SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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 July 27, 1999.
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ABACAN RESOURCE CORPORATION
INDEX
PART I FINANCIAL INFORMATION Page Number
<S> <C> <C>
Item 1 . Consolidated Balance Sheets as of June 30, 3
1999 and December 31, 1998
Consolidated Statements of Operations for the 4
Six Months ended June 30, 1999 and 1998
Consolidated Statements of Change in Cash Flows 5
for the Six Months ended June 30, 1999 and 1998
Notes to Consolidated Financial Statements 6
Item 2 . Management's Discussion and Analysis of 10
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 14
SIGNATURES 15
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- ---------------------------------
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ABACAN RESOURCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of U.S. Dollars)
<S> <C> <C>
June 30, 1999 December 31, 1998
(unaudited) (audited)
--------------- -------------------
ASSETS
Current Assets
Cash . . . . . . . . . . . . . . . . . . . $ 1,646 $ 3,305
Accounts receivable. . . . . . . . . . . . 18 31
--------------- -------------------
1,664 3,336
Petroleum and natural gas properties (Note 3) 92,404 92,431
Deposits and other. . . . . . . . . . . . . . 56 42
--------------- -------------------
$ 94,124 $ 95,809
=============== ===================
LIABILITIES
Current Liabilities
Accounts payable . . . . . . . . . . . . . $ 9,232 $ 9,170
Interest payable (Note 5). . . . . . . . . 1,464 493
Royalties payable (Note 4) . . . . . . . . 5,373 5,373
Senior Secured Loan (Note 5) . . . . . . . 30,702 30,702
--------------- -------------------
46,771 45,738
--------------- -------------------
SHAREHOLDERS' EQUITY
Share capital . . . . . . . . . . . . . . . . 276,750 276,750
Deficit . . . . . . . . . . . . . . . . . . . (229,397) (226,679)
--------------- -------------------
47,353 50,071
--------------- -------------------
$ 94,124 $ 95,809
=============== ===================
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ABACAN RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30,
(Thousands of U.S. Dollars)
<S> <C> <C>
1999 1998
(unaudited) (unaudited)
------------ ------------
REVENUE
Petroleum revenue (net of foreign taxes). $ - $ 14,258
Royalties . . . . . . . . . . . . . . . . - (1,628)
Interest and other. . . . . . . . . . . . 48 41
Property insurance settlement (Note 3). . 460 -
------------ ------------
508 12,671
------------ ------------
EXPENSES
Operating . . . . . . . . . . . . . . . . - 17,431
General and administrative. . . . . . . . 2,228 2,601
Interest and other financial expense. . . 971 2,147
Depletion, depreciation and amortization. 27 4,035
------------ ------------
3,226 26,214
------------ ------------
NET LOSS BEFORE THE UNDERNOTED . . . . . . . (2,718) (13,543)
GAIN ON SALE OF ASSETS . . . . . . . . . . . - 27,317
------------ ------------
NET EARNINGS (LOSS) FOR THE PERIOD . . . . . (2,718) 13,774
DEFICIT, Beginning of period . . . . . . . . 226,679 239,176
------------ ------------
DEFICIT, END OF PERIOD . . . . . . . . . . . $ 229,397 $ 225,402
============ ============
NET EARNINGS (LOSS) PER SHARE. . . . . . . . $ (0.02) $ 0.12
============ ============
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4
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ABACAN RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGE IN CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30,
(Thousands of U.S. Dollars)
<S> <C> <C>
1999 1998
(unaudited) (unaudited)
------------ ------------
Cash provided by (used in):
OPERATING ACTIVITIES
Net earnings (loss) for the period. . . . . . . . . . . $ (2,718) $ 13,774
Items not affecting cash
Gain on sale of assets. . . . . . . . . . . . . . . . - (27,317)
Depletion, depreciation and amortization. . . . . . . 27 4,035
Changes in non-cash operating working capital items . . 1,046 (46,192)
------------ ------------
(1,645) (55,700)
------------ ------------
FINANCING ACTIVITIES
Long term debt. . . . . . . . . . . . . . . . . . . . . - (4,417)
Capital lease obligation. . . . . . . . . . . . . . . . - (6,566)
------------ ------------
- (10,983)
------------ ------------
INVESTING ACTIVITIES
Expenditures on petroleum and natural gas properties. . - (13,136)
Changes in non-cash working capital items . . . . . . . - 81,389
Other . . . . . . . . . . . . . . . . . . . . . . . . . (14) -
------------ ------------
(14) 68,253
------------ ------------
INCREASE (DECREASE) IN CASH. . . . . . . . . . . . . . . . (1,659) 1,570
CASH - BEGINNING OF PERIOD . . . . . . . . . . . . . . . . 3,305 1,813
------------ ------------
CASH - END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 1,646 $ 3,383
============ ============
SUPPLEMENTAL NON-CASH
Acquisition of petroleum and natural gas properties for $ - $ 2,000
common shares
============ ============
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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 June 30, 1999
and the consolidated statements of operations and deficit and changes in
cash flows for the six months ended June 30, 1999 and June 30, 1998 include
all adjustments (consisting only of normal recurring adjustments and
accruals) considered necessary to present fairly the Company's financial
position as at June 30, 1999 and the results of operations and cash flows
for the six months ended June 30, 1999 and June 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 natural gas reserves in the Benin Basin
Concessions OML113 and OPL 310 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;
iii) negotiating a joint venture for the continued exploration and
development of the Company's West African acreage position;
iv) continuing to finance general and administrative expenses from
existing cash or financing in the form of equity, debt or combination
thereof; and
6
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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:
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For the Six Months Ended June 30
---------------------------------------------------------------------
Loss Shares Per-Share Amount
------------------------- ------------------------ ----------------
1999 1998 1999 1998 1999 1998
------------ ----------- ----------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net earnings (loss) $(2,718,000) $13,774,000 114,370,836 114,370,836 $ (0.02) $ 0.12
Basic earnings (loss) per Share
$ (0.02) $ 0.12 - - - -
Stock Options 12,356,200 11,974,450 - - - -
Diluted earnings (loss) per Share
$ (0.02) $ 0.12 - - - -
------------ ----------- ----------- ----------- ------- -------
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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 six months ended June 30, 1999, the Company had
outstanding stock options and warrants to purchase 12,356,200 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
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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, following the reorganization, the
Company's principal petroleum and natural gas properties are comprised of
Nigerian offshore Block OML 113, Block OPL 310 and Benin Republic offshore
Blocks 1 and 4.
During the six month period ended June 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.
The Company's interests in its petroleum and natural gas properties include
obligations to meet certain minimum work requirements and/or expenditures.
In the case of Block OML 113, the Company has satisfactorily met such
minimum requirements.
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.
In Benin, the Company was required to complete a seismic program and drill
one well on Block 1 by February 28, 1999. The Company has obtained an
extension to August 30, 1999 to meet these requirements. The Company is
required to complete a seismic program on Block 4 during an initial
exploration period ending January 31, 2000. The Company is awaiting
government confirmation that the minimum work program for the initial
exploration period has been satisfied.
4. ROYALTIES PAYABLE
As at June 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.
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 December 31, 1998. Subsequent to December 31, 1998, the Company
received written confirmation from the secured 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 secured 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
December 31, 1998, March 31 or June 30, 1999 interest installments. The
Company is currently negotiating with the secured lender to restructure the
Secured Loan with a view of further extending its principal and interest
repayment obligations.
8
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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 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. SUBSEQUENT EVENTS
On July 13, 1999, Abacan Resource Corporation closed a private placement of
6,666,668 common shares with two U.S. institutional investors at a price of
$0.15 per common share for gross proceeds of $1,000,000.
8. 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.
9
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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.
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 where 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
properties to industry partners.
OVERVIEW OF SECOND QUARTER OF 1999
The Company is continuing to focus on its two initiatives involving its
substantial Benin Basin acreage: (1) the Benin Power Project, which is expected
to be supplied fuel from the Company's Block OML 113 and Benin Block 1 gas
reserves; and (2) the exploration of its Benin Basin Concessions consisting of
Block OML 113 and Block OPL 310 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 and from Block
1 in Benin. Although some delays have been encountered due to recent elections
held in Benin, negotiations are continuing towards the signing of a definitive
Power Purchase Agreement.
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. The Company continues to
explore various options with respect to securing a partner. Types of
relationships that are currently being contemplated are joint venture
transactions, farm-outs, sales of interests or a merger.
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 June 30, 1999, the Company had approximately $1.6 million of cash, senior
secured debt of approximately $30.7 million, interest payable on senior secured
debt of approximately $1.5 million, accounts payable of approximately $9.2
million and royalties payable of approximately $5.4 million.
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As a result of the disposition of its producing properties in June 1998, the
Company did not have any other source of oil and gas revenue during the six
months ended June 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 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;
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;
On July 13, 1999, the Company completed a private placement of 6,666,668 common
shares to two U.S. institutional investors at a price of $0.15 per common share
for gross proceeds of $1,000,000. The institutional investors have advised the
Company that additional near-term financing of up to $2,000,000 may be available
for the Company's on-going operations, at the discretion of the investors,
pursuant to future private placements, at prices and terms to be agreed upon in
the future. However, there is no assurance that any such funding will be
available to the Company.
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 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 December 31, 1998, March 31 or June 30, 1999
interest installments. The Company is negotiating with the lender to restructure
the Secured Loan with a view of further extending its principal and interest
repayment obligations.
11
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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 June 30, 1999, the Company had approximately $9.2 million in unsecured
trade debt and approximately $1.5 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 June 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 the six months ended June 30, 1999.
Property Insurance Settlement
- -------------------------------
During the six month period ended June 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.
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General and Administrative Expenses
- --------------------------------------
General and Administrative expenses for the six months ended June 30, 1999 were
approximately $2.2 million versus approximately $2.6 million for the six months
ended June 30, 1998. The reduction in costs 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.
Critical to continued existence of the Company is the continued reduction and
re-alignment of general and administrative expenses to better reflect the
Company's current situation and future prospects. 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 six months ended June 30, 1999, the Company incurred approximately
$971,000 in interest and other financial expenses versus approximately $2.1
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 has the
December 31, 1998, March 31, 1999 and June 30, 1999 quarterly interest
instalments. 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. 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.
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.
13
<PAGE>
SUBSEQUENT EVENTS
Company Completes Private Placement of 6,666,668 Common Shares
- ---------------------------------------------------------------------
On July 13, 1999, the Company completed a private placement of 6,666,668 common
shares to two U.S. institutional investors at a price of $0.15 per common share
for gross proceeds of $1,000,000. The institutional investors have advised the
Company that additional near-term financing of up to $2,000,000 may be available
for the Company's on-going operations, at the discretion of the investors
pursuant to future private placement, at prices and terms to be agreed upon in
the future. However, there is no assurance that any such funding will be
available to 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 December 31, 1998, March 31 or June 30,
1999 interest installments. As of June 30, 1999 total interest arrears are
estimated at $1,464,000 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.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit - 27.1 - Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended June 30, 1999.
14
<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: August 2 , 1999 By: /s/ Timothy T. Stephens
---------------- --------------------------------------
Timothy T. Stephens
President (Chief Executive Officer)
and a Director
15
<PAGE>
Index to Exhibits
Exhibit # Description Data Schedule
---------- ---------------------------
27.1 Financial Data Schedule
---- -------------------------
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABACAN
RESOURCE CORPORATION JUNE 30, 1999 FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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<PP&E> 92404
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<TOTAL-LIABILITY-AND-EQUITY> 94124
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