<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----- ACT OF 1934
For the fiscal year ended September 30, 2000
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
(Name of small business issuer 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)
Issuer's telephone number (303) 293-9379
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
---------------------------- -----------------------------------------
Common Stock, $.02 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Sections 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [X].
Issuer's revenues for its most recent fiscal year: $8,624,000
Aggregate market value of common stock held by non-affiliates of the registrant
was $34,722,647, based on the closing price of $3.125 per share as of December
1, 2000.
Shares of the registrant's Common Stock outstanding as of December 1, 2000:
24,470,587 shares.
Documents incorporated by reference and the Part of the Form 10-KSB into which
the document is incorporated: Definitive Proxy Statement for the 2000 Annual
Meeting of Shareholders filed within 120 days after the fiscal year ended
September 30, 2000 (Part III).
Transitional Small Business Issuer Format Yes No X
----- -----
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PART I
ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES
GENERAL
Tipperary Corporation and its subsidiaries ("Tipperary" or the "Company") are
principally engaged in the exploration for and development and production of
natural gas. The Company is primarily focused on coalbed methane properties,
with its major producing property located in Queensland, Australia. Tipperary
also holds exploration permits in Queensland and is involved in coalbed methane
exploration in the United States through a project in the Hanna Basin of
Wyoming. The Company seeks to increase its coalbed methane gas reserves through
exploration and development projects and possibly through the acquisition of
producing properties.
Tipperary was organized as a Texas corporation in January 1967. The Company
maintains its principal executive offices at 633 Seventeenth Street, Suite 1550,
Denver, Colorado 80202. In addition, the Company leases office space at 950 Echo
Lane, Suite 375, Houston, Texas 77024 and at Level 18, 307 Queen Street,
Brisbane, Queensland 4000, Australia.
Tipperary recently announced that it has changed its fiscal year to a calendar
year with a transition period beginning October 1, 2000 and ending December 31,
2000. References in this report to the Company's fiscal years are to those ended
September 30.
BUSINESS ACTIVITIES
AUSTRALIA
The Company's exploration and development efforts, and the majority of its
capital investment in recent years, have been focused on the Comet Ridge coalbed
methane project in Queensland, Australia. The Company's 90%-owned Australian
subsidiary, Tipperary Oil & Gas (Australia) Pty Ltd ("TOGA"), owns a 62.25%
non-operating undivided interest in the project, which consists of Authority to
Prospect ("ATP") 526 covering approximately 1,088,000 acres in the Bowen Basin.
The government has granted five petroleum leases to date on ATP 526 which cover
approximately 278,000 acres in the southern portion of the ATP known as the
Fairview area. Applications have been filed for an additional eight petroleum
leases in the northern portion of the ATP. The four-year term of ATP 526 expired
on October 31, 2000. A renewal application has been submitted by the operator of
the project, and it is currently being processed by the Queensland government.
Based upon communications from the government and the substantial expenditures
made on the project thus far, the Company expects to receive a renewal, although
there is no such assurance.
As of September 30, 2000, the Company and the project's co-owners had drilled 36
wells on the project acreage, of which 26 wells were producing and 12 wells were
connected to a pipeline system. TOGA has an interest in production and lease
operating expenses of approximately 59% before payout and 52.9% after payout.
Its net revenue interest, before burdens for contractual payment rights it has
granted, is approximately 53% before payout and 47.61% after payout. TOGA makes
payments of less than a 1% royalty interest to two previous interest owners from
whom interests were acquired in 1997. TOGA also makes payments to its 10%
shareholder and Tipperary's majority (54%) shareholder, Slough Estates USA, Inc.
("Slough"). The payment is calculated as a 7% royalty proportionately reduced
(3.675% net revenue interest) on production from eight wells, the drilling for
which Slough provided financing. After taking these contractual payments into
account, TOGA's estimated net proved reserves from the Comet Ridge property as
of September 30, 2000, were 265 billion cubic feet ("Bcf") of natural gas. The
present value of TOGA's estimated future net revenues from the property, net of
income taxes, totaled approximately $66 million, using a 10% discount rate.
The Company has been selling increasing volumes of gas from the Fairview area
since February 1998 and is currently selling in excess of 5.5 million cubic feet
("MMcf") per day under two contracts with ENERGEX Retail Pty Ltd ("ENERGEX"), an
electric and gas utility owned by the Queensland government. In the next few
months, construction of a pipeline to connect producing wells in the southern
portion of the Fairview area will result in increased sales volumes. The second
ENERGEX contract, dated June 23, 2000, calls for delivery of increasing volumes
over a five-year period of up to 10 - 15 MMcf per day by 2003, and contemplates
a development drilling program to establish increased production. Certain other
owners in the project have elected to participate in this contract, which has
reduced TOGA's share to approximately 81% of the contract volumes.
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On April 28, 2000, the Company entered into a financing arrangement with TCW
Asset Management Company ("TCW") to provide project financing for a 20-well
drilling program on the Comet Ridge project, which Tipperary proposed to the
other working interest owners in July. The Company expects its proposed 20-well
drilling program to begin during the first calendar quarter of 2001. The costs
of the drilling program and terms of this financing agreement are discussed
below under "Item 6., Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in Note 5 to the Consolidated Financial
Statements.
In addition to the interest in the Comet Ridge program, the Company has
exploration permits granted by the Queensland government that cover a total of
1.5 million acres on ATPs 655, 675 and 690. The Company began exploration with
one well each on ATPs 655 and 675 during the quarter ended September 30, 2000,
and expects to production test these wells and drill two more wells on these
ATPs during 2001. Total capital expenditures in Australia during fiscal 2000
were approximately $10,740,000.
UNITED STATES
During fiscal 2000, the Company divested the majority of its United States oil
and gas assets in connection with its redirection of focus toward coalbed
methane operations, with the exclusion of its interest in the West Buna field in
Jasper and Hardin counties of east Texas. The Company holds non-operating
interests in 17 producing wells and undeveloped acreage in this field. Reserve
volumes from this property as of September 30, 2000, include 2.9 Bcf of gas and
379,000 barrels of oil. The present value of estimated future net revenues from
the property, net of income taxes totaled $10,179,000 as of September 30, 2000,
using a 10% discount rate and oil and gas prices as of that date.
The Company used proceeds from the sale of domestic properties to eliminate bank
debt, fund operations and to invest in ongoing and new capital projects.
Tipperary acquired an interest in a new coalbed methane exploration project in
the United States during fiscal 2000. A 49% working interest was purchased in a
38,000-acre project in the Hanna Basin of southern Wyoming from Barrett
Resources Corporation, which is the operator. A pilot program to test and
evaluate the area is well underway with seven wells drilled and completed.
Tipperary and Barrett are currently conducting tests on data received thus far.
Further dewatering and drilling will be required before the Company is able to
determine whether this will be a commercially viable project.
PRODUCING WELLS AND ACREAGE
The following table sets forth information with respect to the Company's
producing wells and acreage as of September 30, 2000:
<TABLE>
<CAPTION>
Producing wells Acreage
Oil Gas Producing Undeveloped
---------------------------------------- -----------------------------------------
State/Country Gross Net Gross Net Gross Net Gross Net
------------- ----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Australia(1) - - 26 15.43 9,633 5,715 268,700 159,415
Colorado(2) 4 .67 - - - - 67,845 62,295
Nebraska(2) 8 1.70 - - 1,560 334 640 123
Oklahoma - - - - - - 956 820
Texas - - 22 2.07 6,933 679 653 20
Wyoming(3) - - 7 - - - 41,948 23,424
------ ----- ---- ----- ------- ----- -------- --------
Total 12 2.37 55 17.50 18,126 6,728 380,742 246,097
====== ===== ==== ===== ====== ===== ======= =======
</TABLE>
(1) The Company has interests in 26 producing wells in Australia of which 12
are connected to a pipeline system, while production from the remaining
wells is being flared at the wellhead during the de-watering process. An
additional seven wells are awaiting completion and/or connection to a
gathering system. All of the wells are located in the Fairview area in the
southern portion of ATP 526.
(2) All of the Company's oil and gas properties located in Colorado and
Nebraska were sold effective October 1, 2000. The Company's domestic
undeveloped leases have various primary terms ranging from one to ten
years. The expiration of any leasehold interest or interests would not have
a material adverse financial effect on the Company.
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(3) In order to maintain certain acreage held under leases related to the Hanna
Draw project in Wyoming, the Company will be required to participate for
its share of costs of a drilling commitment of ten wells to be drilled
during the development phase of the project beginning September 1, 2001 and
ending August 31, 2002. Options to extend the development phase for three
years would require ten wells to be drilled each year. A total of 76 wells
will have to be drilled to earn all of the acreage.
DRILLING ACTIVITIES
Information concerning the number of gross and net wells drilled by the Company
during fiscal 2000, 1999, and 1998 is as follows:
<TABLE>
<CAPTION>
Australia United States Total
----------------- ------------------ ------------------
Gross Net Gross Net Gross Net
-------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
September 30, 2000
Wells drilled (productive)
Exploratory - - 1 .49 1 .49
Development 5 2.97 4 .24 9 3.21
--------- ------- --------- ------- --------- -------
Total Wells Drilled 5 2.97 5 .73 10 3.70
========= ======= ========= ======= ========= =======
September 30, 1999
Wells drilled (productive)
Exploratory - - - - - -
Development 5 2.97 3 .01 8 2.80
--------- ------- --------- ------- --------- -------
Total Wells Drilled 5 2.97 3 .01 8 2.80
========= ======= ========= ======= ========= =======
September 30, 1998
Productive wells drilled
Exploratory - - 4 1.52 4 1.52
Development - - 1 .05 1 .05
Dry holes drilled (exploratory) - - 2 1.25 2 1.25
--------- ------- --------- ------- --------- -------
Total wells drilled - - 7 2.82 7 2.82
========= ======= ========= ======= ========= =======
</TABLE>
PRODUCTION
The following table summarizes information regarding Tipperary's net gas and oil
production for each of the fiscal years in the three year period ended September
30, 2000.
<TABLE>
<CAPTION>
Australia Quantities Sold Average Sales Price
--------- ------------------------ ------------------------ Average
Gas Oil Gas Oil Lifting Cost
(Mcf) (1) (Bbl) (Mcf) (Bbl) Per Mcf (2)
------------ --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
2000 1,606,000 - $ 1.27 - $ 0.87
1999 904,000 - $ 1.32 - $ 0.96
1998 371,000 - $ 1.22 - $ 1.28
<CAPTION>
United States Quantities Sold Average Sales Price
------------- ------------------------ ------------------------ Average
Gas Oil Gas Oil Lifting Cost
(Mcf) (Bbl) (Mcf) (Bbl) Per Mcf
---------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
2000 711,000 192,000 $ 2.76 $ 23.63 $ 1.52
1999 1,183,000 352,000 $ 1.68 $ 13.15 $ 1.13
1998 1,320,000 426,000 $ 1.72 $ 14.63 $ 1.12
</TABLE>
(1) Excludes the Company's share of total volumes produced but not sold from
the Comet Ridge project in Queensland, Australia. Production of 594,000
Mcf during fiscal 2000, 462,000 Mcf during fiscal 1999 and 607,000 Mcf
during fiscal 1998 was consumed in operations or flared at the wellhead
from wells not connected to the gathering system and in the de-watering
process.
(2) The average lifting cost per Mcf for gas sales from the Comet Ridge
project Australia has decreased with increasing sales volumes. The
Company believes that operating costs for this project can be further
reduced and
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is currently involved in litigation with the operator of the project
concerning this and other matters. See Note 12 to the Consolidated
Financial Statements.
MAJOR CUSTOMERS AND SALES CONTRACTS
In Australia, the Company began selling gas under short-term gas contracts in
February 1998. In September 1998, the Company entered into a five-year,
fixed-price contract (adjusted for inflation) with ENERGEX Retail Pty Ltd (fka
Allgas Energy Ltd) to supply up to approximately 5,500 Mcf of gas per day
beginning in January 1999. A new five-year contract was entered into with
ENERGEX effective June 1, 2000, calling for an increase in gas quantities being
delivered under the first contract. The new contract provides for a higher fixed
price (adjusted for inflation) and calls for increasing gas volumes up to a
potential of 10-15 million cubic feet per day.
In the United States, the Company has sold its domestic oil and gas production
to numerous purchasers, generally under short-term contracts. Tipperary had
domestic sales in excess of 10% of total U.S. revenues to three unaffiliated oil
and gas customers during fiscal 2000 totaling 48%, three unaffiliated oil and
gas customers during fiscal 1999 totaling 45%, and three unaffiliated oil and
gas customers during fiscal 1998 totaling 43%. In Australia, the Company is
currently selling 100% of its gas to ENERGEX.
Since numerous purchasers compete to purchase both oil and gas from the
Company's properties in both the United States and Australia, the Company does
not believe that the loss of any single existing purchaser would have a material
adverse impact on its ability to sell its production to another purchaser at
similar prices.
As of September 30, 2000, the Company had sold most of its domestic oil and gas
properties in connection with its plan to redirect the Company's focus and
increase coalbed methane properties. See Note 3 to the Consolidated Financial
Statements.
PRICING
Oil and natural gas prices are subject to significant fluctuations. Natural gas
prices in the United States fluctuate based primarily upon weather patterns and
regional supply and demand, and crude oil prices fluctuate based primarily upon
worldwide supply and demand. The majority of the Company's domestic gas sales
have been through "percentage of proceeds" contracts with gas processing plant
owners, whereby the Company receives various percentages of both residue gas and
plant liquids sales proceeds. Residue gas sold by the respective gas processing
plant owner under these contracts may be sold at "spot" prices or longer term
contract prices. The Company has used derivatives to hedge risks associated with
the volatility of oil and gas prices. Due to the sale of its domestic oil and
gas properties, none of the Company's production was hedged beyond March 2000.
See the discussion of hedging activities in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 1 to the
Consolidated Financial Statements.
COMPETITION AND OTHER RISKS
Tipperary competes with a number of other potential purchasers for coalbed
methane properties, many of which have greater financial and human resources
than the Company. The ability of the Company to replace reserves sold and
produced will be dependent on the Company's ability to develop its existing
coalbed methane resources and/or select, acquire and develop a sufficient number
of suitable coalbed methane properties.
This report contains certain statements of future business plans and objectives
and statements in Part I and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which may be considered
forward-looking. These forward-looking statements are subject to risks and
uncertainties. Although the Company believes that its expectations are based on
reasonable assumptions, it can give no assurance that its goals will be
achieved. The operations of the Company, both domestically and internationally,
are subject to risks including, but not limited to, all of the risks that are
encountered in the drilling and completing of wells, along with standard risks
of oil and gas operations, uninsured hazards, volatile oil and gas prices and
uncertain markets and governmental regulation. For a discussion of these and
other risks which relate to the forward-looking statements contained herein,
please see "Risk Factors" in the Company's Registration Statement on Form S-8,
SEC File No. 333-40589, which discussion is incorporated herein by reference,
along with other cautionary statements in this report.
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PROVED OIL AND GAS RESERVES
Supplementary information concerning the Company's estimated proved oil and gas
reserves and discounted future net cash flows applicable thereto for fiscal
2000, 1999 and 1998 is included in Note 14 to the Company's Consolidated
Financial Statements herein. In fiscal 2000, information concerning portions of
the Company's estimated proved oil and gas reserves was provided to the U.S.
Department of Energy.
UNITED STATES REGULATIONS
GENERAL. The production, transmission and sale of crude oil and natural gas in
the United States is affected by numerous state and federal regulations with
respect to allowable well spacing, rates of production, bonding, environmental
matters and reporting. Future regulations may change allowable rates of
production or the manner in which oil and gas operations may be lawfully
conducted. Although oil and gas may currently be sold at unregulated prices,
such sales prices have been regulated in the past by the federal government and
may be again in the future.
STATE REGULATION. Oil and gas operations are subject to a wide variety of state
regulations. Administrative agencies in such jurisdictions may promulgate and
enforce rules and regulations relating to virtually all aspects of the oil and
gas business.
ENVIRONMENTAL MATTERS. The Company's business activities are subject to federal,
state and local environmental laws and regulations. The existence of these
regulations has had no material effect on the Company's operations and the cost
of such compliance has not been material to date. Costs of approximately
$22,000, $25,000 and $30,000 were incurred in fiscal 2000, 1999 and 1998,
respectively, to monitor environmental compliance issues.
AUSTRALIA REGULATIONS
COMMONWEALTH OF AUSTRALIA REGULATIONS. The regulation of the oil and gas
industry in Australia is similar to that of the United States, in that
regulatory controls are imposed at both the state and commonwealth levels.
Specific commonwealth regulations impose environmental, cultural heritage and
native title restrictions on accessing resources in Australia. These regulations
are in addition to any state level regulations. Native title legislation was
enacted in 1993 in order to provide a statutory framework for deciding questions
such as where native title exists, who holds native title and the nature of
native title which were left unanswered by a 1992 Australian High Court
("Court") decision. The Commonwealth and Queensland State governments have
passed amendments to this legislation to clarify uncertainty in relation to the
evolving native title legal regime in Australia created by the decision in a
1996 Court case. Each authority to prospect, petroleum lease and pipeline
license must be examined individually in order to determine validity and native
title claim vulnerability.
STATE OF QUEENSLAND REGULATIONS. The regulation of exploration and recovery of
oil and gas within Queensland is governed by state-level legislation. This
legislation regulates access to the resource, construction of pipelines and the
royalties payable. There is also specific legislation governing cultural
heritage, native title and environmental issues. Environmental matters are
highly regulated at the state level, with most states having in place
comprehensive pollution and conservation regulations. In particular, petroleum
operations in Queensland must comply with the Environmental Protection Act and
any tenure condition requiring compliance with the Australian Petroleum
Production and Exploration Association Code of Practice. The cost to comply with
the foregoing regulations cannot be estimated at this time, although management
believes that costs will not be material and will not significantly hinder or
delay the Company's plans in Australia.
AUSTRALIA CRUDE OIL AND GAS MARKETS. The Australia and Queensland onshore crude
oil and gas markets are not regulated. However, a national regulatory framework
for the natural gas market in Australia has commenced its roll out (on a state
by state basis), with Queensland expected to implement legislative changes in
the year 2001. The National Gas Access Regime (the "Regime") is being developed
by a group of government and oil and gas industry representatives. Among the
objectives of the Regime are to provide a process for establishing third party
access to natural gas pipelines, to facilitate the development and operation of
a national natural gas market, to promote a competitive market for gas in which
customers are able to choose their supplier, and to provide a right of access to
transmission and distribution networks on fair and reasonable terms and
conditions. The Company cannot currently ascertain the impact of the Regime but
believes it should benefit the Company.
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EMPLOYEES
At September 30, 2000, the Company employed 13 persons on a full-time basis,
including its officers. None of the Company's employees are represented by
unions. The Company considers its relationship with its employees to be
excellent.
ITEM 3. LEGAL PROCEEDINGS
Information concerning material legal proceedings involving the Company is
included in Note 12 to the Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders during
the fourth quarter of its fiscal year ended September 30, 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed and has been trading on the American Stock
Exchange since April 16, 1992. As of December 1, 2000, there were approximately
1,900 holders of record of the Company's common stock. The table below sets
forth the high and low closing prices for the common stock of the Company for
the periods indicated:
<TABLE>
<CAPTION>
Fiscal Fiscal
Quarter ended 2000 1999
------------- ------------------ -----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
December 31 $1.63 $1.00 $2.13 $0.88
March 31 $4.06 $1.19 $1.88 $0.69
June 30 $3.69 $2.13 $1.94 $0.56
September 30 $4.25 $3.25 $1.63 $1.00
</TABLE>
The Company has not paid any cash dividends on its common stock and does not
expect to pay any dividends in the foreseeable future. The Company intends to
retain any earnings to provide funds for operations and expansion of its
business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the Company's financial condition and results
of operations. This discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto.
This discussion and analysis of financial condition and results of operations,
and other sections of this Form 10-K, contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, that are
based on management's beliefs, assumptions, current expectations, estimates and
projections about the oil and gas industry, the economy and about the Company
itself. Words such as "may," "will," "expect," "anticipate," "estimate" or
"continue," or comparable words are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict with regard to timing, extent, likelihood and degree of occurrence.
Therefore, actual results and outcomes may materially differ from what may be
expressed or forecasted in such forward-looking statements. Furthermore, the
Company undertakes no obligation to update, amend or clarify forward-looking
statements, whether as a result of new information, future events or otherwise.
Important factors that could cause actual results to differ materially from the
forward-looking statements include, but are not limited to, changes in the
Company's production volumes, worldwide supply and demand which affect commodity
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prices for oil and gas, the timing and extent of the Company's success in
discovering, acquiring, developing and producing oil and natural gas reserves,
risks inherent in the drilling and operation of oil and natural gas wells,
future production and development costs, the ability of the Company to obtain
financing for its proposed activities, the effect of existing and future laws,
governmental regulations and the political and economic climate of the United
States and Australia, as well as conditions in the capital markets.
GENERAL
At September 30, 2000, estimates of Tipperary's total proved oil and gas
reserves were 379,000 barrels and 268 Bcf, respectively. Using prices in effect
at such time and a discount rate of 10% as prescribed by Securities and Exchange
Commission rules, total discounted (10%) future after tax net cash flows were
estimated to be $75,874,000. Proved oil and gas reserves in the United States
decreased by 2,076,000 barrels and 6,879 MMcf, respectively, from September 30,
1999 reserves calculated using prices then in effect, due to the Company's
domestic asset sales. The estimated discounted (10%) future after-tax net cash
flows from remaining U.S. properties was $10,179,000 as of September 30, 2000.
Proved gas reserves from the Comet Ridge project in Australia increased 134 Bcf
from those at September 30, 1999, as a result of development drilling during the
year, acquisitions of additional interests in the project, and from revisions of
previous estimates.
LIQUIDITY AND CAPITAL RESOURCES
For the three years ended September 30, 2000, the Company's primary sources of
liquidity have been debt and equity financing and sales of producing properties.
During this period, Tipperary used these cash flows primarily to pay off
outstanding bank debt and for exploration and development operations including
the acquisition of additional interests in the Comet Ridge project in
Queensland, Australia. Remaining funds were invested in domestic properties,
most notably in the Hanna Draw coalbed methane project in Wyoming, and in other
minor development drilling and exploration activities.
With the substantial reduction in cash flow from operations following the sale
of a majority of the Company's U.S. producing oil and gas assets during fiscal
2000, there is not sufficient cash flow from operations to support Tipperary's
overhead and other ongoing cash needs over the next fiscal year. In addition,
the Company's cash on hand will not be sufficient to cover anticipated capital
expenditures in excess of those to be financed by TCW Asset Management Company
("TCW"), discussed below. The Company is evaluating various transactions which
would enable it to meet the aforementioned cash funding needs, including
additional debt financing, sales of common stock and asset sales. Slough will
increase its equity ownership in Tipperary, if required to meet Tipperary's cash
flow requirements.
During fiscal 2000, financing transactions provided cash inflows of almost
$14,000,000. Total borrowings of $1,585,000 were received from Slough Estates
USA Inc. in connection with the December 1998 Comet Ridge financing arrangement.
Slough also provided equity proceeds of $10,000,000 in connection with the
transaction that closed on December 23, 1999, and included $1,776,000 of value
assigned to warrants Slough received to acquire 1,200,000 shares of common stock
at $2.00 per share. See Note 2 to the Consolidated Financial Statements. The
Company incurred financing costs of $111,000 related to this equity financing
transaction. Tipperary also received $2,400,000 from the sale of stock and
issuance of warrants to two individual investors in connection with financing
the acquisition of additional interests in the Comet Ridge project. Net of
expenses of sale, the Company received approximately $17,000,000 from the sale
of conventional oil and gas assets in the U.S. during the fiscal year ended
September 30, 2000. See Note 3 to the Consolidated Financial Statements.
During fiscal 2000, Tipperary used proceeds of $4,000,000 from the Slough
financing transaction to reduce bank debt from $11,800,000 to $7,800,000 and
then eliminated the remaining bank debt in May with funds from the sale of
domestic oil and gas assets. The Company paid Slough a $79,000 dividend on the
convertible preferred stock it held prior to conversion into common stock on
February 29, 2000. Tipperary also made principal payments to Slough of $238,000
under the Comet Ridge financing facility. See Note 2 to the Consolidated
Financial Statements.
Remaining funds have been invested primarily in coalbed methane exploration and
development activities in the Comet Ridge project in Queensland, Australia and
in the Hanna Draw project in Wyoming. Capital expenditures in Australia included
the acquisition of additional interests in the Comet Ridge project for
approximately $3,300,000 in cash and 1,463,000 shares of the Company's common
stock valued at $2,911,000. Other capital expenditures in Australia included
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approximately $1.4 million of drilling and completion costs associated with an
eight-well drilling program on the Comet Ridge project, which began in fiscal
1999, and $1.3 million of drilling costs for a seven-well drilling program
commenced during 2000. Tipperary spent an additional $1.4 million for other
ongoing capital expenditures on the Comet Ridge project and approximately
$500,000 for initial exploration activities on two if its own ATPs, including
the commencement of drilling of one well each on ATP 655 and ATP 675.
Domestic capital expenditures totaled $2.3 million dollars of which
approximately $1,300,000 was expended for acquisition and drilling costs of a
coalbed methane exploration project in the Hanna Basin in Wyoming in which the
Company owns a non-operated 49% working interest. Additionally, the Company
incurred approximately $400,000 in acquisition costs for undeveloped acreage in
Colorado. The remainder of the total capital expenditures was incurred in
connection with various other oil and gas development projects including
activities in the West Buna area in east Texas, and for other corporate
expenditures.
During fiscal 1999, the Company received proceeds of $10,872,000 from debt and
equity financing provided by Slough. A portion of the funding was used to reduce
bank debt by $4.7 million to $11.8 million. Remaining proceeds funded capital
expenditures of approximately $6.2 million in Australia and in the United
States. Australia expenditures totaled $5.6 million and included $2.2 million
expended for the eight-well drilling program in the Comet Ridge area and
$900,000 for inventory and the construction of gathering facilities. Tipperary
incurred $2.5 million for other development drilling and exploration activities
including seismic data gathering operations. The remaining capital expenditures
of $698,000 related primarily to domestic oil and gas operations.
During fiscal 1998, the Company increased its bank debt by $2,656,000 to $16.5
million and secured additional loans from Slough in the amount of $400,000.
Proceeds were also generated by the sale of producing properties and stock
issuances in the amount of $1,456,000 and $190,000, respectively. These
proceeds, along with operating cash flows were used to fund capital expenditures
of $8,033,000. Approximately $4,950,000 was expended for the acquisition of an
additional interest in and funding further development of the Comet Ridge
coalbed methane project. The Company acquired the additional 5% interest in the
project for $3,200,000 and incurred the remaining $1,750,000 for gas gathering
and compression and other capital expenditures. Domestic capital expenditures of
$3,083,000 in fiscal 1998 included exploration and development costs of
$2,305,000, non-producing leasehold costs of $733,000 and other capital
expenditures of approximately $45,000.
Outstanding loan balances due Slough at September 30, 2000, included a corporate
loan in the amount of $6,500,000 and a project-financing loan of $4,486,000 for
the eight-well drilling program on the Comet Ridge project. Interest is due
quarterly on the $6.5 million note at the 90-day London Interbank Offered Rate
plus 3.5%. The weighted-average interest rate was 10.16% at September 30, 2000.
Subsequent to September 30, 2000, Slough loaned the Company an additional
$1,000,000 for working capital and general purposes. Tipperary replaced the $6.5
million note with a new note for $7.5 million due and payable March 31, 2003.
The unpaid principal balance of the Comet Ridge project financing bears interest
at a rate of 10% per annum. Principal and interest payments are due quarterly
and equal to 75% of the cash flow, as defined in the note, from the Comet Ridge
properties. The Company also pays a finance charge of 7% of gross proceeds
received from sales from the Fairview #1 through #20 wells until the loan is
repaid in full and 7% of gross proceeds received from sales from eight wells
(Fairview #21 through #28) for the life of those wells. The unpaid principal
balance on the loan, together with accrued and unpaid interest and finance
charges, is due and payable November 22, 2002, but the Company expects to repay
this loan within the next few months using proceeds in connection with new
project financing from TCW discussed below.
On April 28, 2000, the Company entered into a credit agreement with TCW ("Credit
Agreement") that provides a borrowing facility of up to $17 million upon the
satisfaction of certain conditions. An initial loan advance of up to $6 million
will be used to repay the existing Comet Ridge project financing loan due to
Slough with the balance to be used for lender-approved purposes. Additional loan
advances of up to $11 million have been made available to finance a 20-well
drilling program on the Comet Ridge project. Tipperary's share of the total loan
facility is $12,848,000, including $6,848,000 for its share of estimated costs
for the drilling program. No other Comet Ridge project owners have elected to
participate in the financing. The estimated $11 million of financing for the
drilling program is based on the costs estimated by Tipperary and TCW to drill
20 wells and connect these new wells and four existing wells to the existing
gathering system. Tipperary proposed the 20-well drilling program to the other
owners in July 2000 and estimated the cost at $10,325,000. The Company recently
received Authorities for Expenditure ("AFEs") from the Operator with estimated
costs of $15 million. If the operator is unable to reduce its estimated costs,
Tipperary's share of the
8
<PAGE> 10
$4,000,000 in excess of financing from TCW, or almost $2,500,000, will have to
be funded from other sources, as Tipperary does not have internal sources of
capital at this time to cover increased drilling and completion costs. With the
approval of TCW, the working capital available from the initial $6 million
funding may be used to cover a portion of any excess capital costs.
The obligation to repay the TCW advances and accrued interest will be evidenced
by senior secured promissory notes bearing interest at the rate of 10% per annum
and payable quarterly. Tipperary will also make monthly payments to TCW equal to
Tipperary's share of a 6% overriding royalty from gross project revenues. Upon
payment of the loan in full, TCW has the option to sell to Tipperary, and
Tipperary has the right to purchase from TCW, this interest at the net present
value of the royalty's share of future net revenues from the then proved
reserves, discounted at a rate of 15% per annum. Principal payments on the TCW
financing will be due quarterly in an amount equal to the greater of a
percentage of cash flow as defined, or a scheduled minimum principal payment.
The scheduled minimum principal payment begins March 2003 and will be equal to
5% of the unpaid principal balance, increasing to 9% in March 2004 and 10% in
March 2005. The outstanding principal balance on the notes is due and payable in
full on March 30, 2006. As of September 30, 2000, no advances had been made
under this Credit Agreement. The Company has received the first cash call for
the 20-well drilling program and expects to obtain the initial funding from TCW
under the Credit Agreement in early 2001.
Tipperary has used derivatives to hedge a portion of its crude oil and natural
gas production from U.S. properties. The Company has in recent years hedged
portions of its crude oil sales primarily through swap agreements with financial
institutions based upon prices quoted by the New York Mercantile Exchange
("NYMEX"). Under swap agreements, the Company usually receives a floor price but
retains 50% of price increases above the floor. During fiscal 2000, the Company
hedged a total of 45,000 barrels (approximately 23%) of its oil production. Net
receipts (payments) pursuant to the Company's hedging activities for fiscal
2000, 1999 and 1998 were ($285,000), ($200,000), and $507,000, respectively. In
cases where direct investments are made in futures contracts, gains or losses on
the hedges are deferred and recognized in income as the hedged commodity is
produced. None of the Company's production is currently hedged.
Subsequent to September 30, 2000, Tipperary entered into a foreign exchange
contract to purchase 1,599,800 Euros for approximately US $1,397,000. The
Company is currently assessing the impact this hedge will have, if any, on its
results of operation and financial position. See Note 1 to the Consolidated
Financial Statements. The 01,599,800 will be used to acquire a drilling rig to
be shipped from Italy to Australia toward the end of the first quarter of
calendar 2001. Tipperary issued a letter of credit to the manufacturer of the
rig for this amount. The letter of credit secured by US $1,450,000 in restricted
cash deposited into a collateral account. The Company has also entered into an
agreement with a drilling contractor in Queensland, Australia to lease the rig
from the Company ("Lease Agreement"). The terms of the Lease Agreement provide
that the lessee will use the rig to drill on Tipperary's ATPs as well as on ATP
526 for Tipperary's proposed 20-well drilling program discussed above. To the
extent the rig is not being used for the Company's drilling activities, it may,
with Tipperary's consent, be used by the lessee to drill wells for others. The
lease payments are structured to be due and payable with the drilling of each
well. No interest or finance charge accrues on the lease, but the Company will
benefit from reduced costs to drill each well through a turnkey drilling
contract. In the case of drilling on the Comet Ridge project, the Company's
co-owners will receive their proportionate share of the cost reduction. The
lessee also received a two-year option to buy the rig and related equipment at
Tipperary's net cost.
The Company does not expect to pay income taxes in the near term. In the United
States, the utilization of net operating loss carryforwards will reduce the
Company's effective federal tax rate from approximately 35% to approximately 2%
in years when the Company generates taxable income. The carryforwards total
approximately $29 million as of September 30, 2000, and expire over the period
from fiscal 2001 through fiscal 2020. This carryforward total includes $4.8
million that will expire unutilized with the change in the Company's accounting
period. The Company has not generated taxable income in Australia and with its
loss carryforwards does not expect to generate taxable income in Australia in
the near term. The Company has recorded a $13.9 million asset for the future
benefit of its carryforwards and other tax benefits. As of September 30, 2000,
this asset was completely offset by a valuation allowance based upon
management's projection of realizability of the gross deferred tax asset.
Fluctuations in industry conditions and trends will likely require periodic
management reviews of the recorded valuation allowance to determine if an
increase or decrease in the allowance is appropriate. See Note 11 to the
Consolidated Financial Statements.
9
<PAGE> 11
RESULTS OF OPERATIONS
Comparison of the Fiscal Years Ended September 30, 2000 and 1999
Unless otherwise indicated, all of the discussion in this section first
discusses fiscal 2000 and compares it to fiscal 1999.
The Company reported net income of $43,000 versus a net loss of $9,295,000. The
income in fiscal 2000 included a $3,957,000 gain on domestic property sales, a
$1,573,000 non-cash write-down of the Company's deferred tax asset, and a
$557,000 non-cash impairment of prepaid drilling costs. The loss in fiscal 1999
included a $5,727,000 non-cash write-down of domestic oil and gas properties.
The gross profit from oil and gas sales increased $1,057,000, or 32% to
$4,391,000 from $3,334,000. The increase was due to higher prices received from
sales of domestic production and increased sales volumes from the Comet Ridge
project in Australia.
Operating revenues increased $703,000, or 9%, to $8,624,000 from $7,921,000. Gas
sales in Australia from the Company's interest in the Comet Ridge project
increased $842,000 to $2,033,000 as compared to $1,191,000. Volumes sold in
Australia increased 78% to 1,606,000 Mcf from 904,000 Mcf, contributing $926,000
to current year revenue. The U.S. dollar equivalent gas prices received
decreased 4% to $1.27 from $1.32, decreasing revenue $84,000, due to a decrease
in the value of the Australian dollar against the U.S. dollar. Offsetting the
effective price decrease was an increase in sales volumes from new wells drilled
and connected to the Comet Ridge gathering system in fiscal 2000.
While volumes sold from the Company's U.S. properties decreased significantly
due to producing property sales, domestic revenues declined only 2%, or $120,000
to $6,500,000 from $6,620,000, due to substantial increases in oil and gas
prices. Oil volumes decreased 160,000 barrels, or 45%, to 192,000 barrels versus
352,000 barrels, decreasing revenues by $2,106,000. Domestic gas volumes
decreased 472,000 Mcf, or 40%, to 711,000 Mcf as compared to 1,183,000 Mcf,
resulting in a $792,000 revenue decrease. Average oil prices increased 80% to
$23.63 per barrel from $13.15 per barrel, resulting in a $2,013,000 revenue
increase. Prices received by the Company for domestic gas sales increased 64% to
$2.76 per Mcf from $1.68 per Mcf, increasing revenue $765,000. Other domestic
operating income, including saltwater disposal, decreased $25,000.
Operating expenses decreased $354,000, or 8%, to $4,233,000 from $4,587,000.
Operating expenses attributable to the Comet Ridge project increased $535,000,
or 61%, to $1,405,000 from $870,000. While the Company reported higher operating
expenses, the average lifting cost for the Comet Ridge project decreased 9%, to
$.87 per Mcf from $.96 per Mcf due to significantly increased sales volumes.
Tipperary believes that operating and capital expenditures for the Comet Ridge
project should be substantially reduced and is in litigation with the operator
of the project concerning this and other matters. See Note 12 to the
Consolidated Financial Statements.
Operating expenses attributable to domestic properties decreased $889,000, or
24% to $2,828,000 from $3,717,000 due to the property sales.
General and administrative expenses increased $1,470,000, or 65%, to $3,732,000
from $2,262,000, primarily due to costs associated with litigation regarding the
Comet Ridge project.
Depreciation, depletion and amortization ("DD&A") expense decreased $2,063,000,
or 65%, to $1,091,000 from $3,154,000. The decrease was attributable to reduced
capital costs in the Company's full cost pool resulting from domestic asset
sales and the suspension of DD&A during the period the full cost pool assets
were held for sale. Increased sales from the Comet Ridge project caused a
$152,000 (29%) increase in DD&A expense attributable to the Australia full cost
pool to $685,000 from $533,000. Depletion rates per equivalent barrel of
domestic production for the years ended September 30, 2000 and 1999 were $3.43
and $4.51, respectively. The rate of depletion per Mcf of production in
Australia was $0.29 for the year ended September 30, 2000 and $0.30 for fiscal
1999.
At September 30, 2000, Tipperary recorded a $557,000 impairment of prepaid
drilling costs for prepayments that had been outstanding for over 90 days. When
the Company pays cash calls for drilling costs and other capital expenditures,
payments are recorded as a current asset until the work is completed, at which
time the costs are transferred to the full cost pool. As of September 30, 2000,
there were prepayments to the operator of the Comet Ridge project that had been
included in current assets for over 90 days. Because the Company was unable to
obtain assurance from the operator that the work will either be completed in the
near term or the payments refunded, Tipperary wrote off these prepayments and
recorded the impairment charge. To the extent and at the time that the work is
ultimately performed or the funds are returned, the Company will record an asset
(property, plant and equipment or cash) and include the amount in income.
10
<PAGE> 12
As indicated above, Tipperary is in litigation with the operator of the Comet
Ridge project. See Note 12 to the Consolidated Financial Statements.
Interest expense increased $29,000, or 2%, to $1,662,000 from $1,633,000. The
increase was primarily attributable to higher interest rates. See Note 8 to the
Consolidated Financial Statements. Interest income increased $96,000, or 738%,
to $109,000 from $13,000. The increase was due to increased average balances of
cash and cash equivalents.
Foreign currency exchange losses of $166,000 in fiscal 2000 resulted from the
decrease in the U.S. dollar value of revenues received in Australian currency
for coalbed methane gas sales from the Comet Ridge project. Gains of $19,000
were recorded in fiscal 1999.
Deferred income tax expense of $1,573,000 in fiscal 2000 resulted from a
write-off of the net deferred tax asset. See Note 10 to the Consolidated
Financial Statements.
Comparison of the Fiscal Years Ended September 30, 1999 and 1998
Unless otherwise indicated, all of the discussion in this section first
discusses fiscal 1999 and compares it to fiscal 1998.
The Company reported a net loss of $9,295,000 versus a net loss of $6,398,000.
The 1999 loss included a $5,727,000 non-cash write-down of domestic oil and gas
properties, whereas the 1998 loss reflected $1,399,000 and $1,618,000 non-cash
write-downs of domestic properties and the deferred tax asset, respectively, and
a $422,000 write-down of deferred financing costs. The loss without these
write-downs increased by $609,000. The gross profit from oil and gas sales
decreased $793,000 or 19% to $3,334,000 from $4,127,000. The decrease was due to
lower domestic oil and gas volumes produced and prices received.
Operating revenues decreased $1,161,000, or 13%, to $7,921,000 from $9,082,000.
Domestic revenues declined $1,874,000, or 22% to $6,620,000, from $8,494,000.
Oil volumes decreased 74,000 barrels, or 17%, to 352,000 barrels from 426,000
barrels, decreasing revenues by $1,070,000. Domestic gas volumes decreased
137,000 Mcf, or 10%, to 1,183,000 Mcf from 1,320,000 Mcf, resulting in a
$236,000 decrease in revenues. Reduced oil and gas volumes sold resulted from
naturally declining production rates and from production shut-in or curtailed in
response to low product prices seen throughout most of fiscal 1999. Average oil
prices per barrel decreased 10% to $13.15 from $14.63, resulting in a $521,000
revenue decrease. Prices received for domestic gas sales decreased 2% to $1.68
per Mcf from $1.72 per Mcf, causing revenue decreases of $47,000. Other domestic
income, including saltwater disposal, decreased $26,000.
Significant increases in revenues from the Comet Ridge project offset some of
the domestic revenue declines. The sales revenue in Australia increased $739,000
to $1,191,000 from $452,000. Volumes sold in Australia increased 533,000 Mcf, or
144% to 904,000 Mcf from 371,000 Mcf, contributing $650,000 to revenue
increases. The U.S. dollar equivalent of gas prices received increased 8% to
$1.32 per Mcf from $1.22 per Mcf, resulting in an increase in revenues of
$89,000. The revenue increase from the Comet Ridge project was attributable to a
full year of sales in fiscal 1999 compared to eight months of sales in fiscal
1998, increasing levels of volumes sold during fiscal 1999 and to a favorable
increase in exchange rates.
Operating expenses decreased $366,000, or 7%, to $4,587,000 from $4,953,000.
Operating expenses attributable to domestic properties decreased $760,000, or
17%, to $3,717,000 from $4,477,000. The decrease was attributable to reduced
operating expenses for wells on which production was shut in or curtailed.
Reduced sales volumes contributed to an increase of 1% in the average lifting
costs per equivalent barrel of production to $6.77 from $6.73.
Operating expenses attributable to the Comet Ridge project increased $394,000,
or 83%, to $870,000 from $476,000. While the Company reported higher operating
expenses, the average lifting cost for the Comet Ridge project decreased 25%, to
$.96 per Mcf from $1.28 per Mcf due to significantly increased sales volumes.
General and administrative expenses increased $492,000, or 28%, to $2,262,000
from $1,770,000, primarily due to litigation costs associated with the Comet
Ridge project.
11
<PAGE> 13
Depreciation, depletion and amortization ("DD&A") expense decreased $820,000, or
21%, to $3,154,000 from $3,974,000. The decrease was attributable to a lower
DD&A rate per equivalent barrel for domestic production resulting from the
write-down of the full cost pool effective December 31, 1998. A longer economic
reserve life based on increased product prices also contributed to the rate
decrease. DD&A expense related to the Company's Australia full cost pool
increased $276,000, or 107%, to $533,000 from $257,000, as a result of increased
sales from the Comet Ridge project.
Interest expense increased $279,000, or 21%, to $1,633,000 from $1,354,000. The
increase was primarily attributable to an increase in debt and to higher
interest rates. Interest income decreased $18,000, or 58%, to $13,000 from
$31,000. The decrease was due to a decrease in the average balance of cash and
cash equivalents.
Foreign currency exchange gains of $19,000 in fiscal 1999 resulted from
increases in exchange rates applied to payments received in Australian currency
for coalbed methane gas sales from the Comet Ridge project. Losses of $21,000
were recorded in the prior fiscal year.
No income tax benefit or expense was recognized in fiscal 1999. Income tax
expense of $1,618,000 for fiscal 1998 resulted from an increase in the deferred
tax asset valuation allowance. The increase in the valuation allowance was
attributable to a decrease in oil and gas prices during fiscal 1998.
ITEM 7. FINANCIAL STATEMENTS
The Company's Consolidated Financial Statements and supplementary financial data
follow page F-1 and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
12
<PAGE> 14
PART III
The Company hereby undertakes on or before 120 days after September 30, 2000, to
file with the Commission a Definitive Proxy Statement pursuant to Regulation 14A
with respect to the Company's Annual Meeting of Shareholders, which Proxy
Statement will contain the information required by Part III, Items 9 through 12.
Such information is incorporated herein by reference.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of the report:
For a list of financial statements and financial statement schedules, see
"Index to Consolidated Financial Statements" which is part of the
Financial Statements and Supplementary Data which follow page 17 and are
incorporated herein by reference.
(b) During the last quarter of the Company's fiscal year ended September 30,
2000, the Company filed no reports on Form 8-K.
(c) Exhibits:
For a list of exhibits, see "Exhibits" which follows page 14 and is
incorporated herein by reference.
13
<PAGE> 15
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TIPPERARY CORPORATION
Date December 29, 2000 By /s/ David L. Bradshaw
--------------------------- -------------------------------------
David L. Bradshaw, President,
Chief Executive Officer and
Chairman of the Board of Directors
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<S> <C> <C>
/s/ David L. Bradshaw
--------------------------------- President, Chief Executive Officer December 29, 2000
David L. Bradshaw and Chairman of the Board of Directors
/s/ Lisa S. Wilson
--------------------------------- Chief Financial Officer and December 29, 2000
Lisa S. Wilson Principal Accounting Officer
/s/ Kenneth L. Ancell
--------------------------------- Executive Vice President - Corporate December 29, 2000
Kenneth L. Ancell Development and Director
/s/ Eugene I. Davis
--------------------------------- Director December 29, 2000
Eugene I. Davis
/s/ Douglas Kramer
--------------------------------- Director December 29, 2000
Douglas Kramer
/s/ Marshall D. Lees
--------------------------------- Director December 29, 2000
Marshall D. Lees
/s/ Charles T. Maxwell
--------------------------------- Director December 29, 2000
Charles T. Maxwell
/s/ D. Leroy Sample
--------------------------------- Director December 29, 2000
D. Leroy Sample
</TABLE>
14
<PAGE> 16
EXHIBITS
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3.9 Restated Articles of Incorporation of Tipperary Corporation
adopted May 6, 1993, filed as Exhibit 3.9 to Amendment No. 1 to
Registration Statement on Form S-1 filed with the Commission on
June 29, 1993, and incorporated herein by reference.
3.10 Restated Corporate Bylaws of Tipperary Corporation adopted June
28, 1993, filed as Exhibit 3.10 to Amendment No. 1 to Registration
Statement on Form S-1 filed with the Commission on June 29, 1993,
and incorporated herein by reference.
3.11 Articles of Amendment of the Articles of Incorporation of
Tipperary Corporation adopted January 25, 2000, filed as Exhibit
3.11 to Form 10-QSB for the quarterly period ended December 31,
1999, and incorporated herein by reference.
3.12 Statement of Resolution Establishing a Series of Shares dated
December 23, 1999, filed as Exhibit 3.12 to Form 10-QSB for the
quarterly period ended December 31, 1999 and incorporated herein
by reference.
4.57 Promissory Note dated August 31, 1998, in the amount of $1,000,000
between Registrant and Slough Estates USA Inc., filed as Exhibit
4.57 to Form 10-K dated September 30, 1998 and incorporated herein
by reference.
4.58 Promissory Note dated December 22, 1998, in the amount of
$5,500,000 issued by the Registrant to Slough Estates USA Inc.,
filed as Exhibit 4.58 to Form 10-Q for the quarterly period ended
December 31, 1998 and incorporated herein by reference.
4.59 Loan Agreement Promissory Note dated December 22, 1998, in the
amount of $6,000,000 between Registrant and Slough Estates USA
Inc., filed as Exhibit 4.59 to Form 10-Q for the quarterly period
ended December 31, 1998 and incorporated herein by reference.
4.60 Security Agreement dated December 22, 1998, between the Registrant
and Slough Estates USA Inc., filed as Exhibit 4.60 to Form 10-Q
for the quarterly period ended December 31, 1998 and incorporated
herein by reference.
4.61 Pledge of Stock dated December 22, 1998, between the Registrant
and Slough Estates USA Inc., filed as Exhibit 4.61 to Form 10-Q
for the quarterly period ended December 31, 1998 and incorporated
herein by reference.
4.62 Second Amendment of Subordination Agreement dated December 22,
1998, between Slough Estates USA Inc., and US Bank, N.A. f/k/a
Colorado National Bank, filed as Exhibit 4.62 to Form 10-Q for the
quarterly period ended December 31, 1998 and incorporated herein
by reference.
4.63 Promissory Note dated March 11, 1999, in the amount of $6,500,000
issued by Registrant to Slough Estates USA Inc., filed as Exhibit
4.63 to Form 10-Q for the quarterly period ended March 31, 1999
and incorporated herein by reference.
4.64 Third Amendment of Subordination Agreement dated March 11, 1999,
between Slough Estates USA Inc., and US Bank National Association
f/k/a Colorado National Bank, filed as Exhibit 4.64 to Form 10-Q
for the quarterly period ended March 31, 1999 and incorporated
herein by reference.
4.65 Amendment to Security Agreement dated March 11, 1999, between the
Registrant and Slough Estates USA Inc., filed as Exhibit 4.65 to
Form 10-Q for the quarterly period ended March 31, 1999 and
incorporated herein by reference.
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
4.66 Credit Agreement among Tipperary Corporation as Borrower,
Tipperary Oil & Gas (Australia) Pty Ltd (ACN 077536871) as
Guarantor, Tipperary Oil & Gas Corporation, Lenders party thereto
and TCW Asset Management Company in the capacities described
therein dated as of April 28, 2000, filed as Exhibit 4.66 to Form
10-QSB for the quarterly period ended June 30, 2000 and
incorporated herein by reference.
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, filed as Exhibit
10.51 to Form 10-Q dated December 31, 1996, and incorporated
herein by reference.
10.58 Warrant to Purchase the Registrant's common stock dated December
22, 1998, issued to Slough Estates USA Inc., filed as Exhibit
10.58 to Form 10-Q for the quarterly period ended December 31,
1998 and incorporated herein by reference.
10.59 Subscription Agreement to purchase Registrant's common stock dated
December 22, 1998, between Registrant and Slough Estates USA Inc.,
filed as Exhibit 10-59 to Form 10-Q for the quarterly period ended
December 31, 1998 and incorporated herein by reference.
10.60 Warrant to Purchase the Registrant's common stock dated December
23, 1999, issued to Slough Estates USA Inc., filed as Exhibit
10.60 to Form 10-QSB for the quarterly period ended December 31,
1999 and incorporated herein by reference.
10.61 Registration Rights Agreement between Tipperary Corporation and
Slough Estates USA Inc., dated December 23, 1999, filed as Exhibit
10.61 to Form 10-QSB for the quarterly period ended December 31,
1999 and incorporated herein by reference.
10.62 Purchase and Sale Agreement dated January 14, 2000, between Ray W.
Williams as Seller and Tipperary Corporation as Buyer, filed as
Exhibit 10.62 to Form 10-QSB for the quarterly period ended March
31, 2000 and incorporated herein by reference.
10.63 Purchase and Sale Agreement dated January 14, 2000, between
William I. Isaac as Seller and Tipperary Corporation as Buyer,
filed as Exhibit 10.63 to Form 10-QSB for the quarterly period
ended March 31, 2000 and incorporated herein by reference.
10.64 Purchase and Sale Agreement dated February 11, 2000, between
William D. Kennedy as Seller and Tipperary Corporation as Buyer,
filed as Exhibit 10.64 to Form 10-QSB for the quarterly period
ended March 31, 2000 and incorporated herein by reference.
10.65 Registration Rights Agreement between Tipperary Corporation and
Ray W. Williams, dated February 10, 2000, filed as Exhibit 10.65
to Form 10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.66 Registration Rights Agreement between Tipperary Corporation and
William I. Isaac, dated February 10, 2000, filed as Exhibit 10.66
to Form 10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.67 Registration Rights Agreement between Tipperary Corporation and
William D. Kennedy, dated February 11, 2000, filed as Exhibit
10.67 to Form 10-QSB for the quarterly period ended March 31, 2000
and incorporated herein by reference.
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
10.68 Registration Rights Agreement between Tipperary Corporation and
James H. Marshall, dated February 9, 2000, filed as Exhibit 10.68
to Form 10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.69 Registration Rights Agreement between Tipperary Corporation and
James F. Knott, dated February 9, 2000, filed as Exhibit 10.69 to
Form 10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.70 Warrant to Purchase the Registrant's common stock dated February
9, 2000, issued to James H. Marshall, filed as Exhibit 10.70 to
Form 10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.71 Warrant to Purchase the Registrant's common stock dated February
9, 2000, issued to James F. Knott, filed as Exhibit 10.71 to Form
10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.72 Purchase and Sale Agreement dated April 12, 2000, between
Tipperary Oil & Gas Corporation as Seller and Nance Petroleum
Corporation as Buyer, filed as Exhibit 10.72 to Form 8-K dated May
18, 2000 and incorporated herein by reference.
10.73 Purchase and Sale Agreement dated July 21, 2000, between Elisa A.
Stoner as Seller and Tipperary Corporation as Buyer, filed as
Exhibit 10.73 to Form 10-QSB for the quarterly period ended June
30, 2000 and incorporated herein by reference.
10.74 Registration Statement Agreement between Tipperary Corporation and
Elisa A. Stoner dated July 21, 2000, filed as Exhibit 10.74 to
Form 10-QSB for the quarterly period ended June 30, 2000 and
incorporated herein by reference.
10.75 Purchase and Sale Agreement dated June 14, 2000, between Tipperary
Oil & Gas Corporation as Seller, and Transrepublic Resources as
Buyer, filed as Exhibit 10.75 to Form 10-QSB for the quarterly
period ended June 30, 2000 and incorporated herein by reference.
10.76 Gas Supply Agreement between Tipperary Oil & Gas (Australia) Pty
Ltd (ACN 077 536 871) and ENERGEX Retail Pty Ltd (ACN 078 849 055)
dated June 23, 2000, filed as Exhibit 10.763 to Form 10-QSB for
the quarterly period ended June 30, 2000 and incorporated herein
by reference.
23.1 Consent of PricewaterhouseCoopers LLP, filed herewith.
27 Financial Data Schedule
99.1 "Risk Factors" discussion from Registration Statement on Form S-8,
dated June 13, 1996, SEC File No. 333-40589, pages 5 through 8,
and incorporated herein by reference.
</TABLE>
17
<PAGE> 19
TIPPERARY CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheets
September 30, 2000 and 1999 F-3
Consolidated Statements of Operations
Years ended September 30, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity
Years ended September 30, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows
Years ended September 30, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Tipperary Corporation
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Tipperary
Corporation and its subsidiaries at September 30, 2000, and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
December 22, 2000
F-2
<PAGE> 21
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,897 $ 430
Receivables 1,515 1,525
Inventory -- 209
Prepaid drilling costs 2,239 --
Other current assets 340 899
--------- ---------
Total current assets 9,991 3,063
--------- ---------
Property, plant and equipment, at cost:
Oil and gas properties, full cost method 63,342 136,562
Other property and equipment 1,039 2,402
--------- ---------
64,381 138,964
Less accumulated depreciation, depletion and amortization (22,176) (95,642)
--------- ---------
Property, plant and equipment, net 42,205 43,322
--------- ---------
Noncurrent portion of deferred income taxes, net -- 1,573
Other noncurrent assets 350 47
--------- ---------
$ 52,546 $ 48,005
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable - related party $ 353 $ 174
Accounts payable 2,137 1,780
Accrued liabilities 397 592
Production taxes payable 58 46
Royalties payable 205 201
--------- ---------
Total current liabilities 3,150 2,793
--------- ---------
Long-term debt -- 11,800
Long-term notes payable - related party 10,633 9,465
Commitments and contingencies (Note 12)
Minority interest 128 495
Stockholders' equity
Preferred stock:
Cumulative, $1.00 par value. Authorized
10,000,000 shares; none issued -- --
Non-cumulative, $1.00 par value. Authorized
10,000,000 shares; none issued -- --
Common stock; par value $.02; 50,000,000 shares
authorized; 24,480,185 issued and 24,470,587
outstanding in 2000; 15,161,755 issued and
15,152,157 outstanding in 1999 490 303
Capital in excess of par value 123,009 107,977
Accumulated deficit (84,839) (84,803)
Treasury stock, at cost; 9,598 shares (25) (25)
--------- ---------
Total stockholders' equity 38,635 23,452
--------- ---------
$ 52,546 $ 48,005
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 22
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended September 30, 2000, 1999 and 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues $ 8,624 $ 7,921 $ 9,082
Costs and expenses
Operating 4,233 4,587 4,953
General and administrative 3,732 2,262 1,770
Depreciation, depletion and amortization 1,091 3,154 3,974
Impairment of prepaid drilling costs 557 -- --
Write-down of oil and gas properties -- 5,727 1,399
Write-down of deferred financing costs -- -- 422
-------- -------- --------
Total costs and expenses 9,613 15,730 12,518
-------- -------- --------
Operating loss (989) (7,809) (3,436)
-------- -------- --------
Other income (expense):
Interest income 109 13 31
Interest expense (1,662) (1,633) (1,354)
Gain on disposal of assets held for sale 3,957 -- --
Foreign currency exchange gain (loss) (166) 19 (21)
-------- -------- --------
Total other income (expense) 2,238 (1,601) (1,344)
-------- -------- --------
Income (loss) before income taxes 1,249 (9,410) (4,780)
-------- -------- --------
Deferred income tax expense (1,573) -- (1,618)
-------- -------- --------
Loss before minority interest (324) (9,410) (6,398)
Minority interest in loss of subsidiary 367 115 --
-------- -------- --------
Net income (loss) $ 43 $ (9,295) $ (6,398)
======== ======== ========
Net income (loss) per share - basic and diluted $ -- $ (.63) $ (.49)
======== ======== ========
Weighted average shares outstanding - basic and diluted 21,204 14,689 13,118
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 23
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended September 30, 2000, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
Common Stock Capital in Treasury Stock
---------------- excess of Accumulated -----------------
Shares Amount par value Deficit Shares Amount Total
------ ------ ---------- ----------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1997 13,050 $262 $105,375 $(69,078) 28 $(71) $ 36,488
Net loss -- -- -- (6,398) -- -- (6,398)
Exercise of stock options
and warrants 84 1 189 -- -- -- 190
------ ---- -------- -------- ------ ---- --------
Balance September 30, 1998 13,134 263 105,564 (75,476) 28 (71) 30,280
Net loss -- -- -- (9,295) -- -- (9,295)
Common stock and warrants
issued 2,000 40 2,413 -- -- -- 2,453
Treasury stock issued to
officers in lieu of
cash compensation 18 -- -- (32) (18) 46 14
------ ---- -------- -------- ------ ---- --------
Balance September 30, 1999 15,152 303 107,977 (84,803) 10 (25) 23,452
Net income -- -- -- 43 -- -- 43
Common stock and warrants
issued 9,319 187 15,032 -- -- -- 15,219
Preferred dividends -- -- -- (79) -- -- (79)
------ ---- -------- -------- ------ ---- --------
Balance September 30, 2000 24,471 $490 $123,009 $(84,839) 10 $(25) $ 38,635
====== ==== ======== ======== ====== ==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 24
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 2000, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
2000 1999 1998
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 43 $(9,295) $(6,398)
-------- ------- -------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization 1,091 3,154 3,974
Write-down of oil and gas properties -- 5,727 1,399
Write-down of deferred financing costs -- -- 422
Issuances of compensatory common stock -- 14 --
Minority interest (367) (115) --
Gain on sale of assets (3,957) -- --
Deferred income tax expense 1,573 -- 1,618
Change in assets and liabilities:
(Increase) decrease in receivables 10 (117) 558
(Increase) decrease in inventory -- 9 (21)
(Increase) decrease in prepaid drilling costs and
other current assets (1,680) (833) 57
Increase (decrease) in accounts payable
and accrued liabilities 162 1,351 (542)
Decrease in advances from joint owners -- -- (468)
Increase (decrease) in royalties payable 4 45 (17)
Increase (decrease) in production taxes payable 12 (57) (56)
Other -- 1 (1)
-------- ------- -------
(3,152) 9,179 6,923
-------- ------- -------
Net cash provided (used) by operating activities (3,109) (116) 525
-------- ------- -------
Cash flows from investing activities:
Proceeds from sale of assets, net of expenses 17,279 705 1,456
Capital expenditures (10,141) (6,179) (8,033)
-------- ------- -------
Net cash provided (used) by investing activities 7,138 (5,474) (6,577)
-------- ------- -------
Cash flows from financing activities:
Proceeds from borrowing 1,585 7,019 3,056
Principal repayments (12,038) (4,780) --
Proceeds from issuance of stock 10,531 2,228 190
Proceeds from subsidiary sale of stock -- 610 --
Proceeds from issuance of warrants 1,776 310 --
Payment of dividends (79) -- --
Payments for debt and equity financing (337) -- (90)
-------- ------- -------
Net cash provided by financing 1,438 5,387 3,156
-------- ------- -------
Net increase (decrease) in cash and cash equivalents 5,467 (203) (2,896)
Cash and cash equivalents at beginning of year 430 633 3,529
-------- ------- -------
Cash and cash equivalents at end of year $ 5,897 $ 430 $ 633
======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,398 $ 1,393 $ 1,431
Income taxes $ -- $ -- $ --
Noncash investing and financing activities:
Issuance of stock to acquire assets $ 2,911 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 25
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Tipperary Corporation and its subsidiaries (the "Company" or "Tipperary") are
principally engaged in the exploration for and development and production of
coalbed methane gas. The Company was organized as a Texas corporation in January
1967 and entered the oil and gas business in 1969. The Company participates in
operations in the United States and in Queensland, Australia, where it is
involved in the Comet Ridge coalbed methane project and other exploration
activities for coalbed methane gas. The Company has disposed of a majority of
its conventional oil and gas properties in the United States.
On November 30, 2000, the Board of Directors elected to change the Company's
fiscal year end from September 30 to December 31. The Company intends to file a
transition report on Form 10-KSB covering the transition period from October 1,
2000 through December 31, 1999 will be filed on or before March 31, 2001.
Principles of Consolidation
The consolidated financial statements include the accounts of Tipperary
Corporation, its wholly-owned subsidiaries Tipperary Oil & Gas Corporation and
Burro Pipeline Corporation and its 90%-owned subsidiary, Tipperary Oil & Gas
(Australia) Pty Ltd. All intercompany transactions and balances have been
eliminated.
Liquidity and Operations
The Company's liquidity and cash flow from on-going operations in 2001 will be
adversely impacted due to the sale of a majority of its domestic oil and gas
assets during fiscal 2000, the proceeds of which were used to reduce bank debt,
fund capital expenditures and provide cash flow for operating activities.
Accordingly, cash flow from operations in 2001 will not be sufficient to fund
operating cash flow requirements and commitments for capital expenditures. The
Company is evaluating various transactions which would enable it to meet the
aforementioned cash funding needs, including additional debt financing, sales of
common stock and asset sales. Slough Estates USA Inc. ("Slough"), the Company's
major shareholder, will increase U.S. equity ownership in Tipperary, if required
to meet Tipperary's cash flow requirements.
Use of Estimates and Significant Risks
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in these financial statements
and accompanying notes. The more significant areas requiring the use of
estimates relate to oil and gas reserves, fair value of financial instruments,
future cash flows associated with assets and useful lives for depreciation,
depletion and amortization. Actual results could differ from those estimates.
The Company is subject to a number of risks and uncertainties inherent in the
oil and gas industry. Among these are risks related to fluctuating oil and gas
prices, uncertainties related to the estimation of oil and gas reserves and the
value of such reserves, effects of competition and extensive environmental
regulation, risks associated with the search for and the development of oil and
gas reserves, uncertainties related to foreign operations, and many other
factors, many of which are beyond the Company's control. The Company's financial
condition and results of operations depend significantly upon the prices
received for natural gas and to a lesser extent crude oil. These prices are
subject to fluctuations in response to changes in supply, market uncertainty and
a variety of additional factors that are beyond the control of the Company.
F-7
<PAGE> 26
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Concentrations of Credit Risk
The Company maintains demand deposit accounts with two banks in Denver, Colorado
and one bank in Brisbane, Queensland, Australia and invests cash in money market
accounts which the Company believes have minimal risk of loss.
The Company sells gas and oil production to various purchasers. The risk of
non-payment by the purchasers is considered minimal and the Company does not
obtain collateral for its sales.
Fair Value of Financial Instruments
Long-Term Debt
At September 30, 2000, based on rates available for similar types of debt, the
Company believes that the fair value of long-term debt was not materially
different from its carrying amount.
Property, Plant and Equipment
The Company follows the full cost method to account for its oil and gas
exploration and development activities. Under the full cost method, all costs
incurred which are directly related to oil and gas exploration and development
are capitalized and subjected to depreciation and depletion. Depletable costs
also include estimates of future development costs of proved reserves. Costs
related to undeveloped oil and gas properties may be excluded from depletable
costs until such properties are evaluated as either proved or unproved. The net
capitalized costs are subject to a ceiling limitation. See Note 6. Gains or
losses upon disposition of oil and gas properties are treated as adjustments to
capitalized costs, unless the disposition represents a significant portion of
the Company's proved reserves. A separate cost center is maintained for
expenditures applicable to each country in which the Company conducts
exploration and/or production activities.
Repairs and maintenance are expensed; renewals and betterments are capitalized.
Certain indirect costs, including a portion of general and administrative
expenditures have been capitalized to the full cost pool.
Upon sale or retirement of property, plant and equipment other than oil and gas
properties, the applicable costs and accumulated depreciation are removed from
the accounts and gain or loss is recognized in the current period.
Depreciation, Depletion and Amortization
Depreciation and depletion of oil and gas properties is provided using the
units-of-production method computed using proved oil and gas reserves.
Abandonment, restoration, dismantlement costs and salvage value are taken into
account in determining depletion rates. These costs are generally about equal to
the proceeds from equipment salvage upon abandonment of such properties. When
estimated abandonment costs exceed the salvage value, the excess cost is accrued
and expensed.
Depreciation and amortization of other property, plant and equipment and other
assets is provided using the straight-line method computed over estimated useful
lives ranging from three to twenty years.
F-8
<PAGE> 27
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income Taxes
Deferred income taxes are provided on the difference between the tax basis of an
asset or liability and its reported amount in the financial statements. This
difference will result in taxable income or deductions in future years when the
reported amount of the asset or liability is recovered or settled, respectively.
Crude Oil and Natural Gas Hedging
The Company has periodically used derivatives to hedge a portion of its U.S.
crude oil and natural gas production. In cases where direct investments are made
in futures contracts, gains or losses on the hedges are deferred and recognized
in income as the hedged commodity is produced. The Company has in recent years
hedged portions of its crude oil sales primarily through swap agreements with
financial institutions based upon prices quoted by the New York Mercantile
Exchange ("NYMEX"). Under swap agreements, the Company usually received a floor
price but retained 50% of price increases above the floor. During fiscal 2000,
the Company hedged a total of 45,000 barrels (approximately 23%) of its oil
production. Net receipts (payments) pursuant to the Company's hedging activities
for fiscal 2000, 1999 and 1998 were ($285,000), ($200,000), and $507,000,
respectively. The Company has not hedged any of its production since March 2000.
Earnings (Loss) Per Share
Basic earnings per share is computed based on the weighted average number of
shares outstanding. Diluted earnings per share reflects the potential dilution
that would occur if options and warrants were exercised using the average market
price for the Company's stock for the period.
Foreign Currency
The Company considers the functional currency of its Australian subsidiary to be
the U.S. dollar. Exchange gains and losses arising from remeasurement of
monetary assets and liabilities that are not denominated in the functional
currency are included in the Statement of Operations as an adjustment to net
income.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("FAS 123") encourages, but does not require, companies to record
the compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and has applied the disclosure
provisions of FAS 123. Accordingly, compensation cost for fixed stock options
and warrants is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
Financing Costs
Costs incurred to obtain financing through the issuance of stock are accounted
for as a reduction of the related proceeds. Costs attributable to raising debt
financing are amortized over the term of the related credit agreement.
Minority Interest
Effective December 22, 1998, the Company issued to Slough ten percent of the
common stock of its Australian subsidiary in accordance with the terms of a debt
and equity financing transaction. The resulting non-Company owned shareholder
interest has been accounted for as a minority interest in the accompanying
Consolidated Financial Statements.
F-9
<PAGE> 28
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Significant Customers
The Company had domestic sales in excess of 10% of total U.S. revenues to three
unaffiliated oil and gas customers during fiscal 2000 totaling 48%, three
unaffiliated oil and gas customers during fiscal 1999 totaling 45%, and three
unaffiliated oil and gas customers during fiscal 1998 totaling 43%. All sales
from the Company's Comet Ridge project in Queensland, Australia, are currently
made to one purchaser under a five-year gas supply contract which commenced in
January 1999 and a new five-year contract effective June 1, 2000, which provides
for new volumes in addition to the quantities of gas delivered under the first
contract. The Company does not believe that the loss of any existing purchaser
would have a material adverse impact on its ability to sell its production to
another purchaser at similar prices.
Segment Information
The Company has one business segment; oil and gas exploration, development and
production and operates in two geographic areas, the United States and
Australia. See Notes 13 and 14.
Impact of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." This statement requires
companies to report the fair market value of derivatives on the balance sheet
and record in income or other comprehensive income, as appropriate, any changes
in the fair value of the derivatives. SFAS 133, as amended by SFAS 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
In June 2000, the FASB issued SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of SFAS 133" ("SFAS
138"), which modifies or more clearly defines certain requirements of SFAS 133.
No derivative instruments were held as of September 30, 2000. Subsequent to the
fiscal year end, Tipperary entered into a foreign exchange contract. The Company
is currently assessing the impact this hedge will have, if any, on its results
of operation and financial position.
NOTE 2 - RELATED PARTY TRANSACTIONS
On December 23, 1999, the Company consummated a financing transaction with
Slough for the purchase of 6,329,114 shares of the Company's 1999 Series A
Convertible Cumulative Preferred Stock for $10,000,000, or $1.58 per share. At
closing Slough converted 2,900,000 shares of the convertible preferred stock
into 2,900,000 shares of restricted common stock. Also, at the closing, the
Company issued Slough warrants for 1,200,000 shares of common stock at an
exercise price of $2.00 per share. The warrants may be exercised during an
eight-year period beginning December 23, 2001 and ending December 23, 2009.
Effective February 29, 2000, Slough converted the remaining shares of preferred
stock into 3,429,114 shares of restricted common stock.
NOTE 3 - OIL AND GAS PROPERTY SALES
During the fiscal year ended September 30, 2000, the Company sold approximately
75% of its domestic proved reserve volumes from conventional oil and gas
properties in connection with a redirection of focus toward increasing reserves
from coalbed methane properties. The Company received approximately $17.2
million (net of selling expenses) from the sales of various interests in
producing oil and natural gas mineral leaseholds which comprised the full cost
pool.
A gain of approximately $4 million was recorded based upon the allocation of
capitalized costs between reserves sold and reserves retained. Assets held for
sale were not subject to depreciation, depletion and amortization during the
period held for disposal. Prior to the fiscal year ended September 30, 2000, the
Company decided to retain its interest in the certain full cost pool properties
and a fourth quarter adjustment of $244,000 has been recorded for depreciation,
depletion and amortization that would have been recognized in fiscal 2000 had
these properties been continuously classified as held and used.
F-10
<PAGE> 29
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following is a summary of the results of operations (in thousands) related
to assets disposed of:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Revenues $5,607 $6,103 $7,690
Operating costs $2,605 $3,668 $4,738
Depreciation and depletion -- $2,289 $3,220
</TABLE>
NOTE 4 - ACQUISITION OF ADDITIONAL INTERESTS IN THE COMET RIDGE PROJECT
In February 2000, the Company acquired additional interests in the Comet Ridge
coalbed methane project in Queensland, Australia. The total interest acquired
was 5.5% in undivided interest, bringing the Company's total interest to 61.25%
The total purchase price was approximately $5,161,000 and included cash of
$3,300,000 and common stock valued at $1,861,000. The cash portion of the
purchase price was paid using cash on hand of $900,000 and $2,400,000 of
proceeds from the sale of 1,518,988 shares of common stock at $1.58 per share to
two individual investors. The remaining purchase price of approximately
$1,861,000 was paid to the sellers with the issuance of 1,163,328 shares of the
Company's common stock at $1.60 per share. In July 2000, the Company acquired an
additional 1.0% undivided interest for 300,000 shares of the Company's common
stock valued at $3.50 per share for a total purchase price of $1,050,000. The
Company now has a undivided interest of 62.25%.
NOTE 5 - COMET RIDGE PROJECT FINANCING
On April 28, 2000, the Company entered into a credit agreement with TCW Asset
Management Company ("Credit Agreement") that provides a borrowing facility of up
to $17 million upon the satisfaction of certain conditions. The obligation to
repay the advances and accrued interest will be evidenced by senior secured
promissory notes bearing interest at the rate of 10% per annum and payable
quarterly. Tipperary will also make monthly payments to TCW equal to its share
of a 6% overriding royalty from gross project revenues received by its 90%-owned
subsidiary, Tipperary Oil & Gas (Australia) Pty Ltd. Upon payment of the loan in
full, TCW has the option to sell to Tipperary, and Tipperary has the option to
purchase from TCW, this royalty interest at the net present value of the
royalty's share of the then proved reserves, discounted at a rate of 15%.
Principal payments will be due quarterly in an amount equal to the greater of a
percentage of cash flow as defined or a scheduled minimum principal payment. The
scheduled minimum principal payment begins March 2003 and will be equal to 5% of
the unpaid principal balance, increasing to 9% in March 2004 and 10% in March
2005. The outstanding principal balance on the notes is due and payable in full
on March 30, 2006. As of September 30, 2000, no advances had been made under the
Credit Agreement. The Company has received its first cash call for the 20-well
drilling program and expects to obtain the initial funding from TCW under the
Credit Agreement in early 2001.
NOTE 6 - OIL AND GAS FULL COST POOLS
AUSTRALIA
The Company's Australia full cost pool includes acquisition, drilling and
completion costs, seismic and initial de-watering costs, and costs to construct
gas gathering lines. The Company holds a non-operating interest in the Comet
Ridge coalbed methane project in Queensland and has acquired and begun
exploration activities on its own Authorities to Prospect (ATPs) in Queensland.
As of September 30, 2000, the capitalized cost applicable to the Australia full
cost pool was approximately $37,750,000.
F-11
<PAGE> 30
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
UNITED STATES
The Company's domestic full cost pool includes capital costs incurred in
domestic property acquisition, exploration and development. The net book value
of the United States full cost pool as of September 30, 2000, was $4,327,000.
Included in this total are $2,670,000 of costs attributable to unproved oil and
gas leases, primarily in the Hanna Basin, that have been excluded from
depletable costs pending further evaluation.
Under the full cost method of accounting, capitalized oil and gas property
costs, less accumulated amortization and related deferred income taxes, may not
exceed a "ceiling" comprised of the total of the present value of future net
revenues from proved reserves, plus the lower of cost or market value of
unproved properties, less related income tax effects. This "ceiling test" must
be performed on a quarterly basis. Based on September 30, 2000 prices,
capitalized costs did not exceed the ceiling, therefore no impairment was
recorded. The Company recognized a non-cash impairment in fiscal 1999 of its
domestic oil and gas properties in the amount of $5,727,000 pursuant to the
ceiling limitation.
See Note 14 (unaudited) for supplementary information on oil and gas operations,
including capitalized costs, costs incurred, results of operations and estimated
reserves for the Company's Australia and United States properties.
NOTE 7 - IMPAIRMENT OF PREPAID DRILLING COSTS
At September 30, 2000, Tipperary recorded an impairment of $557,000 related to
prepaid drilling costs for prepayments. Because the Company was unable to obtain
assurance from the operator that the work will either be completed or the
payments refunded, Tipperary impaired this asset. Tipperary is in litigation
with the operator of the Comet Ridge project. See Note 12.
NOTE 8 - LOSS PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands except per share data):
<TABLE>
<CAPTION>
September 30,
------------------------------------
2000 1999 1998
-------- -------- ---------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 43 $ (9,295) $ (6,398)
Less: preferred stock dividends (79) -- --
-------- -------- ---------
Net loss available for common stockholders $ (36) $ (9,295) $ (6,398)
======== ======== =========
Denominator:
Weighted-average shares outstanding 21,204 14,689 13,118
Effect of dilutive securities:
Assumed conversion of dilutive options -- -- --
-------- -------- ---------
Weighted-average shares and dilutive potential
common shares 21,204 14,689 13,118
Basic loss per share $ -- $ (0.63) $ (0.49)
======== ======== =========
Diluted loss per share $ -- $ (0.63) $ (0.49)
======== ======== =========
</TABLE>
Potentially dilutive common stock of 640,000 shares and 145,000 shares from the
exercise of options and warrants was antidilutive for fiscal 2000 and 1998,
respectively. There were no potentially dilutive shares in fiscal 1999.
F-12
<PAGE> 31
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9 - LONG-TERM DEBT
The Company had no outstanding bank debt at September 30, 2000. As of September
30, 1999, bank debt totaled $11,800,000. In December 1999, $4,000,000 of
proceeds from the Slough financing was used to reduce bank debt to $7,800,000.
As disclosed in Note 3, the Company used property sales proceeds to pay off the
entire remaining balance of bank debt in May 2000.
Related party debt due Slough at September 30, 2000, included a corporate loan
in the amount of $6,500,000 and a project financing loan with a balance of
$4,486,000. Interest is due quarterly on the $6.5 million note at the 90-day
London Interbank Offered Rate plus 3.5%. The weighted-average interest rate was
10.16% at September 30, 2000. Subsequent to September 30, 2000, Slough loaned
the Company an additional $1,000,000. Tipperary replaced the $6.5 million note
with a new note for $7.5 million due and payable March 31, 2003. The unpaid
principal balance of the Comet Ridge project financing loan bears interest at a
rate of 10% per annum. Principal and interest payments are due quarterly and
must equal 75% of the cash flow, as defined in the note, from the Comet Ridge
properties. The Company also agreed to pay a finance charge of 7% of gross
proceeds received from sales from the Fairview #1 through #20 wells until the
loan is repaid in full and 7% of gross proceeds received from sales from the
eight new wells (Fairview #21 through #28) for the life of those wells. The
unpaid principal balance on the loan, together with accrued and unpaid interest
and finance charges, is due and payable November 22, 2002.
NOTE 10 - STOCKHOLDERS' EQUITY
Common Stock Issuances
During fiscal 2000, the Company issued 6,329,114 shares of its common stock to
Slough in connection with the refinancing agreement dated December 23, 1999. See
Note 2.
In February 2000, the Company issued a total of 2,682,316 shares of its common
stock in connection with the acquisition of additional interests in the Comet
Ridge coalbed methane project in Queensland, Australia. An additional
acquisition of a 1% interest in the project was purchased in July 2000 with the
issuance of 300,000 shares. The total purchase price of the additional interests
acquired totaled approximately $6,211,000 and included cash of $3,300,000 and
stock valued at $2,911,000. The cash portion of the combined purchase price was
paid using cash on hand of $900,000 and $2,400,000 of proceeds from the sale of
1,518,988 shares of common stock at $1.58 per share to two individual investors.
The remaining purchase price of approximately $2,911,000 was paid to the sellers
with the issuance of 1,163,328 shares at $1.60 per share in February 2000 and
300,000 shares at $3.50 per share in July 2000. The offer and sale of the shares
were not registered under the Securities Act of 1933 (the "Securities Act"), but
rather were made privately by the Company pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act.
During fiscal 2000, the Company also issued 7,000 shares of common stock to two
employees pursuant to the exercise of incentive stock options.
Stock Incentive Plans
In 1987, the Company adopted the 1987 Employee Stock Option Plan (the "1987
Plan") that provided for grants of a maximum of 383,000 options to employees of
the Company to purchase shares of the Company's common stock. The 1987 Plan
expired December 31, 1996. The 269,400 options currently outstanding under this
plan have a term of ten years ending no later than December 31, 2007, an
exercise price equal to the fair market value of the stock on the date of grant
and qualify as incentive stock options as defined in the Internal Revenue Code
of 1986 ("the Code"). These options remain in full force and effect pursuant to
each option's terms.
Pursuant to a shareholder vote in January 1997, the 1997 Long-Term Incentive
Plan (the "1997 Plan") was adopted to replace the expired 1987 Plan. The 1997
Plan was amended in January 2000, to increase the shares of common stock
F-13
<PAGE> 32
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
issuable from 250,000 to 500,000 for a period expiring in 2007. The 1997 Plan
provides that participants may be granted awards in the form of incentive stock
options, non-qualified options as defined in the Code, stock appreciation rights
("SARs"), performance awards related to the Company's operations, or restricted
stock upon payment of consideration not less than the par value of the
restricted stock issued. The Company did not grant any options during fiscal
2000.
The following table represents a summary of stock option transactions under both
the 1987 Plan and the 1997 Plan for the three years ended September 30, 2000:
<TABLE>
<CAPTION>
Weighted-Average
1987 Plan 1997 Plan Exercise Price
--------- --------- ----------------
<S> <C> <C> <C>
As of September 30, 1997 351,650 37,500 $3.80
Granted in fiscal 1998 -- 81,000 $4.26
Forfeited in fiscal 1998 (51,666) (17,000) $4.37
Exercised in fiscal 1998 (30,584) -- $3.27
-------- --------
As of September 30, 1998 269,400 101,500 $3.84
-------- --------
Granted in fiscal 1999 -- 134,000 $2.24
Forfeited in fiscal 1999 -- (12,000) $2.81
Exercised in fiscal 1999 -- -- --
-------- --------
As of September 30, 1999 269,400 223,500 $3.43
-------- --------
Granted in fiscal 2000 -- -- --
Forfeited in fiscal 2000 (5,000) (7,000) $3.25
Exercised in fiscal 2000 -- (7,000) $2.50
-------- --------
As of September 30, 2000 264,400 209,500 $3.45
======== ========
Exercisable as of September 30, 2000 264,400 163,835 $3.51
======== ========
</TABLE>
Options under both plans vest ratably over three years, except for options
covering 15,000 shares under the 1987 Plan at an exercise price of $5.13, which
vested ratably over five years.
Nonqualified Stock Options and Warrants
Nonqualified option and warrant transactions for the three years ended September
30, 2000, are as follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
---------- ----------------
<S> <C> <C>
As of September 30, 1997 510,000 $3.02
Granted in fiscal 1998 16,664 $3.63
Expired in fiscal 1998 -- --
Exercised in fiscal 1998 (53,100) $2.00
----------
As of September 30, 1998 473,564 $3.16
Granted in fiscal 1999 796,872 $2.52
Expired in fiscal 1999 -- --
Exercised in fiscal 1999 -- --
----------
As of September 30, 1999 1,270,436 $2.75
Granted in fiscal 2000 1,663,000 $2.01
Expired in fiscal 2000 -- --
Exercised in fiscal 2000 -- --
----------
As of September 30, 2000 2,933,436 $2.33
==========
Exercisable as of September 30, 2000 687,103 $2.72
==========
</TABLE>
F-14
<PAGE> 33
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes information about stock options and warrants
outstanding at September 30, 2000:
<TABLE>
<CAPTION>
Options and Warrants Options and Warrants
Outstanding Exercisable
----------------------------------------------------- -------------------------------
Number Weighted Weighted Average Number Weighted
Range of Outstanding Average Remaining Exercisable Average
Exercise Prices at 9/30/00 Exercise Price Contractual Life at 9/30/00 Exercise Price
--------------- ----------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.50 to $2.00 2,099,900 $1.91 9.44 405,234 $1.76
$2.50 to $3.69 919,936 $2.99 5.75 344,936 $3.00
$4.00 to $5.13 387,500 $4.43 8.08 365,168 $4.45
$1.50 to $5.13 3,407,336 $2.49 8.29 1,115,338 $3.02
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 , Accounting for
Stock Issued to Employees, ("APB 25") and related interpretations to account for
its stock option plans. Under APB 25 expense for a fixed stock option grant is
recorded as the difference between the market price of the stock and the
exercise price on the date of grant. No compensation expense has been recognized
for grants of stock options or warrants, since the plans provide that the
exercise price shall be equal to or greater than the market price of the stock
on the date of grant. In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 encourages, but does not require, companies
to adopt a method of accounting for stock compensation awards based on the
estimated fair value at the date the awards were granted. Companies that have
chosen not to adopt the fair value method must disclose in the notes to the
financial statements the pro forma effect on net income and earnings per share
had the fair value method been adopted. The fair value of options and warrants
granted during fiscal 2000, 1999 and 1998 of $199,000, $292,000, and $130,000,
respectively, were estimated using the Black-Scholes option-pricing model with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Expected life (in years) 10.00 8.00 5.00
Expected volatility 72.1% 63.91% 66.16%
Risk-free interest rate 6.45% 5.30% 5.84%
Expected dividends $ -- $ -- $ --
</TABLE>
Had compensation cost for the Company's plans been determined based on the fair
value at the grant dates for awards under these plans consistent with the method
of SFAS 123, the Company's net loss and loss per share would have been adjusted
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
2000 1999 1998
--------- ----------- -----------
<S> <C> <C> <C>
Net income (loss)
As Reported $ 43,000 $(9,295,000) $(6,398,000)
Pro forma $(102,000) $(9,465,000) $(6,599,000)
Loss per share
As Reported $ -- $ (.63) $ (.49)
Pro forma $ -- $ (.64) $ (.50)
</TABLE>
NOTE 11 - INCOME TAXES
Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," the Company has recorded a $13.9 million asset for the future
benefit of its net operating tax loss carryforwards and other tax benefits. As
of
F-15
<PAGE> 34
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000, this asset was offset by a valuation allowance of $13.9
million based on management's projection of realizability of the gross deferred
tax asset.
At September 30, 1999, the Company had a net deferred tax asset of $1.6 million,
which represented management's best estimate of the realizable benefit of the
Company's net operating loss carryforwards. With the sale of U.S. oil and gas
properties during the year 2000, the Company recorded a gain on the sale of $4.0
million but incurred a tax loss. With the sale of a majority of the Company's
U.S. producing properties and its history of losses, management believes that
sufficient uncertainty exists regarding the realizability of the deferred tax
benefits associated with remaining carryovers. It therefore recorded a valuation
allowance to offset the entire deferred tax asset. Management will continue to
evaluate its gross deferred tax asset and to the extent management may determine
that it is more likely than not that the asset will be realized, the valuation
allowance will be reduced accordingly.
The net deferred tax asset is comprised of the following at fiscal years ended
September 30:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Federal and state net operating loss carryforwards $ 10,209 $ 13,032 $ 15,112
Statutory depletion carryforwards 2,499 2,465 2,409
Property, plant and equipment 872 4,566 3,098
Tax credit carryforwards 279 260 372
Other 2 3 3
-------- -------- --------
Gross deferred tax assets 13,861 20,326 21,062
-------- -------- --------
Valuation allowance (13,861) (18,753) (10.490)
-------- -------- --------
Net deferred tax asset $ -- $ 1,573 $ 1,573
======== ======== ========
</TABLE>
The principal differences between recognition of taxable income (loss) for
federal income tax and financial reporting purposes relate to intangible
drilling costs, dry hole and abandonment costs, accelerated depreciation and
asset write-downs. With the Australian operations subject to both U.S. and
Australian income taxes, its capital development costs are subject to 10-year
straight-line amortization under both tax systems and thus, timing differences
between book and tax assets are similar in the United States and Australia.
Income tax expense (benefit) is different than the expected amount computed
using the applicable federal statutory income tax rate of 35%. With the
Australian statutory income tax rate at the lower 34%, no additional income tax
expense would result from foreign operations. The reasons for and effects of
such differences (in thousands) are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Expected amount $ 437 $(3,266) $(1,673)
Increase (decrease) from:
Increase (decrease) in valuation allowance (4,892) (736) 1,237
Adjustments to and expiration of carryforwards 6,008 3,997 2,059
Permanent differences between financial
statement income and taxable income 3 5 (5)
State taxes, net of federal benefit, and other 17 -- --
------- ------- -------
Total income tax expense (benefit) $ 1,573 $ -- $ 1,618
======= ======= =======
</TABLE>
Increases (decreases) from the expected amount are driven by U.S. tax principles
since the Australian operations will be subject to U.S. tax consequences as
income (loss) is earned. Thus, the increase in income tax expense is caused by
U.S. federal and state net operating losses expiring and the belief that no
benefit is expected to be derived from those carryforwards in the future.
F-16
<PAGE> 35
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At September 30, 2000, the Company had U.S. net operating loss carryforwards of
approximately $29 million to apply against future taxable income and $28 million
to apply against future alternative minimum taxable income. Both these losses
include $4.8 million that will expire unutilized with its change in accounting
period. Losses expire within 15-20 years after the date incurred or at various
times from 2001 to 2020. With the change in accounting period discussed in Note
1, the carryforward periods will be shortened by one year. Additionally, the
Company has Australian loss carryforwards of approximately $10 million. The
Australian losses can be carried forward indefinitely.
The Company also has statutory depletion carryforwards and minimum tax credit
carryforwards which do not expire. The Company's net operating loss
carryforwards would be subject to an annual limitation should there be a change
of over 50% in the stock ownership of the Company during any three-year period
after 1986. As of September 30, 2000, no such ownership change had occurred.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company is plaintiff in a lawsuit filed on August 6, 1998, styled Tipperary
Corporation and Tipperary Oil & Gas (Australia) Pty Ltd v. Tri-Star Petroleum
Company, Cause No. CV42,265, in the District Court of Midland County, Texas
involving the Comet Ridge coalbed methane project in Queensland, Australia. By
amended petition filed May 1, 2000, the Company's wholly owned subsidiary,
Tipperary Oil & Gas Corporation, joined the action as a plaintiff, along with
the already-named plaintiffs and two unaffiliated non-operating working interest
owners who previously intervened in the action as plaintiffs. James H. Butler,
Sr., and James H. Butler, Jr., owners of defendant Tri-Star Petroleum Company,
were also named as defendants in the amended petition. The Company and the other
plaintiffs allege, among other matters, that Tri-Star and/or the individual
defendants have failed to operate the properties in a good and workmanlike
manner and have committed various other breaches of a joint operating contract,
have breached a previous mediation agreement between the parties, have committed
certain breaches of fiduciary and other duties owed to the plaintiffs, and have
committed fraud in connection with the project. Tri-Star has answered the
amended petition, and has denied the allegations and asserted counterclaims
against the Company for breach of a joint operating agreement, breach of the
mediation agreement, and interference with prospective contracts and business
relations. No specific sum has been pleaded as damages. Discovery is in
progress. Subsequent to September 30, 2000, Tri-Star moved the Midland court for
leave to amend its counterclaim against the Company to include several
additional causes of action. The court has not yet ruled on Tri-Star's motion,
although the Company expects that it will be granted.
In 1997, the Company filed a complaint along with ten other plaintiffs in BTA
Oil Producers, et al. v. MDU Resources Group, Inc. in Stark County Court in the
Southwest Judicial District of North Dakota. The plaintiffs include major
integrated oil companies (such as ExxonMobil Corporation) and agricultural
cooperatives (Cenex Harvest States Cooperatives), as well as independent oil and
gas producers such as the Company. The plaintiffs brought the action against the
defendants for breach of gas sales contracts and processing agreements, unjust
enrichment, implied trust and related business torts. The case concerns the sale
by plaintiffs and certain predecessors of natural gas processed at the McKenzie
Gas Processing Plant in North Dakota to Koch Hydrocarbons Company. It also
concerns the contracts for resale of that gas to MDU Resources Group, Inc. and
Williston Basin Interstate Pipeline Company. After the complaint was answered,
the defendants moved for summary judgment against the plaintiffs. The trial
court has indicated orally that it intends to render summary judgment on most of
the issues in the case in general, but not exclusively, in favor of the
defendants, but no order has yet been entered. The plaintiffs disagree with the
trial court's indicated, and anticipate appealing any order that is issued to
the North Dakota Supreme Court.
Other Commitments and Contingencies
The Company entered into an amendment of its office lease agreement in Denver,
Colorado effective September 1, 1998. The amended lease covers approximately
11,000 square feet and extended the lease for a term of three years expiring
August 31, 2001. During the remaining term of the lease, the base rent is
payable in the amount of $152,000 per annum, plus expense recovery amounts. The
Company paid rent for its Denver office of approximately $178,000 in fiscal
2000, $133,000 in fiscal 1999 and $116,000 in fiscal 1998. During fiscal 2000,
the Company leased office space in Brisbane,
F-17
<PAGE> 36
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Queensland, Australia, on a month-to-month basis and paid total rent of
approximately US $9,000 for the year ended September 30, 2000. Effective October
16, 2000, the Company entered into a five-year lease for its office space in
Brisbane. During the term of the lease, base rent is Australian $63,050 per
annum. The lease terminates October 15, 2005. The Company has also leased
approximately 1,400 square feet of office space in Houston, Texas. The term of
the lease commenced November 1, 1999, terminates on March 31, 2001 and requires
a base rent of $1,715 per month. Total rent paid for the Houston office in
fiscal 2000 was approximately $19,000.
The Company is subject to various possible contingencies which arise primarily
from interpretation of federal and state laws and regulations affecting the oil
and gas industry. Although management believes it has complied with the various
laws and regulations, administrative rulings and interpretations thereof,
adjustments could be required as new interpretations and regulations are issued.
NOTE 13 - OPERATIONS BY GEOGRAPHIC AREA
The Company has one operating and reporting segment - oil and gas exploration,
development and production - in the United States and Australia. Information
about the Company's operations for the twelve months ended September 30, 2000,
1999 and 1998 by geographic area is shown below (in thousands):
<TABLE>
<CAPTION>
United
Australia States Total
--------- ------- -------
<S> <C> <C> <C>
Twelve months ended September 30, 2000
Revenues $ 2,033 $ 6,591 $ 8,624
Depreciation, depletion and amortization $ 685 $ 406 $ 1,091
Identifiable assets $41,599 $10,947 $52,546
Twelve months ended September 30, 1999
Revenues $ 1,191 $ 6,730 $ 7,921
Depreciation, depletion and amortization $ 533 $ 2,621 $ 3,154
Identifiable assets $28,960 $19,045 $48,005
Twelve months ended September 30, 1998
Revenues $ 452 $ 8,630 $ 9,082
Depreciation, depletion and amortization $ 257 $ 3,717 $ 3,974
Identifiable assets $23,932 $26,828 $50,760
</TABLE>
F-18
<PAGE> 37
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14 - SUPPLEMENTARY INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)
Certain historical costs and operating information relating to the Company's oil
and gas producing activities for fiscal 2000, 1999 and 1998 (in thousands) are
as follows:
CAPITALIZED COSTS:
<TABLE>
<CAPTION>
Australia United States Total
--------- ------------- ---------
<S> <C> <C> <C>
September 30, 2000:
Proved oil and gas properties $ 38,166 $ 21,664 $ 59,830
Unproved oil and gas properties 842 2,670 3,512
--------- --------- ---------
39,008 24,334 63,342
Less accumulated depletion (1,258) (20,007) (21,265)
--------- --------- ---------
Net capitalized costs $ 37,750 $ 4,327 $ 42,077
========= ========= =========
September 30, 1999:
Proved oil and gas properties $ 27,972 $ 100,587 $ 128,559
Unproved oil and gas properties 317 7,686 8,003
--------- --------- ---------
28,289 108,273 136,562
Less accumulated depletion (610) (93,212) (93,822)
--------- --------- ---------
Net capitalized costs $ 27,679 $ 15,061 $ 42,740
========= ========= =========
September 30, 1998:
Proved oil and gas properties $ 23,345 $ 103,701 $ 127,046
Unproved oil and gas properties -- 9,601 9,601
--------- --------- ---------
23,345 113,302 136,647
Less accumulated depletion (196) (90,736) (90,932)
--------- --------- ---------
Net capitalized costs $ 23,149 $ 22,566 $ 45,715
========= ========= =========
</TABLE>
F-19
<PAGE> 38
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
COSTS INCURRED:
<TABLE>
<CAPTION>
Australia United States Total
--------- ------------- -------
<S> <C> <C> <C>
September 30, 2000:
Property acquisition costs:
Proved oil and gas properties $ 6,211 $ 3 $ 6,214
Unproved oil and gas properties 145 1,281 1,426
------- ------ -------
6,356 1,284 7,640
------- ------ -------
Exploration costs 381 585 966
Development costs 3,982 401 4,383
------- ------ -------
Total costs incurred $10,719 $2,270 $12,989
======= ====== =======
September 30, 1999:
Property acquisition costs:
Proved oil and gas properties $ 13 $ 232 $ 245
Unproved oil and gas properties 15 57 72
------- ------ -------
28 289 317
------- ------ -------
Exploration costs 302 33 335
Development costs 5,319 376 5,695
------- ------ -------
Total costs incurred $ 5,649 $ 698 $ 6,347
======= ====== =======
September 30, 1998:
Property acquisition costs:
Proved oil and gas properties $ 3,201 $ -- $ 3,201
Unproved oil and gas properties -- 733 733
------- ------ -------
3,201 733 3,934
------- ------ -------
Exploration costs -- 1,953 1,953
Development costs 1,684 352 2,036
------- ------ -------
Total costs incurred $ 4,885 $3,038 $ 7,923
======= ====== =======
</TABLE>
Depletion rates per equivalent barrel of domestic production for the years ended
September 30, 2000, 1999 and 1998 were $3.43, $4.51and $5.50, respectively.
Costs of $1,692,000, $2,122,000 and $3,608,000 related to domestic unproved oil
and gas properties pending evaluation were excluded from depletable costs in
fiscal 2000, 1999 and fiscal 1998, respectively. In order to maintain certain
acreage held under leases related to the Hanna Draw project in Wyoming, the
Company will be required to participate for its share of costs of a drilling
commitment of ten wells to be drilled during the development phase of the
project beginning September 1, 2001 and ending August 31, 2002. Options to
extend the development phase for three years would require ten wells to be
drilled each year. A total of 76 wells will have to be drilled to earn all of
the acreage. The Company does not have the capital to fund its share of these
anticipated drilling costs and will likely have to obtain debt financing to
develop this property.
The rate of depletion per Mcf of production in Australia was $0.29 for the year
ended September 30, 2000, $0.30 for fiscal 1999, and $0.20 for fiscal 1998.
Costs of $461,000 in fiscal 2000 and $317,000 in fiscal 1999 related to
Australia properties which have not yet been evaluated have been excluded from
depletable costs in fiscal 2000 and 1999, respectively.
F-20
<PAGE> 39
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
RESULTS OF OPERATIONS:
The results of operations for petroleum producing activities, excluding
corporate overhead and interest costs, for each year in the three-year period
ended September 30, 2000, (in thousands) are as follows:
<TABLE>
<CAPTION>
Australia United States Total
--------- ------------- -------
<S> <C> <C> <C>
September 30, 2000:
Revenue from sale of oil and gas $ 2,033 $ 6,500 $ 8,533
Production costs (1,405) (2,835) (4,240)
Depreciation, depletion and amortization (648) (345) (993)
Including impairment (1,205) (345)(1) (1,550)
Income tax expense -- -- --
------- ------- -------
Operating income (loss) from petroleum
producing activities $ (577) $ 3,320 $ 2,743
======= ======= =======
September 30, 1999:
Revenue from sale of oil and gas $ 1,191 $ 6,620 $ 7,811
Production costs (870) (3,846) (4,716)
Depreciation, depletion and amortization
including impairment (415) (8,203) (8,618)
Income tax expense -- -- --
------- ------- -------
Operating loss from petroleum
producing activities $ (94) $(5,429) $(5,523)
======= ======= =======
September 30, 1998:
Revenue from sale of oil and gas $ 452 $ 8,494 $ 8,946
Production costs (476) (4,487) (4,963)
Depreciation, depletion and amortization
including impairment (196) (4,948) (5,144)
Income tax expense -- -- --
------- ------- -------
Operating loss from petroleum
producing activities $ (220) $ (941) $(1,161)
======= ======= =======
</TABLE>
Revenues of $91,000, $110,000 and $136,000 were not included above for 2000,
1999 and 1998, respectively, which represent revenues received primarily for
saltwater disposal. Production costs of $77,000 in fiscal 2000 and $144,000 in
1999 and 1998 were included above, which represent costs paid or payable to
other affiliates in the consolidated group. Costs associated with the saltwater
disposal revenue and other costs of ($7,000), $15,000 and $134,000 were not
included above for 2000, 1999 and 1998, respectively. Income tax expense is
computed using the Company's overall effective tax rate for each respective
year.
(1) See Note 3.
F-21
<PAGE> 40
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
ESTIMATES OF PROVED OIL AND GAS RESERVES:
The following table presents the Company's estimates of its proved oil and gas
reserves. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of mature
producing oil and gas properties. Accordingly, the estimates are expected to
change as future information becomes available. Reserve estimates are prepared
by the Company, and independent petroleum engineers, Garb, Grubbs, Harris &
Associates, Inc. and Holditch Reservoir Technologies Consulting Services.
<TABLE>
<CAPTION>
Australia United States Total
------------------ ------------------ ---------------------
Oil Gas Oil Gas Oil Gas
MBbls MMcf MBbls MMcf MBbls MMcf
----- -------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
September 30, 2000:
Total proved reserves:
Beginning of year -- 131,273 2,455 9,803 2,455 141,076
Revisions of previous estimates -- 14,250 30 224 30 14,474
Extensions and discoveries -- 104,138 5 32 5 104,170
Purchases of reserves in place 17,665 -- -- -- 17,665
Sale of reserves in place -- -- (1,919) (6,424) (1,919) (6,424)
Production -- (2,201) (192) (711) (192) (2,912)
----- -------- ------ ------ ------- --------
End of year -- 265,125 (1) 379 2,924 379 268,049
===== ======== ====== ====== ======= ========
Proved developed reserves:
Beginning of year -- 30,899 2,171 8,003 2,171 38,902
===== ======== ====== ====== ======= ========
End of year -- 50,231 (1) 170 1,563 170 51,794
===== ======== ====== ====== ======= ========
September 30, 1999:
Total proved reserves:
Beginning of year -- 122,509 2,388 9,023 2,388 131,532
Revisions of previous estimates -- 10,130 346 1,879 346 12,009
Extensions and discoveries -- -- 26 46 26 46
Purchases of reserves in place -- -- 47 38 47 38
Sale of reserves in place -- -- -- -- -- --
Production -- (1,366) (352) (1,183) (352) (2,549)
----- -------- ------ ------ ------- --------
End of year -- 131,273 (2) 2,455 9,803 2,455 141,076
===== ======== ====== ====== ======= ========
Proved developed reserves:
Beginning of year -- 28,100 2,114 7,255 2,114 35,355
===== ======== ====== ====== ======= ========
End of year -- 30,899 (2) 2,171 8,003 2,171 38,902
===== ======== ====== ====== ======= ========
</TABLE>
(1) Includes 26,513 MMcf of total proved reserves and 5,023 MMcf of proved
developed reserves attributable to the 10% minority interest held by Slough
Estates USA Inc., in Tipperary Oil & Gas (Australia) Pty Ltd.
F-22
<PAGE> 41
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Includes 13,127 MMcf of total proved reserves and 3,090 MMcf of proved
developed reserves attributable to the 10% minority interest held by Slough
Estates USA Inc., in Tipperary Oil & Gas (Australia) Pty Ltd.
ESTIMATES OF PROVED OIL AND GAS RESERVES (continued):
<TABLE>
<CAPTION>
Australia United States Total
------------------ ------------------- --------------------
Oil Gas Oil Gas Oil Gas
MBbls MMcf MBbls MMcf MBbls MMcf
----- -------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1998:
Total proved reserves:
Beginning of year -- 116,949 2,916 11,324 2,916 128,273
Revisions of previous estimates -- (4,141) (439) (279) (439) (4,420)
Extensions and discoveries -- -- 410 189 410 189
Purchases of reserves in place -- 10,679 -- -- -- 10,679
Sale of reserves in place -- -- (73) (891) (73) (891)
Production -- (978) (426) (1,320) (426) (2,298)
---- -------- ------ ------- ------ --------
End of year -- 122,509 2,388 9,023 2,388 131,532
==== ======== ====== ======= ====== ========
Proved developed reserves:
Beginning of year -- 48,396 2,631 9,473 2,631 57,869
==== ======== ====== ======= ====== ========
End of year -- 28,100 2,114 7,255 2,114 35,355
==== ======== ====== ======= ====== ========
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS:
Information with respect to the Company's estimated discounted future net cash
flows from its oil and gas properties for fiscal 2000, 1999 and 1998 (in
thousands) follows:
<TABLE>
<CAPTION>
Australia United States Total
--------- ------------- ---------
<S> <C> <C> <C>
September 30, 2000:
Future revenues $ 316,652 $ 27,175 $ 343,827
Future production costs (65,345) (5,348) (70,693)
Future development costs (23,424) (1,060) (24,484)
Future income tax expense (72,867) (423) (73,290)
--------- -------- ---------
Future net cash flow 155,016 20,344 175,360
10% annual discount (89,321) (10,165) (99,486)
--------- -------- ---------
Discounted future net cash flows $ 65,695 (1) $ 10,179 $ 75,874
========= ======== =========
September 30, 1999:
Future revenues $ 177,744 $ 78,534 $ 256,278
Future production costs (33,032) (35,079) (68,111)
Future development costs (13,054) (1,490) (14,544)
Future income tax expense (39,575) (5,362) (44,937)
--------- -------- ---------
Future net cash flow 92,083 36,603 128,686
10% annual discount (51,928) (14,295) (66,223)
--------- -------- ---------
Discounted future net cash flows $ 40,155 (2) $ 22,308 $ 62,463
========= ======== =========
</TABLE>
F-23
<PAGE> 42
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Includes approximately $6,570,000 attributable to the 10% minority interest
held by Slough Estates USA Inc., in Tipperary Oil & Gas (Australia) Pty
Ltd.
(2) Includes approximately $4,016,000 attributable to the 10% minority interest
held by Slough Estates USA Inc., in Tipperary Oil & Gas (Australia) Pty
Ltd.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (continued):
<TABLE>
<CAPTION>
Australia United States Total
--------- ------------- ---------
<S> <C> <C> <C>
September 30, 1998:
Future revenues $ 150,196 $ 53,779 $ 203,975
Future production costs (31,649) (24,095) (55,744)
Future development costs (9,887) (1,439) (11,326)
Future income tax expense (38,108) (1,045) (39,153)
--------- --------- ---------
Future net cash flow 70,552 27,200 97,752
10% annual discount (39,872) (11,024) (50,896)
--------- --------- ---------
Discounted future net cash flows $ 30,680 $ 16,176 $ 46,856
========= ========= =========
</TABLE>
Principal changes in the Company's estimated discounted future net cash flows
for each of the three years in the period ended September 30, 2000 (in
thousands) are as follows:
<TABLE>
<CAPTION>
Australia United States Total
--------- ------------- --------
<S> <C> <C> <C>
September 30, 2000:
Beginning of year $ 40,155 $ 22,308 $ 62,463
Oil and gas sales, net of production costs (628) (3,588) (4,216)
Net change in prices and production costs (3,321) 5,452 2,131
Extensions and discoveries, less related costs 32,876 81 32,957
Sales of reserves in place -- (17,416) (17,416)
Purchases of reserves in place 8,028 -- 8,028
Change in estimated development costs (6,582) (230) (6,812)
Revision of previous quantity estimates 4,368 367 4,735
Accretion of discount 4,016 2,231 6,247
Net change in income taxes (12,349) 2,604 (9,745)
Changes in production rates and other (868) (1,630) (2,498)
-------- -------- --------
End of year $ 65,695 (1) $ 10,179 $ 75,874
======== ======== ========
</TABLE>
At September 30, 2000, average oil and gas prices used in the determination of
future cash flows for domestic reserves were $27.47 per barrel and $5.74 per
Mcf, respectively. The average gas price used in the determination of future
cash flows for Australia reserves was U.S. $1.19 per Mcf.
(1) Includes approximately $6,570,000 attributable to the 10% minority interest
held by Slough Estates USA Inc., in Tipperary Oil & Gas (Australia) Pty
Ltd.
F-24
<PAGE> 43
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Australia United States Total
--------- ------------- --------
<S> <C> <C> <C>
September 30, 1999:
Beginning of year $ 30,680 $ 16,176 $ 46,856
Oil and gas sales, net of production costs (321) (2,897) (3,218)
Net change in prices and production costs 3,466 7,179 10,645
Extensions and discoveries, less related costs -- 192 192
Purchases of reserves in place, net -- 341 341
Sale of reserves in place -- -- --
Change in estimated development costs 2,121 67 2,188
Revision of previous quantity estimates 2,533 2,743 5,276
Accretion of discount 3,068 1,618 4,686
Net change in income taxes (1,590) (2,239) (3,829)
Changes in production rates and other 198 (872) (674)
-------- -------- --------
End of year $ 40,155 (2) $ 22,308 $ 62,463
======== ======== ========
</TABLE>
At September 30, 1999, average oil and gas prices used in the determination of
future cash flows for domestic reserves were $22.08 per barrel and $2.48 per
Mcf, respectively. The average gas price used in the determination of future
cash flows for Australia reserves as U.S. $1.35 per Mcf.
<TABLE>
<CAPTION>
Australia United States Total
--------- ------------- --------
<S> <C> <C> <C>
September 30, 1998:
Beginning of year $ 24,376 $ 30,251 $ 54,627
Oil and gas sales, net of production costs (1,193) (4,151) (5,344)
Net change in prices and production costs (7,241) (10,946) (3,705)
Extensions and discoveries, less related costs -- 2,535 2,535
Purchases of reserves in place, net 3,204 -- 3,204
Sale of reserves in place -- (1,726) (1,726)
Change in estimated development costs 1,344 17 1,361
Revision of previous quantity estimates (5,176) (3,047) (8,223)
Accretion of discount 2,438 3,025 5,463
Net change in income taxes (2,134) 1,062 (1,072)
Changes in production rates and other 580 (844) (264)
-------- -------- --------
End of year $ 30,680 $ 16,176 $ 46,856
======== ======== ========
</TABLE>
At September 30, 1998, average oil and gas prices used in the determination of
future cash flows for domestic reserves were $13.91 per barrel and $2.28 per
Mcf, respectively. The average gas price used in the determination of future
cash flows for Australia reserves was U.S. $1.23 per Mcf.
(2) Includes approximately $4,016,000 attributable to the 10% minority interest
held by Slough Estates USA Inc., in Tipperary Oil & Gas (Australia) Pty
Ltd.
F-25
<PAGE> 44
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 15 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the fiscal years ended September 30, 2000 and 1999 (in thousands, except per
share data):
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
December 31, March 31, June 30, September 30,
1999 2000 2000 2000 Total
------------ --------- --------- ------------- -------
<S> <C> <C> <C> <C> <C>
Fiscal 2000
Revenues $ 2,919 $ 3,016 $ 1,811 $ 878 $ 8,624
======== ======== ======== ======== =======
Gross profit $ 1,590 $ 1,602 $ 777 $ 422 $ 4,391
======== ======== ======== ======== =======
Net income ( loss) $ (1) $ 140 $ 1,399 $ (1,495) $ 43
======== ======== ======== ======== =======
Net income (loss) per common
share - basic and diluted $ -- $ -- $ .06 $ (.06) $ --
======== ======== ======== ======== =======
<CAPTION>
Quarter Ended
------------------------------------------------------------
December 31, March 31, June 30, September 30,
1998 1999 1999 1999 Total
------------ --------- --------- ------------- -------
<S> <C> <C> <C> <C> <C>
Fiscal 1999
Revenues $ 1,749 $ 1,608 $ 2,063 $ 2,501 $ 7,921
======== ======== ======== ======== =======
Gross profit $ 604 $ 493 $ 896 $ 1,341 $ 3,334
======== ======== ======== ======== =======
Net loss $ (7,336)(1) $ (1,108) $ (578) $ (273) $(9,295)
======== ======== ======== ======== =======
Net loss per common
share - basic and diluted $ (.55) $ (.07) $ (.04) $ (.02) $ (.63)
======== ======== ======== ======== =======
</TABLE>
(1) Includes $5,727,000 write-down of oil and gas properties.
F-26
<PAGE> 45
EXHIBITS
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3.9 Restated Articles of Incorporation of Tipperary Corporation
adopted May 6, 1993, filed as Exhibit 3.9 to Amendment No. 1 to
Registration Statement on Form S-1 filed with the Commission on
June 29, 1993, and incorporated herein by reference.
3.10 Restated Corporate Bylaws of Tipperary Corporation adopted June
28, 1993, filed as Exhibit 3.10 to Amendment No. 1 to Registration
Statement on Form S-1 filed with the Commission on June 29, 1993,
and incorporated herein by reference.
3.11 Articles of Amendment of the Articles of Incorporation of
Tipperary Corporation adopted January 25, 2000, filed as Exhibit
3.11 to Form 10-QSB for the quarterly period ended December 31,
1999, and incorporated herein by reference.
3.12 Statement of Resolution Establishing a Series of Shares dated
December 23, 1999, filed as Exhibit 3.12 to Form 10-QSB for the
quarterly period ended December 31, 1999 and incorporated herein
by reference.
4.57 Promissory Note dated August 31, 1998, in the amount of $1,000,000
between Registrant and Slough Estates USA Inc., filed as Exhibit
4.57 to Form 10-K dated September 30, 1998 and incorporated herein
by reference.
4.58 Promissory Note dated December 22, 1998, in the amount of
$5,500,000 issued by the Registrant to Slough Estates USA Inc.,
filed as Exhibit 4.58 to Form 10-Q for the quarterly period ended
December 31, 1998 and incorporated herein by reference.
4.59 Loan Agreement Promissory Note dated December 22, 1998, in the
amount of $6,000,000 between Registrant and Slough Estates USA
Inc., filed as Exhibit 4.59 to Form 10-Q for the quarterly period
ended December 31, 1998 and incorporated herein by reference.
4.60 Security Agreement dated December 22, 1998, between the Registrant
and Slough Estates USA Inc., filed as Exhibit 4.60 to Form 10-Q
for the quarterly period ended December 31, 1998 and incorporated
herein by reference.
4.61 Pledge of Stock dated December 22, 1998, between the Registrant
and Slough Estates USA Inc., filed as Exhibit 4.61 to Form 10-Q
for the quarterly period ended December 31, 1998 and incorporated
herein by reference.
4.62 Second Amendment of Subordination Agreement dated December 22,
1998, between Slough Estates USA Inc., and US Bank, N.A. f/k/a
Colorado National Bank, filed as Exhibit 4.62 to Form 10-Q for the
quarterly period ended December 31, 1998 and incorporated herein
by reference.
4.63 Promissory Note dated March 11, 1999, in the amount of $6,500,000
issued by Registrant to Slough Estates USA Inc., filed as Exhibit
4.63 to Form 10-Q for the quarterly period ended March 31, 1999
and incorporated herein by reference.
4.64 Third Amendment of Subordination Agreement dated March 11, 1999,
between Slough Estates USA Inc., and US Bank National Association
f/k/a Colorado National Bank, filed as Exhibit 4.64 to Form 10-Q
for the quarterly period ended March 31, 1999 and incorporated
herein by reference.
4.65 Amendment to Security Agreement dated March 11, 1999, between the
Registrant and Slough Estates USA Inc., filed as Exhibit 4.65 to
Form 10-Q for the quarterly period ended March 31, 1999 and
incorporated herein by reference.
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
4.66 Credit Agreement among Tipperary Corporation as Borrower,
Tipperary Oil & Gas (Australia) Pty Ltd (ACN 077536871) as
Guarantor, Tipperary Oil & Gas Corporation, Lenders party thereto
and TCW Asset Management Company in the capacities described
therein dated as of April 28, 2000, filed as Exhibit 4.66 to Form
10-QSB for the quarterly period ended June 30, 2000 and
incorporated herein by reference.
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, filed as Exhibit
10.51 to Form 10-Q dated December 31, 1996, and incorporated
herein by reference.
10.58 Warrant to Purchase the Registrant's common stock dated December
22, 1998, issued to Slough Estates USA Inc., filed as Exhibit
10.58 to Form 10-Q for the quarterly period ended December 31,
1998 and incorporated herein by reference.
10.59 Subscription Agreement to purchase Registrant's common stock dated
December 22, 1998, between Registrant and Slough Estates USA Inc.,
filed as Exhibit 10-59 to Form 10-Q for the quarterly period ended
December 31, 1998 and incorporated herein by reference.
10.60 Warrant to Purchase the Registrant's common stock dated December
23, 1999, issued to Slough Estates USA Inc., filed as Exhibit
10.60 to Form 10-QSB for the quarterly period ended December 31,
1999 and incorporated herein by reference.
10.61 Registration Rights Agreement between Tipperary Corporation and
Slough Estates USA Inc., dated December 23, 1999, filed as Exhibit
10.61 to Form 10-QSB for the quarterly period ended December 31,
1999 and incorporated herein by reference.
10.62 Purchase and Sale Agreement dated January 14, 2000, between Ray W.
Williams as Seller and Tipperary Corporation as Buyer, filed as
Exhibit 10.62 to Form 10-QSB for the quarterly period ended March
31, 2000 and incorporated herein by reference.
10.63 Purchase and Sale Agreement dated January 14, 2000, between
William I. Isaac as Seller and Tipperary Corporation as Buyer,
filed as Exhibit 10.63 to Form 10-QSB for the quarterly period
ended March 31, 2000 and incorporated herein by reference.
10.64 Purchase and Sale Agreement dated February 11, 2000, between
William D. Kennedy as Seller and Tipperary Corporation as Buyer,
filed as Exhibit 10.64 to Form 10-QSB for the quarterly period
ended March 31, 2000 and incorporated herein by reference.
10.65 Registration Rights Agreement between Tipperary Corporation and
Ray W. Williams, dated February 10, 2000, filed as Exhibit 10.65
to Form 10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.66 Registration Rights Agreement between Tipperary Corporation and
William I. Isaac, dated February 10, 2000, filed as Exhibit 10.66
to Form 10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.67 Registration Rights Agreement between Tipperary Corporation and
William D. Kennedy, dated February 11, 2000, filed as Exhibit
10.67 to Form 10-QSB for the quarterly period ended March 31, 2000
and incorporated herein by reference.
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
10.68 Registration Rights Agreement between Tipperary Corporation and
James H. Marshall, dated February 9, 2000, filed as Exhibit 10.68
to Form 10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.69 Registration Rights Agreement between Tipperary Corporation and
James F. Knott, dated February 9, 2000, filed as Exhibit 10.69 to
Form 10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.70 Warrant to Purchase the Registrant's common stock dated February
9, 2000, issued to James H. Marshall, filed as Exhibit 10.70 to
Form 10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.71 Warrant to Purchase the Registrant's common stock dated February
9, 2000, issued to James F. Knott, filed as Exhibit 10.71 to Form
10-QSB for the quarterly period ended March 31, 2000 and
incorporated herein by reference.
10.72 Purchase and Sale Agreement dated April 12, 2000, between
Tipperary Oil & Gas Corporation as Seller and Nance Petroleum
Corporation as Buyer, filed as Exhibit 10.72 to Form 8-K dated May
18, 2000 and incorporated herein by reference.
10.73 Purchase and Sale Agreement dated July 21, 2000, between Elisa A.
Stoner as Seller and Tipperary Corporation as Buyer, filed as
Exhibit 10.73 to Form 10-QSB for the quarterly period ended June
30, 2000 and incorporated herein by reference.
10.74 Registration Statement Agreement between Tipperary Corporation and
Elisa A. Stoner dated July 21, 2000, filed as Exhibit 10.74 to
Form 10-QSB for the quarterly period ended June 30, 2000 and
incorporated herein by reference.
10.75 Purchase and Sale Agreement dated June 14, 2000, between Tipperary
Oil & Gas Corporation as Seller, and Transrepublic Resources as
Buyer, filed as Exhibit 10.75 to Form 10-QSB for the quarterly
period ended June 30, 2000 and incorporated herein by reference.
10.76 Gas Supply Agreement between Tipperary Oil & Gas (Australia) Pty
Ltd (ACN 077 536 871) and ENERGEX Retail Pty Ltd (ACN 078 849 055)
dated June 23, 2000, filed as Exhibit 10.763 to Form 10-QSB for
the quarterly period ended June 30, 2000 and incorporated herein
by reference.
23.1 Consent of PricewaterhouseCoopers LLP, filed herewith.
27 Financial Data Schedule
99.1 "Risk Factors" discussion from Registration Statement on Form S-8,
dated June 13, 1996, SEC File No. 333-40589, pages 5 through 8,
and incorporated herein by reference.
</TABLE>
