UNITED STATES
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 QUARTERLY PERIOD ENDED JUNE 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-9579
HALLWOOD ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-1319083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4582 SOUTH ULSTER STREET PARKWAY
SUITE 1700
DENVER, COLORADO 80237
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (303) 850-7373
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
Shares of Common Stock outstanding at August 9, 1996 777,126 shares
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HALLWOOD ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except Shares)
June 30, December 31,
1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 440 $ 10
Accounts receivable:
Affiliates 461 372
Trade 63 26
Current assets of affiliate 2,816 2,236
------- -------
Total 3,780 2,644
------- -------
PROPERTY, PLANT AND EQUIPMENT, at cost
Oil and gas properties (full cost method):
Proved mineral interests 112,832 113,159
Unproved mineral interests - domestic 127 82
Other property and equipment 3,774 3,758
------- -------
Total 116,733 116,999
Less accumulated depreciation, depletion,
amortization and property impairment (107,976) (107,160)
------- -------
Net Property, Plant and Equipment 8,757 9,839
------- -------
OTHER ASSETS
Investment in common stock of parent
(carried at market) 3,681 2,075
Deferred tax asset 342 500
Noncurrent assets of affiliate 1,549 1,407
------- -------
Total 5,572 3,982
------- -------
TOTAL ASSETS $ 18,109 $ 16,465
======= =======
</TABLE>
<TABLE>
<CAPTION>
HALLWOOD ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except Shares)
June 30, December 31,
1996 1995
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 150 $ 106
Current portion of long-term debt 300 300
Current liabilities of affiliate 2,013 2,857
------- -------
Total 2,463 3,263
------- -------
NONCURRENT LIABILITIES
Long-term debt 675 825
Long-term liabilities of affiliate 5,312 5,366
------- -------
Total 5,987 6,191
------- -------
Total Liabilities 8,450 9,454
------- -------
STOCKHOLDERS' EQUITY
Series D convertible cumulative, redeemable
preferred stock, $.01 par value; 65,000 shares
authorized; 18,864 shares issued with a
liquidation preference of $1,154 (canceled
during 1995)
Series E convertible preferred stock; $.01 par
value; 450,000 shares authorized; 356,000
shares issued with a liquidation preference of
$.01 per share (converted to common stock
during 1995)
Common stock, $.50 par value; 80,000,000
shares authorized; 1,198,121 shares issued 599 599
Capital in excess of par value 53,789 53,789
Accumulated deficit (40,384) (41,584)
Unrealized gain (loss) on investment in common
stock of parent 604 (1,002)
Less cost of treasury stock of 420,995 and
405,995 common shares at 1996 and 1995,
respectively (4,949) (4,791)
------- -------
Stockholders' Equity - net 9,659 7,011
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,109 $ 16,465
======= =======
</TABLE>
<TABLE>
<CAPTION>
HALLWOOD ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per Share data)
For the Three Months
Ended June 30,
1996 1995
<S> <C> <C>
REVENUES:
Oil revenue $ 673 $ 519
Gas revenue 1,057 710
------- -------
1,730 1,229
------- -------
EXPENSES:
Production operating expense 350 303
General and administrative 187 248
Depreciation, depletion and amortization 367 443
Interest 113 133
------- -------
1,017 1,127
------- -------
OTHER INCOME (EXPENSE): 36 (55)
------- -------
INCOME BEFORE INCOME TAXES 749 47
PROVISION FOR INCOME TAXES:
Current 28 92
Deferred 95
------- -------
123 92
------- -------
NET INCOME (LOSS) $ 626 $ (45)
======= =======
NET INCOME (LOSS) PER COMMON SHARE $ .80 $ (.09)
======= =======
WEIGHTED AVERAGE COMMON SHARES 785 494
======= =======
</TABLE>
<TABLE>
<CAPTION>
HALLWOOD ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per Share data)
For the Six Months
Ended June 30,
1996 1995
<S> <C> <C>
REVENUES:
Oil revenue $ 1,345 $ 1,037
Gas revenue 2,239 1,490
------- -------
3,584 2,527
------- -------
EXPENSES:
Production operating expense 732 642
General and administrative 434 500
Depreciation, depletion and amortization 816 841
Impairment of oil and gas properties 464
Interest 254 204
------- -------
2,236 2,651
------- -------
OTHER INCOME 64 10
------- -------
INCOME (LOSS) BEFORE INCOME TAXES 1,412 (114)
PROVISION FOR INCOME TAXES:
Current 54 92
Deferred 158
------- -------
212 92
------- -------
NET INCOME (LOSS) 1,200 (206)
PREFERRED STOCK DIVIDENDS 356
------- -------
NET INCOME (LOSS) FOR COMMON STOCKHOLDERS $ 1,200 $ (562)
======= =======
NET INCOME (LOSS) PER COMMON SHARE $ 1.52 $ (1.14)
======= =======
WEIGHTED AVERAGE COMMON SHARES 789 494
======= =======
</TABLE>
<TABLE>
<CAPTION>
HALLWOOD ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Six Months
Ended June 30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,200 $ (206)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, depletion, amortization and
property impairment 816 1,305
Equity in earnings of affiliate (2,397) (1,325)
Amortization of bond discount (24)
Deferred income tax expense 158
------- -------
Cash used in operations before working
capital changes (223) (250)
Changes in operating assets and liabilities
provided(used) cash net of noncash activity:
Receivables from affiliates (145)
Receivables - trade (37)
Accounts payable and accrued liabilities 44 (52)
------- -------
Net cash used in operating activities (361) (302)
------- -------
INVESTING ACTIVITIES:
Additions to property (16) (19)
Property development costs (85)
Distributions received from affiliate 1,355 1,554
Refinance of Spraberry investment (155)
Sale of bonds 1,376
Purchase of common stock of parent (314)
------- -------
Net cash provided by investing activities 1,099 2,597
------- -------
FINANCING ACTIVITIES:
Payments on long-term debt (150)
Proceeds from long-term debt 950
Dividends paid (849)
Repurchase of shares (158) (1,042)
------- -------
Net cash used in financing activities (308) (941)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 430 1,354
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 10 668
------- -------
END OF PERIOD $ 440 $ 2,022
======= =======
<F1>
The accompanying notes are an integral part
of the financial statements.
</TABLE>
HALLWOOD ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
Hallwood Energy Corporation ("HEC" or the "Company") is a Texas corporation
engaged in the development, production and sale of oil and gas. HEC is the
general partner of Hallwood Energy Partners, L. P. ("HEP"), a publicly traded
Delaware limited partnership. HEC now conducts substantially all of its
operations through HEP. HEP's properties are primarily located in the Rocky
Mountain, Mid-Continent, Texas and Gulf Coast regions of the United States. The
activities of HEP are conducted by HEP Operating Partners, L. P. ("HEPO") and
EDP Operating, Ltd. ("EDPO").
HEC's wholly-owned subsidiary, Hallwood G. P., Inc., is the general partner of
EDPO. Unless otherwise indicated, all references to HEC in connection with the
ownership, exploration, development or production of oil and gas properties
refer to HEC and its proportionate ownership of HEP. As of June 30, 1996, HEC's
parent company, The Hallwood Group Incorporated ("Hallwood Group"), owns
approximately 82% of the outstanding common shares of HEC.
The interim financial data are unaudited; however, in the opinion of management,
the interim data include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods. These financial statements should be read in conjunction with the
financial statements and accompanying footnotes included in HEC's December 31,
1995 Annual Report on Form 10-K.
ACCOUNTING POLICIES
INVESTMENT IN HEP
HEC's general partner interest in HEP entitles it to a share of net revenues
derived from HEP's properties ranging from 2% to 25%, and HEC holds
approximately 6.5% of HEP's limited partner Units. HEC accounts for its
ownership of HEP using the proportionate consolidation method of accounting
whereby HEC records its proportionate share of each of HEP's revenues and
expenses, current assets, current liabilities, noncurrent assets, long-term
obligations and fixed assets. HEP owns approximately 46% of its affiliate,
Hallwood Consolidated Resources Corporation ("HCRC"), which HEP accounts for
under the equity method.
INVESTMENT IN PARENT
Hallwood Group, a public company traded on the New York Stock Exchange, owns
approximately 82% of the outstanding common shares of HEC. Hallwood Group is a
diversified holding company with interests in oil and gas, specialty
restaurants, real estate, textile products and hotels.
From 1990 through 1995, HEC acquired 267,709 shares (adjusted for Hallwood
Group's 1-for-4 reverse split) or approximately 17% of the outstanding shares of
Hallwood Group, on the open market. Because HEC has the ability and the intent
to hold the stock of Hallwood Group indefinitely, HEC has recorded it as a long-
term investment and has classified it as an available-for-sale security.
During 1991 and 1992, HEC acquired $2,439,000 principal amount of Hallwood
Group's 13.5% Subordinated Debentures due July 31, 2009, which it subsequently
exchanged for 7% Collateralized Subordinated Debentures due July 31, 2000. On
March 29, 1995, Hallwood Group repurchased the 7% Collateralized Subordinated
Debentures for $1,376,000 plus accrued interest through the purchase date. The
debentures were repurchased for an amount approximately equal to their carrying
value.
NOTE 2 - DEBT
During the second quarter of 1995, the Company entered into a credit agreement
with a bank that has committed to loan the Company up to $1,500,000. As of June
30, 1996, the Company has $975,000 outstanding against the credit line.
Borrowings against the credit line bear interest at the bank's prime rate plus
2% (10.25% at June 30, 1996). Interest is payable monthly, and principal
payments of $75,000 are due quarterly. The credit line is secured by the Class
A HEP Units owned by the Company. The credit agreement limits aggregate
dividends paid by the Company to $3.50 per share each fiscal year.
NOTE 3 - REPURCHASE OF COMMON STOCK
In May 1996, HEC purchased 15,000 shares of its common stock from an individual
in a privately negotiated transaction for $10.50 per share.
NOTE 4 - LEGAL PROCEEDINGS
In June 1996, HEP and the other parties to the lawsuits styled Lamson Petroleum
Corporation v. Hallwood Petroleum, Inc. et al. settled the lawsuits. The
plaintiffs in the lawsuits claimed they had valid leases covering streets and
roads in the units of the A. L. Boudreaux #1 well, G. S. Boudreaux #1 well, Paul
Castille #1 well, Evangeline Shrine Club #1 well and Duhon #1 well, which
represented approximately .4% to 2.3% of HEP s interest in these properties, and
they were entitled to a portion of the production from the wells dating from
February 1990. In the settlement, HEP and the plaintiffs agreed to cross-convey
interests in certain leases to one another, and HEP agreed to pay the plaintiffs
$728,000. HEP has not recognized revenue attributable to the contested leases
since January 1993. These revenues plus accrued interest, totaling $506,000,
had been placed in escrow pending the resolution of the lawsuits. HEC s pro
rata share of the excess of the cash paid over the escrowed amounts, is included
in other income (expense) in the accompanying financial statements. The cross-
conveyance of the interests in the leases will result in a decrease in HEP s
reserves of $374,000 in future net revenues, discounted at 10%.
NOTE 5 - SUBSEQUENT EVENT
On July 1, 1996, HEP and HCRC completed a transaction involving the sale by Fuel
Resources Development Co., a wholly owned subsidiary of Public Service Company
of Colorado, and other interest owners of their interests in 38 coal bed methane
wells located in La Plata County, Colorado and Rio Arriba County, New Mexico.
Thirty-four of the wells, estimated to have reserves of 53 BCF, were assigned to
44 Canyon LLC ( 44 Canyon ), a special purpose entity owned by a large east
coast financial institution. The wells qualify for tax credits under Section 29
of the Internal Revenue Code. Hallwood Petroleum, Inc. ( HPI ) will manage and
operate the properties on behalf of 44 Canyon. The $27.8 million purchase price
was funded by 44 Canyon through the sale of a volumetric production payment to
an affiliate of Enron Capital & Trade Resources Corp., a subsidiary of Enron
Corp., the sale of a subordinated production payment and certain other property
interests for $3.45 million to an affiliate of HEP and HCRC, La Plata
Associates, LLC ( LPA ) and additional cash contributed by the owners of 44
Canyon. LPA is owned equally by HEP and HCRC. As a result of the transaction,
HEP expects to add 9.8 BCF of gas to its reserve base, which represents
approximately 52% of its estimated 1996 production.
HEC will receive a 4% economic interest in HEP s interest in LPA in satisfaction
of the acquisition fee payable to HEC. The assignment of this interest will
result in the addition of approximately 400,000 mcf of gas to HEC s direct
reserve base.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
FINANCING
During the second quarter of 1995, the Company entered into a credit agreement
with a bank that has committed to loan the Company up to $1,500,000. As of June
30, 1996, the Company has $975,000 outstanding against the credit line.
Borrowings against the credit line bear interest at the bank's prime rate plus
2% (10.25% at June 30, 1996). Interest is payable monthly, and principal
payments of $75,000 are due quarterly. The credit line is secured by the HEP
Class A Units owned by the Company. The credit agreement limits aggregate
dividends paid by the Company to $3.50 per share each fiscal year.
Included in the accompanying balance sheet at June 30, 1996 are long-term
obligations of affiliate of $5,312,000 which represents HEC's pro rata share of
the long-term obligations of HEP. The long-term obligations of HEP consist
primarily of $30,700,000 borrowed under a line of credit and $8,571,000 borrowed
under a note purchase agreement. HEP's borrowings are secured by a first lien
on approximately 80% in value of HEP's oil and gas properties.
DEVELOPMENT PROJECTS AND ACQUISITIONS
In the first six months of 1996, HEC through its interest in the Saxon Drilling
Venture, participated in drilling nine wells in Winkler County, Texas. Total
net cost to HEC is approximately $62,000. Effective April 1, 1996, HEC repaid
its share of the loan provided to Hallwood Spraberry Drilling Company, L.L.C.
( HSD ) by an outside third party. The net cost to HEC was approximately
$176,000, and HEC now has direct ownership of an interest of approximately 2% in
the Rocker "b" Ranch properties.
In the second quarter of 1996, HEC repurchased 15,000 shares of its common stock
from an individual in a privately negotiated transaction for $10.50 per share.
HEC had no other material property acquisitions, sales, exploration or
development activity during the first six months of 1996. A summary of HEP's
significant property transactions follows.
Through June 30, 1996, HEP incurred approximately $4,758,000 for exploration,
development and acquisition costs and approximately $441,000 for the purchase of
shares of Hallwood Consolidated Resources Corporation ( HCRC ) toward the 1996
capital budget of $11,500,000. The expenditures were comprised of approximately
$4,142,000 for domestic exploration and development expenditures and
approximately $616,000 for property acquisitions. A description of significant
exploration and development projects to date in 1996 follows.
HEP continues to devote capital resources to the West Texas Kermit area in 1996.
HEP drilled or participated in the drilling of nine wells, eight of which were
successful, and participated in one unsuccessful recompletion in the first six
months of 1996, for a total cost of approximately $760,000. The new wells in
this area are capable of producing approximately 750 gross equivalent barrels of
oil per day but are currently limited to approximately 500 gross equivalent
barrels of oil per day due to limitations on production imposed by state laws
and regulations. HEP's interest in these wells averages 23%. HEP is committed
to drilling at least three more wells in this area in the third quarter and has
plans to drill or recomplete up to ten additional wells by year end.
During the second quarter of 1996, HEP purchased 12,965 shares of HCRC for $34
per share. The shares were originally purchased by HCRC in connection with an
odd lot repurchase offer and then were resold to HEP at the price paid by HCRC
for such shares.
HEP acquired three dimensional (3-D) seismic data covering 106 square miles on
the Cowden Ranch in Crane County, Texas. The prospect will be operated by a
major oil company, and HEP has a 12.5% working interest. HEP s share of costs
to date is $425,000. Seismic interpretation is in process, and two exploratory
wells are expected to be drilled in 1996.
HEP acquired 3-D seismic data and related acreage in the Merkel prospect area
which covers 87 square miles in Jones, Taylor and Nolan Counties, Texas.
Expenditures in the first six months of 1996 totaled $200,000. Thus far, HEP
has participated in drilling five wells on developed prospects for a total cost
of $135,000, including one well drilled in late 1995. Two of the wells are
awaiting completion, two are on production with average initial rates of 60
barrels of oil per day, and one well was unsuccessful. HEP s interest in the
wells is 10%. Fourteen more prospects have been identified on 13 square miles
of data, and seismic interpretation has begun on the remaining 74 square miles
of data.
HEP also participated in the drilling of two nonoperated wells in Williams
County, North Dakota in the latter part of 1995 and the first quarter of 1996,
one of which was dry and the other only marginally successful, for a total cost
of approximately $200,000. HEP also drilled an exploratory dry hole in Richland
County, Montana, at a cost of $120,000. HEP is currently completing an
Interlake Formation development well, drilled in the second quarter at a cost of
approximately $425,000
HEP incurred approximately $189,000 in the first quarter, net to HEP's interest,
for four recompletions and one drilled well in the Rocker "b" Ranch in Reagan
County, Texas. This activity has increased HEP's share of production by 90
equivalent barrels of oil per day. During the first quarter, HEP also acquired
interests in five additional producing leases on the Rocker "b" Ranch for a
total of $93,000. Effective April 1, 1996, HEP repaid its share of the debt of
Hallwood Spraberry Drilling Company, L.L.C. ( HSD ) through additional
borrowings under its bank credit agreement and assumed direct ownership of its
share of HSD s properties. In the second quarter of 1996, HEP recompleted
three wells, two of which were successful, and began drilling another well in
July. HEP has plans to recomplete at least five more wells before year end and
will consider other work, if the capital is available.
Under a farmout agreement completed in 1995, HEP participates in several
multiple lateral, horizontal wells in the Giddings Austin Chalk play in Lee
County, Texas. Two successful wells and one unsuccessful well have been drilled
thus far. HEP's interests in the area range from 3% to 4%. Gross average
initial production rates were 750 barrels of oil per day on the first two wells.
HEP's cost for all three wells was approximately $25,000.
In the San Juan Basin area, HEP, through an affiliate, acquired interests in 34
coal bed methane wells located in La Plata County, Colorado for $1,300,000.
HEP s interest in the wells is expected to add 9.8 BCF of gas to its reserve
base, which represents approximately 52% of its estimated 1996 production. The
acquisition was completed on July 1, 1996. In the same transaction, HEP also
directly acquired interests in four non-producing wells in Rio Arriba County,
New Mexico.
In the first quarter of 1996, HEP successfully recompleted a well in New Mexico
for approximately $90,000. Production on this well averaged 1,600 mcf of gas
per day which exceeds the initial production rates experienced when the well was
drilled in 1990. Rates prior to this workover were approximately 400 mcf of gas
per day. HEP owns approximately 55% of this well. HEP began drilling another
Fruitland Coal development well in late July and anticipates completion of the
well in August.
HEP is also actively evaluating acquisitions in strategic areas. Such
acquisitions would be financed using the capital budget, supplemented by
external financing when appropriate.
PROPERTY SALES
During the first quarter of 1996, HEP received approximately $1,300,000 for the
sale of its interests in the Hoople Field in Crosby County, Texas. HEP also
received another $88,000 in early April for the sale of various nonstrategic
properties at auction. In June 1996, HEP completed the sale of its interests in
the Bethany Longstreet area of Louisiana (approximately 575,000 equivalent
barrels of oil, measured using December 31, 1995 pricing) for approximately
$3,800,000.
HEP DISTRIBUTIONS
HEP declared a limited partner distribution of $.13 per Class A Unit and $.25
per Class C Unit and a general partner distribution of $548,000 for the second
quarter of 1996, payable on August 15, 1996. The total of the distributions
receivable by HEC is $626,000, which has been accrued in receivables from
affiliates at June 30, 1996.
RESULTS OF OPERATIONS
The following table is presented to contrast HEC's average oil and gas prices
and production. Significant fluctuations are discussed in the accompanying
narrative.
<TABLE>
<CAPTION>
OIL AND GAS PRICES AND PRODUCTION
(In thousands except for price)
For the Three Months
Ended June 30,
1996 1995
Oil Gas Oil Gas
(bbl) (mcf) (bbl) (mcf)
<S> <C> <C> <C> <C>
Average
price $20.27 $ 2.28 $16.22 $ 1.62
Production 33 463 32 437
</TABLE>
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1996 1995
Oil Gas Oil Gas
(bbl) (mcf) (bbl) (mcf)
<S> <C> <C> <C> <C>
Average
price $18.94 $ 2.41 $16.73 $ 1.69
Production 71 928 62 880
</TABLE>
QUARTER ENDED JUNE 30, 1996 COMPARED TO QUARTER ENDED JUNE 30, 1995
OIL REVENUE
Oil revenue increased $154,000 during the second quarter of 1996 as compared
with the second quarter of 1995. This increase is comprised of an increase in
oil production from 32,000 barrels in 1995 to 33,000 barrels in 1996 combined
with an increase in oil prices from $16.22 per barrel in 1995 to $20.27 per
barrel in 1996. The increase in oil production is due to increased production
from developmental and exploratory drilling projects in Montana, Wyoming and
West Texas partially offset by normal production declines.
GAS REVENUE
Gas revenue increased $347,000 during the second quarter of 1996 as compared
with the second quarter of 1995 primarily as a result of an increase in average
gas prices from $1.62 per mcf in 1995 to $2.28 in 1996 combined with an increase
in production from 437,000 mcf in 1995 to 463,000 mcf in 1996. The increase in
gas production is primarily due to increased production from developmental and
exploratory drilling projects in Montana, Wyoming and West Texas partially
offset by normal production declines.
PRODUCTION OPERATING EXPENSE
Production operating expense increased $47,000 during the second quarter of 1996
as compared with the second quarter of 1995. The increase is primarily due to
increased production taxes and operating expenses during the second quarter of
1996 due to the production increase described above.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense includes costs incurred for direct
administrative services such as legal and audit fees, as well as allocated
internal overhead incurred by Hallwood Petroleum, Inc. ("HPI"), an affiliate of
HEC, which manages and operates certain oil and gas properties on behalf of HEC,
HEP and their affiliates. These costs decreased $61,000 during the second
quarter of 1996 as compared to the second quarter of 1995, primarily due to a
decrease in allocated internal overhead.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation, depletion and amortization expense decreased $76,000 during the
second quarter of 1996 as compared with the second quarter of 1995. The
decrease is primarily due to lower capitalized costs in 1996.
INTEREST EXPENSE
Interest expense decreased $20,000 during the second quarter of 1996 as compared
with the second quarter of 1995 as a result of lower interest rates in 1996.
OTHER INCOME
Other income consists primarily of HEC's direct interest income, as well as
HEC's share of HEP's interest income, facilities income from two gathering
systems in New Mexico, pipeline revenue, equity in income (loss) of affiliate
and miscellaneous income or expense. The increase of $91,000 during the second
quarter of 1996 as compared with the second quarter of 1995 is primarily due to
an increase in HEP s equity in earnings of affiliate due to higher oil and gas
revenues. The remaining increase is comprised of numerous other items, none of
which are individually significant.
FIRST SIX MONTHS OF 1996 COMPARED TO FIRST SIX MONTHS OF 1995
The comparisons for the first six months of 1996 and the first six months of
1995 are consistent with those discussed in the second quarter of 1996 compared
to the second quarter of 1995 except for the following:
OIL REVENUE
Oil revenue increased $308,000 during the first six months of 1996 as compared
with the first six months of 1995 due to an increase in oil prices from $16.73
per barrel in 1995 to $18.94 per barrel in 1996 combined with an increase in oil
production from 62,000 barrels in 1995 to 71,000 barrels in 1996. The
production increase is due to increased production from developmental and
exploratory drilling projects in Montana, Wyoming and West Texas partially
offset by normal production declines.
GAS REVENUE
Gas revenue increased $749,000 during the first six months of 1996 as compared
with the same period in 1995 due to an increase in gas prices from $1.69 per mcf
in 1995 to $2.41 in 1996 combined with an increase in production from 880,000
mcf in 1995 to 928,000 mcf in 1996. The increase in production is due to
increased production from developmental and exploratory drilling projects in
Montana, Wyoming and West Texas partially offset by normal production declines.
IMPAIRMENT OF OIL AND GAS PROPERTIES
Impairment of oil and gas properties for the six months ended June 30, 1995,
represents HEC s pro rata share of the write-off of HEP s Indonesian operations.
INTEREST EXPENSE
Interest expense increased $50,000 during the first six months of 1996 as
compared with the first six months of 1995 as HEC had outstanding borrowings for
six months in 1996 and for two months in 1995.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Item 8 - Note 12 of Form 10-K for the year
ended December 31, 1995, and Item 1 - Note 4 of this Form 10-Q.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 14, 1996, HCRC held its Annual Meeting of Shareholders at
which Anthony J. Gumbiner, William L. Guzzetti, Brian M. Troup,
Hans-Peter Holinger, Rex A. Sebastian and Nathan C. Collins were
elected directors. Following is the number of votes cast for and
withheld for each of the directors.
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
<S> <C> <C>
Anthony J. Gumbiner 757,845 8,066
William L. Guzzetti 757,845 8,066
Brian M. Troup 758,035 7,876
Hans-Peter Holinger 758,035 7,876
Rex A. Sebastian 758,071 7,840
Nathan C. Collins 758,071 7,840
<F1>
There were no abstentions or broker non-votes.
</TABLE>
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None.
SIGNATURE
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.
HALLWOOD ENERGY CORPORATION
Date: August 9, 1996 By: /s/Robert S. Pfeiffer
Robert S. Pfeiffer, Vice President
(Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarter ended June 30, 1996 for Hallwood Energy Corporation and is
qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<CIK> 0000319019
<NAME> HALLWOOD ENERGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 440
<SECURITIES> 0
<RECEIVABLES> 524
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,780
<PP&E> 116,733
<DEPRECIATION> 107,976
<TOTAL-ASSETS> 18,109
<CURRENT-LIABILITIES> 2,463
<BONDS> 0
0
0
<COMMON> 599
<OTHER-SE> 9,060
<TOTAL-LIABILITY-AND-EQUITY> 18,109
<SALES> 3,584
<TOTAL-REVENUES> 3,584
<CGS> 0
<TOTAL-COSTS> 1,982
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 254
<INCOME-PRETAX> 1,412
<INCOME-TAX> 212
<INCOME-CONTINUING> 1,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,200
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
</TABLE>
