item 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements company included pages form 10k consolidated balance sheet years ended december 31 2001 2000 consolidated statement operations three years period ended december 31 2001 consolidated statement stockholders equity deficit three years period ended december 31 2001 consolidated statement cash flows three years period ended december 31 2001 notes consolidated financial statements 2 financial statement schedules omitted required information inapplicable information presented financial statements notes thereto 3 exhibits following instruments documents included exhibits form 10k exhibit 10 ascent energy inc 2002 stock incentive plan 211 list subsidiaries exhibits reports form 8k exhibits reports form 8k none signatures pursuant requirements securities exchange act 1934 amended registrant duly caused form 10k signed behalf undersigned thereunto duly authorized ascent energy inc kevin mcmillan kevin mcmillan senior vice president chief financial officer date april 15 2002 pursuant requirements securities exchange act 1934 amended form 10k signed following persons capacities dates indicated filing contains unaudited financial statements lieu audited financial statements company unable obtain arthur andersen llp manually signed report company expects obtain manually signed report arthur andersen llp file amended report form 10k containing audited financial statements april 22 2002 auditor opined unaudited financial statements present fairly material respects financial position results operations cash flows changes shareholders equity company periods reported accordance generally accepted accounting principles come ascent energy inc consolidated balance sheets accompanying notes integral part consolidated financial statements filing contains unaudited financial statements lieu audited financial statement company unable obtain arthur andersen llp manually signed report ascent energy inc consolidated statements operations accompanying notes integral part consolidated financial statements filing contains unaudited financial statements lieu audited financial statement company unable obtain arthur andersen llp manually signed report ascent energy inc consolidated statements stockholders equity deficit accompanying notes integral part consolidated financial statements filing contains unaudited financial statements lieu audited financial statement company unable obtain arthur andersen llp manually signed report ascent energy inc consolidated statements cash flows accompanying notes integral part consolidated financial statements filing contains unaudited financial statements lieu audited financial statement company unable obtain arthur andersen llp manually signed report ascent energy inc notes consolidated financial statements december 31 2001 2000 1 organization restructuring mergers reorganization ascent energy inc ascent us independent energy company engaged acquisition exploitation exploration development production natural gas crude oil predecessor active south louisiana since 1982 organized january 9 2001 majority stockholders predecessor principally facilitate acquisition pontotoc production inc pontotoc business strategy increase production cash flow reserves acquisition development mature properties currently property base consists 679 active properties 30 south louisiana 625 shallow wells pontotoc county oklahoma 24 wells south texas serve operator majority active properties enables us better control timing cost rejuvenation activities headquartered mckinney texas additional offices new orleans louisiana ada oklahoma consolidated financial statements include accounts subsidiaries include pontotoc acquisition corp pontotoc production company inc oklahoma basic economy corporation pontotoc holdings inc pontotoc gathering llc significant intercompany balances eliminated certain prior year amounts reclassified conform current year presentation restructuring july 2001 prior consummation acquisition pontotoc predecessor restructured holding company contributing us assets liabilities refer transaction restructuring accounted using reorganization accounting entities common control results retroactive restatement periods presented reflect restructuring occurred beginning earliest period presented accompanying consolidated financial statements include accounts predecessor ascent prior restructuring pontotoc acquisition july 31 2001 acquired approximately 91 pontotocs outstanding common stock subsequently acquired remaining pontotoc shares august 14 2001 secondstep merger merged pontotoc one whollyowned subsidiaries purchase price outstanding pontotoc common stock approximately 485 million cash 5323695 shares series b mandatorily convertible preferred stock shares valued 049 per share based trading price pontotocs common stock five trading days prior following date merger agreement financed cash portion purchase price pontotoc acquisition borrowing 30 million credit facility portion proceeds private sale 211 million shares series redeemable preferred stock warrants purchase approximately 41 million shares common stock existing internal cash resources proceeds sale series redeemable preferred stock approximately 211 million required redeem series redeemable preferred stock 100 liquidation preference 211 million plus unpaid dividends july 2006 devo merger september 28 2001 acquired devo holding company llc devo statutory merger delaware law assets devo subsidiary devo operating company llc consist primarily south texas oil gas producing properties issued 750 million principal amount unsecured 11 34 senior notes due april 30 2006 senior notes private transaction connection devo acquisition approximately 1 discount approximately 657 million senior notes issued devos note holders exchange principal accrued interest outstanding devos senior notes due 2003 approximately 65 million senior notes issued devos equity holders consideration devo acquisition jefferies company inc see note 12 related party transactions received approximately 28 million senior notes financial advisory fee connection devo acquisition placement senior notes senior notes redeemable april 30 2004 105 prior date ascent may redeem 35 senior notes 111 senior notes subject ascent certain covenants among things limit ascents ability pay dividends incur additional indebtedness certain lease obligations issue preferred stock exchange transfer assets transactions treated purchases accounting purposes purchase prices allocated assets liabilities based estimated fair value assigned warrants allocations purchase prices preliminary subject change within one year acquisition dates net assets acquired transactions follows operating results pontotoc devo consolidated companys statement operations since july 28 2001 september 28 2001 respectively following summarized unaudited pro forma income statement data reflects impact transactions would companys results operations twelve months ended december 30 2001 transactions occurred january 1 2000 unaudited pro forma results prepared comparative purposes purport indicative amounts actually would resulted transaction occurred january 1 2000 may result future per common share amounts include potentially dilutive effects warrants convertible preferred stock discussed per share amounts reorganization fresh start reporting august 6 1999 ascents predecessor forman petroleum corporation forman filed voluntary petition relief chapter 11 united states bankruptcy code united states district court eastern district louisiana bankruptcy court case 9914319 november 22 1999 forman certain creditors filed second amended joint plan reorganization amended december 29 1999 bankruptcy plan formans reorganization plan confirmed bankruptcy court december 29 1999 consummated january 14 2000 pursuant bankruptcy plan forman issued outstanding securities canceled december 31 2000 984042 shares common stock par value warrants purchase 490516 shares common stock issued existing security holders confirmation date forman total assets 339 million liabilities 960 million exception aggregate approximately 27 million promissory notes issued pursuant bankruptcy plan approximately 300000 convenience claims paid full 2000 undistributed oil gas revenues 895000 approximately 3 million additional prepetition bankruptcy claims disputed forman resolved bankruptcy court liabilities preferred stock confirmation date extinguished pursuant bankruptcy plan september 30 2000 forman resolved prepetition bankruptcy claims previously disputed bankruptcy court overruled objection one creditors proof claim july 2000 accordance bankruptcy plan forman issued holder claim promissory note approximate amount 984000 amortized value included notes payable december 31 2001 addition july 24 2000 forman compromised objection creditors proof claim paying approximately 501000 cash agreeing perform future work worth approximately 122000 formans objection louisiana department revenue taxations proof claim amount 223000 resolved favor forman result obligated pay 119000 louisiana department revenue taxation six years interest accordance bankruptcy plan finally september october 2000 forman resolved disputed proofs claims aggregate amount 632000 paying approximately 416000 cash holders claims accordingly november 2 2000 forman filed motion final decree bankruptcy court close predecessors bankruptcy case hearing november 29 2000 final decree granted bankruptcy court costs incurred 1999 directly related reorganization consisting primarily legal accounting financial consulting fees recorded reorganization costs accompanying statement operations costs net interest income earned cash equivalents maintenance cash balances 1999 directly related predecessors bankruptcy filing forman ceased accruing interest senior debt dividends preferred stock august 6 1999 filed relief chapter 11 forman accounted reorganization using principles fresh start accounting required aicpa statement position 907 financial reporting entities reorganization bankruptcy code sop 907 accounting purposes accompanying financial statements reflect confirmed plan consummated december 31 1999 principles fresh start accounting total assets liabilities december 31 1999 recorded estimated fair market values accordingly formans net proved oil gas properties increased approximately 30 million unevaluated oil gas properties increased approximately 31 million net property equipment increased approximately 02 million obligations arising bankruptcy plan recorded amounts expected paid settlements obligations addition formans senior notes net book value 686 million related interest payable 111 million preferred stock 136 million deferred financing costs related senior notes preferred stock 44 million written since holders formans senior notes former noteholders received 925 shares common stock gain discharge indebtedness computed using 925 net assets received former noteholders remaining 75 net assets allocable former holders formans preferred stock recorded equity included fresh start accounting adjustments accompanying statement stockholders equity also included amount writeoff remaining deferred costs allocable preferred stock result implementation fresh start accounting financial statements year ended december 31 1999 reflecting fresh start accounting principles discussed comparable financial statements prior periods intention company dissolve forman belief none warrant securities forman current value 2 significant accounting policies summary significant accounting policies followed preparation accompanying consolidated financial statements set forth oil gas properties ascent uses fullcost method accounting involves capitalizing exploration development costs incurred purpose finding oil gas reserves including costs drilling equipping productive wells dry hole costs lease acquisition costs delay rentals company also capitalizes certain related employee costs general administrative costs directly identified significant acquisition exploration development projects undertaken costs amortized future gross revenue method whereby amortization computed using ratio gross revenues generated period total estimated future gross revenues proved oil gas reserves additionally capitalized costs oil gas properties cannot exceed present value estimated net cash flow proved reserves together lower cost estimated fair value undeveloped properties full cost ceiling transactions involving sales reserves place unless extraordinarily large portions reserves involved recorded adjustments accumulated depreciation depletion amortization ceiling test writedown sec requires companies compare net capitalized costs proved oil gas properties discounted present value future cash flows related proved reserves ceiling test calculation made using posted commodity prices last day quarter held flat life reserves capitalized costs exceed discounted cash flows assets required written value discounted cash flows sec also allows companies alternatively calculate ceiling test using posted prices effect subsequent end quarter cash equivalents company considers highly liquid investments original maturity three months less cash equivalents substantially cash balances excess federally insured limits depreciation property equipment depreciation property equipment oil gas properties provided straightline method estimated useful lives assets deferred financing costs company amortizing deferred financing costs 11 34 senior notes revolving loan total unamortized cost december 31 2001 approximately 1 million total approximately 81000 amortized 2001 shown interest expense revenue recognition recognize oil gas revenue upon sale third party purchaser follow sales method accounting gas imbalances gas imbalances december 31 2001 2000 insignificant interest income recorded revenue month earned fair value financial instruments cash equivalents accounts receivable accounts payable promissory notes reflected fair market values december 31 1999 accordance sop 907 discussed note 1 december 31 2001 2000 fair market values financial instruments mentioned approximated respective book values gas swaps oil gas puts oil collars reflected fair market values accompanying financial statements senior notes issued end third quarter conjunction devo acquisition carrying value believe approximates market value december 31 2001 following methods assumptions used estimate fair value financial instruments detailed carrying amount revolving credit agreement approximated fair value interest rate variable reflective market rates fair value oil gas price hedges based upon quotes obtained counterparties hedge agreements income taxes company follows asset liability method accounting deferred income taxes income taxes accordance sfas 109 accounting income taxes provisions income taxes include deferred taxes resulting primarily temporary differences due different reporting methods oil gas properties financial reporting purposes income tax purposes financial reporting purposes exploratory development expenditures related evaluated projects capitalized depreciated depleted amortized future gross revenue method income tax purposes equipment leasehold costs relative successful wells capitalized recovered depreciation depletion generally exploratory development costs charged expense incurred however follow certain provisions internal revenue code allow capitalization intangible drilling costs management deems appropriate financial income tax reporting differences occur result statutory depletion different reporting methods used capitalization employee general administrative interest expenses pervasiveness estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates used primarily accounting depreciation depletion amortization unevaluated property costs estimated future net cash flows taxes reserves accounts receivable capitalized general administrative costs fair value financial instruments contingencies purchase price allocations properties acquired derivatives enter hedging transactions secure price portion future production acceptable us time transaction entered primary objective activities reduce exposure possibility declining oil gas prices term hedge enter hedging transactions trading purposes currently utilize four forms hedging contracts fixed price swaps puts collars physical futures contracts fixed price swaps typically provide monthly payments us prices rise us prices fall based difference strike price agreedupon average either new york mercantile exchange nymex widely recognized index prices index put contracts costless purchased rate per unit hedged production fluctuates commodity futures market historical cost put contracts represents maximum cash exposure obligated make payments put contracts regardless future commodity price fluctuations put contracts monthly payments made us index prices fall agreed upon floor price allowing us fully participate commodity prices floor collar contracts often costless purchased rate per unit hedged production fluctuates commodity futures market index prices fall floor level collar monthly payment made us index prices rise ceiling level collar monthly payment made us futures contracts obligation deliver physical commodity designated location end contract period use type contract financial vehicle intend deliver physical quantities margin accounts often required upside downside exposure type contract great commodity price drops contracts increase value commodity price increases contracts decrease value may become liability believe fluctuations index prices closely match changes market prices production oil contracts typically settle using average daily closing prices calendar month natural gas contracts typically settle using average closing prices near month index futures contracts three days prior settlement date hedge positions december 31 2001 summarized follows 1 average strike price period year ended december 31 2000 realized oil gas revenues related hedging transactions year ended december 31 2001 fourth quarter 2001 realized oil gas revenues related hedging settlements 08 million december 31 2001 unsettled contracts recorded assets totaling 49 million changes fair values puts swaps recorded equity comprehensive income amounting 11 million net tax subsequent december 31 2001 early march 2002 company entered series natural gas hedges covering 98 bcf natural gas period april 2002 december 2004 derivatives settled based upon houston ship channel index price end preceding month new hedging transactions follows certain concentrations 2001 100 companys oil gas production sold 45 customers based current demand oil gas company believe loss customers would significant financially disruptive effect results operations financial condition per share amounts number shares common stock outstanding period shown restated reflect number ascent shares issued restructuring discussed note 1 net income loss per share common stock calculated dividing net loss applicable common stock weightedaverage number common shares outstanding year warrants purchase 4050000 shares common stock additional 1 million shares common stock issuable upon conversion series b mandatorily convertible preferred stock included computation diluted earnings per share effect assumed exercise stock warrants conversion preferred shares beginning year would antidilutive exercise price warrants 521 per share limited trading series b counter exchange values less 40 stated value series b believe justifies assumed conversion recent accounting pronouncements july 2001 sfas 143 accounting asset retirement obligations approved requiring fair value liabilities asset retirement obligations recorded period incurred standard effective fiscal years beginning june 15 2002 earlier application permitted expect adopt sfas 143 january 1 2003 upon adoption standard required use cumulativeeffect approach recognize transition amounts existing asset retirement obligation liabilities asset retirement costs accumulated depreciation yet determined transition amounts july 2001 financial accounting standards board fasb issued statement financial accounting standard sfas 141 business combinations sfas 142 goodwill intangible assets sfas 141 prohibits use poolingofinterest method accounting business combinations initiated june 30 2001 sfas 142 requires goodwill amortized circumstances also requires goodwill tested impairment annually events circumstances occur annual tests indicating goodwill reporting unit might impaired effective fiscal years beginning december 15 2001 adoption sfas nos 141 142 expected material impact financial statements goodwill recorded june 1998 fasb issued sfas 133 accounting derivative instruments hedging activities statement establishes accounting reporting standards require every derivative instrument including certain derivative instruments embedded contracts recorded balance sheet either asset liability measured fair value changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met company adopted sfas 133 january 1 2001 escrow restricted funds cash restricted payment abandonment costs boutte bayou dularge fields classified longterm asset amounts invested shortterm interestbearing investments december 31 2001 escrow accounts fully funded 3 long term debt december 31 2001 credit facility provides borrowings secured substantially oil gas properties 50 million finance future acquisition opportunities assist meeting working capital requirements current borrowing base 45 million borrowing base redetermined semiannually applying similar criteria used similarly situated oil gas borrowers credit facility provides interest rates libor plus 175 25 prime plus 05 10 average interest rate december 31 2001 498 credit facility maturity date july 2004 extended time availability credit facility march 29 2002 42 million received bank amendment credit agreement provides modification ebitda debt test well change calculation ebitda defined earnings interest tax depletion amortization test thresholds changed three quarters 2002 require debtebitda result greater 51 previous 451 test level addition bank modified ebitda calculation based full trailing twelvemonths pro forma basis versus previous test started calculating ebitda july 1 2001 annualizing period amendment made would compliance credit agreement december 31 2001 discussed note 1 predecessors debt including accrued interest preferred stock discharged reorganization resulting extraordinary gain 467 million net taxes 75 million 11 34 senior notes mature full april 30 2006 interest paid semiannually april 30th october 31st 35 senior notes may redeemed prior april 30 2004 redemption price equal 111 principal amount april 30 2004 105 principal weighted average interest rate outstanding debt december 31 2001 973 current debt facilities extended later maturity aggregate minimum principal payments required december 31 2001 would follows 2002 0 2003 0 2004 345 million 2005 0 2006 75 million 4 legal proceedings time may party various legal proceedings currently party lawsuit arising ordinary course business management expect matter material adverse effect financial position results operations 5 preferred stock order preserve cash hand board directors elected declare quarterly dividends third fourth quarters 2001 21100 shares outstanding 8 series redeemable preferred stock aggregate liquidation value 21100000 5323695 shares outstanding 8 series b convertible preferred stock aggregate liquidation value 13309237 unpaid dividends preferred stock continue accrue accumulate despite nonpayment liquidation preference preferred stock increases amount unpaid dividends required redeem series redeemable preferred stock 100 liquidation preference plus amount equal dividends whether earned declared accrued unpaid share july 2006 addition required pay accrued unpaid dividends series b convertible preferred stock july 2003 series b convertible preferred stock automatically converts shares common stock believe adequate resources make dividend payment conversion still outstanding series redeemable preferred stock 8 series b convertible preferred stock accrue dividends quarterly basis 8 total amount dividends accrued series redeemable preferred stock december 31 2001 approximately 07 million total amount dividends accrued series b convertible preferred stock date approximately 04 million 6 notes payable forman companys predecessor issued certain general unsecured creditors seven promissory notes aggregating approximately 37 million payable beginning april 1 2000 equal quarterly installments principal interest three years bearing interest rate 8 per year remaining principal payments 13 million classified shortterm obligation 7 income taxes applicable income tax rules regulations company required recognize taxable income pay taxes gain resulting discharge indebtedness doi result bankruptcy plan rather gain represented tax purposes face value debt accrued interest discharged excess fair market value reorganized company reduced companys net operating loss carryforwards nols remaining gain offsetting companys nols reduced companys tax basis net assets magnitude doi resulted elimination 209 million nols 1998 96 million nols generated 1999 additionally substantially eliminated tax basis net assets reorganized company significant excess book basis tax basis net assets company resulted recording 99 million deferred tax liability reorganized balance sheet see note 1 realization nols used offset gain doi also resulted reversal valuation allowance impact included tax effect extraordinary item 101 million accompanying statement operations provision benefit income taxes years ended december 31 2000 2001 consisted following thousands december 31 company following deferred tax assets liabilities recorded thousands provision income taxes net loss extraordinary item companys effective tax rate differed provision income taxes federal statutory rate follows thousands december 31 2001 8 common stock warrants common stock company 20000000 shares common stock authorized 4950000 issued outstanding senior notes revolving credit facility place limitations payment dividends common stock warrants conjunction issuance series preferred stock warrants purchase 4050000 shares common stock issued holders series preferred stock warrants may exercised whole part time june 30 2011 warrant entitles holder purchase 191943 shares common stock exercise price 521 per share 9 commitments contingencies operating leases ascent four noncancelable operating leases rental office space expire september 14 2004 january 14 2005 october 31 2004 august 31 2006 future commitments leases follows rental expense operating leases 2001 2000 1999 334967 210480 240980 respectively jefferies company inc significant shareholder leased portion companys new orleans office space market rates balance lease 10 employee benefits company adopted defined contribution retirement plan complies section 401k code 401k plan pursuant terms 401k plan employees least three months continuous service eligible participate may contribute 15 annual compensation subject certain limitations imposed code 401k plan provides discretionary match employee contributions may made company cash december 1999 company made matching contribution amount 70012 based upon individual employees plan contributions 1999 2000 2001 company made matching contributions monthly basis aggregate amounts 76244 75638 respectively based upon individual employees plan contributions respective plan year matching employer contributions 401k plan fully vested individual employees three years service amounts held 401k plan invested among various investment funds maintained 401k plan accordance directions participant employee contributions 401k plan 100 vested participants entitled payment vested benefits upon termination employment 11 writedown oil gas properties third quarter 2001 review ceiling test utilized substantially higher subsequent period prices september 30 2001 levels determine potential ceiling test writedown utilizing november 12 2001 pricing levels left oil price unchanged september 30 2001 natural gas price increasing 295 per mmbtu 224 per mmbtu period calculated recorded noncash ceiling test writedown 27 million net taxes 16 million discounted cash flows valued using september 30 2001 prices used calculating ceiling test writedown would recorded writedown 228 million net taxes 116 million december 31 2001 review ceiling test utilized substantially higher subsequent period prices december 31 2001 levels determine potential ceiling test writedown utilizing april 10 2001 pricing levels showed oil prices increasing 2613 per barrel 1984 per barrel december 31 2001 natural gas price increasing 318 per mmbtu 265 per mmbtu period calculated noncash ceiling test write necessary discounted cash flows valued using december 31 2001 prices used calculating ceiling test writedown would recorded writedown 397 million net taxes 233 million 12 related party transactions september 2001 approximately 657 million senior notes issued exchange principal accrued interest outstanding notes owed devo consideration acquisition approximately 65 million additional senior notes issued shareholders devo approximately 28 million senior notes issued jefferies company inc jefferies together tcw funds held substantially devos senior secured notes equity principal shareholders ascent devo properties acquired certain devos members affiliates contributed devo exchange devos senior secured notes seller properties paid approximately 645 million interests devo paid debt issuance costs 15 million jefferies 04 million tcw connection acquisition properties also 2001 jefferies agreed lease portion companys office space new orleans market prices remaining balance companys lease company leases office space market rates monthtomonth basis company partially owned director james robby robson jr connection pontotoc acquisition ascent energy whollyowned subsidiary agreed pay president jeffrey clarke success fee amount approximately 347000 paid series mandatorily redeemable preferred stock 13 oil gas activities following tables provide information required sfas 69 disclosures oil gas producing activities capitalized costs capitalized costs accumulated depreciation depletion amortization relating companys oil gas producing activities conducted within continental united states summarized amounts previously carried unevaluated properties moved proved oil gas properties subject depletion fourth quarter 2001 costs represent 3d seismic expenditures portion louisiana acreage seismic data generated many exploration prospects used development work limited proved reserves added result data costs incurred costs incurred oil gas property acquisition exploration development activities summarized gross cost incurred excludes sales proved unproved properties accounted adjustments capitalized costs gain loss recognized unless adjustments would significantly alter relationship capitalized costs proved reserves 2001 2000 ga costs amount 307064 842391 respectively capitalized full cost pool capitalization ga made 1999 amount interest capitalized unevaluated properties 2001 2000 1999 98080 274058 0 respectively capitalized interest acquisition cost proved oil gas reserves unaudited proved reserves estimated quantities oil natural gas geological engineering data demonstrate reasonable certainty recoverable future years known reservoirs existing economic operating conditions proved developed reserves proved reserves reasonably expected recovered existing wells existing equipment operating methods estimates oil gas reserves inherently imprecise subject change new technical information properties obtained proved oil natural gas reserve quantities related discounted future net cash flows income taxes periods presented based estimates prepared netherland sewell associates 1999 2000 2001 netherland sewell associates independent petroleum engineers estimates prepared accordance guidelines established securities exchange commission april 1 2001 pontotoc proved reserves approximately 1183 mmboe approximately 73 oil based estimates independent petroleum engineers netherland sewell associates inc august 1 2001 devos estimated net proved reserves 89 mmboe estimated netherland sewell companys net ownership interests estimated quantities proved oil natural gas reserves changes net proved reserves located continental united states summarized standardized measure unaudited table standardized measure discounted future net cash flows related companys ownership interests proved oil gas reserves period end shown future cash flows computed applying yearend posted prices oil natural gas yearend quantities proved oil natural gas reserves future operating expenses development costs computed primarily companys petroleum engineers estimating expenditures incurred developing producing companys proved oil natural gas reserves end year based year end costs assuming continuation existing economic conditions future income taxes computed using companys tax basis evaluated oil gas properties related tax carryforwards standardized measure discounted future net cash flows purport interpreted present fair value companys oil natural gas reserves estimate fair value would also take account among things recovery reserves presently classified proved anticipated future changes prices costs discount factor representative time value money risks inherent reserve estimates weighted average prices oil gas used tables december 31 2001 2000 1999 1840 2548 2458 respectively per barrel 284 1004 256 respectively per mcf changes standardized measure unaudited changes standardized measure future net cash flows relating proved oil gas reserves summarized 14 summarized quarterly financial information unaudited following table summarizes quarterly financial information 2000 2001 2000 company capitalized 842000 ga expenses 274000 interest incurred 2000 full cost pool fourth quarter presentation purposes expenses reported respective quarterly form 10qs first three quarters 2000 restated reflect capitalization ratably four quarters 2000 exhibit index item 7 managements discussion analysis financial condition results operations general filing contains unaudited financial statements lieu audited financial statements company unable obtain arthur andersen llp manually signed report company expects obtain manually signed report arthur andersen llp file amended report form 10k containing audited financial statements april 22 2002 auditor opined unaudited financial statements present fairly material respects financial position results operations cash flows changes shareholders equity company periods reported accordance generally accepted accounting principles following discussion intended assist understanding financial position results operations year threeyear period ended december 31 2001 consolidated financial statements notes thereto contain detailed information referred conjunction following discussion organization restructuring mergers ascent energy inc ascent us independent energy company engaged acquisition exploitation exploration development production natural gas crude oil predecessor active south louisiana since 1982 organized january 9 2001 majority stockholders predecessor principally facilitate acquisition pontotoc production inc pontotoc business strategy increase production cash flow reserves acquisition development mature properties currently property base consists 679 active properties 30 south louisiana 625 shallow wells pontotoc county oklahoma 24 wells south texas serve operator majority active properties enables us better control timing cost rejuvenation activities headquartered mckinney texas additional offices new orleans louisiana ada oklahoma consolidated financial statements include accounts subsidiaries include pontotoc acquisition corp pontotoc production company inc oklahoma basic economy corporation pontotoc holdings inc pontotoc gathering llc significant intercompany balances eliminated certain prior year amounts reclassified conform current year presentation restructuring july 2001 prior consummation acquisition pontotoc predecessor restructured holding company contributing us assets liabilities refer transaction restructuring accounted using reorganization accounting entities common control results retroactive restatement periods presented reflect restructuring occurred beginning earliest period presented accompanying consolidated financial statements include accounts predecessor ascent prior restructuring pontotoc acquisition july 31 2001 acquired approximately 91 pontotocs outstanding common stock subsequently acquired remaining pontotoc shares august 14 2001 secondstep merger merged pontotoc one whollyowned subsidiaries purchase price outstanding pontotoc common stock approximately 485 million cash 5323695 shares series b mandatorily convertible preferred stock shares valued 049 per share based trading price pontotocs common stock five trading days prior following date merger agreement financed cash portion purchase price pontotoc acquisition borrowing 30 million credit facility portion proceeds private sale 211 million shares series redeemable preferred stock warrants purchase approximately 41 million shares common stock existing internal cash resources proceeds sale series redeemable preferred stock approximately 211 million required redeem series redeemable preferred stock 100 liquidation preference 211 million plus unpaid dividends july 2006 devo merger september 28 2001 acquired devo holding company llc devo statutory merger delaware law assets devo subsidiary devo operating company llc consist primarily south texas oil gas producing properties issued 750 million principal amount unsecured 11 34 senior notes due april 30 2006 notes private transaction connection devo acquisition approximately 1 discount approximately 657 million notes issued devos note holders exchange principal accrued interest outstanding devos senior notes due 2003 approximately 65 million notes issued devos equity holders consideration devo acquisition jefferies company inc see note 12 related party transactions received approximately 28 million senior notes financial advisory fee connection devo acquisition placement senior notes senior notes redeemeable april 30 2004 105 prior date ascent may redeem 35 senior notes 111 senior notes subject ascent certain covenants among things limit ascents ability pay dividends incur additional indebtedness certain lease obligations issue preferred stock exchange transfer assets transactions treated purchases accounting purposes purchase prices allocated assets liabilities based estimated fair value assigned warrants allocations purchase prices preliminary subject change within one year acquisition dates net assets acquired transactions follows operating results pontotoc devo consolidated companys statement operations since july 28 2001 september 28 2001 respectively predecessor plan reorganization predecessor forman petroleum corporation bankruptcy plan confirmed bankruptcy court december 29 1999 consummated effective january 14 2000 confirmation date total assets 339 million liabilities 960 million except described herein liabilities confirmation date extinguished pursuant bankruptcy plan pursuant bankruptcy plan predecessor issued aggregate approximately 36 million promissory notes general unsecured creditors paid approximately 300000 holders convenience claims disputed claims related bankruptcy resolved order entered december 9 2000 final decree entered closed bankruptcy case predecessor fresh start reporting predecessor accounted reorganization using principles fresh start accounting required aicpa statement position 907 financial reporting entities reorganization bankruptcy code accounting purposes predecessor assumed bankruptcy plan consummated december 31 1999 principles fresh start accounting total assets recorded assumed reorganization value reorganization value allocated identifiable tangible assets estimated fair value accordingly oil gas full cost pool reduced approximately 60 million unevaluated oil gas properties increased approximately 3 million property equipment reduced approximately 16 million accumulated dda 641 million written addition senior notes payable 70 million interest payable 111 million senior notes preferred stock 136 million related deferred financing costs 44 million written total reorganization value assigned proved oil gas properties estimated adjusting net pretax future cash flows discounted 10 annual rate pv10 proved reserves 364 million set forth estimate reserves future revenue report proved oil gas properties december 31 1999 prepared netherland sewell associates report prepared accordance sec guidelines utilizing constant prices existing december 31 1999 prices adjusted reflect product prices used valuing producing properties predecessor applied risking factors various categories proved properties discounting properties indicated applying risk factors adjusting product pricing resulted estimated net realizable value pv10 proved properties 255 million predecessors assets including property equipment valued 49 million result implementation fresh start accounting predecessors financial statements consummation bankruptcy plan comparable financial statements prior periods effect bankruptcy plan implementation fresh start accounting predecessors balance sheet december 31 1999 discussed detail note 1 consolidated financial statements oil gas properties ascent uses fullcost method accounting involves capitalizing exploration development costs incurred purpose finding oil gas reserves including costs drilling equipping productive wells dry hole costs lease acquisition costs delay rentals company also capitalizes certain related employee costs general administrative costs directly identified significant acquisition exploration development projects undertaken costs amortized future gross revenue method whereby amortization computed using ratio gross revenues generated period total estimated future gross revenues proved oil gas reserves additionally capitalized costs oil gas properties cannot exceed present value estimated net cash flow proved reserves together lower cost estimated fair value undeveloped properties full cost ceiling transactions involving sales reserves place unless extraordinarily large portions reserves involved recorded adjustments accumulated depreciation depletion amortization revenue recognition recognize oil gas revenue upon sale third party purchaser follow sales method accounting gas imbalances gas imbalances december 31 2001 2000 insignificant recent accounting pronouncements july 2001 sfas 143 accounting asset retirement obligations approved requiring fair value liabilities asset retirement obligations recorded period incurred standard effective fiscal years beginning june 15 2002 earlier application permitted expect adopt sfas 143 january 1 2003 upon adoption standard required use cumulativeeffect approach recognize transition amounts existing asset retirement obligation liabilities asset retirement costs accumulated depreciation yet determined transition amounts july 2001 financial accounting standards board fasb issued statement financial accounting standard sfas 141 business combinations sfas 142 goodwill intangible assets sfas 141 prohibits use poolingofinterest method accounting business combinations initiated june 30 2001 sfas 142 requires goodwill amortized circumstances also requires goodwill tested impairment annually events circumstances occur annual tests indicating goodwill reporting unit might impaired effective fiscal years beginning december 15 2001 adoption sfas nos 141 142 expected material impact financial statements goodwill recorded june 1998 fasb issued sfas 133 accounting derivative instruments hedging activities statement establishes accounting reporting standards require every derivative instrument including certain derivative instruments embedded contracts recorded balance sheet either asset liability measured fair value changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met company adopted sfas 133 january 1 2001 operating environment revenues profitability future growth carrying value oil natural gas properties substantially dependent prevailing prices oil natural gas ability increase borrowing capacity obtain additional capital attractive terms also influenced oil natural gas prices oil natural gas subject large fluctuations response relatively minor changes supply demand oil natural gas market uncertainty variety additional factors beyond control substantial extended decline price oil natural gas would adverse effect carrying value proved reserves borrowing capacity revenues profitability cash flows operations price volatility also makes difficult budget project return either acquisitions development exploitation projects use full cost method accounting investment oil natural gas properties full cost method accounting costs acquisition exploration development oil natural gas reserves capitalized full cost pool incurred properties pool depleted charged operations using future gross revenue method based ratio current gross revenue total proved future gross revenues computed based current prices extent capitalized costs net accumulated depreciation depletion amortization less deferred taxes exceed present value using 10 discount rate estimated future net cash flow proved oil natural gas reserves lower cost fair value unproved properties income tax effects excess costs charged operations incurred writedown oil natural gas properties reversible later date even oil natural gas prices increase reduced full cost pool 1999 connection bankruptcy predecessor third quarter 2001 ceilingtest write third quarter 2001 review ceiling test utilized substantially higher subsequent period prices september 30 2001 levels determine potential ceiling test writedown utilizing november 12 2001 pricing levels left oil price unchanged september 30 2001 natural gas price increasing 295 per mmbtu 224 per mmbtu period calculated recorded noncash ceiling test writedown 27 million net taxes 16 million discounted cash flows valued using september 30 2001 prices used calculating ceiling test writedown would recorded writedown 228 million net taxes 116 million december 31 2001 review ceiling test utilized substantially higher subsequent period prices december 31 2001 levels determine potential ceiling test writedown utilizing april 10 2001 pricing levels showed oil prices increasing 2613 per barrel 1984 per barrel december 31 2001 natural gas price increasing 318 per mmbtu 265 per mmbtu period calculated noncash ceiling test writedown necessary discounted cash flows valued using december 31 2001 prices used calculating ceiling test writedown would recorded writedown 397 million net taxes 233 million results operations following table sets forth certain operating information respect oil natural gas operations summary information respect estimated proved oil natural gas reserves see item 2 properties natural gas oil reserves 1 excludes impairment year ended december 31 2001 compared year ended december 31 2000 oil gas revenues increased approximately 70 million 48 2001 217 million compared 147 million 2000 production levels 2001 increased 658 5662 million cubic feet gas equivalent mmcfe 3418 mmcfe 2000 gas production volumes increased 675 oil production volumes increased 638 average sale prices including hedging activities oil natural gas 2001 2235 per bbl 394 per mcf versus 2749 per bbl 405 per mcf 2000 revenues decreased 904000 due lower oil gas prices 2001 offset 867000 increase revenues due production increases properties owned beginning 2001 plus 70 million increase properties acquired 2001 mcfe basis lease operating expenses decreased 11 097 per mcfe 2001 098 per mcfe 2000 2001 actual lease operating expenses 618 34 million 2000 55 million 2001 increase due primarily property acquisitions 2001 effective severance tax rate percentage oil gas revenues increased 66 2001 44 2000 relatively higher effective rate attributable increased production wells state severance tax exemption louisianas severance tax abatement program 2001 depreciation depletion amortization dda expense increased 732 2000 increase year attributable increased production related future capital costs 2002 acquisitions reserves mcfe basis reflects increases production dda rate 2001 137 per mcfe compared 131 per mcfe 2000 increase 46 increase dda per mcfe due primarily increase full cost pool variations pricing year september 302001 noncash ceilingtest writedown 43 million 27 million net taxes recorded 2001 mcfe basis general administrative ga expenses decreased 38 078 per mcfe 2000 075 per mcfe 2001 decrease ga per mcfe 2001 due increase production 2001 compared 2000 actual ga expenses increased 592 27 million 2000 43 million 2001 increase ga expenses due addition pontotoc devo severance payments new staffing enlarged company discounted present value reserves decreased 132 1823 million end 2000 1582 million end 2001 primarily result significant decreases oil gas prices december 2000 december 2001 despite significant addition reserves acquisitions interest expense 2001 increased 00 million 2000 33 million 2001 increase 33 million interest expense due incurrence interest revolving credit facility senior notes incurred conjunction pontotoc devo acquisitions due factors described net loss attributable common shares 2001 30 million decrease 47 million net income 17 million 2000 required establish net deferred tax liability calculated applicable federal state tax rates resulting primarily financial reporting income tax reporting basis differences oil gas properties accordingly result fresh start accounting pontotoc devo acquisitions net deferred tax liability 386 million recorded december 31 2001 year ended december 31 2000 compared year ended december 31 1999 oil gas revenues increased approximately 17 million 13 2000 147 million compared 130 million 1999 production levels 2000 decreased 337 569 thousand barrels oil equivalent mboe 859 mboe 1999 gas production volumes decreased 419 oil production volumes decreased 214 average sale prices including hedging activities oil natural gas 2000 2749 per bbl 405 per mcf versus 1734 per bbl 228 per mcf 1999 revenues increased 59 million due higher oil gas prices 2000 offset 42 million decrease revenues due aforementioned production decreases boe basis lease operating expenses increased 607 589 per boe 2000 366 per boe 1999 2000 actual lease operating expenses 66 31 million 1999 34 million 2000 increase due primarily increase workover activity 2000 effective severance tax rate percentage oil gas revenues decreased 44 2000 56 1999 relatively low effective rate attributable increased production wells state severance tax exemption louisianas severance tax abatement program decreases effective tax rates 1999 2000 partially offset increase gas severance tax rate 2000 depreciation depletion amortization dda expense decreased 199 1999 decrease year attributable decreased production related future capital costs 2000 upward revision reserves boe basis reflects decreases production dda rate 2000 787 per boe compared 652 per boe 1999 increase 21 increase dda per boe due primarily increase full cost pool variations pricing year reserve additions december 31 2000 affected fourth quarter dda calculation 2000 boe basis general administrative ga expenses increased 329 351 per boe 1999 467 2000 increase ga per boe 2000 due decrease production 2000 compared 1999 actual ga expenses decreased 118 30 million 1999 27 million 2000 decrease actual ga expenses 2000 primarily result capitalization ga expenses amount 842391 full cost pool 2000 ga capitalized full cost pool 1999 due bankruptcy lack funds conduct acquisition exploration activities without capitalization ga 2000 ga boe basis increased 75 614 2000 actual ga 2000 without capitalization 2000 increased 485000 primarily due income franchise taxes addition directors fees increases contract services related appointment new president june 2000 recapitalization costs incurred conjunction reorganization 899000 included recurring ga comparison purposes discounted present value reserves increased 500 364 million end 1999 182 million end 2000 primarily result significant increases oil gas prices december 1999 december 2000 combined new reserves attributable workovers recompletions wells boutte lake enfermer fields realized oil prices increased 586 december 31 1999 december 31 2000 average price per barrel 1734 1999 average price 2749 2000 realized gas prices 2000 increased 778 realized 1999 price average price per mcf 228 1999 average price per mcf 405 2000 interest expense 2000 decreased 62 million 1999 0 2000 actual interest expense 274000 incurred 2000 capitalized unevaluated property within full cost pool reporting purposes decrease 59 million interest expense due cessation interest payable senior notes canceled result reorganization effective january 14 2000 due factors described net income operations extraordinary items 2000 17 million increase 21 million net loss 349405 1999 required establish net deferred tax liability calculated applicable federal state tax rates resulting primarily financial reporting income tax reporting basis differences oil gas properties accordingly result fresh start accounting net deferred tax liability 99 million recorded december 31 1999 liquidity capital resources working capital cash flow use cash flows operations borrowings credit facility fund future acquisition exploration development activities working capital requirements future cash flow operations depend ability maintain increase production exploration development exploitation activities well prices oil natural gas december 31 2001 60 million working capital compared working capital december 31 2000 47 million increase working capital periods primarily due increase fair value derivatives 49 million despite lower product prices last three months 2001 compared period 2000 following summary table reflects comparative cash flows twelve month periods ended december 31 2001 2000 twelve months ended december 31 2001 net cash provided operating activities increased 68 million 41 million comparable period 2000 due primarily property acquisitions twelve months 2001 compared realized period 2000 cash used investing activities twelve months ended december 31 2001 increased 536 million 33 million comparable period 2000 due acquisition pontotoc offset net cash received devo acquisition 2001 period cash used financing activities increased 02 twelve months 2000 453 million 2001 due primarily proceeds bank credit facility series preferred stock capital expenditure budget 2002 focus exploitation exploration development existing properties oklahoma louisiana south texas plan retain controlling interests operated properties allows us ability control timing capital commitments ability adjust spending oil gas prices fluctuate capital expenditure plans development exploitation activities 2002 currently estimated approximately 220 million actual levels capital expenditures may vary significantly due many factors including drilling results oil natural gas prices industry conditions participation working interest owners prices drilling rigs oilfield goods services believe cash flows operations borrowings credit facility working capital sufficient meet capital expenditure plans development exploitation activities end 2002 obligations 2002 long term notes issued predecessors bankruptcy plan part strategy involves acquisition additional properties plan explore outside funding opportunities including equity additional debt financings use consummating additional acquisitions know whether financing accomplished terms acceptable us company currently considering sale louisiana properties intends engage jefferies company inc large shareholder company act financial advisor possible sale bank credit facility march 29 2002 385 million outstanding credit facility bank line credit secured mortgage lien substantially oil gas properties security interest oil gas production proceeds properties credit facility provides interest periods one two three six months libor rate loans may also elect pay interest base rate calculated reference higher federal funds rate chase manhattan banks prime rate case either libor rate loans base rate loans must pay additional interest rate margin varies aggregate amount loans letters credit outstanding line credit september 28 2001 bank agreed amend credit facility provide borrowings 50 million finance future acquisition opportunities assist meeting working capital requirements initial borrowing base 45 million amended credit facility allow bank periodically redetermine borrowing base applying similar criteria used similarly situated oil gas borrowers availability credit facility march 29 2002 42 million received bank amendment credit agreement provides modification ebitda debt test well change calculation ebitda defined earnings interest tax depletion amortization test thresholds changed first three quarter 2002 require debtebitda result greater 51 previous 451 test level addition bank modified ebitda calculation based full trailing twelvemonths pro forma basis versus previous test started calculating ebitda july 1 2001 annualizing period amendment made would compliance credit agreement december 31 2001 preferred stock order preserve cash hand board directors elected declare quarterly dividends 21100 shares outstanding 8 series redeemable preferred stock series aggregate liquidation value 21100000 5323695 shares outstanding 8 series b convertible preferred stock series b aggregate liquidation value 13309237 unpaid dividends preferred stock continue accrue accumulate despite nonpayment liquidation preference preferred stock increases amount unpaid dividends required redeem series redeemable preferred stock 100 liquidation preference plus amount equal dividends whether earned declared accrued unpaid share july 2006 addition required pay accrued unpaid dividends series b convertible preferred stock july 2003 series b convertible preferred stock automatically converts shares common stock total amount dividends accrued series redeemable preferred stock december 31 2001 approximately 721 thousand total amount dividends accrued series b convertible preferred stock date approximately 446 thousand neither series b voting rights except extent vote amendment waiver provisions certificate incorporation related certificates designations would materially adversely affect right preferences privilege series b holders thereof warrants conjunction issuance series warrants purchase 4050000 shares common stock issued holders series warrants may exercised whole part time june 30 2011 warrant entitles holder purchase 191943 shares common stock exercise price 521 per share beginning 185 days common stock registered section 12b 12g securities exchange act 1934 holders majority shares common stock issuable upon exercise warrants described right require us file registration securities act 1933 sale holders less 5 outstanding shares common stock required make four standalone registrations registration rights agreement two registrations twelvemonth period registration rights agreement holders registrable securities also right include registrable securities registration statement file involving common stock item 7a item 7a quantitative qualitative disclosures market risk hedging activity enter hedging transactions secure price portion future production acceptable us time transaction entered primary objective activities reduce exposure possibility declining oil gas prices term hedge enter hedging transactions trading purposes currently utilize four forms hedging contracts fixed price swaps puts collars physical futures contracts fixed price swaps typically provide monthly payments us prices rise us prices fall based difference strike price agreedupon average either new york mercantile exchange nymex widely recognized index prices index put contracts costless purchased rate per unit hedged production fluctuates commodity futures market historical cost put contracts represents maximum cash exposure obligated make payments put contracts regardless future commodity price fluctuations put contracts monthly payments made us index prices fall agreed upon floor price allowing us fully participate commodity prices floor collar contracts often costless purchased rate per unit hedged production fluctuates commodity futures market index prices fall floor level collar monthly payment made us index prices rise ceiling level collar monthly payment made us physical futures contracts obligation deliver physical commodity designated location end contract period use type contract financial vehicle intend deliver physical quantities margin accounts often required upside downside exposure type contract great commodity price drops contracts increase value commodity price increases contracts decrease value may become liability believe fluctuations index prices closely match changes market prices production oil contracts typically settle using average daily closing prices calendar month natural gas contracts typically settle using average closing prices near month index futures contracts three days prior settlement date hedge positions december 31 2001 summarized follows 1 average strike price period year ended december 31 2000 realized oil gas revenues related hedging transactions year ended december 31 2001 fourth quarter 2001 realized oil gas revenues related hedging settlements 08 million december 31 2001 unsettled contracts recorded assets totaling 49 million changes fair values contracts recorded equity comprehensive income amounting 11 million net tax see item 1 cautionary statements use hedging transactions portion oil gas production may limit future revenues price increases result significant fluctuations stockholders equity despite measures may take attempt control price risk remain subject price fluctuations oil natural gas sold spot market prices received natural gas sold spot market volatile due primarily seasonality demand factors beyond control oil natural gas prices change dramatically primarily result balance supply demand last four years significant volatility natural gas price oil price average natural gas price received 2001 390 per mcf 405 per mcf 2000 228 per mcf 1999 average oil price received 2001 2235 per bbl average price received 2749 2000 1734 1999 assurance prices decline current levels declines domestic oil natural gas prices could material adverse effect financial position results operations quantities reserves recoverable economic basis subsequent december 31 2001 early march 2002 company entered series natural gas hedges covering 98 bcf natural gas period april 2002 december 2004 derivatives settled based upon houston ship channel index price end preceding month new hedging transactions follows item 8 item 8 financial statements supplementary data information concerning item begins page filing contains unaudited financial statements lieu audited financial statements company unable obtain arthur andersen llp manually signed report please see page additional information item 9 