<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 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 000-20849
RUTHERFORD-MORAN OIL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0499690
- ------------------------------ ------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
INCORPORATION OF ORGANIZATION) IDENTIFICATION NO.)
5 GREENWAY PLAZA, SUITE 220, HOUSTON, TEXAS 77046
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(713) 622-5555
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and has been subject to such
filing requirements for the past 90 days. Yes /x/ No / /
As of August 11, 1997, there were 25,615,000 shares of common stock,
$.01 par value, of the registrant outstanding.
<PAGE> 2
RUTHERFORD-MORAN OIL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
Three
months
ended June 18, through April 1, through
June 30, 1997 June 30, 1996 June 17, 1996
(Company) (Company) (Predecessors)
------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Oil and gas revenue $ 10,867 $ -- $ --
Interest income 66 20 --
------------ ------------ ------------
Total revenues 10,933 20 --
------------ ------------ ------------
Expenses:
Operating expense 6,316 -- --
Interest expense 1,730 7 136
Depreciation, depletion and amortization 5,332 -- 1
Salaries and wages 318 15 74
General and administrative 1,002 40 126
Net loss on futures contracts 135 -- --
------------ ------------ ------------
Total expenses 14,833 62 337
------------ ------------ ------------
Loss before taxes (3,900) (42) (337)
Income tax expense (benefit) (1,279) -- 1,921
------------ ------------ ------------
Net loss $ (2,621) $ (42) $ (2,258)
============ ============ ============
Net loss per share $ (0.10) $ -- $ (0.11)
============ ============ ============
Weighted average number of common shares outstanding 25,613,350 25,000,000 21,000,000
============ ============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 3
RUTHERFORD-MORAN OIL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except for Share Information)
<TABLE>
<CAPTION>
Six
months January 1,
ended June 18, through June 17,
June 30, 1997 June 30, 1996 1996
(Company) (Company) (Predecessors)
------------- --------------- --------------
<S> <C> <C> <C>
Revenues:
Oil and gas revenue $ 15,597 $ - $ -
Interest income 94 20 -
------------ --------------- ---------------
Total revenues 15,691 20 -
------------ --------------- ---------------
Expenses:
Operating expense 9,642 - -
Interest expense 2,648 7 395
Depreciation, depletion and amortization 7,784 - 4
Salaries and wages 580 15 108
General and administrative 2,187 40 180
Net loss on futures contracts 135 - -
------------ --------------- ---------------
Total expenses 22,976 62 687
------------ --------------- ---------------
Loss before taxes $ (7,285) (42) (687)
Income tax expense (benefit) (2,573) - 1,921
------------ --------------- ---------------
Net loss $ ($4,712) $ (42) $ (2,608)
============ =============== ===============
Net loss per share $ (0.18) $ - $ (0.12)
============ =============== ===============
Weighted average number of common shares outstanding 25,611,130 25,000,000 21,000,000
============ =============== ===============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 4
RUTHERFORD-MORAN OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Share Information)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,084 $ 444
Accounts receivable 3,934 -
Inventory 7,392 -
Value added tax refund receivable 6,166 2,806
Joint interest receivables 2,014 150
Other 265 17
-------- --------
Total current assets 23,855 3,417
Property and equipment, at cost:
Oil and gas properties (full cost method) 197,082 123,300
Office furniture and fixtures 405 197
Accumulated depreciation, depletion and amortization (7,821) (37)
-------- --------
Net property and equipment 189,666 123,460
Other assets:
Deferred financing costs, net 1,267 1,548
Deferred charges, net 1,571 1,400
-------- --------
Total assets $216,359 $129,825
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 7,048 $ 852
Joint interest payable 108 2,715
-------- --------
Total current liabilities 7,156 3,567
Note payable to bank 104,793 22,842
Deferred taxes 6,694 1,391
Premium on written option 1,650 1,400
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding
Common stock, $0.01 par value, 40,000,000 shares authorized,
25,615,000 and 25,600,000 shares issued and outstanding
at June 30, 1997 and December 31, 1996, respectively 256 256
Additional paid-in capital 103,302 103,143
Accumulated deficit (6,430) (1,716)
Deferred compensation (1,062) (1,058)
-------- --------
Total stockholders' equity 96,066 100,625
-------- --------
Total liabilities and stockholders' equity $216,359 $129,825
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 5
RUTHERFORD-MORAN OIL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six
months
ended June 18, through January 1, through
June 30, 1997 June 30, 1996 June 17, 1996
(Company) (Company) (Predecessors)
------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,712) $ (42) $ (2,608)
Adjustments to reconcile net loss to cash flows provided
by (used in) operating activities:
Depreciation, depletion and amortization 8,065 - 4
Net loss on futures contracts 135 - -
Deferred income taxes (2,573) - 1,921
Changes in working capital (13,194) - 5,605
------------- ------------- ----------
Cash provided by (used in) operating activities (12,279) (42) 4,922
------------- ------------- ----------
Cash flows from investing activities:
Investment in oil and gas properties (36,410) - (30,377)
Investment in Maersk, net of cash acquired (29,414) - -
Other capital expenditures (208) - (38)
------------- ------------- ----------
Cash used in investing activities (66,032) - (30,415)
------------- ------------- ----------
Cash flows from financing activities:
Exercise of call option on Thai Romo Limited stock - (3,130) -
Proceeds from initial public offering - 84,269 -
Redemption of Rutherford-Moran Exploration
Company stock by majority stockholders - (12,360) -
Proceeds from shareholder loans - - 15,654
Payments on shareholder loans - (12,302) -
Borrowings under bank notes 81,951 - 29,164
Repayment of bank notes - (49,664) (13,885)
------------- ------------- ----------
Cash provided by financing activities 81,951 6,813 30,933
------------- ------------- ----------
Net increase (decrease) in cash 3,640 6,771 5,440
Cash and cash equivalents, beginning of period 444 15,271 9,831
------------- ------------- ----------
Cash and cash equivalents, end of period $ 4,084 $ 22,042 $ 15,271
============= ============= ==========
Supplemental disclosures of cash flow information-
Cash paid during the period for interest $ 338 $ - $ 767
============= ============= ==========
Supplemental disclosures of noncash investing and financing activities:
Capitalization of amortized loan acquisition costs $ - $ - $ 168
============= ============= ==========
Interests in Thai Romo Limited and Rutherford-Moran Exploration
Company contributed for common stock $ - $ - $ 24,682
============= ============= ==========
Predecessor retained earnings reclassified
to additional paid-in capital $ - $ 4,021 $ -
============= ============= ==========
Premium deferred and premium on written options $ 388 $ - $ 557
============= ============= ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 6
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include
all adjustments necessary to present fairly the consolidated financial position
of Rutherford-Moran Oil Corporation ("RMOC" or the "Company") at June 30, 1997
and December 31, 1996, and its results of operations and cash flows for the
three and six months ended June 30, 1997 and 1996. The financial statements
herein should be read in conjunction with the consolidated financial statements
and notes to the consolidated financial statements as of and for the year ended
December 31, 1996, as included in the Company's annual report on Form 10-K.
In order to prepare these financial statements in conformity with
generally accepted accounting principles, management of the Company has made a
number of estimates and assumptions relating to the reporting of assets and
liabilities, the disclosure of contingent assets and liabilities and reserve
information (which affects the depletion calculation as well as the computation
of the ceiling limitation). Actual results could differ from those estimates.
(2) ORGANIZATION
Rutherford-Moran Exploration Company ("RMEC") was formed on September
21, 1990, for the purpose of holding an interest in an oil and gas concession
in Thailand through Thai Romo Limited ("Thai Romo"). RMEC paid all of the
expenses of the concession on behalf of Thai Romo through November 4, 1993.
Effective September 24, 1990, the stockholders of RMEC elected to have
it treated as a Subchapter S Corporation under the Internal Revenue Code of
1986, as amended. As such, RMEC did not incur federal income taxes at the
corporate level prior to June 18, 1996, and its taxable income or loss was
passed through to its stockholders based on their interests.
In June 1991, Thai Romo was organized as a foreign corporation under
the laws of the Kingdom of Thailand for the purpose of holding an interest in
an oil and gas concession. In August 1991, Thai Romo, with two other companies,
was awarded Petroleum Concession 1/2534/36 (the "Concession"), offshore Block
B8/32 in the Gulf of Thailand from the Ministry of Industry in Thailand to
explore for petroleum. A subsidiary of Pogo Producing Company is the operator
of the Concession. In November 1993, Thai Romo amended its Articles of
Association so that it would be treated as a partnership for U.S. income tax
purposes. As such, Thai Romo was not subject to federal income taxes from
November 1993 to June 17, 1996. Income and losses earned by Thai Romo were
passed through to the partners on the basis of their interest in Thai Romo.
As RMEC and Thai Romo are now part of the Company's consolidated tax
return, RMEC and Thai Romo recorded a deferred tax liability and expense of
$1,921,000 on June 17, 1996 representing the difference between the book basis
and tax basis of its foreign oil and gas properties.
(3) PRINCIPLES OF PRESENTATION
In April 1996, Rutherford/Moran Oil Corporation changed its name to
RMEC. Effective June 17, 1996, the stockholders of RMEC and the partners of
Thai Romo exchanged their interests for shares of common stock of the newly
formed entity, RMOC. RMOC is the parent company of RMEC and Thai Romo Holdings,
Inc. ("TRH"). RMEC and TRH collectively own the outstanding shares of Thai
Romo. During June 1996, RMOC sold 16% of its common stock in an initial public
offering (the "Offering") in conjunction with the consummation of the exchange
of RMEC common stock and Thai Romo interests for common stock of RMOC. In
conjunction with the Offering, RMEC redeemed for $12.4 million approximately
56,000 shares of its common stock from Patrick R. Rutherford and John A. Moran,
majority stockholders of RMEC (the "Redemption"), exercised RMEC's call option
on 3% of the partners' interest in Thai Romo held by Red Oak Holdings, Inc.
for $3.1 million and repaid outstanding debt of $62 million owed stockholders
and banks. On June 18, 1996, the stockholders' equity accounts were adjusted to
reflect the deficit accumulated during the development stage to additional
paid-in capital upon RMEC and Thai Romo becoming subject to federal income
taxes. During July 1996, an additional 2.4% of RMOC's common stock was sold
when the underwriters exercised their over-allotment option.
<PAGE> 7
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The consolidated financial statements for 1997 include the accounts of
RMOC, its wholly owned subsidiaries and its proportionate ownership of B8/32
Partners, Limited ("B8/32 Partners"), in which RMOC owns 46.34% of the
outstanding voting shares. All material intercompany accounts and transactions
have been eliminated in the consolidation.
The financial statements for the three and six months ended June 30,
1996, include the accounts of RMEC and Thai Romo (combined). All material
intercompany accounts and transactions have been eliminated in the combination.
The combined financial statements are presented due to the commonality of the
stockholders and partners of RMEC and Thai Romo.
During the period from September 21, 1990, through December 31, 1996,
the Company was considered a development stage company and its sole activity
was the development of Block B8/32 in the Gulf of Thailand. Production from the
Tantawan Field commenced in February 1997, at which time the Company was no
longer considered a development stage company.
(4) OIL AND GAS PROPERTY ACQUISITION
On December 19, 1996, the Company, through its wholly owned
subsidiary, Thai Romo, exercised its preferential right to purchase 46.34% of
the outstanding shares of Maersk Oil (Thailand) Limited ("MOTL"), a wholly
owned subsidiary of Maersk Olie og Gas AS of Copenhagen, Denmark ("Maersk").
MOTL is a former co-concessionaire in Block B8/32 owning a 31.67% interest. The
purchase was consummated with Maersk on March 3, 1997, with TRH, a wholly owned
subsidiary of the Company and Thai Romo's nominee under the Share Sales
Agreement, purchasing the shares for $28,617,000, which included $1,554,000 in
satisfaction of outstanding debt. After the closing, MOTL was renamed B8/32
Partners Limited.
The remaining 53.66% of MOTL's stock was purchased by Thaipo Limited
("Thaipo"), a subsidiary of Pogo Producing Company ("Pogo"), and by Palang
Sophon Limited ("Palang") of Bangkok, Thailand. Thaipo, Palang and MOTL were
co-concessionaires with Thai Romo prior to the sale of MOTL. As a result of
the purchase, RMOC now effectively owns a uniform interest of 46.34% in the
entire Block.
The $28.6 million purchase price of the acquisition has been
capitalized using the purchase method of accounting and has been allocated
between proven properties and unproven properties. Production from the
properties acquired is anticipated to commence in 1999 after the initial
development plan at Benchamas Field is scheduled to be completed. Finalization
of the purchase price allocation is pending the receipt of certain requested
information from the seller, fair value appraisals, and analysis of reserve
estimates by the Company.
The Company financed the purchase of MOTL by utilizing borrowings
under its Revolving Credit Facility ("Revolving Credit Facility") and
$20,000,000 from a new Credit Agreement entered into with Chase Manhattan Bank
("Chase"), which was repaid on May 2, 1997.
(5) CREDIT FACILITY
On September 20, 1996, the Company entered into a $150,000,000
Revolving Credit Facility with a group of commercial lenders. The Revolving
Credit Facility has a final maturity of September 30, 1999, and had an initial
borrowing base limitation of $60,000,000. On April 29, 1997 the borrowing base
limitation was redetermined to $120,000,000. The Revolving Credit Facility is
secured by the stock of certain subsidiaries of the Company.
Under the terms of the Revolving Credit Facility, outstanding
borrowings will bear interest at the Base Rate (defined as the greater of the
Federal Funds Rate plus .5% or the agent bank's prime rate) plus .25% or the
Eurodollar Rate (defined as an average of the London Interbank Offered Rate
("LIBOR") of two banks) plus 1.75%, at the Company's option. Interest is
payable quarterly. The Company is also assessed a commitment fee equal to
.5% per annum on the average daily balance of the unused borrowing base.
<PAGE> 8
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Revolving Credit Facility provides for semi-annual borrowing base
redeterminations as well as certain restrictions, including limitations on
additional indebtedness, payment of dividends and maintenance of an interest
coverage ratio.
At June 30, 1997, $104,793,000 was outstanding under the Revolving
Credit Facility at interest rates ranging from 7.125% to 7.4375% per annum.
On February 25, 1997, the Company entered into a Credit Agreement with
Chase for an additional borrowing of $20,000,000, which was repaid on May 2,
1997 with borrowings under the Revolving Credit Facility.
(6) CRUDE OIL HEDGING ACTIVITIES
During the first quarter of 1996, the Company entered into crude oil
price swaps with an affiliate of one of its lenders. While the swaps are
intended to reduce the Company's exposure to declines in the market price of
crude oil, they may limit the Company's gain from increases in the market price.
The crude oil price swaps qualify as hedges; and as long as they correlate with
production based on engineering estimates, any gains and losses will be recorded
when the related oil production has been delivered. Gains and losses on closed
crude oil price swap agreements will be deferred and amortized over the original
term of the agreement. Should the crude oil price swaps cease to be recognized
as a hedge, subsequent changes in value will be recorded in the statement of
operations. At June 30, 1997, the crude oil price swap agreements incorporated
one million barrels ("MMBbl") of oil volumes from April through December 1997 at
a weighted average price of $15.92 per Bbl and 1.75 MMBbl of oil volumes from
January through December 1998 at a weighted average price of $15.92 per Bbl. On
April 1, 1997, the swaps went into effect and require quarterly settlement
between the Company and an affiliate of one of its lenders. During the period
April 1 through June 30, 1997, Brent crude oil prices averaged $18.48 per barrel
resulting in a reduction in oil and gas revenues of $853,000. The related
deferred charge of $1,788,000 is being amortized against oil and gas revenues as
the hedged volumes expire, resulting in amortization of $216,727 being recorded
during the three months ended June 30, 1997.
Based on current production estimates, the Company anticipates
producing approximately 900,000 barrels of oil during 1997; therefore,
approximately 100,000 barrels of the crude oil price swap agreement for 1997 is
considered under current accounting literature to be speculative and a
loss of $273,000 has been recorded in the statement of operations during the
three months ended June 30, 1997 to reflect the fair market value of the
speculative position at June 30, 1997.
At the same time, the Company sold to an affiliate of one of its
lenders an option to purchase 1.25 MMBbl of aggregate oil volumes from January
through December 1999 at a price of $18.30 per Bbl. The Company has accounted
for the swap option separately as it does not qualify as a hedge. At June 30,
1997, the Company estimates the liability associated with this position to be
$1,650,000. During the period April 1 through June 30, 1997 the liability was
decreased by $138,000 to reflect the decreased cost the Company would incur if
it chose to settle the swap option. The decrease has been recognized in the
statement of operations.
The cost of the swap and the swap option at August 1, 1997, are
$7,286,000 and $1,575,000 respectively.
(7) REVENUE RECOGNITION
The Company recognizes revenues at the time of transfer to the
Purchaser; however, crude oil inventory is recorded at the cost of production
and related depletion upon transfer to the floating storage and offloading
vessel.
(8) FOREIGN TRANSLATION GAIN/LOSS
The Company follows SFAS 52, "Foreign Currency Translation", which
requires that business transactions and foreign operations recorded in a
foreign currency be restated in U.S. dollars, which is the Company's functional
currency. The assets and liabilities of the Company's foreign operations are
translated into U.S. dollars at current exchange rates and resulting
translation adjustments are reflected as a separate component of stockholders'
equity.
<PAGE> 9
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenues and expenses are translated at an average exchange rate for
the month. Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the
functional currency are included in the results of operations as incurred.
During the three and six month periods ending June 30, 1997, currency
translations resulted in a gain of $115,000.
(9) OIL AND GAS PROPERTY AND EQUIPMENT
The Company and its subsidiaries follow the full cost method of
accounting for its investment in oil and gas properties. Under this method of
accounting, all costs of acquisition, exploration and development of oil and
natural gas reserves are capitalized into a "full cost pool" as incurred.
Properties in the pool are depleted and charged to operations utilizing the
unit-of-production method based on the ratio of current production to total
proved oil and natural gas reserves.
Interest in connection with expenditures on major exploration projects
is capitalized. During the six month periods ending June 30, 1997, and 1996,
$491,000 and $1,628,000, respectively, of interest was capitalized.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
audited consolidated financial statements as of and for the year ended December
31, 1996, included in the Company's annual report on Form 10-K. Results of
interim periods are not necessarily indicative of results for an entire year.
OVERVIEW
Oil and gas production commenced February 1, 1997, at which time the
Company was no longer considered a development stage company.
The Company and its subsidiaries follow the full cost method of
accounting for its investment in oil and gas properties. Under this method of
accounting, all costs of acquisition, exploration and development of oil and
natural gas reserves are capitalized into a "full cost pool" as incurred.
Properties in the pool are depleted and charged to operations utilizing the
unit-of-production method based on the ratio of current production to total
proved oil and natural gas reserves.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997, Compared with Three Months Ended June 30,
1996.
The Company's net loss of $2.6 million or $0.10 per share for the
three months ended June 30, 1997, increased from the Company's net loss of $2.3
million or $0.11 per share for the three months ended June 30, 1996, primarily
due to the commencement of production operations on February 1, 1997. As
production began, charges for operating expense and depletion more than offset
initial revenues, as operating expenses are incurred upon start-up while
revenues increase gradually. Interest expense, salaries and wages, and general
and administrative expenses also increased in 1997 due to increased activity
levels, partially offset by interest income and an income tax benefit.
The Company's total revenues for the three months ended June 30, 1997,
were $10.9 million as compared to $20,000 for the three months ended June 30,
1996. Oil and gas revenues were $10.9 million and interest income was $66,000
for the current period.
Production volumes for the second quarter of 1997, net of royalties,
were 218,000 barrels of oil and 3,535,000 MCF of gas, respectively.
Operating expenses incurred for the three months ended June 30, 1997,
were $6.3 million as compared to no operating expenses previously.
Depreciation, depletion and amortization expense recorded for the
three months ended June 30, 1997, was $5.3 million as compared to $1,000 for the
three months ended June 30, 1996. This increase is due to the commencement of
production during February 1997.
Interest expense of $1.7 million for the three months ended June 30,
1997, increased compared to $143,000 for the three months ended June 30, 1996.
This increase is due to an increase in borrowings and the amortization of
deferred financing costs. Outstanding debt at June 30, 1997, was $104,793,000
as compared to no bank debt June 30, 1996.
Salaries and wages and general administrative expenses of $318,000 and
$1.0 million, respectively, for the three months ended June 30, 1997, increased
compared to $89,000 and $166,000, respectively, for the three months ended June
30, 1996. This increase is primarily due to the capitalization of a greater
portion of salaries and wages and costs in 1996 compared to 1997. Additionally,
there was an increase in personnel during the third and fourth quarters of 1996
resulting in higher administrative costs for 1997 compared to 1996.
During the three months ended June 30, 1997, and 1996, $282,000 and
$813,000, respectively, of interest expense was capitalized to unproved
properties.
As a result of the initial public offering in June 1996, the Company
became a taxable entity and recorded a one-time charge of $1,921,000,
representing the difference between the book and tax basis of its foreign oil
and gas properties.
<PAGE> 11
Six Months Ended June 30, 1997, Compared with Six Months Ended June 30, 1996.
The Company's net loss of $4.7 million, or $0.18 per share for the six
months ended June 30, 1997, increased from a net loss of $2.6 million, or $0.12
per share, for the corresponding period during 1996. The increase in net loss
is primarily due to the commencement of production operations on February 1,
1997 and increases in interest expense and general and administrative expenses
during 1997 due to higher debt and activity levels, offset by the recognition
of a tax benefit during the six months ended June 30, 1997.
The Company's total revenues for the six months ended June 30, 1997,
were $15.7 million as compared to $20,000 for the six months ended June 30,
1996. Oil and gas revenues were $15.6 million and interest income was $94,000
for the current period.
Production volumes for the second quarter of 1997, net of royalties,
were 317,000 barrels of oil and 5,106,000 MCF of gas, respectively.
Operating expenses incurred for the six months ended June 30, 1997,
were $9.6 million as compared to no operating expenses previously.
Depreciation, depletion and amortization expense recorded for the six
months ended June 30,1997, was $7.8 million as compared to $4,000 for the six
months ended June 30, 1996. This increase is due to the commencement of
production during February 1997.
Interest expense of $2.6 million for the six months ended June 30,
1997, increased compared to $402,000 for the six months ended June 30, 1996.
This increase is due to an increase in borrowings and the amortization of
deferred financing costs. Outstanding debt at June 30, 1997, was $104,793,000
as compared to no bank debt at June 30, 1996.
Salaries and wages and general administrative expenses of $580,000 and
$2.2 million, respectively, for the six months ended June 30, 1997, increased
compared to $123,000 and $220,000, respectively, for the six months ended June
30, 1996. This increase is primarily due to the capitalization of a greater
portion of salaries and wages and costs in 1996 compared to 1997. Additionally,
there was an increase in personnel during the third and fourth quarters of 1996
resulting in higher administrative costs for 1997 compared to 1996.
During the six months ended June 30, 1997, and 1996, $491,000 and $1.6
million, respectively, of interest expense was capitalized to unproved
properties.
LIQUIDITY AND CAPITAL RESOURCES
On September 20, 1996, the Company entered into a $150,000,000
Revolving Credit Facility with a group of commercial lenders. The Revolving
Credit Facility has a final maturity of September 30, 1999, and an initial
borrowing base limitation of $60,000,000. The Revolving Credit Facility is
secured by the stock of certain subsidiaries of the Company.
On February 25, 1997, the Company entered into a Credit Agreement with
Chase for an additional borrowing of $20,000,000. This Credit Agreement
contains covenants substantially identical to those in the Revolving Credit
Facility. On April 15, 1997, the Company amended the Credit Agreement to allow
for an additional borrowing of $5,000,000.
On April 29, 1997, the borrowing base in the Revolving Credit Facility
was redetermined to $120,000,000. As a result, the Company repaid the amount
due under the Credit Agreement with additional borrowings under the Revolving
Credit Facility. At June 30, 1997, $104,793,000 was outstanding under the
Revolving Credit Facility at interest rates ranging from 7.125% to 7.4375%.
The Company makes, and will continue to make, substantial capital
expenditures for the exploration, development and production of oil and natural
gas reserves. The Company's capital expenditures for the second half of 1997
will be in the range of $42 million. The Company currently expects capital
expenditures for 1998 to be in the range of $110 million to $120 million, of
which approximately 70% is budgeted for production facilities primarily in the
Benchamas Field. Over the next 24 months, the Company expects to expend
approximately $114 million to fabricate production facilities at Benchamas
Field. The Benchamas expenditures account for a substantial portion of the
above estimates for 1997 and 1998. The Company also expects to spend additional
monies over the next several years to support additional exploration and
development activities in Block B8/32. The Company has been funding and expects
to continue to fund these activities with net cash flow from operations and
additional borrowings under its $150 million Revolving Credit Facility.
However, in order to continue to fund these activities at the current or higher
levels, the Company will have to raise substantial additional funds through
some combination of the following: increasing its availability under the
Revolving Credit Facility as well as an increase in the total amount of the
Facility, arranging additional debt, equity or other financing, and obtaining
additional sources of funds. The Company believes it will have adequate sources
of funds to permit it to meet its capital commitments.
<PAGE> 12
Until March 1997, the Company has funded its operations from proceeds
of its initial public offering and bank borrowings. During the remainder of
1997, the Company expects to fund its obligations through net cash flow from
operations and incremental borrowings.
MARKET CONDITIONS AND CHANGING OIL AND GAS PRICES
The revenues expected to be generated by the Company's future
operations will be highly dependent upon the prices of, and demand for, oil and
natural gas. Natural gas produced from the Company's Tantawan Field is subject
to the Gas Sales Agreement with the Petroleum Authority of Thailand ("PTT")
with prices subject to semi-annual adjustment (or more frequent adjustments
under certain circumstances) based on movements in, among other things,
inflation, oil prices and the Thai Baht/U.S. Dollar exchange rate. The price
received by the Company for its oil production and the level of production will
depend on numerous factors beyond the Company's control, including the
condition of the world economy, political and regulatory conditions in Thailand
and other oil and gas producing countries, and the actions of the Organization
of Petroleum Exporting Countries.
In early July the Company had its first oil lifting from the Tantawan
Field and sold 278,000 barrels of oil pursuant to the Memorandum of
Understanding with PTT. The Company currently expects that the Memorandum of
Understanding with PTT will be terminated and that the Company's future oil
production from the Tantawan Field will be sold on the open market to a number
of potential purchasers. Based on discussions to date with PTT, the Company
believes that the Thai government will waive its right of first refusal to
purchase oil produced from the Concession and PTT will be a likely bidder on
future oil sales by the Company. The Company believes that its oil production
from the Tantawan Field can be readily sold to a number of purchasers at market
prices.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective December 1997, the Company will be required to adopt
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 introduces the concept of basic earnings per share,
which represents net income divided by the weighted average common shares
outstanding --- without the dilutive effects of common stock equivalents
(options, warrants, etc.). Diluted earnings per share, giving effect for common
stock equivalents, will be reported when SFAS 128 is adopted in the fourth
quarter of 1997. The impact of adopting SFAS 128 is anticipated to be
immaterial.
Effective December 1997, the Company will be required to adopt
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" ("SFAS 129"). SFAS 129 requires that all entities
disclose in summary form within the financial statements the pertinent rights
and privileges of the various securities outstanding. An entity is to disclose
within the financial statements the number of shares issued upon conversion,
exercise, or satisfaction of required conditions during at least the most recent
annual fiscal period and any subsequent interim period presented. Other special
provisions apply to preferred and redeemable stock. The Company's adoption of
SFAS 129 in the fourth quarter of 1997 is not expected to have a material impact
on reported results.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components. The components of comprehensive income
refer to revenues, expenses, gains and losses that are excluded from net income
under current accounting standards, including unrecognized foreign currency
translation items, minimum pension liability adjustments and unrealized gains
and losses on certain investments in debt and equity securities. SFAS 130
requires that all items that are recognized under accounting standards as
components of comprehensive income be reported in a financial statement
displayed in equal prominence with the other financial statements; the total of
other comprehensive income for a period is required to be transferred to a
component of equity that is separately displayed in a statement of financial
position at the end of an accounting period. SFAS 130 is effective for both
interim and annual periods beginning after December 15, 1997, at which time the
Company will adopt the provisions. The Company does not expect SFAS 130 to have
a material effect on reported results.
<PAGE> 13
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way public
enterprises are to report information about operating segments in annual
financial statements and requires the reporting of selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS 131 is effective for periods
beginning after December 15, 1997, at which time the Company will adopt the
provisions. The Company does not expect SFAS 131 to have a material effect on
its reported results.
FOREIGN CURRENCY FLUCTUATIONS
The Company does not currently hold significant amounts of cash, cash
equivalents, long-term financial instruments or investments denominated in
foreign currencies. However, virtually all of its operating revenues have been
denominated in Thai Baht. For many years, the Thai Baht/U.S. dollar exchange
rate has been stable, as the Baht was linked to a basket of currencies,
primarily the U.S. Dollar. On July 2, 1997 the Thai government decided to allow
the value of the Baht to be determined by market forces. After the
announcement, the value of the Thai Baht declined against the U.S. dollar by
approximately 20%. The Company will consider instruments intended to mitigate
the foreign currency risks associated with such revenues through currency rate
hedging transactions such as options, futures or other derivative financial
instruments. The Revolving Credit Facility imposes certain limitations on such
transactions.
DEVELOPMENT OF THE BENCHAMAS FIELD
In June 1997 the Company, through its subsidiary, Thai Romo Limited,
in conjunction with its co-concessionaires, Thaipo Limited and Palang Sophon
Ltd., approved the first phase of development for Benchamas Field. Phase I
development consists of a process/compression platform, a quarters platform,
three wellhead platforms, connecting subsea pipelines, an oil storage vessel
("FSO") and a subsea gas pipeline for connection to an existing gas sales line.
Total capital expenditures for these facilities to RMOC should be approximately
$114 million.
PRODUCTION LICENSE AWARD
In July 1997 the Department of Mineral Resources of the Kingdom of
Thailand awarded Thai Romo Limited a Production License for the Benchamas Field
and a portion of the Pakakrong Area covering 164.46 square miles in its Block
B8/32 concession in the Gulf of Thailand. The Benchamas Field is located about
35 miles from the Tantawan Field, where production has already commenced.
FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: the volatility of oil and gas prices, the Company's ability to
develop its oil and gas reserves, the availability of capital resources, the
reliance upon estimates of proved reserves, operating hazards and uninsureds
risks, competition, government regulation, local economic conditions,
fluctuations in foreign currencies and the ability of the Company to implement
its business strategy. These factors are discussed in more detail in the
Company's most recent Annual Report on Form 10-K.
<PAGE> 14
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27--Financial Data Schedule
(b) Reports on Form 8-K
During the three month period ended June 30, 1997, no reports
on Form 8-K were filed.
<PAGE> 15
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 hereunto duly authorized.
Dated: August 14, 1997 RUTHERFORD-MORAN OIL CORPORATION
By: /s/ DAVID F. CHAVENSON
------------------------------------
David F. Chavenson
Vice President, Finance and Chief
Financial Officer and Treasurer
<PAGE> 16
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
27--Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,084
<SECURITIES> 0
<RECEIVABLES> 3,934
<ALLOWANCES> 0
<INVENTORY> 7,392
<CURRENT-ASSETS> 23,855
<PP&E> 197,487
<DEPRECIATION> 7,821
<TOTAL-ASSETS> 216,359
<CURRENT-LIABILITIES> 7,156
<BONDS> 0
0
0
<COMMON> 256
<OTHER-SE> 95,810
<TOTAL-LIABILITY-AND-EQUITY> 216,359
<SALES> 15,597
<TOTAL-REVENUES> 15,691
<CGS> 9,642
<TOTAL-COSTS> 22,976
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,648
<INCOME-PRETAX> (7,285)
<INCOME-TAX> (2,573)
<INCOME-CONTINUING> (4,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,712)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
