<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
MARCH 31, 1996
Commission File Number 1-12322
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SABA PETROLEUM COMPANY
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(Exact name of small business issuer as specified in its charter)
Colorado 47-0617589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17512 Von Karman Avenue
Irvine, California 92714
(Address of principal executive offices)
Issuer's telephone number, including area code: (714) 724-1112
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
---- -----
At May 10, 1996, 4,271,590 shares of common stock, no par value, were
outstanding.
Transitional Small Business Disclosure Format. [ ] YES [X] NO
<PAGE> 2
SABA PETROLEUM COMPANY
CONTENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C>
PART I. - FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 1996 3
Condensed Consolidated Statements of Income for the
three months ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
PART II. - OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1996
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 283,625
Restricted certificate of deposit 1,766,752
Accounts receivable, net of allowance for doubtful
accounts of $60,200 5,186,991
Other current assets 2,768,909
------------
Total current assets 10,006,277
------------
Property and equipment (Note 4):
Oil and gas properties (full cost method) 33,422,887
Land, plant and equipment 5,248,244
------------
38,671,131
Less accumulated depletion and depreciation (11,174,033)
------------
Total property and equipment 27,497,098
------------
Other assets 2,528,132
------------
$ 40,031,507
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 5,494,884
Current portion of long-term debt 970,000
------------
Total current liabilities 6,464,884
Long-term debt, net of current portion 23,896,666
Other liabilities and deferred taxes 504,600
Minority interest in consolidated subsidiary 509,075
------------
Total liabilities 31,375,225
------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock - no par value, authorized
50,000,000 shares; none issued -
Common stock - no par value, authorized
150,000,000 shares; issued and outstanding
4,271,590 shares 6,838,138
Retained earnings 1,793,617
Cumulative translation adjustment 28,777
Unearned compensation (4,250)
------------
Total stockholders' equity 8,656,282
------------
$ 40,031,507
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Oil and gas sales $6,962,886 $3,186,310
Other 424,404 47,298
---------- ----------
Total revenues 7,387,290 3,233,608
---------- ----------
Expenses:
Production costs 3,401,990 2,028,594
General and administrative 703,757 506,063
Depletion, depreciation and amortization 1,140,500 503,687
---------- ----------
Total expenses 5,246,247 3,038,344
---------- ----------
Operating income 2,141,043 195,264
---------- ----------
Other income (expense):
Other income (expense) (60,846) 5,915
Interest expense, net of interest capitalized
of $27,369 (1995) (609,087) (179,897)
---------- ----------
Total other income (expense) (669,933) (173,982)
---------- ----------
Income before income taxes 1,471,110 21,282
Provision for taxes on income (694,000) (9,150)
Minority interest in earnings of consolidated subsidiary (21,622) -
---------- ----------
Net income $ 755,488 $ 12,132
========== ==========
Net earnings per common share:
Primary $ 0.17 $ 0.00
========== ==========
Fully-diluted $ 0.16 $ 0.00
========== ==========
Weighted average common and common equivalent
shares outstanding:
Primary 4,515,934 4,130,990
========== ==========
Fully-diluted 5,884,977 4,130,990
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 755,488 $ 12,132
Adjustments to reconcile net income to net cash
provided by operations:
Depletion, depreciation and amortization 1,140,500 503,687
Deferred taxes - 6,075
Amortization of unearned compensation 4,250 4,250
Minority interest in earnings of consolidated subsidiary 21,622 -
Changes in:
Accounts receivable (741,559) 42,661
Other assets 223,101 (96,350)
Accounts payable and accrued liabilities (1,381,949) (267,918)
----------- -----------
Net cash provided by operating activities 21,453 204,537
----------- -----------
Cash flows from investing activities:
Sale of property and equipment - 52,062
Expenditures for property and equipment (921,883) (1,839,609)
Expenditures for property deposits - (276,000)
----------- -----------
Net cash used in investing activities (921,883) (2,063,547)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 4,870,000 3,860,000
Principal payments on notes payable and long-term debt (4,055,699) (2,822,816)
(Increase) decrease in notes receivable (9,724) 41,882
Increase in deferred financing costs (250,340) -
Net change in accounts with affiliated companies (10,821) 254,845
----------- -----------
Net cash provided by financing activities 543,416 1,333,911
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 352 -
----------- -----------
Net decrease in cash (356,662) (525,099)
Cash at beginning of period 640,287 798,984
----------- -----------
Cash at end of period $ 283,625 $ 273,885
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. GENERAL
The accompanying unaudited condensed consolidated financial statements have
been prepared on a basis consistent with the accounting principles and
policies reflected in the financial statements for the year ended December
31, 1995 and should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1995 Form 10-KSB. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals only) necessary to present fairly the Company's consolidated
financial position as of March 31, 1996, and the consolidated results of
operations and cash flows for the three month periods ended March 31, 1996
and 1995.
2. RECLASSIFICATION
Certain previously reported financial information has been reclassified to
conform to the current period's presentation.
3. STATEMENTS OF CASH FLOWS
Following is certain supplemental information regarding cash flows for the
three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Interest paid $349,264 $228,629
======== ========
Income taxes paid $255,237 $ -
======== ========
</TABLE>
Non-cash investing and financing transactions:
In February 1996 the Company issued 7,000 shares of Common Stock to a
director of the Company in settlement of an obligation in the amount of
$42,000.
Cumulative foreign currency translation gains in the amount of $8,156 were
recorded during the three months ended March 31, 1996.
In January 1995 the Company awarded 12,000 shares of Common Stock with a
fair market value of $25,500 to an employee.
Accrued interest in the amount of $27,369 was capitalized in connection with
the refurbishment of the refinery facility during the three months ended
March 31, 1995
Cumulative foreign currency translation gains in the amount of $1,264 were
recorded during the three months ended March 31, 1995.
6
<PAGE> 7
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. LONG-TERM DEBT
Long-term debt consists of the following at March 31, 1996:
<TABLE>
<S> <C>
9% convertible senior subordinated debentures - due 2005 $12,650,000
Revolving loan agreement with a bank 8,720,000
Demand loan agreement with a bank 974,766
Promissory note 900,000
Promissory notes - Capco 1,621,900
-----------
24,866,666
Less current portion 970,000
-----------
$23,896,666
===========
</TABLE>
On December 26, 1995, the Company issued $11,000,000 of 9% convertible
senior subordinated debentures ("Debentures") due December 15, 2005. On
February 7, 1996, the Company issued an additional $1,650,000 of Debentures
pursuant to the exercise of an over-allotment option by the underwriting
group. The Debentures are convertible into common stock of the Company, at
the option of the holders of the Debentures, at any time prior to maturity
at a conversion price of $8.75 per share, subject to adjustment in certain
events. Net proceeds to the Company were utilized to reduce the outstanding
balance under the Company's revolving loan agreement and for other purposes.
The Company has reserved 1,500,000 shares of its Common Stock for the
conversion of the Debentures.
The revolving loan ("Agreement") is subject to semi-annual redeterminations
and will be converted to a three year term loan on June 1, 1997. Effective
February 26, 1996, the borrowing base was increased from $9,700,000 to
$10,800,000, subject to a monthly reduction of $200,000. In accordance with
the terms of the Agreement, $520,000 of the loan balance is classified as
currently payable at March 31, 1996. The Agreement requires, among other
things, that the Company maintain at least a 1 to 1 working capital ratio,
stockholders' equity of $6,250,000, a ratio of cash flow to debt service of
not less than 1.25 to 1.0 and general and administrative expenses at a level
not greater than 20% of revenue, all as defined in the Agreement.
Additionally, the Company is restricted from paying dividends and advancing
funds in excess of specified limits to affiliates.
Prior to March 5, 1996, the Company's Canadian subsidiary had a demand
non-revolving bank loan with principal repayments of $53,500 on the first
day of every month. Effective March 5, 1996, the company renegotiated its
bank loan and now has available a demand revolving reducing loan of
$1,830,000. The maximum principal amount available under the loan will
reduce by $36,650 per month commencing April 1, 1996. Interest is payable
at a variable rate equal to the Canadian prime rate plus 1% per annum.
Although the bank can demand payment in full of the loan at any time, it has
provided a written commitment not to do so except in the event of a default.
The promissory note is due to the seller of an oil refining facility which
was acquired by the Company in June 1994. Payment of the note, which bears
interest at the prime rate in effect on the note anniversary date, plus two
percent (10.75% at March 31, 1996), is due in two annual installments, each
in the amount of $450,000 on June 24, 1996 and 1997.
7
<PAGE> 8
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. LONG-TERM DEBT (CONTINUED)
The promissory notes - Capco are due to the Company's parent company, Capco
Resources Ltd. and to Capco Resources, Inc., formerly wholly- owned by Capco
Resources Ltd. and now majority-owned by Capco Resources Ltd. Payment of
the notes, which bear interest at the rate of 9% per annum, is due April 1,
2006. The notes are subordinated to the same extent the Debentures are
subordinated.
5. COMMON STOCK AND STOCK OPTIONS
As of March 31, 1996, the Company had outstanding options to certain
employees of the Company for the purchase of 370,000 shares of Common Stock.
These options become exercisable over a period of five years from the date
of issue. The exercise price of the options is the fair market value of the
Common Stock at the date of grant. No options had been exercised as of
March 31, 1996. The options exercisable at March 31, 1996 totaled 112,000.
In January 1995, the Company awarded 12,000 shares of Common Stock to an
employee pursuant to the terms of an employment agreement. The cost of the
stock award, based on the stock's fair market value at the award date, was
charged to stockholders' equity and is amortized against earnings over the
contract term.
6. CONTINGENCIES
The Company is subject to extensive Federal, state, local and foreign
environmental laws and regulations. These requirements, which change
frequently, regulate the discharge of materials into the environment. The
Company believes that it is in compliance with existing laws and
regulations.
The Colombian Ministry of the Environment issued a resolution dated June 7,
1995 that set forth a number of measures aimed at correcting certain
deficiencies that the Ministry has allegedly found in environmental aspects
of the Teca and Nare oil fields. Among such measures, the Ministry ordered
the temporary closing of one of five production modules and of any wells
processed in that module until Texas Petroleum Company, the former owner and
operator of the properties, provided a document detailing the timetable to
correct the deficiencies. This temporary closing of the module has not had
a substantial effect on total production because substantially all of the
crude oil which would otherwise have been processed in the closed module has
been directed to other production modules. The resolution also ordered the
opening of an environmental investigation of Texas Petroleum Company's
operation of the Teca and Nare oil fields. The document containing the
requested timetable was presented to the Ministry of the Environment on July
6, 1995. On August 8, 1995 the Ministry of the Environment requested
certain revisions to the timetable.
Texas Petroleum Company formally appealed the resolution and the Ministry of
Environment, Texas Petroleum Company and Omimex, the current operator of the
Teca and Nare oil fields, have negotiated an agreement for Omimex and the
Company to implement certain corrective actions over a four to six month
period, at which time (projected to be mid-1996) the closed production
module will be allowed to recommence operations. Texas Petroleum Company
had previously estimated that the costs of compliance with the resolution
attributable to the Company's interest in the Teca and Nare oil fields would
not exceed $250,000. Additionally, the Company engaged an independent
consultant to perform an environmental compliance survey of the Teca and
Nare oil fields. That survey estimated that the costs of environmental
compliance attributable to the Company's interest in the Teca and Nare oil
fields
8
<PAGE> 9
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. CONTINGENCIES (CONTINUED)
would not exceed $375,000. Omimex has indicated to the Company that it
believes that these cost estimates for the corrective work are accurate.
Under the terms of the Company's agreement with Texas Petroleum Company,
however, the Company takes Texas Petroleum Company's interests "as is" and
could be subject to liability materially greater than the estimated costs.
Omimex also estimates that as much as $250,000 may be expended to upgrade
waste water disposal capabilities.
The Company has a significant contingent liability in connection with the
plugging and abandonment ("P&A") of approximately 225 wells on certain
California property acquired by the Company during 1993. The Company
acquired the mineral rights and fee title to the property. The Company
intends to operate the producing wells on the property as long as
economically feasible and will decide in the future regarding the ultimate
disposition of the land. If the Company chooses to sell the property, it
may decide to sell the land "as is" or incur the P&A costs, thus enhancing
the property's value. The Company estimates that the P&A costs will
approximate $15,000 per well, for a total of $3,375,000. Management
believes that the fair market value of this land, after restoration, will
exceed the estimated P&A costs.
The Company is a defendant in various legal proceedings which arise in the
normal course of business. Based on discussions with legal counsel,
management does not believe that the ultimate resolution of such actions
will have a significant effect on the Company's financial statements or
operations.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements of the Company and notes thereto, included
elsewhere herein.
OVERVIEW
The Company's long-term business strategy is to acquire oil and gas reserves
for current and future production and the enhancement and development of
such reserves. Capital utilized to acquire such reserves has been provided
primarily by secured bank financing, the creation of joint interest
operations and production payment obligations, sale of debentures, and sales
of the Company's equity securities. In pursuit of its business strategy, the
Company has made significant acquisitions of oil and gas producing
properties in recent years. The extent and timing of these acquisitions
complicates period to period comparisons.
The Company's oil and gas producing activities are accounted for using the
full cost method of accounting. Accordingly, the Company capitalizes all
costs, in separate cost centers for each country, incurred in connection
with the acquisition of oil and gas properties and with the exploration for
and development of oil and gas reserves. Such costs include lease
acquisition costs, geological and geophysical expenditures, costs of
drilling both productive and non-productive wells, and overhead expenses
directly related to land acquisition and exploration and development
activities. Proceeds from the disposition of oil and gas properties are
accounted for as a reduction in capitalized costs, with no gain or loss
recognized unless such disposition involves a significant change in
reserves, in which case the gain or loss is recognized.
Depletion of the capitalized costs of oil and gas properties, including
estimated future development costs, is provided using the equivalent
unit-of-production method based upon estimates of proved oil and gas
reserves and production which are converted to a common unit of measure
based upon their relative energy (BTU) content. Unproved oil and gas
properties are not amortized but are individually assessed for impairment.
The cost of any impaired property is transferred to the balance of oil and
gas properties being depleted.
The Company's operating performance is influenced by several factors, the
most significant of which are the price received for its oil and gas and the
Company's production volumes. The world price for crude oil has an overall
influence on the prices that the Company receives for the oil that it
produces. The prices received for different grades of oil are based upon
the world price for crude oil, which is then adjusted based upon the
particular grade, such that, typically, light oil is sold at a premium while
heavy grades of crude are discounted. Additional factors influencing
operating performance include production expenses, overhead requirements,
the Company's method of depleting reserves, and cost of capital.
In May 1995, the Company completed the re-permitting and environmental
impact review process of its Santa Maria refinery with the County of Santa
Barbara and in June 1995 re-commenced refinery operations. The Company
entered into a processing agreement with Petro Source, under which Petro
Source purchases crude oil (including crude oil purchased from the Company),
delivers it to the refinery, reimburses the Company's out-of-pocket costs
for refining, markets the asphalt and other products and generally shares
any profits equally with the Company.
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Processing operations at the Company's asphalt refinery during the three
months ended March 31, 1996 resulted in the accumulation of asphalt
inventory. Crude oil throughput amounted to 243,000 barrels, an average of
2,670 barrels per day. Processing the crude oil produced 28,000 tons of
asphalt and 84,000 barrels of related products. Quantities sold during the
quarter consisted of 6,000 tons of asphalt and 84,000 barrels of other
products.
ACQUISITION, EXPLORATION AND DEVELOPMENT
Workover activity consisting of upgrading down hole equipment was
successfully performed on the Company's Utikuma well in Alberta, Canada in
December 1995. As a result of the workover, the Company's share of monthly
production, beginning January 1996, has increased by 1,000 barrels of oil.
In March 1996, drilling operations commenced on a well in the Black Warrior
Basin in Lamar County, Alabama, which was drilled to a total depth of 4,720
feet. Test results of three out of five potential gas zones were in excess
of 4.1 million cubic feet of gas per day. Production equipment is currently
being installed to begin production from two of the tested zones. The
Company owns a 55% working interest in the well. As many as four additional
wells may be drilled by the Company in the Black Warrior Basin in 1996.
On April 23, 1996, the Company announced that it had entered into a letter
of intent with Pascall International (Nigeria) Limited ("Pascall") to
acquire, at Saba's option, all of the assets or capital stock of Pascall.
Consummation of the acquisition is subject to execution of a definitive
purchase agreement, which will contain customary closing conditions. It is
contemplated that the acquisition will be consummated no later than June 30,
1996. The principal asset of Pascall is its farm-in agreement in OPL 453,
an oil prospecting license issued by the Federal Government of Nigeria in
December 1990. OPL 453 covers approximately 243,000 acres in the northern
part of the offshore Western Niger Delta. Upon consummation of the proposed
acquisition, the Company would retain an approximate 40% working interest in
OPL 453 after recovering all of its costs. Three appraisal wells have been
drilled on this concession in water depths of approximately 60 feet. The
expenditures required to put these wells on production, drill three
exploratory wells and conduct other geophysical work required by the license
are anticipated to equal approximately $17 million, which the Company
contemplates funding through cash flows from operations and equity or debt
financing.
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
Results of the Company's oil and gas producing activities for the three
month periods ended March 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
- ---------------------------------
United
Total States Canada Colombia
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Oil and gas sales $6,962,886 $3,275,511 $576,244 $3,111,131
Production costs $3,401,990 $1,964,552 $202,129 $1,235,309
Depletion $1,005,119 $ 458,615 $ 58,799 $ 487,705
General and administrative expenses $ 698,971 $ 525,549 $131,509 $ 41,913
Production:
Oil volume (Bbl) 479,105 182,446 28,619 268,040
Gas volume (Mcf) 415,330 267,012 148,318 -
Barrels of oil equivalent (BOE) 548,327 226,948 53,339 268,040
Average per BOE:
Sales price $ 12.70 $ 14.43 $ 10.80 $ 11.61
Production costs $ 6.20 $ 8.66 $ 3.79 $ 4.61
Depletion $ 1.83 $ 2.02 $ 1.10 $ 1.82
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1995
- ---------------------------------
United
Total States Canada Colombia
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Oil and gas revenue $ 3,186,310 $2,571,390 $376,771 $ 238,149
Lifting cost $ 2,028,594 $1,713,006 $180,325 $ 135,263
Depletion $ 472,420 $ 356,750 $ 99,910 $ 15,760
General and administrative expenses $ 442,049 $ 385,466 $ 56,583 $ -
Production:
Oil volume (Bbl) 213,086 163,875 15,848 33,363
Gas volume (Mcf) 345,988 199,618 146,370 -
Barrels of oil equivalent (BOE) 270,751 197,145 40,243 33,363
Average per BOE:
Sales price $ 11.76 $ 13.04 $ 9.36 $ 7.13
Production costs $ 7.49 $ 8.68 $ 4.48 $ 4.05
Depletion $ 1.74 $ 1.81 $ 2.48 $ 0.47
</TABLE>
12
<PAGE> 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
1996 compared to 1995
---------------------
The Company reported net income of $755,488 for the three month period ended
March 31, 1996, as compared with net income of $12,132 for the same period
in 1995.
Oil and gas sales increased $3.77 million, or 118.2%, to $6.96 million for
the three months ended March 31, 1996, from $3.19 million for the same
period of 1995, due to increases in production and the average sales price
per BOE. An increase in total production of 277,576 BOE, or 102.5%, from
270,751 BOE in the three months ended March 31, 1995 to 548,327 BOE for the
same period of 1996 resulted in an increase in oil and gas sales of
$2,186,000. Production increases of 29,803 BOE, or 15.1%, 13,096 BOE, or
32.5%, and 234,677 BOE, or 703.4%, in the United States, Canada and
Colombia, respectively, were responsible for increases in oil and gas sales
of $389,000, $122,000 and $1,675,000, respectively. The production
increases were due principally to the Company's producing property
acquisitions in the second and third quarters of 1995 in the United States,
in the fourth quarter of 1995 in Canada and in the third and fourth quarters
of 1995 in Colombia. In Colombia, production from the Teca and Nare oil
fields (September 1995) and the Cocorna oil field (December 1995) for the
three months ended March 31, 1996 was 195,088 BOE and 30,880 BOE,
respectively. An increase in the average sales price per BOE resulted in an
increase in oil and gas sales of $1,590,000 in the three months ended March
31, 1996 from the same period of 1995. Average sales price per BOE
increases of $1.39, or 10.7%, $1.44, or 15.4%, and $4.48, or 62.8%, in the
United States, Canada and Colombia, respectively, were responsible for
increases in oil and gas sales of $315,000, $77,000 and $1,198,000,
respectively. The increase in Colombia was attributable to an average sales
price of $13.18 per BOE from the recently-acquired Teca and Nare oil fields.
Other revenues increased $377,000, or 802.1%, to $424,000 for the three
months ended March 31, 1996, from $47,000 for the same period of 1995, due
principally to an increase in operator fees on United States operations and
net pipeline tariffs of $316,000 charged by the Company's Colombian
subsidiary, which began operations in September 1995.
Production costs increased $1.37 million, or 67.5%, to $3.40 million for the
three months ended March 31 1996, from $2.03 million for the same period of
1995. The increase in total production of 277,576 BOE resulted in an
increase in production costs of $1,269,000 ($259,000, $59,000 and $951,000
in the United States, Canada and Colombia, respectively). An increase of
$0.55, or 13.6%, in the average production cost per BOE in Colombia
attributable to the recently-acquired Teca and Nare oil fields resulted in
an increase in production costs of $149,000 in the first quarter of 1996.
General and administrative expenses increased $198,000, or 39.1%, to
$704,000 for the three months ended March 31, 1996, from $506,000 for the
same period of 1995, due principally to general and administrative expenses
incurred as a result of expanded international operations in Canada and
Colombia in the third and fourth quarters of 1995, and as a result of an
increase in employment levels in the Company's domestic regional offices.
13
<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Depletion, depreciation and amortization expenses increased $637,000, or
126.6%, to $1.14 million in the first three months of 1996, from $503,000
for the same period of 1995. Oil and gas depletion expense increased
$533,000, or 112.9%, to $1.00 million for the first three months of 1996,
from $472,000 for the same period of 1995. Production increases of 29,803
BOE in the United States, 13,096 BOE in Canada and 234,677 BOE in Colombia
accounted for depletion increases of $54,000, $33,000 and $111,000,
respectively. Changes in the depletion rate per BOE in the three cost
centers resulted in an increase of $48,000 in the United States, a decrease
of $74,000 in Canada and an increase of $361,000 in Colombia. Depreciation
and amortization expenses increased $104,000, or 335.5%, to $135,000 for the
three months ended March 31, 1996, from $31,000 for the same period of 1995,
due to equipment additions at the Company's asphalt refinery, acquisition of
the Velasquez-Galan Pipeline in September 1995 and offering costs incurred
in connection with the sale of debentures in December 1995 and February
1996.
Interest expense increased $429,000, or 238.3%, to $609,000 for the three
months ended March 31, 1996, from $180,000 for the same period of 1995.
Interest expense of $270,000 in the first quarter of 1996 was attributable
to the Company's debenture offering which closed in December 1995. The
average debt balance outstanding under the Company's revolving loan
agreement for the three months ended March 31, 1996 increased $3.28 million,
or 56.6%, to $9.07 million, from $5.79 million for the same period of 1995,
due principally to the use of proceeds to fund property acquisitions which
closed during 1995. The weighted average interest rate for the Company's
revolving loan agreement decreased 49 basis points, or 5.0%, to 9.34% for
the three months ended March 31, 1996 from 9.83% for the same period of
1995. The Company's refinery subsidiary incurred interest expense of
$25,000 in the three month period ended March 31, 1996.
Other income (expense) decreased $67,000, or 1,116.7%, to expense of $61,000
for the three month period ended March 31, 1996, from income of $6,000 for
the same period of 1995. The change was primarily due to non-operational
expenses of $111,000 incurred at the Company's Colombian operations, reduced
by additional interest income of $16,000 and other income of $28,000 in the
three months ended March 31, 1996, as compared with the same period of 1995.
The Company's oil and gas producing business is not seasonal in nature.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company's total current assets were $10.0 million and
its total current liabilities were $6.46 million. Included in current
liabilities was $970,000 attributable to the current portion of long-term
debt.
14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Summary cash flow information for the three month periods ended March 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
Net cash provided by operating activities $ 21,000 $ 205,000
Net cash used in investing activities $(922,000) $(2,064,000)
Net cash provided by financing activities $ 543,000 $ 1,334,000
</TABLE>
The Company's operating activities during the three months ended March 31,
1996 provided net cash flow of $21,000. Net income of $755,000, adjusted
for non-cash charges (primarily depletion, depreciation and amortization) in
the amount of $1.17 million, was the primary source of cash inflows from
operations. Working capital requirements attributable principally to
operations at the Company's Colombian oil properties were responsible for
cash outflows of $1.9 million. Cash flows from operating activities
provided net cash flow of $205,000 in the three months ended March 31, 1995.
Net income of $12,000, adjusted for non-cash charges (primarily depletion,
depreciation and amortization) in the amount of $514,000, was the principal
source of cash inflows from operations. Working capital requirements
resulted in a cash outflow of $321,000 during the three months ended March
31, 1995.
Investing activities during the three months ended March 31, 1996 resulted
in a net cash outflow of $922,000. Of this amount, oil and gas property
acquisition, development and exploration expenditures totaled $805,000. An
additional $117,000 was expended for other assets. Investing activities
during the three months ended March 31, 1995 resulted in a utilization of
cash amounting to $2.06 million. Expenditures for oil and gas property
acquisitions and exploration and development activities totaled $1.71
million. A deposit in the amount of $276,000 was issued in connection with
a pending acquisition of oil and gas properties in Texas.
Financing activities during the three months ended March 31, 1996, which
provided net cash flow of $543,000, consisted principally of activity on the
Company's revolving loan agreement, and proceeds from the issuance of
debentures, net of related financing costs, in the amount of $1.4 million.
Financing activities during the three months ended March 31, 1995 which
provided net cash flow of $1.33 million, consisted principally of activity
on the Company's revolving loan agreement and retirement of a $606,000 note
payable that was outstanding at December 31, 1994. Advances from affiliated
companies in the amount of $255,000 were used to partially fund the note
payable payoff.
The Company has expanded its operations through acquisitions of oil and gas
producing properties, and intends to do so in the future by means of
additional financing.
The Company has a reducing, revolving line of credit with Bank One, Texas,
N.A. At March 31, 1996, the borrowing base under the credit agreement was
$10.6 million, subject to a monthly reduction of $200,000. Outstanding debt
at March 31, 1996 for this credit facility was $8.72 million.
15
<PAGE> 16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On February 7, 1996, underwriters for the Company's debenture offering
exercised their over-allotment option, resulting in net proceeds to the
Company of $1.5 million, a portion of which was utilized to reduce the
outstanding balance under the Company's revolving line of credit. Effective
March 6, 1996, the Company's Canadian subsidiary renegotiated its term loan
and now has available a demand revolving reducing loan, with an increased
borrowing capacity of approximately $860,000. The Company believes that the
borrowing capacity available under its credit facilities, plus anticipated
cash flows from operations, will be sufficient to fund its current working
capital requirements.
Should the Company be unable to obtain equity and/or debt financing in
amounts sufficient to fund projected activities, it may be constrained in
its ability to acquire and/or develop additional oil and gas properties.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
report are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecasted results. These risks and uncertainties include,
among other things, volatility of oil prices, product demand, market
competition, risks inherent in the Company's international operations,
including future prices paid for oil produced at the Colombian oil
properties, imprecision of reserve estimates, and the Company's ability to
replace and expand oil and gas reserves. These and other risks are
described elsewhere herein and in the Company's other filings with the
Securities and Exchange Commission.
16
<PAGE> 17
SABA PETROLEUM COMPANY
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
o Exhibits filed during the quarter ended March 31, 1996 are as follows:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
11.1 Computation of Earnings per Common Share
</TABLE>
o No reports were filed under Form 8-K during the quarter ended March 31, 1996.
17
<PAGE> 1
SABA PETROLEUM COMPANY EXHIBIT 11.1
Computation of Earnings Per Common Share
For the Three Months Ended March 31, 1996 and 1995
<TABLE>
1996 1995
---------- ----------
<S> <C> <C>
PRIMARY EARNINGS
Net income before minority interest in earnings of
consolidated subsidiary $ 777,110 $ 12,132
Minority interest in earnings of consolidated subsidiary (21,622) 0
---------- ----------
Net income available to Common $ 755,488 $ 12,132
========== ==========
PRIMARY SHARES
Weighted average number of Common Shares outstanding 4,268,667 4,130,990
Additional shares assuming issuance of shares underlying options 247,267 0
---------- ----------
Primary Shares 4,515,934 4,130,990
========== ==========
PRIMARY EARNINGS PER COMMON SHARE
Net income available to common $ 0.17 $ 0.00
========== ==========
FULLY DILUTED EARNINGS
Net income before minority interest in earnings of
consolidated subsidiary $ 777,110 $ 12,132
Minority interest in earnings of consolidated subsidiary (21,622) 0
Plus interest expense attributable to debentures, net of
related income taxes 167,495 0
---------- ----------
Net income available to Common $ 922,983 $ 12,132
========== ==========
FULLY DILUTED SHARES
Weighted average number of Common Shares outstanding 4,268,667 4,130,990
Additional shares assuming issuance:
Of shares underlying options 247,267 0
Of convertible common shares @ $8.75 per share underlying:
$11,000,000 from 1/1/96 1,257,143 0
$1,650,000 from 2/7/96 111,900 0
---------- ----------
Fully Diluted Shares 5,884,977 4,130,990
========== ==========
FULLY DILUTED EARNINGS PER COMMON SHARE
Net income $ 0.16 $ 0.00
========== ==========
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 AND CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
PRESENTED IN QUARTERLY REPORT FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH
31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,050
<SECURITIES> 0
<RECEIVABLES> 5,247
<ALLOWANCES> 60
<INVENTORY> 0
<CURRENT-ASSETS> 10,006
<PP&E> 38,671
<DEPRECIATION> 11,174
<TOTAL-ASSETS> 40,032
<CURRENT-LIABILITIES> 6,465
<BONDS> 23,897
0
0
<COMMON> 6,838
<OTHER-SE> 1,818
<TOTAL-LIABILITY-AND-EQUITY> 40,032
<SALES> 0
<TOTAL-REVENUES> 7,387
<CGS> 0
<TOTAL-COSTS> 5,246
<OTHER-EXPENSES> 61
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 609
<INCOME-PRETAX> 1,471
<INCOME-TAX> 694
<INCOME-CONTINUING> 777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 755
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.16
</TABLE>
