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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999.
Commission file number: 0-7261
CHAPARRAL RESOURCES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 84-0630863
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16945 Northchase Drive, Suite 1620
Houston, Texas 77060
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (281) 877-7100
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.0001 Per Share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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 15, 2000, the aggregate market value of registrant's voting
common stock, par value $.0001 per share, held by nonaffiliates was $9,314,570.
As of March 15, 2000, registrant had 980,481 shares of its common stock,
par value $.0001 per share, issued and outstanding.
The following documents have been incorporated by reference into the Parts
of this Form 10-K: Certain sections of the registrant's definitive proxy
statement for the registrant's 2000 Annual Meeting of Stockholders to be filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120
days of the registrant's fiscal year ended December 31, 1999 are incorporated by
reference into Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
Our Business
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Chaparral Resources, Inc. is an independent oil and gas exploration and
production company. Our strategy is to acquire and develop foreign oil and gas
projects in emerging markets, specifically targeting fields with previously
discovered reserves, which have never been commercially produced or could be
materially enhanced by our management team and technical expertise.
Through a subsidiary, we own a 50% interest in Closed Type JSC
Karakudukmunay ("KKM"), a Kazakh joint stock company that holds a governmental
license (the "License") to develop the Karakuduk Oil Field (the "Karakuduk
Field"). The Karakuduk Field is a 16,900 acre oil field in the Republic of
Kazakhstan. The government of the former Soviet Union discovered the Karakuduk
Field in 1972 and drilled 22 exploratory and development wells, none of which
were produced commercially. KKM has re-established oil production from some of
the existing wells previously drilled in the Karakuduk Field, as well as
initiating its own drilling program. KKM began commercial oil production from
the Karakuduk Field as of November 1, 1999. Our business strategy is to fully
develop and commercially produce the oil reserves in the Karakuduk Field.
Currently, the Karakuduk Field is our only oil field. We are in the process
of identifying and evaluating other oil fields for possible acquisition and
development.
Corporate Information
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Chaparral was incorporated under the laws of the State of Colorado in 1972.
In April 1999, Chaparral completed a 60 for 1 reverse stock split and
reincorporated under the laws of the State of Delaware. Our address is 16945
Northchase Drive, Suite 1620, Houston, Texas 77060, and our telephone number is
(281) 877-7100.
Special Note Regarding Forward-Looking Statements
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Some of the statements in this Annual Report on Form 10-K constitute
"forward-looking statements". Forward-looking statements relate to future events
or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "estimates," "believes," "predicts," "potential," "likely,"
or "continue," or by the negative of such terms or comparable terminology.
Forward-looking statements are predictions based on current expectations that
involve a number of risks and uncertainties. Actual events may differ
materially. In evaluating forward-looking statements, you should consider
various factors, including the risks outlined under "Risk Factors." These
factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that these statements are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements, and
you are encouraged to exercise caution in considering such forward-looking
statements. Moreover, neither we nor any other person assumes responsibility for
the accuracy and completeness of these forward-looking statements. We are not
under any duty to update any of the forward-looking statements after the date of
this Annual Report on Form 10-K to conform these statements to actual results.
Risks Related to Our Business
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We have sustained significant operating losses in recent years, and we may fail
as an operating company.
We have incurred significant operating losses for each of our last five
fiscal years. We had an accumulated deficit of $24,983,000 as of December 31,
1999.
Currently, there is substantial doubt about our ability to continue as a
going concern. Our auditors have included a "going concern" explanatory
paragraph in their report on our consolidated financial statements for the year
ended December 31, 1999. See "Item 8 - Financial Statements and Supplemental
Data."
We are substantially leveraged which limits our ability to raise additional
financing.
We have entered into a loan agreement (the "Loan") with Shell Capital
Limited ("Shell Capital"), to provide up to $24,000,000 of financing for the
development of the Karakuduk Field. The Loan subjects us to a significant number
of restrictions, including the pledge of the majority of our assets to Shell
Capital and the inability to pay dividends, borrow additional indebtedness, or
issue stock without Shell Capital's approval. The terms of the Loan are
described in "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations."
We have also issued approximately $13,340,000 through March 24, 2000, in
unsecured 8% Non-negotiable Convertible Promissory Notes, (the "Notes") in order
to fund our operations and meet certain conditions required to draw funds under
the Loan. The Notes are convertible into shares of our common stock at $1.86 per
share, subject to the approval of our stockholders. If the Notes are not
converted into our common stock, the Notes will accrue interest at the lesser of
25% or the highest rate allowed by law and are repayable on October 31, 2001.
The Notes are fully subordinated to the Loan. We cannot repay the Notes before
fully repaying the Loan.
Our outstanding indebtedness is significant. A substantial portion of our
future cash flow from operations will be required for debt service and may not
be available for other purposes. Our ability to obtain additional debt or equity
financing in the future for working capital, capital expenditures, or
acquisitions is restricted, as well as our ability to acquire or dispose of
significant assets or investments. These restrictions may make us more
vulnerable and less able to react to adverse economic conditions.
If we are unable to fulfill the requirements to maintain our License to operate
in the Karakuduk Field, we will be unable to continue our operations in the
Karakuduk Field.
KKM's License from the government of the Republic of Kazakhstan allows KKM
to explore and develop the Karakuduk Field. The License establishes minimum work
thresholds and capital spending requirements that KKM must meet in order to
maintain its interest in the Karakuduk Field.
As of March 24, 2000, KKM is required to drill 6 additional new wells and
invest an additional $13,500,000 in the development of the Karakuduk Field by
June 30, 2000, unless we obtain waivers or deferrals from the licensing
authority. We are required to provide funds necessary for KKM to enable it to
satisfy the work plan and maintain our interest in the Karakuduk Field. If
necessary, KKM will request a deferral of these financial commitments; however,
there is no guarantee that the licensing authority will grant a deferral.
KKM's failure to satisfy the conditions under the License could cause the
licensing authority to cancel the License. If the License is cancelled, we will
be unable to develop and sell oil produced from the Karakuduk Field, and we will
have no other source of revenues.
Our efforts to develop, produce, and market oil reserves may be unsuccessful.
The development of oil reserves is a high risk endeavor and is frequently
marked by unprofitable efforts, such as:
o drilling unproductive wells;
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o drilling productive wells which do not produce sufficient amounts of
oil to return a profit; and
o production of developed oil reserves which cannot be marketed or
cannot be sold for adequate market prices.
We cannot guarantee that we will be able to successfully develop, produce,
and market the oil reserves underlying the Karakuduk Field or elsewhere. The
development of oil reserves inherently involves a high degree of risk, even
though the reserves are proven. Our risks are increased because our activities
are concentrated in areas where political or other unknown developments could
adversely affect commercial development of the reserves. Costs necessary to
acquire, explore, and develop oil reserves are substantial. We cannot guarantee
that we will recover the costs incurred to acquire and develop the Karakuduk
Field and if the costs incurred exceed our revenues, then our operations will
not be profitable. If we fail to generate sufficient cash flow from operations
to repay the Loan, we may lose our entire investment in the Karakuduk Field
pledged as collateral to Shell Capital.
We may be unable to compete effectively with larger, well-capitalized or more
experienced companies in the oil & gas industry.
We compete in all areas of the exploration and production segment of the
oil and gas industry with a number of other companies. These companies include
large multinational oil and gas companies and other independent operators with
greater financial resources and more experience than us. We do not hold a
significant competitive position in the oil industry. Within Kazakhstan alone,
we compete both with major oil and gas companies and with independent producers
for, among other things, rights to develop oil and gas properties, access to
limited pipeline capacity, procurement of available materials and resources, and
hiring qualified local and international personnel.
The oil market is unstable.
The current market for oil is characterized by instability. This
instability has caused fluctuations in world oil prices in recent years and
there can be no assurance of any price stability in the future. The production
and sale of oil from the Karakuduk Field may not be commercially feasible under
market conditions prevailing in the future. The price we receive for our oil may
not be sufficient to generate revenues in excess of our costs of production or
sufficient cash flow to service our debt obligations. If so, we will be unable
to generate profits and could default on our Loan.
We are uncertain about the prices at which we will be able to sell oil that
we produce. Our estimated future net revenue from oil sales is highly dependent
on the price of oil, as well as the amount of oil produced. The energy market
makes it difficult to estimate future prices of oil. Various factors beyond our
control affect these prices. These factors include:
o domestic and worldwide supplies of oil;
o the ability of the members of the Organization of Petroleum Exporting
Countries, or OPEC, to agree to and maintain oil price and production
controls;
o political instability or armed conflict in oil-producing regions;
o the price of foreign imports;
o the level of consumer demand;
o the price and availability of alternative fuels;
o the availability of pipeline capacity; and
o changes in existing federal regulation and price controls.
It is likely that oil prices will continue to fluctuate as they have in the
past. Current oil prices are not representative of oil prices in either the near
or short-term. We do not expect oil prices to maintain current price levels and
do not base our capital spending decisions on current market prices.
3
We have hedged a significant portion of our future oil production.
In February 2000, we purchased, for $4,000,000, hedges (put contracts) for
a total of 1,562,250 barrels of North Sea Brent crude oil. The exercise prices
of the hedges range from $22.35 to $17.25 per barrel, with monthly expiration
dates beginning in October 2000 and ending December 2002. Given the volatile
nature of prices for oil, it is possible that all or a significant portion of
the hedges could reach maturity with oil prices in excess of the applicable
strike prices, rendering the hedges worthless. If so, our entire hedge
investment could be lost or significantly impaired. We cannot sell or terminate
the hedges without the approval of Shell Capital, which may prevent us from
taking advantage of changes in oil prices, which might increase the value of all
or part of the hedges. See "Item 7A - Quantitative and Qualitative Disclosure
About Market Risk."
We may face liability for risks associated with drilling for and producing oil
and gas.
There are many risks incident to drilling for and producing oil and gas.
These risks include blowouts, cratering, fires, equipment failure and accidents.
Any of these events could result in personal injury, loss of life and
environmental and/or property damage. If such an event does occur, we may be
held liable, and we are not fully insured against these risks. In fact, many of
these risks are not insurable. The occurrence of such events that are not fully
covered by insurance may require us to pay damages, which would reduce our
profits.
Because we do not entirely own and control KKM, we must obtain the consent of
other KKM stockholders in order to take actions, or operations may come to a
standstill.
Through a subsidiary, we own a 50% interest in KKM. The other stockholders
of KKM are KazakhOil, the national petroleum company of the Republic of
Kazakhstan ("KazakhOil"), and a private Kazakhstan joint stock company.
KazakhOil owns a 40% interest in KKM and the private Kazakh joint stock company
owns the remaining 10%. The government of Kazakhstan indirectly owns 40% of KKM
through KazakhOil's direct ownership interest.
Because we only control a 50% interest in KKM, we must seek the approval of
one of the other two stockholders before KKM can take any major action. If we
are unable to obtain the approval of one of these stockholders, the operations
of KKM may come to a standstill. There are no practical mechanisms in the
agreements among the KKM stockholders to effectively resolve deadlocks. A
deadlock could halt KKM's operations and ultimately result in the loss of KKM's
rights to explore and develop the Karakuduk Field.
We may have to file for bankruptcy if we do not achieve profits and/or cannot
find additional sources of capital.
We have failed to achieve a profit for the last five fiscal years. If we
continue to incur operating losses and are unable to raise sufficient capital to
satisfy our financial commitments and repay our indebtedness, we may be forced
to file for protection against our creditors under federal bankruptcy laws. If
we file for such protection, our creditors will be paid prior to you, our
stockholders. We are restricted from raising additional financing without the
consent of Shell Capital, our largest creditor. In addition, if we file for
bankruptcy protection, the market for our common stock may no longer exist.
Risks Related to Operating in Kazakhstan
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Our contracts with Kazakh agencies may be arbitrarily cancelled or re-negotiated
by the government of the Republic of Kazakhstan.
Our ability to develop the Karakuduk Field is dependent on fundamental
contracts that we have with governmental agencies in Kazakhstan, including the
License. The government of Kazakhstan may arbitrarily cancel our contracts or
may force them into re-negotiation. Cancellation or re-negotiation of contracts
could result in less favorable terms for us and could reduce or eliminate
revenues. While we have political risk insurance coverage, there is no assurance
that such a cancellation or re-negotiation would be recoverable under the
political risk policy or any proceeds received would be sufficient to satisfy
our losses incurred or to repay our outstanding indebtedness.
4
The environmental regulations to which we are subject may become more numerous,
and compliance with them may become more expensive.
We must comply with Kazakh laws and international requirements that
regulate the discharge of materials into the environment. Environmental
protection and pollution control could, in the future, become so restrictive as
to make production unprofitable. Furthermore, we may be exposed to potential
claims and lawsuits involving such environmental matters as soil and water
contamination and air pollution. We are currently in compliance with all local
and international environmental requirements and are closely monitored by the
Kazakh environmental authorities. We have not made any material capital
expenditures for environmental control facilities and have no plans to do so in
the foreseeable future.
Other government regulations may make our operations in Kazakhstan less
profitable.
Our operations may be subject to other regulations by the government of the
Republic of Kazakhstan or other regulatory bodies responsible for the area in
which the Karakuduk Field is located. In addition to taxation, customs
declarations and environmental controls, regulations may govern such things as
drilling permits and production rates. Drilling permits could become difficult
to obtain or prohibitively expensive. Production rates could be set so low that
they would make production unprofitable. These regulations may substantially
increase the costs of doing business and may prevent or delay the starting or
continuation of any given exploration or development project.
All regulations are subject to future changes by legislative and
administrative action and by judicial decisions. Such changes could adversely
affect the petroleum industry in general, and us in particular. It is impossible
to predict the effect that any current or future proposals or changes in
existing laws or regulations will have on our operations.
If disputes arise, we may be unable to enforce our rights.
The laws of the Republic of Kazakhstan govern our operations and a number
of our significant agreements. As a result, we may be subject to arbitration in
Kazakhstan or to the jurisdiction of the Kazakh courts. Even if we seek relief
in the courts of the United States, we may not be successful in subjecting
foreign persons to the jurisdiction of those courts. In addition, we may be
prevented from enforcing our rights with respect to government agencies,
regulatory bodies, or other entities of Kazakhstan because they may consider
themselves immune from the jurisdiction of any court.
The Republic of Kazakhstan currency may devalue and may decrease the worth of
our investments in Kazakhstan.
The devaluation of the tenge, the currency of the Republic of Kazakhstan,
could significantly decrease the value of the monetary assets that we hold in
Kazakhstan as well as our assets in that country that are based on the tenge.
Devaluation could also create uncertainty with respect to the future business
climate in Kazakhstan and to our investment in that country.
We may encounter difficulty in conducting operations in the Karakuduk Field due
to social, political and economic instability in the region.
We may encounter unexpected difficulties in conducting operations in
Kazakhstan. Kazakhstan is a relatively new country and there is uncertainty as
to the status of Kazakh law, the stability of the country and the region, and
the autonomy of the parties involved with us in Kazakhstan.
In order to counteract some of these potential difficulties, we obtained
political risk insurance through the Overseas Private Investment Corporation
("OPIC"), covering 90% of the book value of our investment in KKM up to a
maximum of $50,000,000. Our OPIC policy provides coverage for certain acts,
which could be committed against us by the government of the Republic of
Kazakhstan or other parties in times of severe political instability. The OPIC
policy generally provides the following types of risk coverage:
o Currency Inconvertibility. Certain currency restrictions, which might
be imposed by the government of the Republic of Kazakhstan to prevent
or defer our recovery of our investment in the Karakuduk Field,
including revoking KKM's right to retain U.S. dollar proceeds from oil
sales outside of Kazakhstan or to convert local currency into U.S.
dollars for repayment of our investment;
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o Expropriation. Acts attributable to the government of the Republic of
Kazakhstan that are violations of international law or an abrogation,
repudiation or material breach of our agreements with the government.
To qualify for coverage, the act of expropriation must continue
without interruption for at least six months and prevent us from
exercising our fundamental rights under our agreements, exercising
control over our investment the Karakuduk Field, or recovering our
investment in the Karakuduk Field;
o Political Violence. The loss or impairment of our investment due to
certain politically motivated violent acts, including war, revolution,
insurrection, or politically motivated civil strife, terrorism and
sabotage; and
o Interference with Operations. The loss or impairment of our investment
due to political violence lasting more than six months.
While the OPIC policy provides significant political risk coverage, it does
not address political risks outside of the Republic of Kazakshtan or cover every
contingency within Kazakhstan. The OPIC policy does not cover commercial risks,
whatsoever. If social, political, or economic strife in the region hinder KKM or
our operations in a manner that is not covered by our OPIC policy, we will bear
the full burden of any resulting loss or damage. If we do have a future claim
under the OPIC policy, we may be required to assign all or a portion of our
rights to the Karakuduk Field to OPIC before any insurance payments will be
made. The OPIC policy only covers 90% of our book value of our investment in
KKM, but there is no assurance any proceeds received will cover 90% of our
actual losses incurred or be sufficient to cover our outstanding indebtedness
repayable to our creditors.
Our limited access to transportation routes to markets may hinder our attempts
to sell our oil.
To maximize the value of our assets in Kazakhstan, we must not only extract
oil, but we must also transport it to appropriate markets for sale. The
exportation of oil from Kazakhstan depends on access to transportation routes,
particularly the Russian pipeline system. Transportation routes are limited in
number and access to them is restricted. If any of our agreements relating to
oil transportation or marketing are breached, or if we are unable to renew such
agreements upon their expiration, we may be unable to transport or market our
oil. Also, a breakdown of the Kazakhstan or Russian pipeline systems could
seriously delay or even halt our ability to sell oil. Any such event would
result in reduced revenues.
In November 1999, KKM entered into a long-term crude oil sale agreement
(the "Crude Oil Sales Agreement") with Shell Trading International Limited
("STASCO"), an affiliate of Shell Capital, for the sale of 100% of KKM's oil
production on the export market. STASCO will take title of KKM's crude oil at
various delivery points outside of Kazakhstan. Under the terms of the Crude Oil
Sales Agreement, KKM is responsible for obtaining export quotas and all other
permissions from Kazakhstan, Russia, or other relevant jurisdictions, necessary
to transport and deliver KKM's oil production to STASCO. The Loan requires KKM
to sell all of its oil production to STASCO, unless otherwise approved by STASCO
and Shell Capital. See "Item 7 - Management's Discussion and Analysis of
Financial Conditions and Results of Operations."
In January 2000, KKM entered into a marketing services agreement (the
"Marketing Agreement") with KazakhOil. Under the terms of the Marketing
Agreement, KazakhOil will assist KKM with export oil sales under the Crude Oil
Sales Agreement, including obtaining export quotas from the government of the
Republic of Kazakhstan, consulting on procedures required for the nomination and
delivery of oil sales, obtaining other necessary approvals and permissions, and
preparation of relevant documentation. See "Item 7 - Management's Discussion and
Analysis of Financial Conditions and Results of Operations."
Obtaining the necessary quotas and permissions to export production through
the Russian pipeline system can be extremely difficult, if not impossible in
certain circumstances. Although our agreements with the government of the
Republic of Kazakhstan grant us the right to export, and to receive export
quota, we cannot provide any assurances that we will receive export quota or any
other approvals required to export and deliver our production according to the
terms of the Crude Oil Sales Agreement.
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Furthermore, the government of the Republic of Kazakhstan has recently
stated they may require all oil and gas producers within Kazakhstan to supply
some portion of year 2000 production to local Kazakh refineries to meet domestic
energy needs. The inability of KKM to sell all or part of its oil production to
STASCO could result in a loss of revenue and default of the Loan.
Severe weather conditions may impede our operations in the Karakuduk Field.
Although our business is not seasonal, severe weather conditions could
impede our drilling and exploration activities. Any inability to conduct such
activities could delay our discovery and production of oil.
Employees
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As of March 24, 2000, we had 7 full-time employees and one part-time
employee. KKM had 161 employees and retains independent contractors on an as
needed basis through us. We believe that our relationship with our employees and
consultants is good.
ITEM 2. PROPERTIES
Properties
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The Karakuduk Field
The Karakuduk Field is located in the Mangistau Region of the Republic of
Kazakhstan. The License to develop the Karakuduk Field covers an area of
approximately 16,900 acres and has been granted to KKM for a period of 25 years.
KKM obtained approval to develop the Karakuduk Field from Kazakhstan's Ministry
of Energy and Natural Resources in August 1995. We own a 50% interest in KKM.
The Karakuduk Field is geographically located, approximately 227 miles
northeast of the regional capital city of Aktau, on the Ust-Yurt Plateau. The
closest settlement is the Say-Utes Railway Station approximately 51 miles
southeast of the field. The ground elevation varies between 590 and 656 feet
above sea level. The region has a dry, continental climate, with fewer than 10
inches of rainfall per year. Mean temperatures range from minus 25 degrees
Fahrenheit in January to 100 degrees Fahrenheit in July. The operating
environment is similar to that found in northern Arizona and New Mexico in the
United States.
The Karakuduk Field structure is an asymmetrical anticline located on the
Aristan Uplift in the North Ustyurt Basin. Oil was discovered in the structure
in 1972, when Kazakhstan was a republic of the former Soviet Union, from
Jurassic age sediments between 8,500 and 10,000 feet. The former Soviet Union
drilled 22 exploratory and development wells to delineate the Karakuduk Field,
discovering the presence of recoverable oil reserves. The productive area of the
Karakuduk Field is approximately 11,300 acres, with a minimum of seven separate
productive horizons present in the Jurassic formation. Oil has been recovered in
tests from seven horizons within the Jurassic formation with flow rates ranging
from 3 to 966 barrels per day. None of the original wells were ever placed on
commercial production prior to KKM obtaining the rights to the Karakuduk Field.
As of December 31, 1999, the Karakuduk Field has estimated proven reserves
of approximately 67.58 million barrels, net of government royalty. The reserve
estimates are supported by a reserve study conducted in 1995, which was reviewed
by the Ryder Scott Company Petroleum Engineers ("Ryder Scott"), an
internationally recognized petroleum engineering firm. Ryder Scott issued an
opinion letter dated October 8, 1999, supporting the reasonableness of the
reserve estimates based upon their review of the original reserve report and
supporting reservoir data. Ryder Scott also considered all actual data available
since 1995.
We have not previously disclosed proven reserves from the Karakuduk Field
because of the necessary financing required to develop the Karakuduk Field. We
are responsible for providing 100% of the funding necessary for the development
of the Karakuduk Field, which is not provided by third-party sources. KKM plans
to meet its funding requirements through loans from us and through proceeds from
the sale of oil extracted from the Karakuduk Field. As of 24, 2000, we have
loaned KKM in excess of $35 million to fund KKM's operations. While we have
invested significant amounts of capital into the Karakuduk Field, the funds
necessary to complete the field infrastructure and execute a practical drilling
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program have not been readily available to us prior to executing the Loan with
Shell Capital. The Loan, and other related equity commitments it requires,
allows us to develop the underlying reserves, making the Karakuduk Field
commercially viable.
The Karakuduk Field is approximately 18 miles north of the main utility
corridor, which includes the Mukat-Mangishlak railroad, the
Mangishlak-Astrakghan water pipeline, the Beyneu-Uzen high voltage utility
lines, and the Uzen-Atrau-Samara oil and gas pipelines (the "Export Pipeline").
KKM, according to its agreements with Kazakhstan, has a right to use the
existing Export Pipeline and related utilities. KKM also has a contract with
KazTransOil JSC, the state-owned company controlling the Export Pipeline. The
contract grants KKM rights to use the Export Pipeline for transportation of
crude oil to local and export markets, subject to transit quota restrictions,
and as a temporary storage facility until the produced hydrocarbons are sold by
KKM.
As of March 24, 2000, the Karakuduk Field has produced approximately
525,000 barrels of crude oil from three producing wells. Prior to the Loan, KKM
sold 324,650 barrels of test production on both the local and export markets.
The remaining production has been stored as crude oil inventory in the Export
Pipeline, pending KKM's first sale to STASCO under the terms of the Crude Oil
Sales Agreement.
KKM's sale of test production during 1999 generated $1,019,000, net of
transportation and production costs. Related production and marketing, costs
were approximately $1,254,000. KKM recorded the sale of test production as cost
recovery and did not record any revenues in 1999. KKM has nominated
approximately 226,500 barrels of crude oil for April 2000 delivery to STASCO at
the port of Odessa. KKM is currently awaiting final confirmation of its export
quota for the year 2000 from the government of the Republic of Kazakhstan, but
has already obtained approval for export quota for the April 2000 nomination.
During 1999, KKM drilled and successfully completed Well #101, and
continued to produce from two re-completions of previously existing wells worked
over in 1998. KKM suspended drilling activities for the majority of 1999 due to
a dispute with the drilling contractor and the lack of financing required to
obtain another drilling rig. In the fourth quarter of 1999, KKM entered into a
second drilling contract with KazakhOil Drilling Service Company, a subsidiary
of KazakhOil and spudded Well #102 on December 31, 1999. Well #102 has been
successfully completed, and is undergoing post-completion production tests.
Drilling of Well #103 should commence on or before March 31, 2000.
In 2000, we expect to drill up to 15 wells and re-complete at least 4
previously drilled wells using a workover rig. To complete the drilling program,
an additional developmental drilling rig will be required. KKM has located a
second rig and is currently in negotiations to place it under contract. Workover
rigs are available within Kazakhstan and are currently being sourced for either
lease or purchase.
We estimate that drilling a maximum of 71 additional oil wells and 24 water
injection wells may be required to fully develop the Karakuduk Field. Peak oil
production from the field is expected to occur by the end of 2002, although the
time or amount of development or production cannot presently be assured. The
planned development program for the Karakuduk Field will include a pressure
maintenance operation that our management believes could result in additional
recoverable reserves.
Additional field facilities are either in place or under construction to
support the current drilling and development program. KKM has previously
constructed a base camp with living quarters for 150 people, a mini-camp for the
drilling contractor and other service company personnel, storage facilities,
processing facilities, warehouses, a repair shop, and other related support
facilities. KKM has also completed a main road between the Export Pipeline and
the field. KKM is also clearing access roads and performing other required site
preparation activities for other planned drilling locations.
Currently, crude oil production is being processed at a pilot facility and
then trucked to the Export Pipeline terminal at Say-Utes, which is approximately
51 miles southeast of the Karakuduk Field. KKM has been constructing another
Export Pipeline terminal, which is only 18 miles from the Karakuduk Field. KKM
also began construction of an 18-mile pipeline in 1998, capable of transporting
up to 18,000 barrels of oil per day from the Karakuduk Field to the Export
Pipeline terminal. The completion of the pipeline was delayed due to our lack of
sufficient financial resources in 1999. We anticipate the pipeline will be
operational by June 30, 2000.
8
The License establishes minimum work thresholds and capital spending
requirements that KKM must meet in order to maintain its interest in the
Karakuduk Field. As of March 24, 2000, KKM is required to drill 6 additional new
wells and invest an additional $13.5 million in the development of the Karakuduk
Field by June 30, 2000, unless we obtain waivers or deferrals from the licensing
authority. We are required to provide funds necessary for KKM to enable it to
satisfy the work plan and maintain our interest in the Karakuduk Field. If
necessary, KKM will request a deferral of these financial commitments; however,
there is no guarantee that the licensing authority will grant a deferral.
KKM's failure to satisfy the conditions under the License could cause the
licensing authority to cancel the License. If the License is cancelled, we will
be unable to develop and sell oil produced from the Karakuduk Field, and we will
have no other source of revenues.
See also "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Reserves.
---------
As of December 31, 1999, we have a proportional equity interest in
approximately 33.79 million barrels of estimated total proven reserves, net of
government royalty, based upon our 50% equity interest in KKM. The reserve
estimates are supported by a reserve study of the Karakuduk Field conducted in
1995, which was reviewed by Ryder Scott. Ryder Scott issued an opinion letter
dated October 8, 1999, supporting the reasonableness of the reserve estimates
based upon their review of the original reserve report and supporting reservoir
data. Ryder Scott also considered all actual data available since 1995.
We have not previously disclosed proven reserves from our interest in the
Karakuduk Field because of the necessary financing required to develop the
Karakuduk Field. We are responsible for providing 100% of the funding necessary
for the development of the Karakuduk Field, which is not provided by third-party
sources. While we have invested significant amounts of capital into the
Karakuduk Field, the funds necessary to complete the field infrastructure and
execute a practical drilling program have not been readily available to us prior
to the Loan with Shell Capital. The Loan, along with the other related equity
commitments it requires, are expected to alleviate our past inability to finance
the development of the underlying reserves.
No reserve estimates have been filed with any Federal authority or other
agency since January 1, 1999.
Net Quantities of Oil and Gas Produced.
---------------------------------------
Our net oil and gas production for each of the last three fiscal years was as
follows:
As of the Year Ended December 31,
-------------------------------------------------------------
1997* 1998* 1999
----- ----- ----
Oil (Bbls) Less than 1,000 0 29,625
Gas (Mcf) 0 0 0
* Does not include our cumulative net share of test production
totaling 188,296 barrels.
Oil production for 1999 represents our 50% equity interest in KKM's
production from November 1, 1999, the date the reserves underlying the Karakuduk
Field were determined to be commercially viable. Our net share of 1999
production does not reflect our right under the agreement with the government of
the Republic of Kazakhstan to receive 65% of KKM's cash flow from oil sales, net
of royalty, on a quarterly basis until our loan to KKM has been fully repaid.
The remaining 35% of net cash flows will be used by KKM to meet capital and
operating expenditures. We may waive receipt of quarterly loan repayments, in
whole or in part, to provide KKM with additional working capital.
9
The average sales price per barrel of oil and Mcf of gas, and average
production costs per barrel of oil equivalent ("BOE") excluding depreciation,
depletion and amortization are not presented because KKM did not sell any
significant quantities of oil or gas production from proven properties during
these periods. KKM's test production prior to the commercial viability of our
investment in the Karakuduk Field is not reported as part of the required
disclosures for the Statement of Financial Accounting Standards No. 69 ("SFAS
69"), Disclosures About Oil and Gas Producing Activities, and is not included in
the table above. Our share of KKM's sales of test production during 1999 totaled
162,325 barrels of oil, which were accounted for on a cost recovery basis. The
average sales price per barrel received by KKM was $7.00, net of transportation
costs. The average production costs per barrel was $3.86.
Productive Wells and Acreage.
-----------------------------
As of December 31, 1999, we had interests in 3 gross productive oil wells
(1.5 net oil wells), and no producing gas wells. There were no multiple
completion wells. Production was from 16,900 gross acres and 11,300 developed
acres.
Undeveloped Acreage.
--------------------
As of December 31, 1999, we had no interests in undeveloped acreage.
Drilling Activity.
------------------
During the last three fiscal years ended December 31, 1999, our net
interests in exploratory and development wells drilled were as follows:
Year Ended Exploratory Wells, Net Development Wells, Net
December 31, -------------------------- --------------------------
Productive Dry Productive Dry
---------- --- ---------- ---
1997 0 0 0 0
1998* 1.0 0 0 0
1999 .5 0 0 0
All wells are located in the Republic of Kazakhstan.
* Includes re-completions of delineation wells drilled prior to KKM
obtaining its interest in the Karakuduk Field. Does not include
activity on 2 existing wells in 1998, which KKM plans to
re-complete during 2000.
Present Activities.
-------------------
As of March 24, 2000, KKM had successfully completed development Well #102
and is in the process of performing post-completion production tests on the
well. KKM expects to spud a second development well (Well #103) shortly. We have
a net 50% interest in each well.
During remainder of 2000, we expect to drill 15 gross development wells
(7.5 net), including Well #102, and re-complete at least 4 existing delineation
wells using a workover rig. To complete the drilling program, an additional
developmental drilling rig will be required. KKM has located a second rig and is
currently in negotiations to place it under contract. Workover rigs are widely
available within Kazakhstan and are currently being sourced for either lease or
purchase by KKM.
10
ITEM 3. LEGAL PROCEEDINGS
In April 1999, the owner of the drilling rig operated by Challenger Oil
Services, PLC ("Challenger") in the Karakuduk Field, Oil & Gas Exploration
Cracow, Ltd. ("OGECC"), terminated its contract with Challenger. As a result of
the termination of the contract between Challenger and OGECC, KKM terminated the
drilling contract between KKM and Challenger, and arbitration proceedings were
instituted in accordance with the terms of such drilling contract. In the
arbitration, Challenger claimed that it was entitled to $9,800,000 in damages.
In February 2000, Chaparral, KKM, Challenger, and OGECC reached a mutual
settlement and release for all parties involved. The settlement requires KKM to
pay outstanding accrued liabilities to Challenger for prior work performed
totaling $1,336,000. We also agreed to fully discharge a note receivable from
Challenger in the amount of $1,009,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our security holders during the fiscal
quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is currently traded on the Nasdaq Small-Cap Market
("Nasdaq") under the symbol "CHAR".
As of March 15, 2000, we had 1880 stockholders of record of our common
stock. No dividend has been paid on our common stock, and there are no plans to
pay dividends in the foreseeable future. Furthermore, the Loan with Shell
Capital places certain restrictions on us regarding the future payment of
dividends. Specifically, KKM cannot pay dividends prior to Project Completion
(as defined in "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations"), and then only subject to certain
restrictions. We cannot pay any dividends without Shell Capital's consent while
the Loan is outstanding.
The following table shows the range of high and low sales prices for each
quarter during our last two calendar years ended December 31, 1999 and 1998, as
reported by the National Association of Securities Dealers, Inc.
Price Range
-----------
Fiscal Quarter Ended High Low
- -------------------- ---- ---
March 31, 1998 167.530 120.482
June 30, 1998 150.602 90.361
September 30, 1998 150.602 45.181
December 31, 1998 75.301 20.723
March 31, 1999 58.373 22.590
June 30, 1999 45.500 11.000
September 30, 1999 35.000 9.250
December 31, 1999 35.000 4.000
The following is information as to all securities sold since October 1,
1999, which were not registered under the Securities Act of 1933, as amended
("Securities Act").
Effective as of September 30, 1999, we issued to Dr. Jack A. Krug, our
former President and Chief Operating Officer, an additional 2,361 shares of
common stock pursuant to his employment agreement. We issued the common stock in
reliance upon the exemption from registration under Section 4(2) of the
Securities Act. Dr. Krug had available all material information concerning
Chaparral.
11
During the fourth quarter of 1999, we issued a total of $10,040,000 of
our Notes to various related parties and other non-affiliated investors. Notes
issued to related parties totaled $8,290,000, including $5,827,000 from Allen,
$2,051,000 from Whittier, and $412,000 from John G. McMillian, our Co-Chairman
and Chief Executive Officer. In exchange for the Notes, we received $4,750,000
in cash and canceled $5,290,000 in promissory notes issued by us previously in
1999, plus accrued interest thereon, to Allen ($3,827,000), Whittier
($1,051,000), and Mr. McMillian ($412,000). The Notes, plus accrued interest,
are convertible into our common stock at a conversion price of $1.86 per share,
subject to the approval of our stockholders. We issued the Notes in reliance
upon the exemption from registration under Section 4(2) of the Securities Act.
The holders of the Notes had available all material information concerning
Chaparral.
We issued an additional $3,300,000 of our Notes during January and
February 2000 to various related parties and other non-affiliated investors.
Additional Notes issued to related parties totaled $2,400,000, including
$2,000,000 to Allen, $250,000 to Mr. McMillian, and $150,000 to a relative of
Jim Jeffs, our Co-Chairman. We issued the Notes in reliance upon the exemption
from registration under Section 4(2) of the Securities Act. The holders of the
Notes had available all material information concerning Chaparral.
In connection with finalizing the Loan, we issued to Shell Capital a
warrant to purchase up to 15% of our outstanding common stock (the "Shell
Warrant") in February 2000. The Shell Warrant is non-transferable and will be
exercisable on the earlier of Project Completion or June 30, 2001. The Shell
Warrant contains certain registration rights and is subject to certain
anti-dilution provisions. The Shell Warrant's exercise price is $15.45 per
share. We issued the Notes in reliance upon the exemption from registration
under Section 4(2) of the Securities Act. The holders of the Notes had available
all material information concerning Chaparral.
ITEM 6. SELECTED FINANCIAL DATA
As of or for the Year Month of As of or for the Year Ended
--------------------- --------- ---------------------------
Ended November 30 December December 31
----------------- --------- -----------
1995 1996 1996 1997 1998 1999
--------------------------------------------------------------------------------
Oil and gas sales (1)........... $ 255,000 $ 147,000 -- -- -- --
Total revenues.................. 255,000 147,000 -- -- -- --
Noncash write-down of oil and
gas properties.................. 619,000 -- -- -- -- --
Net loss........................ (704,000) (2,416,000) $ (130,000) $ (2,603,000) $ (4,266,000)$ (5,163,000)
Net loss per
common share.................. (2.24) (4.52) (.21) (3.76) (4.75) (5.28)
Working capital (deficit)....... 366,000 259,000 * 3,356,000 (287,000) (2,941,000)
Total assets.................... 5,595,000 14,498,000 * 23,519,000 34,324,000 41,303,000
Long-term obligations and
redeemable preferred stock... 461,000 1,491,000 * 4,710,000 5,060,000 14,776,000
Stockholders' equity............ 4,920,000 12,114,000 * 18,578,000 27,579,000 22,851,000
Other Data
----------
Present value of proved reserves 427,000 -- -- -- -- 177,680,000
Proven oil reserves (bbls)...... 66,185 -- -- -- -- 33,788,822
Proven gas reserves (mcf)....... 3,062,417 -- -- -- -- --
(1) In 1994, we made a strategic decision to pursue international oil and gas
projects, and, by early 1997, we completely disposed of all domestic oil
and gas properties through sales to third parties.
* Not applicable due to one month short period ended December 31, 1996.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1. Liquidity and Capital Resources.
- -----------------------------------
General Liquidity Considerations.
- ---------------------------------
Our financial statements have been presented on the basis we are a going
concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. We are responsible for providing
100% of the funding for the development of the Karakuduk Field not provided from
oil sales or third party sources. The Karakuduk Field will require significant
additional funding in order to obtain levels of production that would generate
sufficient cash flows to meet future capital and operating spending
requirements. We have recognized recurring operating losses and have a working
capital deficiency as of December 31, 1999. In addition, there are uncertainties
relating to Chaparral's and KKM's ability to meet commitments under KKM's
License, and all expenditure and cash flow requirements through fiscal year
2000. KKM's agreements with the government of the Republic of Kazakhstan require
KKM to meet certain expenditure and work commitments on or before June 30, 2000.
If KKM fails to meet these commitments, KKM's right to develop the Karakuduk
Field may be terminated and our investment in the Karakuduk Field may be lost.
These conditions raise substantial doubt about our ability to continue as a
going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.
Management' has taken the following actions, to address the substantial
doubt with respect to our ability to remain a going concern and enhance our
short and long-term liquidity:
o Shell Capital Loan. In November 1999, we entered into the Loan with
Shell Capital, to provide up to $24,000,000 in financing for the
development of the Karakuduk Field. The consummation of the Loan was
subject to a number of significant conditions, which were subsequently
fulfilled in February 2000. As of March 24, 2000, we have borrowed a
total of $13,800,000 under the Loan.
o Rights Offering. As a condition to the Loan, we must utilize our best
efforts to complete a rights offering to our stockholders to acquire
not less than $6,000,000 of Chaparral's common stock on or before June
30, 2000 (the "Rights Offering"). Two of Chaparral's related party
stockholders, Allen & Company, Inc. ("Allen") and Whittier Ventures,
LLC ("Whittier"), have each undertaken to exercise their full pro-rata
share of the Rights Offering and, if the Rights Offering is not
concluded on or before June 30, 2000, to each contribute $2,000,000 to
Chaparral for either our common stock or indebtedness (the "Equity
Support Agreement").
o Development of KKM's Proven Reserves. KKM has approximately 67.58
million barrels of estimated proven oil reserves, net of government
royalty. As of March 24, 2000, KKM has produced approximately 525,000
barrels of crude oil, of which 325,000 barrels of test production was
sold in 1999 for total proceeds of $1,019,000, net of transportation
and production costs. As of March 24, 1999, KKM had approximately
200,000 barrels of crude oil in inventory and was producing
approximately 1,100 barrels of oil per day. Capital spending for the
development of the Karakuduk Field is expected to materially increase
KKM's extraction of its proven reserves, generating significant cash
flows from future oil sales to fund KKM's operations and repay our
outstanding advances to KKM.
o Crude Oil Sales Agreement. In November 1999, KKM entered into the
Crude Oil Sales Agreement with STASCO, an affiliate of Shell Capital,
for the purchase of 100% of the oil production from the Karakuduk
Field on the export market for world market oil prices. KKM has
currently nominated approximately 226,500 barrels of crude oil for
April 2000 delivery to STASCO under the terms of the Crude Oil Sales
Agreement. We expect KKM to obtain a substantially higher return from
oil sales under the Crude Oil Sales Agreement than would otherwise be
received from oil sales in Kazakhstan's local market.
13
Our considerations for addressing our going concern uncertainty is
partially based upon forward-looking events, which have yet to occur, including
the successful consummation of the Rights Offering and the successful
development, production, and sales of crude oil from the Karakuduk Field.
Expected funding requirements necessary for development of the Karakuduk Field
through December 31, 2000 are partially based upon future cash flows from the
sale of KKM's crude oil production. These risks are partially mitigated by the
current funding available under the Loan, along with the Equity Support
Agreement for a $4,000,000 capital infusion into Chaparral in the event the
Rights Offering is not completed by June 30, 2000.
Other risks and considerations also impact our short and long-term
liquidity, including the result of the proposed conversion of our Notes into our
common stock, KKM's ability to successfully develop and increase production from
the Karakuduk Field, KKM's ability to obtain export oil quota and physically
deliver its production to the export market, volatility of oil prices on the
world market, our oil production hedge arrangements, and the impact of KKM's
License commitments to the government of the Republic of Kazakhstan.
1999 Activity.
- --------------
During 1999, we raised additional capital to finance the development of the
Karakuduk Field, meet other working capital needs, and pay off a $975,000 loan
from the Chase Bank of Texas, N.A. by issuing a total of $10,040,000 of our
Notes to various related parties and other non-affiliated investors. Notes
issued to related parties totaled $8,290,000, including $5,827,000 from Allen,
$2,051,000 from Whittier, and $412,000 from John G. McMillian, our Co-Chairman
and Chief Executive Officer. In exchange for the Notes, we received $4,750,000
in cash and canceled $5,290,000 in promissory notes issued previously in 1999,
plus accrued interest thereon, issued by us to Allen ($3,827,000), Whittier
($1,051,000), and Mr. McMillian ($412,000). We issued an additional $3,300,000
of our Notes during January and February 2000 to various related parties and
other non-affiliated investors. Additional Notes issued to related parties
totaled $2,400,000, including $2,000,000 to Allen, $250,000 to Mr. McMillian,
and $150,000 to a relative of Jim Jeffs, our Co-Chairman.
The Notes, plus accrued interest, are convertible into our common stock at
a conversion price of $1.86 per share, subject to the approval of our
stockholders of Chaparral. The Notes bear interest at an annual rate of 8% until
our stockholders vote on the conversion of the Notes. If the conversion feature
is approved, the Notes will convert into the equivalent shares of our common
stock within 10 business days following the stockholder vote. The failure of the
stockholders to approve the conversion provision of the Notes will result in an
immediate increase of the annual interest rate payable to the lesser of 25% or
the maximum rate allowed by applicable law. We expect to submit the vote on
conversion of the Notes to our stockholders in the second quarter of fiscal year
2000. The Notes have a stated maturity date of October 31, 2001, but are
unsecured and fully subordinated to the Loan. The holders of the Notes have no
rights to receive any principal or interest payments prior to full repayment of
the Loan, under its terms, and have executed subordination agreements to that
effect.
Shell Capital Loan.
- -------------------
We entered into the Loan with Shell Capital on November 1, 1999, to provide
up to $24,000,000 of financing for the development of the Karakuduk Field. The
consummation of the Loan was subject to a number of significant conditions,
including, without limitation: (i) an equity infusion of at least $9,000,000,
(ii) obtaining political risk insurance, (iii) Shell Capital or Chaparral
obtaining transportation risk insurance, (iv) the hedging of a significant
portion of our future oil production, and (v) the retirement, conversion, or
full subordination of all of the outstanding indebtedness of Chaparral and KKM,
excluding current payables. On February 14, 2000, we fully satisfied all of the
outstanding conditions and drew down a total of $8,300,000 from the Loan.
The $9,000,000 equity infusion was partially satisfied by our issuance of
Notes totaling $5,050,000 for cash from November 11, 1999 through February 10,
2000. The remaining shortfall will be met through the Rights Offering and/or the
Equity Support Agreement.
14
On January 31, 2000, we obtained binding political risk insurance coverage
from OPIC. We paid the initial insurance premium of $157,500, providing a total
of $30,000,000 of political risk coverage for our investment in the Karakuduk
Field through April 30, 2000. The OPIC policy's maximum coverage amount
available is $50,000,000, which would require a quarterly premium of $262,500.
We are required to maintain political risk insurance until the Loan is fully
repaid.
On February 11, 2000, we paid $4,000,000 for put contracts to sell a total
of 1,562,250 barrels of North Sea Brent crude (the "Hedge Agreement"). The
exercise prices of the various put contracts range from $22.35 to $17.25 per
barrel, with monthly expiration dates beginning in October 2000 and ending in
December 2002. The contracts are evenly spread between October 2000 to December
2001 (62,750 barrels per month) and between January 2002 to December 2002
(51,750 barrels per month).
In March 2000, we paid Shell Capital a total of $750,000 for a beneficial
interest in Shell Capital's policy for transportation risk insurance (the
"Transportation Risk Insurance"), covering certain circumstances whereby KKM
would be unable to export crude oil production outside of the Republic of
Kazakhstan through the existing pipeline routes currently available. In the
event coverage under Shell Capital's policy is triggered, proceeds from the
policy would go to the benefit of Chaparral for use in making principal and
interest payments required under the Loan. The $750,000 payment for the
beneficial interest in Shell Capital's Transportation Risk Insurance covers the
life of the Loan (discussed below).
We are allowed to drawdown the principal balance of the Loan in minimum
increments of $2,000,000. Loan advances will be used to meet the capital and
operational requirements of KKM, up-front fees and future finance costs required
under the Loan, make payments for premiums due under the OPIC and Transportation
Risk Insurance policies, and make payments required under the Hedge Agreement.
The Loan is available for drawdown until the earlier of September 30, 2001 or
project completion.
Project completion occurs when various conditions are met by us and KKM,
including, but not limited to: (i) receipt by Shell Capital of an independent
engineer's reserve report evidencing proven developed reserves of at least 30
million barrels in the Karakuduk Field, (ii) sustaining average production of
13,000 barrels of oil per day from the Karakuduk Field for a period of 45
consecutive days, (iii) sustaining water injection at an average rate of 15,000
barrels per day over 45 consecutive days, (iv) injection of lift gas into one
well over a 24 hour period, and (v) various other financial and technical
milestones ("Project Completion").
Prior to Project Completion, any borrowed amounts accrue interest at an
annual rate of LIBOR plus 17.75%, compounding quarterly. The annual interest
rate is reduced to LIBOR plus 12.75% after Project Completion. Prior to Project
Completion, an interest amount, equal to annual rate of LIBOR plus .50%, is
payable quarterly to Shell Capital, along with a commitment fee equal to an
annual rate of 1.5% of the undrawn portion of the $24,000,000 debt facility. The
remaining unpaid interest is capitalized to the Loan at the end of each quarter.
After Project Completion, all quarterly interest on the outstanding Loan is
fully due and payable at the end of each calendar quarter.
Principal payments, including any capitalized interest, are due on
quarterly reduction dates ("Reduction Date"), beginning with the first calendar
quarter ending on the earlier of 60 days following Project Completion or
December 31, 2001. Minimum principal payments, based upon percentages of the
principal outstanding as of Project Completion, are set out in the Loan and
ensure full settlement of the Loan by September 30, 2004, the final maturity
date. Mandatory prepayments of principal outstanding are required on each
Reduction Date out of any excess cash flow available after consideration of
Chaparral's and KKM's permitted budgeted expenditures for the following 45 days
and all fees, interest, and principal payments scheduled on such Reduction Date.
In connection with finalizing the Loan, we issued the Shell Warrant to
Shell Capital to purchase up to 15% of our outstanding common stock. The Shell
Warrant is non-transferable and will be exercisable on the earlier of Project
Completion or June 30, 2001. The Shell Warrant contains certain registration
rights and is subject to certain anti-dilution provisions. The Shell Warrant's
exercise price is $15.45 per share.
15
The Loan subjects us to a significant number of restrictions, including
various representations and warranties, positive and negative covenants, and
events of default. These restrictions include, but are not limited to, the
following:
o Pledge of Assets. We pledged substantially all of our assets to Shell
Capital, including our interest in the Karakuduk Field. If an event of
default occurs under the Loan and is not timely cured, Shell Capital
is entitled to certain remedies, including the right to accelerate
repayment of the loan and obtain our rights to the Karakuduk Field.
o Business Alteration. We cannot engage in any other business except the
ownership of KKM and the operation of the Karakuduk Field without the
prior consent of Shell Capital.
o Rights Offering. We must use our best efforts to complete the Rights
Offering on or before June 30, 2000. Allen and Whittier have provided
the Equity Support Agreement to exercise their full pro-rata share of
the Rights Offering or, if the Rights Offering is not completed, to
each contribute $2,000,000 to Chaparral in exchange for our equity
securities or indebtedness.
o Change in Control. We cannot enter into any transaction whereby a
"group" as defined in the Securities Act of 1934 acquires or otherwise
gains control of 20% or more of our outstanding shares of voting
stock. Certain transactions are exempt from this restriction,
including, the conversion of our Notes, the Rights Offering, the
Equity Support Agreement, conversion of our outstanding Series A
Preferred Stock, the exercise of the Shell Warrant, and a grant of
non-statutory or statutory options to purchase up to 15% of our
outstanding common stock to our officers, directors, employees, and
consultants (subject to certain anti-dilution provisions).
Furthermore, Allen and Whittier, have agreed not to sell or otherwise
transfer any of our common stock on or before June 30, 2000, and at no
time let their ownership in us fall below 20%, unless otherwise agreed
with Shell Capital.
o Charged Accounts. We must retain all cash receipts from oil sales,
proceeds from the Loan, and any other funds raised through approved
equity or debt offerings in pledged bank accounts (the "Charged
Accounts"). The Charged Accounts are controlled by Shell Capital. We
retain title to the Charged Accounts, but Shell Capital directs all
cash movements at our request. On a monthly basis, we request
transfers of funds from the Charged Accounts into certain operating
accounts controlled directly by us or by KKM, respectively.
16
o Cash Expenditures. We must expend funds in accordance with capital and
operating budgets approved by Shell Capital on an annual basis, unless
otherwise approved by Shell Capital.
o Project Completion. KKM must reach Project Completion on or before
September 30, 2001.
o Share Capital. We cannot purchase, issue, or redeem any of our share
capital without the prior approval of Shell Capital.
o Future Indebtedness. We cannot borrow money, other than trade debt,
without the approval of Shell Capital.
o Sale of Significant Assets. We cannot dispose of any significant
assets, including capital stock in our subsidiaries, without the
approval of Shell Capital.
o Leases. Without Shell Capital's approval, KKM cannot enter into any
lease or license arrangement with annual payments in excess of
$1,000,000 and we will not enter into any lease or license arrangement
with annual payments in excess of $200,000.
o Dividends. KKM cannot pay dividends prior to Project Completion, and
then only subject to certain restrictions. We cannot pay any dividends
without Shell Capital's consent.
o OPIC Insurance. We must maintain OPIC political risk insurance
throughout the duration of the Loan.
o Hedge Agreement. We will not cancel or terminate the hedging contracts
entered into as part of the Loan or enter into any other hedging
transaction without Shell Capital's consent.
The terms and conditions and related financing costs of the Loan are
significant. A substantial portion of our future cash flow from operations will
be required for debt service and may not be available for other purposes. Our
ability to obtain additional debt or equity financing in the future for working
capital, capital expenditures, or acquisitions is also restricted, as well as
our ability to acquire or dispose of significant assets or investments. These
restrictions may make us more vulnerable and less able to react to adverse
economic conditions. The failure of Chaparral to meet the terms of the Loan
could result in an event of default and the loss of our investment in the
Karakuduk Field.
17
The Loan prohibits us from paying dividends to our stockholders without
Shell Capital's consent. We have not paid dividends in the past and have no
expectations to do so in the future.
As of March 24, 2000, we have borrowed $13,800,000 under the Loan. The Loan
Proceeds were utilized to pay $2,225,000 in outstanding debt issuance costs,
$4,000,000 for the Hedge Agreement, $750,000 for Transportation Risk Insurance,
$157,500 for the initial OPIC insurance premium, $6,000,000 for KKM's
operations, and $667,500 for our corporate overhead.
Other Sources of Liquidity and Capital Resources.
- -------------------------------------------------
We expect to draw additional funds from the Loan to support KKM's
development of the Karakuduk Field. The costs required to develop the Karakuduk
Field are significant and will not be fully covered by the available financial
resources under the Loan. We are currently pursuing additional sources of
liquidity, which we believe will satisfy both the short and long-term liquidity
requirements of both Chaparral and KKM, including the conversion of the Notes
into our common stock, the Rights Offering, and the sale of oil under the Crude
Oil Sales Agreement.
We are currently preparing a proxy statement to our stockholders, including
a proposal to approve the conversion of the Notes into shares of our common
stock at $1.86 per share. The conversion of the Notes would decrease our
indebtedness by $13,339,789, plus accrued interest. If the Notes are not
converted, they will accrue interest at an annual rate equal to the lesser of
25% or the maximum rate allowed by law. The Notes are fully subordinated to the
Loan, and cannot be repaid until we have fully repaid the Loan.
Our board of directors has approved a Rights Offering for 5,300,000 shares
of our common stock convertible at $1.86 per share, or $9,858,000. The board of
directors set the record date after the date of our Annual Meeting in order to
permit the holders of the Notes to participate in the Rights Offering. Under the
terms of the Equity Support Agreement, Allen and Whittier have undertaken to
exercise their full pro-rata share of the Rights Offering, which will be
approximately $6,660,000, assuming conversion of the Notes, plus accrued
interest, into our common stock. If the Rights Offering is not completed prior
to June 30, 2000, Allen and Whittier will contribute an aggregate of $4,000,000
in exchange for our equity securities or indebtedness.
KKM has nominated its first sale under the Crude Oil Sales Agreement for
approximately 226,500 barrels of oil. Delivery is expected in April, with
payment received in May 2000. Based on current market prices, net proceeds from
the sale would equal approximately $4,000,000 to KKM. Additional oil sales are
expected on at least a quarterly basis, as KKM works to increase production.
While we fully expect to realize material cash benefits from some, or all,
of the above transactions, we can provide no assurances that the Rights
Offering, Equity Support Agreement, conversion of the Notes, or sales under the
Crude Oil Sales Agreement will be consummated. If we fail to raise additional
financial resources in the short term, through internal or external means, we
may be unable to meet operational cash flow requirements or meet the terms of
the Loan. If so, we may lose our investment in KKM and the Karakuduk Field.
Capital Commitments
- -------------------
Under the terms of the License from the government of the Republic of
Kazakhstan, KKM was committed to minimum expenditures of $30,000,000 for the
year ended December 31, 1999. The License also establishes a minimum work
program requiring KKM to drill 8 new wells during 1999. In August 1999, we
received a letter from the State Investment Agency of the Republic of Kazakhstan
(the "SIA Letter"), extending the period for completion of the minimum work
program and expenditure commitments to June 30, 2000. The SIA Letter is not a
formal amendment to the License.
18
As of March 24, 2000, KKM will need to drill an additional 6 new wells and
invest an additional $13,500,000 prior to June 30, 2000 to satisfy the terms of
the SIA Letter. KKM has one rig running currently and is expecting to place a
second rig under contract in the near future. There is a possibility, however,
that KKM will not meet the work commitment to drill 6 additional wells before
June 30, 2000. If KKM fails to satisfy the work or capital commitment under the
License or SIA Letter, the licensing authority could cancel or suspend the
License. If the License is cancelled, we will be unable to develop and sell oil
produced from the Karakuduk Field, and we will have no other source of oil
revenue. We believe the licensing authority will not suspend or cancel the
License, but we can provide no assurances that the License would not be revoked
or suspended if the License requirements are not satisfied. KKM can request a
deferral of the License commitments, but there is no guarantee that the
licensing authority will grant a deferral.
Commodity Prices for Oil
- ------------------------
Our revenues, profitability, growth and value are highly dependent upon the
price of oil. Market conditions make it difficult to estimate prices of oil or
the impact of inflation on such prices. Oil prices have been volatile, and it is
likely they will continue to fluctuate in the future. Various factors beyond our
control affect prices for oil, including supplies of oil available worldwide and
in Kazakhstan, the ability of OPEC to agree to maintain oil prices and
production controls, political instability or armed conflict in Kazakhstan or
other oil producing regions, the price of foreign imports, the level of consumer
demand, the price and availability of alternative fuels, the availability of
transportation routes and pipeline capacity, and changes in applicable laws and
regulations.
Inflation
- ---------
We cannot control prices received from our oil sales and to the extent we
are unable to pass on increases in operating costs, we may be affected by
inflation. On April 5, 1999, the government of the Republic of Kazakhstan
discontinued its support of the tenge and allowed it to float freely against the
US dollar. Immediately thereafter, the official exchange rate declined from 87.5
tenge to the US dollar to 142 tenge to the US dollar, but was relatively stable
for the remainder of 1999. The devaluation decreased the US dollar realizable
value of any tenge denominated monetary assets held by KKM, and decreased the US
dollar obligation of any tenge denominated monetary liabilities held by KKM. KKM
maintains its financial statements in U.S. dollars and the impact of the
devaluation is not considered to be material at this time.
Year 2000 Update
- ----------------
There were no significant disruptions in either Chaparral's or KKM's
operations due to the Year 2000 date change. We are not aware of any material
problems resulting from Year 2000 issues, either with our operations or the
products and services of third parties. We will continue to monitor our computer
applications and those of our suppliers and vendors throughout the year 2000 to
ensure that any latent Year 2000 matters are addressed promptly.
19
2. Results from Operations
We account for our investment in KKM using the equity method.
In 1999, the FASB released EITF 99-10, Percentage Used to Determine the
Amount of Equity Method Losses, which requires investors to recognize equity
method losses beyond their percentage of investee common stock to the extent of
their adjusted basis in the investee's common stock and other loans/advances
made to the investee. Future equity method gains, if any, would be recaptured by
the investor to the extent disproportionate equity method losses were recognized
in prior periods. EITF 99-10 is effective for interim and annual periods
beginning after September 23, 1999. We have elected to apply EITF 99-10
prospectively beginning in the quarter ended December 31, 1999. As a result, we
recognized an additional equity loss of $683,000 in 1999 due to the application
of EITF 99-10. See Note 5 to our consolidated financial statement for the year
ended December 31, 1999.
The conversion feature of the Notes represent a "beneficial conversion
feature" as addressed in EITF 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios.
Under EITF 98-5, a portion of the proceeds received from the Notes is allocable
to the conversion feature contained therein. The value assigned to the
conversion feature is determined as the difference between the market price of
our common stock and the conversion price multiplied by the number of shares to
be received upon conversion. As the conversion price contained in the Notes is
substantially below the market price, the value under the above formula as of
December 31, 1999 significantly exceeds the net carrying value of the Notes.
Under EITF 98-5, the portion of the proceeds allocable to the conversion feature
is limited to the total proceeds received. Accordingly, upon approval of the
conversion by the stockholders, we will record total additional debt discount
equal to: $12,876,000, which is equal to the Notes carrying value as of December
31, 1999 and the $3,300,000 in Notes issued in January and February of 2000. The
entire discount will be immediately charged to interest expense upon conversion
of the Notes.
Results of Operations Year Ended December 31, 1999 Compared to Year Ended
December 31, 1998
- -------------------------------------------------------------------------
Our operations during 1999, resulted in a net loss of $5,163,000, compared
to a net loss of $4,266,000 for 1998.
Interest income increased by $262,000 from 1998 due to increased financing
of 100% of KKM's operations in Kazakhstan. Interest expense increased $318,000
in 1999 due to additional borrowings to support our corporate overhead and KKM's
operations.
General and administrative costs decreased by $625,000 from 1998 primarily
due to a decrease in compensation expense from a reduction in stock based
compensation and the reversal of accrued compensation which was contingent on
the sale of our interest in KKM. Our equity loss in KKM increased by $859,000
from, of which $683,000 was due to the increased amount of equity losses
recorded from the application of EITF 99-10 beginning in the fourth quarter of
1999. In the fourth quarter of 1999, KKM stopped capitalizing interest expense
and began amortization of its oil and gas properties.
In 1999, we recorded a $1,060,000 loss from a settlment with Challenger.
Chaparral, KKM, Challenger, and OGECC reached a full and final settlement in
February of 2000, whereby we will not recover the note receivable from
Challenger. We recorded the charge on the settlement of this dispute as of
December 31, 1999.
In 1998, we settled a lawsuit filed against Chaparral for a total of
$200,000 and warrants to purchase 3,333 shares of the our common stock at an
exercise price of $60 per share, exercisable through January 2, 1999. The
warrants were recorded at the fair market value (approximately $34,000).
In 1998, we also recognized a $236,000 extraordinary loss on the
extingushment of long-term debt.
20
Results of Operations Year Ended December 31, 1998 Compared to Year Ended
December 31, 1997
- -------------------------------------------------------------------------
Our operations during 1998, resulted in a net loss of $4,266,000, compared
to a net loss of $2,603,000 for 1997.
Interest income increased by $436,000 from 1997 due to increased financing
of 100% of KKM's operations in Kazakhstan.
General and administrative costs increased by $1,363,000 from 1997 due
mainly to an increase in compensation expense and legal fees. Compensation
expense increased by $992,000, primarily due to stock based compensation granted
to our directors, employees, and consultants during 1998 plus amortization of
prior year equity based compensation. Furthermore, our cash based compensation
increased due to the hiring of additional personnel required for normal business
operations. Legal fees increased $125,000, primarily relating to a lawsuit,
which was settled in 1998. Our equity loss in KKM, increased $585,000 from 1997.
These increases are the result of KKM's increased operational activity in
Kazakhstan.
In 1998, we settled a lawsuit filed against Chaparral for a total of
$200,000 and warrants to purchase 3,333 shares of our common stock at an
exercise price of $60 per share, exercisable through January 2, 1999. The
warrants were recorded at the fair market value (approximately $34,000).
In 1998, we recognized a $236,000 extraordinary loss on the extingushment
of long-term debt. In 1997, we recognized a $214,000 extraordinary loss on the
extingushment of short-term debt.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1999, our only outstanding market risk sensitive
instruments were total aggregate Notes outstanding of $10,040,000. The Notes
accrue interest at 8% and are convertible into our common stock upon stockholder
approval at a conversion price of $1.86 per share. The Notes were issued in the
fourth quarter of 1999 and are recorded at their fair value.
On February 11, 2000, we entered the Hedge Agreement, paying $4.0 million
for put contracts to sell a total of 1,562,250 barrels of North Sea Brent crude.
The exercise prices of the various put contracts range from $22.35 to $17.25 per
barrel, with monthly expiration dates beginning in October 2000 and ending in
December 2002. The contracts are evenly spread between October 2000 to December
2001 (62,750 barrels per month) and between January 2002 to December 2002
(51,750 barrels per month).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for a list of the Financial Statements and the supplementary
financial information included in this report following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item as to the directors and executive
officers of are incorporated by reference to such information appearing under
the captions "Election of Directors" and "Executive Officers" in our definitive
proxy statement for our 2000 Annual Meeting of Stockholders and is to be filed
with the Securities and Exchange Commission ("Commission") pursuant to the
Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on
December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item as to the management is hereby
incorporated by reference to such information appearing under the caption
"Executive Compensation" in our definitive proxy statement for our 2000 Annual
Meeting of Stockholders and is to be filed with the Commission pursuant to the
Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on
December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item as to the ownership by management and
others of securities is hereby incorporated by reference to such information
appearing under the caption "Nominees for Director" and "Certain Stockholders"
in our definitive proxy statement for our 2000 Annual Meeting of Stockholders
and is to be filed with the Commission pursuant to the Securities Exchange Act
of 1934 within 120 days of the end of our fiscal year on December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item as to certain business relationships
and transactions with management and other related parties is hereby
incorporated by reference to such information appearing under the caption
"Certain Transactions" in our definitive proxy statement for our 2000 Annual
Meeting of Stockholders and is to be filed with the Commission pursuant to the
Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on
December 31, 1999.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
---------------------
Table of Contents Page
Chaparral Resources, Inc.
-------------------------
Report of Independent Auditors..................................................................... 1
Consolidated Balance Sheets--As of December 31, 1999 and December 31, 1998 ........................ 2
Consolidated Statements of Operations--Years ended December 31, 1999,
1998, and 1997............................................................................ 4
Consolidated Statements of Cash Flows--Years ended December 31, 1999,
1998, and 1997............................................................................ 5
Consolidated Statement of Changes in Stockholders' Equity--Years ended
December 31, 1999and 1998, and the
11 months ended December 31, 1997......................................................... 7
Notes to Consolidated Financial Statements......................................................... 8
Supplemental Information - Disclosures About Oil and Gas Producing Activities - Unaudited.......... 32
Closed Type JSC Karakudukmunay.
Report of Independent Auditors .................................................................... 35
Balance Sheets--As of December 31, 1999 and 1998 .................................................. 36
Statements of Expenses and Accumulated Deficit--Years ended
December 31, 1999, 1998 and 1997.......................................................... 37
Statements of Cash Flows--Years ended December 31, 1999, 1998 and 1997............................. 38
Statements of Stockholders' Deficit................................................................ 39
Notes to the Financial Statements ................................................................. 40
Supplemental Information - Disclosures About Oil and Gas Producing Activities - Unaudited.......... 54
(a)(2) Financial Statement Schedules.
------------------------------
All schedules for which a provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
(b) Current Reports on Form 8-K.
-----------------------------
We filed a Current Report on Form 8-K, dated October 25, 1999
to report the sale of our 8% Non-Negotiable Convertible Subordinated
Notes and announce execution of our loan agreement with Shell Capital
Limited and certain other lenders.
(c) Exhibits.
--------
23
Exhibit No. Description and Method of Filing
----------- --------------------------------
2.1 Stock Acquisition Agreement and Plan of Reorganization dated
April 12, 1995 between Chaparral Resources, Inc., and the
Shareholders of Central Asian Petroleum, Inc., incorporated
by reference to Exhibit 2.1 to Chaparral Resources, Inc's
Quarterly Report on Form 10-Q for the quarter ended May 31,
1995.
2.2 Escrow Agreement dated April 12, 1995 between Chaparral
Resources, Inc., the Shareholders of Central Asian
Petroleum, Inc. and Barry W. Spector, incorporated by
reference to Exhibit 2.2 to Chaparral Resources, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended May 31,
1995.
2.3 Amendment to Stock Acquisition Agreement and Plan of
Reorganization dated March 10, 1996 between Chaparral
Resources, Inc., and the Shareholders of Central Asian
Petroleum, Inc., incorporated by reference to Chaparral
Resources, Inc.'s Registration Statement No. 333-7779.
3.1 Certificate of Incorporation, dated April 21, 1999,
incorporated by reference to to Chaparral Resources, Inc.'s
Notice and Definitive Schedule 14Adated April 21, 1999.
3.2 Bylaws, dated April 21, 1999, incorporated by reference to
Annex IV to our Notice and Definitive Schedule 14Adated
April 21, 1999.
4.1* 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated November 2, 1999, principal amount $101,400, to Allen
& Company Incorporated.
4.2* 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated November 2, 1999, principal amount $182,680, to Allen
& Company Incorporated.
4.3* 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated November 2, 1999, principal amount $2,613,097, to
Allen & Company Incorporated.
4.4* 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated November 2, 1999, principal amount $929,984, to Allen
& Company Incorporated.
4.5* 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated November 2, 1999, principal amount $103,332, to John
G. McMillian.
4.6* 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated November 2, 1999, principal amount $20,298, to John G.
McMillian.
4.7* 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated November 2, 1999, principal amount $288,019, to John
G. McMillian.
4.8* 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated November 2, 1999, principal amount $524,986, to
Whittier Ventures.
4.9* 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated November 2, 1999, principal amount $525,973, to
Whittier Ventures, LLC.
4.10 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated December 10, 1999, principal amount $150,000, to Cord
Family Exempt Trust, incorporated by reference to Exhibit
10.40 to Chaparral Resources, Inc.'s Current Report on 8-K
dated March 22, 2000.
4.11 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated February 10, 2000, principal amount $1,250,000, to
Allen & Company Incorporated, incorporated by reference to
Exhibit 10.51 to Chaparral Resources, Inc. Current Report on
8-K dated March 22, 2000.
4.12 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated February 9, 2000, principal amount $100,000, to Helen
Jacobs Strauss Trust, incorporated by reference to Exhibit
10.50 to Chaparral Resources, Inc. Current Report on 8-K
dated March 22, 2000.
24
Exhibit No. Description and Method of Filing
----------- --------------------------------
4.13 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated February 9, 2000, principal amount $100,000, to
EcoTels International Limited, incorporated by reference to
Exhibit 10.49 to Chaparral Resources, Inc.'s Current Report
on 8-K dated March 22, 2000.
4.14 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated January 27, 2000, principal amount $750,000, to Allen
& Company Incorporated, incorporated by reference to Exhibit
10.48 to Chaparral Resources, Inc.'s Current Report on 8-K
dated March 22, 2000.
4.15 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated January 21, 2000, principal amount $250,000, to Helen
Jacobs Strauss Trust, incorporated by reference to Exhibit
10.47 to Chaparral Resources, Inc.'s Current Report on 8-K
dated March 22, 2000.
4.16 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated January 19, 2000, principal amount $200,000, to Akin,
Gump, Strauss, Hauer & Feld, incorporated by reference to
Exhibit 10.46 to Chaparral Resources, Inc.'s Current Report
on 8-K dated March 22, 2000.
4.17 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated January 19, 2000, principal amount $250,000, to John
G. McMillian, incorporated by reference to Exhibit 10.45 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
March 22, 2000.
4.18 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated January 14, 2000, principal amount $250,000, to Capco
Energy, Inc., incorporated by reference to Exhibit 10.44 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
March 22, 2000.
4.19 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated January 7, 2000, principal amount $150,000, Rose Dosti
IRA UTA Charles Schwab Inc. Contributory DTD, incorporated
by reference to Exhibit 10.43 to Chaparral Resources, Inc.'s
Current Report on 8-K dated March 22, 2000.
4.20 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated December 15, 1999, principal amount $500,000, to Capco
Energy, Inc., incorporated by reference to Exhibit 10.42 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
March 22, 2000.
4.21 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated December 10, 1999, principal amount $100,000, to Cord
Capital, LLC, incorporated by reference to Exhibit 10.41 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
March 22, 2000.
4.22 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated November 12, 1999, principal amount $1,000,000, to
Whittier Ventures, LLC, incorporated by reference to Exhibit
4.9 to Chaparral Resources, Inc.'s Current Report on 8-K
dated November 17, 1999.
4.23 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated October 25, 1999, principal amount $100,000, to
Marathon Special Opportunity Fund, LLC, incorporated by
reference to Exhibit 4.8 to Chaparral Resources, Inc.'s
Current Report on 8-K dated November 17, 1999.
4.24 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated October 25, 1999, principal amount $100,000, to
Patrick McGee, incorporated by reference to Exhibit 4.7 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
November 17, 1999.
25
Exhibit No. Description and Method of Filing
----------- --------------------------------
4.25 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated October 25, 1999, principal amount $100,000, to Duncan
A. Lee, incorporated by reference to Exhibit 4.6 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
November 17, 1999.
4.26 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated October 25, 1999, principal amount $125,000, to
William Keller, incorporated by reference to Exhibit 4.5 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
November 17, 1999.
4.27 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated October 25, 1999, principal amount $125,000, to Thomas
G. Murphy, incorporated by reference to Exhibit 4.4 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
November 17, 1999.
4.28 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated October 25, 1999, principal amount $200,000, to Pecos
Joint Venture, incorporated by reference to Exhibit 4.3 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
November 17, 1999.
4.29 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated October 25, 1999, principal amount $250,000, to Global
Undervalued Securities Fund, LP, incorporated by reference
to Exhibit 4.2 to Chaparral Resources, Inc.'s Current Report
on 8-K dated November 17, 1999.
4.30 8% Non-Negotiable Convertible Subordinated Promissory Note,
dated October 25, 1999, principal amount $2,000,000, to
Allen & Company Incorporated, incorporated by reference to
Exhibit 4.1 to Chaparral Resources, Inc.'s Current Report on
8-K dated November 17, 1999.
10.1 Agreement dated August 30, 1995 for Exploration Development
and Production of Oil in Karakuduk Oil Field in Mangistan
Oblast of the Republic of Kazakhstan between Ministry of Oil
and Gas Industries of the Republic of Kazakhstan for and on
Behalf of the Government of the Republic of Kazakhstan and
Joint Stock Company of Closed Type Karakuduk Munay Joint
Venture, incorporated by reference to Exhibit 10.17 to
Chaparral Resources, Inc.'s Annual Report on Form 10-K for
the fiscal year ended November 30, 1996.
10.2 License for the Right to Use the Subsurface in the Republic
of Kazakhstan, incorporated by reference to Exhibit 10.18 to
Chaparral Resources, Inc.'s Annual Report on Form 10-K for
the fiscal year ended November 30, 1996.
10.3 Amendment dated September 11, 1997, to License for Right to
Use the Subsurface in the Republic of Kazakhstan,
incorporated by reference to Exhibit 10.2 to Chaparral
Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
10.4 Amendment to License for the Right to Use the Subsurface in
the Republic of Kazakhstan, dated December 31, 1998,
incorporated by reference to Exhibit 10.25 to Chaparral
Resources, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.
10.5* Letter from the Agency of the Republic of Kazakhstan on
Investments to Central Asian Petroleum (Guernsey) Limited
dated July 28, 1999 regarding License for Right to Use the
Subsurface in the Republic of Kazakhstan.
10.6 Warrant Certificate entitling Allen & Company to purchase up
to 1,022,000 shares of Common Stock of Chaparral Resources,
Inc., incorporated by reference to Exhibit 10.1 to Chaparral
Resources, Inc.'s Current Report on Form 8-K dated April 1,
1996.
26
Exhibit No. Description and Method of Filing
----------- --------------------------------
10.7 Form of Warrant issued to Black Diamond Partners LP, Clint
D. Carlson, John A. Schneider, Victory Ventures LLC,
Whittier Energy Company and Whittier Ventures LLC in
connection with loans made by them to Chaparral Resources,
Inc. in November and December 1996 and to Black Diamond
Partners LP, Clint D. Carlson, Whittier Energy Company and
Whittier Ventures LLC in July 1997 in connection with the
same loans, incorporated by reference to Exhibit 10.3 to
Chaparral Resources, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
10.8 Warrant Certificate entitling Allen & Company Incorporated
to purchase up to 900,000 shares of Common Stock of
Chaparral Resources, Inc., incorporated by reference to
Exhibit 10.1 to Chaparral Resources, Inc.'s Current Report
on Form 8-K/A dated October 31, 1997.
10.9 Agreement dated March 31, 1998, effective as of November 4,
1997, between Chaparral Resources, Inc. and Allen & Company
Incorporated, incorporated by reference to Exhibit 10.33 to
Chaparral Resources, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.
10.10 Warrants issued to Allen & Company, Incorporated and John G.
McMillian, incorporated by reference to Exhibit 10.2 to
Chaparral Resources, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
10.11 1998 Incentive and Nonstatutory Stock Option Plan,
incorporated by reference to Exhibit 10.24 to Chaparral
Resources, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.
10.12 Credit Support and Pledge Agreement between Whittier
Ventures, LLC and Chaparral Resources, Inc. dated July 2,
1998, incorporated by reference to Exhibit 10.1 to Chaparral
Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
10.13 Warrants issued to Whittier Ventures, LLC, incorporated by
reference to Exhibit 10.2 to Chaparral Resources, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
10.14 Settlement Agreement and Release between Heartland, Inc. of
Wichita and Collins & McIlhenny, Inc. and Chaparral
Resources, Inc., Howard Karren, Whittier Trust Company and
James A. Jeffs dated October 30, 1998, incorporated by
reference to Exhibit 10.3 to Chaparral Resources, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
10.15 Warrants issued to Heartland, Inc. of Wichita and Collins &
McIlhenny, Inc., as joint tenants and to Don M. Kennedy,
incorporated by reference to Exhibit 10.4 to Chaparral
Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
10.16 Loan Agreement between Challenger Oil Services, PLC and
Chaparral Resources, Inc. dated September 10, 1998,
incorporated by reference to Exhibit 10.5 to Chaparral
Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
10.17 Promissory Note between Challenger Oil Services, PLC and
Chaparral Resources, Inc. dated September 10, 1998,
incorporated by reference to Exhibit 10.6 to Chaparral
Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
27
Exhibit No. Description and Method of Filing
----------- --------------------------------
10.18 International Daywork Drilling Contract - Land between
Challenger Oil Services, PLC and Karakuduk-Munay, JSC, dated
April 7, 1998, incorporated by reference to Exhibit 10.32 to
Chaparral Resources, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.
10.19 Amendment No. 1 to the International Daywork Drilling
Contract - Land between Challenger Oil Services, PLC and
Karakuduk-Munay, JSC, dated April 7, 1998, incorporated by
reference to Exhibit 10.33 to Chaparral Resources, Inc.'s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
10.20 Amendment No. 2 to the International Daywork Drilling
Contract - Land between Challenger Oil Services, PLC and
Karakuduk-Munay, JSC, dated March 17, 1999, incorporated by
reference to Exhibit 10.34 to Chaparral Resources, Inc.'s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
10.21 Letter Agreement dated March 17, 1999 between
Karakuduk-Munay, JSC and Challenger Oil Services, PLC,
incorporated by reference to Exhibit 10.35 to Chaparral
Resources, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.
10.22 Letter Agreement and Restated Amendment No. 1 to Loan
Agreement and Promissory Note dated March 18, 1999 between
Challenger Oil Services, PLC and Chaparral Resources, Inc.,
incorporated by reference to Exhibit 10.36 to Chaparral
Resources, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.
10.23 $24,000,000 Loan Agreement dated as of November 1, 1999,
incorporated by reference to Exhibit 10.1 to Chaparral
Resources, Inc.'s Current Report on 8-K dated November 17,
1999.
10.24 Supplemental Agreement, dated February 10, 2000, among Shell
Capital Limited, Shell Capital Services Limited, Chaparral
Resources, Inc., Central Asian Petroleum (Guernsey) Limited,
Closed Type JSC Karakudukmunay and Central Asian Petroleum,
Inc., incorporated by reference to Exhibit 10.19 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
March 22, 2000.
10.25 CRI-CAP(G) Loan Agreement, dated February 7, 2000, between
Chaparral Resources, Inc. and Central Asian Petroleum
(Guernsey) Limited, incorporated by reference to Exhibit
10.13 to Chaparral Resources, Inc.'s Current Report on 8-K
dated March 22, 2000.
10.26 CAP(G)-KKM Loan Agreement, dated February 7, 2000, between
Closed Type JSC Karakudukmunay and Central Asian Petroleum
(Guernsey) Limited, incorporated by reference to Exhibit
10.16 to Chaparral Resources, Inc.'s Current Report on 8-K
dated March 22, 2000.
10.27 Accounts Agreement, dated February 8, 2000, among Chaparral
Resources, Inc., Central Asian Petroleum (Guernsey) Limited,
Closed Type JSC Karakudukmunay, Shell Capital Services
Limited, ABN Amro Bank N.V., London Branch and The Law
Debenture Trust Corporation p.l.c., incorporated by
reference to Exhibit 10.1 to Chaparral Resources, Inc.'s
Current Report on 8-K dated March 22, 2000.
10.28 Security Trust Deed, dated February 7, 2000, among Chaparral
Resources, Inc., Central Asian Petroleum (Guernsey) Limited,
Central Asian Petroleum, Inc., Closed Type JSC
Karakudukmunay, Shell Capital Services Limited and The Law
Debenture Trust Corporation p.l.c., incorporated by
reference to Exhibit 10.17 to Chaparral Resources, Inc.'s
Current Report on 8-K dated March 22, 2000.
28
Exhibit No. Description and Method of Filing
----------- --------------------------------
10.29 CRI Accounts Assignment, dated February 7, 2000, between
Chaparral Resources, Inc. and The Law Debenture Trust
Corporation p.l.c., incorporated by reference to Exhibit
10.2 to Chaparral Resources, Inc.'s Current Report on 8-K
dated March 22, 2000.
10.30 CAP(G) Accounts Assignment, dated February 7, 2000, between
Chaparral Resources, Inc. and The Law Debenture Trust
Corporation, p.l.c., incorporated by reference to Exhibit
10.3 to Chaparral Resources, Inc.'s Current Report on 8-K
dated March 22, 2000.
10.31 KKM Accounts Assignment, dated February 7, 2000, between
Closed Type JSC Karakudukmunay and The Law Debenture Trust
Corporation p.l.c., incorporated by reference to Exhibit
10.4 to Chaparral Resources, Inc.'s Current Report on 8-K
dated March 22, 2000.
10.32 CRI-CAP(D) Pledge Agreement, dated February 7, 2000, between
Chaparral Resources, Inc. and The Law Debenture Trust
Corporation p.l.c., incorporated by reference to Exhibit
10.11 to Chaparral Resources, Inc.'s Current Report on 8-K
dated March 22, 2000.
10.33 CRI-CAP(G) Charge Over Shares, dated February 7, 2000,
between Chaparral Resources, Inc. and The Law Debenture
Trust Corporation p.l.c., incorporated by reference to
Exhibit 10.14 to Chaparral Resources, Inc.'s Current Report
on 8-K dated March 22, 2000.
10.34 CAP(D)-CAP(G) Charge Over Shares, dated February 7, 2000,
between Central Asian Petroleum, Inc. and The Law Debenture
Trust Corporation p.l.c., incorporated by reference to
Exhibit 10.15 to Chaparral Resources, Inc.'s Current Report
on 8-K dated March 22, 2000.
10.35 KKM Pledge Agreement, dated February 7, 2000, between
Central Asian Petroleum (Guernsey) Limited and The Law
Debenture Trust Corporation p.l.c., incorporated by
reference to Exhibit 10.12 to Chaparral Resources, Inc.'s
Current Report on 8-K dated March 22, 2000.
10.36 CRI Assignment, dated February 8, 2000, between Chaparral
Resources, Inc. and The Law Debenture Trust Corporation
p.l.c., incorporated by reference to Exhibit 10.5 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
March 22, 2000.
10.37 CAP(G) Assignment, dated February 7, 2000, between Central
Asian Petroleum (Guernsey) Limited and The Law Debenture
Trust Corporation p.l.c., incorporated by reference to
Exhibit 10.6 to Chaparral Resources, Inc.'s Current Report
on 8-K dated March 22, 2000.
10.38 KKM Assignment, dated February 7, 2000, between Closed Type
JSC Karakudukmunay and The Law Debenture Trust Corporation
p.l.c., incorporated by reference to Exhibit 10.7 to
Chaparral Resources, Inc.'s Current Report on 8-K dated
March 22, 2000.
10.39 Assignment of Insurance Proceeds, dated February 7, 2000,
between Chaparral Resources, Inc. and The Law Debenture
Trust Corporation p.l.c., incorporated by reference to
Exhibit 10.8 to Chaparral Resources, Inc.'s Current Report
on 8-K dated March 22, 2000.
10.40 KKM Assignment of Insurances, dated February 7, 2000,
between Closed Type JSC Karakudukmunay and The Law Debenture
Trust Corporation p.l.c., incorporated by reference to
Exhibit 10.9 to Chaparral Resources, Inc.'s Current Report