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, 2001 [ ] 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 - 13305 Registrant's Telephone Number, Including Area Code: (915) 684-3727 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Common Stock Purchase Warrants Rights to Purchase Series A Preferred Stock (Title of Class) 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. [ ] The aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant as of March 12, 2002 was approximately $73,091,624, based on the last sale price of the common stock on the same date. At March 1, 2002 there were 20,663,861 shares of common stock outstanding.
First Permian, LLC (100%)
Hedge Contracts
Type Volume/Month Term Price Commodity
- --------------- ------------------- ------------------ ------------ -------------
Swap 91,000 barrels 1/1/01 - 6/30/01 $ 17.70 WTI/NYMEX
Collar 40,000 barrels 7/01 - 12/02 $ 19.00 floor WTI/NYMEX
$ 24.80 ceiling
Collar 40,000 barrels 7/01 - 12/02 $ 18.00 floor WTI/NYMEX
$ 28.75 ceiling
Spread 40,000 barrels 12/01 - 02/02 $ 2.30 WTI/WTS
Swaps, collars and spreads are hedging strategies used by oil and gas
producers to reduce the potential adverse effects that volatile oil and gas
prices can have on operations. Generally, swaps are an agreement to buy or sell
a specified commodity for delivery in the future, but at a current fixed price.
Collars are created by purchasing puts to establish a floor price and then
selling a call which establishes a maximum amount the producer will receive for
the oil or gas hedged. Calls are usually sold to reduce the premium paid for
buying the put. Spreads, or basis contracts, are used to lock in the
relationship between current selling prices and future prices. For instance, if
the NYMEX quote for oil is $27.00 and the actual selling price of West Texas
Intermediate sweet crude oil is $25.00, the parties can lock in the $2.00
differential.
Drilling Activities in 2001
We are engaged in extensive drilling activities, primarily on properties in
which Parallel already owns interests and, to a lesser extent, newly acquired
properties. The scope of our exploration and development activities is affected
by the price of oil and gas.
In 2001, we spent approximately $11.5 million on oil and gas related
capital expenditures, an increase of 73% over that expended in 2000. (See Note
11 to the Financial Statements.) The majority of this was spent in the
Yegua/Frio/Wilcox gas trend.
For the year ended December 31, 2001, we participated in drilling 33 gross
wells (7.91 net wells), of which 18 gross wells (4.1 net wells) are productive
with 2 gross (.41 net) wells waiting on completion. This compares with 32 gross
wells (5.62 net wells) drilled in 2000, of which 23 gross wells (3.96 net wells)
were productive.
Yegua/Frio/Wilcox Gas Trend
During 2001, our principal exploration and development activities continued
to be concentrated in south Texas. Our activities were conducted in the
Yegua/Frio/Wilcox gas trend in the onshore gulf coast areas of south Texas in
Dewitt, Jackson, Lavaca, Victoria and Wharton Counties. This trend has been our
primary area of activity since 1993.
5
2001 Drilling Activity
- -----------------------------------------------------------------------------------------------------
Waiting on
Target Number of Completion at
Formation Depth Range (feet) Wells Drilled Productive Dry March 6, 2002
- -------------- --------------------------- ---------------- ------------ ---------- ---------------
Yegua 6,300 - 13,000 6 3 3 0
Frio 6,400 - 8,400 23 14 9 0
Wilcox 13,200 - 17,500 3 1 (1) 1 1
Other 10,000 - 11,500 1 1
-------------- ------------ ---------- ---------------
33 18 13 2
============= ============ ========== ===============
- ---------------------------
(1) one well was drilled to the Wilcox formation, but was completed in the Yegua formation.
At March 1, 2002, we owned interests in 114 gross (33.25 net) wells in
south Texas.
Our exploration activities in the Yegua/Frio/Wilcox gas trend are conducted
under exploration agreements with third party participants. These agreements
allow us to participate in the acquisition and ownership of:
. 3-D seismic surveys;
. options to acquire oil and gas leasehold interests; and
. undivided working interests in oil and gas leases.
Our exploration agreements include area of mutual interest (AMI)
provisions. Generally, an AMI is an agreed upon area of land which is subject to
rights of first refusal among the participants. For example, if we acquire any
minerals, royalty, overriding royalty, oil and gas leasehold or other interests
in the AMI, we would be obligated to offer the other participants the right to
purchase their pro rata share of the interest we acquired on the same terms that
we acquired the interest. If the other participants elect not to acquire their
pro-rata share, we would then typically be free to retain or sell this interest
for our own account.
The 3-D seismic survey data we obtain is proprietary and shared only with
our working interest partners. Typically, seismic data is obtained from seismic
operations conducted over large blocks of acreage. Our actual working interest
ownership in acreage surveys is less than the total area surveyed.
6
Year Ended December 31,
--------------------------------------------------------------------
2001 2000(1) 1999(1) 1998 1997
------------- ------------- ------------- ------------- ------------
(in thousands)
Transfers from (to) undeveloped $ - $ 2,128 $ (2,128) $ - $ -
leases held for sale(1)
Proved property acquisition costs 27 23 42 89 918
Unproved property acquisition costs 3,420 3,372 1,979 6,034 7,710
Exploration costs 6,820 2,163 1,856 8,556 9,604
Development costs 1,203 1,087 639 3,873 4,877
------------- ------------- ------------- ------------- ------------
$ 11,470 $ 8,773 $ 2,388 $ 18,552 $ 23,109
============= ============= ============= ============= ============
- --------------------
(1) Reflects costs associated with assets being held for sale in 1999 and
transferred back to oil and gas property in 2000. Actual capital
expenditures during 2000 and 1999, excluding transfers, were approximately
$6.6 million and $4.5 million, respectively.
Drilling and Production Activities
We have assembled a balanced portfolio of:
. lower risk natural gas projects in the Yegua/Frio/Wilcox gas trend;
. low risk infill oil development projects in the Permian Basin (through
our interest in First Permian); and
. high risk/high potential Wilcox natural gas projects.
Following are brief descriptions of the primary areas in which we conduct
our drilling and production activities.
Yegua/Frio/Wilcox Gas Trend
Since 1993, we have concentrated our exploration efforts in the
Yegua/Frio/Wilcox gas trend, drilling more than 174 wells with a 69% drilling
success ratio and acquiring more than 800 square miles of proprietary 3-D
seismic data on 22 projects. This seismic library is proprietary in the sense
that only Parallel and its working interest partners have access to the data.
More importantly, Parallel is the only partner with an interest in all 22 of the
projects. With seismic data processing methods continually improving, we believe
this data library has an indefinite shelf life and could yield new prospects for
many years.
Using this database, we have generated a multi-year prospect inventory
ranging from lower risk/moderate impact to higher risk/higher impact prospects.
With the cost of seismic acquisition activities paid for, we can allocate most
of our future capital expenditure funds to data interpretation, drilling and
completion activities and leasehold acquisition.
7
First Permian, LLC
Core Properties
Net Percentage
Developed Working Interest/
Property Acres Operator Net Revenue Interest Formation/Depth
- ------------------ ------------ -------------- ---------------------- ---------------------
Westbrook SE 3,605 First Permian 87.9/72.7% Clearfork/3200'
N. Robertson 2,695 First Permian 42.5/35.0% Clearfork/5900-7200'
East Penwell 2,314 First Permian 62.1/54.1% San Andres/3800'
Whiteface 3,578 First Permian 100.0/85.0% San Andres/5000'
9
Average Price Received for the
Year Ended December 31,
--------------------------------------------
2001 2000 1999
------------- ------------ -------------
Oil (Bbl) $ 24.80 $ 28.88 $ 17.32
Natural gas (Mcf) $ 4.41 $ 4.38 $ 2.27
The average price we received for our oil sales at March 1, 2002 was
approximately $22.40 per Bbl. At the same date, the average price we were
receiving for our natural gas was approximately $2.38 per Mcf.
At December 31, 2001, approximately 80% of our daily production was natural
gas and 20% was oil. There is substantial uncertainty regarding future oil and
gas prices and we can provide no assurance that prices will remain at current
levels.
Part of Our Business is Seasonal in Nature
Weather conditions affect the demand for and prices of natural gas and can
also delay drilling activities, disrupting our overall business plans. Demand
for natural gas is typically higher during winter months.
10
Exploratory Wells(1) Development Wells(2)
------------------------------------------------- -----------------------------------------------
Year Ended
December 31, Productive Dry Productive Dry
- --------------------- --------------------- ---------------------- -------------------- -----------------------
Gross Net Gross Net Gross Net Gross Net
---------- -------- ---------- --------- --------- -------- --------- -----------
2001 18.0 4.10 13.0 3.41 - - - -
2000 20.0 3.40 7.0 1.22 3.0 0.56 2.0 0.45
1999 11.0 2.50 5.0 1.70 2.0 0.80 - -
- ---------------------
(1) An exploratory well is a well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known
reservoir.
(2) A development well is a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be
productive.
The table above excludes two wells that were drilled in 2001, but which
were waiting on completion at March 6, 2002.
12
Year Ended December 31,
--------------------------------------------------
2001 2000 1999
--------------- --------------- --------------
Net Production:
Oil (Bbls) 138,243 165,137 163,696
Gas (Mcf) 3,266,350 2,821,815 2,708,516
EBO(1) 682,635 635,440 615,115
Average Sales Price:
Oil (per Bbl) $ 24.80 $ 28.88 $ 17.32
Gas (per Mcf) $ 4.41 $ 4.38 $ 2.27
EBO $ 26.13 $ 26.96 $ 14.59
Average Production
(Lifting) Cost per EBO $ 5.74 $ 4.88 $ 3.83
Operating Margin
per EBO(2) $ 20.39 $ 22.08 $ 10.76
Depletion per EBO $ 9.13 $ 8.18 $ 8.30
(1) An EBO means one barrel of oil equivalent using the ratio of six Mcf of gas
to one barrel of oil.
(2) Operating margin is determined by deducting the average production cost per
EBO from the average sales price per EBO.
Our gas sales in 2001 represented approximately 81% of our combined oil and
gas sales for the year ended December 31, 2001, as compared to 72% in 2000.
Markets and Customers
Our oil and gas production is sold at the well site on an as produced basis
at market-related prices in the areas where the producing properties are
located. We do not refine or process any of the oil or natural gas we produce
and all of our production is sold to unaffiliated purchasers on a month-to-month
basis.
13
2001 2000 1999
------------- ------------ ------------
Allegro Investments, Inc. 38% 22% 27%
Brayton Operating Corp. - - 26%
Cox & Perkins Exploration, Inc. 6% 6% 14%
Pure Resources, Inc. 23% 16% -
Sue Ann Production 25% - -
We do not believe the loss of any one of our purchasers would materially
affect our ability to sell the oil and gas we produce. Other purchasers are
available in our areas of operations.
Our future ability to market our oil and gas production depends upon the
availability and capacity of gas gathering systems and pipelines and other
transportation facilities. We do not currently own or operate our own pipelines
or transportation facilities. We are dependent on third parties to transport our
products.
We are not obligated to provide a fixed and determinable quantity of oil or
natural gas under any existing arrangements or contracts.
Our business does not require us to maintain a backlog of products,
customer orders or inventory.
Office Facilities
Our corporate offices consist of approximately 6,601 square feet of leased
space in Midland, Texas. Our current rental rate is $4,489 per month until May
31, 2004, when the lease expires.
Competition
The oil and gas industry is highly competitive, particularly in the areas
of acquiring exploration and development prospects and producing properties. The
principal means of competing for the acquisition of oil and gas properties are
the amount and terms of the consideration offered. Our competitors include major
oil companies, independent oil and gas firms and individual producers and
operators. Many of our competitors have financial resources, staffs and
facilities much larger than ours.
We are also affected by competition for drilling rigs and the availability
of related equipment. With relatively high oil and gas prices, the oil and gas
industry typically experiences shortages of drilling rigs, equipment, pipe and
qualified field personnel. We are unable to predict when or to what extent our
exploration and development activities will be affected by rig, equipment or
personnel shortages.
The principal resources we need for acquiring, exploring, developing,
producing and selling oil and gas are:
. leasehold prospects under which oil and gas reserves may be
discovered;
14
Producing Wells Acreage
---------------------------------------------- ---------------------------------------------
Oil Gas Developed Undeveloped
--------------------- ------------------------ ----------------------- ---------------------
Gross Net(1) Gross Net(1) Gross Net(2) Gross Net
---------- ---------- ------------ ----------- ----------- ---------- ---------- ----------
Texas 96 67.68 113 38.29 50,147 31,284 76,511 14,659
New Mexico - - - - - - 11,357 340
---------- ---------- ------------ ----------- ----------- ---------- ---------- ----------
Total 96 67.68 113 38.29 50,147 31,284 87,868 14,999
========== ========== ============ =========== =========== ========== ========== ==========
- --------------------
(1) Net wells are computed by multiplying the number of gross wells by our
working interest in the gross wells.
(2) Net acres are computed by multiplying the number of gross acres by our
working interest in the gross acres.
At December 31, 2001, we were operating 75 gross wells in which we also
owned interests. Approximately 41% of the discounted present value of our oil
and gas reserves at December 31, 2001 is attributable to wells operated by us.
As operator, we supervise the drilling, completion and production of wells and
the further development of surrounding properties.
The operator of a well has significant control over its location and the
timing of its drilling. In addition, the operator receives fees from other
working interest owners as reimbursement for general and administrative expenses
for operating the wells.
Except for our oil and gas leases, we do not own any patents, licenses,
franchises or concessions, which are significant to our oil and gas operations.
Title to Properties
As is customary in the oil and gas industry, we make only a cursory review
of title to undeveloped oil and gas leases at the time they are acquired. These
cursory title reviews, while consistent with industry practices, are necessarily
incomplete. We believe that it is not economically feasible to review in depth
every individual property we acquire, especially in the case of producing
property acquisitions covering a large number of leases. Ordinarily, when we
acquire producing properties, we focus our review efforts on properties believed
to have higher values and will sample the remainder. However, even an in-depth
review of all properties and records may not necessarily reveal existing or
potential defects nor will it permit a buyer to become sufficiently familiar
with the properties to assess fully their deficiencies and capabilities. In the
case of producing property acquisitions, inspections may not always be performed
on every well, and environmental problems, such as ground water contamination,
are not necessarily observable even when an inspection is undertaken. In the
case of undeveloped leases or prospects we acquire, before any drilling
commences, we will usually cause a more thorough title search to be conducted,
and any material defects in title that are found as a result of the title search
are generally remedied before drilling a well on the lease commences. We believe
that we have good title to our oil and gas properties, some of which are subject
to immaterial encumbrances, easements
23
Proved Proved Total
Developed Undeveloped
-------------------- --------------------- ----------------
Oil (Bbls) 489,547 426,456 916,003
Gas (Mcf) 9,574,292 4,372,931 13,947,223
Future Net Revenues (before income taxes) $ 18,831,883 $ 6,589,555 $ 25,421,438
Present Value of Future Net Revenues $ 14,302,304 $ 2,772,198 $ 17,074,502
(before income taxes)
For additional information concerning our estimated proved oil and gas
reserves, you should read Note 17 in the notes to financial statements. See Item
8 - Financial Statements and Supplementary Data.
The information in the following table provides you with certain
information regarding our 30.675% interest in First Permian's proved reserves at
December 31, 2001.
Proved Proved Total
Developed Undeveloped
-------------------- ------------------- ----------------
Oil (Bbls) 8,265,775 5,363,428 13,629,203
Gas (Mcf) 1,585,981 701,309 2,287,290
Future Net Revenues (before income taxes) $ 89,819,410 $ 39,981,323 $129,800,733
Present Value of Future Net Revenues $ 36,287,438 $ 10,176,507 $ 46,463,945
(before income taxes)
For additional information concerning our 30.675% interest in First
Permian's reserves, you should read Note 15 in the Financial Statements. See
Item 8 - Financial Statements and Supplementary Data.
The reserve data in this report represent estimates only. Reservoir
engineering is a subjective process. There are numerous uncertainties inherent
in estimating our oil and natural gas reserves and their estimated values. Many
factors are beyond our control. Estimating underground accumulations of oil and
natural gas cannot be measured in an exact manner. The accuracy of any reserve
estimate is a function of the quality of available data, engineering and
geological interpretation and judgment and the
24
Price Per Share
------------------------------
High Low
------------ -------------
1999
First quarter $1.87 $1.00
Second quarter $2.34 $1.25
Third quarter $3.00 $1.75
Fourth quarter $2.53 $1.37
2000
First quarter $4.19 $1.59
Second quarter $3.00 $1.75
Third quarter $4.69 $2.56
Fourth quarter $4.69 $3.00
2001
First quarter $4.93 $3.50
Second quarter $5.57 $4.20
Third quarter $4.18 $2.95
Fourth quarter $4.20 $2.77
The last sale price of our common stock on March 12, 2002 was $3.99 per
share, as reported on the Nasdaq National Market.
As of March 12, 2002, there were approximately 1,974 stockholders of
record.
Dividends
We have not paid, and do not intend to pay in the foreseeable future, cash
dividends on our common stock. The revolving credit facility we have with our
bank lender prohibits the payment of dividends on the common stock. Our 6%
convertible preferred stock also contains provisions that restrict us from
paying dividends or making distributions on our common stock if all dividends on
the preferred stock have not been paid in full. Any dividends on our preferred
stock that are not declared and paid will accumulate. All accumulated dividends
must be paid in full before dividends may be paid to holders of common stock.
The credit facility allows us to pay dividends on our outstanding shares of
preferred stock as long as we are not in default under the terms of the credit
facility. The holders of the preferred stock are entitled, as and when declared
by the Board of Directors, to receive an annual dividend of $.60 per share,
payable semi-annually on June 15 and December 15 of each year. See Risk Factors
on page 18 and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Resources and Liquidity" on page 36.
26
Year Ended December 31
----------------------------------------------------------------------------------
2001(1) 2000 1999(2) 1998(3) 1997
---------------- --------------- --------------- ---------------- ----------------
Operating revenues $ 17,840,024 $ 17,134,502 $ 8,974,041 $ 9,001,582 $ 12,614,242
Operating expenses $ 28,405,212 $ 9,530,266 $ 10,173,995 $ 24,056,923 $ 7,968,146
Net income (loss) $(10,565,188) $ 5,977,328 $ (2,450,457) $ (12,995,910) $ 2,743,930
Cumulative preferred stock
dividend $ (609,063) $ (609,063) $ (609,063) $ (276,712) $ -
Net income (loss) available to
common stockholders $ (5,316,638) $ 5,368,265 $ (3,059,520) $ (13,272,622) $ 2,743,930
Net income (loss) per common
share
Basic $ (0.26) $ 0.26 $ (0.16) $ (0.73) $ 0.15
Diluted $ (0.26) $ 0.25 $ (0.16) $ (0.73) $ 0.15
Cash dividend - common stock - - - - -
Weighted average common stock
and common stock equivalents
outstanding
Basic 20,457,697 20,331,858 18,549,214 18,300,998 17,862,792
Diluted 20,457,697 23,465,492 18,549,214 18,300,998 18,640,990
Present value of proved oil and
gas reserves discounted at 10%
(before estimated federal income taxes) $ 17,074,502 $ 90,950,591 $ 25,498,996 $ 26,822,980 $ 46,419,580
Working capital $ (586,841) $ 2,760,837 $ (71,647) $ 128,813 $ (2,162,139)
Total assets $ 41,759,903 $ 46,456,437 $ 43,264,070 $ 46,564,782 $ 49,855,532
Total liabilities $ 15,446,370 $ 15,288,069 $ 17,463,967 $ 20,839,642 $ 20,736,779
Long-term debt, less current maturities $ 9,600,000 $ 11,624,000 $ 12,300,000 $ 18,035,889 $ 12,182,610
Total stockholders' equity $ 26,313,533 $ 31,168,368 $ 25,800,103 $ 25,725,140 $ 29,118,753
- ------------------------
(1) Results include noncash charges of $2,177,128 in the fiscal quarter ended
September 30, 2001 and $14,642,685 in the fourth quarter ended December 31,
2001, in each case related to the impairment of oil and gas properties
incurred in 2001and primarily a result of a decrease in year-end reserves
and lower oil and gas prices.
(2) Results include a noncash charge of $1,705,000 related to the impairment of
oil and gas properties incurred in the fourth quarter of 1999, primarily a
result of a decrease in year-end reserves.
(3) Results include a noncash charge of $14,757,028 related to the impairment
of oil and gas properties incurred in the fourth quarter of 1998, primarily
a result of low oil and gas prices at year-end.
27
Year Ended December 31
-------------------------------------------------------
2001(1) 2000 1999(2)
----------------- ------------------ -----------------
Production and Prices
Oil (Bbls) 138,243 165,137 163,696
Natural Gas (Mcf) 3,266,350 2,821,815 2,708,516
EBO (Bbls) 682,635 635,440 615,115
Oil Price (per Bbl) $ 24.80 $ 28.88 $ 17.32
Gas Price (per Mcf) $ 4.41 $ 4.38 $ 2.27
Ratio of oil to gas price 5.62/1 6.59/1 7.63/1
Increase (decrease) in production
volumes over prior years 7% 3% (16%)
Results in Operations per EBO:
Oil and gas revenues $ 26.13 $ 26.96 $ 14.59
Costs and expenses:
Production costs 5.74 4.88 3.83
General and administrative 1.97 1.88 1.31
Provision for losses on trade receivable - - 0.14
Depreciation, depletion and amortization 9.26 8.25 8.49
Impairment of oil and gas properties 24.64 - 2.77
----------------- ------------------ -----------------
Total costs and expenses $ 41.61 $ 15.01 $ 16.54
----------------- ------------------ -----------------
Operating income (loss) (15.48) 11.95 (1.95)
Equity interest in earnings (loss)
of First Permian, L.L.C. 1.23 (0.79) 0.32
Interest expense, net (0.97) (1.76) (2.39)
Other income (expense), net (0.64) 0.19 0.03
----------------- ------------------ -----------------
Pretax income (loss) per EBO $ (15.86) $ 9.59 $ (3.99)
================= ================== =================
- ---------------------
(1) Results include noncash charges of $2,177,128 and $14,642,685 during the
third and fourth quarters, respectively related to the impairment of oil
and gas properties incurred in 2001, primarily a result of a decrease in
year-end reserves and lower oil and gas prices.
(2) Results include a noncash charge of $1,705,000 related to the impairment of
oil and gas properties incurred in the fourth quarter of 1999, primarily a
result of a decrease in year-end reserves.
30
Twelve Months Ended December 31,
---------------------------------------------------
2001 2000 1999
---------------- ------------- --------------
Oil and gas revenues 100.0% 100.0% 100.0%
Cost and expenses:
Production costs 21.9 18.1 26.2
General and administrative 7.5 6.9 8.9
Provision for losses on trade receivables - - 1.0
Depreciation, depletion and amortization 35.4 30.6 58.2
Impairment of oil and gas properties 94.3 - 19.0
---------------- ------------- --------------
Total costs and expenses 159.1 55.6 113.3
---------------- ------------- --------------
Operating income (loss) (59.1) 44.4 (13.3)
---------------- ------------- --------------
Interest expense, net (3.7) (6.5) (16.4)
Other income (loss), net (2.4) 0.7 0.2
---------------- ------------- --------------
(6.1) (5.8) (16.2)
Equity in earnings (loss) of First Permian, LLC 4.7 (2.9) 2.2
---------------- ------------- --------------
(1.4) (8.7) (14.0)
---------------- ------------- --------------
Pretax income (loss) (60.5) 35.7 (27.3)
Income Tax expense (benefit) 34.3 (0.8) -
---------------- ------------- --------------
Net income (loss) (26.2)% 34.9% (27.3)%
================ ============= ==============
- ------------------
(1) Results include noncash charges of $2,177,128 in the fiscal quarter ended
September 30, 2001 and $14,642,685 in the fourth quarter ended December 31,
2001, in each case related to the impairment of oil and gas properties
incurred in 2001and primarily a result of a decrease in year-end reserves
and lower oil and gas prices.
(2) Results include a noncash charge of $1,705,000 related to the impairment of
oil and gas properties incurred in the fourth quarter of 1999, primarily a
result of a decrease in year-end reserves.
Critical Accounting Policies and Practices
Full Cost. Parallel accounts for its oil and natural gas exploration and
development activities using the full cost method of accounting. Under this
method, all costs incurred in the acquisition, exploration and development of
oil and natural gas properties are capitalized. Costs of nonproducing
properties, wells in process of being drilled and significant development
projects are excluded from depletion until such time as the related project is
developed and proved reserves are established or impairment is determined. At
the end of each quarter, the net capitalized costs of our oil and natural gas
properties is limited to the lower of unamortized cost or a ceiling.
Provision for depletion of oil and gas properties, under the full cost
method, is calculated using the unit of production method based upon estimates
of proved oil and gas reserves with oil and gas production being converted to a
common unit of measure based upon their relative energy content. Investments in
unproved properties and major development projects are not amortized until
proved reserves associated with the projects can be determined or until
impairment occurs. The cost of any impaired property is transferred to the
balance of oil and gas properties being depleted.
31
Obligation Due in Period
----------------------------------------------------------
Contractual Cash Obligations 2002 2003 2004 2005 Total
- -------------------------------------- --------------------------------------------------------------------
(000s)
Revolving Credit Facility (secured) $ 2,400 $ 3,600 $ 3,600 $ 2,400 $ 12,000
Office Lease $ 54 $ 54 $ 22 $ 130
Outlook
The oil and gas industry is capital intensive. We make, and anticipate that
we will continue to make, substantial capital expenditures in the exploration
for, development and acquisition of oil and gas reserves. Historically, our
capital expenditures have been financed primarily with:
. internally generated cash from operations;
. proceeds from bank borrowings; and
. proceeds from sales of equity securities.
The continued availability of these capital sources depends upon a number
of variables, including:
38
2002 2003 2004 2005 Total Fair Value
---------------------------------------------------------------------------------
(000s, except interest rates)
Variable rate debt:
Revolving Facility (secured) $ 2,400 $ 3,600 $ 3,600 $ 2,400 $ 12,000 $ 12,000
Average interest rate 5.00% 5.00% 5.00% 5.00%
At February 1, 2002, we had bank loans in the amount of $12,565,589
outstanding at an average interest rate of 5.00%. Borrowings under our new
credit facility bear interest, at our election, at (i) the bank's base rate or
(ii) the Eurodollar rate, plus 2.75%, but in no event less than 5.00%. As a
result, our annual interest cost in 2002 will fluctuate based on short-term
interest rates. Assuming no change in the amount outstanding during 2002, the
impact on interest expense of a ten percent change in the average interest rate
would be approximately $691,107. As the interest rate is variable and is
reflective of current market conditions, the carrying value approximates the
fair value.
Our major market risk exposure is in the pricing applicable to our oil and
natural gas production. Market risk refers to the risk of loss from adverse
changes in oil and natural gas prices. Realized pricing is primarily driven by
the prevailing domestic price for crude oil and spot prices applicable to the
region in which we produce natural gas. Historically, prices received for oil
and gas production have been volatile and unpredictable. Pricing volatility is
expected to continue. Oil prices ranged from a monthly low of $16.81 per barrel
to a monthly high of $33.95 per barrel during 2001. Natural gas prices we
received during 2001 ranged from a monthly low of $1.08 per Mcf to a monthly
high of $11.81 per Mcf. A significant decline in the prices of natural gas or
oil could have a material adverse effect on our financial condition and results
of operations.
Historically, we have not entered into hedging arrangements and have not
had any delivery commitments. While hedging arrangements reduce exposure to
losses as a result of unfavorable price changes, they may also limit the ability
to benefit from favorable market price changes. However, as we described on page
37, in January, 2002, our Board determined that Parallel should hedge natural
gas prices for one-half of its natural gas production. After reviewing
alternative strategies, we entered into commodity derivative contracts in the
form of put options on gas prices. These put options create a sales
40
Average
Cost of
Mcf Per Floor per
Period Day Total Mcf Commodity Mcf
- --------------------- ------------- ----------- -------------- ------------
April 2002 7,000 210,000 natural gas $ 0.2893
May 2002 7,000 210,000 natural gas $ 0.2657
June 2002 7,000 210,000 natural gas $ 0.2486
July 2002 7,000 210,000 natural gas $ 0.2414
August 2002 7,000 210,000 natural gas $ 0.2479
September 2002 7,000 210,000 natural gas $ 0.2679
October 2002 7,000 210,000 natural gas $ 0.2751
- --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Parallel's financial statements and supplementary financial data are
included in this report beginning on page F-1.
41
Name Age Director Position with Company
Since
- ------------------------------ ------------ ------------- --------------------------------------------------
Thomas R. Cambridge 66 1985 Chairman of the Board of Directors
and Chief Executive Officer
Larry C. Oldham 48 1979 Director, President and Treasurer
Dewayne E. Chitwood(2) 64 2001 Director
Martin B. Oring(1)(2) 56 2001 Director
Charles R. Pannill(1)(2) 75 1982 Director
Jeffrey G. Shrader(1)(2) 51 2001 Director
Eric A. Bayley 53 - Vice President of Engineering and Production
John S. Rutherford 41 - Vice President of Land and Administration
- ------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mr. Cambridge is an independent petroleum geologist engaged in the
exploration for, development and production of oil and natural gas. From 1970
until 1990, such activities were carried out primarily through Cambridge &
Nail Partnership, a Texas general partnership. Since 1990, such oil and gas
activities have been carried out through Cambridge Production, Inc., a Texas
corporation. He received a Bachelors degree in geology from the University of
Nebraska in 1958 and a Master of Science degree in geology from the University
of Nebraska in 1960.
Mr. Oldham, a founder of Parallel, has served as an officer and Director
since its formation in 1979. Before Parallel's formation, Mr. Oldham was
employed by Dorchester Gas Corporation during the period 1976 to 1979 and by
KPMG Peat Marwick LLP during 1975 and 1976. Mr. Oldham became President of
Parallel in October, 1994, and served as Executive Vice President before that
time. Mr. Oldham is a member of the American Institute of Certified Public
Accountants and the Permian Basin Landman's Association. He received a Bachelor
of Business Administration degree from West Texas State University in 1975.
Mr. Chitwood is president, chief executive officer and a manager of Wes-Tex
Holdings, LLC, the general partner of Wes-Tex Drilling Company, L.P., a
partnership engaged in oil and gas exploration and production. During the
five-year period preceding Mr. Chitwood's association with Wes-Tex in 1997, he
was an owner and founder of CBS Insurance L.P., a general insurance agency.
42
Summary Compensation Table
Long-Term Compensation
--------------------------------
Annual Compensation Awards Payouts
------------------------------------------- ---------------------- ---------
Other Restricted Securities All
Annual Stock Underlying LTIP Other
Name and Salary Bonus Compensation Awards Options/ Payouts Compensation
Principal Position Year ($) ($) ($) ($) SAR(#) ($) ($)
- ------------------------------- ------- ----------- ------------ -------------- ---------- ----------- --------- --------------
T. R. Cambridge 2001 $ 91,362 $ 26,000 $ 900 0 100,000 0 0
Chief Executive Officer 2000 $ 77,755 $ 2,000 $ 900 0 0 0 0
and Chairman of the Board 1999 $ 77,755 $ 1,000 $ 900 0 50,000 0 0
L. C. Oldham 2001 $ 170,392 $ 26,000 $ 17,922 (1) 0 200,000 0 $ 14,470 (2)
President 2000 $ 161,000 $ 2,000 $ 10,067 0 0 0 $ 12,230
and Director 1999 $ 125,000 $ 1,000 $ 20,221 0 100,000 0 $ 5,771
E. A. Bayley 2001 $ 96,155 $ 13,000 $ 15,705 (3) 0 50,000 0 $ 6,489 (4)
Vice President of Engineering
J. S. Rutherford 2001 $ 103,411 $ 13,000 $ 15,028 (5) 0 50,000 0 $ 6,925 (6)
Vice President of Land/Admin.
- -----------------------------------
(1) These amounts include insurance premiums for nondiscriminatory group life,
medical, disability and dental insurance as follows: $16,366 for 2001;
$7,058 for 2000; and $18,534 for 1999.
(2) For 2001, such amount includes $11,724 contributed by Parallel to Mr.
Oldham's individual retirement account maintained under the 408(k)
simplified employee pension plan/individual retirement account and the
reimbursement to Mr. Oldham of $2,988 for income tax preparation and
planning. For 2000, such amount includes $9,750 contributed by Parallel to
Mr. Oldham's retirement account and the reimbursement to Mr. Oldham of
$2,480 for income tax preparation and planning. The amount shown for 1999
includes Parallel's contribution of $3,750 to Mr. Oldham's retirement
account and reimbursement of $2,021 for income tax preparation.
(3) This amount includes insurance premiums in the amount of $14,808 for
nondiscriminatory group life, medical, disability and dental insurance.
(4) This amount represents Parallel's contribution to Mr. Bayley's individual
retirement account maintained under the 408(k) simplified employee pension
plan/individual retirement account.
(5) This amount includes insurance premiums in the amount of $13,155 for
nondiscriminatory group life, medical, disability and dental insurance.
(6) This amount represents Parallel's contribution to Mr. Rutherford's
individual retirement account maintained under the 408(k) simplified
employee pension plan/individual retirement account.
45
Option/Sar Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------------- Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation for
Underlying Granted to Exercise of Option Term (2)
Options Employees in Base Price Expiration ---------------------------------
Name Granted (#) Fiscal Year (1) ($/Sh) Date 5%($) 10%($)
--------------- ---------------- ------------- ------------ -------------- ------------------
T. R. Cambridge 100,000 (3) 25.0% $ 4.97 6/20/2011 $ 313,110 $ 790,230
L. C. Oldham 200,000 (4) 50.0% $ 4.97 6/20/2011 $ 626,220 $ 1,580,460
E. A. Bayley 50,000 (5) 12.5% $ 4.97 6/20/2011 $ 156,555 $ 395,115
J. S. Rutherford 50,000 (5) 12.5% $ 4.97 6/20/2011 $ 156,555 $ 395,115
- ------------------------
(1) Percentages are calculated excluding from the denominator the stock options
granted to Mr. Cambridge since he is not an employee.
(2) These amounts are calculated based on the indicated annual rates of
appreciation and annual compounding from the date of grant to the end of
the option term. Actual gains, if any, on stock option exercises are
dependent on the future performance of the common stock and overall stock
market conditions. There is no assurance that the amounts reflected in this
table will be achieved.
(3) A nonqualified stock option to purchase 100,000 shares of common stock was
granted to Mr. Cambridge on June 20, 2001 under Parallel's 2001 Nonemployee
Directors' Stock Option Plan. The option is exercisable in two equal annual
installments on December 21, 2001 and June 21, 2002.
(4) On June 20, 2001 an incentive stock option to purchase 200,000 shares of
common stock was granted to Mr. Oldham under Parallel's 1998 Stock Option
Plan. The option is exercisable in ten equal annual installments,
commencing January 1, 2002.
(5) On June 20, 2001, nonstatutory stock options to purchase 50,000 shares of
common stock were granted to Mr. Bayley and Mr. Rutherford. The options
were granted under Parallel's Employee Stock Option Plan and are
exercisable in two equal installments on June 20, 2002 and June 20, 2003.
46
Aggregated Option/SAR Exercises in
Last Fiscal Year and Fiscal Year - End Option/SAR Values
Value of
Number of Securities Underlying Unexercised
Shares Value Unexercised Options at Fiscal in-the-Money Options
Acquired on Realized Year-End(2) at Fiscal Year-End ($)(2)
------------------------------------ ----------------------------------
Name Exercise ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- -------------- ------------- ----------------- ------------------ -------------- -----------------
T. R. Cambridge - $ - 350,000 50,000 $ 68,000 (3) $ - (3)
L. C. Oldham 247,000 $ 670,340 400,000 200,000 $ 136,700 (4) $ - (4)
E. A. Bayley - $ - 205,000 50,000 $ 54,680 (5) $ - (5)
J. S. Rutherford 11,250 $ 25,875 108,750 50,000 $ 54,680 (6) $ - (6)
- -------------------------
(1) The value realized is equal to the fair market value of a share of common
stock on the date of exercise, less the exercise price of the stock options
exercised.
(2) The value of in-the-money options is equal to the fair market value of a
share of common stock at fiscal year-end ($3.18 per share), based on the
last sale price of Parallel's common stock, less the exercise price.
(3) At December 31, 2001, the exercise prices of exercisable options to
purchase a total of 300,000 shares of common stock held by Mr. Cambridge
exceeded $3.18, the fair market value of our common stock on that date. In
addition, an unexercisable stock option to purchase 50,000 shares of common
stock was held be Mr. Cambridge at fiscal year-end, which also had an
exercise price great than $3.18.
(4) At December 31, 2001, the exercise prices of exercisable options to
purchase a total of 300,000 shares of common stock held by Mr. Oldham
exceeded the fair market value of our common stock on December 31, 2001,
and the exercise price of unexercisable options to purchase 200,000 shares
exceeded the fair market value of our common stock at the same date.
(5) At December 31, 2001, the exercise prices of exercisable options to
purchase a total of 165,000 shares of common stock held by Mr. Bayley
exceeded $3.18, the fair market value of our common stock on that date. In
addition, an unexercisable stock option to purchase 50,000 shares of common
stock was held by Mr. Bayley at fiscal year-end, which also had an exercise
price greater than $3.18.
(6) At December 31, 2001, the exercise prices of exercisable options to
purchase a total of 68,750 shares of common stock held by Mr. Rutherford
exceeded $3.18, the fair market value of our common stock on that date. In
addition, an unexercisable stock option to purchase 50,000 shares of common
stock was held by Mr. Rutherford at fiscal year-end, which also had an
exercise price greater than $3.18.
47
Equity Compensation Plan Information
-------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
-------------------------------------------------------------------------------------------------------------------------
Number of securities
remaining available for future
Number of securities to be Weighted-average exercise issuance under equity
issued upon exercise of price of outstanding compensation plans
outstanding options, warrants options, warrants and (excluding securities
Plan category and rights rights reflected in column (a))
--------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 1,803,750 $3.87 567,500
-------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders 575,000 $3.80 0
-------------------------------------------------------------------------------------------------------------------------
Total 2,378,750 $3.86 567,500
-------------------------------------------------------------------------------------------------------------------------
(1) These shares include employee stock options to purchase an aggregate of
200,000 shares of common stock. The options were granted under Parallel's
Employee Stock Option Plan which is discussed on page 52. Also, included
are 275,000 shares of common stock underlying a stock purchase warrant we
issued to an investment banking firm in November, 2001.
Change of Control Arrangements
Change of Control Agreements. In June, 2001, Parallel entered into Change
of Control Agreements with Mr. Cambridge, Mr. Oldham, Mr. Bayley, Mr. Rutherford
and four other employees. These agreements provide that upon the occurrence of a
Change of Control, each person will receive a single lump sum cash payment in an
amount equal to one year's salary. The agreements also provide for continued
participation in Parallel's medical, dental, disability and life insurance and
retirement plans for a period of twelve months after a Change of Control. A
Change of Control occurs when:
. any person becomes the beneficial owner of Parallel’s voting
shares entitling that person to 20% or more of the voting power of
Parallel;
. less than a majority of the members of the Board are continuing
directors; or
. the stockholders of Parallel approve a transaction providing for (1)
Parallel to be merged, consolidated or otherwise combined with another
person, (2) the sale of all or substantially all the assets or stock
of Parallel or (3) the liquidation or dissolution of Parallel.
Stock Option Plans. Parallel's outstanding stock options and stock option
plans contain certain change of control provisions which are applicable to
Parallel's outstanding stock options, including the options held by our officers
and Directors. For purposes of our options, a change of control occurs if:
. Parallel is not the surviving entity in a merger or consolidation;
. Parallel sells, leases or exchanges all or substantially all of its
assets;
48
Name and Address Amount and Nature Percent
of of of
Beneficial Owner Beneficial Ownership (1) Class (2)
---------------- ------------------------ ----------
Thomas R. Cambridge
2201 Civic Circle, Suite 216
Amarillo, Texas 79109 1,107,045 (3) 5.27%
Dewayne E. Chitwood
400 Pine St., Suite 700
Abilene, Texas 79601 1,618,557 (4) 7.59%
Larry C. Oldham
One Marienfeld Place, Suite 465
Midland, Texas 79701 957,090 (5) 4.54%
Martin B. Oring
706 Cinnamon Lane
Franklin Lakes, New Jersey 07417 61,500 (6) *
Charles R. Pannill
3416 Acorn Run
Fort Worth, Texas 76019 135,995 (7) *
Jeffrey G. Shrader
801 S. Filmore, Suite 600
Amarillo, Texas 79105 42,500 (8) *
Eric A. Bayley
One Marienfeld Place, Suite 465
Midland, Texas 79701 223,490 (9) 1.07%
John S. Rutherford
One Marienfeld Place, Suite 465
Midland, Texas 79701 111,300 (10) *
Wes-Tex Drilling Company, L.P.
519 First National Bank Building West
Abilene, Texas 79601 1,246,773 (11) 5.94%
Julia Jones Matthews
400 Pine, Suite 900
Abilene, Texas 79601 1,942,856 (12) 8.91%
55
Dodge Jones Foundation
400 Pine, Suite 900
Abilene, Texas 79601 1,371,428 (13) 6.34%
All Executive Officers and Directors
as a Group (8 persons) 4,257,477 (14) 18.85%
_________
* Less than one percent.
(1) Unless otherwise indicated, all shares of common stock are held directly
with sole voting and investment powers.
(2) Securities not outstanding, but included in the beneficial ownership of
each such person, are deemed to be outstanding for the purpose of computing
the percentage of outstanding securities of the class owned by such person,
but are not deemed to be outstanding for the purpose of computing the
percentage of the class owned by any other person. Shares of common stock
that may be acquired within sixty days upon exercise of outstanding stock
options or upon conversion of preferred stock are deemed to be outstanding.
(3) Includes 767,045 shares of common stock held indirectly through Cambridge
Collateral Services, Ltd., a limited partnership of which Mr. Cambridge and
his wife are the general partners. Also included are 350,000 shares of
common stock underlying presently exercisable stock options held by Mr.
Cambridge.
(4) Includes 932,488 shares of common stock held directly by Wes-Tex Drilling
Company, L.P., a limited partnership, and 314,285 shares of common stock
that may be acquired by Wes-Tex Drilling Company, L.P. upon conversion of
110,000 shares of preferred stock. In his capacity as president, chief
executive officer and a manager of Wes-Tex Holdings, LLC, the general
partner of Wes-Tex Drilling Company, L.P., Mr. Chitwood may be deemed to
have shared voting and investment powers with respect to such shares. See
note 11 below. Also included are 20,000 shares of common stock held by the
Estate of Myrle Greathouse (the “Estate”); 157,142 shares that
may be acquired by the Greathouse Charitable Remainder Trust (the
“Trust”) upon conversion of 55,000 shares of preferred stock; and
157,142 shares of common stock that may be acquired by the Greathouse
Foundation (the “Foundation”) upon conversion of 55,000 shares of
preferred stock. Mr. Chitwood is the executor (but not a beneficiary) of
the Estate, the trustee (but not a beneficiary) of the Trust and the
executive director and a director of the Foundation. In these capacities,
Mr. Chitwood may also be deemed to have shared voting and investment powers
with respect to the shares of common stock beneficially owned by the
Estate, the Trust and the Foundation. However, Mr. Chitwood disclaims
beneficial ownership of all shares of common stock held by Wes-Tex Drilling
Company, L.P., the Estate, Trust and Foundation. Also included are 37,500
shares of common stock underlying presently exercisable stock options held
by Mr. Chitwood.
(5) Includes 200,000 shares of common stock held individually through Oldham
Properties, Ltd., a limited partnership of which Mr. Oldham is the general
partner and he and his wife are the limited partners. Also included are
420,000 shares of common stock underlying presently exercisable stock
options held by Mr. Oldham.
(6) Of the total number of shares shown, 24,000 shares are held directly by Mr.
Oring's wife, and Mr. Oring may acquire 37,500 shares upon exercise of
stock options held by Mr. Oring.
56
PARALLEL PETROLEUM CORPORATION
Balance Sheets
December 31, 2001 and 2000
Assets 2001 2000
---- ----
Current assets:
Cash and cash equivalents $ 3,351,044 $ 2,000,826
Accounts receivable:
Oil and gas 1,420,859 4,057,527
Others, net of allowance for doubtful accounts of $0 in
2001 and $51,136 in 2000 263,819 319,818
Affiliate 16,687 19,569
----------- ------------
1,701,365 4,396,914
Other assets 207,120 27,166
----------- ------------
Total current assets 5,259,529 6,424,906
----------- ------------
Property and equipment, at cost:
Oil and gas properties, full cost method (Note 11) 85,132,345 72,316,384
Other 552,219 372,765
----------- ------------
85,684,564 72,689,149
Less accumulated depreciation and depletion (55,854,378) (32,742,060)
----------- ------------
Net property and equipment 29,830,186 39,947,089
----------- ------------
Net deferred tax asset (Note 5) 6,137,670 --
Investment in First Permian, LLC (Note 15) 473,764 --
Other assets, net of accumulated amortization of $131,139 in 2001
and $114,791 in 2000 58,754 84,442
----------- ------------
$ 41,759,903 $ 46,456,437
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt (Note 3) $ 2,400,000 $ 803,531
Investment liability in First Permian (Note 15) -- 366,765
Accounts payable and accrued liabilities 3,446,370 2,443,773
Income taxes payable (Note 5) -- 50,000
----------- ------------
Total current liabilities 5,846,370 3,664,069
----------- ------------
Long-term debt, excluding current maturities (Note 3) 9,600,000 11,624,000
Stockholders' equity:
Series A preferred stock - par value of $.10 per share (aggregate
liquidation preference of $26) authorized 50,000 shares -- --
Preferred stock - $.60 cumulative convertible preferred stock - par
value of $.10 per share, (aggregate liquidation preference of
$10) authorized 10,000,000 shares, issued and outstanding 97,450 97,450
974,500 in 2001 and 2000
Common stock - par value of $.01 per share, authorized 60,000,000
shares, issued and outstanding 20,663,861 in 2001 and 20,331,858 205,288 203,319
in 2000
Additional paid-in surplus 34,088,849 34,238,078
Accumulated deficit (8,078,054) (3,370,479)
----------- ------------
Total stockholders' equity 26,313,533 31,168,368
----------- ------------
Commitments and contingencies (Note 16)
$ 41,759,903 $ 46,456,437
=========== ============
See accompanying notes to financial statements.
F-3
PARALLEL PETROLEUM CORPORATION
Statements of Income (Loss)
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Oil and gas revenues $ 17,840,024 $ 17,134,502 $ 8,974,041
---------- ---------- ---------
Costs and expenses:
Lease operating expense 3,920,840 3,099,534 2,353,732
General and administrative 1,346,454 1,191,527 805,934
Provision for losses on trade receivables -- -- 85,829
Depreciation and depletion 6,318,105 5,239,205 5,223,500
Impairment of oil and gas properties (Note 12) 16,819,813 -- 1,705,000
---------- ---------- ---------
Total costs and expenses 28,405,212 9,530,266 10,173,995
---------- ---------- ---------
Operating income (loss) (10,565,188) 7,604,236 (1,199,954)
---------- ---------- ---------
Other income (expense), net:
Equity in income (loss) of First Permian, LLC
(Note 15) 840,529 (500,576) 197,811
Interest income 142,948 220,280 65,333
Other income 93,922 130,368 26,847
Interest expense (802,017) (1,340,360) (1,534,540)
Other expense (529,317) (6,620) (5,954)
---------- ---------- ---------
Total other expense, net (253,935) (1,496,908) (1,250,503)
---------- ---------- ---------
Income (loss) before income taxes (10,819,123) 6,107,328 (2,450,457)
Income tax (expense) benefit 6,111,548 (130,000) --
---------- ---------- ---------
Net income (loss) $ (4,707,575) $ 5,977,328 $ (2,450,457)
Cumulative preferred stock dividend $ (609,063) $ (609,063) $ (609,063)
---------- ---------- ---------
Net income (loss) available to common
stockholders $ (5,316,638) $ 5,368,265 $ (3,059,520)
========== ========== =========
Net income (loss) per common share:
Basic $ (.26) $ .26 $ (.16)
========== ========== =========
Diluted $ (.26) $ .25 $ (.16)
========== ========== =========
See accompanying notes to financial statements.
F-4
PARALLEL PETROLEUM CORPORATION
Statements of Stockholders' Equity
Years ended December 31, 2001, 2000 and 1999
Common stock Preferred stock
------------------------ ---------------------- Additional Total
Number of Number of paid-in Accumulated stockholders'
Shares Amount Shares Amount surplus Deficit equity
------ ------ ------ ------ ------- ------- ------
Balance,
January 1, 1999 18,306,858 $ 183,069 974,500 $ 97,450 $ 32,341,971 $ (6,897,350) $ 25,725,140
Issuance of stock, 2,000,000 20,000 -- -- 3,097,295 -- 3,117,295
net
Options exercised,
including income
tax benefit 25,000 250 -- -- 16,938 -- 17,188
Net loss -- -- -- -- -- (2,450,457) (2,450,457)
Dividends ($.60 per
share) -- -- -- -- (609,063) -- (609,063)
---------- ------- ------- ------- --------- ---------- ----------
Balance,
December 31, 1999 20,331,858 203,319 974,500 $ 97,450 34,847,141 (9,347,807) 25,800,103
Net income -- -- -- -- -- 5,977,328 5,977,328
Dividends ($.60 per
share) -- -- -- -- (609,063) -- (609,063)
---------- ------- ------- ------- --------- --------- ----------
Balance,
December 31, 2000 20,331,858 203,319 974,500 97,450 34,238,078 (3,370,479) 31,168,368
---------- ------- ------- ------- ---------- --------- ----------
Options issued -- -- -- -- 99,000 -- 99,000
Options exercised,
including income
tax benefit 332,003 1,969 -- -- 360,834 -- 362,803
Net loss -- -- -- -- -- (4,707,575) (4,707,575)
Dividends ($.60 per
share) -- -- -- -- (609,063) -- (609,063)
---------- ------- ------- ------- ---------- --------- ----------
Balance,
December 31, 2001 20,663,861 $ 205,288 974,500 $ 97,450 $34,088,849 $ (8,078,054) $ 26,313,533
========== ======= ======= ======= ========== ========= ==========
See accompanying notes to financial statements.
F-5
Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (4,707,575) $ 5,977,328 $ (2,450,457)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and depletion 6,318,105 5,239,205 5,223,500
Equity loss (income) of First Permian, LLC (840,529) 500,576 (197,811)
Deferred income taxes (6,111,548) --
Loss on disposal of equipment (8,908) 1,000 --
Impairment of oil and gas properties 16,819,813 -- 1,705,000
Provision for losses on trade receivables -- -- 85,829
Stock-based financial advisory services 99,000 -- --
Other, net 25,688 (37,651) 11,728
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 2,695,549 (2,748,422) (42,078)
Decrease (increase) in prepaid expenses (179,954) 12,511 21,827
Increase (decrease) in accounts payable and accrued
liabilities (702,325) 1,773,692 (927,304)
------------ ------------ ------------
Net cash provided by
operating activities 13,407,316 10,718,239 3,430,234
------------ ------------ ------------
Cash flows from investing activities:
Additions to oil and gas property (13,125,716) (8,847,482) (4,896,081)
Proceeds from disposition of oil and gas property 1,964,677 3,017,618 1,111,525
Additions to other property and equipment (211,146) (84,045) --
Proceeds from disposition of other property and equipment 15,000 -- --
Distribution received from investment in First Permian, -- 67,500 --
LLC
Investment in First Permian, LLC -- -- (3,500)
------------ ------------ ------------
Net cash used in
investing activities (11,357,185) (5,846,409) (3,788,056)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings from bank line of credit 2,000,000 12,427,531 780,000
Payments on bank line of credit (2,427,531) (15,965,889) (2,850,000)
Proceeds from exercise of options and warrants 336,681 -- 17,188
Stock offering costs -- -- (82,705)
Proceeds from common stock issuance -- -- 3,200,000
Payments of preferred stock dividend (609,063) (609,063) (609,063)
------------ ------------ ------------
Net cash provided by (used in)
financing activities (699,913) (4,147,421) 455,420
------------ ------------ ------------
Net increase in cash
and cash equivalents 1,350,218 724,409 97,598
Beginning cash and cash equivalents 2,000,826 1,276,417 1,178,819
------------ ------------ ------------
Ending cash and cash equivalents $ 3,351,044 $ 2,000,826 $ 1,276,417
============ ============ ============
See accompanying notes to financial statements.
F-6
2001 2000
---- ----
Revolving Facility note payable to bank, at bank's base lending rate
(4.75% at December 31, 2001 and 9.5% at December 31, 2000) $ 12,000,000 $ 12,427,531
Less: current maturities 2,400,000 803,531
----------- -----------
$ 9,600,000 $ 11,624,000
=========== ===========
F-10
2002 $ 2,400,000
2003 3,600,000
2004 3,600,000
2005 2,400,000
-----------
$ 12,000,000
===========
(4) Stock Options, Warrants and Rights
At the election of the board of directors, the Company awards both
incentive stock options and nonqualified stock options to selected key
employees and officers. The options are awarded at an exercise price
based on the closing price of the Company’s common stock on
the date of grant, a two-year and four-year vesting schedule and a
ten-year exercise period. As of December 31, 2001, options expire
beginning in the current year and extending through 2009. Exercise of
the nonqualified stock options resulted in a deferred tax benefit of
$26,122 and $6,375 for the year ended December 31, 2001 and 1999,
respectively.
The Company applies APB 25 and related interpretations in accounting for
its stock option awards. No compensation expense has been recognized
for its stock option awards. If compensation expense for the stock
option awards had been determined consistent with Statement of
Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation” (“FAS 123”), the
Company’s net income (loss) and net income (loss) per share
would have been adjusted to the pro forma amounts indicated below for
the years ended December 31:
2001 2000 1999
---- ---- ----
Net income (loss) $ (4,496,924) $ 5,832,237 $ (3,107,170)
Basic net income (loss) per share $ (.27) $ .29 $ (.17)
Diluted net income (loss) per share $ (.27) $ .25 $ (.17)
F-12
2001 1999
---- ----
Risk-free interest rate 4.49 5.98
Expected life 8 years 8 years
Expected volatility .56 .74
A summary of the Company’s employee stock options as of December
31, 2001, 2000 and 1999, and changes during the years ended on those
dates is presented below:
For the year ended For the year ended For the year ended
December 31, 2001 December 31, 2000 December 31, 1999
------------------ ------------------ -------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Shares Price of Shares Price of Shares Price
--------- -------- --------- -------- --------- ---------
Stock options:
Outstanding at
beginning of year 1,951,750 $ 3.13 1,951,750 $ 3.13 1,541,750 $ 3.46
Options granted 700,000 4.87 -- -- 435,000 1.29
Options exercised (325,500) (1.03) -- -- (25,000) (.69)
Options expired (222,500) 3.80 -- -- -- --
--------- ------- --------- -------- --------- --------
Outstanding at end of 2,103,750 $ 3.74 1,951,750 $ 3.13 1,951,750 $ 3.13
year ========= ======= ========= ======== ========= ========
Exercisable at end of 1,451,250 $ 3.54 1,689,250 $ 3.26 1,200,500 $ 3.35
year ========= ======= ========= ======== ========= ========
Weighted average fair value
of options granted
during the year $ 1.84 $ -- $ 1.40
========= ========= =========
The following table summarizes information about the Company’s
employee stock options outstanding at December 31, 2001:
Options Oustanding Options Exercisable
---------------------------------------------------- ----------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise Prices December 31, 2001 Contractual Life Exercise Price December 31, 2001 Exercise Price
--------------- ----------------- ---------------- -------------- ----------------- --------------
$ 1.81 - $ 3.94 660,000 5 years $ 2.72 660,000 $ 2.72
$ 4.09 - $5.50 1,443,750 7 years $ 4.31 791,250 $ 4.23
--------- ---------
2,103,750 1,451,250
========= =========
F-13
Year ended
December 31,
-------------------------------------------------
2001 2000 1999
---- ---- ----
Income tax expense (benefit) at statutory rate
$ (3,678,502) $ 2,076,492 $ (833,156)
Change in valuation allowance for deferred tax
assets (2,062,954) (2,185,526) 1,718,284
Adjustment to deferred tax liability for changes
in estimates -- 669,533 (649,920)
Statutory depletion (389,235) (445,941) (237,047)
Nondeductible expenses and other 19,143 15,442 1,839
----------- ---------- ----------
Income tax expense (benefit) $ (6,111,548) $ 130,000 $ --
=========== ========== ==========
F-15
2001 2000
---- ----
Noncurrent
----------
Deferred tax assets:
Net operating loss carryforwards $ 6,370,720 $ 4,840,778
Statutory depletion carryforwards 2,025,166 1,635,931
Alternative minimum tax credit carryforward 118,074 125,523
Suspended loss carryforward in First Permian, LLC 2,893,244 124,700
Allowance for accounts receivable -- 17,386
Charitable contribution carryforward 7,713 --
----------- -----------
Total deferred tax assets 11,414,917 6,744,318
Less valuation allowance -- (2,062,954)
----------- -----------
Total deferred tax assets 11,414,917 4,681,364
----------- -----------
Deferred tax liabilities:
Equity investment in First Permian, LLC 3,054,324 --
Property and equipment, principally due to differences in
basis, expensing of intangible drilling costs for tax
purposes and depletion 2,222,923 4,681,364
----------- -----------
Total deferred tax liabilities 5,277,247 4,681,364
----------- -----------
Net noncurrent deferred income tax asset
$ 6,137,670 $ --
=========== ===========
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. At
December 31, 2000, the Company established a valuation allowance
against deferred tax assets of $2,062,954. This was due to the
historical volatility in crude oil and gas prices, the uncertainty of
future commodity prices, and the Company’s history of
generating net losses. Management was unable to conclude that it is
more likely than not that the Company will be able to utilize all the
available carryforwards prior to their ultimate expiration. In 2001
the valuation allowance was reversed as the Company is expected to be
able to utilize the available carryforwards prior to their expiration
due to the impending sale of its investment in First Permian. (See
Note 19)
F-16
Alternative
minimum tax
Net operating net operating
loss loss
---- ----
2009 $ 194,000
2018 8,658,000 $ 6,635,000
2019 5,250,000 5,022,000
2021 4,635,000 --
----------- -----------
$ 18,737,000 $ 11,657,000
=========== ============
As of December 31, 2001, the Company had approximately $118,000 of
minimum tax credit available indefinitely.
(6) Major Customers
The following purchasers accounted for 10% or more of the Company’s
oil and gas sales for the years ended December 31:
2001 2000 1999
---- ---- ----
Purchaser A 25% -- --
Purchaser B 6% 6% 14%
Purchaser C 38% 22% 27%
Purchaser D -- -- 26%
Purchaser E 23% 16% --
(7) Employee Pension Plan
Effective September 1, 1988, the Company established a simplified employee
pension plan covering all salaried employees of the Company. The
employees voluntarily contribute a portion of their eligible
compensation, not to exceed $7,000, adjusted for inflation beginning
in 1988, to the plan. The Company’s contribution, including
the employees contribution, cannot exceed the lesser of $30,000 or 15%
of compensation. During 2001, 2000 and 1999, the Company contributed
an aggregate of $39,760, $36,077 and $14,338, respectively, of which
$11,724, $9,750 and $3,750, respectively, on behalf of a Director of
the Company. The Company has no obligation to make contributions to
the plan.
(8) Statements of Cash Flows
During 2000, management of the Company made the decision to not sell its
assets held for sale and $2,127,734 was transferred from assets held
for sale to oil and gas properties. This transfer was a non-cash
transaction.
F-17
2001 2000
---- ----
Proved properties $ 76,248,443 $ 57,915,944
Unproved properties, not subject to
depletion 8,883,902 14,400,440
----------- -----------
85,132,345 72,316,384
Accumulated depletion (55,552,876) (32,495,930)
----------- -----------
$ 29,579,469 $ 39,820,454
=========== ===========
Certain directly identifiable internal costs of property acquisition,
exploration and development activities are capitalized. Such costs
capitalized in 2001, 2000 and 1999 totaled $782,450, $624,007 and
$508,883, respectively.
Depletion per equivalent unit of production (BOE) was $9.13, $8.18 and
$8.30 for 2001, 2000 and 1999, respectively.
F-20
2001 2000 1999
---- ---- ----
Transfers (to)/from assets held for sale $ -- $ 2,127,734 $ (2,127,734)
Proved property acquisition costs 26,970 23,291 41,768
Unproved property acquisition costs 3,420,455 3,371,898 1,978,964
Exploration 6,820,480 2,163,124 1,855,948
Development 1,202,889 1,087,424 638,845
----------- ---------- -----------
$ 11,470,794 $ 8,773,471 $ 2,387,791
=========== ========== ===========
(12) Impairment of Oil and Gas Properties
As a result of a ceiling test calculation, which limits capitalized
costs, net of related deferred tax liability, to the aggregate of the
estimated present value, discounted at 10-percent of future net
revenues from proved reserves plus lower of cost or fair market value
of unproved properties, the Company recognized an impairment of
approximately $16,820,000, of which $14,643,000 was recognized in the
fourth quarter, and $1,705,000 related to its oil and gas properties
during 2001 and 1999, respectively. There was no impairment recorded
for 2000.
F-21
2001 2000 1999
---- ---- ----
Basic EPS Computation:
Numerator -
Net income (loss) $ (4,707,575) $ 5,977,328 $ (2,450,457)
Preferred stock dividend (609,063) (609,063) (609,063)
----------- ----------- -----------
Net income (loss) available to common
stockholders $ (5,316,638) $ 5,368,265 $ (3,059,520)
=========== =========== ===========
Denominator -
Weighted average common shares outstanding 20,457,697 20,331,858 18,549,214
=========== =========== ===========
Basic net earnings (loss) per share $ (.26) $ .26 $ (.16)
=========== =========== ===========
Diluted EPS Computation:
Numerator -
Net income (loss) $ (4,707,575) $ 5,977,328 $ (2,450,457)
Preferred stock dividend (609,063) -- (609,063)
----------- ----------- -----------
Net income (loss) available to common
stockholders $ (5,316,638) $ 5,977,328 $ (3,059,520)
=========== =========== ===========
Denominator -
Weighted average common shares for basic
earnings (loss) per share 20,457,697 20,331,858 18,549,214
Effect of dilutive securities:
Employee stock options -- 348,787 --
Warrants -- 603 --
Preferred stock -- 2,784,244 --
----------- ----------- -----------
Weighted average common shares for diluted
earnings (loss) per share assuming
conversions 20,457,697 23,465,492 18,549,214
=========== =========== ===========
Diluted net earnings (loss) per share $ (.26) $ .25 $ (.16)
=========== =========== ===========
F-22
Assets 2001 2000
------ ---- ----
Current assets:
Cash and cash equivalents $ 1,385,640 $ 3,836,840
Accounts receivable 4,159,239 6,337,595
Prepaids 99,106 61,218
----------- -------------
Total current assets 5,643,985 10,235,653
----------- -------------
Property and equipment, at cost:
Oil and gas properties, full cost method 108,256,338 87,527,750
Other property 1,479,885 1,086,427
----------- -------------
109,736,223 88,614,177
Less accumulated depletion and depreciation (14,459,797) (8,251,530)
----------- -------------
Net property and equipment 95,276,426 80,362,647
Other non-current assets, net of accumulated
amortization of $1,951,000 in 2001 and
$946,000 in 2000 594,704 1,664,528
----------- -------------
$101,515,115 $ 92,262,828
=========== =============
Liabilities and Members' Equity
Current liabilities:
Accounts payable and accrued liabilities-trade $ 6,342,325 $ 7,042,264
Liability for derivative instruments 773,780 58,450
----------- -------------
Total current liabilities 7,116,075 7,100,714
----------- -------------
Long-term debt, net of current maturities 73,000,000 67,400,000
Redeemable preferred units 15,549,085 14,224,946
Members' equity 5,849,955 3,537,168
----------- -------------
$101,515,115 $ 92,262,828
=========== =============
Revenues $ 31,094,044 $ 24,713,111
Cost and expenses 19,642,279 16,870,023
----------- -------------
Operating income 11,451,765 7,843,088
Other expense, net (6,855,768) (7,220,136)
----------- -------------
Net income before extraordinary item $ 4,595,997 $ 622,952
Extraordinary loss from debt restructure -- (960,825)
----------- -------------
Net income (loss) $ 4,595,997 $ (337,873)
Redeemable preferred unit dividends (1,324,199) (724,946)
----------- -------------
Net income (loss) available to common members $ 3,271,798 $ (1,062,819)
=========== =============
F-25
Changes in Reserve Balances
Total Proved Proved Developed
-------------------- ------------------
BBL MCF BBL MCF
--- --- --- ---
Reserves as of December 31, 1999 10,226 8,190 5,949 7,764
Purchase of reserves in place 1,266 246 1,266 246
Sales of reserves in place (3) (2,014) (3) (2,014)
Revisions of previous estimates 3,639 (4,253) 680 (4,395)
Production (386) (350) (386) (350)
------ ------ ------ ------
Reserves as of December 31, 2000 14,742 1,819 7,506 1,251
Purchase of reserves in place -- -- -- --
Sales of reserves in place -- -- -- --
Revisions of previous estimates (654) 636 1,219 502
Production (458) (168) (458) (168)
------ ------ ------ ------
Reserves as of December 31, 2001 13,630 2,287 8,267 1,585
====== ====== ====== ======
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
December 31,
--------------------------
2001 2000
---- ----
Future cash flows $ 238,050 $ 374,869
Future costs:
Production (84,644) (126,082)
Development (23,605) (28,728)
-------- ---------
Future net cash flows 129,801 220,059
10% annual discount for estimated timing of cash flows (83,336) (128,010)
-------- ---------
Standardized measure of discounted net cash flows $ 46,465 $ 92,049
======== =========
F-26
2001 2000
---- ----
Increase (decrease):
Sales of minerals in place $ -- $ (1,380)
Accretion of discount 9,204 7,367
Net change in sales prices net of production costs (5,635) 24,997
Purchase of minerals in place -- 9,755
Changes in estimated future development costs 1,834 (6,514)
Revisions of quantity estimates (44,573) (11,603)
Sales, net of production costs (6,414) (4,242)
------- -------
Net increase (decrease) (45,585) 18,380
Standardized measure of discounted net cash flows:
Beginning of year 92,049 73,669
------- -------
End of year $ 46,465 $ 92,049
======= =======
(16) Commitments and Contingencies
At December 31, 2001, the Company is party to two legal actions arising
incidental to its business. It is management's opinion that the
ultimate outcome of these legal actions will not have a material
adverse effect on the Company's operations or financial position.
(17) Supplemental Oil and Gas Reserve Data (Unaudited)
The estimates of the Company's proved oil and gas reserves, which are all
located in the United States, are prepared by independent petroleum
engineers. Reserves were estimated in accordance with guidelines
established by the U.S. Securities and Exchange Commission and the
Financial Accounting Standards Board, which require that reserve
estimates be prepared under existing economic and operating conditions
with no provision for price and cost escalations except by contractual
arrangements. The Company has presented the reserve estimates
utilizing an oil price of $18.98, $25.09 and $24.75 per Bbl and a gas
price of $2.72, $10.18 and $2.20 per Mcf as of December 31, 2001, 2000
and 1999, respectively. Information for oil is presented in barrels
(BBL) and for gas in thousands of cubic feet (MCF).
F-27
Total Proved Proved Developed
-------------------- -------------------
BBL MCF BBL MCF
--- --- --- ---
Reserves as of December 31, 1999 1,008 17,284 589 12,685
Sales of reserves in place -- (383) -- (383)
Extensions and discoveries 37 1,143 37 1,143
Revisions of previous estimates 94 464 111 953
Production (165) (2,822) (165) (2,822)
----- ------ ---- ------
Reserves as of December 31, 2000 974 15,686 572 11,576
Sales of reserves in place (1) -- (1) --
Extensions and discoveries 78 1,737 78 1,737
Revisions of previous estimates 4 (210) (20) (473)
Production (139) (3,266) (139) (3,266)
----- ------ ---- ------
Reserves as of December 31, 2001 916 13,947 490 9,574
===== ====== ==== ======
The following is a standardized measure of the discounted net future cash
flows and changes applicable to proved oil and gas reserves required
by SFAS No. 69. The future cash flows are based on estimated oil and
gas reserves utilizing prices and costs in effect as of year end,
discounted at 10% per year and assuming continuation of existing
economic conditions.
During 2001, the average sales price received by the Company for its oil
was approximately $24.80 per Bbl, as compared to $28.88 in 2000, while
the average sales price for the Company’s gas was approximately
$4.41 per Mcf in 2001, as compared to $4.38 per Mcf in 2000.
The standardized measure of discounted future net cash flows, in
management’s opinion, should be examined with caution. The
basis for this table are the reserve studies prepared by independent
petroleum consultants, which contain imprecise estimates of quantities
and rates of production of reserves. Revisions of previous year
estimates can have a significant impact on these results. Also,
exploration costs in one year may lead to significant discoveries in
later years and may significantly change previous estimates of proved
reserves and their valuation. Therefore, the standardized measure of
discounted future net cash flow is not necessarily a “best
estimate” of the fair value of the Company’s proved
oil and gas properties.
F-28
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
(In Thousands)
December 31,
---------------------------------------------
2001 2000 1999
---- ---- ----
Future cash flows $ 47,648 $ 184,045 $ 62,967
Future costs:
Production (17,353) (35,550) (18,632)
Development (4,874) (4,228) (4,797)
--------- --------- --------
Future net cash flows before income taxes 25,421 144,267 39,538
Future income taxes (34) (24,321) --
--------- --------- --------
Future net cash flows 25,387 119,946 39,538
10% annual discount for estimated timing of
cash flows (8,312) (38,658) (14,039)
--------- --------- --------
Standardized measure of discounted net cash $ 17,075 $ 81,288 $ 25,499
flows ========= ========= ========
Changes in Standardized Measure of
Discounted Future Net Cash Flows From Proved Reserves
(In Thousands)
Years ended December 31,
-----------------------------------------
2001 2000 1999
---- ---- ----
Increase (decrease):
Sales of minerals in place $ (4) $ (136) $ (238)
Extensions and discoveries and improved
recovery, net of future production and 3,831 8,398 3,067
development costs
Accretion of discount 9,095 2,550 2,682
Net change in sales prices net of production (68,367) 66,306 11,882
costs
Changes in estimated future development costs 5 204 789
Revisions of quantity estimates (172) 4,496 (13,371)
Net change in income taxes 9,662 (9,662) --
Sales, net of production costs (13,919) (14,035) (6,620)
Changes of production rates (timing) and other (4,344) (2,332) 485
------ ------ ------
Net increase (decrease) (64,213) 55,789 (1,324)
Standardized measure of discounted future net cash flows:
Beginning of year 81,288 25,499 26,823
------ ------ ------
End of year $ 17,075 $ 81,288 $ 25,499
======= ====== ======
F-29
Quarter
----------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(in thousands, except per share data)
2001:
Oil and gas revenues $ 7,288 $ 4,791 $ 3,811 $ 1,949
Total costs and expenses 3,095 2,969 4,925 17,416
Net income 4,636 1,215 (491) (10,067)
Net income per common share $ .219 $ .052 $ .030 $ (.50)
Net income per common share -
assuming dilution $ .196 $ .051 $ .030 $ (.50)
2001 results include noncash charges of $2,177,128 and $14,642,685 during the third and fourth quarters,
respectively related to the impairment of oil and gas properties. (See Note 12)
2000:
Oil and gas revenues $ 2,775 $ 3,197 $ 4,163 $ 7,000
Total costs and expenses 1,875 2,098 2,220 3,337
Net income 194 695 1,699 3,389
Net income per common share $ .001 $ .027 $ .076 $ .16
Net income per common share -
assuming dilution $ .001 $ .027 $ .072 $ .14
1999:
Oil and gas revenues $ 1,963 $ 1,992 $ 2,291 $ 2,728
Total costs and expenses 1,621 1,729 2,239 4,585
Net income (loss) (10) (94) (150) (2,196)
Net income (loss) per common
share $ (.010) $ (.013) $ (.016) $ (.18)
Net income (loss) per common
share - assuming dilution $ (.010) $ (.013) $ (.016) $ (.16)
(19) Subsequent Events
On March 7, 2002, First Permian entered into an Agreement of Sale and
Purchase with an affiliate of Energen Corporation (Energen), to sell
all of its oil and gas properties for $120 million in cash and
3,043,470 shares in Energen stock approximating $70 million in value.
Energen is a publicly traded company listed on the NYSE. The stock
consideration is subject to a collar ranging in value from $18.40 and
$27.60 per share, aggregating from $56 million to $84 million. As a
30.675% interest owner in First Permian, the Company expects its
prorata share of the net proceeds to be approximately $29 million in
cash and Energen stock and result in a substantial gain. The closing
of the transaction is anticipated to occur in April 2002, with an
effective date of January 1, 2002.
F-30