-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, S9OkLPcdGy07ci4PCdAtuf3uPtKKGED5GrnUoXKTmqdQwVp0En16CiVU2LZXmdQk cm0PQIVqQSCtymdUG7VR7w== 0000950129-94-000091.txt : 19940218 0000950129-94-000091.hdr.sgml : 19940218 ACCESSION NUMBER: 0000950129-94-000091 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940104 ITEM INFORMATION: 7 FILED AS OF DATE: 19940216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGULL ENERGY CORP CENTRAL INDEX KEY: 0000320321 STANDARD INDUSTRIAL CLASSIFICATION: 4923 IRS NUMBER: 741764876 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 34 SEC FILE NUMBER: 001-08094 FILM NUMBER: 94510133 BUSINESS ADDRESS: STREET 1: 1001 FANNIN STE 1700 CITY: HOUSTON STATE: TX ZIP: 77002-6714 BUSINESS PHONE: 7139514700 MAIL ADDRESS: STREET 1: 1001 FANNIN, SUITE 1700 CITY: HOUSTON STATE: TX ZIP: 77002-6714 FORMER COMPANY: FORMER CONFORMED NAME: SEAGULL PIPELINE CORP DATE OF NAME CHANGE: 19830815 8-K/A 1 SEAGULL ENERGY AMEND. #1 TO 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K/A No. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) January 4, 1994 SEAGULL ENERGY CORPORATION ______________________________________________________________________________ (Exact name of registrant as specified in its charter) Texas ______________________________________________________________________________ (State or other jurisdiction of incorporation) 1-8094 74-1764876 ___________________________________ ________________________________________ (Commission File Number) (IRS Employer Identification No.) 1001 Fannin, Suite 1700, Houston, Texas 77002-6714 ______________________________________________________________________________ (Address of principal executive offices) (Zip Code) (713) 951-4700 ______________________________________________________________________________ Registrant's telephone number, including area code Not Applicable ______________________________________________________________________________ (Former name or former address, if changed since last report.) 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statement of Business Acquired. See exhibits for historical financial statements of Novalta Resources Inc. 3 (b) Pro Forma Financial Information. UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENT On January 4, 1994, an indirect wholly owned subsidiary of Seagull Energy Corporation ("Seagull" or the "Company") acquired all of the outstanding shares of stock (the "Stock") of Novalta Resources Inc. ("Novalta") and an intercompany note (the "Note") from Novalta to its parent, Novacor Petrochemicals Ltd. ("Novacor Petrochemicals"). The Stock and the Note were acquired for a purchase price of approximately $203 million in cash, subject to customary post-closing adjustments (the "Seagull Canada Acquisition"). As of February 1, 1994, the adjusted purchase price was estimated at $200.5 million. The economic effective date of the Seagull Canada Acquisition was December 31, 1993 (the "Effective Date"). Effective as of the January 4, 1994 Closing Date, Novalta was amalgamated with one of its subsidiaries along with Seagull Energy Canada Ltd., the indirect subsidiary of Seagull that acquired Novalta. The resulting amalgamated company was named Seagull Energy Canada Ltd. ("Seagull Canada"). The unaudited pro forma condensed balance sheet as of December 31, 1993 and the unaudited pro forma condensed statement of earnings for the year ended December 31, 1993 give effect to the Seagull Canada Acquisition, financed initially under a new $175 million reducing revolving credit facility (the "Canadian Credit Agreement") as well as borrowings under Seagull's amended and restated $475 millon revolving credit line (the "Revolver") with a group of major U.S. and international banks. The following unaudited pro forma information has been included as required by the rules of the Securities and Exchange Commission and is provided for comparative purposes only. The unaudited pro forma information presented is based on the respective historical consolidated financial statements of Seagull and Novalta and should be read in conjunction with such financial statements and the related notes thereto. The historical consolidated financial statements of Novalta as presented do not reflect the effect of certain transactions between Novalta and NOVA Corporation of Alberta and its subsidiaries that were completed prior to the closing of the Seagull Canada Acquisition, such as the elimination of intercompany debt balances. The effect of such transactions are reflected in the conforming adjustments to the pro forma unaudited condensed financial statements. The unaudited pro forma information presented does not purport to be indicative of actual results, if the combinations had been in effect on the dates or for the periods indicated, or of future results. All amounts are in U.S. dollars. 4 UNAUDITED PRO FORMA CONDENSED BALANCE SHEET As of December 31, 1993 (in thousands)
Seagull Novalta Energy Resources Conforming Pro Forma Corporation Inc. Adjustments Combined ----------- --------- ----------- --------- ASSETS Current Assets: Cash and cash equivalents................ $ 5,572 $ 415 $ -- $ 5,987 Accounts received, net................... 98,734 11,136 -- 109,870 Other.................................... 10,902 688 -- 11,590 ---------- -------- -------- ---------- Total.................................. 115,208 12,239 -- 127,447 Property, Plant and Equipment -- at cost... 1,278,701 166,067 (166,067)(A) 1,495,295 216,229 (C) 365 (C) Accumulated Depreciation, Depletion and Amortization........................ 345,512 69,038 (69,038)(A) 345,512 ---------- -------- -------- ---------- 933,189 97,029 119,565 1,149,783 Other Assets.............................. 69,854 3,145 883 (C) 65,424 (8,458)(D) ---------- -------- -------- ---------- Total Assets.............................. $1,118,251 $112,413 $111,990 $1,342,654 ========== ======== ======== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable........................ $ 84,904 $ 7,060 $ -- $ 91,964 Current maturities of long-term debt.... 1,538 -- -- 1,538 Other................................... 37,724 746 -- 38,470 ---------- -------- -------- ---------- Total Current Liabilities........... 124,166 7,806 -- 131,972 Long-Term Debt............................ 459,787 64,316 (64,316)(B) 653,093 193,306 (D) Other Noncurrent Liabilities.............. 66,785 1,965 (602)(C) 68,148 Deferred Income Taxes..................... 28,134 7,899 (7,899)(B) 50,062 21,928 (C) Shareholder's Equity...................... 439,379 30,427 (30,427)(B) 439,379 ---------- -------- -------- ---------- Total Liabilities and Shareholders' Equity.................... $1,118,251 $112,413 $111,990 $1,342,654 ========== ======== ======== ==========
5 NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (A) To eliminate Novalta's historical cost of property, plant and equipment and accumulated depreciation, depletion and amortization. (B) To eliminate the long-term debt, deferred income taxes and shareholder's equity of Novalta. (C) To adjust the assets acquired and liabilities assumed in the Seagull Canada Acquisition to reflect the allocation of the estimated purchase price. The adjusted cost of property, plant and equipment was calculated as follows:
(in thousands) Estimated purchase price.......................... $200,455 Estimated transaction costs....................... 1,309 Less -- other assets acquired: Current assets............................... (12,239) Investment in EBOC Energy Ltd. .............. (3,255) Deferred debt costs.......................... (773) Other fixed assets........................... (365) Plus -- liabilities assumed: Current liabilities.......................... 7,806 Deferred credits............................. 1,363 Deferred income taxes........................ 21,928 -------- $216,229 ========
The purchase price was determined pursuant to arm's length negotiations between the Company and Novacor Petrochemicals, based on the economic effective date of December 31, 1993. The purchase price was based to a large extent on the net present value of oil reserves attributable to the properties acquired as a result of the Seagull Canada Acquisition. (D) To record the financing of the Seagull Canada Acquisition. 6 UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME Year Ended December 31, 1993 (in thousands)
Seagull Novalta Energy Resources Conforming Pro Forma Corporation Inc. Adjustments Combined ----------- --------- ----------- --------- Revenues ....................... $377,165 $32,358 $ -- $409,523 Costs of Operations: Operating Costs............... 184,620 12,973 399 (B) 197,992 Depreciation, depletion and amortization................ 116,556 9,371 (9,371)(A) 131,772 15,216 (C) -------- ------- -------- -------- Operating Profit................ 75,989 10,014 (6,244) 79,759 General and Administrative Expense....................... 11,666 -- -- 11,666 Interest Expense................ 36,753 1,083 (1,083)(A) 48,595 11,842 (D) Interest Income and other...... (5,708) (3,102) -- (8,810) -------- ------- -------- -------- Earnings Before Income Taxes.... 33,278 12,033 (17,003) 28,308 Income Taxes.................... 6,080 4,650 (4,650)(A) 6,146 66 (E) -------- ------- -------- -------- Net Earnings.................... $ 27,198 $ 7,383 $(12,419) $ 22,162 ======== ======= ======== ======== Earnings Per Share.............. $ 0.76 $ 0.62 ======== ======== Weighted Average Number of Common Shares Outstanding..... 35,790 35,790 ======== ========
7 NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME (A) To eliminate depreciation, depletion and amortization, interest expense and income taxes of Novalta. (B) To adjust general operating expenses to give effect to Seagull's increased personnel, rent, consultation, professional and other expenses expected as a result of the Seagull Canada Acquisition. (C) To adjust depreciation, depletion and amortization to give effect to the Seagull Canada Acquisition. (D) To adjust interest expense to give effect to the Seagull Canada Acquisition initially financed under the Canadian Credit Agreement and the Revolver and the amortization of loan acquisition costs relating to the Canadian Credit Agreement. The pro forma interest expense adjustment was calculated as follows:
(in thousands) Pro forma average outstanding balance -- Canadian Credit Agreement $151,938 Estimated average interest rate 5.01% -------- Pro forma interest expense on 7,612 Canadian Credit Agreement Pro forma additional outstanding balance -- Revolver 49,826 Estimated average interest rate 5.40% -------- Pro forma interest expense on the additional Revolver 2,689 Pro forma interest expense on historical Revolver due to increased interest rate margin 1,348 Pro forma amortization of loan acquisition costs relating to the Canadian Credit Agreement 193 ------- $11,842 =======
(E) To adjust Revenue Canada and Alberta Province income taxes for the items discussed in Notes (B) through (D) above. 8 (c) Exhibits. * 2.1 Consolidated Financial Statements of Novalta Resources Inc. *24.1 Consent of Ernst & Young.
* Filed herewith. 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 15, 1994 SEAGULL ENERGY CORPORATION By: /s/ Rodney W. Bridges _____________________ Rodney W. Bridges Vice President and Controller (Principal Accounting Officer) 10 EXHIBIT INDEX
Page ---- * 2.1 Consolidated Financial Statements of Novalta Resources Inc. *24.1 Consent of Ernst & Young.
* Filed herewith. EX-2.1 2 NOVALTA NOTES TO FINANCIAL STATEMENTS 1 EXHIBIT 2.1 CONSOLIDATED FINANCIAL STATEMENTS NOVALTA RESOURCES INC. DECEMBER 31, 1993 2 AUDITORS' REPORT To the Directors of Novalta Resources Inc. We have audited the consolidated balance sheets of Novalta Resources Inc. as at December 31, 1993 and 1992 and the consolidated statements of income, deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1993 and 1992 and the results of its operations and the changes in its financial position for the years then ended in accordance with accounting principles generally accepted in Canada. Calgary, Canada /s/ ERNST & YOUNG January 21, 1994 Chartered Accountants 3 Novalta Resources Inc. (Incorporated under The Business Corporations Act of Alberta) CONSOLIDATED BALANCE SHEETS ASSETS (thousands of dollars)
December 31, ------------ 1993 1992 ---- ---- Current Assets Cash $ 549 $ 170 Accounts receivable (net) {note 9} 12,767 6,475 Due from affiliates {note 3} 1,978 1,529 Other 911 1,076 -------- ------- 16,205 9,250 -------- ------- Fixed Assets {note 2} Petroleum and natural gas properties (successful efforts 217,791 217,976 method of accounting for gas and oil properties) Other 2,081 3,077 -------- ------- 219,872 221,053 Less accumulated depletion, depreciation and amortization 91,406 92,597 -------- ------- 128,466 128,456 -------- ------- Investments {note 7} 4,164 - -------- ------- $148,835 $137,706 ======== ========
4 LIABILITIES AND SHAREHOLDER'S EQUITY
December 31, ------------ 1993 1992 ---- ---- Current Liabilities Accounts payable and accrued liabilities {note 10} $ 8,949 $ 5,656 Due to NOVA Corporation of Alberta {note 3} 397 593 Notes payable - 107 Deferred production revenue {note 6} 988 1,393 ------- -------- 10,334 7,749 ------- -------- Deferred credits {note 6} 2,601 2,958 ------- -------- Deferred income taxes 12,234 7,431 ------- -------- Advance from Novacor Petrochemicals Ltd. {note 3} 85,154 85,154 ------- -------- Long-term debt [note 2] - 5,500 ------- -------- Shareholder's equity Share capital Common shares Class A no par value Authorized: unlimited Issued: 100 shares 1 1 Preferred shares Class A, non-voting Authorized: unlimited Issued: 55,000 shares 55,000 55,000 Contributed surplus 26,650 26,650 Deficit (43,139) (52,737) ------- -------- 38,512 28,914 ------- -------- $148,835 $137,706 ======== ========
See accompanying notes 5 Novalta Resources Inc. CONSOLIDATED STATEMENTS OF INCOME (thousands of dollars)
Year ended December 31, ----------------------- 1993 1992 ---- ---- Revenue Petroleum and natural gas sales $38,849 $34,321 Brokered natural gas sales 933 4,616 Other income 156 223 ------- ------- 39,938 39,160 ------- ------- Expenses Operating 11,585 10,380 Cost of natural gas sold 524 3,767 Depletion, depreciation and amortization [note 4] 12,088 12,841 Exploration 2,102 1,789 Interest on long-term debt 1,397 6,799 General and administrative 2,524 1,802 (Gain)/loss on dispositions (4,002) 307 ------- ------- 26,218 37,685 ------- ------- Income before income taxes 13,720 1,475 ------- ------- Income taxes [note 8] Current income taxes 1,122 59 Deferred income taxes 4,803 373 Alberta royalty tax credit (1,803) (1,285) ------- ------- 4,122 (853) ------- ------- Net income for the year $ 9,598 $ 2,328 ======= =======
See accompanying notes 6 Novalta Resources Inc. CONSOLIDATED STATEMENTS OF DEFICIT (thousands of dollars)
Year ended December 31, ----------------------- 1993 1992 ---- ---- Deficit, beginning of year $52,737 $55,065 Net income for the year 9,598 2,328 ------- ------- Deficit, end of year $43,139 $52,737 ======= =======
See accompanying notes 7 Novalta Resources Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands of dollars)
Year ended December 31, ----------------------- 1993 1992 ---- ---- Operating activities Net income $ 9,598 $ 2,328 Depletion and depreciation 12,088 12,841 Exploration 2,102 1,789 (Gain)/loss on dispositions (4,002) 307 Deferred income taxes 4,803 373 -------- -------- 24,589 17,638 -------- -------- Investment income (15) - Changes in working capital other than cash [note 5] (3,479) 635 -------- -------- 21,095 18,273 -------- -------- Investing activities Petroleum and natural gas properties Exploration and development (16,774) (4,945) Acquisitions (3,066) - Proceeds on dispositions 10,447 568 Other (378) (495) Investment in EBOC Energy Ltd. [note 7] (4,149) - -------- -------- (13,920) (4,872) -------- -------- Financing activities Payment of long-term debt (5,500) (67,000) Issue of preferred shares - 55,000 Issue of notes payable - 107 Repayment of notes payable (107) - Deferred credits [note 6] (1,189) (1,271) -------- -------- (6,796) (13,164) -------- -------- Increase in cash 379 237 Cash (bank overdraft), beginning of year 170 (67) -------- -------- Cash , end of year $ 549 $ 170 ======== ========
See accompanying notes 8 NOVALTA RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Novalta Resources Inc. (the "Company") and its subsidiaries. Substantially all of the exploration and production activities of the Company are conducted jointly with others, and accordingly, these financial statements reflect only the Company's proportionate interest in such activities. All amounts are reported in Canadian dollars. FIXED ASSETS Under the successful efforts method of accounting, costs of land acquisition, costs to drill and equip exploratory wells that find proved reserves, and costs to drill and equip development wells are capitalized. All other exploration costs, including costs to drill unsuccessful exploratory wells, geological and geophysical costs, and the costs of carrying and retaining unproved properties are expensed as incurred. Acquisition costs of unproved properties are amortized over the remaining term of the lease or until reserves are proved or the property is impaired and a loss is recognized at the time of impairment. Proved properties are carried at the lesser of cost or an ultimate recoverable amount. Capitalized costs of proved oil and gas properties are amortized by the unit-of-production method based on reserve estimates prepared by an independent consultant using end of the year prices. Other fixed assets are being depreciated using the declining balance method at annual rates varying from 10% to 50%, which are designed to amortize the costs of the assets over their estimated useful lives. Future removal and site restoration costs for petroleum and natural gas properties are provided on the unit-of-production method. INVESTMENTS Investments are accounted for using the equity method of accounting. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the financial statement presentation adopted for the current year. 1 9 NOVALTA RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. LONG-TERM DEBT
At December 31, 1993 1992 (thousands of dollars) Revolving term credit facility $ - $ 5,500 ======= =======
As at December 31, the Company had a Revolving Term Credit Facility (the facility) with a borrowing base of $75,000,000, subject to annual review. The principal features of this facility were: Maturity - December 31, 2000, with the amount available under the facility being reduced quarterly by $2,750,000 - current repayments were required to the extent principal amounts outstanding exceed the borrowing base Collateral - assignment of proceeds from certain long term natural gas sales contracts - $150,000,000 floating charge debenture - assignment of book debts - assignment of present and future petroleum and natural gas properties Interest - varying rates over the term based on the method of financing chosen which at December 31, 1992 were Canadian Dollar Loans at an effective rate of 7.63% The Revolving Term Credit Facility, at the Company's request, was terminated on September 16, 1993. At December 31, 1992, the Company had two interest rate swap agreements outstanding which had effectively fixed the interest rates on $40,000,000 of available borrowing at 11.01% and 11.10% for the years 1993 and 1994 respectively. The agreements were terminated during 1993. 3. RELATED PARTY TRANSACTIONS The Company is an indirect wholly-owned subsidiary of NOVA Corporation of Alberta ("NOVA"). During 1993, NOVA transferred ownership of the Company to Novacor Petrochemicals Ltd. ("NPL"). All intercompany amounts disclosed in the consolidated financial statements relate to companies wholly-owned or affiliated with NOVA. 2 10 NOVALTA RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Transactions with related parties are as follows:
Year ended December 31, 1993 1992 (thousands of dollars) Sales $ 20,146 $ 17,053 Services purchased from NOVA 1,586 1,152
Amounts due from affiliates is comprised of the following:
At December 31, 1993 1992 (thousands of dollars) Novacor Chemicals Ltd. $ 1,842 $ 420 PanAlberta Resources Inc. 136 896 Other affiliates - 213 ------- ------ $1,978 $1,529 ====== ======
Amounts due from affiliates, due to NOVA, and the advance from NPL have no specified terms of repayment and are non-interest bearing. NPL has indicated that it will not require repayment of the advance during the next year. 4. DEPLETION, DEPRECIATION AND AMORTIZATION Depletion, depreciation and amortization consist of the following:
Year ended December 31, 1993 1992 (thousands of dollars) Future removal and site restoration costs $ 741 $ 304 Depletion, depreciation and amortization 11,347 12,537 ------- ------- $12,088 $12,841 ======= =======
3 11 NOVALTA RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. CHANGES IN WORKING CAPITAL OTHER THAN CASH
Year ended December 31, 1993 1992 (thousands of dollars) Accounts receivable $(6,292) $ 821 Due from affiliates (449) (161) Other 165 57 Accounts payable 3,293 (38) Due to NOVA (196) (44) ------- ------ $(3,479) $ 635 ======= ======
6. DEFERRED CREDITS
At December 31, 1993 1992 (thousands of dollars) Deferred credits consist of the following: Deferred production revenue $ 988 $ 2,381 Future site restoration and abandonment costs 2,396 1,970 Other 205 - ------- -------- 3,589 4,351 Less current amount of deferred production revenue (988) (1,393) ------- -------- $2,601 $ 2,958 ====== =======
7. INVESTMENT IN EBOC ENERGY LTD. During the year, the Company transferred petroleum and natural gas properties having a net book value of $3,958,000 to EBOC Energy Ltd. ("EBOC") in exchange for 32.25% of the shares of EBOC. 4 12 NOVALTA RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. INCOME TAXES Income tax expense varies from amounts computed by applying the Canadian federal and provincial statutory income tax rates to income before taxes as shown in the following table:
Year ended December 31, 1993 1992 (thousands of dollars) Statutory income tax rate 44.3% 44.3% Income before income taxes $13,720 $ 1,475 Computed income tax expense 6,078 653 Increase (decrease) in taxes resulting from: Non-deductible crown charges 3,627 2,464 Federal resource allowance (3,431) (2,908) Federal earned depletion allowance (967) (27) Other 618 250 ------- ------- Income tax expense $ 5,925 $ 432 ======= =======
9. ACCOUNTS RECEIVABLE
At December 31, 1993 1992 Trade $ 9,228 $ 2,569 Other 4,498 4,618 Allowance for doubtful accounts (959) (712) ------- ------- $12,767 $ 6,475 ======= =======
10. ACCOUNTS PAYABLE
At December 31, 1993 1992 Trade $ 6,607 $ 4,900 Income taxes 697 - Other 1,645 756 ------- ------- $ 8,949 $ 5,656 ======= =======
5 13 NOVALTA RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. SUBSEQUENT EVENTS On January 4, 1994, NPL, the Company's parent, sold its investment in the Company to Seagull Energy Canada Ltd., an indirect wholly owned subsidiary of Seagull Energy Corporation. On the same date, the Company and one of its subsidiaries, Amber Valley Energy Corporation, amalgamated, under the provisions of the Alberta Business Corporations Act, with Seagull Energy Canada Ltd. The resultant entity will operate under the name of Seagull Energy Canada Ltd. 12. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian basis") which conform to accounting principles generally accepted in the United States ("US basis") in most areas. The following reconciliations reflect the differences in these accounting principles, where applicable.
Year ended December 31, 1993 1992 (thousands of dollars) Net income in accordance with Canadian basis $ 9,598 $ 2,328 Deduct adjustments for income taxes: Current year (74) (64) Cumulative change in accounting principles - (6,635) ------- ------- Net income (loss) in accordance with US basis $ 9,524 $(4,371) ======= ======= Deferred income taxes $19,007 $14,130 ======= ======= Deficit $49,912 $59,436 ======= =======
SFAS 109 "Accounting for Income Taxes" requires the use of the liability method under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled. Effective January 1, 1992, the Company adopted the provisions of FAS 109 for US basis accounting purposes. The cumulative effect of this change in accounting principle is included in the Company's consolidated net loss for US reporting purposes for the year ended December 31, 1992. 6 14 NOVALTA RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The principal temporary difference in calculating deferred income taxes relates to deductions for tax purposes in respect of plant, property and equipment in excess of depletion, depreciation and amortization provided for in the accounts. Income tax expense varies from amounts computed by applying the Canadian federal and provincial statutory income tax rates to income before taxes as shown in the following table:
Year ended December 31, 1993 1992 (thousands of dollars) Statutory income tax rate 44.3% 44.3% Income before income taxes $ 13,720 $ 1,475 Computed income tax expense 6,078 653 Increase (decrease) in taxes resulting from: Non-deductible crown charges 3,627 2,464 Federal resource allowance (3,431) (2,908) Other (275) 287 -------- ------- Income tax expense $ 5,999 $ 496 ======== =======
ADDITIONAL U.S. DISCLOSURES a) Summary of Major Customers The following information is provided solely to comply with FAS 14 "Financial Reporting for Segments of a Business Enterprise". During the years ended December 31, 1993 and 1992, sales to the following companies individually comprised greater than 10% of revenue.
Year ended December 31, 1993 1992 (thousands of dollars) Novacor Chemicals Ltd. $11,648 $ 3,682 Western Gas Marketing Limited 7,922 5,219 Pan-Alberta Gas Ltd. 4,469 10,643
7 15 NOVALTA RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS b) Supplementary Disclosure of Cash Flow Information
Year ended December 31, 1993 1992 (thousands of dollars) Cash paid during the year for: Interest $ 1,531 $ 6,511 Income taxes 425 59 ------ ------- $ 1,956 $ 6,570 ======= =======
On a U.S. basis, proceeds on dispositions would be reflected net of the $4,149,000 Investment in EBOC Energy Ltd., and a corresponding amount would be reflected as non-cash investing activities. Deferred credits in the amount of $1,189,000 in 1993 ($1,271,000 in 1992), which are reflected as a component of cash used in financing activities, would be reflected as a change in working capital other than cash on a U.S. basis. As a result of this adjustment, cash provided by operating activities would be $19,906,000 in 1993 ($17,002,000 in 1992) and cash used in financing activities would be $5,607,000 in 1993 ($11,893,000 in 1992). c) Fair Value of Financial Instruments The estimated fair value of the Company's financial instruments as at December 31, 1993 and 1992 approximates their carrying value. 8 16 Novalta Resources Inc. Unaudited Supplemental Financial Information - Gas and Oil Producing Activities The following information has been included to comply with the United States Securities and Exchange Commission regulations and is presented in accordance with the Financial Accounting Standards Board Statement Statement 69 "Disclosures About Oil & Gas Producing Activities". CAPITALIZED COSTS RELATING TO GAS AND OIL PRODUCING ACTIVITIES
December 31, 1993 1992 (thousands of dollars) Proved properties $212,308 $212,528 Unproved properties 5,483 5,448 -------- -------- 217,791 217,976 Accumulated depreciation, depletion and amortization 90,107 90,748 -------- -------- $127,684 $127,228 ======== ========
COSTS INCURRED IN GAS AND OIL PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES
Year Ended December 31, 1993 1992 (thousands of dollars) Acquisition of properties: Proved $ 3,066 -- Unproved 2,871 1,012 Exploration costs 5,691 363 Development costs 9,396 1,877 ------- ------ $21,024 $3,252 ======= ======
17 Novalta Resources, Inc. RESULTS OF OPERATIONS FOR GAS AND OIL PRODUCING ACTIVITIES
Year Ended December 31, 1993 1992 (thousands of dollars) Revenues $ 40,652 $ 35,605 Lifting costs (11,585) (10,380) -------- -------- 29,067 25,225 -------- -------- General operating expense (2,472) (1,950) Exploration charges (2,102) (1,789) Depreciation, depletion and amortization (12,088) (12,841) -------- -------- Operating profit 12,405 8,645 Income tax expense (i) (5,357) (2,531) -------- -------- Results of operations from producing activities $ 7,048 $ 6,114 ======== ========
(i) Income tax expense is calculated by applying the current effective tax rate to operating profit. RESERVE QUANTITY INFORMATION (ii)
Year Ended December 31, 1993 1992 Gas Oil Gas Oil (MMcf) (Mbbl) (MMcf) (Mbbl) Proved developed and undeveloped reserves: Beginning of year 244,629 2,771 269,753 2,795 Purchases of reserves in place 8,554 232 1,606 -- Sale of reserves in place (17,400) (257) (1,720) -- Revisions of previous estimates 21,331 431 (7,268) (12) Extensions and discoverie 18,499 19 993 402 Production (18,231) (413) (18,735) (414) ------- ----- ------- ---- End of year 257,382 2,783 244,629 2,771 ======= ===== ======= ===== Proved developed reserves: Beginning of year 181,963 2,248 198,394 2,091 ======= ===== ======= ===== End of year 236,945 2,529 181,963 2,248 ======= ===== ======= =====
(ii) Oil reserves stated in thousands of barrels (Mbbl), gas reserves stated in millions of cubic feet (MMcf). 18 Novalta Resources Inc. The Company's standardized measure of future net cash flows and changes therein as of December 31, 1993 and 1992 are provided on the present value of future net revenues from proved gas and oil reserves estimated by independent petroleum engineers in accordance with the guidelines established by the Securities and Exchange Commission. These estimates were computed by applying appropriate current prices for gas and oil to estimated future production of proved gas and oil reserves over the economic lives of the reserves assuming continuation of existing conditions. Year end 1993 calculations were made utilizing average prices for gas and oil, condensate and natural gas liquids that existed at December 31, 1993 of $2.12 per Mcf and $12.57 per barrel , respectively. Income taxes are computed by applying the statutory federal and provincial tax rates to the net cash inflows relating to proved gas and oil reserves less the tax bases of the properties involved and giving effect to any tax credits and allowances relating to such properties. The reserve volumes provided by the independent petroleum engineers are estimates only and should not be construed as being exact quantities. These may or may not be recovered and may increase or decrease as a result of future operations of the Company and changes in market conditions. STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
At December 31, 1993 1992 (thousands of dollars) Future cash inflows $ 652,822 $ 417,502 Future development costs (29,278) (21,369) Future production costs (160,767) (141,734) --------- --------- Future net cash flows before income taxes 462,777 254,399 10% annual discount (211,953) (116,329) --------- --------- Discounted future net cash flows before income taxes 250,824 138,070 Discounted income taxes (82,285) (27,479) --------- --------- Standardized measure of discounted future net cash flows $ 168,539 $ 110,591 ========= =========
19 Novalta Resources Inc. PRINCIPAL SOURCES OF CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
Year Ended December 31, 1993 1992 (thousands of dollars) Standardized measure of discounted future net cash flows, beginning of year $110,591 $114,442 Purchases of reserves in place 9,639 907 Sale of reserves in place (10,702) (942) Revisions of previous quantity estimates less related costs 23,208 (3,950) Extensions and discoveries less related costs 16,931 1,701 Net changes in prices and production costs 101,659 (1,185) Development costs incurred during period and changes in estimated future development costs 17,655 1,698 Sale of gas and oil produced during the period, net of lifting costs (29,067) (25,225) Accretion of discount 13,807 14,784 Net change in income taxes (54,806) 5,918 Net change in Alberta royalty tax credit (1,635) (1,800) Other (28,741) 4,243 -------- -------- 57,948 (3,851) -------- -------- Standardized measure of discounted future net cash flows, end of year $168,539 $110,591 ======== ========
EX-24.1 3 ERNST & YOUNG CONSENT 1 EXHIBIT 24.1 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in the registration statements of Seagull Energy Corporation listed below of our report dated January 21, 1994, with respect to the consolidated financial statements of Novalta Resources Inc. and Subsidiaries as of December 31, 1993 and 1992, and for each of the years in the two-year period ended December 31, 1993 included in Amendment No. 1 on Form 8-KA filed February 16, 1994 to the Current Report on Form 8-K of Seagull Energy Corporation filed January 19, 1994. a. Form S-8, Seagull Thrift Plan (2-72014). b. Form S-8, Seagull Energy Corporation 1981 Non-Qualified and Incentive Stock Option Plan (2-80834) c. Form S-8, ENSTAR Natural Gas Company Thrift Plan (33-14463). d. Form S-8 and Form S-3, Seagull Energy Corporation 1983 Stock Option Plan (2-93087) e. Form S-8 and Form S-3, Seagull Energy Corporation 1986 Stock Option Plan (33-22475) f. Form S-8, Seagull Energy Corporation 1990 Stock Option Plan (33-43483) g. Form S-8, Seagull Energy Corporation 1993 Stock Option Plan (33-50643) h. Form S-8, Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan (33-50645) Calgary, Alberta, Canada /s/ ERNST & YOUNG February 16, 1994 Chartered Accountants -----END PRIVACY-ENHANCED MESSAGE-----