-----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, LaL4pmFNE1hAmPSxgRMcX0nj8yO4bjVxH1LPFCx6AJcQkGexWN6TIsgR5UZNOUYH Prf0HYgc2p9LhCuewJ/eeQ== 0000899243-03-000831.txt : 20030407 0000899243-03-000831.hdr.sgml : 20030407 20030404174604 ACCESSION NUMBER: 0000899243-03-000831 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030407 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSION RESOURCES CORP CENTRAL INDEX KEY: 0000319459 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760437769 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-09498 FILM NUMBER: 03640569 BUSINESS ADDRESS: STREET 1: 1331 LAMAR STREET 2: SUITE 1455 CITY: HOUSTON STATE: TX ZIP: 77010 BUSINESS PHONE: 7134953000 MAIL ADDRESS: STREET 1: 1221 LAMAR STREET 2: STE 1600 CITY: HOUSTON STATE: TX ZIP: 77010-3039 FORMER COMPANY: FORMER CONFORMED NAME: BELLWETHER EXPLORATION CO DATE OF NAME CHANGE: 19920703 10-K/A 1 d10ka.txt ANNUAL REPORT ON FORM 10-K/A ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-9498 MISSION RESOURCES CORPORATION (Exact name of registrant as specified in its charter) Delaware 76-0437769 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1331 Lamar, Suite 1455, Houston, Texas 77010-3039 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 495-3000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value Series A Preferred Stock Purchase Rights Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [_] The aggregate market value of the voting stock held by non-affiliates of the registrant at June 28, 2002 was approximately $25,313,355. As of March 20, 2003, the number of outstanding shares of the registrant's common stock was 23,585,959. Documents Incorporated by Reference: Portions of the registrant's annual proxy statement, to be filed within 120 days after December 31, 2002, are incorporated by reference into Part III of this Form 10-K. ================================================================================ MISSION RESOURCES CORPORATION AND SUBSIDIARIES EXPLANATORY NOTE Mission Resources Corporation (the "Company") is filing this amendment to Item 8 of its Annual Report on Form 10-K for the fiscal year ended December 31, 2002, to correct the disclosure contained in Note 16 of the Consolidated Financial Statements regarding the Company's estimated total proved and proved developed reserves of oil and gas for the year ended December 31, 2002. This amendment does not affect the Company's historical results of operations, financial conditions or cash flows for any period presented. Other than this change to Note 16, there is no change to the Consolidated Financial Statements, the Notes to the Consolidated Financial Statements, the report of the independent auditors or the report of management. Nor does this amendment change the Company's previously filed Quarterly Interim Consolidated Financial Statements or the notes thereto. The prior disclosure regarding end of year proved developed reserves (in the last line in the table presenting such disclosure) did not include in such disclosure data regarding end of year proved developed non-producing reserves for oil, NGL and gas, respectively. The corrected disclosure regarding end of year proved developed reserves is shown below and in Note 16 of the Consolidated Financial Statements (in the last line item in the tables presenting such corrected disclosure).
Year Ended December 31, 2002 - --------------------------- Oil NGL Gas Description (MBBL) (MBBL) (MMCF) ----------- ------- ------ ------- Proved reserves at beginning of year 39,538 2,060 154,082 Revisions of previous estimates..... (1,915) 251 (42,426) Extensions and discoveries.......... 227 -- 537 Production.......................... (3,157) (266) (12,524) Sales of reserves in-place.......... (12,093) (41) (18,178) Purchase of reserves in-place....... 5 -- -- ------- ----- ------- Proved reserves at end of year...... 22,605 2,004 81,491 ======= ===== ======= Proved developed reserves-- Beginning of year................ 31,902 1,924 97,984 ======= ===== ======= End of year...................... 18,581 1,869 53,708 ======= ===== =======
2 Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page Number ------ Independent Auditors' Report................................................................. 4 Financial Statements: Consolidated Balance Sheets as of December 31, 2002 and 2001.............................. 5 Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000.................................................................................... 7 Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Loss for the Years Ended December 31, 2002, 2001 and 2000............................................ 8 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000.................................................................................... 9 Notes to Consolidated Financial Statements................................................ 11
3 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Mission Resources Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Mission Resources Corporation (formerly Bellwether Exploration Company) and subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of operations, changes in stockholders' equity and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mission Resources Corporation and subsidiaries as of December 31, 2002 and 2001 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and other Intangible Assets." As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in 2001. KPMG LLP Houston, Texas March 14, 2003 4 MISSION RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 2002 2001 ASSETS ------------ ------------ (Amounts in thousands) CURRENT ASSETS: Cash and cash equivalents............................................. $ 11,347 $ 603 Accounts receivable and accrued revenues.............................. 18,931 25,668 Current portion of interest rate swap................................. -- 180 Commodity derivative asset............................................ -- 8,359 Prepaid expenses and other............................................ 2,148 3,879 --------- --------- Total current assets............................................... 32,426 38,689 --------- --------- PROPERTY, PLANT AND EQUIPMENT, at cost: Oil and gas properties (full cost) United States--Unproved properties of $8,369 and $15,530 excluded from amortization as of December 31, 2002 and 2001, respectively......... 775,344 753,905 Accumulated depreciation, depletion and amortization.................. (474,625) (374,167) --------- --------- Net property, plant and equipment.................................. 300,719 379,738 Leasehold, furniture and equipment.................................... 3,545 3,347 Accumulated depreciation.............................................. (1,449) (916) --------- --------- Net leasehold, furniture and equipment............................. 2,096 2,431 --------- --------- LONG TERM RECEIVABLE.................................................. -- 899 GOODWILL & OTHER INTANGIBLES.......................................... -- 15,436 OTHER ASSETS.......................................................... 7,163 10,571 --------- --------- $ 342,404 $ 447,764 ========= =========
See Notes to Consolidated Financial Statements. 5 MISSION RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 2002 2001 LIABILITIES AND STOCKHOLDERS' EQUITY ------------ ------------ (Amounts in thousands, except share information) CURRENT LIABILITIES: Accounts payable and accrued liabilities..................................... $ 24,498 $ 38,584 Commodity derivative liabilities............................................. 6,973 -- Current portion of interest rate swap........................................ 3 -- -------- -------- Total current liabilities................................................. 31,474 38,584 -------- -------- LONG-TERM DEBT Revolving credit facility.................................................... -- 35,000 Subordinated notes due 2007.................................................. 225,000 225,000 Unamortized premium on issuance of $125 million subordinated notes........... 1,431 1,695 -------- -------- Total long-term debt...................................................... 226,431 261,695 COMMODITY DERIVATIVE LIABILITIES, excluding current portion.................. 359 -- INTEREST RATE SWAP, excluding current portion................................ 1,817 4,248 DEFERRED INCOME TAXES........................................................ 16,946 31,177 OTHER LIABILITIES............................................................ -- 1,820 STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or outstanding at December 31, 2002 and 2001.................................. -- -- Common stock, $0.01 par value, 60,000,000 shares authorized, 23,896,959 and 14,259,626 shares issued at December 31, 2002 and December 31, 2001, respectively............................................................... 239 239 Additional paid-in capital................................................... 163,837 163,735 Retained deficit............................................................. (92,599) (54,115) Treasury stock, at cost, 311,000 shares...................................... (1,905) (1,905) Other comprehensive income, net of taxes..................................... (4,195) 2,286 -------- -------- Total stockholders' equity................................................ 65,377 110,240 -------- -------- $342,404 $447,764 ======== ========
See Notes to Consolidated Financial Statements. 6 MISSION RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Year Ended Year Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ (Amounts in thousands, except per share data) REVENUES: Gas revenues................................................. $ 39,715 $ 57,705 $ 62,652 Oil revenues--United States.................................. 73,164 73,653 45,286 Oil revenues--Ecuador........................................ -- 1,877 4,315 Gas plant revenues........................................... -- 4,456 6,070 Interest and other income (expense).......................... (7,415) 4,386 957 -------- -------- -------- 105,464 142,077 119,280 -------- -------- -------- COSTS AND EXPENSES: Lease operating expenses--United States...................... 43,222 41,702 21,738 Lease operating expenses-- Ecuador........................... -- 3,071 2,815 Taxes other than income...................................... 9,246 6,656 6,273 Transportation costs......................................... 834 73 270 Gas plant expenses........................................... -- 2,118 2,677 Depreciation, depletion and amortization--United States...... 43,291 44,602 31,909 Depreciation, depletion and amortization--Ecuador............ -- 504 745 Impairment expense........................................... 16,679 27,057 -- Disposition of hedges........................................ -- -- 8,671 Uncollectible gas revenues................................... -- 2,189 -- Mining venture............................................... -- 914 -- Loss on sale of assets....................................... 2,645 11,600 -- General and administrative expenses.......................... 12,758 15,160 8,821 Interest expense............................................. 26,853 23,664 15,375 -------- -------- -------- 155,528 179,310 99,294 -------- -------- -------- Income (loss) before income tax benefit and cumulative effect of a change in accounting method................................. (50,064) (37,233) 19,986 Income tax benefit.............................................. (11,580) (9,055) (12,222) -------- -------- -------- Income (loss) before cumulative effect of a change in accounting method........................................................ (38,484) (28,178) 32,208 -------- -------- -------- Cumulative effect of a change in accounting method, net of tax of $1,633..................................................... -- 2,767 -- -------- -------- -------- Net income (loss)............................................... $(38,484) $(30,945) $ 32,208 ======== ======== ======== Income (loss) per share before cumulative effect of a change in accounting method............................................. $ (1.63) $ (1.41) $ 2.32 ======== ======== ======== Income (loss) per share before cumulative effect of a change in accounting method--diluted.................................... $ (1.63) $ (1.41) $ 2.27 ======== ======== ======== Net income (loss) per share..................................... $ (1.63) $ (1.54) $ 2.32 Net income (loss) per share--diluted............................ $ (1.63) $ (1.54) $ 2.27 ======== ======== ======== Weighted average common shares outstanding...................... 23,586 20,051 13,899 ======== ======== ======== Weighted average common shares outstanding--diluted............. 23,586 20,241 14,175 ======== ======== ========
See Notes to Consolidated Financial Statements. 7 MISSION RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS (Amounts in thousands)
Preferred Common Stock Stock Additional Other Treasury Stock ------------- ------------- Paid-In Comprehensive Retained ------------------------ Shares Amount Shares Amount Capital Income Deficit Shares Amount Total ------ ------ ------ ------ ---------- ------------- -------- ------ ------- -------- Balance December 31, 1999.......... 14,169 $142 -- $-- $ 80,455 -- $(55,378) (311) $(1,905) $ 23,314 Stock options exercised and related tax effects....................... 91 1 -- -- 588 -- -- -- -- 589 Compensation expense-- stock options..................... -- -- -- -- 849 -- -- -- -- 849 Net income......................... -- -- -- -- -- -- 32,208 -- -- 32,208 ------ ---- -- --- -------- ------- -------- ---- ------- -------- Balance December 31, 2000.......... 14,260 143 -- -- 81,892 -- (23,170) (311) (1,905) 56,960 Stock options exercised and related tax effects....................... 177 2 -- -- 1,138 -- -- -- -- 1,140 Issuance of common stock related to merger......................... 9,460 94 -- -- 79,906 -- -- -- -- 80,000 Compensation expense-- stock options..................... -- -- -- -- 799 -- -- -- -- 799 Comprehensive loss: Net loss........................... -- -- -- -- -- -- (30,945) -- -- (30,945) Hedge activity..................... -- -- -- -- -- 2,286 -- -- -- 2,286 ------ ---- -- --- -------- ------- -------- ---- ------- -------- Total comprehensive loss........... (28,659) -------- Balance December 31, 2001.......... 23,897 239 -- -- 163,735 2,286 (54,115) (311) (1,905) 110,240 Compensation expense-- stock options..................... -- -- -- -- 102 -- -- -- -- 102 Comprehensive loss: Net loss........................... -- -- -- -- -- -- (38,484) -- -- (38,484) Hedge activity..................... -- -- -- -- -- (6,481) -- -- -- (6,481) ------ ---- -- --- -------- ------- -------- ---- ------- -------- Total comprehensive loss........... (44,965) -------- Balance December 31, 2002.......... 23,897 $239 -- $-- $163,837 $(4,195) $(92,599) (311) $(1,905) $ 65,377 ====== ==== == === ======== ======= ======== ==== ======= ========
See Notes to Consolidated Financial Statements. 8 MISSION RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ (Amounts in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)................................................. $(38,484) $ (30,945) $ 32,208 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization....................... 43,291 45,106 32,654 Gain on interest rate swap..................................... (2,248) (332) -- Loss (gain) due to hedge ineffectiveness....................... 9,050 (4,767) -- Mining venture................................................. -- 729 -- Cumulative effect of a change in accounting method, net of deferred tax................................................. -- 2,767 -- Amortization of stock options.................................. 102 799 849 Amortization of deferred financing costs and bond premium...................................................... 2,794 1,877 559 Loss on sale of assets......................................... -- 11,600 -- Disposition of hedges.......................................... -- -- 8,671 Impairment expense............................................. 16,679 27,057 -- Other.......................................................... 553 455 -- Deferred taxes................................................. (10,846) (9,650) (12,307) Changes in assets and liabilities, net of acquisition: Accounts receivable and accrued revenues....................... 4,364 5,669 (13,370) Prepaid expenses and other..................................... 2,473 (3,025) 373 Accounts payable and accrued liabilities....................... (17,913) (5,611) 12,217 Due to affiliates.............................................. -- -- -- Abandonment costs.............................................. (2,593) (1,371) (1,531) Other.......................................................... -- -- (215) -------- --------- -------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES...................................................... 7,222 40,358 60,108 -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of oil and gas properties......................... (850) (24,159) (7,078) Acquisitions of Bargo oil and gas properties................... -- (142,028) -- Proceeds on sale of oil and gas properties, net................ 60,396 15,868 45,906 Proceeds on sale of assets, net................................ -- 15,668 -- Additions to oil and gas properties............................ (20,589) (48,040) (81,294) Additions to gas plant facilities.............................. -- (1,047) (677) Additions to leasehold, furniture and equipment................ (198) (527) (2,462) Note receivable................................................ -- -- (1,281) Other.......................................................... -- -- (446) -------- --------- -------- NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES...................................................... 38,759 (184,265) (47,332) -------- --------- --------
See Notes to Consolidated Financial Statements. 9 MISSION RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended Year Ended Year Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ (Amounts in thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings..................................... 21,000 208,754 31,400 Net proceeds from issuance of common stock................... -- 899 496 Payments of long-term debt................................... (56,000) (199,204) (35,950) Proceeds from issuance of senior subordinated notes due 2007, including premium.......................................... -- 126,875 -- Credit facility costs........................................ (237) (7,278) (359) -------- --------- -------- NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES................................................. (35,237) 130,046 (4,413) -------- --------- -------- Net increase (decrease) in cash and cash equivalents......... 10,744 (13,861) 8,363 Cash and cash equivalents at beginning of period............. 603 14,464 6,101 -------- --------- -------- Cash and cash equivalents at end of period................... $ 11,347 $ 603 $ 14,464 ======== ========= ========
See Notes to Consolidated Financial Statements. 10 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization Mission Resources Corporation (the "Company") is an independent oil and gas exploration and production company. We develop and produce crude oil and natural gas. Mission's balanced portfolio comprises long-lived, low-risk assets, like those in the Permian Basin, and multi-reservoir, high-productivity assets found along the Gulf Coast and in the Gulf of Mexico. Our operational focus is on property enhancement through exploitation and development drilling, operating cost reduction, low to moderate risk exploration, asset redeployment and acquisitions of properties in the right circumstances. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Mission Resources Corporation and its wholly owned subsidiaries. A 10.11% ownership in the East Texas Salt Water Disposal Company is accounted for using the cost method and the $861,000 investment is included in the other assets line of the balance sheet. In 1999, the Company invested in a Canadian company ("Carpatsky") that had the right to produce and sell oil and gas from two fields in the Ukraine. Due to different business and cultural approaches, foreign regulations and financial limitations, the Company did not have significant influence over Carpatsky; therefore the investment in Carpatsky was reflected using the cost method in 2000. In June 2001, the Company exchanged its interests in Carpatsky for a production payment on Carpatsky's producing properties, reporting $6.2 million as a long-term receivable. In fourth quarter of 2001, due to increased uncertainties in world markets and declining commodity prices and uncertainties related to the collectibility of the receivable, it was charged to expense as part of the impairments on the Statement of Operations. Oil and Gas Properties Full Cost Pool--The Company utilizes the full cost method to account for its investment in oil and gas properties. Under this method, all costs of acquisition, exploration and development of oil and gas reserves (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs and tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and gas properties when incurred. Direct internal costs that are capitalized are primarily the salary and benefits of geologists and engineers directly involved in acquisition, exploration and development activities, and amounted to $1.3 million, $3.2 million and $3.3 million in the years ended December 31, 2002, 2001 and 2000, respectively. Until June 2001, the Company had two full cost pools: United States and Ecuador. The Company's interests in Ecuador were sold June 2001 for gross proceeds of $8.5 million. Because the Ecuador sale involved the entire full cost pool, the book value of the pool was removed from the Balance Sheet and the resulting $12.7 million excess of book value over proceeds was reported as part of the loss on sale of assets on the Statement of Operations for the year ended December 31, 2001. Depletion--The cost of oil and gas properties, the estimated future expenditures to develop proved reserves, and estimated future abandonment, site remediation and dismantlement costs are depleted and charged to operations using the unit-of-production method based on the ratio of current production to proved oil and gas reserves as estimated by independent engineering consultants. Costs directly associated with the acquisition and evaluation of unproved properties are excluded from the amortization computation until it is determined whether or not proved reserves can be assigned to the properties or whether impairment has occurred. Depletion expense per equivalent barrel of domestic production was approximately $7.74 in 2002, $6.72 in 2001 and $5.47 in 2000. 11 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Unproved Property Costs--The following table shows, by category of cost and date incurred, the domestic unproved property costs excluded from amortization (amounts in thousands):
Total at Leasehold Exploration Development December 31, Costs Costs Costs 2002 --------- ----------- ----------- ------------ Costs Incurred During Periods Ended: December 31, 2002................ $1,265 $-- $302 $1,567 December 31, 2001................ 5,246 -- -- 5,246 December 31, 2000................ 328 -- -- 328 December 31, 1999................ 502 -- -- 502 Prior............................ 726 -- -- 726 ------ --- ---- ------ $8,067 $-- $302 $8,369 ====== === ==== ======
Such costs fall into four broad categories: . Material projects which are in the last one to two years of seismic evaluation; . Material projects currently being marketed to third parties; . Leasehold and seismic costs for projects not yet evaluated; and . Drilling and completion costs for projects in progress at year-end that have not resulted in the recognition of reserves at December 31, 2002. This category of costs will transfer into the full cost pool in 2003. Included in leasehold costs are land and seismic costs incurred in the current and prior years by the Company that are still in the evaluation stage. Approximately $2.2 million, $1.8 million and $2.8 million were evaluated and moved to the full cost pool in 2002, 2001 and 2000, respectively. Sales of Properties--Dispositions of oil and gas properties held in the domestic full cost pool are recorded as adjustments to capitalized costs, with no gain or loss recognized unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas. Net proceeds from property sales of $60.4 million, $15.9 million and $46.0 million were recorded in such manner during the years 2002, 2001, and 2000, respectively. Impairment--To the extent that capitalized costs of oil and gas properties, net of accumulated depreciation, depletion and amortization, exceed the discounted future net revenues of proved oil and gas reserves net of deferred taxes, such excess capitalized costs would be charged to operations as an impairment. Oil and gas prices ended the year 2002 at $31.17 per barrel of oil (NYMEX WTI Cushing) and $4.74 per MMBTU of gas (NYMEX Henry Hub). Such closing prices, adjusted to the wellhead to reflect adjustments for marketing, quality and heating content, were used to determine discounted future net revenues for the Company. In addition, the Company elected to adjust discounted future net revenues to reflect the potential impact of its commodity hedges that qualify for hedge accounting under SFAS No. 133. This adjustment was calculated by taking the difference between the closing NYMEX prices and the price floors on the Company's hedges multiplied by the hedged volumes that were included in proved reserves. This calculation resulted in a decrease in discounted future net revenues of $11.8 million because prices prevailing at December 31, 2002 were higher than most of the Company's price ceilings. The Company's capitalized costs were not in excess of these adjusted discounted future net revenues as of December 31, 2002; therefore no impairment was required. The Company, however, recorded an oil and gas 12 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) property impairment of $20.8 million in 2001 because capitalized costs exceeded adjusted discounted future net reserves. No such impairment to capitalized costs was required for the year 2000. Any reference to oil and gas reserve information in the Notes to Consolidated Financial Statements is unaudited. Gas Plants On October 1, 2001 the Company sold its interest in the Snyder gas plant and Diamond M gas plant for gross proceeds of $11.5 million and recorded a gain of $1.1 million, which was recorded as part of sale of assets on the Statement of Operations for the year ended December 31, 2001. Revenue Recognition and Gas Imbalances The Company uses the sales method of accounting for revenue. Under this method, oil and gas revenues are recorded for the amount of oil and natural gas production sold to purchasers. Revenues are recognized and accrued as production occurs. In 2001 and 2000, the only customer accounting for greater than 10% of oil and gas revenues was an affiliate of Torch Energy Advisors ("Torch"). The sales amounts were $43.3 million and $26.9 million, respectively, and were part of domestic revenues. In 2002, no one customer accounts for greater than 10% of oil and gas revenues. Gas imbalances are created, but not recorded, when the sales amount is not equal to the Company's entitled share of production. The Company's entitled share is calculated as the total or gross production of the property multiplied by the Company's decimal interest in the property. Typically no provision is made on the balance sheet to account for potential amounts due to or from Mission related to gas imbalances. Exclusive of a liability recorded for properties at or nearing depletion (see discussion below), the Company's unrecorded imbalance, valued at current prices would be a $1.4 million receivable. When the gas reserves attributable to a property have depleted to the point that there are insufficient reserves to satisfy existing imbalance positions, a liability or a receivable, as appropriate, should be recorded equal to the net value of the imbalance. As of December 31, 2002, the Company recorded a net liability of approximately $454,000 representing approximately 266,000 MCF at an average price of $1.71 per MCF, related to imbalances on properties at or nearing depletion. Those gas imbalances were valued using the price at which the imbalance originated if there is a gas balancing agreement or the current price where there is no gas balancing agreement. Reserve reductions on any fields that have imbalances could cause this liability to increase. Settlements are typically negotiated, so the per MCF price for which imbalances are settled could differ among wells and even among owners in one well. Receivables The Company uses the specific write off method of accounting for receivables other than accruals. Joint interest billing receivables represent those amounts due to the Company as operator of an oil and gas property by the other working interest partners. Since these partners could also be the operator of other properties in which the Company is a working interest partner, the interdependency of the partners tends to assure timely payment. Past due balances over 90 days and $30,000 are reviewed for collectibility monthly, and charged against earnings when the potential for collection is determined to be remote. The Company has recognized bad debt expense, included in interest and other income on the Statement of Operations, of $185,000, $430,000 and $135,000 related to such receivables for the years ended December 31, 2002, 2001 and 2000, respectively. The Company does not have any off-balance sheet credit exposure related to its customers. 13 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A portion of the Company's November 2001 gas production was sold under contract to a subsidiary of Enron Corporation ("Enron"). Payment for that production totaling $2.2 million was due in December 2001 and was not received. Due to Enron's bankruptcy filing and continued legal difficulties, the Company chose to write off the entire amount due from Enron. A separate line for uncollectible gas revenues was added to the Statement of Operations in order to clearly segregate the $2.2 million charge to income recognized in 2001 due to Enron's failure to make payment. Income Taxes Deferred taxes are accounted for under the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The ultimate realization of deferred tax assets is dependent upon the generations of future taxable income in periods when the temporary differences become deductible. The effect on deferred taxes of a change in tax rates is recognized in income in the period the change occurs. Statements of Cash Flows For cash flow presentation purposes, the Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Interest paid in cash for the years ended December 31, 2002, 2001 and 2000, was $26.4 million, $19.0 million and $13.8 million, respectively. Income taxes paid in cash, net of cash refunds, for the years ended December 31, 2001 and 2000 were $2.5 million and $109,000, respectively. A net cash refund of approximately $1.8 million was received in the year ended December 31, 2002. A significant portion of the funding of the 2001 Bargo merger was non-cash:
Supplemental schedule of non-cash investing and financing activities: Year Ended December 31, 2001 ------------ Fair value of assets and liabilities acquired: Net current assets and other assets..................... $ 2,453 Property, plant, and equipment.......................... 260,893 Goodwill and intangibles................................ 16,601 Deferred tax liability.................................. (56,610) -------- Total allocated purchase price.......................... $223,337 Less non-cash consideration--issuance of stock.......... $ 80,000 Less cash acquired in transaction....................... 1,309 -------- Cash used for business acquisition, net of cash acquired $142,028 ========
Benefit Plans During 1993, the Company adopted the Mission Resources Simplified Employee Pension Plan (the "Savings Plan") whereby all employees of the Company are eligible to participate. The Savings Plan is administered by a Plan Administrator appointed by the Company. Eligible employees may contribute a portion of their annual compensation up to the legal maximum established by the Internal Revenue Service for each plan 14 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) year. The Company matches contributions up to a maximum of 6% each plan year. Employee contributions are immediately vested and employer contributions have a four-year vesting period. Amounts contributed by the Company to the Savings Plan for the years ended December 31, 2002, 2001 and 2000 were $96,000, $405,000 and $312,000, respectively. Deferred Compensation Plan In late 1997, the Company adopted the Mission Deferred Compensation Plan. This plan allows selected employees the option to defer a portion of their compensation until their retirement or termination. Such deferred compensation is invested in any one or more of six mutual funds managed by American Funds Service Company ("Fund Manager") at the direction of the employees. The Company designated Southwest Guaranty Trust Company as Trustee to supervise the Fund Manager. The market value of these investments is included in current assets at December 31, 2002, 2001 and 2000 and was approximately $419,000, $124,000 and $25,000, respectively. An equivalent liability due to the plan participants is included in current liabilities. Stock-Based Employee Compensation Plans At December 31, 2002, the Company has two stock-based employee compensation plans, which are described more fully in Note 5. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting or Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income for options granted under those plans with an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
Year Ended Year Ended Year Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ Net income (loss) As reported......................... $(38,484) $(30,945) $32,208 Pro forma........................... $(39,315) $(35,007) $24,955 Earnings (loss) per share As reported......................... $ (1.63) $ (1.54) $ 2.32 Pro forma........................... $ (1.67) $ (1.75) $ 1.80 Diluted earnings (loss) per share share As reported......................... $ (1.63) $ (1.54) $ 2.27 Pro forma........................... $ (1.67) $ (1.75) $ 1.76
Mining Venture During fiscal year 1992, Mission acquired an average 24.4% interest in three mining ventures (the "Mining Venture") from an unaffiliated individual for $128,500. At the time of such acquisition, J. P. Bryan, a member of the Mission Board of Directors until October 2002, his brother, Shelby Bryan and Robert L. Gerry III (the "Affiliated Group"), owned an average 21.5% interest in the Mining Venture. Mission's interest in the Mining Venture increased as it paid costs of the venture while the interest of the Affiliated Group decreased. Through December 31, 2001, Mission spent an additional $185,000 primarily for soil evaluations. These exploratory costs, plus the $729,000 accumulated on the Balance Sheet in Other Assets as of December 31, 2000, were charged to 15 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) earnings in 2001. Under existing agreements Mission is not required to pay any additional mining venture costs and there were no such charges in 2002. Goodwill The Financial Accounting Standards Board ("FASB") approved Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets in June 2001. This pronouncement requires that intangible assets with indefinite lives, including goodwill, cease being amortized and be evaluated on an annual basis for impairment. The Company adopted SFAS No. 142 on January 1, 2002 at which time the Company had unamortized goodwill, related to the Bargo merger, in the amount of $15.1 million and unamortized identifiable intangible assets in the amount of $374,300, all subject to the transition provisions. Upon adoption of SFAS No. 142, $277,000 of workforce intangible assets recorded as unamortized identifiable assets was subsumed into goodwill and was not amortized as it no longer qualified as a recognizable intangible asset. The transition and impairment test for goodwill, effective January 1, 2002, was performed in the second quarter of 2002. As of January 1, 2002, the Company's fair value exceeded the carrying amount; therefore goodwill was not impaired. Mission designated December 31st as the date for its annual test. Based upon the results of such test at December 31, 2002, goodwill was fully impaired and a write-down of $16.7 million was recorded. The valuation was based on the following procedures and information: . compute a cash flow model of the Company's oil and gas assets using third party information and verification; . apply risking parameters to the various categories of oil and gas reserves using reputable third party sources for risk profile; . apply a discount rate to such valuation that approximates Mission's cost of capital and cost of debt; . reduce this valuation by Mission's net debt to ascertain the equity fair value; and . compare book equity to fair value equity. The changes in the carrying amount of goodwill for the period ended December 31, 2002, are as follows (amounts in thousands):
Intangible Total Goodwill Goodwill Assets and Intangibles -------- ---------- --------------- Balance, December 31, 2001.................. $ 15,061 $ 375 $ 15,436 Transferred to goodwill..................... 277 (277) -- Amortization of lease....................... -- (98) (98) Merger purchase price allocation adjustments 1,341 -- 1,341 Goodwill impairment......................... (16,679) -- (16,679) -------- ----- -------- Balance, December 31, 2002.................. $ -- $ -- $ -- ======== ===== ========
SFAS No. 142 requires disclosure of what reported income before extraordinary items and net income would have been in all periods presented exclusive of amortization expense (including any related tax effects) recognized in those periods related to goodwill, intangible assets that are no longer being amortized, any deferred credit related to excess over cost equity method goodwill, and changes in amortization periods for intangible 16 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) assets that will continue to be amortized (including related tax effects). Similarly adjusted per share amounts are also required to be disclosed for all periods presented. The following table presents the required disclosures concerning adjusted income for the year ended December 31, 2001 (amounts in thousands):
Year Ended December 31, 2001 ----------------- Net income (loss)............................................. $(30,945) Exclude goodwill amortization................................. 986 -------- Net income (loss) exclusive of amortization................... $(29,959) ======== Net income (loss) exclusive of amortization per share......... $ (1.49) Net income (loss) exclusive of amortization per share--diluted $ (1.49)
Comprehensive Income Comprehensive income includes all changes in a company's equity except those resulting from investments by owners and distributions to owners. The Company's total comprehensive income for the twelve months ended December 31, 2002 and 2001 was as follows (in thousands):
Twelve Months Ended December 31, ------------------ 2002 2001 -------- -------- Net income (loss)..................................................... $(38,484) $(30,945) Cumulative effect attributable to adoption of SFAS No. 133, net of tax -- (19,328) Hedge accounting for derivative instruments, net of tax............... (6,481) 21,614 -------- -------- Comprehensive income (loss)........................................... $(44,965) $(28,659) ======== ========
The accumulated balance of other comprehensive income related to cash flow hedges, net of taxes, is as follows (in thousands): Balance at January 1, 2001............ $ -- Cumulative effect of accounting change (19,328) Net gains on cash flow hedges......... 13,919 Reclassification adjustments.......... 14,934 Tax effect on hedge activity.......... (7,239) -------- Balance at December 31, 2001.......... 2,286 Net gains (losses) on cash flow hedges (341) Reclassification adjustments.......... (8,323) Tax effect on hedge activity.......... 2,183 -------- Balance at December 31, 2002.......... $ (4,195) ========
Derivative Instruments and Hedging Activities Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards requiring that derivative instruments (including certain derivative instruments embedded in other contracts) be recorded at fair value and included in the balance sheet as assets or liabilities. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the resulting designation, which is established at the inception of a derivative. Accounting for qualified hedges allows a derivative's gains and losses to offset related 17 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) results on the hedged item in the Statement of Operations. For derivative instruments designated as cash flow hedges, changes in fair value, to the extent the hedge is effective, are recognized in Other Comprehensive Income until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based upon the relative changes in fair value between the derivative contract and the hedged item over time. Any change in the fair value resulting from ineffectiveness, as defined by SFAS No. 133, is recognized immediately in earnings. New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, Accounting for Asset Retirement Obligations, which provided accounting requirements for retirement obligations associated with tangible long-lived assets, including: . the timing of liability recognition; . initial measurement of liability; . allocation of asset retirement cost to expense; . subsequent measure of the liability; and . financial statement disclosures. Statement No. 143 requires that the Company record a liability for the fair value of its asset retirement obligation, primarily comprised of its plugging and abandonment liabilities, in the period in which it is incurred if a reasonable estimate of fair value can be made. The liability is accreted at the end of each period through charges to operating expense. The amount of the asset retirement obligation is added to the carrying amount of the oil and gas properties and this additional carrying amount is depreciated over the life of the properties. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. The Company is required and plans to adopt the provisions of Statement No. 143 for the quarter ending March 31, 2003. To accomplish this, the Company must identify all legal obligations for asset retirement obligations, if any, and determine the fair value of these obligations on the date of adoption. The determination of fair value is complex and will require the Company to gather market information and develop cash flow models. Additionally, the Company will be required to develop processes to track and monitor these obligations. The Company expects to record an asset retirement liability of between $40.0 million and $50.0 million and a loss from a change in accounting method of between $1.0 million and $5.0 million in the quarter ended March 31, 2003. SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statements No. 13 and Technical Corrections, was issued in April 2002. SFAS No. 145 amends existing guidance on reporting gains and losses on the extinguishments of debt to prohibit the classification of the gain or loss as extraordinary, as the use of such extinguishments have become part of the risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have economic effects similar to sale-leaseback transaction. The provision of the Statement related to the rescission of Statement No. 4 is applied in fiscal years beginning after May 15, 2002. Earlier application of these provisions is encouraged. The provisions of Statement related to Statement No. 13 were effective for transactions occurring after May 15, 2002, with early application encouraged. The adoption of SFAS No. 145 does not currently affect Mission's financial statements, however, its provisions could impact the treatment of future transactions. SFAS No. 146, Accounting for Exit or Disposal Activities, was issued in June 2002. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated 18 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance set forth in EITF Issue No. 94-3, Liability Recognition of Certain Employee Termination Benefits and Other Costs to Exit an Activity. SFAS No. 146 is effective for the exit and disposal activities initiated after December 31, 2002. The Company will apply SFAS No. 146 as appropriate to future activities. In November 2002, FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the interpretation are applicable to guarantees issued or modified after December 31, 2002 and are not expected to materially effect our financial statements. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation--Transition and Disclosure, an amendment of SFAS No. 123, that provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements. Some of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to consolidated financial statements. FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of APB No. 51, in January 2003. This interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the interpretation. The interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. We do not own an interest in any variable interest entities; therefore, this interpretation is not expected to have a material effect on our financial statements. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities as well as reserve information which affects the depletion calculation and the computation of the full cost ceiling limitation to prepare these financial statements in conformity with generally accepted accounting principles in the United States. Actual results could differ from these estimates. Reclassifications Certain reclassifications of prior period statements have been made to conform to current reporting practices. 3. Acquisitions and Investments During the last three fiscal years, the Company has completed or made the following significant acquisitions and investments: On May 16, 2001, Bellwether Exploration Company merged with Bargo Energy Company and changed its name to Mission Resources Corporation. Under the merger agreement, Bargo shareholders and option holders 19 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) received a combination of cash and Mission common stock. The merger was accounted for using the purchase method of accounting and was financed through the issuance of $80.0 million, or 9.5 million shares, of Mission common stock to Bargo option holders and shareholders, and an initial $166.0 million in borrowings under a new credit facility ("Credit Facility"). Borrowings under the Credit Facility were used as follows: . to pay the cash portion of the purchase price to holders of Bargo common stock and options, . to pay the amount incurred by Bargo in redeeming its preferred stock immediately prior to the merger, . to refinance Bargo's and Bellwether's then-existing credit facilities, and . to pay transaction costs. Initially, the $280.9 million adjusted purchase price allocated to the acquired assets was $4.1 million to unproved properties, $255.7 million to proved properties, $1.1 million to current drilling projects, $17.7 million to goodwill and intangible assets and $2.3 million to current assets, current liabilities and other non-current assets. The Company also acquired a 10.11% ownership in the East Texas Salt Water Disposal Company. On May 17, 2001, the Company purchased oil and gas properties in south Louisiana for a gross sales price of $21.5 million. 4. Related Party Transactions Mr. J. P. Bryan, a member of Mission's board of directors until October 2002, was Chairman and CEO of Mission from August 1999 through May 2000. Mr. Bryan is also Senior Managing Director of Torch Energy Advisors ("Torch") and owns shares representing 23% of the shares of Torch on a fully diluted basis. As of December 31, 2002, the Company was party to a Master Service Agreement dated October 1, 1999, the ("MSA"), and two service contracts under which Torch administers certain activities of the Company including the operation of oil and gas properties and oil and gas marketing. Previously, the Company was party to six service contracts with Torch, but four were terminated in 2002 and 2001. A $620,000 termination fee was paid on the Corporate Services Agreement and was recognized as part of general and administrative expense in the 2001 Statement of Operations. Effective February 1, 2003, the contract covering operation of oil and gas properties was terminated. Effective April 1, 2003 the contract for marketing of Mission's oil and gas commodities will terminate. Only the termination of the contract covering operations of oil and gas properties required a fee, which was $75,000. As a result of the termination of all previous service contracts with Torch, the MSA will effectively terminate on April 1, 2003. Fees paid to Torch for marketing services were $343,000, $417,000, and $563,000, in periods ended December 31, 2002, 2001 and 2000, respectively. Sales to Torch accounted for approximately 1%, 32% and 24% of fiscal year 2002, 2001 and 2000 oil and gas revenues, respectively. Fees paid to Torch for operating our oil and gas properties were $1.4 million, $1.5 million and $1.0 million for the years ended December 31, 2002, 2001 and 2000, respectively. Torch was the operator of the Snyder Gas Plant. In periods ended December 31, 2001 and 2000, the fees paid by the Company to Torch were $74,000 and $96,0000, respectively. There were no such fees in 2002 because the gas plant was sold in 2001. Torch provided services in prior periods for the evaluation of potential property acquisitions and due diligence conducted in conjunction with acquisitions closed at the Company's request. The Company was charged $685,000 and $1.3 million for these costs in periods ended December 31, 2001 and 2000, respectively. 20 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Mission currently uses an Oracle platform through a hosting agreement, effective July 1, 2002, with Novistar, previously a subsidiary of Torch. Approximately $373,000 was paid to Novistar in 2002. On January 15, 2003 it was announced that Novistar merged with Paradigm Technologies, a Petroleum Place company, creating P2 Energy Solutions. As a result of this merger, Torch owns 38% of P2 Energy Solutions. Milam Energy, LP ("Milam") is a 51% working interest owner with the Company in several south Louisiana properties. Torch is a majority owner of Milam, and J.P. Bryan, a member of Mission's Board of Directors until October 2002 is also a managing director and stockholder of Torch. As of December 31, 2002, Milam owed the Company approximately $570,000 in joint interest billings and cash calls related to these properties. The receivable is reflected on the accounts receivable and accrued revenues line of the consolidated Balance Sheet. A portion of the outstanding receivable is past due, however, pursuant to an agreement between the parties effective March 1, 2003. Milam made a $480,000 payment on March 12, 2003. The terms also provide for Milam to timely pay Mission its joint interest billings and cash calls through July 2003. In 2002, as part of an effort to improve liquidity, the Company sold interests in various oil and gas fields through a series of competitive bids. In July 2002, in one of those transactions, the Company sold interests in several properties located in New Mexico to Chisos, LTD ("Chisos"). J.P. Bryan, a member of Mission's board of directors until October 2002, is the President and sole owner of Chisos. Over 25 companies requested information packages on this sale and four submitted bids on these properties. The bid from Chisos was $4.0 million, which exceeded all others by $250,000 and additionally provided Mission a non-competition agreement in New Mexico, a one-year right to participate in developmental drilling and a one-year right to participate in any preferential rights events. These considerations were not offered to Mission by any other bidder. A $250,000 payment under a non-compete agreement was paid in the second quarter of 2002 to Tim J. Goff, Bargo's former Chief Executive Officer and former member of Mission's board of directors. Pursuant to a separation agreement between the Company and J. Darby Sere, a former senior executive, in August 1999, the executive entered into a non-recourse promissory note with a principal amount of $332,872. The loan bears interest at an annual rate of 7% and was due and payable on August 23, 2002. After the due date all accrued interest was written-off and future accruals ceased. The loan value was reduced to $32,000 at December 31, 2002, the market value of the 78,323 Mission Resources shares that secured the loan. The Company has not deemed the loan to be in default and anticipates that more of the balance can be collected over time, or will be realized with the appreciation in the value of the stock. In connection with the reorganization of the Company's management team in 2002, the Company entered into separation agreements with each of Douglas G. Manner, Jonathan M. Clarkson, and Daniel P. Foley, on July 31, 2002, September 20, 2002, and November 15, 2002, respectively. Messrs. Manner, Clarkson and Foley were previously employed by the Company pursuant to employment agreements that provided for the payment of severance upon separation from the Company based on multiples of their current salary at the time of separation. The Company negotiated severance payments for each of Messrs. Manner, Clarkson and Foley that were considerably less than the amounts provided under their respective employment agreements. Under the terms of the separation agreements, the Company paid Messrs. Manner, Clarkson and Foley total payments of $1.3 million, $1.5 million and $450,000, respectively. Of the total $3.3 million, $250,000 was deferred and will be amortized to expense over the term of the consulting contract and the remainder was charged to general and administrative expenses in 2002. Messrs. Manner, Clarkson and Foley have also surrendered all of their options or rights to acquire the Company's securities. In addition, the Company agreed to provide Messrs. Manner and Clarkson with certain insurance benefits for up to 24 months after the separation date, and, to the extent the coverage or benefits received are taxable to either of Messrs. Manner or Clarkson, the Company agreed to make 21 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) them "whole" on a net after-tax basis. Messrs. Manner and Clarkson also agreed to provide certain consulting services to the Company following their separation dates. In January 2003, Mr. Manner received a pay-out in the sum of $314,852 from the Company's Deferred Compensation Plan made up primarily of deferred salary and bonuses under the terms of the plan. 5. Stockholders' Equity Common and Preferred Stock The Certificate of Incorporation of the Company initially authorized the issuance of up to 30,000,000 shares of common stock and 1,000,000 shares of preferred stock, the terms, preferences, rights and restrictions of which are established by the Board of Directors of the Company. In May 2001, the number of authorized shares was increased to 60 million shares of common stock and 5 million shares of preferred stock. Certain restrictions contained in the Company's loan agreements limit the amount of dividends that may be declared. There is no present plan to pay cash dividends on common stock as the Company intends to reinvest its cash flows for continued growth of the Company. A tax benefit related to the exercise of employee stock options of $240,000 in 2001 and $95,000 in 2000 was allocated directly to additional paid in capital. Such benefit was not material in year 2002. On May 16, 2001, Bellwether merged with Bargo Energy Company ("Bargo"). The resulting company was renamed Mission Resources Corporation. As partial consideration in the merger, 9.5 million shares of Mission common stock were issued to the holders of Bargo common stock and options. The $80 million assigned value of such shares was included in the purchase price. Concurrent with the merger, all Bellwether employees who held stock options were immediately vested in those options upon closing of the merger. The expense was calculated as the excess of the stock price on the merger date over the exercise price of the option. An additional $102,000 and $799,000 of compensation expense was recognized in the years ended December 31, 2002 and 2001, respectively, as a result of staff reductions. Shareholder Rights Plan In September 1997, the Company adopted a shareholder rights plan to protect Mission's shareholders from coercive or unfair takeover tactics. Under the shareholder rights plan, each outstanding share of Mission's common stock and each share of subsequently issued Mission common stock has attached to it one right. The rights become exercisable if a person or group acquires or announces an intention to acquire beneficial ownership of 15% or more of the outstanding shares of common stock without the prior consent of the Company. When the rights become exercisable each holder of a right will have the right to receive, upon exercise of the right, a number of shares of common stock of the Company which, at the time the rights become exercisable, have a market price of two times the exercise price of the right. The Company may redeem the rights for $.01 per right at any time before they become exercisable without shareholder approval. The rights will expire on September 26, 2007, subject to earlier redemption by the board of directors of the Company. 22 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Earnings Per Share The following represents the reconciliation of the numerator (income) and denominator (shares) of the earnings per share computation to the numerator and denominator of the diluted earnings per share computation. The Company's reconciliation is as follows (amounts in thousands, except per share amounts):
Year Ended December 31, 2002 Year Ended December 31, 2001 ------------------------- ------------------------- Income Shares Per Share Income Shares Per Share -------- ------ --------- -------- ------ --------- Net loss.......................... $(38,484) $(30,945) -------- ------ ------ -------- ------ ------ Loss per common share............. $(38,484) 23,586 $(1.63) $(30,945) 20,051 $(1.54) Effect of dilutive securities: Options & warrants................ -- -- -- -- -------- ------ ------ -------- ------ ------ Loss per common share--diluted.... $(38,484) 23,586 $(1.63) $(30,945) 20,051 $(1.54) ======== ====== ====== ======== ====== ====== Year Ended December 31, 2000 ------------------------- Income Shares Per Share -------- ------ --------- Net income........................ $ 32,208 -------- ------ ------ Earnings per common share......... $ 32,208 13,899 $ 2.32 Effect of dilutive securities: Options & warrants................ -- 276 -------- ------ ------ Earnings per common share--diluted $ 32,208 14,175 $ 2.27 ======== ====== ======
In periods of loss, diluted earnings per share were not calculated since the issuance or conversion of additional securities would have had an antidilutive effect. Options and warrants equal to 1,050,500 in 2002, 2,247,000 in 2001 and 584,500 in 2000 that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share because to do so would have been antidilutive. Treasury Stock In September 1998, the Company's Board of Directors authorized the repurchase of up to $5.0 million of the Company's common stock. As of December 31, 2002, 311,000 shares had been acquired at an aggregate price of $1,905,000. These treasury shares are reported at cost as a reduction to Stockholders' Equity. Stock Incentive Plans The Company has stock option plans that provide for granting of options for the purchase of common stock to directors, officers and employees of the Company. In May 2001, the number of shares available for issuance under the 1996 Stock Incentive Plan was increased by 2.0 million. These stock options may be granted subject to terms ranging from 6 to 10 years at a price equal to the fair market value of the stock at the date of grant. At December 31, 2002, there were 936,334 options available for grants. 23 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A summary of activity in the stock option plans is set forth below:
Option Price Range Number of ------------ Shares Low High ---------- ----- ------ Balance at December 31, 1999.... 1,528,000 $3.34 $12.38 Granted...................... 917,500 $4.25 $ 8.75 Surrendered.................. (51,999) $3.34 $ 7.97 Exercised.................... (90,835) $3.34 $ 7.63 ---------- Balance at December 31, 2000.... 2,302,666 $3.34 $12.38 Granted...................... 1,984,000 $5.71 $ 8.80 Surrendered.................. (124,500) $4.59 $12.38 Exercised.................... (177,331) $3.34 $ 7.63 ---------- Balance at December 31, 2001.... 3,984,835 $3.34 $12.38 Granted...................... 2,205,000 $0.31 $ 3.28 Surrendered.................. (2,974,335) $2.24 $12.38 Exercised.................... -- -- -- ---------- Balance at December 31, 2002.... 3,215,500 $0.31 $10.31 ========== Exercisable at December 31, 2002 1,592,169 $0.31 $10.31 ==========
In 2002, many employees voluntarily surrendered out of the money options. The company intends to issue more options in 2003. Detail of stock options outstanding and options exercisable at December 31, 2002 follows:
Outstanding Exercisable ---------------------------- ------------------ Weighted Average Weighted Weighted Remaining Average Average Life Exercise Exercise Range of Exercise Prices Number (Years) Price Number Price ------------------------ --------- --------- -------- --------- -------- 1994 Plan $0.38 to $ 6.38 479,000 8.8 $0.96 162,335 $1.73 1996 Plan $3.34 to $12.38 2,736,500 8.9 $2.66 1,429,834 $4.17 --------- --------- Total................. 3,215,500 1,592,169 ========= =========
The estimated weighted average fair value per share of options granted during 2002, 2001 and 2000 was $0.58, $3.15, and $12.75, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions. . For 2002, expected stock price volatility of 160%; a risk free interest rate of 3.9%; and an average expected option life of 10 years . For 2001, expected stock price volatility of 69%; a risk free interest rate of 5.3%; and an average expected option life of 10 years . For 2000, expected stock price volatility of 65%; a risk free interest rate of 5.1%; and an average expected option life of 10 years 24 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Derivative Instruments and Hedging Activities The Company produces and sells crude oil, natural gas and natural gas liquids. As a result, its operating results can be significantly affected by fluctuations in commodity prices caused by changing market forces. The Company periodically seeks to reduce its exposure to price volatility by hedging a portion of its production through swaps, options and other commodity derivative instruments. A combination of options, structured as a collar, is the Company's preferred hedge instrument because there are no up-front costs and protection is given against low prices. Such hedges assure that Mission receives NYMEX prices no lower than the price floor and no higher than the price ceiling. Recently, as shown on the following tables, the Company has also entered into some commodity swaps that fix the NYMEX price to be received. Hedging activities decreased revenues by $342,000, $13.4 million and $24.5 million for the years 2002, 2001 and 2000, respectively. The Company's realized price for natural gas per MCF is generally $0.11 less than the NYMEX MMBTU price. The Company's realized price for oil is generally $0.95 per BBL less than NYMEX. Realized prices differ from NYMEX as a result of factors such as the location of the property, the heating content of natural gas and the quality of oil. The oil differential stated above excludes the impact of Point Pedernales field production for which the Company's selling price is capped at $9.00 per BBL. The Point Pedernales field was sold in March 2003. In May 2002, several existing oil collars were cancelled. New swaps and collars, hedging forecast oil production were acquired. The Company paid approximately $3.3 million dollars to counter parties, the fair value of the oil price collars at that time, in order to cancel the transactions. The cancellation of these hedges did not have an immediate impact on income. As required by SFAS No. 133 a $418,000 amount related to the cancelled hedges had not yet been recognized in earnings. Such amount is being amortized from Other Comprehensive Income ("OCI") over the 19-month life of the cancelled hedges, leaving $264,000 at December 31, 2002. In October, the Company elected to de-designate all existing hedges and re-designate them by applying the interpretations from the FASB's Derivative Implementation Group issue G-20 ("DIG G-20"). The Company's previous approach to assessing ineffectiveness allowed for time value to be adjusted to income quarterly. By using the DIG G-20 approach because the Company's collars and swaps meet specific criteria, the time value component is included in OCI and earnings variability is reduced. Both the realized and unrealized gains or losses related to these de-designated hedges at October 15, 2002 will be amortized over the 5 quarters remaining. The amount remaining in OCI, or the unrealized loss, related to the de-designated hedges was approximately $4.6 million at October 15, 2002. The amount of unrealized loss is being amortized over the remaining 15 month life of the hedges, leaving approximately $3.6 million at December 31, 2002. 25 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following tables detail the cash flow commodity hedges that were in place at December 31, 2002. Oil Hedges
NYMEX NYMEX Price Price BBLS Total Floor/Swap Ceiling Period Per Day BBLS Type Avg. Avg. ------ ------- ------- ---- ---------- ------- First Qtr. 2003. 4,000 360,000 Swap $24.82 n/a Second Qtr. 2003 4,000 364,000 Swap $24.31 n/a Third Qtr. 2003. 3,500 322,000 Swap $23.95 n/a Fourth Qtr. 2003 3,500 322,000 Swap $23.59 n/a
Gas Hedges
NYMEX NYMEX Price Price MMBTU Total Floor Ceiling Period Per Day MMBTU Type Avg. Avg. ------ ------- --------- ------ ----- ------- First Qtr. 2003. 15,000 1,370,000 Collar $3.24 $4.64 Second Qtr. 2003 15,000 1,365,000 Collar $3.18 $4.02 Third Qtr. 2003. 15,000 1,380,000 Collar $3.19 $4.10 Fourth Qtr. 2003 15,000 1,380,000 Collar $3.24 $4.54 First Qtr. 2004. 5,000 455,000 Collar $3.90 $5.25 Second Qtr. 2004 5,000 455,000 Collar $3.70 $4.08 Third Qtr. 2004. 5,000 400,000 Collar $3.70 $4.04 Fourth Qtr. 2004 5,000 400,000 Collar $3.85 $4.23
The Company may also enter into financial instruments such as interest rate swaps to manage the impact of interest rates. Effective September 22, 1998, the Company entered into an eight and one-half year interest rate swap agreement with a notional value of $80.0 million. Under the agreement, Mission received a fixed interest rate and paid a floating interest rate. In February 2003, the interest rate swap was cancelled by Mission's $1.3 million payment to the counter party. 7. Determination of Fair Values of Financial Instruments Fair value for cash, short-term investments, receivables and payables approximates carrying value. The interest rate swap and the commodity derivatives are also reflected on the Balance Sheet at fair value. The following table details the carrying values and approximate fair values of the Company's other investments and long-term debt at December 31, 2002 and 2001 (in thousands).
December 31, 2002 December 31, 2001 --------------------- --------------------- Carrying Approximate Carrying Approximate Value Fair Value Value Fair Value --------- ----------- --------- ----------- Assets (Liabilities): Long-term debt: (See Note 8) Bank Credit Facility............................. $ -- $ -- $ (35,000) $ (35,000) Senior Subordinated Notes, excluding $1.4 million unamortized premium on $125.0 million bonds.... $(225,000) $(135,900) $(225,000) $(202,500)
26 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. Long-Term Debt Long-term debt is comprised of the following at December 31, 2002 and 2001 (in thousands):
December 31, December 31, 2002 2001 ------------ ------------ Credit facility.................................... $ -- $ 35,000 10 7/8% senior subordinated notes.................. 225,000 225,000 -------- -------- Subtotal........................................... 225,000 260,000 Premium on $125.0 million senior subordinated notes 1,431 1,695 -------- -------- Long-term debt..................................... $226,431 $261,695 ======== ========
Debt maturities by fiscal year are as follows (amounts in thousands): 2003...... $ -- 2004...... -- 2005...... -- 2006...... -- 2007...... 225,000 Thereafter -- -------- $225,000 ========
Credit Facility Mission is party to a $150.0 million credit facility with a syndicate of lenders. The Credit Facility is a revolving facility, expiring May 16, 2004, which allows Mission to borrow, repay and re-borrow under the facility from time to time. The total amount which may be borrowed under the facility is limited by the borrowing base periodically set by the lenders based on Mission's oil and gas reserves and other factors deemed relevant by the lenders. At December 31, 2002, Mission's borrowing base was $40.0 million. The Credit Facility was recently amended on October 7, 2002, reducing the maximum amount available under the Credit Facility from $200 million to $150 million. This modification does not limit the rights of the parties to initiate interim borrowing base redeterminations in accordance with the Credit Facility. As a result of the reduction in borrowing capacity, approximately $412,000 of previously capitalized deferred financing costs related to the $200 million Credit Facility were charged to interest expense in the fourth quarter of 2002. Mission paid interest on the Credit Facility borrowings during 2002 at an average interest rate of 3.9%. Future borrowings under the Credit Facility bear an annual interest rate, at Mission's election, equal to either: . the Eurodollar rate, plus an applicable margin from 1.5% to 2.5%; or . the greater of (i) the prime rate, as determined by Chase Manhattan Bank, or (ii) the federal funds rate plus 0.5%, plus a maximum of 1.0%. The applicable margin for interest payable on outstanding borrowings is based on the utilization rate as a percentage of the total amount of funds borrowed under the Credit Facility to the borrowing base and Mission's long term debt rating. Commitment fees and letter of credit fees under the Credit Facility are also based on Mission's utilization rate and long-term debt rating. Commitment fees range from 0% to 0.5% on the unused portion of the Credit Facility. Letter of credit fees range from 0% to 2.5% of the unused portion of the $20.0 million letter of credit sub-facility. 27 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Credit Facility contains negative covenants that limit Mission's ability, among other things, to: . incur additional debt; . pay dividends on stock, redeem stock or redeem subordinated debt; . make investments; . create liens in favor of senior subordinated debt and subordinated debt; . sell assets; . sell capital stock of subsidiaries; . guarantee other indebtedness; . enter into agreements that restrict dividends from subsidiaries; . merge or consolidate; and . enter into transaction with affiliates. In addition, the Credit Facility requires that certain financial covenants be maintained: . a minimum interest coverage ratio of earnings before interest, depreciation, depletion, amortization, income tax, and extraordinary items, or EBITDAX, to net interest expense of at least:
Fiscal Quarter Interest Coverage Ratio -------------- ----------------------- 09/30/02 through 03/31/03 1.75 to 1.00 04/01/03 through 06/30/03 1.90 to 1.00 07/01/03 through 09/30/03 2.10 to 1.00 10/01/03 through 12/31/03 2.30 to 1.00 01/01/04 and thereafter.. 2.50 to 1.00
. an asset coverage or current ratio (which includes availability) of at least 1.0 to 1.0; . a maximum ratio of senior debt to EBITDAX of 2.0 to 1.0; and . a maximum ratio of total debt to EBITDAX:
Fiscal Quarter Total Debt to EBITDAX -------------- --------------------- 09/30/02 through 12/31/02 5.50 to 1.00 01/01/03 through 03/31/03 5.00 to 1.00 04/01/03 through 06/30/03 4.75 to 1.00 07/01/03 through 09/30/03 4.50 to 1.00 10/01/03 through 12/31/03 4.00 to 1.00 01/01/04 and thereafter.. 3.50 to 1.00
On December 31, 2002, the Company had no outstanding borrowings and was in compliance with its covenants under the Credit Facility. Senior Subordinated Notes In April 1997, the Company issued $100.0 million of 10 7/8% senior subordinated notes due 2007. On May 29, 2001, the Company issued an additional $125.0 million of senior subordinated notes due 2007 with identical terms to the notes issued in April 1997 (collectively "Notes") at a premium of $1.9 million. The 28 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) premium is amortized as a reduction of interest expense over the life of the Notes so that the effective interest rate on these additional Notes is 10.5%. The premium is shown separately on the Balance Sheet. Interest on the Notes is payable semi-annually on April 1 and October 1. The Notes will be redeemable, in whole or in part, at the option of the Company at any time on or after April 1, 2002 at 105.44% which decreases annually to 100.00% on April 1, 2005 and thereafter, plus accrued and unpaid interest. In the event of a change of control of the Company, as defined in the indenture, each holder of the Notes will have the right to require the Company to repurchase all or part of such holder's Notes at an offer price in cash equal to 101.0% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of purchase. The Notes contain certain covenants, including limitations on indebtedness, liens, compliance with requirements of existing indebtedness, dividends, repurchases of capital stock and other payment restrictions affecting restricted subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales and restrictions on mergers and consolidations or sales of assets. As of December 31, 2002, the Company was in compliance with its covenants under the Notes. In the event the Company becomes out of compliance with its Credit Facility covenants, the Notes will not be impacted unless borrowings under the Credit Facility are in excess of $10.0 million. 9. Income Taxes Income tax expense (benefit) is summarized as follows (in thousands):
Year Ended Year Ended Year Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ Current Federal.............. $ (734) $ -- $ 67 State................ -- 595 18 Deferred Federal.............. (10,846) (10,488) (13,506) Foreign.............. -- (300) 300 State................ -- 1,138 899 -------- -------- -------- Total income tax benefit $(11,580) $ (9,055) $(12,222) ======== ======== ========
29 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2002 and 2001 is as follows:
December 31, December 31, 2002 2001 ------------ ------------ Net operating loss carryforwards............ $ 26,597 $ 12,487 Percentage depletion carryforwards.......... 279 279 Alternative minimum tax credit carryforwards 8 742 Tax effect of hedging activities............ 2,259 -- State income taxes.......................... 3,140 2,134 Impairment of interest in Carpatsky......... 2,186 2,186 Other....................................... 1,869 1,689 -------- -------- Gross deferred tax assets................... 36,338 19,517 Less valuation allowance.................... (5,326) (4,320) -------- -------- Deferred income tax assets.................. 31,012 15,197 -------- -------- Property, plant and equipment............... (47,958) (45,143) Tax effect of hedging activities............ -- (1,231) Total deferred income tax liability......... (47,958) (46,374) -------- -------- Net deferred income tax asset (liability)... $(16,946) $(31,177) ======== ========
At December 31, 2000, the Company determined that it was more likely than not that the deferred tax assets would be realized based on current projections of taxable income due to higher commodity prices at year end 2000, and the valuation allowance was decreased by $19.8 million to zero. At December 31, 2001, however, the Company determined that a portion of the deferred tax assets would not be realized. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the projections for future state taxable income, management believes it is more likely than not that the Company will not realize its deferred tax asset related to state income taxes. Based upon the projections of future taxable income, management believes it is more likely than not that the Company will not realize its deferred tax asset related to the impairment of the interest in Carpatsky, because the reversal of the deferred tax asset will result in a capital loss for federal income tax purposes, and the Company does not project any transactions resulting in capital gains to offset the capital loss. The valuation allowance is therefore $5.3 million and $4.3 million for the years ending December 31, 2002 and 2001, respectively. A tax benefit related to the cumulative effect of a change in accounting method of $1,663,000 was recorded and shown as part of the cumulative effect on the consolidated statements of operations in 2001. A tax benefit related to the exercise of employee stock options of approximately $240,000 and $95,000 was allocated directly to additional paid-in capital in 2001 and 2000, respectively. Such benefit was not material in 2002. 30 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Total income tax differs from the amount computed by applying the Federal income tax rate to income before income taxes, minority interest, and cumulative adjustment. The reasons for the differences are as follows:
Year Ended Year Ended Year Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ Statutory federal income tax rate............... 35.0% 35.0% 34.0% Increase (decrease) in tax rate resulting from: State income taxes, net of federal benefit... 2.0% (1.3%) 3.0% Foreign income taxes, net of federal benefit. -- 0.5% 1.0% Non-deductible travel and entertainment......... (0.1%) (0.1%) 0.1% Non-deductible goodwill amortization/impairment. (11.7%) (0.9%) -- Other........................................... (0.1%) -- -- Change in valuation allowance................... (2.0%) (8.9%) (99.3%) ----- ---- ----- 23.1% 24.3% (61.2%) ===== ==== =====
The Company issued 9.5 million shares of its common stock on May 16, 2001 in its acquisition of Bargo Energy Company. Management believes that the merger with Bargo was not an ownership change as defined in section 382 of the Internal Revenue Code. Therefore, the Company last had an ownership change in 1994 with the issuance of 3.4 million shares of its common stock. A change of stock ownership in the future by a significant shareholder of the Company may cause an ownership change, which would affect the Company's ability to utilize its net operating loss ("NOL") carryforwards in the future. Section 382 of the Internal Revenue Code significantly limits the amount of NOL and investment tax credit carryforwards that are available to offset future taxable income and related tax liability when a change in ownership occurs. At December 31, 2002, the Company had net operating loss carryforwards of approximately $75.9 million, which will expire in future years beginning in 2003 and ending in 2022 as shown below.
($ in thousands) ---------------- 2003...... $ 121 2004...... 1,371 2005...... 1,242 2006...... 1,538 2007...... 401 Thereafter 71,318 ------- Total..... $75,991 =======
10. Commitments and Contingencies Lease Commitments At December 31, 2002, the minimum future payments under the terms of the Company's office space operating leases are as follows:
Year Ended December 31 ($ in thousands) ---------------------- ---------------- 2003 597 2004 601 2005 601 2006 601 2007 601
31 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Rent expense was $685,000, $551,000, and $509,000 in 2002, 2001 and 2000, respectively. Contingencies The Company is involved in litigation relating to claims arising out of its operations in the normal course of business, including workmen's compensation claims, tort claims and contractual disputes. Some of the existing known claims against the Company are covered by insurance subject to limits of such policies and the payment of deductible amounts. Management believes that the ultimate disposition of uninsured or unindemnified matters resulting from existing litigation will not have a material adverse effect on the Company's financial position, results of operations or cash flows. A dispute between the Minerals Management Service ("MMS") and the Company concerning the appropriate expenses to be used in calculating royalties was resolved in the third quarter of 2002. The Company agreed to pay the MMS approximately $170,000, which was less than the $1.9 million reserve previously classified as other liabilities on the Balance Sheet. The Company had reserved an amount each month assuming that the entire expense tariff being deducted could be disallowed by the MMS. The Company was able to resolve the dispute on more favorable terms, resulting in a $1.7 million gain that is included in interest and other income on the Statement of Operations. In early 2002, Mission settled for $98,000 Garza Energy Trust, et al. V. Coastal Oil and Gas Corporation, et al. Mission had accrued $250,000 for the judgment in 2001, but later arrived at this more favorable settlement. The Company routinely obtains bonds to cover its obligations to plug and abandon oil and gas wells. In instances where the Company purchases or sells oil and gas properties, the parties to the transaction routinely include an agreement as to who will be responsible for plugging and abandoning any wells on the property and restoring the surface. In those cases, the Company will obtain new bonds or release old bonds regarding its plugging and abandonment exposure based on the terms of the purchase and sale agreement. However, if a party to the purchase and sale agreement defaults on its obligations to obtain a bond or otherwise plug and abandon a well or restore the surface or if that party becomes bankrupt, the landowner, and in some cases the state or federal regulatory authority, may assert that the Company is obligated to plug the well since it is in the "chain of title". The Company has been notified of such claims from landowners and the State of Louisiana and is vigorously asserting its rights under the applicable purchase and sale agreements to avoid this liability. At this time, the Company has accrued a liability for approximately $161,000 that it has agreed to contribute toward the proper abandonment and cleanup of the Bayou fer Blanc field. In 1993 and 1996 the Company entered into agreements with surety companies and with Torch and Nuevo Energy Company ("Nuevo") whereby the surety companies agreed to issue such bonds to the Company, Torch and/or Nuevo. However, Torch, Nuevo and the Company agreed to be jointly and severally liable to the surety company for any liabilities arising under any bonds issued to the Company, Torch and/or Nuevo. The amount of bonds presently issued to Torch and Nuevo pursuant to these agreements is approximately $35.2 million. The Company has notified the sureties that it will not be responsible for any new bonds issued to Torch or Nuevo. However, the sureties are permitted under these agreements to seek reimbursement from the Company, as well and from Torch and Nuevo, if the surety makes any payments under the bonds issued to Torch and Nuevo. 11. Restructuring During 2001 year the Company took several steps to restructure its operations and improve its cost structure, including the reduction of staff by almost 50% and the termination of several outsourcing contracts. The $2.1 million in costs associated with these plans was paid in 2002. In the latter half of 2002, Mission's Chief 32 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Executive Officer, Chief Financial Officer and Senior Vice President--Finance, left the Company to pursue other activities. This resulted in a charge of approximately $3.3 million which is reflected in general and administrative expenses. As a condition to the separation agreement, the Company signed agreements with the former Chief Executive Officer and the former Chief Financial Officer to provide consulting services as needed over a 12-month period, the cost of which is amortized to expense over the period. 12. Selected Quarterly Financial Data (amounts in thousands, except per share data) (Unaudited):
Quarter Ended -------------------------------------------- December 31, September 30, June 30, March 31, 2002 2002 2002 2002 ------------ ------------- -------- --------- Revenues...................... $ 27,327 $27,571 $28,266 $ 22,300 Operating income (loss)....... $(22,704) $(3,735) $(9,221) $(14,404) Net income (loss)............. $(20,700) $(2,428) $(5,993) $ (9,363) Loss per common share......... $ (0.88) $ (0.10) $ (0.25) $ (0.40) Loss per common share--diluted $ (0.88) $ (0.10) $ (0.25) $ (0.40)
Quarter Ended --------------------------------------------- December 31, September 30, June 30, March 31, 2001 2001 2001 2001 ------------ ------------- -------- --------- Revenue........................... $ 32,522 $40,497 $35,243 $33,815 Operating income.................. $(39,099) $ 1,429 $(9,432) $ 9,869 Net income........................ $ 29,260 $ 693 $(6,007) $ 3,629 Earnings per common share......... $ (1.24) $ 0.03 $ (0.32) $ 0.46 Earnings per common share--diluted $ (1.24) $ 0.03 $ (0.32) $ 0.44
The loss in the quarter ended December 31, 2002 includes the impact of a $16.7 million goodwill impairment. The loss in the quarter ended June 30, 2001 reflects the loss on sale of Ecuador interests. The loss in the quarter ended December 31, 2001 includes the impact of $27.0 million in pre-tax asset impairments. 13. Pro forma The merger with Bargo completed on May 16, 2001 significantly impacted the future operating results of Mission Resources. The merger was accounted for as a purchase, and the results of operations are included in Mission's results of operations from May 16, 2001. The pro forma results are based on assumptions and estimates and are not necessarily indicative of the Company's results of operations had the transaction occurred as of January 1, 2000, or of those in the future. The following table presents the unaudited pro forma results of operations as if the merger had occurred on January 1, 2000 and 2001, respectively (amounts in thousands, except earnings per share):
Year Ended Year Ended December 31, December 31, 2001 2000 ------------ ------------ Revenues......................................................... $182,252 $226,260 Income before cumulative effective of change in accounting method $(26,054) $ 40,936 Net income (loss)................................................ $(28,821) $ 40,936 Net income (loss) per share...................................... $ (1.22) $ 1.75 Net income (loss) per share--diluted............................. $ (1.22) $ 1.73
33 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 14. Guarantees The Company's subsidiaries, Mission E&P Limited Partnership, Mission Holdings LLC, and Black Hawk Oil Company are guarantors under the indenture for the $225.0 million 10 7/8% senior subordinated notes. In 1993 and 1996 the Company entered into agreements with surety companies and with Torch and Nuevo whereby the surety companies agreed to issue such bonds to the Company, Torch and/or Nuevo. However, Torch, Nuevo and the Company agreed to be jointly and severally liable to the surety company for any liabilities arising under any bonds issued to the Company, Torch and/or Nuevo. The amount of bonds presently issued to Torch and Nuevo pursuant to these agreements is approximately $35.2 million. The Company has notified the sureties that it will not be responsible for any new bonds issued to Torch or Nuevo. However, the sureties are permitted under these agreements to seek reimbursement from the Company, as well and from Torch and Nuevo, if the surety makes any payments under the bonds issued to Torch and Nuevo. Typically, in a property sale the Company will retain liability for events or occurrences that were known prior to the effective date of the sale, but not otherwise. All other liabilities become the responsibility of the purchaser after the effective date of the sale. 15. Subsequent Events (unaudited) In March 2003, the Company sold its interests in the Point Pedernales field to the operator of the property. This transaction divests Mission of all California properties; however, the option to participate in future drilling at Tranquillion Ridge was retained. The Company paid $1.8 million to the purchaser, who in turn assumed the Company's environmental, plugging and abandonment liabilities, estimated to be between $3 million and $5 million. Mission Resources Corporation announced on March 28, 2003 that it had acquired, in a private transaction with affiliates of Farallon Capital Management, LLC, $97.6 million of its 10 7/8% senior subordinated notes (the "Notes") for approximately $71.7 million plus accrued interest. Simultaneously with the buyback, Mission has amended and restated its credit facility with new lenders, led by Farallon Energy Lending, LLC. The amended and restated senior secured credit facility (the "Facility") has a term approximately 21 months and has initial availability of $80.0 million. The Company has drawn the full $80.0 million. Approximately $75.0 million of the drawn funds were used to acquire $97.6 million face amount of the Notes and pay closing costs associated therewith. The remaining amount is available for general corporate purposes. The Facility provides that an additional $10.0 million could be made available at the sole discretion of the lenders and that if such additional advance were to be made, it could be used only for the purpose of acquiring additional Notes. There can be no assurances that the lenders will consent to this additional advance. The interest rate on the Facility is 12% initially and will increase to 13% in early 2004. The Facility allows the Company to put in place a revolving credit facility of up to $12.5 million with a third party subject to certain limitations. 34 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In February 2003, the Company cancelled its interest rate swap by paying the counter party approximately $1.3 million, the then market value of the swap. On March 26, 2003, Moody's lowered the Company's senior subordinated notes credit rating to "Caa3" from "Caa1", lowered its senior implied rating to "Caa1" from "B2" and lowered its senior secured debt rating to "B2" from "B1". 16. Segment Reporting Through mid-2001, the Company's operations are concentrated primarily in three segments: exploration and production of oil and natural gas in the United States, in Ecuador and gas plants. The assets in Ecuador and two gas plants were sold in 2001.
Year Ended December 31, ---------------------------- 2002 2001 2000 -------- -------- -------- Sales to unaffiliated customers: Oil and gas--US................................... $112,879 $131,358 $107,938 Oil and gas--Ecuador.............................. -- 1,877 4,315 Gas plants........................................ -- 4,456 6,070 -------- -------- -------- Total sales.................................... 112,879 137,691 118,323 Interest and other income (expense)............... (7,415) 4,386 957 -------- -------- -------- Total revenues................................. 105,464 142,077 119,280 ======== ======== ======== Operating profit (loss) before income taxes: Oil and gas--US................................... $ 16,768 $ 38,549 $ 40,983 Oil and gas--Ecuador.............................. -- (1,698) 719 Gas plants........................................ -- 2,338 3,393 Gain on gas plant sale............................ -- 1,124 -- -------- -------- -------- $ 16,768 $ 40,313 $ 45,095 Unallocated corporate expenses.................... 20,655 10,998 9,734 Interest expense.................................. 26,853 23,664 15,375 Mining venture costs.............................. -- 914 -- Loss on sale of Ecuador interests................. 2,645 12,724 -- Impairment expense................................ 16,679 27,057 -- Uncollectible gas revenue......................... -- 2,189 -- -------- -------- -------- Operating profit (loss) before income taxes....... $(50,064) $(37,233) $ 19,986 ======== ======== ======== Identifiable assets: Oil and gas--US................................... $300,719 $379,738 $125,586 Oil and gas--Ecuador.............................. -- -- 12,243 Gas plants........................................ -- -- 11,107 -------- -------- -------- $300,719 $379,738 $148,936 Corporate assets and investments.................. 41,685 68,026 72,609 -------- -------- -------- Total.......................................... $342,404 $447,764 $221,545 ======== ======== ======== Capital expenditures: Oil and gas--US................................... $ 21,439 $ 68,048 $ 76,242 Oil and gas--Ecuador.............................. -- 4,151 12,130 Gas plants........................................ -- 1,047 677 -------- -------- -------- $ 21,439 $ 73,246 $ 89,049 ======== ======== ======== Depreciation, depletion amortization and impairments: Oil and gas--US................................... $ 42,656 $ 41,895 $ 30,356 Oil and gas--Ecuador.............................. -- 504 745 Gas plants........................................ -- 1,025 1,211 -------- -------- -------- $ 42,656 $ 43,424 $ 32,312 ======== ======== ========
35 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. Supplemental Information--(Unaudited) Oil and Gas Producing Activities: Included herein is information with respect to oil and gas acquisition, exploration, development and production activities, which is based on estimates of year-end oil and gas reserve quantities and estimates of future development costs and production schedules. Reserve quantities and future production are based primarily upon reserve reports prepared by the independent petroleum engineering firms. The reserve reports were prepared by Ryder Scott Company for the year ended December 31, 2000. The reserve reports for the year ended December 31, 2001 were prepared by Ryder Scott Company, Netherland Sewell & Associates, Inc., and T. J. Smith & Company, Inc. The reserve report for the year ended December 31, 2002 were prepared by Netherland Sewell & Associates, Inc. These estimates are inherently imprecise and subject to substantial revision. Estimates of future net cash flows from proved reserves of gas, oil, condensate and natural gas liquids were made in accordance with SFAS No. 69, "Disclosures about Oil and Gas Producing Activities." The estimates are based on prices at year-end. Estimated future cash inflows are reduced by estimated future development costs (including future abandonment and dismantlement), and production costs based on year-end cost levels, assuming continuation of existing economic conditions, and by estimated future income tax expense. Tax expense is calculated by applying the existing statutory tax rates, including any known future changes, to the pre-tax net cash flows, less depreciation of the tax basis of the properties and depletion allowances applicable to the gas, oil, condensate and NGL production. The impact of the net operating loss is considered in calculation of tax expense. The results of these disclosures should not be construed to represent the fair market value of the Company's oil and gas properties. A market value determination would include many additional factors including: 1) anticipated future increases or decreases in oil and gas prices and production and development costs; 2) an allowance for return on investment; 3) the value of additional reserves not considered proved at the present, which may be recovered as a result of further exploration and development activities; and 4) other business risks. 36 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Costs Incurred (in thousands)
Year Ended December 31, ------------------------ 2002 2001 2000 ------- -------- ------- United States: Property acquisition: Proved properties*................ $ 850 $280,281 $ 5,065 Unproved properties............... -- 4,100 -- Exploration....................... 1,337 12,489 13,139 Development: Proved developed properties....... 16,377 25,609 41,615 Proved undeveloped properties..... 2,876 6,462 16,423 ------- -------- ------- $21,440 $328,941 $76,242 ------- -------- ------- Ecuador: Property acquisition: Proved properties................. -- $ 249 $ 2,013 Unproved properties............... -- -- -- Development: Proved developed properties....... -- 3,902 10,117 Proved undeveloped properties..... -- -- -- ------- -------- ------- $ -- $ 4,151 $12,130 ------- -------- ------- Worldwide: Property acquisition: Proved properties................. $ 850 $280,530 $ 7,078 Unproved properties............... -- 4,100 -- Exploration....................... 1,337 12,489 13,139 Development: Proved developed properties....... 16,377 29,511 51,732 Proved undeveloped properties..... 2,876 6,462 16,423 ------- -------- ------- $21,440 $333,092 $88,372 ======= ======== =======
- -------- * 2001 total includes $56.6 million of deferred taxes related to the Bargo merger. Capitalized costs (in thousands):
Year Ended December 31, ---------------------- 2002 2001 --------- --------- Proved properties................................................... $ 766,975 $ 738,375 Unproved properties................................................. 8,369 15,530 --------- --------- Total capitalized costs.......................................... 775,344 753,905 Accumulated depreciation, depletion, amortization and impairment. (474,625) (374,167) --------- --------- Net capitalized costs........................................ $ 300,719 $ 379,738 ========= =========
37 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Results of operations for producing activities (in thousands):
Year Ended December 31, 2002 ------------ Revenues from oil and gas producing activities............................................ $112,879 Production costs.......................................................................... 51,987 Transportation costs...................................................................... 834 Income tax................................................................................ 21,020 Depreciation, depletion and amortization.................................................. 43,291 -------- Results of operations from producing activities (excluding corporate overhead and interest costs).................................................................................. $ (4,253) ========
Year Ended December 31, 2001 --------------------------- United States Ecuador Worldwide -------- ------- --------- Revenues from oil and gas producing activities............................... $131,358 $ 1,877 $133,235 Production expenses.......................................................... 48,134 3,071 51,205 Transportation costs......................................................... 73 -- 73 Income tax................................................................... 6,208 -- 6,208 Impairment expense........................................................... 20,811 -- 20,811 Depreciation, depletion and amortization..................................... 44,602 504 45,106 -------- ------- -------- Results of operations from producing activities (excluding corporate overhead and interest costs)........................................................ $ 11,530 $(1,698) $ 9,832 ======== ======= ========
Year Ended December 31, 2000 -------------------------- United States Ecuador Worldwide -------- ------- --------- Revenues from oil and gas producing activities............................... $107,938 $4,315 $112,253 Production expenses.......................................................... 27,694 2,815 30,509 Disposition of hedges........................................................ 8,671 -- 8,671 Transportation costs......................................................... 234 36 270 Income tax................................................................... 15,574 -- 15,574 Depreciation, depletion and amortization..................................... 30,356 745 31,101 -------- ------ -------- Results of operations from producing activities (excluding corporate overhead and interest costs)........................................................ $ 25,409 $ 719 $ 26,128 ======== ====== ========
38 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company's estimated total proved and proved developed reserves of oil and gas are as follows:
Year Ended December 31, 2002 ----------------------- Oil NGL Gas Description (MBBL) (MBBL) (MMCF) ----------- ------- ------ ------- Proved reserves at beginning of year 39,538 2,060 154,082 Revisions of previous estimates..... (1,915) 251 (42,426) Extensions and discoveries.......... 227 -- 537 Production.......................... (3,157) (266) (12,524) Sales of reserves in-place.......... (12,093) (41) (18,178) Purchase of reserves in-place....... 5 -- -- ------- ----- ------- Proved reserves at end of year...... 22,605 2,004 81,491 ======= ===== ======= Proved developed reserves-- Beginning of year................ 31,902 1,924 97,984 ======= ===== ======= End of year...................... 18,581 1,869 53,708 ======= ===== =======
39 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year Ended December 31, 2001 ----------------------- Oil NGL Gas Description (MBBL) (MBBL) (MMCF) ----------- ------- ------ ------- United States Proved reserves at beginning of year 9,669 1,655 74,729 Revisions of previous estimates..... (1,134) 488 (3,302) Extensions and discoveries.......... 2,430 80 25,126 Production.......................... (3,140) (163) (17,597) Sales of reserves in-place.......... (3,883) -- (15,927) Purchase of reserves in-place....... 35,596 -- 91,053 ------- ----- ------- Proved reserves at end of year...... 39,538 2,060 154,082 ======= ===== ======= Proved developed reserves-- Beginning of year................ 9,073 1,508 68,757 ======= ===== ======= End of year...................... 31,902 1,924 97,984 ======= ===== ======= Ecuador:(1) Proved reserves at beginning of year 7,812 -- -- Production.......................... (95) -- -- Sales of reserves in-place.......... (7,717) -- -- ------- ----- ------- Proved reserves at end of year...... -- -- -- ======= ===== ======= Proved developed reserves--......... Beginning of year................ 2,135 -- -- ======= ===== ======= End of year...................... -- -- -- ======= ===== ======= Worldwide: Proved reserves at beginning of year 17,481 1,655 74,729 Revisions of previous estimates..... (1,134) 488 (3,302) Extensions and discoveries.......... 2,430 80 25,126 Production.......................... (3,235) (163) (17,597) Sales of reserves in-place.......... (11,600) -- (15,927) Purchase of reserves in-place....... 35,596 -- 91,053 ------- ----- ------- Proved reserves at end of year...... 39,538 2,060 154,082 ======= ===== ======= Proved developed reserves-- Beginning of year................ 11,208 1,508 68,757 ======= ===== ======= End of year...................... 31,902 1,924 97,984 ======= ===== =======
- -------- (1) The Company's Ecuador reserves were pursuant to a contract with the Ecuadorian government under which the Company did not own the reserves but had a contractual right to produce the reserves and receive revenues. 40 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year Ended December 31, 2000 ---------------------- Oil NGL Gas Description (MBBL) (MBBL) (MMCF) ----------- ------ ------ ------- United States Proved reserves at beginning of year 10,827 2,069 130,079 Revisions of previous estimates..... 1,033 93 (21,291) Extensions and discoveries.......... 613 4 18,418 Production.......................... (1,987) (219) (20,478) Sales of reserves in-place.......... (817) (292) (31,999) Purchase of reserves in-place....... -- -- -- ------ ----- ------- Proved reserves at end of year...... 9,669 1,655 74,729 ====== ===== ======= Proved developed reserves-- Beginning of year................ 9,990 2,032 108,491 ====== ===== ======= End of year...................... 9,073 1,508 68,757 ====== ===== ======= Ecuador:(1) Proved reserves at beginning of year 3,884 -- -- Revisions of previous estimates..... (714) -- -- Production.......................... (174) -- -- Purchase of reserves in-place....... 4,817 -- -- Proved reserves at end of year...... 7,813 -- -- ====== ===== ======= Proved developed reserves-- Beginning of year................ 245 -- -- ====== ===== ======= End of year...................... 2,135 -- -- ====== ===== ======= Worldwide: Proved reserves at beginning of year 14,711 2,069 130,079 Revisions of previous estimates..... 319 93 (21,291) Extensions and discoveries.......... 613 4 18,418 Production.......................... (2,161) (219) (20,478) Sales of reserves in-place.......... (817) (292) (31,999) Purchase of reserves in-place....... 4,817 -- -- ------ ----- ------- Proved reserves at end of year...... 17,482 1,655 74,729 ====== ===== ======= Proved developed reserves-- Beginning of year................ 10,235 2,032 108,491 ====== ===== ======= End of year...................... 11,208 1,508 68,757 ====== ===== =======
- -------- (1) The Company's Ecuador reserves were pursuant to a contract with the Ecuadorian government under which the Company did not own the reserves but had a contractual right to produce the reserves and receive revenues. 41 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Discounted future net cash flows (in thousands) The standardized measure of discounted future net cash flows and changes therein related to proved oil and gas reserves are shown below:
Year Ended December 31, ---------------------------------- 2002 2001 2000 ---------- ---------- ---------- United States: Future cash flow.................. $1,075,050 $1,200,145 $ 950,121 Future production costs........... (405,251) (502,083) (203,464) Future income taxes............... (125,094) (112,364) (183,139) Future development costs.......... (74,034) (97,644) (36,874) ---------- ---------- ---------- Future net cash flows............. 470,671 488,054 526,644 10% discount factor............... (214,843) (192,483) (133,062) ---------- ---------- ---------- Standardized future net cash flows $ 255,828 $ 295,571 $ 393,582 ========== ========== ========== Ecuador: Future cash flow.................. $ -- $ -- $ 174,632 Future production costs........... -- -- (60,899) Future income taxes............... -- -- (37,793) Future development costs.......... -- -- (27,595) ---------- ---------- ---------- Future net cash flows............. -- -- 48,345 10% discount factor............... -- -- (18,835) ---------- ---------- ---------- Standardized future net cash flows $ -- $ -- $ 29,510 ========== ========== ========== Worldwide: Future cash flow.................. $1,075,050 $1,200,145 $1,124,753 Future production costs........... (405,251) (502,083) (264,363) Future income taxes............... (125,094) (112,364) (220,932) Future development costs.......... (74,034) (97,644) (64,469) ---------- ---------- ---------- Future net cash flows............. 470,671 488,054 574,989 10% discount factor............... (214,843) (192,483) (151,897) ---------- ---------- ---------- Standardized future net cash flows $ 255,828 $ 295,571 $ 423,092 ========== ========== ==========
The following are the principal sources of change in the standardized measure of discounted future net cash flows (in thousands of dollars):
Year Ended December 31, 2002 ------------ Standardized measure--beginning of year...................................................... $295,571 Sales, net of production costs............................................................... (60,031) Net change in prices and production costs.................................................... 160,132 Net change in income taxes................................................................... (2,635) Extensions, discoveries and improved recovery, net of future production and development costs 3,803 Changes in estimated future development costs................................................ 4,459 Development costs incurred during the period................................................. 15,870 Revisions of quantity estimates.............................................................. (78,419) Accretion of discount........................................................................ 29,557 Sales of reserves in-place................................................................... (56,875) Changes in production rates and other........................................................ (55,604) -------- Standardized measure--end of year............................................................ $255,828 ========
42 MISSION RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year Ended December 31, 2001 ------------------------------ United World States Ecuador Wide --------- -------- --------- Standardized measure--beginning of year.................................... $ 393,582 $ 29,510 $ 423,092 Sales, net of production costs............................................. (83,151) 1,194 (81,957) Purchases of reserves in-place............................................. 618,442 -- 618,442 Net change in prices and production costs.................................. (727,143) -- (727,143) Net change in income taxes................................................. 30,994 18,577 49,571 Extensions, discoveries and improved recovery, net of future production and development costs........................................................ 62,308 -- 62,308 Changes in estimated future development costs.............................. (27,152) -- (27,152) Development costs incurred during the period............................... 21,584 3,736 25,320 Revisions of quantity estimates............................................ 18,376 -- 18,376 Accretion of discount...................................................... 39,358 2,950 42,308 Sales of reserves in-place................................................. (89,139) (53,017) (142,156) Changes in production rates and other...................................... 37,512 (2,950) 34,562 --------- -------- --------- Standardized measure--end of year.......................................... $ 295,571 $ -- $ 295,571 ========= ======== =========
Year Ended December 31, 2000 ------------------------------ United World States Ecuador Wide --------- -------- --------- Standardized measure--beginning of year.................................... $ 191,604 $ 13,284 $ 204,888 Sales, net of production costs............................................. (80,244) (1,500) (81,744) Purchases of reserves in-place............................................. -- 28,389 28,389 Net change in prices and production costs.................................. 375,242 (23,174) 352,068 Net change in income taxes................................................. (113,444) (14,430) (127,874) Extensions, discoveries and improved recovery, net of future production and development costs........................................................ 56,283 -- 56,283 Changes in estimated future development costs.............................. (4,942) (1,990) (6,932) Development costs incurred during the period............................... 31,095 4,329 35,424 Revisions of quantity estimates............................................ (46,271) (6,787) (53,058) Accretion of discount...................................................... 19,160 1,329 20,489 Sales of reserves in-place................................................. (34,697) -- (34,697) Changes in production rates and other...................................... (204) 30,060 29,856 --------- -------- --------- Standardized measure--end of year.......................................... $ 393,582 $ 29,510 $ 423,092 ========= ======== =========
The discounted future cash flows above were calculated using the NYMEX WTI Cushing price for oil and the NYMEX Henry Hub price for gas that was posted for the last trading day of each year presented. Those prices were $31.17, $19.76, and $26.80 per barrel and $4.74, $2.73, and $9.52 per MMBTU, for December 31, 2002, 2001, and 2000, respectively, adjusted to the wellhead to reflect adjustments for transportation, quality and heating content. The foregoing discounted future net cash flows do not include the effects of hedging or other derivative contracts not specific to a property. Including the tax effected impact of hedging on discounted future net cash flows would have increased discounted future net cash flows by approximately $5.7 million as of December 31, 2001. Including the tax effected impact of hedging on discounted future cash flows would have decreased discounted future net cash flows by approximately $ 7.7 million and $35.7 million as of December 31, 2002 and 2000. 43 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. and 2. Financial Statements. See index to Consolidated Financial Statements and Supplemental Information in Item 8, which information is incorporated herein by reference. 2.1 Agreement and Plan of Merger dated January 24, 2001 between the Company and Bargo Energy Company (incorporated by reference to Exhibit 2.1 to the Company's 8-K filed on January 26, 2001). 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement No. 33-76570 filed on March 17, 1994). 3.2 Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K filed on September 27, 1997). 3.3 Certificate of Designation, Preferences and Rights of the Series A Preferred Stock of the Company (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K filed on September 27, 1997). 3.4 Certificate of Merger of Bargo Energy Company into the Company (incorporated by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 3.5 Certificate of Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.5 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 3.6 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement No. 33-76570 filed on March 17, 1994) 3.7 Amendment to the Company's Bylaws adopted on November 21, 1997 (incorporated by reference to Exhibit 3.5 to the Company's Annual Report on Form 10-K filed on March 27, 1998). 3.8 Amendment to the Company's Bylaws adopted on March 27, 1998 (incorporated by reference to Exhibit 3.6 to the Company's Annual Report on Form 10-K filed on March 27, 1998). 4.1 Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 4.2 Rights Agreement between the Company and American Stock Transfer & Trust Company (incorporated herein by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A filed on September 19, 1997). 4.3 Indenture dated as of May 29, 2001 among the Company, the Subsidiary Guarantors named therein and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-4 filed on July 27, 2001). 10.1 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement No. 33-76570 filed on [March 17, 1994]) 10.2 1996 Stock Incentive Plan (incorporated by reference to Exhibit A to the Company's Proxy Statement on Schedule 14A filed on October 21, 1996) 10.3 Master Services Agreement dated October 1, 1999 between the Company and Torch Operating Company, Torch Energy Marketing, Inc., Torch Energy Advisors, Inc. and Novistar, Inc. (incorporated by reference to Exhibit 11.15 to the Company's Annual Report on Form 10-K filed on March 24, 2000). 10.4 Credit Agreement dated May 16, 2001 among the Company as Borrower, The Chase Manhattan Bank as administrative agent, BNP Paribas as syndication agent, First Union National Bank and Fleet National Bank as co documentation agents (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K filed on March 29, 2002).
44 10.5 First Amendment to the Credit Agreement by and among the Company and JPMorgan Chase Bank, as Administrative Agent, BNP Paribas, as Syndication Agent, First Union National Bank and Fleet National Bank, as Co-Documentation Agent, and the Lenders Signatory thereto, dated May 29, 2001 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed August 14, 2002). 10.6 Second Amendment to the Credit Agreement by and among the Company and JPMorgan Chase Bank, as Administrative Agent, BNP Paribas, as Syndication Agent, First Union National Bank and Fleet National Bank, as Co-Documentation Agent, and the Lenders Signatory Hereto, dated March 28, 2002 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed August 14, 2002). 10.7 Third Amendment to the Credit Agreement by and among the Company and JPMorgan Chase Bank, as Administrative Agent, BNP Paribas, as Syndication Agent, Wachovia Bank National Association and Fleet National Bank, as Co-Documentation Agent, and the Lenders Signatory Hereto, dated October 7, 2002 (incorporated by reference to the Company's Current Report on Form 8-K filed on October 10, 2002). 10.8 Employment Agreement effective as of May 15, 2000 between the Company and Douglas G. Manner (incorporated by reference to Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q filed August 11, 2000). 10.9 Separation Agreement between the Company and Douglas G. Manner dated effective July 31, 2002 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed August 14, 2002). 10.10 Employment Agreement dated May 2, 2001, between the Company and Jonathan M. Clarkson (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 10.11 Separation Agreement between the Company and Jonathon M. Clarkson effective September 30, 2002 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed November 14, 2002). 10.12 Employment Agreement dated August 8, 2002, between the Company and Robert L. Cavnar (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed November 14, 2002). 10.13 Employment Agreement dated October 8, 2002, between the Company and Richard W. Piacenti (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed November 14, 2002). 10.14 Employment Agreement dated November 7, 2002, between the Company and John L. Eells (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 10.15 Employment Agreement dated November 6, 2002, between the Company and Joseph G. Nicknish (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 10.16 Employment Agreement dated May 15, 2001, between the Company and Daniel P. Foley (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 10.17 Separation Agreement dated November 15, 2002, between the Company and Daniel P. Foley (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 10.18 Form of Indemnification Agreement between the Company and each of its directors and executive officers (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q filed November 14, 2002).
45 21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 23.1 Consent of KPMG LLP (incorporated by reference to Exhibit 23.1 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 23.2 Consent of Netherland Sewell & Associates, Inc. (incorporated by reference to Exhibit 23.2 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 23.3 Consent of Ryder Scott Company (incorporated by reference to Exhibit 23.3 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 23.4 Consent of T.J. Smith & Company, Inc. (incorporated by reference to Exhibit 23.4 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 23.5* Consent of KPMG LLP related to this Annual Report in Form 10-K/A. 23.6* Consent of Netherland Sewell & Associates, Inc. related to this Annual Report on Form 10-K/A. 23.7* Consent of Ryder Scott Company related to this Annual Report on Form 10-K/A. 23.8* Consent of T.J. Smith & Company, Inc. related to this Annual Report on Form 10-K/A 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of the Company (incorporated by reference to Exhibit 99.1 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of the Company (incorporated by reference to Exhibit 99.2 to the Company's Annual Report on Form 10-K filed on March 31, 2003). 99.3* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of the Company related to this Annual Report on Form 10-K/A. 99.4* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of the Company related to this Annual Report on Form 10-K/A.
- -------- * Filed herewith. (b) Reports on Form 8-K (i) The Company filed a Current Report on Form 8-K on October 9, 2002, relating to the resignation and hiring of new officers. (ii) The Company filed a Current Report on Form 8-K on October 10, 2002, relating to the amendment of its credit facility. (iii) The Company filed a Current Report on Form 8-K on October 22, 2002, relating to election of a board member. (iv) The Company filed a Current Report on Form 8-K on November 14, 2002, relating to third quarter 2002 results. (v) The Company filed a Current Report on Form 8-K on November 25, 2002, relating to the sale of non-strategic properties and the associated borrowing base reduction. (vi) The Company filed a Current Report on Form 8-K on December 19, 2002, relating to first quarter 2003 guidance, year-end 2002 reserves estimates and updates to current hedge position. 46 MISSION RESOURCES CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MISSION RESOURCES CORPORATION /S/ ROBERT L. CAVNAR By:___________________________________ Robert L. Cavnar Chairman and Chief Executive Officer Date: April 4, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title Date ---------- ----- ---- /s/ Robert L. Cavnar Chairman and Chief Executive April 4, 2003 - ----------------------------- Officer (principal Robert L. Cavnar executive officer) /s/ RICHARD W. PIACENTI Senior Vice President and April 4, 2003 - ----------------------------- Chief Financial Officer Richard W. Piacenti (principal financial officer) /s/ ANN KAESERMANN Vice President--Accounting April 4, 2003 - ----------------------------- and Investor Relations, Ann Kaesermann Chief Accounting Officer (principal accounting officer) /s/ JUDY LEY ALLEN Director April 4, 2003 - ----------------------------- Judy Ley Allen /s/ DAVID A.B. BROWN Director April 4, 2003 - ----------------------------- David A.B. Brown /s/ ROBERT R. ROONEY Director April 4, 2003 - ----------------------------- Robert R. Rooney /s/ HERBERT C. WILLIAMSON Director April 4, 2003 - ----------------------------- Herbert C. Williamson 47 MISSION RESOURCES CORPORATION AND SUBSIDIARIES I, Robert L. Cavnar, certify that: 1. I have reviewed this annual report on Form 10-K/A of Mission Resources Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 4, 2003 /s/ ROBERT L. CAVNAR -------------------------------------- Robert L. Cavnar Chairman and Chief Executive Officer 48 MISSION RESOURCES CORPORATION AND SUBSIDIARIES I, Richard W. Piacenti, certify that: 1. I have reviewed this annual report on Form 10-K/A of Mission Resources Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 4, 2003 /s/ RICHARD W. PIACENTI -------------------------------------- Richard W. Piacenti Senior Vice-President and Chief Financial Officer 49 EX-23.5 3 dex235.txt CONSENT OF KPMG LLP EXHIBIT 23.5 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Stockholders of Mission Resources Corporation: We consent to the incorporation by reference in the Registration Statements (File Nos. 333-63562, 333-54798, 333-57827, 333-27707 and 33-91326) on Form S-8 of Mission Resources Corporation of our report dated March 14, 2003, with respect to the consolidated balance sheets of Mission Resources Corporation (formerly Bellwether Exploration Company) and subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2002, which report appears in the December 31, 2002 annual report on Form 10-K of Mission Resources Corporation. As discussed in note 2 to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and other Intangible Assets". As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in 2001. (signed) KPMG LLP Houston, Texas April 4, 2003 EX-23.6 4 dex236.txt CONSENT OF NETHERLAND SEWELL & ASSOCIATES Exhibit 23.6 [LETTERHEAD - NETHERLAND, SEWELL & ASSOCIATES, INC.] CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS --------------------------------------------------------- We hereby consent to the incorporation by reference in the Annual Report on Form 10-K of Mission Resources Corporation (the "Company") for the year ended December 31, 2002, and to the incorporation by reference thereof into the Company's previously filed Registration Statements on Form S-8 (File Nos. 333-63562, 333-54798, 333-57827, 333-27707 and 333-91326, of the references to this firm relating to the Company's estimated domestic proved reserves as of December 31, 2001 and December 31, 2002. NETHERLAND, SEWELL & ASSOCIATES, INC. By: /s/ J. Carter Henson, Jr. --------------------------------- J. Carter Henson, Jr. Senior Vice President Houston, Texas April 4, 2003 EX-23.7 5 dex237.txt CONSENT OF RYDER SCOTT COMPANY EXHIBIT 23.7 [LETTER HEAD OF RYDER SCOTT COMPANY] CONSENT OF INDEPENDENT PETROLEUM ENGINEERS As independent oil and gas consultants, Ryder Scott Company, L.P., hereby consents to the use of our reserve reports dated as of December 31, 2000, and December 31, 2001 and to all references to our firm included in or made a part of the Mission Resources Corporation's Form 10-K to be filed with the Securities and Exchange Commission on or about March 25, 2003, and to the incorporation by reference thereof into Mission Resources Corporation's previously filed Registration Statements on Form S-8 (File Nos. 333-63562, 333-54798, 333-57827, 333-27707 and 33-91326). /s/ Ryder Scott Company, L.P. RYDER SCOTT COMPANY, L.P. Houston, Texas April 4, 2003 EX-23.8 6 dex238.txt CONSENT OF T.J. SMITH & CO. EXHIBIT 23.8 T.J. SMITH & COMPANY, INC. OIL AND GAS CONSULTING 1331 LAMAR, SUITE 1340 HOUSTON, TEXAS 77010-3027 TEL: (713) 651-0651 FAX: (713) 655-7613 CONSENT OF T.J. SMITH & COMPANY, INC. As independent oil and gas consultants, T.J. Smith & Company, Inc. hereby consents to the use of our reserve report dated as of December 31, 2001 and to all references to our firm included in or made a part of the Mission Resources Corporation's Annual Report on Form 10-K for the year ended December 31, 2002 to be filed on or about March 25, 2003, and to the incorporation by reference thereof into Mission Resources Corporation's previously filed Registration Statements on Form S-8 (File Nos. 333-63562, 333-54798, 333-57827, 333-27707 and 33-91326). T.J. Smith & Company, Inc. By: /s/ T.J. Smith --------------------- T.J. Smith, P.E. Houston, Texas April 4, 2003 EX-99.3 7 dex993.txt 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 99.3 Certification of Chief Executive Officer of Mission Resources Corporation This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. (S) 1350, and accompanies the annual report on Form 10-K/A (the "Form 10-K/A") for the period ended December 31, 2002 of Mission Resources Corporation (the "Issuer"). I, Robert L. Cavnar, the Chief Executive Officer of the Issuer, certify that: (i) the Form 10-K/A fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K/A fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: April 4, 2003 /s/ Robert L. Cavnar ------------------------------------ Subscribed and sworn to before me this 4th day of April 2003 /s/ Carmen M. Garcia - -------------------------------------- Notary Public in and for the State of Texas My commission expires: A signed original of this written statement required by Section 906 has been provided to Mission Resources Corporation and will be retained by Mission Resources Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.4 8 dex994.txt 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 99.4 Certification of Chief Financial Officer of Mission Resources Corporation This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. ss. 1350, and accompanies the annual report on Form 10-K/A (the "Form 10-K/A") for the period ended December 31, 2002 of Mission Resources Corporation (the "Issuer"). I, Richard W. Piacenti, the Chief Financial Officer of the Issuer, certify that: (i) the Form 10-K/A fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K/A fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: April 4, 2003 /s/ Richard W. Piacenti ------------------------------------ Subscribed and sworn to before me this 4th day of April 2003 /s/ Carmen M. Garcia - --------------------------------------- Notary Public in and for the State of Texas My commission expires: A signed original of this written statement required by Section 906 has been provided to Mission Resources Corporation and will be retained by Mission Resources Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----