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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For Fiscal Year Ended December 31, 1999
Commission file number 1-7940
GOODRICH PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0466193
(State of incorporation) (I.R.S. Employer Identification No.)
815 Walker St., Suite 1040
Houston, Texas 77002
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code is (713) 780-9494
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.20 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Series A Preferred Stock, NASDAQ Small Cap
$1.00 par value
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. [_]
At March 27, 2000 there were 8,684,849 shares (adjusted for reverse stock
split) of Goodrich Petroleum Corporation common stock outstanding. The
aggregate market value of shares of common stock held by non-affiliates of the
registrant as of March 31, 2000 was approximately $40,710,230 based on a
closing price of $4.69 per share on the New York Stock Exchange on such date.
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PART I
Items 1 and 2. Business and Properties.
General
Goodrich Petroleum Corporation and subsidiaries ("Goodrich" or "the
Company") is an independent oil and gas company engaged in the exploration,
development, production and acquisition of oil and natural gas properties in
the onshore portions of the United States, primarily the states of Louisiana
and Texas. The Company owns working and overriding royalty interests in 114
active oil and gas wells located in 33 fields in eight states. At December 31,
1999, Goodrich had estimated proved reserves of approximately 5,858,000
barrels of oil and condensate and 20.9 Bcf of natural gas, or an aggregate of
56.0 Bcfe with a pre-tax present value of future net revenues, discounted at
10%, of $93.1 million. On a pro forma basis, Goodrich had estimated proved
reserves, including the Burrwood/West Delta acquisition, of approximately
6,750,000 barrels of oil and condensate and 26.8 Bcf of natural gas, or an
aggregate of 67.3 Bcfe with a pre-tax present value of future net revenues,
discounted at 10%, of $106.4 million.
The Company's principal executive offices are located at 815 Walker, Suite
1040 Houston, Texas 77002. The Company also has offices in Shreveport,
Louisiana. At March 8, 2000 the Company had 16 employees.
Company Background
Goodrich resulted from a business combination on August 15, 1995 between
La/Cal Energy Partners ("La/Cal") and Patrick Petroleum Company and
subsidiaries ("Patrick"). La/Cal was a privately held independent oil and gas
partnership formed in July 1993 and engaged in the development, production and
acquisition of oil and natural gas properties, primarily in Southern
Louisiana. Patrick was a NYSE-listed independent oil and gas company engaged
in the exploration, production, development and acquisition of oil and natural
gas properties in the continental United States. Patrick's oil and gas
operations and properties were primarily located in West Texas and Michigan at
the time of the combination, with additional operations and properties in
certain Western states.
Oil and Gas Operations and Properties
The following is a summary description of the Company's oil and gas
properties.
Louisiana
The majority of the Company's proved natural gas reserves are in the
Southern Louisiana producing region. The Southern Louisiana producing region
refers to the geographic area which covers the onshore and in-land waters of
South Louisiana lying in the southern one-half of the state of Louisiana,
which is one of the world's most prolific oil and natural gas producing
sedimentary basins. The region generally contains sedimentary sandstones,
which are of high qualities of porosity and permeabilities. There is a myriad
of types of reservoir traps found in the region. These traps are generally
formed by faulting, folding and subsurface salt movement or a combination of
one or more of these. Salt movement has resulted in a large number of shallow
piercement salt domes as well as deeper movements, which have resulted in both
large and small anticlinal structures.
The formations found in the Southern Louisiana producing region range in
depth from 1,000 feet to 20,000 feet below the surface. These formations range
from the Sparta and Frio formations in the northern part of the region to
Miocene and Pleistocene in the southern part of the region. The Company's
production comes predominately from Miocene and Frio age formations.
Lafitte Field. Lafitte Field is located in Jefferson Parish, Louisiana and
was discovered in 1935 by Texaco. Lafitte Field is a large, north-south
elongated salt dome anticline feature. There are more than thirty (30) defined
productive sands, which have collectively produced in excess of 262 million
barrels of oil and 318 Bcf of natural gas. The productive sands are Miocene
and Pliocene age sands ranging in depth from 3,000 feet to approximately
12,000 feet. There are currently 30 active producing wells in the field.
2
Effective October 1999, Goodrich acquired an average working interest of
approximately 45% in approximately 8,000 acres in the Lafitte Field. In
January 2000, Goodrich, along with the operator of the field, drilled the
first well since the acquisition, the LL&E 198, in which Goodrich owns a 49%
working interest.
Burrwood/West Delta Block 83 Fields. The Burrwood/West Delta Block 83
Fields, located in Plaquemines Parish, Louisiana, were discovered in 1955 by
Chevron. The fields lie upthrown to a large down-to-the southeast growth fault
system with the structure striking Northeast-Southwest and dipping
northwestward in a counter-regional direction. The fields have collectively
produced 48.7 million barrels of oil and 139 Bcf of natural gas. The
productive sands are Miocene and Pliocene age sands ranging in depth from
6,300 feet to approximately 11,700 feet. There are currently 10 active
producing wells in the fields.
Goodrich acquired a 95% working interest in approximately 8,600 acres
through an acquisition that closed on March 2, 2000 with an effective date of
January 1, 2000.
Second Bayou Field. The Second Bayou Field is located in Cameron Parish,
Louisiana and was discovered in 1955 by the Sun Texas Company. Goodrich is the
operator of seven producing wells, five of which are dually completed, and has
an average working interest of approximately 29% in 1,395 gross acres. To
date, the field has produced over 423 Bcf of natural gas and 3.0 million
barrels of oil from multiple Miocene aged sands ranging from 4,000 to 15,200
feet.
Other major operators in the area are Fina Oil and Chemical Company, Texaco
Exploration and Producing, Inc. and Bellwether Exploration Company.
Pecan Lake Field. The Pecan Lake Field was discovered in 1944 by the
Superior Oil Company. Geologically, the field is comprised of a relatively low
relief, four-way closure and multiple stacked pay sands. The Pecan Lake Field
comprises approximately 870 gross leased acres in Cameron Parish, Louisiana,
approximately 42 miles southeast of Lake Charles, Louisiana. The field has
produced from over 15 Miocene sands ranging in depths from 7,500 to 11,800
feet, which have been predominately gas and gas condensate reservoirs. These
sand reservoirs are characterized by generally widespread development and
strong waterdrive production mechanisms. The field has produced in excess of
350 Bcf of gas and 717,000 barrels of condensate. All of the field production
to date has come from normal pressured reservoirs. The Company is the operator
of five producing wells with working interests ranging from approximately 43%
to 47%.
Isle St. Jean Charles Field. Isle St. Jean Charles Field is located in
Terrebonne Parish, Louisiana. The field is a northwest extension of the Bayou
Jean LaCroix Field located in the southeastern area of the Parish. These
fields are trapped on a four-way closure, downthrown on a major east-west
trending down to the south fault. Production is from multiple Miocene-aged
sands, which are normally pressured and range in depth from 9,000 feet to
13,000 feet. The field was developed primarily in the 1950's by Exxon and
reservoirs have exhibited both depletion and water drive mechanisms. To date,
these fields have produced in excess of 53 billion cubic feet of gas and 6.55
million barrels of oil and condensate. There are currently five active wells
producing in these fields.
Goodrich acquired its working interest in its leasehold of approximately
425 acres through both acreage acquisitions and a farmout from Fina, et al.
Goodrich is operator of the field and holds an approximate 34% working
interest.
Lake Raccourci Field. The Lake Raccourci Field was discovered by Humble Oil
and Refining Company ("Exxon") in 1949, with the field extended to the South
by Pan American ("Amoco") in 1958. Geologically, the field is a large four-way
dipping closure, which is cross-cut by numerous Northeast-Southwest striking
down to the South faults. The field has produced from a minimum of 18
different Miocene age sandstones, ranging in depth from 9,000 to 16,500 feet.
These normally and abnormally pressured reservoirs exhibit depletion, water
and combination drive mechanisms, and have produced in excess of 833 billion
cubic feet of gas and 20 million barrels of oil and condensate. There are
currently nine producing wells in the field.
3
Goodrich acquired its average 20% working interest in the field through a
farmout from MW Petroleum ("Apache") in July 1996 and a separate farmout from
Exxon. The Company controls approximately 1,079 acres in the field and is
currently evaluating 3-D seismic for further exploitation opportunities.
Kings Ridge Field. Kings Ridge is located in Lafourche Parish, Louisiana.
The field was discovered by Natural Gas and Oil Company in 1954. The field is
set up geologically by three main faults, which strike East West and create
hydrocarbon traps on the downthrown side of the faults. Typically, these
downthrown traps are three-way structures that produce from Miocene aged sands
ranging in depth from 9,000' to 13,000'.
Goodrich has acquired approximately 307 acres from the Lafourche Parish
School Board and 114 acres from the Grandison Trust. Goodrich has drilled and
completed three wells in the field to date and has an approximate 50% working
interest.
Ada Field. The Ada Field was discovered by Hope Producing Company in 1945.
The field is located in Bienville Parish, in North Louisiana. Geologically,
the field is a turtle feature between two salt domes exhibiting a four-way
anticline with two main horst blocks, a main graben block, and several
compensating faults. The field has produced from numerous lower cretaceous
sands and lime facies, with the sands being predominately lenticular in
deposition. The producing interval for the field ranges from 4,500 to 10,000
feet, with the reservoir being primarily a pressure depletion mechanism. Ada
Field has produced over 657 Bcf of natural gas and 5.2 million barrels of oil.
Goodrich owns an approximate 43% working interest in the six producing
wells in the field.
Other. The Company maintains ownership interests in acreage and wells in
several additional fields in Louisiana, including the (i) Opelousas Field,
located in St. Landry Parish, (ii) Sibley Field, located in Webster Parish,
(iii) City of Lake Charles Field, located in Calcasieu Parish, (iv) Deep Lake
Field, located in Lafourche Parish, (v) Mosquito Bay Field, located in
Terrebonne Parish, (vi) South Pecan Lake Field located in Cameron Parish and
(vii) Charenton Field located in St. Mary Parish.
Texas
Goodrich explores and has production in the western, eastern and southern
regions of Texas.
The Company's primary exploration focus in West Texas is on the western
flank of the Horseshoe Atol area in Dawson and Gaines Counties. The Company is
actively developing drilling prospects through the integration of the
approximate 375 square miles of 3-D seismic it owns in the area with
subsurface geology.
Sean Andrew Field. The Sean Andrew Field was discovered by the Company in
1994 utilizing the Company's 375 square mile 3-D seismic database in West
Texas. The Company is the operator in the field and holds an approximate 37.5%
working interest.
Marholl Field. The Marholl Field is a Siluro-Devonian (Fussellman) field in
Dawson County discovered in 1995 through the use of 3-D seismic. The Company
operates two wells in the field with an approximate 23% working interest.
Mary Blevins Field. The Mary Blevins Field is located in Smith County,
Texas. It was a new discovery that is fault separated from Hitts Lake Field,
discovered in 1953 by Sun Oil. Currently there are four producing wells in the
field with Goodrich, as operator, having an approximate 48% working interest
in 782 gross acres. To date, Hitts Lake has produced over 14 million barrels
of oil and Mary Blevins has produced over 470,000 barrels from the Paluxy,
which occurs at a depth of approximately 7,300 feet.
Other. The Company maintains ownership interests in acreage and wells in
several additional fields in Texas including the (i) Ackerly Field, located in
Dawson and Howard Counties, (ii) Lamesa Farms Field, located in Dawson County,
(iii) Carthage (Bethany) Field, located in Panola County, (iv) N.W. Ackerly
Field, located in Dawson County, (v) Midway Field, located in San Patricio
County, (vi) East Jacksonville Field, located in Cherokee County, (vii) Mott
Slough, located in Wharton County.
4
Australia
Goodrich has interest in three exploration permits in the Carnarvon Basin
of Western Australia.
The developmental stage of the offshore Carnarvon Basin of Western
Australia is comparable to the Gulf of Mexico in 1950. The Carnarvon Basin is
two-thirds the size of the Gulf of Mexico and has produced in excess of 4.3
TCF and 550 million barrels of oil from less than 1000 wells. In comparison,
the Gulf of Mexico has produced approximately 104 TCF of gas and 9 billion
barrels of oil from 30,000 wells. The Carnarvon Basin retains significant
exploration potential. Additional strengths of the basin include large
inexpensive acreage blocks, vast available geological and geophysical data
sets, existing and expanding petroleum infrastructure and increasing domestic
demands for natural gas.
EP-395. Goodrich Petroleum acquired a 20% non-operated working interest in
the 240 square kilometer Exploration Permit in 1995. Since 1995, the partners
have reprocessed the original 2-D seismic data sets, shot a 38 km 3-D seismic
survey (1995), and shot an additional 93 km of high quality 2-D seismic.
Interpretation of this data has confirmed two separate prospects: West Boyd
and Lindsay. During 1999, Goodrich Petroleum farmed out its working interest
for a 6.9% carried interest through the drilling of the Boyd #1 well, which
was a dry hole. Currently, the partners are evaluating information from the
dry hole.
EP-396. The Company acquired a 33% non-operated working interest in 1995.
In January, 2000, the partners surrendered their exploration permit back to
the Department of Minerals and Energy.
EP-397. This Permit is 160 square kilometers and the Company has a 33%
working interest. The 130 km of available seismic has been reprocessed and
interpreted with several prospect leads.
Oil and Natural Gas Reserves
The following tables set forth summary information with respect to the
Company's proved reserves as of January 1, 2000 on a historical basis and on a
pro forma basis as if the Burrwood/West Delta Block 83 Fields acquisition of
March 2, 2000 had been completed as of that date, and 1999, on a historical
basis, as estimated by the Company by compiling reserve information,
substantially all of which was prepared by the engineering firm of Coutret and
Associates, Inc.
January 1, 2000
--------------------------------------------
Net Reserves Pre-Tax Present
---------------------------- Value of Future
Oil Net Revenues
Category (Bbls) Gas (Mcf) Bcfe(1) (in millions)
-------- --------- ---------- ------- ---------------
Historical
Proved Developed........... 3,179,888 13,945,450 33.0 $ 54.79
Proved Undeveloped......... 2,678,357 6,904,142 23.0 38.33
--------- ---------- ---- --------
Total Proved............. 5,858,245 20,849,592 56.0 $ 93.12
========= ========== ==== ========
Net Reserves Pre-Tax Present
---------------------------- Value of Future
Oil Net Revenues
Category (Bbls) Gas (Mcf) Bcfe(1) (in millions)
-------- --------- ---------- ------- ---------------
Pro Forma
Proved Developed........... 4,071,222 19,900,930 44.3 $ 68.04
Proved Undeveloped......... 2,678,357 6,904,139 23.0 38.33
--------- ---------- ---- --------
Total Proved............. 6,749,579 26,805,069 67.3 $ 106.37
========= ========== ==== ========
January 1, 1999
--------------------------------------------
Net Reserves Pre-Tax Present
---------------------------- Value of Future
Oil Net Revenues
Category (Bbls) Gas (Mcf) Bcfe(1) (in millions)
-------- --------- ---------- ------- ---------------
Historical
Proved Developed........... 2,266,854 21,481,946 35.1 $ 31.99
Proved Undeveloped......... 825,956 6,662,364 11.6 8.64
--------- ---------- ---- --------
Total Proved............. 3,092,810 28,144,310 46.7 $ 40.63
========= ========== ==== ========
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(1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf.
5
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating underground
accumulations of crude oil, condensate and natural gas that cannot be measured
in an exact manner, and the accuracy of any reserve estimate is a function of
the quality of available data and of engineering and geological interpretation
and judgment. The quantities of oil and natural gas that are ultimately
recovered, production and operating costs, the amount and timing of future
development expenditures and future oil and natural gas sales prices may all
differ from those assumed in these estimates. Therefore, the Present Value of
Future Net Revenues amounts shown above should not be construed as the current
market value of the estimated oil and natural gas reserves attributable to the
Company's properties.
In accordance with the Commission's guidelines, the engineers' estimates of
future net revenues from the Company's properties and the Present Value of
Future Net Revenues thereof are made using oil and natural gas sales prices in
effect as of the dates of such estimates and are held constant throughout the
life of the properties except where such guidelines permit alternate
treatment, including the use of fixed and determinable contractual price
escalations. The prices as of December 31, 1999 used in such estimates
averaged $2.63 per Mcf of natural gas and $25.16 per Bbl of crude
oil/condensate.
Productive Wells
The following tables set forth the number of active well bores in which the
Company maintains ownership interests as of December 31, 1999:
Oil Gas Total
-------------- -------------- --------------
Gross(1) Net(2) Gross(1) Net(2) Gross(1) Net(2)
-------- ----- ------- ----- ------- -----
California.............. -- -- 4.00 2.09 4.00 2.09
Colorado................ -- -- 1.00 .30 1.00 .30
Louisiana............... 41.00 18.68 29.00 10.60 70.00 29.28
Michigan................ 2.00 .26 5.00 .05 7.00 .31
Mississippi............. -- -- 1.00 .05 1.00 .05
New Mexico.............. -- -- 1.00 .03 1.00 .03
Texas................... 25.00 11.93 4.00 .63 29.00 12.56
Wyoming................. 1.00 .17 -- -- 1.00 .17
----- ----- ----- ----- ------ -----
Total Productive
Wells................ 69.00 31.04 45.00 13.75 114.00 44.79
===== ===== ===== ===== ====== =====
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(1) Does not include royalty or overriding royalty interests.
(2) Net working interest.
Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections. A gross well is
a well in which the Company maintains an ownership interest, while a net well
is deemed to exist when the sum of the fractional working interests owned by
the Company equals one. Wells that are completed in more than one producing
horizon are counted as one well. Of the gross wells reported above, eight had
multiple completions.
6
Acreage
The following table summarizes the Company's gross and net developed and
undeveloped natural gas and oil acreage under lease as of December 31, 1999.
Acreage in which the Company's interest is limited to a royalty or overriding
royalty interest is excluded from the table.
Gross Net
------- ------
Developed acreage
California............................................... 1,280 568
Colorado................................................. 640 192
Louisiana................................................ 15,007 6,120
Michigan................................................. 1,920 19
Texas.................................................... 5,358 1,912
Wyoming.................................................. 80 13
Undeveloped acreage
Offshore Australia....................................... 98,841 17,306
Louisiana................................................ 1,069 640
Michigan................................................. 640 50
Texas.................................................... 2,160 987
------- ------
Total.................................................. 126,995 27,807
======= ======
Undeveloped acreage is considered to be those lease acres on which wells
have not been drilled or completed to a point that would permit the production
of commercial quantities of natural gas or oil, regardless of whether or not
such acreage contains proved reserves. As is customary in the oil and gas
industry, the Company can retain its interest in undeveloped acreage by
drilling activity that establishes commercial production sufficient to
maintain the leases or by payment of delay rentals during the remaining
primary term of such a lease. The natural gas and oil leases in which the
Company has an interest are for varying primary terms; however, most of the
Company's developed lease acreage is beyond the primary term and is held by
producing natural gas or oil wells.
Operator Activities
Goodrich Petroleum operates a majority in value of the Company's producing
properties, and will generally seek to become the operator of record on
properties it drills or acquires in the future.
7
Drilling Activities
The following table sets forth the drilling activity of the Company for the
last three years. (As denoted in the following table, "Gross" wells refers to
wells in which a working interest is owned, while a "net" well is deemed to
exist when the sum of fractional ownership working interests in gross wells
equals one.)
Year Ended December 31
------------------------------
1999 1998 1997
--------- ---------- ---------
Gross Net Gross Net Gross Net
----- --- ----- ---- ----- ---
Development Wells:
Productive............................... 1.00 .49 6.00 2.77 6.0 2.6
Non-Productive........................... -- -- 2.00 1.47 0.0 0.0
---- --- ----- ---- ---- ---
Total.................................. 1.00 .49 8.00 4.24 6.0 2.6
==== === ===== ==== ==== ===
Exploratory Wells:
Productive............................... -- -- 7.00 1.49 12.0 2.9
Non-Productive........................... 1.00 .12 8.00 2.87 7.0 1.7
---- --- ----- ---- ---- ---
Total.................................. 1.00 .12 15.00 4.36 19.0 4.6
==== === ===== ==== ==== ===
Total Wells:
Productive............................... 1.00 .49 13.00 4.26 18.0 5.5
Non-Productive........................... 1.00 .12 9.00 4.34 7.0 1.7
---- --- ----- ---- ---- ---
Total.................................. 2.00 .61 22.00 8.60 25.0 7.2
==== === ===== ==== ==== ===
Net Production, Unit Prices and Costs
The following table presents certain information with respect to oil, gas
and condensate production attributable to the Company's interests in all of
its fields, the revenue derived from the sale of such production, average
sales prices received and average production costs during each of the years in
the three-year period ended December 31, 1999.
1999 1998 1997
--------- --------- ---------
Net Production:
Natural gas (Mcf)....................... 2,930,655 2,782,825 2,449,320
Oil (barrels)........................... 394,442 316,768 282,380
Natural gas equivalents (Mcfe) (1)...... 5,297,307 4,683,433 4,143,600
Average Net Daily Production:
Natural gas (Mcf)....................... 8,029 7,624 6,710
Oil (Bbls).............................. 1,081 868 774
Natural gas equivalents (Mcfe) (1)...... 14,515 12,832 11,354
Average Sales Price Per Unit:
Natural gas (per Mcf)................... $ 2.41 2.18 2.55
Oil (per Bbl)........................... $ 16.88 11.88 18.06
Other Data:
Lease operating expense and production
taxes (per Mcfe)....................... $ .68 .60 .56
- --------
(1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf.
(2) Hedging activity for 1999 did not have a significant effect on these
results.
Oil and Gas Marketing and Major Customers
Marketing. Goodrich's natural gas production is sold under spot or market-
sensitive contracts and to various gas purchasers on short-term contracts.
Goodrich's natural gas condensate is sold under short-term rollover agreements
based on current market prices. The Company's crude oil production is marketed
to several purchasers based on short-term contracts.
8
The Company entered into an agreement with Natural Gas Ventures, L.L.C.
("NGV"), a Louisiana limited liability company, for the purpose of marketing
the Company's and its contracting parties' natural gas. The Company and other
contracting parties contribute natural gas to NGV, that NGV then markets to
gas purchasers, pursuant to the Joint Venture Agreement between NGV and Seaber
Corporation of Louisiana ("Seaber"). The Company can terminate this agreement
on 60-days notice. The Company believes its contract with NGV allows it to
realize higher prices for its contributed gas because of the greater market
power associated with larger volumes of gas than the Company would have for
sale on a stand-alone basis.
Customers. Due to the nature of the industry, the Company sells its oil and
natural gas production to a limited number of purchasers and, accordingly,
amounts receivable from such purchasers could be significant. Revenues from
these sources as a percent of total revenues for the periods presented were as
follows:
Year Ended
December 31,
----------------
1999 1998 1997
---- ---- ----
Seaber Corporation of Louisiana............................ 37% 47% 44%
Equiva Trading............................................. 27% 12% 11%
Texla Energy Management.................................... 10% -- --
Navajo Refining Company.................................... 7% 11% --
Mobil Oil Corporation...................................... -- -- 10%
Mitchell Marketing Company................................. -- -- 9%
Investment in Marcum Natural Gas Services
On January 5, 1999 the Company sold its investment in National Gas Services
("Marcum") for $240,000 resulting in a realized loss of $520,000. Marcum is a
publicly held diversified provider of products and services to the natural gas
industry.
Competition
The oil and gas industry is highly competitive. Major and independent oil
and gas companies, drilling and production acquisition programs and individual
producers and operators are active bidders for desirable oil and gas
properties, as well as the equipment and labor required to operate those
properties. Many competitors have financial resources substantially greater
than those of the Company, and staffs and facilities substantially larger than
those of the Company. The availability of a ready market for the oil and gas
production of the Company will depend in part on the cost and availability of
alternative fuels, the level of consumer demand, the extent of domestic
production of oil and gas, the extent of importation of foreign oil and gas,
the cost of and proximity to pipelines and other transportation facilities,
regulations by state and federal authorities and the cost of complying with
applicable environmental regulations.
Regulations
The availability of a ready market for any natural gas and oil production
depends upon numerous factors beyond the Company's control. These factors
include regulation of natural gas and oil production, federal and state
regulations governing environmental quality and pollution control, state
limits on allowable rates of production by a well or proration unit, the
amount of natural gas and oil available for sale, the availability of adequate
pipeline and other transportation and processing facilities and the marketing
of competitive fuels. For example, a productive natural gas well may be "shut-
in" because of an oversupply of natural gas or the lack of an available
natural gas pipeline in the areas in which the Company may conduct operations.
State and federal regulations generally are intended to prevent waste of
natural gas and oil, protect rights to produce natural gas and oil between
owners in a common reservoir, control the amount of natural gas and oil
produced by assigning allowable rates of production and control contamination
of the environment. Pipelines are subject to the jurisdiction of various
federal, state and local agencies as well.
9
Environmental Regulation
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect the Company's operations and costs
as a result of their effect on oil and gas development, exploration and
production operations. It is not anticipated that the Company will be required
in the near future to expend amounts that are material in relation to its
total capital expenditures program by reason of environmental laws and
regulations but, inasmuch as such laws and regulations are frequently changed
by both federal and state agencies, the Company is unable to predict the
ultimate cost of continued compliance. Additionally, see existing EPA matters
discussed in Item 3--Legal Proceedings.
State statutes and regulations require permits for drilling operations,
drilling bonds and reports concerning operations. In addition, there are state
statutes, rules and regulations governing conservation matters, including the
unitization or pooling of oil and gas properties, establishment of maximum
rates of production from oil and gas wells and the spacing, plugging and
abandonment of such wells. Such statutes and regulations may limit the rate at
which oil and gas could otherwise be produced from the Company's properties
and may restrict the number of wells that may be drilled on a particular lease
or in a particular field.
Item 3. Legal Proceedings.
The U.S. Environmental Protection Agency ("EPA") has identified the Company
as a potentially responsible party ("PRP") for the cost of clean-up of
"hazardous substances" at an oil field waste disposal site in Vermilion
Parish, Louisiana. The Company estimates that the remaining cost of long-term
clean-up of the site will be approximately $3.5 million, with the Company's
percentage of responsibility estimated to be approximately 3.05%. As of
December 31, 1999, the Company had paid $321,000 in costs related to this
matter and accrued $122,500 for the remaining liability. These costs have not
been discounted to their present value. The EPA and the PRPs will continue to
evaluate the site and revise estimates for the long-term clean-up of the site.
There can be no assurance that the cost of clean-up and the Company's
percentage responsibility will not be higher than currently estimated. In
addition, under the federal environmental laws, the liability costs for the
clean-up of the site is joint and several among all PRPs. Therefore, the
ultimate cost of the clean-up to the Company could be significantly higher
than the amount presently estimated or accrued for this liability.
On February 8, 2000, the Company commenced a suit against the operator and
joint owner of the Lafitte Field, alleging certain items of misconduct and
violations of the letter agreement associated with the joint acquisition. The
suit is in its early stages and it is too early to predict a likely outcome,
however, as the Company is the plaintiff in this action, this action is not
expected to have a significantly adverse impact on the operations or financial
position of the Company.
The Company is party to additional lawsuits arising in the normal course of
business. The Company intends to defend these actions vigorously and believes,
based on currently available information, that adverse results or judgments
from such actions, if any, will not be material to its financial position or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock is traded on the New York Stock Exchange.
At March 27, 2000 the number of holders of record of the Company's common
stock without determination of the number of individual participants in
security position was 3,356 with 8,684,849 shares outstanding. High and low
sales prices for the Company's common stock for each quarter during the
calendar years 1999 and 1998 are as follows:
1999 1998
---------- ---------
Quarter Ended High Low High Low
------------- ----- ---- ---- ----
March 31............................................. $1.50 .69 8.00 5.06
June 30.............................................. $1.88 .94 7.19 5.25
September 30......................................... $2.69 .94 5.63 2.25
December 31.......................................... $3.06 2.19 3.00 1.13
The Company has not paid a cash dividend on its Common Stock and does not
intend to pay such a dividend in the foreseeable future.
11
Item 6. Selected Financial Data.
Selected Statement of Operations Data:
The following table sets forth selected financial data of the Company for
each of the years in the five-year period ended December 31, 1999, which
information has been derived from the Company's audited financial statements.
This information should be read in connection with and is qualified in its
entirety by the more detailed information in the Company's financial
statements under Item 8 below and Item 7, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Year Ended December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ----------
Revenues................ $14,020,574 10,591,873 12,901,361 9,769,383 6,174,412
Depletion, Depreciation
and Amortization....... 4,743,608 4,094,447 4,862,754 3,788,292 1,785,502
Exploration............. 1,656,158 6,010,425 3,205,730 1,149,240 193,159
Interest Expense........ 2,810,576 1,909,849 1,416,675 828,394 1,132,488
Total Costs and
Expenses............... 15,330,062 18,311,421 14,978,629 9,476,366 5,037,101
Gain (Loss) on sale of
assets................. (519,495) 4,206 688,304 88,428 --
Extraordinary Item--
Early Extinguishment of
Debt.................. -- -- -- -- 482,906
Net Income (Loss)....... (1,828,983) (7,715,342) (1,388,964) 381,445 654,405
Preferred Stock
Dividends (1999 amounts
in arrears)............ 1,249,343 1,255,638 1,205,210 644,800 254,932
Earnings (Loss)
Applicable to Common
Stock.................. (3,078,326) (8,970,980) (2,594,174) (263,355) 399,473
Basic Loss Per Average
Common Share(c)........ (.58) (1.71) (.50) (.05)
Diluted Loss Per Average
Common Share(c)........ $ (.58) (1.71) (.50) (.05)
Average Common Shares
Outstanding(c)......... 5,288,011 5,243,105 5,229,307 5,225,564
Pro Forma Information:
Pro Forma Income
Taxes(a).............. 402,698
Pro Forma Net Income... 251,707
Pro Forma Loss
Applicable to Common
Stock................. (3,225)
Pro Forma Income Before
Extraordinary Item Per
Average Common
Share(b)............... .14
Extraordinary Item Per
Average Common
Share(b)............... (.14)
Pro Forma Basic and
Diluted Earnings (Loss)
Per Average Common
Share(b)............... --
Pro Forma Average Common
Shares Outstanding(b).. 3,465,318
December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ----------
Selected Balance Sheet
Data:
Total Assets........... $56,258,552 44,036,588 37,537,918 22,398,984 22,382,716
Total Long Term
Debt(d)............... 36,953,117 29,500,000 18,500,000 10,000,000 9,750,000
Stockholders' Equity... $ 6,411,044 4,959,388 14,332,676 9,135,200 9,662,812
- --------
(a) No provision for income taxes is included in the consolidated statements
of operations for the period from January 1, 1995 through August 14, 1995,
for the operations of La/Cal Energy Partners (predecessor company), due to
La/Cal Energy Partners being a partnership and income taxes were the
responsibility of the individual partners of La/Cal Energy Partners.
Certain unaudited pro forma information relating to the Company's results
of operations, had La/Cal Energy Partners been a corporation for this
period, is shown above.
(b) Number of shares restated to retroactively adjust for one for eight
reverse stock split in March 1998.
(c) The above data reflects the operations solely of La/Cal Energy Partners
for periods prior to August 15,1995, whereas such data reflects the
operations of La/Cal Energy Partners combined with Patrick Petroleum
Company for periods subsequent to August 15, 1995.
(d) Includes current maturities.
12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Background of Business Combination and Basis of Presentation
The Company was created by the combination of Patrick Petroleum Company
("Patrick") and La/Cal Energy Partners ("La/Cal") in August 1995. The La/Cal--
Patrick business combination was accounted for on the basis of purchase
accounting, with La/Cal deemed to be the acquiror. Accordingly, on August 15,
1995, the Company recorded the assets and liabilities of Patrick at fair
value, whereas the assets and liabilities of La/Cal are reflected at
historical book value. The consolidated results of operations for the year
ended December 31, 1995 reflect the operations solely of La/Cal for the
portion of the year prior to August 15, 1995, whereas such results reflect the
operations of the combined entities for the remainder of the year. As a
result, comparison of the current and prior period financial statements with
the year ended December 31, 1995 is significantly impacted by the combination
transactions. Prior to the combination transactions, La/Cal was a privately
owned Louisiana general partnership formed on July 15, 1993 by the
contribution of certain oil and gas properties owned by the partners.
1997 Acquisition
On January 31, 1997, the Company acquired the oil and gas properties of
La/Cal Energy Partners II ("La/Cal II") and certain working interest owners
for a purchase price of $16.5 million ("La/Cal II Acquisition"). The purchase
price consisted of $1.5 million cash, the assumption of $7.5 million La/Cal II
long-term debt and the issuance of 750,000 shares of Series B convertible
preferred stock of the Company ("Series B Preferred Stock") with an aggregate
liquidation value of $7.5 million. In connection with the La/Cal II
Acquisition, the Company increased its borrowing base to $22.5 million and
borrowed an additional $9 million to retire or (payoff) La/Cal II's debt and
to pay the cash portion of the purchase price. The Series B Preferred Stock
accrues dividends at a rate of 8.25% per annum and each share of Series B
Preferred Stock is convertible into 1.12 shares of common stock. Such shares
are redeemable by the Company after January 31, 2001 at $10.00 per share.
Results of Operations
Year ended December 31, 1999 versus year ended December 31, 1998--Total
revenues in 1999 amounted to $14,021,000 and were $3,429,000 (32%) higher than
total revenues in 1998 due primarily to higher oil and gas revenues. Oil and
gas sales were $3,898,000 higher due to higher oil and gas prices, higher oil
and gas production volumes and additional oil volumes associated with the
Lafitte Field acquisition in September 1999.
1999 1998
------------------------ ------------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
Gas (Mcf)............... 2,930,655 $ 2.41 2,782,825 $ 2.18
Oil (Bbls).............. 394,442 $16.88 316,768 $11.88
Lease operating expense and production taxes were $3,592,000 for 1999
compared to $2,822,000 for 1998, or $770,000 higher substantially due to costs
related to the Lafitte Field properties. Depletion, depreciation and
amortization was $4,744,000 in 1999 versus $4,094,000 in 1998, or $650,000
higher due to increased oil and gas production including volumes associated
with the Lafitte Field properties.
The Company incurred $1,656,000 of exploration expense in 1999 compared to
$6,010,000 in 1998. Included in the 1999 exploration expense is $120,000 of
costs related to dry holes during the period versus $3,684,000 of such costs
related to dry holes in 1998.
The Company recorded an impairment in the recorded value of certain oil and
gas properties in 1999 in the amount of $465,000 due to the complete depletion
of the reserves on three one well non-core fields. This compares to an
impairment of $1,076,000 recorded in 1998.
13
Interest expense was $2,811,000 in 1999 compared to $1,910,000 (47% higher)
due to the Company having higher average debt outstanding as a result of the
September 23, 1999 private placement and a higher effective interest rate in
1999 compared to 1998. The 1999 effective interest includes financing costs
and non cash expense due to the amortization of the valuation of detachable
common stock purchase warrants issued in connection with the 1999 private
placement.
General and administrative expenses amounted to $1,990,000 for 1999 versus
$2,399,000 in 1998.
During 1999, no preferred stock dividends were declared, however, dividends
on the Company Series A and Series B preferred stock did accumulate to an
amount equal to $1,249,000 for 1999. The preferred stock dividends are
cumulative and the Company is prohibited from paying dividends on its Series A
and B preferred stock by its bank loan agreement. In addition, no stock
dividends can be paid until all preferred dividend arrearages are paid. The
Company also accrued non-cash dividends on its Goodrich--Louisiana Series A
Preferred units of $73,000 that is reflected as preferred dividends of
subsidiary in the statement of operations for 1999.
Year ended December 31, 1998 versus year ended December 31, 1997--Total
revenues in 1998, amounted to $10,592,000 and were $2,309,000 (18%) lower than
total revenues in 1997 due to lower oil and gas revenues and the loss of
revenues from the pipeline joint venture. Oil and gas sales were $1,515,000
lower due primarily to lower oil and gas prices, partially offset by higher
production volumes. Revenues from the pipeline joint venture were $-0- in 1998
compared to $1,078,000 in 1997 due to the sale of the asset in the fourth
quarter of 1997.
The following table reflects the production volumes and pricing information
for the periods presented:
1998 1997
------------------------ ------------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
Gas (Mcf)............... 2,782,825 $ 2.18 2,449,320 $ 2.55
Oil (Bbls).............. 316,768 $11.88 282,380 $18.06
Lease operating expense and production taxes were $2,822,000 for 1998
compared to $2,316,000 for 1997, or $506,000 higher, due primarily to the
Company not incurring, in the 1997 period, ad valorem taxes related to the
La/Cal II properties that were the responsibility of the La/Cal II partners.
Additionally, the 1998 period includes eight additional producing wells and
twelve months of lease operating expense and production taxes for the La/Cal
II properties, compared to eleven months for 1997 due to the effective date of
the acquisition being January 31, 1997. Depletion, depreciation and
amortization was $4,094,000 in 1998 versus $4,863,000 in 1997, or $769,000
lower, substantially due to no amortization of the pipeline joint venture in
1998 compared to $741,000 in 1997.
The Company incurred $6,010,000 of exploration expense in 1998 compared to
$3,206,000 in 1997. Included in the 1998 exploration expense is $3,684,000 of
costs related to dry holes during the period versus $2,342,000 of such costs
in 1997.
The Company recorded an impairment in the recorded value of certain oil and
gas properties in 1998 in the amount of $1,076,000 due to lower oil prices and
higher than expected depletion rates. This compares to an impairment of
$550,000 recorded in 1997.
Interest expense was $1,910,000 in 1998 compared to $1,417,000 (35% higher)
due to the Company having higher average debt outstanding slightly offset by a
lower effective interest rate in 1998 compared to 1997.
General and administrative expenses amounted to $2,399,000 for 1998 versus
$2,628,000 in 1997.
The Company's preferred stock dividends amounted to $1,256,000 for 1998
compared to $1,205,000 in 1997, or $51,000 higher, due to twelve months of
dividends being paid on the Company's Series B Preferred Stock in the current
year versus eleven months in the prior year.
14
Liquidity and Capital Resources
Net cash provided by operating activities was $1,065,000 in 1999 compared
to $4,517,000 in 1998 and $6,633,000 in 1997. The Company's net cash flow
provided by operating activities decreased in 1999 due to the use of part of
the proceeds from the 1999 private placement of securities to pay down
accounts payable by $5,052,000. The accompanying consolidated statements of
cash flows identify major differences between net loss and net cash provided
by operating activities for each of the years presented.
Net cash used in investing activities amounted to $6,407,000 in 1999
compared to $14,959,000 in 1998 and $6,007,000 in 1997. The amount for year
ended December 31, 1999 is composed almost entirely of cash paid in connection
with the purchase of oil and gas properties of $4,100,000 and exploration and
drilling capital expenditures of $2,557,000. These amounts were partially
offset by proceeds from the sale of marketable equity securities and the sale
of an oil and gas property of $240,000 and $9,000, respectively. Net cash used
in investing activities for year ended December 31, 1998 is composed almost
entirely of cash paid for exploration and drilling capital expenditures of
$14,879,000. Net cash used in investing activities for year ended December 31,
1997 reflects non-acquisition capital expenditures of $7,866,000 and of cash
paid in connection with the purchase of oil and gas properties of $2,075,000.
These amounts were offset by proceeds from sale of the Company's interest in
the pipeline joint venture ($3,564,000) and sale of certain oil and gas
properties located in Montana.
Net cash provided by financing activities was $11,176,000 and $9,744,000 in
1999 and 1998, respectively, compared to net cash used in financing activities
of $177,000 in 1997. The 1999 amount includes proceeds from the issuance of
convertible notes of $12,000,000 and proceeds from the issuance of preferred
stock of $3,000,000. The amount also includes debt financing costs of
$1,303,000 and pay downs of $2,409,000 by the Company under its line of
credit. The 1999 period reflects no preferred dividends. The 1998 amount
includes the borrowing of $11,500,000 by the Company under its line of credit
offset by paydowns during the year of $500,000. Preferred stock dividends in
1998 amounted to $1,256,000 (Series A and Series B). The 1997 amount includes
the borrowing of $9,000,000 by the Company under its line of credit, which was
used to pay off the debt assumed in the La/Cal II Acquisition and to pay the
cash portion of the purchase price. The 1997 amount also includes other
borrowings of $3,000,000 against its line of credit offset by paydowns during
the year of $3,500,000 and the payoff of La/Cal II debt of $7,464,000.
Preferred stock dividends in 1997 amounted to $1,205,000 (Series A and Series
B).
Private Placement
On September 23, 1999, the Company and two of its subsidiaries, Goodrich
Petroleum Company, L.L.C. ("Goodrich-Louisiana") and Goodrich Petroleum
Company-Lafitte, L.L.C. ("Goodrich-Lafitte"), completed a private placement of
$15 million of convertible securities. As described below the private
placement transaction accomplished the objectives of management's plan as set
forth in the Liquidity and Capital Resources section of the Company's 1998
Annual Report on Form 10-K.
Goodrich-Louisiana issued convertible notes in the amount of $6,000,000
that will accrue interest monthly at 8% in arrears until October 1, 2002.
Unless extended or converted, the principal and accrued interest will be
repayable in 24 months, beginning October 1, 2002. Principal and accrued
interest may be converted by the holder at any time into the common stock of
the Company at the rate of $4.00 per share. These convertible notes are
secured by various collateral, including a mortgage on Goodrich-Louisiana's
oil and gas properties. The purchasers of these notes received one warrant to
purchase a share of the common stock of the Company at $.9375 (the closing
price on the date the transaction was negotiated) for every $4.00 of notes
issued. The warrants may be exercised at any time before their expiration on
September 30, 2006.
Goodrich-Lafitte is a newly formed Louisiana limited liability company and
is the entity that owns a 49% interest in the Lafitte Field. Goodrich-Lafitte
also issued convertible notes in the amount of $6,000,000 that will accrue
interest at 8% per annum accruing monthly in arrears until October 1, 2002.
Unless extended or converted,
15
the principal and accrued interest will be repayable in 24 months, beginning
October 1, 2002. Principal and accrued interest may be converted by the holder
at any time into the common stock of the Company at the rate of $4.00 per
share. As an alternative conversion right, the principal and accrued interest
under these notes may be converted into common equity interests in Goodrich-
Lafitte, after October 1, 2002, if neither the common stock of the Company has
a closing price of at least $3.00 per share nor the net asset value per share
of the Company is at least $3.00. These convertible notes are secured by
various collateral, including a mortgage on Goodrich-Lafitte's oil and gas
properties. The purchasers of these notes received one warrant to purchase a
share of the common stock of the Company at $.9375 (the closing price on the
date the transaction was negotiated) for every $4.00 of notes issued. The
warrants may be exercised at any time before their expiration on September 30,
2006. The Company has a right to prepay the debt with a 10% penalty.
Approximately $3.7 million of the proceeds from the Goodrich-Lafitte
convertible notes were used to purchase the aforementioned interest in the
Lafitte Field. The remaining proceeds are being used for development capital
expenditures and for general corporate and working capital purposes.
Additionally, Goodrich-Louisiana issued $3,000,000 of preferred interests
consisting of 300,000 preferred units with a par value and liquidation
preference of $10 per share. Distributions on the preferred units will accrue
quarterly in arrears at 8% per annum through September 30, 2002, at which time
the rate increases 2% per year not to exceed 20%. Goodrich-Louisiana has the
right to redeem the units at any time. The preference amount and accrued
distributions may be converted by the holder at any time into the common stock
of the Company at $2.00 per share. Each preferred unit holder was also issued
one warrant to purchase a share of common stock of the Company for every $10
of preference value. The warrants are exercisable at $1.50 per share at any
time before their expiration on September 30, 2006. As mentioned in Note D to
Consolidated Financial Statements, the Company redeemed all of the outstanding
preferred units on February 17, 2000.
Approximately $2,500,000 of the proceeds from issuance of the convertible
notes and preferred units was allocated to additional paid in capital as the
fair value of the warrants issued in connection with the securities, based on
the relative fair value of the two securities. $2,300,000 of the proceeds
allocable to additional paid in capital will be amortized as additional
interest cost over the original term of the related notes. The remaining
adjustment to additional paid in capital related to the preferred units will
be recorded as accretion in the value of the preferred stockholders' equity in
a subsidiary company. Transaction costs related to the private placement
amounted to approximately $1,500,000. The transaction costs allocable to the
debt issue of $1,320,000 will be amortized over the life of the convertible
debt. The remaining costs of $180,000 were allocated to, and offset against
the carrying value of the preferred units.
Under the terms of the Goodrich-Louisiana Operating Agreement, the holders
of preferred units have no voting rights unless the payment of distributions
is six months or more in arrears, in which event the holders of preferred
units may participate in the election of company managers. Goodrich-Louisiana
is precluded from issuing any new units having preference or priority over the
preferred units as to distributions, liquidation or redemption.
This transaction would normally have required approval of the Company's
shareholders according to the Shareholder Approval Policy of the New York
Stock Exchange (the "Exchange"). Pursuant to an exception to this policy and
based on a determination by the Company's Audit Committee that the delay
necessary in securing shareholder approval prior to the transaction would
seriously jeopardize the financial viability of the Company, the Company's
Audit Committee approved the Company's omission to seek shareholder approval.
The Exchange accepted the Company's application for use of the exception.
Lafitte Field Acquisition
As described in Note E to the Consolidated Financial Statements, the
Company acquired a 49% working interest in in the Lafitte Field located in
Jefferson Parish, Louisiana for $2,940,000 on September 23, 1999. The field
encompasses over 8,000 acres and is located approximately thirty miles south
of New Orleans. The Company commenced development activities in the fourth
quarter of 1999.
16
The purchase agreement included a production payment to be satisfied
through the delivery of production from the purchased property. In connection
with the transaction, the Company recorded a production payment liability of
approximately $2,200,000 representing the discounted present value of
production payments to be made over the estimated time to satisfy the
production payment.
Additionally, the Company recorded a $3,800,000 non-current liability for
its interest in the estimated plugging and abandonment costs assumed in
connection with the purchase.
Restructuring of Credit Agreement
On March 2, 2000 the Company amended its Credit Agreement with Compass
Bank. The amended credit facility provides for a borrowing base of $26,800,000
with continued monthly principal reductions of $300,000. Interest on the
credit facility is accrued at the Compass Bank index rate plus 5/8%. The
maturity date for amounts drawn under the credit facility is July 1, 2001 with
no borrowing base redeterminations conducted prior to that date.
The credit facility requires the net proceeds of asset sales be used to
extinguish outstanding principle and interest under the credit facility.
Additionally, under the terms of the credit facility the Company may not make
any distributions or pay dividends, including dividends on any class of its
preferred stock, without the lender's approval.
Substantially all the Company's assets are pledged to secure both the
convertible notes and the credit facility.
Series A Preferred Stock
The terms of the Company's Series A Preferred Stock provided that the
Company will not incur additional debt at the parent company level after such
time as it reports financial results which show the Company's stockholders'
equity to be less than the liquidation preference of the Series A Preferred
Stock. As of December 31, 1999, the Company's stockholders' equity was
approximately $6.4 million and the liquidation preference on the outstanding
shares of the Series A Preferred Stock was approximately $7.9 million. As a
result, the Company was unable to incur additional debt at the parent company
level under its credit facility or from other sources at December 31, 1999. As
described in Note C to the Consolidated Financial Statements, the Company
completed a $4,500,000 private placement transaction of 1,500,000 shares of
common stock, and effected the conversion of all the outstanding Goodrich
Petroleum Company, LLC Series A Preferred Units, which converted into
approximately 1,550,000 shares of the Company's common stock on February 17,
2000. The conversion of the preferred units and private placement increased
stockholders equity by approximately $7,200,000, resulting in stockholders
equity exceeding the liquidation preference on the Series A Preferred Stock.
As a result, the Company's restriction on borrowing funds at the parent
company level has been eliminated.
Stock Listing
On July 28, 1999 the Company was notified by the New York Stock Exchange
that it had revised its minimum financial criteria for listed companies and
the time frame required for listed companies to become compliant. In addition,
the Company was informed that it was not in compliance with the revised
criteria. The Company submitted a revised twelve month business plan to the
Exchange in response to the notice on September 10, 1999. The business plan
was accepted by the New York Stock Exchange and will be monitored by the
Exchange for compliance on a quarterly basis. The short term nature of the
business plan may make it difficult to adhere to this business plan. If the
Company fails to do so, there can be no assurance that the New York Stock
Exchange will not delist the Company's common stock.
Accounting Matters
The Financial Accounting Standards Board issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, in June 1997. This
statement established accounting and reporting standards for derivative
instruments and hedging activities. Effective January 1, 2001, the Company
must recognize the fair
17
value of all derivative instruments as either assets or liabilities in its
Consolidated Balance Sheet. As derivative instrument meeting certain
conditions may be designated as a hedge of a specific exposure; accounting for
changes in a derivative's fair value will depend on the intended use of the
derivative and the resulting designation. Any transition adjustments resulting
from adopting this statement will be reported in net income or other
comprehensive income, as appropriate, as the cumulative effect of a change in
accounting principle period. As described under the heading "Quantitative and
Qualitative Disclosures About Market Risk" below of this Form 10-K report, the
Company makes use of derivative instruments to hedge specific market risks.
The Company has not yet determined the effects that SFAS No. 133 will have on
its future consolidated financial statements or the amount of the cumulative
adjustment that will be made upon adopting this new standard.
Year 2000
The Company experienced no interruption in, or failure of its normal
business activities or operations as a result of Year 2000 issues. Costs
incurred by the Company to become Year 2000 compliant were not material.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Debt and debt-related derivatives
The Company is exposed to interest rate risk on its short-term and long-
term debt with variable interest rates. Based on the overall interest rate
exposure on variable rate debt at December 31, 1999 a hypothetical 2% change
in the interest rates would increase interest expense by approximately
$506,000.
Hedging Activity
The Company engages in futures contracts ("Agreements") with certain of its
production. The Company considers these to be hedging activities and, as such,
monthly settlements on these contracts are reflected in oil and gas sales. In
order to consider these futures contracts as hedges, (i) the Company must
designate the futures contract as a hedge of future production and (ii) the
contract must reduce the Company's exposure to the risk of changes in prices.
Changes in the market value of futures contracts treated as hedges are not
recognized in income until the hedged item is also recognized in income. If
the above criteria are not met, the Company will record the market value of
the contract at the end of each month and recognize a related gain or loss.
Proceeds received or paid relating to terminated contracts or contracts that
have been sold are amortized over the original contract period and reflected
in oil and gas sales. The Company enters into hedging activities in order to
secure an acceptable future price relating to a portion of future production.
The primary objective of the activities is to protect against decreases in
price during the term of the hedge.
The Agreements provide for separate contracts tied to the NYMEX light sweet
crude oil and natural gas futures contracts. The Company has contracts which
contain specific contracted prices ("Swaps") or price ranges ("Collars") that
are settled monthly based on the differences between the contract price or
price ranges and the average NYMEX prices for each month applied to the
related contract volumes. To the extent the average NYMEX price exceeds the
contract price, the Company pays the spread, and to the extent the contract
price exceeds the average NYMEX price the Company receives the spread.
As of December 31, 1999, the Company's open forward position on its
outstanding crude oil was as follows:
(a) 350 barrels of oil per day with a no cost "collar" of $19.00 and
$21.00 per barrel through December 2000;
(b) 150 barrels of oil per day with a no cost "collar" of $18.20 and
$20.20 per barrel through December 2000; and
(c) 300 barrels of oil per day on a crude oil "swap" with a price of
$23.98 per barrel through April 2000.
18
At December 31, 1999 the Company's open forward position on its outstanding
crude oil hedging contracts was 800 bbl per day at an average price of $21.29.
The fair value of the crude oil hedging contracts in place at December 31,
1999 resulted in a liability of $330,000.
At December 31, 1999 the Company's open forward position on its outstanding
gas hedging contracts was 5,000 Mcf per day with a "floor" price of $2.50 per
Mcf through October 2000. The cost of the "floor" contract hedge is $0.23 per
Mcf over the "floor" price. The fair value of the natural gas hedging
contracts in place at December 31, 1999 resulted in an asset of $300,000.
Price fluctuations and the volatile nature of markets
Despite the measures taken by the Company to attempt to control price risk,
the Company remains subject to price fluctuations for natural gas and oil sold
in the spot market. Prices received for natural gas sold on the spot market
are volatile due primarily to seasonality of demand and other factors beyond
the Company's control. Domestic oil and gas prices could have a material
adverse effect on the Company's financial position, results of operations and
quantities of reserves recoverable on an economic basis.
Disclosure Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act") and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). All statements other than statements of
historical facts included in this Annual Report on Form 10-K regarding reserve
estimates, planned capital expenditures, future oil and gas production and
prices, future drilling activity, the Company's financial position, business
strategy and other plans and objectives for future operations, are forward-
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. There are numerous
uncertainties inherent in estimating quantities of proved oil and natural gas
reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an exact way,
and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
As a result, estimates made by different engineers often vary from one
another. In addition, results of drilling, testing and production subsequent
to the date of an estimate may justify revisions of such estimates and such
revisions and if significant, would change the schedule of any further
production and development drilling. Accordingly, reserve estimates are
generally different from the quantities of oil and natural gas that are
ultimately recovered. Additional important factors that could cause actual
results to differ materially from the Company's expectations include changes
in oil and gas prices, changes in regulatory or environmental policies,
production difficulties, transportation difficulties and future drilling
results. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by such factors.
19
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Goodrich Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of Goodrich
Petroleum Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for each of the years in the three year
period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Goodrich
Petroleum Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
Shreveport, Louisiana
March 29, 2000
20
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................ $ 5,929,229 $ 95,630
Marketable equity securities..................... -- 358,700
Accounts receivable
Trade and other, net of allowance.............. 669,741 2,197,179
Accrued oil and gas revenue.................... 1,937,711 1,089,226
Prepaid insurance................................ 53,806 184,898
------------ ------------
Total current assets........................... 8,590,487 3,925,633
------------ ------------
PROPERTY AND EQUIPMENT
Oil and gas properties........................... 65,401,168 53,320,832
Furniture, fixtures and equipment................ 213,524 195,279
------------ ------------
65,614,692 53,516,111
Less accumulated depletion, depreciation and
amortization.................................... (19,566,835) (13,720,009)
------------ ------------
Net property and equipment..................... 46,047,857 39,796,102
------------ ------------
OTHER ASSETS....................................... 1,620,208 314,853
------------ ------------
TOTAL ASSETS................................... $ 56,258,552 $ 44,036,588
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt................ $ 3,600,000 $ 29,500,000
Accounts payable................................. 2,711,746 7,763,507
Accrued liabilities.............................. 1,326,995 1,813,693
Current portion other noncurrent liabilities..... 1,182,306 --
------------ ------------
Total current liabilities...................... 8,821,047 39,077,200
------------ ------------
LONG TERM DEBT..................................... 33,353,117 --
OTHER NONCURRENT LIABILITIES
Production payment payable....................... 1,630,784 --
Accrued abandonment costs........................ 3,108,281 --
Accrued interest on long term debt............... 251,154 --
------------ ------------
Total liabilities.............................. 47,164,383 39,077,200
------------ ------------
PREFERRED STOCKHOLDERS EQUITY IN A SUBSIDIARY
COMPANY........................................... 2,683,125 --
STOCKHOLDERS' EQUITY
Preferred stock; authorized 10,000,000 shares:
Series A convertible preferred stock, par value
$1.00 per share; issued and outstanding 796,318
shares (liquidating preference $10 per share,
aggregating to $7,963,180)..................... 796,318 796,318
Series B convertible preferred stock, par value
$1.00 per share; issued and outstanding 665,759
and 750,000 shares (liquidation preference $10
per share, aggregating to $6,657,590).......... 665,759 750,000
Common stock, par value $0.20 per share;
authorized 25,000,000 shares; issued and
outstanding 5,417,171 and 5,247,703 shares...... 1,083,434 1,049,541
Additional paid-in capital....................... 18,156,114 15,226,027
Accumulated deficit.............................. (14,290,581) (12,461,598)
Accumulated other comprehensive income........... -- (400,900)
------------ ------------
Total stockholders' equity..................... 6,411,044 4,959,388
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $ 56,258,552 $ 44,036,588
============ ============
See notes to consolidated financial statements.
21
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
------------------------------------
1999 1998 1997
------------ ---------- ----------
REVENUES
Oil and gas sales...................... $ 13,734,691 9,836,863 11,351,586
Pipeline joint venture................. -- -- 1,078,397
Other.................................. 285,883 755,010 471,378
------------ ---------- ----------
Total revenues....................... 14,020,574 10,591,873 12,901,361
------------ ---------- ----------
COSTS AND EXPENSES
Lease operating expense and production
taxes................................. 3,591,427 2,821,515 2,316,006
Depletion, depreciation and
amortization.......................... 4,743,608 4,094,447 4,862,754
Exploration............................ 1,656,158 6,010,425 3,205,730
Impairment of oil and gas properties... 465,465 1,075,853 549,792
Interest expense....................... 2,810,576 1,909,849 1,416,675
General and administrative............. 1,989,703 2,399,332 2,627,672
Preferred dividend requirements of
subsidiary............................ 73,125 -- --
------------ ---------- ----------
Total costs and expenses............. 15,330,062 18,311,421 14,978,629
------------ ---------- ----------
GAIN (LOSS) ON SALES OF ASSETS........... (519,495) 4,206 688,304
------------ ---------- ----------
LOSS BEFORE INCOME TAXES................. (1,828,983) (7,715,342) (1,388,964)
Income Taxes........................... -- -- --
------------ ---------- ----------
NET LOSS................................. (1,828,983) (7,715,342) (1,388,964)
Preferred stock dividends (1999 amounts
in arrears)........................... 1,249,343 1,255,638 1,205,210
------------ ---------- ----------
LOSS APPLICABLE TO COMMON STOCK.......... $ (3,078,326) (8,970,980) (2,594,174)
============ ========== ==========
BASIC LOSS PER AVERAGE COMMON SHARE...... $ (.58) (1.71) (.50)
============ ========== ==========
DILUTED LOSS PER AVERAGE COMMON SHARE.... $ (.58) (1.71) (.50)
============ ========== ==========
AVERAGE COMMON SHARES OUTSTANDING........ 5,288,011 5,243,105 5,229,307
See notes to consolidated financial statements.
22
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
OPERATING ACTIVITIES
Net loss............................... $(1,828,983) (7,715,342) (1,388,964)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depletion, depreciation and
amortization......................... 4,743,607 4,094,447 4,862,754
Amortization of leasehold costs....... 1,103,219 1,016,649 288,037
Amortization of deferred debt
financing costs...................... 109,088 -- 27,694
(Gain) Loss on sale of assets......... 519,495 (4,206) (688,304)
Capital expenditures charged to
income............................... 119,800 4,382,514 2,341,954
Impairment of oil and gas properties.. 465,465 1,075,853 549,792
Accrued interest on private placement
borrowings........................... 251,154 -- --
Amortization of detachable stock
purchase warrants.................... 142,500 -- --
Preferred stock dividends of
subsidiary........................... 73,125 -- --
Payment of other liabilities.......... -- (107,625) (321,040)
Director stock grant.................. 30,000 -- --
Other................................. (68,636) (160,518) (87,357)
----------- ----------- -----------
5,659,834 2,581,772 5,584,566
Net change in (exclusive of
acquisition):
Accounts receivable.................. 678,953 (289,660) 520,391
Prepaid insurance and other.......... 195,975 (71,550) 73,933
Accounts payable..................... (5,051,761) 2,975,821 (157,334)
Accrued liabilities.................. (418,092) (679,620) 611,069
----------- ----------- -----------
Net cash provided by operating
activities......................... 1,064,909 4,516,763 6,632,625
----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of pipeline joint
venture............................... -- -- 3,564,000
Proceeds from sales of assets.......... 249,487 49,091 370,000
Acquisition of oil and gas properties.. (4,099,956) (129,325) (2,074,866)
Capital expenditures................... (2,556,901) (14,878,619) (7,866,173)
----------- ----------- -----------
Net cash used in investing
activities......................... (6,407,370) (14,958,853) (6,007,039)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from bank borrowings.......... -- 11,500,000 12,000,000
Principal payments of bank borrowings.. (2,409,383) (500,000) (10,963,919)
Proceeds from Private Placement
borrowings............................ 12,000,000 -- --
Proceeds from preferred stock issue.... 3,000,000 -- --
Preferred stock dividends.............. -- (1,255,638) (1,205,210)
Production payments.................... (114,970) -- --
Retirement of preferred stock.......... -- -- (7,650)
Payment of debt financing costs........ (1,303,496) -- --
Exercise of employee stock options..... 3,909 -- --
----------- ----------- -----------
Net cash provided by (used in)
financing activities............... 11,176,060 9,744,362 (176,779)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 5,833,599 (697,728) 448,807
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD..................... 95,630 793,358 344,551
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 5,929,229 95,630 793,358
=========== =========== ===========
NON CASH INVESTING ACTIVITIES
Costs of private placement............. 355,800 -- --
Acquisition of oil and gas properties
and assumption of related
liabilities........................... 6,036,342 -- --
Accrued Capital Expenditures and
Financing Costs....................... -- 1,981,276 1,290,658
See notes to consolidated financial statements.
23
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years Ended December 31, 1999, 1998, and 1997
(Unaudited)
Accumulated
Other Comprehensive
Income-Unrealized
Additional Gain (Loss) on
Series A Series B Paid-In Accumulated Marketable Equity
Preferred Stock* Preferred Stock* Common Stock Capital Deficit Securities
----------------- ----------------- -------------------- ----------- ------------- -------------------
Balance at
January 1, 1997.. 801,149 801,149 -- -- 5,225,564 1,045,113 8,375,282 (896,444) (189,900)
Net loss......... -- -- -- -- -- -- -- (1,388,964) --
Unrealized Change
in Marketable
Securities....... 274,300
Total
Comprehensive
Income (Loss)....
Issuance of
Series B
Preferred Stock.. -- -- 750,000 750,000 -- -- 6,750,000 -- --
Preferred stock
dividends
Series A ($.80
per share)...... -- -- -- -- -- -- -- (638,023) --
Series B ($.76
per share)...... -- -- -- -- -- -- -- (567,187) --
Conversion of
preferred stock
to Common stock.. (3,831) (3,831) -- -- 2,993 599 3,232 -- --
Employee Stock
grants........... -- -- -- -- 3,846 769 24,231 -- --
Retirement of
Series A
preferred stock.. (1,000) (1,000) -- -- -- -- (6,650) -- --
------- -------- ------- -------- --------- ---------- ----------- ------------- --------
Balance at
December 31,
1997............. 796,318 796,318 750,000 750,000 5,232,403 1,046,481 15,146,095 (3, 490,618) 84,400
------- -------- ------- -------- --------- ---------- ----------- ------------- --------
Net loss......... -- -- -- -- -- -- -- (7,715,342) --
Unrealized Change
in Marketable
Securities....... -- -- -- -- -- -- -- -- (485,300)
Total
Comprehensive
Income (Loss).... -- -- -- -- -- -- -- -- --
Preferred stock
dividends........ -- -- -- -- -- -- -- (1,255,638) --
Employee and
director stock
grants........... -- -- -- -- 15,302 3,060 79,932 -- --
------- -------- ------- -------- --------- ---------- ----------- ------------- --------
Balance at
December 31,
1998............. 796,318 796,318 750,000 750,000 5,247,705 1,049,541 15,226,027 (12,461,598) (400,900)
------- -------- ------- -------- --------- ---------- ----------- ------------- --------
Net loss......... -- -- -- -- -- -- -- (1,828,983) --
Realized loss on
sale of
marketable
Securities....... -- -- -- -- -- -- -- -- 400,900
Total
Comprehensive
Income (Loss).... -- -- -- -- -- -- -- -- --
Issuance of
Common Stock
purchaseWarrants
with Preferred
Stock............ -- -- -- -- -- -- 210,000 -- --
Issuance of
Common Stock
purchase Warrants
for services..... -- -- -- -- 40,000 8,000 113,800 -- --
Issuance of
Common Stock
purchase Warrants
as transaction
fee.............. -- -- -- -- -- -- 234,000 -- --
Issuance of
Common Stock
Purchase Warrants
with debt........ -- -- -- -- -- -- 2,280,000 -- --
Director Stock
Grants........... -- -- -- -- 30,000 6,000 24,000 -- --
Exercise of
Employee Stock
Options.......... -- -- -- -- 5,250 1,050 2,889 -- --
Conversion of
Series B
Preferred Stock
to Common Stock.. -- -- (84,241) (84,241) 94,216 18,843 65,398 -- --
-- -- -- -- -- -- -- -- --
------- -------- ------- -------- --------- ---------- ----------- ------------- --------
Balance at
December 31,
1999............. 796,318 $796,318 665,759 $665,759 5,417,171 $1,083,434 $18,156,114 $(14 ,290,581) $ --
======= ======== ======= ======== ========= ========== =========== ============= ========
Total
Stockholders'
Equity
-------------
Balance at
January 1, 1997.. 9,135,200
Net loss......... (1,388,964)
Unrealized Change
in Marketable
Securities....... 274,300
-------------
Total
Comprehensive
Income (Loss).... (1,114,664)
Issuance of
Series B
Preferred Stock.. 7,500,000
Preferred stock
dividends
Series A ($.80
per share)...... (638,023)
Series B ($.76
per share)...... (567,187)
Conversion of
preferred stock
to Common stock.. --
Employee Stock
grants........... 25,000
Retirement of
Series A
preferred stock.. (7,650)
-------------
Balance at
December 31,
1997............. 14,332,676
-------------
Net loss......... (7,715,342)
Unrealized Change
in Marketable
Securities....... (485,300)
-------------
Total
Comprehensive
Income (Loss).... (8,200,642)
Preferred stock
dividends........ (1,255,638)
Employee and
director stock
grants........... 82,992
-------------
Balance at
December 31,
1998............. 4,959,388
-------------
Net loss......... (1,828,983)
Realized loss on
sale of
marketable
Securities....... 400,900
-------------
Total
Comprehensive
Income (Loss).... (1,428,083)
Issuance of
Common Stock
purchaseWarrants
with Preferred
Stock............ 210,000
Issuance of
Common Stock
purchase Warrants
for services..... 121,800
Issuance of
Common Stock
purchase Warrants
as transaction
fee.............. 234,000
Issuance of
Common Stock
Purchase Warrants
with debt........ 2,280,000
Director Stock
Grants........... 30,000
Exercise of
Employee Stock
Options.......... 3,939
Conversion of
Series B
Preferred Stock
to Common Stock.. --
--
-------------
Balance at
December 31,
1999............. $6,411,044
=============
- -----
* dividends are cumulative and arrearages amounted to $1,249,343 or $0.23 per
share at December 31, 1999
See notes to consolidated financial statements
24
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE A--Description of Business
The Company is in the primary business of the exploration and production of
crude oil and natural gas. The subsidiaries have interests in such operations
in seven states, primarily in Louisiana and Texas. Two of the Company's
subsidiaries also had a minority interest in a natural gas pipeline joint
venture located in the state of Texas until such interest was sold in 1997.
NOTE B--Summary of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements include
the financial statements of Goodrich Petroleum Corporation, its wholly-owned
subsidiaries, and one of its wholly-owned subsidiary's three wholly-owned
subsidiaries. Significant intercompany balances and transactions have been
eliminated in consolidation.
Revenue Recognition--Revenues from the production of natural gas properties
in which the Company has an interest with other producers are recognized on
the entitlements method. Differences between actual production and net working
interest volumes are routinely adjusted. These differences are not
significant.
Property and Equipment--The Company uses the successful effort method of
accounting for exploration and development expenditures.
Leasehold acquisition costs are capitalized. When proved reserves are found
on an undeveloped property, leasehold cost is reclassified to proved
properties. Significant undeveloped leases are reviewed periodically, and a
valuation allowance is provided for any estimated decline in value. Cost of
all other undeveloped leases is amortized over the estimated average holding
period of the leases.
Costs of exploratory drilling are initially capitalized, but if proved
reserves are not found, the costs are subsequently expensed. All other
exploratory costs are charged to expense as incurred. Development costs are
capitalized, including the cost of unsuccessful development wells.
The Company follows SFAS No. 121 and recognizes an impairment when the net
of future cash inflows expected to be generated by an identifiable long-lived
asset and cash outflows expected to be required to obtain those cash inflows
is less than the carrying value of the asset. The Company performs this
comparison for its oil and gas properties on a field-by-field basis using the
company's estimates of future commodity prices. The amount of such loss is
measured based on the difference between the discounted value of such net
future cash flows and the carrying value of the asset. The Company recorded
such impairments in 1999, 1998 and 1997 in the amounts of $465,000, $1,076,000
and $550,000 respectively. The impairments were generally the result of
certain fields depleting earlier than anticipated.
Depreciation and depletion of producing oil and gas properties are provided
under the unit-of-production method. Proved developed reserves are used to
compute unit rates for unamortized tangible and intangible development costs,
and proved reserves are used for unamortized leasehold costs. Estimated
dismantlement, abandonment, and site restoration costs, net of salvage value,
are considered in determining depreciation and depletion provisions.
Gains and losses on disposals or retirements that are significant or
include an entire depreciable or depletable property unit are included in
income. All other dispositions, retirements, or abandonments are reflected in
accumulated depreciation, depletion, and amortization.
25
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
demand deposit accounts and temporary cash investments with maturities of
ninety days or less at date of purchase.
Marketable Equity Securities--The Company has classified its investment in
marketable equity securities as available for sale. Accordingly, unrealized
holding gains and losses are excluded from earnings and are reported as other
comprehensive income until realized. The Company sold its marketable equity
securities in January 1999.
Investment in Pipeline Joint Venture--Prior to its sale in October 1997,
the Company's investment consisted of a 20% interest in an intrastate natural
gas pipeline joint venture. The Company's carrying basis in the investment was
established at August 15, 1995 (fair value) and was being amortized on a basis
which matched the amortization with the monthly maximum average contract
quantities over the estimated remaining term of the joint venture.
Amortization amounted to $741,000 for the year ended December 31, 1997. The
Company recorded its equity in joint venture earnings as revenues in the
statement of operations in the periods when the contract payments were earned.
Income Taxes--The Company follows the provisions of SFAS No. 109,
Accounting for Income Taxes which requires income taxes be accounted for under
the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Earnings Per Share--Basic income per Common share is computed by dividing
net income available for common stockholders, for each reporting period by the
weighted average number of Common shares outstanding during the period.
Diluted income per Common share is computed by dividing net income available
for common stockholders for each reporting period by the weighted average
number of Common shares outstanding during the period, plus the effects of
potentially dilutive Common shares.
Derivative Financial Instruments--The Company utilizes derivative
instruments such as futures, forwards, options, collars and swaps for purposes
of hedging its exposure to fluctuations in the price of crude oil and natural
gas. Gains and losses from derivatives designated as hedges of sales are
reported on the statement of income as an increase or reduction of oil and gas
sales in the period related to the actual sale of product. Premiums paid on
hedging contracts are amortized over the life of the contracts as a reduction
to oil and gas sales.
Accounting Matters--The Financial Accounting Standards Board issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, in June
1997. This statement established accounting and reporting standards for
derivative instruments and hedging activities. Effective January 1, 2001, the
Company must recognize the fair value of all derivative instruments as either
assets or liabilities in its Consolidated Balance Sheet. A derivative
instrument meeting certain conditions may be designated as a hedge of a
specific exposure; accounting for changes in a derivative's fair value will
depend on the intended use of the derivative and the resulting designation.
Any transition adjustments resulting from adopting this statement will be
reported in net income or other comprehensive income, as appropriate, as the
cumulative effect of a change in accounting principle. The Company makes use
of derivative instruments to hedge specific market risks. The Company has not
yet determined the effects that SFAS No. 133 will have on its future
consolidated financial statements or the amount of the cumulative adjustment
that will be made upon adopting this new standard.
26
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Stock Based Compensation--The Company uses SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense, over
the vesting period, the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and provide pro forma net income and pro forma earnings per share
and other disclosures for employee stock options grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the disclosure provisions of SFAS No. 123.
Commitments and Contingencies--Liabilities for loss contingencies,
including environmental remediation costs, arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the assessment
and/or remediation can be reasonably estimated. Recoveries from third parties,
which are probable of realization, are separately recorded, and are not offset
against the related environmental liability.
Use of Estimates--Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
NOTE C--Private Placement
On September 23, 1999, the Company and two of its subsidiaries, Goodrich
Petroleum Company, L.L.C. ("Goodrich-Louisiana") and Goodrich Petroleum
Company-Lafitte, L.L.C. ("Goodrich-Lafitte"), completed a private placement of
$15 million of convertible securities. As described below the private
placement transaction accomplished the objectives of management's plan as set
forth in the Liquidity and Capital Resources section of the Company's 1998
Annual Report on Form 10-K.
Goodrich-Louisiana issued convertible notes in the amount of $6,000,000
that will accrue interest monthly at 8% per annum in arrears until October 1,
2002. Unless extended or converted, the principal and accrued interest will be
repayable in 24 monthly installments, beginning October 1, 2002. Principal and
accrued interest may be converted by the holder at any time into the common
stock of the Company at the rate of $4.00 per share. These convertible notes
are secured by various collateral, including a mortgage on Goodrich-
Louisiana's oil and gas properties. The purchasers of these notes received one
warrant to purchase a share of the common stock of the Company at $.9375 (the
closing price on the date the transaction was negotiated) for every $4.00 of
notes issued. The warrants may be exercised at any time before their
expiration on September 30, 2006.
Goodrich-Lafitte is a newly formed Louisiana limited liability company and
is the entity which owns a 49% interest in the Lafitte Field. Goodrich-Lafitte
also issued convertible notes in the amount of $6,000,000 that will accrue
interest at 8% per annum, monthly in arrears, until October 1, 2002. Unless
extended or converted, the principal and accrued interest will be repayable in
24 monthly installments, beginning October 1, 2002. Principal and accrued
interest may be converted by the holder at any time into the common stock of
the Company at the rate of $4.00 per share. As an alternative conversion
right, the principal and accrued interest under these notes may be converted
into common equity interests in Goodrich-Lafitte, after October 1, 2002, if
neither the common stock of the Company has a closing price of at least $3.00
per share nor the net asset value per share of the Company is at least $3.00.
These convertible notes are secured by various collateral, including a
mortgage on Goodrich-Lafitte's oil and gas properties. The purchasers of these
notes received one warrant to purchase a share of the common stock of the
Company at $.9375 (the closing price on the date the transaction was
negotiated) for every $4.00 of notes issued. The warrants may be exercised at
any time before their expiration on September 30, 2006.
27
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Approximately $3.7 million of the proceeds from the Goodrich-Lafitte
convertible notes were used to purchase the aforementioned interest in the
Lafitte Field. The remaining proceeds are being used for development capital
expenditures and for general corporate and working capital purposes.
Additionally, Goodrich-Louisiana issued $3,000,000 of preferred interests
consisting of 300,000 preferred units with a par value and liquidation
preference of $10 per share. The fair value of the preferred units is recorded
as preferred stockholders' equity in a subsidiary company in the accompanying
financial statements. Distributions on the preferred units will accrue
quarterly in arrears at 8% per annum through September 30, 2002 at which time
the rate increases 2% per year, not to exceed 20%. Goodrich-Louisiana has the
right to redeem the units at any time. The preference amount and accrued
distributions may be converted by the holder at any time into the common stock
of the Company at $2.00 per share. On February 17, 2000 the holders of the
preferred units exercised their conversion privileges (See Note C). Each
preferred unit holder was also issued one warrant to purchase a share of
common stock of the Company for every $10 of preference value. The warrants
are exercisable at $1.50 per share at any time before their expiration on
September 30, 2006.
Approximately $2,500,000 of the proceeds from issuance of the convertible
notes and preferred units was allocated to additional paid in capital as the
fair value of the warrants issued in connection with the securities, based on
the relative fair value of the two securities. $2,300,000 of the proceeds
allocable to additional paid in capital will be amortized as additional
interest cost over the original term of the related notes. The remaining
adjustment to additional paid in capital related to the preferred units will
be recorded as accretion in the value of the preferred stockholders' equity in
a subsidiary company. Transaction costs related to the private placement
amounted to approximately $1,500,000. The transaction costs allocable to the
debt issue of $1,320,000 will be amortized over the life of the convertible
debt. The balance at 12/31/99 net of amortization was $1,370,000. The
remaining costs of $180,000 were allocated to, and offset against the carrying
value of the preferred units.
Under the terms of the Goodrich-Louisiana Operating Agreement, the holders
of preferred units have no voting rights unless the payment of distributions
is six months or more in arrears, in which event the holders of preferred
units may participate in the election of company managers. Goodrich-Louisiana
is precluded from issuing any new units having preference or priority over the
preferred units as to distributions, liquidation or redemption.
This transaction would normally have required approval of the Company's
shareholders according to the Shareholder Approval Policy of the New York
Stock Exchange (the "Exchange"). Pursuant to an exception to this policy, and
based on a determination by the Company's Audit Committee that the delay
necessary in securing shareholder approval prior to the transaction would
seriously jeopardize the financial viability of the Company, the Company's
Audit Committee approved the Company's omission to seek shareholder approval.
The Exchange accepted the Company's application for use of the exception.
NOTE D--Subsequent Events
Acquisition of Oil and Gas Properties
On March 2, 2000, the Company completed its acquisition of working
interests in the Burrwood and West Delta 83 Fields, comprising approximately
8,600 acres, in Plaquemine Parish, Louisiana for $1,650,000 and the assumption
of the fields plugging and abandonment obligation estimated at $5,000,000. The
Company acquired an approximate 95% working interest of all rights from the
surface to approximately 10,600' and an approximate 47.5% working interest in
the deep rights below 10,600'. In connection with the acquisition the Company
secured a performance bond and established an escrow account to be used for
the payment of obligations associated with
28
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
the plugging and abandonment of the wells, salvage and removal of platforms
and related equipment, and the site restoration of the fields. Required
escrowed outlays include an initial cash payment of $750,000 and monthly cash
payments of $70,000 until June 1, 2005. In addition, as part of the purchase
agreement, the Company is required to shoot a 3-D seismic survey over the
fields by June 30, 2001 or remit payment to the seller in the amount of
$3,500,000. The cost of the seismic study is expected to be approximately
$2,500,000 and the Company has escrowed cash compensating balances of $500,000
with Compass Bank to be used solely for payments or reimbursements of amounts
expended in satisfaction of the seismic requirement. The Company has
identified a number of development opportunities in the fields which it plans
to begin exploiting in the year 2000.
Private Placement
On February 18, 2000, the Company completed a private placement of shares
of its common stock resulting in net proceeds to the Company of $4,500,000.
The Company issued 1,500,000 shares of common stock in an offering, which
began on January 28, 2000. The $4,500,000 in offering proceeds, in addition to
the Company's existing working capital and anticipated cash flow from
operations, will be used to assist in the acquisition and development of the
Burrwood and West Delta 83 fields, and to further develop the Lafitte field
purchased in 1999. The Company owns an approximate 49% working interest in the
Lafitte field in Jefferson Parish, Louisiana, which was acquired in September
1999.
Conversion of Preferred Units
On January 28, 2000, the Company notified holders of Goodrich Petroleum
Company, LLC's Series A Preferred Units that it intended to call for
redemption all the outstanding units which were convertible into the Company's
common stock at $2.00 per share. On February 17, 2000, all of the holders of
the Preferred Units, representing one hundred percent of the $3,000,000 of
outstanding Units, converted the Units into approximately 1,550,000 shares of
the common stock of Goodrich Petroleum Corporation. The conversion of the
preferred units and private placement increased the number of common shares
outstanding to approximately 8,416,000 and increased the Company's
stockholders equity by approximately $7,200,000.
NOTE E--Lafitte Field Acquisition
On September 23, 1999 the Company acquired an approximate 49% working
interest in the Lafitte Field located in Jefferson Parish, Louisiana for
$2,940,000. The field encompasses over 8,000 acres and is located
approximately thirty miles south of New Orleans. The Company commenced
development activities in the fourth quarter of 1999.
The consideration granted to seller included a production payment to be
satisfied through the delivery of production from the property. In connection
with the transaction, the Company recorded a production payment liability of
approximately $2,200,000, representing the discounted present value of the
estimated production payments necessary to satisfy the obligation.
Additionally, the Company recorded a $3,800,000 liability for its interest
in the estimated plugging and abandonment costs assumed in connection with the
purchase. It is expected that approximately $700,000 of the costs will be
funded in 2000.
29
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
NOTE F--Indebtedness
Indebtedness at December 31, 1999 and 1998 consists of the following:
1999 1998
----------- ----------
Bank Debt
Borrowings under credit facility, interest, at Compass
Prime plus 5/8% (see below) (weighted average rate at
December 31, 1999--8.1%); principal due July 1, 2001... $27,090,617 29,500,000
Convertible Notes Payable at the Subsidiary Level
Goodrich Petroleum Company, LLC
$6,000,000 face amount, interest at 8% maturing in
2004; (effective interest rate of 13.0%)............... 4,931,250 --
Goodrich Petroleum--Lafitte LLC
$6,000,000 face amount, interest at 8% maturing in
2004; (effective interest rate of 13.0%)............... 4,931,250 --
----------- ----------
36,953,117 29,500,000
Less current portion.................................... 3,600,000 29,500,000
----------- ----------
Long-term debt, excluding current portion............... $33,353,117 --
=========== ==========
Compass Credit Facility
On March 2, 2000 the Company amended its credit agreement with Compass
Bank. The amended facility provides for a Borrowing Base of $27,100,000 with
continued monthly reductions of $300,000, until July 1, 2001. The maturity
date for amounts drawn under the bank credit facility is July 1, 2001 with no
borrowing base redeterminations conducted prior to that date. Interest on the
credit facility is the Compass Bank Index Rate plus 5/8%. Based on these
revised terms, $23,490,000 of the bank debt is classified as long-term debt as
of December 31, 1999.
Substantially all of the Company's assets are pledged to secure this credit
facility.
Interest paid during 1999, 1998 and 1997 amounted to $2,338,840, $1,904,809
and $1,038,221, respectively.
The revised credit facility requires the net proceeds of asset sales be
used to extinguish outstanding principal and interest under the borrowing
base. Additionally, under the terms of the credit facility, the Company may
not make any distributions or pay dividends, including dividends on any class
of its preferred stock without lender approval.
Convertible Notes Payable
Goodrich-Louisiana issued convertible notes in the amount of $6,000,000
that will accrue interest monthly at 8% in arrears until October 1, 2002.
Unless extended or converted, the principal and accrued interest will be
repayable in 24 monthly installments, beginning October 1, 2002. Principal and
accrued interest may be converted by the holder at any time into the common
stock of the Company at the rate of $4.00 per share. These convertible notes
are secured by various collateral, including a mortgage on Goodrich-
Louisiana's oil and gas properties. The purchasers of these notes received one
warrant to purchase a share of the common stock of the Company at $.9375 (the
closing price on the date the transaction was negotiated) for every $4.00 of
notes issued. The warrants may be exercised at any time before their
expiration on September 30, 2006. The Company has the right to prepay the
Goodrich-Louisiana notes.
30
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Goodrich-Lafitte also issued convertible notes in the amount of $6,000,000
that will accrue interest at 8% per annum accruing monthly in arrears until
October 1, 2002. Unless extended or converted, the principal and accrued
interest will be repayable in 24 monthly installments, beginning October 1,
2002. Principal and accrued interest may be converted by the holder at any
time into the common stock of the Company at the rate of $4.00 per share. As
an alternative conversion right, the principal and accrued interest under the
notes may be converted into common equity interests in Goodrich-Lafitte, after
October 1, 2002, if neither the common stock of the Company has a closing
price of at least $3.00 per share nor the net asset value per share of the
Company is at least $3.00. These convertible notes are secured by various
collateral, including a mortgage on Goodrich-Lafitte's oil and gas properties.
The purchasers of these notes received one warrant to purchase a share of the
common stock of the Company at $.9375 (the closing price on the date the
transaction was negotiated) for every $4.00 of notes issued. The warrants may
be exercised at any time before their expiration on September 30, 2006. The
Company can prepay the Goodrich-Lafitte Convertible notes with a ten percent
prepayment penalty.
Approximately $2,300,000 of the proceeds from issuance of the convertible
notes was allocated to additional paid in capital as the fair value of the
warrants issued in connection with the securities based on the relative fair
value of the two securities. This amount is being amortized as additional
interest cost over the original term of the notes and amounted to $142,500 for
the period ended December 31, 1999.
The aggregate maturities of indebtedness for each of the five years
subsequent to December 31, 1999 are as follows: 2000, $3,600,000; 2001,
$23,500,000; 2002, $1,907,000; 2003, $7,627,000 and 2004, $5,721,000.
NOTE G--Income Taxes
Income tax expense for the years ending December 31, 1999, 1998 and 1997
consists of:
Current Deferred Total
------- -------- -----
Year Ended December 31, 1999:
U.S. Federal.................................... $ -- -- --
State........................................... -- -- --
------- ------- ---
-- -- --
======= ======= ===
Year Ended December 31, 1998:
U.S. Federal.................................... $ -- -- --
State........................................... -- -- --
------- ------- ---
-- -- --
======= ======= ===
Year Ended December 31, 1997:
U.S. Federal.................................... $14,643 (14,643) --
State........................................... -- -- --
------- ------- ---
14,643 (14,643) --
======= ======= ===
31
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The following is a reconciliation of the U.S. statutory income tax rate to
the Company's effective rate on income (loss) before income taxes for the
years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
----- ----- -----
U.S. Statutory Income Tax Rate......................... (35.0)% (35.0)% (35.0)%
Increase in deductible temporary differences for which
no benefit recorded................................... 35.0 34.6 34.9
Change in the beginning of the year balance of the
valuation allowance allocated to income tax income
expense............................................... -- -- --
Nondeductible expenses................................. -- .4 .1
----- ----- -----
-- -- --
===== ===== =====
The significant components of deferred income tax expense for the years
ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
---- ---- ----------
Deferred tax benefit (exclusive of utilization of net
operating loss carryforwards).......................... -- -- (1,023,016)
Utilization of net operating loss carryforward.......... $-- -- 1,008,373
--- --- ----------
$-- -- (14,643)
=== === ==========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1999 and 1998 are presented below.
December 31, December 31,
1999 1998
------------ ------------
Deferred tax assets:
Differences between book and tax basis of:
Marketable equity securities................ $ -- 280,471
Contingent liabilities...................... 132,349 158,873
Other......................................... 8,750 65,199
Operating loss carryforwards.................. 13,384,419 13,109,624
Statutory depletion carryforward.............. 5,974,726 5,657,865
AMT Tax credit carryforward................... 1,477,872 1,477,872
Investment tax credit carryforward............ 2,108 98,574
----------- -----------
Total gross deferred tax assets............... 20,980,224 20,848,478
Less valuation allowance...................... (19,784,669) (19,104,959)
----------- -----------
Net deferred tax assets....................... 1,195,555 1,743,519
----------- -----------
Deferred tax liability:
Differences between book and tax basis of:
Property and equipment...................... (1,155,912) (1,703,876)
----------- -----------
Total gross deferred liability................ (1,155,912) (1,703,876)
----------- -----------
Net deferred tax asset........................ $ 39,643 39,643
=========== ===========
The valuation allowance for deferred tax assets increased $680,000 and
decreased $2,221,000 for the years ended December 31, 1999 and 1998,
respectively. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or
all of the deferred tax assets will
32
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based primarily upon the level
of projections for future taxable income generated primarily by the reversal
of future taxable temporary differences over the periods which the deferred
tax assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowance at December 31, 1999. The amount of the deferred
tax assets considered realizable, however, could be reduced in the near term
if estimates of future taxable income during the carryforward period are
reduced.
The following table summarizes the amounts and expiration dates of
operating loss and investment tax credit carryforwards:
Investment tax credit
Operating loss carryforwards carryforwards
---------------------------- ---------------------
Amount Expires Amount Expires
------ ------- ------ -------
$ 973,053 2005 2,108 2001
7,093,823 2006
8,860,622 2007
4,285,746 2008
3,247,494 2009
5,480,870 2010
600,706 2011
1,939,496 2012
4,530,029 2018
1,229,359 2019
-----------
$38,241,198
===========
As a result of the August 15, 1995 business combination, the Company's
annual utilization of its net operating and statutory depletion carryforwards
generated prior to the business combination are limited under Internal Revenue
Code Section 382. Such limitation is determined annually and is comprised of a
base amount of $1,682,797 plus any recognized "built in gains" existing at
August 15, 1995. Such limitation amounted to $19,282,000 in 1998 and is
estimated to be $22,194,000 in 1999.
As a result of the conversion of the preferred units and private placement
(See Note D) in February 2000, the annual limitation of the Company's existing
net operating losses and statutory depletion carryforwards will be
approximately $2,200,000 in 2000 and beyond. The Company's statutory depletion
carryforwards and AMT credit carryovers have no expiration date.
The Company paid income taxes of $4,344 in 1998.
NOTE H--Production Payment Obligation
A production payment was entered into by the Company to assist in the
financing of the Lafitte Field acquisition in September 1999. The original
amount of the production payment obligation was $2,940,000, which was recorded
as a production payment liability of $2,228,000 after a discount to reflect an
effective rate of interest of 11.25%. At December 31, 1999 the remaining
principle amount was $2,825,000 and the recorded liability was $2,113,000.
Under the terms of the production payment the Company must make monthly cash
payments which approximates the Company's forty-nine percent share of 10% of
monthly gross oil and gas revenue of the Lafitte Field.
The Company's estimate as of December 31, 1999, based on expected
production and prices and expected discount amortization is that projected
payments will decrease the recorded liability as follows: 2000, $482,000;
2001, $817,000 and 2003, $814,000.
33
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
NOTE I--Stockholders' Equity
Common Stock--At December 31, 1999 unissued shares of Goodrich common stock
were reserved in the amount of 1,074,147 shares for the conversion of
convertible preferred stock and 463,134 shares for stock option plans. The
Company also has 9,500,000 shares of its common stock reserved for the
conversion of convertible debt, convertible preferred stock and stock warrants
issued in connect with the Private Placement transaction of September 23, 1999
(See Note C).
Preferred Stock
The Series A Convertible Preferred Stock has a par value of $1.00 per share
with a liquidation preference of $10.00 per share, and is convertible at the
option of the holder at any time, unless earlier redeemed, into shares of
Common Stock of the Company at an initial conversion rate of .417 shares of
Common stock per share of Series A Preferred. The Series A Preferred Stock
also will automatically convert to Common Stock if the closing price for the
Series A Preferred Stock exceeds $15.00 per share for ten consecutive trading
days. The Series A Preferred Stock is redeemable in whole or in part, at
$12.00 per share, plus accrued and unpaid dividends. Dividends on the Series A
Preferred Stock accrue at an annual rate of 8% and are cumulative.
The Company issued 750,000 shares of Series B Convertible Preferred Stock
in connection with its acquisition of the La/Cal II properties on January 31,
1997. The Series B Convertible Preferred Stock has a par value of $1.00 per
share with a liquidation preference of $10.00 per share and rank junior to the
Series A Preferred Stock. The shares of Series B Preferred Stock are
convertible at the option of the holder at any time, unless earlier redeemed,
into shares of Common Stock of the Company at the conversion rate of 1.12
shares of Common Stock per share of Series B Preferred Stock. During 1999
holders of 84,241 shares of Series B preferred stock opted to convert their
shares into 94,216 shares of common stock of the Company. The Series B
Preferred Stock are not redeemable by the Company prior to January 31, 2001,
and subsequently, are redeemable at $10.00 per share. Dividends on the Series
B Preferred Stock accrue at an annual rate of 8.25% and are cumulative.
Stock Option and Incentive Programs--Goodrich currently has two plans,
which provide for stock option and other incentive awards for the Company's
key employees, consultants and directors. The Goodrich Petroleum Corporation
1995 Stock Option Plan allows the Board of Directors to grant stock options,
restricted stock awards, stock appreciation rights, long-term incentive awards
and phantom stock awards, or any combination thereof to key employees and
consultants. The Goodrich Petroleum Corporation 1997 Director Compensation
Plan provides for the grant of stock and options to each director who is not
and has never been an employee of the Company. Additionally, Goodrich assumed
certain outstanding stock options of Patrick as a result of the business
combination in 1995.
The Goodrich plans authorize grants of options to purchase up to a combined
total of 437,500 shares of authorized but unissued common stock. Stock options
are generally granted with an exercise price equal to the stock's fair market
value at the date of grant and all stock options granted under the 1995 Stock
Option Plan generally have ten year terms and three year pro rata vesting.
The per share weighted-average fair value of stock options granted during
1999, 1998 and 1997 was $1.59, $2.17 and $2.57 on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: 1999--expected dividend yield 0%, risk-free interest rate of
7.5%, and an expected life of 6 years; 1998--expected dividend yield 0%, risk-
free interest rate of 7.5%, and an expected life of 6 years; 1997--expected
dividend yield 0%, risk-free interest rate of 7.5%, and an expected life of 6
years; expected volatility of stock over expected life of the options--35%.
The Company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined
34
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss would have been reduced to
the pro forma amounts indicated below:
1999 1998 1997
----------- ---------- ----------
Net loss....................... As reported $(1,828,983) (7,715,342) (1,388,964)
Pro forma (2,109,357) (7,906,618) (1,452,644)
Loss applicable to............. As reported (3,078,326) (8,970,980) (2,594,174)
common stock................. Pro forma (3,358,700) (9,162,256) (2,657,854)
Basic and diluted loss
per average.................. As reported (.58) (1.71) (.50)
common share................. Pro forma (.64) (1.75) (.51)
Earnings Per Share--Both series of the Company's convertible preferred
stock and its stock options are considered to be potential common stock.
Additionally convertible debt, convertible preferred stock and stock purchase
warrants issued in conjunction with the aforementioned private placement (See
Note C) are also considered potential common stock. No potential common stock
amounts have not been included in the computation of diluted earnings per
share because to do so would have been antidillutive for all periods
presented.
Stock option transactions during 1999, 1998 and 1997 were as follows:
Weighted Weighted Average
Number of Average Remaining
Options Exercise Price Range of Exercise Price Contractual Life
----------------- -------------- -------------------------------- -----------------
Patrick Patrick Patrick Patrick
Total Only Total Only Total Only Total Only
-------- ------- ------ ------- --------------- ---------------- -------- --------
Outstanding January 1,
1997................... 353,942 157,067 12.48 18.70 $6.00 to $24.00 $16.00 to $24.00 5.4 yrs. 2.0 yrs.
Granted--1995 Stock
Option Plan........... 67,500 -- 6.48 --
Granted--1995 Non-
Employee Director
Stock Option Plan..... 6,250 -- 5.52 --
Expiration of Options.. (86,250) (86,250) 18.80 18.78
-------- -------
Outstanding December 31,
1997................... 341,442 70,817 9.60 18.60 $5.50 to $24.00 $16.00 to $24.00 7.4 yrs. 4.2 yrs.
======== =======
Granted--1995 Stock
Option Plan........... 144,000 -- 5.98 --
Granted---1997 Director
Compensation Plan..... 10,000 -- 5.98 --
Expiration of Options.. (62,190) (5,625) 7.88 19.33
-------- -------
Outstanding December 31,
1998................... 433,252 65,192 $5.50 to $24.00 $16.00 to $24.00 7.0 yrs. 3.4 yrs.
======== =======
Granted--1995 Stock
Option................ 374,196 -- 1.37 --
Granted--1997 Director
Stock Option.......... 37,063 -- .80 --
Expiration/Surrender of
Options............... (381,377) (29,567) 7.61 18.00
-------- ------- ------ -----
Outstanding December 31,
1999................... 463,134 35,625 $0.75 to $24.00 $16.00 to $24.00 8.5 yrs. 2.9 yrs.
======== =======
Exercisable December 31,
1997................... 172,317 70,817 $12.13 18.60
Exercisable December 31,
1998................... 208,379 65,192 $10.86 18.54
Exercisable December 31,
1999................... 71,438 35,625 $ 9.95 19.00
35
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
At the February 25, 1999 Board of Directors meeting, the Compensation
Committee voted to institute a stock option surrender/re-grant program whereby
employees and directors of the Company were able to surrender their present
options and be re-granted a number of options equal to 75% of their previous
number of options. Vesting periods for the re-granted options began with the
re-grant date and the options have a strike price equal to the closing stock
price of the date of declaration by the Board of Directors.
NOTE J--Series A Preferred Stock
The terms of the Company's Series A Preferred Stock provided that the
Company will not incur additional debt at the parent company level after such
time as it reports financial results which show the Company's stockholders'
equity to be less than the liquidation preference of the Series A Preferred
Stock. As of December 31, 1999, the Company's stockholders' equity was
approximately $6.4 million and the liquidation preference on the outstanding
shares of the Series A Preferred Stock was approximately $7.9 million. As a
result, the Company was unable to incur additional debt at the parent company
level under its credit facility or from other sources at the present time. On
February 17, 2000, the Company completed a $4,500,000 private placement
transaction of 1,500,000 shares of common stock, and effected the conversion
of all the outstanding Goodrich Petroleum Company, LLC Series A Preferred
Units, which converted into approximately 1,550,000 shares of the Company's
common stock. The conversion of the preferred units and private placement
increased stockholders equity by approximately $7,200,000, which makes total
stockholders equity exceed the liquidation preference on the Series A
Preferred Stock. As a result, the Company's restriction on funds at the parent
Company level has been eliminated.
NOTE K--Hedging Activities
The Company engages in futures contracts ("Agreements") with certain of its
production. The Company considers these to be hedging activities and, as such,
monthly settlements on these contracts are reflected in oil and gas sales. In
order to consider these futures contracts as hedges, (i) the Company must
designate the futures contract as a hedge of future production and (ii) the
contract must reduce the Company's exposure to the risk of changes in prices.
Changes in the market value of futures contracts treated as hedges are not
recognized in income until the hedged item is also recognized in income. If
the above criteria are not met, the Company will record the market value of
the contract at the end of each month and recognize a related gain or loss.
Proceeds received or paid relating to terminated contracts or contracts that
have been sold are amortized over the original contract period and reflected
in oil and gas sales. The Company enters into hedging activities in order to
secure an acceptable future price relating to a portion of future production.
The primary objective of the activities is to protect against decreases in
price during the term of the hedge.
The Agreements provide for separate contracts tied to the NYMEX light sweet
crude oil and natural gas futures contracts. The Company has contracts which
contain specific contracted prices ("Swaps") or price ranges ("Collars") that
are settled monthly based on the differences between the contract prices or
prices ranges and the average NYMEX prices for each month applied to the
related contract volumes. To the extent the average NYMEX price exceeds the
contract price, the Company pays the spread, and to the extent the contract
price exceeds the average NYMEX price the Company receives the spread.
As of December 31, 1999, the Company's open forward position on its
outstanding crude oil was as follows:
(d) 350 barrels of oil per day with a no cost "collar" of $19.00 and
$21.00 per barrel through December 2000;
36
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
(e) 150 barrels of oil per day with a no cost "collar" of $18.20 and
$20.20 per barrel through December 2000; and
(f) 300 barrels of oil per day on a crude oil "swap" with a price of
$23.98 per barrel through April 2000.
At December 31, 1999 the Company's open forward position on its outstanding
crude oil hedging contracts was 800 bbl per day at an average price of $21.29.
At December 31, 1999 the Company's open forward position on its outstanding
gas hedging contract was 5,000 Mcf per day with a "floor" price of $2.50 per
Mcf through October 2000. The cost of the "floor" contract hedge is $0.23 per
Mcf over the "floor" price.
The Company is exposed to credit losses in the event of non performance by
the counterparties to its hedging contracts. The Company anticipates, however,
that counterparties will be able to fully satisfy their obligations under the
contracts. The Company does not obtain collateral to support financial
instruments but monitors the credit standing of the counterparties.
Price fluctuations and volatile nature of markets
Despite the measures taken by the Company to attempt to control price risk,
the Company remains subject to price fluctuations for natural gas and oil sold
in the spot market. Prices received for natural gas sold on the spot market
are volatile due primarily to seasonality of demand and other factors beyond
the Company's control. Domestic prices for oil and gas could have a material
adverse effect on the Company's financial position, results of operations and
quantities of reserves recoverable on an economic basis.
NOTE L--Fair Value of Financial Instruments
The following presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1999 and 1998.
December 31, 1999 December 31, 1998
---------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ---------- ---------- ----------
Financial asset--
Marketable equity securities... $ -- -- 358,700 358,700
Financial liabilities--
Other liabilities.............. -- -- -- --
Long-term debt (including
current maturities)........... $27,090,617 27,090,617 29,500,000 29,500,000
Notes payable.................. $ 9,862,500 9,862,500 -- --
Production payment liability... $ 2,113,000 2,113,000 -- --
Hedges Asset (Liability)--
Oil............................ $ -- (338,398) -- --
Gas............................ $ -- 300,410 -- --
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, accounts receivable, accounts payables and
accrued liabilities: The carrying amounts approximate fair value because of
the short maturity of those instruments. Therefore, these instruments were not
presented in the table above.
Marketable equity securities: Fair value is based on bid prices published
in financial media.
37
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Long term debt and other noncurrent liabilities: The fair value is
estimated using the discounted cash flow method based on the Company's
borrowing rates or similar types of financing arrangements.
NOTE M--Concentrations of Credit Risk and Significant Customers
Due to the nature of the industry the Company sells its oil and natural gas
production to a limited number of purchasers and, accordingly, amounts
receivable from such purchasers could be significant. Additionally, prior to
the sale of the Company's interest in its pipeline joint venture in 1997, it
received net monthly payments from its partner, Mitchell Marketing Company.
Revenues from these sources as a percent of total revenues for the periods
presented were as follows:
Year Ended
December 31,
----------------
1999 1998 1997
---- ---- ----
Seaber Corporation of Louisiana............................ 37% 47% 44%
Equiva Trading............................................. 27% 12% 11%
Texla Energy Management.................................... 10% -- --
Navajo Refining Company.................................... 7% 11% --
Mobil Oil Corporation...................................... -- -- 10%
Mitchell Marketing Company................................. -- -- 9%
NOTE N--Commitments and Contingencies
The U. S. Environmental Protection Agency ("EPA") has identified the
Company as a potentially responsible party ("PRP") for the cost of clean-up of
"hazardous substances" at an oil field waste disposal site in Vermilion
Parish, Louisiana. The Company estimates that the remaining cost of long-term
clean-up of the site will be approximately $3.5 million, with the Company's
percentage of responsibility estimated to be approximately 3.05%. As of
December 31, 1999, the Company had paid $321,000 in costs related to this
matter and accrued $122,500 for the remaining liability. These costs have not
been discounted to their present value. The EPA and the PRPs will continue to
evaluate the site and revise estimates for the long-term clean-up of the site.
There can be no assurance that the cost of clean-up and the Company's
percentage responsibility will not be higher than currently estimated. In
addition, under the federal environmental laws, the liability costs for the
clean-up of the site is joint and several among all PRPs. Therefore, the
ultimate cost of the clean-up to the Company could be significantly higher
than the amount presently estimated or accrued for this liability.
On February 8, 2000, the Company commenced a suit against the operator and
joint owner of the Lafitte Field, alleging certain items of misconduct and
violations of the letter agreement associated with the joint acquisition. The
suit is in its early stages and it is too early to predict a likely outcome,
however, as the Company is the plaintiff in this action, this action is not
expected to have a significantly adverse impact on the operations or financial
position of the Company.
The Company is party to additional lawsuits arising in the normal course of
business. The Company intends to defend these actions vigorously and believes,
based on currently available information, that adverse results or judgments
from such actions, if any, will not be material to its financial position or
results of operations.
38
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
NOTE O--Natural Gas and Crude Oil Cost Data and Results of Operations.
The following reflects the Company's capitalized costs related to natural
gas and oil activities at December 31, 1999 and 1998:
1999 1998
----------- ----------
Proved properties.................................. $61,527,593 49,916,276
Unproved properties................................ 3,873,575 3,412,897
----------- ----------
65,401,168 53,329,173
Less accumulated depreciation and depletion........ 19,398,287 13,592,827
----------- ----------
Net property and equipment....................... $46,002,881 39,736,346
=========== ==========
The following table reflects certain data with respect to natural gas and
oil property acquisitions, exploration and development activities:
Year Ended December 31,
------------------------------------
1999 1998 1997
----------- ---------- ----------
Property acquisition
Proved.......................... $10,136,298(a) 129,325 17,308,540(b)
Unproved........................ 498,391 2,446,474 886,647
Exploration....................... 1,634,299 8,718,682 5,535,783
Development....................... 1,960,371 8,169,741 3,598,177
----------- ---------- ----------
$14,229,359 19,464,222 27,329,147
=========== ========== ==========
- --------
(a) Primarily Lafitte Field acquisition inclusive of liabilities assumed in
connection with the purchase.
(b) Includes properties acquired in the La/Cal II Acquisition including
portions funded with Serial B Preferred Stock ($7,500,000)
Results of operations for natural gas and oil producing activities follow:
Year Ended December 31,
----------------------------------
1999 1998 1997
----------- ---------- ----------
Sales to unaffiliated customers............ $13,734,691 9,836,863 11,351,586
Production costs (lease operating expense
and taxes)................................ 3,591,427 2,821,515 2,316,006
Exploration expenses....................... 1,656,158 6,010,425 3,205,730
Impairment of oil and gas properties....... 465,465 1,075,853 549,792
Depreciation, depletion and amortization... 4,702,240 4,038,547 4,065,998
----------- ---------- ----------
10,415,290 13,946,340 10,137,526
----------- ---------- ----------
Results of operations...................... $ 3,319,401 (4,109,477) 1,214,060
=========== ========== ==========
No income taxes have been reflected above for the Company due to its net
operating losses.
NOTE P--Supplemental Oil and Gas Reserve Information (Unaudited)
The supplemental oil and gas reserve information that follows is presented
in accordance with SFAS No. 69, Disclosures about Oil and Gas Producing
Activities. The schedules provide users with a common base for preparing
estimates of future cash flows and comparing reserves among companies.
Additional background information follows concerning the schedules.
39
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Schedules 1 and 2--Estimated Net Proved Oil and Gas Reserves
Substantially all of the Company's reserve information related to crude
oil, condensate, and natural gas liquids and natural gas was compiled based on
evaluations performed by Coutret and Associates, Inc. All of the subject
reserves are located in the continental United States.
Many assumptions and judgmental decisions are required to estimate
reserves. Quantities reported are considered reasonable but are subject to
future revisions, some of which may be substantial, as additional information
becomes available. Such additional knowledge may be gained as the result of
reservoir performance, new geological and geophysical data, additional
drilling, technological advancements, price changes, and other factors.
Regulations published by the Securities and Exchange Commission define
proved reserves as those volumes of crude oil, condensate, and natural gas
liquids and natural gas that geological and engineering data demonstrate with
reasonable certainty are recoverable from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those volumes
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those volumes expected to
be recovered as a result of making additional investment by drilling new wells
on acreage offsetting productive units or recompleting existing wells.
Schedule 3--Standardized Measure of Discounted Future Net Cash Flows to
Proved Oil and Gas Reserves
SFAS No. 69 requires calculation of future net cash flows using a ten
percent annual discount factor and year end prices, costs, and statutory tax
rates, except for known future changes such as contracted prices and
legislated tax rates.
The calculated value of proved reserves is not necessarily indicative of
either fair market value or present value of future cash flows because prices,
costs, and governmental policies do not remain static; appropriate discount
rates may vary; and extensive judgment is required to estimate the timing of
production. Other logical assumptions would likely have resulted in
significantly different amounts. Crude oil prices received for oil and the
price received by well for natural gas, effective at the end of each year,
were used for this calculation, and averaged $25.16 per bbl and $2.63 per Mcf,
respectively as of December 31, 1999; $9.37 per Bbl and $2.24 per Mcf,
respectively as of December 31, 1998, and $16.50 per Bbl and $2.59 per Mcf,
respectively as of December 31, 1997.
Schedule 3 also presents a summary of the principal reasons for change in
the standard measure of discounted future net cash flows for each of the three
years in the period ended December 31, 1999.
40
Schedule 1--Estimated Net Proved Gas Reserves (Mcf)
Pro
Year Ended December 31, Forma (b)
---------------------------------- ----------
1999 1998 1997 1999
---------- ---------- ---------- ----------
Proved:
Balance, beginning of period.. 28,144,310 37,570,614 18,184,738
Revisions of previous
estimates.................... (6,069,885) (8,393,772) (1,582,986)
Purchase of minerals in
place........................ 1,705,822 226,778 3,761,481
Extensions, discoveries, and
other additions.............. -- 1,656,200 19,707,712
Production.................... (2,930,655) (2,782,825) (2,449,320)
Sales of minerals in place.... -- (132,685) (51,011)
---------- ---------- ----------
Balance, end of period........ 20,849,592 28,144,310 37,570,614 26,805,069
========== ========== ==========
Proved developed:
Beginning of period........... 21,481,946 16,600,669 13,911,003
End of period................. 13,945,450 21,481,946 16,600,669 19,900,930
Schedule 2--Estimated Net Proved Oil Reserves (Barrels)
Pro
Year Ended December 31, Forma (b)
------------------------------- ---------
1999 1998 1997 1999
--------- --------- --------- ---------
Proved:
Balance, beginning of period...... 3,092,810 4,098,390 1,050,210
Revisions of previous estimates... 106,259 (988,611) 132,327
Purchase of minerals in place..... 3,053,618 -- 1,614,779
Extensions, discoveries, and other
additions........................ ---- 299,799 1,685,438
Production........................ (394,442) (316,768) (282,380)
Sale of minerals in place......... -- -- (101,984)
--------- --------- ---------
Balance, end of period............ 5,858,245 3,092,810 4,098,390 6,749,579
========= ========= =========
Proved, developed:
Beginning of period............... 2,266,854 2,292,626 969,868
End of period..................... 3,179,888 2,266,854 2,292,626 4,071,222
The following table summarizes the Company's combined oil and gas reserve
information on a Mcf equivalent basis. Estimates of reserves were converted
using a conversion ratio of 1.0/6.0 Mcf.
Pro
Year Ended December 31, Forma (b)
-------------------------------- ----------
1999 1998 1997 1999
---------- ---------- ---------- ----------
Estimated Net Proved Reserves
(Mcfe):
Total Proved.................... 55,999,062 46,701,170 62,160,954 67,302,543
Proved Developed................ 33,024,778 35,083,070 30,356,425 44,328,262
41
Schedule 3--Standardized Measure of Discounted Future Net Cash Flows Related
to Proved Oil and Gas Reserves
Pro
Year Ended December 31, Forma (b)
-------------------------- ---------
1999 1998 1997 1999
-------- ------- ------- ---------
(in thousands)
Future cash inflows..................... $184,812 86,449 155,542 220,886
Future production and development
costs.................................. (45,655) (24,339) (26,906) (67,058)
Future income tax expense(a)............ (22,725) -- (24,177) (26,007)
-------- ------- ------- -------
Future net cash flows................... 116,432 62,110 104,459 127,821
10% annual discount for estimated timing
of cash flows.......................... (37,514) (21,475) (40,456) (38,499)
-------- ------- ------- -------
Standardized measure of discounted
future net cash flows.................. $ 78,918 40,635 64,003 89,322
======== ======= ======= =======
Average year end prices:
Natural gas (per Mcf)................. $ 2.63 2.24 2.59
Crude oil (per Bbl)................... $ 25.16 9.37 16.50
- --------
(a) Taxable income for 1998 period was entirely offset by available net
operating loss carry forwards.
(b) Pro forma amounts include reserve information related to acquisition of
Burrwood/West Delta 83 fields in February 2000 (see Note D).
The following are the principal sources of change in the standardized
measure of discounted net cash flows for the years shown:
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
(in thousands)
Net changes in prices and production costs related
to future production............................. $ 32,962 (31,820) (32,327)
Sales and transfers of oil and gas produced, net
of production costs.............................. (10,144) (7,015) (9,036)
Net change due to revisions in quantity
estimates........................................ (8,993) (12,464) (991)
Net change due to extensions, discoveries and
improved recovery................................ -- 3,006 37,465
Net change due to purchase and sales of minerals-
in-place......................................... 33,305 82 16,065
Development costs incurred during the period...... 338 2,198 3,598
Net change in income taxes........................ (14,203) 14,093 (4,094)
Accretion of discount............................. 4,064 7,810 5,736
Change in production rates (timing) and other..... 953 742 230
-------- ------- -------
$ 38,283 (23,368) 16,646
======== ======= =======
42
GOODRICH PETROLEUM CORPORATION
Consolidated Quarterly Income Information
(Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
----------- ---------- ---------- ---------- ----------
1999
Revenues.............. $ 2,941,696 2,829,530 3,631,762 4,617,586 14,020,574
Costs and Expenses.... 3,458,450 3,405,546 3,283,633 5,182,433 15,330,062
Loss on sale of
assets............... (519,495) -- -- -- (519,495)
Net income (loss)..... (1,036,249) (576,016) 348,129 (564,847) (1,828,983)
Preferred stock
dividends............ 313,912 313,912 313,912 307,607 1,249,343
Earnings (loss)
applicable to common
stock................ (1,350,161) (889,928) 34,217 (872,454) (3,078,326)
Basic earnings (loss)
per average common
share................ (.26) (.17) .01 (.16) (.58)
Diluted earnings
(loss) per average
common share......... $ (.26) (.17) .01 (.16) (.58)
1998
Revenues.............. $ 2,433,577 2,264,397 2,697,743 3,196,156 10,591,873
Costs and Expenses.... 3,446,298 5,215,164 4,813,328 4,836,631 18,311,421
Gain on sale of
assets............... 4,206 -- -- -- 4,206
Net income (loss)..... (1,008,515) (2,950,767) (2,115,585) (1,640,475) (7,715,342)
Preferred stock
dividends............ 313,912 313,902 313,912 313,912 1,255,638
Earnings (loss)
applicable to common
stock................ (1,322,427) (3,264,669) (2,429,497) (1,954,387) (8,970,980)
Basic earnings (loss)
per average common
share................ (.25) (.62) (.46) (.38) (1.71)
Diluted earnings
(loss) per average
common share......... $ (.25) (.62) (.46) (.38) (1.71)
The fourth quarter amount includes impairment of oil and gas properties of
$465,000. In addition the fourth quarter of 1999 is impacted by revenue and
expenses associated with the acquisition of the Lafitte field and issuance of
convertible notes payable.
The first, second, third and fourth quarter of 1998 cost and expense
amounts contain costs amounting to $0, $2,107,000, $1,496,000 and $81,000,
respectively, related to dry holes. The fourth quarter amount also contains
impairment of oil and gas properties of $1,076,000.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
43
PART III
Item 10. Directors and Executive Officers of the Registrant.
*
Item 11. Executive Compensation.
*
Item 12. Security Ownership of Certain Beneficial Owners and Management.
*
Item 13. Certain Relationships and Related Transactions.
*
*Reference is made to information under the captions "Election of
Directors", "Executive Compensation", "Security Ownership of Certain Beneficial
Owners and Management", and "Certain Relationships and Related Transactions",
in the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders.
44
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements
The following consolidated financial statements of Goodrich Petroleum
Corporation are included in Part II, Item 8:
Page
-----
Independent Auditors' Report............................................ 20
Consolidated Balance Sheets--December 31, 1999 and 1998................. 21
Consolidated Statements of Operations--Years ended December 31, 1999,
1998 and 1997.......................................................... 22
Consolidated Statements of Cash Flows--Years ended December 31, 1999,
1998 and 1997.......................................................... 23
Consolidated Statements of Stockholders' Equity--Years ended December
31, 1999, 1998 and 1997................................................ 24
Notes to Consolidated Financial Statements--Years ended December 31,
1999, 1998 and 1997.................................................... 25-42
Consolidated Quarterly Income Information (Unaudited)................... 43
2. Financial Statement Schedules
The schedules for which provision is made in Regulation S-X are not required
under the instructions contained therein, are inapplicable, or the information
is included in the footnotes to the financial statements.
(b) Reports on Form 8-K
None
(c) Exhibits
3(i).1 Amended and Restated Certificate of Incorporation of the Company
dated August 15, 1995, and filed with the Secretary of State of the
State of Delaware on August 15, 1995 (Incorporated by reference to
Exhibit 3.1 of the Company's Quarterly Report filed on Form 10-Q for
the three months ended September 30, 1995).
3(i).2 Certificate of Amendment of Restated Certificate of Incorporation of
Goodrich Petroleum Corporation dated March 12, 1998. (Incorporated
by reference to Exhibit 3(i)2 of the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
3(ii).1 Bylaws of the Company, as amended and restated (Incorporated by
reference to Exhibit 3.2 of the Company's Quarterly Report filed on
Form 10-Q for the three months ended September 30, 1995).
4.1 Credit Agreement Between Goodrich Petroleum Company of Louisiana and
Compass Bank-Houston dated August 15, 1995 and Amendment thereto
dated December 15, 1995. (Incorporated by reference to Exhibit 4.1
of the Company's Annual Report filed on Form 10-K for the year ended
December 31, 1995).
4.2 Second Amendment to Credit Agreement between Goodrich Petroleum
Company of Louisiana and Compass Bank dated June 1, 1996
(Incorporated by reference to Exhibit 4 of the Company's Quarterly
Report filed on Form 10-Q for the three months ended June 30, 1996).
4.3 Third Amendment to Credit Agreement between Goodrich Petroleum
Company of Louisiana, GPC, Inc. of Louisiana and Compass Bank dated
January 31, 1997. (Incorporated by reference to Exhibit 4.3 of the
Company's Annual Report filed on Form 10-K for the year ended
December 31, 1996).
4.4 Fourth Amendment to Credit Agreement between Goodrich Petroleum
Company of Louisiana, GPC, Inc. of Louisiana and Compass Bank dated
June 1, 1997. (Incorporated by reference to Exhibit 4.4 of the
Company's Form 10-Q for the year ended March 31, 1997).
4.5 Fifth Amendment to Credit Agreement between Goodrich Petroleum
Company of Louisiana, GPC, Inc. of Louisiana and Compass Bank dated
October 16, 1997. (Incorporated by reference to Exhibit 4.4 of the
Company's Form 10-Q for the year ended March 31, 1997).
4.6 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.6 of the Company's Registration Statement filed February
20, 1996 on Form S-8 (File No. 33-01077)).
4.7 Series B Convertible Preferred Stock Certificate of Designations.
(Incorporated by reference to Exhibit 4.6 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).
45
4.8 Amendment letter related to the Credit Agreement between Goodrich
Petroleum Company of Louisiana, GPC, Inc. of Louisiana and Compass Bank
dated August 27, 1998. (Incorporated by reference to Exhibit 4.8 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1998).
4.9 Sixth amendment to the Credit Agreement between Goodrich Petroleum
Company of Louisiana and Compass Bank dated March 27, 1998.
(Incorporated by reference to Exhibit 4.9 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998).
4.10 Seventh amendment to the Credit Agreement between Goodrich Petroleum
Company, LLC (formerly Goodrich Petroleum Company of Louisiana) and
Compass Bank dated December 21, 1998. (Incorporated by reference to
Exhibit 4.10 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
4.11 Credit Agreement between Goodrich Petroleum Company, L.L.C. and Compass
Bank dated September 23, 1999 (Incorporated by reference to Exhibit 4.1
of the Company's Form 8-K filing dated September 23, 1999).
4.12 First amendment to the September 23, 1999 Credit Agreement between
Goodrich Petroleum Company, LLC and Compass Bank dated February 29,
2000.
4.13 Credit Agreement between Goodrich Petroleum, LLC and Hambrecht and
Quist Guaranty Finance, LLC dated September 23, 1999. (Incorporated by
reference to the Company's Form 8-K filing dated September 23, 1999).
4.14 Credit Agreement between Goodrich Petroleum Lafitte, LLC and Hambrecht
and Quist Guaranty Finance, LLC dated September 23, 1999. (Incorporated
by reference to the Company's Form 8-K filing dated September 23, 1999.
10.1 Goodrich Petroleum Corporation 1995 Stock Option Plan (Incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement
filed June 13, 1995 on Form S-4 (File No. 33-58631)).
10.2 Patrick Petroleum Company 1993 Stock Option Plan (Incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement
filed June 13, 1995 on Form S-4 (File No. 33-58631)).
10.3 Form of Marketing Agreement between the Company and Natural Gas
Ventures, L.L.C. (Incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement filed June 13, 1995 on Form S-4 (File
No. 33-58631)).
10.4 Natural Gas Marketing Joint Venture Agreement between Seaber
Corporation and Natural Gas Ventures, L.L.C. (Incorporated by reference
to Exhibit 10.20 to the Company's Registration Statement filed June 13,
1995 on Form S-4 (File No. 33-58631)).
10.5 Form of Consulting Services Agreement between the Company and Henry
Goodrich (Incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-
58631)).
10.6 Form of Employment Agreement between the Company and Walter G. Goodrich
(Incorporated by reference to Exhibit 10.24 to the Company's
Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-
58631)).
10.7 Consulting Agreement with U.E. Patrick (Incorporated by reference to
Exhibit 10.25 to the Company's Registration Statement filed June 13,
1995 on Form S-4 (File No. 33-58631)).
10.8 Consulting Services Agreement between Leo E. Bromberg and Goodrich
Petroleum Corporation (Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report filed on Form 10-Q for the three months
ended September 30, 1995).
10.9 Goodrich Petroleum Corporation 1997 Director Compensation Plan
(Incorporated by reference to the May 20, 1998 Proxy).
10.10 Form of Subscription Agreement dated September 27, 1999 (Incorporated
by reference to Exhibit 4.1 of the Company's Form 8-K filing dated
September 23, 1999).
10.11 Registration Rights Agreement (2000 Private Placement)
21 Subsidiaries of the Registrant
Goodrich Petroleum Corporation, Inc. of Louisiana--incorporated in the
state of Nevada
Goodrich Petroleum Company LLC--incorporated in state of Louisiana
Goodrich Petroleum Lafitte, LLC--incorporated in state of Louisiana
Subsidiaries of Goodrich Petroleum Company of Louisiana
Drilling & Workover Company, Inc.--incorporated in state of Louisiana
LECE, Inc.--incorporated in the state of Texas
National Market Company--incorporated in state of Delaware
23 Consent of KPMG LLP.
27 Financial Data Schedule, included elsewhere herein.
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GOODRICH PETROLEUM CORPORATION
(Registrant)
Date: March 30, 2000 By___________________________________
Walter G. Goodrich
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Date: March 30, 2000
Signature Title
--------- -----
/s/ Walter G. Goodrich Chief Executive Officer and Director
------------------------------------ (Principal Executive Officer)
Walter G. Goodrich
/s/ Roland L. Frautschi Senior Vice President, Treasurer and
------------------------------------ Chief Financial Officer (Principal
Roland L. Frautschi Financial Officer)
/s/ Lonnie J. Shaw Vice President (Principal Accounting
------------------------------------ Officer)
Lonnie J. Shaw
/s/ Sheldon Appel Director
------------------------------------
Sheldon Appel
/s/ Basil M. Briggs Director
------------------------------------
Basil M. Briggs
/s/ Henry Goodrich Director
------------------------------------
Henry Goodrich
/s/ Arthur A. Seeligson Director
------------------------------------
Arthur A. Seeligson
/s/ Donald M. Campbell Director
------------------------------------
Donald M. Campbell
/s/ Jeff Benhard Director
------------------------------------
Jeff Benhard
/s/ Mike McGovern Director
------------------------------------
Mike McGovern
47