<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
September 30, 1995 Commission File Number 0-13201
SHEFFIELD EXPLORATION COMPANY, INC.
1801 Broadway, Suite 600
Denver, Colorado 80202
Incorporated in Delaware IRS ID #06-1052062
Telephone: (303) 296-1908
Sheffield Exploration Company, Inc. ("the Company") (1) has filed all
reports required to be filed by Section 13 of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to
such filing requirements for the past 90 days.
3,391,261 shares of common stock, $.01 par value,
outstanding at November 9, 1995
<PAGE>
INDEX
-----
Page
----
Part One - Financial Information
Consolidated Balance Sheets - September 30, 1995
and June 30, 1995 1
Consolidated Statements of Operations -
Three months ended September 30, 1995 and 1994 3
Consolidated Statements of Cash Flows -
Three months ended September 30, 1995 and 1994 4
Notes to Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part Two - Other Information
Exhibits and Reports on Form 8-K 9
Signatures 9
<PAGE>
PART ONE - FINANCIAL INFORMATION
SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 318,042 $ 43,594
Receivables, net 967,169 1,156,837
Gas in storage -- 237,810
Assets held for sale 4,143,407 4,144,040
Deferred income taxes, net 636,000 670,000
Other 98,135 78,809
------------- -------------
6,162,753 6,331,090
PROPERTY AND EQUIPMENT
(Using the successful efforts method)
Unproved oil and gas properties 636,888 624,980
Proved properties 4,299,947 4,258,381
Gas plant and related equipment 2,120,168 2,071,328
Other property and equipment 134,981 123,402
------------- -------------
7,191,984 7,078,091
Accumulated depreciation, depletion and
amortization and impairment (3,943,516) (3,800,247)
------------- -------------
3,248,468 3,277,844
Deferred income taxes, net 321,000 321,000
Other assets 40,572 105,832
------------- -------------
$ 9,772,793 $ 10,035,766
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-1-<PAGE>
SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 572,642 $ 849,349
Deposits -- 12,783
Current portion of long-term debt 1,097,412 1,175,250
Production and ad valorem taxes payable 192,164 147,781
------------- -------------
1,862,218 2,185,163
LONG-TERM DEBT, net of current portion 1,374,050 1,374,050
STOCKHOLDERS' EQUITY
Preferred stock $.01 par value; 2,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value; 10,000,000 shares
authorized; 3,391,261 and 3,389,261 shares
issued and outstanding at September 30, 1995
and June 30, 1995, respectively 33,913 33,893
Additional paid-in capital 6,808,530 6,805,550
(Accumulated deficit) (305,918) (362,890)
------------- -------------
6,536,525 6,476,553
------------- -------------
$ 9,772,793 $ 10,035,766
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-2-<PAGE>
SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Revenues
Gas processing, gathering and storage $ 2,144,621 $ 1,996,743
Oil and gas sales 241,680 308,779
------------- -------------
Total revenues 2,386,301 2,305,522
------------- -------------
Expenses
Gas processing, gathering and storage 1,631,062 1,718,635
Operation of producing properties 97,553 94,114
Production taxes 27,008 28,102
Exploration 30,264 14,188
Depreciation, depletion and amortization:
Gas processing, gathering and storage assets 121,832 113,134
Oil and gas properties 93,598 88,558
Other 13,537 9,560
General and administrative, net 235,977 127,103
------------- -------------
Total expenses 2,250,831 2,193,394
------------- -------------
Operating income 135,470 112,128
Other expense (income)
Interest income and other (5,941) (1,800)
Gain on sale of fixed assets (13,437) (7,141)
Interest expense, net of capitalized interest 63,876 45,053
------------- -------------
44,498 36,112
------------- -------------
Income before income taxes 90,972 76,016
------------- -------------
Provision for income taxes 34,000 28,000
------------- -------------
Net income $ 56,972 $ 48,016
============= =============
Net income per share $ 0.02 $ 0.01
============= =============
Weighted average common shares outstanding 3,389,913 3,266,565
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-3-<PAGE>
SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------
1995 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 56,972 $ 48,016
Adjustments to reconcile net income to net
cash provided by operating activities:
Depletion, depreciation and amortization 228,967 211,252
Deferred income taxes 34,000 28,000
(Gain) on asset sales (13,437) (7,141)
Cost of storage gas sales 238,624 --
Other 6,165 4,316
Changes in current assets and liabilities:
Receivables 176,960 283,540
Payables (276,707) (62,627)
Taxes payable 44,383 --
Other current assets (19,326) (264,280)
Other assets (330) (57,338)
------------- -------------
Net cash provided by operating activities 476,271 183,738
Cash flows from investing activities:
Proceeds from asset sales 13,437 8,500
Additions to properties:
Producing properties (41,566) (19,639)
Gas plant, gathering and storage systems (60,121) (96,374)
Unproved properties (14,373) (160,837)
Other (11,579) (89,316)
Deposits (12,783) --
------------- -------------
Net cash (used in) investing activities (126,985) (357,666)
Cash flows from financing activities:
Loan proceeds -- 149,550
Payment of loan principal (77,838) --
Proceeds from stock issuance 3,000 --
------------- -------------
Net cash (used in) provided by financing activities (74,838) 149,550
------------- -------------
Net increase (decrease) in cash and equivalents 274,448 (24,378)
Cash and equivalents at beginning of period 43,594 360,124
------------- -------------
Cash and equivalents at end of period $ 318,042 $ 335,746
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-4-<PAGE>
SHEFFIELD EXPLORATION COMPANY AND SUBSIDIARIES
("Sheffield" or "the Company")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Periods Ended September 30, 1995 and 1994 and June 30, 1995
-----------------------------------------------------------
(1) FINANCIAL STATEMENT ADJUSTMENTS AND FOOTNOTE DISCLOSURES
--------------------------------------------------------
The accompanying financial statements are unaudited. However, in the
opinion of management, the accompanying financial statements reflect
all adjustments necessary for a fair presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations.
Management believes the disclosures made are adequate to make the
information not misleading and suggests that these financial
statements be read in conjunction with the Company's June 30, 1995
Form 10-K.
Certain reclassifications have been made to the September 30, 1994
Statements of Operations and Cash Flow so that they conform to 1995's
presentation.
(2) INCOME TAXES
------------
As a result of the Company's January 1, 1991 quasi-reorganization,
income tax benefits resulting from utilization in subsequent years of
net operating loss carryforwards existing at January 1, 1991 are
excluded from results of operations and, since the Company's adoption
of Statement of Financial Accounting Standard No. 109 in fiscal 1992,
credited to the deferred tax asset. From the date of quasi-
reorganization through June 30, 1992, benefits were credited to
additional paid-in capital.
(3) NET INCOME PER SHARE
--------------------
Warrants and options have been excluded from the income per share
calculation as they are immaterial or antidilutive.
5<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. On September 25, 1995, the Company signed an agreement
("the Purchase and Sale Agreement") providing for the sale of all of
its gas gathering and processing assets in Kansas and Oklahoma for a
pre-adjustment price of $5.5 million (the "Asset Sale"). The Purchase
and Sale Agreement provided for an effective date of July 1, 1995.
However, the Purchase and Sale Agreement specified that Sheffield was
entitled to all proceeds from the sale of natural gas from storage
inventory providing that at closing (October 2, 1995) there be a
minimum of 150,000 mmbtu in inventory. The Company anticipates
recording a gain of approximately $1.1 million during the quarter
ending December 31, 1995 as a result of the Asset Sale. A portion of
the proceeds have been used to substantially reduce bank debt, leaving
the Company with an October 2, 1995 cash balance in excess of $3
million. This cash balance is significantly greater than that needed
for the capital projects Sheffield currently plans to undertake in
fiscal 1996 (see below), leaving the Company with cash for projects
yet to be identified.
Sheffield participates in a joint venture with a subsidiary of
Intermountain Industries, Inc. ("Intermountain"). The Company is
committed to identifying investment opportunities for the joint
venture and will pay 25 percent of the cost of such investments. The
Company anticipates concentrating much of its efforts throughout
fiscal 1996 on identifying potential producing property acquisitions
in which the joint venture can invest. Assuming success, it is
anticipated that proceeds from the Asset Sale will be used for capital
contributions by Sheffield to the joint venture.
OPERATIONS. During the quarter ending September 30, 1995, Sheffield
sold significant volumes of gas from its Konold gas storage facility
in Kansas, realizing margins of approximately 50 percent on the gas
sold. Additionally, the cost of storage field sales was a noncash
expense, so total storage field revenue of $470,000 contributed to the
cash from operations figure for the quarter ended September 30, 1995.
This was the single most significant item accounting for the increase
in cash flows from 1994 to 1995. Other changes in the components of
net income are discussed in RESULTS OF OPERATIONS, below.
INVESTING. Sheffield participated in the drilling of a single,
relatively low cost, well and incurred relatively minor miscellaneous
other capital expenditures during the quarter ended September 30,
1995. During the comparable quarter in 1994, the Company incurred
significant cost associated with its south Texas drilling activity.
The Company's other capital expenditures were also higher than they
were in 1995.
6<PAGE>
During fiscal 1996, Sheffield plans to exploit its past success in the
South Laredo Field, Texas by drilling up to four gas wells and
recompleting another. One of these wells was drilled during the
quarter ended September 30, 1995 and subsequently abandoned.
Sheffield is in the final stages of negotiating an agreement with a
Canadian gas producer which, assuming successful completion of the
contract negotiations, will result in the extension of the Company's
Lignite, North Dakota gathering system into Saskatchewan. Due to
recent successful Canadian drilling, the gas processing facility
serving the area north of Lignite is approaching its processing
capacity. As a prerequisite to finalizing the agreement, the Company
intends to obtain a commitment from a purchaser for gas volumes
sufficient to achieve an adequate return on the capital expended for
the extension.
FINANCING. Financing transactions were relatively minor during both
the quarters ended September 30, 1995 and 1994. However, on
October 2, 1995, the Company paid down substantially all of its bank
debt. After reducing the borrowing base to reflect the Asset Sale,
the Company has approximately $1.4 million of unused bank borrowing
capacity. That capacity, combined with the Company's cash balance and
its joint venture agreement with Intermountain, will allow the Company
to bid on property packages having a value of up to $35 million.
RESULTS OF OPERATIONS
GAS GATHERING, PROCESSING AND STORAGE. The change in components of
gas processing and gathering revenue from the quarter ending
September 30, 1994 to that ending September 30, 1995 is comprised of
the following:
PRICE QUANTITY REVENUE
CHANGE CHANGE CHANGE
------ -------- -------
Residue gas sales (19)% (1)% (20)%
Natural gas liquid sales 7% (5)% 4%
Not reflected in the above table is the effect of storage field sales
during the quarter ending September 30, 1995 (storage field sales were
insignificant during the like quarter in 1994). As a result of these
sales, net from gathering, processing and storage jumped 85 percent
from 1994 to 1995, to a 1995 figure of $514,000. Lower 1995 costs
also contributed to this increase, though the cost effects were minor.
As a result of the Asset Sale, the Company will no longer have an
interest in its Kansas and Oklahoma assets. Accordingly, the quarter
ended September 30, 1995 is not representative of expected future
performance of the gathering, processing and storage
7<PAGE>
sector. However, the anticipated extension of the Lignite system into
Canada should provide a positive effect which may offset, to some
extent, the Kansas/Oklahoma sale.
OIL AND GAS EXPLORATION AND PRODUCTION. The change in components of
oil and gas revenue from the quarter ending September 30, 1994 to that
ending September 30, 1995 is comprised of the following:
PRICE QUANTITY REVENUE
CHANGE CHANGE CHANGE
------ -------- -------
Oil (6)% -nil- (5)%
Gas (37)% (25)% (53)%
The decrease in gas volume results from the decline in production from
the Company's interest in its south Texas field. However, as
mentioned in the LIQUIDITY AND CAPITAL RESOURCES SECTION, Sheffield
plans to participate in additional south Texas drilling during the
current fiscal year with the aim of arresting the declining
production. Also, two of the three Sheffield wells in the Pinedale
(Wyoming) Field were shut-in due to gas price considerations during
the quarter ended September 30, 1995; they have been put back on
production during the current quarter (ending December 31, 1995).
Effective October 1, 1995, the Company began selling gas from the
Pinedale Field pursuant to a ten-year contract at a price of $1.85 per
mmbtu (or $1.67 per mcf at the wellhead). The contract contains an
annual escalation factor of 4 percent.
INTEREST/GENERAL AND ADMINISTRATIVE EXPENSE. Higher interest rates
combined with a greater average outstanding loan balance caused
interest expense to increase from 1994 to 1995.
In December 1994, Trinity Petroleum Management, Inc. ("Trinity")
became a wholly-owned subsidiary of Sheffield. Trinity previously
provided management and administrative services to Sheffield and
another company; now the former Trinity employees provide these
services exclusively to Sheffield. Accordingly, certain personnel and
overhead costs formerly shared by Sheffield and a third party company
are now borne entirely by Sheffield. Virtually the entire increase in
general and administrative expense from 1994 to 1995 is attributable
to the foregoing. However, Sheffield currently has an infrastructure
adequate to manage and administer a considerably larger asset base
than it presently owns. As such, potential future Company growth
should be achieved with only marginal increases in general and
administrative expense.
8<PAGE>
PART TWO
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits required by Item 601 of S-K -- none.
b. On October 11, 1995, the Company filed a Form 8-K
describing the October 2, 1995 sale of its Oklahoma and
Kansas gas gathering, processing and storage assets to
NGC Energy Resources, Limited Partnership, a Delaware
limited partnership, for a pre-adjustment price of $5.5
million. Included in the Form 8-K were pro forma
financial statements showing the theoretical effect on
the Company's statement of operations and balance sheet
had the sale occurred at the beginning of the Company's
fiscal year ended June 30, 1995.
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.
SHEFFIELD EXPLORATION COMPANY, INC.
Date: November 10, 1995 By: David L. Milanesi
------------------------------------
David L. Milanesi
On behalf of registrant as Treasurer;
Principal Financial Officer
9
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
- ----------------------------------------------------------------------
27 Financial Data Schedule 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE
QUARTER ENDING SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 318
<SECURITIES> 0
<RECEIVABLES> 967
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6163
<PP&E> 7192
<DEPRECIATION> (3944)
<TOTAL-ASSETS> 9773
<CURRENT-LIABILITIES> 1862
<BONDS> 0
<COMMON> 34
0
0
<OTHER-SE> 6503
<TOTAL-LIABILITY-AND-EQUITY> 9773
<SALES> 2386
<TOTAL-REVENUES> 2405
<CGS> 1729
<TOTAL-COSTS> 2251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 91
<INCOME-TAX> 34
<INCOME-CONTINUING> 57
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
