-----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, VfJ5Rwg9d/U3mRZOns51ln68HP6AVZn7uT8NrJ6rsRrb0c+gWnVcUEJM6jkUEnRZ uNxBE9zCOpqrdRsKCVCaqg== 0000930661-01-000801.txt : 20010330 0000930661-01-000801.hdr.sgml : 20010330 ACCESSION NUMBER: 0000930661-01-000801 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIVA PETROLEUM INC /TX/ CENTRAL INDEX KEY: 0000910659 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 751432205 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13440 FILM NUMBER: 1583451 BUSINESS ADDRESS: STREET 1: 8235 DOUGLAS AVE STREET 2: STE 400 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2146913464 MAIL ADDRESS: STREET 1: 8235 DOUGLAS AVE STREET 2: STE 400 CITY: DALLAS STATE: TX ZIP: 75225 10-K405 1 0001.txt FORM 10-K FOR THE PERIOD ENDING 12/31/2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 2000 ------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File Number 0-22258 AVIVA PETROLEUM INC. (Exact name of registrant as specified in its charter) Texas 75-1432205 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8235 Douglas Avenue, 75225 Suite 400, Dallas, Texas (Zip Code) (Address of principal executive offices) (214) 691-3464 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Names of each exchange ---------------------- Title of each class on which registered ------------------- ------------------- Depositary Receipts, each representing five None* shares of Common Stock, without par value Securities registered pursuant to Section 12(g) of the Act: Common Stock, without par value *The Company's Depositary Shares were delisted by the American Stock Exchange effective as of April 9, 1999. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No _____. --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x . --- The aggregate market value of voting and non-voting securities held by non- affiliates of the Registrant on February 28, 2001 was approximately $1,904,000. As of such date, the last sale price of a Depositary Share representing five shares of Common Stock, without par value ("Common Stock"), was U.S. $0.22, as quoted on the OTC Bulletin Board. As of February 28, 2001, 46,900,132 shares of Registrant's Common Stock were outstanding, of which 27,614,445 shares of Common Stock were represented by Depositary Shares. DOCUMENTS INCORPORATED BY REFERENCE None. TABLE OF CONTENTS TO FORM 10-K
Page ---- Part I Item 1. Business General................................................................ 1 Garnet Merger.......................................................... 1 Debt Restructuring..................................................... 1 Current Operations..................................................... 1 Risks Associated with the Company's Business........................... 2 Products, Markets and Methods of Distributions......................... 3 Regulation............................................................. 4 Competition............................................................ 7 Employees.............................................................. 7 Item 2. Properties Productive Wells and Drilling Activity................................. 7 Undeveloped Acreage.................................................... 7 Title to Properties.................................................... 8 Reserves and Future Net Cash Flows..................................... 8 Production, Sales Prices and Costs..................................... 8 Significant Properties Colombia............................................................ 9 United States....................................................... 10 Papua New Guinea.................................................... 11 Item 3. Legal Proceedings......................................................... 11 Item 4. Submission of Matters to a Vote of Security Holders....................... 11 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Price Range of Depositary Shares and Common Stock...................... 12 Dividend History and Restrictions...................................... 13 Item 6. Selected Financial Data................................................... 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations.................................................. 15 New Accounting Pronouncements.......................................... 17 Liquidity and Capital Resources........................................ 17 Item 7A. Quantitative and Qualitative Disclosure about Market Risk................. 18 Item 8. Financial Statements and Supplementary Data............................... 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................... 18 Part III Item 10. Directors and Executive Officers of the Registrant Directors of the Company............................................... 19 Executive Officers of the Company...................................... 19 Meetings and Committees of the Board of Directors...................... 19 Compliance with Section 16(a) of the Securities Exchange Act of 1934... 20 Item 11. Executive Compensation Summary Compensation Table............................................. 21 Directors' Fees........................................................ 21 Option Grants During 2000.............................................. 21 Option Exercises During 2000 and Year End Option Values................ 21
(i) TABLE OF CONTENTS TO FORM 10-K (Continued)
Page ---- Compensation Committee Interlocks and Insider Participation in Compensation Decisions................................... 22 Employment Contracts........................................... 22 Compensation Committee Report on Executive Compensation........ 22 Performance Graph.............................................. 23 Item 12. Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Beneficial Owners................ 24 Security Ownership of Management............................... 25 Item 13. Certain Relationships and Related Transactions.................... 25 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 26 Signatures...................................................................... 29
(ii) PART I ITEM 1. BUSINESS General Aviva Petroleum Inc. (referred to collectively with its consolidated subsidiaries as the "Company"), a Texas corporation, through its subsidiaries, is engaged in the exploration for and production and development of oil and gas in Colombia, offshore in the United States, and in Papua New Guinea. The Company was incorporated in 1973 and the common stock, without par value ("Common Stock"), of the Company was traded on the London Stock Exchange Limited (the "London Stock Exchange") from 1982 to 1999. On May 6, 1999, trading of the Common Stock was suspended on the London Stock Exchange. In order to reduce costs, the Company formally dropped its London Stock Exchange listing on September 13, 2000. Depositary shares ("Depositary Shares"), each representing the beneficial ownership of five shares of Common Stock, trade on the OTC Bulletin Board under the symbol "AVVPP.OB." The Company's principal executive offices are located in Dallas, Texas. Garnet Merger On October 28, 1998, the Company acquired Garnet Resources Corporation ("Garnet") in exchange for the issuance, in the aggregate, of approximately 14 million shares of the Company's Common Stock. Pursuant to the Agreement and Plan of Merger dated as of June 24, 1998, an indirect, wholly owned subsidiary of the Company was merged with and into Garnet. Garnet's $15 million of 9 1/2% Convertible Subordinated Debentures were acquired and canceled, and the outstanding bank debt of Garnet and the Company was refinanced under a $15 million credit facility which was fully retired in 2000. See "--Debt Restructuring". As a result of the merger, the Company was able to effect cost savings, particularly in Colombia where each company had an interest in the same properties. Debt Restructuring On June 8, 2000, the Company entered into agreements with the Company's senior secured lender, Crosby Capital L.L.C. ("Crosby"), in order to restructure the Company's senior debt which, including unpaid interest, aggregated $16,103,064 as of May 31, 2000. Pursuant to the agreements, Crosby canceled $13,353,064 of such debt and transferred to the Company warrants on 1,500,000 shares of the Company's common stock in exchange for the general partner rights and an initial 77.5% partnership interest in Argosy Energy International ("Argosy"), a Utah limited partnership which holds the Company's Colombian properties. Following the transaction, Aviva Overseas, Inc. ("Aviva Overseas"), a wholly owned subsidiary of the Company, owns a 22.1196% limited partnership interest in Argosy. An additional 7.5% limited partnership interest will be transferred from Crosby to Aviva Overseas when Crosby has received in distributions from Argosy an amount equal to $3,500,000 plus interest at the prime rate plus 1% on the outstanding balance thereof. The Company's remaining debt of $2,750,000 was reacquired from Crosby on December 21, 2000, in exchange for a 15% net profits interest in any new production at Breton Sound Block 31 field. This transaction substantially completed the restructuring of the Company and the reorganization of the Company's wholly owned subsidiary Aviva America, Inc. ("AAI"). AAI had filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code on July 21, 2000. The filing, in the Northern District of Texas, was initiated in order to achieve a comprehensive restructuring of AAI's debts. Following approval by the court and creditors, the voluntary petition for reorganization became effective on November 17, 2000. As a result of the aforementioned transactions, all of the Company's outstanding senior secured debt has been eliminated. Current Operations Colombia. The Company is the owner of interests in, and is engaged in -------- exploration for, and development and production of oil from, two contracts granted by Empresa Colombiana de Petroleos, the Colombian national oil company ("Ecopetrol") . 1 The Company's Colombian activities are carried out by Argosy which operates the Colombian properties. Argosy is currently party to two contracts with Ecopetrol called Santana and Aporte Putumayo. Both contract areas are located in the Putumayo Basin of southwestern Colombia. The Company's production, exploration and development activities are currently limited to the Santana contract area. Twenty-one wells have been drilled on the Santana contract area. Of 13 exploratory wells, seven have been productive and six were dry holes. Of eight development wells, seven have been productive. Four fields have been discovered and have been declared commercial by Ecopetrol. Gross production from the Santana block has totaled approximately 16.5 million barrels during the period from April 1992, when production commenced, through December 2000. The Aporte Putumayo block produced from 1976 until March 1995, when declining production caused the block to be unprofitable under the terms of the contract. The block has been relinquished, however Argosy remains obligated for abandonment and restoration operations on the old wells in the block. Each concession is governed by a separate contract with Ecopetrol. Generally, the contracts cover a 28-year period and require certain exploration expenditures in the early years of the contract and, in the later years of the contract, permit exploitation of reserves that have been found. Both of the contracts provide that Ecopetrol shall receive, on behalf of the Colombian Ministry of Mines, royalty payments in the amount of 20% of the gross proceeds of the oil produced pursuant to the respective contract, less certain costs of transporting the oil to the point of sale. Under each of the contracts, application must be made to Ecopetrol for a declaration of commerciality for each discovery. If Ecopetrol declares the discovery commercial, it has the right to a 50% reversionary interest in the field and is required to pay 50% of all future costs. If, alternatively, Ecopetrol declines to declare the discovery commercial, Argosy has the right to proceed with development and production at its own expense until such time as it has recovered 200% of the costs incurred, at which time Ecopetrol is entitled to back in for a 50% working interest in the field without payment or reimbursement of any historical costs. Exploration costs (as defined in the contracts) incurred by Argosy prior to the declaration of commerciality are recovered by means of retention by Argosy of all of the non-royalty proceeds of production from each well until costs relating to that well are recovered. United States. In the United States the Company, through its wholly owned ------------- subsidiary, Aviva America, Inc. ("AAI"), has been engaged in the production of oil and gas attributable to its working interests in various wells located in the Gulf of Mexico offshore Louisiana, at Main Pass 41 and Breton Sound 31 fields. Effective November 7, 2000, the Company assigned all of its interest in the Main Pass 41 field to the field operator. AAI continues to produce from, and is the operator of, the Breton Sound 31 field. The Company acquired its interests in these fields through the acquisition of Charterhall Oil North America PLC in 1990. Papua New Guinea. In Papua New Guinea the Company, through its wholly owned ---------------- subsidiary, Garnet PNG Corporation ("Garnet PNG"), is engaged in the exploration for oil and gas attributable to its 2% carried working interest in Petroleum Prospecting License No. 206 ("PPL-206"). The Company acquired Garnet PNG as part of the merger with Garnet. See "-- Garnet Merger." Risks Associated with the Company's Business General. The Company's operations are subject to oil field operating hazards ------- such as fires, explosions, blowouts, cratering and oil spills, any of which can cause loss of hydrocarbons, personal injury and loss of life, and can severely damage or destroy equipment, suspend drilling operations and cause substantial damage to subsurface structures, surrounding areas or property of others. As protection against operating hazards, the Company maintains broad insurance coverage, including indemnity insurance covering well control, redrilling and cleanup and containment expenses, Outer Continental Shelf Lands Act coverage, physical damage on certain risks, employers' liability, comprehensive general liability, appropriate auto and marine liability and workers' compensation insurance. The Company believes that such insurance coverage is customary for companies engaged in similar operations, but the Company may not be fully insured against various of the foregoing risks, because such risks are either not fully insurable or the cost of insurance is prohibitive. The Company does not carry business interruption insurance because of the prohibitively high cost. The occurrence of an uninsured hazardous event could have a material adverse effect on the financial condition of the Company. 2 Colombia. The Company has expended significant amounts of capital for the -------- acquisition, exploration and development of its Colombian properties and may expend additional capital for further exploration and development of such properties. Even if the results of such activities are favorable, further drilling at significant cost may be required to determine the extent of and to produce the recoverable reserves. Failure to fund certain capital expenditures could result in forfeiture of all or part of the Company's interests in the applicable property. For additional information on the Company's concession obligations, see "-- Current Operations," and regarding its cash requirements, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company is subject to the other risks inherent in the ownership and development of foreign properties including, without limitation, cancellation or renegotiation of contracts, royalty and tax increases, retroactive tax claims, expropriation, adverse changes in currency values, foreign exchange controls, import and export regulations, environmental controls and other laws, regulations or international developments that may adversely affect the Company's properties. The Company does not maintain political risk insurance. Exploration and development of the Company's Colombian properties are dependent upon obtaining appropriate governmental approvals and permits. See "- - - Regulation." The Company's Colombian operations are also subject to price risk. See "-- Products, Markets and Methods of Distribution." There are logistical problems, costs and risks in conducting oil and gas activities in remote, rugged and primitive regions in Colombia. The Company's operations are also exposed to potentially detrimental activities by the leftist guerrillas who have operated within Colombia for many years. The guerrillas in the Putumayo area, where the Company's property is located, have as recently as August 3, 1998, significantly damaged the Company's assets. Since that time the Company has been subject to lessor attacks on its pipelines and equipment resulting in only minor interruptions of oil sales. The Colombian army guards the Company's operations, however, there can be no assurance that the Company's operations will not be the target of significant guerrilla attacks in the future. Although the Company's losses were recovered through insurance, there can be no assurance that such coverage will remain available or affordable. United States. The Company's activities in the United States are subject to ------------- a variety of risks. The U.S. properties could, in certain circumstances, require expenditure of significant amounts of capital. Failure to fund its share of such costs could result in a diminution of value of, or under applicable operating agreements forfeiture of, the Company's interest. The Company's ability to fund such expenditures is also dependent upon the ability of the other working interest owners to fund their share of the costs. If such working interest owners fail to do so, the Company could be required to pay its proportionate share or forego further development of such properties. The Company's activities in the United States are subject to various environmental regulations and to price risk. See "-- Regulation" and "-- Products, Markets and Methods of Distribution." Information concerning the amounts of revenue, operating loss and identifiable assets attributable to each of the Company's geographic areas is set forth in Note 12 of the Notes to Consolidated Financial Statements contained elsewhere herein. Products, Markets and Methods of Distribution Colombia. The Company's oil is sold pursuant to a sales contract with -------- Ecopetrol. The contract provides for cancellation by either party with notice. In the event of cancellation by Ecopetrol, the Company may export its oil production. Ecopetrol has historically purchased the Company's production, but there can be no assurance that it will continue to do so, nor can there be any assurance of ready markets for the Colombian production if Ecopetrol does not elect to purchase the production. The Company currently produces no natural gas in Colombia. See "Item 2. Properties." During each of the three years ended December 31, 2000, the Company received the majority of its revenue from Ecopetrol. Sales to Ecopetrol accounted for $4,267,000, or 74% of oil and gas revenue for 2000, $5,683,000, or 84% of oil and gas revenue for 1999 and $2,632,000, or 79% of oil and gas revenue for 1998. The foregoing amounts represent the Company's entire Colombian oil revenue. If Ecopetrol were to elect not to purchase the Company's Colombian oil production, the Company believes that other purchasers could be found for such production. 3 United States. The Company does not refine or otherwise process domestic ------------- crude oil and condensate production. The domestic oil and condensate it produces are sold to oil transmission companies at posted field prices in the area where production occurs. The Company does not have long term contracts with purchasers of its domestic oil and condensate production. The Company's domestic gas production at Breton Sound 31 is used for field operations and is recorded at spot prices. The Company has not historically hedged any of its domestic production. During 2000 and 1998, the Company received more than 10% of its revenue from one domestic purchaser. Such revenue accounted for $968,000, or 16.7% of oil and gas revenue for 2000 and $479,000, or 14.4% of oil and gas revenue for 1998. During 1999, the Company did not receive more than 10% of its revenue from any one domestic purchaser. General. Oil and gas are the Company's only products. There is substantial ------- uncertainty as to the prices that the Company may receive for production from its existing oil and gas reserves or from oil and gas reserves, if any, which the Company may discover or purchase. It is possible that under market conditions prevailing in the future, the production and sale of oil or gas, if any, from the Company's properties in Papua New Guinea may not be commercially feasible. The availability of a ready market and the prices received for oil and gas produced depend upon numerous factors beyond the control of the Company including, without limitation, adequate transportation facilities (such as pipelines), marketing of competitive fuels, fluctuating market demand, governmental regulation and world political and economic developments. World oil and gas markets are highly volatile and shortage or surplus conditions substantially affect prices. As a result, there have been dramatic swings in both oil and gas prices in recent years. From time to time there may exist a surplus of oil or natural gas supplies, the effect of which may be to reduce the amount or price of hydrocarbons that the Company may produce and sell while such surplus exists. Regulation Environmental Regulation. The Company's operations are subject to foreign, ------------------------ federal, state, and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may require the acquisition of a permit by operators before drilling commences; restrict the types, quantities, and concentration of various substances that can be released into the environment in connection with drilling and production activities; limit or prohibit drilling activities on certain lands lying within wilderness areas, wetlands, and other protected areas; require remedial measures to mitigate pollution from former operations, such as plugging and abandoning wells; and impose substantial liabilities for pollution resulting from the Company's operations. The regulatory burden on the oil and gas industry increases the cost of doing business and consequently affects its profitability. Changes in environmental laws and regulations occur frequently, and any revision or reinterpretation of existing laws and regulations or adoption of new laws and regulations that result in more stringent and costly waste handling, disposal, remedial, drilling, permitting, or operational requirements could have a material adverse impact on the operating costs of the Company, as well as significantly impair the Company's ability to compete with larger, more highly capitalized companies. Management believes that the Company is in substantial compliance with current applicable environmental laws and regulations and that continued compliance with existing requirements will not have a material adverse impact on the Company's operations, capital expenditures, and earnings. Management further believes, however, that risks of substantial costs and liabilities are inherent in oil and gas operations, and there can be no assurance that significant costs and liabilities, including administrative, civil and criminal penalties for violations of environmental laws and regulations, will not be incurred. Colombia. Any significant exploration or development of the Company's -------- Colombian properties, such as conducting a seismic program, the drilling of an exploratory or developmental well or the construction of a pipeline, requires environmental review and the issuance of environmental permits by the Ministry of the Environment. In recent years the Company has received environmental permits without substantial delay. There can be, however, no assurance that the Company will not experience future delays in obtaining necessary environmental licenses. See also "Item 2. Properties -- Significant Properties -- Colombia." United States. The Company believes that its domestic operations are ------------- currently in substantial compliance with U.S. federal, state, and local environmental laws and regulations. Over the past few years, the Company has incurred significant costs to make capital improvements, including the drilling and completion of a salt water injection well at Breton Sound 31 field, in order to maintain compliance with these U.S. environmental laws or regulations. There can be no assurance that the Company will not expend additional significant amounts in the future to maintain such compliance. 4 The Oil Pollution Act of 1990, as amended ("OPA '90"), and regulations thereunder impose a variety of requirements on "responsible parties" related to the prevention of oil spills and liability for damages resulting from such spills in waters of the United States. A "responsible party" includes the owner or operator of a vessel, pipeline, or onshore facility, or the lessee or permittee of the area in which an offshore facility is located. OPA '90 assigns liability to each responsible party for oil spill removal costs and a variety of public and private damages from oil spills. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill is caused by gross negligence or willful misconduct, the spill resulted from violation of a federal safety, construction, or operating regulation, or a party fails to report a spill or to cooperate fully in the cleanup. Few defenses exist to the liability imposed under OPA '90 for oil spills. The failure to comply with these requirements or inadequate cooperation in a spill event may subject a responsible party to civil or criminal enforcement actions. Management of the Company is currently unaware of any oil spills for which the Company has been designated as a responsible party under OPA '90 and that will have a material adverse impact on the Company or its operations. OPA '90 also imposes ongoing requirements on facility operators, such as the preparation of an oil spill contingency plan. The Company has such plans in place. The Company's U.S. property at Breton Sound Block 31 field, on state leases offshore Louisiana, is subject to OPA '90. Under OPA '90 and a final rule adopted by the U.S. Minerals Management Service ("MMS") in August 1998, owners and operators of covered offshore facilities that have a worst case oil spill of more than 1,000 barrels must demonstrate financial responsibility in amounts ranging from $10 million in specified state waters to $35 million in federal outer continental shelf ("OCS") waters, with higher amounts of up to $150 million in certain limited circumstances where the MMS believes such a level is justified by the risks posed by operations at such covered offshore facilities or if the worst case oil-spill discharge volumes possible at such facilities may exceed the applicable threshold volumes specified under the MMS final rule. The Company believes that it currently has established adequate proof of financial responsibility for its covered offshore facilities in Louisiana State waters. However, the Company cannot predict whether these financial responsibility requirements under the OPA '90 amendments or the MMS final rule will result in the imposition of significant additional annual costs to the Company in the future or otherwise have a material adverse effect on the Company. The impact of financial responsibility requirements is not expected to be any more burdensome to the Company than it will be to other similarly or less capitalized owners or operators in the Gulf of Mexico. With respect to the Federal Water Pollution Control Act, the United States Environmental Protection Agency ("EPA") issued regulations prohibiting the discharge of produced water and produced sand derived from oil and gas operations in certain coastal areas (primarily state waters) of Louisiana and Texas, effective February 8, 1995. However, the EPA also issued an administrative order that effectively delayed compliance with the no discharge requirement for produced water until January 1, 1997. Effective August 27, 1996, the Louisiana Department of Environmental Quality ("LDEQ") officially assumed responsibility for compliance and enforcement issues for produced water as they relate to the Company's Breton Sound Block 31 facilities with the EPA operating in an oversight capacity. In connection with the issuance of these regulations by the EPA, and following various extensions granted by the LDEQ, the Company drilled and completed a saltwater injection well at the Breton Sound Block 31 facilities in October 1998. The Company presently operates this injection well. The Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), also known as the "Superfund" law, and analogous state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered responsible for the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury, property damage and recovery of response costs allegedly caused by the hazardous substances released into the environment. The Company has not received any notification nor is it otherwise aware of circumstances indicating that it may be potentially responsible for cleanup costs under CERCLA. The federal Resource Conservation and Recovery Act ("RCRA") and comparable state statutes regulate the storage, treatment and disposal of wastes, including hazardous wastes. The EPA and various state agencies have limited the approved methods of disposal for certain hazardous and nonhazardous wastes, thereby making such disposal more costly. Furthermore, certain wastes generated by the Company's oil and natural gas operations that 5 are currently exempt from treatment as hazardous wastes may in the future be designated as hazardous wastes and therefore be subject to more rigorous and costly operating and disposal requirements. Other Regulation - Colombia. The Company's Colombian operations are regulated --------------------------- by Ecopetrol, the Ministry of Mines and Energy, and the Ministry of the Environment, among others. The review of current environmental laws, regulations and the administration and enforcement thereof, or the passage of new environmental laws or regulations in Colombia, could result in substantial costs and liabilities in the future or in delays in obtaining the necessary permits to conduct the Company's operations in that country. These operations may also be affected from time to time in varying degrees by political developments in Colombia. Such political developments could result in cancellation or significant modification of the Company's contract rights with respect to such properties, or could result in tax increases and/or retroactive tax claims being assessed against the Company. Other Regulation - United States. Domestic exploration for and production -------------------------------- and sale of oil and gas are extensively regulated at both the national and local levels. Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue, and have issued, rules and regulations applicable to the oil and gas industry that are often difficult and costly to comply with and that may carry substantial penalties for failure to comply. The regulations also generally specify, among other things, the extent to which acreage may be acquired or relinquished, permits necessary for drilling of wells, spacing of wells, measures required for preventing waste of oil and gas resources and, in some cases, rates of production. The heavy and increasing regulatory burdens on the oil and gas industry increase the costs of doing business and, consequently, affect profitability. Sales of crude oil, condensate and gas liquids by the Company are not currently regulated and are made at market prices. In a number of instances, however, the ability to transport and sell such products is dependent on pipelines whose rates, terms and conditions of service are subject to the Federal Energy Regulatory Commission ("FERC") jurisdiction under the Interstate Commerce Act. Certain regulations implemented by the FERC in recent years could result in an increase in the cost of transportation service on certain pipelines. However, the Company does not believe that these regulations affect it any differently than others. The Company cannot accurately predict the effect that any of the aforementioned orders or the challenges to the orders will have on the Company's operations. Additional proposals and proceedings that might affect the oil industry are pending before Congress, the FERC and the courts. The Company cannot accurately predict when or whether any such proposals or proceedings may become effective. State Regulation. Production of any domestic oil and gas by the Company is ---------------- affected by state regulations. Many states in which the Company has operated have statutory provisions regulating the production and sale of oil and gas, including provisions regarding deliverability. Such statutes, and the regulations promulgated in connection therewith, are generally intended to prevent waste of oil and gas and to protect correlative rights to produce oil and gas between owners of a common reservoir. Such regulations include requiring permits for the drilling of wells, maintaining bonding requirements in order to drill or operate wells, and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandoning of wells, and the disposal of fluids used in connection with operations. The Company's operations are also subject to various conservation laws and regulations including the regulation of the size of drilling and spacing units or proration units, the density of wells that may be drilled, and the unitization or pooling of oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibit the venting or flaring of natural gas, and impose certain requirements regarding the ratability of production. The effect of these regulations may limit the amount of oil and natural gas that the Company can produce from its wells and may limit the number of wells or the locations at which the Company can drill. Inasmuch as such laws and regulations are periodically expanded, amended and reinterpreted, the Company is unable to predict the future cost or impact of complying with such regulations; however, the Company does not believe it will be affected by these laws and regulations materially differently than the other oil and natural gas producers with which it competes. Other Regulations - Papua New Guinea. The Company's operations in Papua ------------------------------------ New Guinea are currently governed by the Department of Petroleum and Energy, which has jurisdiction over all petroleum exploration in that country. In the event the Company develops and operates a petroleum business in Papua New Guinea, the Company will be subject to regulation by the Investment Promotion Authority, which regulates almost all business operations with significant foreign equity or with foreign management control. 6 Competition The Company encounters strong competition from other independent operators and from major oil companies in acquiring properties suitable for exploration, in contracting for drilling equipment and in securing trained personnel. Many of these competitors have financial and other resources substantially greater than those available to the Company. The Company's ability to discover reserves in the future depends on its ability to select, generate and acquire suitable prospects for future exploration. The Company does not currently generate its own prospects and depends exclusively upon external sources for the generation of oil and gas prospects. Employees As of December 31, 2000, Aviva had 7 full-time employees. ITEM 2. PROPERTIES Productive Wells and Drilling Activity The following table summarizes the Company's developed acreage and productive wells at December 31, 2000. "Gross" refers to the total acres or wells in which the Company has a working interest, and "net" refers to gross acres or wells multiplied by the percentage working interest owned by the Company. Developed Acreage /(1)/ Gross Net ----- ----- United States 1,646 1,110 Colombia/(2)/ 3,706 288 ----- ----- 5,352 1,398 ===== ===== Productive Wells /(3)/ Oil Gas --------------- ---------------- Gross Net Gross Net ----- ----- ----- ----- United States 7 4.58 3 2.16 Colombia 14 1.08 - - ---- ----- ----- ----- 21 5.66 3 2.16 ==== ===== ===== ===== /(1)/ Developed acreage is acreage assignable to productive wells. /(2)/ Excludes Aporte Putumayo acreage pending relinquishment. /(3)/ Productive wells represent producing wells and wells capable of producing. During the period from January 1, 1998 through December 31, 2000, the Company did not drill nor participate in the drilling of any development or exploratory wells. Undeveloped Acreage The Company's undeveloped acreage in Colombia is held pursuant to the Santana contract with the Colombian government. No further relinquishments are required for the Santana contract until the expiration of the contract in 2015. See "-- Significant Properties." The Company's undeveloped acreage in Papua New Guinea is held pursuant to PPL- 206. See "-- Significant Properties." The Company does not have an undeveloped acreage position in the United States because of the costs of maintaining such a position. Oil and gas leases in the United States generally can be acquired by the Company for specific prospects on reasonable terms either directly or through farmout arrangements. 7 The following table shows the undeveloped acreage held by the Company at December 31, 2000. Undeveloped acreage is acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas, regardless of whether such acreage contains proved reserves. Undeveloped Acres --------------------- Gross Net --------- ------ Colombia 48,636 10,758 Papua New Guinea 1,228,187 24,564 --------- ------ 1,276,823 35,322 ========= ====== Title to Properties The Company has not performed a title examination for offshore U.S. leases in federal waters because title emanates from the United States government. Title examinations also are not performed in Colombia, where mineral title emanates from the national government. The Company believes that it generally has satisfactory title to all of its oil and gas properties. The Company's working interests are subject to customary royalty and overriding royalty interests generally created in connection with their acquisition, liens incident to operating agreements, liens for current taxes and other burdens and minor liens, encumbrances, easements and restrictions. The Company believes that none of such burdens materially detracts from the value of such properties or its interest therein or will materially interfere with the use of the properties in the operation of the Company's business. Reserves and Future Net Cash Flows See Supplementary Information Related to Oil and Gas Producing Activities in "Item 8. Financial Statements and Supplementary Data" for information with respect to the Company's reserves and future net cash flows. The Company will file with the Department of Energy (the "DOE") a statement with respect to the Company's estimate of proved oil and gas reserves as of December 31, 2000, that is not the same as that included in the estimate of proved oil and gas reserves as of December 31, 2000, as set forth in "Item 8. Financial Statements and Supplementary Data" elsewhere herein. The information filed with the DOE includes the estimated proved reserves of the properties of which the Company is the operator, whereas the estimated proved reserves contained in Item 8 hereof include only the Company's percentage share of the estimated proved reserves of all properties in which the Company has an interest. Production, Sales Prices and Costs The following table summarizes the Company's oil production in thousands of barrels and natural gas production in millions of cubic feet for the years indicated: Year ended December 31, -------------------------- 2000 1999 1998 ------ ------ ------ Oil /(1)/ United States 49 57 44 Colombia 157 365 255 Gas United States 25 53 68 Colombia - - - /(1)/ Includes crude oil and condensate. 8 The average sales price per barrel of oil and per thousand cubic feet ("MCF") of gas produced by the Company and the average production (lifting) cost per dollar of oil and gas revenue and per barrel of oil equivalent (6 MCF: 1 barrel) were as follows for the years indicated:
Year ended December 31,/(1)/ ------------------------------ 2000 1999 1998 ------ ------ ------ Average sales price per barrel of oil/(2)/ United States $28.94 $17.13 $12.03 Colombia $27.18 $15.57 $10.31 Average sales price per MCF of gas United States $ 4.11 $ 2.42 $ 2.42 Colombia $ - $ - $ - Average production cost per dollar of oil and gas revenue United States $ 0.72 $ 1.05 $ 1.80 Colombia $ 0.31 $ 0.42 $ 0.86 Average production cost per barrel of oil equivalent United States $20.59 $17.69 $22.54 Colombia $ 8.33 $ 6.58 $ 8.88
/(1)/ All amounts are stated in United States dollars. /(2)/ Includes crude oil and condensate. Significant Properties Colombia. -------- The Company's Colombian properties currently consist of two contracts, both of which are located in the Putumayo Basin in southwestern Colombia along the eastern front of the eastern cordillera of the Andes Mountains. The Company's interest in each of the contracts is subject to certain reversionary interests in favor of Ecopetrol as described below. Argosy, as operator of the properties, carries out the program of operations for the two concessions. The program is determined by Argosy and approved by Ecopetrol. The Santana contract, which now consists of approximately 52,000 acres and contains 14 productive wells, has been in effect since 1987 and is the focus of the Company's exploration and development activities. The Aporte Putumayo block, which consisted of approximately 77,000 acres and contains three shut-in wells, produced from 1976 to 1995. The block has been relinquished, however Argosy remains obligated for abandonment and restoration operations on the old wells in the block. Production from the Santana concession is sold pursuant to a sales contract with Ecopetrol. The contract provides that at least 25% of the sales proceeds will be paid in Colombian pesos. As a result of certain currency restrictions, pesos resulting from these payments must generally remain in Colombia and are used by the Company to pay local expenses. The Company's pretax income from Colombian sources, as defined under Colombian law, is subject to Colombian income taxes at a statutory rate of 35%, although a "presumptive" minimum income tax based on net assets, as defined under Colombian law, may apply in years of little or no net income. The Company's income after Colombian income taxes is subject to a Colombian remittance tax that accrues at a rate of 7%. Payment of the remittance tax may be deferred under certain circumstances if the Company reinvests such income in Colombia. Santana Contract. The Santana block is held pursuant to a "risk-sharing" ---------------- contract for which Ecopetrol has the option to participate on the basis of a 30% working interest in exploration activities in the contract area. If a commercial field is discovered, Ecopetrol's working interest increases to 50% and the costs theretofore incurred and attributable to the 20% working interest differential will be recouped by Argosy from Ecopetrol's share of production on a well by well basis. The risk-sharing contract provides that, when 7 million barrels of cumulative production from the concession have been attained, Ecopetrol's revenue interest and share of operating costs increases to 65% but it remains obligated for only 50% of capital expenditures. In June 1996, the 7 million barrel threshold was reached. At that time, Argosy's revenue interest in the contract declined from 40% to 28% and its share of operating expenses declined from 50% to 35%. 9 The Santana block is divided by the Caqueta River. Two fields located south of the river, the Toroyaco and Linda fields, were declared commercial by Ecopetrol and commenced production in 1992. There are currently four producing wells in the Toroyaco field and four producing wells in the Linda field. During 1995, a 3-D seismic survey covering the Toroyaco and Linda fields was completed. Based on this survey, one development well was drilled in each field during 1996 and one additional development well was drilled in the Linda field in 1997. No further drilling is anticipated for these fields. The Company constructed a 42-kilometer pipeline (the "Uchupayaco Pipeline") which was completed and commenced operations during 1994 to transport oil production from the Toroyaco and Linda fields to the Trans-Andean Pipeline owned by Ecopetrol, through which the Company's production is transported to the port of Tumaco on the Pacific coast of Colombia. Two additional fields, the Mary and Miraflor fields, were discovered north of the Caqueta River and were declared commercial by Ecopetrol during 1993. Except for oil produced during production tests of wells located in these fields, the production was shut-in until the first quarter of 1995 when construction of a pipeline was completed and commercial production began. Completion of this pipeline provided the Company with direct pipeline access from all of its fields to the Pacific coast port of Tumaco. There are currently four producing wells in the Mary field and one producing well in the Miraflor field. A 3-D seismic survey was completed over the Mary and Miraflor fields during early 1997. This survey confirms the presence of several prospects and leads previously identified from two-dimensional seismic data. The most promising prospect, Mary West, appears to be an extension of the Mary field. The drilling of an exploratory well on this prospect has been deferred pending contract changes requested by Argosy and appropriate financing. The survey also confirmed that additional development drilling is not required for the Miraflor field. Argosy has fulfilled all the exploration obligations required by the Santana risk-sharing contract. The current work program contemplates the recompletion of certain existing wells to increase production therefrom. The Santana contract has a term of 28 years and expires in 2015. In 1993, the Company relinquished 50% of the original Santana area in accordance with the terms of the contract. In July 1995, an additional 25% of the original contract area was relinquished. A final relinquishment was made in 1997 such that all remaining contract areas except for those areas within five kilometers of a commercial field were relinquished. Under the terms of a contract with Ecopetrol, all oil produced from the Santana contract area is sold to Ecopetrol. If Ecopetrol exports the oil, the price paid is the export price received by Ecopetrol, adjusted for quality differences, less a marketing fee of $0.165 per barrel. If Ecopetrol does not export the oil, the price paid is based on the price received from Ecopetrol's Cartagena refinery, adjusted for quality differences, less Ecopetrol's cost to transport the crude to Cartagena and a marketing fee of $0.165 per barrel. In 2000, Ecopetrol exported the crude each month and the sales price averaged $27.18 per barrel. United States. ------------- The Company's remaining oil and gas properties in the United States are located in the Gulf of Mexico offshore Louisiana at Breton Sound 31 field. The Breton Sound 31 field is operated by the Company. Breton Sound Block 31 is located 20 miles offshore Louisiana in 16 feet of water. The field is approximately 55 miles southeast of New Orleans on state leases. During 2000, five wells averaged 92 barrels of oil per day and 62 MCF of gas per day, net to the Company's interest, from three sands completed between 3,850 feet and 6,500 feet. The Company's interests in the leases comprising the field vary from 59% to 87%. The interpretation of 3-D seismic data in 1996 identified two deep and several shallow prospects in the Breton Sound Block 31 field. The Company has signed a farmout agreement covering the deep prospects. Under the terms of the agreement, as amended, the farmee, a privately held oil and gas company in New Orleans, Louisiana, has the right to drill a well to test the Hollywood formation at 16,000 feet on or before June 30, 2001. The Company will retain its proportionate share of a 3% overriding royalty interest during "payout". At payout the 3% overriding royalty interest is convertible, at the Company's option, into either a 5% overriding royalty or a 25% working interest. All costs of the well will be borne by the farmee. As for the shallow prospects, the Company anticipates that it will drill at least one exploratory well upon obtaining appropriate financing. 10 Papua New Guinea. ---------------- The area covered by PPL-206 is located in the Western, Gulf and Southern Highland Provinces of Papua New Guinea. The northern section of the area is in a mountainous tropical rain forest while the southern section of the area is predominantly lowlands, jungle and coastal swamps. In 1986 oil was discovered approximately 20 kilometers from the northern border of PPL-206 in an adjoining license area and in 1999 gas was discovered approximately 20 kilometers southwest of the western border. In accordance with the terms of the agreement governing PPL-206, the parties have performed surface geological work and completed seismic programs during 1998 and 2000. The 2000 program (the "Okoni Program") will be followed by strike line acquisition in the first quarter of 2001 to determine the drilling location for the Bosavi exploratory well that is scheduled for 2001. During 2000, a farmout agreement was entered into whereby Chevron Niugini Limited ("Chevron") has an option to acquire a 40% interest in the license if it elects to participate in the Bosavi well. Pursuant to the Company's 2% carried working interest, the Company is not obligated to pay any of the costs relative to the work presently underway nor is it obligated to pay any of the costs of drilling, testing or completing the exploratory well. The Company's 2% carried working interest will not be reduced by the Chevron farmout option. Under the provisions of PPL-206 the terms of any oil and gas development are set forth in a Petroleum Agreement with the Government of Papua New Guinea. The Petroleum Agreement provides that the operator must carry out an appraisal program after a discovery to determine whether the discovery is of commercial interest. If the appraisal is not carried out or the discovery is not of commercial interest, the license may be forfeited. If the discovery is of commercial interest, the operator must apply for a Petroleum Development License. The Government retains a royalty on production equal to 1.25% of the wellhead value of the petroleum and, at its election, may acquire up to a 22.5% interest in the petroleum development after recoupment by the operator of the project costs attributable thereto out of production. In addition, income from petroleum operations is subject to a Petroleum Income Tax at the rate of 50% of net income, which is defined as gross revenue less royalties, allowances for depreciation, interest deductions, operating costs and previous tax losses carried forward. An Additional Profits Tax of 50% of cash flow (after deducting ordinary income tax payments) is also payable when the accumulated value of net cash flows becomes positive. For annual periods in which net cash flows are negative, the cumulative amount is carried forward and increased at an annual accumulation of 27%. The Additional Profits Tax is calculated separately for each Petroleum Development License. In calculating the applicable tax, interest expenses paid by Garnet PNG prior to the issuance of a Petroleum Development License and, thereafter, to the extent that Garnet PNG's debt to equity ratio exceeds two-to-one, are not deductible. The Company leases corporate office space in Dallas, Texas containing approximately 5,100 square feet pursuant to a lease which expires in January 2002. The annual lease payments for these offices are approximately $102,000. ITEM 3. LEGAL PROCEEDINGS There are no legal proceedings to which the Company is a party or to which its properties are subject which are, in the opinion of management, likely to have a material adverse effect on the Company's results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the Company's fiscal year ended December 31, 2000. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Price Range of Depositary Shares and Common Stock The Company's Depositary Shares, each representing the beneficial ownership of five shares of Common Stock, traded on the American Stock Exchange (the "ASE") from November 14, 1994 through April 8, 1999. On April 9, 1999, the Depositary Shares were delisted from the ASE due to the Company's then existing financial difficulties. On May 13, 1999, the Depositary Shares began trading on the OTC Bulletin Board (the "OTCBB") under the symbol "AVVPP.OB". During 2000, an aggregate of 1,909,000 Depositary Shares were traded on the OTCBB. The Company's Common Stock has been quoted in the National Quotation Bureau's Daily Quotation Sheets (known as the "pink sheets") since December 1993. Additionally, the Common Stock traded on the London Stock Exchange from 1982 until May 6, 1999, when trading of the Common Stock on the LSE was suspended. On September 13, 2000, the company formally dropped its LSE listing in order to reduce costs. The following table sets forth, for the periods indicated and subject to the following qualifications, the high and low prices for the Depositary Shares on the ASE and the OTCBB and the high and low prices for the Common Stock on the London Stock Exchange. The London Stock Exchange prices indicated in the table are the middle market prices for the Common Stock as published in the Daily Official List and do not represent actual transactions. Prices on the London Stock Exchange are expressed in British pounds sterling, and, accordingly, the prices for the Common Stock traded on the London Stock Exchange included in the following table are similarly expressed. For ease of reference, these prices are also expressed in U.S. dollars, having been converted using the exchange rate in effect on the first day on which the stock price attained the high or low price indicated. 12
2000 1999 1998 -------------------------- ----------------------------- ------------------------------ High Low High Low High Low ----------- ------------ ------------- ------------- ------------- ------------- Depositary Shares/(1)/: - ---------------------- ASE --- First Quarter $ n/a $ n/a $ 0.41 $ 0.09 $ 1.75 $ 1.00 Second Quarter $ n/a $ n/a $ 0.22 $ 0.09 $ 1.19 $ 0.69 Third Quarter $ n/a $ n/a $ n/a $ n/a $ 1.00 $ 0.13 Fourth Quarter $ n/a $ n/a $ n/a $ n/a $ 0.31 $ 0.06 OTC Bulletin Board ------------------ First Quarter $ 0.25 $ 0.06 $ n/a $ n/a $ n/a $ n/a Second Quarter $ 0.38 $ 0.06 $ 0.31 $ 0.06 $ n/a $ n/a Third Quarter $ 0.38 $ 0.13 $ 0.22 $ 0.06 $ n/a $ n/a Fourth Quarter $ 0.38 $ 0.06 $ 0.22 $ 0.03 $ n/a $ n/a Common Stock: - ------------ London Stock Exchange --------------------- First Quarter (Pounds) (Pounds) n/a (Pounds) n/a (Pounds) 0.06 (Pounds) 0.03 (Pounds) 0.28 (Pounds) 0.12 US$ $ n/a $ n/a $ 0.10 $ 0.05 $ 0.45 $ 0.20 Second Quarter (Pounds) (Pounds) n/a (Pounds) n/a (Pounds) 0.06 (Pounds) 0.05 (Pounds) 0.14 (Pounds) 0.10 US$ $ n/a $ n/a $ 0.10 $ 0.08 $ 0.22 $ 0.16 Third Quarter (Pounds) (Pounds) n/a (Pounds) n/a (Pounds) n/a (Pounds) n/a (Pounds) 0.10 (Pounds) 0.05 US$ $ n/a $ n/a $ n/a $ n/a $ 0.17 $ 0.08 Fourth Quarter (Pounds) (Pounds) n/a (Pounds) n/a (Pounds) n/a (Pounds) n/a (Pounds) 0.06 (Pounds) 0.04 US$ $ n/a $ n/a $ n/a $ n/a $ 0.10 $ 0.07
/(1)/ Representing five shares of Common Stock. As of February 28, 2001, the Company had approximately 5,000 shareholders of record, including nominees for an undetermined number of beneficial holders. Dividend History and Restrictions No dividends have been paid since June 1983, nor is there any current intention on the part of the directors of the Company to pay dividends in the future. 13 ITEM 6. SELECTED FINANCIAL DATA The following table summarizes certain selected financial data with respect to the Company for, and as of the end of, each of the five years ended December 31, 2000, which should be read in conjunction with the Consolidated Financial Statements included elsewhere herein.
For the Years Ended December 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ------- -------- -------- -------- ------- (in thousands, except per share, per barrel and per MCF data) For the period Revenues $ 6,183 $ 6,797 $ 3,332 $ 9,726 $13,750 Earnings (loss) before extraordinary item $ 4,961 $ (403) $(16,881) $(22,482) $ (937) Extraordinary item - debt extinguishment $ 5,543 $ - $ (197) $ - $ - Net earnings (loss) $10,504 $ (403) $(17,078) $(22,482) $ (937) Earnings (loss) before extraordinary item per common share $ 0.10 $ (0.01) $ (0.49) $ (0.71) $ (0.03) Basic and diluted net earnings (loss) per common share $ 0.22 $ (0.01) $ (0.50) $ (0.71) $ (0.03) Weighted average shares outstanding 46,900 46,813 34,279 31,483 31,483 Cash dividends per common share $ - $ - $ - $ - $ - Total annual net oil production (barrels) Colombia 157 365 255 426 476 United States 49 57 44 76 94 ------- -------- -------- -------- ------- Total 206 422 299 502 570 ------- -------- -------- -------- ------- Total annual net gas production (MCF) United States 25 53 68 316 1,146 Average price per barrel of oil Colombia $ 27.18 $ 15.57 $ 10.31 $ 17.39 $ 19.82 United States $ 28.94 $ 17.13 $ 12.03 $ 19.17 $ 20.68 Average price per MCF of Gas - United States $ 4.11 $ 2.42 $ 2.42 $ 2.73 $ 2.07 At period end Total assets $ 3,311 $ 8,986 $ 11,422 $ 16,445 $42,944 Long term debt, including current portion $ - $ 14,495 $ 14,805 $ 7,690 $ 7,990 Stockholders' equity (deficit) $ 1,876 $(11,483) $(11,083) $ 3,748 $26,230
In connection with the application of the full cost method, the Company recorded ceiling test write-downs of oil and gas properties of $12,343,000 in 1998 and $19,953,000 in 1997 (see Note 1 of Notes to Consolidated Financial Statements). 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements included elsewhere herein. Results of Operations 2000 versus 1999 - ---------------- United States Colombia Oil Gas Oil Total ------- ------- -------- ------- (Thousands) Oil and gas sales - 1999 $ 987 $ 127 $ 5,683 $ 6,797 Volume variance (141) (90) (3,671) (3,902) Price variance 582 66 2,256 2,904 Other - (3) - (3) ------- ------- ------- ------- Oil and gas sales - 2000 $ 1,428 $ 100 $ 4,268 $ 5,796 ======= ======= ======= ======= Colombian oil volumes were 157,000 barrels in 2000, a decrease of 208,000 barrels from 1999. Such decrease is due to a 108,000 barrel decrease resulting from the transfer of partnership interests to Crosby and a 100,000 barrel decrease resulting from production declines. U.S. oil volumes were 49,000 barrels in 2000, down approximately 8,000 barrels from 1999, primarily due to normal production declines. U.S. gas volumes before gas balancing adjustments were 24,000 MCF in 2000, down 26,000 MCF from 1999. Such decrease is due to a significant decline in production from the Main Pass 41 field. Effective November 7, 2000, the Company assigned all of its interest in the Main Pass 41 field to the field operator. Colombian oil prices averaged $27.18 per barrel during 2000. The average price for the same period of 1999 was $15.57 per barrel. The Company's average U.S. oil price increased to $28.94 per barrel in 2000, up from $17.13 per barrel in 1999. In 2000 prices were higher than in 1999 due to an increase in world oil prices. U.S. gas prices averaged $4.11 per MCF in 2000 compared to $2.42 per MCF in 1999. Service fees of $387,000 for administering the Colombian assets were received pursuant to a Service Agreement with Crosby (see note 2 of the consolidated financial statements included elsewhere herein). This amount is net of Aviva Overseas' 22.1196% share of the fee. Operating costs decreased approximately 33%, or $1,168,000, primarily as a result of the transfer of partnership interests to Crosby. Depreciation, depletion and amortization ("DD&A") decreased by 49%, or $485,000, primarily as a result of the transfer of partnership interests to Crosby and lower volumes of oil produced. General and administrative ("G&A") expenses declined $88,000 mainly as a result of lower public ownership costs and lower fees paid to consultants, partially offset by higher employee related costs. In connection with the Company's restructuring, the Company realized a $3,452,000 gain on the transfer of partnership interests in Argosy Energy International and a $5,543,000 extraordinary gain on the extinguishment of debt, net of income taxes of $2,855,000. Interest and other income decreased $52,000 from 1999 primarily due to a foreign exchange gain of $193,000 in 1999. During 2000, the foreign currency exchange gain was only $44,000. The decrease in foreign exchange gain was partially offset by higher miscellaneous income. 15 Interest expense decreased $591,000 during 2000, primarily as a result of the extinguishment of the Company's long-term debt. 1999 versus 1998 - ---------------- United States Colombia Oil Gas Oil Total ------- ------- -------- ------- (Thousands) Revenue - 1998 $ 535 $ 165 $ 2,632 $ 3,332 Volume variance 158 (29) 1,130 1,259 Price variance 294 10 1,921 2,225 Other - (19) - (19) ------- ------- -------- ------- Revenue - 1999 $ 987 $ 127 $ 5,683 $ 6,797 ======= ======= ======== ======= Colombian oil volumes were 365,000 barrels in 1999, an increase of 110,000 barrels from 1998. Such increase was due to a 148,000 barrel increase resulting from the acquisition of Garnet effective October 28, 1998, and an increase of 23,000 barrels due to continuous production in 1999 (1998 production was interrupted by guerrilla attacks that damaged oil processing and storage facilities), partially offset by a 61,000 barrel decrease resulting from production declines. U.S. oil volumes were 57,000 barrels in 1999, an increase of 13,000 barrels as compared to 1998. An increase of approximately 15,000 barrels was due to continuous production from the Company's Main Pass 41 field (shut in for approximately 187 days during 1998 due to upgrading and modification of production and water treatment facilities and adverse weather), and an increase of approximately 9,000 barrels was due to continuous production from the Company's Breton Sound 31 field (shut-in during the months of September and October and a portion of November 1998 due to the drilling and completion of a saltwater disposal well and adverse weather), partially offset by a 11,000 barrel decrease resulting from normal production declines. U.S. gas volumes before gas balancing adjustments were 51,000 MCF in 1999, down 3,000 MCF from 1998. Of such decrease, approximately 122,000 MCF was due to production declines, partially offset by 119,000 MCF due to the aforementioned continuous production of the Main Pass 41 field. Colombian oil prices averaged $15.57 per barrel during 1999. The average price for the same period of 1998 was $10.31 per barrel. The Company's average U.S. oil price increased to $17.13 per barrel in 1999, up from $12.03 per barrel in 1998. In 1999 prices were higher than in 1998 due to a dramatic increase in world oil prices. U.S. gas prices averaged $2.42 per MCF in 1999 and 1998. In addition to the above-mentioned variances, U.S. gas revenue decreased approximately $19,000 as a result of gas balancing adjustments. Operating costs increased approximately 1.5%, or $50,000, primarily due to the increase in ownership of the Colombian properties following the Garnet Merger, almost entirely offset by cost reductions in Colombia achieved after the Company merged with Garnet and took over operatorship of the Colombian properties. DD&A decreased by 68%, or $2,152,000, primarily due to a decrease in costs subject to amortization resulting from property write-downs during 1998. The Company recorded write-downs of $10,556,000 and $1,787,000 to the carrying amounts of its Colombian and U.S. oil and gas properties, respectively, as a result of ceiling test limitations on capitalized costs during 1998. No such write-downs were required during 1999. G&A expenses increased $171,000 mainly due to a $193,000 decrease in administrative overhead fees recovered from joint interest partners in properties where the Company serves as the operator. This decrease in administrative overhead fees resulted primarily because the Company relinquished operatorship of the Main Pass 41 field effective January 1, 1999. 16 The Company incurred severance expense of $62,000 during 1999 related to Colombian operations. The Company has taken significant cost cutting measures in Colombia since it merged with Garnet and took over operatorship of the Colombian properties. Interest and other income decreased $786,000 from 1998. During 1998 the Company realized a $720,000 gain on the settlement of litigation involving the administration of a take or pay contract settlement. No such gain was recorded in 1999. Interest expense increased $648,000 from 1998 as a result of higher outstanding balances of long-term debt and higher interest rates. Income taxes were $286,000 higher in 1999 principally due to higher Colombian presumptive income taxes resulting from the increased ownership of the Colombian properties for a full year in 1999 compared to only two months of full ownership in 1998. New Accounting Pronouncements The Company is assessing the reporting and disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments and hedging activities and will require the Company to recognize all derivatives on its balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against the change in fair value of the hedged item through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company will adopt SFAS No. 133, as amended, in the first quarter of fiscal 2001. The adoption will not have a material effect on the Company's results of operations or financial position. Liquidity and Capital Resources Cash and cash equivalents totaled $820,000 and $846,000 at December 31, 2000 and 1999, respectively. The decrease in cash and cash equivalents resulted from the costs of, and cash balances surrendered, aggregating $1,414,000 in connection with the transfer of partnership interests in Argosy to Crosby (as more fully described in note 2 of the consolidated financial statements included elsewhere herein) and property additions of $382,000. Such decreases were almost entirely offset by net cash provided by operating activities. Net cash provided by operating activities was $1,722,000 in 2000, compared to $(481,000) net cash used in operating activities for 1999. This improvement resulted primarily from significantly higher oil prices during 2000 and a $1,703,000 reduction in accounts payable and accrued liabilities during 1999. Excluding the effects of the transfer of partnership interests to Crosby, there was no similar reduction in accounts payable and accrued liabilities during 2000. The Company surrendered a major partnership interest in Argosy in connection with the aforementioned transaction with Crosby, and was thus able to eliminate 100% of its long term debt and accrued interest, which prior to the transaction aggregated $16,103,064 as of May 31, 2000. The Company's financial condition has significantly improved as a result of the transaction with Crosby and the reorganization of Aviva America, Inc. ("AAI"), a wholly owned subsidiary which holds the Company's interests in oil and gas properties located offshore Louisiana (see notes 2 and 11 of the consolidated financial statements included elsewhere herein). Based on this improvement in financial condition, management believes that the Company can meet its existing commitments as set forth below. The Company plans to recomplete certain existing wells and engage in various other projects in Colombia. The Company's current share of the estimated future costs of these development activities is approximately $0.3 million at December 31, 2000. The Company expects to fund these activities using cash provided from operations. Risks that could adversely affect funding of such activities include, among others, delays in obtaining any required environmental permits, failure to produce the reserves as projected or a decline in the sales price of oil. Any substantial increases in the amounts of these required expenditures could adversely affect the Company's ability to fund these activities. Any substantial delays could, through the impact of inflation, increase the required 17 expenditures. Cost overruns resulting from factors other than inflation could also increase the required expenditures. Historically, the inflation rate of the Colombian peso has been in the range of 15-30% per year. Devaluation of the peso against the U.S. dollar has historically been slightly less than the inflation rate in Colombia. The Company has historically funded capital expenditures in Colombia by converting U.S. dollars to pesos at such time as the expenditures have been made. As a result of the interaction between peso inflation and devaluation of the peso against the U.S. dollar, inflation, from the Company's perspective, had not been a significant factor. During 1994, the first half of 1995 and 1996, however, devaluation of the peso was substantially lower than the rate of inflation of the peso, resulting in an effective inflation rate in excess of that of the U.S. dollar. There can be no assurance that this condition will not occur again or that, in such event, there will not be substantial increases in future capital expenditures as a result. Due to Colombian exchange controls and restrictions and the lack of an effective market, it is not feasible to hedge against the risk of net peso inflation against the U.S. dollar and the Company has not done so. Depending on the results of future exploration and development activities, substantial expenditures which have not been included in the Company's cash flow projections may be required. The outcome of these matters cannot be projected with certainty. With the exception of historical information, the matters discussed in this annual report to shareholders contain forward-looking statements that involve risks and uncertainties. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include, among other things, general economic conditions, volatility of oil and gas prices, the impact of possible geopolitical occurrences world-wide and in Colombia, imprecision of reserve estimates, the assessment of geological and geophysical data, changes in laws and regulations, unforeseen engineering and mechanical or technological difficulties in drilling, working-over and operating wells during the periods covered by the forward-looking statements, as well as other factors described in "Item 1. Business - Risks Associated with the Company's Business." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to market risk from changes in commodity prices. The Company produces and sells crude oil and natural gas. These commodities are sold based on market prices established with the buyers. The Company does not use financial instruments to hedge commodity prices. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Financial Statements of Aviva Petroleum Inc. attached hereto and listed in Item 14 herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 18 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors of the Company The by-laws of the Company provide that the number of directors may be fixed by the Board of Directors at a number between one and seven, except that a decrease in the number of directors shall not have the effect of reducing the term of any incumbent director. Effective October 28, 1998, the Board of Directors, by resolution, decreased the number of directors from five to three. Effective April 6, 2000, Eugene C. Fiedorek resigned from the Board of Directors decreasing the number of directors from three to two. The information set forth below, furnished to the Company by the respective individuals, shows as to each individual his name, age and principal positions with the Company. Name Age Positions Director Since ---- --- --------- -------------- Ronald Suttill 69 President, Chief Executive Officer 1985 and Director Robert J. Cresci 57 Director 1998 The following sets forth the periods during which directors have served as such and a brief account of the business experience of such persons during at least the past five years. Ronald Suttill has been a director of the Company since August 1985 and has been President and Chief Executive Officer of the Company since January 1992. Robert J. Cresci has been a director of the Company since October 1998. Mr. Cresci has been a Managing Director of Pecks Management Partners, Ltd., an investment management firm, since September 1990. Mr. Cresci currently serves on the boards of Sepracor, Inc., Film Roman, Inc., Castle Dental Centers, Inc., j2 Global Communications, Inc., Candlewood Hotel Co., Inc., SeraCare, Inc., E- Stamp Corporation and several private companies. Executive Officers of the Company The following table lists the names and ages of each of the executive officers of the Company and their principal occupations for the past five years. Name and Age Positions - ------------ --------- Ronald Suttill, 69 President and Chief Executive Officer since January 1992. James L. Busby, 40 Chief Financial Officer since February 2000, Treasurer since May 1994, Secretary since June 1996, Controller since November 1993. Meetings and Committees of the Board of Directors The Board of Directors of the Company held three formal meetings during 2000. Each director attended at least 75% of the aggregate of (i) the total number of meetings of the Board of Directors held during the period in which he was a director and (ii) the total number of meetings held by all committees on which he served. The Audit Committee and the Compensation Committee are the only standing committees of the Board of Directors, and the members of such committees are appointed at the initial meeting of the Board of Directors each year. The Company does not have a formal nominating committee; the Board of Directors performs this function. 19 The Audit Committee, of which Mr. Cresci is the sole member, consults with the independent accountants of the Company and such other persons as the committee deems appropriate, reviews the preparations for and scope of the audit of the Company's annual financial statements, makes recommendations as to the engagement and fees of the independent accountants and performs such other duties relating to the financial statements of the Company as the Board of Directors may assign from time to time. The Audit Committee held no formal meetings during 2000, however, business was conducted via telephone conferences. The Compensation Committee, of which Mr. Cresci is the sole member, makes recommendations to the Board of Directors regarding the compensation of executive officers of the Company, including salary, bonuses, stock options and other compensation. The Compensation Committee held no formal meetings during 2000. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires officers, directors and holders of more than 10% of the Common Stock (collectively, "Reporting Persons") to file reports of ownership and changes in ownership of the Common Stock with the SEC within certain time periods and to furnish the Company with copies of all such reports. Based solely on its review of the copies of such reports furnished to the Company by such Reporting Persons or on the written representations of such Reporting Persons, the Company believes that, during the year ended December 31, 2000, all of the Reporting Persons complied with their Section 16(a) filing requirements. 20 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth certain information regarding compensation earned in each of the last three fiscal years by the President and Chief Executive Officer of the Company (the "Named Executive Officer"). Summary Compensation Table --------------------------
Long Term Compensation --------------------------------- Annual Compensation Awards Payouts -------------------------------------- --------------------------------- Other Annual Restricted Securities Name and Compen- Stock Underlying LTIP All Other Principal sation Award(s) Options/ Payouts Compensa- Position Year Salary ($) Bonus ($) ($) ($) SARs (#) ($) tion ($) - --------- ---- ---------- --------- ------- ---------- ---------- ------- --------- Ronald Suttill/(1)/ President and CEO 2000 150,000 7,500 - - - - 9,000 President and CEO 1999 150,000 - - - - - 4,500 President and CEO 1998 157,500 - - - - - 4,750
/(1)/ The amount recorded under bonus represents the market value of 300,000 shares of the Company's common stock transferred to Mr. Suttill in connection with the debt restructuring and transfer of partnership interests to Crosby, effective June 8, 2000. The amounts reported for all other compensation for Mr. Suttill represent matching contributions made under the Aviva Petroleum Inc. 401(k) Retirement Plan (the "401(k) Plan"). Directors' Fees The directors of the Company are not paid a cash fee. Directors are, however, reimbursed for travel and lodging expenses. Mr. Suttill receives no compensation as a director but is reimbursed for travel and lodging expenses incurred to attend meetings. On July 1 each year, non-employee directors who have served in such capacity for at least the entire proceeding calendar year each receive an option to purchase 5,000 shares of the Company's Common Stock pursuant to the Aviva Petroleum Inc. 1995 Stock Option Plan, as amended. Effective June 8, 2000, in connection with the debt restructuring and transfer of partnership interests to Crosby, 200,000 shares of the Company's common stock with a market value of $5,000 were transferred to Mr. Robert J. Cresci. Option Grants During 2000 There were no options granted to the Named Executive Officer during 2000. No stock appreciation rights have been issued by the Company. Option Exercises During 2000 and Year End Option Values The following table provides information related to options exercised by the Named Executive Officer during 2000 and the number and value of options held at year-end. No stock appreciation rights have been issued by the Company.
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Shares Acquired Value Options at FY-End (#) at FY-End ($)/(1)/ ---------------------------- ---------------------------- Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable - ---- --------------- ------------ ----------- ------------- ----------- ------------- Ronald Suttill none none 250,000 - - -
/(1)/ No values are ascribed to unexercised options of the Named Executive Officer at December 31, 2000 because the fair market value of a share of the Company's Common Stock at December 31, 2000 ($0.06) did not exceed the exercise price of any such options. 21 Compensation Committee Interlocks and Insider Participation in Compensation Decisions As indicated above, the Compensation Committee, none of the members of which is an employee of the Company, makes recommendations to the Board of Directors regarding the compensation of the executive officers of the Company, including salary, bonuses, stock options and other compensation. There are no Compensation Committee interlocks. Employment Contracts The Named Executive Officer serves at the discretion of the Board of Directors, except that, effective February 1, 2000, the Company entered into an employment contract with Mr. Suttill. Mr. Suttill's contract provides for annual compensation of not less than $200,000 and a severance amount of $300,000 if his employment is terminated for any reason other than death, disability or cause, as defined in the contract. Compensation Committee Report on Executive Compensation The Company currently employs only two executive officers, the names of whom are set forth above under "Item 10. Directors and Executive Officers of the Registrant--Executive Officers of the Company." Decisions regarding compensation of the executive officers are made by the Board of Directors, after giving consideration to recommendations made by the Compensation Committee. The Company's compensation policies are designed to provide a reasonably competitive level of compensation within the industry in order to attract, motivate, reward and retain experienced, qualified personnel with the talent necessary to achieve the Company's performance objectives. These objectives are to increase oil and gas reserves and to control costs, both objectives selected to increase shareholder value. These policies were implemented originally by the entire Board of Directors, and, following its establishment, were endorsed by the Compensation Committee. It is the intention of the Compensation Committee and the Board of Directors to balance compensation levels of the Company's executive officers, including the Chief Executive Officer, with shareholder interests. The incentive provided by stock options and bonuses, in particular, is intended to promote congruency of interests between the executive officers and the shareholders. Neither the Compensation Committee nor the Board of Directors, however, believes that it is appropriate to rely on a formulaic approach, such as profitability, revenue growth or return on equity, in determining executive officer compensation because of the nature of the Company's business. The Company's business objectives include debt restructuring and reorganization, overseeing a significant exploration and development effort in Colombia and the maintenance of oil and gas production levels and offshore operations in the United States. Success in one such area is not measurable by the same factors as those used in the other. Accordingly, the Compensation Committee and the Board of Directors rely primarily on their assessment of the success of the executive officers, including the Chief Executive Officer, in fulfilling the Company's performance objectives. The Board of Directors also considers the fact that the Company competes with other oil and gas companies for qualified executives and therefore it considers available information regarding compensation levels for executives of companies similar in size to the Company. Compensation for the Company's executive officers during 2000 was comprised of salary, stock bonus and matching employer contributions made pursuant to the Company's 401(k) Plan. The Company's 401(k) Plan is generally available to all employees after one year of service. The Company makes matching contributions of 100% of the amount deferred by the employee, up to 6% of an employee's annual salary. Compensation Committee R. J. Cresci 22 Performance Graph The following line-graph presentation compares five-year cumulative shareholder returns on an indexed basis with a broad equity market index and a published industry index. The Company has selected the American Stock Exchange Market Value Index as a broad equity market index, and the SIC Index "Crude Petroleum and Natural Gas" as a published industry index. Comparison of 5 Year Cumulative Total Return of the Company, Industry Index and Broad Market FISCAL YEAR ENDING ---------------------------------------------- COMPANY/INDEX/MARKET 1995 1996 1997 1998 1999 2000 AVIVA PETROLEUM INC. 100.00 88.64 37.50 2.27 1.14 6.82 INDUSTRY INDEX 100.00 132.97 134.78 107.96 131.87 167.53 BROAD MARKET 100.00 105.52 126.97 125.25 156.15 154.23 23 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners The following table sets forth certain information as to each person who, to the knowledge of the Company, is the beneficial owner of more than five percent of the outstanding Common Stock of the Company. Unless otherwise noted, the information is furnished as of February 28, 2001.
Name and Address of Amount and Nature of Beneficial Owner or Group Beneficial Ownership /(1)/ Percent of Class/(2)/ - ------------------------- -------------------------- --------------------- Wexford Management LLC/(3)/ 5,438,639 11.60% 411 West Putnam Avenue Greenwich, Connecticut 06830 Pecks Management Partners Ltd./(4)/ 5,155,108 10.99% One Rockefeller Plaza New York, New York 10020 Lehman Brothers Inc./(5)/ 2,966,876 6.33% 3 World Financial Center 11/th/ Floor New York, New York 10285 Yale University/(6)/ 2,551,886 5.44% 230 Prospect Street New Haven, Connecticut 06511 Ronald Suttill/(7)//(8)/ 2,429,939 5.07%/(9)/ 8235 Douglas Avenue, Suite 400 Dallas, Texas 75225
/(1)/ Except as set forth below, to the knowledge of the Company, each beneficial owner has sole voting and sole investment power. /(2)/ Based on 46,900,132 shares of the Common Stock issued and outstanding on February 28, 2001. /(3)/ Information regarding Wexford Management LLC ("Wexford Management") is based on a Schedule 13D dated November 12, 1998 filed by Wexford Management with the SEC. The shares are held by four investment funds. Wexford Management serves as investment advisor to three of the funds and as sub-investment advisor to the fourth fund which is organized as a corporation. Wexford Advisors, LLC ("Wexford Advisors") serves as the investment advisor to the corporate fund and as general partner to the remaining funds which are organized as limited partnerships. One of the limited partnerships, Wexford Special Situations 1996 L.P., holds more than 5% of Aviva Common Stock. Wexford Management shares voting and dispositive power with respect to these shares with each of the funds, with Wexford Advisors, and with Charles E. Davidson and Joseph M. Jacob, each of whom is a controlling person of Wexford Management and Wexford Advisors. /(4)/ Based on the number of shares issued on October 28, 1998, in connection with the acquisition of Garnet Resources Corporation. The shares are held by three investment advisory clients of Pecks Management Partners Ltd. ("Pecks"). One such client, Delaware State Employees' Retirement Fund, holds more than 5% of Aviva's Common Stock. Pecks has sole investment and dispositive power with respect to these shares. /(5)/ Information regarding Lehman Brothers Inc. is based on information received from Lehman Brothers Inc. on March 16, 1998. /(6)/ Information regarding Yale University is based on a Schedule 13G dated March 11, 1994 filed by Yale University with the SEC. /(7)/ Included are options for 250,000 shares exercisable on or within 60 days of February 28, 2001. /(8)/ Includes the entire ownership of AMG Limited, a limited liability company of which Mr. Suttill is a member, as of February 28, 2001, of 935,550 shares of Common Stock. /(9)/ Treated as outstanding for purposes of computing the percentage ownership of Mr. Suttill are 1,006,500 shares issuable upon exercise of vested stock options granted pursuant to the Company's stock option plans. 24 Security Ownership of Management The following table sets forth certain information as of February 28, 2001, concerning the Common Stock of the Company owned beneficially by each director, by the Named Executive Officer listed in the Summary Compensation Table above, and by directors and executive officers of the Company as a group:
Name and Address of Amount and Nature Beneficial Owner of Beneficial Ownership/(1)/ Percent of Class/(2)/ - ---------------- ---------------------------- --------------------- Ronald Suttill 2,429,939/(3)(4)/ 5.07% 8235 Douglas Avenue, Suite 400 Dallas, TX 75225 Robert J. Cresci 220,000/(5)/ * Pecks Management Partners Ltd. One Rockefeller Plaza New York, NY 10020 All directors and executive officers as a group (3 persons) 3,842,691/(6)/ 8.02%
/(1)/ Except as noted below, each beneficial owner has sole voting power and sole investment power. /(2)/ Based on 46,900,132 shares of Common Stock issued and outstanding on February 28, 2001. Treated as outstanding for purposes of computing the percentage ownership of each director, the Named Executive Officer and all directors and executive officers as a group are 1,006,500 shares issuable upon exercise of vested stock options granted pursuant to the Company's stock option plans. /(3)/ Included are options for 250,000 shares exercisable on or within 60 days of February 28, 2001. /(4)/ Includes the entire ownership of AMG Limited, a limited liability company of which Mr. Suttill is a member, as of February 28, 2001, of 935,550 shares of Common Stock. /(5)/ Does not include shares owned by Pecks, of which Mr. Cresci is a managing director. For information with respect to such shares, see note (4) under "Security Ownership of Certain Beneficial Owners. " /(6)/ Included are 935,550 shares beneficially owned through AMG Limited and options for 450,000 shares exercisable on or within 60 days of February 28, 2001. * Less than 1% of the outstanding Aviva Common Stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a. The following documents are filed as part of this report: (1) Financial Statements: The Financial Statements of Aviva Petroleum Inc. filed as part of this report are listed in the "Index to Financial Statements" included elsewhere herein. (2) Financial Statement Schedules: All schedules called for under Regulation S-X have been omitted because they are not applicable, the required information is not material or the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits: *2.1 Agreement and Plan of Merger dated as of June 24, 1998, by and among Aviva Petroleum Inc., Aviva Merger Inc. and Garnet Resources Corporation (filed as exhibit 2.1 to the Registration Statement on Form S-4, File No. 333-58061, and incorporated herein by reference). *2.2 Debenture Purchase Agreement dated as of June 24, 1998, between Aviva Petroleum Inc. and the Holders of the Debentures named therein (filed as exhibit 2.2 to the Registration Statement on Form S-4, file No. 333-58061, and incorporated herein by reference). *2.3 Loan, Settlement and Acquisition Agreement dated effective May 31, 2000, by and among Crosby Capital, LLC, Aviva Petroleum Inc., Aviva America, Inc., Aviva Operating Company, Aviva Overseas, Inc., Neo Energy, Inc., Garnet Resources Corporation, Argosy Energy, Inc., and Argosy Energy International (filed as exhibit 2.1 to the Company's Form 8-K dated June 8, 2000, File No. 0-22258, and incorporated herein by reference). **2.4 Confirmed Plan of Reorganization of Aviva America, Inc. *3.1 Restated Articles of Incorporation of the Company dated July 25, 1995 (filed as exhibit 3.1 to the Company's annual report on Form 10-K for the year ended December 31, 1995, File No. 0-22258, and incorporated herein by reference). *3.2 Amended and Restated Bylaws of the Company, as amended as of January 23, 1995 (filed as exhibit 3.2 to the Company's annual report on Form 10-K for the year ended December 31, 1994, File No. 0-22258, and incorporated herein by reference). *10.1 Risk Sharing Contract between Empresa Colombiana de Petroleos ("Ecopetrol"), Argosy Energy International ("Argosy") and Neo Energy, Inc. ("Neo") (filed as exhibit 10.1 to the Company's Registration Statement on Form10, File No. 0-22258, and incorporated herein by reference). *10.2 Contract for Exploration and Exploitation of Sector Number 1 of the Aporte Putumayo Area ("Putumayo") between Ecopetrol and Cayman Corporation of Colombia dated July 24, 1972 (filed as exhibit 10.2 to the Company's Registration Statement on Form10, File No. 0- 22258, and incorporated herein by reference). *10.3 Operating Agreement for Putumayo between Argosy and Neo dated September 16, 1987 and amended on January 4, 1989 and February 23, 1990 (filed as exhibit 10.3 to the Company's Registration Statement on Form10, File No. 0- 22258, and incorporated herein by reference). *10.4 Operating Agreement for the Santana Area ("Santana") between Argosy and Neo dated September 16, 1987 and amended on January 4, 1989, February 23, 1990 and September 28, 1992 (filed as exhibit 10.4 to the Company's Registration Statement on Form10, File No. 0- 22258, and incorporated herein by reference). *10.5 Santana Block A Relinquishment dated March 6, 1990 between Ecopetrol, Argosy and Neo (filed as exhibit 10.8 to the Company's Registration Statement on Form10, File No. 0-22258, and incorporated herein by reference). *10.6 Employee Stock Option Plan of the Company (filed as exhibit 10.13 to the Company's Registration Statement on Form10, File No. 0-22258, and incorporated herein by reference). *10.7 Santana Block B 50% relinquishment dated September 13, 1993 between Ecopetrol, Argosy and Neo (filed as exhibit 10.26 to the Company's annual report on Form 10-K for the year ended December 31, 1993, File No. 0- 22258, and incorporated herein by reference). 26 *10.8 Aviva Petroleum Inc. 401(k) Retirement Plan effective March 1, 1992 (filed as exhibit 10.29 to the Company's annual report on Form 10-K for the year ended December 31, 1993, File No. 0-22258, and incorporated herein by reference). *10.9 Relinquishment of Putumayo dated December 1, 1993 (filed as exhibit 10.30 to the Company's annual report on Form 10-K for the year ended December 31, 1993, File No. 0-22258, and incorporated herein by reference). *10.10 Deposit Agreement dated September 15, 1994 between the Company and Chemical Shareholder Services Group, Inc. (filed as exhibit 10.29 to the Company's Registration Statement on Form S-1, File No. 33-82072, and incorporated herein by reference). *10.11 Letter from Ecopetrol dated December 28, 1994, accepting relinquishment of Putumayo (filed as exhibit 10.38 to the Company's annual report on Form 10-K for the year ended December 31, 1994, File No. 0-22258, and incorporated herein by reference). *10.12 Amendment to the Incentive and Nonstatutory Stock Option Plan of the Company (filed as exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1995, File No. 0-22258, and incorporated herein by reference). *10.13 Santana Block B 25% relinquishment dated October 2, 1995 (filed as exhibit 10.51 to the Company's annual report on Form 10-K for the year ended December 31, 1995, File No. 0-22258, and incorporated herein by reference). *10.14 Aviva Petroleum Inc. 1995 Stock Option Plan, as amended (filed as Appendix A to the Company's definitive Proxy Statement for the Annual Meeting of Shareholders dated June 10, 1997, and incorporated herein by reference). *10.15 Restated Credit Agreement dated as of October 28, 1998, between Neo Energy, Inc., Aviva Petroleum Inc. and ING (U.S.) Capital Corporation (filed as exhibit 99.1 to the Company's Form 8-K dated October 28, 1998, File No. 0-22258, and incorporated herein by reference). *10.16 Joint Finance and Intercreditor Agreement dated as of October 28, 1998, between Neo Energy, Inc., Aviva Petroleum Inc., ING (U.S.) Capital Corporation, Aviva America, Inc., Aviva Operating Company, Aviva Delaware Inc., Garnet Resources Corporation, Argosy Energy Incorporated, Argosy Energy International, Garnet PNG Corporation, the Overseas Private Investment Corporation, Chase Bank of Texas, N.A. and ING (U.S.) Capital Corporation as collateral agent for the creditors (filed as exhibit 99.2 to the Company's Form 8-K dated October 28, 1998, File No. 0-22258, and incorporated herein by reference). *10.17 Amended and Restated Aviva Petroleum Inc. Severance Benefit Plan dated December 31, 1999 (filed as exhibit 10.18 to the Company's annual report on Form 10-K for the year ended December 31, 1999, File No. 0-22258, and incorporated herein by reference). *10.18 Santana Crude Sale and Purchase Agreement dated January 3, 2000 (filed as exhibit 10.19 to the Company's annual report on Form 10-K for the year ended December 31, 1999, File No. 0-22258, and incorporated herein by reference). *10.19 Employment Agreement between the Company and Ronald Suttill dated February 1, 2000 (filed as exhibit 10.20 to the Company's annual report on Form 10-K for the year ended December 31, 1999, File No. 0-22258, and incorporated herein by reference). *10.20 Employment Agreement between the Company and James L. Busby dated February 1, 2000 (filed as exhibit 10.21 to the Company's annual report on Form 10-K for the year ended December 31, 1999, File No. 0-22258, and incorporated herein by reference). *10.21 Service Agreement between Argosy Energy International and Aviva Overseas, Inc. dated as of June 1, 2000 (filed as exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.22 Letter Agreement dated June 8, 2000 between Crosby Capital, LLC and Aviva America, Inc. (filed as exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.23 Guaranty dated May 31, 2000 made by Aviva Overseas, Inc. in favor of Crosby Capital, LLC (filed as exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.24 Assignment and Assumption Agreement dated June 1, 2000, between Crosby Capital, LLC and Neo Energy, Inc. (filed as exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). 27 *10.25 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Acquisition LLC and Argosy Energy, Inc. (filed as exhibit 10.5 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.26 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Garnet Resources Corp. (filed as exhibit 10.6 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.27 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Aviva Overseas, Inc. (filed as exhibit 10.7 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.28 Assignment and Assumption Agreement dated June 1, 2000 between Argosy Energy, Incorporated and Crosby Acquisition, LLC (filed as exhibit 10.8 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.29 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Aviva Overseas, Inc. (filed as exhibit 10.9 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.30 Pledge Agreement dated May 31, 2000 executed by Aviva Overseas, Inc. (Debtor) in favor of Crosby Capital, LLC (Secured Party) (filed as exhibit 10.10 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.31 Third Amendment to Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated May 31, 2000 (filed as exhibit 10.11 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.32 Fourth Amendment to Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated June 1, 2000 (filed as exhibit 10.12 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.33 Assignment of Stock Warrant Rights dated May 31, 2000 executed by Crosby Capital, LLC in favor of Aviva Petroleum Inc. (filed as exhibit 10.13 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). **10.34 Assignment of Neo Debt and Collateral, dated December 21, 2000 from Crosby Capital, LLC to Aviva Operating Company. **10.35 Conveyance of Net Profits Interest, dated December 21, 2000 from Aviva America, Inc. to Crosby Capital, LLC. **21.1 List of subsidiaries of Aviva Petroleum Inc. __________________________ * Previously Filed ** Filed Herewith b. Reports on Form 8-K ------------------- The Company did not file any Current Reports on Form 8-K during and subsequent to the end of the fourth quarter. 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AVIVA PETROLEUM INC. By: /s/ Ronald Suttill ------------------------------------- Ronald Suttill Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ Ronald Suttill President, Chief Executive Officer March 27, 2001 - ----------------------- -------------- Ronald Suttill and Director (principal executive officer) /s/ James L. Busby Secretary, Treasurer and March 27, 2001 - ----------------------- -------------- James L. Busby Chief Financial Officer (principal financial and accounting officer) /s/ Robert J. Cresci Director March 27, 2001 - ----------------------- -------------- Robert J. Cresci
29 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Page ---- Independent Auditors' Report............................................ 31 Consolidated Balance Sheet as of December 31, 2000 and 1999............. 32 Consolidated Statement of Operations for the years ended December 31, 2000, 1999 and 1998............................... 33 Consolidated Statement of Cash Flows for the years ended December 31, 2000, 1999 and 1998............................... 34 Consolidated Statement of Stockholders' Equity (Deficit) for the years ended December 31, 2000, 1999 and 1998............................... 35 Notes to Consolidated Financial Statements.............................. 36 Supplementary Information Related to Oil and Gas Producing Activities (Unaudited)............................................... 47 All schedules called for under Regulation S-X have been omitted because they are not applicable, the required information is not material or the required information is included in the consolidated financial statements or notes thereto. 30 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Aviva Petroleum Inc.: We have audited the accompanying consolidated financial statements of Aviva Petroleum Inc. and subsidiaries as listed in the accompanying index. 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 auditing standards generally accepted in the United States of America. 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 Aviva Petroleum Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Dallas, Texas March 9, 2001 31 AVIVA PETROLEUM INC. AND SUBSIDIARIES Consolidated Balance Sheet December 31, 2000 and 1999 (in thousands, except number of shares)
2000 1999 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 820 $ 846 Restricted cash - 4 Accounts receivable (note 9): Oil and gas revenue 132 716 Trade 65 633 Other 40 301 Inventories 161 724 Prepaid expenses and other 187 236 -------- -------- Total current assets 1,405 3,460 -------- -------- Property and equipment, at cost (note 5): Oil and gas properties and equipment (full cost method) 16,414 68,462 Other 333 584 -------- -------- 16,747 69,046 Less accumulated depreciation, depletion and amortization (15,791) (65,081) -------- -------- 956 3,965 Other assets (note 4) 950 1,561 -------- -------- $ 3,311 $ 8,986 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long term debt (note 5) $ - $ 14,495 Accounts payable 945 3,081 Accrued liabilities 115 1,024 -------- -------- Total current liabilities 1,060 18,600 -------- -------- Gas balancing obligations and other 375 1,869 Stockholders' equity (deficit) (notes 2, 5 and 7): Common stock, no par value, authorized 348,500,000 shares; issued 46,900,132 shares 2,345 2,345 Additional paid-in capital 37,710 34,855 Accumulated deficit* (38,179) (48,683) -------- -------- Total stockholders' equity (deficit) 1,876 (11,483) Commitments and contingencies (note 10) -------- -------- $ 3,311 $ 8,986 ======== ========
*Accumulated deficit of $70,057 was eliminated at December 31, 1992 in connection with a quasi-reorganization. See note 7. See accompanying notes to consolidated financial statements. 32 AVIVA PETROLEUM INC. AND SUBSIDIARIES Consolidated Statement of Operations Years Ended December 31, 2000, 1999 and 1998 (in thousands, except per share data)
2000 1999 1998 ------- ------- -------- Revenue: Oil and gas sales (note 9) $ 5,796 $ 6,797 $ 3,332 Service fees (note 2) 387 - - ------- ------- -------- Total revenue 6,183 6,797 3,332 ------- ------- -------- Expense: Production 2,407 3,575 3,525 Depreciation, depletion and amortization 515 1,000 3,152 Write-down of oil and gas properties (note 1) - - 12,343 General and administrative 1,157 1,245 1,074 Provision for (recovery of) losses on accounts receivable (256) (101) 420 Severance - 62 - ------- ------- -------- Total expense 3,823 5,781 20,514 ------- ------- -------- Other income (expense): Gain on transfer of partnership interests (note 2) 3,452 - - Interest and other income (expense), net (note 6) 207 259 1,045 Interest expense (805) (1,396) (748) ------- ------- -------- Total other income (expense) 2,854 (1,137) 297 ------- ------- -------- Earnings (loss) before income taxes and extraordinary item 5,214 (121) (16,885) Income (taxes) benefits (note 8) (253) (282) 4 ------- ------- -------- Earnings (loss) before extraordinary item 4,961 (403) (16,881) Extraordinary item - debt extinguishment, net of income taxes of $2,855 (notes 2 and 11) 5,543 - (197) ------- ------- -------- Net earnings (loss) $10,504 $ (403) $(17,078) ======= ======= ======== Weighted average common shares outstanding - basic and diluted 46,900 46,813 34,279 ======= ======= ======== Basic and diluted net earnings (loss) per common share: Before extraordinary item $ 0.10 $ (0.01) $ (0.49) Extraordinary item 0.12 - (0.01) ------- ------- -------- Net earnings (loss) $ 0.22 $ (0.01) $ (0.50) ======= ======= ========
See accompanying notes to consolidated financial statements. 33 AVIVA PETROLEUM INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows Years Ended December 31, 2000, 1999 and 1998 (in thousands)
2000 1999 1998 ------- ------- -------- Net earnings (loss) $10,504 $ (403) $(17,078) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 515 1,000 3,152 Write-down of oil and gas properties - - 12,343 Provision for (recovery of) losses on accounts receivable (256) (101) 420 Gain on transfer of partnership interests (3,452) - - Gain on debt extinguishment (5,543) - - Loss (gain) on sale of assets, net 4 (11) - Foreign currency exchange gain, net (44) (193) (1) Other (357) 247 (275) Changes in assets and liabilities, net of effects of transfer of partnership interests: Escrow account 4 413 (417) Accounts receivable 204 120 825 Inventories 10 112 195 Prepaid expenses and other 27 38 (196) Accounts payable and accrued liabilities 106 (1,703) 983 ------- ------- -------- Net cash provided by (used in) operating activities 1,722 (481) (49) ------- ------- -------- Cash flows from investing activities: Costs of and cash balances surrendered in connection with the transfer of partnership interests to Crosby (1,414) - - Property and equipment expenditures (382) (285) (1,405) Proceeds from sale of assets - 37 - Other - - 1,421 ------- ------- -------- Net cash provided by (used in) investing activities (1,796) (248) 16 ------- ------- -------- Cash flows from financing activities: Proceeds from long term debt - - 1,560 Principal payments on long term debt - (300) (400) Other - - (97) ------- ------- -------- Net cash provided by (used in) financing activities - (300) 1,063 ------- ------- -------- Effect of exchange rate changes on cash and cash equivalents 48 163 (8) ------- ------- -------- Net increase (decrease) in cash and cash equivalents (26) (866) 1,022 Cash and cash equivalents at beginning of year 846 1,712 690 ------- ------- -------- Cash and cash equivalents at end of year $ 820 $ 846 $ 1,712 ======= ======= ========
See accompanying notes to consolidated financial statements. 34 AVIVA PETROLEUM INC. AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity (Deficit) Years Ended December 31, 2000, 1999 and 1998 (in thousands, except number of shares)
Common Stock Additional Total --------------------- Number of Paid-in Accumulated Stockholders' Shares Amount Capital Deficit Equity (Deficit) ---------- ------- ---------- ----------- ---------------- Balances at December 31, 1997 31,482,716 $ 1,574 $ 33,376 $ (31,202) $ 3,748 Issuance of common stock pursuant to amendments of credit agreement (note 5) 1,200,000 60 49 - 109 Issuance of common stock pursuant to the acquisition of Garnet Resources Corporation (note 3) 14,017,416 701 1,437 - 2,138 Net loss - - - (17,078) (17,078) ---------- ------- -------- --------- --------- Balances at December 31, 1998 46,700,132 2,335 34,862 (48,280) (11,083) Issuance of common stock pursuant to investment banking agreement 200,000 10 (7) - 3 Net loss - - - (403) (403) ---------- ------- -------- --------- --------- Balances at December 31, 1999 46,900,132 2,345 34,855 (48,683) (11,483) Tax benefits relating to January 1, 1993 valuation allowance (note 8) - - 2,855 - 2,855 Net earnings - - - 10,504 10,504 ---------- ------- -------- --------- --------- Balances at December 31, 2000 46,900,132 $ 2,345 $ 37,710 $ (38,179) $ 1,876 ========== ======= ======== ========= =========
See accompanying notes to consolidated financial statements. 35 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies General Aviva Petroleum Inc. and its subsidiaries (the "Company") are engaged in the business of exploring for, developing and producing oil and gas in Colombia and in the United States. The Company's Colombian oil production is sold to Empresa Colombiana de Petroleos, the Colombian national oil company ("Ecopetrol"), while the Company's U.S. oil and gas production is sold to principally one U.S. purchaser (See notes 9 and 12). Oil and gas are the Company's only products, and there is substantial uncertainty as to the prices that the Company may receive for its production. A decrease in these prices would affect operating results adversely. Principles of Consolidation The consolidated financial statements include the accounts of Aviva Petroleum Inc. and its subsidiaries. The Company proportionately consolidates less than 100% owned oil and gas partnerships in accordance with industry practice. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories Inventories consist primarily of tubular goods, oilfield equipment and spares and are stated at the lower of average cost or market. Property and Equipment Under the full cost method of accounting for oil and gas properties, all productive and nonproductive property acquisition, exploration and development costs are capitalized in separate cost centers for each country. Such capitalized costs include lease acquisition costs, delay rentals, geophysical, geological and other costs, drilling, completion and other related costs and direct general and administrative expenses associated with property acquisition, exploration and development activities. Capitalized general and administrative costs include internal costs such as salaries and related benefits paid to employees to the extent that they are directly engaged in such activities, as well as all other directly identifiable general and administrative costs associated with such activities, including rent, utilities and insurance and do not include any costs related to production, general corporate overhead, or similar activities. Capitalized internal general and administrative costs were $57,000 in 2000, $46,000 in 1999 and $60,000 in 1998. Evaluated capitalized costs of oil and gas properties and the estimated future development, site restoration, dismantlement and abandonment costs are amortized by cost center, using the units-of-production method. Total net future site restoration, dismantlement and abandonment costs are estimated to be $745,000. Depreciation, depletion and amortization expense per equivalent barrel of production was as follows: 2000 1999 1998 ------ ------ ------ United States $ 2.62 $ 1.10 $27.00 Colombia $ 2.29 $ 2.40 $ 5.98 In accordance with the full cost method of accounting, the net capitalized costs of oil and gas properties less related deferred income taxes for each cost center are limited to the sum of the estimated future net revenues from the properties at current prices less estimated future expenditures, discounted at 10%, and unevaluated costs not being amortized, less income tax effects related to differences between the financial and tax bases of the properties, computed on a quarterly basis. The Company recorded write-downs of $10,556,000 and $1,787,000 to the carrying amounts of its Colombian and U.S. oil and gas properties, respectively, as a result of ceiling limitations on capitalized costs during 1998. No such write-downs were required during 1999 or 2000. Depletion expense and limits on capitalized costs are based on estimates of oil and gas reserves which are inherently imprecise and assume current prices for future net revenues. Accordingly, it is reasonably possible that the estimates of reserves quantities and future net revenues could differ materially in the near term from 36 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) amounts currently estimated. Moreover, a future decrease in the prices the Company receives for its oil and gas production or downward reserve adjustments could, for the Colombian cost center, result in a ceiling test write-down that is significant to the Company's operating results. Gains and losses on sales of oil and gas properties are not recognized in income unless the sale involves a significant portion of the reserves associated with a particular cost center. Capitalized costs associated with unevaluated properties are excluded from amortization until it is determined whether proved reserves can be assigned to such properties or until the value of the properties is impaired. Unevaluated costs of $272,000 and $553,000 were excluded from amortization at December 31, 2000 and 1999, respectively. Unevaluated properties are assessed quarterly to determine whether any impairment has occurred. The unevaluated costs at December 31, 2000 represent exploration costs and were incurred primarily during the five-year period ended December 31, 2000. Such costs are expected to be evaluated and included in the amortization computation within the next three years. Other property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets. Gas Balancing The Company uses the entitlements method of accounting for gas sales. Gas production taken by the Company in excess of amounts entitled is recorded as a liability to the other joint owners. Excess gas production taken by others is recognized as income to the extent of the Company's proportionate share of the gas sold and a related receivable is recorded from the other joint owners. Interest Expense The Company capitalizes interest costs on qualifying assets, principally unevaluated oil and gas properties. During 2000, 1999 and 1998, the Company capitalized $43,000, $59,000 and $29,000 of interest, respectively. Earnings Per Common Share Basic earnings per share ("EPS") is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For the years presented herein, basic and diluted EPS are the same since the effects of potential common shares (notes 5 and 7) are antidilutive. For fiscal year 2000, options for 1,024,000 common shares were not included in the computation of diluted earnings per share because their exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 ("Statement 109") which requires recognition of deferred tax assets in certain circumstances and deferred tax liabilities for the future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Statement of Cash Flows The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. The Company paid interest, net of amounts capitalized, of $(37,000) in 2000, $547,000 in 1999 and $860,000 in 1998 and paid income taxes of $267,000 in 2000, $201,000 in 1999 and $117,000 in 1998. Fair Value of Financial Instruments The reported values of cash, cash equivalents, accounts receivable and accounts payable approximate fair value due to their short maturities. 37 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Foreign Currency Translation The accounts of the Company's foreign operations are translated into United States dollars in accordance with Statement of Financial Accounting Standards No. 52. The United States dollar is used as the functional currency. Exchange adjustments resulting from foreign currency transactions are recognized in expense or income in the current period. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Comprehensive Income Comprehensive income includes net income and other comprehensive income which is generally comprised of changes in the fair value of available-for- sale marketable securities, foreign currency translation adjustments and adjustments to recognize additional minimum pension liabilities. For each period presented in the accompanying consolidated statement of operations, comprehensive income and net income are the same amount. (2) Debt Restructuring and Transfer of Partnership Interests On June 8, 2000, the Company entered into agreements with the Company's senior secured lender, Crosby Capital, LLC ("Crosby"), in order to restructure the Company's senior debt which, including unpaid interest, aggregated $16,103,064 as of May 31, 2000. Crosby acquired the debt from ING Capital and OPIC on May 1, 2000 (see note 5). Pursuant to the agreements, Crosby canceled $13,353,064 of such debt and transferred to the Company warrants for 1,500,000 shares of the Company's common stock in exchange for the general partner rights and an initial 77.5% partnership interest in Argosy Energy International ("Argosy"), a Utah limited partnership, which holds the Company's Colombian properties. Following the transaction, Aviva Overseas Inc. ("Aviva Overseas"), a wholly owned subsidiary of the Company, owns a 22.1196% limited partnership interest in Argosy. An additional 7.5% limited partnership interest will be transferred from Crosby to Aviva Overseas when Crosby has received in distributions from Argosy an amount equal to $3,500,000 plus interest at the prime rate plus 1% on the outstanding balance thereof. As of December 31, 2000, Crosby had received approximately $2.2 million in distributions from Argosy. The Company's remaining debt of $2,750,000 was reacquired from Crosby on December 21, 2000, in exchange for a 15% net profits interest in any new production at Breton Sound Block 31 field. This transaction substantially completed the restructuring of the Company and the reorganization of the Company's wholly owned subsidiary Aviva America, Inc. ("AAI") (see note 11). In order to assist Crosby in maximizing the value of its interest in Argosy, Crosby entered into a Service Agreement with Aviva Overseas pursuant to which Aviva Overseas will provide certain services in administering the Colombian assets in exchange for a monthly fee. The fee is $71,000 per month for the period June 1, 2000 through March 31, 2001, $46,000 per month for the period April 1, 2001 through March 31, 2002, and $21,000 per month thereafter as long as the contract is in effect. The Service Agreement provides for a term of 22 months and will continue thereafter from month to month unless terminated by 30-day written notice by either party. The Company recognized a gain of $3,452,000 on the transfer of the partnership interests to Crosby, representing the excess of the fair value over the book value of the interests transferred. The Company recognized an extraordinary gain of $4,888,000 on the extinguishment of the debt due to Crosby, net of income taxes of $2,517,000. In connection with the above-referenced transaction, 1,000,000 shares of the Company's common stock which were held by Crosby prior to the transaction, were transferred to members of management and the Board of Directors of the Company, effective June 8, 2000. As of such date, the aggregate market value of the common 38 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) stock transferred to members of management and the Board of Directors was approximately $25,000 based on the last sale price on the OTC Bulletin Board of a depositary share representing five shares of the Company's common stock. Additionally, 200,000 shares of the Company's common stock which were held by Crosby prior to the transaction were transferred to a consultant of the Company effective as of the same date. (3) Garnet Merger On October 28, 1998, the Company completed the merger of Garnet Resources Corporation ("Garnet") with one of the Company's subsidiaries. As a result of the merger, the Company owned over 99% of the Colombian joint operations. Additionally, the Company now holds a 2% carried working interest in an oil and gas Petroleum Prospecting License in Papua New Guinea. The merger arrangements included Aviva refinancing Garnet's 99.24% owned subsidiary's net outstanding debt to Chase Bank of Texas, N.A. ("Chase") which was guaranteed by the U.S. Overseas Private Investment Corporation ("OPIC"), issuing approximately 1.1 million and 12.9 million new Aviva common shares to Garnet shareholders and Garnet debenture holders, respectively, and canceling Garnet's $15 million of 9.5% subordinated debentures due December 21, 1998. The merger was accounted for as a "purchase" of Garnet for financial accounting purposes with Aviva's subsidiary as the surviving entity. The purchase price of Garnet, approximately $9.9 million, consists of $2.4 million related to the issuance of 14 million shares of Aviva's common stock at $0.167 per share plus merger costs and the assumption of approximately $6.0 million of net debt and $1.5 million of current and other liabilities. A summary of the assets acquired and liabilities assumed as of October 28, 1998 follows (in thousands): Current assets $ 1,659 Oil and gas properties 8,250 Current liabilities (1,169) Long term debt (5,954) Other liabilities (346) ------- Fair value of net assets acquired $ 2,440 ======= (4) Other Assets A summary of other assets follows: December 31 --------------- (thousands) 2000 1999 ------ ------ Abandonment funds for U.S. offshore properties $ 948 $1,502 Deferred financing charges - 55 Other 2 4 ------ ------ $ 950 $1,561 ====== ====== (5) Long Term Debt On October 28, 1998, concurrently with the consummation of the Garnet merger, Neo Energy, Inc., an indirect subsidiary of the Company, and the Company entered into a Restated Credit Agreement with ING (U.S.) Capital Corporation ("ING Capital"). ING Capital, Chase and OPIC also entered into a Joint Finance and Intercreditor Agreement (the "Intercreditor Agreement") with the Company. ING Capital agreed to loan Neo Energy, Inc. an additional $800,000, bringing the total outstanding balance due ING Capital to $9,000,000. The outstanding balance due to Chase was paid down to $6,000,000 from the $6,350,000 balance owed by Garnet prior to the merger. 39 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) The Chase loan was unconditionally guaranteed by OPIC. On September 1, 1999, the Chase loan was assigned and transferred to OPIC pursuant to this guarantee. The ING Capital loan and the OPIC loan (the "Bank Credit Facilities") were guaranteed by the Company and its material domestic subsidiaries. Both loans were also secured by the Company's consolidated interest in the Santana contract and related assets in Colombia, a first mortgage on the United States oil and gas properties of the Company and its subsidiaries, a lien on accounts receivable of the Company and its subsidiaries, and a pledge of the capital stock of the Company's subsidiaries. Borrowings under the ING Capital loan were subject to interest at the prime rate (as defined in the Restated Credit Agreement) plus 3% per annum. Borrowings under the OPIC loan were subject to interest at 10.27% per annum. On May 1, 2000, ING Capital and OPIC sold their entire interests in the Bank Credit Facilities to Crosby Capital, LLC. As more fully described in note 2, this debt was restructured on June 8, 2000, and reacquired from Crosby on December 21, 2000. During 1998, following the Garnet merger, Aviva issued to ING Capital 800,000 shares of Aviva common stock and warrants to purchase 1,500,000 shares of Aviva common stock at an exercise price of $0.50 per share in payment of financial advisory fees. The 800,000 shares were valued at their quoted market value on October 28, 1998, the date on which the Bank Credit Facilities were consummated. The warrants were valued using the Black-Scholes option-pricing model. Both amounts are included in debt extinguishment costs in the 1998 consolidated statement of operations. (6) Interest and Other Income (Expense) A summary of interest and other income (expense) follows: (thousands) 2000 1999 1998 ------ ------ ------ Gain on settlement of litigation $ - $ - $ 720 Interest income 97 94 70 Foreign currency exchange gain (loss) 44 193 1 Gain (loss) on sale of assets, net (4) 11 - Other, net 70 (39) 254 ------ ------ ------ $ 207 $ 259 $1,045 ====== ====== ====== In January 1998, the Company realized a $720,000 gain on the settlement of litigation involving the administration of a take or pay contract settlement. (7) Stockholders' Equity Quasi-Reorganization Effective December 31, 1992, the Board of Directors of the Company approved a quasi-reorganization which resulted in a reclassification of the accumulated deficit of $70,057,000 at that date to paid-in capital. No adjustments were made to the Company's assets and liabilities since the historical carrying values approximated or did not exceed the estimated fair values. Stock Option Plans At December 31, 2000, the Company has two stock option plans, which are described below. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock option plans been determined consistent with FASB Statement No. 123, the Company's net earnings (loss) and earnings (loss) per share would have been changed to the pro forma amounts indicated below (in thousands, except per share data): 40 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) 2000 1999 1998 ---- ---- ---- Net earnings (loss) As reported $10,504 $ (403) $(17,078) Pro forma $10,496 $ (413) $(17,095) Earnings (loss) per share As reported $ 0.22 $(0.01) $ (0.50) Pro forma $ 0.22 $(0.01) $ (0.50) The Aviva Petroleum Inc. 1995 Stock Option Plan, as amended (the "Current Plan") is administered by a committee (the "Committee") composed of two or more outside directors of the Company. Except as indicated below and except for non-discretionary grants to non-employee directors, the Committee has authority to determine all terms and provisions under which options are granted pursuant to the Current Plan. An aggregate of up to 1,000,000 shares of the Company's common stock may be issued upon exercise of stock options or in connection with restricted stock awards that may be granted under the Current Plan. The Current Plan also provides for the grant, on July 1, each year, to each non-employee director who has served in such capacity for at least the entire preceding calendar year of an option to purchase 5,000 shares of the Company's common stock (the "Annual Option Awards"), exercisable as to 2,500 shares on the first anniversary of the date of grant and as to the remaining shares on the second anniversary thereof. The aggregate fair market value (determined at the time of grant) of shares issuable pursuant to incentive stock options which first become exercisable in any calendar year by a participant in the Current Plan may not exceed $100,000. The maximum number of shares of common stock which may be subject to an option or restricted stock grant awarded to a participant in a calendar year cannot exceed 100,000. Incentive stock options granted under the Current Plan may not be granted at a price less than 100% of the fair market value of the common stock on the date of grant (or 110% of the fair market value in the case of incentive stock options granted to participants in the Current Plan holding 10% or more of the voting stock of the Company). Non-qualified stock options may not be granted at a price less than 50% of the fair market value of the common stock on the date of grant. As a result of the adoption of the Current Plan, during 1995 the Company's former Incentive and Non-Statutory Stock Option Plan was terminated as to the grant of new options, but options then outstanding for 250,000 shares of the Company's common stock remain in effect as of December 31, 2000. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2000 1999 1998 ------ ------ ------ Expected life (years) 10.0 10.0 10.0 Risk-free interest rate 6.03% 5.8% 4.8% Volatility 124.0% 87.0% 77.0% Dividend yield 0.0% 0.0% 0.0% 41 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) A summary of the status of the Company's two fixed stock option plans as of December 31, 2000, 1999 and 1998, and changes during the years ended on those dates is presented below:
2000 1999 1998 -------------------- ------------------------- ----------------------- Weighted- Weighted- Weighted- Average Average Average Shares Exercise Shares Exercise Shares Exercise Fixed Options (000) Price (000) Price (000) Price ------------- ------- --------- --------- --------- -------- -------- Outstanding at beginning of year 1,072 $ .51 1,148 $ .53 550 $ 1.53 Granted 5 .08 5 .01 675 .06 Forfeited (53) .17 (81) .74 (77) 3.60 ------- --------- ------ Outstanding at end of year 1,024 .51 1,072 .51 1,148 .53 ======= ========= ====== Options exercisable at year-end 1,007 825 655 Weighted-average fair value of options granted during the year $. 07 $ .01 $ .05
The following table summarizes information about fixed stock options outstanding at December 31, 2000:
Options Outstanding Options Exercisable ---------------------------------------------------- --------------------------------- Range Number Weighted-Avg. Number of Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg. Exercise Prices at 12/31/00 Contractual Life Exercise Price at 12/31/00 Exercise Price --------------- ------------- ---------------- -------------- ------------- -------------- $ .01 to .17 619,000 7.85 years $ .06 601,500 $ .06 .51 to .98 155,000 4.38 .81 155,000 .81 1.08 to 2.51 250,000 2.24 1.42 250,000 1.42 ------------------ ---------- ------------- $ .01 to 2.51 1,024,000 5.96 .51 1,006,500 .52 ================== ========== =============
(8) Income Taxes Income tax expense includes current Colombian income taxes (benefit) of $241,000 in 2000, $282,000 in 1999, $(4,000) in 1998. Income tax expense also includes state income taxes of $12,000 in 2000 and $-0- in 1999 and 1998. Income tax expense for the year ended December 31, 2000, differed from the amount computed by applying the statutory U.S. federal income tax rate (34%) to income before income taxes as a result of the following (in thousands): Computed expected tax expense $ 1,773 Decrease in valuation allowance (17,856) Expiration of net operating loss carryforwards 15,467 Foreign income taxes and other 869 -------- $ 253 ======== During the years ended December 31, 1999 and 1998, the Company's effective tax rate differs from the U.S. statutory rate principally due to losses without tax benefit. 42 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) The Company has deferred tax assets of $23,621,000 and $44,332,000 at December 31, 2000 and 1999, respectively, consisting principally of net operating loss carryforwards. The valuation allowance for deferred tax assets at January 1, 1998 was $42,053,000. The net change in the valuation allowance was a $20,711,000 decrease in 2000, a $1,696,000 decrease in 1999, and a $3,975,000 increase in 1998. Subsequently recognized tax benefits relating to the valuation allowance of $9,327,000 for deferred tax assets at January 1, 1993 will be credited to additional paid in capital. Such benefits were $2,855,000 during the year ended December 31, 2000. At December 31, 2000, the Company and its subsidiaries have aggregate net operating loss carryforwards for U.S. federal income tax purposes of approximately $63,000,000, expiring from 2001 through 2020, which are available to offset future federal taxable income. The utilization of a portion of these net operating losses is subject to an annual limitation of approximately $2,400,000 and a portion may only be utilized by certain subsidiaries of the Company. (9) Financial Instruments and Credit Risk Concentrations Financial instruments which are subject to risks due to concentrations of credit consist principally of cash and cash equivalents and receivables. Cash and cash equivalents are placed with high credit quality financial institutions to minimize risk. Receivables are typically unsecured. Historically, the Company has not experienced any material collection difficulties from its customers. The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value due to the current maturities of these financial instruments. Ecopetrol has an option to purchase all of the Company's production in Colombia. For the years ended December 31, 2000, 1999 and 1998, Ecopetrol exercised that option and sales to Ecopetrol accounted for $4,267,000 (73.6%), $5,683,000 (83.6%) and $2,632,000 (79.0%), respectively, of the Company's aggregate oil and gas sales. For the years ended December 31, 2000 and 1998, sales to one U.S. purchaser accounted for $968,000 (16.7%) and $479,000 (14.4%), respectively, of oil and gas sales. During 1999, the Company did not receive more than 10% of its revenue from any one domestic purchaser. (10) Commitments and Contingencies The Company is engaged in ongoing operations on the Santana contract in Colombia. The contract obligations have been met; however, the Company plans to recomplete certain existing wells and engage in various other projects. The Company's current share of the estimated future costs of these activities is approximately $0.3 million at December 31, 2000. Any substantial increase in the amount of the above referenced expenditures could adversely affect the Company's ability to meet these obligations. The Company expects to fund these activities using cash provided from operations. Risks that could adversely affect funding of such activities include, among others, delays in obtaining any required environmental permits, cost overruns, failure to produce the reserves as projected or a decline in the sales price of oil. Depending on the results of future exploration and development activities, substantial expenditures which have not been included in the Company's cash flow projections may be required. Failure to fund certain expenditures could result in a decrease in the Company's ownership interest in Argosy. On August 3, 1998, leftist Colombian guerrillas inflicted significant damage on the Company's oil processing and storage facilities at the Mary field, and to a lesser extent, at the Linda facilities. Since that time the Company has been subject to lesser attacks on its pipelines and equipment resulting in only minor interruptions of oil sales. The Colombian army guards the Company's operations; however, there can be no assurance that the Company's operations will not be the target of additional guerrilla attacks in the future. The damages resulting from the above referenced attacks were covered by insurance. There can be no assurance that such coverage will remain available or affordable. 43 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Under the terms of the contracts with Ecopetrol, a minimum of 25% of all revenues from oil sold to Ecopetrol is paid in Colombian pesos which may only be utilized in Colombia. To date, the Company has experienced no difficulty in repatriating the remaining 75% of such payments, which are payable in U.S. dollars. Activities of the Company with respect to the exploration, development and production of oil and natural gas are subject to stringent foreign, federal, state and local environmental laws and regulations, including but not limited to the Oil Pollution Act of 1990, the Outer Continental Shelf Lands Act, the Federal Water Pollution Control Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act. Such laws and regulations have increased the cost of planning, designing, drilling, operating and abandoning wells. In most instances, the statutory and regulatory requirements relate to air and water pollution control procedures and the handling and disposal of drilling and production wastes. Although the Company believes that compliance with environmental laws and regulations will not have a material adverse effect on the Company's future operations or earnings, risks of substantial costs and liabilities are inherent in oil and gas operations and there can be no assurance that significant costs and liabilities, including civil or criminal penalties for violations of environmental laws and regulations, will not be incurred. Moreover, it is possible that other developments, such as stricter environmental laws and regulations or claims for damages to property or persons resulting from the Company's operations, could result in substantial costs and liabilities. The Company's policy is to accrue environmental and restoration related costs once it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company is involved in certain litigation involving its oil and gas activities. Management of the Company believes that these litigation matters will not have any material adverse effect on the Company's financial condition or results of operations. The Company has one lease for office space in Dallas, Texas, which expires in January 2002. Rent expense relating to the lease was $88,000, $94,000 and $90,000 for 2000, 1999 and 1998, respectively. Future minimum payments under the lease are: 2001 - $102,000 and 2002 - $9,000. (11) Subsidiary's Reorganization under Chapter 11 On July 21, 2000, AAI, a wholly-owned subsidiary of the Company, filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy code. AAI is a Delaware corporation which holds the Company's interests in oil and gas properties located offshore Louisiana. The filing, in the Northern District of Texas, was initiated in order to achieve a comprehensive restructuring of AAI's debts. Following approval by the court and creditors, the voluntary petition for reorganization became effective on November 17, 2000. In connection with the reorganization, the Company recognized an extraordinary gain of $655,000 on the extinguishment of certain AAI debts, net of income taxes of $338,000. 44 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (12) Geographic Area Information The Company is engaged in the business of exploring for, developing and producing oil and gas in the United States and Colombia. Information about the Company's operations in different geographic areas as of and for the years ended December 31, 2000, 1999 and 1998 follows:
(Thousands) United States Colombia Total ------- -------- ------- 2000 ---- Revenue: Oil and gas sales $1,528 $ 4,268 $ 5,796 Service fees 387 - 387 ------- ------- ------- 1,915 4,268 6,183 ------- ------- ------- Expense: Production 1,099 1,308 2,407 Depreciation, depletion and amortization 131 384 515 General and administrative 1,077 80 1,157 Recovery of losses on accounts receivable (256) - (256) ------- ------- ------- 2,051 1,772 3,823 ------- ------- ------- Gain on transfer of partnership interests - 3,452 3,452 Interest and other income (expense), net 39 168 207 Interest expense (183) (622) (805) ------- ------- ------- Earnings (loss) before income taxes and extraordinary item (280) 5,494 5,214 Income taxes (12) (241) (253) ------- ------- ------- Earnings (loss) before extraordinary item (292) 5,253 4,961 Extraordinary item - debt extinguishment 655 4,888 5,543 ------- ------- ------- Net earnings $ 363 $10,141 $10,504 ======= ======= ======= Total assets $1,662 $ 1,649 $ 3,311 ======= ======= ======= 1999 ---- Oil and gas sales $1,114 $ 5,683 $ 6,797 ------- ------- ------- Expense: Production 1,173 2,402 3,575 Depreciation, depletion and amortization 59 941 1,000 General and administrative 1,148 97 1,245 Recovery of losses on accounts receivable (101) - (101) Severance - 62 62 ------- ------- ------- 2,279 3,502 5,781 ------- ------- ------- Interest and other income (expense), net 154 105 259 Interest expense (397) (999) (1,396) ------- ------- ------- Earnings (loss) before income taxes (1,408) 1,287 (121) Income taxes - (282) (282) ------- ------- ------- Net earnings (loss) $(1,408) $ 1,005 $ (403) ======= ======= ======= Total assets $ 1,908 $ 7,078 $ 8,986 ======= ======= =======
45 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)
United (Thousands) States Colombia Total --------- --------- --------- 1998 ---- Oil and gas sales $ 700 $ 2,632 $ 3,332 --------- --------- --------- Expense: Production 1,259 2,266 3,525 Depreciation, depletion and amortization 1,556 1,596 3,152 Write-down of oil and gas properties 1,787 10,556 12,343 General and administrative 1,042 32 1,074 Provision for losses on accounts receivable 420 - 420 --------- --------- --------- 6,064 14,450 20,514 --------- --------- --------- Interest and other income (expense), net 768 277 1,045 Interest expense (346) (402) (748) --------- --------- --------- Loss before income taxes and extraordinary item (4,942) (11,943) (16,885) Income tax benefit - 4 4 --------- --------- --------- Loss before extraordinary item (4,942) (11,939) (16,881) Extraordinary item - debt extinguishment - (197) (197) --------- --------- --------- Net loss $ (4,942) $ (12,136) $ (17,078) ========= ========= ========= Total assets $ 3,002 $ 8,420 $ 11,422 ========= ========= =========
(13) Quarterly Financial Data (Unaudited) Quarterly operating results for 2000 and 1999 are summarized as follows (in thousands, except per share data):
Quarter Ended March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- 2000 ---- Revenues $ 2,541 $ 1,827 $ 907 $ 908 ======== ======== ======== ======== Operating earnings 1,247 696 208 209 ======== ======== ======== ======== Net earnings before extraordinary item 733 3,887 134 207 ======== ======== ======== ======== Extraordinary item - debt extinguishment - 3,089 (5) 2,459 ======== ======== ======== ======== Net earnings 733 6,976 129 2,666 ======== ======== ======== ======== Basic and diluted earnings (loss) per common share: Before extraordinary item 0.02 0.08 0.00 0.00 ======== ======== ======== ======== Extraordinary item - 0.07 (0.00) 0.05 ======== ======== ======== ======== Net earnings $ 0.02 $ 0.15 $ 0.00 $ 0.05 ======== ======== ======== ======== 1999 ---- Revenues $ 1,184 $ 1,575 $ 1,955 $ 2,083 ======== ======== ======== ======== Operating earnings (loss) (411) 17 561 849 ======== ======== ======== ======== Net earnings (loss) (731) (82) 303 107 ======== ======== ======== ======== Basic and diluted earnings (loss) per common share $ (0.02) $ (0.00) $ 0.01 $ 0.00 ======== ======== ======== ========
The amounts set forth above for fiscal year 2000 reflect the credit of tax benefits aggregating $2.9 million directly to additional paid in capital rather than earnings. To that extent, the results for the first three quarters of fiscal year 2000 differ from the results previously reported. This treatment is required by accounting rules relating to the Company's 1992 quasi-reorganization. 46 AVIVA PETROLEUM INC. AND SUBSIDIARIES Supplementary Information Related to Oil and Gas Producing Activities (Unaudited) The following information relating to the Company's oil and gas activities is presented in accordance with Statement of Financial Accounting Standards No. 69. The Financial Accounting Standards Board has determined the information is necessary to supplement, although not required to be a part of, the basic financial statements. Capitalized costs and accumulated depreciation, depletion and amortization relating to oil and gas producing activities were as follows: (Thousands)
United States Colombia Total ----------- -------- ------- December 31, 2000 - ----------------- Unevaluated oil and gas properties $ 184 $ 88 $ 272 Proved oil and gas properties 3,936 12,206 16,142 ------ ------- ------- Total capitalized costs 4,120 12,294 16,414 Less accumulated depreciation, depletion and amortization 4,177 11,360 15,537 ------ ------- ------- Capitalized costs, net $ (57) $ 934 $ 877 ====== ======= ======= December 31, 1999 - ----------------- Unevaluated oil and gas properties $ 175 $ 379 $ 554 Proved oil and gas properties 13,199 54,709 67,908 ------- ------- ------- Total capitalized costs 13,374 55,088 68,462 Less accumulated depreciation depletion and amortization 13,992 50,600 64,592 ------- ------- ------- Capitalized costs, net $ (618) $ 4,488 $ 3,870 ======= ======= =======
47 AVIVA PETROLEUM INC. AND SUBSIDIARIES Supplementary Information Related to Oil and Gas Producing Activities (Unaudited) (Continued) Costs incurred in oil and gas property acquisition, exploration and development activities were as follows: (Thousands)
United States Colombia Total ----------- -------- ------ 2000 - ---- Exploration $ 10 $ 4 $ 14 Development 238 110 348 ------ ------ ------ Total costs incurred $ 248 $ 114 $ 362 ====== ====== ====== 1999 - ---- Exploration $ 17 $ 41 $ 58 Development 85 81 166 ------ ------ ------ Total costs incurred $ 102 $ 122 $ 224 ====== ====== ====== 1998 - ---- Exploration $ 15 $ 136 $ 151 Development 1,039 209 1,248 Acquisition of Garnet properties - 8,250 8,250 ------ ------ ------ Total costs incurred $1,054 $8,595 $9,649 ====== ====== ======
48 AVIVA PETROLEUM INC. AND SUBSIDIARIES Supplementary Information Related to Oil and Gas Producing Activities (Unaudited) (Continued) The following schedule presents the Company's estimate of its proved oil and gas reserves. The proved oil and gas reserves in Colombia and the United States were determined by independent petroleum engineers, Huddleston & Co., Inc. and Netherland, Sewell & Associates, Inc., respectively. The figures presented are estimates of reserves which may be expected to be recovered commercially at current prices and costs. Estimates of proved developed reserves include only those reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. Estimates of proved undeveloped reserves include only those reserves which are expected to be recovered on undrilled acreage from new wells which are reasonably certain of production when drilled or from presently existing wells which could require relatively major expenditures to effect recompletion.
Changes in the Estimated Quantities of Reserves ------------------------------------------------ United States Colombia Total ------------------------------------------------ Year ended December 31, 2000 - ---------------------------- Oil (Thousands of barrels) Proved reserves: Beginning of period 144 2,208 2,352 Revisions of previous estimates 79 259 338 Sales of reserves - (1,614) (1,614) Production (49) (157) (206) ---------- -------- ------ End of period 174 696 870 ========== ======== ====== Proved developed reserves, end of period 174 696 870 ========== ======== ====== Gas (Millions of cubic feet) Proved reserves: Beginning of period 101 - 101 Revisions of previous estimates 38 - 38 Production (25) - (25) ---------- -------- ------ End of period 114 - 114 ========== ======== ====== Proved developed reserves, end of period 114 - 114 ========== ======== ======
49 AVIVA PETROLEUM INC. AND SUBSIDIARIES Supplementary Information Related to Oil and Gas Producing Activities (Unaudited) (Continued)
Changes in the Estimated Quantities of Reserves -------------------------------------------------- United States Colombia Total --------------- ----------------- -------------- Year ended December 31, 1999 - ---------------------------- Oil (Thousands of barrels) Proved reserves: Beginning of period 8 2,352 2,360 Revisions of previous estimates 193 221 414 Discoveries and extensions - - - Sales of reserves - - - Production (57) (365) (422) ----------- ---------------- ----------- End of period 144 2,208 2,352 =========== ================ =========== Proved developed reserves, end of period 144 2,208 2,352 =========== ================ =========== Gas (Millions of cubic feet) Proved reserves: Beginning of period 4 - 4 Revisions of previous estimates 150 - 150 Discoveries and extensions - - - Sales of reserves - - - Production (53) - (53) ----------- ---------------- ----------- End of period 101 - 101 =========== ================ =========== Proved developed reserves, end of period 101 - 101 =========== ================ ===========
50 AVIVA PETROLEUM INC. AND SUBSIDIARIES Supplementary Information Related to Oil and Gas Producing Activities (Unaudited) (Continued)
Changes in the Estimated Quantities of Reserves -------------------------------------------------- United States Colombia Total --------------- ----------------- -------------- Year ended December 31, 1998 - ---------------------------- Oil (Thousands of barrels) Proved reserves: Beginning of period 195 1,476 1,671 Revisions of previous estimates (143) (200) (343) Acquisition of Garnet - 1,331 1,331 Production (44) (255) (299) ------ ----- ------ End of period 8 2,352 2,360 ====== ===== ====== Proved developed reserves, end of period 8 2,352 2,360 ====== ===== ====== Gas (Millions of cubic feet) Proved reserves: Beginning of period 1,119 - 1,119 Revisions of previous estimates (1,047) - (1,047) Production (68) - (68) ------ ----- ------ End of period 4 - 4 ====== ===== ====== Proved developed reserves, end of period 4 - 4 ====== ===== ======
51 AVIVA PETROLEUM INC. AND SUBSIDIARIES Supplementary Information Related to Oil and Gas Producing Activities (Unaudited) (Continued) The following schedule is a standardized measure of the discounted net future cash flows applicable to proved oil and gas reserves. The future cash flows are based on estimated oil and gas reserves utilizing prices and costs in effect as of the applicable year end, discounted at ten percent per year and assuming continuation of existing economic conditions. The standardized measure of discounted future net cash flows, in the Company's opinion, should be examined with caution. The schedule is based on estimates of the Company's proved oil and gas reserves prepared by independent petroleum engineers. Reserve estimates are, however, inherently imprecise and estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, the estimates are expected to change as future information becomes available. Therefore, the standardized measure of discounted future net cash flows does not necessarily reflect the fair value of the Company's proved oil and gas properties.
(Thousands) United States Colombia Total ----------- --------- --------- At December 31, 2000: - --------------------- Future gross revenues $ 5,520 $ 12,501 $ 18,021 Future production costs (3,887) (5,994) (9,881) Future development costs, including abandonment of U.S. offshore platforms (745) (390) (1,135) ------- -------- -------- Future net cash flows before income taxes 888 6,117 7,005 Future income taxes - - - ------- -------- -------- Future net cash flows after income taxes 888 6,117 7,005 Discount at 10% per annum 120 (1,942) (1,822) ------- -------- -------- Standardized measure of discounted future net cash flows $ 1,008 $ 4,175 $ 5,183 ======= ======== ======== At December 31, 1999: - --------------------- Future gross revenues $ 3,708 $ 53,112 $ 56,820 Future production costs (2,792) (15,195) (17,987) Future development costs, including abandonment of U.S. offshore platforms (970) (1,075) (2,045) ------- -------- -------- Future net cash flows before income taxes (54) 36,842 36,788 Future income taxes - - - ------- -------- -------- Future net cash flows after income taxes (54) 36,842 36,788 Discount at 10% per annum 171 (8,699) (8,528) ------- -------- -------- Standardized measure of discounted future net cash flows $ 117 $ 28,143 $ 28,260 ======= ======== ========
52 AVIVA PETROLEUM INC. AND SUBSIDIARIES Supplementary Information Related to Oil and Gas Producing Activities (Unaudited) (Continued)
(Thousands) United States Colombia Total ----------- --------- --------- At December 31, 1998: - --------------------- Future gross revenues $ 78 $ 17,645 $ 17,723 Future production costs (77) (10,242) (10,319) Future development costs, including abandonment of U.S. offshore platforms (969) (570) (1,539) ----- -------- -------- Future net cash flows before income taxes (968) 6,833 5,865 Future income taxes - - - ----- -------- -------- Future net cash flows after income taxes (968) 6,833 5,865 Discount at 10% per annum 136 (1,382) (1,246) ----- -------- -------- Standardized measure of discounted future net cash flows $(832) $ 5,451 $ 4,619 ===== ======== ========
53 AVIVA PETROLEUM INC. AND SUBSIDIARIES Supplementary Information Related to Oil and Gas Producing Activities (Unaudited) (Continued) The following schedule summarizes the changes in the standardized measure of discounted future net cash flows.
(Thousands) 2000 1999 1998 -------- ------- ------- Sales of oil and gas, net of production costs $ (3,389) $(3,222) $ 192 Sales of reserves in place (20,094) - - Development costs incurred that reduced future development costs 36 - - Accretion of discount 2,826 462 1,142 Discoveries and extensions - - - Purchase of reserves in place - - 2,998 Revisions of previous estimates: Changes in price (1,921) 24,161 (9,585) Changes in quantities 1,422 4,103 (539) Changes in future development costs (236) 297 (448) Changes in timing and other changes (1,721) (2,160) (561) Changes in estimated income taxes - - - -------- ------- ------- Net increase (decrease) (23,077) 23,641 (6,801) Balances at beginning of year 28,260 4,619 11,420 -------- ------- ------- Balances at end of year $ 5,183 $28,260 $ 4,619 ======== ======= =======
The foregoing information on the standardized measure of the discounted net future cash flows applicable to the Company's Colombian proved oil reserves at December 31, 2000, utilizes a year end oil price of $17.97 per barrel resulting in a standardized measure of $4,175,000. In February 2001 the oil price received for the Company's Colombian oil production was $21.95 per barrel. If the Company had used an oil price of $21.95 per barrel at December 31, 2000, the standardized measure of the Company's Colombian proved oil reserves would have been $6,202,000 and the standardized measure of the Company's total proved reserves would have been $7,210,000. 54 INDEX TO EXHIBITS
Sequentially Numbered Number Description of Exhibit Page - ------ ---------------------- ----------- *2.1 Agreement and Plan of Merger dated as of June 24, 1998, by and among Aviva Petroleum Inc., Aviva Merger Inc. and Garnet Resources Corporation (filed as exhibit 2.1 to the Registration Statement on Form S-4, File No. 333-58061, and incorporated herein by reference). *2.2 Debenture Purchase Agreement dated as of June 24, 1998, between Aviva Petroleum Inc. and the Holders of the Debentures named therein (filed as exhibit 2.2 to the Registration Statement on Form S-4, file No. 333-58061, and incorporated herein by reference). *2.3 Loan, Settlement and Acquisition Agreement dated effective May 31, 2000, by and among Crosby Capital, LLC, Aviva Petroleum Inc., Aviva America, Inc., Aviva Operating Company, Aviva Overseas, Inc., Neo Energy, Inc., Garnet Resources Corporation, Argosy Energy, Inc., and Argosy Energy International (filed as exhibit 2.1 to the Company's Form 8-K dated June 8, 2000, File No. 0-22258, and incorporated herein by reference). **2.4 Confirmed Plan of Reorganization of Aviva America, Inc. *3.1 Restated Articles of Incorporation of the Company dated July 25, 1995 (filed as exhibit 3.1 to the Company's annual report on Form 10-K for the year ended December 31, 1995, File No. 0-22258, and incorporated herein by reference). *3.2 Amended and Restated Bylaws of the Company, as amended as of January 23, 1995 (filed as exhibit 3.2 to the Company's annual report on Form 10-K for the year ended December 31, 1994, File No. 0-22258, and incorporated herein by reference). *10.1 Risk Sharing Contract between Empresa Colombiana de Petroleos ("Ecopetrol"), Argosy Energy International ("Argosy") and Neo Energy, Inc. ("Neo") (filed as exhibit 10.1 to the Company's Registration Statement on Form10, File No. 0-22258, and incorporated herein by reference). *10.2 Contract for Exploration and Exploitation of Sector Number 1 of the Aporte Putumayo Area ("Putumayo") between Ecopetrol and Cayman Corporation of Colombia dated July 24, 1972 (filed as exhibit 10.2 to the Company's Registration Statement on Form10, File No. 0-22258, and incorporated herein by reference). *10.3 Operating Agreement for Putumayo between Argosy and Neo dated September 16, 1987 and amended on January 4, 1989 and February 23, 1990 (filed as exhibit 10.3 to the Company's Registration Statement on Form10, File No. 0-22258, and incorporated herein by reference). *10.4 Operating Agreement for the Santana Area ("Santana") between Argosy and Neo dated September 16, 1987 and amended on January 4, 1989, February 23, 1990 and September 28, 1992 (filed as exhibit 10.4 to the Company's Registration Statement on Form10, File No. 0-22258, and incorporated herein by reference). *10.5 Santana Block A Relinquishment dated March 6, 1990 between Ecopetrol, Argosy and Neo (filed as exhibit 10.8 to the Company's Registration Statement on Form10, File No. 0-22258, and incorporated herein by reference). *10.6 Employee Stock Option Plan of the Company (filed as exhibit 10.13 to the Company's Registration Statement on Form10, File No. 0-22258, and incorporated herein by reference). *10.7 Santana Block B 50% relinquishment dated September 13, 1993 between Ecopetrol, Argosy and Neo (filed as exhibit 10.26 to the Company's annual report on Form 10-K for the year ended December 31, 1993, File No. 0-22258, and incorporated herein by reference). *10.8 Aviva Petroleum Inc. 401(k) Retirement Plan effective March 1, 1992 (filed as exhibit 10.29 to the Company's annual report on Form 10-K for the year ended December 31, 1993, File No. 0-22258, and incorporated herein by reference). *10.9 Relinquishment of Putumayo dated December 1, 1993 (filed as exhibit 10.30 to the Company's annual report on Form 10-K for the year ended December 31, 1993, File No. 0-22258, and incorporated herein by reference).
Sequentially Numbered Number Description of Exhibit Page - ------ ---------------------- ----------- *10.10 Deposit Agreement dated September 15, 1994 between the Company and Chemical Shareholder Services Group, Inc. (filed as exhibit 10.29 to the Company's Registration Statement on Form S-1, File No. 33-82072, and incorporated herein by reference). *10.11 Letter from Ecopetrol dated December 28, 1994, accepting relinquishment of Putumayo (filed as exhibit 10.38 to the Company's annual report on Form 10-K for the year ended December 31, 1994, File No. 0-22258, and incorporated herein by reference). *10.12 Amendment to the Incentive and Nonstatutory Stock Option Plan of the Company (filed as exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1995, File No. 0-22258, and incorporated herein by reference). *10.13 Santana Block B 25% relinquishment dated October 2, 1995 (filed as exhibit 10.51 to the Company's annual report on Form 10-K for the year ended December 31, 1995, File No. 0-22258, and incorporated herein by reference). *10.14 Aviva Petroleum Inc. 1995 Stock Option Plan, as amended (filed as Appendix A to the Company's definitive Proxy Statement for the Annual Meeting of Shareholders dated June 10, 1997, and incorporated herein by reference). *10.15 Restated Credit Agreement dated as of October 28, 1998, between Neo Energy, Inc., Aviva Petroleum Inc. and ING (U.S.) Capital Corporation (filed as exhibit 99.1 to the Company's Form 8-K dated October 28, 1998, File No. 0-22258, and incorporated herein by reference). *10.16 Joint Finance and Intercreditor Agreement dated as of October 28, 1998, between Neo Energy, Inc., Aviva Petroleum Inc., ING (U.S.) Capital Corporation, Aviva America, Inc., Aviva Operating Company, Aviva Delaware Inc., Garnet Resources Corporation, Argosy Energy Incorporated, Argosy Energy International, Garnet PNG Corporation, the Overseas Private Investment Corporation, Chase Bank of Texas, N.A. and ING (U.S.) Capital Corporation as collateral agent for the creditors (filed as exhibit 99.2 to the Company's Form 8-K dated October 28, 1998, File No. 0-22258, and incorporated herein by reference). *10.17 Amended and Restated Aviva Petroleum Inc. Severance Benefit Plan dated December 31, 1999 (filed as exhibit 10.18 to the Company's annual report on Form 10-K for the year ended December 31, 1999, File No. 0- 22258, and incorporated herein by reference). *10.18 Santana Crude Sale and Purchase Agreement dated January 3, 2000 (filed as exhibit 10.19 to the Company's annual report on Form 10-K for the year ended December 31, 1999, File No. 0-22258, and incorporated herein by reference). *10.19 Employment Agreement between the Company and Ronald Suttill dated February 1, 2000 (filed as exhibit 10.20 to the Company's annual report on Form 10-K for the year ended December 31, 1999, File No. 0- 22258, and incorporated herein by reference). *10.20 Employment Agreement between the Company and James L. Busby dated February 1, 2000 (filed as exhibit 10.21 to the Company's annual report on Form 10-K for the year ended December 31, 1999, File No. 0- 22258, and incorporated herein by reference). *10.21 Service Agreement between Argosy Energy International and Aviva Overseas, Inc. dated as of June 1, 2000 (filed as exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.22 Letter Agreement dated June 8, 2000 between Crosby Capital, LLC and Aviva America, Inc. (filed as exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0- 22258, and incorporated herein by reference). *10.23 Guaranty dated May 31, 2000 made by Aviva Overseas, Inc. in favor of Crosby Capital, LLC (filed as exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0- 22258, and incorporated herein by reference). *10.24 Assignment and Assumption Agreement dated June 1, 2000, between Crosby Capital, LLC and Neo Energy, Inc. (filed as exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference).
Sequentially Numbered Number Description of Exhibit Page - ------ ---------------------- ---------- *10.25 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Acquisition LLC and Argosy Energy, Inc. (filed as exhibit 10.5 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.26 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Garnet Resources Corp. (filed as exhibit 10.6 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.27 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Aviva Overseas, Inc. (filed as exhibit 10.7 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.28 Assignment and Assumption Agreement dated June 1, 2000 between Argosy Energy, Incorporated and Crosby Acquisition, LLC (filed as exhibit 10.8 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.29 Assignment and Assumption Agreement dated June 1, 2000 between Crosby Capital, LLC and Aviva Overseas, Inc. (filed as exhibit 10.9 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.30 Pledge Agreement dated May 31, 2000 executed by Aviva Overseas, Inc. (Debtor) in favor of Crosby Capital, LLC (Secured Party) (filed as exhibit 10.10 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.31 Third Amendment to Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated May 31, 2000 (filed as exhibit 10.11 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.32 Fourth Amendment to Second Amended and Restated Limited Partnership Agreement of Argosy Energy International dated June 1, 2000 (filed as exhibit 10.12 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). *10.33 Assignment of Stock Warrant Rights dated May 31, 2000 executed by Crosby Capital, LLC in favor of Aviva Petroleum Inc. (filed as exhibit 10.13 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2000, File No. 0-22258, and incorporated herein by reference). **10.34 Assignment of Neo Debt and Collateral, dated December 21, 2000 from Crosby Capital, LLC to Aviva Operating Company. **10.35 Conveyance of Net Profits Interest, dated December 21, 2000 from Aviva America, Inc. to Crosby Capital, LLC. **21.1 List of subsidiaries of Aviva Petroleum Inc.
____________________________ *Previously Filed **Filed Herewith EX-2.4 2 0002.txt CONFIRMED PLAN OF REORG. OF AVIVA AMERICA, INC. EXHIBIT 2.4 Frank L. Broyles State Bar No. 03230500 Paul A. Mohtares State Bar No. 14253600 Goins, Underkofler, Crawford & Langdon 1601 Elm Street Suite 3300 Dallas, Texas 75201 (214) 969-5454 (214) 969-5902 Fax Attorneys for the Debtor as Debtor-in-Possession IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION In re: Aviva America, Inc. Debtor-in-Possession CASE NO.00-34671-bjh-11 Tax ID# 98-0032906 Chapter 11 DEBTOR'S CHAPTER 11 PLAN DATED SEPTEMBER 28, 2000 A. Introduction Aviva America, Inc. agrees to settle all Pre-Petition Claims and administrative claims against it by paying the holders of those claims in accordance with its confirmed Chapter 11 Plan as set forth below. The Chapter 11 Plan incorporates by reference the confirmation order confirming the plan and any amendments to the plan as permitted by law and any Court orders allowing those amendments. B. Definitions This Plan of Reorganization uses terms identified below, which have the meanings and, when applicable, applications as set forth below. Chapter 11 Plan Dated September 28, 2000 Page 1 8/16/00 Administrative Claims - Claims given administrative priority pursuant to the 11 U.S.C. 507(a)(1). Administrative claims include both pre and post confirmation obligations to the United States Trustee. Administrative Claims Deadline - The last day for filing requests for payment of administrative claims or expenses. That date is two (2) weeks after the Effective Date, however, a holder of an unliquidated administrative claim preserves its right to file an administrative claim by filing, before the Administrative Claims Deadline, notice of intent to file administrative claim which includes a good faith estimate of the amount of the claim. The United States Trustee does not have to file administrative claims. Allowed Claim - The amount of a claim that is allowed by the Court. If a proof of claim has been filed and no objection to the proof of claim has been filed by the Effective Date/1/, then the allowed amount of the claim will be the amount as filed. The allowed amount of all other claims will be the amount set forth in the Debtor's Schedules, as they may be amended, unless the Schedules, as they may be amended, list the claim as disputed or unliquidated, does not list any amount, or an objection is filed as to the amount listed. In such cases, the Allowed Claim will be determined by Court order. Amended Proof of Claim Bar Date - The last day for a holder of any prepetition claim to amend any previously filed proof of claim unless the Debtor consents to a later amendment, or the Court otherwise allows. The Amended Proof of Claim Bar Date is the Confirmation Date. In the event that an original proof of claim for an allowed claim is filed after the Amended Proof of Claim Bar Date but before the Bar Date, it cannot be amended without Court order or consent of the Debtor. Bar Date - The last day for a claim holder [other than a holder of an administrative claim] to file an original proof of claim. For all entities other than governmental entities that date is the Effective Date for creditors who were sent notice of the Confirmation Hearing and November 29, 2000 for those creditors who did not receive notice of the Confirmation Hearing prior to that hearing. Claim - "Claim" as defined in the Code, (S) 101(5). Claimant - The holder of a claim against, or equity interest in, the Debtor. Code - The United States Bankruptcy Code [Title 11 of the United States Code] Confirmation Date - The date the order confirming the Plan was entered, unless the confirmation order is timely appealed, in which case the applicable date is the date ______________________________ /1/ Or if a filed objection has been withdrawn Chapter 11 Plan Dated September 28, 2000 Page 2 8/16/00 the Confirmation Order becomes final and not subject to further appeal. If an amended confirmation order is entered, the date the original confirmation order was entered remains the Confirmation Date unless the amended confirmation order states otherwise. Convenience Claims - General unsecured claims whose allowed amount is not greater than $500.00, including claims whose holders voluntarily reduce their claim amount to $500.00. If there is more than one holder of claims arising out of the unsecured claims of a single creditor, the Convenience Claim status will apply only if all holders agree to collectively reduce their total collective claim to $500.00. This amount is subject to approval and change by the Court pursuant to Code section 1122(b). Court - The United States Bankruptcy Court for the Northern District of Texas, Dallas Division. Debtor - Aviva America, Inc., a Delaware Corporation. Effective Date or Effective Date of the Plan - Ten (10) days after the Confirmation Date. Late Filed Claim - Any original proof of claim filed after the Effective Date without leave of Court or consent of the Debtor. Litigation Claims - Claims by plaintiffs or cross-plaintiffs in currently pending litigation. MMS - Minerals Management Service of the United States Department of the Interior. Plan of Reorganization or Plan - Any Debtor's Plan of Reorganization as confirmed by a final original or modified order of the Court. Pre-Petition Claims - Claims, as defined in the Code, existing at the time the Debtor filed its voluntary Chapter 11 petition. Recovery Limitation - the limitations on total payments to holders of Classes 5, 6A and 7. A holder of more than one claim in these Classes (e.g., a holder of a class 6 claim and a class 7 claim) cannot recover in total more than the Recovery Limitation. If an original holder of more than one such claim has transferred one or more of the claims, the transferees and the original holder shall be subject to a single Recovery Limitation. Chapter 11 Plan Dated September 28, 2000 Page 3 8/16/00 Rejection Claim - The unsecured portion of any unexpired lease or rejected executory contract. Reorganized Company or Reorganized Debtor - Aviva America, Inc. on and after the Effective Date. Substantial Consummation of the Plan or Substantial Consummation - This is a Code defined term under Section 1121(b). Under the Plan, Substantial Consummation will occur on the Effective Date. Substantial Consummation has three elements: transfer of all or substantially all of property proposed by plan to be transferred; (2) assumption by debtor or by successor to debtor under plan of business or of management of all or substantially all of property dealt with by plan; and (3) commencement of distribution under plan. The Debtor anticipates that the Plan will be substantially consummated on the Effective Date. Unliquidated Claim - a claim against the Debtor which is not disputed as to liability but as to which the amount is uncertain. A holder of a contingent liability against the Debtor holds an unliquidated claim. C. Classification of Claims and Interests The claims and interests against the Debtor are classified into nine categories, not counting administrative claims. A holder of a given class of claim is a holder of that class of claim whether that person was the original creditor or holds the claim by reason of assignment or other transfer of the claim. A person may be a holder of more than one class of claim. To the extent a person is the holder of more than one class of claim, that person shall vote such classes separately. The debtor or other creditor may object to the claimed amount or classification on a ballot. The failure of the creditor to properly identify the amount or class on his/her/its ballot shall permit the Debtor to make a good faith determination of the amount and classification for voting purposes. In the event that the amount [or classification] of a claim is disputed or unliquidated, for voting purposes the Court, upon evidentiary hearing requested by the debtor or creditor, may estimate the amount of the claim and determine its classification for voting purposes without prejudice to any actual determination of the amount or classification for distribution purposes. Administrative Claims - These are claims for expenses against the Debtor which occurred after the entry of order for relief on July 21, 2000 and which are entitled to priority pursuant to 11 U.S.C. 507(a)(1). Administrative Claims are not entitled to vote. Secured Claims Chapter 11 Plan Dated September 28, 2000 Page 4 8/16/00 Class 1 - Contingent Secured Claim held by Crosby Capital LLC as of the petition date. Priority Unsecured Claims Class 2 - Unsecured claims of the United States pursuant to Section 507(a)(8). Class 3 - Priority Tax Claims held by any State. General Unsecured Claims Class 4 - Convenience Claims - As defined in the definitions section above. Class 5 - Unsecured Claims originally held by and payable to trade vendors and contractors essential to the ongoing business of the Debtor, which trade vendor and contractor claims are identified in the Disclosure Statement as Exhibit 7. That Exhibit is incorporated as part of this Plan. Class 6 - All other unsecured claims except late-filed claims and the Class 1 Deficiency claim. Class 6 includes but is not limited to Rejection Claims and Litigation Claims. Class 6 claims are divided into two subclasses, 6A and 6B. Subclass 6A is comprised of all Class 6 claims other than claims held by Dynegy Midstream Services, Limited Partnership. Subclass 6B are the claims held by Dynegy Midstream Services Limited Partnership, including the claim evidence by Dynegy's proof of claim filed in the amount of $13,468.18 on or about September 12, 2000. Class 7 - Deficiency Claim held by the holder of the Class 1 Secured Claim. Class 8 - Late Filed Claims. Class 9 - Equity Interests in the Debtor. D. Treatment of Claims and Interests Administrative Claims. Allowed Administrative Claims will be paid in full, in cash, on or before the Effective Date or the date the claim is allowed, whichever is later. The Reorganized Debtor will pay all fees of the United States Trustee (whether liability for such fees accrued pre or post confirmation) in accordance with their terms and as they come due and in accordance with 11 U.S.C. Section 1930(a)(6). Chapter 11 Plan Dated September 28, 2000 Page 5 8/16/00 Class 1 - Secured Claim of Crosby Capital LLC. Class 1 is a secured claim held on the petition date by Crosby Capital LLC. This claim will be satisfied in full by transferring to its holder at the time of transfer a one hundred percent equity interest in the Reorganized Debtor. It is anticipated that the equity interest will be transferred within ten days after Aviva Operating or its assignee receives transfer of the claim from Crosby pursuant to the loan settlement agreement. Class 2 - Priority Unsecured Claims of the United States. Holders of Allowed Class 2 Claims will be paid in $5,000 monthly installments until such claims are paid in full, with the first payment being made on or before one month after the Effective Date. The Reorganized Debtor may prepay Class 2 Claims. Class 3 - Priority Tax Claims of any State. Holders of Allowed Class 3 Claims, if any, will be paid in 20 equal quarterly installments beginning on the later of the first day of the calendar quarter following: (i) the Effective Date or (ii) the date the claim is allowed. Reorganized Debtor may prepay Class 3 Claims, at the election of the Reorganized Debtor. Class 4 - Convenience Claims - Holders of Allowed Class 4 Claims will be paid in full, in cash, on or before the one year anniversary of the Confirmation Date. All Convenience Claims will be paid at the same time, and each claimant will be paid by single payment. Class 5 - General Unsecured Claims of Trade Creditors Considered Essential to the Reorganized Business Holders of Allowed Class 5 claims shall receive in full satisfaction of any allowed claim, ten percent of their allowed claim, not to exceed a total payment of $10,000, to be paid in five equal annual installments, or, at the election of the holder made in writing before the Effective Date, a lump sum payment of five percent (not to exceed $5,000) of the Allowed Claim. Annual payments will be made beginning one month after the Effective Date and on each of the following four anniversaries of the first payment. The lump sum payment, if timely elected, will be made on or before the second monthly anniversary of the Effective Date. The payments provided for herein will be in full satisfaction of all obligations to holders of Class 5 claims, and any unexcused failure of the Reorganized Debtor to make such payments shall give the holder only a breach of contract claim for payment of the amounts provided for herein. Chapter 11 Plan Dated September 28, 2000 Page 6 8/16/00 Pursuant to Exhibit 6 attached to the Disclosure Statement Aviva Operating Company, an affiliate of Debtor, has agreed to purchase each Class 5 Claim from its original holder for 95 percent of the Allowed Claim amount and be substituted in as the holder of such Class 5 Claim. This is an election by each creditor or Holder of a Class 5 claim. The election by the Holder must be made on or before the Effective Date. Class 6 - General Unsecured Claims Other than Class 4 and Class 5 Claims. Subclass 6A. Holders of Allowed Class 6A claims shall receive in full satisfaction of any allowed claim, ten percent of their allowed claim, not to exceed a total payment of $10,000, to be paid in five equal annual installments, or, at the election of the holder made in writing before the Effective Date, a lump sum payment of five percent (not to exceed $5,000) of the Allowed Claim. Annual payments will be made beginning one month after the Effective Date and on each of the following four anniversaries of the first payment. The lump sum payment, if timely elected, will be made on or before the second monthly anniversary of the Effective Date. The payments provided for herein will be in full satisfaction of all obligations to holders of Class 6A claims, and any unexcused failure of the reorganized debtor to make such payments shall give the holder only a breach of contract claim for payment of the amounts provided for herein. The claims obtained by Aviva Operating Company or its assignee as a result of the Pogo Settlement are class 6A claims. Subclass 6B. On the Effective Date all of the Debtor's interest in the Yscloskey Plant and related contracts shall be deemed assigned to Dynegy Midstream Services Limited Partnership free and clear of all liens and encumbrances of any holder of a claim against the Debtor and all of Debtor's obligations to Dynegy shall be released, including Debtor's obligations under the proof of claim filed by Dynegy in this case on or about September 12, 2000. The Assignment made to Dynegy herein does not include the suspended revenues being held by Debtor. All these suspended revenues, upon the assignment contemplated by this paragraph, will become the property of the Reorganized Debtor and the assignee will assume the liabilities to the third parties represented by those suspended revenues. Debtor will sign those documents reasonably necessary to evidence the transfer. Class 7 - Deficiency Claim of Holder of Class 1 Secured Claim. The holders of any allowed Class 7 claim shall receive in full satisfaction of any allowed claim, Thirty Thousand and no/oo dollars, to be paid in five equal annual Chapter 11 Plan Dated September 28, 2000 Page 7 8/16/00 installments, or, at the election of the holder made in writing before the Effective Date, a lump sum payment of Fifteen Thousand and no/oo dollars. Annual payments will be made beginning one month after Aviva Operating Company or its designee acquires the Class 7 Claim. The lump sum payment, if timely elected, will be made on or before the second month after Aviva Operating Company or its designee acquires the Class 7 Claim. The payments provided for herein will be in full satisfaction of all obligations to holders of Class 7 claims, and any unexcused failure of the reorganized debtor to make such payments shall give the holder only a breach of contract claim for payment of the amounts provided for herein. Class 8 - Late Filed Claims. All holders of Late Filed Claims as defined shall be paid $1.00 in full satisfaction of their claim amount. Class 9 - Equity Interests in the Debtor. All equity interests of the Debtor shall be transferred to the holder of the Class 1 Claim or its designee. The transfer is anticipated to occur within ten days after Aviva Operating or its designee completes acquisition of the Class 1 Claim from Crosby Capital L.L.C. Interest on Claims Interest on Allowed Claims will not be paid unless required by law, in which case the Holder will be paid interest in accordance with an order allowing claim interest. A Holder who believes he/she/it is entitled to receive interest on his/her/its claim must seek an order by filing, before the Bar Date, a Motion to Allow Interest on Claim. E. Executory Contracts and Unexpired Leases All executory contracts and unexpired leases shown on Exhibit 5 attached to the Disclosure Statement will be assumed on the Effective Date. All other executory contracts and unexpired leases, unless previously assumed pursuant to Court order, are rejected. Any individual or entity holding a Claim based upon the rejection of an executory contract or unexpired lease pursuant to this Article must file a Rejection Proof of Claim with the Bankruptcy Court and send a copy to Debtor's counsel by certified mail, return receipt requested, before the Effective Date. Failure to timely follow this Chapter 11 Plan Dated September 28, 2000 Page 8 8/16/00 procedure is deemed an automatic waiver and relinquishment to the debtor of any such rejection claim. F. Causes of Action The Debtor and the Reorganized Debtor may have claims and causes of action against various entities. To the extent that the Bankruptcy Court has jurisdiction to adjudicate such claims and causes of action, they may be, at Debtor's or Reorganized Debtor's election, adjudicated in the Bankruptcy Court. Other claims and causes of action may be brought in a court or tribunal of appropriate jurisdiction. The Debtor and Reorganized Debtor shall have total discretion in deciding whether or not to bring any claim or cause of action against any third party, and no third party shall have any claim against the Debtor, Reorganized Debtor, or their officers, directors, employees or agents for failure to bring any such third party claim. G. Modifications of the Plan The Debtor may modify the Plan at any time prior to or after Confirmation Date pursuant to the terms of the Code, including Section 1127(b). H. Effects of Confirmation As of the Effective Date, title to all property of the Debtor and the Debtor's estate shall be vested in the Reorganized Company, and such property and the Reorganized Company's operations shall no longer be subject to the jurisdiction of the Bankruptcy Court, except as specifically provided below. As of the Effective Date, all general unsecured pre-petition debts of Debtor, including rejection claims but excluding assumed executory contracts, shall be discharged and replaced by the obligations set forth in the Plan. Except as otherwise expressly provided in the Plan, the confirmation of the Plan discharges the Debtor, as of the Effective Date, from any Claim that arose before the Confirmation Date, and from any liability of a kind specified in Sections 502(g), 502(h) and 502(i) of the Bankruptcy Code, whether or not (1) a proof of claim is filed or deemed filed, (2) such Claim is allowed under Section 502 or (3) the holder of such Claim has accepted the Plan. All obligations to the Debtor and its creditors, and the Bankruptcy Estate by any official committee, any attorney for any official committee, and Debtor's attorneys shall terminate on the Effective Date. All holders of claims, who accept benefits under this Plan of Reorganization, including benefits resulting from assignment and transfer of claims, shall be deemed to Chapter 11 Plan Dated September 28, 2000 Page 9 8/16/00 be doing business in Dallas County Texas for purposes of minimum contacts with the jurisdiction. Any entity or individual who does not want to consent to minimum contracts with the jurisdiction, may assign his, her or its claim to the Reorganized Debtor or Debtor prior to the receipt of any benefits under this Plan and before the holder has otherwise consented to minimum jurisdiction of the jurisdiction. I. Default Under the Plan If Reorganized Debtor defaults under the Plan after Substantial Consummation, then each creditor affected by the Default, in order to preserve its rights under the Plan, must send written notice, certified mail, return receipt requested to the Reorganized Debtor, and its attorneys at the addresses listed herein or at such other changed addresses given pursuant to the change of address provisions provided in this Plan. Such notice must be sent within four (4) months of the default. The notice must specify the nature of the default and the action that the Creditor believes is required to cure the default. The Reorganized Debtor shall have one (1) month to cure the default. In the event that the Reorganized Debtor fails to cure the default, then the Creditor's sole remedy shall be to file a lawsuit for breach of contract in the District Court or County Court at Law for Dallas County, Texas. All obligations breached by the Reorganized Debtor shall be waived by a creditor if the creditor does not timely notify the Reorganized Debtor of the default in accordance with this provision. In the event that a lawsuit is filed pursuant to this provision for breach of contract, the Court may award, in its discretion, attorney's fees and litigation costs to the prevailing party. In the event that the Court cannot determine the prevailing party, it may award, in its discretion, a partial award for attorneys' fees and litigation costs. The Plan shall be interpreted in accordance with the laws of the State of Texas. Except to the extent prohibited by the laws of the State of Texas, all claims for breach of the Plan shall be filed within one year and one day following the breach or be forever barred. J. Change of Address and Transfer of Claims Any entity or individual who is a holder of a claim or interest shall keep the Reorganized Debtor apprised of any change of address or transfer of claim by sending notice of the change of address or transfer of claim certified mail return receipt requested to Aviva America at Debtor's last known address. K. Retention of Jurisdiction The case may be closed at any time after the Confirmation Date and the Confirmation Order may provide that this Case shall be closed on the Effective Date. Chapter 11 Plan Dated September 28, 2000 Page 10 8/16/00 Notwithstanding the Closing of the Case, the Bankruptcy Court, shall retain jurisdiction to hear the following matters: 1. Motion to Reopen the Case for Any Reason; 2. Resolution of claims and claims objections; 3. The correction of any defect or inconsistency in the Plan; 4. Determination of all questions, causes of action, and disputes regarding title to the assets of the Debtor, the Reorganized Company or the estate, or the validity of liens thereon; 5. Interpretation of the Plan, provided however, that a dispute between parties affected by this Plan which is being litigated in another court of competent jurisdiction which requires interpretation of this Plan may be interpreted by that Court for purposes of that dispute. 6. Modification of the Plan after Confirmation 7. Orders necessary to vest or clear record title to any property of the Reorganized Debtor acquired by the Debtor prior to Confirmation. 8. Orders necessary to obtain documents, or the execution of documents, necessary to complete the Plan. 9. Litigation of pre-confirmation claims by the Reorganized Debtor against third parties. L. General Provisions and Obligations of the Reorganized Debtor The Reorganized Company's officers and management shall operate and manage its affairs and business operations during the term of this Plan. The Reorganized Company shall not make any distributions or pay any dividends to shareholders until holders of all allowed Claims have been paid in full. The executive management of the Reorganized Debtor will not be compensated by the Reorganized Debtor, however, the Reorganized Debtor will continue to pay its prorata share of the overhead expenses of the Aviva group. This limitation on compensation shall not be interpreted to prohibit payment of reasonable expenses incurred by the executive management while on business for the Reorganized Debtor. All payments under the Plan shall be evidenced by the Reorganized Company's checks, in customary form, by wire transfers, or by any other commercially acceptable form. M. Miscellaneous Within thirty (30) days following the Effective Date, The Debtor's Charter shall be amended to limit the class of shares to Class A Common, all of which shall have voting rights pursuant to Delaware law. The charter shall not be further amended in controversion of 11 U.S.C. 1123(a)(6) until the Plan has been completed. Chapter 11 Plan Dated September 28, 2000 Page 11 8/16/00 Directors of the Reorganized Debtor shall be elected by the shareholders of the Reorganized Debtor as provided by Delaware law. Officers of the Reorganized Debtor shall be elected by the Board of Directors in accordance with Delaware law. The election of officers and directors shall be made consistent with the interests of the creditors, equity holders, and public policy. In all references herein to any parties, persons, entities or corporations, the use of any particular gender or the plural or singular number is intended to include the appropriate gender or number as the text may require. Payment of Claims pursuant to the Plan shall constitute the full settlement, release, discharge and satisfaction of all claims, if any, against the Debtor, the Reorganized Debtor and their property pursuant to 11 U.S.C. Section 1141. The Debtor reserves the right to modify the Plan post-confirmation in accordance with the 11 U.S.C. Section 1127(b). All notices, requests or demands in connection with this Plan shall be in writing and shall be deemed to have been given when received, or if mailed, five days after the date of mailing, provided such writing shall be sent by registered or certified mail, postage prepaid, return receipt requested, if to a creditor, to the address set forth on the official mailing matrix, and if sent to the Reorganized Company, addressed to: Mr. Ron Suttill Aviva America, Inc. 8235 Douglas Ave. Suite 400 Dallas, Texas 75225 with a copy to: Mr. Barry Cannaday Jenkens & Gilchrist, a professional corporation 1445 Ross Ave. Suite 3200 Dallas, TX 75202 All employments of professional persons and official committees pursuant to Court order during the pendency of this Case shall terminate on the Effective Date. Any further professional responsibility of such professionals shall be a matter of contract between the Reorganized Debtor and the Professional, but neither the Debtor Chapter 11 Plan Dated September 28, 2000 Page 12 8/16/00 nor the Professional shall have any obligation to continue the employment beyond the Effective Date, unless the Court otherwise orders. Fee applications by professionals submitted after the Confirmation Date need not include time for any post-Effective Date activity other than the fee application, unless the Court orders otherwise. The headings used in the Plan are inserted for convenience only and neither constitute a portion of this Plan nor in any manner affect the provisions of the Plan. The definitions in the Plan provide not only definitions, but substantive obligations which are an integral part of the Plan. The rights afforded in the Plan shall be in exchange for and in complete satisfaction, discharge and release of all Claims of any nature against the Debtor, the Reorganized Debtor, or any of their assets or properties; and all claimants shall be precluded from asserting claims against the Reorganized Company, or the Reorganized Debtor's assets or properties any other or further Claim based upon any act or omission, transaction or other activity of any kind or nature that occurred prior to the Confirmation Date. All distributions mailed by the Reorganized Debtor to any holder of any claim at the holder's last known address shall become property of the Reorganized Debtor if such distributions are returned by the post office as unclaimed or addressee unknown. Any claim holder who claims that the reason for the return was due to an error of some entity other than the Claim Holder shall be barred from filing any lawsuit with respect to such returned distribution after the first annual anniversary of the first returned distribution. The burden of proof that a distribution was not properly mailed shall be on the holder of the claim. All parties to this Plan, which includes persons and entities who hold Claims which have been modified, assumed, or otherwise affected by the Plan, shall be obligated to execute such additional documents reasonably necessary to effect the Plan (e.g. an assignment of an interest or release affecting title) and Debtor or any other party may enforce this obligation in the United States Bankruptcy Court. The Reorganized Debtor shall be entitled to an order closing the bankruptcy case at any time on or after Substantial Consummation. Confirmation of this Plan is conditioned on the Court's entering a final, non-appealable order approving the Pogo Settlement and the Debtor will not seek Plan confirmation until the Pogo Settlement has been finally approved by the Bankruptcy Court. Signed as of this 28/th/ day of September 2000. Chapter 11 Plan Dated September 28, 2000 Page 13 8/16/00 AVIVA AMERICA, INC. [Debtor and Debtor-in-Possession] by /s/ James L. Busby ---------------------------------- James L. "Jay" Busby, its Vice-President Chapter 11 Plan Dated September 28, 2000 Page 14 8/16/00 EX-10.34 3 0003.txt ASSIGNMENT OF NEO DEBT AND COLLATERAL EXHIBIT 10.34 ASSIGNMENT OF NEO DEBT AND COLLATERAL This Assignment of Neo Debt and Collateral (this "Assignment") is made as of the 21/st/ day of December, 2000 by and between Crosby Capital LLC, a Texas limited liability company ("Assignor"), and Aviva Operating Company, a Delaware corporation ("Assignee"). RECITALS -------- WHEREAS, Assignor, Aviva Petroleum Inc. ("Parent"), Assignee and certain other parties entered into a Loan, Settlement and Acquisition Agreement dated as of the 31/st/ day of May, 2000 (the "LSAA"); WHEREAS, terms not otherwise defined herein shall have the meanings assigned to those terms in the LSAA; WHEREAS, under the provisions of Section 3.01(b) of the LSAA, Assignor granted to Parent the option to acquire all of Assignor's right, title and interest in and to the Neo Debt and Collateral (the "Option") in consideration for the assignment to Assignor of the NPI pursuant to the form of Net Profits Agreement attached as Exhibit B to the LSAA with Aviva America's obligations under the Net Profits Agreement being secured by the form of Mortgage attached as Exhibit C to the LSAA; WHEREAS, Parent exercised the Option on November 17, 2000 and provided notice to Assignor that the assignment of the Neo Debt and Collateral pursuant to the provisions of Section 3.01(b)(iv) was to be made to Assignee, as Parent's designee; WHEREAS, Assignor is executing this Assignment to convey to Assignee all Assignor's right, title and interest in and to the Neo Debt and Collateral under the Loan Documents subject to the provisions of Section 3.01(b)(iv) of the LSAA. NOW, THEREFORE, in consideration of the promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows: 1. Assignment of Neo Debt and Collateral. Assignor hereby conveys, ------------------------------------- transfers, assigns, grants, sells and delivers, to Assignee, and Assignee acquires, accepts and purchases, all of Assignor's right, title and interest in and to the Neo Debt and the Collateral under the Loan Documents; provided that immediately prior to the transfer of the Neo Debt and Collateral under the Loan Documents hereunder to Assignee, Assignor has released all security interests and Liens under the Loan Documents in (a) the Partnership Interest and assets of Argosy International and (b) the NPI being assigned contemporaneously herewith to Assignor. 2. Delivery of ING Note and Collateral. Contemporaneously herewith, ----------------------------------- Assignor is delivering to Assignee (a) an Affidavit of Lost Amended and Restated Promissory Note and (b) the original stock certificates in Assignor's possession evidencing the ownership of the following entities, together with irrevocable stock powers endorsed to Assignee: Aviva America, Inc.; Aviva Delaware, Inc.; Aviva Operating Company; Aviva Merger, Inc.; Aviva Energy Inc.; London & Aberdeen, Inc.; Neo Energy, Inc.; Southwest Texas Salt Water Disposal Company; Garnet Pakistan Corporation; Garnet P&G Corporation; Garnet Spain Corporation; Garnet Resources Corporation; Garnet Resources Canada Ltd.; Garnet Turkey Corporation; and Garnet Sulfur Company. 3. Representations of Assignor. Assignor represents and warrants that it --------------------------- is the legal and beneficial owner of, and has good right, title and interest in and to the Amended and Restated Neo Note being assigned, sold and transferred by it to Assignee hereunder and that such right, title and interest is free and clear of any lien, security interest, pledge, claim, charge, encumbrance or adverse claim, other than as provided by the Loan Documents. Assignor represents that it is the legal and beneficial owner of, and has the right, title and interest in and to the Loan Documents, as transferred to it by ING (U.S.) Capital LLC, a Delaware limited liability company ("ING"), and the Overseas Private Investment Corporation, an agency of the United States of America ("OPIC"), pursuant to the Loan and Equity Sale Agreement, dated as of April 13, 2000 (the "Loan Sale Agreement"), by and among Assignor, ING and OPIC. The Loan Documents are free and clear of any lien, security interest, pledge, claim, charge, encumbrance or adverse claim, other than as provided therein or in the Loan Sale Agreement. Such assignment and transfer of the Neo Debt and Collateral shall be made without representation or warranty other than in this Section 3. Without limitation of the foregoing disclaimer, except as set forth in this Section 3, Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made by any person in connection with the Amended and Restated Neo Note and the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Amended and Restated Neo Note and the Loan Documents; and Assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Related Person (as defined in the Loan Documents) or the performance or observance by any Related Person of any of its Obligations (as defined in the Loan Documents). 4. Assumption. Assignee hereby assumes the liabilities and obligations ---------- of Assignor under the Loan Documents. 5. Further Assurances. Assignor shall execute and deliver to Assignee ------------------ such further documents and instruments, and take such other action, that may be reasonably requested by Assignee to evidence this Assignment of Neo Debt and Collateral hereunder including, without limitation, the execution of any and all UCC-3 financing statement assignments and any other documents or instruments that may be necessary, desirable or appropriate to evidence the consummation of the transactions contemplated hereby. Assignor agrees to execute any such additional documents or instruments within five (5) business days after receipt of any request to do so from Assignee. In addition, Assignor agrees to cooperate with Assignee in attempting to provide any information in Assignor's possession regarding the Loan Documents not previously provided to Assignee upon Assignee's reasonable request therefore. 6. Inurement. This Assignment shall be effective as of the date hereof --------- and shall inure to the benefit of and be binding upon the parties hereto and their successors and assigns. However nothing in this Assignment, express or implied, shall give any other person any benefit or any other legal or equitable right or remedy with respect to hereto. 7. Counterparts. This Assignment may be executed in counterparts, each ------------ of which when so executed shall be deemed to constitute one in the same Assignment. Such execution and delivery may be accomplished by facsimile transmission. IN WITNESS WHEREOF, each of the undersigned has caused this Assignment to be executed as of the day and year first written above. Witnesses: Crosby Capital, LLC /s/ Stanton Eigenbrodt By: /s/ Jay A. Chaffee, - -------------------------------- ------------------------------- Jay A. Chaffee, President /s/ Sam A. Mills - -------------------------------- Witnesses: Aviva Operating Company /s/ Barry Cannaday By: /s/ R. Suttill - -------------------------------- ------------------------------- Ronald Suttill, /s/ F. Broyles President - -------------------------------- STATE OF TEXAS (S) (S) COUNTY OF DALLAS (S) On this 21st day of December, 2000, before me appeared Jay A. Chaffee, to me personally known, who being by me duly sworn did say that he is President of Crosby Capital, LLC, and that the instrument was signed on behalf of the same, by authority of its Board of Directors or other governing body and that he acknowledged the instrument to be the free act and deed of said limited liability company. This instrument was acknowledged before me on the 21st day of December, 2000, by Jay A. Chaffee, the President of Crosby Capital, LLC. /s/ Gwendalyn Anne Davis ------------------------------------------- Notary Public in and for the State of Texas [STAMP OF GWENDALYN ANNE DAVIS] My commission expires: 8-28-01 - ---------------------- STATE OF TEXAS (S) (S) COUNTY OF DALLAS (S) On this 21st day of December, 2000, before me appeared Ronald Suttill, to me personally known, who being by me duly sworn did say that he is President of Aviva Operating Company, and that the instrument was signed on behalf of the same, by authority of its Board of Directors and that he acknowledged the instrument to be the free act and deed of said corporation. This instrument was acknowledged before me on the 21st day of December, 2000, by Ronald Suttill, the President of Aviva America Inc. /s/ Gwendalyn Anne Davis ------------------------------------------- Notary Public in and for the State of Texas [STAMP OF GWENDALYN ANNE DAVIS] My commission expires: 08-28-01 - ---------------------- EX-10.35 4 0004.txt CONVEYANCE OF NET PROFITS INTEREST EXHIBIT 10.35 CONVEYANCE OF NET PROFITS INTEREST THIS CONVEYANCE of Net Profits Interest (this "Conveyance") executed as of the 21st day of December, 2000, from Aviva America, Inc., a Texas corporation ("Assignor") to Crosby Capital, LLC, a Texas limited liability company ("Assignee"), is made upon and subject to the following terms and conditions. For purposes of this Conveyance, except as otherwise expressly provided or as the context otherwise requires, the terms defined in this paragraph have the meanings herein assigned to them, and the capitalized terms defined in the opening paragraph of this Conveyance and subsequent paragraphs by inclusion in quotation marks and parentheses have the meanings so ascribed to them: "Abandonment Fund Payments" means payments actually made by Assignor which are deposited in a segregated, special purpose account set up for the purpose of providing available funds to pay the costs to be incurred by Assignor in (a) plugging and abandoning New Wells, net of estimated salvage value of equipment used for or made a part thereof; and (b) dismantling, removing and salvaging gathering systems, pipelines, platforms and production facilities installed or constructed in connection with the drilling, operation or maintenance of the New Wells, net of estimated salvage value thereof. "Costs" for any month means, on a cash basis, the amount actually paid by Assignor for its working interest share of the sum of the following costs (to the extent they are not deducted for purposes of calculating Gross Proceeds), insofar as they are attributable to the New Wells, in accordance with generally accepted accounting principles, and whether capital or non-capital in nature: (a) all costs and expenses of any kind whatsoever, including, but not limited to, amounts paid to third party operator as COPAS overhead charges (but specifically excluding Assignor's general administrative and overhead costs), incurred in connection with (1) the exploration, drilling, equipping, development, operation or maintenance of the New Wells for the production of the Subject Minerals, and (2) the lifting, handling, gathering, producing, treating, storing, marketing or transporting of the Subject Minerals from the New Wells; (b) Excess Costs for the preceding month (including Excess Costs carried forward from any preceding month subsequent to the Effective Date); (c) Abandonment Fund Payments; (d) interest on the amount of Excess Costs at the beginning of any month at the rate of one percentage point over the Prime Interest Rate in effect at the beginning of such month (but not to exceed the maximum rate of interest permitted to be collected under applicable law); and (e) Tax Payments; provided, that if Assignor's interest in a New Well is an overriding royalty interest, then the only Cost that may be deducted in determining Net Proceeds and Assignee's Net Profits Interest is Tax Payments. "Effective Date" means 7:00 o'clock a.m., local time in effect at the location of the lands covered by the Leases, on the 17/th/ day of November, 2000. "Excess Costs" for each month subsequent to the Effective Date means the excess, if any, of Costs over Gross Proceeds. "Gross Proceeds" for any month means the amounts actually received during such month by Assignor as revenues from the sale of the Subject Minerals attributable to Assignor's interest (whether characterized as a working interest, overriding royalty interest or other interest) in the New Wells, including amounts received by Assignor as payments from a Purchaser with respect to the Subject Minerals pursuant to contractual provisions providing for "take- or-pay" payments, subject to the following: (a) There shall be excluded from Gross Proceeds any royalty, overriding royalty, production payments or other burdens on production which are borne by or payable out of production from the New Wells and which were created before the Effective Date. (b) There shall be included in Gross Proceeds, at the time of complete abandonment of all the New Wells, the excess, if any, of the total Abandonment Fund Payments over the total of actual abandonment costs paid. "Leases" means the oil, gas and mineral leases described in Exhibit A attached hereto and made a part hereof. "Net Proceeds" for any month subsequent to the Effective Date means the excess, if any, of Gross Proceeds over Costs. "Net Profits Interest" means an undivided 15% interest in and to the Net Proceeds from the New Wells. "New Wells" means all wells drilled or completed on or after the Effective Date on lands covered by the Leases listed on Exhibit A hereto or on lands pooled or unitized therewith. "Person" means any individual, corporation, partnership, trust, estate or other entity or organization. "Prime Interest Rate" means the interest rate per annum published by the Wall Street Journal on ninety day loans. "Purchaser" means a purchaser of the Subject Minerals, or a portion thereof. "Sales Contracts" means all contracts or agreements for the offer or sale of, or commitment to offer or sell, or right of first refusal to purchase the Subject Minerals. "Subject Minerals" means all oil, gas and all other minerals, whether similar or dissimilar, in and under, and which may be produced, saved and sold from, and which shall accrue and be attributable to, the New Wells from and after the Effective Date. 2 "Tax Payments" means, for any month, the amount of severance, production, gross production, ad valorem and other taxes (other than income or occupation taxes) actually paid by Assignor with respect to Assignor's interest in the New Wells (determined as if Assignor's ownership interest in the New Wells was free and clear of the Net Profits Interest conveyed hereunder). W I T N E S S E T H: - - - - - - - - - - NET PROFITS INTEREST CONVEYANCE ------------------------------- WHEREAS, Assignor desires to assign to Assignee the Net Profits Interest, NOW, THEREFORE, Article I Conveyance and Reservation -------------------------- 1.1 Conveyance and Reservation. Assignor, for valuable consideration, the -------------------------- receipt and sufficiency of which are hereby acknowledged, by these presents does, effective as of the Effective Date, bargain, sell, grant, convey, transfer, assign, set over and deliver unto Assignee, the Net Profits Interest. TO HAVE AND TO HOLD the Net Profits Interest unto Assignee, its successors and assigns forever. Article II Marketing of Subject Minerals ----------------------------- 2.1 Protection to Purchasers of Production. Any Person purchasing or -------------------------------------- taking or processing any Subject Minerals is authorized and directed to remit directly to Assignor the proceeds of the sale or other disposition of such Subject Minerals and shall have no liability to Assignee for any such proceeds so remitted. 2.2 Sales Contracts. Assignor shall use all reasonable efforts to market --------------- and sell, or cause to be marketed and sold, all commercial quantities of Subject Minerals. For such purposes, sales of Subject Minerals may continue to be made by Assignor pursuant to any existing Sales Contracts. Assignor may amend any existing Sales Contracts and may enter into one or more Sales Contracts in the future at the best prices and on the best terms Assignor shall deem reasonably obtainable in the circumstances. 2.3 Reliance by Third Party. As to any party to a Sales Contract, the ----------------------- acts of Assignor shall be binding upon Assignee. Article III Records and Statements ---------------------- 3.1 Books and Records. Assignor shall at all times maintain true and ----------------- correct books and records sufficient to determine the amounts payable to Assignee from the Net Profits Interest. 3.2 Inspections. The books and records referred to in Section 3.1 shall ----------- be open for inspection by Assignee upon reasonable notice at the office of Assignor during normal business hours. 3 3.3 Annual Statements. Within ninety (90) days next following the close ----------------- of each calendar year, Assignor shall deliver to Assignee a statement showing, in reasonable detail, the computation of Net Proceeds attributable to such year. Article IV Application of Net Proceeds --------------------------- Assignor shall pay to Assignee, on or before the 25th day of each month, an amount equal to the Net Proceeds which are attributable to the Net Profits Interest for the preceding month. Article V Non-liability of Assignee ------------------------- In no event shall Assignee be liable or responsible in any way for any Costs or other costs or liabilities incurred by Assignor or other lessees attributable to the New Wells or to the Subject Minerals. Article VI Operation of New Wells ---------------------- Assignee agrees that Assignor shall have no obligation, express or implied to drill any New Wells or to participate in the drilling of any New Wells on the Leases. In the event that any New Wells are drilled on the Leases, Assignor agrees that it will conduct and carry on the development, maintenance and operation of any New Wells with reasonable and prudent business judgment and in accordance with sound oil and gas field practices, but Assignor shall have no liability to Assignee for losses sustained or liabilities incurred, except such as may result from its gross negligence or willful misconduct. Nothing contained in this Article VI shall be deemed to prevent or restrict Assignor from electing not to participate in any operation that is to be conducted under the terms of any operating agreement, unit operating agreement, contract for development or similar instrument affecting or pertaining to the Leases (or any portion thereof) and allowing consenting parties to conduct nonconsent operations thereon free and clear of Assignee's Net Profits Interest. Article VII Pooling and Unitization ----------------------- 7.1 Right to Pool. Assignor shall have the right and power to pool or ------------- unitize any of the Leases and to alter, change, amend or terminate any pooling or unitization agreements heretofore or hereafter entered into, as to all or any part of the lands covered by the Leases, as to any one or more of the formations or horizons thereunder, and as to any Subject Minerals, upon such terms and provisions as Assignor shall in its sole discretion determine. If and whenever through the exercise of such right and power, or pursuant to any law hereafter enacted or any rule, regulation or order of any governmental body or official hereafter promulgated, any of the Leases are pooled or unitized in any manner, the Net Profits Interest, insofar as it burdens such Leases, shall also be pooled and unitized, and if a New Well is drilled on such Lease or lands pooled or unitized therewith, then in such event, the Net Profits Interest shall apply to and affect only the production that accrues to Assignor's interest in the New Well under and by virtue of pooling and unitization. 4 Article VIII Government Regulation --------------------- All obligations of Assignor hereunder shall be subject to all applicable state or federal statutes purporting to regulate the production or sale of the Subject Minerals and all applicable laws, orders, rules and regulations of any state or federal legislative or governmental body, agency, board or commission having jurisdiction. Article IX Abandonment of Properties ------------------------- Nothing herein contained shall obligate Assignor to operate or continue to operate any New Well or to operate or maintain in force or attempt to maintain in force any of the Leases when, in Assignor's opinion, such New Well or Lease ceases to produce or is not capable of producing oil, gas or other minerals in commercial quantities. Article X Assignments ----------- 10.1 Assignment by Assignor. Assignor shall have the right to assign, ---------------------- sell, transfer, convey, mortgage or pledge its interest in any New Wells, or any part thereof, subject to the Net Profits Interest and the terms and provisions of this Conveyance. However, no such action will affect the method of computing Net Proceeds or Assignee's unencumbered right to receive Net Proceeds. 10.2 Farmout by Assignor. Assignor shall have the right to farmout its ------------------- interest in the Leases or any part thereof for the purpose of causing a New Well to be drilled on the Leases or lands pooled or unitized therewith. In the event of such a farmout, the farmee shall acquire Assignor's interest in the Leases free and clear of the Net Profits Interest, but the Net Profits Interest shall burden any overriding royalty interest, working interest or reversionary interest retained by Assignor under the terms of such farmout. 10.3 Assignment by Assignee. Assignee shall have the right to assign, ---------------------- sell, transfer, convey, mortgage or pledge the Net Profits Interest, or any part thereof, subject to the terms and provisions of this Conveyance. However, no such action will affect the method of computing Net Proceeds. 10.4 Change in Ownership. No change of ownership or right to receive ------------------- payment of the Net Profits Interest, or of any part thereof, however accomplished, shall be binding upon Assignor until notice thereof shall have been furnished by the Person claiming the benefit thereof, and then only with respect to payments thereafter made. Notice of sale or assignment shall consist of furnishing a certified copy of the recorded instrument or instruments accomplishing the same, or in such other manner as may be reasonably required by Assignor. Until such notice shall have been furnished Assignor as above provided, the payment or tender of all sums payable on the Net Profits Interest may be made in the manner provided herein precisely as if no such change in interest ownership or right to receive payment has occurred. The kind of notice herein provided shall be exclusive, and no other kind, whether actual or constructive, shall be binding on Assignor. 5 PART II MISCELLANEOUS PROVISIONS APPLICABLE TO -------------------------------------- PARTS I, II AND III ------------------- 1. Further Assurances. Should any additional instruments of assignment ------------------ and conveyance be required to more fully effectuate the Conveyance hereunder or to describe more specifically any interests subject thereto, Assignor agrees to execute and deliver the same. 2. Aviva Operating Company. To the extent that Aviva Operating Company, ----------------------- a Delaware Corporation, which has a mailing address at 8235 Douglas Avenue, Suite 400, Dallas, TX 75225 ("Aviva Operating"), currently has any rights in or claim to the Net Profits Interest conveyed hereby, by virtue of that certain Conveyance of Net Profits Interest dated June 30, 2000 from Aviva America, Inc. to Aviva Operating and recorded in Plaquemines Parish, Louisiana at C.O.B. No. 977, Folio 50 (the "Prior NPI Conveyance"), but subject to the bankruptcy reorganization plan of Aviva America, Inc. as confirmed by order of the Bankruptcy Court for the Northern District of Texas, Dallas Division, dated November 6, 2000, Aviva Operating hereby assigns, grants, sets over, transfers, confirms and delivers to Assignee all of its right, title and interest in the Net Profits Interest, and warrants that it has not previously assigned, granted, set over, transferred, confirmed, delivered or encumbered in any way its interest, if any, in the Net Profits Interest. By its acceptance of this Conveyance, Assignee acknowledges and agrees that it is the intent of the parties to this Conveyance that only one conveyance of the Net Profits Interest be made to Assignee hereunder. Accordingly, in the event that it is determined that the Prior NPI Conveyance is valid and enforceable notwithstanding the Aviva America Inc. bankruptcy, then the conveyance of the Net Profits Interest from Assignor to Assignee hereunder shall be of no force and effect and instead the assignment of the Net Profits Interest from Aviva Operating to Assignee under this paragraph shall operate to transfer the Net Profits Interest to Assignee. 3. Notices. All notices, statements, payments and communications between ------- the parties hereto shall be deemed to have been sufficiently given and delivered if enclosed in a postpaid wrapper deposited in the United States Mails, addressed to the following address, or at such other address, as the party to be addressed shall have designated by written notice to the party giving such notice or furnishing such statement, payment or communication: Address for Assignor: -------------------- Aviva America, Inc. 8235 Douglas Avenue Suite 400 Dallas, Texas 75225 Facsimile No. (214) 691-6151 ATTN: Ronald Suttill 6 Address for Assignee: with copies to: -------------------- -------------- Crosby Capital, LLC Gibson, Dunn & Crutcher LLP c/o Bunker Hill Associates, Inc. 2100 McKinney, Suite 2100 712 Main Street, Suite 1700 Dallas, TX 75201 Houston, TX 77002 ATTN: Michael Rosenthal ATTN: Jay A. Chaffee Facsimile No. (214) 698-3400 Facsimile No. (713) 223-5379 4. Successors and Assigns. The Conveyances herein, and each and every ---------------------- provision thereof, shall be binding upon and shall inure to the benefit of the parties, their respective successors, successors-in-title, heirs and assigns. 5. No Waiver. The failure of any party to insist, upon strict --------- performance of a covenant hereunder or of any obligation hereunder, irrespective of the length of time for which such failure continues, shall not be a waiver of such party's right to demand strict compliance in the future. No consent or waiver, express or implied, to or of any breach or default in the performance of any obligation hereunder shall constitute a consent or waiver to or of any other breach or default in the performance of the same or any other obligation hereunder. 6. Captions, Number and Gender. Titles or captions of Articles or --------------------------- Sections contained in the Conveyance are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Conveyance or the intent of any provision hereof. The plural and singular numbers shall, where appropriate, include the singular and plural, respectively, and words of any gender shall, where appropriate, include each other gender. 7. Applicable Law. The Conveyances herein and the rights and obligations -------------- of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of Texas, except as to real property matters which are required to be governed by the respective laws of the jurisdictions in which the Subject Interests are located. 8. Warranties. Except as expressly set forth herein, the Conveyances ---------- herein are being made without warranty of title, either express or implied. 7 IN WITNESS WHEREOF, Assignor has caused these Conveyances to be duly executed on the date first above written, but to be effective as of the 17th day of November, 2000. AVIVA AMERICA, INC. Witnesses: /s/ Barry Cannaday By /s/ R. Suttill - ----------------------------- -------------------------------- /s/ F. Broyles Ronald Suttill, President - ----------------------------- AVIVA OPERATING COMPANY Witnesses: /s/ Barry Cannaday By /s/ R. Suttill - ----------------------------- -------------------------------- Ronald Suttill, President /s/ F. Broyles - ----------------------------- CROSBY CAPITAL, LLC Witnesses: /s/ Stanton Eigenbrodt By /s/ Jay A. Chaffee - ----------------------------- -------------------------------- Jay A. Chaffee, President /s/ Sam A. Mills - ----------------------------- 8 STATE OF TEXAS (S) (S) COUNTY OF DALLAS (S) On this 21st day of December, 2000, before me appeared Ronald Suttill, to me personally known, who being by me duly sworn did say that he is the President of Aviva America, Inc., and that the instrument was signed on behalf of same, by authority of its Board of Directors and that he acknowledged the instrument to be the free act and deed of said corporation. This instrument was acknowledged before me on the 21st day of December, 2000, by Ronald Suttill, the President of Aviva America, Inc. /s/ Gwendalyn Anne Davis ------------------------------------------- Notary Public in and for the State of Texas [STAMP OF GWENDALYN ANNE DAVIS] My Commission Expires: 08-28-01 - --------------------- STATE OF TEXAS (S) (S) COUNTY OF DALLAS (S) On this 21st day of December, 2000, before me appeared Ronald Suttill, to me personally known, who being by me duly sworn did say that he is the President of Aviva Operating Company, and that the instrument was signed on behalf of same, by authority of its Board of Directors and that he acknowledged the instrument to be the free act and deed of said corporation. This instrument was acknowledged before me on the 21st day of December, 2000, by Ronald Suttill, the President of Aviva Operating Company. /s/ Gwendalyn Anne Davis ------------------------------------------- Notary Public in and for the State of Texas [STAMP OF GWENDALYLN ANNE DAVIS] My Commission Expires: 08-28-01 - ---------------------- 9 STATE OF TEXAS (S) (S) COUNTY OF DALLAS (S) On this 21st day of December, 2000, before me appeared Jay A. Chaffee, to me personally known, who being by me duly sworn did say that he is the President of Crosby Capital, LLC, and that the instrument was signed on behalf of same, by authority of its Board of Directors and that he acknowledged the instrument to be the free act and deed of said corporation. This instrument was acknowledged before me on the 21/st/ day of December, 2000, by Jay A. Chaffee, the President of Crosby Capital, LLC, /s/ Gwendalyn Anne Davis ------------------------------------------- Notary Public in and for the State of Texas [STAMP OF GWENDALYN ANNE DAVIS] My Commission Expires: 08-28-01 - ---------------------- 10 EXHIBIT "A" LEASE DESCRIPTIONS ------------------ 1. Oil, Gas and Mineral Lease known as State Lease No. 4865 dated December 12, ----- ----- --- ---- 1966, executed by the State Mineral Board on behalf of the State of Louisiana, in favor of Davis Oil Company, recorded in Conveyance Book 307, Folio 1035, under Entry No. 204, of the records of Plaquemines Parish, Louisiana, being a portion of Tract No. 10141 of Block 31, Breton Sound Area, as more fully described in said lease. 2. Oil, Gas and Mineral Lease known as State Lease No. 4407, dated October 22, ----- ----- --- ---- 1964, executed by the State Mineral Board on behalf of the State of Louisiana, in favor of Ocean Drilling & Exploration Company, et al., recorded in Conveyance Book 281, Folio 687, of the records of Plaquemines Parish, Louisiana, being a portion of Tract No. 9253 of Block 31, Breton Sound Area, as more fully described in said lease. 3. Oil, Gas and Mineral Lease known as State Lease No. 5049, dated February ----- ----- --- ---- 19, 1968, executed by the State Mineral Board on behalf of the State of Louisiana, in favor of Louis D. Curet, recorded in Conveyance Book 322, Folio 509, under Entry No. 113, of the records of Plaquemines Parish, Louisiana, being a portion of Tract No. 10604 of Block 34, Breton Sound Area, as more fully described in said lease. 4. Oil, Gas and Mineral Lease known as State Lease No. 4458, dated January 18, ----- ----- --- ---- 1965, executed by the State Mineral Board on behalf of the State of Louisiana, in favor of Ocean Drilling & Exploration Company, et al., recorded in Conveyance Book 284, Folio 639, under Entry No. 155, of the records of Plaquemines Parish, Louisiana, being a portion of Tract No. 9355 of Block 34, Breton Sound Area, as more fully described in said lease. 11 EX-21.1 5 0005.txt SUBSIDIARIES OF AVIVA PETROLEUM INC. EXHIBIT 21.1 Subsidiaries of Aviva Petroleum Inc. Place of Company Incorporation - ------- ------------- Aviva Operating Company Nevada Aviva America, Inc. Delaware Neo Energy, Inc. Texas Aviva Delaware Inc. Delaware Aviva Overseas Inc. Delaware Aviva Acquisitions Company Delaware Garnet Resources Corporation Delaware Garnet Pakistan Corporation Delaware Garnet Spain Corporation Delaware Garnet Turkey Corporation Delaware Garnet PNG Corporation Delaware Garnet Energy Inc. Delaware Argosy Petroleum Company, SA Colombia, South America Garnet Resources Canada Ltd. British Columbia -----END PRIVACY-ENHANCED MESSAGE-----