<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
March 31, 1996 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.
3,459,512 shares of common stock, $.01 par value,
outstanding at May 13, 1996
<PAGE>
INDEX
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Page
----
Part One - Financial Information
Consolidated Balance Sheets - March 31, 1996
and June 30, 1995 1
Consolidated Statements of Operations - Nine months and
three months ended March 31, 1996 and 1995 3
Consolidated Statements of Cash Flows - Nine months
ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part Two - Other Information
Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
PART ONE - FINANCIAL INFORMATION
SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,738,647 $ 43,594
Receivables, net 328,523 1,156,837
Gas in storage -- 237,810
Assets held for sale 97,431 4,144,040
Deferred income taxes, net -- 670,000
Other 102,720 78,809
------------- -------------
3,267,321 6,331,090
PROPERTY AND EQUIPMENT
(Using the successful efforts method)
Unproved oil and gas properties 627,342 624,980
Proved properties 4,453,661 4,258,381
Gas plant and related equipment 2,220,575 2,071,328
Other property and equipment 164,686 123,402
------------- -------------
7,466,264 7,078,091
Accumulated depreciation, depletion and
amortization and impairment (4,594,222) (3,800,247)
------------- -------------
2,872,042 3,277,844
Deferred income taxes, net 321,000 321,000
Other assets 27,747 105,832
------------- -------------
$ 6,488,110 $ 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>
MARCH 31, JUNE 30,
1996 1995
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 280,318 $ 849,349
Deposits -- 12,783
Current portion of long-term debt 15,419 1,175,250
Production and ad valorem taxes payable 89,637 147,781
------------- -------------
385,374 2,185,163
LONG-TERM DEBT, net of current portion 10,050 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; 3,459,512 and 3,389,261 shares
issued and outstanding at March 31, 1996
and June 30, 1995, respectively 34,595 33,893
Additional paid-in capital 6,941,128 6,805,550
Accumulated deficit (883,037) (362,890)
------------- -------------
6,092,686 6,476,553
------------- -------------
$ 6,488,110 $ 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- --------------------------
1996 1995 1996 1995
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues
Gas processing, gathering and storage $ 451,054 $ 1,774,461 $ 3,041,377 $ 5,359,373
Oil and gas sales 261,733 265,842 768,149 883,775
----------- ------------ ----------- -----------
Total revenues 712,787 2,040,303 3,809,526 6,243,148
Expenses
Gas processing, gathering and storage 371,599 1,495,314 2,300,856 4,582,530
Operation of producing properties 94,336 96,032 309,070 285,318
Production taxes 25,793 28,922 81,266 87,370
Exploration 13,556 13,416 57,233 34,523
Depreciation, depletion and amortization:
Gas processing, gathering and storage assets 49,671 148,488 221,174 360,121
Oil and gas properties 87,828 72,529 289,962 272,052
Other 2,629 12,066 18,977 34,261
Impairments:
Unproved properties -- -- -- 100,951
Proved properties 355,000 -- 355,000 511,347
General and administrative, net 590,601 266,138 1,172,337 504,392
----------- ------------ ----------- -----------
Total expenses 1,591,013 2,132,905 4,805,875 6,772,865
----------- ------------ ----------- -----------
Operating (loss) (878,226) (92,602) (996,349) (529,717)
Other income (expense)
Interest income and other 67,044 (4,138) 116,536 8,951
Gain on sale of fixed assets 53,824 14,936 1,104,778 32,488
Interest expense, net of capitalized interest (4,786) (43,959) (75,112) (131,663)
----------- ------------ ----------- -----------
116,082 (33,161) 1,146,202 (90,224)
----------- ------------ ----------- -----------
Income (loss) before income taxes (762,144) (125,763) 149,853 (619,941)
Provision for income taxes -- 12,704 670,000 12,704
----------- ------------ ----------- -----------
Net (loss) $ (762,144) $ (138,467) $ (520,147) $ (632,645)
=========== ============ =========== ===========
Net (loss) per share $ (0.22) $ (0.04) $ (0.15) $ (0.19)
=========== ============ =========== ===========
Weighted average common shares outstanding 3,451,908 3,389,898 3,414,524 3,307,076
=========== ============ =========== ===========
</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>
NINE MONTHS ENDED
MARCH 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (520,147) $ (632,645)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depletion, depreciation and amortization 530,113 666,434
Deferred income taxes 670,000 --
Impairment expense 355,000 612,298
(Gain) on asset sales (1,104,278) (32,487)
Cost of storage gas sales (purchases) 238,624 (77,889)
Stock as compensation 135,511 28,800
Other 18,495 12,946
Changes in current assets and liabilities:
Receivables 811,314 227,946
Payables (541,560) 72,466
Taxes payable (58,144) 37,272
Other current assets (23,911) 125,583
Other assets (1,770) (16,368)
------------ ------------
Net cash provided by operating activities 509,247 1,024,356
Cash flows from investing activities:
Proceeds from asset sales 5,335,220 99,772
Additions to properties:
Producing properties (195,280) (852,183)
Gas plant, gathering and storage systems (149,629) (474,033)
Unproved properties (23,799) (59,570)
Other (68,756) (153,712)
Additions to assets held for sale (176,104) --
Gas in storage -- (266,000)
Deposits (12,783) 28,959
------------ ------------
Net cash provided by (used in) investing activities 4,708,869 (1,676,767)
Cash flows from financing activities:
Loan proceeds 16,422 511,614
Payment of loan principal (2,540,253) (141,283)
Proceeds from stock issuance 3,000 65,000
Purchase of common stock (2,232) --
------------ ------------
Net cash (used in) provided by financing activities (2,523,063) 435,331
------------ ------------
Net increase in cash and equivalents 2,695,053 (217,080)
Cash and equivalents at beginning of period 43,594 360,124
------------ ------------
Cash and equivalents at end of period $ 2,738,647 $ 143,044
============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-4-<PAGE>
SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES
("Sheffield" or "the Company")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) FINANCIAL STATEMENT ADJUSTMENTS AND FOOTNOTE DISCLOSURES:
The accompanying consolidated financial statements are unaudited.
However, in the opinion of management, the accompanying financial
statements reflect all adjustments, which are normal and recurring in
nature, 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 prior year financial
statements to conform to the current year 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 1993,
credited to the deferred tax asset. From the date of quasi-
reorganization through June 30, 1992, benefits were credited to
additional paid-in capital.
The $670,000 tax provision for the nine months ended March 31, 1996
consists of taxes at the federal statutory rate of 34 percent
($51,000), a 3 percent state provision ($5,000) and an increase in the
tax asset valuation allowance of $614,000.
As discussed in Note 5, the Company has executed a merger agreement.
Assuming the merger is consummated, it is anticipated that future use
of the Company's tax loss carryforward will be restricted.
5<PAGE>
(3) NET LOSS PER SHARE:
Warrants and options have been excluded from the loss per share
calculation as they have no material effect.
(4) RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARD:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation"
in October 1995. This statement, which is required to be adopted in
fiscal year 1997, introduces a fair-value based method of accounting
for stock-based compensation. The Company has not yet adopted the
statement and has not yet determined the impact it may have on the
Company's financial statements or on the financial statement
disclosure.
(5) PROPOSED MERGER WITH TRANSMONTAIGNE OIL COMPANY:
On February 6, 1996, the Company executed an agreement with
TransMontaigne Oil Company ("TransMontaigne"), a privately-held,
Denver-based holding company, to merge TransMontaigne into Sheffield.
Sheffield will be the surviving corporation and its name will be
changed to TransMontaigne Oil Company. The current stockholders of
TransMontaigne will own 93% of the surviving corporation. The board
of directors of the surviving entity will consist of the members of
the current TransMontaigne board, as well as Edwin H. Morgens,
chairman of Sheffield. The current officers of TransMontaigne will
serve as officers after the merger.
On May 10, 1996 a Form S-4 Registration Statement registering the
shares to be issued in connection with the proposed merger became
effective with the Securities and Exchange Commission. A proxy
statement/prospectus was mailed to all stockholders regarding a
special stockholders' meeting to be held on June 3, 1996 for the
purpose of voting on the merger.
6<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company does not anticipate incurring any material
capital expenditures prior to the merger (expected to be consummated
in early June) described in Note 5.
OPERATIONS. The decrease in operating cash flows from 1995 to 1996
results from the Asset Sale and higher general and administrative
expense related to the proposed merger with TransMontaigne Oil
Company.
INVESTING. On October 2, 1995, the Company sold 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 provided that at closing there be a minimum of 150,000 mmbtu
in inventory. Additionally, Sheffield continued to operate the assets
until January 31, 1996. The Company recorded a gain of approximately
$1 million during the quarter ended 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 a cash
balance of approximately $2.7 million at March 31, 1996.
During the quarter ended March 31, 1996, Sheffield (through its joint
venture partner) finalized a purchase agreement with a Canadian gas
producer which will facilitate the intended extension of the Company's
Lignite, North Dakota gathering system into Saskatchewan. However,
construction of the extension will not commence until after completion
of the merger described in Note 5.
During the quarter ended March 31, 1996, Sheffield entered into a
joint venture with TransMontaigne and BP Energy Operating, LLC to form
a development stage company with its primary focus in the gas
gathering sector of the industry. In addition, Sheffield and
TransMontaigne executed a put agreement by which TransMontaigne agreed
that if the merger is not consummated, Sheffield would have the option
to put its interest in the joint venture to TransMontaigne for a cash
price equal to the cash contributions made by Sheffield to the joint
venture prior to the date of purchase.
FINANCING. Proceeds from the Asset Sale were used to pay down
substantially all the Company's bank debt. After reducing the
borrowing base to reflect the Asset Sale, the Company has
approximately $1.5 million of unused bank borrowing capacity.
7<PAGE>
RESULTS OF OPERATIONS
GAS GATHERING, PROCESSING AND STORAGE. The change in components of
gas processing and gathering revenue from 1995 to 1996 is comprised of
the following:
PRICE QUANTITY REVENUE
CHANGE CHANGE CHANGE
------ -------- -------
For the quarters:
Residue gas sales (24)% (87)% (90)%
Natural gas liquid sales 19% (25)% (11)%
For the nine-month periods:
Residue gas sales (13)% (55)% (61)%
Natural gas liquid sales 14% (18)% (9)%
The quantity and revenue decreases from 1995 to 1996 are a result of
the October 1995 Asset Sale. However, the positive impact of storage
field sales during the quarter ended September 30, 1995 resulted in
net income from gathering, processing and storage declining only 5
percent for the nine months ended March 31, 1996 versus the same nine
month period in fiscal 1995.
With regard to the Lignite, North Dakota system (the only system the
Company owns after the Asset Sale), gas and liquids volumes and gas
prices declined from fiscal 1995 to fiscal 1996. These declines have
been offset somewhat by stronger liquids prices.
Lower 1995 depreciation, depletion and amortization reflects the Asset
Sale.
OIL AND GAS EXPLORATION AND PRODUCTION. The change in components of
oil and gas revenue from 1995 to 1996 is comprised of the following:
PRICE QUANTITY REVENUE
CHANGE CHANGE CHANGE
------ -------- -------
For the quarters:
Oil 4% (12)% (8)%
Gas 29% (11)% 15%
For the nine-month periods:
Oil -nil- (7)% (7)%
Gas (12)% (15)% (25)%
Volume declines resulted from normal well depletion combined with the
fact that no successful wells have been completed during the current
fiscal year. However, two wells in the Pinedale, Wyoming field, which
had been shut-in during April 1995 due to gas price
8<PAGE>
considerations, were put back on production during December 1995.
Production from those wells, together with production from another
Pinedale well, is now being sold 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.
The Company incurred repair and reworking expense on certain Williston
Basin oil wells during the quarter ended December 31, 1995.
As a result of downward revisions of the reserves attributable to the
Company's south Texas gas properties, impairment expense was
recognized during both fiscal 1995 and fiscal 1996.
INTEREST/GENERAL AND ADMINISTRATIVE EXPENSE. Proceeds from the Asset
Sale were used to pay down bank debt (resulting in lower fiscal 1996
interest expense) and invested in short-term money market instruments
(resulting in higher fiscal 1996 interest income).
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, resulting in higher fiscal 1996
expense. During the quarter ended March 31, 1996, the Company
incurred $236,000 of costs in conjunction with the TransMontaigne Oil
Company merger. The Company also incurred an additional $107,000 in
expense related to stock issued as compensation during the nine months
ended March 31, 1996 as compared to the comparable nine-month period
in 1995.
PROVISION FOR TAXES. As discussed in Note 2 to the Consolidated
Financial Statements, the tax provision for the nine months ended
March 31, 1996 consists of taxes provided at the federal and state
statutory rates as well as an amount representing a change in the
deferred tax asset valuation allowance.
9<PAGE>
PART TWO
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits required by Item 601 of S-K.
10.20 Restated Agreement and Plan of Merger, dated as
of February 6, 1996, between the Company and
TransMontaigne Oil Company.*
10.21 Bear Paw LLC Operating Agreement dated January 1,
1996 between the Company, TransMontaigne and BP
Energy Operating, LLC.*
10.22 Put Agreement dated February 21, 1996 between the
Company and TransMontaigne relating to Bear Paw
Operating Company, LLC.*
27 Financial Data Schedule
____________________
* Incorporated by reference to the Company's Registration Statement on
Form S-4, as filed with the Commission on May 6, 1996.
b. On February 7, 1996, the Company filed a Form 8-K
disclosing that it had issued a press release on
February 6, 1996 reporting the execution of a merger
agreement with privately-held TransMontaigne Oil
Company.
On May 2, 1996, the Company filed an amended 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.
10<PAGE>
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: May 13, 1996 By: David L. Milanesi
-------------------------------------
David L. Milanesi
On behalf of Registrant as Treasurer;
Principal Financial Officer
11
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27 Financial Data Schedule 13
12
<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 MARCH 31, 1996, 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-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 2739
<SECURITIES> 0
<RECEIVABLES> 329
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3267
<PP&E> 7466
<DEPRECIATION> (4594)
<TOTAL-ASSETS> 6488
<CURRENT-LIABILITIES> 385
<BONDS> 0
<COMMON> 35
0
0
<OTHER-SE> 6058
<TOTAL-LIABILITY-AND-EQUITY> 6488
<SALES> 713
<TOTAL-REVENUES> 834
<CGS> 492
<TOTAL-COSTS> 1591
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (762)
<INCOME-TAX> 0
<INCOME-CONTINUING> (762)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (762)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> 0
</TABLE>
