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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission File Number: 0-2517
TOREADOR ROYALTY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-0991164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 PRESTON COMMONS WEST
8117 PRESTON ROAD
DALLAS, TEXAS 75225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 369-0080
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.15625 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(Title of Each Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) 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-K or any amendment to this Form 10-K. [ X ].
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD
BY NON-AFFILIATES, COMPUTED BY REFERENCE TO THE CLOSING SALES PRICE OF SUCH
STOCK, AS OF MARCH 17, 1997 WAS $13,731,572. (For purposes of determination of
the foregoing amount, only directors, executive officers and 10% or greater
stockholders have been deemed affiliates.)
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS
OF MARCH 17, 1997 WAS: COMMON STOCK, $.15625 PAR VALUE, 5,138,271 SHARES.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement furnished to stockholders
in connection with its Annual Meeting of Stockholders to be held May 15, 1997,
are incorporated by reference in Part III of this Form 10-K. Such proxy
statement will be filed with the Commission on or about April 18, 1997.
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TOREADOR ROYALTY CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
PART I
ITEM 1. BUSINESS.
Toreador Royalty Corporation, a Delaware corporation (the "Company" or
"Toreador"), is engaged in oil and gas exploration, development and production
activities. The Company conducts its business primarily through its ownership
of perpetual oil and gas mineral and royalty interests in approximately 870,000
gross (530,000 net) acres in four geologic provinces located in the Texas
Panhandle and West Texas. The properties and mineral interests owned by the
Company are set forth under Item 2 below. The Company believes that, through
these holdings, it is a significant factor in the exploration of these
provinces and has a competitive advantage over other oil and gas companies
active in these areas. Since 1988, the Company has pursued a strategy of
marketing exploration projects on this acreage to industry operators. Most of
the exploration and development of the Company's acreage has been performed by
other oil companies. The Company receives lease bonus and option income when
exploration rights are granted to those companies, and, if drilling is
successful, it receives royalty income from the oil and gas production. This
royalty income is free of any capital or operating costs to Toreador.
Toreador leases and participates as a working interest owner on selected
prospects on its acreage. In the last few years, the Company has turned its
attention to generating new 3-D and 2-D seismic data on its minerals for the
purpose of better defining prospects on the minerals. Toreador usually does
not incur costs of conducting these seismic operations because operators
generally incur all costs during the geophysical stage. Some of these 3-D and
2-D projects require outlays for Toreador's working interest portion of lease
bonus and drilling costs. Those costs, however, may be offset in whole or in
part by income from the Company's option and lease bonuses. At December 31,
1996, the Company held working interests on its minerals under approximately
147,200 gross (146,800 net) acres of undeveloped leasehold interests and 48,875
gross (12,875 net) acres of undeveloped options. Under non-Toreador mineral
acreage, the Company held 1,280 gross (1,280 net) acres of undeveloped options
from third parties at December 31, 1996. At that same date, the Company held
30,612 gross (3,358 net) acres of proved developed producing acreage. In
January 1997 the Company acquired additional undeveloped option acreage on
Toreador minerals comprising 10,500 gross and 10,500 net acres. At December
31, 1996, the Company's total proved reserves were 1,300 MBOE, approximately
61% of which were oil and 39% of which were natural gas. Cumulative net
production from the Company's properties during 1996 was 68,318 Bbls of oil and
348,539 Mcf of natural gas.
From January 1, 1988 until December 31, 1996, 88 wells have been drilled
or re-entered on the Company's acreage, 23 of which were producing at December
31, 1996. The exploration activity on the Company's acreage has been divided
between its Northern Ranch minerals, which encompass the southern Dalhart Basin
(the "Northern Ranch"), and its Southern Ranch minerals, which encompass
portions of the Palo Duro Basin, Matador Arch and the Eastern Shelf of the
Midland Basin (the "Southern Ranch"). The Company owns approximately 400,000
gross (270,000 net) mineral acres in the Northern Ranch and approximately
470,000 gross (260,000 net) mineral acres in the Southern Ranch. From January
1, 1988 until December 31, 1996, 18 wells have been drilled on the Northern
Ranch, resulting in four productive wells in one field at December 31, 1996.
Average gross daily production from these wells during calendar 1996 was 103
Bbls of oil. From January 1, 1988 until December 31, 1996, 70 wells have been
drilled on the Southern Ranch, resulting in 19 producing wells in four fields.
Average gross daily production from these wells during 1996 was 359 Bbls of
oil. In 1996, seven wells were drilled on the Company's acreage, resulting in
one producing oil well.
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The Company's experience in the drilling of exploratory and development
wells on leaseholds in which the Company had a working interest during the five
years ended December 31, 1996 is summarized as follows: In 1992, the Company
participated in three gross (.25 net) wells, which were dry. In 1993, the
Company participated in two gross (.12 net) wells, one of which was initially
completed but later temporarily abandoned and the other was plugged and
abandoned in 1994. All of these wells were exploratory. In 1994, the Company
participated in four gross (.875 net) wells, three of which were successfully
completed as producers, and one of which was a dry hole. Two of these four
wells were exploratory, and two were development wells. In 1995, the Company
participated in nine gross (approximately 3.45 net) wells, three of which were
successfully completed as producers, and six of which were dry holes. Six of
these nine wells were exploratory and three were development wells. In 1996,
the Company participated in eight gross (approximately 1.50 net) wells, four of
which were successfully completed as producers and four of which were dry
holes. Seven of these wells were exploratory and one was a development well.
In this report, quantities of oil are expressed in barrels ("Bbls"), and
quantities of natural gas are expressed in thousands of cubic feet ("Mcf"),
millions of cubic feet ("MMcf") or billions of cubic feet ("Bcf"). A "BOE"
means one barrel of oil equivalent using the ratio of one barrel of oil to 6
Mcf of gas. A "MBOE" means one thousand BOE. A "Mcfe" means one thousand
cubic feet and "Bcfe" means one billion cubic feet of gas equivalent, each
using the ratio of 6 Mcf of gas to one barrel of oil.
STRATEGY
Since 1988, the Company has pursued a strategy of marketing exploration
projects on its acreage to industry operators. In addition, Toreador has
increased its exploration exposure by acquiring leases or options for its own
account, by securing seismic and drilling commitments from third parties, and
by upgrading its existing database, which consists of approximately 33,000
acres of 3-D data and 1,500 miles of 2-D data. During 1996 and the first
quarter of 1997, the Company entered into three 3-D seismic exploration
agreements encompassing approximately 101,000 acres covering the Company's
Northern and Southern Ranch minerals. This more aggressive approach includes
structuring lease and option agreements on the properties to require timely
drilling and ongoing development. The Company has also established closer
relationships with its co-mineral owners that hold executive rights on the
acreage. While the Company has been successful in attracting third party
capital to explore its acreage and plans to continue this approach, management
believes that stockholder value would be further enhanced by increasing the
Company's working interest participation in exploring the mineral base. By
doing so, the Company increases control of and accelerates exploration on the
mineral acreage.
Supplementing its activities on its acreage, the Company has acquired
producing properties as a means of building its current cash flow as well as
expanding its reserve base. In 1996, the Company spent approximately $371,761
to acquire proved producing reserves totaling 274,187 BOE (304,772 Mcf of
natural gas and approximately 223,392 Bbls of oil) or approximately $1.36 per
BOE. The Company has focused its acquisition activity on non-operated working
interests. Management believes that there is less competition for small
acquisitions of non-operated properties, that they can be acquired at more
attractive rates of return than other producing properties and that they
require little or no additional operational or supervisory staffing.
HISTORY
Toreador was incorporated in 1951. The history of its mineral rights
dates back to 1882 and the formation of the Matador Land & Cattle Company
("ML&C"), which assembled approximately one million acres for ranching, most of
which is located in the Texas Panhandle and West Texas. When the ML&C was sold
in 1951, Toreador was formed and assigned 50% of the mineral rights under the
ranch acreage. Toreador later acquired an additional 25% of the mineral rights
under some of the ranches.
In 1937, the ML&C executed a lease covering the Southern Ranch with Exxon
(then Humble Oil) that critically affected the development of this acreage.
The lease provided that, by drilling only one well per year, Exxon could hold
the entire 470,000 acres in perpetuity. As a result of prorationing in Texas,
Exxon, like most major oil companies, had shut-in production and had little or
no incentive to drill more than the one well per year required to maintain its
lease. During the period from 1937 to 1966, Exxon drilled or caused to be
drilled 43 wells. During
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this same period on the Northern Ranch, various operators, including Superior
Oil and Shell, drilled 15 wells. After losing a series of court cases
concerning similar leases, Exxon surrendered its lease on the Southern Ranch in
1966. The Northern and Southern Ranches attracted little industry attention
until the early 1980s. The first oil discovery on the Northern Ranch was made
in 1985 and on the Southern Ranch in 1986. Exploration on Toreador's acreage
was still retarded to some degree during this time by two large, long-term
leases on the Northern Ranch to Exxon that required minimal drilling. These
leases have expired. Thirty-five wells were drilled on Toreador's acreage in
the Northern and Southern Ranches, from 1966 to 1987.
In 1988, the Company adopted a new strategy calling for a more pro-active
approach to managing the Company's acreage. Toreador began to actively market
exploration projects and prospects on its acreage directly to other oil
companies. In addition, the Company began to acquire geophysical options and
leases from the owners of the executive rights in order to promote them to
other oil companies. In some instances in which the Company has been
successful in promoting these options and leases to other companies, Toreador
has taken an interest in the seismic surveys and a working interest in the
leases. As an adjunct to this strategy, the Company embarked on an acquisition
program in late 1988 in order to build its oil and gas reserves and cash flow.
As of December 31, 1996, a total of 179 wells have been drilled on the
Company's mineral acreage, resulting in a well density of less than one well
per 4,900 acres. In certain areas on the Company's acreage, well densities are
less than one well per 20,000 acres. Since the Company adopted its new
strategy in 1988, 88 wells have been drilled on Toreador's acreage at December
31, 1996, or approximately 49% of all the wells drilled on the acreage.
Management believes that its active approach to marketing its acreage combined
with industry advances in technology, particularly 3-D seismic, has accounted
for most of the increase in leasing and seismic surveying activity and that
drilling can be further accelerated by additional capital resources.
GOVERNMENTAL REGULATION
The Company's natural gas and oil exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal and state agencies. Failure to comply with such rules and regulations
can result in substantial penalties. The regulatory burden on the oil and gas
industry increases the Company's cost of doing business and affects its
profitability. Although the Company believes it is in substantial compliance
with all applicable laws and regulations, because those laws and regulations
are frequently amended or reinterpreted, the Company is unable to predict the
future cost or impact of complying with such laws.
The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of natural gas and oil.
These states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of natural gas and oil
properties, the establishment of maximum rates of production from wells and the
regulation of spacing, plugging and abandonment of such wells. The statutes
and regulations of certain states limit the rate at which oil and gas can be
produced from the Company's properties.
The Federal Energy Regulatory Commission ("FERC") regulates interstate
natural gas transportation rates and service conditions, which affect the
marketing of gas produced by the Company, as well as the revenues received by
the Company for sales of such production. Since the mid-1980s, FERC has issued
a series of orders, culminating in Order Nos. 636, 636-A and 636-B ("Order
636"), that have significantly altered the marketing and transportation of gas.
Order 636 mandates a fundamental restructuring of interstate pipeline sales and
transportation service, including the unbundling by interstate pipelines of the
sale, transportation, storage and other components of the city-gate sales
services such pipelines previously performed. One of FERC's purposes in
issuing the order was to increase competition within all phases of the natural
gas industry. Numerous parties have filed petitions for review of Order 636,
as well as orders in individual pipeline restructuring proceedings. In July
1996, Order 636 was generally upheld on appeal, and the portions remanded for
further action do not appear to materially affect the Company. Because Order
636 may be modified as a result of the appeals, it is difficult to predict the
ultimate impact of the orders on the Company and its gas marketing efforts.
Generally, Order 636 has eliminated or substantially reduced the interstate
pipelines' traditional role as wholesalers of natural gas and has substantially
increased competition and volatility in natural gas markets.
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The price the Company receives from the sale of natural gas liquids and
oil is affected by the cost of transporting products to markets. Effective
January 1, 1995, FERC implemented regulations establishing an indexing system
for transportation rates for oil pipelines, which, generally, would index such
rates to inflation, subject to certain conditions and limitations. The Company
is not able to predict with certainty the effect, if any, of these regulations
on its operations. However, the regulations may increase transportation costs
or reduce well head prices for natural gas liquids and oil.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive and
changing federal, state and local laws and regulations relating to
environmental protection, including the generation, storage, handling,
emission, transportation and discharge of materials into the environment, and
relating to safety and health. The recent trend in environmental legislation
and regulation generally is toward stricter standards, and this trend will
likely continue. These laws and regulations may require the acquisition of a
permit or other authorization before construction or drilling commences and for
certain other activities; limit or prohibit construction, drilling and other
activities on certain lands lying within wilderness and other protected areas;
and impose substantial liabilities for pollution resulting from the Company's
operations. The permits required for various of the Company's operations are
subject to revocation, modification and renewal by issuing authorities.
Governmental authorities have the power to enforce compliance with their
regulations, and violations are subject to fines or injunction, or both. In
the opinion of management, the Company is in substantial compliance with
current applicable environmental laws and regulations, and the Company has no
material commitments for capital expenditures to comply with existing
environmental requirements. Nevertheless, changes in existing environmental
laws and regulations or in interpretations thereof could have a significant
impact on the Company, as well as the oil and gas industry in general. The
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
and comparable state statutes impose strict, joint and several liability on
owners and operators of sites and on persons who disposed of or arranged for
the disposal of "hazardous substances" found at such sites. It is not uncommon
for the neighboring land owners and other third parties to file claims for
personal injury and property damage allegedly caused by hazardous
substances released into the environment. The Resource Conservation and
Recovery Act ("RCRA") and comparable state statutes govern the disposal of
"solid waste" and "hazardous waste" and authorize imposition of substantial
fines and penalties for noncompliance. Although CERCLA currently excludes
petroleum from its definition of "hazardous substance," state laws affecting
the Company's operations impose clean-up liability relating to petroleum and
petroleum related products. In addition, although RCRA classifies certain oil
field wastes as "non-hazardous," such exploration and production wastes could
be reclassified as hazardous wastes thereby making such wastes subject to more
stringent handling and disposal requirements.
The Company has acquired leasehold interests in numerous properties that
for many years have produced natural gas and oil. Although the previous owners
of these interests have used operating and disposal practices that were
standard in the industry at the time, hydrocarbons or other wastes may have
been disposed of or released on or under the properties. In addition, most of
the Company's properties are operated by third parties over whom the Company
has no control. Notwithstanding the Company's lack of control over properties
operated by others, the failure of the operator to comply with applicable
environmental regulations may, in certain circumstances, adversely impact the
Company.
COMPETITION
The oil and gas industry is highly competitive. Since many companies and
individuals are engaged in exploring for oil and gas and acquiring oil and gas
properties, a high degree of competition for desirable exploratory and
producing properties exists. A number of the companies with which Toreador
competes are larger and have greater financial resources than Toreador.
The availability of a ready market for Toreador's oil and gas production
depends on numerous factors beyond its control, including the level of consumer
demand, the extent of worldwide oil and gas production, the cost and
availability of alternative fuels, the costs of and proximity of pipelines and
other transportation facilities, regulation by state and federal authorities
and the cost of complying with applicable environmental regulations.
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EMPLOYEES
The Company has two employees, the Chairman of the Board and President
and one administrative employee. The Company also retains three consultants.
ITEM 2. PROPERTIES.
NORTHERN RANCH MINERALS
SOUTHERN DALHART BASIN. The southern Dalhart Basin, where Toreador owns
mineral interests under approximately 400,000 gross acres located in Oldham and
Hartley Counties, Texas, is a moderate depth depression that formed in early
Pennsylvanian time. Commercial oil has been established in Pennsylvanian and
Permian age reservoirs in this basin. Porous reservoir rocks are present in
granite washes, carbonate banks and dolomites, which provide multiple drilling
targets. In the central part of the basin, source rocks are buried at depths
sufficient to generate oil. Wrench fault tectonism across the basin formed
early structural features capable of trapping later migrating oil. Oil
accumulations in several formations between 4,000 feet and 8,000 feet have been
found through exploratory drilling. Most of this drilling has been
concentrated in east-central Oldham County, Texas. There have been relatively
few exploratory wells in wide expanses of the basin west of the main producing
area and many of these were drilled prior to 1970. Much of this lightly
explored area includes Toreador acreage, a majority of which is located on the
west flank of the basin updip from the main concentration of production to the
east. Most of the reserves in the basin have been discovered in granite wash
reservoirs trapped on fault associated structural closures.
Oil accumulations in the basin have been found on structural highs.
Therefore, defining structural uplifts is the prime objective in exploring for
new reserves in the southern Dalhart Basin. In recent years, the oil and gas
industry's increasingly widespread use of 3-D seismic technology has enhanced
its ability to find and delineate structural prospects. Toreador, with other
parties, introduced 3-D seismic exploration to the southern Dalhart Basin in
July 1993 with an 18,000 acre project on the Company's acreage. The three
wells drilled on this project, while dry, proved that porous reservoirs exist
within the area and that 3-D seismic data could correctly image the structures.
In April 1994, Toreador acquired an oil and gas lease on the 95,000 acre
Fulton Ranch under which it already holds 75% of the mineral rights. Toreador
has approximately 300 miles of 2-D seismic coverage on the ranch, and using
this data, has generated several prospects and geologic leads which justify
more detailed 3-D seismic surveys. The P.D. Walker Field, under which
Toreador has a 15% royalty interest, is also located on the ranch, but is not
included in this lease.
In the third quarter of 1995, Toreador acquired in the aggregate an
18.93% working interest in the four-well Proctor Ranch Field located in Hartley
County, Texas. In addition to this acquisition, Toreador holds an 18.75%
royalty interest in this property. Under the terms of the agreement, Toreador
invested $90,600, adding an estimated 21,100 net Bbls to its reserves at an
acquisition cost of $4.29 per Bbl.
In August 1996, Toreador entered into two exploratory agreements covering
in excess of 50,000 acres in the Dalhart Basin. The first was an 8,935 acre
option-farmout agreement, being a portion of Toreador's 47,600 acre lease on
the Smith (formerly Proctor) Ranch located in Oldham and Hartley Counties,
Texas. This acreage, which had an earlier 3-D seismic study conducted on it,
was divided into four blocks. Under the terms of the agreement, the operator
elected to drill a well earning a 75% working interest in the initial prospect.
This well, in which Toreador was carried for a 25% working interest, resulted
in a dry hole, and the operator allowed its option on this 8,338 acres to
expire in January 1997. Toreador finalized a second agreement in December
1996, with the same operator covering a contiguous 41,900 acre block, under the
terms of which the operator has up to 18 months to conduct 3-D geophysical
surveys. Toreador is carried for a 25% working interest through the
geophysical phase of the project and also has a 15% royalty interest resulting
from its mineral ownership.
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SOUTHERN RANCH MINERALS
PALO DURO BASIN. The Palo Duro Basin, where Toreador owns mineral
interests under approximately 195,000 gross acres located in Motley and Cottle
Counties, Texas, is a moderate depth depression between the Matador Arch on the
south and the Amarillo uplift complex to the north. Limited exploration to
date has resulted in discovery of three Canyon age reef fields. In the past
four years, several companies have conducted 3-D seismic surveys along these
reef trends.
MATADOR ARCH. The Matador Arch, where Toreador owns mineral interests
under approximately 90,000 gross acres, is a prominent east-west structural
positive traversing North Texas and southern Oklahoma. It is bounded on the
north and south by large vertical faults that have an orientation
characteristic of regional scale wrench faulting. Between the faults, basement
blocks have been uplifted and folded into a complex of structural highs that
fostered reef growth from Middle Pennsylvanian age into the Permian Wolfcamp
section.
Toreador's acreage covers part of the Matador Arch trending through
Motley County, Texas. Nearby reef production in the Roaring Springs Fields
complex has recovered approximately nine million Bbls of oil from a depth of
4,200 feet. For the period of June 1994 through March 1997, Toreador has
participated in nine Wolfcamp test wells of which five have been successfully
completed.
In October, 1995, Toreador acquired an additional 12.5% working interest
in the five-well Matador Field located in Motley County, Texas. Prior to this
acquisition, Toreador held a 25% working interest as well as a 15% royalty
interest in this property. Under the terms of the agreement, Toreador invested
$225,700, adding an estimated 46,100 net Bbls to its reserves at an acquisition
cost of $4.90 per Bbl.
In March 1997 Toreador entered into an exploration agreement with Apache
Corporation covering approximately 22,500 acres located on the Matador Arch
north and east of the Roaring Springs Fields complex. Apache serves as the
operator in this joint venture and has a 56.25% working interest in the
acreage. Toreador has retained a 43.75% working interest. In addition, the
Company has a 15% royalty interest in approximately 86% of the acreage through
its 75% mineral ownership. Seismic data acquisition on the first phase of the
project is expected to begin in May 1997, covering approximately 9,500 acres.
The five well Matador Field is included in this initial survey. If positive
interpretation is obtained from the survey, the first well on the project could
be drilled by the second half of 1997.
EASTERN SHELF. The Eastern Shelf of the Midland Basin, where Toreador
owns mineral interests under approximately 185,000 gross acres located
primarily in Dickens County, Texas, is prospective for shallow Permian age oil
accumulations in the Tannehill Sand. Five Tannehill fields have been
discovered on Toreador minerals since 1986, the largest of which consists of
eight wells. The 16 existing wells averaged daily production of 13 Bbls of oil
per well in December 1996.
In 1994, Toreador entered into an option agreement with an industry
partner covering approximately 11,000 acres on the Pitchfork Ranch located in
Dickens County. Tannehill production near this block has recovered over 2.5
million Bbls of oil from a cluster of three fields located directly to the west
of this block and over 1 million Bbls of oil from another field located two
miles to the east. The industry partner conducted a 3-D seismic survey across
this acreage block during 1995 and Toreador was carried for a 25% working
interest through the seismic acquisition, processing and interpretation phase
of the project. Following the interpretative phase of the project, the
operator selected 2,000 acres for lease. Toreador also owns a 46.9% mineral
interest under 1,800 acres. The first well was drilled on this acreage in
March 1996, and was abandoned as a dry hole. A second well, in which Toreador
elected not to participate as a working interest partner, was also dry. In
early 1997, the operator indicated plans to drill a third well offsetting
Toreador acreage, in which Toreador also elected not to participate as a
working interest partner.
In September 1996, Toreador entered into an exploration agreement with
Louis Dreyfus Natural Gas Corporation ("LDNG") covering approximately 37,000
acres located on the Eastern Shelf of the Midland Basin, including all of
Toreador's mineral interest under the Pitchfork Ranch that is not currently
held by production nor under lease or option. Under the terms of the
agreement, Toreador is carried for a 10.5% working interest through
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the 3-D seismic acquisition, processing and interpretation phases of the
project. LDNG, as operator, plans to initially conduct a 20,000 acre 3-D
survey, tentatively scheduled to begin in the first quarter of 1997. As a
result of its 46.9% mineral ownership covering a portion of the Pitchfork
Ranch, Toreador will also have a 9.4% royalty interest in any leases selected
by LDNG on Toreador acreage. The Toreador acreage currently contains five
commercial oil fields, all of which produce from Tannehill (Permian) sands
above 5,000 feet. LDNG has indicated that they also plan to evaluate deeper
objectives with its geophysical program.
NATURE OF PROPERTY INTEREST
On the Northern and Southern Ranches, the Company generally owns fee
interests in the minerals that include rights to receive portions of lease
bonuses, delay rentals and royalties, but generally not the executive rights --
the rights to sign leases -- which are typically held by surface owners.
Therefore, the Company must rely on the owners of the executive rights to
execute leases of the acreage. In situations in which the Company has acquired
working interests in acreage in which it has mineral rights, it has acquired
those interests through the signing of leases by holders of the executive
rights. The majority of the owners of executive rights work closely with the
Company; however, each acts independently of the Company in deciding to execute
leases.
GEOLOGIC DATABASE
Under the terms of a typical lease granted on its minerals, Toreador is
entitled to receive copies of all data, including seismic lines, well logs,
cores and tests. The Company has approximately 33,000 acres of 3-D seismic
data and approximately 1,500 miles of 2-D seismic data relating to the Northern
and Southern Ranches.
Toreador uses its database to generate specific drilling prospects and
geologic leads to encourage further exploration on its mineral acreage. In
particular, geologic leads based on 2-D seismic data are important in marketing
large 3-D seismic surveys. The Company makes its database available to third
parties interested in generating exploration projects on its acreage.
Management estimates that it would be costly to duplicate this data, which is
carried at no cost on its balance sheet.
OTHER PROPERTIES AND ACQUISITIONS
In 1996, a number of significant events occurred in areas where the
Company owns working interests and royalty interests outside of the Company's
Northern and Southern Ranch minerals. In a well located in the Welch field of
Dawson County, Texas, where the Company already held a 50% working interest,
the Company acquired the remaining 50% working interest and became operator.
Average daily production from this well was 15 gross (12 net) Bbls of oil in
1996. In the Hrubetz (Tannehill) field waterflood, Taylor County, Texas, the
Company participated with a 22.1% working interest in the drilling of a
successful infill well which increased average daily unit production from 10
gross (1.6 net) Bbls of oil in June 1996 to 180 gross (29 net) Bbls of oil in
October 1996. In Caddo County, Oklahoma, the Company owns approximately a 1.2%
royalty interest in a gas well that was restimulated in the later part of 1996
which resulted in daily gas production increasing from an average of 667 Mcf
gross (8 net) in February 1996 to over 5,300 Mcf gross (62 net) in December
1996. Cumulative gross production from this well since 1982 has been over 11
Bcf of natural gas.
Since May 1996, the Company acquired a combination of royalty and
overriding royalty interests totaling approximately 0.04% and approximately a
0.25% working interest in the SACROC Unit of the Kelly-Snyder field in Scurry
County, Texas. This unit is a large, tertiary CO2 (carbon dioxide) flood which
averaged approximately 9,200 gross (22 net) Bbls of oil per day in December
1996. Production is on an incline as the operator continues to enhance flood
performance through improved reservoir management and reducing operating costs.
From 1988 until December 31, 1996, Toreador has spent approximately $3.7
million to acquire producing, mineral and overriding royalty interests totaling
6.4 Bcfe for an acquisition cost of $0.58/Mcfe.
-7-
<PAGE> 9
OIL AND GAS RESERVES
Since 1991, the Company has retained the independent petroleum consulting
firm, Harlan Consulting Inc., to prepare estimates of its oil and gas reserves
for the producing mineral interests owned by the Company. Utilizing current
available data, these estimates of proved reserves were made using geological
and engineering methods generally accepted in the petroleum industry. At
December 31, 1996, the Company's net proved developed producing reserves were
estimated to be 791,272 Bbls of oil and 3,052,940 Mcf of natural gas.
Additional information concerning the Company's estimated proved oil and gas
reserves is included in Item 8. - Financial Statements and Supplementary Data.
No estimates of total proved net oil or gas results have been filed with or
included in reports to any federal authority or agency.
Petroleum engineering is not an exact science and involves estimates
based upon numerous factors, many of which are inherently variable and
uncertain. Consequently, reserve estimates are imprecise and are subject to
change as additional information becomes available. Estimates based upon short
periods of production may not be as reliable as those based upon longer
production histories. Further, estimates of oil and gas reserves, of
necessity, are projections based on engineering data. As a result of the
uncertainties inherent in the interpretation of such data, there can be no
assurance that the Company's estimated oil and gas reserves will ultimately be
developed. Estimates of the reserves and future net revenues involve
projecting future results by estimating future events. Actual production,
revenues, taxes, development expenditures and operating expenses may not occur
as estimated.
-8-
<PAGE> 10
VOLUMES, PRICES AND COSTS
The following table sets forth certain information regarding volumes of
the Company's production of oil and natural gas, the Company's average sales
price per Bbl of crude oil and average sales price per Mcf of natural gas,
together with the Company's average production cost per BOE for the three years
ended December 31, 1996 from producing interests:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Production
Oil (Bbls) ......................................... 68,318 61,537 49,635
Gas (Mcf) ........................................... 348,539 277,621 306,295
Oil equivalents (BOE) (1) ........................... 126,408 107,807 100,684
Average Sales Price
Oil ($/Bbl) ......................................... $21.51 $16.22 $15.17
Gas ($/Mcf) ......................................... 2.40 1.37 1.60
Oil equivalents ($/Bbl) ............................. 18.25 12.79 13.14
Average production costs per BOE(1) ................. $4.63 $ 3.53 $ 3.45
</TABLE>
_________________
(1) A BOE means one barrel of oil equivalent using the ratio of one barrel of
oil to six Mcf of gas.
-9-
<PAGE> 11
WELLS DRILLED
The following table sets forth for each of the last three years the
number of net exploratory and development wells drilled by or on behalf of the
Company. An exploratory well is a well drilled to find and produce oil or gas
in an unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
A development well is a well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive. The
number of wells drilled refers to the number of wells completed at any time
during the respective year, regardless of when drilling was initiated; and
"completion" refers to the installation of permanent equipment for the
production of oil or gas, or, in the case of a dry hole, to the reporting of
abandonment to the appropriate agency.
<TABLE>
<CAPTION>
Net Exploratory Wells
---------------------
Productive(1) Dry(2)
------------- ------
Year Ended
December 31,
------------
<S> <C> <C>
1994 ............... 0.25 0.13
1995 ............... 0.25 2.30
1996 ............... 0.50 0.98
------ ------
</TABLE>
<TABLE>
<CAPTION>
Net Development Wells
---------------------
Productive(1) Dry(2)
------------- ------
Year Ended
December 31,
------------
<S> <C> <C>
1994 ............... 0.50 0.00
1995 ............... 0.50 0.38
1996 ............... 0.03 0.00
------ ------
</TABLE>
_______________
(1) A productive well is an exploratory or a development well that is not a
dry hole.
(2) A dry hole is an exploratory or development well found to be
incapable of producing either oil or gas in sufficient quantities
to justify completion as an oil or gas well.
-10-
<PAGE> 12
PRODUCING WELLS AND ACREAGE
The following table sets forth the gross and net producing oil and gas
wells in which the Company owned an interest and the developed and undeveloped
gross and net leasehold acreage held by the Company as of December 31, 1996. A
"gross" well or acre is a well or acre in which the Company has a working
interest. The number of gross wells is the total number of wells in which a
working interest is owned. A "net" well or acre is deemed to exist when the
sum of fractional ownership working interests and/or royalty interests in gross
wells or acres equals one. The number of net wells or acres is the sum of the
fractional working interests and/or royalty interests owned in gross wells or
acres expressed as whole numbers and fractions thereof. A "royalty interest"
is a share of production, free of expenses of production. A "working interest"
is the operating interest under an oil and gas lease.
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------
<S> <C>
Oil Wells(1)
Working Interest
Gross ..................... 42
Net ....................... 7.80
Average working
interest (%)............... 18.57
Royalty Interest
Gross ..................... 35
Net ....................... 3.45
Average royalty
interest (%)............... 9.86
Year Ended December 31, 1996
----------------------------
Gas Wells(1)
Working Interest
Gross (2) ................. 42
Net ....................... 4.82
Average working
interest (%)............... 11.47
Royalty Interest
Gross ..................... 8
Net ....................... 0.30
Average royalty
interest (%)............... 3.75
Year Ended December 31, 1996
----------------------------
Acreage(1)
Developed
Gross ..................... 30,612
Net ....................... 3,358
Undeveloped(3)
Gross ..................... 197,355
Net ....................... 160,955
</TABLE>
__________________________________
(1) Excludes wells or acres in which the Company owns less than a 1%
working or royalty interest.
(2) Includes one multiple completion. One or more completions in the same
bore holes is counted as one well.
(3) Undeveloped acreage is considered to be those leased acres on which
wells have not been drilled or completed to a point that would permit
the production of commercial quantities of oil and gas regardless of
whether or not the acreage contains proved reserves.
-11-
<PAGE> 13
PRESENT ACTIVITIES
From January 1, 1997 through March 21, 1997, the Company participated
with a 25% working interest in drilling one gross (.35 net) exploratory well,
which was dry. This well is located on the Company's minerals in Hartley
County, Texas. This well had an objective ranging from approximately 5500 to
6000 feet. The estimated dry hole cost to the Company in this well is
approximately $46,300.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property the subject
of, any legal proceedings, actual or threatened, which would have a material
adverse effect on the business and affairs of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
ended December 31, 1996 to a vote of the Company's security holders, through
solicitation of proxies or otherwise.
-12-
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock, par value $.15625 per share, is traded in
the over-the-counter market, NASDAQ trading symbol "TRGL." The table below
sets forth the high and low sales prices per share for the periods indicated as
reported by the NASDAQ National Market System.
<TABLE>
<CAPTION>
1996 High Low
------------------------------------------------------------
<S> <C> <C>
First Quarter .......................... 2 9/16 2 1/8
Second Quarter ........................ 3 1/8 2 1/8
Third Quarter .......................... 3 3/16 2 1/4
Fourth Quarter ........................ 3 2 1/4
1995 High Low
------------------------------------------------------------
First Quarter .......................... 4 2 1/2
Second Quarter ........................ 4 1/8 2 1/2
Third Quarter .......................... 3 3/8 2 1/2
Fourth Quarter ........................ 2 7/8 2 3/8
</TABLE>
The approximate number of record holders of the Common Stock as of
March 17, 1997, was 570.
Dividends on the Common Stock may be declared and paid out of funds
legally available when and as determined by the Company's Board of Directors.
No cash dividends have been paid on the Company's Common Stock to date.
Management plans to continue its policy of holding and investing corporate
funds on a conservative basis.
-13-
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data with
respect to the Company's financial condition and results of operations for the
periods indicated. The selected financial data should be read in conjunction
with the financial statements and related notes set forth in Item 8 of this
Part II.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas sales ............. $ 2,306,791 $ 1,378,390 $ 1,323,129 $ 1,632,572 $ 1,197,658
Lease bonuses and rentals ..... 118,430 138,804 396,106 178,984 123,128
Interest and other income ..... 162,297 213,464 222,527 147,823 107,743
Gain on sale of marketable
securities and other assets . 526,567 -- -- 95,217 --
------------ ------------ ------------ ------------ ------------
Total ...................... 3,114,085 1,730,658 1,941,762 2,054,596 1,428,529
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Lease operating expense ....... 585,732 380,888 347,058 362,683 238,560
Dry holes and abandonments .... 130,647 358,210 125,838 2,733 28,121
Depreciation, depletion and
amortization ................ 273,026 233,709 247,654 328,540 256,424
Geological and geophysical .... 227,744 297,047 235,719 191,391 132,752
General and administrative .... 907,086 1,078,171 886,547 758,672 725,886
------------ ------------ ------------ ------------ ------------
Total costs and expenses ... 2,124,235 2,348,025 1,842,816 1,644,019 1,381,743
------------ ------------ ------------ ------------ ------------
Income (loss) before federal
income taxes ................ 989,850 (617,367) 98,946 410,577 46,786
Provision (benefit) for federal
income taxes ................ 263,100 (206,936) (26,638) 76,925 13,339
------------ ------------ ------------ ------------ ------------
Net income (loss) ............. $ 726,750 $ (410,431) $ 125,584 $ 333,652 $ 33,447
============ ============ ============ ============ ============
Income (loss) per share ....... $ 0.14 $ (0.08) $ 0.02 $ 0.07 $ 0.01
============ ============ ============ ============ ============
Weighted average shares
outstanding ................. 5,216,941 5,334,190 5,064,258 4,592,946 4,544,764
CASH FLOW DATA:
Net cash provided (used) by
operating activities ........ $ 609,364 $ (10,963) $ 418,885 $ 629,499 $ 262,208
Capital expenditures for oil
and gas property and
equipment ................... $ (893,418) $ (1,048,757) $ (553,020) $ (695,527) $ (480,629)
DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -----------
BALANCE SHEET DATA:
Working capital ............... $ 3,383,668 $ 3,538,206 $ 4,646,688 $ 1,491,792 $ 1,544,325
Oil and gas properties, net ... 3,306,020 3,201,283 2,733,101 2,580,603 2,216,349
Total assets .................. 7,008,924 7,051,052 7,649,904 4,343,106 3,925,288
Long-term debt ................ -- -- -- -- --
Stockholders' equity .......... 6,624,180 6,810,485 7,261,761 4,125,986 3,830,299
</TABLE>
-14-
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-K includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this Form 10-K, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and under "Business
and Properties" regarding estimated proved reserves, the Company's financial
position, business strategy, plans and objectives of management of the Company
for future operations, and industry conditions, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Any forward-looking statements
herein are subject to certain risks and uncertainties inherent in petroleum
exploration, development and production, including, but not limited to the risk
that no commercially productive oil and gas reservoirs will be encountered;
inconclusive results from 3-D seismic projects; delays or cancellation of
drilling operations as a result of a variety of factors; volatility of oil and
gas prices due to economic and other conditions; intense competition in the oil
and gas industry; operational risks (e.g., fires, explosions, blowouts,
cratering and loss of production); insurance coverage limitations and
requirements; and potential liability imposed by intense governmental
regulation of oil and gas production; all of which are beyond the control of
the Company. Any one or more of these factors could cause actual results to
differ materially from those expressed in any forward-looking statement. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements disclosed in this paragraph and otherwise
in this report.
LIQUIDITY AND CAPITAL RESOURCES
Historically, most of the exploration activity on the Company's acreage
has been funded and conducted by other oil companies and this activity is
expected to continue. Exploration activity typically generates lease bonus and
option income to the Company. If drilling is successful, the Company receives
royalty income from the oil or gas production but bears none of the capital or
operating costs. In order to accelerate the evaluation of its acreage as well
as increase its ownership in any reserves discovered, the Company has increased
and intends to further increase its level of participation in exploring its
acreage by acquiring working interests. The extent to which the Company may
acquire working interests will depend on the availability of outside capital
and cash flow from operations. Currently, the primary sources of capital for
the financing of the Company's operations are cash flow provided from revenues
generated by its proportionate share in oil and natural gas sales and existing
cash, including that from a private offering completed in May 1994. In
addition, the Company may reinvest proceeds from option and lease bonuses by
taking a working interest in 3-D seismic projects or in wells. To the extent
cash flow from operations does not significantly increase and external sources
of capital are limited or unavailable, the Company's ability to make the
capital investment to participate in 3-D seismic surveys and increase its
interest in projects on its acreage will be limited. Future funds are expected
to be provided through production from existing producing properties and new
producing properties that may be discovered through exploration of the
Company's acreage by third parties or by the Company itself. Funds may also be
provided through external financing in the form of debt or equity. There can be
no assurance as to the extent and availability of these sources of funding.
The Company presently has no debt and maintains its excess cash funds in
interest-bearing deposits. The Company is not aware of any demands,
commitments or events which will result in its liquidity increasing or
decreasing in a material way. From time to time, the Company may receive lease
bonuses which cannot be anticipated, and when funds are available, the Company
may elect to participate in exploratory ventures. The Company also may acquire
producing oil and gas assets which could require the use of debt.
Management believes that sufficient funds are available internally to
meet anticipated capital requirements for fiscal 1997.
-15-
<PAGE> 17
The Company has used $527,365 of its cash reserves to purchase 208,200
shares of its Common Stock as of December 31, 1996. These purchases were made
pursuant to a stock repurchase programs authorized by the Board of Directors on
October 10, 1995, of up to 100,000 shares of Common Stock, and a second stock
repurchase program on April 22, 1996, of up to 150,000 shares of Common Stock.
As of March 17, 1997, the Company has purchased an aggregate of 112,600 shares
at a purchase price of $296,738 under the second repurchase program. The
repurchases of the Company's shares of Common Stock were made in unsolicited
open-market purchases, at market (not premium) prices, without fixed terms and
not contingent upon the tender of a fixed minimum number of shares or in
response to a third party bid and otherwise in accordance with Rule 10b-18
under the Securities Exchange Act of 1934, as amended.
-16-
<PAGE> 18
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995
Total revenues for 1996 were $3,114,085 compared with $1,730,658 in 1995.
Revenues from oil and gas sales increased to $2,306,791 in 1996 from $1,378,390
in 1995. This 67.4% increase reflects increased oil and gas volumes from recent
acquisitions, new well completions and higher oil and gas prices. The Company's
net oil production rose 11% to 68,318 Bbls in 1996 from 61,537 Bbls in 1995.
Net natural gas production increased 26% to 348,539 Mcf from 277,621 Mcf in
1995. On an oil equivalent basis, net production increased 17% to 126 MBOE in
1996 from 108 MBOE in 1995. Lease bonuses and delay rentals were $118,430 in
1996, down from $138,804 in 1995. Distributions from marketable securities
decreased to $12,253 in 1996 from $30,358 in 1995. This 59.6% decrease reflects
the Company's sale of 100% of its units in the San Juan Basin Royalty Trust
which was completed in August 1996. The Company recognized pretax gains from
the sale of all units in the San Juan Basin Royalty Trust of $516,867 and a
$9,700 sale of other assets. In the absence of such gains, net income in 1996
would have been $340,143. Distributions from and sales of marketable securities
will no longer be a source of funds in 1997 or beyond.
Reflecting lower rates, interest income from investments was $138,720 in
1996 versus $183,106 in 1995.
Total costs and expenses were $2,124,235 in 1996 as compared with
$2,348,025 in 1995 representing a 9.5% decrease. The largest percentage
decrease came in dry hole and abandonments, where expenses decreased 63.5% to
$130,647 in 1996 versus $358,210 in 1995, reflecting the reduced number of dry
holes in which in which the Company participated. Geological and geophysical
expenses decreased 23.3% to $227,744 in 1996 versus $297,047 in 1995. The
Company's general and administrative expenses decreased $171,085 or 15.9 % to
$907,086 in 1996 from $1,078,171 in 1995, approximately $200,000 of which were
incurred in connection with a proxy contest in May 1995. Lease operating
expenses increased 53.8% to $585,732 in 1996 versus $380,888 in 1995, as a
result of acquiring more working interest properties. In 1996 depreciation,
depletion and amortization increased to $273,026 compared to $233,709 in 1995
reflecting more property owned by the Company.
YEAR ENDED DECEMBER 31, 1995 VS. YEAR ENDED DECEMBER 31, 1994
Total revenues for 1995 were $1,730,658 compared with $1,941,762 in 1994.
Revenues from oil and gas sales increased from $1,323,129 in 1994 to $1,378,390
in 1995. This 4.2% increase reflects higher oil production from newer wells
and recent acquisitions offset by lower gas prices and lower gas production.
Lease bonuses and delay rentals were $138,804 in 1995, down from $396,106 in
1994. Distributions from marketable securities decreased from $51,393 in 1994
to $30,358 in 1995.
Reflecting the Company's investment of the proceeds from the private
placement and partially offset by lower rates, interest income was $183,106 in
1995 versus $122,106 in 1994.
Total costs and expenses were $2,348,025 in 1995 as compared with
$1,842,816 in 1994 representing a 27.4% increase. Of this increase, 38% is
attributable to general and administrative expenses primarily resulting from a
proxy contest, which created first-time shareholder relations expenses of
$199,342 in 1995. The Company completed its participation in the evaluation of
certain drilling commitments resulting in expenses from dry holes and
abandonments of $358,210 in 1995 versus $125,838 in 1994, representing 46.0% of
the increase in total costs and expenses. Geological and geophysical costs
increased $61,328, to $297,047 from $235,719, or 12.1% of the increase in total
costs and expenses. The remaining components, contributing 3.9% of the
increase in total costs and expenses, are lease operating expense which
increased $33,830 to $380,888 in 1995 from $347,058 in 1994, partly offset by
the decline in depreciation, depletion and amortization of $13,945 to $233,709
in 1995 from $247,654 in 1994.
Net loss was $410,431 or $0.08 per share in 1995 versus net income of
$125,584 or $0.02 per share in 1994. The major difference in net income stems
from the increase and cost associated with dry holes and abandonments from
$125,838 in 1994 to $358,210 in 1995 and increases in general and
administrative expenses from $886,547 in
-17-
<PAGE> 19
1994 to $1,078,171 up primarily due to costs associated with the proxy contest
in connection with the 1995 Annual Meeting of Stockholders.
ACCOUNTING CHANGES
INVESTMENTS IN MARKETABLE SECURITIES
In January 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities." SFAS 115 establishes standards of financial accounting and
reporting for investments in equity securities that have readily determinable
fair market values and for all investments in debt securities. The Company has
designated its investment in the San Juan Basin Royalty Trust as "securities
available for sale." At December 31, 1996, the Company no longer owned any
marketable securities in the San Juan Basin Royalty Trust. The Company sold
all of its units and reported a pre-tax gain of $516,867 in 1996. At December
31, 1995, the market value of these securities was $661,501, resulting in a
gross unrealized gain in the amount of $535,243 and an unrealized gain, net of
tax effects, of $353,268.
ENVIRONMENTAL MATTERS
No environmental liabilities are recorded at December 31, 1996 and 1995.
Additionally, the Company is not aware of a material unrecorded liability for
any expected environmental costs.
CAPITAL AND EXPLORATION EXPENDITURES
In 1996, the Company's geological and geophysical expenses were $227,744,
compared to $297,047 in 1995. Its expenditures on oil and gas property and
equipment decreased to $893,418 from $1,048,757, reflecting decreased
participation in the exploration and development activity on its mineral
acreage. The Company's 1997 capital and exploratory budget, excluding any
acquisitions the Company may make, could range from $500,000 to $1,000,000,
depending on the timing of the drilling of wells.
In 1995, the Company's geological and geophysical expenses were $297,047,
compared to $235,719 in 1994. Its expenditures on oil and gas property and
equipment increased to $1,048,757 from $553,020 in 1994, reflecting its
increased participation in the exploration and development activity on its
mineral acreage and, to a lesser extent, acquisitions.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." SFAS 123 requires the recording or disclosure of the value of
stock options or other equity instruments issued to employees. The Company
adopted the disclosure provisions of SFAS 123 in the first quarter of 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Accountants and Consolidated Financial
Statements are set forth on pages F-1 through F-21 of this Report and are
incorporated herein.
The financial statement schedules have been omitted because they are not
applicable or the required information is shown in the Financial Statements or
the Notes to the Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-18-
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the Company's directors, nominees for directors
and executive officers is set forth under the heading "Election of Directors"
in the Company's Proxy Statement relating to the Annual Meeting of Shareholders
to be held May 15, 1997, which will be filed with the Securities and Exchange
Commission on or about April 18, 1997, and which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is set forth under the
heading "Executive Compensation and Other Transactions" in the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held May 15,
1997, which will be filed with the Securities and Exchange Commission on or
about April 18, 1997, and which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to security ownership of certain beneficial owners
and management is set forth under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement relating to
the Annual Meeting of Shareholders to be held May 15, 1997, which will be filed
with the Securities and Exchange Commission on or about April 18, 1997, and
which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships and related transactions is
set forth under the heading "Executive Compensation and Other Transactions" in
the Company's Proxy Statement relating to the Annual Meeting of Shareholders to
be held May 15, 1997, which will be filed with the Securities and Exchange
Commission on or about April 18, 1997, and which is incorporated herein by
reference.
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Index
Report of Independent Accountants
Consolidated Balance Sheet - December 31, 1996 and 1995
Consolidated Statement of Operations for the three years ended
December 31, 1996
Consolidated Statement of Changes in Stockholders' Equity for the three
years ended December 31, 1996
Consolidated Statement of Cash Flows for the three years ended
December 31, 1996
Notes to Consolidated Financial Statements
2. The financial statement schedules have been omitted because they are not
applicable or the required information is shown in the Financial
Statements or the Notes to Financial Statements.
-19-
<PAGE> 21
3. Exhibits:
No.
3.1 - Certificate of Incorporation of Toreador Royalty
Corporation dated July 13, 1951, as amended March 16, 1981
and June 4, 1987 (previously filed as Exhibit 3.1 to
Toreador Royalty Corporation Annual Report on Form 10-K for
the year ended December 31, 1989, and incorporated herein
by reference).
3.2 - Certificate of Amendment of Certificate of Incorporation,
as amended, of Toreador Royalty Corporation dated July 3,
1990 (previously filed as Exhibit 3.2 to Toreador Royalty
Corporation Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference).
3.3 - Certificate of Amendment of Certificate of Incorporation,
as amended, of Toreador Royalty Corporation dated August
13, 1992 (previously filed as Exhibit 3.3 to Toreador
Royalty Corporation Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated herein by
reference).
3.4 - Certificate of Designations of Series A Junior
Participating Preferred Stock of Toreador Royalty
Corporation, dated April 3, 1995 (previously filed as
Exhibit 3 to Toreador Royalty Corporation Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1995,
and incorporated herein by reference).
3.5 - Amended and Restated Bylaws of Toreador Royalty Corporation
(previously filed as Exhibit 3.3 to Toreador Royalty
Corporation Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference).
3.6 - Amendment to Bylaws of Toreador Royalty Corporation
(previously filed as Exhibit 3.5 to Toreador Royalty
Corporation Annual Report on Form 10-K for the year ended
December 31, 1993, and incorporated herein by reference).
4.1 - Rights Agreement dated as of April 3, 1995, between
Toreador Royalty Corporation and Continental Stock Transfer
& Trust Company (previously filed as Exhibit 1 to Toreador
Royalty Corporation Current Report on Form 8-K dated April
3, 1995, and incorporated herein by reference).
10.1+ - Stock Option Agreement dated August 1, 1988 between
Toreador Royalty Corporation and Peter R. Vig (previously
filed as Exhibit 10.B to Toreador Royalty Corporation
Current Report on Form 8-K dated August 11, 1988, and
incorporated herein by reference).
10.2+ - Stock Grant Agreement dated August 1, 1988 between Toreador
Royalty Corporation and Peter R. Vig (previously filed as
Exhibit 10.C to Toreador Royalty Corporation Current Report
on Form 8-K dated August 11, 1988, and incorporated herein
by reference).
10.3+ - Incentive Stock Option Agreement dated as of September 8,
1994 between Toreador Royalty Corporation and Peter R. Vig,
as amended by Letter Agreement dated as of May 15, 1995
(previously filed as Exhibit 10.2 to Toreador Royalty
Corporation Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference).
10.4+ - Form of Stock Option Agreement by and between Toreador
Royalty Corporation and Donald E. August, John V. Ballard,
J.W. Bullion, John Mark McLaughlin, and Jack L. Woods
(previously filed as Exhibit 4.6 to Toreador Royalty
Corporation Form S-8 (No. 333-14145) filed with the
Securities and Exchange Commission on October 15, 1996, and
incorporated herein by reference).
-20-
<PAGE> 22
10.5+ - Stock Option Agreement dated February 17, 1994, by and
between Toreador Royalty Corporation and Thomas P. Kellogg,
Jr. (previously filed as Exhibit 4.7 to Toreador Royalty
Corporation Form S-8 (No. 333-14145) filed with the
Securities and Exchange Commission on October 15, 1996, and
incorporated herein by reference).
10.6 - Form of Stock Option Agreement by and between Toreador
Royalty Corporation and Edward C. Marhanka and Earl V.
Tessem, as amended (previously filed as Exhibit 4.8 to
Toreador Royalty Corporation Form S-8 (No. 333-14145) filed
with the Securities and Exchange Commission on October 15,
1996, and incorporated herein by reference).
10.7+ - Employment Agreement effective August 1, 1990 between
Toreador Royalty Corporation and Peter R. Vig (previously
filed as Exhibit 10.7 to Toreador Royalty Corporation
Annual Report on Form 10-K for the year ended December 31,
1989, and incorporated herein by reference).
10.8+ - Second Amendment to Executive Employment Agreement dated as
of December 27, 1993 between Toreador Royalty Corporation
and Peter R. Vig (previously filed as Exhibit 10.4 to
Toreador Royalty Corporation Annual Report on Form 10-K for
the year ended December 31, 1993, and incorporated herein
by reference).
10.9+ - Third Amendment to Executive Employment Agreement between
Toreador Royalty Corporation and Peter R. Vig (previously
filed as Exhibit 10.5 to the Toreador Annual Report on Form
10-K for the year ended December 31, 1994, and incorporated
herein by reference).
10.10+ - Fourth Amendment to Executive Employment Agreement between
Toreador Royalty Corporation and Peter R. Vig dated as of
April 25, 1995 (previously filed as Exhibit 10.7 to
Toreador Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference).
10.11+ - Fifth Amendment to Executive Employment Agreement between
Toreador Royalty Corporation and Peter R. Vig dated as of
October 2, 1995 (previously filed as Exhibit 10.8 to Toreador
Annual Report on Form 10-K for the year ended December 31, 1995,
and incorporated herein by reference).
10.12+ - Sixth Amendment to Executive Employment Agreement between
Toreador Royalty Corporation and Peter R. Vig dated as of March
2, 1996 (previously filed as Exhibit 10.9 to Toreador Annual
Report on Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference).
10.13+ - Seventh Amendment to Executive Employment Agreement between
Toreador Royalty Corporation and Peter R. Vig dated as of
December 31, 1996.
10.14 - Employment Agreement dated February 9, 1989, as amended by
Agreement dated February 28, 1990, between Toreador Royalty
Corporation and James S. Blair (previously filed as Exhibit 4.5
to Toreador Royalty Corporation Form S-8 (No. 333-14145) filed
with the Securities and Exchange Commission on October 15, 1996,
and incorporated herein by reference).
10.15 - Joint Venture Agreement dated March 1, 1989, among Toreador
Royalty Corporation, Bandera Petroleum, et al. (previously filed
as Exhibit 10.9 to Toreador Royalty Corporation Annual Report on
Form 10-K for the year ended December 31, 1989, and incorporated
herein by reference).
10.16+ - Toreador Royalty Corporation 1990 Stock Option Plan (previously
filed as Exhibit 10.7 to Toreador Royalty Corporation Annual
Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference).
10.17+ - Toreador Royalty Corporation 1994 Non-Employee Director Stock
Option Plan, as amended (previously filed as Exhibit 10.12 to
Toreador Annual Report on Form 10-K for the year ended December
31, 1995, and incorporated herein by reference).
-21-
<PAGE> 23
10.18 - Warrant for the Purchase of Shares of Common Stock issued to
Petrie Parkman & Co. dated May 23, 1994 (previously filed as
Exhibit 10.1 to Toreador Royalty Corporation Registration on
Form S-3, and incorporated herein by reference (No. 33-80572)
filed with the Securities and Exchange Commission on June 22,
1994, and incorporated herein by reference).
10.19+ - Form of Indemnification Agreement dated as of April 25, 1995
between Toreador Royalty Corporation and each of the members of
its Board of Directors (previously filed as Exhibit 10 to
Toreador Royalty Corporation Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1995, and incorporated
herein by reference).
10.20 - Severance Agreement by and between Toreador Royalty Corporation
and James S. Blair dated March 2, 1996 (previously filed as
Exhibit 10.16 to Toreador Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by
reference).
21.1 - Subsidiary of Toreador Royalty Corporation.
23.1 - Consent of Price Waterhouse LLP.
23.2 - Consent of Harlan Consulting Inc.
27.1 - Financial Data Schedule
_______________
+ Management contract or compensatory plan
(b) Reports on Form 8-K:
None.
-22-
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TOREADOR ROYALTY CORPORATION
Date: March 25, 1997
By /s/ PETER R. VIG
----------------------------------------
Peter R. Vig, Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Capacity in
Signature which signed Date
- --------- ------------ ----
/s/ PETER R. VIG Chairman, President, Treasurer
- --------------------------- and Chief Executive Officer
Peter R. Vig (Principal Executive Officer and
Principal Financial and
Accounting Officer)
/s/ DONALD E. AUGUST Director
- ---------------------------
Donald E. August
/s/ JOHN V. BALLARD Director
- ---------------------------
John V. Ballard
/s/ J.W. BULLION Director
- ---------------------------
J.W. Bullion
/s/ THOMAS P. KELLOGG, JR. Director
- ---------------------------
Thomas P. Kellogg, Jr.
/s/ JOHN MARK MCLAUGHLIN Director
- ---------------------------
John Mark McLaughlin
/s/ JACK L. WOODS Director
- ---------------------------
Jack L. Woods
-23-
<PAGE> 25
TOREADOR ROYALTY CORPORATION
ITEM 14(a)(1) and (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants ................................................................................. F-2
Financial Statements:
Consolidated Balance Sheet as of December 31, 1996 and 1995 ................................................. F-3
Consolidated Statement of Operations for the three years ended December 31, 1996 ........................... F-4
Consolidated Statement of Changes in Stockholders' Equity for the three years
ended December 31, 1996 ................................................................................... F-5
Consolidated Statement of Cash Flows for the three years ended December 31, 1996 ........................... F-6
Notes to Consolidated Financial Statements ................................................................. F-7
</TABLE>
All financial statement schedules have been omitted as all required information
has been included in the consolidated financial statements and notes thereto.
F-1
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Toreador Royalty Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Toreador Royalty Corporation and its subsidiary at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards 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 the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 17, 1997
F - 2
<PAGE> 27
TOREADOR ROYALTY CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
ASSETS 1996 1995
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,074,111 $ 2,791,575
Marketable securities, at market value -- 661,501
Accounts receivable 508,793 168,746
Federal income tax receivable 54,899 87,450
Other current assets 65,101 22,172
------------ ------------
Total current assets 3,702,904 3,731,444
Properties and equipment, less accumulated
depreciation, depletion and amortization 3,306,020 3,201,283
Other assets -- 118,325
------------ ------------
Total assets $ 7,008,924 $ 7,051,052
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 256,298 $ 193,238
Federal income taxes payable 62,938 --
------------ ------------
Total current liabilities 319,236 193,238
Deferred tax liabilities 65,508 47,329
------------ ------------
Total liabilities 384,744 240,567
------------ ------------
Stockholders' equity:
Preferred stock, $1.00 par value, 4,000,000 shares
authorized; none issued -- --
Common stock, $.15625 par value, 10,000,000 shares
authorized; 5,356,571 and 5,349,071 shares issued 836,964 835,792
Capital in excess of par value 3,577,385 3,560,042
Retained earnings 2,842,483 2,115,733
Net unrealized gain on marketable securities -- 353,268
Minimum pension liability (88,543) --
------------ ------------
7,168,289 6,864,835
Treasury stock at cost,
213,900 and 20,500 shares (544,109) (54,350)
------------ ------------
Total stockholders' equity 6,624,180 6,810,485
------------ ------------
Total liabilities and stockholders' equity $ 7,008,924 $ 7,051,052
============ ============
</TABLE>
The Company uses the successful efforts method of accounting for its oil and
gas producing activities.
See accompanying notes to the consolidated financial statements.
F - 3
<PAGE> 28
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Oil and gas sales $ 2,306,791 $ 1,378,390 $ 1,323,129
Lease bonuses and rentals 118,430 138,804 396,106
Interest and other income 162,297 213,464 222,527
Gain on sale of marketable securities
and other assets 526,567 -- --
------------ ------------ ------------
Total revenues 3,114,085 1,730,658 1,941,762
Costs and expenses:
Lease operating expense 585,732 380,888 347,058
Dry holes and abandonments 130,647 358,210 125,838
Depreciation, depletion and amortization 273,026 233,709 247,654
Geological and geophysical 227,744 297,047 235,719
General and administrative 907,086 1,078,171 886,547
------------ ------------ ------------
Total cost and expenses 2,124,235 2,348,025 1,842,816
------------ ------------ ------------
Income (loss) before federal income taxes 989,850 (617,367) 98,946
Provision (benefit) for federal income taxes 263,100 (206,936) (26,638)
------------ ------------ ------------
Net income (loss) $ 726,750 $ (410,431) $ 125,584
============ ============ ============
Income (loss) per share $ 0.14 $ (.08) $ .02
============ ============ ============
Weighted average shares outstanding 5,216,941 5,334,190 5,064,258
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial Statements.
F - 4
<PAGE> 29
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in Minimum Unrealized Total
-------------------- excess of Retained pension gains/ Treasury Stockholders'
Shares Amount par value earnings liability (losses) stock equity
---------- -------- ---------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,540,000 $709,375 $1,070,740 $ 2,400,580 $(37,965) $ -- $ (16,744) $ 4,125,986
Issuance of common stock 809,071 126,417 2,489,302 -- -- -- -- 2,615,719
Net unrealized gain on
marketable securities -- -- -- -- -- 356,507 -- 356,507
Reversal of minimum
pension liability -- -- -- -- 37,965 -- -- 37,965
Net income -- -- -- 125,584 -- -- -- 125,584
---------- -------- ---------- ----------- -------- --------- --------- -----------
Balance at December 31, 1994 5,349,071 835,792 3,560,042 2,526,164 -- 356,507 (16,744) 7,261,761
Net unrealized loss on
marketable securities -- -- -- -- -- (3,239) -- (3,239)
Purchase of treasury stock -- -- -- -- -- -- (37,606) (37,606)
Net loss -- -- -- (410,431) -- -- -- (410,431)
---------- -------- ---------- ----------- -------- --------- --------- -----------
Balance at December 31, 1995 5,349,071 835,792 3,560,042 2,115,733 -- 353,268 (54,350) 6,810,485
Issuance of common stock 7,500 1,172 17,343 -- -- -- -- 18,515
Net unrealized gain on
marketable securities -- -- -- -- -- (353,268) -- (353,268)
Purchase of treasury stock -- -- -- -- -- -- (489,759) (489,759)
Minimum pension liability -- -- -- -- (88,543) -- -- (88,543)
Net income -- -- -- 726,750 -- -- -- 726,750
---------- -------- ---------- ----------- -------- --------- --------- -----------
Balance at December 31, 1996 $5,356,571 $836,964 $3,577,385 $ 2,842,483 $(88,543) $ -- $(544,109) $ 6,624,180
========== ======== ========== =========== ======== ========= ========= ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F - 5
<PAGE> 30
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 726,750 $ (410,431) $ 125,584
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 273,026 233,709 247,654
Dry holes and abandonments 130,647 358,210 125,838
Gain on sale of marketable securities
and other assets (526,567) -- --
Gain on sale of oil and gas properties
and equipment -- -- (25,028)
Decrease (increase) in accounts receivable (340,047) (8,045) 33,444
Decrease (increase) in federal income tax receivable 32,551 (19,436) (68,014)
Decrease (increase) in pension obligation 29,782 (12,973) (13,796)
Increase in other current assets (42,929) -- --
Increase in accounts payable and
accrued liabilities 63,060 28,475 31,827
Increase (decrease) in federal income
taxes payable 62,938 -- (70,039)
Deferred tax expense (benefit) 200,161 (166,069) 31,415
Other, net (8) (14,403) --
------------ ------------ ------------
Net cash provided (used) by operating activities 609,364 (10,963) 418,885
------------ ------------ ------------
Cash flows from investing activities:
Expenditures for oil and gas property and equipment (893,418) (1,048,757) (553,020)
Proceeds from lease bonuses and rentals 415,074 10,917 35,085
Proceeds from sale of marketable
securities and other assets 652,826 -- --
Proceeds from sales of oil and gas properties
and equipment -- -- 25,028
Purchase of furniture and fixtures and other assets (30,066) (15,682) (8,055)
------------ ------------ ------------
Net cash provided (used) by investing activities 144,416 (1,053,522) (500,962)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 18,515 -- 2,615,719
Purchase of treasury stock (489,759) (37,606) --
------------ ------------ ------------
Net cash provided (used) by
financing activities (471,244) (37,606) 2,615,719
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 282,536 (1,102,091) 2,533,642
Cash and cash equivalents, beginning of year 2,791,575 3,893,666 1,360,024
------------ ------------ ------------
Cash and cash equivalents, end of year $ 3,074,111 $ 2,791,575 $ 3,893,666
============ ============ ============
Supplemental schedule of cash flow information:
Cash paid (received) during the period for:
Income taxes $ -- $ (21,431) $ 80,000
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F - 6
<PAGE> 31
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Toreador Royalty Corporation (the "Company") explores for and produces
oil and gas reserves principally in the southwestern part of the United
States. The Company owns in excess of 530,000 net mineral acres located
primarily in the Texas Panhandle and West Texas. In addition, the
Company owns working or royalty interests in Texas, New Mexico, Oklahoma,
Arkansas, and Louisiana. The Company's business activities are with
industry partners located within the United States.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of Toreador
Royalty Corporation and its wholly-owned subsidiary, Toreador Exploration
& Production Inc.
OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting for oil
and gas exploration and development expenditures. Under this method,
costs of successful exploratory wells and all development wells are
capitalized. Costs to drill exploratory wells which do not find proved
reserves are expensed. Acquisition costs of mineral interests in oil and
gas properties remain capitalized until they are impaired or a
determination has been made to discontinue exploration of the lease, at
which time all related costs are charged to expense. Impairment of
unproved properties is assessed and recorded on a property-by-property
basis. Upon sale or abandonment of units of property or the disposition
of miscellaneous equipment, the cost is removed from the asset account,
the related reserves relieved of the accumulated depreciation or
depletion and the gain or loss is credited to or charged against
operations. Maintenance and repairs are charged to expense; betterments
of property are capitalized and depreciated as described below.
REVENUE RECOGNITION
Oil and natural gas revenues are accounted for using the sales method.
Under this method, sales are recorded on all production sold by the
Company regardless of the Company's ownership interest in the respective
property. Imbalances result when sales differ from the seller's net
revenue interest in the particular property's reserves and are tracked to
reflect the Company's balancing position. At December 31, 1996 and 1995,
the imbalance and related value were immaterial.
F - 7
<PAGE> 32
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEASE BONUSES
The Company defers bonuses received from leasing minerals in which
unrecovered costs remain by recording the bonuses as a reduction of the
unrecovered costs. Bonuses received from leasing mineral interests
previously expensed are taken into income currently. For federal income
tax purposes, lease bonuses are regarded as advance royalties (ordinary
income).
DEPRECIATION, DEPLETION AND AMORTIZATION
The Company provides for depreciation, depletion and amortization of its
investment in producing oil and gas properties on the unit-of-production
method, based upon independent reserve engineers' estimates of
recoverable oil and gas reserves from the property. Depreciation expense
for fixed assets is generally calculated on a straight-line basis based
upon estimated useful lives of five years.
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, and accounts payable and accrued
liabilities approximate fair value, unless otherwise stated, as of
December 31, 1996 and 1995.
MARKETABLE SECURITIES
In January 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt
and Equity Securities." SFAS 115 establishes standards of financial
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt
securities. The Company has designated its investment in the San Juan
Basin Royalty Trust as "securities available for sale." At December 31,
1995, these securities are reported at their fair market value with the
related unrealized gain, net of tax effects, excluded from income and
reported as a separate component of stockholders' equity. The securities
were sold in 1996.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks
and all highly liquid investments with original maturities of three
months or less. The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts and believes it is not
exposed to any significant risk on cash.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of
common shares outstanding and common share equivalents (except where
inclusion of such common share equivalents would have an antidilutive
effect).
F - 8
<PAGE> 33
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121
(SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," in the fourth quarter of 1995.
SFAS 121 requires the write-down to market value of certain long-lived
assets. The adoption of SFAS 121 had no effect on the Company's
financial position or results of operations for 1996 or 1995.
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." SFAS 123
requires the recording or disclosure of the value of stock options or
other equity instruments issued to employees. See Note 11 "Restricted
Stock Grant Agreement and Stock Option Agreement."
2. MARKETABLE SECURITIES
Marketable securities were comprised of 105,840 shares in the San Juan
Basin Royalty Trust at December 31, 1995. The Company's cost in this
royalty trust was $126,258. At December 31, 1995, the market value of
these securities which were designated as available for sale aggregated
$661,501, resulting in a gross unrealized gain in the amount of $535,243
and an unrealized gain, net of tax effects, of $353,268.
During 1996, the Company sold all shares in the San Juan Basin Royalty
Trust for proceeds of $643,125 resulting in a gain of $516,867.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Oil and gas $ 305,317 $ 153,301
Acquisition costs refund 183,227 --
Other 20,249 15,445
------------ ------------
$ 508,793 $ 168,746
============ ============
</TABLE>
Accounts receivable consist primarily of amounts arising from oil and gas
sales. Receivables are due from companies engaged principally in oil and
gas activities, with payment terms on a short-term basis and in
accordance with industry standards.
As all ownership interests were for sale in a property in which the
Company owned a 50% interest, the Company purchased a 100% interest in
the property in December 1996. In February 1997, the Company was
refunded its original interest in the property equivalent to $183,227.
F - 9
<PAGE> 34
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTIES AND EQUIPMENT
Properties include mineral fee interests acquired by the Company during
1951 and 1958. These interests totaled approximately 535,000 net mineral
acres underlying approximately 882,000 surface acres in the Texas
Panhandle, West Texas, Montana and Colorado. It is recognized that the
ultimate realization of the investment in these properties is dependent
upon future exploration and development operations which are dependent
upon satisfactory leasing and drilling arrangements with others.
Properties and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Undeveloped mineral and royalty interests $ 334,489 $ 458,616
Nonproducing leaseholds 123,372 344,478
Producing leaseholds 2,755,144 2,378,785
Producing royalty interests 1,406,812 1,137,554
Lease and well equipment 151,243 103,929
Furniture and fixtures and other assets 113,823 107,038
------------ ------------
4,884,883 4,530,400
Accumulated depreciation, depletion and amortization (1,578,863) (1,329,117)
------------ ------------
$ 3,306,020 $ 3,201,283
============ ============
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Professional fees $ 28,396 $ 17,928
Lease operating expense 103,175 37,572
Trade accounts payable 23,724 10,235
Drilling costs 83,885 127,503
Accrued pension expense 17,118 --
------------ ------------
$ 256,298 $ 193,238
============ ============
</TABLE>
F - 10
<PAGE> 35
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INTEREST AND OTHER INCOME
Interest and other income consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest - Certificates of deposit
U.S. Treasury bills, and Money
Market accounts $ 138,720 $ 183,106 $ 122,106
Distribution from Grantor Trusts
San Juan Basin Royalty Trust 12,253 30,358 51,393
Management fees -- -- 24,000
Other 11,324 -- 25,028
---------- ---------- ----------
$ 162,297 $ 213,464 $ 222,527
========== ========== ==========
</TABLE>
7. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses incurred by the Company are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994
--------------- --------------- --------------
<S> <C> <C> <C>
Salaries $ 327,277 $ 318,658 $ 327,142
Professional fees 139,794 103,300 151,878
Insurance 57,005 63,554 53,578
Retirement expense 69,050 55,017 50,691
Rent expense 30,913 34,827 40,683
Directors' fees and travel expenses 40,334 54,866 50,140
Shareholder relations 77,166 265,358 43,041
Travel and entertainment 52,726 56,164 38,644
Telephone and utilities 19,908 23,230 25,344
Taxes, other than income 38,285 25,975 18,032
Other 54,628 77,222 87,374
--------------- --------------- --------------
$ 907,086 $ 1,078,171 $ 886,547
=============== =============== ==============
</TABLE>
8. INCOME TAXES
The Company's provision (benefit) for income taxes was comprised
of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current $ 62,939 $ (40,867) $ (58,053)
Deferred 200,161 (166,069) 31,415
---------- ---------- ----------
Provision (benefit) for income taxes $ 263,100 $ (206,936) $ (26,638)
========== ========== ==========
</TABLE>
F - 11
<PAGE> 36
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The primary reasons for the difference between tax expense at the
statutory federal income tax rate and the Company's provision for
income taxes were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Theoretical tax at 34% $ 336,703 $ (209,905) $ 33,642
Surtax or rate difference (8,973) -- --
Statutory depletion in excess
of tax basis (64,317) -- (18,729)
Intangible drilling and development costs -- -- (3,284)
Loss carryforward/carryback -- -- (46,344)
Other (313) 2,969 8,077
---------- ---------- ----------
Provision (benefit) for income taxes $ 263,100 $ (206,936) $ (26,638)
========== ========== ==========
</TABLE>
In 1995, the net operating loss for tax purposes totaled $698,357, of
which $198,994 was carried back and utilized against prior year taxable
income. The remaining $499,363 was carried forward to 1996. The Company
has $42,599 of tax credit and $19,030 in alternative minimum tax
carryforwards at December 31, 1996 that may be carried forward
indefinitely.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax liabilities:
Royalty trust $ -- $ (193,069) $ (195,187)
Intangible drilling and
development costs (95,648) (56,752) (42,787)
Lease and well equipment (2,826) -- (4,225)
Leasehold costs (28,663) (9,148) --
---------- ---------- ----------
Gross deferred tax liabilities (127,137) (258,969) (242,199)
Deferred tax assets:
Alternative minimum tax 19,030 -- --
Leasehold costs -- -- 9,972
Tax credit carryforward 42,599 13,036 8,847
Net operating loss carryforward -- 169,783 --
Depletion carryforward -- 28,821 --
---------- ---------- ----------
Gross deferred tax assets 61,629 211,640 18,819
---------- ---------- ----------
Net deferred tax liabilities $ (65,508) $ (47,329) $ (223,380)
========== ========== ==========
</TABLE>
Of the change in deferred taxes, $181,982 was credited to net unrealized
gain on marketable securities classified in stockholder's equity for 1996
and $9,982 was debited to net unrealized gain on marketable securities in
stockholder's equity for 1995.
F - 12
<PAGE> 37
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan which
covers all Company employees. The benefits are based on years of service
and the employee's compensation. Contributions are intended to provide
not only for benefits attributed to service to date but also for those
expected to be earned in the future. At December 31, 1996, the Company
recognized a minimum pension liability for its underfunded plan. The
minimum liability is equal to the excess of the accumulated benefit
obligation over the fair value of plan assets. This amount plus any
deferred pension asset was recognized as a reduction to stockholder's
equity of $88,543 at December 31, 1996. No minimum pension liability was
required for 1995 or 1994. Net periodic pension expense includes the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Service cost for benefits earned during
the year $ 54,452 $ 50,898 $ 45,950
Interest cost on projected benefit
obligation 26,828 21,779 18,312
Actual return on plan assets (10,260) (15,679) (17,312)
Net amortization and deferral (10,302) (5,058) 2,014
---------- ---------- ----------
Net periodic pension expense $ 60,718 $ 51,940 $ 48,964
========== ========== ==========
</TABLE>
The assumptions used to develop the net periodic pension expense were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 7% 7% 7%
Expected long-term rate of return on assets 7% 7% 7%
Rate of increase in compensation levels 4% 3% 3%
</TABLE>
F - 13
<PAGE> 38
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the funded status of the plan and the
related asset and liability amounts for the plan as of December 31, 1996,
1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation ........... $ 404,276 $ 317,818 $ 271,894
============ ============ ============
Accumulated benefit obligation ...... $ 404,276 $ 338,345 $ 272,623
============ ============ ============
Projected benefit obligation ........... $ 463,933 $ 383,255 $ 311,125
Plan assets at fair value
(primarily stocks and bonds) .......... 387,158 363,080 282,978
------------ ------------ ------------
Plan assets less than projected benefit
obligation ............................ 76,775 20,175 28,147
Unrecognized net asset existing at
transition date ....................... 20,122 22,996 25,870
Unrecognized net loss .................. (168,322) (161,496) (159,369)
Adjustment for minimum pension liability 88,543 -- --
------------ ------------ ------------
Accrued (prepaid) pension cost ......... $ 17,118 $ (118,325) $ (105,352)
============ ============ ============
</TABLE>
In 1996, the Company established a Supplemental Executive Retirement Plan
("SERP") covering certain key employees. The SERP provides for
incremental pension payments from the Company's funds so that retirement
benefit payments are equal to amounts that would have been payable from
the Company's principal pension plan if it were not for limitations on
those payments imposed by income tax regulations.
10. LEASE COMMITMENT
In November 1993, the Company signed a lease agreement to lease new
office space for a period of sixty-three months, beginning January 6,
1994 and ending March 31, 1999. Minimum annual rentals at December 31,
1996 are as follows:
1997 38,242
1998 38,242
1999 9,561
2000 --
2001 and thereafter --
F - 14
<PAGE> 39
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. RESTRICTED STOCK GRANT AGREEMENT AND
STOCK OPTION AGREEMENT
The Company entered into an agreement, effective August 1, 1988, with the
Company's Chairman, granting him stock options to purchase 200,000 shares
of common stock at a price of $3.00 per share, the market value on that
date. In accordance with this agreement, the options become exercisable
in equal increments over a three year period commencing August 1, 1988.
Subject to certain termination provisions, these options expire July 31,
1998. As of December 31, 1996, none of these options have been
exercised.
On March 1, 1989, the Company entered into an agreement with an employee
granting stock options to purchase 50,000 shares of common stock at a
price of $2.46875 per share, the market value on that date. The options
become exercisable in equal increments over a three-year period
commencing March 1, 1990. The options expire on March 1, 1999. As of
December 31, 1996, 7,500 options have been exercised.
In May 1990, the Company adopted the 1990 Stock Option Plan ("the Plan").
The aggregate number of shares of common stock issuable under the Plan is
225,000. The Plan provides for the granting of stock options at exercise
prices equal to the market price of the stock at the date of the grant.
On May 24, 1992, the Company entered into an agreement with the Company's
Chairman granting stock options under the Plan to purchase 10,000 shares
of common stock at a price of $3.625 per share, the market value on that
date. All options granted under the Plan are exercisable in equal
increments over a three-year period commencing on May 24, 1992. The
options expire on May 24, 2002. As of December 31, 1996, none of these
options have been exercised.
On May 22, 1992, the Company entered into an agreement with the Company's
then six members of the board of directors, excluding the Chairman,
granting stock options to purchase 10,000 shares each of common stock at
a price of $3.625 per share, the market value on that date. All options
granted under the Plan are exercisable in equal increments over a
three-year period commencing on May 22, 1992. The options expire on May
22, 2002. As of December 31, 1996 none of these options have been
exercised.
On February 17, 1994, the Company entered into an agreement with a member
of the board of directors granting an option to purchase 10,000 shares of
common stock at a price of $3.625 per share, the market value on that
date. The option granted under the Plan is exercisable in equal
increments over a three-year period commencing February 17, 1994. The
option expires on February 17, 2004. As of December 31, 1996, this
option has not been exercised.
On September 8, 1994, the Company entered into an agreement with the
Company's Chairman granting a stock option to purchase 50,000 shares of
common stock and with the Company's two other employees granting stock
options to purchase 10,000 shares each of common stock at a price of
$3.25 per share. These options were issued under the 1990 Stock Option
Plan. All options granted under the Plan are exercisable in equal
increments over a three-year period commencing
F - 15
<PAGE> 40
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 8, 1995. The options expire on September 8, 2004. As of
December 31, 1996, 10,000 options were forfeited while the remainder of
the options have not been exercised. Compensation expense related to the
issuances of these options is immaterial.
On September 8, 1994, the Company entered into an agreement with the
Company's two consultants granting options to purchase 10,000 shares each
of common stock at a price of $3.25 per share. The options granted are
exercisable in equal increments over a three-year period commencing
September 8, 1995. The options expire on September 8, 2004. As of
December 31, 1996, none of these options have been exercised.
Compensation expense related to the issuances of these options is
immaterial.
In September 1994, the Company adopted the 1994 Nonemployee Director
Stock Option Plan ("Nonemployee Director Plan"). The number of shares of
common stock issuable under the Nonemployee Director Plan is 200,000
shares in the aggregate. The Nonemployee Director Plan provides for the
granting of stock options at exercise prices equal to the market price of
the stock at the grant date. On September 8, 1994, the Company entered
into an agreement with the seven members of the board of directors,
excluding the chairman, granting stock options under the Nonemployee
Director Plan to purchase 10,000 shares each of common stock at a price
of $3.50 per share, the market value on that date. The options granted
are exercisable in equal increments over a three-year period commencing
September 8, 1995. The options expire on September 8, 2004. As of
December 31, 1996, none of these options have been exercised.
Pro forma information regarding net income and earnings per share as a
result of the adoption of FAS 123 is not presented as there were no stock
option grants in 1996 or 1995.
A summary of stock option transactions under the Company's plans are as
follows:
<TABLE>
<CAPTION>
1996 1995
------------------ -------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------------------ -------------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 470,000 $3.15 470,000 $3.15
Granted -- -- -- --
Exercised (7,500) 2.47 -- --
Forfeited (10,000) 3.25 -- --
------- ----- ------- -----
Outstanding at end of year 452,500 $3.16 470,000 $3.15
======= ===== ======= =====
Exercisable at end of year 402,500 $3.13 363,333 $3.08
</TABLE>
F - 16
<PAGE> 41
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about the fixed price stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------- -----------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/96 Life Price at 12/31/96 Price
------------ ----------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 2.47 42,500 2.2 Years 2.47 42,500 2.47
3.00 200,000 1.6 Years 3.00 200,000 3.00
3.25 - 3.50 140,000 7.7 Years 3.36 93,333 3.36
3.63 70,000 5.7 Years 3.63 66,667 3.63
----------- ------- --------- ---- ------- ----
2.47 - 3.63 452,500 4.2 Years 3.16 402,500 3.13
=========== ======= ========= ==== ======= ====
</TABLE>
At December 31, 1996, 155,000 shares were available for grant under
the Stock Option Plan and 140,000 shares were available for grant as
options under the Nonemployee Director Plan.
12. CAPITAL
On May 23, 1994, the Company privately placed 809,071 shares of common
stock for an aggregate consideration of $2,831,749. In its private
placement agreement with the purchasers, the Company granted them
registration rights, pursuant to which a registration statement on
Form S-3 covering all the shares was filed on June 22, 1994. The
registration statement was declared effective July 11, 1994 and the
Company was obligated to maintain such effectiveness until May 23,
1996. The Company filed a registration statement on Form S3
deregistering 439,642 shares of common stock that remained unsold on
May 23, 1996. In connection with the private placement, the Company's
placement agent received a five-year warrant to purchase 106,867
shares of common stock at a price of $4.375 per share.
The placement agent has rights to participate in registered offerings
of common stock by the Company. The net proceeds to the Company from
the private placement (after deducting the placement agent's fee of
$141,112 and expenses of approximately $75,000) were approximately
$2,616,000.
The Company adopted a stockholder rights plan on April 3, 1995
designed to assure that the Company's stockholders receive fair and
equal treatment in the event of any proposed takeover of the Company
and to guard against partial tender offers and other abusive takeover
tactics to gain control of the Company without paying all stockholders
a fair price. Under the rights plan, the Company declared a dividend
of one right ("Right") on each share of Company common stock. Each
Right will entitle the holder to purchase one one-hundredth of a share
of a new Series A Junior Participating Preferred Stock, par value
$1.00 per share, at an exercise price of $12.00. The Rights are not
currently exercisable and will become exercisable only in the event a
person or group acquires beneficial ownership of 20 percent or more of
Toreador's outstanding common stock or announces a tender offer or
exchange offer to acquire such ownership level. The Rights are
subject to redemption by the Company for $.01 per Right at any
F - 17
<PAGE> 42
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
time prior to the tenth day after the first public announcement of the
acquisition by any person or group of beneficial ownership of 20
percent or more of Company common stock. The dividend distribution
was made on April 13, 1995 to stockholders of record at the close of
business on that date. The rights will expire on April 13, 2005.
In October 1995, the Company's Board of Directors authorized the
repurchase of up to 100,000 shares of the Company's common stock.
This repurchase was completed in April 1996.
In April 1996, the Company's Board of Directors authorized the
repurchase of an additional 150,000 shares of the Company's common
stock. As of December 31, 1996, the Company had repurchased 108,200
shares of its common stock from the second repurchase program.
Management anticipates that any future repurchases of the Company's
common stock will be funded from the Company's cash flow from
operations and working capital.
13. OIL AND GAS INFORMATION (UNAUDITED)
The following information is presented pursuant to SFAS No. 69,
"Disclosures about Oil and Gas Producing Activities."
RESULTS OF OPERATIONS
Results of operations from oil and gas producing activities were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Crude oil, condensate and natural gas $ 2,306,791 $ 1,378,390 $ 1,323,129
Lease bonuses and delay rentals 118,430 138,804 396,106
------------ ------------ ------------
Total revenues 2,425,221 1,517,194 1,719,235
Costs and expenses:
Lease operating costs 585,732 380,888 347,058
Exploration costs 358,391 655,257 361,557
Depreciation and depletion 273,026 233,709 247,645
------------ ------------ ------------
Income before income taxes 1,208,072 247,340 762,975
Income tax expense 410,744 84,096 259,412
------------ ------------ ------------
Results of operations from producing
activities (excluding corporate
overhead) $ 797,328 $ 163,244 $ 503,563
============ ============ ============
</TABLE>
F - 18
<PAGE> 43
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Unproved properties $ 457,861 $ 803,094 $ 726,760
Proved leaseholds 4,161,956 3,516,339 2,966,148
Lease and well equipment 151,243 103,929 50,814
------------ ------------ ------------
4,771,060 4,423,362 3,743,722
Less: Accumulated depreciation,
depletion and amortization (1,507,553) (1,242,285) (1,018,573)
------------ ------------ ------------
Capitalized costs $ 3,263,507 $ 3,181,077 $ 2,725,149
============ ============ ============
</TABLE>
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION, AND
DEVELOPMENT ACTIVITIES:
<TABLE>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Acquisition of properties
Proved $ 371,761 $ 360,100 $ 155,999
Unproved 69,838 87,251 178,103
Exploration costs 130,647 358,210 131,622
Development costs 321,172 243,196 87,296
---------- ---------- ----------
Costs incurred $ 893,418 $1,048,757 $ 553,020
========== ========== ==========
</TABLE>
OIL AND GAS RESERVES:
The following table identifies the Company's net interest in estimated
quantities of proved oil and gas reserves and changes in such estimated
quantities. Reserve estimates were prepared by independent petroleum
engineers and such estimates were reviewed and adjusted by Company
management. The Company emphasizes that reserve estimates are
inherently imprecise and that estimates of new discoveries are more
imprecise than those of producing oil and gas properties. Accordingly,
the estimates are expected to change as future information becomes
available. Estimated proved developed and undeveloped oil and gas
reserves at December 31, 1996 and 1995 are tabulated below. Crude oil
includes condensate and natural gas liquids and is stated in barrels
(bbl). Natural gas is stated in thousands of cubic feet (mcf).
F - 19
<PAGE> 44
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PROVED DEVELOPED AND
UNDEVELOPED RESERVES OIL(BBL) GAS(MCF)
--------------------- -------- ----------
<S> <C> <C>
December 31, 1993 315,372 2,303,713
Purchases of reserves in place 560 323,293
Revisions of previous estimates (4,544) 300,426
Extensions, discoveries and other
additions 201,338 --
Production (49,635) (306,295)
------- ---------
December 31, 1994 463,091 2,621,137
Purchases of reserves in place 82,386 67,181
Revisions of previous estimates 30,125 81,705
Extensions, discoveries and other
additions 55,216 115,034
Production (61,537) (277,621)
------- ---------
December 31, 1995 569,281 2,607,436
Purchases of reserves in place 219,268 266,899
Revisions of previous estimates 35,082 372,202
Extensions, discoveries, and other
additions 35,959 154,942
Production (68,318) (348,539)
------- ---------
December 31, 1996 791,272 3,052,940
======= =========
PROVED DEVELOPED RESERVES
-------------------------
December 31, 1994 397,959 2,621,137
======= =========
</TABLE>
There were no proved undeveloped reserves at December 31, 1996 or
1995.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS REVENUES
Pursuant to SFAS No. 69, the Company has developed the following
information titled "Standardized Measure of Discounted Future Net Cash
Flows Relating to Proved Oil and Gas Quantities" (Standardized
Measure). Accordingly, the Standardized Measure has been prepared
assuming year-end selling prices adjusted for future fixed and
determinable contractual price changes, year-end development and
production costs, year-end statutory tax rates adjusted for future tax
rates already legislated and a 10% annual discount rate. The
Standardized Measure does not purport to be an estimate of the fair
market value of the Company's reserves. An estimate of fair value
would also have taken into account, among other things, the
expected recovery of reserves in excess of proved reserves,
anticipated changes in future prices and costs and a discount factor
representative of the time value of money and risks inherent in
producing oil and gas.
F - 20
<PAGE> 45
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Future cash inflows $ 29,686,583 $ 14,627,515 $ 11,252,481
Future production costs 9,594,044 4,235,501 3,149,608
Future development costs -- 45,289 145,396
------------ ------------ ------------
Future net cash flows before income taxes 20,092,539 10,346,725 7,957,477
Future income tax expense 6,001,855 2,775,274 1,995,490
------------ ------------ ------------
Future net cash flows 14,090,684 7,571,451 5,961,987
10% annual discount for estimated
timing of cash flows 5,773,051 2,861,316 2,013,007
------------ ------------ ------------
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves $ 8,317,633 $ 4,710,135 $ 3,948,980
============ ============ ============
</TABLE>
The average oil and gas prices used to calculate future net cash
inflows at December 31, 1996 were $24.62 per barrel and $3.34 per mcf,
respectively. At December 31, 1996 and March 17, 1997, respectively,
the NYMEX price for oil was $25.92 per barrel and $20.92 per barrel
and the NYMEX price for gas was $2.76 per MMBtu and $1.90 per MMBtu.
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH RELATING
TO PROVED OIL AND GAS RESERVES
The following are the principal sources of change in the standardized
measure:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 1 $ 4,710,135 $ 3,948,980 $ 3,496,815
Sales of oil and gas produced, net (1,721,059) (997,502) (976,071)
Net changes in prices and production
costs 3,393,314 433,089 (658,462)
Extensions and discoveries 884,206 698,314 1,329,507
Revisions of previous quantity estimates 719,335 344,019 398,367
Net change in income taxes (1,726,595) (342,776) (88,832)
Accretion of discount 601,140 490,747 436,647
Purchases of reserves 371,761 494,501 155,999
Other 1,085,396 (359,237) (144,990)
------------ ------------ ------------
Balance at December 31 $ 8,317,633 $ 4,710,135 $ 3,948,980
============ ============ ============
</TABLE>
F - 21
<PAGE> 46
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS TO
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
TOREADOR ROYALTY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-0991164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 PRESTON COMMONS WEST
8117 PRESTON ROAD
DALLAS, TEXAS 75225
(Address of principal executive offices) (Zip Code)
<PAGE> 47
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------------- ------------------------------------------------------------------------------------------
<S> <C>
3.1 - Certificate of Incorporation of Toreador Royalty Corporation dated July 13, 1951, as
amended March 16, 1981 and June 4, 1987 (previously filed as Exhibit 3.1 to Toreador
Royalty Corporation Annual Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference).
3.2 - Certificate of Amendment of Certificate of Incorporation, as amended, of Toreador
Royalty Corporation dated July 3, 1990 (previously filed as Exhibit 3.2 to Toreador
Royalty Corporation Annual Report on Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference).
3.3 - Certificate of Amendment to the Certificate of Incorporation of Toreador Royalty
Corporation dated August 13, 1992 (previously filed as Exhibit 3.3 to Toreador Royalty
Corporation Annual Report on Form 10-K for the year ended December 31, 1993, and
incorporated herein by reference).
3.4 - Certificate of Designations of Series A Junior Participating Preferred Stock of Toreador
Royalty Corporation, dated April 3, 1995 (previously filed as Exhibit 3 to Toreador
Royalty Corporation Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1995, and incorporated herein by reference).
3.5 - Amended and Restated Bylaws of Toreador Royalty Corporation (previously filed as Exhibit
3.3 to Toreador Royalty Corporation Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference).
3.6 - Amendment to Bylaws of Toreador Royalty Corporation (previously filed as Exhibit 3.5 to
Toreador Royalty Corporation Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by reference).
4.1 - Rights Agreement dated as of April 3, 1995, between Toreador Royalty Corporation and
Continental Stock Transfer & Trust Company (previously filed as Exhibit 1 to Toreador
Royalty Corporation Current Report on Form 8-K dated April 3, 1995, and incorporated
herein by reference).
10.1 - Stock Option Agreement dated August 1, 1988 between Toreador Royalty Corporation and
Peter R. Vig (previously filed as Exhibit 10.B to Toreador Royalty Corporation Current
Report on Form 8-K dated August 11, 1988, and incorporated herein by reference).
10.2 - Stock Grant Agreement dated August 1, 1988 between Toreador Royalty Corporation and
Peter R. Vig (previously filed as Exhibit 10.C to Toreador Royalty Corporation Current
Report on Form 8-K dated August 11, 1988, and incorporated herein by reference).
10.3 - Incentive Stock Option Agreement dated as of September 8, 1994 between Toreador Royalty
Corporation and Peter R. Vig, as amended by Letter Agreement dated as of May 15, 1995
(previously filed as Exhibit 10.3 to Toreador Royalty Corporation Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated herein by reference).
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------------- ------------------------------------------------------------------------------------------
<S> <C>
10.4 - Form of Stock Option Agreement by and between Toreador Royalty Corporation and Donald E.
August, John V. Ballard, J.W. Bullion, John Mark McLaughlin, and Jack L. Woods
(previously filed as Exhibit 4.6 to Toreador Royalty Corporation Form S-8 (No. 333-
14145) filed with the Securities and Exchange Commission on October 15, 1996, and
incorporated herein by reference).
10.5 - Stock Option Agreement dated February 17, 1994, by and between Toreador Royalty
Corporation and Thomas P. Kellogg, Jr. (previously filed as Exhibit 4.7 to Toreador
Royalty Corporation Forms S-8 (No. 333-14145) filed with the Securities and Exchange
Commission on October 15, 1996, and incorporated herein by reference).
10.6 - Form of Stock Option Agreement by and between Toreador Royalty Corporation and Edward C.
Marhanka and Earl V. Tessem, as amended (previously filed as Exhibit 4.8 to Toreador
Royalty Corporation Forms S-8 (No. 333-14145) filed with the Securities and Exchange
Commission on October 15, 1996, and incorporated herein by reference).
10.7 - Employment Agreement effective August 1, 1990 between Toreador Royalty Corporation and
Peter R. Vig (previously filed as Exhibit 10.7 to Toreador Royalty Corporation Annual
Report on Form 10-K for the year ended December 31, 1989, and incorporated herein by
reference).
10.8 - Second Amendment to Executive Employment Agreement dated as of December 27, 1993 between
Toreador Royalty Corporation and Peter R. Vig. (previously filed as Exhibit 10.4 to
Toreador Royalty Corporation Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by reference).
10.9 - Third Amendment to Executive Employment Agreement between Toreador Royalty
Corporation and Peter R. Vig (previously filed as Exhibit 10.5 to the Toreador
Annual Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference).
10.10 - Fourth Amendment to Executive Employment Agreement between Toreador Royalty Corporation
and Peter R. Vig dated as of April 25, 1995 (previously filed as Exhibit 10.7 to
Toreador Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference).
10.11 - Fifth Amendment to Executive Employment Agreement between Toreador Royalty Corporation
and Peter R. Vig dated as of October 2, 1995 (previously filed as Exhibit 10.8 to
Toreador Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference).
10.12 - Sixth Amendment to Executive Employment Agreement between Toreador Royalty Corporation
and Peter R. Vig dated as of March 2, 1996 (previously filed as Exhibit 10.9 to Toreador
Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein
by reference).
10.13* - Seventh Amendment to Executive Employment Agreement between Toreador Royalty
Corporation and Peter R. Vig dated as of December 31, 1996.
10.14 - Employment Agreement dated February, 1989, as amended by Agreement dated February 28,
1990, between Toreador Royalty Corporation and James S. Blair (previously filed as
Exhibit 4.5 to Toreador Royalty Corporation Form S-8 (No. 333-14145) filed with the
Securities and Exchange Commission on October 15, 1996, and incorporated herein by
reference).
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------------- ------------------------------------------------------------------------------------------
<S> <C>
10.15 - Joint Venture Agreement dated March 1, 1989, among Toreador Royalty Corporation, Bandera
Petroleum, et al. (previously filed as Exhibit 10.9 to Toreador Royalty Corporation
Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated herein
by reference).
10.16 - Toreador Royalty Corporation 1990 Stock Option Plan (previously filed as Exhibit 10.7 to
Toreador Royalty Corporation Annual Report on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference).
10.17 - Toreador Royalty Corporation 1994 Non-Employee Director Stock Option Plan, as amended
(previously filed as Exhibit 10.12 to Toreador Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated herein by reference).
10.18 - Warrant for the Purchase of Shares of Common Stock issued to Petrie Parkman & Co. dated
May 23, 1994 (previously filed as Exhibit 10.1 to Toreador Royalty Corporation
Registration on Form S-3 (No. 33-80572) filed with the Securities and Exchange
Commission on June 22, 1994, and incorporated herein by reference).
10.19 - Form of Indemnification Agreement dated as of April 25, 1995 between Toreador Royalty
Corporation and each of the members of its Board of Directors (previously filed as
Exhibit 10 to Toreador Royalty Corporation Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995, and incorporated herein by reference).
10.20 - Severance Agreement by and between Toreador Royalty Corporation and James S. Blair dated
March 2, 1996 (previously filed as Exhibit 10.16 to Toreador Annual Report on Form 10-K
for the year ended December 31, 1995, and incorporated herein by reference).
21.1* - Subsidiary of Toreador Royalty Corporation.
23.1* - Consent of Price Waterhouse LLP.
23.2* - Consent of Harlan Consulting Inc.
27.1* - Financial Data Schedule.
</TABLE>
_______________
* Filed herewith.
<PAGE> 1
EXHIBIT 10.13
SEVENTH AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment (this "Amendment") is made as of December 31, 1996, by
and between Toreador Royalty Corporation, a Delaware corporation (the
"Company"), acting by and through J. W. Bullion, Secretary of the Company, who
has been authorized by the Board of Directors to execute this Amendment, and
Peter R. Vig (the "Executive") and amends that certain Executive Employment
Agreement made as of August 1, 1990 by and between the Company and the
Executive, as amended by that certain First Amendment to Executive Employment
Agreement made as of July 30, 1992, that certain Second Amendment to Executive
Employment Agreement made as of December 27, 1993, that certain Third Amendment
to Executive Employment Agreement made as of September 8, 1994, that certain
Fourth Amendment to Executive Employment Agreement made as of April 25, 1995,
that certain Fifth Amendment to Executive Employment Agreement made as of
October 2, 1995, and that certain Sixth Amendment to Executive Employment
Agreement made as of March 2, 1996 ("the Employment Agreement"). All
capitalized terms used but not defined herein shall have the respective
meanings ascribed to them in the Employment Agreement.
WHEREAS, the Company desires to continue to employ the Executive
pursuant to the terms of the Employment Agreement and the Executive is willing
to continue to render his service to the Company on the terms and conditions
with respect to such employment set forth therein;
WHEREAS, the Company and the Executive desire to extend the term of
the Employment Agreement to December 31, 1997;
NOW, THEREFORE, in consideration of the premises and mutual terms and
conditions hereof the Company and the Executive hereby agree:
1. To amend Paragraph 4 of the Employment Agreement to read in
its entirety as follows:
This Agreement shall terminate on December 31, 1997,
subject to the earlier termination hereinafter provided.
2. The terms and provisions of the Employment Agreement shall
continue in full force and effect, as amended hereby. In the event of
any conflict between the provisions of the Employment Agreement and
the provisions of this Amendment, this Amendment shall control.
<PAGE> 2
IN WITNESS WHEREOF, the Company and the Executive have executed this
Amendment as of the date and year first written above.
COMPANY:
TOREADOR ROYALTY CORPORATION
By: /s/ J.W. BULLION
-----------------------------------
J. W. Bullion, Secretary
EXECUTIVE:
/s/ PETER R. VIG
---------------------------------------
Peter R. Vig
-2-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARY OF TOREADOR ROYALTY CORPORATION
Toreador Royalty Corporation has one wholly-owned subsidiary, Toreador
Exploration & Production Inc., a Texas corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 333-14145) of Toreador Royalty
Corporation of our report dated March 17, 1997 appearing on page F-2 of this
Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Dallas, Texas
March 17, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the
incorporation by reference in the Registration Statement on Form S-8 (No.
333-14145) of Toreador Royalty Corporation of our estimates of reserves,
included in this Annual Report on Form 10-K, and to all references to our firm
included in this Annual Report.
/s/ HARLAN CONSULTING, INC.
HARLAN CONSULTING INC.
Dallas, Texas
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,074,111
<SECURITIES> 0
<RECEIVABLES> 508,793
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,702,904
<PP&E> 4,884,883
<DEPRECIATION> 1,578,863
<TOTAL-ASSETS> 7,008,924
<CURRENT-LIABILITIES> 319,236
<BONDS> 0
0
0
<COMMON> 836,964
<OTHER-SE> 5,787,216
<TOTAL-LIABILITY-AND-EQUITY> 7,008,924
<SALES> 2,306,791
<TOTAL-REVENUES> 3,114,085
<CGS> 0
<TOTAL-COSTS> 2,124,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 989,850
<INCOME-TAX> 263,100
<INCOME-CONTINUING> 726,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 726,750
<EPS-PRIMARY> .14
<EPS-DILUTED> 0
</TABLE>
