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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________
TO __________________
COMMISSION FILE NUMBER 0-11871
AMERICAN EXPLORATION COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 74-2086890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1331 LAMAR, SUITE 900
HOUSTON, TEXAS 77010
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 756-6000
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 [ ]
ON AUGUST 1, 1996, THERE WERE OUTSTANDING 11,807,741 SHARES OF THE
REGISTRANT'S COMMON STOCK, PAR VALUE $0.05 PER SHARE.
<PAGE>
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1996
(Unaudited)
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995................... 1
Condensed Consolidated Statements of Operations
for the Three Months Ended June 30, 1996 and
1995 and the Six Months Ended June 30, 1996
and 1995.............................................. 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995....... 3
Notes to Condensed Consolidated Financial Statements..... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...... 9
Item 6. Exhibits and Reports on Form 8-K......................... 9
SIGNATURES ........................................................ 10
<PAGE>
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments .......................... $ 5,085 $ 7,496
Accounts receivable .......................................... 15,965 14,520
Receivable from partnerships ................................. -- 429
Assets held for sale ......................................... 8,635 --
Other current assets ......................................... 1,112 966
--------- ---------
Total current assets ...................................... 30,797 23,411
--------- ---------
Property, plant and equipment:
Oil and gas properties, based on successful efforts
accounting ................................................ 293,682 292,027
Other property and equipment ................................. 13,265 13,036
--------- ---------
306,947 305,063
Less: Accumulated depreciation, depletion and amortization ... 148,556 154,646
--------- ---------
Property, plant and equipment, net ........................ 158,391 150,417
--------- ---------
Other assets .................................................... 2,541 2,202
--------- ---------
Total assets .......................................... $ 191,729 $ 176,030
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 16,219 $ 18,149
Payable to partnerships ...................................... 1,394 --
Accrued liabilities .......................................... 19,955 16,953
--------- ---------
Total current liabilities ................................. 37,568 35,102
--------- ---------
Long-term debt .................................................. 60,000 40,000
--------- ---------
Other liabilities ............................................... 5,018 6,448
--------- ---------
Stockholders' equity:
Convertible preferred stock, $1.00 par value, 4,000 shares
issued and outstanding (1996 and 1995) .................... 4 4
Common stock, par value $.05 per share; 11,807,741 shares
issued and outstanding (1996); 11,812,483 shares issued and
outstanding (1995) ........................................ 590 591
Additional paid-in capital ................................... 276,658 276,713
Accumulated deficit .......................................... (187,970) (182,543)
Unearned compensation ........................................ (126) (219)
Notes receivable from officers ............................... (13) (66)
--------- ---------
Total stockholders' equity ................................ 89,143 94,480
--------- ---------
Total liabilities and stockholders' equity ............ $ 191,729 $ 176,030
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales ......................................... $ 17,260 $ 20,327 $ 33,173 $ 38,159
Gain on sales of oil and gas properties ................... -- 296 656 443
Other revenues, net ....................................... 31 102 27 960
-------- -------- -------- --------
Total revenues ......................................... 17,291 20,725 33,856 39,562
-------- -------- -------- --------
COSTS AND EXPENSES:
Production and operating .................................. 5,214 6,762 10,196 13,524
Depreciation, depletion and amortization .................. 7,023 7,820 13,473 15,552
General and administrative ................................ 1,542 1,498 3,183 2,983
Taxes other than income ................................... 1,304 1,708 2,616 3,138
Exploration ............................................... 5,563 40 7,151 160
-------- -------- -------- --------
Total costs and expenses ............................... 20,646 17,828 36,619 35,357
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS ................................ (3,355) 2,897 (2,763) 4,205
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense .......................................... (1,029) (1,880) (1,818) (3,851)
Other income, net ......................................... 72 31 54 152
-------- -------- -------- --------
Total other expense .................................... (957) (1,849) (1,764) (3,699)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ..... (4,312) 1,048 (4,527) 506
Income tax provision ......................................... -- (58) -- (11)
-------- -------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ...................... (4,312) 990 (4,527) 495
Extraordinary gain on extinguishment of debt ................. -- -- -- 2,456
-------- -------- -------- --------
NET INCOME (LOSS) ............................................ (4,312) 990 (4,527) 2,951
Preferred stock dividends .................................... (450) (450) (900) (900)
-------- -------- -------- --------
NET INCOME (LOSS) TO COMMON STOCK ............................ $ (4,762) $ 540 $ (5,427) $ 2,051
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE:
Primary and fully diluted:
Income (loss) before extraordinary item ................ $ (0.40) $ 0.05 $ (0.46) $ (0.03)
Extraordinary item ..................................... -- -- -- 0.20
-------- -------- -------- --------
NET INCOME (LOSS) PER COMMON SHARE .................. $ (0.40) $ 0.05 $ (0.46) $ 0.17
======== ======== ======== ========
NUMBER OF COMMON AND EQUIVALENT SHARES:
Primary and fully diluted ................................. 11,811 11,814 11,812 11,811
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................. $ (4,527) $ 2,951
Adjustments to arrive at net cash provided by operating activities:
Depreciation, depletion and amortization ....................... 13,473 15,552
Gain on sales of oil and gas properties ........................ (656) (443)
Exploration expense ............................................ 7,198 142
Extraordinary gain on extinguishment of debt ................... -- (2,456)
Other, net ..................................................... 249 274
Changes in operating working capital:
Accounts receivable ............................................ (209) 994
Other current assets ........................................... 185 235
Accounts payable and accrued liabilities ....................... (3,416) (2,689)
Other operating ................................................... (368) 1,247
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................... 11,929 15,807
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of oil and gas properties ............................. (16,728) (10,212)
Development and exploration expenditures .......................... (17,510) (13,267)
Proceeds from sales of oil and gas properties, net ................ 1,168 2,441
Other investing ................................................... (283) 2,781
-------- --------
NET CASH USED IN INVESTING ACTIVITIES .......................... (33,353) (18,257)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank debt borrowings .............................................. 23,000 39,500
Bank debt repayments .............................................. (3,000) (5,000)
Bridge debt repayments ............................................ -- (31,128)
Preferred stock dividends ......................................... (900) (900)
Other financing ................................................... (87) (1,023)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...................... 19,013 1,449
-------- --------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS .................. (2,411) (1,001)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD ........... 7,496 9,973
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD ................. $ 5,085 $ 8,972
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by American Exploration Company ("American" or the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. The financial statements reflect adjustments of a normal
recurring nature which are, in the opinion of management, necessary to present
fairly such information. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures, including significant accounting policies, normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. Certain amounts in the prior year financial statements have
been reclassified to conform with current classifications.
The Company effected a one-for-ten reverse split of its common stock
(the "Reverse Stock Split") during the second quarter of 1995. All references to
number of shares of common stock and per share amounts have been restated to
give retroactive recognition to the Reverse Stock Split for all periods
presented.
(2) PRO FORMA INFORMATION
The following pro forma summary of consolidated results of operations
for the six months ended June 30, 1996 and 1995 gives effect to: (i) the
acquisition of interests in five offshore blocks in the Gulf of Mexico (the
"Offshore Properties") in March 1996, (ii) the sale of the Sawyer Field in July
1995, (iii) the 1995 sales of interests in several other fields for
approximately $2.5 million, and (iv) the acquisition of investors' interests in
a series of institutional programs (the "APPL Consolidation"), which was
completed in the first half of 1995, as if these transactions had occurred as of
January 1, 1995.
(In thousands except for per share amounts) FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------
1996 1995
-------- --------
Pro forma revenues .................................... $ 35,820 $ 35,016
Pro forma income (loss) before extraordinary item ..... (4,580) 678
Pro forma net income (loss) to common stock ........... (4,580) 3,134
Pro forma net income (loss) per common share:
Primary and fully diluted:
Income (loss) before extraordinary item ......... $ (0.39) $ 0.06
Net income (loss) ............................... (0.39) 0.27
Weighted average shares outstanding:
Primary and fully diluted ....................... 11,812 11,812
The pro forma amounts do not purport to be indicative of the results of
operations of American that may be reported in the future or that would have
been reported had these transactions occurred as of January 1, 1995.
4
(3) ASSETS HELD FOR SALE
In July 1996, the limited partners of the New York Life Oil and Gas
Producing Properties Programs (the "NYLOG Programs"), a series of publicly
registered limited partnerships of which a Company subsidiary is a co-general
partner, approved the liquidation of the partnerships. During the third quarter
of 1996, the co-general partners will begin negotiations to sell the properties
owned by the NYLOG Programs. The liquidation of the partnerships is expected to
be completed in early 1997. The Company's interests in the NYLOG properties have
been classified as assets held for sale in the accompanying balance sheet as of
June 30, 1996. Assets held for sale also include certain additional property
interests which are held by American through a direct interest or through
another partnership and which the Company intends to offer for sale with the
NYLOG properties. Although there can be no assurance as to the amount of
proceeds to be derived from such sales, the Company believes that the net
proceeds from the property dispositions are expected to exceed the current
carrying value of the properties. Accordingly, the assets are stated at net book
value.
(4) DEBT
Outstanding bank debt totaled $25.0 million as of June 30, 1996. The
Company borrowed $14.0 million under the bank credit facility to fund the March
1996 acquisition of the Offshore Properties.
The borrowing base under the bank credit facility is redetermined by the
banks semiannually, and in June 1996, the borrowing base was redetermined at
$45.0 million.
(5) CASH FLOW INFORMATION
Net cash provided by operating activities included cash payments for
interest totaling $1.8 million and $4.0 million, net of capitalized interest of
$720,000 and $695,000, for the first six months of 1996 and 1995, respectively.
No income taxes were paid by the Company in the first six months of 1996. The
Company paid income taxes of $12,000 for the first six months of 1995.
Noncash investing and financing activities in 1995 related to the APPL
Consolidation. In January 1995, American issued approximately 346,000 shares of
common stock valued at $12.50 per share to acquire $1.2 million of oil and gas
properties, including working capital, and to eliminate $4.7 million of
nonrecourse debt, resulting in an extraordinary gain of $1.6 million.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the
Company for the periods presented in the accompanying financial statements.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
AVERAGE SALES PRICE:
<S> <C> <C> <C> <C>
Gas ($/Mcf) ............................ $ 1.87 $ 1.74 $ 1.87 $ 1.71
Oil ($/Bbl) ............................ 16.83 17.39 16.70 16.98
BOE ($/BOE) ............................ 13.11 12.33 13.13 12.06
PRODUCTION DATA:
Gas (MMcf) ............................. 5,230 7,191 9,830 13,853
Oil (MBbls) ............................ 445 449 887 854
MBOE ................................... 1,317 1,648 2,526 3,163
ADDITIONAL ($/BOE) DATA:
Production and operating costs ......... $ 3.96 $ 4.10 $ 4.04 $ 4.28
Production and severance taxes ......... 0.39 0.65 0.44 0.62
Depreciation, depletion and amortization 5.33 4.75 5.33 4.92
</TABLE>
REVENUES
The Company recorded oil and gas sales of $17.3 million for the second
quarter of 1996 compared to $20.3 million for the second quarter of 1995. For
the first six months of the year, oil and gas sales totaled $33.2 million in
1996 and $38.2 million in 1995. Lower sales for both periods of 1996 relative to
the prior year reflect a 20% overall production decline primarily due to the
July 1995 sale of the Sawyer Field, offset in part by the impact of higher gas
prices.
Gas production decreased to 5,230 MMcf for the second quarter of 1996
from 7,191 MMcf for the same quarter of 1995, which negatively impacted sales by
$3.4 million. Similarly, gas production for the first half of 1996 declined to
9,830 MMcf or 29% below the comparable period of 1995, resulting in a $6.9
million decrease in sales revenue. The reduction in gas volumes for both periods
of 1996 was mainly attributable to the loss of production of approximately 20
MMcf per day due to the sale of the Sawyer Field.
Oil production for the second quarter of 1996 remained relatively flat
at 445 MBbls compared to 449 MBbls for the same quarter of the prior year. For
the first six months of 1996, oil production totaled 887 MBbls or 4% above the
854 MBbls of oil produced during the comparable period of 1995, which favorably
impacted year-to-date sales by $600,000. Oil production increases in 1996
resulting from the first quarter 1996 acquisition of the Offshore Properties,
the late 1995 acquisition of an additional interest in the Buckner Field and the
successful 1995 horizontal drilling program at the Midway Field were offset by
the impact of the sales of several oil producing properties in late 1995 and
early 1996.
The impact of lower production in 1996 was partially mitigated by an
increase in the Company's average realized gas price. American's gas price
averaged $1.87 per Mcf for both the quarterly and year-to-date periods of 1996
compared to $1.74 and $1.71 for the respective periods of 1995. However, the
Company's average oil price declined slightly, falling to $16.83 per Bbl for the
1996 quarter and $16.70 for the first half of 1996, which represented decreases
of 3% and 2%, respectively. The net increase in oil and gas prices contributed
$400,000 to the Company's quarterly revenues in 1996 and contributed $1.3
million to year-to-date 1996 revenues.
During the second quarter of 1996, American had commodity price swap
agreements covering approximately 48% of the Company's gas production and
approximately 69% of its oil production. As a result of the price hedges, the
Company's oil and gas sales revenues were reduced by $2.4 million during the
second quarter of 1996 and by $336,000 during the same period of 1995. Excluding
the impact of the hedging losses, American's average oil and gas prices for
6
the second quarter of 1996 would have been $19.72 per Bbl and $2.07 per Mcf. For
the second quarter of 1995, the Company's oil price would have been $18.06
exclusive of the hedges while the gas price was not materially affected by the
hedges.
For the first half of 1996, hedging agreements covered approximately 61%
of the Company's gas production and approximately 66% of its oil production,
resulting in a $3.8 million revenue reduction. American's year-to-date 1996 oil
and gas prices would have averaged $18.84 per Bbl and $2.06 per Mcf exclusive of
the hedges. For the comparable period of 1995, the Company recorded a net
hedging gain of $583,000. The Company's average gas price for the first half of
1995 was boosted by $0.07 per Mcf due to the hedges while the average oil price
for that period was reduced by $0.42 per Bbl.
For information regarding oil and gas price hedging arrangements in
effect for the remainder of 1996, reference is made to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
American recognized gains on the sales of oil and gas properties
totaling $656,000 and $443,000 for the first half of 1996 and 1995,
respectively, which resulted from the divestiture of various minor properties.
In the first half of 1995, the Company recorded net gas settlement income of
$879,000 as a result of the final judgment in certain litigation regarding the
terms of a gas purchase contract.
COSTS AND EXPENSES
Production and operating costs totaled $5.2 million for the second
quarter of 1996 and $10.2 million for the first half of 1996, which represented
declines of 23% and 25%, respectively, compared to the same periods of 1995. The
decreases in costs primarily resulted from the sale of the Sawyer Field in July
1995 and sales of other minor properties during December 1995 and January 1996.
Depreciation, depletion and amortization ("DD&A") totaled $7.0 million
and $7.8 million for the second quarter of 1996 and 1995, respectively. For the
year-to-date period, DD&A totaled $13.5 million in 1996 or 13% below the
comparable 1995 period. Lower DD&A expense resulted from the reduction in
production volumes, as discussed above, partially offset by the impact of higher
DD&A rates in 1996. The Company's DD&A rate was $5.33 per BOE in both periods of
1996 compared to rates of $4.75 and $4.92 for the second quarter and first six
months of 1995, respectively. Increased 1996 DD&A rates primarily reflect the
higher rates associated with offshore properties in the Gulf of Mexico, which
represent a greater portion of the Company's property base than in 1995.
General and administrative expense ("G&A") remained constant at $1.5
million for the second quarter of both years although G&A increased to $3.2
million for the first half of 1996, a 7% increase over the comparable 1995
period. The increase in year-to-date G&A primarily reflects additional legal
fees incurred in 1996 and the loss of management and technical fee
reimbursements following the APPL Consolidation.
Taxes other than income totaled $1.3 million for the second quarter of
1996 and $2.6 million for the first six months of 1996, compared to $1.7 million
and $3.1 million, respectively, for the same periods of 1995. The decline in tax
expense in 1996 was primarily due to lower production levels in 1996 and state
severance tax refunds totaling $500,000. On a unit of production basis, the
Company's tax rate for the first half of 1996 has dropped 29%, which was
attributable to the refunds and to the impact of American's acquisition of
additional offshore properties located in federal waters, for which no severance
taxes are required to be paid.
Exploration expense of $5.6 million for the second quarter of 1996
reflected dry hole expense of $3.8 million related to five unsuccessful
exploratory wells, including three offshore sites. For the first half of 1996,
exploration expense totaled $7.2 million, including an additional $1.0 million
of expense related to three unsuccessful wells drilled in the first quarter. The
remainder of the increase in 1996 exploration expense, as compared to 1995, was
primarily attributable to geological and geophysical costs arising from
increased exploration activity this year.
Interest expense decreased to $1.0 million for the second quarter of
1996, or 45% below the same quarter of 1995. For the first half of 1996,
interest expense dropped 53% to $1.8 million. American's outstanding debt
balance has been significantly reduced in the first half of 1996 compared to the
same period of the prior year due to the repayment of bank
7
debt in mid-1995 using the proceeds of the Sawyer sale. During the first half of
1995, the Company had over $60 million of outstanding bank debt primarily
incurred in conjunction with the APPL Consolidation.
EXTRAORDINARY ITEM
The $2.5 million extraordinary gain recorded in 1995 resulted from the
extinguishment of nonrecourse debt in conjunction with the APPL Consolidation.
NET INCOME (LOSS)
American reported a net loss of $4.3 million, or a $0.40 loss per common
share, for the second quarter of 1996, compared to net income of $1.0 million,
or $0.05 per common share, for the same quarter last year. For the first half of
1996, the Company recorded a net loss of $4.5 million, or a $0.46 loss per
common share. Net income for the first six months of 1995 totaled $3.0 million,
or $0.17 per common share. While the Company's operating margin improved
significantly during 1996, due to the combined effect of increased gas prices
and reduced production costs and interest expense, net losses resulted from
higher exploration expense recorded in 1996. In addition, net income for the
first half of 1995 included the extraordinary gain on debt extinguishment and
the proceeds of a gas contract settlement.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities totaled $11.9 million during
the first six months of 1996 compared to $15.8 million during the same period of
1995. A substantial portion of the $3.9 million decrease in cash flow from
operating activities was attributable to the impact of changes in working
capital due to the timing of certain cash receipts and payments. Operating cash
flow before changes in working capital declined $283,000 due to lower production
levels in 1996, primarily resulting from the sale of the Sawyer Field, offset by
reduced operating and interest costs.
During the first six months of 1996, capital expenditures for the
acquisition of oil and gas properties totaled $16.7 million, compared to $10.2
million in the same period of 1995. In March 1996, the Company and Dominion
Reserves, Inc. acquired interests in the Offshore Properties from a private
company for a purchase price of approximately $56.0 million. American's 25%
share of the acquisition totaled $14.0 million. The Offshore Properties added
estimated proved reserves totaling 11.3 Bcf of natural gas and 600 MBbls of
crude oil and liquids, net to American's interest. Other acquisition
expenditures in 1996 primarily related to leasehold additions in South Texas and
the Gulf of Mexico. Acquisition expenditures in 1995 primarily related to the
APPL Consolidation.
Development and exploration expenditures for the first six months of
1996 and 1995 totaled $17.5 million and $13.3 million, respectively. Significant
development activity in 1996 included a successful well at High Island Block
13-L, which was producing approximately 7,000 Mcf of gas per day (4,000 Mcf per
day net to American's interest) as of mid-July 1996, and eleven completions at
the Bradshaw Field in Kansas, which have increased that field's gas production
to over 17,000 Mcf per day (13,000 Mcf net to American) as of mid-July 1996. The
Company is conducting additional development activity in the Texas State Waters
area of the Gulf of Mexico and in various fields in South Texas. The Company
participated in the completion of thirteen exploratory wells during the first
half of 1996, of which five wells were successful, including four prospects in
South Texas. Eight exploratory wells, including four offshore wells, drilled in
the first half of 1996 were unsuccessful. Approximately $25 million of
additional development and exploration expenditures are budgeted for the
remainder of 1996, and at least seven exploratory wells are planned for the
third quarter of 1996. Significant projects in 1995 included drilling in the
Gulf of Mexico and development activity in the West McAllen Field.
Outstanding bank debt totaled $25.0 million as of June 30, 1996. The
Company borrowed $14.0 million under the bank credit facility to fund the March
1996 acquisition of the Offshore Properties. The borrowing base under the bank
credit facility is redetermined by the banks semiannually, and in June 1996, the
borrowing base was redetermined at $45.0 million.
8
The Company intends to fund its planned capital expenditures,
commitments and working capital requirements through cash flows from operations
and, if necessary, borrowings under its bank credit facility. However, if there
are changes in oil and gas prices, which correspondingly affect cash flows and
bank borrowings, or if additional development and exploration opportunities
arise, American has the discretion and ability to adjust its capital budget
accordingly. Other potential sources of capital for the Company include property
sales and financings through the placement of notes or the sale of equity.
Management believes that the Company will have sufficient capital resources and
liquidity to fund its capital expenditures and meet its financial obligations as
they are due.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 21, 1996,
the stockholders elected all of the nominees for directors set forth in the
Company's proxy statement as follows:
AFFIRMATIVE VOTES
VOTES WITHHELD
----------- --------
Mark Andrews 9,266,197 556,674
Harry W. Colmery, Jr. 9,265,101 557,770
Irvin K. Culpepper, Jr. 9,266,374 556,497
Walter J. P. Curley 9,264,986 557,885
Phillip Frost, M.D. 9,266,355 556,516
Peter G. Gerry 9,266,421 556,450
H. Phipps Hoffstot, III 9,265,906 556,965
John H. Moore 9,263,834 559,037
Peter P. Nitze 9,265,839 557,032
The Company's stockholders also approved the appointment of Arthur
Andersen LLP as American's independent public accountants for 1996. This
proposal received 9,804,692 affirmative votes, 13,400 negative votes and 4,779
abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10(a) Amendment No. 4 to Amended and Restated Credit Agreement,
dated June 5, 1996, among American Exploration Company, the
banks listed herein and Morgan Guaranty Trust Company of New
York, as agent, and Bank of Montreal, as co-agent.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated June 30, 1996,
to incorporate by reference therein American's news release dated
July 29, 1996.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN EXPLORATION COMPANY
Date: July 31, 1996 By: /s/ MARK ANDREWS
Mark Andrews
Chairman of the Board
and Chief Executive Officer
Date: July 31, 1996 By: /s/ JOHN M. HOGAN
John M. Hogan
Senior Vice President
and Chief Financial Officer
(Also Principal Accounting Officer)
10
EXHIBIT 10(a)
[EXECUTION COPY]
AMENDMENT NO. 4 TO AMENDED
AND RESTATED CREDIT AGREEMENT
AMENDMENT dated as of June 5, 1996 among AMERICAN EXPLORATION
COMPANY (the "Borrower"), the BANKS listed on the signature pages hereof (the
"Banks"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"), and
BANK OF MONTREAL, as Co-Agent (the "Co-Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Agent and the Co-Agent have
heretofore entered into an Amended and Restated Credit Agreement dated as of
December 21, 1994, as amended by Amendment No. 1 dated as of February 16, 1995,
Amendment No. 2 dated as of May 2, 1995 and Amendment No. 3 as of January 19,
1996 (as so amended, the "Agreement"); and
WHEREAS, the parties hereto desire to amend
certain provisions of the Agreement in the manner set
forth below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. AMENDMENT OF AVAILABILITY LIMIT. The definition of
"Availability Limit" in Section 1.01 of the Agreement is amended to read in its
entirety as follows:
"Availability Limit" means at any date an amount equal to the
lesser of (i) the aggregate amount of the Commitments at such date and
(ii) $45,000,000. The Availability Limit may be increased only by an
amendment in accordance with Section 9.05, which the Banks may agree to
or not agree to in their sole discretion.
SECTION 3. GOVERNING LAW. This Amendment
shall be covered by and construed in accordance with
the laws of the State of New York.
SECTION 4. COUNTERPARTS; EFFECTIVENESS. This Amendment may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective as of June 5, 1996 when the
Agent shall have received duly executed counterparts hereof signed by the
Borrower, each of the Banks and the Co-Agent (or, in the case of any party as to
which an executed counterpart shall not have been received, the Agent shall have
received telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party).
2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first above written.
AMERICAN EXPLORATION COMPANY
By: /s/ T. FRANK MURPHY
Title: Vice President - Corporate Finance
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ JOHN KOWALCZUK
Title: Vice President
BANK OF MONTREAL, as a Bank and
as a Co-Agent
By: /s/ ROBERT L. ROBERTS
Title: Director, U.S. Corporate Banking
BANQUE PARIBAS
By: /s/ MARK M. GREEN
Title: Vice President
By: /s/ BARTON D. SCHOUEST
Title: Group Vice President
3
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /s/ JOHN KOWALCZUK
Title: Vice President
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINAANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,085
<SECURITIES> 0
<RECEIVABLES> 15,965
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,797
<PP&E> 306,947
<DEPRECIATION> 148,556
<TOTAL-ASSETS> 191,729
<CURRENT-LIABILITIES> 37,568
<BONDS> 60,000
0
4
<COMMON> 590
<OTHER-SE> 88,549
<TOTAL-LIABILITY-AND-EQUITY> 191,729
<SALES> 33,173
<TOTAL-REVENUES> 33,856
<CGS> 0
<TOTAL-COSTS> 36,619
<OTHER-EXPENSES> (54)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,818
<INCOME-PRETAX> (4,527)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,527)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,527)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
