<PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
UNITED STATES
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 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 July 31, 1996: 50,416,116
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
June 30, December 31,
1996 1995
---------- ----------
ASSETS
Current Assets:
Cash and short-term cash investments........ $ 41,798 $ 12,429
Accounts receivable-trade................... 85,579 79,478
Materials and supplies inventories.......... 2,646 2,855
Other current assets........................ 14,284 22,750
---------- ----------
Total Current Assets........................ 144,307 117,512
---------- ----------
Property, Plant and Equipment.................. 1,795,068 1,691,485
Less: accumulated depreciation,
depletion and amortization............ (909,606) (847,540)
---------- ----------
885,462 843,945
---------- ----------
Other Assets................................... 26,035 27,719
---------- ----------
Total Assets................................ $1,055,804 $ 989,176
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable-trade...................... $ 86,785 $ 73,536
Other current liabilities................... 17,045 20,206
Income taxes-current........................ 9,494 3,436
---------- ----------
Total Current Liabilities................... 113,324 97,178
---------- ----------
Deferred Income Taxes.......................... 76,852 69,445
---------- ----------
Other Deferred Credits and Noncurrent
Liabilities................................. 38,286 33,650
---------- ----------
Long-term Debt................................. 377,010 376, 992
---------- ----------
Shareholders' Equity:
Common stock................................ 173,004 172,407
Capital in excess of par value.............. 147,368 145,059
Retained earnings........................... 145,378 109,863
---------- ----------
465,750 427,329
Less common stock in treasury
(at cost, 1,524,900 shares)................. (15,418) (15,418)
---------- ----------
Total Shareholders' Equity.................. 450,332 411,911
---------- ----------
Total Liabilities and Shareholders' Equity.. $1,055,804 $ 989,176
---------- ----------
---------- ----------
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)
Six Months Ended June 30,
-------------------------
1996 1995
-------- --------
REVENUES:
Oil and gas sales and royalties.............. $227,937 $154,291
Gathering, marketing and processing revenues. 122,087 42,086
Other income................................. 3,971 2,607
-------- --------
353,995 198,984
-------- --------
COSTS AND EXPENSES:
Oil and gas operations....................... 49,358 40,733
Oil and gas exploration...................... 20,455 11,395
Gathering, marketing and processing costs.... 110,895 41,589
Depreciation, depletion and amortization..... 82,926 70,820
Selling, general and administrative.......... 18,885 18,995
Interest expense............................. 10,676 10,794
Interest capitalized......................... (877) (1,479)
-------- --------
292,318 192,847
-------- --------
INCOME BEFORE INCOME TAXES....................... 61,677 6,137
INCOME TAX PROVISION............................. 22,139 (1) 2,340 (1)
-------- --------
NET INCOME....................................... $ 39,538 $ 3,797
-------- --------
-------- --------
PRIMARY EARNINGS PER SHARE....................... $ .78 (2) $ .08 (2)
-------- --------
-------- --------
FULLY DILUTED EARNINGS PER SHARE................. $ .75 (3) $ .08 (3)
-------- --------
-------- --------
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)
Three Months Ended June 30,
----------------------------
1996 1995
--------- ---------
REVENUES:
Oil and gas sales and royalties ............... $ 119,522 $ 80,470
Gathering, marketing and processing revenues... 63,286 25,031
Other income .................................. 764 1,629
--------- ---------
183,572 107,130
--------- ---------
COSTS AND EXPENSES:
Oil and gas operations ........................ 26,828 18,422
Oil and gas exploration ....................... 12,897 6,989
Gathering, marketing and processing costs...... 58,781 24,622
Depreciation, depletion and amortization....... 44,787 37,433
Selling, general and administrative ........... 9,213 9,478
Interest expense .............................. 5,328 5,546
Interest capitalized .......................... (312) (786)
--------- ---------
157,522 101,704
--------- ---------
INCOME BEFORE INCOME TAXES ...................... 26,050 5,426
INCOME TAX PROVISION ............................ 9,191 (1) 2,069 (1)
--------- ---------
NET INCOME ...................................... $ 16,859 $ 3,357
--------- ---------
--------- ---------
PRIMARY EARNINGS PER SHARE ...................... $ .33 (2) $ .07 (2)
--------- ---------
--------- ---------
FULLY DILUTED EARNINGS PER SHARE ................ $ .32 (3) $ .07 (3)
--------- ---------
--------- ---------
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>
Six Months Ended June 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income ...................................................... $ 39,538 $ 3,797
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization ..................... 82,926 70,820
Amortization of undeveloped lease costs, net ................. 3,882 4,329
Change in deferred credits .................................. 12,044 4,580
Change in other assets and other noncash items, net .......... (1,140) (1,828)
Changes in working capital, not including cash:
(Increase) decrease in accounts receivable ................... (6,101) (2,596)
(Increase) decrease in other current assets and inventories... 8,668 20,000
Increase (decrease) in accounts payable ...................... 13,249 18,642
Increase (decrease) in other current liabilities ............. 2,896 2,290
---------- ----------
Net Cash Provided by Operating Activities ......................... 155,962 120,034
---------- ----------
Cash Flows From Investing Activities:
Capital expenditures ............................................ (128,438) (108,078)
Proceeds from sale of property, plant and equipment ............. 2,962 1,851
---------- ----------
Net Cash Used in Investing Activities ............................. (125,476) (106,227)
---------- ----------
Cash Flows From Financing Activities:
Exercise of stock options ....................................... 2,907 434
Cash dividends .................................................. (4,024) (4,002)
---------- ----------
Net Cash Used in Financing Activities ............................. (1,117) (3,568)
---------- ----------
Increase (Decrease) in Cash and Short-term Cash Investments ....... 29,369 10,239
---------- ----------
Cash and Short-term Cash Investments at Beginning of Period ....... 12,429 22,192
---------- ----------
Cash and Short-term Cash Investments at End of Period ............. $ 41,798 $ 32,431
---------- ----------
---------- ----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized) ............................ $ 9,258 $ 8,776
Income taxes .................................................... $ 8,000
</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 June 30, 1996 and December 31, 1995, and the
results of operations for the three month and six month periods ended June 30,
1996 and 1995 and the cash flows for the six month periods ended June 30, 1996
and 1995. 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, 1995.
(1) INCOME TAX PROVISION
For the six months ended June 30:
(In thousands)
--------------------
1996 1995
------- -------
Current............................... $14,732 $(1,933)
Deferred.............................. 7,407 4,273
------- -------
$22,139 $ 2,340
------- -------
------- -------
For the three months ended June 30:
(In thousands)
--------------------
1996 1995
------- -------
Current............................... $ 5,521 $(1,995)
Deferred.............................. 3,670 4,064
------- -------
$ 9,191 $ 2,069
------- -------
------- -------
(2) NET INCOME PER SHARE
The primary earnings per share of common stock was computed using the
weighted average number of shares of common stock outstanding during the period
as follows:
(In thousands)
--------------------
1996 1995
------- -------
For the six months ended June 30...... 50,318 50,025
For the three months ended June 30.... 50,363 50,032
(3) FULLY DILUTED EARNINGS PER SHARE
The fully diluted earnings per share of common stock was computed using the
"if converted method", assuming the Company's convertible debt was converted
into additional outstanding shares of common stock at the beginning of the
period. The weighted average number of shares of common stock outstanding was
56,988,000 for the six months ended June 30, 1996 and 57,033,000 for the three
months ended June 30, 1996. The increase in income related to the assumed
reduction in after tax interest expense was $3,128,000 for the six months ended
June 30, 1996 and $1,564,000 for the three months ended June 30, 1996. The
Company's convertible debt was antidilutive in 1995 thus, there was no effect on
fully diluted earnings per share.
6
<PAGE>
(4) MINERALS MANAGEMENT SERVICE CLAIMS
Over the past several years, the Company's wholly owned subsidiary, Samedan
Oil Corporation ("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 were 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 landowners have begun to assert claims in recent years 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 to 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 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 a negative 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. The Company is unable at
this time to estimate the possible amount of the loss, if any, associated with
this contingency.
(5) SUBSEQUENT EVENT
On July 31, 1996, the Company acquired all the common stock of Energy
Development Corporation ("EDC"), for approximately $768,000,000 in cash.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this Form 10-Q, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy, plans and objectives of
management of the Company for future operations and industry conditions, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct.
ACQUISITION OF ENERGY DEVELOPMENT CORPORATION
On July 31, 1996, Samedan acquired all the outstanding common stock of
Energy Development Corporation, a New Jersey corporation, pursuant to the terms
of a Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of
July 1, 1996 between Samedan and Enterprise Diversified Holdings Incorporated
("EDHI"), a New Jersey corporation and the sole stockholder of EDC.
7
<PAGE>
EDC is a large independent gas and oil exploration and production company
headquartered in the United States. EDC has grown substantially since 1988,
primarily through strategic acquisitions and the exploitation of its acquired
properties.
The purchase price paid at closing as determined under the Stock Purchase
Agreement was approximately $768,000,000 in cash. As previously disclosed by the
Company in a press release, the Company's personnel have evaluated and estimated
the proved reserves of EDC, as of January 1, 1996, at approximately 37.7 million
barrels of oil and 454.5 billion cubic feet of gas. Current daily production
levels of EDC's properties are approximately 11,000 barrels of oil and 211
million cubic feet of gas. EDC's major properties are located in the Gulf of
Mexico, onshore gulf coast of Louisiana and Texas, and internationally in
Argentina and the United Kingdom sector of the North Sea. In determining the
amount of consideration to be paid for the stock of EDC, the Company conducted a
due diligence review of EDC and its subsidiaries and their assets and
liabilities, including, without limitation, their holdings of proved reserves of
oil and gas. The purchase price was the result of arm's-length negotiations with
EDHI.
In connection with the acquisition, the Company entered into a new
$800,000,000 bank credit facility pursuant to a Credit Agreement (the "Credit
Agreement") dated as of July 31, 1996 among the Company, as borrower, certain
commercial lending institutions which are or may become a party thereto, as
lenders, and Union Bank of Switzerland, Houston Agency, as agent for the
lenders. The Credit Agreement provides for a $400,000,000 term loan, which has
certain scheduled prepayments and a final maturity of July 31, 2001, and a
$400,000,000 revolving credit facility with a final maturity of July 31, 2001.
The borrowings of $800,000,000 under the Credit Agreement were used to fund the
purchase price for EDC and, together with funds on hand, to repay $48,000,000 of
outstanding indebtedness under the Company's then existing credit agreement (the
"old credit agreement") with certain banks. The Company's old credit agreement
was cancelled in connection with the repayment.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased to $156.0 million in
the six months ended June 30, 1996 from $120.0 million in the same period of
1995. Cash and short-term cash investments increased from $12.4 million at
December 31, 1995 to $41.8 million at June 30, 1996.
The Company has expended approximately $128.4 million of its $240 million
1996 capital budget through June 30, 1996. The Company expects to fund
internally its remaining 1996 capital budget. The Company's $240 million capital
budget includes approximately $58 million for potential acquisitions of
producing properties. On July 31, 1996 the Company acquired all the outstanding
common stock of EDC as previously discussed.
As of June 30, 1996 the Company had debt of $378,000,000 consisting of
$100,000,000 7 1/4% Notes Due 2023, $48,000,000 outstanding on its bank credit
facility and $230,000,000 4 1/4% Convertible Subordinated Notes Due 2003.
Subsequent to acquiring EDC the Company will have debt of $1,130,000,000 after
repaying the existing $48,000,000 outstanding on its bank credit facility and
entering into the new $800,000,000 Credit Agreement.
The Company's current ratio (current assets divided by current liabilities)
was 1.27 for June 30, 1996 compared to 1.21 at December 31, 1995.
The Company follows an entitlements method of accounting for its gas
imbalances. The Company's estimated gas imbalance receivables were $9.9 million
at June 30, 1996 and $12.3 million at December 31, 1995. Estimated gas
imbalance liabilities were $14.7 million at June 30, 1996 and $11.4 million at
December 31, 1995. 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.
RESULTS OF OPERATIONS
For the second quarter of 1996, the Company recorded net income of $16.9
million, or primary earnings per share of 33 cents, compared to net income of
$3.4 million, or primary earnings per share of 7 cents in the second quarter of
1995. During the first six months of 1996, the Company recorded net income of
$39.5 million, or primary
8
<PAGE>
earnings per share of 78 cents, compared to net income of $3.8 million, or
primary earnings per share of 8 cents in the first six months of 1995. The
increase resulted primarily from increased oil and gas production, as well as
increased prices. Approximately $1.6 million and $3.1 million, respectively,
after tax interest expense was added to income to calculate fully diluted
earnings per share of 32 cents and 75 cents, respectively, for the three
months and six months ended June 30, 1996.
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 and expenses are
recorded as gathering, marketing and processing revenues and costs. For the
second quarter of 1996, third party sales and expenses totaled $63.3 million and
$58.8 million, respectively, for a gross margin of $4.5 million. Third party
sales and expenses of $122.1 million and $110.9 million, respectively, resulted
in a gross margin of $11.2 million for the first half of 1996. For the second
quarter of 1995, third party sales and expenses totaled $25 million and $24.6
million, respectively, for a gross margin of $.4 million. Third party sales,
expenses, and gross margin for the first half of 1995 were $42.1 million, $41.6
million and $.5 million, respectively. The increased margins in the 1996 second
quarter and first half resulted from the Company's capacity and ability to make
delivered sales and meet the greater demand for gas.
Gas sales, excluding third party sales by NGM, increased 73 percent and 67
percent, respectively, for the three months and six months ended June 30, 1996.
The increase in sales is primarily due to an 18 percent and 23 percent increase,
respectively, in the average gas price and a 47 percent and 34 percent increase
respectively, in average daily production for the three months and six months
ended June 30, 1996 compared to the same periods in 1995.
Oil sales increased 23 percent and 27 percent, respectively, for the three
months and six months ended June 30, 1996 compared with the same periods in
1995. The increase in sales is primarily due to a 3 percent and 5 percent
increase, respectively, in the average oil price and a 19 percent and 20 percent
increase, respectively, in average daily production for the three months and six
months ended June 30, 1996 compared to the same periods in 1995.
NGM employs various hedging arrangements to lock in profits or limit
exposure to oil and gas price risk. Most of the purchases made by NGM are on an
index basis; however, purchasers in the markets in which NGM sells may often
require fixed or NYMEX related pricing. NGM may 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 second quarter of 1996, NGM had hedging
transactions with broker-dealers that represented approximately 303,000 MMBTU of
gas per day at prices ranging from $1.68 to $2.86 per MMBTU. Hedges for July
through December 1996, which range from 10,000 to 149,000 MMBTU of gas per day
at prices ranging from $.37 per MMBTU above to $.10 per MMBTU below index, were
not closed by June 30, 1996. These hedges are in place to secure margins on
future physical transactions. During the second quarter of 1995, NGM had hedging
transactions with broker-dealers that represented approximately 105,000 MMBTU of
gas per day at prices ranging from $1.47 to $1.89 per MMBTU. NGM records hedging
gains or losses relating to fixed term sales as gathering, marketing and
processing revenues in the period in which the related contract is completed.
Samedan, from time to time, enters into hedging arrangements primarily to
protect against oil and gas price volatility and records hedging gains and
losses relating to its own oil and gas production in oil and gas sales and
royalties. During the second quarter of 1996, Samedan had fixed price hedges for
100,000 MMBTU of gas per day at prices ranging from $1.78 to $1.81 per MMBTU.
Samedan also had various collar transactions for the second quarter of 1996 for
130,000 MMBTU of gas per day which had a floor price of $1.60 and a ceiling
price of $2.03 per MMBTU. Fixed price hedges for July through December 1996 for
100,000 MMBTU of gas per day, at prices ranging from $1.78 to $1.80 per MMBTU,
were not closed at June 30, 1996. Samedan has also entered into fixed price
hedges for January through December 1997 for 50,000 MMBTU of gas per day at
prices ranging from $1.88 to $2.28 per MMBTU. Costless collars for July through
December 1996, which range from 105,000 to 130,000 MMBTU of gas per day with a
floor price of $1.60 and a ceiling price of $2.03 per MMBTU, were not closed at
June 30, 1996. Samedan has entered into swap agreements for November 1996
through March 1997 for 26,000 MMBTU of gas per day and will receive the NYMEX
last day settlement price for each winter month less various basis differences
of $.12 to $.23. In exchange, Samedan will pay the Inside FERC price for each
month. Samedan also has gas put options in place for January through December
1997 for 85,000 MMBTU of gas per day. The floor price, net of a premium of $.18
to $.28 per MMBTU, ranges from $1.87 to $2.02 per MMBTU. Samedan also had
various crude oil collar transactions for the second quarter of 1996 for 15,000
barrels per day which had a floor price of $16.50 per barrel and ceiling prices
ranging from $18.00 to $18.60 per barrel. Collars for July through December 1996
for 15,000 barrels per day with a floor price of $16.50 and ceiling prices
ranging from $18.00 to $18.60 per barrel, were not closed at June 30, 1996.
9
<PAGE>
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 oil and gas operating statistics follow:
<TABLE>
For the three months For the six months
ended June 30, ended June 30,
---------------------- --------------------
1996 1995 1996 1995
---------- --------- --------- --------
<S> <C> <C> <C> <C>
Oil revenues (in thousands) ................ $ 48,222 $ 39,248 $ 92,535 $ 72,833
Average daily oil production - BBLS ........ 30,091 25,204 29,203 24,294
Average oil price per BBL .................. $ 18.09 $ 17.49 $ 17.86 $ 16.96
Gas revenue (in thousands) ................. $ 68,122 $ 39,450 $ 129,923 $ 77,827
Average daily gas production - MCFS ....... 388,826 263,764 359,673 267,678
Average gas price per MCF .................. $ 1.98 $ 1.68 $ 2.02 $ 1.65
</TABLE>
BBLS - BARRELS
MCF - THOUSAND CUBIC FEET
Oil and gas exploration expense increased $5.9 million and $9.1 million,
respectively, for the three months and six months ended June 30, 1996 compared
to the same periods in 1995. The increase is primarily attributable to a $8.1
million and $9.7 million increase, respectively, in dry hole expense, partially
offset by a $2.3 million and $.4 million decrease, respectively, in undeveloped
lease amortization during the three months and six months ended June 30, 1996.
Oil and gas operations expense increased $8.4 million and $8.6 million,
respectively, for the three months and six months ended June 30, 1996, compared
to the same periods in 1995. On a barrel of oil equivalent (BOE) basis
(converting gas to oil on the basis of 6 MCF per barrel), operations expense
increased $.18 per BOE and decreased $.23 per BOE, respectively, for the three
months and six months ended June 30, 1996 as compared to the same periods of
1995. The increase in the second quarter of 1996 is due primarily to an increase
in expenses relating to a number of offshore properties and platforms in the
Gulf of Mexico.
Depreciation, depletion and amortization (DD&A) expense increased 20
percent and 17 percent, respectively, for the three months and six months ended
June 30, 1996, compared to the same periods in 1995. The unit rate of DD&A per
equivalent barrel, converting gas to oil on the basis of 6 MCF per barrel was
$5.11 for the first six months of 1996 compared to $5.68 for the same period of
1995. The decrease in the unit rate per equivalent barrel is due partially to
the adoption of Statement of Financial Standards (SFAS) No. 121 in the fourth
quarter of 1995, pursuant to which approximately $59.5 million was written down
to recognize impairment of certain long lived assets. The Company has recorded,
through charges to DD&A, a reserve for future liabilities related to
dismantlement and reclamation costs for offshore facilities. Approximately
$2,612,000 and $4,910,000, respectively, was charged to DD&A for the three
months and six months ended June 30, 1996 for these estimated future
liabilities. This reserve is based on the best estimates of Company engineers of
such costs to be incurred in future years.
Interest capitalized decreased $.5 million and $.6 million, respectively,
for the three months and six months ended June 30, 1996 compared to the same
periods in 1995. This decrease resulted from the completion and discontinuation
of capitalized interest on the Company's High Island A-547 and Vermilion 371
properties in the Gulf of Mexico.
OTHER
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation." The Company plans to adopt SFAS
No. 123 during 1996 by electing to disclose the additional information required
in the footnotes to its financial statements as opposed to recording stock based
compensation expense.
10
<PAGE>
FUTURE TRENDS
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 were 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 landowners have begun to assert claims in recent years 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 to 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 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 a negative 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. The Company is unable at
this time to estimate the possible amount of the loss, if any, associated with
this contingency.
Management believes 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. Due to the volatility of oil and gas prices, the
Company, from time to time, uses hedging and plans to do so in the future as a
means of controlling its exposure to price changes. The Company cannot predict
the extent to which its revenues will be affected by inflation, government
regulation or changing prices.
11
<PAGE>
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 June 30, 1996.
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 August 13, 1996 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
- ----------------- ----------------------------- ------------
10.1 Amendment No. 2 to the
Noble Affiliates Thrift and
Profit Sharing Plan, as
amended and restated effective
as of January 1, 1994.
27.1 Financial Data Schedule
14
<PAGE>
AMENDMENT NO. 2 TO THE
NOBLE AFFILIATES
THRIFT AND PROFIT SHARING PLAN
Pursuant to the provisions of Section 8.1 thereof, the Noble Affiliates
Thrift and Profit Sharing Plan, as amended and restated effective as of January
1, 1994 (the "Plan"), is hereby amended in the following respects only:
FIRST: Section 2.1 of the Plan is hereby amended by restatement in its
entirety to read as follows:
Section 2.1 ELIGIBILITY. Each Covered Employee who is a participant
in the Previous Plan on December 31, 1993, shall be eligible to participate
in this Plan as of January 1, 1994. Each other Covered Employee shall be
eligible to participate in this Plan on the first day of any calendar month
coinciding with or following (i) his or her Employment Date if that
Employment Date is on or after September 1, 1996, or (ii) if not, the
earlier of September 1, 1996, or the anniversary of his or her Employment
Date as of which he or she has completed a Year of Eligibility Service.
However, if such person is not a Covered Employee on the first day he or
she is otherwise eligible to participate but is subsequently reemployed as
a Covered Employee, then such person shall be eligible to participate in
this Plan as of the date of such reemployment. If a Participant ceases to
be a Covered Employee, such Participant shall remain a Participant under
this Plan but no contributions shall be made to the Plan on his or her
behalf while he or she is not a Covered Employee.
SECOND: Section 3.2 of the Plan is hereby amended by restatement in its
entirety to read as follows:
Section 3.2 MATCHING CONTRIBUTIONS. In addition to the contributions
made pursuant to Section 3.1, for each pay period commencing after August
31, 1996, an Employer shall make a Matching Contribution to the Plan for
each Participant in the following amount:
(a) for each Participant having less than a 10-year Period of
Service at the end of such pay period, an amount equal to 70% of the
portion of the Pre-Tax Contribution made by such Employer on behalf of
such Participant for such period which does not exceed 6% of his or
her Basic Compensation for such period; and
<PAGE>
(b) for each Participant having a 10-year or more Period of
Service at the end of such pay period, an amount equal to 100% of the
portion of the Pre-Tax Contribution made by such Employer on behalf of
such Participant for such period which does not exceed 6% of his or
her Basic Compensation for such period.
IN WITNESS WHEREOF, this Amendment has been executed this
29th day of July, 1996, to be effective as of September 1, 1996.
NOBLE AFFILIATES, INC.
By: /S/ ROBERT KELLEY
---------------------------------------
Name: Robert Kelley
Title: President and Chief Executive
Office
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 41,798
<SECURITIES> 0
<RECEIVABLES> 85,579
<ALLOWANCES> 0
<INVENTORY> 2,646
<CURRENT-ASSETS> 144,307
<PP&E> 1,795,068
<DEPRECIATION> (909,606)
<TOTAL-ASSETS> 1,055,804
<CURRENT-LIABILITIES> 113,324
<BONDS> 0
0
0
<COMMON> 173,004
<OTHER-SE> 292,746
<TOTAL-LIABILITY-AND-EQUITY> 1,055,804
<SALES> 227,937
<TOTAL-REVENUES> 353,995
<CGS> 110,895
<TOTAL-COSTS> 292,318
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,676
<INCOME-PRETAX> 61,677
<INCOME-TAX> 22,139
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,538
<EPS-PRIMARY> .78
<EPS-DILUTED> .75
</TABLE>
