<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 June 30, 1999
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 August 10, 1999, there were 76,800 shares of the Registrant's Voting
Common Stock, no par value, and 13,200 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.
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FORMAN PETROLEUM CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PART I
Page No.
Item 1. Financial Information:
Balance Sheets as of June 30, 1999 and
December 31, 1998 1
Statement of Operations and Accumulated
Deficit for the Three and Six Month Periods
Ended June 30, 1999 and June 30, 1998 2
Statement of Cash Flows for the Six Month
Periods Ended June 30, 1999 and June 30, 1998 3
Notes to Financial Statements 4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 19
PART II
Item 1. Legal Proceedings 20
Item 3. Defaults Upon Senior Securities 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21-23
Signatures 24
ii
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FORMAN PETROLEUM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 169,816 $ 1,474,488
Accounts receivable 107,903 47,830
Oil and gas revenue receivable 1,049,532 656,433
Advance to operator - 1,200,000
Prepaid expenses - 297,154
Other assets 102,255 11,324
------------ ------------
Total current assets 1,429,506 3,687,229
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties, full cost method 84,442,025 77,067,569
Unevaluated oil and gas properties 1,602,740 4,485,359
Other property and equipment 1,746,507 1,718,757
------------ ------------
87,791,272 83,271,685
Less- accumulated depreciation, depletion and amortization (63,152,429) (59,511,084)
------------ ------------
Net property and equipment 24,638,843 23,760,601
------------ ------------
OTHER ASSETS:
Deferred financing costs
(net of accumulated amortization) 4,959,537 5,360,234
Recapitalization costs - 384,313
Funds on deposit in escrow 475,916 493,481
------------ ------------
TOTAL ASSETS $ 31,503,802 $ 33,685,858
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,687,432 $ 2,378,512
Interest payable 10,237,464 5,512,640
Undistributed oil and gas revenues 1,083,319 1,590,223
Current portion of note payables 68,466,772 68,309,653
------------ ------------
Total current liabilities 83,474,987 77,791,028
------------ ------------
Notes payable (long-term portion) 10,789 17,121
Mandatorily redeemable Preferred Stock, no par value,
1,000,000 authorized shares, 200,000 shares outstanding 13,339,924 12,360,322
STOCKHOLDERS' DEFICIT:
Common stock, no par value, authorized 1,000,000
shares; issued and outstanding 90,000 shares 1,000 1,000
Treasury stock (10) (10)
Accumulated deficit (65,322,888) (56,483,603)
------------ ------------
Total stockholder's deficit (65,321,898) (56,482,613)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 31,503,802 $ 33,685,858
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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FORMAN PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------------------------
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 2,918,250 $ 4,478,576 $ 5,520,807 $ 8,686,134
Interest income 4,650 29,105 9,442 193,798
Overhead reimbursements 18,720 17,548 32,665 37,911
Other income 3,977 9,014 8,470 (7,857)
------------ ------------ ------------ ------------
Total revenues 2,945,597 4,534,243 5,571,384 8,909,986
------------ ------------ ------------ ------------
Costs and expenses:
Production taxes 180,035 146,530 304,940 303,227
Lease operating expenses 861,333 901,440 1,787,621 1,805,984
General and administrative expenses 693,477 576,173 1,311,707 1,105,169
Interest expense 2,521,691 2,570,834 5,104,333 5,019,158
Full cost ceiling write-down - 12,039,831 - 12,039,831
Recapitalization costs 229,609 - 880,431 -
Depreciation, depletion and amortization 2,360,477 2,640,442 4,042,035 5,191,435
------------ ------------ ------------ ------------
Total expenses 6,846,622 18,875,250 13,431,067 25,464,804
------------ ------------ ------------ ------------
Net loss from operations ( 3,901,025) (14,341,007) ( 7,859,683) (16,554,818)
Provision for income taxes ___ ___ ___ ___
------------ ------------ ------------ ------------
Net loss ( 3,901,025) (14,341,007) ( 7,859,683) (16,554,818)
Preferred stock dividends ( ---) (424,005) ( ---) (833,103)
------------ ------------ ------------ ------------
Net loss attributable to common shares $ 3,901,025) $(14,765,012) $ 7,859,683) $(17,387,921)
============ ============ ============ ============
Net loss per share $(43.34) $(164.05) $(87.33) $(193.20)
============ ============ ============ ============
Weighted average shares outstanding 90,000 90,000 90,000 90,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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FORMAN PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------------
1999 1998
-------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,859,683) $(16,554,818)
Adjustments to reconcile net loss to net cash provided
by operating activities-
Depreciation and amortization 4,042,042 17,231,266
Withdrawal from interest escrow account - 3,963,071
Change in assets and liabilities-
(Increase) Decrease in oil and gas revenue receivable (393,099) 228,600
(Increase) Decrease in accounts receivable (60,073) 369,459
(Increase) Decrease in unbilled well costs and prepaids 206,223 48,633
Increase in interest payable 4,724,824 787,470
Increase (Decrease) in accounts payable 1,302,588 (2,192,834)
(Decrease) in undistributed oil and gas revenues (506,904) (11,860)
Decrease in advance to operator 1,200,000 -
Increase (Decrease) in notes payable 157,119 149,247
----------- ------------
Net cash provided by operating activities 2,813,037 4,018,234
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (4,491,837) (3,779,465)
Reduction of escrow account 17,565 48,882
Purchase of other property and equipment (27,750) (98,117)
----------- ------------
Net cash used in investing activities (4,502,022) (3,828,700)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of recapitalization costs 384,313 -
Deferred financing costs - (41,095)
----------- ------------
Net cash (used) provided by financing activities 384,313 (41,095)
----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(1,304,672) 148,439
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,474,488 457,869
----------- ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 169,816 $ 606,308
=========== ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ - $ 5,019,158
=========== ============
Income taxes $ - $ -
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FORMAN PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
1. Interim Financial Statements
The financial statements of the Company at June 30, 1999 and for the three and
six-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 periods. The financial statements should be
read in conjunction with the financial statements and notes thereto, for the
year ended December 31, 1998 contained in the Company's Form 10-K (file number
333-31375) filed with the Commission on March 31, 1999.
The financial statements do not reflect any adjustments to assets or liabilities
contemplated by the Joint Plan (defined below). The financial statements have
been prepared using accounting principles applicable to a going concern, which
assumes realization of assets and settlement of liabilities in the normal course
of business. The appropriateness of using the going concern basis is dependent
upon, among other things, confirmation of a plan of reorganization and the
ability to generate sufficient cash flows from operations to meet obligations.
If the foregoing items do not occur, adjustments will be necessary to the
amounts reflected in the financial statements.
2. CHAPTER 11 PROCEEDING
The Company has experienced financial difficulties since the sale in 1997 of the
Company's 13.5% Notes and the Company's Preferred Stock. On August 6, 1999, the
Company filed a voluntary petition to reorganize the Company under Chapter 11 of
the United States Bankruptcy Code (the "Petition"). The Petition was filed in
the United States Bankruptcy Court for the Eastern District of Louisiana (the
"Bankruptcy Court") and bears the caption In re Forman Petroleum Corporation,
Debtor (Case No. 99-14319). The Company is presently operating its business as
debtor-in-possession in accordance with the provisions of the Bankruptcy Code.
As previously reported, the Company entered into a Memorandum of Understanding
dated April 27, 1999 (the "Memorandum") with certain holders of the Company's
13.5% Senior Secured Notes Due June 1, 2004 (the "Noteholders") and certain
holders of the Company's Series A Cumulative Preferred Stock (the "Preferred
Stockholders") with respect to a proposed restructuring of the Company (the
"Recapitalization"). Prior to filing the Petition on August 6, 1999, the
Company and the other parties to the Memorandum executed a First Amendment to
Memorandum of Understanding (the "Amendment").
The provisions of the Memorandum, as amended by the Amendment, form the basis
for the Company's joint plan of reorganization (the "Joint Plan"). The
Amendment obligated the Company to file the Joint Plan in the Bankruptcy Court
within five days after the filing of the
4
<PAGE>
Petition. The Joint Plan was filed in the Bankruptcy Court on August 13, 1999.
By execution of the Memorandum and the Amendment, each of the Noteholders and
Preferred Stockholders that is a party thereto has agreed to vote for the Joint
Plan, provided it complies in all respects with the terms of the Memorandum as
amended by the Amendment.
The Joint Plan, in general terms, provides for the cancellation of all currently
issued and outstanding common stock and for the conversion into newly issued
shares of common stock of all outstanding 13.5% Senior Secured Notes and Series
A Preferred Stock. The Joint Plan also provides for the issuance of warrants to
purchase common stock to certain classes of interest holders and other persons
and for the payment to lienholders and unsecured creditors of cash or notes in
varying amounts. In addition, the Joint Plan provides for the dismissal of the
pending litigation against Jefferies & Company, Inc. The Company will not
commence solicitation of acceptance of the Joint Plan unless and until a
Disclosure Statement has been filed with and approved by the Bankruptcy Court in
accordance with the provisions of the Bankruptcy Code.
As of the filing of the Petition, and pending confirmation of the Joint Plan, or
any other plan of reorganization, actions to collect pre-petition indebtedness
are stayed and other contractual obligations may not be enforced against the
Company. The Company has obtained the approval of the Bankruptcy Court to
continue to pay for utility services, payroll and employee benefits, and
applicable taxes in connection therewith. The Company is also allowed to
continue normal business practices, but it may not engage in transactions
outside the ordinary course of business without first complying with the notice
and hearing provisions of the Bankruptcy Code and obtaining Bankruptcy Court
approval where and when necessary. Two official committees of creditors are
being formed in the bankruptcy proceeding, the Official Committee of Unsecured
Creditors and the Official Committee of Holders of Senior Notes, and these
committees will have the right to be heard with respect to any matters outside
the ordinary course of business.
The Company has not yet submitted a motion and order for use of cash collateral.
The Company expects to file the motion on or before August 31, 1999. The
Company has no present intention of seeking debtor-in-possession financing.
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 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
5
<PAGE>
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".
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 were used for capital
expenditures, working capital and other general corporate purposes.
On December 30, 1998, the Company announced the nonpayment of the December 1,
1998 installment of interest due on the 13.5% Notes within the thirty-day grace
period provided for such payments. The Company also has failed to pay the June
1, 1999 installment. The Company does not presently have the funds to make the
December 1, 1998, or the June 1, 1999 interest installments on the 13.5% Notes,
which amount in the aggregate to $9,450,000 and does not anticipate having
sufficient funds to do so at any time in the near future. On March 10, 1999,
the Trustee declared an Event of Default under the Indenture with respect to the
13.5% Notes as a result of the nonpayment of the December 1, 1998 interest
installment and declared the unpaid principal and accrued and unpaid interest on
the 13.5% Notes to be due and payable.
4. PER SHARE AMOUNTS
Historical 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).
6
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5. LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit at June 30, 1999 of $82 million,
resulting primarily from declines in both prices and production from 1998
levels, and from the acceleration of long term debt due to the default discussed
in Note 3 above.
As of the date of the filing of the Petition, the Company did not have
sufficient cash on hand plus the expected normal cash flow from operations and
available vendor financing to fund its working capital needs.
6. LEGAL PROCEEDINGS
As previously reported, the Company filed a Complaint on Friday, October 16,
1998 against Jefferies & Company, Inc. ("Jefferies") in the United States
District Court in and for the Eastern District of Louisiana. The Complaint
asserts causes of action against Jefferies for breach of fiduciary duty, breach
of contract, detrimental reliance, negligence, intentional misrepresentation,
and negligent misrepresentation in connection with a 1997 offering of the 13.5%
Notes and the Preferred Stock by the Company. The Company is seeking damages in
an amount to be determined at trial. Although the Company is confident that the
Complaint is well founded in law and fact, there can be no assurance that the
Company will prevail in the lawsuit.
In accordance with the terms of the Memorandum, the Company has executed a stay
of the litigation currently pending against Jefferies in order to enable all
parties to execute such documents and instruments as may be necessary to pursue
confirmation of the Joint Plan.
The Company is not otherwise a party to any material pending legal proceeding,
other than ordinary routine litigation incidental to its business that
management believes would not have a material adverse effect on its financial
condition or results of operations.
As of the date of the filing of the Petition, substantially all pending
litigation and collection of outstanding claims against the Company are stayed
while the Company continues business operations as debtor-in-possession.
7
<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 six-month periods ended June 30, 1999 and 1998. The financial
statements of the Company at June 30, 1999 and for the three and six-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 periods. The financial statements should be read in conjunction with
the financial statements and notes thereto, for the year ended December 31, 1998
contained in the Company's Annual Report on Form 10-K (file number 333-31375)
filed with the Commission on March 31, 1998. 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.
CHAPTER 11 PROCEEDING
The Company has experienced financial difficulties since the sale in 1997 of
the Company's 13.5% Notes and the Company's Preferred Stock. On August 6, 1999,
the Company filed a voluntary petition to reorganize the Company under Chapter
11 of the United States Bankruptcy Code (the "Petition"). The Petition was
filed in the United States Bankruptcy Court for the Eastern District of
Louisiana (the "Bankruptcy Court") and bears the caption In re Forman Petroleum
Corporation, Debtor (Case No. 99-14319). The Company is presently operating its
business as debtor-in-possession in accordance with the provisions of the
Bankruptcy Code.
As previously reported, the Company entered into a Memorandum of
Understanding dated April 27, 1999 (the "Memorandum") with certain holders of
the Company's 13.5% Senior Secured Notes Due June 1, 2004 (the "Noteholders")
and certain holders of the Company's Series A Cumulative Preferred Stock (the
"Preferred Stockholders") with respect to a proposed restructuring of the
Company (the "Recapitalization"). Prior to filing the Petition on August 6,
1999, the Company and the other parties to the Memorandum executed a First
Amendment to Memorandum of Understanding (the "Amendment").
The provisions of the Memorandum, as amended by the Amendment, form the
basis for the Company's joint plan of reorganization (the "Joint Plan"). The
Amendment obligated the Company to file the Joint Plan in the Bankruptcy Court
within five days after the filing of the Petition. The Joint Plan was filed in
the Bankruptcy Court on August 13, 1999. By execution of the Memorandum and the
Amendment, each of the Noteholders and Preferred Stockholders that is a party
thereto has agreed to vote for the Joint Plan, provided it complies in all
respects with the terms of the Memorandum as amended by the Amendment.
8
<PAGE>
The Joint Plan, in general terms, provides for the cancellation of all
currently issued and outstanding common stock and for the conversion into newly
issued shares of common stock of all outstanding 13.5% Senior Secured Notes and
Series A Preferred Stock. The Joint Plan also provides for the issuance of
warrants to purchase common stock to certain classes of interest holders and
other persons and for the payment to lienholders and unsecured creditors of cash
or notes in varying amounts. In addition, the Joint Plan provides for the
dismissal of the pending litigation against Jefferies & Company, Inc. The
Company will not commence solicitation of acceptance of the Joint Plan unless
and until a Disclosure Statement has been filed with and approved by the
Bankruptcy Court in accordance with the provisions of the Bankruptcy Code.
As of the filing of the Petition, and pending confirmation of the Joint
Plan, or any other plan of reorganization, actions to collect pre-petition
indebtedness are stayed and other contractual obligations may not be enforced
against the Company. The Company has obtained the approval of the Bankruptcy
Court to continue to pay for utility services, payroll and employee benefits,
and applicable taxes in connection therewith. The Company is also allowed to
continue normal business practices, but it may not engage in transactions
outside the ordinary course of business without first complying with the notice
and hearing provisions of the Bankruptcy Code and obtaining Bankruptcy Court
approval where and when necessary. Two official committees of creditors are
being formed in the bankruptcy proceeding, the Official Committee of Unsecured
Creditors and the Official Committee of Holders of Senior Notes, and these
committees will have the right to be heard with respect to any matters outside
the ordinary course of business.
The Company has not yet submitted a motion and order for use of cash
collateral. The Company expects to file the motion on or before August 31,
1999. The Company has no present intention of seeking debtor-in-possession
financing.
OPERATING ENVIRONMENT
The Company's revenues, profitability and future growth and the carrying
value of its oil and natural gas properties are substantially dependent on
prevailing prices of oil and natural gas. The Company's ability to increase its
borrowing capacity and to obtain additional capital on attractive terms is also
influenced by oil and natural gas prices. Prices for oil and natural gas are
subject to large fluctuation in response to relatively minor changes in the
supply of or demand for oil and natural gas, market uncertainty and a variety of
additional factors beyond the control of the Company. While natural gas prices
seem most dependent on weather in North America and corresponding usage, oil
prices are more subject to global economic forces and supply. Because all of
these factors are beyond the control of the Company, its marketing efforts have
been devoted to achieving the best price available with a limited amount of
fixed price sales and hedging transactions to take advantage of short-term
prices it believes to be attractive.
Any substantial and extended decline in the price of oil or natural gas
would have an adverse effect on the Company's carrying value of its proved
reserves, borrowing capacity, revenues, profitability and cash flows from
operations. Price volatility also makes it difficult to budget for and project
the return on either acquisitions or development and exploitation projects.
9
<PAGE>
The Company uses the full cost method of accounting for its investment in
oil and natural gas properties. Under the full cost 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, and properties
in the pool are depleted and charged to operations using the future gross
revenue method based on the ratio of current gross revenue to total proved
future gross revenues, computed based on current prices. To the extent that such
capitalized costs (net of accumulated depreciation, depletion and amortization)
less deferred taxes exceed the present value (using a 10% discount rate) of
estimated future net cash flow from proved oil and natural gas reserves, and the
lower of cost and fair value of unproved properties after income tax effects,
excess costs are charged to operations. Once incurred, a write-down of oil and
natural gas properties is not reversible at a later date even if oil or natural
gas prices increase. The Company was required to write down its asset base at
the end of 1997 due to a downward revision of quantity estimates attributable to
a single fault block in the Lake Enfermer Field, combined with significant
declines in oil and natural gas prices from the end of 1996. During the second
quarter of 1998, the Company was required to write down its asset base, again
due primarily to the continuing decline in oil and natural gas prices. The
Company had an additional full cost ceiling writedown of its asset base at the
end of 1998. This writedown was the result of a significant revision to the
reserves assigned to a single well in the Lake Enfermer Field, combined with
further declines in both oil and natural gas prices during the final quarter of
1998.
On June 3, 1997, the Company issued preferred stock as further described
under "Long Term Financing." Prior to the issuance of this preferred stock,
the Company was taxed as an S Corporation. See Note 1 to the financial
statements of the Company. The issuance of preferred stock terminated the S
Corporation status effective June 3, 1997. For the short year beginning June 4,
1997 and subsequent years, the Company is subject to Federal and state income
tax.
EXPLORATION PROJECTS
The Company engaged in two material exploration projects during the three-
month and six-month periods ended June 30, 1999. The first project was the
drilling and successful completion of a gas well in the Boutte Field. The
second project was a well in the West Gueydan Field which was drilled by another
operator through a partnership in which the Company had a 50% working interest.
The West Gueydan well resulted in a dry hole. Expenditures in connection with
these two projects through August 13, 1999 were $3.8 million, with no additional
expenditures expected over the balance of 1999. Three additional wells in other
fields at an aggregate estimated cost of $6.2 million have been scheduled by the
Company for drilling in 1999, pending approval of the Joint Plan.
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 six-month
periods ended June 30, 1999 and 1998:
10
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales:
Oil (Bbls) 86,843 102,961 172,413 203,554
Gas (Mcf) 703,740 1,374,295 1,491,250 2,554,908
Oil and gas (BOE) 204,133 332,010 420,955 629,372
Sales Revenue:
Total oil sales $1,360,349 $1,263,309 $2,262,349 $2,672,380
Total gas sales 1,557,901 3,215,267 3,258,458 6,013,754
---------- ---------- ---------- ----------
Total sales $2,918,250 $4,478,576 $5,520,807 $8,686,134
Average sales prices:
Oil (per Bbl) $ 15.66 $ 12.27 $ 13.12 $ 13.13
Gas (per Mcf) $ 2.21 $ 2.34 $ 2.19 $ 2.35
Per BOE $ 14.30 $ 13.49 $ 13.11 $ 13.80
Average costs (per BOE):
Severance taxes $ 0.88 $ 0.44 $ 0.72 $ 0.48
Lease operating expenses $ 4.22 $ 2.72 $ 4.25 $ 2.87
General and administrative expenses $ 3.40 $ 1.74 $ 3.12 $ 1.76
Depreciation, depletion and amort. $ 11.56 $ 44.22 $ 9.60 $ 27.38
</TABLE>
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 and six-month periods ended June 30, 1999 and the comparable periods in
1998:
<TABLE>
<CAPTION>
FIRST SIX MONTHS
SECOND QUARTER 1999
1999 COMPARED TO COMPARED TO FIRST
SECOND QUARTER 1998 SIX MONTHS 1998
------------------- -----------------
<S> <C> <C>
Increase (decrease) in oil and gas
Revenues resulting from differences in:
Crude oil and condensate -
Prices $ 294,804 $ (1,193)
Production (197,764) (408,838)
----------- -----------
97,040 (410,031)
Natural gas -
Prices (88,552) (251,653)
Production (1,568,814) (2,503,643)
----------- -----------
(1,657,366) (2,755,296)
Increase (decrease) in oil and gas
Revenues $(1,560,326) $(3,165,327)
=========== ===========
</TABLE>
The Company's oil and gas revenues decreased approximately $3.2 million, or
36% to $5.5 million for the six months ended June 30, 1999 from $8.7 million for
the comparable period in 1998. Production levels for the six months ended June
30, 1999 decreased 33% to 421
11
<PAGE>
thousand barrels of oil equivalent ("MBOE") from 629 MBOE for the comparable
period in 1998. Gas production volumes decreased 42%, while oil volumes
decreased 15%. The Company's average sales prices (including hedging activities)
for oil and natural gas for the six months ended June 30, 1999 were $13.12 per
Bbl and $2.19 per Mcf versus $13.13 per Bbl and $2.35 per Mcf in the comparable
1998 period. Revenues decreased $2.9 million due to the aforementioned
production decreases, and decreased by $253,000 as a result of lower gas prices.
For the quarter ended June 30, 1999 total oil and gas revenues
decreased $1.6 million from revenues for the second quarter of 1998. Oil
production for the quarter ended June 30, 1999 was down 16% from the comparable
quarter in 1998, and gas production between comparable periods was down 49%.
Oil prices for the quarter ended June 30, 1999 increased 28%, to $15.66 per Bbl
from $12.27 per Bbl from the second quarter of 1998. Gas prices declined
slightly during the quarter ended June 30, 1999 to $2.21 per Mcf from $2.34 per
Mcf for the second quarter of 1998.
LEASE OPERATING EXPENSES - On a BOE basis, lease operating expenses
experienced a 48% increase, to $4.25 per BOE for the six months ended June 30,
1999 from $2.87 per BOE in the comparable 1998 period. For the first six months
of 1999, lease operating expenses were down 1%, from $1,806,000 in 1998 to
$1,788,000 in the comparable 1999 period. For the quarter ended June 30, 1999
lease operating expenses were 4% lower than the comparable quarter in 1998. The
decreases for the quarter ended June 30, 1999 and for the first six months of
1999 resulted primarily from the reduced level of production between the first
half of 1999 and the first half of 1998.
SEVERANCE TAXES - The effective severance tax rate as a percentage of oil
and gas revenues increased to 5.5% for the six months ended June 30, 1999 from
3.5% for the comparable period in 1998. For the quarter ended June 30, 1999 the
effective tax rate increased to 6.2% from 3.3% for the comparable quarter in
1998. The effective severance tax rate increased in both periods because
certain wells which were exempt in 1998 became taxable during 1999. The
relatively low effective rate is attributable to the production from wells that
have a state severance tax exemption under Louisiana's severance tax abatement
program.
GENERAL AND ADMINISTRATIVE EXPENSES - For the six months ended June 30,
1999 general and administrative ("G&A") expenses were $3.12 per BOE, a 77%
increase from the $1.76 per BOE for the first six months of 1998. For the first
six months of 1999, G&A increased 19%, from $1,105,000 in 1998 to $1,312,000 in
1999. For the quarter ended June 30, 1999 G&A increased 20%, from $576,000 in
1998 to $693,000 in 1999, and the G&A per BOE during the same periods increased
96%. The second quarter and first six months increases in G&A per BOE in 1999
were due to decreases in production during the periods as compared to the
comparable periods for 1998. The increases in actual G&A expenses in the second
quarter and six month periods ended June 30, 1999 were primarily the result of
salary adjustments made during the second half of 1998, including the addition
of a Chief Financial Officer and a manager of business development.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE - For the six months ended
June 30, 1999 depreciation, depletion and amortization ("DD&A") expense
decreased 22% from the
12
<PAGE>
comparable 1998 period. Including the write-down of the full cost pool in the
second quarter of 1998, DD&A decreased 77% between the first six months of 1998
and the first six months of 1999. For the quarter ended June 30, 1999, DD&A
expense, before the write-down of the full cost pool in 1998, decreased 11% from
the comparable second quarter of 1998. Including the second quarter 1998 write-
down of the full cost pool, DD&A decreased 84% between the second quarter of
1998 and the second quarter of 1999. The write-down of the full cost pool was
primarily attributable to significant price declines in oil and natural gas
prices during 1988. Excluding the full cost pool write-down, the DD&A decreases
for both the second quarter and the first six months of 1999 are attributable to
the Company's decreased production and related future capital costs between the
comparable periods for 1998 and 1999.
On a BOE basis, which reflects the decreases in production, the DD&A rate
(before the write-down of the full cost pool in 1998) for the first six months
of 1999 was $9.60 per BOE compared to $8.25 per BOE for the same period in 1998,
an increase of 16%. For the second quarter of 1999, DD&A per BOE (before the
full cost pool write-down in 1998) was $11.56 compared to $7.95 for the
comparable period in 1998, for an increase of 45%.
INTEREST EXPENSE - For the six months ended June 30, 1999 interest expense
increased to $5.1 million from $5.0 million for the comparable 1998 period, or a
2% increase. For the quarter ended June 30, 1999 interest expense decreased
$49,000 from the comparable second quarter of 1998, or a 2% decrease.
NET LOSS FROM OPERATIONS - Due to the factors described above, net loss
from operations for the six months ended June 30, 1999 was $7.9 million, a
decrease of $8.7 million from the net loss of $16.6 million reported for the
first six months of 1998. The net loss for the quarter ended June 30, 1999
decreased $10.4 million, from $14.3 million in the second quarter of 1998 to
$3.9 million during the second quarter of 1999. For both the three and six-
month periods ended June 30, 1998, $12 million of the net loss from operations
was due to the full cost ceiling write-down.
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 is subject to Federal and state income taxes for the results of
operations subsequent to June 2, 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. The Company has a net deferred tax asset at June 30, 1999 that has been
fully reserved due to the Company's operating losses.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOW - The Company had a working capital deficit
at June 30, 1999 of $82 million, resulting primarily from declines in both
prices and production from 1998 levels, and from the acceleration of long term
debt due to the default discussed in Note 3 to the Company's financial
statements.
13
<PAGE>
The following summary table reflects comparative cash flows for the Company
for the three-month periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Net cash provided by operating activities $ 2,813,000 $ 4,018,000
Net cash (used) by investing activities (4,502,000) (3,829,000)
Net cash provided (used) by financing activities 384,000 (41,000)
</TABLE>
For the six months ended June 30, 1999 net cash provided by operating
activities decreased to $2.7 million from $4.0 million during the comparable
period in 1998. This decrease was primarily due to the increased net loss
during 1999, after accounting for the full cost pool write-down in 1998.
Cash used in investing activities increased by $700,000, from $3.8 million
during the first six months of 1998 to $4.5 million during the comparable period
in 1999. This increase during 1999 was a result of increased capital spending
during the first six months of 1999 as compared to the same period in 1998.
During the six months ended June 30, 1999 financing activities provided
cash flow of $541,000, as compared to $41,000 of cash flow utilized from
financing activities during the comparable period in 1998. The increase in cash
provided by financing activities during 1999 was the result of expensing
recapitalization costs in the first half of 1999.
As of the date of the filing of the Petition, the Company did not have
sufficient cash on hand, plus the expected normal cash flow from operations and
available vendor financing to fund its working capital needs.
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)
14
<PAGE>
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
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 were used for capital expenditures, working capital and other
general corporate purposes.
On December 30, 1998, the Company announced the nonpayment of the December
1, 1998 installment of interest due on the 13.5% Notes within the thirty-day
grace period provided for such payments. The Company also has failed to pay the
June 1, 1999 installment. The Company does not presently have the funds to make
the December 1, 1998, or the June 1, 1999 interest installments on the 13.5%
Notes, which amount in the aggregate to $9,450,000 and does not anticipate
having sufficient funds to do so at any time in the near future. On March 10,
1999, the Trustee declared an Event of Default under the Indenture with respect
to the 13.5% Notes as a result of the nonpayment of the December 1, 1998
interest installment and declared the unpaid principal and accrued and unpaid
interest on the 13.5% Notes to be due and payable.
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. During the 1997 and 1998,
the Company entered into forward sales arrangements with respect to a portion
(between 30-50%) of
15
<PAGE>
its estimated natural gas sales. As of August 1999, the Company has open forward
sales arrangements in the form of costless collars for the months, volumes and
prices as indicated in the following table:
VOLUME PERCENT OF FLOOR PRICE CEILING PRICE
MONTH YEAR MMBTU PRODUCTION PER MCF PER MCF
----- ---- ------ -------- ------------ -------------
August 1999 60,000 16% $2.40 $2.61
September 1999 60,000 16% $2.40 $2.61
October 1999 60,000 16% $2.40 $2.61
The Company hedged about 30% of its estimated oil production during the first
six months of 1997, but it did not hedge any oil production during 1998 and
there are no outstanding oil hedges as of August 1999. 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 1999 and into 2000 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 2000.
A company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133 must
be applied to (a) derivative instruments and (b) certain
16
<PAGE>
derivative instruments embedded in hybrid contracts that were issued, acquired,
or substantively modified after December 31, 1997 (and, at the company's
election, before January 1, 1998).
The Company has not yet quantified the impact of adopting Statement 133 on
its financial statements and has not determined the timing of or method of
adoption of Statement 133. However, the Statement will increase volatility in
other comprehensive income.
DISTRICT COURT COMPLAINT
As previously reported, the Company filed a Complaint on Friday, October
16, 1998 against Jefferies & Company, Inc. ("Jefferies") in the United States
District Court in and for the Eastern District of Louisiana. The Complaint
asserts causes of action against Jefferies for breach of fiduciary duty, breach
of contract, detrimental reliance, negligence, intentional misrepresentation,
and negligent misrepresentation in connection with a 1997 debt and equity
offering by the Company. The Company is seeking damages in an amount to be
determined at trial. Although the Company is confident that the Complaint is
well founded in law and fact, there can be no assurance that the Company will
prevail in the lawsuit.
In accordance with the terms of the Memorandum, the Company has executed a stay
of the litigation currently pending against Jefferies in order to enable all
parties to execute such documents and instruments as may be necessary to pursue
confirmation of the Joint Plan.
As of the date of the filing of the Petition, substantially all pending
litigation and collection of outstanding claims against the Company are stayed
while the Company continues business operations as debtor-in-possession.
YEAR 2000 DISCLOSURE
In August, 1998, the Securities and Exchange commission issued a release
that included guidance for Year 2000 ("Y2K") disclosure in the MD&A portion of
periodic filings under the securities Exchange Act of 1934, as amended. In
accordance with this release, the following information is provided relating to
the Company's Y2K issues:
1. Readiness - The Company has reviewed the status of all of its information
technology ("IT") systems and has either received certification from third-
party vendors and/or certified to its satisfaction that these IT systems are
Y2K compatible. Concerning the Company's non-IT systems, the Company has
assessed the extent to which any such non-IT systems may exist within the
Company's operations and whether such systems are Y2K compatible. This
assessment was completed in June 1999. The Company will now determine the
most cost-effective method of bringing all such non-IT systems into
compliance. This process is scheduled to be completed by the end of the
third quarter, 1999.
The Company has, to date, identified only one third party issue that would
have a direct material effect and must, therefore, be clarified. This issue
involves the oil and natural gas pipeline companies where they are the sole
pipeline within a producing
17
<PAGE>
field for delivery of the Company's oil or natural gas. The Company is
preparing an appropriate questionnaire for these third parties and will
assess each third party's respective readiness based on the responses to
these questionnaires. The Company can provide no assurance that the
Company's key suppliers and customers have, or will have, technology
systems, information technology systems, and products that are Y2K
compliant. Any Y2K compliance problems facing such key suppliers and
customers could have a material adverse effect on the Company's business,
financial condition, and results of operations.
2. Cost to Address Company's Y2K Issues - The Company has not incurred any
material costs to date related to Y2K issues, and at this time it does not
anticipate any material costs will be incurred to fix as yet unidentified
Y2K issues. The costs of these projects and the dates on which the Company
plans to complete modifications and replacements are based on management's'
best estimates, the estimates of any third-party specialists who assist the
Company, the modification plans of third parties and other factors. However,
these estimates of future Y2K-related costs may change when the assessments
of non-IT systems and third party issues are completed, and actual results
could differ materially from those estimates.
3. Risks - The Company's most reasonably likely worst case Y2K scenario at this
time would be that one or more of the oil or natural gas pipelines serving
the Company's producing properties would be unable to continue to take
delivery of oil or natural gas produced by the Company due to a Y2K problem
within a third party's pipeline system. The third party questionnaire
described in Item 1 above is intended to determine the extent of this risk
and the alternatives available to reduce or eliminate this risk. While the
Company believes the likelihood of the above occurring to be low, there can
be no assurance that the Company will not be materially adversely affected by
Y2K problems.
4. Contingency Plans - The Company presently does not have a contingency plan.
The development of a contingency plan to handle the most reasonably likely
worst case Y2K scenario is dependent upon the completion of the assessments
of the non-IT systems and the third party questionnaires. The Company
currently expects to have such a contingency plan in place by the end of the
third quarter of 1999. When completed, it is intended that the Company's
written Y2K contingency plan will include identified "point persons" to
contact in the event of a Y2K problem, as well as the availability of back-up
systems. Due to the nature of the open issues at this time, which involve
only non-IT systems and third party issues, the Company does not currently
anticipate the need for any third party consultants for remediation efforts.
The foregoing discussion includes many forward looking statements which are
subject to the risks and uncertainties noted above in "Forward-Looking
Statements" which could cause the actual results to differ materially from the
Company's expectations.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's revenues are derived from the sale of oil and natural gas
production. From time to time, the Company enters into hedging transactions
which fix, for specific periods and specific volumes of production, the prices
the Company will receive for its production. These agreements reduce the
Company's exposure to decreases in the commodity prices on the hedged volumes,
while also limiting the benefit the Company might otherwise have received from
increases in commodity prices of the hedged production.
The Company uses hedging transactions for price protection purposes on a limited
amount of its future production and does not use these agreements for
speculative or trading purposes. The impact of hedges is recognized in oil and
gas sales in the period the related production revenues are accrued.
Based on projected annual production volumes for 1999, a 10% decline in the
prices the Company receives for its oil and natural gas production would have an
approximate $3.6 million negative impact on the Company's discounted future net
revenues. This impact of a hypothetical 10% decline in prices is net of any
incremental gain that would be realized on hedge agreements in place as of
August 15, 1999.
19
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
Reference is made to "PART I - FINANCIAL INFORMATION, Item 1. Financial
Statements, Note 6, Legal Proceedings", which is incorporated herein by
reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On December 30, 1998, the Company announced the nonpayment of the December 1,
1998 installment of interest due on the 13.5% Notes within the thirty-day grace
period provided for such payments. The Company also has failed to pay the June
1, 1999 installment. The Company does not presently have the funds to make the
December 1, 1998, or the June 1, 1999 interest installments on the 13.5% Notes,
which amount in the aggregate to $9,450,000 and does not anticipate having
sufficient funds to do so at any time in the near future. On March 10, 1999,
the Trustee declared an Event of Default under the Indenture with respect to the
13.5% Notes as a result of the nonpayment of the December 1, 1998 interest
installment and declared the unpaid principal and accrued and unpaid interest on
the 13.5% Notes to be due and payable.
ITEM 5. OTHER INFORMATION
The Company did not pay any preferred stock dividends in the quarter ended June
30, 1999 and has not paid preferred stock dividends since September 1, 1998.
20
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 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)).
21
<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 the 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 the issuance of Old 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)).
10.5 Memorandum of Understanding dated April 27, 1999 (filed as Exhibit 10.5 to
Current Report on Form 8-K dated April 27, 1999).
10.6 First Amendment to Memorandum of Understanting dated August 6, 1999 (filed
as Exhibit 10.6 to Current Report on Form 8-K dated August 6, 1999).
27 Financial Data Schedule
99.1 Press Release (regarding engagement of CIBC Oppenheimer Corp.) (filed
as Exhibit 99.1 to the Current Report on Form 8-K filed on October 20,
1998)
99.2 Complaint against Jefferies & Company, Inc. filed on October 16, 1998 in
the United States District Court in and for the Eastern District of
Louisiana (filed as Exhibit 99.2 to the Current Report on Form 8-K
filed on October 20, 1998)
22
<PAGE>
99.3 Press Release (regarding lawsuit against Jefferies & Company, Inc.) (filed
as Exhibit 99.3 to the Current Report on Form 8-K filed on October 20,
1998)
99.4 Press Release (regarding nonpayment of the December 1, 1998 installment of
interest due on the Notes) (filed as Exhibit 99.4 to the Current Report on
Form 8-K filed on December 1, 1998)
99.5 Press Release (regarding nonpayment of the December 1, 1998 installment of
interest due on the Notes within the thirty day grace period) (filed as
Exhibit 99.5 to the Current Report on Form 8-K filed on December 30, 1998)
99.6 Press Release (regarding execution of First Amendment and filing of
voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code) (filed as Exhibit 99.6 to the Current Report on Form 8-K
dated August 6, 1999)
(b) REPORTS ON FORM 8-K -
1. Current Report on Form 8-K dated August 6, 1999 reporting the execution
by the Company of the First Amendment and the filing by the Company of a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code.
23
<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: August 20, 1999 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 Treasurer
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORMAN
PETROLEUM CORP. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 169,816 1,474,488
<SECURITIES> 0 0
<RECEIVABLES> 107,903 47,830
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,429,506 3,687,229
<PP&E> 87,791,272 83,271,685
<DEPRECIATION> 63,152,429 59,511,084
<TOTAL-ASSETS> 31,503,802 33,685,858
<CURRENT-LIABILITIES> 83,474,987 77,791,028
<BONDS> 0 0
13,339,924 12,360,322
0 0
<COMMON> 1,000 1,000
<OTHER-SE> (65,322,888) (56,483,603)
<TOTAL-LIABILITY-AND-EQUITY> 31,503,802 33,685,858
<SALES> 5,520,807 15,950,329
<TOTAL-REVENUES> 5,571,384 16,275,843
<CGS> 2,092,561 3,900,037
<TOTAL-COSTS> 13,431,067 46,813,745
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,104,333 10,122,131
<INCOME-PRETAX> (7,859,683) (30,537,902)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,859,683) (30,537,902)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,859,683) (30,537,902)
<EPS-BASIC> (87.33) (358.52)
<EPS-DILUTED> (87.33) (358.52)
</TABLE>
