SEC Company Response from BLUE RIDGE ENERGY INC (CIK 0001050957) — Jul 27, 2005
BLUE RIDGE ENERGY INC (CIK 0001050957)
Date: July 27, 2005 · CIK: 0001050957 · Accession: 0000950152-05-006228
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File numbers found in text: 000-27443
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Bayou City Exploration, Inc.
Formally, Blue Ridge Energy, Inc.
10777 Westheimer, Suite 170
Houston, Texas 77042
July 22, 2005
Securities and Exchange Commission
Division of Corporate Finance, Mail Stop 7010
Washington, D.C. 20549-7010
Re: Blue Ridge Energy, Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2004 Filed March 30, 2005
Form 10-QSB for Fiscal Quarter Ended March 31, 2005 Filed May 16, 2005
File No. 000-27443
Gentlemen:
Please reference the SEC June 20, 2005 letter, File No. 000-27443,
concerning Blue Ridge Energy, Inc.'s Form 10-KSB December 31, 2004 and Form
10-QSB March 31, 2005 filings.
Attached to this letter are the final proposed amended disclosures for
Notes 1 and 3 for the Form 10-KSB December 31, 2004 and for Note 3 for the Form
10-QSB March 31, 2005 after our telephone conference call on July 20, 2005. This
information is provided prior to filing the amended Form 10-KSB and the 10-QSB.
Please review and let me know if you have any other comments.
The Company acknowledges that it is responsible for the adequacy and
accuracy of the disclosures in the filings, staff comments or changes to
disclosures in response to staff comments do not foreclose the Commission from
taking any action with respect to the filings, and the Company may not assert
staff comments as a defense in any proceeding initiated by the Commission or any
person under the federal security laws of the United States.
I trust the attached explanations adequately answer the questions
raised in the June 20, 2005 letter and in the July 20, 2005 telephone conference
call. Bayou City Exploration, Inc. (formally Blue Ridge Energy, Inc.) will be
filing the amended forms in the near future. Thank you for your cooperation and
assistance in this matter.
Sincerely,
\s\ Norman G. Haisler, Jr.
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Norman G. Haisler, Jr.
Sr. VP-Finance and CFO
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Proposed Amended Disclosure 12-31-04 10-KSB General Description (page 1)
Blue Ridge Energy, Inc. ("BR Energy"), a Nevada corporation, was organized in
November 1994, as Gem Source, Incorporated ("Gem Source"), and subsequently
changed the name to Blue Ridge Energy, Inc. in May 1996. BR Energy's executive
office is located at 10777 Westheimer, Suite 170, Houston, TX 77042.
BR Energy is filing an amended 10-KSB to provide additional disclosure on the
sale of the Channel LLC seismic data license and on BR Energy's current business
focus as more fully explained in Note 1 on pages F-6 and F-7 and to provide
additional disclosure on Advances From/To Related Parties for Note 3 on page
F-12.
Proposed Amended Disclosure 12-31-04 10-KSB Note 1
Since 2002, BR Energy has shifted its focus on oil and gas exploration and
development activities from the Appalachian Basin to well-established producing
geologic structures in the onshore Gulf Coast areas of Texas and Louisiana, and
East Texas. Our objectives are to increase our proved reserves, cash flow and
shareholder equity through oil and natural gas drilling projects. On July 1,
2004, BR Energy entered into a "lifetime participation", non-exclusive
membership in the Echo Geophysical 3-D Gulf Coast, Permian Basin, Rocky Mountain
and Mid-Continent Programs. This will be the focus of BR Energy's future
activity as there are 56 separate 3-D's available and BR Energy will generate
drilling prospects from this dataset for the purpose of retaining a carried
working interest and possibly participating in these prospects. Funds provided
by the private, restricted stock offering (more fully explained in the next
paragraph) will allow BR Energy to add geoscientists, either as consultants or
employees, to fully exploit this dataset and develop drilling opportunities. The
number of prospects to be generated over time is unknown; however, BR Energy
plans to generate a minimum of six drilling prospects in 2005. During the third
quarter of 2004, BR Energy purchased a seismic software license for interpreting
the Echo data and purchased three 3D computer workstations, along with office
furniture, and these stations were fully operational at year-end.
[Same paragraph as currently presented.]
On March 11, 2002, BR Energy purchased, with an acquisition price of $2,287,429,
a 35% interest in Channel LLC, an unrelated party, resulting in a 17.5% working
interest in a large ongoing Texas onshore exploration program consisting of
48,000 miles of seismic data in the Texas Gulf Coast area and the oil and gas
properties acquired through the utilization of this data. The funding consisted
of $455,000 cash payment at closing and future obligations of $1,832,429.
Subsequently, BR Energy sold the Channel LLC interest to Blue Ridge Group, Inc.
(a related party more fully explained in Note 2) on May 23, 2003 and Blue Ridge
Group sold the interest to Texas H.R. LLC, an unrelated party, on July 14, 2004.
The centerpiece of this program utilized a large onshore Texas seismic database
comprising approximately 48,000 miles and covering 100+ counties of the Texas
Gulf Coast, East Texas and South Texas. The great majority of this data has
never been put into the "public domain" and was acquired by a major oil company
thought to be primarily exploring for large deep targets. The acquisition of
this interest and development of the oil and gas properties acquired through the
utilization of this data was to have been funded with the proceeds from the sale
of 500,000 shares of Series E Preferred Stock for $5,000,000 out of a 2002
private offering for 750,000 shares of Series E Preferred Stock under Regulation
D of Section 506 of the Securities Act of 1933.
In order to facilitate the purchase of this interest, BR Energy's majority
shareholder, Blue Ridge Group, Inc. (BR Group), committed to extending BR Energy
a $1,500,000 line of credit with a term of one year, bearing interest at 9% per
annum on all unpaid balances which was secured by all of BR Energy's interests
in the exploration program. This $1,500,000 balance was paid in full on
September 30, 2002 via the sale of 150,000 shares of BR Energy's Series E
Preferred Stock to BR Group for $1,500,000. At this time BR Group also committed
to purchase an additional 100,000 shares for $1,000,000 to be paid in four
quarterly
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installments. Two of these installments were paid by BR Group in December 2002
and March 2003, thereby bringing BR Group's total investment in BR Energy's
Series E Preferred Stock to $2,000,000 as of March 31, 2003.
As a result of BR Energy not selling the remaining shares of Series E Preferred
Stock by the closing of the offering on December 31, 2002 to achieve the
$5,000,000 needed, and not having the required capital available to acquire and
develop the 100+ oil and gas prospects identified to date, BR Energy entered
into a Purchase and Sale Agreement with BR Group on May 23, 2003. BR Group
agreed to 1) retire its 200,000 shares of Series E Preferred Stock which it had
received for the $2,000,000 paid to BR Energy to date, 2) cancel its
subscription agreement for the remaining 50,000 shares of Series E Preferred
Stock, 3) assume the remaining $474,636 in BR Energy debt associated with the
acquisition of the seismic information and 4) commit to provide all funds
required by this interest in the acquisition and development of oil and gas
properties identified. BR Energy had originally recorded the acquisition cost of
$2,287,429 as an asset which was being amortized over four years and had a
balance of $1,718,677 as of May 2003 when this agreement with BR Group was
reached.
Under the terms of the Purchase and Sale Agreement, BR Energy agreed to repay
$187,000 of the funds received from the sale of the Series E Preferred Stock,
cancelled the remaining subscription receivable for 50,000 shares of Series E
Preferred Stock and transferred to BR Group all of its interest in the seismic
information (which had a book value of $1,718,677 when the agreement was
reached) and any future oil and gas prospects identified by the seismic data.
The net effect of the transaction was BR Energy recorded $568,752 as an increase
to Additional Paid-In Capital from BR Group. BR Energy retained all of its
interest in any oil and gas properties previously acquired and developed under
the Channel LLC purchase. Additionally, BR Energy requested that it retain a 25%
carried working interest (proportionate to the working interest which BR Group
elects to acquire) in all wells in which BR Group elects to participate. The net
revenue interest for the carried working interest is approximately 75% of the
25%. BR Group agreed to pay all costs associated with acquiring the prospect
leasehold acreage and all drilling and completion well costs. BR Energy's
carried working interest will become effective after each well starts
production. BR Energy requested that after BR Group has recouped from oil and
gas net revenues (revenue less severance taxes and royalty) 100% of the monies
expended for the $2,287,429 seismic acquisition, all prospect leasehold costs
and all well drilling and completion cost incurred after May 23, 2003, BR Energy
shall have the right, but not the obligation, to reverse its position with BR
Group, whereby BR Energy would receive 75% of the interest in future oil and gas
properties and "carry" BR Group for 25% of the interest. There is no
consideration to be paid by either party if this reversal occurs. If this
election was made by BR Energy, the reversed 75% interest would apply to all new
properties acquired after the election by BR Energy which are identified from
the Channel LLC seismic data. For any properties developed before the election,
BR Group would retain its 75% interest. It was agreed by the two companies that
this carried working interest and the right to reverse the position only applies
to the prospects and wells identified from the Channel LLC seismic data. During
the second quarter of 2004 BR Group made a decision that they would no longer
participate in future prospect acquisition or the drilling of future wells
identified by the seismic data. This decision was based upon the fact the past
success of the wells drilled was only marginal, and they felt it was unlikely
that the program as a whole would be profitable. On July 14, 2004 BR Group sold,
with no reported gain, its 35% interest in Channel LLC to Texas H.R. LLC, an
unrelated party, and no longer had any rights to use the 2D seismic data or
participate in any new prospects from this data. As a carried working interest
owner, BR Energy had no decision making power to sell the interest in Channel
LLC, nor did it receive any consideration from the sale, however, BR Energy was
in agreement with BR Group's assessment of the program and the sale. Under the
July 14, 2004 sale agreement, BR Energy retained its ownership in the nine
producing wells previously drilled and BR Group retained its ownership in the
five producing wells previously drilled. Both companies reserved the right to
drill any future wells on the prospects within the existing Area of Mutual
Interest around the twenty prospects (which includes the prospects with dry
holes) that had been drilled from April 2002 through June 2004. Only one such
well was drilled in the third quarter of 2004 with BR Group's participation.
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Proposed Amended Disclosure 12-31-04 10-KSB Note 3
B. ADVANCES FROM/TO RELATED PARTIES
BR Group provided various management, administrative, accounting and geological
services for BR Energy at a rate of $10,000 per month from April 1, 2003 through
September 30, 2004 and $20,750 per month from January 1, 2003 through March 31,
2003. BR Energy also reimburses BR Group for direct costs paid on its behalf and
the costs of various drilling services. As of December 31, 2004 and 2003, $-0-
and $303,874 respectively, had been advanced by BR Group to BR Energy under
these arrangements. Effective October 1, 2004, the $10,000 monthly charge by BR
Group ceased. Both companies agreed that any costs incurred on behalf of the
other will be billed in the following month with a cash settlement for the
balance due. At December 31, 2004, BR Group owed $22,000 under this arrangement.
At the end of the third quarter of 2004, BR Group had advanced BR Energy
approximately $640,000 during the previous 18 months to fund the on going
business of BR Energy. In April 2003, BR Energy moved into new office space
containing areas for expansion. Pending this expansion, BR Energy allowed BR
Group to house some of their engineering and landman consultants in the excess
space. During September 2004 BR Energy reviewed its records over these past 18
months to determine expenditures incurred in the Houston office by BR Energy on
behalf of BR Group. The analysis showed that for this time period 50% of the
office rent, telephone and office supplies and 100% of a contract administrative
assistant costs were chargeable to BR Group resulting in approximately $140,000
billable to them. Both companies agreed to settle the outstanding cash advances
and the office costs by applying the $140,000 against the $640,000 and
establishing a $500,000 promissory note bearing interest at 7.95% for a term of
eight years, with monthly payments of $7,056 for principal and interest. This
note is secured by any and all oil and gas production income that BR Energy
holds, now and future until the note has been paid in full.
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Proposed Amended Disclosure 3-31-05 10-QSB Interim Reporting Note 1
Blue Ridge Energy, Inc. is filing an amended 10-QSB to provide additional
disclosure on Advances From/To Related Parties for Note 3 on page 11.
Proposed Amended Disclosure 3-31-05 10-QSB Note 3
ADVANCES TO/FROM RELATED PARTIES
BR Group provided various management, administrative, accounting and geological
services for BR Energy at a rate of $10,000 per month from January 1, 2004
through September 30, 2004. Effective October 1, 2004, the $10,000 monthly
charge by BR Group ceased. Both companies agreed that any costs incurred on
behalf of the other will be billed in the following month with a cash settlement
for the balance due. Under this arrangement, BR Group owed $84,000 and $22,000
at March 31, 2005 and December 31, 2004, respectively.
At the end of the third quarter of 2004, BR Group had advanced BR Energy
approximately $640,000 during the previous 18 months to fund the on going
business of BR Energy. In April 2003, BR Energy moved into new office space
containing areas for expansion. Pending this expansion, BR Energy allowed BR
Group to house some of their engineering and landman consultants in the excess
space. During September 2004 BR Energy reviewed its records over these past 18
months to determine expenditures incurred in the Houston office by BR Energy on
behalf of BR Group. The analysis showed that for this time period 50% of the
office rent, telephone and office supplies and 100% of a contract administrative
assistant costs were chargeable to BR Group resulting in approximately $140,000
billable to them. Both companies agreed to settle the outstanding cash advances
and the office costs by applying the $140,000 against the $640,000 and
establishing a $500,000 promissory note bearing interest at 7.95% for a term of
eight years, with monthly payments of $7,056 for principal and interest. This
note is secured by any and all oil and gas production income that BR Energy
holds, now and future until the note has been paid in