Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 20, 2002
PARALLEL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other
jurisdiction of incorporation)
0-13305 75-1971716
(Commission file (IRS employer
number) identification
number)
1004 N. Big Spring, Suite 400, Midland, Texas 79701
(Address of principal executive offices) (Zip code)
(915) 684-3727
(Registrant's telephone number including area code)
110 N. Marienfeld, Suite 465, Midland, Texas 79701
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
Purchase of Assets
On December 20, 2002, Parallel Petroleum Corporation purchased, through its
subsidiary, Parallel, L.P., 95% of the interest owned by nonaffiliated sellers
in producing oil and gas properties located in Andrews County, Texas in the
Permian Basin of west Texas (the "Properties"). The total purchase price for
Parallel's interest in the properties was $46,075,000.00, of which $45,075,000
was paid in cash and $1,000,000.00 was paid in the form of 454,545 shares of
common stock of Parallel Petroleum Corporation. For purposes of the acquisition,
the common stock was valued at $2.20 per share, the last sale price of
Parallel's common stock on the day immediately preceding Parallel, L.P.'s
execution of a purchase and sale agreement with the sellers of the properties.
Texland Petroleum, Inc., an unaffiliated third party, acquired the Seller's
remaining 5% interest in the properties. Parallel's working interest in the
properties, which consists of approximately 3,640 gross acres, ranges from 22%
to 85%. Texland and Parallel Petroleum Corporation will co-manage the
properties, but Texland is the named operator.
The acquisition was initially conducted under a competitive bid process and
completed under terms of a negotiated purchase and sale agreement with JMC
Exploration, Inc. and Arkoma Star L.L.C., the sellers of the property. The
parties entered into the agreement on November 27, 2002.
The properties acquired are currently producing approximately 1,150
equivalent barrels of oil per day, net to the interest acquired by Parallel. The
properties produce from the San Andres formation at a depth of approximately
4,400 feet and consist of 128 producing wells, supported by 80 water-injection
wells situated on nine contiguous leases containing approximately 3,640 gross
acres.
The cash portion of the purchase price was financed with loan proceeds
drawn under a revolving credit facility provided to Parallel Petroleum
Corporation and Parallel, L.P. by First American Bank, SSB, Western National
Bank and BNP Paribas. The credit facility provides for revolving loans subject
to a borrowing base and a monthly commitment reduction. On December 20, 2002,
the borrowing base was $50 million. The monthly commitment reduction commences
on August 31, 2003 and continues with a like reduction on the last day of each
following month. The amount of the monthly commitment reduction is determined by
dividing (a) the borrowing base on the day immediately preceding the date of
each monthly commitment reduction by (b) the number of months
remaining prior to July 1, 2008. The borrowing base and the monthly commitment
reduction amount will be redetermined by the banks on or about April 30 and
October 31 of each year or at other times requested by Parallel.
The principal amount outstanding under the revolving credit facility bears
interest at First American Bank's base rate or the libor rate, at the election
of Parallel Petroleum Corporation and Parallel, L.P.. Generally, First American
Bank's base rate is equal to the prime rate published in the Wall Street
Journal, but not less than 4.50%. The libor rate is generally equal to the sum
of (a) the rate designated as "British Bankers Association Interest Settlement
Rates" and offered on one, two, three or six month interest periods for deposits
of $1,000,000, and (b) a margin ranging from 2.25% to 2.75%, depending upon the
outstanding principal amount of the loans. If the principal amount outstanding
is equal to or greater than 75% of the borrowing base established by the banks,
the margin is 2.75%. If the principal amount outstanding is equal to or greater
than 50%, but less than 75% of the borrowing base, the margin is 2.50%. If the
principal amount outstanding is less than 50% of the borrowing base, the margin
is 2.25%.
In the case of base rate loans, interest is payable on the last day of each
month. In the case of libor loans, interest is payable on the last day of each
applicable interest period.
If the total outstanding borrowings under the facility are less than the
borrowing base, an unused commitment fee is required to be paid to the bank
lenders. The amount of the fee is .25% of the daily average of the unadvanced
amount of the borrowing base. The fee is payable quarterly, commencing on March
31, 2003.
All outstanding principal under the revolving credit facility is due and
payable on December 20, 2006. The loan is secured by substantially all of the
oil and gas properties owned by Parallel Petroleum Corporation and Parallel,
L.P., including the properties acquired from JMC Exploration, Inc. and Arkoma
Star, L.L.C. Parallel, L.L.C., a subsidiary of Parallel Petroleum Corporation,
guaranteed payment of the loans.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements.
The financial statements for the Properties acquired from JMC Exploration,
Inc. and Arkoma Star, L.L.C. are filed herewith beginning on page F-1.
-3-
(b) Exhibits.
Exhibit No. Description
*10.1 Purchase and Sale Agreement, dated as
of November 27, 2002
*10.2 First Amended and Restated Credit
Agreement, dated December 20, 2002,
by and among Parallel Petroleum
Corporation, Parallel, L.P.,
Parallel, L.L.C., First American
Bank, SSB, Western National Bank and
BNP Paribas
*10.3 Guaranty, dated December 20, 2002,
between Parallel, L.L.C. and First
American Bank, SSB, as Agent
**23.1 Consent of Independent Auditors
-------------------
*Previously filed.
**Filed herewith.
-4-
SIGNATURE
Pursuant to the requirements 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.
Dated: March 6, 2003
PARALLEL PETROLEUM CORPORATION
By: /s/Larry C. Oldham
Larry C. Oldham, President
-5-
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Parallel Petroleum, Inc.:
We have audited the accompanying statement of revenues and direct expenses of
the Fullerton Properties for the years ended December 31, 2000, 2001 and 2002.
This statement is the responsibility of Parallel Petroleum Corporation's
management. Our responsibility is to express an opinion on the financial
statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statement of
revenues and direct expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and direct expenses was prepared to
present revenues and direct expenses of the Fullerton Properties and is not
intended to be a complete presentation of the results of operations for the
Fullerton Properties.
In our opinion, the statement of revenues and direct expenses referred to above
presents fairly, in all material respects, the revenues and direct expenses of
the Fullerton Properties for the years ended December 31, 2000, 2001 and 2002 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
Midland, Texas
March 4, 2003
F-1
FULLERTON PROPERTIES
Statements of Revenues and Direct Operating Revenues
Years ended December 31, 2002, 2001 and 2000
2000 2001 2002
------------- ------------- ------------
Oil sales $ 12,846,331 $ 9,032,738 $ 9,691,722
Gas sales 631,959 601,707 438,502
------------- ------------- ------------
Total revenues 13,478,290 9,634,445 10,130,224
------------- ------------- ------------
Lease operating 1,457,519 1,781,607 1,694,909
Production taxes 428,736 302,946 275,716
Ad valorem taxes 374,786 480,393 457,761
Workover 75,732 79,793 289,116
------------- ------------- ------------
Total direct operating expenses 2,336,773 2,644,739 2,717,502
------------- ------------- ------------
$ 11,141,517 $ 6,989,706 $ 7,412,722
============= ============= ============
F-2
FULLERTON ACQUISITION
Notes to Statements of Revenues and Direct Operating Expenses
(1) Basis of Presentation
Effective December 31, 2002, Parallel Petroleum, Inc. (Parallel) purchased
properties (Fullerton Properties) in West Texas from JMC Exploration, Inc.
and Arkoma Star, LLC. These properties produce oil and gas.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of revenues
and expenses during the reported period. Actual results could differ from
those estimates.
The oil and natural gas revenues and direct operating expenses presented
herein relate only to the interests in the Fullerton Properties and do not
represent all of the oil and natural gas operations of JMC Exploration,
Inc. and Arkoma Star, LLC. Oil and natural gas revenues of the Fullerton
Properties are recorded on the entitlements method. Direct operating
expenses include all costs incurred which are necessary for the production,
marketing and distribution of the products produced from the subject
properties including, without limitation, costs and expenses of field
separation; treatment; dehydration; direct overhead charges (other than
costs associated with general corporate activities); pumper, roustabout and
field supervision labor; meter calibrations; engineering supervision
charges; fuel and electricity; valves, connections and other minor
equipment repair; oil and lubricants; major repairs; rental tools and
equipment; pipe inspection; trucking; reservoir testing; pressure testing;
well plugging; site remediation; operator bonding; insurance charges; salt
water disposal; water injection and pressure maintenance; gas compression;
hot oil and hot water treatments; filling tees; make-up water purchases;
electrician charges; mud and chemicals; pulling and workover units; other
miscellaneous supplies and services; and severance, ad valorem and other
production relates taxes and charges. In addition, oil and natural gas
production taxes include production and severance taxes and ad valorem
taxes associated with Fullerton Properties. Direct operating expenses do
not include charges for depletion, depreciation, amortization and
abandonment; Federal and state income taxes; interest or corporate general
and administrative expenses because the property interests acquired
represent only a portion of a business and the costs incurred by JMC
Exploration, Inc. and Arkoma Star, LLC are not necessarily indicative of
the costs to be incurred by Parallel. The accompanying statements of
revenue and direct operating expenses are presented for the years ended
December 31, 2002, 2001 and 2000. The oil and natural gas revenues and
direct operating expenses for the periods presented may not be indicative
of the results of future operations of the properties acquired.
Historical financial information reflecting financial position, results of
operations and cash flows of the Fullerton Properties is not presented
because the acquisition cost was assigned to the oil and gas property
interests acquired. Accordingly, the historical statements of revenues and
direct operating expenses have been presented in lieu of the financial
statements required under rule 3-05 of Securities and Exchange Commission
Regulation S-X.
(2) Supplemental Oil and Natural Gas Disclosures (Unaudited)
The estimates of the Fullerton properties' proved oil and gas reserves,
which are located entirely within the United States, were prepared in
accordance with guidelines established by the Securities and Exchange
Commission and the Financial Accounting Standards Board. Proved oil and
natural gas reserve quantities are based on estimates prepared by Cawley,
Gillespie & Associates, Inc. who are independent petroleum engineers.
F-3
FULLERTON ACQUISITION
Notes to Statements of Revenues and Direct Operating Expenses
Future prices received for production and future production costs may vary
perhaps significantly from the prices and costs assumed for purposes of
these estimates. There can be no assurance that the proved reserves will be
developed within the periods indicated or that prices and costs will remain
constant. There can be no assurance that actual production will equal the
estimated amounts used in the preparation of reserve projections. In
accordance with the Securities and Exchange Commission's guidelines,
Parallel's estimates of future net cash flows from proved properties and
the representative value thereof are made using oil and natural gas prices
in effect as of the dates of such estimates and are held constant
throughout the life of the properties. Average prices used in estimating
net cash flows at December 31, 2002, 2001, and 2000 were as follows:
$29.23, $17.94, and $24.80 per barrel for oil, respectively, and $5.90,
$3.88, and $7.33 per Mcf for natural gas, respectively. The future cash
flows are reduced by estimated production and development costs based on
year-end economic conditions and held constant throughout the life of the
properties. The standardized measure of discounted future net cash flows
for the Fullerton properties does not include taxes because taxes do not
apply at the property level.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. Oil and natural gas reserve engineering is and
must be recognized as a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in any exact
way and estimates of other engineers might differ materially from those
shown below. The accuracy of any reserve estimate is a function of the
quality of available data and engineering and estimates may justify
revisions. Accordingly, reserve estimates are often materially different
from the quantities of oil and natural gas that are ultimately recovered.
Reserve estimates are integral in management's analysis of impairments of
oil and natural gas properties and the calculation of depreciation,
depletion and amortization on its properties.
Estimated net quantities of proved oil and natural gas reserves of the
Fullerton Properties were as follows:
Natural Oil
Oil Gas Equivalent
(MBbl) (MMcf) (MBOE)
------------------- ------------------- --------------------
December 31, 2000
Proved reserves 9,917 2,129 10,272
Proved developed reserves 8,311 1,808 8,612
December 31, 2001
Proved reserves 9,517 2,022 9,854
Proved developed reserves 7,911 1,700 8,194
December 31, 2002
Proved reserves 9,119 1,931 9,441
Proved developed reserves 7,513 1,610 7,781
F-4
FULLERTON ACQUISITION
Notes to Statements of Revenues and Direct Operating Expenses
The changes in proved reserves were as follows for the years ended:
December 31,
------------------------------------------------------------------------------------------------------
2000 2001 2002
--------------------------------- -------------------------------- ---------------------------------
Natural Oil Natural Oil Natural Oil
Oil Gas Equivalent Oil Gas Equivalent Oil Gas Equivalent
(MBbl) (MMcf) (MBOE) (MBbl) (MMcf) (MBOE) (MBbl) (MMcf) (MBOE)
---------- ---------- ---------- --------- ---------- --------- ---------- --------- ----------
Reserves at
beginning
of year 10,364 2,235 10,737 9,917 2,129 10,272 9,517 2,022 9,854
Revisions of
estimates - - - - - - - -
Production (447) (106) (465) (400) (107) (418) (398) (91) (413)
------- ------- -------- ------- ------- -------- ------- ------- -------
Reserves at end
of period 9,917 2,129 10,272 9,517 2,022 9,854 9,119 1,931 9,441
======= ======= ======== ======= ======= ======== ======= ======= =======
The standardized measure of discounted estimated future net cash flows and
changes therein related to proved oil and natural gas reserves (in
thousands) is as follows at:
December 31,
-----------------------------------------------------------------
2000 2001 2002
------------------- ------------------- --------------------
Future cash in flows $ 261,539 $ 178,586 $ 277,940
Future production costs (94,026) (88,013) (89,963)
Future development costs (5,139) (5,139) (5,139)
------------------- ------------------- --------------------
Future net cash flows 162,378 85,434 182,838
10% annual discount (86,823) (45,681) (97,763)
------------------- ------------------- --------------------
Standardized measure of discounted estimated
future net cash flows $ 75,555 $ 39,753 $ 85,075
=================== =================== ====================
Primary change in the standardized measure of discounted estimated future
net cash flows (in thousands) are as follows for the years ended:
December 31,
-----------------------------------------------------------------
2000 2001 2002
------------------- ------------------- --------------------
Standardized measure, beginning of year $ 72,796 $ 75,555 $ 39,753
Net change in sales prices net of
production costs 7,944 (32,550) 48,772
Revisions of quantity estimates - - -
Accretion of discount 7,280 7,556 3,975
Sales, net of production costs (11,142) (6,990) (7,413)
Change in timing and other (1,323) (3,818) (12)
------------------- ------------------- --------------------
Standardized measure, end of year $ 75,555 $ 39,753 $ 85,075
=================== =================== ====================
F-5
FULLERTON ACQUISITION
Notes to Statements of Revenues and Direct Operating Expenses
Historical production and average prices received for oil and natural gas
are as follows for the years ended:
December 31,
--------------------------------------------
2000 2001 2002
--------- -------- --------
Oil production (Bbls) 447,395 399,653 398,107
Average price received on oil $ 28.71 $ 22.60 $ 24.34
Natural gas production (Mcf) 105,729 107,303 90,546
Average price received on natural gas $ 5.98 $ 5.61 $ 4.84
Oil Equivalent (BOE) 465,017 417,537 413,198
Average price received on BOE $ 28.98 $ 23.07 $ 24.52
F-6
Exhibit 23.1
Consent of Independent Auditors
We consent to incorporation by reference in the registration statements (No.
33-57348, No. 333-34617 and No. 333-66938) on Forms S-8, and the registration
statement ( No. 33-90296) on Form S-3, of Parallel Petroleum Corporation of our
report dated March 4, 2003, relating to the statements of revenues and direct
operating expenses of the oil and gas properties acquired by Parallel Petroleum
Corporation for the years ended December 31, 2002, 2001 and 2000, which appears
in the December 20, 2002 current report on Form 8-K/A, Amendment No. 1, of
Parallel Petroleum Corporation.
/s/ KPMG LLP
Midland, Texas
March 7, 2003