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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): February 8, 2007 (December 31, 2006)
THE HOUSTON EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation
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001-11899
(Commission File No.)
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22-2674487
(IRS Employer
Identification No.) |
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1100 Louisiana Street, Suite 2000
Houston, Texas
(Address of principal executive offices)
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77002-5215
(Zip Code) |
(713) 830-6800
(Registrants telephone number, including area code)
Not Applicable
(Former names or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
þ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 7.01 Regulation FD Disclosure
Reserve Information
Set forth below is a summary of the net proved reserves of The Houston Exploration Company
(the Company) as of December 31, 2006, as prepared by Netherland, Sewell & Associates, Inc.,
independent petroleum engineering consultants engaged by the Company:
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As of |
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December 31, |
Estimated Net Proved Reserves |
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2006 |
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Oil and
natural gas liquids (MBbls) |
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4,615 |
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Natural gas (MMcf) |
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671,636 |
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Total equivalent (MMcfe) |
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699,328 |
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These net reserve estimates are prepared based on rules and regulations, reserve
definitions, costs and price parameters specified by the Securities
and Exchange Commission (SEC). Reservoir engineering is a complex
and subjective process of estimating underground accumulations of natural gas and oil that cannot
be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological interpretation and judgment. As a result,
estimates prepared by one engineer may vary from those prepared by another.
Ceiling Test Calculation
The Company uses full cost accounting for its oil and natural gas production activities.
Under full cost accounting, total capitalized costs (net of accumulated depreciation, depletion and
amortization) less related deferred taxes may not exceed an amount equal to the present value of
estimated future net revenues from proved reserves, discounted at 10% per annum, plus the lower of
cost or fair value of unevaluated properties, plus estimated salvage value less income tax effects
(the ceiling limitation). The Company performs a test of this ceiling limitation at the end of
each quarter. If the Companys total capitalized costs (net of accumulated depreciation, depletion
and amortization) less related deferred taxes are greater than the ceiling limitation, a writedown
or impairment of the full cost pool is required. A writedown of the carrying value of the full cost
pool is a non-cash charge that reduces earnings and impacts stockholders equity in the period of
occurrence and typically results in lower depreciation, depletion and amortization expense in
future periods. Once incurred, a writedown is not reversible at a later date.
In calculating its ceiling test at December 31, 2006, based on an average net wellhead price
of natural gas in effect on that day of approximately $4.95 per Mcf,
the Company estimated
that the carrying value of its full cost pool exceeded the ceiling limitation by approximately
$573 million to $596 million (pre tax) and approximately
$370 million to $385 million (after tax). However, subsequent to December 31, 2006, the market price for
natural gas has increased. The requirement, if any, for a writedown will depend on the market price
for natural gas on a date shortly prior to the Companys filing of its Annual Report on
Form 10-K for the year ended December 31, 2006. The Company anticipates that a fourth
quarter 2006 ceiling test writedown will be required only if its average net wellhead price is less
than approximately $6.70 per Mcf as of the final testing date.
The
foregoing information in this Current Report is being furnished pursuant to this Item 7.01 of Form
8-K and shall not be deemed filed for purposes of Section 18 of the Exchange Act, or otherwise
subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act.
Item 8.01
Other Events
Derivative Contracts
On
February 6, 2007, the Company filed a Current Report on
Form 8-K disclosing its open natural gas related derivative
contracts as of February 6, 2007. On February 7, 2007, the
Company entered into natural gas costless collar contracts covering notional volumes of an additional
40,000 million British thermal units per day (MMBtu/d) for the
period March 2007 through February 2008 at an average floor price of
$7.75 per MMBtu and an average ceiling price of $9.20 per
MMBtu. In addition, on February 7, 2007, the Company entered into natural gas basis
swaps at the Houston Ship Channel delivery point covering notional volumes of an additional 40,000 MMBtu/d for the
period March 2007 through February 2008 at an average of $0.29125 per MMBtu.
The following table summarizes the Companys open natural gas related derivative contracts as
of February 8, 2007:
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NYMEX |
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Daily |
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HSC |
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Floor |
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Ceiling |
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Period |
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Volume |
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Basis |
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Price |
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Price |
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Year |
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(Months) |
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Transaction Type |
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(MMBtu/day) |
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($/MMBtu) |
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($/MMBtu) |
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($/MMBtu) |
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2007 |
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Jan -- Dec |
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Costless collar |
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20,000 |
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$ |
5.00 |
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$ |
6.50 |
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2007 |
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Jan -- Dec |
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Costless collar |
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10,000 |
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5.00 |
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6.79 |
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2007 |
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Mar -- Dec (1) |
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Costless collar |
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20,000 |
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7.75 |
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9.10 |
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2007 |
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Mar -- Dec |
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Costless collar |
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10,000 |
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7.75 |
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9.12 |
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2007 |
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Mar -- Dec |
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Costless collar |
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10,000 |
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7.75 |
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9.20 |
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2007 |
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Mar -- Dec |
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Costless collar |
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20,000 |
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7.75 |
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9.25 |
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2007 |
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Mar -- Dec (1) |
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Costless collar |
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20,000 |
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7.75 |
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9.30 |
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2007 |
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Mar -- Dec (1) |
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Basis swap -- HSC |
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20,000 |
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$0.2900 |
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2007 |
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Mar -- Dec (1) |
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Basis swap -- HSC |
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20,000 |
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$0.2925 |
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2007 |
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Mar -- Dec |
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Basis swap -- HSC |
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40,000 |
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$0.3000 |
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2008 |
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Jan -- Dec |
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Costless collar |
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20,000 |
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$ |
5.00 |
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$ |
5.72 |
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2008 |
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Jan -- Feb (1) |
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Costless collar |
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20,000 |
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7.75 |
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9.10 |
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2008 |
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Jan -- Feb |
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Costless collar |
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10,000 |
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7.75 |
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9.12 |
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2008 |
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Jan -- Feb |
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Costless collar |
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10,000 |
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7.75 |
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9.20 |
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2008 |
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Jan -- Feb |
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Costless collar |
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20,000 |
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7.75 |
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9.25 |
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2008 |
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Jan -- Feb (1) |
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Costless collar |
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20,000 |
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7.75 |
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9.30 |
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2008 |
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Jan -- Feb (1) |
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Basis swap -- HSC |
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20,000 |
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$0.2900 |
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2008 |
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Jan -- Feb (1) |
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Basis swap -- HSC |
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20,000 |
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$0.2925 |
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2008 |
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Jan -- Feb |
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Basis swap -- HSC |
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40,000 |
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$0.3000 |
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(1) |
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Transaction executed on February 7, 2007. |
The Company undertakes no duty or obligation to publicly update or revise the information
contained in this report, although it may do so from time to time as management believes is
warranted. Any such updating may be made through the filing of other reports or documents with the
SEC, through press releases or through other public disclosure.
Additional Information and Where to Find It
On January 7, 2007, the Company entered into an Agreement and Plan of Merger with Forest Oil
Corporation (Forest) and a subsidiary of Forest with respect to the proposed merger of the
Company with and into Forest. The Company and Forest will file a preliminary joint proxy statement/prospectus with the SEC in connection with the proposed merger. Investors and security holders
of Forest and the Company are urged to read the definitive joint proxy statement/prospectus (if
and when they become available) and any other relevant documents filed with the SEC, as well as any
amendments or supplements to those documents, because they will contain important information
about the Company, Forest and the merger. A definitive joint proxy statement / prospectus will be
sent to security holders of the Company and Forest seeking their approval of the merger. Investors
and security holders may obtain these documents free of charge at the SECs website at www.sec.gov.
The documents filed with the SEC by the Company may be obtained free of charge from the
Companys website at www.houstonexploration.com or by calling the Companys investor relations
department at 713.830.6800. In addition, the documents filed with the SEC by Forest may be
obtained free of charge from Forests website at www.forestoil.com or by calling Forests investor
relations department at 303.812.1400. Investors and security holders are urged to read the joint
proxy statement / prospectus and the other relevant materials when they become available before
making any voting or investment decision with respect to the proposed acquisition.
The Company, Forest and their respective directors and executive officers may be considered
participants in the solicitation of proxies in connection with the proposed transaction.
Information about the participants in the solicitation will be set forth in the joint proxy
statement / prospectus when it becomes available.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Date: February 8, 2007 |
THE HOUSTON EXPLORATION COMPANY
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By: |
/s/ James F. Westmoreland
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James F. Westmoreland |
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Vice President and Chief Accounting Officer |
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