PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes an initial offering price of $19.00 per share (the
mid-point of the filing range) and no exercise of the Underwriters'
over-allotment option. Except as otherwise noted, all information in this
Prospectus has been adjusted to reflect an approximate 1.644 for 1.0 stock split
of the Common Stock effected on October 25, 1995 and an approximate 0.833 for
1.0 reverse stock split of its Common Stock effected on January 19, 1996. The
June 30, 1995 estimated reserve data included throughout this Prospectus are
based on the report of Ryder Scott Company ("Ryder Scott"), independent
petroleum engineering consultants, and include the estimated reserves added as a
result of the Company's recent acquisition of Terra Energy Ltd. Unless otherwise
indicated, references to the Company include the Company and its direct and
indirect subsidiaries. Certain terms relating to the oil and gas industry are
defined in "Certain Definitions."
THE COMPANY
GENERAL
CMS NOMECO Oil & Gas Co. ("CMS NOMECO" or the "Company") is an independent
oil and natural gas company engaged in the exploration, development, acquisition
and production of oil and natural gas properties in the U.S. and seven other
countries. Formed in 1967 to explore and develop leaseholdings located solely in
Michigan, the Company has greatly expanded to become an international oil and
natural gas company. In large part as a result of acquisitions and development
activities, the Company has approximately doubled both its estimated proved
reserves and its production of oil and natural gas over the past four years. As
of June 30, 1995, the Company had estimated proved reserves of 118.6 MMBoe,
consisting of 68.9 MMBbls of oil (97.0% of which were located outside the U.S.)
and 298.1 Bcf of natural gas (94.5% of which were located in the U.S.).
Approximately 64.7% of the Company's estimated proved reserves on such date were
classified as proved developed. The Company's oil-producing assets are
concentrated in South America (Ecuador, Venezuela and Colombia) and offshore
West Africa (the Congo and Equatorial Guinea), and the Company's gas-producing
assets are concentrated in Michigan, the Gulf Coast region and the Gulf of
Mexico.
The following table summarizes by region the Company's estimated proved
reserves as of June 30, 1995 and estimated average daily production during the
month of September 1995:
ESTIMATED PROVED RESERVES ESTIMATED AVERAGE DAILY PRODUCTION
AS OF JUNE 30, 1995 DURING THE MONTH OF SEPTEMBER 1995
-------------------------------------------- -------------------------------------------
OIL AND NATURAL % OF OIL AND NATURAL % OF
CONDENSATE(1) GAS TOTAL TOTAL CONDENSATE GAS TOTAL TOTAL
(MMBBLS) (BCF) (MMBOE) RESERVES (MBBLS) (MMCF) (MBOE) PRODUCTION
U.S.:
Michigan.............. 1.2 238.5 40.9 34.5% 0.9 51.6 9.5 38.3%
Other U.S............. 0.9 43.1 8.1 6.8 0.7 25.4 4.9 19.8
---- ----- ----- ----- ---- ---- ---- ------
Total U.S........... 2.1 281.6 49.0 41.3 1.6 77.0 14.4 58.1
NON-U.S.:
South America:
Ecuador............. 16.7 -- 16.7 14.1 3.2 -- 3.2 12.9
Venezuela........... 11.3 -- 11.3 9.5 0.5 -- 0.5 2.0
Colombia............ 6.7 -- 6.7 5.7 1.1 -- 1.1 4.4
West Africa:
Congo............... 15.9 -- 15.9 13.4 3.4 -- 3.4 13.7
Equatorial Guinea... 11.5 10.7 13.3 11.2 1.9 -- 1.9 7.7
Other Non-U.S.(2)..... 4.7 5.8 5.7 4.8 0.2 0.3 0.3 1.2
---- ----- ----- ----- ---- ---- ---- ------
Total Non-U.S....... 66.8 16.5 69.6 58.7 10.3 0.3 10.4 41.9
---- ----- ----- ----- ---- ---- ---- ------
Total Company..... 68.9 298.1 118.6(3) 100.0% 11.9 77.3 24.8 100.0%
==== ===== ===== ===== ==== ==== ==== ======
(1) Oil and condensate includes 0.2 MMBbls and 3.0 MMBbls, respectively, of U.S.
and non-U.S. NGLs.
(2) Consists of Yemen, New Zealand and Papua New Guinea. The Company's
properties in New Zealand and Papua New Guinea were sold in December 1995.
(3) Based on current estimates, the Company expects proved reserves as of
December 31, 1995 to reflect decreases of 3.1 MMBoe due to the sale of the
Company's properties in New Zealand and Papua New Guinea and 4.3 MMBoe due
to production subsequent to June 30, 1995, partially offset by net
additions.
3
8
The Company is an indirect subsidiary of CMS Energy Corporation ("CMS
Energy"). CMS Energy is a major international energy company with electric
utility operations, natural gas utility operations, gas transmission and
marketing, independent power production and, through the Company, oil and
natural gas exploration, development and production.
STRATEGY
The Company believes that its success has resulted from its ability to
capitalize on an extensive network of industry relationships, an efficient
evaluation and decision-making process and broad technical competence. The
Company believes that its future growth depends on maintaining an opportunistic
approach which builds on the Company's existing strengths. Accordingly, the
Company's business strategy is to focus on the following goals while maintaining
the flexibility to respond to new opportunities and changed circumstances.
BALANCE. The Company seeks to maintain a balance between its U.S. and
non-U.S. interests to diversify its political, geologic and economic risk. The
Company believes that projects outside the U.S. tend to have a higher potential
for significant reserve growth, but often have greater risks, including
political risks and the risks associated with infrastructure development
necessary to market production. The Company further believes that projects in
the U.S. do not have certain of these risks, but also generally do not offer as
large a potential for reserve growth as non-U.S. projects. The Company has
historically concentrated on natural gas in the U.S. and to date has focused its
non-U.S. activities on oil, providing the Company an additional balance between
natural gas and oil.
EXPLORATION AND DEVELOPMENT OF EXISTING NON-U.S. PROPERTIES. In recent
years, the Company has made a series of investments in properties outside the
U.S. that currently have both production from proved reserves and significant
potential for exploration and development. The Company is pursuing exploration
and development of such properties, which include Block 16 in Ecuador, the Colon
Unit in Venezuela, the Espinal Block in Colombia, the Yombo Field offshore the
Congo and the Bioko Block offshore Equatorial Guinea. Most of the Company's
exploration and development opportunities outside the U.S. are located in areas
which have significant production histories and adequate infrastructure and, in
the Company's view, have a reasonable possibility of yielding sizeable
additional reserves through the application of modern exploration and
development technologies.
SELECTIVE ACQUISITIONS. The Company intends to continue to pursue
attractive opportunities to acquire producing properties with significant
exploration and development potential. The Company's primary focus is in the
geographic regions where it has significant experience. The Company's recent
acquisitions of Walter International, Inc. and Terra Energy Ltd., discussed
below, are illustrative of the types of opportunities the Company seeks.
OPERATOR ROLE. The Company seeks to continue to expand its role as operator
of both U.S. and non-U.S. projects by pursuing acquisitions and investment
opportunities that allow it to do so. As operator, the Company believes that it
can better manage production performance and more effectively control expenses,
the allocation of capital and the timing of exploration and development of its
fields. In addition, the Company believes that its experience as operator will
provide it access to a broader range of additional investment opportunities. In
early 1995, the Company assumed the role of operator of significant offshore
producing properties in West Africa in conjunction with its acquisition of
Walter International, Inc., and more recently the Company materially increased
its role as operator of U.S. properties as a result of its acquisition of Terra
Energy Ltd. After giving effect to these acquisitions, the Company operates
properties representing approximately 37.5% of its estimated proved reserves,
including 43.9% of its U.S. proved reserves and 32.5% of its non-U.S. proved
reserves. With respect to projects not operated by the Company, the Company
actively monitors the performance of its operators with the same objectives it
seeks for Company-operated projects.
REGIONAL FOCUS. With respect to both its U.S. and non-U.S. activities, the
Company intends to focus on selected geographic regions, particularly those
where it is currently active. In the U.S., the Company expects to continue its
emphasis on development, production and, to a lesser extent, exploration of
natural gas in its core areas of Michigan, the Gulf of Mexico and the Gulf Coast
region. Outside the U.S., the Company intends to concentrate on exploration,
development and production of oil in South America and offshore West Africa
4
9
while evaluating opportunities to acquire additional reserves in those areas and
in certain areas of Southeast Asia. By focusing activities in a relatively
limited number of U.S. and non-U.S. regions, the Company has acquired
significant experience in the operational, technical and legal aspects of
conducting business in these regions and can utilize its base of geologic,
engineering and production experience in such regions to better evaluate
drilling and acquisition prospects.
TECHNOLOGY. The Company expects to continue to utilize its growing
technology base, including increasing use of 3-D seismic surveys, horizontal
drilling, new fracturing techniques and reservoir modeling, on its existing
properties as well as newly acquired properties. The Company believes it must
utilize the latest available technology to continue to compete successfully as
the industry focuses on properties with increasing amounts of exploration,
development and production risk.
RECENT DEVELOPMENTS
ACQUISITION OF TERRA ENERGY LTD.
In August 1995, CMS Energy acquired Terra Energy Ltd. ("Terra"), a
significant producer of gas within the Devonian Antrim Shale ("Antrim")
formation underlying a large portion of the Michigan Basin in the northern
portion of Michigan's lower peninsula. The consideration relating to such
acquisition, after giving effect to certain anticipated post-closing
adjustments, is expected to aggregate approximately $63.6 million, payable in
common stock of CMS Energy. Immediately after consummation of such acquisition,
the stock of Terra was transferred to the Company (the "Terra Acquisition"). In
connection with the Terra Acquisition, the Company recorded a capital
contribution of $1.0 million and issued a promissory note which, after giving
effect to post-closing adjustments, is expected to be in the principal amount of
approximately $62.6 million. Such note is currently held by CMS Energy. As of
June 30, 1995, the acquired Terra properties included 1,225 gross (95.6 net)
producing Antrim gas wells and estimated net proved reserves of 91.9 Bcf of
Antrim gas. During the month of September 1995, estimated average daily net
production from these properties was approximately 9.5 MMcf of gas.
The Company has been a significant producer and operator of Antrim gas
wells for a number of years. Taking into account the Terra Acquisition, as of
December 31, 1995 the Company operated over 1,370 Antrim gas wells, or
approximately 30% of all producing gas wells in the Antrim formation, making the
Company the largest operator of gas wells in the Antrim formation. The Company
is currently serving as operator of several projects involving the planned
drilling of an additional 280 Antrim development wells by December 31, 1996.
Additionally, Terra has a sizeable inventory of unproved acreage in the Antrim
producing trend, and management believes that a number of its existing wells
have substantial potential for improved recovery. The Company believes that it
is particularly well suited to capitalize on the Terra Acquisition because of
its many years of experience in the natural gas industry in Michigan and its
ability as part of the CMS Energy consolidated group to utilize, to a
substantial extent, the nonconventional fuels (Section 29) tax credit associated
with certain Antrim gas production.
ACQUISITION OF WALTER INTERNATIONAL, INC.
In February 1995, CMS Energy acquired Walter International, Inc.
("Walter"), an international oil and gas company, for a purchase price of
approximately $28.4 million plus assumed indebtedness of $18.3 million.
Immediately after consummation of such acquisition, the stock of Walter was
contributed to the Company (the "Walter Acquisition" and, together with the
Terra Acquisition, the "Recent Acquisitions"). In connection with the Walter
Acquisition, the Company issued a promissory note in the principal amount of
$6.5 million to CMS Energy to fund repayment of certain of the above-referenced
assumed indebtedness of Walter. Walter owns interests in and operates fields
offshore the Congo and offshore Equatorial Guinea in West Africa and in Tunisia
in North Africa. As of June 30, 1995, the acquired Walter properties included 22
gross (6.6 net) producing oil and condensate wells and estimated net proved
reserves of 21.0 MMBbls of oil and condensate. During the month of September
1995, estimated average daily net production from these properties was
approximately 4,829 Bbls of oil and condensate.
5
10
The Company became familiar with Walter in part because of the Company's
participation in the Alba Field operated by Walter offshore Equatorial Guinea.
The acquisition of Walter is consistent with the Company's strategy of acquiring
producing properties with exploration and development potential. The Walter
Acquisition also expands the Company's role as operator of offshore and non-U.S.
projects.
OTHER RECENT ACQUISITIONS AND DISCOVERIES
The Company experienced significant growth in reserves in 1994 primarily as
a result of certain acquisitions of producing properties and one significant
discovery.
In December 1994, a consortium in which the Company has a 29.17% working
interest agreed to assume operation of the Colon Unit in Venezuela from an
affiliate of the state-owned oil company pursuant to an operating services
agreement. As of June 30, 1995, the Company's estimated proved oil reserves
attributable to this transaction were 11.3 MMBbls, and the Company has committed
to spend approximately $47.0 million ($38.0 million for capital expenditures and
$9.0 million for operating expenditures) over the next three years on rework and
other development and, to a lesser extent, exploration activities at the Colon
Unit. In June 1994, the Company acquired Sun Colombia, whose sole asset is a
working interest in the Espinal Block in Colombia, for approximately $25.0
million. As of June 30, 1995, the Company's estimated proved oil reserves
attributable to the Sun Colombia acquisition were 5.5 MMBbls. In the third
quarter of 1994, the Company completed two Antrim gas property acquisitions for
a total of approximately $8.5 million. The Company's estimated proved natural
gas reserves attributable to these acquisitions were approximately 10.3 Bcf as
of June 30, 1995.
In early 1994, the Company participated in a significant discovery in the
Freshwater Bayou Field in southern Louisiana. Since this discovery, four
successful development wells in this field have been drilled and with their
reserve additions, the Company's estimated proved natural gas reserves in the
field as of June 30, 1995 were 29.4 Bcf.
THE OFFERING
Common Stock offered by the Company................. 4,000,000 shares
Common Stock to be outstanding after the
Offering*......................................... 24,000,000 shares
Use of Proceeds..................................... To repay a portion of the indebtedness
of the Company, including indebtedness
to CMS Energy, and for general
corporate purposes. See "Use of
Proceeds."
Proposed New York Stock Exchange Symbol............. CNO
* After completion of the offering made hereby (the "Offering"), approximately
83.3% (81.3% if the Underwriters exercise their over-allotment option in full)
of the outstanding Common Stock of the Company will be beneficially owned by
CMS Energy by virtue of its ownership of all of the common stock of CMS
Enterprises Company ("CMS Enterprises"). Excludes options to purchase 89,000
shares of Common Stock expected to be issued in connection with the Offering.
|