<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30,
1996, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
--------------
-----------------
COMMISSION FILE NUMBER 1-8241
------------
PRESIDIO OIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 95-3049484
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
5613 DTC PARKWAY, SUITE 750
ENGLEWOOD, COLORADO 80111-3065
(Address of principal executive offices) (Zip Code)
(303) 773-0100
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 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 No
------ -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 25, 1996:
CLASS A COMMON STOCK: 25,318,085
CLASS B COMMON STOCK: 3,216,585
1
<PAGE> 2
PRESIDIO OIL COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Consolidated Financial Statements:
Unaudited Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations -
For the Three Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statements of Operations -
For the Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 5
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
(Unaudited)
(in thousands)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,599 $ 7,060
Accounts receivable:
Oil and gas sales 4,749 4,572
Joint interest owners and other 1,566 2,255
Other 2,971 1,280
-------- --------
Total current assets 18,885 15,167
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties using full cost accounting 521,935 515,227
Other 4,389 4,371
-------- --------
Total 526,324 519,598
Less accumulated depletion, depreciation and amortization 312,358 302,733
-------- --------
Net property, plant and equipment 213,966 216,865
-------- --------
OTHER ASSETS:
Deferred charges 9,649 8,761
Other 1,202 1,153
-------- --------
Total other assets 10,851 9,914
-------- --------
$243,702 $241,946
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable:
Oil and gas sales $ 1,818 $ 2,139
Trade and other 2,775 5,137
Accrued interest 46,195 23,214
Other accrued liabilities 3,210 3,913
Current debt 246,413 246,413
-------- ---------
Total current liabilities 300,411 280,816
-------- --------
OTHER NONCURRENT LIABILITIES 11,077 11,125
-------- --------
STOCKHOLDERS' DEFICIT:
Class A Common stock, $.10 par value per share; 25,318,000 shares
outstanding at September 30, 1996 and December 31, 1995 2,532 2,532
Class B Common stock, $.10 par value per share; 3,217,000 shares
outstanding at September 30, 1996 and December 31, 1995 322 322
Additional paid-in capital 126,776 126,776
Retained deficit (197,416) (179,625)
-------- --------
Total stockholders' deficit (67,786) (49,995)
-------- --------
$243,702 $241,946
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------------
1996 1995
-------- --------
(in thousands, except
per share amounts)
<S> <C> <C>
Oil and gas revenues $ 9,082 $ 6,771
Less - direct costs:
Lease operating 2,404 2,663
Production taxes 502 366
Depletion, depreciation and amortization 3,108 3,407
-------- --------
3,068 335
General and administrative expense (954) (1,076)
Interest expense (8,755) (7,417)
Other 15 (318)
-------- --------
Net loss $ (6,626) $ (8,476)
======== ========
Loss per share of Class A and Class B Common Stock $ (.23) $ (.31)
======== ========
Weighted average number of common shares outstanding 28,535 27,318
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1996 1995
-------- --------
(in thousands, except
per share amounts)
<S> <C> <C>
Oil and gas revenues $ 26,761 $ 23,708
Less - direct costs:
Lease operating 7,012 8,775
Production taxes 1,491 1,346
Depletion, depreciation and amortization 9,390 11,138
-------- --------
8,868 2,449
General and administrative expense (3,074) (4,844)
Interest expense (24,768) (21,839)
Other 1,183 65
-------- --------
Net loss $(17,791) $(24,169)
======== ========
Loss per share of Class A and Class B Common Stock $ (.62) $ (.89)
======== =========
Weighted average number of common shares outstanding 28,535 27,258
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE> 6
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(17,791) $(24,169)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depletion, depreciation and amortization 9,625 11,486
Amortization of debt issuance costs
included in interest expense 920 939
Other 929 1,118
Changes in other assets and liabilities:
Decrease in accounts receivable 512 7,063
Increase in other current assets (2,389) (523)
Increase in other noncurrent assets (1,857) (894)
Decrease in accounts payable (2,683) (8,318)
Increase in accrued interest and other
accrued liabilities 22,278 12,588
Increase (decrease) in other noncurrent liabilities (279) 1,618
-------- --------
Net cash provided by operating activities 9,265 908
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,726) (14,001)
Proceeds from sale of oil and gas properties - 14,800
-------- --------
Net cash provided by (used in)
investing activities (6,726) 799
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of bank debt - 8,700
Payments of bank debt - (8,287)
-------- --------
Net cash provided by financing activities - 413
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,539 2,120
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,060 6,423
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 9,599 $ 8,543
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE> 7
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Three Months and Nine Months Ended September 30, 1996 and 1995
1. The accompanying financial statements are unaudited; however,
management believes all material adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation have been made.
These financial statements and notes should be read in conjunction with the
financial statements and related notes included in Presidio Oil Company's
(the "Company" or "Presidio") annual report on Form 10-K for the year ended
December 31, 1995.
The Company's Senior Subordinated Gas Indexed Notes, Senior Gas Indexed
Notes and Senior Secured Notes (collectively the "Notes") are guaranteed by
all significant subsidiaries of the Company (the "Guarantors"). Separate
financial statements of the Guarantors are not included herein because the
Guarantors have fully, unconditionally, jointly and severally guaranteed
the Company's obligations with respect to the Notes and the Company (which
is primarily a holding company and whose operating income is generated by
its subsidiaries) has no separate operations of its own. The operations,
assets, liabilities and equity of the subsidiaries of the Company that are
not Guarantors are inconsequential.
2. The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. During 1994 and 1995,
the financial condition and operating cash flows of the Company were
materially and adversely affected by a significant decline in the price
that the Company received for its natural gas production. The Company's
revenues and operating cash flows thus declined significantly during such
periods, making it unlikely that the Company would be able to continue as a
going concern. Because of the Company's deteriorating financial condition,
the Company has failed to satisfy certain payment and other obligations
under, and events of default ("Events of Default") have occurred in respect
of, the Company's public debt and bank debt obligations.
On August 5, 1996, the Company entered into an acquisition agreement
with Tom Brown, Inc. ("Tom Brown") whereby Tom Brown would acquire the
Company for approximately $183 million (consisting of approximately $101
million in cash and 5 million shares of Tom Brown common stock valued at
$16.50 per share) (the "Exchange Consideration"). In connection with such
agreement, inasmuch as such consideration is not sufficient to pay the full
amount of all of the Company's indebtedness, the Company filed for
bankruptcy protection under chapter 11 of title 11 of the United States
Code; and, in connection therewith, filed a joint plan of reorganization
(the "Plan") which provided for specific allocations of the Exchange
Consideration among the Company's debt and equity holders. The Plan was
amended as of October 8, 1996, and it and a disclosure statement with
respect thereto were distributed to the Company's debt and equity holders
for a vote thereafter. The Plan, if approved by a sufficient number of the
Company's debt and equity holders, would result in the acquisition of the
Company by Tom Brown. However, there can be no assurance that the Plan
will be approved. Even if the Plan is not approved by all classes of the
Company's debt holders and its stockholders, the Plan may still be
implemented. In such event, the Company's stockholders and/or the holders
of its 9% Convertible Subordinated Debentures Due 2015 could receive none
of the Exchange Consideration under the Plan. A hearing on the
confirmation of the Plan is scheduled for November 13, 1996.
See Item 2 for a further discussion of the Company's Financial Condition,
the Plan and Events of Default.
7
<PAGE> 8
Notes to Unaudited Consolidated Financial Statements
(Continued)
3. The computation of loss per share excludes the weighted average
number of unallocated shares held by the Company's Employee Stock
Ownership Plan which totaled 1,217,000 shares and 1,277,000 shares for the
quarter and nine months ended September 30, 1995, respectively.
4. Included in the Consolidated Statements of Cash Flows is $867,000 and
$8,201,000 of interest paid, net of amounts capitalized, during the nine
months ended September 30, 1996 and 1995, respectively.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
CURRENT FINANCIAL CONDITION AND RECENT DEVELOPMENTS
Current Financial Condition. During 1994 and 1995, the financial condition and
operating cash flows of the Company were materially and adversely affected by a
significant decline in the price that the Company received for its natural gas
production. The Company's revenues and operating cash flows thus declined
significantly during such periods, making it unlikely that the Company could
continue as a going concern. Because of the Company's deteriorating financial
condition, the Company has failed to satisfy certain payments and other
obligations under, and Events of Default have occurred in respect of, the
Company's public debt and bank debt obligations. See "Liquidity and Ability to
Service Debt" and "Defaults" below.
Because of the Company's deteriorating financial condition, during the first
six months of 1995 the Company engaged in discussions with various third
parties and certain of its creditors in an effort to arrange a restructuring of
the Company's various debt obligations under which the Company would retain all
or most of its oil, gas and related assets. In June 1995, Tom Brown, Inc.
("Tom Brown") acquired approximately $56 million in principal amount of the
Company's Senior Gas Indexed Notes Due 2002 (the "Senior GINs") and reiterated
a previously expressed interest in acquiring the Company or all of its assets.
In response to Tom Brown's expression of interest and after consulting with
certain of its significant creditors, the Company decided to explore the
possibility of selling the Company or all of its assets. In August 1995, the
Company began soliciting bids from persons interested in acquiring the Company
or all of its assets. A data room was established which provided potential
buyers with information about the Company and its assets. Bids were received
from a number of companies that participated in the data room process. The
Company and its financial advisors evaluated those bids; and, on November 15,
1995, the Company selected Tom Brown as the bidder with which the Company would
pursue negotiations for a potential sale of the Company or all of its assets.
Tom Brown's November 15, 1995 bid contemplated the acquisition of the Company
for a purchase price of approximately $180 million (consisting of a combination
of cash and Tom Brown common stock).
From November 1995 through early August 1996, the Company negotiated with Tom
Brown and certain of the Company's creditors regarding a proposed transaction
pursuant to which Tom Brown would acquire the Company; and, on August 5, 1996,
the Company entered into an acquisition agreement (the "Exchange Agreement")
with Tom Brown whereby Tom Brown would acquire the Company for approximately
$183 million (consisting of approximately $101 million in cash and 5 million
shares of Tom Brown common stock (the "Exchange Common Stock") valued at $16.50
per share) (the "Exchange Consideration"). The Exchange Agreement may be
terminated by Tom Brown at any time (a) if the damages arising from breaches of
representations, warranties or covenants of Presidio contained in the Exchange
Agreement should exceed $3 million, (b) if the average of the closing prices of
the Tom Brown common stock on the NASDAQ over a twenty day trading period
preceding the fifth trading day prior to the confirmation date is more than
120% of $16.50, (c) if the confirmation order relating to Presidio's bankruptcy
in a form and substance reasonably acceptable to Tom Brown has not been entered
by the Bankruptcy Court on or before November 15, 1996 or has not become a
final order on or before December 13, 1996, or (d) in certain other
circumstances. The Exchange Agreement may be terminated by Presidio at any
time (a) if the average of the closing sale prices of the Tom Brown common
stock on the NASDAQ during the twenty day trading period preceding the fifth
trading day prior to the confirmation date is less than 80% of $16.50, (b) if
Presidio has notified Tom Brown that the Board of Directors of Presidio, in the
exercise of their fiduciary duties, has determined to withdraw their prior
recommendation of the Exchange to the Presidio securityholders or has
determined not to consummate the Exchange because Jefferies & Company, Inc. has
failed to reconfirm its prior fairness opinion, or (c) in certain other
circumstances.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Exchange Agreement also provides that, if the Exchange Agreement is
terminated by either Tom Brown or Presidio because (a) Presidio has notified
Tom Brown that Presidio is prepared to enter into an agreement to effect an
alternative transaction, (b) Presidio has notified Tom Brown that the Board of
Directors of Presidio has determined to withdraw their prior recommendation of
the Exchange, or (c) Jefferies & Company, Inc. has failed to reconfirm its
prior fairness opinion, then Presidio is required to pay Tom Brown a fee of
$6,000,000 plus an amount, not to exceed $3,000,000, to reimburse Tom Brown for
its documented out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by the Exchange Agreement. However, on September 9,
1996, the Bankruptcy Court entered an order modifying the termination fee and
termination expense provisions of the Exchange Agreement, and providing that,
if a third party proposes a transaction providing for the acquisition of the
Company and its subsidiaries or substantially all of their assets, (a) then any
such transaction (the "Higher and Better Transaction") must have a value at
least $7,000,000 greater than the consideration proposed to be paid by Tom
Brown under the Exchange Agreement and (b) upon Bankruptcy Court approval of
such a Higher and Better Transaction, then Tom Brown would be entitled to a
break-up fee in the amount of $5,490,000 and documented break-up expenses in an
amount not greater than $2,000,000; provided, however, that the aggregate of
the break-up fee and the break-up expenses may not be greater than $7,000,000.
Inasmuch as the Exchange Consideration was not sufficient to pay the full
amount of all of the Company's indebtedness, on August 5, 1996, the Company
filed for bankruptcy protection under chapter 11 of title 11 of the United
States Code (the "Bankruptcy Code"); and, in connection therewith, filed a
joint plan of reorganization (the "Plan") which provided for specific
allocations of the Exchange Consideration among the Company's debt and equity
holders. The Plan was amended as of October 8, 1996, and it and a disclosure
statement with respect thereto were distributed to the Company's debt and
equity holders for a vote thereafter. The Plan, if approved by a sufficient
number of the Company's debt and equity holders, would result in the
acquisition of the Company by Tom Brown. Even if the Plan is not approved by
all classes of the Company's debt holders and its stockholders, the Plan may
still be implemented. In such event, the Company's stockholders and/or the
holders of its 9% Convertible Subordinated Debentures Due 2015 (the
"Subordinated Debentures") could receive none of the Exchange Consideration
under the Plan. A hearing on the confirmation of the Plan is scheduled for
November 13, 1996.
As shown in the table below, the Plan provides that if: (i) any of Class 5,
Class 9, or Class 12 rejects the Plan, then Class 12 shall receive no
distributions under the Plan; and (ii) either Class 5 or Class 9 rejects the
Plan, then Class 9 shall receive no distributions under the Plan.
Pursuant to the Plan, no Exchange Common Stock will be distributed to Tom
Brown; however, for the purposes of the following discussion, the term
"Exchange Consideration" shall include the Exchange Common Stock that would
otherwise be distributable to Tom Brown as a holder of Senior GIN claims. If
(i) Class 12 rejects the Plan but the Plan is accepted by Classes 5 and 9, then
the Exchange Consideration that otherwise would have been distributed to Class
12 had it accepted the Plan shall be reallocated to Classes 3, 5, and 9
ratably, according to ratio of the Exchange Consideration which would otherwise
have been distributed to each of Classes 3, 5, and 9 compared to the total
amount of the Exchange Consideration which would otherwise have been
distributed to Classes 3, 5, and 9, and distributed Pro Rata as additional
Exchange Consideration within each of Classes 3, 5, and 9; (ii) Class 9 rejects
the Plan but the Plan is accepted by Class 5 (and without regard to whether
Class 12 votes to accept or reject the Plan), then the Exchange Consideration
that otherwise would have been distributed to Classes 9 and 12 had each such
Class accepted the Plan shall be reallocated to Classes 3 and 5 ratably,
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
according to the ratio of the Exchange Consideration which would otherwise have
been distributed to each of Classes 3 and 5 compared to the total amount of the
Exchange Consideration which would otherwise have been distributed to Classes 3
and 5, and distributed Pro Rata as additional Exchange Consideration within
each of Classes 3 and 5; and (iii) Class 5 rejects the Plan (and without regard
to whether Classes 9 or 12 vote to accept or reject the Plan), then the
Exchange Consideration that otherwise would have been distributable to Classes
5, 9, and 12 had each such Class accepted the Plan shall be reallocated to and
distributed as additional Exchange Consideration in the following order of
priority:
first, Pro Rata within Class 3 until each claim in Class 3 is paid in
full in accordance with the terms of the Senior Secured Notes and
without reference to any limitation on payment otherwise applicable;
second, Pro Rata within Class 2 until each claim in Class 2 is paid
in full in accordance with the terms of the Bank Credit Agreement and
without reference to any limitation on payment otherwise applicable;
and
third, Pro Rata within Class 5 until each claim in Class 5 is paid in
full in accordance with the terms of the Senior Gas Indexed Notes and
without reference to any limitation on payment otherwise applicable.
The following table sets forth a summary of the distribution that would be made
under the Plan if the Plan was accepted or rejected by any one or more of
Classes 5, 9, or 12 and subsequently confirmed on November 13, 1996.
Certain Distributions Under the Plan
<TABLE>
<CAPTION>
Class 12 Class 9
Estimate of Rejects and Rejects and Class 5
Claims or Equity All Classes Classes 5 and 9 Class 5 Accepts Rejects
Class Interest (1) Accept (3)(4)(5) Accept (3)(4)(5) (3)(4)(5)(6) (3)(4)(5)(6)
- ---------------------- ---------------- ---------------- ----------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Class 2 - Bank Claims $ 21,679,994 $ 21,561,813 $ 21,561,813 $ 21,561,813 $21,679,994
Class 3 - Senior Secured
Note Claims 90,834,780 78,780,267 80,072,998 84,895,172 90,834,780
Class 5 - Senior GIN
Claims (2) 120,949,386 (7) 71,029,706 (8) 72,195,256 (9) 76,543,015 (10) 70,485,226 (11)
Class 9 - Subordinated
Debenture Claims 56,537,500 9,021,890 9,169,933 0 0
Class 12 - Presidio
Common Stock 25,318,085 2,606,324 0 0 0
shares of Presidio
Class A Common
Stock and
3,216,858
shares of Presidio
Class B Common
Stock
</TABLE>
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
- -----------------------------
(1) All such amounts are estimated as of November 13, 1996.
(2) Pursuant to the Plan, no shares of Exchange Common Stock will be
distributed to Tom Brown; however, estimates of claims and
distributions to the Senior GIN claims include amounts claimed by or
that would be otherwise distributable to Tom Brown in respect of its
Senior GIN claims.
(3) The above table is based upon a value of a $16.50 value for each share
of Exchange Common Stock, which is the value used for purposes of the
Exchange Agreement and the Plan. The actual value of a share of
Exchange Common Stock may be greater than or less than $16.50. For
example, the closing price of a share of Tom Brown Common Stock as
quoted on the NASDAQ National Market was $15.9375 on August 5, 1996 and
$18.84375 on October 28, 1996.
(4) Distributions to Classes 2 and 3 are cash distributions. Distributions
to Classes 5, 9 and 12 are distributions of Exchange Common Stock.
(5) If either Class 5 or 9 vote to reject the Plan and if the Senior
Secured Note claims are determined not to be fully secured, then the
Plan may be determined by the Bankruptcy Court not to be confirmable.
(6) Distributions to Classes 2 and 3 in excess of the amounts if all
classes accept and distributions to Class 5 and any distributions to
Class 9, are in each case distributions of Exchange Common Stock other
than distributions of the Presidio Common Stock Cash Consideration.
(7) Pursuant to the Plan, no shares of Exchange Common Stock will be
distributed to Tom Brown; however, of this amount, $67,731,656 is
attributable to shares of Exchange Common Stock that otherwise would be
distributable to Tom Brown in respect of its Senior GIN Claims.
(8) Pursuant to the Plan, no shares of Exchange Common Stock will be
distributed to Tom Brown; however, of this amount, $39,776,635 is
attributable to shares of Exchange Common Stock that otherwise would be
distributable to Tom Brown in respect of its Senior GIN Claims.
(9) Pursuant to the Plan, no shares of Exchange Common Stock will be
distributed to Tom Brown; however, of this amount, $40,429,343 is
attributable to shares of Exchange Common Stock that otherwise would be
distributable to Tom Brown in respect of its Senior GIN Claims.
(10) Pursuant to the Plan, no shares of Exchange Common Stock will be
distributed to Tom Brown; however, of this amount, $42,864,088 is
attributable to shares of Exchange Common Stock that otherwise would be
distributable to Tom Brown in respect of its Senior GIN Claims.
(11) Pursuant to the Plan, no shares of Exchange Common Stock will be
distributed to Tom Brown; however, of this amount, $39,471,727 is
attributable to shares of Exchange Common Stock that otherwise would be
distributable to Tom Brown in respect of its Senior GIN Claims.
The Company expects that no class of creditors of the Company other than
holders of the Public Debt (defined below) will be materially impaired in
connection with the Plan. The bankruptcy filing and the publicity attendant
thereto could adversely affect the business of the Company. While the Company
believes that any such adverse effects would be mitigated if the Plan is
confirmed, a protracted bankruptcy could have a material adverse effect on the
Company and its ability to implement the Plan or any other transaction or
restructuring.
The Plan is subject to the approval of the classes of creditor and equity
claimants set forth in the table above; and, for the Plan to be confirmed by
the Bankruptcy Court, it must be approved, at a minimum, by the number of
holders of at least one class of impaired creditors that represents both (i) at
least 66 2/3% in value of the voting holders of such class and (ii) more than
50% of the number of voting holders of such class, excluding in each case
holders who are considered to be "Insiders" under the Bankruptcy Code. The
Plan does not currently have the support of a sufficient number of the holders
of any class of creditors (other than the Company's banks ("Banks")) to approve
the Plan and there can be no assurance as to whether such support will be
obtained.
Liquidity and Ability to Service Debt. As of October 25, 1996, the Company had
cash and cash equivalents of approximately $9.5 million. Additionally, the
Company has entered into cash collateral agreements with its bank lenders and
its Senior Secured Note holders which generally provide the Company with the
ability to use the net revenues generated from the properties which secure such
indebtedness to pay for the
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Company's operating expenses, general and administrative expenses and the costs
of the Plan. The Company believes that such funds will be sufficient to fund
its operations for the period necessary to implement the Plan. Except in
connection with the Plan, the Company does not anticipate making any future
payments on the 11.5% Senior Secured Notes Due 2000 (the "Senior Secured
Notes"), the Senior GINs or the Subordinated Debentures, collectively the
Public Debt. However, the Company's available cash flow could be reduced below
anticipated levels as a result of risks and uncertainties associated with the
Company's operations as well as lower prices for oil and gas. This could then
necessitate the Company seeking Debtor-In-Possession financing although there
can be no assurances that such financing could be obtained.
Defaults. The Company has failed to satisfy its interest payment and certain
other obligations under the Senior GINs, the Subordinated Debentures and the
Senior Secured Notes, resulting in Events of Default thereunder.
In addition, Events of Default in respect of the Public Debt have resulted in
an Event of Default under the Company's bank credit agreement (the "Credit
Agreement"). The Company has also failed to make principal payments under the
Credit Agreement of $1.2 million due October 1, 1995 and $1.4 million due on
each of January 1, April 1, July 1, and October 1, 1996, resulting in further
Events of Default.
Collateral Value Requirement for the Senior Secured Notes. The Senior Secured
Notes are secured by a lien on certain proved oil and gas reserves (the
"Pledged Assets") pursuant to a pledged assets agency agreement (the "Pledged
Assets Agency Agreement"). The Pledged Assets Agency Agreement requires that,
as of various dates, the Security Value (as defined below) of the Pledged
Assets and the Security Value of the Pledged Assets that are proved developed
producing reserves (the "Pledged Producing Assets") must be equal to or greater
than certain specified percentages of the then outstanding amount of Senior
Secured Notes. For the purposes of this discussion, "Security Value" means the
aggregate present value (computed at a discount rate equal to 10% per annum) of
the future net revenues of proved oil and gas reserves, calculated in
accordance with the rules of the Securities and Exchange Commission.
As of December 31, 1995, the Security Values of both the Pledged Assets and the
Pledged Producing Assets were less than the required percentages, resulting in
deficiencies (the "Deficiencies") of $9.4 million in respect of the Pledged
Assets and $18.1 million in respect of the Pledged Producing Assets.
The Company has not complied with the requirements for curing the Deficiencies
by the dates set forth for such compliance in the Senior Secured Note
Indenture. As a result, an Event of Default under the Senior Secured Note
Indenture has occurred and the trustee under such Indenture and the holders of
Senior Secured Notes have the remedies described above in respect of an Event
of Default under the Senior Secured Note Indenture. See "Liquidity and Ability
to Service Debt" and "Defaults" above.
Ability to Replace Reserves Produced and Maintain Production Levels. The
ability of the Company to maintain its current level of oil and gas production
and to find and develop new proved reserves of oil and gas to replace the
reserves produced depends on the availability of funds for capital
expenditures. Due to the Company's current financial condition, the Company
has had limited funds available for drilling operations during 1996. In
addition, the Company's ability to use such funds is subject to restrictions
contained in the Exchange Agreement, and to the approval of the Bankruptcy
Court. See "Capital Expenditures" below. As a result, the Company's
production and volumes of proved oil and gas reserves are likely to continue to
decline during 1996. Such a decline in production would adversely affect the
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Company's short-term liquidity. A decline in reserve volumes could cause
increased Deficiencies under the collateral requirement relating to the Senior
Secured Notes and could adversely affect the value of the collateral securing
the Senior Secured Notes and the Company's bank debt. See "Liquidity and
Ability to Service Debt" and "Defaults" and "Collateral Value Requirement for
the Senior Secured Notes" above.
LONG-TERM DEBT
At October 25, 1996, the total debt of the Company was $246.4 million. Of such
amount, $21.4 million was outstanding under the Credit Agreement and was
secured by mortgages on a significant amount of the Company's oil and gas
properties (the "Mortgaged Properties") other than the Pledged Assets.
Borrowings under the Credit Agreement currently bear interest at a per annum
default rate of prime plus 3%. See "Liquidity and Ability to Service Debt" and
"Defaults".
The other long-term debt of the Company consists of $50 million of Subordinated
Debentures, $75 million of Senior Secured Notes, and $100 million of Senior
GINs. The Senior Secured Notes bear interest at 11.5% per annum and are
secured by a mortgage on the Pledged Assets as described above. The Senior
GINs are unsecured and currently bear interest at 13.6% per annum. The
Subordinated Debentures bear interest at 9% per annum, are unsecured and are
subordinated to the Company's bank debt, the Senior Secured Notes and the
Senior GINs. As discussed above, the Company is currently in default in
respect of the Public Debt and is, therefore, accruing interest at a default
interest rate which is 1% higher than the rates indicated above; however, the
Company is making no payments in respect of the Public Debt. See "Liquidity
and Ability to Service Debt" and "Defaults."
CAPITAL EXPENDITURES
The Company's capital expenditures on its oil and gas operations totaled
approximately $6.7 million during the nine months ended September 30, 1996.
Due to the current uncertainty as to its financial condition, the Company plans
to limit its capital expenditures, subject to the availability of funds (as to
which no assurance can be given), during the remainder of 1996 to those that
are required to maintain its producing oil and gas properties as well as
certain other drilling operations and activities. The Exchange Agreement
contains restrictions on the Company's ability to make significant capital
expenditures without Tom Brown's approval. The unavailability of funds for
capital projects could also materially and adversely impact the value of the
Company's interest in properties it owns jointly and with others. Pursuant to
the operating agreements governing these joint ownership relationships, the
Company could be forced to contribute funds for capital projects in respect to
these properties or suffer "non-consent" penalties. Such penalties could
materially and adversely affect the value of the Company's ownership interest
in any such properties.
RESULTS OF OPERATIONS
The Company had a net loss for the quarter and nine months ended September 30,
1996 of $6,626,000 and $17,791,000, respectively, compared to a net loss of
$8,476,000 and $24,169,000 for the quarter and nine months ended September 30,
1995. Contributing to the 1996 losses was a decrease in oil and gas production
in the 1996 periods as compared to the 1995 periods. The decrease in oil
production is the result of lower production rates in several significant
fields and the decrease in gas production is due to both declines in production
rates and the sale of certain producing properties. However, the Company's
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
revenues for the 1996 periods are higher than those a year earlier due to a
significant increase in oil and gas prices.
The following table reflects the average prices received by the Company for oil
and gas and the amount of its oil and gas production for the three months and
nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average Price:
Oil and condensate (per barrel) $19.98 $14.57 $18.72 $15.36
Gas (per thousand cubic feet) $1.76 $1.09 $1.72 $1.18
Production:
Oil and condensate (barrels) 182,000 207,000 564,000 661,000
Gas (thousand cubic feet) 3,086,000 3,429,000 9,422,000 11,531,000
</TABLE>
The reduced amount of expenses associated with lease operating and depletion,
depreciation and amortization during the 1996 periods as compared to the 1995
periods is due to a decrease in oil and gas production. The increase in
production taxes in the 1996 periods as compared to the 1995 periods is due to
the higher revenues in the 1996 periods caused by higher oil and gas prices.
The following table shows the costs associated with the Company's oil and gas
revenues per equivalent barrel of oil for the three months and nine months
ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
(per equivalent barrel)
<S> <C> <C> <C> <C>
Production Costs $4.17 $3.89 $3.98 $3.92
Depletion, Depreciation and
Amortization $4.46 $4.37 $4.40 $4.31
</TABLE>
The Company has significantly reduced its ongoing general and administrative
expenses during 1996 due to a reduction in personnel during 1995.
The Company's interest expense increased during 1996 as compared to 1995 due to
the interest accrued on the unpaid balance of interest due on the Public Debt.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 18, 1996, a Form 8-K was filed dated September 16,
1996, which reports under Item 5 "Other Events" the interest
rate on the Company's Senior Subordinated Gas Indexed Notes Due
1999 and Senior Gas Indexed Notes Due 2002 to be 14.050% for
the period November 15, 1996 to February 14, 1997.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PRESIDIO OIL COMPANY
-------------------------------
Registrant
DATE: November 1, 1996 /s/ Robert L. Smith
------------------ ---------------------------------
Robert L. Smith
President and
Chief Operating Officer
DATE: November 1, 1996 /s/ Charles E. Brammeier
------------------- ---------------------------------
Charles E. Brammeier
Controller
(Principal Accounting Officer)
17
<PAGE> 18
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,599
<SECURITIES> 0
<RECEIVABLES> 6,315
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,885
<PP&E> 526,324
<DEPRECIATION> (312,358)
<TOTAL-ASSETS> 243,702
<CURRENT-LIABILITIES> 300,411
<BONDS> 0
0
0
<COMMON> 2,854
<OTHER-SE> (70,640)
<TOTAL-LIABILITY-AND-EQUITY> 243,702
<SALES> 26,761
<TOTAL-REVENUES> 26,671
<CGS> 0
<TOTAL-COSTS> 17,893
<OTHER-EXPENSES> 1,891
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,768
<INCOME-PRETAX> (17,791)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,791)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,791)
<EPS-PRIMARY> (.62)
<EPS-DILUTED> (.62)
</TABLE>
