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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001 Commission file number 0-5426
THE WISER OIL COMPANY
A DELAWARE CORPORATION
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I.R.S. EMPLOYER IDENTIFICATION NO. 55-0522128
8115 PRESTON ROAD, SUITE 400
DALLAS, TEXAS 75225
TELEPHONE: (214) 265-0080
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
------------------- ----------------
Common Stock-Par Value, $.01 Per Share New York Stock Exchange
Preferred Stock-Par Value, $10.00 Per Share New York Stock Exchange
Indicate by check mark whether registrant 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, and has been subject to such filing requirements for the
past 90 days. X .
---
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. .
---
As of March 27, 2002, registrant had outstanding 9,242,816 shares of common
stock, $.01 par value ("Common Stock"), which is registrant's only class of
common stock.
The aggregate market value of registrant's Common Stock held by non-affiliates
based on the closing price on March 26, 2002 was approximately $48.9 million.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific incorporations are identified under the applicable item herein.)
Portions of the registrant's proxy statement furnished to stockholders in
connection with the 2002 Annual Meeting of Stockholders (the "Proxy Statement")
are incorporated by reference in Part III of this Report. The Proxy Statement
will be filed with the Securities and Exchange Commission within 120 days of the
close of the registrant's fiscal year.
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The Wiser Oil Company
TABLE OF CONTENTS
DESCRIPTION
Item Page
- ---- ----
PART I
1. BUSINESS....................................................... 3
2. PROPERTIES..................................................... 24
3. LEGAL PROCEEDINGS.............................................. 24
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 24
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................................... 24
6. SELECTED FINANCIAL DATA........................................ 25
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 27
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.................................................. 34
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 36
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................... 36
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 37
11. EXECUTIVE COMPENSATION......................................... 37
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 37
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 37
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.................................................. 37
2
The Wiser Oil Company
THE WISER OIL COMPANY
PART I
ITEM 1. BUSINESS
GENERAL
The Wiser Oil Company (the "Company" or "Wiser") is an independent oil and gas
exploration and production company operating in Texas, New Mexico, the Gulf
Coast and Alberta, Canada. Historically, the Company's growth has been
attributed primarily to acquisition, development, exploitation and, to a lesser
extent, exploration activities. The Company made significant acquisitions of
proved properties in the Permian Basin between 1992 and 1996, and the Company
began operating in Canada in 1994 with the acquisition of The Wiser Oil Company
of Canada. The Company's total proved reserves at December 31, 2001 are 35.4
MMBOE, with oil and NGL's comprising 54% and natural gas comprising 46% of total
reserves. Wiser's proved reserves at December 31, 2001 were 81% developed with
approximately 63% located in the U.S. and 37% located in Canada. Based on
average realized prices of $22.82 per barrel of oil and $2.76 per Mcf of gas,
the pre-tax present value of proved reserves at December 31, 2001 is $210.7
million discounted at 10%. Using SEC pricing guidelines, the pre-tax present
value of the Company's total proved reserves at December 31, 2001 is $160.9
million based on average realized prices of $17.24 per barrel for oil and $2.26
per Mcf for gas and discounted at 10%. Over the past five years, the Company has
replaced 92% of its production through a combination of acquisition,
exploration, development and exploitation activities.
HISTORY
In 1905, Clinton B. Wiser pooled some oil leases and founded The Wiser Oil
Company. The Company began operations in Kentucky in 1917 and maintained its
headquarters in Sistersville, West Virginia, until 1991. The Company moved its
headquarters to Dallas, Texas in 1991 and over the next five years Wiser
expanded operations by acquiring and operating properties in the Permian Basin
in West Texas and Southeast New Mexico and in Alberta, Canada. In 1999, the
Company sold non-strategic properties in Appalachia and began focusing its
exploration and production operations primarily in Texas, New Mexico, the Gulf
Coast and Alberta, Canada.
In May 2000, the Company completed a corporate restructuring and appointed
George K. Hickox, Jr. as the new CEO. As part of the corporate restructuring,
Wiser received a $23.7 million net capital infusion through the sale of
convertible preferred stock in May 2000 and June 2001. In May 2001, Wiser
acquired Invasion Energy, Inc. in northern Alberta for $37.5 million and the
Company also expanded into the Gulf of Mexico in 2001 through joint venture
agreements.
STRATEGY
Over the past two years, Wiser has increased the percentage of its natural gas
reserves from 31% at December 31, 1999 to 46% at December 31, 2001. In addition,
the percentage of reserves attributable to high-cost enhanced recovery projects
in the Permian basin has decreased from 54% at December 31, 1999 to 34% at
December 31, 2001. While the Company will continue to focus its efforts on
adding reserves through acquisition of proved properties with exploitation
potential, the Company will also place more emphasis on adding reserves through
exploration activities in the future. Wiser expects to fund its future capital
expenditure programs primarily with discretionary cash flow and any significant
acquisition opportunities would be funded with borrowings under the Company's
credit facility.
The Company's principal executive offices are located at 8115 Preston Road,
Suite 400, Dallas, Texas 75225, and its telephone number is (214) 265-0080.
Certain oil and gas industry terms used herein are defined in the "Glossary of
Oil and Gas Terms" appearing at the end of this Item 1.
3
The Wiser Oil Company
PRINCIPAL OIL AND GAS PROPERTIES
The following table summarizes certain information with respect to each of the
Company's principal areas of operation at December 31, 2001.
Proved Reserves
------------------------------------------------------------------------------------
Total Total Percent Average
Gross Oil Proved of Total Net
Oil and and NGLs Gas Reserves Proved Production
Gas Wells (MBbls) (MMcf) (MBOE) Reserves (BOE/Day)
---------- -------- -------- -------- -------- ----------
Permian Basin:
Maljamar 235 6,854 2,944 7,345 21% 1,415
Wellman 22 4,564 138 4,587 13% 785
Dimmitt/Slash Ranch 79 1,649 10,911 3,468 9% 815
------ ------ ------ ------ ------ ------
Total 336 13,067 13,993 15,400 43% 3,015
San Juan Basin 2,749 40 21,097 3,556 10% 1,127
Gulf of Mexico - 321 4,089 1,003 3% --
Other 143 453 12,079 2,465 7% 1,145
------ ------ ------ ------ ------ ------
Total United States 3,228 13,881 51,258 22,424 63% 5,287
Canada:
Invasion 102 - 27,535 4,589 13% 990
Other Canada 374 5,203 19,180 8,400 24% 3,065
------ ------ ------ ------ ------ ------
Total 476 5,203 46,715 12,989 37% 4,055
------ ------ ------ ------ ------ ------
Total Company 3,704 19,084 97,973 35,413 100% 9,342
===== ====== ====== ====== ====== ======
Permian Basin
Maljamar. The Company's Maljamar properties are situated in Southeast New
Mexico. At December 31, 2001, the Maljamar properties contained 7.3 MMBOE of
proved reserves, which represented 21% of the Company's total proved reserves
and 10% of the Company's Present Value of total proved reserves.
The Maljamar properties consist primarily of three oil producing units acquired
by the Company in separate transactions between 1992 and 1996: the Maljamar
Grayburg and Caprock Maljamar Units, both of which are in Lea County, New
Mexico, and the Skelly Unit in Eddy County, New Mexico. The Maljamar Grayburg
Unit produces from the Grayburg and San Andres formations at depths ranging from
3,800 to 4,500 feet, and the Caprock Maljamar Unit produces from the same
formations at depths ranging from 4,000 to 5,000 feet. The Skelly Unit is
located approximately five miles west of the two Lea County units and produces
from the Seven Rivers, Grayburg and San Andres formations at depths ranging from
2,100 to 4,000 feet. The Company has a 100% working interest in each of these
units, which, along with some smaller adjacent properties, have been combined
into a single large-scale waterflood project encompassing approximately 14,000
gross leasehold acres.
Exploitation efforts at the project are essentially complete and included
conversion of existing wells to injection wells and the drilling of infill
development wells on 20-acre spacing to create 40-acre five-spot water injection
patterns. At December 31, 2001, the project included 235 producing wells and 186
water injection wells, virtually all of which were operated by the Company.
The Company's net production from the Maljamar properties averaged 1,306 Bbls of
oil, 2 Bbls of NGLs and 642 Mcf of natural gas per day in 2001. The Company's
cumulative net production from the Maljamar properties since acquired by the
Company has been 4,770 MBbls of oil and 2.3 Bcf of natural gas through December
31, 2001.
4
The Wiser Oil Company
Wellman Unit. In 1993 the Company acquired a 62% working interest in and became
operator of the Wellman Unit in Terry County, Texas, located in the northwestern
edge of the Horseshoe Atoll. During 1998 and 1999, the Company acquired an
additional 28% and 5% working interest, respectively, in the Wellman Unit which
increased the Company's working interest to 95% as of December 31, 2001. At
December 31, 2001, the Company's Wellman property contained 4.6 MMBOE of proved
reserves, which represented 13% of the Company's total proved reserves and 6% of
the Company's Present Value of total proved reserves.
The Company owns 2,280 gross (2,165 net) leasehold acres in the Wellman Unit.
The Wellman Unit produces oil from the Wolfcamp Reef formation at depths ranging
from 9,100 to 10,000 feet through the injection of water and CO2 into the
reservoir. Water injection at the unit began in 1979, and CO2 injection began in
1983. The unit also includes a gas processing plant, which processes wellhead
gas produced from the unit. Wiser's interest in this plant is proportionate to
its working interest in the Wellman Unit. Processing at the plant involves
subjecting the wellhead gas to high pressure and low temperature treatments that
cause the gas to separate into various products, including NGLs, residual
natural gas and CO2. The NGLs and residual natural gas are sold to pipeline
companies, and the CO2 is reinjected into the unit's reservoir. At December 31,
2001, the unit included 22 productive wells, two water injection wells, four CO2
injection wells and four water disposal wells, all of which were operated by the
Company.
The Company's net production from the Wellman Unit averaged 545 Bbls of oil, 228
Bbls of NGLs and 74 Mcf of natural gas per day in 2001. The Company's cumulative
net production from the unit since acquired by the Company has been 2,451 MBbls
of oil, 929 MBbls of NGLs and 550 MMcf of natural gas through December 31, 2001.
In 1995 the Company began reconditioning the gas processing plant at the Wellman
Unit to enhance the extraction of NGLs and residual natural gas from the
wellhead gas. The Company completed the reconditioning project in June 1995 at a
total cost of approximately $6.0 million. For the year ended December 31, 2001,
the gas plant processed an average of 30 MMcf of gross natural gas and CO2 per
day and recovered an average of 233 Bbls of NGLs and 26 Mcf of residual natural
gas per day. The plant currently operates at 95% of its maximum capacity of 35
MMcf of gas per day.
Dimmitt/Slash Ranch Fields. The Company's Dimmitt/Slash Ranch properties are
situated in Loving County, Texas, 80 miles west of Midland, Texas. At December
31, 2001, the Dimmitt/Slash Ranch properties contained 3.5 MMBOE of proved
reserves, which represented 9% of the Company's total proved reserves and 10% of
the Company's Present Value of total proved reserves.
The Company owns 6,154 gross (5,379 net) leasehold acres in the Dimmitt/Slash
Ranch Field. The Company acquired its initial interest in and became operator of
the field in 1993. The Dimmitt Field produces oil and gas from the Cherry Canyon
and Bell Canyon formations at depths ranging from 4,700 to 6,700 feet. The Slash
Ranch Field is a natural gas field that underlies the Dimmitt Field. The Slash
Ranch Field produces from the Atoka, Fusselman and Ellenburger formations at
depths ranging from 15,000 to 20,000 feet. At December 31, 2001, the
Dimmitt/Slash Ranch Field included 79 producing wells, all of which were
operated by the Company. The Company's average working interest in these wells
is 98%.
The Company's net production from the Dimmitt/Slash Ranch properties averaged
394 Bbls of oil and 2,524 Mcf of natural gas per day in 2001. The Company's
cumulative net production from the properties since acquired by the Company has
been 1,040 MBbls of oil and 8.1 Bcf of natural gas through December 31, 2001.
5
The Wiser Oil Company
San Juan Basin
The Company's San Juan Basin properties are located in Rio Arriba County in
northwestern New Mexico. At December 31, 2001, the San Juan Basin properties
contained 3.6 MMBOE of proved reserves, which represented 10% of the Company's
total proved reserves and 7% of the Company's Present Value of total proved
reserves. The Company owns 10,079 gross (5,799 net) leasehold acres in the San
Juan Basin. In the 1950's, the Company's average 48% working interest in most of
the acreage was contributed in connection with a unitization of the wells in the
San Juan Basin fields, resulting in the ownership by the Company of small
non-operated working interests in several large units. At December 31, 2001, the
Company owned working interests in approximately 2,749 producing gas wells in
the San Juan Basin. These working interests average approximately 1.8%. The
Company's San Juan Basin properties produce from multiple formations ranging
from depths of 3,000 feet to 8,000 feet.
The Company's net production from these properties averaged 6,362 Mcf of natural
gas, 59 Bbls of oil and 8 Bbls of NGLs per day in 2001. The Company expects that
future development of the properties will depend on natural gas prices, and that
its share of the costs of any such future development activities will not be
significant.
Other U.S. Properties
The Company's other United States properties include properties located in the
West Texas, New Mexico and the Gulf Coast region.
Canada
In June 1994, Wiser established an important new core area with the completion
of a $52.0 million acquisition of Canadian oil and gas properties from Eagle
Resources, Ltd. ("Wiser Canada") (see Note 1 to the Company's Consolidated
Financial Statements). The purchase included 7.2 MMBOE of proved reserves and
approximately 127,000 net undeveloped acres. In May 2001, Wiser Canada acquired
Invasion Energy Inc. for $37.5 million and added approximately 28 Bcf of proved
gas reserves in Canada. Also, in June, 2001, Wiser Canada entered into an Asset
Exchange Agreement and acquired the Loon and other producing properties in
exchange for the Pine Creek, Portage, Groat, Windfall and Sunchild fields. At
December 31, 2001, the Company's Canadian properties contained 13.0 MMBOE of
proved reserves, which represented 37% of the Company's total proved reserves
and 53% of the Present Value of the Company's total proved reserves.
The following table summarizes certain information with respect to each of the
Company's principal Canadian areas of operation at December 31, 2001:
Proved Reserves
------------------------------------------------------------------------------------
Percent 2001
Total Total of Total Average
Gross Oil Proved Canadian Net
Oil and and NGLs Gas Reserves Proved Production
Gas Wells (MBbls) (MMcf) (MBOE) Reserves (BOE/Day)
---------- -------- -------- ------- -------- ----------
Wolverine (Invasion)............. 102 -- 27,535 4,589 35% 990
Evi.............................. 24 1,729 -- 1,729 13% 929
Hayter........................... 65 1,104 1,024 1,275 10% 181
Loon............................. 24 933 -- 933 7% 278
Other............................ 261 1,437 18,156 4,463 35% 1,677
---- ------ ------ ------- ----- -----
Total Canada..................... 476 5,203 46,715 12,989 100% 4,055
==== ===== ====== ====== ==== =====
Wolverine. The Company's Wolverine Field was acquired in May 2001 in the
Invasion acquisition. The Wolverine field is located approximately 450 miles
north of Calgary. At December 31, 2001, the Wolverine Field contained 4.6 MMBOE
of proved reserves, which represented 35% of the Company's total Canadian proved
reserves and 31% of the Present Value of the Company's total Canadian proved
reserves.
6
The Wiser Oil Company
The Company owns 245,440 gross (227,790 net) leasehold acres in the Wolverine
Field, and has an average 93% working interest in this acreage. The Wolverine
Field produces gas from the Wabamun, Bluesky and Gething formations at depths
averaging 1,500 feet. The Company's net production from the Invasion Field
commenced in May 2001 and averaged 5,940 Mcf of gas per day in 2001. At December
31, 2001, the Company owned 102 gross and net productive wells and 5 gross and
net water disposal wells in the field, all of which were operated by Wiser.
In the first quarter of 2002, Wiser drilled and completed 15 new productive gas
wells in the Wolverine field and expects average net gas production from the
Wolverine field to increase to over 10,000 Mcf per day in 2002.
Evi. The Company's Evi Field is located approximately 400 miles north of
Calgary. At December 31, 2001, the Evi Field contained 1.7 MMBOE of proved
reserves, which represented 13% of the Company's total Canadian proved reserves
and 21% of the Present Value of the Company's total Canadian proved reserves.
The Company owns 7,520 gross (4,270 net) leasehold acres in the Evi Field, and
has an average 57% working interest in this acreage. The Evi Field produces oil
from the Granite Wash formation at depths ranging from 4,900 to 5,000 feet. The
Company's net production from the Evi Field averaged 929 Bbls of oil per day in
2001. At December 31, 2001, the Company owned 24 gross (10.7 net) productive
wells and 2 gross (0.8 net) water disposal wells in the field, of which 20
productive wells and both water disposal wells were operated by Wiser.
Hayter. The Company's Hayter Field was acquired in 2000 and significant reserves
were added in 2001 through development activities. The Hayter field is located
approximately 200 miles northeast of Calgary. At December 31, 2001, the Hayter
Field contained 1.3 MMBOE of proved reserves, which represented 10% of the
Company's total Canadian proved reserves and 5% of the Present Value of the
Company's total Canadian proved reserves.
The Company owns 6,350 gross (6,055 net) leasehold acres in the Hayter Field,
and has an average 95% working interest in this acreage. The Hayter Field
produces heavy oil (13(Degree) gravity) mainly from the McLaren formation at
depths averaging 2,600 feet. The Company drilled 17 productive wells in the
Hayter Field in 2001 and plans to drill another 20 to 40 wells over the next few
years, depending on oil prices.
The Company's net production from the Hayter Field commenced in June 2001 and
averaged 181 Bbls of oil per day in 2001. At December 31, 2001, the Company
owned 65 gross (63.6 net) productive wells and 1 gross and net water injection
wells on the properties, all of which were operated by the Company.
Loon. The Company's Loon Field was acquired in June 2001 as part of the Asset
Exchange Agreement. The Loon Field is located approximately 400 miles northwest
of Calgary. At December 31, 2001, the Loon Field contained 0.9 MMBOE of proved
reserves, which represented 7% of the Company's total Canadian proved reserves
and 12% of the Present Value of the Company's total Canadian proved reserves.
The Company owns 3,360 gross (795 net) leasehold acres in the Loon Field, and
has an average 24% working interest in this acreage. The Loon Field produces
from the Granite Wash formation at depths of 4,700 to 4,800 feet. At December
31, 2001, the Company owned 24 gross (6.8 net) productive wells, all of which
were operated by Wiser. The Company's net production from the Loon Field
averaged 278 Bbls of oil per day in 2001.
7
The Wiser Oil Company
Other Canadian Properties. The Company owns interests in various other Canadian
properties, primarily located in its principal areas of operation. For the year
ended December 31, 2001, these properties individually represented less than 6%,
and in the aggregate represented approximately 35%, of the Company's total
Canadian proved reserves.
EXPLORATION ACTIVITIES
United States
The objective of Wiser's domestic exploration program is to generate exploration
and exploitation drilling opportunities that have the potential of replacing
produced reserves and providing a vehicle of growth for the Company. In 2001,
Wiser drilled or participated in 8 gross (4.0 net) U.S. exploration wells,
compared with 12 gross (4.0 net) wells in 2000, spending $11.0 million in 2001
and $4.3 million in 2000 on U.S. exploration. Of the 8 gross wells drilled by
the Company in 2001, 3 were completed as oil or gas wells, and 5 were
unsuccessful. The Company also began exploration activities in the Gulf of
Mexico in 2001 by participating in 3 successful exploration wells through joint
venture agreements. In 2002, Wiser plans to drill or participate in
approximately 5 to 10 gross wells in the U.S. and the Company has budgeted
approximately $10.0 to $15.0 million for its 2002 U.S. exploration program,
depending on cash flows and drilling results.
The Company is currently focusing its U.S. exploration activities in the
following geographical areas:
Gulf of Mexico. In the first quarter of 2001, the Company entered into an
exploration agreement and a joint venture agreement with Remington Oil and Gas
Corporation covering the shelf area of the Gulf of Mexico. Wiser has a 12.5%
working interest under the exploration agreement and a 25% working interest
under the joint venture agreement. The Company also participated in the Federal
OCS Lease Sale in March 2001 under the joint venture agreement and acquired
111,000 gross (23,000 net) acres in the Gulf of Mexico. In 2001, four new field
discoveries were made through successful drilling at Eugene Island Block 302,
South Marsh Island Block 93, East Cameron Block 184 and West Cameron Block 417
which added approximately 1,003 MBOE of reserves in 2001. Production from these
new field discoveries is expected to commence in the second quarter of 2002.
Wiser plans to participate in 3 to 6 exploratory wells in the Gulf of Mexico in
2002, depending on cash flows and drilling results, and expects to continue
significant exploration activities in the Gulf of Mexico in the future.
Onshore Gulf Coast. The Company has entered into exploration agreements with
several other companies to participate in various Onshore Gulf Coast prospects
in 2002 that will be operated by other companies or Wiser, depending on the
prospect. The Company anticipates that fewer U.S. exploration prospects will be
generated by the Company in 2002 than in prior years.
Canada
Wiser focuses its Canadian exploration activities in specific regions within the
Western Canadian Sedimentary Basin in close proximity to known producing
horizons where the potential for significant reserves exists. The Company's
technical personnel have considerable experience in this focus area. During
2001, the Company participated in 1 gross (0.1 net) exploratory well which was
completed as a successful gas well. The Company spent $1.3 million on
exploration in Canada in 2001, compared to $6.0 million in 2000, and has
budgeted approximately $2.0 million for its 2002 Canadian exploration program.
International
The Company did not participate in any other international exploration activity
in 2001 and currently has no plans to participate in future international
exploration activities.
8
The Wiser Oil Company
MARKETING OF PRODUCTION
The Company markets its production of oil, natural gas and NGLs to a variety of
purchasers, including large refiners and resellers, pipeline affiliate
marketers, independent marketers, utilities and industrial end-users. To help
manage the impact of potential price declines, Wiser has developed a portfolio
of long- and short-term contracts with prices that are either fixed or related
to market conditions in varying degrees. Most of the Company's production is
sold pursuant to contracts that provide for market-related pricing for the areas
in which the production is located.
During the year ended December 31, 2001, revenues from the sale of production to
Highland Energy Company, Nexen Inc. and Enron Canada Corp. represented
approximately 41%, 20% and 12%, respectively, of the Company's total oil and gas
revenues. The Company believes it would be able to locate alternate purchasers
in the event of the loss of any one or more of these purchasers, and that any
such loss would not have a material adverse effect on the Company's financial
condition or results of operations.
Crude Oil. The Company sells its crude oil and condensate to various refiners
and resellers in the United States and Canada at posting-related and
spot-related prices that also depend on factors such as well location,
production volume and product quality. The Company typically sells its crude oil
and condensate production at or near the well site, although in some cases it is
gathered by the Company or others and delivered to a central point of sale. The
Company's crude oil and condensate production is transported by truck or by
pipeline and is typically committed to arrangements having a term of one year or
less. The Company has not engaged in crude oil trading activities. Revenue from
the sale of crude oil and condensate totaled $39.2 million for the year ended
December 31, 2001 and represented 48% of the Company's total oil and gas
revenues for 2001.
From time to time, the Company enters into crude oil and natural gas price
hedges to reduce its exposure to commodity price fluctuation. See Item 7A -
"Quantitative and Qualitative Disclosures about Market Risk - Commodity Price
Risk" and Note 1 to the Company's Consolidated Financial Statements included
elsewhere in this Report.
Natural Gas. The Company sells its produced natural gas and gathered gas to
utilities, marketers, processor/resellers and industrial end-users primarily
under market-sensitive, long-term contracts or daily, monthly or multi-month
spot agreements. An insignificant amount of the Company's natural gas is
committed to long-term, fixed-price sales agreements. To accomplish the delivery
and sale of certain of its natural gas, the Company has entered into long-term
agreements with various natural gas gatherers that deliver its gas to points of
sale on major transmission pipelines.
The Company believes that it has sufficient production from its properties, and
from those of others tied to its gathering and transportation system, to meet
the Company's delivery obligations under its existing natural gas sales
contracts.
NGLs. From its natural gas processing plants in West Texas, the Company sells
NGLs to independent marketers for resale. A direct pipeline connection to the
Texas Gulf Coast market area facilitates the sale of NGLs from the Company's
Wellman Unit, and enables the Company to receive prices that are representative
of the daily market value of NGLs on the Texas Gulf Coast, less transportation
and fractionation costs. The Company's average price in 2001 for NGLs sold from
Company-operated plants or under processing agreements with others was $20.32
per Bbl. Prices for NGLs attributable to natural gas sold to plants operated by
others are generally included in the prices reported by the Company for the sale
of its natural gas.
Price Considerations. Crude oil prices are established in a highly liquid,
international market, with average crude oil prices received by the Company
generally fluctuating with changes in the futures price established on the NYMEX
for West Texas Intermediate Crude Oil ("NYMEX-WTI"). The average crude oil price
per Bbl received by the Company in 2001 was $24.27. The average NYMEX-WTI
closing price per Bbl for 2001 was $25.93.
Natural gas prices in each of the geographical areas in which the Company
operates are closely tied to established price indices which are heavily
influenced by national and regional supply and demand factors and the futures
price
9
The Wiser Oil Company
per MMBtu for natural gas delivered at Henry Hub, Louisiana established on the
NYMEX ("NYMEX-Henry Hub"). At times, these indices correlate closely with the
NYMEX-Henry Hub price, but often there are significant variances between the
NYMEX-Henry Hub price and the indices used to price the Company's natural gas.
Average natural gas prices received by Wiser in each of its operating areas
generally fluctuate with changes in these established indices. The average
natural gas price per Mcf received by the Company in 2001 was $3.85. The average
NYMEX-Henry Hub price per MMBtu for 2001 was $4.40, computed by averaging the
closing price on the last three trading days of each month of the forward prompt
month NYMEX natural gas futures contract price applicable to each month in 2000.
The average natural gas price received by the Company in 2001 was lower than
such 2001 NYMEX-Henry Hub price as a result of pricing differentials determined
by the location of the Company's natural gas production relative to the Henry
Hub trading point and lower natural gas prices generally applicable to Canadian
natural gas production relative to U.S. production.
10
The Wiser Oil Company
OIL AND GAS RESERVES
The following table sets forth the proved developed and undeveloped reserves of
the Company at December 31, 2001:
Oil and NGLs (MBbls) Gas (Mmcf) Total Reserves (MBOE)
--------------------------------- ------------------------------ ---------------------------------
Developed Undeveloped Total Developed Undeveloped Total Developed Undeveloped Total
--------- ----------- ----- --------- ----------- ----- --------- ----------- -----
Permian Basin
Maljamar............... 6,201 653 6,854 2,793 151 2,944 6,667 678 7,345
Wellman................ 4,564 -- 4,564 138 -- 138 4,587 -- 4,587
Dimmitt/Slash Ranch.... 1,595 54 1,649 10,766 145 10,911 3,390 78 3,468
------- ------ -------- ------- -------- ------- ------- ------- -------
Total................ 12,360 707 13,067 13,697 296 13,993 14,644 756 15,400
San Juan Basin........... 36 4 40 18,919 2,178 21,097 3,189 367 3,556
Gulf of Mexico........... 13 308 321 2,722 1,367 4,089 467 536 1,003
Other.................... 440 13 453 9,318 2,761 12,079 1,992 473 2,465
-------- ------- -------- ------- ------- -------- ------- ------- -------
Total United States...... 12,849 1,032 13,881 44,656 6,602 51,258 20,292 2,132 22,424
Canada................... 4,390 813 5,203 24,923 21,792 46,715 8,543 4,446 12,989
------- ------ ------- ------ ------ -------- ------- ----- ------
Total Company............ 17,239 1,845 19,084 69,579 28,394 97,973 28,835 6,578 35,413
====== ====== ====== ====== ====== ======= ====== ===== ======
The following table summarizes the Company's proved reserves, the estimated
future net revenues from such proved reserves and the Present Value and
Standardized Measure of Discounted Future Net Cash Flows attributable thereto
at December 31, 2001, 2000 and 1999:
At December 31,
----------------------------------------------
2001 2000 1999
--------- --------- ---------
(000's except weighted average sales prices)
Proved reserves:
Oil and NGLs (Bbl).................................. 19,084 24,491 25,430
Gas (Mcf)........................................... 97,973 76,108 69,993
BOE............................................... 35,413 37,176 37,095
Estimated future net revenues before income taxes... $ 288,282 $ 915,495 $ 419,668
Present Value....................................... $ 160,878 $ 500,606 $ 222,539
Standardized Measure/1/............................. $ 139,361 $ 360,876 $ 176,916
Proved developed reserves:
Oil and NGLs (Bbl).................................. 17,239 23,596 24,046
Gas (Mcf)........................................... 69,579 72,399 66,584
BOE............................................... 28,835 35,662 35,143
Estimated future net revenues before income taxes... $ 231,778 $ 870,867 $ 395,749
Present Value....................................... $ 133,211 $ 479,123 $ 212,263
Weighted average sales prices:
Oil (per Bbl)....................................... $ 17.24 $ 25.18 $ 23.76
Gas (per Mcf)....................................... 2.26 9.72 1.99
NGLs (per Bbl)...................................... 16.61 21.53 19.11
/1/ The Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company represents the present value (using an annual discount rate of
10%) of estimated future net revenues from the production of proved
reserves, after giving effect to income taxes. See the Supplemental
Financial Information attached to the Consolidated Financial Statements of
the Company included elsewhere in this Report for additional information
regarding the disclosure of the Standardized Measure information in
accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 69, "Disclosures about Oil and Gas Producing
Activities."
11
The Wiser Oil Company
All information set forth in this Report relating to the Company's proved
reserves, estimated future net revenues and Present Values is taken from reports
prepared by DeGolyer and MacNaughton (with respect to the Company's United
States properties) and Gilbert Lausten Jung Associates Ltd. (with respect to the
Company's Canadian properties), each of which is a firm of independent petroleum
engineers. The estimates of these engineers were based upon review of production
histories and other geological, economic, ownership and engineering data
provided by the Company. No reports on the Company's reserves have been filed
with any federal agency. In accordance with guidelines of the Securities and
Exchange Commission ("SEC"), the Company's estimates of proved reserves and the
future net revenues from which Present Values are derived are made using year
end oil and gas sales prices held constant throughout the life of the properties
(except to the extent a contract specifically provides otherwise). A decline in
prices relative to year-end 2001 could cause a significant decline in the
Present Value attributable to the Company's proved reserves at December 31,
2001. Operating costs, development costs and certain production-related taxes
were deducted in arriving at estimated future net revenues, but such costs do
not include debt service, general and administrative expenses and income taxes.
There are numerous uncertainties inherent in estimating oil and gas reserves and
their values, including many factors beyond the Company's control. The reserve
data set forth in this Report represents estimates only. Reservoir engineering
is a subjective process of estimating the sizes of underground accumulations of
oil and gas that cannot be measured in an exact manner. The accuracy of any
reserve estimate is a function of the quality of available data, engineering and
geological interpretation, and judgment. As a result, estimates of different
engineers, including those used by the Company, may vary. In addition, estimates
of reserves are subject to revision based upon actual production, results of
future development, exploitation and exploration activities, prevailing oil and
gas prices, operating costs and other factors, which revisions may be material.
Accordingly, reserve estimates are often different from the quantities of oil
and gas that are ultimately recovered and are highly dependent upon the accuracy
of the assumptions upon which they are based. There can be no assurance that
these estimates are accurate predictions of the Company's oil and gas reserves
or their values. Estimates with respect to proved reserves that may be developed
and produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves.
12
The Wiser Oil Company
NET PRODUCTION, SALES PRICES AND COSTS
The following table presents certain information with respect to oil and gas
production, prices and costs attributable to all oil and gas property interests
owned by the Company for the three-year period ended December 31, 2001.
Year Ended December 31,
------------------------------------------
2001 2000 1999
------ ------ ------
Production volumes:
Oil (MBbl)
United States........................... 906 948 1,085
Canada.................................. 709 557 599
------ ------ ------
Total Company......................... 1,615 1,505 1,684
Gas (MMcf)
United States /1/....................... 5,627 6,443 7,333
Canada.................................. 4,372 2,495 2,915
------ ------ ------
Total Company /1/..................... 9,999 8,938 10,248
NGLs (MBbl)
United States........................... 86 139 172
Canada.................................. 42 75 77
---- ---- ----
Total Company......................... 128 214 249
Weighted average sales prices /2/:
Oil (per Bbl)
United States........................... $ 25.95 $ 17.97 $ 14.56
Canada.................................. 22.13 28.04 16.29
Total Company......................... 24.27 21.69 15.18
Gas (per Mcf)
United States /1/....................... $ 4.14 $ 3.43 $ 1.95
Canada.................................. 3.08 3.01 1.54
Total Company......................... 3.85 3.31 1.83
NGLs (per Bbl)
United States........................... $ 20.45 $ 21.81 $ 13.54
Canada.................................. 20.06 22.88 11.84
Total Company......................... 20.32 22.19 13.01
Selected expenses per BOE /3/:
Lease operating
United States........................... $ 9.34 $ 7.69 $ 5.82
Canada.................................. 4.55 3.61 3.48
Total Company......................... 7.26 6.36 5.07
Production taxes /4/
United States........................... $ 1.89 $ 1.16 $ 0.77
Depreciation, depletion and amortization
United States........................... $ 4.82 $ 4.43 $ 4.34
Canada.................................. 6.82 5.79 6.03
Total Company......................... 5.69 4.87 4.88
General and administrative
United States........................... $ 2.98 $ 3.09 $ 2.23
Canada.................................. 1.58 1.96 1.15
Total Company......................... 2.37 2.72 1.88
/1/ Calculated by including volumes of natural gas purchased for resale as
follows: 2001 - 0 MMcf, 2000 - 0 MMcf and 1999 - 148 MMcf.
/2/ Reflects results of hedging activities. See Item 7A - "Quantitative and
Qualitative Disclosures about Market Risk."
/3/ Calculated without including volumes of natural gas purchased for resale.
13
The Wiser Oil Company
/4/ Canada does not assess production taxes on revenue derived from oil and
gas production from Crown lands. However, in Canada, royalties are payable
to the provincial governments on production from Crown lands, subject to
certain programs that provide for royalty rate reductions, royalty
holidays and tax credits for the purpose of encouraging oil and gas
exploration and development. See "-Governmental Regulation-Canada."
PRODUCTIVE WELLS AND ACREAGE
PRODUCTIVE WELLS
The following table sets forth the Company's domestic and Canadian productive
wells at December 31, 2001:
Productive Wells
--------------------------------------------------------------------------
Oil Gas Total
-------------------- ------------------- -------------------
Gross Net Gross Net Gross Net
------ --- ----- --- ----- ---
United States............... 416 345 2,812 /1/ 78 3,228 423
Canada...................... 295 147 181 128 476 275
--- --- ----- --- ----- ---
Total..................... 711 492 2,993 206 3,704 698
=== === ===== === ===== ===
/1/ 2,749 of the Company's gross natural gas wells are located in the San Juan
Basin. The Company has non-operated working interests in these wells that
average approximately 1.8%.
Acreage
The following table sets forth the Company's undeveloped and developed gross and
net leasehold acreage at December 31, 2001. Undeveloped acreage includes leased
acres on which wells have not been drilled or completed to a point that would
permit the production of commercial quantities of oil and gas, regardless of
whether or not such acreage contains proved reserves.
Undeveloped Developed Total
------------------------ --------------------- ---------------------
Gross Net Gross Net Gross Net
--------- ---------- -------- -------- -------- --------
Permian Basin
Maljamar...................... 520 481 14,012 13,839 14,532 14,320
Wellman....................... -- -- 2,280 2,165 2,280 2,165
Dimmitt/Slash Ranch........... 120 100 6,034 5,279 6,154 5,379
------- -------- -------- -------- -------- --------
Total....................... 640 581 22,326 21,283 22,966 21,864
San Juan Basin................ 5,760 1,480 4,319 4,319 10,079 5,799
Gulf of Mexico................ 126,684 28,546 25,000 3,750 151,684 32,296
Other......................... 48,085 35,075 16,382 8,104 64,467 43,179
------- -------- -------- -------- -------- --------
Total United States......... 181,169 65,682 68,027 37,456 249,196 103,138
Canada........................ 442,361 265,164 105,540 65,966 547,901 331,130
------- -------- -------- -------- -------- --------
Total......................... 623,530 330,846 173,567 103,422 797,097 434,268
======= ======== ======== ======== ======== ========
/1/ Excluded is acreage in which the Company's interest is limited to a
mineral or royalty interest. At December 31, 2001, the Company held
mineral or royalty interests in 1,108 gross (596 net) developed acres.
All the leases for the undeveloped acreage summarized in the preceding table
will expire at the end of their respective primary terms unless prior to that
date the existing leases are renewed or production has been obtained from the
acreage subject to the lease, in which event the lease will remain in effect
until the cessation of production. The following table sets forth the minimum
remaining lease terms for the gross and net undeveloped acreage:
14
The Wiser Oil Company
Acres Expiring
-----------------------
Gross Net
--------- -------
Twelve Months Ending:
December 31, 2002....................... 111,982 75,711
December 31, 2003....................... 171,522 124,224
Thereafter.............................. 340,026 130,911
------- -------
Total................................. 623,530 330,846
======= =======
As is customary in the industry, the Company generally acquires oil and gas
acreage without any warranty of title except as to claims made by, through or
under the transferor. Although the Company has title to developed acreage
examined prior to acquisition in those cases in which the economic significance
of the acreage justifies the cost, there can be no assurance that losses will
not result from title defects or from defects in the assignment of leasehold
rights. In many instances, title opinions may not be obtained if in the
Company's judgment it would be uneconomical or impractical to do so.
Drilling Activity
The following table sets forth for the three-year period ended December 31, 2001
the number of exploratory and development wells drilled by or on behalf of the
Company.
2001 2000 1999
------------------- ------------------ -------------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Exploratory Wells:
- ------------------
United States
Producing............. 3 1 8 2 6 2
Dry................... 5 3 4 2 2 1
Canada
Producing............. 1 0 5 2 1 1
Dry................... 0 0 3 2 -- --
Development Wells:
- ------------------
United States
Producing............. 6 3 5 4 1 --
Dry................... 0 0 1 1 -- --
Canada
Producing............. 25 21 29 11 20 4
Dry................... 4 4 6 3 2 1
Total Wells:
- ------------
Producing............. 35 25 47 19 28 7
Dry................... 9 7 14 8 4 2
--- --- -- -- -- --
Total............... 44 32 61 27 32 9
=== === == == == ==
OPERATIONS
The Company generally seeks to be named as operator for wells in which it has
acquired a significant interest, although, as is common in the industry, this
typically occurs only when the Company owns the major portion of the working
interest in a particular well or field. At December 31, 2001, the Company
operated 88% of its properties in the Permian Basin, comprising approximately
43% of the Company's total proved reserves, including Maljamar (235 gross
wells), Wellman (22 gross wells) and Dimmitt/Slash Ranch (79 gross wells). At
December 31, 2001, the Company also operated 273 (out of a total of 476) gross
wells on its Canadian properties.
15
The Wiser Oil Company
As operator, the Company is able to exercise substantial influence over the
development and enhancement of a well and to supervise operation and maintenance
activities on a daily basis. The Company does not conduct the actual drilling of
wells on properties for which it acts as operator, but engages independent
contractors who are supervised by the Company. The Company employs petroleum
engineers, geologists and other operations and production specialists who strive
to improve production rates, increase reserves and/or lower the cost of
operating its oil and gas properties.
Oil and gas properties are customarily operated under the terms of a joint
operating agreement, which provides for reimbursement of the operator's direct
expenses and monthly per-well supervision fees. Per-well supervision fees vary
widely depending on the geographic location and producing formation of the well,
whether the well produces oil or gas and other factors. Such fees received by
the Company in 2001 ranged from $99 to $980 per well per month.
COMPETITION
The oil and gas industry is highly competitive. The Company encounters
competition from other oil and gas companies in all areas of its operations,
including the acquisition of producing properties. The Company's competitors
include major integrated oil and gas companies and numerous independent oil and
gas companies, individuals and drilling and income programs. Many of its
competitors are large, well established companies with substantially larger
operating staffs and greater capital resources than the Company. Such companies
may be able to pay more for productive oil and gas properties and exploratory
prospects and to define, evaluate, bid for and purchase a greater number of
properties and prospects than the Company's financial or human resources permit.
The Company's ability to acquire additional properties and to discover reserves
in the future will depend upon its ability to evaluate and select suitable
properties and to consummate transactions in a highly competitive environment.
DRILLING AND OPERATING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive oil or gas reservoirs will be encountered. There can be
no assurance that new wells drilled by the Company will be productive or that
the Company will recover all or any portion of its investment. Drilling for oil
and gas may involve unprofitable efforts, not only from dry wells, but also from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, many of which are beyond its control, including economic conditions,
mechanical problems, pressure or irregularities in formations, title problems,
weather conditions, compliance with governmental requirements and shortages in
or delays in the delivery of equipment and services. Such equipment shortages
and delays sometimes involve drilling rigs, especially in Canada, where weather
conditions result in a short drilling season, causing a high demand for rigs by
a large number of companies during a relatively short period of time. The
Company's future drilling activities may not be successful. Lack of drilling
success could have a material adverse effect on the Company's financial
condition and results of operations.
In addition, the Company's use of 3-D seismic requires greater pre-drilling
expenditures than traditional drilling strategies. Although the Company believes
that its use of 3-D seismic will increase the probability of success of its
exploratory wells and should reduce average finding costs through the
elimination of prospects that might otherwise be drilled solely on the basis of
2-D seismic and other traditional methods, unsuccessful wells are likely to
occur.
The Company's operations are subject to all the hazards and risks normally
incident to the development, exploitation, production and transportation of, and
the exploration for, oil and gas, including unusual or unexpected geologic
formations, pressures, down-hole fires, mechanical failures, blowouts,
cratering, explosions, uncontrollable flows of oil, gas or well fluids and
pollution and other environmental risks. These hazards could result in
substantial losses to the Company due to injury and loss of life, severe damage
to and destruction of property and equipment, pollution and other environmental
damage and suspension of operations. The Company maintains comprehensive
16
The Wiser Oil Company
insurance coverage, including a $2.0 million general liability insurance policy
and a $30.0 million excess liability policy. The Company believes that its
insurance is adequate and customary for companies of a similar size engaged in
comparable operations, but losses could occur for uninsurable or uninsured risks
or in amounts in excess of existing insurance coverage.
TITLE TO PROPERTIES
The Company's land department and contract land professionals have reviewed
title records or other title review materials relating to substantially all of
its producing properties. The title investigation performed by the Company prior
to acquiring undeveloped properties is thorough, but less rigorous than that
conducted prior to drilling, consistent with industry standards. The Company
believes it has satisfactory title to all its producing properties in accordance
with standards generally accepted in the oil and gas industry. The Company's
properties are subject to customary royalty interests, liens incident to
operating agreements, liens for current taxes and other inchoate burdens which
the Company believes do not materially interfere with the use of or affect the
value of such properties. At December 31, 2001, the Company's leaseholds for
approximately 30% of its net acreage were being kept in force by virtue of
production on that acreage in paying quantities. The remaining net acreage was
held by lease rentals and similar provisions and requires production in paying
quantities prior to expiration of various time periods to avoid lease
termination.
The Company expects to make acquisitions of oil and gas properties from time to
time. In making an acquisition, the Company generally focuses most of its title
and valuation efforts on the more significant properties. It is generally not
feasible for the Company to review in-depth every property it purchases and all
records with respect to such properties. However, even an in-depth review of
properties and records may not necessarily reveal existing or potential
problems, nor will it permit the Company to become familiar enough with the
properties to assess fully their deficiencies and capabilities. Evaluation of
future recoverable reserves of oil and gas, which is an integral part of the
property selection process, is a process that depends upon evaluation of
existing geological, engineering and production data, some or all of which may
prove to be unreliable or not indicative of future performance. To the extent
the seller does not operate the properties, obtaining access to properties and
records may be more difficult. Even when problems are identified, the seller may
not be willing or financially able to give contractual protection against such
problems, and the Company may decide to assume environmental and other
liabilities in connection with acquired properties.
GOVERNMENTAL REGULATION
The Company's operations are affected from time to time in varying degrees by
political developments and federal, state, provincial and local laws and
regulations. In particular, oil and gas production and related operations are or
have been subject to price controls, taxes and other laws and regulations
relating to the oil and gas industry. Failure to comply with such laws and
regulations can result in substantial penalties. The regulatory burden on the
oil and gas industry increases the Company's cost of doing business and affects
its profitability. Although the Company believes it is in substantial compliance
with all applicable laws and regulations, because such laws and regulations are
frequently amended or reinterpreted, the Company is unable to predict the future
cost or impact of complying with such laws and regulations.
United States. Sales of natural gas by the Company are not regulated and are
generally made at market prices. However, the Federal Energy Regulatory
Commission ("FERC") regulates interstate natural gas transportation rates and
service conditions, which affect the marketing of natural gas produced by the
Company, as well as the revenues received by the Company for sales of such
production. Sales of the Company's natural gas currently are made at
uncontrolled market prices, subject to applicable contract provisions and price
fluctuations which normally attend sales of commodity products. The FERC's
jurisdiction over natural gas transportation was unaffected by the Decontrol
Act. While sales by producers of natural gas, and all sales of crude oil,
condensate and NGLs, can currently be made at uncontrolled market prices,
Congress could re-enact prices controls in the future.
17
The Wiser Oil Company
Since the mid-1980's, the FERC has issued a series of orders that have
significantly altered the marketing and transportation of natural gas. Such
orders mandated a fundamental restructuring of interstate pipeline sales and
transportation service, including the unbundling by interstate pipelines of the
sale, transportation, storage and other components of the city-gate sales
services such pipelines previously performed. Further, they have eliminated or
substantially reduced the interstate pipelines' traditional role as wholesalers
of natural gas, and have substantially increased competition and volatility in
natural gas markets.
While the Company cannot predict what action the FERC will take on these or
related matters in the future, the Company does not believe that it will be
treated materially differently than other natural gas producers and marketers
with which it competes.
The Company's gathering operations are subject to safety and operational
regulations relating to the design, installation, testing, construction,
operation, replacement and management of facilities. Pipeline safety issues have
recently been the subject of increasing focus in various political and
administrative arenas at both the state and federal levels. The Company believes
its operations, to the extent they may be subject to current gas pipeline safety
requirements, comply in all material respects with such requirements. The
Company cannot predict what effect, if any, the adoption of this or other
additional pipeline safety legislation might have on its operations, but the
industry could be required to incur additional capital expenditures and
increased costs depending upon future legislative and regulatory changes.
The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration for and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells and the regulation
of spacing, plugging and abandonment of such wells. The statutes and regulations
of certain states limit the rate at which oil and gas can be produced from the
Company's properties. However, the Company does not believe it will be affected
materially differently by these statutes and regulations than any other
similarly situated oil and gas company.
Canada. In Canada producers of oil negotiate sales contracts directly with oil
purchasers, with the result that sales of oil are generally made at market
prices. The price of oil received by the Company depends in part on oil quality,
prices of competing fuels, distance to market, the value of refined products and
the supply/demand balance. Oil exports may be made pursuant to export contracts
with terms not exceeding one year in the case of light crude, and not exceeding
two years in the case of heavy crude, provided that an order approving any such
export has been obtained from the National Energy Board ("NEB"). Any oil export
to be made pursuant to a contract of a longer duration requires an exporter to
obtain an export license from the NEB and the issue of such license requires the
approval of the Governor General in Council.
In Canada the price of natural gas sold is determined by negotiation between
buyers and sellers. Natural gas exported from Canada is subject to regulation by
the NEB and the government of Canada. Exporters are free to negotiate prices and
other terms with purchasers, provided that export contracts in excess of two
years must continue to meet certain criteria prescribed by the NEB and the
government of Canada. As is the case with oil, natural gas exports for a term of
less than two years must be made pursuant to an NEB order, or, in the case of
exports for a longer duration, pursuant to an NEB license and Governor General
in Council approval. The government of Alberta also regulates the volume of
natural gas that may be removed from Alberta for consumption elsewhere based on
such factors as reserve availability, transportation arrangements and marketing
considerations.
In addition to Canadian federal regulation, Alberta and certain other provinces
have legislation and regulations that govern royalties payable on production
from Crown lands. The royalty regime that is in place at a particular time or
location is a significant factor in the profitability of oil and gas production.
Royalties payable on production from lands other than Crown lands are determined
by negotiations between the mineral owner and the lessee. Crown royalties are
determined by governmental regulation and are generally calculated as a
percentage of the value of the gross production. The rate of royalties payable
generally depends in part on prescribed reference prices, well productivity,
geographical location, field discovery date and the type and quality of the
petroleum product produced.
18
The Wiser Oil Company
From time to time the government of Alberta has established incentive programs
that have included royalty rate reductions, royalty holidays and tax credits for
the purpose of encouraging oil and gas exploration or enhanced production
projects. For example, a producer of oil or gas is entitled to a credit against
the royalties payable to the Crown by virtue of the Alberta Royalty Tax Credit
("ARTC") program. The ARTC program provides a rebate on Crown royalties paid in
respect of eligible producing properties. The ARTC program is based on a
price-sensitive formula, and the ARTC rate currently varies between 25% and 75%
of the royalty otherwise payable on production. The ARTC rate is currently
applied to a maximum of $2.0 million of Alberta Crown royalties otherwise
payable by each producer or associated group of producers in each tax year. The
rate is established quarterly based on average "par price," as determined by the
Alberta Department of Energy for the previous quarterly period. Producing
properties acquired from corporations claiming maximum entitlement to ARTC will
generally not be eligible for ARTC.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive and changing
federal, state, provincial and local laws and regulations relating to
environmental protection, including the generation, storage, handling and
transportation of oil and gas and the discharge of materials into the
environment, and relating to safety and health. The recent trend in
environmental legislation and regulation generally is toward stricter standards,
and this trend will likely continue. These laws and regulations may require the
acquisition of a permit or other authorization before construction or drilling
commences and for certain other activities; limit or prohibit construction,
drilling and other activities on certain lands lying within wilderness and other
protected areas; and impose substantial liabilities for pollution resulting from
the Company's operations. The permits required for various of the Company's
operations are subject to revocation, modification and renewal by issuing
authorities. Governmental authorities have the power to enforce compliance with
their regulations, and violations are subject to fines, penalties or
injunctions. In the opinion of management, the Company is in substantial
compliance with current applicable environmental laws and regulations, and the
Company has no material commitments for capital expenditures to comply with
existing environmental requirements. Nevertheless, changes in existing
environmental laws and regulations or in interpretations thereof could have a
significant impact on the Company. The impact of such changes, however, would
not likely be any more burdensome to the Company than to any other similarly
situated oil and gas company.
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances found at the site. Persons who are or were responsible for releases
of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources. Furthermore,
neighboring landowners and other third parties may file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.
The Company generates typical oil and gas field wastes, including hazardous
wastes, that are subject to the federal Resources Conservation and Recovery Act
and comparable state statutes. The United States Environmental Protection Agency
and various state agencies have limited the approved methods of disposal for
certain hazardous and nonhazardous wastes. Furthermore, certain wastes generated
by the Company's oil and gas operations that are currently exempt from
regulation as "hazardous wastes" may in the future be designated as "hazardous
wastes," and therefore be subject to more rigorous and costly operating and
disposal requirements.
19
The Wiser Oil Company
The Oil Pollution Act ("OPA") imposes a variety of requirements on responsible
parties for onshore and offshore oil and gas facilities and vessels related to
the prevention of oil spills and liability for damages resulting from such
spills in waters of the United States. The "responsible party" includes the
owner or operator of an onshore facility or vessel or the lessee or permittee
of, or the holder of a right of use and easement for, the area where an onshore
facility is located. OPA assigns liability to each responsible party for oil
spill removal costs and a variety of public and private damages from oil spills.
Few defenses exist to the liability for oil spills imposed by OPA. OPA also
imposes financial responsibility requirements. Failure to comply with ongoing
requirements or inadequate cooperation in a spill event may subject a
responsible party to civil or criminal enforcement actions.
The Company's Canadian operations are also subject to environmental regulation
pursuant to local, provincial and federal legislation. Canadian environmental
legislation provides for restrictions and prohibitions on releases or emissions
of various substances produced in association with certain oil and gas industry
operations and can affect the location of wells and facilities and the extent to
which exploration and development is permitted. In addition, legislation
requires that well and facilities sites be abandoned and reclaimed to the
satisfaction of provincial authorities. In most cases, an environmental
assessment and review is required prior to initiating exploration or development
projects or undertaking significant changes to existing projects. A breach of
such legislation may result in the imposition of fines and issuance of clean-up
orders. Environmental legislation in Alberta has recently undergone a major
revision and has been consolidated in the Environmental Protection and
Enhancement Act. Under the new Act, environmental standards and compliance for
releases, clean-up and reporting are stricter. Also, the range of enforcement
actions available and the severity of penalties have been significantly
increased. These changes will have an incremental effect on the cost of
conducting operations in Alberta.
The Company owns, leases or operates numerous properties that for many years
have produced or processed oil and gas. The Company also owns and operates
natural gas gathering, transportation and processing systems. It is not uncommon
for such properties to be contaminated with hydrocarbons or polychlorinated
biphenyls. Although the Company or previous owners of these interests may have
used operating and disposal practices that were standard in the industry at the
time, hydrocarbons, polychlorinated biphenyls or other wastes may have been
disposed of or released on or under the properties or on or under other
locations where such wastes have been taken for disposal. These properties may
be subject to federal or state requirements that could require the Company to
remove any such wastes or to remediate the resulting contamination. In addition,
some of the Company's properties are operated by third parties over whom the
Company has no control. Notwithstanding the Company's lack of control over
properties operated by others, the failure of the previous owners or operators
to comply with applicable environmental regulations may, in certain
circumstances, adversely impact the Company.
ABANDONMENT COSTS
The Company is responsible for payment of plugging and abandonment costs on its
oil and gas properties pro rata to its working interest. Based on its
experience, the Company anticipates that the ultimate aggregate salvage value of
lease and well equipment located on its properties will exceed the costs of
abandoning such properties. There can be no assurance, however, that the Company
will be successful in avoiding additional expenses in connection with the
abandonment of any of its properties. In addition, abandonment costs and their
timing may change due to many factors, including actual production results,
inflation rates and changes in environmental laws and regulations.
EMPLOYEES
At March 22, 2002, the Company employed 75 full-time employees; 6 were executive
officers, 38 were professional and administrative personnel and 31 were field
personnel. Of the total employees, 51 were located in the United States and 24
were located in Canada. At March 22, 2002, none of the Company's employees were
represented by a labor union. The Company considers its relations with its
employees to be good.
20
The Wiser Oil Company
FACILITIES
The Company's principal executive and administrative offices are located at 8115
Preston Road, Suite 400, Dallas, Texas. The offices contain approximately 15,200
square feet of space and are leased through December 31, 2002. Rental payments
are approximately $23,000 per month. The office of the Company's Canadian
subsidiary, The Wiser Oil Company of Canada, is located at 645 7th Avenue, S.W.,
Suite 2550, Calgary, Alberta. This office contains approximately 14,000 square
feet of space and is leased through December 20, 2003. Rental payments are
approximately $20,000 per month.
GLOSSARY OF OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in the
oil and gas industry that are used in this Report.
"Bbl" means a barrel of 42 U.S. gallons.
"Bcf" means billion cubic feet.
"BOE" means barrels of oil equivalent, converting volumes of natural gas to oil
equivalent volumes using a ratio of six Mcf of natural gas to one Bbl of oil.
"completion" means the installation of permanent equipment for the production of
oil or gas.
"development well" means a well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
"dry hole" or "dry well" means a well found to be incapable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
"exploratory well" means a well drilled to find and produce oil or gas reserves
not classified as proved, to find a new production reservoir in a field
previously found to be productive of oil or gas in another reservoir or to
extend a known reservoir.
"farm-in" means an agreement pursuant to which the owner of a working interest
in an oil and gas lease assigns the working interest or a portion thereof to
another party who desires to drill on the leased acreage. Generally, the
assignee is required to drill one or more wells in order to earn its interest in
the acreage. The assignor usually retains a royalty or reversionary interest in
the lease. The interest received by an assignee is a "farm-in."
"gas" means natural gas.
"gross" when used with respect to acres or wells, refers to the total acres or
wells in which the Company has a working interest.
"infill drilling" means drilling of an additional well or wells provided for by
an existing spacing order to more adequately drain a reservoir.
"MBbl" means thousand Bbls.
"MBOE" means thousand BOE.
"Mcf" means thousand cubic feet.
"MMBOE" means million BOE.
21
The Wiser Oil Company
"MMBtu" means one million British Thermal Units. British Thermal Unit means the
quantity of heat required to raise the temperature of one pound of water by one
degree Fahrenheit.
"MMcf" means million cubic feet.
"net" when used with respect to acres or wells, refers to gross acres or wells
multiplied, in each case, by the percentage working interest owned by the
Company.
"net production" means production that is owned by the Company less royalties
and production due others. "NGL" means natural gas liquid.
"operator" means the individual or company responsible for the exploration,
development and production of an oil or gas well or lease.
"Present Value" when used with respect to oil and gas reserves, means the
estimated future gross revenues to be generated from the production of proved
reserves calculated in accordance with the guidelines of the SEC, net of
estimated production and future development costs, using prices and costs as of
the date of estimation without future escalation (except to the extent a
contract specifically provides otherwise), without giving effect to non-property
related expenses such as general and administrative expenses, debt service,
future income tax expense and depreciation, depletion and amortization, and
discounted using an annual discount rate of 10%.
"productive wells" or "producing wells" consist of producing wells and wells
capable of production, including wells waiting on pipeline connections.
"proved developed reserves" means reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Additional
oil and gas expected to be obtained through the application of fluid injection
or other improved recovery techniques for supplementing the natural forces and
mechanisms of primary recovery will be included as "proved developed reserves"
only after testing by a pilot project or after the operation of an installed
program has confirmed through production response that increased recovery will
be achieved.
"proved reserves" means the estimated quantities of crude oil, natural gas and
NGLs which upon analysis of geological and engineering data appear with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation tests.
The area of a reservoir considered proved includes (A) that portion
delineated by drilling and defined by gas-oil and/or oil-water
contacts, if any; and (B) the immediately adjoining portions not yet
drilled, but which can be reasonably judged as economically
productive on the basis of available geological and engineering
data. In the absence of information on fluid contacts, the lowest
known structural occurrence of hydrocarbons controls the lower
proved limit of the reservoir.
(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included
in the "proved" classification when successful testing by a pilot
project, or the operation of an installed program in the reservoir,
provides support for the engineering analysis on which the project
or program was based.
22
The Wiser Oil Company
(iii) Estimates of proved reserves do not include the following: (A) oil
that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil,
natural gas and NGLs, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir
characteristics or economic factors; (C) crude oil, natural gas, and
NGLs, that may occur in undrilled prospects; and (D) crude oil,
natural gas and NGLs that may be recovered from oil shales, coal,
gilsonite and other such resources.
"proved undeveloped reserves" means reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for completion. Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Under no circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same reservoir.
"recompletion" means the completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
"reserves" means proved reserves.
"reservoir" means a porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
"royalty" means an interest in an oil and gas lease that gives the owner of the
interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
"2-D seismic" means an advanced technology method by which a cross-section of
the earth's subsurface is created through the interpretation of reflecting
seismic data collected along a single source profile.
"3-D seismic" means an advanced technology method by which a three dimensional
image of the earth's subsurface is created through the interpretation of
reflection seismic data collected over surface grid. 3-D seismic surveys allow
for a more detailed understanding of the subsurface than do conventional surveys
and contribute significantly to field appraisal, development and production.
"working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties.
"workover" means operations on a producing well to restore or increase
production.
23
The Wiser Oil Company
ITEM 2. PROPERTIES
The information required by this Item is contained in Item 1. Business, and is
incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries and affiliates are named defendants in lawsuits
and are involved in governmental proceedings from time to time, all arising in
the ordinary course of business. Although the outcome of these lawsuits and
proceedings cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial position of the
Company.
The Company has filed motions against Enron North America ("ENA") and Enron
Corporation to collect amounts owed the Company under hedging contracts. ENA is
a wholly-owned subsidiary of Enron Corporation and Enron Corporation has
provided the Company with a $10 million guarantee on behalf of ENA. These
motions seek to establish a separate cash management system for ENA and to
settle debtor claims against ENA separately from Enron Corporation. Pursuant to
the Company's motions, an examiner has been appointed to examine ENA cash
transactions and the court is currently waiting on the examiner's report before
taking further action on the Company's motion.
In January 2002 the Company was notified by a gas marketing company that it
would not pay the Company approximately $730,000 owed to Wiser for its November
2001 gas sales because the gas marketing company claimed it had not been paid by
Enron Corporation. The Company believes that the gas marketing company has no
basis under the gas sales contract to withhold payment and has demanded the
$730,000 payment in writing. The Company believes the $730,000 account
receivable from the gas marketing company is 100% collectible and will pursue
all legal remedies available to collect the amount owed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders during the fourth quarter of the
year ended December 31, 2001.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock is traded on the New York Stock Exchange under the symbol WZR.
The quarterly high and low sales prices and dividends per share of Common Stock
during the three years ended December 31, 2001, were as follows:
High Low Dividends
-------- ---------- ---------
2001
First Quarter......... $ 7.69 $ 4.63 $ 0.00
Second Quarter........ 10.10 5.08 0.00
Third Quarter......... 7.24 4.25 0.00
Fourth Quarter........ 6.24 4.55 0.00
2000
First Quarter......... $ 3.00 $ 2.38 $ 0.00
Second Quarter........ 3.31 2.13 0.00
Third Quarter......... 6.38 2.75 0.00
Fourth Quarter........ 5.44 4.00 0.00
1999
First Quarter......... $ 3.13 $ 1.44 $ 0.00
Second Quarter........ 4.88 2.00 0.00
Third Quarter......... 4.81 2.88 0.00
Fourth Quarter........ 4.13 2.25 0.00
At March 22, 2002, there were 9,242,816 shares of Common Stock outstanding held
by approximately 750 shareholders of record and approximately 4,500 beneficial
owners.
Each share of Common Stock also represents one preferred stock purchase right
which entitles the holder thereof to purchase from the Company one-one
thousandth of a share (a "Unit") of Series B Preferred Stock of the Company at
an exercise price of $72.00 per Unit.
On December 10, 1998, the Board of Directors approved a cost reduction plan
which included suspending payments of cash dividends on the Company's common
stock.
24
The Wiser Oil Company
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company are derived
from information contained in the Company's consolidated financial statements.
The selected consolidated financial and operating data presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Report. For additional
information about accounting changes, see Note 1 to the financial statements,
effective January 1, 2001, describing the Company's change of its method of
accounting for derivative instruments and hedging transactions. For additional
information about business combinations, see Note 3 to the financial statements,
describing the Company's acquisition of Invasion Energy Inc. For additional
information on property sale gains, see "Results of Operations" in Item 7,
describing the Asset Exchange Agreement entered into between Wiser Canada and
Talisman Energy, Inc. dated June 29, 2001.
Year Ended December 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
---------- --------- -------- -------- ---------
Income Statement Data (000's except per share amounts):
Revenues:
Oil and gas sales....................................... $ 80,344 $ 67,016 $ 47,602 $ 59,197 $ 76,729
Dividends and interest.................................. 1,245 1,794 739 269 1,113
Property sale gains..................................... 9,527 74 3,555 615 1,875
Marketable security sales gains......................... -- -- -- -- 7,495
Other................................................... 454 849 898 1,327 603
---------- --------- -------- -------- --------
Total revenues........................................ 91,570 69,733 52,794 61,408 87,815
---------- --------- -------- -------- --------
Costs and expenses:
Production and operating................................ 28,404 24,125 21,111 26,529 27,183
Loss on derivatives..................................... 2,094 -- -- -- --
Purchased natural gas................................... -- -- 336 1,440 1,622
Depreciation, depletion and amortization ("DD&A")....... 19,388 15,637 17,663 25,811 22,977
Property impairments.................................... 2,490 680 2,214 3,838 3,289
Exploration............................................. 7,542 3,792 7,059 15,328 9,655
General and administrative.............................. 8,082 8,720 6,816 10,571 9,661
Interest expense........................................ 13,364 12,659 13,310 13,097 9,845
---------- --------- -------- -------- --------
Total costs and expenses.............................. 81,364 65,613 68,509 96,614 84,232
---------- --------- -------- -------- --------
Earnings (loss) before income taxes....................... 10,206 4,120 (15,715) (35,206) 3,583
Income tax expense (benefit).............................. 158 -- (859) (10,740) 264
---------- --------- -------- -------- --------
Net income (loss)......................................... $ 10,048 $ 4,120 $(14,856) $(24,466) $ 3,319
========== ========= ======== ======== ========
Average outstanding shares (000's) /1/.................... 9,161 8,963 8,952 8,952 8,949
Basic earnings (loss) per share........................... $ 0.67 $ 0.39 $ (1.66) $ (2.73) $ 0.37
Cash dividends per share.................................. $ 0.00 $ 0.00 $ 0.00 $ 0.12 $ 0.12
Other Financial Data (000's):
EBITDAX /2/............................................... $ 43,463 $ 36,814 $ 20,976 $ 22,253 $ 39,979
Operating cash flows...................................... 25,963 17,316 6,572 (3,523) 26,310
Capital expenditures...................................... 76,099 20,066 8,327 29,980 70,209
Balance Sheet Data - end of period (000's):
Cash and cash equivalents................................. $ 12,659 $ 34,144 $ 21,447 $ 2,779 $ 13,255
Working capital /3/....................................... 12,477 35,171 17,875 (19,911) 7,809
Net property and equipment................................ 223,664 156,289 156,811 207,414 218,664
Total assets.............................................. 258,790 212,234 193,564 225,929 252,512
Long-term debt............................................ 143,463 124,600 124,526 124,452 124,304
Stockholders' equity...................................... 84,710 70,202 53,979 66,210 95,380
25
The Wiser Oil Company
Year Ended December 31,
-------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Reserve and Operating Data:
Production and volumes:
Oil and NGLs (MBbl) ........................................ 1,743 1,719 1,933 2,715 2,760
Gas (MMcf) /4/ ............................................. 9,999 8,938 10,248 14,364 12,829
BOE (000's) /4/ .......................................... 3,410 3,209 3,641 5,109 4,898
Weighted average sales prices /5/:
Oil (per Bbl) .............................................. $ 24.27 $ 21.69 $ 15.18 $ 12.46 $ 18.02
Gas (per Mcf) .............................................. 3.85 3.31 1.83 1.84 2.21
NGLs (per Bbl) ............................................. 20.32 22.19 13.01 9.25 13.87
BOE (per Bbl) ............................................ 23.56 20.88 11.59 11.59 15.66
Selected expenses per BOE /6/:
Lease operating ............................................ $ 7.26 $ 6.36 $ 5.07 $ 4.45 $ 4.65
Production taxes ........................................... 1.07 1.16 0.77 0.84 1.02
DD&A ....................................................... 5.69 4.87 4.88 5.15 4.79
General and administrative ................................. 2.37 2.72 1.88 1.96 2.02
Proved reserves (end of year) /7/:
Oil and NGLs (MBbls) ....................................... 19,084 24,491 25,430 27,988 29,721
Gas (MMcf) ................................................. 97,973 76,108 69,993 119,981 120,094
BOE (MBbls) .............................................. 35,413 37,176 37,095 47,985 49,737
Estimated future net revenues before income taxes (000's) .. $ 288,282 $ 915,495 $ 419,668 $ 218,969 $ 359,293
Present Value .............................................. 160,878 500,606 222,539 123,831 210,087
Standardized Measure (000's) /8/ ........................... 139,361 360,876 176,916 113,232 174,489
Weighted average sales prices (end of year) /7//9/:
Oil (per Bbl) .............................................. $ 17.24 $ 25.18 $ 23.76 $ 10.39 $ 15.92
Gas (per Mcf) .............................................. 2.26 9.72 1.99 1.98 2.35
NGLs (per Bbl) ............................................. 16.61 21.53 19.11 8.44 11.40
/1/ Basic earnings per share is calculated without including dilutive effect
of common stock equivalents consisting of stock options, convertible
preferred stock and warrants. See Note 15 to the Company's Consolidated
Financial Statements.
/2/ EBITDAX is not a generally accepted accounting measure, but is presented
as a supplemental financial indicator of the Company's ability to service
or incur debt. EBITDAX is calculated by adding interest expense, income
tax expense, depreciation, depletion and amortization, property impairment
costs and exploration costs to net income (excluding marketable security
and property sales gains). EBITDAX should not be considered in isolation
or as a substitute for net income, operating cash flows or any other
measure of financial performance prepared in accordance with generally
accepted accounting principles or as a measure of the Company's
profitability or liquidity.
/3/ Working capital represents the difference between current assets and
current liabilities.
/4/ Calculated by including volumes of natural gas purchased for resale as
follows: 2001 - 0 MMcf, 2000 - 0 MMcf, 1999 - 148 MMcf, 1998 - 608 MMcf
and 1997 - 629 MMcf.
/5/ Reflects results of hedging activities. See Item 7A - "Quantitative and
Qualitative Disclosures about Market Risk."
/6/ Calculated without including volumes of natural gas purchased for resale.
/7/ Estimates of proved reserves and future net revenues from which Present
Values are derived are based on year end prices of oil and gas held
constant (except to the extent a contract specifically provides otherwise)
in accordance with SEC regulations.
/8/ The Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company represents the present value (using an annual discount rate of
10%) of estimated future net revenues from the production of proved
reserves, after giving effect to income taxes. See the Supplemental
Financial Information attached to the Company's Consolidated Financial
Statements included elsewhere in this Report for additional information
regarding the disclosure of the Standardized Measure of Discounted Future
Net Cash Flows.
26
The Wiser Oil Company
/9/ Year-end prices used to estimate proved reserves and future net revenues
from which Present Values are derived. See footnotes 7 and 8 above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations for each year
in the three-year period ended December 31, 2001. The Company's Consolidated
Financial Statements and notes thereto included elsewhere in this Report contain
detailed information that should be referred to in conjunction with the
following discussion.
GENERAL
The Company's future results of operations and growth are substantially
dependent upon (i) its ability to acquire or find and successfully develop
additional oil and gas reserves and (ii) the prevailing prices for oil and gas.
At December 31, 2001, the Company's proved reserves were comprised of
approximately 81% proved developed reserves. If the Company is unable to
economically acquire or find significant new reserves for development and
exploitation, the Company's oil and gas production, and thus its revenues, would
decline gradually as its reserves are produced. In addition, oil and gas prices
are dependent upon numerous factors beyond the Company's control, such as
economic, political and regulatory developments and competition from foreign and
other sources of energy. The oil and gas markets have historically been very
volatile. In particular, gas prices in the first quarter of 2001 were at the
highest levels in the past five years, but experienced a sharp decline in the
fourth quarter of 2001. Any significant and extended decline in the price of oil
or gas would have a material adverse effect on the Company's financial condition
and results of operations, and could result in a reduction in the carrying value
of the Company's proved reserves and adversely affect its access to capital.
Critical Accounting Policies
The Company's financial position and results of operations are materially
effected by changes in oil and gas prices. The Company makes estimates of future
oil and gas prices to determine the need for an impairment of capitalized costs
of proved oil and gas properties under SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". At
December 31, 2001 the weighted average oil and gas prices used for impairment
assessment purposes were $22.82 per barrel and $2.76 per mcf, respectively.
Accordingly, a significant reduction in oil and gas prices used to estimate
future oil and gas revenues for impairment purposes could materially impact
impairment expense.
The Company uses estimates of proved oil and gas reserve quantities to estimate
depletion, depreciation and amortization expense using the unit-of-production
method of accounting. The estimates of proved oil and gas reserve quantities
are also effected by estimates of future oil and gas prices along with various
other reservoir engineering estimates. Accordingly, a significant reduction in
oil and gas reserve quantities could materially impact depletion, depreciation
and amortization expense.
The Company follows the "successful efforts" method of accounting for its oil
and gas properties. Under this method of accounting, the capitalized costs of
unproven properties are periodically assessed to determine whether their value
has been impaired below the capitalized cost, and if such impairment is
indicated, a loss is recognized in exploration expense. The Company makes these
assessments based on estimates of future oil and gas prices and considers such
other factors as exploratory drilling results, future drilling plans and the
lease expiration terms when assessing unproved properties for impairment.
Accordingly, any change in these estimates or factors could materially impact
exploration expense.
The Company enters into various hedging arrangements with respect to portions of
its oil, natural gas and NGL production to achieve a more predictable cash flow
and to reduce exposure to price fluctuations. Net income and cash flows from
operating activities can be significantly effected by the Company's hedging
activities if oil and gas prices change significantly during the hedging period.
The Company does not have any significant transactions with related parties.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," requires the Company to assess the need
for an impairment of capitalized costs of proved oil and gas properties and the
costs of wells and related equipment and facilities on a property-by-property
basis. Applying SFAS No. 121, the Company recognized non-cash property
impairment charges of $2.5 million in 2001, $0.7 million in 2000 and $2.2
million in 1999.
RESULTS OF OPERATIONS
Comparison of 2001 to 2000
Acquisitions in 2001
On May 22, 2001, the Company acquired 100% of the outstanding common stock of
Invasion Energy Inc. ("Invasion") through its wholly-owned subsidiary The Wiser
Oil Company of Canada ("Wiser Canada"). The total purchase price was $37.5
million, which was financed with $22.6 million of cash and $14.9 million of
borrowings by Wiser Canada under its credit facility. The following table sets
forth the production, oil and gas revenues, production and operating expenses,
DD&A and interest expense related to the Invasion acquisition for the year ended
December 31, 2001 (000's):
2001
--------
Gas production (Mcf)................. 2,169
BOE production (Bbls)................ 362
Oil and gas revenues................. $ 7,532
Production and operating expenses.... 1,667
DD&A................................. 2,576
Interest expense..................... 514
On June 29, 2001, Wiser Canada entered into an Asset Exchange Agreement to
acquire producing properties and exploration acreage valued at $25.3 million
(CDN $38.3 million). Under the Agreement, Wiser Canada exchanged
27
The Wiser Oil Company
certain of its producing properties valued at $16.2 million and paid $9.1
million in cash, before closing adjustments. The exchange of producing
properties valued at $16.2 million has been accounted for as a sale of assets
and, accordingly, a gain of $9.5 million has been recognized in the consolidated
statements of income. The $9.1 million cash portion of the transaction was
funded with $4.5 million of cash on hand and $4.6 million of bank debt. The
major new producing properties acquired were the Evi Loon and Chinchaga fields.
The major producing properties sold were the Pine Creek, Portage, Groat,
Windfall and Sunchild fields.
Recapitalization in 2000
In May 2000, the Company received $13.7 million in net proceeds from the sale of
600,000 shares of convertible preferred stock to Wiser Investment Company, LLC
and its affiliates ("WIC"). In June 2001, the Company received $10.0 million in
net proceeds from the sale of an additional 400,000 shares of convertible
preferred stock to affiliates of WIC. See Note 14 to the Company's Consolidated
Financial Statements for additional information about the convertible preferred
stock. The convertible preferred stock is convertible at the option of the
holder into shares of the Company's common stock at a conversion price of $4.25
per common share.
In connection with the sale of the preferred stock, three of the Company's four
officers ended their employment in 2000 and the Company recognized $2.2 million
of expense related to such terminations which is included in general and
administrative expense in the Consolidated Statements of Income.
Revenues
Oil and gas sales increased $13.3 million or 20% to $80.3 million in 2001 from
$67.0 million in 2000, due to the Invasion acquisition and higher oil and gas
prices in 2001. Oil sales for 2001 were $6.5 million higher than 2000 as the
average price received for oil sales in 2001 was $24.27 per barrel, up $2.58 per
barrel or 12% from 2000. Net oil production for 2001 was 1,615,000 barrels, up
110,000 barrels or 7% from 1,505,000 barrels in 2000. The increase in oil
production was attributable primarily to the Evi-Loon field acquired in June
2001 under the Asset Exchange Agreement. Gas sales for 2001 were $8.9 million
higher than 2000 with $7.5 million of the increase attributable to the Invasion
acquisition. The remaining $1.4 million increase was due to higher average gas
prices received in 2001 offset by lower gas production. The average price
received for gas sales in 2001 was $3.85 per Mcf, an increase of $0.54 per Mcf
or 16% from 2000. Net gas production for 2001 was 9,999 MMCF, including 2,169
MMCF gas production from Invasion. Excluding Invasion, net gas production in
2001 was 7,830 MMCF, down 1,108 MMCF or 12% from 2000. Net g