-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ws+Oy+MRYVwx+7JKHlErLY7w2n5UJ7tTEHmnjrPTbX5pOtKw4d5XW9ZS/zCLghVS kkXxGrK5g2E4q25HdR14uw== 0000950148-95-000811.txt : 19951212 0000950148-95-000811.hdr.sgml : 19951212 ACCESSION NUMBER: 0000950148-95-000811 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 DATE AS OF CHANGE: 19951114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SABA PETROLEUM CO CENTRAL INDEX KEY: 0000312340 STANDARD INDUSTRIAL CLASSIFICATION: 1311 IRS NUMBER: 470617589 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-13880 FILM NUMBER: 95593214 BUSINESS ADDRESS: STREET 1: 17512 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7147241112 MAIL ADDRESS: STREET 1: 17512 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92714 FORMER COMPANY: FORMER CONFORMED NAME: BORDEAUX PETROLEUM CO DATE OF NAME CHANGE: 19910924 FORMER COMPANY: FORMER CONFORMED NAME: BORDEAUX TRADING CO DATE OF NAME CHANGE: 19800716 10QSB 1 FORM 10-QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - - - ------------------------------------------------------------------------------- FORM 10-QSB - - - ------------------------------------------------------------------------------- QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1995 Commission File Number 1-12322 - - - ------------------------------------------------------------------------------- SABA PETROLEUM COMPANY - - - ------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Colorado 47-0617589 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 17512 Von Karman Avenue Irvine, California 92714 (Address of principal executive offices) Issuer's telephone number, including area code: (714) 724-1112 Not Applicable - - - ------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- At November 10, 1995, 4,189,590 shares of common stock, no par value, were outstanding. 2 SABA PETROLEUM COMPANY CONTENTS
Page(s) PART I. - FINANCIAL INFORMATION - - - ------------------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheet as of September 30, 1995 3 Condensed Consolidated Statements of Operations for the nine and three month periods ended September 30, 1995 and 1994 4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1994 5 Notes to Condensed Consolidated Financial Statements 6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-19 PART II. - OTHER INFORMATION - - - ---------------------------- Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21 - - - ----------
3 PART I - FINANCIAL INFORMATION SABA PETROLEUM COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET September 30, 1995 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 159,424 Accounts receivable, net of allowance for doubtful accounts of $ 71,467 3,700,141 Other current assets 594,829 ----------- Total current assets 4,454,394 ----------- Property and equipment (Note 5): Oil and gas properties (full cost method) 32,422,505 Land, plant and equipment 4,405,366 ----------- 36,827,871 Less accumulated depletion and depreciation (9,272,682) ----------- Total property and equipment 27,555,189 ----------- Other assets 1,030,299 ----------- $33,039,882 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 4,258,015 Current portion of long-term debt 8,519,743 Oil imbalance obligation 841,552 ----------- Total current liabilities 13,619,310 Long-term debt, net of current portion 11,511,415 Other liabilities and deferred taxes 939,259 ----------- Total liabilities 26,069,984 ----------- Commitments and contingencies Stockholders' equity: Preferred stock - no par value, authorized 50,000,000 shares; none issued - Common stock - no par value, authorized 150,000,000 shares; issued and outstanding 4,189,590 shares 6,191,640 Cumulative translation adjustment 50,257 Unearned compensation (12,750) Retained earnings 740,751 ----------- Total stockholders' equity 6,969,898 ----------- $33,039,882 ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 SABA PETROLEUM COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Three Months Ended September 30 Ended September 30 -------------------------- ------------------------- 1995 1994 1995 1994 ------------ ----------- ----------- ----------- Revenues: Oil and gas sales $ 10,976,571 $ 8,964,935 $ 3,959,082 $ 3,420,569 Other 417,286 269,303 302,948 76,749 ------------ ----------- ----------- ----------- Total revenues 11,393,857 9,234,238 4,262,030 3,497,318 ------------ ----------- ----------- ----------- Expenses: Production costs 6,923,330 5,490,305 2,555,744 2,046,573 General and administrative 1,406,004 1,317,055 420,579 444,580 Depletion, depreciation and amortization 1,931,031 1,727,450 712,023 661,201 ------------ ----------- ----------- ----------- Total expenses 10,260,365 8,534,810 3,688,346 3,152,354 ------------ ----------- ----------- ----------- Operating income 1,133,492 699,428 573,684 344,964 ------------ ----------- ----------- ----------- Other income (expense): Other income (expense) 49,650 93,600 656 (23,510) Interest expense, net of interest capitalized of $27,369 (1995) and $29,803 (1994) (778,461) (473,129) (341,141) (168,808) ------------ ----------- ----------- ----------- Total other income (expense) (728,811) (379,529) (340,485) (192,318) ------------ ----------- ----------- ----------- Income before income taxes 404,681 319,899 233,199 152,646 Provision for taxes on income 174,800 81,930 113,623 38,730 ------------ ----------- ----------- ----------- Net income $ 229,881 $ 237,969 $ 119,576 $ 113,916 ============ =========== =========== =========== Net income per common share $ 0.05 $ 0.06 $ 0.03 $ 0.03 ============ =========== =========== =========== Weighted average common and common equivalent shares outstanding 4,354,647 3,966,492 4,405,627 4,092,719 ============ =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 4 5 SABA PETROLEUM COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1995 and 1994 (Unaudited)
1995 1994 ----------- ------------ Cash flows from operating activities: Net income $ 229,881 $ 237,969 Adjustments to reconcile net income to net cash provided by operations: Depletion, depreciation and amortization 1,931,031 1,727,450 Deferred taxes 116,070 26,000 Amortization of unearned compensation 12,750 - Changes in: Accounts receivable (1,271,781) (234,428) Other assets (167,260) (76,177) Accounts payable and accrued liabilities 1,284,321 604,478 ----------- ------------ Net cash provided by operating activities 2,135,012 2,285,292 ----------- ------------ Cash flows from investing activities: Sale of property and equipment 77,062 140,248 Expenditures for property and equipment (15,145,098) (4,286,559) Expenditures for property deposits (100,000) (104,438) ----------- ------------ Net cash used in investing activities (15,168,036) (4,250,749) ----------- ------------ Cash flows from financing activities: Proceeds from notes payable and long-term debt 20,564,900 3,602,922 Principal payments on notes payable and long-term debt (8,819,345) (2,682,976) (Increase) decrease in notes receivable 274,528 (200,551) Increase in deferred financing costs (407,553) (23,194) Net change in accounts with affiliated companies 387,251 (24,700) Net proceeds from issuance of common stock 189,583 510,000 Increase in contributed surplus 204,100 674,706 ----------- ------------ Net cash provided by financing activities 12,393,464 1,856,207 ----------- ------------ Net decrease in cash (639,560) (109,250) Cash at beginning of period 798,984 522,748 ----------- ------------ Cash at end of period $ 159,424 $ 413,498 =========== ============
The accompanying notes are an integral part of these consolidated financial statements. 5 6 SABA PETROLEUM COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with the accounting principles and policies reflected in the financial statements for the year ended December 31, 1994 and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1994 Form 10- KSB. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals only) necessary to present fairly the Company's consolidated financial position as of September 30, 1995, and the consolidated results of operations for the nine and three month periods ended September 30, 1995 and 1994 and the consolidated cash flows for the nine months ended September 30, 1995 and 1994. 2. RECLASSIFICATION Certain previously reported financial information has been reclassified to conform to the current periods' presentation. 3. ACQUISITION On December 30, 1994, the Company acquired Capco Resource Properties Ltd. ("CRPL"), a Canadian oil and gas company, from its parent company, Capco Resources Ltd., in exchange for 300,000 shares of the Company's Common Stock. The transaction has been accounted for on an "as if pooled" basis and, accordingly, the consolidated statements of operations and cash flows for 1994 have been restated to include the accounts of CRPL. On September 12, 1995, the Company acquired a 25% interest in the Teca and Nare oil producing fields and a 50% interest in a 117-mile oil transmission pipeline in Colombia, South America. The acquisition cost of $9,223,700, including a previously released deposit of $1,400,000 and assumption of an oil imbalance obligation of $932,700, was funded by proceeds from a bank term loan in the amount of $4,700,000, with additional financing provided by the Company's parent company through an unsecured loan of $2,191,000. As part of this transaction, but scheduled to close in the fourth quarter of 1995, the Company will acquire a 50% interest in an adjacent oil field, known as the Cocorna Field. The contract price for this property is $750,000, which will be reduced by the Company's share of production credits from the property from January 1, 1995 to the date of closing (approximately $200,000 at September 30, 1995). The Company has placed a $100,000 deposit with the seller. The following unaudited pro forma condensed statements of operations for the year ended December 31, 1994 and for the nine months ended September 30, 1995, give effect to the acquisition of the Teca and Nare fields and the Velasquez-Galan Pipeline in Colombia, South America ("Acquisition") as if it had occurred on January 1, 1994. The Acquisition has been accounted for using the purchase method of accounting. Such unaudited pro forma financial information has been prepared based on estimates and assumptions deemed by the Company to be appropriate and does not purport to be indicative of the financial position or results of operations which would actually have been obtained if the Acquisition had occurred as presented in such statements or which may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements due to oil and gas production declines, price changes, future supply and demand, future acquisitions and other factors. 6 7 SABA PETROLEUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITION (CONTINUED)
(Dollars in thousands except per share amounts) Historical Pro forma Pro forma results adjustments results ----------- ----------- ------------ Year ended December 31, 1994 ---------------------------- Total revenues $ 12,954 $ 11,516 $ 24,470 Total expenses 11,470 6,850 18,320 ---------- ---------- ----------- Operating income 1,484 4,666 6,150 Other income (expense) 43 - 43 Interest expense 634 813 1,447 Provision for taxes 384 1,657 2,041 ---------- ---------- ----------- Net income $ 509 $ 2,196 $ 2,705 ========== ========== =========== Net income per common share $ 0.13 $ 0.68 ========== =========== Nine months ended September 30, 1995 ------------------------------------- Total revenues $ 11,394 $ 9,793 $ 21,187 Total expenses 10,260 4,839 15,099 ---------- ---------- ----------- Operating income 1,134 4,954 6,088 Other income (expense) 50 - 50 Interest expense 779 568 1,347 Provision for taxes 175 1,886 2,061 ---------- ---------- ----------- Net income $ 230 $ 2,500 $ 2,730 ========== ========== =========== Net income per common share $ 0.05 $ 0.63 ========== =========== Proved reserves, December 31, 1994 ---------------------------------- Oil (Bbls) 7,135,731 5,301,639 12,437,370 ========== ========== =========== Gas (MCF) 9,791,773 - 9,791,773 ========== ========== ===========
4. STATEMENTS OF CASH FLOWS Following is certain supplemental information regarding cash flows for the nine months ended September 30, 1995 and 1994:
1995 1994 ---- ---- Interest paid $754,421 $425,113 ======== ======== Income taxes paid $ - $ - ======== ========
Non-cash investing and financing transactions: In January 1995 the Company awarded 12,000 shares of Common Stock with a fair market value of $25,500 to an employee. 7 8 SABA PETROLEUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. STATEMENTS OF CASH FLOWS (CONTINUED) The acquisition cost of oil and gas properties which were acquired in September, 1995 included an oil imbalance obligation in the amount of $932,700 which was assumed by the Company. Cumulative foreign currency translation gains in the amount of $50,257 were recorded during the nine months ended September 30, 1995. Funding in the amount of $614,873 was provided by the seller in connection with the acquisition of oil and gas properties in February 1994. A note in the amount of $24,346, payable to the Company in eight monthly installments, was received as consideration for the sale of vehicles, furniture and equipment in March 1994. Funding in the amount of $1,200,000 was provided by the seller in connection with the acquisition of a refinery in June 1994. Property deposits totaling $52,125 were used in partial settlement of oil and gas property acquisitions which closed during the nine month period ended September 30, 1994. Cumulative foreign currency translation gains in the amount of $1,176 were recorded during the nine month period ended September 30, 1994. 5. LONG-TERM DEBT Long-term debt consists of the following at September 30, 1995: Revolving loan agreement with a bank $ 10,700,000 Term loan agreement with a bank 4,700,000 Demand loan agreement with a bank 1,209,258 Promissory note 1,200,000 Promissory note - Capco 2,221,900 ------------ 20,031,158 Less current portion 8,519,743 ------------ $ 11,511,415 ============
The revolving loan ("Agreement") is subject to semi-annual borrowing base redeterminations and revolves to June 1, 1997, at which time it will be converted to a three year term loan. Effective September 29, 1995, the borrowing base was increased from $10,200,000 to $10,700,000. On September 7, 1995, the Agreement was amended to provide for a term loan ("Term Loan") in the amount of $4,700,000, with a maturity date of October 1, 1996. Amounts outstanding under the Term Loan bear interest at the rate of prime plus 1% through October 31, 1995, and prime plus 4% thereafter. Required minimum monthly principal payments are equal to the greater of monthly cash flow from the Company's Colombian properties, or $300,000. In accordance with the terms of the Agreement, $7,100,000 of the revolving and term loans is classified as currently payable at September 8 9 SABA PETROLEUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. LONG-TERM DEBT (CONTINUED) 30, 1995. The Agreement, as amended, requires, among other things, that the Company maintain at least a .75 to 1 working capital ratio, stockholders' equity of $6,250,000, a ratio of cash flow to debt service of not less than 1.25 to 1.0 and general and administrative expenses at a level not greater than 20% of revenue, all as defined in the Agreement. Additionally, the Company is restricted from paying dividends and advancing funds in excess of specified limits to affiliates. For such time that funds remain outstanding under the Term Loan, the repayment of all amounts outstanding under the Agreement are guaranteed by Mr. Ilyas Chaudhary. On September 21, 1995 the payment date for the principal payment of $300,000 due on the $1.2 million promissory note was extended to November 15, 1995. Amounts outstanding under the note bear interest at the prime rate in effect on the note anniversary date plus 1.75% (10.75% on September 30, 1995). The promissory note-Capco is due to the Company's parent company, Capco Resources Ltd. Payment of the note, which bears interest at the current prime rate (8.75% at September 30, 1995) plus 1%, is due September 14, 2000. The loan proceeds were utilized by the Company principally in connection with the acquisition of producing oil and gas properties in Colombia. Prior to the completion of a debenture offering, which is expected to close in December 1995, $600,000 of the loan amount will be converted into 75,000 shares of the Company's Common Stock. 6. COMMON STOCK AND STOCK OPTIONS In January 1995 the Company awarded 12,000 shares of Common Stock to an employee pursuant to the terms of an employment agreement. The cost of the stock award, based on the stock's fair market value at the award date, was charged to stockholders' equity and is amortized against earnings over the contract term. In January 1995, the Company issued options for 100,000 shares of Common Stock to the Company's Chief Executive Officer. These options, which are not covered by the Incentive or Nonqualified Option Plans, become exercisable ratably over a period of five years from the date of issue. The exercise price of the options is $3.00. No options were exercisable at September 30, 1995. During the nine month period ended September 30, 1995, the Company issued options to an independent consultant for the purchase of 100,000 shares of the Company's Common Stock. The options had an exercise price of $3.25 and were exercisable for a period of one year, beginning January 2, 1995. Options to acquire 58,333 shares of Common Stock were exercised during the nine month period ended September 30, 1995. In July 1995, the consulting arrangement was terminated and the balance of the options was canceled. 7. CONTINGENCIES The Company is subject to extensive Federal, state, local and foreign environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment. The Company believes that it is in substantial compliance with existing laws and regulations. 9 10 SABA PETROLEUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. CONTINGENCIES (CONTINUED) The Colombian Ministry of the Environment issued a resolution dated June 7, 1995 that set forth a number of measures aimed at correcting certain deficiencies that the Ministry has allegedly found in environmental aspects of the Nare oil field in Colombia. Among such measures, the Ministry ordered the temporary closing of one of five production modules and of any wells processed in that module until Texas Petroleum Company, the former owner and operator of the properties, provided a document detailing the timetable to implement some of the measures described above. This closing of the module had no effect on total production as crude oil from wells formerly treated there was diverted to other facilities. The document containing the requested timetable was presented to the Ministry of the Environment on July 6, 1995. On August 8, 1995 the Ministry of the Environment requested certain revisions to the timetable. Texas Petroleum Company, the previous owner of the property, estimated that the cost of compliance with the resolution would not exceed US $250,000. Texas Petroleum Company formally appealed the resolution and the Company is currently awaiting a response from the Ministry of the Environment. The Company has a significant contingent liability in connection with the plugging and abandonment ("P&A") of approximately 225 wells on certain California property acquired by the Company during 1993. The Company acquired the mineral rights and fee title to the property. The Company intends to operate the producing wells on the property as long as economically feasible and will decide in the future regarding the ultimate disposition of the land. If the Company chooses to sell the property, it may decide to sell the land "as is" or incur the P&A costs, thus enhancing the property's value. The Company estimates that the P&A costs will range from $20,000 to $25,000 per well, for a total of $4,500,000 to $5,625,000. Management believes that the fair market value of this land, after restoration, will exceed the estimated P&A costs. The Company is a defendant in various legal proceedings and claims which arise in the normal course of business. Based on discussions with legal counsel, management does not believe that the ultimate resolution of such actions will have a significant effect on the Company's financial statements or operations. 8. SUBSEQUENT EVENTS In April 1995 the Company announced that it had entered into a definitive purchase and sale agreement to purchase oil and gas properties (Teca/Nare Fields and Cocorna Field) and an oil transmission pipeline in Colombia, South America. Acquisition of the Teca/Nare Fields and the pipeline closed in September 1995. It is anticipated that the Cocorna Field acquisition will close in the Fall of 1995. The Company's gross acquisition cost for this property is $750,000, which will be reduced by the Company's share of production credits from the property from January 1, 1995 to the date of closing (approximately $200,000 at September 30, 1995), leaving a net purchase price of approximately $550,000. The Company has placed a $100,000 deposit with the seller (non-refundable should the transaction fail to close due to the Company's non-performance) and intends to finance the remainder of the purchase price through utilization of funds anticipated to be available from the Company's revolving line of credit. In October 1995, the Company consummated a reverse merger transaction, effective April 1, 1995, with an unaffiliated third party, by which CRPL was merged with the third party. All of the outstanding shares of CRPL were exchanged for 13,437,322 shares of common stock of the third party. In addition, the Company will subscribe for 1,000,000 shares of the common stock of the third 10 11 SABA PETROLEUM COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SUBSEQUENT EVENTS (CONTINUED) party at a cost of $350,000, which subscription is expected to close in the fourth quarter of 1995. As a result of these transactions, the Company will own approximately 70% of the issued and outstanding shares of common stock of that company. The merger was effected to expand the funding alternatives available to CRPL for future acquisition and development activities. On July 17, 1995, the Company filed a registration statement with the Securities and Exchange Commission for sale to the public of $12,500,000 of convertible senior subordinated debentures due 2005 (excluding the underwriters' over-allotment option of $1,875,000). Proceeds from the offering, expected to be completed in the fourth quarter of 1995, will be used to repay indebtedness, including indebtedness incurred for the acquisition of properties in Colombia, South America. In October 1995, the Company borrowed $250,000 from Unico, Inc., a company controlled by a director of the Company, which indebtedness bears interest at 10% per annum and matures April 15, 1996. 11 12 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CURRENT ACTIVITIES The Company's operating activities during the nine months ended September 30, 1995 provided net cash flow of $2.14 million. Investing activities resulted in a net cash outflow of $15.17 million. Oil and gas property acquisition, development and exploration activities resulted in expenditures totaling $13.17 million. An additional $1.98 million was expended for other assets, consisting principally of an oil transmission pipeline and related oilfield equipment which were acquired in connection with a property acquisition in Colombia. A deposit in the amount of $100,000 was issued in connection with the pending acquisition of oil and gas properties in Colombia which is scheduled for closing in the fourth quarter. Financing activities, which provided net cash flow of $12.39 million, consisted principally of activity on the Company's revolving line of credit, a bank term loan of $4.7 million, a loan from the Company's parent company of $2.2 million and retirement of a $606,000 note payable that was outstanding at December 31, 1994. Proceeds of $275,000 on collections of notes receivable, $190,000 from the exercise of stock options and $204,000 of contributed capital were realized during the period. Affiliated companies provided net proceeds of $387,000 which were used principally to partially fund the note payable payoff. In April 1995 the Company received approval from the County of Santa Barbara, California to commence operations at its asphalt refinery in Santa Maria, California. Production operations began in June 1995 under the terms of a processing agreement with Petro Source Corporation ("Petro Source"). Crude oil and working capital for operating expenses are provided by Petro Source, with the net results of operations shared equally between the Company and Petro Source. Operations during the third quarter resulted principally in the accumulation of inventories. Crude oil throughput amounted to 196,726 barrels, an average of 2,186 barrels per day. Processing the crude oil produced 23,400 tons of asphalt and 65,900 barrels of related products. Quantities sold during the quarter consisted of 11,900 tons of asphalt and 72,700 barrels of other products. Current throughput at the refinery is approximately 1,500 barrels of oil per day. Sales for the month of October were approximately 11,600 tons of asphalt and 7,900 barrels of related products. Throughput for the remainder of the fourth quarter will vary depending on several factors, including local weather conditions and market requirements for asphalt during the winter months. On October 23, 1995, the Company executed a reverse merger agreement, effective April 1, 1995, with an unaffiliated third party, by which its Canadian subsidiary, Capco Resource Properties Ltd., ("CRPL"), was merged with the third party. All of the outstanding shares of CRPL were exchanged for 13,437,322 shares of common stock of the third party. In addition, the Company will subscribe for 1,000,000 shares of the common stock of the third party at a cost of $350,000. As a result of these transactions, the Company will own approximately 70% of the issued and outstanding shares of common stock of that company. The merger was effected to expand the funding alternatives available to CRPL for future acquisition and development activities. On July 17, 1995 the Company filed a registration statement with the Securities and Exchange Commission for sale to the public of $12.5 million of convertible senior subordinated debentures due 2005 (excluding the underwriters' over-allotment option of $1.88 million). Proceeds from the offering 12 13 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CURRENT ACTIVITIES (CONTINUED) will be used to repay indebtedness, including borrowings incurred in connection with the acquisition of properties in Colombia, South America. ACQUISITION AND EXPLORATION On June 30, 1995, drilling operations commenced on a well in Smith County, Texas to test the Travis Peak Formation at a depth of approximately 8,500 feet. The well was completed at a total depth of 8,700 feet in August and shut-in on August 29, waiting on gas contract negotiations. In mid-October negotiations were complete and the well was put on production. Initial average daily production was 700 Mcf and 47 barrels of condensate. The Company owns a 10% working interest in the well, with the right to participate in additional drilling. On September 7, 1995 drilling operations commenced on the second horizontal well in the Company's North Belridge Field in Kern County, California. The well was completed as a commercial producer later that month, with initial average daily production of 35-40 barrels of oil. The Company owns a 50% working interest in the North Belridge Field. On September 12, 1995 the Company acquired from a Texaco Inc. subsidiary in Colombia one-half of that company's 50% interest in the Teca and Nare oil fields and one-half of its 100% interest in the Velasquez-Galan pipeline. The Company's gross acquisition cost for the interests in the Teca and Nare oil fields and the Velasquez-Galan pipeline was $12.25 million, which was reduced by the Company's share of production credits from the properties from January 1, 1995 to the closing date (approximately $3.95 million), leaving a net purchase price of approximately $8.3 million. The Company financed the net purchase price in part through a cash payment of $1.4 million previously paid to the seller, a loan of $2.2 million from Capco Resources Ltd., the majority shareholder of the Company, and a $4.7 million loan from a bank. In addition, the Company assumed an oil imbalance obligation in the amount of $932,700 in connection with this acquisition which was included in the cost of the acquired properties. The acquired properties consist of approximately 2,598 gross (649 net) developed acres and 5,719 gross (1,430 net) undeveloped acres and include 310 gross (77.5 net) producing oil wells. The Company estimates that the acquired properties will increase proved reserves by approximately 4.5 million barrels of oil. In addition, the acquisition includes a 117 mile long pipeline which connects the Company's producing properties to a Colombian government-owned refinery. The pipeline also transports third party crude oil which will provide revenue to the Company in the form of tariffs for use of the pipeline. On September 29, 1995, the Company acquired various working interests in producing oil and gas properties located in west Texas and New Mexico. The acquired properties consist of approximately 1,926 gross (1,255 net) developed acres and 378 gross (209 net) undeveloped acres and include 26 gross (4.7 net) producing oil and gas wells. Proved reserves attributable to the Company's interest at acquisition are estimated to be 26,000 barrels of oil and 441,000 Mcf of gas. Management believes that the acquisition presents several development opportunities which will be considered beginning in the fourth quarter of 1995. 13 14 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES At September 30, 1995, the Company's total current assets were $4.45 million and its total current liabilities were $13.62 million. Included in current liabilities was $8.52 million attributable to the current portion of long-term debt, and an $842,000 obligation due for repayment from future oil production in Colombia. The Company's assets, consisting primarily of oil and gas properties, are not immediately liquid and are subject to various restrictions on transfer. The Company is currently experiencing cash flow difficulties caused, in part, by the delayed receipt of initial oil revenues in Colombia which are accruing to the Company and the need to currently fund related operating expenses following its recent acquisition of the Teca/Nare Fields and Velasquez-Galan Pipeline. The Company has no available borrowing capacity under its bank credit facility, which facility prohibits the Company from incurring other indebtedness without the lender's consent. The Company does not currently have sufficient internally-generated capital resources to otherwise fund initial working capital requirements for these properties, but will upon completion of the proposed debenture offering ("Offering"), although completion of the Offering will increase interest expense of the Company. If the Offering is not completed, the Company intends to seek additional capital from a variety of potential sources. However, there can be no assurance that any such additional financing could be obtained, or obtained on terms that are favorable or acceptable to the Company. Upon completion of the offering, after giving effect to the application of the net proceeds therefrom, the Company anticipates that it will have approximately $3.2 million of borrowing capacity available under its bank credit facility. The Company believes that this borrowing capacity plus cash flows from operations would be sufficient to fund its working capital requirements. The Company has expanded its operations through acquisitions of oil and gas producing properties, and intends to do so in the future by the means of additional financing. The Company funded its acquisition of the Teca/Nare Fields and Velasquez-Galan Pipeline in part by obtaining a loan of $2.2 million, bearing interest at prime plus one percent per annum, from Capco, its majority shareholder and in part by borrowing $4.7 million from a bank, which borrowing has been guaranteed by Ilyas Chaudhary, the controlling shareholder of Capco. Of such $2.2 million loan, $600,000 will, prior to the close of the Offering, be converted into 75,000 shares of Common Stock of the Company at a conversion price of $8.00 per share. The Company intends to fund its acquisition of the adjacent Cocorna Field in Colombia, which is under contract and scheduled to close in the fourth quarter of 1995, through utilization of funds anticipated to be available from the Company's revolving line of credit, following the close of the Offering. The Company has a reducing, revolving line of credit with Bank One, Texas, N.A. At September 30, 1995, the borrowing base under the credit agreement was $10.7 million, subject to a monthly reduction of $200,000. Outstanding debt at September 30, 1995 for this credit facility was $10.7 million. 14 15 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Should the Company be unable to obtain equity and/or debt financing in amounts sufficient to fund projected activities, it may be constrained in its ability to acquire and/or develop additional oil and gas properties. RESULTS OF OPERATIONS The Company reported net income of $230,000 and $120,000 for the nine and three month periods ended September 30, 1995, respectively, as compared with net income of $238,000 and $114,000 for the same periods in 1994. 1995 compared to 1994 Results of the Company's oil and gas producing activities for the nine and three month periods ended September 30, 1995 and 1994 were as follows: Nine Months Ended September 30, 1995
United Total States Canada Colombia ----------- ----------- ----------- ----------- Oil and gas sales $10,976,571 $ 8,354,434 $ 1,156,852 $ 1,465,285 Production costs $ 6,923,330 $ 5,520,635 $ 544,178 $ 858,517 Depletion $ 1,811,839 $ 1,274,660 $ 322,419 $ 214,760 Oil volume (BBL) 745,581 513,019 56,359 176,203 Gas volume (MCF) 1,051,917 686,937 364,980 Barrels of oil equivalent (BOE) 920,901 627,509 117,189 176,203 Average per BOE: Sales price $ 11.92 $ 13.31 $ 9.87 $ 8.31 Production costs $ 7.51 $ 8.79 $ 4.64 $ 4.87 Depletion $ 1.96 $ 2.03 $ 2.75 $ 1.21
15 16 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Nine Months Ended September 30, 1994
United Total States Canada ----------- ----------- ----------- Oil and gas sales $ 8,964,935 $ 7,717,971 $ 1,246,964 Production costs $ 5,490,305 $ 4,913,701 $ 576,604 Depletion $ 1,612,720 $ 1,296,545 $ 316,175 Oil volume (BBL) 557,528 489,785 67,743 Gas volume (MCF) 1,036,861 744,324 292,537 Barrels of oil equivalent (BOE) 730,338 613,839 116,499 Average per BOE: Sales price $ 12.28 $ 12.57 $ 10.70 Production costs $ 7.52 $ 8.00 $ 4.95 Depletion $ 2.21 $ 2.11 $ 2.71
Three Months Ended September 30, 1995 - - - ------------------------------------- United Total States Canada Colombia ----------- ----------- ----------- ----------- Oil and gas sales $ 3,959,082 $ 2,770,649 $ 316,215 $ 872,218 Production costs $ 2,555,744 $ 1,832,206 $ 183,072 $ 540,466 Depletion $ 661,223 $ 403,980 $ 81,348 $ 175,895 Oil volume (BBL) 286,620 173,441 18,781 94,398 Gas volume (MCF) 273,741 236,171 37,570 Barrels of oil equivalent (BOE) 332,243 212,803 25,042 94,398 Average per BOE: Sales price $ 11.91 $ 13.01 $ 12.62 $ 9.23 Production costs $ 7.69 $ 8.60 $ 7.31 $ 5.72 Depletion $ 1.99 $ 1.89 $ 3.24 $ 1.86
16 17 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended September 30, 1994 - - - ------------------------------------- United Total States Canada ----------- ----------- ----------- Oil and gas sales $ 3,420,569 $ 2,829,331 $ 591,238 Production costs $ 2,046,573 $ 1,765,916 $ 280,657 Depletion $ 614,601 $ 445,280 $ 169,321 Oil volume (BBL) 204,087 172,058 32,029 Gas volume (MCF) 336,373 217,220 119,153 Barrels of oil equivalent (BOE) 260,149 208,261 51,888 Average per BOE: Sales price $ 13.15 $ 13.59 $ 11.39 Production costs $ 7.87 $ 8.48 $ 5.41 Depletion $ 2.36 $ 2.14 $ 3.26
In the third quarter of 1995, net income increased by $6,000 (5.3%) to $120,000 from $114,000 in the third quarter of 1994. Oil and gas sales increased $540,000, or 15.8%, to $3.96 million for the three months ended September 30, 1995, from $3.42 million for the same period of 1994, due to production from the Company's Colombian properties which were acquired in 1995. Production costs increased $510,000, or 24.9%, to $2.56 million for the third quarter of 1995 from $2.05 million for the same period of 1994, due to an increase in production of 72,000 barrels of oil equivalent ("BOE"), or 27.7%, to 332,000 BOE in the third quarter of 1995 from 260,000 BOE in the third quarter of 1994. Depletion, depreciation and amortization increased $51,000, or 7.7%, to $712,000 for the three months ended September 30, 1995 from $661,000 for the three months ended September 30,1994, due principally to an increase in cost depletion of $47,000 resulting from increased production. Interest expense increased $172,000, or 101.8%, to $341,000 for the third quarter of 1995 from $169,000 for the same period of 1994 due principally to an increase in the average balance outstanding under the Company's revolving line of credit of $5.35 million, or 96.2%, from $5.56 million to $10.91 million, and an increase in that facility's weighted average interest rate of 131 basis points, or 15.5%, from 8.46% to 9.77%. Oil and gas sales increased $2.01 million, or 22.4%, to $10.98 million for the nine months ended September 30, 1995, from $8.97 million for the same period of 1994. The increase was primarily the result of an increase of 5.9% in the United States of the average sales price per BOE from $12.57 in the nine months ended September 30, 1994 to $13.31 for the same period of 1995, and increases in the Company's oil and gas production. Of such increase, $465,000 was attributable to the average sales price per BOE increase in the United States. A decrease of 7.8% in Canada of the average sales price per BOE from $10.70 in the nine months ended September 30, 1994 to $9.87 for the same period of 1995 due to declining gas prices resulted in a decrease in oil and gas sales of $97,000. Increases in the Company's oil and gas production represented $1.64 million of the increase of oil and gas sales. Of such production increase, $974,000 was due to production from the Velasquez Field, which was acquired in January 1995, $491,000 was due to production from the Teca and Nare Fields, which were 17 18 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) acquired in September 1995, and the remaining $177,000 stemmed from a net production increase of 14,000 BOE in the United States and Canada, resulting from acquisitions in the latter part of 1994 and first half of 1995, reduced by property divestitures, normal production declines and production interruptions resulting from severe weather conditions in California in the first quarter of 1995. Other revenues increased $148,000, or 55.0%, to $417,000 for the nine months ended September 30, 1995, from $269,000 for the same period of 1994, due principally to fees invoiced to a third party in 1995 for the use of Company facilities and pipeline tariffs charged by the Company's Colombian subsidiary. Production costs increased $1.43 million, or 26.0%, to $6.92 million for the nine months ended September 30, 1995, from $5.49 million for the same period of 1994. Of this increase, $498,000 was the result of an average production cost per BOE increase of $0.79 in the United States, due principally to operations at the Company's heavy-oil properties in the Santa Maria, California area. The combined production increase of 14,000 BOE in the United States and Canada was responsible for a cost increase of $108,000 in the first nine months of 1995, compared to the same period of 1994. From their acquisition dates of January 31, 1995 and September 12, 1995, the Velasquez Field and Teca and Nare Fields incurred production costs of $583,000 and $275,000, respectively, in the period ended September 30, 1995. General and administrative expenses increased $90,000, or 6.8%, to $1.41 million for the nine months of 1995, from $1.32 million for the same period of 1994, due principally to general and administrative expenses incurred by the Company's refinery and real estate subsidiaries, which did not begin operations until the third and fourth quarters of 1994, respectively. Depletion, depreciation and amortization expenses increased $204,000, or 11.8%, to $1.93 million in the first nine months of 1995, from $1.73 million for the same period of 1994. Oil and gas depletion expense increased $199,000, or 12.3%, to $1.81 million for the first nine months of 1995, from $1.61 million for the same period of 1994. In the United States, production of oil and gas increased 13,000 BOE, or 2.1%, to 627,000 BOE for the first nine months of 1995, from 614,000 BOE for the same period of 1994. Depletion expense in the United States decreased $22,000 to $1.28 million, or $2.03 per BOE, for the first nine months of 1995, from $1.3 million, or $2.11 per BOE, for the same period of 1994, due principally to an increase in proved reserves at January 1, 1995. In Canada, production of oil and gas increased 1,000 BOE, or 0.9%, to 117,000 BOE for the first nine months of 1995, from 116,000 BOE for the same period of 1994. Depletion expense in Canada increased $6,000 to $322,000, or $2.75 per BOE, for the first nine months of 1995, from $316,000, or $2.71 per BOE, for the same period of 1994. Depletion expense in Colombia was $215,000, or $1.21 per BOE, for the first nine months of 1995. Depreciation and amortization expense increased $5,000, or 4.4%, to $119,000 for the first nine months of 1995, from $114,000 for the same period of 1994. Interest expense increased $305,000, or 64.5%, to $778,000 for the nine months ended September 30, 1995, from $473,000 for the same period of 1994, due principally to the Company's bank borrowings under its revolving line of credit facility. The average debt balance outstanding under the Company's revolving line of credit for the nine months ended September 30, 1995 increased $2.43 million, or 18 19 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) 40.7%, to $8.38 million, from $5.95 million for the same period of 1994, due principally to the use of proceeds to fund property acquisitions which closed during 1995. The weighted average interest rate for the Company's revolving line of credit increased 209 basis points, or 26.9%, to 9.86% for the nine months ended September 30, 1995 from 7.77% for the same period of 1994. Interest expense incurred by CRPL decreased by $37,000, or 30.3%, to $85,000 for the nine months ended September 30, 1995, from $122,000 for the same period of 1994, due to monthly principal reductions under the term loan and retirement of a note payable in January 1995. The Company's refinery subsidiary incurred interest expense of $65,000 in the nine month period ended September 30, 1995. Other income (expense) decreased $44,000, or 46.8%, to income of $50,000 for the nine month period ended September 30, 1995, from income of $94,000 for the same period of 1994. The change was primarily due to non-recurring expenses of $119,000 in 1994 resulting from the Company's sale of its oil and gas environmental services business effective March 31, 1994, and proceeds of $198,000 realized in settlement of litigation in June 1994. Land rental income of $45,000 was realized in the nine months ended September 30, 1995. The Company's oil and gas producing business is not seasonal in nature. NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which the Company will be required to implement in 1996. Management is currently assessing the impact, if any, which this new accounting standard, when adopted, will have on the Company. 19 20 PART II - OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K o Exhibits filed during the quarter ended September 30, 1995 are as follows:
EXHIBIT NUMBER DESCRIPTION - - - -------------- ----------- 10.1 Purchase Agreement, filed as Exhibit 2.1 to the Company's current report on Form 8-K dated September 28, 1995 and incorporated herein by reference. 10.2 Amendment No. 1 to Purchase Agreement, filed as Exhibit 2.2 to the Company's current report on Form 8-K dated September 28, 1995 and incorporated herein by reference. 10.3 Amendment to Loan Agreement between the Company and Bank One, Texas, N.A.
o Reports filed under Form 8-K during the quarter ended September 30, 1995 are as follows:
FORM DATE FILING - - - ---- ---- ------ Form 8-K September 28, 1995 Item 2. Acquisition or Disposition of Assets Item 7. Financial Statements and Exhibits, including the Purchase Agreement and Amendment No. 1 to Purchase Agreement with Texas Petroleum Company.
20 21 SIGNATURES In accordance with the requirements of the Exchange Act, the issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SABA PETROLEUM COMPANY Date: November 14, 1995 By: /s/ Ilyas Chaudhary ------------------------------ Ilyas Chaudhary President (Principal Executive Officer) Date: November 14, 1995 /s/ Walton C. Vance ----------------------------- Walton C. Vance (Principal Financial and Accounting Officer) 21 EX-10.3 2 EXHIBIT 10.3 1 THIRD AMENDMENT TO LOAN AGREEMENT DATED SEPTEMBER 20, 1993 BY AND BETWEEN SABA PETROLEUM COMPANY AND BANK ONE, TEXAS, N.A. This Third Amendment to the Loan Agreement dated September 20, 1993 (this "Third Amendment") by and between SABA PETROLEUM COMPANY, a Colorado corporation (the "Borrower"), and BANK ONE, TEXAS, N.A., a national banking association (the "Bank"), is entered into on this 7th day of September, 1995, and shall be effective as of that date for all purposes except that as to Sections 5.20 and 5.21 this Third Amendment shall be effective as of June 30, 1995. W I T N E S S E T H: Borrower and Bank entered into a Loan Agreement dated September 20, 1993, and subsequently entered into a First Amendment to said Loan Agreement on July 22, 1994, effective as of March 31, 1994, followed by a letter amendment thereto dated January 20, 1995, followed by a Second Amendment thereto dated effective as of March 31, 1995 (collectively the "Loan Agreement"). Borrower has requested that Bank (i) provide to the Borrower, in addition to the Revolving Loan, a Term Loan in the amount of $4,700,000.00 to partially finance the acquisition by Sabacol, Inc. of certain Colombian oil properties and (ii) amend certain provisions of the Loan Agreement, and the Bank has agreed to provide a Term Loan and to such amendments to the extent expressly set forth herein. NOW, THEREFORE, in consideration of the promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the Borrower and the Bank, and each intending to be legally bound hereby, the parties agree as follows: I. Specific Amendments to Loan Agreement. Article I is hereby amended by adding, replacing or amending the following definitions therein: "BANK ONE Base Rate" means, at any time, the rate of interest per annum then most recently established by the Bank as its BANK ONE Base Rate, which is eight and three-quarters percent (8.75%) as of the date of the Third Amendment. "Cash Flow of Sabacol" means all cash revenues, expressed in United States Dollar equivalency where such revenues 1 2 consist of other than United States Dollars, received by Sabacol during a designated period, including, but not limited to, cash revenues in United States Dollars and cash revenues in Colombian pesos, minus (i) cash operating expenses paid by Sabacol during such designated period and (ii) capital expenditures made by Sabacol during such designated period which were included in a capital budget for the first fiscal year of Sabacol which has been approved by the Bank, expressed in United States Dollar equivalency where such expenses or capital expenditures are paid using other than United States currency. "Collateral Documents" means the instruments described or referred to in Section 3.10 of this Agreement and in subsection 3.14(h) of the Third Amendment and any and all other instruments or documents hereafter executed in connection with or as security for the payment of the Notes. "Colombian Oil Properties" means the interests, properties, licenses and rights described on Exhibit "A" attached to the Third Amendment. "Corporate Guarantor(s)" means individually and collectively Saba Energy of Texas, Incorporated, a Texas corporation, Saba Petroleum, Inc., a California corporation, Saba Petroleum of Michigan, Inc., a Michigan corporation, and Sabacol. "Environmental Laws" means (a) the following federal laws as they may be cited, referenced and amended from time to time: the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Endangered Species Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the Hazardous Materials Transportation Act, the Superfund Amendments and Reauthorization Act, and the Toxic Substances Control Act; (b) any and all environmental statutes of the republic of Colombia or of any state in which property of the Borrower or any of its Subsidiaries is situated, as they may be cited, referenced and amended from time to time; (c) any rules or regulations promulgated under or adopted pursuant to the above federal and state laws or laws of the republic of Colombia; and (d) any other federal, state, local, or republic of Colombia statute or any requirement, rule, regulation, code, ordinance or order adopted pursuant thereto, including, without limitation, those relating to the generation, transportation, treatment, storage, recycling, disposal, handling or release of Hazardous Substances. "Guarantor(s)" means individually and collectively the Corporate Guarantors and the Individual Guarantor. 2 3 "Guaranty" means, with respect to each Guarantor, the guaranty of such Guarantor of all of Borrower's Obligations to the Bank, in substantially the form of Exhibit "E-1," "E-2," and "E-3," respectively, attached hereto, and Exhibit "D-1" and "D-2", attached to the Third Amendment, but being limited with respect to certain of the Guarantors to the extent set forth in the Guaranty for such Guarantor. "Individual Guarantor" means Ilyas Chaudhary, a natural person, who is Chairman of Borrower and Sabacol. "Limitation Period" means any period while any amount remains owing on the Revolving Note or the Term Note and interest on such amount calculated at the Floating Rate or the Term Note Floating Rate, respectively, plus any fees payable hereunder and deemed to be interest under applicable law would exceed the Maximum Rate. "Maturity Date" means October 1, 1996. "Notes" means the Revolving Note, the Amended Note and the Term Note, and any extension, renewal, or rearrangement of, or substitute for, any of such Notes. All references to the defined term, "Note," throughout this Agreement as it existed prior to the Third Amendment, shall be construed to refer to the Revolving Note, with the exception of the references to the term, "Note," in the definition of Borrowing Base Oil and Gas Properties in Article I, Sections 2.02, 2.11, 3.10, Article IV, Article V, Article VI, Article VII, and Article VIII which shall be construed subsequent to the date of the Third Amendment to refer to the defined term, "Notes," added by the Third Amendment. "Registration Statement" means the Securities and Exchange Commission Form SB-2 dated July 17, 1995, filed by Borrower with the Securities and Exchange Commission relating to the registration of $14,375,000 of Convertible Senior Subordinated Debentures (inclusive of debentures which the underwriters have the option to purchase to cover over-allotments) offered by Borrower. "Revolving Loan" means the Loan made pursuant to Section 2.01 hereof. "Revolving Note" means the promissory note in the original face amount of $25,000,000.00 dated of even date herewith made by the Borrower payable to the order of the Bank, in substantially the form attached hereto as Exhibit "C-1", together with all deferrals, renewals, extensions, amendments, modifications or rearrangements thereof, which promissory note shall evidence certain advances to the Borrower by the Bank pursuant to Section 2.01 hereof, and which is the same promissory note that defined the term 3 4 "Note" prior to the Third Amendment. The defined term "Note" in the singular, is deleted from Article I as of the date of the Third Amendment. "Sabacol" means Sabacol, Inc., a Delaware corporation, which is a wholly owned Subsidiary of Borrower. "Stock Pledge Agreement" means a stock pledge agreement substantially in the form of Exhibit "H" attached hereto and Exhibit "C" attached to the Third Amendment covering the stock of the Guarantors (except the Individual Guarantor), executed by the Borrower, along with the original stock certificates) representing 100% of the stock of the Guarantors (except the Individual Guarantor) and stock powers executed by the Borrower. "Term Loan" means that certain $4,700,000.00 term loan made or to be made by the Bank to the Borrower pursuant to Section 2.15 hereof. "Term Note" means the promissory note in the original face amount of $4,700,000.00 dated September 7, 1995, made by the Borrower payable to the order of the Bank, in substantially the form attached to the Third Amendment as Exhibit "B," together with all deferrals, renewals, extensions, amendments, modifications or rearrangements thereof, which promissory note shall evidence the advances to the Borrower by the Bank pursuant to Section 2.15 hereof. "Term Note Floating Rate" means: (a) prior to November 1, 1995, the BANK ONE Base Rate in effect from time to time plus one percent (1.00%), and (b) on and after November 1, 1995, the BANK ONE Base Rate in effect from time to time, plus four percent (4%). "Third Amendment" means the Third Amendment to this Agreement executed by Borrower and Bank on September 7, 1995 to be effective as of such date with the exception of Sections 5.20 and 5.21 which shall be effective as of June 30, 1995. Section 2.07 is hereby amended in its entirety as follows: 2.07 Provisions Relating to Interest. The Revolving Loan and the Term Loan outstanding from time to time hereunder shall bear interest at a daily rate equal to the Floating Rate or the Term Note Floating Rate per annum, respectively, each such change in the rate of interest charged on the Revolving Loan or the Term Loan to become effective without notice to the Borrower, on the effective date of each change in the BANK ONE Base Rate, calculated on the basis of a year of three hundred sixty-five (365) days from the date of advance through the date of repayment. 4 5 Subject to the terms and provisions of this Agreement, interest on the Revolving Note and, subsequent to the Conversion Date, on the Amended Note, calculated as aforesaid, shall be due and payable monthly as it accrues beginning November 1, 1993, and continuing thereafter on the first day of each succeeding calendar month thereafter while any amount remains owing on the Revolving Note and, subsequent to the Conversion Date, on the Amended Note, the interest payment in each instance to be that which has been earned and remains unpaid. It is the intention of the parties hereto to comply strictly with the usury laws of the State of Texas and the United States of America and, in this connection, there shall never be collected, charged or received on any sums advanced hereunder interest in excess of the Maximum Rate. Interest on past due interest and principal on the Revolving Note or the Term Note shall be at a daily rate equal to the lesser of (a) the Maximum Rate per annum or (b) the Floating Rate or the Term Note Floating Rate, as applicable, plus three percent (3%) per annum, calculated on the basis of a year of three hundred sixty-five (365) days for the number of days elapsed; and if no Maximum Rate exists, all past due interest and principal shall bear interest at a daily rate equal to the Floating Rate or the Term Note Floating Rate, as applicable, plus three percent (3%) per annum, calculated on a year of three hundred sixty-five (365) days for the number of days elapsed. Notwithstanding anything herein or in the Revolving Note, the Amended Note or the Term Note to the contrary, during any Limitation Period, the interest rate to be charged on amounts evidenced by any of the Notes shall be the Maximum Rate and the obligation of the Borrower for any fees payable hereunder and deemed to be interest under applicable law shall be suspended. During any period or periods of time following a Limitation Period, to the extent permitted by applicable laws of the State of Texas or the United States of America, the interest rate to be charged hereunder shall remain at the Maximum Rate until such time as there has been paid to the Bank (a) the amount of interest in excess of the Maximum Rate that the Bank would have received during the Limitation Period had the interest rate remained at the relevant Floating Rate or Term Note Floating Rate, as applicable, and (b) all interest and fees otherwise due to the Bank but for the effect of such Limitation Period. If under any circumstances the aggregate amounts paid on the Revolving Note, the Amended Note or the Term Note or under this Agreement include amounts which by law are deemed interest and which would exceed the amount permitted if the Maximum Rate were in effect, the Borrower stipulates that such payment and collection will have been and will be deemed to have been, to the extent permitted by applicable laws of the State of Texas or the United States of America, the result of 5 6 mathematical error on the part of both the Borrower and the Bank, and the Bank shall promptly refund the amount of such excess (to the extent only of such interest payments above the Maximum Rate which could lawfully have been collected and retained) upon discovery of such error by the Bank or notice thereof from the Borrower. Article II is hereby amended to add the following sections: 2.15 Term Loan. Subject to the terms and conditions and relying on the representations and warranties contained in this Agreement, the Bank agrees to make the Term Loan to the Borrower in a single advance on or after September 7, 1995. 2.16 The Term Note. The obligation of the Borrower to repay the Term Loan shall be evidenced by the Term Note. 2.17 Repayment of Term Loan. Interest on the Term Note, calculated as aforesaid in Section 2.07, shall be repaid by the Borrower in monthly installments on the first day of each month following the advance from the Bank to Borrower pursuant to Section 2.15, through and including the Maturity Date. Beginning November 1, 1995, and continuing on the first day of each month thereafter, Borrower shall pay to the Bank monthly installments, inclusive of principal and interest, equal to the greater of: (a) 100% of the Cash Flow of Sabacol calculated for the calendar month that ended two months prior to the applicable payment date, such payment to be applied first to accrued, unpaid interest and then to principal, or (b) $300,000.00 of principal plus accrued, unpaid interest; until the Maturity Date, when the entire unpaid balance of the Term Note, inclusive of principal and interest, shall be paid in full. 2.18 Voluntary Prepayment of the Term Note. The Borrower shall have the right and option to prepay, at any time and without penalty, all or any part of the balance outstanding on the Term Note. Any such prepayment received by the Bank shall be applied first to the payment of accrued and unpaid interest and then to the reduction of principal. 2.19 Mandatory Prepayment of the Term Note. The first proceeds received by the Borrower from the sale of the Convertible Senior Subordinated Debentures described in the Registration Statement shall be used by the Borrower to prepay in full the Term Loan. 6 7 Article III is hereby amended to add the following Section 3.14. 3.14 Conditions Precedent of Borrower in Connection With the Third Amendment. The obligation of the Bank to make the Term Loan referred to in Section 2.15 of this Agreement is subject to satisfaction of the following conditions precedent: (a) Receipt of Term Note, Third Amendment and Certificate of Compliance. The Bank shall have received the Term Note, multiple counterparts of the Third Amendment, as requested by the Bank, and the Certificate of Compliance duly executed by an authorized officer for the Borrower and, as to the Third Amendment, by each Guarantor. (b) Receipt of Articles of Incorporation and Bylaws. The Bank shall have received from the Borrower and Sabacol its Articles of Incorporation certified by the Secretary of State of the state of its incorporation and bylaws certified by the Secretary or an Assistant Secretary of such entity. (c) Receipt of Certified Copy of Corporate Proceedings and Certificate of Incumbency. The Bank shall have received from the Borrower and from Sabacol copies of all resolutions of its board of directors with respect to the transactions set forth in the Third Amendment and the execution of the Third Amendment, the Term Note (as to the Borrower only) and those of the Collateral Documents to which it is a party, such copy or copies to be certified by the secretary or an assistant secretary as being true and correct and in full force and effect as of the date hereof. In addition, the Bank shall have received from the Borrower and from Sabacol a certificate of incumbency signed by the secretary or an assistant secretary setting forth (a) the names of the officers executing the Third Amendment, the Term Note (as to the Borrower only) and those of the Collateral Documents to which it is a party, (b) the office(s) to which such Persons have been elected and in which they presently serve and (c) an original specimen signature of each such person. (d) Closing of Acquisition of Colombian Oil Properties. The Bank shall have received evidence satisfactory to it, in its sole discretion, that Sabacol has unconditionally closed the acquisition of the Colombian Oil Properties and has become the owner thereof, free and clear of any liens, claims or encumbrances. (e) Accuracy of Representations and Warranties and No Event of Default. The representations and warranties contained in Article IV of this Agreement shall be true and correct in all material respects on the date of the making of such Loans or advances with the same effect as though such representations and warranties had been made on such date; and 7 8 no Event of Default shall have occurred and be continuing or will have occurred at the completion of the making of such Loans or advances, and the Bank shall have received satisfactory certificates signed by the President of the Borrower as to all questions of fact involved in this condition, including, without limitation, a Compliance Certificate. (f) Legal Matters Satisfactory to Special Counsel to the Bank. All legal matters incident to the consummation of the transactions contemplated by the Third Amendment shall be satisfactory to the firm of Hutcheson & Grundy, L.L.P., special counsel for the Bank. (g) No Material Adverse Change. No material adverse change shall have occurred since the date of this Agreement in the condition, financial or otherwise, of the Borrower or the Guarantors. (h) Collateral Documents. As security for the payment of the Term Note and the performance of the obligations of the Borrower and the Guarantors under this Agreement and the respective Guaranties, the Bank shall have received the duly executed: (i) Individual Guaranty, a Guaranty from Sabacol and ratifications of Guaranty in form and substance satisfactory to the Bank from each of the other Guarantors; (ii) Stock Pledge Agreement covering the stock of Sabacol along with a stock power; and (iii) UCC-1 Financing Statement covering the collateral described in the Stock Pledge Agreement described in (ii) above. (i) UCC Search. The results of a Uniform Commercial Code search showing all financing statements and other documents or instruments on file against Borrower and Sabacol, in the Offices of the Secretaries of State of the States of California and Texas, such search to be as of a date no more than ten (10) days prior to the date of the advance of the Term Loan. (j) Financial Statements. The Bank shall have received consolidated Financial Statements of the Borrower as of March 31, 1995, showing financial information consistent with that previously provided to the Bank. (k) Commitment Fee. The Bank shall have received the Commitment Fee earned under that certain commitment letter dated July 24, 1995 in the amount of the greater of $75,000.00 8 9 or two percent (2.0%) of the amount of the Term Note. In the event the Term Loan transaction is not closed for any reason whatsoever, the Borrower shall pay to Bank on or before September 15, 1995 the full amount of the Commitment Fee. (l) Proof of Insurance. The Bank shall have received evidence that Sabacol has obtained business interruption insurance in an amount satisfactory to the Bank. (m) Capital Budget. The Bank shall have received from the Borrower a capital budget for Sabacol in form and substance satisfactory to the Bank and covering the period from the date hereof through and including the Maturity Date. Section 4.01 is hereby amended to add the word "Corporate" before the word "Guarantor" at the beginning of the 2nd line. Section 4.02 is hereby amended to add the words "with respect to the Corporate Guarantors," at the beginning of 4.02(a) and (b), and after the word "or" in 4.02(c)(ii); and the words "such Guarantor" are substituted for the words "the party" in 4.02(c)(iii). Section 4.04 is hereby amended to change the word "Guarantors" in the 5th line thereof to read the "Individual Guarantor," and to add the word "Corporate" before the word "Guarantor" in the 12th line thereof. The phrase "and the results of operations" in Section 4.04 shall not be applicable to the Individual Guarantor. Section 4.05 is hereby amended by adding the word "Corporate" before "Guarantor" at the beginning of the 4th line thereof, and in the 14th line thereof and by inserting the phrase "or the Individual Guarantor" after the phrase "(taken as a whole)" in the 14th line thereof. Section 4.06 is hereby amended by inserting the word "Corporate" before the word "Guarantor" in the 1st line, the 11th line, and the 30th line thereof. Section 4.10 is hereby amended by replacing the words "the Guarantors" with "its subsidiaries" following the word "and" in the 13th line thereof. Section 4.11 is hereby amended by adding the phrase "(including Colombian tax returns)" after the word "returns" in the 3rd line thereof. Sections 4.12, 4.13 and 4.14 are each amended by inserting the word "Corporate" prior to the word "Guarantor" in each place where "Guarantor" is used. 9 10 Subsection 4.15(a) is hereby amended to add the phrase "or the Republic of Colombia" after the words "United States" in the 5th line thereof. Subsection 4.15(d) is hereby amended to insert the following at the beginning of the subsection: "Except for the resolution dated June 7, 1995, issued by the Colombian Ministry of the Environment which sets forth a number of measures aimed at correcting certain deficiencies that the Ministry has allegedly found in environmental aspects of the Colombian Oil Properties". Section 4.19 is hereby added to the end of Article IV: 4.19 Ownership of Colombian Oil Properties. From and after the time of the funding of the Term Loan pursuant to Section 2.15, Sabacol has good and indefeasible ownership of the Colombian Oil Properties, free and clear of any and all liens, claims or encumbrances, except as expressly disclosed to the Bank on Exhibit "A" attached to the Third Amendment; and all amounts due and payable by Sabacol and its predecessors in title to such Colombian Oil Properties have been duly paid; the obligations relating to such Colombian Oil Properties have been duly performed; and neither the Borrower nor Sabacol is aware of any default by any party with respect to such Colombian Oil Properties. Section 5.01 is hereby amended in its entirety as follows: 5.01 Use of Funds. Use the proceeds advanced under the Revolving Loan to finance the working capital needs of the Borrower, including the acquisition and development of oil and gas properties and use the proceeds advanced under the Term Loan to finance a portion of Sabacol's purchase of the Colombian Oil Properties, and furnish the Bank such evidence as it may reasonably require with respect to such uses. Section 5.02 is hereby amended by adding the phrase "and the Colombian Oil Properties" after the word "Properties" at the end of the 6th line thereof. Section 5.04 is hereby amended in its entirety as follows: 5.04 Annual Audited Financial Statements. Deliver to the Bank, on or before the one hundred and twentieth (120th) day after the close of each fiscal year of the Borrower, a copy of annual audited Financial Statements of the Borrower and all of its Subsidiaries on a consolidated basis, together with the report and unqualified opinion thereon of a firm of independent certified public accountants acceptable to the Bank at its sole discretion. 10 11 Section 5.07 is hereby amended by substituting the words "or any of" for the word "and" in the 4th line thereof. Section 5.09 is hereby amended by adding "and the Colombian Oil Properties" after the word "Properties" at the end of that section. Section 5.11 is hereby amended to insert the word "Corporate" before the word "Guarantor" in the 1st line thereof. Section 5.15 is hereby amended to insert "or the Colombian Oil Properties" after the word "Properties" at the end of that section. Section 5.16 is hereby amended in its entirety as follows: Maintenance of Insurance. Continue to maintain, or cause to be maintained, insurance with respect to the properties and business of the Borrower and each Corporate Guarantor against such liabilities, casualties, risks and contingencies and in such amounts as is customary in the industry, and in addition, maintain, or cause to be maintained, business interruption insurance on the business activities of Sabacol in an amount and form, and underwritten by an insurer or insurers, as are acceptable to the Bank in its sole discretion, and furnish to the Bank, at the time of execution of the Third Amendment and annually thereafter, certificates evidencing such insurance. Section 5.19 is hereby amended to insert the word "Corporate" before the word "Guarantor" in each place where Guarantor is used. Section 5.20 is hereby amended in its entirety as follows: Maintain a total tangible net worth (being total assets of the Borrower and its Subsidiaries, exclusive of (a) those assets classified as intangible, including, without limitation, goodwill, patents, trademarks, trade names, copyrights, franchises and deferred charges, (b) treasury stock and minority interests in any Person, (c) cash set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of capital stock, (d) to the extent not already deducted from total assets, allowances for depreciation, depletion, obsolescence and/or amortization of properties, uncollectible accounts, and contingent but probable liabilities as to which an amount can be established, (e) deferred taxes and (f) all assets arising from advances to officers, former officers or sales representatives of the Borrower and its Subsidiaries made outside of the ordinary course of business less total liabilities of Borrower and its Subsidiaries; all of the above being determined in accordance with GAAP, of not less than $6,250,000.00 as of June 30, 1995, plus (a) seventy percent (70%) of net income (excluding losses) of the Borrower and its Subsidiaries after June 30, 1995, and (b) seventy percent 11 12 (70%) of any increases in shareholder's equity of the Borrower and its Subsidiaries resulting from the sale or issuance of any equity subsequent to June 30, 1995. Section 5.21 is hereby amended by deleting subparagraph (a) thereof in its entirety, and replacing it with the following text: (a) A ratio of Cash Flow to Debt Service of not less than 1.25. Compliance with this covenant shall begin with the second quarter of 1995, and will thereafter be a cumulative calculation for each of the next three quarters. Beginning with the second quarter of 1996 and thereafter, this covenant shall be calculated on a rolling four quarter basis. For purposes of calculating this ratio: (i) "Cash Flow" shall be defined as the sum of net income plus non-cash expenses less non-cash revenues of the Borrower calculated on a consolidated basis, and (ii) "Debt Service" shall be defined as the sum of interest expense and scheduled principal payments of the Borrower calculated on a consolidated basis. Section 5.23 is hereby amended by adding "including, but not limited to, the Colombian Oil Properties" after "Guarantors," at the end of subsection 5.23(a). Section 5.31 is hereby added to the end of Article V: 5.31 Operation of Colombian Oil Properties. Operate or, to the extent that the right of operation is vested in others, exercise its best efforts to require the Operator to operate the Colombian Oil Properties and all wells drilled thereon and that may hereafter be drilled thereon, continuously and in a good and workmanlike manner in accordance with the best usage of the field and in accordance with all laws of the republic of Colombia, as well as all rules, regulations and laws of any governmental agency having jurisdiction to regulate the manner in which the operation of the Colombian Oil Properties shall be carried on, and comply with any assignment or contract obligating the Borrower or Sabacol in any way with respect to the Colombian Oil Properties; but nothing herein shall be construed to empower the Borrower or Sabacol to bind the Bank to any contract obligation, or render the Bank in any way responsible or liable for bills or obligations incurred by the Borrower or Sabacol. Section 6.01 is hereby replaced with the following text: 6.01 Other Indebtedness. Incur, create, assume or suffer to exist any Indebtedness, whether by way of loan or 12 13 the issuance or sale of securities except (a) Loans hereunder, (b) loans by the Bank under other credit arrangements, (c) Indebtedness owed to the Bank by any Affiliates of the Borrower, (d) unsecured accounts payable incurred in the ordinary course of business which are not more than sixty (60) days overdue or are being contested in good faith by appropriate proceedings, (e) non-recourse, unsecured loans not to exceed $50,000.00 for the purchase by Borrower of property or assets to be owned by the Borrower, (f) letters of credit or performance bonds required to be obtained by Borrower in the normal course of its business to assure the proper plugging and abandonment of oil or gas drilling or production locations, (g) existing Indebtedness of Santa Maria to the Borrower, (h) subordinated indebtedness of the Borrower to Capco Resources, Ltd. for money loaned to the Borrower for a portion of the purchase price of the Colombian Oil Properties; and (i) subsequent to the payment in full of all of the Borrower's Obligations under the Term Note, the Convertible Senior Subordinated Debentures issued pursuant to the Registration Statement. Section 6.05 is hereby amended by replacing "and Guarantor's operations when taken as a whole" with "or any Corporate Guarantor's operations" and for so long as the Term Loan is outstanding, adding "or Colombian Oil Properties" after the word "Properties" at the beginning of the 6th line thereof. Section 6.13 is hereby deleted in its entirety and is replaced with the following text: 6.13 Certain Capital Expenditures. Except as expressly permitted by Section 5.01, make any capital expenditures for items other than for the exploration, development or purchase of oil and gas properties located in the United States, or for the purchase of equipment to facilitate the production of oil or gas owned by Borrower or any of its Subsidiaries exceeding $300,000.00 annually, on a consolidated basis. Section 7.01(a) is hereby amended by adding "and Section 2.19" after "2.08" in the 4th line thereof. Section 7.01 is hereby amended by deleting subparagraph (e) thereof in its entirety, and replacing it with the following text: (e) Default shall be made by the Borrower or any Subsidiary (as principal, guarantor, or other surety) in payment or performance of any bond, debenture, the Revolving Note, the Amended Note, the Term Note, or any other note or other evidence of Indebtedness for borrowed money, or under any of the Collateral Documents, or any other credit agreement, loan agreement, indenture, promissory note or similar agreement or instrument executed in connection with any of the foregoing; and such default shall remain unremedied 13 14 for in excess of the period of grace, if any, with respect thereto, entitling any payee or obligee thereunder to accelerate the maturity of any such Indebtedness; II. General Amendments to Loan Agreement. a. The Bank hereby consents to the issuance by Borrower of up to $14,375,000.00 (including any underwriter's over allotment) in subordinated convertible debentures on terms and conditions substantially identical to those described in the Registration Statement. The provisions of the Loan Agreement, specifically including, but not limited to, Section 6.01 thereof, are amended to the extent, but only to the extent, necessary to authorize the issuance of such subordinated convertible debentures on the terms and conditions stated in the Registration Statement. b. The Bank hereby also consents to the acquisition by Sabacol, using the proceeds of the Term Loan together with other sources of funds as described in such Registration Statement, to acquire the Colombian Oil Properties. The provisions of the Loan Agreement, specifically including, but not limited to, the provisions of Sections 6.09, 6.11 and 6.13 thereof, are hereby amended to the extent, but only to the extent, necessary to authorize the acquisition of such Colombian Oil Properties. C. The Bank hereby also consents to Borrower paying up to $250,000.00 toward any clean up action required by the Colombian Ministry of the Environment in connection with the Colombian Oil Properties. d. The consent and amendments in Section II of this Third Amendment shall not be deemed to be a consent or amendment by the Bank of any other covenant, condition or obligation on the part of the Borrower or any of its Subsidiaries, except as expressly and unambiguously set forth in this Third Amendment. Any further or broader consents or amendments must be specifically agreed to in writing in accordance with Section 8.13 of the Loan Agreement. III. Reaffirmation of Representations and Warranties. To induce the Bank to enter into this Third Amendment, the Borrower and each Guarantor hereby reaffirms, as of the date hereof, its representations and warranties contained in Article IV of the Loan Agreement and in all other documents executed pursuant thereto, and additionally represents and warrants as follows: A. The execution and delivery of this Third Amendment and the performance by the Borrower and each Guarantor of its obligations under this Third Amendment are within the Borrower's and each Guarantor's power, have been duly authorized by all necessary corporate action, have received all necessary governmental approval (if any shall be required), and do not and will not contravene or conflict with any provision of law or of the charter or by-laws of the 14 15 Borrower or any Guarantor or of any agreement binding upon the Borrower or any Guarantor. B. The Loan Agreement as amended by this Third Amendment represents the legal, valid and binding obligations of the Borrower and each Guarantor, enforceable against each in accordance with their respective terms subject as to enforcement only to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally. C. No Event of Default or Unmatured Event of Default has occurred and is continuing as of the date hereof. IV. Defined Terms. Except as amended hereby, terms used herein that are defined in the Loan Agreement shall have the same meanings herein. V. Reaffirmation of Loan Agreement. This Third Amendment shall be deemed to be an amendment to the Loan Agreement, and the Loan Agreement, as further amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Loan Agreement herein and in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Loan Agreement as amended hereby. VI. Entire Agreement. The Loan Agreement, as hereby further amended, embodies the entire agreement between the Borrower, the Guarantors and the Bank and supersedes all prior proposals, agreements and understandings relating to the subject matter hereof. The Borrower and each Guarantor certifies that it is relying on no representation, warranty, covenant or agreement except for those set forth in the Loan Agreement as hereby further amended and the other documents previously executed or executed of even date herewith. VII. Governing Law. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. This Third Amendment has been entered into in Harris County, Texas, and it shall be performable for all purposes in Harris County, Texas. Courts within the State of Texas shall have jurisdiction over any and all disputes between the Borrower and the Bank, whether in law or equity, including, but not limited to, any and all disputes arising out of or relating to this Third Amendment or any other Loan Document; and venue in any such dispute whether in federal or state court shall be laid in Harris County, Texas. VIII. Severability. Whenever possible each provision of this Third Amendment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Third Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent 15 16 of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Third Amendment. IX. Execution in Counterparts. This Third Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument, and any signed counterpart shall be deemed delivered by the party executing such counterpart if sent to any other party hereto by electronic facsimile transmission. X. Section Captions. Section captions used in this Third Amendment are for convenience of reference only, and shall not affect the construction of this Third Amendment. XI. Successors and Assigns. This Third Amendment shall be binding upon the Borrower, each Guarantor and the Bank and their respective successors and assigns, and shall inure to the benefit of the Borrower, each Guarantor and the Bank, and the respective successors and assigns of the Bank. XII. Non-Application of Chapter 15 of Texas Credit Codes. The provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil Statutes, Article 5069-15) are specifically declared by the parties hereto not to be applicable to the Loan Agreement as hereby further amended or any of the other Loan Documents or to the transactions contemplated hereby. XIII. Notice. THIS THIRD AMENDMENT TOGETHER WITH THE LOAN AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed as of the day and year first above written. BORROWER SABA PETROLEUM COMPANY By: /s/ ILYAS CHAUDHARY ---------------------------------- Ilyas Chaudhary, Chairman 16 17 BANK BANK ONE, TEXAS, N.A. By: /s/ STEPHEN M. SMITH ---------------------------------- Stephen M. Smith Vice President GUARANTORS: SABA ENERGY OF TEXAS, INCORPORATED By: /s/ ILYAS CHAUDHARY ---------------------------------- Ilyas Chaudhary, Chairman SABA PETROLEUM, INC. By: /s/ ILYAS CHAUDHARY ---------------------------------- Ilyas Chaudhary, Chairman SABA PETROLEUM OF MICHIGAN, INC. By: /s/ ILYAS CHAUDHARY ---------------------------------- Ilyas Chaudhary, Chairman SABACOL, INC. By: /s/ ILYAS CHAUDHARY ---------------------------------- Ilyas Chaudhary, Chairman /s/ ILYAS CHAUDHARY - - - -------------------------------------- Ilyas Chaudhary, Individually 17 EX-27 3 FINACIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1995 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS PRESENTED IN QUARTERLY REPORT FORM 11-QSB FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 31, 1995. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 159 0 3,772 72 0 4,454 36,828 9,273 33,040 13,619 11,511 6,191 0 0 778 33,040 0 11,394 0 10,238 0 22 778 405 175 230 0 0 0 230 .05 0
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