<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
------ --------
COMMISSION FILE NUMBER 0-9592
LOMAK PETROLEUM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1312571
(State of incorporation) (I.R.S. Employer
Identification No.)
500 THROCKMORTON STREET, FT. WORTH, TEXAS 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 870-2601
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
--- ---
11,986,922 Common Shares were outstanding on May 9, 1995.
<PAGE> 2
PART I. FINANCIAL INFORMATION
The financial statements included herein have been prepared in
conformity with generally accepted accounting principles and should be read in
conjunction with the December 31, 1994 Form 10-K filing. The statements are
unaudited but reflect all adjustments which, in the opinion of management, are
necessary to fairly present the Company's financial position and the results of
operations.
2
<PAGE> 3
LOMAK PETROLEUM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
------------ ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents .......................................... $ 4,897 $ 6,128
Accounts receivable ........................................... 9,431 8,184
Inventory and other ........................................... 1,592 1,555
--------- ---------
15,920 15,867
--------- ---------
Oil and gas properties, successful efforts method ............... 133,373 146,249
Accumulated depletion, depreciation and amortization ........ (20,409) (23,010)
--------- ---------
112,964 123,239
--------- ---------
Gas transportation and field service assets ..................... 16,125 16,330
Accumulated depreciation .................................... (3,241) (3,635)
--------- ---------
12,884 12,695
--------- ---------
$ 141,768 $ 151,801
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .............................................. $ 8,421 $ 6,576
Accrued liabilities ........................................... 5,790 4,198
Current portion of debt (Note 5) .............................. 707 590
--------- ---------
14,918 11,364
--------- ---------
Senior debt (Note 5) ............................................ 61,885 66,245
Deferred taxes (Note 10) ........................................ 16,390 16,491
Commitments and contingencies (Note 6)...........................
Minority interest ............................................... 5,327 --
Stockholders' equity (Notes 7 and 8)
Preferred stock, $1 par, 2,000,000 shares authorized,
7-1/2% convertible preferred, 200,000 issued
(liquidation preference $5,000,000) ....................... 200 200
Common stock, $.01 par, 20,000,000 shares authorized,
9,754,010 and 11,904,141 issued ........................... 97 119
Capital in excess of par value ................................ 50,495 64,225
Retained earnings (deficit) ................................... (7,544) (6,843)
--------- ---------
43,248 57,701
--------- ---------
$ 141,768 $ 151,801
========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE> 4
LOMAK PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1994 1995
--------- ---------
(unaudited)
<S> <C> <C>
Revenues
Oil and gas sales...................................... $ 5,220 $ 7,430
Field services......................................... 2,045 2,464
Gas transportation and marketing....................... 405 786
Interest and other..................................... 36 223
--------- ---------
7,706 10,903
--------- ---------
Expenses
Direct operating....................................... 2,178 3,150
Field services......................................... 1,609 1,598
Gas transportation and marketing....................... 101 199
Exploration............................................ 47 130
General and administrative............................. 475 758
Interest............................................... 548 1,156
Depletion, depreciation and amortization............... 2,326 3,000
--------- ---------
7,284 9,991
--------- ---------
Income before taxes....................................... 422 912
Income taxes
Current................................................ 2 16
Deferred............................................... - 101
--------- ---------
2 117
--------- ---------
Net income................................................ $ 420 $ 795
========= =========
Net income applicable to
common shares.......................................... $ 326 $ 701
========= =========
Earnings per common share................................. $ .04 $ .07
========= =========
Weighted average shares outstanding....................... 8,772 10,555
========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
4
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LOMAK PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1994 1995
-------- --------
(unaudited)
<S> <C> <C>
Cash flows from operations:
Net income................................................ $ 420 $ 795
Adjustments to reconcile net income to
net cash provided by operations:
Depletion, depreciation and amortization.............. 2,326 3,000
Deferred income taxes................................. (32) 101
Changes in working capital net of
effects of purchases of businesses:
Accounts receivable......................... 2,155 1,321
Inventory and other......................... (527) 37
Accounts payable............................ (1,420) (1,844)
Accrued liabilities......................... (630) (1,593)
Gain on sale of assets and other...................... - (127)
-------- -------
Net cash provided by operations........................... 2,292 1,690
Cash flows from investing:
Acquisition of businesses, net of cash............... (7,991) -
Oil and gas properties............................... (6,664) (4,509)
Additions to property and equipment.................. (232) (282)
Proceeds on sale of assets........................... - 198
-------- -------
Net cash used in investing............................ (14,887) (4,593)
Cash flows from financing:
Proceeds from indebtedness........................... 11,346 4,400
Repayments of indebtedness........................... (134) (156)
Preferred stock dividends............................ (94) (94)
Proceeds from common stock issuance.................. 548 29
Repurchase of common stock........................... - (45)
-------- -------
Net cash provided by financing............................ 11,666 4,134
-------- -------
Change in cash............................................ (929) 1,231
Cash and equivalents at beginning of period............... 2,019 4,897
-------- -------
Cash and equivalents at end of period..................... $ 1,090 $ 6,128
======== =======
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE> 6
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND CHANGE OF CONTROL:
ORGANIZATION
Lomak Petroleum, Inc. ("Lomak"), is engaged in the acquisition,
development and enhancement of oil and gas properties in the United States. From
inception in 1976 through 1988, Lomak primarily pursued drilling opportunities
in the Appalachian Basin. In 1988, the Company shifted its focus to growth
through acquisitions and development and expanded its core operating areas to
include Texas and Oklahoma. Since 1988, 59 acquisitions have been consummated at
a total cost of $131 million.
Lomak's acquisition effort is focused on properties with purchase
prices of less than $30 million within its core areas of operation. Management
believes these purchases are less competitive than those involving larger
property interests. To the extent purchases continue to be made primarily within
existing core areas, efficiencies in operations, drilling, gas marketing and
administration should be realized. In 1994, Lomak initiated a program to exploit
its inventory of over 500 development projects. In the future, Lomak expects its
growth to be driven by a combination of acquisitions and development.
At March 31, 1995, the Company owned working interests in 3,214 (1,693
net) oil and gas wells. The Company operates or provides pumping services for
over 2,600 wells.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the
Company, all majority owned subsidiaries and its pro rata share of the assets,
liabilities, income and expenses of certain oil and gas properties. Temporary
investments with an initial maturity of ninety days or less are considered cash
equivalents.
OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting for oil
and gas properties. Exploratory costs which result in the discovery of reserves
and the cost of development wells are capitalized. Geological and geographical
costs, delay rentals and costs to drill unsuccessful exploratory wells are
expensed. Depletion is provided on the unit-of-production method. Gas is
converted to equivalent barrels at the rate of six Mcf per barrel. The depletion
rates per equivalent barrel produced were $4.94 and $4.39 respectively, in the
first quarters of 1994 and 1995. Approximately $12.9 million and $10.4 million
of oil and gas properties were classified as proved undeveloped or unproved and,
therefore, not subject to depletion as of December 31, 1994 and March 31, 1995,
respectively. These costs are assessed periodically to determine whether their
value has been impaired, and if impairment is indicated, the amount of any
impairment is charged to expense.
GAS TRANSPORTATION AND FIELD SERVICE ASSETS
The Company owns and operates approximately 500 miles of gas gathering
lines in proximity to its principal gas properties. Depreciation is calculated
on the straight-line method based on estimated useful lives ranging from four to
fifteen years.
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<PAGE> 7
The Company receives fees for providing field related services. These
fees are recognized as earned. Field service assets are recorded at cost.
Depreciation is calculated on the straight-line method based on estimated useful
lives ranging from one to six years, except for two buildings, one of which is
being depreciated over a twenty year period ending in 2009 and the other over a
fifteen year period ending in 2008.
In September 1994, the Company sold substantially all of its water
hauling and disposal and well servicing assets located in the Appalachian region
for $1.8 million, with the potential to earn an additional $400,000 million if
certain conditions are met. These assets were used in the operations of the
Company's brine hauling and disposal and well servicing subsidiaries.
NET INCOME PER SHARE
Net income per share is computed by subtracting preferred dividends
from net income and dividing by the weighted average number of common and common
equivalent shares outstanding. The calculation of fully diluted earnings per
share assumes conversion of convertible securities when the result would be
dilutive. Outstanding options and warrants are included in the computation of
net income per common share when their effect is dilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period presentations
to conform with current period classifications.
(3) ACQUISITIONS AND DEVELOPMENT:
Since 1988, the Company has acquired $131 million of oil and gas
properties and field service assets. During 1994, the Company completed $63
million of acquisitions. In the first three months of 1995, acquisitions
totaling $1 million were completed. The 1994 and 1995 acquisitions were funded
by working capital, advances under a revolving credit facility and the issuance
of common stock. These acquisitions are discussed below.
1995 ACQUISITIONS
Laura LaVelle Area. The Company purchased interests in 3 wells located
in the Gaston field of east Texas for $455,000.
Gulf Coast Area. The Company purchased interest in 2 wells located in
the Gulf Coast area of south Texas for $407,000.
Ohio Trend Area. The Company acquired certain interests in Lomak
managed partnerships for $151,000.
1994 ACQUISITIONS
Red Eagle Resources Corporation. In December 1994, the Company had
acquired effective control of Red Eagle principally through the purchase of two
common stockholders' holdings. On February 15, 1995, the remaining stockholders
of Red Eagle common stock voted to approve the merger of Red Eagle with a wholly
owned subsidiary of the Company in exchange for approximately 2.2 million shares
of the Company's common stock. The total purchase price was approximately $31
million. The additional equity of Red Eagle acquired on February 15, 1995 is
reflected as minority interest on the Company's balance sheet at December 31,
1994. Red Eagle's assets included interests in approximately 370 producing wells
located primarily in the Okeene Area of Oklahoma's Anadarko Basin. At March 31,
1995, Red Eagle owned interests in 370 wells and managed thirty-three limited
partnerships.
7
<PAGE> 8
Grand Banks Energy Company. The Company purchased Grand Banks for $3.7
million. Grand Banks' assets included interests in 182 producing wells located
in west Texas, essentially all are now operated by the Company. Grand Banks
owned an average working interest of 70% in the producing reserves, of which 60%
was oil. Approximately 40% of Grand Banks' proved reserves are attributed to the
Mills-Strain Unit located in the Sharon Ridge Field of Mitchell County, Texas.
The Mills-Strain Unit is a waterflood unit producing from the Clearfork
Formation at a depth of approximately 2,000 feet and has a remaining reserve
life of over 20 years. The Company also purchased, for $1.2 million, additional
interests in a number of the Grand Banks properties.
Gillring Oil Company. The Company acquired Gillring for $11.5 million.
Gillring's assets included $5.2 million of working capital and interests in 106
producing oil and gas wells located in south Texas. Gillring owned an average
working interest of 80% in the producing reserves of which 80% were gas. The
Gillring properties are located principally in two fields producing from the
Wilcox and Vicksburg formations ranging in depths from 4,000 to 11,000 feet.
Subsequent to the purchase of Gillring, the Company acquired, for $2.1 million,
the limited partner interests and associated debt of a partnership for which
Gillring acted as general partner.
Big Lake Area. The Company acquired from three parties interests in 51
producing wells in the Big Lake Area of west Texas for $1.7 million. The Company
became operator of 36 additional wells in connection with this acquisition.
Laura LaVelle Area. The Company purchased interests in 67 wells located
in Texas for 8 million. The majority of the acquisition related to the Laura
LaVelle Field located in east Texas, where the Company now operates sixty wells.
Meadville Area. Additional interests in 436 wells operated by the
Company were purchased for $3.7 million.
Ohio Trend Area. The Company acquired interests in 49 wells located in
southern Ohio for $1.0 million and certain interests in Lomak managed
partnerships for $289,000.
Okeene Area. The Company acquired interests associated with Red Eagle
in 70 wells located in the Anadarko Basin of Oklahoma for $1.7 million.
DEVELOPMENT
Beginning in late 1993, the Company instituted a development program to
compliment its acquisition activities. Approximately $3.7 million and $9.5
million of development expenditures were incurred in 1993 and 1994,
respectively. The 1994 activity included the drilling of 71 wells and the
recompletion of 20 wells. At year end 1994, over 500 proven recompletion and
drilling projects had been identified on the Company's properties. In 1995,
approximately $15 million is expected to be expended on development activities,
of which $1.7 million was incurred in the first quarter. During the first
quarter of 1995, eleven wells were drilled or recompleted.
The Company intends to continue to expand its asset base through
additional acquisitions of oil and gas properties within its areas of
operations. As the Company expands its inventory of development projects, a
larger portion of its growth will be derived from their exploitation. Lomak has
acquired oil and gas in a variety of forms. Besides acquiring direct interests,
Lomak has acquired companies and partnerships owning such assets. After
acquiring these entities, the Company then takes the action necessary to acquire
any remaining interests with the goal of dissolving the acquired entity and
owning the assets directly. All acquisitions to date have been accounted for as
purchases. Accordingly, the results of operations are included in the
accompanying financial statements from the respective dates of acquisition.
8
<PAGE> 9
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table presents unaudited, pro forma operating results as
if the transactions had occurred at the beginning of each period presented. The
pro forma operating results include the following acquisitions, all of which
were accounted for as purchase transactions; (i) the purchase of Grand Banks
Energy Company, (ii) the purchase of Gillring Oil Company, and (iii) the
purchase of Red Eagle Resources Corporation.
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1994 1995
---------- -----------
(in thousands except per share data)
<S> <C> <C>
Revenues....................... $ 11,639 $ 10,903
Net income..................... 2,013 835
Earnings per share............. .16 .06
</TABLE>
The pro forma operating results have been prepared for comparative
purposes only. They do not purport to present actual results had the
acquisitions been made at the beginning of each period presented or to
necessarily be indicative of future operations. Included in the 1994 pro forma
financial information are revenues regarding Red Eagle partnership activities
which formally impacted earnings per share by $.06. These activities have been
discontinued and therefore are not reflected in the 1995 results.
(4) NOTES RECEIVABLE:
At March 31, 1995, the Company had $165,000 of notes receivable from
three of its officers, which were issued in connection with the exercise of
options held by them. The principal is due beginning in March 1997 while
interest is payable quarterly at prime rate plus one percent.
(5) INDEBTEDNESS:
The Company had the following debt outstanding as of the dates shown.
Interest rates at March 31, 1995 are shown parenthetically and dollar amounts
are stated in thousands:
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
------------ ---------
(unaudited)
<S> <C> <C>
Bank credit facility (7.63%).................... $ 61,870 $ 66,000
Other (5.90% - 9.25%)........................... 722 835
----------- -----------
62,592 66,835
Less amounts due within one year................ 707 590
----------- -----------
Senior debt, net......................... $ 61,885 $ 66,245
=========== ===========
</TABLE>
The Company maintains a $150 million revolving bank credit facility.
The facility provides for a borrowing base which is subject to semi-annual
redeterminations. At May 10, 1995, the borrowing base on the credit facility was
$75 million. The facility bears interest at prime rate or LIBOR plus 1.50%
(which can be reduced to 1.25% in certain circumstances) and is secured by
substantially all of the Company's oil and gas properties. Interest is payable
quarterly and the loan is payable in sixteen quarterly installments beginning
October 1, 1997. A commitment fee of 3/8% of the undrawn balance is payable
quarterly. It is the Company's policy to extend the term period of the credit
facility annually.
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<PAGE> 10
The Company's other debt is comprised of a joint venture credit
facility, an industrial revenue bond and secured equipment financings. The joint
venture credit facility bears interest at prime rate plus 3/4% and is payable in
quarterly installments through October 1, 1995. At March 31, 1995 the Company
owned 50% of the joint venture and therefore included 50% (or $433,000) of the
amount outstanding under the joint venture credit facility. The industrial
revenue bond bears interest at 70% of prime and is payable in monthly
installments to 2001 and had a principal balance of $209,000 at March 31, 1995.
The bond is secured by an office building in Ohio which had a net book value of
$453,000 at March 31, 1995.
The debt agreements contain various covenants relating to net worth,
working capital maintenance and financial ratio requirements. Interest paid
during the first quarters of 1994 and 1995 totaled $516,000 and $1.1 million,
respectively.
(6) COMMITMENTS AND CONTINGENCIES:
In January 1995, a lawsuit (the "Lawsuit") was filed in the Delaware
Court of Chancery, New Castle County, against Red Eagle Resources Corporation,
each of the members of the Board of Directors of Red Eagle and the Company. The
Plaintiff seeks to represent all holders (the "Class") of Red Eagle common
stock, excluding the Red Eagle Directors and Lomak. The Lawsuit seeks, among
other remedies, some of which are in the alternative, certification of the
Lawsuit as a class action, designation of the Plaintiff as representative of the
Class and Plaintiff's counsel as counsel to the Class; declaration that the Red
Eagle Directors breached their fiduciary duties owed to the Class; and award of
unspecified compensatory damages, prejudgment interest and costs and
disbursements of the Lawsuit including counsel fees.
The Company is involved in various other legal actions and claims
arising in the ordinary course of business. In the opinion of management, such
litigation and claims will be resolved without material adverse effect on the
Company's financial position.
(7) PREFERRED SHARES AND WARRANTS:
In June 1993, $5,000,000 (200,000 shares) of 7.5% cumulative
convertible exchangeable preferred stock ("7.5% Preferred") was privately
placed. The 7.5% Preferred is convertible, at the option of the holders, into
576,945 shares of common stock, at an average conversion price of $8.67 per
share. Beginning in July 1995, the Company may convert the 7.5% Preferred into
common stock under certain circumstances. Beginning in July 1996, the Company
may redeem the 7.5% Preferred at a 7.5% premium to liquidation value. Holders of
the 7.5% Preferred are entitled to two votes per share on matters presented to
the shareholders. At the Company's option, it can exchange the 7.5% Preferred
for convertible subordinate notes due July 1, 2003. The notes carry the same
conversion and redemption terms as the 7.5% Preferred.
Warrants to acquire 328,957 shares of common stock were outstanding at
March 31, 1995. Warrants covering 255,624 shares have an exercise price of $9.00
and expire in June 1995. Warrants covering 73,333 shares have an exercise price
of $7.50 per share with 33,333 expiring in June 1995 and 40,000 expiring in
December 1996.
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(8) STOCK OPTION AND PURCHASE PLANS:
The Company maintains a Stock Option Plan which authorizes the grant of
options of up to one million shares of common stock. However, no new options may
be granted which would result in these being outstanding aggregate options
exceeding 10% of the Company's common shares outstanding plus those shares
issuable under convertible securities. Under the plan, incentive and
non-qualified options may be issued to officers, key employees and consultants.
The plan is administered by the Compensation Committee of the Board. All options
issued under the plan vest 30% after one year, 60% after two years and 100%
after three years. During the three months ended March 31, 1995 options covering
20,001 shares were exercised at $3.75 per share. At March 31, 1995, a total of
978,483 options were outstanding under the plan, of which 350,913 options were
exercisable. The exercise prices of the options range from $3.38 to $9.38 per
share.
In 1994, the stockholders approved the 1994 Outside Directors Stock
Option Plan (the "Directors Plan"). Only Directors who are not employees of the
Company are eligible under the Directors Plan. The Directors Plan covers a
maximum of 200,000 shares. At March 31, 1995, 12,000 options were outstanding
under the Directors Plan and none were exercisable as of that date. The exercise
price of the options is $7.75 per share.
In 1994, the stockholders approved the 1994 Stock Purchase Plan (the
"1994 Plan") which authorizes the sale of up to 500,000 shares of common stock
to officers, directors, key employees and consultants. Under the Plan, the right
to purchase shares at prices ranging from 50% to 85% of market value may be
granted. The Company had a 1989 Stock Purchase Plan (the "1989 Plan") which was
identical to the 1994 Plan except that it covered 333,333 shares. Upon adoption
of the 1994 Plan, the 1989 Plan was terminated. The plans are administered by
the Compensation Committee of the Board. During the quarter ended March 31,
1995, the Company sold 5,785 unregistered common shares to officers and outside
directors. From inception of the 1989 Plan through March 31, 1995, a total of
308,000 unregistered shares had been sold, for a total consideration of
approximately $1.3 million at prices equal to 75% of market value at the time of
the sale.
(9) BENEFIT PLAN:
The Company maintains a 401(K) Plan for the benefit of its employees.
The Plan permits employees to make contributions on a pre-tax salary reduction
basis. The Company makes discretionary contributions to the Plan. Company
contributions for calendar year 1994 totaled $226,000.
(10) INCOME TAXES:
On January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes". As permitted by Statement 109, the Company has
elected not to restate prior year financial statements. As a result of tax basis
in excess of the basis on the financial statements at January 1, 1993, the
Company estimated deferred tax assets of $2.6 million and deferred tax
liabilities of $900,000, for net deferred tax assets of $1.7 million. Due to
uncertainty as to the realizability of the tax benefit, a valuation allowance
was established for the full amount of the net deferred tax assets. In 1993 and
1994 , income taxes were reduced from the statutory rate of 34% by approximately
$500,000 and $900,000, respectively through realization of a portion of the
valuation allowance, resulting in $1.2 million and $300,000, respectively of the
remaining allowance at December 31, 1993 and 1994. The Company's effective
income tax rate for the first quarter 1995 was reduced from the statutory rate
due to the realization of $200,000 of valuation allowance.
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<PAGE> 12
During 1993, the Company acquired Mark Resources Corporation, a taxable
business combination accounted for as a purchase. Deferred tax assets of $3.9
million and a deferred tax liability of $8.1 million were recorded in connection
with the business combination. During 1994, the Company acquired Gillring Oil
Company and Grand Banks Energy Company, taxable business combinations accounted
for as purchases. Deferred tax assets of $3.5 million and deferred tax
liabilities of $3.4 million were recorded in connection with these transactions.
The Company acquired Red Eagle Resources Corporation, a taxable business
combination accounted for as a purchase. Deferred tax liabilities of $12.7
million and deferred tax assets of $500,000 were recorded in connection with
this transaction.
For the three months ended March 31, 1994 and 1995, the Company made a
provision for federal income taxes of $2,000 and $117,000, respectively. At
March 31, 1995, the Company had available for federal income tax reporting
purposes net operating loss carryovers of approximately $11.7 million which are
subject to annual limitations as to their utilization and otherwise expire
between 1996 and 2009 if unused. The Company has alternative minimum tax net
operating loss carryovers of $6.9 million which are subject to annual
limitations as to their utilization and otherwise expire from 1996 to 2009 if
unused. The Company has statutory depletion carryover of approximately $8.5
million and an alternative minimum tax credit carryover of $700,000. The
statutory depletion carryover and alternative minimum tax credit carryover are
not subject to limitation or expiration.
(11) MAJOR CUSTOMERS:
The Company markets its oil and gas production on a competitive basis.
The type of contract under which gas production is sold varies but can generally
be grouped into three categories: (a) life-of-the-well; (b) long-term (1 year or
longer); and (c) short-term contracts which may have a primary term of one year,
but which are cancelable at either party's discretion in 30-120 days. Over 70%
of developed gas reserves are sold under market sensitive contracts or fixed
price contracts which expire within the next twelve months. For the three months
ended March 31, 1995, no customer accounted for 10% or more of the Company's
total oil and gas revenues. Oil is sold on a basis such that the purchaser can
be changed on 30 days notice. The price received is generally equal to a posted
price set by the major purchasers in the area. The Company sells to oil
purchasers on a basis of price and service.
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<PAGE> 13
(12) OIL AND GAS ACTIVITIES:
The following summarizes selected information in thousands with respect
to oil and gas activities:
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
------------ -----------
(unaudited)
<S> <C> <C>
Capitalized costs:
Proved properties.................................. $ 132,775 $ 145,588
Unproved properties................................ 598 661
--------- ---------
Total.......................................... 133,373 146,249
Accumulated depletion, depreciation and
amortization.................................... 20,409 23,010
--------- ---------
Net capitalized costs.......................... $ 112,964 $ 123,239
========= =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended Quarter Ended
December 31, March 31,
1994 1995
------------ -------------
(unaudited)
<S> <C> <C>
Costs incurred:
Property acquisition............................... $ 59,501 $ 11,184
Development........................................ 9,518 1,692
Exploration........................................ 192 61
--------- ---------
Total costs incurred........................... $ 69,211 $ 12,937
========= =========
</TABLE>
(13) RELATED PARTY TRANSACTIONS:
Mr. Edelman, Chairman of the Company, is also an executive officer and
shareholder of Snyder Oil Corporation ("SOCO"). In 1994, the Company purchased
30,000 shares of its common stock from SOCO for $240,000. The purchase price was
based upon the prior day's closing price for the stock as quoted on NASDAQ, less
$.25. At March 31, 1995, SOCO owned 1.6% and Mr. Edelman owned 6.5% of the
Company's common stock. Subsequent to March 31, 1995, SOCO sold its remaining
shares of the Company's common stock.
During 1994 and the first quarter of 1995, the Company incurred costs
of $369,000 and $145,000, respectively, with the Hawthorne Company for advisory
services paid in connection with the purchase of oil and gas properties. Mr.
Aikman, a director of the Company, is an executive officer and a principal owner
of the Hawthorne Company. The amount incurred was on a basis similar to that
paid by the Company to third party for similar services.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FACTORS AFFECTING FINANCIAL CONDITION AND LIQUIDITY
During the three months ended March 31, 1995, the Company added $10
million of assets and increased stockholders' equity by $14 million. The growth
was achieved primarily through the purchase of the remaining equity of Red
Eagle. Net income for the first quarter of 1995 increased 89% to $795,000 as
compared to $420,000 in the prior year. These results were primarily due to
higher production volumes attributable to the acquisitions and development
completed in 1994. Working capital at March 31, 1995 was $4.5 million,
representing a $3.5 million increase over the corresponding amount at December
31, 1994. At March 31, 1995, the Company had $6.1 million in cash and total
assets of $151.8 million. During the first three months of 1995, senior debt
rose from $62 million to $66 million.
At March 31, 1995, capitalization totaled $140.4 million, of which 41%
was represented by stockholders' equity, 47% by long-term debt and the remainder
by deferred income taxes. Essentially all of the long-term debt is comprised of
borrowings under a $150 million revolving credit facility. The facility
currently provides for quarterly payments of interest with principal payments
beginning October 1997. On May 10, 1995, the borrowing base was $75 million,
with $62.8 million outstanding.
For the three months ended March 31, 1995, cash flow from operations
totaled $4.0 million, a 44% increase compared to the year prior period. The cash
flow plus bank borrowings and nearly $200,000 of proceeds from asset sales
funded $4.5 million of cash acquisitions and development expenditures. An
additional $8.4 million of common stock was issued in exchange for the remaining
equity of Red Eagle, bringing total acquisitions for the three months to $12.8
million. The Company expects to continue to fund its acquisition and development
activities from internally generated cash flow, borrowings under its revolving
credit facility and the issuance of debt and equity securities. During the next
twelve months, non-discretionary capital requirements include $375,000 of
preferred stock dividends and $590,000 of debt principal payments. Additionally,
the Company expects to continue its acquisition and development activities in
1995. Although these expenditures are principally discretionary, the Company is
currently projecting that it will spend approximately $15 million on development
activities in 1995, of which $1.7 million was incurred in the first quarter.
Cash flow from operations is expected to be sufficient to fund development
expenditures with the remainder available to fund acquisitions. The Company has
instituted a program to repurchase shares of its common stock from stockholders
who own less than 100 shares. Through March 31, 1995, a total of 34,900 shares
had been repurchased for approximately $297,800, of which 5,800 were repurchased
in the first quarter of 1995. The Company estimates that the total cost to
repurchase common stock from odd-lot stockholders will be less than $500,000.
Virtually all oil and gas properties are subject to production declines
over time. Through acquisitions, the Company has increased its reserves in each
of the last five years. It is anticipated that the Company will continue to
build reserves primarily through acquisitions and development over the next
several years. The profitability of production and, to a lesser extent, other
areas of the Company's business are influenced by energy prices.
RESULTS OF OPERATIONS
The Company reported net income for the three months ended March 31,
1995 of $795,000, an 89% increase over first quarter 1994. The increase is the
result of higher production volumes attributable to properties acquired in 1994,
as well as the success of the 1994 development program.
14
<PAGE> 15
During the quarter, oil and gas production volumes increased 56% to
592,000 equivalent barrels, an average of 6,580 BOE per day. The higher
production volumes were partially offset by a 9% decrease in the average price
received per BOE of production from $13.74 to $12.55. The average oil price
increased 33% from $12.26 to $16.36 per barrel while average gas prices dropped
25% from $2.38 to $1.78 per Mcf. As a result of the Company's larger base of
producing properties, operating expenses increased 45% to $3.2 million. However,
the average operating cost per BOE decreased 9% from $5.73 in 1994 to $5.24 in
1995.
Gas transportation and marketing revenues rose 94% to $786,000 versus
$405,000 in the first three months of 1994. The higher revenues were due
primarily to the increasing activity in the marketing of oil and gas and
increased gas transportation revenues on its growing number of operated
properties. Coupled with this increase in gas transportation and marketing
revenues was a 97% increase in associated expenses for the year.
Field services revenues increased 20% in the first quarter of 1995,
despite the sale of virtually all well servicing and brine hauling and disposal
assets in Appalachia which was completed in late 1994. The decrease due to the
sale was offset by higher well operating revenues on properties acquired in
1994. Additionally, field service activities increased significantly in the
first quarter 1995 due to the Red Eagle acquisition. Field services expenses
decreased slightly in the first quarter of 1995 versus 1994. The increased costs
of well operations were more than offset by the elimination of costs resulting
from the 1994 sale of the well servicing and brine hauling and disposal
activities.
Exploration expense increased 177% due to the Company's increased
involvement in acreage acquisition, seismic and exploratory drilling. All of
these expenditures relate to further expanding the Company's existing core
operating areas.
General and administrative expenses increased 60% from $475,000 in 1994
to $758,000 in 1995. As a percentage of revenues, general and administrative
expenses were 7% in the first quarter 1995, up slightly over 1994. Interest and
other income rose six-fold primarily due to a higher level of non-strategic
property sales. Interest expense increased 111% to $1.2 million primarily as a
result of the higher average outstanding debt balance during the period due to
the financing of acquisitions and, to a lesser extent, rising interest rates.
Depletion, depreciation and amortization expense rose 29% as a result
of increased production volumes Offsetting the effect of higher production
volumes was an 11% reduction in the depletion rate to $4.39 per BOE.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In January 1995, a lawsuit (the "Lawsuit") was filed in the Delaware
Court of Chancery, New Castle County, against Red Eagle Resources Corporation,
each of the members of the Board of Directors of Red Eagle and the Company. The
Plaintiff seeks to represent all holders (the "Class") of Red Eagle common
stock, excluding the Red Eagle Directors and Lomak. The Lawsuit seeks, among
other remedies, some of which are in the alternative, certification of the
Lawsuit as a class action, designation of the Plaintiff as representative of the
Class and Plaintiff's counsel as counsel to the Class; declaration that the Red
Eagle Directors breached their fiduciary duties owed to the Class; and award of
unspecified compensatory damages, prejudgment interest and costs and
disbursements of the Lawsuit including counsel fees.
Items 2 - 5. Not applicable
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
11.1 Statement re: computation of per share earnings for the three
months ended March 31, 1994 and 1995, filed herewith.
27 Financial data schedule
(b) Reports on Form 8-K
No current reports on Form 8-K.
16
<PAGE> 17
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.
LOMAK PETROLEUM, INC.
By: (Thomas W. Stoelk)
-------------------------------------
Thomas W. Stoelk
Vice President - Finance
Chief Financial Officer
May 11, 1995
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Description of Exhibit Numbered Page
-------------- -------------------------------- -------------
<S> <C> <C>
11.1 Statement re: computation of per 19
share earnings for the three
months ended March 31, 1994
and 1995, filed herewith.
27 Financial data schedule 20
</TABLE>
18
<PAGE> 1
EXHIBIT 11.1
LOMAK PETROLEUM, INC. AND SUBSIDIARIES
Computation of Earnings Per Common
and Common Equivalent Shares
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1995
-------- --------
<S> <C> <C>
Average shares outstanding 8,604 10,446
Net effect of conversion of warrants and stock options 168 109
-------- --------
Total primary and fully diluted shares 8,772 10,555
======== ========
Net income $ 420 $ 795
Less preferred stock dividends (94) (94)
-------- --------
Net income applicable to common shares $ 326 $ 701
======== ========
Earnings per common share $ .04 $ .07
======== ========
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1995 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1995.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 6,128
<SECURITIES> 0
<RECEIVABLES> 8,184
<ALLOWANCES> 0
<INVENTORY> 1,555
<CURRENT-ASSETS> 15,867
<PP&E> 162,579
<DEPRECIATION> 26,645
<TOTAL-ASSETS> 151,801
<CURRENT-LIABILITIES> 11,364
<BONDS> 0
<COMMON> 119
0
200
<OTHER-SE> 57,382
<TOTAL-LIABILITY-AND-EQUITY> 151,801
<SALES> 7,430
<TOTAL-REVENUES> 10,903
<CGS> 3,150
<TOTAL-COSTS> 5,077
<OTHER-EXPENSES> 3,758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,156
<INCOME-PRETAX> 912
<INCOME-TAX> 117
<INCOME-CONTINUING> 795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 795
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
