-----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, PUY2XQ2s89izPFZYAOhrYOFdpKnKq4YaTBlG4CF8m4k5AjM2gwqWJX+XPmmQKsN5 y9AoVZHAVjQNBBmfM8TAUQ== 0000950144-97-009759.txt : 19970912 0000950144-97-009759.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950144-97-009759 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970620 ITEM INFORMATION: FILED AS OF DATE: 19970903 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDDLE BAY OIL CO INC CENTRAL INDEX KEY: 0000903267 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 631081013 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-21702 FILM NUMBER: 97674952 BUSINESS ADDRESS: STREET 1: 115 S DEARBORNE ST CITY: MOBILE STATE: AL ZIP: 36602 BUSINESS PHONE: 3344327540 MAIL ADDRESS: STREET 1: PO BOX 390 CITY: MOBILE STATE: AL ZIP: 36602 8-K/A 1 MIDDLE BAY OIL COMPANY 1 FORM 8-K/A AMENDMENT NO. 1 Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) June 20, 1997 ---------------------- MIDDLE BAY OIL COMPANY, INC. (Exact name of registrant as specified in its charter) FILE NO. 0-21702 (Commission File Number) ALABAMA 63-1081013 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 115 SOUTH DEARBORN STREET, MOBILE, AL 36602 (Address of principal executive offices) (334) 432-7540 (Registrant's telephone number, including area code) N/A ------------------------------------------------------------------------------- (Former name or former address, if changed since last report) This Form 8-K/A amends the Current Report on Form 8-K of Middle Bay Oil Company, Inc. (the "Registrant") filed with the Securities and Exchange Commission on June 20, 1997 to provide financial statements and financial information with respect to the merged corporation. 2 ITEM 7- FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired Annual Financial Statements: Report of Independent Auditors Audited Consolidated Balance Sheets as of December 31, 1995 and 1996 Audited Consolidated Statements of Operations for the Years Ended December 31, 1995 and 1996 Audited Consolidated Statements of Changes in Stockholders Equity for the Years Ended December 31, 1995 and 1996 Audited Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 Notes to Audited Consolidated Financial Statements Interim Financial Statements (unaudited): Consolidated Balance Sheet as of June 30, 1997 Consolidated Statements of Operations for the six months and three months ended June 30, 1996 and 1997 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1997 Notes to Consolidated Financial Statements (b) Unaudited Pro Forma Financial Information Pro Forma Combined Statement of Operations for the Year Ended December 31, 1996 Pro Forma Combined Statement of Operations for the Six Months Ended June 30, 1997 Notes to Pro Forma Combined Financial Statements (c) Exhibits 23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors 23.2 Consent of De Golyer and MacNaughton, Independent Petroleum Engineers 23.3 Consent of Ryder Scott Company, Independent Petroleum Engineers 3 [KPMG LOGO] SHORE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITOR'S REPORT THEREON) 4 [KPMG PEAT MARWICK LLP LETTERHEAD] Independent Auditors' Report The Board of Directors Shore Oil Company: We have audited the accompanying consolidated balance sheets of Shore Oil Company and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Shore Oil Company and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. KPMG PEAT WARWICK LLP Houston, Texas April 18, 1997 (except as to note 12, which is as of August 26, 1997) 5 SHORE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995
Assets 1996 1995 ----------- ---------- Current assets: Cash and cash equivalents $ 1,272,047 751,438 Accounts receivable: Trade 921,341 672,189 Other 286,426 221,353 Production imbalances 102,433 27,840 Income taxes receivable 75,000 100,000 Prepaid expenses and other 178,038 9,182 ----------- ---------- Total current assets 2,835,285 1,782,002 ----------- ---------- Property and equipment: Oil and gas properties, full cost method 9,012,341 8,269,138 Other property and equipment 38,576 32,906 Less accumulated depreciation, depletion and amortization (4,895,226) (3,902,269) ----------- ---------- Net property and equipment 4,155,691 4,399,775 Investment in Strand SE Share Partners, Ltd. 174,141 - Deferred financing costs, net of accumulated amortization of $33,983 and $13,729 at December 31, 1996 and 1995 25,318 45,573 Other assets 78,561 192,033 ----------- ---------- $ 7,268,996 6,419,383 =========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses 1,008,970 1,078,777 Current installments of long-term debt - 840,000 ----------- ---------- Total current liabilities 1,008,970 1,918,777 Notes payable, stockholders 2,333,303 2,333,303 Long-term debt, excluding current installments 2,105,000 2,000,000 Deferred taxes 438,410 - ----------- ---------- Total liabilities 5,885,683 6,252,080 ----------- ---------- Stockholders' equity: Common stock, $1 par value. Authorized 100,000 shares; 8,172 shares issued and outstanding at December 31, 1996, 8,472 shares issued and outstanding at December 31, 1995 8,172 8,472 Preferred stock, $.01 par value. Authorized 5,100,000 shares; 5,075,556 shares issued and outstanding at December 31, 1996 and 1995 50,756 50,756 Additional paid-in capital 9,172,362 9,222,062 Accumulated deficit (7,847,977) (9,113,987) ----------- ---------- Total stockholders' equity 1,383,313 167,303 Commitments and contingencies ----------- ---------- $ 7,268,996 6,419,383 =========== ==========
See accompanying notes to consolidated financial statements. 6 SHORE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1996 and 1995
1996 1995 ----------- ---------- Revenues: Oil and gas sales $ 4,956,067 3,066,692 Lease bonus and delay rental income 666,237 525,409 ----------- ---------- Total revenues 5,622,304 3,592,101 ----------- ---------- Costs and expenses: Production costs 1,686,060 1,313,765 General and administrative 641,560 671,342 Depreciation, depletion and amortization 1,018,024 811,395 ----------- ---------- Total costs and expenses 3,345,644 2,796,502 ----------- ---------- Other income (expense): Interest expense (345,477) (343,478) Other income 156,544 184,238 ----------- ---------- Total other income (expense) (188,933) (159,240) ----------- ---------- Income before taxes 2,087,727 636,359 Income tax expense: Current 383,307 142,802 Deferred 438,410 -- ----------- ---------- 821,717 142,802 ----------- ---------- Net income $ 1,266,010 493,557 =========== ==========
See accompanying notes to consolidated financial statements. 7 SHORE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY years ended december 31, 1996 and 1995
Additional Total Common stock Preferred stock paid-in Accumulated stockholders' Shares Amount Shares Amount capital deficit equity ------ ------- --------- ------- ----------- ----------- ----------- Balances at December 31, 1994 8,750 $ 8,750 4,568,000 $45,680 $ 8,995,528 $(9,607,544) $ (557,586) Issuance of common stock 972 972 -- -- -- -- 972 Exchange of stockholder debt and common stock (1,250) (1,250) -- -- 226,534 -- 225,284 Issuance of preferred stock -- -- 507,556 5,076 -- -- 5,076 Net income -- -- -- -- -- 493,557 493,557 ------ ------- --------- ------- ----------- ----------- ----------- Balances at December 31, 1995 8,472 8,472 5,075,556 50,756 9,222,062 (9,113,987) 167,303 Redemption of common stock (300) (300) -- -- (49,700) -- (50,000) Net income -- -- -- -- -- 1,266,010 1,266,010 ------ ------- --------- ------- ----------- ----------- ----------- Balances at December 31, 1996 8,172 $ 8,172 5,075,556 $50,756 $ 9,172,362 $(7,847,977) $ 1,383,313 ====== ======= ========= ======= =========== =========== ===========
See accompanying notes to consolidated financial statements. 8 SHORE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1996 and 1995
1996 1995 ----------- ---------- Cash flows from operating activities: Net income $ 1,266,010 493,557 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 1,018,024 811,395 Provision for deferred income taxes 438,410 -- Change in assets and liabilities: Increase in accounts receivable (314,225) (615,214) Increase in production imbalances receivable (74,593) (87,840) Decrease (increase) in income taxes receivable 25,000 (216,056) (Increase) decrease in prepaid expenses and other (168,856) 47,831 Decrease (increase) in other assets 113,472 (163,620) (Decrease) increase in accounts payable and accrued expenses (69,807) 616,520 Decrease in income taxes payable -- (113,807) Other -- 17,388 ----------- ---------- Net cash provided by operating activities 2,233,435 790,154 ----------- ---------- Cash flows from investing activities: Additions to oil and gas properties (994,414) (3,703,922) Additions to other property and equipment (5,670) -- Investment in Strand SE Share Partners Ltd. (174,141) -- Proceeds from sale of oil and gas properties 246,399 7,478 ----------- ---------- Net cash used in investing activities (927,826) (3,696,444) ----------- ---------- Cash flows from financing activities: Payments on notes payable, stockholders -- (260,000) Payments on long-term debt (735,000) (660,000) Proceeds from long-term debt -- 3,500,000 Stock repurchase (50,000) -- Payments for deferred financing costs -- (59,302) ----------- ---------- Net cash (used in) provided by financing activities (785,000) 2,520,698 ----------- ---------- Net increase (decrease) in cash and cash equivalents 520,609 (385,592) Cash and cash equivalents at beginning of year 751,438 1,137,030 ----------- ---------- Cash and cash equivalents at end of year $ 1,272,047 751,438 =========== ========== Supplemental information on noncash investing and financing activities (see note 3)
See accompanying notes to consolidated financial statements. 9 SHORE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996 and 1995 (1) ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION Shore Oil Company (the Company or Shore) is an independent energy company engaged in the exploration for and acquisition, development and production of oil and gas. The Company's principal areas of activity include Louisiana, Texas, Alabama and Mississippi. Effective July 10, 1990, Monticello Acquisition Corp. (MAC) entered into a merger agreement (the Merger) with Monticello Energy, Inc., Paramount Petroleum Co., Inc. (Paramount Petroleum) and the stockholders of Paramount Petroleum to acquire substantially all of the assets and operations of the corporations and the investment of the Managing Venturer (as defined) status, owned by the stockholders of Paramount Petroleum in a joint venture known as Paramount Petroleum Co., Joint Venture II. Upon the closing of the Merger and effective December 10, 1990, MAC changed its name to Paramount Petroleum Co., Inc. (the surviving company). Pursuant to a management reorganization and sale of assets effective February 1, 1992, Paramount Petroleum Co., Inc. changed its name to Shore Oil Company. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. OIL AND GAS PROPERTIES The Company uses the full-cost method of accounting for exploration and development activities. Under this method of accounting, the costs for unsuccessful as well as successful exploration and development activities are capitalized as property and equipment. The cost of oil and gas properties plus estimated future development costs are amortized using the unit-of-production method based on the ratio of current production to proved oil and gas reserves as estimated by independent petroleum engineers. Dispositions of oil and gas properties are recorded as adjustments to capitalized costs, with gains or losses recognized only when such adjustments would significantly alter the relationship between capitalized costs and proved oil and gas reserves. To the extent that capitalized costs of oil and gas properties, net of accumulated depreciation, depletion and amortization, exceed the estimated after-tax present value of future net cash flows of proved oil and gas reserves plus the lower of cost or estimated fair market value of unevaluated properties, such excess costs would be charged to current expense. No such write-downs were necessary in 1996 or 1995. OTHER PROPERTY AND EQUIPMENT Other property and equipment is recorded at cost and consists of furniture, fixtures, computer equipment and purchased software. Depreciation and amortization are provided over useful lives of three to five years. (Continued) 10 2 SHORE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCOME TAXES The Company follows the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company files a U.S. consolidated federal income tax return which reflects all entities included in the consolidated financial statements. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. PRODUCTION IMBALANCES The Company uses the entitlement method for recording sales of natural gas. Under the entitlement method of accounting, revenue is recorded based on the Company's net revenue interest in production. Deliveries of natural gas in excess of the Company's net revenue interest are recorded as liabilities and under-deliveries are recorded as assets. Production imbalances are recorded at the lower of the sales price in effect at the time of production or the current market value. At December 31, 1996 and 1995, the Company had a receivable due to gas sales less than its entitled share of $102,433 and $27,840, respectively. Such amounts are anticipated to be primarily settled with production in future periods. DEFERRED FINANCING COSTS The costs related to the issuance of debt are capitalized and amortized using the straight-line method over the terms of the related debt. INVESTMENT IN STRAND SE SHARE PARTNERS, LTD. In April 1996, the Company entered into a Joint Venture Program (the Program) with Strand Energy, L.C. (Strand) to participate in property acquisition/exploitation projects developed by Strand in West and South Texas. The Company will fund 10% of Strand's general and administrative expenses, subject to certain limitations, in exchange for an option to participate on a nonpromoted basis for at least 10% of all projects for a two-year period ending March 31, 1998. During the year ended December 31, 1996, the Company funded $36,051 of Strand's general and administrative expenses under the Program, which were capitalized to Oil and Gas Properties on the Company's balance sheet. (Continued) 11 3 SHORE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On May 20, 1996, the Company executed an agreement with Dolomite Resources, Inc. (Dolomite) (an affiliate of Strand) whereby the Company, through one of its subsidiaries, agreed to participate with Strand, Dolomite and certain other third parties in the acquisition and development of the Southeast Share Waterflood Project, Ochiltree County, Texas. The Company, through its participation in the Program, will have a 40% interest in a limited partnership (Strand SE Share Partners, Ltd.) which will own a 50% general partner interest in a limited partnership (SE Share, L.P.) which will hold title to the property. Financing for a substantial portion of the project will be provided by an affiliate of EnCap Investments, L.C., which will be a Limited Partner in SE Share, L.P. The EnCap financing is secured by the Southeast Share Waterflood Project property and is nonrecourse to the Company. At December 31, 1996, the Company's investment in Strand SE Share Partners, Ltd. was $174,141, and is accounted for under the equity method of accounting. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and oil and gas reserve information which affects the depletion calculation as well as the computation of the full cost ceiling limitation, to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications of prior period statements have been made to conform with current reporting practices. (3) SUPPLEMENTAL INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES INCLUDING RELATED PARTY TRANSACTIONS During April 1995, a stockholder released the Company from two notes totaling $590,000 plus accrued interest and returned 1,250 shares of common stock to the Company for payment of $260,000. Additional paid-in capital of $342,590, net of income taxes of $116,056, was recorded which included interest of approximately $12,590. On April 26, 1995, the Company entered into bonus agreements with its president and vice-president (the Management) whereby Shore agreed to pay to Management an amount equal to 5% each of all amounts of principal and/or interest paid on the stockholders' notes at the same time as any such payment on the stockholders' notes is made. Management shall not be entitled to any payments unless and until the Company makes a payment of principal and/or interest under any stockholders' notes. In 1995, the Company also issued to each its president and vice president 486 shares of Shore's common stock and 253,778 shares of the Company's Series A preferred stock. As a result, the Management members each hold 5% of the preferred stock and 5.95% of the common stock of Shore. (Continued) 12 4 SHORE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 1996, the Company purchased and retired 300 shares of its own common stock from a stockholder. The total purchase price of $50,000 was recorded as a reduction in common stock and additional paid-in capital.
1996 1995 --------- ------- Additional supplemental disclosures: Interest paid $ 497,372 192,416 ========= ======= Income taxes paid $ 558,690 406,619 ========= =======
(4) LONG-TERM DEBT In April 1995, the Company entered into a credit facility with Wells Fargo Bank, N.A. (the Bank). The Wells Fargo Credit Facility, dated April 27, 1995 is a $20,000,000 revolving credit commitment (the Commitment) extended for the purpose of financing producing property acquisitions. In an amendment to the Commitment dated November 15, 1996, the Company and the Bank made the following changes to the Commitment: the borrowing base under the Commitment was increased to $4,650,000, the interest payable date was changed to quarterly installments due on the last day of March, June, September and December, the bank granted a one time waiver allowing the repurchase of a stockholder stock (see note 3), and the bank granted a one time waiver allowing the Company to pay accrued interest as of December 31, 1996, totaling $291,893, on the stockholder notes payable (see note 5). The Commitment matures on April 1, 1998 and interest is payable at .75% over the Bank's prime rate (9% at December 31, 1996). Current maturities of the Wells Fargo Credit Facility at December 31, 1996 and 1995 amount to $-0- and $840,000, respectively. Collateral for the Wells Fargo Credit Facility consists of substantially all of Shore's oil and gas producing properties, including the properties acquired in the transaction discussed in note 9. Under the Wells Fargo Credit Facility, the Company is subject to certain financial covenants and restrictions on stockholders' note payments, dividends, additional debt financing and asset dispositions. The Company was in compliance with financial covenants at December 31, 1996. The aggregate amounts of long-term debt and stockholder notes payable (see note 5) maturing for the next two years are as follows: 1997 $ -- 1998 4,438,303 ---------------- Total $ 4,438,303 ================
(5) NOTES PAYABLE, STOCKHOLDERS During April 1995, the Company reached an agreement with a stockholder whereby the stockholder would release the Company from two notes totaling $590,000 plus accrued interest and return 1,250 shares of stock to the Company for payment of $260,000. The debt forgiveness was recorded as an increase to additional paid-in capital of $226,534, net of income taxes of $116,056, and included interest of approximately $12,590. (Continued) 13 5 SHORE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Effective December 1, 1994, the Company restructured stockholder notes of $6,901,303 through an exchange of preferred stock and issuance of new notes. Total stockholder debt of $4,568,000 was exchanged for 4,568,000 shares of $.01 par value preferred stock, for an exchange price of $1.00 per share. The preferred stockholders have no voting rights and dividends are paid at the sole discretion of the board of directors of the Company. In addition, the Company issued the stockholders new notes in the amount of $2,333,303. The due date of the notes was originally December 31, 1995 provided that the stockholders give the Company 60 days written notice that the notes will be called. If 60 days written notice is not given, the notes automatically renew and the due dates extend for one year. At December 31, 1996, this notice had not been given, and the notes extended to December 31, 1997. The interest rate on the notes is 6%. In connection with the Wells Fargo Credit Facility, the stockholders' notes (including accrued interest) cannot be repaid prior to the retirement of all obligations under the Wells Fargo Credit Facility; therefore, at December 31, 1996, the stockholder notes are classified as long-term. (6) INCOME TAXES Income tax expense for the years ended December 31, 1996 and 1995 consists of the following:
1996 1995 -------- ------- Federal: Current $360,219 20,271 Deferred 382,203 -- -------- ------- 742,422 20,271 -------- ------- State: Current 23,088 122,531 Deferred 56,207 -- -------- ------- 79,295 122,531 -------- ------- Total income tax expense $821,717 142,802 ======== =======
For the year ended December 31, 1996, differences between income tax expense computed at the federal statutory rate of 34% and the effective tax rate for financial reporting purposes of 39% were attributable to tax depletion in excess of basis and state income taxes. For the year ended December 31, 1995, differences between income tax expense computed at the federal statutory rate of 34% and the effective rate for financial reporting purposes of 22%, were attributable to tax depletion in excess of basis, state income taxes and the change in the valuation allowance on deferred tax assets. (Continued) 14 6 SHORE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities at December 31, 1996 are presented below. Deferred tax liabilities: Oil and gas property and equipment, principally due to differences in depletion, depreciation and amortization and intangible drilling costs $ 419,019 Gas imbalances 10,858 Other 8,533 --------- Total deferred tax liabilities $ 438,410 =========
The net change in the total valuation allowance for the years ended December 31, 1996 and 1995 was a decrease of $-0- and $423,805, respectively. (7) COMMITMENTS AND CONTINGENCIES At December 31, 1996, future minimum rental payments for operating leases with noncancelable lease terms in excess of one year were as follows: 1997 $ 39,476 1998 20,035 1999 3,186 -------- Total minimum lease payments $ 62,697 ========
Operating lease net rental expense was approximately $42,573 and $37,176 for the years ended December 31, 1996 and 1995, respectively. (8) OTHER RELATED PARTY TRANSACTIONS During 1995, the Company entered into participation agreements with three affiliates (the Company's president, vice president and an independent landman contractor) of the Company. Although no formal note documents exist, payment terms of the receivables related to the participation agreements mirror the terms of the Wells Fargo Credit Facility discussed in note 4. A receivable balance of $96,508 and $96,750 is recorded in accounts receivable-other representing the current portion at December 31, 1996 and 1995, respectively, and $76,468 and $161,527 is recorded in other assets representing the long-term portion at December 31, 1996 and 1995, respectively. (Continued) 15 7 SHORE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Effective December 31, 1996, Shore Exploration and Production Co. (SEPCO, a wholly-owned subsidiary of the Company), acting as general partner and with the approval of the limited partners, dissolved Paramount Exploration 1990, L.P. (the 1990 L.P.), which was carried as an equity investment on the Company's financial statements. In connection with the dissolution, the assets of the 1990 L.P. were sold to various third parties for total proceeds, net of adjustments and selling expenses, of approximately $401,000. Subsequent to the sale, and after payment of all liabilities, the remaining cash was distributed to the partners on December 23, 1996. The net distribution received by the Company in connection with the dissolution was $6,111, which was netted against the Company's investment in the 1990 L.P. The balance of the Company's remaining investment in the 1990 L.P., which totaled $17,489, was charged against Other Income on the Company's consolidated statement of operations. Prior to December 31, 1996, SEPCO held a 1% general partner interest in and directed the activities of the 1990 L.P. SEPCO's investment in the 1990 L.P. was accounted for under the equity method and was included in Other Assets on the Company's consolidated balance sheet. (9) PURCHASE AND SALE OF PROPERTIES AND RELATED TRANSACTIONS On April 28, 1995, effective July 1, 1994, the Company closed the purchase of working interests in certain producing properties in Louisiana and Mississippi for total consideration of $3,481,091. Financing for the acquisition was through the Wells Fargo Credit Facility (see note 4). On November 8, 1995, effective September 1, 1995, the Company closed the purchase of a 45% working interest in the East Lake Arthur Field, Jefferson Davis Parish, Louisiana for total consideration of $82,100. The acquisition was funded from the Company's existing cash reserves. (10) FUTURE OPERATIONS OF THE COMPANY Future activities of Shore will be concentrated on new growth oriented business activities; that growth is being accomplished by (1) pursuing producing property acquisitions with a focus on the Gulf Coast area, (2) managing the company's south Louisiana mineral acreage with a specific focus on generating 3-D seismic activity, (3) continuing to manage Shore's existing properties with an emphasis on additional development activities and high grading the reserve base through selected property sales, and (4) participation in selected moderate risk, lower cost exploration and development drilling. (Continued) 16 8 SHORE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) CREDIT RISK The Company has a concentration of trade receivables due from major integrated and independent oil and gas companies, and to a lesser extent interstate pipeline companies. These concentrations of customers may affect the Company's overall credit risk in that certain customers may be similarly affected by changes in economic, regulatory, or other factors. Trade receivables are generally not collateralized; however, the Company analyzes customers' credit position prior to extending credit. (12) SUBSEQUENT EVENTS On June 30, 1997, the Company was acquired by a subsidiary of Middle Bay Oil Company, Inc. (Middle Bay) for a purchase price of $19.1 million. The $19.1 million purchase price was comprised of the following: 1,833,333 shares of Middle Bay Common Stock, with a fair value totaling approximately $12,976,000; 266,667 shares of Middle Bay Series B Preferred Stock, with a fair value of approximately $3,627,000; 388,833 shares of Middle Bay Series A Preferred Stock, with a fair value of approximately $2,333,000; and cash consideration totaling $200,000. (13) SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED) The following is historical revenue and cost information relating to the Company's oil and gas operations located in Louisiana, Texas, Alabama, Arkansas, and Mississippi: Capitalized Costs Related to Oil and Gas Producing Activities
1996 1995 ---------- ---------- Proved Properties $8,568,652 $8,119,592 Accumulated depreciation, depletion and amortization (4,866,740) (3,876,438) ---------- ---------- Proved properties, net $3,701,912 $4,243,154 ========== ==========
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION AND DEVELOPMENT ACTIVITIES
1996 1995 ---------- ---------- Acquisition $ - $3,028,517 Development 695,457 593,405 ========== ========== Total $ 695,457 $3,621,922 ========== ==========
(Continued) 17 9 SHORE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES The following schedule sets forth the revenues and expenses related to the production and sale of oil and gas. The income tax expense is calculated by applying the current statutory tax rates to the revenues after deducting costs, which include depreciation, depletion and amortization allowances. The results of operations exclude general office overhead and interest expense attributable to oil and gas production.
1996 1995 ---------- ---------- Revenues $4,956,067 $3,066,692 Production Costs 1,686,060 1,313,765 Depletion 990,306 794,431 ---------- ---------- 2,279,701 958,496 Income tax expense 775,098 325,889 ---------- ---------- Results of operations from producing activities $1,504,603 $ 632,607 ========== ==========
OIL AND GAS RESERVES The following table presents estimated volumes of proved and proved developed oil and gas reserves, prepared by independent reserve engineers, Ryder Scott Company and DeGolyer and MacNaughton, as of December 31, 1996 and 1995 and changes in proved reserves during the last two years, assuming continuation of economic conditions prevailing at the end of each year. Volumes for oil are stated in barrels, volumes for natural gas are stated in thousands of cubic feet (mcf), and volumes for natural gas liquids are included in oil volumes and stated in barrels. The weighted average prices at December 31, 1996 used for reserve report purposes are $24.03 and $3.99 for oil and gas reserves, respectively, which have subsequently declined. The Company emphasizes that the volumes of reserves shown below are estimates which, by their nature, are subject to revision. The estimates are made using all available geological and reservoir data, as well as production performance data. Those estimates are reviewed annually and revised, either upward or downward, as warranted by additional performance data.
1996 1995 ---------------------- ---------------------- Oil Gas Oil Gas -------- ---------- -------- ---------- Proved Reserves: Beginning of the year 797,822 2,282,434 542,783 882,187 Purchase of oil and gas reserves in place -- -- 283,861 1,281,000 Extensions, discoveries and other additions -- -- 43,383 38,000 Revisions of prior reserve estimates 27,385 2,625,687 55,846 598,277 Current production (152,898) (640,790) (128,051) (517,030) -------- ---------- -------- ---------- End of the year 672,309 4,267,331 797,822 2,282,434 ======== ========== ======== ========== Proved developed reserves 637,189 1,740,806 797,822 2,282,434 ======== ========== ======== ==========
(Continued) 18 10 SHORE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DISCOUNTED FUTURE NET CASH FLOWS Estimates of future net cash flows from proved oil and gas reserves were made in accordance with Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities." The following tables present the estimated future cash flows, and changes therein, from the Company's proved oil and gas reserves as of December 31, 1996 and 1995, assuming continuation of economic conditions prevailing at the end of each year. STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES
1996 1995 ------------ ------------ Future cash inflows 33,327,430 $ 18,422,613 Future development costs (1,121,420) (245,494) Future production costs (6,599,767) (6,926,844) Future production taxes (1,743,192) (1,514,694) ------------ ------------ Future net cash flows before income taxes 23,863,051 9,735,581 10% annual discount for estimated timing of cash flows (5,965,988) (2,272,283) ------------ ------------ Discounted future net cash flows 17,897,063 7,463,298 Future income taxes, net of 10% annualized discount (5,040,794) (1,103,469) ------------ ------------ Standardized measure of discounted future net cash flows $ 12,856,269 $ 6,359,829 ============ ============
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES
1996 1995 ----------- ----------- Sales and transfers of oil and gas produced, net of production costs $(3,270,007) $(1,752,927) Net changes in prices and development and production costs 7,222,118 735,372 Acquisitions of oil and gas reserves in place, less related production costs -- 3,997,502 Revisions of previous quantity estimates, less related production costs 6,437,297 534,874 Extensions, discoveries and improved recovery, less related production costs -- 527,152 Accretion of discount 746,330 289,295 Net change in income taxes (3,937,325) (725,139) Other (701,973) 239,082 ----------- ----------- Total change in standardized measure of discounted future net cash flows $ 6,496,440 $ 3,845,211 =========== ===========
19 SHORE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31, 1997 1996 ASSETS (Unaudited) Current Assets: Cash and Cash Equivalents $ 2,057,467 $ 1,272,047 Accounts Receivable- Oil and Gas 470,430 921,341 Accounts Receivable- Other 266,824 463,859 Prepayments and Other 48,984 178,038 ----------- ----------- Total Current Assets 2,843,705 2,835,285 Property and Equipment, at cost: Oil and Gas Properties (Full Cost Method) 9,870,356 9,012,341 Furniture, Fixtures, and Other 38,576 38,576 Less Accumulated Depletion, Depreciation, and Amortization (5,442,603) (4,895,226) ----------- ----------- Net Property, Plant, and Equipment 4,466,328 4,155,691 Investment in SE Share Partnership 183,141 174,141 Other Assets 17,284 103,879 ----------- ----------- Total Assets $ 7,510,458 $ 7,268,996 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 403,761 $ 620,201 Interest Payable - - Other Payables 138,843 253,620 Taxes Payable - - Accrued Liabilities 12,452 135,149 Current Portion of Long-Term Debt - - ----------- ----------- Total Current Liabilities 555,056 1,008,970 Long-Term Debt: Wells Fargo Bank 2,105,000 2,105,000 Shareholders Notes 2,333,303 2,333,303 ----------- ----------- Total Long-Term Debt 4,438,303 4,438,303 Deferred Taxes 483,984 438,410 Stockholders' Equity: Common stock, $1.00 par value, 100,000 shares authorized, 8,172 shares issued and outstanding at June 30, 1997 and December 31, 1996 8,172 8,172 Preferred stock, $0.01 par value, 5,100,000 shares authorized, 5,075,556 shares issued and outstanding 50,756 50,756 Additional Paid-In-Capital 9,172,362 9,172,362 Accumulated Deficit-Prior Years (7,847,977) (9,113,987) Current Year Income 649,802 1,266,010 ----------- ----------- Total Stockholders' Equity 2,033,115 1,383,313 ----------- ----------- Total Liabilities and Stockholders' Equity $ 7,510,458 $ 7,268,996 =========== ===========
See accompanying Notes to Financial Statements. 20 SHORE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Unaudited)
Six Months Six Months Ended Ended June 30, June 30, 1997 1996 ----------- ----------- REVENUES: Oil and Gas Sales $ 2,182,294 $ 2,256,774 Lease Bonus and Delay Rental Income 585,630 149,299 ----------- ----------- Operating Revenues 2,767,924 2,406,073 COSTS AND EXPENSES: Production Costs 779,652 809,264 General and Administrative Expenses 442,464 328,878 Depreciation, Depletion, and Amortization 557,505 467,239 ----------- ----------- Operating Costs and Expenses 1,779,621 1,605,381 OTHER INCOME (EXPENSES): Interest Expense (160,275) (180,569) Interest and Other Income 65,234 151,091 ----------- ----------- Total Other Income (Expense) (95,041) (29,478) Income (Loss) before Taxes 893,262 771,214 Income Tax Expense: Current 197,886 170,000 Deferred 45,574 47,611 ----------- ----------- 243,460 217,611 Net Income $ 649,802 $ 553,603 =========== ===========
See accompanying Notes to Financial Statements. 21 SHORE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
Three Months Three Months Ended Ended June 30, June 30, 1997 1996 ----------- ----------- REVENUES: Oil and Gas Sales $ 937,224 $ 1,144,298 Lease Bonus and Delay Rental Income 75,130 149,299 ----------- ----------- Operating Revenues 1,012,354 1,293,597 COSTS AND EXPENSES: Production Costs 360,687 367,325 General and Administrative Expenses 243,274 146,542 Depreciation, Depletion, and Amortization 280,056 243,678 ----------- ----------- Operating Costs and Expenses 884,017 757,545 OTHER INCOME (EXPENSES): Interest Expense (81,505) (88,152) Interest and Other Income 38,583 96,271 ----------- ----------- Total Other Income (Expense) (42,922) 8,119 Income before Taxes 85,415 544,171 Income Tax Expense: Current 136,866 78,000 Deferred (184,251) 17,560 ----------- ----------- (47,385) 95,560 Net Income $ 132,800 $ 448,611 =========== ===========
See accompanying Notes to Financial Statements. 22 SHORE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
Six Months Six Months Ended Ended June 30, June 30, 1997 1996 ----------- --------- Cash Flows Provided by (Used in) Operating Activities Net Income $ 649,802 $ 553,604 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion, and amortization 557,505 467,239 Provision for deferred taxes 45,574 - Changes in assets and liabilities: Accounts receivable 647,946 (167,457) Prepayments and other 129,053 (30,157) Other assets 76,468 38,663 Investment in SE Share Partnership (9,000) (189,500) Accounts payable (216,440) (150,981) Taxes payable - - Other payables (114,777) 91,833 Accrued liabilities (122,697) (211,114) Interest on notes payable - 68,923 ----------- --------- Net Cash Provided by (Used in) Operating Activities 1,643,435 471,053 Cash Flows Provided by (Used in) Investing Activities: Net additions to oil and gas properties (908,915) (228,436) Proceeds from sales of oil and gas properties 50,900 132,412 ----------- --------- Net Cash Provided by (Used in) Investing Activities (858,015) (96,024) Cash Flows Provided by (Used In) Financing Activities: Repayments of bank loan - (435,000) ----------- --------- Net Cash Provided by (Used in) Financing Activities - (435,000) Net Increase (Decrease) in Cash and Cash Equivalents 785,420 (59,971) Cash and Cash Equivalents at Beginning of Period 1,272,047 751,438 ----------- --------- Cash and Cash Equivalents at End of Period $ 2,057,467 $ 691,467 =========== =========
See accompanying Notes to Financial Statements. 23 SHORE ENERGY CORP. NOTES TO FINANCIAL STATEMENTS June 30, 1996 and 1997 Basis of Presentation In management's opinion, the accompanying financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 1997 and the results of operations and cash flows for the six months ended June 30, 1997 and 1996. An independent accountant has not audited the accompanying financial statements. Certain information and disclosures normally included in annual audited financial statements prepared in accordance with generally accepted accounting principles have been omitted, although the Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's Annual Report for the year ended December 31, 1996. 24 PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The accompanying pro forma combined condensed financial statements (the "pro forma financial statements") assume the merger between Middle Bay Oil Company, Inc. and Shore Oil Company and subsidiaries (SHORE), (the "Merger") was accounted for using the purchase method of accounting. The pro forma financial statements are based on the historical financial statements of MBOC and SHORE. The pro forma financial statements are also based, in part, on the historical financial statements of NPC Energy Corp. (NPC), which merged into MBOC effective December 31, 1996 and was accounted for as a purchase (the "NPC Merger") and the historical financial statements of Bison Energy Corp (BEC), which merged into and exists as a wholly-owned subsidiary of MBOC effective February 28, 1997 and was accounted for as a purchase (the "BEC Merger"). Such historical financial statements for the NPC Merger are included in the 8-K/A Amendment No. 1 filed by MBOC on January 14, 1997. Such historical financial statements for the BEC Merger are included in the 8-K/A Amendment No. 1 filed by MBOC on April 25, 1997. The Pro Forma Combined Condensed Statements of Operations for the six months ended June 30, 1997 and the year ended December 31, 1996 have been prepared assuming the merger had been consummated on January 1, 1996. The pro forma adjustments are based upon available financial information and assumptions that management of MBOC believe are reasonable. The pro forma financial statements do not purport to represent the financial position or results of operations which would have occurred had such transactions been consummated on the dates indicated or MBOC's financial position or results of operations for any future date or period. These pro forma financial statements and note thereto should be read in conjunction with the historical financial statements and notes thereto described above. 25 MIDDLE BAY OIL COMPANY, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS Twelve months ended December 31, 1996
Pro Forma MBOC NPC BISON Adjustments Historical Historical Historical for NPC Merger --------------------------------------------------------- Revenues: Oil and gas sales $4,474,786 $ 1,456,121 2,128,573 Gain on sale of properties 37,815 103,995 (95,507) Overhead income 545,124 Management income 176,000 Lease bonus and delay rental income - - - Other income 373,820 29,603 149,253 --------------------------------------------------------- 4,886,421 1,589,719 2,903,443 Costs and expenses: Lease operating and production taxes 1,516,011 868,879 866,291 Depletion, depreciation and amortization 1,462,196 161,000 159,733 212,925 (1) Abandonment expense 428,598 - 100,862 Interest expense 504,945 54,488 242 General and administrative 694,300 172,132 1,025,775 --------------------------------------------------------- 4,606,050 1,256,499 2,152,903 212,925 Income (loss) before income taxes and investee earnings 280,371 333,220 750,540 (212,925) Provision for income taxes (benefit) 74,871 71,000 145,009 (68,300)(3) Equity in net earnings of equity investees - - 213,044 --------------------------------------------------------- Net income (loss) 205,500 262,220 818,575 (144,625) Preferred stock dividend - - - 80,000 (2) --------------------------------------------------------- Net income (loss) applicable to common stock 205,500 262,220 818,575 (224,625) ========================================================= Income (loss) per share-Primary $ 0.15 $ 0.33 $ 1,637.15 ========================================================= Income (loss) per share-Fully diluted $ 0.15 $ 0.33 $ 1,637.15 ========================================================= Weighted average common shares outstanding 562,000 Primary 1,332,141 800,000 500 (800,000)(4) ========================================================= Fully diluted 1,358,662 800,000 500 (800,000)(4) =========================================================
Pro Forma Adjustments MDOC SHORE Adjustments Pro Forma for BISON Merger Pro Forma Historical for the Merger Combined -------------------------------------------------------------------------------- Revenues: Oil and gas sales $ 8,059,480 4,956,067 13,015,547 Gain on sale of properties 46,303 - 46,303 Overhead income 545,124 - 545,124 Management income (176,000)(10) - - - Lease bonus and delay rental income - 666,237 666,237 Other income 552,676 156,544 709,220 -------------------------------------------------------------------------------- (176,000) 9,203,583 5,778,848 14,982,431 Costs and expenses: Lease operating and production taxes 3,251,181 1,686,060 4,937,241 Depletion, depreciation and amortization 848,600(5) 2,844,454 1,018,024 2,494,854 (11) 6,357,332 Abandonment expense 529,460 - 529,460 Interest expense 559,675 345,477 (139,998)(13) 765,154 General and administrative (126,000)(10) 1,766,207 641,560 2,407,767 -------------------------------------------------------------------------------- 722,600 8,950,977 3,691,121 2,354,856 14,996,954 Income (loss) before income taxes and investee earnings (898,600) 252,606 2,087,727 (2,354,856) (14,523) Provision for income taxes (benefit) (331,328)(7) (108,748) 821,717 (821,717)(14) (108,748) Equity in net earnings of equity investees (213,044)(9) - - - - -------------------------------------------------------------------------------- Net income (loss) (780,316) 361,354 1,266,010 (1,533,139) 94,225 Preferred stock dividend 480,000(6) 560,000 - 186,664(12) 746,664 -------------------------------------------------------------------------------- Net income (loss) applicable to common stock (1,260,316) (198,646) 1,266,010 (1,719,803) (652,439) ================================================================================ Income (loss) per share-Primary $ (0.08) $ 0.25 $ (0.15) ================================================================================ Income (loss) per share-Fully diluted $ (0.08) $ 0.25 $ (0.14) ================================================================================ Weighted average common shares outstanding 605,556 (5,075,556) Primary (500)(8) 2,499,697 5,075,556 1,883,333(15) 4,383,030 ================================================================================ 605,556 (5,075,556) Fully diluted (500)(8) 2,526,218 5,075,556 2,150,000(15) 4,676,218 ================================================================================
See accompanying notes to pro forma combined condensed financial statements. 26 MIDDLE BAY OIL COMPANY, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS Six months ended June 30, 1997
Pro Forma MBOC BISON Adjustments MBOC Historical Historical for BISON Merger Pro Forma -------------------------------------------------------- Revenues: Oil and gas sales $ 3,694,098 337,305 $ 4,031,403 Gain on sale of properties 3,867 38,241 42,108 Overhead income 200,002 93,083 293,085 Management income - 25,778 (25,778)(10) (0) Lease bonus and delay rental income - - - Other income 54,821 18,069 72,890 -------------------------------------------------------- 3,952,788 512,476 (25,778) 4,439,486 Costs and expenses: Lease operating and production taxes 1,516,683 153,115 1,669,798 Depletion, depreciation and amortization 1,054,817 24,109 83,976(5) 1,162,902 Exploration expenses 115,191 - 115,191 Abandonment expense 235,719 1,805 237,524 Interest expense 259,743 - 259,743 General and administrative 953,700 160,935 (21,000)(10) 1,093,635 -------------------------------------------------------- 4,135,853 339,964 62,976 4,538,793 Income (loss) before income taxes and investee earnings (183,065) 172,513 (88,754) (99,307) Provision for income taxes (benefit) - 58,654 (58,654)(7) (0) Equity in net earnings of equity investees - 36,564 (36,564)(9) (0) -------------------------------------------------------- Net income (loss) (183,065) 150,422 (66,664) (99,307) Preferred stock dividend 204,445 - 80,000(6) 284,445 -------------------------------------------------------- Net income (loss) applicable to common stock (387,510) 150,422 (146,664) (383,752) ======================================================== Income (loss) per share-Primary $ (0.17) $ (0.17) ======================================================== Income (loss) per share-Fully Diluted $ (0.17) $ (0.17) ======================================================== Weighted average common shares outstanding Primary 2,321,088 2,321,088 ======================================================== Fully Diluted 2,321,088 2,321,088 ========================================================
Pro Forma SHORE Adjustments Pro Forma Historical for the Merger Combined --------------------------------------------- Revenues: Oil and gas sales 2,182,294 6,213,697 Gain on sale of properties - 42,108 Overhead income - 293,085 Management income - (0) Lease bonus and delay rental income 585,630 585,630 Other income 65,234 138,124 --------------------------------------------- 2,833,158 -- 7,272,644 Costs and expenses: Lease operating and production taxes 779,652 2,449,450 Depletion, depreciation and amortization 557,505 1,079,025 (11) 2,799,432 Exploration expenses - 115,191 Abandonment expense - 237,524 Interest expense 160,275 (69,999)(13) 350,019 General and administrative 442,464 1,536,099 ---------------------------------------------- 1,939,896 1,009,025 7,487,714 Income (loss) before income taxes and investee earnings 893,262 (1,009,025) (215,070) Provision for income taxes (benefit) 243,460 (243,460)(14) (0) Equity in net earnings of equity investees - (0) ---------------------------------------------- Net income (loss) 649,802 (765,565) (215,069) Preferred stock dividend - 93,332 (12) 377,777 ---------------------------------------------- Net income (loss) applicable to common stock 649,802 (858,898) (592,846) ============================================== Income (loss) per share-Primary $ 0.13 $ (0.14) ============================================== Income (loss) per share-Fully Diluted $ 0.13 $ (0.13) ============================================== Weighted average common shares outstanding (5,075,556) Primary 5,075,556 1,883,333 (15) 4,204,421 ============================================== (5,075,556) Fully Diluted 5,075,556 2,150,000 (15) 4,471,088 ==============================================
See accompanying notes to pro forma combined condensed financial statements. 27 MIDDLE BAY OIL COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note A- Pro Forma Adjustments for the NPC Merger On December 18, 1996, MBOC and NPC entered into the Merger Agreement whereby NPC was merged into MBOC effective December 31, 1996. The merger was accounted for using the purchase method of accounting. In completing the merger, MBOC issued 562,000 shares of MBOC common stock and paid $1,226,400 in cash in exchange for all of the issued and outstanding NPC common stock. The merger was accounted for as a purchase of NPC by MBOC and as a result of the purchase method of accounting, MBOC's cost of acquiring NPC was allocated to the assets and liabilities acquired based on estimated fair values. MBOC incurred approximately $35,000 in legal and accounting expenses related to the merger. The direct costs of the merger was accrued and included as a cost of the merger. The accompanying Pro Forma Combined Condensed Statements of Operations for the year ended December 31, 1996 and the six months ended June 30, 1997 have been prepared as if the NPC Merger had occurred on January 1, 1996 and reflect the following adjustments: (1) To adjust depletion, depreciation and amortization to reflect MBOC's purchase price allocated to the property and equipment using the unit of production method utilized by MBOC. (2) To record the preferred stock dividends paid on the preferred stock issued for the cash portion of the purchase price. (3) To adjust the provision for income taxes for the change in financial taxable income as a result of the entries (1) and (2). (4) To reflect the issuance of 166,667 shares of Series A Preferred Stock and 562,000 shares of MBOC Common Stock. Pro forma net income (loss) per common share information is computed by dividing net income (loss), adjusted for the preferred stock dividend requirement of $80,000 for the year ended December 31, 1996 by the pro forma weighted average common and common equivalent shares outstanding. Shares issuable upon exercise of options and upon the conversion of preferred stock are included in the computations of the pro forma income per common and common equivalent share if the effect is dilutive. 28 MIDDLE BAY OIL COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note B- Pro Forma Adjustments for the Merger On February 10, 1997, MBOC and BEC entered into the Merger Agreement whereby BEC was merged into and continues to exist as a wholly-owned subsidiary of MBOC, effective February 28, 1997. The merger was accounted for using the purchase method of accounting. In completing the merger, MBOC issued 605,556 shares of MBOC common stock and paid $6,654,114 in cash in exchange for all of the issued and outstanding BEC common stock. The merger was accounted for as a purchase of BEC by MBOC and as a result of the purchase method of accounting, MBOC's cost of acquiring BEC was allocated to the assets and liabilities acquired based on estimated fair values. MBOC incurred approximately $35,000 in legal and accounting expenses related to the merger and were included as a cost of the merger. The accompanying Pro Forma Combined Condensed Statements of Operations for the year ended December 31, 1996 and the six months ended June 30, 1997 have been prepared as if the BEC Merger had occurred on January 1, 1996 and reflect the following adjustments: (5) To adjust depletion, depreciation and amortization to reflect MBOC's purchase price allocated to the property and equipment using the unit of production method utilized by MBOC. (6) To record the preferred stock dividends paid on the preferred stock issued for the cash portion of the purchase price. (7) To adjust the provision for income taxes for the change in financial taxable income as a result of the entries (1) and (2). (8) To reflect the issuance of 1,000,000 shares of Series A Preferred Stock and 605,556 shares of MBOC Common Stock. Pro forma net income (loss) per common share information is computed by dividing net income (loss), adjusted for the preferred stock dividend requirement of $480,000 for the year ended December 31, 1996 by the pro forma weighted average common and common equivalent shares outstanding. Shares issuable upon exercise of options and upon the conversion of preferred stock are included in the computations of the pro forma income per common and common equivalent share if the effect is dilutive. (9) To remove equity in net earnings of equity investees that were not purchased and to remove BEC's share of NPC's net earnings. 29 (10) To remove management income for accounting and administrative functions performed by BEC for other entities and for NPC. Management income for services performed for NPC amounted to $10,500 per month or $126,000 annually and is recorded on NPC's financial statements as general and administrative expenses. Subsequent to the Merger, BEC will no longer perform such accounting and administrative functions. Note C- Pro Forma Adjustments for the Merger On June 20, 1997, MBOC and SHORE entered into the Merger Agreement whereby SHORE was merged into and continues to exist as a wholly-owned subsidiary of MBOC, effective June 30, 1997. The merger was accounted for using the purchase method of accounting. In completing the merger, MBOC issued 1,883,333 shares of MBOC common stock, 266,667 shares of MBOC Series B convertible preferred stock and paid $200,000 in cash in exchange for all of the issued and outstanding SHORE common stock. MBOC also paid Shore's indebtedness to its shareholders of $2,333,303 and assumed bank debt of Shore amounting to $2,105,000. In connection with the merger with Shore Oil Company, effective June 30, 1997, the Company issued 266,667 shares of Series B Preferred Stock ("Series B"). The Series B is nonvoting and pays no dividends. The Series B has a liquidation value of $7.50 per share and is junior to the Series A Preferred. For a period of sixty-six months subsequent to June 30, 1997 any holder of the Series B may convert all or any portion of Series B shares into Company Common Stock ("Common") at a ratio of one share of Common for each Series B share or at any time on or after January 1, 1998, the holders may convert pursuant to the Alternative Conversion Method based on Cumulative Value. Upon expiration of the conversion period, unless the Company has given notice to redeem the Series B, all of the shares of Series B shall be automatically converted. In no event shall the aggregate total number of shares of Common into which the Series B are converted be less than 266,667 shares or exceed 1,333,333 shares, unless further increased for any anti-dilution provisions. The Alternative Conversion Method shall be computed as of December 31 of each year following the merger date of June 30, 1997, by determining the incremental amounts by which the Cumulative Value increases over the prior year's computation. Each incremental increase in the Cumulative Value, when computed, shall be divided by $8,000,000, with the resulting quotient (the "Alternative Conversion Factor") multiplied by 266,667 to determine the number of Series B shares which would be converted. The number of Common shares into which the Series B would be converted shall be determined by multiplying 1,066,666 times the then applicable Alternative Conversion Factor. The procedure shall be repeated as of each December 31, with the applicable number of Series B shares converted into Common shares. If on December 31 of any year during the conversion period the aggregate Cumulative Value equals or exceeds $10,000,000, then the remaining Series B shares will be convertible into a number of Common shares equal to 1,333,333 shares less the aggregate number of Common shares previously issued upon conversion. The Cumulative Value means the value attributable to the approximately 40,000 acres of mineral interest owned by Shore in Terrebone, LaFourche and 30 St. Mary Parishes, Louisiana (the "Louisiana Acreage"). The Cumulative Value shall initially be equal to $2,000,000 and shall not exceed $10,000,000. The Cumulative Value shall be recomputed on an incremental basis as of December 31 of each year following the merger date of June 30, 1997 based: (1) on values computed for newly-discovered, reworked or recompleted wells with a minimum of six months' production history; plus (2) lease bonus payments and delay rental payments, seismic option payments, seismic permit payments, any other payments and proceeds from the sale of properties or oil and gas interests on the Louisiana Acreage received by the Company during the evaluation period if such properties or oil and gas interests have not been previously included in the computation of Cumulative Value. The Cumulative Value shall be reduced on each recomputation date by the amount of any extraordinary claim or liability asserted against or paid by the Company and relating to the Louisiana Acreage during such evaluation period. In connection with the Shore Merger, MBOC purchased additional oil and gas interests in a separate agreement which are not reflected in the pro forma financial statements because the amounts are insignificant. The merger was accounted for as a purchase of SHORE by MBOC and as a result of the purchase method of accounting, MBOC's cost of acquiring SHORE will be allocated to the assets and liabilities acquired based on estimated fair values. MBOC incurred approximately $38,000 in legal and accounting expenses related to the merger and were included as a cost of the merger. The accompanying Pro Forma Combined Condensed Statements of Operations for the year ended December 31, 1996 and the six months ended June 30, 1997 have been prepared as if the Shore Merger had occurred on January 1, 1996 and reflect the following adjustments: (11) To adjust depletion, depreciation and amortization to reflect MBOC's purchase price allocated to the property and equipment using the unit of production method utilized by MBOC. (12) To record the preferred stock dividends paid on the preferred stock issued for the cash portion of the purchase price. (13) To record the reduction in interest expense on the debt retired. (14) To adjust the provision for income taxes for the change in financial taxable income as a result of the entries (11), (12) and (13). (15) To reflect the issuance of 388,884 shares of Series A Preferred Stock, 266,667 shares of Series B Preferred Stock and, 1,883,333 shares of MBOC Common Stock. Pro forma net income (loss) per common share information is computed by dividing net income (loss), adjusted for the preferred stock dividend requirement of $186,664 for the year ended December 31, 1996 and $93,332 for the six months ended June 30, 1997 by the pro forma weighted average common and common equivalent shares outstanding. Shares issuable upon exercise of options and upon the conversion of preferred stock are included in the computations of the pro forma income per common and common equivalent share if the effect is dilutive. 31 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MIDDLE BAY OIL COMPANY, INC. (Registrant) Date: September 3, 1997 By: /s/ Frank C. Turner II ----------------------------- Frank C. Turner II Vice President and Chief Financial Officer EX-23.1 2 CONSENT OF KPMG 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Shore Oil Company: We consent to the inclusion of our report dated April 18, 1997, with respect to the consolidated balance sheets of Shore Oil Company and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended, which report appears in the Form 8-K of Middle Bay Oil Company, Inc. dated June 20, 1997. KPMG Peat Marwick LLP Houston, Texas August 29, 1997 EX-23.2 3 CONSENT OF DEGOLYER AND MACNAUGHTON 1 EXHIBIT 23.2 DeGOLYER AND MacNAUGHTON ONE ENERGY SQUARE DALLAS, TEXAS 75206 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS We hereby consent to the reference to our firm and to our reserves estimates in Amendment No. 1 to the Registration Statement of Middle Bay Oil Company, Inc. (the Company) on Form 8-K/A (the Registration Statement) in the section entitled "Supplemental Information on Oil and Gas Exploration and Production Activities (Unaudited);" provided, however, that in the Registration Statement estimates of reserves, revenue, and discounted present worth set forth in our reports mentioned below have been combined with estimates of reserves, revenue, and discounted present worth prepared by another petroleum consultant. We are necessarily unable to verify the accuracy of the reserves, revenue, and present worth values contained in the Registration Statement when our estimates have been combined with those of another firm. Our estimates of the oil, natural gas liquids, and natural gas reserves owned by Shore Oil Company in the Wellman Unit in Terry County, Texas, are contained in our reports entitled "Appraisal Report as of January 1, 1996, on an interest in the Wellman Unit owned by Shore Oil Company-SEC Case" and "Appraisal Report as of December 31, 1996, on an interest in the Wellman Unit owned by Shore Oil Company-SEC Case." DeGOLYER and MacNAUGHTON Dallas, Texas August 29, 1997 EX-23.3 4 CONSENT OF RYDER SCOTT COMPANY 1 [RYDER SCOTT COMPANY LETTERHEAD] EXHIBIT 23.3 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS We hereby consent to the incorporation by reference in this Form 8-K/A of our reserve report to the interests of Shore Oil Company (the Company) dated February 28, 1997 and March 12, 1996, relating to the estimated quantities of certain of the Company's proved reserves and the related estimates of future net revenue and present values for the years ended December 31, 1996 and December 31, 1995. /s/ Ryder Scott Company ----------------------- Petroleum Engineers RYDER SCOTT COMPANY PETROLEUM ENGINEERS Houston, Texas August 28, 1997 -----END PRIVACY-ENHANCED MESSAGE-----