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, 1997
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.)
8115 Preston Road, Suite 500, 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
The number of shares outstanding of each of the issuer's classes of common stock
as of April 30, 1997:
17,565,496 shares of common stock, par value $.01
1
<PAGE>
CAIRN ENERGY USA, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three
<S> <C>
months ended March 31, 1997 and 1996............................................................................ 3
Balance Sheets at March 31, 1997 and December 31, 1996 ........................................................... 4
Statement of Changes in Stockholders' Equity for the
three months ended March 31, 1997.............................................................................. 6
Statements of Cash Flows for the three months
ended March 31, 1997 and 1996................................................................................... 7
Notes to Financial Statements .................................................................................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................................... 10
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
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAIRN ENERGY USA, INC.
STATEMENTS OF OPERATIONS
Three months ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
1997 1996
-------- --------
(in thousands except
per share amounts)
Revenues:
<S> <C> <C>
Oil and gas............................................................................. $ 8,290 $ 7,253
Other revenue........................................................................... 67 34
-------- --------
Total revenues...................................................................... 8,357 7,287
Expenses:
Lease operating expenses ............................................................... 765 628
Depreciation, depletion and amortization................................................ 3,472 3,244
Administrative expenses................................................................. 707 382
Interest................................................................................ 866 443
-------- ---------
Total expenses...................................................................... 5,810 4,697
-------- ---------
Net income................................................................................... $ 2,547 $ 2,590
======== =========
Net income per common and common equivalent share............................................ $ 0.15 $ 0.15
======== =========
Weighted average common and common
equivalent shares outstanding........................................................... 17,565 17 ,555
======== =========
</TABLE>
See accompanying notes.
3
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CAIRN ENERGY USA, INC.
BALANCE SHEETS
March 31, 1997 and December 31, 1996
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(in thousands)
Current assets:
<S> <C> <C>
Cash and cash equivalent................................................... $ 2,492 $ 6,438
Accounts receivable........................................................ 3,449 4,904
Prepaid expenses........................................................... 682 482
----------- ------------
Total current assets.............................................. 6,623 11,824
Property and equipment at cost:
Oil and gas properties, based on full cost accounting...................... 212,730 205,544
Other equipment............................................................ 956 958
----------- ------------
213,686 206,502
Less accumulated depreciation, depletion & amortization (79,343) (75,877)
----------- ------------
Net property and equipment................................................ 134,343 130,625
Deferred charges, net of amortization........................................... 918 909
----------- ------------
Total assets............................................................... $141,884 $143,358
=========== ============
</TABLE>
See accompanying notes.
4
<PAGE>
CAIRN ENERGY USA, INC.
BALANCE SHEETS
March 31, 1997 and December 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(in thousands)
Current liabilities:
<S> <C> <C>
Accounts payable...................................................... $ 2,500 $ 6,303
Accrued lease operating expenses...................................... 334 492
Accrued well costs.................................................... 2,756 3,803
Other accrued liabilities ......................................... 199 222
Current maturities of long-term debt.................................. 4,300 -
--------- ----------
Total current liabilities........................................ 10,089 10,820
Long-term debt ............................................................ 38,700 42,000
Stockholders' equity:
Common stock, $.01 par value;
30,000,000 shares authorized;
Shares issued and outstanding;
March 31, 1997 - 17,565,067 and
December 31, 1996 - 17,564,128............................................. 176 176
Additional paid-in capital................................................. 94,844 94,834
Accumulated deficit........................................................ (1,925) (4,472)
---------- ----------
Total stockholders' equity....................................... 93,095 90,538
---------- ----------
Total liabilities and stockholders' equity....................... $ 141,884 $ 143,358
========== ==========
</TABLE>
See accompanying notes
5
<PAGE>
CAIRN ENERGY USA, INC.
Statement of Changes in Stockholders' Equity
Three months ended March 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ---------- ----------- -------------
Balance at
<S> <C> <C> <C> <C> <C>
December 31, 1996........................... 17,564 $ 176 $ 94,834 $(4,472) $90,538
Other....................................... 1 - 10 - 10
Net Income.................................. - - - 2,547 2,547
------ --------- ------- -------- -------
Balance at
March 31, 1997.............................. 17,565 $ 176 $94,844 $(1,925) $93,095
====== ========= ======= ======== =======
</TABLE>
See accompanying notes.
6
<PAGE>
CAIRN ENERGY USA, INC.
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
March 31,
--------------------
1997 1996
---- ----
(in thousands)
Operating Activities:
<S> <C> <C>
Net income.................................................................. $ 2,547 $ 2,590
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization............................ 3,472 3,244
Amortization of loan costs.......................................... 92 95
Amortization of prepaid gathering................................... 22 -
Change in operating assets and liabilities:
Accounts receivable............................................ 1,455 (1,197)
Prepaid expenses............................................... (200) (112)
Accounts payable............................................... (3,929) 403
Accrued liabilities............................................ (171) (316)
Advances (repayments) from (to) Cairn Energy PLC............... - (6)
----------- ----------
Net cash provided by operating activities.................................... 3,288 4,701
Investing Activities:
Exploration and development expenditures.................................... (8,107) (14,366)
Additions to other equipment ............................................... (4) (132)
--------- ----------
Net cash used in investing activities........................................ (8,111) (14,498)
Financing Activities
Proceeds from long-term debt................................................. 1,000 8,000
Financing costs and other.................................................... (123) 31
--------- ----------
Net cash provided by financing activities.................................... 877 8,031
--------- ----------
Net change in cash and cash equivalents...................................... (3,946) (1,766)
Cash and cash equivalents at beginning of period............................. 6,438 3,553
--------- ----------
Cash and cash equivalents at end of period................................... $ 2,492 $ 1,787
========= ==========
Supplemental cash flow information
interest paid in cash........................................................ $ 738 $ 346
========= ==========
</TABLE>
See accompanying notes.
7
<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, 1997, the results of its operations for the three months ended
March 31, 1997 and 1996 and the results of its cash flows for the three months
ended March 31, 1997. 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,
1996, filed with the Securities and Exchange Commission (the "Commission") on
March 5, 1997.
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, 1997 and December 31, 1996, consisted of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -------------
<S> <C> <C>
Revolving credit agreement .......................... $ 43,000,000 $42,000,000
Less: Current maturities of long-term debt........... 4,300,000 -
------------ ------------
Long-term debt less current maturities............... $ 38,700,000 $42,000,000
============ ============
</TABLE>
The Company has a credit agreement as amended (the INCC Credit Agreement) with
ING (U.S.) Capital Corporation, f/k/a/ Internationale Nederlanden (U.S.) Capital
Corporation (INCC), Mees Pierson, N.V. (Mees Pierson) and Credit Lyonnais
(Credit Lyonnais) (together, the Bank Group). At March 31, 1997, the Company had
outstanding borrowings of $43.0 million under the INCC Credit Agreement. The
INCC Credit Agreement is 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 such financial covenants.
Prior to June 28, 1996, outstanding borrowings accrued interest at either INCC's
fluctuating base rate or INCC's reserve adjusted Eurodollar rate plus 1.5%, at
the Company's option. On June 28, 1996, the INCC Credit Agreement was amended,
(the Third Amendment) to decrease the addition to the INCC reserve adjusted
Eurodollar rate from 1.5% to 1.25% as long as outstanding borrowings are less
than 75% of the borrowing base. The borrowing base was also increased from $45
million to $50 million.
8
<PAGE>
On November 7, 1996 the Company further amended (the Fourth Amendment) the INCC
Credit Agreement. Under the Fourth Amendment, Credit Lyonnais joined as a lender
under the INCC Credit Agreement. Also under the Fourth Amendment, the original
facility under the INCC Credit Agreement was designated as Facility A and the
maximum amount of the facility was increased in amount from $50 million to $75
million; provided, however, that the maximum amount available to the Company
cannot exceed the borrowing base of its properties as determined from time to
time by the lenders. The borrowing base under Facility A was reconfirmed as of
November 7, 1996 as $50 million. The revolving period of borrowings under
Facility A was extended from March 31, 1997 to September 30, 1997. On September
30, 1997 the borrowings outstanding under Facility A will be converted to a term
loan that requires quarterly repayments of principal on a revised schedule
through March 31, 2001. The Company's ability to borrow under Facility A 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 Facility A will be reduced and, to the extent that the borrowing
base is less than the amount then outstanding under Facility A the Company will
be obligated to repay such excess amount on 30-days notice from INCC or to
provide additional collateral. The Bank Group has substantial discretion in
determining the reserve value of the borrowing base.
In addition a second facility was created under the Fourth Amendment . The new
standby credit facility, Facility B, was for the amount of $14 million. Facility
B provided for three levels of borrowings by the Company, two of $5 million each
and one of $4 million. There are no restrictions on the Company's ability to
borrow the first $5 million under Facility B and the amount borrowed may be used
for general corporate purposes. The Company's ability to borrow under the
further two levels of borrowings of $5 million and $4 million, respectively,
under Facility B was dependent upon the Company establishing total proved
reserves at certain levels and appropriate ratios between the Company's
outstanding debt and the value of its proved reserves. The Company must also
submit detailed proposals, acceptable to its lenders, outlining the manner in
which the second two levels of borrowings under Facility B would be used in the
development of the Company's oil and gas properties. Facility B is repayable on
December 31, 1997. The interest margin over INCC reserve adjusted Eurodollar
rate for Facility B is either 3.25% or 3.75%, depending upon the ratio of the
amount of the outstanding loans to the value of the Company's proved reserves.
On March 17, 1997, a Fifth Amendment was added to the INCC Credit Agreement.
Under the Fifth Agreement, the borrowing base for Facility A was increased from
$50 million to $65 million and the amount available under Facility B was reduced
from $14 million to $10 million available in two levels. The first level of
borrowing under Facility B remained unchanged at $5 million with no
restrictions. The second level of borrowing under Facility B was set at $5
million with similar restrictions as in the Fourth Amendment. Under the INCC
Credit Agreement, interest is payable quarterly on any base rate borrowings and
payable quarterly and on maturity of any Eurodollar borrowings if the maturity
of the Eurodollar borrowing is in excess of three months.
9
<PAGE>
The INCC Credit Agreement does not permit the Company to pay or declare any cash
or property dividends or otherwise make any distribution of capital. On Facility
A the Company is obligated to pay a quarterly fee equal to 0.5% per annum of the
unused portion of the borrowing base under the facility and a Letter of Credit
fee for each Letter of Credit in the amount of 1.5% per annum of the face amount
of such Letter of Credit. On Facility B the Company is obligated to pay a
drawdown fee for each $5 million borrowed equal to 0.5% for the first $5
million, and 1.25% for the second $5 million. Also, the Company must pay a
quarterly fee equal to 0.5% per annum on the undrawn portion of Facility B.
The carrying value of the Company's long-term debt approximates fair value.
3. Property and Equipment.
The Company capitalized approximately $429,000 and $439,000 of internal costs
during the three months ended March 31, 1997 and 1996, respectively. Such
capitalized costs include salaries and related 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.
4. Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact on both primary and fully diluted
earnings per share for the first quarter ended March 31, 1997 and March 31, 1996
is not expected to be material.
10
<PAGE>
CAIRN ENERGY USA, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 2 of this document includes "forwarding 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 the Company
believes that the expectations reflected in such forward looking statements are
based upon reasonable assumptions, it can give no assurance that it's
expectations will be achieved. Important factors ("Cautionary Disclosures") that
could cause the actual results to differ materially from the Company's
expectations are set forth under the caption "Risk Factors" in the Company's
Prospectus, dated September 14, 1995 and under the caption "Oil and Gas
Reserves" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and are disclosed in conjunction with the forward looking
statements included herein. Subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Disclosures, including
without limitation the President's Letter contained in the First Quarter Report
to Stockholders.
Results of Operations
The following table sets forth certain information regarding the production
volumes of, average sales prices received for, average production costs
associated with, and average depletion rate associated with the Company's sales
of oil and gas for the periods indicated.
<TABLE>
<CAPTION>
Three months
ended March 31,
-------------------------
1997 1996
------ ------
Net Production:
<S> <C> <C>
Gas (MMcf) ................................................................... 2,227 2,368
Oil (MBbl).................................................................... 70 70
Average Sales Price:
Gas (per Mcf) (1) ............................................................ $ 2.99 $ 2.46
Oil (per Bbl)................................................................. $ 22.29 $ 19.85
Average Production Costs:
(per Mcfe) (2)................................................................ $ 0.29 $ 0.23
Depletion rate: (per Mcfe) ..................................................... $ 1.30 $ 1.15
<FN>
(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.
</FN>
</TABLE>
11
<PAGE>
Three months ended March 31, 1997 and 1996
Revenues
Total revenues increased $1.1 million (15%) to $8.4 million for the three months
ended March 31, 1997 from $7.3 million for the three months ended March 31,
1996. The primary reason for the increase was the neutral effect of the gas
hedges reflected in the first quarter of 1997 compared with an unfavorable gas
hedge realized in the first quarter of 1996. Additionally, higher oil and gas
prices during the first quarter of 1997 added to the revenues, but were
partially offset by an overall decrease in production.
Expenses
Total expenses increased $1.1 million (24%) to $5.8 million for the three months
ended March 31, 1997 from $4.7 million for the three months ended March 31,
1996. Interest expense increased $423,000 (95%) to $866,000 for the first
quarter of 1997 from $443,000 for the same period in 1996. This increase is due
to increased borrowing under the Company's credit facility coupled with higher
interest rates than during the first quarter of 1996. Administrative expenses
increased $325,000 (85%) to $707,000 for the three month period ended March 31,
1997, from $382,000 for the same period in 1996 due primarily to the severance
payment to the Company's former Chief Financial Officer. Depreciation, depletion
and amortization increased $228,000 (7%) to $3.5 million for the three months
ended March 31, 1997 from $3.2 million for the same period in 1996 due to an
increase in the depletion rate. Production costs increased $137,000 (22%) to
$765,000 for the three months ended March 31, 1997 from $628,000 for the same
period in 1996 due primarily to transportation costs associated with Vermillion
Block 203, Mustang Island Block 858 and Main Pass Block 262.
Net Income
Net Income decreased $43,000 (2%) to $2.55 million or $0.15 per share for the
quarter ended March 31, 1997 from $2.59 million, or $0.15 per share for the same
period in 1996.
Capital Resources and Liquidity
At March 31, 1997, the Company had existing cash and cash investments of $2.5
million. Net cash provided by operating activities was $3.3 million for the
three months ended March 31, 1997 compared with $4.7 million for the same period
in 1996. 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, 1997 was $8.1 million compared with $14.5 million for the same period
in 1996. This decrease was principally due to less expenditures for exploration
and development projects in the first quarter of 1997 when compared with the
same period in 1996.
Net cash provided by financing activities for the first three months of 1997 was
$877,000 compared with $8.0 million for the same period in 1996. The cash
provided by financing activities for the period consisted mainly of borrowings
under the Company's revolving credit facility which were used to fund a portion
of the Company's capital spending program.
12
<PAGE>
In the first quarter the Company participated in the drilling of one successful
development well on East Cameron Blocks 331/332 (20% WI). This well is scheduled
for completion in the second quarter of 1997. The Company is currently
participating in a sidetrack operation of the A-6 well located on East Cameron
Blocks 331/332. Upon completion of this operation, the A-11 well will be
sidetracked followed by completions on the A-11 well, the A-6ST and the A-14
well. The Company owns a 20% working interest in these three wells.
During the first quarter, completion operations were begun on the Company
operated Ship Shoal Block 261. Platform and pipeline installations are almost
complete and first production is expected in mid to late May. The Company owns a
50% working interest in Ship Shoal Bock 261.
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 was the high bidder on 8
blocks in the Gulf of Mexico Central Area Lease Sale held on March 5, 1997. The
Company's interest in these blocks ranges from 20 to 100 percent. To date, one
block has been awarded to the Company. If all eight blocks are awarded, related
rental and lease bonus liability will total $6.5 million.
The Company's operating needs and capital spending programs have been funded by
borrowings under its bank credit facilities, proceeds from public offerings of
its Common Stock and cash flows from operations. The Company expects to continue
with an active exploration program and to participate in a number of exploration
wells in the second quarter of 1997, including Grand Isle Block 77 (33.3% WI),
East Cameron Block 305 (50% WI), Eugene Island Block 60 (25% WI) and East
Cameron Block 332 #8 (20% WI). The Company will also participate in the
development of East Cameron Block 349 (37.5% WI) and West Cameron Block 263 (50%
WI). The Company expects capital expenditures during 1997 to total approximately
$46 million. The Company's capital resources consist primarily of borrowing
capacity under the INCC Credit Agreement ($22.0 million under Facility A and up
to $10 million under Facility B which are available to the Company assuming that
it satisfies the conditions to borrow under such facilities) and cash flow from
operations. Management believes that cash flow from operations along with the
amounts available under either the existing INCC Credit Agreement or a new
facility will be sufficient to finance the currently planned exploration and
development expenditures through December 1997. On September 30, 1997 the
borrowings outstanding under Facility A will be converted to a term loan that
requires quarterly repayments of principal beginning January 1, 1998 on an
amortization schedule through March 31, 2001. All borrowings under Facility B
are due on December 31, 1997. Management of the Company believes that it will be
able to negotiate an extension of the INCC credit facility or to negotiate a new
credit facility before September 30, 1997 that will extend the credit facility
at least to the end of this year.
If the Company is successful in a substantial number of its currently scheduled
exploration prospects, additional funds may be required in order to conduct the
necessary development activities. Additionally, if the Company is unsuccessful
in its currently scheduled exploration program, additional funds may be required
in order to continue the exploration and development program or a new facility.
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
13
<PAGE>
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 and
may require the Company to curtail its exploration and development program. In
addition, the Company does not act as operator with respect to a majority 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 March 1997, the Company retained the investment banking firm of Donaldson,
Lufkin & Jennette to assist the Company in the exploration of its strategic
alternatives, a process that is continuing.
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 1996 or the first three months of 1997.
In an effort to reduce the effects of the volatility of the price of oil and gas
on the Company's operations, management has adopted a policy of hedging oil and
gas prices, usually when such prices are at or in excess of the prices
anticipated in the Company's operating budget, through the use of commodity
futures, options, forward contracts and swap agreements. Hedging transactions
are limited by the Board of Directors such that no transaction may fix an oil
and gas price for a term of more than 12 months, and the aggregate oil and gas
production covered by all transactions may not exceed 50% of the Company's
budgeted production for any 12- month period from the date of the transaction or
75% of the Company's budgeted production for any single month from the date of
the transaction. By hedging its oil and gas prices, the Company intends to
mitigate the risk of future declines in oil and gas prices. Under certain
contracts should oil or gas prices increase above the contract rate, the Company
will not participate in the higher prices for the production.
The Company entered into a number of gas price swap transactions under which the
Company received a fixed price per MMBtu and paid a floating price based on the
settlement prices for the NYMEX Natural Gas futures contract for the delivery
month. During the first quarter of 1997 and 1996 oil and gas revenues were
increased $1,000 and decreased $847,000, respectively, as a result of hedging
transactions. The Company currently has no swap hedging transactions in place.
The Company may enter into certain interest rate hedging contracts. By hedging
its interest rate under its credit facility, the Company would intend to
mitigate the risk of future increases in interest rates. Should interest rates
decrease below the contract rate, the Company will not participate in the lower
interest rate for the portion of the credit facility under the hedging contract.
The Company currently has no interest rate hedging contracts in place.
14
<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
Effective March 17, 1997, J. Munro M. Sutherland's employment as the Company's
Senior Vice President/Treasurer, was terminated by the Company pursuant to the
Company's employment agreement with Mr. Sutherland (the "Sutherland Employment
Agreement") without due cause (as due cause is defined in the Sutherland
Employment Agreement). A description of the severance payment Mr. Sutherland
received pursuant to the Sutherland Employment agreement is set forth in the
Company's Form 10-K/A, dated April 30, 1997, and filed with the Securities and
Exchange Commission on May 1, 1997. A. Allen Paul, Vice President/Marketing and
Administration has been appointed as Senior Vice President/Treasurer on an
interim basis. The Company plans to retain a search firm to find a successor to
Mr. Sutherland. Mr. Sutherland continues to serve as a Director of the Company.
In addition, on March 17, 1997 the Company announced that it had retained the
investment banking firm of Donaldson, Lufkin & Jenrette to assist the Company in
the exploration of strategic alternatives. On March 31, 1997, James M. Alexander
and Thomas R. Hix resigned from the Board of Directors.
On March 27, 1997, the Board of Directors of the Company declared a dividend of
one preferred share purchase right (a "Right") for each outstanding share of
common stock, par value $.01 per share, of the Company (the "Common Stock"). The
dividend was payable on April 11, 1997 (the "Record Date") to the stockholders
of record on that date. Each Right entitles the registered holder to purchase
from the Company one one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $.01 per share, of the Company (the "Preferred
Stock") at a price of $40 per one one-thousandth of a share of Preferred Stock
(the "Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement dated as of April 1, 1997, as the
same may be amended from time to time (the "Rights Agreement"), between the
Company and STOCK TRANSFER COMPANY OF AMERICA, INC., as Rights Agent (the
"Rights Agent"). A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an exhibit to the Company's Form 8-K,
dated as of April 1, 1997 and filed on April 3, 1997. (A copy of the Rights
Agreement is available free of charge from the Company.)
15
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Each of the following exhibits is filed herewith:
10.1 Fifth Amendment to First Amended and Restated Credit
Agreement, dated as of March 17, 1997, by and among Cairn
Energy USA, Inc., ING (U.S.) Capital Corporation, f/k/a
Internationale Nederlanden (U.S.) Capital Corporation, as
agent, and ING (U.S.) Capital Corporation, MeesPierson N.V.
and Credit Lyonnais New York Branch, as lenders (with certain
exhibits omitted pursuant to Item 601(b)(2) of Regulation
S-K).
10.2 Rights Agreement dated as of April 1, 1997, between Cairn
Energy USA, Inc. and StockTransfer Company of America, Inc.,
which includes the form of Certificate of Designation for the
Series A Junior Participating Preferred Stock, $.01 par value,
as Exhibit A, the form of Right Certificate as Exhibit B, and
the Summary of Rights as Exhibit C. (Incorporated by reference
to Exhibit 4.1 of the Company's Form 8-K dated as of April 1,
1997 and filed on April 3, 1997.)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed on April 3, 1997 to report that on March
27, 1997, the Board of Directors of Cairn Energy USA, Inc.
(The "Company") declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of
common stock, par value $.01 per share, of the Company. The
dividend was payable to stockholders of record on April 11,
1997. The description and terms of the Rights are set forth in
a Rights Agreement dated as of April 1, 1997.
16
<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 9, 1997 /s/ Michael R. Gilbert
-----------------------------------
Michael R. Gilbert
President
/s/ A. Allen Paul
-----------------------------------
A. Allen Paul
Senior Vice President and Treasurer
(Principal Financial Officer)
17
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