SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
____________
Form 10-Q
____________
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
1400 Smith Street, Houston, Texas 77002-7369
(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, 1997.
Common Stock, $.01 Par Value 156,918,129 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, 1997 and 1996
and Nine Months Ended September 30, 1997 and 1996 3
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1997 and 1996 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 1. Legal Proceedings 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>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET OPERATING REVENUES
Natural Gas
Associated Companies $ 21,280 $ 52,060 $ 39,928 $ 134,699
Trade 128,719 84,127 381,579 264,178
Crude Oil, Condensate and Natural Gas Liquids
Associated Companies 8,164 6,053 27,745 27,306
Trade 31,019 25,863 82,729 75,546
Gains on Sales of Reserves and Related Assets 110 813 7,602 20,334
Other 3,828 1,266 5,941 4,258
Total 193,120 170,182 545,524 526,321
OPERATING EXPENSES
Lease and Well 22,490 18,003 71,932 56,733
Exploration 10,717 13,503 41,219 36,910
Dry Hole 4,833 4,427 7,403 9,517
Impairment of Unproved Oil and Gas Properties 6,177 5,607 19,090 15,450
Depreciation, Depletion and Amortization 72,219 59,421 204,041 181,707
General and Administrative 14,942 13,006 40,663 41,493
Taxes Other Than Income 12,985 10,036 42,630 32,692
Total 144,363 124,003 426,978 374,502
OPERATING INCOME 48,757 46,179 118,546 151,819
OTHER INCOME (EXPENSE), NET 214 (1,445) 2,426 (1,968)
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 48,971 44,734 120,972 149,851
INTEREST EXPENSE, NET 7,996 1,373 18,575 8,820
INCOME BEFORE INCOME TAXES 40,975 43,361 102,397 141,031
INCOME TAX PROVISION 9,802 11,994 23,588 36,159
NET INCOME $ 31,173 $ 31,367 $ 78,809 $ 104,872
EARNINGS PER SHARE OF COMMON STOCK $ .20 $ .20 $ .50 $ .66
AVERAGE NUMBER OF COMMON SHARES 157,072 159,850 157,809 159,898
</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>
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 6,125 $ 7,644
Accounts Receivable
Associated Companies 38,986 82,059
Trade 184,379 195,239
Inventories 32,086 20,746
Other 15,490 20,222
Total 277,066 325,910
OIL AND GAS PROPERTIES (SUCCESSFUL EFFORTS METHOD) 4,156,828 3,753,199
Less: Accumulated Depreciation, Depletion and Amortization (1,850,603) (1,653,610)
Net Oil and Gas Properties 2,306,225 2,099,589
OTHER ASSETS 28,484 32,854
Total Assets $ 2,611,775 $ 2,458,353
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Associated Companies $ 17,545 $ 77,522
Trade 179,209 200,069
Accrued Taxes Payable 14,055 18,554
Dividends Payable 4,765 4,818
Other 17,610 16,397
Total 233,184 317,360
LONG-TERM DEBT 678,623 466,089
OTHER LIABILITIES 38,782 44,483
DEFERRED INCOME TAXES 317,229 308,948
DEFERRED REVENUE 68,542 56,383
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 Par,10,000,000 Shares Authorized and
No Shares Issued and Outstanding - -
Common Stock, $.01 Par, 320,000,000 Shares Authorized and
160,000,000 Shares Issued 201,600 201,600
Additional Paid In Capital 387,856 388,212
Unearned Compensation (4,953) (5,727)
Cumulative Foreign Currency Translation Adjustment (11,881) (10,179)
Retained Earnings 762,194 697,564
Common Stock Held in Treasury, 2,872,820 shares at
September 30, 1997 and 242,882 shares at December 31, 1996 (59,401) (6,380)
Total Shareholders' Equity 1,275,415 1,265,090
Total Liabilities And Shareholders' Equity $ 2,611,775 $ 2,458,353
</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>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash Inflows:
Net Income $ 78,809 $ 104,872
Items Not Requiring Cash
Depreciation, Depletion and Amortization 204,041 181,707
Impairment of Unproved Oil and Gas Properties 19,090 15,450
Deferred Income Taxes 8,510 (1,653)
Other, Net 1,168 3,682
Exploration Expenses 41,219 36,910
Dry Hole Expenses 7,403 9,517
Gains on Sales of Reserves and Related Assets (7,602) (20,334)
Other, Net (4,580) (2,886)
Changes in Components of Working Capital and Other Liabilities
Accounts Receivable 47,122 (20,287)
Inventories (11,340) (7,682)
Accounts Payable (28,277) 43,447
Accrued Taxes Payable (4,499) 2,172
Other Liabilities 3,595 2,874
Other, Net 3,876 387
Amortization of Deferred Revenue (32,420) (32,538)
Changes in Components of Working Capital Associated with
Investing and Financing Activities 22,423 (31,052)
NET OPERATING CASH INFLOWS 348,538 284,586
INVESTING CASH FLOWS
Additions to Oil and Gas Properties (448,405) (320,077)
Exploration Expenses (41,219) (36,910)
Dry Hole Expenses (7,403) (9,517)
Proceeds from Sales of Reserves and Related Assets 23,331 62,837
Changes in Components of Working Capital Associated with
Investing Activities (21,730) 28,816
Other, Net (2,771) (5,930)
NET INVESTING CASH OUTFLOWS (498,197) (280,781)
FINANCING CASH FLOWS
Long-Term Debt
Affiliate - (128,762)
Other 216,442 141,880
Dividends Paid (14,232) (14,372)
Treasury Stock Purchased (58,428) (32,973)
Proceeds from Sales of Treasury Stock 4,661 14,827
Other, Net (303) 2,236
NET FINANCING CASH INFLOWS (OUTFLOWS) 148,140 (17,164)
DECREASE IN CASH AND CASH EQUIVALENTS (1,519) (13,359)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,644 23,039
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,125 $ 9,680
</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, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Certain reclassifications have been made to prior period financial
statements to conform with the current presentation.
As more fully discussed in notes 1 and 12 to the consolidated financial
statements included in the Company's 1996 Annual Report on Form 10-K,
the Company engages in price risk management activities primarily for
non-trading and to a lesser extent for trading purposes. Derivatives are
utilized for non-trading purposes to hedge the impact of market
fluctuations on natural gas and crude oil market prices. Hedge
accounting is utilized in non-trading activities when there is a high
degree of correlation between price movements in the derivative and the
item designated as being hedged. Gains and losses on derivative
financial instruments used for hedging purposes are recognized as
revenue in the same period as the hedged item. Gains and losses on
hedging instruments that are closed prior to maturity are deferred in
the consolidated balance sheets. In instances where the anticipated
correlation of price movements does not occur, hedge accounting is
terminated and future changes in the value of the derivative are
recognized as gains or losses using the mark-to-market method of
accounting. Derivative and other financial instruments utilized in
connection with trading activities, primarily price swaps and call
options, are accounted for using the mark-to-market method, under which
changes in the market value of outstanding financial instruments are
recognized as gains or losses in the period of change. The cash flow
impact of derivative and other financial instruments used for non-
trading and trading purposes is reflected as cash flows from operating
activities in the consolidated statements of cash flows.
2. Income tax provision for the three-month and nine-month periods ended
September 30, 1997 and 1996 includes tax benefits of $2.5 million, $6.0
million, $7.8 million and $12.2 million, respectively, related to tight gas
sand federal income tax credit utilization. Income tax provision for the
nine-month period ended September 30, 1997 includes benefits of $9.7
million related to the sales of certain international assets and
subsidiaries and the refiling of certain Canadian tax returns. Income tax
provision for the nine-month period ended September 30, 1996 includes a
reduction of $8.5 million primarily associated with a reassessment of
deferred tax requirements and the successful resolution on audit of
Canadian income taxes for certain prior years.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Natural Gas Net Operating Revenues are comprised of the following (in
millions):
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Wellhead Natural Gas Revenues
Associated Companies (1)(2) $ 40.1 $ 44.7 $ 136.0 $ 150.6
Trade 111.5 69.5 336.8 211.1
Total $ 151.6 $114.2 $ 472.8 $ 361.7
Other Natural Gas Marketing
Activities
Gross Revenues from:
Associated Companies $ 20.3 $ 26.4 $ 69.3 $ 62.6
Trade (3) 33.2 31.1 100.6 103.7
Total 53.5 57.5 169.9 166.3
Associated Costs from:
Associated Companies (1)(4) 36.3 35.8 121.7 94.4
Trade 16.0 16.6 55.4 50.8
Total 52.3 52.4 177.1 145.2
Net 1.2 5.1 (7.2) 21.1
Commodity Price Transaction Revenue
(Reductions)
Trading 2.1 - 2.7 (1.2)
Non-Trading (5) (4.9) 16.9 (46.8) 17.3
Total (2.8) 16.9 (44.1) 16.1
Total $ (1.6) $ 22.0 $(51.3) $ 37.2
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,
1997 1996 1997 1996
Wellhead Crude Oil, Condensate and
Natural Gas Liquids Revenues
Associated Companies $ 8.9 $ 9.9 $ 31.9 $ 35.1
Trade 31.0 25.9 82.7 75.6
Total $ 39.9 $ 35.8 $ 114.6 $ 110.7
Other Crude Oil and Condensate
Marketing Activities
Commodity Price Hedging
Revenue Reductions(5) $ (.7) $ (3.9) $ (4.1) $ (7.8)
1) Wellhead Natural Gas Revenues include $24.5 million, $24.7 million,
$86.6 million and $82.2 million for the three-month and nine-month periods
ended September 30, 1997 and 1996, 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 $5.1 million, $4.0 million, $21.3 million and $11.4 million
for the three-month and nine-month periods ended September 30, 1997 and
1996, 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.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3) Includes $10.9 million, $10.9 million, $32.4 million and $32.5 million
for the three-month and nine-month periods ended September 30, 1997 and
1996, respectively, associated with the amortization of deferred revenues
under the terms of a volumetric production payment agreement effective
October 1, 1992, as amended.
4) Includes $9.7 million, $8.5 million, $31.4 million and $24.6 million
for the three-month and nine-month periods ended September 30, 1997 and
1996, respectively, for volumes delivered under the terms of a volumetric
production payment agreement effective October 1, 1992, as amended,
including equivalent wellhead value, any applicable transportation costs
and exchange differentials.
5) Represents revenue increases or reductions 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 were originally
entered into as price hedges for a portion of wellhead sales.
4. As reported in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, the Company has been named as a potentially
responsible party in certain Comprehensive Environmental Response
Compensation and Liability Act proceedings. However, management does not
believe that any potential assessments resulting from such proceedings will
individually or in the aggregate have a materially adverse effect on the
financial condition or results of operations of the Company.
5. In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128 -
"Earnings per Share" effective for interim and annual periods after
December 15, 1997. This statement replaces primary earnings per share
("EPS") with a newly defined basic EPS and modifies the computation of
diluted EPS. The Company does not anticipate that implementation of SFAS
128 will have a material impact on its computation of EPS.
6. In February 1997, the FASB issued SFAS No. 129 - "Disclosures of
Information about Capital Structures" which is applicable to all entities
that issue securities other than ordinary common stock and is effective for
all periods ending after December 15, 1997. There are no additional
disclosures required of the Company at this time relating to the issuance
of SFAS No. 129.
7. In June 1997, the FASB issued SFAS No. 130 - "Reporting Comprehensive
Income" which applies to all entities that report financial position,
results of operations and cash flows and is effective for fiscal years
beginning after December 15, 1997. The statement establishes standards for
the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements.
8. In July 1997, the FASB issued SFAS No. 131 - "Disclosures about
Segments of an Enterprise and Related Information" effective for annual
periods beginning after December 15, 1997 and interim and annual periods in
the second year of application. This statement requires that public
business enterprises report information about operating segments on a
"management approach" in annual financial statements and requires that the
enterprises report selected information about operating segments in interim
financial reports to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. There are no additional disclosures required of the Company at
this time relating to the issuance of SFAS No. 131.
9. In June 1997, the Company canceled an existing revolving credit
agreement and replaced it with two new revolving credit agreements entered
into with a group of banks (the "Credit Agreements"). The Credit
Agreements provide for current aggregate borrowings of up to $400 million,
with provisions for increases up to $800 million at the option of the
Company and subject to lender approval. The Credit Agreements consist of a
$100 million, 364-day credit agreement which matures on June 25, 1998 and
is renewable annually by mutual consent, and a $300 million five-year
agreement that matures on June 27, 2002. Advances under the agreements
bear interest, at the option of the Company, based on a base rate or a
Eurodollar rate. There were no advances outstanding under the agreements
at September 30, 1997.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Concluded)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. In August 1997, the Company repaid an existing bank loan of $40
million and, in September 1997, repaid an existing bank loan of $30
million. These repayments were made from commercial paper and short-term
bank loans. In September 1997, the Company issued, pursuant to a public
offering, $100 million of 6.5% Notes due September 15, 2004.
11. Enron Oil & Gas India Ltd. ("EOGIL"), a wholly-owned subsidiary of the
Company, is a respondent in two public interest lawsuits filed in the Delhi
High Court, India. The first (the "Wadehra Action") was brought by B. L.
Wadehra, an Indian public interest lawyer, against the Union of India,
EOGIL, EOGIL co-participants in the Panna and Mukta fields, Reliance
Industries Limited ("Reliance") and Oil & Natural Gas Corporation Limited
("ONGC"), and certain other respondents. ONGC is the Indian national oil
company and is wholly-owned by the Union of India. The second suit (the
"CPIL Action") was brought by the Centre for Public Interest Litigation and
the National Alliance of People's Movement against the Union of India, the
Central Bureau of Investigation, ONGC, Reliance and EOGIL. Petitioners in
both the Wadehra Action and the CPIL Action allege various improprieties in
the award of the Panna and Mukta fields to EOGIL, Reliance and ONGC, and
seek the cancellation of the Production Sharing Contract for the Panna and
Mukta fields. The Union of India is vigorously disputing these
allegations. The Company believes that the public competitive bidding
process for the fields was fair and that the award of these fields to
EOGIL, Reliance and ONGC was proper. Although no assurances can be given,
the Company believes that the claims made by the petitioners in both
actions are without merit, and that the ultimate resolution of these
matters will not have a material adverse effect on its financial condition
or results of operations.
<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, 1997 and 1996 should be read in conjunction
with the consolidated financial statements of Enron Oil & Gas Company (the
"Company") and notes thereto.
Results of Operations
Three Months Ended September 30, 1997
vs. Three Months Ended September 30, 1996
In both the third quarter of 1997 and 1996, the Company generated net
income of $31 million. Net operating revenues for the third quarter of
1997 were $193 million as compared to $170 million for the third quarter of
1996.
Wellhead volume and price statistics are as follows:
1997 1996
Natural Gas Volumes (MMcf/d)(1)
United States (2) 639 571
Canada 109 99
North America 748 670
Trinidad 115 104
India 34 -
Total 897 774
Average Natural Gas Prices ($/Mcf)(3)
United States (4) $ 2.02 $ 1.82
Canada 1.23 1.01
North America Composite 1.91 1.70
Trinidad 1.04 1.00
India 2.93 -
Total Composite 1.84 1.60
Crude Oil/Condensate Volumes (MBbl/d)(1)
United States 12.3 8.7
Canada 2.5 2.1
North America 14.8 10.8
Trinidad 3.4 4.5
India 2.4 2.4
Total 20.6 17.7
Average Crude Oil/Condensate Prices ($/Bbl)(3)
United States $ 19.19 $22.03
Canada 17.39 18.26
North America Composite 18.88 21.29
Trinidad 18.91 19.73
India 18.21 19.60
Total Composite 18.81 20.67
(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 September 30, 1997 and 1996 delivered under the
terms of a volumetric production payment agreement
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
$1.14/Mcf and $.91/Mcf for the three-month periods
ended September 30, 1997 and 1996, respectively,
for the volumes described in note (2), net of
transportation costs.
Wellhead revenues increased 28% to $192 million in the third quarter of
1997 compared to $150 million in the third quarter of 1996. This increase
primarily reflects increased worldwide natural gas volumes, North America
crude oil and condensate volumes and average wellhead natural gas prices
which were partially offset by lower crude oil and condensate volumes in
Trinidad and lower overall crude oil and condensate average wellhead
prices.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENRON OIL & GAS COMPANY
Third quarter 1997 wellhead natural gas volumes were up approximately
16% from the comparable period in 1996 increasing net operating revenues by
approximately $18 million. This is primarily attributable to a 12%
increase in North America wellhead natural gas volumes in the third quarter
of 1997 compared to the third quarter a year ago. International natural
gas volumes increased 43% primarily reflecting the new natural gas flowing
from the Tapti field in India. Wellhead natural gas prices in the third
quarter of 1997 were 15% higher than the comparable period a year ago
adding approximately $19 million to net operating revenues. A 16% increase
in wellhead crude oil and condensate volumes more than offset a 9% decrease
in average prices in the third quarter of 1997 as compared to third quarter
of 1996 resulting in a net increase of $2 million to net operating
revenues. A 37% increase in North America wellhead crude oil and
condensate volumes was partially offset by a decline in crude oil
production from the Ibis field offshore Trinidad.
Other marketing activities associated with sales and purchases of
natural gas, natural gas and crude oil price hedging and trading
transactions and margins related to the volumetric production payment
reduced net operating revenue by $2 million during the third quarter of
1997, compared to an $18 million increase in the third quarter of 1996. A
$5 million revenue reduction related to natural gas commodity price hedging
activities utilizing NYMEX-related commodity market transactions in the
third quarter of 1997 partially offset greater wellhead price benefits
noted above and compares to a $17 million increase associated with similar
transactions a year ago.
During the third quarter of 1997, operating expenses of $144 million
were approximately $20 million higher than in the third quarter of 1996.
Lease and well expenses increased $4 million primarily due to expanded
operations. Third quarter 1997 exploration expenses decreased by
approximately $3 million compared to third quarter 1996 primarily due to a
larger portion of anticipated expenses being incurred in the first half of
1997 compared to 1996. Depreciation, depletion and amortization ("DD&A")
expense increased approximately $13 million primarily reflecting an
increase in North America production volumes. The average DD&A rate in the
third quarter of 1997 was $.75 per thousand cubic feet equivalent ("Mcfe")
compared to $.72 per Mcfe in the third quarter of 1996 primarily reflecting
the impact of a change in production mix. Taxes other than income
increased approximately $3 million over the comparable period in 1996
related primarily to increased wellhead revenues in North America.
Net interest expense of $8 million was approximately $7 million higher
than the $1 million incurred in the third quarter of 1996 primarily
reflecting a higher average debt level during the third quarter of 1997 as
compared to the same quarter in 1996.
Income tax provision decreased $2 million for the third quarter of 1997
as compared to the third quarter of 1996 partially reflecting lower income
before income taxes.
Federal income taxes accrued in interim periods are calculated 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
ENRON OIL & GAS COMPANY
Nine Months Ended September 30, 1997
vs. Nine Months Ended September 30, 1996
In the first nine months of 1997, the Company generated net income of
$79 million compared to net income of $105 million for the first nine
months of 1996. Net operating revenues for the first nine months of 1997
were $546 million as compared to $526 million for the comparable period a
year ago.
Wellhead volume and price statistics are as follows:
1997 1996
Natural Gas Volumes (MMcf/d)(1)
United States (2) 657 598
Canada 99 97
North America 756 695
Trinidad 114 126
India 11 -
Total 881 821
Average Natural Gas Prices ($/Mcf)(3)
United States (4) $ 2.19 $ 1.82
Canada 1.39 1.11
North America Composite 2.09 1.72
Trinidad 1.04 1.00
India 2.93 -
Total Composite 1.96 1.61
Crude Oil/Condensate Volumes (MBbl/d)(1)
United States 11.4 8.6
Canada 2.4 2.4
North America 13.8 11.0
Trinidad 3.5 5.6
India 1.8 2.8
Total 19.1 19.4
Average Crude Oil/Condensate Prices ($/Bbl)(3)
United States $20.24 $20.72
Canada 17.30 17.76
North America Composite 19.72 20.09
Trinidad 18.88 18.95
India 20.78 19.09
Total Composite 19.66 19.62
(1) Million cubic feet per day or thousand barrels per
day, as applicable.
(2) Includes 48 MMcf per day for the nine-month periods
ended September 30, 1997 and 1996 delivered under the
terms of a volumetric production payment agreement
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
$1.61/Mcf and $.86/Mcf for the nine-month periods ended
September 30, 1997 and 1996, respectively, for the
volumes described in note (2), net of transportation
costs.
Wellhead revenues increased 24% to $587 million in the first nine months
of 1997 compared to $472 million in the first nine months of 1996. This
increase primarily reflects increased average wellhead prices for natural
gas, crude oil and condensate and natural gas liquids and increased North
America 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
Average wellhead natural gas prices were up approximately 22% from the
comparable period in 1996 increasing net operating revenues by
approximately $86 million. This is attributable to a 22% increase in North
America wellhead natural gas prices in the first nine months of 1997
compared to the first nine months a year ago. Wellhead natural gas volumes
increased 7% in the first nine months of 1997 compared to the first nine
months of 1996 adding approximately $25 million to net operating revenues.
Increased natural gas liquids volumes in the first nine months of 1997
added approximately $5 million to net operating revenues. The increase
primarily resulted from an acquisition of producing properties in the last
quarter of 1996.
Other marketing activities associated with sales and purchases of
natural gas, natural gas and crude oil price hedging and trading
transactions and margins related to the volumetric production payment
reduced net operating revenues by $55 million during the first nine months
of 1997, compared to a $29 million increase in the first nine months of
1996. A $47 million revenue reduction related to natural gas commodity
price hedging activities utilizing NYMEX-related commodity market
transactions in the first nine months of 1997 partially offset greater
wellhead price benefits noted above and compares to a $17 million increase
associated with similar transactions a year ago. A decrease in margins
associated with sales and purchases of natural gas and the volumetric
production payment reduced net operating revenues by approximately $7
million as compared to a $21 million addition in the first nine months of
1996, primarily resulting from the higher costs of natural gas delivered in
1997.
During the first nine months of 1997, operating expenses of $427 million
were approximately $52 million higher than in the first nine months of
1996. Lease and well expenses increased $15 million primarily due to
increased production activities at higher costs in North America to
maximize the volumes delivered at the higher product prices available in
the first quarter of 1997 and expanded operations. Worldwide increases in
exploration activities by the Company in the first nine months of 1997 over
the first nine months of 1996 increased exploration expenses by
approximately $4 million. The $4 million increase in impairment of
unproved oil and gas properties is primarily a result of increased unproved
lease acquisitions in North America. DD&A expense increased approximately
$22 million in the first nine months of 1997 compared to the first nine
months of 1996, primarily reflecting an increase in North America
production volumes. The average DD&A rate in the first nine months of 1997
was $.73 per Mcfe compared to $.70 per Mcfe for the first nine months of
1996 which primarily reflects the impact of a change in production mix.
Taxes other than income for the first nine months of 1997 increased
approximately $10 million over the comparable period in 1996 primarily
reflecting increased wellhead revenues in North America.
Net interest expense of $19 million was approximately $10 million higher
in the first nine months of 1997 as compared to the comparable period in
1996 reflecting a higher average debt level during the first nine months of
1997.
Income tax provision decreased $13 million for the first nine months of
1997 as compared to the first nine months of 1996 primarily due to lower
income before income taxes. An approximate $10 million benefit related to
the sales of certain international assets and subsidiaries and the refiling
of certain Canadian tax returns was recognized in the first nine months of
1997. An approximate $9 million benefit was recognized in the first nine
months of 1996 associated with a reassessment of deferred tax requirements
and the successful resolution on audit of Canadian income taxes for certain
prior years.
Federal income taxes accrued in interim periods are calculated 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
Capital Resources and Liquidity
The Company's primary sources of cash during the nine months ended
September 30, 1997 included funds generated from operations and proceeds
from borrowings. Primary cash outflows included funds used in operations,
exploration and development expenditures, common stock repurchases,
dividends paid to Company shareholders and the repayment of debt.
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 $371
million during the first nine months of 1997 compared to $390 million
generated for the comparable period in 1996 primarily reflecting lower
proceeds from sales of reserves and related assets partially offset by
lower current income taxes.
Net operating cash flows of $349 million for the first nine months of
1997 increased approximately $64 million as compared to the first nine
months of 1996 primarily reflecting changes in working capital requirements
resulting from the higher 1996 end of year operating revenues collected in
1997 and lower current income taxes in 1997 partially offset by the higher
level of related end of year 1996 accounts payable paid in 1997. Based
upon existing economic and market conditions, management believes net
operating cash flow and available financing alternatives will continue to
be sufficient to fund net investing and other cash requirements of the
Company for the foreseeable future.
Exploration and development expenditures for the first nine months of
1997 and 1996 are as follows (in millions):
1997 1996
North America $ 419 $ 291
Outside North America
India 51 53
Other 27 23
Total $ 497 $ 367
Exploration and development expenditures for the first nine months of
1997 were higher than expenditures in the first nine months of 1996
primarily due to increased acquisitions and developmental drilling
activities in 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 expenditures as circumstances warrant. There are no material
continuing commitments associated with expenditure plans.
<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
Information Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Although the Company believes
that its expectations are based on reasonable assumptions, it can give no
assurance that such expectations will be achieved. Important factors that
could cause actual results to differ materially from those in the forward
looking statements herein include, but are not limited to, the timing and
extent of changes in commodity prices for crude oil, natural gas and
related products and interest rates, the extent of the Company's success in
discovering, developing and producing reserves and in acquiring oil and gas
properties, political developments around the world and conditions of the
capital and equity markets during the periods covered by the forward
looking statements.
<PAGE>
PART II. OTHER INFORMATION
ENRON OIL & GAS COMPANY
ITEM 1. Legal Proceedings
See Part I, Item 1, Notes 4 and 11 to Consolidated Financial
Statements which are incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K
Current Report on Form 8-K filed on October 27, 1997 to report the
sale on September 29, 1997 of $100 million principal amount of 6.50%
Notes due September 15, 2004 pursuant to an underwritten public offering.
<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 14, 1997 By /S/ WALTER C. WILSON
Walter C. Wilson
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 14, 1997 By /S/ BEN B. BOYD
Ben B. Boyd
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
Exhibit 12
Enron Oil & Gas Company
Computation of Ratio of Earnings to Fixed Charges
(In Thousands)
(Unaudited)
<TABLE>
Nine Months
Ended Year Ended December 31
9/30/97 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE
FOR FIXED CHARGES:
Net Income $ 78,809 $140,008 $142,118 $147,998 $138,025 $ 97,580
Less: Capitalized
Interest Expense (10,416) (9,136) (6,490) (6,124) (5,457) (3,580)
Add: Fixed Charges 28,991 21,997 18,414 14,613 15,378 25,869
Income Tax Provision(Benefit) 23,588 50,954 41,936 5,937 (25,752) (17,736)
Earnings Available $120,972 $203,823 $195,978 $162,424 $122,194 $102,133
FIXED CHARGES:
Interest Expense 18,382 12,370 11,310 8,135 9,921 22,289
Capitalized Interest 10,416 9,136 6,490 6,124 5,457 3,580
Rental Expense Representative of
Interest Factor 193 491 614 354 - -
Total Fixed Charges $ 28,991 $ 21,997 $ 18,414 $ 14,613 $ 15,378 $ 25,869
RATIO OF EARNINGS TO
FIXED CHARGES 4.17 9.27 10.64 11.12 7.95 3.95
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,125
<SECURITIES> 0
<RECEIVABLES> 223,365
<ALLOWANCES> 0
<INVENTORY> 32,086
<CURRENT-ASSETS> 277,066
<PP&E> 4,156,828
<DEPRECIATION> (1,850,603)
<TOTAL-ASSETS> 2,611,775
<CURRENT-LIABILITIES> 233,184
<BONDS> 0
0
0
<COMMON> 201,600
<OTHER-SE> 1,073,815
<TOTAL-LIABILITY-AND-EQUITY> 2,611,775
<SALES> 531,981
<TOTAL-REVENUES> 545,524
<CGS> 0
<TOTAL-COSTS> 426,978
<OTHER-EXPENSES> (2,426)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,575
<INCOME-PRETAX> 102,397
<INCOME-TAX> 23,588
<INCOME-CONTINUING> 78,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,809
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
