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, 1995
( )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 July 31, 1995.
Common Stock, $.01 Par Value 159,945,000 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, 1995 and 1994 and
Six Months Ended June 30, 1995 and 1994 3
Consolidated Balance Sheets - June 30, 1995 and
December 31, 1994 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 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. Submission of Matters to a Vote of
Security Holders 17
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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
NET OPERATING REVENUES
<S> <C> <C> <C> <C>
Natural Gas
Associated Companies $ 52,473 $ 66,353 $122,070 $141,361
Trade 48,458 55,704 95,060 117,982
Crude Oil, Condensate and Natural Gas Liquids
Associated Companies 14,415 10,487 30,011 18,012
Trade 13,970 8,111 28,056 14,066
Gains on Sales of Reserves and Related Assets 53,673 12,947 59,278 18,948
Other 985 1,847 4,861 3,288
Total 183,974 155,449 339,336 313,657
OPERATING EXPENSES
Lease and Well 16,907 16,367 33,609 31,366
Exploration 10,677 10,458 21,954 19,689
Dry Hole 5,136 5,471 6,905 8,094
Impairment of Unproved Oil & Gas Properties 7,037 6,304 14,116 10,500
Depreciation, Depletion and Amortization 48,585 62,177 101,703 127,017
General and Administrative 14,410 10,867 27,183 24,284
Taxes Other Than Income 7,848 4,724 17,663 14,688
Total 110,600 116,368 223,133 235,638
OPERATING INCOME 73,374 39,081 116,203 78,019
OTHER INCOME (EXPENSE) 481 (620) (110) 1,683
INCOME BEFORE INTEREST EXPENSE ANDINCOME TAXES 73,855 38,461 116,093 79,702
INTEREST EXPENSE
Incurred
Affiliate 99 - 488 -
Other 4,107 3,400 8,168 7,046
Capitalized (1,682) (1,520) (3,394) (3,013)
Net Interest Expense 2,524 1,880 5,262 4,033
INCOME BEFORE INCOME TAXES 71,331 36,581 110,831 75,669
INCOME TAX PROVISION 23,193 2,369 33,068 11,199
NET INCOME $ 48,138 $ 34,212 $ 77,763 $ 64,470
EARNINGS PER SHARE OF COMMON STOCK $ .30 $ .21 $ .49 $ .40
AVERAGE NUMBER OF COMMON SHARES 159,965 159,859 159,968 159,850
</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,
1995 1994
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 20,431 $ 5,810
Accounts Receivable
Associated Companies 62,770 57,352
Trade 91,435 68,781
Inventories 15,416 15,731
Other 8,672 8,744
Total 198,724 156,418
OIL AND GAS PROPERTIES (Successful Efforts Method) 3,200,378 3,015,435
Less: Accumulated Depreciation, Depletion and
Amortization (1,424,887) (1,330,624)
Net Oil and Gas Properties 1,775,491 1,684,811
OTHER ASSETS 72,730 20,638
TOTAL ASSETS $2,046,945 $1,861,867
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Associated Companies $ 12,644 $ 13,353
Trade 97,754 117,791
Accrued Taxes Payable 19,987 17,631
Dividends Payable 4,799 4,800
Current Maturities of Long-Term Debt 1,818 1,718
Other 7,097 9,308
Total 144,099 164,601
LONG-TERM DEBT
Affiliate - 25,000
Other 213,880 165,337
OTHER LIABILITIES 11,821 10,035
REDEEMABLE PREFERRED STOCK 19,000 -
DEFERRED INCOME TAXES 301,830 269,292
DEFERRED REVENUE 244,510 184,183
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY
Common Stock, $.01 Par, 160,000,000 Shares Authorized
and Issued 201,600 201,600
Additional Paid In Capital 401,157 403,488
Cumulative Foreign Currency Translation Adjustment (11,810) (15,298)
Retained Earnings 521,975 453,810
Common Stock Held in Treasury, 50,000 shares at
at June 30, 1995 and 9,173 shares at
December 31, 1994 (1,117) (181)
Total Shareholders' Equity 1,111,805 1,043,419
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,046,945 $1,861,867
</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,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash Inflows:
Net Income $ 77,763 $ 64,470
Items Not Requiring (Providing) Cash
Depreciation, Depletion and Amortization 101,703 127,017
Impairment of Unproved Oil and Gas Properties 14,116 10,500
Deferred Income Taxes 25,832 1,486
Other, Net 2,156 605
Exploration Expenses 21,954 19,689
Dry Hole Expenses 6,905 8,094
Gains on Sales of Reserves and Related Assets (59,278) (18,948)
Other, Net (142) 878
Changes in Components of Working Capital and Other Liabilities
Accounts Receivable 2,675 19,577
Inventories 315 (3,025)
Accounts Payable (30,079) (16,443)
Accrued Taxes Payable 2,356 (2,014)
Other Liabilities 759 (419)
Other, Net (2,139) (4,989)
Changes in Components of Working Capital Associated with
Investing Activities 4,665 13,021
NET OPERATING CASH INFLOWS 169,561 219,499
INVESTING CASH FLOWS (Note 6)
Additions to Oil and Gas Properties (206,039) (185,315)
Exploration Expenses (21,954) (19,689)
Dry Hole Expenses (6,905) (8,094)
Proceeds from Sales of Reserves and Related Assets 97,749 31,311
Amortization of Deferred Revenue (21,494) (21,494)
Changes in Components of Working Capital Associated with
Investing Activities 661 (13,021)
Other, Net (2,781) (3,295)
NET INVESTING CASH OUTFLOWS (160,763) (219,597)
FINANCING CASH FLOWS (Note 6)
Long-Term Debt
Affiliate (25,000) -
Other 49,300 (7,000)
Dividends Paid (9,599) (9,590)
Treasury Stock Purchased (6,765) (2,233)
Proceeds from Sales of Treasury Stock 3,213 1,509
Changes in Components of Working Capital Associated with
Investing Activities (5,326) -
NET FINANCING CASH INFLOWS(OUTFLOWS) 5,823 (17,314)
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 14,621 (17,412)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,810 103,129
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,431 $ 85,717
</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 consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
Certain reclassifications have been made to prior period
financial statements to conform with the current presentation.
2. Income Tax Provision for the three-month periods and the six-
month periods ended June 30, 1995 and 1994 includes tax benefits
of $7.7 million, $7.1 million, $12.8 million and $15.2 million,
respectively, related to tight gas sand federal income tax credit
utilization. Income Tax Provision for the three-month 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.
3. 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 Months Ended
June 30, June 30,
1995 1994 1995 1994
Wellhead Natural Gas Revenues
Associated Companies (1)(2) $ 39.3 $ 72.7 $ 83.8 $162.0
Trade 38.3 41.1 73.5 89.3
Total $ 77.6 $113.8 $157.3 $251.3
Other Natural Gas Marketing Activities
Gross Revenues from:
Associated Companies $ 16.3 $ 41.0 $ 43.7 $ 85.7
Trade (3) 23.8 30.9 51.3 63.9
Total 40.1 71.9 $ 95.0 149.6
Associated Cost from:
Associated Companies (1)(5) 19.2 47.1(4) 47.1(4) 100.1(4)
Trade 13.8 16.1 30.2 35.1
Total 33.0 63.2 77.3 135.2
Net 7.1 8.7 17.7 14.4
Commodity Price Swap Gain(Loss)
Trading - - 11.3(6) -
Non-Trading (7) 16.2 (.4) 30.8 (6.4)
Total 16.2 (.4) 42.1 (6.4)
Total $ 23.3 $ 8.3 $ 59.8 $ 8.0
<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 Months Ended
June 30, June 30,
1995 1994 1995 1994
Wellhead Crude Oil, Condensate and
Natural Gas Liquid Revenues
Associated Companies $ 15.0 $ 10.1 $ 30.2 $ 17.1
Trade 14.0 8.1 28.1 14.1
Total $ 29.0 $ 18.2 $ 58.3 $ 31.2
Other Crude Oil and Condensate Marketing
Activities
Commodity Price Hedging Gain(Loss)(7) $ (.6) $ .4 $ (.2) $ .9
(1) Wellhead Natural Gas Revenues include $19.0 million, $33.5
million, $38.0 million and $73.0 million for the three-month
periods and the six-month periods ended June 30, 1995 and 1994,
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 $3.5 million, $5.4 million, $7.2 million and $12.4
million for the three-month periods and the six-month periods
ended June 30, 1995 and 1994, 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 for the three-month periods and $21.5
million for the six-month periods ended June 30, 1995 and 1994
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 fixed the price of certain purchases
through February 1995.
(5) Includes $6.8 million, $8.4 million, $13.5 million and $18.4
million for the three-month periods and the six-month periods
ended June 30, 1995 and 1994, 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 location differentials.
(6) Represents gain associated with commodity price swap
transactions with an Enron Corp. affiliated company designated
for trading purposes. The Company has no open trading positions
at June 30, 1995.
(7) Represents gain or loss associated with commodity price swap
transactions primarily with Enron Corp. affiliated companies
based on NYMEX-related commodity 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
4. In March 1995, in a series of transactions with Enron Corp.
and an affiliate of Enron Corp., the Company exchanged all of its
fuel supply and purchase contracts and related price swap
agreements associated with a cogeneration facility (the "Cogen
Contracts") for certain natural gas price swap agreements of
equivalent value issued by the affiliate that are designated as
hedges (the "Swap Agreements"). Such Swap Agreements were closed
on March 31, 1995. As a result of the transactions, the Company
has been relieved of all performance obligations associated with
the Cogen Contracts. Such operating revenues and associated cost
through February 28, 1995 were classified as Other Natural Gas Marketing
Activities-Gross Revenues and Associated Cost, from Associated Companies.
The Company will realize net operating revenues classified as Other
Natural Gas Marketing Activities-Commodity Price Swap Gain, Non-
Trading, and receive corresponding cash payments of approximately
$91 million during the period extending through December 31, 1999
under the terms of the closed Swap Agreements. The estimated
fair value of the Swap Agreements was approximately $81 million
at the date the Swap Agreements were received in exchange for the
Cogen Agreements. The net effect of this series of transactions
will result in increases in net operating revenues and cash
receipts for the Company during 1995 and 1996 of approximately
$13 million and $7 million, respectively, with offsetting
decreases in 1998 and 1999 versus those anticipated under the
Cogen Contracts. The total cash payments receivable under the
terms of the Swap Agreements, approximately $82 million at June
30, 1995, are presented in the accompanying balance sheet as
Accounts Receivable - Associated Companies for the $32 million
current portion and as Other Assets for the $50 million
noncurrent portion. The corresponding total future revenue is
classified as Deferred Revenue.
5. In March 1995, a subsidiary of the Company issued to an
unrelated third party 19,000 shares of the subsidiary's non-
voting redeemable preferred stock, with a liquidation/redemption
value of $1,000 per share and dividends payable semi-annually at
an annual rate of $70.00 per share, in exchange for certain oil
and gas properties. The mandatory redemption date of the
preferred stock is March 31, 2005; however, both parties have an
option to require the stock to be exchanged at any time on or
subsequent to March 31, 1997 for 633,333 shares of Enron Corp.
common stock. In the event of a tax deconsolidation between
Enron Corp. and the Company, the third party has the option to
require the exchange of the redeemable preferred stock for
950,000 shares of the common stock of the Company rather than for
the Enron Corp. common stock. As of June 30, 1995, the Company
has acquired 370,237 shares of Enron Corp. common stock at a cost
of approximately $10.7 million to be held in anticipation of the
possible future exchange. The cost of the Enron Corp. common
stock is included in Other Assets in the accompanying balance
sheet.
6. Gains on sales of certain oil and gas reserves and related
assets in the amount of $59.3 million and $18.9 million for the
six-month periods ended June 30, 1995 and 1994, respectively, are
required by current accounting guidelines to be removed from Net
Income in connection with determining Net Operating Cash Inflows
while the related proceeds are classified as Investing Cash
Flows. The Company believes the proceeds from the sales of
reserves and related assets should be considered in analyzing the
elements of operating cash flows. The current federal income tax
impact of these sales transactions was calculated by the Company
to be $23.4 million and $6.2 million for the six-month periods
ended June 30, 1995 and 1994, respectively, which entered into
the overall calculation of current federal income tax. The
Company believes that this current federal income tax impact
should also be considered in analyzing the elements of the cash
flow statement.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Concluded)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Noncash investing and financing activities for the six-month
period ended June 30, 1995 include the issuance by a subsidiary
of the Company of redeemable preferred stock with a
liquidation/redemption value of $19 million in exchange for
certain oil and gas properties (see Note 5). An approximate $7
million step-up in property basis was made relating to deferred
taxes associated with the difference between the tax and book
bases of the acquired properties as required by Statement of
Financial Accounting Standards (SFAS) No. 109 - "Accounting for
Income Taxes" for a nontaxable business combination.
7. Long-Term Debt, Other at June 30, 1995 and December 31, 1994
consisted of the following:
June 30, December 31,
1995 1994
Senior Notes $ 70,000 $ 70,000
Promissory Notes 71,000 56,000
Commercial Paper 21,000 6,700
Uncommitted Bank Lines of Credit 45,000 -
Loan Payable - 25,000
Capitalized Lease Obligation 6,880 7,637
$213,880 $165,337
The uncommitted bank lines of credit are with two banks, used
to fund current transactions and are classified as long-term
based on the Company's intent and ability to replace such
obligation with other long-term debt. The interest rate for the
obligation at June 30, 1995 was 6.37%.
8. As reported in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, 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.
The trial, which was most recently set 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. In March 1995, the Financial Accounting Standards Board
issued SFAS No. 121 - "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" (the
"Standard"). The Standard requires, among other things, that
long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company is required to
adopt the Standard no later than the first quarter of 1996.
While the Company has not completed an evaluation of its total
portfolio of assets and cannot predict with certainty the effect
of the adoption of the Standard, based upon a preliminary
evaluation it does not anticipate that adoption of the Standard
will have a materially adverse effect on the financial condition
or results of operations of the Company.
<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 the
six-month periods ended June 30, 1995 and 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, 1995
vs. Three Months Ended June 30, 1994
In the second quarter of 1995, Enron Oil & Gas Company (the
"Company") realized net income of $48.1 million compared to net
income of $34.2 million for the same period in 1994. Net
operating revenues for the second quarter of 1995 were $184.0
million as compared to $155.4 million for the same period a year
ago.
Wellhead volume and price statistics are as follows:
1995 1994
Natural Gas Volumes (MMcf/d)(1)
North America (2) 548 679
Trinidad 122 81
Total 670 760
Average Natural Gas Prices ($/Mcf)(3)
North America (4) $ 1.34 $ 1.73
Trinidad 0.97 0.93
Total Composite 1.27 1.65
Crude/Condensate Volumes (MBbl/d)(1)
North America 10.9 9.1
Trinidad 4.8 3.2
India 1.7 -
Total 17.4 12.3
Average Crude/Condensate Prices ($/Bbl)(3)
North America $17.93 $16.02
Trinidad 17.14 15.20
India 18.13 -
Total Composite 17.73 15.80
(1) Million cubic feet per day or thousand barrels per
day, as applicable.
(2) Includes 48 MMcf per day for the three-month periods
ended June 30, 1995 and 1994 delivered under the
terms of volumetric production payment and exchange
agreements effective October 1, 1992, as amended.
(3) Dollars per thousand cubic feet or per barrel, as
applicable.
(4) Includes an average equivalent wellhead value of
$.79/Mcf and $1.24/Mcf for the three-month periods
ended June 30, 1995 and 1994, respectively, for the
volumes described in note (2), net of transportation
costs.
Second quarter 1995 average wellhead natural gas prices were
down approximately 23% from the same period in 1994 reducing net
operating revenues by approximately $23 million. A decrease of
12% in wellhead natural gas volumes from the second quarter of
1994 reduced net operating revenues by approximately $13 million.
The Company voluntarily curtailed its United States wellhead
natural gas delivered volumes by an average of approximately 120
MMcf/d during the second quarter of 1995 compared to an average
of approximately 75 MMcf/d during the same period in 1994 due to
significantly lower United States wellhead natural gas prices.
Reduced deliverability and adjustments associated with sales of
domestic gas and oil reserves and related assets in the second
quarter of 1995 also contributed to the reduction in wellhead
natural gas volumes compared to the second quarter of 1994.
Second quarter 1995 wellhead crude oil and condensate average
prices increased 12% adding approximately $3 million to net
operating revenues over the second quarter of 1994. Crude oil
and condensate wellhead volumes increased 41% adding
approximately $7 million to net operating revenues compared to
the same period a year ago primarily reflecting new volumes on
stream in India, higher volumes in Trinidad and a 21% increase in
United States volumes.
<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 approximately $23 million to net operating revenues
during the second quarter of 1995, an increase of approximately
$14 million from the same period in 1994. This increase
primarily results from a gain of $16 million on natural gas
commodity price hedging activities utilizing NYMEX-related
commodity market transactions in the second quarter of 1995
compared to a loss of $360 thousand in the second quarter of
1994. 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 $.60
per Mcf. The average price received for these transactions
decreased $.57 per Mcf. Related other natural gas marketing
volumes decreased 27%. The reduction in other natural gas
marketing volumes partially offset by the $.03 per Mcf increased
margin reduced net operating revenues by approximately $2 million
compared to the second quarter of 1994.
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, were more than offset
by reductions in revenues associated with market responsive
prices for wellhead deliveries. (See Note 3 to Consolidated
Financial Statements).
In March 1995, the Company exchanged existing fuel supply
and purchase contracts and related price swap agreements
associated with a cogeneration facility for certain natural gas
price swap agreements of equivalent value issued by an Enron
Corp. affiliated company. As a result of these transactions, the
Company realized a $4 million increase in net operating revenues
in the second quarter of 1995 over the amount realized from the
exchanged fuel supply and purchase contracts in the same period
of 1994. (See also Note 4 to the Consolidated Financial
Statements).
During the second quarter of 1995, operating expenses of
over $110 million were approximately $6 million lower than the
$116 million incurred in the second quarter of 1994.
Depreciation, depletion and amortization ("DD&A") expense
decreased approximately $14 million to $49 million reflecting a
decrease in production volumes and a decrease in the average DD&A
rate from $.82 per thousand cubic feet equivalent ("Mcfe") in the
second quarter of 1994 to $.69 per Mcfe in the second quarter of
1995. The decrease in the DD&A rate is due to an increase in the
proportion of North American production coming from lower cost
fields, the disposition of higher cost properties and increases
in international volumes at lower than average domestic DD&A
rates. General and administrative expenses increased
approximately $4 million to $14 million primarily due to expanded
international activities and overall higher costs associated with
certain employee related expenses. Taxes other than income were
$3 million higher in the second quarter of 1995 compared to the
same period in 1994 primarily due to a benefit of $4 million
included in 1994 associated with reductions in state franchise
taxes and higher production related taxes associated with new
production in India in 1995 partially offset by decreases in
state severance taxes due to lower taxable United States wellhead
volumes and average prices in the second quarter of 1995.
<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's per unit operating costs for lease and well
expense, DD&A, general and administrative expense, interest
expense, and taxes other than income averaged $1.27 per Mcfe
during the second quarter of 1995 compared to $1.26 per Mcfe
during the same period in 1994.
Income tax provision increased $21 million for the second
quarter of 1995 as compared to the same period in 1994 primarily
resulting from higher income before income taxes and
approximately $6 million in benefits recognized in the second
quarter of 1994 resulting from a reduction in estimated composite
state income tax rates and a U.S. tax benefit arising from the
discontinuance of operations in Malaysia.
Federal income taxes accrued in interim periods are
calculated using the estimated annual effective income tax rate
method.
Six Months Ended June 30, 1995
vs. Six Months Ended June 30, 1994
In the first half of 1995, the Company realized net income
of $77.8 million compared to net income of $64.5 million for the
same period in 1994. Net operating revenues for the first half
of 1995 were $339.3 million as compared to $313.7 million for the
same period a year ago.
Wellhead volume and price statistics are as follows:
1995 1994
Natural Gas Volumes (MMcf/d)
North America (1) 584 717
Trinidad 109 62
Total 693 779
Average Natural Gas Prices ($/Mcf)
North America (2) $ 1.31 $ 1.86
Trinidad 0.97 0.92
Total Composite 1.25 1.78
Crude/Condensate Volumes (MBbl/d)
North America 11.3 9.0
Trinidad 4.2 2.5
India 2.2 -
Total 17.7 11.5
Average Crude/Condensate Prices ($/Bbl)
North America $17.25 $14.36
Trinidad 16.44 14.60
India 17.20 -
Total Composite 17.06 14.42
(1) Includes 48 MMcf per day for the six-month periods
ended June 30, 1995 and 1994 delivered under the terms
of volumetric production payment and exchange
agreements effective October 1, 1992, as amended.
(2) Includes an average equivalent wellhead value of
$.83/Mcf and $1.42/Mcf for the six-month periods
ended June 30, 1995 and 1994, respectively, for the
volumes described in note (1), net of transportation
costs.
<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 prices for the first six months
of 1995 were down approximately 30% from the same period in 1994
reducing net operating revenues by approximately $66 million. A
decrease of 11% in wellhead natural gas volumes from the first
half of 1994 reduced net operating revenues by approximately $28
million. The Company voluntarily curtailed its United States
wellhead natural gas delivered volumes by an average of
approximately 105 MMcf/d during the first half of 1995 compared
to approximately 50 MMcf/d during the same period in 1994 due to
significantly lower United States wellhead natural gas prices.
Wellhead crude oil and condensate average prices increased 18%
adding approximately $9 million to net operating revenues over
the first half of 1994. Crude oil and condensate wellhead
volumes increased 54% adding approximately $16 million to net
operating revenues compared to the same period a year ago
primarily reflecting new volumes on stream in India, higher
volumes in Trinidad and a 28% increase in United States volumes.
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 approximately $60 million to net operating revenues
during the first half of 1995, an increase of approximately $51
million from the same period in 1994. This increase primarily
results from a gain of $31 million on natural gas commodity price
hedging activities utilizing NYMEX-related commodity market
transactions in the first half of 1995 versus a $6 million loss
during 1994 and increased margins associated with other 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 $.63 per Mcf. The average price received for these
transactions decreased $.51 per Mcf. Related other natural gas
marketing volumes decreased 20%. The $.12 per Mcf margin
increase partially offset by the reduction in other natural gas
marketing volumes increased net operating revenues by
approximately $3 million compared to the first half of 1994. The
Company realized an $11 million gain in the first half of 1995
related to certain NYMEX-related commodity market transactions
with an Enron Corp. affiliated company that were designated for
trading purposes in late 1994. All trading positions were closed
during the first quarter of 1995.
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, were more than offset
by reductions in revenues associated with market responsive
prices for wellhead deliveries. (See Note 3 to Consolidated
Financial Statements).
The Company realized a $4 million increase in net operating
revenues in the first half of 1995 over the amount realized in
the same period of 1994 from the exchanged fuel supply and
purchase contracts previously mentioned. (See also Note 4 to the
Consolidated Financial Statements.)
<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 first half of 1995, operating expenses of $223
million were $13 million lower than the $236 million incurred in
the same period in 1994. Lease and well expenses increased
approximately $2 million to $34 million primarily due to expanded
international operations partially offset by reductions in North
American lease and well expenses. Exploration expenses increased
$2 million to $22 million due to increased exploration
activities. Impairment of unproved oil and gas properties for
the first half of 1995 increased $4 million from the comparable
period a year ago primarily due to impairments associated with
certain offshore leases. DD&A expense decreased $25 million to
$102 million reflecting a decrease in production volumes and a
decrease in the average DD&A rate from $.82 per Mcfe in the first
half of 1994 to $.69 per Mcfe in the first half of 1995. A
portion of the DD&A rate decrease is attributable to increased
production from international operations with lower average DD&A
rates than incurred for North American operations. The remainder
of the decrease is primarily due to an increase in the proportion
of North American production coming from lower cost fields, the
disposition of higher cost properties and increases in reserve
estimates resulting primarily from evolving production histories.
General and administrative expenses increased approximately $3
million to $27 million due to expanded international activities
and overall higher costs associated with certian employee related
expenses. Taxes other than income were $3 million higher in the
first half of 1995 compared to the same period in 1994 primarily
due to a benefit included in 1994 associated with reductions in
state franchise taxes and higher production related taxes
associated with new production in India in the first half of 1995
partially offset by decreases in state severance taxes due to
lower taxable United States wellhead volumes and average prices
in 1995.
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 $.04 per Mcfe,
averaging $1.27 per Mcfe during the first half of 1995 compared
to $1.31 per Mcfe during the same period in 1994. This decrease
is primarily attributable to the reduction in the average DD&A
rate as noted above partially offset by increases in per unit
lease and well, general and administrative expenses, and taxes
other than income.
Income tax provision increased $22 million for first half of
1995 as compared to the same period in 1994 primarily resulting
from higher income before income taxes and lower federal income
tax benefits associated with tight gas sand federal income tax
credits utilized in the first half of 1995 as compared to the
first half of 1994.
Capital Resources and Liquidity
The Company's primary sources of cash during the six months
ended June 30, 1995 included funds generated from operations,
proceeds from the sales of selected oil and gas reserves and
related assets and commercial paper borrowings. Primary cash
outflows included funds used in operations, exploration and
development expenditures, dividends paid to the Company's
shareholders and repayment of certain long-term debt and
commercial paper maturities.
<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
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, gains on sales of reserves and
related assets, certain other miscellaneous non-cash amounts,
except for amortization of deferred revenue, and exploration and
dry hole expenses and to include proceeds from sales of reserves
and related assets. The Company generated discretionary cash
flow of $289 million during the first half of 1995, an 18%
increase over the $245 million generated for the same period in
1994, primarily reflecting an increase in proceeds from sales of
reserves and related assets partially offset by lower net
operating revenues.
Net operating cash flows of $170 million for the first half
of 1995 decreased approximately $50 million as compared to the
same period in 1994 primarily due to lower net operating revenues
and higher working capital requirements. Based upon existing
economic and market conditions, management believes net operating
cash flow and available financing alternatives in 1995 will be
sufficient to fund net investing and other cash requirements of
the Company for the remainder of the year.
Exploration and development expenditures for the first half
of 1995 and 1994 are as follows ($ Millions):
1995 1994
North America $ 200 $ 175
International
Trinidad 34 31
India 9 -
Other 11 7
Total $ 254 $ 213
Higher exploration and development expenditures for the
first half of 1995 reflect an increasing emphasis on certain
international development drilling opportunities and acquisitions
of certain properties in the United States partially offset by
reduced exploration and development expenditures for drilling and
facilities in the United States. One such property acquisition
during the first half of 1995 was for noncash consideration of
$19 million of redeemable preferred stock of a subsidiary of the
Company. (See Note 5 to Consolidated Financial Statements).
<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
With the objective of enhancing the certainty of future
revenue expectations, the Company has, as of July 31, 1995,
hedged approximately 383 billion British thermal units per day
("BBtu/d")(approximately 365 MMcf/d) and 480 BBtu/d
(approximately 458 MMcf/d) of its North American natural gas
volumes. The hedge transactions include fixed price sales contracts,
volumetric production payment and exchange agreements and NYMEX-based
commodity price swap agreements that result in weighted averages of
various sales and NYMEX-based prices of $1.95 per million British thermal
units ("MMBtu") and $2.02 per MMBtu for the last half of 1995 and the
year 1996, respectively. Included in the 1996 hedge transactions are
commodity price swap agreements totaling 200 BBtu/d of notional volumes
at a weighted average NYMEX-based price of $1.97 per MMBtu which include
one-time options exercisable by the counter party on or before
December 17, 1996 totaling 200 BBtu/d of notional volumes in 1997 and 1998
at the same weighted average NYMEX-based price of $1.97 per MMBtu.
The Company has also, as of July 31, 1995, hedged approximately 9,300
barrels per day ("B/d") and 9,600 B/d of its North America crude oil and
condensate volumes using commodity price swap agreements at NYMEX-based West
Texas Intermediate Crude Oil ("WTI") prices averaging $18.77 per barrel
and $18.90 per barrel for the last half of 1995 and the year 1996,
respectively. Included in the 1995 and 1996 hedge transactions are commodity
price swap agreements totaling up to 4,000 B/d at WTI prices ranging
between $18.70 and $19.00 per barrel which include one-time options
exercisable by the counter party at various times up to and including
December 31, 1996 and for various periods some of which extend through
December 31, 2000 at the same respective NYMEX-based prices as are applicable
in the individual agreements for the 1995 and 1996 periods. The Company
continues to evaluate the potential for entering into and may enter into,
additional hedging transactions related to certain of the remaining months
in 1995, and in future years.
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.
<PAGE>
PART II. OTHER INFORMATION
ENRON OIL & GAS COMPANY
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Enron Oil & Gas
Company was held on May 2, 1995, in Houston, Texas, for the
purpose of electing a board of directors, approving the
appointment of auditors, and voting on the proposals described
below. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934 and there
was no solicitation in opposition to management's solicitations.
(a) All of management's nominees for directors as listed in
the proxy statement were elected with the following vote:
Shares Shares
Nominee For Withheld
Fred C. Ackman 154,131,364 269,494
Forrest E. Hoglund 154,130,899 269,959
Richard D. Kinder 154,127,067 273,791
Kenneth L. Lay 154,126,267 274,591
Edward Randall, III 154,131,364 269,494
(b) The appointment of Arthur Andersen LLP as independent
auditor was approved by the following vote: 154,363,481 shares
for; 21,856 shares against; and 15,521 shares abstaining.
(c) The Company's Amended and Restated 1992 Stock Plan was
approved by the following vote: 150,632,674 shares for;
3,542,692 shares against; and 225,492 shares abstaining.
The shareholders approved the Enron Oil & Gas Company
1992 Stock Plan (the "1992 Stock Plan") at the 1992 Annual
Meeting. The 1992 Stock Plan is intended to provide individual
participants with an opportunity to acquire a proprietary
interest in the Company and give them an additional incentive to
use their best efforts for the Company's long-term success. The
Board of Directors of the Company desired to amend and restate
the 1992 Stock Plan to increase the number of shares authorized
for granting awards under the plan, which required shareholder
approval. Amendment of several provisions was also required so
that certain awards under the plan will qualify as performance-
based compensation under Section 162(m) of the Internal Revenue
Code.
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, 1995.
<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 4, 1995 By /S/ W. C. WILSON
W. C. Wilson
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 4, 1995 By /S/ BEN B. BOYD
Ben B. Boyd
Vice President and Controller
(Principal Accounting Officer)
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<PERIOD-END> JUN-30-1995
<CASH> 20,431
<SECURITIES> 0
<RECEIVABLES> 154,205
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<OTHER-SE> 1,064,410
<TOTAL-LIABILITY-AND-EQUITY> 2,046,945
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