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 June 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 August 1, 1996.... 35,601,025
Page 1 of 25 pages.
There are no exhibits.
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PARKER & PARSLEY PETROLEUM COMPANY
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995 ....................................... 3
Consolidated Statements of Operations for the three and six
months ended June 30, 1996 and 1995......................... 5
Consolidated Statement of Stockholders' Equity for the six
months ended June 30, 1996.................................. 6
Consolidated Statements of Cash Flows for the three and six
months ended June 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......................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 23
Item 4. Submission of Matters to a Vote of Security Holders........... 23
Item 6. Exhibits and Reports on Form 8-K.............................. 24
Signatures.................................................... 25
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 60,066 $ 19,940
Restricted cash 1,862 15,572
Accounts receivable:
Trade, net 33,845 49,257
Affiliates 1,247 2,369
Oil and gas sales 32,216 37,358
Assets held for resale 178 3,677
Inventories 5,818 9,880
Deferred income taxes 3,900 1,600
Other current assets 2,424 2,757
---------- ----------
Total current assets 141,556 142,410
---------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful
efforts method of accounting:
Proved properties 1,294,880 1,450,290
Unproved properties 1,020 14,574
Natural gas processing facilities 58,206 63,395
Accumulated depletion, depreciation and
amortization (398,692) (406,513)
---------- ----------
955,414 1,121,746
---------- ----------
Restricted investments - 5,345
Other property and equipment, net 26,523 31,755
Other assets, net 15,119 17,973
---------- ----------
$ 1,138,612 $ 1,319,229
========== ==========
The financial information included as of June 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)
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,615 $ 2,608
Distributable litigation settlement - 13,633
Undistributed unit purchases 1,862 1,939
Accounts payable:
Trade 55,208 58,263
Affiliates 2,045 574
Domestic and foreign income taxes 97 2,875
Other current liabilities 23,661 31,017
----------- -----------
Total current liabilities 84,488 110,909
----------- -----------
Long-term debt, less current maturities 316,532 586,549
Other noncurrent liabilities 11,465 16,656
Deferred income taxes 32,900 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; 36,604,829 and 36,387,960 shares
issued at June 30, 1996 and December 31, 1995,
respectively 366 364
Additional paid-in capital 456,269 452,718
Treasury stock, at cost; 1,012,729 and 1,004,684
shares at June 30, 1996 and December 31, 1995,
respectively (7,026) (6,844)
Unearned compensation (1,807) (2,055)
Retained earnings (deficit) 56,605 (36,491)
Cumulative translation adjustment - 3,303
----------- -----------
Total stockholders' equity 504,407 410,995
Commitments and contingencies (Note C)
---------- ----------
$ 1,138,612 $ 1,319,229
========== ==========
The financial information included as of June 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 Six months ended
June 30, June 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Revenues:
Oil and gas $ 93,989 $ 98,419 $ 192,014 $ 192,960
Natural gas processing 5,685 10,005 11,104 19,429
Gas marketing - 24,508 - 51,200
Interest and other 1,256 2,087 2,423 3,608
Gain on disposition of assets 81,578 23,602 95,249 20,842
--------- --------- --------- ---------
182,508 158,621 300,790 288,039
--------- --------- --------- ---------
Costs and expenses:
Oil and gas production 26,910 35,383 57,404 70,136
Natural gas processing 2,837 7,365 6,035 14,570
Gas marketing - 24,248 - 50,548
Depletion, depreciation and
amortization 28,459 40,507 59,638 85,616
Impairment of oil and gas
properties - 101,268 - 101,268
Exploration and abandonments 5,775 6,591 10,761 13,163
General and administrative 6,630 11,679 12,990 24,231
Interest 11,370 17,391 26,052 34,958
Other 971 6,192 1,344 7,130
--------- --------- --------- ---------
82,952 250,624 174,224 401,620
--------- --------- --------- ---------
Income (loss) before income
taxes 99,556 (92,003) 126,566 (113,581)
Income tax benefit (provision) (19,400) 29,600 (31,700) 36,400
--------- --------- --------- ---------
Net income (loss) $ 80,156 $ (62,403) $ 94,866 $ (77,181)
========= ========= ========= =========
Net income (loss) per share:
Primary $ 2.24 $ (1.77) $ 2.66 $ (2.19)
========= ========= ========= =========
Fully Diluted $ 1.93 $ (1.77) $ 2.32 $ (2.19)
========= ========= ========= =========
Dividends declared per share $ - $ - $ .05 $ .05
========= ========= ========= =========
Weighted average shares
outstanding 35,803,093 35,235,011 35,699,560 35,174,227
========== ========== ========== ==========
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
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PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<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 192,611 2 2,557 - - - - 2,559
Tax benefits related to
stock options - - 400 - - - - 400
Purchase of treasury stock (8,045) - - (182) - - - (182)
Shares awarded 24,258 - 594 - (702) - - (108)
Amortization of unearned
compensation - - - - 950 - - 950
Net income - - - - - 94,866 - 94,866
Dividends ($.05 per share) - - - - - (1,770) - (1,770)
Currency translation
adjustment - - - - - - (3,303) (3,303)
----------- ----- --------- ------- -------- ------- --------- ----------
Balance at June 30, 1996 35,592,100 $ 366 $ 456,269 $ (7,026) $ (1,807) $ 56,605 $ - $ 504,407
=========== ===== ========= ======= ======== ======= ========= ==========
</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
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PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
-------------------- ------------------
1996 1995 1996 1995
--------- ---------- -------- ---------
Cash flows from operating activities:
Net income (loss) $ 80,156 $ (62,403) $ 94,866 $ (77,181)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depletion, depreciation and
amortization 28,459 40,507 59,638 85,616
Impairment of oil and gas properties - 101,268 - 101,268
Exploration and abandonments 4,339 5,782 8,247 11,452
Deferred income taxes 19,400 (29,800) 31,700 (36,600)
Gain on disposition of assets (81,578) (23,602) (95,249) (20,842)
Other noncash charges 1,417 13,219 1,677 15,830
-------- -------- -------- --------
52,193 44,971 100,879 79,543
Change in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable 10,730 6,122 19,378 13,341
Inventory (500) 533 (554) (195)
Other current assets (360) 470 154 1,151
Accounts payable 1,881 881 (3,012) (3,439)
Accrued income taxes and other current
liabilities (10,144) (872) 3,679 (865)
Other - (552) - (552)
-------- -------- -------- --------
Net cash provided by operating
activities 53,800 51,553 120,524 88,984
-------- -------- -------- --------
Cash flows from investing activities:
Payment for acquisitions, net of cash
acquired (18) (252) (77) (1,244)
Proceeds from disposition of wholly-owned
subsidiaries, net of cash disposed 70,456 - 178,737 -
Proceeds from disposition of assets 42,075 123,024 45,877 138,416
Additions to oil and gas properties (32,270) (52,532) (73,945) (90,362)
Additions to natural gas processing
facilities (1,031) (353) (1,873) (5,520)
Additions to other property and
equipment and other assets (310) (4,156) (1,097) (8,338)
-------- -------- -------- --------
Net cash provided by investing
activities 78,902 65,731 147,622 32,952
-------- -------- -------- --------
Cash flows from financing activities:
Borrowings under long-term debt 614 150,118 782 164,862
Principal payments on long-term debt (101,005) (275,020) (229,283) (282,012)
Payment of noncurrent liabilities (279) (188) (389) (442)
Issuance of common stock, net - (22) - (22)
Deferred loan fees/issuance costs (43) (3,406) (43) (3,406)
Dividends - - (1,770) (1,746)
Purchase of treasury stock (109) (58) (182) (134)
Exercise of long-term incentive plan
stock options 1,823 1,018 2,559 1,406
Distributable litigation settlement -
receipts 356 - 5,290 -
Distributable litigation settlement -
payments (18,876) - (18,876) -
Other - 60 (108) 169
-------- -------- -------- --------
Net cash used in financing activities (117,519) (127,498) (242,020) (121,325)
-------- -------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents - (94) 290 (619)
Net increase (decrease) in cash, cash
equivalents and restricted cash 15,183 (10,214) 26,126 611
Cash, cash equivalents and restricted
cash, beginning of period 46,745 50,202 35,512 39,902
-------- -------- -------- --------
Cash, cash equivalents and restricted
cash, end of period $ 61,928 $ 39,894 $ 61,928 $ 39,894
======== ======== ======== ========
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
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PARKER & PARSLEY PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30,
1996 and for the three and six months ended June 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 six
months ended June 30, 1996, the Company received aggregate consideration of
$239.5 million for these combined sales which consisted of $188.6 million of
proceeds for the equity of such entities ($6.6 million of which is escrowed
pending final purchase adjustments), $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 six months ended June
30, 1996 includes a pre-tax gain of $85.2 million from the disposition of these
subsidiaries (net of transaction expenses of approximately $8.5 million) and an
income tax provision of $16.9 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
8
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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 six
months ended June 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
Severance agreements. On January 1, 1996, the Company entered into
severance agreements with its officers to replace their employment agreements
that expired at the end of 1995. Salaries and bonuses for the Company's officers
are set by the Compensation Committee of the Company's Board of Directors (the
"Committee") independent of this severance agreement, and the Committee can
grant increases or reductions to base salary at its discretion. The current
annual salaries for the officers covered under such severance agreements total
approximately $2.7 million.
Either the Company or the officer may terminate the officer's employment
under the severance agreement at any time. The Company must pay the officer an
amount equal to one year's base salary if employment is terminated because of
death, disability, or normal retirement. The Company must pay the officer an
amount equal to one year's base salary and continue health insurance for the
officer and his immediate family for one year if the Company terminates
employment without cause or if the officer terminates employment with good
reason, which occurs when reductions in the officer's base annual salary exceed
specified limits or when the officer's responsibilities have been significantly
reduced. If within one year after a change of control of the Company, the
Company terminates the officer without cause or if the officer terminates
employment with good reason, the Company must pay the officer an amount equal to
2.99 times the sum of the officer's base salary plus target bonus for the year
and continue health insurance for the officer and his immediate family for one
year. If the officer terminates employment with the Company without good reason
between six months and one year after a change in control, or at any time within
one year after a change in control if the officer is required to move, then the
Company must pay the officer one year's base salary and continue health
insurance for the officer and his immediate family for one year. Officers are
also entitled to additional payments for certain tax liabilities that may apply
to severance payments following a change of control.
Indemnifications. The Company has indemnified its directors and certain
of its officers, employees and agents with respect to claims and damages arising
from acts or omissions taken in such capacity, as well as with respect to
certain litigation.
9
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Legal actions. The following is a brief description of certain litigation
to which the Company is subject. 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.
Damson Master Limited Partnership ("DMLP"), a wholly-owned subsidiary of
the Company, owns a natural gas processing plant located in Texas County,
Oklahoma known as the "Hooker Plant" and the gas gathering system associated
therewith (the "Hooker Gathering System"). Prior to 1993, Dorchester Hugoton,
Ltd. ("DHL") and DMLP were parties to a gas processing agreement (the "Hooker
Processing Agreement") pursuant to which DMLP gathered and processed the gas
produced from certain oil and gas properties owned by DHL (the "Texas County
Properties"). Under the terms of the Hooker Processing Agreement, DMLP retained
the extracted natural gas liquids and returned the residue gas to DHL, which
sold the residue gas to Natural Gas Pipeline Co. of America ("NGPL") under a gas
purchase contract that had been entered into in 1946 (the "NGPL Contract"). As
compensation for the amount of Btu content extracted from the natural gas stream
during process ing, DMLP was obligated to make a "keep-whole payment" to DHL,
the amount of which was related to the price that DHL received for residue gas
under the NGPL Contract. DMLP, by that certain Assignment of Undivided Interests
in Oil and Gas Leaseholds and Bill of Sale dated June 20, 1986 (the "1986
Assignment"), conveyed to DHL its remaining 20% interest in the Texas County
Properties and reserved a production payment and the right to a 5% participation
interest in certain future wells. Several related litigation matters involving
DMLP and DHL have arisen in connection with the Hooker Plant, the Hooker
Gathering System, the terms of the 1986 Assignment and the Hooker Processing
Agreement. On August 1, 1996, DHL, DMLP and their related entities entered into
a settlement agreement resolving all outstanding litigation between the parties.
The settlement provides for a $7.0 million cash payment to the Company, together
with annual formula based production payments beginning in February 1997 and
continuing through February 2026. The Company estimates that the 1997 payment
will be at least $800 thousand, and although dependent on future gas prices and
related transportation costs, the Company estimates the total value of the
production payments to be at least $5.0 million.
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
10
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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.
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 the litigation. The Company is party to
other legal actions arising in the ordinary course of its business, none of
which management believes will result in a material adverse effect on the
Company's consolidated financial position or results of operations.
NOTE D. Derivative Financial Instruments
Commodity hedges. The Company utilizes various swap and option contracts
to hedge the effect of price changes on future oil and gas production. The
following table sets forth the future volumes hedged by year and the weighted
average price to be received based upon the fixed price of the individual swap
and option contracts outstanding at June 30, 1996:
Gas Oil
Volume Volume Price
Year (Bcf) (MMBbls) per Mcf/Bbl
---- ------ -------- -----------
Gas production:
1996 - Swap Contracts..................... 15.5 - $ 2.04
1997 - Swap Contracts..................... 14.6 - $ 1.99
1998 - Swap Contracts..................... 1.8 - $ 1.86
Oil production:
1996 - Collar Option and Swap Contracts... - 1.9 $17.81-19.41
1997 - Swap Contracts..................... - 1.1 $18.04
During July and August 1996, the Company entered into additional hedge
positions for 1996, 1997 and 1998 gas production and 1997 oil production. The
additional gas swap contracts have provided the Company with hedge positions for
an additional 1.5 Bcf of gas at a weighted average price of $2.18 for the
six-month period ending December 31, 1996, 5.5 Bcf of gas at a weighted average
price of $1.98 for the twelve-month period ending December 31, 1997 and 1.6 Bcf
of gas at a weighted average price of $1.85 for the four-month period ending
April 30, 1998. The additional oil swap contracts have provided the Company with
hedge positions for an additional 1.1 million Bbls of oil at a price of $18.56
for the twelve-month period ending December 31, 1997.
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
11
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months based upon the London interbank offered rate at that point in time. The
interest rate differential to be received or paid is recognized over the term of
the agreements as an adjustment to interest expense.
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) 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. As a result, as of
January 1, 1996, the Company no longer has any revenues or expenses associated
with third party gas marketing activities.
12
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PARKER & PARSLEY PETROLEUM COMPANY
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations(1)
General
Financial Performance. The Company reported net income of $80.2 million ($2.24
per share) for the quarter ended June 30, 1996 and $94.9 million ($2.66 per
share) for the six months ended June 30, 1996, as compared to a net loss of
$62.4 million ($1.77 per share) and $77.2 million ($2.19 per share),
respectively, for the comparable periods in 1995. During the quarter ended June
30, 1996, the Company reported net income from continuing operations, excluding
the after tax net gain on disposition of assets of $68.4 million, of $11.8
million, or $.33 per share. During the six months ended June 30, 1996, the
Company reported net income from continuing operations, excluding the after tax
net gain on disposition of assets of $74.8 million, of $20.1 million, or $.56
per share. The Company's financial performance for the three and six months
ended June 30, 1996 was also positively affected by the following items: (i)
improved oil and gas prices, (ii) decreases in production costs due to the sale
of certain high operating cost properties in 1995 and certain other cost
reduction efforts initiated in 1995, (iii) decreases in depletion, depreciation,
and amortization expenses as a result of a significant increase in the Company's
oil and gas reserves during 1995 and a reduction in the Company's net depletable
basis from charges taken in accordance with the Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," (iv) 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 (v) 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 16% to $52.2 million and 27% to $100.9 million during
the three and six months ended June 30, 1996, respectively, compared to $45
million and $79.5 million for the same periods in 1995. This increase was
primarily attributable to the improvements made in the overall cost structure of
the Company during 1995 and improved commodity prices realized during the first
half of 1996.
In addition, long-term debt has been reduced by $270 million from $586.5 million
at December 31, 1995 to $316.5 million at June 30, 1996 due to the application
of proceeds from the disposition of Australasian assets and other asset
dispositions described below. Consequently, the Company's long-term debt to
total capitalization, net of cash, has been reduced to 27% at June 30, 1996 from
47% at December 31, 1995.
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
13
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PARKER & PARSLEY PETROLEUM COMPANY
Company. During the six months ended June 30, 1996, the Company received
aggregate consideration of $239.5 million from these combined sales which
consisted of $188.6 million of proceeds for the equity of such entities ($6.6
million of which is escrowed pending final purchase adjustments), $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 six months ended June 30, 1996 includes a pre-tax gain of $85.2 million
from the disposition of these subsidiaries (net of transaction expenses of
approximately $8.5 million) and an income tax provision of $16.9 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 six months ended June
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 six months ended June 30,
1996, the Company sold certain domestic nonstrategic oil and gas properties, gas
plants and other related assets for aggregate proceeds of approximately $45.9
million. The proceeds from the asset dispositions were initially used to reduce
the Company's outstanding bank indebtedness and subsequently will be used 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
14
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
during 1995 and 1996, production costs per BOE declined 6% (from $5.06 to $4.74)
and 5% (from $5.01 to $4.75), respectively, for the three and six months ended
June 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 decline as the benefits of
continuing to sell high cost properties are realized and as specific programs
for further cost reductions are implemented.
During 1995, the Company performed a comprehensive internal evaluation of its
general and administrative cost structure and implemented measures intended to
reduce overall general and administrative expense. These measures primarily
involved organizational realignments, streamlining of management
responsibilities and implementation of Company-wide cost control policies. The
benefits of these measures continue to be realized during 1996 as evidenced by
the reduction of general and administrative expenses from $14.3 million for the
six months ended June 30, 1995 (excluding $9.9 million in nonrecurring
reorganization charges) to $13 million for the six months ended June 30, 1996.
Commodity Prices. The Company attempts to reduce its exposure to adverse
commodity price fluctuations through various hedging techniques. At June 30,
1996, the Company had entered into swap agreements fixing the price of 15.5 Bcf
of remaining 1996 gas production, 14.6 Bcf of 1997 gas production and 1.8 Bcf of
1998 gas production at weighted average prices of $2.04, $1.99 and $1.86,
respectively, per Mcf. In addition, at June 30, 1996, the Company had fixed the
price of 1.9 million Bbls of remaining 1996 oil production in the weighted
average price range of $17.81 to $19.41 per Bbl and 1.1 million Bbls of 1997 oil
production at a weighted average price of $18.04 per Bbl through various collar
option and swap contracts. During July and August 1996, the Company entered into
additional hedge positions for 1996, 1997 and 1998 gas production and 1997 oil
production. The additional gas swap contracts have provided the Company with
hedge positions for an additional 1.5 Bcf of gas at a weighted average price of
$2.18 for the six-month period ending December 31, 1996, 5.5 Bcf of gas at a
weighted average price of $1.98 for the twelve-month period ending December 31,
1997 and 1.6 Bcf of gas at a weighted average price of $1.85 for the four-month
period ending April 30, 1998. The additional oil swap contracts have provided
the Company with hedge positions for an additional 1.1 million Bbls of oil at a
price of $18.56 for the twelve-month period ending December 31, 1997.
Legal Actions. Damson Master Limited Partnership ("DMLP"), a wholly-owned
subsidiary of the Company, owns a natural gas processing plant located in Texas
County, Oklahoma known as the "Hooker Plant" and the gas gathering system
associated therewith (the "Hooker Gathering System"). Prior to 1993, Dorchester
Hugoton, Ltd. ("DHL") and DMLP were parties to a gas processing agreement (the
"Hooker Processing Agreement") pursuant to which DMLP gathered and processed the
gas produced from certain oil and gas properties owned by DHL (the "Texas County
Properties"). Under the terms of the Hooker Processing Agreement, DMLP retained
the extracted natural gas liquids and returned the residue gas to DHL, which
15
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
sold the residue gas to Natural Gas Pipeline Co. of America ("NGPL") under a gas
purchase contract that had been entered into in 1946 (the "NGPL Contract"). As
compensation for the amount of Btu content extracted from the natural gas stream
during processing, DMLP was obligated to make a "keep-whole payment" to DHL, the
amount of which was related to the price that DHL received for residue gas under
the NGPL Contract. DMLP, by that certain Assignment of Undivided Interests in
Oil and Gas Leaseholds and Bill of Sale dated June 20, 1986 (the "1986
Assignment"), conveyed to DHL its remaining 20% interest in the Texas County
Properties and reserved a production payment and the right to a 5% participation
interest in certain future wells. Several related litigation matters involving
DMLP and DHL have arisen in connection with the Hooker Plant, the Hooker
Gathering System, the terms of the 1986 Assignment and the Hooker Processing
Agreement. On August 1, 1996, DHL, DMLP and their related entities entered into
a settlement agreement resolving all outstanding litigation between the parties.
The settlement provides for a $7.0 million cash payment to the Company, together
with annual formula based production payments beginning in February 1997 and
continuing through February 2026. The Company estimates that the 1997 payment
will be at least $800 thousand, and although dependent on future gas prices and
related transportation costs, the Company estimates the total value of the
production payments to be at least $5.0 million.
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.
16
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Results of Operations
Oil and Gas Production.
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(in thousands, except per unit amounts)
Revenues:
Oil and gas $ 93,989 $ 98,419 $ 192,014 $ 192,960
Gain on disposition of oil and gas
properties (a) 7,290 24,169 7,753 21,315
-------- -------- -------- --------
101,279 122,588 199,767 214,275
-------- -------- -------- --------
Costs and expenses:
Oil and gas production (26,910) (35,383) (57,404) (70,136)
Depletion (26,177) (36,887) (54,773) (78,549)
Impairment of oil and gas properties - (101,268) - (101,268)
Exploration and abandonments (3,062) (3,791) (4,586) (7,241)
Geological and geophysical (2,025) (2,800) (4,851) (5,922)
-------- -------- -------- --------
(58,174) (180,129) (121,614) (263,116)
-------- -------- -------- --------
Operating profit (loss) (excluding
general and administrative
expenses and income taxes) $ 43,105 $ (57,541) $ 78,153 $ (48,841)
======== ======== ======== ========
- - ---------------
(a) The 1996 amount does not include the gain related to the disposition of
Australasian assets.
Worldwide:
Production:
Oil (MBbls) 2,604 3,370 5,721 6,713
Gas (MMcf) 18,460 21,753 38,196 43,798
Total (MBOE) 5,681 6,996 12,087 14,013
Average daily production:
Oil (Bbls) 28,621 37,030 31,432 37,086
Gas (Mcf) 202,862 239,046 209,866 241,979
Average oil price (per Bbl) $ 20.41 $ 17.33 $ 19.30 $ 16.98
Average gas price (per Mcf) 2.21 1.84 2.14 1.80
Costs:
Production costs (per BOE) $ 4.74 $ 5.06 $ 4.75 $ 5.01
Depletion (per BOE) 4.61 5.27 4.53 5.61
Domestic:
Production:
Oil (MBbls) 2,580 2,972 5,347 5,938
Gas (MMcf) 18,460 19,669 36,269 39,742
Total (MBOE) 5,657 6,250 11,392 12,562
Average daily production:
Oil (Bbls) 28,353 32,653 29,378 32,807
Gas (Mcf) 202,862 216,139 199,278 219,567
Average oil price (per Bbl) $ 20.44 $ 17.07 $ 19.29 $ 16.72
Average gas price (per Mcf) 2.21 1.84 2.15 1.80
Costs:
Production costs (per BOE) $ 4.74 $ 5.16 $ 4.74 $ 5.08
Depletion (per BOE) 4.62 5.09 4.46 5.46
17
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Oil and Gas Revenues. Revenues from oil and gas operations totaled $94 million
and $192 million for the three and six months ended June 30, 1996, respectively,
as compared to $98.4 million and $193 million for the comparable periods in
1995, representing decreases of 5% and 1%, respectively. These decreases are
primarily attributable to decreased production resulting from the sale of the
Australasian assets and the 1995 and 1996 domestic asset divestitures, offset by
an increase in the average price received for both oil and gas production. The
average oil price received for the three and six months ended June 30, 1996
increased 18% and 14%, respectively, while the average gas price received
increased 20% and 19%, respectively, as compared to the same periods in 1995.
Excluding production from the Australasian assets which were sold in 1996 and
production from the nonstrategic domestic assets which were sold in 1995 and
1996, average daily oil production increased 14% from 24,527 Bbls for the six
months ended June 30, 1995 to 28,075 Bbls for the six months ended June 30, 1996
and average daily gas production increased 11% from 170,192 Mcf to 189,580 Mcf
for the same period.
Production Costs. Total production costs decreased 24% and 18% for the three and
six months ended June 30, 1996, respectively, as compared to the three and six
months ended June 30, 1995. Production costs per BOE also declined during these
periods by 6% (from $5.06 in 1995 to $4.74 in 1996) and 5% (from $5.01 in 1995
to $4.75 in 1996) for the three and six months ended June 30, 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 13% and 19% for the three
and six months ended June 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 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
six months ended June 30, 1996 as compared to the same 1995 period (from $13.2
million in 1995 to $9.4 million in 1996). This decrease is largely the result of
decreased activity, both in exploratory drilling and geological and geophysical
activity, undertaken by the Company's Australian subsidiaries which were sold in
March 1996 (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 six months ended June 30:
18
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Six months ended
June 30,
1996 1995
-------- --------
(in thousands)
Exploratory dry holes:
United States $ 724 $ 749
Australia and other foreign 580 3,943
Geological and geophysical costs:
United States 3,299 740
Australia and other foreign 1,552 5,182
Leasehold abandonments and other 3,282 2,549
------- -------
$ 9,437 $ 13,163
======= =======
Approximately 10% 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 six months ended June 30, 1996, the
Company drilled 11 exploratory wells, seven of which were successful. During the
second half of 1996, the Company anticipates drilling 24 additional exploratory
wells, the majority of which will be in the onshore Gulf Coast area.
Natural Gas Processing. Natural gas processing revenues and costs decreased 43%
and 59%, respectively, for the six months ended June 30, 1996 as compared to the
six months ended June 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 10%
during the six months ended June 30, 1996 as compared to the six months ended
June 30, 1995 (from $12.10 in 1995 to $13.25 in 1996), and the average price per
Mcf of gas residue increased 47% during the same period (from $1.37 in 1995 to
$2.01 in 1996).
In addition, the accompanying Consolidated Statement of Operations for the six
months ended June 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 $6.6
million and $13 million for the three and six months ended June 30, 1996,
respectively, as compared to $11.7 million and $24.2 million for the three and
six months ended June 30, 1995. The six months ended June 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. In addition, the 1996 amount reflects further reductions resulting from
the continued implementation of measures intended to reduce overall general and
administrative expenses. These measures resulted from the Company's
19
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
comprehensive internal evaluation of its cost control structure performed during
1995 and primarily consisted of organizational realignments, streamlining of
management responsibilities and implementation of company-wide cost control
policies.
Interest Expense. Interest expense for the three and six months ended June 30,
1996 decreased to $11.4 million and $26.1 million, respectively, as compared to
$17.4 million and $35 million for the comparable periods in 1995. The decrease
is due to (i) a decrease of $208.7 million and $160.2 million in the weighted
average outstanding balance of the company's indebtedness for the three and six
months ended June 30, 1996, respectively, as compared to the comparable periods
in 1995, resulting primarily from the application of proceeds from the sale of
the Australasian assets and the 1995 and 1996 asset divestitures, offset by (ii)
an increase in the weighted average interest rate on the Company's indebtedness
to 7.92% and 7.80% for the three and six months ended June 30, 1996,
respectively, as compared to 7.68% and 7.39% 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 interest rate differential to
be received or paid is recognized over the term of the agreements as an
adjustment to interest expense.
At June 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 8.57%.
Income Taxes. The Company's income tax expense of $19.4 million and $31.7
million for the three and six months ended June 30, 1996 and its income tax
benefit of $29.6 million and $36.4 million for the three and six months ended
June 30, 1995 reflect the net expense 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 six months ended June 30, 1996, the
Company had an effective total tax rate of 25%, including a provision of $16.9
million related to the disposition of 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".
20
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
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
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 six months ended June 30, 1996 for additions to oil
and gas properties totaled $73.9 million. This amount includes $8.6 million for
the acquisition of properties and $65.3 million for development and exploratory
drilling. Significant drilling expenditures included $31.9 million in the
Spraberry Field of the Permian Basin (including $14 million in the Driver unit,
$6.1 million in the North Pembrook unit, $2.5 million in the Merchant unit and
$9.3 million in other portions of the Spraberry field), $12.3 million in the
onshore Gulf Coast region and $1.1 million in Argentina.
In total, the Company spudded 226 domestic wells in the first half of 1996
including 186 wells in the Permian Basin, 24 wells in the Gulf Coast region and
16 wells in other areas. During the second half of the year, the Company has
targeted 350 wells to be drilled including 25 horizontal and 24 exploration
wells. 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 first half of 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 16% to $52.2 million during the second quarter of 1996,
compared to $45 million for the same period in 1995, and increased 27% to $100.9
million during the six months ended June 30, 1996, compared to $79.5 million for
the same period in 1995. This increase was primarily attributable to the
improvements made in the overall cost structure of the Company during 1995 and
improved commodity prices realized during the first half of 1996.
During the six months ended June 30, 1996, net cash received (excluding the
subsidiaries' cash on hand of $16.6 million) from the sale of the Australian
subsidiaries totaled $178.7 million. Such receipts were utilized to reduce the
Company's outstanding bank indebtedness and for general working capital
21
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
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 six months ended June 30, 1996, the Company also
completed the sale of certain nonstrategic domestic properties for proceeds of
$45.9 million. The proceeds from the asset dispositions were initially used to
reduce the Company's outstanding bank indebtedness and subsequently will be used
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.
At June 30, 1996, the Company's outstanding long-term indebtedness was
principally comprised of approximately $300 million of senior notes.
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 June 30, 1996, the Company had $60.1 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 1.68 at June 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 under
"Legal actions" 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 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on May 9, 1996 in Midland,
Texas. At the meeting, two proposals were submitted for vote of stockholders (as
described in the Company's Proxy Statement dated March 28, 1996). The following
is a brief description of the proposals and the results of the stockholder
votes.
Election of directors. Prior to the meeting, the Company's Board of Directors
designated three nominees as Class II directors with their terms to expire at
the annual meeting in 1999 when their successors are elected and qualified. Each
such nominee was, at the time of such nomination and at the time of the meeting,
a director of the Company. Each nominee was reelected as a director of the
Company, with the results of the stockholder voting being as follows:
Authority Broker
For Withheld Abstain Non-Votes
---------- --------- ------- ---------
R. Hartwell Gardner 28,323,206 395,387 - -
Jerry P. Jones 28,317,748 400,845 - -
Charles E. Ramsey, Jr. 28,143,843 574,750 - -
The term of office for the following directors continued after the meeting: Mel
Fischer, Scott D. Sheffield, James L. Houghton, Arthur L. Smith, Edward O.
Vetter and Michael D. Wortley.
Ratification of selection of auditors. Prior to the meeting, the Company's Board
of Directors selected KPMG Peat Marwick LLP as the auditors of the Company for
1996. KPMG Peat Marwick LLP has audited the Company's financial statements for
each of the last seven years. At the meeting, the selection of KPMG Peat Marwick
LLP was submitted to the stockholders for ratification. Such selection was
ratified, with the results of the stockholder voting being as follows:
For 28,466,598
Against 55,114
Abstain 196,881
Broker non-votes -
23
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
(1) None
Reports on Form 8-K
During the quarter ended June 30, 1996, the Company filed the following Current
Reports on Form 8-K:
(1) On April 11, 1995, the Company filed a Current Report on Form 8-K, dated
March 28, 1995 (the "Asset Divestiture - 8-K"), reporting under Item 2
(Acquisition or Disposition of Assets) the divestiture of certain
wholly-owned Australian subsidiaries and the signing of an agreement to
sell an additional wholly-owned subsidiary (Bridge Oil Timor Sea, Inc.).
Such Current Report did not include any proforma financial statements
relating to the divestiture.
(2) On June 12, 1996, the Company filed a Current Report on Form 8-K/A
(Amendment No. 1 to the Asset Divestiture 8-K), dated March 28, 1996, (a)
reporting under Item 2 (Acquisition or Disposition of Assets) the
divestiture of certain wholly-owned Australian subsidiaries and the signing
of agreements to sell an additional wholly-owned subsidiary (Bridge Oil
Timor Sea, Inc.) and certain domestic nonstrategic assets, and (b)
reporting under Item 7 (Financial Statements and Exhibits) the following
pro forma financial information for the Company, taking into account (i)
the sale of certain wholly-owned Australian subsidiaries, (ii) the pending
sale of Bridge Oil Timor Sea, Inc., (iii) the combined effect of both
completed and pending sales of certain nonstrategic domestic oil and gas
properties, gas plants and related assets during the period from January 2,
1996 to May 31, 1996, and (iv) the aggregate effect of completed sales of
certain nonstrategic domestic oil and gas properties, gas plants and
related assets during the year ended December 31, 1995.
a. Preliminary Statement
b. Unaudited Pro Forma Combined Balance Sheet as of March 31, 1996
c. Unaudited Pro Forma Combined Statement of Operations for the three
months ended March 31, 1996
d. Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 1995
e. Notes to Unaudited Pro Forma Combined Financial Statements
24
<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: August 9, 1996 By: /s/ Steven L. Beal
-------------------------------
Steven L. Beal, Senior Vice President
and Chief Financial Officer
25
<PAGE>
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<OTHER-SE> 504,041
<TOTAL-LIABILITY-AND-EQUITY> 1,138,612
<SALES> 203,118
<TOTAL-REVENUES> 300,790
<CGS> 63,439
<TOTAL-COSTS> 174,224
<OTHER-EXPENSES> 84,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,052
<INCOME-PRETAX> 126,566
<INCOME-TAX> 31,700
<INCOME-CONTINUING> 126,566
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,866
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 2.32
</TABLE>
