-----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, K6KSHL3A3FG3YphrX/ddVRSdlGBSy5w4Z8JIah9/8SDB30lTQkyEmI0tlF7451hz PpFwQkB0O523rHXTyiGfmQ== 0001015402-00-000074.txt : 20000202 0001015402-00-000074.hdr.sgml : 20000202 ACCESSION NUMBER: 0001015402-00-000074 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991207 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3TEC ENERGY CORP CENTRAL INDEX KEY: 0000903267 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 631081013 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-14745 FILM NUMBER: 507079 BUSINESS ADDRESS: STREET 1: TWO SHELL PLZ STREET 2: 777 WALKER STE 2400 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7132226275 MAIL ADDRESS: STREET 1: PO BOX 390 CITY: MOBILE STATE: AL ZIP: 36602 FORMER COMPANY: FORMER CONFORMED NAME: MIDDLE BAY OIL CO INC DATE OF NAME CHANGE: 19930504 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 _______________ Date of Report (Date of earliest event reported): December 7, 1999 3TEC ENERGY CORPORATION Delaware - -------------------------------------------------------------------------------- State or Other Jurisdiction of Incorporation 000-14745 76-0624573 - -------------------------------------------------------------------------------- (Commission File No.) (IRS Employer Identification No.) Two Shell Plaza, 777 Walker Street, Ste 2400 Houston, Texas 77002 - -------------------------------------------------------------------------------- Address of Principal Executive Offices Zip Code 713-222-6275 - -------------------------------------------------------------------------------- Registrant's Telephone Number, Including Area Code N/A - -------------------------------------------------------------------------------- Former Name or Former Address, if Changed Since Last Report Purpose of this Amendment On December 7, 1999, the registrant filed its Form 8-K for the acquisition of certain oil and gas properties and interests of Floyd Oil Company (the "Floyd Oil Properties"). Financial information required under Item 7 and Regulation S-B Item 310 was not available at the time of the filing. The purpose of this amendment is to include the required audited financial statements and pro forma information. Item 2. Acquisition or Disposition of Assets. On November 23, 1999, 3TEC Energy Corporation (f/k/a Middle Bay Oil Company, Inc.) ("3TEC") closed the previously announced transaction to purchase the Floyd Oil Properties as described in the registrant's Form 8-K filed on December 7, 1999. Item 7. Financial Statements and Exhibits. The financial statement information required under Regulation S-B Item 310 is included after the signature page as follows:
(a) Financial statements of business acquired: Floyd Oil Properties Acquisition: Report of Independent Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . 3 Statements of Revenues and Direct Operating Expenses for the Years ended December 31, 1998 and 1997 (audited) and the periods ended September 30, 1999 and 1998 (unaudited), with respect to the Acquired Properties. . . . . . . . . . . . . . . . . . . 4 Notes to Statements of Revenues and Direct Operating Expenses . . . . . . . . . . . . . . 5 (b) Pro forma financial information: 3TEC Energy Corporation: 3TEC Energy Corporation Unaudited Pro Forma Condensed Consolidated Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Unaudited Pro Forma Condensed Consolidated Balance Sheet at September 30, 1999. . . . . . 9 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. . . . . . . . . 12 (c) Exhibits: 2.1 Form of Purchase Agreement (previously filed as Exhibit 2.1 to 3TEC's Form 8-K filed on December 7, 1999). 99.1 Press Release issued by the Registrant on November 30, 1999 (previously filed as Exhibit 99.1 to 3TEC's Form 8-K filed on December 7, 1999).
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 3TEC ENERGY CORPORATION (Registrant) Date: January 13, 2000 By: /s/ Floyd C. Wilson ------------------------------------ Floyd C. Wilson President, Chief Executive Officer and Chairman of the Board 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of 3TEC Energy Corporation: We have audited the accompanying statements of revenues and direct operating expenses for the years ended December 31, 1998 and 1997, for the Acquired Properties (as described in Note 1). These financial statements are the responsibility of 3TEC Energy Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform 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. The accompanying statements were prepared as described in Note 2 for the purpose of complying with certain rules and regulations of the Securities and Exchange Commission ("SEC") for inclusion in certain SEC regulatory reports and filings and are not intended to be a complete financial presentation. In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and direct operating expenses of the Acquired Properties for the years ended December 31, 1998 and 1997, in conformity with generally accepted accounting principles. Houston, Texas December 13, 1999 Arthur Andersen LLP 3
ACQUIRED PROPERTIES Statements of Revenues and Direct Operating Expenses (In thousands) Unaudited ---------------- Years Ended Nine Months Ended December 31, September 30, ---------------- ---------------- 1997 1998 1998 1999 ------- ------- ------- ------- Revenues: Oil revenues $17,713 $10,520 $ 8,349 $ 8,558 Gas revenues 29,458 22,790 17,855 17,563 Plant product revenues 1,391 757 610 652 ------- ------- ------- ------- 48,562 34,067 26,814 26,773 ------- ------- ------- ------- Direct operating expenses: Lease operating expenses 12,466 12,748 9,624 8,861 Production taxes 2,673 1,869 1,507 1,390 ------- ------- ------- ------- Direct operating expenses 15,139 14,617 11,131 10,251 ------- ------- ------- ------- Revenues in excess of direct operating expenses $33,423 $19,450 $15,683 $16,522 ======= ======= ======= =======
See accompanying notes. 4 ACQUIRED PROPERTIES Notes to Statements of Revenues and Direct Operating Expenses 1. The Properties On November 23, 1999, 3TEC Energy Corporation ("3TEC Energy"), formerly known as Middle Bay Oil Company, Inc., acquired certain oil and gas properties and interests (the "Acquired Properties") from Floyd Oil Company ("Floyd") and certain partnerships and other entities managed or sponsored by Floyd (collectively, the "Sellers") for a purchase price of approximately $87 million in cash and 1.5 million shares of 3TEC Energy's common stock. The effective date of the transaction was January 1, 1999. The majority of the Acquired Properties are located in Texas and Louisiana. 2. Basis of Presentation During the periods presented, the Acquired Properties were not accounted for or operated as a separate division by Floyd. Information with respect to depreciation, depletion and amortization is not available for the Acquired Properties. General and administrative expenses incurred by Floyd were not allocated to the Acquired Properties. The Sellers were not taxpaying entities and, therefore, income tax information with respect to the Acquired Properties is not available. Accordingly, full separate financial statements prepared in accordance with generally accepted accounting principles do not exist and are not practicable to obtain in these circumstances. Revenues and direct operating expenses included in the accompanying statements represent the Sellers' net working and royalty interests in the Acquired Properties and are presented on the accrual basis of accounting. Depreciation, depletion, and amortization, allocated general and administrative expenses and income tax expense have been excluded. The statements presented are not indicative of the future results of operations of the Acquired Properties due to anticipated changes in various operating expenses and the omission of other costs as discussed above. 3. Commitments and Contingencies The management of 3TEC Energy is not aware of any legal, environmental or other commitments or contingencies that would be materially important in relation to the revenues and direct operating expenses of the Acquired Properties. 4. Related Party Transactions An affiliate of Floyd operated certain oil and gas wells included in the Acquired Properties. Fees related to such wells in the amount of $442,600 and $460,000 were charged to the Acquired Properties during the years ended December 31, 1997 and 1998, respectively, and $345,600 and $353,700 for the nine month periods ended September 30, 1998 and 1999, respectively. These fees are reflected in direct operating expenses in the accompanying statements. 5. Capital Expenditures (Unaudited) Direct operating expenses do not include exploration and development expenditures related to the Acquired Properties which totaled $4.3 million and $4.1 million for the years ended December 31, 1997 and 1998, respectively and $2.9 million and $2.6 million for the nine month periods ended September 30, 1998 and 1999, respectively. 6. Supplemental Oil and Gas Reserve Information (Unaudited) 5 Total proved and proved developed oil and gas reserves of the Acquired Properties at December 31, 1998 have been estimated based on reserve estimates prepared by Ryder Scott Company Petroleum Engineers as of September 30, 1999, adjusted for production from September 30, 1999 to December 31, 1998. Comparable estimates were not readily available for subsequent or prior periods. Therefore, reserves for December 31, 1997 and 1998 have been calculated by adjusting the September 30, 1999 amounts for the respective period's activities and, consequently, no revisions of previous estimates have been reflected. All reserve estimates are based on economic and operating conditions existing at September 30, 1999. The future net cash flows from production of these proved reserve quantities were computed by applying current prices of oil and gas, averaging $22.44 per barrel of oil and $2.75 per thousand cubic foot of gas (with consideration of price changes only to the extent provided by contractual arrangements) as of September 30, 1999 to estimated future production of proved oil and gas reserves less the estimated future expenditures (based on current costs) as of September 30, 1999, to be incurred in developing and producing the proved reserves. As discussed above, income tax information for the Acquired Properties is not available and therefore is not presented.
Years Ended December 31, ---------------------------------- Nine Months Ended 1997 1998 September 30, 1999 ---------------- ---------------- ---------------- Oil Gas Oil Gas Oil Gas (Mbbl) (MMcf) (Mbbl) (MMcf) (Mbbl) (MMcf) ------ -------- ------ -------- ------ -------- Proved reserves: Beginning of year 9,251 163,255 8,328 151,761 7,477 140,780 Production (923) (11,494) (851) (10,981) (565) (8,078) ------ -------- ------ -------- ------ -------- End of period 8,328 151,761 7,477 140,780 6,912 132,702 ====== ======== ====== ======== ====== ======== Proved developed reserves: Beginning of year 8,802 126,082 7,879 114,588 7,028 103,607 ====== ======== ====== ======== ====== ======== End of period 7,879 114,588 7,028 103,607 6,463 95,529 ====== ======== ====== ======== ====== ========
6 6. Supplemental Oil and Gas Reserve Information (Unaudited) (Continued) Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves as of September 30, 1999 (in thousands):
Future cash inflows $ 473,020 Future production costs (125,021) Future development costs (22,519) ---------- Future net inflows before income taxes 325,480 10% discount factor (154,320) ---------- Standardized measure of discounted future net cash flows before income taxes $ 171,160 ==========
Changes to Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves for the Nine Month Period Ended September 30, 1999 (in thousands):
Standardized measure, beginning of year $175,970 Sales, net of production costs (16,522) Net change in future development costs 2,612 Accretion of discount 9,100 --------- Standardized measure, end of period $171,160 =========
7 3TEC ENERGY CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA The unaudited pro forma condensed consolidated balance sheet of the Company as of September 30, 1999 gives effect to the purchase of the Acquired Properties (the Purchase) as if it occurred on September 30, 1999. The unaudited pro forma condensed consolidated statements of operations of the Company for the nine months ended September 30, 1999 and the year ended December 31, 1998 give effect to the Purchase as if it had occurred at the beginning of the periods presented. The unaudited pro forma condensed consolidated financial statements have also been prepared to give effect to the issuance of 1,055,042 shares of common stock and warrants to purchase 798,677 shares of common stock for an aggregate purchase price of $2,373,844 and the issuance of a senior convertible subordinated note for $2,373,844 under a securities purchase agreement between The Prudential Insurance Company of America (Prudential) and 3TEC Energy Corporation (3TEC) on October 19, 1999, as if it had occurred on September 30, 1999 and at the beginning of the periods presented. These unaudited pro forma condensed consolidated statements of operations also give effect to the August 27, 1999 issuance of 4,755,556 shares of common stock and warrants to purchase 3,600,000 shares of Common Stock for an aggregate purchase price of $10,700,000 and the issuance of a senior convertible subordinated notes for $10,700,000 under the securities purchase agreement with 3TEC Energy Company L.L.C. (3TEC LLC) as if it had occurred at the beginning of the periods presented. The Prudential and 3TEC LLC transactions are included in the pro forma condensed consolidated financial statements as the transactions provided a significant portion of the financing for the Purchase. The following unaudited pro forma financial data have been included as required by the rules of the SEC and are provided for comparative purposes only. The unaudited pro forma financial data presented are based upon the historical consolidated financial statements of 3TEC and the historical statements of revenues and direct operating expenses of the Acquired Properties and should be read in conjunction with such financial statements and the related notes thereto which are incorporated herein by reference. The pro forma financial data are based upon assumptions and include adjustments as explained in the notes to the unaudited pro forma condensed consolidated financial statements, and the actual recording of the transactions could differ. The unaudited pro forma financial data are not necessarily indicative of the financial results that would have occurred had the Purchase been effective on and as of the dates indicated and should not be viewed as indicative of operations in future periods. 8
3TEC ENERGY CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET September 30, 1999 PRO FORMA 3TEC COMBINED PRO FORMA CONSOLIDATED ADJUSTMENTS COMBINED ---------------- --------------- ------------- ASSETS Current Assets Cash and cash equivalents $ 25,076,465 $ 4,747,688(A) (27,032,778)(C) $ 2,791,375 Accounts receivable 2,716,165 0 2,716,165 Other current assets 90,567 0 90,567 ---------------- --------------- ------------- Total Current Assets 27,883,197 (22,285,090) 5,598,107 Property and equipment (at cost) Oil and gas properties (successful efforts method) 80,659,521 94,918,548(B) 175,578,069 Other 988,579 85,000(B) 1,073,579 ---------------- --------------- ------------- 81,648,100 95,003,548 176,651,648 Accumulated depletion, depreciation, and amortization (35,425,362) 0 (35,425,362) ---------------- --------------- ------------- 46,222,738 95,003,548 141,226,286 ---------------- --------------- ------------- Other assets 637,875 531,250(B) (87,045)(C) 1,082,080 ---------------- --------------- ------------- Total Assets $ 74,743,810 $ 73,162,663 $147,906,473 ================ =============== ============= LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities Current maturity of long-term debt $ 4,314,318 $(4,314,318)(C) $ 0 Accounts payable - trade 2,822,415 0 2,822,415 Accounts payable - revenue 362,065 0 362,065 Other current liabilities 200,806 0 200,806 ---------------- --------------- ------------- Total current liabilities 7,699,604 (4,314,318) 3,385,286 Long-term debt 24,176,249 65,823,751(C) 90,000,000 Convertible subordinated notes 10,850,000 2,373,844(A) 13,223,844 Deferred income taxes 486,353 (30,466)(C) 455,887 Other liabilities 304,404 0 304,404 Minority Interest 1,014,155 0 1,014,155 Stockholders' equity Convertible preferred stock (Series B) 3,627,000 0 3,627,000 Convertible preferred stock (Series C) 5,235,083 0 5,235,083 Common stock, $.02 par value, issued 13,383,005 267,692 21,101(A) shares (historical) and 15,948,325 (pro forma) 30,206(C) 318,999 Paid-in-capital 48,137,005 6,962,381(C) 2,352,743(A) 57,452,129 ---------------- --------------- ------------- Accumulated deficit (26,985,695) (56,579)(C) (27,042,274) Less cost of treasury stock, 21,773 shares (68,040) 0 (68,040) ---------------- --------------- ------------- Total stockholders' equity 30,213,045 9,309,852 39,522,897 ---------------- --------------- ------------- Total Liabilities and Stockholders' Equity $ 74,743,810 $ 73,162,663 $147,906,473 ================ =============== =============
Note: Accompanying Notes are an integral part of these statements. 9
3 TEC ENERGY CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, 1998 3TEC ACQUIRED COMBINED PRO FORMA CONSOLIDATED PROPERTIES ADJUSTMENTS COMBINED ------------------------------------------- ------------ Revenues Oil and gas sales and plant income $15,011,354 $34,067,434(D) $ 0 $49,078,788 Gain on sale of properties 1,953,362 0 0 1,953,362 Delay rental and lease bonus income 217,404 0 0 217,404 Other 520,458 0 0 520,458 ------------------------------------------- ------------ Total Revenues 17,702,578 34,067,434 0 51,770,012 Costs and Expenses Lease operating, production taxes and plant costs 7,801,249 14,617,417(D) (681,000)(E) 21,737,666 Geological and geophysical 877,643 0 0 877,643 Depreciation, depletion and amortization 7,116,116 0 7,908,630(F) 15,024,746 Impairments 4,164,184 0 0 4,164,184 Dry-hole 503,444 0 0 503,444 Interest 1,971,595 0 6,580,420(G) 8,552,015 Stock compensation 266,445 0 0 266,445 General and administrative 4,266,727 0 2,135,613(H) 6,402,340 Other 138,855 0 0 138,855 ------------------------------------------- ------------ Total Costs and Expenses 27,106,258 14,617,417 15,943,663 57,667,338 Income (loss) before income taxes and minority interest (9,403,680) 19,450,017 (15,943,663) (5,897,326) Minority interest 15,089 0 0 15,089 Provision for income taxes (benefit) (2,829,762) 0 1,192,160(I) (1,637,602) ------------------------------------------- ------------ Net income (loss) (6,589,007) 19,450,017 (17,135,823) (4,274,813) Dividends to Preferred Stockholders 67,945 0 0 67,945 ------------------------------------------- ------------ Net income (loss) applicable to common stockholders $(6,656,952) $ 19,450,017 $(17,135,823) $(4,342,758) =========================================== ============ Net income (loss) per share-Basic $ (0.83) $ (0.28) Net income (loss) per share-Diluted $ (0.83) $ (0.28) Weighted average common shares outstanding Basic 8,050,108 7,388,092(J) 15,438,200 Diluted 8,050,108 7,388,092(K) 15,438,200
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3 TEC ENERGY CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Nine Months Ended September 30, 1999 PRO FORMA 3TEC ACQUIRED COMBINED PRO FORMA CONSOLIDATED PROPERTIES ADJUSTMENTS COMBINED ---------------------------- ------------- ------------ Revenues Oil and gas sales and plant income $11,328,502 $26,772,564(D) $ 0 $38,101,066 Gain on sale of properties 882,477 0 0 882,477 Delay rental and lease bonus income 64,911 0 0 64,911 Other 691,442 0 0 691,442 ---------------------------- ------------- ------------ Total Revenues 12,967,332 26,772,564 0 39,739,896 Costs and Expenses Lease operating, production taxes and plant costs 4,450,843 10,251,016(D) (530,000)(E) 14,171,859 Geological and geophysical 188,484 0 0 188,484 Depreciation, depletion and amortization 4,046,546 0 5,607,811(F) 9,654,357 Impairments 1,688,443 0 0 1,688,443 Dry-hole 455,108 0 0 455,108 Interest 1,739,362 0 3,484,787(G) 5,224,149 Stock compensation 729,938 0 0 729,938 Severance payment 284,060 0 0 284,060 Compensation plan payment 292,527 0 0 292,527 General and administrative 3,048,430 0 1,483,252(H) 4,531,682 Other 481,622 0 0 481,622 ---------------------------- ------------- ------------ Total Costs and Expenses 17,405,363 10,251,016 10,045,850 37,702,229 Income (loss) before income taxes and minority interest (4,438,031) 16,521,548 (10,045,850) 2,037,667 Minority interest (40,228) 0 0 (40,228) Provision for income taxes (benefit) (1,242,324) 0 2,201,737(I) 959,413 ---------------------------- ------------- ------------ Net income (loss) (3,155,479) 16,521,548 (12,247,587) 1,118,482 Dividends to Preferred Stockholders 428,509 0 0 428,509 ---------------------------- ------------- ------------ Net income (loss) applicable to common stockholders $(3,583,988) $ 16,521,548 $(12,247,587) $ 689,973 ============================ ============= ============ Net income (loss) per share-Basic $ (0.39) $ 0.04 Net income (loss) per share-Diluted $ (0.39) $ 0.04 Weighted average common shares outstanding Basic 9,137,784 6,782,566(J) 15,920,350 Diluted 9,137,784 8,824,317(K) 17,962,101
11 3TEC ENERGY CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (A) To record the issuance of 1,055,042 shares of common stock and 798,677 warrants for an aggregate purchase price of $2,373,844 and the issuance of a senior convertible subordinated note for $2,373,844 under a securities purchase agreement to The Prudential Insurance Company of America (Prudential) to provide partial financing for the acquisition. (B) To record the purchase of the Acquired Properties and other assets pursuant to the transaction. The allocation of the purchase price using the purchase method of accounting is presented below. The allocation of the purchase price is preliminary and, therefore subject to change. Any future adjustments to the allocation of the purchase price are not anticipated to be material to the unaudited pro forma financial statements.
The purchase price entries are as follows: Purchase price $96,916,453 Estimated purchase price adjustments, including distributions of cash flows from the Acquired Properties from the effective date to the closing date of November 30, 1999 (3,080,905) Deferred financing costs 531,250 Transaction costs 1,168,000 ------------ Total purchase price 95,534,798 ============ Purchase price allocation: Acquisition costs allocated to oil and gas properties 94,918,548 Deferred debt costs 531,250 Furniture and fixtures 85,000 ------------ Total purchase allocation 95,534,798 ============
(C) To record the effect of borrowings of $90,000,000 under 3TEC's $250 million credit facility, issuance of 1,510,278 shares of common stock, valued at $6,992,587, or $4.63 per share, and use of existing cash to finance the Purchase and repay the outstanding borrowing of $28,490,567 under 3TEC's former revolving line of credit. In addition, to record the bank facility fee associated with 3TEC's $250 million credit facility, and eliminate $87,045 ($56,579, net of $30,466 of tax) of net deferred debt costs associated with 3TEC's former revolving line of credit. (D) To record the revenues and direct operating expenses related to the Acquired Properties. (E) To eliminate overhead charges that will no longer be incurred on a portion of the acquired properties, as such will be operated by 3TEC and its subsidiaries. (F) To adjust depletion, depreciation and amortization to give effect to the purchase price allocated to the Acquired Properties using the unit of production method under the successful efforts method of accounting. (G) To record the net increase in interest expense (at 9.24% and 7.27% for the year ended December 31, 1998 and the period ended September 30, 1999, respectively) and amortization of deferred financing costs relating to the borrowings under 3TEC's $250 million credit facility, and to record interest expense on convertible subordinated notes issued to EnCap Investments L.L.C. (EnCap) and Prudential of $1,190,146 and $800,384 for the year ended December 31, 1998 and the period ended September 30, 1999 respectively. (H) To record additional general and administrative expenses relating to additional costs anticipated to be incurred due to contractual obligations incurred in completing the Purchase. (I) To record income tax expense on the pro forma adjustments based on 3TEC's statutory tax rate of 34%. 12 3TEC ENERGY CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (J) To reflect the impact on basic weighted average common shares outstanding of 1,510,278 shares of 3TEC common stock issued for the Acquired Properties, 1,055,042 shares of 3TEC common stock issued to Prudential under the securities purchase agreement, and 4,822,772 shares of 3TEC common stock issued to EnCap and related party. (K) To reflect the impact on diluted weighted average common shares outstanding of 1,510,278 shares of 3TEC common stock issued for the Acquired Properties, 1,055,042 shares of 3TEC common stock issued to Prudential under the securities purchase agreement, and 4,822,772 shares of 3TEC common stock issued to EnCap and related party, for the nine months ended September 30, 1999. The weighted average common stock equivalents were not included in 3TEC's diluted weighted average common shares outstanding for the year ended December 31, 1998, because their effect would have been antidilutive. 13 UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURE The following tables set forth certain unaudited pro forma information concerning 3TEC's proved oil and gas reserves at September 30, 1999, giving effect to the acquisition of the Acquired Properties as if they had occurred on January 1, 1998. There are numerous uncertainties inherent in estimating the quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve data represent estimates only and should not be construed as being exact. The proved oil and gas reserve information is as of September 30, 1999 and reflects prices and costs in effect as of such date.
RESERVES: OIL AND CONDENSATE (MBBLS) NATURAL GAS (MMCF) -------------------------------------------------------------------------------------- ACQUIRED PRO FORMA ACQUIRED PRO FORMA 3TEC PROPERTIES CONSOLIDATED 3TEC PROPERTIES CONSOLIDATED -------------------- ---------- -------------------- ---------- -------- -------- Balance, January 1, 1999 3,342 7,477 10,819 43,483 140,780 184,263 Extensions and discoveries 13 13 1,286 1,286 Purchase of minerals in-place 97 97 38 38 Revision of previous estimates 319 319 (4,981) (4,981) Production (369) (565) (934) (2,778) (8,078) (10,856) Sales of minerals in-place (355) (355) (1,693) (1,693) -------------------- ---------- -------------------- ---------- -------- -------- Balance at September 30, 1999 3,047 6,912 9,959 35,355 132,702 168,057 ==================== ========== ==================== ========== ======== ======== Proved developed reserves 3,040 6,463 9,503 31,034 95,529 126,563 ==================== ========== ==================== ========== ======== ========
STANDARD MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL & GAS RESERVES: ACQUIRED 3TEC PROPERTIES PRO FORMA (IN THOUSANDS) ---------- --------------- ----------- Future cash inflows $163,124 $ 473,020 $ 636,144 Future production costs (60,653) (125,021) (185,674) Future development costs (2,024) (22,519) (24,543) ---------- --------------- ----------- Future net inflows before income taxes 100,447 325,480 425,927 Income taxes (6,982) - (6,982) ---------- --------------- ----------- Future net cash flows 93,465 325,480 418,945 10% discount factor (40,866) (154,320) (195,186) ---------- --------------- ----------- Standardized measure of discounted future net cash flows $ 52,599 $ 171,160 $ 223,759 ========== =============== ===========
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CHANGES TO STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES: ACQUIRED 3TEC PROPERTIES PRO FORMA (IN THOUSANDS) ------------ ----------- --------- Standardized measure, January 1, 1999 $ 38,894 $ 175,970 $214,864 Sales, net of production costs (6,878) (16,522) (23,400) Purchases of reserves in place 749 749 Net changes in prices and production costs 21,595 21,595 Net changes in income taxes (3,929) (3,929) Extensions, discoveries and improved recovery, net of future production and development costs 2,268 2,268 Changes in estimated future development costs 2,612 2,612 Revisions of quantity estimates (3,030) - (3,030) Accretion of discount 2,917 9,100 12,017 Sales of reserves in place (1,643) - (1,643) Changes in production rates and other 1,656 - 1,656 ------------ ----------- --------- Standardized measure, September 30, 1999 $ 52,599 $ 171,160 $223,759 ============ =========== =========
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