ITEM 1. BUSINESS
General Development of Business
Oklahoma Energy Corporation formerly, Cayman Resources Corporation (hereinafter referred to as "the Company") was incorporated on September 4, 1981 under the laws of the State of Oklahoma. The Company was formed to facilitate the tax free exchange and merger of 100% of the stock of its predecessor, Cayman Corporation, with certain limited partnership oil and gas interests sponsored by Cayman Corporation as general partner.
The Company has one active subsidiary, Cyril Petrochemical Corporation (CPC). The stock of CPC is pledged to the Oklahoma Industrial Finance Authority (OIFA) as collateral for a loan to the Company. This loan is in default and the prospect for foreclosure by the OIFA is likely. If this occurred the Company could lose all its interest in CPC and the Cyril Refinery.
In the recent past, the Company's principal business have been (1) the refinery of crude oil into diesel fuel, kerosene, paint thinners and lacquers, and specialty industrial solvents at its refinery in Cyril, Oklahoma (Cyril Refinery); and (2) production of and exploration for crude oil and natural gas; and (3) contract operations of producing oil and natural gas properties. However, the Company no longer operates the Cyril refinery and the Company has sold all its oil and gas properties and well operations.
The Company has no material patents, licenses, franchises or concessions which are considered significant to its operations.
The Company has not been a party to any bankruptcy, receivership, reorganization adjustment or similar proceeding.
The Company has no present business activity other than hiring consultants and other professionals to meet the requirements of the Environmental Protection Agency and other environmental agencies.
Since the refinery operations began in January of 1994, and through April of 1995, the Cyril Refinery acquired approximately 803,388 barrels of crude oil. The Company acquires such crude oil feed stock by the barrel at the daily average West Texas Intermediate (WTI) crude oil posted price plus transportation and handling costs which varies depending on the distance that particular crude oil barrel is transported to the plant. The daily average WTI is calculated on a monthly basis.
The Company expects by June 2000 to conclude its negotiations with Region Six of the Environmental Pollution Agency and the State of Oklahoma. Management intends to obtain the requisite permits from the necessary government agencies to reconstruct and reactivate the existing refinery after the clean-up in compliance with EPA requirements.
The primary function of the refinery will be to concentrate on the development of alternative fuel resources, particularly hydrogen. Management believes the railroad at site is cable of the efficient distribution of hydrogen fuel cells for stationary power systems for commercial and residential uses. The EPA process and the development of the hydrogen technology are expected to extend over a period of 4-7 years.
Management expects to commence as soon as feasible storage for crude oil for the Federal government and others in the existing tank farm, utilizing the nearby Enron facilities/pipelines. The next phase is the start-up of the refinery and distribution of the hydrogen. Management intends to engage in the manufacture and distribution of mobile fuel cells for automobiles, trucks and buses.
Hydrogen is an abundant natural pollution-free alternative fuel that is anticipated to power energy needs for the 21st century. The unique centralized location of the Oklahoma refinery is ideally located to serve North American demand for hydrogen energy and to be a nucleus in the evolving market place for alternative fuels. The logistical position of the improved refinery is capable of assisting the embryonic trend to environmentally safer, less expensive energy resources. Although, there are vastly larger energy companies that have infinite financial resources to advance into the alternative fuel market. Management intends to maintain the current status quo as it aggressively seeks the fulfillment of its strategic goals.
Competition
If the Company is able to refinance the Cyril Refinery, such operation would be in direct competition with many other refiners. Many of the refineries with which the Company will compete have vast resources from which to draw and are able to offer for sale many products which can not be offered by the Company. Also, the refining companies with which the Company will compete can offer their products at prices which may be below the Company's cost of producing the same products. The Company must deal with this competition by strictly defining its specialty markets. To establish this market, the Company must offer a quality product at a competitive price with special services such as custom blending.
In addition to the market competition for the sale of its products, the Company would compete with much larger refineries to acquire the high quality, low sulphur crude oil necessary to supply the special needs of the Cyril Refinery. The Company believes that the optimum use of the refinery is for storage and blending and to utilize lower cost natural gas for conversion to hydrogen. The Company seeks to find a niche market for alternative fuels, specifically hydrogen.
Risk Factors
The Company's operation of the Cyril Refinery is inherently dangerous. The refinery process calls for heating large volumes of crude oil and natural gas condensate in order to separate each barrel into various other products, many of which are highly volatile. Even though the Company maintains a fire water system, there is always some danger of explosions and fire. Also, the operations of the Cyril Refinery equipment can be extremely dangerous. Although considerable effort is taken to follow all safety procedures, because of the size and complexity of the refinery equipment, accidents may occur.
In addition to the physical inherent risks of operating refinery equipment and the handling of crude oil, natural gas, natural gas condensate, and other potentially explosive materials, the Company's refinery operation is subject to substantial economic risks. Production and sale of hydrocarbon solvents, diesel, and other products that will be produced by the Company's refinery operation is a very competitive business. There is no certainty that the Company can establish a market for its products. There is no assurance that the Company will be able to operate the Cyril Refinery in a profitable manner. Because of the substantial capital investment made by the Company in the renovation and start up of the Cyril Refinery, the future of the Company is dependent upon its ability to refinance and operate the Cyril Refinery successfully.
Environmental Risk
In 1987 the Cyril Refinery site was placed on the Environmental Protection Agency's (EPA) National Priority List. A remedial study was completed by the EPA in 1991 and it was determined that there were certain hazardous substances present at the old refinery site, some of which could be found on CPC's property. Although the EPA found levels of contamination which did not pose an immediate hazard to human life, over the next five years CPC will be required to conduct limited remediation of hydrocarbons and other contaminants contained within the boundaries of the CPC property. The Company will be required to conduct this soil remediation in conjunction with the bioremediation plan now being formulated by the EPA for the adjacent property under the EPA's control. Bioremediation is accomplished by introducing living organisms into the soil through an irrigation system. When combined with water, heat and oxygen, these organisms naturally consume the hydrocarbons contained in the soil, converting it into harmless gases which dissipate into the atmosphere.
Officers of the Company
The Officers of the Company are as follows:
Officer Name Age Position with Company Since ------- --- --------------------- ----- Jan Schutze 41 President 2000 Fred Konigsberg 53 Vice President 2000
Employees
The Company has 4 employees, two plant managers, its President and Vice President.
ITEM 2.
ITEM 2. PROPERTIES
The Company's properties consist of 104 acres located in Cyril, Oklahoma on which is located an oil refinery capable of producing up to 5,000 barrels of oil per day. The refinery includes tanks to store crude oil and related products, an office building, a lunch and changing facility, a test lab and computer facility, a warehouse and shop and a truck loading facility.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company has settled and resolved all previous lawsuits that could materially affect its ability to operate. Also the Company has numerous judgments in favor of creditors, some of which have been satisfied.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has not submitted any matters to the shareholders for a vote during this reporting period.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded over-the-counter on the Electronic Bulletin Board under the symbol "OKOK". During the last twelve months, the bid price of the Company's stock has remained at a price of $0.03 per share on a post reverse stock split basis. The Company has 25 market makers as of December 31, 1999.
The transfer agent for the Company's stock is Chase Mellon Shareholder Services, 450 West 33rd Street, 15th Floor, New York, NY 10001-2697. On December 31, 1999, the outstanding shares of the Company's Common Stock totaled 47,530,755 shares and were held by approximately 2,250 shareholders of record. The Company has never declared or paid any cash dividends and has no present intention of paying cash dividends to common shareholders.
ITEM 7.
ITEM 7. MANANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Presently, the Company has no liquidity or working capital. The Company lacks necessary capital to meet its obligations. The Company has not been able to meet its current obligations.
Results of Operations - Operating Revenues
The Company had no revenues in 1999.
Operating Costs and Expenses
Operating expenses remained the same as a result of the shut down of the Company's Cyril Refinery operations.
SIGNIFICANT EVENTS
Reactivation of Cyril Refinery
In January of 1994, the Company began its Cyril Refinery operations. The Company shut down refinery operations in April of 1995. During the sixteen months of operations, the Company experienced substantial mechanical problems and was unable to meet product specifications demanded by its customers. As a result, the Company realized significant losses from its operation of the Cyril Refinery which caused the loss of its crude oil credit lines and the ultimate shut down of refinery operations.
Although the Company is now pursuing financing which will enable it to renew its financing arrangements and allow it to start up operations of the Cyril Refinery again, there is absolutely no assurance that the Company will be successful.
Sale of Company's Oil and Gas Assets to Satisfy Working Capital Debt
Effective January 1, 1995, the Company assigned substantially all its oil and gas production to the Cayman Lenders Limited Liability Corporation in exchange for a release of indebtedness and in lieu of foreclosure on the $1,600,000 in debt loaned to it by a group of individuals known as the Capital Investors. Such funds were borrowed by the Company in 1993 to finance the renovation of the Cyril Refinery.
Cyril Refinery Vendor Payables
The Company and its subsidiary have a substantial amount of past-due vendor payable for which the Company is currently developing a plan to offer such vendors a settlement plan on a case by case basis.
Oklahoma Industrial Finance Authority $750,000 Loan
On November 10, 1993, the Company secured a $750,000 loan from the Oklahoma Industrial Finance Authority (OIFA), which funds were used to satisfy a portion of the Company's start-up working capital needs. The OIFA loan was for one year and is now in default with interest accruing at eight percent (8%). The OIFA may decide to foreclose at any time.
Environmental Considerations
In 1988, the Cyril Refinery property formerly owned by Oklahoma, was placed on the National Priority List (NPL). This action was taken by the EPA in accordance with the Comprehensive Environmental Response Compensation Liability Act of 1980 (CERCLA), as amended by the Superfund and Reauthorization Act of 1986 (SARA). In 1991, the EPA concluded a Remedial Investigation/Feasibility Study (RIFS) of the Cyril Refinery site. The RIFS identified certain areas where contamination and hazardous chemicals exist. The RIFS conclusion was that the contaminants found at the ORC site did not pose an immediate hazard of significant risk to human health at off-site testing locations used by the study. It was therefore determined that the contaminants contained within the ORC site could be remediated over a period of time. In 1991, the EPA issued a Proposed Plan of Action (PPA) which outlined several alternative actions which could be taken to either contain, remediate or remove the identified contaminated material. Following public hearings, the EPA issued its Record of Decision (ROD) which together with the PPA outlines in general the EPA's plan to clean up the entire ORC site.
In April 1997, the Oklahoma Department of Environmental Quality (ODEQ) filed an announcement of changes to the CRC site remediation plan which greatly reduced the scope and cost of the "clean-up" work. They announced that rather than building a bioremediation plant, they plan to isolate the remaining soil into one location on the ORC property (not on the Company's property) where they will "encapsulate" the material with concrete. The ODEQ and EPA have informed the Company that they will transport approximately 1,500 cubic yards of soil from the Company's property to the EPA/ODEQ-controlled property to be encapsulated.
The Company is aware of the need to cooperate with State and Federal agencies to provide a plan and implement that plan to clean up any and all identifiable hazards on its property. In January 1992, the Company executed a Consent Agreement and Final Order with the Oklahoma State Department of Health. All of the work required by such Consent to Order has now been completed by the Company. In addition to the requirements made of the Company in accordance with the Consent Order, the Company plans to continue to cooperate with the Oklahoma State Department of Health (OSDH) and the EPA to complete the remediation of all hazardous areas located on the CPC property. The Company has developed a plan to achieve this goal and believes that those plans are feasible. Management estimates, based upon review and evaluation of the above studies, that the cost to transport the remaining soil to the EPA encapsulation site is approximately $100,000. This will substantially complete the Company's requirement under the Consent Order Dated January 1, 1992.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 are included elsewhere in this report (see Part IV, Item 14).
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH THE INDEPENDENT ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
In March 1999, the Company engaged Turner, Stone & Company, L.L.P. to complete an independent audit. There were no disagreements with the Company's former auditors over any auditing, accounting or disclosure matters.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Officers
The following persons are the executive officers of the Company and serve at the pleasure of the Board of Directors:
Name Age Since Position with Company - ---- --- ----- --------------------- Jan Schutze 41 2000 President and CEO of Oklahoma Energy Corporation, President of Cyril Petrochemical Corporation.
James Fuller 60 1998 Director
Fred S. Konigsberg 53 1998 Vice President (2000)
Don Mac Phail III 52 1998 Director
Jan Schutze
Jan Schutze became President in April 2000. Mr. Schutze is a geologist, specializing in environmental management.
James Fuller
Mr. Fuller is President of North Coast Securities, a San Francisco brokerage company. Mr. Fuller was a former Vice President of the New York Stock Exchange and has been in the securities field for a number of years.
Fred S. Konigsberg
Mr. Konigsberg is a corporate attorney with extensive experience in the securities field. He has represented many different corporations over the years. His practice is located in San Francisco and in the Los Angeles area.
Don Mac Phail III
Mr. Mac Phail is President of Mac Phail Investment Group, a Boston Massachusetts company that deals in stock and bonds and offers financial planning. Mr. Mac Phail has been in the securities business for over thirty years on the east coast.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
CASH COMPENSATION
Name of Capacity Individual or in which Number of Remuneration Cash Other Persons in Group Received Compensation Remuneration - ---------------- ------------ ------------ -------------- Arthur E. Juhl President $ 0 $ 77,000 ($15,000 paid Oklahoma Energy in common Corporation stock; $62,000 accrued)
Al Kau President $ 0 $ 42,000 accrued Oklahoma Energy Corporation
ITEM 12.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
Certain Beneficial Owners - ------------------------- The following table sets forth persons known to the Company who own directly or beneficially more than five percent (5%) of the voting common shares of the Company, both the Common Stock and the Common Stock equivalent of all the preferred, as one sole class of stock being all the authorized and issued stock of the Company. The total number of voting shares of the Company's Common Stock at December 31, 1999 is 47,530,755 shares. (See Notes to Item 11.)
NUMBER OF VOTING SHARES BENEFICIALLY PERCENTAGE OF TOTAL HELD BY 5% OWNERS VOTING SHARES ------------------- -------------------- Eileen Shaw 7,213,000 15.4%
Ownership of Directors and Management - ------------------------------------- The following table sets forth the ownership of all voting shares of the Company; both the Common Stock and the Common Stock equivalent of the Preferred Stock, held by each of the officers and directors of the Company as of December 31, 1999. (See Notes to Item 11.)
NUMBER OF VOTING SHARES BENEFICIALLY OWNED BY PERCENTAGE OF TOTAL OFFICERS & DIRECTORS VOTING SHARES -------------------- -------------------- Al Kau 533,000 1.1% Arthur E. Juhl 355,000 .8% James Fuller 110,000 .2% Don Mac Phail III 100,000 .2% Fred S. Konigsberg - - Total beneficial ownership of Officers & Directors 1,098,000 2.3%
NOTES TO ITEM 12 - SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(1) The nature of ownership of the shares described in the above table is direct.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8K
(1) Financial Statements and Financial Statements Schedules.
A list of financial statements and financial statement schedules is contained in "Index to Consolidated Financial Statements and Schedules" on page hereof.
(2) Reports on Form 8-K.
Report filed May 21, 1999 - Change in Control of Registrant.
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OKLAHOMA ENERGY CORPORATION
Formerly CAYMAN RESOURCES CORPORATION (Registrant)
Dated: May 12, 2000 By: /s/ Jan Schutze -------------------------------- Jan Schutze, President & CEO