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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, 1997
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 4, 1997: 56,898,538
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
September 30, December 31,
1997 1996
----------- -----------
ASSETS
Current Assets:
Cash and short-term cash investments $ 77,729 $ 94,768
Accounts receivable-trade 126,444 206,151
Materials and supplies inventories 3,042 4,489
Other current assets 9,115 11,395
----------- -----------
Total Current Assets 216,330 316,803
----------- -----------
Property, Plant and Equipment 2,741,571 2,571,964
Less: accumulated depreciation,
depletion and amortization (1,203,325) (1,000,200)
----------- -----------
1,538,246 1,571,764
----------- -----------
Other Assets 76,029 68,371
----------- -----------
Total Assets $ 1,830,605 $ 1,956,938
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable-trade $ 142,019 $ 143,408
Other current liabilities 28,684 75,736
Current installments of long-term debt 50,000
Income taxes-current 10,931 10,662
----------- -----------
Total Current Liabilities 181,634 279,806
----------- -----------
Deferred Income Taxes 127,371 108,434
----------- -----------
Other Deferred Credits and Noncurrent Liabilities 59,181 50,603
----------- -----------
Long-term Debt 679,923 798,028
----------- -----------
Shareholders' Equity:
Common stock 194,719 194,402
Capital in excess of par value 357,894 355,651
Retained earnings 245,301 185,432
----------- -----------
797,914 735,485
Less common stock in treasury
(at cost, 1,524,900 shares) (15,418) (15,418)
----------- -----------
Total Shareholders' Equity 782,496 720,067
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,830,605 $ 1,956,938
----------- -----------
----------- -----------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Nine Months
Ended September 30,
-----------------------
1997 1996
-------- --------
REVENUES:
Oil and gas sales and royalties $555,981 $396,149
Gathering, marketing and processing 228,315 188,497(4)
Other income 9,175 5,282
-------- --------
793,471 589,928
-------- --------
COSTS AND EXPENSES:
Oil and gas exploration 57,463 38,797
Oil and gas operations 122,060 83,595
Gathering, marketing and processing 215,867 172,388(4)
Depreciation, depletion and amortization 219,813 153,668
Selling, general and administrative 36,353 32,671
Interest 39,869 23,459
Interest capitalized (3,872) (1,343)
-------- --------
687,553 503,235
-------- --------
INCOME BEFORE TAXES 105,918 86,693
INCOME TAX PROVISION 39,226(1) 31,849(1)
-------- --------
NET INCOME $ 66,692 $ 54,844
-------- --------
-------- --------
PRIMARY EARNINGS PER SHARE $ 1.17(2) $ 1.09(2)
-------- --------
-------- --------
FULLY DILUTED EARNINGS PER SHARE $ 1.17(3) $ 1.04(3)
-------- --------
-------- --------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
September 30,
-----------------------
1997 1996
-------- --------
REVENUES:
Oil and gas sales and royalties $170,999 $168,212
Gathering, marketing and processing 60,983 66,410(4)
Other income 2,367 1,311
-------- --------
234,349 235,933
-------- --------
COSTS AND EXPENSES:
Oil and gas exploration 22,019 18,342
Oil and gas operations 37,578 34,237
Gathering, marketing and processing 57,773 61,493(4)
Depreciation, depletion and amortization 70,785 70,742
Selling, general and administrative 11,500 13,786
Interest 12,402 12,783
Interest capitalized (1,823) (466)
-------- --------
210,234 210,917
-------- --------
INCOME BEFORE TAXES 24,115 25,016
INCOME TAX PROVISION 8,938(1) 9,710(1)
-------- --------
NET INCOME $ 15,177 $ 15,306
-------- --------
-------- --------
PRIMARY EARNINGS PER SHARE $ .27(2) $ .31(2)
-------- --------
-------- --------
FULLY DILUTED EARNINGS PER SHARE $ .27(3) $ .29(3)
-------- --------
-------- --------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
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NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------------
1997 1996
--------- ---------
Cash Flows from Operating Activities:
Net income $ 66,692 $ 54,844
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 219,813 153,668
Amortization of undeveloped lease costs, net 2,983 4,558
Increase in other deferred credits 27,515 39,552
(Increase) decrease in other (2,495) (14,419)
Changes in working capital, not including cash:
(Increase) decrease in accounts receivable 79,706 1,507
(Increase) decrease in other current assets
and inventories 3,538 3,839
Increase (decrease) in accounts payable (1,389) 31,471
Increase (decrease) in other current liabilities (46,784) 18,644
--------- ---------
Net Cash Provided by Operating Activities 349,579 293,664
--------- ---------
Cash Flows From Investing Activities:
Acquisition of Energy Development Corporation (768,185)
Capital expenditures (205,462) (200,743)
Proceeds from sale of property,
plant and equipment 14,601 3,036
--------- ---------
Net Cash Used in Investing Activities (190,861) (965,892)
--------- ---------
Cash Flows From Financing Activities:
Exercise of stock options 2,561 4,516
Cash dividends (6,824) (6,041)
Repayment of bank debt (514,000) (48,000)
Proceeds from issuance of senior debt 342,506 800,000
--------- ---------
Net Cash (Used In) Provided by
Financing Activities (175,757) 750,475
--------- ---------
Increase (Decrease) in Cash and Short-term
Cash Investments (17,039) 78,247
--------- ---------
Cash and Short-term Cash Investments at
Beginning of Period 94,768 12,429
--------- ---------
Cash and Short-term Cash Investments at
End of Period $ 77,729 $ 90,676
--------- ---------
--------- ---------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 33,817 $ 11,314
Income taxes $ 18,415 $ 11,500
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
5
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In the opinion of Noble Affiliates, Inc. ("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, 1997 and
December 31, 1996, and the results of operations for the three month and nine
month periods ended September 30, 1997 and 1996 and the cash flows for the nine
month periods ended September 30, 1997 and 1996. 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, 1996.
(1) INCOME TAX PROVISION
For the nine months ended September 30:
(In thousands)
-------------------
1997 1996
-------- --------
Current $ 21,245 $ 15,597
Deferred 17,981 16,252
-------- --------
$ 39,226 $ 31,849
-------- --------
-------- --------
For the three months ended September 30:
(In thousands)
-------------------
1997 1996
-------- --------
Current $ 8,956 $ 865
Deferred (18) 8,845
-------- --------
$ 8,938 $ 9,710
-------- --------
-------- --------
(2) PRIMARY EARNINGS 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)
-------------------
1997 1996
-------- --------
For the nine months ended September 30 56,863 50,356
For the three months ended September 30 56,880 50,432
(3) FULLY DILUTED EARNINGS PER SHARE
The fully diluted earnings per share of common stock for the three months
and nine months ended September 30, 1996 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. For the three
months and nine months ended September 30, 1996 the weighted average number of
shares of common stock outstanding using the if converted method was 57,221,000
and 57,146,000, respectively, and the increase in income related to the assumed
reduction in after tax interest expense was $1,564,000 and $4,692,000,
respectively. There was no dilution of earnings per share in the three months
and nine months ended September 30, 1997.
The Financial Accounting Standards Board issued Statements of Financial
Accounting Standards No. 128 "Earnings per Share", No. 129 "Disclosure of
Information about Capital Structure", No. 130 "Reporting Comprehensive Income"
and No. 131 "Disclosure about Segments of an Enterprise and Related Information"
in the first half of 1997. Statement No. 128 and No. 129 are effective for
financial statements for both interim and annual periods ending after December
15, 1997. Statement No. 130 and No. 131 are effective for 1998. The Company
6
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believes that its adoption of these statements at December 31, 1997 and for 1998
will not have a material effect on its financial statements.
(4) RESTATEMENT TO CONFORM TO CURRENT YEAR PRESENTATION
Gathering, marketing and processing revenues and expenses for the three
month and nine month periods ended September 30, 1996 have been restated to
conform to the current year presentation. This restatement had no effect on net
income.
(5) TRADING AND HEDGING ACTIVITIES
The Company, through its subsidiaries, from time to time, uses various
hedging arrangements in connection with anticipated crude oil and natural gas
sales of its production to minimize the impact of product price fluctuations.
Such arrangements include fixed price hedges, costless collars, swaps, options
and other contractual arrangements.
Hedging gains and losses, as applicable, related to the Company's oil and
gas production are recorded in oil and gas sales and royalties.
In addition to the hedging arrangements pertaining to the Company's
production as described above, Noble Gas Marketing ("NGM"), a wholly owned
subsidiary of the Company, employs various hedging arrangements in connection
with its purchases and sales of third party production to lock in profits or
limit exposure to gas price risk. Most of the purchases made by NGM are on an
index basis; however, purchasers in the markets in which NGM sells 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.
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.
(6) MINERALS MANAGEMENT SERVICE CLAIMS
Samedan Oil Corporation ("Samedan"), a wholly owned subsidiary of the
Company, has from time to time settled various claims against parties which
failed to fulfill their contractual obligation to Samedan to purchase gas at
fixed prices greater than market or pursuant to take-or-pay provisions. The
Company's policy, which is consistent with general industry practice, is that
amounts received in such settlements ("settlement payments") do not represent
payment for gas produced and, therefore, are not subject to royalty payments.
Property owners, including governmental authorities and private parties, have in
recent years asserted claims against Samedan and other oil and gas companies for
royalties on settlement payments.
Samedan participated, in a joint effort with other energy companies and the
Independent Petroleum Association of America ("IPAA"), in a test case which
challenged the determination by the U.S. Minerals Management Service ("MMS")
that royalties were payable to the government on certain settlement payments
received by Samedan (and the other plaintiffs). The District Court for the
District of Columbia (the "D.C. District Court") entered a judgment against
Samedan in the amount of $20,000. On August 27, 1996, the Court of Appeals for
the District of Columbia Circuit reversed the judgment against Samedan. In
subsequent proceedings in the D.C. District Court consistent with the appellate
court decision, on July 25, 1997, the court enjoined the MMS from taking action
to collect from Samedan royalties on non-recoupable settlement payments (the
"MMS Injunction"). Samedan does not know whether the MMS will appeal this
ruling.
Notwithstanding the MMS Injunction, Samedan may be the subject of future
legal actions by property owners claiming royalties on other settlement payments
received by Samedan. There can be no assurance that Samedan will prevail in any
such action. The Company is unable to estimate the possible amount of loss, if
any, associated with this contingency.
(7) SUBSEQUENT EVENT
On November 3, 1997, the Company reported it had closed the
previously-announced sale of its Canadian assets for $54 million (Canadian
dollars). The Company also reported it plans to use $35 million (U.S. dollars)
of the approximately $38 million (U.S. dollars) it received from the sale to
reduce the outstanding balance under its bank line of credit.
7
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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 under "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. Important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") include without limitation future
production levels, future prices and demand for oil and gas, results of future
exploration and development activities, future operating and development costs,
the effect of existing and future laws and governmental regulations (including
those pertaining to the environment), and the political and economic climate of
the United States and the foreign countries in which the Company operates from
time to time, as discussed in this quarterly report on Form 10-Q and the other
documents of the Company filed with the Securities and Exchange Commission (the
"Commission"). All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
ACQUISITION OF ENERGY DEVELOPMENT CORPORATION
On July 31, 1996, Samedan acquired all the outstanding common stock of
Energy Development Corporation ("EDC"), 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, a New Jersey corporation and the sole stockholder of EDC (the "EDC
Acquisition").
The purchase price paid at closing as determined under the Stock Purchase
Agreement was approximately $768,000,000 in cash. The Company accounted for the
acquisition under the purchase method of accounting. The purchase price was
allocated to the assets and liabilities acquired based on estimated fair value.
During the second quarter of 1997, the Company reduced its estimate of
preacquisition contingencies and reduced the purchase price allocated by
approximately $15 million.
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.
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 was
cancelled in connection with the repayment thereunder.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased to $349.6 million in
the nine months ended September 30, 1997 from $293.7 million in the same period
of 1996. Cash and short-term cash investments decreased from $94.8 million at
December 31, 1996 to $77.7 million at September 30, 1997.
On August 6, 1997, the Company issued $100 million aggregate principal
amount of its 7 1/4% Senior Debentures Due 2097. The net proceeds from the sale,
approximately $97.4 million, were used together with available cash to repay
$125 million of the outstanding principal under the revolving loan under the
Credit Agreement.
Additionally, the Company issued $250 million aggregate principal amount of
its 8% Senior Notes Due 2027 on April 7, 1997. Net proceeds of the issuance
together with $104 million of available cash were used to repay the outstanding
principal of $349 million plus accrued interest under the term loan under the
Credit Agreement. The
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Company repaid an additional $40 million on its Credit Agreement on June 3,
1997. Total long-term debt as of September 30, 1997 was $679.9 million.
On November 3, 1997, the Company reported it had closed the
previously-announced sale of its Canadian assets for $54 million (Canadian
dollars). The Company also said it plans to use $35 million (U.S. dollars) of
the approximately $38 million (U.S. dollars) it received from the sale to
reduce the outstanding balance under the revolving loan under the Credit
Agreement.
The Company has expended approximately $205.5 million of its $344.5 million
1997 capital budget through September 30, 1997. The Company expects to fund
internally its remaining 1997 capital budget through cash flows from operations.
The Company's 1997 capital budget includes approximately $4.2 million for
potential acquisitions of producing properties. The Company evaluates from time
to time possible strategic acquisitions and believes it is positioned to access
external sources of funding should it be necessary or desirable in connection
with any such opportunity.
The Company's current ratio (current assets divided by current liabilities)
was 1.19 at September 30, 1997 compared with 1.13 at December 31, 1996.
The Company follows an entitlements method of accounting for its gas
imbalances. The Company's estimated gas imbalance receivables were $18.7 million
at September 30, 1997 and $19.3 million at December 31, 1996. Estimated gas
imbalance liabilities were $26.7 million at September 30, 1997 and $21.7 million
at December 31, 1996. 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 third quarter of 1997, the Company recorded net income of $15.2
million, or $.27 per share, compared to net income of $15.3 million, or $.31 per
share in the third quarter of 1996. During the first nine months of 1997, the
Company recorded net income of $66.7 million, or $1.17 per share, compared to
net income of $54.8 million, or $1.09 per share, in the first nine months of
1996.
Gas sales for the Company, excluding third party sales by Noble Gas
Marketing ("NGM"), a wholly owned subsidiary of the Company, increased 10
percent and 55 percent, respectively, for the three months and nine months ended
September 30, 1997, as compared with the same periods of 1996. The increase in
sales is primarily due to a 35 percent increase in average daily production for
the nine months ended September 30, 1997, and an 11 percent and 15 percent
increase, respectively, in the average gas price for the three months and nine
months ended September 30, 1997, as compared to the same periods in 1996. The
substantial increase in average daily production was primarily due to the
Company's acquisition of EDC on July 31, 1996 and new properties coming on line
in the latter part of 1996, primarily in the Gulf of Mexico.
Oil sales decreased 10 percent and increased 19 percent, respectively, for
the three months and nine months ended September 30, 1997, as compared with the
same periods in 1996. The primary reason for the increased sales was a 20
percent increase in average daily production for the nine months ended September
30, 1997. The primary reasons for the decreased sales were an average oil price
decrease of 9 percent for the three months ended September 30, 1997 and a flat
price for the nine months ended September 30, 1997, as compared with the same
periods in 1996.
NGM markets the Company's natural gas as well as certain third party gas.
NGM sells gas directly to end-users, gas marketers, industrial users, interstate
and intrastate pipelines, and local distribution companies. Noble Trading Inc.
("NTI"), a wholly owned subsidiary of the Company, markets a portion of the
Company's oil as well as certain third party oil. The Company records all NGM's
and NTI's sales as gathering, marketing and processing revenues and expenses.
All intercompany sales and expenses have been eliminated.
The Company, from time to time, uses various hedging arrangements in
connection with anticipated crude oil and natural gas sales of its own
production and third party production purchased and sold by NGM to minimize the
impact of product price fluctuations. Such arrangements include fixed price
hedges, costless collars and other contractual arrangements. Although these
hedging arrangements expose the Company to credit risk, the Company monitors the
creditworthiness of its counterparties, which generally are major institutions,
and believes that losses from nonperformance are unlikely to occur.
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During the third quarter of 1997, the Company had natural gas hedging
contracts that hedged approximately 21 percent of its average daily
production. The net effect of these hedges was a $.06 per MCF reduction in
the average natural gas price for the third quarter. Hedges for October 1997
through December 1997, which average approximately 19 percent of the
Company's estimated average daily natural gas production, were not closed at
September 30, 1997. The Company also had various crude oil hedging contracts
that hedged approximately 20 percent of its average daily production during
the third quarter of 1997. The net effect of these hedges was a $.03 per BBL
decrease in the average crude oil price for the third quarter. Hedges for
October 1997 through December 1997, which average approximately 18 percent of
the Company's estimated average daily crude oil production, were not closed
at September 30, 1997. For the nine months ended September 30, 1997, the net
effect of natural gas hedging was an $.11 per MCF reduction in the average
natural gas price. For the same period, the net effect of crude oil hedging
was a $.21 per BBL reduction in the average crude oil price.
The Company records hedging gains and losses, as applicable, related to its
oil and gas production in oil and gas sales and royalties in the periods in
which the related contract is completed.
In addition to the hedging arrangements pertaining to the Company's
production as described above, NGM employs various hedging arrangements in
connection with its purchases and sales of third party production to lock in
profits or limit exposure to gas price risk. Most of the purchases made by NGM
are on an index basis; however, purchasers in the markets in which NGM sells
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 third quarter of 1997, NGM
had hedging transactions with broker-dealers that represented approximately
394,000 MMBTU's of gas per day, which resulted in a loss of $785,000 for the
third quarter of 1997. Hedges for October 1997 through October 1998, which
range from 645 MMBTU's to 538,384 MMBTU's of gas per day for future physical
transactions, were not closed at September 30, 1997. During the third quarter of
1996, NGM had hedging transactions with broker-dealers that represented
approximately 303,000 MMBTU's of gas per day at prices ranging from $1.66 to
$2.67 per MMBTU. NGM records hedging gains and losses relating to fixed term
sales as gathering, marketing and processing revenues in the periods in which
the related contract is completed.
Certain selected oil and gas operating statistics follow:
<TABLE>
For the three months For the nine months
ended September 30, ended September 30,
------------------------ -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Oil revenues (in thousands) $ 57,854 $ 64,169 $ 186,843 $ 156,704
Average daily oil production - BBLS 38,232 38,366 38,751 32,268
Average oil price per BBL $ 16.91 $ 18.59 $ 18.11 $ 18.18
Gas revenue (in thousands) $ 109,155 $ 99,613 $ 355,583 $ 229,536
Average daily gas production - MCFS 537,050 546,269 571,754 422,325
Average gas price per MCF $ 2.26 $ 2.03 $ 2.33 $ 2.03
</TABLE>
BBLS - BARRELS
MCF - THOUSAND CUBIC FEET
Oil and gas exploration expense increased $3.7 million and $18.7 million,
respectively, for the three months and nine months ended September 30, 1997, as
compared to the same periods in 1996. This increase is primarily attributable to
an increase in seismic, lease rental and other exploration related expenses
offset by a decrease in dry hole expense for the three months, and an increase
in seismic and dry hole expenses for the nine months ended September 30 1997, as
compared with the same periods in 1996.
Oil and gas operations expense increased $3.3 million and $38.5 million,
respectively, for the three months and nine months ended September 30, 1997, as
compared to the same periods in 1996. The increases are due primarily to an
increased number of producing properties as a result of the EDC Acquisition and
new properties commencing production in the Gulf of Mexico.
Depreciation, depletion and amortization (DD&A) expense was flat for the
three months ended September 30, 1997 and increased 43 percent for the nine
months ended September 30, 1997, as compared to the same periods in 1996. The
unit rate of DD&A per barrel of oil equivalent (BOE), converting gas to oil on
the basis of 6 MCF per
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barrel, was $6.01 for the first nine months of 1997, as compared to $5.46 for
the same period of 1996. The increase in the unit rate per BOE is due to the
purchase price allocation to the properties obtained in the EDC Acquisition
which averaged $7.32 per BOE for the first nine months of 1997, compared with
Samedan's properties which averaged $5.61 per BOE for the same period. The
Company has recorded, through charges to DD&A, a reserve for estimated future
liabilities related to dismantlement and reclamation costs for offshore
facilities. Approximately $3.3 million and $10.2 million, respectively, was
charged to DD&A for the three months and nine months ended September 30, 1997
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 expense decreased $.4 million and increased $16.4 million for the
three months and nine months ended September 30, 1997, as compared to the same
periods in 1996. The year to date increase resulted from the increased debt
associated with the EDC Acquisition.
Interest capitalized increased $1.4 million and $2.5 million, respectively,
for the three months and nine months ended September 30, 1997, as compared to
the same periods in 1996. This increase resulted from construction projects for
various properties located in the Gulf of Mexico.
FUTURE TRENDS
Samedan has from time to time settled various claims against parties which
failed to fulfill their contractual obligation to Samedan to purchase gas at
fixed prices greater than market or pursuant to take-or-pay provisions. The
Company's policy, which is consistent with general industry practice, is that
amounts received in such settlements ("settlement payments") do not represent
payment for gas produced and, therefore, are not subject to royalty payments.
Property owners, including governmental authorities and private parties, have in
recent years asserted claims against Samedan and other oil and gas companies for
royalties on settlement payments.
Samedan participated, in a joint effort with other energy companies and the
Independent Petroleum Association of America ("IPAA"), in a test case which
challenged the determination by the U.S. Minerals Management Service ("MMS")
that royalties were payable to the government on certain settlement payments
received by Samedan (and the other plaintiffs). The District Court for the
District of Columbia (the "D.C. District Court") entered a judgment against
Samedan in the amount of $20,000. On August 27, 1996, the Court of Appeals for
the District of Columbia Circuit reversed the judgment against Samedan. In
subsequent proceedings in the D.C. District Court consistent with the appellate
court decision, on July 25, 1997, the court enjoined the MMS from taking action
to collect from Samedan royalties on non-recoupable settlement payments (the
"MMS Injunction"). Samedan does not know whether the MMS will appeal this
ruling.
Notwithstanding the MMS Injunction, Samedan may be the subject of future
legal actions by property owners claiming royalties on other settlement payments
received by Samedan. There can be no assurance that Samedan will prevail in any
such action. The Company is unable to estimate the possible amount of 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 September 30, 1997.
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 12, 1997 /s/ WM. D. DICKSON
-------------------------- --------------------------------------
WM. D. DICKSON
Vice President-Finance and Treasurer
(Principal Financial Officer
and Authorized Signatory)
13
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------- -------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 77,729
<SECURITIES> 0
<RECEIVABLES> 126,444
<ALLOWANCES> 0
<INVENTORY> 3,042
<CURRENT-ASSETS> 216,330
<PP&E> 2,741,571
<DEPRECIATION> (1,203,325)
<TOTAL-ASSETS> 1,830,605
<CURRENT-LIABILITIES> 181,634
<BONDS> 679,923
0
0
<COMMON> 194,719
<OTHER-SE> 587,777
<TOTAL-LIABILITY-AND-EQUITY> 1,830,605
<SALES> 784,296
<TOTAL-REVENUES> 793,471
<CGS> 215,867
<TOTAL-COSTS> 647,684
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,869
<INCOME-PRETAX> 105,918
<INCOME-TAX> 39,226
<INCOME-CONTINUING> 66,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,692
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
