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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ___________ to ____________
Commission File No.: 0-20760
GREKA Energy Corporation
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(Name of issuer in its charter)
Colorado 84-1091986
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
630 Fifth Avenue, Suite 1501 New York, NY 10111
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 218-4680
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
No Par Value Common Stock.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the 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 issuer's revenues for 2000 were $49,067,140.
The aggregate market value of 3,984,032 shares of common stock held by
non-affiliates of the issuer, based on the closing bid price of the common stock
on April 16, 2001 of $14.13 as reported on the Nasdaq National Market System and
based on a total of 4,545,823 shares being outstanding on that date, was
$56,294,372.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
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Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] No [ ]
Transitional Small Business Disclosure Format (check one).
Yes [ ] No [X]
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Table of Contents
PART I .................................................................................... 6
Item 1. Description of Business............................................................. 6
Item 2. Description of Property............................................................. 17
Item 3. Legal Proceedings................................................................... 27
Item 4. Submission of Matters to a Vote of Security Holders................................. 28
PART II. .................................................................................... 28
Item 5. Market for Common Equity and Related Stockholder Matters............................ 28
Item 6. Selected Financial Data............................................................. 29
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operation................................................. 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................... 32
Item 8. Financial Statements................................................................ 32
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................................................. 32
PART III. .................................................................................... 33
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act................................... 33
Item 11. Executive Compensation.............................................................. 34
Item 12. Security Ownership of Certain Beneficial Owners
and Management...................................................................... 37
Item 13. Certain Relationships and Related Transactions...................................... 38
Part IV. .................................................................................... 39
Item 14. Exhibits and Reports on Form 8-K.................................................... 39
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Definitions
The terms below are used in this document and have specific SEC
definitions as follows:
Proved oil and gas reserves. Proved oil and gas reserves are the
estimated quantities of crude oil and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate is made. Prices
include consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.
Proved developed oil and gas reserves. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Additional oil and gas
expected to be obtained through the application of fluid injection or other
improved recovery techniques for implementing the natural forces and mechanisms
of primary recovery should be included as "proved developed reserves" only after
testing by a pilot project or after the operation of an installed program has
confirmed through production response that increased recovery will be achieved.
Proved undeveloped reserves. Proved undeveloped oil and gas reserves
are reserves that are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major expenditure is required
for recompletion. Reserves on undrilled acreage shall be limited to those
drilling units offsetting productive units that are reasonably certain of
production when drilled. Proved reserves for other undrilled units can be
claimed only where it can be demonstrated with certainty that there is
continuity of production from the existing productive formation. Under no
circumstances should estimates for proved undeveloped reserves be attributable
to any acreage for which an application of fluid injection or other improved
recovery technique is contemplated, unless such techniques have been proved
effective by actual tests in the area and in the same reservoir.
As used in this Form 10-K:
"Mcf" means thousand cubic feet, "MMcf" means million cubic feet, "Bcf"
means billion cubic feet, "Tcf" means trillion cubic feet, "Bbl" means barrel,
"MBbls" means thousand barrels, "MMBbls" means million barrels, "BOE" means
equivalent barrels of oil, "MBOE" means thousand equivalent barrels of oil and
"MMBOE" means million equivalent barrels of oil.
Unless otherwise indicated in this Form 10-K, gas volumes are stated at
the legal pressure base of the state or area in which the reserves are located
and at 60/o/ Fahrenheit. Equivalent barrels of oil are determined using the
ratio of 5.5 Mcf of gas to 1 Bbl of oil.
The term "gross" refers to the total acres or wells in which the
Company has a working interest, and "net" refers to gross acres or wells
multiplied by the percentage working interest owned by the Company. "Net
production" means production that is owned by the Company less royalties and
production due others.
Cautionary Information About Forward-Looking Statements
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in or
incorporated by reference into this Form 10-K which address activities, events
or developments which the Company expects, believes or anticipates will or may
occur in the future are forward-looking statements. The words "believes,"
"intends," "expects," "anticipates," "projects," "estimates," "predicts" and
similar expressions are also intended to identify forward-looking statements.
These forward-looking statements include, among others, statements concerning:
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* the benefits expected to result from GREKA's 1999 acquisition of Saba
Petroleum Company ("Saba") discussed below, including
* synergies in the form of increased revenues,
* decreased expenses and avoided expenses and expenditures that are expected
to be realized as a result of the Saba acquisition, and
* the complementary nature of GREKA's horizontal drilling technology and
certain oil reserves acquired with the acquisition of Saba, and
other statements of:
* expectations,
* anticipations,
* beliefs,
* estimations,
* projections, and
other similar matters that are not historical facts, including such matters as:
* future capital,
* development and exploration expenditures (including the timing, amount and
nature thereof),
* drilling and reworking of wells, reserve estimates (including estimates of
future net revenues associated with such reserves and the present value of
such future net revenues),
* future production of oil and gas,
* repayment of debt,
* business strategies,
* oil, gas and asphalt prices and demand,
* exploitation and exploration prospects,
* expansion and other development trends of the oil and gas industry, and
* expansion and growth of business operations.
These statements are based on certain assumptions and analyses made by the
management of GREKA in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances.
GREKA cautions the reader that these forward-looking statements are subject
to risks and uncertainties, including those associated with:
* the financial environment,
* general economic, market and business conditions,
* the regulatory environment,
* business opportunities that may be presented to and pursued by GREKA,
* changes in laws or regulations
* exploitation and exploration successes,
* availability to obtain additional financing on favorable conditions,
* trend projections, and
* other factors, many of which are beyond GREKA's control that could cause
actual events or results to differ materially from those expressed or
implied by the statements. Such risks and uncertainties include those risks
and uncertainties identified in the Description of the Business and
Management's Discussion and Analysis sections of this document and risk
factors discussed from time to time in the Company's filings with the
Securities and Exchange Commission.
Significant factors that could prevent GREKA from achieving its stated
goals include:
* the inability of GREKA to obtain financing for capital expenditures and
acquisitions,
* declines in the market prices for oil, gas and asphalt, and
* adverse changes in the regulatory environment affecting GREKA.
The cautionary statements contained or referred to in this document
should be considered in connection with any subsequent written or oral
forward-looking statements that may be issued by GREKA or persons acting on its
or their behalf.
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GREKA undertakes no obligation to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
PART I
Item 1. Description of Business
Overview of GREKA Energy Corporation
GREKA Energy Corporation, a Colorado corporation ("GREKA" or the
"Company") is an independent integrated energy company committed to creating
shareholder value by capitalizing on consistent cash flow protected from oil
price fluctuations within vertically integrated operations, exploiting E&P
opportunities and penetrating new niche markets utilizing proprietary
technology. GREKA has oil and gas production, exploration and development
activities in North America and the Far East, with primary areas of activity in
California, Louisiana and China. In addition, GREKA owns and operates an asphalt
refinery in California through a wholly-owned subsidiary. GREKA's operations are
primarily conducted through our wholly owned subsidiaries established as
business segments to allow for concentrated operations by region and/or markets.
As of December 31, 2000, the Company had estimated net proved reserves
of approximately 15,662 MBOE with a PV-10 value before tax of $163.9 million.
During 2000, the Company added an estimated net proved producing reserves of
2,154 MBOE. During 2000, the throughput at the Company's asphalt refinery
averaged approximately 3,300 BBL per day with the Company's present goal of
reaching optimum plant capacity by year-end 2002. Of this throughput, the
Company's subsidiaries supplied an average of approximately 33%, or 1,090 BBL
per day, from their production in California, and we plan to focus on increasing
our feedstock during 2001. Also in 2000, our gas exploitation on our leasehold
at Potash Field, Plaquemines Parish, Louisiana yielded record production, after
we successfully recompleted three wells during our ongoing workover operation
which began earlier in the year.
Our principal offices are located at 630 Fifth Avenue, Suite 1501, New
York, New York 10111 and our telephone number is (212) 218-4680.
Business Strategy
GREKA's objective is to build shareholder value through consistent
economic growth both in the increased throughput at our asphalt refinery and in
the growth of our reserves and production, thereby creating an increase in net
asset value per share, cash flow per share and earnings per share. We are
focused on a balanced program of low to medium risk exploitation and development
of our existing reserves utilizing its proprietary technology. This is balanced
by rapid growth through the acquisition of synergistic businesses. All asset and
capital investment decisions are measured and ranked by their risk-adjusted
impact on per share value.
We have established a three-prong strategy that capitalizes on our
asset base to enhance shareholder value as follows:
Integrated Operations
Operations of GREKA are planned to focus on the integration of our
subsidiaries' Santa Maria (California) assets, including an asphalt refinery and
interest in heavy oil fields. The hedged operations are targeted to capitalize
on the stable asphalt market in California by providing a balance of equity and
third party feedstock (heavy oil) into the refinery. The integration of the
refinery (100% owned) with the interests in the heavy oil producing fields (100%
working interest) has successfully provided a stable ongoing hedge to GREKA on
each equity barrel since June 1999. GREKA's strategy in these integrated assets
is to proceed with acquisitions that enhance the long-term feedstock supply to
the refinery and to cost-efficiently boost production rates from the potential
drilling locations identified in the Santa Maria Valley area of central
California. We anticipate that the profitability from these integrated
operations will not be affected by
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volatile oil prices. It is also anticipated that, by using our equity barrels to
supply the refinery, working capital requirements should be lower and cash flow
should be enhanced. The continued stability of the price of asphalt, coupled
with reduced costs for processing and lifting, should create a substantial value
for GREKA's shareholders.
Exploitation, Exploration & Production
GREKA is focusing on return to production ("RTP") work. Such RTP work
has enhanced and is expected to continue to enhance the current production
levels and capitalize on current oil and gas prices. We plan to specifically
focus on our existing concessions in strategic locations, such as China, where
GREKA believes there is a significant, long-term demand for energy and a niche
advantage for the Company.
GREKA plans to continuously pursue new, emerging opportunities in the
energy business to identify and evaluate niche markets for our proprietary
drilling technology. Two specific niche targets are coal bed methane projects
and gas storage. These opportunities should provide significant upside from the
use of short radius horizontal laterals.
Business Development of GREKA
GREKA Energy Corporation was formed in 1988 as a Colorado corporation
under the name of Kiwi III, Ltd. On May 13, 1996, GREKA, then known as Petro
Union, Inc., filed a voluntary petition for relief pursuant to Chapter 11 of the
United States Bankruptcy Code. Current GREKA management acquired Petro Union,
Inc. and simultaneously procured on August 28, 1997, an order confirming Petro
Union's First Amended Plan of Reorganization from the Bankruptcy Court for the
Southern District of Indiana. The bankruptcy court approved the final accounting
and closed the bankruptcy proceedings on March 26, 1998.
During 1998, our management focused substantially all of its efforts on
corporate restructuring, recapitalization and acquisition efforts and an
investment in a horizontal drilling pilot program in the Cat Canyon field in
California that all were part of implementing its strategic niche growth plan.
During the latter part of 1998 and early 1999, management was primarily focused
on the acquisition of Saba, which had substantial reserves suited to
exploitation by GREKA's horizontal drilling technology, and considerable
expenses were incurred in connection with the Saba transactions in the first
quarter of 1999.
On March 22, 1999, the Company, then known as Horizontal Ventures,
Inc., changed its name to GREKA Energy Corporation. Effective March 24, 1999,
GREKA acquired Saba Petroleum Company as a wholly owned subsidiary.
Immediately subsequent to the completion of the Saba acquisition,
management commenced its strategy to reverse the decline in value of the Saba
assets which included securing bank financing of up to $47.0 million, reducing
Saba debt by $27.2 million, assuming full operation of our asphalt refinery
which significantly increased operating cash flows, selling our non-core assets
in Colombia while
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maintaining our repurchase option, acquiring all of the shares we did not
already own of Beaver Lake Resources Corporation ("Beaver Lake"), and signing a
production sharing contract with the China United Coalbed Methane Corporation
Ltd. to jointly exploit coalbed methane (CBM) resources in China. During
December 1999, GREKA commenced trading on the Nasdaq National Market System and
has reported record earnings each quarter following its acquisition of Saba.
Year 2000 Highlights
Highlights announced during 2000 include the following:
o In March 2000, we announced that our proved reserves rose 1196%
valued at $71.0 million (approximately $16.90 per share).
o In March, GREKA exercised its option to repurchase its Colombian
assets for an estimated cost of $12.0 million resulting in the
Company's receipt of assets with a PV-10 value of approximately
$65.0 million at December 31, 1999 (approximately $12.22 per share
outstanding). (See Item 3, "Legal Proceedings").
o In June 2000, GREKA closed with Canadian Imperial Bank of Commerce
the financing of up to $47.5 million. A portion of the credit
facility proceeds were paid to reduce the current debt of the
Company which resulted in the complete elimination of all Bank One
debt of Saba.
o In August 2000, GREKA announced that its daily production
increased over 22%, with an 18% increase in oil production and a
34% increase in gas production since December 1999. The Company
further highlighted the concentration of its E&P Americas segment
on increasing gas production which had risen 66% in June compared
to March, through a continuous workover program.
o In August 2000, GREKA completed the sale of its Canadian
subsidiary, Beaver Lake, resulting in the Company's disposition of
all its non-core oil and gas assets in Canada.
o In August 2000, GREKA entered into a comprehensive settlement
agreement with Capco Resources, Ltd. ("Capco") and its related
parties. As a result of the settlement GREKA repurchased and
cancelled 800,000 shares of the Company's common stock for a total
consideration of $5.2 million. We also gained voting control
through December 31, 2002 of the 490,000 shares of the Company's
common stock remaining with Capco.
o In September 2000, GREKA announced that it was ranked fourth out
of 131 companies positioned in the U.S. Oil E&P industry with a
"Strong Buy" ranking by Zacks.com Investment Research, a supplier
of financial data to Yahoo! The recommendation was based on the
conglomeration of analyst coverage that GREKA had enjoyed in 2000,
including a "Long Term Strong Buy" recommendation in August with a
target price of $17.50 from C.K. Cooper & Company and a "Buy"
recommendation in September with a 12-month target price of $24.60
from Friedman Billings & Ramsey.
o In September 2000, GREKA announced that its gas exploitation
yielded record production, as it successfully recompleted three
wells during the third quarter in its ongoing workover operation
which began earlier in 2000 on its leasehold at Potash Field,
Plaquemines Parish, Louisiana substantially increasing production
and demonstrating management's flexibility to adjust our E&P
assets to maximize production in line with dynamic changes in
market conditions.
o In November 2000, GREKA
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declared the payment of a 5% stock dividend to our shareholders of
record at close of market on December 31, 2000.
o In November 2000, GREKA completed a spot secondary public offering
of 450,000 shares of the Company's common stock at $13.75 per
share. The option to purchase an additional 67,500 shares to cover
over allotments closed in December, 2000. The underwritten
offering was lead by Friedman, Billings, Ramsey and Co., Inc. and
co-managed by Sanders Morris Harris.
Acquisition Activities
Re-Purchase of Colombian Assets
In 1999, we sold our Colombian assets subject to a look-back provision
and valuation threshold which, by our calculation, had been met as announced in
February 2000. In March 2000, we exercised our option to re-purchase the
Colombian assets valued at approximately $65.0 million (PV-10) at December 31,
1999 in exchange for payment of $12.0 million, reassignment of certain
California assets acquired from the buyer, and adjustments for related capital
expenditures. The June 2000 closing on the option was extended to July 2000 to
enable interested third parties sufficient time to approve the repurchase
transaction. The buyer refused to close in July as required. In view of our
belief that the buyer has engaged in continued breaches of the agreement, we
obtained a temporary restraining order in July 2000 and then an injunction in
August 2000 securing and protecting our rights to the assets and related cash
flow through trial. (See Item 3-"Legal Proceedings")
Divestiture Activities
Sale of Non-Core Canadian Assets
In June and July 2000, our Canadian subsidiary sold a portion of its
non-producing oil and gas assets for an aggregate contract price of $0.9
million. This was followed in August 2000 by the sale of Beaver Lake for a net
price of $0.6 million resulting in the disposition of all of our non-core oil
and gas assets in Canada.
Financing & Debt Restructuring Activities
Bank Financing
In June 2000, GREKA's subsidiary entered into a credit and guarantee
agreement with Canadian Imperial Bank of Commerce ("CIBC") and CIBC World
Markets Corp. The agreement provided that GREKA's subsidiary may borrow up to
$47.5 million. A portion of the proceeds were paid to reduce the current debt of
GREKA, which payment resulted in the complete elimination of all Bank One debt
($3.0 million) of Saba. The facility, secured by GREKA's subsidiary's interest
in certain North American oil and gas properties, specifically provided the
financing required to close GREKA's option to re-purchase the Colombian assets.
In December 2000, the facility was amended to extend the maturity date from
December 1, 2000 to February 28, 2001 and fix the maximum available amount of
the facility pending repayment.
In March 2001, GREKA's subsidiary entered into a credit and guarantee
agreement with the Bank of Texas, N.A. ("Bank of Texas"). The agreement provides
that GREKA's subsidiary may borrow up to $75 million. GREKA closed a revolving
credit line of $16 million with an initial advance of $13.2 million against the
line secured by GREKA's subsidiary's interest in certain North American oil and
gas properties. A portion of the proceeds were paid to reduce the current debt
of GREKA, which payment resulted in the complete elimination of all obligations
owed to CIBC.
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In February 2001, the credit facility secured by GREKA's subsidiaries'
interests in certain California oil and gas properties and real estate was
increased for a third time by GMAC Commercial Credit LLC ("GMAC"). The
transaction provides additional financing of up to $46 million by increasing the
principal amount of the term loan from $25 million to $36 million, and $10
million for working capital. Modifications to the terms of the credit agreement
include the extension of the credit facility to a term up to November 30, 2005.
IPH Loan
Effective January 1, 2000, two prior loans from GREKA's then affiliate,
International Publishing Holding ("IPH"), which matured December 31, 1999 in the
aggregate amount of $2 million were consolidated into one loan with a maturity
date of June 30, 2000, bearing interest at the rate of 9% per annum from January
1, 2000 payable quarterly, with monthly installment payments of $100,000. We
paid $180,000 in consideration of the loan extension. The terms of the extension
provided that if the entire unpaid principal and/or accrued interest was not
paid at maturity, the amount of principal owed and rate of interest shall
increase by $300,000 and 6%, respectively. At December 31, 2000, we owed IPH
$2,569,250 of principal and accrued interest. The loan, which matures December
31, 2002, is collateralized by all of the issued and outstanding shares of
capital stock of a subsidiary.
Debentures
On February 1, 2001, GREKA paid its 15% convertible senior subordinated
debentures in the principal amount of $1 million, and the security of GREKA's
subsidiary's interest in limestone deposits was released. There were no
conversions by debenture holders into GREKA common stock at the conversion price
of $20.00 per share.
In June 2000, GREKA exchanged $3.3 million of Saba 9% senior
subordinated convertible debentures for GREKA debentures. The GREKA debentures
are convertible to Company common stock at the option of the holders of the
debentures at any time prior to the due date of the debenture (December 31,
2005), unless previously redeemed. Upon the receipt of a duly executed notice of
election to convert the GREKA debenture, the Company will convert the debenture
to GREKA common stock based upon a per share conversion price equal to 95% of
the average closing bid price of its common stock for 30 consecutive trading
days ending one day prior to the receipt of the notice of election to convert
except that the conversion price shall in no case be less than $8.50 per share
nor greater than $12.50 per share. We also have the right to redeem the GREKA
debenture by providing 30 days written notice of our intent to redeem during
which time the debenture holder may convert his or her debenture. At December
31, 2000, $0.5 million debentures had been converted into 41,461 shares of GREKA
common stock and $0.1 million debentures had been redeemed, with a resulting
debenture balance of $2.7 million.
GREKA's Horizontal Drilling Technology
Horizontal drilling has become widely accepted as a standard option for
exploiting oil & gas resources. The principle advantage of horizontal drilling
is that it results in a substantially greater surface area for drainage, and
thus extraction of the oil from the reservoir. In industry terms this is
referred to as communicating zones of permeability. The unique method of
reentering a well and horizontal drilling patented by BP Amoco and licensed to
GREKA allows for turning while drilling, which can cause a vertical well to be
horizontal in as little as 25 feet. Thus this technology provides considerable
flexibility to the geologists and engineers in designing their well plans around
geological formation and reservoir constraints to achieve maximum performance.
Furthermore, this technique facilitates multi-laterals off an existing well
bore, which avoids costly drilling of new wells, and has considerable advantages
in shallow reservoirs where the traditional horizontal tools cannot be utilized
due to their larger radius requirements and related economics.
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Marketing
Marketing of Asphalt Refinery Production
Our asphalt refinery in Santa Maria, California produces light naphtha,
kerosene distillate, gas oils and numerous cut-back, paving and emulsion asphalt
products. Historically, we have focused marketing efforts on the asphalt
products which are sold to various users, primarily in the Central and Northern
California areas. Distillates are readily marketed to wholesale purchasers. No
one customer who, if lost, would be material to the Company's continued
operations, accounted for more than ten percent of the Company's sales of North
American refinery production during 2000.
GREKA regards the refinery as a valuable adjunct to its production of
crude oil in the Santa Maria Valley and surrounding areas. Generally, the crude
oil produced in these areas is of low gravity and makes an excellent asphalt.
Prices for asphalt exceed market prices for crude and costs of operating the
refinery. GREKA believes that as road building and repair increase in California
and surrounding western states, the market for asphalt will expand
significantly.
We market two principal products from our refinery: liquid asphalt and
light-end products (gas oil, naphtha and distillates). Liquid asphalt, which
accounted for approximately 65% of total refinery production in 2000, is
marketed primarily in California. While liquidate asphalt is principally used
for road paving and manufacturing roofing products, all of the liquid asphalt
sold by GREKA's subsidiary is used for pavement applications. Paving grade
liquid asphalt is sold
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by GREKA's subsidiary to hot mix asphalt producers, material supply companies,
contractors and government agencies.
These customers further treat the liquid asphalt which is used for road
paving. In addition to conventional paving grade asphalt, our subsidiary also
produces modified and cutback asphalt products. Modified asphalt is a blend of
recycled plastics, rubber and polymer materials with liquid asphalt, which
produces a more durable product that can withstand greater changes in
temperature. Cutback asphalt is a blend of liquid asphalt and lighter petroleum
products and is used primarily to repair asphalt road surfaces. Additionally,
some of the paving grade and modified asphalts we produce are sold as base
stocks for emulsified asphalt products that are primarily used for pavement
maintenance.
Because the chemical footprint unique to the heavy crude oil indigenous
to the Santa Maria Valley readily blends, we are particularly well positioned to
supply the asphalt specifications in accordance with the standards established
by the National Highway and Transportation Administrations Strategic Highway
Research Program (SHRP) or set by the American Association of State Highway and
Transportation Officials.
Demand for liquid paving asphalt products is primarily affected by
federal, state and local highway spending, as well as the general state of the
California economy, which drives commercial construction. Another factor is
weather, as asphalt paving projects are usually shut down in cold, wet weather
conditions. All of these demand factors are beyond our control. Government
highway spending provides a source of demand which has been relatively
unaffected by normal business cycles but is dependent on appropriations. During
2000, approximately 80% of liquid asphalt sales were ultimately funded by the
public sector as compared to approximately 70% in 1999.
Private asphalt demand rebounded slightly in 1997 and continued to
improve through 1998 and 1999 due to the improvement in the California economy.
The California economy continued to improve in 2000, fueled by growth in foreign
trade as well as growth in high technology, tourism and entertainment. This
growth in business activity resulted in increases in road construction and
repair activity in both the private and public sectors. Forecasts for California
in 2001 are mixed, as growth rates measured by growth in jobs, personal income,
consumer spending and construction are presently in flux as the economy
deteriorates. Growth in the California economy generally means well for the
Company, as increased business activity results in increased construction
activity, including increased new road construction and increased repair efforts
on existing roads in both the public and private sectors. A slowing economy
could negatively impact sales or pressure pricing.
As our asphalt refinery and principal markets are located in
California, the following discussion focuses on government highway funds
available in California.
Federal Funding
Federal funding of highway projects is accomplished through the Federal
Aid Highway Program. The Federal Aid Highway Program is a federally-assisted,
state-administered program that distributes federal funds to the states to
construct and improve urban and rural highway systems. The program is
administered by the Federal Highway Administration (FHWA), an agency of the
Department of Transportation. Nearly all federal highway funds are derived from
gasoline user taxes assessed at the pump.
In June 1998, the $217 billion federal highway bill, officially known
as the Transportation Equity Act for the 21st Century or TEA-21 was enacted. The
bill is estimated to increase transportation-related expenditures by $850
million a year in California alone over a six fiscal year period beginning
October 1, 1997. This will equate to a 51% increase over previous funding
levels. The average California apportionment over the six year period ending in
October 2003 is estimated to be $2.50 billion per year or a total of $15
billion. Of this amount, approximately $4.65 billion has been designated for
Interstate Maintenance and the National Highway System while another $4.56
billion
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has been designated for the Surface Transportation and the Congestion Mitigation
and Air Quality Improvement programs, which concentrate on state and local
roadways. However, while management of GREKA's subsidiary believes it has
benefited from and should benefit in the future from such funding increases
there can be no guarantee that it will in fact do so in the future.
State and Local Funding
In addition to federal funding for highway projects, states
individually fund transportation improvements with the proceeds of a variety of
gasoline and other taxes. In California, the California Department of
Transportation (CALTRANS) administers state expenditures for highway projects.
According to the Department of Finance for the State of California, funding
available from the State Highway Account is estimated to average $1.13 billion
per year over the next 10 years excluding the Seismic Retrofit Bond Fund. This
compares to an average of $0.36 billion over the previous ten years.
Marketing of our Oil and Gas Production
The prices obtained for oil and gas are dependent on numerous factors
beyond our control, including domestic and foreign production rates of oil and
gas, market demand and the effect of governmental regulations and incentives.
Substantially all of our North American crude oil production is sold at the
wellhead at posted prices under short term contracts, as is customary in the
industry. Other than production from the Company's Integrated Operations
Division which is transported to our refinery, no one customer who, if lost,
would be material to the Company's continued operations, accounted for more than
ten percent of the Company's sales of North American oil and gas production
during 2000.
The market for heavy crude oil produced by GREKA from its Central Coast
Fields in California differs substantially from the remaining domestic crude oil
market, due principally to GREKA's sale to the market of asphalt, naphtha and
distillates rather than hydrocarbons. GREKA's Santa Maria refinery uses
essentially all of its Central Coast Fields' crude oil, in addition to third
party crude oil, to produce asphalt, among other products. Ownership and
operation of the refinery gives us a steady and stable market for its local
crude oil which is not enjoyed by other producers.
Competition
Competition in the oil and gas business is intense, particularly with
respect to the acquisition of producing properties, proved undeveloped acreage
and leases. Major and independent oil and gas companies actively bid for
desirable oil and gas properties and for the equipment and labor required for
their operation and development. We believe that the locations of our leasehold
acreage, our exploration, drilling and production capabilities and the
experience of our management and that of our industry partners generally enable
us to compete effectively. Many of our competitors, however, have financial
resources and exploration, development and acquisition budgets that are
substantially greater than ours, and these may adversely affect GREKA's ability
to compete, particularly in regions outside of GREKA's principal producing
areas. Because of this competition, GREKA cannot assure that it will be
successful in finding and acquiring producing properties and development and
exploration prospects.
Our management believes we have an advantage over our competition due
to our acquired license from BP Amoco of the Short Radius Horizontal Drilling
technology, our level of field expertise in applying the proprietary technology
and our ability to apply these drilling techniques at a fraction of the cost
compared to conventional drilling techniques utilized by our competition.
Although BP Amoco has provided licenses to others, GREKA feels that its strategy
to apply the proprietary technology to its own oil and gas properties and to
penetrate new niche markets utilizing the proprietary technology is within an
entirely different market segment than any of the other licensees who are
concentrating on providing contract drilling services to non-owned properties
within their respective geographical area. We have not felt any competitive
pressure relative to our
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acquisition strategy focused on the unique application of our niche,
short-radius horizontal drilling technology.
Governmental Regulation
The following discussion of regulation of the oil and gas industry is
necessarily brief and is not intended to constitute a complete discussion of the
various statutes, rules, regulations or governmental orders to which operations
of GREKA and its subsidiaries may be subject.
Federal Regulation of First Sales and Transportation of Natural Gas
The sale and transportation of natural gas production from properties
owned by our subsidiaries may be subject to regulation under various federal and
state laws including, but not limited to, the Natural Gas Act and the Natural
Gas Policy Act, both of which are administered by the Federal Regulatory
Commission. The provisions of these acts and regulations are complex. Under
these acts, producers and marketers have been required to obtain certificates
from FERC to make sales, as well as obtaining abandonment approval from FERC to
discontinue sales. Additionally, first sales have been subject to maximum lawful
price regulation. However, the NGPA provided for phased-in deregulation of most
new gas production and, as a result of the enactment on July 26, 1989 of the
Natural Gas Wellhead Decontrol Act of 1989, the remaining regulations imposed by
the NGA and the NGPA with respect to "first sales" were terminated by not later
than January 1, 1993. FERC jurisdiction over transportation and sales other than
"first sales" has not been affected.
Because of current market conditions, many producers, including GREKA,
are receiving contract prices substantially below most remaining maximum lawful
prices under the NGPA. Our management believes that most of the gas to be
produced from GREKA's properties is already price-deregulated. The price at
which such gas may be sold will continue to be affected by a number of factors,
including the price of alternate fuels such as oil. At present, two factors
affecting prices are gas-to-gas competition among various gas marketers and
storage of natural gas. Moreover, the actual prices realized under GREKA's
current gas sales contracts also may be affected by the nature of the
decontrolled price provisions included therein and whether any indefinite price
escalation clauses in such contracts have been triggered by federal decontrol.
The economic impact on GREKA and gas producers generally of price
decontrol is uncertain, but it currently appears to be resulting in higher gas
prices. Currently, there is a shortage of deliverable gas in most areas of the
United States and, accordingly, it remains possible that gas prices may remain
at relatively high levels. This is in sharp contrast to even recent pricing
which has been depressed for some time since deregulation. Producers such as
GREKA or resellers may be required to reduce prices in the future in order to
assure continued sales. It is also possible that gas production from certain
properties may be shut-in altogether for lack of an available market.
Commencing in the mid-1980's, FERC promulgated several orders designed
to correct market distortions and to make gas markets more competitive by
removing the transportation barriers to market access. These orders have had a
profound influence upon natural gas markets in the United States and have, among
other things, fostered the development of a large spot market for gas. The
following is a brief description of the most significant of those orders and is
not intended to constitute a complete description of those orders or their
impact.
On April 8, 1992, FERC issued Order 636, which is intended to
restructure both the sales and transportation services provided by interstate
natural gas pipelines. The purpose of Order 636 is to improve the competitive
structure of the pipeline industry and maximize consumer benefits from the
competitive wellhead gas market. The major function of Order 636 is to assure
that the services non-pipeline companies can obtain from pipelines is comparable
to the services pipeline companies offer to their gas sales customers. One of
the key features of the Order is the "unbundling" of services that pipelines
offer their customers. This means that pipelines must offer transportation and
other services separately from the sale of gas. The Order is complex and faces
potential
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challenges in court. GREKA is not able to predict the effect the Order might
have on its business.
FERC regulates the rates and services of "natural-gas companies", which
the NGA defines as persons engaged in the transportation of gas in interstate
commerce for resale. As previously discussed, the regulation of producers under
the NGA is being gradually phased out. Interstate pipelines, however, continue
to be regulated by FERC under the NGA. Various state commissions also regulate
the rates and services of pipelines whose operations are purely intrastate in
nature, although generally sales to and transportation on behalf of other
pipelines or industrial end-users are not subject to material state regulation.
There are many legislative proposals pending in Congress and in the
legislatures of various states that, if enacted, might significantly affect the
petroleum industry. It is impossible to predict what proposals will be enacted
and what effect, if any, such proposals would have on GREKA and its
subsidiaries.
State and Local Regulation of Drilling and Production
State regulatory authorities have established rules and regulations
requiring permits for drilling, drilling bonds and reports concerning
operations. The states in which GREKA'S subsidiaries operate also have statutes
and regulations governing a number of environmental and conservation matters,
including the unitization and pooling of oil and gas properties and
establishment of maximum rates of production from oil and gas wells. A few
states also pro-rate production to the market demand for oil and gas.
Environmental Regulations
Our operations are subject to numerous laws and regulations governing
the discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations may require the acquisition
of a permit before drilling commences, prohibit drilling activities on certain
lands lying within wilderness and other protected areas and impose substantial
liabilities for pollution resulting from drilling operations. Such laws and
regulations may also restrict air or other pollution resulting from GREKA's
operations. Moreover, many commentators believe that the state and federal
environmental laws and regulations will become more stringent in the future. For
instance, proposed legislation amending the federal Resource Conservation and
Recovery Act would reclassify oil and gas production wastes as "hazardous
waste". If such legislation were to pass, it could have a significant impact on
the operating costs of GREKA, as well as the oil and gas industry in general.
State initiatives to further regulate the disposal of oil and gas wastes are
also pending in certain states, including states in which our subsidiaries have
operations, and these various initiatives could have a similar impact on GREKA.
Operational Hazards and Insurance
GREKA's subsidiaries' operations are subject to the usual hazards
incident to the drilling and production of oil and gas, such as blowouts,
cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires,
pollution, releases of toxic gas and other environmental hazards and risks.
These hazards can cause personal injury and loss of life, severe damage to and
destruction of property and equipment, pollution or environmental damage and
suspension of operations.
GREKA and its subsidiaries have up to $11 million of general liability
insurance. GREKA's insurance does not cover every potential risk associated with
the drilling, production and processing of oil and gas. In particular, coverage
is not obtainable for certain types of environmental hazards. The occurrence of
a significant adverse event, the risks of which are not fully covered by
insurance, could have a material adverse effect on GREKA's financial condition
and results of operations. Moreover, no assurance can be given that GREKA will
be able to maintain adequate insurance in the future at rates it considers
reasonable.
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Employees
As of April 4, 2001, GREKA and its subsidiaries had 108 full-time
employees. None of GREKA's employees is subject to a collective bargaining
agreement. GREKA considers its relations with its employees to be satisfactory.
Shareholders Rights Plan
We have a shareholder rights plan in order to preserve the long-term
value of the Company for GREKA's shareholders. Under the shareholder rights
plan, one right will be distributed for each outstanding share of GREKA common
stock. Each right will entitle the holder to buy one share of GREKA common stock
for an initial exercise price of $60.00 per share. The rights will initially
trade with common shares and will not be exercisable unless certain takeover
events occur. The plan generally provides that if a person or group acquires or
announces a tender offer for the acquisition of 12% (amended from 33% by
approval of GREKA's Board of Directors in December 2000) or more of GREKA common
stock without approval of the Board of Directors, the rights will become
exercisable and the holders of the rights, other than the acquiring person or
group, will be entitled to purchase shares of GREKA common stock (or under
certain circumstances stock of the acquiring entity) for 50% of its current
market price. The rights may be redeemed by GREKA for a redemption price of $.01
per right.
Retirement Plan
The Company sponsors a defined contribution retirement savings plan
(401(k) Plan) to assist all eligible U.S. employees in providing for retirement
or other future financial needs. We currently provide matching contributions
equal to 50% of each employee's contribution, subject to a maximum of 8% of
their eligible contribution.
Net Profit Sharing Plan
The Company has a net profit sharing plan ("NPSP") for employees that
fulfill certain qualification requirements. The NPSP provides for an equal
disbursement of 10% of the Company's pretax net income, excluding extraordinary
gains. Such disbursement is planned to follow the filing of the annual audited
financial statements of the Company. The NPSP could be suspended at the
discretion of our Board of Directors for any specific year.
Item 2. Description of Property
The following description of the GREKA properties at December 31, 2000
include all discussions of prior operations of all of GREKA's properties and
those of its wholly owned subsidiaries.
GREKA's Properties as of December 31, 2000
GREKA owned interests in approximately 704 wells at December 31, 2000.
The majority of these wells are concentrated along the central coast of
California and Louisiana. California (heavy oil) and Louisiana (gas) are the
primary and focused areas of exploitation and development activities. At
December 31, 2000, GREKA also operated wells and had exploitation and
development activities in other regions of California and in several states
outside of California and Louisiana, principally New Mexico and Texas. GREKA's
evaluation of international exploration and exploitation projects are in
Indonesia and China. The Company continuously evaluates the profitability of its
oil, gas and related activities and, as part of its strategic business plan,
intends to divest unprofitable leases or areas of operations that are not
consistent with its business strategy.
Exploitation and Development Activities
The following is a brief discussion of significant developments in the
Company's recent exploitation and development activities through its wholly
owned subsidiaries:
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United States
California (Integrated)
Approximately 39.2% of GREKA's proved reserves at December 31, 2000
(6.1 MMBOE) were located in four onshore fields in California's central coast
region. Daily production from the Central Coast Fields averaged 1,376 BOE for
the year ended December 31, 2000, representing 46% of GREKA's total production.
GREKA operates all of its wells in the Central Coast Fields.
California (E&P)
GREKA also holds interests in other California areas, which represented
24.7% (3.9 MMBOE) of GREKA's proved reserves at December 31, 2000. GREKA's share
of daily production from these other interests averaged 679 BOE (1,083 BOE
gross) for the year ended December 31, 2000, representing 23% of GREKA's total
production.
Louisiana
Approximately 29.2% of GREKA's proved reserves at December 31, 2000
(4.6 MMBOE) were located in two fields in Louisiana. GREKA's share of daily
production from the Louisiana fields averaged 693 BOE (848 BOE gross) for the
year ended December 31, 2000, representing 23% of the Company's total
production.
Other States
In addition to our California and Louisiana properties, GREKA owns
producing properties in a number of other states, but primarily New Mexico and
Texas, which collectively represented 7% of GREKA's proved reserves at December
31, 2000 (1.1 MMBOE). GREKA's share of daily production from these properties
averaged 219 BOE (400 BOE gross) for the year ended December 31, 2000,
representing 8% of GREKA's total production.
GREKA seeks to acquire domestic and international producing properties
where it can significantly increase reserves through development or exploitation
activities and control costs by serving as operator. GREKA believes that its
substantial experience and established relationships in the oil and gas industry
enable it to identify, evaluate and acquire high potential properties on
favorable terms. As the market for acquisitions has become more competitive in
recent years, GREKA has taken the initiative in creating acquisition
opportunities, particularly with respect to adjacent properties, by directly
soliciting fee owners, as well as working and royalty interest holders, who have
not placed their properties on the market.
GREKA's 2001 capital expenditure budget for properties is dependent
upon the price for which its products are sold and upon the ability of GREKA to
obtain external financing. Subject to these variables and based on the current
asset base, we expect our cash flow and credit facilities to fund approximately
$30.0 million in 2001 for capital expenditures. The budget has been allocated to
our three business segments: $14.0 million for the E&P Americas Division, $12.0
million for the Integrated Operations Division, and $4.0 million for the E&P
International Division.
In the E&P Americans Division, $12.6 million of the $14.0 million is
allocated to increasing oil and gas production in the Louisiana assets. The
budget includes drilling five new wells in Louisiana and two new wells in New
Mexico, in addition to the continuous workover program, providing an opportunity
to substantially enhance production. The Integrated Operations Division budget
of $12.0 million allocates approximately 60% to workovers and the redrill
program, utilizing the Company's proprietary horizontal drilling technology and
providing an opportunity to double the equity oil and gas production. Twenty
percent of the budget is targeted to increase natural gas production, such as
new gas treatment facilities. The enhanced gas production planned should
maintain the Division's self-sufficiency and operational hedge resulting from
vertical integration. The E&P International Division's $4.0 million budget is an
investment in the long-term
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growth of the Company. Ninety-percent of the budget is allocated to the
exploitation and development of the Company's 381,000 Coalbed Methane (CBM)
acres in China. The plan includes drilling five new wells in a pilot program to
confirm anticipated production levels. Upon successful completion of the pilot
program, the Company intends to develop and implement the appropriate plan to
exploit the additional acreage.
Exploration Activities
GREKA further plans to expand its existing reserve base by developing
high potential exploration prospects in known productive regions. GREKA believes
these activities complement its traditional development and exploitation
activities. In pursuing these exploration opportunities, GREKA may use advanced
technologies, including 3-D seismic and satellite imaging. In addition, GREKA
may seek to limit its direct financial exposure in exploration projects by
entering into strategic partnerships that shift the drilling related financial
risks to partners while providing the Company with an upside upon a successful
event. At December 31, 2000, GREKA had exploration plays in three primary areas:
California, Indonesia and China.
The following is a brief discussion of significant developments in the
Company's recent exploration activities through its wholly owned subsidiaries:
California
Coalinga Nose Exploration Prospect, Fresno County, California. GREKA
has leases and contractual rights covering approximately 9,000 acres of land in
the region of the prolific Coalinga oil field in the San Joaquin Valley of
California. GREKA has participated in a 16 square mile 3-D seismic survey
covering this area and has interpreted the survey. Nineteen anomalies have been
identified in the prospect area, covering five potentially productive zones,
ranging in depth from 6,500 to 12,000 feet. GREKA has a 90% working interest
below and 9% working interest above the Gatchell formation in the Leda Prospect,
Pleasant Valley, and Cotton Gin Prospects. GREKA retains an 85% interest in the
balance of the shallow rights constituting this prospect. Of this interest and
with respect to the Creataceous Brown Mountain 13,000 foot test only, GREKA has
farmed out 75% of its interest in the eastern half. After drilling the initial
test well and subject to certain terms and conditions, framee earns an option to
participate in and earn a 50% interest in the western half of this block.
Indonesia
West Java Exploration Prospect, Jakarta, Indonesia. GREKA is a party to
a production sharing contract, along with Pertamina, the Indonesian state-owned
oil company, covering 1.275 million unexplored acres on the Island of Java near
a number of producing oil and gas fields. The 30-year contract provides that oil
and gas in commercial quantities must be discovered prior to September 2003. A
portion of the block has been distinctly identified as the Jonggol area
consisting of 500,000 acres. The Jonggol area has two prospects and eleven leads
with a well scheduled to be drilled in 2001. The Company, which has a 75%
interest in the block, is currently looking for a joint venture partner to
participate in the drilling of the Jonggol well or to plans to farmout its
interest in this property. Management plans to develop the remainder of the
block with additional seismic.
China
Fengcheng Coalbed Methane Exploration Prospect, Jiangxi, China. GREKA
is a party to a production sharing contract with the China United Coalbed
Methane Corporation Ltd., which contract has been approved by the Chinese
Ministry of Foreign Trade and Economic Cooperation, to jointly exploit coalbed
methane resources in Fengcheng, East China's Jiangxi Province. The contract
block in which GREKA has a 49% working interest covers a total area of 380,534
acres. The 30-year contract provides that GREKA as operator will drill at least
ten coalbed methane wells over a three year term. Two production test wells have
been drilled and were both successful. The Company intends to drill five wells
in 2001 to prove reserves this year and to thereafter formulate detailed
development plans.
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Oil and Gas Producing Properties
At December 31, 2000, we owned and operated domestic producing
properties in 8 states, with our U.S. proved reserves located primarily in two
core areas: California and Louisiana which represent approximately 63.9% and
29.2%, respectively, of our proved reserves (BOE).
The following table summarizes GREKA's estimated proved oil and gas
reserves by geographic area as of December 31, 2000. The following table
includes both proved developed (producing and non-producing) and proved
undeveloped reserves. Approximately 35% of the total reserves reflected in the
following table are proved undeveloped. There can be no assurance that the
timing of drilling, reworking and other operations, volumes, prices and costs
employed by the independent petroleum engineers will prove accurate. Since
December 31, 2000, oil and gas prices have generally decreased. At such date,
the price of WTI crude oil as quoted on the New York Mercantile Exchange was
$28.40 per Bbl and the comparable price for April 4, 2001 was $27.12. Quotations
for the comparable periods for natural gas were $9.52 per Mcf and $5.18 per Mcf,
respectively. The proved developed and proved undeveloped oil and gas reserve
figures are estimates based on reserve reports prepared by GREKA's independent
petroleum engineers. The estimation of reserves requires substantial judgment on
the part of the petroleum engineers, resulting in imprecise determinations,
particularly with respect to new discoveries. Estimates of reserves and of
future net revenues prepared by different petroleum engineers may vary
substantially, depending, in part, on the assumptions made, and may be subject
to material adjustment. Estimates of proved undeveloped reserves comprise a
substantial portion of GREKA's reserves and, by definition, had not been
developed at the time of the engineering estimate. The accuracy of any reserve
estimate depends on the quality of available data as well as engineering and
geological interpretation and judgment. Results of drilling, testing and
production or price changes subsequent to the date of the estimate may result in
changes to such estimates. The estimates of future net revenues in this report
reflect oil and gas prices and production costs as of the date of estimation,
without escalation, except where changes in prices were fixed under existing
contracts. There can be no assurance that such prices will be realized or that
the estimated production volumes will be produced during the periods specified
in such reports. The estimated reserves and future net revenues may be subject
to material downward or upward revision based upon production history, results
of future development, prevailing oil and gas prices and other factors. A
material decrease in estimated reserves or future net revenues could have a
material adverse effect on GREKA and its operations.
December 31, 2000
Proved Reserves, net PV-10 Value
Gross Oil Gas
Property Wells (MBbls) (MMcf) MBOE Dollar Value %
-------- ------- ------- ------- ------- ------------ -------
(In thousands)
California:
Integrated Ops.. 328 5,638 2,769 6,142 $ 37,546 22.9%
E&P ............ 136 3,687 964 3,862 $ 26,623 16.2%
Total
California .... 464 9,325 3,734 10,004 $ 64,169 39.2%
Louisiana ........ 28 2,000 14,140 4,571 $ 86,966 53.1%
Other United
States........ 212 687 2,201 1,087 $ 12,742 7.8%
Total United
States ........ 704 12,012 20,075 15,662 $163,877 100.0%
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The following is a brief discussion of our oil and gas operations in
our major fields:
California
Central Coast Fields. GREKA's subsidiary operates four fields in the
Central Coast area of California. These fields provide equity crude oil for
GREKA's wholly owned asphalt refinery. The fields are Cat Canyon, Casmalia, Gato
Ridge and Santa Maria Valley which collectively have an average working interest
of 100% in 101 active wells producing 1376 BOEPD. These fields represent 39.2%
of GREKA's total proved reserves.
We have established a horizontal drilling program by re-entering
existing idle wellbores and drilling short radius laterals utilizing proprietary
technology patented from BP Amoco. The reduced cost for re-entries ($125,000 per
well) should contribute to a higher economic success rate and additional
economic reserves. Earlier drilling has delineated the S1b Sisquac Sand in the
Cat Canyon Field and S2 Sisquac Sand in the Gato Ridge Field as those formations
with the highest opportunities for success. Management plans to drill eleven
horizontal re-entries during 2001 primarily to exploit these two reservoirs plus
explore the Monterey Zone.
Richfield East Dome Unit. The Richfield East Dome Unit is a mature
waterflood in Orange County, California, operated by GREKA's subsidiary and
producing 735 BOPD. The field has proved net reserves of 2.7 MMBO valued at
PV-10 $13.4 million or 8.2% of the Company's total reserve value. Waterflood
operations were initiated in 1974 by Texaco. Field facilities are in
sufficiently satisfactory condition to service the waterflood operation through
the 30 years remaining in the life of the field.
North Belridge Field. The North Belridge Field is located in Kern
County, California. GREKA's subsidiary is the operator and owns 100% working
interest in 42 wells on three leases covering 270 contiguous acres. The wells
produce from two formations-- light oil from the Diatomite zone and heavy oil
from the Tulare formation. Current production is about 348 BOEPD, net proved
reserves are 1.1 MMBOE valued at PV-10 $10.2 million. (See Item 3-"Legal
Proceedings")
Louisiana
Potash Dome Field. The Potash Dome Field is located in Plaquemines
Parish south of New Orleans, Louisiana, overlying a salt dome. The wells on the
west side of the field are land based while the wells on the east side produce
from single well structures located in shallow inland water. GREKA's subsidiary
operates the 3000 acre field and has 100% working interest in 23 wells. Proved
net reserves in the field are 2.0 MMBO and 14.1 BCFG valued at PV-10 $86.9
million. There exists substantial drilling opportunities in the field with net
proved undeveloped reserves of 1.2 MMBO and 9.1 BCFG in seven drilling locations
as determined by Netherland, Sewell & Associates, Inc., GREKA's independent
petroleum engineers. In January 2001, GREKA announced the completion of the
Orleans Levee Board Well #77, which tested 2.5 MCFGPD of dry gas at a flowing
tubing pressure of 2,350 pounds per square inch gauge. Currently, this well is
producing 300 BOPD and 800 MCFGPD at a flowing pressure of 1,300 pounds per
square inch gauge. The well was completed in the Miocene "8B" Zone with
perforations from 7,796 feet to 7,828 feet, leaving the Miocene "8A" Zone at
7,728 feet and the Miocene "7E" Zone at 7,496 feet available uphole for future
recompletions. Additionally GREKA believes there is substantial opportunity to
add gas reserves in a deeper zone called the Tex "W" which is owned 50% by
GREKA's subsidiary and 50% by Exxon-Mobil. To minimize the cost of testing the
deeper zones management expects to deepen at least one of the wells required to
develop the proved locations a maximum 1000' below the zone which has proved
reserves.
Manila Village Field. The Manila Village is located in Jefferson
Parish, south Louisiana. The field is operated by GREKA's subsidiary and
produces 236 BOPD (80 BOPD net) from five wells all located on single well
structures in shallow inland water. Proved developed reserves are 3.7 MBO net to
GREKA's subsidiary.
Other United States
Southwest Tatum Field. The Southwest Tatum Field operated by GREKA's
subsidiary is located in Lea County, New Mexico. This field was discovered in
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1996 through the use of 3-D seismic. There are four different productive
horizons in the field, Devonian, Canyon, Cisco, and Wolfcamp. The emphasis is
currently focused on the Company's plan to drill an additional extension well in
2001 to enhance recovery. Remaining drilling locations are under study. There
are net proved developed reserves of 173 MBO and 136 MMCFG in the field as of
December 31, 2000.
San Simon Field. The San Simon Field is located in Lea County, New
Mexico. GREKA's subsidiary operates one oil well and three gas wells. The oil
well is the only producer in the field completed in the Wolfcamp formation. It
currently flows oil at 86 BOPD with 132 MCFGPD (110 BOEPD). The well has
estimated remaining gross reserves of 353 MBO (146 MBO net) and 282 MMCFG (117
MMCFG net) with net PV-10 value of $2.6 million. The Company plans to drill a
second Wolfcamp well in 2001. GREKA's independent reservoir engineers have
assigned a proved undeveloped drilling location in the Wolfcamp which is valued
at net PV-10 $0.9 million.
Oil and Gas Reserves
Our proved reserves and the estimated present value of future revenues
from proved developed and undeveloped oil and gas properties in this document
have been estimated by our independent petroleum engineers. In 1998, 1999 and
2000, Netherland, Sewell & Associates, Inc. prepared reports on GREKA's reserves
in the United States. The estimates of these independent petroleum engineers
were based upon review of production histories and other geological, economic,
ownership and engineering data provided by GREKA. In accordance with the SEC's
guidelines, GREKA's estimates of future net revenues from GREKA's proved
reserves and the present value thereof are made using oil and gas sales prices
in effect as of the dates of such estimates and are held constant throughout the
life of the properties, except where such guidelines permit alternate treatment,
including, in the case of gas contracts, the use of fixed and determinable
contractual price escalation. Future net revenues at December 31, 2000 reflect
weighted average prices of $26.93 per BOE compared to $17.90 per BOE and $8.81
per BOE as of December 31, 1999 and 1998, respectively.
The following tables present total estimated proved developed
producing, proved developed non-producing and proved undeveloped reserve volumes
as of December 31, 1998, 1999 and 2000 and the estimated present value of future
net revenues ("PV-10") (based on current prices and costs at the respective
year's end, using a discount factor of 10 percent per annum). As used herein,
the term "proved undeveloped reserves" are those which can be expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir. There can be no assurance that these estimates are accurate
predictions of reserves or of future net revenues from oil and gas reserves or
their present value. As indicated elsewhere, the prices received for oil and gas
have generally decreased since the preparation of the 2000 year end engineering
estimates.
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Estimated Proved Oil and Gas Reserves
At December 31,
------------------------------------
1998(1) 1999(1) 2000(1)
-------- -------- --------
Net oil reserves (MBbl)
Proved developed producing ............ 921 6,469 7,060
Proved developed non-producing ........ 449 825 1,309
Proved undeveloped .................... 703 3,237 3,644
-------- -------- --------
Total proved oil reserves (MBbl) ..... 2,072 10,532 12,012
======== ======== ========
Net natural gas reserves (MMcf)
Proved developed producing ............ 955 3,364 5,184
Proved developed non-producing ........ 1,760 5,398 4,758
Proved undeveloped .................... 2,417 8,836 10,133
-------- -------- --------
Total proved natural gas
reserves (MMcf) .................... 5,132 17,598 20,075
======== ======== ========
Total proved reserves (MBOE) ............. 3,006 13,732 15,662
- ----------
(1) Does not include reserve volumes attributable to the Company's interest in
Colombian assets sold in June 1999 or Canadian assets sold in July and August
1999 and June, July and August 2000 (see generally Item 1-"Description of
Business, Divestiture Activities").
Estimates of proved reserves may vary from year to year reflecting
changes in the price of oil and gas and results of drilling activities during
the intervening period. Reserves previously classified as proved undeveloped may
be completely removed from the proved reserves classification in a subsequent
year as a consequence of negative results from additional drilling or product
price declines which make such undeveloped reserves non-economic to develop.
Conversely, successful development and/or increases in product prices may result
in additions to proved undeveloped reserves.
Estimated Present Value of
Future Net Revenue
(In thousands)
At December 31,
------------------------------------------
1998(1) 1999(1) 2000(1)
---------- ---------- ----------
PV-10 Value
Proved developed producing ........ $ 2,301 $ 39,689 $ 67,080
Proved developed non-producing .... 1,629 8,977 37,160
Proved undeveloped ................ 1,169 18,487 59,637
---------- ---------- ----------
Total .......................... $ 5,100 $ 67,153 $ 163,877
========== ========== ==========
- ----------
(1) Does not include reserve volumes attributable to the Company's interest in
Colombian assets sold in June 1999 or Canadian assets sold in July and August
1999 and June, July and August 2000 (see generally Item 1-"Description of
Business, Divestiture Activities").
As used herein, the terms "proved oil and gas reserves," "proved
developed oil and gas reserves," and "proved undeveloped reserves" have the
meanings defined by the SEC as set forth in the Table of Contents to this
document. Reservoir engineering is a subjective process of estimating the sizes
of underground accumulations of oil and gas that cannot be measured in an exact
way. The accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Reserve reports of other engineers might differ from the reports contained
herein. Results of drilling, testing and production subsequent to the date of
the estimate may justify revision of such estimate. Future prices received for
the sale of oil and gas may be different from those used in preparing these
reports. The amounts and timing of future operating and development costs may
also differ from those used.
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Accordingly, reserve estimates are often different from the quantities of oil
and gas that are ultimately recovered.
The following table summarizes sales volume, sales price and production
cost information for GREKA's net oil and gas production for each of the years in
the three-year period ended December 31, 2000.
Year Ended December 31,
------------------------------------
1998(1) 1999(1) 2000(1)
-------- -------- --------
Production Data:
Oil (MBbls) ............. 13 528 770
Gas (MMcf) .............. -- 862 1,807
Total (MBOE) .......... 13 685 1,099
Average Sales
Price Data
(Per Unit):
BOE ..................... $ 6 $ 14.65 $ 22.14
Selected Data
per BOE:
Production costs(2) ..... $ 9 $ 6.27 $ 6.49
General and
administrative ........ $ 119 $ 3.42 $ 5.79
Depletion,
depreciation and
amortization .......... $ 26 $ 2.90 $ 2.90
- ----------
(1) Does not include reserve volumes attributable to the Company's interest in
Colombian assets sold in June 1999 or Canadian assets sold in July and August
1999 and June, July and August 2000 (see generally Item 1-"Description of
Business, Divestiture Activities").
(2) Production costs include production taxes.
Drilling Activity
With respect to GREKA's participation in the drilling of exploratory
and development wells (excluding information attributable to the Company's
interest in Colombian or Canadian assets (see Item 1-"Description of Business,
Divestiture Activities")) for each of the three years in the three year period
ended December 31, 2000, there has been no drilling activity except as set forth
in the following table:
Year Ended December 31,
------------------------------------------------
1998 1999 2000
--------------- -------------- --------------
Gross(1) Net(2) Gross(1) Net(2) Gross(1) Net(2)
-------- ------ -------- ------ -------- ------
United States:
Development Wells
Oil 3 2.3 -- -- 5 5
Gas -- -- -- -- -- --
Dry (3) -- -- -- -- 1 1
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- ----------
(1) A gross well is a well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is
owned.
(2) A net well is deemed to exist when the sum of fractional ownership working
interest in gross wells equals one. The number of net wells is the sum of
fractional working interests owned in gross wells expressed as whole
numbers and fractions thereof.
(3) A dry hole is an exploratory or development well that is not a producing
well.
Productive Oil and Gas Wells
The following table sets forth information at December 31, 2000,
relating to the number of productive oil and gas wells (producing wells and
wells capable of production, including wells that are shut in) in which GREKA
through its subsidiaries owned a working interest:
Oil Gas Total
Gross Net Gross Net Gross Net
----- ----- ----- ------ ------ -----
United States 625 487 80 41 705 528
===== ===== ===== ====== ====== =====
Oil and Gas Acreage
The following table sets forth certain information at December 31, 2000
relating to oil and gas acreage in which GREKA through its subsidiaries owned a
working interest:
Developed(1) Undeveloped
------------------------- -------------------
Gross Net Gross Net
United States 21,070 16,180 11,201 8,025
======== ======= ======= =======
(1) Developed acreage is acreage assigned to productive wells.
Title to Properties
Many of GREKA's subsidiaries' oil and gas properties are held in the
form of mineral leases, licenses, reservations, concession agreements and
similar agreements. In general, these agreements do not convey a fee simple
title to GREKA, but rather, depending upon the jurisdiction in which the
apposite property is situated, create lesser interests, varying from a profit a
prendre to a determinable interest in the minerals. In some jurisdictions,
notably non-U.S. jurisdictions, GREKA's subsidiaries' interest is only a
contractual relationship and bestows no interest in the oil or gas in place. As
is customary in the oil and gas industry, a preliminary investigation of title
is made at the time of acquisition of undeveloped properties. Title
investigations are generally completed, however, before commencement of drilling
operations or the acquisition of producing properties. GREKA believes that its
methods of investigating title to, and acquisition of, its oil and gas
properties are consistent with practices customary in the industry and that it
has generally satisfactory title to the leases covering its proved reserves.
Because most of GREKA's oil and gas leases require continuous production beyond
the primary term, it is always possible that a cessation of producing or
operating activities could result
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in the loss of a lease. Assignments of interest to and/or from GREKA'S
subsidiaries may not be publicly recorded.
From time to time, substantially all of GREKA's properties, including
its stock in its subsidiaries, are hypothecated to secure GREKA's current and
future indebtedness. GREKA's subsidiaries' working interest in properties may be
subject to lienholders by non-payment. In the event of GREKA's non-payment or
untimely payment of its obligations, GREKA expects liens to be filed against its
assets and to be subject to lawsuits. Oil and gas leases in which GREKA'S
subsidiaries have an interest may be deficient, require ratifications and be
subject to action by GREKA subsidiaries.
Average Sales Price and Production Cost
The following table sets forth information concerning average per unit
sales price and production cost for GREKA's oil and gas production for the
periods indicated:
Year Ended December 31,
------------------------------
1998 1999 2000
-------- -------- --------
Average sales price per BOE:
Integrated Ops .................... $ 6 $ 10.82 $ 18.63
E&P Americas ...................... -- 17.14 25.27
Combined .......................... 6 13.86 22.14
Average production cost per BOE:
Integrated Ops .................... $ 9 $ 8.74 $ 5.91
E&P Americas ...................... -- 5.80 6.78
Combined .......................... 9 7.47 6.37
Asphalt Refinery
GREKA owns an asphalt refinery in Santa Barbara County, California
through a wholly owned subsidiary. The refinery is a fully self-contained plant
with steam generation, mechanical shops, control rooms, office, laboratory,
emulsion plant and related facilities, and is staffed with a total of 19
operating, maintenance, laboratory and administrative personnel.
Real Estate Activities
GREKA'S subsidiaries from time to time purchased real estate in
conjunction with their acquisition of oil and gas and refining properties in
California and plan to continue this practice. At December 31, 2000, the Company
owned through its subsidiaries approximately 2,500 acres in Santa Barbara
County, California and approximately 6 acres in Orange County, California. GREKA
has used a portion of its real estate holdings for agricultural purposes. GREKA
plans to retain some of these real estate holdings for asset appreciation which
may include developmental activities at a future date.
Limestone Properties
Indiana - Monroe Field. GREKA has a security interest in a non-core,
355 acre limestone property located in Monroe County, Indiana. The limestone
deposits are made up of Salem limestone, which produces a high industrial grade
calcium oxide or calcium carbonate used in scrubbing machinery that cleans the
gaseous emissions from coal burning generators.
In 1999, GREKA sold its interest in the limestone property in exchange
for a $5.7 million non-recourse promissory note, secured by the limestone
property. The buyer defaulted on the note, and the parties are in litigation to
adjudicate all claims. (See Item 3-"Legal Proceedings")
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Offices
GREKA leases approximately 1,000 square feet of office space at 630
Fifth Avenue, Suite 1501, New York, New York, for its executive offices through
September 30, 2004. GREKA's offices are located in Santa Maria, California;
Houston, Texas; Beijing, China; Jakarta, Indonesia; and Bogota, Colombia.
Item 3. Legal Proceedings
Pembrooke Calox, Inc. v. GREKA Energy Corporation, et al. (Index No.
604905/99, Supreme Court, New York County, October 1999). Pembrooke Calox, Inc.
("Pembrooke") brought an action against GREKA and others seeking damages of
approximately $5 million for an alleged breach of a settlement agreement and
related contracts pursuant to which Pembrooke was to receive GREKA's interest in
a limestone reserve located in Indiana in exchange for payment on a $5.7 million
non-recourse promissory note. Pembrooke has not paid any funds to the Company.
Pembrooke alleges that it was unable to make such payment because of GREKA's
purported failure to provide certain geological documents concerning mineral
reserves located under the property. GREKA has filed fraud-based counterclaims,
and the parties have agreed that title to the property is to continue being held
in escrow pending adjudication of all claims. While GREKA plans to vigorously
defend all claims asserted by Pembrooke and seek all counter-relief, the
litigation is in its discovery stage.
RGC International Investors, LDC v. GREKA Energy Corporation, et al.
(C.A. No. 17674NC, Delaware Chancery Court, December 1999). RGC International
Investors, LDC ("RGC") brought suit against GREKA, Saba and the former directors
of Saba based on claims arising from GREKA's acquisition of Saba on March 24,
1999. RGC sought, among other things, rescission of the merger and an
unspecified amount of damages for GREKA's alleged failure adequately to provide
for RGC's rights as a Saba preferred shareholder in consummating that merger. In
November 2000, the court granted GREKA's motion to dismiss those aspects of
RGC's complaint that rely directly upon RGC's prior rights as an old Saba
preferred shareholder, determining that RGC relinquished those rights in
exchange for a note as contemplated in a term sheet with GREKA. This resulted in
the court's dismissal of eight of the nine counts asserted by RGC, effectively
dismissing from this litigation the former directors of Saba. RGC subsequently
filed an amended complaint to state certain equitable and other causes of action
against GREKA and Saba arising from such term sheet and the note contemplated
therein. GREKA filed counter-claims which were substantially dismissed in March
2001. GREKA plans to vigorously defend all claims asserted by RGC. The trial is
scheduled to commence during April, 2001.
Sabacol, Inc. v. Omimex Resources, Inc., Omimex de Colombia, Ltd., and
Omimex International Corporation dba Omimex Petroleum, Inc. (C.A. No. BC224339,
California Superior Court, Los Angeles County, February 2000). GREKA's
subsidiary filed an action against Omimex Resources, Inc. and its subsidiaries
seeking a judgment declaring the Company's right to rescind the June 1999 sale
agreement by which the Company would own the Colombian assets as of January 1,
1999 or, alternatively, an order directing specific performance of the agreement
by Omimex which includes reassignment of the Colombian assets to the Company.
The Company's subsidiary alleges claims for breach of contract, breach of
covenant of good faith and fair dealing, negligent misrepresentation and
fraudulent inducement and seeks damages. Omimex alleges counter-claims of breach
of contract and seeks declaratory judgment. The parties were working toward
closing on the Company's re-purchase of the Colombian assets, which closing was
extended to July 2000. Omimex refused to close as proposed by the Company, and
in August 2000, after the court's finding of a likelihood that the Company will
prevail on the merits of its claims for Omimex's breach of the agreement and
breach of the implied covenant of good faith and fair dealing, the Company was
granted a temporary restraining order and then an injunction securing and
protecting GREKA's rights to the assets and related cash flow through trial.
While the subsidiary plans to vigorously pursue all claims against Omimex and
defend all counter-allegations, the litigation is in its preliminary discovery
stages.
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Pond v. GREKA Energy Corporation, et al. (Case No. 1007775, Superior
Court of the State of California, County of Santa Barbara, Santa Maria Branch,
May 2000). Eddie and Jeanne Pond have brought an action against GREKA, Unocal
Corporation and others seeking damages of an unspecified amount based on claims
arising from defendants' alleged contamination of the surface property owned by
the Ponds. As a result of discovery, the parties have engaged in settlement
negotiations and, based on those negotiations, it has become clear that this
matter may no longer be deemed material and no further disclosure will be made
with respect to this matter.
From time to time, the Company and its subsidiaries are a named party
in legal proceedings arising in the ordinary course of business. While the
outcome of such proceedings cannot be predicted with certainty, management does
not expect these matters to have a material adverse effect on the Company's
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on December 4, 2000, the
following individuals were elected to the Board of Directors to serve for a
3-year term ending 2003 as Class B directors:
Votes For Votes Withheld
--------- --------------
George G. Andrews 3,014,997 35,784
Dr. Jan F. Holtrop 3,018,890 32,468
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Our common stock is listed for trading on the Nasdaq National Market
under the symbol "GRKA". Prior to March 25, 1999, the trading symbol was "HVNV".
Except for a period from August to December of 1997, GREKA's common stock has
been quoted on NASDAQ since February 19, 1993. The following table sets forth,
for the periods indicated, the high and low closing bid quotations per share of
GREKA common stock as reported on the Nasdaq National Market. Our common stock
quotations represent inter-dealer quotations, without retail markup, markdown or
commissions, and may not represent actual transactions. There can be no
assurance that a public market for GREKA's common stock will be sustained in the
future.
Bid
Low High
Quarter Ended
March 31, 1999 4.875 10.500
June 30, 1999 6.375 9.125
September 30, 1999 7.000 13.500
December 31, 1999 7.500 12.000
March 31, 2000 8.563 9.500
June 30, 2000 8.625 8.813
September 30, 2000 14.375 15.688
December 31, 2000 12.750 13.438
On April 4, 2001 there were approximately 884 registered holders of
GREKA's common stock. Based on a broker count, GREKA believes at least an
additional 3,463 persons are shareholders with street name positions.
Holders of GREKA common stock are entitled to receive such dividends as
may be declared by the GREKA board of directors. GREKA has not yet paid any cash
dividends, and the board of directors of GREKA presently intends to pursue a
policy of retaining earnings for use in GREKA's operations and to finance
expansion of its business. In January 2001, GREKA issued a 5% stock dividend to
its shareholders of record at close of market on December 31, 2000 increasing
the total number of shares outstanding at December 31, 2000 of 4,307,879 by
218,188. The
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28
declaration and payment of dividends in the future, of which there can be no
assurance, will be determined by our board of directors in light of conditions
then existing, including our earnings, financial condition, capital requirements
and other factors.
In January 2000, we appointed The Bank of New York at 101 Barclay
Street, Fl 12-W, New York, New York 10286 as the Company's registrar and
transfer agent for its common and preferred stock.
In October 2000, we repurchased 800,000 shares of our common stock from
Capco and canceled such shares so that they became authorized but unissued
shares of common stock.
In November and December of 2000, we completed the sale of 450,000 and
67,500 shares of our no par value common stock, respectively, in accordance with
an underwriting agreement with Friedman Billings & Ramsey for $13.75 per share.
The original offering of 450,000 shares closed on November 27, 2000 followed by
the underwriters over allotment option which was exercised by the underwriter on
December 27, 2000 resulting in total net proceeds of approximately $6,380,000 to
the Company. This offering was made pursuant to a shelf registration statement
originally filed during September of 2000. As of the date of this report on Form
10-K, 3,482,500 shares remain "on the shelf" for possible future transactions as
described in the Company's registration statement (File No. 333-45352).
Item 6. Selected Financial Data.
The following table sets forth selected consolidated financial data for
the Company as of the dates and for the periods indicated. The financial data
for each of the five years ended December 31, 2000, were derived from the
Consolidated Financial Statements of the Company. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which includes a discussion of factors
materially affecting the comparability of the information presented, and in
conjunction with the Company's financial statements included elsewhere in this
report.
Years Ended December 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands, except per share data)
Income Statement Data:
Sales .............................................. $ 49,067 $ 29,138 $ 146 $ 212 $ 604
Production and Product Costs ....................... $ 25,200 $ 17,821 $ 121 $ 248 $ 367
General and administrative ......................... $ 6,699 $ 3,205 $ 1,542 $ 756 $ 575
Depletion, depreciation &
amortization ..................................... $ 3,592 $ 3,024 $ 333 $ 24 $ 19
Other operating expenses ........................... $ 2,377 $ -- $ -- $ -- $ --
Interest Expense ................................... $ 4,535 $ 1,860 $ 32 $ 25 $ 35
Other Income(Expense) Net .......................... $ (991) $ (1,696) $ (526) $ (34) $ 15
Minority Interest .................................. $ -- $ 20 $ -- $ -- $ --
Income tax (expense) benefit ....................... $ (362) $ (46) $ -- $ -- $ --
Equity in Earnings/Loss of Saba
(pre-acquisition) ................................ $ -- $ 569 $ 586 $ -- $ --
Cumulative effect of change in accounting .......... $ 853 $ -- $ -- $ -- $ --
Net income(loss) ................................... $ 4,457 $ 3,367 $ (5,548) $ (851) $ (377)
Income (loss) per common share:
Basic net income(loss) per share ................... $ 1.05 $ 0.84 $ (3.42) $ (1.44) $ (4.70)
Cash dividend per share ............................ $ -- $ -- $ -- $ -- $ --
Basic weighted average common
shares outstanding ............................... 4,263 4,003 1,621 591 80
Diluted weighted average common
shares outstanding ............................... 4,550 4,575 1,621 591 80
Balance Sheet Data (end of period):
Working Capital .................................... $ (2,663) $(14,176) $ (1,828) $ 3,133 $ 276
Net property and equipment ......................... $ 77,182 $ 70,287 $ 926 $ 6,795 $ 735
Total assets ....................................... $ 98,813 $ 84,214 $ 20,807 $ 10,803 $ 901
Long-term obligations .............................. $ 28,207 $ 15,696 $ 53 $ 77 $ 541
Total stockholders' equity ......................... $ 40,211 $ 33,378 $ 18,505 $ 9,095 $ (10)
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Item 7. Management's Discussion and Analysis of Financial Conditions and Results
of Operation
Overview
In view of significant material changes to GREKA during 1998, the
acquisition of Saba in March 1999, and assumption of full operations related to
the asphalt refinery, management believes that the financial condition and
results of operations of GREKA reported for periods prior to 1999 are not
indicative of the future financial condition and results of operations of GREKA.
As a consequence of GREKA's subsidiary's assumption of full operations at its
refinery in May 1999, the Company has been reporting 100% of the revenue and net
income resulting from operations in contrast to recognition prior to May 1999 of
only 50% of the net profit resulting from the same operations. Saba's 1998
financial statements are not consolidated with GREKA's 1998 financial statements
since the acquisition had not been consummated by December 31, 1998.
During the latter of part of 1998 and early 1999, management of GREKA
was primarily focused on the acquisition of Saba and considerable expenses were
incurred in connection with the Saba transactions in the fourth quarter of 1998
and the first quarter of 1999. Due to the significance to GREKA of the Saba
acquisition, GREKA's management and staff devoted a substantial amount of time
and effort to the acquisition. GREKA has already executed, and continues to
execute, an aggressive rework program to return to production existing wells on
all properties.
In view of the significant differences between GREKA's corporate
structure before the March 1999 acquisition of Saba, comparisons of GREKA's
results of operations for 1998 and 1997 are considered by management not to be
either relevant or representative of GREKA Energy's long-term potential.
Results of Operations
Comparison of Years Ended December 31, 2000 and 1999
Revenues increased from $29,137,810 for 1999 to $49,067,140 for 2000
primarily as a result of increased refinery sales and increased oil and gas
sales.
Production costs decreased from $7,244,316 for 1999 to $4,076,545 for
2000 primarily as a result of tight management controls and employee incentives.
General and administrative expenses increased from $3,205,276 for 1999
to $6,669,275 for 2000 primarily as a result of a full twelve months of post
merger general and administrative expenses.
Depreciation, depletion and amortization increased from $3,023,785 for
1999 to $3,592,242 for 2000 primarily as a result of a full twelve months of
post merger depreciation, depletion and amortization expenses.
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30
Interest expense increased from $1,859,688 for 1999 to $4,535,174 for
2000 primarily as a result of increased financing activities.
Comparison of Years Ended December 31, 1999 and 1998
Revenues increased from $145,813 for 1998 to $29,137,810 for 1999
primarily as a result of acquisitions and restructuring of assets.
Production costs increased from $121,016 for 1998 to $17,820,620 for
1999 primarily as a result of significantly larger asset base of operations.
General and administrative expenses increased from $1,541,789 for 1998
to $3,205,276 for 1999 primarily as a result of significantly larger asset base
of operations.
Depreciation, depletion and amortization increased from $333,468 for
1998 to $3,023,783 for 1999 primarily as a result of significantly larger asset
base of operations.
Interest expense increased from $32,145 for 1998 to $1,859,688 for 1999
primarily as a result of higher debt as a result of acquisitions.
Liquidity and Capital Resources
The working capital deficit at December 31, 2000 of $2,613,466
decreased from a working capital deficit of $14,175,635 at December 31, 1999.
Current assets increased $7,779,831 from $11,983,973 at December 31, 1999 to
$19,763,804 at December 31, 2000 which includes an increase of $4,740,350 in
cash and cash equivalents from $97,319 at December 31, 1999 to $4,837,699 at
December 31, 2000. Approximately $7.5 million of refinery raw material and
finished product inventory and refinery accounts receivable result from refinery
operations. Current liabilities decreased from $26,159,608 at December 31, 1999
to $22,376,270 at December 31, 2000, a decrease of $3,783,338. The current
portion of long term debt decreased $4,139,546 during the period. The foregoing
changes are a result of significant debt restructuring and a full 12 months of
post merger activities.
Cash Flows
Cash used in operations improved from an outflow of $401,150 for the
year ended December 31, 1999 to an inflow of $11,473,814 for the year ended
December 31, 2000. Net income for the period, adjusted for non-cash charges,
provided $9,971,312 of cash inflow.
The Company's net cash flows from investing activities increased from a
net outflow of $788,351 for the year ended December 31, 1999 to a net outflow of
$9,744,892 for the year ended December 31, 2000. This change was primarily
attributable to increased activity associated with increasing daily oil and gas
production and future reserves.
The Company's net cash provided by financing activities increased from
an inflow of $1,036,608 for the year ended December 31, 1999 to $3,473,529 for
the year ended December 31, 2000. Cash was provided during 2000 from proceeds of
the Company's financing facilities with CIBC which created a inflow of cash of
$5,713,503, net of the payoff to Bank One. There was a net reduction in the
amount of debt to GMAC of 1,315,093, and the Company benefited from the sale of
its common stock by 6,162,068 while it used cash to acquire 5,653,616 of its
common stock.
Capital Expenditures
The Company's growth is focused on acquisitions that are strategic and
in accordance with its business plan. It is intended that such acquisitions will
be achieved concurrent with the closing of adequate financing. Historically,
GREKA has relied on cash flow from operations to finance operational capex
expenses. For
31
31
2001, GREKA has budgeted $30.0 million for its capex expenses to be funded by
its cash flow and credit facilities.
The Company is current on all its interest payments, and has sufficient
cash flow for all of its operating and foreseen capital requirements. Further,
GREKA intends to achieve the following:
* Continue to execute an aggressive rework program to return to
production existing wells on all properties that have shut-in wells.
* Utilize the in-house proprietary and cost effective horizontal
drilling technology to enhance production in the Santa Maria Valley
area, increasing the equity oil and gas production as well as new gas
treatment facilities.
* Continue to acquire assets to enhance the benefit of integrated
operations that collectively provide for low cost operating expenses
and high cash flow.
* Drill five new wells in Louisiana and two new wells in New Mexico to
increase natural gas and oil production.
* Drill five new wells in China in a pilot program to confirm
anticipated production levels of Coalbed Methane (CBM), and upon
successful completion, develop and implement the appropriate plan to
exploit the additional acreage.
GREKA's management also believes that the disposition of non-core
assets brings opportunities for cost savings, and other synergies, resulting in
improved cash flow potential for the long-term growth of GREKA and of
shareholder value. Further, these dispositions give GREKA a stronger
consolidated asset base upon which it can rely in securing future financings,
both equity and debt. However, there is no assurance that any specific level of
cost savings or other synergies will be achieved or that such cost savings or
other synergies will be achieved within the time periods contemplated, or that
GREKA will be able to secure future financings.
Recent Accounting Pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, became effective on January 1, 2001, and prescribes accounting and
disclosure requirements for derivative instruments and hedging activities. This
pronouncement is not expected to affect GREKA because it has no such
instruments.
Inflation
GREKA does not believe that inflation will have a material impact on
GREKA's future operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
At December 31, 2000, the Company's operations were exposed to market
risks primarily as a result of changes in commodity prices, interest rates and
foreign currency exchange rates. The Company does not use derivative financial
instruments for speculative or trading purposes.
Item 8. Financial Statements.
Please see accompanying Index to Financial Statements commencing on
page F-1.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
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PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
The directors and executive officers of GREKA are as follows:
Name
Since Age Positions
- --------------------- --- ---------------------------------------
Randeep S. Grewal 37 Chairman of the Board, Chief Executive
September 1997 Officer and President, Class A Director
Dr. Jan F. Holtrop 66 Class B Director
September 1997
George G. Andrews 76 Class B Director
July 1998
Dai Vaughan 62 Class C Director
March 1999
Kenton D. Miller 48 Class C Director
October 2000
Randeep S. Grewal. Mr. Grewal most recently served since April 1997 as
Chairman and Chief Executive Officer for Horizontal Ventures, Inc., an oil and
gas horizontal drilling technology company which became a subsidiary of GREKA in
September 1997. At that time Mr. Grewal assumed responsibility as Chairman of
the Board, Chief Executive Officer and President of GREKA and has since
established GREKA's strategies and business plan resulting in consistent growth
year after year. From 1993 to 1996, Mr. Grewal was the Corporate Vice President
for the Rada Group with principal responsibilities for its global operations on
test equipment. He has also been involved in various joint ventures,
acquisitions, mergers and reorganizations since 1986 in the United States,
Europe and the Far East within diversified businesses. Mr. Grewal has a Bachelor
of Science degree in Mechanical Engineering from Northrop University.
Dr. Jan Fokke Holtrop. Dr. Holtrop has been a senior Production
Technology professor at the Delft University of Technology within the Faculty of
Petroleum Engineering and Mining in The Hague, Netherlands since 1989. Prior to
the Delft University, he served in various positions within the Shell Oil
Company where he started his career in 1962. Dr. Holtrop has almost forty (40)
years of experience within the oil and gas exploration, drilling and production
industry with a global hands-on background. Dr. Holtrop has a Ph.D. and a MSC in
Mining Engineering from the Delft University of Technology.
George G. Andrews. Mr. Andrews has been a consultant and private
investor since his retirement from the oil and gas industry in 1987. From 1982
until 1987 he was employed as Corporate Vice President of Intercontinental
Energy Corporation of Englewood, Colorado and directed the company's land
acquisition, lease and management operations. Between June 1981 and November
1982 Mr. Andrews was Vice President of Shelter Hydrocarbons, Inc. of Denver,
Colorado where he directed all land management and operation procedures
including contract systems and negotiations of acquisition agreements. From 1979
to June of 1981 Mr. Andrews was Senior Landman for the National Cooperative
Refinery Association in Denver, Colorado where he was responsible for
negotiation and acquisition of oil and gas leases, certifying title
requirements, and ongoing daily operations. Mr. Andrews obtained his B.S. degree
in 1947 from the University of Tulsa, where he majored in Economics.
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Dai Vaughan. Mr. Vaughan has been an independent management consultant
since 1994 with concentrated experience in business plan development,
implementation, and business turn-arounds. From 1985 until 1994, he was with
Continental Airlines, most recently as Manager of Aircraft Acquisition. Mr.
Vaughan has served in numerous positions in his 44 year career in the airline
industry with British Airways, Eastern Airlines and finally Continental
Airlines, including Systems Engineering, Aircraft Maintenance and Aircraft
Acquisition. Mr. Vaughan received a HNC degree (B.S. equivalent) in Electrical
Engineering.
Kenton D. Miller. Since 1997, Mr. Miller has been a consultant with
GREKA to assist management in property valuations, financial accounting and
analysis. From 1991 to 1997, Mr. Miller provided a variety of consulting and
management advisory services oriented to improve financial performance for a
diverse group of petroleum related companies while maintaining an income tax
practice catering to high networth individuals and their financial interests.
Mr. Miller has 30 years of oil and gas experience, primarily with Ladd Petroleum
Company, British Petroleum, and Cities Service Oil Company. Mr. Miller became a
Registered Professional Engineer in 1984 and a Certified Public Accountant in
1994. Mr. Miller has a Bachelor of Science in Petroleum Engineering from the
University of Tulsa.
During 2000, the Board of Directors met ten times. No director attended
less than 75% of the meetings.
There are no family relationships among the directors. There are no
arrangements or understandings between any director and any other person
pursuant to which that director was elected.
During the past five years, there have been no petitions under the
Bankruptcy Act or any state insolvency law filed by or against, nor have there
been any receivers, fiscal agents, or similar officers appointed by any court
for the business or property of any of GREKA's directors or executive officers,
or any partnership in which any such person was a general partner within two
years before the time of such filing, or any corporation or business association
of which any such director or executive officer was an executive officer within
two years before the time of such filing. During the past five years, no
incumbent director or executive officer of GREKA has been convicted of any
criminal proceeding (excluding traffic violations and other minor offenses) and
no such person is the subject of a criminal prosecution which is presently
pending.
Committees
GREKA's Audit Committee, whose charter was adopted in June 2000, is
made up of Messrs. Miller, Andrews and Vaughan, and its Compensation Committee
is made up of Messrs. Grewal, Vaughan and Andrews. The Board of Directors
selects director nominees and will consider suggestions by stockholders for
names of possible future nominees delivered in writing to the Secretary of GREKA
on or before November 30th in any year. The Audit Committee and Compensation
Committee each met once during 2000.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of reports filed with GREKA, all directors,
executive officers and beneficial owners of more than five percent of GREKA
common stock timely filed all reports regarding transactions in GREKA's
securities required to be filed during the last fiscal year by Section 16(a) of
the Securities Exchange Act of 1934, except Form 4's for December 2000 for Mr.
Grewal and Dr. Holtrop who inadvertently reported their activity on a timely
filed Form 5.
Item 11. Executive Compensation
The following summary compensation table sets forth in summary form the
compensation received during each of GREKA's last three completed fiscal years
by the executive officers of GREKA, except no disclosure is required for those
earning gross compensation less than $100,000.
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Executive Compensation
Summary Compensation Table
Annual Compensation Long Term Compensation
---------------------------- -----------------------------
Restricted Securities
Name and principal stock awards underlying All other
position Year Salary($) Bonus($)(1) ($) options/SARS compensation
- ------------------ ---- --------- ----------- ------------ ------------ -------------
Randeep S. Grewal, 2000 $290,269 -- -- 410,000 $12,000(3)
Chairman and Chief 1999 $248,400 -- -- -- $12,000(3)
Executive Officer 1998 $120,000 -- $367,500(2) 110,000 $ 4,200(3)
(1) The executive officers of GREKA were not paid any bonuses during the three
fiscal years ended December 31, 2000.
(2) Awarded pursuant to the First Amendment to Employment Agreement dated
October 14, 1998 and valued at the fair market value on such date.
(3) Auto expense allowance.
No other form of compensation was paid during 1998, 1999 or 2000. No
other executive officer or director of GREKA received total compensation in
excess of $100,000 during the last three fiscal years.
Option/SAR Grants in Last Fiscal Year(1)
(Individual Grants)
Number of Percent of total
Securities options/SARS Grant
Underlying granted to Exercise or Date
Options/SARS employees in base price Expiration Present
Name granted(#) fiscal year ($/Sh) date Value
- ----------------- ------------ ---------------- ----------- ---------- -------
Randeep S. Grewal 410,000 40% $8.625 1/30/10 11.0038(2)
(1) At December 31, 2000, GREKA had granted 1.4 million options to acquire
shares of common stock of GREKA, of which 1,025,000 were granted in 2000 at
an exercise price of $8.625 to employees, directors and consultants of the
Company. A total of 164,000 options have terminated through attrition and
178,000 options were exercised during 2000, leaving the total option grants
outstanding as of December 31, 2000 at 1,058,000 options. These figures do
not reflect the impact of antidilution provisions affecting the options of
the 5% stock dividend granted in January, 2001 to shareholders of record on
December 31, 2000.
(2) The Black-Scholes pricing model was used with a volatility of .69 and a
risk-free interest rate of 5%.
Aggregated Option/SAR Exercises
in Last Fiscal Year and
FY-End Option/SAR Values
Value of
Number of unexercised
Shares unexercised in-the-money
acquired options/SARS options/SARS
on Value at FY-end(#) at FY-end($)
exercise realized exercisable/ exercisable/
Name (#) ($) unexercisable unexercisable
- ----------------- -------- -------- ------------- -------------
Randeep S. Grewal 150,000 $1,331,250 120,000/400,000 $626,250/$1,950,000
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Employment Contracts and Termination Agreements
On September 9, 1997, GREKA entered into a five-year employment
agreement with Randeep S. Grewal. This agreement was amended on October 14,
1998, and on November 3, 1999 the Board of Directors adopted an amended and
restated employment agreement for Mr. Grewal (the "Restated Agreement"). Under
the terms of the Restated Agreement, Mr. Grewal's annual salary is $287,500
subject to an annual increase effective on the anniversary date. Mr. Grewal
participates in GREKA's benefit plans and is entitled to bonuses and incentive
compensation as determined by the board of directors of GREKA. The Restated
Agreement also allows Mr. Grewal to receive an assignment of a 2% overriding
royalty of all oil and gas properties of GREKA and to receive fringe benefits
which include an automobile allowance of $1,000 per month. Under the original
agreement, 30,000 shares of GREKA common stock were issued to Mr. Grewal.
The term of the Restated Agreement is through the fifth anniversary of
December 31, 1999; however, it automatically rolls over so that it is a minimum
of three years unless sixty days prior to any anniversary date the Company
notifies Mr. Grewal that the change of control period shall not be extended. A
change of control termination clause was added which is intended to deter
hostile changes of control by providing a substantial termination payment should
Mr. Grewal terminate his employment or be terminated as a result of a change of
control. The Restated Agreement is terminable for cause or by the death or
disability of Mr. Grewal. In addition, the Restated Agreement may be terminated
by Mr. Grewal in the event of any diminution by GREKA in Mr. Grewal's position,
authority, duties or responsibilities. Upon termination of the Restated
Agreement by GREKA for any reason other than for cause, death or disability, or
upon termination of the Restated Agreement by Mr. Grewal in the event of any
diminution by GREKA in Mr. Grewal's position, authority, duties or
responsibilities, GREKA is obligated to pay within 30 days after the date of
termination: (a) Mr. Grewal's base salary through the date of the severance
period, (b) Mr. Grewal's base salary for the balance of the term of the
agreement if the date of termination is within the first five years of the
employment agreement (base salary is the salary rate in effect at the date of
termination), (c) the annual bonus paid to Mr. Grewal for the last full fiscal
year during the employment period, and (d) all amounts of deferred compensation,
if any.
Key-Man Life Insurance
In December 2000, the Board of Directors authorized the Company to
procure a key-man insurance policy on the life of its Chairman, Chief Executive
Officer, and President, Randeep S. Grewal, for coverage in the amount of $10
million and for a 20 year term.
Director Compensation
Each director who is not an employee of GREKA is reimbursed for
expenses incurred in attending meetings of the board of directors and related
committees. At December 31, 2000, GREKA had four outside directors. No
compensation was paid to any outside director during fiscal 2000, except $16,650
to Mr. Vaughan and $32,000 to Mr. Miller for specifically identified matters,
and none is planned for the immediate future. Prior to Mr. Miller's appointment
as a director in December 2000, the Company granted in January 2000 to Mr.
Miller for his consulting services 12,000 options to acquire shares of common
stock of GREKA at an exercise price of $8.625 per share, vesting 33% on January
31, 2001, 2002 and 2003.
During 2000, options to acquire shares of common stock of GREKA were
granted to GREKA's directors for their services as members of the Board of
Directors. At December 31, 2000, in accordance with GREKA's Stock Option Plans
and at an exercise price of $8.625 per share, options expiring on January 30,
2010 were granted to the following directors as well as to Mr. Grewal [see
"Executive Compensation"]:
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1997 1999
Name Stock Option Plan(1) Stock Option Plan(2)
- -------------- -------------------- --------------------
George G. Andrews 5,000 60,000
Dai Vaughan 5,000 60,000
Jan F. Holtrop 5,000 50,000
(1) Exercisable at December 31, 2000
(2) Vesting over a period of two years commencing January 30, 2001 at 50% per
year until 2002 when they are fully vested.
GREKA has no knowledge of any arrangement or understanding in existence
between any executive officer named above and any other person pursuant to which
any such executive officer was or is to be elected to such office or offices.
All officers of GREKA serve at the pleasure of the board of directors. No family
relationship exists among the directors or executive officers of GREKA. There is
no person who is not a designated officer who is expected to make any
significant contribution to the business of GREKA. Any officer or agent elected
or appointed by the board of directors may be removed by the board whenever in
its judgment the best interests of GREKA will be served thereby without
prejudice, however, to any contractual rights of the person so removed.
Future Transactions
All transactions between GREKA and an officer, director, principal
stockholder or affiliate of GREKA will be approved by a majority of the
uninterested directors, only if they have determined that the transaction is
fair to GREKA and its shareholders and that the terms of such transaction are no
less favorable to GREKA than could be obtained from unaffiliated parties.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners and Management
The following table presents as of April 4, 2001 the common stock
ownership of each person known by GREKA to be the beneficial owner of five
percent or more of GREKA's common stock, all directors and officers
individually, and all directors and officers of GREKA as a group. Except as
noted, each person has sole voting and investment power with respect to the
shares shown. GREKA is not aware of any contractual arrangements or pledges of
GREKA's securities which may at a subsequent date result in a change of control
of GREKA. As of April 4, 2001, there were 4,545,823 shares of GREKA common stock
issued and outstanding.
Amount of Beneficial
Ownership
Name and Address
of Beneficial Owner Common Stock(1) Percent of Class
------------------- --------------- ----------------
Capco Resources Ltd 296,791(2) 6.53%
2922 E. Chapman Ave., Suite 202
Orange, CA 92869
International Publishing Holding s.a. 381,057 8.38%
Postbus 84019
2508 AA The Hague
The Netherlands
Randeep S. Grewal 570,000(3) 11.71%
Chairman of the Board, Chief Executive Officer,
and President
10815 Briar Forest Drive
Houston, TX 77042
Dr. Jan F. Holtrop 45,000(4) *
Director
Van Alkemadelaan
2596 AS The Hague
The Netherlands
George G. Andrews 65,000(5) 1.41
Director
7899 West Frost Drive
Littleton, CO 80123
Dai Vaughan 44,000(6) *
Director
2536 Waterstone Way
Marietta, GA 30062
Kenton D. Miller 15,000(7) *
Director
212 E. 25th Street
Tulsa, OK 47114
All directors and officers as a group (5 persons) 739,000 14.72%
*Less than 1%
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(1) Rule 13d-3 under the Securities Exchange Act of 1934 involving the
determination of beneficial owners of securities, includes as beneficial owners
of securities any person who directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has, or shares, voting
power and/or investment power with respect to such securities, and any person
who has the right to acquire beneficial ownership of such security within sixty
days, including through the exercise of any option, warrant or conversion of a
security.
(2) GREKA has the voting rights to these shares owned by Capco Resources Ltd.
whereby Capco must vote these shares at the direction of GREKA's management.
GREKA has voting rights to these shares through 2002
(3) Includes options presently exercisable to acquire 320,000 shares of GREKA
common stock, and 250,000 shares of GREKA common stock held individually by Mr.
Grewal.
(4) Includes options presently exercisable to acquire 35,000 shares of GREKA
common stock.
(5) Includes options presently exercisable to acquire 60,000 shares of GREKA
common stock.
(6) Consists of options presently exercisable to acquire 44,000 shares of GREKA
common stock.
(7) Consists of options presently exercisable to acquire 15,000 shares of GREKA
common stock.
(8) Includes options presently exercisable to acquire 474,000 shares of GREKA
common stock held by directors and an executive officer of GREKA.
Item 13. Certain Relationships and Related Transactions
During the last three fiscal years, there have been no material
transactions between GREKA and any officer, director, nominee for election as
director, or any shareholder owning greater than five percent (5%) of GREKA's
outstanding shares, nor any member of the above referenced individuals'
immediate family, except for Mr. Grewal's restated employment agreement (See
Item 11 - "Executive Compensation"), the loan from IPH (See Item 1 -
"Description of Business; Financing & Debt Restructuring Activities"), the
Settlement Agreement and Release entered into with Capco dated August 17, 2000,
and as set forth below.
GREKA has an agreement with Grupo de Creacion, Ltd. ("GDC"), a
Gibraltar corporation and a shareholder of the Company, for any European
financing. Under the agreement, GDC assisted GREKA in arranging a private
convertible debenture offering during 1999 resulting in proceeds of
approximately $1,000,000. As compensation, GDC received a negotiated commission
of 10% of the financing less expenses.
The Company has a note receivable at December 31, 2000 from Randeep S. Grecial,
the Company's Chairman of the Board and Chief Executive Officer of $750,000
relating to an exercise of common stock options on December 26, 2000. This note
was repaid on January 9, 2001.
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It is GREKA's policy that any future material transactions between it
and members of its management or their affiliates shall be on terms no less
favorable than those available from unaffiliated third parties.
Part IV
Item 14. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are furnished as part of this report:
Exhibit No. Exhibit Description
3.1 Restated Articles of Incorporation of Horizontal Ventures
(filed as Exhibit 3A to Horizontal Ventures' Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1998 (File No.
0-20760) and incorporated herein by reference)
3.2 Articles of Amendment to Articles of Incorporation effective
March 22, 1999 (filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K dated March 15, 1999 and incorporated
herein by reference)
3.3 ByLaws of Horizontal Ventures (incorporated by reference to
Exhibit No. 3 to the Horizontal Ventures' Registration
Statement (#33-24265-LA)
3.4 Amendment to Article II of the Bylaws of GREKA (filed as
Exhibit 3.1 to the GREKA Report on Form 10-Q for the Quarter
ended September 30, 1999 and incorporated by reference herein)
10.1 Amendment to Promissory Notes dated January 20, 2000 between
Greka and International Publishing Holding, Inc. (filed as
Exhibit 10.13 to GREKA'S amended Report on Form 10-K filed on
April 14, 2000 for the fiscal year ended December 31, 1999,
and incorporated by reference herein)
10.2 Beaver Lake Resources Corporation March 1997 Re-Financing
Agreement (filed as Exhibit 10.3 to Saba's quarterly report on
Form 10-QSB for the quarter ending March 31, 1997 (File No.
001-13880) and incorporated herein by reference)
10.3 Preferred Stock Transfer Agreement dated October 7, 1998
between Horizontal Ventures and RGC (filed as Exhibit 10.1 to
Horizontal Ventures' Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998 and incorporated herein by
reference).
10.4 Common stock Purchase Agreement dated October 8, 1998 between
Horizontal Ventures and Saba (filed as Exhibit 10.2 to
Horizontal Ventures' Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998 and incorporated herein by
reference).
10.5 Option Agreement dated July 22, 1998 between Horizontal
Ventures and IPH (filed as Exhibit 10.3 to Horizontal
Ventures' Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998 and incorporated herein by
reference).
10.6 Promissory Note dated October 6, 1998 payable by Horizontal
Ventures to IPH (filed as Exhibit 10.4 to Horizontal Ventures'
Quarterly on Form 10-QSB for the quarter ended September 30,
1998 incorporated herein by reference).
10.7 Pledge Agreement dated October 6, 1998 between Horizontal
Ventures and IPH (filed as Exhibit 10.5 to Horizontal
Ventures' Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998 and incorporated herein by
reference).
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10.8 Promissory Note dated November 4, 1998 payable by Horizontal
Ventures to IPH (filed as Exhibit 10.6 to Horizontal Ventures'
Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998 and incorporated herein by reference).
10.9 Pledge Agreement dated November 4, 1998 between Horizontal
Ventures and IPH (filed as Exhibit 10.7 to Horizontal
Ventures' Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998 and incorporated herein by
reference).
10.10 Letter Agreement dated October 8, 1998 between Saba and
Horizontal Ventures (filed as Exhibit 10.3 to Saba's Current
Report on Form 8-K dated October 6, 1998 (File No. 001-138807)
and incorporated herein by reference).
10.11 Stock Exchange Agreement dated November 23, 1998 among
Horizontal Ventures and the Shareholders of Saba Acquisub,
Inc. (filed as Exhibit 10.85 to the GREKA Engrgy Report on
Form 10-K/A for the fiscal year ended December 31, 1998 and
incorporated herein by reference).
10.12 Agreement to Amend Common stock Purchase Agreement dated
December 3, 1998 between Saba and Horizontal Ventures (filed
as Exhibit 10.84 to the GREKA Engrgy Report on Form 10-K/A for
the fiscal year ended December 31, 1998 and incorporated
herein by reference).
10.13 Amendment No. 1 dated December 15, 1998 to Stock Exchange
Agreement dated November 23, 1998 among Horizontal Ventures
and the shareholders of Saba Acquisub, Inc. 10.1 to Saba's
Current Report on Form 8-K dated December 18, 1998 File No.
001-13880) and incorporated herein by reference).
10.14 Amendment to $1,500,000 Promissory Note (filed as Exhibit
10.86 to the Amendment No. 2 to the Company's Registration
Statement filed Form S-4 dated February 19, 1999 and
incorporated herein by reference)
10.15 Exchange Agreement between GREKA and RGC International
Investors (filed as Exhibit 10.87 to the GREKA Engrgy Report
on Form 10-K/A for the fiscal year ended December 31, 1998 and
incorporated herein by reference).
10.16 Secured Convertible Promissory Note (filed as Exhibit 10.88 to
the GREKA Engrgy Report on Form 10-K/A for the fiscal year
ended December 31, 1998 and incorporated herein by reference).
10.17 Asset Purchase Agreement dated March 17, 1999 among Sabacol,
Inc. and the Omimex Group (filed as Exhibit 10.89 to the GREKA
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998 and incorporated by reference herein).
10.18 Loan and Security Agreement dated April 30, 1999 among BNY
Financial Corporation, GREKA Integrated, Inc., Saba Realty,
Inc. and Santa Maria Refining Company (filed as Exhibit 10.1
to the GREKA Report on Form 10-Q for the quarter ended March
31, 1999 and incorporated by reference herein)
10.19 Arrangement Agreement dated June 16, 1999 among GREKA Energy
Corporation and Beaver Lake Resources Corporation (filed as
Exhibit 10.1 to the GREKA Report on Form 10-Q for the quarter
ended June 30, 1999 and incorporated by reference herein)
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10.20 Forbearance Agreement dated April 19, 1999, First Amendment To
Forbearance Agreement dated April 30, 1999, and Amended And
Restated Forbearance Agreement dated July 15, 1999 among Bank
One, Texas, Saba Petroleum Company and GREKA Energy
Corporation (filed as Exhibit 10.2 to the GREKA Report on Form
10-Q for the quarter ended June 30, 1999 SEC file #0-207670
and incorporated by reference herein)
10.21 Closing Agreement dated June 30, 1999 among Sabacol, Inc. and
Omimex Resources, Inc. et al. (filed as Exhibit 4.2 to the
GREKA Report on Form 8-K filed July 14, 1999 and incorporated
by reference herein)
10.22 Amended and Restated Executive Employment Agreement dated
November 3, 1999 among Randeep S. Grewal and GREKA (filed as
Exhibit 10.2 to the GREKA Report on Form 10-Q for the quarter
ended September 30, 1999 and incorporated by reference herein)
10.23 Amendment dated September 24, 1999 to Loan and Security
Agreement dated April 30, 1999 among BNY Financial
Corporation, GREKA Integrated, Inc., Saba Realty, Inc. and
Santa Maria Refining Company (filed as Exhibit 10.3 to the
GREKA Report on Form 10-Q for the quarter ended September 30,
1999 and incorporated by reference herein)
10.24 Rights Agreement dated November 3, 1999 (filed as Exhibit 10.4
to the GREKA Report on Form 10-Q for the quarter ended
September 30, 1999 and incorporated by reference herein)
10.25 First Amended and Restated Loan and Security Agreement dated
November 30, 1999 by and among GMAC Commercial Credit LLC,
Greka Integrated, Inc., Saba Realty, Inc. and Santa Maria
Refining Company (filed as Exhibit 10.1 to the GREKA Report on
Form 8-K filed February 18, 2000 and incorporated by reference
herein)
10.26 Letter Agreement dated December 13, 1999 by and among GMAC
Commercial Credit LLC, Greka Integrated, Inc., Saba Realty,
Inc. and Santa Maria Refining Company (filed as Exhibit 10.2
to the GREKA Report on Form 8-K filed February 18, 2000 and
incorporated by reference herein)
10.27 Credit And Guarantee Agreement dated as of June 19, 2000 among
Greka AM, Inc. as borrower, the Company as guarantor, CIBC,
Inc. as lender, Canadian Imperial Bank of Commerce as
administrative agent, and CIBC World Markets Corp as arranger
(filed as Exhibit 10.1 to the GREKA Report on Form 10-Q for
the quarter ended June 30, 2000 and incorporated by reference
herein)
10.28 Settlement Agreement and Release by and among GREKA and
Randeep S. Grewal and Capco Resources, Ltd., Capco Energy,
Inc., and Ilyas Chaudhary dated August 17, 2000 (filed as
Exhibit 10.8 to the Post Effective Amendment No. 1 to the
registration statement on Form S-2, file no. 333-45352, and
incorporated by reference herein)
10.29 Amendment No. 1 dated as of December 1, 2000 to the CIBC
Credit and Guarantee Agreement dated June 19, 2000 (filed as
Exhibit 10.1 to the GREKA Report on Form 8-K/A filed December
11, 2000 and incorporated by reference herein)
10.30 First Amendment To First Amended And Restated Loan And
Security Agreement dated February 22, 2001 by and among GMAC
Commercial Credit LLC, Greka Integrated, Inc., Saba Realty,
Inc. and Santa Maria Refining Company*
10.31 Loan Agreement dated as of March 1, 2001 among Greka AM, Inc.
as borrower, the Company as guarantor, and the Bank of Texas,
National Association*
21.1 Subsidiaries of GREKA*
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23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Netherland, Sewell & Associates, Inc.*
99.9 Preferability letter from Arthur Andersen LLP dated
April 13, 2001*
* Filed herewith.
(b) Reports on Form 8-K. During the fourth quarter of 2000, GREKA filed the
following reports on Form 8-K:
Current Report on Form 8-K/A filed on December 11, 2000 for the period
ending June 21, 2000 which reported events under Item 5, Other Events.
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42
GREKA ENERGY CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
REQUIRED BY ITEM 8 AND ITEM 14
Page
Financial Statements of GREKA Energy Corporation
Report of Independent Public Accountants.............................F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999.........F-3
Consolidated Statements of Operations for each of the
three years ended December 31, 2000 ...............................F-4
Consolidated Statements of Stockholders' Equity for each
of the three years ended December 31, 2000 ....................... F-5
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 2000 .....................................F-6
Notes to Consolidated Financial Statements...........................F-7
Schedule II - Valuation and Qualifying Accounts
for the three years ended December 31, 2000........................F-23
All other financial statement schedules have been omitted since they are either
not required, are not applicable or the required information is included in the
consolidated financial statements or the notes thereto.
F-1
43
Report of Independent Public Accountants
To the Shareholders of GREKA Energy Corporation:
We have audited the accompanying consolidated balance sheets of GREKA Energy
Corporation (a Colorado corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. These financial statements and the schedule referred to below 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 in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GREKA Energy Corporation and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.
As explained in Note 2 to the financial statements, effective January 1, 2000,
the Company has changed its accounting for inventory from the first in, first
out method to the average cost method.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II - Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our
audits of the basic financial statements, and in our opinion, fairly states the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
New York, New York
April 13, 2001
F-2
44
GREKA ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31,
ASSETS
Current Assets 2000 1999
------------ ------------
Cash and cash equivalents .................................... $ 4,837,699 $ 97,319
Restricted cash .............................................. -- 1,000,000
Accounts receivable trade, net of allowance for
doubtful accounts of $827,144 (2000)
and $1,343,825 (1999) ...................................... 5,951,051 4,681,823
Inventories .................................................. 3,814,992 3,292,380
Other current assets ......................................... 5,160,062 2,912,451
------------ ------------
Total Current Assets ................................ 19,763,804 11,983,973
------------ ------------
Property and Equipment
Investment in limestone property, at cost .................... 3,675,973 3,675,973
Oil and gas properties (full cost method) .................... 38,838,169 29,653,061
Land ......................................................... 17,247,744 17,210,814
Plant and equipment .......................................... 27,398,506 26,875,661
------------ ------------
87,160,392 77,415,509
Less accumulated depreciation, depletion and
amortization ............................................... (9,978,770) (7,128,995)
------------ ------------
Property and Equipment Net ........................................... 77,181,622 70,286,514
Other Assets ......................................................... 1,867,859 1,943,196
------------ ------------
$ 98,813,285 $ 84,213,683
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities 2000 1999
------------ ------------
Accounts payable and accrued expenses ........................ $ 13,742,245 8,235,627
Current maturities of long term notes and notes payable ...... 8,580,110 13,173,296
Short term borrowing ......................................... 105,000 4,750,685
------------ ------------
Total Current Liabilities ........................... 22,427,355 26,159,608
Long term debt, net of current portion ............................... 28,206,771 15,695,825
Other Liabilities .................................................... 7,967,941 8,979,927
Commitments and Contingent Liabilities
Stockholders' Equity
Common Stock, no par value, 50,000,000 shares
authorized, 4,523,273 (2000) 4,556,937 (1999)
shares issued and outstanding .............................. 42,544,242 37,261,043
Accumulated comprehensive income ............................. -- (19,243)
Accumulated earnings (deficit) ............................... (2,333,324) (3,863,477)
------------ ------------
Total Stockholders' Equity ................................... 40,211,218 33,378,323
------------ ------------
$ 98,813,285 84,213,683
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
45
GREKA ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For The Years Ended December 31,
2000 1999 1998
------------ ------------ ------------
Revenues ............................................................... $ 49,067,140 $ 29,137,810 $ 145,813
------------ ------------ ------------
Costs and Expenses
Operating Costs ................................................ 25,199,620 17,820,620 121,016
General and Administration ..................................... 6,699,275 3,205,276 1,541,789
Net Profit Sharing Plan ........................................ 495,246 -- --
Depreciation, depletion and amortization ....................... 3,592,242 3,023,783 333,468
Other expenses ................................................. 1,881,856 -- --
Writedown of oil and gas properties ............................ -- -- 3,171,485
------------ ------------ ------------
Total Costs and expenses ............................................... 37,868,219 24,049,679 5,167,758
------------ ------------ ------------
Operating Income (loss) ................................................ 11,198,901 5,088,131 (5,021,945)
Other income (expense)
Equity in loss of Saba ......................................... -- (568,751) (586,020)
Interest income ................................................ -- -- 83,242
Interest expense ............................................... (4,535,174) (1,859,688) (32,145)
Loss on sale of Canadian properties ............................ (991,439) -- --
Other, net ..................................................... -- 732,723 9,223
------------ ------------ ------------
Other Income (expense), net ........................... (5,526,613) (1,695,716) (525,700)
Minority Interest in loss of consolidated
subsidiary ..................................................... -- 20,617 --
------------ ------------ ------------
Income (loss) before income taxes and
accounting changes ............................................. 5,672,288 3,413,032 (5,547,645)
Provision for income tax ............................................... 361,964 46,000 --
Cumulative affect of change in accounting for inventory ................ 853,109 -- --
------------ ------------ ------------
Net Income (Loss) ...................................................... 4,457,214 $ 3,367,032 $ (5,547,645)
------------ ------------ ------------
Other Comprehensive (Loss) ............................................. -- (19,243) --
------------ ------------ ------------
Comprehensive Income (Loss) ............................................ 4,457,214 $ 3,347,789 $ (5,547,645)
============ ============ ============
Net Income (Loss) per Share - Basic .................................... $ 1.05 $ 0.84 $ (3.42)
============ ============ ============
Net Income (Loss) per Share - Diluted .................................. $ 1.04 $ 0.79 $ (3.42)
============ ============ ============
Weighted average number of shares outstanding - Basic .................. 4,262,843 4,002,917 1,621,483
============ ============ ============
Weighted average number of shares outstanding - Diluted ................ 4,549,692 4,574,348 1,621,483
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
46
GREKA ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For Each of the Three Years Ended December 31,
Accumulated
Common Stock (Deficit)
Shares Amount Earnings Total
------------ ------------ ------------ ------------
Balance, December 31, 1997 1,636,785 $ 11,588,073 $ (1,682,864) $ 9,905,209
Stock issued for cash in Reg "S" Offering 12,752 84,446 -- 84,446
Issuance of stock to purchase shares of
Saba Petroleum 1,407,000 14,062,500 -- 14,062,500
Net Income (5,547,645) (5,547,645)
------------ ------------ ------------ ------------
Balance as of December 31, 1998 3,056,537 25,735,019 (7,230,509) 18,504,510
Issuance of stock for acquisition of Saba 1,295,425 9,869,904 -- 9,869,904
Issuance of stock for acquisition of
Beaver Lake minority Interest 70,977 506,978 -- 506,798
Other issuances, net 133,998 1,149,142 -- 1,149,142
Net Income -- -- 3,367,032 3,367,032
Other Comprehensive Loss -- -- (19,243) (19,243)
------------ ------------ ------------ ------------
Balance as of December 31, 1999 4,556,937 37,261,043 (3,882,720) 33,378,323
Issuance of stock for secondary offering 543,375 6,350,377 -- 6,350,377
Issuance of stock for options and warrants 219,427 1,292,420 -- 1,292,420
Issuance of stock for conversion of
debentures 43,534 470,000 -- 470,000
Repurchase of common stock (840,000) (5,737,116) -- (5,737,116)
Stock dividend -- 2,907,818 (2,907,818) --
Net Income -- -- 4,457,214 4,457,214
------------ ------------ ------------ ------------
Balance as of December 31, 2000 4,523,273 $ 42,544,542 $ (2,333,324) $ 40,211,218
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-5
47
GREKA ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Each of the Three Years Ended December 31,
2000 1999 1998
------------ ------------ ------------
Cash Flow operating activities: .................. -- -- --
Net Income (loss) ............................... $ 4,457,214 3,367,032 (5,547,645)
Adjustments to reconcile net income
(loss) to net cash used inoperating
activities
Depreciation, depletion, and
amortization ................................... 3,592,242 3,023,788 333,468
Writedown of oil and gas properties ............. -- -- 3,171,485
(Gain) loss on sale of assets ................... -- -- (9,223)
Equity in net loss of Saba ...................... -- 553,483 586,020
Compensation expense attributable to
the issuance of Common Stock ................... -- 150,000 --
Loss on sale of Canadian properties .............. 991,439 -- --
Change in accounting policy ...................... 853,109 -- --
(Increase) decrease in accounts
receivable ..................................... (1,453,805) (1,101,994) (3,626)
(Increase) decrease in other assets .............. 700,337 (5,126,741) (147,355)
(Increase) decrease in inventory and other
current assets ................................. (3,625,527) (66,310) (114,646)
Increase (decrease) in accounts
payable and accrued expenses ................... 5,901,401 (1,179,791) (562,222)
Minority Interest in (loss) of
Consolidated subsidiary ........................ -- (20,617) --
Decrease in other liabilities .................... (902,611) -- --
------------ ------------ ------------
Net cash provided by (used in)
operating activities ........................... 10,534,280 (401,150) (2,293,744)
------------ ------------ ------------
Cash flow from investing activities:
Decrease (increase) in time deposits
and funds held in escrow ....................... -- -- (1,613,695)
Purchases of property and equipment ............. (13,601,519) (2,091,735) (1,168,519)
Proceeds from sale of property and
equipment ...................................... 571,000 915,000 55,908
Acquisition of Saba common and
preferred shares ............................... -- -- (2,327,630)
Cash acquired in Saba acquisition ............... -- 444,764 --
Other ............................................ (56,380) --
------------ ------------ ------------
Net Cash (used in) investing activities .......... (13,030,519) (788,351) (1,826,546)
Cash flows from financing activities:
Repayments of Notes Payable ..................... (9,472,277) (28,098,901) (32,896)
Proceeds of loans from affiliates ............... -- 25,317,293 2,000,000
Proceeds of Loan ................................ 13,802,414 -- --
Net increase in Revolver Loan .................... -- 4,443,216 --
Payment of financing costs ....................... -- (625,000) --
Proceeds from sale of stock, net of
expenses ........................................ 6,350,377 -- 84,446
Repurchase of Common Stock ....................... (5,737,116) -- --
Increase from restricted cash .................... 1,000,000 -- --
Exercise of options .............................. 1,292,420 -- --
------------ ------------ ------------
Net cash provided by financing activities ........ 7,236,318 1,036,608 2,051,550
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents ................................ 4,740,380 (152,893) (2,068,740)
Cash and cash equivalents:
Beginning of period ............................. 97,319 250,212 2,318,952
------------ ------------ ------------
End of period .................................... $ 4,837,699 $ 97,319 $ 250,212
============ ============ ============
Cash paid for:
Interest ........................................ $ 3,830,243 $ 1,688,424 $ 32,145
Income taxes .................................... $ 197,938 $ 149,282 $ --
Non-cash financing and investing activities:
Stock issued for services ....................... $ -- $ (180,000) $ --
Stock issued upon conversion of
convertible debentures ......................... 470,000 -- --
The accompanying notes are an integral part of these financial statements.
F-6
48
GREKA Energy Corporation
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 1 - DESCRIPTION OF BUSINESS AND MANAGEMENT'S PLANS
GREKA Energy Corporation, a Colorado corporation ("GREKA" or the "Company")
is an independent integrated energy company. GREKA has oil and gas production,
exploration and development activities in North America and the Far East, with
primary areas of activity in California, Louisiana and China. In addition, GREKA
owns and operates an asphalt refinery in California through a wholly-owned
subsidiary.
Business Strategy
GREKA's objective is to build shareholder value through consistent economic
growth both in the increased throughput at its asphalt refinery and in the
growth of its reserves and production, thereby creating an increase in net asset
value per share, cash flow per share and earnings per share. Management is
focused on a balanced program of low to medium risk exploitation and development
of its existing reserves utilizing its proprietary technology and acquisition of
synergistic production and businesses. All asset and capital investment
decisions are measured and ranked by their risk-adjusted impact on per share
value.
F-7
49
Business Segments
During 2000 and 1999, the Company operated in three industry segments:
Integrated Operations (California refinery and E&P), E&P Americas, and E&P
International. The accounting policies of the segments are the same as those
described in NOTE 2 - Summary of Significant Accounting Policies. In 1998, the
Company operated in one segment: contract drilling and development of oil and
gas properties for its own account. Information about the Company's operations
by segment as of and for the years ended December 31, 2000 and 1999, is as
follows (in thousands):
Integrated E&P E&P Corp. &
Operations Americas Int'l Other Total
------------ ------------ ------------ ------------ ------------
2000
- ----
Total Oil and Gas
Revenue $ 10,299 $ 14,851 $ 422 $ (9,915) $ 15,588
Refinery Revenue 33,480 -- -- -- 33,480
------------ ------------ ------------ ------------ ------------
Total Revenue 43,710 14,851 422 (9,915) 49,068
------------ ------------ ------------ ------------ ------------
Expenses:
Production Costs 2,064 3,993 84 (2,065) 4,077
Refinery Costs 28,985 -- -- (7,862) 21,123
General and Administrative 1,896 1,922 104 2,777 6,699
DD&A Expenses 1,814 1,556 77 145 3,592
Net profit sharing plan -- -- -- 495 495
Other expenses 1,882 -- -- -- 1,882
------------ ------------ ------------ ------------ ------------
Operating Profit 7,069 7,471 157 (2,910) 11,199
------------ ------------ ------------ ------------ ------------
Interest expense 2,646 320 27 1,542 4,535
Loss on sale of Canada -- -- 991 -- 991
Income tax expense -- -- -- 362 362
Cumulative effect of
accounting change 853 -- -- -- 853
------------ ------------ ------------ ------------ ------------
Net Income (loss) $ 3,569 $ 7,000 $ 130 $ (6,301) $ 4,457
============ ============ ============ ============ ============
Capital Expenditures $ 3,452 $ 6,112 $ 1,662 -- $ 11,226
Assets at Year End $ 61,497 $ 31,925 $ 4,642 $ 749 $ 98,813
1999
- ----
Total Oil and Gas
Revenue $ 3,710 $ 5,425 $ 2,815 $ (3,799) $ 8,183
Refinery Revenue 20,924 -- -- -- 20,924
------------ ------------ ------------ ------------ ------------
Total Revenue 24,645 5,425 2,868 (3,799) 29,138
------------ ------------ ------------ ------------ ------------
Production Costs 2,229 2,939 1,577 (3,799) 7,244
Refinery Costs 14,375 -- -- -- 10,576
Gross Profit 7,543 2,487 1,290 -- 11,318
Other Expenses 1,426 245 576 958 3,205
DD&A Expenses 1,453 1,064 506 -- 3,024
Interest and other
(expenses) income (31) (31) 747 (2,380) (1,695)
------------ ------------ ------------ ------------ ------------
Net Income (loss) $ 4,630 $ 1,147 $ 955 $ (3,365) $ 3,367
============ ============ ============ ============ ============
Capital Expenditures $ 2,092 $ 0 $ 0 $ 0 $ 2,092
Assets at Year End $ 58,267 $ 16,886 $ 8,456 $ 244 $ 84,213
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - The consolidated financial statements include the
accounts of the Company and wholly owned subsidiaries. The investment in Saba
was accounted for using the equity method of accounting from the date of initial
share purchase through March 24, 1999 (the date of the merger, see Note 3).
All significant intercompany accounts and transactions have been eliminated
in the accompanying consolidated financial statements.
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 amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Effective December 31, 2000, the Company declared a 5% stock dividend for
issuance of .05 shares of common stock on each share of common stock issued and
outstanding to holders of the Company's common stock as of December 31, 2000.
The fair market value of the dividend has been reflected as a change to retained
earnings in the accompanying financial statements. The accompanying financial
statements have been adjusted to reflect the additional shares issued in
connection with this stock dividend as if such shares had been outstanding for
all periods presented.
Certain reclassifications have been made to prior year financial
statements to conform to the current year presentation.
Cash and cash equivalents - The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Fair value of financial instruments - The carrying amounts of cash and cash
equivalents, accounts receivable, inventory, accounts payable and accrued
expenses, other current liabilities and notes payable, approximate fair value
because of the short maturity of these items. These fair value estimates are
subjective in nature and involve uncertainties and matters of significant
judgment, and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect these estimates.
Accounts receivable - The Company provides an allowance for uncollectible
receivables when it is determined that collection is doubtful. Substantially all
of the Company's subsidiaries 2000 and 1999 trade receivables are from sales of
asphalt and related products and oil and gas billings, including those to joint
interest property owners, while the 1998 trade receivables are from directional
drilling services.
Inventories - Inventories are stated at the lower of cost or market. The
Company's accounting method for inventory was changed from the first in, first
out (FIFO) method to the average cost method effective January 1, 2000. The
average cost method is preferable because the primary inventoriable cost at the
refinery is crude oil for which the price can fluctuate significantly. The
weighted average method balances the impact of short term fluctuations in crude
oil pricing on the Company's refinery inventory levels. The Company recorded the
effect of this change of $853,109 as a cumulative effect of a change in
accounting principle as of January 1, 2000.
Concentrations of credit risk - Substantially all of the Company's
subsidiaries' accounts receivable are from companies engaged in the
asphalt/paving and oil and gas businesses, and concentrated in the Western and
Southern United States. Generally, the Company's subsidiaries do not require
collateral for its account receivables. The Company performed services for only
a limited number of customers in 1998; therefore, each customer may be
considered a major customer. During 2000 and 1999, there were 4 and 2 customers,
respectively, who individually accounted for more than ten percent of the
Company's sale of North American refinery production.
Properties and equipment - Properties and equipment are stated at cost. The
Company follows the "full-cost" method of accounting for oil and gas property
and equipment costs. Under this method, all productive and nonproductive costs
incurred in the acquisition, exploration, and development of oil and gas
F-8
50
reserves are capitalized. Such costs include lease acquisitions, geological and
geophysical services, drilling, completion, equipment, and certain general and
administrative costs directly associated with acquisition, exploration, and
development activities. General and administrative costs related to production
and general overhead are expensed as incurred. No gains or losses are recognized
upon the sale or disposition of oil and gas properties, except in transactions
that involve a significant amount of reserves in a cost center. The proceeds
from the sale of oil and gas properties are generally treated as a reduction of
oil and gas property costs. Fees from associated oil and gas exploration and
development partnerships, if any, will be credited to oil and gas property costs
to the extent they do not represent reimbursement of general and administrative
expenses currently charged to expense.
Such costs can be directly identified with acquisition, exploration and
development activities and do not include any costs related to production,
general corporate overhead, or similar activities.
Future development, site restoration, and dismantlement and abandonment
costs, net of salvage values, are estimated on a property-by-property basis
based on current economic conditions and are amortized to expense as the
Company's subsidiaries' capitalized oil and gas property costs are amortized.
The Company's subsidiaries' properties are all onshore, and the Company expects
that the salvage value of the tangible equipment will substantially offset any
site restoration and dismantlement and abandonment costs.
The provision for depreciation, depletion, and amortization of oil and gas
properties is computed on the unit-of-production method. Under this method, the
Company computes the provision by multiplying the total unamortized costs of oil
and gas properties including future development, site restoration, and
dismantlement and abandonment costs, but excluding costs of unproved properties
by an overall rate determined by dividing the physical units of oil and gas
produced during the period by the total estimated units of proved oil and gas
reserves. This calculation is done on a country by country basis for those
countries with oil and gas production. The cost of unevaluated properties
(approximately $7.5 and $5.2 million at December 31, 2000 and 1999) not being
amortized, to the extent there is such a cost, is assessed quarterly to
determine whether the value has been impaired below the capitalized cost. Any
impairment assessed is added to the cost of proved properties being amortized.
The costs associated with unevaluated properties relate to projects which were
undergoing exploration or development activities or in which the company intends
to commence such activities in the future. The Company will begin to amortize
these costs when proved reserves are established or impairment is determined.
Management believes no such impairment exists at December 31, 2000.
At the end of each quarterly reporting period, the unamortized cost of oil
and gas properties, net of related deferred income taxes, is limited to the sum
of the estimated future net revenues from proved properties using current
prices, discounted at 10%, and the lower of cost or fair value of unproved
properties, adjusted for related income tax effects ("Ceiling Limitation").
The calculation of the ceiling limitation and provision for depreciation,
depletion, and amortization is based on estimates of proved reserves. There are
numerous uncertainties inherent in estimating quantities of proven reserves and
in projecting the future rates of production, timing, and plan of development.
The accuracy of any reserves estimate is a function of the quality of available
data and of engineering and geological interpretation and judgment. Results of
drilling, testing, and production subsequent to the date of the estimate may
justify revision of such estimate. Accordingly, reserve estimates are often
different from the quantities of oil and gas that are ultimately recovered.
During 1998, the Company recorded a $3,171,485 non-cash ceiling writedown
of its oil and gas properties.
Depreciation for all other property and equipment is provided over
estimated useful lives using the straight line method of depreciation for
financial reporting purposes and the accelerated cost recovery method for income
tax purposes. Renewals and betterments are capitalized when incurred. Costs of
F-9
51
maintenance and repairs that do not improve or extend asset lives are charged to
expense.
The Company's investment in limestone reserves will be amortized on a
unit-of-production basis as the reserves are mined and produced. Since the
acquisition of the limestone reserves in 1993, there has been no development or
production of these properties. Management has determined that there is no
impairment in value of the reserves at December 31, 2000.
License agreements and organization expenses - The Company has acquired
certain licenses for the use of horizontal drilling technology developed by BP
Amoco. License agreements are amortized over a fifteen year life, respectively,
using the straight line method of amortization. Amortization charged to
operations was $15,000, $16,593, and $16,510 in 2000, 1999, and 1998,
respectively.
Environmental expenditures - If and when remediation of a property is
probable and the related costs can be reasonably estimated, the environmentally
related remediation costs will be expensed and recorded as liabilities. If
recoveries of environmental costs from third parties are probable, a receivable
will be recorded.
Revenue recognition - Revenue from oil, gas and asphalt production is
recognized in the period in which the product is sold. The related costs and
expenses are recognized when incurred. Revenues from drilling operations are
recognized in the accounting period, which corresponds with the performance of
the service to the customer.
The SEC issued SAB No. 101, "Revenue Recognition in Financial Statements"
("SAB 101") in December 1999. SAB 101 summarizes certain of the SEC staff's
views in applying accounting principles generally accepted in the United States
to revenue recognition in financial statements. The Company adopted SAB 101, as
amended, in the fourth quarter of 2000 and determined there was no material
impact on annual revenue and earnings or the timing of revenue and profit
recognition between quarters during the year.
Federal and State income taxes - The Company follows SFAS No. 109,
"Accounting for Income Taxes", which accounts for income taxes using the
liability method. Under SFAS No. 109, deferred tax liabilities and assets are
determined based on differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates expected to be in effect for the
year in which the differences are expected to reverse. The net change in
deferred tax assets and liabilities is reflected in the statement of operations.
The primary differences between financial reporting and tax reporting relate to
the availability of net operating loss carryforwards, and the use of accelerated
methods of depreciation for income tax purposes.
Earnings per share - Basic earnings/(loss) per share has been computed
using the weighted average number of common shares outstanding during the
respective periods. Diluted earnings per share is computed by considering the
effect of outstanding options, warrants and other convertible securities.
However, diluted earnings per share is the same as basic earnings per share in
instances where a loss has been incurred. The impact of a 5% stock dividend,
which was effective on December 31, 2000, has been reflected in the 2000
earnings per share calculation.
F-10
52
NOTE 3 - PURCHASE OF EQUITY INTEREST IN AND SUBSEQUENT MERGER WITH SABA
PETROLEUM COMPANY
During 1998 and 1999, GREKA entered into the following transactions to purchase
its interests in Saba:
Date Consideration Common Stock Preferred Stock Cost
- ---- ------------- ------------ --------------- ------------
(in 000's)
October 1998 Cash 80,000 $ 70
October 1998 Cash 690 750
November 1998 Cash 333,333 1,500
December 1998 1.34 million
shares of GREKA 2,971,766 14,070
---------- --------------- ------------
Total 3,385,099 690 $ 16,390
========== =============== ============
On October 8, 1998, the Company disclosed that it had acquired over five percent
of the outstanding common stock of Saba, with the intent to gain control of
Saba.
In November, 1998, the Company paid $500,000 to the holder of Saba's Series A
Preferred Stock to extend the term of an option to purchase 6,910 shares of Saba
Series A Preferred Stock for an additional 30 days. The cash payment is
reflected in the above table as part of the November purchases of shares. Such
option expired unexercised.
In December, 1998, the Boards of Directors of both companies approved GREKA's
proposal to acquire Saba. Under the acquisition agreement, Saba's stockholders
would receive one share of the Company's Common Stock for each six shares of
Saba's common stock outstanding.
In addition to the shares owned directly by GREKA, 568,000 Saba shares were
owned by IPH, a GREKA shareholder. Such shares were subject to a call agreement
by GREKA at an exercise price equal to 120% of the cost of such shares to IPH,
payable in cash or common shares of GREKA. IPH had a put agreement that became
effective April 1, 1999 and was exercised on such date. GREKA issued 140,886
shares to IPH in exchange for the shares of SABA owned directly.
In March 1999, the Company, through a wholly owned subsidiary, merged with Saba
in a transaction accounted for as a purchase with a cost of approximately $9.9
million based upon the issuance of 1,233,738 shares of GREKA stock.
GREKA's total acquisition cost of $25.8 million has been allocated to the fair
value of each of Saba's assets and liabilities, as of March 24, 1999 (as
updated) in the following table. (dollars in thousands)
03/24/99
---------
Refinery $ 25,400
Oil and Gas Properties 29,935
Land 16,600
Other Assets 7,027
Liabilities and minority interest (53,207)
---------
Total investment $ 25,755
=========
F-11
53
The following are the unaudited pro forma revenue, net income and income per
share of the Company giving effect to the acquisition of Saba, as if such
acquisition had occurred at the beginning of 1999. The unaudited pro forma
financial data does not purport to be indicative of the financial position or
results of operations that would actually have occurred if the acquisition had
occurred as presented or that may be obtained in the future.
Year Ended
December 31, 1999
-----------------
Dollars in thousands,
except share amounts
Revenue ........................... $ 32,779
Net Income ........................ 1,459
Income per common share ........... 0.34
NOTE 4 - PROPERTY AND EQUIPMENT:
A summary of the Company's subsidiaries' property and equipment as of December
31, 2000 and 1999 is as follows:
2000 1999
------------ ------------
Investment in limestone properties .......... 3,675,973 3,675,973
Oil and gas property ........................ 38,838,169 29,653,061
Land and buildings .......................... 17,247,744 17,210,814
Plant and equipment ......................... 27,398,506 26,875,661
------------ ------------
Total cost .................................. 87,160,392 77,415,509
Accumulated depreciation and depletion ...... (9,978,770) (7,128,995)
------------ ------------
$ 77,181,622 $ 70,286,514
============ ============
Depreciation, depletion and amortization (including an impairment charge in 1998
of $3,171,485) charged against income was $3,592,242 in 2000, $3,023,783 in
1999, and $3,504,953 in 1998.
Useful lives are as follows:
Refinery .............................................. 40 years
Buildings ............................................. 20 to 40 years
Drilling equipment .................................... 5 to 10 years
Transportation equipment .............................. 5 to 6 years
Office and computer equipment ......................... 3 to 10 years
F-12
54
NOTE 5 - EARNINGS PER SHARE
In 1998, the company incurred a net loss and therefore, the basic and diluted
loss per share are the same. Diluted earnings per share for 2000 and 1999 were
calculated as follows:
2000 1999
------------ ------------
Net Income ....................................... $ 4,457,214 $ 3,367,032
Add: Income impact of assumed
conversion of convertible debt ............... 256,770 241,313
------------ ------------
Net income plus impact of assumed conversion ..... $ 14,713,984 $ 3,608,345
============ ============
Weighted Average Common Shares Outstanding ....... 4,262,843 4,002,917
Effect of Dilutive Securities -
Employee stock options and warrants .......... 58,609 151,343
Convertible debt ............................. 228,240 420,588
------------ ------------
Weighted Average Shares plus impact
of assumed conversion ........................ 4,549,692 4,574,848
============ ============
NOTE 6 - INVENTORY
Inventory includes material, labor and manufacturing overhead costs.
Due to the continuous manufacturing process, there is no significant work in
process at any time. Inventory consists of the following:
2000 1999
----------- -----------
Raw Material ........................ $ 368,054 $ 869,735
Finished goods....................... 3,446,938 2,422,645
----------- -----------
Total ............................ $3,814,992 $3,292,380
=========== ===========
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease office space, automobiles, computers, and
other equipment under various operating leases. The Company and its
subsidiaries have options to renew these leases. Aggregate commitments under
these leases at December 31, 2000 were as follows:
Year Ending December 31: Amount
------------------------ -------
2001 $ 190,842
2002 175,032
2003 177,616
2004 824
Rent expense included in the accompanying statements of operations was $274,341,
$370,133, and $76,778 in 2000, 1999, and 1998, respectively.
In October 1994, the Company licensed certain directional drilling technology
from BP Amoco, a major oil corporation. The license currently requires minimum
annual payments of $15,000 per year or $1,639 per well drilled under the
license, whichever is greater, and the amounts are adjusted periodically for
F-13
55
inflation. The Company incurred license payments approximating $15,000, $30,000,
and $15,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
Semi-annual settlements are required under the license, and BP Amoco has the
right to terminate the license for non-payment. If BP Amoco were to terminate
the Company's license, it could have an adverse affect on the Company's
operations.
In 1993, the Company's predecessor acquired a producing mineral interest in
California from a major oil company. At the time of acquisition, the Company's
predecessor's investigation revealed that a discharge of diluent, a light,
oil-based fluid which is often mixed with heavier grades of crude had occurred
on the acquired property. The purchase agreement required the seller to
remediate the area of the diluent spill. After the Company assumed operation of
the property, it became aware of additional diluent contamination. In 2000, the
Company installed a bioventing system that is expected to remediate the
diluent. This matter may no longer be deemed material and no further disclosure
will be made with respect to this matter. If diluent remains, the Company will
evaluate its materiality in the future.
In 1995, the Company's predecessor agreed to acquire an oil and gas interest in
California on which a number of out of production oil wells had been drilled by
the seller. The acquisition agreement required that the Company's predecessor
assume the obligation to abandon any wells that it did not return to production,
irrespective of whether certain consents of third parties necessary to transfer
the property to the Company were obtained. A third party whose consent was
required to transfer the property did not consent to the transfer and is holding
the seller responsible for all remediation. The Company believes it has no
financial obligation to remediate this property because it believes the seller
did not give its predecessor any consideration to enter into the contract for
the property. Since May 2000, the Company commenced remediation on the subject
property as directed by the regulatory agency. Notwithstanding its compliance in
proceeding with any required remediation on seller's account, the Company is
committed to hold the seller accountable for the required obligations of the
property. Since the investigation is not complete the Company cannot make an
accurate estimation of the final cost.
GREKA's subsidiary owns an asphalt refinery in Santa Maria, California, with
which environmental remediation obligations are associated. The party who sold
the asphalt refinery to the Company's subsidiary performs all environmental
obligations that arose during and as a result of its operations of the refinery
prior to the acquisition. There could be additional environmental issues which
may require material remediation efforts in the future.
GREKA's subsidiaries, as is customary in the industry, are required to plug and
abandon wells and remediate facility sites on their properties after production
operations are completed. The cost of such operation will be significant and
will occur, from time to time, as properties are abandoned.
There can be no assurance that material costs for remediation or other
environmental compliance will not be incurred in the future. The occurrence of
such environmental compliance costs could be materially adverse to the Company.
No assurance can be given that the costs of closure of any of the Company's
subsidiaries' other oil and gas properties would not have a material adverse
effect on the Company.
NOTE 8 - FEDERAL AND STATE INCOME TAXES
The components of income (loss) before income taxes for the years ended December
31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
------------ ------------ ------------
United States ................ $ 4,689,371 $ 2,725,143 $ (5,547,645)
International ................ 129,807 687,889 --
------------ ------------ ------------
$ 4,819,178 $ 3,413,032 $( 5,547,645)
============ ============ ============
F-14
56
Components of income tax expense for the years ended December 31, 2000 and 1999
as follows:
2000 1999
---------- ----------
Current
Federal ............... $ 93,787 $ 40,000
State ................. 268,177 46,000
Foreign ............... -- --
---------- ----------
361,964 86,000
Deferred
Federal ............... -- (40,000)
State ................. -- --
Foreign ............... -- --
---------- ----------
-- (40,000)
---------- ----------
$ 361,964 $ 46,000
========== ==========
Due to the losses recorded since inception, no provision or benefit for income
taxes was recorded in 1998.
The effective tax rate differs from the amount that would result from the
application of the statutory rate due primarily to the utilization of net
operating loss carry forwards.
Net deferred income taxes assets, which are significantly comprised of net
operating loss carryforwards, the temporary difference resulting from the use of
different depreciation methods for property and equipment for book and tax
purposes and tax credit carryforwards have been fully reserved for through a
valuation allowance.
A significant net operating loss carryover has been incurred in prior years,
primarily by Petro Union, Horizontal Ventures and Saba. The net operating loss
expires, if unused , as follows:
Expires in Amount
---------- ------------
2008 $ 3,582,000
2009 452,000
2010 64,000
2011 1,067,000
2018 569,000
2019 6,229,000
------------
Total $ 11,963,000
============
The Company's review of its available net operating loss carry forwards is
ongoing. Upon completion of this review, additional net operating loss carry
forwards may be identified.
F-15
57
NOTE 9 - NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consist of the following at December 31, 2000
and 1999:
2000 1999
------------ ------------
9% senior subordinated
Debentures Due 2005 Net of
discount(a) ......................... $ 2,683,933 $ 3,320,778
Loan agreement -(b)..................... 8,700,000 2,986,497
Demand loan agreement with a bank(c) ... -- 794,185
Capital lease obligations(d) ........... 233,437 309,229
Term loan with a bank(e) ............... 340,354 351,562
Notes payable(f) ....................... 2,390,000 2,000,000
15% convertible senior subordinated
Debenture due 2001(g) .............. 1,000,000 1,000,000
Term and Revolving Loan Agreement
GMAC Financial Corporation(h) ...... 20,904,446 22,219,469
Other notes and loans .................. 639,711 638,086
------------ ------------
$ 36,891,881 $ 33,619,806
Less current portion ................... 8,685,110 17,923,981
------------ ------------
Net Long-term debt ..................... $ 28,206,771 $ 15,695,825
============ ============
(a) In June 2000, GREKA exchanged $3.3 million of Saba 9% senior
subordinated convertible debentures for GREKA debentures. The GREKA
debentures are convertible to Company common stock at the option of the
holders of the debentures at any time prior to the due date of the
debenture (December 31, 2005), unless previously redeemed. Upon the
receipt of a duly executed notice of election to convert the GREKA
debenture, the Company will convert the debenture to GREKA common stock
based upon a per share conversion price equal to 95% of the average
closing bid price of its common stock for 30 consecutive trading days
ending one day prior to the receipt of the notice of election to
convert except that the conversion price shall in no case be less than
$8.50 per share nor greater than $12.50 per share. GREKA also has the
right to redeem the GREKA debenture by providing 30 days written notice
of its intent to redeem during which time the debenture holder may
convert his or her debenture. During 2000, $0.5 million debentures
were converted into 41,461 shares of GREKA common stock and $0.1
million debentures were redeemed, with a resulting debenture balance
of $2.7 million.
F-16
58
(b) In June 2000, GREKA's subsidiary entered into a credit and guarantee
agreement with Canadian Imperial Bank of Commerce ("CIBC") and CIBC
World Markets Corp. The agreement provided that GREKA's subsidiary may
borrow up to $47.5 million. A portion of the proceeds were paid to
reduce the current debt of GREKA, which payment resulted in the
complete elimination of all Bank One debt ($3.0 million) incurred by
GREKA in its acquisition of Saba. The facility, which is secured by
GREKA's subsidiary's interest in certain North American oil and gas
properties, specifically provided the financing required to close
GREKA's option to re-purchase the Colombian assets. In December 2000,
the facility was amended to extend the maturity date from December 1,
2000 to February 28, 2001 and fix the maximum available amount of the
facility pending repayment.
In March 2001, GREKA's subsidiary entered into a credit and guarantee
agreement with the Bank of Texas, N.A. ("Bank of Texas"). The agreement
provides that GREKA's subsidiary may borrow up to $75 million. GREKA
closed a revolving credit line of $16 million with an initial advance
of $13.2 million against the line secured by GREKA's subsidiary's
interest in certain North American oil and gas properties. A portion of
the proceeds were used to reduce the current debt of GREKA, which
payment resulted in the complete elimination of all obligations owed to
CIBC.
F-17
59
(c) At December 31, 1999, the Company's Canadian subsidiary had a demand
revolving reducing loan with a borrowing base of $1.2 million. Interest
was payable at a variable rate equal to the Canadian prime rate plus
0.75% per annum (7.25% at December 31, 1999) The loan was
collateralized by the subsidiary's oil and gas producing properties and
a fixed floating charge debenture in the principal amount of $3.6
million over all assets of the subsidiary. The borrowing reduces at the
rate of $34,175 per month. In accordance with the terms of the loan
agreement, $290,001 of the total loan balance of $794,185 was
classified as currently payable at December 31, 1999. The Canadian
subsidiary was sold during 2000.
(d) A subsidiary of the Company leases certain equipment under agreements
that are classified as capital leases. Lease payments vary from three
to five years. The effective interest rate on the total amount of
capitalized leases at December 31, 2000 and 1999 was 14.1% and 8.21%,
respectively.
(e) The term loan with a bank ($340,354) is due to the seller of a fee
interest in property in which the Company's subsidiary owns mineral
interests. The note bears interest at the rate of prime plus 1% (_____%
and 10.25% at December 31, 2000 and 1999, respectively), is scheduled
for repayment in monthly installments to a maturity date of August 2002
and is collaterized by the fee interest acquired by the subsidiary.
(f) Effective January 1, 2000, two prior loans from GREKA's then affiliate,
International Publishing Holdings ("IPH"), which matured December 31,
1999 in the aggregate amount of $2 million were consolidated into one
loan with a maturity date of June 30, 2000, bearing interest at the
rate of 9% per annum from January 1, 2000 payable quarterly, with
monthly installment payments of $100,000. The Company paid $180,000 in
consideration of the loan extension. The terms of the extension
provided that if the entire unpaid principal and/or accrued interest
was not paid at maturity, the amount of principal owed and rate of
interest shall increase by $390,000 and 6%, respectively. At December
31, 2000, the Company owed IPH $2,569,250 of principal and accrued
interest. The loan, which matures on December 31, 2002, is
collateralized by all of the issued and outstanding shares of capital
stock of a subsidiary.
(g) On February 1, 2001, GREKA paid its 15% convertible senior subordinated
debentures in the principal amount of $1 million that were issued in
February 1999, and the security of GREKA's subsidiary's interest in
limestone deposits was released. There were no conversions by debenture
holders into GREKA common stock at the conversion price of $20.00 per
share.
(h) In November 1999, the Company entered into a loan and security
agreement with GMAC Commercial Credit LLC ("GMAC"). That agreement
amends the loan and security agreement the parties entered into in
April 1999. The November 1999 agreement increased from $11 million to
$35 million the amount which GREKA's subsidiaries may borrow from GMAC
upon the satisfaction of the terms and conditions of the agreement. The
financing consists of a term loan of $25 million and a revolving credit
facility of $10 million. Of the proceeds, $11.2 million were used to
reduce the indebtedness owed by Saba to Bank One. The financing is
secured by GREKA's subsidiaries' interests in certain California oil
and gas properties and real estate. The term loan had an outstanding
balance of $17,500,000 and the revolving credit facility $4,719,469 at
December 31, 1999. Amounts outstanding under the credit facility bear
interest at the rate of prime plus 1% (9.25% at December 31, 1999).
Amortization of the term loan began in April 2000, and accordingly,
$4.2 million of the term loan amount was classified as currently
payable at December 31, 1999.
In February 2001, the credit facility with GMAC was increased for a
third time. The transaction provides additional financing of up to $46
million by increasing the principal amount of the term loan from $25
million to $36 million, and $10 million for working capital.
Modifications to the terms of the credit agreement include the
extension of the credit facility to a term through November 30, 2005.
NOTE 10 - OTHER LIABILITIES
Other liabilities of $7,967,940 and $8,979,927 at December 31, 2000 and 1999,
respectively, primarily represent the Company's estimated remaining exposure to
litigation acquired in the Saba acquisition.
NOTE 11 - LITIGATION:
Pembrooke Calox, Inc. v. GREKA Energy Corporation, et al. (Index No. 604905/99,
Supreme Court, New York County, October 1999). Pembrooke Calox, Inc.
("Pembrooke") brought an action against GREKA and others seeking damages of
approximately $5 million for an alleged breach of a settlement agreement and
related contracts pursuant to which Pembrooke was to receive GREKA's interest in
a limestone reserve located in Indiana in exchange for payment on a $5.7 million
non-recourse promissory note. Pembrooke has not paid any funds to the Company.
Pembrooke alleges that it was unable to make such payment because of GREKA's
F-18
60
purported failure to provide certain geological documents concerning mineral
reserves located under the property. GREKA has filed fraud-based counterclaims,
and the parties have agreed that title to the property will continue to be held
in escrow pending adjudication of all claims. While GREKA plans to vigorously
defend all claims asserted by Pembrooke and seek all counter-relief, the
litigation is in its discovery stages.
RGC International Investors, LDC v. GREKA Energy Corporation, et al. (C.A. No.
17674NC, Delaware Chancery Court, December 1999). RGC International Investors,
LDC ("RGC") brought suit against GREKA, Saba and the former directors of Saba
based on claims arising from GREKA's acquisition of Saba on March 24, 1999. RGC
sought, among other things, rescission of the merger and an unspecified amount
of damages for GREKA's alleged failure adequately to provide for RGC's rights as
a Saba preferred shareholder in consummating that merger. In November 2000, the
court granted GREKA's motion to dismiss those aspects of RGC's complaint that
rely directly upon RGC's prior rights as an old Saba preferred shareholder,
determining that RGC relinquished those rights in exchange for a note as
contemplated in a term sheet with GREKA. This resulted in the court's dismissal
of eight of the nine counts asserted by RGC, effectively dismissing from this
litigation the former directors of Saba. RGC subsequently filed an amended
complaint to state certain equitable and other causes of action against GREKA
and Saba arising from such term sheet and the note contemplated therein. GREKA
filed counter-claims which were substantially dismissed in March 2001. GREKA
plans to vigorously defend all claims asserted by RGC. The trial is scheduled to
commence during April, 2001.
Sabacol, Inc. v. Omimex Resources, Inc., Omimex de Colombia, Ltd., and Omimex
International Corporation dba Omimex Petroleum, Inc. (C.A. No. BC224339,
California Superior Court, Los Angeles County, February 2000). GREKA's
subsidiary filed an action against Omimex Resources, Inc. and its subsidiaries
seeking a judgment declaring the Company's right to rescind the June 1999 sale
agreement by which the Company would own the Colombian assets as of January 1,
1999 or, alternatively, an order directing specific performance of the agreement
by Omimex which includes reassignment of the Colombian assets to the Company.
The Company's subsidiary alleges claims for breach of contract, breach of
covenant of good faith and fair dealing, negligent misrepresentation and
fraudulent inducement and seeks damages. Omimex alleges counter-claims of breach
of contract and seeks declaratory judgment. The parties were working toward
closing on the Company's re-purchase of the Colombian assets, which closing was
extended to July 2000. Omimex refused to close as proposed by the Company, and
in August 2000, after the court's finding of a likelihood that the Company will
prevail on the merits of its claims for Omimex's breach of the agreement and
breach of the implied covenant of good faith and fair dealing, the Company was
granted a temporary restraining order and then an injunction securing and
protecting GREKA's rights to the assets and related cash flow through trial.
While the subsidiary plans to vigorously pursue all claims against Omimex and
defend all counter-allegations, the litigation is in its preliminary discovery
stages.
Pond v. GREKA Energy Corporation, et al. (Case No. 1007775, Superior Court of
the State of California, County of Santa Barbara, Santa Maria Branch, May 2000).
Eddie and Jeanne Pond have brought an action against GREKA, Unocal Corporation
and others seeking damages of an unspecified amount based on claims arising from
defendants' alleged contamination of the surface property owned by the Ponds. As
a result of discovery, the parties have engaged in settlement negotiations and,
based on those negotiations, it has become clear that this matter may no longer
be deemed material and no further disclosure will be made with respect to this
matter.
From time to time, the Company and its subsidiaries are a named party in
legal proceedings arising in the ordinary course of business. While the outcome
of such proceedings cannot be predicted with certainty, management does not
expect these matters to have a material adverse effect on the Company's
financial condition or results of operations.
NOTE 12 - SETTLEMENT AGREEMENT WITH CAPCO RESOURCES, LTD.
In October 2000, the Company closed its settlement agreement with Capco
Resources, Ltd. Under the terms of the agreement the Company bought back 76,923
shares in the third quarter, and in October, bought back 723,077 additional
shares of the Company's common stock for cash consideration of $5.2 million and
the forgiveness of a note receivable. These shares have been canceled. The
Company has voting control through December 31, 2002 of 490,000 shares of the
Company's common stock remaining with Capco.
F-19
61
NOTE 13 - RELATED PARTY TRANSACTIONS
GREKA has an agreement with Grupo de Creacion, Ltd. ("GDC"), a Gibraltar
corporation and a shareholder of the Company, for any European financing. Under
the agreement, GDC assisted GREKA in arranging a private convertible debenture
offering during 1999 resulting in proceeds of approximately $1,000,000. As
compensation, GDC received a negotiated commission of 10% of the financing less
expenses.
The Company has a note receivable at December 31, 2000 from an officer of the
Company of $750,000 relating to an exercise of stock options on December 26,
2000. This note was repaid on January 9, 2001.
NOTE 14 - STOCK OPTIONS AND WARRANTS
At December 31, 2000, GREKA had granted 1.4 million options to acquire shares of
common stock of GREKA, of which 1,025,000 were granted in 2000 at an exercise
price of $8.625 to employees, directors and consultants of the Company. A total
of 164,000 options have terminated through attrition and 178,000 options were
exercised during 2000, leaving the total option grants outstanding as of
December 31, 2000 at 1,058,000 options. These figures reflect the impact of
antidilution provisions effecting the options of the 5% stock dividend granted
in January, 2001 to shareholders of record on December 31, 2000.
A summary of the outstanding options follows:
2000 1999 1998
---------- ---------- ----------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ---------- ---------- ----------
Options outstanding,
January 1 .............. 393,750 $ 6.60 420,000 $ 6.70 315,000 $ 4.76
Options granted ......... 1,076,250 $ 8.21 14,700 7.38 262,500 7.86
Options exercised ....... 186,900 $ 5.17 -- -- -- --
Options terminated ...... 172,200 $ 8.21 40,450 7.86 157,500 4.76
---------- ---------- ---------- ---------- ---------- ----------
Options outstanding,
December 31 ............ 1,110,900 $ 8.54 393,950 $ 6.60 $ 420,000 $ 6.70
Exercisable at
year end .............. 233,100 $ 8.26 389,550 6.59 31,500 4.76
F-20
62
A summary is as follows of the warrants to purchase common stock granted by the
Company on September 29, 1997:
Number of
Warrants Effective Expiration Number of Warrants
Granted Option Price Date Date Exercised in 2000
- --------- ------------ --------------- ---------------- ------------------
134,138 $14.29 January 1, 1998 December 1, 2000 502
A summary is as follows of the Class B warrants to purchase common stock granted
by the Company on February 26, 1999:
Number of
Warrants Effective Expiration Number of Warrants
Granted Option Price Date Date Exercised in 2000
- --------- ------------ ---------------- ----------------- ------------------
105,000 $9.52 February 1, 1999 December 31, 2001 32,025
As permitted under SFAS 123, the Company has elected to continue to account for
stock-based compensation under the provisions of APB Opinion No. 25. Had
compensation cost been determined consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the following pro
forma amounts:
December 31
-------------------------------------
2000 1999 1998
---------- ----------- ----------
Net Income (Loss) as reported $4,457,214 $3,367,032 $(5,547,645)
Pro Forma 4,314,824 2,654,911 (6,139,691)
Basic EPS as reported $ 1.05 $0.84 $(3.42)
Pro Forma basic EPS $ 1.01 $0.66 $(3.78)
The fair value of each option granted in 2000, 1999 and 1998 is estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions: (a) risk free interest rates ranging from 5.2% to 6.4% (b) expected
volatility of 59.2% to 64.2%(c) average time to exercise of 7 years and (d)
expected dividend yield of zero.
NOTE 15 - SALE OF BEAVER LAKE RESOURCES CORPORATION
In June and July 2000, the Company's Canadian subsidiary sold a portion of its
non-producing oil and gas assets for an aggregate purchase price of $0.9
million. In August 2000, the Company sold its Canadian subsidiary, Beaver Lake
Resources Corporation, for a net price of $649,333 resulting in the Company's
disposition of all its non-core oil and gas assets in Canada. This amount is
included in the Company's notes receivable. A loss of $991,439 was recorded
relating to the sale of this subsidiary.
NOTE 16 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
The following data is presented pursuant to FASB Statement No. 69 with respect
to oil and gas acquisition, exploration, development and producing activities,
which is based on estimates of year-end oil and gas reserve quantities and
forecasts of future development costs and production schedules. These estimates
and forecasts are inherently imprecise and subject to substantial revision as a
result of changes in estimates of remaining volumes, prices, costs and
production rates.
F-21
63
Future cash inflows are estimated using year-end prices. Oil and gas prices at
December 31, 2000 and 1999 are not necessarily reflective of the prices the
Company expects to receive in the future.
Proved developed and undeveloped reserves 2000 1999 1998
---------------------------- ---------------------------- ------------
Oil (Bbl) Gas (Mcf) Oil (Bbl) Gas (Mcf) Oil (Bbl)
------------ ------------ ------------ ------------ ------------
Balance beginning of the year .......... 10,531,706 17,598,296 250,221 0 2,553,007
Production ............................. (770,007) (1,806,764) (504,961) (861,261) (12,935)
Discoveries, extensions, etc. ..........
Acquisitions of reserves in place ...... -- -- 10,786,446 18,459,557 --
Sale of reserves in place
Revisions of previous estimates ........ 2,250,361 4,283,034 -- -- (2,289,851)
------------ ------------ ------------ ------------ ------------
Balance end of the year ................ 12,012,060 20,074,566 10,531,706 17,598,296 250,221
Capitalized cost 2000 1999 1998
------------ ------------ ------------
Proven oil and gas property $ 31,318,933 $ 19,812,588 $ 3,445,816
Unproven oil and gas property 7,519,236 2,743,673 --
------------ ------------ ------------
38,838,169 22,556,261 3,445,816
Less accumulated depletion (9,970,696) (4,801,051) (3,242,711)
------------ ------------ ------------
Net investment in oil and gas property $ 28,867,783 $ 17,755,210 $ 203,105
Discounted future net cash flows 2000 1999 1998
-------------- -------------- --------------
Future cash flows $ 421,837,100 $ 245,779,700 $ 1,725,500
Future cost:
Development cost (28,604,800) (24,109,700) (440,000)
Production cost (116,726,900) (107,662,800) (793,700)
Future net cash flow before income
taxes 276,505,400 114,007,200 491,800
Future income taxes (112,628,500) (46,854,300) (231,100)
-------------- -------------- --------------
Standardized measure of discounted
future net cash flows $ 163,876,900 $ 67,152,900 $ 260,700
Changes in Discounted Future Net Cash Flows
2000 1999 1998
------------ ------------- -----------
Balance beginning of year $ 67,152,600 $ 260,700 $ 4,610,300
Production Cost 9,064,100 (3,499,657) (17,443)
Net Change in prices and
production costs 65,890,771 (107,662,800) (3,721,007)
Changes in future development cost 4,495,100 24,109,700 4,841,800
Revision of previous quantity
estimates 98,956,841 153,918,657 (4,771,053)
Accretion of discounts 6,715,260 26,000 861,000
Net change in income taxes (49,945,700) -- 1,751,000
Changes in production rates,
timing and other (38,454,072) -- (3,293,897)
------------ ------------- -----------
Standardized measure of discounted
future cash flows $163,876,900 $ 67,152,600 $ 260,700
NOTE 17 - CONDENSED QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2000
Sales 9,680,426 13,699,489 12,305,379 13,381,840
Operating Income (loss) 1,906,359 4,319,774 5,802,482 (334,469)
Net Income (loss)(1)(2)(3) 25,880 3,535,160 4,640,048 (3,743,874)
Diluted earning per
common share:
Net Income (loss)(1)(2)(3) 0.01 0.80 0.96 (0.73)
1999
Sales 353,102 8,695,456 9,633,912 10,455,340
Operating Income (loss) (502,994) 1,596,964 2,126,456 1,867,705
Net Income (loss) (1,132,542) 1,254,540 1,409,032 1,836,002
Diluted earning per
common share:
Net Income (loss) (0.38) 0.31 0.33 0.53
(1) The first quarter net income and earnings per share data has been restated
(from previously reported results) to reflect the cumulative effect of the
change in accounting for inventory of $853,109 as of January 1, 2000.
(2) The fourth quarter net loss and loss per share data include the impact of
the loss on the sale of the Company's Canadian subsidiary of $991,439.
(3) The operating income, net income and earnings per share data for the first
three quarters will be restated (from previously reported amounts) to
reflect certain fourth quarters adjustments in the first three quarters of
2000. This restatement will be reflected in an amendment.
NOTE 18 - SUBSEQUENT EVENTS
On February 1, 2001, GREKA paid its 15% convertible senior subordinated
debentures in the principal amount of $1 million and the security
interest in limestone deposits was released.
In February 2001, the credit facility with GMAC was increased for a
third time. The transaction provides additional financing of up to $46
million by increasing the principal amount of the term loan from $25
million to $36 million, and $10 million for working capital.
Modifications to the terms of the credit agreement include the
extension of the credit facility to a term through November 30, 2005.
In March 2001, GREKA's subsidiary entered into a credit and guarantee
agreement with the Bank of Texas, N.A. ("Bank of Texas"). The agreement
provides that GREKA's subsidiary may borrow up to $75 million. GREKA
closed a revolving credit line of $16 million with an initial advance
of $13.2 million against the line secured by GREKA's subsidiary's
interest in certain North American oil and gas properties. A portion of
the proceeds were used to reduce the current debt of GREKA, which
payment resulted in the complete elimination of all obligations owed to
CIBC.
F-22
64
Greka Energy Corporation and subsidiaries
Schedule II - Valuation and qualifying accounts
For Each of the Three Years Ended December 31, 2000
Balance at Charged to Charged to Balance
Beginning of costs and other at End of
Year Period expenses accounts Deductions Period
- ------ ------------ ---------- ---------- ---------- ---------
2000 $1,343,852 $ $ 827,144
1999 $ 74,000 -- 1,269,852(a) -- 1,343,852
1998 74,092 -- -- (92) 74,000
(a) Amount represents the reserve for doubtful accounts of Saba petroleum
Company, which was acquired on March 24, 1999.
F-23
65
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GREKA ENERGY CORPORATION
Dated: April 17, 2001 By: /s/ Randeep S. Grewal
----------------------------------------
Randeep S. Grewal, Chairman of the Board
and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Randeep S. Grewal
- ----------------------
Randeep S. Grewal Chairman of the Board of April 17, 2001
Directors and Chief
Executive Officer
(Principal Executive
Officer, Financial Officer
and Accounting Officer)
/s/ Jan F. Holtrop
- ----------------------
Dr. Jan F. Holtrop Director April 17, 2001
/s/ George C. Andrews
- ----------------------
George C. Andrews Director April 17, 2001
/s/ Dai Vaughan
- ----------------------
Dai Vaughan Director April 17, 2001
/s/ Kenton D. Miller
- ----------------------
Kenton D. Miller Director April 17, 2001
66
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Restated Articles of Incorporation of Horizontal Ventures
(filed as Exhibit 3A to Horizontal Ventures' Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1998 (File No.
0-20760) and incorporated herein by reference)
3.2 Articles of Amendment to Articles of Incorporation effective
March 22, 1999 (filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K dated March 15, 1999 and incorporated
herein by reference)
3.3 ByLaws of Horizontal Ventures (incorporated by reference to
Exhibit No. 3 to the Horizontal Ventures' Registration
Statement (#33-24265-LA)
3.4 Amendment to Article II of the Bylaws of GREKA (filed as
Exhibit 3.1 to the GREKA Report on Form 10-Q for the Quarter
ended September 30, 1999 and incorporated by reference herein)
10.1 Amendment to Promissory Notes dated January 20, 2000 between
Greka and International Publishing Holding, Inc. (filed as
Exhibit 10.13 to GREKA'S amended Report on Form 10-K filed on
April 14, 2000 for the fiscal year ended December 31, 1999,
and incorporated by reference herein)
10.2 Beaver Lake Resources Corporation March 1997 Re-Financing
Agreement (filed as Exhibit 10.3 to Saba's quarterly report on
Form 10-QSB for the quarter ending March 31, 1997 (File No.
001-13880) and incorporated herein by reference)
10.3 Preferred Stock Transfer Agreement dated October 7, 1998
between Horizontal Ventures and RGC (filed as Exhibit 10.1 to
Horizontal Ventures' Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998 and incorporated herein by
reference).
10.4 Common stock Purchase Agreement dated October 8, 1998 between
Horizontal Ventures and Saba (filed as Exhibit 10.2 to
Horizontal Ventures' Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998 and incorporated herein by
reference).
10.5 Option Agreement dated July 22, 1998 between Horizontal
Ventures and IPH (filed as Exhibit 10.3 to Horizontal
Ventures' Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998 and incorporated herein by
reference).
10.6 Promissory Note dated October 6, 1998 payable by Horizontal
Ventures to IPH (filed as Exhibit 10.4 to Horizontal Ventures'
Quarterly on Form 10-QSB for the quarter ended September 30,
1998 incorporated herein by reference).
10.7 Pledge Agreement dated October 6, 1998 between Horizontal
Ventures and IPH (filed as Exhibit 10.5 to Horizontal
Ventures' Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998 and incorporated herein by
reference).
67
10.8 Promissory Note dated November 4, 1998 payable by Horizontal
Ventures to IPH (filed as Exhibit 10.6 to Horizontal Ventures'
Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998 and incorporated herein by reference).
10.9 Pledge Agreement dated November 4, 1998 between Horizontal
Ventures and IPH (filed as Exhibit 10.7 to Horizontal
Ventures' Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998 and incorporated herein by
reference).
10.10 Letter Agreement dated October 8, 1998 between Saba and
Horizontal Ventures (filed as Exhibit 10.3 to Saba's Current
Report on Form 8-K dated October 6, 1998 (File No. 001-138807)
and incorporated herein by reference).
10.11 Stock Exchange Agreement dated November 23, 1998 among
Horizontal Ventures and the Shareholders of Saba Acquisub,
Inc. (filed as Exhibit 10.85 to the GREKA Engrgy Report on
Form 10-K/A for the fiscal year ended December 31, 1998 and
incorporated herein by reference).
10.12 Agreement to Amend Common stock Purchase Agreement dated
December 3, 1998 between Saba and Horizontal Ventures (filed
as Exhibit 10.84 to the GREKA Engrgy Report on Form 10-K/A for
the fiscal year ended December 31, 1998 and incorporated
herein by reference).
10.13 Amendment No. 1 dated December 15, 1998 to Stock Exchange
Agreement dated November 23, 1998 among Horizontal Ventures
and the shareholders of Saba Acquisub, Inc. 10.1 to Saba's
Current Report on Form 8-K dated December 18, 1998 File No.
001-13880) and incorporated herein by reference).
10.14 Amendment to $1,500,000 Promissory Note (filed as Exhibit
10.86 to the Amendment No. 2 to the Company's Registration
Statement filed Form S-4 dated February 19, 1999 and
incorporated herein by reference)
10.15 Exchange Agreement between GREKA and RGC International
Investors (filed as Exhibit 10.87 to the GREKA Engrgy Report
on Form 10-K/A for the fiscal year ended December 31, 1998 and
incorporated herein by reference).
10.16 Secured Convertible Promissory Note (filed as Exhibit 10.88 to
the GREKA Engrgy Report on Form 10-K/A for the fiscal year
ended December 31, 1998 and incorporated herein by reference).
10.17 Asset Purchase Agreement dated March 17, 1999 among Sabacol,
Inc. and the Omimex Group (filed as Exhibit 10.89 to the GREKA
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998 and incorporated by reference herein).
10.18 Loan and Security Agreement dated April 30, 1999 among BNY
Financial Corporation, GREKA Integrated, Inc., Saba Realty,
Inc. and Santa Maria Refining Company (filed as Exhibit 10.1
to the GREKA Report on Form 10-Q for the quarter ended March
31, 1999 and incorporated by reference herein)
10.19 Arrangement Agreement dated June 16, 1999 among GREKA Energy
Corporation and Beaver Lake Resources Corporation (filed as
Exhibit 10.1 to the GREKA Report on Form 10-Q for the quarter
ended June 30, 1999 and incorporated by reference herein)
68
10.20 Forbearance Agreement dated April 19, 1999, First Amendment To
Forbearance Agreement dated April 30, 1999, and Amended And
Restated Forbearance Agreement dated July 15, 1999 among Bank
One, Texas, Saba Petroleum Company and GREKA Energy
Corporation (filed as Exhibit 10.2 to the GREKA Report on Form
10-Q for the quarter ended June 30, 1999 SEC file #0-207670
and incorporated by reference herein)
10.21 Closing Agreement dated June 30, 1999 among Sabacol, Inc. and
Omimex Resources, Inc. et al. (filed as Exhibit 4.2 to the
GREKA Report on Form 8-K filed July 14, 1999 and incorporated
by reference herein)
10.22 Amended and Restated Executive Employment Agreement dated
November 3, 1999 among Randeep S. Grewal and GREKA (filed as
Exhibit 10.2 to the GREKA Report on Form 10-Q for the quarter
ended September 30, 1999 and incorporated by reference herein)
10.23 Amendment dated September 24, 1999 to Loan and Security
Agreement dated April 30, 1999 among BNY Financial
Corporation, GREKA Integrated, Inc., Saba Realty, Inc. and
Santa Maria Refining Company (filed as Exhibit 10.3 to the
GREKA Report on Form 10-Q for the quarter ended September 30,
1999 and incorporated by reference herein)
10.24 Rights Agreement dated November 3, 1999 (filed as Exhibit 10.4
to the GREKA Report on Form 10-Q for the quarter ended
September 30, 1999 and incorporated by reference herein)
10.25 First Amended and Restated Loan and Security Agreement dated
November 30, 1999 by and among GMAC Commercial Credit LLC,
Greka Integrated, Inc., Saba Realty, Inc. and Santa Maria
Refining Company (filed as Exhibit 10.1 to the GREKA Report on
Form 8-K filed February 18, 2000 and incorporated by reference
herein)
10.26 Letter Agreement dated December 13, 1999 by and among GMAC
Commercial Credit LLC, Greka Integrated, Inc., Saba Realty,
Inc. and Santa Maria Refining Company (filed as Exhibit 10.2
to the GREKA Report on Form 8-K filed February 18, 2000 and
incorporated by reference herein)
10.27 Credit And Guarantee Agreement dated as of June 19, 2000 among
Greka AM, Inc. as borrower, the Company as guarantor, CIBC,
Inc. as lender, Canadian Imperial Bank of Commerce as
administrative agent, and CIBC World Markets Corp as arranger
(filed as Exhibit 10.1 to the GREKA Report on Form 10-Q for
the quarter ended June 30, 2000 and incorporated by reference
herein)
10.28 Settlement Agreement and Release by and among GREKA and
Randeep S. Grewal and Capco Resources, Ltd., Capco Energy,
Inc., and Ilyas Chaudhary dated August 17, 2000 (filed as
Exhibit 10.8 to the Post Effective Amendment No. 1 to the
registration statement on Form S-2, file no. 333-45352, and
incorporated by reference herein)
10.29 Amendment No. 1 dated as of December 1, 2000 to the CIBC
Credit and Guarantee Agreement dated June 19, 2000 (filed as
Exhibit 10.1 to the GREKA Report on Form 8-K/A filed December
11, 2000 and incorporated by reference herein)
10.30 First Amendment To First Amended And Restated Loan And
Security Agreement dated February 22, 2001 by and among GMAC
Commercial Credit LLC, Greka Integrated, Inc., Saba Realty,
Inc. and Santa Maria Refining Company*
10.31 Loan Agreement dated as of March 1, 2001 among Greka AM, Inc.
as borrower, the Company as guarantor, and the Bank of Texas,
National Association*
21.1 Subsidiaries of GREKA*
69
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Netherland, Sewell & Associates, Inc.*
99.9 Preferability letter of Arthur Andersen LLP*
* Filed herewith.