Back to GetFilings.com
1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended: December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to __________________
Commission File Number: 0-2517
TOREADOR ROYALTY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-0991164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 PRESTON COMMONS WEST
8117 PRESTON ROAD
DALLAS, TEXAS 75225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 369-0080
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.15625 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(Title of Each Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ].
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD
BY NON-AFFILIATES, COMPUTED BY REFERENCE TO THE CLOSING SALES PRICE OF SUCH
STOCK, AS OF MARCH 15, 1996 WAS $9,176,199. (For purposes of determination of
the foregoing amount, only directors, executive officers and 10% or greater
stockholders have been deemed affiliates.)
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS
OF MARCH 17, 1995 WAS: COMMON STOCK, $.15625 PAR VALUE, 5,264,446 SHARES.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement furnished to stockholders
in connection with its Annual Meeting of Stockholders to be held May 16, 1996,
are incorporated by reference in Part III of this Form 10-K. Such proxy
statement will be filed with the Commission on or about April 8, 1996.
2
TOREADOR ROYALTY CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995
PART I
ITEM 1. BUSINESS.
Toreador Royalty Corporation, a Delaware corporation (the "Company" or
"Toreador"), is engaged in oil and gas exploration, development and production
activities. The Company conducts its business primarily through its ownership
of perpetual oil and gas mineral and royalty interests in approximately 870,000
gross (530,000 net) acres in four geologic provinces located in the Texas
Panhandle and West Texas. The properties and mineral interests owned by the
Company are set forth under Item 2 below. The Company believes that, through
these holdings, it is a significant factor in the exploration of these
provinces and has a competitive advantage over other oil and gas companies
active in these areas. Since 1988, the Company has pursued a strategy of
marketing exploration projects on this acreage to industry operators. Most of
the exploration and development of the Company's acreage has been performed by
other oil companies. The Company receives lease bonus and option income when
exploration rights are granted to those companies, and, if drilling is
successful, it receives royalty income from the oil and gas production. This
royalty income is free of any capital or operating costs to Toreador.
In this report, quantities of oil are expressed in barrels ("Bbls"), and
quantities of natural gas are expressed in thousands of cubic feet ("Mcf"),
millions of cubic feet ("MMcf") or billions of cubic feet ("Bcf"). A "BOE"
means one barrel of oil equivalent using the ratio of 6 Mcf of gas to one
barrel of oil.
Toreador leases and participates as a working interest owner on selected
prospects on its acreage. In the last few years, the Company has turned its
attention to generating new 3-D and 2-D seismic data on its minerals for the
purpose of better defining prospects on the minerals. Toreador usually does
not incur costs of conducting these seismic operations because operators
generally incur all costs during the geophysical stage. Some of these 3-D and
2-D projects require outlays for Toreador's working interest portion of lease
bonus and drilling costs. Those costs, however, may be offset in whole or in
part by income from the Company's option and lease bonuses. As of December 31,
1995, the Company held working interests on its minerals under approximately
147,157 gross (144,967 net) acres of undeveloped leasehold interests and 4,005
gross (4,005 net) acres of undeveloped options. Under non-Toreador mineral
acreage, the Company has 2,139 gross (2,139 net) acres of undeveloped options
to third parties. The Company holds 30,612 gross (3,358 net) acres of proved
developed producing acreage.
From January 1, 1988 until December 31, 1995, 79 wells have been drilled
or re-entered on the Company's acreage, 23 of which were producing at December
31, 1995. The exploration activity on the Company's acreage has been divided
between its Northern Ranch, which encompasses the southern Dalhart Basin (the
"Northern Ranch"), and its Southern Ranch, which encompasses portions of the
Palo Duro Basin, Matador Arch and the Eastern Shelf of the Midland Basin (the
"Southern Ranch"). The Company owns approximately 400,000 gross (270,000 net)
mineral acres in the Northern Ranch and approximately 470,000 gross (260,000
net) mineral acres in the Southern Ranch. From January 1, 1988 until December
31, 1995, 16 wells have been drilled on the Northern Ranch, resulting in four
productive wells in one field as of December 31, 1995. Average gross daily
production from these wells during calendar 1995 was 115 Bbls of oil. From
January 1, 1988 until December 31, 1995, 63 wells have been drilled on the
Southern Ranch, resulting in 19 producing wells in four fields. Average gross
daily production from these wells during 1995 was 405 Bbls of
-1-
3
oil. In 1995, ten wells were drilled and one well was reentered on the
Company's acreage, resulting in three producing oil wells.
The Company's experience in the drilling of exploratory and development
wells on leaseholds in which the Company had a working interest during the five
years ended December 31, 1995 is summarized as follows: In 1991, the Company
participated in two gross (.25 net) wells, which were dry. In 1992, the
Company participated in three gross (.25 net) wells, which were dry. In 1993,
the Company participated in two gross (.12 net) wells, one of which was
initially completed but later temporarily abandoned and the other was plugged
and abandoned in 1994. All of these wells were exploratory. In 1994, the
Company participated in four gross (.875 net) wells, three of which were
successfully completed as producers, and one of which was a dry hole. Two of
these four wells were exploratory, and two were development wells. In 1995,
the Company participated in nine gross (approximately 3.45 net) wells, three of
which were successfully completed as producers, and six of which were dry
holes. Six of these nine wells were exploratory and three were development
wells.
STRATEGY
Since 1988, the Company has pursued a strategy of marketing exploration
projects on its acreage to industry operators. In addition, Toreador has
increased its exploration exposure by acquiring leases or options for its own
account, by securing seismic and drilling commitments from third parties, and
by upgrading its existing database, which consists of approximately 33,000
acres of 3-D data and 1,500 miles of 2-D data. This more aggressive approach
includes structuring lease and option agreements on the properties to require
timely drilling and ongoing development. The Company has also established
closer relationships with its co-mineral owners that hold executive rights on
the acreage. While the Company has been successful in attracting third party
capital to explore its acreage and plans to continue this approach, management
believes that stockholder value would be further enhanced by increasing the
Company's working interest participation in exploring the mineral base. By
doing so, the Company increases control of and accelerates exploration on the
mineral acreage.
Supplementing its activities on its acreage, the Company has acquired
producing properties as a means of building its current cash flow as well as
expanding its reserve base. In 1995, the Company spent approximately $360,000
to acquire proved producing reserves totaling 87,500 BOE (62,300 Mcf of natural
gas and approximately 77,100 Bbls of oil) or approximately $4.11 per BOE. The
Company has focused its acquisition activity on non-operated working interests.
Management believes that there is less competition for small acquisitions of
non-operated properties, that they can be acquired at more attractive rates of
return than other producing properties and that they require little or no
additional operational or supervisory staffing.
HISTORY
Toreador was incorporated in 1951. The history of its mineral rights
dates back to 1882 and the formation of the Matador Land & Cattle Company
("ML&C"), which assembled approximately one million acres for ranching, most of
which is located in the Texas Panhandle and West Texas. When the ML&C was sold
in 1951, Toreador was formed and assigned 50% of the mineral rights under the
ranch acreage. Toreador later acquired an additional 25% of the mineral rights
under some of the ranches.
In 1937, the ML&C executed a lease covering the Southern Ranch with Exxon
(then Humble Oil) that critically affected the development of this acreage.
The lease provided that, by drilling only one well per year, Exxon could hold
the entire 470,000 acres in perpetuity. As a result of prorationing in Texas,
Exxon, like most major oil companies, had shut-in production and had little or
no incentive to drill more than the one well per year required to maintain its
lease. During the period from 1937 to 1966, Exxon drilled or caused to be
drilled 43 wells. During this same period on the Northern Ranch, various
operators, including Superior Oil and Shell, drilled 15 wells. After losing a
series of court cases concerning similar leases, Exxon surrendered its lease on
the Southern Ranch in 1966. The Northern and Southern Ranches attracted little
industry attention until the
-2-
4
early 1980s. The first oil discovery on the Northern Ranch was made in 1985
and on the Southern Ranch in 1986. Exploration on Toreador's acreage was still
retarded to some degree during this time by two large, long-term leases on the
Northern Ranch to Exxon that required minimal drilling. These leases have
expired. Thirty-five wells were drilled on Toreador's acreage in the Northern
and Southern Ranches, from 1966 to 1987.
In 1988, the Company adopted a new strategy calling for a more pro-active
approach to managing the Company's acreage. Toreador began to actively market
exploration projects and prospects on its acreage directly to other oil
companies. In addition, the Company began to acquire geophysical options and
leases from the owners of the executive rights in order to promote them to
other oil companies. In some instances in which the Company has been
successful in promoting these options and leases to other companies, Toreador
has taken an interest in the seismic surveys and a working interest in the
leases. As an adjunct to this strategy, the Company embarked on an acquisition
program in order to build its oil and gas reserves and cash flow.
A total of 170 wells have been drilled on the Company's mineral acreage,
resulting in a well density of less than one well per 5,100 acres. In certain
areas on the Company's acreage, well densities are less than one well per
20,000 acres. Since the Company adopted its new strategy in 1988, 79 wells
have been drilled, or approximately 46% of all the wells drilled on the
acreage. Management believes that its active approach to marketing its acreage
combined with industry advances in technology, particularly 3-D seismic, has
accounted for most of the increase in leasing and seismic surveying activity
and that drilling can be further accelerated by additional capital resources.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company's business is subject to certain federal, state and local
laws and regulations relating to the exploration for and development,
production and marketing of oil and gas. The laws and regulations applicable
to the Company's operations include provisions that regulate the discharge of
materials into the environment or require remediation of contamination under
certain circumstances. Usually these environmental laws and regulations impose
"strict liability," rendering a person liable without regard to negligence or
fault on the part of such person. Such environmental laws and regulations may
expose the Company to liability for the conduct of, or conditions caused by,
others, or for acts of the Company that were in compliance with all applicable
laws at the time such acts were performed. The Company does not believe that
it has expended material amounts in connection with its efforts to comply with
environmental requirements or that compliance with such requirements will have
a material adverse affect upon the capital expenditures, results of operations
or competitive position of the Company. Although such requirements do have a
substantial impact upon the oil and gas industry, generally they do not appear
to affect the Company any differently or to any greater or lesser extent than
other companies in the oil and gas industry.
Because the requirements imposed by such laws and regulations are
frequently changed, the Company is unable to predict costs of compliance with
such requirements in the future, or the effect of such laws upon the capital
expenditures, results of operations or competitive position of the Company.
COMPETITION
The oil and gas industry is highly competitive. Since many companies and
individuals are engaged in exploring for oil and gas and acquiring oil and gas
properties, a high degree of competition for desirable exploratory and
producing properties exists. A number of the companies with which Toreador
competes are larger and have greater financial resources than Toreador.
The availability of a ready market for Toreador's oil and gas production
depends on numerous factors beyond its control, including the level of consumer
demand, the extent of worldwide oil and gas production, the cost and
availability of alternative fuels, the costs of and proximity of pipelines and
other transportation facilities, regulation by state and federal authorities
and the cost of complying with applicable environmental regulations.
-3-
5
EMPLOYEES
The Company has three employees, the Chairman of the Board and President,
Vice President - Land and Acquisitions, and one administrative employee. The
Company also retains two consultants.
ITEM 2. PROPERTIES.
NORTHERN RANCH
SOUTHERN DALHART BASIN. The southern Dalhart Basin, where Toreador owns
mineral interests under approximately 400,000 gross acres located in Oldham and
Hartley Counties, Texas, is a moderate depth depression that formed in early
Pennsylvanian time. Commercial oil has been established in Pennsylvanian and
Permian age reservoirs in this basin. Porous reservoir rocks are present in
granite washes, carbonate banks and dolomites, which provide multiple drilling
targets. In the central part of the basin, source rocks are buried at depths
sufficient to generate oil. Wrench fault tectonism across the basin formed
early structural features capable of trapping later migrating oil. Oil
accumulations in several formations between 4,000 feet and 8,000 feet have been
found through exploratory drilling. Most of this drilling has been
concentrated in east-central Oldham County, Texas. There have been relatively
few exploratory wells in wide expanses of the basin west of the main producing
area and many of these were drilled prior to 1970. Much of this lightly
explored area includes Toreador acreage, a majority of which is located on the
west flank of the basin updip from the main concentration of production to the
east. Most of the reserves in the basin have been discovered in granite wash
reservoirs trapped on fault associated structural closures.
Oil accumulations in the basin have been found on structural highs.
Therefore, defining structural uplifts is the prime objective in exploring for
new reserves in the southern Dalhart Basin. In recent years, the oil and gas
industry's increasingly widespread use of 3-D seismic technology has enhanced
its ability to find and delineate structural prospects. Toreador, with other
parties, introduced 3-D seismic exploration to the southern Dalhart Basin with
an 18,000 acre project on the Company's acreage. The Company believes that the
first two wells drilled on this project, while dry, indicated that 3-D seismic
data could correctly image the structure, and that porous reservoirs exist
within the area.
In April 1994, Toreador acquired an oil and gas lease on the 95,000 acre
Fulton Ranch under which it already holds 75% of the mineral rights. Toreador
has approximately 300 miles of 2-D seismic coverage on the ranch, and using
this data, has generated several prospects and geologic leads which justify
more detailed 3-D seismic surveys. The P.D. Walker Field, under which
Toreador has a 15% royalty interest, is also located on the ranch, but is not
included in this lease.
In the third quarter of 1995, Toreador acquired in the aggregate an
18.93% working interest in the four-well Proctor Ranch Field located in Hartley
County, Texas. In addition to this acquisition, Toreador holds an 18.75%
royalty interest in this property. Under the terms of the agreement, Toreador
invested $90,600, adding an estimated 21,100 net Bbls to its reserves at an
acquisition cost of $4.29 per barrel.
SOUTHERN RANCH
PALO DURO BASIN. The Palo Duro Basin, where Toreador owns mineral
interests under approximately 195,000 gross acres located in Motley and Cottle
Counties, Texas, is a moderate depth depression between the Matador Arch on the
south and the Amarillo uplift complex to the north. Limited exploration to
date has resulted in discovery of three Canyon age reef fields. In the past
three years, several companies have conducted 3-D seismic surveys along these
reef trends.
Toreador Exploration & Production Inc., the Company's wholly-owned
subsidiary ("TEPI"), is currently marketing a 5,200 foot Pennsylvanian Age
Canyon Reef prospect located in northeastern Motley County, Texas. The
prospect is identified and controlled by a 4.5 square mile 3-D seismic survey.
TEPI has acquired oil and gas leases covering 800 acres over the prospect.
TEPI owns 50% of the working interest in the leases and the Company owns 50% of
the underlying minerals.
-4-
6
MATADOR ARCH. The Matador Arch, where Toreador owns mineral interests
under approximately 90,000 gross acres, is a prominent east-west structural
positive traversing North Texas and southern Oklahoma. It is bounded on the
north and south by large vertical faults that have an orientation
characteristic of regional scale wrench faulting. Between the faults, basement
blocks have been uplifted and folded into a complex of structural highs that
fostered reef growth from Middle Pennsylvanian age into the Permian Wolfcamp
section.
Toreador's acreage covers part of the Matador Arch trending through
Motley County, Texas. Nearby reef production in the Roaring Springs Fields has
totalled almost nine million Bbls of oil from a depth of 4,200 feet. For the
period of June 1994 through March 1996, Toreador has participated in nine
Wolfcamp test wells of which five have been successfully completed.
In October, 1995, Toreador acquired an additional 12.5% working interest
in the five-well Matador Field located in Motley County, Texas. Prior to this
acquisition, Toreador held a 25% working interest as well as a 15% royalty
interest in this property. Under the terms of the agreement, Toreador invested
$225,700, adding an estimated 46,100 net Bbls to its reserves at an acquisition
cost of $4.90 per barrel.
EASTERN SHELF. The Eastern Shelf of the Midland Basin, where Toreador
owns mineral interests under approximately 185,000 gross acres located
primarily in Dickens County, Texas, is prospective for shallow Permian age oil
accumulations in the Tannehill Sand. Five Tannehill fields have been
discovered on Toreador minerals since 1986, the largest of which consists of
nine wells. The 16 existing wells averaged daily production of 16 Bbls of oil
per well in December, 1995. Toreador plans to lease or farm out its acreage in
this trend to other operators.
In 1994, Toreador entered into an option agreement with an industry
partner covering approximately 11,000 acres on the Pitchfork Ranch located in
Dickens County. Tannehill production near this block has recovered over 3
million barrels of oil from a cluster of three fields located directly to the
west of this block and over 1 million barrels of oil from another field located
two miles to the east. The industry partner conducted a 3-D seismic survey
across this acreage block during 1995 and Toreador was carried for a 25%
working interest through the seismic acquisition, processing and interpretation
phase of the project. Following the interpretative phase of the project, the
operator selected 2,000 acres for lease. Toreador also owns a 46.875% mineral
interest in this acreage. The first well was drilled on this acreage in March
1996, and was abandoned as a dry hole. The Company and its partners are
currently reinterpreting the seismic data, and depending on the results may
choose to drill additional wells.
NATURE OF PROPERTY INTEREST
On the Northern and Southern Ranches, the Company generally owns fee
interests in the minerals that include rights to receive portions of lease
bonuses, delay rentals and royalties, but generally not the executive rights --
the rights to sign leases -- which are typically held by surface owners.
Therefore, the Company must rely on the owners of the executive rights to
execute leases of the acreage. In situations in which the Company has acquired
working interests in acreage in which it has mineral rights, it has acquired
those interests through the signing of leases by holders of the executive
rights. The majority of the owners of executive rights work closely with the
Company; however, each acts independently of the Company in deciding to execute
leases.
GEOLOGIC DATABASE
Under the terms of a typical lease granted on its minerals, Toreador is
entitled to receive copies of all data, including seismic lines, well logs,
cores and tests. The Company has approximately 33,000 acres of 3-D seismic
data and approximately 1,500 miles of 2-D seismic data relating to the Northern
and Southern Ranches.
Toreador uses its database to generate specific drilling prospects and
geologic leads to encourage further exploration on its mineral acreage. In
particular, geologic leads based on 2-D seismic data are important in marketing
large 3-D seismic surveys. The Company makes its database available to third
parties interested
-5-
7
in generating exploration projects on its acreage. Management estimates that
it would be costly to duplicate this data, which is carried at no cost on its
balance sheet.
ACQUISITIONS
From 1988 until December 31, 1995, Toreador has spent approximately $3.4
million to acquire producing working, mineral and overriding royalty interests
totaling 4.8 Bcf for an acquisition cost of $.71/Mcf. The Company has recently
emphasized acquisition of gas prone properties in order to provide a balance to
its mineral holdings which are located in primarily oil prone basins. At
December 31, 1995, 57% of the Company's proved developed reserves were oil and
43% were natural gas on a BOE basis.
OIL AND GAS RESERVES
Since 1991, the Company has retained the independent petroleum consulting
firm, Harlan Consulting Inc., to prepare estimates of its oil and gas reserves
for the producing mineral interests owned by the Company. Utilizing current
available data, these estimates of proved reserves were made using geological
and engineering methods generally accepted in the petroleum industry. At
December 31, 1995, the Company's net proved developed producing reserves were
estimated to be 569,281 Bbls of oil and 2,607,436 Mcf of natural gas.
Additional information concerning the Company's estimated proved oil and gas
reserves is included in Item 8. - Financial Statement and Supplementary Data.
Petroleum engineering is not an exact science and involves estimates
based upon numerous factors, many of which are inherently variable and
uncertain. Consequently, reserve estimates are imprecise and are subject to
change as additional information becomes available. Estimates based upon short
periods of production may not be as reliable as those based upon longer
production histories. Further, estimates of oil and gas reserves, of
necessity, are projections based on engineering data. As a result of the
uncertainties inherent in the interpretation of such data, there can be no
assurance that the Company's estimated oil and gas reserves will ultimately be
developed. Estimates of the reserves and future net revenues involve
projecting future results by estimating future events. Actual production,
revenues, taxes, development expenditures and operating expenses may not occur
as estimated.
-6-
8
VOLUMES, PRICES AND COSTS
The following table sets forth certain information regarding volumes of
the Company's production of oil and natural gas, the Company's average sales
price per barrel of crude oil ("Bbl") and average sales price per thousand
cubic feet of natural gas ("Mcf"), together with the Company's average
production cost per equivalent barrel of oil ("BOE") for the three years ended
December 31, 1995 from producing leasehold interests:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
------- ------- -------
Production
Oil (Bbls) . . . . . . . . . . . . . . . . . . . . . 61,537 49,635 56,063
Gas (Mcf) . . . . . . . . . . . . . . . . . . . . . . 277,621 306,295 286,060
BOE . . . . . . . . . . . . . . . . . . . . . . . . . 107,807 100,684 103,740
Average Sales Price
Oil ($/Bbl) . . . . . . . . . . . . . . . . . . . . . $16.22 $15.17 $16.67
Gas ($/Mcf) . . . . . . . . . . . . . . . . . . . . . 1.37 1.60 2.43
BOE ($/Bbl) . . . . . . . . . . . . . . . . . . . . . 12.79 13.14 15.74
Average production costs per BOE (1) . . . . . . . . $ 3.53 $ 3.45 $ 3.50
- -----------------
(1) A BOE means one barrel of oil equivalent using the ratio of six Mcf of
gas to one barrel of oil.
-7-
9
WELLS DRILLED
The following table sets forth for each of the last three years the
number of net exploratory and development wells drilled by or on behalf of the
Company. An exploratory well is a well drilled to find and produce oil or gas
in an unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
A development well, for purposes of the following table and as defined in the
rules and regulations of the Securities and Exchange Commission, is a well
drilled within the proved area of an oil or gas reservoir to the depth of a
stratigraphic horizon known to be productive. The number of wells drilled
refers to the number of wells completed at any time during the respective year,
regardless of when drilling was initiated; and "completion" refers to the
installation of permanent equipment for the production of oil or gas, or, in
the case of a dry hole, to the reporting of abandonment to the appropriate
agency.
Net Exploratory Wells
---------------------
Productive(1) Dry(2)
------------- ------
Year Ended
December 31,
1993 . . . . . . . . . 0.00 0.12
1994 . . . . . . . . . 0.25 0.13
1995 . . . . . . . . . 0.25 2.30
Net Development Wells
---------------------
Productive(1) Dry(2)
------------- ------
Year Ended
December 31,
1993 . . . . . . . . . 0.00 0.00
1994 . . . . . . . . . 0.50 0.00
1995 . . . . . . . . . 0.50 0.38
- -------------
(1) A productive well is an exploratory or a development well that is
not a dry hole.
(2) A dry hole is an exploratory or development well found to be
incapable of producing either oil or gas in sufficient quantities
to justify completion as an oil or gas well.
-8-
10
PRODUCING WELLS AND ACREAGE
The following table sets forth the gross and net producing oil and gas
wells in which the Company owned an interest and the developed acreage held by
the Company as of December 31, 1995. A "gross" well or acre is a well or acre
in which the Company has a working interest. The number of gross wells is the
total number of wells in which a working interest is owned. A "net" well or
acre is deemed to exist when the sum of fractional ownership working interests
and/or royalty interests in gross wells or acres equals one. The number of net
wells or acres is the sum of the fractional working interests and/or royalty
interests owned in gross wells or acres expressed as whole numbers and
fractions thereof. A "royalty interest" is a share of production, free of
expenses of production. A "working interest" is the operating interest under
an oil and gas lease. One or more completions in the same bore holes is
counted as one well.
Year Ended
December 31, 1995
-----------------
Oil Wells(1)
Working Interest
Gross . . . . . . . . . . . . . . . 41
Net . . . . . . . . . . . . . . . . 7.17
Average working interest (%) . . . . 17.50
Royalty Interest
Gross . . . . . . . . . . . . . . . 35
Net . . . . . . . . . . . . . . . . 3.45
Average royalty interest (%) . . . . 9.86
Year Ended
December 31, 1995
-----------------
Gas Wells(1)
Working Interest
Gross . . . . . . . . . . . . . . . 38
Net . . . . . . . . . . . . . . . . 4.57
Average working interest (%) . . . . 12.02
Royalty Interest
Gross . . . . . . . . . . . . . . . 8
Net . . . . . . . . . . . . . . . . 0.30
Average royalty interest (%) . . . . 3.75
Year Ended
December 31, 1995
-----------------
Acreage(1)
Developed
Gross . . . . . . . . . . . . . . . 30,612
Net . . . . . . . . . . . . . . . . 3,358
Undeveloped(2)
Gross . . . . . . . . . . . . . . . 153,301
Net . . . . . . . . . . . . . . . . 151,111
- -------------
(1) Excludes wells or acres in which the Company owns less than a 1%
working or royalty interest.
(2) 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 oil and gas regardless of
whether or not the acreage contains proved reserves.
-9-
11
PRESENT ACTIVITIES
From January 1, 1996 through March 18, 1996, the Company participated
in drilling two gross (.375 net) exploratory wells, and one gross (.375 net)
development well, all of which were dry. These wells are located on the
Company's minerals in Motley County and Dickens County, Texas. These wells had
objectives ranging from approximately 3300 to 4150 feet. The estimated dry
hole cost to the Company in these wells is approximately $70,500.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property the subject
of, any legal proceedings, actual or threatened, which would have a material
adverse effect on the business and affairs of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
ended December 31, 1995 to a vote of the Company's security holders, through
solicitation of proxies or otherwise.
-10-
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock, par value $.15625 per share, is traded in
the over-the-counter market, NASDAQ trading symbol "TRGL." The table below
sets forth the high and low sales prices per share for the periods indicated as
reported by the NASDAQ National Market System.
1995 High Low
---------------------------------------------------------------
First Quarter . . . . . . . . . . . . 4 2 1/2
Second Quarter . . . . . . . . . . . 4 1/8 2 1/2
Third Quarter . . . . . . . . . . . . 3 3/8 2 1/2
Fourth Quarter . . . . . . . . . . . 2 7/8 2 3/8
1994 High Low
---------------------------------------------------------------
First Quarter . . . . . . . . . . . . 4 3/8 3 1/8
Second Quarter . . . . . . . . . . . 4 5/8 3 1/4
Third Quarter . . . . . . . . . . . . 4 1/4 3
Fourth Quarter . . . . . . . . . . . 3 7/8 2 3/4
The approximate number of record holders of the Common Stock as of
March 21, 1996, was 600.
Dividends on the Common Stock may be declared and paid out of funds
legally available when and as determined by the Company's Board of Directors.
No cash dividends have been paid on the Company's Common Stock to date.
Management plans to continue its policy of holding and investing corporate
funds on a conservative basis.
-11-
13
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data with
respect to the Company's financial condition and results of operations for the
periods indicated. The selected financial data should be read in conjunction
with the financial statements and related notes set forth in Item 8 of this
Part II.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ---------- ---------- ----------
INCOME STATEMENT DATA:
Revenues:
Oil and gas sales . . . . . $ 1,378,390 $ 1,323,129 $1,632,572 $1,197,658 $ 977,828
Lease bonuses and rentals . 138,804 396,106 178,984 123,128 179,969
Interest and other income . 213,464 222,527 147,823 107,743 194,852
Gain on sale of marketable
securities . . . . . . . -- -- 95,217 -- 136,910
----------- ----------- ---------- ---------- ----------
Total . . . . . . . . . 1,730,658 1,941,762 2,054,596 1,428,529 1,489,559
----------- ----------- ---------- ---------- ----------
Costs and Expenses:
Lease operating expense . . 380,888 347,058 362,683 238,560 236,687
Depreciation, depletion and
amortization . . . . . . 233,709 247,654 328,540 256,424 270,477
Geological and geophysical 203,887 148,300 134,197 64,240 80,174
Dry holes and abandonments 358,210 125,838 2,733 28,121 19,198
General and administrative 1,171,331 973,966 815,866 794,398 830,344
----------- ----------- ---------- ---------- ----------
Total costs and expenses 2,348,025 1,842,816 1,644,019 1,381,743 1,436,880
----------- ----------- ---------- ---------- ----------
Income before federal
income taxes . . . . . . (617,367) 98,946 410,577 46,786 52,679
Provision (benefit) for
income tax expense . . . . (206,936) (26,638) 76,925 13,339 12,775
----------- ----------- ---------- ---------- ----------
Net income . . . . . . . . $ (410,431) $ 125,584 $ 333,652 $ 33,447 $ 39,904
=========== ========== ========== ========== ==========
Income per share . . . . . $ (0.08) $ 0.02 $ 0.07 $ 0.01 $ 0.01
=========== =========== ========== ========== ==========
Weighted average shares
outstanding . . . . . . . 5,334,190 5,064,258 4,592,946 4,544,764 4,544,764
CASH FLOW DATA:
Net cash provided by
operating activities . . $ (10,963) $ 418,885 $ 629,499 $ 262,208 $ 164,370
Capital expenditures . . . $(1,053,522) 525,990 695,527 484,391 193,068
DECEMBER 31,
--------------------------------------------------------------------------
BALANCE SHEET DATA: 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
Working capital . . . . . . $ 3,538,206 $ 4,646,688 $ 1,491,792 $ 1,544,325 $ 1,599,025
Oil and gas properties, net 3,201,283 2,733,101 2,580,603 2,216,349 2,128,102
Total assets . . . . . . . 7,051,052 7,649,904 4,343,106 3,925,288 3,892,345
Long-term debt . . . . . . -- -- -- -- --
Stockholders' equity . . . 6,810,485 7,261,761 4,125,986 3,830,299 3,794,957
-12-
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
On May 23, 1994, the Company privately placed 809,071 shares of common
stock for an aggregate consideration of $2,831,749. In its private placement
agreement with the purchasers, the Company granted them registration rights,
pursuant to which a registration statement on Form S-3 covering all the shares
was filed on June 22, 1994. The registration statement was declared effective
July 11, 1994, and the Company is obligated to maintain such effectiveness
until May 23, 1996. In connection with the private placement, the Company's
placement agent received a five-year warrant to purchase 106,867 shares of
common stock at a price of $4.375 per share. The placement agent has rights to
participate in registered offerings of common stock by the Company.
The proceeds to the Company from the private placement (after deducting
the placement agent's fee of $141,112 and expenses of approximately $75,000)
were approximately $2,616,000. The Company has used a portion of the proceeds
for exploration activities on its mineral acreage. In 1995, the Company will
continue to use the proceeds to fund these activities which will include
acquisition and interpretation of 3-D seismic data; participation in drilling
exploratory wells; acquisition of leases; and contingent drilling of development
wells.
Historically, most of the exploration activity on the Company's acreage
has been funded and conducted by other oil companies and this activity is
expected to continue. Exploration activity typically generates lease bonus and
option income to the Company. If drilling is successful, the Company receives
royalty income from the oil or gas production but bears none of the capital or
operating costs. In order to accelerate the evaluation of its acreage as well
as increase its ownership in any reserves discovered, the Company has increased
and intends to further increase its level of participation in exploring its
acreage by acquiring working interests. The extent to which the Company may
acquire working interests will depend on the availability of outside capital and
cash flow from operations. Currently, the primary sources of capital for the
financing of the Company's operations are cash flow provided from revenues
generated by its proportionate share in oil and natural gas sales and existing
cash, including that from the private offering. To the extent cash flow from
operations does not significantly increase and external sources of capital are
limited or unavailable, the Company's ability to make the capital investment to
participate in 3-D seismic surveys and increase its interest in projects on its
acreage will be limited. Future funds are expected to be provided through
production from existing producing properties and new producing properties that
may be discovered through exploration of the Company's acreage by third parties
or by the Company itself. Funds may also be provided through external financing
in the form of debt or equity. There can be no assurance as to the extent and
availability of these sources of funding.
The Company presently has no debt and maintains its excess cash funds in
interest-bearing deposits. The Company is not aware of any demands,
commitments or events which will result in its liquidity increasing or
decreasing in a material way. From time to time, the Company may receive lease
bonuses which cannot be anticipated, and when funds are available, the Company
may elect to participate in exploratory ventures. The Company also may acquire
producing oil and gas assets which could require the use of debt.
Management believes that sufficient funds are available internally to
meet anticipated capital requirements for fiscal 1996.
As of March 17, 1996, the Company used $194,145 of its cash reserves to
purchase 78,925 shares of its Common Stock. These purchases were made pursuant
to a stock repurchase program authorized by the Board of Directors on October
10, 1995, of up to 100,000 shares of Common Stock. The repurchases of the
Company's shares of Common Stock were made in unsolicited open-market purchases,
at market (not premium) prices, without fixed terms and not contingent upon the
tender of a fixed minimum number of shares or in response to a third party bid
and otherwise in accordance with Rule 10b-18 under the Securities Exchange Act
of 1934, as amended.
-13-
15
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 VS. YEAR ENDED DECEMBER 31, 1994
Total revenues for 1995 were $1,730,658 compared with $1,941,762 in 1994.
Revenues from oil and gas sales increased from $1,323,129 in 1994 to $1,378,390
in 1995. This 4.2% increase reflects higher oil production from newer wells
and recent acquisitions offset by lower gas prices and lower gas production.
Lease bonuses and delay rentals were $138,804 in 1995, down from $396,106 in
1994. Revenues from marketable securities decreased from $51,393 in 1994 to
$30,358 in 1995.
Reflecting the Company's investment of the proceeds from the private
placement and partially offset by lower interest rates, interest income was
$183,106 in 1995 versus $122,106 in 1994.
Total costs and expenses were $2,348,025 in 1995 as compared with
$1,842,816 in 1994 representing a 27.4% increase. Of this increase, 39.1% is
attributable to general and administrative expenses primarily resulting from a
contest for corporate control, which created first-time shareholder relations
expenses of $199,342 in 1995. The Company completed its participation in the
evaluation of certain drilling commitments resulting in expenses from dry holes
and abandonments of $358,210 in 1995 versus $125,838 in 1994, representing
46.0% of the increase in total costs and expenses. Geological and geophysical
costs increased $55,587, to $203,887 from $148,300, or 11.0% of the increase in
total costs and expenses. The remaining components, contributing 3.9% of the
increase in total costs and expenses, are lease operating expense which
increased $33,830 to $380,888 in 1995 from $347,058 in 1994, partly offset by
the decline in depreciation, depletion and amortization of $13,945 to $233,709
in 1995 from $247,654 in 1994.
Net loss was $410,431 or $0.08 per share in 1995 versus net income of
$125,584 or $0.02 per share in 1994. The major difference in net income stems
from the increase and cost associated with dry holes and abandonments from
$125,838 in 1994 to $358,210 in 1995 and increases in general and
administrative expenses from $973,966 in 1994 to $1,171,331 up primarily due to
costs associated with the election contest in connection with the 1995 Annual
Meeting of Stockholders.
YEAR ENDED DECEMBER 31, 1994 VS. YEAR ENDED DECEMBER 31, 1993
Total revenues for 1994 were $1,941,762 compared with $2,054,596 in 1993.
Revenues from oil and gas sales decreased from $1,632,572 in 1993 to $1,323,129
in 1994, reflecting lower oil production from older wells and lower gas prices.
The Company's gas volumes were restricted due to gas imbalances and shut-in
wells due to lower gas prices. Lease bonuses and delay rentals were $396,106
in 1994, up from $178,984 in 1993. Revenues from marketable securities
decreased from $88,900 in 1993 to $51,393 in 1994.
Reflecting the Company's investment of the proceeds from the private
placement and higher interest rates, interest income was $122,106 in 1994
versus $34,607 in 1993. The Company also earned management fees of $24,000
from a joint venture in 1994, which was equal to the amount earned in 1993.
Total costs and expenses were $1,842,816 in 1994 as compared with
$1,644,019 in 1993. This increase was due to higher dry hole and abandonment
costs resulting from increased exploratory activities, and higher general and
administrative costs, primarily resulting from increased professional fees,
retirement expenses and insurance. This increase was partially offset by lower
lease operating expenses, and lower depreciation, depletion and amortization
resulting from significant reserve additions during the year.
Net income was $125,584 or $0.02 per share, in 1994 versus net income of
$333,652 or $0.07 per share, in 1993. The major difference in net income
stemmed from the increase in costs associated with dry holes and abandonments
from $2,733 in 1993 to $125,838 in 1994 and increases in general and
administrative expenses from $815,866 in 1993 to $973,966 in 1994.
-14-
16
ACCOUNTING CHANGES
INVESTMENTS IN MARKETABLE SECURITIES
In January 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities." SFAS 115 establishes standards of financial accounting and
reporting for investments in equity securities that have readily determinable
fair market values and for all investments in debt securities. The Company has
designated its investment in the San Juan Basin Royalty Trust as "securities
available for sale." As a result, at December 31, 1995, these securities are
reported at their fair market value with the related unrealized gain, net of
tax effects, excluded from income and reported as a separate component of
stockholders' equity. At December 31, 1995, the market value of these
securities which are designated as available for sale aggregated $661,501,
resulting in a gross unrealized gain in the amount of $535,243 and an
unrealized gain, net of tax effects, of $353,268. At December 31, 1994, the
market value of these securities was $674,730, resulting in a gross unrealized
gain in the amount of $548,472 and an unrealized gain, net of tax effects, of
$356,507.
ENVIRONMENTAL MATTERS
No environmental liabilities are recorded at December 31, 1995 and 1994.
Additionally, the Company is not aware of a material unrecorded liability for
any expected environmental costs.
CAPITAL AND EXPLORATION EXPENDITURES
In 1995, the Company's geological and geophysical expenses were $203,887,
compared to $148,300 in 1994. Its expenditures on oil and gas property and
equipment increased to $1,037,840 from $517,935, reflecting its increased
participation in the exploration and development activity on its mineral
acreage, and to a lesser extent, acquisitions. The Company's 1996 capital and
exploratory budget, excluding any acquisitions the Company may make, could range
from $500,000 to $750,000, depending on the timing of the drilling of the wells.
In 1994, the Company's geological and geophysical expenses were $148,300,
compared to $134,197 in 1993. Its expenditures on oil and gas property and
equipment declined to $517,935 from $695,527, reflecting the Company's greater
emphasis on the exploration of its mineral acreage and a reduced emphasis on
acquisition of producing properties.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." SFAS 123 requires the recording or disclosure of the value of
stock options or other equity instruments issued to employees. The Company will
adopt the disclosure provisions of SFAS 123 in the first quarter of 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Accountants and Consolidated Financial
Statements are set forth on pages F-1 through F-19 of this Report and are
incorporated herein.
The financial statement schedules have been omitted because they are not
applicable or the required information is shown in the Financial Statements or
the Notes to the Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-15-
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the Company's directors, nominees for directors
and executive officers is set forth under the heading "Election of Directors"
in the Company's Proxy Statement relating to the Annual Meeting of Shareholders
to be held May 16, 1996, which will be filed with the Securities and Exchange
Commission on or about April 8, 1996, and which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is set forth under the
heading "Executive Compensation and Other Transactions" in the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held May 16,
1996, which will be filed with the Securities and Exchange Commission on or
about April 8, 1996, and which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to security ownership of certain beneficial owners
and management is set forth under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement relating to
the Annual Meeting of Shareholders to be held May 16, 1996, which will be filed
with the Securities and Exchange Commission on or about April 8, 1996, and
which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships and related transactions is
set forth under the heading "Executive Compensation and Other Transactions" in
the Company's Proxy Statement relating to the Annual Meeting of Shareholders to
be held May 16, 1996, which will be filed with the Securities and Exchange
Commission on or about April 8, 1996, and which is incorporated herein by
reference.
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Index
Report of Independent Accountants
Consolidated Balance Sheet - December 31, 1995 and 1994
Consolidated Statement of Income for the three years ended
December 31, 1995
Consolidated Statement of Changes in Stockholders' Equity for the three
years ended December 31, 1995
Consolidated Statement of Cash Flows for the three years ended
December 31, 1995
Notes to Consolidated Financial Statements
2. The financial statement schedules have been omitted because they are not
applicable or the required information is shown in the Financial
Statements or the Notes to Financial Statements.
-16-
18
3. Exhibits:
No.
3.1 - Certificate of Incorporation of Toreador Royalty Corporation dated July 13, 1951, as amended March 16,
1981 and June 4, 1987 (previously filed as Exhibit 3.1 to Toreador Royalty Corporation Annual Report on
Form 10-K for the year ended December 31, 1989, and incorporated herein by reference).
3.2 - Certificate of Amendment of Certificate of Incorporation, as amended, of Toreador Royalty Corporation
dated July 3, 1990 (previously filed as Exhibit 3.2 to Toreador Royalty Corporation Annual Report on
Form 10-K for the year ended December 31, 1990, and incorporated herein by reference).
3.3 - Certificate of Amendment of Certificate of Incorporation, as amended, of Toreador Royalty Corporation
dated August 13, 1992 (previously filed as Exhibit 3.3 to Toreador Royalty Corporation Annual Report on
Form 10-K for the year ended December 31, 1993, and incorporated herein by reference).
3.4 - Certificate of Designations of Series A Junior Participating Preferred Stock of Toreador Royalty
Corporation, dated April 3, 1995 (previously filed as Exhibit 3 to Toreador Royalty Corporation
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, and incorporated herein by
reference).
3.5 - Amended and Restated Bylaws of Toreador Royalty Corporation (previously filed as Exhibit 3.3 to Toreador
Royalty Corporation Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated
herein by reference).
3.6 - Amendment to Bylaws of Toreador Royalty Corporation (previously filed as Exhibit 3.5 to Toreador Royalty
Corporation Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by
reference).
4.1 - Rights Agreement dated as of April 3, 1995, between Toreador Royalty Corporation and Continental Stock
Transfer & Trust Company (filed as Exhibit 1 to Toreador Royalty Corporation Current Report on Form 8-K
dated April 3, 1995, and incorporated herein by reference).
10.1 - Stock Option Agreement dated August 1, 1988 between Toreador Royalty Corporation and Peter R. Vig
(previously filed as Exhibit 10.B to Toreador Royalty Corporation Current Report on Form 8-K dated
August 11, 1988, and incorporated herein by reference).
10.2 - Stock Grant Agreement dated August 1, 1988 between Toreador Royalty Corporation and Peter R. Vig
(previously filed as Exhibit 10.C to Toreador Royalty Corporation Current Report on Form 8-K dated
August 11, 1988, and incorporated herein by reference).
10.3 - Incentive Stock Option Agreement dated as of September 8, 1994 between Toreador Royalty Corporation and
Peter R. Vig, as amended by Letter Agreement dated as of May 15, 1995.
10.4 - Employment Agreement effective August 1, 1990 between Toreador Royalty Corporation and Peter R. Vig
(previously filed as Exhibit 10.7 to Toreador Royalty Corporation Annual Report on Form 10-K for the
year ended December 31, 1989, and incorporated herein by reference).
-17-
19
10.5 - Second Amendment to Executive Employment Agreement dated as of December 27, 1993 between Toreador
Royalty Corporation and Peter R. Vig (previously filed as Exhibit 10.4 to Toreador Royalty Corporation
Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference).
10.6 - Third Amendment to Executive Employment Agreement between Toreador Royalty Corporation and Peter R. Vig
(previously filed as Exhibit 10.5 to the Toreador Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference).
10.7 - Fourth Amendment to Executive Employment Agreement between Toreador Royalty Corporation and Peter R. Vig
dated as of April 25, 1995.
10.8 - Fifth Amendment to Executive Employment Agreement between Toreador Royalty Corporation and Peter R. Vig
dated as of October 2, 1995.
10.9 - Sixth Amendment to Executive Employment Agreement between Toreador Royalty Corporation and Peter R. Vig
dated as of March 2, 1996.
10.10 - Joint Venture Agreement dated March 1, 1989, among Toreador Royalty Corporation, Bandera Petroleum, et
al. (previously filed as Exhibit 10.9 to Toreador Royalty Corporation Annual Report on Form 10-K for the
year ended December 31, 1989, and incorporated herein by reference).
10.11 - Toreador Royalty Corporation 1990 Stock Option Plan (previously filed as Exhibit 10.7 to Toreador
Royalty Corporation Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated
herein by reference).
10.12 - Toreador Royalty Corporation 1994 Non-Employee Director Stock Option Plan, as amended.
10.13 - Stock Purchase Agreement dated May 18, 1994, between Toreador Royalty Corporation and the investors
named therein (previously filed as Exhibit 4.1 to Toreador Royalty Corporation Registration Statement on
Form S-3 (No. 33-80572) filed with the Securities and Exchange Commission on June 22, 1994, and
incorporated herein by reference).
10.14 - Warrant for the Purchase of Shares of Common Stock issued to Petrie Parkman & Co. dated May 23, 1990
(previously filed as Exhibit 10.1 to Toreador Royalty Corporation Registration on Form S-3, and
incorporated herein by reference (No. 33-80572) filed with the Securities and Exchange Commission on
June 22, 1994, and incorporated herein by reference).
10.15 - Form of Indemnification Agreement dated as of April 25, 1995 between Toreador Royalty Corporation and
each of the members of its Board of Directors (previously filed as Exhibit 10 to Toreador Royalty
Corporation Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, and incorporated
herein by reference).
10.16 - Severance Agreement by and between Toreador Royalty Corporation and James S. Blair dated March 2, 1996.
21.1 - Subsidiary of Toreador Royalty Corporation.
23.1 - Consent of Price Waterhouse LLP.
23.2 - Consent of Harlan Consulting Inc.
27.1 - Financial Data Schedule
-18-
20
(b) Reports on Form 8-K:
Current Report on Form 8-K dated October 12, 1995 (Date of Event:
October 6, 1995), which reported the Company's acquisition of an
additional 12.5% working interest in the five-well Matador Field, and the
Company's adoption of a Stock Repurchase Plan.
-19-
21
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.
TOREADOR ROYALTY CORPORATION
Date: March 27, 1996
By /s/ PETER R. VIG
-----------------------
Peter R. Vig,
Chairman, President and
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.
Capacity in
Signature which signed Date
- --------- ------------ ----
/s/ PETER R. VIG Chairman, President, Treasurer March 27, 1996
- -------------------------------------- and Chief Executive Officer
Peter R. Vig (Principal Executive Officer and
Principal Financial and
Accounting Officer)
/s/ JAMES S. BLAIR Vice President - Land and March 27, 1996
- -------------------------------------- Acquisitions
James S. Blair
/s/ DONALD E. AUGUST Director March 27, 1996
- --------------------------------------
Donald E. August
/s/ JOHN V. BALLARD Director March 27, 1996
- --------------------------------------
John V. Ballard
/s/ J.W. BULLION Director March 27, 1996
- --------------------------------------
J.W. Bullion
/s/ THOMAS P. KELLOGG, JR. Director March 27, 1996
- --------------------------------------
Thomas P. Kellogg, Jr.
/s/ JOHN MARK MCLAUGHLIN Director March 27, 1996
- --------------------------------------
John Mark McLaughlin
/s/ JACK L. WOODS Director March 27, 1996
- --------------------------------------
Jack L. Woods
-20-
22
TOREADOR ROYALTY CORPORATION
ITEM 14(a)(1) and (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
-------
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements:
Consolidated Balance Sheet as of December 31, 1995 and 1994 . . . . . F-3
Consolidated Statement of Income for the three years ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Changes in Stockholders' Equity for the
three years ended December 31, 1995 . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Cash Flows for the three years ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-7
All financial statement schedules have been omitted as all required information
has been included in the consolidated financial statements and notes thereto.
23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Toreador Royalty Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Toreador Royalty Corporation and its subsidiary at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Dallas, Texas
March 11, 1996
F-2
24
TOREADOR ROYALTY CORPORATION
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
DECEMBER 31,
---------------------------------
ASSETS 1995 1994
-------------- --------------
Current assets:
Cash and cash equivalents $ 2,791,575 $ 3,893,666
Marketable securities, at market value 661,501 674,730
Accounts receivable 168,746 160,701
Federal income tax receivable 87,450 68,014
Prepaid expenses and deposits 22,172 14,340
-------------- --------------
Total current assets 3,731,444 4,811,451
Properties and equipment, less accumulated
depreciation, depletion and amortization 3,201,283 2,733,101
Other assets 118,325 105,352
-------------- --------------
Total assets $ 7,051,052 $ 7,649,904
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 193,238 $ 164,763
-------------- --------------
Total current liabilities 193,238 164,763
Deferred tax liabilities 47,329 223,380
-------------- --------------
Total liabilities 240,567 388,143
-------------- --------------
Stockholders' equity:
Preferred stock, $1.00 par value, 4,000,000 shares
authorized; none issued - -
Common stock, $.15625 par value, 10,000,000 shares
authorized; 5,349,071 issued 835,792 835,792
Capital in excess of par value 3,560,042 3,560,042
Retained earnings 2,115,733 2,526,164
Net unrealized gain on marketable securities 353,268 356,507
-------------- --------------
6,864,835 7,278,505
Less 20,500 shares of common stock in treasury, at cost (54,350) (16,744)
-------------- --------------
Total stockholders' equity 6,810,485 7,261,761
-------------- --------------
Total liabilities and stockholders' equity $ 7,051,052 $ 7,649,904
============== ==============
The Company uses the successful efforts method of accounting for its oil and
gas producing activities.
See accompanying notes to the consolidated financial statements.
F-3
25
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993
--------------- --------------- --------------
Revenues:
Oil and gas sales $ 1,378,390 $ 1,323,129 $ 1,632,572
Lease bonuses and rentals 138,804 396,106 178,984
Interest and other income 213,464 222,527 147,823
Gain on sale of marketable securities - - 95,217
--------------- --------------- --------------
Total revenues 1,730,658 1,941,762 2,054,596
Costs and expenses:
Lease operating expense 380,888 347,058 362,683
Depreciation, depletion and amortization 233,709 247,654 328,540
Geological and geophysical 203,887 148,300 134,197
Dry holes and abandonments 358,210 125,838 2,733
General and administrative 1,171,331 973,966 815,866
--------------- --------------- --------------
Total cost and expenses 2,348,025 1,842,816 1,644,019
--------------- --------------- --------------
Income (loss) before federal income taxes (617,367) 98,946 410,577
Provision (benefit) for income taxes (206,936) (26,638) 76,925
--------------- --------------- --------------
Net income (loss) $ (410,431) $ 125,584 $ 333,652
=============== =============== ==============
Net income (loss) per share $ (.08) $ .02 $ .07
=============== =============== ==============
Weighted average shares outstanding 5,334,190 5,064,258 4,592,946
=============== =============== ==============
See accompanying notes to the consolidated financial statements.
F-4
26
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
- --------------------------------------------------------------------------------
Common Stock Capital in Minimum
------------------------ excess of Retained pension
Shares Amount par value earnings liability
--------- ----------- ----------- ------------ ----------
Balance at
December 31, 1992 4,540,000 $ 709,375 $ 1,070,740 $ 2,066,928 $ 0
Recognition of minimum
pension liability - - - - (37,965)
Net income - - - 333,652 -
--------- ----------- ----------- ------------ ----------
Balance at
December 31, 1993 4,540,000 709,375 1,070,740 2,400,580 (37,965)
Issuance of common stock 809,071 126,417 2,489,302 - -
Net unrealized gain on
marketable securities - - - - -
Reversal of minimum
pension liability - - - - 37,965
Net income - - - 125,584 -
--------- ----------- ----------- ------------ ----------
Balance at
December 31, 1994 5,349,071 835,792 3,560,042 2,526,164 0
Net unrealized loss on
marketable securities - - - - -
Purchase of treasury stock - - - - -
Net income (loss) - - - (410,431) -
--------- ----------- ----------- ------------ ----------
Balance at
December 31, 1995 5,349,071 $ 835,792 $ 3,560,042 $ 2,115,733 $ 0
========= =========== =========== ============ ==========
Total
Unrealized Treasury stockholders'
gains/(losses) stock equity
-------------- --------- -------------
Balance at
December 31, 1992 $ 0 $ (16,744) $ 3,830,299
Recognition of minimum
pension liability - - (37,965)
Net income - - 333,652
--------- --------- -----------
Balance at
December 31, 1993 0 (16,744) 4,125,986
Issuance of common stock - - 2,615,719
Net unrealized gain on
marketable securities 356,507 - 356,507
Reversal of minimum
pension liability - - 37,965
Net income - - 125,584
--------- --------- -----------
Balance at
December 31, 1994 356,507 (16,744) 7,261,761
Net unrealized loss on
marketable securities (3,239) - (3,239)
Purchase of treasury stock - (37,606) (37,606)
Net income (loss) - - (410,431)
--------- --------- -----------
Balance at
December 31, 1995 $ 353,268 $ (54,350) $ 6,810,485
========= ========= ===========
See accompanying notes to the consolidated financial statements.
F-5
27
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
----------- ---------- ----------
Cash flows from operating activities:
Net income (loss) $ (410,431) $ 125,584 $ 333,652
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 233,709 247,654 328,540
Dry holes and abandonments 358,210 125,838 2,733
Gain on sale of marketable securities - - (95,217)
Gain on sale of oil and gas
properties and equipment - (25,028) (316)
Decrease (increase) in accounts receivable (8,045) 33,444 (25,406)
Increase in federal income tax receivable (19,436) (68,014) -
Pension funding in excess of expense (12,973) (13,796) (23,820)
Increase (decrease) in accounts payable
and accrued liabilities 28,475 31,827 51,061
Increase (decrease) in taxes payable - (70,039) 56,925
Deferred tax expense (benefit) (166,069) 31,415 -
Other, net (14,403) - 1,347
----------- ---------- ----------
Net cash provided (used) by operating
activities (10,963) 418,885 629,499
----------- ---------- ----------
Cash flows from investing activities:
Expenditures for oil and gas property and
equipment (1,037,840) (517,935) (695,527)
Purchase of furniture and fixtures (15,682) (8,055) -
Proceeds from sales of oil and gas properties
and equipment - 25,028 316
Proceeds from sale of marketable equity
securities - - 95,217
----------- ---------- ----------
Net cash used by investing activities (1,053,522) (500,962) (599,994)
----------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock - 2,615,719 -
Purchase of treasury stock (37,606) - -
----------- ---------- ----------
Net cash provided (used) by
financing activities (37,606) 2,615,719 -
----------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents (1,102,091) 2,533,642 29,505
Cash and cash equivalents, beginning of year 3,893,666 1,360,024 1,330,519
----------- ---------- ----------
Cash and cash equivalents, end of year $ 2,791,575 $3,893,666 $1,360,024
=========== ========== ==========
Supplemental schedule of cash flow information:
Cash paid (received) during the period for:
Income taxes $ (21,431) $ 80,000 $ 20,000
See accompanying notes to the consolidated financial statements.
F-6
28
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Toreador Royalty Corporation (the "Company") explores for and produces
oil and gas reserves principally in the southwestern part of the United
States. The Company's business activities are with industry partners
located within the United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of Toreador
Royalty Corporation and its wholly-owned subsidiary, Toreador Exploration
& Production Inc.
OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting for oil
and gas exploration and development expenditures. Under this method,
costs of successful exploratory wells and all development wells are
capitalized. Costs to drill exploratory wells which do not find proved
reserves are expensed. Acquisition costs of mineral interests in oil and
gas properties remain capitalized until they are impaired or a
determination has been made to discontinue exploration of the lease, at
which time all related costs are charged to expense. Impairment of
unproved properties is assessed and recorded on a property-by-property
basis. Upon sale or abandonment of units of property or the disposition
of miscellaneous equipment, the cost is removed from the asset account,
the related reserves relieved of the accumulated depreciation or
depletion and the gain or loss is credited to or charged against
operations. Maintenance and repairs are charged to expense; betterments
of property are capitalized and depreciated as described below.
REVENUE RECOGNITION
Oil and natural gas revenues are accounted for using the sales method.
Under this method, sales are recorded on all production sold by the
Company regardless of the Company's ownership interest in the respective
property. Imbalances result when sales differ from the seller's net
revenue interest in the particular property's reserves and are tracked to
reflect the Company's balancing position. At December 31, 1995 and 1994,
the imbalance and related value were immaterial.
LEASE BONUSES
The Company defers bonuses received from leasing minerals in which
unrecovered costs remain. Bonuses received from leasing mineral
interests previously expensed are taken into income currently. For
federal income tax purposes, lease bonuses are regarded as advance
royalties (ordinary income).
F-7
29
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DEPRECIATION AND DEPLETION
The Company provides for depreciation and depletion of its investment in
producing oil and gas properties on the unit-of-production method, based
upon independent reserve engineers' estimates of recoverable oil and gas
reserves on the property. Depreciation expense for fixed assets is
generally calculated on a straight-line basis based upon estimated useful
lives of five years.
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, and accounts payable and accrued
liabilities approximate fair value, unless otherwise stated, as of
December 31, 1995 and 1994.
MARKETABLE SECURITIES
In January 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt
and Equity Securities." SFAS 115 establishes standards of financial
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt
securities. The Company has designated its investment in the San Juan
Basin Royalty Trust as "securities available for sale." These securities
are reported at their fair market value with the related unrealized gain,
net of tax effects, excluded from income and reported as a separate
component of stockholders' equity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks
and all highly liquid investments with original maturities of three
months or less. Cash and cash equivalents include time deposits of
$150,000 and $200,000 at December 31, 1995 and 1994, respectively.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of
common shares outstanding and common share equivalents (except where
inclusion of such common share equivalents would have an antidilutive
effect).
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121
(SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," in the fourth quarter of 1995.
SFAS 121 requires the write-down to market value of certain long-lived
assets. The adoption of SFAS 121 had no effect on the Company's
financial position or results of operations.
F-8
30
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." SFAS 123 requires the recording or disclosure
of the value of stock options or other equity instruments issued to
employees. The Company will adopt the disclosure provisions of SFAS 123
in the first quarter of 1996.
2. MARKETABLE SECURITIES
Marketable securities are comprised of 105,840 shares in the San Juan
Basin Royalty Trust at December 31, 1995 and 1994. The Company's cost in
this royalty trust is $126,258. At December 31, 1995, the market value
of these securities which are designated as available for sale aggregated
$661,501, resulting in a gross unrealized gain in the amount of $535,243
and an unrealized gain, net of tax effects, of $353,268. At December 31,
1994, the market value of these securities was $674,730, resulting in a
gross unrealized gain in the amount of $548,472 and an unrealized gain,
net of tax effects, of $356,507.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
DECEMBER 31,
---------------------------------
1995 1994
-------------- --------------
Oil and gas $ 153,301 $ 130,766
Other 15,445 29,935
-------------- --------------
$ 168,746 $ 160,701
============== ==============
Accounts receivable consist primarily of amounts arising from oil and gas
sales. Receivables are due from companies engaged principally in oil and
gas activities, with payment terms on a short-term basis and in
accordance with industry standards.
4. PROPERTIES AND EQUIPMENT
Properties include mineral fee interests acquired by the Company during
1951 and 1958. These interests totaled approximately 535,000 net mineral
acres underlying approximately 882,000 surface acres in the Texas
Panhandle, West Texas, Montana and Colorado. It is recognized that the
ultimate realization of the investment in these properties is dependent
upon future exploration and development operations which are dependent
upon satisfactory leasing and drilling arrangements with others.
F-9
31
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Properties and equipment consist of the following:
DECEMBER 31,
---------------------------------
1995 1994
-------------- --------------
Undeveloped mineral and royalty interests $ 458,616 $ 469,533
Nonproducing leaseholds 344,478 257,227
Producing royalty interests 1,137,554 947,978
Producing leaseholds 2,378,785 2,018,170
Lease and well equipment 103,929 50,814
Furniture and fixtures 107,038 91,355
-------------- --------------
4,530,400 3,835,077
Accumulated depreciation, depletion and amortization (1,329,117) (1,101,976)
-------------- --------------
$ 3,201,283 $ 2,733,101
============== ==============
Depreciation, depletion and amortization for the years ended December 31,
1994 and 1993 includes $5,784 and $48,271, respectively, for impairment
of nonproducing leaseholds. There was no charge for impairment of
nonproducing leaseholds for the year ended December 31, 1995.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31,
---------------------------------
1995 1994
-------------- --------------
Professional fees $ 17,928 $ 22,000
Lease operating expense 37,572 26,824
Trade accounts payable 10,235 39,500
Drilling costs 127,503 76,439
-------------- --------------
$ 193,238 $ 164,763
============== ==============
6. INTEREST AND OTHER INCOME
Interest and other income consists of:
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993
--------------- --------------- --------------
Interest - Certificates of deposit and
U.S. Treasury bills $ 183,106 $ 122,106 $ 34,607
Distribution from Grantor Trusts:
Permian Basin Royalty Trust - - 5,423
San Juan Basin Royalty Trust 30,358 51,393 83,477
Management fees - 24,000 24,000
Other - 25,028 316
--------------- --------------- --------------
$ 213,464 $ 222,527 $ 147,823
=============== =============== ==============
F-10
32
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses incurred by the Company are as
follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993
--------------- --------------- --------------
Salaries $ 318,658 $ 327,142 $ 317,247
Professional fees 196,460 239,297 158,893
Insurance 63,554 53,578 42,564
Retirement expense 55,017 50,691 33,012
Rent expense 34,827 40,683 31,309
Directors' fees and travel expenses 54,866 50,140 52,322
Reports to shareholders 66,016 43,041 40,979
Proxy Contest 199,342 - -
Travel and entertainment 56,164 38,644 36,841
Telephone and utilities 23,230 25,344 20,470
Taxes, other than income 25,975 18,032 12,838
Other 77,222 87,374 69,391
--------------- --------------- --------------
$ 1,171,331 $ 973,966 $ 815,866
=============== =============== ==============
8. INCOME TAXES
The Company's provision (benefit) for income taxes was comprised of the
following:
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993
--------------- --------------- --------------
Federal:
Current $ (40,867) $ (58,053) $ 76,925
Deferred (166,069) 31,415 -
--------------- --------------- --------------
Provision (benefit) for income taxes $ (206,936) $ (26,638) $ 76,925
=============== =============== ==============
F-11
33
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The primary reasons for the difference between tax expense at the
statutory federal income tax rate and the Company's provision for income
taxes were:
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ----------- ----------
Theoretical tax @ 34% $ (209,905) $ 33,642 $ 139,596
Surtax or rate difference - - (1,598)
Statutory depletion in excess
of tax basis - (18,729) (26,235)
Intangible drilling and development costs - (3,284) (5,427)
Loss carryforward/carryback - (46,344) (24,508)
Other 2,969 8,077 (4,903)
---------- ----------- ----------
Provision (benefit) for income taxes $ (206,936) $ (26,638) $ 76,925
========== =========== ==========
In 1995, the net operating loss for tax purposes totaled $698,357, of
which $198,994 will be carried back and utilized against prior year
taxable income. The remaining $499,363 will be available for carry
forward to future years taxable income and will expire in 2010. The
Company has $13,036 of minimum tax credit carryforwards that may be
carried forward indefinitely.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1995 and 1994 were as follows:
1995 1994
--------------- --------------
Deferred tax liabilities:
Royalty trust $ (193,069) $ (195,187)
Intangible drilling and development costs (56,752) (42,787)
Lease and well equipment - (4,225)
Leasehold losses (9,148) -
--------------- --------------
Gross deferred tax liabilities (258,969) (242,199)
Deferred tax assets:
Leasehold costs - 9,972
Minimum tax credit carryforward 13,036 8,847
Net operating loss carryforward 169,783 -
Depletion carryforward 28,821 -
--------------- --------------
Gross deferred tax assets 211,640 18,819
Valuation allowance - -
--------------- --------------
Net deferred tax assets 211,640 18,819
--------------- --------------
Net deferred tax liabilities $ (47,329) $ (223,380)
=============== ==============
Of the change in deferred taxes, $9,982 was debited to net unrealized
gain on marketable securities classified in stockholders' equity.
F-12
34
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. BENEFIT PLANS
The Company has a contributory defined benefit pension plan which covers
all Company employees. The benefits are based on years of service and
the employee's compensation. Contributions are intended to provide not
only for benefits attributed to service to date but also for those
expected to be earned in the future. No minimum pension liability was
required for 1994 or 1995. Therefore, the adjustment to stockholders'
equity was reversed at December 31, 1994. Net periodic pension expense
includes the following components:
1995 1994 1993
---------------- ---------------- ---------------
Service cost for benefits earned during
the year $ 50,898 $ 45,950 $ 34,552
Interest cost on projected benefit
obligation 21,779 18,312 11,532
Actual return on plan assets (22,063) (17,312) (10,762)
Net amortization and deferral 1,326 2,014 (2,310)
---------------- ---------------- ---------------
Net periodic pension expense $ 51,940 $ 48,964 $ 33,012
=============== =============== ==============
The assumptions used to develop the net periodic pension expense were as
follows:
1995 1994 1993
------ ------ ------
Discount rate 7% 7% 7%
Expected long-term rate of return on assets 7% 7% 7%
Rate of increase in compensation levels 3% 3% 3%
The following table sets forth the funded status of the plan and the
related asset and liability amounts for the plan as of December 31, 1995
and 1994:
1995 1994
--------------- --------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 317,818 $ 271,894
=============== ==============
Accumulated benefit obligation $ 338,345 $ 272,623
=============== ==============
Projected benefit obligation $ 383,255 $ 311,125
Plan assets at fair value (primarily stocks and bonds) 363,080 282,978
--------------- --------------
Plan assets less than projected benefit obligation 20,175 28,147
Unrecognized net asset existing at transition date 22,996 25,870
Unrecognized net loss (161,496) (159,369)
--------------- --------------
Prepaid pension cost $ (118,325) $ (105,352)
=============== ==============
F-13
35
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In 1996, the Company established a Supplemental Executive Retirement Plan
("SERP") covering certain key employees. The SERP provides for
incremental pension payments from the Company's funds so that retirement
benefit payments are equal to amounts that would have been payable from
the Company's principal pension plan if it were not for limitations on
those payments imposed by income tax regulations.
10. LEASE COMMITMENT
In November 1993, the Company signed a lease agreement to lease new
office space for a period of sixty-three months, beginning January 6,
1994 and ending March 31, 1999. Minimum annual rentals at December 31,
1995 are as follows:
1996 38,242
1997 38,242
1998 38,242
1999 9,561
2000 and thereafter -
11. RESTRICTED STOCK GRANT AGREEMENT AND
STOCK OPTION AGREEMENT
The Company entered into an agreement, effective August 1, 1988, with the
Company's Chairman, granting him stock options to purchase 200,000 shares
of common stock at a price of $3.00 per share, the market value on that
date. In accordance with this agreement, the options became exercisable
in equal increments over a three year period commencing August 1, 1988.
Subject to certain termination provisions, these options expire July 31,
1998. As of December 31, 1995, none of these options have been
exercised.
On March 1, 1989, the Company entered into an agreement with an employee
granting stock options to purchase 50,000 shares of common stock at a
price of $2.46875 per share, the market value on that date. The options
became exercisable in equal increments over a three-year period
commencing March 1, 1990. The options expire on March 1, 1999. As of
December 31, 1995, none of these options have been exercised.
In May 1990, the Company adopted the 1990 Stock Option Plan ("the Plan").
The aggregate number of shares of common stock issuable under the Plan is
225,000. The Plan provides for the granting of stock options at exercise
prices equal to the market price of the stock at the date of the grant.
On May 24, 1992, the Company entered into an agreement with the Company's
Chairman granting stock options under the Plan to purchase 10,000 shares
of common stock at a price of $3.625 per share, the market value on that
date. All options granted under the Plan are exercisable in equal
increments over a three-year period commencing on May 24, 1992. The
options expire on May 24, 2002. As of December 31, 1995, none of these
options have been exercised.
On May 22, 1992, the Company entered into an agreement with the Company's
then six members of the board of directors, excluding the Chairman,
granting stock options to purchase 10,000 shares each of common stock at
a price of $3.625 per share, the market value on that date.
F-14
36
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
All options granted under the Plan are exercisable in equal increments
over a three-year period commencing on May 22, 1992. The options expire
on May 22, 2002. As of December 31, 1995 none of these options have been
exercised.
On February 17, 1994, the Company entered into an agreement with a member
of the board of directors granting an option to purchase 10,000 shares of
common stock at a price of $3.625 per share, the market value on that
date. The option granted under the Plan is exercisable in equal
increments over a three-year period commencing February 17, 1994. The
option expires on February 17, 2004. As of December 31, 1995, this
option has not been exercised.
On September 8, 1994, the Company entered into an agreement with the
Company's Chairman granting a stock option to purchase 50,000 shares of
common stock and with the Company's two other employees granting stock
options to purchase 10,000 shares each of common stock at a price of
$3.25 per share. All options granted under the Plan are exercisable in
equal increments over a three-year period commencing September 8, 1995.
The options expire on September 8, 2004. As of December 31, 1995, none
of these options have been exercised. Compensation expense related to
the issuances of these options is immaterial.
On September 8, 1994, the Company entered into an agreement with the
Company's two consultants granting options to purchase 10,000 shares each
of common stock at a price of $3.25 per share. The options granted are
exercisable in equal increments over a three-year period commencing
September 8, 1995. The options expire on September 8, 2004. As of
December 31, 1995, none of these options have been exercised.
Compensation expense related to the issuances of these options is
immaterial.
In September 1994, the Company adopted the 1994 Nonemployee Director
Stock Option Plan ("Nonemployee Director Plan"). The number of shares of
common stock issuable under the Nonemployee Director Plan is 200,000
shares in the aggregate. The Nonemployee Director Plan provides for the
granting of stock options at exercise prices equal to the market price of
the stock at the grant date. On September 8, 1994, the Company entered
into an agreement with the seven members of the board of directors,
excluding the chairman, granting stock options under the Nonemployee
Director Plan to purchase 10,000 shares each of common stock at a price
of $3.50 per share, the market value on that date. The options granted
are exercisable in equal increments over a three-year period commencing
September 8, 1995. The options expire on September 8, 2004. As of
December 31, 1995, none of these options have been exercised.
12. CAPITAL
On May 23, 1994, the Company privately placed 809,071 shares of common
stock for an aggregate consideration of $2,831,749. In its private
placement agreement with the purchasers, the Company granted them
registration rights, pursuant to which a registration statement on Form
S-3 covering all the shares was filed on June 22, 1994. The registration
statement was declared effective July 11, 1994 and the Company is
obligated to maintain such effectiveness until May 23, 1996. In
connection with the private placement, the Company's placement agent
received a five-year warrant to purchase 106,867 shares of common stock
at a price of $4.375 per share.
F-15
37
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The placement agent has rights to participate in registered offerings of
common stock by the Company. The net proceeds to the Company from the
private placement (after deducting the placement agent's fee of $141,112
and expenses of approximately $75,000) were approximately $2,616,000.
The Company adopted a stockholder rights plan on April 3, 1995 designed
to assure that the Company's stockholders receive fair and equal
treatment in the event of any proposed takeover of the Company and to
guard against partial tender offers and other abusive takeover tactics to
gain control of the Company declared without paying all stockholders a
fair price. Under the rights plan, the Company declared a dividend of
one right ("Right") on each share of Company common stock. Each Right
will entitle the holder to purchase one one-hundredth of a share of a new
Series A Junior Participating Preferred Stock, par value $1.00 per share,
at an exercise price of $12.00. The Rights are not currently exercisable
and will become exercisable only in the event a person or group acquires
beneficial ownership of 20 percent or more of the Company's outstanding
common stock or announces a tender offer or exchange offer to acquire
such ownership level. The Rights are subject to redemption by the
Company for $.01 per Right at any time prior to the tenth day after the
first public announcement of the acquisition by any person or group of
beneficial ownership of 20 percent or more of Company common stock. The
dividend distribution was made on April 13, 1995 to stockholders of
record at the close of business on that date. The rights will expire on
April 13, 2005.
13. OIL AND GAS INFORMATION (UNAUDITED)
The following information is presented pursuant to SFAS No. 69,
"Disclosures about Oil and Gas Producing Activities."
OIL AND GAS RESERVES:
The following table identifies the Company's net interest in estimated
quantities of proved oil and gas reserves and changes in such estimated
quantities. Reserve estimates were prepared by independent petroleum
engineers and such estimates were reviewed and adjusted by Company
management. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than
those of producing oil and gas properties. Accordingly, the estimates
are expected to change as future information becomes available.
Estimated proved developed and undeveloped oil and gas reserves at
December 31, 1995 and 1994 are tabulated below. Crude oil includes
condensate and natural gas liquids and is stated in barrels (bbl).
Natural gas is stated in thousands of cubic feet (MCF).
F-16
38
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PROVED DEVELOPED AND
UNDEVELOPED RESERVES OIL(BBL) GAS(MCF)
-------------------- -------- ---------
December 31, 1992 329,088 1,137,916
Purchases of reserves in place 3,009 1,094,547
Revisions of previous estimates 27,902 357,310
Extensions, discoveries, and other additions 11,436 -
Production (56,063) (286,060)
------- ---------
December 31, 1993 315,372 2,303,713
Purchases of reserves in place 560 323,293
Revisions of previous estimates (4,544) 300,426
Extensions, discoveries, and other additions 201,338 -
Production (49,635) (306,295)
------- ---------
December 31, 1994 463,091 2,621,137
Purchases of reserves in place 82,386 67,181
Revisions of previous estimates 30,125 81,705
Extensions, discoveries and other additions 55,216 115,034
Production (61,537) (277,621)
------- ---------
December 31, 1995 569,281 2,607,436
======= =========
PROVED DEVELOPED RESERVES
-------------------------
December 31, 1994 397,959 2,621,137
======= =========
There were no proved undeveloped reserves at December 31, 1995 or 1993.
CAPITALIZED COSTS INCURRED RELATING TO OIL AND GAS PRODUCING ACTIVITIES:
Capitalized costs relating to oil and gas producing activities were as
follows:
DECEMBER 31,
-----------------------------------------------------
1995 1994 1993
--------------- --------------- --------------
Unproved properties $ 803,094 $ 726,760 $ 583,742
Proved leaseholds 3,516,339 2,966,148 2,732,055
Lease and well equipment 103,929 50,814 41,612
--------------- --------------- --------------
4,423,362 3,743,722 3,357,409
Less: Accumulated depreciation,
depletion and amortization (1,242,285) (1,018,573) (784,509)
--------------- --------------- --------------
Capitalized costs $ 3,181,077 $ 2,725,149 $ 2,572,900
=============== =============== ==============
F-17
39
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Costs incurred in oil and gas property acquisition, exploration, and
development activities were as follows:
1995 1994 1993
-------- -------- --------
Acquisition of properties
Proved $360,100 $155,999 $692,794
Unproved 76,334 143,018 -
Exploration costs 358,210 131,622 2,733
Development costs 243,196 87,296 -
RESULTS OF OPERATIONS
Results of operations from oil and gas producing activities were
as follows:
1995 1994 1993
--------------- --------------- --------------
Crude oil, condensate and natural gas $ 1,378,390 $ 1,323,129 $ 1,632,572
Lease bonuses and delay rentals 138,804 396,106 178,984
--------------- --------------- --------------
Total revenues 1,517,194 1,719,235 1,811,556
Costs and expenses:
Lease operating costs 380,888 347,058 362,683
Exploration costs 562,097 274,138 136,930
Depreciation and depletion 233,709 247,645 328,540
--------------- --------------- --------------
Income before income taxes 340,500 850,394 983,403
Income tax expense 115,770 289,134 334,357
--------------- --------------- --------------
Results of operations from producing
activities (excluding corporate
overhead) $ 224,730 $ 561,260 $ 649,046
=============== =============== ==============
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS REVENUES
Pursuant to SFAS No. 69, the Company has developed the following
information titled "Standardized Measure of Discounted Future Net Cash
Flows Relating to Proved Oil and Gas Quantities" (Standardized Measure).
Accordingly, the Standardized Measure has been prepared assuming year-end
selling prices adjusted for future fixed and determinable contractual
price changes, year-end development and production costs, year-end
statutory tax rates adjusted for future tax rates already legislated and
a 10% annual discount rate. The Standardized Measure does not purport to
be an estimate of the fair market value of the Company's reserves. An
estimate of fair value would also have taken into account, among other
things, the expected
F-18
40
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
recovery of reserves in excess of proved reserves, anticipated changes in
future prices and costs and a discount factor representative of the time
value of money and risks inherent in producing oil and gas.
1995 1994 1993
--------------- --------------- --------------
Future cash inflows $ 14,627,515 $ 11,252,481 $ 8,928,058
Future production costs 4,235,501 3,149,608 2,310,956
Future development costs 45,289 145,396 1,626
--------------- --------------- --------------
Future net cash flows before income taxes 10,346,725 7,957,477 6,615,476
Future income tax expense 2,775,274 1,995,490 1,634,317
--------------- --------------- --------------
Future net cash flows 7,571,451 5,961,987 4,981,159
10% annual discount for estimated
timing of cash flows 2,861,316 2,013,007 1,484,344
--------------- --------------- --------------
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves $ 4,710,135 $ 3,948,980 $ 3,496,815
=============== =============== ==============
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH RELATING
TO PROVED OIL AND GAS RESERVES
The following are the principal sources of change in the standardized
measure:
1995 1994 1993
--------------- --------------- --------------
Balance at January 1 $ 3,948,980 $ 3,496,815 $ 3,112,656
Sales of oil and gas produced, net (997,502) (976,071) (1,269,889)
Net changes in prices and production
costs 433,089 (658,462) (1,135,411)
Extensions and discoveries 698,314 1,329,507 92,611
Revisions of previous quantity estimates 344,019 398,367 815,254
Net change in income taxes (342,776) (88,832) (70,827)
Accretion of discount 490,747 436,647 391,148
Purchases of reserves 494,501 155,999 1,159,367
Other (359,237) (144,990) 401,906
---------------- ---------------- --------------
Balance at December 31 $ 4,710,135 $ 3,948,980 $ 3,496,815
=============== =============== ==============
F-19
41
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBITS
------- --------
3.1 - Certificate of Incorporation of Toreador Royalty Corporation dated July 13, 1951, as amended March 16,
1981 and June 4, 1987 (previously filed as Exhibit 3.1 to Toreador Royalty Corporation Annual Report on
Form 10-K for the year ended December 31, 1989, and incorporated herein by reference).
3.2 - Certificate of Amendment of Certificate of Incorporation, as amended, of Toreador Royalty Corporation
dated July 3, 1990 (previously filed as Exhibit 3.2 to Toreador Royalty Corporation Annual Report on
Form 10-K for the year ended December 31, 1990, and incorporated herein by reference).
3.3 - Certificate of Amendment of Certificate of Incorporation, as amended, of Toreador Royalty Corporation
dated August 13, 1992 (previously filed as Exhibit 3.3 to Toreador Royalty Corporation Annual Report on
Form 10-K for the year ended December 31, 1993, and incorporated herein by reference).
3.4 - Certificate of Designations of Series A Junior Participating Preferred Stock of Toreador Royalty
Corporation, dated April 3, 1995 (previously filed as Exhibit 3 to Toreador Royalty Corporation
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, and incorporated herein by
reference).
3.5 - Amended and Restated Bylaws of Toreador Royalty Corporation (previously filed as Exhibit 3.3 to Toreador
Royalty Corporation Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated
herein by reference).
3.6 - Amendment to Bylaws of Toreador Royalty Corporation (previously filed as Exhibit 3.5 to Toreador Royalty
Corporation Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by
reference).
4.1 - Rights Agreement dated as of April 3, 1995, between Toreador Royalty Corporation and Continental Stock
Transfer & Trust Company (filed as Exhibit 1 to Toreador Royalty Corporation Current Report on Form 8-K
dated April 3, 1995, and incorporated herein by reference).
10.1 - Stock Option Agreement dated August 1, 1988 between Toreador Royalty Corporation and Peter R. Vig
(previously filed as Exhibit 10.B to Toreador Royalty Corporation Current Report on Form 8-K dated
August 11, 1988, and incorporated herein by reference).
10.2 - Stock Grant Agreement dated August 1, 1988 between Toreador Royalty Corporation and Peter R. Vig
(previously filed as Exhibit 10.C to Toreador Royalty Corporation Current Report on Form 8-K dated
August 11, 1988, and incorporated herein by reference).
10.3* Incentive Stock Option Agreement dated as of September 8, 1994 between Toreador Royalty Corporation and
Peter R. Vig, as amended by Letter Agreement dated as of May 15, 1995.
42
EXHIBIT
NUMBER EXHIBITS
------- --------
10.4 - Employment Agreement effective August 1, 1990 between Toreador Royalty Corporation and Peter R. Vig
(previously filed as Exhibit 10.7 to Toreador Royalty Corporation Annual Report on Form 10-K for the
year ended December 31, 1989, and incorporated herein by reference).
10.5 - Second Amendment to Executive Employment Agreement dated as of December 27, 1993 between Toreador
Royalty Corporation and Peter R. Vig (previously filed as Exhibit 10.4 to Toreador Royalty Corporation
Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference).
10.6 - Third Amendment to Executive Employment Agreement between Toreador Royalty Corporation and Peter R. Vig
(previously filed as Exhibit 10.5 to the Toreador Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference).
10.7* - Fourth Amendment to Executive Employment Agreement between Toreador Royalty Corporation and Peter R. Vig
dated as of April 25, 1995.
10.8* - Fifth Amendment to Executive Employment Agreement between Toreador Royalty Corporation and Peter R. Vig
dated as of October 2, 1995.
10.9* - Sixth Amendment to Executive Employment Agreement between Toreador Royalty Corporation and Peter R. Vig
dated as of March 2, 1996.
10.10 - Joint Venture Agreement dated March 1, 1989, among Toreador Royalty Corporation, Bandera Petroleum, et
al. (previously filed as Exhibit 10.9 to Toreador Royalty Corporation Annual Report on Form 10-K for the
year ended December 31, 1989, and incorporated herein by reference).
10.11+ - Toreador Royalty Corporation 1990 Stock Option Plan (previously filed as Exhibit 10.7 to Toreador
Royalty Corporation Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated
herein by reference).
10.12*+ - Toreador Royalty Corporation 1994 Non-Employee Director Stock Option Plan, as amended.
10.13 - Stock Purchase Agreement dated May 18, 1994, between Toreador Royalty Corporation and the investors
named therein (previously filed as Exhibit 4.1 to Toreador Royalty Corporation Registration Statement on
Form S-3 (No. 33-80572) filed with the Securities and Exchange Commission on June 22, 1994, and incorporated
herein by reference).
10.14 - Warrant for the Purchase of Shares of Common Stock issued to Petrie Parkman & Co. dated May 23, 1990
(previously filed as Exhibit 10.1 to Toreador Royalty Corporation Registration on Form S-3 (No.
33-80572) filed with the Securities and Exchange Commission on June 22, 1994, and incorporated herein
by reference).
10.15 - Form of Indemnification Agreement dated as of April 25, 1995 between Toreador Royalty Corporation and
each of the members of its Board of Directors (previously filed as Exhibit 10 to Toreador Royalty
Corporation Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, and incorporated
herein by reference).
10.16* - Severance Agreement by and between Toreador Royalty Corporation and James S. Blair dated March 2, 1996.
21.1* - Subsidiary of Toreador Royalty Corporation.
23.1* - Consent of Price Waterhouse LLP.
23.2* - Consent of Harlan Consulting Inc.
27.1* - Financial Data Schedule
- ------------------
* Filed herewith.
+ Management contract or compensatory plan.