-----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, ObRBolHZVN+3SxXT3siEgbJkldwb7gxT5CzaDsfzf5SARzp1FZK+lFBA+QSD7MCn GlU6yDu0sC4i5MzlxOqsxA== 0001008878-98-000016.txt : 19980406 0001008878-98-000016.hdr.sgml : 19980406 ACCESSION NUMBER: 0001008878-98-000016 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980403 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOUNTAINS WEST EXPLORATION INC CENTRAL INDEX KEY: 0000319040 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 850280415 STATE OF INCORPORATION: NM FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-09500 FILM NUMBER: 98586896 BUSINESS ADDRESS: STREET 1: 616 CENTRAL AVE SE STE 230 CITY: ALBUQUERQUE STATE: NM ZIP: 87102 BUSINESS PHONE: 5052434949 10KSB 1 FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] the fiscal year ended December 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED For the transition period from _______________ to ____________ Commission File Number: 0-9500 MOUNTAINS WEST EXPLORATION, INC. (Name of small business issuer in its charter) New Mexico 85-0280415 (State or other jurisdiction of I.R.S. Employer incorporation or organization) identification no.) 616 Central, S.E., Suite 213, Albuquerque, New Mexico 87102 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: 505-243-4949 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: $0.001 Par Value Common Stock (Title of Class) Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $243,081 State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act). $2,450,359 (based on an ask market value of $0.09 per share on March 20, 1998) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: $0.001 par value common stock, its only class of equity securities, as of March 15, 1998 was: 38,019,270. PART I Item 1. Description of Business. The Company - ----------- Mountains West Exploration, Inc. (the "Company") was incorporated under the laws of the State of New Mexico on September 17, 1979. The Company, is an independent oil and gas company engaged in the acquisition, exploration and development of oil and gas leases and concessions located in Colorado and North Dakota. Recent and more important exploratory efforts have been centered in Australia, Papua New Guinea, Central America and South America. The Company is aggressively pursuing its major objective of increasing its oil and gas reserves and production. During the past several years, the Company has been establishing itself as a foreign exploration company. With most of the oil and gas industry concentrating in foreign countries, the Company is now in an excellent position to take advantage of the experience of its management and its foreign concession and license interests. For the past several years, as resources have permitted, the Company has been increasing its activities and oil and gas production is rising, but it has yet to obtain significant oil or gas income. Management's time and the limited Company resources have been used to maintain the properties held, to acquire additional properties and to participate to the extent possible in the development of its properties. (See Item 2. Properties). Domestic Exploration and Production - ----------------------------------- The Company owns small interests in seven oil and gas wells in the Denver-Julesburg basin in Eastern Colorado. These wells have been producing from the "J" and Codel sandstones and are believed by Company Management to have reached their economic limits. Small undeveloped reserves are behind the pipe in most of these wells and will be developed in the near future, but are no longer considered to have any value to the Company. The Company has approximately 2,312 net acres of mineral rights in South Central Colorado. Of those 2,312 acres, 1770 acres are located in the southwestern part of the Raton Basin. Consolidated Industrial Services Oil and Gas, Inc., a subsidiary of Infinity, Inc. , has now drilled and completed approximately 28 gas wells to the north and southwest of these interests. This is in addition to 4 wells drilled by Montana-Dakota to the south of the interests. Development of the Company's 1,770 acres was not accomplished during 1997 because of a reported 10th Circuit opinion that placed in question certain coal bed methane leases. As a result of that opinion, the lease of the properties that was reported last year was voided. The Court's opinion was subsequently clarified and development of this property will remain a priority during 1998. The Company does not presently have the resources to development these properties, therefore, a decision will be made whether the properties will be held until such time that the Company has the necessary resources for the development or whether the properties will be leased to others for development. Access to all domestic properties in which the Company owns any interest is readily available from state and county highways and roads on a year round basis. Foreign Exploration. - -------------------- Activities Related to Previously Reported Papua New Guinea Oil Interests - ------------------------------------------------------------------------ Petroleum Development License No. 3 - ----------------------------------- The Company's interest in the unitized fields discussed below, after the exercise by the government to acquire a 22-1/2% interest in the fields, is approximately .8718%. In 1984, the Company acquired Papua New Guinea Petroleum Prospecting Permit number PPL 56, which after several farmouts of interest became owned by the PPL 56 Joint Venture Group, that was formed to conduct exploration activities on the License. In 1991, a significant oil discovery was made on the License with the #1 S.E. Gobe well which production tested for 4,250 barrels of oil per day from the Jurassic Iagifu sandstone. Also in 1991, the #2 S.E. Gobe well was drilled approximately one mile to the Southeast of the #1 well and tested 8,907 barrels of oil per day, which was one of the biggest flows of oil ever recorded in Papua New Guinea. In 1992, the #3 S.E. Gobe well was drilled and competed for 6,300 barrels of oil and 22.1 million cubic feet of gas per day. These three wells established a gross vertical oil column in excess of 330 feet on the License. The area upon which these wells are located is known as the Southeast Gobe Oil Field. The Southeast Gobe Oil Field, upon which there are located 5 oil wells belonging to the Southeast Gobe Unit have now been unitized, and Chevron was elected as the operator for all projects related to the unitized field and Gobe Main Field. A road from the Chevron Group's pipeline road to the Southeast Gobe Filed production facilities has been completed to the extent deemed by Chevron to be necessary to permit access to the production and maintenance facilities. The entire producing area, including the Gobe Main Field, is over 12 miles long. The fields are located in mountainous country of the Papuan Fold Belt. Eight miles to the south, Chevron has established and is operating a pipe line through which it is presently transporting approximately 90,000 barrels of oil per day from its fields in the Kutubu area located several miles northwest of the Southeast Gobe and Gobe Main oil fields. Chevron began production from the Gobe Main Field in March of 1988 and production from the wells in the Southeast Gobe Field is predicted to begin in early April, 1998. At that time, for the first time, the Company's interests will produce income. However, until the debt associated with the cost of developing the Company's interest in the fields and production facilities has been repaid, the Company will not experience any cash flow that it might use for any other purpose. Activities Related to New Papua New Guinea Gas Interests - -------------------------------------------------------- After the area covered by the PDL #3 was determined during 1996, the original Petroleum exploration license (PPL 56) that PDL #3 had been part of expired, the Joint Venture refilled for the remaining acreage to be included in two new prospecting licenses. The southern part of PPL 56 was refilled as PPL 189. The northern part of PPL 56 was refilled as PPL 190. After a realignment of interests in the two new exploration licenses, the Company has a 5.051% interest in PPL 189 and a 3.763% interest in PPL 190. The increase in the Company's share of the new licenses greatly increased the Company's gas reserves in Papua New Guinea. PPL 189 contains the Barikewa gas field. A seismic program is currently evaluating this structure for drilling in the near future. A huge NW-SE surface structure, the Orie Anticline, was drilled several years ago but failed to encounter any sand development. The structure remains prospective to the west along the upper crest of the anticline (TABE prospect) and along the south western flanks of the high where large stratigraphic traps could exist. New studies indicate Tertiary reefs are present in the area which are known to produce to the east and southeast. PPL 190 has numerous anticlines located on it. The most important ones are as follows: 1. WASUMA STRUCTURE. This structure is located between the Masaka structure on the north and the Gobe structure on the south. A large part of the anticline lies in PPL 190. A seismic line was shot across the structure in 1997. Several interpretations have been made of the information from the seismic, which has confirmed that a structure exists. A wildcat drilling attempt is now planned to commence during the summer of 1998, with the Chevron group giving a cash contribution to the cost of the test drilling. 2. MASAKA STRUCTURE. This is a northwest southeast trending anticline parallel to and located about six miles north of the Gobe Structure. This feature is larger than the Gobe anticline. Chevron drilled the #1 Makasa well located on the structure as a possible discovery well. High pressures in two upper zones, as yet not known to produce, prevented this well from being completed as a commercial well. The structure extends over into PPL 190 trending eastward for several miles. The Company has a 3.763% interest in this feature. 3. TABE STRUCTURE . The Tabe prospect is located on the northwestern part of the Orie Anticline. The Orie structure is very large (30 miles long) and should have excellent reservoir conditions along the west and southwest portions of the anticline. The prospect is near the Southeast Gobe oil field and is very prospective for production. 4. ANESI STRUCTURE. The Anesi anticline was tested by the Beaver #1 well drilled during 1996. The well was a dry hole but encountered sufficient shows of oil and gas to indicate that the western one half of the structure which lies in PPL 190 is still very prospective. New discoveries such as the #1 Makasa and a new Chevron discovery, #1 Moran, are finding new reserves in quantities far exceeding those found to date in the existing fields. Prior to 1984, two discoveries of gas were made(the expired PPL 56 License), the Iehi gas field, which is now located on PPL 190 License and the Barikewa gas field, now located on PPL 189 License. Both fields are awaiting development as soon as a pipeline is available. Three separate groups of companies have announced that they are conducting feasibility studies for liquefied natural gas plants to be constructed in Papua New Guinea. The Company has been told that a feasibility study of a methanol plant is also being done. Chevron has announced its intention to lay a pipeline from Papua New Guinea to northern Australia with an anticipated completion date for the pipeline of 2001. The Iehi and Barikewa fields are primary targets for feedstock for any LNG and methanol plants that might eventually be constructed. Preliminary proven reserve calculations indicate that there are 163 to 450 billion cubic feet of gas for the Barikewa field and 23.5 to 88 billion cubic feet of gas for the Iehi field. Using the average of each field, the Company will own reserves of approximately 9 BCF in the two fields. Competitive Factors - ------------------- The petroleum industry is volatile and highly competitive. Earnings from oil and gas production are primarily dependent upon prices of crude oil and natural gas. The costs and prices of crude oil, natural gas and refined products have fluctuated substantially in recent years, often in a divergent fashion. Competition exists in every aspect of oil and gas operations, including the acquisition, exploration, discovery and development of new oil and gas reserves, as well as purchasing, gathering, transporting, refining and marketing of crude oil, natural gas and petroleum products. Many companies and individuals are engaged in the oil and gas business in both the U.S. and foreign markets. Many such companies are very large and well established with substantial capabilities and long earnings records. The Company has, and will continue, to encounter strong competition in acquiring oil and gas leases, licenses and concessions from these and other companies. In most instances the Company is not able to compete with these other more adequately capitalized companies in meeting price, exploration and bonding requirements established by the land owners or foreign governments. The Company has, however, had success in acquiring more adequately capitalized partners with whom it has joined to acquire properties and conduct operations thereon leading to the discovery of commercial quantities of oil and gas. The acquisition, exploration, development, production and sale of oil and gas interests are subject to many factors which are outside the Company's control. These factors include worldwide and United States economic conditions, oil import and export quotas, availability of drilling rigs and pipelines, weather conditions, supply and price of other fuels, and the regulation of production, transportation and marketing by both domestic and foreign governmental agencies. Foreign Governmental preferences for major international oil companies over small independent companies may also have an adverse effect on the Company's ability to compete with such major companies, even if it otherwise has the capital to do so. Environmental Regulations - ------------------------- On a worldwide basis, environmental laws and regulations vary greatly. In the United States compliance with State and Federal laws may require significant capital expenditure and will effect decisions regarding acquisition of certain properties, methods of production and distribution of the oil and gas and the Company's earning potential from any property. The managing partner of the PPL 56 Joint Venture has not informed the Partners in the Joint Venture of any environmental laws, rules or regulations established by Papua New Guinea that might be expected to have any unusual or adverse impact upon the operations of the Joint Venture or the production of oil and gas from its license interests. Governmental Regulations - ------------------------ 1. United States - ---------------- In the United States, the production of oil and gas is subject to regulation by the various state regulatory authorities. In general, these regulatory authorities are empowered to make and enforce regulations to prevent waste of oil and gas, and to fix allowable production rates for oil and gas within the limits of maximum rates of production and reasonable market demands for oil and gas. In addition, the Company will be required to comply with spacing and other conservation rules of the various states within which the Company owns oil and gas leases upon which exploration activities are conducted. Also, with respect to United States leases, the Company will be required to comply with requirements established for exploration and development by the United States Geological Survey and the Bureau of Land Management. Natural gas production and prices are regulated by the Federal Energy Regulatory Commission and are subject to the Natural Gas Policy Act. New natural gas, some onshore gas production and interstate gas were deregulated effective January 1, 1985. The Company will also be subjected to varying taxes that are or may be established on producers of oil and gas relating to prices received in excess of certain established norms. 2. Papua New Guinea - ------------------- The managing partners of the Joint Venture Groups have not informed the Partners in the Joint Venture of any production limits, pricing procedures or other laws, rules or regulations established by Papua New Guinea that might be expected to have any unusual or adverse impact upon the operations of the Joint Venture or the production of oil and gas from its concession. Personnel - --------- The Company has one full time employee, that being its President, Robert A. Doak, Jr. The Company has retained the services of outside parties for legal, accounting, drafting, geological, and lease acquisition services to the extent that it has been able to afford such expenses. Item 2. Description of Properties. Offices - ------- The Company rents its offices at 616 Central, N.W., Albuquerque, New Mexico 87102, under a month-to-month lease at a monthly rental of $546. The suite consists of approximately 728 sq. feet, which Management believes will be adequate for the Company's need for the foreseeable future. Approximately one half of the space is sub-let to another party for a monthly rent of $245. Productive Wells and Acreage - ---------------------------- The following table reflects the approximate total gross and net productive oil and gas wells and approximate total gross and net developed acreage at December 31, 1997: Productive Wells Oil Wells Gas Wells Gross (1) Net (2) Gross (1) Net (2) ------ ------ ------ ------ Colorado -- -- 3 .3125 PNG (Unit) 5 .044 -- -- ------ ------ ------ ------ Totals 5 .044 3 .3125 ====== ====== ====== ====== Developed Acreage Gross Net ------ ------ Colorado 240 30 PNG 2,000 50 ________ (1) Gross well or acres is a well or acre in which a working interest is owned. Not included are wells in Billings County, North Dakota, in which the Company holds overriding royalty interest aggregating less than one percent. (2) A net well or acre is deemed to exist when the sum or the fractional ownership working interests in gross wells or acres equal one. As a working interest holder, the Company, along with other working interest holders, pay 100% of production costs. Oil and Gas Properties - ---------------------- Capitalized costs related to the Company's oil and gas activities as of December 31, 1997 were as follows: Oil and Gas Properties $ 3,986,918 Mineral Interests 50,683 ----------- $ 4,037,601 =========== In 1984, the Company acquired a 2-1/2% interest in the Petroleum Prospecting License #56 in Papua, New Guinea. In 1991 and 1992, three wells were completed and shut in pending availability of gathering system, pipeline and processing facilities. In 1996, the license was reissued as one production license (PDL#3) and two new exploration licenses (PPL 189 and PPL 190). Also during 1996, the Government exercised its option to acquire a 22 % interest in PDL#3 and repaid certain of the Company's costs in that portion of the license. As a result of the election and the inclusion of the PDL in a unitized program with the Main Gobe Oil Field, the Company's interest in the fields became a net 0.8718%. The Company's share of costs in the Venture has been loaned to the Company by its partners, including interest at 8%, to be repaid from the proceeds of production. accordingly, the Company has recorded the liability to its partners and the related asset at December 31, 1997, in the amount of $3,889,971. 1997 Production - --------------- Avg. Sales Avg. Lifting Oil (Bbls) Price (Bbl) Costs (Bbl) ------ ----------- ----------- 122 $18.00 $6.30 Gas (MCF) Price (MCF) Costs (MCF) ------ ----------- ----------- 32,938 $ 1.01 $0.45 Drilling Activities - ------------------- Productive Dry ------------- ------------- Gross Net Gross Net ----- ----- ----- ----- Exploratory Wells: 1996 -- -- 1 .025 1997 -- -- -- -- ----- ----- ----- ----- Totals -- -- 1 .025 ===== ===== ===== ===== Development Wells: 1996 -- -- -- -- 1997 -- -- -- -- ----- ----- ----- ----- Totals -- -- -- -- ===== ===== ===== ===== Undeveloped Properties - ---------------------- (1) At December 31, 1997, the Company held approximately the following gross and net undeveloped oil and gas acreage: Leases Gross Acres Net Acres (1) ------ ----------- ------------- Colorado Mineral Interests 2,494 2,072 PNG PDL #3 23,000 437 PNG PPL 189 480,000 24,245 PNG PPL 190 460,000 17,309 PNG PPL 203 276,000 13,800 --------- ------ Totals 1,241,494 57,863 ========= ====== __________ Computed using the Company's net revenue interest. Net Acres include working interests and overriding royalty interests. Reserves - -------- The Company has not filed any reports containing oil or gas reserves estimates with any Federal or foreign government or authority or agency within the past 12 months. The Company has not prepared or had prepared for it any reserve reports related to the properties discussed herein except those that are included with this Report. Item 3. Legal Proceedings. Insofar as is known to the Company's management, there are no legal proceedings now pending, threatened, or contemplated, or unsatisfied judgments outstanding which have not been provided for in any court or agency to which the Company or any of its officers or directors, in such capacity, are or may be a party, except as discussed below. In 1987, the Company's former independent auditors, Arthur Andersen obtained a judgment against the Company for unpaid audit fees in the amount of approximately $6,000. This judgment remains outstanding at the date of this Report. Item 4. Submission of Matters to a Vote of Securities Holders. No matters were submitted to a vote of shareholders during the fourth quarter quarter of the Company's fiscal year. PART II Item 5. Market for Common Equity and Related Stockholder Matters. The Company's common stock is traded over-the-counter. Prior to November 1983, the Company's common stock was traded on the Bulletin Board system under the symbol MWEX. Since that time, the Company's common stock has been listed by the National Daily Quotation Bureau, Inc. in its Pink Sheets and the OTC Bulletin Board. The high and low bid prices during each quarter of 1996 and 1997 are as follows Bid Prices Bid Prices ---------- ---------- High Low High Low ---- --- ---- --- March 31, 1996 .07 .0625 March 31, 1997 .03 .02 June 30, 1996 .0625 .03125 June 30, 1997 .025 .025 September 30, 1996 .0625 .03125 September 30, 1997 .075 .025 December 31, 1996 .0625 .03 December 31, 1997 .10 .055 There were approximately 2,000 holders of the Company's common stock on March 15, 1998. The Company has never paid dividends on its common stock. Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Plan of Operations - ------------------ During the year ended December 31, 1997, oil and gas sales were $41,912, compared to $24,129 during the same period in the prior year. Increases in such revenues are expected to increase significantly upon production being established from PDL#3, which is expected to commence in April, 1998. All of the Company's revenue from that license will be devoted to repaying the Company's debts to its partners for its share of the costs of establishing the production, which at December 31, 1997, were approximately $3,889,871. Management anticipates that the Company's share of the production from this license initially will be approximately 200 barrels per day. As the development of the license continues, Management anticipates that the production from the license will increase as will the Company's share of the revenue from the production. At the time production commences from the property, the Company will be obligated to pay its share of all costs incurred on any license in which it holds an interest. The Company owns interests in the following licenses: a) The three oil wells in which the Company has an interest have been included in Petroleum Development License #3 (PDL#3). As stated earlier, these oil wells and certain other lands included within PDL#3 have been unitized with Chevron Oil Company's existing PDL to the north. The two new PDLs will be developed into the Southeast Gobe Oil and Main Gobe Fields. First production is scheduled for mid-April, 1998. The Company's interest in the unitized PDLs, after exercise by the government of its right to acquire a 22 1/2% interest in the fields, is a net 0.8718% interest which will result in the anticipated initial production discussed above. The Company's expenses in this unit is to be carried until production is sold. The costs of getting the oil from the unit to sale has been estimated at more than $175,000,000, none of which will be borne by the Company until after the first sale of production. After that time, all of the money realized from the sale of the oil will be devoted to repayment of the carried cost of the project, now estimated to be approximately $300,000,000, which, Management estimates at the production rate of 200 barrels per day at a price of $20 per barrel to the Company's interest will take approximately 36 months to pay out after production begins. Because of the recent depressed world price for oil, the payout may well be substantially longer than anticipated. b) PPL 189 contains approximately 480,000 acres (24,245 net acres to the Company's interest.) As a result of a reallocation of interests, the Company's interest in this License is 5.051%. This license has the Barikewa shut-in gas field located on it. The Barikewa field has gas reserves estimated from 163 billion cubic feet to as high as 1590 billion cubic feet. Further evaluation will be made to more precisely define the true reserves of this field. Plans to build at least one LNG plant near Port Moresby has been announced and Chevron has announced plans to build a gas pipeline from Papua New Guinea into Northern Australia. Either an LNG plant or the proposed pipeline should greatly increase the value of the gas reserves at Barikewa. The Company will have to fund most of the work program of this license which calls for an expenditure of approximately $6,250,000 over a period of six years, with approximately $56,000 of that amount to be paid during the current year. A seismic survey is currently being made of the Barikewa Structure. c) Belt PPL 190 contains approximately 460,000 acres (17,309 net to the Company's interest) has many very prospective surface structures located on it. It is anticipated that one of these structures will be drilled during the next year. A reallocation of interests has increased the Company's interest in this license to 3.763%. The Company must fund its share of a new seismic program which is estimated to cost approximately $1,000,000. The manager of the joint venture will issue cash calls to each partner, who will each then pay the amount of the stated cash call. The Iehi shut-in gas field lies on this license but the reserves are insignificant at this time. The Company will have to fund most of the work program of the license which calls for an expenditure of $13,500,000 over the next five years. Management estimates that the Company's cost in this new concession over the next year will be approximately $200,000. d) Petroleum Prospecting License No. 165, has been reissued as PPL 203. Oil Search Ltd., is the operator with an 85% ownership interest in the license. Gedd, Inc. owns 10% while the Company owns a 5% carried interest until a well is commenced on the property. A new work program of seismic and surface mapping is to commence during the current year. A part of the reorganization of the license, the Company will receive from Oil Search, Ltd., a payment of $177,500 as a refund form previous work done on the license. As stated, the Company faces cash calls on each of the licenses in which it has interests, while the bulk of its revenue will be devoted to paying debt incurred over the part two decades while production was being established on PDL#3. The Company must find the funds to meet the cash calls through the sale of stock, borrowings or sale of interests in its properties. No specific source of the required funds is known at the time of this report. The failure to meet the cash calls when made could result in the Company losing its interest in some or all of the licenses. The Company does not presently have the liquidity that may be necessary to meet any call for payment of expenses and the Company has no present assurance of the availability of any of the funds that may be needed at the time needed. The failure of the Company to meet any cash call made on it for its share of the expenses incurred on any concession could result it its losing its interest in the concession. Changes in Financial Condition - ------------------------------ The Company continues to experience a decline in cash. As a result of the election by the Papua New Guinea government to acquire a 22% interest in the Company's oil and gas reserves in Papua New Guinea declined from 711,000 bbl and 10,317,435 mcf in 1996 to 470,000 bbl and 9,096,130 in 1997. Total assets increased from $2,888,876 in 1996 to $4,384,484 in 1997. The Company's primary liability is a continually developing carried interest in certain New Guinea oil and gas rights which increased from $2,576,730 in 1996 to $3,889,871 in 1997. Total liabilities aside from this obligation are approximately $144,000. It is Management's belief that the Company will be able to continue to meet its financial commitments during the coming fiscal year. Item 7. Financial Statements. Independent Auditors' Report Board of Directors Mountains West Exploration, Inc. We have audited the accompanying balance sheet of Mountains West Exploration, Inc. (a New Mexico corporation) (MWEX) as of December 31, 1997, and the related statements of operations, stockholders' equity, and cash flows for the years ended December 31, 1997 and 1996. These financial statements are the responsibility of MWEX's management. Our responsibility is to express an opinion on these financial statements based on our audits. Except as discussed in the following paragraphs, we conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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. We were unable to obtain information pertaining to the discounted future net cash flows relating to MWEX's oil and gas properties as described in Note 3 to the financial statements; nor were we able to satisfy ourselves as to the carrying values of the oil and gas properties by other auditing procedures. We were also unable to determine MWEX's portion of revenues and expenses of the partnership investment described in Note 9; therefore, no revenues and expenses are recorded in the statement of operations for this investment for the year ended December 31, 1997, and the investment recorded on the balance sheet as of December 31, 1997 has not been adjusted for MWEX's portion of the revenues and expenses of the partnership for the year ended December 31, 1997. In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to examine the evidence regarding the discounted future net cash flows and carrying value of an oil and gas property and had the financial information necessary to determine MWEX's portion of the revenues and expenses of the partnership investment been available to properly record this investment, the financial statements referred to above present fairly, in all material respects, the financial position of Mountains West Exploration, Inc. as of December 31, 1997, and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting principles. Albuquerque, New Mexico March 19, 1998 Mountains West Exploration, Inc. Balance Sheet December 31, 1997 Assets Current assets Cash ................................................... $ 2,743 Accounts receivable (Note 3) ........................... 177,500 Due from officer (Note 4) .............................. 499 Deposit ................................................ 476 Accrued interest receivable (Note 4) ................... 10,424 ----------- Total current assets ........................... 191,642 ----------- Furniture and equipment Furniture and equipment, at cost ....................... 12,470 Less accumulated depreciation .......................... (10,492) ----------- Net furniture and equipment .................... 1,978 ----------- Oil and gas properties, using the successful efforts method (Note 3) ..................... 3,986,918 Less accumulated depreciation, depletion, amortization, and valuation allowance .................. (14,779) ----------- Net oil and gas properties ..................... 3,972,139 ----------- Other assets Term deposit account ................................... 53,042 Investment in partnership (Note 9) ..................... 15,000 Note receivable - officer (Note 4) ..................... 100,000 Mineral interests (Note 5) ............................. 50,683 ----------- Total other assets ............................. 218,725 ----------- Total assets ................................... $ 4,384,484 =========== Liabilities and Stockholders' Equity Current liabilities Accounts payable ....................................... $ 16,002 Accrued payroll and related taxes ...................... 42,856 Accrued liabilities (Note 3) ........................... 38,400 Notes payable - officer (Note 4) ....................... 8,231 Notes payable - related party (Note 4) ................. 3,200 Note payable (Note 11) ................................. 35,000 Due to affiliates (Note 6) ............................. 3,889,871 ----------- Total current liabilities ...................... 4,033,560 ----------- Commitments (Notes 3 and 11) Stockholders' equity (Note 7) Common stock of $.001 par value per share, authorized 50,000,000 shares; issued 38,103,770 shares; outstanding, 38,019,270 shares ................. 38,020 Capital in excess of par value ......................... 1,617,757 Accumulated deficit .................................... (1,304,853) ----------- Total stockholders' equity ..................... 350,924 ----------- Total liabilities and stockholders' equity ..... $ 4,384,484 =========== The accompanying notes are an integral part of these financial statements. Mountains West Exploration, Inc. Statements of Operations For Years Ended December 31, 1997 1996 Revenues Oil and gas sales .................................... $ 41,912 $ 24,129 Other operating income ............................... 219,713 -- (Loss) gain on disposition of interests in oil and gas properties (Note 3) ........... (18,544) 159,487 --------- --------- Total revenues ............................... 243,081 183,616 --------- --------- Expenses Production costs ..................................... 5,689 5,107 Exploration costs .................................... 38 121,809 Depreciation, depletion and valuation allowance ...... 1,319 3,991 Consulting ........................................... 1,343 753 General and administrative ........................... 150,363 142,776 --------- --------- Total expenses ............................... 158,752 274,436 --------- --------- Earnings (loss) from operations ...................... 84,329 (90,820) --------- --------- Other income (expense) Interest income ...................................... 6,490 8,783 Interest expense ..................................... (3,838) (14) --------- --------- Total other income ........................... 2,652 8,769 --------- --------- Net earnings (loss) .................................. $ 86,981 $ (82,051) ========= ========= Earnings (loss) per common share (Notes 2 and 12) Net earnings (loss) per common share ......... $ .002 $ (0.002) ========= ========= Earnings (loss) per common share - assuming full dilution (Notes 2 and 12) Net earnings (loss) per common share ......... $ .002 $ (0.002) ========= ========= The accompanying notes are an integral part of these financial statements. Mountains West Exploration, Inc. Statements of Stockholders' Equity For the Years Ended December 31, 1997 and 1996
Capital in Total Excess of Stock Accumulated Treasury Stockholders' Common Stock Par Value Warrants Deficit Stock Equity ------------------------- ----------- ---------- ----------- ---------- ----------- Shares Amount ----------- ---------- Balances, December 31, 1995 .. 36,586,220 $ 36,636 $ 1,562,538 $ 46,687 $(1,303,671) $ (3,480) $ 338,710 Retirement of common stock ... (20,000) (20) -- -- (2,020) -- (2,040) Retirement of treasury stock . -- (49) -- -- (3,431) 3,480 -- Common stock issued (Note 7) . 468,050 468 46,219 (46,687) -- -- -- Net loss for the year ended December 31, 1996 .... -- -- -- -- (82,051) -- (82,051) ----------- ---------- ----------- ---------- ----------- ---------- ----------- Balances, December 31, 1996 .. 37,034,270 37,035 1,608,757 -- (1,391,173) -- 254,619 Retirement of common stock ... (15,000) (15) -- -- (661) -- (676) Common stock issued .......... 1,000,000 1,000 9,000 -- -- -- 10,000 Net income for the year ended December 31, 1997 .... -- -- -- -- 86,981 -- 86,981 ----------- ---------- ----------- ---------- ----------- ---------- ----------- Balances, December 31, 1997 .. 38,019,270 $ 38,020 $ 1,617,757 $ -- $(1,304,853) $ -- $ 350,924 =========== ========== =========== ========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements. Mountains West Exploration, Inc. Statements of Cash Flows For the Years Ended December 31, 1997 1996 --------- --------- Cash flows from operating activities Cash received from oil and gas sales and operations . $ 70,230 $ 194,129 Cash paid to suppliers and employees ................ (115,815) (271,609) Interest received ................................... 2,490 6,658 Interest paid ....................................... (3,838) (14) --------- --------- Net cash used in operating activities ....... (46,933) (70,836) --------- --------- Cash flows from investing activities Purchase of partnership interest .................... -- (15,000) Proceeds from sales deposits ........................ 38,400 -- Purchases of furniture and equipment ................ -- (285) Purchases of oil and gas properties and mineral interests ....................... (39,349) (28,432) (Payments) proceeds on advances ..................... (27,107) 95,150 Purchases related to oil and gas venture ............ -- (71,910) --------- --------- Net cash used in investing activities ....... (28,056) (20,477) --------- --------- Cash flows from financing activities Proceeds from notes payable - officer ............... 11,234 16,900 Proceeds from notes payable - related party ......... 3,200 -- Proceeds from notes payable - bank .................. 35,000 -- Proceeds from sales of common stock ................. 10,000 -- Payments on notes payable - officer ................. (19,903) -- Repurchase of common stock .......................... (675) (2,040) --------- --------- Net cash provided by financing activities ... 38,856 14,860 --------- --------- Net decrease in cash ................................ (36,133) (76,453) Cash, beginning of year ............................. 38,876 115,329 --------- --------- Cash, end of year ................................... $ 2,743 $ 38,876 ========= ========= Reconciliation of net earnings (loss) to cash flows from operating activities Net earnings (loss) ................................. $ 86,981 $ (82,051) Adjustments Depreciation, depletion, amortization, and valuation allowance ............. 1,318 3,991 Adjustment to oil and gas sales ............. -- 10,513 Noncash loss on disposition of oil and gas property .................... 4,649 -- Increase in due to/from officer ............. (705) 206 Increase in accounts receivable ............. (177,500) -- Increase in deposits ........................ (476) -- Increase in accrued interest receivable ..... (4,000) (2,125) Increase (decrease) in accrued liabilities .. 42,800 (1,370) --------- --------- Net cash used in operating activities $ (46,933) $ (70,836) ========= ========= Noncash investing and financing activities MWEX was loaned $1,313,141 and $713,274 in 1997 and 1996, respectively, which was invested in its oil and gas properties in Papua, New Guinea (Note 3). During 1997, MWEX's asset and liability related to certain oil and gas properties in New Guinea were reduced due to the acquisition of an interest in these properties by the New Guinea government (Note 3). During 1996, 468,050 shares of common stock were issued to previous warrant holders who elected not to exercise their warrants (Note 7). The accompanying notes are an integral part of these financial statements. Mountains West Exploration, Inc. Notes to Financial Statements December 31, 1997 and 1996 1) Organization Mountains West Exploration, Inc. (MWEX) was organized for the purpose of acquiring interests in undeveloped oil and gas and mineral leases, reselling all or part of its interest in these leases to other companies in the oil and gas industry and engaging in other oil and gas activities. MWEX operates in the United States and in several foreign countries. 2) Summary of Significant Accounting Policies Furniture and Equipment ----------------------- Furniture and equipment are capitalized at acquisition cost and depreciated utilizing the straight-line method over its estimated useful life of five years. Maintenance, repairs and minor renewals are charged to operations as incurred. Major renewals and betterments which substantially extend the useful life of the property and equipment are capitalized. Oil and Gas Properties ---------------------- MWEX uses the successful efforts method of accounting for oil and gas producing activities. Costs to acquire interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed. Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are amortized based on MWEX's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the unit-of-production method. Income Recognition on Sale of Oil and Gas Leases ------------------------------------------------ Sales of interests in undeveloped oil and gas leases are accounted for utilizing the cost recovery method. Accordingly, for financial reporting purposes, gain on sales of interests in such leases is recognized only to the extent that total proceeds of the sale exceed MWEX's original cost in the leases. Gain is not recognized on sales in which a substantial obligation for future performance exists. Net Earnings (Loss) per Share of Common Stock --------------------------------------------- Financial Accounting Standard No. 128, Earnings per Share, was adopted by MWEX for the year ended December 31, 1997. This standard simplifies computation of earnings per share. Loss per share calculations for the year ended December 31, 1996 were recalculated for the application of this standard; however, the standard had no affect on the amounts previously reported. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. 3) Oil and Gas Properties Capitalized costs using the successful efforts method related to MWEX's oil and gas activities as of December 31, 1997, are as follows: Proved developed properties ................ $ 14,779 Proved shut-in property .................... 3,972,139 ----------- 3,986,918 Accumulated depreciation, depletion, and amortization, and valuation allowances .. (14,779) ----------- Net capitalized costs ...................... $ 3,972,139 =========== Costs incurred, whether capitalized or expensed, related to MWEX's oil and gas activities as of December 31, 1997, are as follows: Papua United New States Guinea Total ---------- ---------- ---------- Acquisition of properties Proved ................. $ 14,779 $ -- $ 14,779 Proved - shut-in ....... -- 3,972,139 3,972,139 ---------- ---------- ---------- Total ............... $ 14,779 $3,972,139 $3,986,918 ========== ========== ========== Exploration costs .......... $ -- $ 38 $ 38 ========== ========== ========== Development costs .......... $ 1,319 $ -- $ 1,319 ========== ========== ========== Until December 1996, MWEX owned a 2.5% interest in the Petroleum Prospecting License (PPL) #56 Joint Venture (the "Joint Venture") in Papua New Guinea. The Joint Venture owned three oil wells in the Southeast Gobe Field. The Gobe Main oil field and its wells are owned by the Chevron PPL#161 Group in which MWEX owns no interest. The Joint Operating Agreement between the PPL#56 Joint Venture owners provided that the owners would advance for MWEX's benefit all the costs associated with the operation of the Joint Venture until such time as oil or gas is produced and sold from the concession. This obligation accrued interest at eight percent (8%) per annum. The PPL#56 license expired in December 1996. Upon the expiration of the license, the Joint Venture petitioned the New Guinea government to issue new licenses to replace the old license. The New Guinea government issued three new licenses in February 1997, Petroleum Development License (PDL) #3, PPL#189, and PPL#190. The oil wells previously located on PPL#56 are now located on PDL#3 which has been unitized with other PDL's that include oil wells owned by the Chevron PPL#161 Group. The name of the new unit is the Southeast Gobe Unit (the "Unit"). All the previous owners in the Joint Venture continue to own interests in PDL#3 and will continue to advance MWEX's portion of the costs of operations which will accrue interest at 8%. During 1997, the New Guinea government exercised an option which allowed them to acquire a working interest in the Unit. This resulted in MWEX interest being reduced to .8718% in the Unit. With the exercise of this option, the government agreed to pay for their percentage of costs since inception, some of which had been paid by the PPL#56 Joint Venture. A further reduction due to an equalization payment by the Chevron PPL#161 Group resulted in a total reduction of costs of $744,010 of principal and $34,972 of interest. These reductions reduced MWEX's liability to the other owners, as well as the asset that has been capitalized by MWEX. The gas wells previously located on PPL#56, are now located on PPL#189 and PPL#190. One of the owners of the former PPL#56 elected not to continue its full interest in the new licenses, which resulted in MWEX's interests in the new licenses increasing from 2.5% to a 5.051% interest in PPL#189 and to a 3.763% interest in PPL#190. The other owners of the PPL#189 and PPL#190will continue to pay MWEX's 2.5% share of costs related to the new licenses, and MWEX will be required to pay for the costs related to the differences between their new ownership percentages and the 2.5% interest. During 1997 and 1996, interest in the amount of $177,173 and $134,213, respectively, has been capitalized, and is included in the total proved shut-in property category. If production is established on the property, MWEX will be required to pay for its share of costs to that date and also will be required to participate financially in any further drilling and development or risk the loss of its working interest in future wells. In April 1996, MWEX sold PPL#165 to Gedd, Inc., a related party (Note 4). At the time of execution of the sales agreement, MWEX had expended approximately $127,000 for application fees and costs related to the development of a two year work program related to PPL#165. Gedd, Inc. paid $170,000 for the license, resulting in a gain of $159,487 for MWEX, and agreed it would pay MWEX 25% of the total net revenue from any subsequent sale by Gedd, Inc. to a third party. In addition, the agreement provided MWEX would receive 25% of any interest retained by Gedd, Inc. in the license. The letter agreement of PPL#165 had been submitted to the New Guinea government for approval during 1996. This approval had not been obtained as of December 31, 1996. During 1997, Gedd, Inc. sold an interest in PPL#165 to Oil Search, Ltd. As a result of this sale, MWEX would be entitled to a 5% working interest. The other owners of the license would advance MWEX's benefit all the costs associated with the operation of the license until such time as the first exploration well is commenced. As of December 31, 1997, no costs had been advanced on MWEX's behalf. The sales agreement also resulted in MWEX being reimbursed by Oil Search, Ltd. For 75% of its work program ts related to PPL#165 since inception, up to a maximum of $200,000, and MWEX retaining ownership of the term deposit of $53,042. MWEX also agreed to pay Gedd, Inc. $22,500 for their aeromag costs related to PPL# 165 which will be taken directly from the $200,000 due from Oil Search, Ltd., resulting in a net amount of $177,500 which had been accrued as of December 31, 1997. PPL#165 was refiled with the New Guinea government as PPL#203. This license was approved in January 1998. As stated above, MWEX is obligated to pay cash calls on certain oil and gas properties. The failure of MWEX to meet the cash call obligations as they come due could result in MWEX losing its interests in the related licenses. MWEX also entered into an agreement in January 1997 to sell an 80% net revenue interest assignment of oil and gas leases located in Las Animas County, Colorado for a total of $60 per mineral acre, or $144,600. The agreement required the purchaser to drill or cause to be drilled one well each six months beginning no later than July 1, 1997. A total of 15 drilled wells would satisfy the purchaser's obligation. At the end of the purchaser's drilling obligation and at such time as the purchaser has recovered all costs of drilling and operation incurred, the purchaser would assign MWEX a one-eighth working interest in the lease, wells, and production equipment. This sale was the result of efforts of a third party whose commission would be paid from the sales proceeds. MWEX received $38,400 from the purchaser during 1997; however, due to unanticipated difficulties with the title which were subsequently resolved, the sale never occurred. MWEX has agreed to remit the $38,400 to the purchaser but had not done so as of December 31, 1997. This amount is recorded as an accrued liability as of December 31, 1997. MWEX also paid $13,895 in sales commissions during 1997 related to the sale which are recorded as a loss on disposition of oil and gas properties in the statement of operations. Information pertaining to the discounted future cash flows from MWEX's oil and gas properties was not available at December 31, 1997. Information pertaining to the discounted future cash flows from MWEX's oil and gas properties located only in Papua New Guinea was not available at December 31, 1996. 4) Related Party Transactions MWEX reimburses its president, Robert A. Doak, Jr., for various expenditures made on behalf of MWEX consisting mainly of travel expenses. In addition, as President of MWEX, Robert A Doak, Jr.'s salary was $96,000 and $78,000 during the years ended December 31, 1997 and 1996, respectively. Amounts due from and to the President of MWEX at December 31, 1997, are as follows: Note receivable due May 15, 1998, interest at 4% per annum, mortgage on real estate and 3,000,000 shares of Mountains West Exploration, Inc. common stock are pledged as collateral .................. $100,000 ======== Accrued interest - note receivable ............ $ 10,024 ======== Note payables on demand, interest at 13% to 17%,uncollateralized ................ $ 8,231 ======== Due from officer .............................. $ 499 ======== Robert A. Doak, Jr. owned 10,480,548 of MWEX's common stock at December 31, 1997 and 1996. These shares represent 28% of the total common stock shares outstanding at December 31, 1997 and 1996. The wife of Robert A. Doak, Jr., Frances Doak, owned 255,000 shares of these shares. Frances also loaned MWEX $3,200 during 1997, with interest at 6%. The President of Gedd, Inc. was on the Board of Directors of MWEX during the first six months of 1997 and all of 1996. During 1997 and 1996, MWEX had various transactions with Gedd, Inc. (Note 3). 5) Mineral Interests MWEX owns various mineral deeds of property in Las Animas County, Colorado. The property is subject to a previous deed which reserved to a prior owner any coal located on the property. 6) Due to Affiliates Amounts due to affiliates include the following at December 31, 1997: Due to owners of PPL#56 joint venture, interest 8% per annum, payable from future production ................. $3,889,871 ========== 7) Stock Warrants During 1991, MWEX sold 1,556,234 warrants to purchase its $.001 par value common stock for $.03 per share. Each warrant granted the owner the option to purchase one share of $.001 par value common stock for $.10 per share. During 1996, all the warrant holders elected not to exercise their warrants and received shares of common stock of MWEX equal to their option fee divided by $.10. A total of 468,050 shares of common stock were issued in 1996 to the previous warrant holders. 8) Income Taxes MWEX had approximately $1,234,000 and $1,323,700 of federal net operating loss carryforwards at December 31, 1997 and 1996, respectively. The federal net operating loss carryforwards on December 31, 1997, expire on various dates between 2000 and 2011. MWEX also had approximately $1,110,750 and $1,189,100 of state net operating loss carryforwards at December 31, 1997 and 1996, respectively. The state net operating loss carryforwards on December 31, 1997, expire on various dates between 1999 and 2011. Temporary differences under SFAS 109 result from differences in bases of assets and liabilities for book and tax purposes. For the year ended December 31, 1997, MWEX had a temporary difference in the amount of $854 related to the net basis of fixed assets due to different methods of depreciation. A reconciliation of differences between the effective tax rate of MWEX and the U.S. federal statuary rate for 1997 and 1996 is as follows: 1997 1996 ---- ---- Federal statutory rate ................. 21% 19% Use of net operating loss .............. (17)% (15)% State income tax benefit ............... (4)% (4)% ---- ---- -- -- ==== ==== MWEX's deferred tax assets and deferred tax liabilities as of December 31 are as follows: 1997 1996 ----------------------- ----------------------- Deferred Deferred Income Income Tax Asset Tax Asset Amount (Liability) Amount (Liability) ---------- ---------- ---------- ---------- Federal net operating loss carryforwards .. $1,233,962 $ 420,000 $1,323,652 $ 450,000 State net operating loss carryforwards .. 1,110,751 42,500 1,189,138 59,500 Accumulated depreciation ... 854 (400) 1,147 (500) ---------- ---------- 462,100 509,000 Deferred income tax asset valuation allowance ...... (462,100) (509,000) ---------- ---------- Net deferred income tax asset .......... $ -- $ -- ========== ========== 9) Investment in Partnership During 1996, MWEX obtained a .75% interest in the Urubamba Placer Mining Company (A Limited Partnership) for a cost of $15,000. This partnership was formed to mine and sell the minerals in the Urubamba and Yanatili rivers in Peru. The profits and losses of the partnership are to be shared in proportion to the ownership percentages of the partners. 10) Financial Instruments Statement of Financial Accounting Standards No. 107, Disclosures about the Fair Value of Financial Instruments, requires disclosure of fair value information of financial instruments. MWEX has a number of financial instruments, none of which are held for trading purposes. The following methods and assumptions were used to estimate the fair values of each class of financial instruments for which it is practicable to estimate the values: Cash - the carrying amount approximates fair value. Note receivable, accrued interest receivable, and notes payable - the carrying amount approximates fair value because of the short periods to maturities. Investment in partnership - carrying amount approximates fair value because the investment was purchased during the year ended December 31, 1996 and no significant changes occurred in the partnership during 1997 that would significantly change the fair value. It was not practicable to estimate the fair value of the Due to Affiliates liability in the amount of $3,889,871 at December 31, 1997. This liability is to be paid from production of the oil and gas property (Note 3). Because of the difficulty in estimating the amount, sales prices, and timing of future oil and gas production of this property, an estimate of the timing and amounts of payments of this liability cannot be reasonably determined. 11) Note Payable At December 31, 1997, MWEX had an outstanding note payable to a bank in the amount of $35,000. Monthly interest payments of 1% above the corporate base interest rate of the bank are due until the maturity date of the note, April 1, 1998. At December 31, 1997, the interest rate was 9.5%. Receivables, furniture, and equipment are pledged as collateral. 12) Earnings (Loss) Per Share The following presents the information used to calculate earnings (loss) per share for the years ended December 31: 1997 -------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount -------------------------------------- Earnings per share Income available to common stockholders $ 86,981 37,523,020 $ .002 ========= Earnings per share - assuming full dilution Income available to common stockholders $ 86,981 37,523,020 $ .002 ========= 1996 -------------------------------------- Loss Shares Per-Share (Numerator) (Denominator) Amount -------------------------------------- Loss per share Loss available to common stockholders $ (82,051) 36,683,233 $ (.002) ========= Loss per share - assuming full dilution Loss available to common stockholders $ (82,051) 36,683,233 $ (.002) ========= This net earnings (loss) per common share have been computed based on the weighted average number of shares outstanding during each year. Stock warrants were not included in the full dilution computation for 1996, as they were antidilutive. During 1996, warrant holders elected not to exercise their options (Note 7). No stock warrants were outstanding during 1997. 13) Concentrations A financial instrument that potentially subjects MWEX to credit risk at December 31, 1997 is the $177,500 receivable from Oil Search Ltd. (Note 3). This also accounts for 73% of total revenue for the year ended December 31, 1997. This receivable is uncollateralized. As stated in Note 3, a large portion MWEX's oil and gas properties are located in Papua New Guinea. Mountains West Exploration, Inc. Supplementary Information Oil and Gas Producing Activities at December 31, 1996 (Unaudited) Standardized measure of discounted future net cash flows and changes therein relating to proved oil and gas reserves United States -------- Future cash inflows .......................................... $ -- Future production and development costs ...................... (176) Future income tax expenses ................................... -- -------- Future net cash flows ........................................ (176) 10% annual discount for estimated timing of cash flows ....... -- -------- Standardized measure of discounted future net cash flows ..... $ (176) ======== Future net cash flows during the year ended December 31, 1996: Standardized measure, beginning of year ...................... $ 3,779 Sales and transfers of oil and gas produced, net of production costs .............................. (19,022) Net changes in prices and production costs ................... -- Extensions, discoveries, and improved recovery, less related costs ................................... -- Development costs incurred during the period ................. -- Revisions of previous quantity estimates ..................... 15,067 Accretion of discount ........................................ -- Net change in income taxes ................................... -- Other ........................................................ -- -------- Standardized measure, end of year ............................ $ (176) ========
Reserve quantity information 1997 ---------------------------------------------------------------------------------- United Papua States New Guinea Total -------------------------- ---------------------- -------------------------- Oil (bbl) Gas (Mcf) Oil (bbl) Gas (Mcf) Oil (bbl) Gas (Mcf) ----------- ----------- -------- ----------- ----------- ----------- Proved developed and undeveloped reserves Beginning of year ......................... -- 375,000 711,000 10,317,435 711,000 10,692,435 Purchases of minerals in place ............ -- -- -- -- -- -- Extensions and discoveries, shut-in ....... -- -- -- -- -- -- Production ................................ (122) (32,938) -- -- (122) (32,938) Revision of previous estimates ............ 122 (97,446) (241,000) (1,221,305) (240,878) (1,318,751) ----------- ----------- -------- ----------- ----------- ----------- End of year ............................... -- 244,616 470,000 9,096,130 470,000 9,340,746 =========== =========== ======== =========== =========== =========== Proved developed reserves Beginning of year ......................... -- -- -- -- -- -- =========== =========== ======== =========== =========== =========== End of year ............................... -- 244,616 -- -- -- 244,616 =========== =========== ======== =========== =========== ===========
1996 ---------------------------------------------------------------------------------- United Papua States New Guinea Total -------------------------- ---------------------- -------------------------- Oil (bbl) Gas (Mcf) Oil (bbl) Gas (Mcf) Oil (bbl) Gas (Mcf) ----------- ----------- -------- ----------- ----------- ----------- Proved developed and undeveloped reserves Beginning of year ......................... 459 392,735 711,000 5,862,500 711,459 6,255,235 Purchases of minerals in place ............ -- -- -- -- -- -- Extensions and discoveries, shut-in ....... -- -- -- -- -- -- Production ................................ (121) (22,994) -- -- (121) (22,994) Revision of previous estimates ............ (338) 5,259 -- 4,454,935 (338) 4,460,194 Sales of minerals in place ................ -- -- -- -- -- -- ----------- ----------- -------- ----------- ----------- ----------- End of year ............................... -- 375,000 711,000 10,317,435 711,000 10,692,435 =========== =========== ======== =========== =========== =========== Proved developed reserves Beginning of year ......................... 459 17,735 -- -- 459 17,735 =========== =========== ======== =========== =========== =========== End of year ............................... -- -- -- -- -- -- =========== =========== ======== =========== =========== ===========
The foregoing tables present MWEX's estimated proved oil and gas reserves as of December 31, 1997, and 1996. Reserve quantities of oil and gas are presented in barrels and thousands of cubic feet (Mcf), respectively. Reserve estimates are inherently imprecise and may not reflect realizable values or fair market values of the oil and gas ultimately extracted and recovered. Estimates of new discoveries are more imprecise than those of producing oil and gas properties and, accordingly, the estimates are expected to change as future information becomes available. The estimate of reserve quantities was prepared by independent petroleum engineers in accordance with rules adopted by the Securities and Exchange Commission. As used in the foregoing tabulation, proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. The proved reserves are further classified as developed and undeveloped. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. United States ---------------------- 1997 1996 ------- ------- Revenues Sales ......................................... $41,912 $24,129 ------- ------- Expenses Production costs .............................. 5,689 5,107 Depreciation, depletion, and valuation allowance ....................... -- 2,525 ------- ------- Total expenses ............................. 5,689 7,632 ------- ------- Results of operations from producing activities (excluding corporate overhead and interest costs) ........................ $36,223 $16,497 ======= ======= Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. No principal independent accountant resigned (or declined to stand for re-election) or was dismissed during the Company's two most recent fiscal years or any later interim period. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. The following individuals are the Company's directors and executive officers: Name Age Positions held with Company - ---- --- --------------------------- Robert A. Doak, Jr. 70 Director, President and Treasurer David G. Shier 57 Vice President, Secretary and Director Background information about each director and executive officer is as follows: Robert A. Doak, Jr., was an organizer of the Company and became a director of the Company at its organizational meeting in 1979. He has served as the President and a Director of the Company since 1979. Prior to becoming employed by the Company, Mr. Doak was self-employed as a consulting geologist in Trinidad, Colorado and Santa Fe, New Mexico from 1969 to 1979. David G. Shier, became a Company director and the Company's Vice President and Secretary in 1981 and has held those positions continuously since that time. Mr. Shier has been self-employed in real estate sales and real estate investments in Trinidad, Colorado from 1977 to present; executive Vice President of Trinidad National Bank from 1974 to 1977. No director, officer or beneficial owner of more than 10% of the Company's common stock, its only equity securities, or any other person subject to Section 16 of the Exchange Act failed to file reports required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. There are no family relationships among the members of the Board of Directors and Management. Item 10. Executive Compensation. The following table sets forth certain information concerning the remuneration paid by the Company for the fiscal year ended December 31, 1997. Number Other Capacities in of Persons Salaries and Insurance Forms of Which Served in Group Directors fees (1) Benefits Remuneration - ------------ -------- ----------------- -------- ------------ Directors 2 -0- -0- -0- Executive Officers 1 $96,000 (2) -0- -0- All Officers and Directors as a group 2 $96,000 (1)(2) -0- -0- _________ (1) Directors are to be paid $300 per meeting attended by such director. Other than the remuneration discussed above, the Company has no retirement, pension, profit sharing, stock option or similar program for the benefit of its officers, Directors or employees. (2) Effective July 1, 1997, the President's salary was established at $8,500 per month, to the extent of funds being available for such payment. Any payment of salary not made in any month is carried forward, without interest, to be paid from the first otherwise uncommitted and available funds. Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth, as of March 15, 1998, the beneficial ownership of Common Stock by each person who is known by the Company to own beneficially more than 5% of the issued and outstanding Common Stock and the shares of Common Stock owned by each nominee and all officers and Directors as a group. Each person has sole voting and investment power as to all shares unless otherwise indicated. Directors - --------- (2) (3) (1) Name and address Amount and nature (4) Title of of of Percent Class Beneficial owner Beneficial ownership of class ----- ---------------- -------------------- -------- $0.001 par value Robert A. Doak, Jr. 10,480,548 (1) 27.57% common stock 616 Central, S.E. direct Suite 213 Albuquerque, NM 87102 $0.001 par value David G. Shier 312,511 (2) 0.82% common stock 259 N. Commercial St. direct Trinidad, Colorado 81082 All Directors and officers as a group (1) (2) 10,892,262 28.39% ___________ (1) Includes 255,000 shares owned by Mr. Doak's wife. (2) Includes 1,000 shares owned by Mr. Shier's wife. Beneficial Owner - ---------------- (2) (3) (1) Name and address Amount and nature (4) Title of of of Percent Class Beneficial owner Beneficial ownership of class ----- ---------------- -------------------- -------- $0.001 par value GEDD, Inc. 5,590,800 14.71% common stock 1400 North Woodward Ave. direct Suite 270 Bloomfield Hills, Michigan(1) Item 12. Certain Relationships and Related Transactions. 1. Effective July 7, 1997, Mr. Doak's salary was increased from $6,500 to $8,500 per month, to the extent of funds being available for such payment. Any payment of salary not made in any month is to be carried forward, without interest, to be paid from the first funds otherwise uncommitted. 2. During 1997, Mr. Doak loaned $8,200 to the Company on a demand note bearing interest at 13.27% per annum and Mrs. Doak loaned the Company $3,200 on a demand not bearing interest at the rate of 6% per annum. Both notes remained unpaid at the end of the year. 3. PPL License 165 was sold to Oil Search, Ltd. and then refilled as PPL 203. Oil Search, Ltd. owns 85% of the license and is the operator of the license. Gedd, Inc. owns 10 % of the license and the Company owns 5% of the license. The new license was not issued until after the end of the fiscal year and the Company has not yet received its payment from the sale. It is anticipated that the Company will receive $177,500 before the end of March, 1998. 4. During 1996 certain person who were members of the management of Gedd, Inc., held options which they had acquired for a price of $0.03 per share. It was agreed between the Company and the option holders that if the options were not exercised the Company would issue each option holder shares of the Company's stock, valued at $0.10 per share, for the money paid by the holders for their options. The shares, totaling 468,050 shares, were issued to the option holders at the end of the fiscal year. Item 13. Exhibits and Reports on Form 8-K. (a) Documents filed as a part of this report: ----------------------------------------- (1) Financial Statements. Independent Auditors' report Balance Sheets at December 31, 1997 . Statements of Operations for the years ended December 31, 1997 and 1996. Statements of Stockholders' Equity for the years ended December 31, 1997 and 1996. Statements of Cash Flows for the years ended December 31, 1997 and 1996. Notes to Financial Statements at December 31, 1997 and 1996. Supplementary Information, Oil and Gas Producing Properties at December 31, 1997 and 1996. (b) Reports on Form 8-K: -------------------- The Registrant filed no reports on Form 8-K during the last quarter of the period covered by this report. c) Exhibits: --------- (1) The Registrant's Articles of Incorporation and Bylaws are incorporated herein by reference to SEC file No. 2-69024, filed September 2, 1980. (11) Statement re computation of per share earnings. See Note 2 to the financial statements. There are no other exhibits specified in Item 601 of Regulation S-B to be included with this filing. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MOUNTAINS WEST EXPLORATION, INC. Robert A. Doak, Jr. Date: March 31, 1998 - ----------------------------------------- Robert A. Doak, Jr., President and Chief Executive Officer and Chief Financial Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Robert A. Doak, Jr. Date: March 31, 1998 - ----------------------------- Robert A. Doak, Jr., Director David G. Shier Date: March 31, 1998 - ------------------------ David G. Shier, Director EX-27 2
5 YEAR DEC-31-1997 DEC-31-1997 2743 0 177500 0 0 191642 12470 10492 4384484 4033560 0 0 0 38020 312904 4384484 41912 243081 5689 5727 153025 0 3838 86981 0 86981 0 0 0 86981 .002 .002
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