UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/ x / Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
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 No. 1-10695
PARKER & PARSLEY PETROLEUM COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 74-2570602
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 West Wall, Suite 101, Midland, Texas 79701
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (915) 683-4768
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 / /
Number of shares of Common Stock outstanding
as of November 1, 1996............................................. 35,637,059
Page 1 of 24 pages.
Exhibit index on page 23.
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 ....................................... 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1996 and 1995.................... 5
Consolidated Statement of Stockholders' Equity for the nine
months ended September 30, 1996............................. 6
Consolidated Statements of Cash Flows for the three and nine
months ended September 30, 1996 and 1995.................... 7
Notes to Consolidated Financial Statements.................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 23
Item 6. Exhibits and Reports on Form 8-K.............................. 23
Signatures.................................................... 24
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
1996 1995
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 67,639 $ 19,940
Restricted cash 1,769 15,572
Accounts receivable:
Trade, net 28,192 49,257
Affiliates 498 2,369
Oil and gas sales 30,742 37,358
Assets held for resale - 3,677
Inventories 4,451 9,880
Deferred income taxes 4,200 1,600
Other current assets 2,364 2,757
--------- ---------
Total current assets 139,855 142,410
--------- ---------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful
efforts method of accounting:
Proved properties 1,358,463 1,450,290
Unproved properties 5,394 14,574
Natural gas processing facilities 58,580 63,395
Accumulated depletion, depreciation and
amortization (424,123) (406,513)
--------- ---------
998,314 1,121,746
--------- ---------
Restricted investments - 5,345
Other property and equipment, net 25,516 31,755
Other assets, net 15,005 17,973
--------- ---------
$1,178,690 $1,319,229
========= =========
The financial information included as of September 30, 1996 has been prepared
by management without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated
financial statements.
3
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PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share data)
September 30, December 31,
1996 1995
------------ -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,379 $ 2,608
Distributable litigation settlement - 13,633
Undistributed unit purchases 1,769 1,939
Accounts payable:
Trade 66,867 58,263
Affiliates 3,252 574
Domestic and foreign income taxes 122 2,875
Other current liabilities 18,896 31,017
--------- ---------
Total current liabilities 92,285 110,909
--------- ---------
Long-term debt, less current maturities 316,246 586,549
Other noncurrent liabilities 8,958 16,656
Deferred income taxes 48,100 5,300
Preferred stock of subsidiary 188,820 188,820
Stockholders' equity:
Preferred stock, $.01 par value; 20,000,000
shares authorized; none issued and outstanding - -
Common stock, $.01 par value; 180,000,000
shares authorized; 36,622,495 and
36,387,960 shares issued at September 30,
1996 and December 31, 1995, respectively 366 364
Additional paid-in capital 456,840 452,718
Treasury stock, at cost; 1,016,501 and
1,004,684 shares at September 30, 1996
and December 31, 1995, respectively (7,084) (6,844)
Unearned compensation (1,631) (2,055)
Retained earnings (deficit) 75,790 (36,491)
Cumulative translation adjustment - 3,303
--------- ---------
Total stockholders' equity 524,281 410,995
Commitments and contingencies (Note C)
$1,178,690 $1,319,229
========= =========
The financial information included as of September 30, 1996 has been prepared
by management without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated
financial statements.
4
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PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
----------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ---------
Revenues:
Oil and gas $ 91,313 $ 88,261 $ 283,327 $ 281,221
Natural gas processing 5,706 9,196 16,810 28,625
Gas marketing - 22,736 - 73,936
Interest and other 12,573 6,088 14,996 9,696
Gain (loss) on disposition
of assets 1,638 (4,106) 96,887 16,736
--------- --------- --------- ---------
111,230 122,175 412,020 410,214
--------- --------- --------- ---------
Costs and expenses:
Oil and gas production 24,829 31,671 82,233 101,807
Natural gas processing 3,088 7,979 9,123 22,549
Gas marketing - 22,678 - 73,226
Depletion, depreciation and
amortization 26,590 39,193 86,228 124,809
Impairment of oil and gas
properties - - - 101,268
Exploration and abandonments 3,410 5,972 14,171 19,135
General and administrative 6,430 6,576 19,420 30,807
Interest 10,053 15,812 36,105 50,770
Other 365 1,802 1,709 8,932
--------- --------- --------- ---------
74,765 131,683 248,989 533,303
--------- --------- --------- ---------
Income (loss) before income
taxes 36,465 (9,508) 163,031 (123,089)
Income tax benefit (provision) (15,500) 2,600 (47,200) 39,000
--------- --------- --------- ---------
Net income (loss) $ 20,965 $ (6,908) $ 115,831 $ (84,089)
========= ========= ========= =========
Net income (loss) per share:
Primary $ .58 $ (.20) $ 3.24 $ (2.39)
========= ========= ========= =========
Fully Diluted $ .54 $ (.20) $ 2.86 $ (2.39)
========= ========= ========= =========
Dividends declared per share $ .05 $ .05 $ .10 $ .10
========= ========= ========= =========
Weighted average shares
outstanding 35,881,167 35,333,343 35,762,877 35,224,135
========== ========== ========== ==========
The financial information included herein has been prepared
by management without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
<TABLE>
PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share data)
(Unaudited)
<CAPTION>
Common
Stock Additional Retained Cumulative Total
Shares Common Paid-in Treasury Unearned Earnings Translation Stockholders'
Outstanding Stock Capital Stock Compensation (Deficit) Adjustment Equity
----------- ------- ---------- -------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 35,383,276 $ 364 $ 452,718 $(6,844) $ (2,055) $(36,491) $ 3,303 $ 410,995
Exercise of long-term
incentive plan stock options 206,111 2 2,755 - - - - 2,757
Tax benefits related to stock
options - - 700 - - - - 700
Purchase of treasury stock (9,837) - - (227) - - - (227)
Shares awarded 28,424 - 702 - (810) - - (108)
Restricted shares forfeited (1,980) - (35) (13) 48 - - -
Amortization of unearned
compensation - - - - 1,186 - - 1,186
Net income - - - - - 115,831 - 115,831
Dividends ($.10 per share) - - - - - (3,550) - (3,550)
Currency translation
adjustment - - - - - - (3,303) (3,303)
----------- ------ --------- ------ --------- ------- --------- ----------
Balance at September 30, 1996 35,605,994 $ 366 $ 456,840 $(7,084) $ (1,631) $ 75,790 $ - $ 524,281
=========== ====== ========= ====== ========= ======= ========= ===========
</TABLE>
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 20,965 $ (6,908) $ 115,831 $ (84,089)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depletion, depreciation and amortization 26,590 39,193 86,228 124,809
Impairment of oil and gas properties - - - 101,268
Exploration and abandonments 2,139 4,951 10,386 16,403
Deferred income taxes 15,200 (1,400) 46,900 (38,000)
Loss (gain) on disposition of assets (1,638) 4,106 (96,887) (16,736)
Other noncash items (3,993) 2,062 (2,316) 17,892
--------- --------- --------- ---------
59,263 42,004 160,142 121,547
Change in operating assets and liabilities, net
of effects from acquisitions and dispositions:
Accounts receivable 1,979 3,480 21,357 16,821
Inventory 1,336 1,399 782 1,204
Other current assets (66) (451) 88 700
Accounts payable 7,953 284 4,941 (3,155)
Accrued income taxes and other current liabilities (1,622) 4,120 2,057 3,255
Other - (51) - (603)
--------- --------- --------- ---------
Net cash provided by operating activities 68,843 50,785 189,367 139,769
--------- --------- --------- ---------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired (93) (71) (170) (1,315)
Proceeds from disposition of wholly-owned
subsidiaries, net of cash disposed 4,365 - 183,102 -
Proceeds from disposition of assets 5,317 24,190 51,194 162,606
Additions to oil and gas properties (65,595) (52,881) (139,540) (143,243)
Additions to natural gas processing facilities (374) (499) (2,247) (6,019)
Additions to other property and equipment and other assets (1,187) (5,441) (2,284) (13,779)
--------- --------- --------- ---------
Net cash provided by (used in) investing activities (57,567) (34,702) 90,055 (1,750)
--------- --------- --------- ---------
Cash flows from financing activities:
Borrowings under long-term debt - 151,235 782 316,097
Principal payments on long-term debt (523) (172,046) (229,806) (454,058)
Payments on noncurrent liabilities (1,646) (1,420) (2,035) (1,862)
Issuance of common stock, net - (1) - (23)
Deferred loan fees/issuance costs - 551 (43) (2,855)
Dividends (1,780) (1,755) (3,550) (3,501)
Purchase of treasury stock (45) (67) (227) (201)
Exercise of long-term incentive plan stock options 198 298 2,757 1,704
Distributable litigation settlement - receipts - 154 5,290 323
Distributable litigation settlement - payments - - (18,876) -
Other - - (108) -
--------- --------- --------- ---------
Net cash used in financing activities (3,796) (23,051) (245,816) (144,376)
--------- --------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents - 382 290 (237)
Net increase (decrease) in cash, cash equivalents and
restricted cash 7,480 (6,968) 33,606 (6,357)
Cash, cash equivalents and restricted cash, beginning of period 61,928 39,894 35,512 39,902
--------- --------- --------- ---------
Cash, cash equivalents and restricted cash, end of period $ 69,408 $ 33,308 $ 69,408 $ 33,308
========= ========= ========= =========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
NOTE A. Summary of Significant Accounting Policies
Basis of Presentation
In the opinion of management, the unaudited consolidated financial statements of
Parker & Parsley Petroleum Company (the "Company") as of September 30, 1996 and
for the three and nine months ended September 30, 1996 and 1995 include all
adjustments and accruals, consisting only of normal recurring accrual
adjustments, which are necessary for a fair presentation of the results for the
interim periods. These interim results are not necessarily indicative of results
for a full year. Certain amounts in the prior period financial statements have
been reclassified to conform to the current period presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. These consolidated
financial statements should be read in connection with the consolidated
financial statements and notes thereto included in the Company's 1995 Annual
Report.
NOTE B. Disposition of Australasian Assets
On March 28, 1996, the Company completed the sale of certain wholly-owned
Australian subsidiaries to Santos Ltd., and on June 20, 1996, the Company
completed the sale of another wholly-owned subsidiary, Bridge Oil Timor Sea,
Inc., to Phillips Petroleum International Investment Company. During the nine
months ended September 30, 1996, the Company received aggregate consideration of
$237.5 million for these combined sales which consisted of $186.6 million of
proceeds for the equity of such entities, $21.8 million for reimbursement of
certain intercompany cash advances, and the assumption of such subsidiaries' net
liabilities, exclusive of oil and gas properties, of $29.1 million. The
accompanying Consolidated Statement of Operations for the nine months ended
September 30, 1996 includes a pre-tax gain of $83.2 million from the disposition
of these subsidiaries (net of transaction expenses of $8.7 million) and an
income tax provision of $16.2 million. The income tax provision includes $6.4
million related to the write-off of certain net operating loss carryforwards
which, with the sale of the income producing assets in the Australian tax
jurisdiction, will not be utilized in the future.
The assets sold to Santos Ltd. consisted primarily of properties located in the
Cooper Basin in Central Australia, the Surat Basin in Northeast Australia, the
Carnarvon Basin on the Northwest Shelf off the coast of Western Australia, the
Otway Basin off the coast of Southeast Australia and the Central Sumatra Basin
8
<PAGE>
in Indonesia. At December 31, 1995, the Company's interests in these properties
contained 32.1 million BOE of proved reserves (consisting of 12.4 million Bbls
of oil and 118.3 Bcf of gas), representing $133.8 million of SEC 10 value. The
accompanying Consolidated Statement of Operations for the nine months ended
September 30, 1996 includes the results of operations from these properties
prior to their sale on March 28, 1996. During 1996, these properties produced
349,500 Bbls of oil and 1,927,000 Mcf of gas. The Company received an average
price of $19.55 per Bbl and $1.95 per Mcf from such production or $10.6 million
in total revenues. Total production costs associated with these properties were
$3.3 million ($4.92 per equivalent Bbl) and depletion expense was $3.9 million
($5.84 per equivalent Bbl).
The wholly-owned subsidiary sold to Phillips Petroleum International Investment
Company, Bridge Oil Timor Sea, Inc., has a wholly-owned subsidiary, Bridge Oil
Timor Sea Pty Ltd., which owns a 22.5% interest in the ZOCA 91-13 permit in the
offshore Bonaparte Basin in the Zone of Cooperation between Australia and
Indonesia.
NOTE C. Commitments and Contingencies
The Company is party to various legal actions arising in the ordinary course of
its business. The Company does not currently believe that it has a probable and
estimable loss with respect to any such litigation in excess of currently
provided for reserves. If such a loss becomes probable and estimable, the amount
of any recorded liability could have a material adverse effect on the Company's
results of operations for the period in which such liability is recorded.
However, the Company does not expect that any such liability would have a
material adverse effect on its consolidated financial position as a whole or on
its liquidity or capital resources. The Company will continue to evaluate its
litigation matters on a quarter-by-quarter basis and will adjust the litigation
reserve as appropriate to reflect the then current status of its litigation.
NOTE D. Derivative Financial Instruments
Commodity hedges. The Company utilizes various swap and option contracts to
reduce the effect of adverse commodity price fluctuations on future oil and gas
production.
Natural Gas. The Company employs a policy of hedging gas production based on the
index price upon which the gas is actually sold in order to mitigate the basis
risk between NYMEX prices and actual index prices. The following table sets
forth the Company's outstanding gas swap contracts as of October 15, 1996.
Prices included herein represent the Company's weighted average index price per
MMBtu and, as an additional point of reference, the weighted average price for
the portion of the Company's gas which is hedged based on NYMEX.
9
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First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -------
Gas production:
1996 - Swap Contracts
Volume (Bcf) - - - 8.7 8.7
Index price per MMBtu $ - $ - $ - $ 2.05 $ 2.05
NYMEX price per MMBtu $ - $ - $ - $ 2.29 $ 2.29
1997 - Swap Contracts
Volume (Bcf) 8.5 6.0 2.9 2.6 20.0
Index price per MMBtu $ 2.04 $ 2.01 $ 1.89 $ 1.86 $ 1.98
NYMEX price per MMBtu $ 2.29 $ 2.27 $ 2.15 $ 2.03 $ 2.23
1998 - Swap Contracts
Volume (Bcf) 2.5 1.8 1.4 1.4 7.1
Index price per MMBtu $ 1.86 $ 1.86 $ 1.86 $ 1.86 $ 1.86
NYMEX price per MMBtu $ 2.03 $ 2.03 $ 2.03 $ 2.03 $ 2.03
1999 - Swap Contracts
Volume (Bcf) 1.4 .4 - - 1.8
Index price per MMBtu $ 1.86 $ 1.86 $ - $ - $ 1.86
NYMEX price per MMBtu $ 2.03 $ 2.03 $ - $ - $ 2.03
The Company reports average gas prices per Mcf including the effects of Btu
content, gathering and transportation costs, gas processing and shrinkage and
the net effect of the gas hedges. The Company reported an average gas price of
$2.12 per Mcf for the nine months ended September 30, 1996. The Company's
average realized price for physical gas sales (excluding hedge results) for the
same period was $2.19 per Mcf. The comparable average NYMEX prompt month closing
for the first nine months of 1996 was $2.33 per Mcf.
Crude Oil. All material purchase contracts governing the Company's oil
production are tied directly or indirectly to NYMEX prices. The following table
sets forth the Company's outstanding oil swap and option contracts as of October
15, 1996.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------------ ------------
Oil production:
1996 - Swap Contracts
Volume (MMBbl) - - - 1.6 1.6
Price per Bbl $ - $ - $ - $ 20.58 $ 20.58
1996 - Collar Options
Volume (MMBbl) - - - .6 .6
Price per Bbl $ - $ - $ - $17.00-19.80 $17.00-19.80
1997 - Swap Contracts
Volume (MMBbl) 1.9 1.5 1.2 .7 5.3
Price per Bbl $ 20.05 $ 19.56 $ 19.28 $ 18.56 $ 19.53
1998 - Swap Contracts
Volume (MMBbl) .2 .2 .3 .2 .9
Price per Bbl $ 18.53 $ 18.53 $ 18.53 $ 18.53 $ 18.53
10
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The Company reports average oil prices per Bbl including the effects of oil
quality, gathering and transportation costs and the net effect of the oil
hedges. The Company reported an average oil price of $19.62 per Bbl for the nine
months ended September 30, 1996. The Company's average realized price for
physical oil sales (excluding hedge results) for the same period was $20.40 per
Bbl. The comparable average NYMEX prompt month closing for the first nine months
of 1996 was $21.18 per Bbl.
Interest rate swap agreements. During the second quarter of 1996, the Company
entered into a series of interest rate swap agreements for an aggregate amount
of $150 million with four counterparties. These agreements, which have a term of
three years, effectively convert a portion of the Company's fixed-rate
borrowings into floating-rate obligations. The weighted average fixed rate being
received by the Company over the term of these agreements is 6.62% while the
weighted average variable rate being paid by the Company for the first six month
period is 5.64%. The variable rate will be redetermined approximately every six
months based upon the London interbank offered rate at that point in time. The
accompanying Consolidated Statements of Operations for the three and nine months
ended September 30, 1996 include a reduction in interest expense of $350
thousand and $461 thousand, respectively, to account for the settlement of these
interest rate swap agreements.
NOTE E. Gas Marketing
Effective January 1, 1996, the Company, along with Apache Corporation and Oryx
Energy Company, formed Producers Energy Marketing, LLC ("ProEnergy"), a natural
gas marketing company organized to create a direct link between gas producers
and purchasers. The venture is structured to flow through the benefits arising
out of the expanded services and the economies of scale from the aggregation of
substantial volumes of gas. The Company is obligated to sell to ProEnergy all
gas production (subject to certain exclusions relative to immaterial volumes)
for a period of five years that is owned or controlled by the Company, or any
affiliate, in North America (onshore and offshore), which is not subject to a
binding and enforceable gas sales contract in effect on July 1, 1996. The
Company currently owns approximately 9% of ProEnergy which markets approximately
1.5 MMBtu per day. As a result, as of January 1, 1996, the Company no longer has
any revenues or expenses associated with third party gas marketing activities.
NOTE F. Odd-Lot Repurchase Program
In October 1996, the Company announced an odd-lot repurchase program for
shareholders who, as of October 7, 1996, individually owned 99 or fewer shares
of Parker & Parsley Petroleum Company Common Stock. The Company will purchase
all shares submitted for sale under this program and the shares will be added to
the Company's shares held in treasury. Shareholders who participate will receive
a price per share equal to the average of the five highest closing market prices
as reported by the New York Stock Exchange from October 8, 1996 through November
22, 1996. A processing fee of seventy-five cents per share will be deducted from
the sales proceeds to defray the program's costs. This program is not available
to those shareholders who own 99 or fewer shares through their participation in
the Company's 401(k) plan. The program is scheduled to expire on November 22,
1996 unless extended by the Company.
11
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PARKER & PARSLEY PETROLEUM COMPANY
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations(1)
General
Operating Performance. The Company reported operating earnings of $15.3 million
($.43 per share) and $35.6 million ($1.00 per share) for the three and nine
months ended September 30, 1996, respectively. The operating earnings exclude
the nonoperating items and their related tax effects described below under
"Financial Performance". Average daily oil production increased 12% from 25,087
Bbls for the nine months ended September 30, 1995 to 28,028 Bbls for the nine
months ended September 30, 1996, and average daily gas production increased 12%
from 173,384 Mcf to 193,757 Mcf for the same period. These production volumes
have been adjusted to eliminate production from the Company's Australasian
assets which were sold in 1996 and production from nonstrategic domestic assets
which were sold in 1995 and 1996. In addition to increased production, the
Company's operating performance for the three and nine months ended September
30, 1996 was positively affected by the following items: (i) improved oil and
gas prices, (ii) decreases in production costs due to certain cost reduction
efforts initiated in 1995 and 1996, (iii) a decrease in general and
administrative expenses primarily resulting from the implementation during 1995
of measures intended to reduce overall general and administrative expenses, and
(iv) a decrease in interest expense due to a decrease in the Company's
outstanding long-term indebtedness.
Net cash provided by operating activities, before changes in operating assets
and liabilities, increased 41% to $59.3 million and 32% to $160.1 million during
the three and nine months ended September 30, 1996, respectively, compared to
$42 million and $121.5 million for the same periods in 1995. This increase was
primarily attributable to improved commodity prices during 1996 and the
improvements made in the overall cost structure of the Company during 1995 and
1996.
In addition, long-term debt has been reduced by $270.3 million from $586.5
million at December 31, 1995 to $316.2 million at September 30, 1996 due to the
application of proceeds from the disposition of the Company's Australasian and
certain domestic assets, as described below. Consequently, the Company's
long-term debt to total capitalization, each net of unrestricted cash, has been
reduced to 26% at September 30, 1996 from 49% at December 31, 1995.
Financial Performance. The Company reported net income of $21 million ($.58 per
share) for the quarter ended September 30, 1996 and $115.8 million ($3.24 per
share) for the nine months ended September 30, 1996, as compared to a net loss
of $6.9 million ($.20 per share) and $84.1 million ($2.39 per share),
respectively, for the comparable periods in 1995. Net income for the nine months
ended September 30, 1996 includes the following after-tax nonoperating items:
(i) a gain of $67 million related to the disposition of Australasian assets as
described below, (ii) a gain of $8.9 million related to the disposition of
certain nonstrategic domestic assets (see "Asset Dispositions" below), (iii)
income of $7.4 million related to the settlement of several litigation matters
involving the Hooker Plant and related assets (see "Legal Actions" below), (iv)
a loss of $2.8 million associated with certain tax attributes related to
12
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PARKER & PARSLEY PETROLEUM COMPANY
litigation contingencies that are no longer deductible, and (v) a net loss of
$300,000 from the operations of the Australasian assets and the nonstrategic
domestic assets prior to their sale in 1996.
Disposition of Australasian Assets. On March 28, 1996, the Company completed the
sale of certain wholly-owned Australian subsidiaries to Santos Ltd., and on June
20, 1996, the Company completed the sale of another wholly-owned subsidiary,
Bridge Oil Timor Sea, Inc., to Phillips Petroleum International Investment
Company. During the nine months ended September 30, 1996, the Company received
aggregate consideration of $237.5 million for these combined sales which
consisted of $186.6 million of proceeds for the equity of such entities, $21.8
million for reimbursement of certain intercompany cash advances, and the
assumption of such subsidiaries' net liabilities, exclusive of oil and gas
properties, of $29.1 million. The proceeds, after payment of certain costs and
expenses, were utilized to reduce the Company's outstanding bank indebtedness
and for general working capital purposes. The accompanying Consolidated
Statement of Operations for the nine months ended September 30, 1996 includes a
pre-tax gain of $83.2 million from the disposition of these subsidiaries (net of
transaction expenses of $8.7 million) and an income tax provision of $16.2
million. The income tax provision includes $6.4 million related to the write-off
of certain net operating loss carryforwards which, with the sale of the income
producing assets in the Australian tax jurisdiction, will not be utilized in the
future.
The assets sold to Santos Ltd. consisted primarily of properties located in the
Cooper Basin in Central Australia, the Surat Basin in Northeast Australia, the
Carnarvon Basin on the Northwest Shelf off the coast of Western Australia, the
Otway Basin off the coast of Southeast Australia and the Central Sumatra Basin
in Indonesia. At December 31, 1995, the Company's interests in these properties
contained 32.1 million BOE of proved reserves (consisting of 12.4 million Bbls
of oil and 118.3 Bcf of gas), representing $133.8 million of SEC 10 value. The
accompanying Consolidated Statement of Operations for the nine months ended
September 30, 1996 includes the results of operations from these properties
prior to their sale on March 28, 1996. During 1996, these properties produced
349,500 Bbls of oil and 1,927,000 Mcf of gas. The Company received an average
price of $19.55 per Bbl and $1.95 per Mcf from such production or $10.6 million
in total revenues. Total production costs associated with these properties were
$3.3 million ($4.92 per equivalent Bbl) and depletion expense was $3.9 million
($5.84 per equivalent Bbl).
The wholly-owned subsidiary sold to Phillips Petroleum International Investment
Company, Bridge Oil Timor Sea, Inc., has a wholly-owned subsidiary, Bridge Oil
Timor Sea Pty Ltd., which owns a 22.5% interest in the ZOCA 91-13 permit in the
offshore Bonaparte Basin in the Zone of Cooperation between Australia and
Indonesia.
Asset Dispositions. From time to time, the Company disposes of nonstrategic
assets in order to raise capital for other activities, reduce debt or eliminate
costs associated with nonstrategic assets. During the nine months ended
13
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
September 30, 1996, the Company sold certain domestic nonstrategic oil and gas
properties, gas plants and other related assets for aggregate proceeds of
approximately $51.2 million. The proceeds from the asset dispositions were
initially used to reduce the Company's outstanding bank indebtedness and
subsequently to provide funding for a portion of the Company's 1996 capital
expenditures, including purchases of oil and gas properties in the Company's
core areas.
Cost Reductions. As a result of the Company's emphasis on cost control efforts
and the disposition of certain domestic nonstrategic oil and gas properties
during 1995 and 1996, production costs per BOE declined 9% (from $4.79 to $4.37)
and 6% (from $4.94 to $4.63), respectively, for the three and nine months ended
September 30, 1996, as compared to the same periods in 1995. During 1995, the
Company initiated programs to study specific opportunities for significant
future reductions in its entire cost structure. These programs have continued in
1996, and the Company expects production costs per BOE to continue to decline as
specific programs for further cost reductions are implemented.
Commodity Prices. The Company utilizes various swap and option contracts to
reduce the effect of adverse commodity price fluctuations on future oil and gas
production.
Natural Gas. The Company employs a policy of hedging gas production based on the
index price upon which the gas is actually sold in order to mitigate the basis
risk between NYMEX prices and actual index prices. The following table sets
forth the Company's outstanding gas swap contracts as of October 15, 1996.
Prices included herein represent the Company's weighted average index price per
MMBtu and, as an additional point of reference, the weighted average price for
the portion of the Company's gas which is hedged based on NYMEX.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -------
Gas production:
1996 - Swap Contracts
Volume (Bcf) - - - 8.7 8.7
Index price per MMBtu $ - $ - $ - $ 2.05 $ 2.05
NYMEX price per MMBtu $ - $ - $ - $ 2.29 $ 2.29
1997 - Swap Contracts
Volume (Bcf) 8.5 6.0 2.9 2.6 20.0
Index price per MMBtu $ 2.04 $ 2.01 $ 1.89 $ 1.86 $ 1.98
NYMEX price per MMBtu $ 2.29 $ 2.27 $ 2.15 $ 2.03 $ 2.23
1998 - Swap Contracts
Volume (Bcf) 2.5 1.8 1.4 1.4 7.1
Index price per MMBtu $ 1.86 $ 1.86 $ 1.86 $ 1.86 $ 1.86
NYMEX price per MMBtu $ 2.03 $ 2.03 $ 2.03 $ 2.03 $ 2.03
1999 - Swap Contracts
Volume (Bcf) 1.4 .4 - - 1.8
Index price per MMBtu $ 1.86 $ 1.86 $ - $ - $ 1.86
NYMEX price per MMBtu $ 2.03 $ 2.03 $ - $ - $ 2.03
14
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
The Company reports average gas prices per Mcf including the effects of Btu
content, gathering and transportation costs, gas processing and shrinkage and
the net effect of the gas hedges. The Company reported an average gas price of
$2.12 per Mcf for the nine months ended September 30, 1996. The Company's
average realized price for physical gas sales (excluding hedge results) for the
same period was $2.19 per Mcf. The comparable average NYMEX prompt month closing
for the first nine months of 1996 was $2.33 per Mcf.
Crude Oil. All material purchase contracts governing the Company's oil
production are tied directly or indirectly to NYMEX prices. The following table
sets forth the Company's outstanding oil swap and option contracts as of October
15, 1996.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------------ ------------
Oil production:
1996 - Swap Contracts
Volume (MMBbl) - - - 1.6 1.6
Price per Bbl $ - $ - $ - $ 20.58 $ 20.58
1996 - Collar Options
Volume (MMBbl) - - - .6 .6
Price per Bbl $ - $ - $ - $17.00-19.80 $17.00-19.80
1997 - Swap Contracts
Volume (MMBbl) 1.9 1.5 1.2 .7 5.3
Price per Bbl $ 20.05 $ 19.56 $ 19.28 $ 18.56 $ 19.53
1998 - Swap Contracts
Volume (MMBbl) .2 .2 .3 .2 .9
Price per Bbl $ 18.53 $ 18.53 $ 18.53 $ 18.53 $ 18.53
The Company reports average oil prices per Bbl including the effects of oil
quality, gathering and transportation costs and the net effect of the oil
hedges. The Company reported an average oil price of $19.62 per Bbl for the nine
months ended September 30, 1996. The Company's average realized price for
physical oil sales (excluding hedge results) for the same period was $20.40 per
Bbl. The comparable average NYMEX prompt month closing for the first nine months
of 1996 was $21.18 per Bbl.
Legal Actions. On August 1, 1996, Dorchester Hugoton, Ltd. ("DHL"), Damson
Master Limited Partnership ("DMLP"), a wholly-owned subsidiary of the Company,
and their related entities entered into a settlement agreement resolving all
outstanding litigation between the parties that had arisen in connection with
DMLP's Hooker Plant, the Hooker Gathering System and certain other matters. The
accompanying Consolidated Statements of Operations for the three and nine months
ended September 30, 1996 include other income of $11.4 million ($7.0 million of
which was received in cash) associated with the settlement of these litigation
15
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
matters. Additionally, the Company will receive an annual formula-based
production payment with the first annual payment to begin in February 1997 and
to continue thereafter annually through February 2026. The Company estimates
the total value of the production payments to be at least $5.0 million, although
such payments are dependent on future gas prices and related transportation
costs. The production payments will be recognized as other income over the term
of the production payment contract.
The agreement further provides confirmation of the Company's ownership in a high
pressure gas pipeline system and three solar compressors which form an integral
part of the value of the Company's Hooker Gas Plant. The Company is to receive
DHL's 32% working interest in 14 wells located in Kansas and operated by
Anadarko Petroleum in exchange for Parker & Parsley's 20% working interest in 18
wells, also in Kansas, operated by DHL. DHL will receive ownership of the low
pressure gas gathering system which presently services its own Oklahoma Hugoton
wells and confirmation of its right to process the gas from those same wells.
All pending litigation and appeals between the parties are to be vacated,
including the $6.5 million judgment previously entered against the Company by
the District Court of Texas County, Oklahoma. Other than DHL's continuing
obligation to Parker & Parsley for the production payment through 2026, the
settlement severs all business ties between the companies.
Odd-Lot Repurchase Program. In October 1996, the Company announced an odd-lot
repurchase program for shareholders who, as of October 7, 1996, individually
owned 99 or fewer shares of Parker & Parsley Petroleum Company Common Stock. The
Company will purchase all shares submitted for sale under this program and the
shares will be added to the Company's shares held in treasury. Shareholders who
participate will receive a price per share equal to the average of the five
highest closing market prices as reported by the New York Stock Exchange from
October 8, 1996 through November 22, 1996. A processing fee of seventy-five
cents per share will be deducted from the sales proceeds to defray the program's
costs. This program is not available to those shareholders who own 99 or fewer
shares through their participation in the Company's 401(k) plan. The program is
scheduled to expire on November 22, 1996 unless extended by the Company.
16
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Results of Operations
Oil and Gas Production.
Three months ended Nine months ended
September 30, September 30,
-------------------- ----------------------
1996 1995 1996 1995
-------- -------- --------- ---------
(in thousands, except per unit amounts)
Revenues:
Oil and gas $ 91,313 $ 88,261 $ 283,327 $ 281,221
Gain (loss) on disposition
of oil and gas properties (a) 186 (2,144) 7,939 19,171
------- ------- -------- --------
91,499 86,117 291,266 300,392
------- ------- -------- --------
Costs and expenses:
Oil and gas production (24,829) (31,671) (82,233) (101,807)
Depletion (24,284) (35,705) (79,057) (114,253)
Impairment of oil and gas
properties - - - (101,268)
Exploration and abandonments (1,810) (3,661) (6,396) (10,902)
Geological and geophysical (1,600) (2,311) (6,451) (8,233)
------- ------- -------- --------
(52,523) (73,348) (174,137) (336,463)
------- ------- -------- --------
Operating profit (loss)
(excluding general and
administrative expenses
and income taxes) $ 38,976 $ 12,769 $ 117,129 $ (36,071)
======= ======= ======== ========
- - ----------
(a) The 1996 amount does not include the gain related to the disposition of
Australasian assets.
Worldwide:
Production:
Oil (MBbls) 2,577 3,066 8,297 9,778
Gas (MMcf) 18,630 21,291 56,825 65,028
Total (MBOE) 5,682 6,614 17,768 20,616
Average daily production:
Oil (Bbls) 28,008 33,323 30,282 35,818
Gas (Mcf) 202,497 231,419 207,392 238,197
Average oil price (per Bbl) $ 20.34 $ 16.75 $ 19.62 $ 16.91
Average gas price (per Mcf) 2.09 1.73 2.12 1.78
Costs:
Production costs (per BOE) $ 4.37 $ 4.79 $ 4.63 $ 4.94
Depletion (per BOE) 4.27 5.40 4.45 5.54
Domestic:
Production:
Oil (MBbls) 2,571 2,654 7,918 8,592
Gas (MMcf) 18,630 18,757 54,898 58,437
Total (MBOE) 5,676 5,781 17,068 18,332
Average daily production:
Oil (Bbls) 27,948 28,852 28,898 31,474
Gas (Mcf) 202,497 203,877 200,359 214,056
Average oil price (per Bbl) $ 20.32 $ 16.49 $ 19.63 $ 16.65
Average gas price (per Mcf) 2.09 1.72 2.13 1.77
Costs:
Production costs (per BOE) $ 4.37 $ 4.96 $ 4.62 $ 5.04
Depletion (per BOE) 4.28 5.12 4.40 5.36
17
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Oil and Gas Revenues. Revenues from oil and gas operations totaled $91.3 million
and $283.3 million for the three and nine months ended September 30, 1996,
respectively, as compared to $88.3 million and $281.2 million for the comparable
periods in 1995, representing increases of 3% and 1%, respectively. These
increases are primarily attributable to the higher average prices being received
for both oil and gas production, offset by the decreased production resulting
from the sale of the Company's Australasian assets and the 1995 and 1996 sales
of certain domestic assets. The average oil price received for the three and
nine months ended September 30, 1996 increased 21% and 16%, respectively, while
the average gas price received increased 21% and 19%, respectively, as compared
to the same periods in 1995.
Average daily oil production increased 12% from 25,087 Bbls for the nine months
ended September 30, 1995 to 28,028 Bbls for the nine months ended September 30,
1996 and average daily gas production increased 12% from 173,384 Mcf to 193,757
Mcf for the same period. These production volumes have been adjusted to
eliminate production from the Company's Australasian assets which were sold in
1996 and production from the nonstrategic domestic assets which were sold in
1995 and 1996.
Production Costs. Total production costs decreased 22% and 19% for the three and
nine months ended September 30, 1996, respectively, as compared to the three and
nine months ended September 30, 1995. Production costs per BOE also declined
during these periods by 9% (from $4.79 in 1995 to $4.37 in 1996) and 6% (from
$4.94 in 1995 to $4.63 in 1996), respectively. These decreases are due to the
sale of certain high operating cost domestic properties sold during 1995 and
1996 and a concentrated effort to evaluate and reduce all operating costs.
Depletion Expense. Depletion expense per BOE decreased 21% and 20% for the three
and nine months ended September 30, 1996, as compared to the same periods in
1995. These decreases are primarily the result of the following factors: (i) the
significant increase in oil and gas reserves during 1995 and 1996 resulting from
the Company's exploration and development drilling activities, including
revisions, and (ii) a reduction in the Company's net depletable basis from
charges taken in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
Exploration and Abandonments/Geological and Geophysical Costs. Exploration and
abandonments/geological and geophysical costs decreased significantly during the
three and nine months ended September 30, 1996 as compared to the same periods
in 1995. This decrease is largely the result of decreased activity, both in
exploratory drilling and geological and geophysical activity, resulting from the
sale in March 1996 of the Company's Australian subsidiaries (see "Disposition of
Australasian Assets" above and Note B of Notes to Consolidated Financial
Statements included in "Item 1. Financial Statements"), offset by increases in
geological and geophysical activity in the United States. The following table
sets forth the components of the 1996 and 1995 expense for the three and nine
months ended September 30:
18
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
(in thousands)
Exploratory dry holes:
United States $ 1,012 $ 1,203 $ 1,736 $ 1,952
Australia and other foreign 201 1,600 781 5,543
Geological and geophysical costs:
United States 1,413 673 4,712 1,413
Australia and other foreign 187 1,638 1,739 6,820
Leasehold abandonments and other 597 858 3,879 3,407
------ ------ ------ ------
$ 3,410 $ 5,972 $12,847 $19,135
====== ====== ====== ======
Approximately 15% of the Company's 1996 capital budget will be spent on
exploratory projects compared to 9.3% in 1995 and 10.5% in 1994, excluding
activity related to Australia. During the nine months ended September 30, 1996,
the Company drilled 22 domestic exploratory wells, 13 of which were successful
and three of which are in progress.
Natural Gas Processing. Natural gas processing revenues and costs decreased 41%
and 60%, respectively, for the nine months ended September 30, 1996 as compared
to the nine months ended September 30, 1995. These decreases are primarily due
to the sale of four gas plants during 1995. The average price per Bbl of NGL's
increased 17% during the nine months ended September 30, 1996 as compared to the
nine months ended September 30, 1995 (from $11.77 in 1995 to $13.77 in 1996),
and the average price per Mcf of gas residue increased 51% during the same
period (from $1.34 in 1995 to $2.02 in 1996). Average daily NGL production was
2,353 Bbls for the nine months ended September 30, 1996. The majority of these
volumes were processed through the Company's Spraberry natural gas processing
facilities. In addition, the accompanying Consolidated Statement of Operations
for the nine months ended September 30, 1996 includes expenses of $1.3 million
related to the abandonment of a processing facility and certain inventoried
processing equipment.
General and Administrative Expenses. General and administrative expense was $6.4
million and $19.4 million for the three and nine months ended September 30,
1996, respectively, as compared to $6.6 million and $30.8 million for the three
and nine months ended September 30, 1995. The nine months ended September 30,
1995 amount includes charges of approximately $9.9 million consisting primarily
of (i) $4.5 million of severance costs in the first quarter of 1995 associated
with staff reductions made in the Company's Midland, Texas and Sydney, Australia
offices which resulted from organizational changes effected in March 1995 and
(ii) $5.4 million in the second quarter of 1995 related to certain measures
implemented by the Company during the first quarter of 1995 to reduce overall
general and administrative expenses and the amortization of deferred
compensation awarded in 1993.
19
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Interest Expense. Interest expense for the three and nine months ended September
30, 1996 decreased to $10.1 million and $36.1 million, respectively, as compared
to $15.8 million and $50.8 million for the comparable periods in 1995. The
decrease is due to (i) a decrease of $266.7 million and $224.6 million in the
weighted average outstanding balance of the company's indebtedness for the three
and nine months ended September 30, 1996, respectively, as compared to the
comparable periods in 1995, resulting primarily from the application of proceeds
from the sale of the Company's Australasian assets and the 1995 and 1996 sales
of certain domestic assets, and (ii) a decrease in the weighted average interest
rate on the Company's indebtedness to 7.86% and 7.82% for the three and nine
months ended September 30, 1996, respectively, as compared to 8.09% and 8.07%
for the comparable periods in 1995.
During the second quarter of 1996, the Company entered into a series of interest
rate swap agreements for an aggregate amount of $150 million with four
counterparties. These agreements, which have a term of three years, effectively
convert a portion of the Company's fixed-rate borrowings into floating-rate
obligations. The weighted average fixed rate being received by the Company over
the term of these agreements is 6.62% while the weighted average variable rate
being paid by the Company for the first six month period is 5.64%. The variable
rate will be redetermined approximately every six months based upon the London
interbank offered rate at that point in time. The accompanying Consolidated
Statements of Operations for the three and nine months ended September 30, 1996
include a reduction in interest expense of $350 thousand and $461 thousand,
respectively, to account for the settlement of these interest rate swap
agreements.
At September 30, 1996, the Company's outstanding long-term indebtedness was
principally comprised of approximately $300 million of fixed rate senior note
obligations. These senior note obligations have a weighted average fixed
interest rate of 8.56%.
Income Taxes. The Company's income tax provision of $15.5 million and $47.2
million for the three and nine months ended September 30, 1996 and its income
tax benefit of $2.6 million and $39 million for the three and nine months ended
September 30, 1995 reflect the net provision and benefit, respectively,
resulting from the separate tax calculation prepared for each tax jurisdiction
in which the Company is subject to income taxes. For the nine months ended
September 30, 1996, the Company had an effective total tax rate of 29%,
including a provision of $16.2 million related to the disposition of the
Company's Australasian assets ($6.4 million of which relates to the write-off of
certain net operating loss carryforwards which, with the sale of the income
producing assets in the Australian tax jurisdiction, will not be utilized in the
future). See Note B of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements".
Liquidity and Capital Resources
Capital Commitments. The Company's primary needs for cash are for exploration,
development and acquisitions of oil and gas properties, repayment of principal
20
<PAGE>
and interest on outstanding indebtedness and working capital obligations.
Funding for the Company's exploration and development activities and its working
capital obligations is provided primarily by internally-generated cash flow. The
Company budgets its capital expenditures based on projected cash flows and
routinely adjusts the level of its capital expenditures in response to
anticipated changes in cash flows.
Cash expenditures during the nine months ended September 30, 1996 for additions
to oil and gas properties totaled $139.5 million. This amount includes $13.9
million for the acquisition of properties and $125.6 million for development and
exploratory drilling. Significant drilling expenditures included $62.7 million
in the Spraberry Field of the Permian Basin (including $27.3 million in the
Driver unit, $8.5 million in the Shackelford unit, $7.8 million in the North
Pembrook unit and $19.1 million in other portions of the Spraberry Field), $21.4
million in the onshore Gulf Coast region and $2.4 million in Argentina.
In total, the Company spudded 416 domestic wells during the nine months ended
September 30, 1996 including 357 wells in the Permian Basin, 28 wells in the
Gulf Coast region and 31 wells in other areas. The Company has targeted
approximately 185 wells to be drilled during the remainder of the year. This
drilling program should result in aggregate capital expenditures for 1996 of
approximately $210 million which should position the Company to achieve its
year-end daily production target of approximately 34,000 Bbls of oil and
approximately 220 MMcf of gas.
Additions to natural gas processing facilities during the nine months ended
September 30, 1996 represented costs associated with the Company's Spraberry
natural gas processing facilities.
Capital Resources. The Company's primary capital resources are net cash provided
by operating activities, proceeds from financing activities and proceeds from
sales of nonstrategic properties, and the Company expects that these resources
will be sufficient to fund its remaining capital commitments in 1996. Net cash
provided by operating activities, before changes in operating assets and
liabilities, increased 41% to $59.3 million during the third quarter of 1996,
compared to $42 million for the same period in 1995, and increased 32% to $160.1
million during the nine months ended September 30, 1996, compared to $121.5
million for the same period in 1995. This increase was primarily attributable to
improved commodity prices realized during the nine months ended September 30,
1996 and the improvements made in the overall cost structure of the Company
during 1995 and 1996.
During the nine months ended September 30, 1996, net cash received (excluding
the subsidiaries' cash on hand of $16.6 million) from the sale of the Australian
subsidiaries totaled $183.1 million. Such receipts were utilized to reduce the
Company's outstanding bank indebtedness and for general working capital
purposes. See Note B of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements." In addition, as mentioned above in "General -
Asset Dispositions," during the nine months ended September 30, 1996, the
Company also completed the sale of certain nonstrategic domestic properties for
proceeds of $51.2 million. The proceeds from the asset dispositions were
initially used to reduce the Company's outstanding bank indebtedness and
subsequently to provide funding for a portion of the Company's 1996 capital
expenditures, including purchases of oil and gas properties in the Company's
core areas.
21
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
At September 30, 1996, the Company's outstanding long-term indebtedness was
principally comprised of approximately $300 million of senior notes. In
addition, the Company has an available line of credit of $350 million with a
syndicate of banks on which no amounts were outstanding at September 30, 1996.
As the Company continues to pursue its growth strategy, it may utilize
alternative financing sources, including the issuance for cash of fixed rate
long-term public debt, convertible securities or preferred stock. The Company
may also issue securities in exchange for oil and gas properties, stock or other
interests in other oil and gas companies or related assets. Additional
securities may be of a class preferred to common stock with respect to such
matters as dividends and liquidation rights and may also have other rights and
preferences as determined by the Company's Board of Directors.
Liquidity. At September 30, 1996, the Company had $67.6 million of cash and cash
equivalents on hand, compared to $19.9 million at December 31, 1995. The
Company's ratio of current assets to current liabilities was 1.52 at September
30, 1996 and 1.28 at December 31, 1995.
- - ---------------
(1) The information in this document includes forward-looking statements that
are based on assumptions that in the future may prove not to have been
accurate. Those statements, and Parker & Parsley Petroleum Company's
business and prospects, are subject to a number of risks including the
volatility of oil and gas prices, environmental risks, operating hazards
and risks, risks associated with natural gas processing plants, risks
related to exploration and development drilling, uncertainties about
estimates of reserves, competition, government regulation, and the ability
of the Company to implement its business strategy. These and other risks
are described in the Company's 1995 Annual Report on Form 10-K and in other
reports that are available from the United States Securities and Exchange
Commission.
22
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to various legal proceedings, which are described in Note
C of Notes to Consolidated Financial Statements included in "Item 1. Financial
Statements." The Company is also party to other litigation incidental to its
business involving claims in oil and gas leases or interests, other claims or
damages in amounts not in excess of 10% of its current assets and other matters,
none of which the Company believes to be material.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
10.1 Amended and Restated Credit Facility Agreement, dated as of July 31,
1996, between Parker & Parsley Petroleum Company as Borrower and
NationsBank of Texas, N.A., as Administrative Agent, and CIBC Inc. as
Documentation Agent, and Bank of America National Trust and Savings
Association, The Chase Manhattan Bank, First Union National Bank of
North Carolina, Morgan Guaranty Trust Company of New York and Wells
Fargo Bank, N.A., as Co-Agents. (In accordance with Rule 202 of
Regulation S-T, this Exhibit 10-1 to the September 30, 1996 Form 10-Q
is being filed in paper pursuant to a continuing hardship exemption.)
Reports on Form 8-K
(1) None
23
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
S I G N A T U R E S
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 thereto duly authorized.
PARKER & PARSLEY PETROLEUM COMPANY
Date: November 12, 1996 By: /s/ Steven L. Beal
-------------------------------------
Steven L. Beal, Senior Vice President
and Chief Financial Officer
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000355690
<NAME> P&P996
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 69,408
<SECURITIES> 0
<RECEIVABLES> 59,432
<ALLOWANCES> 0
<INVENTORY> 4,451
<CURRENT-ASSETS> 139,855
<PP&E> 1,447,953
<DEPRECIATION> 424,123
<TOTAL-ASSETS> 1,178,690
<CURRENT-LIABILITIES> 92,285
<BONDS> 0
0
0
<COMMON> 366
<OTHER-SE> 523,915
<TOTAL-LIABILITY-AND-EQUITY> 1,178,690
<SALES> 300,137
<TOTAL-REVENUES> 412,020
<CGS> 91,356
<TOTAL-COSTS> 248,989
<OTHER-EXPENSES> 121,528
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,105
<INCOME-PRETAX> 163,031
<INCOME-TAX> 47,200
<INCOME-CONTINUING> 115,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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