<PAGE>
Enron Oil & Gas Company
P. O. Box 1188
Houston, TX 7725101188
Securities and Exchange Commission
Washington, D.C.
Gentlemen:
Pursuant to the requirements of the Securities and Exchange
Act of 1934, we are transmitting herewith the attached Form
10-Q.
Sincerely,
/S/BEN B. BOYD
Ben B. Boyd
Vice President and Controller
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1994
( )Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 1-9743
ENRON OIL & GAS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 47-0684736
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1400 Smith Street, P.O. Box 4362
Houston, Texas 77210-4362
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 853-6161
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
issuer's classes of common stock, as of October 31, 1994.
Common Stock, $.01 Par Value 159,741,050 shares
Class Number of Shares
<PAGE>
ENRON OIL & GAS COMPANY
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income -
Three Months Ended September 30, 1994 and
1993 and Nine Months Ended September 30, 1994
and 1993 3
Consolidated Balance Sheets - September 30, 1994
and December 31, 1993 4
Consolidated Statements of Cash Flow -
Nine Months Ended September 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENRON OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
NET OPERATING REVENUES
Natural Gas
Associated Companies $ 57,382 $ 64,304 $198,743 $193,454
Trade 48,929 62,138 166,911 175,262
Crude Oil, Condensate and Natural Gas Liquids
Associated Companies 13,130 8,541 31,142 31,498
Trade 7,424 4,209 21,490 13,184
Other 554 1,906 3,842 5,013
Total 127,419 141,098 422,128 418,411
OPERATING EXPENSES
Lease and Well 13,416 15,541 44,782 43,331
Exploration 9,958 9,752 29,647 25,704
Dry Hole 2,709 2,066 10,803 5,336
Impairment of Unproved Oil & Gas Properties 6,864 4,378 17,364 12,859
Depreciation, Depletion and Amortization 54,628 64,197 181,645 182,643
General and Administrative 13,766 12,172 38,050 34,024
Taxes Other Than Income 7,322 6,090 22,010 26,469
Total 108,663 114,196 344,301 330,366
OPERATING INCOME 18,756 26,902 77,827 88,045
OTHER INCOME 33,819 12,737 54,450 15,097
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 52,575 39,639 132,277 103,142
INTEREST EXPENSE
Incurred
Affiliate 275 - 275 -
Other 3,306 3,784 10,352 11,282
Capitalized (1,503) (1,313) (4,516) (3,861)
Net Interest Expense 2,078 2,471 6,111 7,421
INCOME BEFORE INCOME TAXES 50,497 37,168 126,166 95,721
INCOME TAX PROVISION (BENEFIT) 9,529 1,412 20,728 (3,764)
NET INCOME $ 40,968 $ 35,756 $105,438 $ 99,485
EARNINGS PER SHARE OF COMMON STOCK $ .26 $ .22 $ .66 $ .62
AVERAGE NUMBER OF COMMON SHARES 159,777 160,000 159,826 160,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 86,831 $ 103,129
Accounts Receivable
Associated Companies 38,858 59,143
Trade 55,413 66,109
Inventories 17,903 14,082
Other 8,185 6,962
Total 207,190 249,425
OIL AND GAS PROPERTIES (Successful Efforts Method) 2,911,755 2,772,220
Less: Accumulated Depreciation, Depletion and
Amortization (1,273,993) (1,226,175)
Net Oil and Gas Properties 1,637,762 1,546,045
OTHER ASSETS 10,867 15,692
TOTAL ASSETS $1,855,819 $1,811,162
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Associated Companies $ 8,798 $ 13,250
Trade 114,798 143,542
Accrued Taxes Payable 17,458 17,354
Dividends Payable 4,792 4,795
Current Maturities of Long-Term Debt - 30,000
Other 6,026 8,989
Total 151,872 217,930
LONG-TERM DEBT 183,862 153,000
OTHER LIABILITIES 13,510 9,477
DEFERRED INCOME TAXES 291,754 270,154
COMMITMENTS AND CONTINGENCIES (Note 8)
DEFERRED REVENUE 195,109 227,528
SHAREHOLDERS' EQUITY
Common Stock, $.01 Par, 160,000,000 Shares Authorized
and Issued at September 30, 1994 and No Par, 80,000,000
Shares Authorized and Issued at December 31, 1993 201,600 200,800
Additional Paid In Capital 415,356 417,531
Cumulative Foreign Currency Translation Adjustment (8,146) (6,855)
Retained Earnings 416,049 324,995
Common Stock Held in Treasury, 251,750 shares at September 30,
1994 and 80,000 shares at December 31, 1993 (5,147) (3,398)
Total Shareholders' Equity 1,019,712 933,073
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,855,819 $1,811,162
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash Inflows:
Net Income $ 105,438 $ 99,485
Items Not Requiring (Providing) Cash
Depreciation, Depletion and Amortization 181,645 182,643
Impairment of Unproved Oil and Gas Properties 17,364 12,859
Deferred Income Taxes 25,846 55,718
Other, Net (3,241) 532
Exploration Expenses 29,647 25,704
Dry Hole Expenses 10,803 5,336
Gains on Sales of Oil and Gas Properties (52,212) (11,556)
Other, Net 3,622 318
Changes in Components of Working Capital and Other Liabilities
Accounts Receivable 30,978 4,772
Inventories (4,335) (2,618)
Accounts Payable (33,196) 3,065
Accrued Taxes Payable 104 7,844
Other Liabilities 4,675 3,462
Other, Net (4,186) (51,270)
Changes in Components of Working Capital Associated with
Investing Activities 20,328 38,677
NET OPERATING CASH INFLOWS 333,280 374,971
INVESTING CASH FLOWS
Additions to Oil and Gas Properties (313,329) (264,817)
Exploration Expenses (29,647) (25,704)
Dry Hole Expenses (10,803) (5,336)
Proceeds from Property Sales 82,167 36,740
Amortization of Deferred Revenue (32,419) (70,351)
Changes in Components of Working Capital Associated with
Investing Activities (20,328) (38,677)
Other, Net (708) (1,305)
NET INVESTING CASH OUTFLOWS (325,067) (369,450)
FINANCING CASH FLOWS
Issuance of Long-Term Debt 81,000 -
Repayments of Long-Term Debt (88,000) -
Dividends Paid (14,387) (14,400)
Treasury Stock Purchased (4,778) (13,114)
Proceeds from Sales of Treasury Stock 1,654 6,214
NET FINANCING CASH OUTFLOWS (24,511) (21,300)
DECREASE IN CASH AND CASH EQUIVALENTS (16,298) (15,779)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 103,129 132,618
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 86,831 $ 116,839
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of Enron Oil & Gas
Company and subsidiaries (the "Company") included herein have
been prepared by management without audit pursuant to the rules
and regulations of the Securities and Exchange Commission.
Accordingly, they reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the
financial results for the interim periods. Certain information
and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations.
However, management believes that the disclosures are adequate to
make the information presented not misleading. These
consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
Certain reclassifications have been made to the consolidated
financial statements and notes for 1993 to conform with the
current presentation.
2. Cash and Cash Equivalents at September 30, 1994 includes
$79.6 million advanced to Enron Corp. under a revolving
promissory note payable on demand, effective January 1, 1993, at
a fixed interest rate of 7%, which note provides for the
investment of funds temporarily surplus to the Company.
3. Income Tax Provision (Benefit) for the three-month periods
ended September 30, 1994 and 1993 includes tax benefits of $14.2
million and $21.4 million, respectively, and for the nine-month
periods ended September 30, 1994 and 1993 includes tax benefits
of $29.4 million and $51.4 million, respectively, all of which
are related to tight gas sand federal income tax credit
utilization. Income Tax Provision (Benefit) for the nine-month
period ended September 30, 1994 also includes a $4.6 million
deferred tax benefit resulting from a reduction in estimated
composite state income tax rates and a $1.5 million current U.S.
tax benefit arising from the discontinuance of operations in
Malaysia. The three and nine-month periods ended September 30,
1993 include a predominantly one-time non-cash charge to income
of $7.0 million primarily to adjust the accumulated deferred
federal income tax liability for the increase in the corporate
federal income tax rate from 34 percent to 35 percent.
4. Natural Gas and Crude Oil, Condensate and Natural Gas
Liquids Net Operating Revenues
Natural Gas Net Operating Revenues are comprised of the
following (in millions): Three Months Ended Nine
Months Ended
September 30,
September 30,__
1994_ 1993_ 1994_
1993__
Wellhead Natural Gas Revenues
Associated Companies (1)(2) $ 56.2 $ 87.1 $218.3 $251.3
Trade 35.8 36.8 125.0 112.0
Total $ 92.0 $123.9 $343.3 $363.3
Other Natural Gas Marketing Activities
Gross Revenues from:
Associated Companies $ 38.5 $ 28.4 $124.2 $ 88.8
Trade (3) 26.8 40.8 90.8 111.8
Total 65.3 69.2 215.0 200.6
Associated Cost from:
Associated Companies (1)(4) 41.4 46.3 141.6 131.5
Trade 13.7 15.2 48.8 48.3
Total (5) 55.1 61.5 190.4 179.8
Net 10.2 7.7 24.6 20.8
Commodity Price Hedging (6) 4.1 (5.2) (2.3) (15.4)
Total $ 14.3 $ 2.5 $ 22.3 $ 5.4
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crude Oil, Condensate and Natural Gas Liquids, Net Operating
Revenues are comprised of the following (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Wellhead Crude Oil, Condensate and
Natural Gas Liquid Revenues
Associated Companies $ 12.9 $ 8.6 $ 30.0 $ 31.5
Trade 7.4 4.2 21.5 13.2
Total $ 20.3 $ 12.8 $ 51.5 $ 44.7
Other Crude Oil Marketing Activities
Commodity Price Hedging (6) $ .3 $ - $ 1.1 $ -
(1) Wellhead Natural Gas Revenues include $27.4 million and
$33.1 million for the three-month periods ended September 30,
1994 and 1993, respectively, and $100.4 million and $92.7 million
for the nine-month periods ended September 30, 1994 and 1993,
respectively, associated with deliveries by Enron Oil & Gas
Company to Enron Oil & Gas Marketing, Inc., a wholly-owned
subsidiary, reflected as a cost in Other Natural Gas Marketing
Activities - Associated Costs.
(2) Includes $5.0 million and $13.7 million for the three-month
periods ended September 30, 1994 and 1993, respectively, and
$17.4 million and $44.0 million for the nine-month periods ended
September 30, 1994 and 1993, respectively, associated with the
equivalent wellhead value of volumes delivered under the terms of
a volumetric production payment agreement effective October 1,
1992, as amended, net of transportation.
(3) Includes $10.9 million and $23.7 million for the three-month
periods ended September 30, 1994 and 1993, respectively, and
$32.4 million and $70.4 million for the nine-month periods ended
September 30, 1994 and 1993, respectively, associated with the
amortization of deferred revenues under the terms of volumetric
production payment and exchange agreements effective October 1,
1992, as amended.
(4) Includes the effect of a price swap agreement with a third
party which in effect fixes the price of certain purchases.
(5) Includes $7.9 million and $20.4 million for the three-month
periods ended September 30, 1994 and 1993, respectively, and
$26.2 million and $61.6 million for the nine-month periods ended
September 30, 1994 and 1993, respectively, for volumes delivered
under the terms of volumetric production payment and exchange
agreements effective October 1, 1992, as amended, including
equivalent wellhead value, any applicable transportation costs
and exchange differentials.
(6) Represents gain or loss associated with commodity futures
transactions primarily with Enron Corp. affiliated companies
based on NYMEX prices in effect on dates of execution, less
customary transaction fees. These transactions serve as price
hedges for a portion of wellhead sales.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Gains on sales of certain oil and gas properties in the
amount of $52.2 million and $11.6 million are required to be
removed from Net Income in connection with determining Net
Operating Cash Inflows while the related proceeds are classified
as investing cash flows for the nine-month periods ended
September 30, 1994 and 1993, respectively. However, current
accounting guidelines will not permit the relevant federal income
tax impact of these transactions to be reclassified to investing
cash flows. The current federal income tax impact of these sales
transactions was calculated by the Company to be $18.7 million
and $9.0 million for the nine-month periods ended September 30,
1994 and 1993, respectively, which entered into the overall
calculation of current federal income tax. The Company believes
that this federal income tax impact should be considered in
analyzing the elements of the cash flow statement.
6. In March 1994, the Company replaced an existing credit
agreement with a Revolving Credit Agreement dated as of March 11,
1994, among the Company and the banks named therein (the "Credit
Agreement"). The Credit Agreement provides for aggregate
borrowings of up to $100 million, with provisions for increases,
at the option of the Company, up to $300 million. Advances under
the Credit Agreement bear interest, at the option of the Company,
based on a base rate, an adjusted CD rate or a Eurodollar rate.
Each advance under the Credit Agreement matures on a date
selected by the Company at the time of the advance, but in no
event after January 15, 1998. No advances have been drawn under
the Credit Agreement through September 30, 1994.
7. In March 1994, a subsidiary received two advances
aggregating $31 million under a credit agreement dated as of
March 8, 1994, between the subsidiary and a financial
institution. One of the advances is in the amount of $16
million, bears interest at a fixed rate of 4.52% and is due in
1998. The other advance is in the amount of $15 million, bears
interest at a floating rate that resets quarterly equal to 84% of
the London Interbank Bid Rate which is 1/8 of 1% less than the
London Interbank Offered Rate and is due in 1998. Both advances
are collateralized with a letter of credit issued by a bank on
behalf of the subsidiary and guaranteed by the Company. The
advances were used to partially repay a promissory note payable
to a bank by the subsidiary.
In May 1994, the subsidiary received a $25 million advance
under a credit agreement dated May 27, 1994 between the
subsidiary and a financial institution. The credit agreement
provides for aggregate borrowings of up to $44 million and is due
in 1999. The advances bear interest based on various interest
rate options, as defined in the credit agreement (4.515% at
September 30, 1994). The advance is guaranteed by the Company
and was used to partially repay temporary advances from the
Company to the subsidiary for exploration, development and
production costs.
In July 1994, the Company prepaid $25 million of loans
payable due in April 1995 with proceeds from a promissory note
payable to Enron Corp. which note is in the same amount and with
essentially the same terms as the loan prepaid. The Enron Corp.
promissory note and the remaining $25 million balance of loans
payable due in April 1995 are classified as long-term because of
the Company's intention and ability to replace such loans upon
maturity with other long-term debt.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Concluded)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. As reported in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, TransAmerican Natural Gas
Corporation ("TransAmerican") has filed a petition against the
Company and Enron Corp. alleging breach of contract, tortious
interference with contract, misappropriation of trade secrets and
violation of state antitrust laws. The petition, as amended,
seeks actual damages of $100 million plus exemplary damages of
$300 million. The Company has answered the petition and is
actively defending the matter; in addition, the Company has filed
counterclaims against TransAmerican and its sole shareholder,
John R. Stanley, alleging fraud, negligent misrepresentation and
breach of state antitrust laws. On April 6, 1994, Enron Corp.
was granted summary judgment, wherein the court ordered that
TransAmerican can take nothing on its claims against Enron Corp.
Trial, which was set most recently for September 12, 1994 has
been continued, and there is no current setting. Although no
assurances can be given, the Company believes that the claims
made by TransAmerican are totally without merit, that the
ultimate resolution of the matter will not have a materially
adverse effect on its financial condition or results of
operations, and that such ultimate resolution could result in a
recovery to the Company.
9. Significant items of other income are detailed below (in
millions):
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Gains on Sales of Oil and Gas Properties $ 33.3 $ 11.5 $ 52.2 $ 11.6
Interest Income 1.6 2.0 4.2 3.9
Other, Net (1.1) (0.8) (2.0) (.4)
Total $ 33.8 $ 12.7 $ 54.4 $ 15.1
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENRON OIL & GAS COMPANY
The following review of operations for the three-month and nine-
month periods ended September 30, 1994 should be read in
conjunction with the consolidated financial statements of the
Company and Notes thereto.
Results of Operations
Three Months Ended September 30, 1994
vs. Three Months Ended September 30, 1993
In the third quarter of 1994, Enron Oil & Gas Company (the
"Company") realized net income of $41.0 million compared to net
income of $35.8 million for the same period in 1993. Net
operating revenues for the third quarter of 1994 were $127.4
million as compared to $141.1 million for the same period a year
ago.
Volume and price statistics are as follows:
1994 1993
Wellhead Volumes
Natural Gas (MMcf/d) (1)(3) 672 703
Crude Oil and Condensate (MBbl/d) (1) 12.8 8.4
Natural Gas Liquids (MBbl/d) (1) 0.7 0.5
Wellhead Average Prices
Natural Gas ($/Mcf) (2)(4) $ 1.49 $ 1.92
Crude Oil and Condensate ($/Bbl) (2) 16.70 15.94
Natural Gas Liquids ($/Bbl) (2) 9.68 10.38
Other Natural Gas Marketing
Volumes (MMcf/d) (1)(3) 306 295
Average Gross Revenue ($/Mcf) (2) $ 2.32 $ 2.55
Associated Costs ($/Mcf) (2)(5) 1.96 2.27
Margin ($/Mcf) (2) $ 0.36 $ 0.28
(1) Million cubic feet per day or thousand barrels per day, as
applicable.
(2) Dollars per thousand cubic feet or per barrel, as
applicable.
(3) Includes 48 MMcf per day and 103 MMcf per day for the three-
month periods ended September 30, 1994 and 1993, respectively,
delivered under the terms of volumetric production payment and
exchange agreements effective October 1, 1992, as amended.
(4) Includes an average equivalent wellhead value of $1.13/Mcf
and $1.44/Mcf for the three-month periods ended September 30,
1994 and 1993, respectively, for the volumes described in note
(3), net of transportation costs.
(5) Including transportation and exchange differentials.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
ENRON OIL & GAS COMPANY
Third quarter 1994 average wellhead natural gas prices were
down approximately 22% from the same period in 1993 reducing net
operating revenues by approximately $27 million. A decrease of
4% in wellhead natural gas volumes from the third quarter of 1993
reduced net operating revenues by approximately $5 million. The
Company voluntarily curtailed its United States wellhead natural
gas delivered volumes by as much as 25% of maximum deliverability
during portions of the third quarter of 1994 due to the
significant reduction in related wellhead natural gas prices.
The selective curtailment of deliveries from high cost and low
margin properties limited the net income impact of the
curtailments to approximately $4 million. The resulting volume
reductions in the United States were mostly offset by the new
natural gas deliveries from the Kiskadee field offshore Trinidad
and increased natural gas deliveries in Canada. While quarter to
quarter volumes in the United States were down as a result of the
curtailments addressed above, strong drilling programs in the
United States have resulted in a continued improvement in the
Company's capacity to deliver natural gas during periods of
stronger prices. Third quarter 1994 wellhead crude oil and
condensate average prices increased 5% adding approximately $1
million to net operating revenues as compared to the third
quarter of 1993. Wellhead crude oil and condensate volumes
increased 52% adding approximately $6 million to net operating
revenues compared to the same period a year ago primarily
reflecting the new deliveries from offshore Trinidad and
increases in United States deliveries.
Other marketing activities associated with sales and
purchases of natural gas, natural gas price swap transactions,
other commodity price hedging of natural gas and crude oil and
condensate prices utilizing NYMEX-related commodity market
transactions, and margins relating to the volumetric production
payment added $15 million to net operating revenues during the
third quarter of 1994, an increase of $12 million over the same
period in 1993. This increase primarily results from gains on
natural gas commodity price hedging activities utilizing NYMEX-
related commodity market transactions in the current period
versus losses incurred during the third quarter a year ago. The
average associated costs of natural gas marketing, price swap and
volumetric production payment transactions, including, where
appropriate, average wellhead value, transportation costs and
exchange differentials, decreased $.31 per Mcf. The average
price received for these transactions decreased by $.23 per Mcf
over the same period a year ago. Volumes to supply these
contracts increased approximately 4%.
The impact of these other marketing activities, a
substantial portion of which serve as hedges of commodity price
risks for a portion of wellhead deliveries, are more than offset
by increases or reductions in revenues associated with market
responsive prices for wellhead deliveries. Since December 31,
1993, the Company has reduced the level of wellhead natural gas
volumes for which it had previously locked in prices using
various commodity price hedging mechanisms. Using these
mechanisms, the Company has locked in prices for approximately
one-half of its anticipated wellhead natural gas volumes for the
remainder of the year.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
ENRON OIL & GAS COMPANY
During the third quarter of 1994, operating expenses of $109
million were $5 million lower than the $114 million incurred in
the third quarter of 1993. Lease and well expenses decreased
approximately $2 million to $13 million primarily reflecting the
reclassification in the third quarter of year-to-date amounts
previously reported as other net operating revenues to net
against related lease and well expenses. Impairment of unproved
oil and gas properties increased $2 million over the same period
a year ago primarily due to impairments associated with certain
offshore leases. Depreciation, depletion and amortization
("DD&A") expense decreased $10 million to $55 million reflecting
a decrease in North American production volumes and a decrease in
the average DD&A rate from $.92 per thousand cubic feet
equivalent ("Mcfe") in the third quarter of 1993 to $.79 per Mcfe
in the third quarter of 1994. The DD&A rate decrease is
primarily due to production from offshore Trinidad at an average
DD&A rate significantly less than the North American operations
average DD&A rate and a tempering of the North American rate as a
result of the curtailment of production associated with higher
cost reserves. General and administrative costs increased $2
million to $14 million due to the overall costs associated with
expanded international and domestic operations. Taxes other than
income increased from the comparable period in 1993 due to the
recognition in 1993 of a $3 million reduction of franchise taxes
resulting from a refund of prior year payments in the third
quarter of 1993 essentially equal to the effects of the
reductions in state severance taxes as a result of lower taxable
United States wellhead volumes and prices in the third quarter of
1994. The Company continues to recognize benefits associated
with severance tax exemptions related to the production of
certain high cost gas reserves.
The Company reduced its total per unit operating costs for
lease and well expense, DD&A, general and administrative expense,
interest expense, and taxes other than income by $.12 per Mcfe,
averaging $1.32 per Mcfe during the third quarter of 1994
compared to $1.44 per Mcfe during the same period in 1993. This
decrease is primarily attributable to reductions in the average
DD&A rate as noted above.
Other income for the third quarter of 1994 includes $33
million in gains associated with the sale of selected oil and gas
properties as compared to $12 million in similar gains recorded
in the third quarter of 1993.
Income tax provision of approximately $10 million for the
third quarter of 1994 increased $8 million over the comparable
quarter in 1993. The difference results primarily from a
reduction in the federal income tax benefits associated with
tight gas sand federal income tax credits utilized in the third
quarter of 1994 as compared to the third quarter of 1993 and an
increase in income before income taxes during the third quarter
of 1994. (See Note 3 to Consolidated Financial Statements).
Federal income taxes are accrued using the estimated annual
effective income tax rate.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
ENRON OIL & GAS COMPANY
Nine Months Ended September 30, 1994
vs. Nine Months Ended September 30, 1993
In the first nine months of 1994, the Company realized net
income of $105.4 million compared to net income of $99.5 million
for the same period in 1993. Net operating revenues were $422.1
million as compared to $418.4 million for the same period a year
ago.
Volume and price statistics are as follows:
1994 1993
Wellhead Volumes
Natural Gas (MMcf/d) (1)(3) 743 701
Crude Oil and Condensate (MBbl/d) (1) 12.0 9.2
Natural Gas Liquids (MBbl/d) (1) 0.7 0.6
Wellhead Average Prices
Natural Gas ($/Mcf) (2)(4) $ 1.69 $ 1.90
Crude Oil and Condensate ($/Bbl) (2) 15.24 17.05
Natural Gas Liquids ($/Bbl) (2) 9.43 11.83
Other Natural Gas Marketing
Volumes (MMcf/d) (1)(3) 327 287
Average Gross Revenue ($/Mcf) (2) $ 2.41 $ 2.56
Associated Costs ($/Mcf) (2)(5) 2.13 2.29
Margin ($/Mcf)(2) $ 0.28 $ 0.27
(1) Million cubic feet per day or thousand barrels per day, as
applicable.
(2) Dollars per thousand cubic feet or per barrel, as
applicable.
(3)Includes 48 Mmcf per day and 103 MMcf per day for the nine-
month periods ended September 30, 1994 and 1993,
respectively, delivered under the terms of volumetric
production payment and exchange agreements effective October
1, 1992, as amended.
(4)Includes an average equivalent wellhead value of $1.32/Mcf
and $1.56/Mcf for the nine-month periods ended September 30,
1994 and 1993, respectively, for the volumes described in
note (3), net of transportation costs.
(5)Including transportation and exchange differentials.
Average wellhead natural gas volumes for the first nine
months of 1994 increased approximately 6% to 743 MMcf per day
primarily reflecting the effects of development activities in
Trinidad partially offset by voluntary curtailments of production
in the United States. The increase in wellhead natural gas
volumes added $22 million to net operating revenues. The volume
reductions in the United States resulting from voluntary
curtailments were more than offset by the new natural gas
deliveries from the Kiskadee field offshore Trinidad and
increased deliveries in Canada. Average wellhead natural gas
prices for the first nine months of 1994 were down approximately
11% to $1.69 per Mcf compared to the same period a year ago. The
decrease in average wellhead natural gas prices received by the
Company reduced net operating revenues by approximately $42
million. A 30% increase in wellhead crude oil and condensate
volumes during the first nine months of 1994 added $13 million to
net operating revenues compared to the same period in 1993
primarily reflecting development activities in Trinidad. An 11%
decrease in wellhead crude oil and condensate prices decreased
net operating revenues by approximately $6 million.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
ENRON OIL & GAS COMPANY
Other marketing activities associated with sales and
purchases of natural gas, natural gas price swap transactions,
other commodity price hedging of natural gas and crude oil and
condensate prices utilizing NYMEX-related commodity market
transactions, and margins relating to the volumetric production
payment added $23 million to net operating revenues during the
first nine months of 1994. This increase of $18 million from the
same period in 1993 primarily results from decreased losses on
natural gas commodity price hedging activities utilizing NYMEX-
related commodity market transactions and increased margins
associated with natural gas marketing activities. The average
associated costs of natural gas marketing, price swap and
volumetric production payment transactions, including, where
appropriate, average wellhead value, transportation costs and
exchange differentials, decreased $.16 per Mcf. The average
price received for these transactions decreased $.15 per Mcf.
Related other natural gas marketing volumes increased 14%.
The impact of these other marketing activities, a
substantial portion of which serve as hedges of commodity price
risks for a portion of wellhead deliveries, are more than offset
by increases or reductions in revenues associated with market
responsive prices for wellhead deliveries. Since December 31,
1993, the Company has reduced the level of wellhead natural gas
volumes for which it had previously locked in prices using
various commodity price hedging mechanisms. Using these
mechanisms, the Company has locked in prices for approximately
one-half of its anticipated wellhead natural gas volumes for the
remainder of the year.
During the first nine months of 1994, operating expenses of
$344 million were approximately $14 million higher than the $330
million incurred in the same period in 1993. Lease and well
expenses of $45 million were approximately $1 million higher than
a year ago. Exploration expenses of $30 million increased $4
million from the previous year due to an increased emphasis on
exploration activities. Dry hole expenses increased $5 million
from 1993 primarily due to an unsuccessful well drilled in the
Gulf of Mexico during the second quarter of 1994. Impairment of
unproved oil and gas properties increased $5 million from the
comparable period a year ago primarily due to impairments
associated with certain offshore leases. DD&A expense decreased
slightly from $183 million in the first nine months of 1993 to
$182 million in the same period of 1994 reflecting a $.07/Mcfe
decrease in the average DD&A rate to $.81 per Mcfe which was
mostly offset by an increase in 1994 production volumes from
offshore Trinidad and Canada. The rate decrease is primarily due
to production from offshore Trinidad at an average DD&A rate
significantly less than the North American operations DD&A rate.
General and administrative expenses increased $4 million to $38
million primarily due to overall higher costs associated with
expanded international and domestic operations. Taxes other than
income decreased approximately $4 million from the same period a
year ago primarily due to lower taxable United States wellhead
volumes and prices.
The Company continued to reduce its per unit operating cost
as detailed in the discussion of third quarter results to $1.31
per Mcfe during the first nine months of 1994 compared to $1.42
per Mcfe a year ago. The decrease was primarily due to per unit
reductions in DD&A and taxes other than income as discussed
above.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
ENRON OIL & GAS COMPANY
Other income for the first nine months of 1994 of
approximately $54 million reflects an increase of $39 million
from the same period a year ago. The increase was due primarily
to $52 million of gains on sales of selected oil and gas
properties in 1994 as compared to $12 million of gains recorded
during the same period in 1993. In continuing its strategy of
fully utilizing its assets in optimizing profitability, cash flow
and return on investments the Company expects to continue the
sale of similar properties from time to time.
Income tax provision (benefit) includes a provision of
approximately $21 million for the first nine months of 1994
compared to a benefit of approximately $4 million for the
comparable period in 1993. The difference results primarily from
a $22 million reduction in the federal income tax benefits
associated with tight gas sand federal income tax credits
utilized in the first nine months of 1994 as compared to the
first nine months of 1993. (See Note 3 to Consolidated Financial
Statements).
Federal income taxes are accrued using the estimated annual
effective income tax rate.
Capital Resources and Liquidity
The Company's primary sources of cash during the nine months
ended September 30, 1994 were funds generated from operations,
proceeds from the sale of certain oil and gas properties and the
issuance of new debt. Primary cash outflows consisted of funds
used in operations, exploration and development expenditures,
repayment of debt and dividends paid to the Company's
shareholders.
Discretionary cash flow, a frequently used measure of
performance for exploration and production companies, is derived
by adjusting net income to eliminate the effects of depreciation,
depletion and amortization, impairment of unproved oil and gas
properties, deferred income taxes, property sales net of income
tax, certain other miscellaneous non-cash amounts, except for
amortization of deferred revenue, and exploration and dry hole
expenses. The Company generated discretionary cash flow of $338
million during the first nine months of 1994, a decrease of $42
million from the $380 million generated for the same period in
1993, primarily due to the inclusion, in 1993, of $50 million
associated with a federal income tax refund resulting from the
settlement of an audit of federal income taxes paid in prior
years.
<PAGE>
PART I. FINANCIAL INFORMATION - (Concluded)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded)
ENRON OIL & GAS COMPANY
Net operating cash flow for the first nine months of 1994 of
$333 million decreased $42 million as compared to the same period
in 1993 primarily due to the decrease in discretionary cash flow
discussed above. Based upon existing economic and market
conditions, management believes net operating cash flow and
available financing alternatives in 1994 will be sufficient to
fund net investing and other cash requirements of the Company for
the remainder of the year.
Exploration and development expenditures totaled $354
million during the first nine months of 1994 as compared to $296
million expended during the same period in 1993. The increase
was attributable primarily to increased development expenditures
associated with operations outside of the United States and
increased exploration expenditures in all areas, most
significantly in the United States, partially offset by lower
development drilling expenditures in the United States.
The level of exploration and development expenditures will
vary in future periods depending on energy market conditions and
other related economic factors. The Company has significant
flexibility with respect to financing alternatives and the
ability to adjust its exploration and development expenditure
budget as circumstances warrant. There are no material
continuing commitments associated with expenditure plans.
Proceeds from property sales generated $82 million in the
first nine months of 1994 as compared to $37 million during the
same period in 1993. The sales of these properties were made to
maximize the economic value of the assets. In continuing its
strategy of fully utilizing its assets in optimizing
profitability, cash flow and return on investments the Company
expects to continue the sale of similar assets from time to time.
<PAGE>
PART II. OTHER INFORMATION
ENRON OIL & GAS COMPANY
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - There were no reports on Form 8-K
filed for the quarterly period ended September 30, 1994.
<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.
ENRON OIL & GAS COMPANY
(Registrant)
Date: November 8, 1994 By /S/ WALTER C. WILSON
Walter C. Wilson
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 8, 1994 By /S/ BEN B. BOYD
Ben B. Boyd
Vice President and Controller
(Principal Accounting Officer)
