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and are producing gas dedicated to the KN Energy, Inc.
(KN) system has two inevitable consequences. The first
is that our sales of gas are directly affected by
weather conditions on the KN system in the Midwest and
High Plains. With space heating as the primary
service, gas sales revenues from KN will vary from
season to season and year to year. The second
consequence is that with essentially all of our acreage
already developed (except for the infill program
described above), we must replace the gas reserves that
are sold each year.
In developing new supplies we will not neglect the KN
market, but will endeavor to develop others as well.
Initially, we are looking to do this principally by
acquisition. The current weak conditions in the
industry and our strong financial base offer the
possibility of favorable acquisitions which we are
continuing to explore. [Emphasis added.]
Later in the 1985 annual report, petitioner identified the States
in which it sought to acquire producing properties and
developmental opportunities, as well as the buying opportunity it
perceived going into 1986, as follows:
The Company is focusing on the development
opportunities of its properties, and has only minor
amounts budgeted for exploration. The Company is
seeking to acquire producing properties and
developmental opportunities in Texas, Oklahoma and
Louisiana so as to diversify geographically and enter
new markets. The Company believes that the sharply
lower oil and gas prices represent a buying
opportunity; however, it does not look for prices to
recover in the next year or two. [Emphasis added.]
Upon becoming public, petitioner immediately began looking
for acquisition opportunities. During the fall of 1985,
petitioner commissioned its investment banking firm, Kidder,
Peabody & Co. (Kidder Peabody), to do, inter alia, an acquisition
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