-----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, Ne2Rho8LZ7KKhmFRnjPhUFgXGtv8JbMzHtBkipIn31ytVSe1bT4rfXzvZQ9Y41yr xv+3sRJZyuLbArfwSX4ZPg== 0000950134-96-004368.txt : 19960816 0000950134-96-004368.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950134-96-004368 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DLB OIL & GAS INC CENTRAL INDEX KEY: 0000945982 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731358299 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26484 FILM NUMBER: 96615140 BUSINESS ADDRESS: STREET 1: 1601 NORTHWEST EXPRESSWAY STREET 2: STE 700 CITY: OKLAHOMA CITY STATE: OK ZIP: 73118 BUSINESS PHONE: 4058488808 MAIL ADDRESS: STREET 1: 100 N BROADWAY STREET 2: 20TH FLOOR CITY: OKLAHOMA CITY STATE: OK ZIP: 73102 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No 0-26484 DLB OIL & GAS, INC. (Exact name of registrant as specified in its charter) OKLAHOMA 73-1358299 (State or other jurisdiction of (IRS Employer Identification No.) incorporation of organization) 1601 NORTHWEST EXPRESSWAY, SUITE 700 OKLAHOMA CITY, OKLAHOMA 73118-1401 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (405) 848-8808 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 report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of Registrant's common stock, $.001 par value, as of July 31, 1996 was 12,975,000. 2 DLB OIL & GAS, INC. TABLE OF CONTENTS FORM 10-Q QUARTERLY REPORT PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets June 30, 1996 (Unaudited) and December 31, 1995 3 Consolidated Statements of Operations (Unaudited) For the Three Months Ended June 30, 1996 and 1995 and Six Months Ended June 30, 1996 and 1995 4 Statements of Consolidated Shareholders' Equity As of June 30, 1996 (Unaudited) and December 31, 1995 and 1994 5 Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 30, 1996 and June 30, 1995 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 21
2 3 PART I. FINANCIAL INFORMATION Item 1. DLB OIL & GAS, INC. CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1996 1995 ------------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 3,962,000 $ 14,313,000 Marketable securities - cost which approximates market value (Note 4) 3,680,000 -- Accounts receivable 6,741,000 4,850,000 Prepaid expenses 399,000 324,000 ------------- ------------- Total current assets 14,782,000 19,487,000 ------------- ------------- Property and equipment - at cost, based on the full cost method of accounting for oil and natural gas properties (Note 5): Oil and natural gas properties subject to amortization 98,352,000 62,275,000 Oil and natural gas properties not subject to amortization 13,972,000 10,037,000 Natural gas processing plants and gathering systems 1,173,000 3,094,000 Saltwater disposal system 1,119,000 1,119,000 Other property and equipment 1,101,000 948,000 ------------- ------------- 115,717,000 77,473,000 Accumulated depreciation, depletion and amortization (21,930,000) (18,812,000) ------------- ------------- 93,787,000 58,661,000 ------------- ------------- Other assets 50,000 59,000 ------------- ------------- Total assets $ 108,619,000 $ 78,207,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 3,561,000 $ 3,853,000 Revenue and royalty distributions payable 460,000 1,527,000 Drilling advances and other liabilities 39,000 190,000 Accrued liabilities 168,000 193,000 ------------- ------------- Total current liabilities 4,228,000 5,763,000 ------------- ------------- Long-term debt 30,000,000 -- Deferred income tax liability (Note 6) 13,703,000 12,900,000 Shareholders' equity (Note 7): Preferred stock, 5,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, 130,000,000 shares authorized; 13,000,000 shares issued; 12,975,000 and 13,000,000 outstanding at June 30, 1996 and December 31, 1995, respectively 13,000 13,000 Additional paid in capital 57,910,000 57,910,000 Retained earnings 2,946,000 1,621,000 Treasury stock (25,000 shares at June 30, 1996, at cost) (181,000) -- ------------- ------------- Total shareholders' equity 60,688,000 59,544,000 ------------- ------------- Total liabilities and shareholders' equity $ 108,619,000 $ 78,207,000 ============= =============
See accompanying notes to consolidated financial statements 3 4 DLB OIL & GAS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Revenues: Oil and natural gas sales $ 5,515,000 $ 4,859,000 $ 9,996,000 $ 9,100,000 Natural gas gathering, processing and transportation, net 313,000 1,124,000 390,000 1,787,000 Interest 79,000 24,000 263,000 50,000 Other 17,000 4,000 29,000 343,000 ------------ ------------ ------------ ------------ 5,924,000 6,011,000 10,678,000 11,280,000 Expenses: Lease operating 1,590,000 1,291,000 2,801,000 2,529,000 Depreciation, depletion, and amortization 2,031,000 1,789,000 3,825,000 3,420,000 General and administrative 738,000 317,000 1,465,000 646,000 Interest 251,000 222,000 251,000 401,000 Loss on sale of assets (Note 8) -- -- 208,000 -- ------------ ------------ ------------ ------------ 4,610,000 3,619,000 8,550,000 6,996,000 ------------ ------------ ------------ ------------ Income before income taxes 1,314,000 2,392,000 2,128,000 4,284,000 Deferred income taxes (Note 6) 494,000 -- 803,000 -- Pro forma income taxes (Note 6) -- 957,000 -- 1,714,000 ============ ============ ============ ============ Net income $ 820,000 $ 1,435,000 $ 1,325,000 $ 2,570,000 ============ ============ ============ ============ Net income per common share $ 0.06 $ 0.14 $ 0.10 $ 0.26 ============ ============ ============ ============ Weighted average common shares outstanding 12,975,000 10,000,000 12,981,000 10,000,000 ============ ============ ============ ============
See accompanying notes to consolidated financial statements 4 5 DLB OIL & GAS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ---------------------------- JUNE 30, 1996 1995 1994 ------------ ------------ ------------ (UNAUDITED) Common stock - shares outstanding: Balance, beginning of period 13,000,000 -- -- Issuance of stock in connection with the Merger -- 10,000,000 -- Sale of stock in connection with the public offering, net of costs -- 3,000,000 -- ------------ ------------ ------------ Balance, end of period 13,000,000 13,000,000 -- ============ ============ ============ Common stock - amount: Balance, beginning of period $ 13,000 $ -- $ -- Issuance of stock in connection with the Merger -- 10,000 -- Sale of stock in connection with the public offering, net of costs -- 3,000 -- ------------ ------------ ------------ Balance, end of period $ 13,000 $ 13,000 $ -- ============ ============ ============ Additional paid in capital: Balance, beginning of period $ 57,910,000 $ -- $ -- Issuance of stock in connection with the Merger -- 31,017,000 -- Sale of stock in connection with the public offering, net of costs -- 26,893,000 -- ------------ ------------ ------------ Balance, end of period $ 57,910,000 $ 57,910,000 $ -- ============ ============ ============ Retained earnings: Balance, beginning of period $ 1,621,000 $ -- $ -- Post-public offering net income -- 1,621,000 -- Net income 1,325,000 -- -- ------------ ------------ ------------ Balance, end of period $ 2,946,000 $ 1,621,000 $ -- ============ ============ ============ Treasury stock: Balance, beginning of period $ -- $ -- $ -- Repurchase of stock (Note 5) (181,000) -- -- ------------ ------------ ------------ Balance, end of period $ (181,000) $ -- $ -- ============ ============ ============ Total: Balance, beginning of period $ 59,544,000 $ -- $ -- Issuance of stock in connection with the Merger -- 31,027,000 -- Sale of stock in connection with the public offering, net of costs -- 26,896,000 -- Post-public offering net income -- 1,621,000 -- Repurchase of stock (Note 5) (181,000) -- -- Net income 1,325,000 -- -- ------------ ------------ ------------ Balance, end of period $ 60,688,000 $ 59,544,000 $ -- ============ ============ ============ Combined shareholders' equity: Balance, beginning of period $ -- $ 39,012,000 $ 30,164,000 Contributed capital -- 4,000 2,138,000 Distributions to stockholders -- (1,192,000) (3,196,000) Pre-public offering net income (loss) -- (6,797,000) 9,906,000 Issuance of stock in connection with the Merger -- (31,027,000) -- ------------ ------------ ------------ Balance, end of period $ -- $ -- $ 39,012,000 ============ ============ ============
See accompanying notes to consolidated financial statements. 5 6 DLB OIL & GAS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------------------- 1996 1995 ------------ ------------ Cash flows from operating activities: Net income $ 1,325,000 $ 2,570,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 3,825,000 3,420,000 Pro forma income taxes -- 1,714,000 Deferred income taxes 803,000 -- Loss on sale of assets 208,000 -- Increase in accounts receivable (1,891,000) (225,000) Increase in prepaid expenses (75,000) (381,000) Decrease in accounts payable, distributions payable and accrued liabilities (1,384,000) (2,097,000) Increase (decrease) in drilling advances and other liabilities (151,000) (226,000) ------------ ------------ Net cash provided by operating activities 2,660,000 4,775,000 ------------ ------------ Cash flows from investing activities: Expenditures for property and equipment (40,520,000) (7,035,000) Purchase of investments and other assets (3,690,000) (307,000) Proceeds from sales of assets 1,380,000 -- ------------ ------------ Net cash used in investing activities (42,830,000) (7,342,000) ------------ ------------ Cash flows from financing activities: Proceeds of long-term debt 30,000,000 3,000,000 Contributed capital -- 4,000 Distributions to shareholders -- (1,192,000) Purchase of treasury stock (181,000) -- ------------ ------------ Net cash provided by financing activities 29,819,000 1,812,000 ------------ ------------ Net increase (decrease) in cash and cash equivalents: (10,351,000) (755,000) Cash and cash equivalents beginning of year 14,313,000 3,059,000 ------------ ------------ Cash and cash equivalents end of year $ 3,962,000 $ 2,304,000 ============ ============ Supplemental cash flow information: Cash payments for interest $ 251,000 $ 434,000 ============ ============
See accompanying notes to consolidated financial statements 6 7 DLB OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (1) ORGANIZATION AND DESCRIPTION OF BUSINESS DLB Oil & Gas, Inc. (DLB or the Company) engages primarily in the exploration for and development of crude oil and natural gas fields. The Company focuses its efforts and is an active explorer in Oklahoma and Kansas. The Company also engages to a lesser extent, in the gathering, processing, transportation and marketing of hydrocarbons and conducts secondary oil recovery activities. The accompanying consolidated financial statements covering periods prior to July 20, 1995, the date of the merger of Davidson Oil and Gas, Inc. (Davidson) into DLB, include each of their accounts and their proportionate share of a venture involved in the production of oil and natural gas and in the gathering, processing and transporting of natural gas. Due to the nature of a joint venture agreement between the Company and Davidson, the Company and Davidson were considered to be under common control prior to the merger. The accompanying consolidated financial statements covering periods on or after July 20, 1995, include the consolidated accounts of the Company and its wholly owned subsidiaries, and its proportionate share of a venture involved in the production of oil and natural gas and in the gathering, processing and transporting of natural gas. (See Note 8 to Consolidated Financial Statements.) All intercompany transactions and balances have been eliminated in consolidation. (2) INITIAL PUBLIC OFFERING On July 25, 1995, the Company issued 3,000,000 shares of common stock through a public offering at $10 per share. Net proceeds to the Company from the offering, after selling and offering costs, were $26,896,000. The Company used $11,231,000 of these proceeds to retire then existing indebtedness under its revolving line of credit facilities. 7 8 DLB OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements and notes thereto have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes included in DLB's 1995 annual report on Form 10-K. In the opinion of DLB's management, all adjustments (all of which are normal and recurring) have been made which are necessary to fairly state the consolidated financial position of the Company and its subsidiaries as of June 30, 1996, and the results of their operations and their cash flows for the three month periods ended June 30, 1996 and 1995. (4) MARKETABLE SECURITIES During the first six months of 1996, the Company acquired senior unsecured notes with a face value of $11,644,000 in open market transactions for $3,680,000. The notes were issued by an oil and gas company that had previously filed for Chapter 11 reorganization. (5) PROPERTY AND EQUIPMENT PROPERTIES ACQUIRED On May 31, 1996, the Company closed the purchase of certain Oklahoma oil and natural gas properties of Amerada Hess Corporation ("Amerada Hess") for approximately $33,300,000. The purchase price is subject to post-closing price adjustments for assets-related revenues and costs and is being accounted for under the purchase method of accounting. The Company funded the purchase through existing cash funds and borrowings of $30,000,000 from its existing credit facilities. The acquired properties are located in Oklahoma (Mid-continent area), which has been DLB's core area of focus for exploration and development activities. The Company intends to use these properties to increase exploration and development operations in this 8 9 DLB OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) core area. Management expects to rework and recomplete existing wells, and pursue new infill and exploratory drilling locations. The acquisition also included 15,100 miles of proprietary seismic data, geologic and well data. The acquired properties consist of 44 oil and natural gas fields, nine of which the Company will operate, and 1,196 gross (111.8 net) wells. Total estimated proved reserves as of January 1, 1996, net to the Company, are 7.2 Mmboe, which increases the company's total estimated proved reserves as of that date to 16.6 Mmboe. Proved reserves attributable to the acquired properties are divided approximately 43% oil and 57% natural gas.
SIX MONTHS ENDED JUNE 30, 1996 (PRO FORMA) ---------------- Revenues: Oil and natural gas sales $14,823,000 Natural gas gathering, processing and transportation, net 390,000 Interest 263,000 Other 29,000 ----------- 15,505,000 Expenses: Lease operating 4,519,000 Depreciation, depletion, and amortization 4,983,000 General and administrative 1,465,000 Interest 940,000 Loss on sale of assets 208,000 ----------- 12,115,000 ----------- Income before income taxes 3,390,000 Deferred income taxes (Note 6) 1,279,000 =========== Net income $ 2,111,000 =========== Net income per common share $ 0.16 =========== Weighted average common shares outstanding 12,981,000 ===========
See accompanying notes to consolidated financial statements 9 10 DLB OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) (6) INCOME TAXES Prior to the merger and initial public offering, the Company and Davidson filed separate income tax returns as Subchapter S corporations under the provisions of the Internal Revenue Code. The Company's S election terminated upon the merger and initial public offering. As a result of the Company's termination of the S election, the Company recognized a charge against operations in the amount of $11,500,000 for deferred income taxes during 1995. The charge represented the tax effect of the difference between the financial statement carrying values and the income tax basis of the Company's assets and liabilities on the date the S election was terminated. Tax strategies implemented by the shareholders prior to the merger are not reflective of the results that the Company would have achieved if the Company had been directly subject to income taxes. Therefore, results of the operations for the periods prior to the offering, reflect a pro forma provision for income tax expense at a rate of approximately 40% (based upon blended Federal and state rates) of income before taxes. Subsequent to the offering the results of operation reflect a deferred provision for income tax expense at a blended rate of approximately 37.7%. (7) SHAREHOLDERS' EQUITY Effective with the merger of the Company and Davidson, the capital structure of the Company consisted of 130,000,000 authorized common shares ($.001 par value) with 10,000,000 shares outstanding along with 5,000,000 authorized preferred shares with no preferred shares outstanding. The former shareholders of DLB and Davidson hold 10,000,000 shares of the Company's common stock. For financial reporting purposes, combined shareholder's equity at the date of the merger was converted into the Company's common stock and additional paid-in-capital. As detailed in Note 2, the Company issued 3,000,000 shares of common stock through a public offering at $10 per share. On February 8, 1996, the Company announced a common stock repurchase plan. Under terms of the plan, up to $5,000,000 of common stock can be repurchased from time to time. On February 7, 1996, approximately 25,000 shares were repurchased for $181,000. Repurchased stock is held as treasury stock by the Company. In connection with the public offering, the Company issued stock options covering 1,625,000 shares of common stock to its employees. Options for 1,300,000 shares vest 10 11 DLB OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) and are exercisable at $10 per share in 20 equal quarterly installments which commenced with the quarter ended October 31, 1995. The remaining 325,000 options vest in five equal annual installments commencing January 1, 1996 and are exercisable at $10 per share. As of June 30, 1996, 260,000 options have vested and are exercisable. (8) SETTLEMENT OF CONTINGENCY In February 1996, the Company settled claims that it had submitted to arbitration against a joint venture partner alleging breach of contract and tortuous conduct. The claims arose under the terms of the Carmen Field Joint Venture Agreement dated May 26, 1993, between the Company and Magic Circle Acquisition Corporation ("Magic Circle"). The Company settled its claims by the agreement dated February 9, 1996. The settlement agreement provided for mutual releases of all claims arising out of the Carmen Field Joint Venture ("CFJV"), dissolution of the CFJV, assignment to the Company of its interest in the CFJV oil and natural gas properties, the payment of $3,349,000 to the Company, the transfer to the Company of its share of a small gathering system in Stephens County, Oklahoma, and the transfer to Magic Circle of gathering, processing and compression facilities in Alfalfa and Woodward Counties, Oklahoma. The Company recognized a net loss of $208,000, which included $212,000 of legal and accounting expenses, related to the transfer of the gathering, processing and compression facilities. (9) SUBSEQUENT EVENTS An interest owner in the Amerada Hess properties filed a lawsuit against Amerada Hess and the Company for denying the interest owner's election of preferential purchase rights on certain leases included in the Amerada Hess properties. The interest owner is seeking performance of its election of the preferential purchase rights from the Company. Amerada Hess and the Company have asserted that the interest owner's election to exercise its preferential rights was not made on a timely basis and is, therefore, not valid. If DLB is unsuccessful in defending its position on the claim asserted by the interest owner, DLB would receive an additional $2.4 million from the interest owner for the leases. The Company would also be required to reimburse the interest owner for revenues received on the respective leases, net of production costs. The Company does not anticipate that this legal action would significantly impact its financial position, liquidity, or results of operations. At the present time, as the Company deems these claims invalid, the Company has recognized the values of the oil and natural gas properties for financial reporting purposes. 11 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion is intended to assist in an understanding of the Company's financial position as of June 30, 1996, and its results of operations for the three month and the six month periods ended June 30, 1996 and June 30, 1995. The Consolidated Financial Statements and Notes included in this report contain additional information and should be referred to in conjunction with this discussion. It is presumed that the readers have read or have access to DLB's 1995 annual report on Form 10-K. The information in this document includes forward-looking statements that are based on assumptions that in the future may prove to be inaccurate. Those statements, and the Company's business and prospects, are subject to a number of risks including the volatility of oil and gas prices, environmental risks, operating hazards and risks, risks related to exploration and development drilling, uncertainties about estimates of reserves, competition, government regulation, and the ability of the Company to implement its business strategy. 12 13 RESULTS OF OPERATIONS The following table sets forth certain financial and production information of the Company.
FINANCIAL DATA (in thousands) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Revenues Oil $ 3,178 $ 3,652 $ 5,849 $ 6,570 Natural gas 2,337 1,207 4,147 2,530 -------- -------- -------- -------- 5,515 4,859 9,996 9,100 Natural gas gathering, processing & trans 313 1,124 390 1,787 Interest & other income 96 28 292 393 -------- -------- -------- -------- 5,924 6,011 10,678 11,280 -------- -------- -------- -------- Expenses Lease operating (1) 1,590 1,291 2,801 2,529 General & administrative 738 317 1,465 646 Loss on sale of assets -- -- 208 -- -------- -------- -------- -------- 2,328 1,608 4,474 3,175 EBITDA (2) 3,596 4,403 6,204 8,105 Depreciation, depletion & amortization 2,031 1,789 3,825 3,420 Earnings before interest and taxes 1,565 2,614 2,379 4,685 Interest expense 251 222 251 401 Earnings before taxes 1,314 2,392 2,128 4,284 Income taxes Pro forma -- 957 -- 1,714 Deferred 494 -- 803 -- -------- -------- -------- -------- Net income $ 820 $ 1,435 $ 1,325 $ 2,570 ======== ======== ======== ======== PER SHARE DATA Net income $ 0.06 $ 0.14 $ 0.10 $ 0.26 ======== ======== ======== ======== Average shares outstanding (in thousands) 12,975 10,000 12,981 10,000 PRODUCTION DATA (in thousands except prices) Oil (Mbbl) 153 193 296 372 Natural gas (Mmcf) 1,059 644 1,942 1,400 Barrel oil equivalent (MBOE) 330 300 620 605 Oil ($/Bbl) $ 20.82 $ 19.08 $ 19.77 $ 17.74 Gas ($/Mcf) 2.21 1.83 2.14 1.79 $/BOE 16.76 16.20 16.13 15.04 EXPENSE DATA ($/BOE) Lease operating $ 4.83 $ 4.30 $ 4.52 $ 4.18 Depreciation, depletion and amortization (3) 5.68 5.43 5.72 5.19 General and administrative 2.24 1.06 2.36 1.07
- ---------------------------------------- (1) The components of lease operating expense may vary substantially among wells depending on the methods of recovery employed and other factors, but generally include production taxes, administrative overhead, maintenance and repairs, labor and utilities. (2) EBITDA is defined as earnings before interest, taxes, depreciation, depletion and amortization. (3) The depreciation, depletion and amortization ("DD&A") reflected on a BOE basis excludes DD&A associated with gas plant, salt water disposal system, and other non-oil and gas property and equipment. 13 14 THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 1995 Revenues. Total revenues for the three months ended June 30, 1996 were $5.9 million, a reduction of $0.1 million from the comparable period in 1995. The $0.7 million increase in oil and gas sales revenue was slightly exceeded by the $0.8 million decrease in revenue related to the dissolution of the CFJV. (See Note 8 to the Consolidated Financial Statements). The dissolution resulted in the sale of certain gas gathering and compression assets, which reduced gas gathering, processing and transportation revenues to $0.3 million for the three months ended June 30, 1996 from $1.1 million for the three months ended June 30, 1995. Production of oil and gas was 153 Mbbl and 1059 Mmcf, respectively, in the three months ended June 30, 1996, as compared to 193 Mbbl and 644 Mmcf, respectively, in the same period of 1995. The increase in oil and gas sales revenues for the three months ended June 30, 1996, of $0.7 million was due to an increase in production from the same period in 1995. The average price received for oil increased to $20.82 per barrel in the second three months of 1996 from $19.08 in the three months ended June 30, 1995. The average price received for natural gas increased to $2.21 per Mcf in the three months ended June 30, 1996 from $1.83 per Mcf for the same period in 1995. Increases in gas production exceeded decreases in oil production on a BOE basis, as production on a BOE basis increased 10%. Lease operating expense. Lease operating expenses increased to $1.6 million for the three months ended June 30, 1996 from $1.3 million for the comparable period in 1995. On a BOE basis, lease operating expense was $4.83 per BOE for the three months ended June 30, 1996 as compared to $4.30 per BOE in the same period in 1995 due to decreased production from existing wells without a corresponding decrease in operating expenses. Management believes that lease operating expenses will be at higher levels in the future as a result of the Amerada Hess Acquisition. In the longer term, however, management anticipates lower lease operating expense per BOE through the implementation of more efficient operations and additional exploitation of the properties. Depreciation, depletion and amortization expense. Depreciation, depletion and amortization (DD&A) expense was $2.0 and $1.8 million for the three months ended June 30, 1996 and 1995, respectively. The DD&A rate related to oil and gas properties was $5.68 and $5.43 per BOE for the three months ended June 30, 1996 and 1995, respectively. The increase in DD&A per BOE resulted primarily from increased level of capital expenditures for exploration, development, waterfloods, property acquisitions, gas plant and gathering facilities and other property and equipment in the three months ended June 30, 1996 and as compared to 1995. General and administrative expense. General and administrative expense increased to $0.7 million for the three months ended June 30, 1996, from $0.3 million in the comparable period in 1995. This increase was primarily attributable to staffing increases and additional corporate expenses to handle higher levels of activity following the July 1995 initial public offering and $33.3 million Amerada Hess Acquisition on May 31, 1996. The Company believes its staffing level is sufficient to handle expected levels of activity through 1996 and further increases are not anticipated. Net income. Net income decreased to $0.8 million for the three months ended June 30, 1996 from $1.4 million for the three months ended June 30, 1995, as a result of the items discussed above. 14 15 SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1995 Revenues. Total revenues for the six months ended June 30, 1996 were $10.0 million, an increase of $0.9 million from the comparable period in 1995. Production of oil and gas was 296 MBbl and 1,942 MMcf, respectively, in the first half of 1996, as compared to 372 MBbl and 1,400 MMcf, respectively, in the same period of 1995. The increase in oil and gas revenues was due primarily to an increase in gas prices as production on a BOE basis increased slightly to 620 MBOE from 605 MBOE. Gas volumes increased 39% to 1,942 MMcf for the first six months of 1996 from 1,400 Mmcf for the comparable period in 1995. Increases in gas production offset decreases in oil production on BOE basis. The average price received for oil increased to $19.77 per barrel in the first half of 1996 from $17.74 per barrel in the comparable half in 1995. The average price received for natural gas was $2.14 per Mcf for the six months ended June 30, 1996 as compared to $1.79 per Mcf for the same period during 1995. A $1.4 million decrease in revenues from gathering, dehydration and compression fees, was due to the dissolution of the CFJV (See Note 8 to the Consolidated Financial Statements). Lease operating expense. Lease operating expenses increased to $2.8 million for the six months ended June 30, 1996, from $2.5 million in the comparable period of 1995. On a BOE basis, lease operating expense was $4.52 per BOE for the six months ended June 30, 1996 compared to $4.18 per BOE in the comparable period of 1995. The increase per BOE was due to decreased production from existing wells without a corresponding decrease in operating expenses. Management believes that lease operating expenses will be at higher levels in the future as a result of the Amerada Hess Acquisition. In the longer term, however, management anticipates lower lease operating expense per BOE through the implementation of more efficient operations and additional exploitation of the properties. Depreciation, depletion and amortization expense. DD&A expense for the first six months of 1996 totaled $3.8 million compared with $3.4 million for the same period in 1995. The DD&A rate increased $5.72 per BOE for the six months ended June 30, 1996, from $5.19 per BOE for the comparable period of 1995. Included in DD&A for the first six months of 1996 and 1995 was $0.2 million and $0.1 million, respectively, associated with salt water disposal and gas gathering systems. The increase in DD&A per BOE resulted primarily from increased level of capital expenditures for exploration, development, waterfloods, property acquisitions, gas gathering facilities and other property and equipment in the six months ended June 30, 1996 as compared to 1995. General and administrative expense. General and administrative expense increased to $1.5 million for the six months ended June 30, 1996, from $0.6 million for the comparable period in 1995. This increase was primarily attributable to staffing increases and additional corporate expenses to handle higher levels of acitity following the July 1995 initial public offering and $33.3 million Amerada Hess Acquisition on May 31, 1996. The Company believes its staffing level is sufficient to handle expected levels of activity through 1996 and further increases are not anticipated. Interest expense. Interest expense decreased to $0.3 million for the six months ended June 30, 1996 as compared to $0.4 million in the same period of 1995. As a result of the initial pubic offering all debt was retired until April, 1996 the date of the first borrowings for the Amerada Hess properties acquisition. This, along with lower interest rates in 1996, resulted in a decrease in interest expense. Net income. Due to the factors described above, net income decreased to $1.3 million for the six month period ended June 30, 1996 from $2.6 million in the comparable period of 1995. 15 16 CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY The following table presents comparative cash flows of the Company for the six months ended June 30, 1996 and June 30, 1995.
SIX MONTHS ENDED JUNE 30, -------------------------- 1996 1995 ---------- ---------- (IN THOUSANDS) Net cash provided by operating activities $ 2,660 $ 4,775 Net cash used in investing activities (42,830) (7,342) Net cash provided by financing activities 29,819 1,812
Net cash provided from operating activities decreased to $2.7 million for the six months ended June 30, 1996 from $4.8 million from the same period of 1995. This decrease of $2.1 million relates primarily to use of cash to decrease current liabilities at June 30, 1996 as compared to December 31, 1995. Net cash used in investing activities was $42.8 million for the first six months of 1996, as compared to $7.3 million in the first six months of 1995. The increase of $35.5 million is primarily attributable to the $33.3 million Amerada Hess properties acquisition. (See Notes 4 and 5 to the Consolidated Financial Statements.) Net cash provided by financing activities was $29.8 million for the first six months of 1996 as compared to $1.8 million in 1995. The increase of $28.0 million is primarily due to the $30.0 million of long term borrowing related to the funding of the Amerada Hess properties acquisition. As of June 30, 1996, the Company had cash balances of $4.0 million and working capital of $10.6 million. The decrease in working capital of $3.1 million as of June 30, 1996 from $13.7 million as of December 31, 1995, is a result of capital expenditures made during the first six months of 1996. Capital expenditures. The following table sets forth the Company's expenditures for exploration, development, waterfloods and property acquisition, gas plant and gathering facilities and other property and equipment for the six months ended June 30, 1996 and 1995.
SIX MONTHS ENDED JUNE 30, -------------------------- 1996 1995 ---------- ---------- (IN THOUSANDS) Exploration costs $ 4,707 $ 2,610 Development costs 2,606 2,582 Waterflood costs 796 1,133 Property acquisition costs 31,902 24 Gas plant and gathering facilities 356 592 Other property and equipment 153 94 ---------- ---------- $ 40,520 $ 7,035 ========== ==========
16 17 The Company intends to finance its capital expenditures with cash flows provided by operations and borrowings under the credit facility. The Company expects to spend a total of $60.0 million on capital expenditures in 1996. Of this amount, $40.5 million had been expended as of June 30, 1996, which includes $1.0 million related to the Osage Tribe of Indians Exploration and Development Agreement and $31.9 million related to the properties acquired in the Amerada Hess properties acquisition, which closed during the second quarter of 1996. The remaining budget of $19.5 million will be used for 2-D and 3-D seismic surveys, drilling activity and the acquisition of other mineral interests and leasehold properties. The aggregate level of capital expenditures in 1996 and the allocation thereof is highly dependent upon the Company's success rate on exploration drilling and prevailing conditions in the oil and gas industry. Accordingly, the actual level of capital expenditures may vary materially from the above estimates. Capital resources. Since DLB began operations in 1991, the Company's cash requirements were met primarily through capital contributions from shareholders, cash generated from operations and borrowings under its credit facilities. Such sources were inadequate to fund the Company's desired level of activities, and the Company undertook an initial public offering of its common stock, which was closed in July 1995. Net proceeds from the offering were approximately $26.9 million. Since its initial public offering, the Company has used offering proceeds along with cash flows from operations for cash requirements. As a result of the Amerada Hess acquisition, the Company increased its borrowing base to $30.0 million and used the increase to partially fund the acquisition. (See Note 4 to Consolidated Financial Statements). In addition, the proved oil and gas reserves added by this acquisition increased the Company's borrowing base under its credit facility to provide another $20.0 million of borrowing capacity. The Company expects that internal cash sources and borrowing capacity to be sufficient at least through December 31, 1996 to meet its capital expenditure plans. Capital needs beyond that period will depend substantially on the Company's success in employing working capital in exploration and development activities and the level of future activities as well as factors affecting the oil and gas industry generally. Liquidity. The ability of the Company to satisfy its obligations will depend upon its future performance, which will be subject to prevailing economic conditions and to financial and business conditions and other factors, many of which are beyond its control, supplemented, if necessary, with existing cash balances and borrowings under the credit facilities. The Company believes its capital resources are adequate to fund the capital expenditure program through at least the end of 1996. 17 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to the disclosure in Note 9 to the Notes to Consolidated Financial Statements regarding the Samson Resources Company, et al. V. Amerada Hess Corporation and DLB Oil & Gas, Inc. (Case No. CJ-96-38, D.Ct. Ellis Cnty, Okla.) Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of share holders of the Company was held on May 23, 1996. At the annual meeting, the shareholders voted on the following matters: (i) the election of six directors; and (ii) a proposal to ratify the selection of KPMG Peat Marwick, LLP as the Company's independent auditors. The results of the votes were as follows: Proposal No. I - Election of Directors Name of Director For Against Charles E. Davidson 12,118,858 62,779 Mike Liddell 12,118,858 62,779 Mark Liddell 12,118,858 62,779 Joel-Andre' Ornstein 12,118,858 62,779 David A. Rogath 12,118,858 62,779 Martin L. Solomon 12,118,858 62,779 Proposal No. II - Ratification of selection of KPMG Peat Marwick, LLP, as the Company's independent auditors for the year ending December 31, 1996: For Against Abstain --- ------- ------- 12,121,608 56,700 3,329 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by item 602 of Regulation S-K are as follows: 2.0 Agreement for Purchase and Sale dated April 16, 1996, between Amerada Hess Corporation and DLB Oil & Gas, Inc. (the "Agreement for Purchase and Sale"). (3) 2.1 Letter agreement amending Agreement for Purchase and Sale dated May 7, 1996. 2.2 Letter agreement amending Agreement for Purchase and Sale dated May 31, 1996. 3.1 Amended and Restated Certificate of Incorporation (1) 3.2 Amended and Restated Bylaws (1) 10.1 Lease of office space, Oklahoma City, Oklahoma (1) 18 19 10.2 Credit Agreement dated December 28, 1995, between Registrant and First Union National Bank of North Carolina (2) 10.3 Stock Option Agreement by and between Registrant and Mike Liddell (1) 10.4 Stock Option Agreement by and between Registrant and Mark Liddell (1) 10.5 Employment Agreement by and between Registrant and Mike Liddell (1) 10.6 Employment Agreement by and between Registrant and Mark Liddell (1) 10.7 DLB Oil & Gas Stock Option Plan (1) 10.8 DLB Oil & Gas Omnibus Equity Compensation Plan (1) 10.9 Shareholder's Agreement by and among Charles E. Davidson, Mike Liddell and Mark Liddell dated May 25, 1995 (1) 10.10 Agreement for Dissolution of Joint Venture dated February 9, 1996, between DLB Oil & Gas, Inc., Magic Circle Acquisition Corporation and Magic Circle Energy Corporation, Carmen Field Limited Partnership, and Carmen Field Joint Venture (2) 10.11 First Amendment to the Credit Agreement dated June 30, 1996, between Registrant and First Union National Bank of North Carolina 27 Financial Data Schedule _________________ (1) Previously filed as an exhibit to Registration No. 33-92786 on Form S-1 and incorporated herein by reference. (2) Previously filed as an exhibit to Form 10-K for the year ended December 31, 1995, and incorporated herein by reference. (3) Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and schedules to Exhibit 2 are omitted. Exhibit 2 contains a list identifying the contents of its exhibits and schedules, and registrant agrees to furnish supplemental copies of such exhibits and schedules to the Securities and Exchange Commission upon request. Copies of the forgoing exhibits filed with this report or incorporated by reference are available from the Company upon written request and payment of a reasonable copying fee. 19 20 (b) Registrant filed the following reports on Form 8-K's filed the quarter ended June 30, 1996: Form 8-K filed on April 22, 1996, disclosing an agreement to acquire oil and gas properties from Amerada Hess Corporation. Form 8-K filed on May 31, 1996 disclosing the acquisition of oil and gas properties from Amerada Hess Corporation. Form 8-K filed on June 3, 1996 for a press release filing related to the acquisition of oil and gas properties from Amerada Hess Corporation. Form 8-K Amendment filed on August 12, 1996 disclosing pro forma financial information related to acquisition of oil and gas properties from Amerada Hess Corporation. 20 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. DLB OIL & GAS, INC. Date: August 13, 1996 /s/ MARK LIDDELL ------------------------------------------ Mark Liddell, President Date: August 13, 1996 /s/ RONALD D. YOUTSEY ------------------------------------------ Ronald D. Youtsey, Chief Financial Officer 21 22 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.0 Agreement for Purchase and Sale dated April 16, 1996, between Amerada Hess Corporation and DLB Oil & Gas, Inc. (the "Agreement for Purchase and Sale"). (3) 2.1 Letter agreement amending Agreement for Purchase and Sale dated May 7, 1996. 2.2 Letter agreement amending Agreement for Purchase and Sale dated May 31, 1996. 3.1 Amended and Restated Certificate of Incorporation (1) 3.2 Amended and Restated Bylaws (1) 10.1 Lease of office space, Oklahoma City, Oklahoma (1) 10.2 Credit Agreement dated December 28, 1995, between Registrant and First Union National Bank of North Carolina (2) 10.3 Stock Option Agreement by and between Registrant and Mike Liddell (1) 10.4 Stock Option Agreement by and between Registrant and Mark Liddell (1) 10.5 Employment Agreement by and between Registrant and Mike Liddell (1) 10.6 Employment Agreement by and between Registrant and Mark Liddell (1) 10.7 DLB Oil & Gas Stock Option Plan (1) 10.8 DLB Oil & Gas Omnibus Equity Compensation Plan (1) 10.9 Shareholder's Agreement by and among Charles E. Davidson, Mike Liddell and Mark Liddell dated May 25, 1995 (1) 10.10 Agreement for Dissolution of Joint Venture dated February 9, 1996, between DLB Oil & Gas, Inc., Magic Circle Acquisition Corporation and Magic Circle Energy Corporation, Carmen Field Limited Partnership, and Carmen Field Joint Venture (2) 10.11 First Amendment to the Credit Agreement dated June 30, 1996, between Registrant and First Union National Bank of North Carolina 27 Financial Data Schedule - ---------------
(1) Previously filed as an exhibit to Registration No. 33-92786 on Form S-1 and incorporated herein by reference. (2) Previously filed as an exhibit to Form 10-K for the year ended December 31, 1995, and incorporated herein by reference. (3) Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and schedules to Exhibit 2 are omitted. Exhibit 2 contains a list identifying the contents of its exhibits and schedules, and registrant agrees to furnish supplemental copies of such exhibits and schedules to the Securities and Exchange Commission upon request. Copies of the foregoing exhibits filed with this report or incorporated by reference are available from the Company upon written request and payment of a reasonable copying fee. EX-10.11 2 1ST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.11 FIRST AMENDMENT TO CREDIT AGREEMENT This FIRST AMENDMENT TO CREDIT AGREEMENT is made and entered into effective as of this 30th day of June, 1996 (this "Amendment") among DLB OIL & GAS, INC., a corporation formed under the laws of the State of Oklahoma (the "Borrower"); each of the lenders that is or becomes a party to the Credit Agreement (defined below) (individually, together with its successors and assigns, a "Lender" and, collectively, the "Lenders"); and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association (in its individual capacity, "First Union"), as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"). RECITALS A. The Borrower, the Agent and the Lender previously entered into that certain Credit Agreement dated as of December 28, 1995 (the "Credit Agreement"), pursuant to which the Lenders agreed to make certain loans to and extensions of credit on behalf of the Borrower upon the terms and conditions as provided therein. B. The Borrower and the Lenders now desire to make certain amendments and supplements to the Credit Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration and the mutual benefits, covenants and agreements herein expressed, the parties hereto now agree as follows: 1. All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement. 2. The definition of "Eurodollar Loans" in Section 1.02 of the Credit Agreement is deleted in its entirety, and the following definition is substituted therefor: "LIBOR Loans" shall mean Loans the interest rates on which are determined on the basis of rates referred to in-the definition of "LIBOR Rate". Any references in this Agreement to Eurodollar Loans shall instead be deemed to be a reference to LIBOR Loans." 3. The definition of "Fixed Eurodollar Rate" in Section 1.02 of the Credit Agreement is deleted in its entirety, and the following definition is substituted therefor: "LIBOR" shall mean the rate of interest determined on the basis of the rate for deposits in Dollars for a period equal to the applicable Interest Period commencing on the first day of such Interest Period appearing on Telerate Page 3750 as of 11:00 a.m. (London time) two (2) Business Days prior to the first 2 day of the applicable Interest Period. In the event that such rate does not appear on Telerate Page 3750, "LIBOR" shall be determined by the Agent to be the rate per annum at which deposits in Dollars are offered by leading reference banks in the London interbank market to First Union at approximately 11:00 a.m. (London time) two Business days prior to the first day of the applicable Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of the applicable Loan. Any referenced in this Agreement to Fixed Eurodollar Rate shall instead be deemed to be a reference to LIBOR." 4. The definition of "Fixed Rate" in Section 1.02 of the Credit Agreement is deleted in its entirety, and the following definition is substituted therefor: "LIBOR Rate" shall mean, with respect to any LIBOR Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the quotient of (i) LIBOR for such Loan for the Interest Period for such Loan divided by (ii) 1 minus the Reserve Requirement for such Loan for such Interest Period. Any reference in this Agreement to Fixed Rate shall instead be deemed to be a reference to LIBOR Rate. 5. The definitions of "Agreement", "Applicable Margin", "Reserve Report" and "Termination Date" in Section 1.02 of the Credit Agreement are hereby amended to read as follows: "Agreement" shall mean this Credit Agreement, as amended by the First Amendment, and as the same may be further amended or supplemented from time to time. "Applicable Margin" shall mean for Base Rate Loans or LIBOR Loans the following rate per annum as applicable:
====================================================================== Borrowing Base Utilization Base Rate Loans LIBOR Loans Percentage ---------------------------------------------------------------------- less than 50% 0.00% 1.35% ---------------------------------------------------------------------- less than 75%, but 0.00% 1.60% greater than or equal to 50% ---------------------------------------------------------------------- greater than or equal 0.25% 1.75% to 75% ======================================================================
2 3 "Reserve Report" shall mean a report, in form and substance satisfactory to the Agent, setting forth, as of each January 1 and July 1 (or such other date in the event of an unscheduled redetermination): (i) the oil and gas reserves attributable to the Oil and Gas Properties together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing assumptions consistent with SEC reporting requirements at the time, and (ii) such other information as the Agent may reasonably request. The term "Reserve Report" shall also include the information to be provided by the Borrower by October 1 of each year pursuant to Section 8.05(a). "Termination Date" shall mean, unless extended pursuant to Section 2.01(c) or terminated pursuant to Section 10.02, December 31, 1999. If the Termination Date is extended, "Termination Date" shall mean the date to which final maturity of the Notes has been extended to as provided in Section 2.01(c). 6. Section 1.02 of the Credit Agreement is hereby supplemented, where alphabetically appropriate, with the addition of the following definition: "First Amendment" shall mean that certain First Amendment to Credit Agreement dated effective as of June 30, 1996 among the Borrower, the Agent and the Lenders. 7. Section 2.01(c) of the Credit Agreement is hereby amended by substituting the date "July 1, 1996" with the date "July 1, 1997." 8. Section 2.07(a) of the Credit Agreement is hereby amended by deleting the phrase ", provided that interest on the principal prepaid, accrued to the prepayment date, shall be paid on the prepayment date" from the first sentence thereof. 9. Section 2.07(b) of the Credit Agreement is hereby amended by deleting the phrase ", together with interest on the principal amount paid accrued to the date of such prepayment" from clause (i) thereof. 10. References to "Majority Lenders" in Section 2.08(b) of Credit Agreement shall be deemed to be references to "Lenders". Section 2.08(b) is further amended by adding the following sentence: "Any Borrowing Base redetermination shall require the agreement of all the Lenders." 3 4 11. The first sentence of Section 2.08(d) of the Credit Agreement is hereby amended as follows: "So long as any of the Commitments are in effect and until payment in full of the LC Exposure and all Loans hereunder, on or around the first (1st) Business Day of each June and December, commencing December 1, 1996 ("Scheduled Redetermination Dates"), the Lenders shall redetermine the amount of the Borrowing Base in accordance with Section 2.08(b)." 12. Section 8.05(a) of the Credit Agreement is hereby amended to read as follows: "By March 1 and October 1 of each year commencing October 1, 1996, the Borrower shall furnish to the Agent and the Lenders a Reserve Report evaluating the Oil and Gas Properties of the Borrower. The Reserve Report due each March 1 with an as of date of January 1 shall be prepared by certified independent petroleum engineers or other independent petroleum consultant(s) acceptable to the Agent, such acceptance not to be unreasonably withheld, and the Reserve Report due each October 1 with an as of date of July 1 shall be prepared by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the Reserve Report due each March 1." 13. Section 8.07(a) of the Credit Agreement is hereby amended to read as follows: "(a) The Borrower shall at all times maintain as security for the Indebtedness a first priority Lien (subject only to Liens permitted by Section 9.02) on its Oil and Gas Properties representing at least ninety-five percent (95%) of the present discounted value of its Oil and Gas Properties as set forth in the most recent Reserve Report. Should the Borrower acquire any additional Oil and Gas Properties, the borrower will grant to the Agent as security for the Indebtedness a first-priority Lien (subject only to Liens permitted by Section 9.02) on the Borrower's interest in such Oil and Gas Properties to maintain the 95% requirement as set forth in the preceding sentence. This Lien will be created and perfected by and in accordance with the provisions of deeds of trust, security agreements and financing statements or other Security Instruments, all in form and substance satisfactory to the Agent in its sole discretion and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes." 14. Credit Agreement is hereby amended by adding the following Section 12.18: Section 12.8 ARBITRATION AND PRESERVATION OF REMEDIES. (a) UPON DEMAND OF ANY PARTY HERETO, WHETHER MADE BEFORE OR AFTER INSTITUTION OF ANY JUDICIAL ACTION, 4 5 ANY DISPUTE, CLAIM OR CONTROVERSY ARISING OUT OF OR CONNECTED WITH THE LOAN DOCUMENTS ("DISPUTES") SHALL BE RESOLVED BY BINDING ARBITRATION AS PROVIDED HEREIN. DISPUTES MAY INCLUDE, WITHOUT LIMITATION, TORT CLAIMS, COUNTERCLAIMS, CLAIMS BROUGHT AS CLASS ACTIONS, CLAIMS ARISING FROM LOAN DOCUMENTS EXECUTED IN THE FUTURE. ARBITRATION SHALL BE CONDUCTED UNDER THE COMMERCIAL FINANCIAL DISPUTES ARBITRATION RULES (THE "ARBITRATION RULES") OF THE AMERICAN ARBITRATION ASSOCIATIO AND TITLE 9 OF THE U.S. CODE. ALL ARBITRATION HEARINGS SHALL BE CONDUCTED IN HOUSTON, TX OR ANY PLACE AGREED TO IN WRITING BY THE PARTIES. THE EXPEDITED PROCEDURES SET FORTH IN RULE 51 ET SEQ. OF THE ARBITRATION RULES SHALL BE APPLICABLE TO CLAIMS OF LESS THAN $1,000,000. ALL APPLICABLE STATUTES OF LIMITATION SHALL APPLY TO ANY DISPUTE. A JUDGEMENT UPON THE AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE PANEL FROM WHICH ALL ARBITRATORS ARE SELECTED SHALL BE COMPRISED OF LICENSED ATRORNEYS. THE SINGLE ARBITRATOR SELECTED FOR EXPEDITED PROCEDURE SHALL BE A RETIRED JUDGE FROM THE HIGHEST COURT OF GENERAL JURISDICTION, STATE, OR FEDERAL, OF THE STATE THE HEARING WILL BE CONDUCTED. (b) NOTWITHSTANDING THE PRECEDING BINDING ARBITRATION PROVISION, THE AGENT, THE LENDERS AND THE BORROWER PRESERVE CERTAIN REMEDIES THAT ANY PARTY HERETO MAY EXERPCISE FREELY, EITHER ALONE OR DURING A DISPUTE. THE BORROWER OR THE AGENT ACTING ON BEHALF OF THE LENDERS SHALL HAVE THE RIGHT TO PROCEED IN ANY COURT OF PROPER JURISDICTION OR BY SELF HELP TO EXERCISE OR PROSECUTE THE FOLLOWING REMEDIES, AS APPLICABLE: (i) ALL RIGHTS TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY OR OTHER SECURITY BY EXERCISING A POWER OF SALE GRANTED IN THE LOAN DOCUMENTS OR UNDER APPLICABLE LAW, (ii) ALL RIGHTS OF SELF HELP INCLUDING PEACEFUL OCCUPATION OF REAL PROPERTY AND COLLECTION OF RENTS, SET-OFF, AND PEACEFUL POSSESSION OF PERSONAL PROPERTY, (iii) OBTAINING PROVISIONAL OR ANCILLARY REMEDIES INCLUDING INJUCTIVE RELIEF, SEQUESTRATION, GARNISHMENT, ATTACHMENT, AND APPOINTMENT OF 5 6 RECEIVER AND (iv) WHEN APPLICABLE, A JUDGEMENT BY CONFESSION OF JUDGEMENT. PRESERVATION OF THESE REMEDIES DOES NOT LIMIT THE POWER OF AN ARBITRATOR TO GRANT SIMILAR REMEDIES THAT MAY BE REQUESTED BY A PARTY IN A DISPUTE. THE BORROWER, THE AGENT, AND THE LENDERS, AGREE THAT THEY SHALL NOT HAVE A REMEDY OF PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER IN ANY DISPUTE AND HEREBY WAIVE ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY HAVE NOW OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY DISPUTE WHETHER THE DISPUTE IS RESOLVED BY ARBITRATION OR JUDICIALLY. (c) NOTWITHSTANDING THE FOREGOING, THIS ARBITRATION PROVISION DOES NOT APPLY TO DISPUTES UNDER OR RELATED TO SWAP AGREEMENTS. 15. Section 10.01 (j) of the Credit Agreement is hereby amended to read as follows: "(j) The Borrower discontinues its usual business or there is any material change in the ownership, management or control of the Borrower; or" 16. During the period from and after June 10, 1996 until the Borrowing Base is redetermined in accordance with Section 2.08 or adjusted pursuant to Section 8.06(c), the amount of the Borrowing Base shall be $50,000,000. 17. This Amendment shall become binding when the Agent shall have received the following: (a) counterparts of this Amendment executed by the Borrower and the Lenders; (b) new Notes executed by the Borrower payable to the order of each of the Lenders; and (c) any fees due the Agent as a result of this Amendment; and (d) such other documents as the Agent or its counsel may reasonably request. 18. The parties hereto hereby acknowledge and agree that, except as specifically supplemented and amended, changed or modified hereby, the Credit Agreement shall remain in full force and effect in accordance with its terms. 6 7 19. The Borrower hereby reaffirms that as of the date of this Amendment, the representations and warranties made by the Borrower in Article VII of the Credit Agreement are true and correct on the date hereof as though made on and as of the date of this Amendment. 20. This Amendment shall be governed by, and construed in accordance with the laws of the State of Texas. 21. This Amendment may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof; each counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. 22. THE CREDIT AGREEMENT, THIS AMENDMENT, THE NOTES AND THE SECURITY INSTRUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR , CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN OR ORAL AGREEMEENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed effective as of the date first above written. BORROWER: DLB OIL & GAS, INC. By: /s/ Ronald D. Youtsey -------------------------- Name: Ronald D. Youtsey Title: Chief Financial Officer AGENT AND LENDER: FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: /s/ Michael J. Kolosowsky ------------------------------- Name: Michael J. Kolosowsky Title: Vice President 7 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 3,962 3,680 6,741 0 0 14,782 115,717 21,930 108,619 4,228 0 13 0 0 60,675 108,619 9,996 10,678 3,008 3,008 3,825 0 251 2,128,000 803,000 1,325,000 0 0 0 1,325,000 .10 .10
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