<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the Period Ended June 30, 1996
[ ] 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 0-10526
ALEXANDER ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1088777
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
701 CEDAR LAKE BOULEVARD 73114-7800
OKLAHOMA CITY, OKLAHOMA (Zip Code)
(Address of principal offices)
(405) 478-8686
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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
------ ------
Outstanding shares of $.03 par value common stock at August 12, 1996:
12,467,512
<PAGE> 2
ALEXANDER ENERGY CORPORATION
INDEX
PAGE NO.
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1995 and
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations - Three months and
six months ended June 30, 1995 and 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows - Six months ended
June 30, 1995 and 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Condensed Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-9
Part II. Other Information
Item 6. Exhibits and reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ALEXANDER ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at June 30, 1996 is unaudited.)
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1995 1996
-------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,451,983 $ 1,572,465
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,192,891 4,337,997
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . 528,089 652,781
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 6,172,963 6,563,243
Properties and equipment, less accumulated amortization and
depreciation of $49,863,075 as of December 31, 1995 and $54,068,956
as of June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,155,818 81,159,183
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,537,917 1,931,765
------------ ------------
$ 91,866,698 $ 89,654,191
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . $ 8,505,514 $ 8,670,821
Long-term debt due within one year (Note 3) . . . . . . . . . . . . . . . . 4,162,475 6,212,473
------------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 12,667,989 14,883,294
Long-term debt due after one year (Note 3) . . . . . . . . . . . . . . . . . 44,350,985 39,406,441
Noncurrent gas balancing, gas prepayments and
other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . 3,163,282 2,875,208
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,056,000 1,266,782
Stockholders' equity:
Preferred stock - none issued and outstanding . . . . . . . . . . . . . . . --- ---
Common stock - issued - 12,451,605 and 12,466,262 shares at
December 31, 1995 and June 30, 1996, respectively . . . . . . . . . . . 373,548 373,988
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,262,808 40,447,229
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,007,914) (9,598,751)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 30,628,442 31,222,466
------------ ------------
$ 91,866,698 $ 89,654,191
============ ============
</TABLE>
See accompanying notes.
1
<PAGE> 4
ALEXANDER ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
1995 1996 1995 1996
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales . . . . . . . . . . . . $ 4,565,975 $ 4,750,619 $ 9,089,608 $ 9,262,167
Interest and other . . . . . . . . . . . 115,604 168,639 150,625 274,553
Management fees and well operator
reimbursements . . . . . . . . . . . . 716,418 479,517 1,414,570 972,293
----------- ----------- ----------- -----------
Total revenues . . . . . . . . . 5,397,997 5,398,775 10,654,803 10,509,013
----------- ----------- ----------- -----------
Costs and expenses:
Direct lifting costs . . . . . . . . . . 1,355,524 897,363 2,761,513 1,841,087
Gross production and severance tax . . . 280,057 291,213 557,517 567,771
Amortization and depreciation . . . . . . 2,111,320 2,177,942 4,368,807 4,261,137
General and administrative expenses . . . 974,977 705,811 1,721,640 1,290,426
Interest expense . . . . . . . . . . . . 1,012,626 1,008,925 1,983,135 1,928,647
Nonrecurring abandoned merger costs . . . --- --- 300,000 ---
----------- ----------- ----------- -----------
Total costs and expenses . . . . 5,734,504 5,081,254 11,692,612 9,889,068
----------- ----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes . . . . . . . . . . . . (336,507) 317,521 (1,037,809) 619,945
Provision (benefit) for deferred income
taxes . . . . . . . . . . . . . . . . . . (124,000) 107,957 (384,000) 210,782
----------- ----------- ----------- -----------
Net income (loss) . . . . . . . . . . . . . $ (212,507) $ 209,564 $ (653,809) $ 409,163
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding . . . . . 12,277,210 12,497,468 12,274,913 12,501,129
=========== =========== =========== ===========
Net income (loss) per common and
common equivalent share . . . . . . . . $ (.02) $ .02 $ (.05) $ .03
=========== =========== =========== ===========
</TABLE>
2
<PAGE> 5
ALEXANDER ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------------
1995 1996
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (653,809) $ 409,163
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization and depreciation . . . . . . . . . . . . . . . . . . . . . . 4,368,807 4,261,137
Amortization of deferred compensation for stock awards . . . . . . . . . 202,870 104,026
Accretion of imputed interest . . . . . . . . . . . . . . . . . . . . . . 74,850 48,816
Provision (benefit) for deferred income taxes . . . . . . . . . . . . . . (384,000) 210,782
Gain on sale of other properties and equipment . . . . . . . . . . . . . --- (65,000)
(Increase) decrease in accounts receivable . . . . . . . . . . . . . . . 827,365 (145,106)
Increase in prepaid expenses and other . . . . . . . . . . . . . . . . . (385,810) (124,692)
Increase (decrease) in accounts payable and accrued liabilities . . . . . (2,719,654) 165,307
Increase in noncurrent gas balancing liability and
other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . 45,816 4,825
------------ ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . 1,376,435 4,869,258
Cash flows from investing activities:
Increase in other assets, net . . . . . . . . . . . . . . . . . . . . . . . (7,581) (393,848)
Additions to properties and equipment . . . . . . . . . . . . . . . . . . (3,052,531) (2,653,532)
Proceeds from the sale of properties and equipment . . . . . . . . . . . . 53,175 1,112,315
------------ ------------
Net cash used by investing activities . . . . . . . . . . . . . . . . . (3,006,937) (1,935,065)
Cash flows from financing activities:
Proceeds from borrowings on long-term debt . . . . . . . . . . . . . . . . 3,000,000 ---
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (1,011,508) (2,894,546)
Proceeds from exercise of employee stock options . . . . . . . . . . . . . 22,810 80,835
------------ ------------
Net cash provided (used) by financing activities . . . . . . . . . . . 2,011,302 (2,813,711)
------------ ------------
Net increase in cash and cash equivalents during the period . . . . . . . . . 380,800 120,482
------------ ------------
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . 792,752 1,451,983
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . $ 1,173,552 $ 1,572,465
============ ============
Interest paid amounted to $1,842,660 and $1,919,545 for the six months ended June 30, 1995 and 1996, respectively.
In 1996, the Company eliminated gas balancing liabilities of $341,715 in connection with the sale of certain
properties.
</TABLE>
See accompanying notes.
3
<PAGE> 6
ALEXANDER ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated results presented for the six-month periods ended June
30, 1995 and 1996 are unaudited but the management of Alexander Energy
Corporation believes that all adjustments, which consist only of normal
recurring adjustments, necessary for a fair presentation of the consolidated
results of operations for the periods have been included. The consolidated
results are not necessarily indicative of those to be expected for the full
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1995.
2. Net income (loss) per common and common equivalent share is computed on
the basis of weighted average shares of common stock, and dilutive stock
options and warrants. Fully diluted per share information is considered equal
to primary per share information because the addition of potentially dilutive
securities that are not common stock equivalents would have been either
antidilutive or immaterial.
3. In August 1996, the Company obtained a letter from its bank providing an
extension of the maturity date for the term note and extending the time which
the borrowing base is reduced quarterly by 1/16th through December 31, 2000 on
the revolving credit facility until July 1, 1997, subject to completion of
appropriate documentation. Accordingly the Company has classified $5.0 million
and $33.0 million as long-term debt due after one year related to the term note
and the revolving credit facility in the accompanying June 30, 1996 Condensed
Consolidated Balance Sheet.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company follows the full cost method of accounting for its oil and
natural gas properties. Under such method, the net book value of such
properties, less related deferred income taxes, may not exceed a calculated
"ceiling." The ceiling is the estimated after-tax future net revenues from
proved oil and natural gas properties, discounted at 10% per annum plus the
lower of cost or fair market value of unproved properties. In calculating
future net revenues, prices and costs in effect at the time of the calculation
are held constant indefinitely, except for changes which are fixed and
determinable by existing contracts. The net book value is compared to the
ceiling on a quarterly basis. The excess, if any, of the net book value above
the ceiling is required to be written off as an expense. Under the Securities
and Exchange Commission's full cost accounting rules, any write-off recorded
may not be reversed even though higher oil and natural gas prices may increase
the ceiling applicable to future periods. There is no assurance that future oil
and gas reserve volume or product price decreases will not result in additional
reductions in the net book value of the oil and gas properties of the Company.
The Company records natural gas sales on the entitlement method,
recognizing only its net share of production as revenues. Any amount received
in excess of the Company's revenue interest is recorded as a natural gas
balancing liability and conversely any deficiency is recorded as a natural gas
balancing asset. The Company has also received non- interest bearing
prepayments on future natural gas production which provide for recoupment, most
of which are refundable upon the earlier of the end of the productive life of
the
4
<PAGE> 7
respective well or expiration of the natural gas purchase contract. The natural
gas prepayments will be recognized as revenue when, and if, the natural gas is
delivered.
Amortization of oil and natural gas properties is computed using a
unit of revenue method based on current gross revenues from production in
relation to estimated future gross revenues from production of proved oil and
natural gas reserves. The amortization rates for future periods will increase
or decrease corresponding with the fluctuations in oil and natural gas prices,
reserve volumes and production.
To manage its acquisition, exploitation and drilling activities, the
Company maintains a professional staff of geologists, engineers, landmen and
others. Although maintaining such staff increases general and administrative
expenses on an absolute basis, the Company's experienced technical staff has
been a key to its ability to generate sufficient drilling prospects and
exploitation opportunities to replace produced reserves. By managing operations
for a substantial number of its wells, the Company has been able to maintain
efficiencies in operations as well as obtain operator and management fees which
offset the majority of its general and administrative expenses.
In 1995 and 1996, Alexander sold numerous nonstrategic oil and gas
properties, the cash proceeds of which amounted to approximately $1.8 million
and $800,000, respectively. As discussed in further detail below in Oil and
Gas Sales, Well Operator and Management Fees and Oil and Gas Operating
Expenses, the 1996 and 1995 oil and gas property sales are expected to reduce
Alexander's annual 1996 operating income before amortization and depreciation
by approximately $500,000 and $300,000, respectively, from the amount reported
in 1995.
PROPOSED MERGER
On January 2, 1996, the Company announced that it had signed a letter
of intent providing for a combination of National Energy Group, Inc. ("NEG")
and the Company. Under terms of the letter of intent as amended, the Company
and NEG had until April 30, 1996 to complete their due diligence investigations
and attempt to reach a definitive agreement on the terms of a transaction. On
May 6, 1996, the Company announced that the Company and NEG had not reached
agreement on the terms of a definitive merger agreement by the April 30, 1996
standstill deadline; however, a definitive merger agreement was signed on June
6, 1996. On August 9, 1996, NEG and the Company mailed the Joint Proxy
Statement and Prospectus to shareholders of record for both companies. Each
company has scheduled a shareholder meeting on August 29, 1996 to count the
shareholder vote for approval of the merger and contemplate concluding the
merger by month end. For more information regarding the proposed merger of the
Company and NEG, see the August 9, 1996 Joint Proxy Statement and Prospectus of
the Company and NEG.
RESULTS OF OPERATIONS-THREE MONTHS ENDED JUNE 30, 1995 AND 1996
Total Revenues; Oil and Gas Sales. Total revenues remained relatively
constant for the three months ended June 30, 1996 compared to the three months
ended June 30, 1995. The slight increase in total revenues was comprised of
increased oil and natural gas sales and decreased well operator reimbursements
resulting from the sale of certain properties during 1995 and the first quarter
of 1996. The increased oil and natural gas sales are attributable to lower
production volumes for both oil and natural gas as a result of certain wells
sold during 1995 and January 1996, offset by higher product prices for both oil
and natural gas.
The increase in oil and gas sales consisted of decreased production
for both oil and natural gas. Oil revenues decreased by 32% due to a 37%
decrease in production quantities and a 8% increase in the average price
5
<PAGE> 8
per Bbl of production for the three months ended June 30, 1996 as compared to
1995. Natural gas revenues increased by 14% due to a 37% increase in the
average price per Mcf of natural gas produced, offset by a 17% decrease in
product quantities for the three months ended June 30, 1996 as compared to
1995.
Well Operator and Management Fees. Well operator and management fees
decreased 33% for the three months ended June 30, 1996 compared to the same
period in 1995. This decrease is attributable to a reduction in the number of
operated producing properties, due to the sale of certain properties during
1995 and the first quarter of 1996. Included in the management fees were
reimbursements of overhead expense of $5,000 per month from AEJH 1987 and
$10,000 per month from the AEJH 1989 Limited Partnerships (the "Partnerships").
In May 1996, the Company agreed to liquidate and terminate these Partnerships
by June 15, 1996, the net income effect of which is not expected to be
significant.
Interest and Other Revenues. The increase in interest and other
revenue for the three months ended June 30, 1996 compared to 1995 resulted from
interest income on invested cash, marketing fees for both oil and natural gas
and gains recognized from the sale of certain real estate.
Oil and Gas Prices. Oil prices received by the Company increased 8%
during the three months ended June 30, 1996, resulting in an average price of
$19.87 per Bbl compared to the average price per Bbl of $18.32 for the same
period in 1995. Revenues and operating results for future periods will
continue to be impacted by price fluctuations which are largely influenced by
market conditions and the quantity of the oil sold by OPEC.
During the three months ended June 30, 1996, the Company experienced
an increase in natural gas prices. In recent years, the Company has sold much
of its natural gas under short-term (typically month-to-month) contracts.
Natural gas prices received by the Company increased 37% during the three
months ended June 30, 1996, resulting in an average price of $2.08 per Mcf
compared to an average price per Mcf of $1.52 for the same period in 1995.
Future sales prices will be dependent upon the future supply and demand of
natural gas in the market and the quantities of gas sold under short-term
contracts as opposed to quantities sold under long-term contracts, which
currently command higher prices.
Oil and Gas Production. Production and average prices received per
Bbl and Mcf are as follows:
<TABLE>
<CAPTION>
Three months ended
June 30,
---------------------------
1995 1996
---------- ---------
<S> <C> <C>
Crude oil:
Production (Bbls) . . . . . . . . . . . . . . . . . . . . . . . . 51,958 32,655
Average price received per barrel . . . . . . . . . . . . . . . . $18.32 $19.87
Natural gas:
Production (Mcf) . . . . . . . . . . . . . . . . . . . . . . . . . 2,378,207 1,972,574
Average price received per Mcf . . . . . . . . . . . . . . . . . . $ 1.52 $2.08
</TABLE>
Oil and natural gas production volumes for the three months ended June 30,
1996 on an Mcf equivalent (Mcfe) basis decreased from such volumes for the same
period in 1995 by 19%. This decrease in production was due to the sale of
certain producing properties during the three months ended March 31, 1996 and
during the year ended 1995. Although the Company experienced some curtailments
of gas production, these curtailments have
6
<PAGE> 9
not been material. The curtailments were primarily attributable to excess
supply and price competitiveness with oil. There can be no assurance that the
Company will not experience future curtailments.
Oil and natural gas production volumes for the year ended December 31,
1996 are expected to be lower than 1995. This expected decrease is primarily
attributable to a decrease in development activities in 1995 and 1996 and due
to the sale of certain properties during 1995 and the three months ended March
1996.
Total Expenses; Oil and Gas Operating Expenses. Total costs and expenses
decreased for the three months ended June 30, 1996 compared to the same period
in 1995. Oil and gas operating expenses decreased for the three months ended
June 30, 1996 compared to the same period in 1995, due to reduced operating
expenses attributable to a lesser number of producing wells, which were sold
during 1995 and the three months ended March 1996. Oil and gas operating
expenses decreased on an Mcfe basis to $.55 for the three months ended June 30,
1996 compared to $.61 for the same period in 1995.
Amortization and Depreciation. The amortization and depreciation rate per
dollar of oil and gas sales for the three months ended June 30, 1996 remained
relatively constant at $.45 compared to $.46 for the same period in 1995. The
slightly decreased rate for the three months ended June 30, 1996 was primarily
due to the increased estimated future gross revenues resulting from the higher
product price for both oil and natural gas for the three months ended June 30,
1996. The amortization and depreciation rates for future periods will
increase or decrease corresponding with the fluctuations in oil and gas prices,
reserve volumes and production.
General and Administrative Expenses. General and administrative expenses
decreased for the three months ended June 30, 1996 compared to the same period
in 1995. This decrease was primarily related to a lesser number of personnel
comprising general and administrative expenses for the three months ended June
30, 1996 compared to the same period in 1995. Well operator and management
fees offset 68% of net general and administrative expenses during the three
months ended June 30, 1996 compared to 73% during the same period in 1995.
Interest Expense. Interest expense decreased slightly for the three
months ended June 30, 1996 compared to the same period in 1995 due to a
decrease in the outstanding borrowings. The Company's revolving credit
facility bears interest at LIBOR plus 2.0% (a rate of 7.4375% at June 30,
1996). The Company's term note bears interest at the prime rate plus 3% ( an
aggregate rate of 11.25% at June 30, 1996) through October 15, 1996 and the
prime rate plus 4% thereafter. The weighted average interest rate increased to
8.85% for the three months ended June 30, 1996 compared to 8.02% for the same
period in 1995. The Company's outstanding borrowings under certain long-term
debt agreements will bear interest at rates higher than the 1995 rates or the
rates for the three months ended March 31, 1996 due to modifications to certain
debt agreements in May 1996. (See "Long Term Debt")
Taxes. As a result of public offerings in 1993, the Company had an
ownership change pursuant to Section 382 of the Internal Revenue Code.
Accordingly, in 1996 and 1995, the Company's provision or benefit for income
taxes approximated the statutory federal rate.
RESULTS OF OPERATIONS-SIX MONTHS ENDED JUNE 30, 1995 AND 1996
Total Revenues; Oil and Gas Sales. Total revenues decreased for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995. The
decrease in total revenues was comprised of increased oil and natural gas sales
and decreased well operator reimbursements resulting from the sale of certain
properties during 1995 and the first quarter of 1996. The increased oil and
natural gas sales are attributable to higher
7
<PAGE> 10
product prices for both oil and natural gas, offset by lower production volumes
for both oil and natural gas as a result of certain wells sold during 1995 and
January 1996. The 1996 and 1995 oil and gas property sales are expected to
reduce 1996 annual oil and gas sales by approximately $900,000 and $300,000,
respectively, from the amount reported in 1995.
The increase in oil and gas sales consisted of increased prices for both
oil and natural gas, partially offset by decreased production for both oil and
natural gas. Oil revenues decreased by 34% due to a 39% decrease in production
quantities and a 8% increase in the average price per Bbl of production for the
six months ended June 30, 1996 as compared to 1995. Natural gas revenues
increased by 11% due to a 37% increase in the average price per Mcf of natural
gas produced, offset by a 19% decrease in product quantities for the six
months ended June 30, 1996 as compared to 1995.
Well Operator and Management Fees. Well operator and management fees
decreased 31% for the six months ended June 30, 1996 compared to the same
period in 1995. This decrease is attributable to a reduction in the number of
operated producing properties, due to the sale of certain properties during
1995 and the first quarter of 1996. The 1996 and 1995 oil and gas property
sales are expected to reduce annual 1996 well operator fees by approximately
$500,000 and $100,000, respectively, from the amount reported in 1995.
Included in the management fees were reimbursements of overhead expense of
$5,000 per month from AEJH 1987 and $10,000 per month from the AEJH 1989
Limited Partnerships (the "Partnerships"). In May 1996, the Company agreed to
liquidate and terminate these Partnerships June 15, 1996, the net income effect
of which is not expected to be significant.
Interest and Other Revenues. The increase in interest and other revenue
for the six months ended June 30, 1996 compared to 1995 resulted from interest
income on invested cash, marketing fees for both oil and natural gas and gains
recognized from the sale of certain real estate.
Oil and Gas Prices. Oil prices received by the Company increased 8%
during the six months ended June 30, 1996, resulting in an average price of
$18.92 per Bbl compared to the average price per Bbl of $17.59 for the same
period in 1995. Revenues and operating results for future periods will
continue to be impacted by price fluctuations which are largely influenced by
market conditions and the quantity of the oil sold by OPEC.
During the six months ended June 30, 1996, the Company experienced an
increase in natural gas prices. In recent years, the Company has sold much of
its natural gas under short-term (typically month-to-month) contracts. Natural
gas prices received by the Company increased 37% during the six months ended
June 30, 1996, resulting in an average price of $2.03 per Mcf compared to an
average price per Mcf of $1.48 for the same period in 1995. Future sales
prices will be dependent upon the future supply and demand of natural gas in
the market and the quantities of gas sold under short-term contracts as opposed
to quantities sold under long-term contracts, which currently command higher
prices.
8
<PAGE> 11
Oil and Gas Production. Production and average prices received per Bbl
and Mcf are as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------
1995 1996
---------- ----------
<S> <C> <C>
Crude oil:
Production (Bbls) . . . . . . . . . . . . . . . . . 106,327 65,052
Average price received per barrel . . . . . . . . . $17.59 $18.92
Natural gas:
Production (Mcf) . . . . . . . . . . . . . . . . . . 4,881,070 3,961,596
Average price received per Mcf . . . . . . . . . . . $ 1.48 $2.03
</TABLE>
Oil and natural gas production volumes for the six months ended June 30,
1996 on an Mcf equivalent (Mcfe) basis decreased from such volumes for the same
period in 1995 by 21%. This decrease in production was due to the sale of
certain producing properties during the three months ended March 31, 1996 and
during the year ended 1995. Although the Company experienced some curtailments
of gas production, these curtailments have not been material. The curtailments
were primarily attributable to excess supply and price competitiveness with
oil. There can be no assurance that the Company will not experience future
curtailments.
Oil and natural gas production volumes for the year ended December 31,
1996 are expected to be lower than 1995. This expected decrease is primarily
attributable to a decrease in development activities in 1995 and 1996 and due
to the sale of certain properties during 1995 and the three months ended March
1996.
Total Expenses; Oil and Gas Operating Expenses. Total costs and expenses
decreased for the six months ended June 30, 1996 compared to the same period in
1995. Oil and gas operating expenses decreased for the six months ended June
30, 1996 compared to the same period in 1995, due to reduced operating expenses
attributable to a lesser number of producing wells, which were sold during 1995
and the three months ended March 1996. The 1996 and 1995 oil and gas property
sales are expected to reduce annual 1996 oil and gas operating expenses by
approximately $900,000 and $100,000, respectively, from the amount reported in
1995. Oil and gas operating expenses decreased on an Mcfe basis to $.55 for
the six months ended June 30, 1996 compared to $.60 for the same period in
1995.
Amortization and Depreciation. The amortization and depreciation rate per
dollar of oil and gas sales for the six months ended June 30, 1996 decreased
to $.46 compared to $.48 for the same period in 1995. The decreased rate for
the six months ended June 30, 1996 was primarily due to the increased estimated
future gross revenues resulting from the higher product price for both oil and
natural gas for the six months ended June 30, 1996. The amortization and
depreciation rates for future periods will increase or decrease corresponding
with the fluctuations in oil and gas prices, reserve volumes and production.
General and Administrative Expenses. General and administrative expenses
decreased for the six months ended June 30, 1996 compared to the same period in
1995. This decrease was primarily related to a lesser number of personnel
comprising general and administrative expenses for the six months ended June
30, 1996 compared to the same period in 1995. Well operator and management
fees offset 75% of net general and administrative expenses during the six
months ended June 30, 1996 compared to 82% during the same period in 1995.
9
<PAGE> 12
Interest Expense. Interest expense decreased for the six months ended
June 30, 1996 compared to the same period in 1995 due to a decrease in the
outstanding borrowings. The Company's revolving credit facility bears interest
at LIBOR plus 2% (a rate of 7.4375% at June 30, 1996). The Company's term
note bears interest at the prime rate plus 3% (an aggregate rate of 11.25% at
June 30, 1996) through October 15, 1996 and the prime rate plus 4% thereafter.
The weighted average interest rate increased to 8.22% for the six months ended
June 30, 1996 compared to 7.85% for the same period in 1995. The Company's
outstanding borrowings under certain long-term debt agreements will bear
interest at rates higher than the 1995 rates or the rates for the six months
ended June 30, 1996 due to modifications to certain debt agreements in May
1996.
Nonrecurring Abandoned Merger Costs. The Company had no such expenses for
the six months ended June 30, 1996. On May 10, 1995, the Company announced the
termination of discussions regarding the possible outstanding merger with
Abraxas and, accordingly, expensed $300,000 of related costs.
Taxes. As a result of public offerings in 1993, the Company had an
ownership change pursuant to Section 382 of the Internal Revenue Code.
Accordingly, in 1996 and 1995, the Company's provision or benefit for income
taxes approximated the statutory federal rate.
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's capital requirements relate primarily to
exploitation, development, exploration and acquisition activities. In
general, because the Company's oil and gas reserves are depleted by
production, the success of its business strategy is dependent upon a continuous
exploitation, development, exploration and acquisition program.
Historically, the Company has funded its capital requirements through cash
flow from operations, bank borrowings, various carried interest arrangements
(whereby other parties paid a portion of the Company's share of costs) and
equity sales. The Company's capital resources available to fund capital
requirements consist primarily of cash flow from operations, not otherwise used
to retire outstanding long-term debt. As of June 1996, the Company has capital
expenditure commitments of less than $.5 million which the Company believes can
be funded through cash flow from operations. The Company's capital expenditure
budget for the remaining six months of 1996 is approximately $12 million,
substantially all of which represents the development of Company proved
undeveloped locations. However, the Company has recently focused its current
efforts on the merger with NEG. Accordingly, the development of proved
undeveloped locations in 1996 has been temporarily delayed until the resolution
of this event. See the Joint Proxy Statement and Prospectus for a discussion
of the anticipated capital resources available to fund capital expenditures
upon consummation of the proposed merger with NEG. The Company believes it can
accomplish a portion of this development program, subject to obtaining
financing on a timely basis, in the last half of 1996, if the merger is not
consummated; however there are no assurances as to that. Substantially all of
the budget amount in excess of that expected to be available from operations,
after debt service, will have to be funded through various alternatives,
including equity sales, debt offerings, and/or non-key property sales.
Proceeds from the financing alternatives will have to be sufficient in amount
to also retire the Company's outstanding term note with a bank, which has a
balance at June 30, 1996 of $9.2 million. Deferral of the budgeted capital
expenditures may cause a delay in the realization of undeveloped oil and gas
reserves.
Cash Flows. For the six months ended June 30, 1996, the Company's cash
provided by operating activities was approximately $4.9 million, an increase of
254% compared to $1.4 for the same period in 1995. In 1996, the net change in
assets and liabilities reduced cash flows from operating activities by $114,
000 compared to $2.2 million in the comparable period in 1995. This change was
due principally to the Company's reduced exploration and development activity
in 1995 compared to 1994 as well as its focus on maintenance of adequate
working capital to sustain future operations. The Company has a $2.9 million
net gas balancing liability
10
<PAGE> 13
attributable to 2.1 Bcf of natural gas production in excess of the Company's
entitled natural gas volumes. The majority of these excess sales are from
properties that have gas balancing agreements which provide for recoupments by
the underproduced owners from 25% of volumes attributable to the Company's
interest. At June 30, 1996, approximately $1.5 million was included in current
liabilities associated with such net excess sales liability.
Net cash used by investing activities for the six months ended June 30,
1996 decreased approximately $1.1 million from the same period in 1995.
Additions to oil and gas properties decreased by approximately $.4 million due
primarily to reduced oil and gas property acquisitions and development.
Proceeds from the sale of properties and equipment increased in 1996 to
approximately $1.1 million, resulting from the sale of oil and gas properties
in January 1996, as discussed above.
Net cash used by financing activities was approximately $2.8 million for
the six months ended June 30, 1996 compared to net cash provided of $2.0
million for the corresponding period in 1995. Net cash used for the six
months ended June 30, 1996 resulted from payments on long-term debt, offset by
proceeds from the exercise of employee stock options. At June 30, 1996, the
Company had a working capital deficit of $8.3 million and had no availability
under its revolving line of credit. (See "Long Term Debt").
Long Term Debt. At December 31, 1995, the Company had $44.0 million
outstanding under its revolving credit facility with a bank. Subsequent to
December 31, 1995, the lender reduced the borrowing base to $33.0 million,
effective to December 31, 1995, requiring the $11.0 million excess borrowings
to be converted to a term note. In May and August 1996, the Company amended
the credit agreement (the "Amended Agreement"). Under the Amended Agreement,
the term note requires, among other things, monthly payments of principal of
$350,000 plus interest, effective April 1996, through its maturity date of July
1, 1997 at which time the remaining unpaid principal and interest become due.
The term note bears interest at the prime rate plus 3% (an aggregate rate of
11.25% at June 30, 1996) through October 15, 1996 and the prime rate plus 4%
thereafter.
The borrowings associated with the revolving credit facility cannot exceed
the borrowing base, which relates to the Company's oil and gas reserve base.
The borrowing base is subject to semi annual redeterminations each April and
October until July 1, 1997, at which time the borrowing base is reduced
quarterly by 1/16th through December 31, 2000. The revolving credit facility
interest rate increased to LIBOR plus 2.0%, under the Amended Agreement
(7.4375% at June 30, 1996). All of the borrowings outstanding with this
lender, under the Amended Agreement, are secured by a first and prior lien on
substantially all of the Company's assets.
At June 30, 1996, the Company also had $2.0 million outstanding under a
term note with a stockholder which contains various financial covenants. In
May 1996, the Company obtained a waiver through April 1, 1997 from the
stockholder for noncompliance with certain covenants. Under the waiver, the
Company made its scheduled principal payment of $1.0 million in June 1996. The
Stockholder may, at its sole discretion, require the remaining $2 million of
unpaid principal and accumulated interest due anytime after April 1, 1997.
Accordingly, such debt has been included in long term debt due within one year
in the accompanying June 30, 1996 consolidated balance sheet. The Company also
secured the stockholder loan on an equal basis with the bank debt discussed
above and agreed to liquidate and distribute the assets of the AEJH 1985, AEJH
1987 and AEJH 1989 Limited Partnerships.
11
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A petition was filed in Oklahoma County District Court on July 25, 1995,
against the Company and its directors by Bill V. Dean and Elliott Associates,
L.P. ("Elliott"). The suit purported to be a derivative action on behalf of
the Company against the Board of Directors for breach of fiduciary duties in
enacting a share rights plan, approving certain severance contracts and policy,
and proposing the Senior Note Offering. No damages are being sought against
the Company. The suit asks that the Company's share rights plan and severance
contracts and policy be invalidated, seeks an injunction against the Company's
Senior Note Offering and requests damages to the Company from the directors in
excess of $10,000. In August 1995, the Company elected to defer its proposed
Senior Note Offering. The Company filed a motion to dismiss which was granted
by the court in 1995 dismissing Elliott as plaintiff. The court granted
Elliott leave to file an amended petition. Elliott declined to file an
amended petition and is appealing its dismissal to the Oklahoma Court of
Appeals. The Company and its directors have filed their answer denying all
allegations. The suit is currently in discovery. The Company believes the
derivative action is without merit and will vigorously defend against this
action.
The Company and its subsidiaries are named defendants in lawsuits and are
involved from time to time in governmental proceedings, all arising in the
ordinary course of business. Although the outcome of these lawsuits and
proceedings cannot be predicted with certainty, management does not expect
these matters will have a material adverse effect on the financial position of
the Company.
Item 3. Defaults Upon Senior Securities
See Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Long Term Debt.
Item 6. Exhibits and reports on Form 8-K
(a) (i) Exhibit 11 - Computation of Earnings (Loss) Per Share
(ii) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended June
30, 1996.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALEXANDER ENERGY CORPORATION
DATE August 14, 1996 /s/ Jim L. David
------------------------------- --------------------------------------
Jim L. David, Executive Vice President
DATE August 14, 1996 /s/ David E. Grose
------------------------------- --------------------------------------
David E. Grose, Vice President,
Treasurer and Chief Financial Officer
13
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
ALEXANDER ENERGY CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
Six Months Ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------
March 31, June 30,
----------- -----------
<S> <C> <C> <C>
Weighted average common and common
equivalent shares:
Common stock outstanding from
beginning of period............. 12,271,563 12,273,993
Common stock issued............... 1,053 3,127
Common stock equivalents.......... --- ---
----------- -----------
12,272,616 12,277,210
=========== ===========
Net loss............................ $ (441,302) $ (212,507)
=========== ===========
Net loss per common and common
equivalent share.................. $ (.04) $ (.02)
=========== ===========
Weighted average shares (sum of quarters above divided by two).... 12,274,913
===========
Net loss (sum of quarters above).................................. $ (653,809)
===========
Net loss per common and common equivalent share................... $ (.05)
===========
1996
Weighted average common and common
equivalent shares:
Common stock outstanding from
beginning of period............. 12,451,605 12,456,985
Common stock issued............... 19,569 4,993
Common stock retired.............. (14,868) ---
Common stock equivalents.......... 48,484 35,490
----------- -----------
12,504,790 12,497,468
=========== ===========
Net income.......................... $ 199,600 $ 209,564
=========== ===========
Net income per common and common
equivalent share.................. $ .02 $ .02
=========== ===========
Weighted average shares (sum of quarters above divided by two).... 12,501,129
===========
Net income (sum of quarters above)................................ $ 409,163
===========
Net income per common and common equivalent share................. $ .03
===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED CONSOLIDATED BALANCE SHEET, CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-Q
JUNE 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,572,465
<SECURITIES> 0
<RECEIVABLES> 4,337,997
<ALLOWANCES> 0
<INVENTORY> 393,956
<CURRENT-ASSETS> 6,563,243
<PP&E> 135,228,139
<DEPRECIATION> 54,068,956
<TOTAL-ASSETS> 89,654,191
<CURRENT-LIABILITIES> 14,883,294
<BONDS> 39,406,441
<COMMON> 373,988
0
0
<OTHER-SE> 30,848,478
<TOTAL-LIABILITY-AND-EQUITY> 89,654,191
<SALES> 9,262,167
<TOTAL-REVENUES> 10,509,013
<CGS> 2,408,858
<TOTAL-COSTS> 9,889,068
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,928,647
<INCOME-PRETAX> 619,945
<INCOME-TAX> 210,782
<INCOME-CONTINUING> 409,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 409,163
<EPS-PRIMARY> $.03
<EPS-DILUTED> $.03
</TABLE>
