-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbSrKtKm1VdxkxPY7nsjfonRXcclCgmE2wiI8oIDC3a7mnF9bI+uNzbY3r1S1G6p R2h/hPtqtLa9eEqKM1cqJw== 0000899243-99-000661.txt : 19990412 0000899243-99-000661.hdr.sgml : 19990412 ACCESSION NUMBER: 0000899243-99-000661 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOODRICH PETROLEUM CORP CENTRAL INDEX KEY: 0000943861 STANDARD INDUSTRIAL CLASSIFICATION: 1311 IRS NUMBER: 760466193 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12719 FILM NUMBER: 99583778 BUSINESS ADDRESS: STREET 1: 333 TEXAS STREET STREET 2: SUITE 1375 CITY: SHREVEPORT STATE: LA ZIP: 71101-5319 BUSINESS PHONE: 3184291375 MAIL ADDRESS: STREET 1: 333 TEXAS STREET STREET 2: SUITE 1375 CITY: 333 TEXAS STREET STATE: LA ZIP: 71101-5319 10-K 1 FORM 10-K - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For Fiscal Year Ended December 31, 1998 Commission file number 1-7940 GOODRICH PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) Delaware 76-0466193 (State of incorporation) (I.R.S. Employer Identification No.) 5847 San Felipe, Suite 700 Houston, Texas 77057 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code is (713) 780-9494
Name of each exchange Title of each class on which registered ------------------- ----------------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.20 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Series A Preferred Stock, $1.00 par value NASDAQ Small Cap
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] At March 26, 1999 there were 5,247,705 (adjusted for reverse stock split) shares of Goodrich Petroleum Corporation common stock outstanding. The aggregate market value of shares of common stock held by non-affiliates of the registrant as of March 23, 1999 was approximately $5,903,668 based on a closing price of $1.125 per share on the New York Stock Exchange on such date. DOCUMENTS INCORPORATED BY REFERENCE
Document Part/Item of Incorporation -------- ----------------------------- Proxy Statement for the 1999 Annual Meeting of Shareholders Part III, Item 10, 11, 12, 13
- - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- PART I Items 1 and 2. Business and Properties. General Goodrich Petroleum Corporation and subsidiaries ("Goodrich" or "the Company") is an independent oil and gas company engaged in the exploration, development, production and acquisition of oil and natural gas properties in the onshore portions of the United States, primarily the states of Louisiana and Texas. The Company owns working and overriding royalty interests in 91 active oil and gas wells located in 37 fields in eight states. At December 31, 1998, Goodrich had estimated proved reserves of approximately 3,093,000 barrels of oil and condensate and 28.1 Bcf of natural gas, or an aggregate of 46.7 Bcfe with a pre-tax present value of future net revenues, discounted at 10%, of $40.63 million. The Company's principal executive offices are located at 5847 San Felipe, Suite 700 Houston, Texas 77057. The Company also has offices in Shreveport, Louisiana. At March 2, 1999 the Company had 16 employees. Company Background Goodrich resulted from a business combination on August 15, 1995 between La/Cal Energy Partners ("La/Cal") and Patrick Petroleum Company and subsidiaries ("Patrick"). La/Cal was a privately held independent oil and gas partnership formed in July 1993 and engaged in the development, production and acquisition of oil and natural gas properties, primarily in Southern Louisiana. Patrick was a NYSE-listed independent oil and gas company engaged in the exploration, production, development and acquisition of oil and natural gas properties in the continental United States. Patrick's oil and gas operations and properties were primarily located in West Texas and Michigan at the time of the combination, with additional operations and properties in certain western states. On January 31, 1997, the Company acquired the oil and gas properties of La/Cal Energy Partners II ("La/Cal II") and certain working interest owners for a purchase price of $16.5 million ("La/Cal II Acquisition"). The purchase price was comprised of $1.5 million in cash, the assumption of $7.5 million of La/Cal II long-term debt and the issuance of 750,000 shares of Series B convertible preferred stock of the Company ("Series B Preferred Stock") with an aggregate liquidation value of $7.5 million. Oil and Gas Operations and Properties The following is a summary description of the Company's oil and gas properties. Louisiana The majority of the Company's proved natural gas reserves are in the Southern Louisiana producing region. The Southern Louisiana producing region refers to the geographic area which covers the onshore and in-land waters of South Louisiana lying in the southern one-half of the state of Louisiana, which is one of the world's most prolific oil and natural gas producing sedimentary basins. The region generally contains sedimentary sandstones which are of high qualities of porosity and permeabilities. There are a myriad of types of reservoir traps found in the region. These traps are generally formed by faulting, folding and subsurface salt movement or a combination of one or more of these. Salt movement has resulted in a large number of shallow piercement salt domes as well as deeper movements, which have resulted in both large and small anticlinal structures. The formations found in the Southern Louisiana producing region range in depth from 1,000 feet to 20,000 feet below the surface. These formations range from the Sparta and Frio formations in the northern part of the region to Miocene and Pleistocene in the southern part of the region. The Company's production comes predominately from Miocene and Frio age formations. 2 Kings Ridge 96 Field. Kings Ridge 96 is located in Lafourche Parish, Louisiana. King's Ridge Field was discovered by Natural Gas and Oil Company in 1954. The field is set up geologically by three main faults which strike east- west and create hydrocarbon traps on the downthrown side of the faults. Typically, these downthrown traps are three-way structures that produce from Miocene sands ranging in depth from 9,000' to 13,000'. Goodrich has acquired approximately 307 acres from the Lafourche Parish School Board and 114 acres from the Grandison Trust. Goodrich as operator has drilled and completed three wells in the field to date and has an approximate 50% working interest. Isle St. Jean Charles Field. Isle St. Jean Charles Field is located in Terrebonne Parish, Louisiana. The field is a northwest extension of the Bayou Jean LaCroix Field located in the southeastern part of the Parish. These fields are trapped on a four-way closure downthrown on a major east-west trending down to the south fault. Production is from multiple Miocene-aged sands which are normally pressured and range in depth from 9,000 feet to 13,000 feet. The field was developed primarily in the 1950's by Exxon and reservoirs have exhibited both depletion and water drive mechanisms. To date, these fields have produced in excess of 51 billion cubic feet of gas and 6.52 million barrels of oil and condensate. There are currently five active wells producing in these fields. Goodrich acquired its working interest in its leasehold of approximately 425 acres through both acreage acquisitions and a farmout from Fina, et al. In December 1997, Goodrich drilled the Dupont 38 #1 well. Goodrich is operator and holds an approximate 38% working interest. Second Bayou Field. The Second Bayou Field is located in Cameron Parish, Louisiana and was discovered in 1955 by the Sun Texas Company. Goodrich is the operator of seven producing wells, six of which are dually completed, and has an average working interest of approximately 29% in 1,395 gross acres. To date, the field has produced over 422 Bcf of natural gas and 2.7 million barrels of oil from multiple Miocene aged sands ranging from 4,000 to 15,200 feet. Goodrich drilled and dually completed the Miami Fee No. 9 and No. 10 during 1998 based off of subsurface control and 3-D seismic which was shot in 1997. The two wells average 1,052 barrels of oil per day and 1.5 million cubic feet of gas per day during December 1998. Other major operators in the area are Fina Oil and Chemical Company, Texaco Exploration and Producing , Inc. and Newfield Exploration. Lake Raccourci Field. The Lake Raccourci Field was discovered by Humble Oil and Refining Company ("Exxon") in 1949, with the field extended to the South by Pan American ("Amoco") in 1958. Geologically, the field is a large four-way dipping closure which is cross-cut by numerous Northeast-Southwest striking down to the South faults. The field has produced from a minimum of eighteen different Miocene age sandstones, which range in depth from 9,000 to 16,500 feet. These normally and abnormally pressured reservoirs exhibit depletion, water and combination drive mechanisms, and have produced in excess of 832 billion cubic feet of gas and 20 million barrels of oil and condensate. There are currently nine producing wells in the field. Goodrich acquired its average 20% working interest in the field through a farmout from MW Petroleum ("Apache") in July 1996 and a separate farmout from Exxon. The Company controls approximately 1,079 acres in the field and is currently evaluating 3D seismic for further exploitation opportunities. Pecan Lake Field. The Pecan Lake Field was discovered in 1944 by the Superior Oil Company. Geologically, the field is comprised of a relatively low relief four-way closure and multiple stacked pay sands. The Pecan Lake Field comprises approximately 870 gross leased acres in Cameron Parish, Louisiana, approximately 42 miles southeast of Lake Charles, Louisiana. The field has produced from over 15 Miocene sands ranging in depths from 7,500 to 11,800 feet, which have been predominately gas and gas condensate reservoirs. These sand reservoirs are characterized by generally widespread development and strong waterdrive production mechanisms. The field has produced in excess of 348 Bcf of gas and 680,000 barrels of condensate. All the field production to date has come from reservoirs which are of normal pressure. The Company is the operator of five producing wells with working interests ranging from approximately 43% to 47%. 3 Ada Field. The Ada Field was discovered by Hope Producing Company in 1945. The field is located in Bienville Parish, in North Louisiana. Geologically, the field is a turtle feature between two salt domes exhibiting a four-way anticline with two main horst blocks, a main graben block, and several compensating faults. The field has produced from numerous Lower Cretaceous sands and lime facies, with the sands being predominately lenticular in deposition. The producing interval for the field ranges from 4,500 to 10,000 feet, with the production being primarily a pressure depletion mechanism. Ada Field has produced over 656 Bcf of natural gas and 5.2 million barrels of oil. Goodrich has six producing wells in the field, two of which were drilled during 1998. Goodrich owns an approximate 43% working interest in the field. Other. The Company maintains ownership interests in acreage and wells in several additional fields in Louisiana, including the (i) Opelousas Field, located in St. Landry Parish, (ii) Sibley Field, located in Webster Parish, (iii) City of Lake Charles Field, located in Calcasieu Parish, (iv) Deep Lake Field, located in Lafourche Parish, (v) Mosquito Bay Field, located in Terrebonne Parish, (vi) South Pecan Lake Field located in Cameron Parish, (vii) Charenton Field located in St. Mary Parish and (viii) E. Roanoke Field, located in Jefferson Davis Parish. Texas Goodrich explores and has production in the western, eastern and southern regions of Texas. The Company's primary exploration focus in West Texas is in the Horseshoe Atol area in Dawson and Gaines Counties. The Company is actively developing drilling prospects through the integration of the approximate 375 square miles of 3-D seismic it owns in the area with subsurface geology. Sean Andrew Field. Sean Andrew was discovered by the Company in 1994 utilizing the Company's 375 square mile 3-D seismic database in West Texas. The Company is the operator in the field and holds an approximate 37.5% working interest in the field. Marholl Field. The Marholl Field is a Siluro-Devonian (Fussellman) Field in Dawson County discovered in 1995 through the use of 3-D seismic. The Company operates two wells in the field with an approximate 23% working interest. Mary Blevins Field. The Mary Blevins Field is located in Smith County, Texas and was a new discovery which is fault separated from Hitts Lake Field which was discovered in 1953 by Sun Oil. Currently there are four producing wells in this fault block with Goodrich, as operator, having approximately a 48% working interest in approximately 782 gross acres. To date, Hitts Lake has produced over 14 million barrels of oil and Mary Blevins has produced over 414,000 barrels from the Paluxy, which occurs at a depth of approximately 7,300 feet. Other. The Company maintains ownership interests in acreage and wells in several additional fields in Texas including the (i) Ackerly Field, located in Dawson and Howard Counties, (ii) Lamesa Farms Field, located in Dawson County, (iii) Carthage (Bethany) Field, located in Panola County, (iv) N.W. Ackerly Field, located in Dawson County, (v) Midway Field located in San Patricio County, (vi) East Jacksonville Field located in Cherokee County, (vii) Mott Slough, located in Wharton County, (viii) Falls City Field, located in Karnes County and (ix) Mikeska-Hamill Field, located in Austin County. Australia Goodrich has interest in three exploration permits in the Carnarvon Basin of Western Australia. The developmental stage of the offshore Carnarvon Basin of Western Australia is comparable to the Gulf of Mexico in 1950. The Carnarvon Basin is two-thirds the size of the Gulf of Mexico and has produced in excess 4 of 4.3 TCF and 550 million barrels of oil from less than 1000 wells. In comparison, the Gulf of Mexico has produced approximately 104 TCF of gas and 9 billion barrels of oil from 30,000 wells. The Carnarvon Basin retains significant exploration potential. Additional strengths of the basin include large inexpensive acreage blocks, vast available geological and geophysical data sets, existing and expanding petroleum infrastructure and increasing domestic demands for natural gas. EP-395. Goodrich Petroleum acquired a 20% non-operated working interest in the 240 square kilometer Exploration Permit in 1995. The Permit is approximately 30 km east from Barrow Island Field which has produced 300 million barrels of oil and 85 km southwest and on trend with the recent Wandoo, Stag and Reindeer discoveries. Since 1995, the partners have reprocessed the original 2-D seismic data sets, shot a 38 km 3-D seismic survey (1995), and shot an additional 93 km of high quality 2-D seismic (1997). Interpretation of this data has confirmed two separate prospects: Lindsay and West Boyd. These prospects are structural closures with associated seismic amplitude anomalies. The primary objective for these prospects is the Mardie Greenstone. This objective is a late cretaceous age, shallow marine sandstone with porosities ranging up to 33%. A well is anticipated to be drilled on the Lindsay prospect in late 1999. Carnarvon Petroleum N.L. is the operator of this permit. EP-396. The Company acquired a 33% non-operated working interest in 1995. EP-396 encompasses 400 square kilometers and is in close proximity to EP-395. The partnership has reprocessed and interpreted the available 2-D seismic data sets. One strong lead has emerged from the seismic data, which is a prospect called the Nolan Prospect. This prospect is a downthrown three way closure along the major down to the west Candace fault system. The available 2-D seismic data set indicates an associated seismic amplitude anomaly. TAP Oil N.L. is the operator of EP-396. EP-397. This Permit is 160 square kilometers and the Company has a 33% working interest. The 130 km of available seismic has been reprocessed and interpreted with several promising prospect leads. This Permit is in the earliest stages of exploratory investigation as compared with EP-395 and EP-396. Oil and Natural Gas Reserves The following tables set forth summary information with respect to the Company's proved reserves as of December 31, 1998 and 1997 as estimated by the Company by compiling reserve information, substantially all of which was prepared by the engineering firm of Coutret and Associates, Inc.
December 31, 1998 -------------------------------------------- Net Reserves Pre-Tax Present ---------------------------- Value of Future Oil Net Revenues Category (Bbls) Gas (Mcf) Bcfe(1) (in millions) -------- --------- ---------- ------- --------------- Proved Developed............. 2,266,854 21,481,946 35.1 $31.99 Proved Undeveloped........... 825,956 6,662,364 11.6 8.64 --------- ---------- ---- ------ Total Proved............... 3,092,810 28,144,310 46.7 $40.63 ========= ========== ==== ====== December 31, 1997 -------------------------------------------- Net Reserves Pre-Tax Present ---------------------------- Value of Future Oil Net Revenues Category (Bbls) Gas (Mcf) Bcfe(1) (in millions) -------- --------- ---------- ------- --------------- Proved Developed............. 2,292,626 16,600,669 30.4 $41.86 Proved Undeveloped........... 1,805,764 20,969,945 31.8 36.24 --------- ---------- ---- ------ Total Proved............... 4,098,390 37,570,614 62.2 $78.10 ========= ========== ==== ======
- - -------- (1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf. 5 There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the Company. Reserve engineering is a subjective process of estimating underground accumulations of crude oil, condensate and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. The quantities of oil and natural gas that are ultimately recovered, production and operating costs, the amount and timing of future development expenditures and future oil and natural gas sales prices may all differ from those assumed in these estimates. Therefore, the Present Value of Future Net Revenues amounts shown above should not be construed as the current market value of the estimated oil and natural gas reserves attributable to the Company's properties. In accordance with the Commission's guidelines, the engineers' estimates of future net revenues from the Company's properties and the Present Value of Future Net Revenues thereof are made using oil and natural gas sales prices in effect as of the dates of such estimates and are held constant throughout the life of the properties except where such guidelines permit alternate treatment, including the use of fixed and determinable contractual price escalations. The weighted average prices as of December 31, 1998 used in such estimates were $2.24 per Mcf of natural gas and $9.37 per Bbl of crude oil/condensate. Oil prices have subsequently increased while gas prices have subsequently declined from December 31, 1998 levels. Productive Wells The following tables set forth the number of active well bores in which the Company maintains ownership interests as of December 31, 1998:
Oil Gas Total --------------- --------------- --------------- Gross(1) Net(2) Gross(1) Net(2) Gross(1) Net(2) -------- ------ -------- ------ -------- ------ California.............. -- -- 4.00 2.09 4.00 2.09 Colorado................ -- -- 1.00 .30 1.00 .30 Louisiana............... 12.00 5.02 30.00 11.19 42.00 16.21 Michigan................ 2.00 .26 5.00 .05 7.00 .31 Mississippi............. -- -- 1.00 .05 1.00 .05 New Mexico.............. -- -- 1.00 .03 1.00 .03 Texas................... 28.00 11.82 5.00 .75 33.00 12.57 Wyoming................. 2.00 .32 -- -- 2.00 .32 ----- ----- ----- ----- ----- ----- Total Productive Wells................ 44.00 17.42 47.00 14.46 91.00 31.88 ===== ===== ===== ===== ===== =====
- - -------- (1) Does not include royalty or overriding royalty interests. (2) Net working interest. Productive wells consist of producing wells and wells capable of production, including gas wells awaiting pipeline connections. A gross well is a well in which the Company maintains an ownership interest, while a net well is deemed to exist when the sum of the fractional working interests owned by the Company equals one. Wells that are completed in more than one producing horizon are counted as one well. Of the gross wells reported above, eight had multiple completions. 6 Acreage The following table summarizes the Company's gross and net developed and undeveloped natural gas and oil acreage under lease as of December 31, 1998. Acreage in which the Company's interest is limited to a royalty or overriding royalty interest is excluded from the table.
Gross Net ------- ------ Developed acreage California............................................... 1,280 568 Colorado................................................. 640 192 Louisiana................................................ 7,907 2,644 Michigan................................................. 1,920 19 Texas.................................................... 5,598 2,005 Wyoming.................................................. 80 13 Undeveloped acreage Offshore Australia....................................... 197,682 57,985 Louisiana................................................ 1,795 1,524 Michigan................................................. 640 154 Texas.................................................... 2,400 1,257 ------- ------ Total.................................................. 219,942 66,361 ======= ======
Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of natural gas or oil, regardless of whether or not such acreage contains proved reserves. As is customary in the oil and gas industry, the Company can retain its interest in undeveloped acreage by drilling activity that establishes commercial production sufficient to maintain the leases or by payment of delay rentals during the remaining primary term of such a lease. The natural gas and oil leases in which the Company has an interest are for varying primary terms; however, most of the Company's developed lease acreage is beyond the primary term and is held by producing natural gas or oil wells. Operator Activities Goodrich Petroleum operates a majority in value of the Company's producing properties, and will generally seek to become the operator of record on properties it drills or acquires in the future. 7 Drilling Activities The following table sets forth the drilling activity of the Company for the last three years. (As denoted in the following table, "Gross" wells refers to wells in which a working interest is owned, while a "net" well is deemed to exist when the sum of fractional ownership working interests in gross wells equals one.)
Year Ended December 31 ------------------------------ 1998 1997 1996 ---------- --------- --------- Gross Net Gross Net Gross Net ----- ---- ----- --- ----- --- Develpment Wells: Productive............................... 6.00 2.77 6.0 2.6 1.0 0.4 Non-Productive........................... 2.00 1.47 0.0 0.0 0.0 0.0 ----- ---- ---- --- ---- --- Total.................................. 8.00 4.24 6.0 2.6 1.0 0.4 ===== ==== ==== === ==== === Exploratory Wells: Productive............................... 7.00 1.49 12.0 2.9 6.0 2.5 Non-Productive........................... 8.00 2.87 7.0 1.7 3.0 1.3 ----- ---- ---- --- ---- --- Total.................................. 15.00 4.36 19.0 4.6 9.0 3.8 ===== ==== ==== === ==== === Total Wells: Productive............................... 13.00 4.26 18.0 5.5 7.0 2.9 Non-Productive........................... 9.00 4.34 7.0 1.7 3.0 1.3 ----- ---- ---- --- ---- --- Total.................................. 23.00 8.60 25.0 7.2 10.0 4.2 ===== ==== ==== === ==== ===
Net Production, Unit Prices and Costs The following table presents certain information with respect to oil, gas and condensate production attributable to the Company's interests in all of its fields, the revenue derived from the sale of such production, average sales prices received and average production costs during each of the years in the three-year period ended December 31, 1998.
1998 1997 1996 --------- --------- --------- Net Production: Natural gas (Mcf)....................... 2,782,825 2,449,320 1,623,377 Oil (barrels)........................... 316,768 282,380 165,964 Natural gas equivalents (Mcfe) (1)...... 4,683,433 4,143,600 2,619,161 Average Net Daily Production: Natural gas (Mcf)....................... 7,624 6,710 4,448 Oil (Bbls).............................. 868 774 455 Natural gas equivalents (Mcfe) (1)...... 12,832 11,354 7,176 Average Sales Price Per Unit: Natural gas (per Mcf)................... $ 2.18 2.55 2.60 Oil (per Bbl)........................... 11.88 18.06 20.88 Other Data: Lease operating expense and production taxes (per Mcfe)....................... $ .60 .56 .62
- - -------- (1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf. 8 Oil and Gas Marketing and Major Customers Marketing. Goodrich's natural gas production is sold under spot or market- sensitive contracts and to various gas purchasers on short-term contracts. Goodrich's natural gas condensate is sold under short-term rollover agreements based on current market prices. The Company's crude oil production is marketed to several purchasers based on short-term contracts. The Company entered into an agreement with Natural Gas Ventures, L.L.C. ("NGV"), a Louisiana limited liability company, for the purpose of marketing the Company's and its contracting parties' natural gas. The Company and other contracting parties contribute natural gas to NGV, which NGV then markets to gas purchasers, pursuant to the Joint Venture Agreement between NGV and Seaber Corporation of Louisiana ("Seaber"). The Company can terminate this agreement on 60-days notice. The Company believes its contract with NGV allows it to realize higher prices for its contributed gas because of the greater market power associated with larger volumes of gas than the Company would have for sale on a stand-alone basis. Customers. Due to the nature of the industry the Company sells its oil and natural gas production to a limited number of purchasers and, accordingly, amounts receivable from such purchasers could be significant. Revenues from these sources as a percent of total revenues for the periods presented were as follows:
Year Ended December 31, ---------------- 1998 1997 1996 ---- ---- ---- Seaber Corporation of Louisiana............................ 47% 44% 35% Texaco..................................................... 12% 11% -- Navajo Refining Company.................................... 11% -- -- Mobil Oil Corporation...................................... -- 10% 22% Mitchell Marketing Company................................. -- 9% 16%
Sales During 1998, the Company sold its interest in certain oil and gas properties located in Texas for $49,000. During 1997, the Company sold its interests in certain oil and gas properties located primarily in Montana for $370,000. During 1996, the Company sold its interests in certain oil and gas properties located substantially in North Dakota for $326,000. Investment in Marcum Natural Gas Services On January 5, 1999 the Company sold its investment in National Gas Services ("Marcum") for $240,000. Marcum is a publicly held diversified provider of products and services to the natural gas industry. Competition The oil and gas industry is highly competitive. Major and independent oil and gas companies, drilling and production acquisition programs and individual producers and operators are active bidders for desirable oil and gas properties, as well as the equipment and labor required to operate those properties. Many competitors have financial resources substantially greater than those of the Company, and staffs and facilities substantially larger than those of the Company. The availability of a ready market for the oil and gas production of the Company will depend in part on the cost and availability of alternative fuels, the level of consumer demand, the extent of domestic production of oil and gas, the extent of importation of foreign oil and gas, the cost of and proximity to pipelines and other transportation facilities, regulations by state and federal authorities and the cost of complying with applicable environmental regulations. 9 Regulations The availability of a ready market for any natural gas and oil production depends upon numerous factors beyond the Company's control. These factors include regulation of natural gas and oil production, federal and state regulations governing environmental quality and pollution control, state limits on allowable rates of production by a well or proration unit, the amount of natural gas and oil available for sale, the availability of adequate pipeline and other transportation and processing facilities and the marketing of competitive fuels. For example, a productive natural gas well may be "shut- in" because of an oversupply of natural gas or the lack of an available natural gas pipeline in the areas in which the Company may conduct operations. State and federal regulations generally are intended to prevent waste of natural gas and oil, protect rights to produce natural gas and oil between owners in a common reservoir, control the amount of natural gas and oil produced by assigning allowable rates of production and control contamination of the environment. Pipelines are subject to the jurisdiction of various federal, state and local agencies as well. Environmental Regulation Various federal, state and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect the Company's operations and costs as a result of their effect on oil and gas development, exploration and production operations. It is not anticipated that the Company will be required in the near future to expend amounts that are material in relation to its total capital expenditures program by reason of environmental laws and regulations but, inasmuch as such laws and regulations are frequently changed by both federal and state agencies, the Company is unable to predict the ultimate cost of continued compliance. Additionally, see existing EPA matters discussed in Item 3--Legal Proceedings. State statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. In addition, there are state statutes, rules and regulations governing conservation matters, including the unitization or pooling of oil and gas properties, establishment of maximum rates of production from oil and gas wells and the spacing, plugging and abandonment of such wells. Such statutes and regulations may limit the rate at which oil and gas could otherwise be produced from the Company's properties and may restrict the number of wells that may be drilled on a particular lease or in a particular field. Item 3. Legal Proceedings. The U. S. Environmental Protection Agency ("EPA") has identified the Company as a potentially responsible party ("PRP") for the cost of clean-up of "hazardous substances" at an oil field waste disposal site in Vermilion Parish, Louisiana. The Company estimates that the remaining cost of long-term clean-up of the site will be approximately $3.5 million, with the Company's percentage of responsibility to be approximately 3.05%. As of December 31, 1998, the Company has paid approximately $321,000 in costs related to this matter and has $92,000 accrued for the remaining liability. These costs have not been discounted to their present value. The EPA and the PRPs will continue to evaluate the site and revise estimates for the long-term clean-up of the site. There can be no assurance that the cost of clean-up and the Company's percentage responsibility will not be higher than currently estimated. In addition, under the federal environmental laws, the liability costs for the clean-up of the site is joint and several among all PRPs. Therefore, the ultimate cost of the clean-up to the Company could be significantly higher than the amount presently estimated or accrued for this liability. The Company is party to additional lawsuits arising in the normal course of business. The Company intends to defend these actions vigorously and believes, based on currently available information, that adverse results or judgments from such actions, if any, will not be material to its financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. None. 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's common stock is traded on the New York Stock Exchange. At March 26, 1999 the number of holders of record of the Company's common stock without determination of the number of individual participants in security position was 3,492 with 5,247,705 shares outstanding. High and low sales prices for the Company's common stock for each quarter during the calendar years 1998 and 1997 are as follows:
1998 1997 ---------- --------- Quarter Ended High Low High Low ------------- ----- ---- ---- ---- March 31............................................. $8.00 5.06 9.00 6.00 June 30.............................................. $7.19 5.25 9.00 6.00 September 30......................................... $5.63 2.25 6.50 5.00 December 31.......................................... $3.00 1.13 6.50 4.50
The prices in the table above have been adjusted to give retroactive effect to the Company's one-for-eight reverse stock split in March 1998. The Company has not paid a cash dividend on its Common Stock and does not intend to pay such a dividend in the foreseeable future. 11 Item 6. Selected Financial Data. Selected Statement of Operations Data: The following table sets forth selected financial data of the Company for each of the years in the five-year period ended December 31, 1998, which information has been derived from the Company's audited financial statements. This information should be read in connection with and is qualified in its entirety by the more detailed information in the Company's financial statements under Item 8 below and Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Year Ended December 31, ----------------------------------------------------------- 1998 1997 1996 1995 1994 ----------- ---------- ---------- ---------- ---------- Revenues................ $10,591,873 12,901,361 9,769,383 6,174,412 5,013,446 Depletion, Depreciation and Amortization....... 4,094,447 4,862,754 3,788,292 1,785,502 1,156,624 Exploration............. 6,010,425 3,205,730 1,149,240 193,159 4,240 Interest Expense........ 1,909,849 1,416,675 828,394 1,132,488 1,072,098 Total Costs and Expenses............... 18,311,421 14,978,629 9,476,366 5,037,101 2,998,628 Gain on sale of assets.. 4,206 688,304 88,428 -- -- Extraordinary Item-- Early Extinguishment of Debt.................. -- -- -- 482,906 -- Net Income (Loss)....... (7,715,342) (1,388,964) 381,445 654,405 2,014,818 Preferred Stock Dividends.............. 1,255,638 1,205,210 644,800 254,932 Earnings (Loss) Applicable to Common Stock.................. (8,970,980) (2,594,174) (263,355) 399,473 Basic Loss Per Average Common Share(c)........ (1.71) (.50) (.05) Diluted Loss Per Average Common Share(c)........ $ (1.71) (.50) (.05) Average Common Shares Outstanding(c)......... 5,243,105 5,229,307 5,225,564 Pro Forma Information: Pro Forma Income Taxes(a).............. 402,698 785,779 Pro Forma Net Income... 251,707 1,229,039 Pro Form Earnings (Loss) Applicable to Common Stock.......... (3,225) 1,229,039 Pro Forma Income Before Extraordinary Item Per Average Common Share(c)............... .14 .50 Extraordinary Item Per Average Common Share(c)............... (.14) -- Pro Forma Basic and Diluted Earnings (Loss) Per Average Common Share(c)............... -- .50 Pro Forma Average Common Shares Outstanding(b)(c)...... 3,465,318 2,470,653 December 31, ----------------------------------------------------------- 1998 1997 1996 1995 1994 ----------- ---------- ---------- ---------- ---------- Selected Balance Sheet Data: Total Assets........... $44,036,588 37,537,918 22,398,984 22,382,716 8,230,496 Total Long Term Debt(e)............... 29,500,000 18,500,000 10,000,000 9,750,000 8,250,000 Stockholders' Equity (Partners' Deficit)... $ 4,959,388 14,332,676 9,135,200 9,662,812 (2,081,217)
- - -------- (a) No provision for income taxes is included in the consolidated statements of operations for the periods ended December 31, 1994 or the period from January 1, 1995 through August 14, 1995, for the operations of La/Cal Energy Partners (predecessor company), due to La/Cal Energy Partners being a partnership and income taxes were the responsibility of the individual partners of La/Cal Energy Partners. Certain unaudited pro forma information relating to the Company's results of operations, had La/Cal Energy Partners been a corporation for those periods, is shown above. (b) For purposes of this presentation the number of pro forma shares used for periods prior to August 15, 1995, is 2,470,653 shares (adjusted retroactively for the March 1998 reverse stock split), which is the number of shares issued by the Company in exchange for La/Cal Energy Partners net assets contributed. (c) Number of shares restated to retroactively adjust for one for eight reverse stock split in March 1998. (d) The above data reflects the operations solely of La/Cal Energy Partners for periods prior to August 15,1995, whereas such data reflects the operations of La/Cal Energy Partners combined with Patrick Petroleum Company for periods subsequent to August 15, 1995. (e) Includes current maturities. 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 1997 Acquisition On January 31, 1997, the Company acquired the oil and gas properties of La/Cal Energy Partners II ("La/Cal II") and certain working interest owners for a purchase price of $16.5 million ("La/Cal II Acquisition"). The purchase price consisted of $1.5 million cash, the assumption of $7.5 million La/Cal II long-term debt and the issuance of 750,000 shares of Series B convertible preferred stock of the Company ("Series B Preferred Stock") with an aggregate liquidation value of $7.5 million. In connection with the La/Cal II Acquisition, the Company increased its borrowing base to $22.5 million and borrowed an additional $9 million to retire or (payoff) La/Cal II's debt and to pay the cash portion of the purchase price. The Series B Preferred Stock accrues dividends at a rate of 8.25% per annum and each share of Series B Preferred Stock is convertible into 1.12 shares of common stock. Such shares are redeemable by the Company after January 31, 2001 at $10.00 per share. Results of Operations Year ended December 31, 1998 versus year ended December 31, 1997--Total revenues in 1998 amounted to $10,592,000 and were $2,309,000 (18%) lower than total revenues in 1997 due to lower oil and gas revenues and the loss of revenues from the pipeline joint venture. Oil and gas sales were $1,515,000 lower due primarily to lower oil and gas prices, partially offset by higher production volumes. Revenues from the pipeline joint venture were $-0- in 1998 compared to $1,078,000 in 1997 due to the sale of the asset in the fourth quarter of 1997. The following table reflects the production volumes and pricing information for the periods presented:
1998 1997 ------------------------ ------------------------ Production Average Price Production Average Price ---------- ------------- ---------- ------------- Gas (Mcf)............... 2,782,825 $ 2.18 2,449,320 $ 2.55 Oil (Bbls).............. 316,768 $11.88 282,380 $18.06
Lease operating expense and production taxes were $2,822,000 for 1998 compared to $2,316,000 for 1997, or $506,000 higher, due primarily to the Company not incurring, in the 1997 period, ad valorem taxes related to the La/Cal II properties which were the responsibility of the La/Cal II partners. Additionally, the 1998 period includes eight additional producing wells and twelve months of lease operating expense and production taxes for the La/Cal II properties, compared to eleven months for 1997 due to the effective date of the acquisition being January 31, 1997. Depletion, depreciation and amortization was $4,094,000 in 1998 versus $4,863,000 in 1997, or $769,000 lower, substantially due to no amortization of the pipeline joint venture in 1998 compared to $741,000 in 1997. The Company incurred $6,010,000 of exploration expense in 1998 compared to $3,206,000 in 1997. Included in the 1998 exploration expense is $3,684,000 of costs related to dry holes during the period versus $2,342,000 of such costs in 1997. The Company recorded an impairment in the recorded value of certain oil and gas properties in the fourth quarter of 1998 in the amount of $1,076,000 due to lower oil prices and higher than expected depletion rates. This compares to an impairment of $550,000 recorded in the same period a year ago. Interest expense was $1,910,000 in 1998 compared to $1,417,000 (35% higher) due to the Company having higher average debt outstanding, slightly offset by a lower effective interest rate in 1998 compared to 1997. General and administrative expenses amounted to $2,399,000 for 1998 versus $2,628,000 in 1997. 13 The Company's preferred stock dividends amounted to $1,256,000 for 1998 compared to $1,205,000 in 1997 or $51,000 higher due to twelve months of dividends being paid on the Company's Series B Preferred Stock in the current year versus eleven months in the prior year. Year ended December 31, 1997 versus year ended December 31, 1996--Total revenues in 1997 increased to $12,901,000 and were $3,132,000 (32%) higher than total revenues in 1996 due to increased oil and gas revenues, offset by lower revenues from the pipeline joint venture. Oil and gas sales were $3,664,000 higher due substantially to increased revenues as a result of the La/Cal II acquisition (effective January 31, 1997) along with increased gas volumes on the pre-acquisition properties, offset somewhat by lower oil and gas prices. Revenues from the pipeline joint venture were $459,000 lower in 1997 due to the sale of the asset in the fourth quarter of 1997. The following table reflects the production volumes and pricing information for the periods presented:
1997 1996 ------------------------ ------------------------ Production Average Price Production Average Price ---------- ------------- ---------- ------------- Gas (Mcf)............... 2,449,320 $ 2.55 1,623,377 $ 2.60 Oil (Bbls).............. 282,380 $18.06 165,964 $20.88
Lease operating expense and production taxes were $2,316,000 for 1997 compared to $1,615,000 for 1996 or $701,000 higher due primarily to the addition of the La/Cal II properties. Depletion, depreciation and amortization was $4,863,000 versus $3,788,000 for 1996 or $1,075,000 higher due to the addition of the La/Cal II properties, offset by approximately $300,000 less amortization of the pipeline joint venture. Included in depletion, depreciation and amortization is depletion of oil and gas properties of $4,066,000 and $2,684,000, respectively. The Company incurred $3,206,000 of exploration expense in 1997 compared to $1,149,000 in 1996. Included in the 1997 exploration expense is $2,342,000 of costs related to dry holes during the period versus $542,000 of such costs in 1996. The Company recorded impairments in the recorded value of certain oil and gas properties in 1997 in the amount of $550,000. Interest expense was $1,417,000 in 1997 compared to $828,000 due to borrowings by the Company of $9,000,000 on January 31, 1997 in connection with the La/Cal II Acquisition, resulting in higher average debt outstanding than for the prior year. General and administrative expenses amounted to $2,628,000 for 1997 versus $2,096,000 in 1996 due largely to expenses associated with the addition of six employees in 1997. The Company recorded a gain on the sale of its interest in the pipeline joint venture of $688,000 in 1997. The Company's preferred stock dividends amounted to $1,205,000 for the twelve months ended December 31, 1997 compared to $645,000 for 1996. The increase was due to dividends paid on the Company's Series B Convertible Preferred Stock issued on January 31, 1997 in connection with the La/Cal II Acquisition. Liquidity and Capital Resources Net cash provided by operating activities was $4,517,000 in 1998 compared to $6,633,000 in 1997 and $4,292,000 in 1996. The Company's accompanying consolidated statements of cash flows identify major differences between net income (loss) and net cash provided by operating activities for each of the years presented. Net cash used by investing activities amounted to $14,959,000 in 1998 compared to $6,007,000 in 1997 and $4,082,000 in 1996. The year ended December 31, 1998 is composed almost entirely of cash paid for 14 exploration and drilling capital expenditures of $14,879,000. The year ended December 31, 1997 reflects non-acquisition capital expenditures of $9,157,000 and of cash paid in connection with the purchase of oil and gas properties of $2,075,000. These amounts were offset by proceeds from sale of the Company's interest in the pipeline joint venture ($3,564,000) and sale of certain oil and gas properties located in Montana. The year ended December 31, 1996 amount is substantially comprised of $3,911,000 in capital expenditures. Net cash provided by financing activities was $9,744,000 in 1998 compared to net cash used in financing activities of $177,000 in 1997 and $479,000 in 1996. The 1998 amount includes the borrowing of $11,500,000 by the Company under its line of credit offset by paydowns during the year of $500,000. Preferred stock dividends in 1998 amounted to $1,256,000 (Series A and Series B). The 1997 amount includes the borrowing of $9,000,000 by the Company under its line of credit which was used to pay off the debt assumed in the La/Cal II Acquisition and to pay the cash portion of the purchase price. The 1997 amount also includes other borrowings of $3,000,000 against its line of credit offset by paydowns during the year of $3,500,000 and the payoff of La/Cal II debt of $7,464,000. Preferred stock dividends in 1997 amounted to $1,205,000 (Series A and Series B). The 1996 amount primarily consists of the borrowing of $1,800,000 against the Company's line of credit partially offset by debt paydowns of $1,550,000 and the payment of preferred stock dividends of $645,000 (Series A only). At December 31, 1998, the Company was not in compliance with a restrictive covenant of its existing credit facility and, accordingly, the entire principal amount outstanding is presented in current maturities of long-term debt. The amount outstanding under the credit facility as of December 31, 1998 was $29,500,000. On March 29, 1999 the Company signed a preliminary agreement with Compass Bank to restructure its existing credit facility. The preliminary credit agreement will allow the Company to be in compliance with all covenants upon execution of the agreement. The preliminary agreement provides for a borrowing base facility of $20,500,000 with monthly reductions of $50,000 on April 1, 1999 and May 1, 1999, $200,000 on June 1, 1999 and $300,000 on July 1, 1999 and each month thereafter. Semi-annual borrowing base determinations will be made beginning July 1, 1999 based in part on the Company's oil and gas reserve information. The maturity date for amounts drawn under the Borrowing Base facility is February 1, 2001. Interest on such facility is based on LIBOR plus 2% and rates are set on specific draws for one, two, three or six month periods at the option of the Company. The preliminary agreement also establishes a Tranche A facility in the amount of $9,000,000. The maturity date for the Tranche A facility is December 1, 1999. The Tranche A requires that excess cash flow from operations, as defined in the preliminary agreement, be applied to outstanding principal and interest until the maturity date, with interest based on the Compass Bank Index Rate plus 2%. The preliminary agreement requires the net proceeds of asset sales be used to extinguish outstanding principal and interest under the borrowing base facility and Tranche A. Additionally, under the terms of the preliminary agreement, the Company may not make any distributions or pay dividends, including dividends on any class of its preferred stock, until Tranche A is paid in full. Additionally, budgeted capital expenditures are required to be approved by the Lender prior to closing, and such approval shall be effective for a period of six months or until such time as an increase is requested. Furthermore, provided actual capital expenditures do not exceed the approved budgeted amount, the determination of capital expenditures is at the sole discretion of the Company. The preliminary agreement also requires that the Company's vendor accounts payable balance shall not exceed $2,500,000 as of June 30, 1999. The Company's vendor accounts payable balance was $3,721,000 at December 31, 1998. The preliminary agreement is subject to definitive documentation and Lender credit approval. The terms of the Company's Series A Preferred Stock provide that the Company will not incur additional debt after such time as it reports financial results which show the Company's stockholders' equity to be less than the liquidation preference of the Series A Preferred Stock. As of December 31, 1998, the Company's stockholders' equity was approximately $4.9 million and the liquidation preference on the outstanding shares of the Series A Preferred Stock was approximately $7.9 million. As a result, the Company is unable to incur additional debt under its credit facility or from other sources at the present time. 15 Due to the Company's existing current working capital deficiency, required pay downs under its credit facility and the restrictions imposed by the Series A Preferred Stock, management is exploring a number of alternatives that are directed toward making the Company profitable and improving its liquidity. The principal strategies include: 1) raising additional capital through the issuance of equity securities, or a combination of equity and subordinated debt; 2) acquisition of value enhancing oil and gas properties that offer additional development opportunities and increased cash flow; 3) mergers and/or acquisitions by other entities; 4) reducing operating costs; 5) sale of certain oil and gas properties; 6) renegotiation or amendment of the Company's credit facility and capital structure As with any plan of this nature, its ultimate realization will depend upon the cooperation of creditors, potential investors and others. As a result, the outcome of the plan cannot presently be determined and no adjustments related to the specific considerations of management's plan have been made in the accompanying consolidated financial statements. Should the plan not be completed, the Company may not be able to liquidate liabilities as they come due. In addition, the Company's current liquidity situation and its agreement with Compass Bank have resulted in a suspension of new drilling expenditures until such time as certain aforementioned principle strategies have been effected. Quarterly Cash Dividends The Company announced on March 23, 1999 that it has suspended payment of its regular quarterly cash dividend on both classes of its Preferred Stock. This measure was taken to conserve cash for corporate and operating purposes and was precipitated by the recent drop in commodity prices. The Company has no plans to reinstate the cash dividends in the foreseeable future. Year 2000 The Company is in the process of assessing the ability of its various electronic operating systems, and those of significant third parties, to appropriately consider periods and dates after December 31, 1999. The Company's senior financial management has taken responsibility for identifying, addressing and monitoring its Year 2000 issues. These individuals report to the Audit Committee of the Board of Directors on a periodic basis. For Company systems identified as not being Year 2000 compliant, the Company has developed plans to correct these systems and expects to be compliant on the systems by the second quarter of 1999. As for third parties with which the Company has a material relationship, the Company is in various stages of discussions and conclusions related to the ability of those third parties to become compliant and the related timing thereof. The estimated costs associated with becoming Year 2000 compliant are not expected to be material to the Company. The Company has begun, but not yet completed, a comprehensive analysis of the operational problems and costs (including loss of revenues) that would be reasonably likely to result from the failure by the Company and certain third parties to complete efforts necessary to achieve Year 2000 compliance timely. A contingency plan has not been developed for dealing with the most reasonably likely worst case scenario, and such scenario has not yet been clearly identified. The Company currently plans to complete such analysis and contingency planning by the second quarter of 1999. The failure to correct a material Year 2000 problem could result in an interruption in, or failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's 16 results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third-party suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. The Company's Year 2000 efforts are expected to significantly reduce the Company's level of uncertainty about the Year 2000 problem. The Company believes that, with the implementation of new business systems and completion of the various above-mentioned tasks as scheduled, the possibility of interruptions to normal operations should be significantly reduced. Stock Listing The Company was notified by the New York Stock Exchange that it is not in compliance with certain of the Exchange's minimum financial criteria for listed companies. The Company submitted a three-year business plan to the Exchange in response to the notice. The Exchange accepted the Company's business plan and will monitor its compliance with the plan on a quarterly basis. As described above, the Company's liquidity situation may make it difficult for the Company to adhere to this business plan. If the Company fails to do so, there can be no assurance that the New York Stock Exchange will not delist the Company common stock. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Debt and debt-related derivatives The Company is exposed to interest rate risk on its short-term and long-term debt with variable interest rates ($29.5 million at December 31, 1998). Based on the overall interest rate exposure on variable rate debt at December 31, 1998 a hypothetical 2% change in the interest rates would not materially affect the Company's financial position, net income or liquidity. Disclosure Regarding Forward-Looking Statements This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts included in this Annual Report on Form 10-K regarding reserve estimates, planned capital expenditures, future oil and gas production and prices, future drilling activity, the Company's financial position, the ability to become year 2000 compliant, business strategy and other plans and objectives for future operations, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the Company. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates made by different engineers often vary from one another. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revisions of such estimate and such revisions, if significant, would change the schedule of any further production and development drilling. Accordingly, reserve estimates are generally different from the quantities of oil and natural gas that are ultimately recovered. Additional important factors that could cause actual results to differ materially from the Company's expectations include changes in oil and gas prices, changes in regulatory or environmental policies, production difficulties, transportation difficulties and future drilling results. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such factors. 17 Item 8. Financial Statements and Supplementary Data INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Goodrich Petroleum Corporation: We have audited the accompanying consolidated balance sheets of Goodrich Petroleum Corporation and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, comprehensive income and cash flows for each of the years in the three year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Goodrich Petroleum Corporation and Subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1998, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in note C to the consolidated financial statements, working capital deficiencies, required payments under the Company credit facility and restrictions imposed by the Company's Series A Preferred Stock raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are discussed in note C. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. KPMG LLP Shreveport, Louisiana March 29, 1999 18 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 1998 1997 ASSETS ------------ ------------ CURRENT ASSETS Cash and cash equivalents.............................. $ 95,630 $ 793,358 Marketable equity securities........................... 358,700 844,000 Accounts receivable Trade and other, net of allowance.................... 2,197,179 1,354,776 Accrued oil and gas revenue.......................... 1,089,226 1,641,969 Prepaid insurance...................................... 184,898 174,201 Other.................................................. -- 4,000 ------------ ----------- Total current assets................................. 3,925,633 4,812,304 ------------ ----------- PROPERTY AND EQUIPMENT Oil and gas properties................................. 53,320,832 41,154,687 Furniture, fixtures and equipment...................... 195,279 180,966 ------------ ----------- 53,516,111 41,335,653 Less accumulated depletion, depreciation and amortization.......................................... (13,720,009) (8,869,783) ------------ ----------- Net property and equipment........................... 39,796,102 32,465,870 ------------ ----------- OTHER ASSETS............................................. 314,853 259,744 TOTAL ASSETS......................................... $ 44,036,588 $37,537,918 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long term debt...................... 29,500,000 -- Accounts payable....................................... 7,763,507 1,996,887 Accrued liabilities.................................... 1,813,693 2,708,355 ------------ ----------- Total current liabilities............................ 39,077,200 4,705,242 ------------ ----------- LONG TERM DEBT........................................... -- 18,500,000 STOCKHOLDERS' EQUITY Preferred stock; authorized 10,000,000 shares: Series A convertible preferred stock, par value $1.00 per share; issued and outstanding 796,318 shares (liquidating preference $10 per share, aggregating to $7,963,180).......................................... 796,318 796,318 Series B convertible preferred stock, par value $1.00 per share; issued and outstanding 750,000 shares (liquidation preference $10 per share, aggregating to $7,500,000).......................................... 750,000 750,000 Common stock, par value $0.20 per share; authorized 25,000,000 shares; issued and outstanding 5,247,703 and 5,232,403 shares.................................. 1,049,541 1,046,481 Additional paid-in capital............................. 15,226,027 15,146,095 Accumulated deficit.................................... (12,461,598) (3,490,618) Accumulated other comprehensive income................. (400,900) 84,400 ------------ ----------- Total stockholders' equity........................... 4,959,388 14,332,676 ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $ 44,036,588 $37,537,918 ============ ===========
See notes to consolidated financial statements. 19 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, ----------------------------------- 1998 1997 1996 ------------ ---------- --------- REVENUES Oil and gas sales....................... $ 9,836,863 11,351,586 7,687,748 Pipeline joint venture.................. -- 1,078,397 1,537,806 Other................................... 755,010 471,378 543,829 ------------ ---------- --------- Total revenues........................ 10,591,873 12,901,361 9,769,383 ------------ ---------- --------- COSTS AND EXPENSES Lease operating expense and production taxes.................................. 2,821,515 2,316,006 1,614,584 Depletion, depreciation and amortization........................... 4,094,447 4,862,754 3,788,292 Exploration............................. 6,010,425 3,205,730 1,149,240 Impairment of oil and gas properties.... 1,075,853 549,792 -- Interest expense........................ 1,909,849 1,416,675 828,394 General and administrative.............. 2,399,332 2,627,672 2,095,856 ------------ ---------- --------- Total costs and expenses.............. 18,311,421 14,978,629 9,476,366 ------------ ---------- --------- GAIN ON SALES OF ASSETS................... 4,206 688,304 88,428 ------------ ---------- --------- INCOME (LOSS) BEFORE INCOME TAXES......... (7,715,342) (1,388,964) 381,445 Income Taxes............................ -- -- -- ------------ ---------- --------- NET INCOME (LOSS)......................... (7,715,342) (1,388,964) 381,445 Preferred stock dividends............... 1,255,638 1,205,210 644,800 ------------ ---------- --------- LOSS APPLICABLE TO COMMON STOCK........... $ (8,970,980) (2,594,174) (263,355) ============ ========== ========= BASIC LOSS PER AVERAGE COMMON SHARE....... $ (1.71) (.50) (.05) ============ ========== ========= DILUTED LOSS PER AVERAGE COMMON SHARE..... $ (1.71) (.50) (.05) ============ ========== ========= AVERAGE COMMON SHARES OUTSTANDING......... 5,243,105 5,229,307 5,225,564
See notes to consolidated financial statements. 20 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------------------------------ 1998 1997 1996 ----------- ----------- ---------- OPERATING ACTIVITIES Net income (loss)....................... $(7,715,342) (1,388,964) 381,445 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion, depreciation and amortization.......................... 4,094,447 4,862,754 3,788,292 Amortization of leasehold costs........ 1,016,649 288,037 195,027 Amortization of deferred debt financing costs................................. -- 27,694 72,329 Gain on sale of assets................. (4,206) (688,304) (88,428) Capital expenditures charged to income................................ 4,382,514 2,341,954 678,213 Impairment of oil and gas properties... 1,075,853 549,792 -- Payment of other liabilities........... (107,625) (321,040) (364,100) Other.................................. (160,518) (87,357) (11,714) ----------- ----------- ---------- 2,581,772 5,584,566 4,651,064 Net change in (exclusive of acquisition): Accounts receivable................... (289,660) 520,391 (1,042,630) Prepaid insurance and other........... (71,550) 73,933 95,179 Accounts payable...................... 2,975,821 (157,334) 370,418 Accrued liabilities................... (679,620) 611,069 218,045 ----------- ----------- ---------- Net cash provided by operating activities.......................... 4,516,763 6,632,625 4,292,076 ----------- ----------- ---------- INVESTING ACTIVITIES Proceeds from sale of pipeline joint venture................................ -- 3,564,000 -- Proceeds from sales of oil and gas properties............................. 49,091 370,000 325,628 Acquisition of oil and gas properties... (129,325) (2,074,866) (234,378) Capital expenditures.................... (14,878,619) (7,866,173) (3,911,144) Other................................... -- -- (261,668) ----------- ----------- ---------- Net cash used in investing activities.......................... (14,958,853) (6,007,039) (4,081,562) ----------- ----------- ---------- FINANCING ACTIVITIES Proceeds from bank borrowings........... 11,500,000 12,000,000 1,800,000 Principal payments of bank borrowings... (500,000) (10,963,919) (1,550,000) Preferred stock dividends............... (1,255,638) (1,205,210) (644,800) Retirement of preferred stock........... -- (7,650) (74,357) Payment of debt financing costs......... -- -- (10,256) ----------- ----------- ---------- Net cash provided by (used in) financing activities................ 9,744,362 (176,779) (479,413) ----------- ----------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. (697,728) 448,807 (268,899) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................. 793,358 344,551 613,450 ----------- ----------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................. $ 95,630 793,358 344,551 =========== =========== ========== NON CASH INVESTING ACTIVITIES Accrued Capital Expenditures............ 1,981,276 1,290,658 81,230
See notes to consolidated financial statements. 21 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1998, 1997, and 1996
Series A Series B Preferred Stock Preferred Stock Common Stock ----------------- ---------------- --------------------- Accumulated Partners' Number Number Additional Other Capital of Par of Par Number Paid-In Accumulated Comprehensive (Deficit) Shares Value Shares Value of Shares* Par Value* Capital* Deficit Income --------- ------- -------- ------- -------- ---------- ---------- ----------- ------------ ------------- Balance at December 31, 1995............. $-- 734,859 734,859 -- -- 5,225,564 1,045,113 8,515,929 (633,089) -- Net income....... -- -- -- -- -- -- -- -- 381,445 -- Unrealized Change in Marketable Equitable Securities....... -- -- -- -- -- -- -- -- -- (189,900) Total Comprehensive Income (Loss).... Preferred stock dividends--Series A ($.80 per share)........... -- -- -- -- -- -- -- -- (644,800) -- Retirement of preferred stock.. -- (10,000) (10,000) -- -- -- -- (64,357) -- -- Reinstatement of preferred stock under Appraisal rights........... -- 76,290 76,290 -- -- -- -- (76,290) -- -- --- ------- -------- ------- -------- --------- ---------- ----------- ------------ --------- Balance at December 31, 1996............. $-- 801,149 801,149 -- -- 5,225,564 1,045,113 8,375,282 (896,444) (189,900) Net loss......... -- -- -- -- -- -- -- -- (1,388,964) -- Unrealized Change in Marketable Equitable Securities....... -- -- -- -- -- -- -- -- -- 274,300 Total Comprehensive Income (Loss).... Issuance of Series B Preferred Stock.. -- -- -- 750,000 750,000 -- -- 6,750,000 -- -- Preferred stock dividends Series A ($.80 per share)....... -- -- -- -- -- -- -- -- (638,023) -- Series B ($.76 per share)...... -- -- -- -- -- -- -- -- (567,187) -- Conversion of preferred stock to Common stock.. -- (3,831) (3,831) -- -- 2,993 599 3,232 -- -- Employee Stock grants........... -- -- -- -- -- 3,846 769 24,231 -- -- Retirement of Series A preferred stock.. -- (1,000) (1,000) -- -- -- -- (6,650) -- -- --- ------- -------- ------- -------- --------- ---------- ----------- ------------ --------- Balance at December 31, 1997............. $-- 796,318 796,318 750,000 750,000 5,232,403 1,046,481 15,146,095 (3,490,618) 84,400 Net loss......... -- -- -- -- -- -- -- -- (7,715,342) -- Unrealized Change in Marketable Equitable Securities....... -- -- -- -- -- -- -- -- -- (485,300) Total Comprehensive Income (Loss).... Preferred stock dividends........ -- -- -- -- -- -- -- -- (1,255,638) -- Employee and director stock grants........... -- -- -- -- -- 15,302 3,060 79,932 -- -- --- ------- -------- ------- -------- --------- ---------- ----------- ------------ --------- Balance at December 31, 1998............. $-- 796,318 $796,318 750,000 $750,000 5,247,705 $1,049,541 $15,226,027 $(12,461,598) $(400,900) === ======= ======== ======= ======== ========= ========== =========== ============ ========= Total Stockholders' Equity ------------- Balance at December 31, 1995............. 9,662,812 Net income....... 381,445 Unrealized Change in Marketable Equitable Securities....... (189,900) ------------- Total Comprehensive Income (Loss).... 191,545 Preferred stock dividends--Series A ($.80 per share)........... (644,800) Retirement of preferred stock.. (74,357) Reinstatement of preferred stock under Appraisal rights........... -- ------------- Balance at December 31, 1996............. 9,135,200 Net loss......... (1,388,964) Unrealized Change in Marketable Equitable Securities....... 274,300 ------------- Total Comprehensive Income (Loss).... (1,114,664) Issuance of Series B Preferred Stock.. 7,500,000 Preferred stock dividends Series A ($.80 per share)....... (638,023) Series B ($.76 per share)...... (567,187) Conversion of preferred stock to Common stock.. -- Employee Stock grants........... 25,000 Retirement of Series A preferred stock.. (7,650) ------------- Balance at December 31, 1997............. 14,332,676 Net loss......... (7,715,342) Unrealized Change in Marketable Equitable Securities....... (485,300) ------------- Total Comprehensive Income (Loss).... (8,200,642) Preferred stock dividends........ (1,255,638) Employee and director stock grants........... 82,992 ------------- Balance at December 31, 1998............. $4,959,388 =============
- - ----- * All share and dollar amounts have been restated to retroactively reflect the March 1998 reverse stock split See notes to consolidated financial statements. 22 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998 NOTE A--Description of Business The Company is in the primary business of the exploration and production of crude oil and natural gas. The subsidiaries have interests in such operations in seven states, primarily in Louisiana and Texas. Two of the Company's subsidiaries also had a minority interest in a natural gas pipeline joint venture located in the state of Texas until such interest was sold in 1997. NOTE B--Business Combinations On January 31, 1997, the Company acquired the oil and gas properties of La/Cal Energy Partners II ("La/Cal II") and certain working interest owners for a purchase price of $16.5 million ("La/Cal II Acquisition"). The purchase price was comprised of $1.5 million cash, the assumption of $7.5 million of La/Cal II long-term debt and the issuance of 750,000 shares of Series B convertible preferred stock of the Company ("Series B Preferred Stock") with an aggregate liquidation value of $7.5 million. In connection with the La/Cal II Acquisition, the Company borrowed an additional $9 million under its bank credit facility, which was used to repay $7.5 million of La/Cal II debt and to pay the $1.5 million cash portion of the purchase price. The Series B Preferred Stock has a dividend rate of 8.25% per annum and each share of Series B Preferred Stock is convertible into 1.12 shares of common stock. Such shares are redeemable by the Company after January 31, 2001 at $10.00 per share. The La/Cal II acquisition was accounted for as a purchase business combination and the operations of the related properties are included in the Company's results of operations effective January 31, 1997. NOTE C--Liquidity and Management's Plan Liquidity--As disclosed in Note G, the Company's current liabilities include the outstanding principal balance under the Company's credit facility of $29,500,000. Additionally, the Company is unable to incur additional debt under its credit facility or from any other sources until such time as its stockholders' equity balance is greater than the liquidation preference of the Series A Preferred Stock of approximately $7.9 million. Management's Plan--Due to the Company's existing current working capital deficiency, required pay downs under its credit facility and the restrictions imposed by the Series A Preferred Stock, management is exploring a number of alternatives that are directed toward making the Company profitable and improving its liquidity. The principal strategies include: 1) raising additional capital through the issuance of equity securities; or a combination of equity and subordinated debt; 2) acquisition of value enhancing oil and gas properties that offer additional development opportunities and increased cash flow; 3) mergers and/or acquisitions by other entities; 4) reducing operating costs; 5) sale of certain oil and gas properties; 6) renegotiation or amendment of the Company's credit facility and capital structure As with any plan of this nature, its ultimate realization will depend upon the cooperation of creditors, potential investors and others. As a result, the outcome of the plan cannot presently be determined and no 23 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 adjustments related to the specific considerations of management's plan have been made in the accompanying consolidated financial statements. Should the plan not be completed, the Company may not be able to liquidate liabilities as they come due. NOTE D--Summary of Significant Accounting Policies Principles of Consolidation--The consolidated financial statements include the financial statements of Goodrich Petroleum Corporation, its wholly-owned subsidiaries, and one of its wholly-owned subsidiary's three wholly-owned subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. Oil and gas revenues--Oil and gas revenues are recorded using the accrual method of accounting. Property and Equipment--The Company uses the successful efforts method of accounting for exploration and development expenditures. Leasehold acquisition costs are capitalized. When proved reserves are found on an undeveloped property, leasehold cost is reclassified to proved properties. Significant undeveloped leases are reviewed periodically, and a valuation allowance is provided for any estimated decline in value. Cost of all other undeveloped leases is amortized over the estimated average holding period of the leases. Costs of exploratory drilling are initially capitalized, but if proved reserves are not found, the costs are subsequently expensed. All other exploratory costs are charged to expense as incurred. Development costs are capitalized, including the cost of unsuccessful development wells. The Company follows SFAS No. 121 and recognizes an impairment is when the net of future cash inflows expected to be generated by an identifiable long- lived asset and cash outflows expected to be required to obtain those cash inflows is less than the carrying value of the asset. The Company performs this comparison for its oil and gas properties on a field-by-field basis. The amount of such loss is measured based on the difference between the discounted value of such net future cash flows and the carrying value of the asset. The Company recorded such impairments in 1998 and 1997 in the amounts of $1,076,000 and $550,000, respectively. The impairments were the result of certain fields depleting earlier than anticipated. Depreciation and depletion of producing oil and gas properties are provided under the unit-of-production method. Proved developed reserves are used to compute unit rates for unamortized tangible and intangible development costs, and proved reserves are used for unamortized leasehold costs. Estimated dismantlement, abandonment, and site restoration costs, net of salvage value, are considered in determining depreciation and depletion provisions. Gains and losses on disposals or retirements that are significant or include an entire depreciable or depletable property unit are included in income. All other dispositions, retirements, or abandonments are reflected in accumulated depreciation, depletion, and amortization. Cash and Cash Equivalents--Cash and cash equivalents include cash on hand, demand deposit accounts and temporary cash investments with maturities of ninety days or less at date of purchase. Marketable Equity Securities--The Company has classified its investment in marketable equity securities as available for sale. Accordingly, unrealized holding gains and losses are excluded from earnings and are reported as other comprehensive income until realized. The Company sold its marketable equity securities in January 1999. 24 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 Investment in Pipeline Joint Venture--Prior to its sale in October 1997, the Company's investment consisted of a 20% interest in an intrastate natural gas pipeline joint venture. The Company's carrying basis in the investment was established at August 15, 1995 (fair value) and was being amortized on a basis which matched the amortization with the monthly maximum average contract quantities over the estimated remaining term of the joint venture. Amortization amounted to $-0-, $741,000 and $1,060,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The Company recorded its equity in joint venture earnings as revenues in the statement of operations in the periods when the contract payments were earned. Income Taxes--The Company follows the provisions of SFAS No. 109, Accounting for Income Taxes which requires income taxes be accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings Per Share--Basic income per Common share is computed by dividing net income available for common stockholders, for each reporting period by the weighted average number of Common shares outstanding during the period. Diluted income per Common share is computed by dividing net income available for common stockholders for each reporting period by the weighted average number of Common shares outstanding during the period, plus the effects of potentially dilutive Common shares. Stock Based Compensation--The Company uses SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 Accounting for Stock Issued to Employees and provide pro forma net income and pro forma earnings per share and other disclosures for employee stock options grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the disclosure provisions of SFAS No. 123. Commitments and Contingencies--Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Recoveries from third parties which are probable of realization are separately recorded, and are not offset against the related environmental liability. Use of Estimates--Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 25 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 NOTE E--Fair Value of Financial Instruments The following presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1998 and 1997.
December 31, 1998 December 31, 1997 ---------------------- --------------------- Carrying Carrying Amount Fair Value Amount Fair Value ----------- ---------- ---------- ---------- Financial asset-- Marketable equity securities.... $ 358,700 358,700 844,000 844,000 Financial liabilities-- Other liabilities............... 0 0 160,520 160,520 Long-term debt (including current maturities)............ $29,500,000 29,500,000 18,500,000 18,500,000
The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, accounts receivable, accounts payables and accrued liabilities: The carrying amounts approximate fair value because of the short maturity of those instruments. Therefore, these instruments were not presented in the table above. Marketable equity securities: Fair value is based on bid prices published in financial media. Other liabilities and long-term debt: The fair value is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company's bankers. NOTE F--Accrued Liabilities Accrued liabilities as of December 31, 1998 and 1997 consisted of the following:
1998 1997 ---------- --------- Advanced billings.................................... $ 532,543 607,905 Accrued interest..................................... 347,663 400,069 Other................................................ 933,487 1,700,381 ---------- --------- $1,813,693 2,708,355 ========== =========
NOTE G--Indebtedness Indebtedness at December 31, 1998 and 1997 consists of the following:
1998 1997 ---------- ---------- Borrowings under credit facility, interest, at prime or LIBOR plus 2% (see below) (weighted average rate at December 31, 1998--7.2%); principal due June 1, 2000... 29,500,000 18,500,000 Less current portion.................................... 29,500,000 -- ---------- ---------- Long-term debt, excluding current portion............... $ -0- 18,500,000 ========== ==========
26 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 At December 31, 1998, the Company was not in compliance with a restrictive covenant of its existing credit facility, and, accordingly, the entire principal amount outstanding is presented in current maturities of long-term debt. The amount outstanding under the credit facility as of December 31, 1998 was $29,500,000. On March 29, 1999 the Company signed a preliminary agreement with Compass Bank to restructure its existing credit facility. The preliminary credit agreement will allow the Company to be in compliance with all covenants upon execution of the agreement. The preliminary agreement provides for a borrowing base facility of $20,500,000 with monthly reductions of $50,000 beginning on April 1, 1999 and May 1, 1999, $200,000 on June 1, 1999, and $300,000 on July 1, 1999 and each month thereafter. Semi-annual borrowing base determinations will be made beginning July 1, 1999 based in part on the Company's oil and gas reserve information. The maturity date for amounts drawn under the bank Borrowing Base facility is February 1, 2001. Interest on such facility is based on LIBOR plus 2% and rates are set on specific draws for one, two, three or six month periods at the option of the Company. The preliminary agreement also establishes a Tranche A facility in the amount of $9,000,000. The maturity date for the Tranche A facility is December 1, 1999. The Tranche A requires that excess cash flow from operations, as defined in the agreement, be applied to outstanding principal and interest until the maturity date, with interest based on the Compass Bank Index Rate plus 2%. The preliminary agreement requires the net proceeds of asset sales be used to extinguish outstanding principal and interest under the borrowing base facility and Tranche A. Additionally, under the terms of the preliminary agreement, the Company may not make any distributions or pay dividends, including dividends on any class of its preferred stock, until Tranche A is paid in full. Additionally, budgeted capital expenditures are required to be approved by the Lender prior to closing, and such approval shall be effective for a period of six months or until such time as an increase is requested. Furthermore, provided actual capital expenditures do not exceed the approved budgeted amount, the determination of capital expenditures is at the sole discretion of the Company. The preliminary agreement also requires that the Company's vendor accounts payable balance shall not exceed $2,500,000 as of June 30, 1999. The Company's vendor accounts payable balance was $3,721,000 at December 31, 1998. The preliminary agreement is subject to definitive documentation and Lender credit approval. Substantially all of the Company's assets are pledged to secure this credit facility. Interest paid during 1998, 1997 and 1996 amounted to $1,904,809, $1,038,221 and $562,593, respectively. NOTE H--Stockholders' Equity Common Stock--On March 12, 1998 the Company effected a one for eight reverse stock split of its common stock. All share and per share amounts of all periods presented have been adjusted to retroactively give effect to the reverse stock split. At December 31, 1998 unissued shares of Goodrich common stock were reserved in the amount of 1,167,717 shares for the conversion of convertible preferred stock and 342,692 shares for stock option plans. Preferred Stock The Series A Convertible Preferred Stock has a par value of $1.00 per share with a liquidation preference of $10.00 per share, and is convertible at the option of the holder at any time, unless earlier redeemed, into shares of Common Stock of the Company at an initial conversion rate of .417 shares of Common stock per share of Series A Preferred. The Series A Preferred Stock also will automatically convert to Common Stock if the closing price for the Series A Preferred Stock exceeds $15.00 per share for ten consecutive trading days. The Series A Preferred Stock is redeemable in whole or in part, at $12.00 per share, plus accrued and unpaid dividends. Dividends on the Series A Preferred Stock accrue at an annual rate of 8% and are cumulative. 27 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 The Company issued 750,000 shares of Series B Convertible Preferred Stock in connection with its acquisition of the La/Cal II properties on January 31, 1997. The Series B Convertible Preferred Stock has a par value of $1.00 per share with a liquidation preference of $10.00 per share and rank junior to the Series A Preferred Stock. The shares of Series B Preferred Stock are convertible at the option of the holder at any time, unless earlier redeemed, into shares of Common Stock of the Company at the conversion rate of 1.12 shares of Common Stock per share of Series B Preferred Stock. The Series B Preferred Stock are not redeemable by the Company prior to January 31, 2001, and subsequently, are redeemable at $10.00 per share. Dividends on the Series B Preferred Stock accrue at an annual rate of 8.25% and are cumulative. Stock Option and Incentive Programs--Goodrich currently has two plans which provide for stock option and other incentive awards for the Company's key employees, consultants and directors. The Goodrich Petroleum Corporation 1995 Stock Option Plan allows the Board of Directors to grant stock options, restricted stock awards, stock appreciation rights, long-term incentive awards and phantom stock awards, or any combination thereof to key employees and consultants. The Goodrich Petroleum Corporation 1997 Director Compensation Plan provides for the grant of stock and options to each director who is not and has never been an employee of the Company. Additionally, Goodrich assumed certain outstanding stock options of Patrick as a result of the business combination in 1995. The Goodrich plans authorize grants of options to purchase up to a combined total of 437,500 shares of authorized but unissued common stock. Stock options are generally granted with an exercise price equal to the stock's fair market value at the date of grant and all stock options granted under the 1995 Stock Option Plan generally have ten year terms and five year pro rata vesting. The per share weighted-average fair value of stock options granted during 1998, 1997 and 1996 was $2.17, $2.57 and $3.06 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1998--expected dividend yield 0%, risk-free interest rate of 7.5%, and an expected life of 6 years; 1997--expected dividend yield 0%, risk- free interest rate of 7.5%, and an expected life of 6 years; 1996--expected dividend yield 0%, risk-free interest rate of 7.5%, and an expected life of 6 years; expected volatility of stock over expected life of the options--35%. The Company applies APB Opinion No. 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income (loss) would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 ----------- ---------- -------- Net income (loss).............. As reported $(7,715,342) (1,388,964) 381,445 Pro forma (7,715,342) (1,452,644) 225,135 Earnings (loss) applicable to common stock.................. As reported (8,970,980) (2,594,174) (263,355) Pro forma (8,970,980) (8,970,980) (419,665) Basic and diluted earnings (loss) per average common share......................... As reported (1.71) (.50) (.05) Pro forma (1.71) (.51) (.08)
Earnings Per Share--Both series of the Company's convertible preferred stock and its stock options are considered to be potential common stock but have not been included in the computation of diluted earnings per share because to do so would have been antidillutive for all periods presented. 28 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 Stock option transactions during 1998, 1997 and 1996 were as follows:
Weighted Average Remaining Number of Weighted Average Range of Contractual Options Exercise Price Exercise Price Life ---------------- ------------------------------------ ----------------- Patrick Patrick Patrick Patrick Total Only Total Only Total Only Total Only ------- ------- -------- ----------------- --------- -------- -------- Outstanding January 1, 1996................... 333,200 196,950 14.24 18.56 Granted--1995 Stock Option Plan........... 49,375 -- 6.08 -- Granted--1995 Non- Employee Director Stock Option Plan..... 11,250 -- 7.52 -- Expiration of Options.. (39,883) (39,883) 18.00 18.00 ------- ------- Outstanding December 31, 1996 353,942 157,067 12.48 18.70 $6.00 to $16.00 to 5.4 yrs. 2.0 yrs. $24.00 $24.00 Granted--1995 Stock Option Plan........... 67,500 -- 6.48 -- Granted--1995 Non- Employee Director Stock Option Plan..... 6,250 -- 5.52 -- Expiration of Options.. (86,250) (86,250) 18.80 18.78 ------- ------- Outstanding December 31, 1997 341,442 70,817 9.60 18.60 $5.50 to $16.00 to 7.4 yrs. 4.2 yrs. ======= ======= $24.00 $24.00 Granted--1995 Stock Option Plan........... 144,000 -- 5.98 -- Granted--1998 Non- Employee Director Stock Option Plan..... 10,000 -- 5.98 -- Expiration of Options.. (62,190) (5,625) 7.88 19.33 ------- ------- Outstanding December 31, 1998 433,252 65,192 $5.50 to $16.00 to 7.0 yrs. 3.4 yrs. ======= ======= $24.00 $24.00 Exercisable December 31, 1996................... 219,129 157,067 15.63 18.70 Exercisable December 31, 1997................... 172,317 70,817 $ 12.13 18.60 Exercisable December 31, 1998................... 208,379 65,192 $ 10.86 18.54
At the February 25, 1999 meeting, the Board of Directors approved a stock option surrender/regrant program whereby employees and directors of the Company could surrender their present options and be regranted options equal to 75% of their previous number of options. Vesting periods for the new options began with the regrant date and the options have an exercise price equal to the closing stock price on the date of declaration by the Board of Directors. NOTE I--Commitments and Contingencies The U.S. Environmental Protection Agency ("EPA") has identified the Company as a potentially responsible party ("PRP") for the cost of clean-up of "hazardous substances" at an oil field waste disposal site in Vermilion Parish, Louisiana. The Company has estimated that the remaining cost of long- term clean-up of the site will be approximately $3.5 million with the Company's percentage of responsibility to be approximately 3.05%. As of December 31, 1998, the Company has paid approximately $321,000 in costs related to this matter and has $92,000 accrued for the remaining liability. These costs have not been discounted to their present value. The EPA and the PRPs will continue to evaluate the site and revise estimates for the long-term clean-up of the site. There can be no assurance that the cost of clean-up and the Company's percentage responsibility will not be higher than currently estimated. In addition, under the federal environmental laws, the liability costs for the 29 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 clean-up of the site is joint and several among all PRPs. Therefore, the ultimate cost of the clean-up to the Company could be significantly higher than the amount presently estimated or accrued for this liability. Additionally, the Company is party to a number of lawsuits arising in the normal course of business. The Company has defended and intends to continue to defend these actions vigorously and believes, based on currently available information, that adverse results or settlements, if any, in excess of insurance coverage or amounts already provided, will not be material to its financial position, liquidity or results of operations. NOTE J--Income Taxes Income tax expense for the years ending December 31, 1998, 1997 and the period from August 15, 1996 through December 31, 1996 consists of:
Current Deferred Total ------- -------- ----- Year ended December 31, 1998: U.S. Federal.................................... $ -- -- -- State........................................... -- -- -- ------- ------- --- -- -- -- ======= ======= === Year Ended December 31, 1997: U.S. Federal.................................... $14,643 (14,643) -- State........................................... -- -- -- ------- ------- --- 14,643 (14,643) -- ======= ======= === Year Ended December 31, 1996: U.S. Federal.................................... $ -- -- -- State........................................... -- -- -- ------- ------- --- -- -- -- ======= ======= ===
Following is a reconciliation of the U.S. statutory income tax rate to the Company's effective rate on income (loss) before income taxes for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996 ----- ----- ----- U.S. Statutory Income Tax Rate......................... (35.0)% (35.0)% 35.0% Increase in deductible temporary differences for which no benefit recorded................................... 34.6 34.9 -- Change in the beginning of the year balance of the valuation allowance allocated to income tax income expense............................................... -- -- (35.5) Nondeductible expenses................................. .4 .1 .5 ----- ----- ----- -- -- -- ===== ===== =====
The significant components of deferred income tax expense for the years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996 ---- ---------- ---- Deferred tax benefit (exclusive of utilization of net operating loss carryforwards).......................... -- (1,023,016) -- Utilization of net operating loss carryforward.......... -- 1,008,373 -- --- ---------- --- $-- (14,643) -- === ========== ===
30 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998 and 1997 are presented below.
December 31, December 31, 1998 1998 ------------ ------------ Deferred tax assets: Differences between book and tax basis of: Marketable equity securities................ $ 280,471 96,616 Contingent liabilities...................... 158,873 198,469 Consulting agreement contracts.............. -- 56,182 Other....................................... 65,199 65,199 Operating loss carryforwards.................. 13,109,624 11,742,835 Statutory depletion carryforward.............. 5,657,865 5,615,003 AMT Tax credit carryforward................... 1,477,872 1,460,869 Investment tax credit carryforward............ 98,574 189,336 ------------ ------------ Total gross deferred tax assets............... 20,848,478 19,424,509 Less valuation allowance...................... (19,104,959) (16,884,247) ------------ ------------ Net deferred tax assets....................... 1,743,519 2,540,262 ------------ ------------ Deferred tax liability: Differences between book and tax basis of: Property and equipment...................... (1,703,876) (2,500,619) ------------ ------------ Total gross deferred liability................ (1,703,876) (2,500,619) ------------ ------------ Net deferred tax asset........................ $ 39,643 39,643 ============ ============
The valuation allowance for deferred tax assets increased $2,221,000 for the year ended December 31, 1998 and decreased $3,845,000 for the year ended December 31, 1997. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based primarily upon the level of projections for future taxable income generated primarily by the reversal of future taxable temporary differences over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 1998. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. 31 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 The following table summarizes the amounts and expiration dates of operating loss and investment tax credit carryforwards:
Investment tax credit Operating loss carryforwards carryforwards ---------------------------- --------------------- Amount Expires Amount Expires ------ ------- ------- ------- $ 973,053 2005 $96,466 2001 7,093,823 2006 2,108 2002 8,860,622 2007 4,285,746 2008 3,247,494 2009 5,480,870 2010 600,706 2011 1,926,031 2012 5,075,182 2018 ----------- ------- $37,543,527 $98,574 =========== =======
As a result of the August 15, 1995 business combination, the Company's annual utilization of its net operating and statutory depletion carryforwards generated prior to the business combination are limited under Internal Revenue Code Section 382. Such limitation is determined annually and is comprised of a base amount of $1,682,797 plus any recognized "built in gains" existing at August 15, 1995. Such limitation amounted to $13,056,000 in 1997 and is estimated to be $19,727,000 in 1998. The Company's statutory depletion carryforwards and AMT credit carryovers have no expiration date. The Company paid income taxes of $4,344, $0 and $107,237 in 1998, 1997 and 1996, respectively. NOTE K--Related Party Transactions. The Company entered into transactions with Goodrich Oil Company as described below. Goodrich Oil Company is owned by Henry Goodrich who is the chairman of the Company and the father of Walter G. Goodrich, the Company's President and Chief Executive Officer. During 1998, 1997 and 1996, the Company paid Goodrich Oil Company $0, $74,981 and $118,775 for certain general and administrative expenses. There were no amounts payable to Goodrich Oil Company at December 31, 1998 and 1997. Goodrich Oil Company ceased to exist as an operating company in May 1997. The Company paid $180,000, $167,500 and $150,000 to the Company's Chairman, Mr. Henry Goodrich during 1998, 1997 and 1996, respectively, under a consulting agreement which expires in August 2000. NOTE L--Natural Gas and Crude Oil Cost Data and Results of Operations. The following reflects the Company's capitalized costs related to natural gas and oil activities at December 31, 1998 and 1997:
1998 1997 ------------ ---------- Proved properties................................ $ 49,916,276 39,343,362 Unproved properties.............................. 3,412,897 1,811,325 ------------ ---------- 53,329,173 41,154,687 Less accumulated depreciation and depletion...... 13,592,827 8,798,501 ------------ ---------- Net property and equipment..................... $ 39,736,346 32,356,186 ============ ==========
32 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 The following table reflects certain data with respect to natural gas and oil property acquisitions, exploration and development activities:
Year Ended December 31, ----------------------------------- 1998 1997 1996 ----------- ---------- --------- Property acquisition Proved $ 129,325 17,308,540(a) 7,068 Unproved............................ 2,446,474 886,647 231,053 Exploration........................... 8,718,682 5,535,783 3,866,205 Development........................... 8,169,741 3,598,177 359,075 ----------- ---------- --------- $19,464,222 27,329,147 4,463,401 =========== ========== =========
- - -------- (a) Includes properties acquired in the La/Cal II Acquisition including portions funded with Serial B Preferred Stock ($7,500,000) Results of operations for natural gas and oil producing activities follow:
Year Ended December 31, ---------------------------------- 1998 1997 1996 ----------- ----------- --------- Sales to unaffiliated customers............ $ 9,836,863 11,351,586 7,687,748 Production costs (lease operating expense and taxes)................................ 2,821,515 2,316,006 1,614,584 Exploration expenses....................... 6,010,425 3,205,730 1,149,240 Impairment of oil and gas properties....... 1,075,853 549,792 -- Depreciation, depletion and amortization... 4,038,547 4,065,998 2,684,494 ----------- ----------- --------- 13,946,340 10,137,526 5,448,318 ----------- ----------- --------- Results of operations...................... $(4,109,477) 1,214,060 2,239,430 =========== =========== =========
No income taxes have been reflected above for the Company due to its estimate that net operating loss and statutory depletion loss carryforwards will be utilized to offset future taxable income. NOTE M--Concentrations of Credit Risk and Significant Customers Due to the nature of the industry the Company sells its oil and natural gas production to a limited number of purchasers and, accordingly, amounts receivable from such purchasers could be significant. Additionally, prior to the sale of the Company's interest in its pipeline joint venture in 1997, it received net monthly payments from its partner, Mitchell Marketing Company. Revenues from these sources as a percent of total revenues for the periods presented were as follows:
Year Ended December 31, ---------------- 1998 1997 1996 ---- ---- ---- Seaber Corporation of Louisiana............................ 47% 44% 35% Texaco..................................................... 12% 11% -- Navajo Refining Company.................................... 11% -- -- Mobil Oil Corporation...................................... -- 10% 22% Mitchell Marketing Company................................. -- 9% 16%
33 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 NOTE N--Sales of Assets On January 5, 1999 the Company sold its investment in marketable equity securities. Proceeds from the sale amounted to $240,000 and resulted in a realized loss of $520,000. On April 22, 1998 the Company sold its interest in certain oil and gas properties located in Texas for $49,000 resulting in a gain of $4,000. On October 16, 1997, the Company sold its 20% interest in a natural gas pipeline joint venture. The adjusted sales price was $3,564,000 and the Company recognized a gain on the sale (both pre-tax and after-tax) in the fourth quarter of 1997 of $688,304. The Company sold its interests in certain oil and gas properties located in Montana for $370,000 in 1997, resulting in a gain of $18. The Company sold its interest in certain oil and gas properties located in North Dakota for $325,000 in 1996, resulting in a gain of $88,000. NOTE O--Acquisition of Oil Gas Properties On January 31, 1997, the Company acquired the oil and gas properties of La/Cal Energy Partners II ("La/Cal II") and certain working interest owners for a purchase price of $16.5 million ("La/Cal II Acquisition"). The purchase price was comprised of $1.5 million cash, the assumption of $7.5 million La/Cal II long-term debt and the issuance of 750,000 shares of Series B convertible preferred stock of the Company ("Series B Preferred Stock") with an aggregate liquidation value of $7.5 million. In connection with the La/Cal II Acquisition, the Company increased its borrowing base to $22.5 million and borrowed an additional $9 million to payoff La/Cal II's debt and to pay the cash portion of the purchase price. Selected results of operations on a pro forma basis as if the La/Cal II Acquisition had occurred on January 1, 1997 and January 1, 1996, respectively are as follows:
For the year ended December 31, ---------------------- 1997 1996 ---------- ---------- (Unaudited Revenues.......................................... 13,422,000 14,370,000 Net income (loss)................................. (1,154,000) 1,715,000 Earnings (loss) applicable to common stock........ (2,411,000) 451,000 Basic and diluted earnings (loss) per average common share..................................... (.46) .09
NOTE P--Supplemental Oil and Gas Reserve Information (Unaudited) The supplemental oil and gas reserve information that follows is presented in accordance with SFAS No. 69, Disclosures about Oil and Gas Producing Activities. The schedules provide users with a common base for preparing estimates of future cash flows and comparing reserves among companies. Additional background information follows concerning the schedules. Schedules 1 and 2--Estimated Net Proved Oil and Gas Reserves Substantially all of the Company's reserve information related to crude oil, condensate, and natural gas liquids and natural gas was compiled based on evaluations performed by Coutret and Associates, Inc. All of the subject reserves are located in the continental United States. 34 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 Many assumptions and judgmental decisions are required to estimate reserves. Quantities reported are considered reasonable but are subject to future revisions, some of which may be substantial, as additional information becomes available. Such additional knowledge may be gained as the result of reservoir performance, new geological and geophysical data, additional drilling, technological advancements, price changes, and other factors. Regulations published by the Securities and Exchange Commission define proved reserves as those volumes of crude oil, condensate, and natural gas liquids and natural gas that geological and engineering data demonstrate with reasonable certainty are recoverable from known reservoirs under existing economic and operating conditions. Proved developed reserves are those volumes expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those volumes expected to be recovered as a result of making additional investment by drilling new wells on acreage offsetting productive units or recompleting existing wells. Schedule 3--Standardized Measure of Discounted Future Net Cash Flows to Proved Oil and Gas Reserves SFAS No. 69 requires calculation of future net cash flows using a ten percent annual discount factor and year end prices, costs, and statutory tax rates, except for known future changes such as contracted prices and legislated tax rates. The calculated value of proved reserves is not necessarily indicative of either fair market value or present value of future cash flows because prices, costs, and governmental policies do not remain static; appropriate discount rates may vary; and extensive judgment is required to estimate the timing of production. Other logical assumptions would likely have resulted in significantly different amounts. Average crude oil prices received for oil and the average price received by well for natural gas, effective at the end of each year, were used for this calculation, and were $9.37 per bbl and $2.24 per Mcf, respectively as of December 31, 1998, and $16.50 per Bbl and $2.59 per Mcf, respectively as of December 31, 1997, and $23.88 per Bbl and $4.17 per Mcf, respectively as of December 31, 1996. Oil prices have subsequently increased while gas prices have subsequently declined from December 31, 1998 levels. Schedule 3 also presents a summary of the principal reasons for change in the standard measure of discounted future net cash flows for each of the three years in the period ended December 31, 1998. 35 Schedule 1--Estimated Net Proved Gas Reserves (Mcf)
Year Ended December 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- Proved: Balance, beginning of period............. 37,570,614 18,184,738 18,887,189 Revisions of previous estimates.......... (8,393,772) (1,582,986) (3,989,734) Purchase of minerals in place............ 226,778 3,761,481 3,594 Extensions, discoveries, and other additions............................... 1,656,200 19,707,712 4,961,754 Production............................... (2,782,825) (2,449,320) (1,623,377) Sales of minerals in place............... (132,685) (51,011) (54,688) ---------- ---------- ---------- Balance, end of period................... 28,144,310 37,570,614 18,184,738 ========== ========== ========== Proved developed: Beginning of period...................... 16,600,669 13,911,003 13,815,905 End of period............................ 21,481,946 16,600,669 13,911,003
Schedule 2--Estimated Net Proved Oil Reserves (Barrels)
Year Ended December 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Proved: Balance, beginning of period................ 4,098,390 1,050,210 940,147 Revisions of previous estimates............. (988,611) 132,327 44,980 Purchase of minerals in place............... 0 1,614,779 -- Extensions, discoveries, and other additions.................................. 299,799 1,685,438 278,129 Production.................................. (316,768) (282,380) (165,964) Sale of minerals in place................... 0 (101,984) (47,082) --------- --------- --------- Balance, end of period...................... 3,092,810 4,098,390 1,050,210 ========= ========= ========= Proved, developed: Beginning of period......................... 2,292,626 969,868 920,557 End of period............................... 2,266,854 2,292,626 969,868
Schedule 3--Standardized Measure of Discounted Future Net Cash Flows Related to Proved Oil and Gas Reserves
Year Ended December 31, -------------------------- 1998 1997 1996 -------- ------- ------- (in thousands) Future cash inflows............................... 86,449 155,542 96,668 Future production and development costs........... (24,339) (26,906) (11,303) Future income tax expense(a)...................... --0-- (24,177) (13,624) -------- ------- ------- Future net cash flows............................. 62,110 104,459 72,013 10% annual discount for estimated timing of cash flows............................................ (21,475) (40,456) (24,656) -------- ------- ------- Standardized measure of discounted future net cash flows............................................ $ 40,635 64,003 47,357 ======== ======= ======= Average year end prices: Natural gas (per Mcf)........................... $ 2.24 2.59 4.17 Crude oil (per Bbl)............................. $ 9.37 16.50 23.88
- - -------- (a) Taxable income for 1998 period was entirely offset by available net operating loss carry forwards. 36 The following are the principal sources of change in the standardized measure of discounted net cash flows for the years shown:
Year Ended December 31, ------------------------- 1998 1997 1996 -------- ------- ------ (in thousands) Net changes in prices and production costs related to future production.............................. $(31,820) (32,327) 24,061 Sales and transfers of oil and gas produced, net of production costs.................................. (7,015) (9,036) (6,073) Net change due to revisions in quantity estimates.. (12,464) (991) (8,730) Net change due to extensions, discoveries and improved recovery................................. 3,006 37,465 15,532 Net change due to purchase and sales of minerals- in-place.......................................... 82 16,065 (792) Development costs incurred during the period....... 2,198 3,598 359 Net change in income taxes......................... 14,093 (4,094) (6,524) Accretion of discount.............................. 7,810 5,736 3,036 Change in production rates (timing) and other...... 742 230 (394) -------- ------- ------ $(23,368) 16,646 20,475 ======== ======= ======
37 GOODRICH PETROLEUM CORPORATION Consolidated Quarterly Income Information (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter Total ---------- ---------- ---------- ---------- ---------- 1998 Revenues.............. $2,433,577 2,264,397 2,697,743 3,196,156 10,591,873 Costs and Expenses.... 3,446,298 5,215,164 4,813,328 4,836,631 18,311,421 Gain on sale of assets............... 4,206 -- -- -- 4,206 Net income (loss)..... (1,008,515) (2,950,767) (2,115,585) (1,640,475) (7,715,342) Preferred stock dividends............ 313,912 313,902 313,912 313,912 1,255,638 Earnings (loss) applicable to common stock................ (1,322,427) (3,264,669) (2,429,497) (1,954,387) (8,970,980) Basic earnings (loss) per average common share................ (.25) (.62) (.46) (.37) (1.71) Diluted earnings (loss) per average common share......... $ (.25) (.62) (.46) (.37) (1.71) 1997 Revenues.............. $3,597,401 3,068,455 3,170,563 3,064,942 12,901,361 Costs and Expenses.... 2,860,461 3,049,380 3,409,319 5,659,469 14,978,629 Gain on sale of assets............... 18 -- -- 688,286 688,304 Net income (loss)..... 736,958 19,075 (238,756) (1,906,241) (1,388,964) Preferred stock dividends............ 263,315 314,102 313,891 313,902 1,205,210 Earnings (loss) applicable to common stock................ 473,643 (295,027) (552,647) (2,220,143) (2,594,174) Basic earnings (loss) per average common share................ .09 (.06) (.11) (.42) (.50) Diluted earnings (loss) per average common share......... $ .09 (.06) (.11) (.42) (.50)
Prior to the sale of the Company's pipeline joint venture interest in the fourth quarter of 1997, the Company's quarterly revenues and costs and expenses were impacted by the fact that the pipeline joint venture contract required higher revenue payments in November through March versus April through October. Accordingly, the Company recorded the revenues as earned and matched related amortization with such revenues. Related revenue and amortization amounts for the first, second, third and fourth quarters of 1997 were approximately $551,000, $268,000, $266,000 and $0 and $392,000, $174,000, $174,000 and $0, respectively. The first, second, third and fourth quarter of 1998 cost and expense amounts contain costs amounting to $0, $2,107,000, $1,496,000 and $81,000, respectively, related to dry holes. The fourth quarter amount also contains impairment of oil and gas properties of $1,076,000. The third and fourth quarter 1997 cost and expense amounts contain costs amounting to $472,000 and $1,855,000, respectively, related to dry holes. The fourth quarter amount also contains impairment of oil and gas properties of $550,000. All earnings (loss) per share information has been adjusted to give retroactive effect to the one-for-eight reverse stock split in March 1998. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None 38 PART III Item 10. Directors and Executive Officers of the Registrant. * Item 11. Executive Compensation. * Item 12. Security Ownership of Certain Beneficial Owners and Management. * Item 13. Certain Relationships and Related Transactions. * *Reference is made to information under the captions "Election of Directors", "Executive Compensation", "Security Ownership of Certain Beneficial Owners and Management", and "Certain Relationships and Related Transactions", in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders. 39 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)1. Financial Statements The following consolidated financial statements of Goodrich Petroleum Corporation are included in Part II, Item 8:
Page ----- Independent Auditors' Report............................................ 18 Consolidated Balance Sheets--December 31, 1998 and 1997................. 19 Consolidated Statements of Operations--Years ended December 31, 1998, 1997 and 1996.......................................................... 20 Consolidated Statements of Cash Flows--Years ended December 31, 1998, 1997 and 1996.......................................................... 21 Consolidated Statements of Stockholders' Equity--Years ended December 31, 1998, 1997 and 1996................................................ 22 Notes to Consolidated Financial Statements--Years ended December 31, 1998, 1997 and 1996.................................................... 23-37 Consolidated Quarterly Income Information (Unaudited)................... 38
2. Financial Statement Schedules The schedules for which provision is made in Regulation S-X are not required under the instructions contained therein, are inapplicable, or the information is included in the footnotes to the financial statements. (b) Reports on Form 8-K None (c) Exhibits 3(i).1 Amended and Restated Certificate of Incorporation of the Company dated August 15, 1995, and filed with the Secretary of State of the State of Delaware on August 15, 1995 (Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report filed on Form 10-Q for the three months ended September 30, 1995). 3(i).2 Certificate of Amendment of Restated Certificate of Incorporation of Goodrich Petroleum Corporation dated March 12, 1998. 3(ii).1 Bylaws of the Company, as amended and restated (Incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report filed on Form 10-Q for the three months ended September 30, 1995). 4.1 Credit Agreement Between Goodrich Petroleum Company of Louisiana and Compass Bank-Houston dated August 15, 1995 and Amendment thereto dated December 15, 1995. (Incorporated by reference to Exhibit 4.1 of the Company's Annual Report filed on Form 10-K for the year ended December 31, 1995) 4.2 Second Amendment to Credit Agreement between Goodrich Petroleum Company of Louisiana and Compass Bank dated June 1, 1996 (Incorporated by reference to Exhibit 4 of the Company's Quarterly Report filed on Form 10-Q for the three months ended June 30, 1996.) 4.3 Third Amendment to Credit Agreement between Goodrich Petroleum Company of Louisiana, GPC, Inc. of Louisiana and Compass Bank dated January 31, 1997. (Incorporated by reference to Exhibit 4.3 of the Company's Annual Report filed on Form 10-K for the year ended December 31, 1996. 4.4 Fourth Amendment to Credit Agreement between Goodrich Petroleum Company of Louisiana, GPC, Inc. of Louisiana and Compass Bank dated June 1, 1997. (Incorporated by reference to Exhibit 4.4 of the Company's Form 10-Q for the year ended March 31, 1997.) 4.5 Fifth Amendment to Credit Agreement between Goodrich Petroleum Company of Louisiana, GPC, Inc. of Louisiana and Compass Bank dated October 16, 1997. (Incorporated by reference to Exhibit 4.4 of the Company's Form 10-Q for the year ended March 31, 1997.) 4.6 Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.6 of the Company's Registration Statement filed February 20, 1996 on Form S-8 (File No. 33-01077)).
40 4.7 Series B Convertible Preferred Stock Certificate of Designations. (Incorporated by reference to Exhibit 4.6 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 4.8 Amendment letter related to the Credit Agreement between Goodrich Petroleum Company of Louisiana, GPC, Inc. of Louisiana and Compass Bank dated August 27, 1998. 4.9 Sixth amendment to the Credit Agreement between Goodrich Petroleum Company of Louisiana and Compass Bank dated March 27, 1998. 4.10 Seventh amendment to the Credit Agreement between Goodrich Petroleum Company, LLC (formerly Goodrich Petroleum Company of Louisiana) and Compass Bank dated December 21, 1998. 10.1 Goodrich Petroleum Corporation 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.21 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-58631)). 10.2 Patrick Petroleum Company 1993 Stock Option Plan (Incorporated by reference to Exhibit 10.11 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-58631)). 10.3 Form of Marketing Agreement between the Company and Natural Gas Ventures, L.L.C. (Incorporated by reference to Exhibit 10.19 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-58631)). 10.4 Natural Gas Marketing Joint Venture Agreement between Seaber Corporation and Natural Gas Ventures, L.L.C. (Incorporated by reference to Exhibit 10.20 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-58631)). 10.5 Form of Consulting Services Agreement between the Company and Henry Goodrich (Incorporated by reference to Exhibit 10.23 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33- 58631)). 10.6 Form of Employment Agreement between the Company and Walter G. Goodrich (Incorporated by reference to Exhibit 10.24 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33- 58631)). 10.7 Consulting Agreement with U.E. Patrick (Incorporated by reference to Exhibit 10.25 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-58631)). 10.8 Consulting Services Agreement between Leo E. Bromberg and Goodrich Petroleum Corporation (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report filed on Form 10-Q for the three months ended September 30, 1995). 10.9 Goodrich Petroleum Corporation 1997 Director Compensation Plan (Incorporated by reference to the Company's Proxy statement dated May 20, 1998) 21 Subsidiaries of the Registrant Goodrich Petroleum Corporation, Inc. of Louisiana--incorporated in the state of Nevada Goodrich Petroleum Company LLC--incorporated in state of Louisiana Subsidiaries of Goodrich Petroleum Company of Louisiana Drilling & Workover Company, Inc.--incorporated in state of Louisiana LECE, Inc.--incorporated in the state of Texas National Market Company--incorporated in state of Delaware 23 Consent of KPMG LLP 27 Financial Data Schedule, included elsewhere herein
41 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GOODRICH PETROLEUM CORPORATION (Registrant) Date: March 29, 1999 /s/ Walter G. Goodrich By___________________________________ Walter G. Goodrich, President, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Date: March 29, 1999 Signature Title Chief Executive Officer and /s/ Walter G. Goodrich Director (Principal Executive - - ----------------------------------- Officer) Walter G. Goodrich Senior Vice President, /s/ Roland L. Frautschi Treasurer and Chief Financial - - ----------------------------------- Officer (Principal Financial Roland L. Frautschi Officer) Vice President (Principal /s/ Lonnie J. Shaw Accounting Officer) - - ----------------------------------- Lonnie J. Shaw /s/ Sheldon Appel Director Treasurer - - ----------------------------------- Sheldon Appel /s/ Basil M. Briggs Director - - ----------------------------------- Basil M. Briggs /s/ Benjamin F. Edwards Director - - ----------------------------------- Benjamin F. Edwards /s/ Henry Goodrich Director - - ----------------------------------- Henry Goodrich /s/ Arthur A. Seeligson Director - - ----------------------------------- Arthur A. Seeligson /s/ Jeff Benhard Director - - ----------------------------------- Jeff Benhard
42 EX-4.9 2 SIXTH AMENDMENT TO CREDIT AGREEMENT Exhibit 4.9 SIXTH AMENDMENT TO CREDIT AGREEMENT between GOODRICH PETROLEUM COMPANY OF LOUISIANA GPC, INC. OF LOUISIANA and COMPASS BANK Effective as of March 27, 1998 SEVENTH AMENDMENT TO CREDIT AGREEMENT ------------------------------------- This SEVENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made and entered into effective as of December 20, 1998, by and between GOODRICH PETROLEUM COMPANY, L.L.C. ("GP"), a Louisiana limited liability company, successor by merger to GOODRICH PETROLEUM COMPANY OF LOUISIANA, a Nevada corporation ("GPCL"), (the "Borrower"), GOODRICH PETROLEUM CORPORATION, a Delaware corporation, ("Goodrich"), and COMPASS BANK, an Alabama state chartered banking institution (the "Lender"). W I T N E S S E T H: ------------------- WHEREAS, GPCL, GPC, Inc. of Louisiana (which was merged into GPCL), the Lender, and Goodrich are parties to the Credit Agreement dated August 16, 1995, as amended by First Amendment to Credit Agreement dated as of December 15, 1995, and Letter Amendment dated March 26, 1996, and Second Amendment to Credit Agreement dated as of June 1, 1996, and Letter Amendment dated November 12, 1996, and by Third Amendment to Credit Agreement dated as of January 31, 1997, and by Fourth Amendment to Credit Agreement dated as of June 1, 1997 and by Fifth Amendment to Credit Agreement dated as of October 16, 1997, and as amended by Letter Amendment dated February 25, 1998, and as further amended by Sixth Amendment to Credit Agreement dated as of March 27, 1998 (as amended, the "Agreement"), pursuant to which the Lender has extended credit to GPCL and GPC and Goodrich has guaranteed the payment and performance of certain indebtedness and other obligations of GPCL and GPC to the Lender; and WHEREAS, GPCL has merged with GP and GP is the surviving entity; and WHEREAS, the parties hereto desire to amend the Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in the Agreement and this Amendment, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND INTERPRETATION ------------------------------ I.1 Terms Defined Above. As used herein, each of the terms "Agreement," "Amendment," "Borrower," "GP," "GPCL", "Goodrich," and "Lender" shall have the meaning assigned to such term hereinabove. I.1 Terms Defined in Agreement. As used herein, each term defined in the Agreement shall have the meaning assigned thereto in the Agreement, unless expressly provided herein to the contrary. I.2 References. References in this Amendment to Article or Section numbers shall be to Articles and Sections of this Amendment, unless expressly stated to the contrary. References in this Amendment to "hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof," and "hereunder" shall be to this Amendment in its entirety and not only to the particular Article or Section in which such reference appears. I.1 Articles and Sections. This Amendment, for convenience only, has been divided into Articles and Sections and it is understood that the rights, powers, privileges, duties, and 1 other legal relations of the parties hereto shall be determined from this Amendment as an entirety and without regard to such division into Articles and Sections and without regard to headings prefixed to such Articles and Sections. I.1 Number and Gender. Whenever the context requires, reference herein made to the single number shall be understood to include the plural and likewise the plural shall be understood to include the singular. Words denoting sex shall be construed to include the masculine, feminine, and neuter, when such construction is appropriate, and specific enumeration shall not exclude the general, but shall be construed as cumulative. Definitions of terms defined in the singular and plural shall be equally applicable to the plural or singular, as the case may be. ARTICLE II AMENDMENTS TO AGREEMENT ----------------------- The Agreement is hereby amended to substitute GP for GPCL and GP agrees to be bound by all of the terms and provisions of the Agreement and to execute a note in the form set forth as Exhibit A to this Amendment. ARTICLE III CONDITIONS ---------- The obligation of the Lender to amend the Agreement as provided herein is subject to the fulfillment of the following conditions precedent: I.1 Receipt of Documents and Other Items. The Lender shall have received, reviewed, and approved the following documents and other items, appropriately executed when necessary and in form and substance satisfactory to the Lender: (a) multiple counterparts of this Amendment executed by the Borrower and Goodrich, as requested by the Lender; and (b) the Note; (c) copies of the Articles of Organization and all amendments thereto and the operating agreement and all amendments thereto of GP accompanied by a certificate issued by the secretary or an assistant secretary or chief financial officer of GP, to the effect that each such copy is correct and complete; (d) certificates of incumbency and signatures of all officers of GP who are authorized to execute Loan Documents on behalf of such entities, each such certificate being executed by the secretary or an assistant secretary or chief financial officer of the Borrower or the Guarantors, as the case may be; (e) copies of resolutions approving the Loan Documents and authorizing the transactions contemplated herein and therein, duly adopted by the management committee of GP, accompanied by certificates of the secretary, an assistant secretary or chief financial officer of GP, to the effect that such copies are true and correct copies of 2 resolutions duly adopted at a meeting or by unanimous consent of the management committee of GP, and that such resolutions constitute all the resolutions adopted with respect to such transactions, have not been amended, modified, or revoked in any respect, and are in full force and effect as of the date of such certificate; (f) Articles of Merger for GPC, Inc. of Louisiana into Goodrich Petroleum Company of Louisiana and Articles of Merger for Goodrich Petroleum Company of Louisiana into Goodrich Petroleum Company, L.L.C. must be filed in all counties and parishes where Mortgaged Property is located and within thirty days from the execution of this Amendment the Lender shall be furnished with recording references for each county or parish; and (g) such other agreements, documents, items, instruments, opinions, certificates, waivers, consents, and evidence as the Lender may reasonably request. I.1 Accuracy of Representations and Warranties. The representations and warranties contained in Article IV of the Agreement and in any other Loan Document shall be true and correct, except as affected by the transactions contemplated in the Agreement and this Amendment. I.1 Matters Satisfactory to Lender. All matters incident to the consummation of the transactions contemplated hereby shall be satisfactory to the Lender. ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Borrower and Goodrich hereby expressly re-makes, in favor of the Lender, all of the representations and warranties set forth in Article IV of the Agreement and set forth in any other Loan Document to which it is a party, and represents and warrants that all such representations and warranties remain true and unbreached, except as affected by the transactions contemplated in the Agreement and this Amendment. ARTICLE V RATIFICATION ------------ Each of the parties hereto does hereby adopt, ratify, and confirm the Agreement and the other Loan Documents to which it is a party, in all things in accordance with the terms and provisions thereof, as amended by this Amendment and the documents executed in connection herewith. ARTICLE VI MISCELLANEOUS ------------- I.1 Scope of Amendment. The scope of this Amendment is expressly limited to the matters addressed herein and this Amendment shall not operate as a waiver of any past, present, or future breach, Default, or Event of Default under the Agreement, except to the extent, if any, that any such breach, Default, or Event of Default is remedied by the effect of this Amendment. 3 I.1 Agreement as Amended. All references to the Agreement in any document heretofore or hereafter executed in connection with the transactions contemplated in the Agreement shall be deemed to refer to the Agreement as amended by this Amendment. I.1 Parties in Interest. All provisions of this Amendment shall be binding upon and shall inure to the benefit of the Borrower, the Lender, Goodrich, and their respective successors and permitted assigns. I.1 Rights of Third Parties. All provisions herein are imposed solely and exclusively for the benefit of the parties hereto and their respective successors and permitted assigns. No other Person shall have standing to require satisfaction of such provisions in accordance with their terms and any or all of such provisions may be freely waived in whole or in part by the Lender at any time if in its sole discretion it deems it advisable to do so. I.1 Entire Agreement. THIS AMENDMENT CONSTITUTES THE ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SUPERSEDES ANY PRIOR AGREEMENT, WHETHER WRITTEN OR ORAL, AMONG SUCH PARTIES REGARDING THE SUBJECT HEREOF. FURTHERMORE IN THIS REGARD, THIS AMENDMENT, THE AGREEMENT, AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES. I.1 Governing Law. THIS AMENDMENT AND ALL ISSUES ARISING IN CONNECTION HEREWITH AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW. I.1 Jurisdiction and Venue. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. EACH OF THE BORROWER AND GOODRICH HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION. I.1 Waiver of Rights to Jury Trial. EACH OF THE BORROWER, GOODRICH, AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS AMENDMENT. 4 IN WITNESS WHEREOF, this Amendment is executed effective as of the date first hereinabove written. BORROWER: GOODRICH PETROLEUM COMPANY, L.L.C. By: Roland L. Frautschi Management Committee Member GUARANTOR: GOODRICH PETROLEUM CORPORATION By: Roland L. Frautschi Chief Financial Officer and Treasurer LENDER: COMPASS BANK By: Allison Hammer Vice-President 5 EX-4.10 3 SEVENTH AMENDMENT TO CREDIT AGREEMENT Exhibit 4.10 SEVENTH AMENDMENT TO CREDIT AGREEMENT between GOODRICH PETROLEUM COMPANY, L.L.C. and COMPASS BANK Effective as of December 20, 1998 EXHIBIT A --------- [FORM OF PROMISSORY NOTE] $50,000,000 Houston, Texas December 20, 1998 FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker") promises to pay to the order of COMPASS BANK ("Payee"), at its banking quarters in Houston, Harris County, Texas, the sum of FIFTY MILLION DOLLARS ($50,000,000), or so much thereof as may be advanced against this Note pursuant to the Credit Agreement dated August 16, 1995, as amended, by and between Maker and Payee (as amended, restated, or supplemented from time to time, the "Credit Agreement"), together with interest at the rates and calculated as provided in the Credit Agreement. Reference is hereby made to the Credit Agreement for matters governed thereby, including, without limitation, certain events which will entitle the holder hereof to accelerate the maturity of all amounts due hereunder. Capitalized terms used but not defined in this Note shall have the meanings assigned to such terms in the Credit Agreement. This Note is issued pursuant to, is the "Note" under, and is payable as provided in the Credit Agreement. This Note evidences, in whole or in part, the renewal, extension, and rearrangement of the Indebtedness evidenced by the Existing Notes. Without being limited thereto or thereby, this Note is secured by the Security Instruments. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT VERNON'S TEXAS CIVIL STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY. GOODRICH PETROLEUM COMPANY, L.L.C. By: Roland L. Frautschi Management Committee Member 2 EX-23 4 CONSENT OF KPMG LLP EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors Goodrich Petroleum Corporation We consent to the incorporation by reference in the registration statement (No. 33-01077) on Form S-8 of Goodrich Petroleum Corporation of our report dated March 30, 1999 relating to the consolidated balance sheets of Goodrich Petroleum Corporation and subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998, annual report on Form 10-K of Goodrich Petroleum Corporation. The report of KPMG LLP covering the December 31, 1998 consolidated financial statements contains an explanatory paragraph that states that the Company's working capital deficiencies, required payments under the Company's credit facility and restrictions imposed by the Company's Series A Preferred Stock raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. KPMG LLP Shreveport, Louisiana March 30, 1999 EX-27 5 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 95,693 358,700 3,311,394 24,989 0 3,925,633 53,516,111 13,720,009 44,036,588 39,077,200 0 0 1,546,318 1,049,541 2,363,529 44,036,588 9,836,863 10,591,873 0 16,401,572 0 0 1,909,849 (7,715,342) 0 (7,715,342) 0 0 0 (7,715,342) (1.71) (1.71)
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