walter G. Goodrich Officer)
/s/ Roland L. Frautschi Chief Financial Officer September 29, 2000
____________________________________ (Principal Financial and
Roland L. Frautschi Accounting Officer)
/s/ Henry Goodrich Chairman of the Board September 29, 2000
____________________________________
Henry Goodrich
/s/ Sheldon Appel Director September 29, 2000
____________________________________
Sheldon Appel
/s/ Jeff H. Benhard Director September 29, 2000
____________________________________
Jeff H. Benhard
/s/ Donald M. Campbell Director September 29, 2000
____________________________________
Donald M. Campbell
/s/ Patrick E. Malloy, III Director September 29, 2000
____________________________________
Patrick E. Malloy, III
/s/ Michael Y. McGovern Director September 29, 2000
____________________________________
Michael Y. McGovern
/s/ Arthur A. Seeligson Director September 29, 2000
____________________________________
Arthur A. Seeligson
</TABLE>
II-6
