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: March 31, 1995
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: 0-10156
CAIRN ENERGY USA, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2169839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8235 Douglas Avenue, Suite 1221, Dallas, Texas 75225
(Address of principal executive offices) (Zip Code)
(214) 369-0316
(Registrant's telephone number, including area code)
____________________________________________________
(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 2, 1995, 15,973,080 shares of common stock of the
registrant were issued and outstanding, and an additional
1,000,000 shares were issued and held in escrow (the Escrow
<PAGE>
Shares). The Escrow Shares are issued and outstanding under
Delaware law, but not considered to be outstanding for financial
reporting purposes.
<PAGE>
CAIRN ENERGY USA, INC.
INDEX
Page No.
------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three
months ended March 31, 1995 and 1994 3
Balance Sheets at March 31, 1995 and December 31, 1994. 4
Statement of Changes in Stockholders' Equity for the
three months ended March 31, 1995 6
Statements of Cash Flows for the three months
ended March 31, 1995 and 1994 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAIRN ENERGY USA, INC.
STATEMENTS OF OPERATIONS
Three months ended March 31, 1995 and 1994
Three months ended
March 31,
----------------
1995 1994
------- -------
(in thousands except
per share amounts)
<CAPTION>
Revenues:
<S> <C> <C>
Crude oil and natural gas . . . . . . . . . . . . . . . . . $ 5,002 $ 2,963
Other revenue . . . . . . . . . . . . . . . . . . . . . . . 32 15
------- -------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . 5,034 2,978
------- -------
Expenses:
Lease operating expenses and production taxes . . . . . . . 530 696
Depreciation, depletion and amortization . . . . . . . . . 2,750 1,284
Administrative expenses . . . . . . . . . . . . . . . . . . 327 394
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 620 204
------- -------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . 4,227 2,578
------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 807 $ 400
======= =======
Net income per common and common equivalent share . . . . . . . . $ 0.05 $ 0.03
======= =======
Weighted average common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . . 15,963 12,463
======= =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
CAIRN ENERGY USA, INC.
BALANCE SHEETS
March 31, 1995 and December 31, 1994
ASSETS
---------
March 31, December 31,
1995 1994
--------- ---------
(in thousands)
<CAPTION>
Current assets:
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 1,734 $ 2,182
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 3,950 2,031
Receivable from Cairn Energy PLC . . . . . . . . . . . . . . . 46 48
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 340 136
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 6,070 4,397
Property and equipment at cost:
Oil and gas properties, based on full cost accounting . . . . . 138,624 129,758
Other equipment . . . . . . . . . . . . . . . . . . . . . . . . 710 564
--------- ---------
139,334 130,322
Less accumulated depreciation, depletion and amortization . . . (49,122) (46,373)
--------- ---------
Net property and equipment . . . . . . . . . . . . . . . 90,212 83,949
Deferred charges, net of amortization . . . . . . . . . . . . . . 800 835
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,082 $ 89,181
========= =========
See accompanying notes.
</TABLE>
5
<PAGE>
<TABLE>
CAIRN ENERGY USA, INC.
BALANCE SHEETS
March 31, 1995 and December 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
----------
March 31, December 31,
1995 1994
--------- ---------
(in thousands)
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 341 $ 1,286
Accrued lease operating expenses . . . . . . . . . . . . . . . 518 528
Accrued well costs . . . . . . . . . . . . . . . . . . . . . . 2,718 1,701
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . 127 152
Other accrued liabilities . . . . . . . . . . . . . . . . . . . 273 216
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 3,977 3,883
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 30,500 23,500
Stockholders' equity:
Common stock, $.01 par value;
30,000,000 shares authorized;
15,963,080 shares issued and outstanding . . . . . . . . . . 160 160
Additional paid-in capital . . . . . . . . . . . . . . . . . . 77,983 77,983
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (15,538) (16,345)
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 62,605 61,798
--------- ---------
Total liabilities and stockholders' equity . . . . . . . . . . . $97,082 $89,181
========= =========
See accompanying notes.
</TABLE>
6
<PAGE>
<TABLE>
CAIRN ENERGY USA, INC.
Statement of Changes in Stockholders' Equity
Three-months ended March 31, 1995
(in thousands)
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
<CAPTION>
Balance at
December 31,
<S> <C> <C> <C> <C> <C>
1994 15,963 $160 $77,983 $(16,345) $61,798
Net income 807 807
--------------------------------------------------------------------
Balance at
March 31,
1995 15,963 $160 $77,983 $(15,538) $62,605
====================================================================
</TABLE>
7
<PAGE>
See accompanying notes.
8
<PAGE>
<TABLE>
CAIRN ENERGY USA, INC.
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1995 and 1994
March 31, March 31,
1995 1994
--------- ---------
(in thousands)
<CAPTION>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 807 $ 400
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization . . . . . . . . . . . 2,750 1,284
Amortization of loan costs . . . . . . . . . . . . . . . . . . 88 45
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (1,920) 285
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . (204) (69)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . (945) (177)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . 47 (113)
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . (25) -
Advances (repayments) from (to) Cairn Energy PLC . . . . . . 2 47
--------- ---------
Net cash provided by operating activities . . . . . . . . . . . . 600 1,702
Cash flows from investing activities:
Exploration and development expenditures . . . . . . . . . . . . (7,849) (1,568)
Proceeds from sale of oil and gas properties . . . . . . . . . . - 277
Increase in other equipment . . . . . . . . . . . . . . . . . . (146) (23)
--------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . (7,995) (1,314)
Cash flows from financing activities:
Loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . (53) -
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . 7,000 -
--------- ---------
Net cash provided by financing activities . . . . . . . . . . . . 6,947 -
--------- ---------
Net change in cash and cash equivalents . . . . . . . . . . . . . (448) 388
Cash and cash equivalents at beginning of period . . . . . . . . 2,182 343
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . $1,734 $ 731
========= =========
Supplemental cash flow information -
Interest paid in cash . . . . . . . . . . . . . . . . . . . . . $ 538 $ 160
========= =========
9
<PAGE>
See accompanying notes.
</TABLE>
10
<PAGE>
CAIRN ENERGY USA, INC.
Notes to Financial Statements
1. Basis of Presentation
In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair presentation of
the financial position of the Company at March 31, 1995, the results
of its operations for the three months ended March 31, 1995 and 1994
and the results of its cash flows for the three months ended March 31,
1995 and 1994. Certain reclassifications have been made to prior
year s amounts to conform to current presentation. These financial
statements should be read in conjunction with the notes to the
Company s annual financial statements, which were included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1994, filed with the Securities and Exchange Commission (the
"Commission") on March 15, 1995.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All intercompany accounts
and transactions have been eliminated in consolidation.
2. Long-term debt.
Long-term debt at March 31, 1995 and December 31, 1994, consisted of
the following:
<TABLE>
March 31, December 31,
1995 1994
------------- ------------
<CAPTION>
<S> <C> <C>
Revolving credit agreement . . . . . . $30,500,000 $23,500,000
============= ============
</TABLE>
On June 11, 1993, the Company entered into a credit agreement (the ING
Credit Agreement) with Internationale Nederlanden Bank N.V. (ING) for
the establishment of two credit facilities totaling $25 million, which
together replaced the Company's previous credit agreement. On
September 8, 1993, ING assigned, with the consent of the Company, its
rights, interests and obligations under the ING Credit Agreement to
Internationale Nederlanden (U.S.) Capital Corporation (INCC). As a
result of the assignment, the ING Credit Agreement became the INCC
Credit Agreement. The INCC Credit Agreement was subsequently amended,
first on October 15, 1993, to reflect lower interest rates and more
favorable terms for the Company and second on May 10, 1994, which
combined the two credit facilities into one facility, increased the
maximum loan amount from $25 million to $30 million, and extended the
term of the note. On December 20, 1994, the INCC Credit Agreement was
amended and restated (the INCC Restated Credit Agreement) to reflect
an increase in the maximum loan amount to $50 million, to reflect
lower interest rates, to extend the term of the loan, and to include
11
<PAGE>
MeesPierson, N.V. (Mees Pierson) as a participant in the loan. On
April 19, 1995, the current borrowing base was established at $45
million. The INCC Restated Credit Agreement is a revolving line of
credit secured by substantially all of the Company s assets. It
contains financial covenants which require the Company to maintain a
ratio of current assets to current liabilities (excluding the current
portion of related debt) of no less than 1.0 to 1.0 and a tangible net
worth of not less than $40 million. The Company is currently in
compliance with all such financial covenants. At March 31, 1995, the
Company had outstanding borrowings of $30.5 million under this
facility. Outstanding borrowings accrue interest at either INCC s
fluctuating base rate or INCC's reserve adjusted Eurodollar rate plus
1.50%, at the Company s option. On March 31, 1996, the borrowings
outstanding under this facility will be converted to a term loan that
requires various quarterly principal payments through December 31,
1998. Interest is payable quarterly on any base rate borrowings and
payable on maturity of any Eurodollar borrowings.
The INCC Restated Credit Agreement does not permit the Company to pay
or declare any cash or property dividends or otherwise make any
distribution of capital. The Company is obligated to pay a quarterly
fee equal to one-half of 1% per annum of the unused portion of the
borrowing base under the facility.
The Company's ability to borrow under the INCC Credit Agreement is
dependent upon the reserve value of its oil and gas properties. If
the reserve value of the Company s borrowing base declines, the amount
available to the Company under the INCC Restated Credit Agreement will
be reduced and, to the extent that the borrowing base is less than the
amount then outstanding under the INCC Rested Credit Agreement , the
Company will be obligated to repay such excess amount on thirty-day s
notice from INCC or to provide additional collateral. INCC and
MeesPierson have substantial discretion in determining the reserve
value of the borrowing base.
3. Acquisition of Oil and Gas Assets of Smith Offshore Exploration
Company II.
On October 10, 1994, the Company purchased substantially all of the
oil and gas assets (the "Assets") of Smith Offshore Exploration
Company II ("Smith") from Phemus Corporation ("Phemus"), a subsidiary
of the President and Fellows of Harvard College and sole stockholder
of Smith, in exchange for 4,500,000 shares of the Company's common
stock, subject to adjustment pursuant to the terms of the Agreement,
and the assumption of certain liabilities related to the Smith Assets.
The Agreement provided that 1,000,000 of the shares issued be placed
in escrow (the Escrow Shares) at the closing and, thereafter, the
Escrow Shares and certain warrants to acquire up to a maximum of
800,000 shares of Common Stock be issued to Phemus or returned to the
Company based on a valuation of the Assets at a date to be selected
prior to June 30, 1995, but may be extended under certain
circumstances until December 31, 1995.
12
<PAGE>
In order for Phemus to receive all 1,000,000 Escrow Shares, this
valuation must be equal to or greater than $31.5 million. If the
valuation is less than $31.5 million, 100,000 of such Escrow Shares
will be returned to the Company for each $750,000 of value below
$33.75 million (rounded to the nearest $750,000 below $33.75 million),
and the balance will be released to Phemus. If the valuation is less
than $26.25 million, Smith and Phemus, jointly and severally, will be
obligated to pay the Company the amount by which $26.25 million
exceeds the valuation, up to a maximum of $3.9 million. If the
valuation exceeds $36 million, the Company will issue to Phemus, in
addition to the 4,500,000 shares, a warrant to purchase additional
shares of Common Stock in the amount of 100,000 shares of Common Stock
for each $750,000 of value of the Assets above $33.75 million, up to a
maximum of 400,000 shares. This warrant will be exercisable by the
holder thereof for three years and will provide for an exercise price
of $3.75 per share. If the valuation exceeds $45 million, the Company
will issue an additional warrant to Phemus to purchase an additional
400,000 shares at an exercise price of $7.50 per share, during an
exercise term of six months from the date of issuance.
4. Income Taxes.
At December 31, 1994, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $38 million. The net
operating losses will expire principally in 2005 through 2009, if not
previously utilized. Utilization of approximately $2 million of net
operating losses is subject to an annual limitation of $114,000
because of a change of control, as defined in the Internal Revenue
Code, of the Company s predecessor company, Omni Exploration, Inc. As
a result of a change in control, as defined, which occurred in 1993,
due to certain changes in ownership of Cairn Energy PLC and the
Company, the Company estimates that utilization of $22 million of the
net operating losses will be limited to approximately $2 million per
year. Utilization of approximately $10.3 million of net operating
losses is subject to an annual limitation of approximately $1 million
per year due to the change in control of Smith. The transactions in
connection with the acquisition of the oil and gas assets of Smith and
sales of Common Stock by Cairn Energy PLC in 1994 caused a further
change in ownership of the Company as defined in the Internal Revenue
Code. The Company s annual limitation due to this change in ownership
exceeds $5 million per year. As a result, the Company does not
believe this stock ownership change will cause any material adverse
federal income tax consequences. Additional net operating loss
limitations may be imposed because of subsequent changes in stock
ownership of the Company.
5. Property and Equipment.
The Company capitalized approximately $421,000 and $264,000 of
internal costs during the three months ended March 31, 1995 and 1994,
respectively. Such capitalized costs include salaries and related
13
<PAGE>
benefits of individuals directly involved in the Company's
acquisition, exploration, and development activities, based on a
percentage of their time devoted to such activities.
14
<PAGE>
CAIRN ENERGY USA, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following table sets forth certain information regarding the
production volumes of, average sales prices received for, and average
production costs associated with the Company's sales of oil and gas
for the periods indicated.
<TABLE>
Three months
ended March 31,
---------------------
1995 1994
--------- ---------
<CAPTION>
Net Production:
<S> <C> <C>
Gas (MMcf) . . . . . . . . 2,256 1,142
Oil (MBbl) . . . . . . . . 74 27
Average Sales Price:
Gas (per Mcf) (1) . . . . $ 1.62 $ 2.25
Oil (per Bbl) . . . . . . . $17.71 $12.45
Average Production Costs:
(per MCFE) (2) . . . . . . $ 0.20 $ 0.53
Depletion rate: (per Mcfe) . $ 0.98 $ 0.97
------------------
(1) Includes natural gas liquids.
(2) Includes direct lifting costs (labor, repairs and maintenance, materials and
supplies) and the administrative costs of production offices, insurance and
property and severance taxes.
Three months ended March 31, 1995 and 1994
</TABLE>
Revenues. Total revenues increased $2.0 million (69%) to $5.0 million
for the three months ended March 31, 1995 from $3.0 million for the
three months ended March 31, 1994. The primary reason for the
increase was new production from the Company s interest in East
Cameron Blocks 331/332, Matagorda 710 and Ship Shoal 251. Production
from these three properties accounted for approximately 71% of the
Company s increased production. Lower gas prices partially offset the
increased revenues from production.
Expenses. Total expenses increased $1.6 million (64%) to $4.2 million
for the three months ended March 31, 1995 from $2.6 million for the
three months ended March 31, 1994. An increase in depreciation,
depletion and amortization ( DD&A ) is the primary reason for the
increase in expenses. DD&A increased $1.5 million (114%) to $2.8
million for the three months ended March 31, 1995 from $1.3 million
for the same period in 1994 due to increased production. Interest
expense increased by $416,000 (205%) to $620,000 for the quarter ended
March 31, 1995 from $204,000 for the three months ended March 31,
15
<PAGE>
1994. Interest expense increased because of an increase in
outstanding debt coupled with higher average interest rates for the
quarter ended March 31, 1995 than for the same period in 1994. Lease
operating expenses and production taxes decreased $166,000 (24%) to
$529,000 for the three months ended March 31, 1995 from $696,000 for
the same period in 1994. Reflected in the 1994 lease operating
expenses amount are expenses related to the Texas Panhandle properties
that were sold in August 1994. Production costs on a per unit basis
decreased significantly because East Cameron Blocks 331/332, Matagorda
Block 710 and Ship Shoal 251 all have a low per unit operating cost,
while the Texas Panhandle properties sold in August 1994 had a high
per unit operating cost. Administrative expenses decreased $67,000
(17%) to $327,000 for the three months ended March 31, 1995 from
$394,000 for the same period in 1994 due primarily to a reduction in
legal and travel expenses coupled with increased overhead
capitalization relating to technical staff associated with exploration
activity.
Net Income. Net income increased $407,000 (102%), or $0.02 per share
to $807,000, or $0.05 per share for the quarter ended March 31, 1995
from $400,000, or $0.03 per share for the same period in 1994. The
primary reason for the increase was new production coming on line.
Capital Resources and Liquidity
At March 31, 1995, the Company had existing cash and cash investments
of $1.7 million. Net cash provided by operating activities was
$600,000 for the three months ended March 31, 1995 compared with $1.7
million for the same period in 1994. The primary reason for this
decrease in cash provided by operating activities was increased
working capital requirements partially offset by higher results of
operations (or earnings before depreciation, depletion and
amortization). Net cash used in investing activities for the three
months ended March 31, 1995 was $8.0 million compared with $1.3
million for the same period in 1994. This increase was principally
due to expenditures for exploration and development prospects.
Net cash provided by financing activities for the first quarter of
1995 was $6.9 million. There were no financing activities for the
same period in 1994. The cash provided by financing activities for
the period consisted of borrowings under the Company s revolving
credit facility, partially reduced by financing costs.
In general, because the Company's oil and gas reserves are depleted by
production, the success of its business strategy is dependent on a
continuous exploration and development program. Therefore, the
Company's capital requirements relate primarily to the acquisition of
undeveloped leasehold acreage and exploration and development
activities. In addition to pursuing a number of existing exploration
prospects, the Company is currently engaged in an exploration venture
with UPRC, which allows for data sharing and drilling participation,
to generate exploratory drilling prospects in offshore Texas. The
Company is participating in a 3-D seismic survey with two partners
covering the East Cameron Addition offshore Louisiana, which allows
16
<PAGE>
for data sharing and drilling participation. The Company has over
100,000 miles of 2-D seismic data covering the central portion of
offshore Louisiana. This data will be used for prospect generation
for lease sales and enhances data coverage over the Company s existing
leaseholds offshore Louisiana. Management intends in 1995 to pursue
the acquisition of new prospects through lease sales in the Outer
Continental Shelf in the Gulf of Mexico.
The Company s average net production for the quarter ended March 31,
1995 rose to approximately 25.1 MMcf of gas per day and 823 Bbls of
oil and condensate per day compared with average per day production
during the same quarter in 1994 of 12.7 MMcf of gas and 303 Bbls of
oil and condensate. At the end of April the Company s net production
had reached approximately 35 MMcf of gas per day and 2,000 Bbls of oil
and condensate per day.
Although the operator had projected full production by April 1, at
April 24, 1995, production on East Cameron Blocks 331/332 had reached
80.2 MMcf of gas and 8,500 Bbls of oil and condensate per day. Seven
of the nine wells are currently producing. The remaining two wells
are expected to be on production by the end of May. The Company owns
a 40% interest in the shallower zone of Block 331 and a 20% interest
in the deeper zone of both Blocks. Approximately 80% of the net
proved reserves are located in the deeper zone.
17
<PAGE>
The two wells on the development project on Ship Shoal Block 251 went
on production in mid-February and are now producing approximately 50
MMcf of gas and 2,200 Bbls of condensate per day. The Company owns a
25% working interest in Ship Shoal Block 251.
Matagorda Block 710's production has averaged approximately 14 MMcf of
gas per day and 15 Bbls of oil and condensate per day from two wells
through April 24, 1995. Additional exploratory drilling is expected
prior to year end on this block. The Company owns a 30% working
interest in Matagorda Block 710.
The Company's operating needs and capital spending programs have been
funded by borrowings under its bank credit facilities, proceeds of a
public offering of its Common Stock and cash flow from operations.
The Smith Acquisition is expected to result in significant additional
capital expenditures for exploration and development activities for
the remainder of 1995. The Company expects to continue with an active
exploration program and to drill 16 to 18 exploration wells in the
year. The Company expects capital expenditures during 1995 to total
approximately $38 million. At March 31, 1995, the Company s capital
resources consisted primarily of available borrowing capacity under
the INCC Restated Credit Agreement and cash flow from operations.
Management believes that cash flow from operations along with the
amount available under the INCC Restated Credit Agreement will be
sufficient to finance the currently planned development expenditures.
If the Company is successful in substantially all of its currently
scheduled exploration prospects, additional funds may be required in
order to conduct the necessary development activities. If necessary,
the Company may seek to raise additional capital in public or private
equity or debt markets. No assurance can be given that the Company
will be able to raise such capital if needed or on terms that are
favorable to the Company. Any resulting lack of sufficient capital
may require the Company to reduce its interest in such properties or
to forego developing such reserves. In addition, the Company does not
act as operator with respect to any of its properties. The Company
may not be able to control the development activities or the
associated costs with respect to properties operated by other parties.
In connection with the Smith Acquisition, the Company granted to
Phemus and Cairn PLC certain demand and piggyback registration rights
that generally are at the Company s expense.
The Company's revenues and the value of its oil and gas properties
have been and will continue to be affected by changes in oil and gas
prices. The Company's ability to maintain current borrowing capacity
and to obtain additional capital on attractive terms is also
substantially dependent on oil and gas prices (Note 2). Oil and gas
prices are subject to significant seasonal and other fluctuations that
are beyond the Company's ability to control or predict. Although
certain of the Company's costs and expenses are affected by the level
of inflation, inflation has not had a significant effect on the
Company's results of operations during 1994 or the first three months
of 1995.
18
<PAGE>
The Company has entered into a commodity swap transaction governed by
the terms of a Master Agreement with INCC (the "Master Agreement")
under which the Company will receive a fixed price of $1.75 per MMBtu
and pay a floating price of Natural Gas - NYMEX for the first nearby
contract month for 5,000 MMBtu per day for the contract months July to
September 1995.
The Company has also entered into a commodity swap transaction
governed by the terms of the Master Agreement under which the Company
will receive a fixed price of $19.50 per barrel and pay a floating
price of WTI-NYMEX for the first nearby month for 500 barrels per day
for the period June 1 to September 30, 1995.
The Company has also contracted to sell 5,000 MMBtu per day to Coastal
Gas Marketing Company at a price of $1.70 per MMBtu for the period
June 1, 1995 to August 31, 1995.
19
<PAGE>
CAIRN ENERGY USA, INC.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No new material developments.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
In the first quarter, the Company drilled two unsuccessful exploration
wells, on West Cameron Block 417 (40% working interest) and on Ship
Shoal Block 265 (25% working interest). Both wells were plugged and
abandoned. The Company participated in a successful exploration well
on East Cameron Block 303 (33% working interest) but an appraisal well
drilled on the block crossed a fault and was plugged and abandoned
after failing to encounter hydrocarbon bearing sands. Further
appraisal drilling may take place later this year or during 1996.
Of the properties acquired in the Smith Acquisition, the Company
participated in or will participate in exploration wells on West
Cameron 76 Unit, Mustang Island Block 858, Vermilion Block 203 and
Eugene Island Block 59. On West Cameron 76 Unit (2.625% working
interest) the Company participated in a successful exploratory stepout
well. This well is currently being completed. The first well drilled
on Mustang Island Block 858 encountered potentially productive sand
intervals and has had production casing set to total depth. The well
has been suspended pending testing which is expected to take place in
June. A further exploration well is currently drilling on the block
and a deck is currently under construction for the jacket structure
which was set on the block last fall. The Company owns a 17.5%
working interest in this block.
The Company is also participating in an exploration well to target
certain shallow formations on Vermilion Block 203 (50% working
interest). This well has encountered several productive sand
intervals as indicated by wire-line log analysis. The well will be
20
<PAGE>
suspended pending completion of the well. A deck is also under
construction for the jacket structure which was set on this block last
year. Another exploratory well on the block targeting shallow
horizons will be spudded immediately after operations are completed on
the current well. A 3-D seismic survey over this block has now been
reprocessed and it is expected that a well to target deeper formations
on the block will be spudded later in the year.
The Company is currently participating in an exploration well on
Eugene Island Block 59 (25% working interest) and an exploration well
on East Cameron Block 356 (37.5% working interest).
It is expected that the consideration for the properties acquired from
Smith will be determined on the basis of independent engineering
reports to be conducted as of June 30, 1995. The results of those
engineering reports will depend on the results of a number of wells
which are currently drilling or awaiting testing in addition to one or
two wells which have not yet spudded. Although the consideration for
the Smith properties is expected to be set as of June 30, 1995, the
Company believes that the Smith Acquisition will continue to add value
for the Company well beyond that date.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
21
<PAGE>
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.
CAIRN ENERGY USA, INC.
(Registrant)
Date: May 2, 1995 /s/ Michael R. Gilbert
Michael R. Gilbert
President
/s/ J. Munro M. Sutherland
J. Munro M. Sutherland
Senior Vice President and
Treasurer
(Principal Financial Officer)
22
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
11.1 - Schedule of Computation of Earnings Per Share 15
23
<PAGE>
Exhibit 11.1
<TABLE>
Cairn Energy USA, Inc.
Computation of Net Income Per Common Share
(in thousands except per share data)
Three months
ended March 31,
---------------------------
1995 1994
----------- -----------
<CAPTION>
<S> <C> <C>
Net income . . . . . . . . . . . . . $ 807 $ 400
Shares:
Weighted average common
shares outstanding . . . . . . . . 15,963 12,463
Net income per common and
common equivalent share . . . . . . . $ 0.05 $ 0.03
</TABLE>
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000353153
<NAME> CAIRN ENERGY USA INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-12-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,734
<SECURITIES> 0
<RECEIVABLES> 3996
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6070
<PP&E> 139,334
<DEPRECIATION> 49,122
<TOTAL-ASSETS> 97082
<CURRENT-LIABILITIES> 3977
<BONDS> 0
<COMMON> 160
0
0
<OTHER-SE> 62,445
<TOTAL-LIABILITY-AND-EQUITY> 97,082
<SALES> 5002
<TOTAL-REVENUES> 5034
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3607
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 620
<INCOME-PRETAX> 807
<INCOME-TAX> 807
<INCOME-CONTINUING> 807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 807
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
