-----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, I+Lvm36SdegRFVr5Usm/xt3o370XdBjQLPCORxdb0Z/cW07ac4I5KqAvdqu+w2UW q0MzwHLTBe+WMx0/h1jCag== 0000950124-95-003800.txt : 19951120 0000950124-95-003800.hdr.sgml : 19951120 ACCESSION NUMBER: 0000950124-95-003800 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INTERNATIONAL PETROLEUM CORP /NV/ CENTRAL INDEX KEY: 0000799119 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 133130236 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14905 FILM NUMBER: 95593151 BUSINESS ADDRESS: STREET 1: 444 MADISON AVE STE 3203 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129563333 MAIL ADDRESS: STREET 1: 444 MADISON AVE STE 3203 CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20449 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 ------------------------------------------ Commission File Number 0-14905 -------------------------------------------------- AMERICAN INTERNATIONAL PETROLEUM CORPORATION --------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 13-3130236 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 444 MADISON AVENUE, SUITE 3203, NEW YORK, N.Y. 10022 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) (212) 688-3333 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of the registrant's common stock, $.08 par value, as of November 13, 1995, the latest practicable date, is 25,121,017 shares. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1995 1994 -------------- ------------- Assets Current Assets: Cash and cash equivalents $ 63,420 $ 943,371 Cash - restricted 223,550 214,630 Accounts receivable 1,152,363 1,031,206 Inventory 629,402 951,472 Prepaid expenses 606,001 484,525 ------------ ------------- Total current assets 2,674,736 3,625,204 ------------ ------------- Property, plant and equipment: Unevaluated property not subject to amortization 5,741,186 4,467,147 Oil and gas properties pursuant to the full cost method 29,627,753 28,903,520 Refinery property and equipment 15,521,995 15,536,279 Other 524,389 540,753 ------------ ------------- 51,415,323 49,447,699 Less: Accumulated depreciation, depletion and amortization (22,050,918) (21,167,110) ------------ ------------- Total property, plant and equipment 29,364,405 28,280,589 ------------ ------------- Other long-term assets, net 293,029 323,920 ------------ ------------- Total Assets $ 32,332,170 $ 32,229,713 ============ =============
See notes to consolidated financial statements -2- 3 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1995 1994 -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable $ 82,237 $ -- Current installments of long-term debt 701,250 1,168,750 Accounts payable 2,153,893 1,383,082 Accrued expenses and other liabilities 1,077,252 1,101,834 ------------ ------------- Total current liabilities 4,014,632 3,653,666 Long term debt 6,601,421 6,601,421 ------------ ------------- Total Liabilities 10,616,053 10,255,087 Commitments and Contingencies (Note 2) STOCKHOLDERS' EQUITY: Preferred stock, par value $3.00, authorized 7,000,000 shares, none issued -- -- Common stock, par value $.08, 50,000,000 shares authorized; 22,656,471 shares issued and outstanding in 1995 and 19,099,048 shares in 1994 1,812,518 1,527,924 Additional paid-in capital 73,722,546 71,562,434 Stock purchase warrants 1,297,754 1,297,754 Accumulated Deficit (55,116,701) (52,413,486) ------------ ------------- Total Stockholders' Equity 21,716,117 21,974,626 ------------ ------------- Total Liabilities and Stockholders' Equity $ 32,332,170 $ 32,229,713 ============ =============
See notes to consolidated financial statements -3- 4 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, (Unaudited)
1995 1994 ------------ ------------- Revenues: Oil and gas sales $ 304,870 $ 319,284 Refinery lease fees 399,933 629,290 Gain on disposal of assets 25,165 - Interest Income (15,128) 32,101 Other 55,801 34,366 ------------ ------------- Total revenues 770,641 1,015,041 ------------ ------------- Expenses: Operating 70,068 126,565 General and Aministrative 835,088 961,852 Depreciation, depletion and amortization 303,432 358,716 Interest 237,005 291,946 ------------ ------------- Total expenses 1,445,593 1,739,079 ------------ ------------- Net Loss $ (674,952) $ (724,038) ============ ============= Loss per share of common stock $ (0.04) $ (0.04) Weighted average number of shares outstanding 19,299,048 19,099,013 ============ =============
See notes to consolidated financial statements -4- 5 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Unaudited)
1995 1994 ------------ ------------- REVENUES: Oil and gas sales $ 929,799 $ 902,860 Refinery lease fees 779,860 1,611,041 Gain on disposal of assets 25,165 - Interest income 21,074 82,379 Other 91,773 105,734 ------------ ------------- Total revenues 1,847,671 2,702,014 ------------ ------------- EXPENSES: Lease operating 278,089 478,974 General and Administrative 2,583,460 2,980,388 Depreciation, depletion and amortization 931,885 1,075,002 Interest 757,452 1,033,810 ------------ ------------- Total expenses 4,550,886 5,568,174 ------------ ------------- Net Loss $ (2,703,215) $ (2,866,160) ============ ============= Loss per share of common stock $ (0.13) $ (0.17) ============ ============= Weighted average number of shares outstanding 21,535,847 17,345,366 ============ =============
See notes to consolidated financial statements -5- 6 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Unaudited)
1995 1994 --------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,682,902) $ (2,866,160) ------------ ------------ Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and depletion 931,885 1,075,002 Amortization of bond/loan costs 67,997 162,097 Provision for issuance of warrants -- 210,588 Gain on disposal of assets (25,165) -- Changes in current assets & liabilities: (Increase) decrease in accounts rec (109,157) 575,543 Decrease in inventory 322,070 136,174 (Increase) decrease in prepaid expe (140,276) (15,570) Increase (decrease) in accounts payable and accrued expense 846,230 (4,780,664) ------------ ------------ Total adjustments 1,893,584 (2,636,830) ------------ ------------ Net cash used by operating activities (789,318) (5,502,990) ------------ ------------ Cash flows from investing activities: Additions to oil and gas properties (1,998,272) (4,397,471) Additions to refinery property and equipmen -- 4,147 (Additions) retirements to other fixed asse (53,756) (21,544) Proceeds from sale of assets 31,185 -- ------------ ------------ Net cash used in investing activities (2,020,843) (4,371,780) ------------ ------------ Cash flows from financing activities: Cash - restricted (8,920) (330,512) Increase (decrease) in notes payable 82,237 (585,078) Payments on long-term debt (467,500) (3,251,476) Proceeds from sale of marketable securities -- 288,702 Proceeds from issuance of common stock, net of stock registration costs, subscriptions receivable and commissions 2,324,361 15,106,830 Proceeds from exercise of stock warrants 32 -- ------------ ------------ Net cash provided by financing activities 1,930,210 11,228,466 ------------ ------------ Net (decrease) increase in cash and cash equivalents (879,951) 1,353,696 Cash and cash equivalents at beginning of period 943,371 53,137 ------------ ------------ Cash and cash equivalents at end of period $ 63,420 $ 1,406,833 ============ ============
See notes to consolidated financial statements -6- 7 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (Unaudited)
Notes Additional Stock receivable Common Stock paid-in purchase for issuance Shares Amount capital warrants of stock Deficit Total --------- ------------ ---------- ---------- ------------- ---------- ----------- Balance, December 31, 1994 19,099,048 $1,527,924 $71,595,370 $1,297,754 ($32,936) ($52,413,486) $21,974,626 Warrants Exercised 8 1 31 -- -- -- 32 Stock issued in lieu of accounts payable 209,205 16,736 83,264 100,000 Stock issued for services 10,000 800 19,513 -- -- -- 20,313 Sale of common stock - net 3,338,210 267,057 2,057,304 -- -- -- 2,324,361 Net loss for the period -- -- -- -- -- (2,703,215) (2,703,215) ---------- ---------- ----------- ---------- -------- ------------ ----------- Balance, September 30, 1995 22,656,471 $1,812,518 $73,755,482 $1,297,754 ($32,936) ($55,116,701) $21,716,117 ========== ========== =========== ========== ======== ============ ===========
See notes to consolidated financial statements. -7- 8 AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 1. STATEMENT OF INFORMATION FURNISHED The accompanying unaudited consolidated financial statements of American International Petroleum Corporation and Subsidiaries (the "Company") have been prepared in accordance with Form 10-Q instructions and in the opinion of management contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 1995 and the results of operations and the cash flows for the three months and nine months ended September 30, 1995 and 1994. These results have been determined on the basis of generally accepted accounting principles and practices applied consistently with those used in the preparation of the Company's 1994 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that the accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's 1994 Annual Report on Form 10-K. 2. CONTINGENCIES IRS Excise Tax Claim In May 1992, a Company subsidiary, American International Refinery, Inc. ("AIRI"), was notified by the Internal Revenue Service ("IRS") that excise taxes, penalties and interest of approximately $3,500,000 were owed from the sale of fuel products during 1989. The IRS claims that AIRI failed to comply with an administrative procedure that required sellers and buyers, in tax-free transactions, to obtain certification from the IRS. The Company believes that AIRI complied with the substance of the existing requirements, and such sales were either tax-free or such excise taxes were paid by the end-users of such products. The Company has submitted a formal response, and discussions with the IRS National Appeals office are continuing. At this time the Company is unable to determine what liability may arise from this assessment, although the IRS has informed the Company that they are nullifying approximately $650,000 of the penalties included in the $3.5 million mentioned above. -8- 9 Legal Proceedings The Company and its subsidiaries are party to various legal proceedings, including environmental matters. Although the ultimate disposition of these proceedings is not presently determinable, in the opinion of the Company, any liability that might ensue would not be material in relation to the consolidated financial position or results of operations of the Company. 3. PROPERTY, PLANT AND EQUIPMENT On March 31, 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SAFS No. 121 addresses the accounting for the impairment of long-lived assets, identified intangibles and goodwill related to those assets and requires that the carrying amount of impaired assets be reduced to fair value. SFAS No. 121 must be adopted by the Company in its financial statements for the year ending no later than December 31, 1996 although earlier adoption is encouraged. The Company has not yet determined the effect, which could be material, of the adoption of SFAS No. 121 on the financial statements or the date of adoption. 4. SUBSEQUENT EVENTS On November 1, 1995, the Company reached a preliminary agreement (the "Agreement") with Far Eastern Hydrocarbons Ltd., a Hong Kong Corporation ("FEH"), to purchase 20% of the issued and outstanding common stock of Resource Holdings, Inc. ("RHI"), a Delaware corporation and wholly- owned subsidiary of FEH, for $7.3 million to be paid by issuing 4.9 million shares of the Company's common stock valued at $1.50 per share. Both parties have expressed a desire that the Agreement, which has been approved by the respective Boards of both companies, be closed on or before December 29, 1995 subject to the completion of appropriate due diligence. The Agreement also gives the Company a 6 month option to acquire the remaining 80% of RHI's common stock for an aggregate price of $25 million, payable with the Company's common shares priced at a 10% discount to the average closing bid price of the Company's Common Stock for the 20 trading days immediately preceding the closing. The exercise of such option will be subject to Company shareholder approval, which the Company has agreed to seek immediately upon the closing of its 20% acquisition of RHI. RHI's assets consist of its wholly-owned Panamanian corporation, Kondur Petroleum S.A. ("Kondur"), which owns 34.46% of the Malacca Straight PSC Contract ("Malacca") in Sumatra, Indonesia. Kondur is the largest Indonesian-owned domestic operator in Indonesia. The remaining interests in Malacca are owned by China National Offshore Oil Corporation and Novus Petroleum Ltd. (the "Partners"). Malacca -9- 10 covers an area of 2.7 million acres and contains 16 oil fields, which are operated by Kondur, and are currently producing an aggregate of approximately 21,500 barrels of oil per day, providing Kondur with approximately $500,000 per month in after-tax profits. Kondur intends to pay the Company's share of these profits in the form of monthly dividend distributions to the Company. According to FEH, Malacca has an estimated 55 million barrels of proven recoverable oil reserves and 35 billion cubic feet of proven recoverable gas reserves. It also includes an additional 80 million barrels and 47 Bcf of probable oil and gas reserves, respectively, and 150 million barrels of potential oil equivalent reserves. FEH intends to be a long-term shareholder of the Company and has indicated an interest in providing assets and capital to fund certain energy-related projects to be undertaken by the Company as agreed to from time to time by FEH and the Company, with the intent that the Company participate significantly in the international energy community. On October 27, 1995, the Company signed two Letters of Intent and a Memorandum of Understanding ("MOU") with P.T. Pelangi Niaga Mitra International ("Pelangi"), a privately held Indonesian company. Pelangi has won the tender and was awarded the rights to obtain Technical Assistance Contracts and to operate the Lapangan Haurgeulis ("LH") and the Lapangan Pamanukan Selatan ("LPS") Fields, both with gas discoveries located in West Java, Indonesia. The Company is to farm-in to an undivided 49% working interest in the LH and LPS discoveries, as discussed below, and to earn its interest by providing 100% of the funding for the exploration, development and operation of both discoveries. The Company also is to be the operator of the related fields and is to be reimbursed for the funding from 100% of the future gas production as cost recovery, and receive 75% of the profit gas until it has recovered 175% of the advanced funds. At that point, the Company's interest will revert to its original 49%. Indirect overhead charges of up to 5% will be also chargeable by the Company as part of cost recovery. The Company's funding requirements for the gas discoveries will approximate $700,000 during the first six months after closing of the initial transaction with Pelangi. The Company expects LH to close by year-end, and LPS during the first quarter of 1996, subject to the Company's completion of its geological and engineering evaluations and appropriate due diligence. -10- 11 The MOU entitles the Company to a two-year right of first refusal to farm-in to a 49% undivided working interest in any future contracts obtained by Pelangi from Pertamina, the Indonesian Government Oil Company. The Company will have three months to exercise its farm-in right after receipt of notification by the Company that such future contracts are available. The cost of such contracts are to be negotiated from time to time. The Company recently completed Regulation S Offerings of its common stock, in which it sold an aggregate of 1,864,546 shares for net proceeds of $943,500. Approximately 82% of the sales occurred in October 1995, and the remainder occurred in September 1995. -11- 12 ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company's working capital deficit as of September 30, 1995 was approximately $1,340,000 compared to a deficit of approximately $28,000 at December 31, 1994, due primarily to lower than expected lease fee proceeds from the Lessee (Gold Line Refining, Ltd. or "Gold Line") of the Company's refinery during 1995 (See "Results of Operations - Refinery Operations"). Gold Line's new government contract, coupled with its other contract currently in effect, will require it to process between 14,000 and 16,000 barrels of feedstock per day, which in turn is expected to provide an additional $48,000 to $75,000 of future monthly lease fee proceeds to the Company, compared to the average monthly lease fees of approximately $110,000 received from April through October 1995. During the first nine months of 1995, the Company utilized approximately $803,000 to pay current portions of debt and related interest and $2,052,000 for investing activities during the current period, primarily for oil and gas exploration in Peru. It also utilized approximately $789,000 for operations. The net loss for the period totalled $2,682,902, including non-cash provisions for depreciation, depletion, and amortization of $999,882. Current assets other than cash decreased approximately $73,000, and approximately $846,000 was provided by an increase in accounts payable. The Company's work obligations in Peru and Colombia during the next twelve months totals approximately $750,000. The Company expects to finance these obligations with borrowed funds, primarily from local banks in South America. However, the number of wells that the Company may drill in these areas, in addition to the satisfaction of its work obligations, will depend upon the level of success of its drilling efforts, and upon available capital. The Company's 12% Secured Debentures (the "Debentures") require certain annual principal and semi-annual interest payments, which began December 31, 1994. The Debentures contain certain restrictive covenants and conditions with which the Company must comply. In June 1995, MG Trade Finance Corporation ("MGTF"), which holds 90% of the Debentures, agreed to waive certain restrictive covenants related to the Company's ability to borrow funds from entities other than MGTF and returned all of its existing Company Warrants (to purchase 436,667 shares of the Company's Common Stock -12- 13 at an average price of $16.32 per share) in exchange for the Company's issuing new warrants to MGTF to purchase 150,000 shares of the Company's Common Stock at $2.00 per share. Approximately $701,000 and $252,000 in principal and interest related to the Debentures, respectively, are due December 31, 1995. The Company is currently in compliance with all covenants and conditions related to the Debentures. In the event the Company is unable to meet its obligations pursuant to the Debentures in a timely manner, the Company's oil and gas reserves and operations could be adversely affected. In March 1995, Gold Line obtained a $15 million credit line from NationsBank to provide Gold Line with funding to purchase feedstock for its refinery operations. The terms of this credit line included a Subordination Agreement, to which the Company is also a party, wherein the Company agreed to subordinate its $1.8 million note receivable (the "Note") from Gold Line. Pursuant to certain restrictive covenants included in the Subordination Agreement, Gold Line was prevented from making its initial Note payment to the company in September 1995, which included approximately $144,000 and $45,000 in principal and interest, respectively. Gold Line's ability to repay the Note is dependent upon the profitability of its refinery operations, and the Company expects that Gold Line's ability to repay will be enhanced by the signing of its new government contract (See "Results of Operations - Refinery Operations"). However, there can be no assurance that Gold Line will be able to repay the Note in full to the Company. During 1995, the Company has pursued various methods of reducing its debt and operating accounts payable, including obtaining foreign bank loans, extending vendor payments over time, and stock issuances for cash or for services rendered. The Company recently completed Regulation S Offerings of its common stock, in which it sold an aggregate of 1,864,546 shares for net proceeds of $943,500. Approximately 82% of the sales occurred in October 1995, and the remainder occurred in September 1995. Should the Indonesian Agreements the Company is currently negotiating be completed, management anticipates that additional cash flow and working capital will become available to the Company. While management believes these Agreements will be consummated, there can be no assurance at this time that the Company will be successful in completing them. The terms of the Company's Employment Contract with its Chairman and Chief Executive Officer, Dr. George N. Faris, required that the Company, under certain circumstances, if a change of control were to occur, to make a cash payment to him of up to 2.9 times his then current fixed compensation. In addition, the Company has agreed, under certain conditions, to make severance payments to Dr. Faris -13- 14 valued at $50,000 per year of his service to the Company, retroactive to 1981. As of October 13, 1995, Dr. Faris agreed to relinquish his rights under both the change of control and severance pay clauses of his Employment Agreement, in exchange for 900,000 restricted shares of the Company's common stock. The Company is currently having discussions with various parties who have expressed an interest in purchasing the Refinery. Proceeds received from the sale would be used by the Company to repay debt, to fund acquisitions of producing oil and gas reserves, and to supplement the Company's operation and general working capital requirements. However, there can be no assurance that any sale agreement will be reached. The Company intends to meet its capital and operating funds requirements in the near term from revenues generated from operations, from additional debt and/or equity financing as necessary and/or from proceeds from the sale of the Refinery. However, there is no assurance of the success of any financing effort the Company may pursue or the timing or success of the sale of the Refinery. In the event the Company is not able to meet its future exploration commitments in Colombia and Peru in a timely manner, Management believes it will be able to extend certain commitments and may seek financial partners for certain of its commitments. However, in the event the Company cannot meet its exploration obligations by any of the means described above, certain prospects in Colombia and Peru may be relinquished. -14- 15 RESULTS OF OPERATIONS For the Three Months Ended September 30, 1995 as compared to the Three Months Ended September 30, 1994 The following table highlights the Company's results of operations for the three months ended September 30, 1995 and 1994.
For The Three Months Ended September 30, 1995 1994 Exploration and Production Activity: Colombia Properties: -------------------- Revenues - Oil Sales (000's) $253 $264 Lease Operating Expenses (000's) $81 $103 Production Volume - Bbls 30,843 32,515 Average Price per Bbl $8.19 $8.13 Production Cost per Bbl $2.62 $3.18 DD&A per Bbl $3.86 $4.28 Peru Properties: ---------------- Revenues - Oil Sales (000's) $52 $55 Lease Operating Expenses (000's) ($12)(2) $17 Production Volume - Bbls 4,312 7,819 Average Price per Bbl $11.96(3) $7.00(4) Production Cost per Bbl ($2.73)(2) $2.14 DD&A per Bbl (1) - - Refinery Operations: Refinery Lease Fees (000's) $400 $629 Maintenance Expenses (000's) $1 $6 Average Daily Throughput - (Bbls) 11,109 17,100 Average Throughput Fee $0.40 $0.40
__________________________________________________________________ (1) Excludes DD&A for Peruvian activity since all related properties are currently considered "unevaluated". (2) Reflects adjustments for over-accrued lease operating expenses during the second quarter of 1995. (3) Includes government royalty. (4) Excludes government royalty. Oil and Gas Operations: Colombia Colombian oil and gas sales during the third quarter of 1995 reflect a decrease of approximately 5% compared to the same period in the prior year. Actual production and sales were down -15- 16 approximately 21% and 26%, respectively, for the current quarter compared to the same period last year. These decreases are due primarily to normal field production decline and a decrease in the Company's workover projects during the current period compared to the same period last year. The actual decrease in sales during this quarter was offset by a 15% increase in sales of oil resulting primarily because the Company has taken an excess of its working interest share of produced oil, relative to its partner, Ecopetrol, of approximately 4,100 barrels of oil during the third quarter of 1995. Ecopetrol may make up this deficiency over time by taking up to 10% more than its working interest share of production until the imbalance is cured. The Company recently completed the first of a four-well drilling program in its Toqui-Toqui Field. The Toqui #32 well was placed on production in mid-September 1995 and has stabilized at a daily production rate of approximately 140 barrels of oil. The Company drilled the well on a "sole risk" basis and will receive 100% of the new production, after a 20% royalty is paid to the government, until 200% of the well costs have been recovered. The Company believes the four-well program will provide it with a minimum additional net cash flow of $80,000 per month by the end of the first quarter of 1996, depending upon the overall success of the program and the continuation of the existing oil price. Peru Peru operations started in July 1994, and costs for the third quarter of 1994 are minimum costs incurred during initial work performed in starting up the field and are not indicative of true operating costs for that period, in contrast to the production costs presented for the third quarter of 1995. Sales revenues and volumes presented for the third quarter of 1994 include relatively high initial flush production and are not indicative of the ordinary production levels, in contrast to the sales revenues and volumes presented for the third quarter of 1995. Production volumes for the current period have decreased approximately 45% compared to the same period last year for the reason stated above. Revenues only decreased approximately 5% due primarily to the Company receiving an increase in the contract price that it receives for its oil which became effective during the second quarter of 1995. Production costs for the three months ended September 30, 1995 reflects adjustments for overaccrued Lease Operating Expenses during the second quarter of 1995, which have created a negative balance in Lease Operating Expenses for Peru in the third quarter of 1995. Actual lease operating expense for this period, exclusive of the adjustment, totalled approximately $15,000, for a unit production cost of $3.48 per barrel. -16- 17 In early August 1995, the Peruvian Government approved the conversion of the Company's Service Contract for Block IV to a License Contract under the provisions of a new petroleum law. The new contract resulted in a significant increase in the average price of the Company's oil during the third quarter of 1995. Net of the government's royalty, its average price of oil now approximates $10.00 per barrel, a 42% increase over the old contract price. The Company has had some recent success with a workover program, which has increased the daily production rates in Block IV to approximately 75 - 100 barrels of oil. The Company plans to extend this workover program to other well locations in the Block, with the objective of increasing daily production rates in the Block to 400 - 500 barrels of oil per day. All Peru properties are currently considered "unevaluated". Refinery Operations: Refinery lease fees decreased 36% in the current quarter compared to the third quarter of 1994, primarily because Gold Line provided products under two government contracts for an aggregate daily throughput level of 15,000 barrels a day for the entire third quarter of last year, compared to operating under only one contract for 10,000 barrels a day for only two months in this current period. Gold Line was awarded an additional government contract during September 1995, which is expected to increase its daily throughput requirement to 14,000 to 16,000 barrels a day. Other Revenue: Other revenues increased by approximately $2,100, or 6%, during the current quarter due primarily to the increase in foreign exchange gains in this period compared to the same quarter of 1994. The other $19,000 increase reflected during the current quarter is primarily due to a prior period reclassification between interest income and other revenues. General and Administrative: General and Administrative expenses decreased in the third quarter of 1995 by approximately $127,000, or 13%, compared to the same period during 1994. Decreases realized in this period compared to the same period last year include payroll & payroll related expenses, travel expenses, and investor relations expenses, which decreased by $65,000, $22,000, and $63,000, respectively. Legal and accounting fees increased in the current period compared to the third quarter of 1994 by approximately $46,000 and $34,000, respectively, primarily due to increased activity in the ongoing excise tax dispute with the IRS. Office rents decreased by approximately $44,000 for the current quarter, compared to the same period last year, due primarily to the reduction of leased office -17- 18 space at the corporate office and in Colombia. Interest expense decreased $55,000, or 19% for the three months ended September 30, 1995, compared to the same period in 1994, due to the decrease in the outstanding balance of the Company's 12% Secured Debentures outstanding as of June 30, 1995, compared to June 30, 1994. Additional decreases are attributable to the reduction in the interest rate on the Company's note payable to MGTF from prime plus 2%, for the quarter ending September 30, 1994, to prime plus 1% for the current quarter. Depreciation, Depletion and Amortization decreased approximately $55,000, or 15%, for the current period compared to the same period last year. The depletion rate of $3.86 per barrel calculated and used for the entire year of 1995 is a 10% decrease from the $4.28 per barrel used in the same period last year, due primarily to a write-down in the value of the Company's depletable cost basis at December 31, 1994 and reduced oil production during 1995, as previously discussed. -18- 19 RESULTS OF OPERATIONS For the Nine Months Ended September 30, 1995 as compared to the Nine Months Ended September 30, 1994 The following table highlights the Company's results of operations for the nine months ended September 30, 1995 and 1994.
For The Nine Months Ended September 30, 1995 1994 ---- ---- Exploration and Production Activity: Colombia Properties: Revenues - Oil Sales (000's) $793 $848 Lease Operating Expenses (000's) $223 $453 Production Volume - Bbls 98,009 92,468 Average Price per Bbl $8.10 $8.13 Production Cost per Bbl $2.28 $3.18 DD&A per Bbl $3.86 $4.28 Peru Properties: Revenues - Oil Sales (000's) $136 $55 Lease Operating Expenses (000's) $52 $17 Production Volume - Bbls 15,861 7,819 Average Price per Bbl $8.60 $7.00 Production Cost per Bbl $3.26 $2.14 DD&A per Bbl (1) - - Refinery Operations: Refinery Lease Fees (000's) $780 $1,611 Maintenance Expenses (000's) $3 $9 Average Daily Throughput - (Bbls) 10,539 15,249 Average Throughput Fee $0.40 $0.39
__________________________________________________________________ (1) Excludes DD&A for Peruvian activity since all related properties are currently considered "unevaluated". Oil and Gas Operations: Colombia Colombian oil and gas sales during the nine months ended September 30, 1995 reflect a decrease of approximately 6% compared to the same period in the prior year. The decrease was limited to this amount primarily because the Company has taken an excess of its working interest share of produced oil, relative to its partner, -19- 20 Ecopetrol, of approximately 21,000 barrels of oil during the first nine months of 1995. Ecopetrol may make up this deficiency by taking up to 10% more than its working interest share of production until the imbalance is cured. Actual gross production and sales of the Company's shareable oil were down approximately 14% and 16%, respectively, for the current period compared to the same period last year. Decreases in sales revenues compared to the same period last year are attributable to the sale, as of May 1, 1995, of the Company's oil directly to the end user at the well head, thereby receiving a price for the oil that excludes transportation costs. Such costs were included in the sales price during part of this same period last year, but not in the current period. Oil production decreased due to a decrease in the well workover program during the current period compared to the same period last year. The Company recently completed the first of a four-well drilling program in its Toqui-Toqui Field. The Toqui #32 well was placed on production in mid-September 1995 and has stabilized at a daily production rate of approximately 140 barrels of oil. The Company drilled the well on a "sole risk" basis and will receive 100% of the new production, after a 20% royalty is paid to the government, until 200% of the well costs have been recovered. The Company believes the four-well program will provide it with a minimum additional net cash flow of $80,000 per month by the end of the first quarter of 1996, depending upon the overall success of the program and the continuation of the existing oil sales price. Peru Peru operations started in July 1994, and costs reflected through the third quarter of 1994 are minimum costs incurred during initial work performed in starting up the field and are not indicative of true operating costs for that period, in contrast to the production costs presented through the third quarter of 1995. Sales revenues and volumes presented through the third quarter of 1994 include relatively high initial flush production and are not indicative of the ordinary production levels, in contrast to the sales revenues and volumes presented through the third quarter of 1995. Although production volumes for the current period decreased approximately 45% compared to the same period last year for the reason stated above, revenues decreased only 5%, due primarily to the Company's receiving a higher contract price for its oil, which price became effective during the second quarter of 1995. Although production costs for the nine months ended September 30, 1995 increased approximately $35,000 compared to the same period last year, the period ending September 30, 1994 reflected only three months of operations, compared to nine months of operations for the current period. On a pro-rata basis, the operating costs for the two periods were similar. -20- 21 All Peru properties are currently considered "unevaluated". Refinery Operations: Refinery lease fees decreased 52% in the current period compared to the same period last year because Gold Line was not operational at all during the first quarter of 1995 and only partially operational during the second quarter of 1995. During the first quarter of this year, Gold Line was in the process of obtaining additional financing and, during the second quarter, had been negotiating feedstock contracts and performing start-up maintenance. The throughput fees increased 14%, from $0.35 a barrel to $0.40 a barrel over the same period last year. The fees will increase to $0.50 per barrel starting January 1, 1996. Other Revenue: Other revenues decreased approximately $14,000 during the current period due primarily to the decrease in foreign exchange rate gains in this period compared to the same period in 1994. General and Administrative: General and Administrative expenses decreased approximately $397,000, or 13%, compared to the same period during 1994. Approximately one-half of this decrease resulted from a non-cash charge adjusting the exercise price of certain outstanding warrants in the first quarter 1994. Other decreases realized in this period compared to the same period last year included payroll & payroll related expenses, travel expenses and investor relations expenses, which decreased approximately $344,000, $57,000 and $96,000, respectively. Legal and accounting fees increased by approximately $166,000 and $26,484, respectively, primarily due to increased activity in an ongoing excise tax dispute with the IRS. Office rents decreased by approximately $41,000 for the current period compared to the same period last year, due primarily to the reduction of leased office space at the corporate office and in Colombia. Interest expense decreased by $276,000, or 27% due to reductions in the balance of the Company's 12% Secured Debentures outstanding as of June 30, 1995, compared to June 30, 1994, and the decrease in the interest rate on the Company's note payable to MGTF from prime plus 2% for the period ending September 30, 1994, compared to prime plus 1% for the current period. Depreciation, Depletion, and Amortization decreased approximately $143,000, or 13%, for the current period compared to the same period last year. The depletion rate of $3.86 per barrel calculated for 1995 is a 10% decrease from the $4.28 per barrel used in the same period last year, due primarily to a write-down in the value of the Company's depletable cost basis at December 31, 1994 and reduced oil production during 1995, as previously discussed. -21- 22 PART II: OTHER INFORMATION ITEM 5. (a) Indonesian Transactions The Company's previously announced agreement with P.T. Ustraindo Petrogas ("UPG") has been suspended due to certain issues of controversy solely between UPG and Pertamina, which issues are primarily related to UPG's alleged non-performance of its contracts with Pertamina. The company has elected to wait for a final decision between UPG and Pertamina before taking any further action regarding its agreement with UPG. There is no assurance, however, that the resolution of these issues will be favorable to the Company. On November 1, 1995, the Company reached a preliminary agreement with Far Eastern Hydrocarbons Ltd., a Hong Kong Corporation ("FEH"), to purchase 20% of the issued and outstanding common stock of Resource Holdings, Inc. ("RHI"), a Delaware corporation and wholly-owned subsidiary of FEH, for $7.3 million to be paid by issuing 4.9 million shares of the Company's common stock valued at $1.50 per share. Both parties have expressed a desire that the Agreement, which has been approved by the respective Boards of both companies, be closed on or before December 29, 1995 subject to the completion of appropriate due diligence. The Agreement also gives the Company a 6 month option to acquire the remaining 80% of RHI's common stock for an aggregate price of $25 million, payable with the Company's common shares priced at a 10% discount to the average closing bid price of the Company's Common Stock for the 20 trading days immediately preceding the closing. The exercise of such option will be subject to the Company's shareholder approval, which the Company has agreed to seek immediately upon the closing of its 20% acquisition of RHI. RHI's assets consist of its wholly-owned Panamanian corporation, Kondur Petroleum S.A. ("Kondur"), which owns 34.46% of the Malacca Straight PSC Contract ("Malacca") in Sumatra, Indonesia. Kondur is the largest Indonesian-owned domestic operator in Indonesia. The remaining interests in Malacca are owned by China National Offshore Oil Corporation and Novus Petroleum Ltd. (the "Partners"). Malacca covers an area of 2.7 million acres and contains 16 oil fields, which are operated by Kondur, and are currently producing an aggregate of approximately 21,500 barrels of oil per day, providing Kondur with approximately -22- 23 $500,000 per month in after-tax profits. Kondur intends to pay the Company's share of these profits in the form of monthly dividend distributions to the Company. According to FEH, Malacca has an estimated 55 million barrels of proven recoverable oil reserves and 35 billion cubic feet of proven recoverable gas reserves. It also includes an additional 80 million barrels and 47 Bcf of probable oil and gas reserves, respectively, and 150 million barrels of potential oil equivalent reserves. FEH intends to be a long-term shareholder of the Company and has indicated an interest in providing assets and capital to fund certain energy-related projects to be undertaken by the Company as agreed to from time to time by FEH and the Company, with the intent that the Company participate significantly in the international energy community. On October 27, 1995, the Company signed two Letters of Intent and a Memorandum of Understanding ("MOU") with P.T. Pelangi Niaga Mitra International ("Pelangi"), a privately held Indonesian company. Pelangi has won the tender and was awarded the rights to obtain Technical Assistance Contracts and to operate the Lapangan Haurgeulis ("LH") and the Lapangan Pamanukan Selatan ("LPS") Fields, both with gas discoveries located in West Java, Indonesia. The Company is to farm-in, as discussed below, to an undivided 49% working interest in the LH and LPS discoveries and to earn its interest by providing 100% of the funding for the exploration, development and operation of both discoveries. The Company also is to be the operator of the related fields and is to be reimbursed for the funding from 100% of the future gas production as cost recovery, and receive 75% of the profit gas until it has recovered 175% of the advanced funds. At that point, the Company's interest will revert to its original 49%. Indirect overhead charges of up to 5% will be also chargeable by the Company as part of cost recovery. The Company's funding requirements for the gas discoveries will approximate $700,000 during the first six months after closing of the initial transaction with Pelangi. The Company expects LH to close by year-end, and LPS during the first quarter of 1996, subject to the Company's completion of its geological and engineering evaluations and appropriate due diligence. -23- 24 The MOU entitles the Company to a two-year right of first refusal to farm-in to a 49% undivided working interest in any future contracts obtained by Pelangi from Pertamina, the Indonesian Government Oil Company. The Company will have three months to exercise its farm-in right after receipt of notification by the Company that such future contracts are available. The cost of such contracts are to be negotiated from time to time. (b) President's Resignation On November 3, 1995, the Company accepted the resignation of its President and Chief Operating Officer Mr. Kenneth N. Durham. Mr. Durham's resignation was unrelated to any of the agreements the Company is currently pursuing and is intended to allow him the opportunity to explore other personal and business interests. (c) Regulation S Offerings The Company recently completed Regulation S Offerings of its common stock, in which it sold 1,864,546 shares for net proceeds of $943,500. Approximately 82% of the sales occurred in October 1995, the remainder occurred in September 1995. (d) Employment Contract The terms of the Company's Employment Contract with its Chairman and Chief Executive Officer, Dr. George N. Faris, required that the Company, under certain circumstances, if a change of control were to occur, to make a cash payment to him of up to 2.9 times his then current fixed compensation. In addition, the Company has agreed, under certain conditions, to make severance payments to Dr. Faris valued at $50,000 per year of his service to the Company, retroactive to 1981. As of October 13, 1995, Dr. Faris agreed to relinquish his rights under both the change of control and severance pay clauses of his Employment Agreement, in exchange for 900,000 restricted shares of the Company's common stock. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits: Exhibit 27 -- Financial Data Schedule (b) Reports on Form 8-K. None -24- 25 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 13, 1995 AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: /s/ Denis J. Fitzpatrick ---------------------------- Denis J. Fitzpatrick Chief Financial Officer By: /s/ William L. Tracy ---------------------------- William L. Tracy Treasurer/Controller -25- 26 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 -- Financial Data Schedule
EX-27 2 EXHIBIT 27
5 3-MOS DEC-31-1995 JUL-01-1995 SEP-30-1995 286,970 0 1,152,363 0 629,402 2,674,736 51,415,323 22,050,918 32,332,170 4,014,632 6,601,421 1,812,518 0 0 19,903,599 32,332,170 704,803 770,641 70,068 373,500 1,072,093 0 237,005 (674,952) 0 0 0 0 0 (674,952) (.04) 0
-----END PRIVACY-ENHANCED MESSAGE-----