<PAGE>
UNITED STATES
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 September 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 333-31375*
----------------
FORMAN PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 72-0954774
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
650 Poydras Street - Suite 2200
New Orleans, Louisiana 70130-6101
(Address of principal executive offices) (Zip code)
(504) 586-8888
(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 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 [ ]
As of November 4, 1997, there were 70,000 shares of the Registrant's Voting
Common Stock, no par value, and 20,000 shares of the Registrant's Non-voting
Common Stock, no par value, outstanding.
* The Commission file number refers to a Form S-4 Registration Statement filed
by the Company under the Securities Act of 1933, which became effective
September 26, 1997.
<PAGE>
FORMAN PETROLEUM CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
Page No.
Item 1. Financial Information:
Balance Sheets as of September 30, 1997 and December 31, 1996 1
Statement of Operations and Accumulated Deficit for the
Three and Nine Month Periods Ended September 30, 1997
and September 30, 1996 2
Statement of Cash Flows for the Nine Month Periods Ended
September 30, 1997 and September 30, 1996 3
Notes to Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-11
PART II
Item 2. Changes in Securities 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14-15
Signatures 16
</TABLE>
i
<PAGE>
FORMAN PETROLEUM CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,653,522 $ 130,551
Restricted cash 6,300,000 0
Accounts receivable (net of bad debt allowance) 660,941 500,602
Oil and gas revenue receivable 1,486,268 2,503,478
Due from Stockholder 0 12,457
Other assets 38,077 60,188
------------ ------------
Total current assets 11,138,808 3,207,276
Property and equipment:
Oil and gas properties, full cost method 72,305,103 48,359,890
Other property and equipment, at cost 1,526,338 1,425,451
------------ ------------
73,831,441 49,785,341
Less: Accumulated depreciation, depletion
and amortization (16,585,316) (12,433,801)
------------ ------------
Net property and equipment 57,246,125 37,351,540
Other assets:
Due from affiliate 0 327,828
Deferred financing costs (net of accumulated amortization) 6,750,234 608,051
Funds on deposit in escrow 515,096 881,970
------------ ------------
Total other assets 7,265,330 1,817,849
------------ ------------
TOTAL ASSETS $ 75,650,263 $ 42,376,665
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 7,525,797 $ 6,241,069
Undistributed oil and gas revenues 1,035,018 1,625,517
Current portion of notes payable 33,943 21,160
Note payable to stockholder 0 500,000
------------ ------------
Total current liabilities 8,594,758 8,387,746
Note payable (long-term portion) 67,902,079 39,021,487
Deferred tax liability 3,778,741 0
Mandatorily redeemable Preferred Stock, no par value,
1,000,000 authorized shares, 200,000 shares outstanding 10,185,244 0
Stockholder's deficit:
Common stock, no par value, 1,000,000 shares authorized,
90,000 issued and outstanding 1,000 1,000
Treasury Stock (10) (10)
Additional paid-in capital 0 785,823
Retained deficit (14,811,549) (5,819,381)
------------ ------------
Total stockholder's deficit (14,810,559) (5,032,568)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 75,650,263 $ 42,376,665
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
1
<PAGE>
FORMAN PETROLEUM CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 2,582,842 $ 2,184,469 $ 8,845,296 $ 7,071,185
Overhead reimbursements 13,094 20,178 48,259 81,439
Interest Income 212,022 7,909 266,133 27,298
Other Income 22,870 22,803 43,132 70,977
----------- ----------- ----------- -----------
Total revenues 2,830,828 2,235,359 9,202,820 7,250,899
----------- ----------- ----------- -----------
Costs and expenses:
General & administrative 463,953 401,716 1,306,390 1,109,326
Lease operating expenses 720,831 600,910 1,919,510 1,840,130
Interest expense 2,446,986 969,001 5,271,587 2,812,276
Production taxes 126,593 184,995 430,240 601,432
Depreciation, depletion and amortization 1,686,679 1,106,478 5,281,685 3,194,559
----------- ----------- ----------- -----------
Total costs and expenses 5,445,042 3,263,100 14,209,412 9,557,723
----------- ----------- ----------- -----------
Net loss from operations (2,614,214) (1,027,741) (5,006,592) (2,306,824)
Income tax expense (benefit) (882,069) 0 3,863,931 0
----------- ----------- ----------- -----------
Net loss $(1,732,145) $(1,027,741) $(8,870,523) $(2,306,824)
Preferred stock dividend $ 379,688 $ 0 $ 504,688 $ 0
----------- ----------- ----------- -----------
Net loss attributed to common shares $(2,111,833) $(1,027,741) $(9,375,211) $(2,306,824)
Net loss per common share $ (23.46) $ (11.42) $ (104.17) $ (25.63)
=========== =========== =========== ===========
Proforma data:
Net loss from operations reported above $(2,614,214) $(1,027,741) $(5,006,592) $(2,306,824)
Proforma benefit for income taxes 967,259 380,264 1,852,439 853,525
----------- ----------- ----------- -----------
Proforma net loss $(1,646,955) $ (647,477) $(3,154,153) $(1,453,299)
Preferred stock dividend $ 379,688 $ 0 $ 504,688 $ 0
----------- ----------- ----------- -----------
Proforma net loss attributed to common shares $(2,026,643) $ (647,477) $(3,658,841) $(1,453,299)
=========== =========== =========== ===========
Proforma net loss per share $ (22.52) $ (7.19) $ (40.65) $ (16.15)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
FORMAN PETROLEUM CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended
September 30,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,006,592) $ (2,306,824)
Adjustments to reconcile net loss to
net cash provided by operating activities:
DD&A 5,281,685 3,194,559
Change in assets and liabilities:
Decrease (Increase) in accounts receivable (160,339) (75,727)
Decrease (Increase) in prepaid expenses 30,773 71,602
Decrease (Increase) in due from affiliate 12,457 0
Decrease (Increase) in unbilled well costs (8,662) 2,617
Increase (Decrease) in accounts payable/accrued liabilities 1,284,728 10,230,564
Increase (Decrease) in due to/from stockholder 327,828 (316,388)
Decrease (Increase) in oil and gas revenue receivable 1,017,210 568,515
Increase (Decrease) in undistributed oil and gas revenue (590,499) (66,798)
------------ ------------
Net cash provided by operating activities 2,188,589 11,302,120
------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (23,945,213) (12,372,806)
Withdrawal from (deposit into) escrow account 366,874 (25,468)
Purchase of other property and equipment (100,887) (50,328)
------------ ------------
Net cash used in investing activities (23,679,226) (12,448,602)
------------ ------------
Cash flows from financing activities:
Purchase of FPCII assets (1,500,000) 0
Proceeds from preferred stock 10,000,000 0
Borrowings (net of escrowed interest) 22,577,057 980,767
Decrease (Increase) in deferred financing costs (7,063,449) (1,350)
------------ ------------
Net cash provided by financing activities 24,013,608 979,417
------------ ------------
Net increase (decrease) in cash or cash equivalents 2,522,971 (167,065)
Cash and cash equivalents at beginning of period 130,551 314,070
------------ ------------
Cash and cash equivalents at end of period $ 2,653,522 $ 147,005
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
FORMAN PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. Interim Financial Statements
The financial statements of the Company at September 30, 1997 and for the three
and nine-month periods then ended are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim period. The financial statements should be
read in conjunction with the financial statements and notes thereto, for the
year ended December 31, 1996 contained in the Company's Registration Statement
on Form S-4 (file number 333-31375) filed with the Commission on July 16, 1997.
This Registration Statement became effective September 26, 1997.
2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 ("SFAS 128"), "Earnings Per Share", which simplifies the computation of
earnings per share ("EPS"). SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, and requires restatement for
all prior period EPS data presented. Pro forma EPS calculated under SFAS 128
would be the same as those indicated on the Statement of Operations for the
respective periods.
3. Issuance of Notes
On June 3, 1997 the Company completed the private sale to Jefferies & Company,
Inc. ("Jefferies") of 70,000 units ("Note Units") consisting of $70 million
principal amount of 13.5% Senior Secured Notes due 2004, Series A (the "Notes")
and Wwarrants to purchase 29,067 shares of Common Stock, no par value (the
"Common Stock"), of the Company at a price of $65,667,000 in a transaction not
registered under the Securities Act (the "Act") in reliance upon Section 4(2) of
the Act and Rule 506 of Regulation D under the Act. Jefferies thereupon offered
and resold the Note Units only to qualified institutional buyers and a limited
number of institutional accredited investors at an initial price to such
purchasers of $68,467,000. Concurrently with the offering of the Note Units,
the Company completed a private sale to Jefferies of 200,000 units ("Equity
Units") consisting of 200,000 shares of Series A Cumulative Preferred Stock and
warrants to purchase 14,533 shares of Common Stock. The Equity Units were sold
to Jefferies for $9,200,000 in a transaction not registered under the Securities
Act in reliance upon Section 4 (2) of the Act and Rule 506 of Regulation D under
the Act. Jefferies thereupon offered and resold the Equity Units only to
qualified institutional buyers and a limited number of institutional accredited
investors at an initial price to such purchasers of $10,000,000.The offerings
and sale of the Note Units and the Equity Units are referred to herein as the
"Offerings".
4
<PAGE>
The net proceeds to the Company from the Offerings were approximately $74.9
million. A portion of the net proceeds (approximately $9.5 million) was
segregated into a capitalized interest account to pay interest on the Notes
through June 1, 1998. The Company used the remaining net proceeds of the
Offerings as follows: (i) approximately $35.2 million was used to repay all of
the outstanding indebtedness (including accrued interest and associated fees)
due under the Endowment Energy Partners ("EEP) and Endowment Energy Co-
Investment Partnership ("EECIP") loans; (ii) approximately $10.5 million was
used to repay all of the outstanding indebtedness (including accrued interest
and associated fees) due under the Joint Energy Development Investments Limited
Partnership loan; (iii) $2.6 million was used to purchase from EEP and EECIP a
7.5% overriding royalty interest in the Company's Lake Enfermer Field, Manila
Village Field and Boutte Field; (iv) $5.0 million was used in connection with
the Company's acquisition from Forman Petroleum Corporation II ("FPCII"), a
company whose sole stockholder is McLain J. Forman (the Company's Chairman and
principal stockholder), all of FPCII's interest in the Bayou Fer Blanc Field and
the West Gueydan Field, of which $1.5 million was paid to FPCII, $1.0 million
was used to pay bank debt and $2.5 million was used to pay trade payables to
third parties; (v) Jefferies received a fee of $1.9 million for financial
advisory services provided to the Company and also received a warrant to
purchase 4,844 shares of Common Stock at the initial exercise price of $1.00 per
share; and (vi) $0.9 million was used to pay expenses of the Offerings. The
remaining net proceeds from the Offerings of $9.4 million are being used for
capital expenditures, working capital and other general corporate purposes.
4. Income Taxes
As discussed in Note 3, the Company issued a second class of stock on June 3,
1997, effectively terminating its S Corporation election. As a result, the
Company will be subject to Federal and state income taxes for the results of
operations subsequent to June 2, 1997, and accordingly a benefit of $1,217,069
is reflected in income tax expense in the accompanying statements of operations
for the nine months ended September 30, 1997. In addition, due to the
termination of the Company's status as an S Corporation for federal income tax
purposes, the Company is also required to establish a net deferred tax liability
calculated at the applicable Federal and state tax rates resulting primarily
from financial reporting and income tax reporting basis differences in oil and
gas properties. Accordingly, a net deferred tax liability of $5,081,000 was
accrued at June 3, 1997 and is included in income tax expense in the
accompanying statements of operations for the nine months ended September 30,
1997.
For purposes of the pro forma net loss presentation, income taxes have been
adjusted to reflect the actual income tax benefit that would have been recorded
by the Company had it operated as a C Corporation throughout each of the periods
presented.
5. Per Share Amounts
Historical and pro forma net loss per share amounts are calculated by dividing
historical and pro forma net loss by the weighted average number of common
shares outstanding (90,000 for each period presented).
5
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion is intended to assist in an understanding of the
Company's historical financial position and the results of operations for the
three-month and nine-month periods ended September 30, 1997 and 1996. The
financial statements of the Company at September 30, 1997 and for the three and
nine-month periods then ended are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim period. The financial statements should be
read in conjunction with the financial statements and notes thereto, for the
year ended December 31, 1996 contained in the Company's Registration Statement
on Form S-4 (file number 333-31375) filed with the Commission on July 16, 1997.
This Registration Statement became effective September 26, 1997. The Company's
historical financial statements and notes thereto included elsewhere in this
quarterly report contain detailed information that should be referred to in
conjunction with the following discussion.
RESULTS OF OPERATIONS
The following table sets forth certain operating information with respect
to the oil and gas operations of the Company for the three-month and nine-month
periods ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended None Months Ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales:
Oil (Bbls) 77,888 76,942 231,200 247,444
Oil (Mcf) 469,536 226,315 1,464,945 745,838
Oil and gas (BOE) 156,144 114,661 475,358 371,750
Sales Revenue:
Total oil sales $1,403,310 $1,632,517 $4,711,633 $4,999,138
Total gas sales $1,179,532 $ 551,952 $4,133,663 $2,072,047
Average Sales Prices:
Oil (per Bbl) $ 18.02 $ 21.22 $ 20.38 $ 20.20
Gas (per Mcf) $ 2.51 $ 2.44 $ 2.82 $ 2.78
Per BOE $ 16.54 $ 19.05 $ 18.61 $ 19.02
Average Costs (per BOE):
Severance Tax $ 0.81 $ 1.61 $ 0.91 $ 1.62
Lease Operating Expenses $ 4.62 $ 5.24 $ 4.04 $ 4.95
General & Administrative $ 2.97 $ 3.50 $ 2.75 $ 2.98
Depreciation, Depletion & Amortization $ 10.80 $ 9.65 $ 11.11 $ 8.59
</TABLE>
6
<PAGE>
Revenues--The following table reflects an analysis of differences in the
Company's oil and gas revenues (expressed in thousands of dollars) between the
three-month and nine-month periods ended September 30, 1997 and the comparable
periods in 1996:
<TABLE>
<CAPTION>
Third Quarter 1997 First Nine Months 1997
Compared to Third Compared to First Nine
Quarter 1996 Months 1996
------------------ ----------------------
<S> <C> <C>
Increase (decrease) in oil and gas revenues
resulting from differences in:
Crude oil and condensate-
Prices $(249,279) $ 40,674
Production 20,072 (328,179)
--------- ----------
(229,207) (287,505)
Natural gas-
Prices 68,753 63,832
Production 558,827 1,997,784
--------- ----------
627,580 2,061,616
--------- ----------
Increase (decrease) in oil and gas revenues $ 398,373 $1,774,111
========= ==========
</TABLE>
The Company's oil and gas revenues increased approximately $1.8 million, or
25% to $8.8 million for the nine months ended September 30, 1997, from $7.1
million for the comparable period in 1996. Production levels for the nine
months ended September 30, 1997, increased 28% to 475 thousand barrels of oil
equivalent ("MBOE") from 372 MBOE for the comparable period in 1996. Gas
production volumes increased 96%, while oil volumes declined 7%. The Company's
average sales prices (including hedging activities) for oil and natural gas for
the nine months ended September 30, 1997 were $20.38 per Bbl and $2.82 per Mcf
versus $20.20 per Bbl and $2.78 per Mcf in the 1996 period. Revenues increased
$1.67 million due to the aforementioned production increases, and by $105,000 as
a result of increased oil and gas prices.
For the quarter ended September 30, 1997, total oil and gas revenues
increased $398,000 from revenues for the third quarter of 1996. Oil production
for the quarter ended September 30, 1997 was up 1% from the comparable quarter
in 1996, while gas production was up 107%. Oil prices for the quarterly period
ended September 30, 1997 declined 15%, while gas prices increased 3% from the
comparable quarter in 1996.
Lease operating expenses--On a BOE basis, lease operating expenses
experienced an 18% decrease, to $4.04 per BOE for the nine months ended
September 30, 1997 from $4.95 per BOE in the comparable 1996. For the first nine
months of 1997, lease operating expenses were up 4%, from $1.84 million in 1996
to $1.92 million in the comparable 1997 period. For the quarter ended September
30, 1997, lease operating expenses were 20% higher than for the comparable
quarter in 1996.
7
<PAGE>
Severance taxes--The effective severance tax rate as a percentage of oil
and gas revenues decreased to 4.9% for the nine months ended September 30, 1997,
from 8.5% for the comparable period in 1996. For the quarter ended September 30,
1997, the effective tax rate decreased to 4.9% from 8.5% for the comparable
quarter in 1996. In each case, the decrease was due primarily to the increased
production from wells that have a state severance tax exemption under
Louisiana's severance tax abatement program.
General and administrative expenses--For the nine months ended September
30, 1997, general and administrative ("G&A") expenses were $2.75 per BOE, an 8%
decrease from the $2.98 per BOE for the first nine months of 1996. For the first
nine months of 1997, G&A increased 18%, from $1.1 million in 1996 to $1.3
million in 1997. For the quarter ended September 30, 1997, G&A expenses per BOE
decreased 15% from the comparable quarterly period in 1996, while actual G&A
expenses increased 15%. The third quarter and nine-month decreases in G&A per
BOE in 1997 were due to increases in production during the respective periods as
compared to the comparable periods for 1996. The increases in actual G&A
expenses in the third quarter and the nine-month period ended September 30, 1997
were primarily the result of salary adjustments made during the third quarter of
1997, plus increased utilization of contract geological, accounting and
administrative services during the first nine months of 1997 as compared to the
same period in 1996.
Depreciation, depletion and amortization expense--For the nine months ended
September 30, 1997, depreciation, depletion and amortization ("DD&A") expense
increased 31% over the comparable 1996 period. For the quarter ended September
30, 1997, DD&A expense increased 19% over the comparable second quarter of 1996.
9.89 The increases for both the nine-month period and the third quarter are
attributable to (i) the Company's increased production and related future
capital costs during the first nine months of 1997 and (ii) the write-off of
deferred financing costs related to the loans that were repaid in June, 1997.
This accelerated write-off of deferred financing costs during the nine-month
period ended September 30, 1997 resulted from the December, 1996, change in the
maturity dates of the Endowment Energy Partners ("EEP") and Endowment Energy Co-
Investment Partnership ("EECIP") loans from December 31, 1999, and September 30,
1998, respectively, to June 30, 1997 for each loan.
Excluding the accelerated amortization of deferred financing costs in June
1997, the DD&A expense for the nine months ended September 30, 1997 increased
37% over the comparable 1996 period. For the quarter ended September 30, 1997,
DD&A expense increased 44% over the comparable third quarter of 1996. On a BOE
basis, which reflects the increases in production, the DD&A rate for the first
nine months of 1997 was $11.11 per BOE compared to $8.59 per BOE for the same
period in 1996, an increase of 29% and for the third quarter of 1997 was $10.80
per BOE compared to $9.65 per BOE for the comparable period in 1996, for an
increase of 12%.
Interest expense--For the nine months ended September 30,1997, interest
expense increased to $5.3 million from $2.8 million for the comparable 1996
period. This increase of $2.5 million in interest expense is due primarily to
(i) $275,000 of interest on a term loan from Joint Energy Development
Investments Limited Partnership ("JEDI") made in December 1996 which was repaid
in June 1997, and (ii) $2.2 million of additional interest in 1997 relating to
the issuance of $70 million principal amount of 13.5% Senior Secured Notes due
2004, Series A (the
8
<PAGE>
"Series A Notes"), on June 3, 1997 (see Liquidity and Capital Resources). For
the quarter ended September 30, 1997, interest expense increased $1.48 million
over the comparable third quarter of 1996. This increase was also the result of
the additional interest due on the Series A Notes as previously discussed.
Net loss from operations--Due to the factors described above, net loss from
operations for the quarter ended September 30, 1997 was $2.6 million, an
increase of 163% over the net loss reported for the third quarter of 1996 of
$1.0 million. The net loss increased to $5.0 million for the nine months ended
September 30, 1997, from a loss of $2.3 million for the comparable period in
1996.
Income tax expense--The Company issued a second class of stock on June 3,
1997, effectively terminating its S Corporation election. As a result, the
Company will be subject to Federal and state income taxes for the results of
operations subsequent to June 2, 1997, and accordingly a benefit of $882,069 was
reflected in income tax expense for the three-month period ended September 30,
1997 and $1,217,069 for the nine-month period ended September 30, 1997. In
addition, due to the termination of the Company's status as an S Corporation for
federal income tax purposes, the Company was also required to establish a net
deferred tax liability calculated at the applicable Federal and state tax rates
resulting primarily from financial reporting and income tax reporting basis
differences in oil and gas properties. Accordingly, a net deferred tax liability
of $5,081,000 was accrued at June 3, 1997 and is included in income tax expense
for the nine-month period ended September 30, 1997. The net result of these
accruals was a decrease of $882,069 in the net loss of the Company for the
three-month period ended September 30, 1997, and an increase of $3,863,931 in
the net loss of the Company for the nine-month period ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flow--Working capital at September 30, 1997 was
$2.5 million. The Company believes that this capital plus the expected cash
flow from operations will be sufficient to fund its working capital needs for
the foreseeable future. The following summary table reflects comparative cash
flows for the Company for the nine-month periods ended September 30, 1997 and
1996:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 2,189 $ 11,302
Net cash used by investing activities (23,679) (12,449)
Net cash provided by financing activities 24,014 979
</TABLE>
9
<PAGE>
For the nine months ended September 30, 1997, net cash provided by
operating activities decreased to $2.2 million from $11.3 million during the
comparable period in 1996. This decrease was primarily due to the Company's
reduction of its trade accounts payable by $8.9 million during the first nine
months of 1997, partially offset by a net $500,000 decrease in oil and gas
revenue receivable during the same nine-month period.
Cash used in investing activities increased by $11.3 million, from $12.4
million during the first nine months of 1996 to $23.7 million during the
comparable period in 1997. This increase was a result of (i) the Company's
acquisition of the Bayou Fer Blanc Field and the West Gueydan Field for $3.5
million, (ii) the Company's acquisition of the overriding royalty interest of
EEP and EECIP in the Company's producing properties for $2.6 million, and
increased drilling and workover activity in the Lake Enfermer and Boutte Fields.
During the nine months ended September 30, 1997, financing activities
generated cash flow of $24.0 million, as compared to $1.0 million of cash flow
from financing activities during the comparable period in 1996. The increase in
cash during 1997 was primarily due to the $47.0 million increase in net
borrowings through the issuance of $70 million principal amount of the Senior
Secured Notes and $10 million of Series A Cumulative Preferred Stock during June
1997, as described below.
Long-Term Financing--On June 3, 1997 the Company completed the private
sale to Jefferies & Company, Inc. ("Jefferies") of 70,000 units ("Note Units")
consisting of $70 million principal amount of the Series A Notes and warrants
to purchase 29,067 shares of Common Stock, no par value (the "Common Stock"), of
the Company at a price of $65,667,000 in a transaction not registered under the
Securities Act (the "Act") in reliance upon Section 4(2) of the Act and Rule 506
of Regulation D under the Act. Jefferies thereupon offered and resold the Note
Units only to qualified institutional buyers and a limited number of
institutional accredited investors at an initial price to such purchasers of
$68,467,000. Concurrently with the offering of the Note Units, the Company
completed a private sale to Jefferies of 200,000 units ("Equity Units")
consisting of 200,000 shares of Series A Cumulative Preferred Stock and warrants
to purchase 14,533 shares of Common Stock. The Equity Units were sold to
Jefferies for $9,200,000 in a transaction not registered under the Securities
Act in reliance upon Section 4 (2) of the Act and Rule 506 of Regulation D under
the Act. Jefferies thereupon offered and resold the Equity Units only to
qualified institutional buyers and a limited number of institutional accredited
investors at an initial price to such purchasers of $10,000,000.The offerings
and sale of the Note Units and the Equity Units are referred to herein as the
"Offerings". On November 5, 1997 the Company completed an exchange offer of its
13.5% Senior Secured Notes due 2004, Series B (the "Series B Notes") that were
registered under the Securities Act of 1933, for the Series A Notes. The Series
A Notes and the Series B Notes are collectively referred to as the "Notes".
The net proceeds to the Company from these Offerings were approximately
$74.9 million. A portion of the net proceeds (approximately $9.5 million) was
segregated into a capitalized interest account to pay interest on the Notes
through June 1, 1998. The Company used the remaining net proceeds of the
Offerings as follows: (i) approximately $35.2 million was used to repay all of
the outstanding indebtedness (including accrued interest and associated fees)
due under the EEP and EECIP loans; (ii) approximately $10.5 million was used to
repay all of the outstanding indebtedness (including accrued interest and
associated fees) due under the JEDI loan; (iii) $2.6 million was used to
purchase from EEP and EECIP a 7.5% overriding royalty interest in the Company's
Lake Enfermer Field, Manila Village Field and Boutte Field; (iv) $5.0 million
was used in connection with the Company's acquisition from Forman Petroleum
10
<PAGE>
Corporation II ("FPCII"), a company whose sole stockholder is McLain J. Forman
(the Company's Chairman and principal stockholder), all of FPCII's interest in
the Bayou Fer Blanc Field and the West Gueydan Field, of which $1.5 million was
paid to FPCII, $1.0 million was used to pay bank debt and $2.5 million was used
to pay trade payables to third parties; (v) Jefferies received a fee of $1.9
million for financial advisory services provided to the Company and also
received a warrant to purchase 4,844 shares of Common Stock at the initial
exercise price of $1.00 per share; and (vi) $0.9 million was used to pay
expenses of the Offerings. The remaining net proceeds from the Offerings of
$9.4 million are being used for capital expenditures, working capital and other
general corporate purposes.
Hedging Activities--With the objective of achieving more predictable
revenues and cash flows and reducing the exposure to fluctuations in oil and
natural gas prices, the Company has entered into hedging transactions of various
kinds with respect to both oil and natural gas. While the use of these hedging
arrangements limits the downside risk of reverse price movements, it may also
limit future revenues from favorable price movements. In January 1997, the
Company entered into forward sales arrangements with respect to approximately
40% of its estimated net natural gas production in the Lake Enfermer Field
through April 1997, at a weighted average price of approximately $3.18 per Mcf.
At the same time, the Company hedged approximately 30% of its estimated net oil
production through June 1997 at a weighted average price of $23.75 per Bbl. In
October 1997, the Company entered into forward sales arrangements with respect
to approximately 25% of its estimated net natural gas production in the Lake
Enfermer Field through March 1998, at a weighted average price of approximately
$3.19 per Mcf. The Company continuously reevaluates its hedging program in light
of market conditions, commodity price forecasts, capital spending and debt
service requirements. The Company may hedge additional volumes through the
remainder of 1997 and into 1998 or it may determine from time to time to
terminate its then existing hedging positions.
Forward-Looking Statements--The foregoing discussion of Liquidity and
Capital Resources includes forwarding looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that its goals will be
achieved. Important factors that could cause actual results to differ materially
from those in the forward looking statements herein include the timing and
extent of changes in commodity prices for oil and gas, the need to develop and
replace reserves, environmental risks, drilling and operating risks, risks
related to exploration and development, uncertainties about the estimates of
reserves, competition, government regulations and the ability of the Company to
meet its stated business goals.
11
<PAGE>
PART II
Item 2. Changes in Securities
(c)
Exchange Offer--The Company filed a Form S-4 Registration Statement with
the Commission on July 16, 1997. The Registration Statement became effective on
September 26, 1997. The Company registered the exchange of its 13.5% Senior
Secured Notes due 2004, Series B ("Series B Notes"), for its 13.5% Senior
Secured Notes due 2004, Series A ("Series A Notes"). The terms of the Series B
Notes are substantially identical to those of the Series A Notes. The exchange
offering was initiated on October 1, 1997, expired on October 31, 1997 and was
completed as of November 5, 1997.
12
<PAGE>
Item 5. Other Information
Operational Activities--During the third quarter ended September 30, 1997,
the Company completed the drilling of its fifth post-3D well, the LPSB #7, in
the Lake Enfermer Field. The LPSB #7, targeted for the same fault block as the
LPSB #2, was drilled in July 1997, and logged approximately 40 feet of net pay.
This well cut an unexpected 300' fault and was temporarily suspended pending
further evaluation of this entire fault block. The Company has deepened the
Lafourche Realty A-2 well, which is in an adjacent fault block; the well logged
approximately 60 feet of net pay, and was placed on production on October 12,
1997. The well is currently producing at the rate of 12,500 MCF and 30 barrels
of condensate per day. The Company also completed several workovers in the Lake
Enfermer Field during the third quarter of 1997; these workovers resulted in a
105% increase in gas production between June and September 1997.
In the Boutte Field, the Company completed the second of four scheduled
recompletions. The well, the Simoneaux #7, is currently producing approximately
350 Bbl of oil per day. The third and fourth recompletions are currently in
progress.
The first well to be drilled in the Company's Bayou Fer Blanc field, the
Allan Company #1 Well, is currently drilling at below 13,400 feet, with a
projected total depth of 14,800 feet. This well is being drilled based upon the
3-D seismic survey conducted in this field.
The Company has completed the integration and interpretation of the 3-D
seismic survey on the West Gueydan Field and is now in the process of showing
this prospect to industry participants in an effort to sell an interest in the
prospect prior to drilling the initial well.
Preferred Stock Dividend--The Company declared a dividend payable on
September 1, 1997 to the holders of record of the Series A Cumulative Preferred
Stock payable at the rate of .0375 shares of Series A Cumulative Preferred Stock
per share of Series A Cumulative Preferred Stock of the Company, or a total of
7,500 dividend shares.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
The following instruments and documents are included as Exhibits to this
Form 10-Q. Exhibits incorporated by reference are so indicated by parenthetical
information.
Exhibit No. Exhibit
3(i) Restated Articles of Incorporation dated July 2, 1997 (filed as Exhibit
3(i) to the Registration Statement on Form S-4 filed on July 16, 1997
and is incorporated herein by reference (File No. 333-31375)).
3(ii) Bylaws (filed as Exhibit 3(ii) to the Registration Statement on Form S-4
filed on July 16, 1997 and is incorporated herein by reference (File
No. 333-31375)).
4.1 Indenture dated as of June 3, 1997 by and among Forman Petroleum
Corporation, as issuer, and U.S.Trust Company of Texas, N.A. as trustee
(filed as Exhibit 4.1 to the Registration Statement on Form S-4 filed on
July 16, 1997 and is incorporated herein by reference (File
No. 333-31375)).
4.2 Act of Mortgage, Security Agreement, Assignment of Production and
Financing Statement dated November 21, 1996, by Forman Petroleum
Corporation for the benefit of Joint Energy Development Investments
Limited Partnership (filed as Exhibit 4.2) to the Registration Statement
on Form S-4 filed on July 16, 1997 and is incorporated herein by
reference (File No. 333-31375)).
4.3 Act of First Amendment to Mortgage, Security Agreement, Assignment of
Production and Financing Statement dated December 23, 1996, by and among
Forman Petroleum Corporation and Joint Energy Development Investments
Limited Partnership (filed as Exhibit 4.3 to the Registration Statement
on Form S-4 filed on July 16, 1997 and is incorporated herein by
reference (File No. 333-31375)).
4.4 Act of Second Amendment to Mortgage, Security Agreement, Assignment of
Production and Financing Statement dated June 3, 1997, by and among
Forman Petroleum Corporation and U.S. Trust Company of Texas, N.A.
(filed as Exhibit 4.4 to the Registration Statement on Form S-4 filed on
July 16, 1997 and is incorporated herein by reference (File No. 333-
31375)).
4.5 Act of Assignment of Note and Liens dated June 3, 1997, by and among
Joint Energy Development Investments Limited Partnership, as assignor,
and U.S. Trust Company of Texas, N.A., as assignee (filed as Exhibit 4.5
to the Registration Statement on Form S-4 filed on July 16, 1997 and is
incorporated herein by reference (File No. 333-31375)).
14
<PAGE>
4.6 Act of Mortgage, Security Agreement, Assignment of Production and
Financing Statement dated July 30, 1997, by Forman Petroleum Corporation
for the benefit of U.S. Trust Company of Texas, N.A. as Trustee under
the Indenture (filed as Exhibit 4.6 to the Registration Statement on
Form S-4 filed on July 16, 1997 and is incorporated herein by reference
(File No. 333-31375)).
10.1 Registration Rights Agreement dated June 3, 1997 by and between Forman
Petroleum Corporation and Jefferies & Company, Inc. regarding Notes and
warrants to purchase Common Stock (filed as Exhibit 10.1 to the
Registration Statement on Form S-4 filed on July 16, 1997 and is
incorporated herein by reference (File No. 333-31375)).
10.2 Registration Rights Agreement dated June 3, 1997 by and between Forman
Petroleum Corporation and Jefferies & Company, Inc. regarding Series A
Cumulative Preferred Stock and warrants to purchase Common Stock (filed
as Exhibit 10.2 to the Registration Statement on Form S-4 filed on July
16, 1997 and is incorporated herein by reference (File No. 333-31375)).
10.3 Warrant Agreement dated June 3, 1997 by and between Forman Petroleum
Corporation and U.S. Trust Company of Texas, N.A. regarding warrants
issued in connection with issuance of Series A Cumulative Preferred
Stock (filed as Exhibit 10.3 to the Registration Statement on Form S-4
filed on July 16, 1997 and is incorporated herein by reference (File
No. 333-31375)).
10.4 Warrant Agreement dated June 3, 1997 by and between Forman Petroleum
Corporation and U.S. Trust Company of Texas, N.A. regarding warrants
issued in connection with issuance of Notes (filed as Exhibit 10.4 to
the Registration Statement on Form S-4 filed on July 16, 1997 and is
incorporated herein by reference (File No. 333-31375)).
27 Financial Data Schedule
15
<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.
Forman Petroleum Corporation
Date: November 12, 1997 By: /s/ McLain J. Forman
--------------------------------
McLain J. Forman
Chairman of the board, Chief
Executive Officer and President
By: /s/ Marvin J. Gay
-------------------------------
Marvin J. Gay
Vice President and Chief Financial
Officer
16
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<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 DEC-31-1996
<CASH> 2,653,522 130,551
<SECURITIES> 0 0
<RECEIVABLES> 660,941 500,602
<ALLOWANCES> 0 0
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<CURRENT-ASSETS> 11,138,808 3,207,276
<PP&E> 73,831,441 49,785,341
<DEPRECIATION> 16,585,316 12,433,801
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<CURRENT-LIABILITIES> 8,594,758 8,387,746
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10,185,244 0
0 0
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<CGS> 2,349,750 3,111,198
<TOTAL-COSTS> 14,209,412 12,892,652
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,271,587 3,982,797
<INCOME-PRETAX> (5,006,592) (1,774,549)
<INCOME-TAX> 3,863,931 0
<INCOME-CONTINUING> (8,870,523) (1,774,549)
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<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,870,523) (1,774,549)
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