UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
-------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
For the transition period from to
-------------- ---------------
Commission File Number 1-7796
TIPPERARY CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1236955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
633 Seventeenth Street, Suite 1550
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 293-9379
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding February 13, 1997
- ---------------------------- -----------------------------
Common Stock, $.02 par value 13,050,271 shares
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
Page No.
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Consolidated Balance Sheet
December 31, 1996 and September 30, 1996 1
Consolidated Statement of Operations
Three months ended December 31, 1996 and 1995 2
Consolidated Statement of Cash Flows
Three months ended December 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security
Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,067 $ 3,575
Receivables 2,493 2,154
Inventory 190 190
Current portion of deferred income taxes, net 75 57
Other current assets 162 123
------------ -------------
Total current assets 5,987 6,099
------------ -------------
Property, plant and equipment, at cost:
Oil and gas properties, full cost method 123,593 122,360
Other property and equipment 2,343 2,336
------------ -------------
125,936 124,696
Less accumulated depreciation, depletion and
amortization (86,150) (85,215)
------------ -------------
Property, plant and equipment, net 39,786 39,481
------------ -------------
Noncurrent portion of deferred income taxes, net 3,116 3,134
Investment in NGL fractionating plant 2,431 2,474
Investment in stock 897 707
Other noncurrent assets 14 203
------------ -------------
$ 52,231 $ 52,098
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ -
Accounts payable 660 1,539
Accrued liabilities 234 215
Production taxes payable 187 186
Royalties payable 139 148
Income taxes payable 11 -
------------ -------------
Total current liabilities 1,231 2,088
------------ -------------
Long-term debt 13,994 13,994
Commitments and contingencies (Note 2)
Stockholders' equity
Common stock; par value $.02; 20,000,000
shares authorized; 13,078,071 issued
and 13,050,271 outstanding 262 262
Capital in excess of par value 105,387 105,375
Accumulated deficit (68,572) (69,550)
Treasury stock, at cost; 27,800 shares (71) (71)
------------ -------------
Total stockholders' equity 37,006 36,016
------------ -------------
$ 52,231 $ 52,098
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues $ 4,112 $ 2,631
Costs and expenses:
Operating 1,470 1,298
General and administrative 437 349
Depreciation, depletion and amortization 935 1,028
-------- --------
Total costs and expenses 2,842 2,675
-------- --------
Operating income (loss) 1,270 (44)
Other income (expense):
Interest income 29 68
Dividend income - 22
Interest expense (245) (256)
-------- --------
Total other expense (216) (166)
-------- --------
Income (loss) before income tax 1,054 (210)
Current income tax expense (23) (3)
-------- --------
Income (loss) before equity in loss of NGL
fractionating plant 1,031 (213)
Equity in loss of NGL fractionating plant (53) (28)
-------- --------
Net income (loss) $ 978 $ (241)
======== ========
Net income (loss) per share $ .07 $ (.02)
======== ========
Weighted average shares outstanding 13,050 11,210
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 978 $ (241)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization 935 1,028
Equity in loss of NGL fractionating plant 53 28
Tax effect of stock option exercise 12 -
Change in assets and liabilities:
(Increase) decrease in receivables (339) 295
Increase in other current assets (39) (55)
Decrease in accounts payable, accrued
liabilities, and production and income
taxes payable (848) (244)
Decrease in royalties payable (9) (47)
Other (1) 1
-------- --------
Net cash provided by operating activities 742 765
-------- --------
Cash flows from investing activities:
Proceeds from asset sales 12 56
Investment in NGL fractionating plant (10) (653)
Capital expenditures (1,252) (640)
-------- --------
Net cash used in investing activities (1,250) (1,237)
Net decrease in cash and cash equivalents (508) (472)
Cash and cash equivalents at beginning of period 3,575 4,193
-------- --------
Cash and cash equivalents at end of period $ 3,067 $ 3,721
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 182 $ 255
Income taxes $ - $ 3
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments, which
are necessary for a fair presentation of the consolidated financial position of
Tipperary Corporation (the "Company") at December 31, 1996, and the results of
its operations for the three-month periods ended December 31, 1996, and 1995.
The consolidated financial statements include the accounts of Tipperary
Corporation and its subsidiaries, all wholly-owned, and its share of assets,
liabilities, revenues and expenses of unincorporated joint ventures and
partnerships. The accounting policies followed by the Company are included in
Note 1 to the Consolidated Financial Statements in the Annual Report on Form
10-K for the year ended September 30, 1996. These financial statements should
be read in conjunction with the Form 10-K.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
Be Disposed Of" ("SFAS 121", effective October 1, 1996. SFAS 121 requires the
write-down to market value of certain long-lived assets and applies to the
Company's long-lived assets other than oil and gas properties, which will
continue to be accounted for using the full cost method. The adoption of SFAS
121 had no impact on the Company's financial condition or results of operations
for the quarter ended December 31, 1996.
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), effective October 1,
1996. As permitted under SFAS 123, the Company elected to continue to measure
compensation cost using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and to make pro forma disclosures of net income as if the fair value based
method of accounting as defined in SFAS 123 had been applied. In October 1996,
the Company granted certain employees options to purchase 85,000 shares of its
common stock at $3.63 per share. The Company will make the required pro forma
disclosures in the notes to its annual financial statements.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company is a Defendant in a lawsuit filed on September 20, 1991 styled
VALERO TRANSMISSION, L.P. V. J. L. DAVIS V. TIPPERARY CORPORATION, Cause No.
91-09-00357-CVF, in the 81st Judicial District, Frio County, Texas. The case
involves gas purchase contracts between Valero and Davis. The Company
previously owned 50% of Davis' interest in the contracts. Valero claimed it had
overpaid Davis under the contracts and requested damages for breach of contract
from Davis. Davis thereafter filed a third-party petition against the Company
requesting that the Company reimburse Davis for 50% of any amounts paid to
Valero on account of the claims made by Valero in its original petition. Valero
and Davis have now settled the claims between themselves, and Davis has
requested that the Company reimburse Davis for 50% of such settlement to the
extent that the settlement covers time periods in which Davis and the Company
each owned a 50% interest in the contracts. The Company has answered the
lawsuit, denying the claims of Davis, and the Company intends to vigorously
defend all claims made in the suit. The Company does not anticipate that this
matter will have a material adverse effect on its financial condition or results
of operations.
On October 7, 1996, the Company filed a Motion to Intervene as a plaintiff in
the proceeding APACHE OIL CORPORATION AND SNYDER OIL CORPORATION V. MDU
RESOURCES GROUP, INC., AND WILLISTON BASIN INTERSTATE PIPELINE COMPANY,
INC., in the District Court, McKenzie County, North Dakota. The case involves
the production and sale of natural gas by the Company's predecessors in the
McKenzie Gas Processing Plant in North Dakota. The Company claims that its
predecessors sold gas through a contract to the defendants, and defendants
breached those contracts. The Company believes that it is entitled to receive
part of the resulting damages. The Company is among a group of gas producers
that filed the Motion to Intervene. The Motion was denied, but the Company
anticipates joining the other producers and filing a new action against the
defendants.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
During the three months ended December 31, 1996, the Company continued its
exploration efforts in the Comet Ridge coalbed methane project in Queensland,
Australia, the Missouri River project in Montana and the Divide project in North
Dakota. The Company also continued development drilling on its existing
properties. During the quarter, the Company incurred capital expenditures of
$1,252,000, received proceeds of $12,000 from miscellaneous oil and gas property
sales and invested an additional $10,000 in the Alabama natural gas liquids
("NGL") fractionating plant, resulting in net cash used in investing activities
of $1,250,000. The capital expenditures included an investment of $527,000 for
the Company's share of cash advances for initial costs to drill three wells in
the Comet Ridge project, approximately $521,000 in domestic development drilling
costs, and $204,000 in other capital expenditures, of which $70,000 was for
leasehold acquisitions. During the quarter ended December 31, 1995, the Company
incurred $640,000 in capital expenditures, invested $653,000 in the construction
of the NGL fractionating plant, and received proceeds of $56,000 from the sale
of producing oil and gas properties, resulting in net cash used in investing
activities of $1,237,000. The capital expenditures of $640,000 were incurred
primarily in domestic oil and gas operations.
The Company had cash and temporary investments of $3,067,000 as of December 31,
1996, versus $3,575,000 as of September 30, 1996. Cash flows were provided
primarily by the Company's producing oil and gas properties during both the
three months ended December 31, 1996 and 1995. Net cash provided by operating
activities was $742,000 and $765,000 for the fiscal 1997 and fiscal 1996
quarters, respectively. Receivables increased $339,000 to $2,493,000 at
December 31, 1996 from $2,154,000 at September 30, 1996 due to accruals of
revenue at higher oil and gas prices. The decrease in accounts payable of
$879,000 to $660,000 at December 31, 1996 from $1,539,000 at September 30, 1996
was due to payment of certain drilling costs on the Comet Ridge project and to
the timing of payment of other accounts payable. The Company made no principal
payments in either period on its long term debt, all of which was owed to the
Company's commercial bank lender. Principal payments totaling $1,752,000 were
made during fiscal 1996 and the Company made an additional $150,000 principal
payment in January 1997.
While the Company's cash flows are directly affected by oil and gas prices, the
Company's existing hedge positions partially mitigate the effects of lower
prices. The Company presently has hedged, under "swap" and put option
agreements, an average of 20,000 barrels per month, or approximately 50%, of its
remaining fiscal 1997 monthly oil production subsequent to December 31, 1996.
An average of 16,667 barrels is hedged through swap agreements with a weighted
average floor price of $19.09 per barrel. An average of 3,333 barrels per month
is hedged through put option agreements with a strike price of $20.00 per
barrel. The swap agreements provide the Company with 50% participation in
actual prices in excess of the floor level. The Company's actual price received
for oil at the wellhead during the first quarter of fiscal 1997 averaged $2.12
per barrel below the average New York Mercantile Exchange ("NYMEX") price. This
difference varies based on location and quality of oil sold.
Subsequent to December 31, 1996, the Company entered into an agreement to hedge
an average of approximately 8,000 MMBtu per month, or approximately 7%, of its
remaining fiscal 1997 monthly natural gas production subsequent to December 31,
1996, through a put option with a strike price of $2.20 per MMBtu. The
Company's actual price received for gas during the first quarter of fiscal 1997
averaged $1.01 below the average NYMEX price. The difference between the
average NYMEX price and price received for gas by the Company varies based on
location, liquid content and type of contract. Notwithstanding the Company's
hedging positions, decreases in oil and gas prices subsequent to December 31,
1996, could cause a significant reduction in cash flows available for the
funding of capital projects and reduction of bank debt and could negatively
impact the Company's efforts to secure new financing.
The Company's bank credit agreement (the "Agreement") provides a maximum loan
facility of $40,000,000 subject to borrowing base limitations described below.
The Agreement contains provisions for both fixed rate and variable rate
borrowings. At the Company's option, interest on the revolver is payable at
either the London Interbank Offered Rate ("LIBOR") plus 1.5% or the bank's Base
Rate. The LIBOR-based option may be selected for periods not exceeding 90 days.
At December 31, 1996, the Company's outstanding debt of $13,994,000 carried a
weighted average interest rate of 7.06%. Upon expiration of the revolver (the
"Conversion Date"), the principal balance will convert to a four-year term loan.
The Conversion Date was recently extended by the bank from October 5, 1997, to
October 5, 1998.
Certain of the Company's domestic oil and gas properties have been pledged as
security for the bank loan, and the bank has the option to place additional
liens on other unencumbered properties. The maximum borrowing base is
determined
5
<PAGE>
solely by the bank and is based upon its assessment of the value of the
Company's properties. This bank valuation is based upon the bank's assumptions
about reserve quantities, oil and gas prices, operating expenses and other
assumptions, all of which may change from time to time and which may differ from
the Company's assumptions. In February 1997, the borrowing base was reduced to
$14,500,000. Should the outstanding loan balance ever exceed the borrowing
base, the Company is required to either make a cash payment to the bank equal to
or greater than such excess or provide additional collateral to the bank to
increase the borrowing base by the amount of the deficit. In the event oil
prices or natural gas prices decline by a significant amount, the Company's
borrowing base could be reduced to an amount less than the loan balance,
resulting in the Company having to fulfill the foregoing requirements. The
Company is obligated to pay a commitment fee of 3/8% per annum on the difference
between the average outstanding loan balance and the borrowing base. The
agreement provides that the Company may not pay dividends or incur additional
debt without prior approval from the bank.
The Company has minimal remaining unused borrowing capacity, and is therefore
attempting to establish additional oil and gas reserves through its exploitation
and exploration projects, which if successful, could increase its borrowing base
with the bank. The Company anticipates that in order to complete its capital
projects and sustain growth, internal cash flow and bank financing will have to
be supplemented with project financing and/or additional corporate debt or
equity offerings. The Company presently anticipates using cash on hand,
existing cash flows, additional bank financing and any additional external
financing to pursue both its domestic and international exploratory projects, to
possibly purchase additional producing oil and gas properties and to maintain a
modest level of developmental drilling.
The Company's capital investment has been directed primarily to the following
projects:
INTERNATIONAL EXPLORATION AND DEVELOPMENT
In April 1992, the Company acquired a non-operating interest in the Comet Ridge
coalbed methane project in the Bowen Basin located in Queensland, Australia. As
of September 30, 1996, the co-venturers conducting the project (the "Group")
held an Authority to Prospect ("ATP") granted by the Queensland government
covering approximately 1,365,000 acres. The holder of an ATP may be granted
petroleum leases upon establishing to the satisfaction of the Queensland
government that commercial deposits of petroleum have been discovered. During
fiscal 1996, the Group was granted petroleum leases covering approximately
167,000 acres in the area known as "Fairview," which is in the southern portion
of the ATP. In October 1996, the Group filed for a four-year renewal and
relinquished approximately 20% of its acreage along the western border of the
ATP, which it considers to be of only marginal interest. The ATP was renewed
effective November 1, 1996, for a four-year period. The Group's renewed ATP
covers approximately 1,088,000 acres, of which 167,000 acres are already covered
by the petroleum leases. The new ATP requires certain minimum expenditures,
based on current exchange rates, of approximately $237,000 in year one, $428,000
in years two and three, and $765,000 in year four. The Company will be
responsible for its pro rata share of these expenditures.
As of December 31, 1996, the Group had drilled 17 wells on its ATP acreage, of
which 16 are in the Fairview area and one well is awaiting completion in the
Dawson area in the northern portion of the ATP. Fourteen of the wells are in a
core area where significant de-watering and production testing has been done,
with natural gas being flared. Based upon past production testing, continued
de-watering is expected to further increase gas production rates. In December
1996, the Group abandoned a wellbore which was lost due to cave-in and
immediately drilled a replacement well. Both the abandoned wellbore and the
replacement well are 12 kilometers southeast of the core Fairview area.
Subsequent to December 31, 1996, two wells were drilled, one offsetting the core
Fairview area and one six kilometers northwest of the core Fairview area. All
three of the wells drilled since September 30, 1996, exhibited high initial
water flow rates. Water flow rates are indicative of permeability of the coals,
which is necessary for commercial gas production.
During fiscal 1996, the Group began negotiations regarding a gas contract with a
Brisbane-based gas utility, which would call for the delivery of approximately
57 petajoules, or roughly 57 billion cubic feet, of gas over 15 years.
Negotiations are continuing, and the parties are reviewing a draft agreement
which would take effect upon completion of a connecting pipeline and gathering
facilities. The Group has applied for a pipeline license for the 17-mile line
which will connect the core Fairview area wells to the PGT Queensland Gas
pipeline. This pipeline was acquired during fiscal 1996 from the State of
Queensland by PGT Australia ("PGT"), a subsidiary of Pacific Gas Transmission, a
Portland, Oregon-based gas transmission company. PGT has informed the Group
that it intends to construct the 17-mile pipeline to connect the Fairview area
wells to the PGT Queensland Gas Pipeline, and that it plans to operate the line
as a part of its pipeline system. PGT has also informed the Company that
construction of the pipeline is expected to take approximately three months, and
that PGT expects to begin after clearance is received from the Queensland
Department
6
<PAGE>
of Mines and Energy. The Group has been notified by PGT that they anticipate a
pipeline connection into the project area in the next few months. The Group has
also ordered compression and gathering equipment to be installed within the same
period. Connection to the PGT Queensland Gas Pipeline will provide access on
the PGT system to markets north of the ATP in Gladstone and Rockhampton, and the
possibility of "backhauls" south on other pipelines into the Brisbane market
area. Assuming completion of a new pipeline which PGT has announced it will
construct from the ATP area into the Brisbane area, the Group's gas could be
transported to both the Gladstone and Brisbane market areas on the PGT system.
Effective January 1, 1997, the Company increased its ownership in the Comet
Ridge project from 45.75% to 50.75% with the acquisition of an additional 5%
capital-bearing interest from an unaffiliated interest holder for approximately
$2,300,000. The purchase was financed through a loan from an affiliate of the
Company's largest shareholder. The Companys interest bears 50.75% of capital
costs and 47.58% of operating expenses and its net revenue interest is 42.35%
prior to project payout. Subsequent to project payout, the Company's interest
bears 40.60% of capital and operating expenses and its net revenue interest is
36.14%.
Although the Company cannot predict future capital requirements, in November
1996 it retained an international corporate finance firm to serve as the
Company's agent in seeking equity and debt financing sources in Australia, the
United States and Europe, with proceeds to be used to develop the Comet Ridge
project. There can be no assurance that sufficient capital will be obtained or,
if capital is obtained, that it will be on terms acceptable to the Company or on
a basis that meets the Company's objectives.
DOMESTIC EXPLORATION
MISSOURI RIVER PROJECT. The Company owns an 87.5% undivided interest in
approximately 45,000 acres in its Missouri River project area in the Williston
Basin of Montana. During fiscal 1995, a three-dimensional ("3-D") seismic
survey was conducted over approximately 30% of the project area, resulting in
the identification of several prospects. The Company drilled a dry hole on the
first prospect tested in February 1996. As of September 30, 1996, the Company's
investment in the project totaled approximately $2,420,000. An additional
$30,000 was incurred during the first quarter of fiscal 1997, bringing the total
investment to $2,450,000 as of December 31, 1996. During the quarter, the
Company continued its efforts to sell interests in the project to industry
partners for cash and/or a commitment to fund seismic or drilling expenditures.
On January 29, 1997, the Company entered into an agreement with another oil and
gas company covering 30,000 acres in the project. The other company agreed to
spend $150,000 in acquiring two-dimensional seismic data, and will then have an
option to acquire an undivided 50% interest in the acreage for an additional
$390,000 cash payment. The Company has also entered into a joint seismic
program with a different oil and gas company covering an additional 4,000 acres
in the Missouri River project area.
DIVIDE PROJECT. During fiscal 1996, the Company assembled a 30,000 acre
leasehold position in Divide County, North Dakota, and subsequently entered into
exploration agreements with two industry partners. The agreements included the
sale of a total of 75% of the Company's working interest for $975,000 in cash
and $256,000 in "carried" capital costs and provide for the three parties to
jointly pursue exploration activities over the acreage, including the
acquisition of 3-D seismic data and exploratory drilling. The parties have
identified numerous prospects in the Divide Project area, which is located in a
multi-pay area of the Williston Basin. Seismic data acquisition commenced in
November 1996 and initial drilling is expected to begin in the third quarter of
fiscal 1997. During the quarter ended December 31, 1996, the Company incurred
approximately $66,000 to acquire additional acreage in Divide County.
OTHER ACTIVITIES
The Alabama natural gas liquids ("NGL") fractionating plant, which the Company
and joint venture partners constructed in fiscal 1994 and 1995, began operations
in late November 1995 and has operated near full capacity for an extended
period. The results of the plant operations have been disappointing due to both
mechanical inefficiencies and changing market conditions for NGL products. A
new plant operator was appointed by the co-owners of the plant in November 1996
and certain mechanical modifications have been made. In January 1997, the
Company and a co-owner in the plant engaged a consulting engineering firm to
further investigate and analyze the operations of the plant and the marketing
and transportation of the plant products. The Company has an interest in plant
profits of 55% prior to payout and 47% thereafter. As of December 31, 1996, the
Company had invested $2,432,000, which is net of a distribution of $77,000 and
includes a net loss of $75,000 during fiscal 1996 and a net loss of $53,000
during the first quarter of fiscal 1997. The combined net loss of $128,000
represents the Company's share of the net loss from the Plant's operations from
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from start-up through December 31, 1996. Before depreciation and amortization,
the Company's share of income for the quarter ended December 31, 1996, was
$32,000. The loss for the three months ended December 31, 1995, reflects the
results of start-up operations. The loss during the first quarter of fiscal
1997 is due to year-end maintenance to improve the plant's efficiency, and to a
decrease in inlet volumes of raw NGLs. The co-owners of the plant are currently
in the process of identifying additional sources of raw NGLs.
RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1996,
AND 1995
The Company reported net income of $978,000 for the three months ended December
31, 1996 versus a net loss of $241,000 for the three months ended December 31,
1995. The gross profit from oil and gas sales increased $1,309,000, or 98%, to
$2,642,000 in the first quarter of fiscal 1997 from $1,333,000 in the prior year
quarter due primarily to higher oil and gas prices. The Company reported
operating income of $1,270,000 in the fiscal 1997 period versus an operating
loss of $44,000 in the corresponding period of fiscal 1996. Following are
detailed comparisons of the components of net income for the respective
periods:
Operating revenues for the three months ended December 31, 1996, increased
$1,481,000, or 56%, to $4,112,000 from $2,631,000 reported for the corresponding
fiscal 1996 period. Oil volumes produced during the fiscal 1997 quarter
increased 19% to 146,000 barrels from 123,000 barrels in the prior year's
quarter, increasing revenue by $365,000. Gas volumes produced increased 7% to
437,000 Mcf in the current quarter compared to 407,000 Mcf in the quarter ended
December 31, 1995, resulting in a $44,000 increase in revenues. These volume
increases are largely attributable to new production resulting from exploitation
and development drilling projects completed in the fourth quarter of fiscal
1996. Average oil prices increased 36% to $21.60 for the three months ended
December 31, 1996, from $15.88 for the corresponding prior year's quarter,
resulting in an $835,000 increase in revenue. Gas prices increased 39% to $2.05
in the current quarter versus $1.48 in the prior year's quarter, resulting in a
$249,000 revenue increase. Saltwater disposal and other revenues decreased
$12,000 from the corresponding fiscal 1996 period.
Operating expenses increased $172,000, or 13%, to $1,470,000 in the quarter
ended December 31, 1996, from $1,298,000 reported in the corresponding quarter
in fiscal 1996. The increase was primarily attributable to increased production
taxes resulting from higher revenues and to remedial work on mature properties.
The Company's average lifting cost per equivalent barrel produced increased to
$6.66 in the three months ended December 31, 1996, from $6.29 in the prior
year's three-month period.
General and administrative expenses increased $88,000, or 25%, to $437,000 in
the quarter ended December 31, 1996, from $349,000 in the quarter ended December
31, 1995. The increase was attributable to increased payroll costs and an
increase in legal and consulting fees during the fiscal 1997 quarter.
Depreciation, depletion and amortization ("DD&A") expense for the three months
ended December 31, 1996, decreased by $93,000, or 9%, to $935,000 from
$1,028,000 reported for the comparable fiscal 1996 period. The decrease is
primarily attributable to a lower DD&A rate per equivalent barrel resulting from
an increase in oil and gas reserve volumes as of September 30, 1996, compared to
September 30, 1995.
Interest income decreased $39,000, or 57%, to $29,000 in the quarter ended
December 31, 1996, from $68,000 in the corresponding prior year quarter. This
decrease is due to a decrease in the average balance of cash and cash
equivalents.
Dividend income decreased to -0- in the quarter ended December 31, 1996, from
$22,000 in the quarter ended December 31, 1995. Dividend income was accrued
during fiscal 1996 on 354,000 shares of convertible preferred stock in United
States Exploration, Inc. ("USXP"). The convertible preferred stock was
exchanged for common stock of USXP on September 30, 1996.
Interest expense decreased $11,000, or 4%, to $245,000 in the first quarter of
fiscal 1997 from $256,000 in the first quarter of fiscal 1996. When capitalized
interest is included, interest expense decreased by $14,000. The decrease is
attributable to reductions in long-term debt.
Income tax expense increased $20,000 to $23,000 in the first quarter of fiscal
1997 from $3,000 in the prior year quarter. The expense reflects an effective
rate of 2%, rather than 35%, because the Company has a net operating loss
carryover, but must pay federal alternative minimum tax at an effective rate of
2%. The expense in the prior year quarter reflects adjustments to prior year
income taxes.
8
<PAGE>
The Company's equity in the loss of the NGL fractionating plant increased
$25,000, or 89%, to a loss of $53,000 in the three months ended December 31,
1996, from a loss of $28,000 in the prior year quarter. The loss in the first
quarter of fiscal 1997 is attributable to year-end maintenance and a decrease in
inlet volumes as discussed above. The loss in the fiscal 1996 quarter was a
result of start-up operations.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 2 to the consolidated financial statements under Part I
- Item 1.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Filed in Part I
11. Computation of per share earnings
Filed in Part II
4.48 Promissory Note dated December 20, 1996, in the
amount of $2,300,000 between Registrant and Slough
Parks Incorporated, filed herewith.
4.49 Subordination Agreement dated December 20, 1996, by
and between Slough Parks Incorporated and Colorado
National Bank, filed herewith.
10.49 Purchase and Sale Agreement dated January 29, 1997,
between NationsBank of Texas, N.A., as Trustee for
Trusts #1190 and #1191 ("Seller") and Tipperary Oil
& Gas Corporation ("Buyer"), filed herewith.
10.50 Purchase and Sale Agreement dated January 29, 1997,
between NationsBank of Texas, N.A., as Trustee for
Trusts #1362, #1363 and #1364 ("Seller") and
Tipperary Oil & Gas Corporation ("Buyer"), filed
herewith.
10.51 Tipperary Corporation 1997 Long-Term Incentive Plan
filed as Exhibit A to the Registrant's Proxy
Statement for its Annual Meeting of Shareholders held
on January 28, 1997, and incorporated herein by
reference.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tipperary Corporation
---------------------
Registrant
Date: February 13, 1997 By: /s/ David L. Bradshaw
----------------------------------------
David L. Bradshaw, President, Chief
Executive Officer and Chairman of the
Board of Directors
Date: February 13, 1997 By: /s/ Paul C. Slevin
----------------------------------------
Paul C. Slevin, Chief Financial Officer
Date: February 13, 1997 By: /s/ Wayne W. Kahmeyer
----------------------------------------
Wayne W. Kahmeyer, Controller and
Principal Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS FOUND ON PAGES 1 AND 2 OF
THE COMPANY'S FORM 10-Q FOR THE THREE MONTHS ENDED DECEMBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,067
<SECURITIES> 0
<RECEIVABLES> 2,493
<ALLOWANCES> 0
<INVENTORY> 190
<CURRENT-ASSETS> 5,987
<PP&E> 125,936
<DEPRECIATION> 86,150
<TOTAL-ASSETS> 52,231
<CURRENT-LIABILITIES> 1,231
<BONDS> 13,994
0
0
<COMMON> 262
<OTHER-SE> 36,744
<TOTAL-LIABILITY-AND-EQUITY> 52,231
<SALES> 4,112
<TOTAL-REVENUES> 4,112
<CGS> 1,470
<TOTAL-COSTS> 2,842
<OTHER-EXPENSES> (29)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 245
<INCOME-PRETAX> 1,054
<INCOME-TAX> 23
<INCOME-CONTINUING> 1,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 978
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
PROMISSORY NOTE
$2,300,000 Denver, Colorado
December 20, 1996
Tipperary Corporation, a Texas corporation ("Maker") hereby promises to pay
to the order of Slough Parks Incorporated, a Delaware corporation ("Lender"), at
its office located at 33 West Monroe Street, Chicago, Illinois 60603, or at any
other place the holder hereafter designates, the principal sum of $2,300,000
together with interest thereon in lawful money of the United States as herein
provided.
1. Interest. The unpaid principal balance of this Note shall bear
interest commencing on the date proceeds of the loan are received by Maker after
written request for loan proceeds are provided to Lender, such interest to be at
the rate of 8.5% per annum, payable in calendar quarterly installments. Each
such quarterly interest payment shall be due and payable within five days of the
end of each calendar quarter. Interest shall be calculated based on the actual
number of days the principal balance remains outstanding in a year of 365 days.
2. Maturity. The unpaid principal balance of this Note, together with
accrued and unpaid interest, shall be due and payable in full one year from the
date of the initial advance of funds by Lender hereunder.
3. Note Origination Fee. Maker hereby agrees to pay an origination fee
to Lender in the amount of $80,500 upon first receipt of any proceeds of the
loan.
4. Security. This Note is secured by a security contract of even date
herewith, in favor of Lender, with respect to 10% of the interest in the joint
operating agreement in respect of the Comet Ridge project located in Queensland,
Australia.
5. Prepayment. The unpaid principal balance of the Note, together with
accrued and unpaid interest, may be paid in whole or in part, at any time in the
sole discretion of Maker without penalty. Any prepayment in part by Maker shall
be first allocated to any accrued and unpaid interest, with any remaining amount
being allocated to the unpaid principal.
6. Default. If any of the following events occurs, all indebtedness
owing by Maker hereunder shall become forthwith due and payable to Lender, upon
delivery by Lender to Maker of a written notice of default and demand for
payment, and the expiration of 30 days from the delivery of such notice, during
which such period Maker shall have the ability to cure such default.
a. Any default by Maker in the payment, when due, of any part of the
principal of or interest on this Note and the payment of any other sums payable
by Maker pursuant to the terms of this Note.
b. Maker's insolvency or bankruptcy, the execution by Maker of an
assignment for the benefit of creditors of substantially all of Maker's assets,
or Maker's consent to the appointment of a trustee or a receiver or other
officer of a court or other tribunal.
c. The appointment of a trustee or receiver or other officer of a
court for Maker, or for a substantial part of its properties, without its
consent, where no discharge is effected within 30 days.
d. The institution of bankruptcy, reorganization, insolvency, or
liquidation proceedings by or against Maker, and if against Maker, where such
proceeding is consented to by them or remains undismissed for 30 days.
e. Any breach or failure of Maker to perform any term or condition
of this Note.
7. Use of Proceeds. Maker hereby warrants that the proceeds from this
Note shall be used to purchase the property described in that certain options
dated September 20, 1996 between Maker and Nations Bank relating to ATP-526
Petroleum Lease: 90, 91, 92, State of Queensland, Australia. Any residual Note
proceeds not required with respect to the foregoing property purchase will be
immediately returned as a partial principal repayment of the loan.
8. Assignment. This Note may not be assigned by Lender or Maker without
the express written consent of the other party.
9. Governing Law. This Note is made and is being executed in the State
of Colorado, and the provisions hereof will be construed in accordance with the
laws of the State of Colorado. Furthermore, such Lender and Maker (and their
lawful assignees, successors and endorsers) further agree that in the event of
default this Note may be enforced in any court of competent jurisdiction in the
State of Colorado, and they do hereby submit to such jurisdiction in the State
of Colorado.
10. Severability. Invalidation of any of the provisions of this Note
shall not affect the remainder of this Note.
11. Amendment. This Note may not be amended or modified except only by an
instrument in writing signed by both parties.
12. Subordination. This Note is subject to the terms and provisions of a
Subordination Agreement of even date herewith between Lender and Colorado
National Bank, which terms and provisions are incorporated herein by reference.
TIPPERARY CORPORATION
By: /s/ David L. Bradshaw
-----------------------------------
David L. Bradshaw, President and
Chief Executive Officer
SLOUGH PARKS INCORPORATED
By: /s/ Deborah L. Bean
-----------------------------------
Deborah L. Bean, Vice President and
Chief Financial Officer
SUBORDINATION AGREEMENT
-----------------------
THIS SUBORDINATION AGREEMENT, dated as of December 20, 1996, is by and
between SLOUGH PARKS INCORPORATED, a Delaware corporation ("Subordinating
Party"), and COLORADO NATIONAL BANK, a national banking association ("CNB").
RECITALS
A. CNB and Tipperary Corporation ("Borrower") have entered into a
Revolving Credit and Term Loan Agreement dated as of March 30, 1992, as amended
(the "Loan Agreement"), pursuant to which CNB has made and may in the future
make advances (the "Loan") to Borrower.
B. Subordinating Party wishes to extend credit to Borrower for the
purpose of permitting Borrower to acquire an additional five-percent interest in
the Comet Ridge project located in Queensland, Australia (the "Project"), with
respect to which Borrower will be liable for repayment, as evidenced by a
Promissory Note of even date herewith made by Borrower, payable to the order of
Subordinating Party (the "Subordinated Note"), together with interest thereon
and other amounts due in connection therewith, and Borrower may now or hereafter
have other liabilities and obligations to Subordinating Party. All of the
obligations of Borrower to Subordinating Party described in the foregoing
sentence are herein called the "Subordinated Obligations." As security for the
Subordinated Note, Borrower is delivering to Subordinating Party a pledge of and
a security interest in a ten-percent interest (the "Pledged Interest") in the
Project.
C. Pursuant to the terms of the Loan Agreement, and as a condition
precedent to the making of any advances thereunder, CNB has required that
Borrower obtain the subordination of the rights of Subordinating Party with
respect to the Subordinated Obligations to the rights of CNB under the Loan
Agreement and related documents.
AGREEMENT
IN CONSIDERATION of the sum of ten dollars ($10.00) in hand paid, and
in order to enable Borrower to receive advances from CNB, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Subordinating Party and CNB, the parties hereby agree as
follows:
1. SUBORDINATION BY SUBORDINATING PARTY. (a) Except as otherwise
provided in Section 1(b) below, Subordinating Party will not demand, sue for,
take or receive from Borrower, by direct payment, setoff or any other manner,
the whole or any part of any amount now or hereafter payable to Subordinating
Party under or in connection with the Subordinated Obligations, including
without limitation any scheduled principal or interest payment, unless and until
all indebtedness, obligations (whether direct or contingent) and liabilities
owed by Borrower to CNB, whether now existing or hereafter arising, and whether
arising under the Loan Agreement, any past or future amendment, restatement,
extension, renewal or other variation of the Loan Agreement or otherwise (all
such indebtedness, obligations and liabilities of Borrower to CNB, collectively,
being hereinafter referred to as the "Obligations"), shall have been finally and
irrevocably paid and discharged in full.
(b) Notwithstanding the provisions of Section 1(a) above,
Subordinating Party shall have the right, to the extent and only to the extent
that obligations are still owed under the Subordinated Note, to receive payments
and to retain such payments for application to the repayment of the Subordinated
Note under the following circumstances: (1) prior to notice from CNB to
Subordinating Party that a Default or Event of Default has occurred under the
Loan Agreement, Subordinating Party shall have the right to receive from
Borrower the loan origination fee described in the Subordinated Note and
regularly scheduled payments of interest as Borrower is presently contractually
obligated to pay under the terms of the Subordinated Note, to the extent that
such interest payments are then due and payable; (2) Subordinating Party shall
have the right to receive the proceeds of any foreclosure or sale of, any
distributions attributable to or any other realization upon the Pledged
Interest; and (3) Subordinating Party shall have the right to receive the
proceeds of any project financing hereafter obtained by Borrower with respect to
the Project.
2. MODIFICATIONS OF SUBORDINATED OBLIGATIONS. Subordinating Party
represents and warrants to CNB that it has furnished to CNB a true and complete
copy of the Subordinated Note. Subordinating Party covenants and agrees not to
modify or amend, or to permit modification or amendment of, any of the documents
evidencing the Subordinated Obligations without the prior written consent of
CNB.
3. SOLE HOLDER. Subordinating Party warrants and represents that
Subordinating Party is, and at all times prior to the termination of this
Subordination Agreement will continue to be, the sole legal and beneficial owner
and holder of the Subordinated Obligations and that Subordinating Party has not
previously assigned, and will not hereafter (prior to the termination of this
Subordination Agreement) assign, any interest in the Subordinated Obligations
without the prior written consent of CNB, which consent shall not be
unreasonably withheld if the assignee agrees in writing to receive such
assignment subject to the provisions of this Subordination Agreement.
4. COLLATERAL. Until the Obligations have been finally and
irrevocably paid and discharged in full, except with the prior written consent
of CNB, Subordinating Party will not request, accept or receive any collateral
security for any of the Subordinated Obligations; provided that Subordinating
Party shall have the right to receive a pledge of and a security interest in the
Pledged Interest.
5. LIQUIDATION. In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of Borrower, or the proceeds
thereof, to the creditors of Borrower or readjustment of the obligations and
indebtedness of Borrower, whether by reason of liquidation, bankruptcy,
arrangement, receivership, assignment for the benefit of creditors or any other
action or proceeding involving the readjustment of all or any part of the
Subordinated Obligations, or the application of the assets of Borrower to the
payment or liquidation thereof, or upon the dissolution or other winding up of
Borrower's business, or upon the sale of all or substantially all of Borrower's
assets, then, and in any such event: (a) CNB shall be entitled to receive
payment and discharge in full of any and all of the Obligations prior to the
payment of all or any part of the Subordinated Obligations, except that payments
may be made on the Subordinated Note to the extent such payments arise out of
the Pledged Interest or the proceeds thereof, and (b) any payment or
distribution of any kind or character, whether in cash, securities or other
property, which shall be payable or deliverable upon or with respect to any or
all of the Subordinated Obligations (other than payments or proceeds arising out
of the Pledged Interest) shall be paid or delivered directly to CNB for
application on any of the Obligations, due or not due, until such Obligations
shall have first been finally and irrevocably paid and discharged in full.
Subordinating Party shall not, without the prior written consent of CNB, file or
join in the filing of an involuntary petition against Borrower under the
Bankruptcy Code, or any other petition, motion or complaint to declare Borrower
insolvent or unable to pay its debts as they become due, until all of the
Obligations shall have been finally and irrevocably paid and discharged in full.
6. RECEIPT. Should any payment, distribution, security or
instrument, or any of the proceeds thereof, be received by Subordinating Party
upon or with respect to the Subordinated Obligations prior to the time when the
Obligations have been finally and irrevocably paid and discharged in full,
except to the extent that such receipt by Subordinating Party is otherwise
permitted by the terms of this Subordination Agreement, Subordinating Party
shall receive and hold the same in trust, as trustee, for the benefit of CNB and
shall forthwith deliver the same to CNB in precisely the form received (except
for the endorsement or assignment of Subordinating Party, where necessary), for
application on any of the Obligations, due or not due, and, until so delivered,
the same shall be held in trust by Subordinating Party as the property of CNB.
If Subordinating Party fails to make any such endorsement or assignment to CNB,
CNB is hereby irrevocably authorized to make the same.
7. TERM. This Subordination Agreement shall be effective until the
Obligations shall have been finally and irrevocably paid and discharged in full,
at which time it will terminate and be of no further force or effect.
8. MODIFICATIONS OF THE OBLIGATIONS. CNB, at any time and from time
to time, may enter into such agreement or agreements with Borrower or any other
party as CNB may deem proper altering the terms of any or all of the
Obligations, releasing any one or more of obligors liable therefor, or affecting
the security or the indebtedness underlying any or all of the Obligations, and
may exchange, sell, release, surrender, or otherwise deal with any such
underlying indebtedness or security, without in any way thereby impairing or
affecting this Subordination Agreement.
9. WAIVERS BY SUBORDINATING PARTY. All of the Obligations shall be
deemed to have been made or incurred in reliance upon this Subordination
Agreement. Subordinating Party expressly waives all notices of the acceptance
by CNB of the subordination and other provisions of this Subordination Agreement
and all other notices not specifically required pursuant to the terms of this
Subordination Agreement whatsoever, and Subordinating Party expressly waives
reliance by CNB upon the subordination and other agreements as herein provided.
Subordinating Party agrees that CNB has made no warranties or representations
with respect to the due execution, legality, validity, completeness or
enforceability of the Loan Agreement or the collectability of the Obligations,
that CNB shall be entitled to manage and supervise its loans to Borrower in
accordance with the Loan Agreement (as the same may hereafter be modified),
applicable law and its usual practices, modified from time to time as CNB deems
appropriate under the circumstances, without regard to the existence of any
rights that Subordinating Party may now or hereafter have in or to any of the
assets of Borrower. CNB shall have no liability to Subordinating Party for, and
Subordinating Party waives, any claim which Subordinating Party may now or
hereafter have against CNB, arising out of: (a) any and all actions which CNB,
in good faith, takes or omits to take (including, without limitation, actions
with respect to the creating, perfection or continuation of liens or security
interests in any collateral granted by Borrower to CNB pursuant to or in
connection with the Loan Agreement or as security for the Obligations (the "Bank
Collateral"), actions with respect to a demand for payment under the Loan
Agreement, actions with respect to the foreclosure upon, sale, release or
depreciation of, or failure to realize upon, any of the Bank Collateral and any
actions with respect to the collection of any claim for all or any part of the
Obligations from any account debtor, guarantor or any other party) with respect
to the Loan Agreement or the collection of the Obligations or the valuation,
use, protection or release of the Bank Collateral and/or other security for the
Obligations, (b) CNB's election, in any proceeding instituted under Chapter 11
of Title 11 of the United States Code (11 U.S.C. Section 101, et seq.) (The
"Bankruptcy Code"), of the application of Section 1111(b)(2) of the Bankruptcy
Code, and/or (c) any borrowing or grant of a security interest under Section 364
of the Bankruptcy Code to Borrower, as debtor in possession.
10. INFORMATION. Subordinating Party hereby assumes responsibility
for keeping itself informed of the financial condition of Borrower and of all
other circumstances bearing upon the risk of nonpayment of the Obligations
and/or the Subordinated Obligations that diligent inquiry would reveal, and
Subordinating Party hereby agrees that CNB shall have no duty to advise
Subordinating Party of information known to CNB regarding such condition or any
such circumstances. Subordinating Party agrees to send promptly to CNB a copy
of any default notice sent by Subordinating Party to Borrower in connection with
any of the Subordinated Obligations.
11. WAIVER AND AMENDMENT. No failure or delay by CNB in exercising
any right, power or remedy which it may have hereunder shall operate as a waiver
thereof or of any other right, power or remedy, nor shall any single or partial
exercise by CNB of any such right, power or remedy preclude any other or further
exercise thereof or of any other right, power or remedy. No waiver of any
provision hereof and no consent to any departure therefrom shall ever be
effective unless it is in writing and signed by the waiving or consenting party,
and then such waiver or consent shall be effective only in the specific
instances and for the purposes for which given and to the extent specified in
such writing. No modification or amendment of or supplement to this
Subordinating Agreement shall be valid or effective unless the same is in
writing and signed by the party against whom it is sought to be enforced.
12. NOTICES. All notices, requests, demands or other communications
provided for herein or given or made between the parties hereto in connection
herewith shall be in writing and shall be addressed to the party to be notified
at its address set forth below or at such other address as such party may from
time to time designate by notice to the other parties hereto. All notices
(except notices of change of address) shall be effective at the following times
based upon the method of delivery selected: (a) one day after deposit in the
United States mail, postage prepaid, registered or certified mail, return
receipt requested; (b) upon delivery, if delivered in person either directly to
the party to be notified or to the address of such party designated herein; or
(c) upon delivery, if delivered by commercial express service or courier to the
address of such party designated herein. Notices of change of address shall be
effective 10 days after the effective time otherwise applicable thereto:
IF TO CNB:
950 Seventeenth Street
Denver, Colorado 80202
Attention: Paul Jelaco
Telephone: (303) 585-4983
Fax: (303) 585-4362
IF TO SUBORDINATING PARTY:
33 West Monroe Street
Chicago, Illinois 60603
Attention: Deborah L. Bean
Telephone: (312) 558-9100
Fax: (312) 558-9041
13. GOVERNING LAW. This Subordination Agreement shall be deemed a
contract made under the laws of the State of Colorado and shall be construed and
enforced in accordance with and governed by the laws of the State of Colorado.
14. SEVERABILITY. If any term or provision of this Subordination
Agreement shall be determined to be illegal or unenforceable, all other terms
and provisions hereof shall nevertheless remain effective and shall be enforced
to the fullest extent permitted by applicable law.
15. COUNTERPARTS. This Subordination Agreement may be separately
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to
constitute one and the same agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
SLOUGH PARKS INCORPORATED
By: /s/ Deborah L. Bean
---------------------------------------------
Deborah L. Bean,
Vice President and
Chief Financial Officer
COLORADO NATIONAL BANK
By: /s/ Charles S. Searle
---------------------------------------------
Charles S. Searle,
Senior Vice President
ACCEPTANCE AND ACKNOWLEDGMENT
-----------------------------
The undersigned, TIPPERARY CORPORATION, hereby: (1) accepts and
acknowledges receipt of a copy of the foregoing Subordination Agreement as of
December 20, 1996, (2) consents to the terms thereof, and (3) agrees that it
will not pay any of the Subordinated Obligations (as defined in the foregoing
Subordination Agreement) except as permitted by the foregoing Subordination
Agreement.
TIPPERARY CORPORATION
By: /s/ David L. Bradshaw
---------------------------------------------
David L. Bradshaw,
President and Chief
Executive Officer
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT, effective as of the 1st day of January 1997, is made and
entered into by and between NATIONSBANK OF TEXAS, N.A., AS TRUSTEE FOR TRUSTS
#1190, AND #1191 ("Seller") and TIPPERARY OIL & GAS CORPORATION ("Buyer").
1. BASIS OF AGREEMENT. Seller and Buyer are parties to that certain
Joint Operating Agreement, dated May 15, 1992, by and between Tri-Star Petroleum
Company, as Operator, and Seller, Buyer and others, as non-operators, relative
to the development of the area known as the Comet Ridge Project, State of
Queensland, Australia ("the Operating Agreement"). The Operating Agreement is
attached hereto as Exhibit "A" and incorporated herein by reference for all
purposes. Seller desires to sell all of its right, title and interest of any
nature under the Operating Agreement, including, without limitation, all
contract rights and any undivided interest in any real or personal property
which Seller owns or has the right to acquire under the terms of the Operating
Agreement presently or in the future, and Buyer desires to purchase all of
Seller's right, title and interest of any nature under the Operating Agreement,
including, without limitation, all contract rights and any undivided interest in
any real or personal property which Seller owns or has the right to acquire
under the terms of the Operating Agreement presently or in the future, all in
accordance with the terms and conditions of this Purchase and Sale Agreement
("the Agreement").
2. ASSETS TO BE PURCHASED AND SOLD. Subject to the terms set forth in
this Agreement, and the reservation of interest described below, Seller agrees
to sell to Buyer and Buyer agrees to buy from Seller the following interests
credited to Seller under the "Percentage Interest of the Parties" in paragraph 3
of Exhibit "A" to the Operating Agreement, to wit:
<TABLE>
<CAPTION>
B. C.
A. In Leasehold In Acquisition,
In Ownership & Lease Drilling, Development
Production Operating Expenses WorkOver & Capital Costs
(%) (%) (%)
<S> <C> <C> <C>
Before Project Payout 1.6875 1.875 2
After Project Payout 1.44 1.6 1.6
</TABLE>
in and to the following described Assets, all subject to the terms and
conditions of the Operating Agreement:
(a) Seller's undivided interest, if any, in and to, and Seller's right to
acquire an undivided interest in and to, the Authority to Prospect (the "ATP")
listed and described on Exhibit "B" attached hereto, and on Exhibit "B" attached
to the Operating Agreement, and any extension, renewal or replacement of the
ATP, howsoever denominated, and Seller's rights, if any, to any previously
relinquished or lapsed acreage;
(b) Seller's undivided interest, if any, in and to, and Seller's right to
acquire an undivided interest in and to the petroleum leases listed and
described on Exhibit "B" attached hereto (the "Leases"), and any additional
petroleum or other oil, gas and mineral leases, all authorities to prospect or
pipeline licenses or other tenements issued in the future covering acreage
described by the ATP or any extension, renewal or replacement of the ATP;
(c) Seller's undivided interest, if any, in and to, and Seller's right to
acquire an interest in and to, the wells listed and described on Exhibit "C"
attached hereto (the "Wells"), including all formations and depths within or
below the wellbore, whether or not presently productive;
(d) Seller's undivided interest, if any, in and to, and Seller's right to
acquire an undivided interest in and to, all personal and mixed property located
on the lands covered by the ATP and Leases and used in operations conducted on
same, whether located on or off the wellsites, the Leases or the acreage
described by the ATP;
(e) Seller's undivided interest, if any, in and to, and Seller's right to
acquire an undivided interest in and to, all permits, licenses or leases,
servitudes, rights-of-way, easements, pipeline licenses (including pipeline
license number 27) and any other tenements or similar rights associated with the
ATP and Leases and or operation of the ATP and Leases, whether presently
existing or created, issued or accrued in the future, and any interest in (or
right to acquire an interest in) any application for any of the foregoing;
(f) Seller's undivided interest in and to, and the right to acquire an
undivided interest in and to, any and all gas purchase and sale agreements,
crude purchase and sale agreements, leases of equipment or facilities and any
and all other agreements and rights which are (i) appurtenant to the ATP, Leases
or Wells, or (ii) used or held for use in connection with the ownership or
operation of the Wells or with the production, treatment, sale or disposal of
water, hydrocarbons or associated substances produced, used or disposed of in
connection with the Wells, ATP or the Leases;
(g) All of Seller's tax benefits or tax deductions under the laws of
Australia, the State of Queensland or any municipality thereof, whether or not
presently accrued, owned by or vested in Seller, including, without limitation,
any tax benefits or deductions which may be transferred to Buyer under
Australia's Income Tax Assessment Act.
(h) All of Seller's contract rights under the Operating Agreement, express
or implied and presently existing or arising in the future of any nature
whatsoever, including, but not limited to, all choses-in-action, whether or not
presently owned by or vested in Seller.
The rights and interests described in paragraphs (a) through (h) above are
collectively referred to in this Agreement as "the Assets".
3. CONTRACTUAL RESERVATION OF SELLER. Seller hereby excepts and reserves
and shall retain a contractual right to 25% of the proceeds of oil and gas
actually produced, without deduction of any costs or taxes except the following:
(a) gathering, compression and transportation costs; and
(b) any taxes incurred by reason of the production of oil and gas
(including, without limitation any ad valorem tax), but excluding any income
tax, and
attributable to the 2% interest (before and after payout as the case may be),
transferred by Seller to Buyer hereunder. It is agreed that such interest
reserved by Seller will be 0.46875% before payout and 0.4000% after payout;
provided, however, if the interest transferred to Buyer hereunder is less than
above stated then the contractual interest shall be proportionately reduced.
4. PURCHASE PRICE AND CLOSING. The Purchase Price for the Assets shall
be Eight Hundred Eighty-Eight Thousand Two Hundred Seventy-Four and 51/100
Dollars ($888,274.51) (the "Purchase Price"). The sale shall be completed at a
closing (the "Closing") to be held in the offices of Hammett & Taylor, 5 Post
Oak Park, 24th Floor, Houston, TX 77027, or some other location as agreed by
the parties, on or before January 31, 1997, (the "Closing Date"). At the
Closing, Seller shall deliver to Buyer a fully executed Assignment in the form
attached hereto as Exhibit "D." The Purchase Price, less Ten Thousand and
no/100 ($10,000.00) Dollars previously paid by Buyer to Seller, the receipt of
which is hereby acknowledged, shall be paid to Seller by wire transfer.
5. THE EFFECTIVE DATE. The Effective Date hereof, for all purposes,
shall be January 1, 1997, at 7:00 a.m., Greenwich Mean Time Plus Ten, local
time, Brisbane Australia.
6. POST-CLOSING ADJUSTMENTS. Within sixty (60) days after the Closing,
the parties shall undertake to agree with respect to the adjustments or payments
that were not finally determined as of the Closing, and the amount due from
Buyer or Seller, as the case may be, pursuant to the Post-closing adjustment.
Seller shall provide Buyer access to such of Seller's records as may be
reasonably necessary to a determination of Post-closing adjustments. Payment by
Buyer or Seller shall be made in immediately available funds within five (5)
days of agreement. If the Post-closing adjustment has not been agreed upon
within the time period set forth herein, either party may seek to enforce any
rights it claims hereunder. Notwithstanding the above, however, the parties
agree that the Purchase Price is not subject to adjustment. The parties also
agree that if, as a result of any audit of the joint interest billings under the
Joint Operating Agreement, there is a credit for overpayment of expenses
attributable to the interests conveyed by Seller to Buyer, whether paid before
or after the Effective Date, that credit shall accrue solely to the benefit of
Buyer and shall not be refundable to Seller.
7. MUTUAL REPRESENTATIONS AND WARRANTIES. Each party hereto represents
and warrants to the other that:
a. The person executing this Agreement and the transactions
contemplated hereby has all authority necessary to enter into this Agreement
and to perform all its obligations hereunder;
b. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby will not:
(i) violate or conflict with any provision of any Certificate of
Incorporation, Corporate By-Laws, trust agreement or other trust instrument or
other governing document of any nature;
(ii) result in the breach of any term or condition of, or
constitute a default or cause the acceleration of any obligation under any
agreement or instrument to which it is a party or by which it is bound; or
(iii) violate or conflict with any applicable judgment, decree,
order, permit, law, rule or regulation, state or federal, of the United States
of America.
c. This Agreement has been duly executed and delivered on its
behalf, and at the Closing all documents and instruments required hereunder will
have been duly executed and delivered. This Agreement, and all such documents
and instruments shall constitute legal, valid and binding obligations
enforceable in accordance with their respective terms, except to the extent
enforceability may be impacted by bankruptcy, reorganization, insolvency or
similar laws affecting creditors rights generally; and
d. No legal or administrative proceeding is pending or threatened
that would prohibit it from entering into or consummating this Agreement.
8. SELLER'S REPRESENTATIONS AND WARRANTIES.
a. Seller agrees to convey, assign and transfer its contract,
property and other rights in the Assets to be purchased by Buyer and Seller for
itself, its successors and assigns agrees to warrant and defend the title of
Buyer, its successors and assigns to the interest and properties against every
person whomsoever claiming the same of any part thereof by, through and under
Seller, but not otherwise.
WITH RESPECT TO THE WELLS, EQUIPMENT AND OTHER ITEMS OF PERSONALTY
WHICH MAY BE COVERED HEREBY, THE SAME ARE USED AND ARE SOLD ON "AS IS" AND
"WHERE IS" BASIS WITH ALL FAULTS IF ANY. SELLER SHALL HAVE NO LIABILITY TO
BUYER FOR ANY CLAIMS, LOSS, OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR
INDIRECTLY, INCIDENTALLY OR CONSEQUENTIALLY BY SAID WELLS, EQUIPMENT OR PERSONAL
PROPERTY, BY ANY INADEQUACY THEREOF OR THEREWITH, ARISING IN STRICT LIABILITY OR
OTHERWISE, OR IN ANY WAY RELATED TO OR ARISING OUT OF THIS AGREEMENT. SELLER
MAKES NO EXPRESS OR IMPLIED WARRANTIES OF ANY KIND INCLUDING THOSE OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO SAID WELLS,
EQUIPMENT AND PERSONAL PROPERTY AND EXPRESSLY DISCLAIMS ANY WARRANTIES WITH
RESPECT THERETO.
b. Seller represents and warrants that the interests which Buyer
shall receive shall include production or the right to proceeds of production
from each well located on the ATP and Leases in an amount which is not less than
the percentage net revenue interest set forth in Paragraph 2 above. In addition,
Seller represents that the interest to be conveyed, assigned and transferred to
Buyer shall not require Buyer to bear a greater percentage of costs and expenses
than the percentage working interest set forth in Paragraph 2 above. This
representation of warranty is by, through and under Seller, but not otherwise.
c. Seller represents that it has full and complete ownership of the
Assets conveyed hereunder and that the Assets to be purchased by Buyer are free
and clear of all liens, judgments, mortgages and other burdens or encumbrances,
created by Seller. Provided, however, Seller's interest is subject to that
certain Settlement Agreement between it and Tri-Star Petroleum Company dated the
25th day of October, 1996, a copy of which has been furnished to Buyer.
d. Seller represents that its contract rights and/or title to
undivided interest in the Assets to be purchased by Buyer has not been forfeited
under the terms of any Joint Operating Agreement covering said interests and
that it is not in arrears with respect to any joint interest billing account.
e. Seller hereby transfers to Buyer the full right of subrogation
to enforce the covenants and warranties, if any, which Seller is entitled to
enforce against Seller's predecessors in title to the subject interest in the
Assets to be purchased by Buyer hereunder.
f. Seller represents that, upon request by Buyer, it will execute
and return to Buyer a 124AB Notice under Australia's Income Assessment Act.
9. ALLOCATION OF LIABILITY AND INDEMNIFICATIONS.
a. DEFINITIONS.
The term "BUYER'S ASSUMED LIABILITIES" shall mean and include:
(i) All costs, expenses, liabilities and obligations assumed or
otherwise agreed to be paid by Buyer pursuant to the terms of this Agreement;
and
(ii) All costs, expenses, liabilities, claims and obligations
arising out of, in connection with, or resulting directly or indirectly from the
ownership or operation of the Assets, (excluding Seller's Retained Liabilities),
insofar as such claims relate to periods of time subsequent to the Effective
Date.
The term "SELLER'S RETAINED LIABILITIES" shall mean and include:
(i) All costs, expenses, liabilities and obligations assumed or
otherwise agreed to be paid by Seller pursuant to the terms of this Agreement;
(ii) All costs, expenses, liabilities, claims and obligations,
including all attorney's fees, arising out of, in connection with or resulting
directly or indirectly from the ownership or operation of the assets or
production or sale of hydrocarbons attributable to the Assets, insofar as such
claims relate to periods of time prior to the Effective Date; and
(iii) All legal fees charged to the joint account and attributable
to the interests purchased and sold hereunder prior to the Effective Date.
b. LIABILITIES. Buyer agrees to assume, pay, perform, fulfill,
discharge and be liable for all of Buyer's Assumed Liabilities, and Seller
agrees to retain, pay, perform, fulfill, discharge and be and remain liable for
all of Seller's Retained Liabilities.
c. SELLER'S INDEMNITY. SUBJECT TO THE PROVISIONS OF SECTION 8(a),
ABOVE, SELLER AGREES TO DEFEND. INDEMNIFY AND HOLD HARMLESS BUYER. ITS OFFICERS,
DIRECTORS, AGENTS AND EMPLOYEES, OR ANY OF THEM. FROM AND AGAINST ANY AND ALL
LOSSES, CLAIMS, SUITS, CONTROVERSIES, LIABILITIES AND EXPENSES (INCLUDING,
WITHOUT LIMITATION, COURT COSTS, REASONABLE EXPENSES OF LITIGATION AND
REASONABLE ATTORNEY'S FEES) ARISING DIRECTLY OUT OF SELLER'S OWNERSHIP OR USE OF
THE INTEREST IN THE ASSETS TO BE PURCHASED HEREUNDER; PROVIDED, HOWEVER, THAT
THIS INDEMNITY SHALL BE LIMITED TO THOSE CLAIMS, RIGHTS, DEMANDS AND CAUSES OF
ACTION ARISING FROM ACTIVITY OCCURRING PRIOR TO THE EFFECTIVE DATE OF THE SALE.
d. BUYER'S INDEMNITY. BUYER AGREES TO DEFEND, INDEMNIFY AND HOLD
HARMLESS SELLER, ITS OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES, OR ANY OF THEM,
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, SUITS, CONTROVERSIES, LIABILITIES
AND EXPENSES (INCLUDING, WITHOUT LIMITATION, COURT COSTS, REASONABLE EXPENSES OF
LITIGATION AND REASONABLE ATTORNEY'S FEES) ARISING DIRECTLY OUT OF BUYER'S
OWNERSHIP OR USE OF THE INTEREST IN THE ASSETS TO BE SOLD HEREUNDER; PROVIDED,
HOWEVER, THAT THIS INDEMNITY SHALL BE LIMITED TO THOSE CLAIMS, RIGHTS, DEMANDS
AND CAUSES OF ACTION ARISING FROM ACTIVITY OCCURRING ON OR AFTER THE EFFECTIVE
DATE OF THE SALE.
10. REVIEW AND INSPECTION OF THE ASSETS. Prior to the Closing, Buyer
shall have the right to perform due diligence review and inspection of the
Assets. Seller shall make available, both before and after Closing, to Buyer
all information and data relating to the Assets as they may have and as
reasonably requested by Buyer, including, but not limited to the following (a)
financial and accounting records; (b) production, engineering, geological and
geophysical data and reports for the Leases; (c) copies of engineering,
geological and geophysical studies, subject to any license and non-disclosure
requirements; (d) copies of seismic data across any of the Leases (subject to
any license restriction and non-disclosure requirements); (e) title records,
including, but not limited to, copies of the Leases; (f) material and relevant
information concerning pending litigation (excluding information subject to
attorney-client or attorney work product privilege); (g) regulatory compliance;
(h) contracts between Seller and third parties with regard to the Assets; and
(i) all permits and licenses pertaining to the Assets. Nothing contained in
this paragraph shall obligate Seller to take any action or expend any money to
acquire anything for Buyer which Seller does not already have in its possession.
Seller does not represent that it has all of the above referenced material in
its possession, nor does Seller warrant the accuracy of any such material.
11. WAIVER. Seller and Buyer certify that they are not "Consumers" within
the meaning of the Texas Deceptive Trade Practices - Consumer Protection Act,
Subchapter E of Chapter 17, Sections 17.41, et seq., of the Texas Business and
Commerce Code, as amended (the "DTPA"). The parties covenant, for themselves and
for and on behalf of any successors and assignees, that if the DTPA is
applicable (a) the parties are "business consumers" hereunder, (b) each party
hereby waives and releases all of its rights and remedies thereunder (other than
Section 17.555, Texas Business and Commerce Code) as applicable to the other
party and its successors, and (c) each party shall defend and indemnify the
other from and against any and all claims, demands, or causes of action of or by
that party or any successor or any of its affiliates based in whole or in part
on the DTPA, arising out of or in connection with the transaction set forth in
this Agreement.
WAIVER OF CONSUMER RIGHTS
-------------------------
PURCHASER WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES
- CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., BUSINESS &
COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF PURCHASER'S
OWN SELECTION, PURCHASER VOLUNTARILY CONSENTS TO THIS WAIVER.
12. NOTICES. All communications required or permitted under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been fully made if actually delivered, or if mailed by
registered or certified mail, postage prepaid, return receipt requested, to the
address as set forth below:
SELLER
NationsBank of Texas, N.A., Trustee
Trust #1190
Trust #1191
Attention: W. H. Bolch
P. O. Box 830308
Dallas, TX 75283
Telephone No.: 214-508-2424
Telecopier No.: 214-508-3088
BUYER
Tipperary Oil & Gas Corporation
633 Seventeenth Street
Suite 1550
Denver, Colorado 80202
Attention: David L. Bradshaw
Telephone: (303) 293-9379
Telecopier: (303) 292-3428
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCLUDING, HOWEVER, ANY PROVISION
OF TEXAS LAW THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF A DIFFERENT
JURISDICTION.
14. GOVERNMENTAL APPROVALS. Subsequent to the Closing, Seller agrees to
cooperate fully with Buyer in obtaining any desired consents or approvals of the
Government of Australia, or any State thereof, including the taking of any steps
necessary to seek the consent or approval of any transfer into, or any minister
or other governmental official of any of the foregoing, Seller of any part of
the interests in the Assets acquired hereunder, together with the execution of
any document necessary, in the judgment of Buyer, or its counsel, to obtain any
such consent or approval, or to perfect the title of Seller or Buyer or obtain
any necessary sanction of the Operating Agreement.
15. FURTHER ASSURANCES. Incidental and subsequent to Closing, each of the
parties shall execute, acknowledge, and deliver to the other such further
instruments (including any stamp duty or other form necessary for, or incident
to, the notation, sanction, approval or transfer to Buyer of any title or
interest in either the Assets or the Operating Agreement), and to take such
other actions as may be reasonably necessary to carry out the provisions of this
Agreement.
16. EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay its own fees and
expenses incident to the negotiation, preparation and execution of this
Agreement, including attorneys' and accountants' fees.
17. EXISTING RELATIONSHIP. Seller and Buyer are co-working interest
owners in the Assets. As a result of this relationship, Buyer acknowledges that
it is thoroughly familiar with the condition of the interests and properties to
be sold to it, and that it has extensive and personal knowledge of all
operations which have been conducted by the working interest owners on and with
respect to the interests and properties which are the subject of this Agreement.
18. ARBITRATION. Seller and Buyer agree that all disputes or
disagreements arising under the terms of this Agreement or arising with respect
to any obligations assumed by the parties hereto shall be submitted to binding
arbitration subject to the rules of the American Arbitration Association, except
as to the choice of arbitrators. The arbitrators shall be chosen by each party
choosing an arbitrator who shall select a third arbitrator. If the chosen
arbitrators fail to agree on a third arbitrator, either party may petition any
state District Court in Midland County, Texas, to select a third arbitrator.
19. EXHIBITS. All exhibits to this Agreement are incorporated herein by
reference.
20. SUCCESSORS AND ASSIGNS. The terms, covenants and conditions hereof
bind and inure to the benefit of Buyer and Seller and their respective
successors and assigns.
21. CONFLICTS. In the event of a conflict between this Agreement and the
terms and conditions of the Operating Agreement, the provisions of this
Agreement shall prevail. In all other respects, this Agreement shall supersede
all prior agreements between the parties hereto regarding the subject matter
hereof, whether written or oral.
22. SURVIVAL. The covenants, obligations, indemnities, representations
and warranties included in this Agreement shall survive the Closing and remain
actionable thereafter.
23. PRODUCT OF NEGOTIATION. This Agreement is the product of negotiation
between Buyer and Seller. No fiduciary duty owed by Buyer and Seller in any
prior agreement between Buyer and Seller shall apply to the process of
negotiation of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties before
the undersigned competent witnesses as of the date first written above.
WITNESSES: SELLER:
NATIONSBANK OF TEXAS, N.A.,
as Trustee for Trusts #1190 and #1191
/s/ Jeanne Davis By: /s/ W. H. Bolch
- ------------------------------ ----------------------------------------
W. H. BOLCH
/s/ Billy N. Henson
- ------------------------------
Its: Vice President
DATE: January 30, 1997
BUYER:
/s/ James V. Hammett, Jr. TIPPERARY OIL & GAS CORPORATION
- ------------------------------
/s/ Helen Pal
- ------------------------------
By: /s/ David L. Bradshaw
----------------------------------------
DAVID L. BRADSHAW
Its: President and Chief Executive Officer
DATE: January 29, 1997
PURCHASE AND SALE AGREEMENT
---------------------------
THIS AGREEMENT, effective as of the 1st day of January 1997, is made and
entered into by and between NATIONSBANK OF TEXAS, N.A., AS TRUSTEE FOR TRUSTS
#1362, #1363 AND #1364 ("Seller") and TIPPERARY OIL & GAS CORPORATION ("Buyer").
1. BASIS OF AGREEMENT. Seller and Buyer are parties to that certain
Joint Operating Agreement, dated May 15, 1992, by and between Tri-Star Petroleum
Company, as Operator, and Seller, Buyer and others, as non-operators, relative
to the development of the area known as the Comet Ridge Project, State of
Queensland, Australia ("the Operating Agreement"). The Operating Agreement is
attached hereto as Exhibit "A" and incorporated herein by reference for all
purposes. Seller desires to sell all of its right, title and interest of any
nature under the Operating Agreement, including, without limitation, all
contract rights and any undivided interest in any real or personal property
which Seller owns or has the right to acquire under the terms of the Operating
Agreement presently or in the future, and Buyer desires to purchase all of
Seller's right, title and interest of any nature under the Operating Agreement,
including, without limitation, all contract rights and any undivided interest in
any real or personal property which Seller owns or has the right to acquire
under the terms of the Operating Agreement presently or in the future, all in
accordance with the terms and conditions of this Purchase and Sale Agreement
("the Agreement").
2. ASSETS TO BE PURCHASED AND SOLD. Subject to the terms set forth in
this Agreement, Seller agrees to sell to Buyer and Buyer agrees to buy from
Seller the following interests credited to Seller under the "Percentage Interest
of the Parties" in paragraph 3 of Exhibit "A" to the Operating Agreement, to
wit:
<TABLE>
<CAPTION>
B. C.
A. In Leasehold In Acquisition,
In Ownership & Lease Drilling, Development
Production Operating Expenses WorkOver & Capital Costs
(%) (%) (%)
<S> <C> <C> <C>
Before Project Payout 2.53125 2.8125 3
After Project Payout 2.16 2.4 2.4
</TABLE>
in and to the following described Assets, all subject to the terms and
conditions of the Operating Agreement:
(a) Seller's undivided interest, if any, in and to, and Seller's
right to acquire an undivided interest in and to, the Authority to Prospect (the
"ATP") listed and described on Exhibit "B" attached hereto, and on Exhibit "B"
attached to the Operating Agreement, and any extension, renewal or replacement
of the ATP, howsoever denominated, and Seller's rights, if any, to any
previously relinquished or lapsed acreage;
(b) Seller's undivided interest, if any, in and to, and Seller's
right to acquire an undivided interest in and to the petroleum leases listed and
described on Exhibit "B" attached hereto (the "Leases"), and any additional
petroleum or other oil, gas and mineral leases, all authorities to prospect or
pipeline licenses or other tenements issued in the future covering acreage
described by the ATP or any extension, renewal or replacement of the ATP;
(c) Seller's undivided interest, if any, in and to, and Seller's
right to acquire an interest in and to, the wells listed and described on
Exhibit "C" attached hereto (the "Wells"), including all formations and depths
within or below the wellbore, whether or not presently productive;
(d) Seller's undivided interest, if any, in and to, and Seller's
right to acquire an undivided interest in and to, all personal and mixed
property located on the lands covered by the ATP and Leases and used in
operations conducted on same, whether located on or off the wellsites, the
Leases or the acreage described by the ATP;
(e) Seller's undivided interest, if any, in and to, and Seller's
right to acquire an undivided interest in and to, all permits, licenses or
leases, servitudes, rights-of-way, easements, pipeline licenses (including
pipeline license number 27) and any other tenements or similar rights associated
with the ATP and Leases and or operation of the ATP and Leases, whether
presently existing or created, issued or accrued in the future, and any interest
in (or right to acquire an interest in) any application for any of the foreoing;
(f) Seller's undivided interest in and to, and the right to acquire
an undivided interest in and to, any and all gas purchase and sale agreements,
crude purchase and sale agreements, leases of equipment or facilities and any
and all other agreements and rights which are (i) appurtenant to the ATP, Leases
or Wells, or (ii) used or held for use in connection with the ownership or
operation of the Wells or with the production, treatment, sale or disposal of
water, hydrocarbons or associated substances produced, used or disposed of in
connection with the Wells, ATP or the Leases;
(g) All of Seller's tax benefits or tax deductions under the laws of
Australia, the State of Queensland or any municipality thereof, whether or not
presently accrued, owned by or vested in Seller, including, without limitation,
any tax benefits or deductions which may be transferred to Buyer under
Australia's Income Tax Assessment Act.
(h) All of Seller's contract rights under the Operating Agreement,
express or implied and presently existing or arising in the future of any nature
whatsoever, including, but not limited to, all choses-in-action, whether or not
presently owned by or vested in Seller.
The rights and interests described in paragraphs (a) through (h) above are
collectively referred to in this Agreement as "the Assets".
3. PURCHASE PRICE AND CLOSING. The Purchase Price for the Assets shall
be One Million Four Hundred Forty-Eight Thousand Two Hundred Seventy-Three and
66/100 Dollars ($1,448,273.66)(the "Purchase Price"). The sale shall be
completed at a closing (the "Closing") to be held in the offices of Hammett &
Taylor, 5 Post Oak Park, 24th Floor, Houston, TX 77027, or some other location
as agreed by the parties, on or before January 31, 1997, (the "Closing Date").
At the Closing, Seller shall deliver to Buyer a fully executed Assignment in the
form attached hereto as Exhibit "D". The Purchase Price, less Ten Thousand and
no/100 ($10,000.00) Dollars previously paid by Buyer to Seller, the receipt of
which is hereby acknowledged, shall be paid to Seller by wire transfer.
4. THE EFFECTIVE DATE. The Effective Date hereof, for all purposes,
shall be January 1, 1997, at 7:00 a.m., Greenwich Mean Time Plus Ten, local
time, Brisbane Australia.
5. POST-CLOSING ADJUSTMENTS. Within sixty (60) days after the Closing,
the parties shall undertake to agree with respect to the adjustments or payments
that were not finally determined as of the Closing, and the amount due from
Buyer or Seller, as the case may be, pursuant to the Post-closing adjustment.
Seller shall provide Buyer access to such of Seller's records as may be
reasonably necessary to a determination of Post-closing adjustments. Payment by
Buyer or Seller shall be made in immediately available funds within five (5)
days of agreement. If the Post-closing adjustment has not been agreed upon
within the time period set forth herein, either party may seek to enforce any
rights it claims hereunder. Notwithstanding the above, however, the parties
agree that the Purchase Price is not subject to adjustment. The parties also
agree that if, as a result of any audit of the joint interest billings under the
Joint Operating Agreement, there is a credit for overpayment of expenses
attributable to the interests conveyed by Seller to Buyer, whether paid before
or after the Effective Date, that credit shall accrue solely to the benefit of
Buyer and shall not be refundable to Seller.
6. MUTUAL REPRESENTATIONS AND WARRANTIES. Each party hereto represents
and warrants to the other that:
a. The person executing this Agreement and the transactions
contemplated hereby has all authority necessary to enter into this Agreement
and to perform all its obligations hereunder;
b. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby will not:
(i) violate or conflict with any provision of any Certificate of
Incorporation, Corporate By-Laws, trust agreement or other trust instrument or
other governing document of any nature;
(ii) result in the breach of any term or condition of, or
constitute a default or cause the acceleration of any obligation under any
agreement or instrument to which it is a party or by which it is bound; or
(iii) violate or conflict with any applicable judgment, decree,
order, permit, law, rule or regulation, state or federal, of the United States
of America.
c. This Agreement has been duly executed and delivered on its
behalf, and at the Closing all documents and instruments required hereunder will
have been duly executed and delivered. This Agreement, and all such documents
and instruments shall constitute legal, valid and binding obligations
enforceable in accordance with their respective terms, except to the extent
enforceability may be impacted by bankruptcy, reorganization, insolvency or
similar laws affecting creditors rights generally; and
d. No legal or administrative proceeding is pending or threatened
that would prohibit it from entering into or consummating this Agreement.
7. SELLER'S REPRESENTATIONS AND WARRANTIES.
a. Seller agrees to convey, assign and transfer its contract,
property and other rights in the Assets to be purchased by Buyer and Seller for
itself, its successors and assigns agrees to warrant and defend the title of
Buyer, its successors and assigns to the interest and properties against every
person whomsoever claiming the same of any part thereof by, through and under
Seller, but not otherwise.
WITH RESPECT TO THE WELLS, EQUIPMENT AND OTHER ITEMS OF PERSONALTY
WHICH MAY BE COVERED HEREBY, THE SAME ARE USED AND ARE SOLD ON "AS IS" AND
"WHERE IS" BASIS WITH ALL FAULTS IF ANY. SELLER SHALL HAVE NO LIABILITY TO
BUYER FOR ANY CLAIMS, LOSS, OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR
INDIRECTLY, INCIDENTALLY OR CONSEQUENTIALLY BY SAID WELLS, EQUIPMENT OR PERSONAL
PROPERTY, BY ANY INADEQUACY THEREOF OR THEREWITH, ARISING IN STRICT LIABILITY OR
OTHERWISE, OR IN ANY WAY RELATED TO OR ARISING OUT OF THIS AGREEMENT. SELLER
MAKES NO EXPRESS OR IMPLIED WARRANTIES OF ANY KIND INCLUDING THOSE OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO SAID WELLS,
EQUIPMENT AND PERSONAL PROPERTY AND EXPRESSLY DISCLAIMS ANY WARRANTIES WITH
RESPECT THERETO.
b. Seller represents and warrants that the interests which Buyer
shall receive shall include production or the right to proceeds of production
from each well located on the ATP and Leases in an amount which is not less than
the percentage net revenue interest set forth in Paragraph 2 above. In addition,
Seller represents that the interest to be conveyed, assigned and transferred to
Buyer shall not require Buyer to bear a greater percentage of costs and expenses
than the percentage working interest set forth in Paragraph 2 above. This
representation of warranty is by, through and under Seller, but not otherwise.
c. Seller represents that it has full and complete ownership of the
Assets conveyed hereunder and that the Assets to be purchased by Buyer are free
and clear of all liens, judgments, mortgages and other burdens or encumbrances,
created by Seller. Provided, however, Seller's interest is subject to that
certain Settlement Agreement between it and Tri-Star Petroleum Company dated the
25th day of October, 1996, a copy of which has been furnished to Buyer.
d. Seller represents that its contract rights and/or title to
undivided interest in the Assets to be purchased by Buyer has not been forfeited
under the terms of any Joint Operating Agreement covering said interests and
that it is not in arrears with respect to any joint interest billing account.
e. Seller hereby transfers to Buyer the full right of subrogation
to enforce the covenants and warranties, if any, which Seller is entitled to
enforce against Seller's predecessors in title to the subject interest in the
Assets to be purchased by Buyer hereunder.
f. Seller represents that, upon request by Buyer, it will execute
and return to Buyer a 124AB Notice under Australia's Income Assessment Act.
8. ALLOCATION OF LIABILITY AND INDEMNIFICATIONS.
a. DEFINITIONS.
The term "BUYER'S ASSUMED LIABILITIES" shall mean and include:
(i) All costs, expenses, liabilities and obligations assumed or
otherwise agreed to be paid by Buyer pursuant to the terms of this Agreement;
and
(ii) All costs, expenses, liabilities, claims and obligations
arising out of, in connection with, or resulting directly or indirectly from the
ownership or operation of the Assets, (excluding Seller's Retained Liabilities),
insofar as such claims relate to periods of time subsequent to the Effective
Date.
The term "SELLER'S RETAINED LIABILITIES" shall mean and include:
(i) All costs, expenses, liabilities and obligations assumed or
otherwise agreed to be paid by Seller pursuant to the terms of this Agreement;
(ii) All costs, expenses, liabilities, claims and obligations,
including all attorney's fees, arising out of, in connection with or resulting
directly or indirectly from the ownership or operation of the assets or
production or sale of hydrocarbons attributable to the Assets, insofar as such
claims relate to periods of time prior to the Effective Date; and
(iii) All legal fees charged to the joint account and attributable
to the interests purchased and sold hereunder prior to the Effective Date.
b. LIABILITIES. Buyer agrees to assume, pay, perform, fulfill,
discharge and be liable for all of Buyer's Assumed Liabilities, and Seller
agrees to retain, pay, perform, fulfill, discharge and be and remain liable for
all of Seller's Retained Liabilities.
c. SELLER'S INDEMNITY. SUBJECT TO THE PROVISIONS OF SECTION 7(a),
ABOVE, SELLER AGREES TO DEFEND. INDEMNIFY AND HOLD HARMLESS BUYER. ITS OFFICERS,
DIRECTORS, AGENTS AND EMPLOYEES, OR ANY OF THEM. FROM AND AGAINST ANY AND ALL
LOSSES, CLAIMS, SUITS, CONTROVERSIES, LIABILITIES AND EXPENSES (INCLUDING,
WITHOUT LIMITATION, COURT COSTS, REASONABLE EXPENSES OF LITIGATION AND
REASONABLE ATTORNEY'S FEES) ARISING DIRECTLY OUT OF SELLER'S OWNERSHIP OR USE OF
THE INTEREST IN THE ASSETS TO BE PURCHASED HEREUNDER; PROVIDED, HOWEVER, THAT
THIS INDEMNITY SHALL BE LIMITED TO THOSE CLAIMS, RIGHTS, DEMANDS AND CAUSES OF
ACTION ARISING FROM ACTIVITY OCCURRING PRIOR TO THE EFFECTIVE DATE OF THE SALE.
d. BUYER'S INDEMNITY. BUYER AGREES TO DEFEND, INDEMNIFY AND HOLD
HARMLESS SELLER, ITS OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES, OR ANY OF THEM,
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, SUITS, CONTROVERSIES, LIABILITIES
AND EXPENSES (INCLUDING, WITHOUT LIMITATION, COURT COSTS, REASONABLE EXPENSES OF
LITIGATION AND REASONABLE ATTORNEY'S FEES) ARISING DIRECTLY OUT OF BUYER'S
OWNERSHIP OR USE OF THE INTEREST IN THE ASSETS TO BE SOLD HEREUNDER; PROVIDED,
HOWEVER, THAT THIS INDEMNITY SHALL BE LIMITED TO THOSE CLAIMS, RIGHTS, DEMANDS
AND CAUSES OF ACTION ARISING FROM ACTIVITY OCCURRING ON OR AFTER THE EFFECTIVE
DATE OF THE SALE.
9. REVIEW AND INSPECTION OF THE ASSETS. Prior to the Closing, Buyer
shall have the right to perform due diligence review and inspection of the
Assets. Seller shall make available, both before and after Closing, to Buyer
all information and data relating to the Assets as they may have and as
reasonably requested by Buyer, including, but not limited to the following (a)
financial and accounting records; (b) production, engineering, geological and
geophysical data and reports for the Leases; (c) copies of engineering,
geological and geophysical studies, subject to any license and non-disclosure
requirements; (d) copies of seismic data across any of the Leases (subject to
any license restriction and non-disclosure requirements); (e) title records,
including, but not limited to, copies of the Leases; (f) material and relevant
information concerning pending litigation (excluding information subject to
attorney-client or attorney work product privilege); (g) regulatory compliance;
(h) contracts between Seller and third parties with regard to the Assets; and
(i) all permits and licenses pertaining to the Assets. Nothing contained in
this paragraph shall obligate Seller to take any action or expend any money to
acquire anything for Buyer which Seller does not already have in its possession.
Seller does not represent that it has all of the above referenced material in
its possession, nor does Seller warrant the accuracy of any such material.
10. WAIVER. Seller and Buyer certify that they are not "Consumers" within
the meaning of the Texas Deceptive Trade Practices - Consumer Protection Act,
Subchapter E of Chapter 17, Sections 17.41, et seq., of the Texas Business and
Commerce Code, as amended (the "DTPA"). The parties covenant, for themselves
and for and on behalf of any successors and assignees, that if the DTPA is
applicable (a) the parties are "business consumers" hereunder, (b) each party
hereby waives and releases all of its rights and remedies thereunder (other than
Section 17.555, Texas Business and Commerce Code) as applicable to the other
party and its successors, and (c) each party shall defend and indemnify the
other from and against any and all claims, demands, or causes of action of or by
that party or any successor or any of its affiliates based in whole or in part
on the DTPA, arising out of or in connection with the transaction set forth in
this Agreement.
WAIVER OF CONSUMER RIGHTS
-------------------------
PURCHASER WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET
SEQ., BUSINESS & COMMERCE CODE, A LAW THAT GIVES
CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF PURCHASER'S OWN
SELECTION, PURCHASER VOLUNTARILY CONSENTS TO THIS
WAIVER.
11. NOTICES. All communications required or permitted under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been fully made if actually delivered, or if mailed by
registered or certified mail, postage prepaid, return receipt requested, to the
address as set forth below:
SELLER
NationsBank of Texas, N.A., Trustee
Trust #1362
Trust #1363
Trust #1364
Attention: W. H. Bolch
P. O. Box 830308
Dallas, TX 75283
Telephone No.: 214-508-2424
Telecopier No.: 214-508-3088
BUYER
Tipperary Oil & Gas Corporation
633 Seventeenth Street
Suite 1550
Denver, Colorado 80202
Attention: David L. Bradshaw
Telephone: (303) 293-9379
Telecopier: (303) 292-3428
12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCLUDING, HOWEVER, ANY PROVISION
OF TEXAS LAW THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF A DIFFERENT
JURISDICTION.
13. GOVERNMENTAL APPROVALS. Subsequent to the Closing, Seller agrees to
cooperate fully with Buyer in obtaining any desired consents or approvals of the
Government of Australia, or any State thereof, including the taking of any steps
necessary to seek the consent or approval of any transfer into, or any minister
or other governmental official of any of the foregoing, Seller of any part of
the interests in the Assets acquired hereunder, together with the execution of
any document necessary, in the judgment of Buyer, or its counsel, to obtain any
such consent or approval, or to perfect the title of Seller or Buyer or obtain
any necessary sanction of the Operating Agreement.
14. FURTHER ASSURANCES. Incidental and subsequent to Closing, each of the
parties shall execute, acknowledge, and deliver to the other such further
instruments (including any stamp duty or other form necessary for, or incident
to, the notation, sanction, approval or transfer to Buyer of any title or
interest in either the Assets or the Operating Agreement), and to take such
other actions as may be reasonably necessary to carry out the provisions of this
Agreement.
15. EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay its own fees and
expenses incident to the negotiation, preparation and execution of this
Agreement, including attorneys' and accountants' fees.
16. EXISTING RELATIONSHIP. Seller and Buyer are co-working interest
owners in the Assets. As a result of this relationship, Buyer acknowledges that
it is thoroughly familiar with the condition of the interests and properties to
be sold to it, and that it has extensive and personal knowledge of all
operations which have been conducted by the working interest owners on and with
respect to the interests and properties which are the subject of this Agreement.
17. ARBITRATION. Seller and Buyer agree that all disputes or
disagreements arising under the terms of this Agreement or arising with respect
to any obligations assumed by the parties hereto shall be submitted to binding
arbitration subject to the rules of the American Arbitration Association, except
as to the choice of arbitrators. The arbitrators shall be chosen by each party
choosing an arbitrator who shall select a third arbitrator. If the chosen
arbitrators fail to agree on a third arbitrator, either party may petition any
state District Court in Midland County, Texas, to select a third arbitrator.
18. EXHIBITS. All exhibits to this Agreement are incorporated herein by
reference.
19. SUCCESSORS AND ASSIGNS. The terms, covenants and conditions hereof
bind and inure to the benefit of Buyer and Seller and their respective
successors and assigns.
20. CONFLICTS. In the event of a conflict between this Agreement and the
terms and conditions of the Operating Agreement, the provisions of this
Agreement shall prevail. In all other respects, this Agreement shall supersede
all prior agreements between the parties hereto regarding the subject matter
hereof, whether written or oral.
21. SURVIVAL. The covenants, obligations, indemnities, representations
and warranties included in this Agreement shall survive the Closing and remain
actionable thereafter.
22. PRODUCT OF NEGOTIATION. This Agreement is the product of negotiation
between Buyer and Seller. No fiduciary duty owed by Buyer and Seller in any
prior agreement between Buyer and Seller shall apply to the process of
negotiation of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties before
the undersigned competent witnesses as of the date first written above.
WITNESSES: SELLER:
NATIONSBANK OF TEXAS, N.A.,
as Trustee for Trusts #1190 and #1191
/s/ Jeanne Davis By: /s/ W. H. Bolch
- ------------------------------ ----------------------------------------
W. H. BOLCH
/s/ Billy N. Henson
- ------------------------------
Its: Vice President
DATE: January 30, 1997
BUYER:
/s/ James V. Hammett, Jr. TIPPERARY OIL & GAS CORPORATION
- ------------------------------
/s/ Helen Pal
- ------------------------------
By: /s/ David L. Bradshaw
----------------------------------------
DAVID L. BRADSHAW
Its: President and Chief Executive Officer
DATE: January 29, 1997
