-----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, WqrbWZhFsWNCDKHgq4R7Lqf4DwPLGdhH7ECKccxSaWfrGPwmMzMPkQzKHp0XvsTg pjwh/Yv9DXLB3zfxlOAvWA== 0000950134-01-509381.txt : 20020412 0000950134-01-509381.hdr.sgml : 20020412 ACCESSION NUMBER: 0000950134-01-509381 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011001 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20011211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PANHANDLE ROYALTY CO CENTRAL INDEX KEY: 0000315131 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731055775 STATE OF INCORPORATION: OK FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-09116 FILM NUMBER: 1811449 BUSINESS ADDRESS: STREET 1: 5400 NW GRAND BLVD STREET 2: GRAND CENTRE STE 210 CITY: OKLAHOMA CITY STATE: OK ZIP: 73112 BUSINESS PHONE: 4059481560 8-K/A 1 d92874a1e8-ka.txt AMENDMENT NO. 1 TO FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. DATE OF REPORT: DECEMBER 11, 2001 DATE OF EARLIEST EVENT REPORTED: OCTOBER 1, 2001 PANHANDLE ROYALTY COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) OKLAHOMA 0-9116 73-1055775 - ------------------------ ----------------- ------------------- (State of Incorporation) (Commission File) (I.R.S. Employer Number Identification No.) GRAND CENTRE SUITE 210, 5400 NORTH GRAND BLVD., OKLAHOMA CITY, OK 73112 - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number including area code: (405) 948-1560 ------------------------------ Panhandle Royalty Company FORM 8-K/A December 11, 2001 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On October 1, 2001 Panhandle Royalty Company acquired privately held Wood Oil Company ("Wood") of Tulsa, Oklahoma. The acquisition was made pursuant to an Agreement and Plan of Merger among Panhandle Royalty Company, PHC, Inc., and Wood Oil Company, dated August 9, 2001. Wood merged with Panhandle's wholly owned subsidiary PHC, Inc., on October 1, 2001, with Wood being the surviving Company. Prior to the acquisition, Wood was a privately held company engaged in oil and gas exploration and production and fee mineral ownership and owned interests in certain oil and gas and real estate partnerships and an office building in Tulsa. Wood will continue to operate as a subsidiary of Panhandle and will be moved to Oklahoma City in early 2002. Wood and its shareholders were unrelated parties to Panhandle. Wood's assets, in addition to those mentioned above, included approximately 71,000 net acres of fee minerals and 14,923 net leasehold acres located primarily in Oklahoma, Texas and 17 additional states. Wood owns non-operating, royalty and working interests in approximately 2,000 producing wells with estimated net proven reserves of 13.1 billion cubic feet of natural gas equivalents at October 1, 2001. Daily production is approximately 4,700 mcf and 166 barrels of oil. The adjusted purchase price was $22,603,886, which included working capital assumed of $4,195,794. Funding for the acquisition was obtained from BancFirst of Oklahoma City, Oklahoma in the form of a $20,000,000 five year term loan. $3,000,000 of Wood's cash was used to reduce Panhandle's debt on the date of closing. The acquisition will be accounted for as a purchase, accordingly, Wood's financial results will be consolidated with Panhandle's beginning October 1, 2001. Panhandle Royalty Company FORM 8-K/A December 11, 2001 INFORMATION TO BE INCLUDED IN THE REPORT This FORM 8-K/A amends the registrants FORM 8-K dated October 1, 2001, which was filed on October 16, 2001 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Audited Financial Statements of Wood Oil Company as of July 31, 2001 and 2000, and for each of the three years in the period ended July 31, 2001. (b) PRO FORMA FINANCIAL INFORMATION Unaudited pro forma combined condensed balance sheet as of June 30, 2001 and the unaudited pro forma combined Condensed Statements of Operations for the nine-months ended June 30, 2001 and the year ended September 30, 2000. Panhandle Royalty Company FORM 8-K/A December 11, 2001 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PANHANDLE ROYALTY COMPANY /s/ H W Peace II ----------------------------------- DATE: December 11, 2001 H W Peace II, President /s/ Michael C. Coffman ----------------------------------- DATE: December 11, 2001 Michael C. Coffman, Vice President Chief Financial Officer, Secretary & Treasurer INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 99(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Audited Financial Statements of Wood Oil Company as of July 31, 2001 and 2000, and for each of the three years in the period ended July 31, 2001. 99(b) PRO FORMA FINANCIAL INFORMATION Unaudited pro forma combined condensed balance sheet as of June 30, 2001 and the unaudited pro forma combined Condensed Statements of Operations for the nine-months ended June 30, 2001 and the year ended September 30, 2000.
EX-99.A 3 d92874a1ex99-a.txt FINANCIAL STATEMENTS OF BUSINESS ACQUIRED EXHIBIT 99a FINANCIAL STATEMENTS Wood Oil Company Years ended July 31, 2001 and 2000 Report of Independent Auditors The Board of Directors Wood Oil Company We have audited the accompanying balance sheets of Wood Oil Company (the Company) as of July 31, 2001 and 2000, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended July 31, 2001. 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 auditing standards generally accepted in the United States. 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 financial position of Wood Oil Company at July 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2001 in conformity with accounting principles generally accepted in the United States. Ernst & Young, L.L.P. Oklahoma City, Oklahoma October 4, 2001 Wood Oil Company Balance Sheets
JULY 31 2001 2000 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 4,677,904 $ 204,983 Oil and gas sales receivable 1,075,088 1,057,439 Notes and accounts receivable from officers and stockholders 6,844 6,475 ------------ ------------ Total current assets 5,759,836 1,268,897 Notes and accounts receivable from officers and stockholders due after one year 261,585 250,268 Investments in partnerships 1,021,719 1,472,619 Property and equipment at cost, based on successful efforts accounting: Producing oil and gas properties 14,600,676 12,442,108 Nonproducing oil and gas properties 2,539,633 2,519,709 Land, buildings, and other 1,114,844 1,053,660 ------------ ------------ 18,255,153 16,015,477 Less accumulated depreciation, depletion, and amortization (11,038,928) (10,408,940) ------------ ------------ Net properties and equipment 7,216,225 5,606,537 Other assets 113,175 113,163 ------------ ------------ Total assets $ 14,372,540 $ 8,711,484 ============ ============
2
JULY 31 2001 2000 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 266,885 $ 155,955 Income taxes payable 169,816 15,736 Deferred income taxes 755,000 -- Notes payable due within one year -- 611,474 ------------ ------------ Total current liabilities 1,191,701 783,165 Notes payable due after one year -- 635,255 Deferred income taxes 960,000 425,000 Stockholders' equity: Common stock, $1 par value; 2,000,000 authorized shares; 615,701 shares issued and outstanding 615,701 615,701 Retained earnings 11,605,138 6,252,363 ------------ ------------ Total stockholders' equity 12,220,839 6,868,064 ------------ ------------ Total liabilities and stockholders' equity $ 14,372,540 $ 8,711,484 ============ ============
See accompanying notes. 3 Wood Oil Company Statements of Operations
YEARS ENDED JULY 31 2001 2000 1999 ------------ ------------ ------------ Revenues: Oil and gas sales $ 9,519,924 $ 5,253,689 $ 3,135,940 Equity interest in earnings (loss) of partnerships 639,803 194,899 (87,940) Gain on sale of assets, net (Note 5) 1,600,383 61,531 119,594 Other 149,383 77,641 101,663 ------------ ------------ ------------ 11,909,493 5,587,760 3,269,257 Expenses: Lease operating expenses and production taxes 1,793,235 1,239,292 1,059,556 Exploration costs 455,768 273,753 708,658 General and administrative 1,219,002 1,021,467 1,285,834 Depreciation, depletion, amortization, and impairment 1,263,663 756,824 1,142,221 Interest 45,340 163,390 128,147 ------------ ------------ ------------ 4,777,008 3,454,726 4,324,416 ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes 7,132,485 2,133,034 (1,055,159) Provision (benefit) for income taxes 1,595,000 567,000 (388,000) ------------ ------------ ------------ Net income (loss) $ 5,537,485 $ 1,566,034 $ (667,159) ============ ============ ============
See accompanying notes. 4 Wood Oil Company Statements of Stockholders' Equity
COMMON STOCK ----------------------------- RETAINED SHARES AMOUNT EARNINGS TOTAL ------------ ------------ ------------ ------------ Balance at July 31, 1998 615,701 $ 615,701 $ 5,384,273 $ 5,999,974 Net loss -- -- (667,159) (667,159) Cash dividends ($.05 per share) -- -- (30,785) (30,785) ------------ ------------ ------------ ------------ Balance at July 31, 1999 615,701 615,701 4,686,329 5,302,030 Net income -- -- 1,566,034 1,566,034 ------------ ------------ ------------ ------------ Balance at July 31, 2000 615,701 615,701 6,252,363 6,868,064 Net income -- -- 5,537,485 5,537,485 Cash dividends ($.30 per share) -- -- (184,710) (184,710) ------------ ------------ ------------ ------------ Balance at July 31, 2001 615,701 $ 615,701 $ 11,605,138 $ 12,220,839 ============ ============ ============ ============
See accompanying notes. 5 Wood Oil Company Statements of Cash Flows
YEAR ENDED JULY 31 2001 2000 1999 ------------ ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ 5,537,485 $ 1,566,034 $ (667,159) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Equity interest in (income) loss of partnerships (639,803) (194,899) 87,940 Deferred income taxes 1,290,000 500,000 (276,000) Exploration costs 455,768 273,753 708,658 Depreciation, depletion, amortization, and impairment 1,263,663 756,824 1,142,221 Gain on sale of assets (1,600,383) (61,531) (119,594) Cash provided by (used in) changes in assets and liabilities: Oil and gas sales receivable (17,649) (578,533) (49,036) Accounts payable 110,930 104,646 (132,459) Income taxes payable 154,080 179,390 (110,889) ------------ ------------ ------------ Net cash provided by operating activities 6,554,091 2,545,684 583,682 INVESTING ACTIVITIES Proceeds from sale of oil and gas properties 441,317 106,700 695,495 Proceeds from sale and liquidation of partnerships 1,969,162 -- -- Capital expenditures, including dry hole costs (3,369,063) (2,348,312) (2,007,514) Investment in partnerships (300,000) -- -- Proceeds from distributions from partnerships 620,551 390,684 183,110 Collections on notes receivable from officers and stockholders 2,314 1,513 2,555 Advances on notes receivable from officers and stockholders (14,000) (14,000) (14,000) Purchases of other assets (12) (749) (26) ------------ ------------ ------------ Net cash used in investing activities (649,731) (1,864,164) (1,140,380)
6 Wood Oil Company Statements of Cash Flows (continued)
YEAR ENDED JULY 31 2001 2000 1999 ------------ ------------ ------------ FINANCING ACTIVITIES Proceeds from borrowings on long-term debt $ -- $ 466,662 $ 920,000 Principal payments on long-term debt (1,246,729) (1,057,131) (305,142) Payment of dividends (184,710) -- (30,785) ------------ ------------ ------------ Net cash used in financing activities (1,431,439) (590,469) 584,073 ------------ ------------ ------------ Net increase in cash and cash equivalents 4,472,921 91,051 27,375 Cash and cash equivalents at beginning of year 204,983 113,932 86,557 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 4,677,904 $ 204,983 $ 113,932 ============ ============ ============ Supplemental disclosure of cash flow information: Interest $ 45,340 $ 163,390 $ 127,994 Income taxes, net of refunds 151,010 -- --
See accompanying notes. 7 Wood Oil Company Notes to Financial Statements July 31, 2001 and 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Wood Oil Company (the Company) operates primarily in the upstream segment of the oil and gas industry with activities including the ownership of non-operating working interest and royalty interests in oil and gas properties. The majority of the Company's operations are concentrated in Oklahoma and Texas. CASH AND CASH EQUIVALENTS All highly liquid short-term instruments purchased with original maturities of three months or less when purchased by the Company are considered to be cash equivalents. INVESTMENT IN PARTNERSHIPS The Company's interest in oil and gas partnerships is accounted for under the equity method. Investments in non-oil and gas partnerships where the Company does not exercise significant influence are accounted for under the cost method. OIL AND GAS PROPERTIES The Company follows the successful efforts method of accounting for oil and gas producing activities. Intangible drilling and other costs of successful wells and development dry holes are capitalized and amortized. The costs of exploratory wells are initially capitalized, but charged against income if and when the well is determined to be nonproductive. Oil and gas mineral and leasehold costs are capitalized when incurred. DEPRECIATION, DEPLETION, AMORTIZATION, AND IMPAIRMENT Depreciation, depletion, and amortization of the costs of producing oil and gas properties are generally computed using the units of production method primarily on a separate-property basis using proved reserves as estimated annually by an independent petroleum engineer. Depreciation of non-oil and gas property is generally computed on a straight-line method over the estimated useful lives of the assets, not exceeding 22.5 years. 8 Wood Oil Company Notes to Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company has significant royalty interests in wells for which the Company does not share in the costs associated with the wells. Estimated costs of future dismantlement, restoration, and abandonment of wells in which the Company owns a working interest are not expected to differ significantly from the estimated salvage value of equipment from such wells and, accordingly, no accrual of such costs is included in the accompanying financial statements. Non-producing oil and gas properties include non-producing minerals and leasehold costs. Non-producing minerals consist of perpetual ownership of mineral interests in several states, including Oklahoma and Texas. Impairment of non-producing minerals is recognized based on experience and management judgment. Non-producing leasehold consists of costs to acquire oil and gas leases. Impairment of non-producing leasehold costs is assessed on a property-by-property basis. For the years ended July 31, 2001, 2000, and 1999, impairment of $403,130, $166,760, and $323,880, respectively, was incurred on the Company's non-producing oil and gas properties and is included in depreciation, depletion, amortization, and impairment expense. The Company follows Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires that long-lived assets be reviewed for impairment. Impairment is to be assessed at the lowest level for which there are identifiable cash flows for the Company's asset base and any impairment is to be measured based on the fair value of the assets. The Company assesses impairment of its producing oil and gas properties using undiscounted future net revenues on a field-by-field approach and, when impairment exists, estimates fair value using a discounted future cash flow approach. No impairment of producing oil and gas properties was required for the years ending July 31, 2001, 2000, and 1999. OIL AND GAS SALES AND GAS IMBALANCES The Company sells oil and natural gas to various customers, recognizing revenues as produced oil and gas is sold. Oil and gas sales are generally unsecured. The Company has not experienced significant credit losses in prior years and is not aware of any significant uncollectible accounts at July 31, 2001. The Company follows the sales method of accounting for natural gas production imbalances. Under this method, a receivable or 9 Wood Oil Company Notes to Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) liability is recorded to the extent than an under-produced or overproduced position in a reservoir cannot be recouped through the production of remaining reserves. At July 31, 2001 and 2000, the Company had no material gas imbalances. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. EARNINGS PER COMMON SHARE Basic earnings per share is calculated using income available to common shareowners divided by the weighted average number of common shares outstanding during the year. As the Company had no potential common shares in any of the periods presented, diluted earnings per share and basic earnings per share are the same. FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and variable rate long-term debt approximate their fair values. The fair value of the Company's fixed rate notes receivable and fixed rate long-term debt is believed to approximate the carrying amount due to the insignificant difference in fixed rates of such instruments from those existing at July 31, 2001 and 2000. 10 Wood Oil Company Notes to Financial Statements (continued) 2. NOTES PAYABLE Notes payable consist of the following:
2001 2000 ------------ ------------ Unsecured revolving line of credit, interest payable monthly at Chase prime (9.5% at July 31, 2000) $ -- $ 494,694 Unsecured 7.5% note payable to former stockholder, payable in monthly installments of $9,924, including interest, due May 10, 2003 -- 295,082 Mortgage note payable bearing interest at Chase Prime (9.5% at July 31, 2000), payable in monthly installments of $4,960, including interest with final payment due on November 18, 2004, secured by real property -- 456,953 ------------ ------------ Total notes payable -- 1,246,729 Less current installments of notes payable -- (611,474) ------------ ------------ Notes payable due after one year $ -- $ 635,255 ============ ============
3. INCOME TAXES The Company's provision (benefit) for income taxes is detailed as follows:
2001 2000 1999 ---------- ---------- ---------- Current Federal $ 300,000 $ 66,000 $ (113,000) State 5,000 1,000 1,000 ---------- ---------- ---------- 305,000 67,000 (112,000) Deferred Federal 1,168,000 452,000 (255,000) State 122,000 48,000 (21,000) ---------- ---------- ---------- 1,290,000 500,000 (276,000) ---------- ---------- ---------- $1,595,000 $ 567,000 $ (388,000) ========== ========== ==========
11 Wood Oil Company Notes to Financial Statements (continued) 3. INCOME TAXES (CONTINUED) The difference between the provision for income taxes and the amount which would result from the application of the federal statutory rate of 34% to income before provision for income taxes is analyzed below:
2001 2000 1999 ------------ ------------ ------------ Provision (benefit) for income taxes at statutory rate $ 2,425,000 $ 725,000 $ (359,000) Percentage depletion (884,000) (195,000) -- Tight-sands gas credits (79,000) (6,000) -- State income taxes, net of federal benefit 76,000 32,000 (20,000) Other 57,000 11,000 (9,000) ------------ ------------ ------------ $ 1,595,000 $ 567,000 $ (388,000) ============ ============ ============
Deferred tax assets and liabilities, resulting from differences between the financial statement carrying amounts and the tax bases of assets and liabilities, consist of the following:
2001 2000 ------------ ------------ Deferred tax liabilities: Intangible drilling costs capitalized for financial purposes and expensed for tax $ 1,001,000 $ 442,000 Gain on sale of partnership interests 659,000 -- Other 55,000 114,000 ------------ ------------ 1,715,000 556,000 Deferred tax assets: Alternative minimum tax credit carryforwards -- 131,000 ------------ ------------ Net deferred tax liabilities $ 1,715,000 $ 425,000 ============ ============
At July 31, 2001, the Company has a carryforward of percentage depletion in excess of the statutory limitations of approximately $3.7 million which may be used to reduce future taxable income to the extent percentage depletion in the future does not exceed such limitations. 12 Wood Oil Company Notes to Financial Statements (continued) 4. COMMITMENTS AND CONTINGENCIES On July 1, 1998, a stockholder of the Company filed a petition against the Company and another stockholder of the Company making a number of allegations and seeking the invalidity of a shareholder's agreement and damages. In connection with the sale of the Company's stock on October 1, 2001, as discussed in Note 6, the lawsuit was dismissed. On January 31, 2001, the Company implemented the Change in Control Severance Pay Plan of the Company that provides for the payment of severance benefits totaling approximately $1.8 million upon a change in control, as defined. 5. GAIN ON SALE OF ASSETS In May 2001, the Company received $1,969,162 in proceeds from two partnerships, in which the Company owned an interest, that sold the underlying oil and gas properties to a third party and liquidated the partnerships. The Company recognized a gain on the sale of these two partnerships in 2001 of $1,443,145. The Company's equity interest in the earnings of these two partnerships aggregated $343,983 and $63,668 in 2001 and 2000, respectively. Also in July 2001, the Company recognized a loss of $244,135 on the sale of another partnership interest to a stockholder. 6. SUBSEQUENT EVENT On October 1, 2001, in connection with an Agreement and Plan of Merger among Panhandle Royalty Company (Panhandle), PHC, Inc., and the Company, dated August 9, 2001, all of the common stock of the Company was sold to Panhandle. Immediately prior to the closing of the merger with Panhandle, the Company made payments totaling $1,647,500 (Panhandle also assumed a liability of $125,500) as required under The Change in Control Severance Plan of the Company (see Note 4) and the outstanding balances at July 31, 2001 under the notes receivable and accounts receivable from officers and stockholders of $268,429 were collected. 13 Wood Oil Company Notes to Financial Statements (continued) 7. INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES All oil and gas producing activities of the Company are conducted within the United States (principally Oklahoma and Texas) and represent substantially all of the business activities of the Company. The Company has interests in a field of properties, the production on which was sold to one purchaser, which accounted for approximately 24% of the Company's gas revenues in fiscal 2001. The operator of the wells in this field has entered into contracts to sell and deliver a substantial quantity of the gas volumes produced from this field at a weighted average minimum price of $4.57 and a weighted average maximum price of $5.84 per MMbtu. The contracts relate to volumes produced from April 1, 2001 through September 30, 2001. AGGREGATE CAPITALIZED COSTS The aggregate amount of capitalized costs of oil and gas properties and related accumulated depreciation, depletion, and amortization for July 31 is as follows:
2001 2000 ------------ ------------ Producing properties $ 14,600,676 $ 12,442,108 Non-producing properties 2,539,633 2,519,709 ------------ ------------ 17,140,309 14,961,817 Accumulated depreciation, depletion, and amortization 10,791,801 10,172,158 ------------ ------------ Net capitalized costs $ 6,348,508 $ 4,789,659 ============ ============
COSTS INCURRED During the reporting period, the Company incurred the following costs in oil and gas producing activities:
2001 2000 --------------- --------------- Property acquisition costs $ 100,000 $ -- Exploration costs 753,081 421,770 Development costs 2,405,797 1,222,343 --------------- --------------- $ 3,258,878 $ 1,644,113 =============== ===============
14 Wood Oil Company Notes to Financial Statements (continued) 8. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) The following unaudited information regarding the Company's oil and natural gas reserves is presented pursuant to the disclosure requirements promulgated by the Securities and Exchange Commission (SEC) and SFAS No. 69, Disclosures About Oil and Gas Producing Activities. Proved reserves are estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Because the Company's non-producing mineral and leasehold interests consist of various small interests in numerous tracts located primarily in Oklahoma, and Texas, it is not economically feasible for the Company to provide estimates of all proved undeveloped reserves. The Company's net proved oil and gas reserves as of July 31, 2001 and 2000, have been estimated by independent petroleum engineering firms as of October 1, 2001, August 1, 2001, and August 1, 2000, using economic and operating conditions existing at July 31 of each respective year. These estimates were adjusted, as necessary, for production, revisions, extensions, and discoveries to arrive at the information presented as of and for the years ended July 31, 2001 and 2000. All studies have been prepared in accordance with regulations prescribed by the Securities and Exchange Commission. Since the determination and valuation of proved reserves is a function of testing and estimation, the reserves presented should be expected to change as future information becomes available. 15 Wood Oil Company Notes to Financial Statements (continued) 8. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED) ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES The following table presents the Company's net proved (including certain undeveloped reserves described above) oil and gas reserve quantities as of July 31, 2001 and 2000, and the changes in reserves for the years then ended based on the reserve quantity estimates of the independent petroleum engineering studies discussed above:
PROVED RESERVES --------------------- OIL GAS (Mbarrels) (Mmcf) ---------- -------- July 31, 1998 216 6,698 Production (59) (1,467) ---------- -------- July 31, 1999 157 5,231 Revisions of previous estimates (22) 301 Extensions and discoveries 80 558 Production (57) (1,451) ---------- -------- July 31, 2000 158 4,639 Revisions of previous estimates (1) 366 7,205 Extensions and discoveries 24 296 Production (62) (1,767) ---------- -------- July 31, 2001 486 10,373 ========== ========
(1) Includes significant upward revisions on the Potato Hills and other fields as a result of additional production history and new reserves assigned to previously producing wells not previously engineered. 16 Wood Oil Company Notes to Financial Statements (continued) 8. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED)
PROVED DEVELOPED RESERVES PROVED UNDEVELOPED RESERVES -------------------------- --------------------------- OIL GAS OIL GAS (Mbarrels) (Mmcf) (barrels) (mcf) ---------- -------- --------- ------- July 31, 1999 157 5,231 -- -- ========== ======== ========= ======= July 31, 2000 158 4,639 -- -- ========== ======== ========= ======= July 31, 2001 388 9,315 98 1,058 ========== ======== ========= =======
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS Estimates of future cash flows from proved oil and gas reserves, based on current prices and costs for year-end July 31, are shown in the following table. Estimated income taxes are calculated by (i) applying the appropriate year-end tax rates to the estimated future pretax net cash flows less depreciation of the tax basis of properties and statutory depletion allowances and (ii) reducing the amount in (i) for estimated tax credits to be realized in the future for gas produced from "tight-sands."
2001 2000 1999 ------------ ------------ ------------ Future cash inflows $ 49,691 $ 15,512 $ 13,459 Future production costs 14,869 5,753 5,762 Future development costs 597 25 (55) ------------ ------------ ------------ Future net cash inflows before future income tax expenses 34,225 9,734 7,752 Future income tax expense 8,941 2,205 1,719 ------------ ------------ ------------ Future net cash flows 25,284 7,529 6,033 10% annual discount 8,628 1,884 2,635 ------------ ------------ ------------ Standardized measure of discounted future net cash flows $ 16,656 $ 5,645 $ 3,398 ============ ============ ============
17 Wood Oil Company Notes to Financial Statements (continued) 8. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED) Changes in the standardized measure of discounted future net cash flows are as follows:
2001 2000 1999 ---------- ---------- ---------- Beginning of year $ 5,645 $ 3,398 $ 4,828 Changes resulting from: Sales of oil and gas, net of production costs (7,727) (4,014) (2,076) Net change in sales prices and production costs 6,229 3,082 (200) Net change in future development costs (424) (47) -- Extensions and discoveries 754 1,348 -- Revisions of quantity estimates 16,110 219 -- Accretion of discount 564 340 483 Net change in income taxes (4,154) (347) 361 Change in timing and other, net (341) 1,666 2 ---------- ---------- ---------- End of year $ 16,656 $ 5,645 $ 3,398 ========== ========== ==========
18 EX-99.B 4 d92874a1ex99-b.txt PRO FORMA FINANCIAL INFORMATION EXHIBIT 99b Unaudited Pro Forma Combined Condensed Financial Statements The accompanying unaudited pro forma combined condensed balance sheet as of June 30, 2001 gives effect to the Panhandle Royalty Company (Panhandle) merger of Wood Oil Company (Wood) as if it had occurred on June 30, 2001. The unaudited pro forma combined condensed statements of operations for the nine months ended June 30, 2001 and the year ended September 30, 2000 give effect to the merger of Wood as if the merger had occurred on October 1, 1999. Such unaudited pro forma financial information has been prepared based on estimates and assumptions deemed by Panhandle to be appropriate and is not necessarily indicative of the results of operation that might have occurred had the merger actually closed on October 1, 1999, or the actual financial position that might have resulted had the merger actually closed on June 30, 2001. The information is also not indicative of the future results of operation or financial position of Panhandle. The unaudited pro forma financial information should be read in conjunction with the historical financial statements of Panhandle and historical financial statements of Wood included herein. 1 Panhandle Royalty Company Unaudited Pro Forma Combined Condensed Balance Sheet June 30, 2001 (In Thousands)
HISTORICAL ---------------------- PRO FORMA PANHANDLE WOOD ADJUSTMENTS PRO FORMA --------- -------- ----------- --------- ASSETS Current assets: Cash and cash equivalents $ 755 $ 4,678 $ (2,976)(a) $ 2,457 Oil and gas sales receivables 1,874 1,075 -- 2,949 Assets held for sale -- -- 900(a) 900 Prepaid expenses and other 13 7 -- 20 --------- -------- ----------- --------- Total current assets 2,642 5,760 (2,076) 6,326 Property and equipment, at cost, based on successful efforts Producing oil and gas properties 33,234 14,601 196(a) 48,031 Nonproducing oil and gas properties 6,694 2,539 414(a) 9,647 Other 283 1,115 (1,069)(a) 329 --------- -------- ----------- --------- 40,211 18,255 (459) 58,007 Less accumulated depreciation, depletion and amortization 21,714 11,039 (11,039)(a) 21,714 --------- -------- ----------- --------- Net property and equipment 18,497 7,216 10,580 36,293 Goodwill -- -- 3,969(a) 3,969 Other assets, net 108 1,397 (35)(a) 1,470 --------- -------- ----------- --------- Total assets $ 21,247 $ 14,373 $ 12,438 $ 48,058 ========= ======== =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 829 $ 267 $ 315(a) $ 1,411 Accrued liabilities 600 170 -- 770 Deferred income taxes payable 23 755 -- 778 Long-term debt due within one year -- -- 4,000(b) 4,000 --------- -------- ----------- --------- Total current liabilities 1,452 1,192 4,315 6,959 Long-term debt -- -- 16,000(b) 16,000 Deferred income taxes 2,882 960 4,344(a) 8,186 Other 34 -- -- 34 STOCKHOLDERS' EQUITY Common stock 69 616 (616)(a) 69 Capital in excess of par value 606 -- -- 606 Retained earnings 16,204 11,605 (11,605)(a) 16,204 --------- -------- ----------- --------- 16,879 12,221 (12,221) 16,879 --------- -------- ----------- --------- Total stockholders' Equity $ 21,247 $ 14,373 $ 12,438 $ 48,058 ========= ======== =========== =========
See accompanying notes. 2 Panhandle Royalty Company Unaudited Pro Forma Condensed Combined Statement of Operations Nine Months Ended June 30, 2001 (In thousands, except per share data)
HISTORICAL ---------------------- PRO FORMA PANHANDLE WOOD ADJUSTMENTS PRO FORMA --------- -------- ----------- --------- REVENUES Oil and gas sales $ 10,185 $ 7,164 $ -- $ 17,349 Gain (loss) on sales -- 113 -- 113 Other income 149 592 -- 741 --------- -------- ----------- --------- 10,334 7,869 -- 18,203 EXPENSES Operating costs 1,357 1,230 -- 2,587 Exploration costs 515 342 -- 857 Depreciation, depletion, amortization and impairment 1,323 946 1,206(c) 3,475 General and administrative 1,484 914 (334)(d) 2,064 Interest 1 34 625(e) 660 --------- -------- ----------- --------- 4,680 3,466 1,497 9,643 --------- -------- ----------- --------- Income before provision for income taxes 5,654 4,403 (1,497) 8,560 Provision for income taxes 1,550 985 (374)(f) 2,161 --------- -------- ----------- --------- Net income $ 4,104 $ 3,418 $ (1,123) $ 6,399 ========= ======== =========== ========= Earnings per share: Basic $ 1.99 $ 3.11 ========= ========= Diluted $ 1.97 $ 3.07 ========= ========= Weighted average shares used in calculation: Basic 2,060 2,060 ========= ========= Diluted 2,083 2,083 ========= =========
See accompanying notes. 3 Panhandle Royalty Company Unaudited Pro Forma Condensed Combined Statement of Operations Year Ended September 30, 2000 (In thousands, except per share data)
HISTORICAL ---------------------- PRO FORMA PANHANDLE WOOD ADJUSTMENTS PRO FORMA --------- -------- ----------- --------- REVENUES Oil and gas sales $ 9,092 $ 5,254 $ -- $ 14,346 Other income 186 334 -- 520 --------- -------- ----------- --------- 9,278 5,588 -- 14,866 EXPENSES Operating costs 1,459 1,239 -- 2,698 Exploration costs 515 274 -- 789 Depreciation, depletion, amortization and impairment 2,052 757 1,668(c) 4,477 General and administrative 1,450 1,022 (445)(d) 2,027 Interest 16 163 1,035(e) 1,214 --------- -------- ----------- --------- 5,492 3,455 2,258 11,205 --------- -------- ----------- --------- Income before provision for income taxes 3,786 2,133 (2,258) 3,661 Provision for income taxes 925 567 (565)(f) 927 --------- -------- ----------- --------- Net income $ 2,861 $ 1,566 $ (1,693) $ 2,734 ========= ======== =========== ========= Earning per share: Basic $ 1.39 $ 1.33 ========= ========= Diluted $ 1.38 $ 1.32 ========= ========= Weighted average shares in calculation: Basic 2,055 2,055 ========= ========= Diluted 2,077 2,077 ========= =========
See accompanying notes. 4 Panhandle Royalty Company Notes to Unaudited Pro Forma Combined Condensed Financial Statements (In thousands) 1. BASIS OF PRESENTATION On October 1, 2001, Panhandle acquired privately held Wood of Tulsa, Oklahoma. The merger was made pursuant to an Agreement and Plan of Merger among Panhandle Royalty Company, PHC, Inc., and Wood Oil Company, dated August 9, 2001. Wood merged with Panhandle's wholly owned subsidiary PHC, Inc., on October 1, 2001, with Wood being the surviving Company. Prior to the merger, Wood was a privately held company engaged in oil and gas exploration and production and fee mineral ownership and owned interests in certain oil and gas and real estate partnerships and an office building in Tulsa. Wood will continue to operate as a subsidiary of Panhandle. Wood and its shareholders were unrelated parties to Panhandle. The preliminary adjusted purchase price (including deferred income taxes) was $28,223, which included working capital assumed of $4,196. Funding for the acquisition was obtained from BankFirst of Oklahoma City, Oklahoma in the form of a $20,000 five-year term loan. Three million of Wood's cash was used to reduce Panhandle's debt on the date of closing. The merger will be accounted for as a purchase, accordingly, Wood's financial results will be consolidated with Panhandle's beginning October 1, 2001. Under the purchase method, identifiable assets and liabilities of Wood will be recorded at their fair values. The remaining difference between the purchase price of Wood, including direct costs of the acquisitions, will be recorded as goodwill. Allocations included in the unaudited pro forma combined condensed financial statements are based on preliminary analysis. Accordingly, the final value of the purchase price and its allocation may differ, perhaps significantly, from the amount included in these pro forma financial statements. The preliminary allocation of the purchase price includes approximately $3.9 million of goodwill. In July 2001, the Financial Accounting Standards Board issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. As a result of these two recent pronouncements, goodwill recorded in connection with business combinations completed after June 30, 2001 (including the merger) will not be amortized but, instead, will be tested for impairment at least annually. Accordingly, the accompanying unaudited pro forma combined condensed statements of operations include no amortization of the goodwill recorded in the merger. Statement No. 142 will be adopted by Panhandle as of October 1, 2001. As indicated, the allocation of the purchase price presented is preliminary. Panhandle expects to finalize the purchase price allocation in early fiscal 2002. 5 Panhandle Royalty Company Notes to Unaudited Pro Forma Combined Condensed Financial Statements (continued) (In thousands) 2. PRO FORMA ENTRIES UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET - JUNE 30, 2001 The unaudited pro forma combined condensed balance sheet includes Panhandle's historical condensed consolidated balance sheet as of June 30, 2001 and Wood's historical condensed balance sheet as of July 31, 2001, giving effect to the merger as if it had occurred on June 30, 2001 and includes the following adjustments: (a) To adjust assets and liabilities under the purchase method of accounting based on the purchase price. Such purchase price has been allocated to the assets and liabilities of Wood based on preliminary estimates of fair values with the remainder recorded as goodwill. The preliminary purchase price has been determined as follows: Cash consideration to Wood shareholders $ 22,604 Estimated transaction costs 315 Deferred income taxes assumed 5,304 -------- $ 28,223 ========
The preliminary allocation of the purchase price included in the unaudited pro forma combined condensed balance sheet is summarized as follows (in thousands): Working capital assumed $ 4,196 Assets held for sale - land and building 900 Oil and gas properties - proved 14,427 Minerals: Producing 370 Nonproducing 2,953 Other property and equipment 46 Goodwill 3,969 Other assets 1,362 -------- $ 28,223 ========
(b) To reflect the $20 million term loan entered into with a bank to fund the acquisition. 6 Panhandle Royalty Company Notes to Unaudited Pro Forma Combined Condensed Financial Statements (continued) (In thousands) 2. PRO FORMA ENTRIES (CONTINUED) PRO FORMA STATEMENTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 2001 AND YEAR ENDED SEPTEMBER 30, 2000 The accompanying unaudited combined condensed pro forma statements of operations for the nine months ended June 30, 2001 and the year ended September 30, 2000 have been prepared as if the merger had occurred on October 1, 1999. The unaudited pro forma combined condensed statement of operations for the nine months ended June 30, 2001 includes the historical consolidated statement of operations of Panhandle for the nine months ended June 30, 2001, and the historical statement of operations of Wood for the nine months ended April 30, 2001. For the year ended September 30, 2000, the unaudited pro forma combined condensed statement of operations includes the historical consolidated statement of operations of Panhandle for the year ended September 30, 2000, and the historical statement of operations of Wood for the year ended July 31, 2000. These pro forma combined condensed statements of operations do not reflect approximately $1.8 million of severance due to certain officers and employees of Wood, paid immediately prior to the closing of the merger. Such statements include the following adjustments: (c) To record the estimated adjustment to depreciation, depletion and amortization expense attributable to the allocation of the purchase price using the successful efforts method of accounting. (d) To reflect reduced salaries and benefits resulting from the contractual termination of certain officers of Wood effective on closing. The unaudited pro forma combined condensed statements of operations do not give effect to Panhandle supplemental plan to reduce general and administrative expense that includes closing the Tulsa office. Prior to the Tulsa office closing, general and administrative expenses for Wood are expected to decrease to approximately $35 per month and following the anticipated closing of the Tulsa office, general and administrative expense is expected to be further reduced for Wood to $20 per month. 7 Panhandle Royalty Company Notes to Unaudited Pro Forma Combined Condensed Financial Statements (continued) (In thousands) 2. PRO FORMA ENTRIES (CONTINUED) (e) To reflect the net adjustment to interest expense for the incremental interest to be incurred attributable to the $20 million term loan obtained to fund the cash consideration at closing. The term loan provides for interest at prime less .25% (aggregate rate of 5.75% at closing). An increase or decrease of the interest rate of .125% would impact interest expense by approximately $35 annually. (f) To record income taxes on pro forma pretax net income at the average effective income tax rate of Panhandle and Wood of 25%. This rate is below the statutory rate due primarily to the availability of percentage depletion. CHANGES IN PRO FORMA ESTIMATED PROVED RESERVES The following table sets forth the combined changes in estimated proved reserves for the year ended September 30, 2000 for Panhandle and the year ended July 31, 2000 for Wood on a pro forma basis.
YEAR ENDED 2000 ------------------------- OIL GAS (MBbls) (Mmef) ----------- ---------- Proved reserves Beginning of year 878 18,346 Purchases of reserves in place 6 147 Extensions and discoveries 161 3,744 Revisions of previous estimates (103) 697 Production (124) (3,906) ----------- ---------- End of year 818 19,028 =========== ==========
8 Panhandle Royalty Company Notes to Unaudited Pro Forma Combined Condensed Financial Statements (continued) (In thousands) 2. PRO FORMA ENTRIES (CONTINUED) PRO FORMA STANDARDIZED MEASURE OF FUTURE NET CASH FLOWS The following table reflects the combined pro forma standardized measure of discounted future net cash flows of proved oil and gas reserves for PRC as of September 30, 2000, and Wood Oil as of July 31, 2000.
YEAR ENDED 2000 --------------------- (in thousands) Future cash inflows $ 94,181 Future production costs 18,062 Future development costs 1,298 Future net cash flows before future income tax expense 74,821 Future income taxes 20,538 ----------- 54,283 Discount at 10 percent per year 17,776 ----------- Standardized measure of discounted future net cash flows $ 36,507 ===========
The standardized measure information in the preceding table was derived from estimates of Panhandle's and Wood's proved oil and gas reserves contained in studies prepared by petroleum engineers. The standardized measure calculation, prepared pursuant to the provisions of Statement of Financial Accounting Standards No. 69, does not purport to represent the fair market value of the pro forma oil and gas reserves. The foregoing information is presented for comparative purposes as of the dates indicated and is not intended to reflect any changes in value which may result from future price fluctuations. CHANGES RELATING TO THE PRO FORMA STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS The principal changes in the combined pro forma standardized measure of discounted future net cash flows attributable to pro forma proved oil and gas reserves for Panhandle for the year ended September 30, 2000 for Wood for the year ended July 31, 2000 are as follows: 9 Panhandle Royalty Company Notes to Unaudited Pro Forma Combined Condensed Financial Statements (continued) (In thousands) 2. PRO FORMA ENTRIES (CONTINUED)
YEAR ENDED 2000 ---------------- (in thousands) Balance, beginning of year $ 23,470 Purchases of reserves-in-place 439 Extensions and discovers 10,343 Revisions of previous quantity estimates (25) Oil and gas sales, net of production costs (11,648) Net change in sales price and production costs 13,880 Net change in future development costs (111) Net change in income taxes (5,155) Accretion of discount 2,347 Changes in timing of production and other 2,967 --------- Balance, end of year $ 36,507 =========
10 -----END PRIVACY-ENHANCED MESSAGE-----