Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Forcenergy Inc
We have audited the accompanying historical statement of revenues
and direct operating expenses of the properties acquired by Forcenergy
Inc from Amerada Hess Corporation for the year ended December 31, 1995
("Historical Statement"). This Historical Statement is the
responsibility of the management of Amerada Hess Corporation and
Forcenergy Inc. Our responsibility is to express an opinion on the
Historical Statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the Historical
Statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the Historical Statement. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of
the Historical Statement. We believe that our audit provides a
reasonable basis for our opinion.
As described in Note 1, the accompanying Historical Statement was
prepared for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission for inclusion in certain SEC
regulatory filings and is not intended to be a complete financial
presentation of the interest in the acquired Amerada Hess properties.
In our opinion, the Historical Statement referred to above
presents fairly, in all material respects, the revenues and direct
operating expenses of the properties acquired by Forcenergy Inc from
Amerada Hess Corporation for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
August 30, 1996
HISTORICAL STATEMENT OF
REVENUES AND DIRECT OPERATING EXPENSES
OF THE PROPERTIES ACQUIRED BY FORCENERGY INC
FROM AMERADA HESS CORPORATION
(in thousands)
Year Ended
December 31,1995
----------------
Oil and gas revenues $13,639
Direct operating expenses 5,639
-------
Revenues in excess of direct operating expenses $ 8,000
=======
The accompanying notes are an integral part of this statement.
NOTES TO THE HISTORICAL STATEMENT OF REVENUES AND DIRECT OPERATING
EXPENSES OF THE PROPERTIES ACQUIRED BY FORCENERGY INC FROM AMERADA
HESS CORPORATION
1. Basis of Presentation
On June 28, 1996, Forcenergy Inc ("Forcenergy") acquired
interests in certain producing oil and gas leasehold interests and
related equipment located offshore United States of America in the
Gulf of Mexico ("Acquired Properties") from Amerada Hess Corporation
("Amerada Hess") for a cash consideration of $6.9 million. The
purchase price is subject to closing adjustments to be finalized
on or before October 26, 1996 as provided by the Agreement for
Purchase and Sale by and between Forcenergy and Amerada Hess.
The acquisition has been accounted for as a purchase and results of
operations for the Acquired Properties are included in Forcenergy's
results of operations from June 28, 1996.
The accompanying statement represents the historical revenues and
direct operating expenses ("Statement") of the Acquired Properties and
was prepared from the historical accrual basis accounting records of
Amerada Hess, in accordance with generally accepted accounting
principles. Revenues are recognized in the period of delivery.
The revenues and associated direct operating expenses presented
relate to the net revenue interests and net working interests,
respectively, in the Acquired Properties. The Statement may not be
representative of future operations as the reserves associated with
the Acquired Properties have a high decline rate.
Historical financial statements reflecting financial position,
results of operations and cash flows required by generally accepted
accounting principles are not presented as the Acquired Properties
were not maintained as a separate business unit and assets,
liabilities or indirect operating costs applicable to the Acquired
Properties were not segregated. The Statement does not include
depletion, depreciation and amortization, general and administrative,
interest or federal income tax expenses. It is not practicable to
identify all assets, liabilities or indirect operating costs
applicable to the properties.
2. Supplementary Financial Information for Oil and Gas Producing
Activities (Unaudited)
Estimated Quantities of Proved Oil and Gas Reserves
Proved reserves are estimated quantities of crude oil and natural
gas which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed
reserves are proved reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
The following tables present the estimated net proved and proved
developed oil and gas reserves attributable to the Acquired Properties
at December 31, 1995, along with a summary of changes in the
quantities of net proved reserves during the year ended December
31, 1995. The reserve information below is based on the January 1,
1996 reserve report as prepared for the Acquired Properties by
Forcenergy engineers. The December 31, 1994 information was prepared
by Amerada Hess.
Oil Gas
(MBbl) (Mmcf)
------ ------
Proved reserves at December 31, 1994 515 16,801
Production (129) (7,441)
Revisions of previous estimates 34 6,006
------ ------
Proved reserves at December 31, 1995 420 15,366
====== ======
Proved developed reserves at December 31, 1995 378 13,829
====== ======
NOTES TO THE HISTORICAL STATEMENT OF REVENUES AND DIRECT OPERATING
EXPENSES OF THE PROPERTIES ACQUIRED BY FORCENERGY INC FROM AMERADA
HESS CORPORATION (Continued)
Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Reserves
The "Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves" ("Standardized Measure") is a
disclosure requirement under Statement of Financial Accounting
Standards No. 69 (SFAS No. 69). The Standardized Measure does not
purport to present the fair market value of the proved oil and gas
reserves. This would require consideration of expected future
economic and operating conditions, which are not taken into account in
calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated
by applying December 31, 1995 prices adjusted for fixed and
determinable escalations provided by contracts in existence at year
end to the estimated future production of proved reserves. Future
cash inflows were reduced by estimated future production, development
and dismantlement costs based on 1995 year-end costs, respectively,
to determine pre-tax cash inflows. Future net cash inflows were
discounted using a 10% annual discount rate to arrive at the
Standardized Measure. No deduction has been made for general and
administrative expenses, interest, provisions for depletion,
depreciation and amortization; and as no income taxes were allocated
to the Acquired Properties the Standardized Measure excludes income
taxes.
The following Standardized Measure and changes in the Standardized
Measure are based on the reserve estimate performed as of January 1,
1996 using appropriate year-end prices and costs.
Set forth below is the Standardized Measure (before income taxes)
relating to proved oil and gas reserves at December 31, 1995 (in
thousands):
Future cash inflows $39,215
Future production and development costs (21,228)
-------
Future net cash flows 17,987
10% annual discount to reflect timing of net
cash flows (2,093)
-------
Standardized Measure (before income taxes)
of discounted future net cash flows relating
to proved reserves $15,894
=======
The Standardized Measure of discounted future net cash flows
(before income taxes) is based on the following weighted average oil
and gas prices at December 31, 1995:
Oil (per Bbl) $ 17.00
Gas (per Mcf) $ 2.09
The following is an analysis of the changes in the Standardized
Measure (before income taxes) for the year ended December 31, 1995 (in
thousands):
Standardized Measure (before income taxes)
at December 31, 1994 $10,171
Sales and transfers of oil and gas produced,
net of production costs (8,000)
Increase in prices 6,157
Accretion of discount 1,017
Revisions to previous quantity estimates 6,047
Other 502
-------
Standardized Measure (before income taxes)
at December 31, 1995 $15,894
=======
(b) Pro forma financial information.
On June 28, 1996, Forcenergy Inc ("Forcenergy") acquired interests
in certain producing oil and gas leasehold interests and related
equipment located offshore United States of America in the Gulf of
Mexico ("Acquired Properties") from Amerada Hess Corporation ("Amerada
Hess") for a cash consideration of $6.9 million. The purchase price
is subject to closing adjustments to be finalized on or before October
26, 1996 as provided by the Agreement for Purchase and Sale by
and between Forcenergy and Amerada Hess. This transaction was
accounted for as a purchase and the results of operations for the
Acquired Properties are included in Forcenergy's results of operations
from June 28, 1996.
The unaudited pro forma statement of operations for the year
ended December 31, 1995 and the six months ended June 30, 1996 assumes
the acquisition had been consummated as of January 1, 1995. The
unaudited pro forma statements of operations include certain
adjustments to the historical statements of operations of Forcenergy
giving effect to the acquisition of the oil and gas properties.
The pro forma statements do not purport to be indicative of the
results of operations of Forcenergy had such transactions occurred on
the date assumed, nor are the pro forma statements necessarily
indicative of the future results of operations of Forcenergy as the
reserves associated with the Acquired Properties have a high decline
rate.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
Forcenergy Amerada Hess Pro Forma Pro Forma
Historical Acquisition(1) Adjustments Combined
---------- -------------- ----------- ---------
Revenues:
Oil and gas sales $72,147 $13,639 $ -- $ 85,786
Other 494 -- -- 494
-------- ------- -------- ---------
72,641 13,639 -- 86,280
Expenses:
Lease operating 24,507 5,639 -- 30,146
Depletion, depreciation
and amortization 31,295 -- 7,224 (2) 38,519
Production taxes 1,868 -- -- 1,868
General and administrative,
net 5,670 -- -- 5,670
------- ------- ------- --------
63,340 5,639 7,224 76,203
------- ------- ------- --------
Income(loss) from operations 9,301 8,000 (7,224) 10,077
Interest and other income
(loss) (561) -- -- (561)
Interest expense, net of
amounts capitalized (11,668) -- (436) (3) (12,104)
-------- ------- ------- --------
Loss before income taxes (2,928) 8,000 (7,660) (2,588)
Income tax benefit (1,075) -- 127 (4) (948)
-------- ------- -------- ---------
Net loss $(1,853) $ 8,000 $(7,787) $(1,640)
======== ======= ======== =========
Net loss per share $ (.14) $ (.13)
======== ========
Weighted average shares
outstanding 12,910 12,910
- --------
(1) This column reflects the historical oil and gas revenues
and direct operating expenses of the Acquired Properties
for the year ended December 31, 1995.
(2) Adjustment to reflect the depletion, depreciation and
amortization of oil and gas properties giving consideration
to the effect of the Acquired Properties.
(3) Adjustment to reflect increased interest expense on $6.9
million of borrowings incurred in connection with the
acquisition.
(4) Adjustment to income tax benefit to reflect the combined
results of operations based on Forcenergy's effective tax
rate of 37.3%.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
Forcenergy Amerada Hess Pro Forma Pro Forma
Historical Acquisition(1) Adjustments Combined
---------- -------------- ----------- ---------
Revenues:
Oil and gas sales $57,477 $ 9,263 $ -- $66,740
Other 276 -- -- 276
-------- -------- -------- --------
57,753 9,263 -- 67,016
Expenses:
Lease operating 16,819 2,317 -- 19,136
Depletion, depreciation
and amortization 24,162 -- 3,958 (2) 28,120
Production taxes 1,653 -- -- 1,653
General and administrative,
net 3,575 -- -- 3,575
-------- -------- -------- --------
46,209 2,317 3,958 52,484
-------- -------- -------- --------
Income from operations 11,544 6,946 (3,958) 14,532
Interest and other income 237 -- -- 237
Interest expense, net of
amounts capitalized (5,913) -- (264) (3) (6,177)
-------- -------- -------- --------
Income before income taxes 5,868 6,946 (4,222) 8,592
Income tax provision 2,188 -- 1,016 (4) 3,204
-------- -------- -------- --------
Net income $ 3,680 $ 6,946 $(5,238) $ 5,388
======== ======== ======== ========
Net income per share $ .20 $ .30
======== ========
Weighted average shares
outstanding 18,261 18,261
(1) The results of operations for the Amerada Hess Acquisition
reflects the oil and gas revenues and direct operating
expenses for the Acquired Properties from January 1, 1995
to the acquisition date, June 28, 1996.
(2) Adjustment to reflect the depletion, depreciation and
amortization of oil and gas properties giving consideration
to the effect of the Acquired Properties.
(3) Adjustment to reflect increased interest expense on $6.9
million of borrowings incurred in connection with the
acquisition.
(4) Adjustment to income tax provision reflecting the combined
results of operations based on Forcenergy's effective tax
rate of 37.3%.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
FORCENERGY INC
Date: September 12, 1996 E. JOSEPH GRADY
----------------------------------------
E. Joseph Grady
Vice President - Chief Financial Officer
