<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
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. 1-12905
EEX CORPORATION
(Exact name of Registrant as specified in its charter)
Texas
(State or other jurisdiction of incorporation or organization)
75-2421863
(I.R.S. Employer Identification No.)
2500 CityWest Blvd., Suite 1400, Houston, Texas 77042
(Address of principal executive office) (Zip Code)
(713) 243-3100
(Registrant's telephone number, including Area Code)
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 Act of 1934 during the preceding twelve
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
Number of shares of Common Stock of Registrant outstanding as
of May 13, 1998: 127,067,427
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EEX CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
Three Months
Ended March 31
---------------------------
1998 1997
-------- --------
(In thousands except
per share amounts)
[S] [C] [C]
Revenues
Natural gas $45,538 $57,338
Oil and condensate 16,109 25,072
Natural gas liquids 321 1,699
Cogeneration operations 2,464 2,603
Other 81 95
-------- --------
Total 64,513 86,807
-------- --------
Costs and Expenses
Production and operating 11,087 12,625
Exploration 12,323 19,998
Depreciation and amortization 31,612 35,585
Loss on sales of property,
plant and equipment 6,027
Cogeneration operations 2,015 2,391
General, administrative and other 6,725 7,388
Taxes, other than income 3,893 4,612
-------- --------
Total 73,682 82,599
-------- --------
Operating Income (Loss) (9,169) 4,208
Other Income (Expense) - Net 41 (21)
Interest Income 91 52
Interest and Other Financing Costs (5,225) (7,744)
-------- --------
(Loss) Before Income Taxes (14,262) (3,505)
Income Taxes (Benefit) 1,001 (1,304)
Minority Interest (3,764)
-------- --------
Net (Loss) $(19,027) $(2,201)
======== ========
Basic and Diluted Net (Loss) Per Share $ (.15) $ (.02)
======== ========
Weighted Average Shares Outstanding 126,641 126,641
======== ========
See accompanying Notes.
<PAGE>
EEX CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Three Months Ended
March 31
---------------------------
1998 1997
-------- --------
(In Thousands)
[S] [C] [C]
OPERATING ACTIVITIES
Net income (loss) $(19,027) $(2,201)
Impairment of undeveloped leasehold 13,622
Dry hole cost 2,752 767
Depreciation and amortization 31,612 35,585
Deferred income tax expense (benefit) (6,293)
Loss on sale of property,
plant and equipment 6,027
Other (5,426) 2,865
Changes in current operating
assets and liabilities
Accounts receivable (4,578) 29,820
Other current assets (4,581) 9,570
Accounts payable (9,287) (17,504)
Other current liabilities (3,488) 4,602
--------- --------
Net cash flows (used in)
from operating activities (5,996) 70,883
--------- --------
INVESTING ACTIVITIES
Additions to property,
plant and equipment (69,216) (33,982)
Proceeds from disposition of
property, plant and equipment 20,353 2,187
Other (5,703) (9,479)
--------- --------
Net cash flows used in
investing activities (54,566) (41,274)
--------- --------
FINANCING ACTIVITIES
Borrowings under bank revolving
credit agreement 95,000 20,000
Repayment of borrowings under bank
revolving credit agreement (35,000) (55,000)
Borrowings under short term
financing agreement 77,500 7,000
Repayment of borrowings under short
term financing agreement (69,500)
Change in temporary advances with
affiliated companies 5,517
Payments of capital lease obligations (7,299) (1,173)
Decrease in advances under
leasing arrangements (557)
Issuance of common stock 2
--------- --------
Net cash flows from (used in)
financing activities 60,701 (24,211)
--------- --------
Net Increase in Cash 139 5,348
Cash at Beginning of Period 3,790 1,358
--------- --------
Cash at End of Period $3,929 $6,706
========= ========
See accompanying Notes.
<PAGE>
EEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(March 31, 1998 Unaudited)
March 31 December 31
1998 1997
----------- ----------
(In thousands)
[S] [C] [C]
ASSETS
Current Assets
Cash and cash equivalent $3,929 $3,790
Accounts receivable - trade 62,503 57,925
Other 16,126 11,545
--------- ---------
Total current assets 82,558 73,260
--------- ---------
Property, Plant and Equipment (at cost)
Gas and oil properties
(successful efforts method) 1,853,977 1,882,097
Other 21,941 19,581
---------- ----------
Total 1,875,918 1,901,678
Less accumulated depreciation
and amortization 1,158,459 1,192,691
---------- ----------
Net property, plant and equipment 717,459 708,987
---------- ----------
Deferred Income Tax Benefit 20,238 20,238
Other Assets 11,374 5,304
---------- ----------
Total $831,629 $807,789
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade $93,626 $108,616
Short term borrowings 13,000 5,000
Current portion of capital
lease obligations 10,316 8,418
Other 6,543 10,031
---------- ----------
Total current liabilities 123,485 132,065
---------- ----------
Bank Revolving Credit Agreement 85,000 25,000
---------- ----------
Capital Lease Obligations 224,120 233,317
---------- ----------
Other Liabilities 43,113 42,744
---------- ----------
Minority Interest In Preferred
Securities of Subsidiary 100,000 100,000
---------- ----------
Common Shareholders' Equity
Common stock (400,000 shares authorized;
127,067 and 127,059 shares outstanding) 1,271 1,271
Paid in capital 570,817 570,493
Accumulated deficit (312,799) (293,772)
Unamortized restricted stock
compensation (3,378) (2,877)
Treasury stock (452)
---------- ----------
Common shareholders' equity 255,911 274,663
---------- ----------
Total $831,629 $807,789
========== ==========
See accompanying Notes.
<PAGE>
EEX CORPORATION
Notes to Condensed Financial Statements
1. Basic net income (loss) per share is based on the weighted
average number of common shares outstanding during the period.
Diluted net income (loss) per common share is based on the
weighted average number of common shares and all dilutive
potential common shares outstanding during the period.
2. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair
presentation of the financial position, results of operations
and cash flows for the interim periods included herein have
been made. Certain items in prior periods have been
reclassified to be consistent with the current presentation.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Certain statements in this report, including statements of
EEX's and management's expectations, intentions, plans and
beliefs, are "forward-looking statements", within the meaning
of Section 21E of the Securities Exchange Act of 1934, as
amended, that are subject to certain events, risks and
uncertainties that may be outside EEX's control. See "Forward
Looking Statements- Uncertainties and Risks".
RESULTS OF OPERATIONS
EEX reported a 1998 net loss of $19 million ($.15 per share),
versus a restated net loss of $2.2 million ($.02 per share) in
1997. Excluding the impacts from asset sales ($6.0 million)
and costs associated with the disposition of properties in
East Texas included in depreciation this quarter ($5.2
million), the Company incurred a $7.8 million net loss ($.06
per share).
In the following comparisons of first quarter 1998 and 1997
results of operations, 1998 results have been adjusted to
exclude the $11.2 million of costs associated with asset sales
described above.
Revenues for 1998 were $65 million, $22 million (26%) lower
than 1997. Natural gas revenues, 21% lower than 1997, were
impacted by both a 13% decrease in average prices and an 8%
decrease in production due to sales of non-core properties.
The average natural gas sales price per thousand cubic feet
("Mcf") was $2.43 in 1998 compared with $2.81 in 1997.
Natural gas production for 1998 was 19 billion cubic feet
("Bcf"), compared with 20 Bcf in 1997. Oil revenues decreased
$9 million (35%) due to sales of non-core properties and a 25%
decrease in the average crude oil sales price per barrel to
$16.34 in 1998 from $21.86 in 1997. Crude oil production was
986 thousand barrels ("MBbls"), compared with 1,147 MBbls in
1997.
Costs and expenses, excluding the $11 million associated with
asset sales described above, were $62 million in 1998 compared
to $83 million in 1997. Operating expenses (production and
operating, general and administrative and taxes other than
income and payroll) were $21 million in 1998, 13% lower than
1997,the result of asset sales and the favorable impact from
cost cutting measures implemented over the past year.
Exploration expenses decreased 38% due to the curtailment of
the onshore exploration program during 1997, the change in
focus to offshore and international and the impact of the
offshore exploration joint venture with Enterprise Oil Plc.
Depreciation and amortization was $26 million, $10 million
lower than 1997 due to lower production volumes and the
significant asset write-downs in the third quarter of 1997.
Total interest and other financing costs, including minority
interest, were $9.0 million in 1998, a $1.3 million increase
from 1997. A lower overall debt level in 1998 was more than
offset by the higher dividends associated with the preferred
<PAGE>
securities of a subsidiary. In the second quarter of 1998,
the Company intends to redeem the preferred securities of a
subsidiary and reduce other bank debt with the proceeds from
the sale of the East Texas properties.
HEDGING ACTIVITIES
A portion of the risk associated with fluctuations in the
price of oil and natural gas is managed through the use of
hedging techniques such as oil and gas swaps, collars and
futures agreements. EEX fixed the price on first quarter 1998
sales volumes of 13 Bcf of natural gas (68% of production) at
an average price of $2.51 per Mcf and 720 MBbls of oil (73% of
production) at an average price of $17.34 per Bbl. In total
oil and gas price hedging activities increased 1998 revenues
by $6.0 million and decreased 1997 revenues by $.5 million.
At March 31, 1998 EEX had outstanding swaps, collars and
futures agreements that were entered into as hedges extending
through December 31, 1998, to exchange payments on 20 Bcf of
natural gas and 763 MBbls of oil. At March 31, 1998, there
were $3.6 million of net unrealized and unrecognized hedging
losses based on the difference between the strike price and
the New York Mercantile Exchange futures price for the
applicable trading months of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash flows used for operating activities were $6 million
in 1998 compared to net cash flows from operating activities
of $71 million in 1997. Lower net income in 1998 coupled with
higher non-cash charges included in 1997 income and changes in
current operating assets and liabilities account for the
change. Net cash flows used for investing activities in 1998
were $55 million, a $13 million increase from 1997. Property
additions were $69 million in 1998, some $35 million higher
than 1997 due to the acquisition of an additional 25%
participation interest in the Tuban Production Sharing
Contract located on the island of Java in Indonesia for
approximately $40 million. Proceeds from property sales and
retirements increased $18 million in 1998, partially
offsetting the increase in property additions. The Company
increased borrowings under its credit facilities some $61
million in 1998 in order to fund operations and the capital
program.
EEX intends to utilize substantially all of its internally
generated cash flows for growth of the business and expects to
have sufficient cash flow from operations and the ongoing
monetization of non-core assets to provide funds for its
business plans. Borrowings under EEX's credit facilities may
be used to supplement temporary cash flow needs.
<PAGE>
Capital Structure
Debt represented 57% of total capitalization, as defined, at
March 31, 1998 compared to 50% of total capitalization at
December 31, 1997. The Company intends to use proceeds from
the sale of the East Texas properties to redeem the preferred
securities of a subsidiary and reduce outstanding bank debt.
RECENT DEVELOPMENTS
SALE OF EAST TEXAS PROPERTIES
On April 24, 1998, EEX completed the previously announced sale
of East Texas producing oil and gas properties to Cross Timbers
Oil Company for $235 million. These properties represented
approximately 220 billion cubic feet of gas equivalent. As a
part of the sale, EEX retained an obligation existing under
agreements with Encogen One Partners, Ltd. The effective date
of the sale was January 1, 1998.
Revenues, costs and expenses and sales volumes during the first
quarter 1998 attributable to the East Texas properties were:
Revenues Millions Sales Volume
Natural gas $12.7 6,205 Mmcf
Oil, condensate and liquids 1.2 86 MBbls
Costs and Expenses
Production 1.1
Depreciation and amortization 11.7
Taxes, other than income 1.1
Forward Looking Statements -Uncertainties and Risks
Certain statements in this report, including statements of
EEX's and management's expectations, intentions, plans and
beliefs, are "forward-looking statements," within the meaning
of Section 21E of the Securities Exchange Act of 1934, as
amended, that are subject to certain events, risks and
uncertainties that may be outside EEX's control. These forward-
looking statements include statements of management's plans and
objectives for EEX's future operations and statements of future
economic performance; information regarding drilling schedules,
expected or planned production, future production levels of
international and domestic fields, EEX's capital budget and
future capital requirements, EEX's meeting its future capital
needs, the level of future expenditures for environmental costs
and the outcome of regulatory and litigation matters; and the
assumptions described in this report underlying such forward-
looking statements. Actual results and developments could
differ materially from those expressed in or implied by such
statements due to a number of factors, including, without
limitation, those described in the context of such forward-
looking statements and the risk factors set forth below and
described from time to time in EEX's other documents and
<PAGE>
reports filed with the Securities and Exchange Commission.
Exploration Risk. Exploration for oil and gas in the
deepwater Gulf of Mexico and unexplored frontier areas have
inherent and historically high risk. As described in this
report, EEX is selling its onshore producing properties and
will focus on exploration opportunities in offshore and
international areas which will increase associated risk.
Future reserve increases and production will be dependent on
EEX's success in these exploration efforts and no assurances
can be given of such success.
Estimating Reserves and Future Net Cash Flows. Uncertainties
are inherent in estimating quantities and values of reserves
and in projecting rates of production, net revenues and the
timing of development expenditures. The reserve data represent
estimates only of the recovery of hydrocarbons from underground
accumulations and are often different from the quantities
ultimately recovered. Any downward adjustment in reserve
estimates could adversely affect EEX.
Operational Risks and Hazards. EEX's operations are subject
to the risks and uncertainties associated with finding,
acquiring and developing oil and gas properties, and producing,
transporting and selling oil and gas. Operations may be
materially curtailed, delayed or canceled as a result of
numerous factors, such as accidents, weather conditions,
compliance with governmental requirements and shortages or
delays in the delivery of equipment. Drilling may involve
unprofitable efforts, not only with respect to dry wells, but
also with respect to wells that are productive but do not
produce sufficient net revenues to return a profit after
drilling, operating and other costs. Various field operating
hazards such as fires, explosions, blow-outs, equipment
failures, abnormally pressured formations and environmental
accidents may adversely affect production from successful
wells. EEX's ability to sell its oil and gas production is
dependent on the availability and capacity of gathering
systems, pipelines and other forms of transportation.
Offshore Risks. EEX's offshore Gulf of Mexico oil and gas
reserves include properties located in water depths of 20 to in
excess of 7,000 feet where operations are by their nature more
difficult than drilling operations conducted on land in
established producing areas. Deepwater drilling and operations
require the application of more advanced technologies that
involve a higher risk of mechanical failure and can result in
significantly higher drilling and operating costs.
Furthermore, offshore operations require a significant amount
of time between the time of discovery and the time the gas or
oil is actually marketed, increasing the market risk involved
with such operations.
Volatility of Oil and Gas Markets. EEX's operations are
highly dependent upon the prices of, and demand for, oil and
gas. These prices have been, and are likely to continue to be,
volatile. Prices are subject to fluctuations in response to a
variety of factors that are beyond the control of EEX, such as
worldwide economic and political conditions as they affect
actions of OPEC and Middle East and other producing countries,
<PAGE>
and the price and availability of alternative fuels. EEX's
hedging activities with respect to some of its projected oil
and gas production, which are designed to protect against price
declines, may prevent EEX from realizing the benefits of price
increases above the levels of the hedges and protect it from
incurring the detriments of price decreases below the level of
hedges. Because the majority of EEX's reserve base is natural
gas on an energy equivalent basis, it is more sensitive to
fluctuations in the price of natural gas.
Government Regulation. EEX's business is subject to certain
federal, state and local laws and regulations relating to the
drilling for the production of oil and gas, as well as
environmental and safety matters. See "Business -Government
Regulation "in EEX's Annual Report on Form 10-K.
International Operations. EEX's interests in countries
outside the United States are subject to the various risks
inherent in foreign operations. These risks may include, among
other things, currency restrictions and exchange rate
fluctuations, loss of revenue, property and equipment as a
result of expropriation, nationalization, war, insurrection and
other political risks, risks of increases in taxes and
governmental royalties, renegotiations of contracts with
governmental entities, changes in laws and policies governing
operations of foreign-based companies and other uncertainties
arising out of foreign government sovereignty over the
Company's international operations. The Company's
international operations may also be adversely affected by laws
and policies of the United States affecting foreign trade,
taxation and investment. In addition, in the event of a
dispute arising from foreign operations, the Company may be
subject to the exclusive jurisdiction of foreign courts or may
not be successful in subjecting foreign persons to the
jurisdiction of the courts of the United States.
<PAGE>
EEX CORPORATION
SUMMARY OF SELECTED OPERATING DATA
FOR OIL & GAS PRODUCING ACTIVITIES (UNAUDITED)
Three Months Ended
March 31
-------------------------
1998 1997
------- -------
[S] [C] [C]
Revenues (in millions)
Natural gas $45.5 $57.3
Oil and condensate 16.1 25.1
Natural gas liquids .3 1.7
Other .1 .1
------- -------
Total $62.0 $84.2
======= =======
Sales Volumes
Natural gas (MMcf) 18,748 20,426
Oil and condensate (MBbls) 986 1,147
Natural gas liquids (MBbls) 44 96
Total volumes (MMcfe) (a) 24,928 27,884
Average Sales Price
Natural gas (per Mcf) $2.43 $ 2.81
Oil and condensate (per Bbl) 16.34 21.86
Natural gas liquids (per Bbl) 7.30 17.70
Total product revenue (per Mcfe) (a) 2.49 3.02
Cost and Expenses (per Mcfe) (a)(b)
Production and operating (c) $ .44 $ .45
Exploration .49 .72
Depreciation and amortization 1.27 1.28
General, administration and other .26 .26
Taxes, other than income .16 .17
Net Wells
Drilled 9 16
Productive 8 11
(a) Oil and natural gas liquids have been converted to Mcf
equivalents (Mcfe) on the basis of one barrel equals 6.0 Mcfe.
(b) Excludes unusual and non-recurring expenses.
(c) Excludes related production, severance and ad valorem taxes.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT (27) - Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated January 16, 1998.
(News Release dated January 16, 1998: (1)
Acquisition of rig for deepening and appraising
Llano Discovery on Garden Banks Block 386 and (2)
Announcement of intention to sell or trade East
Texas assets.)
Current Report on Form 8-K dated February 10, 1998.
(News Release dated February 10, 1998: Results of
operations for fourth quarter and year ended
December 31, 1997.)
Current Report on Form 8-K dated February 25, 1998.
(News Release dated February 25, 1998: Announcement
of agreement to sell East Texas properties.)
Current Report Form 8-K dated February 27, 2998.
(News Release dated February 27, 1998: Announcement
of stock repurchase program.)
<PAGE>
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.
EEX CORPORATION
(Registrant)
Dated May 14,1998 By /s/R. S. Langdon
-----------------------------------------
R. S. Langdon
Executive Vice President,
Finance and Administration,
and Chief Financial Officer
The above officer of
registrant has signed
this report as its duly
authorized representative
and as its principal
financial officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
APPLICABLE FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,929
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<RECEIVABLES> 62,503
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<CURRENT-ASSETS> 82,558
<PP&E> 1,875,918
<DEPRECIATION> (1,158,459)
<TOTAL-ASSETS> 831,629
<CURRENT-LIABILITIES> 123,485
<BONDS> 309,120
0
0
<COMMON> 1,271
<OTHER-SE> 254,640
<TOTAL-LIABILITY-AND-EQUITY> 831,629
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<TOTAL-REVENUES> 64,513
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<OTHER-EXPENSES> (41)
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