-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BLlHtPOREX+1tFiz3SfTkNN1csw22HspJlJz9LT4Z00eBUFxkgKZ7G86g03gRtgc 5xAReQA7QyNiLfG2C/9+HA== 0000930661-99-000843.txt : 19990416 0000930661-99-000843.hdr.sgml : 19990416 ACCESSION NUMBER: 0000930661-99-000843 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISER OIL CO CENTRAL INDEX KEY: 0000107874 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 550522128 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12640 FILM NUMBER: 99595103 BUSINESS ADDRESS: STREET 1: 8115 PRESTON RD STE 400 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2142650080 MAIL ADDRESS: STREET 1: 8115 PRESTON ROAD STREET 2: SUITE 400 CITY: DALLAS STATE: TX ZIP: 75225 10-K405 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission file number 0-5426 THE WISER OIL COMPANY A DELAWARE CORPORATION -------------------- I.R.S. EMPLOYER IDENTIFICATION NO. 55-0522128 8115 PRESTON ROAD, SUITE 400 DALLAS, TEXAS 75225 TELEPHONE: (214) 265-0080 Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of each class which registered ------------------- ------------------- Common Stock-Par Value, $3.00 Per Share New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Indicate by check mark whether registrant 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, and has been subject to such filing requirements for the past 90 days. X . --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X . --- As of February 26, 1999, registrant had outstanding 8,951,965 shares of common stock, $3.00 par value ("Common Stock"), which is registrant's only class of common stock. The aggregate market value of registrant's Common Stock held by non-affiliates based on the closing price on February 26, 1999 was approximately $15 million. DOCUMENTS INCORPORATED BY REFERENCE (Specific incorporations are identified under the applicable item herein.) Portions of the registrant's proxy statement furnished to stockholders in connection with the May 17, 1999 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference in Part III of this Report. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the close of the registrant's fiscal year. ================================================================================ TABLE OF CONTENTS DESCRIPTION Item Page - ---- ---- PART I 1. BUSINESS.......................................................... 3 2. PROPERTIES........................................................ 25 3. LEGAL PROCEEDINGS................................................. 25 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 25 PART II 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................................. 26 6. SELECTED FINANCIAL DATA........................................... 27 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................. 29 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 36 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............................... 36 PART III 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 36 11. EXECUTIVE COMPENSATION............................................ 36 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................... 36 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 36 PART IV 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..................................................... 37 2 The Wiser Oil Company THE WISER OIL COMPANY PART I Item 1. Business General Founded in 1905, The Wiser Oil Company (the "Company" or "Wiser") is one of the oldest public independent oil and gas companies in the United States. The Company's total proved reserves have grown to 48.0 MMBOE (approximately 58% of which were oil and NGLs) at December 31, 1998 from 24.3 MMBOE at December 31, 1991, and its annual net production has grown to 5.1 MMBOE in 1998 from 2.3 MMBOE in 1991. The Company's primary operations, representing approximately 49% of its proved reserves at December 31, 1998, are located in the Permian Basin in West Texas and Southeast New Mexico. Wiser has additional operations in Alberta, Canada, the Appalachian Basin in Kentucky, Tennessee and West Virginia, and the San Juan Basin in New Mexico. Prior to 1991 the Company focused primarily on the acquisition of non-operated interests in oil and gas properties. In 1991 the Company moved its headquarters from Sistersville, West Virginia to Dallas, Texas and began to assemble a team of experienced management with substantial acquisition, exploitation and development expertise. After reviewing the Company's existing property portfolio and refining the new business strategy, the management team began disposing of the Company's non-strategic assets and acquiring and operating properties in new core areas with the potential for increased reserves and production volumes. Pursuant to this strategy, the Company acquired and developed properties in the Permian Basin and Canada, and added reserves and production through workovers, recompletions, waterfloods and CO2 gas injections, as well as the drilling of exploratory, development and infill wells. A substantial portion of the Company's growth in reserves and production volumes since 1991 has been the result of (i) two enhanced oil recovery projects on properties acquired from 1992 to 1996 in the Permian Basin and (ii) the Company's 1994 acquisition and subsequent exploration on and exploitation of properties in Alberta, Canada. From June 1993 through December 1998, the Company completed 178 producing wells on its Maljamar waterflood project in Southeast New Mexico. As a result, the Company's average daily net production from the three units in this project increased to 2,582 BOE in 1998 from 580 BOE in January 1993 (on a pro forma combined basis, assuming the Company had acquired all three units at January 1, 1993). At its Wellman Unit in West Texas, the Company used CO2 gas injection to increase average daily net production to 1,257 BOE in 1998 from 650 BOE in December 1993. In June 1994 the Company acquired oil and gas properties located primarily in Alberta, Canada for $52.0 million. From the date of their acquisition through December 1998, the Company completed 56 net wells on these properties. As a result, the Company's average daily net Canadian production increased to 3,877 BOE in 1998 from 1,860 BOE in June 1994. The Company's principal executive offices are located at 8115 Preston Road, Suite 400, Dallas, Texas 75225, and its telephone number is (214) 265-0080. Certain oil and gas industry terms used herein are defined in the "Glossary of Oil and Gas Terms" appearing at the end of this Item 1. 3 The Wiser Oil Company Principal Oil and Gas Properties The following table summarizes certain information with respect to each of the Company's principal areas of operation at December 31, 1998.
Proved Reserves ----------------------------------------- 1998 Total Total Percent Average Gross Oil Proved of Total Net Oil and and NGLs Gas Reserves Proved Production Gas Wells (MBbls) (MMcf) (MBOE) Reserves (BOE/Day) --------- -------- -------- -------- -------- ---------- Permian Basin Maljamar............. 230 10,870 4,175 11,566 24% 2,582 Wellman.............. 16 8,463 965 8,624 18% 1,257 Dimmitt/Slash Ranch.. 81 1,660 9,931 3,315 7% 892 ----- ------ ------- ------ --- ------ Total.............. 327 20,993 15,071 23,505 49% 4,731 Appalachian Basin...... 450 1,034 36,784 7,165 15% 1,382 San Juan Basin......... 2,300 45 20,767 3,506 7% 1,255 Other.................. 543 1,513 22,843 5,320 11% 2,752 ----- ------ ------- ------ --- ------ Total United States.... 3,620 23,585 95,465 39,496 82% 10,120 Canada................. 312 4,403 24,516 8,489 18% 3,877 ----- ------ ------- ------ --- ------ Total Company.......... 3,932 27,988 119,981 47,985 100% 13,997 ===== ====== ======= ====== === ======
Permian Basin Maljamar. The Company's Maljamar properties are situated in Southeast New Mexico. At December 31, 1998, the Maljamar properties contained 11.6 MMBOE of proved reserves, which represented 24% of the Company's total proved reserves and 10% of the Company's Present Value of total proved reserves. The Maljamar properties consist primarily of three oil producing units acquired by the Company in separate transactions between 1992 and 1996: the Maljamar Grayburg and Caprock Maljamar Units, both of which are in Lea County, New Mexico, and the Skelly Unit in Eddy County, New Mexico. The Maljamar Grayburg Unit produces from the Grayburg and San Andres formations at depths ranging from 3,800 to 4,500 feet, and the Caprock Maljamar Unit produces from the same formations at depths ranging from 4,000 to 5,000 feet. The Skelly Unit is located approximately five miles west of the two Lea County units and produces from the Seven Rivers, Grayburg and San Andres formations at depths ranging from 2,100 to 4,000 feet. The Company has a 100% working interest in each of these units, which, along with some smaller adjacent properties, have been combined into a single large scale waterflood project encompassing approximately 12,800 gross leasehold acres. Exploitation efforts at the project are essentially complete and included conversion of existing wells to injection wells and the drilling of infill development wells on 20-acre spacing to create 40-acre five-spot water injection patterns. From June 1, 1993 through December 31, 1998, the Company made capital expenditures of approximately $75 million and completed 168 producing wells at the project. At December 31, 1998, the project included 230 producing wells and 174 water injection wells, virtually all of which were operated by the Company. During 1998, Wiser placed a total of 13 wells on production. The Company's net production from the Maljamar properties averaged 2,308 Bbls of oil, 68 Bbls of NGLs and 1,238 Mcf of natural gas per day in 1998. The Company's cumulative net production from the Maljamar properties since acquired by the Company has been 3,171 MBbls of oil and 1.6 Bcf of natural gas through December 31, 1998. Wellman Unit. In 1993 the Company acquired a 62% working interest in and became operator of the Wellman Unit in Terry County, Texas, located in the northwestern edge of the Horseshoe Atoll. During 1998, the Company acquired an additional 28% working interest in the Wellman Unit which increased the Company's working interest to 90% as of December 31, 1998. At December 31, 1998, the Company's Wellman property contained 8.6 MMBOE 4 The Wiser Oil Company of proved reserves, which represented 18% of the Company's total proved reserves and 8% of the Company's Present Value of total proved reserves. The Company owns approximately 2,300 gross (2,100 net) leasehold acres in the Wellman Unit. The Wellman Unit produces oil from the Wolfcamp Reef formation at depths ranging from 9,100 to 10,000 feet through the injection of water and CO2 into the reservoir. Water injection at the unit began in 1979, and CO2 injection began in 1983. The unit also includes a gas processing plant, which processes wellhead gas produced from the unit. Wiser's interest in this plant is proportionate to its working interest in the Wellman Unit. Processing at the plant involves subjecting the wellhead gas to high pressure and low temperature treatments that cause the gas to separate into various products, including NGLs, residual natural gas and CO2. The NGLs and residual natural gas are sold to pipeline companies, and the CO2 is reinjected into the unit's reservoir. At December 31, 1998, the unit included 16 productive wells, three water injection wells, three CO2 injection wells and three water disposal wells, all of which were operated by the Company. The Company's net production from the Wellman Unit averaged 754 Bbls of oil, 453 Bbls of NGLs and 300 Mcf of natural gas per day in 1998. The Company's cumulative net production from the unit since acquired by the Company has been 1,801 MBbls of oil, 601 MBbls of NGLs and 421 MMcf of natural gas through December 31, 1998. In 1994 the Company began reconditioning the gas processing plant at the Wellman Unit to enhance the extraction of NGLs and residual natural gas from the wellhead gas. The Company completed the reconditioning project in June 1995 at a total cost of approximately $6.0 million. For the year ended December 31, 1998, the gas plant processed an average of 34 MMcf of gross natural gas and CO2 per day and recovered an average of 611 Bbls of NGLs and 419 Mcf of residual natural gas per day. The plant currently operates at 96% of its maximum capacity of 35 MMcf of gas per day. Dimmitt/Slash Ranch Fields. The Company's Dimmitt/Slash Ranch properties are situated in Loving County, Texas, 80 miles west of Midland, Texas. At December 31, 1998, the Dimmitt/Slash Ranch properties contained 3.3 MMBOE of proved reserves, which represented 7% of the Company's total proved reserves and 8% of the Company's Present Value of total proved reserves. The Company owns approximately 5,320 gross (5,290 net) leasehold acres in the Dimmitt Field, and has working interests in this acreage ranging from 75% to 100%. The Company acquired its initial interest in and became operator of the field in 1993. The Dimmitt Field produces oil and gas from the Cherry Canyon and Bell Canyon formations at depths ranging from 4,700 to 6,700 feet. At December 31, 1998, the field included 77 productive wells. The Slash Ranch Field is a natural gas field that underlies the Dimmitt Field. The Company owns approximately 4,160 gross (3,390 net) leasehold acres in the Slash Ranch Field. The Slash Ranch Field produces from the Atoka, Fusselman and Ellenburger formations at depths ranging from 15,000 to 20,000 feet. At December 31, 1998, the field included four producing wells, all of which were operated by the Company. The Company's working interests in these wells range from 34% to 100%. The Company's net production from the Dimmitt/Slash Ranch properties averaged 442 Bbls of oil and 2,701 Mcf of natural gas per day in 1998. The Company's cumulative net production from the properties since acquired by the Company has been 616 MBbls of oil and 5.0 Bcf of natural gas through December 31, 1998. Appalachian Basin The Company's Appalachian Basin properties are situated in Kentucky, Tennessee and West Virginia. At December 31, 1998, these properties contained 7.2 MMBOE of proved reserves, which represented 15% of the Company's total proved reserves and 16% of the Company's Present Value of total proved reserves. The Appalachian Basin reserves are long-lived reserves (generally, over 40 years) characterized by gradual decline rates. 5 The Wiser Oil Company The Company has operated in Kentucky and Tennessee since 1917 and owns approximately 123,000 gross (108,000 net) leasehold acres in 22 shallow natural gas fields in southeastern Kentucky and northeastern Tennessee. The Company's working interests in this acreage range from 33% to 100%. The Company has a 100% working interest in approximately 90% of the total acreage. The primary producing formations in these fields are the Maxon, Big Lime and Corniferous at a maximum depth of less than 3,000 feet. At December 31, 1998, the Company owned 329 gross (296 net) productive wells in these fields, of which approximately 98% were operated by the Company. Although daily production from individual wells in the fields is low (on average, 30 Mcf per day), the production generally receives a higher sales price than the Company's other natural gas production because of the proximity of the fields to the northeastern United States gas markets. The Company completed four development wells and one exploratory well in Kentucky and Tennessee in 1998. The Company owns approximately 20,000 gross (14,000 net) leasehold acres in the Blue Creek Field in Clay and Kanawha Counties, West Virginia. The Company has an average 70% working interest in this acreage, which it acquired in February 1996. The Blue Creek Field produces from the Rosedale, Injun, Keener and Weir formations, ranging from depths of 1,200 to 2,800 feet. At December 31, 1998, the Company owned 121 gross (88 net) productive gas wells in this field, all of which were operated by another company. During 1998, the Company participated in the drilling of 28 gross (21 net) development wells in the Blue Creek Field and an additional 55 low-risk exploratory drilling locations have been identified in this field. The Company owns and operates an extensive natural gas gathering and transportation system located in its producing areas of Kentucky and Tennessee. The system consists of approximately 340 miles of gas gathering pipelines, 6 gas compressor stations, two gas processing plants and two gas storage reservoirs. The pipelines have a throughput capacity of approximately 20 MMcf of natural gas per day. During the year ended December 31, 1998, the pipelines gathered an average of 11.3 MMcf of natural gas per day. The two processing plants have a total capacity of 15 MMcf of natural gas per day. During the year ended December 31, 1998, the plants processed an average of 9.5 MMcf of natural gas per day and recovered an average of 148 Bbls of NGLs per day. See "-Marketing of Production." The Company's net production from its Appalachian Basin properties averaged 6,967 Mcf of natural gas, 65 Bbls of oil and 156 Bbls of NGLs per day in 1998. San Juan Basin The Company's San Juan Basin properties are located in Rio Arriba County in northwestern New Mexico. At December 31, 1998, the San Juan Basin properties contained 3.5 MMBOE of proved reserves, which represented 7% of the Company's total proved reserves and 10% of the Company's Present Value of total proved reserves. The Company owns approximately 11,100 gross (5,300 net) leasehold acres in the San Juan Basin. The Company's average 48% working interest in the acreage was contributed in connection with a unitization of the wells in the San Juan Basin fields in the 1950's, resulting in the ownership by the Company of small non-operated working interests in the wells. At December 31, 1998, the Company owned working interests in approximately 2,300 producing gas wells in the San Juan Basin. These working interests range from 0.21% to 4.2% and average approximately 1.8%. The Company's San Juan Basin properties produce from multiple formations ranging from depths of 3,500 feet to 8,000 feet. The Company's net production from these properties averaged 6,964 Mcf of natural gas and 94 Bbls of oil per day in 1998. During the year ended December 31, 1998, approximately 35% of the Company's net production from these properties was from the Fruitland Coal seams. Such production generates nonconventional fuels income tax credits for Wiser under Section 29 of the Internal Revenue Code of 1986, as amended. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations." The Company expects that future development of the properties will depend on natural gas prices, and that its share of the costs of any such future development activities will not be significant. Other U.S. Properties 6 The Wiser Oil Company The Company's other United States properties include properties located in the Anadarko Basin in Texas and Oklahoma and the Gulf Coast onshore region. Canada In June 1994, Wiser established an important new core area with the completion of a $52.0 million acquisition of Canadian oil and gas properties from Eagle Resources, Ltd. The purchase included 7.2 MMBOE of proved reserves and 2.8 MMBOE of probable reserves, approximately 127,000 net undeveloped acres, seven exploration prospects and an existing staff of 23 persons. At December 31, 1998, the Company's Canadian properties contained 8.5 MMBOE of proved reserves, which represented 18% of the Company's total proved reserves and 29% of the Present Value of the Company's total proved reserves. The following table summarizes certain information with respect to each of the Company's principal Canadian areas of operation at December 31, 1998:
Proved Reserves --------------------------------------- Percent 1998 Total Total of Total Average Gross Oil Proved Canadian Net Oil and and NGLs Gas Reserves Proved Production Gas Wells (MBbls) (MMcf) (MBOE) Reserves (BOE/Day) --------- -------- ------ -------- -------- ---------- Evi........... 14 1,895 -- 1,895 22% 930 Provost....... 75 853 1,252 1,062 13% 857 Portage....... 13 -- 3,939 657 8% 407 Elm........... 5 309 1,484 556 7% 52 Pine Creek.... 7 122 1,370 350 4% 163 Other......... 198 1,224 16,471 3,969 46% 1,468 --- ----- ------ ----- --- ----- Total Canada.. 312 4,403 24,516 8,489 100% 3,877 === ===== ====== ===== === =====
Evi. The Company's Evi Field is located approximately 400 miles north of Calgary. At December 31, 1998, the Evi Field contained 1,895 MBOE of proved reserves, which represented 22% of the Company's total Canadian proved reserves and 31% of the Present Value of the Company's total Canadian proved reserves. The Company owns approximately 5,280 gross (2,080 net) leasehold acres in the Evi Field, and has an average 42% working interest in this acreage. The Evi Field produces oil from the Granite Wash formation at depths ranging from 4,900 to 5,000 feet. The Company's net production from the Evi Field averaged 930 Bbls of oil per day in 1998. At December 31, 1998, the Company owned 14 gross (5.1 net) productive wells and 2 gross (0.4 net) water disposal wells in the field, of which 11 productive wells and both water disposal wells were operated by Wiser. Provost. The Company's Provost properties are located approximately 210 miles northeast of Calgary. At December 31, 1998, the Provost properties contained 1,062 MBOE of proved reserves, which represented 13% of the Company's total Canadian proved reserves and 9% of the Present Value of the Company's total Canadian proved reserves. The Company owns approximately 7,090 gross (4,630 net) leasehold acres in the Provost properties, and has an average 65% working interest in this acreage. The Provost properties produce mainly from the Dina formation at depths of 3,070 to 3,170 feet. The Provost Dina `X' and Cummings W3W Pools are the Company's main producing pools in these properties and water injection in these pools began in 1990 and 1998, respectively. The Company drilled 4 wells in the Provost properties in 1998 and plans to drill 3 additional wells in Provost in 1999. The Company's net production from the Provost properties averaged 857 Bbls of oil per day in 1998. At December 31, 1998, the Company owned 75 gross (51.8 net) productive wells and 4 gross (3 net) water injection wells on the properties, of which 56 gross productive wells and all four water injection wells were operated by the Company. 7 The Wiser Oil Company Portage. The Company's Portage properties are located approximately 350 miles northeast of Calgary. At December 31, 1998, the Portage properties contained 657 MBOE of proved reserves, which represented 8% of the Company's total Canadian proved reserves and 12% of the Present Value of the Company's total Canadian proved reserves. The Company owns approximately 19,200 gross (11,488 net) leasehold acres in the Portage properties, and has an average 60% working interest in this acreage. The Portage properties produce from the Grand Rapids and Nisku formations at depths of 850 and 1,400 feet, respectively. At December 31, 1998, the Company owned 13 gross (11.3 net) productive wells, 11 of which were operated by Wiser. The Portage properties commenced production in March 1998 and net production from the Portage properties averaged 2,442 Mcf of natural gas per day in 1998. Elm. The Company's Elm properties are located approximately 500 miles northwest of Calgary in British Columbia. At December 31, 1998, the Elm properties contained 556 MBOE of proved reserves, which represented 7% of the Company's total Canadian proved reserves and 4% of the Present Value of the Company's total Canadian proved reserves. The Company owns approximately 9,140 gross (4,570 net) leasehold acres in the Elm properties, and has an average 50% working interest in this acreage. The Elm properties produce from the Gething formation at depths of 4,000 to 4,100 feet. At December 31, 1998, the Company owned 5 gross (3.0 net) productive wells, all of which were operated by Wiser. The Company's net production from the Elm properties averaged 52 Bbls of oil per day in 1998. Pine Creek. The Company's Pine Creek properties are located approximately 240 miles northwest of Calgary. At December 31, 1998, the Pine Creek properties contained 350 MBOE of proved reserves, which represented 4% of the Company's total Canadian proved reserves and 3% of the Present Value of the Company's total Canadian proved reserves. The Company owns approximately 9,120 gross (2,480 net) leasehold acres in the Pine Creek properties, and has a 27% working interest in this acreage. The Pine Creek properties produce gas from the Bluesky and Gething formations at depths of 8,000 to 8,200 feet. At December 31, 1998, the Company owned 7 gross (1.7 net) productive wells in the Pine Creek properties, all of which were operated by a third party. The Company's net production from the Pine Creek properties averaged 521 Mcf of natural gas per day and 165 Bbls of NGLs per day in 1998. Other Canadian Properties. The Company owns interests in approximately 30 other Canadian properties, primarily located in its principal areas of operation. For the year ended December 31, 1998, these properties individually represented less than 5%, and in the aggregate represented approximately 46%, of the Company's total Canadian proved reserves. Exploration Activities United States The objective of Wiser's domestic exploration program is to maintain and develop an inventory of high quality drilling opportunities. Exploration prospects have been generated in-house and through alliances with other oil companies by utilizing advanced technology that includes 3-D seismic, and pre and post-stack inversion techniques. In 1998 the Company's exploration efforts were, and continue to be, focused on specific exploration plays that are economically viable during this period of depressed oil prices. Specifically, the Company is concentrating on relatively low-risk, largely gas prone areas. Wiser has deferred or dropped higher-risk oil or gas prospects, and long-term projects that will not yield an adequate return on investment. Wiser will retain control of most of these deferred projects, and will have the option of continuing work when prices improve. In 1998, Wiser participated in 29 gross (18 net) domestic exploration wells, compared with 18 gross (10 net) wells in 1997, spending $10.5 million in 1998 and $8.9 million in 1997 on domestic exploration. The Company has budgeted a nominal amount for its 1999 domestic exploration program pending improvement in oil prices during 1999. 8 The Wiser Oil Company The Company is currently focusing its domestic exploration activities in the following geographical areas: South Texas. In this area the Company has continued to utilize 3-D seismic surveys to identify relatively shallow (3,000-8,500 ft), Frio and Yegua drilling prospects, primarily in Jim Wells and Refugio Counties. During 1998 three additional 3-D seismic surveys were acquired, adding 75 square miles of data to an existing 80 square mile grid of 3-D seismic data. In 1998 Wiser participated in 21 gross wells (15 net) in South Texas of which 11 were completed as gas wells (7 net), 2 as oil wells (2 net), and 9 wells were plugged and abandoned (6 net). While the interpretation of the most recently acquired seismic data is continuing, approximately 30 low-risk, gas-prone drilling prospects have been identified for future drilling. The Company's working interests in these prospects range from approximately 40% to 80%. West Texas. At the Coyonosa Prospect in Pecos County, the Company drilled one dry hole and drilled and completed one oil well during 1998. The Company has a 38% working interest in the Coyonosa Prospect and may drill an additional well at the Coyonosa Prospect in 1999. Wiser has also identified for future drilling several shallow gas prospects (6,500 ft.) in the Indian Mesa and Panther Bluff Prospects in Pecos County. Wiser has a 25% working interest in both the Indian Mesa and Panther Bluff Prospects. Gulf Coast. During 1998, the Company participated in the drilling of two dry holes (.8 net) at the Tecumseh Prospect in West Feliciana Parish, Louisiana. Wiser does not plan to drill any additional wells at this prospect. The Company completed the acquisition and processing of two 3-D seismic surveys in the Gulf Coast area during 1998. At the Bison Ridge Prospect in Lafayette Parish, Louisiana, a 62 square mile 3-D seismic survey was completed and is currently being interpreted. Wiser has a 25% working interest in the Bison Ridge prospect. The Company has also completed the processing and interpretation of a 3-D seismic survey and identified a future drilling location in the Castleberry Prospect, in Conecuh County, Alabama where the Company has a 50% working interest. Wiser also has a 50% working interest at the Little Crow Prospect in southwest Mississippi, where seismic interpretation is complete and a future drilling location has been identified. Canada Wiser focuses its Canadian exploration activities in specific regions within the Western Canadian Sedimentary Basin in close proximity to known producing horizons where the potential for significant reserves exists. The Company's technical personnel have considerable experience in this focus area. During 1998, the Company drilled 6 gross (3 net) exploratory wells, of which 3 gross (2 net) were successful. The Company spent $2.1 million on exploration in Canada in 1998 and has budgeted a nominal amount for its 1999 Canadian exploration program pending improvement in oil prices during 1999. The Company is currently focusing its Canadian exploration activities in the following geographical areas: West Central Alberta. In 1998, the Company successfully completed an exploratory well at the Sunchild prospect and identified a second prospect to the south of Sunchild at the Ferrier prospect. A follow-up well location has been identified at Sunchild, and an exploratory well location has been identified at Ferrier for future exploratory drilling. The Company's working interests in the Sunchild and Ferrier prospects range from 27% to 50%. At the Wild River prospect, the Company finsihed drilling a 14,000 foot exploratory well in March of 1999 and this well is currently being tested. The Company has a 50% working interest in the Wild River prospect. 9 The Wiser Oil Company Southeast Alberta. The Company initiated a waterflood in the Cummings W3W Pool at Provost during 1998. Wiser's average working interest in the Provost properties is 65%. International Peru. The Company participated in an unsuccessful exploratory well in Peru in 1998 at a net cost of $1.6 million to Wiser and currently the Company has no additional plans to participate in exploration programs in Peru. Brazil. In 1998, Wiser elected to withdraw from its Brazilian exploration and development program. Marketing of Production The Company markets its production of oil, natural gas and NGLs to a variety of purchasers, including large refiners and resellers, pipeline affiliate marketers, independent marketers, utilities and industrial end-users. To help manage the impact of potential price declines, Wiser has developed a portfolio of long- and short-term contracts with prices that are either fixed or related to market conditions in varying degrees. Most of the Company's production is sold pursuant to contracts that provide for market-related pricing for the areas in which the production is located. During the year ended December 31, 1998, revenues from the sale of production to Highland Energy Company, Koch Oil Co. Ltd. and Enron Oil Trading and Transportation represented approximately 34%, 13% and 9%, respectively, of the Company's total oil and gas revenues. The sales to Koch Oil Co. Ltd. accounted for approximately 55% of the Company's revenues from sales of its Canadian production in 1998. The Company believes it would be able to locate alternate purchasers in the event of the loss of any one or more of these purchasers, and that any such loss would not have a material adverse effect on the Company's financial condition or results of operations. Crude Oil. The Company sells its crude oil and condensate to various refiners and resellers in the United States and Canada at posting-related and spot- related prices that also depend on factors such as well location, production volume and product quality. The Company typically sells its crude oil and condensate production at or near the well site, although in some cases it is gathered by the Company or others and delivered to a central point of sale. The Company's crude oil and condensate production is transported by truck or by pipeline and is typically committed to arrangements having a term of one year or less. The Company has not engaged in crude oil trading activities. Revenue from the sale of crude oil and condensate totaled $29.8 million for the year ended December 31, 1998 and represented 50% of the Company's total oil and gas revenues for 1998. From time to time, the Company enters into crude oil and natural gas price hedges to reduce its exposure to commodity price fluctuation. See "Quantitative and Qualitative Disclosures about Market Risk - Commodity Price Risk" and Note 1 to the Company's Consolidated Financial Statements included elsewhere in this Report. 10 The Wiser Oil Company Natural Gas. The Company sells its produced natural gas and gathered gas to utilities, marketers, processor/resellers and industrial end-users primarily under market-sensitive, long-term contracts or daily, monthly or multi-month spot agreements. An insignificant amount of the Company's natural gas is committed to long-term, fixed-price sales agreements. To accomplish the delivery and sale of certain of its natural gas, the Company has entered into long-term agreements with various natural gas gatherers that deliver its gas to points of sale on major transmission pipelines. In Kentucky and Tennessee, the Company owns and operates an extensive natural gas gathering and transportation system consisting of approximately 340 miles of pipeline, 8 gas compressor stations, two gas processing plants and two gas storage reservoirs. The Company utilizes this system to procure, aggregate and deliver natural gas produced from over 260 wells that are owned and operated by the Company, comprising most of its Appalachian Basin natural gas production, together with natural gas produced from wells owned and operated by others, in meeting its delivery obligations under a sales contract with a local utility. This sales contract, which expires on October 31, 1999, provides for market- related pricing plus payment of a stated standby demand charge based on an established peak-day delivery obligation. The maximum daily volume of natural gas that the utility may demand is subject to annual adjustment (never to exceed 12,000 Mcf per day) and currently is fixed at 8,910 Mcf per day. The maximum annual volume of natural gas that the utility may demand under this contract is limited to 2,200,000 Mcf. The Company also utilizes its Kentucky/Tennessee gathering and transportation system to transport natural gas on behalf of third parties and natural gas purchased from third parties for resale. The Company believes that it has sufficient production from its properties, and from those of others tied to its gathering and transportation system, to meet the Company's delivery obligations under its existing natural gas sales contracts. NGLs. From its natural gas processing plants in West Texas and Kentucky, the Company sells NGLs to independent marketers for resale. A direct pipeline connection to the Texas Gulf Coast market area facilitates the sale of NGLs from the Company's Wellman Unit, and enables the Company to receive prices that are representative of the daily market value of NGLs on the Texas Gulf Coast, less transportation and fractionation costs. The market for NGLs in Kentucky is less competitive, with higher transportation costs in that region due to the absence of product pipelines. The Company's average price in 1998 for NGLs sold from Company-operated plants or under processing agreements with others was $9.25 per Bbl. Prices for NGLs attributable to natural gas sold to plants operated by others are generally included in the prices reported by the Company for the sale of its natural gas. Price Considerations. Crude oil prices are established in a highly liquid, international market, with average crude oil prices received by the Company generally fluctuating with changes in the futures price established on the NYMEX for West Texas Intermediate Crude Oil ("NYMEX-WTI"). The average crude oil price per Bbl received by the Company in 1998 was $12.46. The average NYMEX-WTI closing price per Bbl for 1998 was $14.43. Natural gas prices in each of the geographical areas in which the Company operates are closely tied to established price indices which are heavily influenced by national and regional supply and demand factors and the futures price per MMBtu for natural gas delivered at Henry Hub, Louisiana established on the NYMEX ("NYMEX-Henry Hub"). At times, these indices correlate closely with the NYMEX-Henry Hub price, but often there are significant variances between the NYMEX-Henry Hub price and the indices used to price the Company's natural gas. Average natural gas prices received by Wiser in each of its operating areas generally fluctuate with changes in these established indices. The average natural gas price per Mcf received by the Company in 1998 was $1.84. The average NYMEX-Henry Hub price per MMBtu for 1998 was $2.14, computed by averaging the closing price on the last three trading days for the prompt month NYMEX natural gas futures contract applicable to each month in 1998. The average natural gas price received by the Company in 1998 was lower than such 1998 NYMEX-Henry Hub price as a result of pricing differentials determined by the location of the Company's natural gas production relative to the Henry Hub trading point and lower natural gas prices generally applicable to Canadian natural gas production relative to U.S. production. 11 The Wiser Oil Company Oil and Gas Reserves The following table sets forth the proved developed and undeveloped reserves of the Company at December 31, 1998:
Oil and NGLs (MBbls) Gas (Mmcf) Total Reserves (MBOE) -------------------------------- ------------------------------- ------------------------------ Developed Undeveloped Total Developed Undeveloped Total Developed Undeveloped Total --------- ----------- ------ --------- ----------- ------- --------- ----------- ------ Permian Basin Maljamar................. 10,218 652 10,870 4,101 74 4,175 10,902 664 11,566 Wellman.................. 8,463 -- 8,463 965 -- 965 8,624 -- 8,624 Dimmitt/Slash Ranch...... 1,439 221 1,660 9,501 430 9,931 3,022 293 3,315 ------ ----- ------ ------- ----- ------- ------ ----- ------ Total.................. 20,120 873 20,993 14,567 504 15,071 22,548 957 23,505 Appalachian Basin.......... 1,034 -- 1,034 30,194 6,590 36,784 6,067 1,098 7,165 San Juan Basin............. 34 11 45 19,006 1,761 20,767 3,201 305 3,506 Other...................... 1,513 -- 1,513 22,843 -- 22,843 5,320 -- 5,320 ------ ----- ------ ------- ----- ------- ------ ----- ------ Total United States........ 22,701 884 23,585 86,610 8,855 95,465 37,136 2,360 39,496 Canada..................... 4,253 150 4,403 23,736 780 24,516 8,209 280 8,489 ------ ----- ------ ------- ----- ------- ------ ----- ------ Total Company.............. 26,954 1,034 27,988 110,346 9,635 119,981 45,345 2,640 47,985 ====== ===== ====== ======= ===== ======= ====== ===== ======
The following table summarizes the Company's proved reserves, the estimated future net revenues from such proved reserves and the Present Value and Standardized Measure of Discounted Future Net Cash Flows attributable thereto at December 31, 1998, 1997 and 1996:
At December 31, ------------------------------------------ 1998 1997 1996 -------- -------- -------- (000's except weighted average sales prices) Proved reserves: Oil and NGLs (Bbl)................................. 27,988 29,721 31,612 Gas (Mcf).......................................... 119,981 120,094 113,377 BOE............................................... 47,985 49,737 50,508 Estimated future net revenues before income taxes.. $218,969 $359,293 $705,723 Present Value...................................... $123,831 $210,087 $414,314 Standardized Measure(1)............................ $113,232 $174,489 $317,180 Proved developed reserves: Oil and NGLs (Bbl)................................. 26,954 28,202 28,117 Gas (Mcf).......................................... 110,346 109,459 103,129 BOE............................................... 45,345 46,444 45,305 Estimated future net revenues before income taxes.. $207,884 $335,338 $631,406 Present Value...................................... $122,502 $200,647 $381,169 Weighted average sales prices: Oil (per Bbl)...................................... $ 10.39 $ 15.92 $ 24.63 Gas (per Mcf)...................................... 1.98 2.35 3.45 NGLs (per Bbl)..................................... 8.44 11.40 19.79
(1) The Standardized Measure of Discounted Future Net Cash Flows prepared by the Company represents the present value (using an annual discount rate of 10%) of estimated future net revenues from the production of proved reserves, after giving effect to income taxes. See the Supplemental Financial Information attached to the Consolidated Financial Statements of the Company included elsewhere in this Report for additional information regarding the disclosure of the Standardized Measure information in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 69, "Disclosures about Oil and Gas Producing Activities." All information set forth in this Report relating to the Company's proved reserves, estimated future net revenues and Present Values is taken from reports prepared by DeGolyer and MacNaughton (with respect to the Company's 12 The Wiser Oil Company United States properties) and Gilbert Lausten Jung Associates Ltd. (with respect to the Company's Canadian properties), each of which is a firm of independent petroleum engineers. The estimates of these engineers were based upon review of production histories and other geological, economic, ownership and engineering data provided by the Company. No reports on the Company's reserves have been filed with any federal agency. In accordance with guidelines of the Securities and Exchange Commission ("SEC"), the Company's estimates of proved reserves and the future net revenues from which Present Values are derived are made using year end oil and gas sales prices held constant throughout the life of the properties (except to the extent a contract specifically provides otherwise). A decline in prices relative to year end 1998 could cause a significant decline in the Present Value attributable to the Company's proved reserves at December 31, 1998. Operating costs, development costs and certain production-related taxes were deducted in arriving at estimated future net revenues, but such costs do not include debt service, general and administrative expenses and income taxes. There are numerous uncertainties inherent in estimating oil and gas reserves and their values, including many factors beyond the Company's control. The reserve data set forth in this Report represents estimates only. Reservoir engineering is a subjective process of estimating the sizes of underground accumulations of oil and gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation, and judgment. As a result, estimates of different engineers, including those used by the Company, may vary. In addition, estimates of reserves are subject to revision based upon actual production, results of future development, exploitation and exploration activities, prevailing oil and gas prices, operating costs and other factors, which revisions may be material. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered and are highly dependent upon the accuracy of the assumptions upon which they are based. There can be no assurance that these estimates are accurate predictions of the Company's oil and gas reserves or their values. Estimates with respect to proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be substantial, in the estimated reserves. 13 The Wiser Oil Company Net Production, Sales Prices and Costs The following table presents certain information with respect to oil and gas production, prices and costs attributable to all oil and gas property interests owned by the Company for the three-year period ended December 31, 1998. Year Ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Production volumes: Oil (MBbl) United States............................ 1,577 1,769 1,732 Canada................................... 816 672 693 ------- ------- ------- Total Company.......................... 2,393 2,441 2,425 Gas (MMcf) United States (1)........................ 11,143 10,095 9,479 Canada................................... 3,221 2,734 2,809 ------- ------- ------- Total Company (1)...................... 14,364 12,829 12,288 NGLs (MBbl) United States............................ 260 267 301 Canada................................... 62 52 50 ------- ------- ------- Total Company.......................... 322 319 351 Weighted average sales prices (2): Oil (per Bbl) United States............................ $ 12.68 $ 18.30 $ 18.91 Canada................................... 12.04 17.28 18.55 Total Company.......................... 12.46 18.02 18.81 Gas (per Mcf) United States (1)........................ $ 2.05 $ 2.46 $ 1.95 Canada................................... 1.12 1.26 1.16 Total Company.......................... 1.84 2.21 1.77 NGLs (per Bbl) United States............................ $ 9.41 $ 13.34 $ 12.88 Canada................................... 8.56 16.64 16.21 Total Company.......................... 9.25 13.87 13.36 Selected expenses per BOE (3): Lease operating United States............................ $ 5.01 $ 5.03 $ 4.53 Canada................................... 3.05 3.50 3.04 Total Company.......................... 4.45 4.65 4.14 Production taxes (4) United States............................ $ 0.84 $ 1.02 $ 0.93 Depreciation, depletion and amortization United States............................ $ 4.48 $ 3.88 $ 3.36 Canada................................... 6.54 7.58 6.49 Total Company.......................... 5.15 4.79 4.16 General and administrative United States............................ $ 2.11 $ 2.17 $ 2.11 Canada................................... 1.41 1.54 1.61 Total Company.......................... 1.96 2.02 1.98 - -------------------- (1) Calculated by including volumes of natural gas purchased for resale as follows: 1998 - 608 MMcf, 1997-629 MMcf and 1996-605 MMcf. (2) Reflects results of hedging activities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Other Matters." (3) Calculated without including volumes of natural gas purchased for resale. 14 The Wiser Oil Company (4) Canada does not assess production taxes on revenue derived from oil and gas production from Crown lands. However, in Canada, royalties are payable to the provincial governments on production from Crown lands, subject to certain programs that provide for royalty rate reductions, royalty holidays and tax credits for the purpose of encouraging oil and gas exploration and development. See "-Governmental Regulation-Canada." Productive Wells and Acreage Productive Wells The following table sets forth the Company's domestic and Canadian productive wells at December 31, 1998: Productive Wells ---------------------------------------------- Oil Gas Total ------------- ------------- ------------- Gross Net Gross Net Gross Net ----- --- ----- --- ----- --- United States.. 739 644 2,881 (1) 523 3,620 1,167 Canada......... 234 71 78 32 312 103 --- --- ----- --- ----- ----- Total........ 973 715 2,959 555 3,932 1,270 === === ===== === ===== ===== (1) 2,300 of the Company's gross natural gas wells are located in the San Juan Basin. The Company has non-operated working interests in these wells ranging from 0.21% to 4.2%. Acreage The following table sets forth the Company's undeveloped and developed gross and net leasehold acreage at December 31, 1998. Undeveloped acreage includes 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 such acreage contains proved reserves. Undeveloped Developed Total ---------------- ---------------- ---------------- Gross Net Gross Net Gross Net ------- ------- ------- ------- ------- ------- Permian Basin Maljamar............... -- -- 13,013 13,001 13,013 13,001 Wellman................ -- -- 2,280 1,952 2,280 1,952 Dimmitt/Slash Ranch.... 3,389 3,178 6,035 5,229 9,423 8,408 ------- ------- ------- ------- ------- ------- Total................ 3,389 3,178 21,328 20,183 24,716 23,361 Appalachian Basin...... 10,379 7,222 114,376 96,377 124,755 103,599 San Juan Basin......... -- -- 11,160 5,831 11,160 5,831 Other.................. 95,096 42,834 46,118 15,349 141,213 58,183 ------- ------- ------- ------- ------- ------- Total United States.. 108,864 53,235 192,981 137,739 301,844 190,973 Canada................. 141,436 75,237 56,795 25,359 198,231 100,596 ------- ------- ------- ------- ------- ------- Total.................. 250,299 128,471 249,776 163,098 500,075 291,569 ======= ======= ======= ======= ======= ======= (1) Excluded is acreage in which the Company's interest is limited to a mineral or royalty interest. At December 31, 1998, the Company held mineral or royalty interests in 212,228 gross (18,480 net) developed acres and 1,520,897 gross (216,836 net) undeveloped acres. All the leases for the undeveloped acreage summarized in the preceding table will expire at the end of their respective primary terms unless prior to that date the existing leases are renewed or production has been obtained from the acreage subject to the lease, in which event the lease will remain in effect until the cessation of production. The following table sets forth the minimum remaining lease terms for the gross and net undeveloped acreage: 15 The Wiser Oil Company Acres Expiring ---------------- Gross Net ------- ------- Twelve Months Ending: December 31, 1999.......................... 42,631 22,278 December 31, 2000.......................... 24,772 14,320 Thereafter................................. 182,896 91,873 ------- ------- Total.................................... 250,299 128,471 ======= ======= As is customary in the industry, the Company generally acquires oil and gas acreage without any warranty of title except as to claims made by, through or under the transferor. Although the Company has title to developed acreage examined prior to acquisition in those cases in which the economic significance of the acreage justifies the cost, there can be no assurance that losses will not result from title defects or from defects in the assignment of leasehold rights. In many instances, title opinions may not be obtained if in the Company's judgment it would be uneconomical or impractical to do so. Drilling Activity The following table sets forth for the three-year period ended December 31, 1998 the number of exploratory and development wells drilled by or on behalf of the Company. 1998 1997 1996 ---------- ---------- ---------- Gross Net Gross Net Gross Net ----- --- ----- --- ----- --- Exploratory Wells: - ------------------ United States Producing....... 16 11 10 6 1 1 Dry............. 14 7 8 4 2 1 Canada Producing....... 3 2 3 2 1 1 Dry............. 3 1 1 1 6 4 Development Wells: - ------------------ United States Producing....... 58 44 80 71 93 85 Dry............. 2 1 2 1 2 1 Canada Producing....... 19 12 39 18 21 15 Dry............. 7 4 6 4 5 3 Total Wells: - ------------ Producing....... 96 69 132 97 116 102 Dry............. 26 13 17 10 15 9 --- --- --- --- --- --- Total......... 122 82 149 107 131 111 === === === === === === Operations The Company generally seeks to be named as operator for wells in which it has acquired a significant interest, although, as is common in the industry, this typically occurs only when the Company owns the major portion of the working interest in a particular well or field. At December 31, 1998, the Company operated 100% of its properties in the Permian Basin, comprising approximately 49% of the Company's total proved reserves, including Maljamar (230 gross wells), Wellman (16 gross wells) and Dimmitt/Slash Ranch (81 gross wells). At December 31, 1998, the Company owned 368 gross wells on its Kentucky and Tennessee properties, of which approximately 98% were operated by the Company. At that same date, the Company also operated 106 (out of a total of 312) gross wells on its Canadian properties. 16 The Wiser Oil Company As operator, the Company is able to exercise substantial influence over the development and enhancement of a well and to supervise operation and maintenance activities on a daily basis. The Company does not conduct the actual drilling of wells on properties for which it acts as operator, but engages independent contractors who are supervised by the Company. The Company employs petroleum engineers, geologists and other operations and production specialists who strive to improve production rates, increase reserves and/or lower the cost of operating its oil and gas properties. Oil and gas properties are customarily operated under the terms of a joint operating agreement, which provides for reimbursement of the operator's direct expenses and monthly per-well supervision fees. Per-well supervision fees vary widely depending on the geographic location and producing formation of the well, whether the well produces oil or gas and other factors. Such fees received by the Company in 1998 ranged from $95 to $870 per well per month. Competition The oil and gas industry is highly competitive. The Company encounters competition from other oil and gas companies in all areas of its operations, including the acquisition of producing properties. The Company's competitors include major integrated oil and gas companies and numerous independent oil and gas companies, individuals and drilling and income programs. Many of its competitors are large, well established companies with substantially larger operating staffs and greater capital resources than the Company. Such companies may be able to pay more for productive oil and gas properties and exploratory prospects and to define, evaluate, bid for and purchase a greater number of properties and prospects than the Company's financial or human resources permit. The Company's ability to acquire additional properties and to discover reserves in the future will depend upon its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. Drilling and Operating Risks Drilling activities are subject to many risks, including the risk that no commercially productive oil or gas reservoirs will be encountered. There can be no assurance that new wells drilled by the Company will be productive or that the Company will recover all or any portion of its investment. Drilling for oil and gas may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. The cost of drilling, completing and operating wells is often uncertain. The Company's drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, many of which are beyond its control, including economic conditions, mechanical problems, pressure or irregularities in formations, title problems, weather conditions, compliance with governmental requirements and shortages in or delays in the delivery of equipment and services. Such equipment shortages and delays sometimes involve drilling rigs, especially in Canada, where weather conditions result in a short drilling season, causing a high demand for rigs by a large number of companies during a relatively short period of time. The Company's future drilling activities may not be successful. Lack of drilling success could have a material adverse effect on the Company's financial condition and results of operations. In addition, the Company's use of 3-D seismic requires greater pre-drilling expenditures than traditional drilling strategies. Although the Company believes that its use of 3-D seismic will increase the probability of success of its exploratory wells and should reduce average finding costs through the elimination of prospects that might otherwise be drilled solely on the basis of 2-D seismic and other traditional methods, unsuccessful wells are likely to occur. The Company's operations are subject to all the hazards and risks normally incident to the development, exploitation, production and transportation of, and the exploration for, oil and gas, including unusual or unexpected geologic formations, pressures, downhole fires, mechanical failures, blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids and pollution and other environmental risks. These hazards could result in substantial losses to the Company due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations. The Company maintains comprehensive 17 The Wiser Oil Company insurance coverage, including a $1.0 million general liability insurance policy and a $30.0 million excess liability policy. The Company believes that its insurance is adequate and customary for companies of a similar size engaged in comparable operations, but losses could occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. Title to Properties The Company's land department and contract land professionals have reviewed title records or other title review materials relating to substantially all of its producing properties. The title investigation performed by the Company prior to acquiring undeveloped properties is thorough, but less rigorous than that conducted prior to drilling, consistent with industry standards. The Company believes it has satisfactory title to all its producing properties in accordance with standards generally accepted in the oil and gas industry. The Company's properties are subject to customary royalty interests, liens incident to operating agreements, liens for current taxes and other inchoate burdens which the Company believes do not materially interfere with the use of or affect the value of such properties. At December 31, 1998, the Company's leaseholds for approximately 58% of its net acreage were being kept in force by virtue of production on that acreage in paying quantities. The remaining net acreage was held by lease rentals and similar provisions and requires production in paying quantities prior to expiration of various time periods to avoid lease termination. The Company expects to make acquisitions of oil and gas properties from time to time. In making an acquisition, the Company generally focuses most of its title and valuation efforts on the more significant properties. It is generally not feasible for the Company to review in-depth every property it purchases and all records with respect to such properties. However, even an in-depth review of properties and records may not necessarily reveal existing or potential problems, nor will it permit the Company to become familiar enough with the properties to assess fully their deficiencies and capabilities. Evaluation of future recoverable reserves of oil and gas, which is an integral part of the property selection process, is a process that depends upon evaluation of existing geological, engineering and production data, some or all of which may prove to be unreliable or not indicative of future performance. To the extent the seller does not operate the properties, obtaining access to properties and records may be more difficult. Even when problems are identified, the seller may not be willing or financially able to give contractual protection against such problems, and the Company may decide to assume environmental and other liabilities in connection with acquired properties. Governmental Regulation The Company's operations are affected from time to time in varying degrees by political developments and federal, state, provincial and local laws and regulations. In particular, oil and gas production and related operations are or have been subject to price controls, taxes and other laws and regulations relating to the oil and gas industry. Failure to comply with such laws 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 such laws and regulations are frequently amended or reinterpreted, the Company is unable to predict the future cost or impact of complying with such laws and regulations. United States. Sales of natural gas by the Company are not regulated and are generally made at market prices. However, the Federal Energy Regulatory Commission ("FERC") regulates interstate natural gas transportation rates and service conditions, which affect the marketing of natural gas produced by the Company, as well as the revenues received by the Company for sales of such production. Sales of the Company's natural gas currently are made at uncontrolled market prices, subject to applicable contract provisions and price fluctuations which normally attend sales of commodity products. The FERC's jurisdiction over natural gas transportation was unaffected by the Decontrol Act. While sales by producers of natural gas, and all sales of crude oil, condensate and NGLs, can currently be made at uncontrolled market prices, Congress could re-enact prices controls in the future. Since the mid-1980's, the 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 natural gas. Order 636 mandated a 18 The Wiser Oil Company 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 the FERC's purposes in issuing the orders was to increase competition within all phases of the natural gas industry. Order 636 and subsequent FERC orders issued in individual pipeline restructuring proceedings have been the subject of appeals, and the courts have largely upheld Order 636. Because further review of certain of these orders is still possible, and other appeals remain pending, it is difficult to exactly predict the ultimate impact of the orders on the Company and its natural 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. While significant regulatory uncertainty remains, Order 636 may ultimately enhance the Company's ability to market and transport its natural gas, although it may also subject the Company to greater competition, more restrictive pipeline imbalance tolerances and greater associated penalties for violation of such tolerances. The FERC has announced several important transportation-related policy statements and proposed rule changes, including the appropriate manner in which interstate pipelines release capacity under Order 636 and, more recently, the price which shippers can charge for their released capacity. In addition, in 1996, the FERC issued a policy statement on how interstate natural gas pipelines can recover the costs of new pipeline facilities. In January 1998, the FERC issued a policy statement and a request for comments concerning alternatives to its traditional cost-of-service ratemaking methodology. A number of pipelines have obtained FERC authorization to charge negotiated rates as one such alternative. While any additional FERC action on these matters would affect the Company only indirectly, these policy statements and proposed rule changes are intended to further enhance competition in natural gas markets. The Company cannot predict what action the FERC will take on these matters, nor can it predict whether the FERC's actions will achieve its stated goal of increasing competition in natural gas markets. However, the Company does not believe that it will be treated materially differently than other natural gas producers and marketers with which it competes. Commencing in May 1994, the FERC issued a series of orders in individual cases that delineate its new gathering policy. Among other matters, the FERC slightly narrowed its statutory tests for establishing gathering status and reaffirmed that, except in situations in which the gatherer acts in concert with an interstate pipeline affiliate to frustrate the FERC's transportation policies, it does not generally have jurisdiction over natural gas gathering facilities and services, and that such facilities and services located in state jurisdictions are properly regulated by state authorities. In addition, the FERC has approved numerous transfers by interstate pipelines of gathering facilities to unregulated independent or affiliated gathering companies, subject to the transferee providing service for two years from the date of transfer to the pipeline's existing customers pursuant to a default contract or pursuant to mutually agreeable terms. In August 1998, the United States Court of Appeals for the District of Columbia largely upheld the FERC's new gathering policy, but remanded the FERC's default contract condition. The FERC has not yet issued an order on remand. This new gathering policy may tend to increase competition among gatherers, like the Company. This policy may also result in increased state regulation of the Company's gathering facilities. However, the Company does not believe that it will be affected materially differently by this policy than other producers, gatherers and marketers with which it competes. The Company's gathering operations are subject to safety and operational regulations relating to the design, installation, testing, construction, operation, replacement and management of facilities. Pipeline safety issues have recently been the subject of increasing focus in various political and administrative arenas at both the state and federal levels. The Company believes its operations, to the extent they may be subject to current gas pipeline safety requirements, comply in all material respects with such requirements. The Company cannot predict what effect, if any, the adoption of this or other additional pipeline safety legislation might have on its operations, but the industry could be required to incur additional capital expenditures and increased costs depending upon future legislative and regulatory changes. The price the Company receives from the sale of oil and NGLs is affected by the cost of transporting such products to market. Effective January 1, 1996, the 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. These regulations could increase the cost of transporting oil and NGLs by interstate 19 The Wiser Oil Company pipelines, although the most recent adjustment generally decreased rates. These regulations have generally been approved on judicial review. 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 wellhead prices for oil and NGLs. 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 for and production of oil and gas. Such states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and gas 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. However, the Company does not believe it will be affected materially differently by these statutes and regulations than any other similarly situated oil and gas company. Canada. In Canada producers of oil negotiate sales contracts directly with oil purchasers, with the result that sales of oil are generally made at market prices. The price of oil received by the Company depends in part on oil quality, prices of competing fuels, distance to market, the value of refined products and the supply/demand balance. Oil exports may be made pursuant to export contracts with terms not exceeding one year in the case of light crude, and not exceeding two years in the case of heavy crude, provided that an order approving any such export has been obtained from the National Energy Board ("NEB"). Any oil export to be made pursuant to a contract of a longer duration requires an exporter to obtain an export license from the NEB and the issue of such license requires the approval of the Governor General in Council. In Canada the price of natural gas sold is determined by negotiation between buyers and sellers. Natural gas exported from Canada is subject to regulation by the NEB and the government of Canada. Exporters are free to negotiate prices and other terms with purchasers, provided that export contracts in excess of two years must continue to meet certain criteria prescribed by the NEB and the government of Canada. As is the case with oil, natural gas exports for a term of less than two years must be made pursuant to an NEB order, or, in the case of exports for a longer duration, pursuant to an NEB license and Governor General in Council approval. The government of Alberta also regulates the volume of natural gas that may be removed from Alberta for consumption elsewhere based on such factors as reserve availability, transportation arrangements and marketing considerations. In addition to Canadian federal regulation, Alberta and certain other provinces have legislation and regulations that govern royalties payable on production from Crown lands. The royalty regime that is in place at a particular time or location is a significant factor in the profitability of oil and gas production. Royalties payable on production from lands other than Crown lands are determined by negotiations between the mineral owner and the lessee. Crown royalties are determined by governmental regulation and are generally calculated as a percentage of the value of the gross production. The rate of royalties payable generally depends in part on prescribed reference prices, well productivity, geographical location, field discovery date and the type and quality of the petroleum product produced. From time to time the government of Alberta has established incentive programs that have included royalty rate reductions, royalty holidays and tax credits for the purpose of encouraging oil and gas exploration or enhanced production projects. For example, a producer of oil or gas is entitled to a credit against the royalties payable to the Crown by virtue of the Alberta Royalty Tax Credit ("ARTC") program. The ARTC program provides a rebate on Crown royalties paid in respect of eligible producing properties. The ARTC program is based on a price- sensitive formula, and the ARTC rate currently varies between 25% and 75% of the royalty otherwise payable on production. The ARTC rate is currently applied to a maximum of $2.0 million of Alberta Crown royalties otherwise payable by each producer or associated group of producers in each tax year. The rate is established quarterly based on average "par price," as determined by the Alberta Department of Energy for the previous quarterly period. Producing properties acquired from corporations claiming maximum entitlement to ARTC will generally not be eligible for ARTC. 20 The Wiser Oil Company Environmental Matters The Company's operations and properties are subject to extensive and changing federal, state, provincial and local laws and regulations relating to environmental protection, including the generation, storage, handling and transportation of oil and gas and the 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, penalties or injunctions. 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. The impact of such changes, however, would not likely be any more burdensome to the Company than to any other similarly situated oil and gas company. The Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), also known as the "Superfund" law, and similar state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources. Furthermore, neighboring landowners and other third parties may file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The Company generates typical oil and gas field wastes, including hazardous wastes, that are subject to the federal Resources Conservation and Recovery Act and comparable state statutes. The United States Environmental Protection Agency and various state agencies have limited the approved methods of disposal for certain hazardous and nonhazardous wastes. Furthermore, certain wastes generated by the Company's oil and gas operations that are currently exempt from regulation as "hazardous wastes" may in the future be designated as "hazardous wastes," and therefore be subject to more rigorous and costly operating and disposal requirements. The Oil Pollution Act ("OPA") imposes a variety of requirements on responsible parties for onshore and offshore oil and gas facilities and vessels related to the prevention of oil spills and liability for damages resulting from such spills in waters of the United States. The "responsible party" includes the owner or operator of an onshore facility or vessel or the lessee or permittee of, or the holder of a right of use and easement for, the area where an onshore facility is located. OPA assigns liability to each responsible party for oil spill removal costs and a variety of public and private damages from oil spills. Few defenses exist to the liability for oil spills imposed by OPA. OPA also imposes financial responsibility requirements. Failure to comply with ongoing requirements or inadequate cooperation in a spill event may subject a responsible party to civil or criminal enforcement actions. The Company's Canadian operations are also subject to environmental regulation pursuant to local, provincial and federal legislation. Canadian environmental legislation provides for restrictions and prohibitions on releases or emissions of various substances produced in association with certain oil and gas industry operations and can affect the location of wells and facilities and the extent to which exploration and development is permitted. In addition, legislation requires that well and facilities sites be abandoned and reclaimed to the satisfaction of provincial authorities. In most cases, an environmental assessment and review is required prior to initiating exploration or development projects or undertaking significant changes to existing projects. A breach of such legislation may result in the imposition of fines and issuance of clean-up orders. Environmental legislation in Alberta has recently undergone a major revision and has been consolidated in the Environmental Protection and Enhancement Act. 21 The Wiser Oil Company Under the new Act, environmental standards and compliance for releases, clean-up and reporting are stricter. Also, the range of enforcement actions available and the severity of penalties have been significantly increased. These changes will have an incremental effect on the cost of conducting operations in Alberta. The Company owns, leases or operates numerous properties that for many years have produced or processed oil and gas. The Company also owns and operates natural gas gathering, transportation and processing systems. It is not uncommon for such properties to be contaminated with hydrocarbons or polychlorinated biphenyls. Although the Company or previous owners of these interests may have used operating and disposal practices that were standard in the industry at the time, hydrocarbons, polychlorinated biphenyls or other wastes may have been disposed of or released on or under the properties or on or under other locations where such wastes have been taken for disposal. These properties may be subject to federal or state requirements that could require the Company to remove any such wastes or to remediate the resulting contamination. In addition, some 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 previous owners or operators to comply with applicable environmental regulations may, in certain circumstances, adversely impact the Company. Abandonment Costs The Company is responsible for payment of plugging and abandonment costs on its oil and gas properties pro rata to its working interest. Based on its experience, the Company anticipates that the ultimate aggregate salvage value of lease and well equipment located on its properties will exceed the costs of abandoning such properties. There can be no assurance, however, that the Company will be successful in avoiding additional expenses in connection with the abandonment of any of its properties. In addition, abandonment costs and their timing may change due to many factors, including actual production results, inflation rates and changes in environmental laws and regulations. Employees At February 26, 1999, the Company employed 100 full-time employees, of whom five were executive officers, 19 were technical personnel, 51 were field personnel and 25 were administrative personnel. Of the total employees, 86 were located in the United States and 14 were located in Canada. At February 26, 1999, none of the Company's employees were represented by a labor union. The Company considers its relations with its employees to be good. Facilities The Company's principal executive and administrative offices are located at 8115 Preston Road, Suite 400, Dallas, Texas. The offices contain approximately 21,000 square feet of space and are leased through December 31, 2001. Rental payments are approximately $37,000 per month. The Company also maintains a regional office in Corbin, Kentucky consisting of a one-story building containing approximately 7,400 square feet of office space. The Company owns this building. The office of the Company's Canadian subsidiary, The Wiser Oil Company of Canada, is located at 645 7th Avenue, S.W., Suite 2550, Calgary, Alberta. This office contains approximately 14,000 square feet of space and is leased through June 30, 1999. Rental payments are approximately $12,500 per month. Glossary of Oil and Gas Terms The following are abbreviations and definitions of terms commonly used in the oil and gas industry that are used in this Report. "Bbl" means a barrel of 42 U.S. gallons. "Bcf" means billion cubic feet. "BOE" means barrels of oil equivalent, converting volumes of natural gas to oil equivalent volumes using a ratio of six Mcf of natural gas to one Bbl of oil. 22 The Wiser Oil Company "completion" means the installation of permanent equipment for the production of oil or gas. "development well" means a well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. "dry hole" or "dry well" means a well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes. "exploratory well" means a well drilled to find and produce oil or gas reserves not classified as proved, to find a new production reservoir in a field previously found to be productive of oil or gas in another reservoir or to extend a known reservoir. "farm-in" means an agreement pursuant to which the owner of a working interest in an oil and gas lease assigns the working interest or a portion thereof to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a "farm-in." "gas" means natural gas. "gross" when used with respect to acres or wells, refers to the total acres or wells in which the Company has a working interest. "infill drilling" means drilling of an additional well or wells provided for by an existing spacing order to more adequately drain a reservoir. "MBbl" means thousand Bbls. "MBOE" means thousand BOE. "Mcf" means thousand cubic feet. "MMBOE" means million BOE. "MMBtu" means one million British Thermal Units. British Thermal Unit means the quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit. "MMcf" means million cubic feet. "net" when used with respect to acres or wells, refers to gross acres or wells multiplied, in each case, by the percentage working interest owned by the Company. "net production" means production that is owned by the Company less royalties and production due others. "NGL" means natural gas liquid. "operator" means the individual or company responsible for the exploration, development and production of an oil or gas well or lease. "Present Value" when used with respect to oil and gas reserves, means the estimated future gross revenues to be generated from the production of proved reserves calculated in accordance with the guidelines of the SEC, net of estimated production and future development costs, using prices and costs as of the date of estimation without future escalation (except to the extent a contract specifically provides otherwise), without giving effect to non-property related expenses such as general and administrative expenses, debt service, future income tax expense and depreciation, depletion and amortization, and discounted using an annual discount rate of 10%. 23 The Wiser Oil Company "productive wells" or "producing wells" consist of producing wells and wells capable of production, including wells waiting on pipeline connections. "proved developed reserves" means reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery will be included as "proved developed reserves" only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. "proved reserves" means the estimated quantities of crude oil, natural gas and NGLs which upon analysis of geological and engineering data appear with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. (i) Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation tests. The area of a reservoir considered proved includes (A) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and (B) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. (ii) Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the "proved" classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based. (iii) Estimates of proved reserves do not include the following: (A) oil that may become available from known reservoirs but is classified separately as "indicated additional reserves"; (B) crude oil, natural gas and NGLs, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics or economic factors; (C) crude oil, natural gas, and NGLs, that may occur in undrilled prospects; and (D) crude oil, natural gas and NGLs that may be recovered from oil shales, coal, gilsonite and other such resources. "proved undeveloped reserves" means reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for completion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir. "recompletion" means the completion for production of an existing well bore in another formation from that in which the well has been previously completed. "reserves" means proved reserves. "reservoir" means a porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs. 24 The Wiser Oil Company "royalty" means an interest in an oil and gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner's royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner. "2-D seismic" means an advanced technology method by which a cross-section of the earth's subsurface is created through the interpretation of reflecting seismic data collected along a single source profile. "3-D seismic" means an advanced technology method by which a three dimensional image of the earth's subsurface is created through the interpretation of reflection seismic data collected over surface grid. 3-D seismic surveys allow for a more detailed understanding of the subsurface than do conventional surveys and contribute significantly to field appraisal, development and production. "working interest" means an interest in an oil and gas lease that gives the owner of the interest the right to drill for and produce oil and gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations. The share of production to which a working interest owner is entitled will always be smaller than the share of costs that the working interest owner is required to bear, with the balance of the production accruing to the owners of royalties. "workover" means operations on a producing well to restore or increase production. Item 2. Properties The information required by this Item is contained in Item 1. Business, and is incorporated herein by reference. Item 3. Legal Proceedings The Company and its subsidiaries and affiliates are named defendants in lawsuits and are involved in governmental proceedings from time to time, all arising in the ordinary course of business. Although the outcome of these lawsuits and proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position of the Company. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to security holders during the fourth quarter of the year ended December 31, 1998. 25 The Wiser Oil Company PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Common Stock is traded on the New York Stock Exchange under the symbol WZR. The quarterly high and low sales prices and dividends per share of Common Stock during the three years ended December 31, 1998, were as follows: High Low Dividends ------ ------ --------- 1998 First Quarter........................... $14.25 $11.75 $.03 Second Quarter.......................... 13.25 8.75 .03 Third Quarter........................... 12.50 5.00 .03 Fourth Quarter.......................... 5.75 1.63 .03 1997 First Quarter........................... $22.38 $17.63 $.03 Second Quarter.......................... 18.88 15.13 .03 Third Quarter........................... 18.75 14.06 .03 Fourth Quarter.......................... 18.75 13.06 .03 1996 First Quarter........................... $13.38 $11.00 $.03 Second Quarter.......................... 14.00 12.25 .03 Third Quarter........................... 15.50 12.88 .03 Fourth Quarter.......................... 21.13 14.38 .03 At February 26, 1999, there were 8,951,965 shares of Common Stock outstanding held by approximately 850 shareholders of record and approximately 3,450 beneficial owners. Each share of Common Stock also represents one preferred stock purchase right which entitles the holder thereof to purchase from the Company one-one thousandth of a share (a "Unit") of Series B Preferred Stock of the Company at an exercise price of $72.00 per Unit. Although the Company does not have a written dividend policy, it has paid cash dividends on the Common Stock for the previous 109 quarters. Dividends on the Common Stock are reviewed by the Board of Directors of the Company each quarter, and no assurances can be given that such cash dividends will continue in the future or, if such dividends are paid, as to the amount of such dividends. On December 10, 1999, the Board of Directors approved a cost reduction plan which included suspending payments of cash dividends on the Company's common stock. In addition, under the terms of the Credit Agreement (see Note 4 to the Company's Consolidated Financial Statements) the payment of dividends in any year is limited to the greater of (i) 80% of the Company's adjusted consolidated net income (as defined in the Credit Agreement) for such year (which excludes gains from sales of marketable securities) and (ii) $4.5 million. 26 The Wiser Oil Company Item 6. Selected Financial Data The following selected consolidated financial data of the Company are derived from information contained in the Company's consolidated financial statements. The selected consolidated financial and operating data presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and notes thereto included elsewhere in this Report.
Year Ended December 31, ------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Income Statement Data (000's except per share amounts): Revenues: Oil and gas sales...................................... $ 59,197 $ 76,729 $ 72,012 $ 54,400 $ 53,559 Dividends and interest................................. 269 1,113 683 1,241 1,641 Marketable security sales gains........................ -- 7,495 12,977 13,101 7,475 Other.................................................. 1,164 2,478 1,017 2,939 2,681 -------- -------- -------- -------- -------- Total revenues....................................... 60,630 87,815 86,689 71,681 65,356 -------- -------- -------- -------- -------- Costs and expenses: Production and operating............................... 26,529 27,183 23,970 20,690 22,313 Purchased natural gas.................................. 1,440 1,622 1,462 727 759 Depreciation, depletion and amortization ("DD&A")...... 25,811 22,977 19,653 19,778 18,313 Property impairments................................... 3,838 3,289 12,112 4,893 -- Exploration............................................ 15,328 9,655 4,176 5,801 4,130 General and administrative............................. 9,793 9,661 9,364 8,193 6,502 Interest expense....................................... 13,097 9,845 5,452 5,618 3,907 -------- -------- -------- -------- -------- Total costs and expenses............................. 95,836 84,232 76,189 65,700 55,924 -------- -------- -------- -------- -------- Earnings (loss) before income taxes...................... (35,206) 3,583 10,500 5,981 9,432 Income tax expense (benefit)............................. (10,740) 264 4,072 3,788 444 -------- -------- -------- -------- -------- Net income (loss)........................................ $(24,466) $ 3,319 $ 6,428 $ 2,193 $ 8,988 ======== ======== ======== ======== ======== Average outstanding shares (000's) (1)................... 8,952 8,949 8,939 8,939 8,941 Basic earnings (loss) per share.......................... $ (2.73) $ 0.37 $ 0.72 $ 0.25 $ 1.01 Cash dividends per share................................. $ 0.12 $ 0.12 $ 0.12 $ 0.40 $ 0.40 Other Financial Data (000's): EBITDA (2)............................................... $ 23,020 $ 40,741 $ 38,233 $ 27,729 $ 26,666 Operating cash flow...................................... 7,106 34,486 34,287 20,541 24,334 Capital and exploration expenditures..................... 40,402 78,323 47,115 30,153 74,610 Balance Sheet Data end of period (000's): Cash and cash equivalents................................ $ 2,779 $ 13,255 $ 5,870 $ 1,397 $ 2,714 Working capital (3)...................................... 1,652 7,809 3,493 1,034 2,313 Marketable securities.................................... -- -- 7,176 19,592 27,337 Net property, plant and equipment........................ 213,295 220,708 179,718 169,089 167,371 Total assets............................................. 231,810 254,556 208,617 203,407 210,791 Long-term debt........................................... 145,452 124,304 78,654 74,171 78,013 Stockholders' equity..................................... 72,091 97,424 99,262 101,132 105,427
27 The Wiser Oil Company
Year Ended December 31, ----------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Reserve and Operating Data: Production and volumes: Oil and NGLs (MBbl)........................................ 2,715 2,760 2,776 2,332 2,277 Gas (MMcf) (4)............................................. 14,364 12,829 12,288 12,171 11,076 BOE (000's) (4).......................................... 5,109 4,898 4,824 4,361 4,123 Weighted average sales prices (5): Oil (per Bbl).............................................. $ 12.46 $ 18.02 $ 18.81 $ 16.91 $ 15.60 Gas (per Mcf).............................................. 1.84 2.21 1.77 1.37 1.73 NGLs (per Bbl)............................................. 9.25 13.87 13.36 10.11 9.00 BOE (per Bbl)............................................ 11.59 15.66 14.93 12.47 12.99 Selected expenses per BOE (6): Lease operating............................................ $ 4.45 $ 4.65 $ 4.14 $ 4.06 $ 4.54 Production taxes........................................... 0.84 1.02 0.93 0.78 0.97 DD&A....................................................... 5.15 4.79 4.16 4.62 4.53 General and administrative................................. 1.96 2.02 1.98 1.92 1.61 Proved reserves (end of year) (7): Oil and NGLs (MBbls)....................................... 27,988 29,721 31,612 32,208 23,430 Gas (MMcf)................................................. 119,981 120,094 113,377 109,915 107,920 BOE (MBbls).............................................. 47,985 49,737 50,508 50,527 41,417 Estimated future net revenues before income taxes (000's).. $218,969 $359,293 $705,723 $401,037 $272,776 Present Value.............................................. 123,831 210,087 414,314 235,416 160,804 Standardized Measure (000's) (8)........................... 113,232 174,489 317,180 194,602 142,032 Weighted average sales prices (end of year) (7)(9): Oil (per Bbl).............................................. $ 10.39 $ 15.92 $ 24.63 $ 18.19 $ 16.11 Gas (per Mcf).............................................. 1.98 2.35 3.45 1.84 1.57 NGLs (per Bbl)............................................. 8.44 11.40 19.79 12.87 9.80
(1) Basic earnings per share is calculated without including dilutive effect of common stock equivalents consisting of stock options. See Note 12 to the Company's Consolidated Financial Statements. (2) EBITDA is not a generally accepted accounting measure, but is presented as a supplemental financial indicator of the Company's ability to service or incur debt. EBITDA is calculated by adding interest expense, income tax expense, depreciation, depletion and amortization, property impairment costs and exploration costs to net income (excluding marketable security sales gains and dividends and interest). EBITDA should not be considered in isolation or as a substitute for net income, operating cash flows or any other measure of financial performance prepared in accordance with generally accepted accounting principles or as a measure of the Company's profitability or liquidity. (3) Working capital represents the difference between current assets and current liabilities. (4) Calculated by including volumes of natural gas purchased for resale as follows: 1998-608 MMcf, 1997-629 MMcf, 1996-605 MMcf, 1995-500 MMcf and 1994-469 MMcf. (5) Reflects results of hedging activities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Other Matters." (6) Calculated without including volumes of natural gas purchased for resale. (7) Estimates of proved reserves and future net revenues from which Present Values are derived are based on year end prices of oil and gas held constant (except to the extent a contract specifically provides otherwise) in accordance with SEC regulations. (8) The Standardized Measure of Discounted Future Net Cash Flows prepared by the Company represents the present value (using an annual discount rate of 10%) of estimated future net revenues from the production of proved reserves, after giving effect to income taxes. See the Supplemental Financial Information attached to the Company's Consolidated Financial Statements included elsewhere in this Report for additional information regarding the disclosure of the Standardized Measure of Discounted Future Net Cash Flows. (9) Year end prices used to estimate proved reserves and future net revenues from which Present Values are derived. See footnotes 7 and 8 above. 28 The Wiser Oil Company Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to assist in an understanding of the Company's historical financial position and results of operations for each year in the three-year period ended December 31, 1998. The Company's Consolidated Financial Statements and notes thereto included elsewhere in this Report contain detailed information that should be referred to in conjunction with the following discussion. General The Company's future results of operations and growth are substantially dependent upon (i) its ability to acquire or find and successfully develop additional oil and gas reserves and (ii) the prevailing prices for oil and gas. At December 31, 1998, the Company's proved reserves were comprised of approximately 95% proved developed reserves, and the Company does not have a large inventory of development drilling locations or enhanced recovery projects to pursue after 1998. If the Company is unable to economically acquire or find significant new reserves for development and exploitation, the Company's oil and gas production, and thus its revenues, would likely decline gradually as its reserves are produced. In addition, oil and gas prices are dependent upon numerous factors beyond the Company's control, such as economic, political and regulatory developments and competition from other sources of energy. The oil and gas markets have historically been very volatile. In particular, oil prices during 1998 were at their lowest levels since 1986. As a result, the Company's results of operations were adversely affected. Any significant and extended decline in the price of oil or gas would have a material adverse effect on the Company's financial condition and results of operations, and could result in a reduction in the carrying value of the Company's proved reserves and adversely affect its access to capital. The Company liquidated portions of its marketable securities portfolio in order to fund a portion of the Company's capital and exploration expenditures in 1997 and 1996. The Company recognized pretax gains from the sale of marketable securities of $7.5 million and $13.0 million in 1997 and 1996, respectively. In the absence of such gains, the Company would have reported net losses in 1997 and 1996. The Company completed the liquidation of its marketable securities portfolio in 1997. During 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires the Company to assess the need for an impairment of capitalized costs of oil and gas properties on a property-by-property (rather than a company-wide) basis. Applying SFAS No. 121, the Company recognized non-cash property impairment charges of $3.8 million in 1998, $3.3 million in 1997 and $12.1 million in 1996. 29 The Wiser Oil Company Results of Operations Production information presented below includes volumes of natural gas purchased for resale; however, per unit of production information with respect to production and operating expenses, depreciation, depletion and amortization and general and administrative costs is calculated without including such volumes. Such volumes were 608 MMcf in 1998, 629 MMcf in 1997 and 605 MMcf in 1996. Comparison of 1998 to 1997 Revenues Oil and gas sales decreased 23% to $59.2 million in 1998 from $76.7 million in 1997, primarily because of lower oil and gas prices received during 1998. The average oil price received in 1998 decreased 31% to $12.46 per Bbl from $18.02 per Bbl in 1997 and the average gas price received in 1998 decreased 17% to $1.84 per Mcf from $2.21 per Mcf in 1997. Gas production during 1998 increased 12% to 14.4 Bcf from 12.8 Bcf in 1997. The increase in gas production was primarily attributable to the Welder Ranch field in South Texas which produced 2.3 Bcf of gas during 1998 compared to 0.8 Bcf of gas in 1997. The Welder Ranch field was acquired in June 1997. Oil production in 1998 decreased 2% to 2,393 MBbls from 2,441 MBbls in 1997. As a result of development activity in 1997 and 1998, oil production in 1998 from the Evi and Provost fields in Canada was 88 MBbls and 150 MBbls higher than 1997, respectively. Oil production from the Maljamar and Wellman fields in 1998 was 102 MBbls and 70 MBbls lower than 1997, respectively, as development activities at these fields was substantially complete in 1997. As a result of hedging activities, oil and gas sales were increased by $0.2 million in 1998 and reduced by $2.4 million during 1997. On an equivalent unit basis, total production increased 4% to 5,109 MBOE in 1998 from 4,898 MBOE in 1997. Dividends and interest decreased 76% to $0.3 million in 1998 compared to $1.1 million in 1997 as the Company completed the liquidation of its remaining marketable securities in 1997. Marketable security sales gains were $7.5 million in 1997 as the Company completed the liquidation of its remaining marketable securities in 1997. Other revenues decreased 53% to $1.2 million in 1998 from $2.5 million in 1997 primarily as a result of lower sales of non-strategic oil and gas properties in 1998. Costs and Expenses Production and operating expense decreased 2% to $26.5 million in 1998 from $27.2 million in 1997 primarily due to lower production taxes associated with lower oil and gas sales in 1998. On a BOE basis, production and operating expense decreased 7% to $5.29 per BOE in 1998 from $5.67 per BOE in 1997 as a result of higher BOE production and lower production taxes in 1998. DD&A increased 12% to $25.8 million in 1998 from $23.0 million in 1997 and increased 8% to $5.15 per BOE in 1998 from $4.79 per BOE in 1997. The increases were primarily attributable to additional wells drilled at the Maljamar field combined with increased depletion from the Welder field in South Texas. Impairment expense increased 17% to $3.8 million in 1998 from $3.3 million in 1997. Impairment expense in 1998 and 1997 was due primarily to low oil prices used to value reserves at year-end 1998 and year-end 1997. Exploration expense increased 59% to $15.3 million in 1998 from $9.7 million in 1997 as the Company increased its exploration activities during 1998. Dry hole expense increased 49% to $6.1 million in 1998 from $4.1 million in 1997 and included dry hole expense of $1.6 million in Peru and $2.0 million in South Texas during 1998. Surrendered and abandoned lease expense in 1998 increased 227% to $4.9 million from $1.5 million in 1997 30 The Wiser Oil Company primarily as a result of increased lease abandonment expense associated with unsuccessful exploration drilling in 1998 and the curtailment of exploration activities due to low oil prices. General and administrative expense ("G&A") increased slightly to $9.8 million in 1998 from $9.7 million in 1997 and decreased 3% to $1.96 per BOE in 1998 from $2.02 per BOE in 1997. The decrease in G&A per BOE was attributable primarily to higher BOE production in 1998 compared to 1997. Interest expense increased 33% to $13.1 million in 1998 from $9.8 million in 1997 due primarily to incurring a full year of interest expense in 1998 under the 9 1/2% Senior Subordinated Notes ("2007 Notes"), which were issued in May 1997, and increased long-term debt in 1998 compared to 1997. Income tax expense decreased $11.0 million to a benefit of $10.7 million in 1998 from tax expense of $0.3 million in 1997 primarily as a result of a decrease in earnings before income taxes of $38.8 million. Net income decreased $27.8 million to a net loss of $24.5 million in 1998 from net income of $3.3 million in 1997 primarily as a result of lower oil and gas prices and higher DD&A, exploration and interest expense in 1998. Comparison of 1997 to 1996 Revenues Oil and gas sales increased 7% to $76.7 million in 1997 from $72.0 million in 1996, primarily because of higher gas production and higher gas prices received during 1997. Gas production during 1997 increased 4% to 12.8 Bcf from 12.3 Bcf in 1996. The increase in gas production was primarily attributable to the acquisition of the Welder Ranch field in South Texas which added 0.8 Bcf of gas production during 1997. The average gas price received in 1997 increased 25% to $2.21 per Mcf from $1.77 per Mcf in 1996. Oil production in 1997 increased less than 1% to 2,441 MBbls from 2,425 MBbls in 1996. The Company completed 50 wells in the Maljamar field during 1997 which increased 1997 production by 246 MBbls over 1996 and offset declining oil production in other fields during 1997. The average oil price received in 1997 decreased 4% to $18.02 per Bbl from $18.81 per Bbl in 1996. As a result of hedging activities, oil and gas sales were reduced by $2.4 million and $6.9 million during 1997 and 1996, respectively. On an equivalent unit basis, total production increased 2% to 4,898 MBOE in 1997 from 4,824 MBOE in 1996. Marketable security sales gains decreased 42% to $7.5 million in 1997 from $13.0 million in 1996 as the Company completed the liquidation of its remaining marketable securities in 1997. Other revenues increased 144% to $2.5 million in 1997 from $1.0 million in 1996 primarily as a result of the sale of non-strategic oil and gas properties in Michigan during 1997. Costs and Expenses Production and operating expense increased 13% to $27.2 million in 1997 from $24.0 million in 1996 and also increased 12% to $5.67 per BOE in 1997 from $5.07 per BOE in 1996. The increases were primarily attributable to additional wells drilled at the Maljamar and Provost fields and increased production taxes associated with the 7% increase in oil and gas sales during 1997. DD&A increased 17% to $23.0 million in 1997 from $19.7 million in 1996 and increased 15% to $4.79 per BOE in 1997 from $4.16 per BOE in 1996. The increases were primarily attributable to additional wells drilled at the Maljamar field to develop proved undeveloped reserves combined with increased depletion from the Shouldice and other Canadian properties which have a higher than average cost basis and shorter than average reserve life. Impairment expense decreased 73% to $3.3 million in 1997 from $12.1 million in 1996. Impairment expense in 1997 was due primarily to low oil prices used to value reserves at year-end 1997 while impairment expense in 1996 was due primarily to downward revisions in reserve estimates for certain properties in Michigan and Canada. 31 The Wiser Oil Company Exploration expense increased 131% to $9.7 million in 1997 from $4.2 million in 1996 as the Company increased its exploration activities in the U.S. during 1997. Dry hole expense increased 141% to $4.1 million in 1997 from $1.7 million in 1996. Dry hole expense in 1997 included $1.2 million at the South Lakeside prospect in Louisiana, $1.0 million at the Tecumseh prospect in Louisiana and $0.7 million at the Bronson prospect in Canada. Seismic expense also increased to $3.4 million in 1997 from $0.3 million in 1996. G&A increased 3% to $9.7 million in 1997 from $9.4 million in 1996 and also increased 2% to $2.02 per BOE in 1997 from $1.98 per BOE in 1996. The increase in G&A was attributable primarily to the addition of exploration personnel and higher compensation costs. Interest expense increased 81% to $9.8 million in 1997 from $5.5 million in 1996 as a result of the increase in long-term debt and the higher interest rate associated with the sale of the 2007 Notes on May 21, 1997. Income tax expense decreased $3.8 million to $0.3 million in 1997 from $4.1 million in 1996 as a result of a decrease in earnings before income taxes of $6.9 million combined with a lower effective tax rate of 7% in 1997 compared to 39% in 1996. The lower effective tax rate in 1997 was attributable primarily to the inclusion of Canadian operations in the Company's consolidated tax return beginning in 1997. Net Income Net income decreased 48% to $3.3 million in 1997 from $6.4 million in 1996 primarily as a result of higher production and operating expense, DD&A, exploration and interest expense in 1997. Liquidity and Capital Resources Cash flows Cash flows from operating activities were $7.1 million in 1998 compared to $34.5 million in 1997. Cash flows from operating activities in 1998 were $27.4 million lower than 1997 due primarily to lower oil and gas sales, higher interest expense and a $7.9 million reduction in accounts payable. Cash flows from financing activities of $19.9 million in 1998 were provided primarily by $21 million in borrowings under the Credit Agreement. In 1997, the sale of the 2007 Notes provided $120.9 million of net cash proceeds to the Company, and $78.7 million of borrowings under the Credit Agreement and the Company's Maljamar Credit Facility were repaid during 1997. The Maljamar Credit Facility was terminated in 1997 in connection with such repayment of borrowings. Cash flows used in investing activities in 1998 were $37.5 million compared to $66.9 million in 1997. Capital and exploration expenditures were $40.4 million in 1998, a decrease of $37.9 million from 1997. The major components of capital and exploration expenditures for 1998 were $21.6 million for development activities, $14.3 million for exploration activities and $4.1 million for property acquisitions. Proceeds from the sale of marketable securities and oil and gas properties were $2.9 million in 1998, down $8.5 million from 1997, primarily as a result of reduced oil and gas property sales and the absence of marketable securities sales in 1998. Financial Position Cash and cash equivalents were utilized to fund capital and exploration expenditures in 1998 resulting in a decrease in cash and cash equivalents of $10.5 million during 1998 to $2.8 million at December 31, 1998. Working capital of $1.7 million at December 31, 1998 was $6.1 million lower than working capital at December 31, 1997 due primarily to reduced cash and cash equivalents offset by lower accounts payable. Total assets decreased $22.7 million during 1998 to $231.8 million at December 31, 1998, and stockholders' equity decreased $25.3 million during 1998 to $72.1 million at December 31, 1998. At December 31, 1998, capitalization totaled $217.5 million and consisted of $145.5 million of long-term debt (67%) and $72.1 million of stockholders' equity (33%). 32 The Wiser Oil Company Capital Sources Funding for the Company's business activities has been provided by cash flow from operations, borrowings and sales of marketable securities. The Company completed the liquidation of its marketable securities in 1997 and, accordingly, this source of funds is no longer available. While the Company regularly engages in discussions relating to potential acquisitions of oil and gas properties, the Company has no current agreement or commitment with respect to any such acquisitions which would be material to the Company. Any future acquisitions may require additional financing and will be dependent upon financing arrangements available at the time. The Company has entered into a Credit Agreement with a group of banks which provides for the issuance of letters of credit and for revolving credit loans to the Company (the "Credit Agreement"). The Credit Agreement's borrowing base is currently $25 million. Outstanding borrowings under the Credit Agreement at December 31, 1998 were $21 million. The borrowing base is redetermined annually by the lenders based on the most recent valuation of the Company's oil and gas reserves. Accordingly, the current borrowing base of $25 million could be reduced in 1999. On March 23, 1999, A Financial Institution ("New Lender") purchased all of the rights and obligations of the Credit Agreement from NationsBank of Texas, N.A. and the Bank of Montreal and became the new Agent under the Credit Agreement. The outstanding borrowings by the Company under the Credit Agreement at March 23,1999 and through April 15, 1999 are $21 million. Subsequently, the Company notified the New Lender that the Company was not able to maintain one of the ratios required under the Financial Covenants of the Credit Agreement as of December 31, 1998, and through the date of notification. On April 15, 1999, the Company and the New Lender entered into an agreement whereby the Company will repay the outstanding balance under the Credit Agreement of $21 million plus interest and fees from the anticipated cash proceeds available from the sale of oil and gas properties as discussed further below. The Company began negotiating various purchase and sale agreements to sell a portion of its oil and gas properties prior to March 1999, and plans to use the sales proceeds to reduce existing debt, fund capital expenditures and for general corporate purposes. The New Lender has agreed to waive any default or possible event of default through December 31, 1998, and has agreed to stand still and not to enforce any remedies under the Credit Agreement relating to any default or event of default that has occurred or may occur through May 14, 1999. The New Lender also agreed to deliver releases of its liens on any properties to be sold by the Company until the outstanding balance of $21 million is repaid in full. The Company is not in default of any covenants under the 9 1/2% Senior Subordinated Notes due in May 2007. The Company is pursuing several alternatives that would allow it to repay the outstanding balance under the Credit Agreement through the sale of oil and gas properties and/or refinancing. The Company believes the Credit Agreement will be repaid in full on or before May 14, 1999 from the proceeds of property sales and/or refinancing as discussed below. On April 13, 1999, the Company entered into a Purchase and Sale Agreement with Prince Minerals, Ltd. to sell certain producing and non-producing mineral interests ("Mineral Properties") for $10 million effective April 1, 1999. The sale is expected to close by April 23, 1999. The producing portion of the oil and gas properties comprising the Mineral Properties represent approximately 2% of the Company's total proved oil and gas reserves at December 31, 1998. The sales proceeds will be used to reduce the outstanding balance under the Credit Agreement to approximately $11 million. The Purchase and Sale Agreement with Prince Minerals, Ltd. is subject to the buyer successfully completing a due diligence review, which was substantially complete as of April 15, 1999. The Company is not aware of and does not anticipate any conditions that would delay or terminate the closing of this sale. On April 12, 1999, the Company entered into a Purchase and Sale Agreement with Columbia Natural Resources to sell all of the Company's oil and gas properties in Kentucky, Tennessee and West Virginia ("Appalachia Properties") for $28 million effective April 1, 1999. The sale is expected to close on or before May 12, 1999. The oil and gas properties comprising the Appalachia Properties represent approximately 15% of the Company's total proved oil and gas reserves at December 31, 1998. The sales proceeds will be used to repay in full the outstanding balance under the Credit Agreement, and for general corporate purposes. The Purchase and Sale Agreement with Columbia Natural Resources is also subject to the buyer successfully completing a due diligence review, which was in progress as of April 15, 1999. The Company is not aware of and does not anticipate any conditions that would delay or terminate the closing of this sale. In addition, the Company is negotiating several other purchase and sale agreements involving a number of smaller, non-strategic oil and gas properties in Texas and New Mexico that the Company plans to sell for an aggregate sales price in the range of $7 million to $8 million. These sales are expected to close in the second quarter of 1999. The sales proceeds will be used for general corporate purposes. The Company is currently negotiating with a bank to obtain a new credit facility. The Company expects to complete the negotiations and obtain a new credit facility in the second quarter of 1999, however successful completion of these negotiations cannot be assured. The Company plans to use any funds The Wiser Oil Company provided by a new credit facility to fund capital expenditures and for general corporate purposes. If a new credit facility is available prior to the closing date of the Appalachia Properties sale, the Company may use funds provided by a new credit facility to reduce any existing indebtedness under the Credit Agreement with the New Lender. Management of the Company is highly confident that the purchase and sale agreements for the Mineral and Appalachia Properties discussed above will be closed as planned and that the funds provided by the property sales will enable the Company to reduce indebtedness and continue to meet all of its financial obligations while maintaining a smaller level of capital expenditures during 1999. See Notes 2 and 4 to the Company's Consolidated Financial Statements. The Company believes that cash flows from operations and borrowings under the Credit Agreement will be sufficient to meet anticipated capital and exploration expenditure requirements (excluding any material property acquisitions) in 1999. If the Company's cash flows from operations and borrowings under the Credit Agreement are not sufficient to satisfy its capital and exploration expenditure requirements, there is no assurance that additional equity or debt financing will be available to meet such requirements. Capital and Exploration Expenditures The Company requires capital primarily for the acquisition, development and exploitation of, and the exploration for, oil and gas properties, the repayment of indebtedness and general working capital needs. During 1999, subject to market conditions and drilling and operating results, the Company expects to spend approximately $2.7 million on acquisition, development, exploitation and exploration activities. Other Matters Environmental and Other Regulatory Matters The Company's business is subject to certain federal, state, provincial and local laws and regulations relating to the development, exploitation, production and gathering of, and the exploration for, oil and gas, including those relating to the protection of the environment. Many of these laws and regulations have become more stringent in recent years, often imposing greater liability on a larger number of potentially responsible parties. Although the Company believes it is in substantial compliance with all applicable laws and regulations, the requirements imposed by laws and regulations are frequently changed and subject to interpretation, and the Company is unable to predict the 33 The Wiser Oil Company ultimate cost of compliance with these requirements or their effect on its operations. Although significant expenditures may be required to comply with governmental laws and regulations applicable to the Company, compliance has not had a material adverse effect on the earnings or competitive position of the Company. Year 2000 Issue The Company has assessed and continues to assess the impact of the "year 2000" ("Y2K") issue on its reporting systems and operations. The Y2K issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As the century date occurs, two-digit date systems will recognize the year 2000 as 1900 or not at all. This inability to recognize or properly treat the year 2000 may cause systems to process critical financial and operational information incorrectly. In 1998 and the first quarter of 1999, the Company's U.S. and Canadian computerized accounting systems were upgraded to versions which are Y2K compliant. These upgrades were completed at a nominal cost to the Company. In addition, the Company's personal computer systems were analyzed for Y2K compliance during 1998 and certain components were upgraded at a nominal cost to the Company. Virtually all of the Company's personal computer systems are currently Y2K compliant. Wiser is currently reviewing computer-controlled oil field equipment for Y2K compliance and expects the suppliers of such equipment to provide upgrades or modifications, if necessary, before the end of 1999 at a nominal cost to the Company. Wiser is also in the process of surveying its primary business partners to seek assurances that they will be Y2K compliant during 1999. Despite these efforts to seek assurances, the Company cannot provide assurance that all significant business partners will achieve Y2K compliance in a timely manner. If there is a high risk that a business partner will not be Y2K compliant in a timely manner, a contingency plan will be developed or an alternate business partner will be used to minimize the Y2K risk. New Accounting Standards The Company adopted the following pronouncements in 1998: SFAS No. 130, "Reporting Comprehensive Income" requires that all items that are to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements, and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires reporting of financial and descriptive information about a company's reportable operating segments. The Company has identified only one operating segment, which is the exploration for and production of oil and gas. The Company will be required to comply with the provisions of SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" which must be adopted for fiscal years beginning after June 15, 1999. SFAS No. 133 requires that derivatives be reported on the balance sheet at fair value and, if the derivative is not designated as a hedging instrument, changes in fair value must be recognized in earnings in the period of change. If the derivative is designated as a hedge and to the extent such hedge is determined to be effective, changes in fair value are either offset by the change in fair value of the hedged asset or liability (if applicable) or reported as a component of other comprehensive income in the period of change, and subsequently recognized in earnings when the offsetting hedged transaction occurs. The definition of derivatives has also been expanded to include contracts that require physical delivery of oil and gas if the contract allows for net cash settlement. The Company currently uses derivatives to hedge oil and gas price risk and gains or losses on such derivatives are recorded as adjustments to oil and gas sales. Accordingly, adoption of SFAS No. 133 should not have a significant impact on reported earnings, but could have a material impact on comprehensive income and the reported financial position of the Company. Disclosure Regarding Forward-Looking Statements 34 The Wiser Oil Company This Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this Report, including without limitation statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and under "Business" and "Properties" regarding proved reserves, estimated future net revenues, Present Values, planned capital expenditures (including the amount and nature thereof), increases in oil and gas production, the number of wells anticipated to be drilled in 1998 and thereafter and the Company's financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on its business or operations. Among the factors that could cause actual results to differ materially from the Company's expectations are the volatility of oil and gas prices, the ability to acquire or find and successfully develop additional oil and gas reserves, the uncertainty of estimates of reserves and future net revenues, risks relating to acquisitions of producing properties, drilling and operating risks, general economic conditions, competition, domestic and foreign government regulations and other factors which are beyond the Company's control. 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 such factors. The Company assumes no obligation to update any such forward-looking statements. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company only uses derivative financial instruments such as commodity futures agreements to hedge against fluctuations in oil and gas prices. Gains and losses on these derivative instruments are recorded as adjustments to oil and gas sales. The Board of Directors of the Company have adopted a policy governing the use of derivative instruments which requires that all derivatives used by the Company relate to an anticipated transaction and prohibits the use of speculative or leveraged derivatives. Interest Rate Risk Total debt at December 31, 1998 included $124.5 million of fixed-rate debt and $21.0 million of floating-rate debt attributed to borrowings under the Credit Agreement. As a result, the Company's annual interest cost will fluctuate based on changes in short-term interest rates. The impact on annual cash flow of a 10% change in the short-term interest rate (approximately 60 basis points) would be approximately $0.13 million. At December 31, 1998, it was not practicable to estimate the fair value of the Company's fixed-rate debt of $124.5 million because the trading volume was too small to establish a reasonable basis of fair value. The fixed-rate debt will mature in May 2007 and the floating-rate debt will mature in March 2002. Commodity Price Risk The Company has in the past entered into and may in the future enter into hedging arrangements with respect to portions of its oil, natural gas and NGL production to reduce its sensitivity to volatile commodity prices. The Company believes that hedging, although not free of risk, allows the Company to achieve a more predictable cash flow and to reduce exposure to price fluctuations. However, hedging arrangements limit the benefit to the Company of increases in the prices of the hedged commodity. Moreover, the Company's hedging arrangements apply only to a portion of its production and provide only partial price protection against declines in prices. Such arrangements may expose the Company to risk of financial loss in certain circumstances. The Company expects that the amount of production it hedges will vary from time to time. During 1998, the Company entered into various natural gas forward sale agreements and during 1997 and 1996, the Company entered into natural gas price swap and oil price collar agreements to hedge against price fluctuations. Oil and gas sales are adjusted for the effects of hedging transactions as the underlying hedged production is sold. Adjustments to oil and gas sales from the Company's hedging activities resulted in an increase in revenues of $0.2 million in 1998 and reductions in revenues of $2.4 million and $6.9 million in 1997 and 1996, respectively. During February, March and April of 1999, the Company entered into forward sale/swap agreements to hedge a portion of the Company's oil and gas production as follows: 35 The Wiser Oil Company
Period Daily Volume - Product Price (Floor/Ceiling) ------ ---------------------- --------------------- March 1, 1999 to July 31, 1999 23,832 MMBTU - Natural Gas $1.72 per MMBTU May 1, 1999 to August 31, 1999 800 Bbls - Crude Oil $13.40 per Bbl May 1, 1999 to August 31, 1999 455 Bbls - Crude Oil $14.50/16.60 per Bbl May 1, 1999 to September 30, 1999 500 Bbls - Crude Oil $13.00/17.35 per Bbl
The 455 Bbls per day crude oil hedge is a "collar" hedge whereby the Company will receive the actual market price if the actual market price is between the floor price of $14.50 per Bbl and the ceiling price of $16.60 per Bbl. If the actual market price is below or above the floor or ceiling prices, the price received by the Company will be limited to the floor price or ceiling price, respectively. The 500 Bbls per day crude oil hedge is also a "collar" hedge whereby the Company will receive the actual market price if the actual market price is between $15.00 per Bbl and the ceiling price of $17.35 per Bbl. If the actual market price is between the floor price of $13.00 per Bbl and $15.00 per Bbl, the Company will receive $15.00 per Bbl. If the actual market price is less than the floor price of $13.00 per Bbl, the Company will receive the actual market price plus $2.00 per Bbl. If the actual market price is above the ceiling price of $17.35 per Bbl, the price received by the Company will be limited to $17.35 per Bbl. The Company continuously reevaluates its hedging program in light of market conditions, commodity price forecasts, capital spending and debt service requirements. Also see Note 1 to the Company's Consolidated Financial Statements included elsewhere in this Report. Foreign Currency Exchange Risk The Company receives a substantial portion of its revenue in Canadian dollars (24% in 1998). As a result, fluctuations in the exchange rates of the Canadian dollar with respect to the U.S. dollar could have an adverse effect on the Company's financial condition and results of operations. Historically however, exchange rate fluctuations have not been material to the Company. Item 8. Financial Statements and Supplementary Data The Report of Independent Accountants, Consolidated Financial Statements and supplementary financial data required by this Item are set forth on pages F-1 through F-20 of this Report and are incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant The information required by this Item will be contained in the Proxy Statement under the headings "Election of Directors" and "Executive Officers" and is incorporated herein by reference. Item 11. Executive Compensation The information required by this Item will be contained in the Proxy Statement under the heading "Executive Compensation" and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item will be contained in the Proxy Statement under the heading "Beneficial Ownership of Common Stock" and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information required by this Item, if any, will be contained in the Proxy Statement under the heading "Executive Compensation" and is incorporated herein by reference. 36 The Wiser Oil Company PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K A. Financial Statements The following documents are filed as part of this Report: 1. Report of Independent Accountants Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 2. Schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. B. Reports on Form 8-K. There were no reports on Form 8-K filed by the Company during the last quarter of 1998. C. Exhibits Exhibits not incorporated herein by reference to a prior filing are designated by an asterisk (*) and are filed herewith; all exhibits not so designated are incorporated herein by reference as indicated. Exhibit Numbers - ------- (3.1) Certificate of Incorporation of the Company, as amended, incorporated by reference to Exhibit 4.2 to the Company's report on Form 8-K (Commission File No. 0-5426), dated November 9, 1993 (Date of Event: October 25, 1993). (3.2) Bylaws of the Company, as amended, incorporated by reference to Exhibit 4.3 to the Company's report on Form 8-K (Commission File No. 0-5426), dated November 9, 1993 (Date of Event: October 25, 1993). (4) Rights Agreement dated as of October 25, 1993 by and between the Company and The Chase Manhattan Bank (as successor to Chemical Bank), as Rights Agent, which includes as Exhibit 2 thereto the Form of Rights Certificate, incorporated by reference to Exhibit 4.1 to the Company's report on Form 8-K (Commission File No. 0-5426), dated November 9, 1993 (Date of Event: October 25, 1993). (4a) Amendment No. 1 to the Rights Agreement dated as of October 25, 1993 by and between the Company and The Chase Manhattan Bank (as successor to Chemical Bank), as Rights Agent, which includes as Exhibit 2 thereto the Form of Rights Certificate, incorporated by reference to the Company's report on Form 8 -K/A filed on September 29,1995. 37 The Wiser Oil Company (4.1) Indenture dated May 21, 1997, among the Company, certain subsidiaries of the Company and Texas Commerce Bank National Association, as Trustee, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 (Commission File No. 333-29211), filed on June 13, 1997. (4.2) Form of 9 1/2% Senior Subordinated Notes due 2007 (included in the indenture filed as Exhibit 4.1), incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-4 (Commission File No. 333-29211), filed on June 13, 1997. (4.3) Registration Agreement dated May 21, 1997, among the Company, certain subsidiaries of the Company and Salomon Brothers Inc., NationsBanc Capital Markets, Inc. and Nesbitt Burns Securities Inc., as the Initial Purchasers, incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-4 (Commission File No. 333- 29211), filed on June 13, 1997. (4.4) Credit Agreement dated June 23, 1994 among The Wiser Oil Company and The Wiser Oil Company of Canada, as Borrowers, and NationsBank of Texas, N.A. (NationsBank), as Agent, and Certain Financial Institutions Listed on the Signature Pages Thereto, as Banks, incorporated by reference to the Exhibit 10.1 to the Company's report on Form 8-K dated July 11, 1994 as amended on Form 8-K/A filed on August 17, 1994. (4.5) First Amendment to Credit Agreement dated November 29, 1995 among The Wiser Oil Company and The Wiser Oil Company of Canada, as Borrowers, and NationsBank, as Agent, and Certain Financial Institutions Listed on the Signature Pages Thereto, as Banks, incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-4 (Commission File No. 333-29211), filed on June 13, 1997. (4.6) Second Amendment to Credit Agreement dated May 20, 1997 among The Wiser Oil Company and The Wiser Oil Company of Canada, Inc., as Borrowers, and NationsBank, as Agent, and Certain Financial Institutions Listed on the Signature Pages thereto, as Banks, incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-4 (Commission File No. 333-29211), filed on June 13, 1997. (4.7) Guaranty Agreement dated May 20, 1997, by Wiser Oil Delaware, Inc., in favor of NationsBank and PNC Bank, National Association ("PNC"), incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-4 (Commission File No. 333-29211), filed on June 13, 1997. (4.8) Guaranty Agreement dated May 20, 1997, by Wiser Delaware LLC, in favor of NationsBank and PNC, incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-4 (Commission File No. 333-29211), filed on June 13, 1997. (4.9) Guaranty Agreement dated May 20, 1997, by The Wiser Marketing Company, in favor of NationsBank and PNC, incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-4 (Commission File No. 333-29211), filed on June 13, 1997. (4.10) Guaranty Agreement dated May 20, 1997, by The Wiser Oil Company of Canada, in favor of NationsBank and PNC, incorporated by reference to Exhibit 4.10 to the Company's Registration Statement on Form S-4 (Commission File No. 333-29211), filed on June 13, 1997. (4.11) Guaranty Agreement dated May 20, 1997, by T.W.O.C., Inc., in favor of NationsBank and PNC, incorporated by reference to Exhibit 4.11 to the Company's Registration Statement on Form S-4 (Commission File No. 333- 29211), filed on June 13, 1997. (4.13) Credit Agreement dated December 23, 1997 among The Wiser Oil Company, as borrowers, and NationsBank of Texas, N.A., as agent, and The Financial Institutions Listed on the Signature Pages thereto, as Banks, incorporated by reference to Exhibit 4.13 to the Company's Annual Report on Form 10-K filed on March 30, 1998. 38 The Wiser Oil Company (4.13a) First Amendment to Credit Agreement dated September 30, 1998 among The Wiser Oil Company, as borrowers, and NationsBank of Texas, N.A., as agent, and The Financial Institutions Listed on the Signature Pages thereto, as Banks, incorporated by reference to Exhibit 4.13a to the Company's Annual Report on Form 10-Q filed on November 12, 1998. (4.13b)* Second Amendment to Credit Agreement dated January 11, 1999 among The Wiser Oil Company, as borrowers, and NationsBank of Texas, N.A., as agent, and The Financial Institutions Listed on the Signature Pages thereto, as Banks. (10.3) Purchase and Sale Agreements made as of May 31, 1994 among Eagle Resources Ltd., Caneagle Resources Corporation, The Erin Mills Investment Corporation and The Wiser Oil Company, incorporated by reference to Exhibit 10 to the Company's report on Form 8-K dated July 11, 1994 as amended by Form 8-K/A filed on August 17, 1994. (10.3a)* Purchase and Sale Agreement dated April 12, 1999 between Columbia Natural Resources, Inc. and the Wiser Oil Company. (10.4)+ Employment Agreement dated August 1, 1994 between the Company and Allan J. Simus, incorporated by reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (10.4a)+* Amendment to Employment Agreement dated August 1, 1994 between the Company and Alan J. Simus dated March 22, 1996. (10.4b)+ Second Amendment to Employment Agreement dated August 1, 1994 between the Company and Alan J. Simus dated May 20, 1997, incorporated by reference to Exhibit 10.4a to the Company's Annual Report on Form 10-K filed on March 30, 1998. (10.4c)+* Third Amendment to Employment Agreement dated August 1, 1994 between the Company and Alan J. Simus dated January 1, 1999. (10.5)+ Employment Agreement dated July 1, 1991 between the Company and Andrew J. Shoup, Jr., incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (10.5a)+* Amendment to Employment Agreement dated July 1, 1991 between the Company and Andrew J. Shoup, Jr. dated June 1, 1994. (10.5b)+ Second Amendment to Employment Agreement dated July 1, 1991 between the Company and Andrew J. Shoup, Jr. dated May 20, 1997, incorporated by reference to Exhibit 10.5a to the Company's Annual Report on Form 10-K filed on March 30, 1998. (10.5c)+* Third Amendment to Employment Agreement dated July 1, 1991 between the Company and Andrew J. Shoup, Jr. dated January 1, 1999. (10.6)+ The Wiser Oil Company 1991 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Commission File No. 33-62441), filed on September 8, 1995. (10.6a)+ Amendment to The Wiser Oil Company 1991 Stock Incentive Plan, incorporated by reference to the Company's Registration Statement on Form S-8 (Commission File No. 333-29973), filed on June 25, 1997. (10.7)+ The Wiser Oil Company 1991 Non-Employee Directors' Stock Option Plan, as amended, incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Commission File No. 333-22525), filed on February 28, 1997. 39 The Wiser Oil Company (10.8)+ Employment Agreement dated November 1, 1993 between the Company and Lawrence J. Finn, incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (10.8a)+* Amendment to Employment Agreement dated November 1, 1993 between the Company and Lawrence J. Finn dated March 22, 1996. (10.8b)+ Second Amendment to Employment Agreement dated November 1, 1993 between the Company and Lawrence J. Finn dated May 20, 1997, incorporated by reference to Exhibit 10.8a to the Company's Annual Report on Form 10-K filed on March 30, 1998. (10.8c)+* Third Amendment to Employment Agreement dated November 1, 1993 between the Company and Lawrence J. Finn dated January 1, 1999. (10.9)+ Employment Agreement dated January 24, 1994 between the Company and A. Wayne Ritter, incorporated by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (10.9a)+* Amendment to Employment Agreement dated January 24, 1994 between the Company and A. Wayne Ritter dated March 22, 1996. (10.9b)+ Second Amendment to Employment Agreement dated January 24, 1994 between the Company and A. Wayne Ritter dated May 20, 1997, incorporated by reference to Exhibit 10.8a to the Company's Annual Report on Form 10-K filed on March 30, 1998. (10.9c)+* Third Amendment to Employment Agreement dated January 24, 1994 between the Company and A. Wayne Ritter dated January 1, 1999. (10.10)+ Employment Agreement dated September 30, 1996 between the Company and Kent E. Johnson, incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K (Commission File No. 0-5426), filed on March 26, 1997. (10.10a)+ Amendment to Employment Agreement dated September 30, 1996 between the Company and Kent E. Johnson dated May 20, 1997, incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q filed on August 13, 1997. (10.10b)+* Second Amendment to Employment Agreement dated September 30, 1996 between the Company and Kent E. Johnson dated January 1, 1999. (10.11)+ The Wiser Oil Company Equity Compensation Plan For Non-Employee Directors, incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K (Commission File No. 0-5426), filed on March 26, 1997. (10.12) The Wiser Oil Company Savings Restoration Plan dated February 24, 1998, incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K filed on March 30, 1998. (10.13) Retirement Restoration Plan dated March 23, 1995, incorporated by reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q filed on August 12, 1998. (21)* Subsidiaries of registrant. (23.1)* Consent of Independent Public Accountants. 40 The Wiser Oil Company (23.2)* Consent of DeGolyer and MacNaugton, Independent Petroleum Engineers. (23.3)* Consent of Gilbert Lausten Jung Associates Ltd., Independent Petroleum Engineers. (27)* Financial Data Schedule. - -------------------- + Represent management compensatory plans or agreements. * Filed herewith. 41 The Wiser Oil Company 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, on the 15th day of April 1999. The Wiser Oil Company By: /s/ Andrew J. Shoup, Jr. ----------------------------------- Andrew J. Shoup, Jr. 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. Signature Title Date --------- ----- ---- /s/ ANDREW J. SHOUP, JR. President, Chief Executive April 15, 1999 - ----------------------------- Officer and Director ANDREW J. SHOUP, JR. (Principal Executive Officer) /s/ PAUL D. NEUENSHWANDER Director April 15, 1999 - ----------------------------- PAUL D. NEUENSHWANDER /s/ C. FRAYER KIMBALL Director April 15, 1999 - ----------------------------- C. FRAYER KIMBALL /s/ HOWARD G. HAMILTON Director April 15, 1999 - ----------------------------- HOWARD G. HAMILTON /s/ A. W. SCHENCK, III Director April 15, 1999 - ----------------------------- A. W. SCHENCK, III /s/ JOHN W. CUSHING, III Director April 15, 1999 - ----------------------------- JOHN W. CUSHING, III /s/ JON L. MOSLE, JR. Director April 15, 1999 - ----------------------------- JON L. MOSLE, JR. /s/ LORNE H. LARSON Director April 15, 1999 - ----------------------------- LORNE H. LARSON /s/ LAWRENCE J. FINN Vice President and Chief April 15, 1999 - ----------------------------- Financial Officer LAWRENCE J. FINN (Principal Financial and Accounting Officer) 42 THE WISER OIL COMPANY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Report of Independent Public Accountants.................... F-2 Consolidated Statements of Income........................... F-3 Consolidated Balance Sheets................................. F-4 Consolidated Statements of Changes in Stockholders' Equity.. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7 F-1 Report of Independent Public Accountants To the Shareholders of The Wiser Oil Company: We have audited the accompanying consolidated balance sheets of The Wiser Oil Company (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years ended December 31, 1998, 1997 and 1996. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Wiser Oil Company and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years ended December 31, 1998, 1997 and 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Dallas, Texas, April 15, 1999 F-2 THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996 ---------- -------- -------- (000's except per share data) Revenues: Oil and gas sales......................... $ 59,197 $76,729 $72,012 Dividends and interest.................... 269 1,113 683 Marketable security sales................. -- 7,495 12,977 Other..................................... 1,164 2,478 1,017 -------- ------- ------- 60,630 87,815 86,689 -------- ------- ------- Costs and Expenses: Production and operating.................. 26,529 27,183 23,970 Purchased natural gas..................... 1,440 1,622 1,462 Depreciation, depletion and amortization.. 25,811 22,977 19,653 Property impairments...................... 3,838 3,289 12,112 Exploration............................... 15,328 9,655 4,176 General and administrative................ 9,793 9,661 9,364 Interest expense.......................... 13,097 9,845 5,452 -------- ------- ------- 95,836 84,232 76,189 -------- ------- ------- Earnings (Loss) Before Income Taxes......... (35,206) 3,583 10,500 Income Tax Expense (Benefit)................ (10,740) 264 4,072 -------- ------- ------- NET INCOME (LOSS)........................... $(24,466) $ 3,319 $ 6,428 ======== ======= ======= Earnings (Loss) Per Share (Note 12): Basic..................................... $ (2.73) $ .37 $ .72 ======== ======= ======= Diluted................................... $ (2.73) $ .37 $ .72 ======== ======= ======= Cash Dividends Per Share.................... $ .12 $ .12 $ .12 ======== ======= =======
The accompanying notes are an integral part of these financial statements. F-3 THE WISER OIL COMPANY CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997
1998 1997 ---------- ---------- (000's) Assets Current Assets: Cash and cash equivalents.................................... $ 2,779 $ 13,255 Accounts receivable.......................................... 9,102 13,765 Inventories.................................................. 669 1,007 Income taxes receivable...................................... 1,270 725 Prepaid expenses............................................. 1,035 438 --------- --------- Total current assets...................................... 14,855 29,190 --------- --------- Property, Plant and Equipment, at cost: Oil and gas properties (successful efforts method)........... 367,974 346,655 Other properties............................................. 5,523 5,399 --------- --------- 373,497 352,054 Accumulated depreciation, depletion and amortization......... (160,202) (131,346) --------- --------- Net property, plant and equipment............................ 213,295 220,708 Other Assets.................................................. 3,660 4,658 --------- --------- $ 231,810 $ 254,556 ========= ========= Liabilities and Stockholders' Equity Current Liabilities: Accounts payable............................................. $ 10,473 $ 18,396 Current portion of long-term debt............................ 21,000 -- Accrued liabilities.......................................... 2,730 2,985 --------- --------- Total current liabilities.................................. 34,203 21,381 --------- --------- Long-Term Debt................................................ 124,452 124,304 Deferred Benefit Cost......................................... 378 1,169 Deferred Income Taxes......................................... 686 10,278 Stockholders' Equity: Common stock - $3 par value; 20,000,000 shares authorized; 9,128,169 shares issued; 8,951,965 shares outstanding..... 27,385 27,385 Paid-in capital.............................................. 3,223 3,223 Retained earnings............................................ 43,090 68,630 Foreign currency translation................................. 1,122 915 Treasury stock; 176,204 shares, at cost...................... (2,729) (2,729) --------- --------- Total stockholders' equity................................. 72,091 97,424 --------- --------- $ 231,810 $ 254,556 ========= =========
The accompanying notes are an integral part of these financial statements. F-4 THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended December 31, 1998, 1997 and 1996
Marketable Securities Foreign Common Paid-in Retained Valuation Currency Treasury Total Stock Capital Earnings Adjustment Translation Stock ---------- --------- ------- --------- ----------- ----------- --------- (000's) December 31, 1995............. $101,132 $ 27,347 $3,078 $ 61,030 $11,684 $ 722 $(2,729) Net income.................. 6,428 -- -- 6,428 -- -- -- Other comprehensive income (loss), net of tax....... (7,225) -- -- -- (7,356) 131 -- -------- Comprehensive income (loss). (797) -- Dividends paid.............. (1,073) -- -- (1,073) -- -- -- -------- -------- ------- -------- ---------- ----------- -------- December 31, 1996............. 99,262 27,347 3,078 66,385 4,328 853 (2,729) Net income.................. 3,319 -- -- 3,319 -- -- -- Other comprehensive income (loss), net of tax....... (4,266) -- -- -- (4,328) 62 -- -------- Comprehensive income (loss). (947) -- Stock options exercised..... 183 38 145 -- -- -- -- Dividends paid.............. (1,074) -- -- (1,074) -- -- -- -------- -------- ------- -------- ---------- ----------- -------- December 31, 1997............. 97,424 27,385 3,223 68,630 -- 915 (2,729) Net income (loss) (24,466) -- -- (24,466) -- -- -- Other comprehensive income (loss), net of tax....... 207 -- -- -- -- 207 -- -------- Comprehensive income (loss). (24,259) -- Dividends paid.............. (1,074) -- -- (1,074) -- -- -- -------- -------- ------- -------- ---------- ----------- -------- December 31, 1998............. $ 72,091 $ 27,385 $3,223 $ 43,090 $ -- $1,122 $(2,729) ======== ======== ======= ======== ========== =========== ========
The accompanying notes are an integral part of these financial statements. F-5 THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996 ----------- --------- --------- (000's except per share data) Cash Flows from Operating Activities: Net income (loss) $(24,466) $ 3,319 $ 6,428 Adjustments to reconcile to cash flows from operating activities: Depreciation, depletion and amortization.......... 25,811 22,977 19,653 Deferred income taxes............................. (9,592) 1,530 2,056 Marketable securities and property sales gains.... (615) (9,370) (13,099) Exploration expense............................... 15,328 9,655 4,176 Property impairments.............................. 3,838 3,289 12,112 Foreign currency translation...................... 207 62 (2) Amortization of other assets...................... 556 282 -- Other changes: Accounts receivable............................. 4,663 326 (3,665) Inventories..................................... 338 282 228 Income taxes receivable......................... (545) (725) -- Prepaid expenses................................ (597) 35 360 Accounts payable................................ (7,923) 3,400 4,853 Accrued income taxes............................ -- (1,697) 170 Accrued liabilities............................. (255) 1,449 88 Deferred benefit costs.......................... (791) (328) 376 Other........................................... 1,149 -- 553 -------- -------- -------- Operating Cash Flows.......................... 7,106 34,486 34,287 -------- -------- -------- Cash Flows From Investing Activities: Capital and exploration expenditures.................. (40,402) (78,323) (47,115) Proceeds from sales of property, plant and equipment.. 2,894 3,288 1,022 Proceeds from sales of marketable securities.......... -- 8,115 14,035 -------- -------- -------- Investing Cash Flows.......................... (37,508) (66,920) (32,058) -------- -------- -------- Cash Flows From Financing Activities: Borrowings of long-term debt.......................... 21,000 125,000 25,508 Repayments of long-term debt.......................... -- (78,654) (22,191) Long-term debt issuance costs and fees................ -- (5,636) -- Common stock issued................................... -- 183 -- Dividends paid........................................ (1,074) (1,074) (1,073) -------- -------- -------- Financing Cash Flows.......................... 19,926 39,819 2,244 -------- -------- -------- Net Increase (Decrease) in Cash............................ (10,476) 7,385 4,473 Cash and Cash Equivalents, beginning of year............... 13,255 5,870 1,397 -------- -------- -------- Cash and Cash Equivalents, end of year..................... $ 2,779 $ 13,255 $ 5,870 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-6 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 1. Summary of Significant Accounting Policies a. Principles of Consolidation - The consolidated financial statements include the accounts of The Wiser Oil Company (Company), a Delaware corporation, and its wholly owned subsidiaries: T.W.O.C., Inc., The Wiser Marketing Company, Maljamar Wiser Inc., Maljamar Development Partnership, L.P., and The Wiser Oil Company of Canada ("Wiser Canada"). T.W.O.C., Inc. is a Delaware holding company responsible for the management of investment activities. The Wiser Marketing Company functions as a natural gas marketer and broker. Maljamar Wiser Inc. was formed in 1995 as a wholly-owned subsidiary of the Company. It was formed in order for the Company to fund its $53,000,000 development of the Maljamar area with the use of nonrecourse debt. The Maljamar Development Partnership, L.P. was formed in 1995 for the same reason. The Company is the limited partner of the Maljamar Development Partnership, L.P. and owns 99% of the partnership. Maljamar Wiser Inc. owns 1% of the Maljamar Development Partnership, L.P. as a general partner. Effective May 14, 1997, Maljamar Wiser Inc. was merged into The Wiser Oil Company and Maljamar Development Partnership, L.P. was terminated. Wiser Canada was formed in 1994 to conduct the Company's Canadian activities. Prior to the formation of Wiser Canada, the Company's oil and gas operations were conducted primarily in the United States. Intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to conform prior years' amounts to current presentation. b. Risks and Uncertainties - 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. c. Oil and Gas Properties - The Company is engaged in the exploration and development of oil and gas in the United States and Canada. The Company follows the "successful efforts" method of accounting for its oil and gas properties. Under this method of accounting, all costs of property acquisitions and exploratory wells are initially capitalized. If a well is unsuccessful, the capitalized costs of drilling the well, net of any salvage value, are charged to expense. The capitalized costs of unproven properties are periodically assessed to determine whether their value has been impaired below the capitalized cost, and if such impairment is indicated, a loss is recognized. Geological and geophysical costs and the costs of retaining undeveloped properties are expensed as incurred. Expenditures for maintenance and repairs are charged to expense, and renewals and betterments are capitalized. Upon disposal, the asset and related accumulated depreciation, depletion and amortization are removed from the accounts, and any resulting gain or loss is reflected currently in income. Prior to 1995, the Company evaluated the carrying value of its oil and gas properties based on undiscounted future net revenues on a company wide basis. During 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived assets and for Long-Lived Assets to Be Disposed Of". SFAS 121 requires the Company to assess the need for an impairment of capitalized costs of oil and gas properties on a property-by-property basis. If an impairment is indicated based on undiscounted expected future cash flows, then an impairment is recognized to the extent that net capitalized costs exceed discounted future cash flows. For 1998, the impairment test was based on estimates of future cash flows for each field. Crude oil price estimates were based on NYMEX future prices, F-7 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 which were $12.35, $13.63 and $14.57 per barrel for 1999, 2000 and 2001, respectively, and increased 3% per year thereafter up to a maximum of $20 per barrel. Gas price estimates were also based on NYMEX future prices, which where $1.96, $2.25, $2.34 and $2.55 per MMBTU for 1999, 2000, 2001 and 2002, respectively, and increased 3% per year thereafter up to a maximum of $3.50 per MMBTU. These prices were applied to production profiles developed by the Company's engineers using proved developed reserves at December 31, 1998. During 1998, 1997 and 1996, the Company provided impairments of $3,838,000, $3,289,000 and $12,112,000, respectively. The impairments were determined based on the difference between the carrying value of the assets and the present value of future cash flows discounted at 10%. It is reasonably possible that a change in reserve or price estimates could occur in the near term and adversely impact management's estimate of future cash flows and consequently the carrying value of properties. d. Depreciation, Depletion and Amortization ("DD&A") DD&A of the capitalized costs of producing oil and gas properties are computed for individual properties using the units-of-production method based on total proved reserves. Depreciation of transportation, office and other properties is computed generally using the straight-line method over the estimated useful lives of these assets. e. Cash and Cash Equivalents - Cash equivalents generally consist of short- term investments maturing in three months or less from the date of acquisition. These investments of $2,675,000 at December 31, 1998 and $15,083,000 at December 31, 1997 are recorded at cost plus accrued interest, which approximates market. f. Inventories - Oil and gas product inventories are recorded at the average cost of production. Materials and supplies are recorded at the lower of average cost or market. g. Accrued Liabilities - Accrued liabilities include accrued vacation and payroll of $323,000 at December 31, 1998 and $334,000 at December 31, 1997. h. Postretirement Benefits - SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", has no significant impact on the Company. The Company has no significant liabilities for postretirement benefits, other than pensions, and has historically recognized such liabilities as they are incurred. i. Gas Imbalances - Gas imbalances are accounted for using the sales method. The Company's net imbalance position is not material at December 31, 1998 and 1997. j. Financial Instruments - The following table sets forth the book value and estimated fair values of financial instruments at December 31, 1998 and 1997, respectively (000's):
1998 1997 ------------------ ------------------- Book Fair Book Fair Value Value Value Value -------- -------- -------- --------- Cash and equivalents $ 2,779 $ 2,779 $ 13,255 $13,255 Floating-rate debt 21,000 21,000 -- -- Fixed-rate debt 124,452 (A) 124,304 (A)
(A) It was not practicable to estimate the fair value of the Company's fixed-rate debt because the trading volume was too small to establish a reasonable basis of fair value. F-8 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 During 1998, the Company entered into various natural gas forward sale agreements and during 1997 and 1996, the Company entered into natural gas price swap and oil price collar agreements to hedge against price fluctuations. Oil and gas sales in the accompanying Consolidated Statements of Income are adjusted for the effects of hedging transactions as the underlying hedged production is sold. Adjustments to oil and gas sales from the Company's hedging activities resulted in an increase in revenues of $210,000 in 1998 and reductions in revenues of $2,372,000 and $6,923,000 in 1997 and 1996, respectively. As of December 31, 1998 and December 31, 1997, the Company had no deferred net gains or net losses. In February, March and April of 1999, the Company entered into forward sale agreements to hedge a portion of the Company's oil and gas production as follows:
Period Daily Volume - Product Price (Floor / Ceiling) -------------------------------- -------------------------- ----------------------- March 1, 1999 to July 31, 1999 23,832 MMBTU - Natural Gas $1.72 per MMBTU May 1, 1999 to August 31, 1999 800 Bbls - Crude Oil $13.40 per Bbl May 1, 1999 to August 31, 1999 455 Bbls - Crude Oil $14.50/16.60 per Bbl May 1, 1999 to September 30, 1999 500 Bbls - Crude Oil $13.00/17.35 per Bbl
The 455 Bbls per day crude oil hedge is a "collar" hedge whereby the Company will receive the actual market price if the actual market price is between the floor price of $14.50 per Bbl and the ceiling price of $16.60 per Bbl. If the actual market price is below or above the floor or ceiling prices, the price received by the Company will be limited to the floor price or ceiling price, respectively. The 500 Bbls per day crude oil hedge is also a "collar" hedge whereby the Company will receive the actual market price if the actual market price is between $15.00 per Bbl and the ceiling price of $17.35 per Bbl. If the actual market price is between the floor price of $13.00 per Bbl and $15.00 per Bbl, the Company will receive $15.00 per Bbl. If the actual market price is less than the floor price of $13.00 per Bbl, the Company will receive the actual market price plus $2.00 per Bbl. If the actual market price is above the ceiling price of $17.35 per Bbl, the price received by the Company will be limited to $17.35 per Bbl. k. Foreign Currency Translation - The functional currency of Wiser Canada is the Canadian dollar. In accordance with SFAS No. 52, "Foreign Currency Translation", Wiser Canada's financial statements have been translated from Canadian dollars to U.S. dollars with the cumulative translation adjustment gain of $1,122,000 for 1998 and $915,000 for 1997 classified in Stockholders' Equity. l. Comprehensive Income - In 1998, the Company adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income"("SFAS 130") which establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income includes net income and other comprehensive income, which includes, but is not limited to, unrealized gains for marketable securities and future contracts, foreign currency translation adjustments and minimum pension liability adjustments. The impact of adopting SFAS No. 130 for the three years ended December 31, 1998 was not material. 2. Liquidity On March 23, 1999, a financial institution ("New Lender") purchased all of the rights and obligations of the Credit Agreement from NationsBank of Texas, N.A. and the Bank of Montreal and became the new Agent under the Credit Agreement. The outstanding borrowings by the Company under the Credit Agreement at March 23,1999 and through April 15, 1999 are $21 million. Subsequently, the Company notified the New Lender that the Company was not able to maintain one of the ratios required under the Financial Covenants of the Credit Agreement as of December 31, 1998, and through the date of notification. On April 15, 1999, the Company and the New Lender entered into an agreement whereby the Company will repay the outstanding balance under the Credit Agreement of $21 million plus interest and fees from the anticipated cash proceeds available from the sale of oil and gas properties as discussed further below. The Company began negotiating various purchase and sale agreements to sell a portion of its oil and gas properties prior to March 1999, and plans to use the sales proceeds to reduce existing debt, fund capital expenditures and for general corporate purposes. The New Lender has agreed to waive any default or possible event of default through December 31, 1998, and has agreed to stand still and not to enforce any remedies under the Credit Agreement relating to any default or event of default that has occurred or may occur through May 14, 1999. The New Lender also agreed to deliver releases of its liens on any properties to be sold by the Company until the outstanding balance of $21 million is repaid in full. The Company is not in default of any covenants under the 9 1/2% Senior Subordinated Notes due in May 2007. THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 The Company is pursuing several alternatives that would allow it to repay the outstanding balance under the Credit Agreement through the sale of oil and gas properties and/or refinancing. The Company believes the Credit Agreement will be repaid in full on or before May 14, 1999 from the proceeds of property sales and/or refinancing as discussed below. On April 13, 1999, the Company entered into a Purchase and Sale Agreement with Prince Minerals, Ltd. to sell certain producing and non-producing mineral interests ("Mineral Properties") for $10 million effective April 1, 1999. The sale is expected to close by April 23, 1999. The producing portion of the oil and gas properties comprising the Mineral Properties represent approximately 2% of the Company's total proved oil and gas reserves at December 31, 1998. The sales proceeds will be used to reduce the outstanding balance under the Credit Agreement to approximately $11 million. The Purchase and Sale Agreement with Prince Minerals, Ltd. is subject to the buyer successfully completing a due diligence review, which was substantially complete as of April 15, 1999. The Company is not aware of and does not anticipate any conditions that would delay or terminate the closing of this sale. On April 12, 1999, the Company entered into a Purchase and Sale Agreement with Columbia Natural Resources to sell all of the Company's oil and gas properties in Kentucky, Tennessee and West Virginia ("Appalachia Properties") for $28 million effective April 1, 1999. The sale is expected to close on or before May 12, 1999. The oil and gas properties comprising the Appalachia Properties represent approximately 15% of the Company's total proved oil and gas reserves at December 31, 1998. The sales proceeds will be used to repay in full the outstanding balance under the Credit Agreement, and for general corporate purposes. The Purchase and Sale Agreement with Columbia Natural Resources is also subject to the buyer successfully completing a due diligence review, which was in progress as of April 15, 1999. The Company is not aware of and does not anticipate any conditions that would delay or terminate the closing of this sale. In addition, the Company is negotiating several other purchase and sale agreements involving a number of smaller, non-strategic oil and gas properties in Texas and New Mexico that the Company plans to sell for an aggregate sales price in the range of $7 million to $8 million. These sales are expected to close in the second quarter of 1999. The sales proceeds will be used for general corporate purposes. The Company is currently negotiating with a bank to obtain a new credit facility. The Company expects to complete the negotiations and obtain a new credit facility in the second quarter of 1999, however successful completion of these negotiations cannot be assured. The Company plans to use any funds provided by a new credit facility to fund capital expenditures and for general corporate purposes. If a new credit facility is available prior to the closing date of the Appalachia Properties sale, the Company may use funds provided by a new credit facility to reduce any existing indebtedness under the Credit Agreement with the New Lender. Management of the Company is highly confident that the purchase and sale agreements for the Mineral and Appalachia Properties discussed above will be closed as planned and that the funds provided by the property sales will enable the Company to reduce indebtedness and continue to meet all of its financial obligations while maintaining a smaller level of capital expenditures during 1999. 3. Marketable Securities The Company follows the accounting procedures as established by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Under SFAS No. 115 marketable securities, such as those owned by the Company, are classified as available-for-sale securities and are to be reported at market value, with unrealized gains and losses, net of income taxes, excluded from earnings and reported as a separate component of stockholders' equity. All of these securities were liquidated during 1997. The Company recognized a pretax gain of $7,495,000 and $12,977,000 for 1997 and 1996, respectively, from the sale of its marketable securities. F-9 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 4. Long-Term Debt a. On May 21, 1997, the Company sold $125 million in principal amount of 9 1/2% Senior Subordinated Notes ("2007 Notes") due May 15, 2007, providing net proceeds to the Company of $120,898,000. The original issue price was 99.718%. The Company used the net proceeds from the sale of the 2007 Notes to repay all outstanding indebtedness under the Credit Agreement and the Maljamar Credit Facility and for general corporate purposes. The 2007 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 15, 2002 at a redemption price of 104.75%, plus accrued interest to the date of redemption, and declining at the rate of 1.583% per year to May 15, 2005 and 100% thereafter. Prior to May 15, 2000, the Company may, at its option, redeem up to 33 1/3% of the original principal amount at a redemption price of 109.5%, plus accrued interest to the date of redemption, with the net proceeds from any future public offering of Company stock. Under the terms of the 2007 Notes, the Company must meet certain tests before it is able to pay cash dividends or make other restricted payments, incur additional indebtedness, engage in transactions with its affiliates, incur liens and engage in certain sale and leaseback arrangements. The terms of the 2007 Notes also limit the Company's ability to undertake a consolidation, merger or transfer of all or substantially all of its assets. In addition, the Company is, subject to certain conditions, obligated to offer to repurchase the 2007 Notes at par value plus accrued interest to the date of repurchase with the net cash proceeds of certain sales or dispositions of assets. Upon a change of control, as defined, the Company will be required to make an offer to purchase the 2007 Notes at 101% of the principal amount thereof, plus accrued interest to the date of purchase. b. On June 23, 1994, the Company entered into a Credit Agreement with NationsBank of Texas, N. A. as agent, which provided for a term loan to Wiser Canada and a revolving credit facility to the Company. On December 23, 1997, the Credit Agreement was renewed under the same basic terms. The Credit Agreement provides the Company with up to a $150 million line of credit through March 31, 2002. The amounts available for borrowing are determined under formulas related to oil and gas reserves and the Company's borrowing base at December 31, 1998 was $25 million. The indebtedness outstanding under the Credit Agreement is secured by a guaranty from Wiser Canada. Available loan and interest options are (i) Base Rate Advances, at the bank's prime interest rate plus the Applicable Margin and (ii) Eurodollar Advances, at LIBOR plus the Applicable Margin. Based on the amount of outstanding advances, the Applicable Margin ranges between 0% and 1.25% and the commitment fee on the unused borrowing base ranges from 0.25% to 0.375%. The average interest rate during 1998 under the Credit Agreement was 6.15%. The Credit Agreement requires the Company to, among other things, maintain certain financial ratios and imposes certain restrictions on sales of assets, payment of dividends and incurrence of indebtedness. At December 31, 1998 and through March 31, 1999, the Company was not able to maintain one of the financial ratios required by the Credit Agreement. After March 31, 1999 and through April 15, 1999, the Company was not able to maintain two of the financial ratios required by the Credit Agreement. The Company intends to repay the indebtedness under the Credit Agreement in full in 1999. Accordingly, the outstanding balance of $21 million has been classified as a current liability at December 31, 1998 in the accompanying Consolidated Balance Sheets. See Note 2 for further discussion. F-10 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 c. On November 29, 1995, the Company entered into a credit agreement with NationsBank of Texas, NA as agent (the "Maljamar Credit Facility"). The Maljamar Credit Facility provided the Company with up to a $50 million nonrecourse facility to develop the expanded Maljamar project area. The average interest rate during 1997 under the Maljamar Credit Facility was 7.49%. The Maljamar Credit Facility was repaid and canceled in May 1997. The Company paid $12,375,000 in interest during 1998, $8,120,000 during 1997, and $4,971,000 during 1996. Long-term debt consists of the following (000's):
December 31, -------------------- 1998 1997 --------- --------- 2007 Notes 9.5% interest rate at December 31, 1998......... $124,452 $124,304 Credit Agreement - 6.2% interest rate at December 31, 1998.. 21,000 -- -------- --------- 145,452 124,304 Less current maturities..................................... 21,000 -- -------- --------- $124,452 $124,304 ======== =========
The annual requirements for reduction of principal of long-term debt outstanding as of December 31, 1998 are estimated as follows (000's): 1999.................................................... $ -- 2000.................................................... -- 2001.................................................... -- 2002.................................................... -- Thereafter.............................................. 124,452 ---------- $ 124,452 ========== F-11 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 5. Income Taxes The Company provides deferred income taxes for differences between the tax reporting basis and the financial reporting basis of assets and liabilities. The Company follows the accounting procedures established by SFAS No. 109, "Accounting for Income Taxes". The Company paid income taxes of $566,000 in 1997 and $900,000 in 1996. Income tax expense (benefit) for the three years ended December 31, 1998 were as follows (000's):
1998 1997 1996 ----------- --------- --------- Current: Federal................................................................................ $ (1,248) $ 375 $1,911 State.................................................................................. 100 200 105 -------- ------- ------ (1,148) 575 2,016 -------- ------- ------ Deferred: Federal................................................................................ (9,592) (311) 1,919 State.................................................................................. -- -- 137 -------- ------- ------ (9,592) (311) 2,056 -------- ------- ------ Total income tax expense (benefit)......................................................... $(10,740) $ 264 $4,072 ======== ======= ======
A reconciliation of the statutory federal income tax rate to the Company's effective tax rate follows:
1998 1997 1996 -------- ------- ------ Statutory federal income tax rate.......................................................... 34.0% 34.0% 34.0% Statutory depletion in excess of cost basis................................................ -- (5.4) (2.0) Non-deductible Canadian operating loss..................................................... -- -- 22.6 State taxes, net of federal income taxes................................................... -- 5.8 1.5 Dividends received credit.................................................................. -- (1.3) (1.2) Non-conventional fuels credit.............................................................. -- (7.3) (14.6) Other...................................................................................... (3.5) (18.4) (1.5) -------- ------- ------ Effective tax rate......................................................................... 30.5% 7.4% 38.8% ======== ======= ======
The deferred tax liabilities and assets at December 31, 1998 and 1997 were as follows (000's):
1998 1997 --------- --------- Deferred tax liabilities (assets): Intangible drilling and development cost................................................. $ 13,041 $14,966 Deferred pensions and compensation....................................................... (296) (468) Alternative minimum tax credit carryforwards............................................. (3,040) (3,040) Property impairment reserve.............................................................. (2,424) (1,118) Net operating loss carryforward.......................................................... (6,013) -- Wiser Canada excess property basis....................................................... (3,866) (3,866) Valuation allowance...................................................................... 3,866 3,866 Other.................................................................................... (582) (62) -------- ------- $ 686 $10,278 ======== =======
F-12 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 The Company will only realize the benefits of alternative minimum tax credit carryforwards by generating future regular tax liability in excess of alternative minimum tax liability. In addition, the Company will only realize the benefit of the net operating loss carryforward by generating future taxable income. The Company believes it is more likely than not that both the net operating loss carryforward and the alternative minimum tax credits will be fully realized. As of December 31, 1998, Wiser had Canadian net deferred tax assets of $3,866,000 and a valuation allowance has been provided against the Canadian net deferred tax assets at December 31, 1998. Beginning in 1997, Wiser Canada's operating results are included in the Company's consolidated federal income tax return. 6. Oil and Gas Producing Activities Set forth below is certain information regarding the aggregate capitalized costs of oil and gas properties and costs incurred in oil and gas property acquisitions, exploration and development activities (000's):
U.S. Canada Total ---------- --------- ---------- December 31, 1998: ------------------ Capitalized Costs: Proved properties................................. $ 261,361 $ 83,668 $ 345,029 Unproved properties............................... 18,007 4,938 22,945 --------- -------- --------- Total........................................... 279,368 88,606 367,974 Accumulated DD&A.................................. (114,769) (41,825) (156,594) --------- -------- --------- Net capitalized cost.............................. $ 164,599 $ 46,781 $ 211,380 ========= ======== ========= Costs Incurred during 1998: Property acquisition.............................. $ 2,946 $ 1,181 $ 4,127 Exploration (A)................................... 12,162 2,147 14,309 Development....................................... 10,226 11,397 21,623 (A) U.S. includes $1,615 for exploration in Peru. December 31, 1997: ------------------ Capitalized Costs: Proved properties................................. $ 247,809 $ 76,325 $ 324,134 Unproved properties............................... 17,315 5,206 22,521 --------- -------- --------- Total........................................... 265,124 81,531 346,655 Accumulated DD&A.................................. (95,038) (34,589) (129,627) --------- -------- --------- Net capitalized cost.............................. $ 170,086 $ 46,942 $ 217,028 ========= ======== ========= Costs Incurred during 1997: Property acquisition.............................. $ 22,399 $ 5,377 $ 27,776 Exploration....................................... 8,906 3,461 12,367 Development....................................... 27,380 9,593 36,973
F-13 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996
U.S. Canada Total ---------- --------- ---------- December 31, 1996: ------------------ Capitalized Costs: Proved properties......... $ 226,411 $ 62,937 $ 289,348 Unproved properties....... 9,659 7,709 17,368 --------- -------- --------- Total................... 236,070 70,646 306,716 Accumulated DD&A.......... (100,016) (29,094) (129,110) --------- -------- --------- Net capitalized cost...... $ 136,054 $ 41,552 $ 177,606 ========= ======== ========= Costs Incurred during 1996: Property acquisition...... $ 1,782 $ 1,054 $ 2,836 Exploration............... 875 1,888 2,763 Development............... 33,994 6,230 40,224 Gas plants................ 408 -- 408
7. Employee Pension Plan The Company has a noncontributory defined benefit pension plan, which covers substantially all full-time employees. Plan participants become fully vested after five years of continuous service. The retirement benefit formula is based on the employee's earnings, length of service and age at retirement. Contributions required to fund plan benefits are determined according to the Projected Unit Credit Method. The assets of the plan are primarily invested in equity and debt securities. An amendment to the pension plan, effective January 1, 1993, reduced the normal retirement age from 65 years to 62 years. Effective December 11, 1998, the pension plan was further amended to curtail certain pension benefits. The net periodic pension costs (000's) and principal assumptions utilized in computing pension expense were as follows:
1998 1997 1996 ------- ------ -------- Current service cost........................... $ 375 $ 345 $ 381 Interest cost on projected benefit obligation.. 729 682 824 Actual return on assets........................ (711) (930) 1,890 Curtailment adjustment......................... (778) -- -- Net amortization and deferral.................. 126 384 (2,652) ----- ----- ------- Net periodic pension cost (credit)............. $(259) $ 481 $ 443 ===== ===== ======= Discount rate.................................. 7.0% 8.0% 8.0% Rate of return on plan assets.................. 8.5% 8.5% 8.5% Rate of increase in compensation levels........ 5.0% 5.0% 5.0%
F-14 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 The following table presents the actuarial valuation of the plan's funded status, as of December 31 (000's):
1998 1997 1996 ------- -------- -------- Actuarial present value of pension benefits obligations: Vested................................................... $9,666 $8,212 $8,155 Nonvested................................................ -- 289 415 ------ ------ ------ Accumulated.............................................. 9,666 8,501 8,570 Projected salary increases............................... -- 768 751 ------ ------ ------ Projected benefits obligations........................... 9,666 9,269 9,321 Plan assets at fair value................................ 9,477 8,547 8,010 ------ ------ ------ Plan assets less than projected benefits obligations..... $ 189 $ 722 $1,311 ====== ====== ====== Items not yet recognized: Unrecognized net gain.................................... $ 16 $1,032 $ 473 Unamortized transition amount............................ 65 87 121 Unamortized prior service cost........................... -- (812) (957) ------ ------ ------ Net pension liability.................................... $ 270 $1,029 $ 948 ====== ====== ======
As a result of the curtailment of certain pension benefits in 1998, the Company's net pension liability was reduced by $778,000. 8. Employee Savings Plan The Company has a qualified Savings Plan available to all employees. An employee may elect to have up to 15% of the employee's base monthly compensation, exclusive of other forms of special or extra compensation, withheld and placed in the Savings Plan account. On a monthly basis, the Company contributes to this account an amount equal to 50% of the employee's contribution, limited to 3% of the employee's base compensation. Company contributions to the Savings Plan were $156,000, $142,000 and $126,000, in 1998, 1997 and 1996, respectively. F-15 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 9. Business Segment Information In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" which requires reporting of financial and descriptive information about a company's reportable operating segments. The Company has identified only one operating segment, which is the exploration for and production of oil and gas with sales made to domestic and Canadian energy customers. Sales to major customers for the year ended December 31, 1998 were $20,684,000 to Highland Energy Company and $7,656,000 to Koch Oil Co. Ltd. which represented 34% and 13%, respectively, of the Company's total oil and gas revenues. The sales to Koch Oil Co. Ltd. accounted for approximately 55% of the Company's revenues from sales of its Canadian production in 1998. However, due to the nature of the oil and gas industry, the Company is not dependent upon any of these customers. The loss of any major customer would not have a material adverse impact on the Company's business. The following table summarizes the oil and gas activity of the Company by geographic area for the years ended December 31, 1998, 1997 and 1996.
U.S. Canada Total ---------- --------- ---------- 1998: ----- Total revenues....................... $ 46,328 $14,302 $ 60,630 Costs and expenses: Production and operating........... 22,217 4,312 26,529 Purchased natural gas.............. 1,440 -- 1,440 DD&A............................... 16,548 9,263 25,811 Property impairments............... 1,766 2,072 3,838 Exploration........................ 13,046 2,282 15,328 Other operating.................... 20,891 1,999 22,890 -------- ------- -------- Total costs and expenses........ 75,908 19,928 95,836 -------- ------- -------- Earnings (loss) before income taxes.. (29,580) (5,626) (35,206) Income tax expense (benefit)......... (10,740) -- (10,740) -------- ------- -------- Net income (loss).................... $(18,840) $(5,626) $(24,466) ======== ======= ======== Identifiable assets (end of year)......... $181,013 $50,797 $231,810 ======== ======= ========
F-16 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996
U.S. Canada Total --------- --------- --------- 1997: ----- Total revenues..................... $ 71,706 $16,109 $ 87,815 Costs and expenses: Production and operating......... 23,058 4,125 27,183 Purchased natural gas............ 1,622 -- 1,622 DD&A............................. 14,032 8,945 22,977 Property impairments............. 1,786 1,503 3,289 Exploration...................... 6,956 2,699 9,655 Other operating.................. 16,407 3,099 19,506 -------- ------- -------- Total costs and expenses...... 63,861 20,371 84,232 -------- ------- -------- Earnings before income taxes....... 7,845 (4,262) 3,583 Income tax expense................. 264 -- 264 -------- ------- -------- Net income......................... $ 7,581 $(4,262) $ 3,319 ======== ======= ======== Identifiable assets (end of year).. $202,474 $52,082 $254,556 ======== ======= ======== 1996: ----- Total revenues..................... $ 69,595 $17,094 $ 86,689 Costs and expenses: Production and operating......... 20,288 3,682 22,970 Purchased natural gas............ 1,462 -- 1,462 DD&A............................. 11,783 7,870 19,653 Property impairments............. 7,276 4,836 12,112 Exploration...................... 1,837 2,339 4,176 Other operating.................. 9,475 5,341 14,816 -------- ------- -------- Total costs and expenses...... 52,121 24,068 76,189 -------- ------- -------- Earnings before income taxes....... 17,474 (6,974) 10,500 Income tax expense................. 4,072 -- 4,072 -------- ------- -------- Net income......................... $ 13,402 $(6,974) $ 6,428 ======== ======= ======== Identifiable assets (end of year).. $161,687 $46,930 $208,617 ======== ======= ========
10. Stock Compensation Plans Stock Options SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. During 1996, the Company adopted the disclosure provisions of SFAS No. 123. The Company continues to apply the accounting provisions of APB Opinion 25, "Accounting for Stock Issued to Employees," and related interpretations to account for stock-based compensation. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. F-17 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 The Company has two stock option plans, the 1991 Stock Incentive Plan ("Incentive Plan") and the 1991 Non-Employee Directors' Stock Option Plan ("Directors' Plan"). The Incentive Plan provides for the issuance of ten- year options with a variable vesting period and a grant price equal to the fair market value at the issue date. The Directors' Plan, as amended, provides for the issuance of ten-year options with a six month vesting period and a grant price equal to the fair market value at the issue date. A summary of the status of the Company's two stock option plans at December 31, 1998, 1997 and 1996 and changes during the years then ended follows:
1998 1997 1996 ----------------------- ------------------------ ----------------------- Exercise Exercise Exercise Shares Price(1) Shares Price(1) Shares Price(1) ----------- ----------- ----------- ----------- --------- ----------- Outstanding at beginning of year.. 1,022,475 $15.62 879,500 $15.02 254,500 $16.88 Granted........................... 10,500 11.94 164,500 18.87 647,250 14.35 Exercised......................... -- -- (15,025) 15.68 -- -- Expired and cancelled............. (5,625) 11.25 (6,500) 15.76 (22,250) 16.88 ---------- ------ ---------- ------ -------- ------ Outstanding at end of year........ 1,027,350 $15.61 1,022,475 $15.62 879,500 $15.02 ========== ====== ========== ====== ======== ====== Exercisable at end of year........ 868,850 $15.40 773,975 $15.23 145,650 $16.47 ========== ====== ========== ====== ======== ====== Fair value of options granted(1).. $3.66 $6.07 $4.30 ========== ========== ========
(1) Weighted average per option granted. 667,750 of the 1,027,350 options outstanding at December 31, 1998 have exercise prices between $11 and $15, with a weighted average exercise price of $14.35 and a weighted average remaining contractual life of 7.7 years. 609,750 of these options are currently exercisable with a weighted average exercise price of $14.60. The remaining 359,600 options have exercise prices between $15 and $20, with a weighted average exercise price of $17.94 and a weighted average contractual life of 6.3 years. 259,100 of these options are currently exercisable with a weighted average exercise price of $17.30. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants for both the Incentive Plan and the Directors' Plan:
1998 1997 1996 ------ ------ ------ Risk free interest rate... 5.58% 6.29% 6.36% Expected dividend yields.. 1.01% .64% .84% Expected lives, in years.. 5.00 5.06 4.85 Expected volatility....... 25.99% 23.66% 22.22%
F-18 THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1998, 1997 and 1996 Had compensation cost been determined consistent with SFAS No. 123, the Company's net income and basic earnings per share would have been reduced to the following pro forma amounts:
1998 1997 1996 ---------- ------- ------- Net income (loss) - as reported (in thousands).. $(24,466) $3,319 $6,428 Net income (loss) - pro forma (in thousands).... (24,685) 2,256 5,576 Earnings (loss) per share - as reported......... $ (2.73) $ .37 $ .72 Earnings (loss) per share - pro forma........... (2.76) .25 .62
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of compensation cost to be expected in future years. Share Appreciation Rights Plan The Company has a share appreciation rights ("SARs") plan which authorizes the granting of SARs to employees of the Company. Upon exercise, SARs allow the holder to receive the difference between the SARs exercise price and the fair market value of the Company's common stock covered by the SARs on the exercise date. The holders of the SARs vest at 25% per year and the SARs expire at the earlier of 5 years or termination of employment. At December 31, 1998, 85,000 SARs were outstanding with an exercise price of $14.63 per share. 11. Preferred Stock In addition to Common Stock, the Company is authorized to issue 300,000 shares of Preferred Stock with a par value of $10 per share, none of which has been issued. 12. Earnings Per Share The Company accounts for earnings per share ("EPS") in accordance with SFAS No. 128, "Earnings Per Share". Under SFAS No. 128, basic EPS is computed by dividing net income by the weighted average common shares outstanding without including any potentially dilutive securities. Diluted EPS is computed by dividing net income by the weighted average common shares outstanding plus, when their effect is dilutive, common stock equivalents consisting of stock options. Previously reported EPS were equivalent to the diluted EPS calculated under SFAS No. 128. Following are the weighted average common shares outstanding used in the computation of basic EPS and diluted EPS for the years ended December 31, 1998, 1997 and 1996 (000's):
1998 1997 1996 ----- ----- ----- Basic EPS shares.... 8,952 8,949 8,939 ===== ===== ===== Diluted EPS shares.. 8,952 8,982 8,954 ===== ===== =====
F-19 THE WISER OIL COMPANY Supplemental Financial Information For the years ended December 31, 1998, 1997 and 1996 (Unaudited) The following pages include unaudited supplemental financial information as currently required by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board. 13. Estimated Quantities of Oil and Gas Reserves (Unaudited) Proved reserves are the estimated quantities of crude oil, natural gas and natural gas liquids, which upon analysis of geological and engineering data appear with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves which can be expected to be recovered through existing wells with existing equipment and under existing operating conditions. The estimation of reserves requires substantial judgment on the part of petroleum engineers and may result in imprecise determinations, particularly with respect to new discoveries. Accordingly, it is expected that the estimates of reserves will change as future production and development information becomes available and that revisions in these estimates could be significant. F-20 THE WISER OIL COMPANY Supplemental Financial Information For the years ended December 31, 1998, 1997 and 1996 (Unaudited) Following is a reconciliation of the Company's estimated net quantities of proved oil and gas reserves, as estimated by independent petroleum consultants.
Oil (MBbls) Gas (MMcf) ----------------------------- ------------------------------ U.S. Canada Total U.S. Canada Total ------- ----------- ------- -------- ---------- -------- Balance December 31, 1995...................... 28,440 3,768 32,208 84,950 24,965 109,915 Revisions of previous estimates.............. (301) (25) (326) 2,738 (535) 2,203 Properties sold and abandoned................ (78) -- (78) (72) -- (72) Reserves purchased in place.................. 12 -- 12 17 505 522 Extensions, discoveries and other additions.. 2,040 533 2,573 10,787 1,705 12,492 Production................................... (2,033) (744) (2,777) (8,874) (2,809) (11,683) ------ ----- ------ ------- ------ ------- Balance December 31, 1996...................... 28,080 3,532 31,612 89,546 23,831 113,377 Revisions of previous estimates.............. (2,614) 274 (2,340) 1,208 1,988 3,196 Properties sold and abandoned................ (810) (344) (1,154) (902) (2,606) (3,508) Reserves purchased in place.................. 1,493 1,013 2,506 8,961 -- 8,961 Extensions, discoveries and other additions.. 1,205 653 1,858 7,601 2,667 10,268 Production................................... (2,037) (724) (2,761) (9,466) (2,734) (12,200) ------ ----- ------ ------- ------ ------- Balance December 31, 1997...................... 25,317 4,404 29,721 96,948 23,146 120,094 Revisions of previous estimates.............. (2,773) 689 (2,084) (4,001) 1,362 (2,639) Properties sold and abandoned................ (215) (118) (333) (237) (882) (1,119) Reserves purchased in place.................. 2,686 -- 2,686 319 -- 319 Extensions, discoveries and other additions.. 407 306 713 12,971 4,111 17,082 Production................................... (1,837) (878) (2,715) (10,535) (3,221) (13,756) ------ ----- ------ ------- ------ ------- Balance December 31, 1998...................... 23,585 4,403 27,988 95,465 24,516 119,981 ====== ===== ====== ======= ====== ======= Proved Developed Reserves at December 31, (1): 1995......................................... 17,939 3,617 21,556 77,915 24,111 102,026 1996......................................... 24,892 3,225 28,117 80,652 22,477 103,129 1997......................................... 23,798 4,404 28,202 87,688 21,771 109,459 1998......................................... 22,701 4,253 26,954 86,610 23,736 110,346
(1) Reserve volumes as assigned by third party engineers have been increased to reflect the effect of the Alberta Royalty Tax Credit refund. Total proved and proved developed reserves were increased by 186 MBBL and 1,258 MMCF for 1996, 364 MBBL and 1,914 MMCF for 1997 and 389 MBBL and 2,088 MMCF for 1998. Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and Gas Reserves (Unaudited) The Company has estimated the standardized measure of discounted future net cash flows and changes therein relating to proved oil and gas reserves in accordance with the standards established by the Financial Accounting Standards Board through its Statement No. 69. The estimates of future cash inflows and future production and development cost are based on current year end sales prices for oil and gas. Estimated future production of proved reserves and estimated future production and development costs of proved reserves are based on current costs and economic conditions. F-21 THE WISER OIL COMPANY Supplemental Financial Information For the years ended December 31, 1998, 1997 and 1996 (Unaudited) This standardized measure of discounted future net cash flows is an attempt by the Financial Accounting Standards Board to provide the users of financial statements with information regarding future net cash flows from proved reserves. However, the users of these financial statements should use extreme caution in evaluating this information. The assumptions required to be used in these computations are subjective and arbitrary. Had other equally valid assumptions been used, significantly different results of discounted future net cash flows would result. Therefore, these estimates do not necessarily reflect the current value of the Company's proved reserves or the current value of discounted future net cash flows for the proved reserves. The following are the Company's estimated standardized measure of discounted future net cash flows from proved reserves (000's):
U.S. Canada Total ------------ ---------- ------------ December 31, 1998: ------------------ Future cash flows....................................... $ 440,715 $ 87,869 $ 528,584 Future production and development costs................. (278,468) (31,147) (309,615) Future income tax expense............................... (15,091) (5,063) (20,154) ---------- -------- ---------- Future net cash flows................................... 147,156 51,659 198,815 10% Annual discount for estimated timing of cash flows.. (67,065) (18,518) (85,583) ---------- -------- ---------- Standardized measure of discounted cash flows.......... $ 80,091 $ 33,141 $ 113,232 ========== ======== ========== December 31, 1997: ------------------ Future cash flows....................................... $ 650,810 $ 98,143 $ 748,953 Future production and development costs................. (357,598) (32,062) (389,660) Future income tax expense............................... (60,477) (6,512) (66,989) ---------- -------- ---------- Future net cash flows................................... 232,735 59,569 292,304 10% Annual discount for estimated timing of cash flows.. (97,116) (20,699) (117,815) ---------- -------- ---------- Standardized measure of discounted cash flows.......... $ 135,619 $ 38,870 $ 174,489 ========== ======== ========== December 31, 1996: ------------------ Future cash flows....................................... $1,029,971 $116,203 $1,146,174 Future production and development costs................. (415,276) (25,175) (440,451) Future income tax expense............................... (172,024) -- (172,024) ---------- -------- ---------- Future net cash flows................................... 442,671 91,028 533,699 10% Annual discount for estimated timing of cash flows.. (187,332) (29,187) (216,519) ---------- -------- ---------- Standardized measure of discounted cash flows........... $ 255,339 $ 61,841 $ 317,180 ========== ======== ==========
F-22 THE WISER OIL COMPANY Supplemental Financial Information For the years ended December 31, 1998, 1997 and 1996 (Unaudited) The following are the sources of changes in the standardized measure of discounted net cash flows (000's):
1998 1997 1996 ---------- ---------- ---------- Standardized measure, beginning of year................. $174,489 $ 317,180 $194,602 Sales, net of production costs.......................... (31,445) (47,959) (46,580) Net change in price and production costs................ (78,321) (204,859) 142,806 Reserves purchased in place............................. 1,817 30,570 581 Extensions, discoveries and improved recoveries......... 11,259 11,751 42,582 Change in future development costs...................... 9,316 16,339 27,080 Revisions of previous quantity estimates and disposals.. (4,846) (6,992) 314 Sales of reserves in place.............................. (1,698) (10,756) (987) Accretion of discount................................... 21,007 41,431 23,542 Changes in timing and other............................. (13,327) (33,752) (10,440) Net change in income taxes.............................. 24,981 61,536 (56,320) -------- --------- -------- Standardized measure, end of year....................... $113,232 $ 174,489 $317,180 ======== ========= ========
14. Quarterly Financial Data The supplementary financial data in the table below for each quarterly period within the years ended December 31, 1998 and 1997 are derived from the unaudited consolidated financial statements of the Company.
Net Earnings Income (Loss) Revenues (Loss) Per Share --------- --------- ---------- (000's) (000's) 1998: First quarter... $17,415 $(3,556) $(.40) Second quarter.. 16,019 (4,675) (.52) Third quarter... 13,833 (8,153) (.91) Fourth quarter.. 13,363 (8,082) (.90) 1997: First quarter... $25,575 $ 6,141 $ .69 Second quarter.. 17,826 (1,944) (.22) Third quarter... 17,027 (1,878) (.21) Fourth quarter.. 27,387 1,000 .11
F-23 THE WISER OIL COMPANY Supplemental Financial Information For the years ended December 31, 1998, 1997 and 1996 (Unaudited) 15. Summary of Guaranties of 9 1/2% Senior Subordinated Notes In May 1997, the Company issued $125 million aggregate principal amount of its 9 1/2% senior Subordinated Notes due 2007 pursuant to an offering exempt from registration under the Securities Act of 1933. The notes are unsecured obligations of the Company, subordinated in right of payment to all existing and any future senior indebtedness of the Company. The notes rank pari passu with any future senior subordinated indebtedness and senior to any future junior subordinated indebtedness of the Company. The notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured, senior subordinated basis by certain wholly owned subsidiaries of the Company (the "Subsidiary Guarantors"). At the time of the initial issuance of the notes, Wiser Oil Delaware, Inc., The Wiser Marketing Company, Wiser Delaware LLC, T.W.O.C., Inc. and The Wiser Oil Company of Canada were the Subsidiary Guarantors (the "Initial Subsidiary Guarantors"). Except for two wholly owned subsidiaries that are inconsequential to the Company on a consolidated basis, the Initial Subsidiary Guarantors comprise all of the Company's direct and indirect subsidiaries. Sections 13 and 15(d) of the Securities Exchange Act of 1934 require presentation of the following unaudited summarized financial information of the Subsidiary Guarantors. The Company has not presented separate financial statements and other disclosures concerning each Subsidiary Guarantor because such information is not material to investors. There are no significant contractual restrictions on distributions from each of the Subsidiary Guarantors to the Company. F-24 THE WISER OIL COMPANY Supplemental Financial Information For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
Subsidiary Guarantors ------------------------------------------- The Wiser Wiser T.W.O.C. Marketing Combined Canada(1) Inc. Company Total -------- -------- --------- -------- Revenues: For the Year Ended December 31, 1998.. $ 14,303 $ 1 $2,141 $ 16,445 For the Year Ended December 31, 1997.. 16,109 7,687 2,304 26,100 For the Year Ended December 31, 1996.. 17,094 16,304 2,237 35,635 Earnings (Loss) Before Income Taxes: For the Year Ended December 31, 1998.. $ (5,626) $ (14) $ 243 $ (5,397) For the Year Ended December 31, 1997.. (4,262) 7,671 231 3,640 For the Year Ended December 31, 1996.. (6,974) 16,287 338 9,651 Net Income (Loss): For the Year Ended December 31, 1998.. $ (3,882) $ (10) $ 168 $ (3,724) For the Year Ended December 31, 1997.. (3,947) 7,103 214 3,370 For the Year Ended December 31, 1996.. (6,974) 12,492 259 5,777 Current Assets: December 31, 1998..................... $ 3,782 $ 3 $ 213 $ 3,998 December 31, 1997..................... 4,808 44 165 5,017 December 31, 1996..................... 4,958 53 170 5,181 Total Assets: December 31, 1998..................... $ 50,797 $ 3 $ 526 $ 51,326 December 31, 1997..................... 52,083 44 492 52,619 December 31, 1996..................... 39,132 7,229 718 47,079 Current Liabilities: December 31, 1998..................... $ 4,806 $ -- $ 361 $ 5,167 December 31, 1997..................... 6,646 -- 250 6,896 December 31, 1996..................... 4,931 -- 508 5,439 Noncurrent Liabilities: December 31, 1998..................... $ 17,846 $ -- $ -- $ 17,846 December 31, 1997..................... 9,474 -- -- 9,474 December 31, 1996..................... 52,439 2,227 -- 54,666 Stockholders' Equity (Deficit): December 31, 1998..................... $ 28,145 $ 3 $ 165 $ 28,313 December 31, 1997..................... 35,963 44 242 36,249 December 31, 1996..................... (18,238) 5,002 210 (13,026)
(1) Includes the accounts of Wiser Oil Delaware, Inc., Wiser Delaware LLC and The Wiser Oil Company of Canada. F-25 EX-4.13B 2 SECOND AMENDMENT TO CREDIT AGREEMENT EXHIBIT 4.13b SECOND AMENDMENT TO CREDIT AGREEMENT ------------------------------------ This Second Amendment to Credit Agreement (this "Second Amendment") is ---------------- entered into as of the 11 day of January, 1999, by and among The Wiser Oil Company, a Delaware corporation ("Borrower"), NationsBank, N.A. (successor by -------- merger to NationsBank of Texas, N.A.), as Agent ("Agent"), and NationsBank, N.A. ----- (successor by merger to NationsBank of Texas, N.A.) and Bank of Montreal, as Banks ("Banks"). ----- W I T N E S S E T H ------------------- WHEREAS, Borrower, Agent and Banks are parties to that certain Credit Agreement dated as of December 23, 1997 as amended by that certain First Amendment to Credit Agreement dated as of September 30, 1998 (as amended, the "Credit Agreement") (unless otherwise defined herein, all terms used herein with - ----------------- their initial letter capitalized shall have the meaning given such terms in the Credit Agreement); and WHEREAS, pursuant to the Credit Agreement, Banks have made a certain Loan to Borrower and provided certain other credit accommodations to Borrower; and WHEREAS, the Borrower has requested that certain of the Banks or their Affiliates enter into Hedge Transactions with the Borrower and its Subsidiaries; and WHEREAS, Banks and their Affiliates have required, as a condition to entering into certain Hedge Transactions with Borrower and its Subsidiaries, that the Credit Agreement be amended to provide that all property standing as security for the Obligations will secure the Borrower's and its Subsidiaries" obligations under certain Hedge Transactions on ratable basis with the Notes. NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Borrower, Agent and Banks hereby agree as follows: Section 1. Amendments. In reliance on the representations, warranties, --------- ---------- covenants and agreements contained in this Second Amendment, the Credit Agreement shall be amended effective January 11, 1999 (the "Effective Date") in -------------- the manner provided in this Section 1. --------- 1.1 Additional Definitions. Section 1.1 of the Credit Agreement shall be ---------------------- amended to add the definitions of "Collateral," "Estimated Contingent Hedge ---------- -------------------------- Liability Percentage," "Estimated Contingent Hedge Transaction Amount," "Fixed - -------------------- --------------------------------------------- ----- Hedge Liability Percentage," "Fixed Hedge Transaction Amount," "Hedge - -------------------------- ------------------------------ ----- Transaction Amount," "Hedge Transaction Percentage," "Loan Obligations," "Loan - ------------------ ---------------------------- ---------------- ---- Percentage," "Second Amendment," "Secured Affiliate," "Secured Hedge - ---------- ---------------- ----------------- ------------- Transaction," and "Secured Hedge Transaction Obligations,"and which shall read ------------------------------------- in full as follows: "Collateral" means any and all Property of Borrower or a Subsidiary of ---------- Borrower subject to any Lien securing payment or performance of the Obligations. "Estimated Contingent Hedge Liability Percentage" means, on any date, ----------------------------------------------- the decimal, expressed as a percentage, determined by dividing (i) the Estimated Contingent Hedge Transaction Amount on such date by (ii) the Hedge Transaction Amount on such date. "Estimated Contingent Hedge Transaction Amount" means, on any date, --------------------------------------------- with respect to Secured Hedge Transaction Obligations that are not absolute, fixed, liquidated liabilities of Borrower or a Subsidiary of Borrower on such date, the amount estimated by Agent in good faith in accordance with the Hedge Transaction Documents (as defined in Section ------- 3A.3) and its customary policies and procedures to be the amount which would be the Fixed Hedge Transaction Amount under the Secured Hedge Transactions pursuant to which such Secured Hedge Transaction Obligations arose if such Secured Hedge Transactions were terminated on such date. "Fixed Hedge Liability Percentage" means, on any date, the decimal, -------------------------------- expressed as a percentage, determined by dividing (i) the Fixed Hedge Transaction Amount on such date by (ii) the Hedge Transaction Amount on such date. "Fixed Hedge Transaction Amount" means, on any date, the amount of ------------------------------ Secured Hedge Transaction Obligations outstanding on such date which constitute absolute, fixed, liquidated liabilities of Borrower or a Subsidiary of Borrower and which are due and payable on such date in accordance with the Hedge Transaction Documents as reflected in written notices from the Banks or Secured Affiliates which are parties to such Secured Hedge Transactions addressed to Agent specifying (a) that each such Secured Hedge Transaction Obligation have become an absolute, fixed, liquidated liability of Borrower or a Subsidiary of Borrower, (b) the amount thereof, and (c) the calculation of such amount in detail reasonably acceptable to Agent. "Hedge Transaction Amount" means, on any date, the sum of (a) the ------------------------ Fixed Hedge Transaction Amount on such date, plus (b) the Estimated Contingent Hedge Transaction Amount on such day. "Hedge Transaction Percentage" means, on any date, the decimal, ---------------------------- expressed as a percentage, determined by dividing (a) the Hedge Transaction Amount on such date, by (b) the sum of (i) the aggregate outstanding principal balance of the Loan and all accrued but unpaid interest thereon on such date, plus (ii) the Hedge Transaction Amount on such date. "Loan Obligations" means all present and future indebtedness, ---------------- obligations and liabilities, and all renewals and extensions thereof, or any part thereof, of Borrower or any of its Subsidiaries to any Bank arising pursuant to this Agreement, the Notes, the Letters of Credit, or the other Loan Papers, and all interest accrued thereon and costs, expenses and attorneys fees incurred in the enforcement or collection thereof, regardless of whether such indebtedness obligations and liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several or joint and several. "Loan Percentage" means, on any day, the decimal, expressed as a --------------- percentage, determined by dividing (a) the aggregate outstanding principal balance of the Loan and all accrued but unpaid interest thereon as of such date, by (b) the sum of (i) the aggregate outstanding principal balance of the Loan and all accrued but unpaid interest thereon on such date, plus (ii) the Hedge Transaction Amount on such date. "Second Amendment" means that certain Second Amendment to Credit ---------------- Agreement dated as of January 11, 1999 among Borrower, Agent and Banks. 2 "Secured Affiliate" means any Affiliate of any Bank that has entered ----------------- into a Secured Hedge Transaction with Borrower or any Subsidiary of Borrower. "Secured Hedge Transaction" means any Hedge Transaction entered into ------------------------- between Borrower or any of its Subsidiaries, on the one hand, and any Bank or any Affiliate of any Bank, on the other hand, which has been designated in writing as a "Secured Hedge Transaction" by Banks holding seventy-five percent (75%) or more of the Total Commitment. "Secured Hedge Transaction Obligations" means all present and future ------------------------------------- indebtedness, obligations and liabilities, and all renewals and extensions thereof, or any part thereof, of Borrower or any of its Subsidiaries, to any Bank or any Secured Affiliate arising under or pursuant to any Secured Hedge Transaction, including all costs, expenses, and attorneys" fees incurred in the enforcement or collection thereof, regardless of whether such indebtedness, obligations or liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several or joint and several. 1.2 Amendment to Definitions. The definitions of "Loan Papers," and ------------------------ ----------- "Obligations" contained in Section 1.1 of the Credit Agreement shall be amended - ------------ to read in full as follows: "Loan Papers" means this Agreement, the First Amendment, the Second ----------- Amendment, the Notes, each Subsidiary Guaranty, all Security Documents now or at any time hereafter delivered pursuant to Article IIIA, and all other ------------ certificates, documents or instruments delivered in connection with this Agreement, as the foregoing may be amended from time to time. "Obligations" means, collectively (a) the Loan Obligations, and (b) ----------- all Secured Hedge Transaction Obligations. 1.3 Amendment to Certain Provisions Regarding Payments. Section 4.2 shall -------------------------------------------------- be amended to read in full as follows: SECTION 4.2. General Provisions as to Payments. (a) Each payment of --------------------------------- principal of, and interest on, the Loan and all fees payable hereunder shall be paid not later than 12:00 noon (Dallas, Texas time) on the date when due, in Federal or other immediately available funds to Agent at its address referred to in Section 13.1. ------------ (b) All principal payments received by Banks in respect of the Loan shall be applied, first, to Advances with Interest Periods ending on the date of such payment, then to Base Rate Advances, then to Eurodollar Advances (as Borrower shall elect but in the absence of such election, in such order as Agent shall elect), next maturing until such principal payment is fully applied, with such adjustments in such order of payment as Agent shall specify in order that each Bank receives its ratable share of each such payment. (c) From and after the occurrence of any Event of Default, all amounts collected or received by any Bank in respect of the Loan Obligations, shall be delivered to Agent and shall be disbursed by Agent (together with all other amounts collected or received by Agent in respect of the Loan Obligations) first to the payment of all proper costs incurred by Agent in connection with the collection thereof (including, reasonable expenses and 3 disbursements of Agent), second to the payment of all proper costs incurred by Banks in connection with the collection thereof (including reasonable expenses and disbursements of Banks, but only to the extent Borrower is obligated therefor under the Loan Papers), third to the reimbursement of any advances made by Banks to effect performance by Banks of any unperformed covenants of Borrower under any of the Loan Papers, fourth to any unpaid agency fees required pursuant to Section 2.10, fifth to satisfy ------------ indemnity obligations of the Borrower and its Subsidiaries arising hereunder and under the other Loan Papers, and sixth, to each Bank in accordance with its Commitment Percentage (and any amount disbursed to any Bank pursuant to this clause "sixth" shall be applied by such Bank to pay the following items in the following order: (i) accrued but unpaid fees owing to such Bank pursuant to Section 2.9, (ii) accrued but unpaid ----------- interest owing to such Bank, and (iii) to the principal of the Loan owing to such Bank). (d) Notwithstanding anything contained herein to the contrary, all amounts received by Agent which constitute proceeds ("Proceeds") of -------- Collateral and which either (i) are received by Agent after the acceleration of the maturity of the Loan Obligations or any failure by Borrower to pay such Loan Obligations in full at the Termination Date, or (ii) result from any sale, lease, transfer or other disposition of Collateral which is not permitted pursuant to Section 9.5 hereof, shall be ----------- disbursed by Agent first to the payment of all proper costs incurred by Agent in connection with the collection thereof (including reasonable expenses and disbursements of Agent), and any Proceeds remaining after the payment of such proper costs incurred by Agent (any "Remaining Proceeds") ------------------ shall be disbursed on the effective date of receipt in accordance with clauses (i) and (ii) below based on the Loan Percentage and the Hedge Transaction Percentage in effect on such date: (i) an amount equal to the Loan Percentage of all Remaining Proceeds received on such date will be disbursed to satisfy Loan Obligations and applied in the manner required by clause (c) preceding; and (ii) an amount equal to the Hedge Transaction Percentage of such Remaining Proceeds (the "Hedge Allocated Amount") will be disbursed to ---------------------- satisfy or secure Secured Hedge Transaction Obligations in the following manner: (A) the Fixed Hedge Liability Percentage of the Hedge Allocated Amount shall be disbursed to each Bank or Secured Affiliate based on the percentage of the Fixed Hedge Transaction Amount held by each Bank or Secured Affiliate on such day; and (B) the Estimated Contingent Hedge Liability Percentage of the Hedge Allocated Amount shall be held by Agent for the ratable benefits of all Banks and Secured Affiliates which hold Secured Hedge Transaction Obligations to secure the Obligations (the "Cash Hedging Collateral"). ----------------------- Borrower will execute or deliver and cause its Subsidiaries to execute and deliver such security agreements in form and substance satisfactory to Agent which Agent may, in its discretion, require to fully evidence and perfect the Liens held by it in such Cash Hedging Collateral (however, the failure of Borrower to execute and deliver any such security agreement shall not limit or impair the Liens of Agent in and to such Cash Hedging Collateral). Thereafter, in the event Estimated Contingent Hedge Transaction Amounts become Fixed Hedge Transaction Amounts, Agent shall disburse Cash Hedging Collateral to pay such Fixed Hedge Transaction Amounts. At such intervals as Agent shall determine, but not less frequently than monthly, Agent shall 4 redetermine the Estimated Contingent Hedge Transaction Amount. To the extent the Cash Hedging Collateral exceeds the Estimated Contingent Hedge Transaction Amount as then redetermined, such excess shall be disbursed by Agent and applied to satisfy the Loan Obligations in the manner set forth in Section 4.2(c) above. -------------- 1.4 Amendment to Certain Collateral Provisions. Sections 3A.1(a) and (b) ------------------------------------------ shall be amended to read in full as follows: SECTION 3A.1. Security. (a) In addition to the Collateral required -------- by Section 2.1(b) and Section 4.2(d), the Obligations shall be secured by -------------- -------------- first and prior Liens (subject only to Permitted Encumbrances) covering and encumbering the Initial Mortgaged Properties, the Secondary Mortgaged Properties and such other Mineral Interests owned by Borrower and its Subsidiaries which are specified by Required Banks from time to time. Promptly following the Effective Date of the Second Amendment, and in all events not later than October 16, 1998 (in the case of the Initial Mortgaged Properties) and October 23, 1998 (in the case of the Secondary Mortgaged Properties), Borrower shall execute and deliver and shall cause each of the Subsidiary Guarantors to execute and deliver, to Agent for the ratable benefit of each Bank and the Secured Affiliates, mortgages, deeds of trust, security agreements, assignments of production and financing statements and such other documents, instruments, agreements, assignments, conveyances, amendments and other writings, including, without limitation, UCC-1 financing statements (each duly authorized and executed) (the "Security Documents") as Agent shall deem necessary or appropriate all in ------------------- form and substance acceptable to Agent to grant, evidence and perfect first and prior Liens in all Initial Mortgaged Properties and Secondary Mortgaged Properties. (b) In addition to the Security Documents required by Section 3A.2(a), --------------- Borrower shall execute and deliver to Agent, for the ratable benefit of each Bank and the Secured Affiliates, such additional Security Documents granting, evidencing and perfecting the Liens required by Section 6.1(a) -------------- preceding with respect to such other Mineral Interests as Agent or Required Banks shall specify from time to time. 1.5 Secured Hedge Transactions. Article IIIA of the Agreement shall be -------------------------- amended to add a new Section 3A.3 thereto which shall read in full as follows: SECTION 3A.3. Secured Hedge Transactions. In the event any Bank or -------------------------- any Affiliate of any Bank proposes to enter into any Hedge Transaction with any Borrower or any Subsidiary of Borrower and such Bank or such Affiliate intends that such Hedge Transaction be classified as a "Secured Hedge Transaction" for purposes of this Credit Agreement, the Security Instruments and the other Loan Papers, such Bank or Affiliate shall deliver notice of such intent to Agent and each other Bank which notice shall be accompanied by copies (in draft form) of all documentation (including all exhibits, schedules and confirmations) to be entered into, in final form and completed to the extent practical at such time, but including, in all events, the term of such Hedge Transaction and the notional volume of Hydrocarbons which will be the subject of such Hedge Transaction (the "Hedge Transaction Documents"). The Banks may, but shall have no ---------------------------- obligation to, designate such Hedge Transaction as a Secured Hedge Transaction for purposes of this Agreement and the other Loan Papers. Any such designation shall be evidenced by a written instrument executed by Banks holding seventy five percent (75%) or more of the Total Commitment, and in the absence of such written designation, such Hedge Transaction shall not be considered a "Secured Hedge Transaction" for purposes of this Agreement or any of the 5 other Loan Papers. In the event any Hedge Transaction is designated a Secured Hedge Transaction, the Hedge Transaction Documents related thereto shall be executed substantially in the form provided to Agent and the other Banks, and appropriately completed (but in all events, providing for the same term and notional volume of Hydrocarbons set forth in the drafts of such documents provided to the Banks), and Agent shall be provided with true and correct copies of such Hedge Transaction Documents promptly upon execution thereof. BORROWER ACKNOWLEDGES AND AGREES THAT NO BANK NOR ANY AFFILIATE OF ANY BANK HAS ANY OBLIGATION UNDER THIS AGREEMENT OR ANY OTHER LOAN PAPER TO ENTER INTO ANY HEDGE TRANSACTION OF ANY TYPE WITH BORROWER, REGARDLESS OF WHETHER OR NOT SUCH HEDGE TRANSACTION WOULD CONSTITUTE A SECURED HEDGE TRANSACTION FOR PURPOSES OF THIS AGREEMENT OR ANY OTHER LOAN PAPER. 1.6 Third Party Beneficiaries. Section 13.14 of the Agreement shall be ------------------------- amended to read in full as follows: SECTION 13.14 No Third Party Beneficiaries. It is expressly intended ---------------------------- that there shall be no third party beneficiaries of the covenants, agreements, representations or warranties herein contained other than (a) Secured Affiliates, (b) transferees of all or any part of any Bank"s interests hereunder permitted pursuant to Section 13.10, and (c) ------------- participants of all or any part of any Bank"s interests hereunder solely to the extent permitted by Section 13.10. ------------- Section 2. Representations and Warranties of Borrower. To induce Banks --------- ------------------------------------------ and Agent to enter into this Second Amendment, Borrower hereby represents and warrants to Banks and Agent as follows: 2.1 Representations and Warranties in Credit Agreement. Each -------------------------------------------------- representation and warranty of Borrower contained in the Credit Agreement and the other Loan Papers is true and correct on the date hereof and will be true and correct after giving effect to the amendments set forth in Section 1 hereof. --------- 2.2 Absence of Defaults. No Default or Event of Default has ------------------- occurred which is continuing. 2.3 Due Authorization; No Conflicts. The execution, delivery and ------------------------------- performance by Borrower of this Second Amendment and each Security Document to be executed pursuant hereto are within Borrower"s corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not violate or constitute a default under any provision of applicable law or any Material Agreement binding upon Borrower or the Subsidiaries of Borrower or result in the creation or imposition of any Lien upon any of the assets of Borrower or the Subsidiaries of Borrower except Permitted Encumbrances. 2.4 Validity, Enforceability, Binding Effect. This Second ---------------------------------------- Amendment constitutes the valid and binding obligation of Borrower enforceable in accordance with its terms and, when executed and delivered pursuant hereto, each Security Document delivered hereunder will constitute the valid and binding obligation of Borrower enforceable in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditor"s rights generally, and (ii) the availability of equitable remedies may be limited by equitable principles of general application. Section 3. Miscellaneous. --------- ------------- 6 3.1 Reaffirmation of Loan Papers. Any and all of the terms and provisions ---------------------------- of the Credit Agreement and the Loan Papers shall, except as amended and modified hereby, remain in full force and effect. 3.2 Parties in Interest. All of the terms and provisions of this Second ------------------- Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. 3.3 Legal Expenses. Borrower hereby agrees to pay on demand all -------------- reasonable fees and expenses of counsel to Agent incurred by Agent in connection with the preparation, negotiation and execution of this Second Amendment and all related documents. 3.4 Counterparts. This Second Amendment may be executed in counterparts, ------------ and all parties need not execute the same counterpart; however, no party shall be bound by this Second Amendment until all parties have executed a counterpart. Facsimiles shall be effective as originals. 3.5 Complete Agreement. THIS SECOND AMENDMENT, THE CREDIT AGREEMENT AND ------------------ THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 3.6 Headings. The headings, captions and arrangements used in this Second -------- Amendment are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of this Second Amendment, nor affect the meaning thereof. [signature pages to follow] 7 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed by their respective authorized officers on the date and year first above written. BORROWER: -------- THE WISER OIL COMPANY, a Delaware corporation By: --------------------------------------- Lawrence Finn Vice President - Finance Chief Financial Officer AGENT: ----- NATIONSBANK, N.A., successor by merger to NationsBank of Texas, N.A., as Agent By: --------------------------------------- William E. Livingstone, IV Senior Vice President BANKS: ----- BANK OF MONTREAL By: --------------------------------------- Its: --------------------------------------- NATIONSBANK, N.A., successor by merger to NationsBank of Texas, N.A., as Agent By: --------------------------------------- William E. Livingstone, IV Senior Vice President 8 EX-10.3A 3 AGREEMENT OF SALE AND PURCHASE Exhibit 10.3a AGREEMENT OF SALE AND PURCHASE by and between THE WISER OIL COMPANY ("Seller") and COLUMBIA NATURAL RESOURCES, INC. ("Buyer") Date ---- April 12, 1999 TABLE OF CONTENTS 1.0 Sale and Transfer of Assets........................................... 1 1.1. Property to be Sold and Purchased............................... 1 1.2 Exceptions, and Definition of Oil and Gas Properties and Properties.................................................. 2 1.3. Purchase Price.................................................. 2 1.4. Deposit......................................................... 2 2.0 Representations....................................................... 3 2.1. Representations of Seller....................................... 3 2.2 Representations of Buyer........................................ 5 3.0 Covenants............................................................. 6 3.1 Certain Covenants Pending Closing............................... 6 4.0 Diligence and Adjustments............................................. 9 4.1 Due Diligence Reviews........................................... 9 4.2 Certain Price Adjustments for Uncured Asserted Defects.......... 11 5.0 Conditions to Closing................................................. 12 5.1 Conditions Precedent to the Obligations of Buyer................ 12 5.2 Conditions Precedent to the Obligations of Seller............... 13 6.0 Closing............................................................... 14 6.1 Actions At Closing.............................................. 14 6.2 Post Closing Actions............................................ 15 7.0 Accounting Adjustment................................................. 15 7.1 Certain Accounting Adjustments.................................. 15 8.0 Assumption and Indemnification........................................ 17 8.1 Assumption and Indemnification.................................. 17 8.2 No Commissions Owed............................................. 18 8.3 Plugging Operations............................................. 18 9.0 Pre-Closing Losses.................................................... 19 9.1 Casualty Loss................................................... 19 10.0 Notices............................................................... 19 10.1 Notices......................................................... 19 11.0 Survival.............................................................. 20 11.1 Survival of Provisions and Limitation of Liability.............. 20 12.0 Miscellaneous Matters................................................. 20 12.1 Further Assurances.............................................. 20 12.2 Imbalances, Makeup Obligations.................................. 20 12.3 Deceptive Trade Practices Waiver................................ 21 12.4 Parties Bear Own Expenses/No Special Damages.................... 21 -i- 12.5 No Sales Taxes................................................. 21 12.6 Entire Agreement............................................... 21 12.7 Amendments, Waivers............................................ 21 12.8 Choice of Law.................................................. 22 12.9 Headings, Time of Essence, etc................................. 22 12.10 No Assignment.................................................. 22 12.11 Successors and Assigns......................................... 22 12.12 No Press Releases.............................................. 22 12.13 Counterpart Execution.......................................... 22 12.14 Employees...................................................... 22 13.0 Termination........................................................... 23 13.1 Termination Rights............................................. 23 13.2 Effect of Termination.......................................... 23 -ii- AGREEMENT OF SALE AND PURCHASE This Agreement dated April 12, 1999, by and between The Wiser Oil Company (herein called "Seller") and Columbia Natural Resources, Inc. (herein called "Buyer"); W I T N E S S E T H: 1.0 Sale and Transfer of Assets 1.1. Property to be Sold and Purchased. Seller agrees to sell and Buyer agrees to purchase, for the consideration hereinafter set forth, and subject to the terms, conditions, and covenants contained herein, (including without limitation Section 1.2 below) the following described properties, rights and interests: (a) Oil and Gas Leases. All right, title and interest of Seller in and to the oil, gas and/or mineral leases described on Exhibit 1.1(a) hereto (and any ratifications and/or amendments to such leases, whether or not such ratifications or amendments are described on such Exhibit 1.1(a)) insofar as such leases (and such ratifications and amendments) cover the lands and depths described on such Exhibit 1.1(a); and (b) Fee Mineral Interest. All right, title and interest of Seller in and to the fee mineral interests in oil, gas and other minerals and the fee surface interests described on Exhibit 1.1(b) hereto; and (c) Related Pooling Agreements. All rights, titles and interests of Seller in and to, or otherwise derived from, all presently existing and valid oil, gas and/or mineral unitization, pooling, and/or communitization agreements, declarations and/or orders (including, without limitation, all units formed under orders, rules, regulations, or other official acts of any federal, state, or other authority having jurisdiction, and voluntary unitization agreements, designations and/or declarations) relating to the properties described in subsection (a) or (b) above, to the extent and only to the extent such rights, titles and interests are attributable to the properties described in subsection (a) or (b) above (all of such contracts and agreements are herein referred to as the "Related Pooling Agreements"); and (d) Subject Contracts. All rights, titles and interests of Seller in and to (i) all presently existing and valid operating agreements and other agreements, to the extent and only to the extent such agreements are attributable to any of the properties described in subsections (a), (b) and (c) above, and (ii) the gas sales agreements, production sales agreements, gas purchase agreements, gas transportation agreements, capacity lease agreements and other agreements listed on Exhibit 1.1(d) (all of such contracts and agreements referred to in this subsection (d), including without limitation those listed on Exhibit 1.1(d), are herein referred to as the "Subject Contracts"); and (e) Pipeline and Subject Equipment. All rights, titles and interests of Seller in and to (i) all materials, supplies, machinery, equipment, improvements and other personal property and fixtures (including, but not by way of limitation, all wells, wellhead equipment, pumping units, flowlines, gathering pipelines located in Kentucky, Tennessee and West Virginia (said pipelines located in Kentucky and Tennessee shown on the plat attached as a part of Exhibit 1.1(e)), (including any related right of way agreements) tanks, buildings, injection facilities, saltwater disposal facilities, compression facilities, and other equipment) to the extent and only to the extent such personal property is located on the properties described in subsections (a), (b) and (c) above or used in connection with the exploration, development, operation or maintenance thereof and (ii) the plants, equipment, facilities 1 and other tangible personal property listed on Exhibit 1.1(e) and the pipelines shown on the plat attached as a part of said Exhibit 1.1(e) and the interest in real property (including easements, rights-of-way, and surface leases) related to, and necessary for the operation of, the above described personal property; and (f) Books and Records. All of Seller's books and records directly relating to the Properties (defined below) including without limitation (i) existing engineering, operating, accounting, tax (including production, severance and ad valorem), business, marketing, title and division order files, (ii) existing ledgers, journals, property records, title policies, maps, charts, surveys, customer lists and supplier lists, (iii) existing environmental reports, assessments, studies, and plans and (iv) geological and similar data, or any interpretations thereof (the "Records"). (g) Certain Other Real and Personal Property. All right, title, and interest of Seller in and to that certain land together with that certain building structure commonly referred to as the Wiser Corbin building located at U.S.25 E. at Gray Street, Corbin, Kentucky, 40701, as more particularly described on part one of Exhibit 1.1(g) and all related personal property to such building, including without limitation furniture and equipment and the vehicles listed on part two of Exhibit 1.1(g) but excluding any computer software (other than operating system software on individual computers). 1.2 Exceptions, and Definition of Oil and Gas Properties and Properties. The properties, rights and interests specified in the subsections (a), (b) and (c) of Section 1.1, exclusive of the properties, rights and interests excluded below, are herein sometimes collectively called the "Oil and Gas Properties," and the properties, rights and interests specified in the foregoing subsections (a), (b), (c), (d), (e), (f) and (g) exclusive of the properties, rights and interests excluded below, are herein sometimes collectively called the "Properties". The Properties include all of the assets of the type defined as Properties above owned by Seller or its affiliates in Kentucky, Tennessee or West Virginia whether owned by Seller or its affiliates (and includes the contracts owned by Wiser Marketing Company which relate to Properties in such states) but the Properties do not include, and there is hereby expressly excepted and excluded therefrom and reserved to Seller, (a) all hedging or derivative agreements, and (b) all gas imbalances which are covered in Section 12.2 hereof. 1.3. Purchase Price. The purchase price for the Properties shall be Twenty-Eight Million Dollars ($28 million) (such amount, unadjusted by any adjustments provided for in this Agreement or agreed to by the parties, being herein called the "Base Purchase Price"). Such Base Purchase Price shall be adjusted as provided in Sections 3.1(c) and 4.2 hereof (the Base Purchase Price, as so adjusted, and as the same may otherwise be adjusted by mutual agreement of the parties, being herein called the "Purchase Price"). The Purchase Price shall be paid in cash at the Closing as hereinafter provided. 1.4. Deposit. (a) Contemporaneously with the execution of this Agreement, Buyer shall deposit in escrow with Chase Bank (the "Escrow Agent") an amount equal to five percent (5%) of the Base Purchase Price (such amount being herein called the "Deposit"). In the event the transaction contemplated hereby is consummated in accordance with the terms hereof, the Deposit including any interest earned thereon shall be withdrawn by the Escrow Agent in accordance with the terms of the Escrow Agreement and applied to the Purchase Price to be paid by Buyer at the Closing. The Deposit shall be applied in accordance with the terms of the Escrow Agreement executed by Buyer and Seller dated of even date herewith (the "Escrow Agreement"). In the event this Agreement is terminated by Buyer or Seller in accordance with Section 13 below, the Deposit shall be returned to Buyer or retained by Seller as provided in such section. The Deposit shall be deposited in an interest-bearing account. 2 (b) THE PARTIES HEREBY ACKNOWLEDGE THAT THE EXTENT OF DAMAGES TO SELLER OCCASIONED BY THE FAILURE OF THIS TRANSACTION TO BE CONSUMMATED WOULD BE IMPOSSIBLE OR EXTREMELY DIFFICULT TO ASCERTAIN AND THAT THE AMOUNT OF THE DEPOSIT IS A FAIR AND REASONABLE ESTIMATE OF SUCH DAMAGES UNDER THE CIRCUMSTANCES AS PROVIDED IN SECTION 13 AND DOES NOT CONSTITUTE A PENALTY. 2.0 Representations 2.1. Representations of Seller. (a) Representations. Seller represents to Buyer that: (i) Organization and Qualification. Seller is a corporation duly organized and legally existing and in good standing under the laws of the state of its incorporation. Seller is qualified to do business and in good standing in each of the states in which Oil and Gas Properties are located where the laws of such state would require a corporation owning the Oil and Gas Properties located in such state to so qualify, unless the failure to so qualify would not reasonably be expected to have a material adverse effect on the operation of the Oil and Gas Properties or create an encumbrance on any of the Oil & Gas Properties. (ii) Due Authorization. Seller has full power to enter into and perform its obligations under this Agreement and has taken all proper action to authorize entering into this Agreement and performance of its obligations hereunder. (iii) Approvals. Other than requirements (if any) that there be obtained consents to assignment (or waivers of preferential rights to purchase) from third parties as disclosed subsequently herein, and except for approvals ("Routine Governmental Approvals") required to be obtained from governmental entities who granted real property interests forming a part of the Properties (or who administer such properties on behalf of grantors) which are customarily obtained post-closing, and except for the requirements of any maintenance of uniform interest provisions contained in any operating or other agreements, to Seller's knowledge (which term or similar terms when used in this Agreement, shall mean to the actual knowledge of Seller's personnel listed in Exhibit 2.1(a)(iii)) neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor the compliance with the terms hereof, will result in any default under any agreement or instrument to which Seller is a party or by which the Properties are bound, or violate any order, writ, injunction, decree, statute, rule or regulation applicable to Seller. (iv) Valid, Binding and Enforceable. This Agreement constitutes (and the Conveyance provided for herein to be delivered at Closing will, when executed and delivered, constitute) the legal, valid and binding obligation of Seller, enforceable in accordance with its terms, except as limited by bankruptcy or other laws applicable generally to creditor's rights and as limited by general equitable principles. (v) Litigation. Except as disclosed on the Disclosure Exhibit (herein called the "Disclosure Exhibit") attached hereto as Exhibit 2.1(a)(v) there are no pending suits, actions, or other proceedings in which Seller is a party which affect the Properties in any material respect (including, without limitation, any actions challenging or pertaining to Seller's title to any of the 3 Properties) or affecting the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (vi) Material Related Pooling Agreements and Subject Contracts. All of the material Subject Contracts are listed on Exhibit 1.1(d), and, to Seller's knowledge, no party is in material breach thereof. To Seller's knowledge, no party is in material breach of a material Related Pooling Agreement. (vii) Operation of Properties. Except for matters in (A), (B) and (C) of this Section 2.1(a)(vii) which would not cause a material expenditure, to Seller's knowledge, Seller, or if operated by an affiliate, its affiliate, has (A) complied in regard to the operation of the Properties in all material respects with all applicable environmental regulations, permits and orders so that the operation of the properties is not likely to give rise to a non-compliance with any environmental regulations, permits or orders which non-compliance could reasonably be expected to have a material adverse effect on the Properties, (B) has obtained all environmental permits required on the date hereof to operate the Properties, except to the extent such failure would not have a material adverse effect on the Properties, and (C) has not received written notice of noncompliance under any environmental regulation, permit or order and has no knowledge that it is in violation of any regulation, permit or order which would have an adverse effect on the Properties. (viii) Ownership of Pipeline and Subject Equipment. Seller or its affiliate has sufficient title to all pipelines, easements, rights-of-way, compressors (and any leases related thereto) and related facilities comprising the Pipeline and Subject Equipment to enable Buyer to operate the Pipeline and Subject Equipment substantially in the manner and to the extent such Pipeline was operated historically in regard to any and all material easements and rights-of-way. To Seller's knowledge there has not been any exercise of jurisdiction as to rates over the Pipeline and Subject Equipment by the Kentucky Public Service Commission. (ix) Contracts. In addition to Exhibit 1.1(d), Subject Contracts, attached hereto as Exhibit 2.1(a)(ix) which relates to matters directly related to the Properties: (A) known contracts or agreements which call for payments in excess of Twenty-five Thousand Dollars ($25,000) annually, (B) outstanding AFE's under operating agreements described in 1.1(d), (C) a listing of known pipeline and oil and gas property imbalances as of February 28, 1999, and (D) a listing of all current employees and any related employment agreements. (x) Liens. Except for Matters which are exceptions to the term Defects in 4.1.b(ii) and (iv), and except as disclosed on Exhibit 2.1(a)(x), there are no mortgages, liens or security interests in the Oil and Gas Properties. (b) Disclaimers. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN SECTION 2.1(a) ABOVE AND THE SPECIAL TITLE WARRANTY CONTAINED IN THE CONVEYANCE (AS DEFINED IN SECTION 6.1) (ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND SELLER EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING, AND EXCEPT FOR THE SPECIAL TITLE WARRANTY CONTAINED IN THE CONVEYANCE, THE PROPERTIES SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY 4 WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING TO TITLE TO THE PROPERTIES OR RELATING TO THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN THE FIRST SENTENCE OF THIS PARAGRAPH, WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE INSPECTED, OR WAIVED (AND UPON CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS RIGHT TO INSPECT, THE PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE MATERIALS ("NORM"). EXCEPT FOR THE REPRESENTATIONS CONTAINED HEREIN IN SECTION 2.1(a) AND THE SPECIAL WARRANTY CONTAINED IN THE CONVEYANCE, BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTIES, AND SUBJECT TO SELLER'S LIMITED INDEMNITY CONTAINED IN SECTION 8.1(b) BUYER SHALL ACCEPT ALL OF THE SAME IN THEIR "AS IS", "WHERE IS" CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, EXCEPT AS PROVIDED IN SECTION 2.1(a) AND THE SPECIAL WARRANTY CONTAINED IN THE CONVEYANCE, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY OTHER MATTERS CONTAINED IN ANY MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER OR BY SELLER'S AGENTS OR REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW. 2.2 Representations of Buyer. Buyer represents to Seller that: (a) Organization and Qualification. Buyer is a corporation duly organized and legally existing and in good standing under the laws of the State of Texas, and is qualified to do business and in good standing in each of the states in which Oil and Gas Properties are located where the laws of such state would require a corporation owning the Oil and Gas Properties located in such state to so qualify. Buyer is also qualified to own and operate the Properties and assets of Seller with all applicable governmental agencies having jurisdiction over the Properties or the assets of Seller, to the extent such qualification is necessary or appropriate or will be necessary or appropriate upon 5 consummation of the transactions contemplated hereby (including, without limitation, Buyer has met, or will have met at or before Closing, all bonding requirements of such agencies). (b) Due Authorization. Buyer has full power to enter into and perform its obligations under this Agreement and has taken all proper action to authorize entering into this Agreement and performance of its obligations hereunder. (c) Approvals. Other than requirements (if any) that there be obtained consents to assignment (or waivers of preferential rights to purchase) from third parties, and except for Routine Governmental Approvals, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor the compliance with the terms hereof, will result in any default under any agreement or instrument to which Buyer is a party, or violate any order, writ, injunction, decree, statute, rule or regulation applicable to Buyer. (d) Valid, Binding and Enforceable. This Agreement constitutes (and the Conveyance provided for herein to be delivered at Closing will, when executed and delivered, constitute) the legal, valid and binding obligation of Buyer, enforceable in accordance with its terms, except as limited by bankruptcy or other laws applicable generally to creditor's rights and as limited by general equitable principles. (e) No Litigation. There are no pending suits, actions, or other proceedings in which Buyer is a party (or, to Buyer's knowledge, which have been threatened to be instituted against Buyer) which affect the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (f) Knowledgeable Buyer, No Distribution. Buyer is a knowledgeable purchaser, owner and operator of oil and gas properties, has the ability to evaluate (and in fact has evaluated) the Properties for purchase, and is acquiring the Properties for its own account and not with the intent to make a distribution in violation of the Securities Act of 1933 as amended (and the rules and regulations pertaining thereto) or in violation of any other applicable securities laws, rules or regulations. 3.0 Covenants 3.1 Certain Covenants Pending Closing. Between the date of this Agreement and the Closing Date: (a) Access by Buyer. (i) Records. Except as disclosed on Schedule 3.1a(i) or the other Schedules attached hereto relating to confidentiality obligations known to Seller, Seller will give Buyer, or Buyer's authorized representatives, at Seller's office and at all reasonable times before the Closing Date, access to Seller's and the records pertaining to the ownership and/or operation of the Properties (including, without limitation, title files, division order files, and production, severance and ad valorem tax records), for the purpose of conducting due diligence reviews contemplated by Section 4.1 below. Buyer may make copies of such records, at its expense, but shall, if Seller so requests, return all copies so made if the Closing does not occur; all costs of copying such items shall be borne by Buyer. Seller shall not be obligated to provide Buyer with access to any records or data which Seller on advice of counsel considers to be proprietary or confidential to it or which Seller cannot provide to Buyer without, in its opinion based on the advice of 6 counsel, breaching, or risking a breach of, agreements with other parties, or waiving, or risking waiving, legal privilege. BUYER RECOGNIZES AND AGREES THAT ALL MATERIALS MADE AVAILABLE TO IT IN CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREBY, WHETHER MADE AVAILABLE PURSUANT TO THIS SECTION OR OTHERWISE, ARE MADE AVAILABLE TO IT AS AN ACCOMMODATION, AND WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND AS TO THE ACCURACY AND COMPLETENESS OF SUCH MATERIALS. EXCEPT AS OTHERWISE PROVIDED IN SECTION 2.1.(a) AND THE CONVEYANCE, NO WARRANTY OF ANY KIND IS MADE BY SELLER AS TO THE INFORMATION SUPPLIED TO BUYER OR WITH RESPECT TO PROPERTIES OR ASSETS TO WHICH THE INFORMATION RELATES, AND BUYER EXPRESSLY AGREES THAT ANY CONCLUSIONS DRAWN THEREFROM SHALL BE THE RESULT OF ITS OWN INDEPENDENT REVIEW AND JUDGMENT. (ii) Physical Inspection. Seller shall make a good faith effort to give Buyer, or Buyer's authorized representatives, at all reasonable times before the Closing Date and upon adequate notice to Seller, physical access to the Properties and the employees associated with the Properties, for the purpose of inspecting same. Buyer recognizes that some or all of the Properties may be operated by parties other than Seller and that Seller's ability to obtain access to such properties, and the manner and extent of such access, is subject to such third parties. Buyer agrees to comply fully with the rules, regulations and instructions issued by Seller (and, where Properties are operated by other parties, such other parties) regarding the actions of Buyer while upon, entering or leaving the Properties. (iii) Exculpation and Indemnification. If Buyer exercises rights of access under this Section or otherwise, or conducts examinations or inspections under this Section or otherwise, then (a) such access, examination and inspection shall be at Buyer's sole risk, cost and expense and Buyer waives and releases all claims against Seller (and its affiliates, and the respective directors, officers, employees, attorneys, contractors and agents of such parties) arising in any way therefrom or in any way connected therewith or arising in connection with the conduct of its directors, officers, employees, attorneys, contractors and agents in connection therewith and (b) except as to the negligent acts of Seller or its employees, Buyer shall indemnify, defend and hold harmless Seller (and its affiliates) from any and all claims, actions, causes of action liabilities, damages, losses, costs or expenses (including, without limitation, court costs and attorneys fees), or liens or encumbrances for labor or materials, arising out of or in any way connected with such matters. (b) Interim Operation. Seller will continue the operation of the Properties in the ordinary course of its business (or, where Seller is not the operator of a Property, will continue its actions as a non-operator in the ordinary course of its business), and will not sell or otherwise dispose of any portion of the Properties, except for sales or other dispositions of (i) oil, gas and other minerals in the ordinary course of business after production, or (ii) equipment and other personal property or fixtures in the ordinary course of business where the same has become obsolete, is otherwise no longer necessary for the operation of the Properties, or is replaced by an item or items of at least equal suitability. Seller shall not sell any portion of the Properties valued in the aggregate of $500,000 or more without Buyer's written approval. Should Seller receive (or desire to make) any proposals to drill additional wells on the Oil and Gas Properties, or to conduct other operations which require consent of non-operators under the applicable operating agreement, it will notify Buyer of, and consult with Buyer concerning, such proposals. Any decisions with respect to such proposals shall be made mutually by Seller and Buyer after consultation. Seller shall not permit new production imbalances 7 other than those scheduled on Exhibit 2.1(a)(ix) greater in value than $15,000 for the Oil and Gas Properties located in Kentucky and Tennessee or $6,000 for those Oil and Gas Properties located in West Virginia. Without expanding any obligations which Seller may have to Buyer, it is expressly agreed that Seller shall never have any liability to Buyer with respect to operation of a Property greater than that which it might have as the operator to a non-operator under the applicable operating agreement (or, in the absence of such an agreement, under the AAPL 610 (1989 Revision) form Operating Agreement), IT BEING RECOGNIZED THAT, UNDER CERTAIN OF SUCH AGREEMENTS AND SUCH FORMS, THE OPERATOR MAY NOT BE RESPONSIBLE FOR ITS OWN NEGLIGENCE, AND HAS NO RESPONSIBILITY OTHER THAN FOR GROSS NEGLIGENCE OR WILFUL MISCONDUCT. (c) Preferential Rights and Consents. Attached hereto on Exhibit 3.1(c) with respect to all material Oil and Gas Properties are: (i) all preferential rights to purchase ("Preferential Rights") and requirements that consents to assignment ("Consents") be obtained which would be applicable to the transactions contemplated hereby and (ii) the names and addresses of parties holding such rights; in attempting to identify such Preferential Rights and Consents, and the names and addresses of such parties holding the same, Seller shall in no event be obligated to go beyond its own records. Seller will request, from the parties so identified (and in accordance with the documents creating such rights), execution of Consents and/or waivers of Preferential Rights so identified. Seller shall have no obligation other than to so attempt to identify such Preferential Rights or Consents and to so request such execution of Consents and/or waivers of Preferential Rights (including, without limitation, Seller shall have no obligation to assure that such Consents or waivers of Preferential Rights are obtained). If a party from whom a waiver of a Preferential Right is requested refuses to give such waiver, Seller will tender to such party the required interest in the Property (at a price equal to the amount specified in Exhibit 4.1 hereto for such Property, reduced appropriately, as determined by mutual agreement of Buyer and Seller, if less than the entire Property must be tendered), and to the extent that such Preferential Right is exercised by such party, and such interest in such Property is actually sold to such party so exercising such right, such interest in such Property will be excluded from the transaction contemplated hereby and the Purchase Price will be adjusted downward by the allocated value set forth in Exhibit 4.1. As concerns consents, except for any oil and gas leases which relate to the Oil and Gas Properties, Seller and Buyer shall enter into contractual arrangements for Seller to continue to remain a party to such Contracts where consents were not obtained and to provide Buyer the economic benefits of such Contracts as provided in the Agreement attached as Exhibit 3.1(c) - part 2. (d) Descriptions. Seller and Buyer shall make good faith efforts to create twenty (20) days (but shall provide not less than ten days (10)) prior to Closing a schedule ("Right-of-Way Schedule") that contains descriptions which are adequate to convey title to Seller's interest sufficient to enable Buyer to operate the Pipeline and Subject Equipment substantially in the manner and to the extent such pipelines were operated historically in the material easements, rights-of-way, licenses and other interests in land shown on the plat attached as a part of Exhibit 1.1(e). Seller shall make good faith efforts to provide to Buyer twenty (20) days (but shall provide not less than ten (10) days) prior to Closing a schedule ("Property Schedule") that contains descriptions which are adequate to convey title to all of Sellers right, title and interest in the Oil and Gas Leases. The Right-of-Way and Property Schedules shall be attached to the Conveyances delivered at Closing. (e) Insurance Coverage on Properties. Seller shall maintain in force and effect all third party insurance coverage presently maintained with regard to the Properties from the time this Agreement is executed until Closing. 8 (f) Notice of Board Approval. Each party hereto shall promptly notify the other of the result of seeking the Board approval contemplated in connection with this transaction. (g) Affiliate Properties. The Parties acknowledge and agree that some of the Properties may be in the name of the affiliated companies and that such Properties shall be conveyed pursuant to the terms of this Agreement to Buyer at Closing. 4.0 Diligence and Adjustments 4.1 Due Diligence Reviews. (a) Review By Buyer. For the period beginning on the date this Agreement is executed by Seller and Buyer until Closing, Buyer may conduct, at its sole cost, such title examination or investigation, and other examinations and investigations, as it may in its sole discretion choose to conduct with respect to the Properties in order to determine whether any Defect (as below defined) exists. If in the course of due diligence additional Properties are discovered by Buyer or Seller such Properties shall be added to the Exhibits hereto. Should, as a result of such examinations and investigations, or otherwise, one or more matters come to Buyer's attention which would constitute a Defect (as below defined), and should there be one or more of such Defects which Buyer is unwilling to waive and close the transaction contemplated hereby notwithstanding the fact that such Defects exist, Buyer shall notify Seller in writing of such Defects as soon as the same are identified by Buyer, but no later than three (3) business days before the Closing Date (such Defects of which Buyer so provides notice are herein called "Asserted Defects"). Such notification shall include, for each Asserted Defect, (i) a description of the Asserted Defect and the wells and/or units listed on Exhibit 4.1 to which it relates and all supporting documentation reasonably necessary to fully describe the basis for the Defect, (ii) for each applicable well or unit, the size of any variance from "Net Revenue Interest" or "Working Interest" which does or could result from such Asserted Defect and (iii) the amount by which Buyer would propose to adjust the Purchase Price. Exhibit 4.1 shall consist of a well and/or unit list prepared by Seller to which on a well and/or unit basis Buyer has proposed values to which Seller has consented. All Defects with respect to which Buyer fails to so give Seller notice will be deemed waived for all purposes. All access to Sellers records and the Properties in connection with such due diligence shall be subject and pursuant to Section 3.1 (including, without limitation, the exculpation and indemnification provisions contained in Section 3.1(a)(iii)). (b) Nature of Defects. The term "Defect" as used in this Section shall mean the following: (i) NRI or WI Variances. Seller's ownership of the Properties is such that, with respect to a well or unit listed on Exhibit 4.1 hereto, it clearly (A) entitles Seller to receive a decimal share of the oil, gas and other hydrocarbons produced from such unit, or from currently producing completions in such well, which is less than the decimal share set forth on Exhibit 4.1 in connection with such well or unit in the column headed "Net Revenue Interest" or (B) causes Seller to be obligated to bear a decimal share of the cost of operation of such well (as to such completions) or unit greater than the decimal share set forth on Exhibit 4.1 in connection with such well or unit in the column headed "Working Interest" (without at least a proportionate increase in the share of production to which Seller is entitled to receive from such well or unit). (ii) Liens. Seller's ownership of an Oil and Gas Property is subject to any lien or encumbrance other than (A) a lien for taxes which are not yet delinquent or (B) a mechanic's or materialmen's lien (or other similar lien), or a lien under an operating agreement or similar 9 agreement, to the extent the same relates to expenses incurred which are not yet delinquent or (C) liens listed on Exhibit 2.1(a)(x). (iii) Preferential Rights and Consents. Seller's ownership of an Oil and Gas Property is subject to a requirement that a Consent be obtained, unless such consent has been obtained with respect to the transaction contemplated hereby. In the case of a Preferential Right, the fact that the Oil and Gas Property is subject to a Preferential Right shall not be a Defect if exercised, waived or the period for exercising it has lapsed. (iv) Imperfections in Title. Seller's ownership of an Oil and Gas Property is subject to an imperfection in title which, if asserted, would cause an imperfection in title which would normally not be waived by persons engaged in the oil and gas business when purchasing producing properties. (v) Environmental Matters. Except as disclosed on the Disclosure Exhibit, an Oil and Gas Property has been cited for violation of applicable environmental laws (below defined) in any material respect ("Applicable Environmental Laws" shall mean all federal, state or local laws, rules, orders or regulations pertaining to health or the environment, including those relating to waste materials and/or hazardous substances) or, notwithstanding any such citation, a condition relating to a Property exists that would require Seller (or Buyer after Closing) to remediate such Property within 18 months of Closing Date. (vi) Imbalances Not Defects. Notwithstanding anything which may appear to the contrary, an imbalance (e.g., a situation where Seller and its predecessors in title to the Properties have taken more or less gas, oil or other hydrocarbons or substances from a well or unit than ownership of the Properties would entitle them to receive) shall not constitute a Defect so long as it does not exceed the volumes identified on Exhibit 2.1(a)(ix) and an adjustment shall not be made for any imbalance pursuant to any provision of this Agreement. (c) Seller's Response. In the event that Buyer notifies Seller of Asserted Defects: (i) Cure. Seller may (but shall have no obligation to) attempt to cure, prior to Closing, one or more Asserted Defects. (ii) Postpone Closing. Whether or not Seller has then begun to, or ever begins to, cure one or more Asserted Defects (and whether or not Seller has elected options (iii) or (iv) below with respect to one or more Asserted Defects), Seller may delay the Closing Date, as defined in Section 6.1, for up to 30 days by designating a new Closing Date. Notwithstanding any such election to postpone Closing, Seller shall still have no obligation to cure Asserted Defects. (iii) Indemnification. At any time, and from time to time, prior to Closing, and regardless of whether or not Seller has then elected any other option or options under this Section as to such Asserted Defect or any other Asserted Defect (including without limitation regardless of whether the procedure under Section 4.2 is ongoing as to such Asserted Defect), Seller may (but shall have no obligation to) elect, with respect to any Asserted Defect, to indemnify and hold Buyer harmless from and against any actual damages or loss (but specifically excluding consequential, special or similar damages) Buyer may suffer as a result of a third party claim based on such Asserted Defect. If and when such election is made as to an Asserted Defect, such Asserted Defect will be treated under this Agreement as if cured; 10 provided, however, that Seller's right to cure under this subsection 4.1(c)(iii) shall be limited to an aggregate of 2% of the Base Purchase Price. (iv) Adjustment. Notwithstanding any other election made under this Section (without limitation, it being expressly recognized that Seller may attempt to cure Asserted Defects while acting under this election), Seller may elect to have one or more Asserted Defects handled under Section 4.2 below. 4.2 Certain Price Adjustments for Uncured Asserted Defects. (a) Procedures. In the event that, as a part of the due diligence reviews provided for in Section 4.1 above, Asserted Defects are presented to Seller and Seller is unable (or unwilling) to cure such Asserted Defects prior to Closing, or in the event that Buyer or Seller has elected (pursuant to Section 9.1) to treat an Oil and Gas Property affected by a casualty loss as if it was an Oil and Gas Property affected by an Asserted Defect, then: (i) Agree Upon Adjustment. Buyer and Seller shall, with respect to each Property affected by such matters, attempt to agree upon an appropriate downward adjustment of the Purchase Price to account for such matters; or (ii) Exclude Property. With respect to each Property as to which Buyer and Seller are unable to agree upon appropriate adjustment with respect to all such matters affecting such Property, such Property will be excluded from the transaction contemplated hereby, and the Purchase Price will be reduced by the amount attributed on Exhibit 4.1 to the wells located on such Property plus the amount attributed on Exhibit 4.1 to the units in which such Property participates (but in the case of such units, limited to the portion of such amount which is proportionate to the portion of Seller's interest in such units, respectively, which is attributable to such Property). (b) Certain Adjustments. In the event that Buyer raises as an Asserted Defect one of the following types of Defects, Seller may (but shall not be obligated to) propose the adjustment of the Purchase Price set forth below in connection with such Defect: (i) NRI Variance/Proportionate Price Reductions. If the Asserted Defect is (i) a Defect described in clause (A) of Section 4.1(b)(i) or (ii) a Defect which otherwise affects a portion of Seller's interest in a well or unit listed on Exhibit 4.1: a downward adjustment equal to the amount determined by multiplying the amount set forth for such well or unit on Exhibit 4.1 by a fraction (A) the numerator of which is an amount equal to the "Net Revenue Interest" shown on Exhibit 4.1 for such well or unit less the decimal share to which Seller would be entitled to as a result of its ownership interest in such well or unit which is unaffected by such Defect and (B) the denominator of which is the "Net Revenue Interest" shown for such well or unit on Exhibit 4.1. Notwithstanding subsection (ii) below, a Defect to which such subsection is applicable may, at Seller's election, be treated as a Defect under this subsection. (ii) Liens/Payoff Amount. If the Asserted Defect is a Defect described in Section 4.1(b)(ii): a downward adjustment equal to the amount of the debt secured by such lien. If Seller proposes such an adjustment, such adjustment will be deemed an adjustment agreed to under Section 4.2(a)(i) above. 11 (c) Possible Upward Adjustments. Should Seller determine (or should Buyer, in the course of its due diligence reviews contemplated by Section 4.1 above, determine) that (i) the ownership of the Properties by Seller entitles Seller to a decimal share of the production from a well or unit listed on Exhibit 4.1 greater than the decimal share shown for such well or unit under the column headed "Net Revenue Interest" on such Exhibit 4.1, then Seller may propose an upward adjustment to the Purchase Price to account for such fact, in which case such adjustment shall be handled in the same manner as provided in Section 4.2(a) above with respect to adjustments for Asserted Defects. The party making such determination shall notify the other party no later than three business days prior to Closing. (d) Limitations on Adjustments. If the Purchase Price reduction (or increase) which would result from the above provided for procedure, as applied to any Asserted Defect as to a single Property is less than $1,000 or as applied to all Asserted Defects for which an adjustment is to be made (and to all upward adjustments under Section 4.2(c)) does not exceed $250,000, then no adjustment of the Purchase Price shall occur (and in the case of Asserted Defects of less than $1,000 as to a single Property, such defects shall not count toward the $250,000 deductible), and none of the Properties which would be excluded by such procedure shall be excluded. If the Purchase Price reduction (or increase) which would result from the above provided for procedure, as applied to all Asserted Defects for which an adjustment is to be made (and to all upward adjustments under Section 4.2(c)) exceeds $250,000, the Purchase Price shall be adjusted by the amount such reduction (or increase) exceeds $250,000. 5.0 Conditions to Closing 5.1 Conditions Precedent to the Obligations of Buyer. The obligations of Buyer under this Agreement are subject to each of the following conditions being met: (a) Representations True and Correct. Each and every representation of Seller under this Agreement shall be true and accurate in all material respects as of the date when made and shall be deemed to have been made again at and as of the time of Closing and shall at and as of such time of Closing be true and accurate in all material respects except as to changes specifically contemplated by this Agreement or consented to by Buyer. (b) Compliance with Covenants and Agreements. Seller shall have performed and complied in all material respects with (or compliance therewith shall have been waived by Buyer) each and every covenant and agreement required by this Agreement to be performed or complied with by Seller prior to or at the Closing. (c) Litigation. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or governmental agency seeking to restrain, prohibit, or obtain material damages or other material relief in connection with the consummation of the transactions contemplated by this Agreement. (d) Liens. The liens listed on Exhibit 2.1(a)(x) have been released on or prior to Closing or Seller has obtained a payout letter (the "Payout Letter") from the lender holding the mortgage listed on Exhibit 2.1(a)(x) which commits the lender to release the liens upon payment of the sum stated in such letter. (e) Governmental Approvals. All required governmental approvals have been obtained. 12 With respect to any condition set forth above which is not met (and which is asserted by Buyer as a failure of one of its conditions of Closing), and for which the reasons why such condition is not met relate to some, but less than all, of the Properties, Seller may require that such failure of such condition to be met be treated as an uncured Asserted Defect and handled in accordance with the process set forth in Section 4.2 above, and, if Seller so requires such handling, such condition will be considered met for the purposes of this Section. 5.2 Conditions Precedent to the Obligations of Seller. The obligations of Seller under this Agreement are subject to the each of the following conditions being met: (a) Representations True and Correct. Each and every representation of Buyer under this Agreement shall be true and accurate in all material respects as of the date when made and shall be deemed to have been made again at and as of the time of Closing and shall at and as of such time of Closing be true and accurate in all material respects except as to changes specifically contemplated by this Agreement or consented to by Seller. (b) Compliance With Covenants and Agreements. Buyer shall have performed and complied in all material respects with (or compliance therewith shall have been waived by Seller) each and every covenant and agreement required by this Agreement to be performed or complied with by Buyer prior to or at the Closing. (c) Litigation. No suit, action or other proceedings shall, on the date of Closing, be pending or threatened before any court or governmental agency seeking to restrain, prohibit, or obtain material damages or other material relief in connection with the consummation of the transactions contemplated by this Agreement. (d) Governmental Approvals. All required governmental approvals have been obtained. 6.0 Closing 6.1 Actions At Closing. The closing (herein called the "Closing") of the transaction contemplated hereby shall take place in the offices of Thompson and Knight, 1700 Pacific Avenue, Suite 3300, Dallas, Texas, no later than 30 days following the date of this Agreement at 10:00 a.m. Cental Time, or at such other date and time (i) as the Buyer and Seller may mutually agree upon or (ii) which Seller may postpone the Closing pursuant to Section 4.1 hereof and (iii) no later than 45 days following the date of this Agreement if Buyer extends its due diligence period pursuant to Section 4.1(c)(ii) such date and time, as changed pursuant to clauses (i), (ii) and (iii), being herein called the "Closing Date"). At the Closing: (a) Delivery of Conveyance. Seller shall execute, acknowledge and deliver to Buyer conveyances of the Properties (the "Conveyance"), in the form attached hereto as Exhibit 6.1(i) and 6.1(ii) (and with Exhibits 1.1(a), 1.1(b), 1.1(c), 1.1(d), 1.1(e) and the Right-of-Way Schedule, with a special warranty of title contained therein with respect to the Oil and Gas Properties, and with such modifications as may be mutually agreed to by Buyer and Seller, being attached thereto), effective as to runs of oil and deliveries of gas and for all other purposes as of 10 o'clock a.m., local time at the locations of the Properties, respectively, on April 1, 1999 (herein called the "Effective Date"). (b) Letters in Lieu. Seller shall, execute and deliver to Buyer letters in lieu of transfer orders (or similar documentation), in form acceptable to both parties. 13 (c) Turn Over Possession. Seller shall, to the extent Seller can do so, turn over possession of the Properties. (d) Payment to Seller. Buyer shall deliver to the Seller, by wire transfer of immediately available funds to an account designated by Seller in a bank located in the United States, an amount equal to the Purchase Price, (ii) less or plus (as the case may be) any adjustments under Section 7.1 which are to be made at Closing, and (ii) less the Deposit. Seller shall use the proceeds of the Purchase Price or so much of said proceeds as is necessary to make payment on the loan or loans in the amounts set forth in the Payout Letter or to otherwise make payments required to obtain to obtain the release of the liens described in Exhibit 2.1(a)(x). This obligation to make payments shall be limited to the payment of principal, interest, expenses and amounts owing by Seller that are secured by the liens described in Exhibit 2.1(a)(x). (e) Succession by Buyer. Buyer shall furnish to Seller such evidence (including, without limitation, evidence of satisfaction of all applicable bonding requirements) as Seller may require that Buyer is qualified with the applicable authorities to succeed Seller as the owner and, where applicable, operator of the Properties with respect to properties operated by Seller where Buyer is to succeed Seller as operator, execute and deliver to Seller appropriate evidence reflecting change of operator as required by applicable authorities and (ii) execute and deliver to Seller such forms as Seller may reasonably request for filing with the applicable authorities to reflect Buyer's assumption of plugging and abandonment liabilities with respect to the wells located on the Properties or on units in which the Properties participate. (f) Release of Mortgage Liens. Seller shall deliver either (i) a release, in recordable form, of the Liens disclosed on Exhibit 2.1(a)(x) or (ii) the Payout Letter. (g) If necessary, the Parties shall execute an Agreement in the form of Exhibit 3.1(c) ___ part 2. 6.2 Post Closing Actions. (a) Transfer of Files. Seller will use commercially reasonable efforts to deliver to Buyer, at Buyer's expense, and within 45 days after Closing, all of Seller's lease files, abstracts and title opinions, division order files, production records, well files, accounting records (including I.R.C. (S) 29 Tax Credit records, but not including general financial accounting and non-production related tax accounting records), and other similar files and records which directly relate to the Properties, other than those which Seller considers to be proprietary or confidential to it or which Seller cannot provide to Buyer without, in its opinion based on the advice of counsel, breaching, or risking a breach of, agreements with other parties, or waiving, or risking waiving, legal privilege (such retained files and records being limited to those files and records that relate to the litigation described on the Disclosure Exhibit) and those files and records previously disclosed under Section 3.1(a)(i). It is expressly understood that Buyer is not acquiring, and Seller is not obligated to transfer to Buyer, any seismic data, or geophysical data, or other similar data, or any interpretations thereof or other data or records related thereto. Seller may, at its election, make and retain copies of any or all such files. Buyer shall preserve all files so delivered by Seller for a period of seven (7) years following Closing and will allow Seller access (including, without limitation, the right to make copies at Seller's expense) to such files at all reasonable times. 14 (b) Operational Transition. For a reasonable period of time after Closing, Buyer and Seller shall cooperate with respect to transition activities as to Properties where Buyer succeeds Seller as operator. IT IS RECOGNIZED THAT THERE IS NO ASSURANCE GIVEN BY SELLER THAT BUYER SHALL SUCCEED SELLER AS OPERATOR OF ANY PROPERTY WHERE OTHER PARTIES OWN INTERESTS IN THE WELLS LOCATED THEREON. Seller shall not remain as operator after Closing as to any Property. Buyer shall also cooperate with Seller by making its employees and records available to assist Seller in its defense of any claims or litigation, including without limitation, with respect to any indemnity or other obligation in Section 8. (c) Notifications by Buyer. Immediately after the Closing, Buyer shall notify all applicable operators, non-operators, oil and gas purchasers, and government agencies that it has purchased the Properties. (d) Payments. If required to obtain releases of the liens described in Exhibit 2.1(a)(x), Seller agrees and covenants to pay principal, interest, expenses and amounts owing by Seller that are secured by the liens described in Exhibit 2.1(a)(x) and shall use commercially reasonable efforts to assist Buyer in obtaining such releases as soon as practicable after Closing. 7.0 Accounting Adjustment 7.1 Certain Accounting Adjustments. (a) Adjustments for Revenues and Expenses. Appropriate adjustments shall be made between Buyer and Seller so that (i) Buyer will bear all expenses which are incurred in the operation of the Properties after the Effective Date, including, without limitation, all drilling costs, all capital expenditures, all overhead charges under applicable operating agreements (regardless of whether such operating agreements are with third parties or related entities and regardless of whether Seller is the operator or a non-operator), all other overhead charges actually charged by third parties, and, where Seller is the operator of a well and there is no operating agreement, overhead at the rate of $250 per well per month (prorated for any period less than one month and proportionately reduced to Seller's working interest in any such well) for each month or part thereof between the Effective Date and Closing, and Buyer will receive all proceeds (net of applicable production, severance, and similar taxes) from sales of oil, gas and/or other minerals which are produced from (or attributable to) the Properties and which are produced after the Effective Date, and (ii) except as provided in subsection 7.1(d) and 8.1 below Seller will bear all expenses which are incurred in the operation of the Properties before the Effective Date (including, without limitation, all liabilities of Seller related to employee benefits owed, earned or accrued prior to the Effective Date and Seller will receive all proceeds (net of applicable production, severance, and similar taxes) from the sale of oil, gas and/or other minerals which were produced from (or attributable to) the Properties and which were produced before the Effective Date. It is agreed that, in making such adjustments: (i) oil which was produced from the Oil and Gas Properties and which was, on the Effective Date, stored in tanks located on the Oil and Gas Properties (or located elsewhere but used by Seller to store oil produced from, or attributable to, the Oil and Gas Properties prior to delivery to oil purchasers) and above pipeline connections shall be deemed to have been produced before the Effective Date, (ii) ad valorem and similar taxes assessed for periods prior to the Effective Date shall be borne by Seller and ad valorem taxes assessed for periods on or after the Effective Date shall be borne by Buyer, (iii) ad valorem and similar taxes assessed with respect to a period which the Effective Date splits shall be prorated based on the number of days in such period which fall on each side of the Effective Date (with the day on which the Effective Date 15 falls being counted in the period after the Effective Date), (iv) the provisions of Section 12.2 shall be given effect as if the same had taken effect on the Effective Date, (v) casualty losses shall be handled in accordance with Section 9.1, and (vi) no consideration shall be given to the local, state or federal income tax liabilities of any party. (b) Initial Adjustment at Closing. At least 5 days before the Closing Date, Seller shall provide to Buyer a statement showing its computations of the amount of the adjustments provided for in subsection (a) above based on amounts which prior to such time have actually been paid or received by Seller. Additionally, adjustment shall be made to reflect Sellers' bearing one-half (1/2) of the costs of the escrow account. Buyer and Seller shall attempt to agree upon such adjustments prior to Closing, provided that if agreement is not reached, Seller's computation shall be used at Closing, subject to further adjustment under subsection (c) below. If the amount of adjustments so determined which would result in a credit to Buyer exceeds the amount of adjustments so determined which would result in a credit to Seller, Buyer shall, as provided in Section 6.0 above, receive a credit at Closing for the amount of such excess, and if the converse is true, then, as provided in Section 6.0 above, the amount to be paid by Buyer to Seller at Closing shall be increased by the amount of such excess. (c) Adjustment Post Closing. On or before 120 days after Closing, Buyer and Seller shall review any additional information which may then be available pertaining to the adjustments provided for in subsection (a) above, shall determine if any additional adjustments should be made beyond those made at Closing (whether the same be made to account for expenses or revenues not considered in making the adjustments made at Closing, or to correct errors made in the adjustments made at Closing), and shall make any such adjustments by appropriate payments from Seller to Buyer or from Buyer to Seller. At such time, Seller shall furnish Buyer a certificate from an officer stating that, to such officer's knowledge, an exhibit attached to the certificate contains all then known outstanding payables of Seller. (d) No Further Adjustments. Following the adjustments under subsection (c) above, no further adjustments shall be made under this Section 7.1. Should any expenses with regard to the Properties be charged to Seller or Buyer after the earlier of (i) the conclusion of such adjustments under subsection (c) or (ii) 120 days after Closing, the same shall be borne by Buyer, regardless of the periods to which the same relate, and any bills received by Seller will be forwarded to Buyer. Should any revenues with regard to the Properties be received by Buyer after (i) the conclusions of such adjustments under subsection (c) above or (ii) 120 days after Closing, such revenues shall be retained by and belong to Buyer regardless of the periods to which the same relate. 8.0 Assumption and Indemnification 8.1 Assumption and Indemnification. (a) FROM AND AFTER THE CLOSING, BUYER SHALL, SUBJECT TO THE ADJUSTMENTS PROVIDED FOR IN SECTIONS 7.1 (b) AND (c), AND SUBJECT TO 8.1(b) AND (c), FULLY DEFEND, PROTECT, INDEMNIFY, HOLD HARMLESS AND RENDER WHOLE SELLER AND SELLER'S DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES FROM AND AGAINST EACH AND EVERY CLAIM, DEMAND OR CAUSE OF ACTION AND ANY LIABILITY, COST, EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE ATTORNEY'S FEES) OR CLAIMS WITH RESPECT TO DAMAGE OR LOSS IN CONNECTION THEREWITH (COLLECTIVELY THE "CLAIMS"), WHICH MAY BE MADE OR ASSERTED BY BUYER, ITS AGENT OR 16 SUCCESSORS OR BY ANY THIRD PARTY OR PARTIES (INCLUDING, BUT NOT LIMITED TO, GOVERNMENTAL BODIES) (i) ON ACCOUNT OF A BREACH BY BUYER OF ANY REPRESENTATION, WARRANTY OR COVENANT UNDER THIS AGREEMENT OR (ii) ON ACCOUNT OF PERSONAL INJURY OR DEATH, OR PROPERTY OR ENVIRONMENTAL DAMAGE, OR ANY CLAIMS BASED ON, RELATED OR ARISING OUT OF OR INCIDENTAL TO (A) THE BREACH BY BUYER OF ANY REPRESENTATION, WARRANTY OR COVENANT OR (B) THE OWNERSHIP AND/OR OPERATION OF THE PROPERTY FOR PERIODS BEFORE, ON AND AFTER THE EFFECTIVE DATE. (b) Limited Seller Indemnity. Notwithstanding the anything to the contrary in 8.1(a) above, to the extent of Limited Pre-Effective Date Claims (as hereinafter defined), and only to the extent such Limited Pre- Effective Date Claims are asserted against Buyer within eighteen months following the Closing Date, and for which Buyer gives written notice to Seller within such eighteen month period, Seller shall fully defend, protect, indemnify, hold harmless and render whole Buyer and the directors, officers, agents and employees of Buyer from and against the following: (i) for the first amounts actually paid by Buyer in connection with Limited Pre-Effective Date Claims up to an amount in the aggregate equal to one per cent (1%) of the Base Purchase Price, zero per cent (0%), that is, the indemnity in this 8.1(b) does not apply; and (ii) for the next amounts actually paid by Buyer in connection with Limited Pre-Effective Date Claims in excess of an amount equal to one per cent (1%) of the Base Purchase Price and up to an amount equal to thirty per cent (30%) of the Base Purchase Price, fifty per cent (50%) of such next amounts for such Limited Pre-Effective Date Claims; and (iii) for all additional amounts actually paid by Buyer in connection with Limited Pre-Effective Date Claims in excess of an amount equal to thirty per cent (30%) of the Base Purchase Price, zero percent (0%), that is, the indemnity in this 8.1(b) does not apply. For purposes of this Section 8.1(b), "Limited Pre-Effective Date Claims" shall mean Claims made by a third party or parties (including, but not limited to, governmental bodies) related to, arising out of or incidental to the ownership and/or operation of the Properties by Seller prior to the Effective Date, except any and all Claims based on, related to or arising out of or incidental to title to the Properties, provided however, that "Limited Pre-Effective Date Claims" expressly shall not include any and all Claims of whatever kind or character which are known or disclosed to Buyer prior to Closing. (c) All lawsuits disclosed on Exhibit 2.1(a)(v) hereto shall be the responsibility of Seller, and when requested Buyer shall fully cooperate or assist Seller in defending such suits by making its employees and records available at reasonable times. (d) THE FOREGOING ASSUMPTIONS AND INDEMNIFICATIONS IN 8.1(a) AND (b) SHALL APPLY WHETHER OR NOT THE ASSUMED OBLIGATIONS , OR THE CLAIMS ARISE OUT OF (i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT INCLUDING GROSS NEGLIGENCE) OF ANY INDEMNIFIED PARTY, OR (ii) STRICT LIABILITY. 17 8.2 No Commissions Owed. Seller agrees to indemnify and hold Buyer (and its affiliates, and the respective officers, directors, employees, attorneys, contractors and agents of such parties) harmless from and against any and all claims, actions, causes of action, liabilities, damages (including to the extent permitted by applicable law, special, consequential, and punitive damages), losses, costs or expenses (including, without limitation, court costs and attorneys fees) of any kind or character arising out of or resulting from any agreement, arrangement or understanding alleged to have been made by, or on behalf of, Seller with any broker or finder in connection with this Agreement or the transaction contemplated hereby. Buyer agrees to indemnify and hold Seller (and its affiliates and the respective officers, directors, employees, attorneys, contractors and agents of such parties) harmless from and against any and all claims, actions, causes of action, liabilities, damages, losses, costs or expenses (including, without limitation, court costs and attorneys fees) of any kind or character arising out of or resulting from any agreement, arrangement or understanding alleged to have been made by, or on behalf of, Buyer with any broker or finder in connection with this Agreement or the transaction contemplated hereby. 8.3 Plugging Operations. Seller has posted a bond ("Plugging Bond") with the Commonwealth of Kentucky, Department of Mines and Minerals, Division of Oil and Gas, and has obtained a letter of credit ("Plugging Letter of Credit") for the benefit of the State Oil and Gas Board of Tennessee in connection with its obligation and/or liability with respect to the plugging of the wells listed on part one of Exhibit 8.3. Buyer (i) shall furnish bonds or obtain letters of credit and (ii) shall perform and do such other things as may be required in order for Seller to be released from its obligations under the Plugging Bond and the Plugging Letter of Credit as those obligations apply to the Oil and Gas Properties. Buyer shall assume and perform any and all duties, obligations and liabilities of Seller to properly plug and abandon or replug and reabandon all wells located upon the Oil and Gas Properties. With respect to the wells listed on part two of Exhibit 8.3 (the "Other Wells"), and except as otherwise expressly provided in this Section 8.3, to the extent it is permitted by law to do so, and upon notice from Seller that Seller is being required to do so, Buyer shall assume and perform any and all duties, obligations and liabilities of Seller to properly plug and abandon or replug and reabandon the Other Wells; provided, however that Buyer shall have no liability and shall assume no obligations of any kind with respect to (a) Other Wells assigned to third parties prior to the Effective Date, and (b) Other Wells located on leases assigned to third parties prior to the Effective Date. Once the aggregate costs reasonably incurred by Buyer with respect to said plugging and abandonment operations of Other Wells exceed $300,000, Buyer will notify Seller of each additional plugging or abandonment operation with respect to the Other Wells, before such operation is performed, and Buyer's plans for the performance of each operation, including details of all costs that will be incurred with respect to each operation. For a period of two (2) years after the Closing, Seller shall, at its election, with respect to each such operation, either agree to reimburse the actual costs of such operations in accordance with said plans or perform or cause said operations to be performed at Seller's expense in a good and workmanlike manner in accordance with all applicable laws, rules or regulations. Notwithstanding anything to the contrary, in no event shall Seller be responsible for (a) the costs of performing any such operation or for performing or causing any such operation to be performed, if the costs are incurred or the operation will be commenced more than two (2) years after the Closing or (b) any costs of performing or for performing or causing such operations to be performed until the aggregate costs reasonably incurred by Buyer with respect to such operation exceeds $300,000. 9.0 Pre-Closing Losses 9.1 Casualty Loss. In the event of damage by fire or other casualty to the Properties prior to the Closing, this Agreement shall remain in full force and effect, and in such event, then (unless Seller elects to repair such damage, which Seller shall have no obligation to do, in which case all rights to insurance proceeds, and claims against third parties, related thereto shall belong to Seller), (i) at the election of either Buyer or Seller, such Property shall be treated as if it had an Asserted Defect associated with it and 18 the procedure provided for in Section 4.2 shall be applicable thereto (in which case, unless Buyer and Seller agree to the contrary, all rights to insurance proceeds, and claims against third parties, related thereto shall belong to Seller), or, (ii) if no such election is made by Buyer or Seller, the Purchase Price will not be adjusted, and Seller shall, at Seller's election, either collect (and when collected pay over to Buyer) any insurance claims related to such damage, or assign to Buyer such insurance claims, and, in either event, Buyer shall take title to the Property affected by such loss without reduction of the Purchase Price. 10.0 Notices 10.1 Notices. All notices and other communications required under this Agreement shall (unless otherwise specifically provided herein) be in writing and be delivered personally, by recognized commercial courier or delivery service which provides a receipt, by telecopier (with receipt acknowledged), or by registered or certified mail (postage prepaid), at the following addresses: If to Buyer: Columbia Natural Resources 900 Pennsylvania Ave. P.O. Box 6070 Charleston, West Virginia 25362-0070 Attention: W. Henry Harmon Phone: 304-353-5115 Fax: 304-353-5249 If to Seller: The Wiser Oil Company 8115 Preston Road, Suite 400 Dallas, Texas 75225 Attention: A. Wayne Ritter Phone: 214-265-0080 Fax: 214-373-3610 and shall be considered delivered on the date of receipt. Either Buyer or Seller may specify as its proper address any other post office address within the continental limits of the United States by giving notice to the other party, in the manner provided in this Section, at least ten (10) days prior to the effective date of such change of address. 11.0 Survival 11.1 Survival of Provisions and Limitation of Liability. All representations and warranties made herein by Buyer and Seller shall be continuing and shall be true and correct on and as of the date of Closing with the same force and effect as if made at that time, and all of such representations and warranties of Seller in Sections 2.1(a)(i), (ii), (iii), (iv), (v), and (ix)(D) shall survive the Closing and the delivery of the Conveyance for a period of eighteen (18) months after the Closing. All such representations and warranties of Seller in Section 2.1(a)(vii), (b) and (c) and Section 2.1(a)(vi) as to the knowledge of the individuals on Exhibit 2.1(a)(iii) who are officed in Dallas, Texas shall survive the Closing and the delivery of the Conveyance for a period of 18 months after the Closing. The obligations of the parties under Section 6.0 (to the extent the same are, by mutual agreement, not performed at Closing), and Sections 7.1, 8.0, 10.0, 11.0 and 12.0 shall (subject to any limitations set forth therein) also survive the Closing and the delivery of the Conveyance and continue in effect thereafter. All breaches of representations, covenants and warranties which are known to Buyer, its agents, representatives or employees shall be deemed waived for all purposes and no claim, including a claim for indemnity, may be made by Buyer against Seller for any matter relating to or arising from the facts or events relating to 19 any such breach or breaches if Buyer, its agents, employees or representatives had knowledge of same at the time of Closing. 12.0 Miscellaneous Matters 12.1 Further Assurances. After the Closing, Seller shall execute and deliver, and shall otherwise cause to be executed and delivered, from time to time, such further instruments, notices, division orders, transfer orders and other documents, and do such other and further acts and things including the conveyancing to Buyer of any Properties owned by an affiliate of Seller, as may be reasonably necessary to more fully and effectively grant, convey and assign the Properties to Buyer. 12.2 Imbalances, Makeup Obligations. Without limitation on any other provision of this Agreement, it is expressly understood and agreed that, upon the occurrence of Closing, but effective as of the Effective Date, Buyer shall succeed to and assume the position of Seller with respect to all imbalances and make-up obligations related to the Properties (regardless of whether such imbalances or make-up obligations arise at the wellhead, pipeline, gathering system or other level, and regardless of whether the same arise under contract or otherwise). As a result of such succession, Buyer shall (i) be entitled to receive any and all benefits which Seller would have been entitled to receive by virtue of such position (including, without limitation, rights to produce and receive volumes of production in excess of volumes which it would otherwise be entitled to produce and receive by virtue of ownership of the Properties and rights to receive cash balancing payments), and (ii) be obligated to suffer any detriments which Seller would have been obligated to suffer by virtue of such position (including, without limitation, the obligation to deliver to others production volumes which would have otherwise been attributable to its ownership of the Properties, to deliver production to purchasers hereof without receiving full payment therefor, or to make cash balancing payments or to repay take or pay payments) and (iii) shall be responsible for any and all royalty obligations with respect to such imbalances (including, without limitation, any of the same arising out of royalties having been paid on an "entitlement" basis rather than a "receipts" basis). 12.3 Deceptive Trade Practices Waiver. To the extent applicable to the transaction contemplated hereby or any portion thereof, Buyer waives Buyer's rights under the provisions of the Texas Deceptive Trade Practices - Consumer Protection Act, Sections 17.41 et. seq. of the Texas Business and Commerce Code, a law that gives consumers special rights and protections, and any comparable act in any other state in which the Properties are located; Buyer states that, after consultation with an attorney of Buyer's selection, Buyer voluntarily consents to this waiver. 12.4 Parties Bear Own Expenses/No Special Damages. Each party shall bear and pay all expenses (including, without limitation, legal fees) incurred by it in connection with the transaction contemplated by this Agreement. Neither party shall have any obligations with respect to this agreement, or otherwise in connection herewith, for any special, consequential or punitive damages. 12.5 No Sales Taxes. No sales, transfer or similar tax will be collected at Closing from Buyer in connection with this transaction. If, however, this transaction is later deemed to be subject to sales, transfer or similar tax, for any reason, Buyer agrees to be solely responsible, and shall indemnify and hold Seller (and its affiliates, and its and their directors, officers, employees, attorneys, contractors and agents) harmless, for any and all sales, transfer or other similar taxes (including related penalty, interest or legal costs) due by virtue of this transaction on the Properties transferred pursuant hereto and the Buyer shall remit such taxes at that time. Seller and Buyer agree to cooperate with each other in demonstrating that the requirements for exemptions from such taxes have been met. 20 12.6 Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions among the parties with respect to such subject matter; provided that any Confidentiality Agreement executed by Buyer and Seller, or any representative of Seller, in connection with the transaction contemplated hereby remains in full force and effect and is not superseded or modified by this Agreement. 12.7 Amendments, Waivers. This Agreement may be amended, modified, supplemented, restated or discharged (and provisions hereof may be waived) only by an instrument in writing signed by the party against whom enforcement of the amendment, modification, supplement, restatement or discharge (or waiver) is sought. 12.8 Choice of Law. Without regard to principles of conflicts of law, this Agreement shall be construed and enforced in accordance with and governed by the laws of the state of Texas applicable to contracts made and to be performed entirely within such state and the laws of the United States of America, except that, to the extent that the law of a state in which a portion of the Properties is located (or which is otherwise applicable to a portion of the Properties) necessary governs, the law of such state shall apply as to that portion of the property located in (or otherwise subject to the laws of) such state. 12.9 Headings, Time of Essence, etc. The descriptive headings contained in this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. Within this Agreement words of any gender shall be held and construed to cover any other gender, and words in the singular shall be held and construed to cover the plural, unless the context otherwise requires. Time is of the essence in this Agreement. 12.10 No Assignment. Except as provided in Section 12.15, neither party shall have the right to assign its rights under this Agreement, without the prior written consent of the other party first having been obtained. 12.11 Successors and Assigns. Subject to the limitation on assignment contained in subsection 12.10 above, the Agreement shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. 12.12 No Press Releases. Except as may be required under applicable law, prior to Closing neither party shall make any public announcement with respect to the transaction contemplated hereby without the consent of the other party. 12.13 Counterpart Execution. This Agreement may be executed in counterparts, all of which are identical and all of which constitute one and the same instrument. It shall not be necessary for Buyer and Seller to sign the same counterpart. 12.14 Employees. (a) Upon Closing, Buyer agrees that if it fails to hire at least eighteen (18) employees of Seller listed on Exhibit 2.1(a)(ix) or fails to continue their employment for six months after Closing, Buyer shall pay to Seller one-half (1/2) of any severance costs as shown on Exhibit 12.14 Seller pays to such employees; provided however, that if any employee of Seller is initially offered employment by the Buyer, but then is denied such employment or such employment is terminated within 6 months of the Closing Date, (i) based on the negative results of a drug test administered by Buyer, or its agent, as a part of Buyer's ordinary employee hiring or retention practices or (ii) for other good cause pursuant to such 21 practices, such employee shall nevertheless be treated, for the purposes of this Section 12.14, as one of the employees hired by Buyer. (b) For purposes of computing the vacation eligibility of any employee of Seller hired by Buyer, an employee's vacation eligibility with Seller on the date immediately preceding the Effective Date will be such employee's vacation eligibility with Buyer as of the Effective Date. 12.15 Like Kind Exchange. Buyer or Seller may elect to structure this transaction, in whole or in part, as a like-kind exchange pursuant to section 1031 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, with respect to any or all of the Properties (a "Like- Kind Exchange") by giving notice of such election to the other party at any time prior to the date of Closing. In order to effect a Like-Kind Exchange, the party receiving such notice shall cooperate and do all acts as may be reasonably required or requested by the party giving such notice with regard to effecting the Like-Kind Exchange, including, but not limited to, permitting the party giving such notice to assign its rights under this Agreement to a qualified intermediary of its choice in accordance with Treasury Regulation (S) 1.1031(k)- 1(g)(4) and/or executing additional escrow instructions, documents, agreements or instruments to effect an exchange; provided, however, the party receiving such notice shall incur no expense in connection with such Like-Kind Exchange, shall not be required to take title to any property other than the Properties in connection with the Like-Kind Exchange, and shall not have its possession of the Properties nor the receipt of any payment (including, without limitation, payment of the Purchase Price) delayed by reason of any such Like-Kind Exchange. This Agreement will serve to identify "replacement property" for purposes of making a "deferred exchange" in accordance with the requirements of Section 1031 of the Internal Revenue Code." 13.0 Termination 13.1 Termination Rights. Either party may terminate this Agreement prior to Closing as follows: (a) by mutual written consent of Buyer and Seller; (b) by the Buyer within five (5) days prior written notice if all the conditions set forth in Section 5.1 shall not have been satisfied on the Closing Date other than through the failure of Buyer to comply with its obligations hereunder in all material respects, or shall not have been waived by it on or before such date. (c) by the Seller within five (5) days prior written notice if all the conditions set forth in Section 5.2 shall not have been satisfied on the Closing Date other than through the failure of Seller to comply with its obligations hereunder in all material respects, or shall not have been waived by it on or before such date. (d) by either party if the adjustments for Asserted Defects to the Purchase Price exceed 15% of the Base Purchase Price. (e) by Buyer if the adjustments for Asserted Defects which relate to 4.1 (b)(v) exceed 10% of the Base Purchase Price. (f) by either party if the Board approvals of both parties are not obtained on or before three (3) business days after the date hereof. 22 13.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 13.1, this Agreement shall terminate and there shall be no liability as to either party except as set forth herein relating to the Deposit, and Section 3.1(a)(iii) (relating to inspection and indemnity by Buyer). In the event the Agreement is terminated pursuant to 13.1(d) and Seller is not in material breach of this Agreement, Seller shall be entitled to keep the Deposit. In the event the Agreement is terminated pursuant to Section 13.1 other than pursuant to 13.1(c) or if terminated pursuant to 13.1(c) and Seller is in material breach of this Agreement, Buyer shall be entitled to the return of the deposit. Notwithstanding anything in this Agreement to the contrary, in no event, shall Seller, after Closing, have any liability to Buyer in the event it breaches or has breached any representation or warranty contained herein which does not survive Closing, and prior to Closing, Buyer's sole and exclusive remedy for the breach of any representation covenant or warranty shall be to terminate this Contract as provided herein. IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the date set forth above. THE WISER OIL COMPANY By: /s/ A. W. Ritter ------------------------------ Name: A. Wayne Ritter ---------------------- Title: Vice President ---------------------- COLUMBIA NATURAL RESOURCES, INC. By: /s/ W. H. Harmon ------------------------------ Name: W. H. Harmon ---------------------- Title: President ---------------------- 23 LIST OF EXHIBITS ---------------- Exhibit 1.1(a) Description of the Oil and Gas Leases Exhibit 1.1(b) Description of Fee Mineral Interest and Surface Property Exhibit 1.1(d) Material Subject Contracts Exhibit 1.1(e) Pipeline and Subject Equipment Exhibit 1.1(g) (Part 1) Corbin Office Building Exhibit 1.1(g) (Part 2) Office Equipment and Vehicles Exhibit 2.1(a)(iii) Certain of Seller's Personnel Exhibit 2.1(a)(v) Disclosure Exhibit Exhibit 2.1(a)(ix) Certain Other Contracts, Imbalances, List of Employees, etc. Exhibit 2.1(a)(x) Liens Exhibit 3.1a(i) Confidential Records Exhibit 3.1(c) Preferential Rights; Consents Exhibit 3.1(c) - part 2 Assumption Agreement Exhibit 4.1 (Part 1) List of Wells and Units with WI & NRI and Allocated Value Exhibit 6.1(i) Assignment and Bill of Sale Exhibit 6.1(ii) Deed and Bill of Sale Exhibit 8.3 (Part 1) Bonded Wells Exhibit 8.3 (Part 2) Other Wells 24 EXHIBIT 1.1 ----------- Description of the "Properties" [example] ------------------------------------------------------------------------------- | | | | Recording Data | Description | | Lessor | Lessee | Date | Book/Page | [Needed in some States]| ------------------------------------------------------------------------------- EXHIBIT 2.1(a)(v) Disclosure Exhibit ------------------ PENDING OR THREATENED LITIGATION AND CLAIMS DAVIDSON V. WISER, Leslie Circuit Court, Civil Action No. 91-CI-176 VERNON MILLS V. WISER, Knox Circuit Court, Civil Action No. 98-CI-477 NANCY ANN SIZEMORE, ET AL. VS. WISER OIL COMPANY, ET AL., Leslie Circuit Court, Civil Action No. 88-CI-063 GEORGE F. MILLS AND WIFE, OPAL LEE MILLS V. WISER MARKETING COMPANY, JOHN C. MAIN AND WIFE, EVELYN MAIN AND UNKNOWN DEFENDANTS OF LIMITED LIABILITY PARTNERSHIP OPERATED BY JOHN C. MAIN, JR., Knox Circuit Court, Civil Action No. 98-C1-267 WISER OIL COMPANY V. ROSS OIL & GAS COMPANY AND BONANZA OIL & GAS, INC., Lee Circuit Court, Civil Action No. 98-CI-130 EXHIBIT 4.1 [example] - ------------------------------------------------------------------------------ | | Working | Net Revenue | Allocated | | Well or Unit | Interest | Interest | Amount | - ------------------------------------------------------------------------------ EXHIBIT 6.1(i) ASSIGNMENT AND BILL OF SALE --------------------------- The Wiser Oil Company (herein called "Seller"), for Ten Dollars and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET OVER, and DELIVER unto Columbia Natural Resources, Inc. (herein called "Buyer"), whose address is 900 Pennsylvania Ave., Charleston, West Virginia, 25362: the following described properties, rights and interests: (a) Oil and Gas Leases. All right, title and interest of Seller in and to the oil, gas and/or mineral leases described on Exhibit 1.1(a) hereto (and any ratifications and/or amendments to such leases, whether or not such ratifications or amendments are described on such Exhibit 1.1(a)) insofar as such leases (and such ratifications and amendments) cover the lands and depths described on such Exhibit 1.1(a); and (b) This Section left intentionally blank. (c) Related Pooling Agreements. All rights, titles and interests of Seller in and to, or otherwise derived from, all presently existing and valid oil, gas and/or mineral unitization, pooling, and/or communitization agreements, declarations and/or orders (including, without limitation, all units formed under orders, rules, regulations, or other official acts of any federal, state, or other authority having jurisdiction, and voluntary unitization agreements, designations and/or declarations) relating to the properties described in subsection (a) or (b) above (all of such contracts and agreements are herein referred to as the "Related Pooling Agreements"); and (d) Subject Contracts. All rights, titles and interests of Seller in and to (i) all presently existing and valid production sales agreements, operating agreements, gas transportation agreements, capacity lease agreements, and other agreements and contracts which relate to any of the properties described in subsections (a) (b) and (c), to the extent and only to the extent such rights, titles and interests are attributable to the properties described in subsections (a) (b) and (c) above (all of such contracts and agreements are herein referred to as the "Subject Contracts"); and (e) Pipeline and Subject Equipment. All rights, titles and interests of Seller in and to (i) all wells, materials, supplies, machinery, equipment, improvements and other personal property and fixtures (including, but not by way of limitation, all wells, wellhead equipment, pumping units, flowlines, gathering pipelines, (including any related right of way agreements) tanks, buildings, injection facilities, saltwater disposal facilities, compression facilities, and other equipment) to the extent and only to the extent such personal property is located on the properties described in subsections (a), (b) and (c) above or used in connection with the exploration, development, operation or maintenance thereof and (ii) the plants, equipment, facilities and other tangible personal property listed on Exhibit 1.1(e) and the pipelines shown on the plat attached as a part of said Exhibit 1.1(e); and (f) Books and Records. All right, title and interest of Seller in and to any books and records directly relating to the Properties (defined below) including without limitation (i) existing engineering, operating, accounting, tax (including product, severance and ad valorem), business, marketing, title and division order files, (ii) existing ledgers, journals, property records, title policies, maps, charts, surveys, customer lists, supplier lists, (iii) existing environmental reports, assessments, studies, and plans and (iv) geological similar data, or any interpretation thereof (the "Records"); and (g) This Section left intentionally blank ___________________________________________________________________________ ___________________________________________________. (h) Easements and Rights-of-Way. All right, title and interest of Seller in and to the easements and rights-of-way described on Exhibit 1.1(a) and Exhibit 1.1(h) attached hereto; and (i) Surface Leases. All right, title and interest of Seller in and to the surface leases described on Exhibit 1.1(i) attached hereto. The properties, rights and interests specified in the subsection (a) of Section 1.1, exclusive of the properties, rights and interests excluded below, are herein sometimes collectively called the "Oil and Gas Properties," and the properties, rights and interests specified in the foregoing subsections (a), (b), (c), (d), (e), (f), (g), (h), and (i) exclusive of the properties, rights and interests excluded below, are herein sometimes collectively called the "Properties". The Properties do not include, and there is hereby expressly excepted and excluded therefrom and reserved to Seller, (a) all hedging or derivative agreements, and (b) all rights and choses in action, arising, occurring or existing in favor of Seller prior to the Effective Date or arising out of the operation of or production from the Oil and Gas Properties prior to the Effective Date (including, but not limited to, any and all contract rights, claims, receivables, revenues, recoupment rights, recovery rights, accounting adjustments, mispayments, erroneous payments or other claims of any nature in favor of Seller and relating and accruing to any time period prior to the Effective Date). TO HAVE AND TO HOLD the Properties unto Buyer its successors and assigns, forever. SELLER DOES HEREBY WARRANT AND FOREVER DEFEND TITLE TO THE OIL AND GAS PROPERTIES UNTO BUYER AGAINST THE CLAIMS AND DEMANDS OF ALL PERSONS CLAIMING BY, THROUGH OR UNDER SELLER, BUT NOT OTHERWISE. EXCEPT FOR THE SPECIAL WARRANTY IN THE FOREGOING SENTENCE, THIS ASSIGNMENT AND BILL OF SALE IS MADE WITHOUT WARRANTIES OR REPRESENTATIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE. WITHOUT LIMITATION OF THE FOREGOING, THE PROPERTIES ARE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING TO TITLE TO THE SUBJECT PROPERTIES OR RELATING TO THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE, AND WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. This Assignment and Bill of Sale is made subject to that certain Agreement of Sale and Purchase between Seller and Buyer dated ______________________. Seller agrees to execute and deliver to Buyer, from time to time, such other and additional instruments, notices, division orders, transfer orders and other documents, and to do all such other and further acts and things as may be necessary to more fully and effectively grant, convey and assign to Buyer the Properties. This Assignment and Bill of Sale is being executed in several counterparts all of which are identical. All of such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF this Assignment and Bill of Sale has been executed on ________________, 1999 by the parties hereto effective as to runs of oil and deliveries of gas, and for all other purposes, as of 7:00 a.m. ______ local time at the locations of the Properties, respectively, on April 1, 1999. SELLER: THE WISER OIL COMPANY By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- BUYER: COLUMBIA NATURAL RESOURCES, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- SELLER'S ACKNOWLEDGMENT ----------------------- STATE OF TEXAS (S) (S) COUNTY OF DALLAS (S) The foregoing instrument was acknowledged before me this _____day of ____________, 1999, by ________________________, as _______________________ of The Wiser Oil Company, a _____________________ corporation, on behalf of such corporation. ---------------------------------------- Notary Public, State of Texas [Seal] BUYER'S ACKNOWLEDGMENT ---------------------- STATE OF TEXAS (S) (S) COUNTY OF DALLAS (S) The foregoing instrument was acknowledged before me this _____day of ____________, 1999, by ________________________, as _______________________ of Columbia Natural Resources, Inc., a _____________________ corporation, on behalf of such corporation. --------------------------------------- Notary Public, State of Texas [Seal] EXHIBIT 3.1(a)(i) None except as listed on the other Exhibits. EXHIBIT 6.1(ii) DEED AND BILL OF SALE --------------------- The Wiser Oil Company (herein called "Seller"), for Ten Dollars and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), does hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, SET OVER, and DELIVER unto Columbia Natural Resources, Inc. (herein called "Buyer"), whose address is 900 Pennsylvania Ave., Charleston, West Virginia 25362: the following described properties, rights and interests: (a) This Section left intentionally blank. (b) Fee Mineral Interest. All right, title and interest of Seller in and to the fee mineral interests in oil, gas and other minerals described on Exhibit 1.1(b) hereto; and (c) Related Pooling Agreements. All rights, titles and interests of Seller in and to, or otherwise derived from, all presently existing and valid oil, gas and/or mineral unitization, pooling, and/or communitization agreements, declarations and/or orders (including, without limitation, all units formed under orders, rules, regulations, or other official acts of any federal, state, or other authority having jurisdiction, and voluntary unitization agreements, designations and/or declarations) relating to the properties described in subsection (a) or (b) above, all of such contracts and agreements are herein referred to as the "Related Pooling Agreements"); an d (d) Subject Contracts. All rights, titles and interests of Seller in and to (i) all presently existing and valid production sales agreements, operating agreements, gas transportation agreements, capacity lease agreements, and other agreements and contracts which relate to any of the properties described in subsections (a) (b) and (c), to the extent and only to the extent such rights, titles and interests are attributable to the properties described in subsections (a) (b) and (c) above all of such contracts and agreements are herein referred to as the "Subject Contracts"); and (e) This Section left intentionally blank. (f) Books and Records. All right, title and interest of Seller in and to any books and records directly relating to the Properties (defined below) including without limitation (i) existing engineering, operating, accounting, tax (including product, severance and ad valorem), business, marketing, title and division order files, (ii) existing ledgers, journals, property records, title policies, maps, charts, surveys, customer lists, supplier lists, (iii) existing environmental reports, assessments, studies, and plans and (iv) geological similar data, or any interpretation thereof (the "Records"); and (g) Corbin Office. All right, title and interest of Seller in and to that certain land together with that certain building structure commonly referred to as the Wiser Corbin Building located at _________ Street, Corbin, Kentucky, as more particularly described on part one of Exhibit 1.1(g), and all related personal property located on or in the premises, including without limitation furniture and equipment and the vehicle listed on part two of Exhibit 1.1(g), but excluding any computer software. (h) This Section left intentionally blank. (i) This Section left intentionally blank. The properties, rights and interests specified in the subsection (b) of Section 1.1, exclusive of the properties, rights and interests excluded below, are herein sometimes collectively called the "Oil and Gas Properties," and the properties, rights and interests specified in the foregoing subsections (a), (b), (c), (d), (e), (f), (g), (h), and (i) exclusive of the properties, rights and interests excluded below, are herein sometimes collectively called the "Properties". The Properties do not include, and there is hereby expressly excepted and excluded therefrom and reserved to Seller, (a) all hedging or derivative agreements, and (b) all rights and choses in action, arising, occurring or existing in favor of Seller prior to the Effective Date or arising out of the operation of or production from the Oil and Gas Properties prior to the Effective Date (including, but not limited to, any and all contract rights, claims, receivables, revenues, recoupment rights, recovery rights, accounting adjustments, mispayments, erroneous payments or other claims of any nature in favor of Seller and relating and accruing to any time period prior to the Effective Date). TO HAVE AND TO HOLD the Properties unto Buyer its successors and assigns, forever. SELLER DOES HEREBY WARRANT AND FOREVER DEFEND TITLE TO THE OIL AND GAS PROPERTIES UNTO BUYER AGAINST THE CLAIMS AND DEMANDS OF ALL PERSONS CLAIMING BY, THROUGH OR UNDER SELLER, BUT NOT OTHERWISE. EXCEPT FOR THE SPECIAL WARRANTY IN THE FOREGOING SENTENCE, THIS DEED AND BILL OF SALE IS MADE WITHOUT WARRANTIES OR REPRESENTATIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE. WITHOUT LIMITATION OF THE FOREGOING, THE PROPERTIES ARE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING TO TITLE TO THE SUBJECT PROPERTIES OR RELATING TO THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE, AND WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. This Deed and Bill of Sale is made subject to that certain Agreement of Sale and Purchase between Seller and Buyer dated ______________________. Seller agrees to execute and deliver to Buyer, from time to time, such other and additional instruments, notices, division orders, transfer orders and other documents, and to do all such other and further acts and things as may be necessary to more fully and effectively grant, convey and assign to Buyer the Properties. This Deed and Bill of Sale is being executed in several counterparts all of which are identical. All of such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF this Deed and Bill of Sale has been executed on ________________, 1999 by the parties hereto effective as to runs of oil and deliveries of gas, and for all other purposes, as of 7:00 a.m. ______ local time at the locations of the Properties, respectively, on April 1, 1999. SELLER: THE WISER OIL COMPANY By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- BUYER: COLUMBIA NATURAL RESOURCES, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- SELLER'S ACKNOWLEDGMENT ----------------------- STATE OF TEXAS (S) (S) COUNTY OF DALLAS (S) The foregoing instrument was acknowledged before me this _____day of ____________, 1999, by ________________________, as _______________________ of The Wiser Oil Company, a _____________________ corporation, on behalf of such corporation. -------------------------------------- Notary Public, State of Texas [Seal] BUYER'S ACKNOWLEDGMENT ---------------------- STATE OF TEXAS (S) (S) COUNTY OF DALLAS (S) The foregoing instrument was acknowledged before me this _____day of ____________, 1999, by ________________________, as _______________________ of Columbia Natural Resources, Inc., a _____________________ corporation, on behalf of such corporation. -------------------------------------- Notary Public, State of Texas [Seal] EX-10.4A 4 AMENDMENT TO EMPLOYMENT AGREEMENT ALLAN SIMUS EXHIBIT 10.4a AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the first day of August, 1994, by and between THE WISER OIL COMPANY, a Delaware Corporation and ALLAN J. SIMUS is hereby amended so that Article I, Section 1.02, shall read as follows: 1.02 Term. Subject to the terms and provisions of Article II hereof, ----- Employee's employment hereunder shall be extended and shall continue through the close of business on March 1, 1998 unless extended by subsequent agreement of the parties hereto. IN WITNESS WHEROF, the parties hereto have executed this Amendment to Agreement or caused it to be executed as of March 22, 1996. /s/ Allan J. Simus -------------------------------- THE WISER OIL COMPANY By: /s/ Andrew J. Shoup, Jr. ---------------------------------------------- Title: President and Chief Executive Officer ---------------------------------------- EX-10.4C 5 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT SIMUS EXHIBIT 10.4c THIRD AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------------- For good and valuable consideration, the receipt of which is hereby acknowledged, that EMPLOYMENT AGREEMENT made as of the 1st day of August, 1994, by and between THE WISER OIL COMPANY OF CANADA, a Canadian corporation (the "Company"), and ALLEN J. SIMUS ("Employee") (as amended, the "Agreement") is hereby amended in the following respects only: FIRST: Section 2.05 of the Agreement is hereby amended by restating ----- subsection (a) thereof in its entirety to read as follows: (a) If Employee's employment with the Company is terminated by the Company or by Employee for any reason (other than by the Company for Cause or by reason of the death of Employee) within twelve months following a Change of Control of the Company or the Parent Company, Employee shall be paid, within 30 days following such termination, an amount in cash equal to the sum of (i) Employee's Base Salary at the time of his termination of employment multiplied by three, (ii) the amount equal to the premium cost or other amount paid by the Company during the one-year period preceding Employee's termination of employment to provide Employee with (A) life, health and disability insurance benefits, and (B) the use of an automobile for such year, and (iii) the amount of the additional payment, if any, determined pursuant to Section 1.05. If Employee's employment with the Company is terminated under circumstances in which the provisions of this Section 2.05(a) and Section 2.04 are applicable, the provisions of this Section 2.05(a) shall control with respect to the amounts payable to Employee as a result of such termination. SECOND: Section 2.05(b) is hereby amended to add a new paragraph (6) to ------ the end thereof to read as follows: (6) "Cause" shall mean a termination of Employee's employment pursuant to Section 2.03 on the basis of actual fraud or embezzlement by Employee in respect of the Company or its affiliates. THIRD: Section 2.01 of the Agreement is hereby amended by restating the ----- last sentence thereof in its entirety to read as follows: Upon delivery to Employee of such notice, together with payment of any Base Salary accrued to the date of termination under Section 1.03 hereof, Employee's employment and all obligations of the Company under Article I hereof (other than its obligations, if any, under Sections 1.05 and 2.05) shall forthwith terminate. FOURTH: Section 2.03 of the Agreement is hereby amended by restating the ------ last sentence thereof in its entirety to read as follows: Upon such termination, Employee shall be entitled to any Base Salary accrued under Section 1.03 hereof, and all of the Company's obligations under Article I hereof (other than its obligations, if any, under Sections 1.05 and 2.05) shall forthwith terminate. IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the 1st day of January, 1999. -------------------------------------- ALLEN J. SIMUS THE WISER OIL COMPANY OF CANADA By ------------------------------------ Name: ------------------------------ Title: ----------------------------- 2 EX-10.5A 6 AMENDMENT TO EMPLOYMENT AGREEMENT ANDREW SHOUP JR. EXHIBIT 10.5a AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the first day of July, 1991, by and between THE WISER OIL COMPANY, a Delaware Corporation and ANDREW J. SHOUP, JR. is hereby amended so that Article I, Section 1.02, and Article IV, Section 4.04, shall read as follows: 1.02 Term. Subject to the terms and provisions of Article II hereof, ----- Employee's employment hereunder shall be extended and shall continue through the close of business on July 1, 1997 unless extended by subsequent agreement of the parties hereto. 4.04. Governing Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of the State of Texas. IN WITNESS WHEROF, the parties hereto have executed this Amendment to Agreement or caused it to be executed as of June 1, 1994. /s/ Andrew J. Shoup, Jr. -------------------------- THE WISER OIL COMPANY By: /s/ A. Wayne Ritter ------------------------------- Title: Vice President ---------------------------- EX-10.5C 7 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT SHOUP EXHIBIT 10.5c THIRD AMENDMENT TO EMPLOYMENT AGREEMENT THAT EMPLOYMENT AGREEMENT made as of the 1st day of July, 1991, by and between THE WISER OIL COMPANY, a Delaware corporation, and ANDREW J. SHOUP, JR. (as heretofore amended, the "Agreement") is hereby amended in the following respects only: FIRST: Section 1.03 of the Agreement is hereby amended to add a new ----- sentence to the end thereof to read as follows: Notwithstanding the foregoing, Employee hereby agrees to accept a voluntary, temporary reduction in his Base Salary to a rate of $200,000 per annum, with respect to the period commencing on January 1, 1999 and continuing for at least 12 months thereafter. At any time after the end of such 12-month period, Employee may, by written notice to Wiser, reinstate Employee's Base Salary to his annual rate of Base Salary in effect immediately prior to his voluntary reduction in Base Salary. Thereafter, Employee's Base Salary shall be paid to him at the reinstated rate with respect to the period of his employment that begins on the effective date of such reinstatement, subject to such increases in Base Salary as may be determined from time to time by the Board. The effective date of such reinstatement shall be the first day of the first pay period following Wiser's receipt of Employee's notice of reinstatement or as otherwise agreed to by the parties. SECOND: Section 1.08 of the Agreement is hereby amended by restating ------ subsection (a) thereof in its entirety to read as follows: (a) If Employee's employment with Wiser is terminated by Wiser or by Employee for any reason (other than by Wiser for Cause or by reason of the death of Employee) within twelve months following a Change of Control of Wiser, Employee shall be paid, within 30 days following such termination, an amount in cash equal to the sum of: (i) an amount equal to the product of (A) the amount equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to Employee by Wiser and its subsidiaries in respect of the 60-month period immediately preceding the month in which his employment terminated, multiplied by (B) three, plus (ii) the amount equal to the premium cost or other amount paid by Wiser during the one-year period preceding Employee's termination of employment to provide Employee with (A) life, health and disability insurance benefits, and (B) the use of an automobile for such year, plus (iii) the amount of the additional payment, if any, determined pursuant to Section 1.09. THIRD: Section 1.08(b) is hereby amended to add a new paragraph (6) to ----- the end thereof to read as follows: (6) "Cause" shall mean a termination of Employee's employment pursuant to Section 2.03 for actual fraud or embezzlement by Employee in respect of Wiser or its subsidiaries. FOURTH: Section 2.01 of the Agreement is hereby amended by restating the ------ last sentence thereof in its entirety to read as follows: Upon delivery to Employee of such notice, together with payment of any Base Salary accrued to the date of termination under Section 1.03 hereof, Employee's employment and all obligations of Wiser under Article I hereof (other than its obligations, if any, under Sections 1.08 and 1.09) shall forthwith terminate. FIFTH: Section 2.03 of the Agreement is hereby amended by restating the ----- last sentence thereof in its entirety to read as follows: Upon such termination, Employee shall be entitled to any Base Salary accrued under Section 1.03 hereof and any award under Section 1.04 hereof previously earned by Employee but not paid, and all of Wiser's obligations under Article I hereof (other than its obligations, if any, under Sections 1.08 and 1.09) shall forthwith terminate. IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the 1st day of January, 1999. ANDREW J. SHOUP, JR. THE WISER OIL COMPANY By ------------------------------------ Name: ------------------------------ Title: ----------------------------- -2- EX-10.8A 8 AMENDMENT TO EMPLOYMENT AGREEMENT LAWRENCE FINN EXHIBIT 10.8a AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the first day of November, 1993, by and between THE WISER OIL COMPANY, a Delaware Corporation and LAWRENCE J. FINN is hereby amended so that Article I, Section 1.02, shall read as follows: 1.02 Term. Subject to the terms and provisions of Article II hereof, ----- Employee's employment hereunder shall be extended and shall continue through the close of business on March 1, 1998 unless extended by subsequent agreement of the parties hereto. IN WITNESS WHEROF, the parties hereto have executed this Amendment to Agreement or caused it to be executed as of March 22, 1996. /s/ Lawrence J. Finn -------------------------------- THE WISER OIL COMPANY By: /s/ Andrew J. Shoup, Jr. ------------------------------------------- Title: President and Chief Executive Officer ---------------------------------------- EX-10.8C 9 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT FINN EXHIBIT 10.8c THIRD AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------------- For good and valuable consideration, the receipt of which is hereby acknowledged, that EMPLOYMENT AGREEMENT made as of the 1st day of November, 1993, by and between THE WISER OIL COMPANY, a Delaware corporation (the "Company"), and LAWRENCE J. FINN ("Employee") (as amended, the "Agreement") is hereby amended in the following respects only: FIRST: Section 1.05 of the Agreement is hereby amended by restating ----- subsection (a) thereof in its entirety to read as follows: (a) If Employee's employment with the Company is terminated by the Company or by Employee for any reason (other than by the Company for Cause or by reason of the death of Employee) within twelve months following a Change of Control of the Company, Employee shall be paid, within 30 days following such termination, an amount in cash equal to the sum of (i) Employee's Base Salary at the time of his termination of employment multiplied by three, (ii) the amount equal to the premium cost or other amount paid by the Company during the one-year period preceding Employee's termination of employment to provide Employee with (A) life, health and disability insurance benefits, and (B) the use of an automobile for such year, and (iii) the amount of the additional payment, if any, determined pursuant to Section 1.06. SECOND: Section 1.05(b) is hereby amended to add a new paragraph (6) to ------ the end thereof to read as follows: (6) "Cause" shall mean a termination of Employee's employment pursuant to Section 2.03 on the basis of actual fraud or embezzlement by Employee in respect of the Company or its subsidiaries. THIRD: Section 2.01 of the Agreement is hereby amended by restating the ----- last sentence thereof in its entirety to read as follows: Upon delivery to Employee of such notice, together with payment of any Base Salary accrued to the date of termination under Section 1.03 hereof, Employee's employment and all obligations of the Company under Article I hereof (other than its obligations, if any, under Sections 1.05 and 1.06) shall forthwith terminate. FOURTH: Section 2.03 of the Agreement is hereby amended by restating the ------ last sentence thereof in its entirety to read as follows: Upon such termination, Employee shall be entitled to any Base Salary accrued under Section 1.03 hereof, and all of the Company's obligations under Article I hereof (other than its obligations, if any, under Sections 1.05 and 1.06) shall forthwith terminate. IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the 1st day of January, 1999. ---------------------------------------- LAWRENCE J. FINN THE WISER OIL COMPANY By -------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 2 EX-10.9A 10 AMENDMENT TO EMPLOYMENT AGREEMENT WAYNE RITTER EXHIBIT 10.9a AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the twenty fourth day of January, 1994, by and between THE WISER OIL COMPANY, a Delaware Corporation and A. WAYNE RITTER is hereby amended so that Article I, Section 1.02, shall read as follows: 1.02 Term. Subject to the terms and provisions of Article II hereof, ----- Employee's employment hereunder shall be extended and shall continue through the close of business on March 1, 1998 unless extended by subsequent agreement of the parties hereto. IN WITNESS WHEROF, the parties hereto have executed this Amendment to Agreement or caused it to be executed as of March 22, 1996. /s/ A. Wayne Ritter ----------------------------------- THE WISER OIL COMPANY By: /s/ Andrew J. Shoup, Jr. -------------------------------------------- Title: President and Chief Executive Officer -------------------------------------- EX-10.9C 11 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT RITTER EXHIBIT 10.9c THIRD AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------------- For good and valuable consideration, the receipt of which is hereby acknowledged, that EMPLOYMENT AGREEMENT made as of the 24th day of January, 1994, by and between THE WISER OIL COMPANY, a Delaware corporation (the "Company"), and A. WAYNE RITTER ("Employee") (as amended, the "Agreement") is hereby amended in the following respects only: FIRST: Section 1.05 of the Agreement is hereby amended by restating ----- subsection (a) thereof in its entirety to read as follows: (a) If Employee's employment with the Company is terminated by the Company or by Employee for any reason (other than by the Company for Cause or by reason of the death of Employee) within twelve months following a Change of Control of the Company, Employee shall be paid, within 30 days following such termination, an amount in cash equal to the sum of (i) Employee's Base Salary at the time of his termination of employment multiplied by three, (ii) the amount equal to the premium cost or other amount paid by the Company during the one-year period preceding Employee's termination of employment to provide Employee with (A) life, health and disability insurance benefits, and (B) the use of an automobile for such year, and (iii) the amount of the additional payment, if any, determined pursuant to Section 1.06. SECOND: Section 1.05(b) is hereby amended to add a new paragraph (6) to ------ the end thereof to read as follows: (6) "Cause" shall mean a termination of Employee's employment pursuant to Section 2.03 on the basis of actual fraud or embezzlement by Employee in respect of the Company or its subsidiaries. THIRD: Section 2.01 of the Agreement is hereby amended by restating the ----- last sentence thereof in its entirety to read as follows: Upon delivery to Employee of such notice, together with payment of any Base Salary accrued to the date of termination under Section 1.03 hereof, Employee's employment and all obligations of the Company under Article I hereof (other than its obligations, if any, under Sections 1.05 and 1.06) shall forthwith terminate. FOURTH: Section 2.03 of the Agreement is hereby amended by restating the ------ last sentence thereof in its entirety to read as follows: Upon such termination, Employee shall be entitled to any Base Salary accrued under Section 1.03 hereof, and all of the Company's obligations under Article I hereof (other than its obligations, if any, under Sections 1.05 and 1.06) shall forthwith terminate. IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the 1st day of January, 1999. ---------------------------------------- A. WAYNE RITTER THE WISER OIL COMPANY By -------------------------------------- Name: --------------------------------- Title: -------------------------------- 2 EX-10.10B 12 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT JOHNSON EXHIBIT 10.10b SECOND AMENDMENT TO EMPLOYMENT AGREEMENT ---------------------------------------- For good and valuable consideration, the receipt of which is hereby acknowledged, that EMPLOYMENT AGREEMENT made as of the 30th day of September, 1996, by and between THE WISER OIL COMPANY, a Delaware corporation (the "Company"), and KENT E. JOHNSON ("Employee") (as amended, the "Agreement") is hereby amended in the following respects only: FIRST: Effective as of the date of this Amendment, Employee hereby resigns ----- as Vice President of Exploration of the Company, but the Company hereby agrees to continue Employee in its employ as an executive employee for the period set forth in Section 1.02 and upon the other terms and conditions of the Agreement. During the remainder of the term of Employee's employment under the Agreement, Employee shall serve as a business consultant to the Company for the purpose of rendering to it such general advice and assistance as the Board of Directors of the Company or the Chief Executive Officer of the Company may reasonably request from time to time in connection with matters within the responsibility of a person serving as a Vice President of Exploration of the Company. During the remainder of his employment term, Employee shall devote such portion of his business time, skill and attention as shall reasonably be required for the performance by him of the services contemplated hereby; provided, however, that it is specifically understood and agreed by the Company and Employee that Employee may perform such services at locations convenient to him, unless the nature of the services reasonably requires his presence at the Company's offices. SECOND: The second sentence of Section 3.02 of the Agreement is ------ hereby amended by deleting from such sentence the words "full time". THIRD: Section 1.04 of the Agreement is hereby amended by restating the ----- first sentence thereof in its entirety to read as follows: At all times during the term of Employee's employment hereunder, Employee shall: (a) be covered by such major medical or health benefit plans and savings and retirement plans as are available generally to other executive employees of the Company; (b) receive reimbursement for all properly substantiated business expenses; and (c) be entitled to paid vacation each year and such holidays and sick days as are available to other executive employees of the Company. FOURTH: Section 1.05 of the Agreement is hereby amended by restating ------ subsection (a) thereof in its entirety to read as follows: (a) If Employee's employment with the Company is terminated by the Company or by Employee for any reason (other than by the Company for Cause or by reason of the death of Employee) within twelve months following a Change of Control of the Company, Employee shall be paid, within 30 days following such termination, an amount in cash equal to the sum of (i) Employee's Base Salary at the time of his termination of employment multiplied by three, (ii) the amount equal to the premium cost or other amount paid by the Company during the one-year period preceding Employee's termination of employment to provide Employee with (A) life, health and disability insurance benefits, and (B) the use of an automobile for such year, and (iii) the amount of the additional payment, if any, determined pursuant to Section 1.06; provided, however, that the amount payable to Employee under clause (i) of this Section 1.05(a) shall be payable to Employee if and only if such Change of Control occurred, or the Company entered into the definitive agreement providing for such Change of Control, prior to February 1, 1999. The rights and remedies of Employee arising out of or otherwise in respect of a termination by the Company of Employee's employment hereunder other than pursuant to Sections 2.01 and 2.03 within 12 months following a Change of Control shall in no way be limited by the fact that, in connection with such termination of employment, the proviso contained in the immediately preceding sentence shall operate to deny Employee the amount otherwise payable to him under clause (i) of such sentence. FIFTH: Section 1.05(b) is hereby amended to add a new paragraph (6) to the ----- end thereof to read as follows: (6) "Cause" shall mean a termination of Employee's employment pursuant to Section 2.03 for actual fraud or embezzlement by Employee in respect of the Company or its subsidiaries. SIXTH: Section 2.01 of the Agreement is hereby amended by restating the ----- last sentence thereof in its entirety to read as follows: 2 Upon delivery to Employee of such notice, together with payment of any Base Salary accrued to the date of termination under Section 1.03 hereof, Employee's employment and all obligations of the Company under Article I hereof (other than its obligations, if any, under Sections 1.05 and 1.06) shall forthwith terminate. SEVENTH: Section 2.03 of the Agreement is hereby amended by restating the ------- last sentence thereof in its entirety to read as follows: Upon such termination, Employee shall be entitled to any Base Salary accrued under Section 1.03 hereof, and all of the Company's obligations under Article I hereof (other than its obligations, if any, under Sections 1.05 and 1.06) shall forthwith terminate. IN WITNESS WHEREOF, this Amendment has been executed and is effective as of the 1st day of January, 1999. ---------------------------------------- KENT E. JOHNSON THE WISER OIL COMPANY By -------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 3 EX-21 13 SUBSIDIARIES OF THE WISER OIL COMPANY EXHIBIT 21 SUBSIDIARIES OF THE WISER OIL COMPANY T.W.O.C., Inc. The Wiser Oil Company of Canada Wiser Delaware LLC EX-23.1 14 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated April 15, 1999 appearing on page F-2 on this Annual Report on Form 10-K, into the Registration Statements on Form S-8 relating to the stock incentive plans of The Wiser Oil Company (Nos. 33-44171, 33-62441, 33-44172, 333-22525 and 333-15083). /s/ ARTHUR ANDERSEN LLP Arthur Andersen LLP Dallas, Texas, April 15, 1999 EX-23.2 15 CONSENT OF DEGOLYER AND MACNAUGHTON EXHIBIT 23.2 CONSENT OF PETROLEUM ENGINEERS April 7, 1999 The Wiser Oil Company 8115 Preston Road, Suite 400 Dallas, Texas 75225 Gentlemen: We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-44171, 33-62441, 33-44172, 333-22525, and 333- 15083) relating to the stock incentive plans of The Wiser Oil Company (theCompany) of our reserves estimates included in the Annual Report on Form 10- K (the Annual Report) of the Company for the year ended December 31, 1998, and to the references to our firm included in the Annual Report. Our estimates of the oil, condensate, natural gas liquids (shown collectively as "Oil and NGL"), and natural gas reserves of certain properties owned by the Company are contained in our report entitled "Appraisal Report as of December 31, 1998 on Certain Properties owned by the Wiser Oil Company-Proved Reserves". Reserves estimates from our report are included in the sections "Principal Oil and Gas Properties," "Oil and Gas Reserves," and "Supplemental Financial Information for the years ending December 31, 1998, 1997 and 1996 (unaudited)-Oil and Gas Reserves." Also included in the third section mentioned above are reserves estimates from our "Appraisal Report as of December 31, 1995 on Certain Properties owned by the Wiser Oil Company--Proved Reserves," our "Appraisal Report as of December 31, 1995, on Certain Properties owned by Maljamar Wiser Inc.," our "Appraisal Report as of December 31, 1996, on Certain Properties owned by Maljamar Wiser Inc.," our "Appraisal Report as of December 31, 1996, on Certain Properties owned by The Wiser Oil Company--Proved Reserves, and our "Appraisal Report as of December 31, 1997 on Certain Properties owned by The Wiser Oil Company-Proved Reserves." In the sections "Summary Reserve and Operating Data" and "Oil and Gas Reserves," estimates of reserves, revenue, and discounted present worth set forth in our above mentioned reports have been combined with estimates of reserves, revenue, and discounted present worth prepared by another petroleum consultant. We are necessarily unable to verify the accuracy of the reserves, revenue, and present worth values contained in the Annual Report when our estimates have been combined with those of another firm. Very truly yours, /S/ DEGOLYER AND MACNAUGHTON DeGOLYER and MacNAUGHTON EX-23.3 16 LETTER OF CONSENT GIBERT LAUSTEN JUNG ASSOCIATES EXHIBIT 23.3 LETTER OF CONSENT CONSENT OF PETROLEUM ENGINEERS As independent petroleum engineers, we hereby consent to the incorporation by reference in the Registration Statements on Form S-8 relating to the stock incentive plans of The Wiser Oil Company (the "Company"), (Nos. 33-44171, 33- 62441, 33-44172, 333-22525 and 333-15083), of certain data from our report entitled "The Wiser Oil Company Canada Ltd. Reserve Appraisal and Economic Evaluation effective January 1, 1999" with respect to the oil and gas reserves of the Company, the future net revenues therefrom and present values attributable to these reserves included in this Annual Report on Form 10-K, and to all references to our firm included in this Annual Report. Yours very truly, GILBERT LAUSTSEN JUNG ASSOCIATES LTD. /s/ Wayne W. Chow, P. Eng. Vice-President April 12, 1999 Calgary, Canada EX-27 17 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 2,779 0 10,372 0 669 14,855 373,497 160,202 231,810 34,203 124,452 0 0 27,385 44,706 231,810 59,197 60,630 27,969 95,386 0 0 13,097 (35,206) (10,740) (24,466) 0 0 0 (24,466) (2.73) (2.73)
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