-----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, O8qzrZZS88v20LbVrq9xPcTixh0Rwm45bDs01xbuJIwHv/dIHvrTEY6Wl+Ka1ddP 6M8jh8BlXy6ma0C0Rc8HPg== 0000051072-98-000001.txt : 19980302 0000051072-98-000001.hdr.sgml : 19980302 ACCESSION NUMBER: 0000051072-98-000001 CONFORMED SUBMISSION TYPE: 8-K/A CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980220 ITEM INFORMATION: FILED AS OF DATE: 19980227 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FUTURE PETROLEUM CORP/UT/ CENTRAL INDEX KEY: 0000051072 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 870239185 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-08609 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 2351 W NW HWY STE 2130 CITY: DALLAS STATE: TX ZIP: 75220 BUSINESS PHONE: 2143507602 MAIL ADDRESS: STREET 1: P O BOX 25253 CITY: DALLAS STATE: TX ZIP: 75225 FORMER COMPANY: FORMER CONFORMED NAME: INTERMOUNTAIN EXPLORATION CO DATE OF NAME CHANGE: 19920703 8-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): February 26, 1998 Commission file number 0-8609 Future Petroleum Corporation (Exact name of small business issuer as specified in charter) Utah 87-0239185 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2351 West Northwest Highway, Suite 2130 Dallas, Texas 75220 (Address of principal executive offices) (Zip Code) (214)350-7602 (Issuer's telephone number, including area code) Not Applicable (Former name, former address, and former fiscal year, if changed since last report) Transitional Small Business Disclosure Format (Check One): Yes No x ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. TABLE OF CONTENTS Page (a) Financial statements of business acquired. Report of Independent Public Accountants 3 Financial Statements & Notes for Future Acquisitions 1995, Ltd. 4 Report of Independent Public Accountants 12 Financial Statements & Notes for BMC Development No. 1 Limited Partnership 13 (b) Pro Forma financial statements information Pro Forma Lead-in Narrative 22 Pro Forma Balance Sheet at September 30, 1997 23 Pro Forma Income Statement for the Nine Months Ended September 30, 1997 25 Pro Forma Income Statement for the Year Ended December 31, 1996 27 Notes to Pro Forma Combined Financial Statements 29 Signature Page 30 Report of Independent Accountants To the Partners of Future Acquisition 1995, Ltd. In our opinion, the accompanying balance sheet and the related statements of income, of partners' capital and of cash flows present fairly, in all material respects, the financial position of Future Acquisition 1995, Ltd. (a Texas limited partnership) at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Future Acquisition 1995, Ltd., as disclosed in Note 4, has extensive transactions and relationships with related parties. PRICE WATERHOUSE LLP April 2, 1997 Houston, Texas FUTURE ACQUISITION 1995, LTD. (a Texas limited partnership) BALANCE SHEETS ASSETS September 30, December 31, 1997 1996 ------------- ------------ (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 360,687 $ 1,003 Due from general partner, net 181,487 157,690 ------------ ------------- Total current assets 542,174 158,693 Oil and gas properties, at cost (successful efforts method) 5,130,554 2,417,053 Less - accumulated depreciation, depletion and amortization (523,906) (294,160) ------------ ------------- Net property and equipment 4,606,648 2,122,893 ------------ ------------- Organization costs, net 22,982 28,746 ------------ ------------- $ 5,171,804 $ 2,310,332 ============ ============= LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Accrued liabilities $ 232 $ 5,357 ---------- ------------- PARTNERS' CAPITAL: General partner 1,086,487 779,566 Limited partners 4,085,085 1,525,409 ------------ ------------- 5,171,572 2,304,975 ------------ ------------- $ 5,171,804 $ 2,310,332 ============ ============= See accompanying notes to these financial statements.
FUTURE ACQUISITION 1995, LTD. (a Texas limited partnership) STATEMENTS OF INCOME Nine months ended Year ended September 30, December 31, (Unaudited) 1997 1996 1996 ---------- ----------- ------------ INCOME: Oil and gas sales $ 1,596,906 $ 746,078 $ 1,081,161 ------------ ----------- ------------ EXPENSES: Lease operating expense 742,627 432,846 601,245 Severance taxes 103,900 40,948 60,784 Depreciation, depletion and amortization 235,510 167,306 280,662 General and administrative 107,601 14,180 17,462 ----------- ---------- ----------- 1,189,638 655,280 960,153 ----------- ---------- ----------- OPERATING INCOME 407,268 90,798 121,008 INTEREST INCOME 1,557 3,342 3,461 ----------- ---------- ---------- NET INCOME $ 408,825 $ 94,140 $ 124,469 =========== ========== =========== See accompanying notes to these financial statements.
FUTURE ACQUISITION 1995, LTD. (a Texas limited partnership) STATEMENT OF PARTNERS' CAPITAL FOR THE PERIOD FROM DECEMBER 31, 1995 TO SEPTEMBER 30, 1997 General Limited TOTAL Partner Partner ---------- ----------- ----------- Balance, December 31, 1995 $ 760,060 $ 1,163,922 $ 1,923,982 Contributions - 534,100 534,100 Distributions (32,043) (245,533) (277,576) Net income 51,549 72,920 124,469 ----------- ----------- ----------- Balance, December 31, 1996 779,566 1,525,409 2,304,975 Contributions (Unaudited) 337,500 2,848,767 3,186,267 Distributions (Unaudited) (47,242) (681,253) (728,495) Net income (Unaudited) 16,663 392,162 408,825 ----------- ------------ ----------- Balance, September 30, 1997 (Unaudited) $ 1,086,487 $4,085,085 $5,171,572 =========== =========== =========== See accompanying notes to these financial statements.
FUTURE ACQUISITION 1995, LTD. (a Texas limited partnership) STATEMENTS OF CASH FLOWS Nine months ended Year Ended September 30, December 31, (Unaudited) 1997 1996 1996 ----------- -------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 408,825 $ 94,140 $ 124,469 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 235,510 167,306 280,662 Increase in amounts due from general partner (23,797) (55,015) (74,319) Increase in other assets - (50,000) - Decrease in accrued liabilities (5,125) (28,582) (77,940) ---------- ---------- ----------- Net cash provided by operating activities 615,413 127,849 252,872 ---------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (2,713,501) (506,345) (508,393) CASH FLOWS FROM FINANCING ACTIVITIES: Contributions by partners 3,186,267 584,099 534,100 Distributions to partners (728,495) (144,615) (277,576) ----------- ----------- ---------- Net cash provided by financing activities 2,457,772 439,484 256,524 ----------- ----------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 359,684 60,988 1,003 CASH AND CASH EQUIVALENTS, beginning of year 1,003 - - --------- --------- --------- CASH AND CASH EQUIVALENTS, end of year $ 360,687 $ 60,988 $ 1,003 =========== ========== =========== See accompanying notes to these financial statements.
FUTURE ACQUISITION 1995, LTD. (a Texas limited partnership) NOTES TO FINANCIAL STATEMENTS (The period subsequent to December 1996 is unaudited.) 1. ORGANIZATION Future Acquisition 1995, LTD. No. 1 Limited Partnership (the Partnership), a Texas limited partnership, was formed on December 13, 1995 and is engaged primarily in the exploration, development and operation of oil and gas properties. The general partner is Future Petroleum Corporation (Future), a Texas corporation, which in such capacity is responsible for, among other things, the management of the affairs of the Partnership. EnCap Equity 1994 Limited Partnership (EnCap), a Texas limited partnership, and Energy Capital Investment Company PLC (ECIC), an English investment company, are limited partners. On April 18, 1996, Future, EnCap and ECIC amended the original partnership agreement dated December 13, 1995 to specify additional contribution requirements, for each partner, associated with increased funding necessary to develop certain fields. On January 29, 1997, the partners amended and restated the original partnership agreement to reflect funding and operating changes resulting from the Partnership's additional property acquisition in January 1997. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared on the accrual basis in accordance with generally accepted accounting principles. Preparation of financial statements in conformity with generally accepted accounting principles and estimation of oil and gas reserves require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Financial Instruments The carrying amounts of the Partnership's financial instruments, which include cash, trade accounts receivable and accrued liabilities, approximate fair value because of their short-term nature. Cash and Cash Equivalents Cash and cash equivalents primarily consist of all demand deposits and investments in money market funds with original maturities of three months or less when purchased, stated at cost which is equivalent to market value. Oil and Gas Properties The Partnership follows the successful efforts method of accounting for oil and gas acquisition, exploration and development costs. Under this method, costs of successful exploratory wells, development wells, lease and well-head equipment and all costs incurred in acquiring mineral leasehold interests are capitalized. Exploratory dry hole costs and other exploration costs, including geological and geophysical costs, delay rentals and production costs are expensed as incurred. Unproved properties are assessed periodically on a property-by-property basis and any impairment in value is currently charged to expense. Capitalized costs relating to producing properties are depreciated and depleted on the unit-of-production method. Proved developed reserves are used in computing unit rates for drilling and development costs, and total proved reserves are used for depletion of leasehold costs. Capitalized costs are evaluated for impairment based on an analysis of future net cash flows in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Maintenance and repairs are expensed as incurred; major renewals and improvements are capitalized. Gains and losses arising from sales of properties are included in income. Organization Costs The costs of organizing the Partnership are capitalized and amortized over a 60-month period. Placement Fees Placement fees are charged directly against partners' capital contributions when paid. During the year ended December 31, 1996, placement fees of $18,762 and $31,238 were charged to the capital accounts of ECIC and EnCap, respectively. Income Taxes No provision for federal income taxes is included in the accompanying financial statements. Since the Partnership is not subject to taxation, the tax effects of its activities accrue to the individual partners. The Partnership's tax returns are subject to examination by the federal and state taxing authorities. If such examinations result in adjustments, the tax liability of the partners, if any, would accordingly be adjusted. Unaudited Information The balance sheet as of September 30, 1997 and the statements of operations for the nine month periods ended September 30, 1997 and 1996 were taken from the Company's books and records without audit. However, in the opinion of management, such information includes all adjustments (consisting only of normal recurring accruals) which are necessary to properly reflect the financial position of the Company as of September 30, 1997 and the results of operations for the nine month periods ended September 30, 1997 and 1996. 3. OIL AND GAS PROPERTIES In December 1995, the general partner assigned to the Partnership its rights and obligations in interests in producing properties located in Carson, Gray and Hutchinson Counties, Texas. The properties contributed by the general partner to the Partnership were assigned a value of $765,450. Additionally, the Partnership purchased further interests in properties located in Carson, Gray and Hutchinson Counties, Texas and interests in producing properties located in Midland County, Texas for $610,000 and $440,000, respectively. The acquisitions were accounted for as purchases. The results of operations of the properties assigned and acquired are included in the Partnership's results of operations effective December 1995. During January 1997, the Partnership acquired interests in certain producing properties located in Moore County, Texas for an adjusted purchase price of $2.1 million. Associated with this acquisition, EnCap and ECIC made capital contributions of $1,041,382 each. Also, Future contributed $100,000 cash and 180,000 shares of its restricted common stock. 4. RELATED PARTY TRANSACTIONS Future, as operator of the Partnership's oil and gas properties, receives revenues and pays costs and expenses associated with the properties and then allocates such activity as appropriate to the respective working interest and royalty owners. During the year ended December 31, 1996, the Partnership received oil and gas revenues from Future of $1,081,161. As of September 30, 1997 and December 31, 1996, accounts receivable of $329,722 and $218,217, respectively were due from Future. During the year ended December 31, 1996, Future was reimbursed $767,738 for operating expenses and capitalized costs incurred on behalf of the Partnership. Accounts payable due to Future as of September 30, 1997 and December 31, 1996 were $148,235 and $60,527, respectively. In connection with the formation of the Partnership in December 1995, the parent of the general partner issued warrants to EnCap and ECIC entitling them to purchase 156,192 and 93,808 shares of the parent's common stock at a specified exercise price. Additionally, to provide the limited partners additional consideration for agreeing to the amendment dated April 18, 1996, the parent of the general partner issued warrants to EnCap and ECIC entitling them to purchase 23,429 and 14,071 shares of the parent's common stock at a specified exercise price. EnCap and ECIC have not exercised these warrants as the market price has been below the exercise price for the applicable exercise period. The value associated with these warrants is not material and has not been reflected in the respective partners' accounts. 5. ALLOCATION TO PARTNERS The Partnership agreement provides, among other things, that revenues and expenses, excluding depletion, depreciation and amortization expense which generally is allocated to the partners in proportion to each partner's relative capital contributions, generally are allocated 15% to the general partner and 85% to the limited partners, except for the Moore County properties which are allocated 3% to the general partner and 97% to the limited partners until such time the limited partners receive a 20% internal rate of return on their investment. After the limited partners receive a 20% internal rate of return, the revenues and expenses are allocated 75% to the general partner and 25% to the limited partners. The Partnership agreement, as amended, in effect during the year ended December 31, 1996, provides that the Partnership maintain minimum ratios of 1.70 to 1 and 1.35 to 1, calculated as discounted projected net revenues divided by total proved reserves and total proved producing reserves, respectively. The limited partners have waived this provision of the Partnership agreement. The allocation among the limited partners is 62.4768% to EnCap and 37.5232% to ECIC, except for the Moore County properties, which is 50% to each of EnCap and ECIC. 6. MAJOR CUSTOMERS Oil and gas sales to three customers constitute a significant percentage of the Partnership's revenues. There are adequate buyers or purchasers of the Partnership's production such that management believes the loss of one or more of these customers would not have a material adverse effect on the results of operations of the Partnership. 7. COMMITMENTS AND CONTINGENCIES In the course of its business affairs and operations, the Partnership is subject to possible loss contingencies arising from federal, state and local environmental, health and safety laws and regulations and third-party litigation. There are no matters which, in the opinion of management, will have a material adverse effect on the financial position or results of operations of the Partnership. 8. FINANCIAL DATA FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) During the year ended December 1, 1996, the Partnership incurred development costs of $508,393. The Partnership incurred no acquisition or exploration costs in 1996. 9. OIL AND GAS RESERVE DATA (UNAUDITED) The following table, based on information prepared by independent petroleum engineers, summarizes changes in the Partnership's net interest in proved reserves of crude oil and condensate and natural gas, all of which are domestic reserves: Oil Gas (BBLS) (MCF) --------------------------- Balance, January 1, 1996 183,000 1,852,000 Revisions of previous estimates 8,000 (39,000) Production (27,000) (190,000) --------- ---------- Balance, December 31, 1996 164,000 1,623,000 ========= ========== Proved developed reserves: January 1, 1996 143,000 1,573,000 December 31, 1996 164,000 1,623,000 Proved oil and gas reserves are the estimated quantities of crude oil, condensate and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. The above estimated net interests in proved reserves are based upon subjective engineering judgments and may be affected by the limitations inherent in such estimation. The process of estimating reserves is subject to continual revision as additional information becomes available as a result of drilling, testing, reservoir studies and production history. There can be no assurance that such estimates will not be materially revised in subsequent periods. 10.STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES (UNAUDITED) The standardized measure of discounted future net cash flows at December 31, 1996 relating to proved oil and gas reserves is set forth below. The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting Standards Board and as such, do not necessarily reflect the Partnership's expectations of actual revenues to be derived from those reserves nor their present worth. The limitations inherent in the reserve quantity estimation process are equally applicable to the standardized measure computations since these estimates are the basis for the valuation process. YEAR ENDED DECEMBER 31, 1996 ------------- Future cash inflows $ 9,077,000 Future production costs (3,859,000) Future development costs (29,000) -------------- Future net cash flows 5,189,000 10% annual discount for estimated timing of cash flows (1,734,000) -------------- Standardized measure of discounted future net cash flows $ 3,455,000 ============== Future net cash flows were computed using year-end prices and costs that relate to existing proved oil and gas reserves at year-end. The following are the principal sources of change in the standardized measure of discounted future net cash flows: YEAR ENDED DECEMBER 31, 1996 -------------- Sales of oil and gas produced, net of production costs $ (419,000) Net changes in prices and production costs 2,303,000 Revisions and other (223,000) -------------- Net change 1,661,000 Balance, January 1, 1996 1,794,000 -------------- Balance, December 31, 1996 $ 3,455,000 ============== Report of Independent Accountants To the Partners of BMC Development No. 1 Limited Partnership In our opinion, the accompanying balance sheet and the related statements of income, of partners' capital and of cash flows present fairly, in all material respects, the financial position of BMC Development No. 1 Limited Partnership (a Texas limited partnership) at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP April 2, 1997 Houston, Texas BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP (a Texas Limited Partnership) BALANCE SHEETS ASSETS September 30, December 31, 1997 1996 (Unaudited) --------------- -------------- CURRENT ASSETS: Cash $ 2,287 $ 2,067 Due from general partner, net 46,662 28,234 --------------- ------------- Total current assets 48,949 30,301 Oil and gas properties, at cost (successful efforts method) 2,378,282 1,797,985 Less - accumulated depreciation, depletion and amortization (273,824) (131,546) --------------- ------------- 2,104,458 1,666,439 Organization costs, net 4,200 5,100 ------------- ------------- Total assets $2,157,607 $ 1,701,840 ============= ============= LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Accrued liabilities $ 21,798 $ 6,500 ------------ ------------ PARTNERS' CAPITAL: General partner 315,159 336,624 Limited partners 1,820,650 1,358,716 ------------ ------------ 2,135,809 1,695,340 ------------ ------------ Total liabilities and partners' capital $2,157,607 $ 1,701,840 ============ ============ See accompanying notes to these financial statements.
BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP (a Texas Limited Partnership) STATEMENTS OF INCOME Period from Period from Nine Months Inception Inception Ended (April 4, 1996) (April 4, 1996) September 30, To September 30 To December 31, 1997 1996 1996 ------------ --------------- -------------- (Unaudited) INCOME: Oil and gas sales $ 333,501 $ 250,591 $ 316,734 EXPENSES: Lease operating expense 124,992 64,537 93,158 Severance taxes 21,520 14,734 18,347 Depreciation, depletion and amortization 143,178 90,477 132,446 General and administrative 26,282 5,066 10,075 ----------- ------------ ----------- 315,972 174,814 254,026 ----------- ------------ ----------- OPERATING INCOME 17,529 75,777 62,708 INTEREST INCOME 988 238 595 ----------- ------------ ---------- NET INCOME $ 18,517 $ 76,015 $ 63,303 =========== ============ ========== See accompanying notes to these financial statements.
BMC DEVELOPMENT NO.1 LIMITED PARTNERSHIP (a Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL General Limited Partner Partners Total ---------- ---------- ---------- Contributions $ 360,295 $1,451,160 $1,811,455 Distributions (26,914) (152,504) (179,418) Net income for the period from inception (April 4, 1996) to December 31, 1996 3,243 60,060 63,303 ---------- ---------- ----------- Balance, December 31, 1996 336,624 1,358,716 1,695,340 Contributions (Unaudited) - 613,000 613,000 Distributions (Unaudited) (24,700) (166,348) (191,048) Net income (Unaudited) 3,235 15,282 18,517 ---------- --------- ---------- Balance, September 30, 1997 (Unaudited) $ 315,159 $1,820,650 $ 2,135,809 ========== ========== ========== See accompanying notes to these financial statements.
BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP (a Texas Limited Partnership) STATEMENTS OF CASH FLOWS Period from Period from Nine Months Inception Inception Ended (April 4, 1996) (April 4, 1996) September 30, To September 30 To December 31, 1997 1996 1996 ------------- --------------- --------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 18,517 $ 76,015 $ 63,303 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 143,178 90,477 132,446 Increase in amounts due from general partner (18,428) (60,324) (28,234) Increase in accrued liabilities 15,298 140,117 6,500 ------------ ---------- ---------- Net cash provided by operating activities 158,565 246,285 174,015 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to oil and gas properties (580,297) (523,163) (762,690) Organization costs - (6,000) (6,000) ------------ ----------- ---------- Net cash used for investing activities (580,297) (529,163) (768,690) CASH FLOWS FROM FINANCING ACTIVITIES: Contributions by partners 613,000 1,226,160 1,451,160 Distributions to partners (191,048) (122,229) (179,418) Payment of general partner indebtedness by Partnership - (675,000) (675,000) ------------ ----------- ---------- Net cash provided by financing activities 421,952 428,931 596,742 ------------ ----------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 220 146,053 2,067 CASH AND EQUIVALENTS, beginning of period 2,067 - - ------------ ----------- ---------- CASH AND EQUIVALENTS, end of period $ 2,287 $ 146,053 $ 2,067 ============ =========== ========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES - Approximate value of oil and gas properties contributed by general partner $ - $ 1,035,295 $ 1,035,295 ============ ============ =========== See accompanying notes to these financial statements.
BMC DEVELOPMENT NO 1 LIMITED PARTNERSHIP (a Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS (The period subsequent to December 31, 1996 is unaudited.) 1. ORGANIZATION BMC Development No. 1 Limited Partnership (the Partnership), a Texas limited partnership, was formed on April 4, 1996 and is engaged primarily in the exploration, development and operation of oil and gas properties. The general partner is Benson-McCown & Company (Benson-McCown), a Texas corporation, which in such capacity was responsible for, among other things, the management of the affairs of the Partnership. EnCap Equity 1994 Limited Partnership (EnCap), a Texas limited partnership, and Energy Capital Investment Company PLC (ECIC), an English investment company, are limited partners. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared on the accrual basis in accordance with generally accepted accounting principles. Preparation of financial statements in conformity with generally accepted accounting principles and estimation of oil and gas reserves require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Oil and Gas Properties The Partnership follows the successful efforts method of accounting for oil and gas acquisitions, exploration and development costs. Under this method, costs of successful exploratory wells, development wells, lease and well-head equipment and all costs incurred in acquiring mineral leasehold interests are capitalized. Exploratory dry hole costs and other exploration costs, including geological and geophysical costs, delay rentals and production costs are expensed as incurred. Unproved properties are assessed periodically on a property-by-property basis and any impairment in value is currently charged to expense. Capitalized costs relating to producing properties are depreciated and depleted on the unit-of-production method. Proved developed reserves are used in computing unit rates for drilling and development costs, and total proved reserves are used for depletion of leasehold costs. Capitalized costs are evaluated for impairment based on an analysis of future net cash flows in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Maintenance and repairs are expensed as incurred; major renewals and improvements are capitalized. Gains and losses arising from sales of properties are included in income. Organization Costs The costs of organizing the Partnership are capitalized and amortized over a 60-month period. Placement Fees Placement fees are charged directly against partners' capital contributions when paid. During the period from inception (April 4, 1996) to December 31, 1996, placement fees of $12,500 and $12,500 were charged to the capital accounts of ECIC and EnCap, respectively. Financial Instruments The carrying amount of the Partnership's financial instruments, which includes cash, trade accounts receivable and accrued liabilities, approximates fair value because of the short-term nature of these instruments. Income Taxes No provision for federal income taxes is included in the accompanying financial statements. Since the Partnership is not subject to taxation, the tax effects of its activities accrue to the individual partners. The Partnership's tax returns are subject to examination by the federal and state taxing authorities. If such examinations result in adjustments, the tax liability of the partners, if any, would accordingly be adjusted. Unaudited Information The balance sheet as of September 30, 1997 and the statements of operations for the nine month periods ended September 30, 1997 and 1996 were taken from the Company's books and records without audit. However, in the opinion of management, such information includes all adjustments (consisting only of normal recurring accruals) which are necessary to properly reflect the financial position of the Company as of September 30, 1997 and the results of operations for the nine month periods ended September 30, 1997 and 1996. 3. OIL AND GAS PROPERTIES Effective February 1996, Benson-McCown assigned to the partnership three wells in the Ashby and Dunlop leases in Lubbock, Texas, and eight wells in Grant County, Oklahoma. At inception (April 4, 1996), the Partnership recorded these properties at their estimated fair market value of approximately $1,035,295, adjusted for the operations between the effective date of February 1, 1996 and the closing date of April 4, 1996. The results of operations of the properties assigned are included in the Partnership's results of operations effective April 4, 1996. 4. RELATED PARTY TRANSACTIONS Benson-McCown, as operator of the Partnership's oil and gas properties, receives revenues and pays costs and expenses associated with the properties and then allocates such activity as appropriate to the respective working interest and royalty owners. During the period from inception (April 4, 1996) to December 31, 1996, the Partnership received oil and gas revenues from Benson-McCown of $316,734. At September 30, 1997 and December 31, 1996, accounts receivable of $65,097 and $84,370, respectively were due from Benson-McCown. During the period from inception (April 4,1 1996) to December 31, 1996, the general partner was reimbursed $44,356 for operating expenses and capitalized costs incurred on behalf of the Partnership. Accounts payable due to Benson-McCown as of September 30, 1997 and December 31, 1996 were $18,435 and $56,136, respectively. During the period from inception (April 4, 1996) to December 31, 1996, the Partnership paid to a third party on behalf of the general partner $675,000 of indebtedness associated with the contributed properties. 5. ALLOCATION TO PARTNERS The Partnership agreement provides, among other things, that revenues and expenses, excluding depletion, depreciation and amortization expense, which is allocated to the partners in proportion to each partner's relative capital contributions, generally are allocated 15% to the general partner and 85% to the limited partners until such time the limited partners receive a 20% internal rate of return on their investment. After the limited partners receive a 20% internal rate of return but prior to a 25% internal rate of return, the revenues and expenses generally are allocated 50% to the general partner and 50% to the limited partners. After the limited partners receive a 25% internal rate of return, the revenues and expenses are allocated 75% to the general partner and 25% to the limited partners. The allocation among the limited partners is 50% to EnCap and 50% to ECIC. 6. MAJOR CUSTOMERS Oil and gas sales to three customers constitute a significant percentage of the Partnership's revenues. There are adequate buyers or purchasers of the Partnership's production such that management believes the loss of one or more of these customers would not have a material adverse effect on the results of operations of the Partnership. 7. COMMITMENTS AND CONTINGENCIES In the course of its business affairs and operations, the Partnership is subject to possible loss contingencies arising from federal, state and local environmental, health and safety laws and regulations and third-party litigation. There are no matters which, in the opinion of management, will have a material adverse effect on the financial position or results of operations of the Partnership. 8. FINANCIAL DATA FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) The following table sets forth certain information with respect to the oil and gas producing activities of the Company: Year Ended December 31, 1996 ------------ Costs incurred in oil and gas producing activities: Acquisition of proved properties $ - Acquisition of unproved properties - Exploration cost - Development costs 762,690 ------------- Total costs incurred $ 762,690 9. OIL AND GAS RESERVE DATA (UNAUDITED) The following table, based on information prepared by independent petroleum engineers, summarizes changes in the estimates of the Partnership's net interest in total proved reserves of crude oil and condensate and natural gas, all of which are domestic reserves: Oil Gas (BBLS) (MCF) -------- --------- Balance April 4, 1996 - - Purchase of minerals in place 553,000 1,289,000 Production (10,000) (75,000) -------- ---------- Balance, December 31, 1996 543,000 1,214,000 At December 31, 1996, 157,000 barrels of oil and 715,000 mcf of gas were classified as proved developed. Proved oil and gas reserves are the estimated quantities of crude oil, condensate and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. The above estimated net interests in proved reserves are based upon subjective engineering judgments and may be affected by the limitations inherent in such estimation. The process of estimating reserves is subject to continual revision as additional information becomes available as a result of drilling, testing, reservoir studies and production history. There can be no assurance that such estimates will not be materially revised in subsequent periods. 10. STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES (UNAUDITED) The standardized measure of discounted future net cash flows at December 31, 1996 relating to proved oil and gas reserves is set forth below. The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting Standards Board and as such, do not necessarily reflect the Partnership's expectations of actual revenues to be derived from those reserves nor their present worth. The limitations inherent in the reserve quantity estimation process are equally applicable to the standardized measure computations since these estimates are the basis for the valuation process. YEAR ENDED DECEMBER 31, 1996 --------------- Future cash inflows $ 17,058,000 Future production costs (6,731,000) Future development costs (2,054,000) Future net cash flows 8,273,000 10% annual discount for estimated timing of cash flows (4,416,000) -------------- Standardized measure of discounted future net cash flows $ 3,857,000 ============== Future net cash flows were computed using year-end prices and costs that relate to existing proved oil and gas reserves at year-end. The following are the principal sources of change in the standardized measure of discounted future net cash flows: YEAR ENDED DECEMBER 31, 1996 ------------- Sale of oil and gas produced, net of production costs $ (205,000) Purchase of minerals in place 4,062,000 Net change 3,857,000 Balance, April 4, 1996 - -------------- Balance, December 31, 1996 $ 3,857,000 ============== Future Petroleum Corporation Unaudited Pro Forma Financial Statements The following unaudited pro forma combined financial statements are derived from the financial statements of Future Petroleum Corporation (the Company) and Future Acquisition 1995, Ltd. Partnership, BMC Development Partnership, and the Gecko Booty #1 Partnership. In November 1997, the Company acquired the partnership interests of the first two partnerships and substantially all the assets of the third for a total combined purchase price of $6.6 million in notes and 1,575,000 shares of the company's common stock. The Unaudited Pro Forma Income Statement for the nine months ended September 30, 1997 and the year ended December 31, 1996 have been prepared assuming the acquisition had been consummated as of the beginning of the respective periods. The Unaudited Pro Forma Balance Sheet as of September 30, 1997 has been prepared as if the acquisition had been consummated on September 30, 1997. Oil and gas producing operations of the three partnerships have been accounted for on the successful efforts method of accounting in their historical financial statements, while the Company uses the full cost method. Therefore, the pro forma adjustments include certain adjustments necessary to place the combined entity on the full cost method in addition to adjustments necessary to reflect the acquisitions as if they had occurred on the dates indicated. The unaudited combined pro forma financial statements should be read in conjunction with the notes thereto and with the financial statements of the Company as included in its Forms 10-QSB and 10-KSB and the financial statements of the partnerships included herein. The unaudited combined pro forma financial statements are not indicative of the financial position or results of operations of the Company which would actually have occurred if the acquisition of the partnerships had occurred at the dates presented or which may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements due to normal oil and gas production declines, changes in prices paid for oil and gas, future acquisitions, drilling activity and other factors. FUTURE PETROLEUM CORPORATION UNAUDITED PRO FORMA COMBINED BALANCE SHEET SEPTEMBER 30, 1997 Future Future Acquisition BMC Gecko Petroleum 1995 Ltd. Develop. Booty --------- ----------- --------- -------- Current Assets: Cash and cash Equivalents 124,674 360,687 2,287 5,000 Current portion of notes receivable 146,177 Trade Accounts receivable 431,424 24,490 Due from general partner, net 181,487 46,662 ---------- -------- -------- ------- Total current assets 702,275 542,174 48,949 29,490 --------------------------------------------- Oil and gas properties at cost (successful efforts method) 858,335 5,130,554 2,378,282 1,688,948 Lease operating rights 609,113 Less - accumulated depreciation, depletion and amortization (258,242) (523,906) (273,824) (932,385) ------------------------------------------------ 1,209,206 4,606,648 2,104,458 756,563 ------------------------------------------------ Other Assets: 50,418 22,982 4,200 ------------------------------------------------ 1,961,899 5,171,804 2,157,607 786,053 ================================================ Liabilities and Stockholders' or Partners' Equity Current liabilities: Trade accounts payable 166,837 Current portion of notes payable 23,382 Accrued oil and gas proceeds payable 349,771 Accrued liabilities 232 21,798 1,925 Due to general partner or shareholder 35,000 12,358 -------------------------------------------- 574,990 232 21,798 14,283 -------------------------------------------- Deferred tax liability Long Term Liabilities: 86,227 Partners' Capital Common stock and paid in capital 1,333,577 Partners' Capital 5,171,572 2,135,809 771,770 Accumulated deficit (32,895) ---------------------------------------------- 1,300,682 5,171,572 2,135,809 771,770 ---------------------------------------------- 1,961,899 5,171,804 2,157,607 786,053 ============================================== See accompanying notes to Unaudited Pro Forma Combined Financial Data
FUTURE PETROLEUM CORPORATION UNAUDITED PRO FORMA COMBINED BALANCE SHEET SEPTEMBER 30, 1997 Pro Forma Adjustments Pro Forma DR CR Combined ------------ -- --------- -- ----------- Current Assets: Cash and cash Equivalents 492,648 Current portion of notes receivable 146,177 Trade Accounts receivable 455,914 Due from general partner, net 181,487 4 46,662 ------------ -- --------- -- --------- Total current assets 181,487 1,141,401 ----------------------------------------- Oil and gas properties at cost (successful efforts method) 802,216 1 11,933,335 740,000 2 335,000 3 Lease operating rights 335,000 3 274,113 Less - accumulated depreciation, depletion and amortization 1,730,115 1 (258,242) ------------------------------------------ 3,607,331 335,000 11,949,206 ------------------------------------------ Other Assets: 77,600 ------------------------------------------ 3,607,331 516,487 13,168,207 ========================================== Liabilities and Stockholders' or Partners' Equity Current liabilities: Trade accounts payable 166,837 Current portion of notes payable 412,500 1 435,882 Accrued oil and gas proceeds payable 181,487 4 168,284 Accrued liabilities 23,955 Due to general partner or shareholder 47,358 ------------------------------------------ 181,487 412,500 842,316 ------------------------------------------ Deferred tax liability 740,000 2 740,000 Long Term Liabilities: 6,187,500 1 6,273,727 Partners' Capital Common stock and paid in capital 4,011,482 1 5,345,059 Partners' Capital 8,079,151 1 - Accumulated deficit (32,895) -------------------------------------------- 8,079,151 4,011,482 5,312,164 -------------------------------------------- 8,260,638 11,351,482 13,168,207 ============================================ See accompanying notes to Unaudited Pro Forma Combined Financial Data
FUTURE PETROLEUM CORPORATION UNAUDITED PRO FORMA COMBINED INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Future Future Acquisition BMC Gecko Petroleum 1995 Ltd. Develop. Booty -------------------------------------------- Income: Oil and gas sales 175,696 1,596,906 333,501 275,822 Well operation fees 168,023 --------- ----------- --------- -------- 343,719 1,596,906 333,501 275,822 --------------------------------------------- Expenses: Lease operating expense and severance taxes 147,278 846,527 146,512 89,390 Depreciation, depletion and amortization 88,040 235,510 143,178 234,273 Interest 4,221 General and admin. 126,547 107,601 26,282 42,871 -------- --------- -------- -------- 366,086 1,189,638 315,972 366,534 ---------------------------------------------- Operating income/(loss) (22,367) 407,268 17,529 (90,712) Other Income: 41,910 1,557 988 86,369 Income (loss) before taxes 19,543 408,825 18,517 (4,343) Deferred tax benefit --------------------------------------------- Net income/(loss) 19,543 408,825 18,517 (4,343) ============================================= Income (loss) per share 0.01 ============================================= Weighted average shares 3,800,000 ============================================== See accompanying notes to Unaudited Pro Forma Combined Financial Data.
FUTURE PETROLEUM CORPORATION UNAUDITED PRO FORMA COMBINED INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Pro Forma Adjustments Pro Forma DR CR Combined ------------ -- --------- -- ----------- Income: Oil and gas sales 90,065 9 2,291,860 Well operation fees 146,180 10 21,843 ----------------------------------------- 236,245 2,313,703 ----------------------------------------- Expenses: Lease operating expense and severance taxes 47,744 9 1,035,783 146,180 10 Depreciation, depletion and amortization 588,000 5 701,001 6 588,000 Interest 493,000 7 497,221 General and admin. 7,799 9 295,502 ----------------------------------------- 1,081,000 902,724 2,416,506 ------------------------------------------ Operating income/(loss) (844,755) (902,724) (102,803) Other Income 86,369 8 44,221 234 9 Income (loss) before taxes (758,152) (902,724) (58,582) Deferred tax benefit 1,000 11 1,000 --------------------------------------------- Net income/(loss) (758,152) (901,724) (57,582) ============================================= Income (loss) per share (0.48) 19 (0.01) ============================================== Weighted average shares 1,575,000 19 5,375,000 ============================================== See accompanying notes to Unaudited Pro Forma Combined Financial Data.
FUTURE PETROLEUM CORPORATION UNAUDITED PRO FORMA COMBINED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996 Future Future Acquisition BMC Gecko Petroleum 1995 Ltd. Develop. Booty --------- ----------- --------- -------- Income: Oil and gas sales 224,000 1,081,161 316,734 707,440 Well operation fees 154,000 --------- ----------- --------- -------- 378,000 1,081,161 316,734 707,440 --------------------------------------------- Expenses: Lease operating expense and severance taxes 187,000 662,029 111,505 196,083 Depreciation, depletion and amortization 99,000 280,662 132,446 455,912 Interest 6,000 General and admin. 120,000 17,462 10,075 29,329 -------- --------- -------- -------- 412,000 960,153 254,026 681,324 ---------------------------------------------- Operating income/(loss) (34,000) 121,008 62,708 26,116 Other Income: Interest income 42,000 3,461 595 Miscellaneous income 41,000 Gain on sale of assets 102,000 25,000 -------- -------- -------- -------- 185,000 3,461 595 25,000 --------------------------------------------- Income (loss) before income tax 151,000 124,469 63,303 51,116 Income tax (expense) benefit (32,000) --------------------------------------------- Net income/(loss) 119,000 124,469 63,303 51,116 ============================================= Income (loss) per share 0.03 ============================================= Weighted average shares 3,472,000 ============================================== See accompanying notes to Unaudited Pro Forma Combined Financial Data
FUTURE PETROLEUM CORPORATION UNAUDITED PRO FORMA COMBINED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996 Pro Forma Adjustments Pro Forma DR CR Combined ------------ -- --------- -- ----------- Income: Oil and gas sales 162,000 13 2,167,335 Well operation fees 134,000 12 20,000 ------- -- --------- -- ----------- 296,000 2,187,335 ----------------------------------------- Expenses: Lease operating expense and severance taxes 134,000 12 923,617 99,000 13 Depreciation, depletion and amortization 804,000 14 968,020 15 804,000 Interest 651,000 16 657,000 General and admin. 3,000 13 173,866 -------- -- -------- -- --------- 1,455,000 1,204,020 2,558,483 ------------------------------------------- Operating income/(loss) (1,159,000) (1,204,020) (371,148) Other Income: Interest income 46,056 Miscellaneous income 41,000 Gain on sale of assets 25,000 17 102,000 -------- -- ---------- -- --------- 25,000 189,056 ------------------------------------------ Income (loss) before income tax (1,134,000) (1,204,020) (182,092) Income tax (expense) benefit 96,000 18 64,000 ------------------------------------------ Net income/(loss) (1,134,000) (1,108,020) (118,092) ========================================== Income (loss) per share (0.72) 19 (0.02) ========================================== Weighted average shares 1,575,000 19 5,047,000 ========================================== See accompanying notes to Unaudited Pro Forma Combined Financial Data.
Future Petroleum Corporation Notes to Unaudited Pro Forma Combined Financial Data 1 To record the purchase of the partnerships' properties for a $6,600,000 note payable and the issuance of 1,575,000 shares of Future Petroleum Corporation common stock as if the properties had been acquired on September 30, 1997. The equity issuance was valued based upon the estimated market value of the acquired reserves. 2 To record the deferred tax liability, and associated increase in oil and gas properties, for the difference in the book and the tax bases of the oil and gas properties purchased. 3 To reclassify lease operating rights associated with the properties purchased into the Company's oil and gas properties. 4 To eliminate the oil and gas revenue receivable of Future Acquisition 1995, Ltd. due from the Company. 5 To record the pro forma depletion adjustment to reflect the Company's depletion expense as if the properties had been acquired on January 1, 1997. 6 To reverse historical depletion expense recorded by Future Petroleum Corp. and each partnership for the nine months ended September 30, 1997. 7 To record interest expense on the $6,600,000 notes payable that would have been incurred had the properties had been acquired on January 1, 1997. 8 To eliminate the gain recorded by the Gecko Booty Partnership on the sale of oil and gas properties, as the gain would be a reduction of oil and gas properties under full cost accounting. 9 To eliminate the revenues and expenses allocated to the Company from the Future Acquisition 1995, Ltd. Partnership for the nine months ended September 30, 1997. 10 To eliminate well operation fees charged to Future Acquisition 1995, Ltd. Partnership by the Company for the nine months ended September 30, 1997 11 To record the deferred tax benefit for the nine months ended September 30, 1997 as if the properties had been acquired on January 1, 1997. 12 To eliminate well operation fees charged to Future Acquisition 1995, Ltd. Partnership by the Company for the year ended December 31, 1996. 13 To eliminate the revenues and expenses allocated to the Company from the Future Acquisition 1995, Ltd. Partnership for the year ended December 31, 1996. 14 To record the pro forma depletion adjustment to reflect the Company's depletion expense as if the properties had been acquired on January 1, 1996. 15 To reverse historical depletion expense recorded by Future Petroleum Corp. and each partnership for the year ended December 31, 1996. 16 To record interest expense on the $6,600,000 notes payable that would have been incurred had the properties been acquired on January 1, 1996. 17 To eliminate the gain recorded by the Gecko Booty Partnership on the sale of oil and gas properties, as the gain would be a reduction of oil and gas properties under full cost accounting. 18 To record the deferred tax benefit for the year ended December 31, 1996 as if the properties had been acquired on January 1, 1996. 19 To record the effect on income/(loss) per share as if the acquisition had occurred at the beginning of the period. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FUTURE PETROLEUM CORPORATION (Registrant) Dated: February 26, 1998 By: /s/ B. Carl Price B. Carl Price, President, Principal Financial and Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----