Pre-Effective Amendment to Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2/A Amendment No. 1 to Form SB-2 96 349K
2: EX-5.1 Opinion re: Legality 2 10K
6: EX-10.10 Material Contract 14 61K
3: EX-10.7 Material Contract 3 20K
4: EX-10.8 Material Contract 2 9K
5: EX-10.9 Material Contract 13 40K
7: EX-23.2 Consent of Experts or Counsel 1 6K
SB-2A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON August 29, 2001
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TRANSMERIDIAN EXPLORATION INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware 1311 76-0644935
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
Incorporation or Classification Code)
Organization)
Bruce Falkenstein, Vice President
and Assistant Secretary
11811 North Freeway, Suite 500, 11811 North Freeway Suite 500,
Houston, Texas 77060 Houston, Texas, 77060
(281) 591-4777 (281) 591-4777
(Address, Including Zip Code, (Name, Address, Including Zip Code,
and Telephone Number, Including Area and Telephone Number, Including Area
Code of Registrant's Executive Offices) Code, of Agent for Service)
Copies of Correspondence to:
Joseph Sierchio, Esq.
Sierchio & Company, LLP
150 East 58th Street
News York, New York 10155
(212) 446-9500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
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If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, check the following box and
list the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
Registration Statement number of the earlier Registration Statement for the same
offering. [ ]
1
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
Registration Statement number of the earlier Registration Statement for the same
offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
[Enlarge/Download Table]
CALCULATION OF REGISTRATION FEE
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Title Of Each Class Of Number of Proposed Proposed Amount of
Securities To Shares To Be Maximum Maximum Registration
Be Registered Registered Offering Price Aggregate Fee (5)
Per Share Offering Price
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Common Stock, $.006 par value (1) 8,809,500 $2.00 $17,619,000
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Common Stock (2) 15,615,000 $2.00 31,230,000
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Common Stock (3) 1,500,000 $2.00 3,000,000
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Common Stock (4) 1,375,500 $2.00 2,751,000
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Total 27,300,000 $2.00 $54,600,000 $13,650
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(1) We are offering 8,809,500 shares directly.
(2) These shares are being registered on behalf of certain unaffiliated
shareholders who purchased these shares from us in a private placement.
(3) These shares are issuable upon conversion of our Convertible Series B
Preferred Shares.
(4) These shares are issuable upon exercise of outstanding warrants having an
exercise price of $1.00 per share.
(5) Calculated in accordance with Rule 457(c) under the Securities Act of 1933.
$12,000 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
2
EXPLANATORY NOTE
This registration statement relates to the registration of a total of
27,300,000 shares of our common stock. Of this amount, 8,809,500 are being
registered for sale directly by us. The balance of 18,490,500 are being
registered by certain of our shareholders. The shareholders may not sell any
shares until 120 days from the effective date of the registration statement. The
following sections in the selling shareholder prospectus will differ from ours:
Cover Page of Prospectus Different
Table of Contents Different
Prospectus Summary Different
Use of Proceeds Different
Arbitrary Determination of Offering Price Deleted
Dilution Deleted
Capitalization Deleted
Registered shareholders New
Plan of Distribution Different
Otherwise, the prospectus to be used by the registered shareholders will be
identical to ours. To the extent different, the sections of the Selling
Shareholder Prospectus have been included, immediately following our Financial
Statements.
3
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is not
an offer to sell these securities, and it is not soliciting an offer to buy
these securities, in any state where the offer or sale is not permitted.
Subject to Completion, August 31, 2001
TRANSMERIDIAN EXPLORATION INCORPORATED
8,809,500 SHARES OF COMMON STOCK
--------------------------
This is our initial public offering. We are offering to sell up to
8,809,500 shares of our common stock at a price of $2.00 per share on a direct
basis. This means that the proceeds from the offering will not be kept in an
escrow account pending completion of this offering. We will use the proceeds, as
discussed in the prospectus, as we receive them. There is no maximum investment
amount per investor. At this time we intend to offer the shares ourselves
through our officers and directors. This is a direct offering, with no
commitment by anyone to purchase any shares. Our shares will be offered and sold
by our principal executive officers and directors.
We have also registered a total of 18,490,500 shares for our unaffiliated
shareholders by separate prospectus commencing immediately upon termination of
our offering but not later than 120 days from the date of this prospectus.
Although we have paid the expense of the registration of such shares, we will
not receive any of the proceeds from the sale of shares by the registered
shareholders if any, with the exception of the proceeds, if any, from the
exercise of warrants.
There is no public market for our common stock nor can we give you any assurance
that such a market will in fact develop following completion of our offering.
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Price to Public Estimated Net Proceeds to Us
Offering Expense
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Per Share $2.00 $.03 $1.97
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Total $17,619,000 $150,000 $17,469,000
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See "Risk Factors" beginning on page for a discussion of material issues
to consider before making an investment decision regarding the
purchase of our common stock.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is [ ], 2001.
4
TABLE OF CONTENTS
Prospectus Summary...........................................................6
Risk Factors.................................................................9
Cautionary Note Regarding Forward-Looking Statements .......................15
Use of Proceeds.............................................................16
Arbitrary Determination of Offering Price...................................17
Dividend Policy.............................................................17
Dilution....................................................................17
Capitalization..............................................................19
Our Business and Properties.................................................20
Management Discussion of Plan of Business in 2001...........................33
Directors and Executive Officers............................................38
Executive Compensation .....................................................40
Security Ownership of Certain Beneficial Owners and Management..............42
Market For Our stock........................................................43
Description of Capital Stock................................................43
Antitakeover Effects of Delaware Law
and Amended/Restated Cert. of Incorp & Bylaws...............................44
Limitation of Liability and Indemnification Matters.........................45
Transfer Agent and Registrar................................................45
Shares Eligible for Future Sale.............................................45
Plan of Distribution .......................................................46
Legal Matters ..............................................................47
Experts.....................................................................47
Independent Petroleum Engineers.............................................47
Where You Can Find Additional Information...................................48
Glossary of Oil and Natural Gas Terms.......................................49
Index to Financial Statements...............................................59
Financial Statements....................................................F1-F12
Report of Independent Petroleum Engineers...................................72
5
PROSPECTUS SUMMARY
This summary highlights selected material information from the prospectus,
but may not contain all of the information that may be important to you. We
encourage you to read the entire prospectus, including "Risk Factors" and our
financial statements and the related notes, before making an investment decision
regarding the purchase of our common stock.
Unless the context otherwise requires, references to "Transmeridian",
"TMEI", "we", "us", and "our", refer to Transmeridian Exploration, Inc. We have
provided definitions for some oil and natural gas industry terms used in the
prospectus in "Glossary of Oil and Natural Gas Terms" beginning on page 42 which
you may find helpful in reading this prospectus.
Transmeridian Exploration Incorporated
We are an independent energy company established to acquire and develop
identified and underdeveloped hydrocarbon reserves in the region of the former
Soviet Union known as the Confederation of Independent States ("CIS") and more
particularly the Caspian Sea region, based in part on our management's
experience and business relationships in the area. We target opportunities with
proved and potential oil and natural gas reserves at below international finding
cost rates. We currently have one project under development. The project (which
is referred to in this prospectus at times as the "Kazakhstan Property" or the
"South Alibek Field") is located in the Caspian Region of western Kazakhstan,
and is situated near pipelines and railroads and oil field infrastructure. The
proximity to existing infrastructure for exportation of oil and gas, which
reduces associated costs as well as reduces the time needed to place wells on
production, will be an important factor in our acquisition of any additional
properties.
Our Corporate and Field Offices
In addition to our corporate headquarters at 11811 North Freeway, Suite 500,
Houston, Texas 77060, we have a branch office at 157 Dzhumaliev str. office
7,8,9 Almaty, Kazakhstan and a branch office in Aktobe, Kazakhstan, Gaziza
Zhubanova Street, 50 "A". Our Houston telephone number is (281) 591-4777, and
our website is www.tmei.com.
Our Reserves
As at December 31, 2000 we had estimated net proved reserves of 17,212,772
barrels of oil and 3.391 MMCF ( million cubic feet) with a net present value at
10% (before taxes) of $149,456,482 as measured on December 31, 2000. Of these
reserves, 5,675,781 barrels of oil and 1,118 MMCF were classified as proved
developed non- producing. In April of 2001 we acquired an additional 1,012,516
barrels of net proved reserves as a result of our acquisition of a third
party's interest. (See Page 27)
6
Our Growth Strategy
Our long term strategy is to develop a continuous stream of commercial
production from our Kazakhstan Property. We then will be poised to continue the
growth of our assets with the possible acquisition of similar properties in the
region.
We intend to finance this initial development through a financial plan based
upon, but not limited to:
o Funds generated from production
o Crude oil forward purchase contracts
o Joint Venture arrangements
o Sale of Equity
o Bank Loans
7
The Offering
o Common stock offered by us 8,809,500 shares at a price of $2.00 per
share. The purchase price of $2.00 per
share was arbitrarily determined by us.
o Common stock to be outstanding
upon completion of the offering 69,502,929 shares. *
o Term of offering We will offer the shares for sale for a
period of up to120 days from the date of
the prospectus
* This does not include 1,500,000 shares issuable upon conversion of our
Convertible Series B Preferred Shares and 1,375,500 shares issuable upon
exercise of outstanding warrants.
No Trading Market for Our Common Stock
There is no trading market for our shares and no assurance can be given
that such a market will develop or, if such trading market does develop, that it
will be sustained. We have no arrangements or understandings with respect to a
possible listing of our securities on any securities market. The absence of such
a trading market may limit the marketability and liquidity of our shares.
Use of Proceeds
Since there is no minimum amount to be raised, proceeds from our sale of
shares will be available for use by us as the funds are received. Because we are
offering the shares on a "direct" basis, we cannot represent what percentage of
the offered shares we will actually sell. We intend to apply proceeds from the
offering, after payment of expenses, for drilling costs of $8,400,000,
production facilities of $2,000,000 and the remainder for debt retirement,
working capital and overhead. See "Use of Proceeds."
8
RISK FACTORS
You should carefully consider the following risk factors before you make an
investment decision regarding the purchase of our shares. We have separated the
risks into two broad categories:
o risks relating to our business, properties and industry
o risks relating to the offering and ownership of our common stock
Risks Related to Our Business, Properties and Industry
Exploration and exploitation of oil and natural gas properties are high-risk
activities with many uncertainties that could harm our business, financial
condition or results of operations.
Our future existence and financial stability will depend on the success of
our exploration and production activities. Our activities are subject to
numerous risks beyond our control, including the risk that drilling for oil and
gas will not result in commercially viable oil or natural gas production. Our
decisions to purchase, explore, develop or otherwise exploit prospects or
properties will depend in part on the evaluation of data obtained through
geophysical and geological analyses, production data and engineering studies,
the results of which are often inconclusive or subject to varying
interpretations.
Our reserve estimates are dependent on the successful execution of our Financial
Plan.
Our reserve estimates are based upon the assumptions contained in the Ryder
Scott report which in part call for investment of approximately $10,000,000 in
order to fully realize the value of these reserves. We plan to raise the
required capital through, but not limited to, the sale of stock, bank loans,
commercial financing through crude oil forward purchase contracts and joint
ventures with other oil and gas operators.
Our reserve estimates are dependent on many assumptions that may ultimately turn
out to be inaccurate.
The reserve data presented in this prospectus represents only estimates. There
are numerous uncertainties inherent in estimating quantities of oil and natural
gas reserves of any category and in projecting future rates of production and
timing of development expenditures, which underlie the reserve estimates,
including many factors beyond our control. In addition, the estimates of future
net cash flows from an independent engineering evaluation of the known
producible reserves in the field and their present value are based upon various
assumptions about future production levels, prices and costs that may prove to
be incorrect over time. Any significant variance from the assumptions could
result in the actual quantity of our reserves and future net cash flows from
them being materially different from the estimates. In addition estimated
reserves may be subject to downward or upward revision based upon production
history, results or future exploration and development, prevailing oil and gas
prices, operating and development costs and other factors. Please read "Our
Business and Property---Oil & Natural Gas Reserves" for a discussion of our
proved oil and gas reserves.
9
All of our reserves and future estimated production originates from one
property. Because of this concentration, any production or delivery problems or
inaccuracies in reserve estimates related to this property could impact our
potential revenues and cash flow.
The South Alibek Field is the only field where we have the possibility of
establishing commercial production. If mechanical problems, storms, work
stoppages, or any other events occur to curtail a substantial portion of this
production, our revenue and cash flow would be affected adversely. One hundred
percent of an independent engineering evaluation of the known producible
reserves in the field are attributable to this property. If the actual reserves
associated with this property are less than our estimated reserves, our
business, financial condition or results of operations would be adversely
affected.
Drilling for oil and natural gas are high-risk activities with many
uncertainties that could harm our business, financial condition or results of
operations.
Our cost of drilling, completing and operating wells is often uncertain
before operations begin. Cost overruns in budgeted expenditures are common risks
that can make a particular project uneconomical. Further, many factors may
curtail, delay or cancel drilling and production operations, including the
following:
o pressure or irregularities in geological formations;
o shortages or delays in obtaining equipment and qualified personnel;
o equipment failures or accidents;
o adverse weather conditions, such as winter snow storms;
o labor unrest and strikes which prevent transportation of product or the
importation of equipment;
o title or licensing problems;
o compliance with governmental requirements and permits;
o limitations in the market for oil and natural gas;
o difficulty in enforcing contracts;
o capital market conditions and availability of financing;
o technical problems; and
o political and economic stability of the countries in which we operate
Since we have limited financial resources the occurrence of any one or more of
these events will place severe strains on our available capital resources.
Producing oil and natural gas are high-risk activities with many uncertainties
that could harm our business, financial condition or results of operations.
Our oil and natural gas exploration and production activities are subject
to all the operating risks associated with drilling for and producing oil and
natural gas, including the possibility of:
o environmental hazards, such as uncontrollable flows of oil, natural gas,
brine, well fluids, toxic gas or other pollution into the environment,
including groundwater and shoreline contamination;
o abnormally pressured formations;
o mechanical difficulties, stuck oilfield drilling and service tools and
casing collapse;
o fires and explosions;
o personal injuries and death; and
o natural disasters.
10
Failure to timely and economically transport our production will adversely
effect our ultimate profitability.
Currently our production is trucked to the railroad terminals in the
general area of the field. The crude is then loaded on rail tank cars and sold
on FOB terms with destinations to Finland or the Black Sea ports for export, or
local refineries within Kazakhstan. Transporting crude by truck is considered as
a temporary measure until we can establish our own pipeline connections to
export routes, which will take additional financing. If we do not establish
theses connections, we will not be able to fully maximize the potential profit
from our production.
Once production is commenced on the Kazakhstan Property, unless we replace our
oil and natural gas reserves, the reserves and production will decline, which
would adversely affect our cash flows and income.
Unless we conduct successful development, exploitation or exploration
activities or acquire properties containing proved reserves, proved reserves
will decline as those reserves are produced. Producing oil and natural gas
reservoirs generally are characterized by declining production rates that vary
depending upon reservoir characteristics and other factors. Our future oil and
natural gas reserves and production and therefore, cash flow and income, are
highly dependent on success in efficiently developing and exploiting current
reserves and economically finding or acquiring additional recoverable reserves.
We cannot assure potential investors that we will be able to develop, exploit,
find or acquire additional reserves to replace current and future production.
There are risks related to operating oil and natural gas exploration,
development, and production operations in Kazakhstan.
Adverse economic or political developments in Kazakhstan may adversely
affect our business. Kazakhstan has been independent from the Soviet Union for
only 10 years. Future changes in the political and economic environment in
Kazakhstan may adversely affect our business. As a result there is significant
potential for social, political, economic and legal instability. See "OUR
BUSINESS AND PROPERTIES "
Oil and gas prices historically have fluctuated over the years. A substantial or
extended decline in oil and natural gas prices may adversely affect our
business, financial condition or results of operations and our ability to meet
our capital expenditure obligations and other financial commitments.
The price we receive for our oil and natural gas production are tied to the
price of North Sea Brent Crude. North Sea Brent Crude prices fluctuate depending
upon several factors such as world demand. Brent crude oil prices have dropped
from $25.26 to $24.78 from May 15th to July 31st of this year. These price
fluctuations will heavily influence our revenue, profitability, access to
capital and future rate of growth. Oil and natural gas are commodities and,
therefore, their prices are subject to wide fluctuations in response to relative
minor changes in supply and demand. Historically, the markets for oil and
natural gas have been volatile. These markets will likely continue to be
volatile in the future. The prices received for production, and the levels of
production, depend on numerous factors beyond our control. These factors
include:
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o changes in global supply of and demand for oil and natural gas;
o the actions of the Organization of Petroleum Exporting Countries, or OPEC;
o worldwide economic conditions, which affect worldwide demand for energy;
o the price and quantity of foreign imports;
o political conditions, including embargoes on Iran, or others affecting
other oil-production countries;
o the level of worldwide exploration and production activity;
o weather conditions;
o interest rates and the cost of capital
o technological advances affecting energy consumption;
o domestic and foreign government regulation, legislation and policies; and
o the price and availability of alternative fuels.
Reduction in the price of our crude oil will effect not only our revenues and
our profitability, but also the value of our reserves.
We may face competition from larger and better financed companies seeking to
acquire properties in our sphere of operation.
The oil and gas industry is highly competitive, and our business could be
harmed by competition with other larger and better financed companies. Because
oil and gas are fungible commodities, the principal form of competition is price
competition. We will maintain the lowest finding and production costs possible
to maximize profits. In addition, as an independent oil and gas company, we
frequently compete for reserve acquisitions, exploration leases, licenses,
concessions and marketing agreements against companies with financial and other
resources substantially larger than ours. Many of our competitors have
established strategic long term positions and maintain strong governmental
relationships in countries in which we may seek entry.
We do not currently maintain insurance against potential losses and unexpected
liabilities.
Losses and liabilities arising from uninsured and underinsured events could
material and adversely affect our business, financial condition or results of
operations by requiring us to use our capital for purposes other than the
continued development of our properties. We will maintain insurance against
material casualty losses or liabilities arising from our operations in
accordance with customary industry practices and in amounts that we believe to
be prudent. We do not presently have such insurance coverage and if a loss
occurs we will have to fund the cost of the occurrence from funds generated from
operations. Failure to fund such losses could result in termination of
operations and relinquishment of the License.
Write-downs of the carrying values of oil and natural gas properties may
adversely affect our earnings.
We employ the "successful efforts" method of determining what costs are
capitalized from oil and natural gas investments. Accounting rules require that
we review periodically the carrying value of our oil and natural gas properties
for possible impairment. Based on specific market factors and circumstances at
the time of prospective impairment reviews, and continuing evaluation of
development plans, production data, economics and other factors, we may be
required to write down the carrying value of our oil and natural gas properties.
A write-down constitutes a non-cash charge to earnings, which reduces our
equity. We may incur impairment charges in the future, which could have a
material effect on its results of operations in the period taken.
12
Risks Related to The Securities Markets And Ownership of Our Stock.
Our limited operating history will make it difficult for you to judge our
prospects.
We have a limited operating history upon which an evaluation of our current
business and our prospects can be based. From inception to June 30, 2001, we
incurred operating losses of $1,359,732.
The value and transferability of our shares may be adversely impacted by the
absence of a trading market for our shares.
There is no trading market for our shares. There can be no assurance that
our common stock will trade following completion of this offering. Absent a
trading market for our shares it may be difficult for you to establish a value
for the shares you own and it will limit your ability to transfer or sell your
shares other than in a private transaction and at negotiated prices.
The value and transferability of our shares may be adversely impacted by the
penny stock rules.
Holders of our common stock may experience substantial difficulty in
selling their securities as a result of the "penny stock rules," which restrict
the ability of brokers to sell certain securities of companies whose assets or
revenues fall below the thresholds established by those rules.
Securities deemed "penny stocks" are subject to additional informational
requirements in connection with any trades made in the penny stock. Penny stocks
generally are equity securities with a price of less than $5.00, other than
securities registered on national securities exchanges or quoted on the Nasdaq
Stock Market system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system. The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from those rules, to deliver a standardized
risk disclosure document prepared by the SEC, which specifies information about
penny stocks and the nature and significance of risks of the penny stock market.
The broker-dealer also must provide the customer with bid and offer quotations
for the penny stock, the compensation of the broker-dealer and its salesperson
in the transaction, and monthly account statements showing the market value of
each penny stock held in the customer's account. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from those rules the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements,
in our opinion, may have the effect of reducing the trading activity in the
secondary market for a stock that becomes subject to the penny stock rules.
Our stock price is arbitrarily determined and does not purport to be a value of
the Company.
There is no active trading market for our common stock. We have arbitrarily
determined our stock price based upon a valuation of an independent engineering
evaluation of the known producible reserves in the field vs. the number of
shares of stock we will have outstanding after this offering. ie.$149,456,482
value of reserves vs. 69,502,929 shares is roughly $2.00 per share.
13
Our long term liquidity and capital resources are uncertain.
We have incurred losses for start-up efforts and may continue to incur
losses in the future. We sold 4,979 barrels of test production in April of 2001.
Future revenues from well No. 29 should allow us to meet our routine corporate
and field operating costs as well as contribute to a working capital surplus.
Even if we get this increased cash flow, we will still need additional capital
to fully develop the property. Tranmeridian's financial plan to raise the
required capital is through but not limited to, the sale of stock, bank loans,
commercial financing through crude oil forward purchase contracts and joint
ventures with other oil and gas operators.
If we are unable to generate sufficient operating revenues or raise the
required amount of additional capital, our ability to meet our obligations and
to continue the expansion of our operations will be adversely affected.
Failure to make payment of the promissory note may require us to forfeit 25% of
our stock in Caspi Neft TME
On April 20, 2001 Transmeridian issued a promissory note for $1,000,000 due
December 1, 2001, secured by 25% of Caspi Neft TME stock, (the holder of License
1557) to settle the outstanding debts under the Share Purchase Agreement.
Failure to make the payment related to this note could result in the forfeiture
of 25% of our stock in Caspi Neft TME.
The Company's Auditors express an Going Concern Opinion
Our financial statements have been presented on the basis that we are a
going concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, we incurred a net loss of $810,548 during the year ended December
31, 2000, and, as of that date, our current liabilities exceeded its current
assets by $1,052,234. These factors, among others, including our ability to
raise additional funds, as discussed in Note B to the financial statements,
raise substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We are controlled by our officers, directors and entities affiliated with them.
In the aggregate, ownership of our shares by management represents
approximately 69% of our issued and outstanding shares of common stock as of
date of filing. These shareholders, if acting together, will be able to
significantly influence all matters requiring approval by our shareholders,
including the election of directors and the approval of mergers or other
business combination transactions.
Our future performance is dependent on our ability to retain key personnel.
Our performance is dependent on the performance of our senior management
and key technical personnel. In particular, our success depends on the continued
efforts of our senior management team. The loss of the services of any of our
executive officers or other key employees could have a material adverse effect
on our business, results of operations and financial condition. We do not have
employment agreements in place with all of our senior management or key
employees.
14
Our future success also depends on our continuing ability to retain and
attract highly qualified technical and managerial personnel. We anticipate that
the number of our employees will increase in the next 12 months. Wages for
managerial and technical employees are increasing and are expected to continue
to increase in the foreseeable future due to the competitive nature of this job
market. We may experience difficulty from time to time in attracting the
personnel necessary to support the growth of our business, and there can be no
assurance that we will not experience similar difficulty in the future. The
inability to attract and retain the technical and managerial personnel necessary
to support the growth of our business could have a material adverse effect upon
our business, results of operations and financial condition.
Registration of Shares by Existing Shareholders.
This prospectus is part of a registration statement pursuant to which we
are also registering 18,490,500 shares for certain of our shareholders. These
shares will be restricted from trading for a period of 120 days following the
effective date of the registration statement. However, thereafter these shares
may be sold or traded on any market which may develop for such shares at then
prevailing prices or may be sold by them in a private negotiated transaction.
The offering of such a large amount of shares may have a negative effect on the
price of our stock should a market have developed after the closing of our
offering.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events and are based on our management's beliefs, as well as
assumptions made by and information currently available to them. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. These statements may include the words
"anticipate," "believe," "budget," "estimate," "expect," "intend," "objective,"
"plan," "probable" "possible," "potential," "project" and other words and terms
of similar meaning in connection with any discussion of future operating or
financial performances.
Any or all of our forward-looking statements in this prospectus may turn
out to be wrong. They can be affected by inaccurate assumptions or by known or
unknown risks and uncertainties. Many of these factors, including the risks
outlined under "Risk Factors," will be important in determining our actual
future results, which may differ materially from those contemplated in any
forward-looking statements.
When you consider these forward-looking statements, you should keep in mind
these risk factors and other cautionary statements in this prospectus. Our
forward-looking statements speak only as of the date made.
Although we believe that the expectations reflected in the forward-looking
statement are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as otherwise required by federal
securities laws, we are under no duty to update any of the forward looking
statements after the date of this prospectus to conform them to actual results
or to changes in our expectations. All forward-looking statements attributable
to us are expressly qualified in their entirety by the foregoing cautionary
statement.
The Private Securities Litigation Reform Act of 1995, which provides a
"safe harbor" for similar "forward looking statements" by existing public
companies, does not apply to our offering.
15
USE OF PROCEEDS
Since there is no minimum amount to be raised, proceeds from our sale of
shares will be available for use by us as the funds are received. All
subscriptions that are accepted by us are, subject to any applicable laws,
irrevocable. Because we are offering the shares on a direct basis, we cannot
represent what percentage of the offered shares we will actually sell. We will
receive none of the proceeds from the sale of the shares by the registered
shareholders (except upon the exercise of the warrants).
The following table shows our intended application of the use of proceeds
as a percentage of the gross proceeds received from a minimum of 10% to a
maximum of 100%:
[Enlarge/Download Table]
==========================================================================================================================
Intended use of proceeds Proceeds from the offering based on a percentage of shares sold
10% 25% 50% 75% 100%
--------------------------------------------------------------------------------------------------------------------------
Proceeds $1,761,900 $4,404,750 $8,809,500 $13,214,250 $17,619,000
--------------------------------------------------------------------------------------------------------------------------
Use of Proceeds
--------------------------------------------------------------------------------------------------------------------------
Drilling wells 200,000 2,100,000 4,200,000 6,300,000 8,400,000
--------------------------------------------------------------------------------------------------------------------------
Facilities 250,000 250,000 500,000 1,500,000 2,000,000
Offering Expenses 150,000 150,000 150,000 150,000 150,000
Debt Retirement 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
Working Capital 161,900 904,750 2,959,500 4,264,250 6,069,000
Total $1,761,900 $4,404,750 $8,809,500 $13,214,250 $17,619,000
==========================================================================================================================
The amounts set forth above represent our best estimate for the use of the
net proceeds of this offering in light of current circumstances. However, actual
expenditures could vary considerably depending upon many factors, including,
changes in economic conditions, unanticipated complications, delays and
expenses, or problems relating to the development of additional products and/or
market acceptance for our products and services. Any reallocation of the net
proceeds of the offering will be made at the discretion of our board of
directors but will be a part of our strategy to achieve growth and profitable
operations through the development of our products and commencement of our
marketing efforts. Our working capital requirements are a function of our future
growth and expansion, neither of which can be predicted with any reasonable
degree of certainty. We may need to seek funds through loans or other financing
arrangements in the future, and there can be no assurance that we will be able
to make these arrangements in the future should the need arise.
Pending our use of the net proceeds of the offering, the funds will be
invested temporarily in certificates of deposit, short-term government
securities, or similar investments. Any income from these short-term investments
will be used for working capital.
Internally generated funds and funds on hand at the time of the offering,
based on historical experience, are expected to be adequate to fund all current
debt and provide for our working capital needs for at least the next 12 months.
If only the minimum net proceeds of 10% are received. we could extend this
timeframe for the next 24 months. If the maximum proceeds of 100% are received
we could also provide for our capital budget needs during that time.
16
ARBITRARY DETERMINATION OF OFFERING PRICE
There is no active trading market for our common stock. We have arbitrarily
determined our offering price based upon a valuation of an independent
engineering evaluation of the known producible reserves in the field vs. the
number of shares of stock we may have outstanding after this offering.
ie.$149,456,482 value of reserves vs. 69,502,929 shares is approximately $2.00
per share. This initial offering price may not necessarily bear any relationship
to our ability to realize the value of our reserves, earnings, book value or any
other objective standard of value. Among the other factors considered by us in
determining the initial offering price were:
* market conditions;
* the necessary proceeds to be raised by the offering;
* the amount of capital to be contributed by the public in proportion to the
amount of stock to be retained by present shareholders; and
* the amount of our estimated reserves.
* oil industry conditions.
* the value of our estimated reserves.
DIVIDEND POLICY
We have not declared, and do not foresee declaring, any dividends now or
into the foreseeable future. Holders of our common stock are entitled to
dividends when and if, declared by our board of directors after payment of all
preferred dividends in arrears. We intend to retain earnings, if any, to finance
the development and expansion of its business. Future dividend policy will be
subject to the discretion of our Board of Directors and will be contingent upon
future earnings, if any, our financial condition, capital requirements, general
business conditions and other factors. Therefore, there can be no assurance that
any dividends of any kind will ever be paid.
DILUTION
The difference between the public offering price per share and the pro
forma net tangible book value per share of our Common Stock after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share is determined by dividing our net tangible book value (total tangible
assets less total liabilities) by the number of outstanding shares of common
stock. Dilution arises mainly from the arbitrary decision by a company as to the
offering price per share. Dilution of the value of the shares purchased by the
public in this offering will also be due, in part, to the lower book value of
the shares presently outstanding, and in part, to expenses incurred in
connection with the public offering.
Net tangible book value is the net tangible assets of a company (total
assets less total liabilities and intangible assets; please refer to "Financial
Statements"). At June 30, we had a net tangible book value of $5,277,117 or
$0.09 per share.
After giving effect to the sale of the 8,809,500 shares being offered at an
initial public offering price of $2.00 per share and after deducting estimated
expenses of this offering ($150,000), our adjusted net tangible book value at
June 30, 2001 after the offering would have been $22,746,117 or $0.33 per share,
representing an immediate increase in net tangible book value of $0.24 per share
to the existing shareholders and an immediate dilution of $1.67 or 84% per share
to new investors.
17
From its inception, Transmeridian has sold 41,300,000 shares of common
stock to its founders at a price of $0.0006, has issued 5,632,000 to consultants
and service providers at average price of $0.155, has sold 270,000 shares to
family and friends at an average price of $0.40 and 12,315,000 shares to
unaffiliated non U.S. investors for an average price of $0.37 and 3,300,000 to
unaffiliated non-U.S. investors at an average price of $0.70
The additional 18,490,500 shares included in this registration for our
existing shareholders will have no dilutive effect if and when sold by them,
because they are already included as issued and outstanding common stock.
However, if sold, such sales may adversely effect the market price, if any of
our stock.
The following table illustrates the above information with respect to
dilution to new investors on a per share basis:
[Enlarge/Download Table]
======================================================================================================
Dilution 10% of shares 25% of shares 50% of shares 75% of shares 100% of
sold sold sold sold shares sold
------------------------------------------------------------------------------------------------------
Initial public
offering price $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00
------------------------------------------------------------------------------------------------------
Total Proceeds $ 1,761,900 $ 4,404,750 $ 8,809,500 $ 13,214,250 $ 17,619,000
------------------------------------------------------------------------------------------------------
Pro-forma net
tangible book value
at June 30, 2001 $ 5,277,117 $ 5,277,117 $ 5,277,117 $ 5,277,117 $ 5,277,117
----------------------
Increase in
pro-forma net
tangible book value
attributed to
purchasers of shares $ 1,761,900 $ 4,404,750 $ 8,809,500 $ 13,214,250 $ 17,619,000
------------------------------------------------------------------------------------------------------
Offering Expense $ (150,000) $ (150,000) $ (150,000) $ (150,000) $ (150,000)
----------------------
Adjusted pro forma $ 6,888,017 $ 9,531,867 $ 13,936,617 $ 18,341,367 $ 22,746,117
net tangible book
value per share
after our offering $ 0.10 $ 0.14 $ 0.20 $ 0.26 $ 0.33
------------------------------------------------------------------------------------------------------
Dilution to
purchasers of shares $ 1.90 $ 1.86 $ 1.80 $ 1.74 $ 1.67
======================================================================================================
18
CAPITALIZATION
The following sets forth our Actual capitalization as of June 30, 2001.
Capitalization Table
June 30, 2001
CONSOLIDATED
Actual
Shareholders' equity
Preferred stock 62
Common stock 35,710
Additional paid-in capital (1) 6,619,837
Deficit accumulated during
development stage (1,378,492)
----------
Total shareholders' equity $5,277,117
==========
(1) Subsequent to June 30, 2001 the Company sold 3,300,000 shares of Reg. S
stock to non U.S., non affiliated investors for $2,310,000.
19
OUR BUSINESS AND PROPERTIES
Company Structure
The following chart depicts our current company structure:
[CHART OMITTED]
Key Operational Dates:
o Transmeridian Exploration, Inc. Delaware formed 4/18/2000
o Transmeridian Delaware acquires Transmeridian BVI 4/19/2000
o Transmeridian BVI acquires Caspi Neft TME 6/7/2000
o Caspi Neft takes physical possession of the field 7/1/2000
o Early startup testing program starts 2/1/2001
o Sale of Test production 4/17/2001
20
We were incorporated in the State of Delaware on April 18, 2000 as an
independent energy company established to develop identified and underdeveloped
hydrocarbon reserves in the region of the former Soviet Union, known as the
Confederation of Independent States ("CIS") and more particularly the Caspian
Sea region. We target opportunities to purchase proved and potential oil and
natural gas reserves at below international finding cost rates. For example our
finding cost based on an independent engineering evaluation of the known
producible reserves in South Alibek was about $0.20 per barrel compared with an
industry finding cost of about $2.50 per barrel. We also concentrate on
properties that are close to existing infrastructure for exportation of oil and
gas, which reduces associated costs as well as reduces the time needed to place
wells on production. We prefer to invest in projects in which we can have a
controlling interest.
We are in the start-up phase of exploiting the one project we currently
have available for exploration and production of hydrocarbons. The project is
located in the Caspian region of western Kazakhstan. While the South Alibek
Field is located near other producing and proved oil fields and near pipelines
and railroads, you should note that proximity to such fields and infrastructure
does not assure that we will be able to successfully exploit our resources.
For our projects, all exploration and production activities are conducted
through wholly owned operating subsidiaries. Transmeridian Exploration Inc.(BVI)
is responsible for the management of the South Alibek Field, with Open Joint
Stock Company (OJSC) Caspi Neft TME (Caspi Neft TME) established in Kazakhstan
to handle all the joint venture operations of that project. The Exploration
License 1557 for South Alibek and the related Exploration Contract for the
exploration work are registered in the name of the operating company Caspi Neft
TME. Transmeridian Exploration Inc. (BVI) also has an option agreement to
purchase 50% of Emba Trans Ltd, a newly formed Kazakhstan company with 100%
ownership of the Emba Oil Terminal at the Emba railhead. OJSC Trans Caspian
Petroleum was established in Kazakhstan as a wholly owned subsidiary also of
Transmeridian Exploration Inc (BVI) but with no activity at this time.
Transmeridian Exploration Inc.(BVI) was formed in December 1997, by one of
our directors and founders, Mr. Peter Holstein and Transmeridian Kazakhstan
Inc.(BVI) was formed in March 2000. Prior to 2000, neither company had any
operations, assets or liabilities. Both are registered in the British Virgin
Islands with their registered office at Nerine Chambers, 5 Columbus Centre,
Pelican Drive Road Town, Tortola, British Virgin Islands.
Our corporate headquarters' offices comprising 1,530 square feet of rented
executive offices in Houston, at 11811 North Freeway, Suite 500, Houston, Texas
77060, at a monthly rental of $4,300 on a one-year lease. The corporate office
of Caspi Neft TME is in Almaty, Kazakhstan, 157 Dzhumaliev Street, Offices
7,8,9, comprising 4500 square feet rented monthly for $5,460 and their branch
office in Aktobe, Kazakhstan, is at Gaziza Zhubanova Street, 50 "A" comprising
1,162 square feet, rented monthly at $540. Our Houston telephone number is (281)
591-4777.
Our staff consists of an experienced management team with four
professionals in the Houston office plus the support of expert engineering and
geoscience consultants as needed and an operations management team and staff in
Almaty and Aktobe comprised of seven in Almaty and eight in Aktobe and six field
personnel, as well as contract employees supervised by our expatriate engineers.
21
Acquisition of Transmeridian Exploration , Inc., (BVI)
Transmeridian Exploration, Inc. was formed on April 18, 2000.
Transmeridian acquired all of the issued and outstanding shares of Transmeridian
Exploration, Inc. BVI on April 19, 2000 in exchange for the issuance of
18,900,000 shares to each of Messrs. Peter Holstein and Lorrie Olivier. See
"Certain Relationships and Related Transactions."
Transmeridian BVI had no assets or liabilities prior to its acquisition and its
only commercial activity consisted of a consulting agreement with Kornerstone
Investment Group Ltd ("Kornerstone"). The consulting agreement, signed on May 1,
1999 for the identification of potential property acquisitions in Kazakhstan and
the negotiation of the purchase terms, gave them consideration of a 10% carried
interest upon consummation of any such property acquisition.
During 2000, Kornerstone identified a potential acquisition. A Share Purchase
Agreement dated March 24, 2000 was signed with Alpha Corporation Ltd ("Alpha")
pursuant to which Transmeridian Exploration Inc. BVI agreed to acquire license
1557.
On March 31, 2000 an option Agreement was signed with Tracer Petroleum
Corporation ("Tracer") pursuant to which Tracer acquired a 4.5% interest in the
License 1557 and was granted the right to acquire up to a 50% interest in the
License 1557.
None of these agreements required payment by or receipt by Transmeridian
Exploration Inc BVI of any monies on the assignment of or transfer of any rights
unless and until the transactions contemplated by the Share Purchase Agreement
were consummated. No payments were made or rights transferred until after our
acquisition of Transmeridian Exploration Inc. BVI on April 19, 2000. See
"Acquisition of Caspi Neft and License 1557."
Acquisition of Caspi Neft TME and License 1557.
Kornerstone identified the South Alibek Field as a potential acquisition.
The Share Purchase Agreement provided for a down payment of $100,000, held in
trust until the final transaction in April, 2000 in exchange for an option
period to allow for satisfaction of certain legal conditions required to
transfer the License 1557 from Alpha's operating entity to the newly formed
entity Caspi Neft TME. Transmeridian Exploration Inc.(BVI) would then purchase
100% of the shares of Caspi Neft TME once it was verified that this entity had a
certifiable clear title to the License and related Exploration Contract for
License 1557. The full purchase price for securing 100% control of the License
and stock of the title holding company was $4,000,000.
Prior to our acquisition of Caspi Neft TME, the License was held by another
subsidiary of Alpha. There was no activity in this subsidiary nor was there any
activity on the oil and gas property related to the license.
On April 19, 2000 the Share Purchase Agreement was initiated by
Transmeridian Exploration Inc.(BVI) with the payment of $614,158 by Tracer to
Alpha , for which Alpha initiated the transfer of the License 1557 and
Exploration Contract for South Alibek to Caspi Neft TME and assigning 100% of
the shares of Caspi Neft TME to Transmeridian Exploration Inc (BVI).
On June 7, 2000 the License 1557 and Exploration Contract for South Alibek
was officially transferred to Caspi Neft TME by Resolution 645 of the Republic
of Kazakhstan parliament and
22
Alpha transferred the shares of the corporate entity to Caspi Neft TME. Thus, at
this time, Transmeridian through its subsidiaries, now held full title to the
South Alibek Field.
In August of 2000 we paid Alpha $500,000 to restructure the Share Purchase
Agreement in order to extend the $3,385,842 balance due on the Share Purchase
Agreement.
In September of 2000, TRACER elected not to participate on a 50% basis but
chose to retain a 4.5% working interest in the property.
In 2001, Transmeridian increased its working interest to 90% by acquiring
Tracer's 4.5% working interest in exchange for 100,000 shares of convertible
preferred shares of Transmeridian. Each share of preferred stock is convertible
into fifteen shares of our common stock for a five-year period. In addition,
TRACER received warrants for the purchase of up to one million shares of our
common stock at a price of $1.00 per share for a maximum of two years. As of the
date of this prospectus, none of the Series B Convertible Preferred Shares or
warrants have been converted or exercised.
The final payment terms for the Share Purchase Agreement was settled on
April 20, 2001, by the payment of $385,842 and the issuance of a $1,000,000 note
due December 1, 2001, secured by 25% of the stock in Caspi Neft TME, the license
holder. See "Risk Factors."
The South Alibek field was discovered in 1996 when the Alibek #29 was
drilled and tested flowing oil. The Government Operating Company in charge of
this exploration drilling was without funds to continue operations and the South
Alibek field was offered in a public tender in the government's privatization
program. OJSC Caspi Neft won the tender and began looking for a financial
partner for the continued exploration and development of the field. We
negotiated to purchase the License giving rights to the exploration and
development of the field based on the geological evidence supporting the
existence of a large structure with oil potential proved by Well # 29 and other
wells drilled within 1- 3 kilometers. After we acquired the acreage, we
conducted geological, petrophysical and engineering studies of the available
well data as well as the available seismic over the area. This data supported
the Ryder Scott Company reserve study which confirmed and quantified from an
independent third party source our evaluation of the potential of the field. The
cost we paid for the license bears no relationship to the value of the reserves
that the Ryder Scott Company later determined for the field.
Acquisition of Emba Oil Terminal.
On August 27th of 2001 Transmeridian provided a loan of $200,000 and
executed an option agreement with Emba Trans Ltd for the purchase of the rail
terminal at the city of Emba to facilitate the storage, sales and export of oil
from the production of South Alibek Field. Caspi Neft TME received an option for
the purchase of 50% of Emba Trans Ltd for $200,000 upon the completion of the
upgrade of the terminal by Emba Trans Ltd and the installation of related
production and delivery facilities for South Alibek Field. The terminal has
sufficient handling capacity for the production from South Alibek.
23
Description of Transmeridian's Oil and Gas Property.
The cornerstone of our business and growth strategy was our acquisition of
interest in the South Alibek field, located in the Caspian region of western
Kazakhstan.
The South Alibek Field is located in the north-eastern portion of the
Caspian Sea Region, in northwestern Kazakhstan within the prolific oil region of
Aktobe. It is approximately 380 kilometers (225 miles) northeast of the giant
Tengiz oil field. South Alibek lies in a fairway of oil and gas fields that
produce from carbonate reservoirs of Middle Carboniferous and Lower
Carboniferous age. The trend follows the reef buildup on the margin of an
ancient sea in this area. The field is located in the Mugodzhar region of the
Aktubinsk Oblast, 240 kilometers (75 miles) south of the city of Aktobe and the
license area for the field is 3,396 acres (13.745 sq km).
The project is in very close proximity (10 miles) to two large developed
oil fields, Kenkiyak with 162 million barrels and Zhanazhol Field with remaining
reserves estimated at 800 million barrels. The South Alibek field borders the
Alibekmola field with proved reserves estimated at 400 million barrels.
The South Alibek project is within an area of good infrastructure
including, oil and gas pipelines, electrical transmission connections, all
weather roads, small towns and trained oilfield labor force. The fields in the
region were identified and developed during the time of the former Soviet Union
and soon after its breakup all activity on the Alibekmola and South Alibek field
stopped due to lack of funds to finance its development. Tenders were held to
offer the further exploration and development of these fields to private
investors.
The South Alibek field is immediately adjacent to the Alibekmola Field, on
its western flank and is separated by a known major fault. The oil reservoirs
are in the Middle Carboniferous (KT1) and Lower Carboniferous (KT-2) limestones
which can be found at an initial depth of 6,500 feet, and are generally 7,000
feet thick in the area of the field. The carbonate limestones are the main oil
reservoirs for many of the fields in the area. The net pay thickness for well
#29 based on evaluation of electric logs and production tests is estimated to be
700 feet. Based on additional wells drilled during the Soviet era, in and on the
border of the license, combined with seismic coverage, we are estimating that
this amount of net pay extends over most of the area covered by the License
1557.
The wells drilled in South Alibek before and soon after the independence of
Kazakhstan were part of the field delineation program of the Soviet-modeled
geological association, a company acting on behalf of the government. The
Alibekmola and South Alibek Fields are delineated by 31 wells, two of which are
within the area covered by License 1557 and a grid of modern 2D seismic. The
existence of a downthrown field adjacent to the Alibekmola main structure was
discovered in 1994 with the drilling and testing of well Alibekmola #29. The
South Alibek field is about 2,000 feet lower than the Alibekmola Field having a
different production drive mechanism, deeper oil water contact and generally a
higher oil quality.
24
Oil and Natural Gas Reserves
Extensive geologic and engineering information was obtained from 1996 to
December of 2000 and provides the basis of the technical evaluation and
conclusions made by us and third parties.
Reserves estimates are based on the available data on South Alibek Field,
Alibekmola Field and Zhanazhol Field. Ryder Scott Company, a US independent
engineering company, estimated Transmeridian Exploration Inc. net known
producible reserves in the field of 18.225 million barrels of oil for the South
Alibek Field as corrected for its current 90% interest in the property. These
reserves only include the reserves estimated to be recoverable from well No. 29
and two 80 acre offset units (wells) in the 3,395 acre license area. Ryder
Scott's estimation of the probable and possible reserves are significantly
larger than these proved reserves. Larger reserves are anticipated if certain
reasonable assumptions based on the nearby analogous fields are proven
applicable for South Alibek Field. These reserves estimates are contingent on
successful confirmation of the estimates and assumptions made in arriving at
those estimates, and have the types of risks associated with each category as
defined by the SPE/SPEE that are normally associated with oil and gas property
estimates. See "Independent Petroleum Engineers"
Summary of the Work Performed by Ryder Scott
Ryder Scott prepared an estimate of the reserves, future production, and
income attributable to certain leasehold interests of Transmeridian Exploration,
Inc. (Transmeridian) as of December 31, 2000. The subject property is located in
South Alibek Field, License Number 1557, in the Republic of Kazakhstan. The
income data were estimated using the Securities and Exchange Commission (SEC)
requirements for future price and cost parameters.
The estimated reserves and future income amounts presented in this report
are related to hydrocarbon prices. Hydrocarbon prices in effect at December 31,
2000 were used in the preparation of this report as required by SEC rules;
however, actual future prices may vary significantly from December 31, 2000
prices. Therefore, volumes of reserves actually recovered and amounts of income
actually received may differ significantly from the estimated quantities
presented in this report. The results of this study are summarized below.
The estimates of reserves presented herein were based upon a detailed study
of the properties in which Transmeridian owns an interest; however, we have not
made any field examination of the properties. No consideration was given in this
report to potential environmental liabilities that may exist nor were any costs
included for potential liability to restore and clean up damages, if any, caused
by past operating practices. Transmeridian has furnished all of the accounts,
records, geological and engineering data, and reports and other data required
for the Ryder Scott investigation. The ownership interests, prices, and other
factual data was also furnished by Transmeridian and were accepted without
independent verification. The estimates presented in this report were based on
data available through December 2000.
The following table presents our estimated net proved oil and natural gas
reserves and the present value of our reserves at December 31, 2000, based on,
and qualified by reference to, a reserve report prepared by the Ryder Scott
Company LLC. The present values, discounted at 10% per annum, of estimated
future net cash flows before income taxes shown in the table are not intended to
represent the current market value of the estimated oil and natural gas reserves
we own.
25
The present value of future net cash flows before income tax as of December
31, 2000 was determined by using the stated sales price offered for field
deliveries using the market crude price of "Dated Brent" as of December 31, 2000
of U.S. $24.00 per barrel less a 25% discount for quality and transportation and
handling for a net price of U.S. $18.00 per barrel. We utilized an estimate of
6% for government royalty in the calculations of the calculations of present
value. Royalty rates currently being applied to new production contracts in the
Kazakhstan range between 6-10%. No value was assigned to gas reserves as
currently there is no delivery contract for gas sales.
26
Per Ryder Scott (December 31, 2000)
[Enlarge/Download Table]
Future Net Revenue
------------------------------------------------------------------------------------------------------------------------------------
Category Oil Gas Total Present Worth
-------- --- --- ----- -------------
(Undiscounted Future (Discounted Future
Proved: Bbls Mmcf Net Revenue) Net Revenue (10%)
------------------------------------------------------------------------------------------------------------------------------------
Developed Non Producing 5,675,781 1,118 $ 89,052,064 $ 38,233,968
------------------------------------------------------------------------------------------------------------------------------------
Undeveloped 11,536,991 2,273 $184,169,051 $111,222,514
------------------------------------------------------------------------------------------------------------------------------------
Total Proved 17,212,772 3,391 $273,221,115 $149,456,482
------------------------------------------------------------------------------------------------------------------------------------
Summary of Productive Area:
------------------------------------------------------------------------------------------------------------------------------------
South Alibek Field (License 1557):
------------------------------------------------------------------------------------------------------------------------------------
Gross
------------------------------------------------------------------------------------------------------------------------------------
Total Area 3,385.3 acres
------------------------------------------------------------------------------------------------------------------------------------
Proved 240.0 acres 1 well plus 2 offsets at 80 acre spacing
------------------------------------------------------------------------------------------------------------------------------------
Remaining 3,145.3 acres (1)
------------------------------------------------------------------------------------------------------------------------------------
Interest 85.5% (2)
------------------------------------------------------------------------------------------------------------------------------------
Wells 1 (3)
------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1) We are in its second year of a 6-year exploration period of the License for
this property and there are no prior year properties. Commercial production from
the field has not commenced as of this filing.
--------------------------------------------------------------------------------
(2) Subsequent to year-end we acquired the 4.5% interest previously owned by
TRACER
--------------------------------------------------------------------------------
(3) Well #29 is now on test production since February 26, 2001.
--------------------------------------------------------------------------------
Oil and Gas Producing Activities:
Total costs incurred in the acquisition of the License 1557 and the
formation and development of our wholly owned subsidiary Caspi Neft TME*, the
owner of the oil and gas exploration activities, all incurred within Kazakhstan,
were as follows (in thousands except per barrel information):
For the year ended
December 31, 2000
-----------------
Property acquisition costs
Unproved $ --
Proved 3,945
Exploration costs --
Development costs 500
Depreciation, depletion and amortization per
equivalent barrel of production --
The aggregate capital costs relative to oil and gas producing activities are as
follows (in thousands):
Unproved oil and gas properties $ --
Proved oil and gas properties 4,445
--------
$ 4,445
Accumulated depreciation, depletion and amortization --
--------
Net capitalized cost $ 4,445
========
27
Standardized Measure of Discounted Future Net Cash Flows from Oil and Gas
Operations and Changes Therein
The standardized measure of discounted future net cash flows was determined
based on the economic conditions in effect at the end of the period presented,
except in those instances where fixed and determinable gas price escalations are
included in contracts. The disclosures below do not purport to present the fair
market value of our oil and gas reserves. An estimate of the fair market value
would also take into account, among other things, the recovery of reserves of an
independent engineering evaluation of the known producible reserves in the
field, anticipated future changes in prices and costs, a discount factor more
representative of the time value of money and risk inherent in reserve
estimates.
The reserve estimates provided at December 31, 2000 are based on oil prices
of approximately $18.00, which approximates 75% of the Brent North sea crude
price per barrel which related to a commercial offer at that time to purchase
crude from the field.. No value was assigned to gas reserves, as currently there
is no delivery contact for gas sales.
Year ended
December 31, 2000
-----------------
(in thousands)
Future net revenues $ 309,830
Future costs
Lease operating expenses (26,202)
Development costs (10,407)
---------
Future net cash flows before income taxes 273,221
Discount at 10% per annum (123,765)
---------
Discounted future net cash flows before income taxes 149,456
Future income taxes, net of discount at 10% per annum (44,107)
---------
Standardized measure of discounted future net cash flows $ 105,349
=========
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows:
Year ended
December 31, 2000
-----------------
(in thousands)
Beginning of year $ --
Purchase of reserves in place 105,349
--------
End of year $105,349
========
28
Commencement of Operations and Initial Production Activities
We currently have a ninety percent (90.0%) equity interest in the
Kazakhstan property with Kornerstone holding a ten percent (10%) carried
interest. Contractually, therefore, we are responsible for 100% of development
costs. We pay the 10% interest holder's portion of expenses until the project
reaches a positive cash flow basis. Then we are reimbursed from production for
the payments made on behalf of the 10% interest holder, Kornerstone, plus 10%
interest.
An administrative office in Almaty, Kazakhstan was staffed in June 2000 and
the physical possession of the field was transferred to Caspi Neft TME in July,
2000 by the Kazakhstan authorities. All Kazakhstan operations and administration
are coordinated through this representation office in the country's commercial
center. The Almaty office, with a staff of 6, handles all federal government
liaisons and contacts as wells as serving as the our head office in the Country.
A branch operating office was established in the town of Aktobe, which is the
nearest industrial area to the field. This office, with a staff of 8 is to
maintain a liaison with the local governmental regulatory agencies and the
respective state governor's office, as well as handling the implementation of
all operations of South Alibek Field with the help of the field office, staffed
by 6 employees and contractors.
An "Early Start-up Program" (ESP) has been established to evaluate
reservoir and productive characteristics that will be critical in the
determining the final design of the field development program. Permits and
operational plans were filed with the authorities to begin production testing of
Well No. 29 in January 2001. The various permits and authorizations required
were granted in February 2001. This testing program has been authorized for 18
months, which will allow us to flow and recover production from Well No. 29
during this period.
The initial work program on Well No. 29 includes remedial work to repair
mechanical deficiencies as well as evaluation of new zones identified but not
tested in the original drilling and testing of the well. This ongoing work began
in February 2001 with an extended flow test of the existing well No.29. Test
production from well #29 was 180 barrels per day from the 13 feet (4 meters) of
open interval in the well intervals that was in condition to flow without any
treatment or improvement in well production mechanics. Test production at this
rate totaled in excess of 5,000 barrels as of April 30, 2001. Currently the
field produces crude with a high gravity of 39(Degree) API and with a low sulfur
content of about 0.8%.
A program to repair well damage and to open additional intervals for
production evaluation was completed in June, 2001. During this workover, it was
discovered that in Well No. 29 only 13 feet (4 meters) of oil pay had been
previously opened to production. After repair of well damage, an additional 98
feet of oil pay intervals were opened by perforations. The well testing is
continuing, with installation of new down hole and surface production
facilities. Production engineer modeling by Weatherford Artificial Lift Systems
of the new mechanical configuration of the well, pump and surface facilities
indicates that test production rates of 600 to 1,500 BOPD can be anticipated
with the installation of this additional equipment.
This testing program will provide well production data and reservoir
pressure analysis essential to the design of permanent production facilities.
This production also facilitates the estimation of reserves required in the
transitions to a commercial license and production contract for the exploitation
of the field.
This work will be followed this year, with the initiation of the drilling
program with the drilling of two new delineation wells and further improvement
of the production facilities and infrastructure (See Plan of Business).
29
Marketing of Test Production
The Mugodzhar region of the Aktubinsk Oblast, in which South Alibek is
located, is one of the most highly developed areas for oil field development and
production in the Republic of Kazakhstan, with existing roads, railroads, rail
oil terminals and oil pipelines.
Companies in the area of South Alibek Field utilize both the KazTrans Oil
and Russian Transneft pipeline system to export their oil to regional hub export
locations such as Samara, Ukraine, and the Port of Odessa on the Black Sea and
European locations such as Poland, Hungry, Lithuania, Germany and Finland.
Pipeline capacity in the area has significantly improved this year with the
opening of the Caspian Pipeline Consortium ("CPC") Pipeline, raising current
capacity of 250,000 barrels oil per day (bopd) to 800,000 bopd by year end. Two
oil pipelines currently service the producing fields, Kenkiyak and Zhanazhol, 10
miles from South Alibek, with 50,000 barrel per day and 93,000 barrel per day
capacities, with only one pipeline currently being used at a 53% capacity. The
pipelines transport the oil to the refinery in Orsk and is a transfer point for
swaps to western markets. The Alibekmola Field, adjacent to South Alibek, is now
beginning development, with pipeline construction started to cross our license
to connect to the larger capacity pipeline at Zhanazhol Field. The CPC pipeline
is between Atyrau and the Black Sea Port of Novorosiisk, and access could be by
rail or the laying of a 90 mile pipeline from Kenkiyak to Atyrau as planned by
KazTransOil. The capacity would be about 125,000-165,000 bopd and would provide
an alternative routing for the project's production. Our current plans do not
rely on entry in the CPC system for its export and sales routes but this
facility provides a feasible alternative. All economic estimates assume the
utilization of trucking, pipeline and rail facilities located within 35 miles of
the field.
Since we do not currently have access to a pipeline, the production is
being sold, either at the field or trucked to a local rail terminal, to export
or local markets depending on market conditions at the time The production from
Well No. 29 and the new wells planned for this year is expected to be sold on
the export market at world oil prices less deductions for quality,
transportation and handling costs.
The use of the rail system for shipment of crude to Western Europe and
China is used by a number of companies, the largest of which is Chevron's Tengiz
operations shipping about 161,000 barrels per day. Other operators in the
Mugodzhar region including Shell Oil, Maersk Oil & Gas, Veba Oil, and the
Chinese National Petroleum Company also include rail transport in their
marketing of oil. Four oil terminals are present in the area and available for
storage and sale to export markets. They include Emba 5, 30 miles from South
Alibek, Emba, 35 miles from South Alibek, Shubarkuduk, 94 miles from South
Alibek and Bestamak, 120 miles from our field. Trucking crude to the terminals
is considered a temporary measure until we can establish our own export
facilities or pipeline connections to these or other export routes
Initially the oil was trucked to Shubarkuduk Oil Terminal and sold to Kaspi
Neft Chim, a local crude oil purchaser. Production for the next twelve months
will be sold to So Cal Energy Inc., under an agreement reached on August 27,
2001 and discussed further in "Our Plan of Business in 2001". The oil will be
stored and sold for export at our Emba facilities and will initially be trucked
the 35 miles from South Alibek. We have an agreement with Emba Trans Ltd. for
through put charges of $0.73 per barrel for the storage and handling of the oil.
The terminal currently has 25,000 barrel storage capacity. The terminal will be
expanded to accommodate the anticipated increase for the field. Exploration
Contract and conversion to Production License
Currently we have an Exploration Contract for South Alibek. As long as we
operate under the
30
Exploration Contract we can produce the wells under a test program and pay a 2%
royalty. The term is for six years, unless extended, and can be converted to
terms under a Production Contract at any time that we wish with the requirement
that we file an approved reserves report based on the current test production of
Well No. 29.
While the majority of the production contract is defined by the countries
petroleum and tax code there are some terms open to negotiation such as royalty
rates, production bonus and other production related assessments. The normal
term provided under the Kazakhstan Petroleum Code for the exploitation of a
proved oil field under a Production Contract is 25 years unless extended. The
typical exploration period is five years unless extended. In total a contractor
will have at least 30 years to explore and exploit a contract area unless
extended. Generally with the commercial production of a field the royalty is
much higher and can be as much as 10% of the net production from the field. A
typical commercial production contract would include definitive terms describing
the commercial and tax conditions for producing any fields discovered within the
License area. We would choose a contract structured on a "Tax / Royalty" model
as opposed to a "Production Sharing Model." Under a Tax/Royalty model we would
pay 100% of all development costs and receive 100% of all sales proceeds.
In accordance with the Exploration Contract and the provision of the Kazakhstan
Petroleum Code, we will be expected to inform the government within 30 days of
the existence of any commercial reserves at which time we will be expected to
convert our operations to a Production Contract, which will also cover the
entire license area. The present Exploration Contract provides us with a
preferential right to receive such a commercial production contract. We have
sought and received a letter from the Ministry of Natural Resources as to their
preferred treatment of transitioning our existing operating contract to include
commercial production. Upon receipt of the Exploration and Production Contract.
We will submit the technical data from the well tests that is being preformed on
Alibek #29 as soon as the test data is available, to a recognized institute in
Kazakhstan for the writing of a government reserve report, and when this report
is filed we will be expecting to submit a formal application for a commercial
area covering the entire license area.
License Extension
The contract area can be extended if a geological extension of the field on
available lands can be demonstrated. We have assembled a technical team of
specialists to study and report on the feasibility of a geological extension of
the existing field. The work program for this contract year should provide
sufficient data to determine any possible extension of the field as well as our
commitment to a development program for the Contract Area. An extension of the
contract area could potentially provide additional proved reserves to us in the
future.
31
Economic and Political Climate in Kazakhstan
Adverse economic or political developments in Kazakhstan may adversely
affect our business. Kazakhstan has been independent from the Soviet Union for
only 10 years. Future changes in the political and economic environment in
Kazakhstan may adversely affect our business. That is why we maintain a
Kazakhstan Company in Almaty, staffed by Kazakhstan citizens which, aids in the
relations with the loan government and helps to keep Houston based management
informed as to the proper protocol and any adverse developments. These
developments could include, among other things:
o local currency fluctuations or devaluation;
o civil disturbances;
o exchange controls or restrictions on availability of hard currency;
o changes in crude oil and gas price and transportation regulations;
o changes with respect to taxes, royalty rates, import and export tariffs and
withholding taxes on distribution to foreign investors; nationalization or
expropriation of property; and
o interruption or blockage of oil exports.
Changes in Kazakhstan laws and regulations and the interpretation of those
laws and regulations may also adversely affect our business. Kazakhstan's
foreign investment laws, including petroleum licensing legislation, corporate
law, tax law, customs law and currency and banking legislation, are still
developing and uncertain. These laws are subject to changing and different
interpretations, they may contain inconsistencies and contradictions; some may
be discretionary in application and enforcement. As a result Kazakhstan laws
could have a material adverse effect on our business and financial results of
operations. Our interests in exploration and production contracts and other
agreements may be susceptible to revision or cancellation, and legal redress may
be uncertain, delayed or unavailable. Ensuring our on-going right to contracts
will require a careful monitoring or performance of the terms of the contracts,
and monitoring of the evolution under the Kazakhstan laws and contract
administration practices. That is why our Company engages law firms in
Kazakhstan, Russia and the United States. Together with our Kazakhstan team, the
Houston executive team and our legal and accounting advisors, we can react to
any situation quickly and protect the companies interest when needed.
Changes in current policies of the Kazakhstan government may also adversely
affect our business. Government policies may affect our ability to market oil
and natural gas to export markets where hard currency earnings are available.
The government has previously issued regulations limiting export of oil to
assure local supplies to source price controlled fuel for the local markets. The
government has announced that up to ten percent (10%) of a producer's production
must be reserved for domestic refining. No regulations have been issued and
there is no assurance that world oil price can be realized on such reserves
destined for local markets.
Environmental Regulations
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 foreseeable future. Our Companies
Environmental Policy is "Clean As
32
You Go" and therefore our cost to comply with government regulations is included
in our daily field operating costs.
MANAGEMENT'S DISCUSSION OF OUR PLAN OF BUSINESS IN 2001
The following discussion of our plan of operation should be read in
conjunction with the consolidated financial statements and the attached notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including but not limited to, those set forth under
"Risk Factors" and elsewhere in this prospectus.
We have entered into a financing agreements with a third party to provide
the $2,800,000 financing we will require to drill our first well. No assurance
can be given as to the availability of any additional financing as, if, and when
required. Failure to obtain the additional financing or to obtain it on a timely
basis will have a substantial adverse affect on our operations and our ability
to complete our plan of operation in whole or in part.
Financial Plan and Plan of Operation for 2001
Our focus in 2001 will be to:
o Financing through the Sale of Stock
o Crude oil forward purchase contracts
o Bank Financing of Future Crude Production
o Development Financing
o Joint Venture Partners
o Complete payment of $1,000,000 promissory note
o Commence initial 10 well drilling activities
o Improvement of Production Facilities
o Staffing
Financial Plan 2001
Financing through the Sale of Stock
On July 11, 2001 Transmeridian entered into an contract agreement with
TRIUMPH SECURITIES CORPORATION of New York, N.Y. whereby Triumph will assist
Transmeridian in preparing information about the company for presentation, will
arrange meetings with potential underwriters and will advise Transmeridian on
the respective merits of various underwriters and syndicate members. (Agreement
attached exhibit)
33
Crude oil forward purchase contracts
On August 27 of 2001, Caspi Neft TME executed a Crude oil forward purchase
contract with So Cal Energy Incorporated for the delivery and sale of a minimum
3,000 tons (approximately 21,000 barrels) of crude oil per month at a price tied
to Dated North Sea Brent Crude.The agreement provides for off takes from the
rail terminals of 21,000 barrels per month initially but can be increased to
210,000 barrels per month if the field delivery capacity can be increased with
new drilling. Pricing is based on Dated North Sea Brent Crude discounted $13 per
barrel for transportation and quality. Payment will be in US dollars, with 80%
prepayment based on the published price of North Sea Brent for the date of
shipment. The final payment of 20% is determined by the average of a 15 day
quote for Dated Brent for the respective shipping date. Caspi Neft TME has the
right to sell any volumes of oil greater than 3,000 tons per month to other
buyers if more favorable pricing terms are offered or if So Cal Energy Inc
declines the additional volumes. "Exhibit 10.9"
Bank Financing
On August 24 of 2001 Caspi Neft TME executed a Loan Agreement with OJSC
Bank Caspian. The two year loan is for $2,800,000 at 15% per annum interest. The
loan is to fund the drilling of the first new well in the South Alibek Field.
The bank has agreed to a 90 day moratorium on interest and the first installment
of the principal is due in February, 2002. The loan distribution is scheduled
with the progress of the drilling program and is collateralized by the crude oil
purchase agreement executed between Caspi Neft TME and So Cal Energy Inc.
"Exhibit 10.10"
Development Financing
On July 2, 2001, Transmeridian entered into an agreement with Tractatus LLC
of New York N.Y., whereby Tractatus will act as its agent for the purpose of
advising on the structuring and placement with a bank or other financial
institution of a borrowing based, production note or other debt facility (term
or revolver) to be used for development of the Company's oil and gas assets and
other projects. The debt facility may include equity features or direct or
indirect interests in properties of the Company (collectively referred a as the
"Facility"), and will range in amounts of between approximately $10-30 million.
(Agreement attached exhibit)
Joint Venture Partners
Transmeridian maintains an open Data Room on its web site and has
entertained and will continue to entertain offers from other oil companies to
participate in a Joint Venture Operation of our properties. See our website at
www,tmei.com
Operation Plan
Obligations under $1,000,000 Promissory Note
On April 20, 2001 Transmeridian issued a promissory note for $1,000,000 due
December 1, 2001, secured by 25% of Caspi Neft TME stock, (the holder of License
1557) to settle the outstanding debts under the Share Purchase Agreement. We
expect to use a portion of the proceeds of this offering to satisfy the note.
See "Risk Factors."
34
Commencement of Initial Drilling Activities
The investment program for the next three years, will include the drilling
and completion of 10 wells and the installation of production facilities and
pipeline at a cost of approximately $34,000,000. The development of these wells
should "prove up" additional reserves according to the independent petroleum
engineering report from the Ryder Scott Company. The first three well program
will be initiated with the drilling of the first well in the 4th Quarter 2001.
Two additional wells will be drilled and completed by mid year 2002, for a total
cost of $8,400,000 and the construction of a sales trunk-line to the railroad
terminal, construction planned for 2002 at a cost of $2,000,000. We estimate
that each well should cost about $2.8 million dollars to drill and complete and
will be placed on production upon completion. This initial program is expected
to generate cash flow by the end of the three year period of $36,000,000 under
existing crude pricing and transportation tariff levels yielding a net revenue
of $11 per barrel to the lease. This program will be initiated by the funds from
this offering but the majority of the development capital will come from the
excess internally generated cash flow from this drilling program and or
commercial financing based on these production levels. Each commercial well
drilled will add to this commercial lending base. We currently estimate that 23
dual completed wells will be required to fully develop the current 13.7 square
kilometer contract area. Production from Well No. 29 should generate between
$204,000 to $347,000 per month in net operating cash flow based on a net price
to us of $11.42 pre barrel delivery to Emba terminal per the terms of the oil
sales agreement with So Cal Energy Ltd. Based on our initial production, we
anticipate that the 25% discount used by Ryder Scott at Dec 31, 2000 accurately
reflects our expected transportation costs. Our in-country and corporate
operating costs during this test period of approximately $140,000 per month
should be covered by the funds generated from production, resulting in a
positive cash flow position with the limited production from this first well
alone. Most sales from our area of operation are based on the European marker
crude "Brent North Sea". Initial transportation costs are higher due to the
limited amounts of production. Ecomonies of scale will be realized when
production increases and transportation costs should not exceed the discount
used by Ryder Scott. Additionally, trucking costs will be eliminated with the
installation of a field trunk line to the rail terminal located about 35 miles
from our field. If the increase in production does not occur and our production
continues at 180 barrels per day, our monthly operating cash flow would be
$62,524.
Based upon the funding provided by the bank loan from Bank Caspian for the
drilling of the first well, Transmeridian has contracted a land drilling rig for
a period of two years. The Ideco 1200 horse-power diesel electric, owned by
ADMASCO, will be mobilized in September for a spud date in the 4th Quarter. The
rig was constructed in the middle 80's by western companies and will be operated
by Transmeridian Kazakhstan (BVI).
We intend to initially drill two delineation wells, in succession,
beginning in the fourth quarter of 2001. Test production from each of these
wells are estimated at about 2,500 barrels of oil per day from each well based
upon well tests of other wells in the area. Alibek #29 cannot produce at these
calculated rates because it has small casing which prohibits the use of large or
two strings of tubing required to move the large fluid volumes. . When these two
new wells are completed, we expect to reach total test production capacity of
about 4,000 to 6,000 barrels per day for all three wells combined. This larger
monthly volume should enhance our marketing position such that placement of
sales should reduce the handling discounts we are currently being charged. With
the proper facilities in place this production could result in monthly operating
income of $1.9 - to $2.3 million per month by the end of the fourth quarter 2001
if North Sea Brent prices remain at the $24 level as to which there is no
assurance. The price for the "Brent North Sea" was $24.42 for April 3, 2001.
Using this marker base crude, oil sales from the lease would result in operating
revenues of $12.12 per barrel. With the elimination of trucking with the
installation of a sales trunk-line and higher values due to larger volume
transactions, we expect the netback of operating revenues per barrel to increase
to $15.92 - $17.92 per barrel. See "Risk Factors."
35
We expect to utilize the equity funding from this offering and the
$2,800,000 loan from Bank Caspian to support the start-up of the initial
development drilling program. After the drilling and completion of seven
successful wells, excess internally generated funds from Alibek # 29 and this
drilling program, based on current estimates of the production from each new
well, should provide the additional funds needed to complete the 10 well program
and to construct a crude oil sales trunk-line to connect the field to a oil
terminal railroad distribution center located about 35 miles from the field. We
currently have a budget designed for the construction of the pipeline to start
in the First Quarter of 2002 at a cost of $2,000,000. If we do not raise the
full planned amount from this offering of about $16 million dollars and/or the
drilling program is not as successful as projected, we will have to prorate the
funds that are raised to maximize the number of wells drilled and curtail the
expenditures for the development of the field, delay the pipeline construction
and continue trucking our production to the railway until enough excess internal
funds are generated from the sale of production or additional funding from other
sources can be realized.
The drilling of these first two wells is also anticipated to prove up
additional significant reserves, currently categorized as probable and possible,
as estimated by our independent third party experts. These additional proved
reserves are contingent on the possible success of these and other wells and
using many normal assumptions based on the currently available information but
which cannot be known with any assurance and contained within directly and
indirectly many of the normal risks associated with oil and gas exploration and
field development.
Improvement of Production Facilities
Production facilities for this level of production have been designed and
the necessary equipment has been identified for immediate purchase pending
available funds. All tankage and piping and construction should be provided by
local construction firms which specialize in installing petroleum processing
facilities.
We estimate that approximately $2 million will be required for the
installation of permanent production facilities to process production of 10,000
BOPD. Emba Trans Ltd will install production and delivery facilities at the
South Alibek Field per the terms of the option agreement with Caspi Neft TME,
reducing our funding requirement from other sources.
The gas produced in association with the oil production will be separated,
treated and utilized in providing fuel for operations with the balance
re-injected until sales to local markets can be arranged.
We located most of the major new treating vessels required for our
operation in Canada. This equipment is ideal since it is already designed for
artic conditions and sour gas service. By purchasing existing excess inventory
equipment to start up production we are not only saving on construction and
engineering costs, but on installation time since the equipment is ready for
shipment and can be installed once the surface area is prepared in the field.
Storage tankage, handling and gathering facilities will be provided and
installed through qualified local contractors from Kazakhstan with western
supervision.
36
Staffing
At the present time, we have a start-up staff of about 16 professionals
between the Houston and Kazakhstan field offices. The drilling program will
require a team of at least six engineers to be employed from the Houston office.
Two drilling engineers will supervise the drilling work in Kazakhstan for 30
days and then be relieved by two other engineers from the Houston office for 30
days. Two expatriate production engineers will also rotate on a 30 days on and
off basis to supervise the crude oil production. Each of these professionals
will require approximately four Kazakhstan field assistances for fieldwork and
language translation, or 12 in country employees. This increase in activity and
payroll will require administrative support, geologist, engineers, accountants,
interpreters and drivers both at the Almaty office as well as at the Aktobe
office. With the addition of the pipeline and terminal construction and expanded
development field operations we expect to increase the number of employees in
about 4 years to approximately 100 employees in Kazakhstan and 15 in the Houston
office.
Growth Strategy
Tranmeridian's goal is to achieve rapid growth with key acquisitions in the
Kazakhstan region. Entry into these markets is facilitated by managements'
experience and industry contacts developed over the past ten years in this area.
Balance in country exposure and type of production will be important to secure
long-term growth of the company.
Our focus is to expand our asset base with a financial plan of development
of our property in Kazakhstan and, once a stable production and sales stream is
achieved, our attention will be directed to the acquisition and development of
additional properties that have:
o low entry cost as measured on a dollar per barrel for proved and
potential reserves;
o ready access to infrastructure allowing for production within a short
time period without significant capital commitments; and
o ready access to local and export markets without the need for
immediate investment in pipeline construction projects.
o projects where we can control operations and ownership.
Operationally, we expect to finish the year in the South Alibek Field with a
substantial increase in an independent engineering evaluation of the known
producible reserves in the field and an early start up program with daily
production of about 6,000 barrels through the successful workover of well #29
and the drilling of two delineation wells. Over the next five years, daily
production from the South Alibek field could be increased up to about 50,000 to
60,000 barrels as a result of expanded developmental infield drilling and the
installation of treating and pipeline sales facilities.
We plan to continue with our reserve-purchasing program that will include
at least one additional field acquisition in the region, which can all be
managed from one core administration and operational team, in each of the next
two years.
Legal Proceeding
We are not party to any pending or threatened legal proceeding nor are any
of our properties subject to a pending or threatened legal proceeding.
37
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their ages, as of June 30, 2001
are as follows:
Name Age Position
--------------------------------------------------------------------------------
Lorrie T. Olivier(1) 50 President & CEO, Secretary, Treasurer,
Director
Bruce A. Falkenstein 43 Vice President Exploration and Geology,
Assistant Secretary
Jim W. Tucker 59 Vice President Finance, Controller
Peter L. Holstein(1) 58 Chairman of the Board, Director
Philip J. McCauley(1) 38 Director
Angus G.M.P. Simpson (2) 36 Director
Roger W. Brittain (2) 63 Director, Chairman of the Audit Committee
----------
(1) These Directors were elected and have served since the formation of
Transmeridian in 2000.
(2) These Directors were elected by the sitting Board on October 23, 2000.
They have all acted as directors since October 23, 2000. All directors hold
office until the next annual meeting of stockholder and until their successors
have been duly elected and qualified. There are no agreements with respect to
the election of directors.
The following represents a summary of the business history of each of the
named individuals for the last five years:
Lorrie T. Olivier
Mr. Olivier is President, Chief Executive Officer and a Director. From 1991 to
March 2000, Mr. Olivier was employed by American International Petroleum
Corporation as a Vice President of Operation and President of American
International Petroleum Kazakhstan (AIPK), American Eurasia Petroleum, and
American International Petroleum Holdings. He was the lead manager in developing
the company's interest in the Caspian Sea region with the acquisition of a
several large properties, the last three years focused on Kazakhstan as well as
developing experience and business contacts in Russia and other CIS countries.
Bruce A. Falkenstein
Mr. Falkenstein is Vice President of Exploration and Geology and Assistant
Secretary. He served for 20 years with Amoco, and later with BP as Chief
Geophysicist and a manager of the Kazakhstan Exploration team. Since 1992 he has
been working and managing the identification, technical evaluation and capture
of oil fields and operations of licenses in the CIS, with particular focus on
the Caspian Sea region, 6 years of that time concentrating on Kazakhstan,
developing experience and industry contacts in the region during this time.
Jim W. Tucker
Mr. Tucker is Vice President of Finance. From 1966 to 1972 he served Texaco Inc.
His last position as Vice President of Texaco Nigeria Ltd. From 1976 to 1988 he
served with Texas Oil and Gas Corp., holding positions as Assistant Controller,
Vice President and assistant to the President. From 1990 until 2001 he served as
the VP of Finance of Crossroads Environmental Corp. and Chairman of the Board.
38
Peter L. Holstein
Mr. Holstein is Chairman of the Board and Director. During the past five years
he served as a Director and Chairman of the Board for Tracer Petroleum
International (1999), Director Atlantic Caspian Resources Plc. (January-
February 1999), Chairman and Director of Odyssey Petroleum Corporation (1997),
and President Arakis Energy International (1996). He has been actively engaged
in seeking out and reviewing oil industry opportunities in the Former Soviet
Union since 1995. These have included those in Russia, the Ukraine, Kyrgestan,
Romania, Azerbijan and participating in a joint venture in Turkmenistan, as well
as the company's current project in Kazakhstan.
Philip J. McCauley
Mr. McCauley is a Director. He is currently the Chairman and Chief Executive
Officer of Audio Navigation Ltd. From 1983 to 1999, Mr. McCauley was the chief
executive officer of TTL Group Ltd.
Angus G.M.P Simpson
Mr. Simpson is a Director. He is currently a Director of Glenrand Marsh Ltd. and
also a Director and Executive Chairman of Glenrand Simpson Ltd., Insurance and
Reinsurance Advisers and Intermediaries. Prior to this Mr. Simpson served as a
Director of Crawley Warren & Co. Ltd.
Roger W. Brittain
Mr. Brittain is Chairman of the Audit Committee of the Board and a Director. He
is currently a Director of Investec Henderson Crosthwaite (1998-Present). Mr.
Brittain is also the non-executive Chairman of the Board of Directors of Canargo
Energy Corporation, and a former Director of Snyder Oil Company (1996-1998).
We have not compensated directors for service on the Board of Directors or
any committee thereof. As of the date hereof, no director has accrued any
expenses or compensation. Officers are appointed annually by the Board of
Directors and each executive officer serves at the discretion of the Board of
Directors. We do not have any standing committees at this time.
There are no family relationships between any of the our directors,
executive officers and other key personnel.
During the past five years none or our directors, executive officers,
promoters or control persons was:
(1) the subject of any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time;
(2) convicted in a criminal proceeding or is subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);
(3) subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking
39
activities; or
(4) found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law.
EXECUTIVE COMPENSATION
There was no executive compensation or salary program as of December 31,
2000. Management support during the start-up has been billed as consulting fees
through the consulting companies of the founders and the technical staff. The
two technical operating officers have been compensated under separate consulting
agreements at the rate of $10,000 per month respectively. This is the first year
of operation and there are no historical compensation amounts prior to 2000 to
report. The following table sets forth information concerning the compensation
of the named executive officers through December 31, 2000.
[Enlarge/Download Table]
===============================================================================================================================
Annual Compensation Long-Term Compensation
-------------------------------------------------------------------------------------------------------------------------------
Awards Payouts
-------------------------------------------------------------------------------------------------------------------------------
Restricted Securities
Name and Principal Other Annual Stock Underlying LTIP All other
Position Year Salary Bonuses Compensation Award(s) Options/SARs Payouts Compensation
(a) (b) ($)(c) ($)(d) ($)(e) ($)(f) (=)(g) ($)(h) ($)(i)
-------------------------------------------------------------------------------------------------------------------------------
P.L. Holstein (1) 1999 0 0 0 0 0 0 0
Chairman CEO 2000 56,000
(560,000
shares)
-------------------------------------------------------------------------------------------------------------------------------
L.T. Olivier (1) 1999 0 0 0 0 0 0 0
President COO 2000 80,000
(800,000
shares)
-------------------------------------------------------------------------------------------------------------------------------
Bruce Falkenstein(2) 2000 75,000 0 0 0 0 0 0
V.P. (140,000
shares)
-------------------------------------------------------------------------------------------------------------------------------
Richard Cole(2) 2000 75,000 0 0 0 0 0 0
V.P. (104,000
shares)
===============================================================================================================================
(1) Consulting costs January-August 2000 for each officer billed through sece
companies were paid in common shares to the respective service company and o
were reimbursed for travel and business expenses. No other compensation has been
paid to the founding executives as of this date.
(2) For services beginning March 1, 2000. The technical executives were
compensated as consultants through their respective service companies. Each Vice
President received fees of $10,000 per month and reimbursement of travel and
business expenses. A portion of their consulting services was paid in the form
of shares.
As of the date of this prospectus there was no employee stock option plan.
There were no outstanding options as of the date of this prospectus.
40
There are no arrangements pursuant to which any director has been or is
currently compensated for any service provided as a director. Directors and/or
officers will receive expense reimbursement for expenses reasonably incurred on
our behalf.
Certain Relationships and Related Transactions
On April 19, 2000 we issued 18,900,000 shares to each Mr. Peter Holstein and Mr.
Lorrie Olivier in exchange for their stock in Transmeridian Exploration, Inc.
(BVI) and $.0006 per share. Also on April 19, 2000 we issued stock for $.0006 to
the following Officers or Directors or affiliates thereof.
Richard V. Cole 1,187,500
Falkenstein Family Living Trust 1,187,500
Philip J. McCauley 50,000
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, to the best knowledge of
Transmeridian as of August 1, 2001, with respect to each person known by us to
own beneficially more than 5% of Tran meridian's outstanding common stock, each
director of Transmeridian and all directors and officers of Transmeridian as a
group.
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF NUMBER OF PERCENTAGE OF CURRENT PERCENTAGE OF SHARES OWNED FOLLOWING
BENEFICIAL OWNERS SHARES OWNED ISSUED AND OUTSTANDING COMPLETION OF OUR OFFERING BASED UPON
THE PERCENTAGE OF THE SHARES WE SELL
-------------------------------------
10% 25% 50% 75% 100%
-------------------------------------------------------------------------------------------------
Lorrie T. Olivier 7,800,000 13% 13% 12% 12% 12% 11%
-------------------------------------------------------------------------------------------------
JMJC Investments 10,800,000 18% 18% 17% 17% 16% 16%
Inc. (1)
-------------------------------------------------------------------------------------------------
Colamer Ltd (2) 800,000 1% 1% 1% 1% 1% 1%
-------------------------------------------------------------------------------------------------
Peter L. Holstein 1,610,000 3% 3% 3% 2% 2% 2%
-------------------------------------------------------------------------------------------------
Sovereign Trust (3) 12,500,000 21% 20% 20% 19% 19% 18%
-------------------------------------------------------------------------------------------------
Roger W. Brittain 150,000 0% 0% 0% 0% 0% 0%
-------------------------------------------------------------------------------------------------
Angus Simpson 50,000 0% 0% 0% 0% 0% 0%
-------------------------------------------------------------------------------------------------
Philip J. McCauley 50,000 0% 0% 0% 0% 0% 0%
-------------------------------------------------------------------------------------------------
Zen Trust (4) 500,000 1% 1% 1% 1% 1% 1%
-------------------------------------------------------------------------------------------------
All Officers and 35,977,500 59% 58% 57% 55% 53% 52%
Directors as a group
(7 persons)
-------------------------------------------------------------------------------------------------
(1) Beneficial owner of JMJC Investments Inc. are the children of Mr. Lorrie T.
Olivier, who is the settler of the Trust.
(2) Beneficial owner of Colamer Ltd. is Lorrie T. Olivier
(3) Beneficial owner of the Sovereign Trust is the Holstein family, Mr. Peter
Holstein is the settler of the Trust.
(4) Beneficial owner of Zen Trust are the children of Mr. Philip McCauley. Mr.
McCauley is the settler of the Trust
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MARKET FOR OUR STOCK
There currently exists no public trading market for our common stock, and
we cannot assure you that such a market will develop in the future. In the
absence of an active public trading market, an investor may not be able to
liquidate his investment without considerable delay, if at all. If a market does
develop, the price for our securities may be highly volatile and may bear no
relationship to our actual financial condition or results of operation.
If a market for our shares were to develop, it most likely would be in the
private sector. This is a direct offering, with no commitment by anyone to
purchase any shares. Our shares will be offered and sold by our principal
executive officers and directors, although we may use the services of one or
more NASD registered broker-dealers as selling agent(s) to make offers and sales
on our behalf. We have no agreement with any broker or dealer to act as a market
maker for our securities and there is no assurance that we will be successful in
obtaining any market makers. The lack of a market maker for our securities could
adversely influence the market for and price of our securities, as well as your
ability to dispose of, or to obtain accurate quotations as to the price of, our
securities.
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and various provisions of our
Restated Certificate of Incorporation and our bylaws are summaries. The Restated
Certificate of Incorporation and bylaws, copies of which have been filed with
the Securities and Exchange Commission as exhibits to our registration statement
of which this prospectus constitutes a part, and provisions of applicable law.
Our authorized capital stock consists of 200,000,000 shares of common stock,
$.0006 par value, of which 60,693,429 shares were issued and outstanding as of
August 7, 2001, and 5,000,000 shares of preferred stock, $.0006 par value, of
which 3,000 shares of Non-Voting Series A Convertible Preferred Stock and
100,000 shares of Non-Voting Series B Convertible Preferred Stock were issued
and outstanding as of August 7, 2001. As of August 7, 2001, there were
approximately 63 holders of record of our common stock.
Common Stock
Each share of common stock is entitled to share pro rata in dividends and
distributions with respect to the common stock when, as and if declared by the
board of directors from funds legally available funds. No holder of any shares
of common stock has any pre-emptive right to subscribe for any of our
securities. Upon our dissolution, liquidation or winding up of our corporate
affairs, the assets will be divided pro rata on a share-for-share basis among
holders of the shares of common stock after any required distribution to the
holders of preferred stock, if any. All shares of common stock outstanding are
fully paid and non-assessable.
Each shareholder of common stock is entitled to one vote per share with
respect to all matters that are required by law to be submitted to shareholders.
The shareholders are not entitled to cumulative voting in the election of
directors. Accordingly, the holders of more than 50% of the shares voting in the
election of directors will be able to elect all the directors if they choose to
do so.
Currently, our bylaws provide that shareholder action may be taken at a meeting
of shareholders and may be affected by a consent in writing if such consent is
signed by the holders of the majority of outstanding shares, unless Delaware law
requires a greater percentage. Our Restated Certificate of Incorporation
provides that they may be amended by the affirmative vote of a majority of the
shares entitled to vote on such an amendment. These are the only provisions of
our bylaws or Restated Certificate of Incorporation that specifies the vote
required by security holders to take action. Written
43
notice of the annual, and each special meeting of stockholders, stating the
time, place, and purpose or purposes thereof, shall be given to each stockholder
entitled to vote thereat, not less than 10 nor more than 60 days before the
meeting. The holders of a majority of the shares of the corporation's capital
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at any meeting of stockholders
for the transaction of business, except as otherwise provided by statute or by
the Certificate of Incorporation.
Preferred Stock
The board of directors is authorized, without further shareholder approval,
to issue from time to time up to an aggregate of 5,000,000 shares of preferred
stock. The preferred stock may be issued in one or more series and the board of
directors may fix the rights, preferences and designations thereof. There are
two series of Preferred shares outstanding, a Series A and B both with a par
value of $.0006. Series A of 3,000 shares with a stated value of $100 per share
issued to Ratcliff International Ltd. which are convertible at any time by
Transmeridian, after the stock is publicly tradable, at the rate of 85% of the
average bid price for our common stock, five days prior to conversion. The total
series accrues dividends at 12.5% per annum of the stated value of $300,158
until conversion. An aggregate of 100,000 Series B Preferred Shares with a
stated value of $15 per share are convertible by the holder at any time prior to
their 5 year term on the basis of 15 shares for our common stock for each Series
B Preferred Share. These Series B shares accrue no interest and are convertible
to Transmeridian's common share at the rate of $1.00 per share. Both the Series
A and Series B are non voting.
ANTITAKEOVER EFFECTS OF DELAWARE LAW AND OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND BYLAWS
Delaware law does not contain provisions, which are intended to have the
effect of delaying or deterring a change in our control or management.
Our Restated Certificate of Incorporation permits the issuance of up
5,000,000 shares of preferred stock, having such rights, preferences and
privileges as the board of directors may determine. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of our outstanding voting stock.
Provisions of our bylaws, which are summarized below, may affect potential
changes in our control. The board of directors believes that these provisions
are in the best interests of shareholders because they will encourage a
potential acquirer to negotiate with the board of directors, which will be able
to consider the interests of all shareholders in a change in control situation.
However, the cumulative effect of these terms may be to make it more difficult
to acquire and exercise control over us and to make changes in management more
difficult.
The bylaws provide the number of our directors that are to be established
by the board of directors, but shall be no less than one. Between shareholder
meetings, the board of directors may appoint new directors to fill vacancies or
newly created directorships. A director may be removed from office by the
affirmative vote of the majority of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors.
As discussed above, our bylaws further provide that shareholder action may
be taken at a meeting of shareholders and may be effected by a consent in
writing if such consent is signed by the holders of the majority of outstanding
shares, unless Delaware law requires a greater percentage.
44
We are not aware of any proposed takeover attempt or any proposed attempt
to acquire a large block of our common stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our Restated Certificate of Incorporation limits the liability of directors
and officers to the fullest extent permitted by Delaware law. This is intended
to allow our directors and officers the benefit of Delaware's corporation law
which provides that directors and officers of Delaware corporations may be
relieved of monetary liabilities for breach of their fiduciary duties as
directors, except under circumstances which involve acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law, or the
payment of unlawful distributions.
To the extent possible, we intend to obtain officer and director liability
insurance with respect to liabilities arising out of certain matters, including
matters arising under the Securities Act of 1933.
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than our payment of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
TRANSFER AGENT AND REGISTRAR
OTC Stock Transfer Inc. 231 E. 2100 South, Salt Lake City, Utah 84115 is
the transfer agent and registrar for our common stock, Series A and B Preferred
and for issued and outstanding warrants.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus, 60,693,429 shares of our common stock
were outstanding, including 2,875,500 shares of common stock are issuable upon
exercise of the Convertible Preferred Shares and warrants held by the registered
shareholders. Of the outstanding shares, 8,809,500 shares of common stock are
immediately eligible for sale in the public market without restriction or
further registration under the Securities Act of 1933, unless purchased by or
issued to any "affiliate" of ours, as that term is defined in Rule 144
promulgated under the Securities Act of 1933, described below. All other
outstanding shares of our common stock are "restricted securities" as such term
is defined under Rule 144, in that such shares were issued in private
transactions not involving a public offering and may not be sold in the absence
of registration other than in accordance with Rule 144, 144(k) or 701
promulgated under the Securities Act of 1933 or another exemption from
registration.
45
An aggregate of 18,490,500 shares are being registered for certain
shareholders. These shares were acquired in private placements or are issuable
upon conversion or exercise of the Series B Convertible Preferred Shares and
warrants. These shares are being registered in the registration statement of
which this prospectus is a part. Such shares will be eligible for sale 120 days
after the effective date of the registration statement in public market subject
to restrictions included in our agreements with the registered shareholders.
PLAN OF DISTRIBUTION
We are offering to sell up to 8,809,500 shares of our common stock at a
price of $2.00 per share. There is no maximum investment amount per investor. At
this time we intend to offer the shares ourselves through our officers and
directors. We have not retained any underwriters, brokers or dealers to sell the
shares for us.
The Offering
We offer the right to subscribe for up to 8,809,500 shares at $2.00 per
share. We are offering the shares directly on a no minimum, direct basis.
Therefore, there is no minimum number of shares which we need to sell in order
to complete the offering. Proceeds from the offering will not be kept in an
escrow account during the offering period. Rather, such proceeds will be used by
us as we receive them.
No compensation is to be paid to any person for the offer and sale of the
shares, other than an underwriter or NASD registered broker-dealer. Our
president, Mr. Lorrie Olivier, and our Chairman, Mr. Peter Holstein, may
distribute prospectuses related to this offering to institutional investors that
contact us and from time to time they may contact venture capitalist and
investment bankers by telephone, fax, e-mail and in person to discuss an
investment in this offering. Hard copies of the prospectus will be delivered by
mail, by courier or by hand. We estimate that approximately 300 copies of this
prospectus will be distributed by them. They intend to distribute prospectuses
to acquaintances, friends and business associates. No sales will be consummated
until the signing of, by the investor, and acceptance by the Company of a
subscription agreement. Our shares will be offered and sold by our principal
executive officers and directors, although we may use the services of one or
more NASD registered broker-dealers as selling agent(s) to make offers and sales
on our behalf.
We will reimburse our officers and directors for expenses incurred in
connection with the offer and sale of this Shares. Our officers and directors
are relying on Rule 3a4-1 of the Securities and Exchange Act of 1934 as a "safe
harbor" from registration as a broker-dealer in connection with the offer and
sales of the shares. In order to rely on such "safe harbor" provisions provided
by Rule 3a4-1, an officer or director must be in compliance with all of the
following:
* He must not be subject to a statutory disqualification;
* He must not be compensated in connection with such selling participation
by payment of commission or other payments based either directly or indirectly
on such transactions;
* He must not be an associated person of a broker-dealer;
* He must restrict participation to transactions involving offers and sale
of the Shares;
46
* He must perform substantial duties for us after the close of the offering
not connected with transactions in securities, and not have been associated with
a broker or dealer for the preceding 12 months, and not participate in selling
an offering of securities for any issuer more than once every 12 months; and
* He must restrict participation to written communications or responses to
inquiries of potential purchasers.
Although they may do so, our officers and directors intend to comply with
the guidelines enumerated in Rule 3a4-1. Our officers and directors have no
current plans to purchase shares in the offering.
Method of Subscribing
You may subscribe by filling in and signing the subscription agreement and
delivering it, prior to the expiration date, to us. The subscription price of
$2.00 per share must be paid in cash or by check, bank draft or postal express
money order payable in United States dollars to the order of "Transmeridian
Exploration Incorporated" and delivered to us at 11811 N. Freeway, Suite 500,
Houston, Texas 77060. We reserve the right to reject any subscription in whole
or in part in our sole discretion for any reason whatsoever notwithstanding the
tender of payment at any time prior to our acceptance of the subscriptions
received.
Expiration of the Offering
This offering will expire 120 days from the date from the date of this
prospectus.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby has been passed
upon for us by Sierchio & Company, LLP., New York, New York. Mr. Joseph
Sierchio, a principal of the firm, owns 150,000 shares of our common stock.
EXPERTS
The consolidated financial statements of Transmeridian Exploration, Inc. at
December 31, 2000 and for the period then ended, appearing in this prospectus
and in the registration statement have been audited by Grant Thornton LLP,
independent certified public accountants, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in auditing and accounting.
INDEPENDENT PETROLEUM ENGINEERS
The estimated reserve evaluation and related calculations of Ryder Scott
Company LP, our independent petroleum engineers, have been included in this
prospectus on reliance upon the authority of such firm as experts in petroleum
engineering.
47
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2. This prospectus, which is a part of the registration
statement, does not contain all of the information included in the registration
statement. Some information is omitted and you should refer to the registration
statement and its exhibits. You may review a copy of the registration statement,
including exhibits, at the Securities and Exchange Commission's website
www.sec.gov.
The public may view this registration statement and subsequent filings on
the Securities and Exchange Commission's website, www.sec.gov.
We intend to distribute an annual report, including audited financial
statements to our shareholders.
48
GLOSSARY OF OIL AND NATURAL GAS TERMS
The following are abbreviations and definitions of terms commonly used
in the oil and gas industry and in this Memorandum.
"Acquisition cost of properties" Costs incurred to purchase, lease or
otherwise acquire a property, including costs
of lease bonuses and options to purchase or
lease properties, the portion of costs
applicable to minerals when land including
mineral rights is purchased in fee, brokers'
fees, recording fees, legal costs and other
costs incurred in acquiring properties.
"Bbls or Stock Tank Barrel" Abbreviation for "barrels of oil" or 42 US
gallons liquid volume, used herein in
reference to oil or other liquid
hydrocarbons.
"Bcf" Abbreviation for "billion cubic feet of gas".
"BOPD" Abbreviation for "barrels of oil per day".
"BOE" Abbreviation for "barrel of oil equivalent"
based on a ratio of ten Mcf of natural gas to
one barrel of oil.
"Btu" Abbreviation for "British Thermal Units". A
British Thermal Unit is the amount of heat
needed to raise the temperature of one pound
of water one degree Fahrenheit. There are
approximately 1,050 Btu's in each stated
cubic foot of natural gas.
"Completion" An indefinite term, but including those steps
in attempting to bring a well into production
after the well has been drilled to total
depth through a prospective pay zone. Such
steps include running and cementing a
production string of casing, perforating,
running tubing, acidizing or fracturing,
swabbing, etc.
"Condensate" A hydrocarbon mixture that becomes liquid and
separate from natural gas when the gas is
produced; similar to crude oil.
"Development costs" Costs incurred to obtain access to proved
reserves and to provide facilities for
extracting, treating, gathering and storing
the oil and gas. More specifically,
development costs, including depreciation and
applicable operating costs of support
equipment and facilities and other costs of
development activities, are costs incurred
to:
(i) Gain access to and prepare well
locations for drilling, including surveying
well locations for the purpose of determining
specific development drilling sites, clearing
ground, draining, road building, and
relocating public roads, gas lines, and power
lines, to the extent necessary in
49
developing the proved reserves.
(ii) Drill and equip development wells,
development-type stratigraphic test wells,
and service wells, including the costs of
platforms and of well equipment such as
casing, tubing, pumping equipment, and the
well head assembly.
(iii) Acquire, construct, and install
production facilities such as lease flow
lines, separators, treaters, heaters,
manifolds, measuring devices, and production
storage tanks, natural gas cycling and
processing plants, and central utility and
waste disposal systems.
"Development Well" A well drilled within the proved area of an
oil or gas reservoir to the depth of a
stratigraphic horizon known to be productive.
"Discovery Well" An exploratory well that encounters a new and
previously untapped oil or gas reservoir; it
may open a new field, or a previously unknown
reservoir (pool) in an old field.
"Dry Well (Hole) An exploratory or a development well found to
be incapable of producing either oil or gas
in sufficient quantities to justify
completion as an oil or gas well.
"Economic producibility of
estimates proved reserves" Economic producibility of estimated proved
reserves can be supported to the satisfaction
of the Office of Engineering if geological
and engineering data demonstrate with
reasonable certainty that those reserves can
be recovered in future years under existing
economic and operating conditions. The
relative importance of the many pieces of
geological and engineering data which should
be evaluated when classifying reserves cannot
be identified in advance. In certain
instances, proved reserves may be assigned to
reservoirs on the basis of a combination of
electrical and other type logs and core
analyses which indicate the reservoirs are
analogous to similar reservoirs in the same
field which are producing or have
demonstrated the ability to produce on a
formation test. (extracted from SAB-35).
"Exploration Costs" Costs incurred in identifying areas that may
warrant examination and in examining specific
areas that are considered to have prospects
of containing oil and gas reserves, including
costs of drilling exploratory wells and
exploratory-type stratigraphic test wells.
Exploration costs may be incurred both before
acquiring the related property (sometimes
referred to in part as prospecting costs) and
after acquiring the property. Principal types
of exploration costs, which include
depreciation and applicable operating costs
of support equipment and facilities and other
costs of exploration activities, are:
(i) Costs of topographical, geographical
and
50
geophysical studies, rights of access to
properties to conduct those studies, and
salaries and other expenses of geologists,
geophysical crews, and others conducting
those studies. Collectively, these are
sometimes referred to as geological and
geophysical or "G&G" costs.
(ii) Costs of carrying and retaining
undeveloped properties, such as delay
rentals, ad valorem taxes or properties,
legal costs for title defense, and the
maintenance of land and lease records.
(iii) Dry hole contributions and bottom
hole contributions.
(iv) Costs of drilling and equipping
exploratory wells.
(v) Costs of drilling exploratory-type
stratigraphic test wells.
"Exploratory well" A well drilled to find and produce oil or gas
in an unproved area, to find a new reservoir
in a field previously found to be productive
of oil or gas in another reservoir, or to
extend a known reservoir. Generally, an
exploratory well is a well that is not a
development well, a service well, or a
stratigraphic test well.
"Farm-out/Farm-in" An agreement providing for assignment of a
lease. A typical characteristic of a farm-out
is an obligation of the assignee to conduct
drilling operations on the assigned acreage
as a prerequisite to completion of the
assignment. The assignor will usually reserve
some type of interest in the lease. The
transaction is characterized as a farm-out to
the assignor and as a farm-in to the
assignee.
"Field" An area consisting of a single reservoir or
multiple reservoirs all grouped on or related
to the same individual geological structural
feature and/or stratigraphic condition. There
may be two or more reservoirs in a field,
which are separated vertically by intervening
impervious state, or laterally by local
geologic barriers, or by both.
"Gross" Gross oil and gas wells or gross acres refers
to the total number of wells or acres that we
have an ownership interest in without regard
to the nature or size of the ownership
interest.
"MBbls" Abbreviation for "thousand barrels of oil".
"Mcf" Abbreviation for "thousand cubic feet of
gas".
"MMBbls" Abbreviation for "million barrels of oil".
"MMBtu" Abbreviation for "million Btu".
"MMcf" Abbreviation for "million cubic feet of gas".
51
"Natural gas liquids (NGLs)
or plant products" Butane, propane, ethane, natural gasoline and
other liquid hydrocarbons that are extracted
from natural gas.
"Net" "Net" oil and gas wells or "net" acres are
determined by multiplying gross wells or
acres by our working interest in those wells
or acres.
"Net present value" When used with respect to oil and gas
reserves, the estimated future gross revenue
to be generated from the production of proved
reserves calculated in accordance with SEC
guidelines, net of estimated production and
future development costs, using prices and
costs as of the date indicated, without
giving effect to non-property related
expenses such as general and administrative
expenses, debt service and future income tax
expenses or to depreciation, depletion and
amortization, discounted using an annual
discount rate of 10%.
"Net revenue interest" The percentage of production to which the
owner of a working interest is entitled. For
example, the owner of a 100% working interest
in a well burdened only by a landowner's
royalty of 12.5% would have an 87.5% net
revenue interest in that well.
"Oil and gas producing Such activities include:
activities"
(a) The search for crude oil, including
condensate and natural gas liquids, or
natural gas in their natural states and
original locations.
(b) The acquisition of property rights or
properties for the purpose of further
exploration and/or for the purpose of
removing the oil or gas from existing
reservoirs on those properties.
(c) The construction, drilling and production
activities necessary to retrieve oil and gas
from its natural reservoirs, and the
acquisition, construction, installation, and
maintenance of field gathering and storage
systems-including lifting the oil and gas to
the surface and gathering, treating, field
processing (as in the case of processing gas
to extract liquid hydrocarbons) and field
storage.
For purposes of this section, the oil and gas
production function shall normally be
regarded as terminating at the outlet valve
on the lease or field storage tank; if
unusual
52
physical or operational circumstances exist,
it may be appropriate to regard the
production functions as terminating at the
first point at which oil, gas or gas liquids
are delivered to a main pipeline, a common
carrier, a refinery, or a marine terminal.
"Operator" In a joint venture for the execution of works
or as defined in a joint operating agreement,
the "Operator" entity charged with the
responsibility for the execution of all works
and is normally responsible to authorities
for the representation and legal execution of
all related agreements and contracts.
"Possible Reserves" In accordance with guidelines adopted by the
Society of Petroleum Engineers (SPE) and the
Society of Petroleum Evaluation Engineers
(SPEE), Possible reserves are the estimated
quantities of hydrocarbons which are based on
engineering and geological data which are
less complete and less conclusive than the
data used in estimates of probable reserves.
Possible reserves include, without
limitation: (a) reserves that might be found
if certain geologic conditions exist which
are indicated by structural extrapolation
from developed areas; (b) reserves that might
be found if reasonably definitive geophysical
interpretations indicate a structure larger
than could be included within the proved and
probable limits; (c) reserves that might be
found in formations which have log
characteristics that are somewhat favorable
but leave a reasonable doubt as to their
certainty; (d) reserves that might exist in
untested fault segments adjacent to proved
reserves where a reasonable doubt exists as
to whether such fault segment is or is not
structurally high enough; and (e) reserves
that might result from a planned improved
recovery program that is not in operation and
that is in a field in which formation, fluid
or reservoir characteristics are such that a
reasonable doubt exists as to its success.
"Probable Reserves" In accordance with guidelines adopted by the
Society of Petroleum Engineers (SPE) and the
Society of Petroleum Evaluation Engineers
(SPEE), Probable reserves are the estimated
quantities of recoverable hydrocarbons which
are based on engineering and geological data
similar to those used in the estimates of
proved reserves but, for various reasons,
these data lack the certainty required to
classify the reserves as proved. Probable
reserves include, without limitation: (a)
reserves that apparently exist a reasonable
distance beyond the proved limits of
productive reservoirs where water contacts
have not been determined and proved limits
are established by the lowest datum at which
proved reserves exist; (b) reserves in
formations that appear to be productive from
log characteristics only, but lack definitive
tests or core analyses data; (c) reserves in
a portion of a formation that has been proved
productive in other areas in a
53
field but is separated from the proved area
by sealing faults, provided that the geologic
interpretation indicates the probable area is
structurally high relative to the proved
portion of the formation; (d) reserves
obtainable by improved recovery where an
improved recovery program, that has yet to be
established through repeated economically
successful operations, is planned but is not
yet in operation and a successful pilot test
has not been performed, but reservoir and
formation characteristics appear favorable
for its success; and (e) reserves in the same
reservoir as proved reserves that would be
recoverable if a more efficient primary
recovery mechanism develops than was assumed
in estimating the proved reserves.
"Producing Well" A well from which hydrocarbon or
non-hydrocarbons in a fluid or gaseous state
flow or are extracted on a daily basis.
"Production costs" Costs incurred to operate and maintain wells
and related equipment and facilities,
including depreciation and applicable
operating costs of support equipment and
facilities. They become part of the cost of
oil and gas produced. Examples of production
costs (sometimes called lifting costs) are:
(a) Costs of labor to operate the wells and
related equipment and facilities.
(b) Repairs and maintenance.
(c) Materials, supplies, and fuel consumed
and supplies utilized in operating the wells
and related equipment and facilities.
(d) Property taxes and insurance applicable
to proved properties and wells and related
equipment and facilities.
(e) Severance taxes.
Some support equipment or facilities may
serve two or more oil and gas producing
activities and may also serve transportation,
refining, and marketing activities. To the
extent that the support equipment and
facilities are used in oil or gas producing
activities, their depreciation and applicable
operating costs become exploration,
development or production costs, as
appropriate. Depreciation, depletion, and
amortization of capitalized acquisition,
exploration, and development costs are not
production costs but also become part of the
cost of oil and gas produced along with
production (lifting) costs.
"Proved (proven) area" The part of a property to which Proved
reserves have been specifically attributed.
54
"Proved (proven) properties" Properties with Proved reserves.
"Unproved properties" Properties with no Proved reserves.
"Proved oil and gas reserves" or
"Proved reserved reservoir" Proved reserves is defined by the SEC
Regulation S-X Rule 4-10, paragraph (a) and
includes the categories Proved Developed and
Proved Undeveloped: Proved oil and gas
reserves are the estimated quantities of
crude oil, natural gas, and natural gas
liquids which geological and engineering data
demonstrate with reasonable certainty to be
recoverable in future years from known
reservoirs under existing economic and
operating conditions, i.e., prices and costs
as of the date the estimate is made. Prices
include consideration of changes in existing
prices provided only by contractual
arrangements, but not on escalation based
upon future conditions.
(i) Reservoirs are considered proved if
economic producibility is supported by either
actual production or a conclusive formation
test. The area of a reservoir considered
proved includes (a) that portion delineated
by drilling and defined by gas-oil and/or
oil-water contacts, if any; and (b) the
immediately adjoining portions not yet
drilled, but which can be reasonably judged
as economically productive on the basis of
available geological and engineering data. In
the absence of information on fluid contacts,
the lowest known structural occurrence of
hydrocarbons controls the lower proved limit
of the reservoir.
(ii) Reserves which can be produced
economically through application of improved
recovery techniques (such a fluid injection)
are included in the "proved" classification
when successful testing by a pilot project,
or the operation of an installed program in
the reservoir, provides support for the
engineering analysis on which the project or
program was based.
(iii) Estimates of proved reserves do not
include the following: (a) oil that may
become available from known reservoirs but is
classified separately as "indicated
additional reserves"; (b) crude oil, natural
gas, and natural gas liquids, the recovery of
which is subject to reasonable doubt because
of uncertainty as to geology, reservoir
characteristics, or economic factors; (c)
crude oil, natural gas, and natural gas
liquids, that may occur in un-drilled
prospects; and (d) crude oil, natural gas,
and natural gas liquids, that may be
recovered from oil shales, coal, gilsonite
and other such sources.
55
"Proved developed oil
and gas reserves" Proved developed oil and gas reserves are
reserves that can be expected to be recovered
through existing wells with existing
equipment, and operating methods. Additional
oil and gas expected to be obtained through
the application of fluid injection or other
improved recovery techniques for
supplementing the natural forces and
mechanisms of primary recovery should be
included as "proved developed reserves" only
after testing by a pilot project or after the
operation of an installed program has
confirmed through production response that
increased recovery will be achieved.
"Proved developed producing
oil and gas reserves" In accordance with guidelines adopted by the
Society of Petroleum Engineers (SPE) and the
World Petroleum Congress (WPC), developed
reserves may be sub-categorized as producing
or non-producing. Producing: Reserves
sub-categorized as producing are expected to
be recovered from completion intervals which
are open and producing at the time of the
estimate. Improved recovery reserves are
considered producing only after the improved
recovery project is in operation.
"Proved developed non-producing
oil and gas reserves" In accordance with guidelines adopted by the
Society of Petroleum Engineers (SPE) and the
World Petroleum Congress (WPC), developed
reserves may be sub-categorized as producing
or non-producing. Non-Producing: Reserves
sub-categorized as non-producing include
shut-in and behind pipe reserves. Shut-in
reserves are expected to be recovered from
(1) completion intervals which are open at
the time of the estimate but which have not
started producing, (2) wells which were
shut-in awaiting pipeline connections or as a
result of a market interruption, or (3) wells
not capable of production for mechanical
reasons. Behind pipe reserves are expected to
be recovered from zones in existing wells,
which will require additional completion work
or future recompletion prior to the start of
production.
"Proved undeveloped reserves" Proved undeveloped oil and gas reserves are
reserves that are expected to be recovered
from new wells on un-drilled acreage, or from
existing wells where a relatively major
expenditure is required for recompletion.
Reserves on un-drilled acreage shall be
limited to those drilling units offsetting
productive units that are reasonably certain
of production when drilled. Proved reserves
for other un-drilled units can be claimed
only where it can be demonstrated with
certainty that there is continuity of
production from the existing productive
formation. Estimates for proved undeveloped
reserves should not be attributed to any
acreage for which an
56
application of fluid injection or other
improved recovery technique is contemplated,
unless such techniques have been proved
effective by actual tests in the area and in
the same reservoir.
"Recompletion" Additional works on a well to revise the
existing mechanical or production mode of a
well or to add additional intervals to the
production of a well.
"Reservoir" A porous and permeable underground formation
containing a natural accumulation of
producible oil and/or gas that is confirmed
by impermeable rock or water barriers and is
individual and separate from other
reservoirs.
"Reserves" Reserves are those quantities of petroleum
which are anticipated to be commercially
recovered from known accumulations from a
given date forward. All reserve estimates
involve some degree of uncertainty. The
uncertainty depends chiefly on the amount of
reliable geological and engineering data
available at the time of the estimate and the
interpretation of these data. The relative
degree of uncertainty may be conveyed by
placing reserves into one of two principal
classifications, either proved or unproved.
Unproved reserves are less certain to be
recovered than proved reserves and may be
further sub-classified as probable and
possible reserves to denote progressively
increasing uncertainty in their
recoverability. It should be noted that SEC
Regulation S-K prohibits the disclosure of
estimated quantities of probable or possible
reserves of oil and gas and any estimated
value thereof in any documents publicly filed
with the Commission.
"Royalty Interest" An interest in an oil and gas property
entitling the owner to a share of oil and gas
production (or the proceeds of the sale
thereof) free of production costs.
"SEC" The United States Securities and Exchange
Commission.
"SEC Definitions" Those terms commonly used in the oil and gas
industry and defined in the rules and
regulations promulgated by the SEC pursuant
to the Securities Act of 1933, as amended
and/or the Securities Exchange Act of 1934,
as amended.
"SEC Method" The "Standardized Measure of Discounted
Future Net Cash Flows Relating to Proved Oil
and Gas Reserves Quantities," as described in
a Statement of Financial Accounting Standard
No. 69, is a value-based measure of an
entity's proved reserves based on estimates
of future cash flows from production of
reserves assuming a 10% discount rate and
constant future sale prices and costs of
production.
57
"Seismic" The use of shock waves generated by
controlled explosions of dynamite or other
means to ascertain the nature and contour of
underground geological structures.
"Service well" A well drilled or completed for the purpose
of supporting production in an existing
field. Specific purposes of service wells
include gas injection, water injection, steam
injection, air injection, salt-water
disposal, water supply for injection,
observation, or injection for in-situ
combustion.
"Spud" To start to drill a well.
"Stratigraphic test well" A drilling effort, geologically directed, to
obtain information pertaining to a specific
geologic condition. Such wells customarily
are drilled without the intention of being
completed for hydrocarbon production. This
classification also includes tests identified
as core tests and all types of expendable
holes related to hydrocarbon exploration.
Stratigraphic test wells are classified as
(I) "exploratory-type", if not drilled in a
proved area, or (ii) "development-type", if
drilled in a proved area.
"Working Interest" The operating interest under an oil and gas
lease which gives the owner the right to
drill, produce and conduct operating
activities on the property and a share of
production subject to all royalties,
overriding royalties and other burdens and to
all costs of exploration, development and
operations and all risks in connection
therewith.
"Workover" Remedial operations on a well with the hope
of restoring or increasing production from
the same zone.
"2D Seismic" The term applied to describe the method of
acquiring seismic data that results in
two-dimensional profiles of the subsurface
(x,time). 2D seismic data is usually acquired
individually and interpreted within a grid of
2D profiles that allows the interpreter to
generate three-dimensional maps of the
subsurface.
"3D Seismic" The term applied to describe the method of
acquiring seismic data that results in a
three-dimensional grid of data (x,y,time) of
the subsurface. 3D seismic data is usually
acquired as a complete grid and interpreted
within this specialized grid that allows the
interpreter to generate three-dimensional
maps of the subsurface.
58
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants.........................F-1
Consolidated Balance Sheets at December 31, 2000 and June 30, 2001.........F-2
Consolidated Statements of Operations for the year ended
December 31, 2000 and the periods ended June 30, 2001
and June 30, 2000.......................................................F-3
Consolidated Statement of Stockholders' Equity.............................F-4
Consolidated Statements of Cash Flows for the year ended
December 31, 2000 and periods ended June 30, 2001.......................F-5
Notes to Consolidated Financial Statements.................................F-6
Report of Independent Certified Public Accountants
Board of Directors
Transmeridian Exploration Incorporated
We have audited the accompanying consolidated balance sheet of
Transmeridian Exploration Incorporated and Subsidiaries (a development stage
company) as of December 31, 2000, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Transmeridian
Exploration Incorporated and Subsidiaries at December 31, 2000, and the
consolidated results of their operations and cash flows for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
financial statements, the Company incurred a net loss of $810,548 during the
year ended December 31, 2000, and, as of that date, the Company's current
liabilities exceeded its current assets by $1,052,234. These factors, among
others, including the Company's ability to raise additional funds, as discussed
in Note B to the financial statements, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note B. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Grant Thornton LLP
Houston, Texas
April 27, 2001
F-1
Transmeridian Exploration Incorporated and Subsidiaries
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
[Enlarge/Download Table]
June 30, December 31,
2001 2000
----------- -----------
ASSETS (unaudited)
Cash $ 57,493 $ 512,115
Prepaid expenses 16,699 49,560
----------- -----------
Current assets 74,192 561,675
Office property and equipment, net of accumulated
depreciation of $4,314 and $950 30,461 6,616
Oil and gas properties (successful efforts method of
accounting for oil and gas properties) 6,588,217 4,445,451
----------- -----------
Total assets $ 6,692,870 $ 5,013,742
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Unpaid amounts to a third party $ 1,000,000 $ 1,385,842
Notes payable 215,103 --
Accounts payable and accrued liabilities 200,650 231,439
----------- -----------
Total current liabilities 1,415,753 1,617,281
SHAREHOLDERS' EQUITY
Preferred stock $.0006 par, authorized 5,000,000 shares;
103,000 shares issued and outstanding 62 2
Common stock $.0006 par; authorized 200,000,000 shares;
59,517,000 and 57,797,000 shares issued and outstanding 35,710 34,678
Additional paid-in capital 6,619,837 4,172,329
Deficit accumulated during development stage (1,378,492) (810,548)
----------- -----------
Total shareholders' equity 5,277,117 3,396,461
----------- -----------
Total liabilities and shareholders' equity $ 6,692,870 $ 5,013,742
=========== ===========
The accompanying notes are an integral part of these statements.
F-2
Transmeridian Exploration Incorporated and Subsidiaries
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
[Enlarge/Download Table]
Cumulative
total from
Six months ended June 30, Year ended inception to
------------------------ December 31, June 30,
2001 2000 2000 2001
------------ --------- ------------ ------------
(unaudited) (unaudited) (unaudited)
Oil sales $ 51,380 $ -- $ -- $ 51,380
Cost and expenses
Operating expenses 68,704 -- -- 68,704
General and administrative expenses 493,075 117,568 187,140 680,215
------------ --------- ------------ ------------
Total operating expenses 561,779 117,568 187,140 748,919
Operating loss (510,399) 117,568) (187,140) (697,539)
Other income (expense)
Gain on sale of working interest -- 414,146 414,146 414,146
Start-up costs -- (246,484) (246,484) (246,484)
Lease financing cost and interest expense (38,785) (10,765) (791,070) (829,855)
------------ --------- ------------ ------------
Total other income (expense) (38,785) 156,897 (623,408) (662,193)
------------ --------- ------------ ------------
NET (LOSS) INCOME $ (549,184) $ 39,329 $ (810,548) $ (1,359,732)
============ ========= ============ ============
Preferred dividends 18,760 -- -- 18,760
------------ --------- ------------ ------------
NET (LOSS) INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ (567,944) $ 39,329 $ (810,548) $ (1,378,492)
============ ========= ============ ============
Basic loss per share $ (.01) $ -- $ (.06) $ (.05)
============ ========= ============ ============
Weighted average shares outstanding 59,517,000 -- 14,453,691 29,239,091
The accompanying notes are an integral part of these statements.
F-3
Transmeridian Exploration Incorporated and Subsidiaries
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
[Enlarge/Download Table]
Deficit
accumulated
Additional during
Preferred Preferred Common Common paid-in development
shares Stock shares stock capital stage Total
------ ----- ------ ----- ------- ----------- -----
Balance at January 1, 2000 $ -- $ -- $ -- $ -- $ --
Issuance of founders shares 41,300,000 $ 24,780 $ 24,780
Issuance of stock for third party
services 5,151,667 $ 3,091 $ 543,309 $ 546,400
Conversion of debt to common
Stock 800,000 $ 480 $ 199,520 $ 200,000
Conversion of debt to preferred stock 3,000 2 $ 300,156 $ 300,158
Stock issued in private placements 10,545,333 $ 6,327 $3,626,173 $3,632,500
Costs of private placements (496,829) $ (496,829)
Net loss $ (810,548) $ (810,548)
---------- --------- ----------- ---------- ---------- ----------- ----------
Balance at December 31, 2000 3,000 2 57,797,000 $ 34,678 $4,172,329 $ (810,548) $3,396,461
Stock issued in private placements
(unaudited) 1,720,000 $ 1,032 $1,052,968 -- $1,054,000
Preferred stock issued for working
interest (unaudited) 100,000 60 1,499,940 1,500,000
Net loss (unaudited) $ (549,184) $ (549,184)
Costs of private placements
(unaudited) $ (105,400) $ (105,400)
Dividends accrued on convertible
preferred stock (unaudited) $ (18,760) $ (18,760)
---------- --------- ----------- ---------- ---------- ----------- ----------
Balance at June 30, 2001 (unaudited) 103,000 62 59,517,000 $ 35,710 $6,619,837 $(1,378,492) $5,277,117
========== ========= =========== ========== ========== =========== ==========
The accompanying notes are an integral part of this statement.
F-4
Transmeridian Exploration Incorporated and Subsidiaries
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
[Enlarge/Download Table]
Cumulative
total from
Six months ended June 30, Year ended inception to
----------------------- December 31, June 30,
2001 2000 2000 2001
--------- --------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Cash flows from operating activities
Net (loss) income $(549,184) $ 39,329 $ (810,548) $(1,359,732)
Adjustments to reconcile net loss
to net cash used in operating activities
Gain on sale of working interest -- (414,146) (414,146) (414,146)
Depreciation and amortization 3,364 -- 950 4,314
Stock issued for services -- -- 546,400 546,400
Increase in prepaid expenses (16,699) -- (49,560) (66,259)
(Decrease) increase in accounts payable and accrued
liabilities (49,549) 200,221 231,439 181,890
--------- --------- ----------- -----------
Net cash (used in) provided by operating activities (612,068) (174,596) (495,465) (1,107,533)
Cash flows from investing activities
Proceeds from sale of working interest -- 614,146 614,146 614,146
Purchase of office property and equipment (27,209) -- (7,566) (34,775)
Purchase of oil and gas properties (593,206) (114,158) (645,451) (1,238,657)
--------- --------- ----------- -----------
Net cash (used in) provided by investing activities (620,415) 499,988 (38,871) (659,286)
Cash flows from financing activities
Payments on unpaid amounts to a third party (385,842) (500,000) (2,500,000) (2,885,842)
Proceeds from notes payable 215,103 186,000 386,000 601,103
Proceeds from sale of common stock 948,600 -- 3,160,451 4,109,051
--------- --------- ----------- -----------
Net cash provided by (used in) financing activities 777,861 (314,000) 1,046,451 1,824,312
--------- --------- ----------- -----------
Change in cash and cash equivalents (454,622) 11,392 512,115 57,493
--------- --------- ----------- -----------
Cash and cash equivalents at beginning of period 512,115 -- -- --
--------- --------- ----------- -----------
Cash and cash equivalents at end of period $ 57,493 $ 11,392 $ 512,115 $ 57,493
========= ========= =========== ===========
Supplemental disclosures of noncash information
During 2000, the Company converted $200,000 of debt
to 800,000 shares of common stock.
During 2000, the Company converted $300,158 of debt
to 3,000 shares of preferred stock
During 2000, the Company acquired oil and gas
properties from a third party in exchange for amounts
owed totaling $3,885,842.
The accompanying notes are an integral part of these statements.
F-5
Transmeridian Exploration Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Transmeridian Exploration Incorporated (the Company) acquired 100% of the
shares of Open Joint Stock Company Caspi Neft TME, which has as its primary
asset the license and related contract for the exploration and development of an
oil and gas lease known as Yuzhny (South) Alibek Field (the License). During
2000, Open Joint Stock Company Caspi Neft TME was formed solely the for purpose
of the acquisition of the License. This transaction is hereafter referred to as
"the Share Purchase Agreement". The Company plans to begin development of the
property shortly after the completion of future private-placement or public
offerings.
Transmeridian Exploration Incorporated was incorporated in Delaware in
April 2000. Previously, all activity was conducted by Transmeridian Exploration
Inc. (British Virgin Islands). There was no significant activity prior to
January 1, 2000.
The Company has been in the development stage since its formation. It is
primarily engaged in the exploration, development and production of oil and gas
properties.
1. Principles of Consolidation
The consolidated financial statements include the accounts of Transmeridian
Exploration Incorporated and its subsidiaries, Transmeridian Exploration Inc.
(British Virgin Islands), Transmeridian (Kazakhstan) Incorporated (British
Virgin Islands), and Open Joint Stock Company Caspi Neft TME (Kazakhstan), all
wholly-owned. In consolidation, all significant intercompany transactions have
been eliminated.
2. Use of Estimates
In preparing the financial statements in conformity with accounting
principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
F-6
Transmeridian Exploration Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Property and Equipment
While the Company has no production history, it plans to follows the
"successful efforts" method of accounting for its costs of acquisition,
exploration and development of oil and gas properties. Intangible drilling
and development costs related to development wells and successful
exploratory wells although not yet incurred will be capitalized, whereas
the costs of exploratory wells which do not find proved reserves will be
expensed. All geological and geophysical costs not reimbursed will be
expensed as incurred. Costs of acquiring unproved leases will be evaluated
for impairment until such time as the leases are proved or abandoned. In
addition, unamortized costs at a field level will be reduced to fair value
if the sum of expected undiscounted future cash flows are less than net
book value.
Depreciation and amortization of producing properties is computed
using the unit-of-production method based upon estimated proved recoverable
reserves. Depreciation of other property and equipment is calculated using
the straight-line method based upon estimated useful lives ranging from two
to ten years. Maintenance and repairs are charged to expense as incurred.
Renewals and betterments are capitalized. When assets are sold, retired or
otherwise disposed of, the applicable costs and accumulated depreciation
and amortization are removed from the accounts, and the resulting gain or
loss is recognized.
5. Income Taxes
The Company accounts for income taxes using the asset and liability
method. The asset and liability method requires the recognition of deferred
tax assets and liabilities for the expected future consequences of
temporary differences between tax bases and financial reporting bases of
other assets and liabilities. The Company deducts intangible development
costs as incurred and deducts statutory depletion when it exceeds cost
depletion for federal income tax purposes.
6. Start-up Costs
Start-up costs, including organizational expenses are expensed as incurred.
7. Loss Per Share
Basic loss per common share is calculated by dividing net loss after
deducting preferred stock dividends and discount on preferred stock that is
accreted directly to the accumulated deficit, by the aggregate weighted
average shares outstanding during the period. Diluted loss per common share
considers the dilutive effect of the average number of common stock
equivalents that are outstanding during the period.
Diluted loss per share is not presented because the exercise of
warrants and the effect of the conversion of the Company's Preferred Stock
into shares of the Company's common stock are antidilutive.
F-7
Transmeridian Exploration Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
8. Risks and Uncertainties
The ability of the Company to realize the carrying value of its assets
is dependent on being able to develop, transport and market hydrocarbons.
Currently, exports from the Republic of Kazakhstan are primarily dependent
on transport routes, either via rail, barge or pipeline, through Russian
territory. Pipeline capacity has significantly improved this year with the
opening of the CPC Pipeline, raising current capacity of 250,000 barrels
oil per day (bopd) to 800,000 bopd by year end. Domestic markets in the
Republic of Kazakhstan might not permit world market prices to be obtained.
Management believes, however, that over the life of the project
transportation options will be improved by further increases in the
capacity of the CPC and other existing pipelines and the building of new
pipelines within the region and prices will remain achievable for
hydrocarbons extracted to allow full recovery of the carrying value of its
assets.
9. Revenue Recognition
Revenues from the sale of oil and gas are recorded using the sales
method. As of December 31, 2000, the Company has had no production,
including test production.
10. Foreign Exchange Transactions
The Company's functional currency is the U.S. dollar, thus the
financial statements of the Company's foreign subsidiaries are measured
using the U.S. dollar. Accordingly, transaction gains and losses for
foreign subsidiaries are recognized in consolidated operations in the year
of occurrence.
11. Interim Financial Information
Financial information as of June 30, 2001 and for the six months ended
June 30, 2001 and June 30, 2000, included herein, is unaudited. Such
information includes all adjustments (consisting only of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of the financial information in the interim periods. The results
of operations for the six months ended June 30, 2001 and June 30, 2000 are
not necessarily indicative of the results for the full fiscal year.
NOTE B - GOING CONCERN
The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. The
Company has settled all of the amounts due for the Share Purchase
Agreement, with cash and a $1,000,000 note due December 1, 2001, secured by
25% of Caspi Neft TME stock, (the license holder). Failure to make this
note payment could result in the forfeiture of ownership of 25% the License
by the Company. Additionally, to fully develop the area covered by the
License, the Company needs substantial additional funding. Finally, the
Company must also obtain a commercial production contract with the
government of Kazakhstan. The Company is legally entitled to receive this
commercial production contract and has an exclusive right to negotiate this
contract and the government of Kazakhstan is obligated to conduct these
negotiations under the Law of Petroleum. If no terms can be negotiated, the
Company has a right to produce and sell oil, including export oil, under
the Law of Petroleum for the term of its existing contract through the end
of 2005. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern.
F-8
Transmeridian Exploration Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE B - GOING CONCERN - Continued
Management has taken the following steps to revise its operating and
financial requirements, which it believes are sufficient to provide the
Company with the ability to continue in existence.
o The Company plans to continue to pursue additional capital, both
through private placements and public offerings. As noted in Note
K, the Company has subsequently raised an additional $948,600
from sales of common stock in the private placements. The Company
plans to file Form SB-2, which will register the Company's
existing stock for sale by the public, as well as raise
additional capital. The Company plans to issue up to $16,000,000
in common stock in this offering. These funds will be used to pay
off the amounts due to a third party of $1,000,000.
o The Company is currently negotiating a new Exploration and
Production Operating Contract in Kazakhstan. The contract will
contain all commercial and operating aspects of exploration and
production, including terms for full commercial production. This
will replace the existing contract that only covers the
Exploration phase of License 1557.
o The South Alibek property has both proved undeveloped and
developed non-producing oil reserves. Based on its expected
production capabilities from the expenditures that will be made
in future private placement or public offerings, the Company
believes that it could generate adequate cash flow. Additional
funding requirements may also be necessary before the Company is
able to rely solely on the production from the South Alibek Field
for the cash flow of the Company. The Company is considering
obtaining temporary financing to begin production.
NOTE C - OIL AND GAS PROPERTIES
The Company's oil and gas properties primarily include the value of
the License and other capitalizable costs under the successful efforts
method of accounting.
The Company has entered into a binding agreement to purchase a
gathering station for a total of $190,000. At December 31, 2000, $10,000 of
the amount owed has been paid.
NOTE D - UNPAID AMOUNTS TO THIRD PARTIES
The Company settled the third party final installment of the Share
Purchase Agreement in the amount of $1,385,842 by the payment of $385,842
and the issuance of a $1,000,000 note due December 1, 2001 secured by 25%
of the stock in Caspi Neft TME.
F-9
Transmeridian Exploration Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE E - CONVERTED NOTES PAYABLE
The Company has incurred debt during its start-up phase, borrowing a
total of $500,158 from two parties.
The Company borrowed $300,158 from a third party, which accrued
interest at 12.5%. The Company entered into a credit conversion agreement
on August 23, 2000, whereby the $300,158 in notes payable would be
converted to convertible or redeemable preferred stock. During December
2000, the debt was converted. The preferred stock accrues dividends at
12.5% until converted or redeemed. Accrued dividends at December 31, 2000
were not significant.
These shares are either convertible to common stock or redeemable at
the Company's option. The conversion rate is 85% of the average bid price
for the five previous consecutive trading days prior to the conversion
date.
The conversion feature of the preferred stock represents 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 preferred stock is allocable to the conversion feature contained
herein. The value assigned to the conversion feature is determined as the
difference between the market price of the Company's common stock and the
conversion price multiplied times the number of shares to be received upon
conversion. The discount assigned to the conversion feature is recorded as
additional paid-in capital and to accumulated deficit when the stock
becomes publicly tradable. The value of this conversion feature cannot be
determined until the stock becomes publicly tradable.
As additional consideration for entering into this credit conversion
agreement, the Company issued 1,200,000 shares of common stock to the third
party.
The Company incurred debt totaling $200,000 from a related party. The
Company entered into an agreement with the related party that converted the
debt into 800,000 shares of common stock in December 2000.
NOTE F - STOCK FOR SERVICES RENDERED
The Company entered into several agreements to exchange common stock
for services. The stock has been valued based on the fair value of the
stock at the time of the agreements. The Company issued a total of
5,632,000 shares under these type of agreements. This stock was issued to
unrelated third party vendors for software, engineering and geological
services.
F-10
Transmeridian Exploration Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE G - CONVEYANCE OF WORKING INTERESTS
As consideration for work done in conjunction with the Share Purchase
Agreement, the Company assigned a 10% carried working interest to a third
party. In addition, the Company issued 1,000,000 shares of common stock to
this party for the negotiation of an extension of the payment terms with
the previous owners of the License. The value of these additional shares
has been recorded as lease financing cost in the statement of operations.
During the year ended December 31, 2000, the Company sold a 4.5%
working interest share of the License to another third party.
NOTE H - INCOME TAXES
At December 31, 2000 the components of the Company's deferred tax
assets and liabilities are as follows:
Deferred tax assets:
Net operating loss carry forward $ 274,000
Valuation allowance (274,000)
-------
Deferred tax assets $ --
=======
As of December 31, 2000, the Company has estimated loss carry forwards
of approximately $807,000, which expire in 2020.
The Company has not recorded any deferred tax assets or income tax
benefits from the net operating losses for the year ended December 31,
2000. The Company has taken a 100% valuation allowance against any
resulting deferred tax asset due to such carry forward as realization of
the net operating losses are more likely than not.
NOTE I - LOSS PER SHARE
The components of loss per share at December 31, 2000 are as follows:
Net loss available to common shareholders $ (810,548)
===========
Weighted-average common shares outstanding 14,453,691
===========
The initial issuance of shares of common stock did not occur until
September 1, 2000, so there is no earnings per share presented for the six
months ended June 30, 2000.
F-11
Transmeridian Exploration Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE J - PRIVATE PLACEMENTS
On December 6, 2000, the Company issued 7,500,000 shares of common
stock at a price of $.10 a share in a private placement.
On December 20, 2000, the Company issued 2,775,000 shares of common
stock at a price of $1.00 a share in a secondary private placement.
NOTE K- SUBSEQUENT EVENT
Subsequent to March 31, 2001, the Company entered into an agreement to
re-acquire the 4.5% working interest from a third party. The Company will
issue 100,000 shares of convertible preferred stock (convertible to
1,500,000 shares of the Company's common stock), 1,000,000 warrants for the
purchase of common stock at $1.00 per share and the forgiveness of
approximately $50,000 of joint interest billings as consideration for the
working interest. As a result of this transaction, the Company has
classified the joint interest billing as a prepaid expense at December 31,
2000.
F-12
TRANSMERIDIAN EXPLORATION, INC.
Estimated
Future Reserves and Income
Attributable to Certain
Leasehold Interests
(SEC Case)
As of
December 31, 2000
March 19, 2001
Transmeridian Exploration, Inc.
11811 North Freeway
Houston, Texas 77060
Gentlemen:
At your request, we have prepared an estimate of the reserves, future
production, and income attributable to certain leasehold interests of
Transmeridian Exploration, Inc. (Transmeridian) as of December 31, 2000. The
subject property is located in South Alibek Field, License Number 1557, in the
Republic of Kazakhstan. The income data were estimated using the Securities and
Exchange Commission (SEC) requirements for future price and cost parameters.
The estimated reserves and future income amounts presented in this report
are related to hydrocarbon prices. Hydrocarbon prices in effect at December 31,
2000 were used in the preparation of this report as required by SEC rules;
however, actual future prices may vary significantly from December 31, 2000
prices. Therefore, volumes of reserves actually recovered and amounts of income
actually received may differ significantly from the estimated quantities
presented in this report. The results of this study are summarized below.
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold Interests of
Transmeridian Exploration, Inc.
As of December 31, 2000
-------------------------------------------
Proved
-------------------------------------------
Developed Total
Non-Producing Undeveloped Proved
------------
Net Remaining Reserves
Oil/Condensate - Barrels 5,675,781 11,536,991 17,212,772
Gas - MMCF 1,118 2,273 3,391
Income Data
Future Gross Revenue $102,164,047 $207,665,825 $309,829,872
Deductions 13,111,983 23,496,774 36,608,757
Future Net Income (FNI) $ 89,052,064 $184,169,051 $273,221,115
Discounted FNI @ 10% $ 38,233,968 $111,222,514 $149,456,482
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas
volumes are sales gas expressed in millions of cubic feet (MMCF) at the official
temperature and pressure base of the area in which the gas reserves are located.
The future gross revenue is after the deduction of the normal direct costs
of operating the wells, recompletion costs, and development costs. The future
net income is before the deduction of Kazakhstan income tax and excess profit
tax. No gas pipeline is in place nor is there a contract in place for sale of
gas, therefore no income is included for the gas that will be produced. Liquid
hydrocarbon reserves account for all of the total future gross revenue from
proved reserves.
The discounted future net income shown above was calculated using a
discount rate of 10 percent per annum compounded monthly. Future net income was
discounted at four other discount rates which were also compounded monthly.
These results are shown on each estimated projection of future production and
income presented in a later section of this report and in summary form below.
Discounted Future Net Income
As of December 31, 2000
----------------------------------
Discount Rate Total
Percent Proved
------------------ ------------------
8 $165,344,947
12 $136,123,567
15 $119,777,802
20 $ 99,366,076
The results shown above are presented for your information and should not
be construed as our estimate of fair market value.
Reserves Included in This Report
The proved reserves included herein conform to the definition as set forth
in the Securities and Exchange Commission's Regulation S-X Part 210.4-10 (a) as
clarified by subsequent Commission Staff Accounting Bulletins. The definition of
proved reserves are included under the tab "Reserve Definitions" in this report.
Because of the direct relationship between volumes of proved undeveloped
reserves and development plans, we include in the proved undeveloped category
only reserves assigned to undeveloped locations that we have been assured will
definitely be drilled.
Transmeridian has additional interests in this concession that may contain
substantial hydrocarbon potential not included herein. Transmeridian has stated
that they have an active exploratory and development drilling program that may
result in the discovery or reclassification of significant additional volumes.
The various reserve status categories are defined under the tab "Reserve
Definitions" in this report. The developed non-producing reserves included
herein are comprised of the shut in and behind pipe categories.
Estimates of Reserves
All reserves included in this report were estimated using volumetric
methods.
The reserves included in this report are estimates only and should not be
construed as being
exact quantities. They may or may not be actually recovered, and if recovered,
the revenues there from and the actual costs related thereto could be more or
less than the estimated amounts. Moreover, estimates of reserves may increase or
decrease as a result of future operations.
Future Production Rates
Test data and other related information were used to estimate the
anticipated initial production rates for those wells or locations that are not
currently producing. Future production rates were held constant, or adjusted for
the effects of curtailment where appropriate, until a decline in ability to
produce was anticipated. An estimated rate of decline was then applied to
depletion of the reserves. For reserves not yet on production, sales were
estimated to commence at an anticipated date furnished by Transmeridian.
Wells or locations that are not currently producing may start producing
earlier or later than anticipated in our estimates of their future production
rates.
Hydrocarbon Prices
Transmeridian furnished us with hydrocarbon prices in effect at December
31, 2000 and with its forecasts of future prices which take into account SEC and
Financial Accounting Standards Board (FASB) rules, current market prices,
contract prices, and fixed and determinable price escalations where applicable.
In accordance with FASB Statement No. 69, December 31, 2000 market prices
were determined using the daily oil price or daily gas sales price ("spot
price") adjusted for oilfield or gas gathering hub and wellhead price
differences (e.g. grade, transportation, gravity, sulfur and BS&W) as
appropriate. Also in accordance with SEC and FASB specifications, changes in
market prices subsequent to December 31, 2000 were not considered in this
report.
For hydrocarbon products sold under contract, the contract price including
fixed and determinable escalations, exclusive of inflation adjustments, was used
until expiration of the contract. Upon contract expiration, the price was
adjusted to the current market price for the area and held at this adjusted
price to depletion of the reserves.
The effects of derivative instruments designated as price hedges of oil and
gas quantities are generally not reflected in our individual property
evaluations.
Costs
Operating costs for the leases and wells in this report were supplied by
Transmeridian and include only those costs directly applicable to the leases or
wells. When applicable, the operating costs include a portion of general and
administrative costs allocated directly to the leases and wells under terms of
operating agreements. No deduction was made for indirect costs such as general
administration and overhead expenses, loan repayments, interest expenses, and
exploration and development prepayments that are not charged directly to the
leases or wells.
Development costs were furnished to us by Transmeridian and are based on
authorizations for expenditure for the proposed work or actual costs for similar
projects. At the request of Transmeridian, their estimate of zero abandonment
costs after salvage value for onshore properties was used in this report. Ryder
Scott has not performed a detailed study of the abandonment costs or the salvage
value and makes no warranty for Tranmeridian's estimate.
Current costs were held constant throughout the life of the properties.
General
Table A presents a one line summary of proved reserve and income data for
each of the subject properties which are ranked according to their future net
income discounted at 10 percent per year. Table B presents a one line summary of
gross and net reserves and income data for each of the subject properties. Table
C presents a one line summary of initial basic data for each of the subject
properties. Tables 1 through 13 present our estimated projection of production
and income by years beginning January 1, 2001, by lease or well.
While it may reasonably be anticipated that the future prices received for
the sale of production and the operating costs and other costs relating to such
production may also increase or decrease from existing levels, such changes
were, in accordance with rules adopted by the SEC, omitted from consideration in
making this evaluation.
The estimates of reserves presented herein were based upon a detailed study
of the properties in which Transmeridian owns an interest; however, we have not
made any field examination of the properties. No consideration was given in this
report to potential environmental liabilities that may exist nor were any costs
included for potential liability to restore and clean up damages, if any, caused
by past operating practices. Transmeridian has informed us that they have
furnished us all of the accounts, records, geological and engineering data, and
reports and other data required for this investigation. The ownership interests,
prices, and other factual data furnished by Transmeridian were accepted without
independent verification. The estimates presented in this report are based on
data available through December 2000.
Transmeridian has assured us of their intent and ability to proceed with
the development activities included in this report, and that they are not aware
of any legal, regulatory or political obstacles that would significantly alter
their plans.
Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation is
contingent on our estimates of reserves and future income for the subject
properties.
This report was prepared for the exclusive use and sole benefit of
Transmeridian Exploration, Inc. The data, work papers, and maps used in this
report are available for examination by authorized parties in our offices.
Please contact us if we can be of further service.
Very truly yours,
RYDER SCOTT COMPANY, L.P.
By: /s/ Ben Brenum
-------------------------------
Ben Brenum, Vice-President
REGISTERED SHAREHOLDERS' PROSPECTUS INSERTS
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is not
an offer to sell these securities, and it is not soliciting an offer to buy
these securities, in any state where the offer or sale is not permitted.
Subject to Completion, August 29, 2001
TRANSMERIDIAN EXPLORATION INCORPORATED
SHARES OF COMMON STOCK
--------------------------
We have prepared this prospectus to allow certain of our unaffiliated
shareholders to use a "shelf" registration process to sell up to 18,490,500
shares of our common stock which they have acquired or may acquire upon
conversion of convertible preferred shares and exercise of warrants previously
acquired by them in private placements. We will receive no proceeds from the
sale of these shares, with the exception of the proceeds from the exercise of
the warrants. The registered shareholders may sell shares pursuant to this
prospectus commencing on a date which is 120 days from the date of this
prospectus.
Although we have paid the expense of the registration of such shares, we
will not receive any of the proceeds from the sale of shares by the registered
shareholders with the exception of the proceeds, if any, from the exercise of
warrants.
There is no public market for our common stock nor can we give you any
assurance that such a market will in fact develop following completion of our
offering. Moreover, since we do not qualify for a listing on the Nasdaq Stock
Market or other national exchange following the offering, if a trading market
were to develop for our common stock it would most likely be on the NASD's Over
the Counter Bulletin Board market.
--------------------
See "Risk Factors" beginning on page for a discussion of material
issues to consider before making an investment decision regarding the
purchase of our common stock.
--------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2001.
TABLE OF CONTENTS
Prospectus Summary.............................................................6
Risk Factors...................................................................9
Cautionary Note Regarding Forward-Looking Statements .........................15
Use of Proceeds...............................................................16
Arbitrary Determination of Offering Price.....................................17
Dividend Policy...............................................................17
Dilution......................................................................17
Capitalization................................................................19
Our Business and Properties...................................................20
Management Discussion of Plan of Business in 2001.............................32
Directors and Executive Officers..............................................37
Executive Compensation .......................................................39
Security Ownership of Certain Beneficial Owners and Management................41
Market For Our sock...........................................................42
Description of Capital Stock..................................................42
Antitakeover Effects of Delaware Law
and Amended/Restated Cert. of Incorp & Bylaws.................................43
Limitation of Liability and Indemnification Matters...........................44
Transfer Agent and Registrar..................................................44
Shares Eligible for Future Sale...............................................44
Plan of Distribution .........................................................45
Experts.......................................................................46
Legal Matters ................................................................46
Independent Petroleum Engineers...............................................46
Where You Can Find Additional Information.....................................47
Glossary of Oil and Natural Gas Terms.........................................48
Index to Financial Statements.................................................58
Financial Statements......................................................F1-F12
Report of Independent Petroleum Engineers.....................................71
PROSPECTUS SUMMARY
This summary highlights selected material information from the prospectus,
but does not contain all of the information that may be important to you. We
encourage you to read the entire prospectus, including "Risk Factors" and our
financial statements and the related notes, before making an investment decision
regarding the purchase of our common stock.
Unless the context otherwise requires, references to "Transmeridian",
"TMEI", "we", "us", and "our", refer to Transmeridian Exploration, Inc. We have
provided definitions for some oil and natural gas industry terms used in the
prospectus in "Glossary of Oil and Natural Gas Terms" beginning on page 41 which
you may find helpful in reading this prospectus.
Transmeridian Exploration Incorporated
We are an independent energy company established to acquire and develop
identified and underdeveloped hydrocarbon reserves in the region of the former
Soviet Union known as the Confederation of Independent States ("CIS") and more
particularly the Caspian Sea region, based in part on our managements experience
and business relationships in the area. We target opportunities with proved and
potential oil and natural gas reserves at below international finding cost
rates. We currently have one project under development of its proved, probable
and possible oil reserves at this time. The project (which is referred to in
this prospectus at times as the "Kazakhstan Property" or the "South Alibek
Field") is located in the Caspian Region of western Kazakhstan, and is situated
near pipelines and railroads and oil field infrastructure. The proximity to
existing infrastructure for exportation of oil and gas, which reduces associated
costs as well as reduces the time needed to place wells on production, will be
an important factor in our acquisition of any additional properties..
Our Corporate and Field Offices
In addition to our corporate headquarters at 11811 North Freeway, Suite 500,
Houston, Texas 77060, we have a branch office in 157 Dzhumaliev str. office
7,8,9 Almaty, Kazakhstan and a branch office in Aktobe, Kazakhstan, Gaziza
Zhubanova Street, 50 "A". Our Houston telephone number at our corporate
headquarters is (281) 591-4777.
Our Reserves
As at December 31, 2000 we had estimated net proved reserves of 17,212,772
barrels of oil and 3.391 MMCF ( million cubic feet) with a net present value at
10% (before taxes) of $149,456,482 as measured on December 31, 2000. Of these
reserves, 5,675,781 barrels of oil and 1,118 MMCF were classified as proved
developed non- producing.
Our Growth Strategy
Our long term strategy is to develop continuous stream of commercial
production the from our Kazakhstan Property,. We then will be poised to continue
the growth of our assets with the possible acquisition of similar properties in
the region.
We intend to finance this initial development through a financial plan based
upon, but not limited to:
o Funds generated from production
o Crude oil forward purchase contracts
o Joint Venture arrangements
o Sale of Equity
o Bank Loans
The Offering
Common stock offered by
Registered shareholders 18,490,500 shares
Common stock to be outstanding
upon completion of the offering 69,502,929 shares. *
Terms of the offering The registered shareholders may
commence offering shares for
sale in accordance with this
prospectus 120 days following
the effective date of the
prospectus and may continue to
offer for a period of 8 months
thereafter.
*This assumes the completion of our direct offering of 8,809,500 shares
immediately prior to the commencement of the offering by the registered
shareholders, but does not include 1,500,000 shares issuable upon
conversion of our Convertible Series B Preferred Shares and 1,375,500
shares issuable upon exercise of outstanding warrants.
No Trading Market for Our Common Stock
There is no trading market for our common stock and there can be no
assurance that an active trading market will develop for our common stock on the
over the counter market; or, if such trading market does develop, that it will
be sustained. We have no arrangements or understandings with respect to a
possible listing of our securities on any such securities market. The absence of
such a trading market may limit the marketability and liquidity of our shares.
Use of Proceeds
Other than the proceeds from the exercise of the warrants, none of the
proceeds from the sale of the common stock offered by this prospectus will be
received by us. The holders of the warrants are not obligated to exercise their
warrants, and there can be no assurance that we will receive any additional
proceeds. If, however, all the warrants are exercised, the gross proceeds to us
would be $1,375,500. We currently intend to use the proceeds for working capital
and general corporate purposes.
USE OF PROCEEDS
Other than the proceeds from the exercise of the warrants, none of the
proceeds from the sale of the common stock offered by this prospectus will be
received by us. The holders of the warrants are not obligated to exercise their
warrants, and there can be no assurance that we will receive any additional
proceeds. If, however, all the warrants are exercised, the gross proceeds to us
would be $1,375,500. We currently intend to use the proceeds for working capital
and general corporate purposes.
Pending these uses, the net proceeds will be invested in short-term,
investment grade instruments, certificates of deposit or direct or guaranteed
obligations of the United States.
REGISTERED SHAREHOLDERS
This prospectus relates to the offering by the registered shareholders of
shares of our common stock acquired by them in a private placement or issuable
to them upon conversion of shares of our Series B Preferred Stock and/or upon
exercise of warrants owned by them. All of the shares of common stock offered by
this prospectus are being offered by the registered shareholders for their own
accounts.
Each selling shareholder, as a condition to our filing of this registration
statement has agreed that we will only be obligated to maintain the registration
statement of which this prospectus is part, effective for a period of 12 months
from the effective date.
The following table sets out the individual shareholders and their
respective holdings. This table sets forth information with respect to the
common stock beneficially owned by the registered shareholders as of the date of
this prospectus, including shares obtainable under convertible notes and
warrants exercisable within 60 days of such date. To our knowledge, each of the
registered shareholders has sole voting and investment power over the shares of
common stock listed in the table below. No selling shareholder has had a
material relationship with us during the last three years, other than as an
owner of our common stock or other securities.
[Enlarge/Download Table]
Shares Owned after
Name Address Owned Offered Offering
Jack Investment Co., Ltd. 4F-9, No. 51, Sec 2 KEELUNG 3,000,000 3,000,000 --
Road,Taipei 110, Taiwan
Caisse de Retraite et de Av De La Gare 17A, Sion 1,000,000 1,000,000 --
Prevoyance de Personnel Switzerland
Banque Edouard Constant Cours de Rive 11, Geneva 1,000,000 1,000,000 --
Switzerland CH1211
Credifinance Gestion S.A. 10 Rue Pierr-Fatio, Geneva 1,000,000 1,000,000 --
Switzerland CH1204
Anker Bank Lintheschergasse 19, Zurich, 300,000 300,000 --
Switzerland CH8023
Lombard Odier & Cie 11 Rue De Corraterie, Geneva 635,000 635,000 --
Switzerland
OBC Gestion 4 Avenue Hoche, Paris France 100,000 100,000 --
Banque SCS Alliance 11 Rue De Florissant, Geneva 1,400,000 1,400,000 --
Switzerland
Jens Birnbaum Loitzer Landstrasse 50, 600,000 600,000 --
Greifswald,
Mecklenberg-Vordommern, Germany
Dietrich Birkenweg 17, Bad Vilbel, 60,000 60,000 --
Dettmering-Pletzsch Hessen, Germany
Gabriele Dressler Birkenweg 21, Bad Vilbel, 15,000 15,000 --
Hessen, Germany
Jurgen Dressler Birkenweg 21, Bad Vilbel, 30,000 30,000 --
Hessen, Germany
[Download Table]
Ralf Haslbeck An Der Leimenkaut 15 B, Bad 30,000 30,000 --
Homberg, Hessen, Germany
Rudolf A. Henninger Martin Luther Str 55, Bad 30,000 30,000 --
Vilbel, Hessen, Germany
Carl-Martin Nagel Akazienweg 8, Bad Vilbel, 1,100,000 600,000 --
Hessen, Germany
Hannelore Nagel Akazienweg 8, Bad Vilbel, 45,000 45,000 --
Hessen, Germany
Johann Roemer Habichstrasse 10, Neu Isenberg, 500,000 500,000 --
Hessen, Germany
Marie-Luise Roemer Habichstrasse 10, Neu Isenberg, 100,000 100,000 --
Hessen, Germany
Reinhold Roemer Habichstrasse 10, Neu Isenberg, 300,000 300,000 --
Hessen, Germany D-63263
Carl Heinrich Schmitt Postfach 2280, Schwalmstadt, 75,000 75,000 --
Germany
CM Nagel GmbH Akazienweg 8, Bad Vilbel, 1,250,000 1,750,000 --
Hessen, Germany
Helga Stey Wilhelm-Beer-Weg 13, 15,000 15,000 --
Frankfurt/Main, Germany
Helmut Stey Wilhelm-Beer-Weg 13, 30,000 30,000 --
Frankfurt/Main, Germany
Randy Pawliw Box 8 Site 16 RR#1 Priddis, 1,000,000 1,000,000 --
Alberta, Canada T0L 1W0
Michael R. Binnion 1580 Guinness House, 727-7th 500,000 500,000 --
Ave.S.W. Calgary, Alberta,
Canada T2P 3R7
Sonova Resources Ltd. 520 5th Ave. S.W. Suite 1900, 500,000 500,000 --
Calgary, Alberta, Canada T2P 3R7
Lamya Abougoush 1340 Montreal Ave. S.W. Calgary, 250,000 250,000 --
Alberta T2T 0Z5
William G. Magee 424 Briar hill Ave.,Toronto, 250,000 250,000 --
Ontario, Canada M5N 1M7
Les Kish Box 9 Site 23 RR#8 Calgary, 250,000 250,000 --
Alberta, Canada T2J 2T9
Anthony A. Webb 48 Suncrest Drive, Toronto, 150,000 150,000 --
Ontario, Canada M3C 2L3
Stanley R. Smith 1 Palace Pier Crt, #310, 100,000 100,000 --
Toronto, Ontario, Canada M8V 3W9
We have assumed the sale of all of the common stock offered under this
prospectus will be sold. However, as the registered shareholders can offer all,
some or none of their shares of common stock, no definitive estimate can be
given as to the number of shares that the registered shareholders will hold
after this offering.
The registered shareholders acquired their shares in a private placements
from us or in private transactions with other shareholders. We agreed to
register the shares. This prospectus is part of the registration statement
intended to satisfy that obligation. We have agreed to maintain the registration
statement effective for a period of 12 months from the effective date. The
registration may be terminated after 6 months if there is a conflict with the
underwriting of new securities. Although we have paid the expenses of the
registration of such shares, we will not receive any of the proceeds from the
sale of shares by the registered shareholders. However we will receive the
proceeds from the exercis, if any, of the warrants.
PLAN OF DISTRIBUTION
The registered shareholders may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions on negotiated terms
and prices. These sales may be at fixed or negotiated prices. The registered
shareholders may use any one or more of the following methods when selling
shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the registered shareholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such method of sale; and
o any other method permitted pursuant to applicable law.
The registered shareholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The registered shareholders may also engage in short sales against the box,
puts and calls and other transactions in securities of Transmeridian or
derivatives of our securities and may sell or deliver shares in connection with
these trades. The registered shareholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a selling
shareholder defaults on a margin loan, the broker may, from time to time, offer
and sell pledged shares.
Broker-dealers engaged by the registered shareholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the registered shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The registered shareholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The registered shareholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of the
shares, excluding the fees and disbursements of counsel to the registered
shareholders. We have agreed to indemnify the registered shareholders against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Officers and Directors.
The only statute, charter provision, by-law, contract, or other arrangement
under which any controlling person, director or officers of the Registrant is
insured or indemnified in any manner against any liability which he may incur in
his capacity as such, is as follows:
Our Amended and Restated Certificate of Incorporation and our By-laws
require us to indemnify officers and directors to the fullest extent permitted
by the Delaware Business Corporation Law (OBCA). Transmeridian has also entered
into agreements to indemnify its directors and executive officers to provide the
maximum indemnification permitted by Delaware law. These agreements, among other
provisions, provide indemnification for certain expenses (including attorney
fees), judgments, fines and settlement amounts incurred in any action or
proceeding, including any action by or in our right.
Our By-laws require us to indemnify our directors, officers, employees and
agent to the maximum extent permitted by the OBCA. Section 317 of the OBCA
provides that a corporation has the power to indemnify and hold harmless a
director, officer, employer, or agent of the corporation who is or is made a
party or is threatened to be made a party to any threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, against
all expense, liability and loss actually and reasonably incurred by such person
in connection with such a proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in the best interest of the
corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe that the conduct was unlawful. If it is determined that the
conduct of such person meets these standards, such person may be indemnified for
expenses incurred and amounts paid in such proceeding if actually and reasonably
in connection therewith.
The indemnification rights provided in Section 317 of the OBCA are not
exclusive of additional rights to indemnification for breach of duty to the
corporation and its shareholders to the extent additional rights are authorized
in the corporation's articles of incorporation and are not exclusive of any
other rights to indemnification under any by-law, agreement, vote of
shareholders or disinterested directors or otherwise, with as to action in his
or her office and as to action in another capacity which holding such office.
ITEM 25. Other Expenses of Issuance and Distribution.
The following table sets forth an itemization of various expenses, all of
which we will pay, in connection with the sale and distribution of the
securities being registered. All of the amounts shown are estimates, except the
Securities and Exchange Commission registration fee.
Securities and Exchange Commission Registration Fee $ 15,000
Accounting Fees and Expenses 35,000
Transfer Agents Fees 5,000
Printing Costs 5,000
Filing Related Fees 5,000
Legal Fees and Expenses 75,000
State offering fees 10,000
TOTAL $150,000
ITEM 26. Recent Sales of Unregistered Securities.
Set forth in chronological order is information regarding shares of common
and preferred stock issued from April 18, 2000 to the date of this prospectus.
Also included is the consideration, if any, received by us for such securities
and information relating to the section of the Securities Act of 1933 (the
"Securities Act"), or rule of the Securities and Exchange Commission under which
exemption from registration was claimed.
[Enlarge/Download Table]
Title of Class Number of Shares Price per Share Consideration Commission Date
Common 41,300,000 $0.00 $24,780 Nil -1 Sep-00
Common 5,632,000 $0.16 $873,427 Nil -2 Oct-00
Common 270,000 $0.40 $107,500 Nil -3 Nov-00
Common 8,560,000 $0.10 $856,000 $85,600 -4 Dec-00-March-01
Common 3,755,000 $1.00 $3,755,000 Nil -6 Dec-00-March-01
Common 3,300,000 $0.70 $2,310,000 Nil -5 1-Jul
Preferred 100,000 $15.00 $1,500,000 Nil -7 1-Mar
Preferred 3,000 $100.00 $300,158 Nil -8 Dec-00
(1) Founders Shares (10 parties either officers or directors or affiliates
thereof) issued on the basis of exemption from registration by Section 4 (2) In
July 2001 Mr. Lorrie Olivier and Mr. Peter Holstein, each returned to the
Company 1,000.000 for cancellation
(2) Shares exchanged for services to Consultants and Service Providers (10
parties) issued on the basis of exemption from registration offered by Section 4
(2).
(3) Shares sold to Family and Friends (6 parties) issued on the basis of
exemption from registration by Section 4 (2).
(4) 8,560,000 Shares sold to unaffiliated non-U.S. parties in accordance with
504 and 506 or Reg. D. of which 7,500,000 were sold in 2000 and 1,060,000 were
sold in 2001.
(5) Shares sold to unaffiliated non-U.S. parties in accordance with in
accordance with Reg. S.
(6) Commission paid in connection with the offshore placement and includes 10%
of sales in warrants for
common stock permitting the holders to acquire 3,755,000 shares at a price of
$1.00 per share. 2,775,000 were sold in 2000 and 980,000 were sold in 2001.in
accordance with Reg. S.
(7) Purchase of Tracers' 4.5% working interest, these shares were issued in
accordance with Reg. S. and/or Section 4(2).
(8) Payment of Ratcliff note, these share were issued pursuant to Reg S. and/or
Section 4 (2)
ITEM 27. Exhibits and Financial Statement Schedules.
(A) EXHIBITS
The following Exhibits are either attached hereto incorporated herein
by reference or will be filed by amendment:
EXHIBIT DESCRIPTION OF EXHIBIT AND FILING REFERENCE
NUMBER
3.1(a) Articles of Incorporation*
3.1(b) Certificate of Amendment to the Articles of Incorporation*
3.2 Bylaws*
5.1 Opinion of Sierchio & Company, LLP.
10.1 License 1557*
10.2 Exploration Contract*
10.3 SPA (Agreement for the Purchase and Sale of Shares)*
10.4 Amendment No.1 for the SPA*
10.5 Amendment No.2 for the SPA*
10.6 Amendment No.3 for the SPA *
10.7 Tractatus LLC
10.8 Triumph Securities Corporation
10.9 So Cal Energy Inc., contract
10.10 Bank Loan Agreement
23.1 Consent of Sierchio & Company, LLP.*
23.2 Consent of Grant Thornton, LLP.
23.3 Consent of Ryder Scott Company Petroleum Engineers LLP.*
24.1 Power of Attorney [Included on Signature Page}*
* Previously filed
(B) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules omitted because the information is included
in the Financial Statements and Notes thereto.
ITEM 28. Undertakings.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually, or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement; notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (230.424(b) of this Chapter)
if, in the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post- effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
Rider re undertakings
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 24 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the following persons in the capacities
and on the 27th Day of August, 2001
Transmeridian Exploration, Inc.
By: /s/ Lorrie T. Olivier
-------------------------------------
Lorrie T. Olivier, President, Chief Executive Officer and Director
by: /s/ Peter Holstein
Peter Holstein Director
by:/s/ Jim Tucker Vice President Finance
Jim Tucker
by:/s/ Bruce Falkenstein Assistant Secretary
Bruce Falkenstein
Dates Referenced Herein and Documents Incorporated by Reference
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