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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
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SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
(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 .
As of May 8, 1997, 63,361,263 shares of Common Stock, par value $0.10 per share,
were outstanding.
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<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
Part I. Financial Information
Item 1. Unaudited Consolidated Financial Statements
Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and 1996.......................................... 3
Consolidated Balance Sheets - March 31, 1997
and December 31, 1996.................................................. 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996.......................................... 5
Notes to Consolidated Financial Statements............................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 9
Part II. Other Information................................................ 14
Signatures................................................................. 15
</TABLE>
-2-
<PAGE>
Item 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1997 1996
---------------- ---------------
Restated
<S> <C> <C>
Revenues:
Oil and gas operations.............................................. $125,004 $101,145
Alaska transmission and distribution................................ 34,569 35,430
---------------- ---------------
159,573 136,575
Costs of Operations:
Operations and maintenance.......................................... 42,871 34,335
Alaska transmission and distribution cost of gas sold............... 16,722 16,200
Exploration charges................................................. 8,953 6,730
Depreciation, depletion and amortization............................ 42,111 38,206
General and administrative.......................................... 2,310 3,729
---------------- ---------------
112,967 99,200
---------------- ---------------
Operating Profit...................................................... 46,606 37,375
Other (Income) Expense:
Interest expense.................................................... 10,410 11,446
Interest income and other........................................... (698) (1,155)
---------------- ---------------
9,712 10,291
---------------- ---------------
Income Before Income Taxes............................................ 36,894 27,084
Income Tax Expense.................................................... 19,640 8,772
---------------- ---------------
Net Income............................................................ $ 17,254 $ 18,312
================ ===============
Earnings Per Share.................................................... $ 0.27 $ 0.29
================ ===============
Weighted Average Number of Common
Shares Outstanding.................................................. 64,088 62,972
================ ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except Share and Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................. $ 27,283 $ 15,284
Accounts receivable, net................................................... 135,949 193,659
Inventories................................................................ 15,486 12,285
Prepaid expenses and other................................................. 12,821 6,389
-------------- -------------
Total Current Assets..................................................... 191,539 227,617
Property, Plant and Equipment - at cost...................................... 2,099,143 2,049,356
Accumulated Depreciation, Depletion and Amortization......................... 844,353 804,715
-------------- -------------
1,254,790 1,244,641
Other Assets................................................................. 43,939 42,805
-------------- -------------
Total Assets................................................................. $1,490,268 $1,515,063
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and note payable.................................................. $ 141,633 $ 166,775
Accrued expenses........................................................... 41,122 57,368
Current maturities of long-term debt....................................... 7,227 7,227
-------------- -------------
Total Current Liabilities................................................ 189,982 231,370
Long-Term Debt............................................................... 564,936 573,455
Other Noncurrent Liabilities................................................. 59,904 65,428
Deferred Income Taxes........................................................ 43,250 31,021
Redeemable Bearer Shares..................................................... 15,978 16,059
Commitments and Contingencies................................................ - -
Shareholders' Equity:
Common Stock, $.10 par value; authorized
100,000,000 shares; issued 63,342,247 shares (1997)
and 63,073,287 shares (1996).............................................. 6,334 6,307
Additional paid-in capital................................................. 485,521 483,118
Retained earnings.......................................................... 133,059 115,805
Foreign currency translation adjustment.................................... (1,145) 51
Less - note receivable from employee stock
ownership plan............................................................ (4,284) (4,284)
Less - 361,314 shares of Common Stock
held in Treasury, at cost................................................. (3,267) (3,267)
-------------- -------------
Total Shareholders' Equity............................................... 616,218 597,730
-------------- -------------
Total Liabilities and Shareholders' Equity................................... $1,490,268 $1,515,063
============== =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
-4-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................... $ 17,254 $ 18,312
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization................................. 42,111 38,206
Amortizationnof deferred financing costs................................. 606 876
Deferred income taxes.................................................... 12,494 4,762
Dry hole expense......................................................... 270 754
Other.................................................................... 378 (372)
---------------- ---------------
73,113 62,538
Changes in operating assets and liabilities, net
of acquisitions:
Decrease in short-term liquid investments.............................. - 5,010
Decrease (increase) in accounts receivable............................. 57,137 (8,034)
Decrease (increase) in inventories, prepaid
expenses and other.................................................... (10,925) 1,200
Increase (decrease) in accounts and note payable....................... (25,338) 8
Decrease in accrued expenses and other................................. (20,472) (8,589)
---------------- ---------------
Net Cash Provided By Operating Activities............................. 73,515 52,133
INVESTING ACTIVITIES:
Capital expenditures......................................................... (55,427) (25,916)
Acquisitions, net of cash acquired........................................... (101) (877)
Proceeds from sales of property, plant and equipment......................... 645 875
---------------- ---------------
Net Cash Used In Investing Activities................................. (54,883) (25,918)
FINANCING ACTIVITIES:
Proceeds from debt........................................................... 166,252 91,750
Principal payments on debt................................................... (174,147) (101,724)
Proceeds from sales of common stock.......................................... 2,171 2,347
Other........................................................................ (855) (2,031)
---------------- ---------------
Net Cash Used In Financing Activities................................. (6,579) (9,658)
Effect of exchange rate changes on cash......................................... (54) 10
---------------- ---------------
Increase In Cash And Cash Equivalents................................. 11,999 16,567
Cash And Cash Equivalents At Beginning Of Period................................ 15,284 21,477
---------------- ---------------
Cash And Cash Equivalents At End Of Period...................................... $ 27,283 $ 38,044
================ ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-5-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Presentation of Financial Information
Merger with Global Natural Resources Inc. -- On October 3, 1996, the
shareholders of Seagull Energy Corporation and Subsidiaries (the "Company" or
"Seagull") and Global Natural Resources Inc. ("Global") approved a merger of a
wholly owned subsidiary of Seagull into Global (the "Global Merger"). Pursuant
to the Global Merger, each share of Global common stock was converted into 0.88
shares of Seagull common stock with approximately 26.3 million shares issued to
the shareholders of Global. The Global Merger was accounted for as a pooling of
interests. Accordingly, the financial statements for 1996 have been restated to
combine the results of Seagull and Global.
In the opinion of management, the unaudited consolidated financial
statements presented herein contain all adjustments necessary to present fairly
the financial position of Seagull as of March 31, 1997, and the results of its
operations and cash flows for the three months ended March 31, 1997 and 1996.
All adjustments made are of a normal, recurring nature. The results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full year.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share. This statement establishes standards for computing and presenting
earnings per share and requires, among other things, dual presentation of basic
and diluted earnings per share on the face of the statement of operations. The
statement is effective for financial statements for periods ending after
December 15, 1997. The Company will adopt SFAS No. 128 by December 31, 1997 and
does not expect the adoption to have a material impact on its calculation of
earnings per share.
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, 1996.
Certain reclassifications have been made to the 1996 financial
information to conform to the presentation used in 1997.
Note 2. Supplemental Disclosures of Cash Flow Information
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------
(Amounts in Thousands) 1997 1996
------------------ -------------------
<S> <C> <C>
Cash paid during the period for: Restated
Interest, net of amount capitalized.......................................... $15,988 $17,054
Income taxes................................................................. $ 6,432 $ 5,767
</TABLE>
-6-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Commitments and Contingencies
Royalty Litigation. Increasingly, royalty owners under oil and gas
leases are challenging valuation methodology and post-production deductions used
by producers. These cases have arisen because of the manner in which oil and gas
producers such as Seagull have begun to provide services that had previously
been provided by the interstate gas pipelines prior to the "unbundling" of gas
services. For example, in 1996, Seagull was sued in Anne K. Barnaby, et al. v.
Seagull Mid-South, Inc. This case is pending in state court of Latimer County,
Oklahoma. In this case, the plaintiffs seek additional royalties based upon the
deduction by Seagull of post-production costs, such as those related to
gathering, compression, dehydration and treating. In addition, the plaintiffs
have questioned the sales price used by Seagull as a basis for calculating
royalty to the extent that sales were made to Seagull's gas marketing
subsidiary.
NorAm Litigation. Seagull also was sued in NorAm Gas Transmission Co.,
et al. v. Seagull Mid-South Inc. The case relates to Seagull's termination of a
1956 gas contract, which provided for the sale of gas by Seagull from certain
wells in the Aetna Field in Arkansas for $0.16 per Mcf. NorAm Gas Transmission
("NorAm") has sought a declaratory judgment that the gas contract remains in
effect with respect to these wells. Since the termination by Seagull of the gas
contract, Seagull has been selling the gas in question on the spot market.
Seagull believes that it has reasonable grounds for terminating the gas
contract. The NorAm case is currently scheduled for trial in mid-1997 in
District Court in Harris County, Texas. Seagull intends to vigorously defend
this case and does not believe that this case will have a material adverse
effect on its financial condition or results of operations.
NorAm has also sought a declaratory judgment to the effect that
certain additional wells in the Aetna Field (including any new wells) would be
subject to the $0.16 per Mcf price (the "Additional Well Claim"). If NorAm were
successful with the Additional Well Claim, Seagull's operations in the Aetna
Field would be materially affected in an adverse manner. However, Seagull
believes that there is little basis for this claim by NorAm and believes that it
will not be required to pay any amounts in connection with the Additional Well
Claim.
Gulf Coast Vacuum Site. In 1993, the Environmental Protection Agency
("EPA") notified the Company that a subsidiary was a potentially responsible
party ("PRP") at the Gulf Coast Vacuum Services Superfund Site (the "GCV Site")
in Vermilion Parish, Louisiana. Based upon the Company's investigation of this
claim, the Company believes that the basis for its alleged liability is a series
of transactions between the Company's subsidiaries and the operator of the GCV
Site that occurred during 1979 and 1980. While the EPA's cleanup cost estimate
of the GCV Site is in the range of $17 million, the Company believes that its
liability is unlikely to be material to its financial condition, results of
operations or cash flows because of the large number of potentially responsible
parties at the GCV Site and the relative amount of contamination, if any, that
may have been caused at the GCV Site by the disposal of wastes by the Company
during 1979 and 1980.
Caddo Natural Gas Company Site. The Company was notified by the
Louisiana Department of Environmental Quality on March 20, 1996, that one of the
Company's wholly owned subsidiaries is a
-7-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PRP in a state Superfund site known as the Caddo Natural Gas Company Site.
This site is reported to be contaminated with low levels of PCB, an additive
used in lubricating oils prior to the 1980s. During the first quarter of 1997,
the Company signed a settlement agreement whereby Seagull would pay a portion
of the cleanup costs for the Caddo Natural Gas Company Site. Seagull's share
of the cleanup costs is not expected to be material to its financial condition,
results of operations or cash flows.
Comstock Mill Site. On February 21, 1996, the United States Department of
Interior Bureau of Land Management ("BLM") sent a letter to Houston Oil &
Minerals Corporation ("HO&M"), a wholly owned subsidiary of Seagull, requesting
HO&M to prepare and submit a plan for sampling and analyzing groundwater at a
former mining operation located near Virginia City, Nevada (the "Comstock Mill
Site"). The basis for the BLM's request was the alleged operation of the
Comstock Mill Site by HO&M between 1978 and 1982. Pursuant to an indemnity
provision in the stock purchase agreement by which Seagull acquired HO&M in 1988
(the "HO&M Purchase Agreement"), Seagull tendered the BLM's letter to Tenneco
Inc. ("Tenneco") with a demand for indemnity and notified the BLM that Tenneco
would respond to the BLM letter on behalf of HO&M. The BLM has also indicated
that Tenneco and HO&M might be required to address cyanide contamination of
groundwater at the Comstock Mill Site by separate action of the Nevada Division
of Environmental Protection. Seagull believes that any liability associated with
the Comstock Mill Site is the responsibility of Tenneco or its successors in
liability pursuant to the HO&M Purchase Agreement.
The Company is a party to other 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, results of operations and cash flows, if
any, will not be material.
-8-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion is intended to assist in an understanding of
the Company's financial position, results of operations and cash flows for each
of the quarters ended March 31, 1997 and 1996. The Company's accompanying
unaudited consolidated financial statements and the notes thereto and the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 contain detailed
information that should be referred to in conjunction with the following
discussion.
RESULTS OF OPERATIONS
CONSOLIDATED HIGHLIGHTS
<TABLE>
<CAPTION>
(Amounts in Thousands Except Per Share Data) Three Months Ended March 31,
----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Revenues: Restated
Oil and gas operations ............................................................. $125,004 $101,145
Alaska transmission and distribution................................................ 34,569 35,430
--------------- ---------------
$159,573 $136,575
=============== ===============
Operating profit:
Oil and gas operations ............................................................. $ 39,079 $ 29,866
Alaska transmission and distribution................................................ 10,466 11,744
Corporate........................................................................... (2,939) (4,235)
--------------- ---------------
$ 46,606 $ 37,375
=============== ===============
Net income............................................................................ $ 17,254 $ 18,312
Earnings per share.................................................................... $ 0.27 $ 0.29
Weighted average number of common shares outstanding.................................. 64,088 62,972
Net cash provided by operating activities before changes in
operating assets and liabilities.................................................... $ 73,113 $ 62,538
Net cash provided by operating activities............................................. $ 73,515 $ 52,133
</TABLE>
Revenues increased $23 million and operating profit improved $9.2
million from the first quarter of 1996 to the first quarter of 1997 primarily
due to significant increases in domestic natural gas prices and Egyptian oil
production. These increases were partially offset by lower production in the
U.S. and Canada. Net earnings decreased slightly for the first quarter of 1997
over the same period in 1996 due to higher income taxes.
-9-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
OIL AND GAS OPERATIONS
<TABLE>
<CAPTION>
(Amounts in Thousands) Three Months Ended March 31,
------------------------------------------
1997 1996
------------------- ------------------
Restated
<S> <C> <C>
Revenues:
Natural gas................................................................ $ 85,500 $ 72,668
Oil and NGL................................................................ 30,823 16,885
Pipeline and marketing..................................................... 8,681 11,592
------------------- ------------------
125,004 101,145
------------------- ------------------
E&P operating expense........................................................ 29,883 23,455
Pipeline and marketing expenses.............................................. 7,691 5,438
Exploration charges.......................................................... 8,953 6,730
Depreciation, depletion and amortization..................................... 39,398 35,656
------------------- ------------------
Operating profit........................................................... $ 39,079 $ 29,866
=================== ==================
</TABLE>
The operating profit of the Oil and Gas Operations ("O&G") segment for
the first quarter of 1997 increased substantially as compared to the 1996 period
principally due to the five-fold increase in oil production in Egypt combined
with a 29% increase in domestic natural gas prices. With the purchase of two
Egyptian concessions from units of Exxon Corporation (the "Esso Suez
Acquisition") in September 1996, and the October 1996 merger with Global Natural
Resources Inc., Seagull's operations gained both a significant international
component and an increase in oil production as a percentage of the total
production. Increases in Egyptian oil production accounted for just over $11
million of the total increase in revenue as Seagull realized contributions from
the East Zeit concession, one of two concessions purchased in the Esso Suez
Acquisition, and as additional production facilities became operational at the
Company's Qarun concession. In addition, increases in oil prices in both Egypt
and Tatarstan accounted for approximately $2 million of the Company's overall
increase in revenues.
The domestic natural gas price increase from $2.02 per Mcf for the
first quarter of 1996 to $2.60 per Mcf for the first quarter of 1997 accounted
for approximately $19 million of the overall increase in natural gas revenue.
Additionally, the $0.78 per Mcf increase in Canadian natural gas prices
accounted for approximately $4 million of the overall increase in revenue.
Domestically, increases in oil prices from $16.76 per Bbl for 1996 to $20.75 per
Bbl for 1997 also contributed nearly $3 million to the overall increase in
revenues. These higher revenues were partially offset by lower production due to
normal production declines from developed properties combined with the impact of
substantially lower development expenditures in late 1994 and all of 1995 and
Canadian royalties increasing in tandem with prices.
The Company recorded as a reduction of revenues $7.5 million and $3.5
million of costs related to commodity hedging activities for the quarter ended
March 31, 1997 and 1996, respectively. While substantially all commodity hedges
for equity production were settled by March 31, 1997, the Company has commodity
hedges in place as required by the monetary production payment (related to the
1995 sale of the Company's Section 29 tax credit-bearing properties) for
approximately 12 MMcf per day through December 1998.
-10-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
Pipeline and marketing revenues decreased from $12.4 million in 1996 to
$9.8 million in 1997 primarily because the volatility in natural gas markets
during the first quarter of 1996 allowed significantly higher margins.
EXPLORATION AND PRODUCTION OPERATING DATA
(Amounts in thousands except per unit data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------------------------------------------
Revenues Net Daily Production Unit Price
1997 1996 1997 1996 1997 1996
------------ ------------- ------------ ------------- ----------- -------------
Restated Restated Restated
<S> <C> <C> <C> <C> <C> <C>
Gas Sales (1):
Domestic............ $70,873 $60,567 302.6 329.5 2.60 2.02
Canada ............. 9,490 7,391 48.1 57.6 2.19 1.41
Cote d'Ivoire....... 823 693 4.8 4.4 1.90 1.72
Indonesia........... 4,294 4,017 13.7 13.5 3.49 3.28
Other ............. 20 - 0.2 - 1.01 -
------------ ------------ ------------ ------------- ----------- -------------
$85,500 $72,668 369.4 405.0 2.57 1.97
============ ============= ============ ============= =========== =============
Oil and NGL Sales(2):
Domestic............ $ 6,862 $ 7,186 3,674 4,712 20.75 16.76
Canada ............. 1,543 1,373 877 984 19.56 15.33
Egypt............... 13,978 2,088 7,861 1,231 19.76 18.64
Cote d'Ivoire....... 2,763 2,812 1,449 1,631 21.19 18.94
Tatarstan........... 5,183 3,205 3,413 2,707 16.87 13.01
Indonesia........... 466 212 259 124 20.02 18.76
Other ............. 28 9 15 9 19.40 13.55
------------ ------------ ------------ ------------- ----------- -------------
$30,823 $16,885 17,548 11,398 19.52 16.28
============ ============= ============ ============= =========== =============
</TABLE>
(1) Net Daily Production in MMcf per day; Unit Price in $ per Mcf.
(2) Net Daily Production in Bbl per day; Unit Price in $ per Bbl.
E&P operating expenses per BOE increased by $0.93, from $3.27 in 1996
to $4.20 in 1997, as a result of (i) increased domestic production taxes as
natural gas prices increased, (ii) increased domestic workover expenses, and
(iii) higher average operating costs per BOE at the East Zeit concession as
compared to the Company's other operations.
Exploration charges increased for the 1997 quarter due to an increase
in seismic activity in both domestic and international operations.
The increase in E&P depreciation, depletion and amortization ("DD&A")
expense from $4.90 per BOE for the first quarter of 1996 to $5.48 per BOE for
the first quarter of 1997 combined with the increase in Egyptian production to
produce a 10% increase in DD&A expense for the O&G segment. A change in the mix
of the properties being produced domestically, a higher DD&A rate for the East
Zeit concession as compared to the Company's other operations and an increase in
leasehold amortization were the primary factors involved in the increase in the
DD&A rate per equivalent unit of production.
-11-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
ALASKA TRANSMISSION AND DISTRIBUTION
<TABLE>
<CAPTION>
(Amounts in Thousands Except Per Unit Data) Three Months Ended March 31,
----------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Revenues........................................................................ $34,569 $35,430
Cost of gas sold................................................................ 16,722 16,200
----------------- -----------------
Gross margin.................................................................. 17,847 19,230
Operations and maintenance expense.............................................. 5,297 5,442
Depreciation, depletion and amortization........................................ 2,084 2,044
----------------- -----------------
Operating profit.............................................................. $10,466 $11,744
================= =================
OPERATING DATA:
Degree days (1)............................................................... 3,720 4,353
Volumes (Bcf):
Gas sold.................................................................... 8.8 10.4
Gas transported............................................................. 6.3 5.3
Combined.................................................................... 15.1 15.7
Margins (per Mcf):
Gas sold.................................................................... $ 1.65 $ 1.61
Gas transported............................................................. $ 0.52 $ 0.48
Combined.................................................................... $ 1.18 $ 1.23
</TABLE>
(1) 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, 1997 decreased $1.3 million, or approximately
11%, from that of the prior year quarter, primarily due to decreased volumes as
a result of a 15% decrease in degree days resulting from warmer weather in the
utility's service area.
This segment's business is seasonal with approximately 65%-70% of its
sales made in the first and fourth quarters of each year.
-12-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
OTHER
General and administrative expenses decreased quarter-to-quarter due
primarily due to efficiencies being realized from the Global Merger and
decreased expenses associated with compensation plans that are tied to the
closing price of Seagull's common stock. Interest expense decreased in the first
quarter of 1997 as a result of lower average interest rates on the Company's
revolving credit facilities, partially offset by an increase in debt due to the
financing of the Esso Suez Acquisition. Income tax expense increased
substantially from $8.8 million in 1996 to $19.6 million in 1997 as a result of
the 36% increase in income before income taxes and the higher effective tax
rates relating to the Company's expanding international operations.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
(Amounts in Thousands) Three Months Ended March 31,
----------------------------------
1997 1996
--------------- ---------------
Restated
<S> <C> <C>
Exploration and production:
Leasehold......................................................................... $ 833 $ 1,963
Exploration....................................................................... 21,837 8,666
Development....................................................................... 29,771 13,540
--------------- ---------------
52,441 24,169
Pipeline and marketing.............................................................. 37 10
--------------- ---------------
Oil and gas operations.......................................................... 52,478 24,179
Alaska transmission and distribution................................................ 1,405 1,178
Corporate .......................................................................... 1,544 559
--------------- ---------------
$55,427 $25,916
=============== ===============
</TABLE>
As drilling activities increased substantially to meet the Company's
objectives for 1997, E&P capital expenditures increased primarily in the
Company's domestic, Egyptian and Ivorian areas of operations. Plans for 1997
call for capital expenditures of approximately $250 million, including about
$235 million in E&P. Seagull anticipates spending approximately $10 million for
lease acquisitions, $85 million for exploration and $140 million for
development. Of this total, about $105 million is expected to be spent outside
North America.
The Company has two revolving credit facilities (the "Credit
Facilities") with a maximum commitment of $650 million. The amount of senior
indebtedness available to the Company under the provisions of the Credit
Facilities 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 may be
redetermined upon the sale of certain assets included in the Borrowing Base.
-13-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
Currently, the available commitment under the Credit Facilities is
subject to a $550 million Borrowing Base and is determined after considerationof
outstanding borrowings under Seagull's other senior debt facilities. As of March
31, 1997, the Company had immediately available unused commitments of
approximately $182 million.
Management believes that the Company's internally generated funds and
bank borrowing capabilities will be sufficient to finance current and forecasted
operations.
DEFINED TERMS
Natural gas is stated herein in billion cubic feet ("Bcf"), million
cubic feet ("MMcf") or thousand cubic feet ("Mcf"). Oil, condensate and natural
gas liquids ("NGL") are stated in barrels ("Bbl") or thousand barrels ("MBbl").
MMcfe and Mcfe represent the equivalent of one million and one thousand cubic
feet of natural gas, respectively. Oil, condensate and NGL are converted to gas
at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy
content. MBOE and BOE represent one thousand barrels of oil equivalent and one
barrel of oil equivalent, respectively, with six Mcf of gas converted to one
barrel of liquid.
FORWARD LOOKING STATEMENTS
Item 2 of this document includes forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Although Seagull
believes that its expectations are based upon reasonable assumptions, it can
give no assurance that its goals will be achieved. Important factors that could
cause actual results to differ materially from those in the forward looking
statements include political developments in foreign countries, federal and
state regulatory developments, the timing and extent of changes in commodity
prices, the timing and extent of success in discovering, developing and
producing or acquiring oil and gas reserves and conditions of the capital and
equity markets during the periods covered by the forward looking statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
* 27.1 Financial Data Schedule.
(b) There were no reports on Form 8-K filed during the three months ended
March 31, 1997.
- ---------------------------
* Filed herewith.
-14-
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
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/ William L. Transier
William L. Transier
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 1997
By: /s/ Gordon L. McConnell
Gordon L. McConnell
Vice President and Controller
(Principal Accounting Officer)
Date: May 12, 1997
-15-
<PAGE>
EXHIBIT INDEX
EXHIBIT
* 27.1 Financial Data Schedule.
- ---------------------------
* Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 27,283
<SECURITIES> 0
<RECEIVABLES> 135,949
<ALLOWANCES> 0
<INVENTORY> 15,486
<CURRENT-ASSETS> 191,539
<PP&E> 2,099,143
<DEPRECIATION> 844,353
<TOTAL-ASSETS> 1,490,268
<CURRENT-LIABILITIES> 189,982
<BONDS> 564,936
0
0
<COMMON> 6,334
<OTHER-SE> 609,884
<TOTAL-LIABILITY-AND-EQUITY> 1,490,268
<SALES> 159,573
<TOTAL-REVENUES> 159,573
<CGS> 16,722
<TOTAL-COSTS> 112,967
<OTHER-EXPENSES> (698)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,410
<INCOME-PRETAX> 36,894
<INCOME-TAX> 19,640
<INCOME-CONTINUING> 17,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,254
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
