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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
October 15, 1997
ENSERCH EXPLORATION, INC.
(Exact name of Registrant as specified in its charter)
Texas 1-12905 75-2421863
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
2500 City West Boulevard, Suite 1400, Houston, Texas 77046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code: (713)243-3100
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ITEM 5. Other Events
Set forth below in its entirety is a News Release issued by
Enserch Exploration, Inc. on October 15, 1997:
RESULTS FOR QUARTER INCLUDE ASSET WRITE-DOWN, RESTRUCTURING CHARGE
AND CHANGE TO SUCCESSFUL EFFORTS ACCOUNTING
HOUSTON, TEXAS (October 15, 1997) - Enserch Exploration (NYSE--EEX)
reported a net loss for the quarter ending September 30, 1997
of $182 million, or $1.44 per share compared to a restated $3.9
million loss, or $.03 per share for the same period a year ago.
Results for both periods reflect the Company's election to change
to the successful efforts method of accounting for oil and gas
properties.
<TABLE>
<CAPTION>
Breakdown of Reported Net Loss (after-tax)
Three months ended September 30
(In millions)
1997 1996
---- ----
<S> <C> <C>
FAS 121 Write-down $ (149.4) $ --
Restructuring and other (17.2) --
unusual charges
Gain (loss) on sale of (1.2) 14.2
assets
Net Loss excluding non- (13.8) (18.1)
recurring items -------- -------
Reported Net Loss $ (181.6) $ (3.9)
</TABLE>
Results for the most recent quarter included several non-
recurring items associated with the Company's restructuring program
initiated earlier this year. The FAS 121 asset write-down
associated with the successful efforts conversion contributed $149
million (after tax) to the reported loss. Additionally, the
recognition of restructuring costs accounted for $17 million (after
tax) of the loss. After adjusting for all non-recurring items,
including gains or losses on asset sales, the net loss for the
quarter was $14 million, or $.11 per share compared with a restated
net loss for the third quarter of 1996 of $18 million, or $.14 per
share.
The change in accounting method resulted in a $385 million
after tax reduction in shareholders' equity. Investment in
unsuccessful exploration was removed from the carrying value of oil
and gas properties. In addition, this change eliminates the
quarterly ceiling test required under the full cost method of
accounting. A portion of the asset write-down not related to the
FAS 121 impairment was allocated as additional exploration expense
to the third quarter of 1997 and to prior periods.
"Over 60% of this write-down is related to the unsuccessful
costs capitalized under the full cost accounting method. Our
estimated year-end downward reserve revision of 670 billion cubic
feet equivalent accounted for the remainder of the write-down,"
said Tom Hamilton, Chairman and President, Chief Executive Officer.
"Including the full cost write- down taken in the first quarter of
this year, historical unsuccessful exploration investment accounts
for almost 80% of the write-down taken during all of 1997," he
added.
Higher realized natural gas prices in the latest quarter and
year-to-date were partially offset by lower crude prices compared
to the like periods in 1996. Volumes for natural gas and crude oil
for the third quarter of 1997 and year-to-date were down 10% and
14%, respectively, primarily due to asset sales in the second half
of 1996. However, volumes in the third quarter of 1997 were
approximately 2% higher than volumes for natural gas and crude oil
for the second quarter of 1997.
Depreciation and amortization for the third quarter and nine
months of 1997 was calculated using proved reserves prior to the
downward revision and before the impact of the FAS 121 asset write-
down which was booked at the end of the quarter. This results in
an artificially high DD&A rate for the quarter. A significantly
lower DD&A rate is expected going forward. Interest expense was
higher in the third quarter of 1997 and for the nine month period
versus the similar periods for 1996 primarily due to the conversion
of an operating lease to a capital lease at the end of 1996.
Exploration expense included in recurring income has also been
inflated due to the impact of impairment under successful efforts
and is not indicative of levels expected in future quarters.
Net cash flows from operating activities were $152 million for
the nine months ended September 30, 1997 versus $118 million for
the same period a year ago.
"We have cleaned up our financial and physical assets and are
now shifting our focus to the future. While the accounting change
clouds our historical and current earnings picture, cash flow, a
key measure of our progress, remains unaffected by the accounting
change," added Tom Hamilton
<TABLE>
ENSERCH EXPLORATION, INC.
FINANCIAL AND OPERATING HIGHLIGHTS
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
---------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- -----------
(Restated) (Restated)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
(In thousands - except per share amounts)
Natural gas............................ $ 51,175 $ 51,373 $ 154,826 $ 161,772
Oil and condensate..................... 21,866 26,852 71,230 70,583
Natural gas liquids.................... 2,177 2,800 4,968 6,444
Cogeneration operations................ 2,912 2,771 8,387 8,055
Other.................................. 100 743 883 1,626
---------- --------- --------- ---------
Total revenues.................... 78,230 84,539 240,294 248,480
---------- --------- --------- ---------
Production and operating expenses...... 12,267 18,412 37,317 55,340
Exploration............................ 25,192 28,481 65,213 68,335
Depreciation and amortization.......... 38,604 43,299 112,353 121,028
Impairment of producing oil and
gas properties....................... 210,202 -- 210,202 --
Loss (gain) on sales of property,
plant and equipment.................. 1,635 (21,777) 1,635 (24,383)
Unusual charges - net.................. 24,229 -- 26,412 --
Cogeneration operations................ 2,584 2,589 7,742 7,553
General, administrative and other...... 7,710 7,487 22,181 23,999
Taxes, other than income and payroll... 4,670 5,245 13,624 16,218
---------- --------- ---------- ----------
Total expenses.................... 327,093 83,736 496,679 268,090
---------- --------- ---------- ----------
Operating income (loss)............... (248,863) 803 (256,385) (19,610)
Interest and other - net.............. (8,500) (6,960) (25,183) (20,973)
---------- --------- ----------- ----------
Income (loss) before income taxes..... (257,363) (6,157) (281,568) (40,583)
Income tax expense (benefit).......... (75,828) (2,214) (84,303) (14,309)
Minority interest..................... (73) -- (73) --
---------- ---------- ----------- ----------
Net income (loss)..................... $ (181,608) $ (3,943) $(197,338) $ (26,274)
========== ========== ========== ==========
Net income (loss) per share........... $ (1.44) $ (0.03) $ (1.56) $ (0.21)
========== ========== ========= ==========
Weighted average shares outstanding... 126,403 126,571 126,119 126,565
========== ========== ========= ==========
CASH FLOW DATA (In thousands)
Cash flow from operating activities... $ 61,778 $ 79,125 $ 151,787 $ 118,057
Capital expenditures.................. 53,894 53,978 128,522 150,512
SALES VOLUMES
Natural gas (MMcf).................... 22,022 25,591 64,173 76,501
Crude oil (MBbls)..................... 1,223 1,352 3,652 3,726
Natural gas liquids (MBbls)........... 179 209 365 572
Total volumes (MMcfe)................. 30,434 34,957 88,275 102,289
AVERAGE SALES PRICE
Natural gas (per Mcf)................. $ 2.32 $ 2.01 $ 2.41 $ 2.11
Crude oil (per Bbl)................... 17.88 19.86 19.50 18.94
Natural gas liquids (per Bbl)......... 12.16 13.39 13.61 11.26
</TABLE>
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SIGNATURE
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.
Enserch Exploration, Inc.
Date: October 16, 1997 By: /s/ R. E. Schmitz
-----------------------------
R. E. Schmitz, Vice President
