<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1994 Commission file number 1-8674
GLOBAL NATURAL RESOURCES INC.
(Exact name of Registrant as specified in its charter)
New Jersey 93-0835865
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5300 Memorial Drive
Suite 800 77007
Houston, Texas (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (713) 880-5464
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.
X YES NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of August 2, 1994, 29,424,580 shares of common stock were outstanding.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets - June 30, 1994 and December 31, 1993 . . . . . . . . . . . 1
Consolidated Statements of Operations for the Three Months and the Six Months
Ended June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,123 $ 16,045
Short-term liquid investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,684 49,947
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,050 14,081
Current investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 940 1,663
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475 891
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,272 82,627
-------- --------
Properties and equipment, at cost:
Oil and gas properties (successful efforts method). . . . . . . . . . . . . . . . . . . 99,710 91,036
Pipeline facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,191 18,976
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,398 10,054
-------- --------
129,299 120,066
Less: accumulated depletion, depreciation and amortization . . . . . . . . . . . . . (56,049) (54,156)
-------- --------
Net properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 73,250 65,910
-------- --------
Investment in Russian joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,890 8,783
Indonesian venture advances, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,890 3,099
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 284
-------- --------
$148,578 $160,703
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,105 $ 14,319
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,471 6,248
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 812 785
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,388 21,352
-------- --------
Deferred credits and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 742 600
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Redeemable bearer shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,820 18,375
Shareholders' equity:
Common stock; authorized 100,000,000 shares at $1.00 par value;
issued and outstanding 33,331,287 in 1994 and 33,190,287 in 1993 . . . . . . . . 33,331 33,190
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,320 137,648
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,225) (35,914)
-------- --------
133,426 134,924
Less: treasury stock; 3,906,707 shares in 1994 and 3,186,329 in 1993 . . . . . . . . (19,798) (14,548)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,628 120,376
-------- --------
$148,578 $160,703
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas . . . . . . . . . . . . . . . . $ 6,689 $ 7,680 $ 14,955 $ 15,661
Pipeline . . . . . . . . . . . . . . . . . . 4,362 9,671 9,255 16,253
Other . . . . . . . . . . . . . . . . . . . 258 205 508 400
----------- ----------- ----------- -----------
11,309 17,556 24,718 32,314
----------- ----------- ----------- -----------
Expenses:
Production . . . . . . . . . . . . . . . . . 823 973 1,662 1,965
Exploration . . . . . . . . . . . . . . . . 6,392 2,321 7,974 4,069
Pipeline cost of sales . . . . . . . . . . . 4,169 9,455 8,914 15,586
Depletion, depreciation and amortization . . 1,479 1,998 2,936 3,991
Administrative . . . . . . . . . . . . . . . 1,652 1,908 3,330 3,589
----------- ----------- ----------- -----------
14,515 16,655 24,816 29,200
----------- ----------- ----------- -----------
Income (loss) from operations . . . . . (3,206) 901 (98) 3,114
Other income (expense):
Distribution from IPI . . . . . . . . . . . -- 1,267 -- 1,267
Interest income . . . . . . . . . . . . . . 461 417 1,053 788
Interest expense . . . . . . . . . . . . . . (18) (26) (39) (51)
Other . . . . . . . . . . . . . . . . . . . (444) (975) (156) 758
----------- ----------- ----------- -----------
(1) 683 858 2,762
----------- ----------- ----------- -----------
Income (loss) before income tax expense (3,207) 1,584 760 5,876
Income tax expense . . . . . . . . . . . . . . . 1,169 1,317 3,071 3,379
----------- ----------- ----------- -----------
Net income (loss) . . . . . . . . . . . . . $ (4,376) $ 267 $ (2,311) $ 2,497
=========== =========== =========== ===========
Net income (loss) per share based on weighted
shares outstanding:
Net income (loss) primary . . . . . . . . . $ (.15) $ .01 $ (.08) $ .09
=========== =========== =========== ===========
Net income (loss) assuming full dilution . . $ (.15) $ .01 $ (.08) $ .08
=========== =========== =========== ===========
Weighted average common shares outstanding:
Primary . . . . . . . . . . . . . . . . . . 29,746,982 29,865,524 29,891,826 26,761,631
=========== =========== =========== ===========
Assuming full dilution . . . . . . . . . . . 29,746,982 29,865,524 29,891,826 29,847,020
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1994 1993
-------- ---------
<S> <C> <C>
Cash Flow from Operating Activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,311) $ 2,497
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization . . . . . . . . . . . . . . 2,936 3,991
Leasehold impairments and dry hole expense . . . . . . . . . . . . . 6,106 2,938
Unrealized loss on short-term liquid and current investments . . . . 337 --
Gain on asset sales . . . . . . . . . . . . . . . . . . . . . . . . (232) (1,766)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 137
Changes in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . 6,031 (1,077)
Other current assets . . . . . . . . . . . . . . . . . . . . . . 1,139 1,515
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . (5,214) (1,961)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 223 (881)
Short-term liquid investments . . . . . . . . . . . . . . . . . . 3,926 --
Deferred credits . . . . . . . . . . . . . . . . . . . . . . . . 142 (28)
-------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . 13,083 5,365
-------- ---------
Cash Flows from Investing Activities:
Additions to oil and gas properties . . . . . . . . . . . . . . . . (15,812) (5,022)
Additions to pipeline facilities and other properties and equipment . (586) (635)
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . -- (58)
Purchases of short-term liquid investments . . . . . . . . . . . . . -- (397,689)
Maturities of short-term liquid investments . . . . . . . . . . . . -- 5,000
Proceeds from sales of short-term liquid investments . . . . . . . . -- 382,827
Proceeds from asset sales . . . . . . . . . . . . . . . . . . . . . 303 3,816
Investment in Russian joint venture . . . . . . . . . . . . . . . . (4,107) 1,645
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 (31)
-------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . . (20,041) (10,147)
-------- ---------
Cash Flows from Financing Activities:
Proceeds from common stock issuance . . . . . . . . . . . . . . . . 813 (64)
Redemptions of bearer shares . . . . . . . . . . . . . . . . . . . . (555) --
Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . (5,289) --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 445
-------- ---------
Net cash provided by (used in) financing activities . . . . . . . . (4,964) 381
-------- ---------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . (11,922) (4,401)
Cash and cash equivalents at beginning of period . . . . . . . . . . 16,045 19,486
-------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 4,123 $ 15,085
======== =========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5 $ 15
======== =========
Income taxes:
U. S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 150
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,060 3,047
-------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,060 $ 3,197
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Supplemental disclosure of non-cash investing and financing activities:
In connection with the Company's Employees 401k Savings Plan, the Company
contributed to the plan 4,405 and 3,779 treasury shares on March 31, 1994 and
June 30, 1994 with market values of approximately $30,000 and $28,000,
respectively.
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
(1) Basis for Preparation of Financial Statements
The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading. It is suggested
that these consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
In the opinion of Management of the Company, the accompanying unaudited
consolidated financial statements contain all necessary adjustments to present
fairly the financial position, the results of operations and cash flows for the
periods reported. All adjustments are of a normal recurring nature.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("Statement 115"), "Accounting for Certain
Investments in Debt and Equity Securities." The cumulative effect of this
accounting change as of January 1, 1994 had no material impact upon the
financial statements of the Company.
Effective the second quarter of 1994, the Company changed its method of
accounting for natural gas revenues from the sales method, whereby the Company
recorded natural gas revenues based on the amount of gas sold, to the
entitlements method. Under the entitlements method, the Company records
natural gas revenues based upon the Company's entitled share of gas production.
The Company believes that the entitlement method will provide a more meaningful
presentation of the Company's financial position and will produce a better
matching of current revenues and costs. For all periods presented, the
Company had no material gas imbalances, therefore the effect of the change in
accounting method on income for the current period is immaterial. In addition,
the Company estimates that this accounting change would have had no material
impact on net income reported in previous periods.
Certain reclassifications have been made to the 1993 financial statements
to conform to the presentation used in 1994.
The results of operations for the above periods are not necessarily
indicative of the results to be expected for the full year.
(2) Investments
The Company adopted the provisions of Statement 115 at January 1, 1994.
Under Statement 115, the Company classifies its debt and marketable equity
securities in one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held principally for the
purpose of selling them in the near term. Held-to-maturity securities are
those securities for which the Company has the ability and intent to hold until
maturity. Any securities not classified as trading or held-to- maturity are
classified as available-for-sale.
The Company has no held-to-maturity or available for sale securities.
Trading securities are recorded at fair value. Unrealized holding gains and
losses on trading securities are included in earnings. Dividend and interest
income are recognized when earned.
Marketable investment securities at December 31, 1993 and June 30, 1994
consist of certificates of deposit and U.S. government and corporate debt
securities (included in short-term liquid investments), and equity securities
(included in current investments). During the six month period ending June 30,
1994, the Company recorded $337,000 of unrealized losses resulting from changes
in the differences between cost and market value of short-term liquid
investments and current investments.
5
<PAGE> 8
Short-term liquid investments at December 31, 1993 are carried at cost
which approximates fair value. Current investments at December 31, 1993 are
carried at the lower of aggregate cost ($1.7 million) or market value ($1.9
million).
Investment in Russian joint venture
In 1990, the company formed Texneft Inc. ("Texneft") to participate in a
joint venture in Russia with Tatneft, a Russian oil production amalgamation
which operates the oil fields of Tatarstan, Russia. Texneft, an 80% owned
subsidiary, has a 50% interest in the joint venture, Tatex. An agreement
between the minority shareholders of Texneft and the Company requires the
Company to advance to Texneft sufficient cash to fund its administrative
expenses and its contributions to Tatex. In turn, Texneft will make no
distributions to its shareholders until the Company has been repaid a sum equal
to the total of its advances to Texneft. As of December 31, 1993 and June 30,
1994, the Company's outstanding advances totaled $11.7 million and $16 million,
respectively.
The impact that the Russian joint venture has had on the Company's
financial statements for the six month periods ending June 30, 1993 and 1994 is
summarized in thousands in the following table. The revenue and expense
information presented is the Company's pro-rata share (80%) of Texneft's
consolidated financial statements, which include 50% of Tatex activities.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1994 1993
------- ------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,836 $448
Expenses
Operating and administrative . . . . . . . . . . . . . . . . 2,692 1,152
Export taxes . . . . . . . . . . . . . . . . . . . . . . . . 1,348 304
------- ------
Total expenses . . . . . . . . . . . . . . . . . . . . . 4,040 1,456
------- ------
Loss before U. S. income tax . . . . . . . . . . . . . . . . . . (204) (1,008)
Advances from Company, net . . . . . . . . . . . . . . . . . . . 4,311 (637)
------- ------
Net increase (decrease) in equity investment . . . . . . . . . . 4,107 (1,645)
Investment at beginning of period . . . . . . . . . . . . . . . . 8,783 6,319
------- ------
Investment at end of period . . . . . . . . . . . . . . . . . . . $12,890 $4,674
======= ======
</TABLE>
(3) Redeemable Bearer Shares
In August 1993, the Company received $19.2 million from the Hambros Channel
Islands Trust Corporation Limited ("Trust"), in the form of an interest-free
loan. The loan is repayable on demand only to the extent necessary to redeem
bearer share warrants presented for exchange until July 2008. Each bearer
share warrant presented during this period will be redeemed for $6.66. As of
June 30, 1994, there were 2,748,022 outstanding bearer share warrants. The
loan is secured by a letter of credit from a bank. The letter of credit is
secured by certain of the Company's short-term liquid investments. During 1994
and 1993 there were no drawings under the letter of credit. In July 2008, the
obligation of the Company to holders of bearer share warrants will cease, the
interest-free loan will terminate, and any remaining cash will revert to the
Company and will be accounted for as an increase to capital in excess of par
value.
(4) Shareholders' Equity
On May 31, 1994 the Company purchased in a private transaction 705,196
shares of its common stock from Noel Group Inc. ("Noel"). The purchase price
was $7.50 per share or approximately $5.3 million. In connection with the
repurchase of the shares, two of the four representatives of Noel on the
Company's Board of Directors, Gilbert H. Lamphere and Donald T. Pascal,
resigned from the Company's Board of Directors.
6
<PAGE> 9
(5) Earnings per Share
Earnings per share is computed based upon the weighted average common
shares outstanding, determined on a monthly basis. Unexercised stock options
do not have a dilutive effect on the reported earnings per common share. Fully
diluted earnings per share for the three and six months ended June 30, 1993
were calculated assuming conversion of Prudential's Preferred Stock into
Company common stock effective January 1, 1993.
(6) Subsequent Events
The Company has entered into an agreement to sell its Oak Hill properties
located in Gregg and Rusk counties Texas. The selling price is $6.6 million
cash which approximates the net book value of these properties. The agreement
is subject to certain terms and conditions, one of which is the negotiation of
a gas transportation agreement between the purchaser and USAgas, the Company's
wholly owned subsidiary.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The Company recorded a net loss of $2.3 million ($.08 per share) for the
first six months of 1994, as compared to net income of $2.5 million ($.09 per
share) for the same period in 1993. The 1994 results include dry hole expenses
of $4.9 million ($.16 per share), while 1993 results include $1.8 million ($.07
per share) of similar expenses. The 1993 results also include a gain of $1.8
million ($.07 per share) on asset sales, while 1994 results include a gain of
$0.4 million ($.01 per share) from similar transactions.
During the second quarter of 1993, the Company recorded a $1.3 million
liquidating distribution from Investment Properties International, Limited
("IPI"). No such distribution was recorded during the six month period ended
June 30, 1994.
Results of Operations - Six Months Ended June 30, 1994 and 1993
Oil and Gas Revenues are summarized for the six months ended June 30, 1994 and
1993 in the following table:
<TABLE>
<CAPTION>
Revenues Price Volumes
------------------------ --------------------- -----------------------
1994 1993 1994 1993 1994 1993
-------- ------- ------- ------- -------- --------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
United States
Oil . . . . . . . $ 1,544 $ 2,660 $ 14.75 $ 18.37 105 Mbls 145 Mbls
Gas . . . . . . . $ 7,946 $ 7,327 $ 2.02 $ 2.14 3.9 Bcf 3.4 Bcf
Indonesia
Oil . . . . . . . $ 280 $ 428 n/a n/a n/a n/a
Gas . . . . . . . $ 5,185 $ 5,077 n/a n/a n/a n/a
Argentina
Oil . . . . . . . $ - $ 169 $ - $ 17.64 - 10 Mbls
</TABLE>
United States oil sales volumes decreased 40 Mbls (28%), principally due to
the disposition of certain domestic producing properties during 1993. United
States gas sales volumes increased 0.5 Bcf (15%), primarily due to increased
production from the Company's Taylor Lake field.
The average sales price per Mcf in 1993 included pricing dispute settlement
proceeds of approximately $577,000. The 1993 gas price excluding these
settlements would have been $1.97. There were no price settlements included
during the same period in 1994.
7
<PAGE> 10
Indonesian liquefied natural gas (LNG) liftings for the six months ended
June 30, 1994 totalled 211 as compared to 179 for the same period in 1993. The
Company has not been advised as to changes in any additional factors (i.e.
prices or oil and gas production) which would affect Indonesian oil and gas
revenues.
The Company sold, pending formal Argentinean governmental approval, its
working interest in its Argentinean properties during 1993.
Pipeline Operations contributed $9.3 million to consolidated revenues and
incurred $8.9 million in pipeline operating expenses, exclusive of
depreciation, for the six months ended June 30, 1994 as compared to $16.3
million and $15.6 million, respectively, for the same period in 1993. The
primary reason for the decrease in revenues and expenditures in 1994 as
compared to 1993 was a decrease in marketing activities for working interest
partners at the Taylor Lake field. In addition, the Company has temporarily
shut down operations of the nitrogen rejection unit at its McLeod plant because
of insufficient quantities of nitrogen laden natural gas. The Company is not
certain when or if sufficient quantities of nitrogen laden natural gas will be
available to resume operating this unit. The pipeline segment generated a net
loss from operations before taxes of approximately $0.4 million for the six
months ended June 30, 1994 as compared to a loss of $0.2 million for the same
period in 1993.
Expenses decreased to $24.8 million for the six months ended June 30, 1994 as
compared to $29.2 million for the same period in 1993. This 15% decrease is
primarily due to decreases in pipeline and depletion expenses of $6.7 million
and $1.1 million, respectively. The decrease in depletion expense in 1994 is
primarily the result of additions to the Company's oil and gas reserve base
during the last half of 1993 which results in lower depletion rates for
subsequent periods.
The decreases in pipeline and depletion expenses were partially offset by an
increase in exploration expenditures of $3.9 million. This increase reflects
the Company's expanded Gulf Coast exploration activities and is primarily the
result of increases of $3.1 million and $0.5 million in dry hole costs and
geological and geophysical expenses, respectively.
Other Income decreased approximately $1.9 million for the six months ended June
30, 1994 compared to the same period in 1993. This decrease is primarily the
result of decreases in gains from asset sales and the 1993 IPI distribution.
Results of Operations Three Months Ended June 30, 1994 and 1993
Oil and Gas Revenues are summarized for the three months ended June 30, 1994
and 1993 in the following table:
<TABLE>
<CAPTION>
Revenues Price Volumes
--------------------- -------------------- ----------------------
1994 1993 1994 1993 1994 1993
------- ------- ------- ------- ------- --------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
United States
Oil . . . . . . $ 872 $ 1,247 $ 16.59 $ 18.40 53Mbls 68 Mbls
Gas . . . . . . $ 3,631 $ 4,134 $ 1.92 $ 2.38 1.9Bcf 1.7 Bcf
Indonesia
Oil . . . . . . $ 126 $ 242 n/a n/a n/a n/a
Gas . . . . . . $ 2,060 $ 1,985 n/a n/a n/a n/a
Argentina
Oil . . . . . . - $ 72 - $ 17.48 - 4 Mbls
</TABLE>
United States oil sales volumes decreased 15 Mbls barrels (22%),
principally due to the disposition of certain domestic producing properties
during 1993. United States gas sales volumes increased 0.2 Bcf (12%),
primarily due to increased production from the Company's Taylor Lake field.
The average sales price per Mcf in 1993 included pricing dispute settlement
proceeds of approximately $577,000. The 1993 gas price excluding these
settlements would have been $2.05 per Mcf. There were no price settlements
included during the same period of 1994.
8
<PAGE> 11
Indonesian LNG liftings for the three months ended June 30, 1994 totalled
93 as compared to 75 for the same period in 1993. The Company has not been
advised as to changes in any additional factors (i.e. prices or oil and gas
production) which would affect Indonesian oil and gas revenues.
Expenses decreased to $14.5 million for the three months ended June 30, 1994 as
compared to $16.7 million for the same period in 1993. This decrease is
primarily due to a $5.3 million and a $0.5 million decrease in pipeline and
depletion expenses, respectively. These previously discussed decreases were
partially offset by an increase in exploration expenses of $4.1 million. This
increase in exploration expenses reflects the Company's expanded Gulf Coast
exploration activities and is primarily the result of increases in dry hole
costs and geological and geophysical expenses of $3.6 million and $0.4 million,
respectively.
Other Income decreased approximately $0.7 million for the three months ended
June 30, 1994 compared to the same period in 1993. The IPI distribution which
was recorded in the second quarter of 1993 was the primary reason for the
decrease.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $11.9 million during the first six
months of 1994. This decrease was primarily due to the $5.3 million treasury
stock purchase and increases in the Company's investment in its Russian and
Ivory Coast joint ventures of $4.1 million and $1.9 million, respectively.
Cash provided by operations for the six months ended June 30, 1994 was
$13.1 million compared to $5.4 million for the same period in 1993. The
Company expended approximately $16.4 million for additions to properties and
equipment in the first six months of 1994 compared to $5.7 million for the same
period in 1993. Working capital for the first six months of 1994 decreased by
$18.4 million. This decrease was primarily the result of decreases in cash and
cash equivalents and short-term liquid investments of $11.9 million and $4.3
million, respectively.
Traditionally, the Company has budgeted its exploration and development
expenditures for each year based on cash to be provided from operating
activities. In 1994, the Company intends to direct its internally generated
cash toward growing the Company's domestic asset base while directing a portion
of its balance sheet cash (cash and cash equivalents and short-term liquid
investments) toward international opportunities.
The Russian and the Ivory Coast joint ventures are currently the primary
focus of the Company's international operations. As of June 30, 1994, the
Company's total cash investments in the Russian and the Ivory Coast joint
ventures were approximately $16 million and $5.8 million, respectively.
The Russian joint venture activities currently include three projects in
various stages of operation: 1) vapor recovery, 2) the drilling, development
and operation of the Onbysk field, and 3) a well stimulation program in and
adjacent to the sizable Romashkino field. A fourth project, the development of
undeveloped reserves underlying urban areas within the Romashkino field, has
been agreed to in principle. The execution of final documents has been
deferred pending further analysis of the effect of the export tax.
In May 1993, the Company acquired an interest in 335,320 gross acres in the
CI-11 contract area approximately eight miles offshore of the Ivory Coast, West
Africa. The Company acquired a 10% working interest in an area referred to as
the "Special Area" and an 18% working interest in an area referred to as the
"Remaining Area."
During 1993, the Panthere #1 well was drilled in the Remaining Area to a
total depth of 10,575 feet and tested gas and condensate at the rate of 34.8
Mmcf per day plus 675 Bbls per day on a 56/64 inch choke with a flowing tubing
pressure of 1,909 pounds per square inch from 66 feet of perforations between
9,316 and 9,382 feet. The well was drilled in 264 feet of water and a
production caisson was set over the well.
During the first quarter of 1994, the Lion #1 well was drilled to test a
separate structure in the Special Area. This well was directionally drilled to
a total depth of 11,270 feet and encountered seven separate intervals totaling
approximately 205 feet of net hydrocarbon pay. In total, the well flowed a
combined 23,696 barrels of oil and condensate and 65 mmcf of gas per day. A
production caisson was set adjacent to the Lion #1 well. Future plans include
re-entry of the B1-8X well and the drilling of additional wells on this
structure. The B1-8X well, in the Special Area, tested significant oil
production from two of the intervals found in the Lion #1 before being
abandoned by the previous operator.
9
<PAGE> 12
The joint venture has reached an agreement with the Ivory Coast government
to sell natural gas produced from these areas to the government for its use in
power generation. Plans are being finalized for the drilling of six additional
delineation wells on the contract areas.
10
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings:
None.
ITEM 2. Changes in Securities:
None.
ITEM 3. Defaults upon Senior Securities:
None.
ITEM 4. Submission of Matters to a Vote of Security Holders:
The Annual Meeting of Shareholders of Global Natural Resources Inc.
was held on May 3, 1994 in Houston, Texas.
Messrs James G. Niven and Sidney R. Petersen were elected to the
Board of Directors of the Company. The directors whose terms of
office continued after the meeting are William L. Bennett, John A.
Brock, J. Charles Hollimon, Gilbert H. Lamphere, John E. McFarlane,
Donald T. Pascal and Robert F. Vagt.
ITEM 5. Other Information:
On July 25, 1994 the Board of Directors of the Company elected Messrs
Patrick L. Macdougall and Paul E. Carlton to fill the unexpired terms
of former directors Messrs Gilbert H. Lamphere and Donald T. Pascal.
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
The following document is included as an Exhibit to this
report.
18. Accountant's letter regarding change in accounting
method.
(b) Reports on Form 8-K
On June 3, 1994 a Form 8-K was filed with the Securities and
Exchange Commission. This Form 8-K reported the repurchase
of 705,196 shares of the Company's common stock from Noel
Group, Inc. at a purchase price of $7.50 per share. In
connection with the repurchase of the shares, two of the
four representatives of Noel on the Company's Board of
Directors, Gilbert H. Lamphere and Donald T. Pascal,
resigned from the Company's Board of Directors.
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL NATURAL RESOURCES INC.
(Registrant)
Date: August 9, 1994 By /s/ ERIC LYNN HILL
Eric Lynn Hill
Senior Vice President-Finance and
Administration and Secretary-Treasurer
12
<PAGE> 15
EXHIBIT INDEX
Exhibit No.
- - -----------
18. Accountant's letter regarding change in accounting method.
<PAGE> 1
EXHIBIT 18
PAGE 1 OF 1
August 1, 1994
Global Natural Resources Inc.
Houston, Texas
We have been furnished with a copy of Form 10-Q of Global Natural Resources
Inc. for the six months ended June 30, 1994, and have read the Company's
statements contained in Note 1 to the consolidated financial statements
included therein. As stated in Note 1, the Company changed its method of
accounting for natural gas imbalances from the sales method to the entitlements
method, and states that the newly adopted accounting principle is preferable in
the circumstances because it will provide a more meaningful presentation of the
Company's financial position and will produce better matching of current costs
with revenues. In accordance with your request, we have reviewed and discussed
with Company officials the circumstances and business judgement and planning
upon which the decision to make this change in the method of accounting was
based.
We have not audited any financial statements of Global Natural Resources Inc.
as of any date or for any period subsequent to December 31, 1993, nor have we
audited the information set forth in the aforementioned Note 1 to the
consolidated financial statements; accordingly, we do not express an opinion
concerning the factual information contained therein.
With regard to the aforementioned accounting change, authoritative criteria
have not been established for evaluating the preferability of one acceptable
method of accounting over another acceptable method. However, for purposes of
Global Natural Resources Inc.'s compliance with the requirements of the
Securities and Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgement and planning, we concur that the newly adopted method of accounting
is preferable in the Company's circumstances.
Very truly yours,
KPMG Peat Marwick
