<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 1-10578
-----------
VINTAGE PETROLEUM, INC.
------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 73-1182669
- -------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 One Williams Center Tulsa, Oklahoma 74172
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(918) 592-0101
----------------------------------------------------------
(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
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1997
----- -------------------------------
Common Stock, $.005 Par Value 51,558,886
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<PAGE>
PART I
FINANCIAL INFORMATION
-2-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS, EXCEPT SHARES
AND PER SHARE AMOUNTS)
(UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 9,125 $ 2,774
Accounts receivable -
Oil and gas sales 54,244 68,219
Joint operations 5,778 4,445
Prepaids and other current assets 10,067 9,252
---------- --------
Total current assets 79,214 84,690
---------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, full cost method 1,171,006 964,623
Oil and gas gathering systems 14,285 13,489
Other 9,529 8,439
---------- --------
1,194,820 986,551
Less accumulated depreciation, depletion
and amortization 345,972 275,392
---------- --------
848,848 711,159
---------- --------
OTHER ASSETS, net 20,265 18,101
---------- --------
TOTAL ASSETS $ 948,327 $813,950
========== ========
</TABLE>
See notes to unaudited consolidated financial statements.
-3-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES:
Revenue payable $ 26,813 $ 24,746
Accounts payable - trade 15,548 20,355
Other payables and accrued liabilities 26,793 26,595
Current portion of long-term debt - 6,629
Acquisition costs payable - 35,051
-------- --------
Total current liabilities 69,154 113,376
-------- --------
LONG-TERM DEBT, less current portion above 447,868 372,390
-------- --------
DEFERRED INCOME TAXES 63,752 57,610
-------- --------
OTHER LONG-TERM LIABILITIES 2,531 3,641
-------- --------
MINORITY INTEREST IN SUBSIDIARY 2,110 1,828
-------- --------
STOCKHOLDERS' EQUITY per accompanying statement:
Preferred stock, $.01 par, 5,000,000 shares
authorized, zero shares issued and
outstanding - -
Common stock, $.005 par, 80,000,000 shares
authorized, 51,558,886 and 48,138,224
shares issued and outstanding 258 241
Capital in excess of par value 202,110 152,200
Retained earnings 160,544 112,664
-------- --------
362,912 265,105
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $948,327 $813,950
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
-4-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- ------- -------- --------
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 88,901 $62,905 $258,264 $185,847
Oil and gas gathering 4,300 4,865 13,514 15,310
Gas marketing 10,803 8,047 31,641 21,519
Other income 383 135 45 659
-------- ------- -------- --------
104,387 75,952 303,464 223,335
-------- ------- -------- --------
COSTS AND EXPENSES:
Lease operating, including
production taxes 30,457 22,791 83,847 67,606
Oil and gas gathering 3,589 4,145 11,354 12,838
Gas marketing 10,168 7,499 29,999 19,885
General and administrative 4,588 3,829 13,840 12,026
Depreciation, depletion and
amortization 26,968 17,773 72,218 51,313
Interest 9,503 7,729 27,455 22,467
-------- ------- -------- --------
85,273 63,766 238,713 186,135
-------- ------- -------- --------
Income before income taxes
and minority interest 19,114 12,186 64,751 37,200
PROVISION FOR INCOME TAXES:
Current 1,309 491 3,293 2,061
Deferred 2,571 1,705 10,799 7,982
MINORITY INTEREST IN
INCOME OF SUBSIDIARY - (163) (203) (361)
-------- ------- -------- --------
NET INCOME $ 15,234 $ 9,827 $ 50,456 $ 26,796
======== ======= ======== ========
EARNINGS PER SHARE $.29 $.20 $.96 $.55
======== ======= ======== ========
Weighted average common shares
and common equivalent shares
outstanding 53,180 49,112 52,403 48,908
======== ======= ======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
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<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Capital
Common Stock In Excess
---------------- of Par Retained
Shares Amount Value Earnings Total
-------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 48,138 $241 $152,200 $112,664 $265,105
Net income - - - 50,456 50,456
Issuance of common stock 3,000 15 47,068 - 47,083
Exercise of stock options and
resulting tax effects 421 2 2,842 - 2,844
Cash dividends declared
($.05 per share) - - - (2,576) (2,576)
-------- ------- --------- --------- ---------
Balance at September 30, 1997 51,559 $258 $202,110 $160,544 $362,912
======== ======= ========= ========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
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<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 50,456 $ 26,796
Adjustments to reconcile net income to
cash provided by operating activities -
Depreciation, depletion and amortization 72,218 51,313
Minority interest in income of subsidiary 203 361
Provision for deferred income taxes 10,799 7,982
----------- ---------
133,676 86,452
Decrease (increase) in receivables 12,642 (3,763)
(Decrease) increase in payables and accrued liabilities (2,294) 4,340
Other (500) (4,082)
----------- ---------
Cash provided by operating activities 143,524 82,947
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment -
Oil and gas properties (208,021) (92,441)
Other property and equipment (1,886) (1,567)
Purchase of subsidiaries (39,027) (5,213)
Other (987) (1,478)
----------- ---------
Cash used by investing activities (249,921) (100,699)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 47,910 1,753
Sale of 8 5/8% Senior Subordinated Notes 96,270 -
Advances on revolving credit facility and other borrowings 174,858 108,048
Payments on revolving credit facility and other borrowings (202,914) (87,614)
Dividends paid (2,266) (2,514)
Other (1,110) 873
----------- ---------
Cash provided by financing activities 112,748 20,546
----------- ---------
Net increase in cash and cash equivalents 6,351 2,794
Cash and cash equivalents, beginning of period 2,774 2,545
----------- ---------
Cash and cash equivalents, end of period $ 9,125 $ 5,339
=========== =========
</TABLE>
See notes to unaudited consolidated financial statements.
-7-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
SEPTEMBER 30, 1997 AND 1996
1. GENERAL
The accompanying financial statements are unaudited. The consolidated
financial statements include the accounts of the Company and its wholly- and
majority-owned subsidiaries. Management believes that 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 1996 audited financial statements and related
notes.
2. SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
During the nine months ended September 30, 1997 and 1996, cash payments for
interest totaled $22,384,069 and $19,141,953, respectively. During the nine
months ended September 30, 1997 and 1996, cash payments for U.S. Federal and
state income taxes totaled $3,385,382 and $700,000, respectively. During the
nine months ended September 30, 1997 and 1996, $5,204 and $64,949 were paid
for Argentina withholding taxes, respectively.
Depreciation, Depletion and Amortization
Amortization per equivalent barrel of the Company's oil and gas properties for
the three months and nine months ended September 30, 1997 and 1996, were as
follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
------------------- -------------------
<S> <C> <C> <C> <C>
United States $4.41 $3.73 $4.23 $3.76
Argentina 4.45 4.16 4.34 4.18
Bolivia (1) 3.81 - 3.72 -
Total 4.39 3.96 4.26 3.90
</TABLE>
_________________
(1) The Company had no Bolivia operations prior to January 1997.
-8-
<PAGE>
3. LONG-TERM DEBT
Long-term debt at September 30, 1997, and December 31, 1996, consisted of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
(in thousands)
<S> <C> <C>
Bank revolving credit facility................ $ 199,000 $ 200,800
9% Senior Subordinated Notes Due 2005,
net of discount............................. 149,633 149,633
8 5/8 % Senior Subordinated Notes Due 2009,
net of discount............................. 99,205 -
Subsidiary debt (a) -
International Finance Corporation Notes..... - 25,986
Other subsidiary debt....................... - 2,600
------------ -----------
447,838 379,019
Less - Current portion of long-term debt (a).. - 6,629
------------ -----------
$ 447,838 $ 372,390
============ ===========
</TABLE>
(a) Subsidiary debt and current portion of long-term debt relate to borrowings
of the Company's international subsidiaries and is non-recourse to the
Company except for $9.2 million advanced by the International Finance
Corporation. The subsidiary debt and current portion of long-term debt were
retired on September 15, 1997, with funds provided by advances under the
Company's revolving credit facility.
4. PUBLIC OFFERINGS
On February 5, 1997, the Company completed a public offering of 3,000,000
shares (after giving effect to the two-for-one common stock split effected on
October 7, 1997, discussed in Note 7) of its common stock, all of which
were sold by the Company. Net proceeds to the Company of approximately $47.1
million were used to repay a portion of existing indebtedness under the
Company's revolving credit facility.
Also on February 5, 1997, the Company issued $100 million of its 8 5/8%
Senior Subordinated Notes Due 2009 (the "8 5/8% Notes"). Net proceeds to the
Company of approximately $96.3 million were used to repay a portion of
existing indebtedness under the Company's revolving credit facility.
-9-
<PAGE>
The 8 5/8% Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after February 1, 2002. Upon a change in control (as
defined) of the Company, holders of the 8 5/8% Notes may require the Company
to repurchase all or a portion of the 8 5/8% Notes at a purchase price equal
to 101 percent of the principal amount thereof, plus accrued and unpaid
interest. The 8 5/8% Notes mature on February 1, 2009, with interest payable
semiannually on February 1 and August 1 of each year.
The 8 5/8% Notes are unsecured senior subordinated obligations of the
Company, rank subordinate in right of payment to all senior indebtedness (as
defined) and rank pari passu with the Company's 9% Senior Subordinated Notes
Due 2005. The indenture for the 8 5/8% Notes contains limitations on, among
other things, additional indebtedness and liens, the payment of dividends and
other distributions, certain investments and transfers or sales of assets.
5. RECENT PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share ("SFAS No. 128"), which establishes new standards
for computing and presenting earnings per share. The provisions of SFAS No.
128 are effective for earnings per share calculations for periods ending
after December 15, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. If the provisions of SFAS No. 128 had been adopted in the
first nine months of 1997, basic and diluted earnings per share (after giving
effect to the two-for-one common stock split effected on October 7, 1997,
discussed in Note 7) would have been as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
------------------- ------------------
<S> <C> <C> <C> <C>
Earnings per share:
Basic $0.30 $0.20 $0.99 $0.56
Diluted $0.29 $0.20 $0.96 $0.55
</TABLE>
6. SIGNIFICANT ACQUISITION
On April 1, 1997, the Company acquired certain producing oil and gas
properties and facilities located in the Gulf Coast areas of Texas and
Louisiana from subsidiaries of Burlington Resources Inc. for approximately
$101.4 million in cash (the "Burlington Acquisition"). Funds for this
acquisition were provided by advances under the Company's revolving credit
facility.
If the Burlington Acquisition had been consummated as of January 1, 1996, the
Company's unaudited pro forma revenues and net income for the nine months
ended September 30, 1997 and
-10-
<PAGE>
1996, would have been as shown below; however, such pro forma information is
not necessarily indicative of what actually would have occurred had the
transaction occurred on such dates.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------
1997 1996
-------------- -----------
(In thousands, except per share amounts)
<S> <C> <C>
Revenues................ $318,217 $255,897
Net income.............. $ 53,205 $ 33,220
Earnings per share (1).. $ 1.02 $ 0.68
</TABLE>
(1) Amounts have been adjusted to give effect to the two-for-one common
stock split effected on October 7, 1997, discussed in Note 7.
7. SUBSEQUENT EVENTS
On September 12, 1997, the Company's Board of Directors approved a two-for-
one stock split of its common stock effective October 7, 1997, to
shareholders of record on September 26, 1997. All references to the number of
shares and per share amounts in the financial statements and notes thereto
have been restated to reflect the stock split.
On October 30, 1997, the Company was awarded in a minor field round of
property sales by the Bolivian government the right to enter into a contract
for the concession rights of the Naranjillos field located in the Santa Cruz
Province of Bolivia. The Company's winning bid was comprised of 17,728 work
units to be performed within the next three years and a one million dollar
cash payment. The work unit commitment is to be guaranteed by the Company
through the issuance of an $88.6 million letter of credit; however, the
Company anticipates that it will fulfill its three-year work unit commitment
through approximately $45 to $50 million of various seismic and drilling
capital expenditures.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
The Company's results of operations have been significantly affected by its
success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation and exploration activities.
Fluctuations in oil and gas prices have also significantly affected the
Company's results. The following table reflects the Company's oil and gas
production and its average oil and gas prices for the periods presented:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Production:
Oil (MBbls) -
U.S.......... 2,560 1,910 7,090 5,683
Argentina.... 1,430 1,115 4,157 2,966
Bolivia (1).. 39 - 98 -
Total........ 4,029 3,025 11,345 8,649
Gas (MMcf) -
U.S.......... 10,020 7,943 26,202 24,535
Bolivia (1).. 1,711 - 4,554 -
Total........ 11,731 7,943 30,756 24,535
Total MBOE....... 5,984 4,349 16,471 12,738
Average prices:
Oil (per Bbl) -
U.S.......... $ 16.10 $16.55 $ 17.47 $ 17.08
Argentina.... 16.29 15.86 17.11 15.87
Bolivia (1).. 13.81 - 16.18 -
Total........ 16.15 16.30 17.33 16.66
Gas (per Mcf) -
U.S.......... $ 2.21 $ 1.71 $ 2.16 $ 1.70
Bolivia (1).. 1.02 - 1.12 -
Total........ 2.03 1.71 2.01 1.70
</TABLE>
__________________
(1) Bolivia operations commenced January 1997.
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<PAGE>
Average U.S. oil prices received by the Company fluctuate generally with
changes in the West Texas Intermediate ("WTI") posted prices for oil. The
Company's Argentina oil production is sold at WTI spot prices less a specified
differential. The Company experienced a four percent increase in its average oil
price in the first nine months of 1997 compared to the same period in 1996.
During the nine months of 1997, the Company had oil hedges in place on 49
percent of its Argentina oil production (2.048 MMBbls) reducing the average
Argentina oil price by 64 cents to $17.11 per Bbl and reducing the Company's
overall average oil price by 23 cents to $17.33 per Bbl. The Company had oil
hedges in place for the first nine months of 1996 covering 3.561 MMBbls reducing
the Company's overall average oil price $1.17 to $16.66 per Bbl. The Company's
average realized oil price, before the impact of oil hedges, for the first nine
months of 1997 was 93 percent of WTI posted prices.
Except for the Company's Bolivian gas production which is sold under a long-
term contract, average gas prices received by the Company fluctuate generally
with changes in spot market prices for gas, which may vary significantly by
region. The Company's average gas price for the first nine months of 1997 was 18
percent higher than the same period in 1996. The Company's average gas price
during the first nine months of 1996 was negatively impacted by six cents per
Mcf as a result of certain gas hedges that were in place for 40,000 Mcf of gas
per day for the period January through March 1996.
The Company has previously engaged in oil and gas hedging activities and will
continue to consider various hedging arrangements to realize commodity prices
which it considers favorable. Currently, oil hedges for the fourth quarter of
1997 cover 690 MBbls at an average NYMEX reference price of $18.46 per Bbl.
Before the impact of oil hedges, the Company's average realized oil price for
the first nine months of 1997 was $17.56 per Bbl, or approximately 84 percent of
the average NYMEX reference price.
Relatively modest changes in either oil or gas prices significantly impact the
Company's results of operations and cash flow. However, the impact of changes
in the market prices for oil and gas on the Company's average realized prices
may be reduced from time to time based on the level of the Company's hedging
activities. Based on third quarter 1997 oil production, a change in the average
oil price realized by the Company of $1.00 per Bbl would result in a change in
net income and cash flow before income taxes on a quarterly basis of
---------------
approximately $3.0 million and $3.9 million, respectively. A 10 cent per Mcf
change in the average price realized by the Company for gas would result in a
change in net income and cash flow before income taxes on a quarterly basis of
---------------
approximately $0.7 million and $1.1 million, respectively, based on third
quarter 1997 gas production.
-13-
<PAGE>
PERIOD TO PERIOD COMPARISONS
THREE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net income was $15.2 million for the quarter ended September 30, 1997, up 55
percent from $9.8 million for the same period in 1996. An increase in the
Company's oil and gas production of 38 percent on an equivalent barrel basis and
a 19 percent increase in average gas prices were primarily responsible for the
increase in net income. The production increases primarily relate to the
acquisition of certain producing oil and gas properties from Burlington
Resources Inc. (the "Burlington Properties") in April 1997, the exploitation
activities in Argentina, the exploration activities in the Galveston Bay area,
and the acquisitions of Vintage Petroleum Boliviana, Ltd. (formerly Shamrock
Ventures (Boliviana) Ltd.) from affiliates of Diamond Shamrock, Inc. and
Austrofueguina, S.A. and certain producing oil and gas properties from Exxon
Company, U.S.A. (collectively, the "1996 Acquisitions").
Oil and gas sales increased $26.0 million (41 percent), to $88.9 million for
the third quarter of 1997 from $62.9 million for the third quarter of 1996. A
33 percent increase in oil production, partially offset by a one percent
decrease in average oil prices, accounted for $15.8 million of the increase. A
48 percent increase in gas production, and a 19 percent increase in average gas
prices, contributed an additional $10.2 million increase.
Lease operating expenses, including production taxes, increased $7.7 million
(34 percent), to $30.5 million for the third quarter of 1997 from $22.8 million
for the third quarter of 1996. The increase in lease operating expenses is due
primarily to operating costs associated with the Burlington Properties and the
1996 Acquisitions. Lease operating expenses per equivalent barrel produced
decreased to $5.09 in the third quarter of 1997 from $5.24 for the same period
in 1996.
General and administrative expenses increased $800,000 (21 percent), to $4.6
million for the third quarter of 1997 from $3.8 million for the third quarter of
1996, due primarily to the acquisition of Vintage Petroleum Boliviana, Ltd. and
the addition of personnel as a result of the acquisition of the Burlington
Properties.
Depreciation, depletion and amortization increased $9.2 million (52 percent),
to $27.0 million for the third quarter of 1997 from $17.8 million for the third
quarter of 1996, due primarily to the 38 percent increase in production on an
equivalent barrel basis. Amortization per equivalent barrel of the Company's
oil and gas properties increased to $4.39 in the third quarter of 1997 from
$3.96 in 1996.
Interest expense increased $1.8 million (23 percent), to $9.5 million for the
third quarter of 1997 from $7.7 million for the third quarter of 1996, due
primarily to a 34 percent increase in the Company's total average outstanding
debt as a result of the acquisition of the Burlington Properties and the 1996
Acquisitions. The increase in interest expense was partially offset by a
decrease in the Company's overall average interest rate from 8.55% in the third
quarter of 1996 to 7.99% in the third quarter of 1997.
-14-
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net income was $50.5 million for the first nine months of 1997, up 88 percent
from $26.8 million for the same period in 1996. Increases in the Company's oil
and gas production of 29 percent on an equivalent barrel basis, an increase of
18 percent in natural gas prices, and an increase of four percent in oil prices
are primarily responsible for the increase in net income. The production
increases primarily relate to the acquisition of the Burlington Properties,
exploitation activities in Argentina, exploration activities in the Galveston
Bay area, and the 1996 Acquisitions.
Oil and gas sales increased $72.5 million (39 percent), to $258.3 million for
the first nine months of 1997 from $185.8 million for the first nine months of
1996. A 31 percent increase in oil production and a four percent increase in
average oil prices combined to account for $52.5 million of the increase. A 25
percent increase in gas production and an 18 percent increase in average gas
prices contributed an additional $20.0 million increase.
Other income decreased $600,000 (92 percent), to $50,000 for the first nine
months of 1997 from $650,000 of income for the first nine months of 1996, due
primarily to an additional accrual in the first nine months of 1997 for
estimated costs related to a gas contract settlement dispute.
Lease operating expenses, including production taxes, increased $16.2 million
(24 percent), to $83.8 million for the first nine months of 1997 from $67.6
million for the first nine months of 1996. The increase in lease operating
expenses is due primarily to operating costs associated with the Burlington
Properties, the 1996 Acquisitions and an increase in severance taxes related to
higher oil and gas sales. Lease operating expenses per equivalent barrel
produced decreased to $5.09 in the first nine months of 1997 from $5.31 for the
same period in 1996.
General and administrative expenses increased $1.8 million (15 percent), to
$13.8 million for the first nine months of 1997 from $12.0 million for the first
nine months of 1996, due primarily to the acquisition of Vintage Petroleum
Boliviana, Ltd. and the addition of personnel as a result of the acquisition of
the Burlington Properties.
Depreciation, depletion and amortization increased $20.9 million (41
percent), to $72.2 million for the first nine months of 1997 from $51.3 million
for the first nine months of 1996, due primarily to the 29 percent increase in
production on an equivalent barrel basis. Amortization per equivalent barrel of
the Company's oil and gas properties increased to $4.26 in the first nine months
of 1997 from $3.90 in 1996.
Interest expense increased $5.0 million (22 percent), to $27.5 million for
the first nine months of 1997 from $22.5 million for the first nine months of
1996, due primarily to a 29 percent increase in the Company's total average
outstanding debt as a result of the acquisition of the Burlington Properties and
the 1996 Acquisitions. The increase in interest expense was partially offset by
a decrease in the Company's overall average interest rate from 8.46% in the
first nine months of 1996 to 8.04% in the first nine months of 1997.
-15-
<PAGE>
CAPITAL EXPENDITURES
During the first nine months of 1997, the Company's U.S. and South American
non-acquisition related capital expenditures totaled $53.8 million and $43.3
million, respectively. The timing of most of the Company's capital expenditures
is discretionary with no material long-term capital expenditure commitments,
except for the commitment in Bolivia discussed below. Consequently, the Company
has a significant degree of flexibility to adjust the level of such expenditures
as circumstances warrant. The Company primarily uses internally generated cash
flow to fund capital expenditures other than significant acquisitions and
anticipates that its cash flow, net of debt service obligations, will be
sufficient to fund its planned total 1997 non-acquisition capital expenditures
of approximately $64 million and $60 million in the U.S. and South America,
respectively. The Company anticipates that its 1998 non-acquisition capital
expenditures budget will be significantly higher than the 1997 budget, but will
still be funded entirely by cash flow, net of debt obligations.
On October 30, 1997, the Company was awarded in a minor field round of
property sales by the Bolivian government the right to enter into a contract for
the concession rights of the Naranjillos field located in the Santa Cruz
Province of Bolivia. The Company's winning bid was comprised of 17,728 work
units to be performed within the next three years and a one million dollar cash
payment. The work unit commitment is to be guaranteed by the Company through the
issuance of an $88.6 million letter of credit; however, the Company anticipates
that it will fulfill its three-year work unit commitment through approximately
$45 to $50 million of various seismic and drilling capital expenditures.
The Company had $111.7 million of oil and gas property acquisition related
capital expenditures in the first nine months of 1997. The largest of these
expenditures was the acquisition on April 1, 1997, of certain producing oil and
gas properties located in the Gulf Coast areas of Texas and Louisiana from
subsidiaries of Burlington Resources Inc. for approximately $101.4 million in
cash. Funds for this acquisition were provided by advances under the Company's
revolving credit facility. The Company does not have a specific acquisition
budget since the timing and size of acquisitions are difficult to forecast. The
Company is actively pursuing additional acquisitions of oil and gas properties.
In addition to internally generated cash flow and advances under the Company's
revolving credit facility, the Company may seek additional sources of capital to
fund any future significant acquisitions (see "Liquidity").
LIQUIDITY
Internally generated cash flow and the borrowing capacity under its revolving
credit facility are the Company's major sources of liquidity. In addition, the
Company may use other sources of capital, including the issuance of additional
debt securities or equity securities, to fund any major acquisitions it might
secure in the future and to maintain its financial flexibility. The Company
funds its capital expenditures (excluding acquisitions) and debt service
requirements primarily through internally generated cash flows from operations.
Any excess cash flow is used to reduce outstanding advances under the Company's
revolving credit facility.
In the past, the Company has accessed the public markets to finance
significant acquisitions and provide liquidity for its future activities. In
conjunction with the purchase of substantial oil and gas assets in 1990, 1992
and 1995, the Company completed three public equity offerings, as well as a
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<PAGE>
public debt offering in 1995, which provided the Company with aggregate net
proceeds of approximately $272 million.
On February 5, 1997, the Company completed a public offering of 3,000,000
shares (after giving effect to the two-for-one common stock split effected on
October 7, 1997) of its common stock, all of which were sold by the Company.
Net proceeds to the Company of approximately $47.1 million were used to repay a
portion of existing indebtedness under the Company's revolving credit facility.
Also on February 5, 1997, the Company issued $100 million of its 8 5/8%
Senior Subordinated Notes Due 2009 (the "8 5/8% Notes"). Net proceeds to the
Company of approximately $96.3 million were used to repay a portion of existing
indebtedness under the Company's revolving credit facility.
The 8 5/8% Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after February 1, 2002. Upon a change in control (as
defined) of the Company, holders of the 8 5/8% Notes may require the Company
to repurchase all or a portion of the 8 5/8% Notes at a purchase price equal to
101 percent of the principal amount thereof, plus accrued and unpaid interest.
The 8 5/8% Notes mature on February 1, 2009, with interest payable semiannually
on February 1 and August 1 of each year.
The 8 5/8% Notes are unsecured senior subordinated obligations of the
Company, rank subordinate in right of payment to all senior indebtedness (as
defined) and rank pari passu with the Company's 9% Senior Subordinated Notes Due
2005. The indenture for the 8 5/8% Notes contains limitations on, among other
things, additional indebtedness and liens, the payment of dividends and other
distributions, certain investments and transfers or sales of assets.
Under its Credit Agreement dated August 29, 1996, as amended (the "Credit
Agreement"), certain banks have provided to the Company an unsecured revolving
credit facility. The Credit Agreement establishes a borrowing base (currently
$385 million, which exceeds the $375 million facility amount) determined by the
banks' evaluation of the Company's U.S. and certain Argentina oil and gas
reserves.
Outstanding advances under the revolving credit facility bear interest
payable quarterly at a floating rate based on Bank of Montreal's alternate base
rate (as defined) or, at the Company's option, at a fixed rate for up to six
months based on the eurodollar market rate ("LIBOR"). The Company's interest
rate increments above the alternate base rate and LIBOR vary based on the level
of outstanding senior debt and the portion of the borrowing base attributable to
the U.S. reserves at the time. As of November 6, 1997, the Company had elected
a fixed rate based on LIBOR for a substantial portion of its outstanding
advances which resulted in an average interest rate of approximately 6.4 percent
per annum. In addition, the Company must pay a commitment fee ranging from 0.25
to 0.375 percent per annum on the unused portion of the banks' commitment.
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's U.S. and certain Argentina oil
and gas reserves. If the sum of outstanding senior debt (excluding debt of the
Company's foreign subsidiaries) exceeds the borrowing base, as redetermined, the
Company must repay such excess. Any principal advances outstanding at October
1, 1999, will be payable in 12 equal consecutive quarterly installments
commencing
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<PAGE>
January 1, 2000, with maturity at October 1, 2002.
The unused portion of the revolving credit facility was approximately $170
million at November 6, 1997 ($82 million after the effect of the $88.6 million
letter of credit to be issued in connection with the recent acquisition in
Bolivia). The Company has recently requested an increase in its revolving credit
facility which, if approved by the banks, would increase the unused portion
under the facility by approximately $75 million based on preliminary indications
from the Company's agent bank. The unused portion of the revolving credit
facility and the Company's internally generated cash flow provide liquidity
which may be used to finance future capital expenditures, including
acquisitions. As additional U.S. and Argentina acquisitions are made and
properties are added to the borrowing base, the banks' determination of the
borrowing base and their commitment may be increased.
INCOME TAXES
The total provision for U.S. income taxes is based on the Federal corporate
statutory income tax rate plus an estimated average rate for state income taxes.
The Company incurred a current provision for U.S. income taxes of approximately
$2.7 million in the first nine months of 1997. The Company had a current
provision for U.S. income taxes of $2.1 million in the first nine months of
1996. The Company has a $4.8 million U.S. alternative minimum tax credit
carryforward which does not expire and is available to offset U.S. regular
income taxes in future years, but only to the extent that U.S. regular income
taxes exceed the U.S. alternative minimum tax in such years.
Earnings of the Company's foreign subsidiaries, Cadipsa S.A. and Vintage Oil
Argentina, Inc., are subject to Argentina income taxes. Due to significant
Argentina net operating loss carryforwards for both companies, the Company does
not expect to pay any foreign income taxes related to these subsidiaries in
1997. Earnings of the Company's foreign subsidiary, Vintage Petroleum Boliviana,
Ltd., are subject to Bolivia income taxes. Bolivian income taxes are provided on
the earnings of this subsidiary based on the tax laws and regulations of Bolivia
and for the first nine months of 1997 the subsidiary incurred a current
provision for Bolivian income taxes of $0.6 million. No U.S. deferred tax
liability will be recognized related to the unremitted earnings of these foreign
subsidiaries, as it is the Company's intention, generally, to reinvest such
earnings permanently.
FOREIGN OPERATIONS
Substantially all of the Company's foreign operations are located in
Argentina. The Company believes Argentina offers a politically stable
environment and does not anticipate any significant change in the near future.
The current democratic form of government has been in place since 1983 and,
since 1989, has pursued a steady process of privatization, deregulation and
economic stabilization and reforms involving the reduction of inflation and
public spending. Argentina's 12-month trailing inflation rate measured by the
Argentine Consumer Price Index declined from 200.7 percent as of June 1991 to
0.6 percent as of September 1997.
The Company believes that its Argentine operations present minimal currency
risk. All of the Company's Argentine revenues are U.S. dollar based, while a
large portion of its costs are Argentine peso denominated. The Argentina
Central Bank is obligated by law to sell dollars at a rate of one Argentine peso
to one U.S. dollar and has sought to prevent appreciation of the peso by buying
dollars
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<PAGE>
at rates of not less than 0.998 peso to one U.S. dollar. As a result,
the Company believes that should any devaluation of the Argentine peso occur,
its revenues would be unaffected and its operating costs would not be
significantly increased. At the present time, there are no foreign exchange
controls preventing or restricting the conversion of pesos into dollars.
With the purchase of Vintage Petroleum Boliviana, Ltd., the Company expanded
its international operations into Bolivia. Since the mid-1980's, Bolivia has
been undergoing major economic reform including the establishment of a free-
market economy and the encouragement of private foreign investment. Economic
activities that had been reserved for government corporations were opened to
foreign and domestic private investments. Barriers to international trade have
been reduced and tariffs lowered. A new investment law and revised codes for
mining and the petroleum industry, intended to attract foreign investment, have
been introduced.
On January 1, 1987, a new currency, the Boliviano ("Bs"), replaced the peso
at the rate of one million pesos to one Boliviano. The exchange rate is set
daily by the Government's exchange house (the "Bolsin") which is under the
supervision of the Bolivian central bank. Foreign exchange transactions are not
subject to any controls. The US$:Bs exchange rate at September 30, 1997, was
US$1:Bs 5.29. This rate at December 31, 1996, was US$1:Bs 5.19. The Company
believes that any currency risk associated with its Bolivian operations would
not have a material impact on the Company's financial position or results of
operations.
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<PAGE>
PART II
OTHER INFORMATION
-20-
<PAGE>
Item 1. Legal Proceedings
-----------------
For information regarding legal proceedings, see the Company's Form
10-Q for the six months ended June 30, 1997, and its Form 10-K for the
year ended December 31, 1996.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
not applicable.
Item 5. Other Information
-----------------
not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
The following documents are included as exhibits to this Form
10-Q. Those exhibits below incorporated by reference herein are
indicated as such by the information supplied in the parenthetical
thereafter. If no parenthetical appears after an exhibit, such
exhibit is filed herewith.
27. Financial Data Schedule.
b) Reports on Form 8-K
None.
************************************************************************
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<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.
VINTAGE PETROLEUM, INC.
-----------------------
(Registrant)
DATE: November 12, 1997 /s/ Michael F. Meimerstorf
------------------ -----------------------------------------
Michael F. Meimerstorf
Vice President and Controller
(Principal Accounting Officer)
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<PAGE>
EXHIBIT INDEX
The following documents are included as exhibits to this Form 10-Q. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Exhibit
Number Description
- ------ ----------------------
27. Financial Data Schedule.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,125
<SECURITIES> 0
<RECEIVABLES> 60,022
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 79,214
<PP&E> 1,194,820
<DEPRECIATION> 345,972
<TOTAL-ASSETS> 948,327
<CURRENT-LIABILITIES> 69,154
<BONDS> 447,868
0
0
<COMMON> 258<F1>
<OTHER-SE> 362,654
<TOTAL-LIABILITY-AND-EQUITY> 948,327
<SALES> 303,419
<TOTAL-REVENUES> 303,464
<CGS> 125,200
<TOTAL-COSTS> 125,200
<OTHER-EXPENSES> 86,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,455
<INCOME-PRETAX> 64,751
<INCOME-TAX> 14,092
<INCOME-CONTINUING> 50,456
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,456
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.96
<FN>
<F1>COMMON, OTHER-SE AND EPS HAVE BEEN ADJUSTED TO REFLECT TWO-FOR-ONE COMMON
STOCK SPLIT EFFECTED ON OCTOBER 7, 1997.
</FN>
</TABLE>
