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, 2000
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 IdentificationNo.)
organization)
650 POYDRAS STREET - SUITE 2200 70130-6101
NEW ORLEANS, LOUISIANA (Zip code)
(Address of principal executive offices)
(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 [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [X ] No [ ]
AS OF AUGUST 10, 2000, THERE WERE 1,000,008 SHARES OF THE REGISTRANT'S
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.
FORMAN PETROLEUM CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
PART I
Page No.
Item 1. Financial Information:
Balance Sheets as of June 30, 2000 and
December 31, 1999 1
Statement of Operations and Accumulated
Deficit for the Three and Six Month Periods
Ended June 30, 2000 and June 30, 1999 2
Statement of Cash Flows for the Six Month
Periods Ended June 30, 2000 and June 30, 1999 3
Notes to Financial Statements 4-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II
Item 1. Legal Proceedings 17
Item 5. Other Events 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
PART I
Item 1. Financial Information
FORMAN PETROLEUM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,239,328 $ 3,180,925
Accounts receivable 59,622 236,663
Oil and gas revenue receivable 1,170,938 1,359,393
Unbilled well costs 171 257
Prepaid expenses 72,820 43,845
------------ -------------
Total current assets 5,542,879 4,821,803
------------ -------------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties, full cost method 26,805,371 25,515,529
Unevaluated oil and gas properties 4,732,139 4,732,139
Other property and equipment 239,257 200,000
------------ -------------
31,776,767 30,447,668
Less-accumulated depreciation, depletion and amortization (2,402,841) ( - )
------------ -------------
Net property and equipment 29,373,926 30,447,668
OTHER ASSETS:
Funds on deposit in escrow 490,688 490,044
------------ -------------
TOTAL ASSETS $ 35,407,493 $ 35,758,795
============ =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,613,720 $ 1,571,710
Current tax liability 453,130 -
Undistributed oil and gas revenues 797,392 895,064
Current portion of note payables 857,539 640,608
------------ -------------
Total current liabilities 3,721,781 3,107,382
------------ -------------
Accounts payable to be refinanced 519,528 -
Notes payable (long-term portion) 1,415,264 2,066,173
Deferred tax liability 9,279,237 9,900,580
------------ -------------
Total liabilities 14,935,810 15,074,135
STOCKHOLDERS' EQUITY:
Common stock, no par value, authorized 10,000,000
shares; issued and outstanding 1,000,008 shares 20,684,660 20,684,660
Retained earnings (deficit) (212,977) ( - )
------------ -------------
Total stockholder's deficit 20,471,683 20,684,660
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 35,407,493 $ 35,758,795
</TABLE>
The accompanying notes are an integral part of these financial statements.
FORMAN PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------
2000 1999 2000 1999
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 3,161,094 $ 2,918,250 $ 6,378,776 $ 5,520,807
Interest income 35,643 4,650 47,775 9,442
Overhead reimbursements 44,583 18,720 57,366 32,665
Other income 621 3,977 140,075 8,470
------------- ----------- ----------- ------------
Total revenues 3,241,941 2,945,597 6,623,992 5,571,384
------------- ----------- ----------- ------------
Costs and expenses:
Production taxes 194,647 180,035 270,905 304,940
Lease operating expenses 687,914 861,333 1,500,015 1,787,621
General and administrative expenses 843,030 693,477 1,467,319 1,311,707
Interest expense 49,840 2,521,691 94,060 5,104,333
Recapitalization expense - 229,609 15,225 880,431
Depreciation, depletion and amortization 1,191,202 2,360,477 2,402,841 4,042,035
------------- ----------- ----------- ------------
Total expenses 2,966,633 6,846,622 5,750,365 13,431,067
------------- ----------- ----------- ------------
Net income (loss) from operations before
reorganization items and income taxes 275,308 (3,901,025) 873,627 (7,859,683)
Reorganization items:
Adjustment to reorganization costs - - (1,196,317) -
------------- ----------- ----------- ------------
Net income (loss) before income taxes 275,308 (3,901,025) (322,690) (7,859,683)
Deferred income tax benefit (liability) - - (621,343) -
Current income tax expense 93,605 - 511,630 -
------------- ----------- ----------- ------------
Net income (loss) attributable to common shares $ 181,703 $(3,901,025) $(212,977) $(7,859,683)
============= =========== =========== ============
Net income (loss) per share $0.18 $(43.34) $(0.21) $(87.33)
===== ======== ======= ========
Weighted average shares outstanding 1,000,008 90,000 1,000,008 90,000
========= ====== ========= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
FORMAN PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
2000 1999
------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (212,977) $ (7,859,683)
Adjustments to reconcile net loss to net cash provided
by operating activities-
Depreciation and amortization 2,402,841 4,042,042
Deferred tax benefit 453,130 -
Change in assets and liabilities-
(Increase) Decrease in oil and gas revenue receivable 188,455 (393,099)
(Increase) Decrease in accounts receivable 177,041 (60,073)
(Increase) Decrease in unbilled well costs and prepaids (28,889) 206,223
Increase in interest payable - 4,724,824
Increase (Decrease) in accounts payable 561,538 1,302,588
(Decrease) in undistributed oil and gas revenues (97,672) (506,904)
Decrease in advance to operator - 1,200,000
Increase (Decrease) in deferred tax liability (621,343) -
Increase (Decrease) in notes payable - 157,119
------------ --------------
Net cash provided by operating activities 2,822,124 2,813,037
------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (1,289,842) (4,491,837)
(Increase) reduction of escrow account (644) 17,565
Purchase of other property and equipment (39,257) (27,750)
------------ --------------
Net cash used in investing activities (1,329,743) (4,502,022)
------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of recapitalization costs - 384,313
Repayment of notes payable (433,978) -
------------ --------------
Net cash (used) provided by financing activities (433,978) 384,313
------------ --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,058,403 (1,304,672)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 3,180,925 1,474,488
------------ --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 4,239,328 $ 169,816
============ ==============
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 94,059 $ -
============ ==============
Income taxes $ 58,500 $ -
============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FORMAN PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
1. REORGANIZATION AND FRESH START REPORTING:
Forman Petroleum Corporation ("Forman" or the "Company"), a Louisiana
corporation, is an independent energy company engaged in the exploration,
development, acquisition and production of crude oil and natural gas, with
operations primarily in the onshore Gulf Coast area of Louisiana. Forman
was incorporated in Louisiana in 1982 and began operations in that year.
REORGANIZATION
On August 6, 1999, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code in the United States
District Court for the Eastern District of Louisiana (the Bankruptcy Court)
(Case No. 99-14319). On November 22, 1999, the Company and certain of its
creditors filed a Second Amended Joint Plan of Reorganization, as amended
on December 29, 1999 (the Bankruptcy Plan). The Company's reorganization
plan was confirmed by the Bankruptcy Court on December 29, 1999 and
consummated on January 14, 2000.
Pursuant to the Bankruptcy Plan, all of the Company's issued and
outstanding securities were canceled and the Company issued the following
equity securities:
* 925,000 shares of new common stock, no par value, to the former
holders of the Company's 13.5% Series B Senior Notes due 2004;
* 75,000 shares of new common stock to the former holders of the
Company's Series A Cumulative Preferred Shares; and
* warrants to purchase up to 500,000 shares of new common stock to
certain of the Company's former warrant holders and to McLain J.
Forman, the former sole voting shareholder of the Company.
As of the confirmation date, the Company had total assets of $33.9 million
and liabilities of $96.0 million. With the exception of an aggregate of
approximately $2.7 million of promissory notes issued to general unsecured
creditors pursuant to the Bankruptcy Plan, an additional $984,000 in
promissory notes issued in July, 2000 pursuant to a creditor's proof of
claim granted by the Bankruptcy court on May 12, 2000, approximately
$300,000 in convenience claims which were paid in full in 2000,
undistributed oil and gas revenues of $895,000, and approximately $1.9
million in additional pre-petition bankruptcy claims that are disputed by
the Company and still pending before the Bankruptcy Court (Note 5), all of
the Company's liabilities as of the confirmation date were extinguished
pursuant to the Bankruptcy Plan. The long-term portion of the $984,000
promissory note issued in July, 2000 is reflected on the balance sheet as
"Accounts payable to be refinanced". In addition, on July 24, 2000, the
Bankruptcy Court granted a creditor's proof of claim in the amount of
approximately $501,000 in cash plus a future work obligation of
approximately $122,000, as a mineral lease obligation.
Costs incurred during 1999 directly related to the Company's
reorganization, consisting primarily of legal, accounting and financial
consulting fees, were recorded to reorganization costs in the accompanying
statement of operations. These costs are net of interest income earned on
cash and cash equivalents because the maintenance of cash balances during
1999 was directly related to the Company's bankruptcy filing.
The Company ceased accruing interest on its Senior Notes and dividends on
its preferred stock on August 6, 1999, when it filed for relief under
Chapter 11.
FRESH START REPORTING
The Company has accounted for the reorganization using the principles of
fresh start accounting required by AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" (SOP 90-7). For accounting purposes, the accompanying financial
statements reflect the confirmed plan as if it was consummated on
December 31, 1999. Under the principles of fresh start accounting, the
Company's total assets and liabilities were recorded at their estimated
fair market values. Accordingly, the Company's net proved oil and gas
properties were increased by approximately $3.0 million, its unevaluated
oil and gas properties were increased by approximately $3.1 million and
other net property and equipment was increased by approximately $0.2
million. Obligations arising from the Bankruptcy Plan are recorded at the
amounts expected to be paid in settlements of such obligations. In
addition, the Company's Senior Notes with a net book value of $68.6
million, related interest payable of $11.1 million, preferred stock of
$13.6 million and deferred financing costs related to the Senior Notes and
preferred stock of $4.4 million were all written off.
Since the former holders of the Company's Senior Notes (the former
noteholders) received 92.5% of the shares of the common stock, the gain on
discharge of indebtedness was computed using 92.5% of the net assets
received by the former noteholders. The remaining 7.5% of the net assets
allocable to the former holders of the Company's preferred stock was
recorded to equity and is included in fresh start accounting adjustments.
Also included in such amount is the write-off of the remaining deferred
costs allocable to the preferred stock.
The fair market value assigned to the Company's proved oil and gas
properties was estimated by adjusting the net pre-tax future cash flows
discounted at a 10% annual rate (PV10) of the Company's proved reserves
($36.4 million at December 31, 1999) as set forth in the Estimate of
Reserves and Future Revenue report on the Company's proved oil and gas
properties as of December 31, 1999, prepared by Netherland, Sewell &
Associates, independent reservoir engineers. This report was prepared in
accordance with SEC guidelines, utilizing constant prices existing as of
December 31, 1999. The Company adjusted these prices to reflect the
product prices used in valuing producing properties, ($21 per barrel of oil
and $2.75 per mcf of gas) then applied risk factors to the various
categories of proved reserves as follows:
<TABLE>
<CAPTION>
PROVED CATEGORY RISK FACTOR
<S> <C>
Proved Producing 95%
Proved Non-producing 75%
Proved Undeveloped 25%
</TABLE>
Applying these risk factors and adjusting the product pricing resulted in
an estimated fair market value of the proved properties of $25.5 million.
The Company's other assets, including other property and equipment, were
valued at $4.9 million.
As a result of the implementation of fresh start accounting, the financial
statements as of December 31, 1999 and those as of June 30, 2000 and for
the three and six month periods ended June 30, 2000 reflecting the fresh
start accounting principles discussed above are not comparable to the
financial statements of prior periods.
2. SIGNIFICANT ACCOUNTING POLICIES:
INCOME TAXES
The income tax effects of the Company's reorganization had a material
impact on the tax basis of the Company's oil and gas interests and its net
operating loss carryforwards (Note 4).
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECAPITALIZATION COSTS
Costs incurred during 1998, consisting primarily of consulting and
financial advisory fees, were capitalized in anticipation of the possible
debt restructuring or recapitalization of the Company. These costs were
written off in 1999.
DERIVATIVES
The Company uses derivative financial instruments such as swap agreements
and forward sales contracts for price protection purposes on a limited
amount of its future production and does not use them for trading purposes.
Such derivatives are accounted for on an accrual basis and amounts paid or
received under the agreements are recognized as oil and gas sales in the
period in which they accrue. For the periods ended June 30, 2000 and 1999,
the Company recorded additions to oil and gas sales of $109,800 and $-0-
respectively, under these agreements. The Company did enter into a forward
sales agreement to sell 200 barrels per day of its oil production in
October 1999 for the twelve months ending November 30, 2000, at a price of
$22.05 per barrel. As of June 30, 2000 and through August 11, 2000, the
Company had no open forward gas sales positions.
PER SHARE AMOUNTS
Net loss per share of common stock was calculated by dividing net loss
applicable to common stock by the weighted-average number of common shares
outstanding during the periods. Due to the net losses reported in 2000 and
1999, all options and warrants outstanding were excluded from the
computation because they would have been antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting
and reporting standards that require every derivative instrument (including
certain derivative instruments embedded in other contracts) to be recorded
in the balance sheet as either an asset or a liability measured at its fair
value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
The Company will adopt SFAS No. 133 on January 1, 2001. Because of the
nature of the Company's hedging activities, the Company does not expect
that the adoption of SFAS No. 133 will have a material impact on the
Company's results of operations. However, management believes that its
hedging contracts will meet the criteria for hedge accounting treatment
under SFAS No. 133; this treatment will create volatility in items of other
comprehensive income due to the marking-to-market of the instruments.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the
presentation of such items in the current year.
3. INTERIM FINANCIAL STATEMENTS
The financial statements of the Company at June 30, 2000 and for the three
month period 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, 1999 contained in the Company's
Form 10-K (file number 333-31375) filed with the Commission on April 13,
2000.
4. INCOME TAXES
Under the applicable income tax rules and regulations, the Company is not
required to recognize taxable income, or pay taxes on the gain resulting
from discharge of indebtedness (DOI) as a result of the Bankruptcy Plan.
Rather, the gain (represented for tax purposes as the face value of the
debt and accrued interest discharged in excess of the fair market value of
the reorganized company) reduces the Company's net operating loss
carryforwards (NOLs). Any remaining gain (after offsetting the Company's
NOLs) reduced the Company's tax basis in its net assets. The magnitude of
the DOI resulted in the elimination of $20.9 million of NOLs from 1998 and
$9.6 million of net operating losses generated during 1999. Additionally,
it substantially eliminated the tax basis in the net assets of the
reorganized Company. The significant excess of book basis over tax basis
in the net assets of the Company resulted in a $9.9 million deferred tax
liability in the reorganized balance sheet (See Note 1).
5. DISPUTED CLAIMS
As of June 30, 2000, the Company was disputing approximately $1.9 million
in additional pre-petition bankruptcy claims. These claims and certain
other residual bankruptcy-related matters are still within the jurisdiction
of the Bankruptcy Court. The Company recorded an accrual at December 31,
1999 for its estimate of the amounts expected to be paid in settlement of
these claims. Based on subsequent court-ordered settlements and additional
information, the Company has increased its settlement amount estimate as of
June, 2000, and this adjustment was reflected as a reorganization item in
the Statements of Operations for the six months ended June 30, 2000. There
can be no assurance as to the amount the Company will be required to pay
with respect to these matters.
6. LEGAL PROCEEDINGS
During the second quarter, the Company settled $984,000 in pre-petition
claims, and at June 30, 2000, the Company was disputing approximately $1.9
million in pre-petition bankruptcy claims, which claims and certain other
residual bankruptcy-related matters are still within the jurisdiction of
the Bankruptcy Court. Subsequently, on July 24th, 2000 the Bankruptcy
Court granted a creditor's proof of claim in the amount of approximately
$501,000 in cash plus a future work obligation of approximately $122,000,
as a mineral lease obligation, thereby reducing the remaining disputed
bankruptcy claims to $650,000.
The Company is not a party to any other material pending legal proceedings,
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.
Item 2. Management's 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 periods ended June 30, 2000 and 1999. The financial
statements of the Company at June 30, 2000 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, 1999 contained in the Company's Annual Report
on Form 10-K (file number 333-31375) filed with the Commission on April 13,
2000. 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.
As a result of the implementation of fresh start accounting, the
financial statements as of December 31, 1999 and those as of June 30, 2000
and for the three and six-month periods ended June 30, 2000 reflecting the
fresh start accounting principles discussed above are not comparable to the
financial statements of prior periods.
REORGANIZATION
On August 6, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
District Court for the Eastern District of Louisiana (the Bankruptcy Court)
(Case No. 99-14319). On November 22, 1999, the Company and certain of its
creditors filed a Second Amended Joint Plan of Reorganization, as amended
on December 29, 1999 (the Bankruptcy Plan). The Company's reorganization
plan was confirmed by the Bankruptcy Court on December 29, 1999 and
consummated on January 14, 2000.
Pursuant to the Bankruptcy Plan, all of the Company's issued and
outstanding securities were canceled and the Company issued the following
equity securities:
* 925,000 shares of new common stock, no par value, to the former
holders of the Company's 13.5% Series B Senior Notes due 2004;
* 75,000 shares of new common stock to the former holders of the
Company's Series A Cumulative Preferred Shares; and
* warrants to purchase up to 500,000 shares of new common stock to certain
of the Company's former warrant holders and to McLain J. Forman, the
former sole voting shareholder of the Company.
As of the confirmation date, the Company had total assets of
$33.9 million and liabilities of $96.0 million. With the exception of an
aggregate of approximately $2.7 million of promissory notes issued to
general unsecured creditors pursuant to the Bankruptcy Plan, an additional
$984,000 in promissory notes issued in July, 2000 pursuant to a creditor's
proof of claim granted by the Bankruptcy court on May 12, 2000,
approximately $300,000 in convenience claims which were paid in full in
2000, undistributed oil and gas revenues of $895,000, and approximately
$1.9 million in additional pre-petition bankruptcy claims that are disputed
by the Company and still pending before the Bankruptcy Court (Note 5), all
of the Company's liabilities as of the confirmation date were extinguished
pursuant to the Bankruptcy Plan. The long-term portion of the $984,000
promissory note issued in July, 2000 is reflected on the balance sheet as
Accounts payable to be refinanced". In addition, on July 24th, 2000 the
Bankruptcy Court granted a creditor's proof of claim in the amount of
approximately $501,000 in cash plus a future work obligation of
approximately $122,000, as a mineral lease obligation.
FRESH START REPORTING
The Company has accounted for the reorganization using the principles
of fresh start accounting required by AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" (SOP 90-7). For accounting purposes, the accompanying financial
statements reflect the confirmed plan as if it was consummated on
December 31, 1999. Under the principles of fresh start accounting, the
Company's total assets and liabilities were recorded at their estimated
fair market values. Accordingly, the Company's net proved oil and gas
properties were increased by approximately $3.0 million, its unevaluated
oil and gas properties were increased by approximately $3.1 million and
other net property and equipment was increased by approximately $0.2
million. Obligations arising from the Bankruptcy Plan are recorded at the
amounts expected to be paid in settlements of such obligations. In
addition, the Company's Senior Notes with a net book value of $68.6
million, related interest payable of $11.1 million, preferred stock of
$13.6 million and deferred financing costs related to the Senior Notes and
preferred stock of $4.4 million were all written off.
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, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Sales:
Oil (Bbls) 70,149 86,843 139,809 172,413
Gas (Mcf) 396,353 703,740 944,755 1,491,250
Oil and gas (BOE) 136,208 204,133 297,268 420,955
Sales Revenue:
Total oil sales $1,797,841 $1,360,349 $3,538,244 $2,262,349
Total gas sales 1,363,253 1,557,901 2,840,532 3,258,458
----------- ---------- ----------- ------------
Total sales $3,161,094 $2,918,250 $6,378,776 $5,520,807
Average sales prices:
Oil (per Bbl) $25.63 $15.66 $25.31 $13.12
Gas (per Mcf) $3.44 $2.21 $3.01 $2.19
Per BOE $23.21 $14.30 $21.46 $13.11
Average costs (per BOE):
Severance taxes $1.43 $0.88 $0.91 $0.72
Lease operating expenses $5.05 $4.22 $5.05 $4.25
General and administrative expenses $6.19 $3.40 $4.94 $3.12
Depreciation, depletion and amort. $8.75 $11.56 $8.08 $9.60
amort.
</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, 2000 and the
comparable periods in 1999:
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS 2000
2000 COMPARED TO COMPARED TO FIRST
SECOND QUARTER 1999 SIX MONTHS 1999
------------------- ---------------------
<S> <C> <C>
Increase (decrease) in oil and gas
Revenues resulting from differences in:
Crude oil and condensate -
Prices $ 698,995 $ 1,703,714
Production (261,503) (427,819)
------------- ---------------
437,492 1,275,895
Natural gas -
Prices 485,828 776,194
Production (680,476) (1,194,120)
------------- ---------------
(194,648) (417,926)
------------- ---------------
Increase (decrease) in oil and gas
Revenues 242,844 857,969
============= ===============
</TABLE>
The Company's oil and gas revenues increased approximately
$858,000 or 16% to $6.4 million for the six months ended June 30, 2000 from
$5.5 million for the comparable period in 1999. Production levels for the
six months ended June 30, 2000 decreased 29% to 297 thousand barrels of oil
equivalent ("MBOE") from 421 MBOE for the comparable period in 1999. Gas
production volumes decreased 37%, while oil volumes decreased 19%. The
Company's average sales prices (including hedging activities) for oil and
natural gas for the six months ended June 30, 2000 were $25.31 per Bbl and
$3.01 per Mcf versus $13.12 per Bbl and $2.19 per Mcf in the comparable
1999 period. Revenues decreased $1.6 million due to the aforementioned
production decreases, and increased by $2.5 million as a result of higher
oil and gas prices.
For the quarter ended June 30, 2000, total oil and gas revenues
increased $243,000 from revenues for the second quarter of 1999. Oil
production for the quarter ended June 30, 2000 was down 19% from the
comparable quarter in 1999, and gas production between comparable periods
was down 44%. Oil prices for the quarter ended June 30, 2000 increased
64%, to $25.63 per Bbl from $15.66 per Bbl from the second quarter of 1999.
Gas prices increased 55% during the quarter ended June 30, 2000 to $3.44
per Mcf from $2.21 per Mcf for the second quarter of 1999.
LEASE OPERATING EXPENSES - On a BOE basis, lease operating expenses
experienced a 19% increase, to $5.05 per BOE for the six months ended June
30, 2000 from $4.25 per BOE in the comparable 1999 period. For the first
six months of 2000, lease operating expenses were down 16%, from $1,788,000
in 1999 to $1,500,000 in the comparable 2000 period. For the quarter ended
June 30, 2000, lease operating expenses were 20% lower than the comparable
quarter in 1999. The decreases for the quarter ended June 30, 2000 and for
the first six months of 2000 resulted primarily from the reduced level of
production between the first half of 2000 and the first half of 1999.
SEVERANCE TAXES - The effective severance tax rate as a percentage of
oil and gas revenues decreased from 5.5% for the six months ended June 30,
1999 to 4.2% for the comparable period in 2000. For the quarter ended June
30, 1999 the effective tax rate remained at 6.2%, the same as the
comparable quarter in 1999. The effective severance tax rate increased for
the six-month period because certain wells which were exempt in 1999 became
taxable during the first quarter of 2000. 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, 2000 general and administrative ("G&A") expenses were $4.94 per BOE, a
58% increase from the $3.12 per BOE for the first six months of 1999. For
the first six months of 2000, G&A increased 12%, from $1,312,000 in 1999 to
$1,467,000 in 2000. For the quarter ended June 30, 2000, G&A increased 22%,
from $693,000 in 1999 to $843,000 in 2000, and the G&A per BOE during the
same periods increased 82%. The second quarter and first six months
increases in G&A per BOE in 2000 were due to decreases in production during
the periods as compared to the comparable periods for 1999. The increases
in actual G&A expenses in the second quarter and six month periods ended
June 30, 2000 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, 2000, depreciation, depletion and amortization ("DD&A")
expense decreased 41% from the comparable 1999 period. For the quarter
ended June 30, 2000, DD&A expense decreased 50% from the comparable second
quarter of 1999. The DD&A decreases for both the second quarter and the
first six months of 2000 are attributable to the Company's increased
book value of the full cost pool as a result of Fresh Start Accounting
(see Notes to Financial Statements) and to decreased production and related
future capital costs between the comparable periods for 1999 and 2000.
On a BOE basis, which reflects the decreases in production, the DD&A
rate for the first six months of 2000 was $8.08 per BOE compared to $9.60
per BOE for the same period in 1999, a decrease of 16%. For the second
quarter of 2000, DD&A per BOE was $8.75 compared to $11.56 for the
comparable period in 1999, for a decrease of 24%.
INTEREST EXPENSE - For the six months ended June 30, 2000 interest
expense decreased to $94,000 from $5.1 million for the comparable 1999
period, or a 98% decrease. For the quarter ended June 30, 2000, interest
expense decreased $2.5 million from the comparable second quarter of 1999,
or a 98% decrease.
NET LOSS FROM OPERATIONS - Due to the factors described above, net
loss from operations for the six months ended June 30, 2000 was $323,000, a
decrease of $7.5 million from the net loss of $7.9 million reported for the
first six months of 1999. The net loss for the quarter ended June 30, 2000
decreased $4.2 million, from $3.9 million in the second quarter of 1999 to
net income $275,000 during the second quarter of 2000.
INCOME TAX EXPENSE - The Company is 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, as a result of
Fresh Start Accounting (see Notes to the Financial Statements) a net
deferred tax liability of $9.9 million was accrued at December 31, 1999.
As of June 30, 2000, $453,000 of that deferred tax liability has been
reclassified as a current liability. The Company had a net deferred tax
asset at June 30, 1999 that had been fully reserved due to the Company's
operating losses.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOW - As of June 30, 2000, the Company has
$1.3 million of working capital, compared to a working capital deficit at
June 30, 1999 of $82 million. The large working capital deficit at the end
of the first six months of 1999 resulted primarily from the acceleration of
long-term debt due to the default on the senior notes, compounded by
declines in both prices and production. The Company's realized oil and gas
prices increased 93% and 38%, respectively, from the first six months of
1999 to the first six months of 2000. During the same period oil
production declined 19% and gas production declined 36%. The combination
of the increase in product prices and the decrease in production volumes
during the first six months of 2000 increased the Company's revenues from
production, from $5.5 million in the first six months of 1999 to $6.4
million in the first six months of 2000.
The Company believes that its cash on hand plus the expected normal
cash flow from operations will be sufficient to fund its working capital
needs for the remainder of 2000.
The foregoing discussion includes many forward looking statements
which are subject to the risks and uncertainties noted below in "Forward-
Looking Statements" which could cause the actual results to differ
materially from the Company's expectations.
The following summary table reflects comparative cash flows for the
Company for the six month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30,
--------
(IN THOUSANDS)
--------------
2000 1999
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 2,803 $ 2,813
Net cash (used) by investing activities (1,330) (4,502)
Net cash provided by financing activities ( - ) 384
</TABLE>
As a result of the implementation of fresh start accounting, the
financial statements as of December 31, 1999 and those as of June 30, 2000
and for the three and six-month periods ended June 30, 2000 reflecting the
fresh start accounting principles discussed above are not comparable to the
financial statements of prior periods.
For the six months ended June 30, 2000 net cash provided by operating
activities decreased to $2.80 million from $2.81 million during the
comparable period in 1999. Cash used in investing activities during the
six months ended June 30, 2000 was reduced to $1.3 million from $4.5
million during the comparable period in 1999. Cash provided by financing
activities decreased from $384,000 in the first six months of 1999 to no
cash used or provided during the first six months of 2000.
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. For the periods ended June 30, 2000 and 1999, the Company
recorded additions to oil and gas sales of $109,800 and $-0-,
respectively, under these agreements. The Company did enter into a forward
sales agreement to sell 200 barrels per day of its oil production in
October 1999 for the twelve months ending November 30, 2000, at a price of
$22.05 per barrel. As of June 30, 2000 and through August 11, 2000, the
Company had no open forward gas sales positions.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The Statement establishes accounting and reporting standards that require
every derivative instrument (including certain derivative instruments
embedded in other contracts) to be recorded in the balance sheet as either
an asset or a liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company will adopt SFAS No. 133 on
January 1, 2001. Because of the nature of the Company's only derivative
instrument, the Company does not expect that the adoption of SFAS No. 133
will have a material impact on the Company's results of operations.
However, the adoption may create volatility in equity through changes in
other comprehensive income.
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.
RISK FACTORS
A detailed discussion of risks and uncertainties which could affect
the Company's future results and the forward looking statements contained
in this report can be found in the "Item 1. Business - Cautionary
Statements" section of the Company's Annual Report on Form 10-K for the
year ended December 31, 1999. Those risks and uncertainties remain
applicable to the Company's operations.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations, including but not limited to the discussions of
Liquidity and Capital Resources, includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical fact included
in the discussions are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, such forward-looking statements are based on numerous
assumptions (some of which may prove to be incorrect) and are subject to
risks and uncertainties which could cause the actual results to differ
materially from the Company's expectations. Such risks and uncertainties
include, but are not limited to, 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, as well as other risks and uncertainties
discussed in this and the Company's other filings with the Securities and
Exchange Commission (the "Cautionary Statements"). The Company undertakes
no obligation to update or revise any forward-looking statements, whether
as a result of changes in actual results, changes in assumptions or other
factors affecting such statements. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the Cautionary
Statements.
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 2000, a 10% decline
in the prices the Company receives for its oil and natural gas production
would have an approximate $3.9 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 11, 2000.
PART II
ITEM 1. LEGAL PROCEEDINGS
This information is incorporated by reference to Part 1, Item 1 (Note
6 - Legal Proceedings) of this report.
ITEM 5. OTHER EVENTS
On June 19, 2000, the Board of Directors appointed Jeffrey Clarke as
the President of the Company. Mr. Clarke is 54 years of age and has been a
member of the Board of Directors since January 2000. From October, 1993 to
March, 2000, Mr. Clarke served as the President, Chairman and Chief
Executive Officer of Coho Energy, Inc., an independent energy company
engaged, through its wholly-owned subsidiaries, in the development and
production of, and exploration for, crude oil and natural gas principally
in Mississippi and Oklahoma. Prior to that time, Mr. Clarke served in
various capacities with Coho Resources, Ltd. and Coho Resources, Inc.,
affiliates of Coho Energy, Inc. Coho Energy, Inc. and certain of its
affiliates filed for protection under Chapter 11 of the United States
Bankruptcy Code on August 23, 1999. Mr. Clarke holds a BS in Physics from
the University of Wales, 1967, and conducted post-graduate work in Physics
at the University of East Anglia from 1967 to 1968.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS -
3.2 Amended and Restated Bylaws
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
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 11, 2000 By: /S/ JEFFREY CLARKE
-------------------------
Jeffrey Clarke
President
By: /S/ MICHAEL H. PRICE
-------------------------
Michael H. Price
Chief Financial Officer
