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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ____________
Commission File Number 33-99978
ABACAN RESOURCE CORPORATION
(Exact name of registrant as specified in its charter)
ALBERTA, CANADA
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3050 POST OAK BLVD, SUITE 699
HOUSTON, TEXAS
77056
(Address of principal executive offices)
(Zip Code)
(713) 479-9770
Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practical date: 121,037,504 shares of common stock were
outstanding on November 2, 1999.
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<PAGE>
ABACAN RESOURCE CORPORATION
INDEX
PART I FINANCIAL INFORMATION Page Number
Item 1 Consolidated Balance Sheets as of September 30, 3
1999 and December 31, 1998
Consolidated Statements of Operations and 4
Deficit for the Three Months and Nine
Months ended September 30, 1999 and 1998
Consolidated Statements of Change in Cash 5
Flows for the Nine Months ended September
30, 1999 and 1998
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 3 Defaults Upon Senior Securities 14
Item 6 Exhibits and Reports on Form 8K 15
SIGNATURES 16
2
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- ---------------------------------
<TABLE>
<CAPTION>
ABACAN RESOURCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of U.S. Dollars)
September 30, December 31,
1999 1998
(unaudited) (audited)
--------------- --------------
ASSETS
<S> <C> <C>
Current Assets
Cash $ 1,918 $ 3,305
Accounts receivable 35 31
--------------- --------------
1,953 3,336
Petroleum and natural gas properties (Note 3) 92,399 92,431
Deposits and other 51 42
--------------- --------------
$ 94,403 $ 95,809
=============== ==============
LIABILITIES
Current Liabilities
Accounts payable $ 9,208 $ 9,170
Interest payable (Note 5) 1,961 493
Royalties payable (Note 4) 5,373 5,373
Senior Secured Loan (Note 5) 30,702 30,702
--------------- --------------
47,244 45,738
--------------- --------------
SHAREHOLDERS' EQUITY
Share capital 277,750 276,750
Deficit (230,591) (226,679)
--------------- --------------
47,159 50,071
--------------- --------------
$ 94,403 $ 95,809
=============== ==============
</TABLE>
3
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<TABLE>
<CAPTION>
ABACAN RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Thousands of U.S. Dollars)
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- --------------------
1999 1998 1999 1998
------------ --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
REVENUE
Petroleum revenue (net of foreign taxes)
Royalties $ - $ - $ - $ 14,258
Interest and other - (366) - (1,994)
Property insurance settlement (Note 3) 15 - 63 171
- 130 460 -
------------ --------- --------- ---------
15 (236) 523 12,435
------------ --------- --------- ---------
EXPENSES
Operating $ - $ - $ - $ 17,431
General and administrative 707 1,082 2,935 3,683
Interest and other financial expense 497 516 1,468 2,663
Depletion, depreciation and amortization
5 208 32 4,243
------------ --------- --------- ---------
1,209 1,806 4,435 28,020
------------ --------- --------- ---------
NET EARNINGS (LOSS) BEFORE
THE UNDERNOTED (1,194) (2,042) (3,912) (15,585)
GAIN ON SALE OF ASSETS - 5,511 - 32,828
------------ --------- --------- ---------
NET EARNINGS (LOSS) FOR THE PERIOD
(1,194) 3,469 (3,912) 17,243
DEFICIT, Beginning of period 229,397 225,402 226,679 239,176
------------ --------- --------- ---------
DEFICIT, END OF PERIOD $ 230,591 $221,933 $230,591 $221,933
============ ========= ========= =========
NET EARNINGS (LOSS) PER
SHARE $ (0.01) $ 0.03 $ (0.03) $ 0.15
============ ========= ========= =========
</TABLE>
4
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<TABLE>
<CAPTION>
ABACAN RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGE IN CASH FLOW
(Thousands of U.S. Dollars)
Nine Months Ended
September 30
------------------------
1999 1998
------------ ----------
(unaudited)
<S> <C> <C>
Cash provided by (used in):
OPERATING ACTIVITIES
Net earnings (loss) for the period $ (3,912) $ 17,243
Items not affecting cash
Gain on sale of assets - (32,828)
Depletion, depreciation and amortization 32 4,244
Changes in non-cash operating working
capital items 1,501 21,976
------------ ----------
(2,379) 10,635
------------ ----------
FINANCING ACTIVITIES
Issue of Share Capital
Common Shares and Warrants 1,000 -
Long term debt - (4,298)
Capital lease obligation - (6,566)
------------ ----------
1,000 (10,864)
------------ ----------
INVESTING ACTIVITIES
Expenditures on petroleum and Natural Gas
properties - (13,647)
Disposition of Petroleum and Natural Gas
properties - 86,900
Changes in non-cash working capital items - (70,794)
Other (8) -
------------ ----------
(8) 2,459
------------ ----------
INCREASE (DECREASE) IN CASH (1,387) 2,230
CASH - BEGINNING OF PERIOD 3,305 1,813
------------ ----------
CASH - END OF PERIOD $ 1,918 $ 4,043
============ ==========
SUPPLEMENTAL NON-CASH
Acquisition of petroleum and natural gas
properties for common shares $ - $ 2,000
============ ==========
</TABLE>
5
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ABACAN RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Interim Financial Statements
- ------------------------------
The consolidated financial statements included herein have been prepared by
Abacan Resource Corporation and are unaudited, except for the balance sheet at
December 31, 1998, which has been prepared from the audited financial statements
at that date. These financial statements include accounts of Abacan Resource
Corporation, a Canadian corporation incorporated in the Province of Alberta and
all of its wholly owned subsidiaries (the "Company"). The accompanying
consolidated balance sheet as at September 30, 1999 and the consolidated
statements of operations and deficit and changes in cash flows include all
adjustments (consisting only of normal recurring adjustments and accruals)
considered necessary to present fairly the Company's financial position as at
September 30, 1999 and the results of operations and cash flows for the nine
months ended September 30, 1999 and September 30, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). These financial statements and the notes
thereto should be read in conjunction with the Company's annual report on Form
10-KSB for the year ended December 31, 1998. Any capitalized terms used but not
defined in these Notes to Consolidated Financial Statements have the same
meaning given to them in that Form 10-KSB.
Continuation of Business
- --------------------------
Abacan Resource Corporation is an independent energy company engaged in the
acquisition and exploration of oil and gas properties located principally in the
West African countries of Nigeria and Benin. Since the reorganization of its oil
and gas operations in June 1998, the Company has focused its efforts on its
Benin Basin holdings where negotiations are currently underway for the
establishment in Benin of a natural gas powered electrical generation plant that
is planned to utilize the natural gas resources identified in the Company's
Benin Basin concessions. The Company is also actively marketing the farm-out,
sale or other disposition of its properties to industry partners.
The consolidated financial statements are unaudited and have been presented by
management using accounting principles applicable to a going concern, which
assumes that the Company will continue operations in the foreseeable future and
be able to realize assets and satisfy liabilities in the normal course of
business. The Company has a liquidity problem which casts doubt upon the
validity of this assumption.
The Company's ability to continue as a going concern is dependent upon the
following factors which outline management's plan:
i) the development of the oil and natural gas reserves in the Benin Basin
Concessions OML113 including the development of a market for the
produced natural gas in this area;
ii) obtaining financing in the form of equity, debt or a combination thereof
in order to continue the development of the petroleum reserves in the
above mentioned concessions;
6
<PAGE>
iii) negotiating a joint venture for the continued exploration and
development of the Company's West African acreage position prior to the
expiry date of the Company's concession licences;
iv) continuing to finance general and administrative expenses from existing
cash or financing in the form of equity, debt or combination thereof;
and
v) negotiations with certain suppliers to settle current liabilities and
forbearance of the Company's secured and unsecured creditors.
If the going concern assumption was not appropriate for these financial
statements, then adjustments would be necessary in the carrying value of assets
and liabilities, the reported net loss and the balance sheet classifications
used.
Generally Accepted Accounting Standards
- ------------------------------------------
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in Canada which differ from accounting
principles generally accepted in the United States. In the opinion of
management, there are no differences between Canadian and U.S. GAAP materially
affecting the Company's interim financial statements.
2. LOSS PER COMMON SHARE
Supplemental loss per share information is provided below:
<TABLE>
<CAPTION>
For the Nine Months Ended September 30
-------------------------------------------------------------------
Loss Shares Per-Share Amount
1999 1998 1999 1998 1999 1998
------------ ----------- ----------- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Net earnings (loss) $(3,912,000) $17,243,000 121,037,054 114,370,836 $(0.03) $0.15
Basic earnings (loss) per
Share $ (0.03) $ 0.15 - - - -
Stock Options 11,945,700 11,974,450 - - - -
------------ ----------- ----------- ----------- ------- -----
Diluted earnings (loss) per
Share $ (0.03) $ 0.15 - - - -
============ =========== =========== =========== ======= =====
</TABLE>
Net loss per common share has been computed by dividing net earnings (loss) by
the weighted average number of shares of common stock outstanding during the
periods. During the nine months ended September 30, 1999, the Company had
outstanding stock options and warrants to purchase 11,945,700 shares of common
stock, which were antidilutive and were not included in the calculation as the
exercise price exceeded the market value. In 1998, the Company adopted SFAS No.
128, "Earnings per Share," effective December 31, 1997. This accounting change
had no effect on previously reported earnings (loss) per share (EPS) data.
7
<PAGE>
3. PETROLEUM AND NATURAL GAS PROPERTIES
The Company disposed of substantially all of its working interests in its
petroleum and natural gas properties located in the Niger Delta region of
Nigeria in June 1998 as part of a general reorganization of its petroleum and
natural gas operations. As a result, immediately following the reorganization,
the Company's principal petroleum and natural gas properties were comprised of
Nigerian offshore Block OML 113, Block OPL 310 and Benin Republic offshore
Blocks 1 and 4.
The Company's interests in its petroleum and natural gas properties include
obligations to meet certain minimum work requirements, expenditures and other
commitments.
In the case of Nigerian Block OML 113, the Company has satisfactorily met its
minimum work requirements for the duration of the mining lease that expires on
July 3, 2018.
On Concession Block OPL 310, the Company is required to complete a minimum work
program consisting of three wells and a seismic program. The obligation of the
Company to initiate expenditures towards satisfaction of the minimum work
program commences after receipt of requisite government approval of the joint
venture agreement between the Company and the indigenous Nigerian concession
owner, Optimum Petroleum Development Limited ("Optimum"). The OPL for Concession
Block OPL 310 has expired and Optimum has not secured a renewal, extension or
requisite government approval of the joint venture agreement. There is no
assurance that Optimum will obtain the renewal, extension or government approval
or that the Company will maintain an interest in Concession Block OPL 310.
In Benin, the Company was required to complete a seismic program and drill one
well on Block 1 by August 1, 1999. The Company did not meet these contractual
obligations and consequently, Block 1 was relinquished on August 1, 1999 to the
government of Benin.
On Benin Block 4, the Company is required to acquire 3000 kilometers of 2D
seismic lines and propose an exploration program to the Benin government during
the initial exploration phase which expires on February 1, 2000. The Company is
awaiting government confirmation that these requirements have been satisfied.
In addition, the Block 4 contract requires the Company to post, not later than
December 17, 1999 a bank guarantee securing performance of its work obligations
during the first two year extension period which commences February 1, 2000.
The work obligation during the first extension period consists of acquiring 1500
kilometers of seismic lines and drilling one well. Failure of the Company to
post the bank guarantee by the specified time could result in the relinquishment
of Benin Block 4.
During the nine month period ended September 30, 1999, the Company received
$460,000 from the settlement of an insurance claim of its Ima #9 well located in
the Niger Delta in respect of a concession previously disposed of by the
Company.
4. ROYALTIES PAYABLE
As at September 30, 1999, royalties payable included an amount of $1.0 million
owed to Abacan International Resource Management Inc. ("Airmi"), $1.4 million to
Yinka Folawiyo Petroleum Company Limited ("YFP") and $2.9 million to several
other unrelated companies. All of the royalties relate to the Ima Field. Airmi
is a company wholly owned by Wade G. Cherwayko, a former senior executive
officer and director of the Company. YFP is substantially controlled by the
father of Mr. Tunde Folawiyo, a current director of the Company. Mr. Folawiyo
is also an executive officer of YFP.
8
<PAGE>
5. SENIOR SECURED LOAN
In August 1997, the Company obtained debt financing of approximately $35.0
million pursuant to a Crude Oil Prepayment Agreement with its crude oil
marketer. This financing was replaced with a $30.7 million credit facility (the
"Secured Loan") on June 30, 1998. Under the terms of the Secured Loan,
repayment of $20.1 million was due June 30, 1999 with the balance of $10.6
million due December 31, 1999. Interest is payable quarterly on the outstanding
principal at a maximum rate equal to LIBOR plus 4% per annum commencing March
31, 1999. The Company has not made the June 30, 1999 principal repayment nor
has it made the requisite quarterly interest installments. The Company is
currently discussing with the secured lender ways to restructure the Secured
Loan with a view of further extending its principal and interest repayment
obligations.
The Company has granted security in respect of its repayment obligations under
the Secured Loan. Included as security are: (1) a pledge of all of the common
shares of those subsidiaries that hold or held Participating Interests in the
Company's Niger Delta and Benin Basin Concessions; (2) a series of debentures
granting a security interest against the Company's Participating Interests in
its Niger Delta and Benin Basin Concessions; and (3) a guarantee of Abacan
Resource Corporation for all outstanding amounts due under the Secured Loan.
The Company is not currently aware of any actions taken by the secured lender to
realize on its security notwithstanding that the Company has not made the
required principal and interest payments under the Secured Loan.
6. CONTINGENCIES
Although Amni agreed to assume liability for any claims against the Company in
respect of the oil and gas operations on the Ima Field, the Company will
continue to be liable to trade and other creditors in respect of which it is a
party until full settlement arrangements can be established. Management
believes that the Company does not have any material exposure in these matters.
On March 5, 1999, the Company and Amni International Petroleum Development
Company Limited settled a $1.7 million lawsuit for approximately $860,000
utilizing insurance proceeds from the IMA #9 well settlement.
7. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect the Company's ability to conduct normal business operations. However, it
is not possible to be certain that all aspects of the Year 2000 Issue affecting
the Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- --------------
The following should be read in conjunction with the Company's financial
statements contained herein and in the Form 10-KSB for the year ended December
31, 1998 along with Management's Discussion and Analysis contained in such Form
10-KSB. Any capitalized terms used but not defined in the following discussion
have the same meaning given to them in the Form 10-KSB.
9
<PAGE>
Abacan Resource Corporation is an independent energy company engaged in the
acquisition and exploration of oil and gas properties located principally in the
West African countries of Nigeria and Benin. Prior to a reorganization of its
oil and gas operations in June 1998, the Company's operations were focused in
two distinct geological regions - the Niger Delta, Nigeria's prolific oil
producing region located in south-central Nigeria, and the Benin Basin, a
largely unexplored area located in the coastal waters of western Nigeria and
Benin. Subsequent to the reorganization of its oil and gas operations, the
Company has focused its efforts on its Benin Basin holdings. Negotiations are
currently underway for the establishment in Benin of a natural gas powered
electrical generation plant that is expected to utilize the natural gas
resources identified in the Company's Benin Basin concessions. The Company is
also actively marketing the farm-out, sale or other disposition of its oil and
gas properties to third parties.
OVERVIEW OF THIRD QUARTER OF 1999
The Company is continuing to seek partners for: (1) the Benin Power Project,
which is expected to be supplied fuel from the Company's Block OML 113 gas
reserves; and (2) the exploration of its Benin Basin Concessions consisting of
Block OML 113 in Nigeria and Block 4, offshore Benin.
Benin Power Project
- ---------------------
On May 27, 1998, the Company entered into a Letter of Intent ("LOI") with a
subsidiary of a major international natural gas and electrical power generating
company and the Government of Benin for the development of an electrical power
plant to be located in Cotonou, Benin. Under the terms of the LOI, the required
natural gas feedstock for the project is expected to come from the Company's Aje
Field natural gas resources identified on Nigerian Block OML 113. Negotiations
are continuing towards finalizing the various agreements required to initiate
construction of the project.
Exploration of Additional Benin Basin Acreage
- --------------------------------------------------
The Company is focused on the development of its Benin Basin concessions
however, it does not currently have the financial resources necessary to explore
and develop its prospects and therefore will be reliant on third-party funding
sources to provide the necessary capital to do so.
In Benin, the Company was required to complete a seismic program and drill one
well on Block 1 by August 1, 1999. The Company did not meet these contractual
obligations and consequently, Block 1 was relinquished to the government of
Benin on August 1, 1999.
On Benin Block 4, the Company is required to acquire 3000 kilometers of 2D
seismic lines and propose an exploration program to the Benin government during
the initial exploration phase which expires on February 1, 2000. The Company is
awaiting government confirmation that these requirements have been satisfied.
In addition, the Company is required, not later than December 17, 1999 to post a
bank guarantee securing performance of its work obligations during the first two
year extension period which commences February 1, 2000. The work obligation
during the first extension period consists of acquiring 1500 kilometers of
seismic lines and drilling one well. Failure of the Company to post the bank
guarantee by the specified time could result in the relinquishment of Benin
Block 4.
The Company continues to explore various options with respect to securing an
exploration and development partner. Types of relationships that are currently
being contemplated are joint venture transactions, farm-outs, sales of interests
or a merger.
10
<PAGE>
LIQUIDITY, OPERATING AND CAPITAL REQUIREMENTS AND FUNDING ALTERNATIVES
The Company continues to have a serious liquidity problem that casts doubt upon
the ability of the Company to continue operations in the foreseeable future. As
of September 30, 1999, the Company had approximately $1.9 million of cash,
senior secured debt of approximately $30.7 million, interest payable on senior
secured debt of approximately $1.9 million, accounts payable of approximately
$9.2 million and royalties payable of approximately $5.4 million. The increase
in the Company's cash position was attributable to the closing on July 13, 1999
of a private placement of 6,666,668 common shares to two U.S. institutional
investors at a price of $0.15 per share for gross proceeds of $1,000,000.
As a result of the disposition of its producing properties in June 1998, the
Company did not have any oil and gas revenue during the nine months ended
September 30, 1999. The Company does not anticipate generating revenues or cash
flow until the completion of the Benin Basin electrical generation project or
the sale or farm-out of part or all of its existing properties. The Company has
limited cash reserves and, despite a reduction in operational costs, is
continuing to incur general, administrative and other related expenses including
interest expense. Based upon current expenditure levels, the cash reserves of
the Company will not be sufficient to sustain the operations of the Company at
current levels over the long term. That being the case, the Company's ability
to continue as a going concern is dependent on the following:
1. The development of the natural gas resources in Benin Basin Concession
Blocks OML 113 and OPL 310 including the development of a commercial
market for the natural gas produced in this area;
2. Obtaining additional financing in the form of equity, debt or a
combination thereof in order to continue the development of the
petroleum resources in the above referenced concession blocks;
3. Negotiating a joint venture for the continued exploration and development
of the Company's West African acreage position prior to the expiry date
of the Company's concession licences;
4. Continuing to finance general and administrative expenses from existing
cash or financing in the form of equity, debt or a combination
thereof;
5. Negotiations with certain suppliers to settle current liabilities and
forbearance of the Company's secured and unsecured creditors.
SENIOR SECURED LOAN
In August 1997, the Company obtained debt financing of approximately $35.0
million pursuant to a Crude Oil Prepayment Agreement with a major international
oil marketing company. The proceeds of this debt financing were used by the
Company to repay outstanding project financing and exploration and development
costs for the production of petroleum from the Ima Field located in the Niger
Delta. This debt financing was replaced with a $30.7 million credit facility
(the "Secured Loan") on June 30, 1998. The Secured Loan calls for the repayment
of $20.1 million on June 30, 1999 with the balance of $10.6 million due on
December 31, 1999. Interest is payable quarterly on the outstanding principle
at a maximum rate equal to LIBOR plus 4% per annum commencing March 31, 1999.
The Company has not made the June 30, 1999 principal repayment nor has it made
the requisite quarterly interest installments. The Company is discussing with
the lender ways to restructure the Secured Loan with a view of further extending
its principal and interest repayment obligations.
11
<PAGE>
The Company has granted security to the secured lender in respect of its
repayment obligations under the Secured Loan. The Secured Loan includes a
number of events of default. In the event of the Company's default under the
terms of the Secured Loan, the lender may call upon the Company to immediately
pay the outstanding principal or interest due thereunder, or take title to, sell
or otherwise dispose of the common shares of substantially all of the Company's
subsidiaries. Should the secured lender become entitled to realize upon its
security, the Company may lose part or all of its interests in part of all of
its oil and gas properties. The Company believes it is currently in default of
one or more terms of the Secured Loan. Notwithstanding such default, the
Company is not currently aware of actions taken by the secured lender to realize
upon its security.
INTEREST AND ACCOUNTS PAYABLE
As at September 30, 1999, the Company had approximately $9.2 million in
unsecured trade debt and approximately $1.9 million in interest payable on
senior secured debt. The Company is working to reach settlement arrangements
with its creditors and the secured lender.
Included in the unsecured trade debt are claims of approximately $2.1 million
against Abacan Technical Services Limited, a subsidiary of Abacan Resource
Corporation. Abacan Technical Services Limited has no material assets.
CONTINGENCIES
Although Amni has agreed to assume liability for any claims against the Company
in respect of oil and gas operations on the Ima Field, the Company will continue
to be liable to trade and other creditors until settlement arrangements can be
established. Management believes that the Company does not have any material
exposure in these matters.
ROYALTIES PAYABLE
As at September 30, 1999, royalties payable included an amount of $1.0 million
owed to Abacan International Resource Management Inc. ("Airmi"), $1.4 million to
Yinka Folawiyo Petroleum Company Limited ("YFP") and $2.9 million to several
other unrelated companies. All of the royalties relate to the Ima Field. AIRMI
is a company wholly owned by Wade G. Cherwayko, a former senior executive
officer and director of the Company. YFP is substantially controlled by the
father of Mr. Tunde Folawiyo, a director of the Company. Mr. Folawiyo is also
an executive officer of YFP.
RESULTS OF OPERATIONS
Production and Sales
- ----------------------
The Company discontinued its hydrocarbon production operations due to the sale
of the Ima Field in June 1998. Consequently, no production revenues or
production expenses were recorded during either the three months or the nine
months ended September 30, 1999.
12
<PAGE>
- ------
Property Insurance Settlement
- -------------------------------
During the nine month period ended September 30, 1999, the Company received
approximately $460,000 from the settlement of an insurance claim of its Ima #9
well located in the Niger Delta in respect of a concession block previously
disposed of by the Company.
General and Administrative Expenses
- --------------------------------------
General and Administrative expenses for the nine months ended September 30,
1999 were approximately $2.9 million versus approximately $3.6 million for the
nine months ended September 30, 1998. Such expenses for the three months ended
September 30, 1999 were approximately $707,000 versus approximately $1,082,000
for the three months ended September 30, 1998.The reduction in costs during the
current fiscal year was attributed primarily to a reduction in overhead expenses
due primarily to the closure of three offices, a reduction in staff levels and
the out-sourcing of several of the Company's administrative functions. The
Company continues however to incur significant legal and accounting expenses
incurred related to the completion of negotiations respecting its Benin Basin
properties and its ongoing restructuring process. The Company currently has no
revenue or cash flow and limited cash reserves. Accordingly, the Company will
require additional financing in order to sustain its current level of
operations.
Interest and Other Financial Expense
- ----------------------------------------
For the three months ended September 30, 1999, the Company incurred
approximately $497,000 in interest and other financial expenses versus
approximately $516,000 for the same period in 1998. Cumulative interest and
other financial expense for the nine months ended September 30, 1999 was
approximately $1.4 million versus approximately $2.6 million for the same period
in 1998. These charges are primarily related to the Secured Loan both prior to
and following its restructuring in June 1998. The June 30, 1999 principal
instalment payment has not been made, nor have the requisite quarterly interest
installments. The Company is negotiating with the secured lender to further
restructure the Secured Loan by extending its principal and interest repayment
obligations.
Common Shares De-Listed from Nasdaq National Market
- ---------------------------------------------------------
On April 8, 1999, the Company's common shares were de-listed from the Nasdaq
National Market and commenced trading on the Nasdaq OTC Bulletin Board. The
Company's common shares continue to trade on The Toronto Stock Exchange.
OUTLOOK
As outlined in the Company's most recent annual report on Form 10-KSB, the
continuing corporate financial restructure is a critical priority to the
sustained viability of the Company. The Company is exploring opportunities to
raise additional capital, settle liabilities and reduce overhead costs. In
addition, the Company is exploring various options that allow for external
funding for further development of its remaining Benin Basin concession blocks,
including a farm-out, sale of interests or merger. The Company has recently
relinquished its interest in Benin Block 1 and may relinquish its interest in
Benin Block 4 unless it can secure (directly or through an industry partner) the
requisite bank guarantee by December 17, 1999. Should the Company be unable to
raise additional capital, either directly or through a combination of a sale or
farm-out of assets, or a business combination, it may be required to cease
operations.
13
<PAGE>
YEAR 2000
The Company is assessing the impact of the Year 2000 issue on its operations,
including the development and implementation of project plans and cost estimates
required to make its information systems infrastructure Year 2000 compliant.
Based on existing information, the Company believes that anticipated spending
necessary to become Year 2000 compliant will not have a material effect on the
financial position, cash flows or results of operations of the Company, nor will
the Year 2000 issues cause any material adverse effect on the future business
operations of the Company. There can be no assurance, however, as to the
ultimate effect of the Year 2000 issue on the Company.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On March 5, 1999, the Company and Amni International Petroleum Development
Company Limited settled a $1.7 million lawsuit for approximately $860,000
utilizing insurance proceeds from the IMA #9 well settlement. On July 13, 1999,
Global Marine International Services Corporation obtained judgment of $2,105,087
plus costs of approximately $31,000 against Abacan Technical Services Ltd., a
wholly owned subsidiary of Abacan Resource Corporation. Abacan Technical
Services Ltd. has no material assets.
Item 3 - Defaults Upon Senior Securities
On June 30, 1998, the Company restructured its outstanding $30.7 million senior
secured loan. As restructured, repayment of the principal amount of $20.1
million of the loan was deferred until June 30, 1999 with the balance of $10.6
million due on December 31, 1999. Interest payments were to commence quarterly
on December 31, 1998. Subsequent to December 31, 1998, the Company received
written confirmation from the lender that the first quarterly interest payment
due December 31, 1998 had been capitalized and that interest payments would
commence on March 31, 1999. The lender subsequently advised that,
notwithstanding its written extension, the first interest installment continued
to be due on December 31, 1998. The Company has not made the June 30, 1999
principal repayment nor has it made the requisite quarterly interest
installments. As of September 30, 1999 total interest arrears are estimated at
$2.0 million in respect of such unpaid installments. The Company is not
currently aware of any actions taken by the Secured Lender to realize on its
security notwithstanding that the Company has not made the required principal
and interest payments under the Secured Loan.
14
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(1) Exhibit - 27.1 - Financial Data Schedule
(2) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended September 30, 1999.
15
<PAGE>
ABACAN RESOURCE CORPORATION AND SUBSIDIARIES SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABACAN RESOURCE
CORPORATION
(Registrant)
Date: November 12, 1999 By: /s/ Timothy T. Stephens
------------------- -------------------------------
Timothy T. Stephens
President (Chief Executive Officer)
and a Director
16
<PAGE>
Index to Exhibits
Exhibit # Description Data Schedule
- ---------- ---------------------------
27.1 Financial Data Schedule
17
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1918
<SECURITIES> 0
<RECEIVABLES> 35
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1953
<PP&E> 92399
<DEPRECIATION> 0
<TOTAL-ASSETS> 94403
<CURRENT-LIABILITIES> 47244
<BONDS> 0
0
0
<COMMON> 277750
<OTHER-SE> (230591)
<TOTAL-LIABILITY-AND-EQUITY> 94403
<SALES> 0
<TOTAL-REVENUES> 523
<CGS> 0
<TOTAL-COSTS> 2967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1468
<INCOME-PRETAX> (3912)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3912)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3912)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
