U.S. 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 Quarter Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-14846
BONNEVILLE PACIFIC CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 87-0363215
(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation or organization)
50 West 300 South, Suite 300 Salt Lake City, UT 84101
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 363-2520
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12,13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
Common Stock Outstanding at August 11, 1999 -
7,227,390 shares of $.01 par value Common Stock.
<PAGE>
FORM 10-Q
FINANCIAL STATEMENTS AND SCHEDULES
BONNEVILLE PACIFIC CORPORATION AND SUBSIDIARIES
FOR SIX MONTHS ENDED JUNE 30, 1999
The following financial statements and schedules of the registrant and its
consolidated subsidiaries are submitted herewith:
PART 1 - FINANCIAL INFORMATION
Page of
Form 10-Q
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet - December 31, 1998
and June 30, 1999 4
Condensed Consolidated Statements of Operations and
Comprehensive Income for Six Months and Three Months
ended June 30, 1999 5
Condensed Consolidated Statements of Cash Flows - for the
Six Months and Three Months ended June 30, 1999` 6
Note to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6 Reports on Form 8-K 17
Item 6(a) Exhibits 17
Financial Data Statement 19
Signatures 18
<PAGE>
<TABLE>
BONNEVILLE PACIFIC CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in Thousands)
30 JUNE 31 DEC
<S> <C> <C>
1999 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,062 $ 16,018
Restricted cash 1,209 534
Receivables 3,198 6,255
Other current assets 721 343
-------- --------
Total Current Assets 15,190 23,150
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties 35,968 32,424
Property, plant and equipment 3,128 10,086
Accumulated depreciation, depletion, amortization
and impairment (21,555) (26,991)
-------- --------
Total property, plant and equipment 17,541 15,519
INVESTMENTS AND OTHER ASSETS:
Investments in affiliated companies 8,948 7,584
Other assets 312 361
-------- --------
Total investments and other assets 9,260 7,945
-------- --------
Total Assets $ 41,991 $46,614
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,448 $11,953
Other current liabilities 949 476
--------- -------
Total current liabilities 3,397 12,429
LONG-TERM LIABILITIES:
Bank debt 8,700 5,850
--------- -------
Total liabilities 12,097 18,279
STOCKHOLDERS' EQUITY
Common stock 72 72
Additional paid-in capital 160,735 160,735
Accumulated deficit (130,615) (132,090)
Cumulative translation adjustments (298) (382)
--------- --------
Total Stockholders' Equity 29,894 28,335
--------- --------
Total Liabilities and Stockholders' Equity $41,991 $46,614
========= ========
</TABLE>
<PAGE>
<TABLE>
BONNEVILLE PACIFIC CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
<S> <C> <C> <C> <C>
($ In Thousands)
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
__________________________________________
REVENUES:
Oil and gas sales $2,691 $1,709 $4,560 $3,468
Energy marketing revenues 2,333 1,974 9,950 4,376
Facilities operations and
maintenance 1,042 1,110 2,113 2,076
Electric cogeneration 477 479 784 786
------ ------ ------ ------
Total Revenues 6,543 5,272 17,407 10,706
OPERATING EXPENSES:
Oil and gas production 1,261 676 1,930 1,363
Energy marketing costs 2,298 1,947 9,742 4,409
Facilities, operations maintenance
costs 688 703 1,490 1,426
Electric cogeneration 374 324 773 785
Depreciation, depletion and
amortization 823 530 1,346 1,038
Exploration and other oil and
gas expense 394 111 638 183
Selling, general and administrative
expense 1,048 657 2,227 1,191
------ ------ ------ ------
Total Operating Expenses 6,886 4,948 18,146 10,395
OPERATING PROFIT (LOSS) (343) 324 (739) 311
OTHER INCOME (EXPENSE):
Interest expense (125) (1,893) (251) (3,765)
Equity in net earning of
affiliated company 1,544 1,465 1,963 2,326
Reorganization items (20) 1,536 (71) 3,301
Other income (expense), net 351 229 573 497
------ ------ ------ ------
Total Other Income (expense) 1,750 1,337 2,214 2,359
------ ------ ------ ------
NET INCOME 1,407 1,661 1,475 2,670
OTHER COMPREHENSIVE INCOME
Foreign currency translation
adjustments 15 0 84 0
------ ------ ------ ------
COMPREHENSIVE INCOME $1,422 $1,661 $1,559 $2,670
====== ====== ====== ======
Basic earnings per share $ .19 $ .56 $ .20 $ .91
</TABLE>
<PAGE>
BONNEVILLE PACIFIC CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C> <C>
($ in Thousands)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 1,475 2,670
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, depletion and amortization 1,346 1,038
Equity in investee earnings (1,963) (2,326)
Gain on sale of property (80) 0
Changes in assets and liabilities:
Accounts Receivable 3,057 5,141
Other current assets (385) 91
Accounts payable and accrued liabilities (9,032) 1,940
Other 81 (146)
------- -------
Net Cash provided by (used for) operating
activities (5,501) 8,408
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of property, plant and equipment 515 0
(Increase) in restricted cash (675) (58)
Additions to property, plant and equipment (3,795) (3,119)
Cash received from investee 600 0
(Increase) decrease in other assets 50 46
------- -------
Net cash used for investing activities (3,305) (3,131)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 2,850 600
------- -------
Net cash provided by financing
activities 2,850 600
------- -------
INCREASE (DECREASE) IN CASH (5,956) 5,877
CASH AND EQUIVALENTS at beginning of period 16,018 154,065
------- --------
CASH AND EQUIVALENTS at end of period 10,062 159,942
======= ========
</TABLE>
<PAGE>
BONNEVILLE PACIFIC CORPORATION
AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
Bonneville Pacific Corporation ("BPC") and its wholly-owned subsidiaries,
Bonneville Nevada Corporation ("BNC"), Bonneville Pacific Services Company,
Inc., ("BPS") and Bonneville Fuels Corporation ("BFC"). All significant
intercompany balances and transactions have been eliminated in consolidation.
The financial statements have been prepared without audit in accordance
with generally accepted accounting principles pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the accompanying financial statements include all adjustments which
are necessary for a fair presentation of the results for the interim periods
presented, such adjustments being of a normal recurring nature. Certain
information and footnote disclosures have been condensed or omitted pursuant to
such rules and regulations. The December 31, 1998 condensed consolidated
financial statements were derived from the audited balance sheet of the Company.
It is suggested that these condensed consolidated financial statements and notes
thereto be read in conjunction with the consolidated financial statements and
notes thereto included in the Form 10K of Bonneville Pacific Corporation for the
year ended December 31, 1998. Results of operations in interim periods are not
necessarily indicative of results to be expected for a full year.
SALE OF ALL OR PART OF THE COMPANY
The Company previously announced that it had appointed CIBC Oppenheimer as
the Company's financial advisor. CIBC Oppenheimer has been retained to assist
the Company in defining strategic and financial alternatives relating to the
Company's operations.
CIBC Oppenheimer has developed an analysis of the Company's operations and
potential valuations of the Company under a variety of alternative strategies
and has recommended to the Board of Directors that the Company's operations be
sold or merged with one or more other companies. CIBC Oppenheimer has solicited
bids from interested parties and is assisting in the evaluations of those
bids. All assets of the Company are thus considered to be held for sale and
will be operated until a sale is consummated.
On June 29, 1999, the Company sold its interest in the Kyocera project to
the project thermal host and electricity purchaser. Kyocera America Inc. for
$515,000. The project was a 3.2 MW cogeneration facility originally constructed
in 1989 at a cost of approximately $7,200,000. Since its construction the
Kyocera project has been reduced in value through depreciation and impairment
charges to a value of approximately $435,000. At the time of sale an $80,000
gain was recorded.
On August 12, 1999 the Company announced that it has entered into a Stock
Purchase Agreement with CEC Resources, Ltd. for the sale of all of the
outstanding shares of Bonneville Pacific's wholly-owned subsidiary, Bonneville
Fuels Corporation (BFC). BFC is the Company's oil and gas subsidiary. The Stock
Purchase Agreement provides that if the transaction is completed, the purchase
price of approximately $24,000,000 will be payable in cash at closing. The
proposed sale of the shares of BFC is subject to certain adjustments and various
conditions which may include, the approval of the stockholders of the Company.
Although management believes that the sale transaction will be completed, there
can be no assurance that the sale transaction will be closed.
<PAGE>
SEGMENT INFORMATION:
The Company has identified the following segments: BFC, BNC and BPS. BFC is
primarily engaged in oil and gas production, exploration and energy marketing.
BNC owns a 50% interest in Nevada Cogeneration Associates #1 (NCA#1), a company
engaged in cogeneration activities. BPS is primarily engaged in providing
operational and maintenance services to cogeneration plants and is currently
responsible for the Companies development work in Mexico. BPS also has an
interest in an additional cogeneration facility in the start-up phase in Mexico.
The accounting policies of the segments are the same as those described in
the summary of significant account policies in the Company's Annual Report on
Form 10-K. The Company evaluates performance based on profit or loss from
operations before reorganization items and income taxes.
<TABLE>
($ in Thousands)
BFC BNC BPS *BPC Total
<S> <C> <C> <C> <C> <C>
June 30, 1999
Revenues from external
customers $ 14,510 $ - $ 2,113 $ 784 $ 17,407
Interest income from
non-reorganization items 48 58 38 95 239
Interest expense 251 - - - 251
Operating expense 13,365 - 1,490 730 15,585
Selling, general and
administrative 822 11 485 909 2,227
Equity in investee earnings - 1,963 - - 1,963
Segment profits (loss) before
reorganization items 120 2,010 176 (760) 1,546
Segment assets $ 20,924 $ 12,683 $ 5,665 $ 2,719 $ 41,991
June 30, 1998
Revenues from external
customers $ 7,844 $ - $ 2,076 $ 786 $ 10,706
Interest income from
non-reorganization items 29 15 52 96
Interest expense 85 3,680 3,765
Operating expense 6,726 1,434 642 8,802
Selling, general and
administrative 466 26 215 484 1,191
Equity in investee earnings 2,326 2,326
Segment profits (loss) before
reorganization items 596 2,315 479 (4,020) (630)
Segment assets $ 16,642 $ 9,712 $ 4,827 $159,751 $190,932
<FN>
*Contains the operating results of the Kyocera Project sold on June 29, 1999.
</FN>
</TABLE>
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements and Risks:
This Quarterly Report on Form 10-Q includes forward looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934.
Although the Company believes that its expectations are based on reasonable
assumptions, it can give no assurance that its goals will be achieved. Important
factors that could cause actual results to differ materially from those in the
forward looking statements herein include political developments in Mexico; the
ability of the Company to penetrate new retail natural gas and electricity
markets in the United States and Mexico; the timing and extent of deregulation
of energy markets in the United States and in Mexico; other regulatory
developments in the United States and in Mexico, including tax legislation and
regulations; the extent of efforts by governments to privatize natural gas and
electric utilities and other industries; the timing and extent of changes in
commodity prices for crude oil, natural gas, electricity, foreign currency and
interest rates; the extent of the Company's success in acquiring oil and gas
properties and in discovering, developing, producing and marketing reserves; the
timing and success of the Company's efforts to develop new projects; the
Company's success in implementing its Year 2000 Plan, and the Year 2000
readiness of outside entities; and the Company's ability to access the capital
markets and equity markets during the periods covered by the forward looking
statements, which will depend on general market conditions and the Company's
ability to maintain or increase long-term debt facilities.
These forward-looking statements are based on the Company's current
expectations. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, there can be no assurance that
such expectations will prove to be correct. Because forward-looking statements
involve risks and uncertainties, the Company's actual results could differ
materially. Important factors that could cause actual results to differ
materially from the Company's expectations are disclosed hereunder and elsewhere
in this Form 10-Q. These forward-looking statements represent the Company's
judgment as of the date of this Form 10-Q. All subsequent written and oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the Cautionary Statements. The Company disclaims, however,
any intent or obligation to update its forward-looking statements.
General
On December 5, 1991, BPC filed a voluntary petition for relief under
Chapter 11 of Title 11 of the Federal Bankruptcy Code. From December 5, 1991
until November 2, 1998, BPC operated under the jurisdiction of the United States
Bankruptcy Court. The discussion that follows, of necessity, compares a period
during bankruptcy, the first six months of 1998 and the second quarter of 1998,
to non-bankruptcy periods, the first six months of 1999 and the second quarter
of 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL COMMITMENTS
The Company's current cash balance is primarily used to fund daily
operations, to complete the development of oil and gas properties, and complete
the CONAV project located in Mexico. No new power projects or major oil and gas
development activities are scheduled until the conclusion of the sales process
discussed in the footnote to the financial statements. During the first six
months of 1999 approximately $3,500,000 in oil and gas exploration and
development expenditures were capitalized, approximately $1,300,000 of that
amount was capitalized during the second quarter of 1999. This compares to
$2,300,000 in oil and gas expenditures being capitalized in the first six months
of 1998. Approximately $180,000 has been capitalized in 1999 as part of the
CONAV project.
Funding for the Company's working capital obligations was provided by
internally generated cash flow and bank debt. The Company's primary capital
resources are net cash provided by operating activities, the sale of Kyocera,
and dividends from the NCA#1 partnership and proceeds from financing activities.
The Company expects that these resources will be sufficient to fund its
remaining capital commitments.
OPERATING ACTIVITIES
Net cash used by operating activities was $5,501,000 during the six months
ended June 30, 1999, as compared to net cash provided by operating activities of
$8,408,000 for the same period in 1998. The decrease was primarily due to the
payment of $3,714,000 of professional fees and an escrow liability of $2,298,000
accrued in 1998 and paid in the first quarter of 1999. The 1998 amount
primarily reflected proceeds from claims settlements.
FINANCING ACTIVITIES
The oil and gas exploration and development was funded from internally
generated cash flows and additional bank debt of $2,850,000. BFC had an
outstanding balance under its credit facilities of $8,700,000 at June 30, 1999,
plus an additional $2,500,000 of outstanding letters of credit securing hedge
positions, leaving approximately $6,900,000 of additional unused borrowing
capacity available.
RESULTS OF OPERATIONS
First Six Months of 1999 as compared to the First Six Months of 1998
The Company reported net income of $1,475,000 for the first six months of
1999 compared to $2,670,000 for the first six months of 1998. Bankruptcy items
are as follows:
<TABLE>
<S> <C> <C> <C>
($ in Thousands)
Six Months Ended
06/30/99 06/30/98 Difference
----------------------------------------
Interest Expense - ($3,680) $3,680
Interest Income - 3,998 (3,998)
Professional Fees ($73) (617) 544
Other 2 (80) 82
-------- -------- --------
(71) (379) 308
</TABLE>
<PAGE>
NEVADA COGENERATION ASSOCIATE #1 (NCA#1)
NCA#1 results are not consolidated as the Company is not a majority owner
of NCA#1, but the Company's portion of operating profit is reflected as accrued
equity earnings. The Company's 50% portion of NCA#1's operating profit totaled
$1,963,000 for the first six months of 1999 compared to $2,326,000 for the same
period in 1998. The $363,000 decrease in the Company's share of profits was
primarily due to the expenses associated with the scheduled installation of
selective catalytic reduction equipment during the first quarter and the
corresponding increase in maintenance costs during that period. Maintenance
costs were $654,000 higher in 1999, fuel costs and other operating costs were
also higher.
KYOCERA PROJECT
The Kyocera Project was sold in June of 1999, recording an $80,000 gain,
but operating losses for the first six months of 1999 totaled $28,000 compared
to a loss of $44,000 for the first six months of 1998. The loss reduction was
the result of reduced fuel, parts and licensing costs.
COGENERATION PROJECT DEVELOPMENT
The CONAV project is still in start-up, primarily waiting for the
installation of water treatment equipment and customers written acceptance of a
proposal to complete the project by CONAV. The project is still scheduled to be
completed in 1999.
OPERATING AND MAINTENANCE OPERATIONS
The Company's operating and maintenance group increased revenues by
$37,000 to $2,113,000 in the first six months of 1999 compared to $2,076,000 in
the same period of 1998. The operating and maintenance group's expenses
increased by $64,000 to $1,490,000.
<PAGE>
OIL AND GAS OPERATIONS AND ENERGY MARKETING
As mentioned in the footnote to the financial statements the Company
announced on August 12, 1999 the agreement to sell its oil and gas subsidiary,
Bonneville Fuels and its related subsidiaries for approximately $24,000,000. The
transaction is scheduled to be completed or early fourth quarter 1999.
Oil and gas production revenue increased $1,092,000 or 31.5% to $4,560,000
in the six months ended June 30, 1999 compared to $3,468,000 in the six months
ended June 30, 1998. Natural gas volumes produced in the first six months of
1999 increased 514,000 mcf or 31.9% to 2,121,000 mcf from 1,607,000 mcf in
the six months ended June 30, 1998. Oil volumes produced decreased 3,500 bbls
or 9.4% to 33,700 bbls in the six months ended June 30, 1999 from 37,200
bbls in the six months ended June 30, 1998. The average realized price
received for oil production declined 6.4% to $13.33 per bbls in the first six
months of 1999 from $14.25 per bbls in the first six months of 1998. The
average realized price received for gas production increased 10.2% to $1.94 per
mcf in the first six months of 1999 from $1.76 per mcf in the first six
months of 1998. Prices received for gas production are net of hedging gains
and/or losses in the respective periods.
The increases in natural gas production resulted from successful drilling
and recompletion activities in various basins, particularly in western Kansas
and in the Permian Basin of New Mexico. Some of these increases were partially
offset by production declines on previously existing properties.
Oil and Gas Production Cost
Oil and gas production cost consists of lease operating expense and
production/severance taxes. Total production costs increased 41.6% in the first
six months of 1999 to $1,930,000 from $1,363,000 in the first six months of
1998. Total production costs per mcf equivalent MCFE decreased 7.0% to $.79 per
MCFE in the first six months of 1999 from $.85 per MCFE in the first six months
of 1998 excluding the well connection fees as described herein. The primary
reason for the overall increase was the accrual of well connect fees in the
amount of $250,000. The fees are a result of a 1997 agreement which contained a
contingency clause whereby certain cost would need to be reimbursed to the party
providing the well connectioons if various production levels were not attained.
Those levels will not be attained.
Gas Marketing
Gas marketing revenue increased 127.5% in the first six months of 1999 to
$9,950,000 from $4,376,000 in the first six months of 1998. Gas marketing
related expenses increased 120.9% to $9,742,000 in the first six months of 1999
from $4,409,000 in the first six months of 1998. The Company entered into a
management contract which includes the first quarter of 1999 for the purchase
and sale of a high volume of natural gas. The contract was not in place in the
first quarter of 1998, and was terminated on April 30, 1999.
Depreciation, Depletion, Amortization and Impairment
Depreciation, depletion, amortization (DD & A) expense increased 27.5% in
the first six months of 1999 to $1,213,000 from $951,000 in the first six month
of 1998. DD & A per MCFE of gas produced decreased 3.4% to $.57 per MCFE in the
six months ended June 30, 1999 compared to over $.59 per MCFE in the six months
ended June 30, 1998.
An impairment loss was taken in the first six months of 1999 in the amount
of $60,000. It was related to a property in Oklahoma which was drilled in 1998.
There were no impairment allowances taken in the six months ended June 30, 1998.
<PAGE>
Exploration Expense
Exploration expense primarily includes unsuccessful drilling cost, and
Geological and Geophysical (G & G) costs. Exploration expense increased in the
six months ended June 30, 1999 248.6% to $638,000 from $183,000 in the six
months ended June 30, 1998. The Company expensed unsuccessful drilling in the
amount of $199,000 in the first six months of 1999. The Company expensed
unsuccessful drilling in the amount of $25,000 in the six months ended June 30,
1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's selling, general and administrative expenses were $1,036,000
higher in the first six months of 1999 than in the first six months of 1998.
This large increase was due primarily to staff increases initiated in mid-1998
to support development activities as the Company exited bankruptcy as well as
increased professional fees in support of the sales process.
Second Quarter of 1999 as compared to the Second Quarter of 1998
The Company for the second quarter of 1999 reported net income of
$1,407,000 compared to $1,661,000 for the second quarter of 1998. Items relating
to the Bankruptcy were as follows:
<TABLE>
<S> <C> <C> <C>
($ in Thousands)
2nd Quarter 2nd Quarter
1999 1998 Difference
----------------------------------------
Interest Expense - ($1,869) $1,869
Interest Income - 2,006 (2,006)
Professional Fees ($22) (390) 368
Other 2 (80) 82
------- -------- -------
( 20) (333) 313
</TABLE>
<PAGE>
NEVADA COGENERATION ASSOCIATES #1 (NCA#1)
The Company's 50% portion of NCA#1's operating profit was $79,000 higher in
the second quarter of 1999 than in the second quarter of 1998. This was
primarily due to a $703,000 increase in revenues while expenses only increased
by $544,000 between the two periods.
KYOCERA PROJECT
Kyocera operating expenses increased by $50,000 from the second quarter of
1998 to the second quarter of 1999 while revenues decreased $2,000. The expense
increases were primarily related to higher maintenance and fuel costs in the
second quarter of 1999.
OPERATING AND MAINTENANCE OPERATIONS
Revenues were $68,000 lower in the second quarter of 1999 than in the
second quarter of 1998, while expenses declined by $15,000, primarily the result
of decreased payroll and travel costs.
OIL AND GAS OPERATIONS AND ENERGY MARKETING
Oil and gas production revenue increased $982,000 or 57.5% to $2,691,000 in
second quarter of 1999 compared to $1,709,000 in the second quarter of 1998.
Natural gas volumes produced increased 447,000 mcf or 56.9% to 1,232,000 mcf
from 785,000 mcf in the second quarter of 1998. Oil volumes increased 1,000
bbls or 5.3% to 18,900 bbls from 17,900 bbls in the second quarter of 1998. The
average realized price received for oil production increased 18.4% to $15.91 per
bbls from $13.43 per bbls in the second quarter of 1998. The average realized
price received for gas production decreased 2.5% to $1.92 from $1.97 per mcf in
the second quarter of 1998. Prices received for gas production are net of
hedging gains and or/losses.
Oil and gas production cost consists of lease operating expense and
production/severance taxes. Total production cost increased 86.3% in the second
quarter of 1999 to $1,260,000 from $676,000 in the second quarter of 1998. Total
production cost per mcf equivalent (MCFE) increased 2.3% to $.75 per MCFE from
$.73 per MCFE in the second quarter of 1998, excluding the well connect fees as
described herein. The primary reason for the overall increase was the accrual of
well connect fees in the amount of $250,000. The fees are a result of a 1997
agreement which contained a contingency clause whereby certain costs would need
to be reimbursed to the party providing the well connections if various
production levels were not attained. Those levels will not be attained.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expense increased by $391,000 to
$1,048,000 in the second quarter of 1999 compared to the same period in 1998.
The increase was due to an increase in payroll and related expenses of rent,
payroll taxes and office expense as the company geared up into late 1998 for an
increase capital development program. Also professional costs were higher
in support of selling all or part of the Company and its assets.
YEAR 2000
The Company has reviewed Y2K compliance issues and upgrades have been made
to systems and software that are warranted by the vendor to be Y2K compatible.
The Company's Y2K compliance effort is ongoing and BPC, BFC, BPS and NCA#1 are
also monitoring non-information technology exposure elements, i.e. card key
systems, embedded chips, etc. The project is on schedule and expected to be
completed by the end of September 1999.
The Company has communicated with certain key vendors and has determined
that all are making progress toward their respective Y2K compliance.
The Company is aware of the issues associated with the "Y2K" problem both
in program codes and in hardware systems. The Company has taken and continues to
take steps to assure that disruption from the problem with internal software and
third party hardware and software vendors will not adversely affect operations.
The Company believes that any potential problems that may arise will be with
third party vendors such as gas marketers, field service providers, and product
purchasers. In all cases the Company represents a minute portion of those
vendors business and has no influence on those vendors Y2K compliance. Although
there can be no assurance that all Y2K issues will be resolved and that there
will not be any significant impact on the Company from these issues, it is not
expected that significant detrimental effects will occur.
The financial institutions with which the Company has its material
relationships have each represented to the Company that their respective Y2K
compliance programs are underway with final testing to be completed in the first
half of 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS #133"), Accounting
for Derivative Instruments and Hedging Activities. This pronoucement was delayed
by SFAS #137 and will now be will be effective for fiscal years beginning after
June 15, 2000. Earlier application is encouraged, however, the Company does not
anticipate adopting SFAS #133 until the fiscal year beginning January 1, 2001.
SFAS #133 requires that entities recognize all derivatives as assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company does not believe the adoption of SFAS #133 will have
a material impact on assets, liabilities, or equity. The Company has not yet
determined the impact of SFAS #133 on the statement of operations, or the impact
on the comprehensive statement of operations.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates related
primarily to the Company's long-term debt obligations. The Company does not use
derivative financial instruments in its investment portfolio. The Company places
its investments with high credit quality issuers and by policy is averse to
principal loss and seeks to protect its invested funds by limiting default risk
and reinvestment risk. The NCA#1 cogeneration facility uses interest rate swap
agreements to mitigate their exposure to interest rate fluctuations.
Foreign Currency Risk
The Company does not use foreign currency forward exchange contracts or
purchased currency options to hedge local currency cash flows or for trading
purposes. All income received from international customers, with the exception
of balances in local operating accounts, is converted to U.S. Dollars. The
Company has subsidiary operations in Mexico, which are subject to currency
fluctuations. These foreign subsidiaries are limited in their operations and
level of investment by the parent company so that the risk of currency
fluctuations is minimized.
Commodity Price Risk
Oil and gas commodity markets are influenced by global as well as regional
supply and demand. Worldwide political events can also impact commodity prices.
Management's policy is to partially mitigate its exposure to fluctuations in
sales prices received for natural gas production through the use of various
hedging tools. These tools include, but are not limited to: commodity futures
and option contracts; fixed-price swaps; basis swaps; and term sales contracts.
Contract terms generally range from one month to three years. While BFC
mitigates its exposure to declining natural gas sales prices, it may be subject
to opportunity costs resulting from increasing natural gas prices in excess of
those committed. Should production from existing facilities under existing
operating conditions not fulfill committed contracts, BFC may be required to
acquire natural gas in the open market. Volumes produced in excess of those
contracted are sold at market prices.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
NCA#1 has been in negotiations with the United States Environmental
Protection Agency (the "EPA") regarding emissions from its gas turbine engines.
Subsequent to December 31, 1998, the EPA filed a lawsuit in the United States
District Court of Nevada against NCA#1, BNC and TCCCC seeking damages of $25,000
per day from an unspecified point in time and requiring the installation of
additional emission control equipment. (United States of America v. Nevada
Cogeneration Associates #1, et al, No. CV-S-99-00107 PMP). A consent decree
prepared by the U.S. Department of Justice that resolves the above mentioned
lawsuit and requires NCA#1 to pay a $100,000 fine and install additional
emission control equipment has been signed by all parties and was lodged with
the United States District Court of Nevada on June 29, 1999. As a condition of
settlement with the EPA, NCA#1 installed Selective Catalytic Reduction Equipment
("SCR's") during the first quarter of 1999 scheduled maintenance outage. The
cost of purchasing and installing the equipment and the proposed fine has been
accrued by NCA#1 and the necessary funds are being held in a control account.
NCA#1 believes that it will have no additional liability for the violations
alleged in the above mentioned lawsuit after the consent decree has been
entered by the court.
Item 2. Changes in Securities and Use of Proceeds. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None
Item 6. Reports on Form 8-K. None.
Item 6a Exhibit-27 - Financial Data Schedule - see page 13.
<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.
Date: August 11, 1999 BONNEVILLE PACIFIC CORPORATION
(Registrant)
_______________________________
By /s/ Clark M. Mower
Clark M. Mower, President
Principal Executive Officer
_______________________________
By /s/ R. Stephen Blackham
R. Stephen Blackham
Principal Financial and Accounting
Officer
<TABLE> <S> <C>
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This schedule contains summary financial information extracted from SEC
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<PERIOD-TYPE> 6-MOS
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