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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
For Fiscal Year Ended December 31, 1997
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.)
5847 SAN FELIPE, SUITE 700
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
Registrant's telephone number, including area code is (713) 780-9494
NAME OF EACH EXCHANGE
ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ---------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.20 par value...................... New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Series A Preferred Stock, $1.00 par value......... NASDAQ Small Cap
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 13, 1998 there were 5,232,403 shares 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 13, 1998 was
approximately $20,444,000 based on a closing price of $5.625 per share on the
New York Stock Exchange on such date.
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1
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART/ITEM OF INCORPORATION
-------- --------------------------
Proxy Statement for the Part III, Item 10, 11, 12, 13
1998 Annual Meeting of
Shareholders
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 79
active oil and gas wells located in 39 fields in seven states. At December 31,
1997, Goodrich had estimated proved reserves of approximately 4,098,000
barrels of oil and condensate and 37.6 billion cubic feet ("Bcf") of natural
gas, or an aggregate of 62.2 billion cubic feet equivalent ("Bcfe") with a
pre-tax present value of future net revenues, discounted at 10%, of $78.10
million.
The Company's principal executive offices are located at 5847 San Felipe,
Suite 700, Houston, Texas 77057. The Company also has offices in Shreveport,
Louisiana. At March 2, 1998 the Company had 18 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.
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 was comprised of $1.5 million in cash, the assumption of $7.5 million of
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.
Oil and Gas Operations and Properties
The following is a summary description of the Company's oil and gas
properties.
Louisiana
Substantially all 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 are a myriad of
types
2
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.
Kings Ridge 96 Field. Kings Ridge 96 was the Company's most significant
discovery in 1997 and is located in Lafourche Parish, Louisiana. Kings Ridge
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 sands
ranging in depth from 9,000 to 13,000 feet.
Goodrich has acquired approximately 307 acres from the Lafourche Parish
School Board and 114 acres from the Grandison Trust. In October 1997 Goodrich
Petroleum drilled the Lafourche Parish School Board #1 well. This well
encountered three productive sands between the depths of 10,930 and 11,335
feet. The well was tested in the deepest sand at a rate of 322 barrels of oil
per day, 127 million cubic feet ("Mcf") of gas per day, and zero barrels of
water per day on a 10/64 choke, with a flowing tubing pressure of 855 pounds
per square inch (psi). The Company plans to have the well on line and
producing during the second quarter of 1998. Goodrich owns an approximate 50%
working interest in the field. Three additional development wells are planned
to be drilled during the second quarter of 1998.
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 part 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 50 billion cubic feet of gas and 6.5
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. In
December 1997, Goodrich drilled the Dupont #1 well. The well encountered three
productive sands and perforated and flow tested as a dually completed well at
a combined rate of approximately 5.2 million cubic feet of gas per day and 102
barrels of condensate per day. Goodrich is operator and holds an approximate
38% working interest in the well. The well is awaiting pipeline connection and
the Company anticipates turning it to sales during the second quarter of 1998.
Second Bayou Field. The Second Bayou Field is located in Cameron Parish,
Louisiana and was discovered in 1955 by the Sun Texas Company. Goodrich has an
average working interest of approximately 29% in 1,395 gross acres. To date,
the field has produced over 421 Bcf of natural gas is and 2.3 million barrels
of oil from multiple Miocene aged sands ranging from 4,000 to 15,200 feet.
Goodrich is currently the operator of five producing wells, four of which are
dually completed, and anticipates drilling three additional wells during 1998
which have good subsurface control and were significantly enhanced by 3-D
seismic which was shot in 1997. Other major operators in the area are Fina Oil
and Chemical Company, Texaco Producing Company and Newfield Exploration.
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 eighteen
different Miocene age sandstones, which
3
range 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 831 billion cubic feet of gas and
20 million barrels of oil and condensate. There are currently nine producing
wells in the field.
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 has participated as operator in three successful wells,
with no dry holes, and has plans to drill at least one development well in the
field. The Company controls approximately 3,800 acres in the field and is
currently evaluating 3-D seismic for further exploitation opportunities.
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
347 Bcf of gas and 647,000 barrels of condensate. All the field production to
date has come from reservoirs which are of normal pressure. 3-D seismic has
been shot over the field and the Company expects the data to be available in
the second quarter of 1998. Goodrich currently has four producing wells and
plans on drilling one additional development well during 1998. The Company's
working interests range from approximately 43% to 47%.
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 production being primarily a pressure depletion mechanism. Ada
Field has produced over 655 Bcf of natural gas and 5.2 million barrels of oil.
Goodrich has four producing wells, two of which were drilled during 1997,
and plans to drill two additional wells during the second quarter of 1998.
Goodrich owns an approximate 43% working interest 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 and (vi) South Pecan Lake Field, located in Cameron 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 in 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. Sean Andrew was discovered by the Company in 1994
utilizing the Company's 375 square mile 3-D seismic database in West Texas.
The Company operators five wells in the field which are currently producing
approximately 770 barrels of oil per day. Goodrich holds a 37.5% working
interest in the field.
Marholl Field. The Marholl Field is a Siluro-Devonian (Fussellman) Field in
Dawson County discovered in 1995 through the use of 3-D seismic. In 1997,
Goodrich drilled its second well in the field, with current
4
production averaging approximately 200 barrels of oil per day. The Company
intends to drill at least one development well in 1998. Goodrich's working
interest in the field is approximately 23%.
Mary Blevins Field. The Mary Blevins Field is located in Smith County, Texas
and was a new discovery which is fault separated from Hitts Lake Field which
was discovered in 1953 by Sun Oil. Currently there are four producing wells in
this fault block with Goodrich, as operator, having approximately a 48%
working interest in approximately 782 gross acres. To date, Hitts Lake has
produced over 14 million barrels of oil and Mary Blevins has produced over
282,000 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) Goldfinger
Field, located in Dawson County, (v) Midway Field located in San Patricio
County and (vi) East Jacksonville Field located in Cherokee County.
Australia
Goodrich has non-operated interests 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 trillion
cubic feet ("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 acquired a 20% non-operated working interest in the 240
square kilometer Exploration Permit in 1995. The Permit is approximately 30 km
east from Barrow Island Field which has produced 300 million barrels of oil
and 85 km southwest and on trend with the recent Wandoo, Stag and Reindeer
discoveries. Since 1995, Goodrich and its 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 (1997). Interpretation of
this data has confirmed two separate prospects: Lindsay and West Boyd. These
prospects are structural closures with associated seismic amplitude anomalies.
The primary objective is the Mardie Greenstone. This objective is a late
Cretaceous age, shallow marine sandstone with porosities ranging up to 33%. A
well is anticipated to be drilled on the Lindsay prospect in late 1998.
Carnarvon Petroleum N.L. is the operator of this Permit.
EP-396. The Company acquired a 33% non-operated working interest in the
Permit in 1995. EP-396 encompasses 400 square kilometers and is in close
proximity to EP-395. The working interest group has reprocessed and
interpreted the available 2-D seismic data sets. One strong lead has emerged
from the seismic data, which is a prospect called the Nolan Prospect. This
prospect is a down-thrown three way closure along the major down to the West
Candace fault system. The available 2-D seismic data set indicates an
associated seismic amplitude anomaly. This structural picture, along with the
amplitudes, will be further evaluated with a new high quality 2-D seismic
survey to be completed in the second quarter of 1998. The Nolan Prospect is
scheduled to be drilled in the first quarter of 1999. TAP Oil N.L. is the
operator of EP-396.
EP-397. This Permit encompasses 160 square kilometers and the Company has a
33% working interest. The 130 km of available seismic has been reprocessed and
interpreted with several promising prospect leads. This Permit is in the
earliest stages of exploratory investigation as compared with EP-395 and EP-
396. The Company will participate in the acquisition of 3-D seismic across the
Permit beginning in May 1998. Permit work obligations provide for the drilling
of a well in 1999.
5
Oil and Natural Gas Reserves
The following tables set forth summary information with respect to the
Company's net proved reserves as of January 1, 1998 and 1997 as estimated by
the Company by compiling reserve information, substantially all of which was
prepared by the engineering firm of Coutret & Associates, Inc.
JANUARY 1, 1998
-------------------------------------------
PRE-TAX
NET RESERVES PRESENT VALUE
----------------------------- OF FUTURE NET
OIL REVENUES
CATEGORY (BBLS) GAS (MCF) BCFE (1) (IN MILLIONS)
-------- ------ ---------- -------- -------------
Proved Developed.................... 2,292,626 16,600,669 30.4 $41.86
Proved Undeveloped.................. 1,805,764 20,969,945 31.8 36.24
--------- ---------- ----- ------
Total Proved...................... 4,098,390 37,570,614 62.2 $78.10
========= ========== ===== ======
JANUARY 1, 1997
-------------------------------------------
NET RESERVES PRESENT VALUE
----------------------------- OF FUTURE NET
OIL REVENUES
CATEGORY (BBLS) GAS (MCF) BCFE (1) (IN MILLIONS)
-------- ------ ---------- -------- -------------
Proved Developed.................... 969,868 13,911,003 19.73 $47.96
Proved Undeveloped.................. 80,342 4,273,735 4.76 9.40
--------- ---------- ----- ------
Total Proved...................... 1,050,210 18,184,738 24.49 $57.36
========= ========== ===== ======
- --------
(1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf.
The Company's year end 1997 oil and gas reserves increased by 3,048,180
barrels (290%) and 19,385,876 Mcf (107%) during 1997 due to significant
discoveries (1,685,438 barrels and 19,707,712 Mcf) and the acquisition of
properties (1,614,779 barrels and 3,761,481 Mcf) during the year, offset
primarily by production for the year.
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 weighted average prices as of December 31, 1997 used in such
estimates were $2.59 per Mcf of natural gas and $16.50 per Bbl of crude
oil/condensate. Oil and gas prices have subsequently declined from December
31, 1997 levels.
6
Productive Wells
The following tables set forth the number of active well bores in which the
Company maintains ownership interests as of December 31, 1997:
OIL GAS TOTAL
----------------- ----------------- -----------------
GROSS (1) NET (2) GROSS (1) NET (2) GROSS (1) NET (2)
--------- ------- --------- ------- --------- -------
California.............. -- -- 3.00 1.75 3.00 1.75
Colorado................ -- -- 1.00 .30 1.00 .30
Louisiana............... 7.00 2.72 29.00 10.02 36.00 12.74
Mississippi............. 1.00 .07 -- -- 1.00 .07
Michigan................ 2.00 .27 5.00 .09 7.00 .36
Texas................... 25.00 9.65 4.00 .67 29.00 10.32
Wyoming................. 2.00 .32 -- -- 2.00 .32
----- ----- ----- ----- ----- -----
Total Productive
Wells................ 37.00 13.03 42.00 12.83 79.00 25.86
===== ===== ===== ===== ===== =====
- --------
(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.
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, 1997.
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................................................ 8,618 2,754
Michigan................................................. 1,920 19
Texas.................................................... 3,759 1,453
Wyoming.................................................. 80 13
Undeveloped acreage
Offshore Australia....................................... 197,682 57,985
Louisiana................................................ 3,170 727
Michigan................................................. 640 154
Texas.................................................... 3,120 1,439
------- ------
Total.................................................. 220,909 65,304
======= ======
Undeveloped acreage is considered to be those leased 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.
7
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.
Drilling Activities
The following table sets forth the drilling activity of the Company for the
last three years. This information reflects La/Cal's operations on a stand
alone basis prior to August 15, 1995. (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,
-----------------------------
1997 1996 1995
--------- --------- ---------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
Development Wells:
Productive...................................... 6.0 2.6 1.0 0.4 1.0 0.4
Non-Productive.................................. 0.0 0.0 0.0 0.0 0.0 0.0
---- --- ---- --- --- ---
Total......................................... 6.0 2.6 1.0 0.4 1.0 0.4
==== === ==== === === ===
Exploratory Wells:
Productive...................................... 12.0 2.9 6.0 2.5 1.0 0.2
Non-Productive.................................. 7.0 1.7 3.0 1.3 2.0 0.7
---- --- ---- --- --- ---
Total......................................... 19.0 4.6 9.0 3.8 3.0 0.9
==== === ==== === === ===
Total Wells:
Productive...................................... 18.0 5.5 7.0 2.9 2.0 0.6
Non-Productive.................................. 7.0 1.7 3.0 1.3 2.0 0.7
---- --- ---- --- --- ---
Total......................................... 25.0 7.2 10.0 4.2 4.0 1.3
==== === ==== === === ===
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, 1997.
1997 1996 1995
--------- --------- ---------
Net Production:
Natural gas (Mcf).............................. 2,449,320 1,623,377 2,213,923
Oil (Bbls)..................................... 282,380 165,964 102,731
Natural gas equivalents (Mcfe) (1)............. 4,143,600 2,619,161 2,830,309
Average Net Daily Production:
Natural gas (Mcf).............................. 6,710 4,448 6,065
Oil (Bbls)..................................... 774 455 281
Natural gas equivalents (Mcfe) (1)............. 11,354 7,176 7,754
Average Sales Price Per Unit:
Natural gas (per Mcf).......................... $ 2.55 2.60 1.72
Oil (per Bbl).................................. 18.06 20.88 16.27
Other Data:
Lease operating expense and production taxes
(per Mcfe).................................... $ .56 .62 .36
- --------
(1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf.
8
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.
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, which 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,
----------------
1997 1996 1995
---- ---- ----
Seaber Corporation of Louisiana............................ 44% 35% 55%
Texaco..................................................... 11% -- --
Mobil Oil Corporation...................................... 10% 22% 16%
Mitchell Marketing Company................................. 9% 16% 9%
Sales
During 1997, the Company sold its interests in certain oil and gas
properties located primarily in Montana for $370,000. During 1996, the Company
sold its interests in certain oil and gas properties located substantially in
North Dakota for $326,000. During 1995, the Company sold its interests in
certain oil and gas properties in Michigan, Montana and North Dakota for
$1,514,000.
Natural Gas Pipeline Joint Venture
Prior to the sale of the Company's interest in 1997, two of the Company's
subsidiaries held a 20% interest in a natural gas pipeline joint venture. The
pipeline and related facilities are located in Leon and Madison Counties,
Texas and are referred to as the "Pecos Pipeline Systems".
The joint venture was established for the purposes of buying and/or
transporting gas from producers and other pipelines under various contracts at
various receipt points and delivering or reselling the gas to Lone Star Gas
Company ("Lone Star") under the terms and conditions of a premium priced/fixed
volume 20-year contract dated October 1, 1981.
The Company sold its interest in the pipeline joint venture in October 1997
for an adjusted sales price of $3,564,000.
Investment in Marcum Natural Gas Services
The Company presently owns 675,200 shares of the common stock of Marcum
Natural Gas Services ("Marcum"), or approximately 5.5% of the Marcum common
stock outstanding. Marcum is a publicly held diversified provider of products
and services to the natural gas industry.
9
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.
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.
10
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 to be approximately 3.05%. As of December 31,
1997, the Company has paid approximately $211,000 in costs related to this
matter and has $199,000 accrued 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.
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.
11
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 13, 1998, the number of holders of record of the Company's common
stock without determination of the number of individual participants in
security position was 3,542 with 5,232,403 shares outstanding. High and low
sales prices for the Company's common stock for each quarter during the
calendar years 1997 and 1996 are as follows:
1997 1996
----------- ---------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ------ ---- ---- ----
March 31............................................ $ 8.00 4.50 9.00 6.00
June 30............................................. 6.00 4.50 9.00 6.00
September 30........................................ 6.00 5.00 6.50 5.00
December 31......................................... $11.50 5.50 6.50 4.50
The prices in the table above have been adjusted to give retroactive effect
to the Company's one-for-eight reverse stock split on March 12, 1998.
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.
12
ITEM 6. SELECTED FINANCIAL DATA.
Selected Statement of Operations Data:
PERIOD FROM
JULY 15, PERIOD FROM
1993 JANUARY 1,
(INCEPTION) 1993
YEAR ENDED DECEMBER 31, THROUGH THROUGH
-------------------------------------------- DECEMBER 31, JULY 14,
1997 1996 1995 1994 1993 1993 (D)
----------- --------- --------- --------- ------------ -----------
Revenues................ $12,901,361 9,769,383 6,174,412 5,013,446 1,068,404 947,000
Depletion, Depreciation
and Amortization....... 4,862,754 3,788,292 1,785,502 1,156,624 179,476
Exploration............. 3,205,730 1,149,240 193,159 4,240 --
Interest Expense........ 1,416,675 828,394 1,132,488 1,072,098 199,389
Total Costs and
Expenses............... 14,978,629 9,476,366 5,037,101 2,998,628 574,220 137,000
Gain on sale of assets.. 688,304 88,428 -- -- -- --
Extraordinary Item--
Early Extinguishment of
Debt.................. -- -- 482,906 -- --
Net Income (Loss)....... (1,388,964) 381,445 654,405 2,014,818 494,184
Preferred Stock
Dividends.............. 1,205,210 644,800 254,932
Earnings (Loss)
Applicable to Common
Stock.................. (2,594,174) (263,355) 399,473
Basic and Diluted Loss
Per Average Common
Share (c).............. (.50) (.05)
Average Common Shares
Outstanding (c)........ 5,229,307 5,225,564
Pro Forma
Information(a):
Pro Forma Income Taxes
(a)................... 402,698 785,779 192,732
Pro Forma Net Income... 251,707 1,229,039 301,452
Pro Form Earnings (Loss)
Applicable to Common
Stock................. (3,225) 1,229,039 301,452
Pro Forma Income Before
Extraordinary Item Per
Average Common Share
(c).................... .14 .50 .12
Extraordinary Item Per
Average Common Share
(c).................... (.14) -- --
Pro Forma Basic and
Diluted Earnings
(Loss) Per Average
Common Share (c)...... -- .50 .12
Pro Forma Average Common
Shares Outstanding
(b)(c)................. 3,465,318 2,470,653 2,470,653
Selected Balance Sheet Data:
DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ---------
Total Assets............ $37,537,918 22,398,984 22,382,716 8,230,496 5,371,000
Long Term Debt.......... 18,500,000 10,000,000 9,750,000 8,250,000 4,700,000
Stockholders' Equity
(Partners' Deficit).... $14,332,676 9,135,200 9,662,812 (2,081,217) (989,000)
- --------
(a) No provision for income taxes is included in the consolidated statements
of operations for the periods ended December 31, 1994 and 1993 or 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 those periods, is shown
above.
(b) For purposes of this presentation the number of pro forma shares used for
periods prior to August 15, 1995, is 2,470,653 shares (adjusted
retroactively for the March 1998 reverse stock split), the number of
shares issued by the Company in exchange for La/Cal Energy Partners net
assets contributed.
(c) Number of shares restated to retroactively adjust for one for eight
reverse stock split in March 1998.
(d) La/Cal Energy Partners was organized on July 15, 1993. Statement of
operations data, other financial data, and other selected operating data,
other than revenues from oil and gas sales and lease operating expenses
and production taxes, for the period from January 1, 1993 through July 15,
1993, is not presented, as the properties for which such financial data
related were not maintained as a separate business unit, and assets,
liabilities or indirect operating costs applicable to the properties were
not segregated by the owners prior to the formation of La/Cal Energy
Partners.
(e) 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.
13
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 ("Patrick
combination"). 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 which was 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 of 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 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, 1997 versus year ended December 31, 1996--Total
revenues in 1997 increased to $12,901,000 and were $3,132,000 (32%) higher
than total revenues in 1996 due to increased oil and gas revenues offset by
lower revenues from the pipeline joint venture. Oil and gas sales were
$3,664,000 higher due substantially to increased revenues as a result of the
La/Cal II Acquisition (effective January 31, 1997) along with increased gas
volumes on the pre-acquisition properties, offset in part by lower oil and gas
prices. Revenues from the pipeline joint venture were $459,000 lower 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:
1997 1996
------------------ ------------------
AVERAGE AVERAGE
PRODUCTION PRICE PRODUCTION PRICE
---------- ------- ---------- -------
Gas (Mcf)........................... 2,449,320 $ 2.55 1,623,377 $ 2.60
Oil (Bbls).......................... 282,380 $18.06 165,964 $20.88
Lease operating expense and production taxes were $2,316,000 for 1997
compared to $1,615,000 for 1996 or $701,000 higher due primarily to the
addition of the La/Cal II properties. Depletion, depreciation and amortization
was $4,863,000 versus $3,788,000 for 1996 or $1,075,000 higher due to the
addition of the La/Cal II properties, offset by approximately $300,000 less
amortization of the pipeline joint venture due to its sale in 1997. Included
in depletion, depreciation and amortization is depletion of oil and gas
properties of $4,066,000 and $2,684,000, respectively.
14
The Company incurred $3,206,000 of exploration expense in 1997 compared to
$1,149,000 in 1996. Included in the 1997 exploration expense is $2,342,000 of
costs related to dry holes during the period versus $542,000 of such costs in
1996.
The Company recorded impairments in the recorded value of certain oil and
gas properties in 1997 in the amount of $550,000.
Interest expense was $1,417,000 in 1997 compared to $828,000 due to
borrowings by the Company of $9,000,000 on January 31, 1997 in connection with
the La/Cal II Acquisition, resulting in higher average debt outstanding than
for the prior year.
General and administrative expenses amounted to $2,628,000 for 1997 versus
$2,096,000 in 1996 due largely to expenses associated with the addition of six
employees in 1997.
The Company recorded a gain on the sale of its interest in the pipeline
joint venture of $688,000 in 1997.
The Company's preferred stock dividends amounted to $1,205,000 for the
twelve months ended December 31, 1997 compared to $645,000 for 1996. The
increase was due to dividends paid on the Company's Series B Convertible
Preferred Stock issued on January 31, 1997 in connection with the La/Cal II
Acquisition.
Year ended December 31, 1996 versus year ended December 31, 1995--Total
revenues in 1996 increased to $9,769,000 and were $3,595,000 (58%) higher than
total revenues in 1995 due to a full year of the combined entities which
resulted in higher oil and gas sales. Oil and gas sales were $2,211,000 higher
due primarily to increased oil production as a result of the inclusion of
revenues of the combined entities in 1996 along with increased oil prices for
the year. Gas production for 1996 was lower primarily due to the early
abandonment of two wells producing from a gas reservoir in the Lake Charles
Field and a third well producing at a reduced rate compared to 1995. One of
the abandoned wells has recently been completed in an oil reservoir. The
dollar impact of this decrease was more than offset by increased gas prices
received in 1996. In addition, 1996 contains a full year of revenues from the
pipeline joint venture which contributed $1,538,000 compared to $573,000 for
1995.
The following table reflects the production volumes and pricing information
for the periods presented:
1996 1995
------------------ ------------------
AVERAGE AVERAGE
PRODUCTION PRICE PRODUCTION PRICE
---------- ------- ---------- -------
Gas (Mcf)........................... 1,623,377 $ 2.60 2,213,923 $ 1.72
Oil (Bbls).......................... 165,964 $20.88 102,731 $16.27
Lease operating expense and production taxes were $1,615,000 for 1996
compared to $1,030,000 for 1995 or $585,000 higher due to the addition of the
Patrick oil and gas properties. Depletion, depreciation and amortization was
$3,788,000 versus $1,786,000 due to a full year of the combined entities,
including amortization of the pipeline joint venture. Oil and gas depletion
and depreciation per Mcfe was $1.02 in 1996 versus $.48 in 1995, the increase
due to the Patrick properties carrying a significantly higher rate per Mcfe.
The Company incurred $1,149,000 of exploration expense in 1996 compared to
$193,000 in 1995 due to a full year of the combined entities in 1996 versus
four and one-half months in 1995. Included in the 1996 exploration expense is
$542,000 of costs related to dry holes during the period versus $40,000 of
such costs in 1995.
The Company recorded an impairment from the adoption of FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of in the fourth quarter of 1995 in the amount of
$157,000.
Interest expense was $828,000 in 1996 compared to $1,132,000 (27% lower) due
to the Company having lower average debt outstanding and a lower effective
interest rate in 1996 compared to 1995.
15
General and administrative expenses amounted to $2,096,000 for 1996 versus
$739,000 due to the Company providing its own general and administrative
services for the full year in 1996 versus four and one-half months in 1995.
Additionally, as a public company, the Company incurs a higher level of
general and administrative expenses than a privately held company.
In connection with the Patrick combination, the Company paid off La/Cal's
General Obligation Notes, and the related unamortized debt financing costs of
$483,000 were charged to operations as an extraordinary item in the third
quarter of 1995.
The Company's preferred stock dividends amounted to $645,000 for 1996
(twelve months dividends on average of 806,000 shares outstanding) compared to
$255,000 (four and one-half months dividends on average of 849,000 shares
outstanding).
Liquidity and Capital Resources
Net cash provided by operating activities was $7,923,000 in 1997 compared to
$4,373,000 in 1996 and $3,579,000 in 1995. The Company's accompanying
consolidated statements of cash flows identify major differences between net
income (loss) and net cash provided by operating activities for each of the
years presented.
Net cash used by investing activities amounted to $7,298,000 in 1997
compared to $4,163,000 in 1996 and net cash provided by investing activities
of $8,877,000 in 1995. The year ended December 31, 1997 reflects non-
acquisition capital expenditures of $9,157,000 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. The year ended December 31, 1996 amount is substantially comprised of
$3,992,000 in capital expenditures. The year ended December 31, 1995, reflects
the receipt by the Company of $9,600,000 cash in September from the sale of
the investment in the Penske Corporation as well as $1,514,000 from the sale
of certain properties in Michigan, Montana and North Dakota in the fourth
quarter. This was offset by the payment by the Company of $1,088,000 in
connection with the Patrick combination and $650,000 for capital expenditures.
Net cash used in financing activities was $7,287,000 in 1997 compared to
$479,000 in 1996 and $12,553,000 in 1995. 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). The 1996
amount primarily consists of the borrowing of $1,800,000 against the Company's
line of credit partially offset by debt paydowns of $1,550,000 and the payment
of preferred stock dividends of $645,000 (Series A only). The 1995 amount
included the borrowing of $21,000,000 by the Company which was used primarily
to pay off the debt assumed from La/Cal and Patrick ($19,778,000). The
remainder of the loan proceeds were used to provide working capital and pay
accrued interest. The year ended 1995 also reflects debt paydowns as follows:
i) $915,000 by La/Cal on its General Obligation Notes prior to August 15,
1995; ii) $9,500,000 by the Company on its credit facility in September from
the Penske sale proceeds; iii) $500,000 by the Company on its credit facility
from operations/working capital iv) $1,250,000 by the Company in the fourth
quarter from the sale of certain oil and gas properties. The 1995 amount also
includes partnership distributions by La/Cal of $1,133,000 prior to August 15,
1995 and the Company's preferred stock dividends subsequent to the business
combination in the amount of $363,000 (Series A only).
The Company has a credit facility with Compass Bank which provides for a
total borrowing base determined by the bank every six months based, in part,
on the Company's oil and gas reserve information. Such borrowing base is
currently $24,000,000. The maturity date for all amounts drawn under the bank
credit facility is June 1, 2000. Interest is based on either of two methods at
the option of the Company: the bank's prime
16
lending rate or LIBOR plus 2%. Interest rates are set on specific draws for
one, two, three or six month periods, also at the option of the Company. The
weighted average interest rate at December 31, 1997 was 7.8%. The credit
facility requires that minimum net worth and debt service ratios be maintained
by the Company. Accordingly, the Company had $1,503,000 available for the
payment of dividends at December 31, 1997. The amount outstanding under the
credit facility as of December 31, 1997 was $18,500,000.
The Company plans to incur capital expenditures in the amount of
approximately $12,500,000 in 1998. The Company plans to finance such
expenditures from operating cash flow and borrowings under its bank credit
facility.
The Company's business strategy is to explore and develop drilling prospects
along the Gulf Coast and in West Texas and pursue strategic acquisitions of
oil and gas properties that offer additional development drilling
opportunities. It is anticipated that such acquisitions would be financed with
bank or other institutional borrowings.
Year 2000
The Company believes that it has identified each of its computer systems
that will require modifications to enable it to perform satisfactorily on and
after January 1, 2000. The financial impact of making such modifications to
the Company's systems is not expected to be material to the Company's
consolidated financial position or results of operations.
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 estimate and such
revisions, 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.
17
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, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three year period ended December 31,
1997. 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, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note D to the consolidated financial statements, in 1995,
the Company adopted the provisions of Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
February 27, 1998, except as to the
first paragraph of Note G which is
as of March 12, 1998.
18
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
ASSETS 1997 1996
------ ------------ ------------
CURRENT ASSETS
Cash and cash equivalents.......................... $ 793,358 $ 344,551
Marketable equity securities....................... 844,000 569,700
Accounts receivable
Trade and other, net of allowance................ 1,354,776 744,221
Accrued oil and gas revenue...................... 1,641,969 1,482,503
Accrued pipeline joint venture................... -- 532,000
Prepaid insurance.................................. 174,201 235,578
Other.............................................. 4,000 4,888
----------- -----------
Total current assets............................. 4,812,304 3,913,441
----------- -----------
PROPERTY AND EQUIPMENT
Oil and gas properties............................. 41,154,687 19,129,512
Furniture, fixtures and equipment.................. 180,966 107,056
----------- -----------
41,335,653 19,236,568
Less accumulated depletion, depreciation and
amortization...................................... (8,869,783) (4,918,856)
----------- -----------
Net property and equipment....................... 32,465,870 14,317,712
----------- -----------
OTHER ASSETS
Investment in pipeline joint venture, net.......... -- 3,616,360
Other investments and deferred charges............. 259,744 551,471
----------- -----------
259,744 4,167,831
----------- -----------
TOTAL ASSETS................................... $37,537,918 $22,398,984
=========== ===========
See notes to consolidated financial statements.
19
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ------------ ------------
CURRENT LIABILITIES
Current portion of long term debt....................... $ -- $ --
Accounts payable........................................ 1,996,887 1,108,534
Accrued liabilities..................................... 2,708,355 1,994,730
----------- -----------
Total current liabilities............................. 4,705,242 3,103,264
----------- -----------
LONG TERM DEBT............................................ 18,500,000 10,000,000
OTHER LIABILITIES......................................... -- 160,520
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 and 801,149
shares (liquidating preference $10 per share,
aggregating to $7,963,180 and $8,011,490).............. 796,318 801,149
Series B convertible preferred stock, par value $1.00
per share; issued and outstanding 750,000 shares
(liquidation preference $10 per share, aggregating to
$7,500,000)............................................ 750,000 --
Common stock, par value $0.20 per share; authorized
25,000,000 shares; issued and outstanding 5,232,403 and
5,225,564 shares....................................... 1,046,481 1,045,113
Additional paid-in capital.............................. 15,146,095 8,375,282
Accumulated deficit..................................... (3,490,618) (896,444)
Unrealized gain (loss) on marketable equity securities.. 84,400 (189,900)
----------- -----------
Total stockholders' equity............................ 14,332,676 9,135,200
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $37,537,918 $22,398,984
=========== ===========
See notes to consolidated financial statements.
20
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
----------- --------- ----------
REVENUES
Oil and gas sales........................ $11,351,586 7,687,748 5,477,208
Pipeline joint venture................... 1,078,397 1,537,806 573,393
Other.................................... 471,378 543,829 123,811
----------- --------- ----------
Total revenues......................... 12,901,361 9,769,383 6,174,412
----------- --------- ----------
COSTS AND EXPENSES
Lease operating expense and production
taxes................................... 2,316,006 1,614,584 1,029,501
Depletion, depreciation and amortization. 4,862,754 3,788,292 1,785,502
Exploration.............................. 3,205,730 1,149,240 193,159
Impairment of oil and gas properties..... 549,792 -- 157,000
Interest expense......................... 1,416,675 828,394 1,132,488
General and administrative............... 2,627,672 2,095,856 739,451
----------- --------- ----------
Total costs and expenses............... 14,978,629 9,476,366 5,037,101
----------- --------- ----------
GAIN ON SALES OF ASSETS.................... 688,304 88,428 --
----------- --------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
INCOME TAXES.............................. (1,388,964) 381,445 1,137,311
Income Taxes............................. -- -- --
----------- --------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.... (1,388,964) 381,445 1,137,311
Extraordinary item-early extinguishment
of debt................................. -- -- (482,906)
----------- --------- ----------
NET INCOME (LOSS).......................... (1,388,964) 381,445 654,405
Preferred stock dividends................ 1,205,210 644,800 254,932
----------- --------- ----------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK. $(2,594,174) (263,355) 399,473
=========== ========= ==========
BASIC LOSS PER AVERAGE COMMON SHARE........ $ (.50) (.05)
=========== =========
DILUTED LOSS PER AVERAGE COMMON SHARE...... $ (.50) (.05)
=========== =========
AVERAGE COMMON SHARES OUTSTANDING.......... 5,229,307 5,225,564
PRO FORMA INFORMATION (UNAUDITED):
Income before extraordinary item and income
taxes..................................... $1,137,311
Pro forma income taxes*.................... 402,698
----------
734,613
Extraordinary item-early extinguishment
of debt................................. (482,906)
----------
Pro forma net income....................... 251,707
Preferred stock dividends................ 254,932
----------
Pro forma earnings (loss) available to com-
mon stock................................. $ (3,225)
==========
Pro forma income before extraordinary item
per average common share.................. $ .14
Pro forma extraordinary item per average
common share.............................. (.14)
----------
Pro forma basic and diluted loss per aver-
age common share.......................... $ --
==========
Pro forma weighted average common shares
outstanding**............................. 3,465,318
- -------
* As described in Note D, 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 being a partnership and income taxes
were the responsibility of the individual partners of La/Cal. Certain
unaudited pro forma information relating to the Company's results of
operations had La/Cal been a corporation, is shown here.
** For purposes of this presentation the number of pro forma shares used for
periods prior to August 15, 1995, is 2,470,653 shares, the number issued by
the Company in exchange for La/Cal's net assets contributed (adjusted for
the March 1998 one-for-eight reverse stock split).
See notes to consolidated financial statements.
21
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
------------ ---------- -----------
OPERATING ACTIVITIES
Net income (loss)...................... $ (1,388,964) 381,445 654,405
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depletion, depreciation and
amortization......................... 4,862,754 3,788,292 1,785,502
Amortization of leasehold costs....... 288,037 195,027 84,174
Amortization of deferred debt
financing costs...................... 27,694 72,329 101,531
Gain on sale of assets................ (688,304) (88,428) --
Extraordinary item-early
extinguishment of debt............... -- -- 482,906
Capital expenditures charged to
income............................... 2,341,954 678,213 108,985
Impairment of oil and gas properties.. 549,792 -- 157,000
Payment of other liabilities.......... (321,040) (364,100) (130,010)
Other................................. (87,357) (11,714) --
------------ ---------- -----------
5,584,566 4,651,064 3,244,493
Net change in (exclusive of
acquisition):
Accounts receivable.................. 520,391 (1,042,630) (28,773)
Prepaid insurance and other.......... 73,933 95,179 (319,043)
Accounts payable..................... 888,353 451,648 493,343
Accrued liabilities.................. 856,040 218,045 188,905
------------ ---------- -----------
Net cash provided by operating
activities......................... 7,923,283 4,373,306 3,578,925
------------ ---------- -----------
INVESTING ACTIVITIES
Proceeds from sale of pipeline joint
venture............................... 3,564,000 -- --
Proceeds from sales of oil and gas
properties............................ 370,000 325,628 1,514,336
Acquisition of oil and gas properties.. (2,074,866) (234,378) ----
Capital expenditures................... (9,156,831) (3,992,374) (649,604)
Sale of investment..................... -- -- 9,600,000
Cash paid in connection with business
combination........................... -- -- (1,088,432)
Other.................................. -- (261,668) (499,297)
------------ ---------- -----------
Net cash provided by (used in)
investing activities............... (7,297,697) (4,162,792) 8,877,003
------------ ---------- -----------
FINANCING ACTIVITIES
Proceeds from bank borrowings.......... 12,000,000 1,800,000 21,000,000
Principal payments of bank borrowings.. (10,963,919) (1,550,000) (31,942,841)
Preferred stock dividends.............. (1,205,210) (644,800) (362,893)
Retirement of preferred stock.......... (7,650) (74,357) --
Partnership distributions.............. -- -- (1,132,735)
Payment of debt financing costs........ -- (10,256) (114,771)
------------ ---------- -----------
Net cash provided by (used in)
financing activities............... (176,779) (479,413) (12,553,240)
------------ ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 448,807 (268,899) (97,312)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD.............................. 344,551 613,450 710,762
------------ ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 793,358 344,551 613,450
============ ========== ===========
See notes to consolidated financial statements.
22
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
PARTNERS' ---------------------- ------------------ --------------------- ADDITIONAL
CAPITAL NUMBER OF NUMBER PAR NUMBER PAID-IN ACCUMULATED
(DEFICIT) SHARES PAR VALUE OF SHARES VALUE OF SHARES* PAR VALUE* CAPITAL* DEFICIT
----------- ---------- ---------- --------- -------- ---------- ---------- ----------- -----------
BALANCE AT
DECEMBER 31,
1994............. $(2,081,217) -- $ -- -- $ -- -- $ -- $ -- $ --
Partnership
distributions.... (1,229,344) -- -- -- -- -- -- -- --
Business
combination...... 3,310,561 1,098,710 1,098,710 -- -- 4,941,307 988,262 7,176,367 --
Net income....... -- -- -- -- -- -- -- 1,032,562 (378,157)
Conversion of
preferred stock.. -- (363,851) (363,851) -- -- 284,257 56,851 307,000 --
Preferred stock
dividends--Series
A ($.30 per
share)........... -- -- -- -- -- -- -- -- (254,932)
----------- ---------- ---------- ------- -------- --------- ---------- ----------- -----------
BALANCE AT
DECEMBER 31,
1995............. -- 734,859 734,859 -- -- 5,225,564 1,045,113 8,515,929 (633,089)
Net Income....... -- -- -- -- -- -- -- -- 381,445
Unrealized
depreciation of
marketable
securities a
available for
sale............. -- -- -- -- -- -- -- -- --
Preferred stock
dividends--Series
A ($.80 per
share)........... -- -- -- -- -- -- -- -- (644,800)
Retirement of
preferred stock.. -- (10,000) (10,000) -- -- -- -- (64,357) --
Reinstatement of
preferred stock
under appraisal
rights........... -- 76,290 76,290 -- -- -- -- (76,290) --
----------- ---------- ---------- ------- -------- --------- ---------- ----------- -----------
BALANCE AT
DECEMBER 31,
1996............. -- 801,149 801,149 -- -- 5,225,564 1,045,113 8,375,282 (896,444)
Net loss......... -- -- -- -- -- -- -- -- (1,388,964)
Unrealized
appreciation of
marketable
securities
available for
sale............. -- -- -- -- -- -- -- -- --
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)
=========== ========== ========== ======= ======== ========= ========== =========== ===========
UNREALIZED
GAIN (LOSS)
ON
MARKETABLE TOTAL
EQUITY STOCKHOLDERS'
SECURITIES EQUITY
----------- -------------
BALANCE AT
DECEMBER 31,
1994............. $ -- $(2,081,217)
Partnership
distributions.... -- (1,229,344)
Business
combination...... -- 12,573,900
Net income....... -- 654,405
Conversion of
preferred stock.. -- --
Preferred stock
dividends--Series
A ($.30 per
share)........... -- (254,932)
----------- -------------
BALANCE AT
DECEMBER 31,
1995............. -- 9,662,812
Net Income....... -- 381,445
Unrealized
depreciation of
marketable
securities a
available for
sale............. (189,900) (189,900)
Preferred stock
dividends--Series
A ($.80 per
share)........... -- (644,800)
Retirement of
preferred stock.. -- (74,357)
Reinstatement of
preferred stock
under appraisal
rights........... -- --
----------- -------------
BALANCE AT
DECEMBER 31,
1996............. (189,900) 9,135,200
Net loss......... -- (1,388,964)
Unrealized
appreciation of
marketable
securities
available for
sale............. 274,300 274,300
Issuance of
Series B
Preferred Stock.. -- 7,500,000
Preferred stock
dividends
Series A ($.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............. $ 84,400 $14,332,676
=========== =============
- -----
* All share and dollar amounts have been restated to retroactively reflect
the March 1998 reverse stock split.
See notes to consolidated financial statements.
23
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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--BUSINESS COMBINATIONS
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 was comprised of $1.5 million cash, the assumption of $7.5 million of
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 borrowed an additional $9 million under its bank
credit facility, which was used to repay $7.5 million of La/Cal II debt and to
pay the $1.5 million cash portion of the purchase price. The Series B
Preferred Stock has a dividend rate of 8.25% per annum and each share of
Series B Preferred Stock is convertible into 8.92 shares of common stock. Such
shares are redeemable by the Company after January 31, 2001 at $10.00 per
share.
The La/Cal II acquisition was accounted for as a purchase business
combination and the operations of the related properties are included in the
Company's results of operations subsequent to January 31, 1997.
On August 15, 1995, the transactions contemplated by the Agreement and Plan
of Merger among Patrick Petroleum Company ("Patrick"), La/Cal Energy Partners
("La/Cal"), Goodrich Petroleum Corporation (the "Company"), and Goodrich
Acquisition, Inc. were completed. The Agreement provided for a combination of
Patrick and La/Cal, as a result of which the businesses previously conducted
by Patrick and La/Cal were subsequently conducted by the Company.
The combination transactions were accounted for as a purchase business
combination in accordance with Accounting Principles Board Opinion No. 16,
Business Combinations whereby La/Cal was deemed to be the acquiror and Patrick
the acquiree. 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 financial
statements reflect the operations solely of La/Cal for periods prior to August
15, 1995, whereas such financial statements reflect the operations of the
combined entities for periods subsequent to August 15, 1995.
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the financial statements of Goodrich Petroleum Corporation, its two wholly-
owned subsidiaries, and one of its wholly-owned subsidiary's four wholly-owned
subsidiaries. Significant intercompany balances and transactions have been
eliminated in consolidation.
Oil and gas revenues--Oil and gas revenues are recorded using the accrual
method of accounting.
Property and Equipment--The Company uses the successful efforts method of
accounting for exploration and development expenditures.
24
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
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.
During the fourth quarter of 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Under SFAS
No. 121, an impairment is determined to have occurred and a loss is recognized
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. 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 1997 and 1995 in
the amounts of $550,000 and $157,000, respectively.
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.
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--In accordance with SFAS No. 115, 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 a separate component of stockholders' equity
until realized.
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, $1,060,000 and $403,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. 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
25
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
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.
The federal income tax effect of La/Cal's activities (prior to August 15,
1995) is not reflected in the financial statements since such taxes were the
responsibility of the individual partners of La/Cal. The Company became
subject to income taxes as of August 15, 1995, as a result of the business
combination.
Earnings Per Share--In 1997, the Company, adopted SFAS No. 128, "Earnings
per Share". SFAS 128 established requirements for the computation of basic
earnings per share and diluted earnings per share and was effective for
financial statements issued for periods ending after December 15, 1997.
Earnings per share amounts for prior periods have been restated to conform
with SFAS 128.
As discussed previously, La/Cal's activities prior to the business
combination were conducted in the form of a partnership and the Company was
established in corporate form on August 15, 1995. Earnings per share
information for 1995 has been presented on a pro forma basis to reflect such
information as if La/Cal had been operated as a corporation prior to August
15, 1995.
Stock Based Compensation--Prior to January 1, 1996, the Company accounted
for its stock option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. In the fourth quarter of 1996, the
Company adopted 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 and provide pro forma net income and pro forma earnings per share
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 pro forma 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.
26
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
NOTE D--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following presents the carrying amounts and estimated fair values of the
Company's financial instruments at December 31, 1997 and 1996.
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ---------- ---------- ----------
Financial asset--
Marketable equity securities.... $ 844,000 844,000 569,700 569,700
Financial liabilities--
Other liabilities............... 160,520 160,520 517,572 503,161
Long-term debt (including
current maturities)............ $18,500,000 18,500,000 10,000,000 10,000,000
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.
Other liabilities and long-term debt: The fair value is estimated by
discounting the future cash flows of each instrument at rates currently
offered to the Company for similar debt instruments of comparable maturities
by the Company's bankers.
NOTE E--ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1997 and 1996 consisted of the
following:
1997 1996
---------- ---------
Advanced billings.......................................... $ 607,905 315,081
Accrued interest........................................... 400,069 238,969
Accrued drilling costs..................................... 244,971 --
Environmental contingency.................................. 198,733 275,000
Prior years' state income and franchise tax assessment..... 175,000 175,000
Liability to shareholders of acquired company.............. 166,496 177,585
Current portion--consulting agreement contracts............ 160,520 357,052
Other...................................................... 754,661 456,043
---------- ---------
$2,708,355 1,994,730
========== =========
NOTE F--LONG TERM DEBT
Long-term debt at December 31, 1997 and 1996 consists of the following:
1997 1996
----------- ----------
Borrowings under credit facility, interest, at prime or
LIBOR plus 2% (see below) (weighted average rate at
December 31, 1997--7.8%); principal due June 1, 2000... $18,500,000 10,000,000
Less current portion.................................... -- --
----------- ----------
Long-term debt, excluding current portion............... $18,500,000 10,000,000
=========== ==========
27
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
The Company has a credit facility with Compass Bank which provides for a
total borrowing base determined by the bank every six months based in part, on
the Company's oil and gas reserve information. Such borrowing base is
currently $24,000,000. The maturity date for all amounts drawn under the bank
credit facility is June 1, 2000. Interest is based on either of two methods at
the option of the Company: the bank's prime lending rate or LIBOR plus 2%.
Interest rates are set on specific draws for one, two, three or six month
periods, also at the option of the Company. The credit facility requires the
Company to maintain minimum net worth of $13,000,000 plus 50% of net income,
as defined, subsequent to December 31, 1997. Under such restriction, the
Company had $1,503,000 available for the payment of dividends at December 31,
1997. The credit facility also requires a minimum debt service ratio of 1.25
to 1. The amount outstanding under the credit facility as of December 31, 1997
was $18,500,000.
Substantially all of the Company's assets are pledged to secure this credit
facility.
Interest paid during 1997, 1996 and 1995 amounted to $1,038,221, $562,593
and $968,190, respectively.
NOTE G--STOCKHOLDERS' EQUITY
Common Stock--On March 12, 1998, the Company effected a one for eight
reverse stock split of its common stock. All share and per share amounts of
all periods presented have been adjusted to retroactively give effect to the
reverse stock split.
At December 31, 1997, unissued shares of Goodrich common stock were reserved
in the amount of 1,167,717 shares for the conversion of convertible preferred
stock and 342,692 shares for stock option plans.
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, 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%.
As a result of the combination transactions, the Company was required to
offer a special conversion right to all holders of the Series A Preferred
Stock for a period of 61 days beginning August 18, 1995. On October 18, 1995,
holders of 45,481 shares of the Company's Series A Preferred Stock elected to
convert their shares to Common Stock at an exchange rate of .781 to 1. This
conversion resulted in the Company issuing an additional 284,257 shares of
Common Stock.
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. 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%.
28
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
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 1995 Nonemployee Director
Stock Option Plan provides for the grant of 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.
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 five year pro rata vesting.
The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $2.57, $3.06 and $3.88 on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: 1997--expected dividend yield 0%, risk-free interest rate of
7.5%, and an expected life of 6 years; 1996--expected dividend yield 0%, risk-
free interest rate of 7.5%, and an expected life of 6 years; 1995--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 compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's net income (loss) would have been reduced to the pro forma
amounts indicated below:
1997 1996 1995
----------- -------- --------
Net income (loss)................. As reported $(1,388,964) 381,445 654,405
Pro forma (1,452,644) 225,135 464,885
Earnings (loss) applicable to com-
mon stock........................ As reported (2,594,174) (263,355) 399,473
Pro forma (2,657,854) (419,665) (209,953)
Basic and diluted earnings (loss)
per average common share......... As reported (.50) (.05) *
Pro forma (.51) (.08) *
- --------
* Not calculated due to entity not being in corporate form during a portion of
1995.
29
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
Earnings Per Share--Both series of the Company's convertible preferred stock
and its stock options are considered to be potential common stock but 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 1997, 1996 and 1995, with separate
presentation for the options assumed from Patrick, were as follows:
WEIGHTED WEIGHTED AVERAGE
NUMBER OF AVERAGE RANGE OF REMAINING
OPTIONS EXERCISE PRICE EXERCISE PRICE CONTRACTUAL LIFE
---------------- -------------- ------------------ -----------------
PATRICK PATRICK PATRICK PATRICK
TOTAL ONLY TOTAL ONLY TOTAL ONLY TOTAL ONLY
------- ------- ------ ------- -------- --------- -------- --------
Outstanding January 1,
1995
Assumed from Patrick.. 208,825 208,825 $18.56 18.56
Granted--1995 Stock
Option Plan.......... 113,750 -- 8.16 --
Granted--1995 Non
Employee Director
Stock Option Plan.... 22,500 -- 7.76 --
Expiration of Options. (11,875) (11,875) 18.00 18.00
------- -------
Outstanding December 31,
1995................... 333,200 196,950 14.24 18.56 $7.60 to $16.00 to 5.0 yrs. 2.6 yrs.
$24.00 $ 24.00
Granted--1995 Stock
Option Plan.......... 49,375 -- 6.08 --
Granted--1995 Non-
Employee Director
Stock Option Plan.... 11,250 -- 7.52 --
Expiration of Options. (39,883) (39,883) 18.00 18.00
------- -------
Outstanding December 31,
1996................... 353,942 157,067 12.48 18.70 $6.00 to $16.00 to 5.4 yrs. 2.0 yrs.
$24.00 $ 24.00
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 $16.00 to 7.4 yrs. 4.2 yrs.
======= ======= $24.00 $ 24.00
Exercisable December 31,
1995................... 224,450 196,950 $17.23 18.56
Exercisable December 31,
1996................... 219,129 157,067 15.63 18.70
Exercisable December 31,
1997................... 172,317 70,817 12.13 18.60
NOTE H--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 has estimated 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 to be approximately 3.05%. As of
December 31, 1997, the Company has paid approximately $211,000 in costs
related to this matter and has $199,000 accrued 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.
30
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
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.
NOTE I--INCOME TAXES
Income tax expense for the years ending December 31, 1997, 1996 and the
period from August 15, 1995 through December 31, 1995 consists of:
CURRENT DEFERRED TOTAL
------- -------- -----
Year Ended December 31, 1997:
U.S. Federal.......................................... $14,643 (14,643) --
State................................................. -- -- --
------- ------- ---
14,643 (14,643) --
======= ======= ===
Year Ended December 31, 1996:
U.S. Federal.......................................... $ -- -- --
State................................................. -- -- --
------- ------- ---
-- -- --
======= ======= ===
Period from August 15, through December 31, 1995:
U.S. Federal.......................................... $25,000 (25,000) --
State................................................. -- -- --
------- ------- ---
25,000 (25,000) --
======= ======= ===
Following is a reconciliation of the U.S. statutory income tax rate to the
Company's effective rate on loss before income taxes for the years ended
December 31, 1997, 1996 and the period from August 15, 1995 through December
31, 1995:
1997 1996 1995
----- ----- -----
U.S. Statutory Income Tax Rate.......................... (35.0)% 35.0% (35.0)%
Increase in deductible temporary differences for which
no benefit recorded.................................... 34.9 -- 28.2
Change in the beginning of the year balance of the
valuation allowance allocated to income tax income
expense................................................ -- (35.5) --
Nondeductible expenses.................................. .1 .5 6.8
----- ----- -----
-- -- --
===== ===== =====
The significant components of deferred income tax expense for the years
ended December 31, 1997, 1996 and the period from August 15, 1995 through
December 31, 1995 are as follows:
1997 1996 1995
----------- ---- --------
Deferred tax benefit (exclusive of utilization of
net operating loss carryforwards)................. (1,023,016) -- (657,938)
Utilization of net operating loss carryforward..... 1,008,373 -- 632,938
----------- --- --------
$ (14,643) -- (25,000)
=========== === ========
31
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1997 and 1996 are presented below.
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
Deferred tax assets:
Differences between book and tax basis of:
Property and equipment............................ $ -- 31,026
Marketable equity securities...................... 96,616 206,621
Contingent liabilities............................ 198,469 229,044
Consulting agreement contracts.................... 56,182 181,150
Other............................................. 65,199 59,949
Operating loss carryforwards........................ 11,742,835 13,523,211
Statutory depletion carryforward.................... 5,615,003 5,376,361
AMT Tax credit carryforward......................... 1,460,869 1,446,226
Investment tax credit carryforward.................. 189,336 747,378
------------ -----------
Total gross deferred tax assets..................... 19,424,509 21,800,966
Less valuation allowance............................ (16,884,247) (20,729,196)
------------ -----------
Net deferred tax assets............................. 2,540,262 1,071,770
------------ -----------
Deferred tax liability:
Differences between book and tax basis of:
Investment in Pecos pipeline...................... -- (1,046,770)
Property and equipment............................ (2,500,619) --
------------ -----------
Total gross deferred liability...................... (2,500,619) (1,046,770)
------------ -----------
Net deferred tax asset.............................. $ 39,643 25,000
============ ===========
The valuation allowance for deferred tax assets decreased $3,844,949 for the
year ended December 31, 1997 and increased $1,267,901 for the year ended
December 31, 1996. 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 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, 1997. 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.
32
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
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
----------- ------- -------- -------
$ 575,215 2004 22,591 1999
1,080,772 2005 68,171 2000
7,093,823 2006 96,466 2001
8,860,622 2007 2,108 2002
4,285,746 2008
3,247,494 2009
5,480,870 2010
600,706 2011
2,325,708 2012
----------- --------
$33,550,956 $189,336
=========== ========
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 $9,400,000 in 1996 and is
estimated to be $13,500,000 in 1997.
The Company's statutory depletion carryforwards and AMT credit carryovers
have no expiration date.
As described in Note D, no provision for income taxes for La/Cal was
included in the statements of operations prior to August 15, 1995 due to the
tax effect of Partnership activities being the responsibility of the
individual Partners.
The Company paid income taxes of $0, $107,237 and $0 in 1997, 1996 and 1995,
respectively.
NOTE J--RELATED PARTY TRANSACTIONS.
La/Cal did not have any employees and was dependent on Goodrich Oil Company
to provide substantially all management of oil and gas operations and
administrative functions. La/Cal was not required to pay Goodrich Oil Company
for such services. Goodrich Oil Company was the operator of record of the
majority of the oil and gas properties in which La/Cal had an interest and
owned joint interests in such properties.
The Company entered into additional transactions with Goodrich Oil Company
subsequent to the business combination as more fully described below. Goodrich
Oil Company is owned by Henry Goodrich who is the chairman of the Company and
the father of Walter G. Goodrich, the Company's President and Chief Executive
Officer.
During 1997, 1996 and 1995, the Company paid Goodrich Oil Company $74,981,
$118,775 and $50,132 for certain general and administrative expenses. During
1995, the company paid Goodrich Oil Company $222,530 for reimbursement of
expenses related to the business combination. Amounts payable to Goodrich Oil
Company were $0 and $19,783 at December 31, 1997 and 1996.
The Company paid $167,500, $150,000 and $58,250 to the Company's Chairman,
Mr. Henry Goodrich during 1997, 1996 and 1995, respectively, under a
consulting agreement which expires in August 2000.
33
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
NOTE K--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, 1996 and 1995:
1997 1996
----------- ----------
Proved properties........................................ $39,343,362 17,908,303
Unproved properties...................................... 1,811,325 1,221,209
----------- ----------
41,154,687 19,129,512
Less accumulated depreciation and depletion.............. 8,798,501 4,885,687
----------- ----------
Net property and equipment............................. $32,356,186 14,243,825
=========== ==========
The following table reflects certain data with respect to natural gas and
oil property acquisitions, exploration and development activities:
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- --------- ----------
Property acquisition
Proved................................. $17,308,540(a) 7,068 10,680,422(b)
Unproved............................... 886,647 231,053 274,329
Exploration.............................. 5,535,783 3,866,205 --
Development.............................. 3,598,177 359,075 --
----------- --------- ----------
$27,329,147 4,463,401 10,954,751
=========== ========= ==========
- --------
(a) Includes properties acquired in the La/Cal II Acquisition including
portions funded with Serial B Preferred Stock ($7,500,000)
(b) Properties acquired from Patrick.
Results of operations for natural gas and oil producing activities follow:
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
----------- --------- ----------
Sales to unaffiliated customers............... $11,351,586 7,687,748 5,477,208
Production costs (lease operating expense and
taxes)....................................... 2,316,006 1,614,584 1,029,501
Exploration expenses.......................... 3,205,730 1,149,240 193,159
Impairment of oil and gas properties.......... 549,792 -- 157,000
Depreciation, depletion and amortization...... 4,065,998 2,684,494 1,356,060
----------- --------- ----------
10,137,526 5,448,318 2,735,720
----------- --------- ----------
Results of operations (before pro forma income
taxes in 1995)............................... $ 1,214,060 2,239,430 2,741,488
=========== =========
Pro forma income taxes (Unaudited)............ 970,703
----------
Pro forma results of operations (Unaudited)... $1,770,785
==========
La/Cal operated as a partnership since its formation to the date of the
business combination (August 15, 1995) and, accordingly, did not directly pay
income taxes. Pro forma income tax expense and the results of oil and gas
operations as adjusted for pro forma income taxes are reflected above for that
period in order to reflect
34
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
the impact of income taxes as if La/Cal had been organized as a corporation.
No income taxes have been reflected above for the Company for the periods
subsequent to the August 15, 1995, business combination due to its estimate
that net operating loss and statutory depletion loss carryforwards will be
utilized to offset future taxable income.
NOTE L--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,
----------------
1997 1996 1995
---- ---- ----
Seaber Corporation of Louisiana............................ 44% 35% 55%
Texaco..................................................... 11% -- --
Mobil Oil Corporation...................................... 10% 22% 16%
Mitchell Marketing Company................................. 9% 16% 9%
NOTE M--PATRICK ASSETS AND LIABILITIES ACQUIRED
On August 15, 1995, the Company recorded the combination transactions which
effect was primarily the recording of the assets and liabilities of Patrick at
their fair value. Such amounts were as follows:
Cash overdraft............................................. $ (451,414)
Marketable equity securities............................... 759,600
Accounts receivable........................................ 676,040
Prepaid expenses and other current assets.................. 12,745
Investment in Penske Corporation........................... 9,600,000
Investment in pipeline joint venture....................... 5,079,754
Property and equipment..................................... 10,780,422
Accounts payable........................................... (27,627)
Accrued liabilities........................................ (1,438,070)
Long term debt............................................. (10,626,118)
Other liabilities.......................................... (703,000)
------------
$ 13,662,332
============
The former common shareholders of Patrick received 2,470,653 (retroactively
adjusted for March 1998 one-for-eight reverse stock split) shares of the
Company's common stock and the former preferred shareholders of Patrick
effectively received 1,175,000 shares of the Company's preferred stock in the
business combination. As reflected in the consolidated statements of
stockholders' equity, the issuance of such shares resulted in an increase in
stockholders' equity of $12,573,900.
35
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
NOTE N--SALES OF ASSETS
On October 16, 1997, the Company sold its 20% interest in a natural gas
pipeline joint venture. The adjusted sales price was $3,564,000 and the
Company recognized a gain on the sale (both pre-tax and after-tax) in the
fourth quarter of $688,304.
The Company sold its interests in certain oil and gas properties located in
Montana for $370,000 in 1997, resulting in a gain of $18. The Company sold its
interest in certain oil and gas properties located in North Dakota for
$325,000 in 1996, resulting in a gain of $88,000. The Company sold certain oil
and gas properties in Michigan, Montana and North Dakota for $1,514,000 in
1995, such transactions resulting in no gain or loss.
NOTE O--PRO FORMA FINANCIAL RESULTS OF OPERATIONS
Selected results of operations on a pro forma basis for the year ended
December 31, 1995 as if the combination transactions had occurred on January
1, 1995, are as follows:
Revenues...................................................... $11,588,318
Income before extraordinary item.............................. 2,510,494
Net income.................................................... 2,027,588
Earnings applicable to common stock........................... 1,377,588
Earnings before extraordinary item per average common share... .04
Basic and diluted earnings per average common share........... $ .03
The pro forma operations for the year ended December 31, 1995 contain a net
gain on the sale of an investment which accounted for $1,563,762 of net income
and $ .04 income per share.
NOTE P--ACQUISITION OF OIL GAS PROPERTIES
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 was comprised 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 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 8.92 shares of common stock. Such shares are
redeemable by the Company after January 31, 2001 at $10.00 per share.
Selected results of operations on a pro forma basis as if the La/Cal II
Acquisition had occurred on January 1, 1997 and January 1, 1996, respectively
are as follows:
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(UNAUDITED)
Revenues.......................................... 13,422,000 14,370,000
Net income (loss)................................. (1,154,000) 1,715,000
Earnings (loss) applicable to common stock........ (2,411,000) 451,000
Basic and diluted earnings (loss) per average
common share..................................... (.46) .09
36
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
NOTE Q--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.
The supplemental oil and gas reserve information that follows for the year
ended December 31, 1995 relates to properties owned by La/Cal prior to the
business combination with Patrick (period from January 1, 1995 through August
14, 1995) and properties of the combined entities subsequent to the business
combination with Patrick (period from August 15, 1995 through December 31,
1995). All of the subject reserves are located in the continental United
States.
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 & Associates, Inc. for the years ended
December 31, 1997 and 1996, and by several engineering firms and the Company
internally for the year ended December 31, 1995.
Many assumptions and judgmental decisions are required to estimate reserves.
Quantities reported are considered reasonable, but they 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. Average crude oil prices received for oil and
the average price received by well for natural gas, effective at the end of
each year, were used for this calculation, and were $16.50 per Bbl and $2.59
per Mcf, respectively as of December 31, 1997, and $23.88 per Bbl and $4.17
per Mcf, respectively as of December 31, 1996 and $17.90 per Bbl and $2.01 per
Mcf, respectively as of December 31, 1995. Oil and gas prices have
subsequently declined from December 31, 1997 levels.
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, 1997.
37
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
SCHEDULE 1--ESTIMATED NET PROVED GAS RESERVES (MCF)
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
Proved:
Balance, beginning of period............. 18,184,738 18,887,189 21,983,004
Revisions of previous estimates.......... (1,582,986) (3,989,734) (5,727,528)
Purchase of minerals in place............ 3,761,481 3,594 5,324,607
Extensions, discoveries, and other
additions............................... 19,707,712 4,961,754 375,800
Production............................... (2,449,320) (1,623,377) (2,213,923)
Sales of minerals in place............... (51,011) (54,688) (854,771)
---------- ---------- ----------
Balance, end of period................... 37,570,614 18,184,738 18,887,189
========== ========== ==========
Proved developed:
Beginning of period...................... 13,911,003 13,815,905 18,839,882
End of period............................ 16,600,669 13,911,003 13,815,905
SCHEDULE 2--ESTIMATED NET PROVED OIL RESERVES (BARRELS)
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- --------- --------
Proved:
Balance, beginning of
period................. 1,050,210 940,147 523,722
Revisions of previous
estimates.............. 132,327 44,980 (236,934)
Purchase of minerals in
place.................. 1,614,779 -- 938,465
Extensions, discoveries,
and other additions.... 1,685,438 278,129 3,389
Production.............. (282,380) (165,964) (102,731)
Sale of minerals in
place.................. (101,984) (47,082) (185,764)
--------- --------- --------
Balance, end of period.. 4,098,390 1,050,210 940,147
========= ========= ========
Proved, developed:
Beginning of period..... 969,868 920,557 504,908
End of period........... 2,292,626 969,868 920,557
SCHEDULE 3--STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO
PROVED OIL AND GAS RESERVES
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
Future cash inflows................................ $155,542 96,668 51,615
Future production and development costs............ (26,906) (11,031) (8,267)
Future income tax expense.......................... (24,177) (13,624) (4,150)
-------- ------- -------
Future net cash flows.............................. 104,459 72,013 39,198
10% annual discount for estimated timing of cash
flows............................................. (40,456) (24,656) (12,316)
-------- ------- -------
Standardized measure of discounted future net cash
flows............................................. $ 64,003 47,357 26,882
======== ======= =======
Average year end prices:
Natural gas (per Mcf)............................ $ 2.59 4.17 2.01
Crude oil (per Bbl).............................. $ 16.50 23.88 17.90
38
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
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,
------------------------
1997 1996 1995
-------- ------ ------
(IN THOUSANDS)
Net changes in prices and production costs related to
future production................................... $(32,327) 24,061 829
Sales and transfers of oil and gas produced, net of
production costs.................................... (9,036) (6,073) (4,448)
Net change due to revisions in quantity estimates.... (991) (8,730) (8,848)
Net change due to extensions, discoveries and im-
proved recovery..................................... 37,465 15,532 521
Net change due to purchase and sales of minerals-in-
place............................................... 16,065 (792) 11,090
Development costs incurred during the period......... 3,598 359 --
Net change in income taxes........................... (4,094) (6,524) (3,475)
Accretion of discount................................ 5,736 3,036 2,752
Change in production rates (timing) and other........ 230 (394) 945
-------- ------ ------
$ 16,646 20,475 (634)
======== ====== ======
39
GOODRICH PETROLEUM CORPORATION
CONSOLIDATED QUARTERLY INCOME INFORMATION
(UNAUDITED)
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER TOTAL
---- ---------- --------- --------- ---------- ----------
Revenues................ $3,597,401 3,068,455 3,170,563 3,064,942 12,901,361
Costs and expenses...... 2,860,461 3,049,380 3,409,319 5,659,469 14,978,629
Gain on sale of assets.. 18 -- -- 688,286 688,304
Net income (loss)....... 736,958 19,075 (238,756) (1,906,241) (1,388,964)
Preferred stock divi-
dends.................. 263,315 314,102 313,891 313,902 1,205,210
Earnings (loss) applica-
ble to common stock.... 473,643 (295,027) (552,647) (2,220,143) (2,594,174)
Basic and diluted
earnings (loss) per
average common share... .09 (.06) (.11) (.42) (.50)
1996
----
Revenues................ $2,606,664 2,159,719 2,145,322 2,857,678 9,769,383
Costs and expenses...... 2,374,423 2,445,198 2,082,413 2,574,332 9,476,366
Gain (loss) on sale of
assets................. 44,124 3,000 48,127 (6,823) 88,428
Net income (loss)....... 276,365 (282,479) 111,036 276,523 381,445
Preferred stock divi-
dends.................. 162,230 162,190 160,190 160,190 644,800
Earnings (loss) applica-
ble to common stock.... 114,135 (444,669) (49,154) 116,333 (263,355)
Basic and diluted
earnings (loss) per
average common share... .02 (.09) (.01) .02 (.05)
Prior to the sale of the Company's pipeline joint venture interest in the
fourth quarter of 1997, the Company's quarterly revenues and costs and
expenses were impacted by the fact that the pipeline joint venture contract
required higher revenue payments in November through March versus April
through October. Accordingly, the Company recorded the revenues as earned and
matched related amortization with such revenues. Related revenue and
amortization amounts for the first, second, third and fourth quarters of 1997
were approximately $551,000, $268,000, $266,000 and $0 and $392,000, $174,000,
$174,000 and $0, respectively. Related revenue and amortization amounts for
the first, second, third and fourth quarters of 1996 were approximately
$582,000, $267,000, $244,000 and $445,000 and $392,000, $174,000, $174,000 and
$319,000 respectively.
The third and fourth quarter 1997 cost and expense amounts contain costs
amounting to $472,000 and $1,855,000, respectively, related to dry holes. The
fourth quarter amount also contains impairment of oil and gas properties of
$550,000.
The second quarter 1996 cost and expense amount contains costs amounting to
$438,000 related to dry holes during the quarter. The fourth quarter 1996 cost
and expense amount contains $244,000 in accelerated depletion on three wells.
Previously presented earnings (loss) share information has been adjusted to
conform with the requirements of SFAS No. 128, "Earnings per Share".
Additionally, all earnings (loss) per share information has been adjusted to
give retroactive effect to the one-for-eight reverse stock split in March
1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
40
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 1998 Annual Meeting of Stockholders.
41
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1.Financial Statements
PAGE
-----
The following consolidated financial statements of Goodrich
Petroleum Corporation are included in Part II, Item 8:
Independent Auditors' Report...................................... 18
Consolidated Balance Sheets--December 31, 1997 and 1996........... 19-20
Consolidated Statements of Operations--Years ended December 31,
1997, 1996 and 1995.............................................. 21
Consolidated Statements of Cash Flows--Years ended December 31,
1997, 1996 and 1995.............................................. 22
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1997, 1996 and 1995................................. 23
Notes to Consolidated Financial Statements--Years ended December
31, 1997, 1996 and 1995.......................................... 24-39
Consolidated Quarterly Income Information (Unaudited)............. 40
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.
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 three months 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 three months ended March 31, 1997.)
4.6 Amendment letter related to the Credit Agreement between Goodrich
Petroleum Company of Louisiana, GPC, Inc. of Louisiana and Compass
Bank dated February 25, 1998.
42
4.7 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)).
4.8 Series B Convertible Preferred Stock Certificate of Designations
(Incorporated by reference to Exhibit 4.5 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1996).
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 Goodrich Petroleum Corporation 1995 Nonemployee Director Stock Option
Plan (Incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement filed June 13, 1995 on Form S-4 (File 33-58631)).
10.3 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)).
10.4 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)).
10.5 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)).
10.6 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)).
10.7 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)).
10.8 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)).
10.9 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).
21 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule, included elsewhere herein
43
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 17, 1998 /s/ Walter G. Goodrich
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 17, 1998
SIGNATURE TITLE
--------- -----
/s/ Walter G. Goodrich Executive Officer and Director (Principal
___________________________________________ Executive Officer)
Walter G. Goodrich
/s/ Roland L. Frautschi Senior Vice President, Treasurer and Chief
___________________________________________ Financial Officer (Principal Financial
Roland L. Frautschi Officer)
/s/ Glynn E. Williams, Jr. Vice President (Principal Accounting
___________________________________________ Officer)
Glynn E. Williams, Jr.
/s/ Sheldon Appel Director
___________________________________________
Sheldon Appel
/s/ Basil M. Briggs Director
___________________________________________
Basil M. Briggs
/s/ Benjamin F. Edwards Director
___________________________________________
Benjamin F. Edwards
/s/ Henry Goodrich Director
___________________________________________
Henry Goodrich
/s/ Arthur A. Seeligson Director
___________________________________________
Arthur A. Seeligson
44