<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- -----
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
-----------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- -----
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------------------- ---------------------
COMMISSION FILE NUMBER 1-8094
--------------------------------------------------------
SEAGULL ENERGY CORPORATION
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-1764876
- -------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1001 FANNIN, SUITE 1700, HOUSTON, TEXAS 77002-6714
- -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 951-4700
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
- -------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
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 .
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT APRIL 29, 1994
----- -----------------------------
COMMON STOCK, $.10 PAR VALUE 36,070,029
1
<PAGE> 2
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
- ------------------------------ ------
<S> <C>
Presentation of Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Earnings - Three Months
Ended March 31, 1994 and 1993 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Balance Sheets - March 31, 1994
and December 31, 1993 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1994 and 1993 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
- ---------------------------
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
- ----------
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
PRESENTATION OF FINANCIAL INFORMATION
In the opinion of management, the following unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of Seagull Energy Corporation and Subsidiaries (the
"Company" or "Seagull") as of March 31, 1994, and the results of its operations
and cash flows for the three months ended March 31, 1994 and 1993. All such
adjustments made are of a normal, recurring nature. The results of operations
for the three months ended March 31, 1994 are not necessarily indicative of the
results to be expected for the full year.
The financial information presented herein should be read in
conjunction with the consolidated financial statements and notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues:
Exploration and production................................ $ 81,418 $ 52,580
Pipeline and marketing.................................... 9,379 11,420
Alaska transmission and distribution...................... 36,266 39,192
----------- -----------
127,063 103,192
----------- -----------
Costs of Operations:
Alaska transmission and distribution cost of gas sold..... 19,250 22,528
Cost of other gas sold.................................... 386 724
Operations and maintenance................................ 29,395 26,895
Exploration charges....................................... 4,183 5,539
Depreciation, depletion and amortization.................. 39,020 28,085
----------- -----------
92,234 83,771
----------- -----------
Operating Profit............................................ 34,829 19,421
Other (Income) Expense:
General and administrative................................ 2,991 3,498
Interest expense.......................................... 11,545 10,535
Interest income and other................................. (107) (505)
----------- -----------
14,429 13,528
----------- -----------
Earnings Before Income Taxes................................ 20,400 5,893
Income Taxes................................................ 7,485 2,040
----------- -----------
Net Earnings................................................ $ 12,915 $ 3,853
=========== ===========
Earnings Per Share.......................................... $ 0.35 $ 0.12
=========== ===========
Weighted Average Number of Common Shares Outstanding........ 36,928,418 31,489,778
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
<PAGE> 5
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 7,760 $ 5,572
Accounts receivable, net................................ 111,863 98,734
Inventories............................................. 4,743 4,382
Prepaid expenses and other.............................. 4,499 6,520
------------- -------------
Total Current Assets.................................. 128,865 115,208
Property, Plant and Equipment - at cost
(successful efforts method for gas and oil properties)... 1,509,341 1,278,701
Accumulated Depreciation, Depletion and Amortization...... 385,017 345,512
------------- -------------
1,124,324 933,189
Other Assets.............................................. 64,389 69,854
------------- -------------
Total Assets.............................................. $ 1,317,578 $ 1,118,251
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 89,822 $ 84,904
Accrued expenses........................................ 20,046 30,134
Prepaid gas and oil sales............................... 6,364 7,590
Current maturities of long-term debt.................... 1,536 1,538
------------- -------------
Total Current Liabilities............................. 117,768 124,166
Long-Term Debt............................................ 632,363 459,787
Other Noncurrent Liabilities.............................. 62,829 66,785
Deferred Income Taxes..................................... 54,474 28,134
Shareholders' Equity:
Common Stock, $.10 par value; authorized
100,000,000 shares; issued 36,391,491 shares (1994)
and 36,378,659 shares (1993)........................... 3,639 3,638
Additional paid-in capital.............................. 324,281 324,192
Retained earnings....................................... 133,628 120,713
Foreign currency translation adjustment................. (2,240) -
Less - note receivable from employee stock
ownership plan......................................... (6,029) (6,029)
Less - 326,812 shares of Common Stock held in
Treasury, at cost...................................... (3,135) (3,135)
------------- -------------
Total Shareholders' Equity............................ 450,144 439,379
Commitments and Contingencies.............................
------------- -------------
Total Liabilities and Shareholders' Equity................ $ 1,317,578 $ 1,118,251
============= =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
5
<PAGE> 6
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1994 1993
------------- -------------
<S> <C> <C>
Operating Activities:
Net earnings................................................. $ 12,915 $ 3,853
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation, depletion and amortization................... 39,724 28,817
Amortization of deferred financing costs................... 1,043 1,141
Deferred income taxes...................................... 5,380 836
Dry hole expense........................................... 1,279 4,371
Distributions in excess of earnings from partnerships...... 856 106
Other...................................................... (12) 9
------------- -------------
61,185 39,133
Changes in operating assets and
liabilities, net of acquisitions:
Decrease (Increase) in accounts receivable.............. (1,993) 8,393
Decrease (Increase) in inventories, prepaid
expenses and other..................................... 2,056 (994)
Decrease in accounts payable............................ (2,140) (18,580)
Decrease in prepaid gas and oil sales................... (2,593) (8,001)
Increase (Decrease) in accrued expenses and other....... (14,298) 2,687
------------- -------------
Net Cash Provided By Operating Activities............ 42,217 22,638
Investing Activities:
Capital expenditures......................................... (23,548) (22,948)
Acquisitions, net of cash acquired........................... (196,031) 739
Proceeds from sales of property, plant and equipment......... 98 20
------------- -------------
Net Cash Used In Investing Activities................ (219,481) (22,189)
Financing Activities:
Proceeds from revolving lines of credit and other borrowings. 317,592 40,000
Principal payments on revolving lines of credit and
other borrowings............................................ (137,774) (200,000)
Fees paid to acquire financing............................... (13) (717)
Proceeds from sales of common stock.......................... 84 164,257
Other........................................................ (333) (188)
------------- -------------
Net Cash Provided by Financing Activities............ 179,556 3,352
Effect of exchange rate changes on cash...................... (104) -
------------- -------------
Increase In Cash And Cash Equivalents................ 2,188 3,801
Cash And Cash Equivalents At Beginning Of Period............... 5,572 3,882
------------- -------------
Cash And Cash Equivalents At End Of Period..................... $ 7,760 $ 7,683
============= =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
6
<PAGE> 7
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Supplemental Disclosures of Cash Flow Information.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended March 31,
--------------------------------------------
1994 1993
--------------------------------------------
<S> <C> <C>
Cash paid during the period for:
Interest, net of amount capitalized . . . . . . . . . . . . . . . . . $ 15,610 $ 5,782
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 105 $ 756
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Foreign Currency Translation.
The functional currency for the Company's foreign operations is the
applicable local currency. Translation from applicable foreign currencies to
U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using primarily a weighted average exchange rate during the period.
Adjustments resulting from such translation are included as a separate
component of shareholders' equity. Deferred income taxes have not been
provided on translation adjustments because the unremitted earnings from
Seagull's foreign operations are considered to be permanently invested.
Earnings Per Share.
The weighted average number of common shares outstanding for the
computation of earnings per share for the quarter ended March 31, 1994 gives
effect to the assumed exercise of dilutive stock options as of the beginning of
the period. The effect of dilutive stock options is insignificant on the
earnings per share computation for the quarter ended March 31, 1993.
NOTE 2. ACQUISITION
On January 4, 1994, Seagull acquired all of the outstanding shares of
stock of Novalta Resources Inc. ("Novalta") for a purchase price of
approximately $203 million in cash, subject to customary postclosing
adjustments described below (the "Seagull Canada Acquisition"). The economic
effective date of the Seagull Canada Acquisition was December 31, 1993. The
purchase price was adjusted for, among other things, working capital and
capital expenditures for 1993 in excess of a specified threshold pursuant to
the provisions of the Sale Agreement, dated November 19, 1993, between Seagull
and Novacor Petrochemicals Ltd. Effective as of the January 4, 1994 Closing
Date, Novalta was amalgamated with Seagull Energy Canada Ltd. ("Seagull
Canada"), the indirect subsidiary of Seagull that acquired Novalta.
The Seagull Canada Acquisition was financed primarily with a new $175
million reducing revolving credit facility (the "Canadian Credit Agreement"),
as well as borrowings under Seagull's amended and restated $475 million
revolving credit facility (the "Revolver"). For additional information, see
Notes 2 and 6 to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
7
<PAGE> 8
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Actual results of Seagull Canada's operations for the first quarter of
1994 are reflected in Seagull's accompanying unaudited consolidated financial
statements.
NOTE 3. ENSTAR ALASKA STOCK PROPOSAL
In March 1994, the Board of Directors approved, subject to shareholder
approval, a plan (the "ENSTAR Alaska Stock Proposal") to create and issue a new
class of common stock of the Company intended to reflect separately the
performance of the Company's Alaska transmission and distribution segment
("ENSTAR Alaska") (the "ENSTAR Alaska Stock"). As part of the ENSTAR Alaska
Stock Proposal, and following the issuance of the ENSTAR Alaska Stock,
Seagull's currently outstanding common stock (the "Seagull Common Stock") will
reflect separately the performance of the Company's exploration and production
and pipeline and marketing segments. In addition, certain terms of the Seagull
Common Stock will be amended to allow for the creation and issuance of the
ENSTAR Alaska Stock.
The Company currently expects that, shortly after shareholder approval
of the ENSTAR Alaska Stock Proposal and subject to prevailing market and other
conditions, it will make an underwritten public offering (the "ENSTAR Alaska
Stock Offering") for cash of shares of ENSTAR Alaska Stock. Net proceeds from
the ENSTAR Alaska Stock Offering would be used to repay amounts borrowed under
the Revolver, none of which is attributable to ENSTAR Alaska.
The ENSTAR Alaska Stock Proposal will be submitted to shareholders at
Seagull's Annual Meeting of Shareholders on June 1, 1994.
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company is a party to ongoing litigation in the normal course of
business. Management regularly analyzes current information and, as necessary,
provides accruals for probable liabilities on the eventual disposition of these
matters. While the outcome of lawsuits or other proceedings against the
Company cannot be predicted with certainty, management believes that the effect
on its financial condition and results of operations, if any, will not be
material.
8
<PAGE> 9
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
GENERAL
The following discussion is intended to assist in an understanding of
the Company's financial position and results of operations for each of the
quarters ended March 31, 1994 and 1993. The Company's accompanying unaudited
financial statements and the notes thereto contain detailed information that
should be referred to in conjunction with the following discussion.
RESULTS OF OPERATIONS
CONSOLIDATED HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended March 31,
-------------------------------------------------
Percent
1994 1993 Change
-------------------------------------------------
<S> <C> <C> <C>
Revenues:
Exploration and production . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,418 $ 52,580 + 55
Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,379 11,420 - 18
Alaska transmission and distribution . . . . . . . . . . . . . . . . . . . . . 36,266 39,192 - 7
- ------------------------------------------------------------------------------------------------------------------------------------
$ 127,063 $ 103,192 + 23
====================================================================================================================================
Operating Profit:
Exploration and production . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,175 $ 6,419 +245
Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,207 3,903 - 18
Alaska transmission and distribution . . . . . . . . . . . . . . . . . . . . . 9,447 9,099 + 4
- ------------------------------------------------------------------------------------------------------------------------------------
$ 34,829 $ 19,421 + 79
====================================================================================================================================
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,915 $ 3,853 +235
Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.35 $ 0.12 +192
Net Cash Provided by Operating Activities Before Changes
in Operating Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . $ 61,185 $ 39,133 + 56
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . $ 42,217 $ 22,638 + 86
Weighted Average Number of Common Shares Outstanding (in thousands) . . . . . . . 36,928 31,490 + 17
====================================================================================================================================
</TABLE>
Revenues and operating profit are discussed in the respective
segment sections.
The increase in net earnings for the first quarter of 1993 was due to
the increase in operating profit, which was partially offset by increases in
interest expense and income taxes (see "Other (Income) Expense" section below).
Net cash provided by operating activities before and after changes in
operating assets and liabilities increased in the 1994 quarter versus 1993
primarily due to a 40% increase in natural gas production and higher prices
received for the Company's natural gas production. The increase in natural
9
<PAGE> 10
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
gas production was primarily due to production contributed from properties
acquired in connection with the Company's acquisition of Novalta Resources Inc.
("Novalta") (the "Seagull Canada Acquisition") on January 4, 1994, and to
production flowing for the first time from certain of the Company's discoveries
and three newly installed Company operated production facilities offshore Texas
and Louisiana.
On June 4, 1993, Seagull effected, in the form of a 100 percent stock
dividend, a two-for-one stock split (the "Stock Split") of all the issued
shares of the Company's common stock (the "Seagull Common Stock"). The
weighted average number of common shares outstanding and per share amounts for
all periods have been restated to reflect the Stock Split.
The increase in the weighted average number of common shares
outstanding in 1994 over 1993 was due to the full period effect of the February
1993 sale of 5,060,000 shares (10,120,000 after the Stock Split) of Seagull
Common Stock pursuant to an underwritten public offering.
10
<PAGE> 11
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Unit Amounts)
Three Months Ended March 31,
-------------------------------------------
Percent
1994 1993 Change
-------------------------------------------
<S> <C> <C> <C>
Revenues:
Natural Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,071 $ 45,778 + 64
Oil and Condensate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,504 6,494 - 15
Natural Gas Liquids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612 763 - 20
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 (455) +151
- --------------------------------------------------------------------------------------------------------------------------------
81,418 52,580 + 55
Lifting Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,221 12,887 + 26
General Operating Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,990 2,835 + 5
Exploration Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,183 5,539 - 24
Depreciation, Depletion and Amortization . . . . . . . . . . . . . . . . . . . . . 35,849 24,900 + 44
- --------------------------------------------------------------------------------------------------------------------------------
Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,175 $ 6,419 +245
================================================================================================================================
OPERATING DATA:
Net Daily Production(1):
Natural Gas (MMcf) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387.2 276.5 + 40
Oil and Condensate (Bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,462 4,106 + 9
Natural Gas Liquids (Bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 894 698 + 28
Combined (MMcfe)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.3 305.3 + 37
Average Sales Prices:
Natural Gas ($ per Mcf) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.15 1.84 + 17
Oil and Condensate ($ per Bbl) . . . . . . . . . . . . . . . . . . . . . . . . . 13.71 17.57 - 22
Natural Gas Liquids ($ per Bbl) . . . . . . . . . . . . . . . . . . . . . . . . . 7.61 12.14 - 37
Combined ($ per Mcfe) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.16 1.93 + 12
Lifting Costs ($ per Mcfe) (2):
Lease Operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.23 0.28 - 18
Workovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.03 0.02 + 50
Production Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.07 0.08 - 12
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.08 0.06 + 33
Ad Valorem Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.02 0.03 - 33
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.43 0.47 - 8
DD&A Rate ($ per Mcfe) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.95 0.91 + 4
================================================================================================================================
</TABLE>
(1) Natural gas stated in million cubic feet ("MMcf") or thousand cubic
feet ("Mcf"); oil and condensate and natural gas liquids stated in
barrels ("Bbl").
(2) MMcfe and Mcfe represent the equivalent of one million and one
thousand cubic feet of natural gas, respectively. Oil and condensate
and natural gas liquids are converted to gas at a ratio of one barrel
of liquids per six Mcf of gas, based on relative energy content.
11
<PAGE> 12
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
EXPLORATION AND PRODUCTION, CONTINUED
The increase in operating profit of the Exploration and Production
("E&P") segment for the first quarter of 1994 as compared to the 1993 period
was due to increases in revenues as a result of a significant increase in
natural gas production and higher natural gas prices, which was partially
offset by increased depreciation, depletion and amortization ("DD&A") expense
and lifting costs.
The increase in natural gas production was primarily due to production
contributed from properties acquired in connection with the Seagull Canada
Acquisition on January 4, 1994 (the "Seagull Canada Properties"), and to
production flowing for the first time from certain of the Company's discoveries
and three newly installed Company operated production facilities offshore Texas
and Louisiana. According to reserve estimates prepared as of December 31, 1993
by an independent petroleum engineering firm, the Seagull Canada Properties had
proved reserves totaling 257.4 Bcf of natural gas and 2.8 MMbbl of oil,
condensate and natural gas liquids.
DD&A expense and lifting costs increased as a result of the
significant increase in production, although lifting costs per equivalent unit
of production declined for the 1994 quarter.
Exploration charges declined for the 1994 quarter due to a significant
decline in dry hole costs as a result of Seagull's less active exploratory
program in comparison to the 1993 period. Two of three wells drilled were
successful and four wells were drilling or being evaluated as of mid-April 1994
in comparison to 5 successes out of twelve wells drilled for the 1993 period.
However, Seagull plans to drill approximately 30 exploratory wells in 1994,
primarily in the second half of the year, including several to be drilled in
Canada and two wells planned in United Kingdom waters.
In contrast, Seagull's exploitative program was very active in early
1994. Through mid-April, 30 of 32 development wells drilled, all onshore, were
successful including 5 successes out of 5 wells drilled in Canada. The Company
plans to continue its exploitation activities at a comparable pace throughout
the year focusing its efforts primarily onshore in the Mid-Continent and
Mid-South areas, as well as in Canada.
As a result of its active exploration and exploitation programs,
Seagull expects to maintain its current level of deliverability throughout 1994
with increases expected in late 1994 and early 1995 from several of its new
discoveries and from continued exploitation, especially in Canada. The Company
has had no price-related curtailments of gas production in the current quarter
compared with substantial curtailments in periods prior to 1993, and no
significant curtailments are anticipated in the near future due to the relative
stability of natural gas prices which Seagull expects will be sustained
throughout 1994.
12
<PAGE> 13
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
PIPELINE AND MARKETING
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended March 31,
------------------------------------------------
Percent
1994 1993 Change
------------------------------------------------
<S> <C> <C> <C>
OPERATING PROFIT:
Pipelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,583 $2,715 - 42
Marketing and Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,352 561 +141
Gas Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (356) 515 -169
Operating and Construction Services . . . . . . . . . . . . . . . . . . . . . . . . 628 112 +461
- ------------------------------------------------------------------------------------------------------------------------------------
$3,207 $3,903 - 18
====================================================================================================================================
OPERATING DATA:
Average Daily Volumes (MMcf):
Gas Gathering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 339 - 18
Partnership Systems (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 139 - 22
Marketing and Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607 437 + 39
Gas Processing:
Average Daily Inlet Volumes (MMcf) . . . . . . . . . . . . . . . . . . . . . . . 285 285 -
Average Daily Net Production (Bbl) . . . . . . . . . . . . . . . . . . . . . . . 2,441 3,904 - 37
====================================================================================================================================
</TABLE>
In the pipeline and marketing segment, operating profit for the first
quarter of 1994 declined in comparison to the 1993 period due to declines in
the pipelines and gas processing areas which more than offset improvements in
the marketing and supply and operating and construction services areas.
Operating profit in the pipelines area, which includes the Company's
gas gathering and product pipelines systems, as well as the Company's interest
in two partnership systems, declined primarily due to reduced volumes delivered
for the period. Gas processing operating profit declined in 1994 due to
increases in natural gas costs and significant declines in prices received for
extracted products.
In the marketing and supply area, operating profit improved in 1994
due to a 39% increase in sales volumes due partially to increases in the E&P
segment's natural gas production discussed earlier and a 19% increase in
margins.
In the first quarter of 1994, Seagull recognized additional profit on
a construction project the Company began in mid- 1993; an 8.7 mile, 16-inch gas
pipeline that Seagull constructed for an international exploration company from
a platform to a gathering pipeline offshore Louisiana. The project was
completed early in the first quarter of 1994.
13
<PAGE> 14
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
PIPELINE AND MARKETING, CONTINUED
Historically, the Company has not been engaged in pipeline
construction projects on a regularly recurring basis. Seagull has no new
projects currently pending; however, the Company is currently conducting
marketing efforts in order to generate new projects.
14
<PAGE> 15
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
ALASKA TRANSMISSION AND DISTRIBUTION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended March 31,
----------------------------------------
Percent
1994 1993 Change
----------------------------------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,266 $39,192 - 7
Cost of Gas Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,250 22,528 - 15
Operations and Maintenance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,620 5,709 - 2
Depreciation, Depletion and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . 1,949 1,856 + 5
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,447 $ 9,099 + 4
====================================================================================================================================
OPERATING DATA:
Degree Days (*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,887 3,908 - 1
Volumes (Bcf):
Gas Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 10.8 + 3
Gas Transported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 2.7 - 11
Combined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5 13.5 -
Margins ($ per Mcf):
Gas Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.45 1.45 -
Gas Transported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.39 0.37 + 5
Combined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.26 1.23 + 2
====================================================================================================================================
</TABLE>
(*) A measure of weather severity calculated by subtracting the mean
temperature for each day from 65 degrees Fahrenheit. More degree days
equate to colder weather.
Operating profit of the Alaska transmission and distribution segment for
the quarter ended March 31, 1994 improved slightly from that of the prior year
quarter. Margins on total volumes delivered remained relatively stable, while
the weather was only slightly warmer in 1994.
This segment's business is seasonal with approximately 65% of its sales
made in the first and fourth quarters of each year.
15
<PAGE> 16
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
OTHER (INCOME) EXPENSE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended March 31,
-------------------------------------------------
Percent
1994 1993 Change
-------------------------------------------------
<S> <C> <C> <C>
General and Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,991 $ 3,498 - 14
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,545 10,535 + 10
Interest Income and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (107) (505) - 79
- ------------------------------------------------------------------------------------------------------------------------------------
$ 14,429 $ 13,528 + 7
====================================================================================================================================
</TABLE>
General and administrative expenses declined in 1994 due primarily to a
decline in costs associated with three compensation plans, one for outside
directors, one for key managers, and the other for all Seagull employees, that
are tied directly to the price of Seagull Common Stock. The closing price of
Seagull Common Stock declined 6% in the first quarter of 1994 from $25.375 at
December 31, 1993 to $23.75 on March 31, 1994, compared to a 52% increase in
the 1993 period.
Interest expense increased in the first quarter of 1994 as a result of an
increase in the level of debt outstanding due primarily to new debt incurred to
finance the Seagull Canada Acquisition.
INCOME TAXES
The increase in income taxes in the 1994 quarter was primarily a result of
an increase in earnings before income taxes for the period.
16
<PAGE> 17
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended March 31,
-----------------------------------------
Percent
1994 1993 Change
-----------------------------------------
<S> <C> <C> <C>
Exploration and Production:
Lease acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,884 $ 1,038 + 82
Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,172 9,195 - 66
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,238 10,263 + 58
- ------------------------------------------------------------------------------------------------------------------------------------
21,294 20,496 + 4
Pipeline and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391 578 - 32
Alaska Transmission and Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 1,385 1,340 + 3
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478 534 - 10
- ------------------------------------------------------------------------------------------------------------------------------------
$23,548 $22,948 + 3
====================================================================================================================================
</TABLE>
Total capital expenditures for the first quarter of 1994 were basically
unchanged from those for the 1993 quarter. Significant increases in Seagull's
exploitative activities, primarily resulting from the large number of
exploitative prospects in the Mid-South area as well as prospects from
properties acquired in connection with the Seagull Canada Acquisition,
substantially offset declines in the Company's exploratory activities for the
quarter. However, as discussed earlier, the Company has very active
exploitation and exploration programs planned for the remainder of the year.
Current plans for 1994 call for capital expenditures of slightly more than $170
million, including about $160 million in exploration and production. Of the
$160 million, Seagull anticipates spending approximately $100 million for
development activities.
The Company has a revolving credit line (the "Revolver") with a maximum
commitment of $475 million. The amount of senior indebtedness available to the
Company under the provisions of the Revolver is subject to a borrowing base
(the "Borrowing Base") based upon the proved reserves of the Company's
exploration and production segment and the financial performance of the
Company's other business segments. The Borrowing Base is generally determined
annually, but may be redetermined, at the option of either Seagull or the
banks, one additional time each year, and will be redetermined upon the sale of
certain assets included in the Borrowing Base.
Currently, the available commitment under the Revolver is subject to a
$610 million Borrowing Base and is determined after consideration of
outstanding borrowings under Seagull's other senior debt facilities. As of
April 29, 1994, borrowings outstanding under the Revolver were $158.5 million,
leaving immediately available unused commitments of approximately
17
<PAGE> 18
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
$165.1 million, net of outstanding letters of credit of $2.2 million, $100
million of borrowings outstanding under the Company's senior subordinated
notes, the nominated maximum borrowing availability of $160 million under the
Canadian Credit Agreement discussed below, and $24.2 million of borrowings
outstanding under Seagull's money market facilities.
The Company is in negotiation with its banks to amend the Revolver to,
among other things, (i) increase the maximum commitment from $475 million to
$725 million, (ii) extend the maturity date by one year to December 31, 2000,
(iii) adjust certain financial covenants relating to dividend limitations and
permitted leverage ratios, and (iv) to adjust the pricing features of the
credit facility. As of May 9, 1994, the Company is in possession of
commitments from its banks sufficient to permit these amendments, and
anticipates finalizing the amendment by the end of May 1994. Concurrently, the
Borrowing Base is anticipated to be increased to $625 million.
In connection with the Seagull Canada Acquisition, Seagull Energy Canada
Ltd. ("Seagull Canada"), the indirect wholly owned subsidiary of Seagull which
acquired Novalta, entered into a new $175 million reducing revolving credit
facility (the "Canadian Credit Agreement") with a group of 10 Canadian
affiliates of major U.S. and international banks. The Canadian Credit
Agreement provides for dual currency borrowings in U.S. and Canadian dollars
with a nominated maximum borrowing availability of $160 million, which may be
increased or decreased by the Company at any time pursuant to provisions of the
Canadian Credit Agreement, up to a maximum commitment of $175 million.
In addition to the facilities discussed above, Seagull has money market
facilities with two major U.S. banks with a combined maximum commitment of $70
million. These lines of credit bear interest at rates made available by the
banks at their discretion and may be canceled at either Seagull's or the banks'
discretion. The lines are subject to annual renewal.
Management believes that the Company's capital resources will be
sufficient to finance current and forecasted operations. However, the Company
continues to actively pursue potential acquisitions and, depending upon the
size and terms of any such acquisition, additional financing may be required.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Except as disclosed in Part IV, Item 14.(b) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993, which is
incorporated by reference herein, there were no reports on Form 8-K
filed during the three months ended March 31, 1994.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGULL ENERGY CORPORATION
By: /s/ Robert W. Shower
Robert W. Shower
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 1994
By: /s/ Rodney W. Bridges
Rodney W. Bridges
Vice President and Controller
(Principal Accounting
Officer)
Date: May 12, 1994
20
