<PAGE>
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number: 0-7062
NOBLE AFFILIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-0785597
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
110 WEST BROADWAY
ARDMORE, OKLAHOMA 73401
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(405) 223-4110
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock outstanding as of November 03, 1995:
50,065,937
==============================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments.................................. $ 22,327 $ 22,192
Accounts receivable-trade........................................ 54,481 49,692
Materials and supplies inventories............................... 4,121 3,591
Other current assets............................................. 8,137 28,412
---------- ----------
Total Current Assets............................................. 89,066 103,887
---------- ----------
Property, Plant and Equipment....................................... 1,704,350 1,588,459
Less: accumulated depreciation,
depletion and amortization............................... (810,916) (775,079)
---------- ----------
893,434 813,380
Other Assets........................................................ 24,001 16,249
---------- ----------
Total Assets..................................................... $1,006,501 $ 933,516
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade......................................... $ 79,314 $ 46,473
Other current liabilities........................................ 30,000 21,747
Income taxes - current........................................... 2,467 3,768
---------- ----------
Total Current Liabilities........................................ 111,781 71,988
---------- ----------
Deferred Income Taxes............................................... 67,374 61,802
---------- ----------
Other Deferred Credits and Noncurrent Liabilities................... 11,924 10,704
---------- ----------
Long-term Debt...................................................... 401,983 376,956
---------- ----------
Contingency
Shareholders' Equity:
Common stock..................................................... 171,968 171,790
Capital in excess of par value................................... 142,584 141,911
Retained earnings................................................ 114,305 113,783
---------- ----------
428,857 427,484
Less common stock in treasury
(at cost, 1,524,900 shares)........................................ (15,418) (15,418)
---------- ----------
Total Shareholders' Equity....................................... 413,439 412,066
---------- ----------
Total Liabilities and Shareholders' Equity....................... $1,006,501 $ 933,516
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
2
<PAGE>
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
REVENUES:
Oil and gas sales and royalties................................ $234,150 $238,745
Gathering, marketing and processing revenues .................. 71,334 27,372
Other income................................................... 3,790 6,897
-------- --------
309,274 273,014
-------- --------
COSTS AND EXPENSES:
Oil and gas operations......................................... 61,775 56,120
Oil and gas exploration........................................ 19,701 32,960
Gathering, marketing and processing costs...................... 69,402 26,862
Depreciation, depletion and amortization....................... 106,667 93,371
Selling, general and administrative............................ 27,264 27,296
Interest expense............................................... 16,279 19,525
Interest capitalized........................................... (2,360) (6,006)
-------- --------
298,728 250,128
-------- --------
INCOME BEFORE INCOME TAXES.......................................... 10,546 22,886
INCOME TAX PROVISION................................................ 4,020 (1) 8,041 (1)
-------- --------
NET INCOME.......................................................... $ 6,526 $ 14,845
======== ========
NET INCOME PER SHARE................................................ $ .13 (2) $ .30 (2)
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------
1995 1994
---- ----
<S> <C> <C>
REVENUES:
Oil and gas sales and royalties.................................. $ 79,859 $ 76,850
Gathering, marketing and processing revenues..................... 29,248 18,889
Other income..................................................... 1,183 1,702
-------- --------
110,290 97,441
-------- --------
COSTS AND EXPENSES:
Oil and gas operations........................................... 21,042 19,623
Oil and gas exploration.......................................... 8,306 15,390
Gathering, marketing and processing costs........................ 27,813 18,477
Depreciation, depletion and amortization......................... 35,847 28,931
Selling, general and administrative.............................. 8,269 8,445
Interest expense................................................. 5,485 5,235
Interest capitalized............................................. (881) (1,820)
-------- --------
105,881 94,281
-------- --------
INCOME BEFORE INCOME TAXES........................................ 4,409 3,160
INCOME TAX PROVISION.............................................. 1,680 (1) 1,109 (1)
-------- --------
NET INCOME........................................................ $ 2,729 $ 2,051
======== ========
NET INCOME PER SHARE.............................................. $ .05 (2) $ .04 (2)
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income....................................................... $ 6,526 $ 14,845
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization........................ 106,667 93,371
Amortization of undeveloped lease costs, net.................... 5,875 4,955
Change in deferred credits..................................... 6,791 17,193
Change in other assets and other noncash items, net............. (312) (3,206)
Changes in working capital, not including cash:
(Increase) decrease in accounts receivable...................... (4,789) 18,021
(Increase) decrease in other current assets and inventories..... 19,821 (8,074)
Increase (decrease) in accounts payable......................... 32,841 35,490
Increase (decrease) in other current liabilities................ 6,952 7,504
--------- ---------
Net Cash Provided by Operating Activities......................... 180,372 180,099
--------- ---------
Cash Flows From Investing Activities:
Capital expenditures............................................. (205,083) (135,445)
Proceeds from sale of property, plant and equipment.............. 4,998 1,624
--------- ---------
Net Cash Used in Investing Activities............................. (200,085) (133,821)
--------- ---------
Cash Flows From Financing Activities:
Retirement of long-term debt..................................... (125,000)
Retirement of short-term debt for property acquisition........... (95,600)
Proceeds from line of credit borrowings.......................... 25,000 48,000
Exercise of stock options........................................ 851 670
Cash dividends................................................... (6,003) (5,996)
--------- ---------
Net Cash Provided by (Used in) Financing Activities............... 19,848 (177,926)
--------- ---------
Increase (Decrease) in Cash and Short-term Cash Investments....... 135 (131,648)
--------- ---------
Cash and Short-term Cash Investments at Beginning of Period....... 22,192 176,432
--------- ---------
Cash and Short-term Cash Investments at End of Period............. $ 22,327 $ 44,784
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............................. $ 8,700 $ 10,625
Income taxes..................................................... $ 84
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
5
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting only of
necessary and normal recurring adjustments, necessary to present fairly the
Company's financial position as of September 30, 1995 and December 31, 1994,
and the results of operations for the three month and nine month periods
ended September 30, 1995 and 1994 and the cash flows for the nine month
periods ended September 30, 1995 and 1994. These consolidated condensed
financial statements should be read in conjunction with the financial
statements and the notes thereto incorporated in the Company's annual report
on Form 10-K for the year ended December 31, 1994.
(1) INCOME TAX PROVISION
For the nine months ended September 30:
<TABLE>
<CAPTION>
(In thousands)
-------------------
1995 1994
------- -------
<S> <C> <C>
Current............................................ $(1,551) $(5,864)
Deferred........................................... 5,571 13,905
------- -------
$ 4,020 $ 8,041
======= =======
</TABLE>
For the three months ended September 30:
<TABLE>
<CAPTION>
(In thousands)
------------------
1995 1994
------- -------
<S> <C> <C>
Current........................................... $ 381 $(2,379)
Deferred.......................................... 1,299 3,488
------- -------
$ 1,680 $ 1,109
======= =======
</TABLE>
(2) NET INCOME PER SHARE
The earnings per share of common stock was computed using the weighted
average number of shares of common stock outstanding during the period as
follows:
<TABLE>
<CAPTION>
(In thousands)
-------------------
1995 1994
------- ------
<S> <C> <C>
For the nine months ended September 30............. 50,032 49,959
For the three months ended September 30............ 50,047 49,982
</TABLE>
(3) CONTINGENCY
Over the past several years, Samedan Oil Corporation (Samedan), a
wholly owned subsidiary of the Company, has settled various claims which it
had against parties who had contracted to purchase gas at fixed prices which
were greater than market or who had take-or-pay contracts with Samedan in
which such obligation to take-or-pay for quantities of gas was not fulfilled.
It is the Company's policy, which is consistent with general industry
practice, that such payments do not represent payment for gas produced, and
therefore, are not subject to royalty payments. The federal government, with
respect to leases on both onshore and offshore federal lands, certain other
governmental bodies, and some private land owners have, in recent years,
begun to assert claims against oil and gas companies for royalties on some or
all of such settlement amounts.
The Company recently participated in a joint effort with the
Independent Petroleum Association of America wherein Samedan was a party in a
test case involving such a claim made with respect to a lease on Indian lands.
6
<PAGE>
In the U.S. District Court for the District of Columbia, Samedan and the
other plaintiffs challenged the determination by the U.S. Minerals Management
Service (MMS) that royalties were payable to the government on certain
proceeds received by Samedan (and the other plaintiffs) with respect to a
contract settlement. The district court recently ruled in favor of the MMS,
and a judgment in the amount of $20,000 was awarded against Samedan. Samedan
has appealed this judgment and intends to vigorously pursue its appeal. The
Company intends to continue to follow its current policies in regard to these
matters unless and until the issues have been settled by controlling
precedent.
Although the amount in controversy applicable to Samedan in the
above described lawsuit is not material, the decision in such case, if not
reversed or otherwise limited on appeal, could have an adverse impact with
respect to other take-or-pay or contract settlements entered into by Samedan.
There can be no assurance that Samedan will prevail on appeal in the above
described lawsuit or that Samedan will prevail in the future on any similar
claims asserted against it based on other take-or-pay or contract
settlements, including, for example, any final settlement with respect to the
Columbia Transmission bankruptcy case described below. The Company is unable
at this time to estimate the possible amount of the loss, if any, associated
with this contingency.
On May 1, 1995 the Company announced that Samedan has become a
party to a comprehensive producer settlement agreement which was entered into
with Columbia Gas Transmission Corporation (Columbia Transmission) and
Columbia Gas Systems, Inc. in connection with their plans of reorganization
filed in the Bankruptcy Court on April 17, 1995. The producer settlement
agreement would provide Samedan with a right to receive a distribution, upon
confirmation of a Columbia Transmission plan of reorganization, in the amount
of $48,925,000, which amount would be based on an agreed claim against
Columbia Transmission of $71,034,483. In addition, the proposed settlement
would give Samedan a contingent right to receive approximately $2,575,000
upon the resolution of certain other contested producer claims. Although the
producer settlement agreement has been approved by the Bankruptcy Court, the
agreement contains numerous conditions to closing, including confirmation of
currently pending plans of reorganization with respect to Columbia
Transmission and Columbia Gas Systems, Inc. in their ongoing bankruptcy
proceedings, which plans of reorganization are currently set for confirmation
hearings to commence on November 13, 1995. If the proposed plans of
reorganization of Columbia Transmission and Columbia Gas Systems, Inc. are
confirmed in November 1995, Samedan may receive its initial distribution
under the producer settlement agreement prior to year end 1995.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased slightly to $180.4
million in the nine months ended September 30, 1995 from $180.1 million in the
same period of 1994. Cash and short-term cash investments increased from
$22.2 million at December 31, 1994 to $22.3 million at September 30, 1995.
Through September 30, 1995, the Company had expended in full its $205
million 1995 capital budget. The amount expended includes approximately $25
million for an acquisition of three Gulf of Mexico properties which are
currently under development and are expected to begin production during 1996.
The Company plans to maintain an active drilling program and will also
continue to evaluate reserve acquisition opportunities for the remainder of
1995. Such acquisitions, if significant, would exceed the Company's ability
to fund from its internal cash flow, and as such would require external
sources of financing.
During 1994 the Company reduced its debt $172.6 million. On January 4,
1994, the Company paid the $95.6 million installment note used to acquire a
producing property in 1993. On June 1, 1994, the Company borrowed $48
million under its bank credit agreement and used the proceeds, plus available
cash, to redeem its $125,000,000 10 1/8% notes which were due June 1, 1997.
On September 29, 1995, the Company borrowed $25 million under its bank credit
agreement and used the proceeds to acquire three Gulf of Mexico properties.
An additional $27.0 million in borrowing capacity was available at
September 30, 1995 to the Company under its bank credit agreement.
On May 1, 1995 the Company announced that its wholly owned subsidiary,
Samedan Oil Corporation (Samedan), has become a party to a comprehensive
producer settlement agreement which was entered into with Columbia Gas
Transmission Corporation (Columbia Transmission) and Columbia Gas Systems,
Inc. in connection with their plans of reorganization filed in the Bankruptcy
Court on April 17, 1995. The producer settlement agreement would provide
Samedan with a right to receive a distribution, upon confirmation of a
Columbia Transmission plan of reorganization, in the amount of $48,925,000,
which amount would be based on an agreed claim against Columbia Transmission
of $71,034,483. In addition, the proposed settlement would give Samedan a
contingent right to receive approximately $2,575,000 upon the resolution of
certain other contested producer claims. Although the producer settlement
agreement has been approved by the Bankruptcy Court, the agreement contains
numerous conditions to closing, including confirmation of currently pending
plans of reorganization with respect to Columbia Transmission and Columbia
Gas Systems, Inc. in their ongoing bankruptcy proceedings, which plans of
reorganization are currently set for confirmation hearings to commence on
November 13, 1995. If the proposed plans of reorganization of Columbia
Transmission and Columbia Gas Systems, Inc. are confirmed in November 1995,
Samedan may receive its initial distribution under the producer settlement
agreement prior to year end 1995.
The Company follows an entitlements method of accounting for its gas
imbalances. The Company's gas imbalance receivables were $10.3 million at
September 30, 1995 and $11.7 million at December 31, 1994. Gas imbalance
liabilities were $10.9 million at September 30, 1995 and $10.5 million at
December 31, 1994. These imbalances are valued at the amount which is
expected to be received or paid to settle the imbalances. The settlement of
the imbalances can occur either over the life or at the end of the life of a
well, on a volume basis or by cash settlement. The Company does not expect
that a significant portion of the settlements will occur in any one year.
Thus, the Company believes the settlement of gas imbalances will not have a
material impact on its liquidity.
8
<PAGE>
RESULTS OF OPERATIONS
During the third quarter of 1995, the Company recorded net income of $2.7
million, or 5 cents per share, compared to net income of $2.1 million, or 4
cents per share, in the third quarter of 1994. During the first nine months
of 1995, the Company recorded net income of $6.5 million, or 13 cents per
share, compared to net income of $14.8 million, or 30 cents per share, in the
first nine months of 1994.
Sales of the Company's natural gas marketing subsidiary, Noble Gas
Marketing, Inc. (NGM), began in June 1994 and sales of the Company's oil
trading subsidiary, Noble Trading, Inc. (NTI), began in May 1995. Sales
between all Company subsidiaries are eliminated and third party sales are
recorded as gathering, marketing and processing revenues. These revenues
from third party sales totaled $29.2 million and $71.3 million, respectively,
in the third quarter and the first nine months of 1995, compared with $18.9
million and $27.4 million in the same periods of 1994.
The decreased net income for the nine months ended September 30, 1995
compared to 1994 resulted from lower natural gas prices which were offset
somewhat by higher oil prices. Both oil and gas production volumes increased
slightly for the third quarter of 1995 compared to the same period of 1994.
While 1995 gas volumes were greater than in the comparable periods of 1994,
production in 1995 through the third quarter was below Company expectations
primarily as a result of production declines at greater rates than expected
on existing producing properties, and production commencing on new
properties, principally offshore, at dates later than originally scheduled.
The Company believes that such lower production levels and delays in timing
of production, coupled with normal declines in production of older
properties, as well as the impact of lower gas prices on decisions to curtail
production, will prevent the Company from achieving its original gas
production goal for 1995. Exploration expense decreased significantly in the
third quarter of 1995 compared to the third quarter of 1994 as the Company
drilled fewer dry holes in the current quarter. Decreases in exploration
expense were offset by increases in lease operating expense and depreciation,
depletion and amortization expense.
Gas sales, excluding third party sales by NGM, decreased 5 percent and 17
percent, respectively, for the three months and nine months ended September
30, 1995 compared to the same periods in 1994. The decrease in sales is
primarily due to a 15 percent and 21 percent decrease, respectively, in the
average gas price for the three months and nine months ended September 30,
1995 compared to the same periods in 1994.
Oil sales increased 17 percent and 23 percent, respectively, for the three
months and nine months ended September 30, 1995 compared with the same
periods in 1994. The increase in sales is primarily due to a 1 percent and
14 percent increase, respectively, in the average oil price, and a 17 percent
and 10 percent increase, respectively, in average daily production, for the
three months and nine months ended September 30, 1995, each as compared to
the same periods in 1994.
The Company through two of its subsidiaries, NGM and Samedan, uses hedging
arrangements in connection with the sale of oil and gas in order to obtain a
fixed margin and/or minimize product price risk. NGM markets substantially
all the natural gas produced by Samedan as well as gas produced by third
parties.
NGM employs various hedging arrangements to lock in profits and/or limit
exposure to gas price risk. The marketing of natural gas results in a price
risk due to a fixed supply cost and a variable market or, conversely, a
variable supply cost and a fixed market. Most of the gas purchased by NGM is
on an index basis; however, purchasers in the markets in which NGM sells may
often require fixed or NYMEX related pricing. NGM can use a hedge to convert
the fixed or NYMEX sale to an index basis thereby determining the margin and
minimizing the risk of price volatility. During the third quarter of 1995
NGM had hedging transactions with broker-dealers that represented
approximately 199,000 MMBTU per day at prices linked to certain indices.
Hedges for October 1995 through October 1996, which range from 42,400 to
192,800 MMBTU's of gas per day at prices ranging from $.10 per MMBTU above to
$.01 per MMBTU below index, were not closed by September 30, 1995. These
hedges are in place to secure margins on future physical transactions. NGM
records hedging gains or losses relating to fixed term sales as gathering,
marketing and processing revenues in the periods in which the related
contract is completed.
9
<PAGE>
Samedan, from time to time, enters into hedging arrangements primarily to
protect against oil and gas price volatility. For each month from May
through December 1995, Samedan has hedged 5,000 barrels of oil per day.
During the three months ended September 30, 1995, the hedged price ranged
from $19.00 to $19.52 per barrel. For the three months and nine months ended
September 30, 1995, Samedan has recorded $.8 and $1.1 million of gains
related to the oil hedges. These amounts increased the average oil price $.33
and $.16 per barrel for the three months and nine months ended September 30,
1995. The hedged prices for the remainder of 1995 range from $18.56 to
$18.86 per barrel. During the nine months ended September 30, 1995, Samedan
had no gas hedges. As of September 30, 1995, Samedan had fixed price hedges
for gas in place totaling 25,000 MMBTU's per day for February through April
1996 at a price of $1.79 per MMBTU. Samedan also has in place, as of
September 30, 1995, various collar transactions which have set a floor price
of $1.60 and a ceiling price of $2.00 for volumes of (i) 25,000 MMBTU's per
day for November and December of 1995, (ii) 50,000 MMBTU's per day for
January through October 1996 and (iii) 25,000 MMBTU's per day for November
and December of 1996. Since September 30, 1995, Samedan has entered into
additional fixed price hedges for gas which have increased the hedged
position as follows:
<TABLE>
<CAPTION>
Volumes
Periods MMBTU's per day Price Range
- ---------------------- --------------- -----------
<S> <C> <C>
November 1995 30,000 $1.82 - $1.84
December 1995 100,000 $1.90 - $1.95
January - December 1996 50,000 $1.78 - $1.81
</TABLE>
Samedan records hedging gains or losses relating to its own oil and gas
production in oil and gas sales and royalties.
Although these hedging arrangements expose the Company to credit risks,
the Company monitors the creditworthiness of its counter parties and believes
that losses from nonperformance are unlikely to occur.
Certain selected gas and oil operating statistics follow:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gas revenues (in thousands)................ $ 37,599 $ 39,670 $115,426 $139,846
Average daily gas production - MCFS........ 269,095 243,399 268,155 255,616
Average gas price per MCF.................. $ 1.56 $ 1.83 $ 1.62 $ 2.05
Oil revenue (in thousands)................. $ 40,398 $ 34,499 $113,231 $ 91,886
Average daily oil production - BBLS........ 27,296 23,297 25,305 23,000
Average oil price per BBL.................. $ 16.43 $ 16.26 $ 16.77 $ 14.74
</TABLE>
BBLS - BARRELS
MCF - THOUSAND CUBIC FEET
Oil and gas exploration expense decreased $7.1 million or 46 percent and
$13.3 million or 40 percent, respectively, for the three months and nine
months ended September 30, 1995, compared to the same periods in 1994. The
decrease is primarily attributable to a $15.3 million decrease in dry hole
expense, partially offset by a $1.0 million increase in undeveloped lease
amortization and impairment expense, during the first nine months of 1995.
Depreciation, depletion and amortization (DD&A) expense increased 24
percent and 14 percent, respectively, for the three months and nine months
ended September 30, 1995, compared to the same periods in 1994. The increase
is due primarily to higher production volumes and downward reserve revisions
on certain producing properties. Primarily as a result of these reserve
revisions, the unit rate of DD&A per equivalent barrel, converting gas to oil
on the basis of 6 MCF per barrel, increased to $5.58 for the first nine
months of 1995 compared to $5.21 for the same period of 1994. The Company
has recorded, through charges to DD&A, a reserve for future liabilities
related to dismantlement and reclamation costs for offshore facilities. This
reserve is based on the best estimates of Company engineers of such costs to
be incurred in future years.
10
<PAGE>
Interest expense decreased $3.2 million for the nine months ended
September 30, 1995, but increased slightly for the three months ended
September 30, 1995, compared to the same periods in 1994. The decrease in
interest expense occurred as a result of the overall reduction in outstanding
long-term debt in 1994 as discussed in "Liquidity and Capital Resources."
The increase in interest expense during the three months ended September 30,
1995, was the result of a slight increase in interest rates on the Company's
bank credit agreement borrowings.
Interest capitalized decreased $1.0 million and $3.6 million,
respectively, for the three months and nine months ended September 30, 1995,
when compared to the same periods in 1994. This decrease is primarily due to
discontinuing the capitalization of interest on certain Gulf of Mexico
properties that have started producing and are no longer in the construction
phase.
FUTURE TRENDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The Company is required to adopt SFAS No. 121 no
later than 1996, although earlier implementation is permitted. The Company
has not yet completed its evaluation of the impact of SFAS No. 121 on the
Company's consolidated financial position or results of operations. The
Company currently anticipates completion of its evaluation and adoption of
SFAS No. 121 before year end 1995.
Over the past several years, Samedan has settled various claims which it
had against parties who had contracted to purchase gas at fixed prices which
were greater than market or who had take-or-pay contracts with Samedan in
which such obligations to take-or-pay for quantities of gas was not
fulfilled. It is the Company's policy, which is consistent with general
industry practice, that such payments do not represent payment for gas
produced, and therefore, are not subject to royalty payments. The federal
government, with respect to leases on both onshore and offshore federal
lands, certain other governmental bodies, and some private land owners have,
in recent years, begun to assert claims against oil and gas companies for
royalties on some or all of such settlement amounts.
The Company recently participated in a joint effort with the Independent
Petroleum Association of America wherein Samedan was a party in a test case
involving such a claim made with respect to a lease on Indian lands. In the
U.S. District Court for the District of Columbia, Samedan and the other
plaintiffs challenged the determination by the U.S. Minerals Management
Service (MMS) that royalties were payable to the government on certain
proceeds received by Samedan (and the other plaintiffs) with respect to a
contract settlement. The district court recently ruled in favor of the MMS,
and a judgment in the amount of $20,000 was awarded against Samedan. Samedan
has appealed this judgment and intends to vigorously pursue its appeal. The
Company intends to continue to follow its current policies in regard to these
matters unless and until the issues have been settled by controlling
precedent.
Although the amount in controversy applicable to Samedan in the above
described lawsuit is not material, the decision in such case, if not reversed
or otherwise limited on appeal, could have an adverse impact with respect to
other take-or-pay or contract settlements entered into by Samedan. There can
be no assurance that Samedan will prevail on appeal in the above described
lawsuit or that Samedan will prevail in the future on any similar claims
asserted against it based on other take-or-pay or contract settlements,
including, for example, any final settlement with respect to the Columbia
Transmission bankruptcy case described above under "Liquidity and Capital
Resources." The Company is unable at this time to estimate the possible
amount of the loss, if any, associated with this contingency.
Management believes that the Company is well positioned with its balanced
reserves of oil and gas to take advantage of future price increases that may
occur. However, the uncertainty of oil and gas prices continues to affect
the domestic oil and gas industry. The monthly index natural gas price at
the Henry Hub for January through August 1995, has ranged from $.07 to $.97
per MMBTU below the same periods of 1994. Even though the September through
November 1995 monthly index prices ranged from $.08 to $.23 per MMBTU above
the same periods of 1994, the price of natural gas remains well below the
$2.15 average price received during the first half of 1994.
11
<PAGE>
As discussed above, the lower natural gas prices in 1995 have contributed to
the decreased income for the nine months ended September 30, 1995, as
compared to the same period of 1994. An extended period of low natural gas
prices would have a material adverse effect on the Company's cash flow,
results of operations and financial position. As discussed above, the
Company, from time to time, has used hedging and may do so in the future as a
means of reducing its exposure to the volatility of oil and gas prices. The
Company cannot predict the extent to which its revenues will be affected by
inflation, government regulation or changing prices.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The information required by this Item 6 (a) is set forth in the Index to
Exhibits accompanying this quarterly report and is incorporated herein
by reference.
(b) The Company did not file any reports on Form 8-K during the three months
ended September 30, 1995.
12
<PAGE>
SIGNATURE
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.
NOBLE AFFILIATES, INC.
--------------------------------------
(Registrant)
Date November 13, 1995 WM. D. DICKSON
----------------- --------------------------------------
WM. D. DICKSON, Vice President-Finance
and Treasurer
(Principal Financial Officer
and Authorized Signatory)
13
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
27.1 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 22,327
<SECURITIES> 0
<RECEIVABLES> 54,481
<ALLOWANCES> 0
<INVENTORY> 4,121
<CURRENT-ASSETS> 89,066
<PP&E> 1,704,350
<DEPRECIATION> (810,916)
<TOTAL-ASSETS> 1,006,501
<CURRENT-LIABILITIES> 79,314
<BONDS> 401,983
<COMMON> 171,968
0
0
<OTHER-SE> 241,471
<TOTAL-LIABILITY-AND-EQUITY> 1,006,501
<SALES> 234,150
<TOTAL-REVENUES> 309,274
<CGS> 0
<TOTAL-COSTS> 282,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,279
<INCOME-PRETAX> 10,546
<INCOME-TAX> 4,020
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,526
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
</TABLE>
