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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
(AMENDMENT NO. 1)
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 NO. 0-21411
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COSTILLA ENERGY, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 75-2658940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 WEST ILLINOIS, SUITE 1000
MIDLAND, TEXAS 79701
(Address of principal executive offices) (Zip code)
(915) 683-3092
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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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 (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF APRIL 30, 1997.... 10,476,500
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COSTILLA ENERGY, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996. . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1996 (unaudited) . . . . . . 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 (unaudited) . . . . . . 5
Notes to Consolidated Financial Statements (unaudited) . . . . 6
PART II - OTHER INFORMATION
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COSTILLA ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
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ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,002 $ 12,618
Accounts receivable:
Trade, net 5,659 6,675
Affiliates - 332
Oil and gas sales 10,999 9,031
Prepaid and other current assets 2,136 1,753
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Total current assets 29,796 30,409
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PROPERTY, PLANT AND EQUIPMENT, AT COST:
Oil and gas properties, using the successful efforts
method of accounting:
Proved properties 152,172 140,477
Unproved properties 7,115 4,482
Accumulated depletion, depreciation and amortization (25,208) (20,435)
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134,079 124,524
Other property and equipment, net 2,884 2,420
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Total property, plant and equipment 136,963 126,944
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OTHER ASSETS:
Deferred charges 4,438 4,503
Note receivable - other 250 250
Note receivable - affiliate 684 684
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Total other assets 5,372 5,437
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$ 172,131 $ 162,790
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 98 $ 98
Trade accounts payable 16,208 12,718
Undistributed revenue 5,042 3,517
Other current liabilities 6,372 3,756
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Total current liabilities 27,720 20,089
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LONG-TERM DEBT, LESS CURRENT MATURITIES 100,244 100,262
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OTHER NONCURRENT LIABILITIES 1,113 1,870
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DEFERRED INCOME TAXES 191 -
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STOCKHOLDERS' EQUITY :
Preferred stock, $.10 par value (3,000,000 shares
authorized; no shares outstanding) - -
Common stock, $.10 par value (20,000,000 shares authorized;
10,476,500 shares outstanding at March 31, 1997 and
10,475,000 shares outstanding at December 31, 1996) 1,048 1,047
Additional paid-in capital 41,095 41,081
Retained earnings (deficit) 720 (1,559)
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Total stockholders' equity 42,863 40,569
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COMMITMENTS AND CONTINGENCIES - -
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$ 172,131 $ 162,790
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</TABLE>
See accompanying notes to consolidated financial statements.
3
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COSTILLA ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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1997 1996
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REVENUES:
Oil and gas sales $ 19,613 $ 8,833
Other 765 118
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20,378 8,951
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EXPENSES:
Oil and gas production 7,369 3,659
General and administrative 1,515 1,362
Exploration and abandonments 1,340 228
Depreciation, depletion and amortization 4,914 1,909
Interest 2,708 1,781
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17,846 8,939
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Income before federal income taxes 2,532 12
PROVISION FOR FEDERAL INCOME TAXES
Current 62 -
Deferred 191 -
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NET INCOME $ 2,279 $ 12
PREFERRED RETURN AND ACCRETION OF
REDEEMABLE MEMBERS' CAPITAL -- (790)
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NET INCOME (LOSS) APPLICABLE TO
COMMON EQUITY $ -- $ (778)
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INCOME (LOSS) PER SHARE:
Net income $ 0.22 $ (0.15)
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WEIGHTED AVERAGE SHARES OUTSTANDING 10,476 5,200
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See accompanying notes to consolidated financial statements.
4
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COSTILLA ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 2,279 $ 12
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation, depletion and amortization 4,914 1,909
Exploration and abandonments 47 -
Amortization of deferred charges 151 78
Deferred income tax expense 191 -
Other noncash - 30
Gain (loss) on sale of oil and gas properties 30 (30)
Gain on investment transactions (757) -
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6,855 1,999
Changes in operating assets and liabilities:
Increase in accounts receivable (621) (7)
Increase in other assets (407) (361)
Increase in accounts payable 5,015 723
Increase in other liabilities 2,618 144
Decrease in deferred revenue - (222)
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Net cash provided by operating activities 13,460 2,276
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (15,207) (4,749)
Proceeds from sale of oil and gas properties 867 -
Additions to other property and equipment (671) (383)
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Net cash used in investing activities (15,011) (5,132)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term debt - 3,000
Payments of long-term debt (18) -
Proceeds from issuance of common stock, net 14 -
Deferred loan and financing costs (61) -
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Net cash provided (used) by financing activities (65) 3,000
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,616) 144
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,618 2,866
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,002 $ 3,010
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</TABLE>
See accompanying notes to consolidated financial statements.
5
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COSTILLA ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial information as of March 31, 1997, and for the three
months ended March 31, 1997 and 1996, is unaudited. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in this Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. However, in the opinion of management,
these interim financial statements include all the necessary adjustments to
fairly present the results of the interim periods and all such adjustments are
of a normal recurring nature. The interim consolidated financial statements
should be read in conjunction with the audited financial statements for the year
ended December 31, 1996.
Costilla Energy, Inc. ("Costilla" or the "Company") was incorporated in
Delaware in June 1996 to consolidate and continue the activities previously
conducted by Costilla Energy, L.L.C., a Texas limited liability company (the
"LLC"), and its wholly owned subsidiaries, to acquire the assets of CSL
Management Corporation (which owned certain office equipment used by the
Company), and to acquire the stock of Valley Gathering Company. Costilla was
formed for the purpose of conducting a $60 million initial public offering of
common stock and a $100 million senior notes offering (the "Offerings"), which
Offerings were completed in early October 1996.
The Company is an oil and gas exploration and production concern with
properties located principally in West Texas, South Texas, and the Rocky
Mountain regions of the United States.
2. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to manage well-
defined interest rate and commodity price risks. The Company is exposed to
credit losses in the event of nonperformance by the counterparties to its
interest rate swap agreements and its commodity hedges. The Company
anticipates, however, that such counterparties will be able to fully satisfy
their obligations under the contracts. The Company does not obtain collateral
or other security to support financial instruments subject to credit risk but
monitors the credit standing of the counterparties.
COMMODITY HEDGES. The Company utilizes option contracts to hedge the
effect of price changes on future oil and gas production. If market prices of
oil and gas exceed the strike price of put options, the options will expire
unexercised, therefore reducing the effective price received for oil and gas
sales by the cost of the related option.
The following table sets forth the future volumes hedged by year and the
weighted-average strike price of the option contracts at March 31, 1997:
<TABLE>
OIL GAS
VOLUME VOLUME STRIKE PRICE
(BBLS) (MMBTU) PER BBL/MMBTU
--------- --------- -----------------
<S> <C> <C> <C>
Oil:
1997 . . . . . . . . . 1,687,500 - $16.59 - $20.65(a)
Gas:
1997 . . . . . . . . . - 3,150,000 $1.78(b)
</TABLE>
(a) Represents the weighted-average price of a purchased put option
contract and of a collar established with the purchase of a put option
contract and the sale of a call option contract.
(b) Represents the strike price on purchased put option contracts.
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INTEREST RATE SWAP AGREEMENTS. Prior to the Offerings, the Company
utilized two interest rate swap agreements to reduce the potential impact of
increases in interest rates on floating-rate long-term debt. Concurrent with
the issuance of the $100 million of 10.25% fixed-rate senior notes in early
October 1996, the two interest rate swap agreements ceased to be hedges. These
interest rate swap agreements were marked-to-market and the related liability
recorded. The liability for the two interest rate swap agreements was $955,000
at March 31, 1997 and $1,712,000 at December 31, 1996. The average balance of
this liability during the quarter ended March 31, 1997 was approximately
$1,500,000. During the quarter ended March 31, 1997, the Company recorded
investment gains of $541,000 on the interest rate swap agreements. The
following table sets forth the terms, fixed rates, and notional amounts of the
interest rate swap agreements in place as of March 31, 1997:
NOTIONAL
PRINCIPAL FIXED
TERM AMOUNT INTEREST RATE
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Jan. 25, 1996 to Jan. 25, 1999 $24 million 7.50%
May 24, 1995 to May 27, 1997 (a) $60 million 5.99%
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(a) Subject to extension until May 24, 1999 at the option of the
counterparty.
3. SALE OF INTEREST IN REPUBLIC GAS PARTNERS, LLC
On March 6, 1997, the Company sold its 40.5% interest in a Delaware limited
liability company which owns and operates a gas pipeline and associated
facilities in Louisiana. This membership interest had been held for resale.
The Company sold its interest to another member of the limited liability company
for $1,071,150. This amount represented the Company's actual investment of
$1,019,771 plus interest of $51,379 since the date of the Company's original
investment in April, 1996. The effective date of the sale was the date of the
Company's original investment in April, 1996. The Company received a cash
payment of $918,184 on March 6, 1997. In addition, the Company received a
$152,966 note due in full on July 1, 1997, which accrues interest at 5.62% per
annum.
4. INCOME TAXES
At December 31, 1996, the Company had provided a valuation allowance equal
to its net deferred tax asset of $1,712,000. In light of the Company's
continued profitable operations as evidenced by its second consecutive quarter
of net income before income taxes, it now appears more likely than not that the
Company will be able to utilize a portion of its available carryforwards to the
extent that such utilization offsets the deferred tax liability generated in the
three month period ended March 31, 1997.
7
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COSTILLA ENERGY, INC.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of Costilla 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 drilling results and ability
to replace oil and gas reserves, the availability of capital resources, the
reliance upon estimates of proved reserves, operating hazards and uninsured
risks, competition, government regulation, and the ability of the Company to
implement its business strategy, and other factors referenced in the Company's
recent prospectus for its initial public offering of common stock.
8
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S I G N A T U R E S
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.
COSTILLA ENERGY, INC.
Date: November 10, 1997 By: /s/ BOBBY W. PAGE
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Bobby W. Page
Senior Vice President
and Chief Financial Officer
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