<PAGE>
Enron Oil & Gas Company
P. O. Box 1188
Houston, TX 7725101188
August 12, 1994
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 June 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 1188
Houston, Texas 77251-1188
(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 July 31, 1994.
Common Stock, $.01 Par Value 159,835,750 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 June 30, 1994 and 1993 and
Six Months Ended June 30, 1994 and 1993 3
Consolidated Balance Sheets - June 30, 1994 and
December 31, 1993 4
Consolidated Statements of Cash Flow -
Six Months Ended June 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 4. Results of Votes of Security Holders 16
ITEM 6. Exhibits and Reports on Form 8-K 16
<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 Six Months Ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
NET OPERATING REVENUES
Natural Gas
Associated Companies $ 66,353 $ 60,875 $141,361 $129,150
Trade 55,704 62,268 117,982 113,124
Crude Oil, Condensate and Natural Gas Liquids
Associated Companies 10,487 10,008 18,012 22,957
Trade 8,111 5,746 14,066 8,975
Other 1,847 1,596 3,288 3,107
Total 142,502 140,493 294,709 277,313
OPERATING EXPENSES
Lease and Well 16,367 14,032 31,366 27,790
Exploration 10,458 9,961 19,689 15,952
Dry Hole 5,471 548 8,094 3,270
Impairment of Unproved Oil & Gas
Properties 6,304 4,320 10,500 8,481
Depreciation, Depletion and
Amortization 62,177 58,666 127,017 118,446
General and Administrative 10,867 10,897 24,284 21,852
Taxes Other Than Income 4,724 10,545 14,688 20,379
Total 116,368 108,969 235,638 216,170
OPERATING INCOME 26,134 31,524 59,071 61,143
OTHER INCOME 12,327 586 20,631 2,360
INCOME BEFORE INTEREST EXPENSE
AND INCOME TAXES 38,461 32,110 79,702 63,503
INTEREST EXPENSE
Incurred 3,400 3,809 7,046 7,498
Capitalized (1,520) (1,297) (3,013) (2,548)
Net Interest Expense 1,880 2,512 4,033 4,950
INCOME BEFORE INCOME TAXES 36,581 29,598 75,669 58,553
INCOME TAX PROVISION (BENEFIT) 2,369 (3,923) 11,199 (5,176)
NET INCOME $ 34,212 $ 33,521 $ 64,470 $ 63,729
EARNINGS PER SHARE OF COMMON STOCK $ .21 $ .21 $ .40 $ .40
AVERAGE NUMBER OF COMMON SHARES (Note 9)159,859 160,000 159,850 160,000
</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>
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 85,717 $ 103,129
Accounts Receivable
Associated Companies 45,364 59,143
Trade 60,310 66,109
Inventories 16,593 14,082
Other 8,281 6,962
Total 216,265 249,425
OIL AND GAS PROPERTIES (Successful Efforts Method) 2,871,333 2,772,220
Less: Accumulated Depreciation, Depletion and
Amortization (1,297,618) (1,226,175)
Net Oil and Gas Properties 1,573,715 1,546,045
OTHER ASSETS 13,913 15,692
TOTAL ASSETS $1,803,893 $1,811,162
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Associated Companies $ 22,126 $ 13,250
Trade 118,223 143,542
Accrued Taxes Payable 15,340 17,354
Dividends Payable 4,796 4,795
Current Maturities of Long-Term Debt - 30,000
Other 5,319 8,989
Total 165,804 217,930
LONG-TERM DEBT 176,000 153,000
OTHER LIABILITIES 8,400 9,477
DEFERRED INCOME TAXES 266,372 270,154
COMMITMENTS AND CONTINGENCIES (Note 8)
DEFERRED REVENUE 206,034 227,528
SHAREHOLDERS' EQUITY
Common Stock, $.01 Par, 160,000,000 Shares
Authorized and Issued at June 30, 1994
and No Par, 80,000,000 Shares Authorized
and Issued at December 31, 1993 201,600 200,800
Additional Paid In Capital 415,513 417,531
Cumulative Foreign Currency Translation
Adjustment (12,800) (6,855)
Retained Earnings 379,874 324,995
Common Stock Held in Treasury, 136,750 shares
at June 30, 1994 and 80,000 shares
at December 31, 1993 (2,904) (3,398)
Total Shareholders' Equity 981,283 933,073
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,803,893 $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>
Six Months Ended
June 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash Inflows:
Net Income $ 64,470 $ 63,729
Items Not Requiring (Providing) Cash
Depreciation, Depletion and Amortization 127,017 118,446
Impairment of Unproved Oil and Gas Properties 10,500 8,481
Deferred Income Taxes 1,486 (1,165)
Other, Net 605 524
Exploration Expenses 19,689 15,952
Dry Hole Expenses 8,094 3,270
Gains on Sales of Oil and Gas Properties (18,948) (7)
Other, Net 878 291
Changes in Components of Working Capital and Other Liabilities
Accounts Receivable 19,577 (4,666)
Inventories (3,025) (2,572)
Accounts Payable (16,443) 1,105
Accrued Taxes Payable (2,014) 5,808
Other Liabilities (419) 2,693
Other, Net (4,989) (50,032)
Changes in Components of Working Capital Associated with
Investing Activities 13,021 32,594
NET OPERATING CASH INFLOWS 219,499 194,451
INVESTING CASH FLOWS
Additions to Oil and Gas Properties (185,315) (169,392)
Exploration Expenses (19,689) (15,952)
Dry Hole Expenses (8,094) (3,270)
Proceeds from Property Sales 31,311 490
Amortization of Deferred Revenue (21,494) (46,643)
Changes in Components of Working Capital Associated with
Investing Activities (13,021) (32,594)
Other, Net (3,295) (3,225)
NET INVESTING CASH OUTFLOWS (219,597) (270,586)
FINANCING CASH FLOWS
Issuance of Long-Term Debt 56,000 -
Decrease in Long-Term Debt (63,000) -
Dividends Paid (9,590) (9,600)
Treasury Stock Purchased (2,233) (9,708)
Proceeds from Sales of Treasury Stock 1,509 4,972
NET FINANCING CASH OUTFLOWS (17,314) (14,336)
DECREASE IN CASH AND CASH EQUIVALENTS (17,412) (90,471)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 103,129 132,618
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 85,717 $ 42,147
</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 included herein have
been prepared by management of Enron Oil & Gas Company (the
"Company") 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 June 30, 1994 includes $75.2
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 June 30, 1994 and 1993 includes tax benefits of $7.1
million and $16.1 million, respectively, and for the six-month
periods ended June 30, 1994 and 1993 includes tax benefits of
$15.2 million and $30.0 million, respectively, all of which are
related to tight gas sand federal income tax credit utilization.
Income Tax Provision (Benefit) for the three and six-month
periods ended June 30, 1994 also includes a $4.8 million deferred
tax benefit resulting from a reduction in estimated composite
state income tax rates and a $1.4 million current U.S. tax
benefit arising from the discontinuance of operations in
Malaysia.
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 Six MonthsEnded
June 30, June 30,
1994 1993 1994 1993
Wellhead Natural Gas Revenues
Associated Companies (1)(2) $ 72.7 $ 88.3 $162.0 $164.2
Trade 41.1 39.2 89.3 75.1
Total $113.8 $127.5 $251.3 $239.3
Other Natural Gas Marketing Activities
Gross Revenues from:
Associated Companies $ 41.0 $ 25.6 $ 85.7 $ 60.4
Trade (3) 30.9 40.4 63.9 71.0
Total 71.9 66.0 149.6 131.4
Associated Cost from:
Associated Companies (1)(4) 47.1 42.9 100.1 85.3
Trade 16.1 17.1 35.1 33.0
Total (5) 63.2 60.0 135.2 118.3
Net 8.7 6.0 14.4 13.1
Commodity Price Hedging (6) (.4) (10.4) (6.4) (10.1)
Total $ 8.3 $ (4.4) $ 8.0 $ 3.0
<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 Six MonthsEnded
June 30, June 30,
1994 1993 1994 1993
Wellhead Crude Oil, Condensate and
Natural Gas Liquid Revenues
Associated Companies $ 10.1 $ 10.0 $ 17.1 $ 22.9
Trade 8.1 5.8 14.1 9.0
Total $ 18.2 $ 15.8 $ 31.2 $ 31.9
Other Crude Oil Marketing Activities
Commodity Price Hedging (6) $ .4 $ - $ .9 $ -
(1) Wellhead Natural Gas Revenues include $33.5 million and
$30.1 million for the three-month periods ended June 30, 1994 and
1993, respectively, and $73.0 million and $59.6 million for the
six-month periods ended June 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 $5.4 million and $14.8 million for the three-month
periods ended June 30, 1994 and 1993, respectively, and $12.4
million and $30.3 million for the six-month periods ended June
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 $10.8 million and $23.5 million for the three-month
periods ended June 30, 1994 and 1993, respectively, and $21.5
million and $46.6 million for the six-month periods ended June 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 $8.4 million and $21.3 million for the three-month
periods ended June 30, 1994 and 1993, respectively, and $18.4
million and $41.3 million for the six-month periods ended June
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 $18.9 million and $7,000 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 six-month periods ended June 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 $6.2 million and $.1 million for
the six-month periods ended June 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 an 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 June 30, 1994.
7. In March 1994, a subsidiary of the Company 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 (4.485% at June
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. On May 3, 1994, the shareholders of the Company approved a
resolution submitted by the Board of Directors that would,
contingent upon the Board of Directors of the Company declaring,
on or before May 3, 1995, a stock split of either two-for-one or
three-for-two, amend the Restated Certificate of Incorporation of
the Company to increase the total number of authorized shares of
the common stock of the Company from 80 million to 160 million
shares in the event of a two-for-one stock split or to 120
million shares in the event of a three-for-two stock split.
Subsequently and also on May 3, 1994, the Board of Directors
declared a two-for-one split of the Company's common stock to be
effected as a non-taxable dividend of one share for each share
outstanding. On June 14, 1994, the shareholders consented to a
revised amendment to the Restated Certificate of Incorporation of
the Company to change the common stock which, at the time, had no
par value to a par value of $.01 per share. Such revised
amendment was filed with the Secretary of State of Delaware on
June 14, 1994. Shares were issued on June 15, 1994 to
shareholders of record as of May 31, 1994. All per share amounts
referenced herein are reflected on a post-split basis.
10. Significant items of other income are detailed below (in
millions):
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Gains on Sales of Oil and Gas Properties $ 12.9 $ - $ 18.9 $ -
Interest Income 1.2 .7 2.6 1.9
Other, Net (1.8) (.1) (1.0) .5
Total $ 12.3 $ .6 $ 20.6 $ 2.4
11. In July and early August 1994, the Company completed the
sale of other selected oil and gas properties similar to those
sold during the first half of the year generating proceeds of
approximately $49 million and gains of approximately $31 million
before federal income taxes.
<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 six-
month periods ended June 30, 1994 should be read in conjunction
with the consolidated financial statements of the Company and
Notes thereto.
Results of Operations
Three Months Ended June 30, 1994
vs. Three Months Ended June 30, 1993
In the second quarter of 1994, Enron Oil & Gas Company (the
"Company") realized net income of $34.2 million compared to net
income of $33.5 million for the same period in 1993. Net
operating revenues for the second quarter of 1994 were $142.5
million as compared to $140.5 million for the same period a year
ago.
Volume and price statistics are as follows:
1994 1993
Wellhead Volumes
Natural Gas (MMcf/d) (1)(3) 760 695
Crude Oil and Condensate (MBbl/d) (1) 12.3 9.5
Natural Gas Liquids (MBbl/d) (1) 0.6 0.5
Wellhead Average Prices
Natural Gas ($/Mcf) (2)(4) $ 1.65 $ 2.02
Crude Oil and Condensate ($/Bbl) (2) 15.80 17.51
Natural Gas Liquids ($/Bbl) (2) 10.34 12.55
Other Natural Gas Marketing
Volumes (MMcf/d) (1)(3) 334 277
Average Gross Revenue ($/Mcf) (2) $ 2.37 $ 2.61
Associated Costs ($/Mcf) (2)(5) 2.08 2.38
Margin ($/Mcf) (2) $ 0.29 $ 0.23
(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 June 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 $1.24/Mcf
and $1.58/Mcf for the three-month periods ended June 30, 1994 and
1993, respectively, for the volumes described in note (3), net of
transportation costs.
(5) Including transportation and exchange differentials.
Second quarter 1994 average wellhead natural gas prices were
down approximately 18% from the same period in 1993 reducing net
operating revenues by approximately $26 million. An increase of
9% in wellhead natural gas volumes over the second quarter of
1993 added approximately $12 million to net operating revenues.
The Company curtailed United States wellhead natural gas
delivered volumes by as much as 15% to 20% during portions of the
second quarter of 1994 due to the significant reduction in
related wellhead natural gas prices. Second quarter 1994
wellhead crude oil and condensate average prices declined 10%
reducing net operating revenues by about $2 million. Wellhead
crude oil and condensate volumes increased 29% adding
approximately $4 million to net operating revenues compared to
the same period a year ago.
<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 $9 million to net operating revenues during the
second quarter of 1994, an increase of $13 million over the same
period in 1993. This increase primarily results from decreased
losses on natural gas commodity price hedging activities
utilizing NYMEX related commodity market transactions. 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 $.30 per Mcf. The average
price received for these transactions decreased by $.24 per Mcf
over the same period a year ago. Volumes to supply these
contracts increased approximately 21%.
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 from about two-thirds
to approximately one-half of its anticipated wellhead natural gas
volumes for the year 1994.
During the second quarter of 1994, operating expenses of
$116 million were $7 million higher than the $109 million
incurred in the second quarter of 1993. Lease and well expenses
increased approximately $2 million to $16 million primarily
reflecting increased international operations. Dry hole expenses
increased $5 million from the same period last year 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 $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
increased $4 million to $62 million reflecting an increase in
production volumes partially offset by a decrease in the average
DD&A rate from $.85 per thousand cubic feet equivalent ("Mcfe")
in the second quarter of 1993 to $.82 per Mcfe in the second
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. Taxes other than income decreased $6 million
primarily due to a $4 million reduction in estimated state
franchise taxes and reductions in state severance taxes due to
lower taxable United States wellhead volumes and average prices.
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 $.15 per Mcfe,
averaging $1.26 per Mcfe during the second quarter of 1994
compared to $1.41 per Mcfe during the same period in 1993. This
decrease is primarily attributable to reductions in taxes other
than income and the average DD&A rate as noted 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 second quarter of 1994 includes $13
million in gains associated with the sale of selected oil and gas
properties that for various reasons did not fit the overall
future growth plans of the Company as compared to a $7,000 loss
from sale of oil and gas properties recorded in the second
quarter of 1993.
Income tax provision (benefit) includes a provision of
approximately $2 million for the second quarter of 1994 compared
to a benefit of approximately $4 million for 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 second
quarter of 1994 as compared to the second quarter of 1993 and an
increase in income before income taxes during the second quarter
of 1994 partially offset by a reduction in state income taxes and
a deduction related to the discontinuance of operations in
Malaysia. (See Note 3 to Consolidated Financial Statements).
Federal income taxes are accrued using the estimated
effective income tax rate method.
Six Months Ended June 30, 1994
vs. Six Months Ended June 30, 1993
In the first half of 1994, the Company realized net income
of $64.5 million compared to net income of $63.7 million for the
same period in 1993. Net operating revenues were $294.7 million
as compared to $277.3 million for the same period a year ago.
Volume and price statistics are as follows:
1994 1993
Wellhead Volumes
Natural Gas (MMcf/d) (1)(3) 779 700
Crude Oil and Condensate (MBbl/d) (1) 11.5 9.6
Natural Gas Liquids (MBbl/d) (1) 0.6 0.6
Wellhead Average Prices
Natural Gas ($/Mcf) (2)(4) $ 1.78 $ 1.89
Crude Oil and Condensate ($/Bbl) (2) 14.42 17.53
Natural Gas Liquids ($/Bbl) (2) 9.28 12.45
Other Natural Gas Marketing
Volumes (MMcf/d) (1)(3) 337 283
Average Gross Revenue ($/Mcf) (2) $ 2.45 $ 2.57
Associated Costs ($/Mcf) (2)(5) 2.21 2.31
Margin ($/Mcf)(2) $ 0.24 $ 0.26
(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 six-
month periods ended June 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 $1.42/Mcf
and $1.62/Mcf for the six-month periods ended June 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
Average wellhead natural gas volumes for the first six
months of 1994 increased approximately 11% to 779 Mmcf per day
primarily reflecting the effects of development activities in
Trinidad. The increase in wellhead natural gas volumes added $27
million to net operating revenues. First half average wellhead
natural gas prices were down approximately 6% to $1.78 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 $15 million. First half 1994
wellhead crude oil and condensate volumes were up approximately
20% from the same period in 1993 primarily reflecting development
activities in Trinidad. The increase in volumes resulted in an
approximate $6 million increase to net operating revenues. An
18% decrease in wellhead crude oil and condensate prices
decreased net operating revenues by approximately $6 million.
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 $9 million to net operating revenues during the
first half of 1994. This increase of $6 million from the same
period in 1993 primarily results from decreased losses on natural
gas commodity price hedging activities utilizing NYMEX commodity
market transactions. 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
$.10 per Mcf. The average price received for these transactions
decreased $.12 per Mcf. Related other natural gas marketing
volumes increased 19%.
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 from about two-thirds
to approximately one-half of its anticipated wellhead natural gas
volumes for the year 1994.
During the first half of 1994, operating expenses of $236
million were approximately $20 million higher than the $216
million incurred in the same period in 1993. Lease and well
expenses increased approximately $4 million to $31 million
primarily due to expanded international operations. Exploration
expenses of $20 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
for the first half of 1994 increased $2 million from the
comparable period a year ago primarily due to impairments
associated with certain offshore leases. DD&A expense increased
$9 million to $127 million reflecting an increase in production
volumes partially offset by an average DD&A rate decrease from
$.86 per Mcfe in the first half of 1993 to $.82 per Mcfe in the
first half 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 DD&A rate.
Taxes other than income decreased approximately $6 million
primarily due to a $4 million reduction in estimated state
franchise taxes and reductions in state severance taxes due to
lower taxable United States wellhead volumes and prices.
<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
The Company continued to reduce its per unit operating cost
to $1.31 per Mcfe during the first half of 1994 compared to $1.40
per Mcf a year ago. The decrease was primarily due to per unit
reductions in DD&A and taxes other than income as discussed
above.
Other income for the first half of 1994 of approximately $21
million reflects an increase of $18 million from the same period
a year ago. The increase was due primarily to $19 million of
gains on sales of selected oil and gas properties in 1994 that
for various reasons did not fit the overall future growth plans
of the Company as compared to $7,000 of gains recorded in 1993.
In continuing its strategy of full utilization of assets to
optimize 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 $11 million for the first half of 1994 compared to
a benefit of approximately $5 million for the comparable period
in 1993. The difference results primarily from a $15 million
reduction in the federal income tax benefits associated with
tight gas sand federal income tax credits utilized in the first
half of 1994 as compared to the first half of 1993 and an
increase in income before income taxes during the first six
months of 1994 partially offset by a reduction in state income
taxes and a deduction related to the discontinuance of operations
in Malaysia. (See Note 3 to Consolidated Financial Statements).
Federal income taxes are accrued using the estimated
effective income tax rate method.
Capital Resources and Liquidity
The Company's primary sources of cash during the six months
ended June 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 $220
million during the first half of 1994, an increase of 5% over the
$210 million generated for the same period in 1993, primarily
reflecting an increase in net operating revenues.
Net operating cash flow for the first half of 1994 of $219
million increased $25 million as compared to the first half of
1993 primarily due to the increase in discretionary cash flow
discussed above and a decrease in working capital requirements.
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.
<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
Exploration and development expenditures totaled $213
million during the first half of 1994 as compared to $189 million
expended during the same period in 1993. The increase was
attributable primarily to increased development drilling
expenditures associated with operations outside of North America.
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.
Other Events
In July and early August 1994, the Company completed the
sale of other selected oil and gas properties similar to those
sold during the first half of the year generating proceeds of
approximately $49 million and gains of approximately $31 million
before federal income taxes.
<PAGE>
PART II. OTHER INFORMATION
ENRON OIL & GAS COMPANY
ITEM 4. Results of Votes of Security Holders
The annual meeting of shareholders of Enron Oil & Gas
Company was held on May 3, 1994. The matter voted upon, other
than the election of directors and procedural items, was as
follows:
The shareholders of the Company approved by an affirmative
vote of 76,732,439 shares and negative vote of 8,198 shares, with
12,494 shares abstaining, a resolution submitted by the Board of
Directors that would, contingent upon the Board of Directors of
the Company declaring, on or before May 3, 1995, a stock split of
either two-for-one or three-for-two, amend the Restated
Certificate of Incorporation of the Company to increase the total
number of authorized shares of the common stock of the Company
from 80 million to 160 million shares in the event of a two-for-
one stock split or to 120 million shares in the event of a three-
for-two stock split. Subsequently and also on May 3, 1994, the
Board of Directors declared a two-for-one split of the Company's
common stock to be effected as a non-taxable dividend of one
share for each share outstanding. On June 14, 1994, shareholders
representing 83.32% of the outstanding common shares consented to
a revised amendment to the Restated Certificate of Incorporation
of the Company to change the common stock which, at the time, had
no par value to a par value of $.01 per share. Such revised
amendment was filed with the Secretary of State of Delaware on
June 14, 1994. Shares were issued on June 15, 1994 to
shareholders of record as of May 31, 1994.
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 June 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: August 12, 1994 By /S/ W. C. WILSON
W. C. Wilson
Senior Vice President and
Chief Financial Officer
(PrincipalFinancial Officer)
Date: August 12, 1994 By /S/ BEN B. BOYD
Ben B. Boyd
Vice President and Controller
(Principal Accounting Officer)
